The Hanover Insurance (THG) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited interim consolidated financial statements for The Hanover Insurance Group, Inc. as of June 30, 2025 Consolidated Statements of Income Net income significantly increased to $285.3 million for the six months ended June 30, 2025, driven by higher revenues and lower expenses Consolidated Income Statement Highlights (in millions, except per share data) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Total Revenues | $3,257.6 | $3,087.8 | | Premiums | $3,053.8 | $2,921.8 | | Net Investment Income | $211.6 | $180.1 | | Total Losses and Expenses | $2,898.7 | $2,891.2 | | Income from Continuing Operations | $285.1 | $155.9 | | Net Income | $285.3 | $156.0 | | Diluted EPS | $7.80 | $4.30 | Consolidated Statements of Comprehensive Income Comprehensive income for the six months ended June 30, 2025, rose substantially to $454.4 million, primarily due to improved unrealized gains on investments Consolidated Comprehensive Income (in millions) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Income | $285.3 | $156.0 | | Other Comprehensive Income (Loss) | $169.1 | $(23.6) | | Changes in net unrealized gains (losses) on investment securities | $167.5 | $(28.1) | | Comprehensive Income | $454.4 | $132.4 | Consolidated Balance Sheets Total assets increased to $15.73 billion as of June 30, 2025, leading to a growth in total shareholders' equity to $3.22 billion Consolidated Balance Sheet Highlights (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Investments | $9,941.3 | $9,409.8 | | Total Assets | $15,732.1 | $15,274.5 | | Loss and Loss Adjustment Expense Reserves | $7,636.2 | $7,461.2 | | Total Liabilities | $12,515.8 | $12,432.7 | | Total Shareholders' Equity | $3,216.3 | $2,841.8 | Consolidated Statements of Shareholders' Equity Total shareholders' equity increased to $3.22 billion, driven by net income and a positive change in accumulated other comprehensive income - Key drivers of the change in shareholders' equity for the first six months of 2025 were net income of $285.3 million, offset by $65.6 million in dividends and $38.6 million in share repurchases[14] - Accumulated other comprehensive loss improved significantly, decreasing from a loss of $456.3 million at the beginning of the period to a loss of $287.2 million at the end, primarily due to unrealized gains on investments[14] Consolidated Statements of Cash Flows Net cash provided by operating activities increased to $245.5 million for the six months ended June 30, 2025, despite a net decrease in cash and cash equivalents Consolidated Cash Flows (in millions) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $245.5 | $198.2 | | Net Cash used in Investing Activities | $(334.4) | $(108.8) | | Net Cash used in Financing Activities | $(102.8) | $(64.0) | | Net Change in Cash and Cash Equivalents | $(191.7) | $25.4 | Notes to Interim Consolidated Financial Statements The notes provide detailed supplementary information on accounting policies, investments, segments, and loss reserves - The company adopted ASC Update No. 2023-07 on segment reporting effective January 1, 2024, which requires enhanced disclosures about segment expenses and profit/loss measures[23] - The company's business operations are divided into four reporting segments: Core Commercial, Specialty, Personal Lines, and Other, with performance evaluated based on operating income before interest and taxes[62][64] - For the six months ended June 30, 2025, the company recorded net favorable prior year loss and LAE development of $56.2 million, an increase from $54.8 million in the same period of 2024[85] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial performance, segment results, investments, and liquidity for the first half of 2025 Executive Overview Net income for the first six months of 2025 significantly improved to $285.3 million, driven by higher operating income, better Personal Lines underwriting, and lower catastrophe losses Six Months Ended June 30, 2025 vs 2024 (in millions) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net Income | $285.3 | $156.0 | | Operating Income (pre-tax, pre-interest) | $396.3 | $245.1 | | Pre-tax Catastrophe Losses | $203.1 | $244.0 | - The company's strategy focuses on the independent agency distribution channel, leveraging specialty market capabilities and developing growth solutions for agents[99] - Improved Personal Lines results were a primary driver, benefiting from earned pricing outpacing loss trends and moderated frequency in auto collision and homeowners coverages[101] Results of Operations - Segments Operating income before interest and taxes improved to $396.3 million, with Personal Lines showing a dramatic turnaround and Specialty growing, while Core Commercial declined Segment Operating Income (Loss) Before Interest & Taxes (in millions) | Segment | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Core Commercial | $110.7 | $154.7 | | Specialty | $135.8 | $101.4 | | Personal Lines | $151.6 | $(11.5) | | Other | $(1.8) | $0.5 | | Total | $396.3 | $245.1 | Segment Combined Ratios | Segment | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Core Commercial | 98.2% | 92.8% | | Specialty | 87.0% | 90.4% | | Personal Lines | 92.6% | 105.0% | | Total | 93.3% | 97.3% | Investments Net investment income increased to $211.6 million, driven by higher interest rates, and the investment portfolio grew to $10.19 billion with improved unrealized losses Net Investment Income (in millions) | Period | 2025 | 2024 | | :--- | :--- | :--- | | Three Months Ended June 30 | $105.5 | $90.4 | | Six Months Ended June 30 | $211.6 | $180.1 | - The fixed maturity portfolio, valued at $9.08 billion, is the largest asset class, with approximately 95% rated as investment-grade by the NAIC[180][183] - Gross unrealized losses on fixed maturities improved by $160.3 million during the first half of 2025, primarily due to lower interest rates[193] Liquidity and Capital Resources The company maintains strong liquidity with $338.8 million in liquid assets and access to significant credit facilities, supporting operations and shareholder returns - Net cash provided by operating activities increased to $245.5 million in H1 2025 from $198.2 million in H1 2024[213] - In H1 2025, the company repurchased 234,000 shares for $38.6 million, with approximately $265 million remaining under its repurchase authorization[221] - The holding company held $338.8 million in liquid assets and had access to a $150 million revolving credit facility and a $317.5 million FHLB borrowing facility, both undrawn at quarter-end[218][222][223] Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's market risks or their management during the first six months of 2025 - There have been no material changes to the company's market risks or its management of them in the first six months of 2025 compared to what was reported in the 2024 Form 10-K[228] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of the end of Q2 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level[232] - No changes were identified during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[233] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal and regulatory matters, with management not expecting a material effect on financial position - The company is a defendant in various legal proceedings and subject to regulatory examinations arising in the normal course of business[235] - The ultimate outcome of these proceedings is not expected to have a material effect on the company's financial position[235] Risk Factors This section outlines various risk factors, including adverse claims, catastrophe losses, regulatory changes, and cybersecurity threats, that could impact future results - The company identifies several key risk factors that could impact future performance, including: * Adverse claims experience and catastrophe losses * Changes in regulation, legislation, and economic conditions * Volatility in financial markets affecting the investment portfolio * Competition and disruption in distribution channels * Impacts of changing climate conditions * Cybersecurity risks and technology failures[238][240] - The company states that readers should not place undue reliance on forward-looking statements and that it does not undertake responsibility to update them[240] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company repurchased 170,265 shares for $38.6 million, with approximately $265 million remaining under its repurchase authorization Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Approx. Value Remaining for Purchase (in millions) | | :--- | :--- | :--- | :--- | :--- | | April 2025 | 113,437 | $160.29 | 112,850 | $274 | | May 2025 | 32,674 | $167.54 | 32,508 | $269 | | June 2025 | 24,154 | $169.69 | 24,154 | $265 | | Total | 170,265 | $163.01 | 169,512 | $265 | Other Information Dennis F. Kerrigan, EVP and Chief Legal Officer, adopted a Rule 10b5-1 trading plan on May 12, 2025, for the potential sale of up to 14,917 shares - Executive Vice President and Chief Legal Officer, Dennis F. Kerrigan, adopted a Rule 10b5-1 trading plan on May 12, 2025, for the potential sale of up to 14,917 shares upon option exercise[243] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and iXBRL financial statements - Filed exhibits include CEO and CFO certifications (302 and 906), a description of non-employee director compensation, and iXBRL data files[247] Signatures - The report was duly signed on July 31, 2025, by John C. Roche, President, Chief Executive Officer and Director, and Jeffrey M. Farber, Executive Vice President and Chief Financial Officer[249]