SCHEDULE II

THE HANOVER INSURANCE GROUP, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY

STATEMENTS OF INCOME


For the Years Ended December 31	2010			2009			2008
(In millions)
Revenues
Net investment income	$	12.2		$	16.5		$	15.2
Net realized investment gains:
Total other-than-temporary impairment losses on investments		(0.3	)		—			—
Portion of loss transferred to other comprehensive income		—			—			—

Net other-than-temporary impairment losses on investments recognized in earnings		(0.3	)		—			—
Net realized gains from sales and other		0.6			7.7			9.0

Total net realized investment gains		0.3			7.7			9.0

Other income		—			—			0.6

Total revenues		12.5			24.2			24.8

Expenses
Interest expense		35.7			31.8			40.6
Employee benefit related expenses		6.9			16.4			1.5
Loss (gain) from retirement of debt		2.0			(34.5	)		—
Other operating expenses		3.9			6.9			5.7

Total expenses		48.5			20.6			47.8

Net (loss) income before income taxes and equity in net income of unconsolidated subsidiaries		(36.0	)		3.6			(23.0	)
Income tax benefit:
Federal		25.1			7.4			17.0
State		—			—			0.1
Equity in income of unconsolidated subsidiaries		163.8			176.5			92.1

Income from continuing operations		152.9			187.5			86.2
Discontinued operations:
Income from operations of discontinued variable life insurance and annuity business, net of taxes (including gain on disposal of $1.3, $4.9 and $8.7 in 2010, 2009 and 2008)		1.3			4.9			12.2
Gain (loss) from discontinued FAFLIC business, net of taxes		0.5			4.8			(77.3	)
Other discontinued operations		0.1			—			(0.5	)

Net income	$	154.8		$	197.2		$	20.6

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY

BALANCE SHEETS


December 31	2010			2009
(In millions, except per share data)
Assets
Fixed maturities – at fair value (amortized cost of $372.7 and $287.6)	$	380.6		$	289.9
Equity securities – at fair value (cost of $1.0)		1.0			—
Cash and cash equivalents		66.6			3.2
Investment in unconsolidated subsidiaries		2,477.3			2,333.4
Net receivable from subsidiaries		12.6			7.8
Deferred federal income tax asset		—			32.4
Other assets		19.1			14.0

Total assets	$	2,957.2		$	2,680.7
Liabilities
Expenses and state taxes payable	$	29.1		$	28.0
Deferred federal income tax liability		6.8			—
Interest payable		10.9			7.0
Debt		449.9			287.1

Total liabilities		496.7			322.1
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		1,796.5			1,808.5
Accumulated other comprehensive income		136.7			28.8
Retained earnings		1,246.8			1,141.1
Treasury stock at cost (15.6 million and 13.0 million shares)		(720.1	)		(620.4	)

Total shareholders' equity		2,460.5			2,358.6

Total liabilities and shareholders' equity	$	2,957.2		$	2,680.7

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY

STATEMENTS OF CASH FLOWS


For the Years Ended December 31	2010			2009			2008
(In millions)
Cash flows from operating activities
Net income	$	154.8		$	197.2		$	20.6
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
(Gain) loss on disposal of FAFLIC		(0.5	)		(4.8	)		77.3
Gain on disposal of variable life insurance and annuity business		(1.3	)		(4.9	)		(12.2	)
Loss (gain) from retirement of debt		2.0			(34.5	)		—
Equity in net income of unconsolidated subsidiaries		(163.8	)		(176.5	)		(92.1	)
Net realized investment gains		(0.3	)		(7.7	)		(9.0	)
(Contributions paid to) dividends received from unconsolidated subsidiaries (1)		(0.6	)		(83.7	)		117.9
Deferred federal income tax expense (benefit)		104.3			5.6			(1.5	)
Change in expenses and taxes payable		(8.2	)		(41.4	)		13.9
Change in net payable from subsidiaries		8.7			7.1			20.0
Other, net		(0.7	)		2.7			(1.1	)

Net cash provided by (used in) operating activities		94.4			(140.9	)		133.8

Cash flows from investing activities
Proceeds from disposals and maturities of available-for-sale fixed maturities		177.3			469.3			295.0
Purchase of available-for-sale fixed maturities		(167.4	)		(278.4	)		(217.4	)
Purchase of equity securities		(1.0	)		—			—
Net cash used for business acquisitions		(29.5	)		1.5			(112.8	)
Proceeds from sale of variable life insurance and annuity business, net		—			—			13.2
Proceeds from sale of FAFLIC		—			105.8			—
Net cash provided by the sale of AIX Holdings, Inc. to Hanover Insurance		—			64.9			—
Net cash provided by the sale of assets to Hanover Insurance		—			38.9			—
Other investing activities		—			—			(2.8	)

Net cash (used in) provided by investing activities		(20.6	)		402.0			(24.8	)

Cash flow from financing activities
Proceeds from debt borrowings		198.0			—			—
Repurchases of debt		(38.5	)		(125.9	)		—
Dividends paid to shareholders		(47.2	)		(37.5	)		(23.0	)
Treasury stock purchased at cost		(134.7	)		(148.1	)		(58.5	)
Exercise of options		12.0			3.1			8.2
Other financing activities		—			0.1			0.3

Net cash used in financing activities		(10.4	)		(308.3	)		(73.0	)

Net change in cash and cash equivalents		63.4			(47.2	)		36.0
Cash and cash equivalents, beginning of year		3.2			50.4			14.4

Cash and cash equivalents, end of year	$	66.6		$	3.2			50.4

⁽¹⁾	Amounts reflect cash payments made to the parent company for dividends. Investment assets of $69.4 million, $136.1 million and $65.1 million were also transferred to the parent company in 2010, 2009 and 2008, respectively, to settle dividend balances.

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.