THG Hanover Insurance Group Inc

Fourth Quarter Highlights

• Net and operating return on equity⁽¹⁾ of 23.5% and 24.4%, respectively
• Combined ratio of 89.2%; combined ratio, excluding catastrophes⁽²⁾, of 87.5%
• Catastrophe losses of $26.0 million, or 1.7 points of the combined ratio
• Net premiums written increase of 7.4%*
• Renewal price increases⁽³⁾ of 14.2% in Personal Lines, 11.8% in Core Commercial, and 9.5% in Specialty
• Rate increases⁽³⁾ of 13.1% in Personal Lines, 9.2% in Core Commercial, and 6.1% in Specialty
• Loss and loss adjustment expense (LAE) ratio of 56.9%, 6.7 points below the prior-year quarter
• Current accident year loss and LAE ratio, excluding catastrophes⁽⁴⁾, of 56.9%, 3.3 points below the prior-year quarter, led by outstanding improvement in Personal Lines
• Net investment income of $100.7 million, up 23.4% from the prior-year quarter
• On December 2, 2024, the Board of Directors approved an increase of 5.9% to the regular quarterly dividend

Full Year Highlights

• Net and operating return on equity of 16.1% and 15.8%, respectively
• Combined ratio of 94.8%; combined ratio, excluding catastrophes, of 88.4%
• Catastrophe losses of $375.9 million, or 6.4 points of the combined ratio
• Net premiums written of $6.1 billion, an increase of 4.7%
• Loss and LAE ratio of 63.5%, 9.5 points below the prior year
• Current accident year loss and LAE ratio, excluding catastrophes, of 58.2%, 2.9 points below the prior year
• Net investment income of $372.6 million, up 12.2% from 2023, driven primarily by higher bond reinvestment rates and higher cashflows, partially offset by lower partnership income; net investment income from fixed maturities up 14.5% in 2024
• Book value per share increased 14.9% from December 31, 2023; excluding net unrealized depreciation on fixed maturity investments, net of tax, book value per share⁽⁵⁾ increased 10.4%

WORCESTER, Mass., Feb. 4, 2025 /PRNewswire/ -- The Hanover Insurance Group, Inc. (NYSE: THG) today reported net income of $167.9 million, or $4.59 per diluted share, in the fourth quarter of 2024, compared to $107.9 million, or $2.98 per diluted share, in the prior-year quarter. Operating income⁽⁶⁾ was $194.6 million, or $5.32 per diluted share, in the fourth quarter of 2024, compared to $113.1 million, or $3.13 per diluted share, in the prior-year quarter.

Net income was $426.0 million, or $11.70 per diluted share, in the full year 2024. This compared to $35.3 million, or $0.98 per diluted share, in the prior year. Operating income was $485.9 million, or $13.34 per diluted share, in 2024, compared to $56.2 million, or $1.56 per diluted share, in 2023, which included elevated catastrophe losses.

"2024 was an exceptional year for our company, as we delivered excellent financial performance, executed well on our strategic priorities, and continued to invest in innovative tools and technology, further enhancing our strong competitive position and prospects," said John C. Roche, president and chief executive officer at The Hanover. "We delivered record operating return on equity of 24.4% and 15.8% in the fourth quarter and for the full year, respectively, and exceeded $6 billion in annual net written premiums. Additionally, we made significant progress in executing our catastrophe mitigation initiatives and delivering on our margin recapture plan. We expect to make continued progress in 2025, while leveraging our targeted growth initiatives throughout the enterprise and capitalizing on emerging opportunities in the marketplace. We continue to operate in firm market conditions and expect strong pricing will enable us to optimize our geographic mix further and achieve broad-based profitability across all segments. Our strong performance underscores the effectiveness of our distinctive strategy, the relevancy of our product and service offerings, and the strength of our agency value proposition."

"We are very pleased with the outstanding financial results we delivered this year," said Jeffrey M. Farber, executive vice president and chief financial officer at The Hanover. "Our fourth quarter results reflect a sub-90s combined ratio and record operating earnings of $5.32 per share, providing an incredibly strong finish to an already successful year. We posted full-year operating earnings of $13.34 per share, our highest ever, while we improved our ex-CAT combined ratio by 2.9 points, to 88.4%. Importantly, we delivered favorable prior-year development across all segments in 2024, while increasing the share of IBNR** in our total reserves. We remain committed to being very thoughtful in our reserving practices in light of industry casualty trends. Our net investment income increased 23% for the quarter and 12% for the year, as we benefited from higher cashflows and earned yields, as well as thoughtful portfolio repositioning. Additionally, in the fourth quarter, we resumed stock buybacks and increased our shareholder dividend by 5.9%, marking 20 years of annual increases, showcasing our commitment to shareholder value creation and financial strength. We are entering 2025 with immense confidence and in an excellent financial position, with a strong balance sheet and an earnings-enhancing investment portfolio."

Fourth Quarter and Full Year 2024 Highlights

Fourth Quarter Operating Highlights

Core Commercial
Core Commercial operating income before income taxes was $71.0 million in the fourth quarter of 2024, compared to $52.8 million in the fourth quarter of 2023. The Core Commercial combined ratio was 95.0%, compared to 96.7% in the prior-year quarter. Catastrophe losses in the fourth quarter of 2024 were $8.4 million, or 1.5 points of the combined ratio. This compared to catastrophe losses of $29.5 million, or 5.7 points, in the prior-year quarter.

Fourth quarter 2024 results included net favorable prior-year reserve development, excluding catastrophes, of $2.8 million, or 0.5 points, with favorability in each major line of business. This compared to net favorable prior-year reserve development, excluding catastrophes, of $2.2 million, or 0.4 points, in the fourth quarter of 2023.

Core Commercial current accident year combined ratio, excluding catastrophes, increased 2.6 points to 94.0% in the fourth quarter of 2024, compared to 91.4% in the prior-year quarter, driven by increases in the loss ratio and the expense ratio. The current accident year loss and LAE ratio, excluding catastrophes, was 58.9%, 1.1 points higher than the prior-year quarter, primarily driven by prudently increased IBNR in certain liability coverages in the fourth quarter of 2024.

The expense ratio increased 1.5 points to 35.1% in the fourth quarter of 2024, compared to 33.6% in the prior-year quarter, primarily due to an increase in variable compensation expenses, reflective of the company's significantly better-than-expected 2024 results.

Net premiums written were $500.5 million in the quarter, up 7.5% from the prior-year quarter, consisting of 9.3% growth in small commercial and 5.0% growth in middle market, both sequential accelerations from the third quarter of 2024. In the fourth quarter, Core Commercial renewal price increases averaged 11.8%, including average rate increases of 9.2%.

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

Specialty
Specialty operating income before income taxes was $83.3 million in the fourth quarter of 2024, compared to $70.5 million in the fourth quarter of 2023. The Specialty combined ratio was 81.6%, compared to 83.2% in the prior-year quarter. Catastrophe losses in the fourth quarter of 2024 were $4.0 million, or 1.2 points of the combined ratio, compared to $5.6 million, or 1.7 points, in the prior-year quarter.

Fourth quarter 2024 results included net favorable prior-year reserve development, excluding catastrophes, of $23.6 million, or 7.0 points, with widespread favorability, led by professional and executive lines claims-made business. Net favorable prior-year reserve development, excluding catastrophes, was $14.0 million, or 4.4 points, in the prior-year quarter.

Specialty current accident year combined ratio, excluding catastrophes, increased 1.5 points, to 87.4% in the fourth quarter of 2024, from 85.9% in the prior-year quarter, primarily due to an increase in the expense ratio. The expense ratio increased by 2.6 points to 39.0% in the fourth quarter of 2024, compared to the prior-year quarter, primarily due to an increase in variable compensation expenses due to significantly better-than-expected 2024 results, as well as strategic business investments, including talent and technology.

The current accident year loss and LAE ratio, excluding catastrophes, of 48.4% in the fourth quarter of 2024, was 1.1 points lower than the prior-year quarter and favorable to the company's expectations, primarily driven by the benefit of earned pricing above loss trend and lower-than-expected losses in marine.

Net premiums written were $331.8 million in the quarter, up 8.8% from the prior-year quarter. In the fourth quarter, Specialty renewal price increases averaged 9.5%, including average rate increases of 6.1%.

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

Personal Lines
Personal Lines operating income before income taxes was $101.1 million in the fourth quarter of 2024, compared to $36.8 million in the fourth quarter of 2023. The Personal Lines combined ratio was 88.1%, compared to 97.6% in the prior-year quarter. Catastrophe losses in the fourth quarter of 2024 were $13.6 million, or 2.2 points of the combined ratio. This compared to catastrophe losses of $22.6 million, or 3.8 points of the combined ratio, in the prior-year quarter.

Fourth quarter 2024 net prior-year reserve development, excluding catastrophes, was slightly favorable. This compared to net unfavorable prior-year reserve development, excluding catastrophes, of $4.8 million, or 0.8 points, in the prior-year quarter.

Personal Lines current accident year combined ratio, excluding catastrophe losses, decreased 7.0 points, to 86.0% in the fourth quarter of 2024, from 93.0% in the prior-year quarter. The current accident year loss and LAE ratio, excluding catastrophes, decreased 8.2 points from the prior-year quarter to 59.8%, driven by the benefit of earned pricing outpacing loss trends in both personal auto and homeowners, as well as moderated loss frequency, particularly in auto collision coverages and homeowners.

The expense ratio increased by 1.2 points, to 26.2% in the fourth quarter of 2024, compared to the prior-year quarter, primarily due to an increase in variable compensation expenses associated with the company's strong performance.

Net premiums written were $612.8 million in the quarter, up 6.6% compared to the prior-year quarter. The increase was primarily due to the impact of renewal pricing increases and higher new business. Personal Lines renewal price increases averaged 14.2%, including average rate increases of 13.1%. Policies in force in the fourth quarter of 2024 decreased 0.6% compared to the third quarter of 2024, with a 1.1% decline in the Midwestern United States, while the rest of the country was essentially flat.

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

Full Year Operating Highlights

The company's combined ratio was 94.8% in the full year of 2024, compared to 103.5% in the prior year. Catastrophe losses were $375.9 million, or 6.4 points of the combined ratio, in 2024. This compared to $690.1 million, or 12.2 points, in the prior year. Net favorable prior-year reserve development, excluding catastrophes, was $67.4 million, or 1.1 points, in 2024, compared to $15.9 million, or 0.3 points in the prior year.

The current accident year combined ratio, excluding catastrophe losses, was 89.5% in 2024, compared to 91.6% in the prior year, driven by an improvement in the current accident year loss and LAE ratio, excluding catastrophes, primarily driven by improvement in Personal Lines. The expense ratio increased 0.8 points in 2024, compared to the prior year, driven primarily by an increase in variable compensation expenses and strategic business investments, including talent and technology.

Total net premiums written were $6.1 billion in 2024, up 4.7% from 2023, reflecting growth of 6.2% in Specialty, 4.3% in Personal Lines, and 4.2% in Core Commercial, with growth in each segment impacted by targeted underwriting actions.

Core Commercial operating income before income taxes was $281.6 million in 2024, which included $77.2 million, or 3.6 points, of catastrophe losses, and $17.7 million, or 0.8 points, of net favorable prior-year reserve development, with favorability in each major line of business. In 2023, Core Commercial operating income before income taxes was $167.2 million, which included $171.3 million, or 8.3 points, of catastrophe losses, and $4.7 million, or 0.2 points, of net unfavorable prior-year reserve development. The Core Commercial current accident year combined ratio, excluding catastrophe losses, was 91.6%, compared to 90.5% in the prior year, driven by an increase in the expense and loss ratios. The expense ratio increased 0.6 points in 2024, compared to the prior year, driven primarily by an increase in variable compensation expenses, as well as strategic business investments. The current accident year loss and LAE ratio, excluding catastrophes, increased 0.5 points, driven by prudently increased IBNR in certain liability coverages in 2024.

Specialty operating income before income taxes was $257.7 million in 2024, which included $37.5 million, or 2.8 points, of catastrophe losses, and $46.2 million, or 3.5 points, of net favorable prior-year reserve development. In 2023, Specialty operating income before income taxes was $243.5 million, which included $43.1 million, or 3.4 points, of catastrophe losses, and $48.8 million, or 3.8 points, of net favorable prior-year reserve development. The Specialty current accident year combined ratio, excluding catastrophe losses, was 87.2%, compared to 86.6% in the prior year, driven by an increase of 2.1 points in the expense ratio from strategic business investments and higher variable compensation expenses. The current accident year loss and LAE ratio, excluding catastrophes, improved 1.5 points in 2024, compared to the prior year, primarily due to the benefit of earned pricing above loss trend and lower-than-expected losses in marine.

Personal Lines operating income before income taxes was $111.3 million in 2024, which included $261.2 million, or 10.7 points, of catastrophe losses, and $4.9 million, or 0.2 points, of net favorable prior-year reserve development. In 2023, Personal Lines operating loss before income taxes was $304.3 million, which included $475.7 million, or 20.4 points, of catastrophe losses, and $25.9 million, or 1.1 points, of net unfavorable prior-year reserve development. The Personal Lines current accident year combined ratio, excluding catastrophes, was 89.1%, compared to 95.6% in the prior year, reflecting a decrease of 6.6 points in the current accident year loss ratio, excluding catastrophes, driven by the benefit of earned pricing and favorable property frequency in both auto and homeowners. The expense ratio was essentially flat in 2024 compared to 2023.

Investments 
Net investment income was $100.7 million for the fourth quarter and $372.6 million for the full year 2024, above prior-year periods primarily due to the impact of higher earned yields on the fixed maturity investment portfolio, and the continued investment of operational cashflows. Total pre-tax earned yield on the investment portfolio for the fourth quarter of 2024 was 3.97%, up from 3.40% in the prior-year quarter. The average pre-tax earned yield on fixed maturities was 3.99% for the fourth quarter of 2024, up from 3.46% in the prior-year quarter. Total pre-tax earned yield on the investment portfolio for the full year 2024 was 3.78%, up from 3.50% in the prior year. The average pre-tax earned yield on fixed maturities was 3.70% for the full year 2024, up from 3.36% in the prior year.

Net realized and unrealized investment losses recognized in earnings were $34.4 million in the fourth quarter of 2024, compared to net realized and unrealized investment losses recognized in earnings of $0.7 million in the fourth quarter of 2023. Net realized and unrealized investment losses recognized in earnings were $75.8 million in the full year of 2024, driven by the sale of certain lower-yield fixed income securities, in consideration of expiring tax gains from 2021 and 2022. This compared to net realized and unrealized investment losses recognized in earnings of $32.5 million in 2023.

The company held $9.9 billion in cash and invested assets on December 31, 2024. Fixed maturities and cash represented approximately 91% of the investment portfolio. Approximately 95% of the company's fixed maturity portfolio is rated investment grade. As of December 31, 2024, net unrealized losses on the fixed maturity portfolio were $509.3 million before income taxes, compared to $316.5 million on September 30, 2024 and $588.6 million on December 31, 2023.

Shareholders' Equity and Capital Actions 
On December 31, 2024, book value per share was $79.18, down 0.9% from September 30, 2024, primarily driven by unrealized losses on the fixed maturity portfolio in the quarter, mostly offset by strong earnings. Book value increased 14.9% from December 31, 2023. Book value per share, excluding net unrealized depreciation on fixed maturity investments, net of tax, was $90.35 at December 31, 2024, up 4.1% and 10.4% from September 30, 2024 and December 31, 2023, respectively.

On December 31, 2024, operating insurance company's statutory capital and surplus was $2.97 billion. This compared to statutory capital and surplus of $2.89 billion on September 30, 2024, and $2.64 billion on December 31, 2023.

During the fourth quarter, the company repurchased approximately 170,000 shares of common stock in the open market for $26.7 million. The company has approximately $303 million of remaining capacity under its existing share repurchase program.

Additionally, in the fourth quarter, the Board of Directors approved an increase to the quarterly dividend of 5.9% to $0.90 per common share. The company paid ordinary dividends of $32.4 million in the fourth quarter and $124.1 million in the year.

Earnings Conference Call
The company will host a conference call to discuss its fourth quarter and full year results on Wednesday, February 5, 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 the operations of the holding company and 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. The Other segment also included the operations of Opus Investment Management, Inc. during the first half of 2024 and prior, which provided investment management services to institutions, pension funds and other organizations. During the second and third quarters of 2024, the company exited all of Opus' business operations serving unaffiliated entities. Investment management services provided by Opus to The Hanover related to its investment-grade fixed maturities portfolio were also transferred to an external manager during the second quarter of 2024.

Financial Supplement
The Hanover's fourth quarter and full year 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 to net income⁽⁶⁾⁽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," "optimistic," "committed," "will," "line of sight," "clear visibility to," "designed," 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 and timing 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;
• Confidence in achieving the company's outlook and expectations, including, but not limited to, pricing increases and growth opportunities, in total or by line of business;
• The impacts of general economic and socioeconomic 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, including the timing of 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, 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 hurricanes, tornadoes and other windstorms, hail, flood, earthquakes, fire, explosions, severe winter weather and other convective storms, or pandemics, 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, tariffs, 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;
• The positive impact of mix improvement, underwriting initiatives, coverage restrictions, non-renewals, changes in terms and conditions, and pricing segmentation, among others, on the company's results;
• The ability 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, as well as the ability to balance rate actions and retention;
• The ability to offset long-term and/or short-term loss trends due to increased frequency; increased "social inflation" from a more litigious environment, lawsuit abuse 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, as well as individual investment 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 (AI), 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, difficult economic, market and political conditions 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 malicious cybersecurity attacks on the company or its business partners and service providers, or intrusions into the company's information network systems, including cloud-based data information 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 hurricanes, tornadoes and other windstorms, hail, flood, earthquakes, fire, explosions, severe winter weather and other convective storms, 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 or reinsurance contracts and reinsurance recoverables), leading to potential adverse development of loss and loss adjustment expense reserves;
• Impacts of changing climate conditions and weather patterns causing higher levels of losses from weather events to persist and leading to new or enhanced regulations;
• 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 AI tools;
• Competition, particularly from competitors who have resource and capability advantages, including the advancing use of AI technology;
• The global macroeconomic environment, including inflation, recessionary effects, global trade disputes, war, energy market disruptions, equity price risk, tariffs, 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 policy 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 AI, 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, operating income before interest expense and income taxes, operating income per diluted 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 and operating income per diluted share are non-GAAP measures. They are defined as net income 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, as they are, to a certain extent, determined by interest rates, financial markets and the timing of sales. Operating income 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 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 per diluted 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 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 attributable to the core operations of the business. Income from continuing operations is the most directly comparable GAAP measure for operating income (and operating income before income taxes) and measures of operating income that exclude the effects of catastrophe losses and/or prior-year reserve development. These non-GAAP measures should not be misconstrued as substitutes for income from continuing operations or net income determined in accordance with GAAP. A reconciliation of operating income to income from continuing operations and net income for the relevant periods is included on page 12 of this news release and in the Financial Supplement.

Operating return on average equity (ROE) is a non-GAAP measure. See end note (1) for a detailed explanation of how this measure is calculated. Operating ROE is based on non-GAAP operating income. 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 and shareholders' equity of the entire company and without adjustments.

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.

The company may provide measures of operating income 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.

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.