THG 2018 Annual Report

&KDXFHU¶V LQFRPH EHIRUH LQFRPH WD[HV IRU WKH \HDU HQGHG 'HFHPEHU ZDV PLOOLRQ FRPSDUHG WR PLOOLRQ IRU WK e year ended December 31, 2016, a decline of $117.7 million. This decrease is primarily due to higher catastrophe losses. Catastrophe losses for the year ended December 31, 2017 were $131.1 million, compared to $8.0 million for the year ended December 31, 2016, an increase RI PLOOLRQ &KDXFHU¶V LQFRPH EHIRUH WD[HV H[FOXGLQJ FDWDVWURSK es, was $139.7 million in the year ended December 31, 2017, compared to $134.3 million for the year ended December 31, 2016. This $5.4 million increase was primarily due to lower non- catastrophe current accident year losses and higher net investment income SDUWLDOO\ RIIVHW E\ ORZHU IDYRUDEOH SULRU \HDUV¶ UHVHUYH development. Catastrophe Loss Development In 2018, the favorable catastrophe development ratio was 2.0% primarily driven by lower than expected losses related to hurricane Harvey. In 2017, the favorable catastrophe development ratio was 2.8% primarily due to lower than expected property losses in the treaty line. In 2016, the favorable catastrophe development ratio was 4.5% primarily due to lower than expected property losses in the treaty line and, to a lesser extent, in the property line. Loss and LAE Development, excluding catastrophes In 2018, the favorable loss and LAE development ratio was 4.3%, excluding catastrophes, primarily due to lower than expected losses in the political, energy, marine, and treaty lines, partially offset by higher than expected losses in the casualty lines. In 2017, the favorable loss and LAE development ratio was 4.0%, excluding catastrophes, primarily as a result of lower than expected losses in the energy and political lines, partially offset by higher than expected losses in the treaty line, primarily a result of higher than expected losses in &KDXFHU¶V 8 6 FDVXDOW\ EXVLQHVV ,Q WKH IDYRUDEOH ORVV DQG /$( GHYHORSPHQW UDWLR ZDV H[FOXGLQJ FDWDVWURSKHV primarily due to lower than expected losses in the energy, casualty, political, and treaty lines. Partially offsetting the 2016 favorable loss and LAE GHYHORSPHQW ZDV WKH XQIDYRUDEOH LPSDFW RI IRUHLJQ H[FKDQJH UDWH PRYHPHQWV RQ SULRU \HDUV¶ ORVV UHVHUYHV Investment Portfolio Chaucer held cash and investment assets diversified across several asset classes, as follows: 2018 2017 (dollars in millions) Carrying Value % of Total Carrying Value Carrying Value % of Total Carrying Value Fixed maturities, at fair value $ 24.5 88.1 % $ 2,030.4 91.0 % Other investments ² ² 123.1 5.5 Cash and cash equivalents 3.3 11.9 78.5 3.5 Total cash and investments $ 27.8 100.0 % $ 2,232.0 100.0 % Cash and Investments Total cash and investments decreased $2.2 billion, or 98.8%, for the year ended December 31, 2018, primarily due to the sale of the 8 . VXEVLGLDULHV ZKLFK LQFOXGHG FDVK DQG LQYHVWPHQWV RI DSSUR[LPDWHO\ ELOOLRQ $OVR SULRU WR WKH VDOH &KDXFHU¶V LQY estment assets were reduced by a pre-signing dividend of $85.0 million from Chaucer to THG and an approximate $65 million repayment of intercompany debt. Assets remaining at December 31, 2018 relate to the Chaucer-related Irish and Australian subsidiaries which, as discussed elsewhere, have been or are expected to be sold in the first quarter of 2019. Investment Results Net investment income increased $2.9 million for the year ended December 31, 2018 and $6.3 million for the year ended December 31, 2017 as compared to the prior years. The increase in 2018 was primarily due to the impact of higher new money yields and higher income on certain reinsurance contracts subject to deposit accounting, partially offset by lower average invested assets. The increase in 2017 compared to 2016 also reflects higher income on certain reinsurance contracts subject to deposit accounting, as well as the impact of higher operational cashflows. Earned yields on the investment portfolio were 2.21%, 2.03% and 1.97% for the years ended December 31, 2018, 2017, and 2016, respectively. 63 2018 ANNUAL REPORT | THE HANOVER INSURANCE GROUP