HANOVER INSURANCE GROUP, INC. (THG)

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These statements have been prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following critical accounting estimates are those which we believe affect the more significant judgments and estimates used in the preparation of our financial statements. Additional information about other significant accounting policies and estimates may be found in Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.

RESERVE FOR LOSSES AND LOSS EXPENSES

See “Reserve for Losses and Loss Adjustment Expenses” within “Results of Operations – Segments” for a discussion of our critical accounting estimates for loss reserves.

REINSURANCE RECOVERABLE BALANCES

See “Reinsurance Recoverables” in Part I – Item 1 for information on our reinsurance recoverable balances.

PENSION BENEFIT OBLIGATIONS

We currently have a qualified defined benefit plan and several smaller non–qualified benefit plans. In order to measure the liabilities and expenses associated with these plans, we must make various estimates and key assumptions, including discount rates used to value liabilities, assumed rates of return on plan assets, employee turnover rates and anticipated mortality rates. These estimates and assumptions are reviewed at least annually and are based on our historical experience, as well as current facts and circumstances. In addition, we use outside actuaries to assist in measuring the liabilities and expenses associated with our defined benefit pension plan.

Two significant assumptions used in the determination of benefit plan obligations and expenses that are dependent on market factors, which have been subject to a greater level of volatility in recent years, are the discount rate and the return on plan asset assumptions. The discount rate enables us to state expected future benefit payments as a present value on the measurement date. We also use this discount rate in the determination of our pre-tax pension expense or benefit. A higher discount rate decreases the present value of benefit obligations and decreases pension expense. We determined our discount rate for the qualified benefit plan utilizing independent yield curves which provide for a portfolio of high quality bonds that are expected to match the cash flows of our pension plans. Bond information used in the yield curve included only those rated Aa or better as of December 31, 2024 and 2023, respectively, and had been rated by at least two well-known rating agencies. The discount rates used to value liabilities in our qualified pension plan were 6.125% and 5.75% as of December 31, 2024 and 2023, respectively.

To determine the expected long-term return on plan assets, we generally consider historical mean returns by asset class for passive indexed strategies, as well as current and expected asset allocations, and adjust for certain factors that we believe will have an impact on future returns. Actual returns on plan assets in any given year seldom result in the achievement of the expected rate of return on assets. Actual returns on plan assets in excess of these expected returns will generally reduce our net actuarial losses (or increase actuarial gains) that are reflected in the accumulated other comprehensive income (loss) balance in shareholders’ equity, whereas actual returns on plan assets that are less than expected returns will generally increase our net actuarial losses (or decrease actuarial gains) that are reflected in accumulated other comprehensive income (loss). These gains or losses are amortized into expense in future years. The qualified benefit plan held assets consisting of approximately 90% fixed maturities and 10% equity securities at December 31, 2024.

The expected return on asset assumption was 5.875% in 2024 and 6.25% in 2023. Asset returns are reflected net of administrative expenses.

Net actuarial losses related to the qualified benefit plan of $6.9 million and net actuarial gains of $3.3 million were reflected as changes to accumulated other comprehensive income (loss) in 2024 and 2023, respectively. Net actuarial losses in 2024 resulted from lower than expected investment returns during the year, partially offset by an increase in the discount rate. Net actuarial gains in 2023 resulted from changes in participant-related assumptions, partially offset by a decrease in the discount rate. In 2024 and 2023, amortization of actuarial losses from prior years were $6.6 million and $7.8 million, respectively.

Expenses related to our qualified benefit plan are generally calculated based upon information available at the beginning of the plan year. Our pre-tax expense related to our qualified benefit plan was $5.5 million and $6.2 million for 2024 and 2023, respectively.

58

Table of Contents

Holding all other assumptions constant, sensitivity to changes in our key assumptions related to our qualified benefit plan is as follows:

INVESTMENT CREDIT LOSSES

We evaluate our fixed maturity securities and mortgage loan participations for expected credit losses and we monitor the sufficiency of our credit loss allowance using both quantitative and qualitative considerations which are subject to risks and uncertainties, as follows.

We monitor corporate fixed maturity securities with unrealized losses on a quarterly basis, and more frequently when necessary, to identify potential credit deterioration, as evidenced by ratings downgrades, unexpected price variances, and/or company- or industry-specific concerns. We apply consistent standards of credit analysis, which includes determining whether the issuer is current on its contractual payments, and we consider past events, current conditions and reasonable and supportable forecasts to evaluate whether we expect to recover the entire amortized cost basis of the security. We utilize valuation declines as a potential indicator of credit deterioration and apply additional levels of scrutiny in our analysis as the severity of the decline increases.

For our impairment review of asset-backed fixed maturity securities, we forecast our best estimate of the prospective future cash flows of the security to determine if we expect to recover the entire amortized cost basis of the security. Our analysis includes estimates of underlying collateral default rates based on historical and projected delinquency rates and estimates of the amount and timing of potential recovery. We consider available information relevant to the collectability of cash flows, including information about the payment terms of the security, prepayment speeds, the financial condition of the underlying borrowers, collateral trustee reports, credit ratings analysis and other market data when developing our estimate of the expected cash flows.

For mortgage loan participations, we estimate credit losses by considering risk ratings which are based on property characteristics including geographical markets, loan-to-value and debt service coverage ratios, and risk factors associated with property type.

We cannot provide assurance that the impairments will be adequate to cover future losses or that we will not have substantial additional impairments in the future. See Note 2 – “Investments” and Note 3 – “Investment Income and Gains and Losses” in the Notes to Consolidated Financial Statements for further discussion regarding securities in an unrealized loss position and impairments.

59

Table of Contents

STATUTORY SURPLUS OF INSURANCE SUBSIDIARIES

The following table reflects statutory surplus for our insurance subsidiaries:

The statutory capital and surplus for our insurance subsidiaries increased $329.0 million during 2024. This increase was primarily due to underwriting profits, partially offset by the payment of a $100.0 million dividend to its parent company and, to a lesser extent, net realized and unrealized investment losses.

The NAIC prescribes an annual calculation regarding risk based capital (“RBC”). RBC ratios for regulatory purposes, as described in the glossary, are expressed as a percentage of the capital required to be above the Authorized Control Level (the “Regulatory Scale”); however, in the insurance industry, RBC ratios are widely expressed as a percentage of the Company Action Level. The following table reflects the Company Action Level, the Authorized Control Level and RBC ratios for Hanover Insurance (which includes Citizens and other insurance subsidiaries), as of December 31, 2024 and 2023, expressed both on the Industry Scale (Total Adjusted Capital divided by the Company Action Level) and Regulatory Scale (Total Adjusted Capital divided by Authorized Control Level):

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of our ability to generate sufficient cash flows to meet the cash requirements of business operations. As a holding company, our primary ongoing source of cash is dividends from our insurance subsidiaries. However, dividend payments to us by our insurance subsidiaries are subject to limitations imposed by regulators, such as prior notice periods and the requirement that dividends in excess of a specified percentage of statutory surplus or prior year’s statutory earnings receive prior approval (so called “extraordinary dividends”). Hanover Insurance paid $100.0 million in dividends, which were provided to the holding company in both 2024 and 2023.

Sources of cash for our insurance subsidiaries primarily consist of premiums collected, investment income and maturing investments. Primary cash outflows are payments for losses and loss adjustment expenses, policy and contract acquisition expenses, other underwriting expenses, and investment purchases. Cash outflows related to losses and loss adjustment expenses can be variable because of uncertainties surrounding settlement dates for liabilities for unpaid losses and because of the potential for large losses, either individually or in the aggregate. We periodically adjust our investment policy to respond to changes in short-term and long-term cash requirements.

Net cash provided by operating activities was $806.4 million during 2024 compared to $361.7 million during 2023. The $444.7 million increase in cash provided was primarily due to an increase in premiums received and lower loss and LAE payments made during 2024 compared to 2023, partially offset by higher income tax payments made in 2024.

Net cash used in investing activities was $540.9 million during 2024 compared to $228.5 million during 2023. During 2024, cash used in investing activities primarily related to net purchases of fixed maturities. During 2023, cash used in investing activities primarily related to net purchases of fixed maturities, partially offset by net sales of equity securities.

Net cash used in financing activities was $145.5 million during 2024 compared to $122.1 million during 2023. During 2024, cash used in financing activities primarily resulted from the payment of quarterly dividends to our shareholders and, to a lesser extent, from repurchases of common stock through the open market. During 2023, cash used in financing activities primarily resulted from quarterly dividend payments to our shareholders.

Dividends to common shareholders are subject to quarterly board approval and declaration. During 2024, we paid dividends that totaled $124.1 million. This included three quarterly dividends of $0.85 per share and one quarterly dividend of $0.90 per share. We believe that our holding company assets are sufficient to provide for future shareholder dividends should the Board of Directors declare them.

At December 31, 2024, THG, as a holding company, held approximately $284.5 million of fixed maturities and cash. We believe our holding company assets will be sufficient to meet our short-term obligations, which we expect to consist primarily of quarterly dividends to our shareholders (as and to the extent declared), interest on our senior and subordinated debentures, and certain costs associated with benefits due to our former life employees and agents. As discussed below, we have, and opportunistically may continue to, repurchase

60

Table of Contents

our common stock and debt. We do not expect that it will be necessary to dividend additional funds from our insurance subsidiaries in order to fund short-term holding company obligations; however, we may decide to do so.

We expect to continue to generate sufficient positive operating cash to meet all short-term and long-term cash requirements relating to current operations, including the funding of our qualified defined benefit pension plan. We believe that this plan is fully funded. The ultimate payment amounts for our benefit plan is based on several assumptions including, but not limited to, the rate of return on plan assets, the discount rate for benefit obligations, mortality experience, interest crediting rates, inflation and the ultimate valuation and determination of benefit obligations. Since differences between actual plan experience and our assumptions are almost certain, changes, both positive and negative, to our current funding status and ultimately our obligations in future periods are likely.

Our insurance subsidiaries maintain a high degree of liquidity within their respective investment portfolios in fixed maturity and short-term investments. Uncertainty in the financial markets continued to affect the value of investments currently held by THG and its subsidiaries, many of which remain in unrealized loss positions. We believe that the quality of the assets we hold will allow us to realize the long-term economic value of our portfolio, including the securities that are currently in an unrealized loss position. We do not anticipate the need to sell these securities to meet our insurance subsidiaries’ cash requirements since we expect our insurance subsidiaries to generate sufficient operating cash to meet all short-term and long-term cash requirements relating to current operations. However, unforeseen business needs or other items may occur which could cause us to sell those securities in a loss position before their values fully recover, resulting in a recognition of impairment charges in that time period.

The Board of Directors authorized a stock repurchase program which provides for aggregate repurchases of our common stock of up to $1.3 billion. Under the repurchase authorization, we may repurchase, from time to time, common stock in amounts, at prices and at such times as we deem appropriate, subject to market conditions and other considerations. Repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. We are not required to purchase any specific number of shares or to make purchases by any certain date under this program. During 2024, we repurchased approximately 0.2 million shares, at an aggregate cost of $26.7 million. As of December 31, 2024, we had repurchased 8.1 million shares under this $1.3 billion program and had approximately $303 million available for additional repurchases.

We maintain our membership in the Federal Home Loan Bank (“FHLB”) to provide access to additional liquidity based on our holdings of FHLB stock and pledged collateral. At December 31, 2024, we had borrowing capacity of $121.6 million. There were no outstanding borrowings under this short-term facility at December 31, 2024; however, we have borrowed and may continue to borrow, from time to time, through this facility to provide short-term liquidity.

On July 21, 2023, we entered into a credit agreement that provides for a five-year unsecured revolving credit facility not to exceed $150.0 million at any one time outstanding, with the option to increase the facility up to $300.0 million (assuming no default and satisfaction of other specified conditions, including the receipt of additional lender commitments). The agreement also includes an uncommitted subfacility of $50.0 million for standby letters of credit. Borrowings, if any, under this agreement are unsecured and incur interest at a rate per annum equal to, at our election, either (i) the greatest of, (a) the prime commercial lending rate of the administrative agent, (b) the NYFRB Rate plus half a percent, or (c) the one month Adjusted Term SOFR Rate plus one percent; each subject to a margin that ranges from 0.125% to 0.625% depending on our debt rating, or (ii) Adjusted SOFR Rate for the applicable interest period, plus a margin that ranges from 1.125% to 1.625% depending on our debt rating. The agreement also contains certain financial covenants such as maintenance of specified levels of consolidated equity and leverage ratios. At December 31, 2024 and for the year ended, we had no borrowings under this credit agreement.

At December 31, 2024, we were in compliance with the covenants of our debt and credit agreements.

FINANCING OBLIGATIONS AND OTHER ESTIMATED OPERATING PAYMENTS

Financing obligations generally include repayment of our senior debentures, subordinated debentures and lease payments. Annual payments are related to the contractual principal and interest payments of these financing obligations as of December 31, 2024, unless otherwise noted, and lease payments reflect expected cash payments based upon active lease terms. It is expected that in the normal course of business, leases that expire will generally be renewed or replaced by leases on similar property and equipment. In addition, as discussed below, we expect payments related to our loss and LAE obligations, payments in support of the obligations of our benefit plans, and for commitments to purchase investment securities at a future date. Actual payments may differ from the contractual and/or estimated payments.

Our debt obligations include senior debentures that mature in one year or less of $61.8 million, due in October of 2025, which pay interest at an annual rate of 7.625%. In addition, we hold senior debentures of $375.0 million due in 2026, which pay annual interest at a rate of 4.50%, and senior debentures of $300.0 million due in 2030, which pay annual interest at a rate of 2.50%. Additionally, we carry subordinated debentures of $50.1 million due in 2027, which pay interest at an annual rate of 8.207%. Interest associated with our debt includes $33.2 million due in one year or less and $52.1 million due after one year.

Our subsidiaries are lessees with a number of leases, consisting primarily of equipment, real estate and fleet vehicles. Our lease obligations include $14.4 million due in one year or less and $23.9 million due after one year.

61

Table of Contents

We currently have obligations to pay benefits under our qualified and non-qualified defined benefit pension and post-retirement benefit plans. We do not expect to make any significant contributions to our qualified plan in order to meet our minimum funding requirements for the next several years; however, additional contributions may be required in the future based on the level of pension assets and liabilities in future periods. Estimated payments to be made for non-qualified pension, postretirement, and postemployment benefits totaled $3.6 million due in one year or less and $22.9 million due after one year. These estimated payments extend until 2034; however, it is likely that payments will be required beyond 2034. Estimates of these payments and the payment patterns are based upon historical experience. The ultimate payment amount for our pension and postretirement benefit plans is based on several assumptions, including, but not limited to, the rate of return on plan assets, the discount rate for benefit obligations, mortality experience, interest crediting rates and the ultimate valuation of benefit obligations. Differences between actual plan experience and our assumptions are likely and will likely result in changes to our funding obligations in future periods.

Our investment commitments relate primarily to limited partnerships and were $47.1 million due in one year or less and $82.9 million due after one year.

Unlike many other forms of contractual obligations, loss and LAE reserves do not have definitive due dates and the ultimate payment dates are subject to a number of variables and uncertainties. The total gross loss and LAE reserve payments expected to be made in one year or less of $2,274.2 million and after one year of $5,084.2 million are estimates based principally on historical experience.

CONTINGENCIES AND REGULATORY MATTERS

Information regarding litigation and legal contingencies appears in Note 15 – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements. Information related to certain regulatory and industry developments are contained in “Regulation” in Part I – Item 1 and in “Risk Factors” in Part I – Item 1A.

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These statements have been prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following critical accounting estimates are those which we believe affect the more significant judgments and estimates used in the preparation of our financial statements. Additional information about other significant accounting policies and estimates may be found in Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.

RESERVE FOR LOSSES AND LOSS EXPENSES

See “Reserve for Losses and Loss Adjustment Expenses” within “Results of Operations – Segments” for a discussion of our critical accounting estimates for loss reserves.

REINSURANCE RECOVERABLE BALANCES

See “Reinsurance Recoverables” in Part I – Item 1 for information on our reinsurance recoverable balances.

PENSION BENEFIT OBLIGATIONS

We currently have a qualified defined benefit plan and several smaller non–qualified benefit plans. In order to measure the liabilities and expenses associated with these plans, we must make various estimates and key assumptions, including discount rates used to value liabilities, assumed rates of return on plan assets, employee turnover rates and anticipated mortality rates. These estimates and assumptions are reviewed at least annually and are based on our historical experience, as well as current facts and circumstances. In addition, we use outside actuaries to assist in measuring the liabilities and expenses associated with our defined benefit pension plan.

Two significant assumptions used in the determination of benefit plan obligations and expenses that are dependent on market factors, which have been subject to a greater level of volatility in recent years, are the discount rate and the return on plan asset assumptions. The discount rate enables us to state expected future benefit payments as a present value on the measurement date. We also use this discount rate in the determination of our pre-tax pension expense or benefit. A higher discount rate decreases the present value of benefit obligations and decreases pension expense. We determined our discount rate for the qualified benefit plan utilizing independent yield curves which provide for a portfolio of high quality bonds that are expected to match the cash flows of our pension plans. Bond information used in the yield curve included only those rated Aa or better as of December 31, 2023 and 2022, respectively, and had been rated by at least two well-known rating agencies. The discount rates used to value liabilities in our qualified pension plan were 5.75% and 6.00% as of December 31, 2023 and 2022, respectively.

To determine the expected long-term return on plan assets, we generally consider historical mean returns by asset class for passive indexed strategies, as well as current and expected asset allocations, and adjust for certain factors that we believe will have an impact on future returns. Actual returns on plan assets in any given year seldom result in the achievement of the expected rate of return on assets. Actual returns on plan assets in excess of these expected returns will generally reduce our net actuarial losses (or increase actuarial gains) that are reflected in the accumulated other comprehensive income (loss) balance in shareholders’ equity, whereas actual returns on plan assets that are less than expected returns will generally increase our net actuarial losses (or decrease actuarial gains) that are reflected in accumulated other comprehensive income (loss). These gains or losses are amortized into expense in future years. The qualified benefit plan held assets consisting of approximately 90% fixed maturities and 10% equity securities at December 31, 2023.

The expected return on asset assumption was 6.25% in 2023 and 3.75% in 2022. Asset returns are reflected net of administrative expenses.

Net actuarial gains related to the qualified benefit plan of $3.3 million and net actuarial losses of $12.5 million were reflected as changes to accumulated other comprehensive income (loss) in 2023 and 2022, respectively. Net actuarial gains in 2023 resulted from changes in participant-related assumptions, partially offset by a decrease in the discount rate. Net actuarial losses in 2022 resulted from lower than expected investment returns during the year, partially offset by an increase in the discount rate. In 2023 and 2022, amortization of actuarial losses from prior years was $7.8 million and $4.4 million, respectively.

Expenses related to our qualified benefit plan are generally calculated based upon information available at the beginning of the plan year. Our pre-tax expense related to our qualified benefit plan was $6.2 million for 2023 compared to a pre-tax benefit of $1.5 million for 2022.

59

Table of Contents

Holding all other assumptions constant, sensitivity to changes in our key assumptions related to our qualified benefit plan is as follows:

INVESTMENT CREDIT LOSSES

We evaluate our fixed maturity securities and mortgage loan participations for expected credit losses and we monitor the sufficiency of our credit loss allowance using both quantitative and qualitative considerations which are subject to risks and uncertainties, as follows.

We monitor corporate fixed maturity securities with unrealized losses on a quarterly basis, and more frequently when necessary, to identify potential credit deterioration, as evidenced by ratings downgrades, unexpected price variances, and/or company- or industry-specific concerns. We apply consistent standards of credit analysis, which includes determining whether the issuer is current on its contractual payments, and we consider past events, current conditions and reasonable and supportable forecasts to evaluate whether we expect to recover the entire amortized cost basis of the security. We utilize valuation declines as a potential indicator of credit deterioration and apply additional levels of scrutiny in our analysis as the severity of the decline increases.

For our impairment review of asset-backed fixed maturity securities, we forecast our best estimate of the prospective future cash flows of the security to determine if we expect to recover the entire amortized cost basis of the security. Our analysis includes estimates of underlying collateral default rates based on historical and projected delinquency rates and estimates of the amount and timing of potential recovery. We consider available information relevant to the collectability of cash flows, including information about the payment terms of the security, prepayment speeds, the financial condition of the underlying borrowers, collateral trustee reports, credit ratings analysis and other market data when developing our estimate of the expected cash flows.

For mortgage loan participations, we estimate credit losses by considering risk ratings which are based on property characteristics including geographical markets, loan-to-value and debt service coverage ratios, and risk factors associated with property type.

We cannot provide assurance that the impairments will be adequate to cover future losses or that we will not have substantial additional impairments in the future. See Note 2 – “Investments” and Note 3 – “Investment Income and Gains and Losses” in the Notes to Consolidated Financial Statements for further discussion regarding securities in an unrealized loss position and impairments.

60

Table of Contents

STATUTORY SURPLUS OF INSURANCE SUBSIDIARIES

The following table reflects statutory surplus for our insurance subsidiaries:

The statutory capital and surplus for our insurance subsidiaries decreased $47.7 million during 2023. This decrease was primarily driven by the payment of a $100.0 million dividend to its parent company, partially offset by underwriting profits.

The NAIC prescribes an annual calculation regarding risk based capital (“RBC”). RBC ratios for regulatory purposes, as described in the glossary, are expressed as a percentage of the capital required to be above the Authorized Control Level (the “Regulatory Scale”); however, in the insurance industry, RBC ratios are widely expressed as a percentage of the Company Action Level. The following table reflects the Company Action Level, the Authorized Control Level and RBC ratios for Hanover Insurance (which includes Citizens and other insurance subsidiaries), as of December 31, 2023 and 2022, expressed both on the Industry Scale (Total Adjusted Capital divided by the Company Action Level) and Regulatory Scale (Total Adjusted Capital divided by Authorized Control Level):

61

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of our ability to generate sufficient cash flows to meet the cash requirements of business operations. As a holding company, our primary ongoing source of cash is dividends from our insurance subsidiaries. However, dividend payments to us by our insurance subsidiaries are subject to limitations imposed by regulators, such as prior notice periods and the requirement that dividends in excess of a specified percentage of statutory surplus or prior year’s statutory earnings receive prior approval (so called “extraordinary dividends”). Hanover Insurance paid $100.0 million in dividends, which were provided to the holding company in both 2023 and 2022.

Sources of cash for our insurance subsidiaries primarily consist of premiums collected, investment income and maturing investments. Primary cash outflows are payments for losses and loss adjustment expenses, policy and contract acquisition expenses, other underwriting expenses, and investment purchases. Cash outflows related to losses and loss adjustment expenses can be variable because of uncertainties surrounding settlement dates for liabilities for unpaid losses and because of the potential for large losses, either individually or in the aggregate. We periodically adjust our investment policy to respond to changes in short-term and long-term cash requirements.

Net cash provided by operating activities was $361.7 million during 2023 compared to $722.3 million during 2022. The $360.6 million decrease in cash provided in 2023 compared to 2022 was primarily due to an increase in loss and LAE payments, primarily related to catastrophe losses, partially offset by an increase in premiums and, to a lesser extent, federal income tax refunds received in 2023 compared to federal income tax payments made during 2022.

Net cash used in investing activities was $228.5 million during 2023 compared to $507.6 million during 2022. During 2023 and 2022, cash used in investing activities primarily related to net purchases of fixed maturities, partially offset by net sales of equity securities.

Net cash used in financing activities was $122.1 million during 2023 compared to $140.6 million during 2022. During 2023, cash used in financing activities primarily resulted from quarterly dividend payments to our shareholders. During 2022, cash used in financing activities primarily resulted from the payment of quarterly dividends to shareholders and, to a lesser extent, from repurchases of common stock through the open market.

Dividends to common shareholders are subject to quarterly board approval and declaration. During 2023, we paid dividends that totaled $117.2 million. This included three quarterly dividends of $0.81 per share and one quarterly dividend of $0.85 per share. We believe that our holding company assets are sufficient to provide for future shareholder dividends should the Board of Directors declare them.

At December 31, 2023, THG, as a holding company, held approximately $321.9 million of fixed maturities and cash. We believe our holding company assets will be sufficient to meet our short-term obligations, which we expect to consist primarily of quarterly dividends to our shareholders (as and to the extent declared), interest on our senior and subordinated debentures, certain costs associated with benefits due to our former life employees and agents and, to the extent required, payments related to indemnification of liabilities associated with the sale of various subsidiaries. As discussed below, we have, and opportunistically may continue to, repurchase our common stock and debt. We do not expect that it will be necessary to dividend additional funds from our insurance subsidiaries in order to fund short-term holding company obligations; however, we may decide to do so.

We expect to continue to generate sufficient positive operating cash to meet all short-term and long-term cash requirements relating to current operations, including the funding of our qualified defined benefit pension plan. We believe that this plan is fully funded. The ultimate payment amounts for our benefit plan is based on several assumptions including, but not limited to, the rate of return on plan assets, the discount rate for benefit obligations, mortality experience, interest crediting rates, inflation and the ultimate valuation and determination of benefit obligations. Since differences between actual plan experience and our assumptions are almost certain, changes, both positive and negative, to our current funding status and ultimately our obligations in future periods are likely.

Our insurance subsidiaries maintain a high degree of liquidity within their respective investment portfolios in fixed maturity and short-term investments. During 2023, the uncertainty in the financial markets continued to impact the value of investments, including many securities currently held by THG and its subsidiaries. We believe that the quality of the assets we hold will allow us to realize the long-term economic value of our portfolio, including the securities that are currently in an unrealized loss position. We do not anticipate the need to sell these securities to meet our insurance subsidiaries’ cash requirements since we expect our insurance subsidiaries to generate sufficient operating cash to meet all short-term and long-term cash requirements relating to current operations. However, unforeseen business needs or other items may occur which could cause us to sell those securities in a loss position before their values fully recover, resulting in a recognition of impairment charges in that time period.

The Board of Directors authorized a stock repurchase program which provides for aggregate repurchases of our common stock of up to $1.3 billion. Under the repurchase authorization, we may repurchase, from time to time, common stock in amounts, at prices and at such times as we deem appropriate, subject to market conditions and other considerations. Repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. We are not required to purchase any specific number of shares or to make purchases by any certain date under this program. During 2023, we did not repurchase any shares under this program. As of December 31, 2023, we had repurchased 7.9 million shares under this $1.3 billion program and had approximately $330 million available for additional repurchases.

62

Table of Contents

We maintain our membership in the Federal Home Loan Bank (“FHLB”) to provide access to additional liquidity based on our holdings of FHLB stock and pledged collateral. At December 31, 2023, we had borrowing capacity of $128.9 million. There were no outstanding borrowings under this short-term facility at December 31, 2023; however, we have borrowed and may continue to borrow, from time to time, through this facility to provide short-term liquidity.

On July 21, 2023, we entered into a credit agreement that provides for a five-year unsecured revolving credit facility not to exceed $150.0 million at any one time outstanding, with the option to increase the facility up to $300.0 million (assuming no default and satisfaction of other specified conditions, including the receipt of additional lender commitments). The agreement also includes an uncommitted subfacility of $50.0 million for standby letters of credit. Borrowings, if any, under this agreement are unsecured and incur interest at a rate per annum equal to, at our election, either (i) the greatest of, (a) the prime commercial lending rate of the administrative agent, (b) the NYFRB Rate plus half a percent, or (c) the one month Adjusted Term SOFR Rate plus one percent; each subject to a margin that ranges from 0.125% to 0.625% depending on our debt rating, or (ii) Adjusted SOFR Rate for the applicable interest period, plus a margin that ranges from 1.125% to 1.625% depending on our debt rating. The agreement also contains certain financial covenants such as maintenance of specified levels of consolidated equity and leverage ratios. Concurrent with our entry into this agreement, we voluntarily terminated our existing $200.0 million credit agreement, dated April 30, 2019. We currently have no borrowings under the current credit agreement. During 2023, we had no borrowings under the current agreement or the prior credit agreement. For additional information regarding the current credit agreement, please see our Current Report filed on Form 8-K with the SEC on July 21, 2023.

At December 31, 2023, we were in compliance with the covenants of our debt and credit agreements.

FINANCING OBLIGATIONS AND OTHER ESTIMATED OPERATING PAYMENTS

Financing obligations generally include repayment of our senior debentures, subordinated debentures and lease payments. Annual payments are related to the contractual principal and interest payments of these financing obligations as of December 31, 2023, unless otherwise noted, and lease payments reflect expected cash payments based upon active lease terms. It is expected that in the normal course of business, leases that expire will generally be renewed or replaced by leases on similar property and equipment. In addition, as discussed below, we expect payments related to our loss and LAE obligations, payments in support of the obligations of our benefit plans and for commitments to purchase investment securities at a future date. Actual payments may differ from the contractual and/or estimated payments.

Our debt obligations include senior debentures of $61.8 million due in 2025, which pay an annual interest rate of 7.625%, senior debentures of $375.0 million due in 2026, which pay annual interest at a rate of 4.50%, and senior debentures of $300.0 million due in 2030, which pay annual interest at a rate of 2.50%. Additionally, we carry subordinated debentures of $50.1 million due in 2027, which pay interest at an annual rate of 8.207%. Interest associated with this debt includes $33.2 million due in one year or less and $85.3 million due after one year.

Our subsidiaries are lessees with a number of leases, consisting primarily of equipment, real estate and fleet vehicles. Our lease obligations include $16.1 million due in one year or less and $28.5 million due after one year.

We currently have obligations to pay benefits under our qualified and non-qualified defined benefit pension and post-retirement benefit plans. We do not expect to make any significant contributions to our qualified plan in order to meet our minimum funding requirements for the next several years; however, additional contributions may be required in the future based on the level of pension assets and liabilities in future periods. Estimated payments to be made for non-qualified pension, postretirement, and postemployment benefits totaled $3.8 million due in one year or less and $23.7 million due after one year. These estimated payments extend until 2033; however, it is likely that payments will be required beyond 2033. Estimates of these payments and the payment patterns are based upon historical experience. The ultimate payment amount for our pension and postretirement benefit plans is based on several assumptions, including, but not limited to, the rate of return on plan assets, the discount rate for benefit obligations, mortality experience, interest crediting rates and then ultimate valuation of benefit obligations. Differences between actual plan experience and our assumptions are likely and will likely result in changes to our funding obligations in future periods.

Our investment commitments relate primarily to limited partnerships and were $57.0 million due in one year or less and $85.2 million due after one year.

Unlike many other forms of contractual obligations, loss and LAE reserves do not have definitive due dates and the ultimate payment dates are subject to a number of variables and uncertainties. The total gross loss and LAE reserve payments expected to be made in one year or less of $2,546.4 million and after one year of $4,691.9 million are estimates based principally on historical experience.

CONTINGENCIES AND REGULATORY MATTERS

Information regarding litigation and legal contingencies appears in Note 15 – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements. Information related to certain regulatory and industry developments are contained in “Regulation” in Part I – Item 1 and in “Risk Factors” in Part I – Item 1A.

63

Table of Contents

INTRODUCTION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist readers in understanding the consolidated results of operations and financial condition of The Hanover Insurance Group, Inc. and its subsidiaries (“THG”). Consolidated results of operations and financial condition are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). This discussion should be read in conjunction with the Consolidated Financial Statements and related footnotes included elsewhere herein.

Results of operations include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America (“Citizens”), our principal property and casualty companies, and certain other insurance and non-insurance subsidiaries. Our results of operations also include the results of our discontinued operations, consisting primarily of our former accident and health insurance business.

EXECUTIVE OVERVIEW

Business operations consist of four operating segments: Core Commercial, Specialty, Personal Lines and Other.

Our strategy, which focuses on the independent agency distribution channel, supports THG’s commitment to our select independent agents. It is designed to generate profitable growth by leveraging the strengths of our distribution approach, including expansion of our agency footprint in underpenetrated geographies, as warranted. As part of that strategy, we have increased our capabilities in specialty markets and made investments designed to develop growth solutions for our agency distribution channel and meet the needs of our customers. Our goal is to grow responsibly in all of our businesses, while managing volatility.

Net income was $116.0 million in 2022, compared to $418.7 million in 2021, a decrease of $302.7 million, primarily due to changes in the fair value of equity securities and lower operating income.

Operating income before interest expense and income taxes (a non-GAAP financial measure; see also “Results of Operations – Consolidated – Non-GAAP Financial Measures”) was $285.1 million in 2022 compared to $432.3 million in 2021, a decrease of $147.2 million. This decrease was primarily due to higher current accident year losses and lower net favorable development on prior years' loss reserves, partially offset by earned premium growth. The higher current accident year losses were primarily due to higher severity, as a result of inflation and supply chain disruptions, and increased accident frequency in our personal automobile line. In addition, losses in our homeowners line have increased due to higher severity.

Pre-tax catastrophe losses were $402.6 million in 2022 and 2021. Included in 2022 were $165.0 million of pre-tax catastrophe losses related to Winter Storm Elliott, which occurred in the fourth quarter. Net favorable development on prior years’ loss reserves was $20.6 million in 2022, compared to $56.1 million in 2021, a decrease of $35.5 million.

Due to persistent supply chain disruptions emerging from the COVID-19 pandemic (“Pandemic”), and significant inflation in the U.S economy, among other factors outside our control, we are experiencing substantially higher claims costs, particularly in our automobile and homeowners lines of business. Additionally, several other Pandemic uncertainties persist, including evolving driving patterns and court caseload backlogs. Although we are taking actions to address our higher claims costs, such elevated costs may affect the property and casualty insurance industry, our business, and our financial results over future periods. (See “Contingencies and Regulatory Matters” and “Item 1A – Risk Factors” for further discussion).

Core Commercial

Core Commercial is divided into two distinct businesses, small commercial and middle market, both of which focus on account business, including commercial multiple peril, commercial automobile, workers’ compensation and other (monoline general liability, ancillary professional, commercial umbrella, and monoline property). Small commercial focuses on small businesses, with annual policy premiums generally up to $50,000. Small commercial recently launched TAP sales, a quoting platform that has enhanced the ease of doing business, and generated approximately an 18% increase in new business submissions in 2022 compared to 2021. Middle market provides coverage to mid-sized businesses with annual policy premiums generally between $50,000 and $500,000. Middle market offers coverage in distinct industry segments, including technology, manufacturing, human services, retail, real estate, and others. We believe that our account-focused approach to the small commercial market and distinctiveness in the middle market, including our diversified portfolio of products, delivers significant value to agents and policyholders. We continue to pursue our core strategy of developing strong relationships with retail agents, enhanced franchise value through selective distribution, distinctive products and coverages, and through continued investment in industry segmentation. Net premiums written increased 7.2% in 2022, compared to the same period in 2021, primarily driven by pricing and exposure increases.

Underwriting results decreased in 2022, primarily due to higher catastrophe losses. The competitive nature of the Core Commercial market requires us to be highly disciplined in our underwriting process to ensure that we write business at acceptable margins, and we continue to seek rate increases across many lines of business.

36

Table of Contents

Specialty

Specialty offers a comprehensive suite of products focused predominately on small to mid-sized businesses. This includes numerous specialized product areas that are organized into four distinct divisions – Professional and Executive Lines, Specialty Property and Casualty (“Specialty P&C”), Marine, and Surety and Other. We believe that this distribution of Specialty products, primarily through retail agents supplemented by select specialists helps to enhance our overall agent value and increase growth opportunities by providing agents easier access to placement solutions for Specialty needs, including those that complement Core Commercial accounts. Net premiums written increased 11.2% in 2022, compared to the same period in 2021, primarily due to pricing, new business and exposure increases.

Underwriting results increased in 2022, primarily due to lower catastrophe losses, earned premium growth, and lower current accident year losses. The competitive nature of the Specialty market requires us to be highly disciplined in our underwriting process to ensure that we write business at acceptable margins, and we continue to seek rate increases across many lines of business.

Personal Lines

Personal Lines focuses on working with high quality, value-oriented agencies that deliver consultative selling to customers and stress the importance of account rounding, which is the conversion of single policy customers to accounts with multiple policies and/or additional coverages, to address customers’ broader objectives. Approximately 88% of our policies in force have been issued to customers with multiple policies and/or coverages with us. We are focused on seeking profitable growth opportunities, building a distinctive position in the market in order to meet our customers’ needs and diversifying geographically. We continue to seek appropriate rate increases that meet or exceed underlying loss cost trends, subject to regulatory and competitive considerations.

Net premiums written increased 11.1% in 2022, compared to the same period in 2021, primarily due to renewal price increases across the year and, to a lesser extent, higher new business. Underwriting results decreased in 2022, primarily due to higher current accident year losses in our personal automobile and homeowners lines.

DESCRIPTION OF OPERATING SEGMENTS

Primary business operations include insurance products and services currently provided through four operating segments: Core Commercial, Specialty, Personal Lines and Other. Core Commercial includes commercial multiple peril, commercial automobile, workers’ compensation, and other commercial lines coverages provided to small and mid-sized businesses. Specialty includes four divisions of business: Professional and Executive Lines, Specialty P&C, Marine, and Surety and Other. Specialty P&C includes coverages such as program business (providing commercial insurance to markets with specialized coverage or risk management needs related to groups of similar businesses), specialty industrial and commercial property, excess and surplus lines and specialty general liability coverage. Personal Lines includes personal automobile, homeowners and other personal coverages, such as umbrella. Included in the “Other” segment are Opus Investment Management, Inc., which markets investment management services to institutions, pension funds, and other organizations; earnings on holding company assets; holding company and other expenses, including certain costs associated with retirement benefits due to our former life insurance employees and agents; and our run-off voluntary assumed property and casualty pools and run-off direct asbestos and environmental businesses. During the first quarter of 2022, we disaggregated our former Commercial Lines segment into Core Commercial and Specialty segments. Prior periods reflect this new presentation. This presentation is consistent with the manner in which our chief operating decision maker evaluates results in deciding how to allocate resources and in assessing performance.

We report interest expense on debt separately from the earnings of our operating segments. This consists primarily of interest on our senior and subordinated debentures.

37

Table of Contents

RESULTS OF OPERATIONS – CONSOLIDATED

2022 Compared to 2021

Consolidated net income was $116.0 million in 2022, compared to $418.7 million in 2021, a decrease of $302.7 million. The year over year comparison of consolidated net income reflects a decrease in after-tax net realized and unrealized investment losses of $184.4 million, primarily related to changes in the fair value of equity securities as well as lower operating income. Operating income before interest expense and income taxes was $285.1 million in 2022 compared to $432.3 million in 2021, a decrease of $147.2 million. This decrease was primarily due to higher current accident year losses and lower net favorable development on prior years' loss reserves, partially offset by earned premium growth. Pre-tax catastrophe losses were $402.6 million in 2022 and 2021. Included in 2022 were $165.0 million of pre-tax catastrophe losses related to Winter Storm Elliott, which occurred in the fourth quarter.

2021 Compared to 2020

Consolidated net income was $418.7 million in 2021, compared to $358.7 million in 2020, an increase of $60.0 million. The year over year comparison of consolidated net income reflects an increase in after-tax net realized and unrealized investment gains of $88.5 million, principally related to changes in the fair value of equity securities. This was partially offset by a decrease in operating income before interest expense and income taxes of $52.4 million. The decrease in operating income before interest expense and income taxes was primarily due to higher catastrophe losses and increased Personal Lines non-catastrophe current accident year losses, partially offset by higher net investment income, earned premium growth, and net favorable development on prior years’ loss reserves.

The following table reflects operating income (loss) before interest expense and income taxes for each operating segment and a reconciliation to consolidated net income from operating income before interest expense and income taxes (a non-GAAP measure).

Non-GAAP Financial Measures

In addition to consolidated net income, discussed above, we assess our financial performance based upon pre-tax “operating income,” and we assess the operating performance of each of our four operating segments based upon the pre-tax operating income (loss) generated by each segment. As reflected in the table above, operating income before interest expense and income taxes excludes interest expense on debt and certain other items, which we believe are not indicative of our core operations, such as net realized and unrealized investment gains and losses. Such gains and losses are excluded since they are determined by interest rates, financial markets and the timing of sales. Also, operating income before interest expense and income taxes excludes net gains and losses on disposals of businesses, gains and losses related to the repayment of debt, discontinued operations, costs to acquire businesses, restructuring costs, the cumulative effect of accounting changes and certain other items. Although the items excluded from operating income before interest expense and income taxes are important components in understanding and assessing our overall financial performance, we believe a discussion of operating income before interest expense and income taxes enhances an investor’s understanding of our results of operations by highlighting net income attributable to the core operations of the business. However, operating income before interest expense and income taxes, which is a non-GAAP measure, should not be construed as a substitute for income before income taxes or income from continuing operations, and operating income should not be construed as a substitute for net income.

38

Table of Contents

Catastrophe losses and prior years’ reserve development are significant components in understanding and assessing the financial performance of our business. Management reviews and evaluates catastrophes and prior years’ reserve development separately from the other components of earnings. References to “current accident year underwriting results” exclude prior accident year reserve development and may also be presented “excluding catastrophes.” Prior years’ reserve development and catastrophes are not predictable as to timing or the amount that will affect the results of our operations and have an effect on each year’s operating and net income. Management believes that providing certain financial metrics and trends excluding the effects of catastrophes and prior years’ reserve development helps investors to understand the variability in periodic earnings and to evaluate the underlying performance of our operations. Discussion of catastrophe losses in this Management’s Discussion and Analysis includes development on prior years’ catastrophe reserves and, unless otherwise indicated, such development is excluded from discussions of prior year loss and loss adjustment expenses ("LAE") reserve development.

RESULTS OF OPERATIONS - SEGMENTS

The following is our discussion and analysis of the results of operations by business segment. The operating results are presented before interest expense, income taxes and other items which management believes are not indicative of our core operations, including realized gains and losses, as well as unrealized gains and losses on equity securities, and the results of discontinued operations.

The following table summarizes the results of operations for the periods indicated:

2022 Compared to 2021

Operating income before interest expense and income taxes was $285.1 million for the year ended December 31, 2022, compared to $432.3 million for the year ended December 31, 2021, a decrease of $147.2 million. This decrease was primarily due to higher current accident year losses and lower net favorable development on prior years' loss reserves, partially offset by earned premium growth. The higher current accident losses were primarily due to higher severity, as a result of inflation and supply chain disruptions, and increased accident frequency in our personal automobile line.

Net premiums written increased $483.1 million for the year ended December 31, 2022, compared to the year ended December 31, 2021. This was primarily due to pricing and exposure increases and continued strong retention.

2021 Compared to 2020

Operating income before interest expense and income taxes was $432.3 million for the year ended December 31, 2021, compared to $484.7 million for the year ended December 31, 2020, a decrease of $52.4 million. This decrease was primarily due to higher catastrophe losses and increased Personal Lines non-catastrophe current accident year losses, partially offset by higher net investment income, earned premium growth, and net favorable development on prior years’ loss reserves. The higher Personal Lines non-catastrophe current accident year losses were primarily due to higher personal automobile losses, attributable to higher loss severity and frequency, though 2021 loss frequency was below pre-Pandemic levels.

Net premiums written increased $394.9 million for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to pricing increases, a reduction in insured business activity in 2020, and a 2020 premium refund. During 2020, we returned approximately $30 million of premiums to our eligible personal automobile customers in all of our markets, providing financial relief during the Pandemic.

39

Table of Contents

PRODUCTION AND UNDERWRITING RESULTS

The following tables summarize premiums written on a gross and net basis, net premiums earned and loss (including catastrophe losses), LAE, expense, and combined ratios for our Core Commercial, Specialty and Personal Lines segments. Loss, LAE, catastrophe loss and combined ratios shown below include prior year reserve development. These items were not meaningful for our Other segment.

The following tables summarize net premiums written, and loss and LAE and catastrophe loss ratios by line of business for the Core Commercial, Specialty and Personal Lines segments. Loss and LAE and catastrophe loss ratios include prior year reserve development.

40

Table of Contents

The following tables summarize GAAP underwriting results for our Core Commercial, Specialty, Personal Lines and Other segments and reconciles them to operating income (loss) before interest expense and income taxes.

41

Table of Contents

2022 Compared to 2021

Core Commercial

Core Commercial net premiums written were $1,999.9 million for the year ended December 31, 2022, compared to $1,864.8 million for the year ended December 31, 2021. This $135.1 million increase was primarily driven by pricing and exposure increases.

Core Commercial underwriting loss for the year ended December 31, 2022 was $28.7 million, compared to $7.5 million for the year ended December 31, 2021, an unfavorable change of $21.2 million. Catastrophe losses for the year ended December 31, 2022 were $193.7 million, compared to $175.5 million for the year ended December 31, 2021, an increase of $18.2 million. Net favorable development on prior years’ loss reserves for the year ended December 31, 2022 was $10.3 million, compared to $17.8 million for the year ended December 31, 2021, a decrease of $7.5 million.

Core Commercial current accident year underwriting profit, excluding catastrophes, was $154.7 million for the year ended December 31, 2022, compared to $150.2 million for the year ended December 31, 2021. This $4.5 million increase was primarily due to earned premium growth. Within current accident year non-catastrophe losses, higher loss activity in our commercial multiple peril and commercial automobile lines were partially offset by lower loss activity in our workers' compensation and miscellaneous property lines.

We continue to manage underwriting performance through rate actions, pricing segmentation, specific underwriting actions and targeted new business growth. Our ability to achieve overall rate increases is affected by many factors, including regulatory activity and the competitive pricing environment, particularly within the workers’ compensation line. See "Contingencies and Regulatory Matters." Due to uncertainty caused by the increase in inflation and supply chain disruptions, there is a level of uncertainty in our ability to grow our business and maintain or improve our underwriting profitability in this environment. The extent and duration of these uncertainties are unknown and have resulted in an increase in claims costs, which may persist, and may also result in reduced premium levels.

Specialty

Specialty net premiums written were $1,243.7 million for the year ended December 31, 2022, compared to $1,118.9 million for the year ended December 31, 2021. This $124.8 million increase was primarily due to pricing, new business and exposure increases.

Specialty underwriting profit for the year ended December 31, 2022 was $124.7 million, compared to $69.4 million for the year ended December 31, 2021, an increase of $55.3 million. Catastrophe losses for the year ended December 31, 2022 were $32.7 million, compared to $51.8 million for the year ended December 31, 2021, a decrease of $19.1 million. The higher catastrophe losses in 2021 were primarily due to freeze events in Texas and surrounding states. Net favorable development on prior years’ loss reserves for the year ended December 31, 2022 was $19.5 million, compared to $16.2 million for the year ended December 31, 2021, an increase of $3.3 million.

Specialty current accident year underwriting profit, excluding catastrophes, was $137.9 million for the year ended December 31, 2022, compared to $105.0 million for the year ended December 31, 2021, an increase of $32.9 million, primarily due to earned premium growth and lower current accident year losses. Within current accident year losses, lower losses in Specialty P&C and Professional and Executive Lines were partially offset by higher losses in the inland marine line.

We continue to manage underwriting performance through rate actions, pricing segmentation, specific underwriting actions and targeted new business growth. Our ability to achieve overall rate increases is affected by many factors, including regulatory activity and the competitive pricing environment. See "Contingencies and Regulatory Matters." Due to uncertainty caused by the increase in inflation and supply chain disruptions, there is a level of uncertainty in our ability to grow our business and maintain or improve our underwriting profitability in this environment. The extent and duration of these uncertainties are unknown and may result in an increase in claims costs and reduced premium levels.

42

Table of Contents

Personal Lines

Personal Lines net premiums written were $2,232.9 million for the year ended December 31, 2022, compared to $2,009.7 million for the year ended December 31, 2021. This $223.2 million increase was primarily driven by renewal price increases and, to a lesser extent, higher new business.

Net premiums written in the personal automobile line of business for the year ended December 31, 2022 were $1,317.2 million, compared to $1,230.4 million for the year ended December 31, 2021, an increase of $86.8 million. Personal automobile policies in force increased 5.8%. Net premiums written in the homeowners and other lines of business for the year ended December 31, 2022 were $915.7 million, compared to $779.3 million for the year ended December 31, 2021, an increase of $136.4 million. Homeowners policies in force increased 5.6%.

Personal Lines underwriting loss for the year ended December 31, 2022 was $104.2 million, compared to underwriting profit of $65.1 million for the year ended December 31, 2021, an unfavorable change of $169.3 million. Catastrophe losses for the year ended December 31, 2022 were $176.2 million, compared to $175.3 million for the year ended December 31, 2021, an increase of $0.9 million. Unfavorable development on prior years’ loss reserves for the year ended December 31, 2022 was $8.0 million, compared to favorable development of $23.1 million for the year ended December 31, 2021, an unfavorable change of $31.1 million.

Personal Lines current accident year underwriting profit, excluding catastrophes, was $80.0 million for the year ended December 31, 2022, compared to $217.3 million for the year ended December 31, 2021. This $137.3 million decrease was primarily due to higher current accident year loss severity in our personal automobile and homeowners lines, partially offset by earned premium growth and lower performance-based agency compensation expenses. We experienced an increase in personal automobile physical damage and property loss frequency compared to the unusually low levels experienced in 2021, as well as an increase in loss severity, driven by inflationary pressures associated with supply chain issues, higher used vehicle prices, and higher cost of parts and other repair costs. In addition, homeowners losses have increased due to higher property severity as a result of higher inflation and higher than usual frequency of large loss activity and non-weather water-related losses. We have experienced inflationary pressures on building material and labor costs, supply chain constraints that increase building and repair times, and increases in lodging and additional living expense reimbursements.

We have been able to obtain rate increases in our Personal Lines markets and believe that our ability to obtain increases will continue over the long-term. Our ability to maintain Personal Lines net premiums written may be affected, however, by price competition, and regulatory and legal activity and developments. See “Contingencies and Regulatory Matters.” Additionally, these factors, along with the aforementioned issues contributing to our recent increase in losses, may also affect our ability to maintain and improve underwriting results. We monitor these trends and consider them in our rate actions. Due to uncertainty caused by the increase in inflation and supply chain disruptions, there is a level of uncertainty in our ability to retain or grow our business and may result in a continued increase in claims costs.

Other

Our Other segment had operating income of $1.0 million for the year ended December 31, 2022, compared to $3.9 million for the year ended December 31, 2021, a decrease of $2.9 million.

2021 Compared to 2020

Core Commercial

Core Commercial net premiums written were $1,864.8 million for the year ended December 31, 2021, compared to $1,726.2 million for the year ended December 31, 2020, an increase of $138.6 million. This increase was primarily driven by an increase in rate and exposure activity following the reduction in insured business in 2020 as a result of the Pandemic.

Core Commercial underwriting loss for the year ended December 31, 2021 was $7.5 million, compared to underwriting profit of $57.5 million for the year ended December 31, 2020, a decrease of $65.0 million. Catastrophe losses for the year ended December 31, 2021 were $175.5 million, compared to $89.6 million for the year ended December 31, 2020, an increase of $85.9 million, primarily due to freeze events in Texas and surrounding states associated with record low temperatures in the first quarter of 2021 and hurricane Ida and several wind and hailstorms in the Midwest in the third quarter of 2021. Favorable development on prior years’ loss reserves for the year ended December 31, 2021 was $17.8 million, compared to $12.6 million for the year ended December 31, 2020, an increase of $5.2 million.

Core Commercial current accident year underwriting profit, excluding catastrophes, was $150.2 million for the year ended December 31, 2021, compared to $134.5 million for the year ended December 31, 2020. This $15.7 million increase was primarily due to earned premium growth, partially offset by higher current accident year non-catastrophe losses. The higher non-catastrophe losses were primarily driven by higher loss activity in our commercial multiple peril line.

Specialty

43

Table of Contents

Specialty net premiums written were $1,118.9 million for the year ended December 31, 2021, compared to $1,006.9 million for the year ended December 31, 2020, an increase of $112.0 million. This increase was primarily driven by favorable new business activity and an increase in rate and exposure activity following the reduction in insured business in 2020 as a result of the Pandemic.

Specialty underwriting profit for the year ended December 31, 2021 was $69.4 million, compared to $48.8 million for the year ended December 31, 2020, an increase of $20.6 million. Catastrophe losses for the year ended December 31, 2021 were $51.8 million, compared to $42.6 million for the year ended December 31, 2020, an increase of $9.2 million. Favorable development on prior years’ loss reserves for the year ended December 31, 2021 was $16.2 million, compared to $6.4 million for the year ended December 31, 2020, an increase of $9.8 million.

Specialty current accident year underwriting profit, excluding catastrophes, was $105.0 million for the year ended December 31, 2021, compared to $85.0 million for the year ended December 31, 2020. This $20.0 million increase was primarily due to earned premium growth and lower expenses.

Personal Lines

Personal Lines net premiums written were $2,009.7 million for the year ended December 31, 2021, compared to $1,865.4 million for the year ended December 31, 2020, an increase of $144.3 million. During the second quarter of 2020, we returned approximately $30 million of premiums to our eligible Personal Lines customers in all our markets, providing financial relief during the Pandemic. In addition, net premiums written grew due to increased new business, retention and, to a lesser extent, renewal rate increases.

Net premiums written in the personal automobile line of business for the year ended December 31, 2021 were $1,230.4 million, compared to $1,151.5 million for the year ended December 31, 2020, an increase of $78.9 million. Personal automobile policies in force increased 6.1%. Net premiums written in the homeowners and other lines of business for the year ended December 31, 2021 were $779.3 million, compared to $713.9 million for the year ended December 31, 2020, an increase of $65.4 million. Homeowners policies in force increased 6.0%.

Personal Lines underwriting profit for the year ended December 31, 2021 was $65.1 million, compared to $132.9 million for the year ended December 31, 2020, a decrease of $67.8 million. Catastrophe losses for the year ended December 31, 2021 were $175.3 million, compared to $154.5 million for the year ended December 31, 2020. This $20.8 million increase was primarily due to several wind and hailstorms throughout the Midwest and hurricane Ida during the third quarter of 2021. Favorable development on prior years’ loss reserves for the year ended December 31, 2021 was $23.1 million, compared to $0.7 million for the year ended December 31, 2020, an increase of $22.4 million.

Personal Lines current accident year underwriting profit, excluding catastrophes, was $217.3 million for the year ended December 31, 2021, compared to $286.7 million for the year ended December 31, 2020. This $69.4 million decrease was primarily due to higher current accident year losses and higher expenses, primarily due to a non-recurring premium tax benefit in 2020, partially offset by earned premium growth. The higher current accident year losses in 2021 were attributable to higher personal automobile loss severity and frequency, though 2021 loss frequency was below pre-Pandemic levels. In addition, there were increased weather-related losses in the homeowners line in 2021.

Other

Our Other segment had operating income of $3.9 million for the year ended December 31, 2021, compared to an operating loss of $3.2 million for the year ended December 31, 2020, a favorable change of $7.1 million. This improvement was primarily due to lower charitable contributions in 2021, compared to the elevated level in 2020. In addition, prior year’s results included a $3.3 million reserve increase, based on the receipt of an updated third-party actuarial study for the legacy Excess and Casualty Reinsurance Association (“ECRA”) pool.

RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

Overview of Loss Reserve Estimation Process

We maintain reserves for our insurance products to provide for our ultimate liability for losses and loss adjustment expenses (our “loss reserves”) with respect to reported and unreported claims incurred as of the end of each accounting period. These reserves are estimates, taking into account past loss experience, modified for current trends, as well as prevailing economic, legal and social conditions. Loss reserves represent our largest liability.

Management’s process for establishing loss reserves is a comprehensive process that involves input from multiple functions throughout our organization, including actuarial, finance, claims, legal, underwriting, distribution, and business operations management. The process incorporates facts currently known, as well as the current, and in some cases, the anticipated, state of the law and coverage litigation. Based on information currently available, we believe that the aggregate loss reserves at December 31, 2022 were adequate to cover claims for losses that had occurred as of that date, including both those known to us and those yet to be reported. However, as described below, there are significant uncertainties inherent in the loss reserving process. Our estimate of the ultimate liability for losses that had occurred as of December 31, 2022 is expected to change in future periods as we obtain further information, and such changes could have a material effect on our results of operations and financial position.

44

Table of Contents

Our loss reserves include case estimates for claims that have been reported and estimates for claims that have been incurred but not reported (“IBNR”) at the balance sheet date. They also include estimates of the expenses associated with processing and settling all reported and unreported claims, less estimates of anticipated salvage and subrogation recoveries. Our loss reserves are not discounted to present value.

Case reserves are established by our claim personnel individually, on a claim by claim basis, and based on information specific to the occurrence and terms of the underlying policy. For some classes of business, average case reserves are used initially. Case reserves are periodically reviewed and modified based on new or additional information pertaining to the claim.

Our ultimate IBNR reserves are estimated by management and our reserving actuaries on an aggregate basis for each line of business or coverage for loss and loss expense liabilities not reflected within the case reserves. The sum of the case reserves and the IBNR reserves represents our estimate of total unpaid losses and loss adjustment expenses.

We regularly review our loss reserves using a variety of industry accepted analytical techniques. We update the loss reserves as historical loss experience develops, additional claims are reported and resolved, and new information becomes available. Net changes in loss reserves are reflected in operating results in the period in which the reserves are changed.

The IBNR reserve includes both a provision for claims that have occurred but have not yet been reported to us, some of which may not yet be known to the insured, and a provision for future development on reported claims. IBNR represents a significant proportion of our total net loss reserves, particularly for long-tail liability classes. In fact, approximately 52% of our aggregate net loss reserves at December 31, 2022 were for IBNR losses and loss expenses.

Critical Judgments and Key Assumptions

We determine the amount of our net loss reserves (i.e., net of estimated reinsurance recoverables) based on an estimation process that is complex and considers information from both company specific and industry data, as well as general economic and other information. The estimation process utilizes a combination of objective and subjective information, the blending of which requires significant professional judgment. There are various assumptions required, including future trends in frequency and severity of claims, operational changes in claim handling and case reserving practices, and trends related to general economic and social conditions. Informed judgments as to our ultimate exposure to losses are an integral component of our loss reserve estimation process.

There is greater inherent uncertainty in estimating insurance reserves for certain types of property and casualty insurance lines, particularly liability lines, where a longer period of time may elapse before a definitive determination of ultimate liability and losses may be made (sometimes referred to as “long-tail” business). In addition, the technological, judicial, regulatory and political climates involving these types of claims are continuously evolving. The emergence of the Pandemic during 2020 resulted in an increased level of uncertainty for many lines of business, particularly for our long-tail lines. There is also greater uncertainty in establishing reserves with respect to business that is new to us, particularly new business which is generated with respect to newly introduced product lines, by newly appointed agents or in geographies in which we have less experience in conducting business. In each of these cases, there is less historical experience or knowledge, and less data upon which we can rely. A combination of business that is both new to us and has longer development periods provides even greater uncertainty in estimating insurance reserves. In addition, in recent periods, we have experienced extensions of the “tails” in certain lines of business as the full value of claims are presented later than had been our historical experience. The broad impact of the Pandemic on our claims environment may extend these “tails” even further. For example, there have been delays in medical treatments, submission of medical expenses, and deferment of elective medical procedures, which may have worsened insureds’ health status, and which may result in an increase in our ultimate loss costs. Also, presumptive orders by relevant state authorities may potentially increase workers’ compensation exposures beyond contractual obligations.

We regularly update our reserve estimates as new information becomes available and additional events occur which may impact the resolution of unsettled claims. Reserve adjustments are reflected in the results of operations as adjustments to losses and LAE. Often, these adjustments are recognized in periods subsequent to the period in which the underlying policy was written and the loss event occurred. When these types of subsequent adjustments affect prior years, they are described separately as “prior year reserve development.” Such development can be either favorable or unfavorable to our financial results and may vary by line of business. As discussed below, estimated loss and LAE reserves for claims occurring in prior years, in the aggregate, developed favorably by $20.6 million, $56.1 million and $15.5 million for the years ended December 31, 2022, 2021 and 2020, respectively, although there was some significant variance by segment. Additionally, our estimated loss and LAE reserves for catastrophe claims occurring in prior years developed favorably by $12.0 million, $15.0 million and $17.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. There can be no assurance that current loss and LAE reserves will be sufficient.

We regularly review our reserving techniques, our overall reserving position and our reinsurance. Based on (i) our review of historical data, legislative enactments, judicial decisions, legal developments in impositions of damages and policy coverage, political attitudes and trends in general economic conditions, (ii) our review of per claim information, (iii) our historical loss experience and that of the industry, (iv) the nature of policies written by us, and (v) our internal estimates of required reserves, we believe that adequate provision has been made for loss reserves. Given the inherent complexity of our loss reserve estimation process and the potential variability of the assumptions used, the actual emergence of losses will vary, perhaps substantially, from the estimate of losses included in our financial

45

Table of Contents

statements, particularly in those instances where settlements or other claim resolutions do not occur until well into the future. Our net loss reserves at December 31, 2022 were $5.3 billion. Therefore, a relatively small percentage change in the estimate of net loss reserves would have a material effect on our results of operations. Similarly, a one percentage point change in the aggregate loss and LAE ratio resulting from a change in reserve estimation is currently projected to have an approximate $53 million impact on operating income, based on 2022 full year premiums written.

The major causes of material uncertainty relating to ultimate losses and LAE (“risk factors”) generally vary for each line of business, as well as for each separately analyzed component of the line of business. In some cases, such risk factors are explicit assumptions of the estimation method and in others, they are implicit. For example, a method may explicitly assume that a certain percentage of claims will close each year, but will implicitly assume that the legal interpretation of existing contract language will remain substantially unchanged. Actual results will likely vary from expectations for each of these assumptions, resulting in an ultimate claim liability that is different from that being estimated currently.

Some risk factors affect multiple lines of business. Examples include changes in claim handling and claim reserving practices, changes in claim settlement patterns due to the Pandemic and other factors, regulatory and legislative actions, court actions, so-called “social inflation,” timeliness of claim reporting, state mix of claimants and degree of claimant fraud. The extent of the impact of a risk factor will also vary by components within a line of business. Individual risk factors are subject to interactions with other risk factors within line of business components. Thus, risk factors can have offsetting or compounding effects on required reserves.

Inflation generally increases the cost of losses covered by insurance contracts. The effect of inflation varies by product. Our insurance premiums are established before the amount of losses and LAE and the extent to which inflation may affect such expenses are known. Consequently, we attempt, in establishing rates and reserves, to anticipate the potential impact of inflation in the projection of ultimate costs. For example, we monitor, and continue to experience, increases in medical costs, wages, and legal costs, all of which are key considerations in setting reserve assumptions for workers’ compensation, bodily injury and other liability lines. We are also monitoring the continued advancements in technology and design found in automobiles and homes, and the increased claims settlement costs that result from labor shortages, and repairs or replacement of such equipment impacted by supply chain disruptions, which could lead to material shortages and elevated prices of building materials. Estimated increases are reflected in our current reserve estimates, but continued increases are expected to contribute to increased losses and LAE in the future.

We are also defendants in various litigation matters, including putative class actions, which may seek punitive damages, bad faith or extra-contractual damages, legal fees and interest, or claim a broader scope of policy coverage or settlement and payment obligations than our interpretation. Resolution of these cases is often highly unpredictable and could involve material unanticipated damage awards. We have experienced, and others in the industry have reported, increased attorney involvement in claims including Pandemic-related matters, delayed submissions of medical and other expense claims, court closures resulting in delayed claim settlements, and a trend toward higher valued settlements and litigation, all of which contribute to uncertainty regarding reserve estimates.

Loss and LAE Reserves by Line of Business

Reserving Process Overview

Our loss reserves include amounts related to short-tail and long-tail classes of business. “Tail” refers to the time period between the occurrence of a loss and the final settlement of the claim. The longer the time span between the incidence of a loss and the settlement of the claim (i.e., a longer tail), the more the ultimate settlement amount may likely vary from our original estimate.

Short-tail classes consist principally of automobile physical and property damage, commercial property, homeowners property and marine business. For these property coverages, claims are generally reported and settled shortly after the loss occurs because the claims relate to tangible property and are more likely to be discovered shortly after the loss occurs. Consequently, the estimation of loss reserves for these classes is generally less complex. However, the estimation of loss reserves for these classes is more complex during periods of persistent supply chain disruptions and significant inflation in the U.S. economy, as was experienced during 2022.

While we estimate that approximately half of our written premium is in, what we would characterize as, shorter-tail classes of business, most of our loss reserves relate to longer-tail liability classes of business. Long-tailed classes include automobile liability, commercial liability, third-party coverage and workers’ compensation. For many liability claims, significant periods of time, ranging up to several years or more, may elapse between the occurrence of the loss, the discovery and reporting of the loss to us and the settlement of the claim. As a result, loss experience in the more recent accident years for long-tailed liability coverage has limited statistical credibility because a relatively small proportion of losses in these accident years (the calendar years in which losses are incurred) are reported claims and an even smaller proportion are paid losses. Liability claims are also more susceptible to litigation and can be significantly affected by changing contract interpretations, the legal, political and social environment, the risk and expense of protracted litigation, and inflation. Consequently, the estimation of loss reserves for these coverages is more complex and typically subject to a higher degree of variability and uncertainty compared to short-tailed coverages.

Most of our indirect business from our run-off voluntary and ongoing involuntary pools is assumed long-tailed casualty reinsurance. Reserve estimates for this business are therefore subject to the variability caused by extended loss emergence periods. The estimation

46

Table of Contents

of loss reserves for this business is further complicated by delays between the time the claim is reported to the ceding insurer and when it is reported by the ceding insurer to the pool manager and then to us, and by our dependence on the quality and consistency of the loss reporting by the ceding company and actuarial estimates by the pool manager. These reserving factors also apply to our discontinued assumed accident and health reinsurance pools and arrangements that are included in our liabilities of discontinued businesses (See “Risk Factors” in Part I – Item 1A for further discussion).

A review of loss reserves for each of the classes of business in which we write is conducted regularly, generally quarterly. This review process takes into consideration a variety of trends that impact the ultimate settlement of claims. Where appropriate, the review includes a review of overall payment patterns and the emergence of paid and reported losses relative to expectations.

The loss reserve estimation process relies on the basic assumption that past experience, adjusted for the effects of current developments and likely trends, is an appropriate basis for predicting future outcomes. As part of this process, we use a variety of analytical methods that consider experience, trends and other relevant factors. IBNR reserves are generally calculated by first projecting the ultimate cost of all claims that have been reported or expected to be reported in the future and then subtracting reported losses and loss expenses. Reported losses include cumulative paid losses and loss expenses plus case reserves. Within the loss reserving process, standard actuarial methods which include: (1) loss development factor methods; (2) expected loss methods (Bornheutter-Ferguson); and (3) adjusted loss methods (Berquist-Sherman), are given due consideration. These methods are described below:

•
Loss development factor methods generally assume that the losses yet to emerge for an accident year are proportional to the paid or reported loss amount observed to date. Historical patterns of the development of paid and reported losses by accident year can be predictive of the expected future patterns that are applied to current paid and reported losses to generate estimated ultimate losses by accident year.

•
Bornheutter-Ferguson methods utilize the product of the expected ultimate losses times the proportion of ultimate losses estimated to be unreported or unpaid to calculate IBNR. The expected ultimate losses are based upon current estimates of ultimate losses from prior accident years, adjusted to reflect expected earned premium, current rating, claims cost levels and changes in business mix. The expected losses, and corresponding loss ratios, are a critical component of Bornheutter-Ferguson methodologies and provide a general reasonability guide.

•
Berquist-Sherman methods are used for estimating reserves in business lines where historical development patterns may be deemed less reliable for more recent accident years’ ultimate losses. Under these methods, patterns of historical paid or reported losses are first adjusted to reflect current payment settlement patterns and case reserve adequacy and then evaluated in the same manner as the loss development factor methods described above. When the adequacy of case reserves change, the Berquist-Sherman incurred method may be deemed more reliable than the reported loss development factor method. Likewise, when the settlement patterns change, the Berquist-Sherman paid method may be deemed more reliable than the paid loss development factor method.

In addition to the methods described above, various tailored reserving methodologies are used for certain businesses. For example, for some low volume and high volatility classes of business, special reserving techniques are utilized that estimate IBNR by selecting the loss ratio that balances actual reported losses to expected reported losses as defined by the estimated underlying reporting pattern. Also, for some classes with long exposure periods (e.g., construction defect, engineering and surety), earnings patterns plus an estimated reporting lag applied to the Bornheutter-Ferguson initial expected loss ratio are used to estimate IBNR. This is done in order to reflect the changing average exposure periods by policy year (and consequently accident year).

In completing the loss reserve analysis, a variety of assumptions must be made for each line of business, coverage and accident year. Each estimation method has its own pattern, parameter and/or judgmental dependencies, with no estimation method being better than the others in all situations. The relative strengths and weaknesses of the various estimation methods, when applied to a particular class of business, can also change over time, depending on the underlying circumstances. In many cases, multiple estimation methods will be valid for the particular facts and circumstances of the relevant class of business. The manner of application and the degree of reliance on a given method will vary by line of business and coverage, and by accident year based on an evaluation of the above dependencies and the potential volatility of the loss frequency and severity patterns. The estimation methods selected or given weight at a particular valuation date are those that are believed to produce the most reliable indication for the loss reserves being evaluated. Selections incorporate input from claims personnel, pricing actuaries, and underwriting management on loss cost trends and other factors that could affect ultimate losses.

For most classes of shorter-tailed business in our Core Commercial, Specialty and Personal Lines segments, the emergence of paid and incurred losses generally exhibits a relatively stable pattern of loss development from one accident year to the next. Thus, for these classes, the loss development factor method is generally appropriate. For some of the classes of shorter-tailed business, the emergence of paid and incurred losses may exhibit a relatively volatile pattern of loss development from one accident year to the next. In these cases where there is a relatively low level of reliability placed on the available paid and incurred loss data, expected loss methods or adjusted loss methods are considered appropriate for the most recent accident year.

47

Table of Contents

For longer-tailed lines of business, applying the loss development factor method often requires even more judgment in selecting development factors, as well as more significant extrapolation. For those long-tailed lines of business with high frequency and relatively low per-loss severity (e.g., personal automobile liability), volatility will often be sufficiently modest for the loss development factor method to be given significant weight, even in the most recent accident years, but expected loss methods and adjusted loss methods are always considered and frequently utilized in the selection process. For those long-tailed lines of business with low frequency and high loss potential (e.g., commercial general liability), anticipated loss experience is less predictable because of the small number of claims and erratic claim severity patterns. In these situations, the loss development factor methods may not produce a reliable estimate of ultimate losses in the most recent accident years since many claims either have not yet been reported or are only in the early stages of the settlement process. Therefore, the loss reserve estimates for these accident years may be based on methods less reliant on extrapolation, such as Bornheutter-Ferguson. Over time, as a greater number of claims are reported and the statistical credibility of loss experience increases, loss development factor methods or adjusted loss methods are given increasing weight.

Management endeavors to apply as much available data as practicable to estimate the loss reserve amount for each line of business, coverage and accident year, utilizing varying assumptions, projections and methods. The ultimate outcome is expected to fall within a range of potential outcomes around this loss reserve estimated amount.

Our carried reserves for each line of business and coverage are determined based on our quarterly loss reserving process. In making the determination, we consider numerous quantitative and qualitative factors. Quantitative factors include changes in reserve estimates in the period, the maturity of the accident year, trends observed over the recent past, the level of volatility within a particular class of business, the estimated effects of reinsurance, including reinstatement premiums, general economic trends, and other factors. Qualitative factors may include legal and regulatory developments, changes in claim handling and case reserving practices, recent entry into new markets or products, changes in underwriting practices or business mix, concerns that we do not have sufficient or quality historical reported and paid loss and LAE information with respect to a particular line or segment of our business, effects of the economy and political outlook, perceived anomalies in the historical results, evolving trends or other factors, such as the impact of the Pandemic. In doing so, we must evaluate whether a change in the data represents credible actionable information or an anomaly. Such an assessment requires considerable judgment. Even if a change is determined to be apparent, it is not always possible to determine the extent of the change. As a result, there can be a time lag between the emergence of a change and a determination that the change should be partially or fully reflected in the carried loss reserves. In general, changes are made more quickly to reserves for more mature accident years and less volatile classes of business.

Reserving Process Uncertainties

As stated above, numerous factors (both internal and external) contribute to the inherent uncertainty in the process of establishing loss reserves, including changes in the rate of inflation for goods and services related to insured damages (e.g., medical care, home and automobile repairs, etc.), changes in the judicial interpretation of policy provisions and settlement obligations, changes in the general attitude of juries in determining damage awards, legislative actions, such as expanding liability, coverage mandates or expanding or suspending statutes of limitations which otherwise limit the times within which claims can be made, changes in the extent of insured injuries, changes in the trend of expected frequency and/or severity of claims, changes in our book of business (e.g., change in mix due to new or modified product offerings, new or rapidly expanding geographic areas, etc.), changes in our underwriting practices, and changes in claim handling procedures and/or systems. Regarding our indirect business from voluntary and involuntary pools, we are periodically provided loss estimates by managers of each pool. We adopt reserve estimates for the pools that consider this information and other facts.

In addition, we must consider the uncertain effects of emerging or potential claims and coverage issues that arise as legal, judicial and social conditions, political risks, and economic conditions change. For example, claims which we consider closed may be re-opened as additional damages surface or new liability or damage theories are presented. Also, historically, we have observed more frequent and higher severity in workers’ compensation, bodily injury and other liability claims and more credit-related losses (for example, in our surety business) during periods of economic uncertainty or high unemployment. Economic and labor force dynamics have resulted in many experienced workers retiring from their positions, who have been replaced with newly skilled workers, which could result in more workplace accidents. These, and other issues, could have a negative effect on our loss reserves by either extending coverage beyond the original underwriting intent or by increasing the number or size of claims.

As part of our loss reserving analysis, we consider the various factors that contribute to the uncertainty in the loss reserving process. Those factors that could materially affect our loss reserve estimates include loss development patterns and loss cost trends, reporting lags, rate and exposure level changes, the effects of changes in coverage and policy limits, business mix shifts, the effects of regulatory and legislative developments, economic circumstances, the effects of changes in judicial interpretations, the effects of emerging claims and coverage issues, and the effects of changes in claim handling and claim reserving practices. In making estimates of reserves, however, we do not necessarily make an explicit assumption for each of these factors. Moreover, all estimation methods do not utilize the same assumptions and typically no single method is determinative in the reserve analysis for a line of business and coverage. Consequently, changes in our loss reserve estimates generally are not the result of changes in any one assumption. Instead, the variability will be affected by the interplay of changes in numerous assumptions, many of which are implicit to the approaches used.

48

Table of Contents

For each line of business and coverage, we regularly adjust the assumptions and methods used in the estimation of loss reserves in response to our actual loss experience, as well as our judgments regarding changes in trends and/or emerging patterns. In those instances where we primarily utilize analyses of historical patterns of the development of paid and reported losses, this may be reflected, for example, in the selection of revised loss development factors. In longer-tailed classes of business and for which loss experience is less predictable due to potential changes in judicial interpretations, potential legislative actions, the cost of litigation or determining liability and the ultimate loss, inflation, potential claims, shifting claim settlement patterns due to delayed court proceedings, and other issues, this may be reflected in a judgmental change in our estimate of ultimate losses for particular accident years. Most of the insurance policies we have written over many years are written on an “occurrence” basis, which means we insure specified acts or events which occurred during the covered period, even if claims first arise from such events many years later. For example, the industry incurred significant losses as a result of claims arising from asbestos and environmental damage which occurred decades ago and was not known at such time, and in many cases policy limits were available for each year during which such occurrence policies were in place.

Uncertainties with respect to the impact of the Pandemic could have a material adverse effect on our carried loss reserves. While we believe that our in-force Core Commercial and Specialty policies in large part do not cover business interruption losses related to the Pandemic, legislation has been discussed and introduced to retroactively amend insurance contracts to provide business interruption coverage, to impose presumptions on insurance policy interpretation, and/or limit policy exclusions for losses allegedly related to the Pandemic. If these changes were to be enacted and upheld, we would be exposed to a significant unfunded liability.

The future impact of the various factors that contribute to the uncertainty in the loss reserving process is impossible to predict. There is potential for significant variation in the development of loss reserves, particularly for long-tailed classes of business and classes of business that are more vulnerable to economic or political risks.

Reserving Process for Catastrophe Events

The estimation of claims and claims expense reserves for catastrophes is also comprised of estimates of losses from reported claims and IBNR, primarily for damage to property. In general, our estimates for catastrophe reserves are determined on an event basis by considering various sources of available information, including specific loss estimates reported to us based on claim adjuster inspections, overall industry loss estimates, our internal data regarding exposures related to the geographical location of the event and estimates of potential subrogation recoveries. However, depending on the nature of the catastrophe, the estimation process can be further complicated by other impediments. For example, for hurricanes and other severe wind storms and wildfires, complications often include the inability of insureds to promptly report losses, delays in the ability of claims adjusting staff to inspect losses, difficulties in determining whether wind storm losses are covered by our homeowners policy (generally for damage caused by wind or wind driven rain) or are specifically excluded from coverage caused by flood, challenges in estimating additional living expenses, assessing the impact of demand surge, exposure to mold or smoke damage, and the effects of numerous other considerations. Another example is the complication of estimating the cost of business interruption coverage on Core Commercial and Specialty policies. Estimates for catastrophes which occur at or near the end of a financial reporting period, for example Winter Storm Elliott in December 2022, may be even less reliable since we will have less claims data available and little time to complete our estimation process. In such situations, we may adapt our practices to accommodate the circumstances.

For events designated as catastrophes, we generally calculate IBNR reserves directly as a result of an estimated IBNR claim count and an estimated average claim amount for each event. Such an assessment involves a comprehensive analysis of the nature of the event, of policyholder exposures within the affected geographic area and of available claims intelligence. Depending on the nature of the event, available claims intelligence could include surveys of field claims associates within the affected geographic area, aerial photographs of the affected area, feedback from a catastrophe claims team sent into the area, as well as data on claims reported as of the financial statement date. In addition, loss emergence from similar historical events is compared to the estimated IBNR for our current catastrophe events to help assess the reasonableness of our estimates. However, in some cases, it may be difficult to estimate certain catastrophe losses which are unique and do not have instances of historical precedence, such as the property damage arising from the 2020 riots and civil unrest.

Reserving Sensitivity Analysis

The following discussion presents disclosure related to possible variation in net reserve estimates (i.e., net of estimated reinsurance recoverables) due to changes in key assumptions. This information is provided for illustrative purposes only. Many other assumptions may also lead to material reserve adjustments. If any such variations do occur, then they would likely occur over a period of several years and therefore their impact on our results of operations would be recognized during the same periods. It is important to note, however, that there is the potential for future variations greater than the amounts described below and for any such variations to be recognized in a single quarterly or annual period. No consideration has been given to potential correlation or lack of correlation among key assumptions or among lines of business and coverage as described below. As a result, and because there are so many other factors which affect our net reserve estimate, it would be inappropriate to take the amounts described below and simply add them together in an attempt to estimate volatility in total. While we believe these are reasonably possible scenarios, the following sensitivity analysis is not illustrative of a net reserve range.

49

Table of Contents

•
Personal and Commercial Automobile Bodily Injury – loss reserves recorded for bodily injury on voluntary business were $845.6 million as of December 31, 2022. A key assumption for bodily injury is the inflation rate underlying the estimated reserve. A five point change (e.g., 3% changed to 8% or -2%) in the embedded inflation rate would have changed total reserves by approximately $85 million, either positive or negative, at December 31, 2022.

•
Personal Automobile Personal Injury Protection Medical Payment – loss reserves recorded for personal injury protection medical payment on voluntary business were $122.0 million as of December 31, 2022, of which approximately 90% relate to Michigan policies. A key assumption for this coverage is the inflation rate underlying the estimated reserve. Given the long reporting pattern for this line of business, an additional key assumption is the amount of additional development required to reach full maturity, thereby reflecting ultimate costs, as represented by the tail factor. A five point change in the embedded inflation rate (e.g., 6% changed to 11% or 1%) and a one point change to the tail factor assumption (e.g., 1% changed to 0% or 2%) would have changed total reserves by approximately $42 million, either positive or negative, at December 31, 2022.

•
Workers’ Compensation – loss reserves recorded for workers’ compensation on voluntary business were $481.2 million as of December 31, 2022. A key assumption for workers’ compensation is the inflation rate underlying the estimated reserve. Given the long reporting pattern for this line of business, an additional key assumption is the amount of additional development required to reach full maturity, thereby reflecting ultimate costs, as represented by the tail factor. A five point change in the embedded inflation rate (e.g., 4% changed to 9% or -1%) and a one point change to the tail factor assumption (e.g., 2% changed to 1% or 3%) would have changed total reserves by approximately $156 million, either positive or negative, at December 31, 2022.

•
Monoline and Multiple Peril General Liability – loss reserves recorded for monoline and multiple peril general liability on voluntary business were approximately $1.1 billion as of December 31, 2022. A key assumption for monoline and multiple peril general liability is the implied adequacy of the underlying case reserves. A ten point change in case adequacy (e.g., 10% deficiency changed to 0% or 20% deficiency) would have changed total reserves by approximately $138 million, either positive or negative, at December 31, 2022.

•
Specialty Programs - loss reserves recorded for Hanover Programs were $303.2 million as of December 31, 2022. Two key assumptions underlying the actuarial reserve analysis for specialty programs are the inflation rate underlying the estimated reserve for our commercial automobile liability, general liability and workers' compensation coverages, as well as the tail factor selection for workers' compensation. A five point change to the embedded inflation rate for the aforementioned coverages (e.g., 4% changed to 9% or -1%), and a one point change in the workers' compensation tail factor on Hanover Programs (e.g., 0.1% changed to 1.1% or -0.9%) would have changed total reserves by approximately $57 million, either positive or negative, at December 31, 2022.

Carried Reserves and Reserve Rollforward

The following table provides a reconciliation of the gross beginning and ending reserve for unpaid losses and loss adjustment expenses.

50

Table of Contents

The following table summarizes the gross reserve for losses and LAE by line of business and division.

Loss and LAE reserves in our “Other core commercial" lines include monoline general liability, commercial umbrella, and monoline property. "Specialty Property & Casualty" includes program business, specialty industrial and commercial property, excess and surplus lines and specialty general liability coverage. "Professional and Executive Lines" includes professional and management liability, fidelity and crime, and other property and liability lines for healthcare firms. Loss and LAE reserves in our “Total Other" segment relate to our run-off voluntary assumed property and casualty reinsurance pools business and our run-off direct asbestos and environmental business.

Prior Year Development

Conditions and trends that have affected reserve development in the past will not necessarily recur in the future. As discussed under “Reserving Process Overview” in the preceding section, our historical loss experience and loss development patterns are important factors in estimating loss reserves, however, they are not the only factors we evaluate to establish reserves. Therefore, a mechanical application of standard actuarial methodologies in projecting ultimate claims could result in materially different reserves to those held. Accordingly, it is not appropriate to extrapolate future favorable or unfavorable development based on amounts experienced in prior periods.

The following table summarizes prior year (favorable) unfavorable development by segment for the periods indicated:

Catastrophe Loss Development

In 2022, favorable catastrophe development was $12.0 million, primarily due to lower than expected losses related to 2021 hurricane Ida. In 2021, favorable catastrophe development was $15.0 million, primarily due to lower than expected losses related to certain 2018 through 2020 hurricanes, tornadoes, and other storms. In 2020, favorable catastrophe development was $17.1 million, primarily due to lower than expected losses related to certain 2017, 2018, and 2019 wind storms, winter storms and hurricanes, and the 2017 and 2018 California wildfires.

2022 Loss and LAE Development, excluding catastrophes

In 2022, net favorable loss and LAE development, excluding catastrophes, was $20.6 million. Core Commercial favorable development of $10.3 million was primarily due to lower than expected losses of $32.1 million within the workers’ compensation line in accident years 2013 through 2018 and 2020. This was partially offset by higher than expected losses of $18.2 million in our commercial automobile line driven by higher bodily injury and personal injury protection loss adjustment expenses and loss severity in accident

51

Table of Contents

years 2016, 2018, 2019, and 2021 due in part to an increased rate of litigated claims. Specialty favorable development of $19.5 million was primarily due to lower than expected losses of $25.1 million within our Professional and Executive division, lower than expected losses of $14.5 million in our surety line, and lower than expected losses in our Marine division, partially offset by higher than expected losses of $27.4 million in our Specialty P&C division. Within Specialty P&C, higher than expected losses of $32.9 million in program business were partially offset by lower than expected losses in our specialty industrial line. The higher losses in program business were primarily driven by general liability coverages, the majority of which relate to programs that are in run-off and those for which we have initiated non-renewal. Personal Lines unfavorable development of $8.0 million was primarily due to higher than expected losses in the homeowners line, primarily in accident year 2021. The increase in homeowners losses was primarily due to higher severity and longer cycle times in repair activity, primarily related to claims incurred in the fourth quarter of 2021.

2021 Loss and LAE Development, excluding catastrophes

In 2021, net favorable loss and LAE development, excluding catastrophes, was $56.1 million. Core Commercial favorable development of $17.8 million was primarily due to lower than expected losses of $22.3 million within the workers’ compensation line in accident years 2014 through 2020. Specialty favorable development of $16.2 million was primarily due to lower than expected losses within our surety line, primarily in accident years 2013 through 2016, 2018 and 2019, and lower than expected losses in our Marine division in accident years 2019 and 2020, partially offset by higher than expected losses in our general liability lines. Personal Lines favorable development of $23.1 million was primarily due to lower than expected losses of $23.5 million in the personal automobile line, driven by lower bodily injury and personal injury protection losses, primarily in accident year 2020.

2020 Loss and LAE Development, excluding catastrophes

In 2020, net favorable loss and LAE development, excluding catastrophes, was $15.5 million. Core Commercial favorable development of $12.6 million was primarily due to lower than expected losses of $34.9 million within the workers’ compensation line in accident years 2016 through 2019. This was partially offset by higher than expected losses in our commercial automobile line driven by higher bodily injury and personal protection losses, primarily in accident years 2017 through 2019, and in our commercial multiple peril line, primarily in accident years 2017 and 2019. Specialty favorable development of $6.4 million was primarily due to lower than expected losses in our Marine division, in accident years 2017 through 2019, partially offset by higher than expected losses in our general liability lines. In addition, the adverse prior year development in Other was due to our run-off voluntary assumed property and casualty reinsurance pools business primarily based on an updated third-party actuarial study received in the first quarter of 2020 for the legacy ECRA pool that consists primarily of asbestos and environmental exposures.

Asbestos and Environmental Reserves

As of December 31, 2022, we had $11.9 million of net asbestos and environmental reserves, comprised of $9.8 million of direct reserves and $2.1 million of assumed reinsurance pool reserves. This compares to net reserves of $11.7 million and $39.8 million as of December 31, 2021 and 2020, respectively. Ending loss and LAE reserves for all direct business written by our insurance companies related to asbestos and environmental damage liability were $9.8 million, $9.6 million and $8.3 million, net of reinsurance of $16.8 million, $16.7 million and $17.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. Activity for our direct asbestos and environmental reserves was not significant to our 2022, 2021 or 2020 financial results. As a result of our historical direct underwriting mix of Core Commercial and Specialty policies toward smaller and middle market risks, past asbestos and environmental damage liability loss experience has remained minimal in relation to our total loss and LAE incurred experience. Although we attempt to limit our exposures to asbestos and environmental damage liability through specific policy exclusions, we have been, and may continue to be, subject to claims related to these exposures.

In addition to reserves we carry to cover exposure in our direct business, we have established gross and net loss and LAE reserves for assumed reinsurance pool business with asbestos and environmental damage liability. As of December 31, 2022, we had $30.5 million of gross reserves and $2.1 million of net reserves for assumed reinsurance pool business. This compares to $31.0 million of gross loss and LAE reserves and $2.1 million of net loss and LAE reserves at December 31, 2021, and gross and net loss and LAE reserves of $31.5 million at December 31, 2020. These reserves relate to pools in which we have terminated our participation; however, we continue to be subject to claims related to years in which we were a participant. Results of operations from these pools are included in our Other segment. A significant part of our gross pool reserves relates to our participation in the ECRA voluntary pool. In 1982, the pool was dissolved and since that time, the business has been in run-off. During 2021, we entered into an agreement to transfer our ECRA pool participations to a third-party reinsurer. This transfer was executed through a 100% reinsurance arrangement for our ECRA claim liability participations written during the period 1950 to 1982. This transaction had no significant impact on our 2021 results of operations.

We estimate our ultimate liability for asbestos, environmental and toxic tort liability claims, whether resulting from direct business, assumed reinsurance or pool business, based upon currently known facts, reasonable assumptions where the facts are not known, current law, and methodologies currently available. Although these outstanding claims are not believed to be significant, their existence gives rise to uncertainty and are discussed because of the possibility that they may become significant. We believe that, notwithstanding the evolution of case law expanding liability in asbestos and environmental claims, recorded reserves related to these claims are adequate.

52

Table of Contents

Nevertheless, the asbestos, environmental and toxic tort liability reserves could be revised, and any such revisions could have a material adverse effect on our results of operations for a particular quarterly or annual period, or on our financial position.

Reinsurance Recoverables

Reinsurance recoverables were $1,964.5 million and $1,907.3 million at December 31, 2022 and December 31, 2021, respectively, of which $111.1 million and $100.4 million, respectively, represent billed recoverables. A reinsurance recoverable is billed after an eligible reinsured claim is paid by an insurer. Billed reinsurance recoverables related to the Michigan Catastrophic Claims Association (the “MCCA”) were $50.7 million and $49.8 million at December 31, 2022 and December 31, 2021, respectively, and billed non-MCCA reinsurance recoverables totaled $60.4 million and $50.6 million at December 31, 2022 and December 31, 2021, respectively. At December 31, 2022 and December 31, 2021, there were no billed non-MCCA recoverables outstanding greater than 90 days.

INVESTMENTS

INVESTMENT RESULTS

Net investment income before income taxes was as follows:

The decrease in net investment income in 2022 was primarily due to lower limited partnership income, partially offset by the continued investment of operational cash flows and the impact of higher new money yields. The increase in net investment income in 2021 was primarily due to higher limited partnership income and, to a lesser extent, the continued investment of operational cash flows, partially offset by the impact of lower money yields. Income from partnerships can vary significantly from year to year based on the performance in the underlying portfolios. Lower income from our limited partnerships in 2022 reflects a more normalized return environment as compared to 2021, where performance was driven by substantial valuation increases across all private capital strategies, and which results are not indicative of the long-term targeted returns for this asset class. Partnership results in 2020, particularly early in the year, were negatively impacted by Pandemic-related business and financial market disruptions.

INVESTMENT PORTFOLIO

We held cash and investment assets diversified across several asset classes, as follows:

CASH AND INVESTMENTS

Total cash and investments decreased $568.7 million, or 6.1%, for the year ended December 31, 2022, primarily due to net market value depreciation and the funding of financing activities, including our dividend payments and stock repurchases, partially offset by the continued investment of operational cashflows.

53

Table of Contents

The following table provides information about the investment types of our fixed maturities portfolio:

The change in net unrealized loss on fixed maturities was primarily due to higher prevailing interest rates and, to a lesser extent, wider credit spreads.

Amortized cost and fair value by rating category were as follows:

Based on ratings by the National Association of Insurance Commissioners (“NAIC”), approximately 96% and 95% of our fixed maturity portfolio consisted of investment-grade securities at December 31, 2022 and 2021, respectively. The quality of our fixed maturity portfolio remains strong based on ratings, capital structure position, support through guarantees, underlying security, issuer diversification and yield curve position.

Our investment portfolio primarily consists of fixed maturity securities whose fair value is susceptible to market risk, including interest rate changes. See also “Quantitative and Qualitative Disclosures about Market Risk.” Duration is a measurement used to quantify our inherent interest rate risk and analyze invested assets relative to our reserve liabilities.

The duration of our fixed maturity portfolio was as follows:

Our fixed maturity and equity securities are carried at fair value. Financial instruments whose value was determined using significant management judgment or estimation constituted less than 1% of the total assets we measured at fair value. See also Note 4 - “Fair Value” in the Notes to Consolidated Financial Statements.

54

Table of Contents

Limited partnerships and other investments consist primarily of our interest in corporate middle market and real estate limited partnerships. Corporate middle market limited partnerships may invest in senior or subordinated debt, preferred or common equity or a combination thereof, of privately-held middle market businesses. Real estate limited partnerships hold equity ownership positions in real properties and invest in debt secured by real properties. Our limited partnerships are generally accounted for under the equity method, or as a practical expedient using the fund’s net asset value, with financial information provided by the partnership on a two or three month lag.

Mortgage and other loans consist of commercial mortgage loan participations, which represent our interest in commercial mortgage loans originated by a third-party. We share, on a pro-rata basis, in all related cash flows of the underlying mortgage loans, which are primarily investment-grade quality and diversified by geographic area and property type.

Equity securities primarily consist of U.S. income-oriented large capitalization common stocks and a broadly diversified U.S. equity index exchange-traded fund.

Although we expect to invest new funds primarily in investment-grade fixed maturities, we have invested, and expect to continue to invest, a portion of funds in below investment grade fixed maturities, limited partnerships, common equity securities and other investment assets.

We deposit funds with various state and governmental authorities. See Note 2 – “Investments” in the Notes to Consolidated Financial Statements for additional information.

IMPAIRMENTS

For the years ended December 31, 2022, 2021 and 2020, we recognized net impairments of $16.7 million, $0.7 million and $26.3 million, respectively. In 2022, impairments consisted primarily of losses on intent to sell fixed maturity securities due to a transfer of certain investment management responsibilities to an external manager. In 2021, impairments primarily consisted of $1.3 million on fixed maturities, partially offset by recoveries of credit losses on mortgage loans. In 2020, impairments primarily consisted of $17.6 million on fixed maturities, primarily relating to intent to sell securities, and $6.7 million of estimated credit losses on mortgage loans.

At December 31, 2022 and 2021, the allowance for credit losses on mortgage loans was $3.2 million and $7.1 million, respectively, and the allowance for credit losses on available-for-sale securities was $2.1 million and $0.3 million, respectively.

There were no fixed maturity securities on non-accrual status at December 31, 2022 or 2021, and there was no effect on income for the year ended December 31, 2022. The effects of non-accruals compared with amounts that would have been recognized in accordance with the original terms of the fixed maturities for the years ended December 31, 2021 and 2020 were not material. Any defaults in the fixed maturities portfolio in future periods may negatively affect investment income.

UNREALIZED LOSSES

Gross unrealized losses on fixed maturities at December 31, 2022 were $817.7 million, an increase of $769.7 million compared to December 31, 2021, primarily attributable to higher prevailing interest rates and, to a lesser extent, wider credit spreads. At December 31, 2022, gross unrealized losses consisted primarily of $337.7 million on corporate fixed maturities, $164.2 million on municipals, $142.1 million on residential mortgage-backed securities, $87.7 million on commercial mortgage-backed securities and $58.9 million on U.S. government securities. See also Note 2 – “Investments” in the Notes to Consolidated Financial Statements.

We view gross unrealized losses on fixed maturities as non-credit related since it is our assessment that these securities will recover, allowing us to realize their anticipated long-term economic value. Further, we do not intend to sell, nor is it more likely than not we will be required to sell, such debt securities before this expected recovery of amortized cost (see also “Liquidity and Capital Resources”). Inherent in our assessment are the risks that market factors may differ from our expectations; we may decide to subsequently sell a security for unforeseen business needs or an economic purpose; or changes in the credit assessment from our original assessment may lead us to determine that a sale at the current value would maximize recovery on such investments. To the extent that there are such adverse changes, an impairment would be recognized as a realized loss. Although unrealized losses on fixed maturities are not reflected in the results of financial operations until they are realized, the fair value of the underlying investment, which does reflect the unrealized loss, is reflected in our Consolidated Balance Sheets.

The following table sets forth gross unrealized losses for fixed maturities by maturity period at December 31, 2022 and 2021. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties, or we may have the right to put or sell the obligations back to the issuers.

55

Table of Contents

Our investment portfolio and shareholders’ equity can be significantly impacted by changes in market values of our securities. Market volatility could increase and defaults on fixed income securities could occur. As a result, we could incur additional realized and unrealized losses in future periods, which could have a material adverse impact on our results of operations and/or financial position.

The Federal Reserve (“the Fed”) increased the federal funds rate by 4.50% since the beginning of 2022 and has indicated that ongoing increases to the target range may be appropriate in 2023 in order to return inflation to 2 percent over time. The Fed has stated it will also continue to reduce the size of its balance sheet. Despite these efforts to tame pricing pressures in the U.S., inflation remains at high levels. The Fed's limited set of quantitative tightening tools may be insufficient to address certain drivers of price pressures, including supply and demand imbalances and energy price volatility derived from geopolitical risk. Tighter financial conditions for businesses and consumers are increasing the probability of a further economic slowdown in 2023.

We may experience defaults on fixed income securities, particularly with respect to non-investment grade debt securities. Although we perform rigorous credit analysis of our fixed income investments, it is difficult to foresee which issuers, industries or markets will be most affected. As a result, the value of our fixed maturity portfolio could change rapidly in ways we cannot currently anticipate, and we could incur additional realized and unrealized losses in future periods.