EX-99.2 3 dex992.htm STATISTICAL SUPPLEMENT FOR THE PERIOD ENDING SEPTEMBER 30, 2008 Statistical Supplement for the period ending September 30, 2008

Exhibit 99.2

THE HANOVER INSURANCE GROUP

STATISTICAL SUPPLEMENT

 

TABLE OF CONTENTS

Financial Highlights

    1-3

Consolidated Financial Statements

   

Income Statements

    4-5

Balance Sheets

    6

Property and Casualty

   

Condensed Income Statements

    7

Property and Casualty Consolidated Balance Sheets

    8

GAAP Underwriting Results

    9-12

Investments

   

Net Investment Income

    13

Net Realized Investment Gains (Losses)

    14

Unrealized Losses

    15

Credit Quality of Fixed Maturities

    16

Property and Casualty Statutory Ratios

    17-18

Historical Financial Highlights

    19

Other Information

    20

Corporate Information

    20

Market and Dividend Information

    20

Industry Ratings

    20

THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS

 

     Quarter ended September 30     Nine Months ended September 30  

(In millions)

    2008     2007     % Change     2008     2007     % Change  

SEGMENT INCOME

             

Property and Casualty

             

Personal Lines

    $ 18.1     $ 48.8     (62.9 )   $ 83.8     $ 150.4     (44.3 )

Commercial Lines

      (6.6 )     39.2     N/M       114.1       126.7     (9.9 )

Other

      2.3       0.3     N/M       6.8       7.2     (5.6 )
                                            

Total Property and Casualty

      13.8       88.3     (84.4 )     204.7       284.3     (28.0 )
                                            

Interest expense on corporate debt

      (10.0 )     (10.0 )   —         (29.9 )     (29.9 )   —    
                                            

Total segment income

      3.8       78.3     (95.1 )     174.8       254.4     (31.3 )

Federal income tax expense on P&C segment income

      (4.0 )     (30.1 )   (86.7 )     (68.9 )     (97.0 )   (29.0 )

Federal income tax benefit on other segment income

      3.5       3.5     —         10.5       10.5     —    
                                            

Total federal income tax expense on segment income

      (0.5 )     (26.6 )   (98.1 )     (58.4 )     (86.5 )   (32.5 )
                                            

Total segment income after taxes

    $ 3.3     $ 51.7     (93.6 )   $ 116.4     $ 167.9     (30.7 )
                                            

RECONCILIATION FROM SEGMENT INCOME TO NET INCOME

             

Total segment income after taxes

    $ 3.3     $ 51.7     (93.6 )   $ 116.4     $ 167.9     (30.7 )

Federal income tax settlement

      6.4       —       N/M       6.4       —       N/M  

Net realized investment losses

      (52.8 )     (0.8 )   N/M       (60.7 )     (0.3 )   N/M  

Federal income tax (expense) benefit on non-segment income

      (0.4 )     0.6     N/M       (0.4 )     0.4     N/M  
                                            

(Loss) income from continuing operations

      (43.5 )     51.5     N/M       61.7       168.0     (63.3 )

Discontinued operations (net of taxes):

             

(Loss) income from operations of discontinued FAFLIC business (Including loss on assets held-for-sale of $6.1 and $72.2 in 2008)

      (21.7 )     1.5     N/M       (92.9 )     8.3     N/M  

Income from operations of AMGRO (Including gain on disposal of $11.1 in 2008)

      —         —       —         10.1       —       N/M  

Gain on disposal of variable business

      2.7       0.1     N/M       8.1       0.2     N/M  

Other

      0.7       0.8     (12.5 )     (0.5 )     0.8     N/M  
                                            

Net (loss) income

    $ (61.8 )   $ 53.9     N/M     $ (13.5 )   $ 177.3     N/M  
                                            

 

1

THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS

 

     Quarter ended September 30     Nine Months ended September 30  
     2008     2007     % Change     2008     2007     % Change  

PER SHARE DATA (DILUTED) (1)

             

Total segment income

    $ 0.08     $ 1.49     (94.6 )   $ 3.37     $ 4.87     (30.8 )

Federal income tax expense on segment income

      (0.01 )     (0.51 )   (98.0 )     (1.12 )     (1.66 )   (32.5 )
                                            

Total segment income after taxes

      0.07       0.98     (92.9 )     2.25       3.21     (29.9 )

Federal income tax settlement

      0.13       —       N/M       0.12       —       N/M  

Net realized investment losses

      (1.04 )     (0.01 )   N/M       (1.17 )     (0.01 )   N/M  

Federal income tax (expense) benefit on non-segment income

      (0.01 )     0.01     N/M       (0.01 )     0.01     N/M  
                                            

(Loss) income from continuing operations

      (0.85 )     0.98     N/M       1.19       3.21     (62.9 )

Discontinued operations (net of taxes):

             

(Loss) income from operations of discontinued FAFLIC business (Including loss on assets held-for-sale of $0.12 and $1.39 in 2008)

      (0.42 )     0.03     N/M       (1.80 )     0.16     N/M  

Income from operations of AMGRO

             

(Including gain on disposal of $0.21 in 2008)

      —         —       —         0.20       —       N/M  

Gain on disposal of variable business

      0.05       —       N/M       0.16       —       N/M  

Other

      0.01       0.02     (50.0 )     (0.01 )     0.02     N/M  
                                            

Net (loss) income

    $ (1.21 )   $ 1.03     N/M     $ (0.26 )   $ 3.39     N/M  
                                            

 

(1) Per share data for the quarter ended September 30, 2008 represents basic loss per share due to antidilution.

 

2

THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS

 

(In millions, except per share data)

    September 30
2008		     December 31
2007		     % Change  

BALANCE SHEET

       

Shareholders’ equity

       

The Hanover Insurance Company (consolidated) (1)

    $ 1,933.8     $ 2,188.0     (11.6 )

First Allmerica Financial Life Insurance Company (consolidated)

      208.9       328.3     (36.4 )

THG Holding Company debt (2)

      (499.5 )     (499.5 )   —    

THG Holding Company and other

      396.9       282.2     40.6  
                  

Total shareholders’ equity

    $ 2,040.1     $ 2,299.0     (11.3 )
                  

Total adjusted statutory capital

       

The Hanover Insurance Company (consolidated) (1)

    $ 1,588.5     $ 1,666.4     (4.7 )

First Allmerica Financial Life Insurance Company

    $ 179.0     $ 188.9     (5.2 )

The Hanover Insurance Company (consolidated) premium to surplus ratio

      1.6:1       1.4:1     —    

First Allmerica Financial Life Insurance Company estimated risk based capital ratio

      414 %     509 %   (95.0 )

Book value per share

       

The Hanover Insurance Company (consolidated) (1)

    $ 38.00     $ 42.23     (10.0 )

First Allmerica Financial Life Insurance Company (consolidated)

      4.11       6.34     (35.2 )

THG Holding Company debt (2)

      (9.82 )     (9.64 )   1.9  

THG Holding Company and other

      7.80       5.44     43.4  
                  

Total book value per share

    $ 40.09     $ 44.37     (9.6 )
                  

THG book value per share, excluding accumulated other comprehensive loss

    $ 44.37     $ 44.77     (0.9 )
                  

The Hanover Insurance Company (consolidated) book value per share, excluding accumulated other comprehensive (loss) income

    $ 41.14     $ 41.85     (1.7 )
                  

Shares outstanding (3)

      50.9       51.8    

Stock price

    $ 45.52     $ 45.80     (0.6 )

Price/book value per share

      1.1 x     1.0 x     0.1 x

Debt/equity

      25.1 %     22.3 %   2.8 pts

Debt/total capital

      20.1 %     18.2 %   1.9 pts

 

(1) Reflects $166.0 million dividend payable to THG declared in the third quarter of 2008.
(2) Excludes $9.3 million of holding company debt related to its affiliate, AFC Capital Trust I.
(3) Shares outstanding do not include common stock equivalents.

 

3

THE HANOVER INSURANCE GROUP

CONSOLIDATED INCOME STATEMENTS

 

     Quarter ended September 30     Nine Months ended September 30  

(In millions, except per share data)

    2008     2007     % Change     2008     2007     % Change  

REVENUES

             

Premiums

    $ 621.1     $ 595.2     4.4     $ 1,858.1     $ 1,770.3     5.0  

Net investment income

      65.5       62.8     4.3       193.9       183.7     5.6  

Net realized investment losses

      (52.8 )     (0.8 )   N/M       (60.7 )     (0.3 )   N/M  

Fees and other income

      8.3       14.6     (43.2 )     25.7       41.7     (38.4 )
                                            

Total revenues

      642.1       671.8     (4.4 )     2,017.0       1,995.4     1.1  
                                            

BENEFITS, LOSSES AND EXPENSES

             

Policy benefits, claims, losses and loss adjustment expenses

      474.2       373.8     26.9       1,239.7       1,091.3     13.6  

Policy acquisition expenses

      139.7       132.5     5.4       416.1       389.5     6.8  

Other operating expenses

      77.2       88.0     (12.3 )     247.1       260.5     (5.1 )
                                            

Total benefits, losses and expenses

      691.1       594.3     16.3       1,902.9       1,741.3     9.3  
                                            

(Loss) income from continuing operations before federal income taxes

      (49.0 )     77.5     N/M       114.1       254.1     (55.1 )

Federal income tax (benefit) expense

      (5.5 )     26.0     N/M       52.4       86.1     (39.1 )
                                            

(Loss) income from continuing operations

      (43.5 )     51.5     N/M       61.7       168.0     (63.3 )

Discontinued operations (net of taxes):

             

(Loss) income from operations of discontinued FAFLIC business (Including loss on assets held-for-sale of $6.1 and $72.2 in 2008)

      (21.7 )     1.5     N/M       (92.9 )     8.3     N/M  

Income from operations of AMGRO (Including gain on disposal of $11.1 in 2008)

      —         —       —         10.1       —       N/M  

Gain on disposal of variable business

      2.7       0.1     N/M       8.1       0.2     N/M  

Other

      0.7       0.8     (12.5 )     (0.5 )     0.8     N/M  
                                            

Net (loss) income

    $ (61.8 )   $ 53.9     N/M     $ (13.5 )   $ 177.3     N/M  
                                            

 

4

THE HANOVER INSURANCE GROUP

CONSOLIDATED INCOME STATEMENTS

 

     Quarter ended September 30     Nine Months ended September 30  
     2008     2007    % Change     2008     2007    % Change  

PER SHARE DATA (DILUTED)

               

Income from continuing operations

    $ (0.85 )   $ 0.98    N/M     $ 1.19     $ 3.21    (62.9 )

Discontinued operations (net of taxes):

               

(Loss) income from operations of discontinued FAFLIC business (Including loss on assets held-for-sale of $0.12 and $1.39 in 2008)

      (0.42 )     0.03    N/M       (1.80 )     0.16    N/M  

Income from operations of AMGRO (Including gain on disposal of $0.21 in 2008)

      —         —      —         0.20       —      N/M  

Gain on disposal of variable business

      0.05       —      N/M       0.16       —      N/M  

Other

      0.01       0.02    (50.0 )     (0.01 )     0.02    N/M  
                                          

Net (loss) income (1)

    $ (1.21 )   $ 1.03    N/M     $ (0.26 )   $ 3.39    N/M  
                                          

Weighted average shares outstanding (2)

      51.0       52.5        51.8       52.3   
                                  

 

(1) Per share data for the quarter ended September 30, 2008 represents basic loss per share due to antidilution. Basic income (loss) per share was $1.04 for the quarter ended September 30, 2007, and $(0.26) and $3.44 for the nine months ended September 30, 2008 and 2007, respectively.
(2) Weighted average shares outstanding for the quarter ended September 30, 2008 represents basic shares outstanding due to antidilution.

 

5

THE HANOVER INSURANCE GROUP

CONSOLIDATED BALANCE SHEETS

 

(In millions, except per share data)

    September 30
2008		     December 31
2007		     % Change  

ASSETS

       

Investments:

       

Fixed maturities, at fair value (amortized cost of $4,529.3 and $4,585.7)

    $ 4,353.5     $ 4,584.8     (5.0 )

Equity securities, at fair value (cost of $60.3 and $37.6)

      54.0       44.6     21.1  

Mortgage loans

      31.5       41.2     (23.5 )

Other long-term investments

      14.2       30.7     (53.7 )
                      

Total investments

      4,453.2       4,701.3     (5.3 )
                      

Cash and cash equivalents

      314.3       210.6     49.2  

Accrued investment income

      55.7       53.3     4.5  

Premiums, accounts and notes receivable, net

      571.1       626.7     (8.9 )

Reinsurance receivable on paid and unpaid losses, benefits and unearned premiums

      1,030.4       1,067.3     (3.5 )

Deferred policy acquisition costs

      264.4       246.8     7.1  

Deferred federal income taxes

      258.6       300.8     (14.0 )

Goodwill

      131.9       126.0     4.7  

Other assets

      302.8       309.6     (2.2 )

Assets held for sale

      1,872.4       2,173.2     (13.8 )
                      

Total assets

    $ 9,254.8     $ 9,815.6     (5.7 )
                      

LIABILITIES AND SHAREHOLDERS’ EQUITY

       

LIABILITIES

       

Policy liabilities and accruals:

       

Outstanding claims, losses and loss adjustment expenses

    $ 3,118.0     $ 3,165.9     (1.5 )

Unearned premiums

      1,208.6       1,155.9     4.6  

Contractholder deposit funds and other policy liabilities

      1.8       1.9     (5.3 )
                      

Total policy liabilities and accruals

      4,328.4       4,323.7     0.1  
                      

Expenses and taxes payable

      553.4       633.6     (12.7 )

Reinsurance premiums payable

      48.3       44.9     7.6  

Long-term debt

      511.9       511.9     —    

Liabilities held for sale

      1,772.7       2,002.5     (11.5 )
                      

Total liabilities

      7,214.7       7,516.6     (4.0 )
                      

SHAREHOLDERS’ EQUITY

       

Preferred stock, par value $.01 per share; authorized 20.0 million shares; issued none

      —         —       —    

Common stock, par value $.01 per share; authorized 300.0 million shares; issued 60.5 million shares

      0.6       0.6     —    

Additional paid-in capital

      1,801.5       1,822.6     (1.2 )

Accumulated other comprehensive loss

      (217.9 )     (20.4 )   N/M  

Retained earnings

      938.7       946.9     (0.9 )

Treasury stock at cost (9.6 and 8.7 million shares)

      (482.8 )     (450.7 )   7.1  
                      

Total shareholders’ equity

      2,040.1       2,299.0     (11.3 )
                      

Total liabilities and shareholders’ equity

    $ 9,254.8     $ 9,815.6     (5.7 )
                      

 

6

PROPERTY & CASUALTY

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

CONDENSED INCOME STATEMENTS

 

     Quarter ended September 30     Nine Months ended September 30  

(In millions)

    2008     2007     % Change     2008     2007     % Change  

REVENUES

             

Net premiums written

    $ 651.6     $ 621.8     4.8     $ 1,920.7     $ 1,853.7     3.6  

Change in unearned premiums, net of prepaid reinsurance premiums

      (30.5 )     (26.6 )   14.7       (62.6 )     (83.4 )   (24.9 )
                                            

Net premiums earned

      621.1       595.2     4.4       1,858.1       1,770.3     5.0  

Net investment income

      65.3       62.6     4.3       193.3       183.1     5.6  

Other income

      9.4       16.8     (44.0 )     31.0       48.3     (35.8 )
                                            

Total segment revenue

      695.8       674.6     3.1       2,082.4       2,001.7     4.0  
                                            

LOSSES AND OPERATING EXPENSES

             

Policy benefits, claims, losses and loss adjustment expenses

      474.2       373.8     26.9       1,239.7       1,091.3     13.6  

Policy acquisition expenses

      139.7       132.5     5.4       416.1       389.5     6.8  

Other operating expenses

      68.1       80.0     (14.9 )     221.9       236.6     (6.2 )
                                            

Total losses and operating expenses

      682.0       586.3     16.3       1,877.7       1,717.4     9.3  
                                            

Segment income before federal income taxes

    $ 13.8     $ 88.3     (84.4 )   $ 204.7     $ 284.3     (28.0 )
                                            

 

7

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

CONSOLIDATED BALANCE SHEETS (1)

 

(In millions, except per share data)

    September 30
2008		     December 31
2007		    % Change  

ASSETS

        

Investments:

        

Fixed maturities, at fair value (amortized cost of $4,313.1 and $4,197.4)

    $ 4,146.1     $ 4,193.5    (1.1 )

Equity securities, at fair value (cost of $52.5 and $29.9)

      44.7       35.3    26.6  

Mortgage loans

      7.3       10.9    (33.0 )

Other long-term investments

      4.0       5.8    (31.0 )
                     

Total investments

      4,202.1       4,245.5    (1.0 )
                     

Cash and cash equivalents

      284.4       180.7    57.4  

Accrued investment income

      52.8       49.5    6.7  

Premiums, accounts, and notes receivable, net

      571.1       626.7    (8.9 )

Reinsurance receivable on paid and unpaid losses, benefits and unearned premiums

      1,030.4       1,067.3    (3.5 )

Deferred policy acquistion costs

      264.4       246.8    7.1  

Deferred federal income tax asset

      187.3       195.6    (4.2 )

Goodwill

      129.3       126.0    2.6  

Other assets

      207.2       211.2    (1.9 )
                     

Total assets

    $ 6,929.0     $ 6,949.3    (0.3 )
                     

LIABILITIES AND SHAREHOLDER’S EQUITY

        

LIABILITIES

        

Policy liabilities and accruals:

        

Outstanding claims, losses and loss adjustment expenses

    $ 3,118.0     $ 3,165.8    (1.5 )

Unearned premiums

      1,208.6       1,155.9    4.6  

Contractholder deposit funds and other policy liabilities

      1.8       1.9    (5.3 )
                     

Total policy liabilities and accruals

      4,328.4       4,323.6    0.1  
                     

Expenses and taxes payable

      615.4       389.6    58.0  

Reinsurance premiums payable

      48.3       45.0    7.3  

Long-term debt

      3.1       3.1    —    
                     

Total liabilities

      4,995.2       4,761.3    4.9  
                     

SHAREHOLDER’S EQUITY

        

Common stock, par value $1.00 per share; authorized 20.9 million shares; issued 5.0 million shares

      5.0       5.0    —    

Additional paid-in capital

      179.2       169.2    5.9  

Accumulated other comprehensive (loss) income

      (159.8 )     19.4    N/M  

Retained earnings

      1,909.4       1,994.4    (4.3 )
                     

Total shareholder’s equity

      1,933.8       2,188.0    (11.6 )
                     

Total liabilities and shareholder’s equity

    $ 6,929.0     $ 6,949.3    (0.3 )
                     

 

(1) Property and Casualty Companies includes The Hanover Insurance Company and Citizens Insurance Company of America, and their subsidiaries.

 

8

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

GAAP UNDERWRITING PROFIT (LOSS) RECONCILED TO SEGMENT INCOME

 

     Quarter ended September 30, 2008  
     Personal Lines     Commercial Lines     Other
P&C		     Total
P&C		  

(In millions)

    Auto     Home     Other     Total     Workers’
Comp		     Auto     Multiple
Peril		     Other     Total      

Net premiums written

    $ 260.8     $ 125.8     $ 10.9     $ 397.5     $ 30.8     $ 46.3     $ 89.8     $ 87.2     $ 254.1     $ —       $ 651.6  
                                                                                        

Net premiums earned

    $ 252.0     $ 106.9     $ 9.7     $ 368.6     $ 30.3     $ 48.8     $ 91.6     $ 81.8     $ 252.5     $ —       $ 621.1  

Policy benefits, claims, losses excluding prior year loss reserve development and catastrophe losses

      160.8       50.6       3.9       215.3       18.5       25.1       54.6       32.7       130.9       —         346.2  

Prior year loss reserve favorable development

      (13.3 )     (1.3 )     (1.2 )     (15.8 )     (5.3 )     (4.7 )     (5.5 )     (4.0 )     (19.5 )     (0.2 )     (35.5 )

Pre-tax catastrophe losses

      1.2       37.2       1.3       39.7       —         0.1       48.3       10.1       58.5       —         98.2  

Pre-tax catastrophe LAE

      —         —         —         —         —         —         —         —         —         —         —    

Loss adjustment expenses

      30.9       9.0       0.3       40.2       3.2       3.9       10.5       7.0       24.6       0.4       65.2  

Policy acquisition expenses and other underwriting expenses

            102.9               96.6       (0.2 )     199.3  

Policyholders’ dividends

            —                 0.1       —         0.1  
                                              

GAAP underwriting loss

            (13.7 )             (38.7 )     —         (52.4 )

Net investment income

            30.1               31.5       3.7       65.3  

Other income

            3.4               4.3       1.7       9.4  

Other operating expenses

            (1.7 )             (3.7 )     (3.1 )     (8.5 )
                                              

Segment income (loss) before federal income taxes

          $ 18.1             $ (6.6 )   $ 2.3     $ 13.8  
                                              
     Quarter ended September 30, 2007  
     Personal Lines     Commercial Lines              
     Auto     Home     Other     Total     Workers’
Comp		     Auto     Multiple
Peril		     Other     Total     Other
P&C		     Total
P&C		  

Net premiums written

    $ 260.3     $ 122.0     $ 10.6     $ 392.9     $ 28.1     $ 48.7     $ 85.9     $ 66.2     $ 228.9     $ —       $ 621.8  
                                                                                        

Net premiums earned

    $ 254.8     $ 103.2     $ 9.7     $ 367.7     $ 27.4     $ 49.0     $ 88.2     $ 62.9     $ 227.5     $ —       $ 595.2  

Policy benefits, claims, losses excluding prior year loss reserve development and catastrophe losses

      151.9       51.9       4.5       208.3       15.1       25.6       45.0       24.7       110.4       —         318.7  

Prior year loss reserve (favorable) unfavorable development

      (9.3 )     (0.2 )     (0.3 )     (9.8 )     (4.7 )     (1.1 )     (8.5 )     (8.1 )     (22.4 )     0.2       (32.0 )

Pre-tax catastrophe losses

      (0.1 )     4.6       0.4       4.9       —         (0.3 )     13.0       2.5       15.2       —         20.1  

Pre-tax catastrophe LAE

      0.1       0.2       —         0.3       —         —         4.3       0.4       4.7       —         5.0  

Loss adjustment expenses

      31.0       7.7       0.4       39.1       3.8       4.7       9.8       4.3       22.6       0.2       61.9  

Policy acquisition expenses and other underwriting expenses

            109.1               87.8       —         196.9  

Policyholders’ dividends

            —                 0.1       —         0.1  
                                              

GAAP underwriting profit (loss)

            15.8               9.1       (0.4 )     24.5  

Net investment income

            30.2               27.9       4.5       62.6  

Other income

            4.9               4.2       7.7       16.8  

Other operating expenses

            (2.1 )             (2.0 )     (11.5 )     (15.6 )
                                              

Segment income before federal income taxes

          $ 48.8             $ 39.2     $ 0.3     $ 88.3  
                                              

 

9

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

GAAP UNDERWRITING PROFIT (LOSS) RECONCILED TO SEGMENT INCOME

 

     Nine Months ended September 30, 2008  
     Personal Lines     Commercial Lines     Other
P&C		     Total
P&C		  

(In millions)

    Auto     Home     Other     Total     Workers’
Comp		     Auto     Multiple
Peril		     Other     Total      

Net premiums written

    $ 772.4     $ 319.5     $ 30.8     $ 1,122.7     $ 98.4     $ 152.6     $ 279.3     $ 267.5     $ 797.8     $ 0.2     $ 1,920.7  
                                                                                        

Net premiums earned

    $ 755.6     $ 322.3     $ 29.5     $ 1,107.4     $ 91.5     $ 148.6     $ 269.7     $ 240.6     $ 750.4     $ 0.3     $ 1,858.1  

Policy benefits, claims, losses excluding prior year loss reserve development and catastrophe losses

      487.1       156.4       10.1       653.6       60.1       78.2       132.7       91.4       362.4       —         1,016.0  

Prior year loss reserve favorable development

      (47.5 )     (1.0 )     (1.9 )     (50.4 )     (22.3 )     (10.8 )     (29.0 )     (15.0 )     (77.1 )     (0.7 )     (128.2 )

Pre-tax catastrophe losses

      3.5       69.4       2.4       75.3       —         0.6       64.8       14.9       80.3       —         155.6  

Pre-tax catastrophe LAE

      —         —         —         —         —         —         —         —         —         —         —    

Loss adjustment expenses

      95.3       26.1       1.3       122.7       10.3       12.8       29.7       19.4       72.2       1.0       195.9  

Policy acquisition expenses and other underwriting expenses

            319.2               294.1       (0.3 )     613.0  

Policyholders’ dividends

            —                 0.4       —         0.4  
                                              

GAAP underwriting (loss) profit

            (13.0 )             18.1       0.3       5.4  

Net investment income

            89.1               92.9       11.3       193.3  

Other income

            12.2               13.8       5.0       31.0  

Other operating expenses

            (4.5 )             (10.7 )     (9.8 )     (25.0 )
                                              

Segment income before federal income taxes

          $ 83.8             $ 114.1     $ 6.8     $ 204.7  
                                              
     Nine Months ended September 30, 2007  
     Personal Lines     Commercial Lines     Other
P&C		     Total
P&C		  
     Auto     Home     Other     Total     Workers’
Comp		     Auto     Multiple
Peril		     Other     Total      

Net premiums written

    $ 783.4     $ 316.9     $ 29.7     $ 1,130.0     $ 88.7     $ 155.1     $ 273.2     $ 206.4     $ 723.4     $ 0.3     $ 1,853.7  
                                                                                        

Net premiums earned

    $ 754.2     $ 308.9     $ 29.3     $ 1,092.4     $ 81.3     $ 146.3     $ 263.2     $ 186.8     $ 677.6     $ 0.3     $ 1,770.3  

Policy benefits, claims, losses excluding prior year loss reserve development and catastrophe losses

      478.4       146.7       9.6       634.7       53.0       77.4       133.2       72.4       336.0       —         970.7  

Prior year loss reserve (favorable) unfavorable development

      (57.2 )     0.6       (0.3 )     (56.9 )     (18.4 )     (8.6 )     (20.1 )     (16.6 )     (63.7 )     1.2       (119.4 )

Pre-tax catastrophe losses

      2.5       16.6       1.1       20.2       —         (0.1 )     21.6       4.5       26.0       —         46.2  

Pre-tax catastrophe LAE

      0.1       1.3       —         1.4       —         —         5.1       1.2       6.3       —         7.7  

Loss adjustment expenses

      94.3       23.3       1.3       118.9       10.8       12.7       29.7       13.3       66.5       0.3       185.7  

Policy acquisition expenses and other underwriting expenses

            322.0               264.8       (0.2 )     586.6  

Policyholders’ dividends

            —                 0.4       —         0.4  
                                              

GAAP underwriting profit (loss)

            52.1               41.3       (1.0 )     92.4  

Net investment income

            88.5               81.8       12.8       183.1  

Other income

            13.9               11.8       22.6       48.3  

Other operating expenses

            (4.1 )             (8.2 )     (27.2 )     (39.5 )
                                              

Segment income before federal income taxes

          $ 150.4             $ 126.7     $ 7.2     $ 284.3  
                                              

 

10

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

GAAP UNDERWRITING RATIOS

 

     Quarter ended September 30, 2008  
     Personal Lines     Commercial Lines     Other
P&C		    Total
P&C		  
     Auto     Home     Other     Total     Workers’
Comp		     Auto     Multiple
Peril		     Other     Total       

Losses, excluding catastrophe losses and development

    63.7 %   47.4 %   40.2 %   58.4 %   61.1 %   51.4 %   59.6 %   40.0 %   51.8 %   N/M    55.7 %

Catastrophe losses

    0.5 %   34.8 %   13.4 %   10.8 %   —       0.2 %   52.7 %   12.3 %   23.2 %   N/M    15.8 %

Loss development

   (5.3 )%   (1.2 )%   (12.4 )%   (4.3 )%   (17.5 )%   (9.6 )%   (6.0 )%   (4.9 )%   (7.7 )%   N/M    (5.7 )%
                                                                 

Total losses

    58.9 %   81.0 %   41.2 %   64.9 %   43.6 %   42.0 %   106.3 %   47.4 %   67.3 %   N/M    65.8 %

Loss adjustment expenses

    12.3 %   8.4 %   3.1 %   10.9 %   10.6 %   8.0 %   11.5 %   8.6 %   9.7 %   N/M    10.5 %

Pre-tax catastrophe LAE

    —       —       —       —       —       —       —       —       —       N/M    —    

Policy acquisition and other underwriting expenses

          27.9 %           38.3 %   N/M    32.1 %

Policyholders’ dividends

          —               —       N/M    —    
                                     

Combined

          103.7 %           115.3 %   N/M    108.4 %
                                     

Policies in force

    (2.0 )%   (1.2 )%   (5.7 )%   (1.8 )%   2.9 %   5.3 %   0.2 %   5.5 %   3.2 %   —      (1.2 )%

Retention (1)

    73.2 %   81.3 %   N/M     77.4 %   76.3 %   78.5 %   80.6 %   98.1 %   80.4 %     
     Quarter ended September 30, 2007  
     Personal Lines     Commercial Lines     Other
P&C		    Total
P&C		  
     Auto     Home     Other     Total     Workers’
Comp		     Auto     Multiple
Peril		     Other     Total       

Losses, excluding catastrophe losses and development

    59.6 %   50.3 %   46.4 %   56.6 %   55.1 %   52.2 %   51.0 %   39.3 %   48.5 %   N/M    53.5 %

Catastrophe losses

    —       4.5 %   4.1 %   1.3 %   —       (0.6 )%   14.7 %   4.0 %   6.7 %   N/M    3.4 %

Loss development

    (3.6 )%   (0.2 )%   (3.1 )%   (2.6 )%   (17.1 )%   (2.2 )%   (9.6 )%   (12.9 )%   (9.8 )%   N/M    (5.3 )%
                                                                 

Total losses

    56.0 %   54.6 %   47.4 %   55.3 %   38.0 %   49.4 %   56.1 %   30.4 %   45.4 %   N/M    51.6 %

Loss adjustment expenses

    12.2 %   7.4 %   4.1 %   10.6 %   13.8 %   9.6 %   11.1 %   6.9 %   9.9 %   N/M    10.4 %

Pre-tax catastrophe LAE

    —       0.2 %   —       0.1 %   —       —       4.9 %   0.6 %   2.1 %   N/M    0.8 %

Policy acquisition and other underwriting expenses

          29.7 %           38.6 %   N/M    33.1 %

Policyholders’ dividends

          —               —       N/M    —    
                                     

Combined

          95.7 %           96.0 %   N/M    95.9 %
                                     

Policies in force

    5.0 %   (2.5 )%   (2.6 )%   1.2 %   0.8 %   1.8 %   (2.1 )%   6.1 %   1.8 %   —      1.3 %

Retention (1)

    73.6 %   82.9 %   N/M     78.4 %   74.8 %   77.8 %   76.6 %   77.5 %   76.6 %     

 

(1) The retention rate for personal lines is a twelve month rolling average calculation based on policies in force; the retention rate for commercial lines is based on direct voluntary written premiums, based on processed policies in the current period versus the same period in the prior year. Additionally, the retention rates have been adjusted to exclude the effect of our strategic termination of specialty commercial programs which resulted from an extensive review during the fourth quarter of 2001.

 

11

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

GAAP UNDERWRITING RATIOS

 

     Nine Months ended September 30, 2008  
     Personal Lines     Commercial Lines     Other
P&C		    Total
P&C		  
     Auto     Home     Other     Total     Workers’
Comp		     Auto     Multiple
Peril		     Other     Total       

Losses, excluding catastrophe losses and development

    64.5 %   48.5 %   34.2 %   59.0 %   65.7 %   52.6 %   49.3 %   37.9 %   48.3 %   N/M    54.7 %

Catastrophe losses

    0.5 %   21.5 %   8.1 %   6.8 %   —       0.4 %   24.0 %   6.2 %   10.7 %   N/M    8.4 %

Loss development

   (6.3 )%   (0.3 )%   (6.4 )%   (4.5 )%   (24.4 )%   (7.2 )%   (10.8 )%   (6.2 )%   (10.3 )%   N/M    (6.9 )%
                                                                 

Total losses

    58.7 %   69.7 %   35.9 %   61.3 %   41.3 %   45.8 %   62.5 %   37.9 %   48.7 %   N/M    56.2 %

Loss adjustment expenses

    12.6 %   8.1 %   4.4 %   11.1 %   11.3 %   8.6 %   11.0 %   8.1 %   9.6 %   N/M    10.5 %

Pre-tax catastrophe LAE

    —       —       —       —       —       —       —       —       —       N/M    —    

Policy acquisition and other underwriting expenses

          28.8 %           39.2 %   N/M    33.0 %

Policyholders’ dividends

          —               0.1 %   N/M    —    
                                     

Combined

          101.2 %           97.6 %   N/M    99.7 %
                                     

Policies in force

    (2.0 )%   (1.2 )%   (5.7 )%   (1.8 )%   2.9 %   5.3 %   0.2 %   5.5 %   3.2 %   —      (1.2 )%

Retention (1)

    73.2 %   81.3 %   N/M     77.4 %   79.2 %   80.2 %   80.9 %   86.7 %   80.8 %     
     Nine Months ended September 30, 2007  
     Personal Lines     Commercial Lines     Other
P&C		    Total
P&C		  
     Auto     Home     Other     Total     Workers’
Comp		     Auto     Multiple
Peril		     Other     Total       

Losses, excluding catastrophe losses and development

    63.4 %   47.5 %   32.8 %   58.1 %   65.2 %   52.9 %   50.6 %   38.8 %   49.6 %   N/M    54.8 %

Catastrophe losses

    0.3 %   5.4 %   3.8 %   1.8 %   —       (0.1 )%   8.2 %   2.4 %   3.8 %   N/M    2.6 %

Loss development

   (7.6 )%   0.2 %   (1.1 )%   (5.2 )%   (22.6 )%   (5.9 )%   (7.6 )%   (8.9 )%   (9.4 )%   N/M    (6.7 )%
                                                                 

Total losses

    56.1 %   53.1 %   35.5 %   54.7 %   42.6 %   46.9 %   51.2 %   32.3 %   44.0 %   N/M    50.7 %

Loss adjustment expenses

    12.6 %   7.6 %   4.4 %   10.9 %   13.3 %   8.7 %   11.3 %   7.2 %   9.8 %   N/M    10.5 %

Pre-tax catastrophe LAE

    —       0.4 %   —       0.1 %   —       —       1.9 %   0.6 %   0.9 %   N/M    0.4 %

Policy acquisition and other underwriting expenses

          29.5 %           39.1 %   N/M    33.2 %

Policyholders’ dividends

          —               0.1 %   N/M    —    
                                     

Combined

          95.2 %           93.9 %   N/M    94.8 %
                                     

Policies in force

    5.0 %   (2.5 )%   (2.6 )%   1.2 %   0.8 %   1.8 %   (2.1 )%   6.1 %   1.8 %   —      1.3 %

Retention (1)

    73.6 %   82.9 %   N/M     78.4 %   76.5 %   79.2 %   78.0 %   85.2 %   78.3 %     

 

(1) The retention rate for personal lines is a twelve month rolling average calculation based on policies in force; the retention rate for commercial lines is based on direct voluntary written premiums, based on processed policies in the current period versus the same period in the prior year. Additionally, the retention rates have been adjusted to exclude the effect of our strategic termination of specialty commercial programs which resulted from an extensive review during the fourth quarter of 2001.

 

12

INVESTMENTS

THE HANOVER INSURANCE GROUP

NET INVESTMENT INCOME

 

     Nine Months ended September 30  
      2008     2007  

(In millions, except yields)

          Yield           Yield  

Fixed maturities (1)

    $ 190.3     5.61 %   $ 180.5     5.62 %

Equity securities

      0.9     —         0.7     —    

Mortgages (2)

      0.7     10.32 %     1.8     14.27 %

All other

      5.7     —         4.7     —    

Investment expenses

      (3.7 )   —         (4.0 )   —    
                            

Total (3)

    $ 193.9     5.45 %   $ 183.7     5.49 %
                            

 

(1) Includes purchase accounting adjustments of ($2.5) million and ($2.4) million for the nine months ended September 30, 2008 and 2007, respectively.
(2) Excludes mortgage prepayment fees of $0.2 million and $0.8 million for the nine months ended September 30, 2008 and 2007, respectively. Mortgage yields are 8.86% and 8.05% for the nine months ended September 30, 2008 and 2007, respectively.
(3) Excludes discontinued operations of $49.8 million and $58.2 million for the nine months ended September 30, 2008 and 2007, respectively.

 

13

THE HANOVER INSURANCE GROUP

COMPONENTS OF NET REALIZED INVESTMENT GAINS (LOSSES)

 

     Quarter ended September 30     Nine Months ended September 30  
      2008     2007     2008     2007  

(In millions)

    Net Realized Gains (Losses)     Net Realized Gains (Losses)  

Net gains on securities transactions

    $ 0.3     $ (0.6 )   $ 5.7     $ 0.6  

Other than temporary impairments

      (53.1 )     (0.3 )     (66.7 )     (1.1 )

Other

      —         0.1       0.3       0.2  
                                

Net realized investment (losses) gains (1) (2)

    $ (52.8 )   $ (0.8 )   $ (60.7 )   $ (0.3 )
                                

 

(1) Includes corporate eliminations of $0.2 million for the quarter ended September 30, 2008. There were no corporate eliminations for the quarter ended September 30, 2007. Includes corporate eliminations of $3.1 million and $0.7 million for the nine months ended September 30, 2008 and 2007, respectively.
(2) Excludes discontinued operations of $(15.6) million and $(0.4) million for the quarters ended September 30, 2008 and 2007, respectively, and $(23.0) million and $2.2 million for the nine months ended September 30, 2008 and 2007, respectively.

 

14

THE HANOVER INSURANCE GROUP

AGING OF GROSS UNREALIZED LOSSES ON SECURITIES AVAILABLE FOR SALE

 

      September 30, 2008
     Gross Unrealized Losses    Fair Value

(In millions)

    Property and
Casualty		    Life
Companies (1)		    Total    Property and
Casualty		    Life
Companies (1)		    Total

INVESTMENT GRADE FIXED MATURITIES:

                  

12 months or less

    $ 95.0    $ 29.6    $ 124.6    $ 2,117.9    $ 471.3    $ 2,589.2

Greater than 12 months

      72.6      30.3      102.9      434.7      197.6      632.3
                                         

Total investment grade fixed maturities

      167.6      59.9      227.5      2,552.6      668.9      3,221.5

BELOW INVESTMENT GRADE FIXED MATURITIES:

                  

12 months or less

      22.3      3.7      26.0      225.9      34.2      260.1

Greater than 12 months

      —        —        —        —        —        —  
                                         

Total below investment grade fixed maturities

      22.3      3.7      26.0      225.9      34.2      260.1

Equity securities

      9.9      —        9.9      38.9      —        38.9

Total fixed maturities and equity securities

    $ 199.8    $ 63.6    $ 263.4    $ 2,817.4    $ 703.1    $ 3,520.5
                                         
     December 31, 2007
     Gross Unrealized Losses    Fair Value
     Property and
Casualty		    Life
Companies (1)		    Total    Property and
Casualty		    Life
Companies (1)		    Total

INVESTMENT GRADE FIXED MATURITIES:

                  

12 months or less

    $ 18.6    $ 8.5    $ 27.1    $ 557.4    $ 182.6    $ 740.0

Greater than 12 months

      23.0      11.3      34.3      878.1      336.6      1,214.7
                                         

Total investment grade fixed maturities

      41.6      19.8      61.4      1,435.5      519.2      1,954.7

BELOW INVESTMENT GRADE FIXED MATURITIES:

                  

12 months or less

      6.9      1.4      8.3      144.6      26.4      171.0

Greater than 12 months

      —        —        —        —        —        —  
                                         

Total below investment grade fixed maturities

      6.9      1.4      8.3      144.6      26.4      171.0

Equity securities

      0.5      —        0.5      17.8      —        17.8
                                         

Total fixed maturities and equity securities

    $ 49.0    $ 21.2    $ 70.2    $ 1,597.9    $ 545.6    $ 2,143.5
                                         

 

(1) A portion of the investment assets of the Life Companies are classified as held for sale. These include $49.6 million of unrealized losses related to securities expected to be transferred to Commonwealth Annuity in connection with the sale of FAFLIC.

 

15

THE HANOVER INSURANCE GROUP

CREDIT QUALITY OF FIXED MATURITIES

 

(In millions)

         September 30, 2008
          Amortized Cost    Fair Value

NAIC Designation

   

Rating Agency

Equivalent Designation

    Property and
Casualty		    Life
Companies (1)		    Total    Property and
Casualty		    Life
Companies (1)		    Total

1

    Aaa/Aa/A    $ 3,300.1    $ 719.9    $ 4,020.0    $ 3,194.2    $ 690.1    $ 3,884.3

2

    Baa      972.5      304.4      1,276.9      928.5      280.5      1,209.0

3

    Ba      127.8      16.1      143.9      120.0      14.9      134.9

4

    B      117.0      19.6      136.6      106.3      18.0      124.3

5

    Caa and lower      35.2      6.0      41.2      31.6      5.3      36.9

6

    In or near default      —        1.0      1.0      —        1.1      1.1
                                            

Total fixed maturities

       $ 4,552.6    $ 1,067.0    $ 5,619.6    $ 4,380.6    $ 1,009.9    $ 5,390.5
                                            

 

          December 31, 2007
          Amortized Cost    Fair Value

NAIC Designation

   

Rating Agency

Equivalent Designation

    Property and
Casualty		    Life
Companies (1)		    Total    Property and
Casualty		    Life
Companies (1)		    Total

1

    Aaa/Aa/A    $ 3,328.3    $ 821.2    $ 4,149.5    $ 3,341.4    $ 822.7    $ 4,164.1

2

    Baa      917.0      340.6      1,257.6      907.7      336.5      1,244.2

3

    Ba      101.6      29.1      130.7      100.1      29.5      129.6

4

    B      126.5      25.4      151.9      125.6      25.5      151.1

5

    Caa and lower      27.7      4.7      32.4      26.2      4.4      30.6

6

    In or near default      —        1.0      1.0      —        2.4      2.4
                                            

Total fixed maturities

       $ 4,501.1    $ 1,222.0    $ 5,723.1    $ 4,501.0    $ 1,221.0    $ 5,722.0
                                            

 

(1) A portion of the investment assets of the Life Companies are classified as held for sale.

 

16

PROPERTY & CASUALTY

STATUTORY RATIOS

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

STATUTORY UNDERWRITING RATIOS

 

     Quarter ended September 30, 2008  
     Personal Lines     Commercial Lines             
     Auto     Home     Other     Total     Workers’
Comp		     Auto     Multiple
Peril		     Other     Total     Other
P&C		    Total
P&C		  

Losses, excluding catastrophe losses and development

    63.8 %   47.3 %   40.2 %   58.4 %   61.3 %   51.3 %   59.5 %   40.1 %   51.8 %   N/M    55.7 %

Catastrophe losses

    0.5 %   34.9 %   12.4 %   10.8 %   —       0.2 %   52.1 %   11.1 %   22.5 %   N/M    15.6 %

Loss development

    (5.3 )%   (1.2 )%   (12.4 )%   (4.3 )%   (17.5 )%   (9.6 )%   (6.0 )%   (4.9 )%   (7.7 )%   N/M    (5.7 )%
                                                                 

Total losses

    59.0 %   81.0 %   40.2 %   64.9 %   43.8 %   41.9 %   105.6 %   46.3 %   66.6 %   N/M    65.6 %

Loss adjustment expenses

    12.2 %   8.4 %   4.1 %   10.9 %   10.3 %   8.0 %   11.5 %   8.4 %   9.7 %   N/M    10.5 %

Pre-tax catastrophe LAE

    —       —       —       —       —       —       —       —       —       N/M    —    

Policy acquisition and other underwriting expenses

          26.5 %           38.4 %   N/M    31.1 %

Policyholders’ dividends

          —               0.1 %   N/M    —    
                                     

Combined

          102.3 %           114.8 %   N/M    107.2 %
                                     

 

     Quarter ended September 30, 2007  
     Personal Lines     Commercial Lines             
     Auto     Home     Other     Total     Workers’
Comp		     Auto     Multiple
Peril		     Other     Total     Other
P&C		    Total
P&C		  

Losses, excluding catastrophe losses and development

    59.6 %   50.4 %   47.4 %   56.7 %   55.1 %   52.0 %   51.1 %   39.3 %   48.5 %   N/M    53.6 %

Catastrophe losses

    (0.1 )%   4.5 %   3.1 %   1.3 %   —       (0.4 )%   14.7 %   3.8 %   6.7 %   N/M    3.3 %

Loss development

    (3.7 )%   (0.2 )%   (3.1 )%   (2.7 )%   (17.2 )%   (2.2 )%   (9.6 )%   (12.9 )%   (9.8 )%   N/M    (5.3 )%
                                                                 

Total losses

    55.8 %   54.7 %   47.4 %   55.3 %   37.9 %   49.4 %   56.2 %   30.2 %   45.4 %   N/M    51.6 %

Loss adjustment expenses

    12.3 %   7.6 %   5.2 %   10.8 %   13.5 %   9.8 %   11.2 %   6.7 %   9.9 %   N/M    10.5 %

Pre-tax catastrophe LAE

    —       0.2 %   —       0.1 %   —       —       4.9 %   0.6 %   2.1 %   N/M    0.8 %

Policy acquisition and other underwriting expenses

          29.0 %           38.8 %   N/M    32.6 %

Policyholders’ dividends

          —               —       N/M    —    
                                     

Combined

          95.2 %           96.2 %   N/M    95.5 %
                                     

 

17

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

STATUTORY UNDERWRITING RATIOS

 

     Nine Months ended September 30, 2008  
     Personal Lines     Commercial Lines             
     Auto     Home     Other     Total     Workers’
Comp		     Auto     Multiple
Peril		     Other     Total     Other
P&C		    Total
P&C		  

Losses, excluding catastrophe losses and development

    64.5 %   48.5 %   34.2 %   59.0 %   65.4 %   52.6 %   49.3 %   38.3 %   48.4 %   N/M    54.7 %

Catastrophe losses

    0.5 %   21.6 %   8.1 %   6.8 %   —       0.4 %   23.8 %   5.8 %   10.5 %   N/M    8.3 %

Loss development

   (6.3 )%   (0.3 )%   (6.4 )%   (4.6 )%   (24.3 )%   (7.3 )%   (10.8 )%   (6.2 )%   (10.3 )%   N/M    (6.9 )%
                                                                 

Total losses

    58.7 %   69.8 %   35.9 %   61.2 %   41.1 %   45.7 %   62.3 %   37.9 %   48.6 %   N/M    56.1 %

Loss adjustment expenses

    12.6 %   8.1 %   4.7 %   11.0 %   11.2 %   8.6 %   11.0 %   8.0 %   9.6 %   N/M    10.5 %

Pre-tax catastrophe LAE

    —       —       —       —       —       —       —       —       —       N/M    —    

Policy acquisition and other underwriting expenses

          28.4 %           38.4 %   N/M    32.6 %

Policyholders’ dividends

          —               0.1 %   N/M    —    
                                     

Combined

          100.6 %           96.7 %   N/M    99.2 %
                                     

 

     Nine Months ended September 30, 2007  
     Personal Lines     Commercial Lines             
     Auto     Home     Other     Total     Workers’
Comp		     Auto     Multiple
Peril		     Other     Total     Other
P&C		    Total
P&C		  

Losses, excluding catastrophe losses and development

    63.4 %   47.5 %   32.8 %   58.1 %   64.6 %   52.9 %   50.6 %   38.8 %   49.6 %   N/M    54.8 %

Catastrophe losses

    0.3 %   5.9 %   4.1 %   2.0 %   —       —       8.4 %   2.5 %   3.9 %   N/M    2.7 %

Loss development

   (7.6 )%   0.2 %   (1.0 )%   (5.2 )%   (22.4 )%   (5.9 )%   (7.6 )%   (8.9 )%   (9.4 )%   N/M    (6.7 )%
                                                                 

Total losses

    56.1 %   53.6 %   35.9 %   54.9 %   42.2 %   47.0 %   51.4 %   32.4 %   44.1 %   N/M    50.8 %

Loss adjustment expenses

    12.5 %   7.5 %   4.4 %   10.9 %   13.2 %   8.7 %   11.3 %   7.1 %   9.8 %   N/M    10.5 %

Pre-tax catastrophe LAE

    —       0.4 %   —       0.1 %   —       —       1.9 %   0.6 %   0.9 %   N/M    0.4 %

Policy acquisition and other underwriting expenses

          29.1 %           38.1 %   N/M    32.6 %

Policyholders’ dividends

          —               0.1 %   N/M    —    
                                     

Combined

          95.0 %           93.0 %   N/M    94.3 %
                                     

 

18

Historical Highlights

THE HANOVER INSURANCE GROUP

HISTORICAL FINANCIAL HIGHLIGHTS

 

(In millions, except per share data)

    Q3 08     Q2 08     Q1 08     2007     Q4 07     Q3 07     Q2 07     Q1 07  

SEGMENT INCOME (1)

                 

Property and Casualty

                 

Personal Lines

    $ 18.1     $ 38.6     $ 27.1     $ 208.2     $ 57.8     $ 48.8     $ 55.0     $ 46.6  

Commercial Lines

      (6.6 )     52.7       68.0       169.3       42.6       39.2       38.9       48.6  

Other Property and Casualty

      2.3       2.9       1.3       4.8       (2.4 )     0.3       2.5       4.4  
                                                                

Total Property and Casualty

      13.8       94.2       96.4       382.3       98.0       88.3       96.4       99.6  

Interest expense on corporate debt

      (10.0 )     (9.9 )     (10.0 )     (39.9 )     (10.0 )     (10.0 )     (9.9 )     (10.0 )
                                                                

Total segment income before federal income taxes

    $ 3.8     $ 84.3     $ 86.4     $ 342.4     $ 88.0     $ 78.3     $ 86.5     $ 89.6  
                                                                

Federal income tax expense on segment income

      (0.5 )     (28.8 )     (29.1 )     (117.2 )     (30.7 )     (26.6 )     (29.8 )     (30.1 )
                                                                

Total segment income after federal income taxes

    $ 3.3     $ 55.5     $ 57.3     $ 225.2     $ 57.3     $ 51.7     $ 56.7     $ 59.5  
                                                                

Federal income tax settlement

      6.4       —         —         —         —         —         —         —    

Net realized investment (losses) gains

      (52.8 )     (7.6 )     (0.3 )     (0.9 )     (0.6 )     (0.8 )     0.2       0.3  

Federal income tax (expense) benefit on non-segment income

      (0.4 )     —         —         0.5       0.1       0.6       (0.1 )     (0.1 )
                                                                

(Loss) income from continuing operations

      (43.5 )     47.9       57.0       224.8       56.8       51.5       56.8       59.7  

Discontinued operations (net of taxes):

                 

(Loss) income from operations of discontinued FAFLIC business (Including loss on assets held-for-sale of $6.1 and $66.1 in the third and second quarters of 2008)

      (21.7 )     (67.7 )     (3.5 )     14.4       6.1       1.5       2.7       4.1  

Income from discontinued variable business

      —         —         —         5.2       5.2       —         —         —    

Gain from operations of AMGRO (Including gain on disposal of $11.1 in 2008)

      —         10.4       —         —         —         —         —         —    

Gain (loss) on disposal of variable business

      2.7       (0.8 )     6.2       7.9       7.7       0.1       0.3       (0.2 )

Other

      0.7       —         (1.2 )     0.8       —         0.8       —         —    
                                                                

NET (LOSS) INCOME

    $ (61.8 )   $ (10.2 )   $ 58.5     $ 253.1     $ 75.8     $ 53.9     $ 59.8     $ 63.6  
                                                                

PER SHARE DATA (DILUTED)

                 

(LOSS) INCOME FROM CONTINUING OPERATIONS

    $ (0.85 )   $ 0.92     $ 1.09     $ 4.29     $ 1.08     $ 0.98     $ 1.09     $ 1.15  

(LOSS) INCOME FROM DISCONTINUED OPERATIONS

    $ (0.36 )   $ (1.12 )   $ 0.03     $ 0.54     $ 0.36     $ 0.05     $ 0.05     $ 0.07  

NET (LOSS) INCOME

    $ (1.21 )   $ (0.20 )   $ 1.12     $ 4.83     $ 1.44     $ 1.03     $ 1.14     $ 1.22  

WEIGHTED AVERAGE SHARES OUTSTANDING (DILUTED) (2)

      51.0       51.8       52.3       52.4       52.6       52.5       52.3       51.9  

BALANCE SHEET

                 

Total assets

    $ 9,254.8     $ 9,463.8     $ 9,700.6       $ 9,815.6     $ 9,845.2     $ 9,805.7     $ 9,776.2  

Total shareholders’ equity

    $ 2,040.1     $ 2,212.7     $ 2,320.7       $ 2,299.0     $ 2,192.6     $ 2,099.4     $ 2,100.7  

Book value per share

    $ 40.09     $ 43.57     $ 45.23       $ 44.37     $ 42.34     $ 40.55     $ 40.92  

Book value per share, excluding accumulated other comprehensive (loss) income

    $ 44.37     $ 45.55     $ 45.70       $ 44.77     $ 43.62     $ 42.51     $ 41.33  

 

(1) Represents income or loss of the Company’s operating segments: Personal Lines, Commercial Lines, Other Property and Casualty and interest expense on corporate debt. In accordance with Statement of Financial Accounting Standards No.131, the separate financial information of each segment is presented consistent with the manner in which results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
(2) Weighted average shares outstanding for the quarter ended September 30, 2008 represents basic shares outstanding due to antidilution.

 

19

Other Information

CORPORATE OFFICES AND

PRINCIPAL SUBSIDIARIES

THE HANOVER INSURANCE GROUP, INC.

440 Lincoln Street

Worcester, MA 01653

The Hanover Insurance Company

440 Lincoln Street

Worcester, MA 01653

Citizens Insurance Company of America

645 West Grand River

Howell, MI 48843

MARKET AND DIVIDEND INFORMATION

The following information shows trading activity for the Company for the periods indicated:

 

     2008
     Price Range    Dividends
Per Share

Quarter Ended

    High    Low   

March 31

    $ 47.17    $ 40.14    —  

June 30

    $ 46.83    $ 41.71    —  

September 30

    $ 51.00    $ 38.01    —  

December 31

         

 

     2007
     Price Range    Dividends
Per Share

Quarter Ended

    High    Low   

March 31

    $ 49.11    $ 44.70      —  

June 30

    $ 49.73    $ 44.46      —  

September 30

    $ 49.76    $ 41.14      —  

December 31

    $ 46.21    $ 42.23    $ 0.40

INDUSTRY RATINGS AS OF October 30, 2008

 

Financial Strength Ratings

    A.M.
Best		    Standard
& Poor’s		    Moody’s

Property and Casualty Insurance Companies:

         

The Hanover Insurance Company

    A-    A-    A3

Citizens Insurance Company of America

    A-    A-    A3

Life Insurance Companies:

         

First Allmerica Financial Life Insurance Company

    B+    BBB-    Ba1

Debt Ratings

    A.M.
Best		    Standard
& Poor’s		    Moody’s

The Hanover Insurance Group, Inc. Senior Debt

    bbb-    BBB-    Baa3

The Hanover Insurance Group, Inc. Capital Securities

    bb    BB-    Ba1

The Hanover Insurance Company Short Term Debt

    —      —      Prime-3

TRANSFER AGENT

Computershare Limited

PO Box 43076

Providence, RI 02940-3076

1-800-317-4454

COMMON STOCK

Common stock of The Hanover Insurance Group is traded on the New York Stock Exchange under the symbol “THG”.

INQUIRIES

Sujata Mutalik

Vice President, Investor Relations

(508) 855-3457

smutalik@Hanover.com

INVESTOR INFORMATION LINE

Dial 1-800-407-5222 to receive additional printed information, fax-on-demand services or other prerecorded messages.

Please visit our internet site at http:// www.Hanover.com

 

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