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

Q4

Q1

Q2

Q3

Q4

Dec-YTD

Dec-YTD

(In millions, except earnings per share)

2016

2017

2017

2017

2017

2016

2017

PREMIUMS

Gross premiums written

$

1,218.2

$

1,454.7

$

1,479.0

$

1,521.5

$

1,352.9

$

5,397.4

$

5,808.1

Net premiums written

1,082.0

1,186.8

1,275.7

1,322.5

1,173.2

4,698.8

4,958.2

Net premiums earned

1,170.4

1,181.3

1,181.2

1,226.9

1,244.0

4,628.1

4,833.4

EARNINGS

Operating income (loss) before interest and taxes

$

(22.1

)

$

69.1

$

118.9

$

13.1

$

135.2

$

322.8

$

336.3

Operating income (loss) after taxes

(19.7

)

40.8

72.3

4.7

86.0

184.4

203.8

Income (loss) from continuing operations

(12.2

)

45.2

78.4

12.3

67.1

156.1

203.0

Net income (loss)

(13.5

)

45.2

78.4

11.1

51.5

155.1

186.2

PER SHARE DATA (DILUTED)

Operating income (loss) after taxes

$

(0.46

)

$

0.95

$

1.69

$

0.11

$

2.00

$

4.27

$

4.74

Income (loss) from continuing operations

(0.29

)

1.05

1.83

0.28

1.56

3.61

4.73

Net income (loss)

(0.32

)

1.05

1.83

0.26

1.20

3.59

4.33

Weighted average shares outstanding ⁽¹⁾

42.5

42.9

42.8

42.9

43.0

43.2

43.0

BALANCE SHEET

December 31

March 31

June 30

September 30

December 31

(In millions, except per share data)

2016

2017

2017

2017

2017

Total assets

$

14,220.4

$

14,490.8

$

14,792.7

$

15,389.3

$

15,469.6

Total loss and loss adjustment expense reserves

6,949.4

7,103.0

7,162.4

7,635.4

7,745.0

Total shareholders' equity

2,857.5

2,913.5

2,972.5

2,972.0

2,997.7

Total shareholders' equity, excluding net unrealized appreciation

depreciation on investments, net of tax

2,671.5

2,708.5

2,747.7

2,743.5

2,792.3

U.S. Property and Casualty Companies

Statutory surplus

$

2,173.4

$

2,229.5

$

2,006.3

$

2,061.9

$

2,077.1

Premium to surplus ratio

1.79:1

1.76:1

1.98:1

1.96:1

1.98:1

Book value per share

$

67.40

$

68.44

$

70.18

$

70.10

$

70.59

Book value per share, excluding net unrealized appreciation

depreciation on investments, net of tax

$

63.01

$

63.62

$

64.87

$

64.71

$

65.75

Tangible book value per share (total book value excluding goodwill

and intangibles)

$

61.17

$

62.20

$

63.88

$

63.49

$

63.94

Shares outstanding

42.4

42.6

42.4

42.4

42.5

Total debt/equity

27.5

%

27.0

%

26.5

%

26.5

%

26.3

%

Total debt/total capital

21.6

%

21.3

%

20.9

%

20.9

%

20.8

%

⁽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 December 31

Year ended December 31

(In millions)

2017

2016

% Change

2017

2016

% Change

REVENUES

Premiums earned

$

1,244.0

$

1,170.4

6.3

$

4,833.4

$

4,628.1

4.4

Net investment income

78.1

74.2

5.3

298.1

279.4

6.7

Net realized investment gains

2.5

3.6

(30.6

)

23.7

8.6

175.6

Fees and other income

7.6

6.8

11.8

29.2

29.7

(1.7

)

Total revenues

1,332.2

1,255.0

6.2

5,184.4

4,945.8

4.8

LOSSES AND EXPENSES

Losses and loss adjustment expenses

759.2

843.4

(10.0

)

3,128.7

2,964.7

5.5

Amortization of deferred acquisition costs

280.5

263.8

6.3

1,086.6

1,035.2

5.0

Interest expense

12.2

12.1

0.8

48.5

54.9

(11.7

)

Net loss from repayment of debt

-

2.2

N/M

-

88.3

N/M

Other operating expenses

157.7

166.3

(5.2

)

619.1

610.4

1.4

Total losses and expenses

1,209.6

1,287.8

(6.1

)

4,882.9

4,753.5

2.7

Income (loss) from continuing operations before income taxes

122.6

(32.8

)

(473.8

)

301.5

192.3

56.8

Income tax expense (benefit)

55.5

(20.6

)

(369.4

)

98.5

36.2

172.1

Income (loss) from continuing operations

67.1

(12.2

)

(650.0

)

203.0

156.1

30.0

Discontinued operations

(15.6

)

(1.3

)

N/M

(16.8

)

(1.0

)

N/M

Net income (loss)

$

51.5

$

(13.5

)

(481.5

)

$

186.2

$

155.1

20.1

THE HANOVER INSURANCE GROUP

CONSOLIDATED BALANCE SHEETS

December 31

December 31

(In millions, except per share data)

2017

2016

% Change

ASSETS

Investments:

Fixed maturities, at fair value (amortized cost of $7,688.8 and $7,235.1)

$

7,779.7

$

7,331.3

6.1

Equity securities, at fair value (cost of $433.7 and $498.4)

576.5

584.4

(1.4

)

Other investments

685.5

533.8

28.4

Total investments

9,041.7

8,449.5

7.0

Cash and cash equivalents

376.4

282.6

33.2

Accrued investment income

62.7

61.7

1.6

Premiums and accounts receivable, net

1,567.6

1,438.1

9.0

Reinsurance recoverable on paid and unpaid losses and unearned premiums

3,057.0

2,611.8

17.0

Deferred acquisition costs

550.2

517.5

6.3

Deferred income taxes

29.2

115.1

(74.6

)

Goodwill

192.6

184.8

4.2

Other assets

504.2

479.8

5.1

Assets of discontinued operations

88.0

79.5

10.7

Total assets

$

15,469.6

$

14,220.4

8.8

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Loss and loss adjustment expense reserves

$

7,745.0

$

6,949.4

11.4

Unearned premiums

2,763.6

2,561.0

7.9

Expenses and taxes payable

716.2

728.0

(1.6

)

Reinsurance premiums payable

344.8

251.9

36.9

Debt

786.9

786.4

0.1

Liabilities of discontinued operations

115.4

86.2

33.9

Total liabilities

12,471.9

11,362.9

9.8

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

1,857.0

1,846.7

0.6

Accumulated other comprehensive income

107.6

62.8

71.3

Retained earnings

1,975.0

1,875.6

5.3

Treasury stock at cost (18.0 and 18.1 million shares)

(942.5

)

(928.2

)

1.5

Total shareholders' equity

2,997.7

2,857.5

4.9

Total liabilities and shareholders' equity

$

15,469.6

$

14,220.4

8.8

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME INFORMATION AND RATIOS

CONSOLIDATED

Three Months ended December 31

2017

2016

Commercial

Personal

Commercial

Personal

(In millions, except percentage data)

Lines

Lines

Chaucer

Other

Total

Lines

Lines

Chaucer

Other

Total

Gross premiums written

$

650.8

$

438.0

$

264.1

$

-

$

1,352.9

$

613.2

$

402.5

$

202.5

$

-

$

1,218.2

Net premiums written

$

564.9

$

415.7

$

192.6

$

-

$

1,173.2

$

530.0

$

381.4

$

170.6

$

-

$

1,082.0

Net premiums earned

$

616.1

$

407.3

$

220.6

$

-

$

1,244.0

$

584.7

$

376.7

$

209.0

$

-

$

1,170.4

Losses and LAE:

Current accident year, excluding catastrophe losses

349.7

248.8

116.3

-

714.8

338.4

220.9

124.7

-

684.0

Prior accident year unfavorable (favorable) reserve development, excluding catastrophe losses

(9.3

)

9.3

(3.7

)

0.3

(3.4

)

161.5