Schedule Condensed Financial Information of Parent Company

12 Months Ended

Dec. 31, 2012

Schedule Condensed Financial Information of Parent Company

SCHEDULE I

THE HANOVER INSURANCE GROUP, INC.

SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN RELATED PARTIES

DECEMBER 31, 2012
(in millions)
Type of investment	Cost(1)		Value		Amount at which shown in the balance sheet
Fixed maturities:
Bonds:
United States Government and agencies and authorities	$	900.1	$	935.7	$	935.7
States, municipalities and political subdivisions		1,010.2		1,096.3		1,096.3
Foreign governments		345.3		349.7		349.7
Public utilities		515.2		563.7		563.7
All other corporate bonds		3,751.4		3,999.5		3,999.5
Total fixed maturities		6,522.2		6,944.9		6,944.9
Equity securities:
Common stocks:
Public utilities		64.9		62.8		62.8
Banks, trust and insurance companies		10.7		10.8		10.8
Industrial, miscellaneous and all other		189.7		201.6		201.6
Nonredeemable preferred stocks		33.7		40.6		40.6
Total equity securities		299.0		315.8		315.8
Mortgage loans on real estate		3.9		XXXXX		3.9
Real estate		6.7		XXXXX		6.7
Other long-term investments(2)		196.5		XXXXX		199.7
Short-term investments		7.3		XXXXX		7.3
Total investments	$	7,035.6	$	—	$	7,478.3

(1) For equity securities, represents original cost, and for fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums and accretion of discounts.

(2) The cost of other long-term investments differs from the carrying value due to market value changes in the Company’s equity ownership of limited partnership investments.

SCHEDULE II

THE HANOVER INSURANCE GROUP, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY

STATEMENTS OF INCOME

For the Years Ended December 31	2012			2011			2010
(in millions)
Revenues
Net investment income	$	6.6		$	10.5		$	12.2
Net realized investment gains (losses):
Net realized gains from sales and other		2.5			8.7			0.6
Net other-than-temporary impairment losses on investments recognized in earnings		—			—			(0.3	)
Total net realized investment gains		2.5			8.7			0.3
Interest income from loan to subsidiary		22.5			10.5			—
Other income		0.1			—			—
Total revenues		31.7			29.7			12.5
Expenses
Interest expense		48.6			41.3			35.7
Employee benefit related expenses		5.3			6.9			6.9
Costs related to acquired businesses		2.6			16.4			—
Loss on derivative instruments		—			11.3			—
Other operating expenses		8.0			8.1			5.9
Total expenses		64.5			84.0			48.5
Net loss before income taxes and equity in income of unconsolidated subsidiaries		(32.8	)		(54.3	)		(36.0	)
Income tax benefit		40.5			31.1			25.1
Equity in income of unconsolidated subsidiaries		47.5			54.7			160.2
Income from continuing operations		55.2			31.5			149.3
Income from discontinued operations (net of income tax expense (benefit) of $(0.1), $2.8 and $0.2 in 2012, 2011 and 2010)		0.7			5.2			1.9
Net income	$	55.9		$	36.7		$	151.2

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

SCHEDULE II (CONTINUED)

THE HANOVER INSURANCE GROUP, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY

BALANCE SHEETS

December 31	2012			2011
(In millions, except per share data)
Assets
Fixed maturities – at fair value (amortized cost of $131.1 and $189.3)	$	139.3		$	196.9
Equity securities – at fair value (cost of $1.0)		1.0			1.0
Cash and cash equivalents		23.8			8.9
Investments in unconsolidated subsidiaries		2,763.8			2,616.5
Net receivable from subsidiaries		26.6			26.3
Deferred income taxes		20.7			19.2
Current income taxes		14.1			18.5
Loan receivable from subsidiary		300.0			300.0
Other assets		14.5			16.3
Total assets	$	3,303.8		$	3,203.6
Liabilities
Expenses and state taxes payable	$	20.7		$	31.4
Interest payable		9.6			9.6
Debt		678.1			678.6
Total liabilities		708.4			719.6
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		1,787.1			1,784.8
Accumulated other comprehensive income		325.8			210.4
Retained earnings		1,211.6			1,211.3
Treasury stock at cost (16.2 and 15.9 million)		(729.7	)		(723.1	)
Total shareholders’ equity		2,595.4			2,484.0
Total liabilities and shareholders’ equity	$	3,303.8		$	3,203.6

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

SCHEDULE II (CONTINUED)

THE HANOVER INSURANCE GROUP, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY

STATEMENTS OF CASH FLOWS

For the Years Ended December 31	2012			2011			2010
(in millions)
Cash flows from operating activities
Net income	$	55.9		$	36.7		$	151.2
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gain on disposal of discontinued operations		(0.7	)		(5.2	)		(1.8	)
Equity in net income of unconsolidated subsidiaries		(24.9	)		(54.7	)		(160.2	)
Net realized investment gains		(2.5	)		(8.7	)		(0.3	)
Loss on derivative instruments		—			11.3			—
Deferred income tax expense (benefit)		3.9			(3.4	)		104.3
Change in expenses and taxes payable		6.2			(11.7	)		(8.2	)
Change in net payable from subsidiaries		9.3			(0.5	)		8.7
Other, net		2.7			6.5			0.7
Net cash provided by (used in) operating activities		49.9			(29.7	)		94.4
Cash flows from investing activities
Proceeds from disposals and maturities of fixed maturities		44.2			436.3			177.3
Purchase of fixed maturities		(2.2	)		(148.7	)		(167.4	)
Net cash used for business acquisitions		(3.4	)		(468.4	)		(29.5	)
Other investing activities		—			(1.9	)		(1.0	)
Net cash provided by (used in) investing activities		38.6			(182.7	)		(20.6	)
Cash flow from financing activities
Proceeds from debt borrowings		—			296.0			198.0
Repurchases of debt		(0.7	)		(72.1	)		(38.5	)
Dividends paid to shareholders		(55.1	)		(50.9	)		(47.2	)
Repurchase of common stock		(20.0	)		(21.7	)		(134.7	)
Proceeds from exercise of employee stock options		2.6			3.9			12.0
Other financing activities		(0.4	)		(0.5	)		—
Net cash provided by (used in) financing activities		(73.6	)		154.7			(10.4	)
Net change in cash and cash equivalents		14.9			(57.7	)		63.4
Cash and cash equivalents, beginning of year		8.9			66.6			3.2
Cash and cash equivalents, end of year	$	23.8		$	8.9		$	66.6

Included in other operating cash flows were the cash portion of dividends received from unconsolidated subsidiaries. Cash payments of $1.0 million and $1.6 million in 2012 and 2011, and investment assets of $17.9 million, $97.8 million and $69.4 million were transferred to the parent company in 2012, 2011 and 2010, respectively, to settle dividend balances.

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

SCHEDULE III

THE HANOVER INSURANCE GROUP, INC.

SUPPLEMENTARY INSURANCE INFORMATION

DECEMBER 31, 2012
(in millions)
Segments	Deferred policy acquisition costs		Future policy benefits, losses, claims and loss expenses		Unearned premiums		Other policy claims and benefits payable		Premium revenue		Net investment income		Benefits, claims, losses and settlement expenses		Amortization of deferred policy acquisition costs		Other operating expenses			Premiums written
Commercial, Personal and Other Property and Casualty	$	346.6	$	3,784.9	$	1,711.1	$	4.1	$	3,272.3	$	236.1	$	2,467.2	$	704.2	$	428.4		$	3,377.9
Chaucer(1)		142.9		2,408.0		763.7		—		966.8		40.2		507.2		233.9		157.6			990.5
Interest on Debt		—		—		—		—		—		—		—		—		61.9			—
Eliminations		—		—		—		—		—		0.3		—		—		(6.5	)		—
Total	$	489.5	$	6,192.9	$	2,474.8	$	4.1	$	4,239.1	$	276.6	$	2,974.4	$	938.1	$	641.4		$	4,368.4

DECEMBER 31, 2011
(in millions)
Segments	Deferred policy acquisition costs		Future policy benefits, losses, claims and loss expenses		Unearned premiums		Other policy claims and benefits payable		Premium revenue		Net investment income		Benefits, claims, losses and settlement expenses		Amortization of deferred policy acquisition costs		Other operating expenses			Premiums written
Commercial, Personal and Other Property and Casualty	$	325.3	$	3,424.5	$	1,588.9	$	3.0	$	3,092.3	$	241.3	$	2,237.6	$	658.8	$	439.3		$	3,164.6
Chaucer(1)		133.3		2,332.8		703.2		—		506.3		16.9		313.2		120.1		67.9			428.8
Interest on Debt		—		—		—		—		—		—		—		—		55.0			—
Eliminations		—		—		—		—		—		—		—		—		(5.2	)		—
Total	$	458.6	$	5,757.3	$	2,292.1	$	3.0	$	3,598.6	$	258.2	$	2,550.8	$	778.9	$	557.0		$	3,593.4

DECEMBER 31, 2010
(in millions)
Segments	Deferred policy acquisition costs		Future policy benefits, losses, claims and loss expenses		Unearned premiums		Other policy claims and benefits payable		Premium revenue		Net investment income		Benefits, claims, losses and settlement expenses		Amortization of deferred policy acquisition costs		Other operating expenses			Premiums written
Commercial, Personal and Other Property and Casualty	$	309.7	$	3,275.8	$	1,520.3	$	1.9	$	2,841.0	$	247.2	$	1,856.3	$	600.8	$	447.8		$	3,048.0
Interest on Debt		—		—		—		—		—		—		—		—		44.3			—
Eliminations		—		—		—		—		—		—		—		—		(4.6	)		—
Total	$	309.7	$	3,275.8	$	1,520.3	$	1.9	$	2,841.0	$	247.2	$	1,856.3	$	600.8	$	487.5		$	3,048.0

(1) 2011 includes results of Chaucer Holdings plc (“Chaucer”) since the July 1, 2011 acquisition date. 2012 includes results of Chaucer for the entire year.

SCHEDULE IV

THE HANOVER INSURANCE GROUP, INC.

REINSURANCE

Incorporated herein by reference to Note 15 – “Reinsurance” in the Notes to the Consolidated Financial Statements included in Financial Statements and Supplemental Data of this Form 10-K.

SCHEDULE V

THE HANOVER INSURANCE GROUP, INC.

VALUATION AND QUALIFYING ACCOUNTS

DECEMBER 31
(in millions)
			Additions
Description	Balance at beginning of period		Charged to costs and expenses		Charged  to other accounts(1)		Deductions			Balance at end of period
2012
Allowance for doubtful accounts	$	2.3	$	8.1	$	—	$	(7.6	)	$	2.8
Allowance for uncollectible reinsurance recoverables		16.4		0.4		0.9		(0.8	)		16.9
	$	18.7	$	8.5	$	0.9	$	(8.4	)	$	19.7
2011
Allowance for doubtful accounts	$	3.6	$	10.1	$	—	$	(11.4	)	$	2.3
Allowance for uncollectible reinsurance recoverables		2.3		2.2		11.9		—			16.4
	$	5.9	$	12.3	$	11.9	$	(11.4	)	$	18.7
2010
Allowance for doubtful accounts	$	3.9	$	7.8	$	—	$	(8.1	)	$	3.6
Allowance for uncollectible reinsurance recoverables		2.5		—		—		(0.2	)		2.3
	$	6.4	$	7.8	$	—	$	(8.3	)	$	5.9

(1) Amount charged to other accounts includes foreign exchange gains and losses and in 2011 also includes the allowance for uncollectible reinsurance recoverables acquired from Chaucer Holdings plc on July 1, 2011.

SCHEDULE VI

THE HANOVER INSURANCE GROUP, INC.

SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS

FOR THE YEARS ENDED DECEMBER 31
(in millions)
Affiliation with Registrant	Deferred policy acquisition costs		Reserves for unpaid claims and claim adjustment expenses(1)		Discount, if any, deducted from previous column(2)			Unearned premiums(1)		Earned premiums		Net investment income
Consolidated Property and Casualty Subsidiaries
2012	$	489.5	$	6,197.0	$	—		$	2,474.8	$	4,239.1	$	276.6
2011	$	458.6	$	5,760.3	$	—		$	2,292.1	$	3,598.6	$	258.2
2010	$	309.7	$	3,277.7	$	—		$	1,520.3	$	2,841.0	$	247.2
			Claims and claim adjustment expenses incurred related to					Amortization of deferred policy acquisition costs		Paid claims and claim adjustment expenses
			Current year		Prior years							Premiums written
2012			$	2,990.2	$	(15.8	)	$	938.1	$	2,714.1	$	4,368.4
2011			$	2,654.1	$	(103.3	)	$	778.9	$	2,492.7	$	3,593.4
2010			$	1,967.4	$	(111.1	)	$	600.8	$	1,817.3	$	3,048.0

(1) Reserves for unpaid claims and claim adjustment expenses are shown gross of $2,074.3 million, $1,931.8 million and $1,115.5 million of reinsurance recoverable on unpaid losses in 2012, 2011 and 2010, respectively. Unearned premiums are shown gross of prepaid premiums of $275.4 million, $234.9 million and $77.0 million in 2012, 2011 and 2010, respectively. Reserves for unpaid claims and claims adjustment expense also include policyholder dividends.

(2) The Company does not use discounting techniques.