HANOVER INSURANCE GROUP, INC.

The Hanover Insurance Group, Inc. operates in the property and casualty insurance industry, providing insurance products and services through independent agents and brokers in the United States. The industry's profitability is significantly affected by numerous factors including price, competition, volatile and unpredictable developments such as weather conditions and catastrophes, legal and regulatory developments, fluctuations in interest rates and the value of investments, and other general economic conditions and trends such as potential recessionary pressures and inflationary pressure. The company conducts its business operations through four reporting segments: Core Commercial, Specialty, Personal Lines and Other.

The company competes with a large number of companies including international, national and regional insurers, specialty insurance companies, underwriting agencies and financial services institutions, as well as mutual insurance companies, reciprocal and exchange companies. Competitors include national, international, regional and local companies that sell insurance through various distribution channels, including independent agencies, captive agency forces, brokers, and direct to consumers. The company believes its emphasis on maintaining strong agency relationships and a local presence in its markets, coupled with investments in products, operating efficiency, technology and effective claims handling, enable it to differentiate itself and compete more effectively. The company is one of the top property and casualty insurers focused on the independent agency distribution channel in the U.S.

The company generates revenue primarily through the underwriting of property and casualty insurance products, distributing them through select independent agents and brokers throughout the U.S. Revenue is generated from net premiums earned, net investment income, and other income. The company's agency and customer-centric strategy focuses on providing specialized insurance products and services with an emphasis on disciplined underwriting and pricing, quality claims handling and customer service. The company's business is comprised of approximately 41% Personal Lines, 36% Core Commercial, and 23% Specialty.

The Core Commercial segment generated $2.4 billion, or 36.4%, of consolidated operating revenues and $2.3 billion, or 36.0%, of net premiums written, for the year ended December 31, 2025 ¹. This segment includes commercial multiple peril, commercial automobile, workers' compensation, and other core commercial coverages. Net premiums written for Core Commercial by line of business were: commercial multiple peril $1,159.2 million ² (51.0% ³ of total), commercial automobile $427.3 million ⁴ (18.8% ⁵), workers' compensation $418.7 million ⁶ (18.4% ⁷), and other core commercial $268.5 million ⁸ (11.8% ⁹). The Specialty segment generated $1.5 billion, or 22.7%, of consolidated operating revenues and $1.4 billion, or 22.8%, of net premiums written, for the year ended December 31, 2025 ¹⁰. Net premiums written for Specialty by division were: Professional and Executive Lines $461.9 million ¹¹ (32.0% ¹²), Marine $458.2 million ¹³ (31.8% ¹⁴), Specialty Property & Casualty $420.8 million ¹⁵ (29.2% ¹⁶), and Surety and Other $100.6 million ¹⁷ (7.0% ¹⁸). The Personal Lines segment generated $2.7 billion, or 40.6%, of consolidated operating revenues and $2.6 billion, or 41.2%, of net premiums written, for the year ended December 31, 2025 ¹⁹. Net premiums written for Personal Lines by line of business were: personal automobile $1,489.9 million ²⁰ (57.2% ²¹ of total) and homeowners and other $1,117.0 million ²² (42.8% ²³).

The Other segment primarily includes earnings on holding company assets; holding company and other expenses, including certain costs associated with retirement benefits related to employees and agents of former life insurance subsidiaries; and run-off direct asbestos and environmental business, run-off voluntary assumed property and casualty pools, and run-off product liability business.

During 2025, the company repurchased approximately 0.7 million shares ²⁴, at an aggregate cost of $130.1 million ²⁵. As of December 31, 2025, the company had repurchased 8.8 million shares ²⁶ under a $1.3 billion ²⁷ stock repurchase program and had approximately $173 million ²⁸ available for additional repurchases. In 2025, the company completed an insurance business transfer of its ECRA liabilities to a third-party insurer pursuant to Oklahoma law, which novation fully relieved the company of its obligations to ECRA policyholders, with no significant impact on results of operations. The company has catastrophe protection through per occurrence excess of loss reinsurance agreements with Commonwealth Re Ltd., including two active agreements effective July 1, 2025 and July 1, 2023, with aggregate principal amounts of $200 million ²⁹ and $150 million ³⁰, respectively.

Net income was $662.5 million ³¹ in 2025, compared to $426.0 million ³² in 2024, an increase of $236.5 million ³³. Operating income before interest expense and income taxes was $933.0 million ³⁴ in 2025 compared to $650.1 million ³⁵ in 2024, an increase of $282.9 million ³⁶. Net premiums written increased to $6,322.1 million ³⁷ in 2025 from $6,083.6 million ³⁸ in 2024, an increase of 3.9% ³⁹. Net premiums earned were $6,161.1 million ⁴⁰ in 2025 compared to $5,912.6 million ⁴¹ in 2024. Net investment income was $454.4 million ⁴² in 2025 compared to $372.6 million ⁴³ in 2024.

The company's 2026 reinsurance program for its Core Commercial, Specialty and Personal Lines segments is fundamentally similar to its 2025 program. The core property catastrophe occurrence excess of loss reinsurance program provides coverage up to $1.9 billion ⁴⁴, less a $200 million ⁴⁵ retention, with no co-participation. Coverage extends to $2.05 billion ⁴⁶ for Northeast named storm events, less a $200 million ⁴⁷ retention, with no co-participation. The property per risk excess of loss treaty provides coverage, on a per risk basis, up to $100 million ⁴⁸, less a $3 million ⁴⁹ retention. For the 2026 treaty year, the casualty excess of loss treaty provides coverage, on a per occurrence basis for each loss, up to $75 million ⁵⁰ less a $2.5 million ⁵¹ retention, with a co-participation of 10.0% ⁵² in the $2.5 million to $5.0 million layer, 1.35% ⁵³ in the $5 million to $10 million layer, and no co-participation for reinsurance layers placed between $10 million and $75 million. The Specialty segment's surety and fidelity bond excess of loss treaty provides coverage, on a per principal basis, up to $70 million ⁵⁴, less a $7.5 million ⁵⁵ retention, with no co-participation.

In Core Commercial, the company continues to pursue its core strategy of developing strong relationships with independent agents, enhancing franchise value through selective distribution, distinctive products and coverages, and through continued investment in products for additional industry segmentation. The company continues to make enhancements to products and technology platforms intended to drive more account placements in small commercial and middle market businesses. In small commercial, the company continues to expand utilization of its TAP Sales agent quote and issue platform. In middle market, the company maintained its focus on specialized industry segments such as technology, human services and educational institutions, and capitalized on the strength of its localized field structure.

In Specialty, the company has continued to invest in its businesses, refining its broad product offering, focusing on the lower-end of the risk and account-sized spectrum, and leveraging its service center, which has been and is expected to continue to be a critical growth lever. The company has developed a robust, diversified and profitable Specialty segment with nine dedicated businesses and 18 distinct product areas. In Personal Lines, the company is focused on making business investments intended to help maintain profitability, build a distinctive position in the market, deliver value to agents and customers, and provide profitable growth opportunities. The company continues to refine its products and work closely with high-potential agents to increase the percentage of business they place with the company. The company remains focused on further diversifying its geographic mix beyond its largest historical core states of Michigan and Massachusetts, expecting these efforts to decrease risk concentrations and dependency on these states and contribute to improved profitability over time.

The company's strategy in Core Commercial is focused on strengthening and expanding market reach through differentiated product offerings, industry segmentation, and franchise value through selective distribution. The company believes its small commercial capabilities and distinctiveness in the middle market, including its diversified portfolio of products, enable it to deliver significant value to agents and policyholders. The company believes these efforts will enable it to continue to improve the overall mix of its business and ultimately its underwriting profitability.

The company maintains 33 local offices across 23 states ⁵⁶. The majority of processing support for field locations is provided from offices in Worcester, Massachusetts; Howell, Michigan; Salem, Virginia; and Windsor, Connecticut. The company is licensed to sell property and casualty insurance in all fifty states in the U.S., as well as in the District of Columbia and the Commonwealth of Puerto Rico. Throughout the U.S., the company actively markets Core Commercial and Specialty policies in 44 states and the District of Columbia, and Personal Lines policies in 19 states.

The Board of Directors authorized a stock repurchase program which provides for aggregate repurchases of common stock of up to $1.3 billion ⁵⁷. As of December 31, 2025, the company had approximately $173 million ⁵⁸ available for additional repurchases. The company currently expects that quarterly cash dividends, comparable to the $0.95 per share ⁵⁹ dividend paid in the fourth quarter of 2025, will continue to be paid in the future, although the payment of future quarterly cash dividends will be determined by the Board of Directors based upon cash available at the holding company, results of operations and financial condition, and such other factors as the Board considers relevant.

The company faces structural headwinds from the cyclical nature of the property and casualty insurance industry, with profitability materially affected by increases in costs occurring after insurance products are priced, including construction, automobile repair, and medical and rehabilitation costs resulting from inflation, supply chain disruptions, tariffs, or other factors. The company also faces headwinds from legal, regulatory and socio-economic developments such as new theories of insured and insurer liability, financed litigation, and social inflation. Geographic concentration is a significant constraint, with approximately 18.7% ⁶⁰ of net premiums written generated in Michigan and 8.0% ⁶¹ in Massachusetts for the year ended December 31, 2025. The company also faces constraints from the regulatory environment, including rate control and residual market charges in many states, and restrictions on the ability to exit markets.

The company faces headwinds from the potential for increased catastrophe losses due to climate change, which has been linked to increased unpredictability, frequency, duration and severity of weather events. The company also faces constraints from the competitive environment, with competition from national, international, regional and local companies, as well as from new entrants such as large technology companies, retail companies, and Insurtech companies. The company's ability to achieve significant profitable premium growth is an important part of its current strategy, and there can be no assurance that it will be successful at profitably growing its business, either organically or through acquisitions.

The company faces significant risk from geographic concentration, with approximately 18.7% ⁶² of net premiums written generated in Michigan and 8.0% ⁶³ in Massachusetts for the year ended December 31, 2025, and a significant amount of Core Commercial and Specialty net written premium generated in California and Texas. The company is subject to uncertainties related to Michigan PIP Reform, with an estimated reinsurance recoverable from the MCCA of $829.2 million ⁶⁴ as of December 31, 2025, and Michigan personal automobile net premiums written of $615.5 million ⁶⁵ representing approximately 9.7% ⁶⁶ of total consolidated net premiums written. The company faces risk from the adequacy of loss reserves, which were $7,755.2 million ⁶⁷ as of December 31, 2025, with inherent uncertainties in estimating reserves, particularly for long-tail liability lines. The company also faces risk from reinsurance counterparty credit risk, with total reinsurance recoverables of $2,011.1 million ⁶⁸ as of December 31, 2025, including $832.7 million ⁶⁹ from residual markets, facilities, and pooling arrangements, and a reserve for uncollectible reinsurance of $6.8 million ⁷⁰. The company's investment portfolio of $11.5 billion ⁷¹ is exposed to market fluctuations, interest rate changes, and credit risk, with a fixed maturity portfolio duration of approximately 4.3 years ⁷².

Management's message emphasizes the company's strategy of focusing on the independent agency distribution channel, designed to generate profitable growth by leveraging the strengths of the distribution approach, including expansion of the agency footprint in underpenetrated geographies. Management highlights that net income was $662.5 million ⁷³ in 2025, compared to $426.0 million ⁷⁴ in 2024, an increase of $236.5 million ⁷⁵, primarily due to higher after-tax operating income. Operating income before interest expense and income taxes was $933.0 million ⁷⁶ in 2025 compared to $650.1 million ⁷⁷ in 2024, an increase of $282.9 million ⁷⁸. Management notes that the increase was primarily due to lower catastrophe losses, improvements in current accident year underwriting results in the Personal Lines segment, higher net investment income, and earned premium growth, partially offset by higher current accident year losses in the Core Commercial segment. The strategic priorities emphasized for the period ahead include continuing to prudently grow and diversify product offerings and geographic business mix to strengthen the company's position as one of the top property and casualty insurers focused on the independent agency distribution channel in the U.S., and growing responsibly in all businesses while managing earnings volatility.