THG 2018 Annual Report

Effective January 1, 2018, increases or decreases in fair value of equity securities are no longer reported as unrealized gains and losses in accumulated other comprehensive income. Instead, they are reported in net realized and unrealized investment gains (losses) in the &RQVROLGDWHG 6WDWHPHQWV RI ,QFRPH VHH ³(TXLW\ 6HFXULWLHV´ EHORZ . C. FIXED MATURITY SECURITIES IN AN UNREALIZED LOSS POSITION The IROORZLQJ WDEOHV SURYLGH LQIRUPDWLRQ DERXW WKH &RPSDQ\¶V DYDLODEOH -for-sale fixed maturity securities that were in an unrealized loss position at December 31, 2018 and 2017 including the length of time the securities have been in an unrealized loss position: DECEMBER 31, 2018 12 months or less Greater than 12 months Total (in millions) Gross Gross Gross Unrealized Fair Unrealized Fair Unrealized Fair Losses Value Losses Value Losses Value Investment grade: U.S. Treasury and government agencies $ 1.1 $ 66.0 $ 6.1 $ 210.9 $ 7.2 $ 276.9 Foreign governments ² 2.0 ² 0.8 ² 2.8 Municipal 0.8 110.0 9.0 248.0 9.8 358.0 Corporate 30.0 1,277.9 43.9 781.6 73.9 2,059.5 Residential mortgage-backed 2.6 201.2 12.1 323.7 14.7 524.9 Commercial mortgage-backed 3.4 293.0 6.4 175.5 9.8 468.5 Asset-backed 0.4 42.3 0.3 18.0 0.7 60.3 Total investment grade 38.3 1,992.4 77.8 1,758.5 116.1 3,750.9 Below investment grade: Municipal ² ² ² 0.9 ² 0.9 Corporate 8.1 185.6 10.0 54.0 18.1 239.6 Total below investment grade 8.1 185.6 10.0 54.9 18.1 240.5 Fixed maturities, excluding held-for-sale (Chaucer) 46.4 2,178.0 87.8 1,813.4 134.2 3,991.4 Fixed maturities, held-for-sale 0.1 4.0 0.3 18.0 0.4 22.0 Total fixed maturities $ 46.5 $ 2,182.0 $ 88.1 $ 1,831.4 $ 134.6 $ 4,013.4 DECEMBER 31, 2017 12 months or less Greater than 12 months Total (in millions) Gross Gross Gross Unrealized Fair Unrealized Fair Unrealized Fair Losses Value Losses Value Losses Value Investment grade: U.S. Treasury and government agencies $ 1.1 $ 146.3 $ 2.1 $ 62.3 $ 3.2 $ 208.6 Foreign governments ² 0.1 ² 0.6 ² 0.7 Municipal 1.7 183.8 4.1 101.2 5.8 285.0 Corporate 3.0 386.2 10.8 395.9 13.8 782.1 Residential mortgage-backed 1.4 196.3 3.5 159.0 4.9 355.3 Commercial mortgage-backed 0.9 139.2 1.6 61.9 2.5 201.1 Asset-backed 0.3 34.6 ² 2.4 0.3 37.0 Total investment grade 8.4 1,086.5 22.1 783.3 30.5 1,869.8 Below investment grade: Corporate 1.5 48.7 6.4 39.0 7.9 87.7 Fixed maturities, excluding held-for-sale (Chaucer) 9.9 1,135.2 28.5 822.3 38.4 1,957.5 Fixed maturities, held-for-sale 5.7 803.3 10.2 389.6 15.9 1,192.9 Total fixed maturities $ 15.6 $ 1,938.5 $ 38.7 $ 1,211.9 $ 54.3 $ 3,150.4 The Company views gross unrealized losses on fixed maturities as being temporary since it is its assessment that these securities will recover in the near term, allowing the Company to realize the anticipated long-term economic value. The Company employs a systematic methodology to evaluate declines in fair value below amortized cost for fixed maturity securities. In determining OTTI, the Company HYDOXDWHV VHYHUDO IDFWRUV DQG FLUFXPVWDQFHV LQFOXGLQJ WKH LVVXHU¶V RYHUDOO ILQDQFLDO FRQGLWLRQ WKH LVVXHU¶V FUHGLW and financial strength UDWLQJV WKH LVVXHU¶V ILQDQFLDO SHUIRUPDQFH LQFOXGLQJ HDUQLQJV WUHQGV DQG DVVHW TXDOLW\ DQ\ VSHFLILF HYHQWV ZKLFK PD\ LQIOX ence the operations of the issuer; the general outlook for market conditions in the industry or geographic region in which the issuer operates; and WKH OHQJWK RI WLPH DQG WKH GHJUHH WR ZKLFK WKH IDLU YDOXH RI DQ LVVXHU¶V VHFXULWLHV UHPDLQV EHORZ WKH &RPSDQ\¶V DPRUWL]HG FRV t. The &RPSDQ\ DOVR FRQVLGHUV DQ\ IDFWRUV WKDW PLJKW UDLVH GRXEW DERXW WKH LVVXHU¶V DELOLW\ to make contractual payments as they come due and whether the Company expects to recover the entire amortized cost basis of the security. 93 2018 ANNUAL REPORT | THE HANOVER INSURANCE GROUP