Exhibit 99.2

 

 

FINANCIAL SUPPLEMENT

FOURTH QUARTER 2014

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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

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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

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THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS

 

(In millions, except earnings per share)		Q4 2013				Q1 2014				Q2 2014				Q3 2014				Q4 2014				Dec-YTD 2013				Dec-YTD 2014
PREMIUMS
Gross premiums written		$	1,175.4			$	1,408.1			$	1,423.6			$	1,388.2			$	1,245.5			$	5,201.7			$	5,465.4
Net premiums written			1,051.5				1,172.3				1,276.2				1,244.8				1,116.8				4,552.7				4,810.1
Net premiums earned			1,140.7				1,163.0				1,174.7				1,184.0				1,188.6				4,450.5				4,710.3
EARNINGS
Operating income before interest and taxes		$	102.9			$	85.0			$	102.2			$	86.4			$	132.6			$	393.4			$	406.2
Operating income after taxes			59.6				47.0				58.4				47.7				79.6				227.2				232.7
Income from continuing operations			64.9				54.7				82.5				55.0				90.1				245.7				282.3
Net income			70.1				54.6				82.6				54.9				89.9				251.0				282.0
PER SHARE DATA (DILUTED)
Operating income after taxes		$	1.33			$	1.05			$	1.30			$	1.06			$	1.77			$	5.06			$	5.19
Income from continuing operations			1.45				1.22				1.84				1.22				2.01				5.47				6.29
Net income			1.57				1.22				1.84				1.22				2.00				5.59				6.28
Weighted average shares outstanding			44.8				44.8				44.9				44.9				45.0				44.9				44.9

BALANCE SHEET

 

(In millions, except per share data)		December 31 2013				March 31 2014				June 30 2014				September 30 2014				December 31 2014
Total assets		$	13,378.7			$	13,643.0			$	13,964.8			$	13,960.2			$	13,759.7
Total loss and loss adjustment expense reserves			6,231.5				6,323.4				6,448.0				6,435.0				6,391.7
Total shareholders’ equity			2,594.5				2,681.1				2,795.1				2,771.9				2,844.0
U.S. Property and Casualty Companies
Statutory surplus		$	1,834.3			$	1,900.4			$	1,974.9			$	1,998.6			$	2,052.0
Premium to surplus ratio			1.87:1				1.83:1				1.77:1				1.77:1				1.75:1
Book value per share		$	59.43			$	61.24			$	63.65			$	63.37			$	64.85
Book value per share, excluding net unrealized investment gains and losses, net of tax		$	56.07			$	56.70			$	58.16			$	59.04			$	60.07
Tangible book value per share (total book value excluding goodwill and intangibles)		$	52.22			$	54.06			$	56.47			$	56.30			$	57.91
Shares outstanding			43.7				43.8				43.9				43.7				43.9
Total debt/equity			34.8	%			33.7	%			32.3	%			32.6	%			31.8	%
Total debt/total capital			25.8	%			25.2	%			24.4	%			24.6	%			24.1	%

 

2

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THE HANOVER INSURANCE GROUP

CONSOLIDATED INCOME STATEMENTS

 

		Three Months ended December 31												Year ended December 31
(In millions)		2014				2013				% Change				2014				2013				% Change
REVENUES
Premiums earned		$	1,188.6			$	1,140.7				4.2			$	4,710.3			$	4,450.5				5.8
Net investment income			68.8				68.1				1.0				270.3				269.0				0.5
Net realized investment gains			18.6				10.7				73.8				50.1				33.5				49.6
Fees and other income			9.1				9.5				(4.2	)			36.9				40.7				(9.3	)
Total revenues			1,285.1				1,229.0				4.6				5,067.6				4,793.7				5.7
LOSSES AND EXPENSES
Losses and loss adjustment expenses			695.9				689.7				0.9				2,927.5				2,761.1				6.0
Amortization of deferred acquisition costs			266.7				251.9				5.9				1,040.0				971.0				7.1
Interest expense			16.3				16.6				(1.8	)			65.2				65.3				(0.2	)
Other operating expenses			183.3				182.6				0.4				656.9				667.2				(1.5	)
Total losses and expenses			1,162.2				1,140.8				1.9				4,689.6				4,464.6				5.0
Income from continuing operations before income taxes			122.9				88.2				39.3				378.0				329.1				14.9
Income tax expense			32.8				23.3				40.8				95.7				83.4				14.7
Income from continuing operations			90.1				64.9				38.8				282.3				245.7				14.9
Discontinued operations			(0.2	)			5.2				N/M				(0.3	)			5.3				N/M
Net income		$	89.9			$	70.1				28.2			$	282.0			$	251.0				12.4

 

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THE HANOVER INSURANCE GROUP

CONSOLIDATED BALANCE SHEETS

 

(In millions, except per share data)		December 31 2014				December 31 2013				% Change
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $7,145.7 and $6,815.2)		$	7,378.1			$	6,970.6				5.8
Equity securities, at fair value (cost of $506.6 and $366.5)			580.8				430.2				35.0
Other investments			291.4				192.5				51.4
Total investments			8,250.3				7,593.3				8.7
Cash and cash equivalents			373.3				486.2				(23.2	)
Accrued investment income			66.9				68.0				(1.6	)
Premiums and accounts receivable, net			1,360.9				1,324.6				2.7
Reinsurance recoverable on paid and unpaid losses and unearned premiums			2,268.2				2,335.0				(2.9	)
Deferred acquisition costs			525.7				506.0				3.9
Deferred income taxes			131.2				239.7				(45.3	)
Goodwill			184.6				184.9				(0.2	)
Other assets			486.6				526.1				(7.5	)
Assets of discontinued operations			112.0				114.9				(2.5	)
Total assets		$	13,759.7			$	13,378.7				2.8
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Loss and loss adjustment expense reserves		$	6,391.7			$	6,231.5				2.6
Unearned premiums			2,583.9				2,515.8				2.7
Expenses and taxes payable			695.4				637.2				9.1
Reinsurance premiums payable			226.8				374.7				(39.5	)
Debt			903.5				903.9				0.0
Liabilities of discontinued operations			114.4				121.1				(5.5	)
Total liabilities			10,915.7				10,784.2				1.2
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			1,830.7				1,830.1				—
Accumulated other comprehensive income			206.4				177.6				16.2
Retained earnings			1,558.7				1,349.1				15.5
Treasury stock at cost (16.6 and 16.8 million shares)			(752.4	)			(762.9	)			(1.4	)
Total shareholders’ equity			2,844.0				2,594.5				9.6
Total liabilities and shareholders’ equity		$	13,759.7			$	13,378.7				2.8

 

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

CONSOLIDATED

Three Months ended December 31

 

		2014																				2013
(In millions, except percentage data)		Commercial Lines				Personal Lines				Chaucer				Other				Total				Commercial Lines				Personal Lines				Chaucer				Other				Total
Gross premiums written		$	575.7			$	376.5			$	293.3			$	—			$	1,245.5			$	541.8			$	368.2			$	265.4			$	—			$	1,175.4
Net premiums written		$	499.0			$	353.7			$	264.1			$	—			$	1,116.8			$	471.6			$	342.9			$	237.0			$	—			$	1,051.5
Net premiums earned		$	529.2			$	353.6			$	305.8			$	—			$	1,188.6			$	503.3			$	355.3			$	282.1			$	—			$	1,140.7
Losses and LAE:
Current accident year, excluding catastrophe losses			311.8				214.1				177.0				—				702.9				300.2				221.2				159.2				0.1				680.7
Prior year unfavorable (favorable) reserve development			5.7				(1.2	)			(33.2	)			0.4				(28.3	)			0.3				3.2				(22.8	)			0.4				(18.9	)
Catastrophe losses			10.2				9.2				1.9				—				21.3				7.7				12.7				7.5				—				27.9
Total losses and LAE			327.7				222.1				145.7				0.4				695.9				308.2				237.1				143.9				0.5				689.7
Amortization of deferred acquisition costs and other underwriting expenses			201.7				102.7				123.6				0.6				428.6				196.3				108.4				109.0				0.6				414.3
GAAP underwriting profit (loss)			(0.2	)			28.8				36.5				(1.0	)			64.1				(1.2	)			9.8				29.2				(1.1	)			36.7
Net investment income			37.5				18.0				12.0				1.3				68.8				36.1				19.1				11.3				1.6				68.1
Other income			2.0				3.1				3.2				0.8				9.1				1.7				3.0				4.0				0.8				9.5
Other operating expenses			(2.8	)			(1.9	)			(0.8	)			(3.9	)			(9.4	)			(1.9	)			(1.4	)			(4.3	)			(3.8	)			(11.4	)
Operating income (loss) before income taxes		$	36.5			$	48.0			$	50.9			$	(2.8	)		$	132.6			$	34.7			$	30.5			$	40.2			$	(2.5	)		$	102.9
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			58.9	%			60.5	%			58.0	%			N/M				59.1	%			59.7	%			62.2	%			56.4	%			N/M				59.8	%
Prior year unfavorable (favorable) reserve development			1.1	%			(0.3	)%			(10.9	)%			N/M				(2.4	)%			0.1	%			0.9	%			(8.1	)%			N/M				(1.7	)%
Catastrophe losses			1.9	%			2.6	%			0.6	%			N/M				1.8	%			1.5	%			3.6	%			2.7	%			N/M				2.4	%
Total loss and LAE ratio			61.9	%			62.8	%			47.7	%			N/M				58.5	%			61.3	%			66.7	%			51.0	%			N/M				60.5	%
Expense ratio			37.9	%			28.3	%			40.4	%			N/M				35.8	%			38.8	%			29.8	%			38.6	%			N/M				36.0	%
Combined ratio			99.8	%			91.1	%			88.1	%			N/M				94.3	%			100.1	%			96.5	%			89.6	%			N/M				96.5	%

 

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

CONSOLIDATED

Year ended December 31

 

		2014																				2013
(In millions, except percentage data)		Commercial Lines				Personal Lines				Chaucer				Other				Total				Commercial Lines				Personal Lines				Chaucer				Other				Total
Gross premiums written		$	2,442.5			$	1,517.3			$	1,505.6			$	—			$	5,465.4			$	2,295.9			$	1,531.6			$	1,374.2			$	—			$	5,201.7
Net premiums written		$	2,155.9			$	1,422.8			$	1,231.4			$	—			$	4,810.1			$	2,007.2			$	1,428.0			$	1,117.5			$	—			$	4,552.7
Net premiums earned		$	2,081.4			$	1,407.1			$	1,221.8			$	—			$	4,710.3			$	1,958.4			$	1,454.2			$	1,037.9			$	—			$	4,450.5
Losses and LAE:
Current accident year, excluding catastrophe losses			1,216.1				878.0				709.5				—				2,803.6				1,179.9				919.1				598.4				—				2,697.4
Prior year unfavorable (favorable) reserve development			9.2				(5.1	)			(104.6	)			1.4				(99.1	)			3.3				13.7				(94.6	)			1.3				(76.3	)
Catastrophe losses			87.8				106.4				28.8				—				223.0				38.7				66.9				34.4				—				140.0
Total losses and LAE			1,313.1				979.3				633.7				1.4				2,927.5				1,221.9				999.7				538.2				1.3				2,761.1
Amortization of deferred acquisition costs and other underwriting expenses			776.6				405.7				465.6				1.7				1,649.6				747.5				416.9				392.0				2.1				1,558.5
GAAP underwriting profit (loss)			(8.3	)			22.1				122.5				(3.1	)			133.2				(11.0	)			37.6				107.7				(3.4	)			130.9
Net investment income			149.4				71.9				44.2				4.8				270.3				143.5				75.8				42.7				7.0				269.0
Other income			8.2				12.0				13.7				3.0				36.9				7.6				12.5				17.6				3.0				40.7
Other operating expenses			(9.4	)			(7.0	)			(2.8	)			(15.0	)			(34.2	)			(7.7	)			(7.3	)			(17.6	)			(14.6	)			(47.2	)
Operating income (loss) before income taxes		$	139.9			$	99.0			$	177.6			$	(10.3	)		$	406.2			$	132.4			$	118.6			$	150.4			$	(8.0	)		$	393.4
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			58.5	%			62.4	%			58.1	%			N/M				59.6	%			60.2	%			63.3	%			57.6	%			N/M				60.6	%
Prior year unfavorable (favorable) reserve development			0.4	%			(0.4	)%			(8.6	)%			N/M				(2.1	)%			0.2	%			0.9	%			(9.1	)%			N/M				(1.7	)%
Catastrophe losses			4.2	%			7.6	%			2.4	%			N/M				4.7	%			2.0	%			4.6	%			3.3	%			N/M				3.1	%
Total loss and LAE ratio			63.1	%			69.6	%			51.9	%			N/M				62.2	%			62.4	%			68.8	%			51.8	%			N/M				62.0	%
Expense ratio			37.1	%			28.1	%			38.1	%			N/M				34.7	%			38.0	%			27.9	%			37.8	%			N/M				34.7	%
Combined ratio			100.2	%			97.7	%			90.0	%			N/M				96.9	%			100.4	%			96.7	%			89.6	%			N/M				96.7	%

 

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

CONSOLIDATED

 

(In millions, except percentage data)		Q4 2013				Q1 2014				Q2 2014				Q3 2014				Q4 2014				Dec-YTD 2013				Dec-YTD 2014
Gross premiums written		$	1,175.4			$	1,408.1			$	1,423.6			$	1,388.2			$	1,245.5			$	5,201.7			$	5,465.4
Net premiums written		$	1,051.5			$	1,172.3			$	1,276.2			$	1,244.8			$	1,116.8			$	4,552.7			$	4,810.1
Net premiums earned		$	1,140.7			$	1,163.0			$	1,174.7			$	1,184.0			$	1,188.6			$	4,450.5			$	4,710.3
Losses and LAE:
Current accident year, excluding catastrophe losses			680.7				712.3				699.0				689.4				702.9				2,697.4				2,803.6
Prior year favorable reserve development			(18.9	)			(19.7	)			(29.2	)			(21.9	)			(28.3	)			(76.3	)			(99.1	)
Catastrophe losses			27.9				57.9				55.7				88.1				21.3				140.0				223.0
Total losses and LAE			689.7				750.5				725.5				755.6				695.9				2,761.1				2,927.5
Amortization of deferred acquisition costs and other underwriting expenses			414.3				395.7				414.9				410.4				428.6				1,558.5				1,649.6
GAAP underwriting profit		$	36.7			$	16.8			$	34.3			$	18.0			$	64.1			$	130.9			$	133.2
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			59.8	%			61.3	%			59.6	%			58.2	%			59.1	%			60.6	%			59.6	%
Prior year favorable reserve development			(1.7	)%			(1.7	)%			(2.5	)%			(1.8	)%			(2.4	)%			(1.7	)%			(2.1	)%
Catastrophe losses			2.4	%			5.0	%			4.7	%			7.4	%			1.8	%			3.1	%			4.7	%
Total loss and LAE ratio			60.5	%			64.6	%			61.8	%			63.8	%			58.5	%			62.0	%			62.2	%
Expense ratio			36.0	%			33.7	%			35.0	%			34.4	%			35.8	%			34.7	%			34.7	%
Combined ratio			96.5	%			98.3	%			96.8	%			98.2	%			94.3	%			96.7	%			96.9	%
Combined ratio, excluding catastrophe losses			94.1	%			93.3	%			92.1	%			90.8	%			92.5	%			93.6	%			92.2	%
Current accident year combined ratio, excluding catastrophe losses			95.8	%			95.0	%			94.6	%			92.6	%			94.9	%			95.3	%			94.3	%

 

7

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

COMMERCIAL LINES

Three Months ended December 31

 

		2014																				2013
(In millions, except percentage data)		Multiple Peril				Auto				Workers’ Comp				Other				Total				Multiple Peril				Auto				Workers’ Comp				Other				Total
Net premiums written		$	161.0			$	70.7			$	54.2			$	213.1			$	499.0			$	149.0			$	74.0			$	53.0			$	195.6			$	471.6
Net premiums earned		$	176.0			$	76.0			$	59.7			$	217.5			$	529.2			$	160.9			$	75.9			$	57.8			$	208.7			$	503.3
Losses and LAE:
Current accident year, excluding catastrophe losses			90.2				54.6				40.7				126.3				311.8				85.4				52.6				37.5				124.7				300.2
Prior year unfavorable (favorable) reserve development			(0.1	)			4.5				(1.4	)			2.7				5.7				(2.0	)			2.6				(4.4	)			4.1				0.3
Catastrophe losses			9.6				(0.5	)			—				1.1				10.2				4.3				0.1				—				3.3				7.7
Total losses and LAE			99.7				58.6				39.3				130.1				327.7				87.7				55.3				33.1				132.1				308.2
Amortization of deferred acquisition costs and other underwriting expenses																			201.7																				196.3
GAAP underwriting loss																			(0.2	)																			(1.2	)
Net investment income																			37.5																				36.1
Other income																			2.0																				1.7
Other operating expenses																			(2.8	)																			(1.9	)
Operating income before income taxes																		$	36.5																			$	34.7
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			51.2	%			71.9	%			68.1	%			58.1	%			58.9	%			53.0	%			69.4	%			64.9	%			59.7	%			59.7	%
Prior year unfavorable (favorable) reserve development			(0.1	)%			5.9	%			(2.3	)%			1.2	%			1.1	%			(1.2	)%			3.4	%			(7.6	)%			2.0	%			0.1	%
Catastrophe losses			5.5	%			(0.7	)%			—				0.5	%			1.9	%			2.7	%			0.1	%			—				1.6	%			1.5	%
Total loss and LAE ratio			56.6	%			77.1	%			65.8	%			59.8	%			61.9	%			54.5	%			72.9	%			57.3	%			63.3	%			61.3	%
Expense ratio																			37.9	%																			38.8	%
Combined ratio																			99.8	%																			100.1	%
Change in policies in force			4.3	%			0.1	%			8.3	%			4.5	%			4.3	%			2.2	%			6.3	%			14.0	%			0.9	%			3.6	%
Retention			83.9	%			79.8	%			79.4	%			N/M				82.0	%			85.7	%			82.4	%			77.4	%			N/M				83.8	%

 

8

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

COMMERCIAL LINES

Year ended December 31

 

		2014																				2013
(In millions, except percentage data)		Multiple Peril				Auto				Workers’ Comp				Other				Total				Multiple Peril				Auto				Workers’ Comp				Other				Total
Net premiums written		$	705.1			$	302.6			$	247.8			$	900.4			$	2,155.9			$	651.7			$	304.7			$	229.6			$	821.2			$	2,007.2
Net premiums earned		$	685.6			$	302.6			$	238.1			$	855.1			$	2,081.4			$	628.2			$	290.8			$	219.6			$	819.8			$	1,958.4
Losses and LAE:
Current accident year, excluding catastrophe losses			359.4				215.5				167.5				473.7				1,216.1				337.6				205.2				151.8				485.3				1,179.9
Prior year unfavorable (favorable) reserve development			(4.9	)			15.1				(5.6	)			4.6				9.2				(6.0	)			10.5				(15.4	)			14.2				3.3
Catastrophe losses			71.6				1.1				—				15.1				87.8				28.8				0.7				—				9.2				38.7
Total losses and LAE			426.1				231.7				161.9				493.4				1,313.1				360.4				216.4				136.4				508.7				1,221.9
Amortization of deferred acquisition costs and other underwriting expenses																			776.6																				747.5
GAAP underwriting loss																			(8.3	)																			(11.0	)
Net investment income																			149.4																				143.5
Other income																			8.2																				7.6
Other operating expenses																			(9.4	)																			(7.7	)
Operating income before income taxes																		$	139.9																			$	132.4
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			52.5	%			71.2	%			70.4	%			55.4	%			58.5	%			53.8	%			70.6	%			69.1	%			59.3	%			60.2	%
Prior year unfavorable (favorable) reserve development			(0.7	)%			5.0	%			(2.4	)%			0.5	%			0.4	%			(1.0	)%			3.6	%			(7.0	)%			1.7	%			0.2	%
Catastrophe losses			10.4	%			0.4	%			—				1.8	%			4.2	%			4.6	%			0.2	%			—				1.1	%			2.0	%
Total loss and LAE ratio			62.2	%			76.6	%			68.0	%			57.7	%			63.1	%			57.4	%			74.4	%			62.1	%			62.1	%			62.4	%
Expense ratio																			37.1	%																			38.0	%
Combined ratio																			100.2	%																			100.4	%
Change in policies in force			4.3	%			0.1	%			8.3	%			4.5	%			4.3	%			2.2	%			6.3	%			14.0	%			0.9	%			3.6	%
Retention			85.0	%			79.5	%			78.2	%			N/M				82.7	%			83.9	%			80.7	%			78.2	%			N/M				82.1	%

 

9

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

COMMERCIAL LINES

 

(In millions, except percentage data)		Q4 2013				Q1 2014				Q2 2014				Q3 2014				Q4 2014				Dec-YTD 2013				Dec-YTD 2014
Gross premiums written		$	541.8			$	597.8			$	613.0			$	656.0			$	575.7			$	2,295.9			$	2,442.5
Net premiums written		$	471.6			$	539.3			$	541.0			$	576.6			$	499.0			$	2,007.2			$	2,155.9
Net premiums earned		$	503.3			$	512.7			$	517.6			$	521.9			$	529.2			$	1,958.4			$	2,081.4
Losses and LAE:
Current accident year, excluding catastrophe losses			300.2				303.6				300.8				299.9				311.8				1,179.9				1,216.1
Prior year unfavorable reserve development			0.3				0.6				1.8				1.1				5.7				3.3				9.2
Catastrophe losses			7.7				40.2				17.0				20.4				10.2				38.7				87.8
Total losses and LAE			308.2				344.4				319.6				321.4				327.7				1,221.9				1,313.1
Amortization of deferred acquisition costs and other underwriting expenses			196.3				189.6				190.7				194.6				201.7				747.5				776.6
GAAP underwriting profit (loss)		$	(1.2	)		$	(21.3	)		$	7.3			$	5.9			$	(0.2	)		$	(11.0	)		$	(8.3	)
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			59.7	%			59.3	%			58.2	%			57.5	%			58.9	%			60.2	%			58.5	%
Prior year unfavorable reserve development			0.1	%			0.1	%			0.3	%			0.2	%			1.1	%			0.2	%			0.4	%
Catastrophe losses			1.5	%			7.8	%			3.3	%			3.9	%			1.9	%			2.0	%			4.2	%
Total loss and LAE ratio			61.3	%			67.2	%			61.8	%			61.6	%			61.9	%			62.4	%			63.1	%
Expense ratio			38.8	%			36.8	%			36.6	%			37.1	%			37.9	%			38.0	%			37.1	%
Combined ratio			100.1	%			104.0	%			98.4	%			98.7	%			99.8	%			100.4	%			100.2	%
Combined ratio, excluding catastrophe losses			98.6	%			96.2	%			95.1	%			94.8	%			97.9	%			98.4	%			96.0	%
Current accident year combined ratio, excluding catastrophe losses			98.5	%			96.1	%			94.8	%			94.6	%			96.8	%			98.2	%			95.6	%

 

10

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

PERSONAL LINES

Three Months ended December 31

 

		2014																2013
(In millions, except percentage data)		Auto				Home				Other				Total				Auto				Home				Other				Total
Net premiums written		$	215.9			$	128.1			$	9.7			$	353.7			$	209.5			$	123.4			$	10.0			$	342.9
Net premiums earned		$	218.8			$	124.7			$	10.1			$	353.6			$	220.0			$	124.9			$	10.4			$	355.3
Losses and LAE:
Current accident year, excluding catastrophe losses			163.5				47.3				3.3				214.1				171.0				46.7				3.5				221.2
Prior year unfavorable (favorable) reserve development			(1.4	)			0.3				(0.1	)			(1.2	)			3.2				—				—				3.2
Catastrophe losses			(0.9	)			10.0				0.1				9.2				1.0				11.4				0.3				12.7
Total losses and LAE			161.2				57.6				3.3				222.1				175.2				58.1				3.8				237.1
Amortization of deferred acquisition costs and other underwriting expenses															102.7																108.4
GAAP underwriting profit															28.8																9.8
Net investment income															18.0																19.1
Other income															3.1																3.0
Other operating expenses															(1.9	)															(1.4	)
Operating income before income taxes														$	48.0															$	30.5
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			74.7	%			38.0	%			32.6	%			60.5	%			77.6	%			37.4	%			33.6	%			62.2	%
Prior year unfavorable (favorable) reserve development			(0.6	)%			0.2	%			(1.0	)%			(0.3	)%			1.5	%			—				—				0.9	%
Catastrophe losses			(0.4	)%			8.0	%			1.0	%			2.6	%			0.5	%			9.1	%			2.9	%			3.6	%
Total loss and LAE ratio			73.7	%			46.2	%			32.6	%			62.8	%			79.6	%			46.5	%			36.5	%			66.7	%
Expense ratio															28.3	%															29.8	%
Combined ratio															91.1	%															96.5	%
Change in policies in force			(3.5	)%			(5.3	)%			(12.8	)%			(4.7	)%			(11.0	)%			(11.7	)%			(13.9	)%			(11.5	)%
Retention			77.0	%			77.4	%			N/M				77.4	%			73.6	%			74.7	%			N/M				74.4	%

 

11

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

PERSONAL LINES

Year ended December 31

 

		2014																2013
(In millions, except percentage data)		Auto				Home				Other				Total				Auto				Home				Other				Total
Net premiums written		$	884.1			$	499.0			$	39.7			$	1,422.8			$	890.3			$	496.7			$	41.0			$	1,428.0
Net premiums earned		$	868.7			$	498.0			$	40.4			$	1,407.1			$	903.2			$	509.1			$	41.9			$	1,454.2
Losses and LAE:
Current accident year, excluding catastrophe losses			627.0				236.0				15.0				878.0				668.6				234.4				16.1				919.1
Prior year unfavorable (favorable) reserve development			(5.9	)			1.3				(0.5	)			(5.1	)			13.6				—				0.1				13.7
Catastrophe losses			8.5				96.9				1.0				106.4				3.6				61.2				2.1				66.9
Total losses and LAE			629.6				334.2				15.5				979.3				685.8				295.6				18.3				999.7
Amortization of deferred acquisition costs and other underwriting expenses															405.7																416.9
GAAP underwriting profit															22.1																37.6
Net investment income															71.9																75.8
Other income															12.0																12.5
Other operating expenses															(7.0	)															(7.3	)
Operating income before income taxes														$	99.0															$	118.6
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			72.2	%			47.3	%			37.0	%			62.4	%			74.0	%			46.0	%			38.5	%			63.3	%
Prior year unfavorable (favorable) reserve development			(0.7	)%			0.3	%			(1.2	)%			(0.4	)%			1.5	%			—				0.2	%			0.9	%
Catastrophe losses			1.0	%			19.5	%			2.5	%			7.6	%			0.4	%			12.0	%			5.0	%			4.6	%
Total loss and LAE ratio			72.5	%			67.1	%			38.3	%			69.6	%			75.9	%			58.0	%			43.7	%			68.8	%
Expense ratio															28.1	%															27.9	%
Combined ratio															97.7	%															96.7	%
Change in policies in force			(3.5	)%			(5.3	)%			(12.8	)%			(4.7	)%			(11.0	)%			(11.7	)%			(13.9	)%			(11.5	)%
Retention			77.0	%			77.4	%			N/M				77.4	%			73.6	%			74.7	%			N/M				74.4	%

 

12

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

PERSONAL LINES

 

(In millions, except percentage data)		Q4 2013				Q1 2014				Q2 2014				Q3 2014				Q4 2014				Dec-YTD 2013				Dec-YTD 2014
Gross premiums written		$	368.2			$	343.3			$	395.2			$	402.3			$	376.5			$	1,531.6			$	1,517.3
Net premiums written		$	342.9			$	319.2			$	370.8			$	379.1			$	353.7			$	1,428.0			$	1,422.8
Net premiums earned		$	355.3			$	350.2			$	350.3			$	353.0			$	353.6			$	1,454.2			$	1,407.1
Losses and LAE:
Current accident year, excluding catastrophe losses			221.2				230.6				219.8				213.5				214.1				919.1				878.0
Prior year unfavorable (favorable) reserve development			3.2				(1.0	)			(2.2	)			(0.7	)			(1.2	)			13.7				(5.1	)
Catastrophe losses			12.7				18.4				27.2				51.6				9.2				66.9				106.4
Total losses and LAE			237.1				248.0				244.8				264.4				222.1				999.7				979.3
Amortization of deferred acquisition costs and other underwriting expenses			108.4				100.1				101.9				101.0				102.7				416.9				405.7
GAAP underwriting profit (loss)		$	9.8			$	2.1			$	3.6			$	(12.4	)		$	28.8			$	37.6			$	22.1
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			62.2	%			65.8	%			62.7	%			60.5	%			60.5	%			63.3	%			62.4	%
Prior year unfavorable (favorable) reserve development			0.9	%			(0.3	)%			(0.6	)%			(0.2	)%			(0.3	)%			0.9	%			(0.4	)%
Catastrophe losses			3.6	%			5.3	%			7.8	%			14.6	%			2.6	%			4.6	%			7.6	%
Total loss and LAE ratio			66.7	%			70.8	%			69.9	%			74.9	%			62.8	%			68.8	%			69.6	%
Expense ratio			29.8	%			27.9	%			28.4	%			27.9	%			28.3	%			27.9	%			28.1	%
Combined ratio			96.5	%			98.7	%			98.3	%			102.8	%			91.1	%			96.7	%			97.7	%
Combined ratio, excluding catastrophe losses			92.9	%			93.4	%			90.5	%			88.2	%			88.5	%			92.1	%			90.1	%
Current accident year combined ratio, excluding catastrophe losses			92.0	%			93.7	%			91.1	%			88.4	%			88.8	%			91.2	%			90.5	%

 

13

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

CHAUCER

Three Months ended December 31

 

		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		$	23.6			$	83.1			$	50.0			$	68.3			$	68.3			$	293.3			$	20.6			$	71.1			$	48.1			$	75.7			$	49.9			$	265.4
Net premiums written		$	22.1			$	75.8			$	40.4			$	68.6			$	57.2			$	264.1			$	23.2			$	57.1			$	41.4			$	75.8			$	39.5			$	237.0
Net premiums earned		$	46.0			$	74.9			$	50.1			$	70.7			$	64.1			$	305.8			$	49.0			$	65.2			$	48.7			$	75.9			$	43.3			$	282.1
Losses and LAE:
Current accident year, excluding catastrophe losses																							177.0																								159.2
Prior year favorable reserve development																							(33.2	)																							(22.8	)
Catastrophe losses																							1.9																								7.5
Total losses and LAE																							145.7																								143.9
Amortization of deferred acquisition costs and other underwriting expenses																							123.6																								109.0
GAAP underwriting profit																							36.5																								29.2
Net investment income																							12.0																								11.3
Other income																							3.2																								4.0
Other operating expenses																							(0.8	)																							(4.3	)
Operating income before income taxes																						$	50.9																							$	40.2
Loss and LAE ratio:
Current accident year, excluding catastrophe losses																							58.0	%																							56.4	%
Prior year favorable reserve development																							(10.9	)%																							(8.1	)%
Catastrophe losses																							0.6	%																							2.7	%
Total loss and LAE ratio																							47.7	%																							51.0	%
Expense ratio																							40.4	%																							38.6	%
Combined ratio																							88.1	%																							89.6	%

 

14

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

CHAUCER

Year ended December 31

 

		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		$	245.4			$	374.6			$	247.2			$	319.1			$	319.3			$	1,505.6			$	254.6			$	348.0			$	233.3			$	319.4			$	218.9			$	1,374.2
Net premiums written		$	179.2			$	304.8			$	173.0			$	297.7			$	276.7			$	1,231.4			$	191.9			$	277.1			$	174.2			$	300.5			$	173.8			$	1,117.5
Net premiums earned		$	187.6			$	284.1			$	200.0			$	305.9			$	244.2			$	1,221.8			$	183.6			$	250.0			$	169.6			$	284.2			$	150.5			$	1,037.9
Losses and LAE:
Current accident year, excluding catastrophe losses																							709.5																								598.4
Prior year favorable reserve development																							(104.6	)																							(94.6	)
Catastrophe losses																							28.8																								34.4
Total losses and LAE																							633.7																								538.2
Amortization of deferred acquisition costs and other underwriting expenses																							465.6																								392.0
GAAP underwriting profit																							122.5																								107.7
Net investment income																							44.2																								42.7
Other income																							13.7																								17.6
Other operating expenses																							(2.8	)																							(17.6	)
Operating income before income taxes																						$	177.6																							$	150.4
Loss and LAE ratio:
Current accident year, excluding catastrophe losses																							58.1	%																							57.6	%
Prior year favorable reserve development																							(8.6	)%																							(9.1	)%
Catastrophe losses																							2.4	%																							3.3	%
Total loss and LAE ratio																							51.9	%																							51.8	%
Expense ratio																							38.1	%																							37.8	%
Combined ratio																							90.0	%																							89.6	%

 

15

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

CHAUCER

 

(In millions, except percentage data)		Q4 2013				Q1 2014				Q2 2014				Q3 2014				Q4 2014				Dec-YTD 2013				Dec-YTD 2014
Gross premiums written		$	265.4			$	467.0			$	415.4			$	329.9			$	293.3			$	1,374.2			$	1,505.6
Net premiums written		$	237.0			$	313.8			$	364.4			$	289.1			$	264.1			$	1,117.5			$	1,231.4
Net premiums earned		$	282.1			$	300.1			$	306.8			$	309.1			$	305.8			$	1,037.9			$	1,221.8
Losses and LAE:
Current accident year, excluding catastrophe losses			159.2				178.1				178.4				176.0				177.0				598.4				709.5
Prior year favorable reserve development			(22.8	)			(19.6	)			(29.2	)			(22.6	)			(33.2	)			(94.6	)			(104.6	)
Catastrophe losses			7.5				(0.7	)			11.5				16.1				1.9				34.4				28.8
Total losses and LAE			143.9				157.8				160.7				169.5				145.7				538.2				633.7
Amortization of deferred acquisition costs and other underwriting expenses			109.0				105.8				121.8				114.4				123.6				392.0				465.6
GAAP underwriting profit		$	29.2			$	36.5			$	24.3			$	25.2			$	36.5			$	107.7			$	122.5
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			56.4	%			59.2	%			58.2	%			56.9	%			58.0	%			57.6	%			58.1	%
Prior year favorable reserve development			(8.1	)%			(6.5	)%			(9.5	)%			(7.3	)%			(10.9	)%			(9.1	)%			(8.6	)%
Catastrophe losses			2.7	%			(0.2	)%			3.7	%			5.2	%			0.6	%			3.3	%			2.4	%
Total loss and LAE ratio			51.0	%			52.5	%			52.4	%			54.8	%			47.7	%			51.8	%			51.9	%
Expense ratio			38.6	%			35.3	%			39.7	%			37.0	%			40.4	%			37.8	%			38.1	%
Combined ratio			89.6	%			87.8	%			92.1	%			91.8	%			88.1	%			89.6	%			90.0	%
Combined ratio, excluding catastrophe losses			86.9	%			88.0	%			88.4	%			86.6	%			87.5	%			86.3	%			87.6	%
Current accident year combined ratio, excluding catastrophe losses			95.0	%			94.5	%			97.9	%			93.9	%			98.4	%			95.4	%			96.2	%

 

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THE HANOVER INSURANCE GROUP

NET INVESTMENT INCOME AND YIELDS

 

(In millions, except yields)		Q4 2013				Q1 2014				Q2 2014				Q3 2014				Q4 2014				YTD 2013				YTD 2014
Net Investment Income
Fixed maturities		$	64.5			$	64.7			$	63.2			$	63.4			$	64.5			$	254.8			$	255.8
Equity securities			3.6				3.4				4.4				4.5				4.2				15.6				16.5
Other investments			2.5				1.5				2.1				2.3				3.1				8.8				9.0
Investment expenses			(2.5	)			(2.6	)			(2.7	)			(2.7	)			(3.0	)			(10.2	)			(11.0	)
Total		$	68.1			$	67.0			$	67.0			$	67.5			$	68.8			$	269.0			$	270.3
Pre-tax Yields
Fixed maturities			3.86	%			3.79	%			3.74	%			3.68	%			3.65	%			3.95	%			3.71	%
Total			3.59	%			3.47	%			3.42	%			3.39	%			3.39	%			3.63	%			3.42	%

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.

 

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THE HANOVER INSURANCE GROUP

INVESTMENT PORTFOLIO

December 31, 2014

 

(In millions)
Investment Type		Weighted Average Quality		Amortized Cost or Cost				Fair Value				% of Total				Net Unrealized Gain (Loss)				Change in Net Unrealized During Q4 2014				Change in Net Unrealized YTD
Fixed maturities:
U.S. Treasury and government agencies		AAA		$	516.3			$	520.4				6.0	%		$	4.1			$	5.2			$	15.0
Foreign government		AAA			349.4				354.0				4.1	%			4.6				2.7				4.1
Municipals:
Taxable		AA			952.5				1,007.2				11.7	%			54.7				7.6				36.8
Tax exempt		AA			127.1				130.8				1.5	%			3.7				3.2				3.3
Corporate:
NAIC 1		A			1,838.4				1,909.5				22.1	%			71.1				4.4				14.8
NAIC 2		BBB			1,483.7				1,547.0				18.0	%			63.3				(9.9	)			2.5
NAIC 3 and below		B+			424.2				424.3				4.9	%			0.1				(10.3	)			(16.8	)
Total corporate		BBB+			3,746.3				3,880.8				45.0	%			134.5				(15.8	)			0.5
Asset backed:
Residential mortgage-backed		AA+			770.4				789.1				9.2	%			18.7				5.9				12.7
Commercial mortgage-backed		AA+			516.7				527.8				6.1	%			11.1				3.2				5.4
Asset-backed		AAA			167.0				168.0				2.0	%			1.0				(0.2	)			(0.8	)
Total fixed maturities		A+			7,145.7				7,378.1				85.6	%			232.4				11.8				77.0
Equity securities					506.6				580.8				6.7	%			74.2				5.2				10.5
Other investments					287.8				291.4				3.4	%			3.6				0.4				0.4
Total investments					7,940.1				8,250.3				95.7	%			310.2				17.4				87.9
Cash and cash equivalents					373.3				373.3				4.3	%			—				—				—
Total				$	8,313.4			$	8,623.6				100.0	%		$	310.2			$	17.4			$	87.9

 

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THE HANOVER INSURANCE GROUP

CREDIT QUALITY AND DURATION OF FIXED MATURITIES

December 31, 2014

 

(In millions)
CREDIT QUALITY OF FIXED MATURITIES
NAIC Designation		Rating Agency Equivalent Designation		Amortized Cost				Fair Value				% of Total Fair Value
1		Aaa/Aa/A		$	5,197.8			$	5,365.7				72.7	%
2		Baa			1,516.7				1,580.9				21.4	%
3		Ba			199.2				205.0				2.8	%
4		B			197.4				194.2				2.6	%
5		Caa and lower			30.1				27.7				0.4	%
6		In or near default			4.5				4.6				0.1	%
Total fixed maturities				$	7,145.7			$	7,378.1				100.0	%

 

DURATION OF FIXED MATURITIES
		Amortized Cost				Fair Value				% of Total Fair Value
0-2 years		$	1,666.0			$	1,705.6				23.1	%
2-4 years			1,767.6				1,837.2				24.9	%
4-6 years			2,013.7				2,085.2				28.3	%
6-8 years			1,327.4				1,363.5				18.5	%
8-10 years			301.7				310.3				4.2	%
10+ years			69.3				76.3				1.0	%
Total fixed maturities		$	7,145.7			$	7,378.1				100.0	%
Weighted Average Duration			4.22

 

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THE HANOVER INSURANCE GROUP

TOP 10 CORPORATE AND MUNICIPAL FIXED MATURITY HOLDINGS

December 31, 2014

 

(In millions, except percentage data)
Issuer		Amortized Cost				Fair Value				As a Percent of Invested Assets				S&P Ratings
Lloyds Bank: (1)
Term deposit		$	48.8			$	48.5				0.56	%		A
Notes			7.6				8.0				0.09	%		A-
Citigroup			29.1				30.6				0.36	%		A-
Verizon			29.0				29.3				0.34	%		BBB+
Bank of America			28.0				29.9				0.35	%		BBB+
JP Morgan			26.5				27.1				0.31	%		A
Wells Fargo			26.2				27.5				0.32	%		A+
Goldman Sachs			25.0				26.3				0.31	%		A-
Metlife			24.8				25.8				0.30	%		A+
GE Capital			24.2				25.8				0.30	%		AA+
Kinder Morgan			23.7				24.4				0.28	%		BBB-
Top 10 Corporate and Municipal Fixed		$	292.9			$	303.2				3.52	%

 

(1)	UK government owns 25% of bank equity; term deposit matures in the third quarter of 2015.

 

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THE HANOVER INSURANCE GROUP

RECONCILIATION OF OPERATING INCOME TO NET INCOME

 

		Three Months ended December 31																Year ended December 31
		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		$	36.5							$	34.7							$	139.9							$	132.4
Personal Lines			48.0								30.5								99.0								118.6
Chaucer			50.9								40.2								177.6								150.4
Other			(2.8	)							(2.5	)							(10.3	)							(8.0	)
Total			132.6								102.9								406.2								393.4
Interest expense			(16.3	)							(16.6	)							(65.2	)							(65.3	)
Operating income before income taxes			116.3			$	2.59				86.3			$	1.93				341.0			$	7.60				328.1			$	7.31
Income tax expense on operating income			(36.7	)			(0.82	)			(26.7	)			(0.60	)			(108.3	)			(2.41	)			(100.9	)			(2.25	)
Operating income after income taxes			79.6				1.77				59.6				1.33				232.7				5.19				227.2				5.06
Net realized investment gains			18.6				0.42				10.7				0.24				50.1				1.12				33.5				0.75
Loss from disposal of real estate			—				—				—				—				—				—				(4.7	)			(0.11	)
Loss from repayment of debt			—				—				(8.6	)			(0.19	)			(0.1	)			—				(27.7	)			(0.62	)
Net costs related to acquired businesses			(0.1	)			—				(0.1	)			—				(1.2	)			(0.03	)			(0.1	)			—
Loss from settlement of pension obligation			(12.1	)			(0.28	)			—				—				(12.1	)			(0.28	)			—				—
Net foreign exchange gains (losses)			0.2				0.01				(0.1	)			—				0.3				0.01				—				—
Income tax benefit on non-operating items			3.9				0.09				3.4				0.07				12.6				0.28				17.5				0.39
Income from continuing operations, net of taxes			90.1				2.01				64.9				1.45				282.3				6.29				245.7				5.47
Discontinued operations, net of taxes			(0.2	)			(0.01	)			5.2				0.12				(0.3	)			(0.01	)			5.3				0.12
NET INCOME		$	89.9			$	2.00			$	70.1			$	1.57			$	282.0			$	6.28			$	251.0			$	5.59

 

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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 twelve months ended December 31, 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.

 

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