On this page of StockholderLetter.com we present the 3/24/2023 shareholder letter from HANOVER INSURANCE GROUP, INC. — ticker symbol THG. Reading current and past THG letters to shareholders can bring important insights into the investment thesis.

 •  3/24/2023 Letter Continued (Full PDF)
 •  3/28/2024 THG Stockholder Letter
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THG 3/24/2023 Shareholder/Stockholder Letter Transcript:

THE POWER OF A
STRONG FOUNDATION
A n n u a l R e p o r t 202 2

T H E H A N OV E R I N S U R A N C E G R O U P

202 2 A N N UA L R E P O RT
FINANCIAL HIGHLIGHT S
YEARS ENDED DECEMBER 31
2021
2022
$5,228
$5,469
Net Income
$419
$116
Operating Income after Income Taxes1
$318
$200
Total Assets
$14,254
$13,997
Shareholders    Equity
$3,145
$2,326
Shareholders    Equity, Excluding Net Unrealized
Appreciation or Depreciation on Fixed Maturity
Investments, Net of Tax 2
$2,960
$2,967
($ in millions, except per share amounts)
Revenues
INSUR ANCE BUSINESS MIX
2022 Net Premiums Written
17%
20%
$5.5B
24%
PER SHARE DATA
Net Income per Diluted Share
$11.49
$3.21
Operating Income per Diluted Share1
$8.73
$5.53
Book Value per Share
$88.59
$65.38
Book Value per Share, Excluding Net Unrealized
Appreciation or Depreciation on Fixed Maturity
Investments, Net of Tax3
$83.38
$83.41
23%



Small Commercial
Middle Market
Specialty
Personal Auto
Home & Other
1 Operating income af ter income taxes, operating income af ter income t axes per diluted share, shareholders    equit y,
excluding net unrealized appreciation or depreciation on fixed maturit y investments, net of tax, book value per share,
excluding net unrealized appreciation or depreciation on fixed maturit y investments, net of t ax, combined ratio,
excluding catastrophes, and expense ratio are non- G A A P measures. T he definitions and reconciliations to the most
directly comparable GA AP measures can be found in the endnotes. Please reference the endnotes on the final pages of
this document for the definitions and reconciliations of these and other non-GA A P measures used through this repor t.
COMBINED R ATIO
96.1%
95.6%
97.0%
99.8%
90.9%
91.8%
88.1%
88.6%
92.1%
2018
2019
2020
2021
2022


2
94.4%
E XPENSE R ATIO 5
Combined Ratio, Ex-CAT4
Catastrophe Loss Ratio
32.1%
2018
31.6%
31.6%
2019
2020
31.3%
2021
30.8%
2022
16%

T H E H A N OV E R I N S U R A N C E G R O U P

202 2 A N N UA L R E P O R T
To Our Shareholders,
Our company made important strides in 2022, as we strengthened our
competitive position, accelerated our growth momentum, advanced our
unique culture, and executed on our winning strategy. I take great pride in
all that our team accomplished during the year and am more confident than
ever we have what it takes to succeed over the long term, delivering for our
shareholders and all of our stakeholders.
2022 was an extraordinarily dynamic year
that created both challenges and
opportunities, requiring agility and new
ways to assess and react to emerging
trends. Turbulent financial markets,
geopolitical instability, substantial
inflation, and a dynamic and competitive
employment market tested our industry
like never before.
At the same time, changing weather
patterns underscored the need for our
President and Chief E xec
ecuti
utive
ve Officer
company and our peers to adjust exposure and financial management strategies
in order to provide innovative and responsive solutions to our agent partners
and customers and drive sustainable, profitable growth going forward.
We persevered through this adversity, continuing to leverage the power
of the strong foundation we have established     building on our rigorous
financial and underwriting discipline, diversified business mix, powerful
agency distribution approach, the investments we have made in innovation,
and our unique culture. Our resilience in 2022, especially in the face of
unprecedented macro and industry challenges, is further evidence we are
making significant progress on our journey to be the premier property and
casualty franchise in the independent agency channel.
3

T H E H A N OV E R I N S U R A N C E G R O U P

202 2 A N N UA L R E P O RT
B U I LD I N G O N TH E STR E N GTH O F OU R FI NAN C IAL TR AC K R ECO R D
NE T PREMIUMS WRIT TEN
($ in billions)
For the year, we generated operating income per share of $5.53 and an
operating return on equity6 of 6.7%, reflecting the impact of the inflationary
$4.4
$4.6
$4.6
2018
2019
2020
$5.5
$5.0
economic environment and elevated catastrophe activity, primarily in the
fourth quarter. On the year, we delivered a combined ratio of 99.8%, and
a combined ratio, excluding catastrophes, of 92.1%, as we continued to
demonstrate our expense rigor, achieving a 50-basis point improvement in
our expense ratio from the prior year, driven primarily by growth leverage.
At the same time, we increased net premiums written by 9.7%, to $5.5 billion,
Inflation proved to be a significant challenge for us and the industry in 2022.
2022
Our team responded quickly, implementing a three-pronged margin recapture
2021
targeted underwriting measures. We are very pleased with the significant
$3.06
$2.85
$2.65
2020
$2.45
2019
progress made on these initiatives across our major lines of business,
particularly in the second half of 2022. We expect the benefit from these
actions to start materializing in 2023 as we continue to pursue rate and
exposure increases, and leverage our strong market position.
We remain committed to delivering long-term shareholder value through
$2.22
2018
* T he compa
c ompany
ny decla
d eclared
redd spec
speciial
i al dividend
divii dend
d
s of $ 4.75
75 p er commo
c ommo
ommonn share
sh are
on D ecem
ecember
ber 30
30, 2018 , and
an d $2.50
$2
per comm
m on
o n share
s hare
ha on
o December 5,,
2019, as a result of the sale of the com
20
m pany
a    s C hauc
ha er business.
hau
F or more
m ore info
informat
rmation,
ionn , ple
lease
asee see
se s ectt ion
ioo    Dividen
dee ds   
s in Par t II    
I tem 5 of the com
company
pany   ss A
Annua
nn l Re
Repor
por t on
o n Form 10-K fo
forr th
t e yye ar
ended December 31, 2022.
our well-established approach to capital allocation and management, as we
BOOK VALUE PER SHARE
thoughtfully balance the most effective and advantageous capital uses in the
current environment. In 2022, we returned $140 million to our shareholders
$70.46 $70.32
$76.20
$83.38 $83.41
$87.96 $88.59
through dividends and share repurchases. We also increased our quarterly
dividend by 8% in December, underscoring the effectiveness of our
2022
ORDINARY DIV IDENDS
PER COMMON SHARE*
with strong contributions across all segments.
plan focused on enhanced pricing, insurance-to-value adjustments, and
2021
$69.81
$75.94
$65.38
differentiated strategy and reaffirming our board   s confidence in the long-term
earnings potential of our business. We continue to prioritize capital allocation
to our higher-margin businesses to support and drive organic growth, while
at the same time remaining focused on CAT risk management. In 2022,
we sponsored our first-ever catastrophe bond, securing $150 million in
occurrence coverage for named storm events in the Northeast for a threeyear period.
4
2018


2019
2020
2021
2022
Book Value per Share, as Reported
Book Value per Share, Excluding Net
Unrealized Appreciation or Depreciation
on Fixed Maturity Investments, Net of Tax3
* T he defin
d efin
efinitio
itions
itio
ns a ndd r econ
econcili
ciliatio
cili
ations
atio
ns t o th
thee mo
most directly
tl comparab
a le
GA AP mea
easure
ea
sure
uress cca n be
b fou
ound
nd i n th
thee endn
en dnot
dnotes.
es Pleaa se refer
ef ence
nce the
he
endn
ndn
d otes
dnotes
es on
o n the
he fina
finall pages
pa ges of this
t his docu
document
ment for th
t def
the
de init
itt ions and
reconciliations of this
t his
h and
an other non-GA
GA
A AP measu
m easu
easures
asu res used thr
through
ough
this rep
repor
or t.

T H E H A N OV E R I N S U R A N C E G R O U P
INSUR ANCE PRODUC T MIX    
2022 NE T PREMIUMS WRIT TEN
12%

202 2 A N N UA L R E P O R T
B E N E FITI N G FRO M I N C R E AS E D D I V E R S I FI C ATI O N
Over the past 10 years, we meaningfully transformed our company. Today,
our business is much more diversified by geography, line of business, and
product mix. As a result, we are able to absorb changes in loss trends, adjust
20%
effectively to emerging business risks, and manage our growth more profitably.
$2.0B
50%
CORE
COMMERCIAL
We also have focused on reducing our exposure to natural catastrophes in
challenging geographic locations, including but not limited to coastal areas.
The benefit of this work has been apparent in recent years. It is reflected by
18%
the lower levels of our hurricane and wildfire losses compared to our market



Commercial Multiple Peril
Commercial Auto
Workers    Compensation
Other Core Commercial
share over the last five years, including in 2022, when Hurricane Ian hit the
Southeastern U.S.
Changing weather patterns, more frequent storms and more extreme weather
6%
events, like Winter Storm Elliott in late December of 2022, require a new
approach, with greater focus on pricing and risk prevention. We have managed
33%
29%
our CAT risks well in recent years, employing disciplined underwriting strategies
$1.3B
augmented by data, analytical tools, and technology. We   re confident our
SPECIALT Y
focus on risk selection, pricing, and the use of innovative tools will enable
us to effectively address these newer weather patterns as we help drive our
industry toward a    predict and prevent    approach to risk management rather
32%



Professional and Executive Lines
Specialty Property and Casualty
Marine
Surety and Other
than the traditional    repair and replace    approach. Winter Storm Elliot will
provide an important catalyst, we believe, for the greater adoption of sensor
technology and other water and freeze loss prevention approaches.
E X PAN D I N G OU R AT TR AC TI V E S PEC IALT Y PO R TFO LI O
We continued to expand our most profitable businesses in 2022, and in
41%
particular, our Specialty business, taking this segment to a new level.
$2.2B
PERSONAL
LINES
The strong growth of our Specialty business enables us to offer one of the
59%
broadest product portfolios in the market while effectively spreading our
risks by product line. We have more than doubled the size of this business
since 2010, to $1.3 billion in net premiums written. This growth is an outcome


Personal Auto
Home and Other
of strategic acquisitions made in prior years as well as organic initiatives.
5



 3/24/2023 Letter Continued (Full PDF)