HANOVER INSURANCE GROUP, INC.

The following is our discussion and analysis of the results of operations by reporting segment. The operating results are presented before interest expense, income taxes and other items which management believes are not indicative of our core operations, including realized gains and losses, as well as unrealized gains and losses on equity securities, and the results of discontinued operations.

The following table summarizes the results of operations for the periods indicated:

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Operating income before interest expense and income taxes was $186.4 million for the three months ended March 31, 2025, compared to $149.7 million for the three months ended March 31, 2024, an improvement of $36.7 million. This increase was primarily due to improvements in current accident year underwriting results in Personal Lines and from higher net investment income, partially offset by higher current accident year large property losses in our Core Commercial segment. The lower Personal Lines current accident year losses were primarily due to the benefit of earned pricing outpacing loss trends in both the personal automobile and homeowners lines, and moderated frequency trends, particularly in automobile collision and homeowners coverages.

Net premiums written increased $56.8 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase in net premiums written was due to an increase in new business and renewal price increases.

Premium Production and Underwriting Results

The following tables summarize premiums written on a gross and net basis, net premiums earned and, catastrophe loss, loss and LAE (including catastrophe losses), expense, and combined ratios for our Core Commercial, Specialty and Personal Lines segments. Loss and LAE, catastrophe loss and combined ratios shown below include prior year reserve development. These items are not meaningful for our Other segment.

The following table summarizes U.S. GAAP underwriting results for our Core Commercial, Specialty, Personal Lines and Other segments and reconciles them to operating income before interest expense and income taxes.

Core Commercial

Core Commercial net premiums written were $604.6 million for the three months ended March 31, 2025, compared to $582.4 million for the three months ended March 31, 2024. The $22.2 million increase in net premiums written was primarily driven by renewal price increases and improved retention.

Core Commercial underwriting loss for the three months ended March 31, 2025 was $20.0 million, compared to underwriting profit of $30.9 million for the three months ended March 31, 2024, an unfavorable change of $50.9 million. Catastrophe losses for the three months ended March 31, 2025 were $46.0 million, compared to $20.7 million for the three months ended March 31, 2024, an increase of $25.3 million. Net favorable development on prior years’ loss reserves for the three months ended March 31, 2025 was $1.3 million, compared to $9.2 million for the three months ended March 31, 2024, a decrease of $7.9 million.

Core Commercial current accident year underwriting profit, excluding catastrophes, was $24.7 million for the three months ended March 31, 2025, compared to $42.4 million for the three months ended March 31, 2024. The $17.7 million decrease in underwriting results was primarily driven by higher current accident year large property losses in our commercial multiple peril and other core commercial lines of business.

We continue to manage underwriting performance through rate actions, risk selection and mitigation, pricing segmentation, specific underwriting actions and targeted new business growth. Our ability to achieve overall rate increases is affected by many factors, including regulatory activity and the competitive pricing environment, particularly within the workers’ compensation line.

Specialty

Specialty net premiums written were $358.3 million for the three months ended March 31, 2025, compared to $339.8 million for the three months ended March 31, 2024. The $18.5 million increase in net premiums written was primarily due to renewal price increases.

Specialty underwriting profit for the three months ended March 31, 2025 was $41.2 million, compared to $38.9 million for the three months ended March 31, 2024, an increase of $2.3 million. Catastrophe losses for the three months ended March 31, 2025 were $14.7 million, compared to $7.0 million for the three months ended March 31, 2024, an increase of $7.7 million. Net favorable development on prior years’ loss reserves for the three months ended March 31, 2025 was $15.9 million, compared to $1.1 million for the three months ended March 31, 2024, an increase of $14.8 million.

Specialty current accident year underwriting profit, excluding catastrophes, was $40.0 million for the three months ended March 31, 2025, compared to $44.8 million for the three months ended March 31, 2024. The $4.8 million decrease in underwriting results was primarily driven by higher current accident year losses in our specialty industrial line of business. In contrast, we experienced an unusually low level of current accident year losses in our specialty industrial property line of business in the first quarter of 2024.

We continue to manage underwriting performance through rate actions, risk selection and mitigation, pricing segmentation, specific underwriting actions and targeted new business growth. Our ability to achieve overall rate increases is affected by many factors, including regulatory activity and the competitive pricing environment.

Personal Lines

Personal Lines net premiums written were $547.9 million for the three months ended March 31, 2025, compared to $531.8 million for the three months ended March 31, 2024. The $16.1 million increase in net premiums written was primarily due to increased new business and renewal price increases.

Net premiums written in the personal automobile line of business were $323.8 million for the three months ended March 31, 2025, compared to $317.0 million for the three months ended March 31, 2024, an increase of $6.8 million. Personal automobile PIF decreased by 4.9% since March 31, 2024. Net premiums written in the homeowners and other lines of business for the three months ended March 31, 2025 were $224.1 million, compared to $214.8 million for the three months ended March 31, 2024, an increase of $9.3 million. Homeowners PIF decreased by 4.0% since March 31, 2024.

Personal Lines underwriting profit for the three months ended March 31, 2025 was $61.7 million, compared to underwriting loss of $9.1 million for the three months ended March 31, 2024, an improvement in underwriting results of $70.8 million. Catastrophe losses for the three months ended March 31, 2025 were $34.9 million, compared to $59.2 million for the three months ended March 31, 2024, a decrease of $24.3 million. Net favorable development on prior years’ loss reserves for the three months ended March 31, 2025 was $2.8 million, compared to $0.1 million for the three months ended March 31, 2024, an increase of $2.7 million.

Personal Lines current accident year underwriting profit, excluding catastrophes, was $93.8 million for the three months ended March 31, 2025, compared to $50.0 million for the three months ended March 31, 2024. The $43.8 million increase in underwriting results was primarily due to lower current accident year losses in our personal automobile and homeowners lines. 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 frequency trends, particularly in automobile collision and homeowners coverages.

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 15% in our homeowners line and approximately 12% in our personal automobile line during the first quarter of 2025 and believe that our ability to obtain pricing increases will continue. Consistent with our expectations, PIF declined in the first three months of 2025, driven by lower renewal business. As a result of our targeted actions in the Midwest, we expect our sequential PIF counts to continue to shrink throughout the year, although moderating from the levels we have recently experienced. Additionally, our Personal Lines net premiums written may be affected by price competition and the regulatory and overall macroeconomic environment. These factors, along with the aforementioned actions, may also affect our ability to maintain and improve underwriting results.

Other

Our Other segment had operating income of $0.8 million for the three months ended March 31, 2025, compared to $0.5 million for the three months ended March 31, 2024, an increase of $0.3 million.

Reserve for Losses and Loss Adjustment Expenses

The table below provides a reconciliation of the gross beginning and ending reserve for unpaid losses and loss adjustment expenses.

The table below summarizes the gross reserve for losses and LAE by line of business and division.

Loss and LAE reserves in our “Other core commercial” lines include monoline general liability, commercial umbrella, and monoline property. “Specialty Property & Casualty” includes specialty industrial and commercial property, excess and surplus lines and specialty general liability coverage, and program business. “Professional and Executive Lines” includes management liability, fidelity and crime, professional liability and other property and liability lines for healthcare firms. Loss and LAE reserves in our “Total Other” segment relate to our run-off voluntary assumed property and casualty reinsurance pools business, and our run-off direct asbestos and environmental, and product liability businesses.

The following table summarizes prior year favorable development for the periods indicated:

It is not possible to know whether the factors that affected loss reserves in the first three months of 2025 will also occur in future periods. We encourage you to read our 2024 Annual Report on Form 10-K for more information about our reserving process and the judgments, uncertainties and risks associated therewith.

Catastrophe Loss Development

For the three months ended March 31, 2025, favorable catastrophe loss development was $12.0 million, primarily due to lower than expected losses in our commercial multiple peril line related to events from accident years 2021 through 2023, including several convective storms across multiple states, and Winter Storm Elliot. 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.

2025 Loss and LAE Development, excluding catastrophes

For the three months ended March 31, 2025, net favorable loss and LAE development, excluding catastrophes, was $20.0 million. Specialty favorable loss and LAE development of $15.9 million was primarily due to lower than expected losses in our Marine division and, to a lesser extent, in our Professional and Executive Lines division. Within Core Commercial, lower than expected losses in our workers’ compensation line were largely offset by higher than expected losses in our commercial automobile line.

2024 Loss and LAE Development, excluding catastrophes

For the three months ended March 31, 2024, net favorable loss and LAE development, excluding catastrophes, was $10.4 million. Core Commercial favorable loss and LAE development of $9.2 million was due to lower than expected losses across several lines of business.

Reinsurance Recoverables

Reinsurance recoverables were $2,034.2 million and $1,994.5 million at March 31, 2025 and December 31, 2024, respectively, of which $69.3 million and $74.2 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 $36.2 million and $39.3 million at March 31, 2025 and December 31, 2024, respectively, and billable non-MCCA reinsurance recoverables totaled $33.1 million and $34.9 million at March 31, 2025 and December 31, 2024, respectively. At March 31, 2025 and December 31, 2024, there were $0.8 million of billed balances outstanding greater than 90 days.