HANOVER INSURANCE GROUP INC

Previous wording

During the three months ended March 31, 2024, our net income was $115.5 million, compared to net loss of $12.0 million for the three months ended March 31, 2023, an increase of $127.5 million. This favorable change was primarily due to higher after-tax operating income, and to a lesser extent, favorable changes in after-tax net realized and unrealized investment gains and losses.

Current wording

During the six months ended June 30, 2024, our net income was $156.0 million, compared to a net loss of $81.2 million for the six months ended June 30, 2023, an improvement of $237.2 million. This favorable change was primarily due to higher after-tax operating income.

Previous wording

Operating income before interest expense and income taxes (a non-GAAP financial measure; see also “Results of Operations – Consolidated – Non-GAAP Financial Measures”) was $149.7 million for the three months ended March 31, 2024, compared to $13.2 million for the three months ended March 31, 2023, an increase of $136.5 million. This increase was primarily due to lower catastrophe losses across all segments, improvements in current accident year underwriting results in both our Personal Lines and Specialty segments and higher net investment income. The higher catastrophe losses in the first three months of 2023 were primarily due to widespread wind, hail and tornadic activity and several severe freeze events across multiple states.

Current wording

Operating income before interest expense and income taxes (a non-GAAP financial measure; see also “Results of Operations – Consolidated – Non-GAAP Financial Measures”) was $245.1 million for the six months ended June 30, 2024, compared to a loss of $66.2 million for the six months ended June 30, 2023, an improvement of $311.3 million. This increase was primarily due to lower catastrophe losses, improvements in current accident year underwriting results, and, to a lesser extent, higher net favorable development on prior years’ loss reserves and higher net investment income. The higher catastrophe losses in the first six months of 2023 were primarily due to several convective storms across multiple states, with hail damage representing the majority of reported losses, primarily impacting our Personal Lines business.

Previous wording

Pre-tax catastrophe losses were $86.9 million for the three months ended March 31, 2024, compared to $175.0 million during the same period of 2023, a decrease of $88.1 million. Net favorable development on prior years’ loss reserves was $10.4 million for the three months ended March 31, 2024, compared to $3.0 million for the three months ended March 31, 2023, an increase of $7.4 million.

Current wording

Pre-tax catastrophe losses were $244.0 million for the six months ended June 30, 2024, compared to $436.6 million during the same period of 2023, a decrease of $192.6 million. Net favorable development on prior years’ loss reserves was $27.8 million for the six months ended June 30, 2024, compared to $4.7 million for the six months ended June 30, 2023, an increase of $23.1 million.

Previous wording

Net premiums written increased 3.0% in the first three months of 2024, compared to the same period in 2023, primarily driven by renewal price increases, partially offset by lower retention driven by underwriting actions. Underwriting results increased in the first three months of 2024, primarily due to lower catastrophe losses and favorable development on prior years’ loss reserves. 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 we continue to seek rate increases across many lines of business.

Current wording

Net premiums written increased 4.2% in the first six months of 2024, compared to the same period in 2023, primarily driven by renewal price increases, partially offset by lower retention driven by underwriting actions. Underwriting results increased in the first six months of 2024, primarily due to lower catastrophe losses and higher net favorable development on prior years’ loss reserves. 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 we continue to seek rate increases across many lines of business.

Previous wording

Net premiums written increased 4.8% in the first three months of 2024, compared to the same period in 2023, primarily due to renewal price increases. Underwriting results increased in the first three months of 2024 compared to the same period in 2023, primarily due to lower catastrophe losses and lower current accident year losses, partially offset by less favorable development on prior years’ loss reserves. 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.

Current wording

Net premiums written increased 6.5% in the first six months of 2024, compared to the same period in 2023, primarily due to renewal price increases. Underwriting results decreased slightly in the first six months of 2024 compared to the same period in 2023, primarily due to less favorable development on prior years’ loss reserves and higher expenses, partially offset by lower current accident year 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.

Previous wording

Net premiums written were flat in the first three months of 2024, compared to the same period in 2023, primarily due to renewal price increases being largely offset by decreased new business and lower retention. Underwriting results increased in the first three months of 2024, compared to the same period in 2023, primarily due to lower catastrophe losses, improvements in current accident year underwriting results, and favorable development on prior years’ loss reserves.

Current wording

Net premiums written increased 1.8% in the first six months of 2024, compared to the same period in 2023, primarily due to renewal price increases, partially offset by decreased new business and lower retention. Underwriting results improved in the first six months of 2024, compared to the same period in 2023, primarily due to lower catastrophe losses, improvements in current accident year underwriting results, and favorable development on prior years’ loss reserves.

Previous wording

Primary business operations include insurance products and services currently provided through four reporting 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 is Opus Investment Management, Inc. (“Opus”), which provides investment management services to THG, as well as institutions, pension funds, and other organizations. We expect to exit substantially all of Opus’ business operations serving unaffiliated entities by the end of the second quarter of 2024. Investment management services provided by Opus to THG related to its investment-grade fixed maturities portfolio will also be transferred to an external manager. The Other segment also includes 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, run-off direct asbestos and environmental, and product liability businesses.

Current wording

Primary business operations include insurance products and services currently provided through four reporting 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 is Opus Investment Management, Inc. (“Opus”), which provided investment management services to THG, as well as institutions, pension funds, and other organizations. During the second quarter of 2024, we exited substantially all of Opus’ business operations serving unaffiliated entities. Investment management services provided by Opus to THG related to its investment-grade fixed maturities portfolio were also transferred to an external manager. The Other segment also includes 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, run-off direct asbestos and environmental, and product liability businesses.

Previous wording

Consolidated net income for the three months ended March 31, 2024 was $115.5 million, compared to a net loss of $12.0 million for the three months ended March 31, 2023, an increase of $127.5 million. The change year-over-year reflects higher operating income, net of tax, of $107.3 million and a $22.0 million favorable change related to after-tax net realized and unrealized investment gains and losses. Operating income before interest expense and income taxes was $149.7 million for the three months ended March 31, 2024, compared to $13.2 million for the three months ended March 31, 2023, an increase of $136.5 million. This increase was primarily due to lower catastrophe losses across all of our segments, improvements in current accident year underwriting results in both our Personal Lines and Specialty segments, and higher net investment income.

Current wording

Consolidated net income for the six months ended June 30, 2024 was $156.0 million, compared to a net loss of $81.2 million for the six months ended June 30, 2023, an improvement of $237.2 million. The favorable change year-over-year reflects higher after-tax operating income, partially offset by an increase in after-tax net realized and unrealized investment losses of $3.2 million. Operating income before interest expense and income taxes was $245.1 million for the six months ended June 30, 2024, compared to a loss of $66.2 million for the six months ended June 30, 2023, an improvement of $311.3 million. This increase was primarily due to lower catastrophe losses, improvements in current accident year underwriting results and, to a lesser extent, higher net favorable development on prior years’ loss reserves and higher net investment income.

Previous wording

The following table reflects operating income (loss) before interest expense and income taxes for each reporting segment and a reconciliation to consolidated net income (loss) from operating income before interest expense and income taxes (a non-GAAP measure).

Current wording

The following table reflects operating income (loss) before interest expense and income taxes for each reporting segment and a reconciliation to consolidated net income (loss) from operating income (loss) before interest expense and income taxes (a non-GAAP measure).

Previous wording

In addition to consolidated net income (loss), discussed above, we assess our financial performance based upon pre-tax “operating income,” and we assess the operating performance of each of our four reporting segments based upon the pre-tax operating income (loss) generated by each segment. As reflected in the table above, operating income 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 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 before interest expense and income taxes are important components in understanding and assessing our overall financial performance, we believe a discussion of operating income 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 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 and operating income should not be construed as a substitute for net income (loss).

Current wording

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 reporting 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).

Previous wording

Net premiums written in the personal automobile line of business for the three months ended March 31, 2024 were $317.0 million, compared to $323.0 million for the three months ended March 31, 2023, a decrease of $6.0 million. Personal automobile PIF decreased by 5.5% since March 31, 2023. Net premiums written in the homeowners and other lines of business for the three months ended March 31, 2024 were $214.8 million, compared to $208.9 million for the three months ended March 31, 2023, an increase of $5.9 million. Homeowners PIF decreased by 4.7% since March 31, 2023.

Current wording

Net premiums written in the personal automobile line of business were $382.8 million for the three months ended June 30, 2024, compared to $368.1 million for the three months ended June 30, 2023, an increase of $14.7 million. Personal automobile PIF decreased by 7.6% since June 30, 2023. Net premiums written in the homeowners and other lines of business for the three months ended June 30, 2024 were $272.8 million, compared to $266.5 million for the three months ended June 30, 2023, an increase of $6.3 million. Homeowners PIF decreased by 6.9% since June 30, 2023.

Previous wording

Personal Lines current accident year underwriting profit, excluding catastrophes, was $50.0 million for the three months ended March 31, 2024, compared to $29.0 million for the three months ended March 31, 2023. The $21.0 million increase in underwriting results was primarily due to lower current accident year losses, relative to earned premiums, in our personal automobile and homeowners lines, as well as earned premium growth and lower expenses.

Current wording

Personal Lines current accident year underwriting profit, excluding catastrophes, was $56.0 million for the three months ended June 30, 2024, compared to $5.6 million for the three months ended June 30, 2023. The $50.4 million increase in underwriting results was primarily due to lower current accident year losses, relative to earned premiums, in our personal automobile and homeowners lines.

Previous wording

We have been taking actions to improve financial results and reduce volatility within our Personal Lines segment. These actions include increasing pricing, changing certain policy terms and conditions, and being more selective on new business quoting, where permissible, around certain geographies, driver and vehicle history, and building and roof condition type. We were able to obtain pricing increases of approximately 30% in our homeowners line and 18% in our personal automobile line during the first quarter of 2024 and believe that our ability to obtain pricing increases will continue. Consistent with our expectations, PIF declined in the first three months of 2024, driven by lower new business, as our new business pricing is at levels at or above our renewal price increases. We expect our sequential PIF counts to continue to shrink throughout the year. Additionally, our Personal Lines net premiums written may be affected by price competition and the regulatory environment. These factors, along with the aforementioned actions, may also affect our ability to maintain and improve underwriting results.

Current wording

We have been taking actions to improve financial results and reduce volatility within our Personal Lines segment. These actions include increasing pricing, changing certain policy terms and conditions, and being more selective on new business quoting, where permissible, around certain geographies, driver and vehicle history, and building and roof condition type. We were able to obtain pricing increases of approximately 19% in our homeowners line and 18% in our personal automobile line during the second quarter of 2024 and believe that our ability to obtain pricing increases will continue. Consistent with our expectations, PIF declined in the second quarter of 2024, driven by lower new business, as our new business pricing is at levels at or above our renewal price increases. We expect our sequential PIF counts to continue to shrink throughout the year. Additionally, our Personal Lines net premiums written may be affected by price competition and the regulatory environment. These factors, along with the aforementioned actions, may also affect our ability to maintain and improve underwriting results.

Previous wording

Operating income before interest expense and income taxes was $149.7 million for the three months ended March 31, 2024, compared to $13.2 million for the three months ended March 31, 2023, an increase of $136.5 million. This increase was primarily due to lower catastrophe losses across all segments, improvements in current accident year underwriting results in both our Personal Lines and Specialty segments, and higher net investment income. The higher catastrophe losses in the first three months of 2023 were primarily due to widespread wind, hail and tornadic activity and several severe freeze events across multiple states.

Current wording

Operating income before interest expense and income taxes was $245.1 million for the six months ended June 30, 2024, compared to a loss of $66.2 million for the six months ended June 30, 2023, an improvement of $311.3 million. This increase was primarily due to lower catastrophe losses, improvements in current accident year underwriting results and, to a lesser extent, higher net favorable development on prior years’ loss reserves and higher net investment income. The higher catastrophe losses in the first six months of 2023 were primarily due to several convective storms across multiple states, with hail damage representing the majority of reported losses, primarily impacting our Personal Lines business.

Previous wording

Core Commercial net premiums written were $582.4 million for the three months ended March 31, 2024, compared to $565.3 million for the three months ended March 31, 2023. This $17.1 million increase in net premiums written was primarily driven by renewal price increases, partially offset by lower retention driven by underwriting actions.

Current wording

Core Commercial net premiums written were $1,095.8 million for the six months ended June 30, 2024 compared to $1,052.1 million for the six months ended June 30, 2023. This $43.7 million increase in net premiums written was primarily driven by renewal price increases, partially offset by lower retention driven by underwriting actions.

Previous wording

Core Commercial underwriting profit for the three months ended March 31, 2024 was $30.9 million, compared to an underwriting loss of $24.8 million for the three months ended March 31, 2023, an improvement in underwriting results of $55.7 million. Catastrophe losses for the three months ended March 31, 2024 were $20.7 million, compared to $63.9 million for the three months ended March 31, 2023, a decrease of $43.2 million. Net favorable development on prior years’ loss reserves for the three months ended March 31, 2024 was $9.2 million, compared to net unfavorable development of $3.5 million for the three months ended March 31, 2023, a favorable change of $12.7 million.

Current wording

Core Commercial underwriting profit for the six months ended June 30, 2024 was $73.7 million, compared to an underwriting loss of $4.3 million for the six months ended June 30, 2023, a favorable change of $78.0 million. Catastrophe losses for the six months ended June 30, 2024 were $37.1 million, compared to $97.2 million for the six months ended June 30, 2023. Net favorable development on prior years’ loss reserves for the six months ended June 30, 2024 was $11.3 million, compared to unfavorable development of $4.2 million for the six months ended June 30, 2023, a favorable change of $15.5 million.

Previous wording

Core Commercial current accident year underwriting profit, excluding catastrophes, was $42.4 million for the three months ended March 31, 2024, compared to $42.6 million for the three months ended March 31, 2023. The $0.2 million decrease in underwriting results was primarily driven by higher employee-based compensation costs, partially offset by earned premium growth.

Current wording

Core Commercial current accident year underwriting profit, excluding catastrophes, was $99.5 million for the six months ended June 30, 2024, compared to $97.1 million for the six months ended June 30, 2023. This $2.4 million increase was primarily due to earned premium growth.

Previous wording

Our Other segment had operating income of $0.5 million for the three months ended March 31, 2024, compared to $0.3 million for the three months ended March 31, 2023, an increase of $0.2 million.

Current wording

Our Other segment had operating income of $0.5 million for both the six months ended June 30, 2024 and June 30, 2023.

Previous wording

It is not possible to know whether the factors that affected loss reserves in the first three months of 2024 will also occur in future periods. We encourage you to read our 2023 Annual Report on Form 10-K for more information about our reserving process and the judgments, uncertainties and risks associated therewith.

Current wording

It is not possible to know whether the factors that affected loss reserves in the first six months of 2024 will also occur in future periods. We encourage you to read our 2023 Annual Report on Form 10-K for more information about our reserving process and the judgments, uncertainties and risks associated therewith.

Previous wording

For the three months ended March 31, 2024, favorable catastrophe development was $7.0 million, primarily due to lower than expected losses in our commercial multiple peril line related to 2022 and 2023 events, including hurricane Ian and tornadic activity. For the three months ended March 31, 2023, total catastrophe loss development was not meaningful.

Current wording

For the six months ended June 30, 2024, favorable catastrophe development was $27.0 million, primarily due to lower than expected losses related to events from accident years 2021 through 2023, including several convective storms across multiple states, Winter Storm Elliot, hurricane Ian, and hurricane Ida. For the six months ended June 30, 2023, total catastrophe loss development was not meaningful.

Previous wording

For the three months ended March 31, 2023, net favorable loss and LAE development, excluding catastrophes, was $3.0 million. Specialty favorable loss and LAE development of $18.1 million was primarily due to lower than expected losses of $11.3 million in our Professional and Executive Lines division, notably in accident years 2019 through 2022 and, to a lesser extent, lower than expected losses in our surety line. Personal Lines unfavorable loss and LAE development of $11.6 million was primarily due to higher than expected losses in our personal automobile line within property damage coverages in accident year 2022. Core Commercial unfavorable loss and LAE development of $3.5 million was primarily due to higher than expected losses and LAE in our commercial automobile and commercial multiple peril lines.

Current wording

For the six months ended June 30, 2023, net favorable loss and LAE development, excluding catastrophes, was $4.7 million. Specialty favorable loss and LAE development of $29.8 million was primarily due to lower than expected losses of $22.8 million in our Professional and Executive Lines division, notably in accident years 2019 through 2022 and, to a lesser extent, lower than expected losses in our surety line. Personal Lines unfavorable loss and LAE development of $20.9 million was primarily due to higher than expected losses in our personal automobile line of $12.9 million, primarily within bodily injury and property damage coverages in accident years 2021 through 2022 and, to a lesser extent, higher than expected losses in our homeowners line. Core Commercial unfavorable loss and LAE development of $4.2 million was primarily due to higher than expected losses and LAE in our commercial automobile line of $10.9 million and, to a lesser extent, higher than expected losses in general liability coverages, partially offset by lower than expected losses in our workers’ compensation line of $12.0 million.

Previous wording

Reinsurance recoverables were $1,999.8 million and $2,056.1 million at March 31, 2024 and December 31, 2023, respectively, of which $120.3 million and $162.0 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 $57.0 million and $72.2 million at March 31, 2024 and December 31, 2023, and billable non-MCCA reinsurance recoverables totaled $63.3 million and $89.8 million at March 31, 2024 and December 31, 2023, respectively. At March 31, 2024 and December 31, 2023, billed balances outstanding greater than 90 days were not material.

Current wording

Reinsurance recoverables were $2,037.5 million and $2,056.1 million at June 30, 2024 and December 31, 2023, respectively, of which $125.2 million and $162.0 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 $54.1 million and $72.2 million at June 30, 2024 and December 31, 2023, respectively, and billable non-MCCA reinsurance recoverables totaled $71.1 million and $89.8 million at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024 and December 31, 2023, billed balances outstanding greater than 90 days were not material.

Previous wording

The increase in net investment income for the three months ended March 31, 2024 was primarily due to the impact of higher new money yields, higher partnership income and the continued investment of operational cashflows. Income from partnerships can vary significantly from period to period based on the performance in the underlying portfolios.

Current wording

The increase in net investment income for the three and six months ended June 30, 2024 was primarily due to the impact of higher interest rates and the continued investment of operational cashflows, partially offset by lower partnership income. Income from partnerships can vary significantly from period to period based on the performance in the underlying portfolios. Also, partnership income for the three and six months ended June 30, 2023 benefited from a real estate property sale in a tax credit partnership.

Previous wording

Total cash and investments decreased $17.4 million, or 0.2%, for the three months ended March 31, 2024 as compared to December 31, 2023. The decrease was primarily due to net market value depreciation and the funding of financing activities, including our dividend payment, partially offset by continued investment of cashflows from operations.

Current wording

Total cash and investments increased $91.8 million, or 1.0%, for the six months ended June 30, 2024 as compared to December 31, 2023. The increase was primarily due to continued investment of cashflows from operations, partially offset by the funding of financing activities, including our dividend payments, and net market value depreciation.

Previous wording

The increase in net unrealized losses on fixed maturities was due to higher interest rates, partially offset by tighter credit spreads.

Current wording

The increase in net unrealized losses on fixed maturities was due to higher interest rates.

Previous wording

For the three months ended March 31, 2024, we recognized $0.3 million of recoveries on previously impaired fixed maturities. For the three months ended March 31, 2023, we recognized net impairments of $14.8 million, consisting of losses of $10.7 million on fixed maturity securities, primarily related to intent to sell securities in the banking sector, and $4.1 million of estimated credit losses on mortgage loans.

Current wording

For the three and six months ended June 30, 2024, we recognized net impairments of $5.2 million and $4.9 million, respectively, consisting primarily of $3.6 million on mortgage loans and $1.7 million on intent to sell fixed maturities. For the three months ended June 30, 2023, we recognized net impairments of $1.7 million, consisting of estimated credit losses of $1.3 million on mortgage loans and $0.4 million on fixed maturity securities. For the six months ended June 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.

Previous wording

At March 31, 2024 and December 31, 2023, the allowance for credit losses on mortgage loans was $9.7 million and $10.0 million, respectively, and the allowance for credit losses on available-for-sale debt securities was $1.6 million and $1.9 million, respectively.

Current wording

At June 30, 2024 and December 31, 2023, the allowance for credit losses on mortgage loans was $8.6 million and $10.0 million, respectively, and the allowance for credit losses on available-for-sale debt securities was $0.8 million and $1.9 million, respectively.

Previous wording

The carrying value of fixed maturity securities on non-accrual status at March 31, 2024, December 31, 2023, and March 31, 2023 was $14.8 million. At March 31, 2024, a mortgage loan with a carrying value of $7.1 million was also on non-accrual status. The effects on income of non-accruals for fixed maturity securities and mortgage loans for the three months ended March 31, 2024 and March 31, 2023, compared with amounts that would have been recognized in accordance with the original terms of the fixed maturities and mortgage loans, were not material. Any defaults in the fixed maturities or mortgage loan portfolios in future periods may negatively affect investment income.

Current wording

The carrying value of fixed maturity securities on non-accrual status at June 30, 2024, December 31, 2023, and June 30, 2023 was $14.8 million. At June 30, 2024, a mortgage loan with a carrying value of $5.5 million was also on non-accrual status. The effects on income of non-accruals for fixed maturity securities and mortgage loans for the six months ended June 30, 2024 and June 30, 2023, compared with amounts that would have been recognized in accordance with the original terms of the fixed maturities and mortgage loans, were not material. Any defaults in the fixed maturities or mortgage loan portfolios in future periods may negatively affect investment income.

Previous wording

Gross unrealized losses on fixed maturities at March 31, 2024 were $654.2 million, an increase of $29.5 million compared to December 31, 2023, primarily attributable to higher interest rates, partially offset by tighter credit spreads. At March 31, 2024, gross unrealized losses consisted primarily of $235.8 million on corporate fixed maturities, $145.7 million on residential mortgage-backed securities, $131.5 million on municipals, $67.5 million on commercial mortgage-backed securities and $58.8 million on U.S. government securities. See Note 3 – “Investments” in the Notes to Interim Consolidated Financial Statements.

Current wording

Gross unrealized losses on fixed maturities at June 30, 2024 were $638.1 million, an increase of $13.4 million compared to December 31, 2023, primarily attributable to higher interest rates. At June 30, 2024, gross unrealized losses consisted primarily of $219.3 million on corporate fixed maturities, $155.2 million on residential mortgage-backed securities, $130.5 million on municipals, $60.5 million on commercial mortgage-backed securities and $59.2 million on U.S. government securities. See Note 3 – “Investments” in the Notes to Interim Consolidated Financial Statements.

Previous wording

During the first quarter of 2024, the U.S. economy continued its trend of economic resiliency. Strength in consumer spending and the labor market persisted, however inflation continues to exceed the Federal Reserve’s (the “Fed”) two percent long-term target. In light of this, the Fed held the federal funds target rate at a range of 5.25% to 5.50% and has indicated that it does not expect to reduce the target range until it has greater confidence that inflation is moving toward its two percent 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.

Current wording

During the second quarter of 2024, the U.S. economy continued its trend of economic resiliency. Strength in consumer spending and the labor market persisted despite inflation continuing to exceed the Federal Reserve’s (the “Fed”) two percent long-term target. The Fed held the federal funds target rate at a range of 5.25% to 5.50% and indicated that it does not expect to reduce the target range until it has greater confidence that inflation is moving toward its two percent 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.

Previous wording

Net realized and unrealized investment gains were $5.5 million for the three months ended March 31, 2024, compared to net realized and unrealized investment losses of $23.0 million for the three months ended March 31, 2023. For the three months ended March 31, 2024, net realized and unrealized investment gains were primarily due to $6.5 million of changes in the fair value of equity securities, partially offset by net realized losses from sales of investments. For the three months ended March 31, 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 $4.5 million of credit-related impairments. Additionally, for the three months ended March 31, 2023, we recognized net realized and unrealized investment losses of $7.1 million due to changes in the fair value of equity securities.

Current wording

Net realized and unrealized investment losses were $34.5 million for the three months ended June 30, 2024, compared to $2.7 million for the three months ended June 30, 2023. For the three months ended June 30, 2024, net realized and unrealized investment losses were primarily due to $30.4 million of net realized losses from sales of investments and, to a lesser extent, from impairment losses on investments, including $3.5 million of credit-related impairments and $1.7 million of losses related to intent to sell securities, partially offset by changes in the fair value of equity securities. Net realized investment losses were primarily due to the sale of lower coupon fixed income securities, in consideration of expiring tax gains from 2021. For the three months ended June 30, 2023, net realized and unrealized investment losses were primarily due to credit-related impairment losses on investments and, to a lesser extent, the change in the fair value of equity securities.

Previous wording

The provision for income taxes from continuing operations was an expense of $29.8 million compared to a benefit of $5.5 million for the three months ended March 31, 2024 and 2023, respectively. These amounts resulted in consolidated effective tax rates of 20.5% on pre-tax income and 31.4% on the pre-tax loss for the three months ended March 31, 2024 and 2023, respectively. These provisions include excess tax benefits related to stock-based compensation of $1.1 million and $1.0 million for the three months ended March 31, 2024 and 2023, respectively. In addition, these provisions reflect benefits related to tax planning strategies implemented in prior years of $0.4 million and $0.8 million for the three months ended March 31, 2024 and 2023, respectively. Absent these items, the provisions for income taxes would have been an expense of $31.3 million, or 21.5% and a benefit of $3.7 million, or 21.1%, for the three months ended March 31, 2024 and 2023, respectively.

Current wording

The provision for income taxes from continuing operations was an expense of $40.7 million compared to a benefit of $26.2 million for the six months ended June 30, 2024 and 2023, respectively. These provisions resulted in consolidated effective federal tax rates of 20.7% on pre-tax income for the six months ended June 30, 2024 and 24.2% on the pre-tax loss for the six months ended June 30, 2023. These provisions include excess tax benefits related to stock-based compensation of $1.2 million and $1.0 million for the six months ended June 30, 2024 and 2023, respectively. In addition, these provisions reflect benefits related to tax planning strategies implemented in prior years of $0.6 million and $0.8 million for the six months ended June 30, 2024 and 2023, respectively. Absent these items, the provision for income taxes would have been an expense of $42.5 million, or 21.6%, and a benefit of $24.4 million, or 22.6%, for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

The income tax provision on operating results was an expense of $29.3 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively. These provisions resulted in effective tax rates for operating income of 20.8% and 2.1% for the three months ended March 31, 2024 and 2023, respectively. These provisions reflect the aforementioned excess tax benefits related to stock-based compensation of $1.1 million and $1.0 million for the three months ended March 31, 2024 and 2023, respectively. Absent this item, the provisions for income taxes would have been an expense of $30.4 million, or 21.5% and $1.1 million, or 23.4%, for the three months ended March 31, 2024 and 2023, respectively.

Current wording

The income tax provision on operating results was an expense of $48.0 million compared to a benefit of $19.6 million for the six months ended June 30, 2024 and 2023, respectively. These provisions resulted in an effective tax rate on operating income of 21.1% for the six months ended June 30, 2024 and 23.5% on operating losses for the six months ended June 30, 2023. These provisions include excess tax benefits related to stock-based compensation of $1.2 million and $1.0 million for the six months ended June 30, 2024 and 2023, respectively. Absent this item, the provisions for income taxes would have been an expense of $49.2 million, or 21.6%, and a benefit of $18.6 million, or 22.3%, for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

The statutory capital and surplus for our insurance subsidiaries increased $119.6 million during the first three months of 2024. This increase was primarily due to underwriting profits and, to a lesser extent, from an increase in unrealized investment gains.

Current wording

The statutory capital and surplus for our insurance subsidiaries increased $167.5 million during the first six months of 2024. This increase was primarily due to underwriting profits, partially offset by net realized and unrealized investment losses.

Previous wording

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 three months of 2024, Hanover Insurance did not provide dividends to the holding company.

Current wording

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 six months of 2024, Hanover Insurance did not provide dividends to the holding company.

Previous wording

Net cash provided by operating activities was $58.7 million during the first three months of 2024, as compared to $18.1 million during the first three months of 2023, an increase of $40.6 million. The increase in cash provided was primarily due to an increase in premiums received.

Current wording

Net cash provided by operating activities was $198.2 million during the first six months of 2024, as compared to $44.3 million during the first six months of 2023, an increase of $153.9 million. The increase in cash provided was primarily due to lower loss and LAE payments made and an increase in premiums received during the first six months of 2024 compared to the same period in 2023, partially offset by higher income tax payments made in 2024.

Previous wording

Net cash used in investing activities was $74.8 million during the first three months of 2024, as compared to $106.5 million during the first three months of 2023. During the first three months of 2024, cash used in investing activities primarily related to net purchases of fixed maturities. During the first three months of 2023, cash used in investing activities primarily related to net purchases of fixed maturities and, to a lesser extent, to net purchases of equity securities.

Current wording

Net cash used in investing activities was $108.8 million during the first six months of 2024, as compared to $118.0 million during the first six months of 2023. During the first six months of 2024 and 2023, cash used in investing activities primarily related to net purchases of fixed maturities.

Previous wording

Net cash used in financing activities was $35.4 million during the first three months of 2024, as compared to $35.1 million during the first three months of 2023. During the first three months of 2024 and 2023, cash used in financing activities primarily resulted from a quarterly dividend payment to our shareholders.

Current wording

Net cash used in financing activities was $64.0 million during the first six months of 2024, as compared to $63.7 million during the first six months of 2023. During the first six months of 2024 and 2023, cash used in financing activities primarily resulted from two quarterly dividend payments to our shareholders.

Previous wording

Dividends to common shareholders are subject to quarterly board approval and declaration. During the first three months of 2024, as declared by the Board, we paid a quarterly dividend, of $0.85 per share, to our shareholders totaling $30.5 million. We believe that our holding company assets are sufficient to provide for future shareholder dividends should the Board of Directors declare them.

Current wording

Dividends to common shareholders are subject to quarterly board approval and declaration. During the first six months of 2024, as declared by the Board, we paid two quarterly dividends, each for $0.85 per share, to our shareholders totaling $61.1 million. We believe that our holding company assets are sufficient to provide for future shareholder dividends should the Board of Directors declare them.

Previous wording

At March 31, 2024, THG, as a holding company, held approximately $285.0 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.

Current wording

At June 30, 2024, THG, as a holding company, held approximately $268.2 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.