Exhibit 99.2

STATISTICAL SUPPLEMENT

THIRD QUARTER 2011

---

THE HANOVER INSURANCE GROUP

STATISTICAL SUPPLEMENT

 

 

TABLE OF CONTENTS

 

Business Description		1
Financial Highlights		2
Consolidated Financial Statements
Income Statements		3
Balance Sheets		4
GAAP Underwriting Results
Consolidated		5-7
Commercial Lines		8-10
Personal Lines		11-13
Chaucer		14
Investments
Net Investment Income		15
Investment Portfolio		16
Credit Quality and Duration of Fixed Maturities		17
Top 10 Corporate and Municipal Fixed Maturity Holdings		18
Reconciliation of Segment Income to Net Income		19
Other Information
Non-GAAP Financial Measures		20
Corporate Information		21
Market and Dividend Information		21
Financial Strength and Debt Ratings		21

---

THE HANOVER INSURANCE GROUP

BASIS OF PRESENTATION

BUSINESS DESCRIPTIONS

COMMERCIAL LINES

Commercial multiple peril coverage insures businesses against third party liability from accidents occurring on their premises or arising out of their operations, such as injuries sustained from products sold. It also insures business property for damage, such as that caused by fire, wind, hail, water damage (except for flooding), theft and vandalism.

Commercial automobile coverage insures businesses against losses incurred from personal bodily injury, bodily injury to third parties, property damage to an insured’s vehicle, and property damage to other vehicles and property.

Workers’ compensation coverage insures employers against employee medical and indemnity claims resulting from injuries related to work. Workers’ compensation policies are often written in conjunction with other commercial policies.

Other Commercial Lines is comprised of inland marine, which insures businesses against physical losses to property, such as contractor’s equipment, builders’ risk and goods in transit. We also offer underwriting and managing of program business, including to under-served markets where there are specialty coverage or risk management needs. Other Commercial Lines also includes bonds, which provides businesses with contract surety coverage in the event of performance or payment claims, and commercial surety coverage related to fiduciary or regulatory obligations. Also included in Other Commercial Lines coverages are umbrella, general liability, fire, specialty property, and professional and management liability.

PERSONAL LINES

Personal automobile coverage insures individuals against losses incurred from personal bodily injury, bodily injury to third parties, property damage to an insured’s vehicle, and property damage to other vehicles and other property.

Homeowners coverage insures individuals for losses to their residences and personal property, such as those caused by fire, wind, hail, water damage (except for flooding), theft and vandalism, and against third party liability claims.

Other Personal Lines are comprised of personal inland marine (jewelry, art, etc.), umbrella, fire, personal watercraft, earthquake and other miscellaneous coverages.

CHAUCER

The Chaucer reporting segment represents THG’s international business written through Lloyd’s and includes international property, marine and aviation, energy, UK motor and international casualty and other coverages.

Property coverage, including direct, facultative and treaty property accounts, insures property, including commercial, auto, and industrial businesses, against physical loss or damage and business interruption. The property treaty account comprises mainly catastrophe and per risk excess contract acceptances, with a small amount of proportional treaty and reinsurance assumed business.

Marine and Aviation includes coverages that insure marine hull, excess of loss, liability, cargo and specie, in addition to political risk, war, and satellite business coverages. It also includes aviation coverages that insure airline hull and liability, general aviation and refuellers and products.

Energy coverage, encompassing exploration and production, construction, liabilities downstream and renewables, insures energy businesses against physical damage, business interruption, control of well, seepage and pollution and liabilities. Energy also includes Nuclear, which predominantly provides coverage relating to power generation at nuclear power stations.

UK Motor coverage insures the UK private car and fleet markets. In addition, it writes specialist classes including commercial vehicle, taxi, motorcycle, motor trade and classic/specialist vehicles, as well as other UK small commercial products.

Casualty and Other Lines includes coverages that insure financial institutions crime and professional indemnity, medical malpractice, workers’ compensation and professional, managerial and general liability, as well as syndicate participations.

OTHER PROPERTY AND CASUALTY

Other Property and Casualty segment consists of Opus, which provides investment advisory services to affiliates and also manages assets for unaffiliated institutions such as insurance companies, retirement plans and foundations; earnings on holding company assets; and voluntary pools business which is in run-off.

 

1

---

THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS

 

		Q3				Q4				Q1				Q2				Q3				Sep-YTD				Sep-YTD
(In millions, except earnings per share)		2010				2010				2011				2011				2011				2010				2011
PREMIUMS
Gross premiums written		$	889.1			$	795.3			$	833.3			$	894.6			$	1,198.3			$	2,563.3			$	2,926.2
Net premiums written			803.7				717.1				749.9				815.4				1,051.0				2,330.9				2,616.3
Net premiums earned			728.0				748.7				761.7				770.5				1,018.6				2,092.3				2,550.8
EARNINGS
Segment income (loss) before interest and taxes		$	79.2			$	76.2			$	49.8			$	(46.8	)		$	(7.6	)		$	151.5			$	(4.6	)
Segment income (loss) after taxes			44.7				43.7				26.0				(38.1	)			(18.5	)			78.5				(30.6	)
Income (loss) from continuing operations			51.4				57.4				27.9				(32.4	)			(9.7	)			95.8				(14.2	)
Net income (loss)			52.3				58.4				29.3				(31.8	)			(9.7	)			96.4				(12.2	)
PER SHARE DATA (DILUTED) (1)
Segment income (loss) after taxes		$	0.98			$	0.95			$	0.56			$	(0.84	)		$	(0.41	)		$	1.69			$	(0.67	)
Income (loss) from continuing operations			1.12				1.25				0.61				(0.71	)			(0.21	)			2.06				(0.31	)
Net income (loss)			1.15				1.27				0.64				(0.70	)			(0.21	)			2.08				(0.27	)
Weighted average shares outstanding (1)			45.7				45.9				46.0				45.4				45.3				46.4				45.4

BALANCE SHEET

 

		September 30				December 31				March 31				June 30				September 30
(In millions, except per share data)		2010				2010				2011				2011				2011
Total assets		$	8,596.7			$	8,569.9			$	8,514.9			$	8,981.3			$	12,684.5
Total loss and loss adjustment expense reserves			3,232.1				3,277.7				3,315.4				3,406.4				5,722.0
Total shareholders’ equity			2,478.8				2,460.5				2,488.7				2,485.0				2,454.9
U.S. Property and Casualty Companies
Statutory surplus		$	1,795.3			$	1,747.3			$	1,776.6			$	1,658.6			$	1,538.5
Premium to surplus ratio			1.65:1				1.75:1				1.73:1				1.86:1				2.02:1
Book value per share		$	55.25			$	54.74			$	55.06			$	54.96			$	54.98
Book value per share, excluding net unrealized investment gains and losses, net of tax		$	50.23			$	51.92			$	52.06			$	51.12			$	50.89
Tangible book value per share (total book value excluding goodwill and intangibles)		$	49.69			$	49.22			$	49.62			$	49.57			$	47.20
Shares outstanding			44.9				44.9				45.2				45.2				44.6
Total debt/equity			25.8	%			24.6	%			22.5	%			34.5	%			36.7	%
Total debt/total capital			20.5	%			19.8	%			18.4	%			25.7	%			26.9	%

 

(1)	Weighted average shares outstanding and per diluted share amounts in 2011 exclude common stock equivalents, as the impact of these instruments was anti-dilutive.

 

2

---

THE HANOVER INSURANCE GROUP

CONSOLIDATED INCOME STATEMENTS

 

		Three Months ended September 30												Nine Months ended September 30
(In millions)		2011				2010				% Change				2011				2010				% Change
REVENUES
Premiums earned		$	1,018.6			$	728.0				39.9			$	2,550.8			$	2,092.3				21.9
Net investment income			67.8				61.3				10.6				189.2				184.2				2.7
Total net realized investment gains			8.2				5.7				43.9				24.9				16.8				48.2
Fees and other income			13.4				9.0				48.9				30.8				25.6				20.3
Total revenues			1,108.0				804.0				37.8				2,795.7				2,318.9				20.6
LOSSES AND EXPENSES
Losses and loss adjustment expenses			734.9				454.6				61.7				1,863.4				1,384.6				34.6
Policy acquisition expenses			241.1				173.4				39.0				603.2				490.8				22.9
Interest expense			17.4				11.8				47.5				38.6				32.8				17.7
Other operating expenses			133.3				91.1				46.3				331.4				275.2				20.4
Total losses and expenses			1,126.7				730.9				54.2				2,836.6				2,183.4				29.9
Income (loss) from continuing operations before income taxes			(18.7	)			73.1				(125.6	)			(40.9	)			135.5				(130.2	)
Income tax expense (benefit)			(9.0	)			21.7				(141.5	)			(26.7	)			39.7				(167.3	)
Income (loss) from continuing operations			(9.7	)			51.4				(118.9	)			(14.2	)			95.8				(114.8	)
Discontinued operations			—				0.9				N/M				2.0				0.6				N/M
Net income (loss)		$	(9.7	)		$	52.3				(118.5	)		$	(12.2	)		$	96.4				(112.7	)

 

3

---

THE HANOVER INSURANCE GROUP

CONSOLIDATED BALANCE SHEETS

 

		September 30				December 31
(In millions, except per share data)		2011				2010				% Change
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $5,966.1 and $4,598.8)		$	6,227.6			$	4,797.9				29.8
Equity securities, at fair value (cost of $249.2 and $120.7)			246.3				128.6				91.5
Other investments			194.1				39.4				392.6
Total investments			6,668.0				4,965.9				34.3
Cash and cash equivalents			922.7				290.4				217.7
Accrued investment income			106.1				53.8				97.2
Premiums and accounts receivable, net			1,204.4				772.0				56.0
Reinsurance recoverable on paid and unpaid losses			2,202.9				1,254.2				75.6
Deferred policy acquistion costs			509.9				345.3				47.7
Deferred income taxes			215.6				177.4				21.5
Goodwill			200.6				179.2				11.9
Other assets			527.0				398.1				32.4
Assets of discontinued operations			127.3				133.6				(4.7	)
Total assets		$	12,684.5			$	8,569.9				48.0
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Loss and loss adjustment expense reserves		$	5,722.0			$	3,277.7				74.6
Unearned premiums			2,401.9				1,520.3				58.0
Expenses and taxes payable			672.8				541.7				24.2
Reinsurance premiums payable			402.9				34.4				N/M
Debt			901.6				605.9				48.8
Liabilities of discontinued operations			128.4				129.4				(0.8	)
Total liabilities			10,229.6				6,109.4				67.4
SHAREHOLDERS’ EQUITY
Preferred stock, par value $0.01 per share; 20.0 million shares authorized; none issued			—				—				—
Common stock, par value $0.01 per share; 300.0 million shares authorized; 60.5 million shares issued			0.6				0.6				—
Additional paid-in capital			1,785.2				1,796.5				(0.6	)
Accumulated other comprehensive income			191.5				136.7				40.1
Retained earnings			1,200.7				1,246.8				(3.7	)
Treasury stock at cost (15.9 and 15.6 million shares)			(723.1	)			(720.1	)			0.4
Total shareholders’ equity			2,454.9				2,460.5				(0.2	)
Total liabilities and shareholders’ equity		$	12,684.5			$	8,569.9				48.0

 

4

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND SEGMENT INCOME INFORMATION AND RATIOS

CONSOLIDATED

Three Months ended September 30

 

		2011																				2010
		Commercial				Personal								Other				Total				Commercial				Personal				Other				Total
(In millions, except percentage data)		Lines				Lines				Chaucer				P&C				P&C				Lines				Lines				P&C				P&C
Gross premiums written		$	501.3			$	415.1			$	281.9			$	—			$	1,198.3			$	474.9			$	414.2			$	—			$	889.1
Net premiums written		$	438.4			$	390.3			$	222.3			$	—			$	1,051.0			$	415.3			$	388.4			$	—			$	803.7
Net premiums earned		$	410.1			$	363.7			$	244.8			$	—			$	1,018.6			$	360.2			$	367.8			$	—			$	728.0
Losses and LAE:
Current accident year, excluding catastrophe losses			270.7				253.3				140.0				0.1				664.1				214.0				242.6				(0.2	)			456.4
Prior year (favorable) unfavorable reserve development			(3.6	)			(8.5	)			(16.6	)			(0.1	)			(28.8	)			(16.5	)			(9.3	)			(0.1	)			(25.9	)
Catastrophe losses			39.8				46.2				13.6				—				99.6				8.2				15.9				—				24.1
Total losses and LAE			306.9				291.0				137.0				—				734.9				205.7				249.2				(0.3	)			454.6
Policy acquisition and other underwriting expenses			159.9				101.6				95.7				—				357.2				152.2				103.4				(0.1	)			255.5
GAAP underwriting profit (loss)			(56.7	)			(28.9	)			12.1				—				(73.5	)			2.3				15.2				0.4				17.9
Net investment income			34.0				22.7				8.6				2.5				67.8				32.3				25.4				3.6				61.3
Other income			5.3				3.5				4.1				1.7				14.6				4.7				3.9				1.5				10.1
Other operating expenses			(4.7	)			(2.1	)			(4.9	)			(4.8	)			(16.5	)			(4.2	)			(1.5	)			(4.4	)			(10.1	)
Segment income (loss) before income taxes		$	(22.1	)		$	(4.8	)		$	19.9			$	(0.6	)		$	(7.6	)		$	35.1			$	43.0			$	1.1			$	79.2
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			66.1	%			69.6	%			57.2	%			N/M				65.2	%			59.4	%			65.9	%			N/M				62.7	%
Prior year (favorable) unfavorable reserve development			(0.9	)%			(2.3	)%			(6.8	)%			N/M				(2.8	)%			(4.6	)%			(2.5	)%			N/M				(3.6	)%
Catastrophe losses			9.7	%			12.7	%			5.6	%			N/M				9.8	%			2.3	%			4.3	%			N/M				3.3	%
Total loss and LAE ratio			74.9	%			80.0	%			56.0	%			N/M				72.2	%			57.1	%			67.7	%			N/M				62.4	%
Expense ratio			38.7	%			27.1	%			39.1	%			N/M				34.6	%			42.0	%			27.4	%			N/M				34.6	%
Combined ratio			113.6	%			107.1	%			95.1	%			N/M				106.8	%			99.1	%			95.1	%			N/M				97.0	%
Change in policies in force			27.7	%			(3.0	)%															2.9	%			(2.5	)%
Retention			80.9	%			80.3	%															82.0	%			78.5	%

 

5

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND SEGMENT INCOME INFORMATION AND RATIOS

CONSOLIDATED

Nine Months ended September 30

 

		2011																				2010
		Commercial				Personal								Other				Total				Commercial				Personal				Other				Total
(In millions, except percentage data)		Lines				Lines				Chaucer				P&C				P&C				Lines				Lines				P&C				P&C
Gross premiums written		$	1,462.7			$	1,181.3			$	281.9			$	0.3			$	2,926.2			$	1,376.5			$	1,186.5			$	0.3			$	2,563.3
Net premiums written		$	1,287.4			$	1,106.3			$	222.3			$	0.3			$	2,616.3			$	1,215.7			$	1,114.9			$	0.3			$	2,330.9
Net premiums earned		$	1,219.4			$	1,086.5			$	244.8			$	0.1			$	2,550.8			$	988.7			$	1,103.3			$	0.3			$	2,092.3
Losses and LAE:
Current accident year, excluding catastrophe losses			755.5				734.2				140.0				0.3				1,630.0				584.8				743.5				0.2				1,328.5
Prior year (favorable) unfavorable reserve development			(27.2	)			(28.5	)			(16.6	)			(0.3	)			(72.6	)			(50.2	)			(36.6	)			(0.6	)			(87.4	)
Catastrophe losses			144.4				148.0				13.6				—				306.0				52.5				91.0				—				143.5
Total losses and LAE			872.7				853.7				137.0				—				1,863.4				587.1				797.9				(0.4	)			1,384.6
Policy acquisition and other underwriting expenses			478.7				302.6				95.7				—				877.0				424.1				314.1				—				738.2
GAAP underwriting profit (loss)			(132.0	)			(69.8	)			12.1				0.1				(189.6	)			(22.5	)			(8.7	)			0.7				(30.5	)
Net investment income			101.6				68.5				8.6				10.5				189.2				96.6				76.6				11.0				184.2
Other income			15.6				9.8				4.1				5.0				34.5				14.0				10.4				4.6				29.0
Other operating expenses			(13.6	)			(6.1	)			(4.9	)			(14.1	)			(38.7	)			(13.3	)			(4.3	)			(13.6	)			(31.2	)
Segment income (loss) before income taxes		$	(28.4	)		$	2.4			$	19.9			$	1.5			$	(4.6	)		$	74.8			$	74.0			$	2.7			$	151.5
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			62.0	%			67.6	%			57.2	%			N/M				63.9	%			59.2	%			67.4	%			N/M				63.5	%
Prior year (favorable) unfavorable reserve development			(2.2	)%			(2.6	)%			(6.8	)%			N/M				(2.8	)%			(5.1	)%			(3.3	)%			N/M				(4.2	)%
Catastrophe losses			11.8	%			13.6	%			5.6	%			N/M				12.0	%			5.3	%			8.2	%			N/M				6.9	%
Total loss and LAE ratio			71.6	%			78.6	%			56.0	%			N/M				73.1	%			59.4	%			72.3	%			N/M				66.2	%
Expense ratio			39.0	%			27.0	%			39.1	%			N/M				33.9	%			42.7	%			27.7	%			N/M				34.7	%
Combined ratio			110.6	%			105.6	%			95.1	%			N/M				107.0	%			102.1	%			100.0	%			N/M				100.9	%
Change in policies in force			27.7	%			(3.0	)%															2.9	%			(2.5	)%
Retention			82.4	%			80.3	%															80.0	%			78.5	%

 

6

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

CONSOLIDATED

 

(In millions, except percentage data)		Q3 2010				Q4 2010				Q1 2011				Q2 2011				Q3 2011 (Including Chaucer)				Sep-YTD 2010				Sep-YTD 2011 (Including 1 Quarter of Chaucer)
Gross premiums written		$	889.1			$	795.3			$	833.3			$	894.6			$	1,198.3			$	2,563.3			$	2,926.2
Net premiums written		$	803.7			$	717.1			$	749.9			$	815.4			$	1,051.0			$	2,330.9			$	2,616.3
Net premiums earned		$	728.0			$	748.7			$	761.7			$	770.5			$	1,018.6			$	2,092.3			$	2,550.8
Losses and LAE:
Current accident year, excluding catastrophe losses			456.4				478.6				489.8				476.1				664.1				1,328.5				1,630.0
Prior year favorable reserve development			(25.9	)			(23.7	)			(28.5	)			(15.3	)			(28.8	)			(87.4	)			(72.6	)
Catastrophe losses			24.1				16.8				49.7				156.7				99.6				143.5				306.0
Total losses and LAE			454.6				471.7				511.0				617.5				734.9				1,384.6				1,863.4
Policy acquisition and other underwriting expenses			255.5				264.7				260.2				259.6				357.2				738.2				877.0
GAAP underwriting profit (loss)		$	17.9			$	12.3			$	(9.5	)		$	(106.6	)		$	(73.5	)		$	(30.5	)		$	(189.6	)
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			62.7	%			64.0	%			64.2	%			61.8	%			65.2	%			63.5	%			63.9	%
Prior year favorable reserve development			(3.6	)%			(3.2	)%			(3.7	)%			(2.0	)%			(2.8	)%			(4.2	)%			(2.8	)%
Catastrophe losses			3.3	%			2.2	%			6.5	%			20.3	%			9.8	%			6.9	%			12.0	%
Total loss and LAE ratio			62.4	%			63.0	%			67.0	%			80.1	%			72.2	%			66.2	%			73.1	%
Expense ratio			34.6	%			34.8	%			33.7	%			33.2	%			34.6	%			34.7	%			33.9	%
Combined ratio			97.0	%			97.8	%			100.7	%			113.3	%			106.8	%			100.9	%			107.0	%
Combined ratio, excluding catastrophe losses			93.7	%			95.6	%			94.2	%			93.0	%			97.0	%			94.0	%			95.0	%
Current accident year combined ratio, excluding catastrophe losses			97.3	%			98.8	%			97.9	%			95.0	%			99.8	%			98.2	%			97.8	%

 

7

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND SEGMENT INCOME INFORMATION AND RATIOS

COMMERCIAL LINES

Three Months ended September 30

 

		2011																				2010
		Multiple								Workers’												Multiple								Workers’
(In millions, except percentage data)		Peril				Auto				Comp				Other				Total				Peril				Auto				Comp				Other				Total
Net premiums written		$	152.8			$	64.0			$	43.5			$	178.1			$	438.4			$	151.8			$	61.2			$	46.2			$	156.1			$	415.3
Net premiums earned		$	136.8			$	61.2			$	43.3			$	168.8			$	410.1			$	121.8			$	56.4			$	37.0			$	145.0			$	360.2
Losses and LAE:
Current accident year, excluding catastrophe losses			86.8				39.6				33.8				110.5				270.7				69.0				36.4				30.5				78.1				214.0
Prior year (favorable) unfavorable reserve development			(5.8	)			0.9				(2.2	)			3.5				(3.6	)			(6.4	)			(0.1	)			(6.1	)			(3.9	)			(16.5	)
Catastrophe losses			22.9				2.2				—				14.7				39.8				4.0				0.1				—				4.1				8.2
Total losses and LAE			103.9				42.7				31.6				128.7				306.9				66.6				36.4				24.4				78.3				205.7
Policy acquisition and other underwriting expenses																			159.9																				152.2
GAAP underwriting profit (loss)																			(56.7	)																			2.3
Net investment income																			34.0																				32.3
Other income																			5.3																				4.7
Other operating expenses																			(4.7	)																			(4.2	)
Segment income (loss) before income taxes																		$	(22.1	)																		$	35.1
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			63.4	%			64.7	%			78.1	%			65.4	%			66.1	%			56.7	%			64.6	%			82.4	%			53.8	%			59.4	%
Prior year (favorable) unfavorable reserve development			(4.2	)%			1.5	%			(5.1	)%			2.1	%			(0.9	)%			(5.3	)%			(0.2	)%			(16.5	)%			(2.7	)%			(4.6	)%
Catastrophe losses			16.7	%			3.6	%			N/M				8.7	%			9.7	%			3.3	%			0.2	%			N/M				2.8	%			2.3	%
Total loss and LAE ratio			75.9	%			69.8	%			73.0	%			76.2	%			74.9	%			54.7	%			64.6	%			65.9	%			53.9	%			57.1	%
Expense ratio																			38.7	%																			42.0	%
Combined ratio																			113.6	%																			99.1	%
Change in policies in force			23.9	%			31.6	%			59.0	%			22.3	%			27.7	%			4.0	%			3.5	%			8.0	%			0.3	%			2.9	%
Retention			83.1	%			80.5	%			71.5	%			N/M				80.9	%			83.5	%			79.3	%			79.1	%			N/M				82.0	%

 

8

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND SEGMENT INCOME INFORMATION AND RATIOS

COMMERCIAL LINES

Nine Months ended September 30

 

		2011																				2010
		Multiple								Workers’												Multiple								Workers’
(In millions, except percentage data)		Peril				Auto				Comp				Other				Total				Peril				Auto				Comp				Other				Total
Net premiums written		$	434.7			$	190.7			$	133.5			$	528.5			$	1,287.4			$	440.0			$	192.3			$	127.0			$	456.4			$	1,215.7
Net premiums earned		$	416.3			$	183.7			$	128.7			$	490.7			$	1,219.4			$	329.8			$	159.1			$	97.3			$	402.5			$	988.7
Losses and LAE:
Current accident year, excluding catastrophe losses			259.6				113.2				99.6				283.1				755.5				194.8				96.6				78.2				215.2				584.8
Prior year (favorable) unfavorable reserve development			(17.4	)			2.3				(12.8	)			0.7				(27.2	)			(23.4	)			(4.4	)			(22.7	)			0.3				(50.2	)
Catastrophe losses			102.6				3.1				—				38.7				144.4				37.2				0.6				—				14.7				52.5
Total losses and LAE			344.8				118.6				86.8				322.5				872.7				208.6				92.8				55.5				230.2				587.1
Policy acquisition and other underwriting expenses																			478.7																				424.1
GAAP underwriting profit (loss)																			(132.0	)																			(22.5	)
Net investment income																			101.6																				96.6
Other income																			15.6																				14.0
Other operating expenses																			(13.6	)																			(13.3	)
Segment income (loss) before income taxes																		$	(28.4	)																		$	74.8
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			62.4	%			61.5	%			77.4	%			57.7	%			62.0	%			59.1	%			60.7	%			80.4	%			53.4	%			59.2	%
Prior year (favorable) unfavorable reserve development			(4.2	)%			1.3	%			(9.9	)%			0.1	%			(2.2	)%			(7.1	)%			(2.8	)%			(23.3	)%			0.1	%			(5.1	)%
Catastrophe losses			24.6	%			1.7	%			N/M				7.9	%			11.8	%			11.3	%			0.4	%			N/M				3.7	%			5.3	%
Total loss and LAE ratio			82.8	%			64.5	%			67.5	%			65.7	%			71.6	%			63.3	%			58.3	%			57.1	%			57.2	%			59.4	%
Expense ratio																			39.0	%																			42.7	%
Combined ratio																			110.6	%																			102.1	%
Change in policies in force			23.9	%			31.6	%			59.0	%			22.3	%			27.7	%			4.0	%			3.5	%			8.0	%			0.3	%			2.9	%
Retention			84.3	%			80.6	%			78.3	%			N/M				82.4	%			81.2	%			78.4	%			76.2	%			N/M				80.0	%

 

9

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

COMMERCIAL LINES

 

		Q3				Q4				Q1				Q2				Q3				Sep-YTD				Sep-YTD
(In millions, except percentage data)		2010				2010				2011				2011				2011				2010				2011
Gross premiums written		$	474.9			$	422.0			$	466.8			$	494.6			$	501.3			$	1,376.5			$	1,462.7
Net premiums written		$	415.3			$	369.1			$	408.5			$	440.5			$	438.4			$	1,215.7			$	1,287.4
Net premiums earned		$	360.2			$	384.7			$	400.8			$	408.5			$	410.1			$	988.7			$	1,219.4
Losses and LAE:
Current accident year, excluding catastrophe losses			214.0				225.8				244.1				240.7				270.7				584.8				755.5
Prior year favorable reserve development			(16.5	)			(11.3	)			(14.3	)			(9.3	)			(3.6	)			(50.2	)			(27.2	)
Catastrophe losses			8.2				9.1				27.5				77.1				39.8				52.5				144.4
Total losses and LAE			205.7				223.6				257.3				308.5				306.9				587.1				872.7
Policy acquisition and other underwriting expenses			152.2				159.2				159.3				159.5				159.9				424.1				478.7
GAAP underwriting profit (loss)		$	2.3			$	1.9			$	(15.8	)		$	(59.5	)		$	(56.7	)		$	(22.5	)		$	(132.0	)
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			59.4	%			58.7	%			60.9	%			58.9	%			66.1	%			59.2	%			62.0	%
Prior year favorable reserve development			(4.6	)%			(2.9	)%			(3.6	)%			(2.3	)%			(0.9	)%			(5.1	)%			(2.2	)%
Catastrophe losses			2.3	%			2.4	%			6.9	%			18.9	%			9.7	%			5.3	%			11.8	%
Total loss and LAE ratio			57.1	%			58.2	%			64.2	%			75.5	%			74.9	%			59.4	%			71.6	%
Expense ratio			42.0	%			41.1	%			39.5	%			38.8	%			38.7	%			42.7	%			39.0	%
Combined ratio			99.1	%			99.3	%			103.7	%			114.3	%			113.6	%			102.1	%			110.6	%
Combined ratio, excluding catastrophe losses			96.8	%			96.9	%			96.8	%			95.4	%			103.9	%			96.8	%			98.8	%
Current accident year combined ratio, excluding catastrophe losses			101.4	%			99.8	%			100.4	%			97.7	%			104.8	%			101.9	%			101.0	%

 

10

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND SEGMENT INCOME INFORMATION AND RATIOS

PERSONAL LINES

Three Months ended September 30

 

		2011																2010
(In millions, except percentage data)		Auto				Home				Other				Total				Auto				Home				Other				Total
Net premiums written		$	233.7			$	144.8			$	11.8			$	390.3			$	239.1			$	137.9			$	11.4			$	388.4
Net premiums earned		$	228.8			$	124.3			$	10.6			$	363.7			$	236.2			$	121.1			$	10.5			$	367.8
Losses and LAE:
Current accident year, excluding catastrophe losses			170.2				77.7				5.4				253.3				174.1				63.9				4.6				242.6
Prior year (favorable) unfavorable reserve development			(9.5	)			0.4				0.6				(8.5	)			(7.2	)			(1.6	)			(0.5	)			(9.3	)
Catastrophe losses			2.7				42.1				1.4				46.2				1.5				14.1				0.3				15.9
Total losses and LAE			163.4				120.2				7.4				291.0				168.4				76.4				4.4				249.2
Policy acquisition and other underwriting expenses															101.6																103.4
GAAP underwriting profit (loss)															(28.9	)															15.2
Net investment income															22.7																25.4
Other income															3.5																3.9
Other operating expenses															(2.1	)															(1.5	)
Segment income (loss) before income taxes														$	(4.8	)														$	43.0
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			74.4	%			62.5	%			50.9	%			69.6	%			73.7	%			52.8	%			43.8	%			65.9	%
Prior year (favorable) unfavorable reserve development			(4.2	)%			0.3	%			5.7	%			(2.3	)%			(3.0	)%			(1.3	)%			(4.8	)%			(2.5	)%
Catastrophe losses			1.2	%			33.9	%			13.2	%			12.7	%			0.6	%			11.6	%			2.9	%			4.3	%
Total loss and LAE ratio			71.4	%			96.7	%			69.8	%			80.0	%			71.3	%			63.1	%			41.9	%			67.7	%
Expense ratio															27.1	%															27.4	%
Combined ratio															107.1	%															95.1	%
Change in policies in force			(5.0	)%			(0.6	)%			(6.0	)%			(3.0	)%			(6.0	)%			1.7	%			(6.1	)%			(2.5	)%
Retention			78.5	%			81.7	%			N/M				80.3	%			75.7	%			81.0	%			N/M				78.5	%

 

11

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND SEGMENT INCOME INFORMATION AND RATIOS

PERSONAL LINES

Nine Months ended September 30

 

		2011																2010
(In millions, except percentage data)		Auto				Home				Other				Total				Auto				Home				Other				Total
Net premiums written		$	694.4			$	379.2			$	32.7			$	1,106.3			$	717.4			$	365.3			$	32.2			$	1,114.9
Net premiums earned		$	686.8			$	368.0			$	31.7			$	1,086.5			$	713.3			$	358.5			$	31.5			$	1,103.3
Losses and LAE:
Current accident year, excluding catastrophe losses			504.2				217.2				12.8				734.2				536.3				194.0				13.2				743.5
Prior year (favorable) unfavorable reserve development			(28.8	)			(1.4	)			1.7				(28.5	)			(35.0	)			(0.2	)			(1.4	)			(36.6	)
Catastrophe losses			9.0				135.8				3.2				148.0				8.9				80.9				1.2				91.0
Total losses and LAE			484.4				351.6				17.7				853.7				510.2				274.7				13.0				797.9
Policy acquisition and other underwriting expenses															302.6																314.1
GAAP underwriting profit (loss)															(69.8	)															(8.7	)
Net investment income															68.5																76.6
Other income															9.8																10.4
Other operating expenses															(6.1	)															(4.3	)
Segment income (loss) before federal income taxes														$	2.4															$	74.0
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			73.4	%			59.1	%			40.3	%			67.6	%			75.2	%			54.1	%			41.9	%			67.4	%
Prior year (favorable) unfavorable reserve development			(4.2	)%			(0.4	)%			5.4	%			(2.6	)%			(4.9	)%			(0.1	)%			(4.4	)%			(3.3	)%
Catastrophe losses			1.3	%			36.9	%			10.1	%			13.6	%			1.2	%			22.6	%			3.8	%			8.2	%
Total loss and LAE ratio			70.5	%			95.6	%			55.8	%			78.6	%			71.5	%			76.6	%			41.3	%			72.3	%
Expense ratio															27.0	%															27.7	%
Combined ratio															105.6	%															100.0	%
Change in policies in force			(5.0	)%			(0.6	)%			(6.0	)%			(3.0	)%			(6.0	)%			1.7	%			(6.1	)%			(2.5	)%
Retention			78.5	%			81.7	%			N/M				80.3	%			75.7	%			81.0	%			N/M				78.5	%

 

12

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

PERSONAL LINES

 

		Q3				Q4				Q1				Q2				Q3				Sep-YTD				Sep-YTD
(In millions, except percentage data)		2010				2010				2011				2011				2011				2010				2011
Gross premiums written		$	414.2			$	373.3			$	366.5			$	399.7			$	415.1			$	1,186.5			$	1,181.3
Net premiums written		$	388.4			$	348.0			$	341.4			$	374.6			$	390.3			$	1,114.9			$	1,106.3
Net premiums earned		$	367.8			$	364.0			$	360.9			$	361.9			$	363.7			$	1,103.3			$	1,086.5
Losses and LAE:
Current accident year, excluding catastrophe losses			242.6				252.7				245.6				235.3				253.3				743.5				734.2
Prior year favorable reserve development			(9.3	)			(12.2	)			(14.1	)			(5.9	)			(8.5	)			(36.6	)			(28.5	)
Catastrophe losses			15.9				7.7				22.2				79.6				46.2				91.0				148.0
Total losses and LAE			249.2				248.2				253.7				309.0				291.0				797.9				853.7
Policy acquisition and other underwriting expenses			103.4				105.5				101.0				100.0				101.6				314.1				302.6
GAAP underwriting profit (loss)		$	15.2			$	10.3			$	6.2			$	(47.1	)		$	(28.9	)		$	(8.7	)		$	(69.8	)
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			65.9	%			69.5	%			68.0	%			65.0	%			69.6	%			67.4	%			67.6	%
Prior year favorable reserve development			(2.5	)%			(3.4	)%			(3.9	)%			(1.6	)%			(2.3	)%			(3.3	)%			(2.6	)%
Catastrophe losses			4.3	%			2.1	%			6.2	%			22.0	%			12.7	%			8.2	%			13.6	%
Total loss and LAE ratio			67.7	%			68.2	%			70.3	%			85.4	%			80.0	%			72.3	%			78.6	%
Expense ratio			27.4	%			28.2	%			27.2	%			26.8	%			27.1	%			27.7	%			27.0	%
Combined ratio			95.1	%			96.4	%			97.5	%			112.2	%			107.1	%			100.0	%			105.6	%
Combined ratio, excluding catastrophe losses			90.8	%			94.3	%			91.3	%			90.2	%			94.4	%			91.8	%			92.0	%
Current accident year combined ratio, excluding catastrophe losses			93.3	%			97.7	%			95.2	%			91.8	%			96.7	%			95.1	%			94.6	%

 

13

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND SEGMENT INCOME INFORMATION AND RATIOS

CHAUCER

Three and Nine Months ended September 30

 

		2011
						Marine &								UK				Casualty
(In millions, except percentage data)		Property				Aviation				Energy				Motor				& Other				Total
Gross premiums written		$	52.6			$	69.4			$	43.3			$	71.7			$	44.9			$	281.9
Net premiums written		$	39.6			$	56.2			$	29.7			$	63.0			$	33.8			$	222.3
Net premiums earned		$	52.4			$	60.1			$	41.1			$	59.8			$	31.4			$	244.8
Losses and LAE																							137.0
Policy acquisition and other underwriting expenses																							95.7
GAAP underwriting profit (loss)																							12.1
Net investment income																							8.6
Other income																							4.1
Other operating expenses																							(4.9	)
Segment income (loss) before income taxes																						$	19.9
Loss and LAE ratio																							56.0	%
Expense ratio																							39.1	%
Combined ratio																							95.1	%

 

14

---

THE HANOVER INSURANCE GROUP

NET INVESTMENT INCOME AND YIELDS

 

		Q3				Q4				Q1				Q2				Q3				Sep-YTD				Sep-YTD
(In millions, except yields)		2010				2010				2011				2011				2011 (1)				2010				2011
Net Investment Income
Fixed maturities		$	62.2			$	61.5			$	60.6			$	60.3			$	66.1			$	187.1			$	187.0
Equity securities			1.1				2.2				1.3				1.4				1.5				2.3				4.2
Other investments			(0.5	)			1.3				0.5				1.0				2.3				(0.3	)			3.8
Investment expenses			(1.5	)			(2.0	)			(2.0	)			(1.7	)			(2.1	)			(4.9	)			(5.8	)
Total		$	61.3			$	63.0			$	60.4			$	61.0			$	67.8			$	184.2			$	189.2
Pre-tax Yields
Fixed maturities			5.46	%			5.37	%			5.28	%			5.35	%			4.49	%			5.48	%			4.99	%
Total			5.11	%			5.13	%			4.97	%			5.09	%			4.19	%			5.16	%			4.69	%

Pre-tax yields are calculated as annualized investment income divided by the average of investment balances at the end of each month during the period. Investment balances, for purposes of the pre-tax yield calculation, exclude unrealized capital gains and losses.

 

(1)	Includes $8.6 million of income from assets acquired with Chaucer, with pre-tax yields on fixed maturities and total investments of 2.00% and 1.99%, respectively.

 

15

---

THE HANOVER INSURANCE GROUP

INVESTMENT PORTFOLIO

September 30, 2011

 

(in millions)
																				Change in				Change in
		Weighted														Net				Net				Net
		Average		Amortized				Fair				% of				Unrealized				Unrealized				Unrealized
Investment Type		Quality		Cost or Cost				Value				Total				Gain (Loss)				During Q3 2011				YTD
Fixed Maturities:
U.S. Treasury and government agencies		AAA		$	272.0			$	279.0				3.7	%		$	7.0			$	4.8			$	5.2
Foreign Government		AAA			302.6				302.9				4.0	%			0.3				0.3				0.3
Municipals:
Taxable		AA			802.9				861.2				11.3	%			58.3				37.1				59.3
Tax exempt		A+			167.1				171.7				2.2	%			4.6				0.9				1.6
Corporate:
NAIC 1		A+			1,666.0				1,731.2				22.8	%			65.2				4.1				9.1
NAIC 2		BBB			1,166.6				1,243.5				16.4	%			76.9				(0.7	)			6.7
NAIC 3 and below		B+			318.1				316.7				4.2	%			(1.4	)			(19.5	)			(19.5	)
Total corporate		A-			3,150.7				3,291.4				43.4	%			140.7				(16.1	)			(3.7	)
Asset backed:
Residential mortgage backed		AA+			825.7				864.7				11.4	%			39.0				8.9				9.1
Commercial mortgage backed		AA+			338.1				346.1				4.5	%			8.0				(6.2	)			(9.3	)
Asset backed		AA-			107.0				110.6				1.5	%			3.6				0.2				(0.1	)
Total fixed maturities		A+			5,966.1				6,227.6				82.0	%			261.5				29.9				62.4
Equity securities					249.2				246.3				3.3	%			(2.9	)			(19.3	)			(10.8	)
Total fixed maturities and equity securities					6,215.3				6,473.9				85.3	%			258.6				10.6				51.6
Cash and cash equivalents					922.7				922.7				12.1	%			—				—				—
Other investments					193.1				194.1				2.6	%			1.0				(2.1	)			(1.7	)
Total				$	7,331.1			$	7,590.7				100.0	%		$	259.6			$	8.5			$	49.9

 

16

---

THE HANOVER INSURANCE GROUP

CREDIT QUALITY AND DURATION OF FIXED MATURITIES

September 30, 2011

CREDIT QUALITY OF FIXED MATURITIES

 

(In millions)
NAIC Designation		Rating Agency Equivalent Designation		Amortized Cost				Fair Value				% of Total Fair Value
1		Aaa/Aa/A		$	4,343.5			$	4,529.7				72.7	%
2		Baa			1,282.2				1,360.0				21.9	%
3		Ba			152.0				156.6				2.5	%
4		B			129.7				126.1				2.0	%
5		Caa and lower			45.8				41.8				0.7	%
6		In or near default			12.9				13.4				0.2	%
Total fixed maturities				$	5,966.1			$	6,227.6				100.0	%

DURATION OF FIXED MATURITIES

 

(In millions)
		Amortized				Fair				% of Total
		Cost				Value				Fair Value
0-2 years		$	1,996.1			$	2,033.8				32.7	%
2-4 years			1,259.7				1,316.8				21.1	%
4-6 years			1,359.3				1,438.9				23.1	%
6-8 years			827.2				877.3				14.1	%
8-10 years			407.2				436.0				7.0	%
10+ years			116.6				124.8				2.0	%
Total fixed maturities		$	5,966.1			$	6,227.6				100.0	%
Weighted Average Duration			3.86

 

17

---

THE HANOVER INSURANCE GROUP

TOP 10 CORPORATE AND MUNICIPAL FIXED MATURITY HOLDINGS

September 30, 2011

 

(In millions, except percentage data)
Issuer		Amortized Cost				Fair Value				As a Percent  of Invested Assets				S&P Ratings
Royal Bank of Scotland (1)
Term deposits (2)		$	163.3			$	158.2				2.08	%		A
Notes			6.9				6.4				0.08	%		A+
Lloyds TSB Bank (3)
Term deposits (2)			83.8				83.4				1.10	%		A+
Notes			6.1				5.7				0.08	%		A+
Co-Operative Bank term deposits (4)			59.4				59.3				0.78	%		A-
Cater Allen Private Bank term deposits (5)			33.5				33.4				0.44	%		A+
GE Capital			32.9				33.4				0.44	%		AA+
Wells Fargo			30.2				31.4				0.41	%		AA-
Rabobank			29.4				29.7				0.39	%		AAA
Total Capital Sa			25.4				26.1				0.34	%		AA-
HSBC Bank PLC			25.2				24.9				0.33	%		A+
Virginia State Housing			23.5				24.6				0.33	%		AA+
Top 10 Corporate and Municipal Fixed		$	519.6			$	516.5				6.80	%

 

(1)	UK government owns 83% of bank equity

(2)	Weighted average duration is approximately 2.6

(3)	UK government owns 40% of bank equity

(4)	Mature in November 2011

(5)	Mature in April 2012

 

18

---

THE HANOVER INSURANCE GROUP

RECONCILIATION OF SEGMENT INCOME TO NET INCOME

 

		Three Months ended September 30																Nine Months ended September 30
		2011								2010								2011								2010
(In millions, except per share data)		$				Per Share (Diluted)  (1)				$				Per Share (Diluted)				$				Per Share (Diluted)  (1)				$				Per Share (Diluted)
SEGMENT INCOME
Commercial Lines		$	(22.1	)						$	35.1							$	(28.4	)						$	74.8
Personal Lines			(4.8	)							43.0								2.4								74.0
Chaucer			19.9								—								19.9								—
Other Property and Casualty			(0.6	)							1.1								1.5								2.7
Total			(7.6	)							79.2								(4.6	)							151.5
Interest expense on debt			(17.4	)							(11.8	)							(38.6	)							(32.8	)
Segment income (loss) before income taxes			(25.0	)		$	(0.55	)			67.4			$	1.48				(43.2	)		$	(0.95	)			118.7			$	2.56
Income tax (expense) benefit on segment income (loss)			6.5				0.14				(22.7	)			(0.50	)			12.6				0.28				(40.2	)			(0.87	)
Segment income (loss) after income taxes			(18.5	)			(0.41	)			44.7				0.98				(30.6	)			(0.67	)			78.5				1.69
Net realized investment gains			8.2				0.18				5.7				0.12				24.9				0.55				16.8				0.36
Loss from retirement of debt			(0.1	)			—				—				—				(2.3	)			(0.05	)			—				—
Costs related to acquired businesses			(1.9	)			(0.04	)			—				—				(15.7	)			(0.35	)			—				—
Net foreign exchange gains			6.7				0.15				—				—				6.7				0.15				—				—
Loss on derivative instruments			(6.6	)			(0.15	)			—				—				(11.3	)			(0.25	)			—				—
Income tax (expense) benefit on non-segment income			2.5				0.06				1.0				0.02				14.1				0.31				0.5				0.01
Income (loss) from continuing operations			(9.7	)			(0.21	)			51.4				1.12				(14.2	)			(0.31	)			95.8				2.06
Discontinued operations, net of taxes			—				—				0.9				0.03				2.0				0.04				0.6				0.02
NET INCOME (LOSS)		$	(9.7	)		$	(0.21	)		$	52.3			$	1.15			$	(12.2	)		$	(0.27	)		$	96.4			$	2.08

 

(1)	Per diluted share amounts in 2011 exclude common stock equivalents, as the impact of these instruments was anti-dilutive.

 

19

---

Non-GAAP Financial Measures

The Hanover uses non-GAAP financial measures as important measures of the Company’s operating performance, which we believe provide investors’ with additional information regarding management’s evaluation of our results of operations and financial performance. These metrics include segment income before interest expense and taxes, total segment income after taxes, total segment income after taxes per share, total book value per share, total book value per share excluding net unrealized gains and losses related to investments, net of tax, tangible book value per share and measures of segment income and loss ratios excluding catastrophe losses and reserve development. After-tax segment income EPS (sometimes referred to as “after-tax segment income per share”) is a non-GAAP measure. It is defined as net income (loss) excluding the after-tax impact of net realized investment gains (losses), as well as results from discontinued operations for a period divided by the average number of diluted shares of common stock.

Segment income before interest expense and taxes is net income, excluding interest expense on debt, income taxes and net realized investment gains and losses, because fluctuations in these gains and losses are determined by interest rates, financial markets and the timing of sales. Segment income before interest expense and taxes also excludes net gains and losses on disposals of businesses, discontinued operations, restructuring costs, extraordinary items, the cumulative effect of accounting changes and certain other items. Segment income before interest expense and taxes is the sum of the segment income from: Commercial Lines, Personal Lines, Chaucer, and Other Property and Casualty. The Hanover believes that measures of segment income before interest expense and taxes provide investors with a valuable measure of the performance of the Company’s ongoing businesses because they highlight net income attributable to the core operations of the business.

Book value per share is total shareholders’ equity divided by the number of common shares outstanding. Book value per share excluding net unrealized gains and losses related to investments, net of tax is total shareholders’ equity excluding the after-tax effect of unrealized investment gains and losses divided by the number of common shares outstanding. Tangible book value per share is total shareholders' equity, excluding goodwill, divided by the number of common shares outstanding.

The Hanover also provides measures of segment income and loss ratios that exclude the effects of catastrophe losses. A catastrophe is a severe loss, resulting from natural or manmade events, including risks such as fire, hurricane, earthquake, windstorm, explosion, terrorism or other similar events. Each catastrophe has unique characteristics. Catastrophes are not predictable as to timing or loss amount in advance. The Hanover believes that providing certain financial metrics and trends excluding the effects of catastrophes is meaningful for investors to understand the variability of periodic earnings and loss ratios.

Prior year reserve development, which can be favorable or unfavorable, represents changes in our estimate of the costs to pay claims from prior years. We believe that a discussion of segment income excluding prior year reserve development is helpful to investors since it provides insight into both our estimate of current year accident results and changes to prior-year reserve estimates.

Segment income before and after interest expense and taxes and measures of segment income that exclude the effects of catastrophe losses or reserve development should not be construed as substitutes for net income determined in accordance with GAAP. A reconciliation of income from continuing operations to segment income before interest expense and taxes and income from continuing operations per share to segment income after taxes per share for the three months and nine months ended September 30, 2011 and 2010 is set forth on page 19 of this document. The presentation of loss ratios calculated excluding the effects of reserve development and/or catastrophe losses should not be construed as a substitute for loss ratios determined in accordance with GAAP.

 

20

---

 

21