THG 2018 Annual Report

The following table is information about average historical claims duration as of December 31, 2018. The table is computed based on the paid and incurred claims data, net of reinsurance, for the accident years presented in the preceding claims development tables. Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance: Unaudited 1 2 3 4 5 6 7 8 9 10 Commercial multiple peril 34.0% 22.7% 10.7% 10.0% 7.2% 4.7% 2.5% Workers' compensation 20.0% 27.0% 15.9% 9.6% 5.6% 3.5% 2.4% 1.4% 1.4% 0.8% Commercial automobile liability 16.9% 21.7% 20.1% 18.3% 13.7% 6.2% General liability and umbrella - occurrence 3.4% 11.7% 19.4% 20.1% 15.3% 10.6% 3.5% 4.9% General liability - claims made 12.6% 34.4% 24.3% 12.9% 4.8% 1.7% Personal automobile liability 32.5% 28.4% 18.3% 12.2% 6.1% Homeowners 69.2% 21.8% 3.4% 2.5% 18. COMMITMENTS AND CONTINGENCIES Legal Proceedings Durand Litigation On March 12, 2007, a putative class action suit captioned Jennifer A. Durand v. The Hanover Insurance Group, Inc., and The Allmerica Financial Cash Balance Pension Plan, was filed in the United States District Court for the Western District of Kentucky. The named SODLQWLII D IRUPHU HPSOR\HH RI WKH &RPSDQ\¶V IRUPHU OLIH LQVXUD nce and annuity business who received a lump sum distribution from WKH &RPSDQ\¶V &DVK %DODQFH 3ODQ WKH ³3ODQ´ DW RU DERXW WKH WLPH RI KHU VHSDUDWLRQ IURP WKH Company, claims that she and others similarly situated did not receive the appropriate lump sum distribution because in computing the lump sum, the Company and the Plan understated the accrued benefit in the calculation. The plaintiff claims that the Plan underpaid her distributions and those of similarly situated participants by failing to pay an additional so- FDOOHG ³ZKLSVDZ´ DPRXQW UHIOHFWLQJ WKH SUHVHQW YDOXH RI DQ HVWLPDWH RI IXWXUH LQWHUHVW FUHGLWV IURP WKH GDWH RI WKH OXPS VXP GLVWULEXWLRQ WR HDFK SDUWLFLSDQW¶V UHWLUHPHQW DJH RI ³ZKLSVDZ FODLP´ The plaintiff filed an Amended Complaint adding two new named plaintiffs and additional claims on December 11, 2009. Two of the three new claims set forth in the Amended Complaint were dismissed by the District Court, which action was upheld in November 2015 by the U.S. Court of Appeals, Sixth Circuit. The District Court, however, did allow to stand the new claim in the Amended Complaint for breach of fiduciary duty and failure to meet notice requirements arising under the Employee Retirement Income Security Act of ³(5,6$´ IURP WKH YDULRXV LQ terest crediting and lump sum distribution matters of which plaintiffs complain, but only as to SODLQWLIIV¶ ³ZKLSVDZ´ FODLP WKDW UHPDLQHG LQ WKH FDVH 2Q 'HFHPEHU 17, 2013, the Court entered an order certifying a class to bring ³ZKLSVDZ´ DQG UHODWHG EUHDFK of fiduciary duty claims consisting of all persons who received a lump sum distribution between March 1, 1997 and December 31, 2003. On February 16, 2018, the Court entered an order limiting the claims of those participants who received lump sum distributions prior to 0DUFK WR DOOHJHG YLRODWLRQV RI (5,6$¶V GLVFORVXUH UHTXLUHPHQWV DQG EUHDFKHV RI ILGXFLDU\ GXW\ 6XEVHTXHQWO\ WKH SDU ties entered into settlement discussions and have reached a settlement, which the Court preliminarily approved on December 18, 2018. The Court will consider whether to give final approval to the settlement at a hearing on March 22, 2019. Provided the Court approves the settlement, the Company does not believe the resulting settlement amount will be material to the Compan \¶V ILQDQFLDO SRVLWLRQ RU KDYH a material effect on its results of operations. Other Matters The Company has been named a defendant in various other legal proceedings arising in the normal course of business. In addition, the Company is involved, from time to time, in examinations, investigations and proceedings by governmental and self-regulatory agencies. The potential outcome of any such action or regulatory proceedings in which the Company has been named a defendant or the subject of an inquiry or investigation, and its ultimate liability, if any, from such action or regulatory proceedings, is difficult to predict at this time. The ultimate resolutions of such proceedings are not expected to have a material effect on its financial position, although they could have a material effect on the results of operations for a particular quarter or annual period. Residual Markets The Company is required to participate in residual markets in various states, which generally pertain to high risk insureds, disrupted markets or lines of business or geographic areas where rates are regarded as excessive. The results of the residual markets are not subject 131 2018 ANNUAL REPORT | THE HANOVER INSURANCE GROUP