Hanover Insurance Group Inc THG

First Quarter Highlights

• Combined ratio of 94.1%; combined ratio, excluding catastrophes⁽¹⁾, of 87.8%
• Catastrophe losses of $95.6 million, or 6.3 points of the combined ratio
• Net premiums written increase of 3.9%*
• Renewal price increases⁽²⁾ of 13.1% in Personal Lines, 11.1% in Core Commercial, and 8.4% in Specialty
• Rate increases⁽²⁾ of 11.8% in Personal Lines, 9.1% in Core Commercial, and 5.9% in Specialty
• Loss and loss adjustment expense (LAE) ratio of 63.3%, 1.3 points below the prior-year quarter
• Current accident year loss and LAE ratio, excluding catastrophes⁽³⁾, of 58.3%, 1.0 point below the prior-year quarter, led by outstanding improvement in Personal Lines
• Net investment income of $106.1 million, up 18.3% from the prior-year quarter driven primarily by higher earned yields and higher cashflows, partially offset by slightly lower partnership income; net investment income from fixed maturities up 23.2%
• Book value per share of $84.56, up 6.8% from December 31, 2024, driven by strong earnings and a decrease in the unrealized loss position on the fixed maturity portfolio in the quarter

WORCESTER, Mass., April 30, 2025 /PRNewswire/ -- The Hanover Insurance Group, Inc. (NYSE: THG) today reported net income of $128.2 million, or $3.50 per diluted share, in the first quarter of 2025, compared to $115.5 million, or $3.18 per diluted share, in the prior-year quarter. Operating income⁽⁴⁾ was $141.8 million, or $3.87 per diluted share, in the first quarter of 2025, compared to $111.9 million, or $3.08 per diluted share, in the prior-year quarter. The company reported net and operating return on equity⁽⁵⁾ of 17.4% and 17.2%, respectively, in the first quarter of 2025.

"We delivered excellent results in the first quarter, with a 17.2% operating return on equity despite significant U.S. industry catastrophe activity," said John C. Roche, president and chief executive officer at The Hanover. "Our performance in the quarter is a testament to the effectiveness of the catastrophe mitigation actions and the margin enhancement initiatives we have implemented over the past two years. As a result, we have continued to increase underwriting margins on an ex-CAT basis, as demonstrated by the 1.7-point improvement in our ex-CAT combined ratio, compared to the same period last year."

"We fully expect to accelerate premium growth through the year, as we leverage our strong market position and relevant product and service offerings. In Specialty, we anticipate our recent investments in talent and technology will drive increasing growth in our most profitable lines. In Core Commercial, we expect a more nuanced pricing strategy to enable us to capitalize on even greater opportunities in the marketplace, particularly in Small Commercial. And, in Personal Lines, we will continue to take advantage of our improved profitability to drive increasing policy counts and premium growth in states targeted for expansion. Market conditions remain favorable across most of our business segments, as we achieved low double-digit price increases in Personal Lines and Small Commercial, and high single-digit price increases in Specialty and Middle Market. As we navigate an uncertain economic landscape, we are confident we are prepared to face these uncertainties from a position of strength."

"Our results reflect record first quarter operating EPS of $3.87 per share, a combined ratio of 94.1% and 18% growth in net investment income, clear evidence that our strategy is driving strong performance in all key areas of our operations," said Jeffrey M. Farber, executive vice president and chief financial officer at The Hanover. "Our reserve position remains strong, underscored by favorable prior-year development across each major segment, and prudent IBNR** reserves. The significant increase in net investment income reflects the impact of higher new money rates and growth in invested assets from strong operating cash flows, which position us to deliver even stronger investment income performance going forward. Additionally, we further demonstrated our commitment to returning capital to shareholders, repurchasing 173,000 shares of common stock, totaling $28.4 million year-to-date through April 29th, underscoring our conviction in the long-term value of and the positive outlook for our business."

First Quarter 2025 Highlights

First Quarter Operating Highlights

Core Commercial
Core Commercial operating income before income taxes was $26.8 million in the first quarter of 2025, compared to $71.5 million in the first quarter of 2024. The Core Commercial combined ratio was 103.4%, compared to 93.9% in the prior-year quarter. Catastrophe losses in the first quarter of 2025 were $46.0 million, or 8.5 points of the combined ratio. This compared to catastrophe losses of $20.7 million, or 3.9 points, in the prior-year quarter.

First quarter 2025 results included net favorable prior-year reserve development, excluding catastrophes, of $1.3 million, or 0.2 points. This compared to net favorable prior-year reserve development, excluding catastrophes, of $9.2 million, or 1.7 points, in the first quarter of 2024.

Core Commercial current accident year combined ratio, excluding catastrophes, increased 3.4 points to 95.1% in the first quarter of 2025, compared to 91.7% in the prior-year quarter. The current accident year loss and LAE ratio, excluding catastrophes, was 61.7%, 3.2 points higher than the prior-year quarter, primarily driven by elevated property large losses, while liability loss experience remained consistent with expectations.

Net premiums written were $604.6 million in the quarter, up 3.8% from the prior-year quarter, consisting of 6.7% growth in middle market and 1.7% growth in small commercial. In the first quarter, Core Commercial renewal price increases averaged 11.1%, including average rate increases of 9.1%.

The following table summarizes premiums and the components of the combined ratio for Core Commercial:

Specialty
Specialty operating income before income taxes was $64.6 million in the first quarter of 2025, compared to $58.8 million in the first quarter of 2024. The Specialty combined ratio was 87.7%, compared to 87.6% in the prior-year quarter. Catastrophe losses in the first quarter of 2025 were $14.7 million, or 4.3 points of the combined ratio, compared to $7.0 million, or 2.2 points, in the prior-year quarter.

First quarter 2025 results included net favorable prior-year reserve development, excluding catastrophes, of $15.9 million, or 4.7 points, with widespread favorability, led by marine and professional and executive lines claims-made business. Net favorable prior-year reserve development, excluding catastrophes, was $1.1 million, or 0.3 points, in the first quarter of 2024.

Specialty current accident year combined ratio, excluding catastrophes, increased 2.4 points, to 88.1% in the first quarter of 2025, from 85.7% in the prior-year quarter, primarily due to an increase in the loss ratio. The current accident year loss and LAE ratio, excluding catastrophes, of 51.1% in the first quarter of 2025, increased 2.4 points compared to the prior-year quarter, driven by a more normal level of property large losses in the first quarter of 2025 compared to lower levels in the prior-year quarter. The loss ratio in the first quarter of 2025 approximated the company's expectations.

Net premiums written were $358.3 million in the quarter, up 5.4% from the prior-year quarter. In the first quarter, Specialty renewal price increases averaged 8.4%, including average rate increases of 5.9%.

The following table summarizes premiums and the components of the combined ratio for Specialty:

Personal Lines
Personal Lines operating income before income taxes was $94.2 million in the first quarter of 2025, compared to $18.9 million in the first quarter of 2024. The Personal Lines combined ratio was 89.7%, compared to 101.0% in the prior-year quarter. Catastrophe losses in the first quarter of 2025 were $34.9 million, or 5.6 points of the combined ratio. This compared to catastrophe losses of $59.2 million, or 9.9 points of the combined ratio, in the prior-year quarter.

First quarter 2025 results included net favorable prior-year reserve development, excluding catastrophes, of $2.8 million, or 0.4 points, compared to immaterial net prior-year reserve development, excluding catastrophes, in the first quarter of 2024.

Personal Lines current accident year combined ratio, excluding catastrophe losses, decreased 6.6 points, to 84.5% in the first quarter of 2025, from 91.1% in the prior-year quarter. The current accident year loss and LAE ratio, excluding catastrophes, decreased 6.4 points from the prior-year quarter to 59.2%, driven by the benefit of earned pricing outpacing loss trends in both personal auto and homeowners, as well as lower loss frequency, particularly in auto physical damage coverages and homeowners.

Net premiums written were $547.9 million in the quarter, up 3.0% compared to the prior-year quarter. The increase was primarily due to the impact of higher new business and continued strong pricing increases. Personal Lines renewal price increases averaged 13.1%, including average rate increases of 11.8%. Policies in force in the first quarter of 2025 decreased 0.7% compared to the fourth quarter of 2024, with a 1.2% decline in the Midwestern United States, while the rest of the country was essentially flat.

The following table summarizes premiums and components of the combined ratio for Personal Lines:

Investments
Net investment income was $106.1 million for the first quarter, an 18.3% increase from the prior-year quarter, primarily due to the impact of higher earned yields on the fixed maturity investment portfolio, and the continued investment of cashflows from operations. Total pre-tax earned yield on the investment portfolio for the first quarter of 2025 was 4.14%, up from 3.70% in the prior-year quarter. The average pre-tax earned yield on fixed maturities was 4.08% for the first quarter of 2025, up from 3.52% in the prior-year quarter.

Net realized and unrealized investment losses recognized in earnings were $17.8 million in the first quarter of 2025, driven by the sale of certain lower-yield fixed income securities, in consideration of expiring tax gains from 2022. This compared to net realized and unrealized investment gains recognized in earnings of $5.5 million in the first quarter of 2024.

The company held $10.0 billion in cash and invested assets on March 31, 2025. Fixed maturities and cash represented approximately 91% of the investment portfolio. Approximately 95% of the company's fixed maturity portfolio is rated investment grade. As of March 31, 2025, net unrealized losses on the fixed maturity portfolio were $370.4 million before income taxes, compared to $509.3 million on December 31, 2024.

Shareholders' Equity and Capital Actions  
On March 31, 2025, book value per share was $84.56, up 6.8% from December 31, 2024, driven by strong earnings and a decrease in the unrealized loss position on the fixed maturity portfolio in the quarter, partially offset by the ordinary quarterly cash dividend. Book value per share increased 20.4% from March 31, 2024. Book value per share, excluding net unrealized depreciation on fixed maturity investments, net of tax⁽⁷⁾, was $92.64 on March 31, 2025, up 2.5% and 10.3% from December 31, 2024 and March 31, 2024, respectively.

On March 31, 2025, operating insurance company's statutory capital and surplus was $3.10 billion. This compared to statutory capital and surplus of $2.97 billion on December 31, 2024.

Year-to-date, through April 29, 2025, the company repurchased approximately 173,000 shares of common stock, totaling $28.4 million, of which approximately 65,000 were purchased in the open market during the first quarter of 2025 for $11.0 million, with the remaining balance purchased through a 10b5-1 plan during April. The company has approximately $275 million of remaining capacity under its existing share repurchase program.

Earnings Conference Call
The company will host a conference call to discuss its first quarter results on Thursday, May 1, at 10:00 a.m. E.T.  A presentation will accompany the prepared remarks and has been posted on The Hanover's website.  Interested investors and others can listen to the call and access the presentation through The Hanover's website, located in the "Investors" section at www.hanover.com. Investors may access the conference call by dialing 1-844-413-3975 in the U.S. and 1-412-317-5458 internationally. Webcast participants should go to the website 15 minutes early to register, download and install any necessary audio software. A re-broadcast of the conference call will be available on The Hanover's website approximately two hours after the call.

About The Hanover
The Hanover Insurance Group, Inc. is the holding company for several property and casualty insurance companies, which together constitute one of the largest insurance businesses in the United States. The company provides exceptional insurance solutions through a select group of independent agents and brokers. Together with its agent partners, the company offers standard and specialized insurance protection for small and mid-sized businesses, as well as for homes, automobiles, and other personal items. For more information, please visit hanover.com.

Contact Information

Definition of Segments
Continuing operations include four reporting segments: Core Commercial, Specialty, Personal Lines and Other. The Core Commercial segment includes commercial multiple peril, commercial automobile, workers' compensation and other commercial lines coverages provided to small and mid-sized businesses. The Specialty segment includes four divisions of business: professional and executive lines, specialty property and casualty (Specialty P&C), marine, and surety and other. Specialty P&C includes coverages such as program business (provides 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. The Personal Lines segment markets automobile, homeowners and ancillary coverages to individuals and families. The Other segment primarily includes the operations of the holding company and a block of run-off voluntary assumed property and casualty pools business in which the company has not actively participated since 1995, and run-off direct asbestos and environmental, and product liability businesses.

Financial Supplement
The Hanover's first quarter news release and financial supplement are available in the "Investors" section of the company's website at hanover.com.

The following is a reconciliation from operating income to net income⁽⁴⁾⁽⁸⁾:

Forward-Looking Statements and Non-GAAP Financial Measures 

Forward-Looking Statements
Certain statements in this document and comments made by management may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. Words such as, but not limited to, "believes," "anticipates," "expects," "intends," "may," "projects," "projections," "plan," "likely," "potential," "targeted," "forecasts," "should," "could," "continue," "outlook," "guidance," "modeling," "target profitability," "target margins," "confident," "optimistic," "committed," "will," "line of sight," "clear visibility to," "designed," "position us," and other similar expressions are intended to identify forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. The company cautions investors that any such forward-looking statements are estimates, beliefs, expectations and/or projections that involve significant judgment, and that historical results, trends and forward-looking statements are not guarantees and are not necessarily indicative of future performance. Actual results could differ materially from those anticipated.

These statements include, but are not limited to, the company's statements regarding:

• The company's outlook and its ability and confidence in achieving components or the sum of the respective period guidance and/or long-term targets for future results of operations including: the combined ratio, excluding catastrophe losses; catastrophe losses; net investment income; growth of net premiums written, net premiums earned and/or pricing increases in total or by line of business; expense ratio; operating return on equity; interest rate assumptions and investment portfolio management, renewal price change, rate, and/or the effective tax rate;
• The company's ability and timing to deliver on expectations set forth related to target margins, target returns and/or return to target profitability in total or by line of business;
• The impacts of general economic and socioeconomic conditions on the company's operating and financial results, including, but not limited to, the impact on the company's investment portfolio and capital planning, changes in claims frequency as a result of fluctuations in economic activity, the potential impacts of inflation, and/or claims severity from higher cost of repairs due to, among other things, supply chain disruptions, tariffs and inflation;
• Ability to manage the impact of inflationary pressures, global market disruptions, economic conditions, geopolitical events or otherwise, including, but not limited to, supply chain disruptions, tariffs, labor shortages, and increases in cost of goods, services, labor, and materials;
• Uses, including the timing of uses, of capital for share repurchases, special or ordinary cash dividends, business investments or growth, debt maturities, or otherwise, and outstanding shares in future periods as a result of various share repurchase mechanisms, capital management framework, and overall comfort with liquidity and capital levels;
• Catastrophe modeling and variability of catastrophe losses due to risk concentrations, changes in weather patterns, severe weather including hurricanes, tornadoes and other windstorms, hail, flood, earthquakes, fire, explosions, severe winter weather and other convective storms, or pandemics, terrorism, civil unrest, riots or other events, as well as the complexity in estimating losses from large catastrophe events due to delayed reporting of the existence, nature or extent of losses or where "demand surge," regulatory assessments, litigation, coverage and technical complexities or other factors may significantly impact the ultimate amount of such losses;
• Current accident year losses and loss selections (picks), excluding catastrophes, and prior accident year loss reserve development patterns, particularly in complex "longer-tail" liability lines, as well as the inherent variability in short-tail property and non-catastrophe weather losses;
• Changes in frequency and loss severity trends in Core Commercial, Specialty and/or Personal Lines;
• The confidence or concern that the current level of reserves is adequate and/or sufficient for future claim payments, whether due to losses that have been incurred but not reported, circumstances that delay the reporting of losses, business complexity, adverse judgments or developments with respect to case reserves, the difficulties and uncertainties inherent in projecting future losses from historical data, changes in replacement and medical costs, as well as complexities including legislative, regulatory or judicial actions that expand the intended scope of coverages, or other factors;
• Characterization of some business as being "more profitable" in light of inherent uncertainty of ultimate losses incurred, especially for "longer-tail" liability businesses;
• Efforts to manage expenses, including the company's long-term expense savings targets, while allocating capital to business investment, which is at management's discretion;
• Our ability to retain profitable policies in force and attract profitable policies and to increase rates commensurate with, or in excess of, loss trends;
• The positive impact of mix improvement, underwriting initiatives, coverage restrictions, non-renewals, changes in terms and conditions, and pricing segmentation, among others, on the company's results;
• The ability to generate growth in targeted businesses, segments, and/or geographies through new agency appointments, rate increases, retention improvements, new business, expansion into geographies, new product introductions, or otherwise, the ability to balance rate actions and retention, as well as the ability to reduce premiums attributable to products, lines of business, or geographies believed to be less profitable;
• The ability to offset long-term and/or short-term loss trends due to increased frequency; increased "social inflation" from a more litigious environment, lawsuit abuse and higher average cost of resolution; increased property replacement or repair costs; and/or social movements; and
• Investment returns and the effect of macro-economic interest rate trends and overall security yields, including the macro-economic impact of governmental and/or central banking initiatives taken in response to inflationary pressures, and geopolitical circumstances, on new money yields, as well as individual investment and overall investment returns.

Additional Risks and Uncertainties
Investors are further cautioned and should consider the risks and uncertainties in the company's business that may affect such estimates and future performance that are discussed in the company's most recently filed reports on Form 10-K and Form 10-Q and other documents filed by The Hanover Insurance Group, Inc. with the Securities and Exchange Commission (SEC) and that are also available at www.hanover.com under "Investors." These risks and uncertainties include, but are not limited to:

• Changes in regulatory, legislative, economic, market and political conditions, particularly with respect to rates, the use of data, technology, artificial intelligence (AI), cybersecurity, policy terms and conditions, restrictions on cancellations and/or non-renewals, payment flexibility, and regions where the company has geographical concentrations;
• Heightened financial market volatility, fluctuations in interest rates (which have a significant impact on the market value of our investment portfolio and thus our book value), inflationary pressures, default rates, tariffs, difficult economic, market and political conditions and other factors that affect investment returns from the investment portfolio;
• Recessionary economic periods that may inhibit the company's ability to increase pricing or renew business, or otherwise impact the company's results, and which may be accompanied by higher claims activity in certain lines;
• Data security and privacy incidents, including, but not limited to, those resulting from malicious cybersecurity attacks on the company or its business partners and service providers, or intrusions into the company's information network systems, including cloud-based data information storage, or data sources;
• Adverse claims experience, including those driven by large or increased frequency and/or severity of catastrophe events, including those related to hurricanes, tornadoes and other windstorms, hail, flood, earthquakes, fire, explosions, severe winter weather and other convective storms, or due to terrorism, civil unrest, riots, or cybersecurity events (including from products not intended to provide cyber coverage);
• The limitations and assumptions used to model non-catastrophe property and casualty losses (particularly with respect to products with longer-tail liability lines, such as casualty and bodily injury claims, or involving emerging issues related to losses incurred as the result of new lines of business or reinsurance contracts and reinsurance recoverables), leading to potential adverse development of loss and loss adjustment expense reserves;
• Impacts of changing climate conditions and weather patterns causing higher levels of losses from weather events to persist and leading to new or enhanced regulations;
• Litigation and the possibility of adverse judicial decisions, including those which expand policy coverage beyond its intended scope and/or award "bad faith" or other non-contractual damages, and the impact of "social inflation" and third-party litigation funding affecting judicial awards and settlements;
• The ability to increase or maintain insurance rates in line with anticipated loss costs and/or governmental action, including mandates by state departments of insurance to either raise or lower rates, or provide credits or return premium to insureds;
• Investment impairments, which may be affected by, among other things, the company's ability and willingness to hold investment assets until they recover in value, as well as credit and interest rate risk, and general financial and economic conditions;
• Disruption of the independent agency channel or its operating model, including the impact of competition and consolidation in the industry and among agents and brokers, and the impact of AI tools;
• Competition, particularly from competitors who have resource and capability advantages, including the advancing use of AI technology;
• The global macroeconomic environment, including inflation, recessionary effects, global trade disputes, war, energy market disruptions, equity price risk, tariffs, and interest rate fluctuations, which, among other things, could result in reductions in market values of fixed maturities and other investments, and/or increases in loss costs;
• Adverse state and federal regulation, legislative and/or regulatory actions (including significant revisions to Michigan's automobile personal injury protection system and related litigation, and various regulations, orders and proposed legislation regarding bad faith, premium grace periods and returns, changes to policy terms and conditions, and rate actions);
• Financial ratings actions, in particular, downgrades to the company's ratings;
• Operational and technology risks and evolving technological and product innovation, including risks created by remote work environments, the evolving use of AI, and cybersecurity threats;
• Uncertainties in estimating indemnification liabilities recorded in conjunction with obligations undertaken in connection with the sale of various businesses and discontinued operations; and
• The ability to collect from reinsurers, reinsurance availability and pricing, reinsurance terms and conditions, and the performance of the run-off voluntary property and casualty pools business (including those in the Other segment or in discontinued operations).

Investors should not place undue reliance on forward-looking statements, which speak only as of the date they are made and should understand the risks and uncertainties inherent in or particular to the company's business. The company does not undertake the responsibility to update or revise such forward-looking statements, except as required by law.

Non-GAAP Financial Measures
As discussed on page 39 of the company's Annual Report on Form 10-K for the year ended December 31, 2024, the company uses non-GAAP financial measures as important measures of its operating performance, including operating income, operating income before interest expense and income taxes, operating income per diluted share, and components of the combined ratio, both excluding and/or including catastrophe losses, prior-year reserve development and the expense ratio. Management believes these non-GAAP financial measures are important indications of the company's operating performance. The definition of other non-GAAP financial measures and terms can be found in the 2024 Annual Report on pages 62-65.

Operating income and operating income per diluted share are non-GAAP measures. They are defined as net income excluding the after-tax impact of net realized and unrealized investment gains (losses), gains and/or losses on the repayment of debt, other non-operating items, and results from discontinued operations. Net realized and unrealized investment gains (losses), which include changes in the fair value of equity securities still held, are excluded for purposes of presenting operating income, as they are, to a certain extent, determined by interest rates, financial markets and the timing of sales. Operating income also excludes net gains and losses from disposals of businesses, gains and losses related to the repayment of debt, costs to acquire businesses, restructuring costs, the cumulative effect of accounting changes, and certain other items. Operating income is the sum of the segment income from: Core Commercial, Specialty, Personal Lines, and Other, after interest expense and income taxes. In reference to one of the company's four reporting segments, "operating income" is the segment income before both interest expense and income taxes. The company also uses "operating income per diluted share" (which is after both interest expense and income taxes). Operating income per share is calculated by dividing operating income by the weighted average number of diluted shares of common stock. Operating loss per share is calculated by dividing operating loss by the weighted average number of basic shares of common stock due to antidilution. The company believes that metrics of operating income in relation to its four reporting segments provide investors with a valuable measure of the performance of the company's continuing businesses because they highlight the portion of net income attributable to the core operations of the business. Net income is the most directly comparable GAAP measure for operating income (and operating income before income taxes) and measures of operating income that exclude the effects of catastrophe losses and/or prior-year reserve development. These non-GAAP measures should not be misconstrued as substitutes for income before income taxes or net income determined in accordance with GAAP. A reconciliation of operating income to net income for the relevant periods is included on page 9 of this news release and in the Financial Supplement.

Operating return on average equity (ROE) is a non-GAAP measure. See end note (5) for a detailed explanation of how this measure is calculated. Operating ROE is based on non-GAAP operating income. In addition, the portion of shareholder equity attributed to unrealized appreciation (depreciation) on fixed maturity investments, net of tax, is excluded. The company believes this measure is helpful in that it provides insight to the capital used by, and results of, the continuing business exclusive of interest expense, income taxes, and other non-operating items. These measures should not be misconstrued as substitutes for GAAP ROE, which is based on net income and shareholders' equity of the entire company and without adjustments.

Book value per share is total shareholders' equity divided by the number of common shares outstanding. Book value per share excluding net unrealized appreciation (depreciation) on fixed maturity investments, net of tax, is a non-GAAP measure and is total shareholders' equity excluding the after-tax effect of unrealized appreciation (depreciation) on fixed maturities and market risk divided by the number of common shares outstanding.

The company may provide measures of operating income and combined ratios that exclude the impact of catastrophe losses (which in all respects include prior accident year catastrophe loss development). A catastrophe is a severe loss, resulting from natural or manmade events including, but is not limited to, hurricanes, tornadoes and other windstorms, hail, flood, earthquakes, fire, explosions, severe winter weather and other convective storms, riots, and terrorism. Due to the unique characteristics of each catastrophe loss, there is an inherent inability to reasonably estimate the timing or loss amount in advance. The company believes a separate discussion excluding the effects of catastrophe losses is meaningful to understand the underlying trends and variability of earnings, loss and combined ratio results, among others.

Prior accident year reserve development, which can either be favorable or unfavorable, represents changes in the company's estimate of costs related to claims from prior years. Calendar year loss and loss adjustment expense (LAE) ratios determined in accordance with GAAP, excluding prior accident year reserve development, are sometimes referred to as "current accident year loss ratios." The company believes a discussion of loss and combined ratios, excluding prior accident year reserve development, is helpful since it provides insight into both estimates of current accident year results and the accuracy of prior-year estimates.

The loss and combined ratios in accordance with GAAP are the most directly comparable GAAP measures for the loss and combined ratios calculated excluding the effects of catastrophe losses and/or prior-year reserve development. The presentation of loss and combined ratios calculated excluding the effects of catastrophe losses and/or prior-year reserve development should not be misconstrued as substitutes for the loss and/or combined ratios determined in accordance with GAAP.

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SOURCE The Hanover Insurance Group, Inc.