THG 2018 Annual Report

Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business and stock price. As a publicly traded company, we are required to maintain effective internal control over financial reporting. While management has certified that our internal control over financial reporting was effective as of December 31, 2018, because internal control over financial reporting is complex, we cannot assure you that our internal control over financial reporting will be effective in the future. Any failure to design, implement or maintain required controls, gaps in internal controls, or difficulties encountered in their operation, could adversely affect our results or cause us to fail to meet our reporting obligations. If we are not able to maintain or document effective internal control over financial reporting, our independent, registered public accounting firm would be unable to certify the effectiveness of our internal control over financial reporting or opine that our financial statements fairly present, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP. Significant internal control deficiencies may also prevent us from reporting our financial information on a timely basis or cause us to restate previously issued financial information, and thereby subject us to litigation and adverse regulatory consequences, including fines and other penalties, and could result in a breach of the covenants under our credit agreements. Investor confidence in us and the reliability of our financial statements could erode, resulting in a decline in our stock price. We are subject to the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, that impose restrictions and may carry substantial penalties. Violations of these laws or allegations of such violations could cause a material adverse effect on our business, financial position and results of operations. The U.S. Foreign Corrupt Practices Act and anti-bribery laws in other jurisdictions, generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business or other commercial advantage. Our policies mandate compliance with these anti-bribery laws that often carry substantial penalties. We cannot assure you that our internal control policies and procedures will always protect us from reckless or other inappropriate acts committed by our affiliates, employees, or agents. Violations of these laws, or allegations of such violations, could have a material adverse effect on our business, financial position and results of operations. ITEM 1B ± UNRESOLVED STAFF COMMENTS None. ITEM 2 ± PROPERTIES We own our headquarters, located at 440 Lincoln Street, Worcester, Massachusetts, with approximately 803,000 square feet. We also own office space located in a three-building complex located at 808 North Highlander Way, Howell, Michigan, with approximately 140,000 square feet, where various business operations are conducted. Certain of our properties have been leased to unrelated third parties or are available for lease. We also lease offices throughout the United States for branch sales, underwriting and claims processing functions, and the operations of acquired subsidiaries. We believe that our facilities are adequate for our present needs in all material respects. ITEM 3 ± LEGAL PROCEEDINGS 5HIHUHQFH LV PDGH WR WKH OLWLJDWLRQ PDWWHU FDSWLRQHG ³'XUDQG /LWLJDWLRQ´ LQFOXGHG LQ 1RWH - ³&RPPLWPHQWV DQG &RQWLQJHQFLHV ± /HJDO 3URFHHGLQJV´ LQ WKH 1RWHV WR &RQVROLGDWHG )LQDQFLD l Statements. ITEM 4 ± MINE SAFETY DISCLOSURES Not applicable. 33 2018 ANNUAL REPORT | THE HANOVER INSURANCE GROUP