THG 2018 Annual Report

For 2017, total OTTI from continuing operations was $5.9 million. Of this amount, $5.6 million was recognized in earnings and the remaining $0.3 million was recorded as unrealized losses in AOCI. The $5.6 million of OTTI recognized in earnings relates to $2.0 million of other invested assets, $1.8 million of fixed maturity securities and $1.8 million of equities. For 2016, total OTTI from continuing operations was $20.6 million. Of this amount, $27.4 million was recognized in earnings including $6.8 million which was transferred from unrealized losses in AOCI. The $27.4 million of OTTI recognized in earnings was related primarily to $16.0 million of fixed maturity securities that the Company intended to sell, $8.4 million of credit impairments and $2.7 million of equities. The methodology and significant inputs used to measure the amount of credit losses on fixed maturities in 2018, 2017 and 2016 were as follows: Corporate bonds - the Company utilized a financial model that derives expected cash flows based on probability-of-default factors by credit rating and asset duration and loss-given-default factors based on security type. These factors are based on historical data provided by an independent third-party rating agency. In addition, other market data relevant to the realizability of contractual cash flows may be considered. 7KH IROORZLQJ WDEOH SURYLGHV UROOIRUZDUGV RI WKH FXPXODWLYH DPRXQWV UHODWHG WR WKH &RPSDQ\¶V FUHGLW ORVV SRUWLRQ RI WKH 277, losses on fixed maturity securities from continuing operations for which the non-credit portion of the loss is included in other comprehensive income. YEARS ENDED DECEMBER 31 2018 2017 2016 (in millions) Credit losses as of the beginning of the year $ 3.6 $ 9.6 $ 17.7 Credit losses on securities for which an OTTI was not previously recognized 1.0 0.4 6.1 Additional credit losses on securities for which an OTTI was previously recognized 0.1 0.1 2.3 Reductions for securities sold, matured or called (0.9) (6.1) (4.3) Reductions for securities reclassified as intend to sell ² (0.4) (12.2) Credit losses as of the end of the year $ 3.8 $ 3.6 $ 9.6 The proceeds from sales of available-for-sale securities and the gross realized gains and gross realized losses on those sales, were as follows: YEARS ENDED DECEMBER 31 (in millions) Proceeds Gross Gross 2018 from Sales Gains Losses Fixed maturities, excluding held-for-sale (Chaucer) $ 296.5 $ 2.1 $ 8.4 Fixed maturities, held-for-sale 276.8 1.7 1.7 Total fixed maturities $ 573.3 $ 3.8 $ 10.1 2017 Fixed maturities, excluding held-for-sale (Chaucer) $ 306.8 $ 8.1 $ 7.8 Fixed maturities, held-for-sale 188.0 4.1 0.4 Total fixed maturities $ 494.8 $ 12.2 $ 8.2 2016 Fixed maturities, excluding held-for-sale (Chaucer) $ 348.2 $ 10.0 $ 5.1 Fixed maturities, held-for-sale 215.6 1.7 1.9 Total fixed maturities $ 563.8 $ 11.7 $ 7.0 Beginning in 2018, equity securities are no longer classified as available-for-sale. Proceeds from the sale of equity securities for the years ended December 31, 2017 and 2016 were $128.8 million and $245.0 million, respectively, resulting primarily in gross realized gains of $18.8 million and $31.1 million, respectively. 96 THE HANOVER INSURANCE GROUP | 2018 ANNUAL REPORT