THG 2018 Annual Report

OTHER ITEMS Net income also included the following items: YEARS ENDED DECEMBER 31 (in millions) 2018 Commercial Lines Personal Lines Other Discontinued Operations Total Net realized investment gains (losses) $ (35.5) $ (13.6) $ 1.6 $ ² $ (50.7) Net loss from repayment of debt (18.7) (7.6) (1.9) ² (28.2) Discontinued operations - Chaucer business, including gain on sale, net of taxes ² ² ² 151.9 151.9 Discontinued life businesses, net of taxes ² ² ² 0.1 0.1 2017 Net realized investment gains (losses) $ 17.7 $ 8.4 $ (5.0) $ ² $ 21.1 Other non-operating items (5.6) (4.6) (0.1) ² (10.3) Discontinued operations - Chaucer business, including gain on sale, net of taxes ² ² ² (13.1) (13.1) Discontinued life businesses, net of taxes ² ² ² (16.8) (16.8) 2016 Net realized investment gains (losses) $ 7.5 $ 3.5 $ (0.8) $ ² $ 10.2 Net loss from repayment of debt ² ² (88.3) ² (88.3) Other non-operating items 2.5 ² 0.1 ² 2.6 Discontinued operations - Chaucer business, including gain on sale, net of taxes ² ² ² 89.1 89.1 Discontinued life businesses, net of taxes ² ² ² (1.0) (1.0) We manage investment assets for our Commercial Lines, Personal Lines, and Other segments based on the requirements of our combined property and casualty companies. We allocate the investment income, expenses, and realized gains and losses to our Commercial Lines, Personal Lines, and Other segments based on actuarial information related to the underlying businesses. We manage investment assets separately for our Chaucer business. Net realized losses on investments were $50.7 million for 2018, and $21.1 million and $10.2 million of net realized gains for 2017 and 2016, respectively. Net realized losses in 2018 were primarily due to $43.4 million of losses from the net change in fair value of equity securities that are now required to be reflected in net income, due to the implementation of ASU 2016-01 effective January 1, 2018. 6HH DOVR ,WHP 2 ³1HZ $FFRXQWLQJ 3URQRXQFHPHQWV´ LQ 1RWH ± ³6XPPDU\ RI 6LJQLILFDQW $FFRXQWLQJ 3ROLFLHV´ LQ WKH 1RWHV WR Consolidated Financial Statements.) This change in fair value of equity securities resulted from prevailing market conditions. Additionally, in 2018 we recognized $4.6 million of OTTI losses, and $2.7 million of losses recognized from the sale of securities, primarily fixed maturities. Net realized gains in 2017 were primarily due to $26.6 million of gains recognized from the sale of securities, primarily equities, and to a lesser extent, fixed maturities. These gains were partially offset by $5.6 million of OTTI losses. Net realized gains in 2016 were primarily due to $36.6 million of gains recognized from the sale of securities, primarily equities, and to a lesser extent, fixed maturities. These gains were partially offset by $27.4 million of OTTI losses. At December 31, 2018, we had informed the FHLB of our intent to repay a $125 million FHLB note due 2029 with a coupon of 5.5%, with settlement to occur on January 2, 2019. In the fourth quarter of 2018, we recorded a non-operating charge of $20.8 million after- taxes related to the pre-payment provision. Additionally, in 2018 we repurchased subordinated debentures with a net carrying value of $9.6 million at a cost of $11.5 million, resulting in a loss of $1.9 million. In 2016, we redeemed senior debentures with a net carrying value of $375.2 million at a cost of $461.3 million, resulting in a loss of $86.1 million. Additionally, in 2016 we repurchased senior debentures with a net carrying value of $11.9 million at a cost of $14.1 million, resulting in a loss of $2.2 million. ,QFOXGHG LQ ³RWKHU QRQ - RSHUDWLQJ LWHPV´ DERYH LQ ZHUH PLOOLRQ RI HPSOR\HH WHUPLQDWLRQ FRVWV DVVRFLDWHG ZLWK D FRPSDQ\ - wide expense savings initiative. Discontinued operations primarily include our former Chaucer business and discontinued accident and health and former life insurance businesses. In 2018, discontinued operations, in total, generated a gain of $152.0 million, net of tax, primarily related to the sale of the Chaucer business. In 2017, discontinued operations, in total, generated a loss of $29.9 million, net of tax, primarily related to the long- term care pool in our discontinued accident and health business and, to a lesser extent, the Chaucer business. In 2016, discontinued ope UDWLRQV FRQWULEXWHG PLOOLRQ RI LQFRPH SULPDULO\ UHODWHG WR WKH &KDXFHU EXVLQHVV 6HH DOVR ³'LVFRQWLQXHG 2SHUDWLRQV ± Chaucer %XVLQHVV´ EHORZ DQG 1RWH ± ³'LVSRVLWLRQV RI EXVLQHVVHV´ LQ WKH 1RWHV WR &RQVROLGDWHG )LQDQFLDO 6WDWHPHQWV 60 THE HANOVER INSURANCE GROUP | 2018 ANNUAL REPORT