THG 2018 Annual Report

,Q DFFRUGDQFH ZLWK /OR\G¶V RSHUDWLQJ JXLGHOLQHV WKH &RPSDQ\ GHSRVLWHG IXQGV DW /OR\G¶V WR VXSSRUW &KDXFHU XQGHUZULWLQJ RSHUD tions. These funds are available only to fund claim obligations. At December 31 2017, fixed maturities with a fair value of $528.1 million and FDVK RI PLOOLRQ UHVSHFWLYHO\ ZHUH RQ GHSRVLW ZLWK /OR\G¶V The following table details the cash flows associated with the Chaucer business: DECEMBER 31 2018 2017 2016 (in millions) Net cash (used in) provided by operating activities (22.8) 28.8 95.9 Net cash provided by (used in) investing activities 131.1 (96.9) (104.7) Prior to the sale, the Company was subject to concentration of risk with respect to reinsurance ceded with respect to the Llo \G¶V V\QGLFDWHV 7KH /OR\G¶V 6\QGLFDWHV WRWDO UHLQVXUDQFH UHFHLYDEOH EDODQFH IRU WKH &KDXFHU EXVLQHVV ZDV PLOOLRQ DV RI 'HF ember 31, 2017. The following table provides the effects of reinsurance. YEARS ENDED DECEMBER 31 2018 2017 2016 (in millions) Premiums written: Direct $ 625.3 $ 597.6 $ 560.3 Assumed 685.3 646.9 546.3 Ceded (1) (459.9) (395.4) (290.5) Net premiums written $ 850.7 $ 849.1 $ 816.1 Premiums earned: Direct $ 611.9 $ 568.7 $ 584.0 Assumed 667.2 628.3 577.3 Ceded (1) (429.1) (344.0) (322.7) Net premiums earned $ 850.0 $ 853.0 $ 838.6 Losses and LAE: Direct $ 362.2 $ 365.2 $ 403.1 Assumed 568.7 570.7 258.8 Ceded (2) (415.4) (386.8) (243.2) Net losses and LAE $ 515.5 $ 549.1 $ 418.7 (1) 7KH LQFUHDVH LQ FHGHG UHLQVXUDQFH SUHPLXPV IURP WKURXJK LV SULPDULO\ GXH WR &KDXFHU¶V SODQQHG LQFUHDVH LQ UHLQVXUDQ ce purchases. (2) The increase in ceded losses and LAE from 2016 through 2018 is primarily due to higher catastrophe loss activity in certain Chaucer lines and due to the aforementioned increase in reinsurance purchases. )RU &KDXFHU¶V U.S. casualty treaty lines, the Company entered into a whole account aggregate excess of loss contract. The contract cover V WKH 8 6 FDVXDOW\ WUHDW\ OLQHV H[SRVXUHV H[FHSW VSHFLDOW\ ULVNV DQG ZRUNHUV¶ FRPSHQVDWLRQ FODVK 7KLV FRQWUDFW GRHV QRW PH et the risk transfer requirements of GAAP and was accounted for using the deposit accounting method. The impact of reinsurance contracts subject to deposit accounting were recognized through net investment income rather than losses. Net investment income for this contract of approximately $8 million was recognized for each of the years ended December 31, 2018 and December 31, 2017 and $3 million was recognized for the year ended December 31, 2016. Discontinued life businesses During 1999, the Company exited its accident and health insurance business, consisting of its Employee Benefit Services business, its Affinity Group Underwriters business and its accident and health assumed reinsurance pool business. Prior to 1999, these businesses comprised substantially all of the former Corporate Risk Management Services segment. Accordingly, the operating results of the discontinued segment have been reported in accordance with Accounting Principles Board Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions ³$3% 2SLQLRQ 1R ´ 2Q -DQXDU\ 2, 2009, Hanover Insurance directly assumed a portion of the accident and health business; and therefore continues to apply APB Opinion No. 30 to this business. In addition, the remainder of the Discontinued First Allmeri FD )LQDQFLDO /LIH ,QVXUDQFH &RPSDQ\ ³)$)/,&´ DFFLGHQW DQG KHDOWK EXVLQHVV ZDV UHLQVXUHG E\ +DQRYHU Insurance in connection with the sale of FAFLIC to Commonwealth Annuity. 90 THE HANOVER INSURANCE GROUP | 2018 ANNUAL REPORT