The Hanover Insurance Group, Inc. 10Q 2023 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-13754

THE HANOVER INSURANCE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

04-3263626

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

440 Lincoln Street, Worcester, Massachusetts 01653

(Address of principal executive offices) (Zip Code)

(508) 855-1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbols	Name of each exchange on which registered
Common Stock, $.01 par value	THG	New York Stock Exchange
7 5/8% Senior Debentures due 2025	THG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock was 35,762,432 as of October 31, 2023.

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION	2

Item 1.	Financial Statements	2
	Consolidated Statements of Income (Loss)	2
	Consolidated Statements of Comprehensive Income (Loss)	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Shareholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Interim Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	43

PART II.	OTHER INFORMATION	44

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

SIGNATURES		48

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions, except per share data)	2023			2022			2023			2022
Revenues
Premiums	$	1,431.1		$	1,331.2		$	4,222.8		$	3,888.8
Net investment income		84.2			73.0			250.5			220.4
Net realized and unrealized investment gains (losses):
Net realized losses from sales and other		(0.9	)		(0.1	)		(1.9	)		(16.3	)
Net change in fair value of equity securities		(5.2	)		(29.1	)		(13.4	)		(106.1	)
Impairments on investments:
Credit-related impairments		—			(1.4	)		(6.2	)		(1.5	)
Losses on intent to sell securities		—			(14.3	)		(10.3	)		(14.8	)
		—			(15.7	)		(16.5	)		(16.3	)
Total net realized and unrealized investment losses		(6.1	)		(44.9	)		(31.8	)		(138.7	)
Fees and other income		7.4			7.0			23.2			19.4
Total revenues		1,516.6			1,366.3			4,464.7			3,989.9
Losses and expenses
Losses and loss adjustment expenses		1,061.5			939.6			3,218.8			2,572.6
Amortization of deferred acquisition costs		296.6			277.1			878.1			809.3
Interest expense		8.5			8.5			25.6			25.5
Other operating expenses		150.9			140.6			451.3			423.8
Total losses and expenses		1,517.5			1,365.8			4,573.8			3,831.2
Income (loss) from continuing operations before income taxes		(0.9	)		0.5			(109.1	)		158.7
Income tax expense (benefit):
Current		(1.1	)		12.9			(13.7	)		72.5
Deferred		(8.0	)		(13.0	)		(21.6	)		(42.5	)
Total income tax expense (benefit)		(9.1	)		(0.1	)		(35.3	)		30.0
Income (loss) from continuing operations		8.2			0.6			(73.8	)		128.7
Discontinued operations (net of taxes):
Income from discontinued Chaucer business		0.4			—			1.2			—
Loss from discontinued life businesses		—			(0.1	)		—			(0.6	)
Net income (loss)	$	8.6		$	0.5		$	(72.6	)	$	128.1
Earnings per common share:
Basic:
Income (loss) from continuing operations	$	0.23		$	0.02		$	(2.07	)	$	3.62
Discontinued operations (net of taxes):
Income from discontinued Chaucer business		0.01			—			0.04			—
Loss from discontinued life businesses		—			(0.01	)		—			(0.02	)
Net income (loss) per share	$	0.24		$	0.01		$	(2.03	)	$	3.60
Weighted average shares outstanding		35.8			35.6			35.7			35.6
Diluted:
Income (loss) from continuing operations	$	0.23		$	0.02		$	(2.07	)	$	3.56
Discontinued operations (net of taxes):
Income from discontinued Chaucer business		0.01			—			0.04			—
Loss from discontinued life businesses		—			(0.01	)		—			(0.02	)
Net income (loss) per share	$	0.24		$	0.01		$	(2.03	)	$	3.54
Weighted average shares outstanding		36.1			36.1			35.7			36.1

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

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


	Three Months Ended							Nine Months Ended
	September 30,						September 30,
(In millions)	2023			2022				2023			2022
Net income (loss)	$	8.6		$	0.5			$	(72.6	)	$	128.1
Other comprehensive income (loss), net of tax:
Available-for-sale securities:
Changes in net unrealized gains (losses) on investment securities:
Having no credit losses recognized in the Consolidated Statements of Income (Loss)		(113.7	)		(245.1	)			(87.0	)		(885.9	)
Having credit losses recognized in the Consolidated Statements of Income (Loss)		(0.5	)		(2.2	)			0.9			(5.7	)
Total available-for-sale securities		(114.2	)		(247.3	)			(86.1	)		(891.6	)
Pension and postretirement benefits:
Net change in net actuarial loss		1.5			1.1				4.7			3.3
Long-duration insurance contracts:
Net change in market risk		3.3			4.3				2.6			17.4
Total other comprehensive loss, net of tax		(109.4	)		(241.9	)			(78.8	)		(870.9	)
Comprehensive loss	$	(100.8	)	$	(241.4	)		$	(151.4	)	$	(742.8	)

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

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	September 30,			December 31,
(In millions, except share data)	2023			2022
Assets
Investments:
Fixed maturities, at fair value (amortized cost of $8,535.5 and $8,294.5)	$	7,618.3		$	7,481.8
Equity securities, at fair value		123.5			241.9
Other investments		817.9			786.1
Total investments		8,559.7			8,509.8
Cash and cash equivalents		294.5			305.0
Accrued investment income		56.4			54.5
Premiums and accounts receivable, net		1,771.4			1,601.4
Reinsurance recoverable on paid and unpaid losses and unearned premiums		1,992.2			1,964.5
Deferred acquisition costs		631.4			604.8
Deferred income tax asset		240.4			199.2
Goodwill		178.8			178.8
Other assets		509.6			493.0
Assets of discontinued businesses		80.6			84.1
Total assets	$	14,315.0		$	13,995.1
Liabilities
Loss and loss adjustment expense reserves	$	7,329.8		$	7,012.6
Unearned premiums		3,188.1			2,954.2
Expenses and taxes payable		727.6			731.7
Reinsurance premiums payable		63.8			70.3
Debt		783.0			782.4
Liabilities of discontinued businesses		106.4			110.2
Total liabilities		12,198.7			11,661.4
Commitments and contingencies
Shareholders’ Equity
Preferred stock, par value $0.01 per share; 20.0 million shares authorized; none issued		—			—
Common stock, par value $0.01 per share; 300.0 million shares authorized; 60.5 million shares issued		0.6			0.6
Additional paid-in capital		1,931.4			1,913.1
Accumulated other comprehensive loss		(780.3	)		(701.5	)
Retained earnings		2,832.3			2,992.9
Treasury stock at cost (24.7 million and 24.9 million shares)		(1,867.7	)		(1,871.4	)
Total shareholders’ equity		2,116.3			2,333.7
Total liabilities and shareholders’ equity	$	14,315.0		$	13,995.1

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

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions)	2023			2022			2023			2022
Preferred Stock
Balance at beginning and end of period	$	—		$	—		$	—		$	—
Common Stock
Balance at beginning and end of period		0.6			0.6			0.6			0.6
Additional Paid-in Capital
Balance at beginning of period		1,923.0			1,896.8			1,913.1			1,887.2
Employee and director stock-based awards and other		8.4			7.7			18.3			17.3
Balance at end of period		1,931.4			1,904.5			1,931.4			1,904.5
Accumulated Other Comprehensive Income (Loss), net of tax
Net Unrealized Appreciation (Depreciation) on Investments:
Balance at beginning of period		(613.3	)		(459.4	)		(641.4	)		184.9
Net depreciation on available-for-sale securities		(114.2	)		(247.3	)		(86.1	)		(891.6	)
Balance at end of period		(727.5	)		(706.7	)		(727.5	)		(706.7	)
Defined Benefit Pension and Postretirement Plans:
Balance at beginning of period		(60.9	)		(60.5	)		(64.1	)		(62.7	)
Net amount recognized as net periodic benefit cost		1.5			1.1			4.7			3.3
Balance at end of period		(59.4	)		(59.4	)		(59.4	)		(59.4	)
Long Duration Insurance Contracts:
Balance at beginning of period		3.3			0.1			4.0			—
Adoption of ASU 2018-12, net of tax		—			—			—			(13.0	)
Net change in market risk		3.3			4.3			2.6			17.4
Balance at end of period		6.6			4.4			6.6			4.4
Total accumulated other comprehensive loss		(780.3	)		(761.7	)		(780.3	)		(761.7	)
Retained Earnings
Balance at beginning of period		2,853.0			3,061.0			2,992.9			2,983.2
Adoption of ASU 2018-12, net of tax		—			—			—			4.1
Adjusted balance at beginning of period		2,853.0			3,061.0			2,992.9			2,987.3
Net income (loss)		8.6			0.5			(72.6	)		128.1
Dividends to shareholders		(29.3	)		(27.3	)		(88.0	)		(81.2	)
Balance at end of period		2,832.3			3,034.2			2,832.3			3,034.2
Treasury Stock
Balance at beginning of period		(1,867.8	)		(1,862.4	)		(1,871.4	)		(1,848.3	)
Shares purchased at cost		—			(10.4	)		—			(30.8	)
Net shares reissued at cost under employee stock-based compensation plans		0.1			0.1			3.7			6.4
Balance at end of period		(1,867.7	)		(1,872.7	)		(1,867.7	)		(1,872.7	)
Total shareholders’ equity	$	2,116.3		$	2,304.9		$	2,116.3		$	2,304.9

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

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended
	September 30,
(In millions)	2023			2022
Cash Flows From Operating Activities
Net income (loss)	$	(72.6	)	$	128.1
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net realized and unrealized investment losses		31.6			138.9
Net amortization and depreciation		5.5			10.0
Stock-based compensation expense		23.9			21.8
Amortization of defined benefit plan costs		5.9			4.1
Deferred income tax benefit		(21.5	)		(42.4	)
Change in deferred acquisition costs		(26.6	)		(48.2	)
Change in premiums receivable, net of reinsurance premiums payable		(176.6	)		(131.0	)
Change in loss, loss adjustment expense and unearned premium reserves		550.5			562.9
Change in reinsurance recoverable		(27.7	)		(38.5	)
Change in expenses and taxes payable		(9.6	)		(29.3	)
Other, net		(13.8	)		(52.6	)
Net cash provided by operating activities		269.0			523.8
Cash Flows From Investing Activities
Proceeds from disposals and maturities of fixed maturities		503.4			799.0
Proceeds from disposals of equity securities and other investments		121.5			260.1
Purchase of fixed maturities		(744.0	)		(1,429.2	)
Purchase of equity securities and other investments		(57.6	)		(92.2	)
Capital expenditures		(9.7	)		(13.9	)
Net cash used in investing activities		(186.4	)		(476.2	)
Cash Flows From Financing Activities
Proceeds from exercise of employee stock options		4.3			10.6
Dividends paid to shareholders		(86.9	)		(80.1	)
Repurchases of common stock		—			(30.8	)
Other financing activities		(10.5	)		(13.4	)
Net cash used in financing activities		(93.1	)		(113.7	)
Net change in cash and cash equivalents		(10.5	)		(66.1	)
Cash and cash equivalents, beginning of period		305.0			230.9
Cash and cash equivalents, end of period	$	294.5		$	164.8

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

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements of The Hanover Insurance Group, Inc. and its subsidiaries (“THG” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the requirements of Form 10-Q. Certain financial information that is provided in annual financial statements, but is not required in interim reports, has been omitted.

The interim consolidated financial statements of THG include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America (“Citizens”), THG’s principal property and casualty companies; 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 insurance business, as well as its former Chaucer business (U.K.-based Lloyd's entities). All intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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, 2023, 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 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 23, 2023.

2. New Accounting Pronouncements

Recently Implemented Standards

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2018-12 (“ASU 2018-12”), Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For the Company's discounted accident and health reserves, ASU 2018-12 requires that the discount rate assumption be updated each quarter and be based on an upper-medium grade (low-credit-risk) fixed-income investment yield with a similar duration to the reserves. Previously, any changes in the reserve discount rate assumption was reflected in earnings and these changes will now be recognized in other comprehensive income (loss). This Update is effective for both interim and annual reporting periods beginning after December 15, 2022, and is applicable to the long-term care portion of the Company’s discontinued accident and health insurance reserves. The Company implemented this guidance effective January 1, 2023, on a modified retrospective basis, and it did not have a material impact on its financial position or results of operations.

3. Investments

A. Fixed maturities

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


	September 30, 2023
						Amortized Cost,
			Allowance			Net of Allowance		Gross		Gross
	Amortized		for Credit			for Credit		Unrealized		Unrealized
(in millions)	Cost		Losses			Losses		Gains		Losses		Fair Value
U.S. Treasury and government agencies	$	510.2	$	—		$	510.2	$	—	$	71.2	$	439.0
Foreign government		2.2		—			2.2		—		0.1		2.1
Municipal		1,285.0		—			1,285.0		0.2		176.7		1,108.5
Corporate		4,115.2		(2.5	)		4,112.7		3.6		361.3		3,755.0
Residential mortgage-backed		1,342.0		—			1,342.0		—		189.8		1,152.2
Commercial mortgage-backed		914.8		—			914.8		—		97.2		817.6
Other asset-backed		368.6		—			368.6		—		24.7		343.9
Total fixed maturities	$	8,538.0	$	(2.5	)	$	8,535.5	$	3.8	$	921.0	$	7,618.3


	December 31, 2022
						Amortized Cost,
			Allowance			Net of Allowance		Gross		Gross
	Amortized		for Credit			for Credit		Unrealized		Unrealized
(in millions)	Cost		Losses			Losses		Gains		Losses		Fair Value
U.S. Treasury and government agencies	$	478.9	$	—		$	478.9	$	0.2	$	58.9	$	420.2
Foreign government		2.3		—			2.3		—		0.1		2.2
Municipal		1,239.5		—			1,239.5		0.8		164.2		1,076.1
Corporate		4,066.4		(2.1	)		4,064.3		3.3		337.7		3,729.9
Residential mortgage-backed		1,215.3		—			1,215.3		0.6		142.1		1,073.8
Commercial mortgage-backed		924.1		—			924.1		—		87.7		836.4
Other asset-backed		370.1		—			370.1		0.1		27.0		343.2
Total fixed maturities	$	8,296.6	$	(2.1	)	$	8,294.5	$	5.0	$	817.7	$	7,481.8

The Company deposits funds with various state and governmental authorities. For a discussion of the Company’s deposits with state and governmental authorities, see also Note 2 – “Investments” in the Notes to Consolidated Financial Statements in the Company’s 2022 Annual Report on Form 10-K.

The amortized cost and fair value by maturity periods for fixed maturities are shown in the following table. 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, 2023
	Amortized Cost, Net
	of Allowance for		Fair
(in millions)	Credit Losses		Value
Due in one year or less	$	459.2	$	454.0
Due after one year through five years		2,641.5		2,488.1
Due after five years through ten years		2,521.2		2,123.7
Due after ten years		288.2		238.8
		5,910.1		5,304.6
Mortgage-backed and other asset-backed securities		2,625.4		2,313.7
Total fixed maturities	$	8,535.5	$	7,618.3

B. 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, 2023 and December 31, 2022, including the length of time the securities have been in an unrealized loss position:


	September 30, 2023
	12 months or less				Greater than 12 months				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(in millions)	Losses		Value		Losses		Value		Losses		Value
Investment grade:
U.S. Treasury and government agencies	$	2.7	$	85.0	$	68.5	$	339.7	$	71.2	$	424.7
Foreign governments		—		—		0.1		1.9		0.1		1.9
Municipal		9.6		174.5		167.1		902.6		176.7		1,077.1
Corporate		12.8		453.3		332.1		2,865.0		344.9		3,318.3
Residential mortgage-backed		10.4		312.8		179.4		839.4		189.8		1,152.2
Commercial mortgage-backed		0.7		42.4		96.5		770.2		97.2		812.6
Other asset-backed		0.3		69.7		24.4		269.6		24.7		339.3
Total investment grade		36.5		1,137.7		868.1		5,988.4		904.6		7,126.1
Below investment grade:
Corporate		6.2		180.1		10.2		69.5		16.4		249.6
Total fixed maturities	$	42.7	$	1,317.8	$	878.3	$	6,057.9	$	921.0	$	7,375.7


	December 31, 2022
	12 months or less				Greater than 12 months				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(in millions)	Losses		Value		Losses		Value		Losses		Value
Investment grade:
U.S. Treasury and government agencies	$	15.8	$	237.3	$	43.1	$	160.7	$	58.9	$	398.0
Foreign governments		0.1		1.9		—		—		0.1		1.9
Municipal		64.9		595.5		99.3		386.6		164.2		982.1
Corporate		202.2		2,786.2		118.2		489.8		320.4		3,276.0
Residential mortgage-backed		51.6		642.0		90.5		387.6		142.1		1,029.6
Commercial mortgage-backed		48.7		663.2		39.0		164.4		87.7		827.6
Other asset-backed		11.0		234.8		16.0		75.1		27.0		309.9
Total investment grade		394.3		5,160.9		406.1		1,664.2		800.4		6,825.1
Below investment grade:
Corporate		13.5		253.2		3.8		17.3		17.3		270.5
Total fixed maturities	$	407.8	$	5,414.1	$	409.9	$	1,681.5	$	817.7	$	7,095.6

The Company views gross unrealized losses on fixed maturities as non-credit related and through its assessment of unrealized losses has determined that these securities will recover, allowing the Company to realize the anticipated long-term economic value. The Company currently does not intend to sell, nor does it expect to be required to sell these securities before recovery of their amortized cost. The Company employs a systematic methodology to evaluate declines in fair value below amortized cost for fixed maturity securities. In determining impairments, the Company evaluates several factors and circumstances, including the issuer’s overall financial condition; the issuer’s credit and financial strength ratings; the issuer’s financial performance, including earnings trends and asset quality; any specific events which may influence the operations of the issuer; the general outlook for market conditions in the industry or geographic region in which the issuer operates; and the degree to which the fair value of an issuer’s securities is below the Company’s amortized cost. The Company also considers any factors that might raise doubt about the issuer’s ability to make contractual payments as they come due and whether the Company expects to recover the entire amortized cost basis of the security.

C. Proceeds from sales

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,
	2023		2022		2023		2022
(in millions)
Proceeds from sales	$	16.9	$	35.2	$	103.5	$	308.9
Gross gains		—		—		0.9		1.8
Gross losses		1.3		0.5		3.3		21.3

D. Impairments

For the three months ended September 30, 2023, impairments were not material. For the nine months ended September 30, 2023, the Company recognized net impairments of $16.5 million, primarily consisting of $10.3 million of intent to sell fixed maturity securities and $5.4 million of estimated credit losses on mortgage loans. For the three and nine months ended September 30, 2022, the Company recognized net impairments of $15.7 million and $16.3 million, respectively, consisting primarily of intent to sell fixed maturity securities.

At September 30, 2023 and December 31, 2022, the allowance for credit losses on mortgage loans was $8.5 million and $3.2 million respectively, and the allowance for credit losses on available-for-sale debt securities was $2.5 million and $2.1 million, respectively. The following table provides a rollforward of the allowance for credit losses on mortgage loans:


	Three Months Ended September 30,					Nine Months Ended September 30,
(in millions)	2023		2022			2023			2022
Allowance for credit losses as of the beginning of the period	$	8.5	$	5.2		$	3.2		$	7.1
Additional credit losses on investments for which an allowance was previously recognized		—		0.1			5.4			0.1
Reductions for disposals		—		—			—			(0.1	)
Recoveries		—		(0.1	)		(0.1	)		(1.9	)
Allowance for credit losses as of the end of the period	$	8.5	$	5.2		$	8.5		$	5.2

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

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.

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.

E. Equity securities

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,
(in millions)	2023			2022			2023			2022
Net losses recognized during the period	$	(5.2	)	$	(29.1	)	$	(13.4	)	$	(106.1	)
Less: net losses recognized on equity securities sold during the period		(11.9	)		(0.1	)		(11.9	)		(8.8	)
Net unrealized gains (losses) recognized during the period on equity securities still held	$	6.7		$	(29.0	)	$	(1.5	)	$	(97.3	)

4. Fair Value

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. 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:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data, including model-derived valuations.

Level 3 – Unobservable inputs that are supported by little or no market activity.

When more than one level of input is used to determine fair value, the financial instrument is classified as Level 2 or Level 3 according to the lowest level input that has a significant impact on the fair value measurement.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments and have not changed since last year.

Fixed Maturities

Level 1 securities generally include U.S. Treasury issues and other securities that are highly liquid, and for which quoted market prices are available. Level 2 securities are valued using pricing for similar securities and pricing models that incorporate observable inputs including, but not limited to, yield curves and issuer spreads. 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 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 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: benchmark U.S. Treasury security yield curves; reported trades of identical or similar fixed maturity securities; broker/dealer quotes of identical or similar fixed maturity securities and structural characteristics such as maturity date, coupon, mandatory principal payment dates, frequency of interest and principal payments, and optional redemption features. Inputs into the fair value applications that are unique by asset class include, but are not limited to:

•

U.S. government agencies – determination of direct versus indirect government support and whether any contingencies exist with respect to the timely payment of principal and interest.

•

Foreign government – estimates of appropriate market spread versus underlying related sovereign treasury curve(s) dependent on liquidity and direct or contingent support.

•

Municipals – overall credit quality, including assessments of the level and variability of: sources of payment such as income, sales or property taxes, levies or user fees; credit support such as insurance; state or local economic and political base; natural resource availability; and susceptibility to natural or man-made catastrophic events such as hurricanes, earthquakes or acts of terrorism.

•

Corporate fixed maturities – overall credit quality, including assessments of the level and variability of: economic sensitivity; liquidity; corporate financial policies; management quality; regulatory environment; competitive position; ownership; restrictive covenants; and security or collateral.

•

Residential mortgage-backed securities – estimates of prepayment speeds based upon: historical prepayment rate trends; underlying collateral interest rates; geographic concentration; vintage year; borrower credit quality characteristics; interest rate and yield curve forecasts; government or monetary authority support programs; tax policies; and delinquency/default trends; and in the case of non-agency collateralized mortgage obligations, severity of loss upon default and length of time to recover proceeds following default.

•

Commercial mortgage-backed securities – overall credit quality, including assessments of the value and supply/demand characteristics of: collateral type such as office, retail, residential, lodging, or other; geographic concentration by region, state, metropolitan statistical area and locale; vintage year; historical collateral performance including defeasance, delinquency, default and special servicer trends; and capital structure support features.

•

Other asset-backed securities – overall credit quality, including assessments of the underlying collateral type such as credit card receivables, automobile loan receivables and equipment lease receivables; geographic diversification; vintage year; historical collateral performance including delinquency, default and casualty trends; economic conditions influencing use rates and resale values; and contract structural support features.

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. Unobservable judgment reflected in the Company’s matrix model accounts for estimates of additional spread required by market participants for factors such as issue size, credit stress, structural complexity, high bond coupon, or other unique features. These matrix-priced securities are reported as Level 2 or Level 3, depending on the significance of the impact of unobservable judgment on the security’s value. Additionally, the Company may obtain non-binding broker quotes, which are reported as Level 3.

Equity Securities

Level 1 consists of publicly traded securities, including exchange-traded funds, valued at quoted market prices. Level 2 includes securities that are valued using pricing for similar securities and pricing models that incorporate observable inputs. Level 3 consists of common or preferred stock of private companies for which observable inputs are not available.

The Company utilizes a third-party pricing service for the valuation of the majority of its equity securities and receives one quote for each equity 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. The Company holds certain equity securities that have been issued by privately-held entities that do not have an active market and for which the pricing service cannot provide fair values. The Company estimates fair value for these securities based on prices from recent financing rounds, which may be adjusted for liquidity and other factors, or based on the issuer’s book value and market multiples, and reports them as Level 3. Additionally, the Company may obtain non-binding broker quotes, which are reported as Level 3.

Other Investments

Other investments primarily include mortgage participations and limited partnerships not subject to the equity method of accounting. The fair values of limited partnerships not subject to the equity method of accounting are based on the net asset value (“NAV”) provided by the general partner, adjusted for recent financial information, and are excluded from the fair value hierarchy.

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


	September 30, 2023				December 31, 2022
	Carrying		Market		Carrying		Market
(in millions)	Value		Value		Value		Value
Financial Assets carried at:
Fair Value through AOCI:
Fixed maturities	$	7,618.3	$	7,618.3	$	7,481.8	$	7,481.8
Fair Value through Net Income:
Equity securities		123.5		123.5		241.9		241.9
Other investments		125.0		125.0		131.8		131.8
Amortized Cost/Cost:
Other investments		424.1		397.1		432.3		401.0
Cash and cash equivalents		294.5		294.5		305.0		305.0
Total financial instruments	$	8,585.4	$	8,558.4	$	8,592.8	$	8,561.5

Financial Liabilities carried at:
Amortized Cost:
Debt	$	783.0	$	703.4	$	782.4	$	713.9

The Company has processes designed to ensure that the values received from its third-party pricing services are accurately recorded, that the data inputs and valuation approaches and techniques utilized are appropriate and consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. The Company reviews the pricing services’ policies describing its methodology, processes, practices and inputs, including various financial models used to value securities. For assets carried at fair value, the Company performs a review of the fair value hierarchy classifications and of prices received from its pricing 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 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 nine months of 2023 and 2022, 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 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, 2023
(in millions)	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	439.0	$	309.7	$	129.3	$	—
Foreign government		2.1		—		2.1		—
Municipal		1,108.5		—		1,100.0		8.5
Corporate		3,755.0		—		3,754.9		0.1
Residential mortgage-backed, U.S. agency backed		1,017.7		—		1,017.7		—
Residential mortgage-backed, non-agency		134.5		—		134.5		—
Commercial mortgage-backed		817.6		—		810.7		6.9
Other asset-backed		343.9		—		343.9		—
Total fixed maturities		7,618.3		309.7		7,293.1		15.5
Equity securities		123.5		115.9		—		7.6
Other investments		3.6		—		—		3.6
Total investment assets at fair value	$	7,745.4	$	425.6	$	7,293.1	$	26.7


	December 31, 2022
(in millions)	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	420.2	$	282.7	$	137.5	$	—
Foreign government		2.2		—		2.2		—
Municipal		1,076.1		—		1,066.8		9.3
Corporate		3,729.9		—		3,729.8		0.1
Residential mortgage-backed, U.S. agency backed		974.0		—		974.0		—
Residential mortgage-backed, non-agency		99.8		—		99.8		—
Commercial mortgage-backed		836.4		—		828.9		7.5
Other asset-backed		343.2		—		343.2		—
Total fixed maturities		7,481.8		282.7		7,182.2		16.9
Equity securities		241.9		234.4		—		7.5
Other investments		3.6		—		—		3.6
Total investment assets at fair value	$	7,727.3	$	517.1	$	7,182.2	$	28.0

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 September 30, 2023 and December 31, 2022, the fair values of these investments were $121.4 million and $128.2 million, respectively, less than 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, 2023
(in millions)	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	294.5	$	294.5	$	—	$	—
Other investments		397.1		—		6.2		390.9
Total financial instruments	$	691.6	$	294.5	$	6.2	$	390.9

Liabilities:
Debt	$	703.4	$	—	$	703.4	$	—


	December 31, 2022
(in millions)	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	305.0	$	305.0	$	—	$	—
Other investments		401.0		—		6.0		395.0
Total financial instruments	$	706.0	$	305.0	$	6.0	$	395.0

Liabilities:
Debt	$	713.9	$	—	$	713.9	$	—

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


	Fixed Maturities
(in millions)	Municipal			Corporate		Commercial mortgage- backed			Total			Equity and Other			Total Assets
Three Months Ended September 30, 2023
Balance July 1, 2023	$	8.8		$	0.1	$	7.2		$	16.1		$	11.2		$	27.3
Total losses:
Included in other comprehensive loss - changes in net unrealized gains (losses) on investment securities		(0.2	)		—		(0.1	)		(0.3	)		—			(0.3	)
Settlements		(0.1	)		—		(0.2	)		(0.3	)		—			(0.3	)
Balance September 30, 2023	$	8.5		$	0.1	$	6.9		$	15.5		$	11.2		$	26.7
Changes in net unrealized gains (losses) for the period included in other comprehensive loss for assets held at the end of the period	$	(0.2	)	$	—	$	(0.1	)	$	(0.3	)	$	—		$	(0.3	)

Three Months Ended September 30, 2022
Balance July 1, 2022	$	11.0		$	0.1	$	8.1		$	19.2		$	14.4		$	33.6
Total losses:
Included in net realized and unrealized investment gains (losses)		—			—		—			—			(0.1	)		(0.1	)
Included in other comprehensive loss - changes in net unrealized gains (losses) on investment securities		(0.3	)		—		(0.4	)		(0.7	)		—			(0.7	)
Settlements		(0.7	)		—		(0.1	)		(0.8	)		—			(0.8	)
Balance September 30, 2022	$	10.0		$	0.1	$	7.6		$	17.7		$	14.3		$	32.0
Changes in net unrealized gains (losses) for the period included in other comprehensive loss for assets held at the end of the period	$	(0.4	)	$	—	$	(0.3	)	$	(0.7	)	$	—		$	(0.7	)


	Fixed Maturities
(in millions)	Municipal			Corporate		Commercial mortgage- backed			Total			Equity and Other			Total Assets
Nine Months Ended September 30, 2023
Balance January 1, 2023	$	9.3		$	0.1	$	7.5		$	16.9		$	11.1		$	28.0
Total gains (losses):
Included in net realized and unrealized investment gains (losses)		—			—		—			—			0.1			0.1
Included in other comprehensive loss - changes in net unrealized gains (losses) on investment securities		(0.1	)		—		(0.1	)		(0.2	)		—			(0.2	)
Settlements		(0.7	)		—		(0.5	)		(1.2	)		—			(1.2	)
Balance September 30, 2023	$	8.5		$	0.1	$	6.9		$	15.5		$	11.2		$	26.7
Changes in net unrealized gains (losses) for the period included in other comprehensive loss for assets held at the end of the period	$	(0.1	)	$	—	$	(0.1	)	$	(0.2	)	$	—		$	(0.2	)

Nine Months Ended September 30, 2022
Balance January 1, 2022	$	14.0		$	0.1	$	11.3		$	25.4		$	14.4		$	39.8
Total losses:
Included in net realized and unrealized investment gains (losses)		—			—		—			—			(0.1	)		(0.1	)
Included in other comprehensive loss - changes in net unrealized gains (losses) on investment securities		(1.1	)		—		(1.2	)		(2.3	)		—			(2.3	)
Settlements		(2.9	)		—		(2.5	)		(5.4	)		—			(5.4	)
Balance September 30, 2022	$	10.0		$	0.1	$	7.6		$	17.7		$	14.3		$	32.0
Changes in net unrealized gains (losses) for the period included in other comprehensive loss for assets held at the end of the period	$	(1.2	)	$	—	$	(1.1	)	$	(2.3	)	$	—		$	(2.3	)

There were no transfers between Level 2 and Level 3, and there were no Level 3 liabilities held by the Company for the three or nine months ended September 30, 2023 and 2022.

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, 2023			December 31, 2022
	Valuation	Significant	Fair		Range	Fair		Range
(in millions)	Technique	Unobservable Inputs	Value		(Wtd Average)	Value		(Wtd Average)
Fixed maturities:
Municipal	Discounted cash flow	Discount for: Small issue size	$	8.5	6.1 - 6.8% (6.6%)	$	9.3	4.5 - 6.8% (6.6%)
Corporate	Discounted cash flow	Discount for: Small issue size Above-market coupon	0.1		2.5% (2.5%) 0.3% (0.3%)		0.1	2.5% (2.5%) 0.3% (0.3%)
Commercial mortgage-backed	Discounted cash flow	Discount for: Small issue size Above-market coupon Lease structure	6.9		3.0 - 3.1% (3.0%) 0.5% (0.5%) 0.3% (0.3%)		7.5	3.0 - 3.1% (3.0%) 0.5% (0.5%) 0.3% (0.3%)
Equity securities	Market comparables	Net tangible asset	1.2		N/A		1.1	N/A
	Internal price based on financing round	Discount for: Market liquidity	6.4		27.0% (27.0%)		6.4	27.0% (27.0%)
Other	Discounted cash flow	Discount rate	3.6		17.2% (17.2%)	3.6		17.2% (17.2%)

The weighted average of the unobservable inputs was weighted by the relative fair value of the securities to which the inputs were applied. Each unobservable input is based on the Company’s subjective opinion and therefore inherently contains a degree of uncertainty. 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 that might magnify or mitigate the effect of changes in unobservable inputs on the fair value measurement.

5. Income Taxes

Income tax expense (benefit) for the nine months ended September 30, 2023 and 2022 has been computed using estimated annual effective tax rates. These rates are revised, if necessary, at the end of each successive interim period to reflect current estimates of the annual effective tax rates.

The tax provision was comprised of a U.S. federal income tax benefit of $35.3 million and an expense of $30.0 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions, and have previously filed in foreign jurisdictions. The Company and its subsidiaries are subject to U.S. federal and state income tax examinations and foreign examinations for years after 2018. The audit of the Company’s 2019 Illinois business income tax was settled in June 2023.

6. Pension Plans

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


	Three Months Ended September 30,
	2023			2022
(in millions)	Pension Plans
Interest cost	$	5.5		$	3.9
Expected return on plan assets		(5.5	)		(4.3	)
Recognized net actuarial loss		1.9			1.3
Net periodic pension cost	$	1.9		$	0.9

	Nine Months Ended September 30,
	2023			2022
(in millions)	Pension Plans
Interest cost	$	16.4		$	11.5
Expected return on plan assets		(16.5	)		(12.9	)
Recognized net actuarial loss		5.8			3.9
Net periodic pension cost	$	5.7		$	2.5

7. Other Comprehensive Loss

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


	Three Months Ended September 30,
	2023									2022
				Tax									Tax
				Benefit			Net of						Benefit			Net of
(in millions)	Pre-Tax			(Expense)			Tax			Pre-Tax			(Expense)			Tax
Changes in net unrealized gains (losses) on investment securities:
Net unrealized losses arising during period for those having no credit losses in Consolidated Statement of Income (Loss)	$	(144.3	)	$	30.3		$	(114.0	)	$	(324.5	)	$	68.1		$	(256.4	)
Net unrealized losses arising during period for those having credit losses in Consolidated Statement of Income (Loss)		(0.7	)		0.2			(0.5	)		(4.2	)		0.9			(3.3	)
Amount of losses realized from sales and other recognized in Consolidated Statement of Income (Loss)		0.9			(0.6	)		0.3			0.3			(0.3	)		—
Amount of credit-related impairments recognized in the Consolidated Statement of Income (Loss)		—			—			—			1.4			(0.3	)		1.1
Amount of additional impairment losses recognized in the Consolidated Statement of Income (Loss)		—			—			—			14.3			(3.0	)		11.3
Net unrealized losses		(144.1	)		29.9			(114.2	)		(312.7	)		65.4			(247.3	)
Pension and postretirement benefits:
Amortization of net actuarial losses recognized as net periodic benefit cost		1.9			(0.4	)		1.5			1.4			(0.3	)		1.1
Long-duration insurance contracts:
Net change in market risk		4.2			(0.9	)		3.3			5.4			(1.1	)		4.3
Other comprehensive loss	$	(138.0	)	$	28.6		$	(109.4	)	$	(305.9	)	$	64.0		$	(241.9	)


	Nine Months Ended September 30,
	2023									2022
				Tax									Tax
				Benefit			Net of						Benefit			Net of
(in millions)	Pre-Tax			(Expense)			Tax			Pre-Tax			(Expense)			Tax
Changes in net unrealized gains (losses) on investment securities:
Net unrealized losses arising during period for those having no credit losses in Consolidated Statement of Income (Loss)	$	(120.8	)	$	25.4		$	(95.4	)	$	(1,151.7	)	$	241.8		$	(909.9	)
Net unrealized gains (losses) arising during period for those having credit losses in Consolidated Statement of Income (Loss)		0.3			—			0.3			(10.5	)		2.2			(8.3	)
Amount of losses realized from sales and other recognized in Consolidated Statement of Income (Loss)		1.9			(1.6	)		0.3			16.9			(4.6	)		12.3
Amount of credit-related impairments recognized in the Consolidated Statement of Income (Loss)		0.8			(0.2	)		0.6			3.3			(0.7	)		2.6
Amount of additional impairment losses recognized in the Consolidated Statement of Income (Loss)		10.3			(2.2	)		8.1			14.8			(3.1	)		11.7
Net unrealized losses		(107.5	)		21.4			(86.1	)		(1,127.2	)		235.6			(891.6	)
Pension and postretirement benefits:
Amortization of net actuarial losses recognized as net periodic benefit cost		5.9			(1.2	)		4.7			4.1			(0.8	)		3.3
Long-duration insurance contracts:
Net change in market risk		3.3			(0.7	)		2.6			22.0			(4.6	)		17.4
Other comprehensive loss	$	(98.3	)	$	19.5		$	(78.8	)	$	(1,101.1	)	$	230.2		$	(870.9	)

Reclassifications out of accumulated other comprehensive loss were as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2023			2022			2023				2022
	Amount Reclassified from
Details about Accumulated Other	Accumulated Other														Affected Line Item in the Statement
Comprehensive Loss Components	Comprehensive Loss														Where Net Income (Loss) is Presented
Net unrealized losses on investment securities	$	(0.9	)	$	—			$	(1.9	)		$	(16.7	)	Net realized losses from sales and other
		—			(15.7	)			(11.1	)			(18.1	)	Impairments on investments
		(0.9	)		(15.7	)			(13.0	)			(34.8	)	Total before tax
		0.6			3.6				4.0				8.4		Income tax benefit
		(0.3	)		(12.1	)			(9.0	)			(26.4	)	Continuing operations; net of tax
		—			(0.3	)			—				(0.2	)	Discontinued operations - loss from discontinued life businesses
		(0.3	)		(12.4	)			(9.0	)			(26.6	)	Net of tax
Amortization of defined benefit pension and postretirement actuarial losses		(1.9	)		(1.4	)			(5.9	)			(4.1	)	Loss adjustment expenses and other operating expenses (1)
		0.4			0.3				1.2				0.8		Income tax benefit
		(1.5	)		(1.1	)			(4.7	)			(3.3	)	Continuing operations; net of tax
Net change in market risk		—			0.3				—				0.7		Loss from discontinued life businesses
		—			—				—				(0.2	)	Income tax benefit (expense)
		—			0.3				—				0.5		Discontinuing operations; net of tax
Total reclassifications for the period	$	(1.8	)	$	(13.2	)		$	(13.7	)		$	(29.4	)	Expense reflected in income (loss), net of tax

(1)

The amount reclassified from accumulated other comprehensive income (loss) 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, 2023 and 2022.

8. Segment Information

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 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, which provides commercial insurance to markets with specialized coverage or risk management needs related to groups of similar businesses, specialty industrial and commercial property, excess and surplus lines and specialty general liability coverage. Personal Lines includes personal automobile, homeowners and other personal coverages. Included in the Other segment are Opus Investment Management, Inc., which markets investment management services to institutions, pension funds and other organizations; earnings on holding company assets; holding company and other expenses, including certain costs associated with retirement benefits due to the Company’s former life insurance employees and agents; and run-off voluntary assumed property and casualty pools and run-off direct asbestos and environmental businesses.

The Company reports interest expense related to debt separately from the earnings of its operating segments. This consists primarily of interest on the Company’s senior and subordinated debentures.

Management evaluates the results of its segments based on operating income (loss) before income taxes, excluding interest expense on debt. Operating income (loss) before income taxes excludes certain items which are included in net income (loss), such as net realized and unrealized investment gains and losses. Such gains and losses are excluded since they are determined by interest rates, financial markets and the timing of sales. Also, operating income (loss) before 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 (loss) before interest expense and income taxes may be important components in understanding and assessing the Company’s overall financial performance, management believes that the presentation of operating income (loss) before interest expense and income taxes enhances an investor’s understanding of the Company’s results of operations by highlighting net income (loss) attributable to the core operations of the business. However, operating income (loss) before income taxes should not be construed as a substitute for income (loss) before income taxes or income (loss) from continuing operations, and operating income (loss) should not be construed as a substitute for net income (loss).

Summarized below is financial information with respect to the Company’s business segments.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2023			2022			2023			2022
Operating revenues:
Core Commercial	$	557.1		$	527.1		$	1,658.2		$	1,551.8
Specialty		340.9			319.9			1,011.6			931.0
Personal Lines		620.5			560.5			1,815.1			1,635.4
Other		4.2			3.7			11.6			10.4
Total		1,522.7			1,411.2			4,496.5			4,128.6
Net realized and unrealized investment losses		(6.1	)		(44.9	)		(31.8	)		(138.7	)
Total revenues	$	1,516.6		$	1,366.3		$	4,464.7		$	3,989.9
Operating income (loss) before interest expense and income taxes:
Core Commercial:
Underwriting income (loss)	$	5.3		$	(7.7	)	$	1.0		$	58.8
Net investment income		38.4			33.4			114.2			101.4
Other expense		(0.6	)		(0.5	)		(0.8	)		(0.6	)
Core Commercial operating income		43.1			25.2			114.4			159.6
Specialty:
Underwriting income		52.7			32.0			119.5			96.2
Net investment income		18.0			15.2			53.6			46.2
Other expense		(0.4	)		(0.3	)		(0.1	)		(0.3	)
Specialty operating income		70.3			46.9			173.0			142.1
Personal Lines:
Underwriting loss		(127.3	)		(42.7	)		(422.4	)		(50.3	)
Net investment income		24.3			21.4			73.3			64.6
Other income		2.6			2.5			8.0			6.0
Personal Lines operating income (loss)		(100.4	)		(18.8	)		(341.1	)		20.3
Other:
Underwriting income		—			—		—				—
Net investment income		3.5			3.0			9.4			8.2
Other expense		(2.8	)		(2.4	)		(8.2	)		(6.9	)
Other operating income		0.7			0.6			1.2			1.3
Operating income (loss) before interest expense and income taxes		13.7			53.9			(52.5	)		323.3
Interest on debt		(8.5	)		(8.5	)		(25.6	)		(25.5	)
Operating income (loss) before income taxes		5.2			45.4			(78.1	)		297.8
Non-operating items:
Net realized and unrealized investment losses		(6.1	)		(44.9	)		(31.8	)		(138.7	)
Other non-operating		—			—			0.8			(0.4	)
Income (loss) from continuing operations before income taxes	$	(0.9	)	$	0.5		$	(109.1	)	$	158.7

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


(in millions)	September 30, 2023		December 31, 2022
Property and Casualty	$	14,234.4	$	13,911.0
Assets of discontinued businesses		80.6		84.1
Total	$	14,315.0	$	13,995.1

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

9. Stock-based Compensation

As of September 30, 2023, there were 2,940,189 shares available for grant under The Hanover Insurance Group 2022 Long-Term Incentive Plan.

On May 9, 2023, the shareholders approved The Hanover Insurance Group 2023 Employee Stock Purchase plan (the “ESPP Plan”), authorizing the issuance of 1,250,000 shares under the plan, all of which were available for issuance as of September 30, 2023. This plan replaces the 2014 Employee Stock Purchase Plan.

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,
(in millions)	2023			2022			2023			2022
Stock-based compensation expense	$	8.6		$	7.7		$	23.9		$	21.8
Tax benefit		(1.8	)		(1.7	)		(5.0	)		(4.6	)
Stock-based compensation expense, net of taxes	$	6.8		$	6.0		$	18.9		$	17.2

Stock Options

Information on the Company’s stock option activity for the nine months ended September 30, 2023 and 2022 is summarized below.


	Nine Months Ended September 30,
	2023					2022
(in whole shares and dollars)	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of period		1,080,852		$	107.07		1,230,211		$	99.14
Granted		135,019			140.01		140,339			139.51
Exercised		(40,544	)		92.39		(262,900	)		86.82
Forfeited or cancelled		(22,184	)		125.15		(6,075	)		116.44
Outstanding, end of period		1,153,143			111.09		1,101,575			107.13

Restricted Stock Units

The Company currently issues time-based, market-based and performance-based restricted stock units to eligible employees, all of which generally vest after three years of continued employment.

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


	Nine Months Ended September 30,
	2023					2022
(in whole shares and dollars)	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Time-based restricted stock units:
Outstanding, beginning of period		378,256		$	124.88		380,100		$	117.60
Granted		149,509			138.35		147,438			138.46
Vested		(132,086	)		118.21		(120,715	)		119.29
Forfeited		(19,132	)		131.14		(23,148	)		122.94
Outstanding, end of period		376,547			132.25		383,675			124.77
Performance-based and market-based restricted stock units:
Outstanding, beginning of period		119,163		$	122.81		113,848		$	115.92
Granted		50,115			137.90		47,954			140.36
Vested		(44,781	)		114.14		(39,338	)		124.42
Forfeited		(3,993	)		109.19		(3,301	)		120.66
Outstanding, end of period		120,504			132.76		119,163			122.81

In the first nine months of 2023 and 2022, the Company granted market-based awards totaling 21,789 shares and 19,057 shares, 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. This metric is generally based on relative TSR for a three-year period as compared to a pre-selected group of property and casualty companies. The fair value of market-based awards was estimated at the date of grant using a valuation model. These units have the potential to range from 0% to 150% of the shares disclosed. Included in the amount forfeited above in 2023 and 2022 are 2,836 shares and 1,282 shares, respectively, related to market-based awards that achieved a payout below 100%. These awards were forfeited in the first quarter of 2023 and 2022, respectively.

The Company also granted performance-based restricted stock units in 2023 and 2022, totaling 28,326 shares and 28,897 shares, 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. 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. Included in the amount granted above in 2023 and 2022 are 5,961 shares and 7,988 shares, respectively, related to performance-based awards that achieved a payout in excess of 100%. These awards vested in the first quarter of 2023 and 2022, respectively.

10. Earnings Per Share and Shareholders’ Equity Transactions

The following table provides weighted average share information used in the calculation of the Company’s basic and diluted earnings per share:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions, except per share data)	2023		2022		2023		2022
Basic shares used in the calculation of earnings per share		35.8		35.6		35.7		35.6
Dilutive effect of securities:
Employee stock options		0.1		0.2		—		0.3
Non-vested stock grants		0.2		0.3		—		0.2
Diluted shares used in the calculation of earnings per share		36.1		36.1		35.7		36.1
Per share effect of dilutive securities on income (loss) from continuing operations	$	—	$	—	$	—	$	(0.06	)
Per share effect of dilutive securities on net income (loss)	$	—	$	—	$	—	$	(0.06	)

Diluted earnings per share for the three and nine months ended September 30, 2023 excludes 0.7 million and 0.6 million shares, respectively, issuable under the Company’s stock compensation plans because their effect would be antidilutive. Diluted earnings per share for the three and nine months ended September 30, 2022 excludes 0.1 million shares issuable under the Company’s stock compensation plans because their effect would be antidilutive.

The 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 $330 million available at September 30, 2023. 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. Repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. The Company is not required to purchase any specific number of shares or to make purchases by any certain date under this program.

11. Liabilities for Outstanding Claims, Losses and Loss Adjustment Expenses

Reserve Rollforward and Prior Year Development

The Company regularly updates its reserve estimates as new information becomes available and further events occur which may impact the resolution of unsettled claims. Reserve adjustments are reflected in results of operations as adjustments to losses and loss adjustment expenses (“LAE”). Often these adjustments are recognized in periods subsequent to the period in which the underlying policy was written, and loss event occurred. These types of subsequent adjustments are described as “prior years’ loss reserves.” Such development can be either favorable or unfavorable to the Company’s financial results and may vary by line of business. In this section, all amounts presented include catastrophe losses and LAE, unless otherwise indicated.

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,
(in millions)	2023			2022
Gross reserve for losses and LAE, beginning of period	$	7,012.6		$	6,447.6
Reinsurance recoverable on unpaid losses		1,748.6			1,693.8
Net reserve for losses and LAE, beginning of period		5,264.0			4,753.8
Net incurred losses and LAE in respect of losses occurring in:
Current year		3,225.6			2,603.8
Prior years		(6.8	)		(31.2	)
Total incurred losses and LAE		3,218.8			2,572.6
Net payments of losses and LAE in respect of losses occurring in:
Current year		1,375.7			1,041.3
Prior years		1,523.8			1,226.2
Total payments		2,899.5			2,267.5
Net reserve for losses and LAE, end of period		5,583.3			5,058.9
Reinsurance recoverable on unpaid losses		1,746.5			1,715.1
Gross reserve for losses and LAE, end of period	$	7,329.8		$	6,774.0

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 $6.8 million and $31.2 million in 2023 and 2022, respectively.

2023

For the nine months ended September 30, 2023, net favorable loss and LAE development was $6.8 million, primarily as a result of favorable development of $43.1 million in Specialty, partially offset by net unfavorable development of $35.1 million in Personal Lines and, to a lesser extent, net unfavorable development of $1.2 million in Core Commercial. The favorable development in Specialty was primarily due to lower than expected losses and LAE of $28.6 million in the Professional and Executive division, primarily in accident years 2019 through 2022 and, to a lesser extent, lower than expected losses and LAE of $9.2 million in the surety line. The unfavorable development in Personal Lines was primarily due to higher than expected losses of $16.4 million within the personal automobile line, higher than expected losses of $11.4 million in the homeowners line, primarily in accident year 2022 due to Winter Storm Elliott and, to a lesser extent, higher than expected losses in personal umbrella. The higher than expected losses in the personal automobile line were primarily within bodily injury coverages in accident years 2018, 2019 and 2022, and within property damage coverages in accident years 2021 and 2022, partially offset by lower than expected losses within personal injury protection coverages in accident years 2021 and 2022. The net unfavorable development in Core Commercial was primarily due to higher than expected losses of $13.5 million within the commercial automobile line driven by higher bodily injury and personal injury protection losses in accident years 2014 through 2019 and, to a lesser extent, higher than expected losses in miscellaneous property and commercial umbrella coverages. The unfavorable development in Core Commercial was partially offset by lower than expected losses of $17.7 million within the workers’ compensation line, primarily in accident years 2013 through 2021, and within the commercial multiple peril line, primarily in accident year 2022, due to Winter Storm Elliott.

2022

For the nine months ended September 30, 2022, net favorable loss and LAE development was $31.2 million, primarily as a result of favorable development of $24.2 million in Specialty and favorable development of $20.2 million in Core Commercial, partially offset by unfavorable development of $13.2 million in Personal Lines. The favorable development in Specialty was primarily due to lower than expected losses and LAE of $13.2 million in the Professional and Executive division, lower than expected losses of $11.5 million in the surety line, and lower than expected losses of $10.2 million in the marine line, partially offset by higher than expected losses of $10.5 million in the Specialty P&C division. The favorable development in Core Commercial was primarily due to lower than expected losses of $21.0 million in the workers’ compensation line primarily in accident years 2013 through 2018 and 2020, and lower than expected losses of $9.9 million in the commercial multiple peril line, partially offset by higher than expected losses and LAE of $11.5 million in the commercial automobile line. The unfavorable development in Personal Lines was due to higher than expected losses of $19.4 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.

12. Commitments and Contingencies

Legal Proceedings

The Company has been named a defendant in various legal proceedings arising in the normal course of business. 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, examination or investigation, and its ultimate liability, if any, from such action 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 the Company's financial position, although they could have a material effect on the results of operations for a particular quarterly or annual period.

Residual Markets

The Company is required to participate in residual markets in various states, which generally pertain to high risk insureds, disrupted markets or lines of business or geographic areas where rates are regarded as excessive. The results of the residual markets are difficult to predict and may not be correlated with the Company’s own managed business, and are significant to both the personal and commercial automobile lines of business.

13. Subsequent Events

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

PART I

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TABLE OF CONTENTS


Introduction		24
Executive Overview		24
Description of Operating Segments		25
Results of Operations - Consolidated		25
Results of Operations - Segments		27
Investments		35
Other Items		39
Income Taxes		40
Critical Accounting Estimates		40
Statutory Surplus of Insurance Subsidiaries		41
Liquidity and Capital Resources		41
Contingencies and Regulatory Matters		42
Risks and Forward - Looking Statements		43

Introduction

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist readers in understanding the interim consolidated results of operations and financial condition of The Hanover Insurance Group, Inc. and its subsidiaries (“THG”). Consolidated results of operations and financial condition are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). This discussion should be read in conjunction with the interim consolidated financial statements and related footnotes included elsewhere in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2023.

Results of operations include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America (“Citizens”), our principal property and casualty companies, and certain other insurance and non-insurance subsidiaries. Our results of operations also include the results of our discontinued operations, consisting of our former accident and health insurance business, as well as our former Chaucer business.

Executive Overview

Business operations consist of four operating segments: Core Commercial, Specialty, Personal Lines and Other.

Our strategy, which focuses on the independent agency distribution channel, supports THG’s commitment to our select independent agents. It is designed to generate profitable growth by leveraging the strengths of our distribution approach, including expansion of our agency footprint in underpenetrated geographies, as warranted. As part of that strategy, we have increased our capabilities in specialty markets and made investments designed to develop growth solutions for our agency distribution channel that meet the needs of our customers. Our goal is to grow responsibly in all of our businesses, while managing volatility.

During the nine months ended September 30, 2023, our net loss was $72.6 million, compared to net income of $128.1 million for the nine months ended September 30, 2022, a decrease of $200.7 million. This decrease was primarily due to lower after-tax operating results, partially offset by reduced losses from changes in the fair value of equity securities.

Operating loss before interest expense and income taxes (a non-GAAP financial measure; see also “Results of Operations – Consolidated – Non-GAAP Financial Measures”) was $52.5 million for the nine months ended September 30, 2023, compared to income of $323.3 million for the nine months ended September 30, 2022, a decrease of $375.8 million. This decrease was primarily due to higher catastrophe losses in each of our operating segments and, to a lesser extent, higher current accident year losses in Personal Lines, partially offset by an improvement in current accident year results in both our Core Commercial and Specialty segments. These losses were partially offset by higher net investment income and earned premium growth. The higher catastrophe losses were primarily due to multiple convective storms across many states during the first nine months of 2023. Hail and wind damage represented the majority of reported losses, primarily impacting our Personal Lines business. The higher Personal Lines current accident year losses were primarily due to higher loss severity, as a result of continued inflation and supply chain disruptions.

Pre-tax catastrophe losses were $632.4 million for the nine months ended September 30, 2023, compared to $213.0 million during the same period of 2022, an increase of $419.4 million. Net favorable development on prior years’ loss reserves was $6.8 million for the nine months ended September 30, 2023, compared to $19.2 million for the nine months ended September 30, 2022, a decrease of $12.4 million.

Core Commercial

Core Commercial includes two distinct businesses, small commercial and middle market, both of which focus on account business, including coverage for commercial multiple peril, commercial automobile, workers’ compensation and other (monoline general liability, ancillary professional, commercial umbrella, and monoline property). Small commercial focuses on small businesses, with annual policy premiums generally up to $50,000. Small commercial utilizes TAP sales, a quoting platform that has enhanced the agents’ ease of doing business with the Company. The TAP sales platform generated approximately a 21% increase in new business submissions during the third quarter of 2023 compared to the same period in 2022. Middle market provides coverage to mid-sized businesses with annual policy premiums generally between $50,000 and $500,000. Middle market offers coverage in distinct industry segments, including technology, manufacturing, human services, retail, real estate, and others. We believe that our account-focused approach to the small commercial market and distinctiveness in the middle market, including our diversified portfolio of products, delivers significant value to agents and policyholders. We continue to pursue our core strategy of developing strong relationships with retail agents, enhanced franchise value through selective distribution, distinctive products and coverages, and through continued investment in products for additional industry segmentation.

Net premiums written increased 6.1% in the first nine months of 2023, compared to the same period in 2022, primarily driven by pricing. Underwriting results decreased in the first nine months of 2023, primarily due to higher catastrophe losses, partially offset by lower current accident year losses. The competitive nature of the Core Commercial market requires us to be highly disciplined in our underwriting process to ensure that we write business at acceptable margins and that we continue to seek rate increases across many lines of business.

Specialty

Specialty offers a comprehensive suite of products focused predominately on small to mid-sized businesses. This includes numerous specialized product areas that are organized into four distinct divisions – Professional and Executive Lines, Specialty Property and Casualty (“Specialty P&C”), Marine, and Surety and Other. We believe that this diverse set of Specialty products, distributed primarily through retail agents, supplemented by select specialists, helps to enhance our overall agent value and increase growth opportunities by providing agents easier access to placement solutions for Specialty needs, including those that complement Core Commercial accounts.

Net premiums written increased 5.8% in the first nine months of 2023, compared to the same period in 2022, primarily due to pricing and increased new business. Underwriting results increased in the first nine months of 2023 compared to the same period in 2022, primarily due to higher favorable development on prior years’ loss reserves, an increase in current accident year underwriting profit, and earned premium growth, partially offset by higher catastrophe losses. The competitive nature of the Specialty 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.

Personal Lines

Personal Lines focuses on working with high quality, value-oriented agencies that deliver consultative selling to customers and stress the importance of account rounding, which is the conversion of single policy customers to accounts with multiple policies and/or additional coverages, to address customers’ broader needs and objectives. Approximately 88% of our policies in force (“PIF”) have been issued to customers with multiple policies and/or coverages with us. We are focused on seeking profitable growth opportunities, building a distinctive position in the market in order to meet our customers’ needs, and diversifying geographically. We continue to seek appropriate rate increases that meet or exceed underlying loss cost trends, subject to regulatory and competitive considerations.

Net premiums written increased by 9.9% in the first nine months of 2023, compared to the same period in 2022, primarily due to renewal price increases, partially offset by decreased new business. Underwriting results decreased in the first nine months of 2023, primarily due to higher catastrophe losses and higher current accident year losses due to increased severity in our personal automobile and homeowners lines.

Description of Operating Segments

Primary business operations include insurance products and services currently 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 P&C, Marine, and Surety and Other. Specialty P&C includes coverages such as program business (providing commercial insurance to markets with specialized coverage or risk management needs related to groups of similar businesses), specialty industrial and commercial property, excess and surplus lines and specialty general liability coverage. Personal Lines includes personal automobile, homeowners and other personal coverages, such as umbrella. Included in the “Other” segment are Opus Investment Management, Inc., which markets investment management services to institutions, pension funds, and other organizations; earnings on holding company assets; holding company and other expenses, including certain costs associated with retirement benefits due to our former life insurance employees and agents; and our run-off voluntary assumed property and casualty pools and run-off direct asbestos and environmental businesses.

We report interest expense on debt separately from the earnings of our operating segments. This consists primarily of interest on our senior and subordinated debentures.

Results of Operations – Consolidated

Consolidated net income for the three months ended September 30, 2023 was $8.6 million, compared to $0.5 million for the three months ended September 30, 2022, an increase of $8.1 million. The change year-over-year was primarily due to $36.5 million of lower after-tax net realized and unrealized investment losses, primarily related to the change in the fair value of equity securities, partially offset by a decrease in after-tax operating results of $28.9 million. Operating income before interest expense and income taxes was $13.7 million for the three months ended September 30, 2023, compared to $53.9 million for the three months ended September 30, 2022, a decrease of $40.2 million. This decrease was primarily due to higher catastrophe losses, primarily in Personal Lines, partially offset by an increase in current accident year underwriting profit.

Consolidated net loss for the nine months ended September 30, 2023 was $72.6 million, compared to net income of $128.1 million for the nine months ended September 30, 2022, a decrease of $200.7 million. This decrease was primarily due to $294.2 million of lower after-tax operating results, partially offset by a decrease in after-tax net realized and unrealized investment losses of $90.7 million, primarily related to changes in the fair value of equity securities. Operating loss before interest expense and income taxes was $52.5 million for the nine months ended September 30, 2023, compared to income of $323.3 million for the nine months ended September 30, 2022, a change of $375.8 million. The decrease in operating results was primarily due to higher catastrophe losses most significantly in our Personal Lines and, to a lesser extent, in each of our other operating segments, as well as higher current accident year losses in Personal Lines. These losses were partially offset by an improvement in current accident year results in our Core Commercial and Specialty segments, as well as higher net investment income and earned premium growth.

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 (loss) before interest expense and income taxes (a non-GAAP measure).


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2023			2022			2023			2022
Operating income (loss) before interest expense and income taxes:
Core Commercial	$	43.1		$	25.2		$	114.4		$	159.6
Specialty		70.3			46.9			173.0			142.1
Personal Lines		(100.4	)		(18.8	)		(341.1	)		20.3
Other		0.7			0.6			1.2			1.3
Operating income (loss) before interest expense and income taxes		13.7			53.9			(52.5	)		323.3
Interest expense on debt		(8.5	)		(8.5	)		(25.6	)		(25.5	)
Operating income (loss) before income taxes		5.2			45.4			(78.1	)		297.8
Income tax benefit (expense) on operating income (loss)		1.6			(9.7	)		21.2			(60.5	)
Operating income (loss)		6.8			35.7			(56.9	)		237.3
Non-operating items:
Net realized and unrealized investment losses		(6.1	)		(44.9	)		(31.8	)		(138.7	)
Other non-operating		—			—			0.8			(0.4	)
Income tax benefit on non-operating items		7.5			9.8			14.1			30.5
Income (loss) from continuing operations, net of taxes		8.2			0.6			(73.8	)		128.7
Discontinued operations (net of taxes):
Income from discontinued Chaucer business		0.4			—			1.2			—
Loss from discontinued life businesses		—			(0.1	)		—			(0.6	)
Net income (loss)	$	8.6		$	0.5		$	(72.6	)	$	128.1

Non-GAAP Financial Measures

In addition to consolidated net income (loss), discussed above, we assess our financial performance based upon pre-tax “operating income (loss),” and we assess the operating performance of each of our four operating segments based upon the pre-tax operating income (loss) generated by each segment. As reflected in the table above, operating income (loss) before interest expense and income taxes excludes interest expense on debt and certain other items, which we believe are not indicative of our core operations, such as net realized and unrealized investment gains and losses. Such gains and losses are excluded since they are determined by interest rates, financial markets and the timing of sales. Also, operating income (loss) 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 (loss) before interest expense and income taxes are important components in understanding and assessing our overall financial performance, we believe a discussion of operating income (loss) 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 (loss) before interest expense and income taxes, which is a non-GAAP measure, should not be construed as a substitute for income (loss) before income taxes or income (loss) from continuing operations, and operating income (loss) should not be construed as a substitute for net income (loss).

Catastrophe losses and prior years’ reserve development are significant components in understanding and assessing the financial performance of our business. Management reviews and evaluates catastrophes and prior years’ reserve development separately from the other components of earnings. References to “current accident year underwriting results” exclude prior accident year reserve development and may also be presented “excluding catastrophes.” Prior years’ reserve development and catastrophes are not predictable as to timing or the amount that will affect the results of our operations and have an effect on each year’s operating and net income (loss). Management believes that providing certain financial metrics and trends excluding the effects of catastrophes and prior years’ reserve development helps investors to understand the variability in periodic earnings and to evaluate the underlying performance of our operations. Discussion of catastrophe losses in this Management’s Discussion and Analysis includes development on prior years’ catastrophe reserves and, unless otherwise indicated, such development is excluded from discussions of prior year loss and loss adjustment expenses (“LAE”) reserve development.

Results of Operations – Segments

The following is our discussion and analysis of the results of operations by business segment. The operating results are presented before interest expense, income taxes and other items, which management believes are not indicative of our core operations, including realized gains and losses, as well as unrealized gains and losses on equity securities, and the results of discontinued operations.

The following table summarizes the results of operations for the periods indicated:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2023		2022		2023			2022
Operating revenues
Net premiums written	$	1,596.4	$	1,505.4	$	4,464.7		$	4,150.5
Net premiums earned	$	1,431.1	$	1,331.2	$	4,222.8		$	3,888.8
Net investment income		84.2		73.0		250.5			220.4
Other income		7.4		7.0		23.2			19.4
Total operating revenues		1,522.7		1,411.2		4,496.5			4,128.6
Losses and operating expenses
Losses and LAE		1,061.5		939.6		3,218.8			2,572.6
Amortization of deferred acquisition costs		296.6		277.1		878.1			809.3
Other operating expenses		150.9		140.6		452.1			423.4
Total losses and operating expenses		1,509.0		1,357.3		4,549.0			3,805.3
Operating income (loss) before interest expense and income taxes	$	13.7	$	53.9	$	(52.5	)	$	323.3

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Operating income before interest expense and income taxes was $13.7 million for the three months ended September 30, 2023, compared to $53.9 million for the three months ended September 30, 2022, a decrease of $40.2 million. This decrease was primarily due to higher catastrophe losses, primarily in Personal Lines, partially offset by lower current accident year losses, relative to earned premiums, as well as higher net investment income, and earned premium growth. The higher catastrophe losses were primarily due to multiple convective storms across the Midwestern United States, with hail and wind damage representing the majority of reported losses.

Net premiums written increased $91.0 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to pricing.

Production and Underwriting Results

The following tables summarize premiums written on a gross and net basis, net premiums earned, and loss (including catastrophe losses) and LAE, expense, and combined ratios for our Core Commercial, Specialty and Personal Lines segments. Loss and LAE, catastrophe loss and combined ratios shown below include prior year reserve development. These items are not meaningful for our Other segment.


	Three Months Ended September 30, 2023
(dollars in millions)	Gross Premiums Written		Net Premiums Written		Net Premiums Earned		Catastrophe Loss Ratios		Loss & LAE Ratios		Expense Ratios		Combined Ratios
Core Commercial	$	667.4	$	589.4	$	517.4		8.6		65.4		33.3		98.7
Specialty		400.5		338.7		321.7		2.1		48.3		35.1		83.4
Personal Lines		695.4		668.3		592.0		24.4		95.9		24.9		120.8
Total	$	1,763.3	$	1,596.4	$	1,431.1		13.7		74.2		30.2		104.4

	Three Months Ended September 30, 2022
(dollars in millions)	Gross Premiums Written		Net Premiums Written		Net Premiums Earned		Catastrophe Loss Ratios		Loss & LAE Ratios		Expense Ratios		Combined Ratios
Core Commercial	$	638.7	$	565.9	$	492.7		6.6		68.6		32.7		101.3
Specialty		392.3		329.1		303.3		2.8		54.7		34.5		89.2
Personal Lines		629.3		610.4		535.2		9.1		81.4		25.9		107.3
Total	$	1,660.3	$	1,505.4	$	1,331.2		6.8		70.6		30.4		101.0

The following table summarizes U.S. GAAP underwriting results for our Core Commercial, Specialty, Personal Lines and Other segments and reconciles them to operating income (loss) before interest expense and income taxes.


	Three Months Ended September 30,
	2023															2022
(in millions)	Core Commercial			Specialty			Personal Lines			Other			Total			Core Commercial			Specialty			Personal Lines			Other			Total
Underwriting profit, excluding prior year reserve development and catastrophes	$	52.6		$	54.6		$	17.2		$	—		$	124.4		$	26.3		$	35.5		$	5.9		$	—		$	67.7
Prior year favorable (unfavorable) loss and LAE reserve development on non-catastrophe losses		(2.7	)		5.0			(0.2	)		—			2.1			(1.3	)		5.1			0.2			—			4.0
Prior year favorable (unfavorable) catastrophe development		—			—			—			—			—			1.4			1.6			(3.0	)		—			—
Current year catastrophe losses		(44.6	)		(6.9	)		(144.3	)		—			(195.8	)		(34.1	)		(10.2	)		(45.8	)		—			(90.1	)
Underwriting profit (loss)		5.3			52.7			(127.3	)		—			(69.3	)		(7.7	)		32.0			(42.7	)		—			(18.4	)
Net investment income		38.4			18.0			24.3			3.5			84.2			33.4			15.2			21.4			3.0			73.0
Fees and other income		1.3			1.2			4.2			0.7			7.4			1.0			1.4			3.9			0.7			7.0
Other operating expenses		(1.9	)		(1.6	)		(1.6	)		(3.5	)		(8.6	)		(1.5	)		(1.7	)		(1.4	)		(3.1	)		(7.7	)
Operating income (loss) before interest expense and income taxes	$	43.1		$	70.3		$	(100.4	)	$	0.7		$	13.7		$	25.2		$	46.9		$	(18.8	)	$	0.6		$	53.9

Core Commercial

Core Commercial net premiums written were $589.4 million for the three months ended September 30, 2023, compared to $565.9 million for the three months ended September 30, 2022. This $23.5 million increase was primarily driven by pricing.

Core Commercial underwriting profit for the three months ended September 30, 2023 was $5.3 million, compared to an underwriting loss of $7.7 million for the three months ended September 30, 2022, an increase in underwriting results of $13.0 million. Catastrophe losses for the three months ended September 30, 2023 were $44.6 million, compared to $32.7 million for the three months ended September 30, 2022. The $11.9 million increase was primarily due to widespread hail, wind and flood activity across the Midwestern United States. Net unfavorable development on prior years’ loss reserves for the three months ended September 30, 2023 was $2.7 million, compared to $1.3 million for the three months ended September 30, 2022, an increase of $1.4 million.

Core Commercial current accident year underwriting profit, excluding catastrophes, was $52.6 million for the three months ended September 30, 2023, compared to $26.3 million for the three months ended September 30, 2022. This $26.3 million increase was primarily driven by lower current accident year losses, primarily in our commercial multiple peril line.

We continue to manage underwriting performance through rate actions, risk selection and mitigation, 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 competitive pricing environment, particularly within the workers’ compensation line.

Specialty

Specialty net premiums written were $338.7 million for the three months ended September 30, 2023, compared to $329.1 million for the three months ended September 30, 2022. This $9.6 million increase was primarily driven by pricing and increased new business, partially offset by the effect of non-renewing certain programs.

Specialty underwriting profit for the three months ended September 30, 2023 was $52.7 million, compared to $32.0 million for the three months ended September 30, 2022, an increase in underwriting results of $20.7 million. Catastrophe losses for the three months ended September 30, 2023 were $6.9 million, compared to $8.6 million for the three months ended September 30, 2022, a decrease of $1.7 million. Net favorable development on prior years’ loss reserves for the three months ended September 30, 2023 was $5.0 million, compared to $5.1 million for the three months ended September 30, 2022, a decrease of $0.1 million.

Specialty current accident year underwriting profit, excluding catastrophes, was $54.6 million for the three months ended September 30, 2023, compared to $35.5 million for the three months ended September 30, 2022. This $19.1 million increase was primarily driven by lower current accident year losses in our Hanover Specialty Industrial and Marine businesses.

Personal Lines

Personal Lines net premiums written were $668.3 million for the three months ended September 30, 2023, compared to $610.4 million for the three months ended September 30, 2022. This $57.9 million increase was primarily due to renewal price increases, partially offset by decreased new business.

Net premiums written in the personal automobile line of business for the three months ended September 30, 2023 were $385.0 million, compared to $354.0 million for the three months ended September 30, 2022, an increase of $31.0 million, or 8.8%. Personal automobile policies in force increased by 1.0%. Net premiums written in the homeowners and other lines of business for the three months ended September 30, 2023 were $283.3 million, compared to $256.4 million for the three months ended September 30, 2022, an increase of $26.9 million, or 10.5%. Homeowners policies in force increased by 1.7%.

Personal Lines underwriting loss for the three months ended September 30, 2023 was $127.3 million, compared to $42.7 million for the three months ended September 30, 2022, a decrease in underwriting results of $84.6 million. Catastrophe losses for the three months ended September 30, 2023 were $144.3 million, compared to $48.8 million for the three months ended September 30, 2022. This $95.5 million increase was primarily due to several convective storms across the Midwestern United States, with hail and wind damage representing the majority of reported losses. Net unfavorable development on prior years’ loss reserves for the three months ended September 30, 2023 was $0.2 million, compared to favorable development of $0.2 million for the three months ended September 30, 2022, an unfavorable change of $0.4 million.

Personal Lines current accident year underwriting profit, excluding catastrophes, was $17.2 million for the three months ended September 30, 2023, compared to $5.9 million for the three months ended September 30, 2022. This $11.3 million increase was primarily due to lower performance-based compensation expenses and lower current year accident losses, relative to earned premiums, in our personal automobile line.

We were able to obtain pricing increases of approximately 23% in our homeowners line and 14% in our automobile line during the third quarter of 2023 and believe that our ability to obtain pricing increases will continue. Consistent with our expectations, PIF growth in the first nine months of 2023 has moderated compared to growth experienced in 2022, driven by lower new business, as our new business pricing is at levels at or above our renewal price increases. We are becoming more restrictive on new business quoting, where permissible, around certain geographies, driver and vehicle history, building and roof condition type, and by implementing changes to certain policy terms and conditions. As a result of our pricing and underwriting actions, Personal Lines PIF decreased slightly in the third quarter of 2023. We expect our sequential PIF counts to continue to shrink in the fourth quarter of this year. Additionally, our Personal Lines net premiums written may be affected by price competition and the regulatory environment. These factors, along with the aforementioned issues contributing to our recent increase in losses, may also affect our ability to maintain and improve underwriting results.

Other

Our Other segment had operating income of $0.7 million for the three months ended September 30, 2023, compared to $0.6 million for the three months ended September 30, 2022, an increase of $0.1 million.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Operating loss before interest expense and income taxes was $52.5 million for the nine months ended September 30, 2023, compared to income of $323.3 million for the nine months ended September 30, 2022, a decrease in operating results of $375.8 million. This decrease was primarily due to higher catastrophe losses in each of our operating segments and, to a lesser extent, higher current accident year losses in Personal Lines, partially offset by an improvement in current accident year results in both our Core Commercial and Specialty segments. These losses were partially offset by higher net investment income and earned premium growth. The higher catastrophe losses were primarily due to multiple convective storms across many states during the first nine months of 2023. Hail and wind damage represented the majority of reported losses, primarily impacting our Personal Lines business. The higher current accident year losses were primarily due to higher severity, primarily in our personal automobile line, as a result of continued inflation and supply chain disruptions.

Net premiums written increased $314.2 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. This was primarily due to pricing and increased new business.

Production and Underwriting Results

The following tables summarize premiums written on a gross and net basis, net premiums earned, and loss (including catastrophe losses) and LAE, expense, and combined ratios for the Core Commercial, Specialty, and Personal Lines segments. Loss and LAE, catastrophe loss, and combined ratios shown below include prior year reserve development. These items are not meaningful for our Other segment.


	Nine Months Ended September 30, 2023
(dollars in millions)	Gross Premiums Written		Net Premiums Written		Net Premiums Earned		Catastrophe Loss Ratios		Loss & LAE Ratios		Expense Ratios		Combined Ratios
Core Commercial	$	1,855.3	$	1,641.5	$	1,540.4		9.2		66.6		33.1		99.7
Specialty		1,174.5		988.4		953.2		3.9		52.0		35.2		87.2
Personal Lines		1,900.7		1,834.8		1,729.2		26.2		98.1		25.6		123.7
Total	$	4,930.5	$	4,464.7	$	4,222.8		15.0		76.2		30.5		106.7

	Nine Months Ended September 30, 2022
(dollars in millions)	Gross Premiums Written		Net Premiums Written		Net Premiums Earned		Catastrophe Loss Ratios		Loss & LAE Ratios		Expense Ratios		Combined Ratios
Core Commercial	$	1,756.2	$	1,546.7	$	1,447.5		4.8		63.1		32.7		95.8
Specialty		1,126.0		934.2		880.6		2.6		53.7		35.1		88.8
Personal Lines		1,722.1		1,669.6		1,560.7		7.7		76.0		26.6		102.6
Total	$	4,604.3	$	4,150.5	$	3,888.8		5.5		66.2		30.8		97.0

The following table summarizes U.S. GAAP underwriting results for the Core Commercial, Specialty, Personal Lines and Other segments and reconciles them to operating income (loss) before interest expense and income taxes.


	Nine Months Ended September 30,
	2023															2022
(in millions)	Core Commercial			Specialty			Personal Lines			Other			Total			Core Commercial			Specialty			Personal Lines			Other			Total
Underwriting profit, excluding prior year reserve development and catastrophes	$	149.7		$	122.2		$	51.8		$	—		$	323.7		$	121.1		$	99.5		$	77.9		$	—		$	298.5
Prior year favorable (unfavorable) loss and LAE reserve development on non-catastrophe losses		(6.9	)		34.8			(21.1	)		—			6.8			7.9			19.5			(8.2	)		—			19.2
Prior year favorable (unfavorable) catastrophe development		5.7			8.3			(14.0	)		—			—			12.3			4.7			(5.0	)		—			12.0
Current year catastrophe losses		(147.5	)		(45.8	)		(439.1	)		—			(632.4	)		(82.5	)		(27.5	)		(115.0	)		—			(225.0	)
Underwriting profit (loss)		1.0			119.5			(422.4	)		—			(301.9	)		58.8			96.2			(50.3	)		—			104.7
Net investment income		114.2			53.6			73.3			9.4			250.5			101.4			46.2			64.6			8.2			220.4
Fees and other income		3.6			4.8			12.6			2.2			23.2			2.9			4.2			10.1			2.2			19.4
Other operating expenses		(4.4	)		(4.9	)		(4.6	)		(10.4	)		(24.3	)		(3.5	)		(4.5	)		(4.1	)		(9.1	)		(21.2	)
Operating income (loss) before interest expense and income taxes	$	114.4		$	173.0		$	(341.1	)	$	1.2		$	(52.5	)	$	159.6		$	142.1		$	20.3		$	1.3		$	323.3

Core Commercial

Core Commercial net premiums written were $1,641.5 million for the nine months ended September 30, 2023 compared to $1,546.7 million for the nine months ended September 30, 2022. This $94.8 million increase was primarily driven by pricing.

Core Commercial underwriting profit for the nine months ended September 30, 2023 was $1.0 million, compared to $58.8 million for the nine months ended September 30, 2022, a decrease in underwriting results of $57.8 million. Catastrophe losses for the nine months ended September 30, 2023 were $141.8 million, compared to $70.2 million for the nine months ended September 30, 2022. The higher catastrophe losses were primarily due to hail, wind and tornadic activity in the first nine months of 2023, and several severe freeze events across multiple states in the first quarter of 2023. Net unfavorable development on prior years’ loss reserves for the nine months ended September 30, 2023 was $6.9 million, compared to favorable development of $7.9 million for nine months ended September 30, 2022, an unfavorable change of $14.8 million.

Core Commercial current accident year underwriting profit, excluding catastrophes, was $149.7 million for the nine months ended September 30, 2023, compared to $121.1 million for the nine months ended September 30, 2022. This $28.6 million increase was primarily due to lower current accident year losses in our commercial multiple peril line.

Specialty

Specialty net premiums written were $988.4 million for the nine months ended September 30, 2023, compared to $934.2 million for the nine months ended September 30, 2022. This $54.2 million increase was primarily driven by pricing and increased new business.

Specialty underwriting profit for the nine months ended September 30, 2023 was $119.5 million, compared to $96.2 million for the nine months ended September 30, 2022, an increase of $23.3 million. Catastrophe losses for the nine months ended September 30, 2023 were $37.5 million, compared to $22.8 million for the nine months ended September 30, 2022. Net favorable development on prior years’ loss reserves for the nine months ended September 30, 2023 was $34.8 million, compared to $19.5 million for the nine months ended September 30, 2022, an increase of $15.3 million.

Specialty current accident year underwriting profit, excluding catastrophes, was $122.2 million for the nine months ended September 30, 2023, compared to $99.5 million for the nine months ended September 30, 2022. This $22.7 million increase was primarily due to lower current accident year losses, relative to earned premiums, in our marine line, and earned premium growth.

Personal Lines

Personal Lines net premiums written were $1,834.8 million for the nine months ended September 30, 2023, compared to $1,669.6 million for the nine months ended September 30, 2022. This $165.2 million increase was primarily driven by renewal price increases, partially offset by decreased new business.

Personal Lines underwriting loss for the nine months ended September 30, 2023 was $422.4 million, compared to $50.3 million for the nine months ended September 30, 2022, a decrease in underwriting results of $372.1 million. Catastrophe losses for the nine months ended September 30, 2023 were $453.1 million, compared to $120.0 million for the nine months ended September 30, 2022. The $333.1 million increase was primarily due to multiple convective storms across many states, with hail and wind damage representing the majority of reported losses. Unfavorable development on prior years’ loss reserves for the nine months ended September 30, 2023 was $21.1 million, compared to $8.2 million for the nine months ended September 30, 2022, an increase of $12.9 million.

Personal Lines current accident year underwriting profit, excluding catastrophes, was $51.8 million for the nine months ended September 30, 2023, compared to $77.9 million for the nine months ended September 30, 2022. This $26.1 million decrease was primarily due to higher current accident year loss severity in our personal automobile and homeowners lines, partially offset by lower performance-based compensation expenses. We experienced an increase in loss severity, with inflationary pressures and ongoing supply chain issues, resulting in higher vehicle prices, cost of parts, and other repair costs. In addition, homeowners losses increased primarily due to an increase in average severity related to large fire loss activity and, to a lesser extent, from higher property severity as a result of continued inflation. We have experienced the effect of inflationary pressures on building material and labor costs, supply chain constraints that increase building and repair times, and an increase in temporary lodging and additional living expense reimbursements.

Other

Our Other segment had operating income of $1.2 million for the nine months ended September 30, 2023, compared to $1.3 million for the nine months ended September 30, 2022, a decrease of $0.1 million.

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.


	Nine Months Ended
	September 30,
(in millions)	2023			2022
Gross reserve for losses and LAE, beginning of period	$	7,012.6		$	6,447.6
Reinsurance recoverable on unpaid losses		1,748.6			1,693.8
Net reserve for losses and LAE, beginning of period		5,264.0			4,753.8
Net incurred losses and LAE in respect of losses occurring in:
Current year		3,225.6			2,603.8
Prior year non-catastrophe loss development		(6.8	)		(19.2	)
Prior year catastrophe loss development		—			(12.0	)
Total incurred losses and LAE		3,218.8			2,572.6
Net payments of losses and LAE in respect of losses occurring in:
Current year		1,375.7			1,041.3
Prior years		1,523.8			1,226.2
Total payments		2,899.5			2,267.5
Net reserve for losses and LAE, end of period		5,583.3			5,058.9
Reinsurance recoverable on unpaid losses		1,746.5			1,715.1
Gross reserve for losses and LAE, end of period	$	7,329.8		$	6,774.0

The table below summarizes the gross reserve for losses and LAE by line of business and division.


	September 30,		December 31,
(in millions)	2023		2022
Commercial multiple peril	$	1,589.5	$	1,556.6
Workers’ compensation		754.2		735.0
Commercial automobile		499.9		477.7
Other core commercial		643.8		581.6
Total Core Commercial		3,487.4		3,350.9
Specialty Property & Casualty		843.3		820.6
Professional and Executive Lines		524.9		529.3
Marine		143.6		136.0
Surety and Other		73.3		112.2
Total Specialty		1,585.1		1,598.1
Personal automobile		1,658.0		1,633.2
Homeowners and Other		535.8		364.9
Total Personal Lines		2,193.8		1,998.1
Total Other		63.5		65.5
Total loss and LAE reserves	$	7,329.8	$	7,012.6

Loss and LAE reserves in our “Other core commercial” lines include monoline general liability, commercial umbrella, and monoline property. “Specialty Property & Casualty” includes program business, specialty industrial and commercial property, excess and surplus lines, and specialty general liability coverage. “Professional and Executive Lines” includes professional and management liability, fidelity and crime, and other property and liability lines for healthcare firms. Loss and LAE reserves in our “Total Other” segment relate to our run-off voluntary assumed property and casualty reinsurance pools business and our run-off direct asbestos and environmental business.

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


	Nine Months Ended September 30,
	2023									2022
(in millions)	Non-Catastrophe Losses			Catastrophe Losses			Total			Non-Catastrophe Losses			Catastrophe Losses			Total
Core Commercial	$	6.9		$	(5.7	)	$	1.2		$	(7.9	)	$	(12.3	)	$	(20.2	)
Specialty		(34.8	)		(8.3	)		(43.1	)		(19.5	)		(4.7	)		(24.2	)
Personal Lines		21.1			14.0			35.1			8.2			5.0			13.2
Other		—			—			—			—			—			—
Total prior year favorable development	$	(6.8	)	$	—		$	(6.8	)	$	(19.2	)	$	(12.0	)	$	(31.2	)

It is not possible to know whether the factors that affected loss reserves in the first nine months of 2023 will also occur in future periods. We encourage you to read our 2022 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 nine months ended September 30, 2023 and 2022, favorable catastrophe development was zero and $12.0 million, respectively. The favorable catastrophe development during the nine months ended September 30, 2022 was primarily due to lower than expected losses related to 2021 events, including $11.5 million related to hurricane Ida.

2023 Loss and LAE Development, excluding catastrophes

For the nine months ended September 30, 2023, net favorable loss and LAE development, excluding catastrophes, was $6.8 million. Specialty favorable loss and LAE development of $34.8 million was primarily due to lower than expected losses and LAE of $28.9 million in our Professional and Executive division, notably in accident years 2019 through 2022 and, to a lesser extent, lower than expected losses and LAE in our surety line. Personal Lines unfavorable loss and LAE development of $21.1 million was primarily due to higher than expected losses in our personal automobile line of $17.1 million. The higher than expected losses in our personal automobile line were primarily within bodily injury coverages in accident years 2018, 2019 and 2022, and within property damage coverages in accident years 2021 and 2022, partially offset by lower than expected losses within personal injury protection coverages in accident years 2021 and 2022. Core Commercial unfavorable loss and LAE development of $6.9 million was primarily due to higher than expected losses in our commercial automobile line of $14.0 million, driven by higher bodily injury and personal injury protection losses in accident years 2014 through 2019 and, to a lesser extent, higher than expected losses in general liability and commercial umbrella coverages, partially offset by lower than expected losses in our workers’ compensation line of $17.7 million, primarily in accident years 2013 through 2021.

2022 Loss and LAE Development, excluding catastrophes

For the nine months ended September 30, 2022, net favorable loss and LAE development, excluding catastrophes, was $19.2 million. Core Commercial favorable loss and LAE development of $7.9 million was primarily due to lower than expected losses of $21.0 million in the workers’ compensation line, primarily in accident years 2013 through 2018 and 2020, partially offset by higher than expected losses and LAE in our commercial automobile line of $11.4 million driven by higher bodily injury and personal injury protection losses in accident years 2016 through 2020. Specialty favorable loss and LAE development of $19.5 million was primarily due to lower than expected losses and LAE of $12.3 million in our Professional and Executive division, lower than expected losses and LAE of $11.5 million in our surety line, and lower than expected losses in our marine line, partially offset by higher than expected losses of $11.2 million in our general liability lines. Personal Lines unfavorable loss and LAE development of $8.2 million was due to higher than expected losses of $12.8 million in our homeowners line, primarily in accident year 2021. The increase in homeowners losses was primarily due to higher severity and longer cycle times in repair activity, primarily related to claims incurred in the fourth quarter of 2021.

Reinsurance

We discuss our catastrophe reinsurance coverage in the Reinsurance section of Part I – Item 1 – Business of our 2022 Annual Report on Form 10-K. Except as discussed below, there have been no material changes to our catastrophe reinsurance coverage from that reported in our 2022 Annual Report on Form 10-K.

Catastrophe Bonds – We have catastrophe protection through two per occurrence excess of loss reinsurance agreements with Commonwealth Re Ltd. (“Commonwealth Re”), an independent company, licensed as a Special Purpose Insurer in Bermuda. The coverage under the reinsurance agreements is limited to specified personal and commercial property coverage written in the following geographies in the United States: Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia and all waters contiguous thereto. Coverage is provided for catastrophe losses from named tropical storms or hurricanes, including all events or perils directly resulting from such storm or storm system, which may include, by way of example and not limitation, hurricane, wind, gusts, typhoon, hail, rain, tornadoes, cyclones, ensuing flood, storm surge, water damage, fire following, sprinkler leakage, riots, vandalism, and collapse. The reinsurance agreements meet the requirements to be accounted for as reinsurance in accordance with the guidance for reinsurance contracts. In connection with these two reinsurance agreements, effective July 1, 2023 (“2023 Agreement”) and July 1, 2022 (“2022 Agreement”), Commonwealth Re issued notes (generally referred to as “catastrophe bonds”) to unrelated investors for an aggregate principal amount of $300.0 million, consistent with the amount of coverage provided under the reinsurance agreements as described below. The proceeds have been deposited in a reinsurance trust account.

The 2023 Agreement provides us with coverage of up to $150.0 million through June 30, 2026. For events up to and including June 30, 2026, we are entitled to begin recovering amounts under this reinsurance agreement if the covered losses in the covered area for a single occurrence reach an initial attachment amount of $1.3 billion. The $150.0 million coverage amount is available for 50% of the covered losses, until such losses reach a maximum level of $1.6 billion.

Pursuant to the terms of the 2022 Agreement, effective July 1, 2023, we reset the exhaustion level and percentage of coverage within the layer. For the period from July 1, 2023 through and including June 30, 2025, we will be entitled to begin recovering amounts under the 2022 Agreement if the covered losses in the covered area for a single occurrence reach an attachment amount of $1.3 billion. The $150.0 million coverage amount is available for 50% of the covered losses, until such losses reach a maximum level of $1.6 billion. Prior to the reset, effective July 1, 2023, the $150.0 million coverage was available for covered losses between $1.3 billion and $1.45 billion.

The attachment level, the maximum level (or exhaustion level) and percentage of coverage under each agreement will be reset annually to adjust the expected loss of the layer within a predetermined range.

See the “Reinsurance – Catastrophe Bonds” section of “Part I—Item 1—Business” in our 2022 Annual Report on Form 10-K for more details, including a discussion of the structure of and accounting for Commonwealth Re.

Reinsurance Recoverables

Reinsurance recoverables were $1,992.2 million and $1,964.5 million at September 30, 2023 and December 31, 2022, respectively, of which $141.6 million and $111.1 million, respectively, represent billable recoverables. A reinsurance recoverable is billable after an eligible reinsured claim is paid by an insurer. Billable reinsurance recoverables related to the Michigan Catastrophic Claims Association (the “MCCA”) were $77.6 million and $50.7 million at September 30, 2023 and December 31, 2022, and billable non-MCCA reinsurance recoverables totaled $64.0 million and $60.4 million at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023 there were $0.3 million of billed balances outstanding greater than 90 days. At December 31, 2022 there were no billed balances outstanding greater than 90 days.

Investments

Investment Results

Net investment income before income taxes was as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in millions)	2023			2022			2023			2022
Fixed maturities	$	71.3		$	60.3		$	209.0		$	173.7
Limited partnerships		8.1			7.5			26.5			30.5
Mortgage loans		3.9			4.0			11.9			12.4
Equity securities		1.7			3.1			5.5			9.8
Other investments		2.6			1.0			7.8			2.6
Investment expenses		(3.4	)		(2.9	)		(10.2	)		(8.6	)
Net investment income	$	84.2		$	73.0		$	250.5		$	220.4
Earned yield, fixed maturities		3.37	%		3.02	%		3.32	%		2.98	%
Earned yield, total portfolio		3.55	%		3.21	%		3.54	%		3.30	%

The increase in net investment income for the three and nine months ended September 30, 2023 was primarily due to the impact of higher new money yields and the continued investment of operational cashflows. During the nine months ended September 30, 2023, this increase was partially offset by lower partnership income. Income from partnerships can vary significantly from period to period based on the performance in the underlying portfolios. Partnership income for the nine months ended September 30, 2023 benefited from a real estate property sale in a tax credit partnership, while higher partnership income for the nine months ended September 30, 2022, particularly in the first quarter, was driven by substantial valuation increases across all private capital strategies.

Investment Portfolio

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


	September 30, 2023					December 31, 2022
(dollars in millions)	Carrying Value		% of Total Carrying Value			Carrying Value		% of Total Carrying Value
Fixed maturities, at fair value	$	7,618.3		86.1	%	$	7,481.8		84.9	%
Limited partnerships and other investments		436.1		4.9			397.5		4.5
Mortgage and other loans		381.8		4.3			388.6		4.4
Equity securities, at fair value		123.5		1.4			241.9		2.7
Cash and cash equivalents		294.5		3.3			305.0		3.5
Total cash and investments	$	8,854.2		100.0	%	$	8,814.8		100.0	%

Cash and Investments

Total cash and investments increased $39.4 million, or 0.4%, for the nine months ended September 30, 2023 as compared to December 31, 2022, primarily due to the continued investment of operational cashflows, partially offset by the funding of financing activities, including our dividend payments, and by net market value depreciation.

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


	September 30, 2023
(in millions) Investment Type	Weighted Average Quality	Amortized Cost, Net of Allowance for Credit Losses		Fair Value		Net Unrealized Loss			Change in Net Unrealized for the Year
U.S. Treasury and government agencies	AA+	$	510.2	$	439.0	$	(71.2	)	$	(12.5	)
Foreign government	BBB+		2.2		2.1		(0.1	)		—
Municipals:
Taxable	AA		1,249.4		1,076.0		(173.4	)		(10.7	)
Tax-exempt	AA+		35.6		32.5		(3.1	)		(2.4	)
Corporate	BBB+		4,112.7		3,755.0		(357.7	)		(23.3	)
Asset-backed:
Residential mortgage-backed	AA+		1,342.0		1,152.2		(189.8	)		(48.3	)
Commercial mortgage-backed	AAA		914.8		817.6		(97.2	)		(9.5	)
Other asset-backed	AA		368.6		343.9		(24.7	)		2.2
Total fixed maturities	A+	$	8,535.5	$	7,618.3	$	(917.2	)	$	(104.5	)

The change in net unrealized loss on fixed maturities was primarily due to higher interest rates.

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


		September 30, 2023							December 31, 2022
(dollars in millions) NAIC Designation	Rating Agency Equivalent Designation	Amortized Cost, Net of Allowance for Credit Losses		Fair Value		% of Total Fair Value			Amortized Cost, Net of Allowance for Credit Losses		Fair Value		% of Total Fair Value
1	Aaa/Aa/A	$	6,009.3	$	5,340.3		70.1	%	$	5,761.4	$	5,192.4		69.4	%
2	Baa		2,128.2		1,893.4		24.9			2,177.1		1,949.4		26.1
3	Ba		167.2		161.0		2.1			160.3		153.4		2.0
4	B		194.5		188.6		2.5			178.9		171.3		2.3
5	Caa and lower		19.7		18.5		0.2			15.0		14.2		0.2
6	In or near default		16.6		16.5		0.2			1.8		1.1		—
Total fixed maturities		$	8,535.5	$	7,618.3		100.0	%	$	8,294.5	$	7,481.8		100.0	%

Based on ratings by the National Association of Insurance Commissioners (“NAIC”), approximately 95% and 96% of the fixed maturity portfolio consisted of investment-grade securities at September 30, 2023 and December 31, 2022, respectively. 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. Our U.S. Treasury and government agencies fixed maturities are directly or indirectly backed by the full faith and credit of the U.S. government. Our municipal bonds include revenue bonds and general obligations of state and local issuers. Corporate fixed maturities include publicly traded and privately placed securities in the industrial, financial, and utility sectors. Residential mortgage-backed securities are structured securities that are collateralized by residential real estate loans and are primarily U.S. agency-backed. Our commercial mortgage-backed securities are structured securities that are collateralized by commercial real estate loans and are well-diversified by geography, property type, expected maturity and vintage year. Our other asset-backed securities are structured securities that are primarily collateralized by consumer and corporate borrowings.

Our investment portfolio primarily consists of fixed maturity securities whose fair value is susceptible to market risk, including interest rate changes. See also “Quantitative and Qualitative Disclosures about Market Risk” included in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2022 Annual Report on Form 10-K. Duration is a measurement used to quantify our inherent interest rate risk and analyze invested assets relative to our reserve liabilities.

The duration of our fixed maturity portfolio is as follows:


	September 30, 2023							December 31, 2022
(dollars in millions) Duration	Amortized Cost, Net of Allowance for Credit Losses		Fair Value		% of Total Fair Value			Amortized Cost, Net of Allowance for Credit Losses		Fair Value		% of Total Fair Value
0-2 years	$	1,898.0	$	1,848.0		24.3	%	$	1,614.2	$	1,580.3		21.1	%
2-4 years		2,288.3		2,130.0		28.0			2,170.6		2,056.8		27.5
4-6 years		2,229.5		1,967.3		25.8			2,044.2		1,850.6		24.8
6-8 years		1,776.4		1,421.3		18.7			2,004.3		1,638.7		21.9
8-10 years		200.5		148.5		1.9			339.5		263.6		3.5
10+ years		142.8		103.2		1.3			121.7		91.8		1.2
Total fixed maturities	$	8,535.5	$	7,618.3		100.0	%	$	8,294.5	$	7,481.8		100.0	%
Weighted average duration				3.9						4.3

Our fixed maturity and equity securities are carried at fair value. Financial instruments, whose value was determined using significant management judgment or estimation, constituted less than 1% of the total assets we measured at fair value. See also Note 4 – “Fair Value” in the Notes to Interim Consolidated Financial Statements.

Limited partnerships and other investments consist primarily of our interest in corporate middle market and real estate limited partnerships. Corporate middle market limited partnerships may invest in senior or subordinated debt, preferred or common equity or a combination thereof, of privately-held middle market businesses. Real estate limited partnerships hold equity ownership positions in real properties and invest in debt secured by real properties. Our limited partnerships are generally accounted for under the equity method, or as a practical expedient using the fund’s net asset value, with financial information provided by the partnership on a two- or three-month lag.

Mortgage and other loans consist primarily of commercial mortgage loan participations, which represent our interest in commercial mortgage loans originated by a third-party. We share, on a pro-rata basis, in all related cash flows of the underlying mortgage loans, which are primarily investment-grade quality and diversified by geographic area and property type.

Equity securities primarily consist of U.S. income-oriented large capitalization common stocks and a broadly diversified U.S. equity index exchange-traded fund.

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 below investment-grade fixed maturities, limited partnerships, common equity securities and other investment assets.

Impairments

For the three months ended September 30, 2023, impairments were not material. For the nine months ended September 30, 2023, we recognized net impairments of $16.5 million, consisting primarily of losses of $10.3 million on intent to sell fixed maturities in the banking sector and $5.4 million of estimated credit losses on mortgage loans. For the three and nine months ended September 30, 2022, we recognized net impairments of $15.7 million and $16.3 million, respectively, consisting primarily of losses on intent to sell fixed maturity securities due to a transfer of certain investment management responsibilities to an external manager.

At September 30, 2023 and December 31, 2022, the allowance for credit losses on mortgage loans was $8.5 million and $3.2 million, respectively, and the allowance for credit losses on available-for-sale debt securities was $2.5 million and $2.1 million, respectively.

The carrying value of fixed maturity securities on non-accrual status at September 30, 2023 was $14.8 million. There were no fixed maturity securities on non-accrual status at December 31, 2022 or September 30, 2022. The effects on income of non-accruals for the three and nine months ended September 30 2023, compared with amounts that would have been recognized in accordance with the original terms of the fixed maturities, were not material. There was no effect on income for the three and nine months ended September 30, 2022. Any defaults in the fixed maturities portfolio in future periods may negatively affect investment income.

Unrealized Losses

Gross unrealized losses on fixed maturities at September 30, 2023 were $921.0 million, an increase of $103.3 million compared to December 31, 2022, primarily attributable to higher interest rates. At September 30, 2023, gross unrealized losses consisted primarily of $361.3 million on corporate fixed maturities, $189.8 million on residential mortgage-backed securities, $176.7 million on municipals, $97.2 million on commercial mortgage-backed securities and $71.2 million on U.S. government securities. See Note 3 – “Investments” in the Notes to Interim Consolidated Financial Statements.

We view gross unrealized losses on fixed maturities as non-credit related since it is our assessment that these securities will recover, allowing us to realize their anticipated long-term economic value. Further, we do not intend to sell, nor is it more likely than not we will be required to sell, such debt securities before this expected recovery of amortized cost (See also “Liquidity and Capital Resources”). Inherent in our assessment are the risks that market factors may differ from our expectations; we may decide to subsequently sell a security for unforeseen business needs or an economic purpose; or changes in the credit assessment from our original assessment may lead us to determine that a sale at the current value would maximize recovery on such investments. To the extent that there are such adverse changes, an impairment would be recognized as a realized loss. 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 September 30, 2023 and December 31, 2022. 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.


	September 30,		December 31,
(in millions)	2023		2022
Due in one year or less	$	5.3	$	2.4
Due after one year through five years		155.4		108.9
Due after five years through ten years		399.1		382.0
Due after ten years		49.5		67.6
		609.3		560.9
Mortgage-backed and other asset-backed securities		311.7		256.8
Total fixed maturities	$	921.0	$	817.7

Our investment portfolio and shareholders’ equity can be significantly impacted by changes in market values of our securities. Market volatility could increase and defaults on fixed income securities could occur. As a result, we could incur additional realized and unrealized losses in future periods, which could have a material adverse impact on our results of operations and/or financial position.

During the third quarter of 2023, the U.S. economy continued a trend of economic resiliency. Strength in consumer spending and the labor market persisted as core inflation declined. However, the pace of the decline has slowed, and inflation continues to exceed the Federal Reserve’s (the “Fed”) two percent long-term target. In light of this, the Fed raised the federal funds target rate by 0.25% to a range of 5.25% to 5.50% during the third quarter and has indicated that continued rate increases may be necessary to return inflation to the Fed's stated target. Tighter financial conditions remain a challenge to the U.S. economy and may increase the likelihood of defaults on our fixed income investments, particularly with respect to non-investment grade debt securities. Geopolitical risks also create economic uncertainty, the extent of which is unknown. Although we perform rigorous credit analysis of our fixed income investments, it is difficult to foresee which issuers, industries or markets, if any, will be most affected. As a result, the value of our fixed maturity portfolio could change rapidly in ways we cannot currently anticipate, and we could incur additional realized and unrealized losses in future periods.

Other Items

Net income (loss) also included the following items:


	Three Months Ended September 30,
(in millions)	Core Commercial			Specialty			Personal Lines			Other		Discontinued Operations			Total
2023
Net realized and unrealized investment losses	$	(2.9	)	$	(1.3	)	$	(1.9	)	$	—	$	—		$	(6.1	)
Discontinued Chaucer business		—			—			—			—		0.4			0.4

2022
Net realized and unrealized investment gains (losses)	$	(21.5	)	$	(9.8	)	$	(13.8	)	$	0.2	$	—		$	(44.9	)
Discontinued life businesses		—			—			—			—		(0.1	)		(0.1	)


	Nine Months Ended September 30,
(in millions)	Core Commercial			Specialty			Personal Lines			Other			Discontinued Operations			Total
2023
Net realized and unrealized investment losses	$	(15.2	)	$	(7.1	)	$	(9.5	)	$	—		$	—		$	(31.8	)
Other non-operating		—			—			0.2			0.6			—			0.8
Discontinued Chaucer business		—			—			—			—			1.2			1.2

2022
Net realized and unrealized investment gains (losses)	$	(66.1	)	$	(30.1	)	$	(43.1	)	$	0.6		$	—		$	(138.7	)
Other non-operating		—			—			—			(0.4	)		—			(0.4	)
Discontinued life businesses		—			—			—			—			(0.6	)		(0.6	)

We manage investment assets for our Core Commercial, Specialty, 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 Core Commercial, Specialty, Personal Lines and Other segments based on actuarial and other information related to the underlying businesses.

Net realized and unrealized investment losses were $6.1 million for the three months ended September 30, 2023, compared to $44.9 million for the three months ended September 30, 2022. For the three months ended September 30, 2023, net realized and unrealized investment losses were primarily due to the change in fair value of equity securities of $5.2 million and, to a lesser extent, from net realized losses from sales of investments, primarily fixed maturities. For the three months ended September 30, 2022, net realized and unrealized investment losses were primarily due to changes in the fair value of equity securities of approximately $29.1 million and, to a lesser extent, from impairment losses on investments, including $14.3 million of losses related to intent to sell securities.

Net realized and unrealized investment losses were $31.8 million for the nine months ended September 30, 2023, compared to $138.7 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, net realized and unrealized investment losses were primarily due to impairment losses on investments, including $10.3 million of losses related to intent to sell securities and $6.2 million of credit-related impairments and, to a lesser extent, from changes in the fair value of equity securities of $13.4 million. For the nine months ended September 30, 2022, net realized and unrealized investment losses were primarily due to changes in the fair value of equity securities of $106.1 million and, to a lesser extent, from net realized losses of $16.3 million from sales of investments, primarily fixed maturities, and from impairment losses on investments, including $14.8 million of losses related to intent to sell securities.

Income Taxes

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 September 30, 2023 Compared to Three Months Ended September 30, 2022

The provision for income taxes from continuing operations were benefits of $9.1 million and $0.1 million for the three months ended September 30, 2023 and 2022, respectively. These amounts resulted in a consolidated effective tax rate that is not meaningful for the three months ended September 30, 2023 and a consolidated effective tax rate on pre-tax income of 20.0% for the three months ended September 30, 2022. The tax benefit of $9.1 million in the current quarter results from applying a higher year-to-date tax rate, due to lower year-to-date underwriting income, to a $0.9 million pre-tax loss during the quarter. This relationship between pre-tax income or loss and tax expense or benefit is not what we would expect in any quarter with a meaningful level of income.

The income tax provision on operating results was a benefit of $1.6 million compared to an expense of $9.7 million for the three months ended September 30, 2023 and 2022, respectively. These provisions resulted in effective tax rates for operating income of 30.8% and 21.4% for the three months ended September 30, 2023 and 2022, respectively. The higher rate in the current quarter results from lower underwriting income in both the current quarter and year-to-date periods, primarily due to catastrophe losses.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

The provision for income taxes from continuing operations was a benefit of $35.3 million compared to an expense of $30.0 million for the nine months ended September 30, 2023 and 2022, respectively. These provisions resulted in consolidated effective federal tax rates of 32.4% and 18.9% for the nine months ended September 30, 2023 and 2022, respectively. These provisions include excess tax benefits related to stock-based compensation of $1.0 million and $3.1 million for the nine months ended September 30, 2023 and 2022, respectively. In addition, these provisions reflect benefits related to tax planning strategies implemented in prior years of $1.2 million and $1.1 million for the nine months ended September 30, 2023 and 2022, respectively. Absent these items, the provision for income taxes would have been a benefit of $33.1 million, or 30.3%, and an expense of $34.2 million, or 21.6%, for the nine months ended September 30, 2023 and 2022, respectively. The increase in the rate is due to lower underwriting results.

The income tax provision on operating results was a benefit of $21.2 million compared to an expense of $60.5 million for the nine months ended September 30, 2023 and 2022, respectively. These provisions resulted in effective tax rates for operating income (loss) of 27.1% and 20.3% for the nine months ended September 30, 2023 and 2022, respectively. These provisions include excess tax benefits related to stock-based compensation of $1.0 million and $3.1 million for the nine months ended September 30, 2023 and 2022, respectively. Absent this item, the provisions for income taxes would have been a benefit of $20.2 million, or 25.9%, and an expense of $63.6 million, or 21.4%, for the nine months ended September 30, 2023 and 2022, respectively.

Critical Accounting Estimates

Interim consolidated financial statements have been prepared in conformity with U.S. GAAP and include certain accounting policies that we consider to be critical due to the amount of judgment and uncertainty inherent in the application of those policies. While we believe that the amounts included in our consolidated financial statements reflect our best judgment, the use of different assumptions could produce materially different accounting estimates. As disclosed in our 2022 Annual Report on Form 10-K, we believe the following accounting estimates are critical to our operations and require the most subjective and complex judgment:

•

Reserve for losses and loss expenses

•

Reinsurance recoverable balances

•

Pension benefit obligations

•

Investment credit losses

For a more detailed discussion of these critical accounting estimates, see our 2022 Annual Report on Form 10-K.

Statutory Surplus of Insurance Subsidiaries

The following table reflects statutory surplus for our insurance subsidiaries:


	September 30,		December 31,
(in millions)	2023		2022
Total Statutory Capital and Surplus	$	2,501.9	$	2,690.4

The statutory capital and surplus for our insurance subsidiaries decreased $188.5 million during the first nine months of 2023. This decrease was primarily driven by the payment of a $100 million dividend to its parent company and from a decrease in underwriting results due to higher catastrophe losses.

The NAIC prescribes an annual calculation regarding risk-based capital (“RBC”). RBC ratios for regulatory purposes are expressed as a percentage of the capital required to be above the Authorized Control Level (the “Regulatory Scale”); 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 September 30, 2023, 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)	Company Action Level		Authorized Control Level		RBC Ratio Industry Scale			RBC Ratio Regulatory Scale
The Hanover Insurance Company	$	1,314.8	$	657.4		189	%		379	%

Liquidity and Capital Resources

Liquidity is a measure of our ability to generate sufficient cash flows to meet the cash requirements of business operations. As a holding company, our primary ongoing source of cash is dividends from our insurance subsidiaries. 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 years’ statutory earnings receive prior approval (so called “extraordinary dividends”). During the first nine months of 2023, Hanover Insurance paid $100.0 million in dividends, which were provided to the holding company.

Sources of cash for our insurance subsidiaries primarily consist of premiums collected, investment income and maturing investments. Primary cash outflows are payments for losses and loss adjustment expenses, policy and contract acquisition expenses, other underwriting expenses, and investment purchases. Cash outflows related to losses and loss adjustment expenses can be variable because of uncertainties surrounding settlement dates for liabilities for unpaid losses and because of the potential for large losses either individually or in the aggregate. 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 $269.0 million during the first nine months of 2023, as compared to $523.8 million during the first nine months of 2022, a decrease of $254.8 million. The decrease in cash provided was due to an increase in loss and LAE payments, primarily related to catastrophe losses, partially offset by an increase in premiums.

Net cash used in investing activities was $186.4 million during the first nine months of 2023, as compared to $476.2 million during the first nine months of 2022. During the first nine months of 2023 and 2022, cash used in investing activities primarily related to net purchases of fixed maturities, partially offset by net sales of equity securities.

Net cash used in financing activities was $93.1 million during the first nine months of 2023, as compared to $113.7 million during the first nine months of 2022. During the first nine months of 2023, cash used in financing activities primarily resulted from three quarterly dividend payments to our shareholders. During the first nine months of 2022, cash used in financing activities primarily resulted from three quarterly dividend payments to our shareholders and, to a lesser extent, repurchases of our common stock.

Dividends to common shareholders are subject to quarterly board approval and declaration. During the first nine months of 2023, as declared by the Board, we paid three quarterly dividends, each for $0.81 per share, to our shareholders totaling $86.9 million. We believe that our holding company assets are sufficient to provide for future shareholder dividends should the Board of Directors declare them.

At September 30, 2023, THG, as a holding company, held approximately $344.3 million of fixed maturities and cash. We believe our holding company assets will be sufficient to meet our short-term 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. As discussed below, we have, and opportunistically may continue to, repurchase our common stock and debt. We do not expect that it will be necessary to dividend additional funds from our insurance subsidiaries in order to fund short-term holding company obligations; however, we may decide to do so.

We expect to continue to generate sufficient positive operating cash to meet all short-term and long-term cash requirements relating to current operations, including the funding of our qualified defined benefit pension plan. We believe that this plan is fully funded. The ultimate payment amounts for our benefit plan is based on several assumptions, including but not limited to, the rate of return on plan assets, the discount rate for benefit obligations, mortality experience, interest crediting rates, inflation and the ultimate valuation and determination of benefit obligations. Since differences between actual plan experience and our assumptions are almost certain, changes, both positive and negative, to our current funding status and ultimately our obligations in future periods are likely.

Our insurance subsidiaries maintain a high degree of liquidity within their respective investment portfolios in fixed maturity and short-term investments. During 2023, the financial markets continue to experience significant volatility and values of many securities currently held by THG and its subsidiaries remain in unrealized loss positions. We believe that the quality of the assets we hold will allow us to realize the long-term economic value of our portfolio, including the securities that are currently in an unrealized loss position. We do not anticipate the need to sell these securities to meet our insurance subsidiaries’ cash requirements since we expect our insurance subsidiaries to generate sufficient operating cash to meet all short-term and long-term cash requirements relating to current operations. However, unforeseen business needs or other items may occur which could cause us to sell those securities in a loss position before their values fully recover, thereby resulting in the recognition of impairment charges in that time period.

The Board of Directors authorized a stock repurchase program which provides for aggregate repurchases of our common stock of up to $1.3 billion. 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. Repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs, or other transactions. We are not required to purchase any specific number of shares or to make purchases by any certain date under this program. As of September 30, 2023, we had repurchased 7.9 million shares under this $1.3 billion program and had approximately $330 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 September 30, 2023, we had borrowing capacity of $118.0 million. There were no outstanding borrowings under this short-term facility at September 30, 2023; however, we have borrowed and may continue to borrow, from time to time, through this facility to provide short-term liquidity.

On July 21, 2023, we entered into a credit agreement that provides for a five-year unsecured revolving credit facility not to exceed $150.0 million at any one time outstanding, with the option to increase the facility up to $300.0 million (assuming no default and satisfaction of other specified conditions, including the receipt of additional lender commitments). The agreement also includes an uncommitted subfacility of $50.0 million for standby letters of credit. Borrowings, if any, under this agreement are unsecured and incur interest at a rate per annum equal to, at our election, either (i) the greatest of, (a) the prime commercial lending rate of the administrative agent, (b) the NYFRB Rate plus half a percent, or (c) the one month Adjusted Term SOFR Rate plus one percent; each subject to a margin that ranges from 0.125% to 0.625% depending on our debt rating, or (ii) Adjusted SOFR Rate for the applicable interest period, plus a margin that ranges from 1.125% to 1.625% depending on our debt rating. The agreement also contains certain financial covenants such as maintenance of specified levels of consolidated equity and leverage ratios. Concurrent with our entry into this agreement, we voluntarily terminated our existing $200.0 million credit agreement, dated April 30, 2019. We currently have no borrowings under the current credit agreement. During the first nine months of 2023, we had no borrowings under the current agreement or the prior credit agreement. For additional information regarding the current credit agreement, please see our Current Report filed on Form 8-K with the SEC on July 21, 2023.

At September 30, 2023, we were in compliance with the covenants of our debt and credit agreements.

Contingencies and Regulatory Matters

REGULATORY AND INDUSTRY DEVELOPMENTS

In response to the COVID-19 pandemic (“Pandemic”), regulators in many of the states in which we operate issued orders or guidance pertaining to, among other things, (a) premium refunds, credits or reductions for personal automobile insurance premiums and premiums for other insurance lines that regulators determined were disproportionately impacted by the Pandemic, including certain commercial lines, for the periods during which governmental restrictions were or remain in effect, with premium adjustments based on factors such as the ongoing frequency and severity of claims, inflation, repair costs and reinsurance pricing, among others; (b) premium payment grace periods, moratoriums on policy non-renewals and cancellations, and other measures that are similar to actions historically implemented in regions heavily impacted by catastrophes; and (c) a reassessment of rates in light of exposures, loss experience and economic conditions. Regulatory restrictions on rate changes, underwriting, policy terms, and the ability to non-renew business may, depending on their duration, limit THG’s ability to manage our mix of business and any potential exposures that emerge in our lines of business in the near term.

Though legislative efforts to create government-funded pandemic insurance programs or other insurance-based pandemic relief have substantially moderated, policymakers continue to discuss various proposals in that area. It is premature to estimate the potential impact, if any, of those proposals on our business.

Information regarding litigation, legal contingencies and regulatory matters appears in Part I – Note 12 “Commitments and Contingencies” in the Notes to Interim Consolidated Financial Statements.

Risks and Forward-Looking Statements

Information regarding risk factors and forward-looking information appears in Part II – Item 1A of this Quarterly Report on Form 10-Q and in Part I – Item 1A of our 2022 Annual Report on Form 10-K. This Management’s Discussion and Analysis should be read and interpreted in light of such factors.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Our market risks, the ways we manage them, and sensitivity to changes in interest rates, and equity price risk are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2022, included in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes in the first nine months of 2023 to these risks or our management of them.

ITEM 4

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures Evaluation

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Based on our controls evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective to provide reasonable assurance that (i) the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) material information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting, as required by Rule 13a-15(d) of the Exchange Act, to determine whether any changes occurred during the period covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that there were no such changes during the quarter ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

The Company has been named a defendant in various legal proceedings arising in the normal course of business. 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, 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 the Company’s financial position, although they could have a material effect on the results of operations for a particular quarterly or annual period.

ITEM 1A – RISK FACTORS

This document contains, and management may make, certain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. When used in our Management’s Discussion and Analysis, words such as: “believes,” “anticipates,” “expects,” “projections,” “outlook,” “should,” “could,” “plan,” “guidance,” “likely,” “on track to,” “potential,” “continue,” “targeted,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. We caution readers that accuracy with respect to forward-looking projections is difficult and subject to risks and uncertainties. Those risks and uncertainties, in some cases, have affected, and in the future could affect, our actual results and could cause our actual results for the remainder of 2023 and beyond to differ materially from historical results and from those expressed in any of our forward-looking statements. We operate in a business environment that is continually changing, and as such, new risk factors may emerge over time. Additionally, our business is conducted in competitive markets and, therefore, involves a higher degree of risk. We cannot predict these new risk factors, nor can we assess the impact, if any, that they may have on our business in the future.

Some of the factors that could cause actual results to differ include, but are not limited to, the following:

•

changes in the demand for our products;

•

risks and uncertainties with respect to our ability to retain profitable policies in force and attract profitable policies and to increase rates commensurate with, or in excess of, loss trends;

•

adverse claims experience or changes in our estimates of loss and loss adjustment expense reserves, including with respect to catastrophes, which may result in lower current year underwriting income or adverse loss development, and could impact our carried reserves;

•

uncertainties with respect to the long-term profitability of our products, including with respect to newer products, or longer-tail products covering casualty losses;

•

disruption in our distribution channels, including the loss or disruption of our independent agency channel, including the impact of competition and consolidation in the industry and among agents and brokers;

•

changes in frequency and loss severity trends, including due to continually evolving insureds’ behavior as a result of the Pandemic or otherwise, exacerbated by persistent inflation and supply chain disruptions;

•

changes in regulation, legislation, economic, market and political conditions, particularly with respect to rates, policy terms and conditions, payment flexibility, and regions where we have geographical concentrations;

•

volatile and unpredictable developments, including severe weather and other natural physical events, catastrophes, pandemics, civil unrest, and terrorist actions, and the uncertainty in estimating the resulting losses;

•

changes in weather patterns, whether as a result of global climate change, or otherwise, and global climate change-driven systemic transitions, causing a higher level of losses from weather events to persist and leading to new or enhanced regulations;

•

limitations on the physical ability to adjust claims or the availability of sufficient information to accurately estimate a loss at a point in time and the limitations and assumptions used to model property and casualty losses in general;

•

risks and uncertainties with respect to our ability to collect all amounts due from reinsurers and to maintain current levels of reinsurance in the future at commercially reasonable rates, or at all;

•

heightened volatility, fluctuations in interest rates (which have a significant impact on the market value of our investment portfolio and thus our book value), inflationary pressures, default rates and other factors that affect investment returns from our investment portfolio;

•

recessionary economic periods that may inhibit our ability to increase pricing or renew business, and which may be accompanied by higher claims activity in certain lines;

•

risks and uncertainties associated with our participation in shared market mechanisms, mandatory reinsurance programs and mandatory and voluntary pooling arrangements, including the MCCA;

•

an increase in mandatory assessments by state guaranty funds;

•

risks and uncertainties associated with the Michigan legislation that took effect on July 2, 2020 and reformed the prior requirements that all personal and commercial automobile polices issued in the state include no-fault personal injury protection coverage without a cap on maximum benefits allowed and the resulting increase in litigation challenging or associated with this reform;

•

actions by our competitors, many of which are larger or have greater financial resources than we do;

•

loss, prolonged illness or retirement of key employees;

•

operating difficulties and other unintended consequences from the introduction of new products and related technology changes and applications, as well as new operating models;

•

changes in our claims-paying and financial strength ratings;

•

negative changes in our level of statutory surplus;

•

risks and uncertainties with respect to our growth or operating strategies, or with respect to our expense and strategic initiatives;

•

our ability to declare and pay dividends;

•

changes in accounting principles and related financial reporting requirements;

•

errors or omissions in connection with the administration of any of our products;

•

risks and uncertainties with our operations and technology, including cloud-based data information storage, data security, cyber-security attacks, artificial intelligence, remote working capabilities, and/or outsourcing relationships and third-party operations and data security that may negatively impact our ability to conduct business;

•

an inability to be compliant with recently implemented regulations or existing regulation such as those relating to Sarbanes-Oxley;

•

unfavorable developments, such as those resulting from the implementation of the enacted legislation in Michigan described above, or litigation matters, social inflation and the possibility of adverse judicial decisions, including those which expand policy coverage beyond its intended scope or award “bad faith” or other non-contractual damages;

•

continuing risks and uncertainties associated with the lingering impacts of the Pandemic and general economic and sociopolitical conditions, both related to the Pandemic and otherwise; and

•

other factors described in such forward-looking statements.

In addition, historical and future reported financial results include estimates with respect to premiums written and earned, reinsurance recoverables, current accident year “picks,” loss and loss adjustment reserves and development, fair values of certain investments, other assets and liabilities, tax, contingent and other liabilities, and other items. These estimates are subject to change as more information becomes available.

Readers should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake any responsibility to update or revise our forward-looking statements, except as required by law.

For a more detailed discussion of our risks and uncertainties, see also Item 1A – Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

Shares purchased in the third quarter of 2023 are as follows:



					Total Number of		Approximate Dollar Value of
					Shares Purchased as		Shares That May Yet
					Part of Publicly		be Purchased Under the
	Total Number of		Average Price		Announced Plans or		Plans or Programs
Period	Shares Purchased(1)		Paid per Share		Programs		(in millions)
July 1 - 31, 2023		541	$	113.17		—	$	330
August 1 - 31, 2023		94		106.38		—		330
September 1 - 30, 2023		118		111.51		—		330
Total		753	$	112.06		—	$	330

(1)

Reflects shares withheld to satisfy tax withholding amounts due from employees related to the receipt of stock which resulted from the exercise or vesting of equity awards for the months ended July 31, August 31 and September 30, 2023.

ITEM 5 – OTHER INFORMATION

During the three months ended September 30, 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

ITEM 6 – EXHIBITS


EX – 3.1	Amended and Restated By-laws of The Hanover Insurance Group, Inc., previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 21, 2023, and incorporated herein by reference.

EX – 10.1	Credit Agreement, dated as of July 21, 2023, by and among the Hanover Insurance Group, Inc., JPMorgan Chase Bank, as administrative agent, and the lenders party thereto, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on July 21, 2023, and incorporated herein by reference.

EX – 31.1	Certification of the Chief Executive Officer, pursuant to 15 U.S.C. 78m, 78o(d), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

EX – 31.2	Certification of the Chief Financial Officer, pursuant to 15 U.S.C. 78m, 78o(d), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

EX – 32.1	Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

EX – 32.2	Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

EX – 101	The following materials from The Hanover Insurance Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 formatted in Inline eXtensible Business Reporting Language (“iXBRL”): (i) Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022; (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022; (iii) Consolidated Balance Sheets at September 30, 2023 and December 31, 2022; (iv) Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022, and (vi) related notes to these financial statements.

EX – 104	The cover page from The Hanover Insurance Group Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (embedded within EX – 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


		The Hanover Insurance Group, Inc.
		Registrant

November 2, 2023		/s/ John C. Roche
Date		John C. Roche
		President, Chief Executive Officer and Director


November 2, 2023		/s/ Jeffrey M. Farber
Date		Jeffrey M. Farber
		Executive Vice President and Chief Financial Officer

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The Hanover Insurance Group, Inc. (THG) 10-Q2023 Q3 Quarterly report

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