Exhibit 99.2

 

FINANCIAL SUPPLEMENT

SECOND QUARTER 2014

---

THE HANOVER INSURANCE GROUP

FINANCIAL 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			14-16
Investments
Net Investment Income and Yields			17
Investment Portfolio			18
Credit Quality and Duration of Fixed Maturities			19
Top 10 Corporate and Municipal Fixed Maturity Holdings			20
Reconciliation of Operating Income (Loss) to Net Income (Loss)			21
Other Information
Non-GAAP Financial Measures			22
Corporate Information			23
Market and Dividend Information			23
Financial Strength and Debt Ratings			23

---

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

Included in Other are 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

 

		Q2				Q3				Q4				Q1				Q2				Jun-YTD				Jun-YTD
(In millions, except earnings per share)		2013				2013				2013				2014				2014				2013				2014
PREMIUMS
Gross premiums written		$	1,394.4			$	1,313.8			$	1,175.4			$	1,408.1			$	1,423.6			$	2,712.5			$	2,831.7
Net premiums written			1,242.6				1,181.9				1,051.5				1,172.3				1,276.2				2,319.3				2,448.5
Net premiums earned			1,090.8				1,124.7				1,140.7				1,163.0				1,174.7				2,185.1				2,337.7
EARNINGS
Operating income before interest and taxes		$	81.1			$	107.2			$	102.9			$	85.0			$	102.2			$	183.3			$	187.2
Operating income after taxes			46.8				60.9				59.6				47.0				58.4				106.7				105.4
Income from continuing operations			53.1				61.3				64.9				54.7				82.5				119.5				137.2
Net income			53.4				61.3				70.1				54.6				82.6				119.6				137.2
PER SHARE DATA (DILUTED)
Operating income after taxes		$	1.05			$	1.36			$	1.33			$	1.05			$	1.30			$	2.37			$	2.35
Income from continuing operations			1.19				1.37				1.45				1.22				1.84				2.65				3.06
Net income			1.19				1.37				1.57				1.22				1.84				2.66				3.06
Weighted average shares outstanding			44.8				44.6				44.8				44.8				44.9				45.0				44.8
BALANCE SHEET
(In millions, except per share data)		June 30 2013				September 30 2013				December 31 2013				March 31 2014				June 30 2014
Total assets		$	13,306.4			$	13,463.3			$	13,378.7			$	13,643.0			$	13,964.8
Total loss and loss adjustment expense reserves			6,063.6				6,162.8				6,231.5				6,323.4				6,448.0
Total shareholders’ equity			2,495.7				2,544.2				2,594.5				2,681.1				2,795.1
U.S. Property and Casualty Companies
Statutory surplus		$	1,639.5			$	1,751.3			$	1,834.3			$	1,900.4			$	1,974.9
Premium to surplus ratio			2.08:1				1.95:1				1.87:1				1.83:1				1.77:1
Book value per share		$	57.41			$	58.43			$	59.43			$	61.24			$	63.65
Book value per share, excluding net unrealized investment gains and losses, net of tax		$	53.62			$	54.64			$	56.07			$	56.70			$	58.16
Tangible book value per share (total book value excluding goodwill and intangibles)		$	50.25			$	51.20			$	52.22			$	54.06			$	56.47
Shares outstanding			43.5				43.6				43.7				43.8				43.9
Total debt/equity			37.6	%			36.9	%			34.8	%			33.7	%			32.3	%
Total debt/total capital			27.3	%			27.0	%			25.8	%			25.2	%			24.4	%

 

2

---

THE HANOVER INSURANCE GROUP

CONSOLIDATED INCOME STATEMENTS

 

		Three Months ended June 30												Six Months ended June 30
(In millions)		2014				2013				% Change				2014				2013				% Change
REVENUES
Premiums earned		$	1,174.7			$	1,090.8				7.7			$	2,337.7			$	2,185.1				7.0
Net investment income			67.0				67.9				(1.3	)			134.0				135.2				(0.9	)
Net realized investment gains			22.2				13.7				62.0				26.6				21.8				22.0
Fees and other income			9.1				10.2				(10.8	)			18.6				20.8				(10.6	)
Total revenues			1,273.0				1,182.6				7.6				2,516.9				2,362.9				6.5
LOSSES AND EXPENSES
Losses and loss adjustment expenses			725.5				692.1				4.8				1,476.0				1,375.5				7.3
Amortization of deferred acquisition costs			259.6				232.7				11.6				513.3				475.2				8.0
Interest expense			16.3				17.4				(6.3	)			32.6				32.1				1.6
Other operating expenses			163.9				174.5				(6.1	)			315.2				325.3				(3.1	)
Total losses and expenses			1,165.3				1,116.7				4.4				2,337.1				2,208.1				5.8
Income from continuing operations before income taxes			107.7				65.9				63.4				179.8				154.8				16.1
Income tax expense			25.2				12.8				96.9				42.6				35.3				20.7
Income from continuing operations			82.5				53.1				55.4				137.2				119.5				14.8
Discontinued operations			0.1				0.3				N/M				—				0.1				N/M
Net income		$	82.6			$	53.4				54.7			$	137.2			$	119.6				14.7

 

3

---

THE HANOVER INSURANCE GROUP

CONSOLIDATED BALANCE SHEETS

 

		June 30				December 31
(In millions, except per share data)		2014				2013				% Change
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $6,785.1 and $6,815.2)		$	7,058.5			$	6,970.6				1.3
Equity securities, at fair value (cost of $446.4 and $366.5)			530.5				430.2				23.3
Other investments			238.5				192.5				23.9
Total investments			7,827.5				7,593.3				3.1
Cash and cash equivalents			606.2				486.2				24.7
Accrued investment income			70.0				68.0				2.9
Premiums and accounts receivable, net			1,515.9				1,324.6				14.4
Reinsurance recoverable on paid and unpaid losses and unearned premiums			2,416.7				2,335.0				3.5
Deferred acquistion costs			540.6				506.0				6.8
Deferred income taxes			145.6				239.7				(39.3	)
Goodwill			185.2				184.9				0.2
Other assets			542.1				526.1				3.0
Assets of discontinued operations			115.0				114.9				0.1
Total assets		$	13,964.8			$	13,378.7				4.4
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Loss and loss adjustment expense reserves		$	6,448.0			$	6,231.5				3.5
Unearned premiums			2,689.0				2,515.8				6.9
Expenses and taxes payable			569.7				637.2				(10.6	)
Reinsurance premiums payable			443.2				374.7				18.3
Debt			903.9				903.9				—
Liabilities of discontinued operations			115.9				121.1				(4.3	)
Total liabilities			11,169.7				10,784.2				3.6
SHAREHOLDERS’ EQUITY
Preferred stock, par value $0.01 per share; 20.0 million shares authorized; none issued			—				—				—
Common stock, par value $0.01 per share; 300.0 million shares authorized; 60.5 million shares issued			0.6				0.6				—
Additional paid-in capital			1,824.5				1,830.1				(0.3	)
Accumulated other comprehensive income			267.1				177.6				50.4
Retained earnings			1,451.7				1,349.1				7.6
Treasury stock at cost (16.6 and 16.8 million shares)			(748.8	)			(762.9	)			(1.8	)
Total shareholders’ equity			2,795.1				2,594.5				7.7
Total liabilities and shareholders’ equity		$	13,964.8			$	13,378.7				4.4

 

4

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

CONSOLIDATED

Three Months ended June 30

 

		2014																				2013
		Commercial				Personal																Commercial				Personal
(In millions, except percentage data)		Lines				Lines				Chaucer				Other				Total				Lines				Lines				Chaucer				Other				Total
Gross premiums written		$	613.0			$	395.2			$	415.4			$	—			$	1,423.6			$	591.0			$	397.8			$	405.6			$	—			$	1,394.4
Net premiums written		$	541.0			$	370.8			$	364.4			$	—			$	1,276.2			$	521.5			$	370.6			$	350.5			$	—			$	1,242.6
Net premiums earned		$	517.6			$	350.3			$	306.8			$	—			$	1,174.7			$	485.8			$	366.7			$	238.3			$	—			$	1,090.8
Losses and LAE:
Current accident year, excluding catastrophe losses			300.8				219.8				178.4				—				699.0				296.0				229.1				134.1				—				659.2
Prior year unfavorable (favorable) reserve development			1.8				(2.2	)			(29.2	)			0.4				(29.2	)			0.5				2.8				(30.7	)			0.5				(26.9	)
Catastrophe losses			17.0				27.2				11.5				—				55.7				15.1				32.2				12.5				—				59.8
Total losses and LAE			319.6				244.8				160.7				0.4				725.5				311.6				264.1				115.9				0.5				692.1
Amortization of deferred acquisition costs and other underwriting expenses			190.7				101.9				121.8				0.5				414.9				183.7				102.9				97.7				0.5				384.8
GAAP underwriting profit (loss)			7.3				3.6				24.3				(0.9	)			34.3				(9.5	)			(0.3	)			24.7				(1.0	)			13.9
Net investment income			37.2				18.0				10.7				1.1				67.0				36.0				19.1				10.7				2.1				67.9
Other income			2.1				3.1				3.1				0.8				9.1				1.9				3.1				4.5				0.7				10.2
Other operating expenses			(2.4	)			(2.0	)			—				(3.8	)			(8.2	)			(2.2	)			(2.0	)			(3.0	)			(3.7	)			(10.9	)
Operating income (loss) before income taxes		$	44.2			$	22.7			$	38.1			$	(2.8	)		$	102.2			$	26.2			$	19.9			$	36.9			$	(1.9	)		$	81.1
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			58.2	%			62.7	%			58.2	%			N/M				59.6	%			61.0	%			62.4	%			56.3	%			N/M				60.4	%
Prior year unfavorable (favorable) reserve development			0.3	%			(0.6	)%			(9.5	)%			N/M				(2.5	)%			0.1	%			0.8	%			(12.9	)%			N/M				(2.5	)%
Catastrophe losses			3.3	%			7.8	%			3.7	%			N/M				4.7	%			3.1	%			8.8	%			5.2	%			N/M				5.5	%
Total loss and LAE ratio			61.8	%			69.9	%			52.4	%			N/M				61.8	%			64.2	%			72.0	%			48.6	%			N/M				63.4	%
Expense ratio			36.6	%			28.4	%			39.7	%			N/M				35.0	%			37.6	%			27.3	%			41.0	%			N/M				35.0	%
Combined ratio			98.4	%			98.3	%			92.1	%			N/M				96.8	%			101.8	%			99.3	%			89.6	%			N/M				98.4	%

 

5

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

CONSOLIDATED

Six Months ended June 30

 

		2014																				2013
		Commercial				Personal																Commercial				Personal
(In millions, except percentage data)		Lines				Lines				Chaucer				Other				Total				Lines				Lines				Chaucer				Other				Total
Gross premiums written		$	1,210.8			$	738.5			$	882.4			$	—			$	2,831.7			$	1,152.4			$	765.0			$	795.1			$	—			$	2,712.5
Net premiums written		$	1,080.3			$	690.0			$	678.2			$	—			$	2,448.5			$	1,005.1			$	712.2			$	602.0			$	—			$	2,319.3
Net premiums earned		$	1,030.3			$	700.5			$	606.9			$	—			$	2,337.7			$	962.4			$	735.5			$	487.2			$	—			$	2,185.1
Losses and LAE:
Current accident year, excluding catastrophe losses			604.4				450.4				356.5				—				1,411.3				586.0				467.4				274.4				—				1,327.8
Prior year unfavorable (favorable) reserve development			2.4				(3.2	)			(48.8	)			0.7				(48.9	)			0.7				8.4				(44.0	)			1.1				(33.8	)
Catastrophe losses			57.2				45.6				10.8				—				113.6				22.5				43.9				15.1				—				81.5
Total losses and LAE			664.0				492.8				318.5				0.7				1,476.0				609.2				519.7				245.5				1.1				1,375.5
Amortization of deferred acquisition costs and other underwriting expenses			380.3				202.0				227.6				0.7				810.6				365.8				206.0				184.0				1.0				756.8
GAAP underwriting profit (loss)			(14.0	)			5.7				60.8				(1.4	)			51.1				(12.6	)			9.8				57.7				(2.1	)			52.8
Net investment income			74.5				35.9				21.2				2.4				134.0				72.1				38.1				21.2				3.8				135.2
Other income			4.1				6.0				7.0				1.5				18.6				3.9				6.4				9.0				1.5				20.8
Other operating expenses			(4.3	)			(3.3	)			(1.7	)			(7.2	)			(16.5	)			(4.2	)			(3.9	)			(10.1	)			(7.3	)			(25.5	)
Operating income (loss) before income taxes		$	60.3			$	44.3			$	87.3			$	(4.7	)		$	187.2			$	59.2			$	50.4			$	77.8			$	(4.1	)		$	183.3
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			58.7	%			64.4	%			58.7	%			N/M				60.3	%			60.9	%			63.5	%			56.3	%			N/M				60.8	%
Prior year unfavorable (favorable) reserve development			0.2	%			(0.5	)%			(8.0	)%			N/M				(2.1	)%			0.1	%			1.1	%			(9.0	)%			N/M				(1.5	)%
Catastrophe losses			5.6	%			6.5	%			1.8	%			N/M				4.9	%			2.3	%			6.0	%			3.1	%			N/M				3.7	%
Total loss and LAE ratio			64.5	%			70.4	%			52.5	%			N/M				63.1	%			63.3	%			70.6	%			50.4	%			N/M				63.0	%
Expense ratio			36.7	%			28.1	%			37.5	%			N/M				34.4	%			37.8	%			27.3	%			37.8	%			N/M				34.3	%
Combined ratio			101.2	%			98.5	%			90.0	%			N/M				97.5	%			101.1	%			97.9	%			88.2	%			N/M				97.3	%

 

6

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

CONSOLIDATED

 

		Q2				Q3				Q4				Q1				Q2				Jun-YTD				Jun-YTD
(In millions, except percentage data)		2013				2013				2013				2014				2014				2013				2014
Gross premiums written		$	1,394.4			$	1,313.8			$	1,175.4			$	1,408.1			$	1,423.6			$	2,712.5			$	2,831.7
Net premiums written		$	1,242.6			$	1,181.9			$	1,051.5			$	1,172.3			$	1,276.2			$	2,319.3			$	2,448.5
Net premiums earned		$	1,090.8			$	1,124.7			$	1,140.7			$	1,163.0			$	1,174.7			$	2,185.1			$	2,337.7
Losses and LAE:
Current accident year, excluding catastrophe losses			659.2				688.9				680.7				712.3				699.0				1,327.8				1,411.3
Prior year favorable reserve development			(26.9	)			(23.6	)			(18.9	)			(19.7	)			(29.2	)			(33.8	)			(48.9	)
Catastrophe losses			59.8				30.6				27.9				57.9				55.7				81.5				113.6
Total losses and LAE			692.1				695.9				689.7				750.5				725.5				1,375.5				1,476.0
Amortization of deferred acquisition costs and other underwriting expenses			384.8				387.4				414.3				395.7				414.9				756.8				810.6
GAAP underwriting profit		$	13.9			$	41.4			$	36.7			$	16.8			$	34.3			$	52.8			$	51.1
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			60.4	%			61.3	%			59.8	%			61.3	%			59.6	%			60.8	%			60.3	%
Prior year favorable reserve development			(2.5	)%			(2.1	)%			(1.7	)%			(1.7	)%			(2.5	)%			(1.5	)%			(2.1	)%
Catastrophe losses			5.5	%			2.7	%			2.4	%			5.0	%			4.7	%			3.7	%			4.9	%
Total loss and LAE ratio			63.4	%			61.9	%			60.5	%			64.6	%			61.8	%			63.0	%			63.1	%
Expense ratio			35.0	%			34.1	%			36.0	%			33.7	%			35.0	%			34.3	%			34.4	%
Combined ratio			98.4	%			96.0	%			96.5	%			98.3	%			96.8	%			97.3	%			97.5	%
Combined ratio, excluding catastrophe losses			92.9	%			93.3	%			94.1	%			93.3	%			92.1	%			93.6	%			92.6	%
Current accident year combined ratio, excluding catastrophe losses			95.4	%			95.4	%			95.8	%			95.0	%			94.6	%			95.1	%			94.7	%

 

7

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

COMMERCIAL LINES

Three Months ended June 30

 

		2014																				2013
		Multiple								Workers’												Multiple								Workers’
(In millions, except percentage data)		Peril				Auto				Comp				Other				Total				Peril				Auto				Comp				Other				Total
Net premiums written		$	171.7			$	76.4			$	58.6			$	234.3			$	541.0			$	163.2			$	76.8			$	57.1			$	224.4			$	521.5
Net premiums earned		$	169.8			$	75.8			$	59.4			$	212.6			$	517.6			$	157.9			$	70.5			$	54.8			$	202.6			$	485.8
Losses and LAE:
Current accident year, excluding catastrophe losses			86.6				54.7				42.2				117.3				300.8				87.4				50.7				38.4				119.5				296.0
Prior year unfavorable (favorable) reserve development			(4.1	)			4.1				(0.3	)			2.1				1.8				(3.9	)			3.6				(4.0	)			4.8				0.5
Catastrophe losses			12.6				0.2				—				4.2				17.0				11.1				0.1				—				3.9				15.1
Total losses and LAE			95.1				59.0				41.9				123.6				319.6				94.6				54.4				34.4				128.2				311.6
Amortization of deferred acquisition costs and other underwriting expenses																			190.7																				183.7
GAAP underwriting profit (loss)																			7.3																				(9.5	)
Net investment income																			37.2																				36.0
Other income																			2.1																				1.9
Other operating expenses																			(2.4	)																			(2.2	)
Operating income before income taxes																		$	44.2																			$	26.2
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			51.0	%			72.2	%			71.1	%			55.1	%			58.2	%			55.4	%			71.9	%			70.1	%			59.0	%			61.0	%
Prior year unfavorable (favorable) reserve development			(2.4	)%			5.4	%			(0.5	)%			1.0	%			0.3	%			(2.5	)%			5.1	%			(7.3	)%			2.4	%			0.1	%
Catastrophe losses			7.4	%			0.3	%			—				2.0	%			3.3	%			7.0	%			0.1	%			—				1.9	%			3.1	%
Total loss and LAE ratio			56.0	%			77.9	%			70.6	%			58.1	%			61.8	%			59.9	%			77.1	%			62.8	%			63.3	%			64.2	%
Expense ratio																			36.6	%																			37.6	%
Combined ratio																			98.4	%																			101.8	%
Change in policies in force			3.6	%			5.1	%			8.5	%			1.8	%			3.7	%			2.1	%			6.8	%			14.1	%			6.0	%			5.8	%
Retention			85.2	%			78.2	%			75.3	%			N/M				82.1	%			83.5	%			78.7	%			78.3	%			N/M				81.4	%

 

8

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

COMMERCIAL LINES

Six Months ended June 30

 

		2014																				2013
		Multiple								Workers’												Multiple								Workers’
(In millions, except percentage data)		Peril				Auto				Comp				Other				Total				Peril				Auto				Comp				Other				Total
Net premiums written		$	344.6			$	152.6			$	129.9			$	453.2			$	1,080.3			$	317.2			$	149.6			$	119.3			$	419.0			$	1,005.1
Net premiums earned		$	337.3			$	151.3			$	118.2			$	423.5			$	1,030.3			$	310.5			$	140.0			$	107.8			$	404.1			$	962.4
Losses and LAE:
Current accident year, excluding catastrophe losses			178.9				109.1				83.7				232.7				604.4				174.3				99.6				75.5				236.6				586.0
Prior year unfavorable (favorable) reserve development			(4.8	)			7.5				(1.9	)			1.6				2.4				(4.0	)			5.4				(7.5	)			6.8				0.7
Catastrophe losses			44.7				0.2				—				12.3				57.2				16.3				0.2				—				6.0				22.5
Total losses and LAE			218.8				116.8				81.8				246.6				664.0				186.6				105.2				68.0				249.4				609.2
Amortization of deferred acquisition costs and other underwriting expenses																			380.3																				365.8
GAAP underwriting loss																			(14.0	)																			(12.6	)
Net investment income																			74.5																				72.1
Other income																			4.1																				3.9
Other operating expenses																			(4.3	)																			(4.2	)
Operating income before income taxes																		$	60.3																			$	59.2
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			52.9	%			72.1	%			70.8	%			55.0	%			58.7	%			56.2	%			71.1	%			70.1	%			58.6	%			60.9	%
Prior year unfavorable (favorable) reserve development			(1.4	)%			5.0	%			(1.6	)%			0.4	%			0.2	%			(1.3	)%			3.9	%			(7.0	)%			1.7	%			0.1	%
Catastrophe losses			13.3	%			0.1	%			—				2.9	%			5.6	%			5.2	%			0.1	%			—				1.5	%			2.3	%
Total loss and LAE ratio			64.8	%			77.2	%			69.2	%			58.3	%			64.5	%			60.1	%			75.1	%			63.1	%			61.8	%			63.3	%
Expense ratio																			36.7	%																			37.8	%
Combined ratio																			101.2	%																			101.1	%
Change in policies in force			3.6	%			5.1	%			8.5	%			1.8	%			3.7	%			2.1	%			6.8	%			14.1	%			6.0	%			5.8	%
Retention			84.9	%			79.4	%			77.6	%			N/M				82.5	%			83.3	%			80.0	%			78.3	%			N/M				81.4	%

 

9

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

COMMERCIAL LINES

 

		Q2				Q3				Q4				Q1				Q2				Jun-YTD				Jun-YTD
(In millions, except percentage data)		2013				2013				2013				2014				2014				2013				2014
Gross premiums written		$	591.0			$	601.7			$	541.8			$	597.8			$	613.0			$	1,152.4			$	1,210.8
Net premiums written		$	521.5			$	530.5			$	471.6			$	539.3			$	541.0			$	1,005.1			$	1,080.3
Net premiums earned		$	485.8			$	492.7			$	503.3			$	512.7			$	517.6			$	962.4			$	1,030.3
Losses and LAE:
Current accident year, excluding catastrophe losses			296.0				293.7				300.2				303.6				300.8				586.0				604.4
Prior year unfavorable reserve development			0.5				2.3				0.3				0.6				1.8				0.7				2.4
Catastrophe losses			15.1				8.5				7.7				40.2				17.0				22.5				57.2
Total losses and LAE			311.6				304.5				308.2				344.4				319.6				609.2				664.0
Amortization of deferred acquisition costs and other underwriting expenses			183.7				185.4				196.3				189.6				190.7				365.8				380.3
GAAP underwriting profit (loss)		$	(9.5	)		$	2.8			$	(1.2	)		$	(21.3	)		$	7.3			$	(12.6	)		$	(14.0	)
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			61.0	%			59.6	%			59.7	%			59.3	%			58.2	%			60.9	%			58.7	%
Prior year unfavorable reserve development			0.1	%			0.5	%			0.1	%			0.1	%			0.3	%			0.1	%			0.2	%
Catastrophe losses			3.1	%			1.7	%			1.5	%			7.8	%			3.3	%			2.3	%			5.6	%
Total loss and LAE ratio			64.2	%			61.8	%			61.3	%			67.2	%			61.8	%			63.3	%			64.5	%
Expense ratio			37.6	%			37.4	%			38.8	%			36.8	%			36.6	%			37.8	%			36.7	%
Combined ratio			101.8	%			99.2	%			100.1	%			104.0	%			98.4	%			101.1	%			101.2	%
Combined ratio, excluding catastrophe losses			98.7	%			97.5	%			98.6	%			96.2	%			95.1	%			98.8	%			95.6	%
Current accident year combined ratio, excluding catastrophe losses			98.6	%			97.0	%			98.5	%			96.1	%			94.8	%			98.7	%			95.4	%

 

10

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

PERSONAL LINES

Three Months ended June 30

 

		2014																2013
(In millions, except percentage data)		Auto				Home				Other				Total				Auto				Home				Other				Total
Net premiums written		$	227.3			$	132.7			$	10.8			$	370.8			$	227.9			$	131.8			$	10.9			$	370.6
Net premiums earned		$	216.0			$	124.2			$	10.1			$	350.3			$	228.5			$	127.8			$	10.4			$	366.7
Losses and LAE:
Current accident year, excluding catastrophe losses			151.3				64.8				3.7				219.8				165.3				59.8				4.0				229.1
Prior year unfavorable (favorable) reserve development			(3.0	)			1.0				(0.2	)			(2.2	)			2.8				—				—				2.8
Catastrophe losses			1.2				25.7				0.3				27.2				2.4				28.9				0.9				32.2
Total losses and LAE			149.5				91.5				3.8				244.8				170.5				88.7				4.9				264.1
Amortization of deferred acquisition costs and other underwriting expenses															101.9																102.9
GAAP underwriting profit (loss)															3.6																(0.3	)
Net investment income															18.0																19.1
Other income															3.1																3.1
Other operating expenses															(2.0	)															(2.0	)
Operating income before income taxes														$	22.7															$	19.9
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			70.0	%			52.1	%			36.6	%			62.7	%			72.3	%			46.8	%			38.4	%			62.4	%
Prior year unfavorable (favorable) reserve development			(1.4	)%			0.8	%			(2.0	)%			(0.6	)%			1.2	%			—				—				0.8	%
Catastrophe losses			0.6	%			20.7	%			3.0	%			7.8	%			1.1	%			22.6	%			8.7	%			8.8	%
Total loss and LAE ratio			69.2	%			73.6	%			37.6	%			69.9	%			74.6	%			69.4	%			47.1	%			72.0	%
Expense ratio															28.4	%															27.3	%
Combined ratio															98.3	%															99.3	%
Change in policies in force			(10.1	)%			(11.8	)%			(15.1	)%			(11.1	)%			(5.1	)%			(6.0	)%			(8.8	)%			(5.7	)%
Retention			74.5	%			74.5	%			N/M				74.7	%			76.9	%			79.1	%			N/M				78.3	%

 

11

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

PERSONAL LINES

Six Months ended June 30

 

		2014																2013
(In millions, except percentage data)		Auto				Home				Other				Total				Auto				Home				Other				Total
Net premiums written		$	439.1			$	231.7			$	19.2			$	690.0			$	455.0			$	237.2			$	20.0			$	712.2
Net premiums earned		$	430.9			$	249.3			$	20.3			$	700.5			$	457.0			$	257.5			$	21.0			$	735.5
Losses and LAE:
Current accident year, excluding catastrophe losses			311.8				130.9				7.7				450.4				335.8				123.3				8.3				467.4
Prior year unfavorable (favorable) reserve development			(4.0	)			1.0				(0.2	)			(3.2	)			7.3				1.0				0.1				8.4
Catastrophe losses			1.3				43.6				0.7				45.6				2.1				40.3				1.5				43.9
Total losses and LAE			309.1				175.5				8.2				492.8				345.2				164.6				9.9				519.7
Amortization of deferred acquisition costs and other underwriting expenses															202.0																206.0
GAAP underwriting profit															5.7																9.8
Net investment income															35.9																38.1
Other income															6.0																6.4
Other operating expenses															(3.3	)															(3.9	)
Operating income before income taxes														$	44.3															$	50.4
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			72.3	%			52.5	%			38.0	%			64.4	%			73.4	%			47.8	%			39.5	%			63.5	%
Prior year unfavorable (favorable) reserve development			(0.9	)%			0.4	%			(1.0	)%			(0.5	)%			1.6	%			0.4	%			0.5	%			1.1	%
Catastrophe losses			0.3	%			17.5	%			3.4	%			6.5	%			0.5	%			15.7	%			7.1	%			6.0	%
Total loss and LAE ratio			71.7	%			70.4	%			40.4	%			70.4	%			75.5	%			63.9	%			47.1	%			70.6	%
Expense ratio															28.1	%															27.3	%
Combined ratio															98.5	%															97.9	%
Change in policies in force			(10.1	)%			(11.8	)%			(15.1	)%			(11.1	)%			(5.1	)%			(6.0	)%			(8.8	)%			(5.7	)%
Retention			74.5	%			74.5	%			N/M				74.7	%			76.9	%			79.1	%			N/M				78.3	%

 

12

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

PERSONAL LINES

 

		Q2				Q3				Q4				Q1				Q2				Jun-YTD				Jun-YTD
(In millions, except percentage data)		2013				2013				2013				2014				2014				2013				2014
Gross premiums written		$	397.8			$	398.4			$	368.2			$	343.3			$	395.2			$	765.0			$	738.5
Net premiums written		$	370.6			$	372.9			$	342.9			$	319.2			$	370.8			$	712.2			$	690.0
Net premiums earned		$	366.7			$	363.4			$	355.3			$	350.2			$	350.3			$	735.5			$	700.5
Losses and LAE:
Current accident year, excluding catastrophe losses			229.1				230.5				221.2				230.6				219.8				39.9				450.4
Prior year unfavorable (favorable) reserve development			2.8				2.1				3.2				(1.0	)			(2.2	)			8.4				(3.2	)
Catastrophe losses			32.2				10.3				12.7				18.4				27.2				43.9				45.6
Total losses and LAE			264.1				242.9				237.1				248.0				244.8				92.2				492.8
Amortization of deferred acquisition costs and other underwriting expenses			102.9				102.5				108.4				100.1				101.9				206.0				202.0
GAAP underwriting profit (loss)		$	(0.3	)		$	18.0			$	9.8			$	2.1			$	3.6			$	437.3			$	5.7
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			62.4	%			63.4	%			62.2	%			65.8	%			62.7	%			63.5	%			64.4	%
Prior year unfavorable (favorable) reserve development			0.8	%			0.6	%			0.9	%			(0.3	)%			(0.6	)%			1.1	%			(0.5	)%
Catastrophe losses			8.8	%			2.8	%			3.6	%			5.3	%			7.8	%			6.0	%			6.5	%
Total loss and LAE ratio			72.0	%			66.8	%			66.7	%			70.8	%			69.9	%			70.6	%			70.4	%
Expense ratio			27.3	%			27.5	%			29.8	%			27.9	%			28.4	%			27.3	%			28.1	%
Combined ratio			99.3	%			94.3	%			96.5	%			98.7	%			98.3	%			97.9	%			98.5	%
Combined ratio, excluding catastrophe losses			90.5	%			91.5	%			92.9	%			93.4	%			90.5	%			91.9	%			92.0	%
Current accident year combined ratio, excluding catastrophe losses			89.7	%			90.9	%			92.0	%			93.7	%			91.1	%			90.8	%			92.5	%

 

13

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

CHAUCER

Three Months ended June 30

 

		2014																								2013
(In millions, except percentage data)		Property				Marine & Aviation				Energy				UK Motor				Casualty & Other				Total				Property				Marine & Aviation				Energy				UK Motor				Casualty & Other				Total
Gross premiums written		$	68.1			$	82.4			$	80.7			$	95.2			$	89.0			$	415.4			$	93.7			$	83.9			$	85.4			$	86.5			$	56.1			$	405.6
Net premiums written		$	59.0			$	69.9			$	64.9			$	94.6			$	76.0			$	364.4			$	78.3			$	67.3			$	73.0			$	87.0			$	44.9			$	350.5
Net premiums earned		$	48.1			$	69.3			$	48.0			$	82.4			$	59.0			$	306.8			$	40.5			$	58.2			$	34.1			$	69.7			$	35.8			$	238.3
Losses and LAE:
Current accident year, excluding catastrophe losses																							178.4																								134.1
Prior year favorable reserve development																							(29.2	)																							(30.7	)
Catastrophe losses																							11.5																								12.5
Total losses and LAE																							160.7																								115.9
Amortization of deferred acquisition costs and other underwriting expenses																							121.8																								97.7
GAAP underwriting profit																							24.3																								24.7
Net investment income																							10.7																								10.7
Other income																							3.1																								4.5
Other operating expenses																							—																								(3.0	)
Operating income before income taxes																						$	38.1																							$	36.9
Loss and LAE ratio:
Current accident year, excluding catastrophe losses																							58.2	%																							56.3	%
Prior year favorable reserve development																							(9.5	)%																							(12.9	)%
Catastrophe losses																							3.7	%																							5.2	%
Total loss and LAE ratio																							52.4	%																							48.6	%
Expense ratio																							39.7	%																							41.0	%
Combined ratio																							92.1	%																							89.6	%

 

14

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

CHAUCER

Six Months ended June 30

 

		2014																								2013
(In millions, except percentage data)		Property				Marine & Aviation				Energy				UK Motor				Casualty & Other				Total				Property				Marine & Aviation				Energy				UK Motor				Casualty & Other				Total
Gross premiums written		$	174.9			$	210.7			$	140.2			$	173.0			$	183.6			$	882.4			$	185.9			$	192.2			$	137.2			$	166.2			$	113.6			$	795.1
Net premiums written		$	118.2			$	160.9			$	89.3			$	150.7			$	159.1			$	678.2			$	126.1			$	148.6			$	90.7			$	147.1			$	89.5			$	602.0
Net premiums earned		$	94.7			$	136.1			$	101.2			$	159.7			$	115.2			$	606.9			$	85.0			$	117.0			$	78.9			$	136.2			$	70.1			$	487.2
Losses and LAE:
Current accident year, excluding catastrophe losses																							356.5																								274.4
Prior year favorable reserve development																							(48.8	)																							(44.0	)
Catastrophe losses																							10.8																								15.1
Total losses and LAE																							318.5																								245.5
Amortization of deferred acquisition costs and other underwriting expenses																							227.6																								184.0
GAAP underwriting profit																							60.8																								57.7
Net investment income																							21.2																								21.2
Other income																							7.0																								9.0
Other operating expenses																							(1.7	)																							(10.1	)
Operating income before income taxes																						$	87.3																							$	77.8
Loss and LAE ratio:
Current accident year, excluding catastrophe losses																							58.7	%																							56.3	%
Prior year favorable reserve development																							(8.0	)%																							(9.0	)%
Catastrophe losses																							1.8	%																							3.1	%
Total loss and LAE ratio																							52.5	%																							50.4	%
Expense ratio																							37.5	%																							37.8	%
Combined ratio																							90.0	%																							88.2	%

 

15

---

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

CHAUCER

 

		Q2				Q3				Q4				Q1				Q2				Jun-YTD				Jun-YTD
(In millions, except percentage data)		2013				2013				2013				2014				2014				2013				2014
Gross premiums written		$	405.6			$	313.7			$	265.4			$	467.0			$	415.4			$	795.1			$	882.4
Net premiums written		$	350.5			$	278.5			$	237.0			$	313.8			$	364.4			$	602.0			$	678.2
Net premiums earned		$	238.3			$	268.6			$	282.1			$	300.1			$	306.8			$	487.2			$	606.9
Losses and LAE:
Current accident year, excluding catastrophe losses			134.1				164.8				159.2				178.1				178.4				274.4				356.5
Prior year favorable reserve development			(30.7	)			(27.8	)			(22.8	)			(19.6	)			(29.2	)			(44.0	)			(48.8	)
Catastrophe losses			12.5				11.8				7.5				(0.7	)			11.5				15.1				10.8
Total losses and LAE			115.9				148.8				143.9				157.8				160.7				245.5				318.5
Amortization of deferred acquisition costs and other underwriting expenses			97.7				99.0				109.0				105.8				121.8				184.0				227.6
GAAP underwriting profit		$	24.7			$	20.8			$	29.2			$	36.5			$	24.3			$	57.7			$	60.8
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			56.3	%			61.3	%			56.4	%			59.2	%			58.2	%			56.3	%			58.7	%
Prior year favorable reserve development			(12.9	)%			(10.3	)%			(8.1	)%			(6.5	)%			(9.5	)%			(9.0	)%			(8.0	)%
Catastrophe losses			5.2	%			4.4	%			2.7	%			(0.2	)%			3.7	%			3.1	%			1.8	%
Total loss and LAE ratio			48.6	%			55.4	%			51.0	%			52.5	%			52.4	%			50.4	%			52.5	%
Expense ratio			41.0	%			36.9	%			38.6	%			35.3	%			39.7	%			37.8	%			37.5	%
Combined ratio			89.6	%			92.3	%			89.6	%			87.8	%			92.1	%			88.2	%			90.0	%
Combined ratio, excluding catastrophe losses			84.4	%			87.9	%			86.9	%			88.0	%			88.4	%			85.1	%			88.2	%
Current accident year combined ratio, excluding catastrophe losses			97.3	%			98.2	%			95.0	%			94.5	%			97.9	%			94.1	%			96.2	%

 

16

---

THE HANOVER INSURANCE GROUP

NET INVESTMENT INCOME AND YIELDS

 

																						Q2				Q2
		Q2				Q3				Q4				Q1				Q2				YTD				YTD
(In millions, except yields)		2013				2013				2013				2014				2014				2013				2014
Net Investment Income
Fixed maturities		$	62.6			$	63.0			$	64.5			$	64.7			$	63.2			$	127.3			$	127.9
Equity securities			4.9				4.0				3.6				3.4				4.4				8.0				7.8
Other investments			2.8				1.3				2.5				1.5				2.1				5.0				3.6
Investment expenses			(2.4	)			(2.6	)			(2.5	)			(2.6	)			(2.7	)			(5.1	)			(5.3	)
Total		$	67.9			$	65.7			$	68.1			$	67.0			$	67.0			$	135.2			$	134.0
Pre-tax Yields
Fixed maturities			3.98	%			3.99	%			3.86	%			3.79	%			3.74	%			4.00	%			3.76	%
Total			3.71	%			3.61	%			3.59	%			3.47	%			3.42	%			3.68	%			3.45	%

Pre-tax yields are calculated as annualized net investment income divided by the average of investment balances, excluding unrealized capital gains and losses, at the end of each month during the period.

 

17

---

THE HANOVER INSURANCE GROUP

INVESTMENT PORTFOLIO

June 30, 2014

 

(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 Q2 2014				YTD
Fixed maturities:
U.S. Treasury and government agencies		AAA		$	403.5			$	403.2				4.8	%		$	(0.3	)		$	5.1			$	10.6
Foreign government		AAA			319.7				321.0				3.8	%			1.3				(0.5	)			0.8
Municipals:
Taxable		AA			938.5				988.1				11.7	%			49.6				14.8				31.7
Tax exempt		AA			141.9				145.4				1.7	%			3.5				0.4				3.1
Corporate:
NAIC 1		A			1,794.4				1,871.1				22.2	%			76.7				7.7				20.4
NAIC 2		BBB			1,536.9				1,626.6				19.3	%			89.7				16.4				28.9
NAIC 3 and below		B+			387.0				411.0				4.9	%			24.0				2.7				7.1
Total corporate		BBB+			3,718.3				3,908.7				46.4	%			190.4				26.8				56.4
Asset backed:
Residential mortgage-backed		AA			697.3				713.6				8.5	%			16.3				6.0				10.3
Commercial mortgage-backed		AA+			395.1				406.1				4.8	%			11.0				3.2				5.3
Asset-backed		AAA			170.8				172.4				2.0	%			1.6				(0.1	)			(0.2	)
Total fixed maturities		A+			6,785.1				7,058.5				83.7	%			273.4				55.7				118.0
Equity securities					446.4				530.5				6.3	%			84.1				4.8				20.4
Other investments					235.3				238.5				2.8	%			3.2				(0.1	)			—
Total investments					7,466.8				7,827.5				92.8	%			360.7				60.4				138.4
Cash and cash equivalents					606.2				606.2				7.2	%			—				—				—
Total				$	8,073.0			$	8,433.7				100.0	%		$	360.7			$	60.4			$	138.4

 

18

---

THE HANOVER INSURANCE GROUP

CREDIT QUALITY AND DURATION OF FIXED MATURITIES

June 30, 2014

 

(In millions)
CREDIT QUALITY OF FIXED MATURITIES
		Rating Agency		Amortized				Fair				% of Total
NAIC Designation		Equivalent Designation		Cost				Value				Fair Value
1		Aaa/Aa/A		$	4,818.7			$	4,977.7				70.5	%
2		Baa			1,567.3				1,657.9				23.5	%
3		Ba			173.5				184.9				2.6	%
4		B			184.9				195.7				2.8	%
5		Caa and lower			40.2				41.6				0.6	%
6		In or near default			0.5				0.7				—	%
Total fixed maturities				$	6,785.1			$	7,058.5				100.0	%
DURATION OF FIXED MATURITIES
				Amortized Cost				Fair Value				% of Total Fair Value
0-2 years				$	1,556.7			$	1,599.4				22.7	%
2-4 years					1,786.0				1,872.5				26.5	%
4-6 years					1,744.3				1,841.1				26.1	%
6-8 years					1,337.6				1,377.8				19.5	%
8-10 years					292.7				296.4				4.2	%
10+ years					67.8				71.3				1.0	%
Total fixed maturities				$	6,785.1			$	7,058.5				100.0	%
Weighted Average Duration					4.14

 

19

---

THE HANOVER INSURANCE GROUP

TOP 10 CORPORATE AND MUNICIPAL FIXED MATURITY HOLDINGS

June 30, 2014

 

(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		$	82.0			$	82.8				0.98	%		A-
Notes			14.3				14.7				0.17	%		A
Lloyds Bank: (2)
Term deposits			48.7				48.2				0.57	%		A
Notes			5.0				5.4				0.07	%		BBB+
Citigroup			28.8				30.4				0.36	%		A-
American Express			28.6				29.7				0.35	%		A-
GE Capital			27.0				28.5				0.34	%		AA+
JP Morgan			26.1				26.9				0.32	%		A
Bank of America			26.0				27.8				0.33	%		BBB+
Wells Fargo			26.0				27.8				0.33	%		A+
CVS Caremark			22.6				24.6				0.29	%		BBB+
Toyota Motor Credit Corp			22.4				23.3				0.28	%		AA-
Top 10 Corporate and Municipal Fixed		$	357.5			$	370.1				4.39	%

 

(1)	UK government owns 64% of bank equity

(2)	UK government owns 25% of bank equity

 

20

---

THE HANOVER INSURANCE GROUP

RECONCILIATION OF OPERATING INCOME TO NET INCOME

 

		Three Months ended June 30																Six Months ended June 30
		2014								2013								2014								2013
(In millions, except per share data)		$				Per Share (Diluted)				$				Per Share (Diluted)				$				Per Share (Diluted)				$				Per Share (Diluted)
OPERATING INCOME (LOSS)
Commercial Lines		$	44.2							$	26.2							$	60.3							$	59.2
Personal Lines			22.7								19.9								44.3								50.4
Chaucer			38.1								36.9								87.3								77.8
Other			(2.8	)							(1.9	)							(4.7	)							(4.1	)
Total			102.2								81.1								187.2								183.3
Interest expense			(16.3	)							(17.4	)							(32.6	)							(32.1	)
Operating income before income taxes			85.9			$	1.91				63.7			$	1.42				154.6			$	3.45				151.2			$	3.36
Income tax expense on operating income			(27.5	)			(0.61	)			(16.9	)			(0.37	)			(49.2	)			(1.10	)			(44.5	)			(0.99	)
Operating income after income taxes			58.4				1.30				46.8				1.05				105.4				2.35				106.7				2.37
Net realized investment gains			22.2				0.49				13.7				0.31				26.6				0.59				21.8				0.48
Loss from repayment of debt			—				—				(11.3	)			(0.25	)			—				—				(19.1	)			(0.42	)
Net benefit (costs) related to acquired businesses			(0.2	)			—				(0.2	)			(0.01	)			(1.1	)			(0.02	)			0.2				0.01
Net foreign exchange gains (losses)			(0.2	)			—				—				—				(0.3	)			(0.01	)			0.7				0.01
Income tax benefit (expense) on non-operating items			2.3				0.05				4.1				0.09				6.6				0.15				9.2				0.20
Income from continuing operations, net of taxes			82.5				1.84				53.1				1.19				137.2				3.06				119.5				2.65
Discontinued operations, net of taxes			0.1				—				0.3				—				—				—				0.1				0.01
NET INCOME		$	82.6			$	1.84			$	53.4			$	1.19			$	137.2			$	3.06			$	119.6			$	2.66

 

21

---

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. The Company’s non-GAAP measures include operating income before interest expense and taxes, total operating income after taxes, total operating 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 operating income and loss ratios excluding catastrophe losses and reserve development. After-tax operating income EPS (sometimes referred to as “after-tax operating 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.

Operating 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. Operating 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. Operating income before interest expense and taxes is the sum of the operating income from: Commercial Lines, Personal Lines, Chaucer, and Other. The Hanover believes that measures of operating 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 operating 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 operating 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.

Operating income before and after interest expense and taxes and measures of operating 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 operating income before interest expense and taxes and income from continuing operations per share to operating income after taxes per share for the six months ended June 30, 2014 and 2013 is set forth on page 21 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.

 

22

---

 

23