The Hanover Insurance Group, Inc. (“THG”) is a holding company
organized as a Delaware corporation in 1995. We trace our roots to as early
as 1852, when the Hanover Fire Insurance Company was founded. Our primary business
operations are property and casualty insurance products and services. We market
our domestic products and services through independent agents and brokers in
the United States (“U.S.”) and conduct business internationally
through a wholly-owned subsidiary, Chaucer Holdings Limited (“Chaucer”),
which operates through the Society and Corporation of Lloyd’s (“Lloyd’s”)
and is domiciled in the United Kingdom (“U.K.”). Our consolidated
financial statements include the accounts of THG; The Hanover Insurance Company
(“Hanover Insurance”) and Citizens Insurance Company of America
(“Citizens”), which are our principal U.S. domiciled property and
casualty subsidiaries; Chaucer; and certain other insurance and non-insurance
subsidiaries. Our results of operations also include the results of our discontinued
operations, consisting primarily of our former life insurance and accident and
health businesses.
We conduct our business operations through four operating segments. These segments
are Commercial Lines, Personal Lines, Chaucer and Other. We report interest
expense related to our corporate debt separately from the earnings of our operating
segments.
In our Commercial Lines and Personal Lines segments, we underwrite commercial
and personal property and casualty insurance through Hanover Insurance, Citizens
and other THG subsidiaries, through an independent agent and broker network
concentrated in the Northeast, Midwest and Southeast U.S. We also continue to
actively grow our Commercial Lines’ presence in the Western region of
the U.S., particularly in California, which now is our third largest state for
Commercial Lines as measured by net premiums written. Our Chaucer segment is
a specialist insurance underwriting group which operates through Lloyd’s
and writes business globally. Included in our Other segment are Opus Investment
Management, Inc. (“Opus”), a wholly-owned subsidiary of THG, which
provides investment management services to our insurance and non-insurance companies,
as well as to unaffiliated institutions, pension funds and other organizations;
earnings on holding company assets; and a discontinued voluntary pools business.
Our business strategy focuses on providing our agents and customers stability,
financial strength, and competitive insurance products while prudently growing
and diversifying our product and geographical business mix. We conduct our U.S.
business with an emphasis on agency relationships and active agency management,
disciplined underwriting, pricing, quality claim handling, and customer service.
Our Lloyd’s business is focused on disciplined and specialized underwriting
in selected markets.
The industry’s profitability and cash flow can be, and historically has
been, significantly affected by numerous factors, including price; competition;
volatile and unpredictable developments such as extreme weather conditions,
catastrophes and other disasters; legal and regulatory developments affecting
pricing, underwriting, policy coverage and other aspects of doing business,
as well as insurer and insureds’ liability; extra-contractual liability;
size of jury awards; acts of terrorism; fluctuations in interest and currency
rates or the value of investments; and other general economic conditions and
trends, such as inflationary pressure or unemployment, that may affect the adequacy
of reserves or the demand for insurance products. Our investment portfolio and
its future returns may be further impacted by the capital markets and current
economic conditions, which could affect our liquidity, the amount of realized
losses and impairments that will be recognized, credit default levels, our ability
to hold such investments until recovery and other factors. Additionally, the
economic conditions in geographic locations where we conduct business, especially
those locations where our business is concentrated, may affect the growth and
profitability of our business. The regulatory environments in those locations,
including any pricing, underwriting or product controls, shared market mechanisms
or mandatory pooling arrangements, and other conditions, such as our agency
relationships, affect the growth and profitability of our business. Our loss
and loss adjustment expense (“LAE”) reserves are based on estimates,
principally involving case assessments and actuarial projections, at a given
time, of what we expect the ultimate settlement and administration of claims
will cost based on facts and circumstances then known, predictions of future
events, estimates of future trends in claims frequency and severity and judicial
theories of liability, costs of repairs and replacement, legislative activity
and other factors. We regularly reassess our estimate of loss reserves and LAE,
both for current and past years, and resulting changes have and will affect
our reported profitability and financial position.
Claims management includes the receipt of initial loss notifications, generation
of appropriate responses to claim reports, loss appraisals, identification and
handling of coverage issues, determination of whether further investigation
is required, retention of legal representation where appropriate, establishment
of case reserves, approval of loss payments and notification to reinsurers.
Part of our strategy focuses on efficient, timely, and fair claim settlements
to meet customer service expectations and maintain valuable independent agent
relationships. Additionally, effective claims management is important to our
business as claim payments and related loss adjustment expenses are our single
largest expenditures.
Commercial and Personal Lines
We utilize experienced claims adjusters, appraisers, medical specialists, managers
and attorneys to manage our claims. Our U.S. property and casualty operations
have field claims adjusters located throughout the states and regions in which
we do business. Claims field staff members work closely with the independent
agents who bound the policies under which coverage is claimed. Claims office
adjusting staff is supported by general adjusters for large property and large
casualty losses, by automobile and heavy equipment damage appraisers for automobile
material damage losses, and by medical specialists whose principal concentration
is on workers’ compensation and automobile injury cases. Additionally,
the claims offices are supported by staff attorneys, both in the home office
and in regional locations, who specialize in litigation defense and claim settlements.
We have a catastrophe response team to assist policyholders impacted by severe
weather events. This team mobilizes quickly to impacted regions, often in advance
for a large tracked storm, to support our local claims adjusters and facilitate
a timely response to resulting claims. We also maintain a special unit that
investigates suspected insurance fraud and abuse. We utilize claims processing
technology which allows most of the smaller and more routine Personal Lines
claims to be processed at centralized locations.
Chaucer
The Chaucer claims team is responsible for establishing case reserves, loss
and LAE cost management, exposure mitigation and litigation management. Chaucer
engages third party administrators to handle claims in certain cases and authorizes
selected agencies to manage claims under risks which they have bound on Chaucer’s
behalf.
For claims where Chaucer is the lead syndicate, our appointed claims adjusters
establish the case reserves and may appoint attorneys, loss adjusters or other
third party experts. For claims where Chaucer is not the lead syndicate, the
Lloyd’s syndicate leading the risk establishes case reserves in conjunction
with professional third party adjusters, and then advises all other syndicates
participating on the risk of the loss reserve requirements. In such cases, the
Chaucer claims team reviews material claims and developments.
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