THE HANOVER INSURANCE GROUP

FINANCIAL SUPPLEMENT

TABLE OF CONTENTS

Business Descriptions...................................................................................................

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 to Net Income................................................

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 marine, aviation and political, casualty, energy, property and treaty business.

Marine, Aviation & Political includes marine coverages that insure marine hull, liability, cargo and specie, fine art, and ports and terminals and political coverages that insure political violence (war, terrorism, aviation war), political risk and trade credit. It also includes aviation coverages that insure airline hull and liability, general aviation, refuellers, aviation products and satellite.

Casualty provides liability coverage worldwide for professional and commercial risks, credit and bond, crime and professional liability coverage for financial institutions, medical malpractice, excess workers’ compensation and accident and health, as well as syndicate participations.

Energy coverage, encompassing exploration and production, construction, downstream, operational power 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.

Property coverage insures property, including commercial and industrial businesses, against physical loss or damage and business interruption.

Treaty encompasses a broad range of casualty, property and marine exposures worldwide. International  casualty treaties cover motor, employer public, professional, pecuniary and miscellaneous liabilities. North American casualty comprises mainly excess of loss, written on an occurrence and claims made basis, and with a focus on medical malpractice supported by workers compensation clash business. Casualty also includes accident & health, a largely catastrophe exposed account, written for a range of perils. Property comprises mainly catastrophe and risk excess of loss for personal, commercial, excess and surplus lines carriers. Marine treaties, written on a whole account, specific or combined basis, focus on a broad range of assets and associated perils and liabilities.

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 a discontinued voluntary pools business.

THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS

Q2

Q3

Q4

Q1

Q2

Jun-YTD

Jun-YTD

(In millions, except earnings per share)

2016

2016

2016

2017

2017

2016

2017

PREMIUMS

Gross premiums written

$

1,402.0

$

1,402.2

$

1,218.2

$

1,454.7

$

1,479.0

$

2,777.0

$

2,933.7

Net premiums written

1,221.6

1,250.9

1,082.0

1,186.8

1,275.7

2,365.9

2,462.5

Net premiums earned

1,145.5

1,160.9

1,170.4

1,181.3

1,181.2

2,296.8

2,362.5

EARNINGS

Operating income (loss) before interest and taxes

$

94.7

$

129.8

$

(22.1

)

$

69.1

$

118.9

$

215.1

$

188.0

Operating income (loss) after taxes

54.0

78.6

(19.7

)

40.8

72.3

125.5

113.1

Income (loss) from continuing operations

1.9

88.3

(12.2

)

45.2

78.4

80.0

123.6

Net income (loss)

2.0

88.4

(13.5

)

45.2

78.4

80.2

123.6

PER SHARE DATA (DILUTED)

Operating income (loss) after taxes

$

1.24

$

1.83

$

(0.46

)

$

0.95

$

1.69

$

2.89

$

2.64

Income (loss) from continuing operations

0.04

2.06

(0.29

)

1.05

1.83

1.84

2.88

Net income (loss)

0.05

2.06

(0.32

)

1.05

1.83

1.84

2.88

Weighted average shares outstanding ⁽¹⁾

43.4

43.0

42.5

42.9

42.8

43.5

42.9

BALANCE SHEET

June 30

September 30

December 31

March 31

June 30

(In millions, except per share data)

2016

2016

2016

2017

2017

Total assets

$

14,163.6

$

14,363.7

$

14,220.4

$

14,490.8

$

14,792.7

Total loss and loss adjustment expense reserves

6,778.0

6,802.3

6,949.4

7,103.0

7,162.4

Total shareholders' equity

3,009.7

3,045.7

2,857.5

2,913.5

2,972.5

Total shareholders' equity, excluding net unrealized appreciation

depreciation on investments, net of tax

2,686.2

2,724.3

2,671.5

2,708.5

2,747.7

U.S. Property and Casualty Companies

Statutory surplus

$

2,152.6

$

2,218.5

$

2,173.4

$

2,229.5

$

2,006.3

Premium to surplus ratio

1.76:1

1.73:1

1.79:1

1.76:1

1.98:1

Book value per share

$

70.58

$

72.08

$

67.40

$

68.44

$

70.18

Book value per share, excluding net unrealized appreciation

depreciation on investments, net of tax

$

62.99

$

64.48

$

63.01

$

63.62

$

64.87

Tangible book value per share (total book value excluding goodwill

and intangibles)

$

64.11

$

65.74

$

61.17

$

62.20

$

63.88

Shares outstanding

42.7

42.3

42.4

42.6

42.4

Total debt/equity

26.5

%

26.2

%

27.5

%

27.0

%

26.5

%

Total debt/total capital

21.0

%

20.8

%

21.6

%

21.3

%

20.9

%

⁽¹⁾ Weighted average shares outstanding and per diluted share amounts in the fourth quarter of 2016 exclude common stock equivalents, as the impact of these instruments was anti-dilutive.

THE HANOVER INSURANCE GROUP

CONSOLIDATED INCOME STATEMENTS

Three Months ended June 30

Six Months ended June 30

(In millions)

2017

2016

% Change

2017

2016

% Change

REVENUES

Premiums earned

$

1,181.2

$

1,145.5

3.1

$

2,362.5

$

2,296.8

2.9

Net investment income

72.3

69.1

4.6

143.4

137.4

4.4

Net realized investment gains (losses)

5.9

(0.7

)

N/M

7.8

0.8

875.0

Fees and other income

6.7

8.1

(17.3

)

13.3

14.6

(8.9

)

Total revenues

1,266.1

1,222.0

3.6

2,527.0

2,449.6

3.2

LOSSES AND EXPENSES

Losses and loss adjustment expenses

725.0

729.7

(0.6

)

1,491.5

1,429.3

4.4

Amortization of deferred acquisition costs

264.6

254.4

4.0

531.0

513.5

3.4

Interest expense

12.2

15.6

(21.8

)

24.2

30.3

(20.1

)

Gain on disposal of U.K. motor business

-

(0.4

)

N/M

-

(1.2

)

N/M

Net loss from repayment of debt

-

86.1

N/M

-

86.1

N/M

Other operating expenses

153.3

143.7

6.7

310.3

290.6

6.8

Total losses and expenses

1,155.1

1,229.1

(6.0

)

2,357.0

2,348.6

0.4

Income (loss) from continuing operations before income taxes

111.0

(7.1

)

N/M

170.0

101.0

68.3

Income tax expense (benefit)

32.6

(9.0

)

N/M

46.4

21.0

121.0

Income from continuing operations

78.4

1.9

N/M

123.6

80.0

54.5

Discontinued operations

-

0.1

N/M

-

0.2

N/M

Net income

$

78.4

$

2.0

N/M

$

123.6

$

80.2

54.1

THE HANOVER INSURANCE GROUP

CONSOLIDATED BALANCE SHEETS

June 30

December 31

(In millions, except per share data)

2017

2016

% Change

ASSETS

Investments:

Fixed maturities, at fair value (amortized cost of $7,372.8 and $7,235.1)

$

7,509.7

$

7,331.3

2.4

Equity securities, at fair value (cost of $490.1 and $498.4)

605.5

584.4

3.6

Other investments

604.3

533.8

13.2

Total investments

8,719.5

8,449.5

3.2

Cash and cash equivalents

317.8

282.6

12.5

Accrued investment income

60.5

61.7

(1.9

)

Premiums and accounts receivable, net

1,599.4

1,438.1

11.2

Reinsurance recoverable on paid and unpaid losses and unearned premiums

2,701.1

2,611.8

3.4

Deferred acquisition costs

547.1

517.5

5.7

Deferred income taxes

73.7

115.1

(36.0

)

Goodwill

185.2

184.8

0.2

Other assets

509.7

479.8

6.2

Assets of discontinued operations

78.7

79.5

(1.0

)

Total assets

$

14,792.7

$

14,220.4

4.0

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Loss and loss adjustment expense reserves

$

7,162.4

$

6,949.4

3.1

Unearned premiums

2,776.0

2,561.0

8.4

Expenses and taxes payable

671.3

728.0

(7.8

)

Reinsurance premiums payable

334.7

251.9

32.9

Debt

786.7

786.4

-

Liabilities of discontinued operations

89.1

86.2

3.4

Total liabilities

11,820.2

11,362.9

4.0

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

1,852.0

1,846.7

0.3

Accumulated other comprehensive income

106.9

62.8

70.2

Retained earnings

1,956.6

1,875.6

4.3

Treasury stock at cost (18.1 and 18.1 million shares)

(943.6

)

(928.2

)

1.7

Total shareholders' equity

2,972.5

2,857.5

4.0

Total liabilities and shareholders' equity

$

14,792.7

$

14,220.4

4.0

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

CONSOLIDATED

Three Months ended June 30

2017

2016

Commercial

Personal

Commercial

Personal

(In millions, except percentage data)

Lines

Lines

Chaucer

Other

Total

Lines

Lines

Chaucer

Other

Total

Gross premiums written

$

685.2

$

453.5

$

340.3

$

-

$

1,479.0

$

662.9

$

416.6

$

322.5

$

-

$

1,402.0

Net premiums written

$

591.6

$

430.5

$

253.6

$

-

$

1,275.7

$

579.9

$

395.3

$

246.4

$

-

$

1,221.6

Net premiums earned

$

591.2

$

391.3

$

198.7

$

-

$

1,181.2

$

574.7

$

364.7

$

206.1

$

-

$

1,145.5

Losses and LAE:

Current accident year, excluding catastrophe losses

335.8

235.7

111.7

-

683.2

312.9

221.2

129.6

-

663.7

Prior accident year unfavorable (favorable)

   reserve development, excluding catastrophe

   losses

-

-

(15.6

)

0.3

(15.3

)

22.1

0.9

(8.3

)

0.3

15.0

Current accident year catastrophe losses

43.4

13.3

2.2

-

58.9

26.6

9.7

26.0

-

62.3

Prior accident year unfavorable (favorable)

   catastrophe loss development

(0.8

)

-

(1.0

)

-

(1.8

)

(0.7

)

1.5

(12.1

)

-

(11.3

)

Total losses and LAE

378.4

249.0

97.3

0.3

725.0

360.9

233.3

135.2

0.3

729.7

Amortization of deferred acquisition costs and other

   underwriting expenses

210.5

112.8

83.4

0.6

407.3

208.7

102.1

77.4

0.3

388.5

GAAP underwriting profit (loss)

2.3

29.5

18.0

(0.9

)

48.9

5.1

29.3

(6.5

)

(0.6

)

27.3

Net investment income

41.3

17.4

11.3

2.3

72.3

39.1

17.1

11.3

1.6

69.1

Other income

2.0

2.8

1.2

0.7

6.7

2.3

2.7

2.4

0.7

8.1

Other operating expenses

(2.4

)

(1.8

)

(0.8

)

(4.0

)

(9.0

)

(2.5

)

(1.7

)

(1.7

)

(3.9

)

(9.8

)

Operating income (loss) before income taxes

$

43.2

$

47.9

$

29.7

$

(1.9

)

$

118.9

$

44.0

$

47.4

$

5.5

$

(2.2

)

$

94.7

Loss and LAE ratio:

Current accident year, excluding catastrophe losses

56.8

%

60.2

%

56.3

%

N/M

57.9

%

54.5

%

60.7

%

62.9

%

N/M

57.9

%

Prior accident year unfavorable (favorable)

   reserve development, excluding catastrophe

   losses

-

-

(7.9

)%

N/M

(1.3

)%

3.8

%

0.2

%

(4.0

)%

N/M

1.3

%

Current accident year catastrophe losses

7.3

%

3.4

%

1.1

%

N/M

5.0

%

4.6

%

2.7

%

12.6

%

N/M

5.5

%

Prior accident year unfavorable (favorable)

   catastrophe loss development

(0.1

)%

-

(0.5

)%

N/M

(0.2

)%

(0.1

)%

0.4

%

(5.9

)%

N/M

(1.0

)%

Total loss and LAE ratio

64.0

%

63.6

%

49.0

%

N/M

61.4

%

62.8

%

64.0

%

65.6

%

N/M

63.7

%

Expense ratio

35.4

%

28.2

%

42.0

%

N/M

34.2

%

36.1

%

27.3

%

37.6

%

N/M

33.6

%

Combined ratio

99.4

%

91.8

%

91.0

%

N/M

95.6

%

98.9

%

91.3

%

103.2

%

N/M

97.3

%

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS