HANOVER INSURANCE GROUP INC

Previous wording

The following discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this discussion and analysis, words such as: “believes,” “anticipates,” “expects,” “projections,” “outlook,” “should,” “could,” “plan,” “guidance,” “likely,” “on track to,” “potential,” “continue,” “targeted,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. We caution readers that accuracy with respect to forward-looking projections is difficult and subject to risks and uncertainties. Those risks and uncertainties, in some cases, have affected, and in the future could affect, our actual results and could cause our actual results to differ materially from historical results and from those expressed in any of our forward-looking statements. For important factors that could cause actual results to differ materially from those contained in forward-looking statements, see “Risk Factors” in Part II – Item 1A of this Quarterly Report on Form 10-Q and in Part I – Item 1A of our 2023 Annual Report on Form 10-K.

Current wording

The following discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this discussion and analysis, words such as: “believes,” “anticipates,” “expects,” “projections,” “outlook,” “should,” “could,” “plan,” “guidance,” “likely,” “on track to,” “potential,” “continue,” “targeted,” “designed,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. We caution readers that accuracy with respect to forward-looking projections is difficult and subject to risks and uncertainties. Those risks and uncertainties, in some cases, have affected, and in the future could affect, our actual results and could cause our actual results to differ materially from historical results and from those expressed in any of our forward-looking statements. For important factors that could cause actual results to differ materially from those contained in forward-looking statements, see “Risk Factors” in Part II – Item 1A of this Quarterly Report on Form 10-Q and in Part I – Item 1A of our 2023 Annual Report on Form 10-K.

Previous 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.

Current wording

During the nine months ended September 30, 2024, our net income was $258.1 million, compared to a net loss of $72.6 million for the nine months ended September 30, 2023, an improvement of $330.7 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 $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.

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 $395.7 million for the nine months ended September 30, 2024, compared to an operating loss of $52.5 million for the nine months ended September 30, 2023, an improvement of $448.2 million. This increase was primarily due to lower catastrophe losses, improvements in current accident year underwriting results, primarily in our Personal Lines segment, and, to a lesser extent, higher net favorable development on prior years’ loss reserves and higher net investment income. Pre-tax catastrophe losses were $349.9 million for the nine months ended September 30, 2024, compared to $632.4 million during the same period of 2023, a decrease of $282.5 million. The catastrophe losses in the first nine months of 2024 were primarily due to several convective storms across multiple states, with wind and hail damage representing the majority of reported losses, primarily in the Midwest, and, to a lesser extent, the impacts of hurricanes Helene and Beryl. The higher catastrophe losses in the first nine months of 2023 were primarily due to several convective storms across multiple states, particularly in the Midwest, with hail and wind damage representing the majority of reported losses, primarily impacting our Personal Lines business. The lower Personal Lines current accident year losses were primarily due to the benefit of earned pricing outpacing loss trends in both personal automobile and homeowners lines, and moderated loss trends, particularly in automobile collision coverages.

Previous wording

Core Commercial includes two businesses, small commercial and middle market, both of which focus on account business, including coverage for commercial multiple peril, commercial automobile, workers’ compensation and other (monoline general liability, ancillary professional, commercial umbrella, and monoline property). Small commercial focuses on small businesses, with annual policy premiums generally up to $50,000. Middle market provides coverage to mid-sized businesses with annual policy premiums generally between $50,000 and $500,000. Middle market offers coverage in distinct industry segments, including technology, manufacturing, human services, retail, real estate, and others. We believe that our account-focused approach to the small commercial market and distinctiveness in the middle market, including our diversified portfolio of products, delivers significant value to agents and policyholders. We continue to pursue our core strategy of developing strong relationships with retail agents, enhancing franchise value through selective distribution, distinctive products and coverages, and through continued investment in products for additional industry segmentation.

Current wording

Core Commercial includes two businesses, small commercial and middle market, both of which focus on account business, including coverage for commercial multiple peril, commercial automobile, workers’ compensation and other (monoline general liability, ancillary professional, commercial umbrella, and monoline property). Small commercial focuses on small businesses, with annual policy premiums generally up to $50,000. Middle market provides coverage to mid-sized businesses with annual policy premiums generally between $50,000 and $500,000. Middle market offers coverage in distinct industry segments, including technology, manufacturing, human services, retail, and real estate, among others. We believe that our account-focused approach to the small commercial market and distinctiveness in the middle market, including our diversified portfolio of products, delivers significant value to agents and policyholders. We continue to pursue our core strategy of developing strong relationships with retail agents, enhancing franchise value through selective distribution, distinctive products and coverages, and through continued investment in products for additional industry segmentation.

Previous 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.

Current wording

Net premiums written increased 3.3% in the first nine 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. Operating income before interest expense and income taxes increased in the first nine 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 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.

Current wording

Net premiums written increased 5.4% in the first nine months of 2024, compared to the same period in 2023, primarily due to renewal price increases. Operating income before interest expense and income taxes increased in the first nine months of 2024 compared to the same period in 2023, primarily due to lower current accident year losses and higher net investment income, partially offset by higher expenses and lower favorable development. 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 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.

Current wording

Net premiums written increased 3.6% in the first nine 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. Operating income before interest expense and income taxes improved in the first nine 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 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.

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. The “Other” segment 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. Also included in the Other segment during the first half of 2024 and prior were the operations of Opus Investment Management, Inc. (“Opus”), which provided investment management services to THG, as well as institutions, pension funds, and other organizations. During the second and third quarters of 2024, we exited 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 during the second quarter of 2024.

Previous wording

Consolidated net income for the three months ended June 30, 2024 was $40.5 million, compared to a net loss of $69.2 million for the three months ended June 30, 2023, an improvement of $109.7 million. The favorable change year-over-year reflects higher after-tax operating income of $136.4 million, partially offset by an increase in after-tax net realized and unrealized investment losses of $25.2 million, primarily related to net realized losses from sales of fixed maturity securities and, to a lesser extent, from impairment losses on investments. Operating income before interest expense and income taxes was $95.4 million for the three months ended June 30, 2024, compared to a loss of $79.4 million for the three months ended June 30, 2023, an improvement of $174.8 million. This increase was primarily due to lower catastrophe losses in our Personal Lines and Core Commercial segments, and from improvements in current accident year underwriting results and, to a lesser extent, higher net favorable development on prior years’ loss reserves, primarily in our Personal Lines segment.

Current wording

Consolidated net income for the three months ended September 30, 2024 was $102.1 million, compared to $8.6 million for the three months ended September 30, 2023, an increase of $93.5 million. This increase was due to after-tax operating income of $104.5 million, partially offset by an increase in after-tax net realized and unrealized investment losses of $10.6 million. Operating income before interest expense and income taxes was $150.6 million for the three months ended September 30, 2024, compared to $13.7 million for the three months ended September 30, 2023, an increase of $136.9 million. This increase was primarily due to lower catastrophe losses, improvements in current accident year underwriting results in our Personal Lines segment and, to a lesser extent, higher net favorable development on prior years’ loss reserves.

Previous 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.

Current wording

Consolidated net income for the nine months ended September 30, 2024 was $258.1 million, compared to a net loss of $72.6 million for the nine months ended September 30, 2023, an improvement of $330.7 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 $13.8 million. Operating income before interest expense and income taxes was $395.7 million for the nine months ended September 30, 2024, compared to an operating loss of $52.5 million for the nine months ended September 30, 2023, an improvement of $448.2 million. This increase was primarily due to lower catastrophe losses, improvements in current accident year underwriting results in our Personal Lines segment, and, to a lesser extent, higher net favorable development on prior years’ loss reserves and higher net investment income.

Previous wording

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

Current wording

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

Previous wording

Core Commercial net premiums written were $513.4 million for the three months ended June 30, 2024, compared to $486.8 million for the three months ended June 30, 2023. This $26.6 million increase in net premiums written was primarily driven by renewal price increases.

Current wording

Core Commercial net premiums written were $599.2 million for the three months ended September 30, 2024, compared to $589.4 million for the three months ended September 30, 2023. The $9.8 million increase in net premiums written was primarily driven by renewal price increases.

Previous 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.

Current wording

Net premiums written in the personal automobile line of business were $411.1 million for the three months ended September 30, 2024, compared to $385.0 million for the three months ended September 30, 2023, an increase of $26.1 million. Personal automobile PIF decreased by 8.5% since September 30, 2023. Net premiums written in the homeowners and other lines of business for the three months ended September 30, 2024 were $302.9 million, compared to $283.3 million for the three months ended September 30, 2023, an increase of $19.6 million. Homeowners PIF decreased by 7.8% since September 30, 2023.

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 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.

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 16% in our homeowners line and approximately 15% in our personal automobile line during the third quarter of 2024 and believe that our ability to obtain pricing increases, while moderating, will continue. Consistent with our expectations, PIF declined in the third 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 in the fourth quarter of this year. Additionally, our Personal Lines net premiums written may be affected by price competition and the regulatory environment. These factors, along with the aforementioned actions, may also affect our ability to maintain and improve underwriting results.

Previous wording

Our Other segment operating income was de minimis for the three months ended June 30, 2024, compared to $0.2 million for the three months ended June 30, 2023, a decrease of $0.2 million.

Current wording

Our Other segment operating income was de minimis for the three months ended September 30, 2024, compared to $0.7 million for the three months ended September 30, 2023, a decrease of $0.7 million.

Previous 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.

Current wording

Core Commercial net premiums written were $1,695.0 million for the nine months ended September 30, 2024 compared to $1,641.5 million for the nine months ended September 30, 2023. The $53.5 million increase in net premiums written was primarily driven by renewal price increases, partially offset by lower retention driven by underwriting actions.

Previous wording

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

Current wording

Our Other segment had operating income of $0.5 million for the nine months ended September 30, 2024, compared to $1.2 million for the nine months ended September 30, 2023, a decrease of $0.7 million.

Previous 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.

Current wording

It is not possible to know whether the factors that affected loss reserves in the first nine 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 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.

Current wording

For the nine months ended September 30, 2024, favorable catastrophe loss development was $37.0 million, primarily due to lower than expected losses related to events from accident years 2020 through 2023, including several convective storms across multiple states, Winter Storm Elliot, Hurricane Ian, and Hurricane Ida. For the nine months ended September 30, 2023, total catastrophe loss development was not meaningful.

Previous wording

For the six months ended June 30, 2024, net favorable loss and LAE development, excluding catastrophes, was $27.8 million. Core Commercial favorable loss and LAE development was $11.3 million, with favorability in each of the main product lines: commercial multiple peril, commercial automobile, workers’ compensation and other commercial lines. Lower than expected property losses of $23.3 million were partially offset by higher than expected losses in certain liability lines of $12.0 million. Specialty favorable loss and LAE development of $12.4 million was primarily due to lower than expected losses in our Professional and Executive Lines division general liability-claims made coverage and, to a lesser extent, lower than expected losses in our surety line. Personal Lines favorable development was primarily due to lower than expected losses of $13.3 million in our personal automobile line within physical damage coverage. This was partially offset by higher than expected losses of $10.1 million in other personal lines in our standalone umbrella coverage.

Current wording

For the nine months ended September 30, 2024, net favorable loss and LAE development, excluding catastrophes, was $41.8 million. Core Commercial favorable loss and LAE development was $14.9 million, with favorability in each of the main product lines: commercial multiple peril, commercial automobile, workers’ compensation and other commercial lines. Lower than expected property losses of $25.6 million were partially offset by higher than expected losses of $10.7 million across several of the liability lines. Specialty favorable loss and LAE development of $22.6 million was primarily due to lower than expected losses in our Professional and Executive Lines division’s liability claims-made coverage of $14.1 million and, to a lesser extent, lower than expected losses in our surety line. Personal Lines favorable development was primarily due to lower than expected losses of $13.4 million in our personal automobile line within physical damage coverage. This favorable development was partially offset by higher than expected losses of $10.3 million in other personal lines within our standalone umbrella coverage.

Previous 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.

Current wording

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

Previous 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.

Current wording

Reinsurance recoverables were $1,960.9 million and $2,056.1 million at September 30, 2024 and December 31, 2023, respectively, of which $101.1 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 $48.1 million and $72.2 million at September 30, 2024 and December 31, 2023, respectively, and billable non-MCCA reinsurance recoverables totaled $53.0 million and $89.8 million at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024, there were $0.6 million of billed balances outstanding greater than 90 days. At December 31, 2023, there were no billed balances outstanding greater than 90 days.

Previous 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.

Current wording

The increase in net investment income for the three and nine months ended September 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 nine months ended September 30, 2023 benefited from a real estate property sale in a tax credit partnership.

Previous 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.

Current wording

Total cash and investments increased $728.6 million, or 7.9%, for the nine months ended September 30, 2024 as compared to December 31, 2023. The increase was primarily due to continued investment of cashflows from operations and net market value appreciation, partially offset by the funding of financing activities, including our dividend payments.

Previous wording

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

Current wording

The decrease in net unrealized losses on fixed maturities was primarily due to lower interest rates.

Previous wording

The duration of our fixed maturity portfolio is as follows:

Current wording

The duration of our fixed maturity portfolio was as follows:

Previous wording

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

Current wording

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

Previous 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.

Current wording

For the three months ended September 30, 2024, we recognized net impairment losses of $0.6 million, consisting of $0.4 million on mortgage loans and $0.2 million on fixed maturities. For the nine months ended September 30, 2024, we recognized net impairment losses of $5.5 million, consisting of $4.0 million on mortgage loans and $1.5 million on fixed maturities. For the three months ended September 30, 2023, impairments were not material. For the nine months ended September 30, 2023, we recognized net impairments of $16.5 million, consisting primarily of losses on intent to sell fixed maturities in the banking sector of $10.3 million, and $5.4 million of estimated credit losses on mortgage loans.

Previous 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.

Current wording

At September 30, 2024 and December 31, 2023, the allowance for credit losses on mortgage loans was $7.5 million and $10.0 million, respectively, and the allowance for credit losses on available-for-sale debt securities was $0.6 million and $1.9 million, respectively.

Previous 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.

Current wording

The carrying value of fixed maturity securities on non-accrual status was $14.4 million at September 30, 2024, and $14.8 million at December 31, 2023 and September 30, 2023. At September 30, 2024, a mortgage loan with a carrying value of $5.3 million was also on non-accrual status. The effects on income of non-accruals for fixed maturity securities and mortgage loans for the nine months ended September 30, 2024 and September 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 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.

Current wording

Gross unrealized losses on fixed maturities at September 30, 2024 were $396.6 million, an improvement of $228.1 million compared to December 31, 2023, primarily attributable to lower interest rates. At September 30, 2024, gross unrealized losses consisted primarily of $118.9 million on corporate fixed maturities, $105.1 million on residential mortgage-backed securities, $90.0 million on municipals and $44.0 million on U.S. government securities. See Note 3 – “Investments” in the Notes to Interim Consolidated Financial Statements.

Previous 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.

Current wording

The U.S. economy continued to expand at a solid pace during the third quarter of 2024. Inflation moved closer to the Federal Reserve’s (the “Fed”) current two percent long-term target. However, job gains slowed and the unemployment rate, while still low, crept up in the third quarter. In September, the Fed announced its first rate cut in what is expected to be a cutting cycle, reducing the federal funds target range to 4.75% to 5.00%. Despite the easing, financial conditions continue to be tight and remain a challenge to the U.S. economy. This 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 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.

Current wording

Net realized and unrealized investment losses were $12.4 million for the three months ended September 30, 2024, compared to $6.1 million for the three months ended September 30, 2023. For the three months ended September 30, 2024, net realized and unrealized investment losses were primarily due to $23.5 million of net realized losses from sales of investments, primarily fixed maturities. These realized losses were partially offset by changes in the fair value of equity securities of $11.7 million. For the three months ended September 30, 2023, net realized and unrealized investment losses were primarily due to the change in fair value of equity securities of $5.2 million and, to a lesser extent, from net realized losses from sales of investments, primarily fixed maturities.

Previous wording

Net realized and unrealized investment losses were $29.0 million for the six months ended June 30, 2024, compared to $25.7 million for the six months ended June 30, 2023. For the six months ended June 30, 2024, net realized and unrealized investment losses were primarily due to $31.7 million of net realized losses from sales of investments, primarily fixed maturities, and, to a lesser extent, from impairment losses on investments, including $3.2 million of credit-related impairments and $1.7 million of losses related to intent to sell securities. These investment losses were partially offset by changes in the fair value of equity securities of $7.6 million. For the six months ended June 30, 2023, net realized and unrealized investment losses were primarily due to impairment losses on investments, including $10.3 million of losses related to intent to sell securities and $6.2 million of credit-related impairments and, to a lesser extent, from changes in the fair value of equity securities of $8.2 million.

Current wording

Net realized and unrealized investment losses were $41.4 million for the nine months ended September 30, 2024, compared to $31.8 million for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, net realized and unrealized investment losses were primarily due to $55.2 million of net realized losses from sales of investments, primarily fixed maturities, and, to a lesser extent, from impairment losses on investments, including $3.3 million of credit-related impairments and $2.2 million of losses related to intent to sell securities. These investment losses were partially offset by changes in the fair value of equity securities of $19.3 million. For the nine months ended September 30, 2023, net realized and unrealized investment losses were primarily due to impairment losses on investments, including $10.3 million of losses related to intent to sell securities and $6.2 million of credit-related impairments and, to a lesser extent, from changes in the fair value of equity securities of $13.4 million.

Previous wording

The provision for income taxes from continuing operations was an expense of $10.9 million compared to a benefit of $20.7 million for the three months ended June 30, 2024 and 2023, respectively. These amounts resulted in consolidated effective tax rates of 21.2% on pre-tax income for the three months ended June 30, 2024 and 22.8% on the pre-tax loss for the three months ended June 30, 2023. The provision for 2024 includes excess tax benefits related to stock-based compensation and benefits related to tax planning strategies implemented in prior years of $0.1 million and $0.2 million, respectively. Absent these items, the provision for income taxes would have been an expense of $11.2 million, or 21.8%, for the three months ended June 30, 2024.

Current wording

The provision for income taxes from continuing operations was an expense of $27.6 million compared to a benefit of $9.1 million for the three months ended September 30, 2024 and 2023, respectively. The expense in 2024 resulted in a consolidated effective tax rate of 21.3% on pre-tax income for the three months ended September 30, 2024. The benefit from 2023 resulted in a consolidated effective tax rate that was not meaningful for the three months ended September 30, 2023. The provision for 2024 includes excess tax benefits related to stock-based compensation and benefits related to tax planning strategies implemented in prior years of $0.4 million and $0.6 million, respectively. Absent these items, the provision for income taxes would have been an expense of $28.6 million, or 22.1%, for the three months ended September 30, 2024. The tax benefit of $9.1 million, for the three months ended September 30, 2023, was the result of applying a higher year-to-date tax rate, due to lower year-to-date underwriting income, to a $0.9 million pre-tax loss.

Previous wording

The income tax provision on operating results was an expense of $18.7 million compared to a benefit of $19.7 million for the three months ended June 30, 2024 and 2023, respectively. These provisions resulted in an effective tax rate on operating income of 21.5% for the three months ended June 30, 2024 and 22.4% on operating losses for the three months ended June 30, 2023. The 2024 provision reflects the aforementioned excess tax benefits related to stock-based compensation of $0.1 million. Absent this item, the provision for income taxes would have been an expense of $18.8 million, or 21.7%, for the three months ended June 30, 2024.

Current wording

The income tax provision on operating results was an expense of $30.8 million compared to a benefit of $1.6 million for the three months ended September 30, 2024 and 2023, respectively. These provisions resulted in effective tax rates on operating income of 21.7% and 30.8% for the three months ended September 30, 2024 and 2023, respectively. The 2024 provision reflects the aforementioned excess tax benefits related to stock-based compensation of $0.4 million. Absent this item, the provision for income taxes would have been an expense of $31.2 million, or 22.0%, for the three months ended September 30, 2024.

Previous 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.

Current wording

The provision for income taxes from continuing operations was an expense of $68.3 million compared to a benefit of $35.3 million for the nine months ended September 30, 2024 and 2023, respectively. These provisions resulted in consolidated effective federal tax rates of 20.9% and 32.4% for the nine months ended September 30, 2024 and 2023, respectively. These provisions include excess tax benefits related to stock-based compensation of $1.6 million and $1.0 million for the nine months ended September 30, 2024 and 2023, respectively. In addition, these provisions reflect benefits related to tax planning strategies implemented in prior years of $1.2 million in each of the nine months ended September 30, 2024 and 2023. Absent these items, the provision for income taxes would have been an expense of $71.1 million, or 21.8%, and a benefit of $33.1 million, or 30.3%, for the nine months ended September 30, 2024 and 2023, respectively. The lower effective federal tax rate in 2024 was due to higher underwriting income in the current period.

Previous 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.

Current wording

The income tax provision on operating results was an expense of $78.8 million compared to a benefit of $21.2 million for the nine months ended September 30, 2024 and 2023, respectively. These provisions resulted in an effective tax rate on operating income of 21.3% for the nine months ended September 30, 2024 and an effective tax rate on operating losses of 27.1% for the nine months ended September 30, 2023. These provisions include excess tax benefits related to stock-based compensation of $1.6 million and $1.0 million for the nine months ended September 30, 2024 and 2023, respectively. Absent this item, the provisions for income taxes would have been an expense of $80.4 million, or 21.7%, and a benefit of $20.2 million, or 25.9%, for the nine months ended September 30, 2024 and 2023, respectively.

Previous 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.

Current wording

The statutory capital and surplus for our insurance subsidiaries increased $250.8 million during the first nine 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 six 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 nine months of 2024, Hanover Insurance did not provide dividends to the holding company.