THG Hanover Insurance Group Inc

First Quarter Highlights

• Combined ratio of 95.5%; combined ratio, excluding catastrophes⁽¹⁾, of 89.5%
• Catastrophe losses of $86.9 million, or 6.0 points of the combined ratio
• Net premiums written increase of 2.3%*
• Renewal price increases⁽²⁾ of 22.8% in Personal Lines, 11.5% in Core Commercial and 11.0% in Specialty
• Rate increases⁽²⁾ of 15.8% in Personal Lines, 9.3% in Core Commercial and 8.4% in Specialty
• Loss and loss adjustment expense (LAE) ratio of 64.6%, 9.1 points below the prior-year quarter, driven by lower catastrophe and non-catastrophe losses
• Current accident year loss and LAE ratio, excluding catastrophes⁽³⁾, of 59.3%, 1.9 points below the prior-year quarter
• Net investment income of $89.7 million, up 14.0% from the prior-year quarter, primarily due to higher bond reinvestment rates, higher partnership income, and the continued investment of operational cashflows
• Book value per share of $70.22, up 1.9% from December 31, 2023, primarily due to strong earnings in the quarter

WORCESTER, Mass., May 1, 2024 /PRNewswire/ -- The Hanover Insurance Group, Inc. (NYSE: THG) today reported net income of $115.5 million, or $3.18 per diluted share, in the first quarter of 2024, compared to a net loss of $12.0 million, or $0.34 per basic share, in the prior-year quarter. Operating income⁽⁴⁾ was $111.9 million, or $3.08 per diluted share, in the first quarter of 2024, compared to operating income of $4.6 million, or $0.13 per diluted share, in the prior-year quarter.

"The year is off to an excellent start, highlighted by strong underwriting margins and operating return on equity⁽⁵⁾ of 15%," said John C. Roche, president and chief executive officer at The Hanover. "In Specialty, we produced another quarter of exceptional profitability, reporting a sub-90s combined ratio while investing in capabilities and positioning ourselves for enhanced growth. We delivered strong performance in Core Commercial, growing our small commercial business by 8% while diligently executing on property profitability actions in middle market. In Personal Lines, we continued to take a disciplined and discerning approach to our growth, as we reposition this book to add more earnings resiliency and to drive strong, sustainable returns. We also began to reaccelerate new business in states where we reached target profitability on a written basis, while continuing to manage micro-concentrations and CAT vulnerability elsewhere, primarily in the Midwest. Our successful execution in the market is a testament to our proven strategy, experienced team and the strong relationships we have with the best independent agents across the country."

 "Our overall ex-CAT combined ratio, at 89.5%, improved more than two points in the quarter, validating the effectiveness of pricing and other margin recapture initiatives across our three segments," said Jeffrey M. Farber, executive vice president and chief financial officer at The Hanover. "We continued to get near historical pricing increases in each of our businesses, giving us clear visibility to accelerated improvement in underwriting margins going forward. In the first quarter, we implemented renewal price increases of 23% in Personal Lines, 12% in Core Commercial and 11% in Specialty. And, at the same time, we increased net investment income by 14% to $89.7 million, helped by investment of cash flow and higher new money yields. As we continue to drive our organization forward, we have strong line of sight to delivering on our long-term return on equity target of 14% or higher, and we remain committed to generating superior returns for our valued shareholders."

First Quarter Operating Highlights

Core Commercial
Core Commercial operating income before income taxes was $71.5 million in the first quarter of 2024, compared to $11.2 million in the first quarter of 2023. The Core Commercial combined ratio was 93.9%, compared to 104.7% in the prior-year quarter. Catastrophe losses in the first quarter of 2024 were $20.7 million, or 3.9 points of the combined ratio. This compared to catastrophe losses of $63.9 million, or 12.6 points, in the prior-year quarter.

First quarter 2024 results included net favorable prior-year reserve development, excluding catastrophes, of $9.2 million, or 1.7 points, with favorability in each major line of business. This compared to net unfavorable prior-year reserve development, excluding catastrophes, of $3.5 million, or 0.7 points, in the first quarter of 2023.

Core Commercial current accident year combined ratio, excluding catastrophes, remained relatively stable at 91.7%, compared to 91.4% in the prior-year quarter. The current accident year loss and LAE ratio, excluding catastrophes, was 58.5%, in line with the prior-year quarter.

The expense ratio increased by 0.3 points to 33.2% in the first quarter of 2024, compared to the prior-year quarter, primarily due to timing of certain expenses.

Net premiums written were $582.4 million in the quarter, up 3.0% from the prior-year quarter, consisting of 7.7% growth in small commercial and a decline of 2.8% in middle market, driven by targeted underwriting actions. In the first quarter, Core Commercial renewal price increases averaged 11.5%, while average rate increases were 9.3%.

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

Specialty
Specialty operating income before income taxes was $58.8 million in the first quarter of 2024, compared to $48.3 million in the first quarter of 2023. The Specialty combined ratio was 87.6%, compared to 89.9% in the prior-year quarter. Catastrophe losses in the first quarter of 2024 were $7.0 million, or 2.2 points of the combined ratio, compared to $21.5 million, or 6.9 points, in the prior-year quarter.

First quarter 2024 results included net favorable prior-year reserve development, excluding catastrophes, of $1.1 million, or 0.3 points. Net favorable prior-year reserve development, excluding catastrophes, was $18.1 million, or 5.8 points, in the prior-year quarter.

Specialty current accident year combined ratio, excluding catastrophes, decreased 3.1 points to 85.7% in the first quarter of 2024, from 88.8% in the prior-year quarter. The current accident year loss and LAE ratio, excluding catastrophes, decreased 4.8 points to 48.7% in the first quarter of 2024, primarily driven by a lower incidence of large losses in our Hanover specialty industrial business and the benefit of earned pricing above loss trends.

The expense ratio increased by 1.7 points to 37.0% in the first quarter of 2024, compared to the prior-year quarter, primarily due to strategic investments, including talent.

Net premiums written were $339.8 million in the quarter, up 4.8% from the prior-year quarter. In the first quarter, Specialty renewal price increases averaged 11.0%, while average rate increases were 8.4%.

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

Personal Lines
Personal Lines operating income before income taxes was $18.9 million in the first quarter of 2024, compared to an operating loss before income taxes of $46.6 million in the first quarter of 2023. The Personal Lines combined ratio was 101.0%, compared to 112.2% in the prior-year quarter. Catastrophe losses in the first quarter of 2024 were $59.2 million, or 9.9 points of the combined ratio. This compared to catastrophe losses of $89.6 million, or 16.0 points of the combined ratio, in the prior-year quarter.

First quarter 2024 results included immaterial ex-CAT prior-year reserve development. This compared to net unfavorable prior-year reserve development, excluding catastrophes, of $11.6 million, or 2.1 points, in the prior-year quarter.

Personal Lines current accident year combined ratio, excluding catastrophe losses, decreased 3.0 points to 91.1% in the first quarter of 2024, from 94.1% in the prior-year quarter. The current accident year loss and LAE ratio, excluding catastrophes, decreased 2.4 points from the prior-year quarter to 65.6%, driven by the benefit of earned pricing outpacing loss trends in both personal auto and homeowners, as well as moderated loss trends, particularly in auto collision coverage.

The expense ratio decreased by 0.6 points to 25.5% in the first quarter of 2024, compared to the prior-year quarter, primarily due to lower agency compensation.

Net premiums written were $531.8 million in the quarter, flat compared to the prior-year quarter, as renewal price change moved higher, offset by the impact of profit improvement and catastrophe management actions driving lower policies in force. Personal Lines renewal price increases averaged 22.8%, while average rate increases were 15.8%. Policies in force in the first quarter of 2024 decreased 2.9% compared to the fourth quarter of 2023, driven by a 4.2% decrease in the Midwestern United States.

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

Investments
Net investment income was $89.7 million for the first quarter of 2024, above the prior-year quarter by $11.0 million, primarily due to higher bond reinvestment rates, higher partnership income, and continued investment of operational cashflows. Total pre-tax earned yield on the investment portfolio for the first quarter of 2024 was 3.70%, up from 3.34% in the prior-year quarter. The average pre-tax earned yield on fixed maturities was 3.52% for the first quarter of 2024, up from 3.27% in the prior-year quarter.

Net realized and unrealized investment gains recognized in earnings were $5.5 million in the first quarter of 2024, primarily driven by an increase in the fair value of equity securities. This compared to net realized and unrealized investment losses recognized in earnings of $23.0 million in the first quarter of 2023.

The company held $9.2 billion in cash and invested assets on March 31, 2024. Fixed maturities and cash represented approximately 90% of the investment portfolio. Approximately 95% of the company's fixed maturity portfolio is rated investment grade. As of March 31, 2024, net unrealized losses on the fixed maturity portfolio were $630.0 million before income taxes, compared to $588.6 million before income taxes on December 31, 2023.

The company expects to transfer management of its investment-grade fixed maturity portfolio, which accounts for approximately 82% of the company's investments, to an external manager in the second quarter of 2024. In addition, the company expects to exit Opus Investment Management, Inc.'s (Opus) business operations, which provides investment management services to unaffiliated clients, by the end of the second quarter of 2024. The company expects that both changes will have an immaterial impact on its financial results.

Shareholders' Equity and Capital Actions                
On March 31, 2024, book value per share was $70.22, up 1.9% from December 31, 2023, primarily driven by operating earnings, partially offset by a decrease in the fair value of fixed maturity investments, as well as the ordinary quarterly cash dividend. Book value per share, excluding net unrealized depreciation on fixed maturity investments, net of tax⁽⁷⁾, was $84.01 at March 31, 2024, compared to $81.86 at December 31, 2023. During the quarter, the company did not repurchase any shares of common stock. The company has approximately $330 million of remaining capacity under its existing share repurchase program.

On March 31, 2024, operating subsidiary's statutory capital and surplus was $2.76 billion. This compared to statutory capital and surplus of $2.64 billion on December 31, 2023.

Earnings Conference Call
The company will host a conference call to discuss its first quarter results on Thursday, May 2, 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 includes Opus Investment Management, Inc., which provides investment management services to institutions, pension funds and other organizations, and includes the operations of the holding company. The company expects to exit substantially all of Opus' business operations serving unaffiliated entities by the end of the second quarter of 2024. Investment management services provided by Opus to THG related to its investment-grade fixed maturities portfolio will also be transferred to an external manager. The Other segment also includes 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 (loss) to net income (loss)⁽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," "will," "line of sight," 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 to achieve components or the sum of the respective period guidance on its future results of operations including: the combined ratio, excluding catastrophe losses; catastrophe losses; net investment income; growth of net premiums written and/or net premiums earned 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 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 company's ability to deliver on its long-term targets, including, but not limited to, return on equity;
• The impacts of general economic and sociopolitical conditions on the company's operating and financial results, including, but not limited to, the impact on the company's investment portfolio, 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 and inflation;
• Uses of capital for share repurchases, special or ordinary cash dividends, business investments or growth, or otherwise, and outstanding shares in future periods as a result of various share repurchase mechanisms, capital management framework, especially in the current environment, 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 wildfires, hurricanes and other convective storms, winter storms and freezes, and tornadoes, or 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;
• 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, labor shortages, and increases in cost of goods, services, labor, and materials;
• 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;
• Risks and uncertainties with respect to our ability to retain profitable policies in force and attract profitable policies and to increase rates commensurate with, or in excess of, loss trends;
• Mix improvement, underwriting initiatives, coverage restrictions, non-renewals, changes in terms and conditions, and pricing segmentation, among others, to grow businesses believed to be more profitable or reduce premiums attributable to products or lines of business or geographies believed to be less profitable; balance rate actions and retention; offset long-term and/or short-term loss trends due to increased frequency; increased "social inflation" from a more litigious environment and higher average cost of resolution; increased property replacement or repair costs; and/or social movements;
• The ability to generate growth in targeted segments through new agency appointments; rate increases (as a result of its market position, agency relationships or otherwise), retention improvements or new business; expansion into new geographies; new product introductions; or otherwise; 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 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, 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 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 a malicious cybersecurity attack on the company or its business partners and service providers, or intrusions into the company's systems, including cloud-based data 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 wildfires, winter storms and freezes, hurricanes, or other severe weather, 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, such as cyber or financial institutions coverage, or reinsurance contracts and reinsurance recoverables), leading to potential adverse development of loss and loss adjustment expense reserves;
• Changes in weather patterns and severity, whether as a result of global climate change or otherwise, causing a higher level of losses from weather events to persist;
• 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 artificial intelligence tools;
• Competition, particularly from competitors who have resource and capability advantages;
• The global macroeconomic environment, including inflation, recessionary effects, global trade disputes, war, energy market disruptions, equity price risk, 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 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 artificial intelligence, 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 40 of the company's Annual Report on Form 10-K for the year ended December 31, 2023, the company uses non-GAAP financial measures as important measures of its operating performance, including operating income (loss), operating income (loss) before interest expense and income taxes, operating income (loss) per diluted (basic) 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 2023 Annual Report on pages 64-67.

Operating income (loss) and operating income (loss) per diluted (basic) share are non-GAAP measures. They are defined as net income (loss) 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 (loss), as they are, to a certain extent, determined by interest rates, financial markets and the timing of sales. Operating income (loss) 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 (loss) is the sum of the segment income (loss) 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 (loss)" is the segment income (loss) before both interest expense and income taxes. The company also uses "operating income (loss) per diluted (basic) 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 (loss) and operating income (loss) 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 (loss) attributable to the core operations of the business. Net income (loss) is the most directly comparable GAAP measure for operating income (loss) (and operating income (loss) before income taxes) and measures of operating income (loss) that exclude the effects of catastrophe losses and/or prior-year reserve development should not be misconstrued as substitutes for income (loss) before income taxes or net income (loss) determined in accordance with GAAP. A reconciliation of operating income (loss) to net income (loss) for the relevant periods is included on page 10 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 (loss). 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 (loss) and shareholders' equity of the entire company and without adjustments.

The company may provide measures of operating income (loss) 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.

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 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.

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.

Endnotes

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SOURCE The Hanover Insurance Group, Inc.