Hanover Insurance Group, Inc.

Executive Summary for Institutional Investors

Company Overview

Business Model: The Hanover Insurance Group, Inc. (THG) is a holding company primarily engaged in property and casualty insurance products and services. The Company markets its offerings through independent agents and brokers across the United States, focusing on an agency and customer-centric strategy. This approach emphasizes disciplined underwriting and pricing, quality claims handling, and customer service, aiming to prudently grow and diversify its product offerings and geographic business mix.

Market Position: The Hanover Insurance Group, Inc. positions itself as one of the top property and casualty insurers focused on the independent agency distribution channel in the U.S. The Company competes on the basis of product, price, agency and customer service, local relationships, ratings, and effective claims handling. Key differentiators include strong agency relationships, a local market presence, and investments in products, operating efficiency, technology, and claims handling. The Company's broad product offerings in Core Commercial and Specialty segments, and a total account strategy in Personal Lines, are instrumental in leveraging these relationships and improving profitability.

Recent Strategic Developments:

• Product & Technology Enhancements: Continued enhancements to products and technology platforms, including expanding the utilization of the TAP Sales agent quote and issue platform in small commercial, leveraging agency analytics, comprehensive service centers, and digital self-service tools.
• Industry Segmentation Focus: Maintained focus on specialized industry segments within middle market, growing profitable areas like technology, human services, and educational institutions.
• Geographic Diversification: Continued efforts to diversify the geographic mix in Personal Lines beyond historical core states of Michigan and Massachusetts to decrease risk concentrations and improve profitability.
• Reinsurance Program: Completed an insurance business transfer of Excess and Casualty Reinsurance Association (ECRA) liabilities to a third-party insurer in 2025, fully relieving The Hanover Insurance Group, Inc. of these obligations with no significant impact on results.
• Debt Issuance: Issued $500.0 million aggregate principal amount of 5.50% senior unsecured debentures in August 2025, with net proceeds of $495.0 million, partially used to repay $61.8 million of outstanding 7.625% senior debentures.

Geographic Footprint: The Hanover Insurance Group, Inc. is licensed to sell property and casualty insurance in all fifty U.S. states, the District of Columbia, and the Commonwealth of Puerto Rico. The Company actively markets Core Commercial and Specialty policies in 44 states and the District of Columbia, and Personal Lines policies in 19 states.

• Primary Operational Regions: Maintains 33 local offices across 23 states, with processing support from Worcester, Massachusetts; Howell, Michigan; Salem, Virginia; and Windsor, Connecticut offices.
• Key Markets (2025 Net Premiums Written):
  • Michigan: 18.7% of total
  • Massachusetts: 8.0% of total
  • New York: 7.6% of total
  • California: 7.1% of total
  • Illinois: 5.2% of total
  • Texas: 4.9% of total

Financial Performance

Revenue Analysis

Profitability Metrics (2025):

• Operating Margin: 14.05% (Operating Income before interest expense and income taxes as a percentage of Total Operating Revenues)
• Net Margin: 10.05% (Net Income as a percentage of Total Revenues)

Investment in Growth (2025):

• Capital Expenditures: $7.7 million

Business Segment Analysis

Core Commercial

Financial Performance (2025 vs 2024):

• Revenue (Operating Revenues): $2,418.7 million (+4.1% YoY)
• Net Premiums Written: $2,273.7 million (+3.6% YoY)
• Operating Income before interest expense and income taxes: $250.9 million (-10.9% YoY)
• Operating Margin: 10.37%
• Catastrophe Losses: $113.4 million (up from $77.2 million in 2024)
• Net Favorable Prior Year Reserve Development: $18.1 million (down from $50.0 million in 2024)
• Key Growth Drivers: Primarily driven by renewal price increases and an increase in new business. The decrease in operating income was primarily due to higher catastrophe losses and higher current accident year losses, partially offset by higher net investment income. Higher current accident year losses were primarily in commercial automobile and workers’ compensation lines, partially offset by lower losses in commercial multiple peril.

Product Portfolio (2025 Net Premiums Written):

• Commercial multiple peril: $1,159.2 million (51.0%)
• Commercial automobile: $427.3 million (18.8%)
• Workers’ compensation: $418.7 million (18.4%)
• Other core commercial (commercial umbrella, monoline general liability, claims-made liability, monoline property): $268.5 million (11.8%)

Market Dynamics: The segment focuses on small commercial (annual policy premiums up to $50,000) and middle market (annual premiums $50,000 to $500,000) accounts. Strategy is focused on strengthening market reach through differentiated product offerings, industry segmentation (e.g., technology, human services, educational institutions), and franchise value through selective distribution.

Specialty

Financial Performance (2025 vs 2024):

• Revenue (Operating Revenues): $1,505.7 million (+6.6% YoY)
• Net Premiums Written: $1,441.5 million (+4.9% YoY)
• Operating Income before interest expense and income taxes: $296.1 million (+14.9% YoY)
• Operating Margin: 19.66%
• Catastrophe Losses: $34.1 million (down from $37.5 million in 2024)
• Net Favorable Prior Year Reserve Development: $60.8 million (consistent with $60.9 million in 2024)
• Key Growth Drivers: Primarily due to renewal price increases and an increase in new business. The increase in operating income was primarily due to higher net investment income, earned premium growth, and higher net favorable development on prior year loss reserves.

Product Portfolio (2025 Net Premiums Written):

• Professional and Executive Lines (professional, management, medical liability, errors and omissions, employment practices liability): $461.9 million (32.0%)
• Marine (inland and ocean marine, contractor’s equipment, builders’ risk, goods in transit, jewelers block, fine art): $458.2 million (31.8%)
• Specialty Property & Casualty (Hanover Programs, Excess & Surplus, Hanover Specialty Industrial, Specialty General Liability): $420.8 million (29.2%)
• Surety and Other (construction, non-performance/non-payment claims, commercial surety): $100.6 million (7.0%)

Market Dynamics: Offers a comprehensive suite of products focused predominately on small to mid-sized businesses, leveraging a highly regarded service center. Distribution is primarily through retail agents, supplemented by select specialists.

Personal Lines

Financial Performance (2025 vs 2024):

• Revenue (Operating Revenues): $2,695.0 million (+5.1% YoY)
• Net Premiums Written: $2,606.9 million (+3.7% YoY)
• Operating Income before interest expense and income taxes: $379.8 million (+241.2% YoY)
• Operating Margin: 14.09%
• Catastrophe Losses: $128.8 million (down significantly from $261.2 million in 2024)
• Net Favorable Prior Year Reserve Development: $18.2 million (up from $0.1 million unfavorable in 2024)
• Key Growth Drivers: Primarily due to renewal price increases, higher retention, and increased new business. The significant increase in operating income was primarily due to lower catastrophe losses, improvements in current accident year underwriting results (earned pricing outpacing loss trends, moderated loss frequency), higher net investment income, and earned premium growth.

Product Portfolio (2025 Net Premiums Written):

• Personal automobile: $1,489.9 million (57.2%)
• Homeowners and Other (residences, personal property, liability claims, personal umbrella, inland marine, fire, personal watercraft, personal cyber): $1,117.0 million (42.8%)

Market Dynamics: Strategy focuses on account-oriented business (multiple policies per customer) through select independent agents. Approximately 89% of policies in force are account business. The Company is focused on profitable growth opportunities, building a distinctive market position, and geographically diversifying beyond Michigan and Massachusetts. Personal automobile policies in force decreased by 3.1% and homeowners policies in force decreased by 2.6% since December 31, 2024.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $130.1 million (0.7 million shares) in 2025. As of December 31, 2025, $173 million remained available under the $1.3 billion repurchase program.
• Dividend Payments: $130.6 million in 2025, including three quarterly dividends of $0.90 per share and one quarterly dividend of $0.95 per share.
• Future Capital Return Commitments: The Board of Directors expects quarterly cash dividends comparable to the $0.95 per share paid in Q4 2025 to continue.

Balance Sheet Position (as of December 31, 2025):

• Cash and Equivalents: $1,122.7 million
• Total Debt: $1,218.3 million
• Net Cash Position: -$95.6 million (Net Debt)
• Debt Maturity Profile:
  • $375.0 million senior debentures due April 15, 2026 (redeemed January 15, 2026).
  • $50.1 million subordinated debentures due February 3, 2027 (8.207% annual interest).
  • $300.0 million senior debentures due September 1, 2030 (2.50% annual interest).
  • $500.0 million senior debentures due September 1, 2035 (5.50% annual interest).

Cash Flow Generation (2025 vs 2024):

• Operating Cash Flow: $1,178.1 million (up from $806.4 million in 2024), primarily due to increased premiums received and lower loss and LAE payments, partially offset by higher federal income tax payments.

Operational Excellence

Production & Service Model: The Hanover Insurance Group, Inc. operates an agency and customer-centric strategy, distributing products through independent agents and brokers. The model emphasizes disciplined underwriting, quality claims handling, and customer service. The Company maintains a strong local presence with 33 local offices across 23 states, supported by centralized processing. Claims management focuses on efficient, timely, and fair claim settlements, utilizing experienced adjusters, appraisers, medical specialists, managers, and attorneys, including a catastrophe response team and a special unit for fraud investigation.

Supply Chain Architecture: Key Suppliers & Partners:

• Reinsurers: The Company utilizes a variety of proportional and non-proportional reinsurance agreements with financially sound, highly-rated reinsurers (A- or higher by A.M. Best or equivalent). Top reinsurers include HDI Group, Berkshire Hathaway Inc. (Transatlantic Reinsurance Company), Societe De Groupe D’Assurance Mut Covea, Lloyd’s Syndicates, Chubb Limited, Munich Reinsurance Companies, Toa Reinsurance Company Ltd., Nationwide Mutual Insurance Company, Liberty Mutual Holding Company Inc., and Swiss Re Ltd.
• Catastrophe Bond Providers: Commonwealth Re Ltd. provides catastrophe protection through per occurrence excess of loss reinsurance agreements, collateralized by catastrophe bonds issued to unrelated investors.
• Third-Party Vendors: Relies on third-party vendors for certain technology, data storage, and business process functions.

Facility Network:

• Company-owned facilities: Worcester, Massachusetts and Howell, Michigan.
• Leased offices: Throughout the United States for branch sales, underwriting, and claims processing functions.

Operational Metrics:

• Personal automobile policies in force decreased by 3.1% since December 31, 2024.
• Homeowners policies in force decreased by 2.6% since December 31, 2024.
• Approximately 89% of Personal Lines policies in force are account business (multiple policies/coverages).

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Independent Agents and Brokers: Substantially all Core Commercial and Personal Lines products, and the majority of Specialty products, are distributed through a network of independent agents.
• Channel Partners: Some Specialty business, such as Hanover Programs, is distributed through managing general agents or wholesale distributors with industry or product expertise.
• Digital Platforms: Expanding utilization of the TAP Sales agent quote and issue platform and a full suite of digital self-service tools in small commercial.

Customer Portfolio: Enterprise Customers: The Company focuses on account business for small and mid-sized businesses in Core Commercial and Specialty, and account-oriented business (multiple policies) in Personal Lines.

• Customer Concentration: During 2025, 18.7% of Core Commercial, Specialty, and Personal Lines business was written in Michigan, and 8.0% in Massachusetts.

Geographic Revenue Distribution (2025 Net Premiums Written):

• Michigan: 18.7%
• Massachusetts: 8.0%
• New York: 7.6%
• California: 7.1%
• Illinois: 5.2%
• Texas: 4.9%
• New Jersey: 4.5%
• Georgia: 4.0%
• Connecticut: 3.5%
• Virginia: 2.8%
• Wisconsin: 2.6%
• Pennsylvania: 2.6%
• Maine: 2.3%
• Maryland: 2.0%
• Tennessee: 1.9%
• North Carolina: 1.9%
• Ohio: 1.7%
• Minnesota: 1.7%
• Indiana: 1.7%
• Florida: 1.6%
• New Hampshire: 1.5%
• Other: 12.2%

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The property and casualty insurance industry is highly competitive and subject to significant fluctuations due to factors such as price, competition, volatile weather, catastrophes, legal and regulatory developments, extra-contractual liability, attorney involvement in claims, jury awards, civil unrest, acts of terrorism, interest rate fluctuations, and general economic conditions (recessionary pressures, inflation, tariffs, unemployment). Pressure from litigation trends, legal system abuse, and general and social inflation have resulted in higher claims costs. Demand for insurance can vary significantly with general economic conditions.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: The Hanover Insurance Group, Inc. competes with a large number of national, international, regional, and local companies, specialty insurance companies, underwriting agencies, financial services institutions, mutual insurance companies, reciprocals, and exchanges. Emerging Competitive Threats: Heightened competition from new entrants and new products from existing competitors, including large technology companies, retail companies, and "Insurtech" companies leveraging technology, direct customer access, large-scale data, and AI tools.

Competitive Response Strategy: The Company differentiates itself through strong agency relationships, local presence, investments in products, operating efficiency, technology, and effective claims handling. It utilizes broad product offerings in Core Commercial and Specialty, and a total account strategy in Personal Lines, to capitalize on these relationships and improve profitability. The Company seeks to achieve targeted combined ratios in each product line, employing pricing teams and exposure/experience-based rating models, and leveraging local market understanding.

Risk Assessment Framework

Strategic & Market Risks

• Market Dynamics: Profitability is significantly affected by price, competition, volatile and unpredictable developments (weather, catastrophes, terrorism), legal and regulatory changes, interest rate fluctuations, and general economic conditions (recessionary pressures, inflation, tariffs, unemployment). Demand for P&C insurance varies with economic conditions.
• Technology Disruption: Inability to adapt to or implement new technologies, including AI, could adversely affect business. Use of new technologies may create unforeseen exposure or coverage issues.
• Customer Concentration: Dependence on independent agents and brokers, who own renewal rights, creates risk if relationships deteriorate or compensation is not competitive. Agency consolidation could also impact sales channels.
• Geographic Concentration: Significant portion of net premiums written and earnings generated in Michigan (18.7%), Massachusetts (8.0%), California (11.9% Core Commercial, 12.5% Specialty), and Texas (7.4% Core Commercial, 9.7% Specialty), exposing the Company to disproportionate losses from regional catastrophes or adverse economic/regulatory changes.
• Pricing Model Accuracy: Profitability depends on actual claims experience being consistent with pricing assumptions. Highly dynamic conditions may impact model effectiveness.

Operational & Execution Risks

• Supply Chain Vulnerabilities: Reliance on third-party vendors for technology, data storage, and business process functions creates risk if vendors fail to perform, costs increase, or they experience problems.
• IT System Interruptions: Reliance on continuous availability and proper functioning of IT systems (internal and third-party) for essential insurance functions. Disruptions could impair business, lead to data loss, reputational damage, and financial impacts.
• Cybersecurity: Extensive reliance on security, integrity, and availability of IT systems (internal and third-party). Exposure to continuously evolving cybersecurity threats. Incidents could disrupt operations, compromise data, and lead to regulatory actions or litigation.
• Data Privacy: Required to safeguard confidential and personal information, subject to evolving and complex federal, state, local, and international privacy laws. Failure to comply could lead to fines, penalties, litigation, and reputational harm.

Financial & Regulatory Risks

• Claims Exceeding Reserves: Actual losses from claims may exceed estimated reserves, which are inherently uncertain, especially for long-tail liability lines, new business, and emerging issues (e.g., "silent" cyber, "reviver" statutes).
• Reinsurance Adequacy & Collectability: Cannot guarantee adequacy or ability to maintain current reinsurance coverage levels, which are subject to market conditions and reinsurer financial health. Reinsurance contracts do not relieve the Company of policyholder obligations, creating counterparty credit risk.
• Regulatory Environment: Heavily regulated by state insurance authorities, affecting premium rates, covered risks, underwriting, agent licensing, reserves, investments, and policy forms. Changes in regulation (e.g., rate suppression, market exit restrictions, cybersecurity regulations, climate change requirements) may reduce profitability.
• Guaranty Fund Assessments: Subject to mandatory assessments by state guaranty funds to cover claims of insolvent insurers, which could increase and may not be fully recoverable.
• Michigan PIP Reform: Uncertainties related to Michigan's 2019 no-fault and PIP system reforms, including medical fee schedules, rate freezes, and increased litigation from providers, could impact future performance of Michigan personal automobile lines.
• Litigation Risks: Subject to litigation risks, including contract interpretation, claims handling (bad faith), class actions, and substantial damage claims, which could materially affect results.

Geopolitical & External Risks

• Geopolitical Exposure: Geopolitical risks (terrorism, civil unrest, global/regional hostilities) can impact investment portfolio and economic uncertainty.
• Terrorism Risk: Subject to claims from terrorist acts, with primary reinsurance protection through the federal Terrorism Risk Insurance Program (TRIP), which has limitations (certified events, caps, deductibles) and expires in December 2027.
• Climate Change: Global climate change linked to increased unpredictability, frequency, duration, and severity of weather events, potentially leading to higher overall losses and reinsurance costs. May also lead to new or enhanced regulation and impact investment assets.

Innovation & Technology Leadership

Research & Development Focus:

• Core Technology Areas: The Hanover Insurance Group, Inc. relies on a broad range of advanced technologies, including AI, to support operations. Focus areas include product and technology platform enhancements, digital experiences, and analytic capabilities to improve efficiency and customer/agent experience.
• Innovation Pipeline: Continued investment in products for additional industry segmentation and expansion of the TAP Sales agent quote and issue platform.

Intellectual Property Portfolio: Not explicitly detailed in the filing.

Technology Partnerships: Not explicitly detailed in the filing.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The Company is committed to identifying and investing in the development of future leaders through formal talent review and succession planning processes.

Board Composition: The Board of Directors oversees major risks, including cybersecurity and operational risks. The Audit Committee has primary responsibility for cybersecurity risk management oversight. The Compensation and Human Capital Committee (CHCC) oversees human capital issues, including support and progress on inclusion and diversity initiatives as part of incentive compensation evaluation. Other committees include the Committee of Independent Directors and the Nominating and Corporate Governance Committee.

Human Capital Strategy

Workforce Composition:

• Total Employees: Approximately 4,900 employees as of December 31, 2025, all located in the United States.

Talent Management: Acquisition & Retention:

• Hiring Strategy: Focuses on attracting, developing, and retaining qualified employees.
• Retention Strategies: Maintaining an engaged workforce through transparent communications, employee feedback (surveys, focus groups), formal annual evaluations aligned with CARE values (collaboration, accountability, respect, empowerment), and ongoing performance connections.
• Employee Value Proposition: Offers fair and equitable total compensation (base pay, short- and long-term incentives competitive with industry), 401(k) plan with company match, flexible paid time off, tuition reimbursement, employee stock purchase program, retirement planning services, and health and well-being benefits.

Diversity & Development:

• Development Programs: Provides learning and development through online learning platforms, experiential learning (growth assignments, special projects), a formal mentorship program, virtual and classroom workshops, and tuition/education-related fee reimbursement. Formal talent review and succession planning processes are aligned to leadership capabilities and critical roles.
• Diversity & Inclusion: Strives to foster an environment of inclusion and diversity, welcoming unique perspectives and experiences. Investing in internal business resource groups to support cultural values and business initiatives. Board oversight of these issues is incorporated into the CHCC charter.

Environmental & Social Impact

Environmental Commitments:

• Climate Strategy: Acknowledges global climate change as a factor contributing to increased unpredictability, frequency, duration, and severity of weather events, potentially leading to higher losses and reinsurance costs. Considers sustainability factors as part of the investment research process.
• Supply Chain Sustainability: Not explicitly detailed in the filing.

Social Impact Initiatives:

• Community Investment: Not explicitly detailed in the filing.
• Product Impact: Not explicitly detailed in the filing.

Business Cyclicality & Seasonality

Demand Patterns:

• Economic Sensitivity: Demand for property and casualty insurance can vary significantly based on general economic conditions, rising with increased economic activity and falling with decreases. Loss patterns tend to vary inversely with local economic conditions.
• Catastrophe Volatility: The incidence and severity of catastrophes are volatile and difficult to predict, historically having a significant impact on results.

Planning & Forecasting: The Company endeavors to manage catastrophe risks through underwriting procedures, deductibles, specific restrictions, geographic exposure management, and reinsurance.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations: The Company's insurance subsidiaries are subject to extensive supervision and regulation by state insurance authorities in each state of operation. This includes regulation of premium rates, mandatory covered risks, limitations on cancellation/non-renewal, licensing, reserves, investments, policy forms, claims handling, and use of credit information and AI. The federal government also regulates aspects like the Medicare Secondary Payer Act. The National Association of Insurance Commissioners (NAIC) is active in reviewing capital standards and regulatory initiatives. International Compliance: Not explicitly detailed beyond general statements.

Trade & Export Controls: Not explicitly detailed beyond general statements.

Legal Proceedings: The Company is routinely involved in litigation, including putative class actions, and examinations, investigations, and proceedings by governmental and self-regulatory agencies.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: 21.7% in 2025 and 20.9% in 2024.
• Geographic Tax Planning: Files a consolidated U.S. federal income tax return including the holding company and its domestic subsidiaries.
• Tax Reform Impact: The One Big Beautiful Bill Act of 2025, enacted July 4, 2025, primarily impacts the timing of the Company’s tax deductions and did not have a material impact on its financial position or results of operations.

Insurance & Risk Transfer

Risk Management Framework: The Company maintains ceded reinsurance programs to protect against large or unusual loss and LAE activity, utilizing proportional and non-proportional agreements (facultative, specific excess, proportional treaty, catastrophe excess of loss). The 2026 reinsurance program is fundamentally similar to 2025.

• Catastrophe Reinsurance: The core property catastrophe occurrence excess of loss reinsurance program provides coverage up to $1.9 billion (less $200 million retention) and extends to $2.05 billion for Northeast named storm events. This includes coverage through catastrophe bonds with Commonwealth Re Ltd.
• Other Treaties: Property per risk excess of loss treaty provides coverage up to $100 million (less $3 million retention). Casualty excess of loss treaty provides coverage up to $75 million (less $2.5 million retention). Specialty segment's surety and fidelity bond excess of loss treaty provides coverage up to $70 million (less $7.5 million retention).
• Terrorism Risk Insurance Program (TRIP): The Company participates in the federal Program, which provides compensation for insured losses from certified acts of terrorism, covering workers’ compensation, commercial multiple peril, and certain other commercial lines policies. The Program expires in December 2027.
• Involuntary Residual Markets: Required to participate in mandatory property and casualty residual market mechanisms (e.g., Michigan Catastrophic Claims Association (MCCA), Michigan Assigned Claims (MAC) facility), which provide coverage for high-risk insureds or disrupted markets. The MCCA represented 41.2% of total reinsurance recoverable balance at December 31, 2025.

Insurance Coverage: The Company maintains a reserve for uncollectible reinsurance of $6.8 million as of December 31, 2025 (0.3% of total reinsurance recoverable balance). Reinsurers are generally required to have a minimum policyholder surplus of $500 million and a rating of "A" or better from A.M. Best or S&P Global.