THG 2018 Annual Report

Prior Year Development Conditions and trends that have affected reserve development in the past will not necessarily recur in the future. As discussed under ³5HVHUYLQJ 3URFHVV 2YHUYLHZ´ LQ WKH SUHFHGLQJ VHFWLRQ RXU KLVWRULFDO ORVV H[SHULHQFH DQG ORVV GHYHORSPHQW SDWWHUQV DUH LPSRU tant factors in estimating loss reserves, however, they are not the only factors we evaluate to establish reserves. Therefore, a mechanical application of standard actuarial methodologies in projecting ultimate claims could result in materially different reserves to those held. Accordingly, it is not appropriate to extrapolate future favorable or unfavorable development based on amounts experienced in prior periods. The following table summarizes prior year (favorable) unfavorable development by segment for the periods indicated: 2018 2017 2016 (in millions) Loss & LAE Catastrophe Total Loss & LAE Catastrophe Total Loss & LAE Catastrophe Total Commercial Lines $ (34.1) $ (6.8) $ (40.9) $ (9.4) $ (1.4) $ (10.8) $ 223.0 $ (3.7) $ 219.3 Personal Lines 33.3 (2.5) 30.8 9.4 ² 9.4 4.3 6.3 10.6 Other Segment 1.2 ² 1.2 1.2 ² 1.2 8.3 ² 8.3 Total prior year (favorable) unfavorable development $ 0.4 $ (9.3) $ (8.9) $ 1.2 $ (1.4) $ (0.2) $ 235.6 $ 2.6 $ 238.2 Catastrophe Loss Development In 2018, favorable catastrophe development was $9.3 million, primarily due to lower than expected losses related to the 2017 hurricanes Harvey, Irma and Maria and California wildfires. In 2017, favorable catastrophe development was $1.4 million, primarily due to lower than expected losses related to the 2016 hurricane Matthew. In 2016, unfavorable catastrophe development was $2.6 million, primarily due to higher than expected losses related to 2015 severe summer hail and wind storms. Loss and LAE Development, excluding catastrophes The following table provides a summary of (favorable)/unfavorable loss and LAE reserve development, excluding catastrophes. YEARS ENDED DECEMBER 31 2018 2017 2016 (in millions) Commercial multiple peril $ (1.2) $ 2.5 $ 74.2 :RUNHUV¶ FRPSHQVDWLRQ (31.0) (9.1) (46.7) Commercial automobile 23.2 2.5 27.5 Other commercial lines: AIX program business 18.2 (0.4) 75.3 General liability (21.1) (1.9) 56.0 Surety (9.0) 0.1 35.3 Umbrella 0.6 (0.2) (9.0) Other lines (13.8) (2.9) 10.4 Total other commercial lines (25.1) (5.3) 168.0 Total Commercial Lines (34.1) (9.4) 223.0 Personal automobile 15.0 3.7 4.8 Homeowners and other personal lines 18.3 5.7 (0.5) Total Personal Lines 33.3 9.4 4.3 Total Other Segment 1.2 1.2 8.3 Total loss and LAE reserve development, excluding catastrophes $ 0.4 $ 1.2 $ 235.6 2018 Loss and LAE Development, excluding catastrophes In 2018, net unfavorable loss and LAE development, excluding catastrophes, was $0.4 million. Commercial Lines favorable development of $34.1 million was prima ULO\ GXH WR ORZHU WKDQ H[SHFWHG ORVVHV RI PLOOLRQ ZLWKLQ WKH ZRUNHUV¶ FRPSHQVDWLRQ OLQH in accident years 2015 through 2017; $25.1 million in other commercial lines, primarily in our professional and management liability and monoline general liability lines, related to the 2014 through 2016 accident years; and our surety line in accident years 2015 and 2017; partially offset by higher than expected losses in AIX programs and business classes which have since been terminated. Also partially offsetting the favorable Commercial Lines development was higher than expected losses of $23.2 million in the commercial automobile line, driven by higher bodily injury severity in the 2014, 2016, and 2017 accident years. Personal Lines unfavorable 53 2018 ANNUAL REPORT | THE HANOVER INSURANCE GROUP