0ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TABLE OF CONTENTS

  Introduction                                                   36

  Executive Overview                                             36

  Description of Operating Segments                              37

  Results of Operations - Consolidated                           38

  Results of Operations - Segments                               39

  Investments                                                    53

  Quantitative and Qualitative Disclosures about Market Risk     56

  Other Items                                                    57

  Income Taxes                                                   58

  Critical Accounting Estimates                                  58

  Statutory Surplus of Insurance Subsidiaries                    60

  Liquidity and Capital Resources                                61

  Contingencies and Regulatory Matters                           63

  Risks and Forward-Looking Statements                           63

  Glossary of Selected Insurance Terms                           63




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INTRODUCTION

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations is intended to assist readers in understanding the
consolidated results of operations and financial condition of The Hanover
Insurance Group, Inc. and its subsidiaries ("THG"). Consolidated results of
operations and financial condition are prepared in accordance with generally
accepted accounting principles in the United States of America ("U.S. GAAP").
This discussion should be read in conjunction with the Consolidated Financial
Statements and related footnotes included elsewhere herein.

Results of operations include the accounts of The Hanover Insurance Company
("Hanover Insurance") and Citizens Insurance Company of America ("Citizens"),
our principal property and casualty companies, and certain other insurance and
non-insurance subsidiaries. Our results of operations also include the results
of our discontinued operations, consisting primarily of our former accident and
health insurance business.

EXECUTIVE OVERVIEW

Business operations consist of four operating segments: Core Commercial,
Specialty, Personal Lines and Other.

Our strategy, which focuses on the independent agency distribution channel,
supports THG's commitment to our select independent agents. It is designed to
generate profitable growth by leveraging the strengths of our distribution
approach, including expansion of our agency footprint in underpenetrated
geographies, as warranted. As part of that strategy, we have increased our
capabilities in specialty markets and made investments designed to develop
growth solutions for our agency distribution channel and meet the needs of our
customers. Our goal is to grow responsibly in all of our businesses, while
managing volatility.

Net income was $116.0 million in 2022, compared to $418.7 million in 2021, a
decrease of $302.7 million, primarily due to changes in the fair value of equity
securities and lower operating income.

Operating income before interest expense and income taxes (a non-GAAP financial
measure; see also "Results of Operations - Consolidated - Non-GAAP Financial
Measures") was $285.1 million in 2022 compared to $432.3 million in 2021, a
decrease of $147.2 million. This decrease was primarily due to higher current
accident year losses and lower net favorable development on prior years' loss
reserves, partially offset by earned premium growth. The higher current accident
year losses were primarily due to higher severity, as a result of inflation and
supply chain disruptions, and increased accident frequency in our personal
automobile line. In addition, losses in our homeowners line have increased due
to higher severity.

Pre-tax catastrophe losses were $402.6 million in 2022 and 2021. Included in
2022 were $165.0 million of pre-tax catastrophe losses related to Winter Storm
Elliott, which occurred in the fourth quarter. Net favorable development on
prior years' loss reserves was $20.6 million in 2022, compared to $56.1 million
in 2021, a decrease of $35.5 million.

Due to persistent supply chain disruptions emerging from the COVID-19 pandemic
("Pandemic"), and significant inflation in the U.S economy, among other factors
outside our control, we are experiencing substantially higher claims costs,
particularly in our automobile and homeowners lines of business. Additionally,
several other Pandemic uncertainties persist, including evolving driving
patterns and court caseload backlogs. Although we are taking actions to address
our higher claims costs, such elevated costs may affect the property and
casualty insurance industry, our business, and our financial results over future
periods. (See "Contingencies and Regulatory Matters" and "Item 1A - Risk
Factors" for further discussion).

Core Commercial

Core Commercial is divided into two distinct businesses, small commercial and
middle market, both of which focus on account business, including commercial
multiple peril, commercial automobile, workers' compensation and other (monoline
general liability, ancillary professional, commercial umbrella, and monoline
property). Small commercial focuses on small businesses, with annual policy
premiums generally up to $50,000. Small commercial recently launched TAP sales,
a quoting platform that has enhanced the ease of doing business, and generated
approximately an 18% increase in new business submissions in 2022 compared to
2021. Middle market provides coverage to mid-sized businesses with annual policy
premiums generally between $50,000 and $500,000. Middle market offers coverage
in distinct industry segments, including technology, manufacturing, human
services, retail, real estate, and others. We believe that our account-focused
approach to the small commercial market and distinctiveness in the middle
market, including our diversified portfolio of products, delivers significant
value to agents and policyholders. We continue to pursue our core strategy of
developing strong relationships with retail agents, enhanced franchise value
through selective distribution, distinctive products and coverages, and through
continued investment in industry segmentation. Net premiums written increased
7.2% in 2022, compared to the same period in 2021, primarily driven by pricing
and exposure increases.

Underwriting results decreased in 2022, primarily due to higher catastrophe
losses. The competitive nature of the Core Commercial market requires us to be
highly disciplined in our underwriting process to ensure that we write business
at acceptable margins, and we continue to seek rate increases across many lines
of business.

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Specialty

Specialty offers a comprehensive suite of products focused predominately on
small to mid-sized businesses. This includes numerous specialized product areas
that are organized into four distinct divisions - Professional and Executive
Lines, Specialty Property and Casualty ("Specialty P&C"), Marine, and Surety and
Other. We believe that this distribution of Specialty products, primarily
through retail agents supplemented by select specialists helps to enhance our
overall agent value and increase growth opportunities by providing agents easier
access to placement solutions for Specialty needs, including those that
complement Core Commercial accounts. Net premiums written increased 11.2% in
2022, compared to the same period in 2021, primarily due to pricing, new
business and exposure increases.

Underwriting results increased in 2022, primarily due to lower catastrophe
losses, earned premium growth, and lower current accident year losses. The
competitive nature of the Specialty market requires us to be highly disciplined
in our underwriting process to ensure that we write business at acceptable
margins, and we continue to seek rate increases across many lines of business.

Personal Lines

Personal Lines focuses on working with high quality, value-oriented agencies
that deliver consultative selling to customers and stress the importance of
account rounding, which is the conversion of single policy customers to accounts
with multiple policies and/or additional coverages, to address customers'
broader objectives. Approximately 88% of our policies in force have been issued
to customers with multiple policies and/or coverages with us. We are focused on
seeking profitable growth opportunities, building a distinctive position in the
market in order to meet our customers' needs and diversifying geographically. We
continue to seek appropriate rate increases that meet or exceed underlying loss
cost trends, subject to regulatory and competitive considerations.

Net premiums written increased 11.1% in 2022, compared to the same period in
2021, primarily due to renewal price increases across the year and, to a lesser
extent, higher new business. Underwriting results decreased in 2022, primarily
due to higher current accident year losses in our personal automobile and
homeowners lines.

DESCRIPTION OF OPERATING SEGMENTS

Primary business operations include insurance products and services currently
provided through four operating segments: Core Commercial, Specialty, Personal
Lines and Other. Core Commercial includes commercial multiple peril, commercial
automobile, workers' compensation, and other commercial lines coverages provided
to small and mid-sized businesses. Specialty includes four divisions of
business: Professional and Executive Lines, Specialty P&C, Marine, and Surety
and Other. Specialty P&C includes coverages such as program business (providing
commercial insurance to markets with specialized coverage or risk management
needs related to groups of similar businesses), specialty industrial and
commercial property, excess and surplus lines and specialty general liability
coverage. Personal Lines includes personal automobile, homeowners and other
personal coverages, such as umbrella. Included in the "Other" segment are Opus
Investment Management, Inc., which markets investment management services to
institutions, pension funds, and other organizations; earnings on holding
company assets; holding company and other expenses, including certain costs
associated with retirement benefits due to our former life insurance employees
and agents; and our run-off voluntary assumed property and casualty pools and
run-off direct asbestos and environmental businesses. During the first quarter
of 2022, we disaggregated our former Commercial Lines segment into Core
Commercial and Specialty segments. Prior periods reflect this new presentation.
This presentation is consistent with the manner in which our chief operating
decision maker evaluates results in deciding how to allocate resources and in
assessing performance.

We report interest expense on debt separately from the earnings of our operating
segments. This consists primarily of interest on our senior and subordinated
debentures.

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RESULTS OF OPERATIONS - CONSOLIDATED

2022 Compared to 2021

Consolidated net income was $116.0 million in 2022, compared to $418.7 million
in 2021, a decrease of $302.7 million. The year over year comparison of
consolidated net income reflects a decrease in after-tax net realized and
unrealized investment losses of $184.4 million, primarily related to changes in
the fair value of equity securities as well as lower operating income. Operating
income before interest expense and income taxes was $285.1 million in 2022
compared to $432.3 million in 2021, a decrease of $147.2 million. This decrease
was primarily due to higher current accident year losses and lower net favorable
development on prior years' loss reserves, partially offset by earned premium
growth. Pre-tax catastrophe losses were $402.6 million in 2022 and 2021.
Included in 2022 were $165.0 million of pre-tax catastrophe losses related to
Winter Storm Elliott, which occurred in the fourth quarter.

2021 Compared to 2020

Consolidated net income was $418.7 million in 2021, compared to $358.7 million
in 2020, an increase of $60.0 million. The year over year comparison of
consolidated net income reflects an increase in after-tax net realized and
unrealized investment gains of $88.5 million, principally related to changes in
the fair value of equity securities. This was partially offset by a decrease in
operating income before interest expense and income taxes of $52.4 million. The
decrease in operating income before interest expense and income taxes was
primarily due to higher catastrophe losses and increased Personal Lines
non-catastrophe current accident year losses, partially offset by higher net
investment income, earned premium growth, and net favorable development on prior
years' loss reserves.

The following table reflects operating income (loss) before interest expense and
income taxes for each operating segment and a reconciliation to consolidated net
income from operating income before interest expense and income taxes (a
non-GAAP measure).

YEARS ENDED DECEMBER 31                            2022           2021           2020
(in millions)
Operating income (loss) before interest
expense and income taxes:
Core Commercial                                 $    106.9     $    138.0     $    178.1
Specialty                                            186.0          131.9           97.3
Personal Lines                                        (8.8 )        158.5          212.5
Other                                                  1.0            3.9           (3.2 )
Operating income before interest expense and
income taxes                                         285.1          432.3   

484.7

Interest expense on debt                             (34.1 )        (34.0 )        (37.1 )
Operating income before income taxes                 251.0          398.3   

447.6

Income tax expense on operating income               (51.1 )        (80.0 )        (92.6 )
Operating income                                     199.9          318.3   

355.0

Non-operating items:
Net realized and unrealized investment gains
(losses)                                            (106.5 )        123.0   

5.0

Net loss from repayment of debt                          -              -           (6.2 )
Other                                                 (0.5 )            -           (1.6 )
Income tax benefit (expense) on non-operating
items                                                 23.9          (21.3 ) 

9.8

Income from continuing operations, net of
taxes                                                116.8          420.0   

362.0

Discontinued operations (net of taxes):
Income from Chaucer business                             -            1.2   

0.4

Loss from discontinued life businesses                (0.8 )         (2.5 )         (3.7 )
Net income                                      $    116.0     $    418.7     $    358.7


Non-GAAP Financial Measures

In addition to consolidated net income, discussed above, we assess our financial
performance based upon pre-tax "operating income," and we assess the operating
performance of each of our four operating segments based upon the pre-tax
operating income (loss) generated by each segment. As reflected in the table
above, operating income before interest expense and income taxes excludes
interest expense on debt and certain other items, which we believe are not
indicative of our core operations, such as net realized and unrealized
investment gains and losses. Such gains and losses are excluded since they are
determined by interest rates, financial markets and the timing of sales. Also,
operating income before interest expense and income taxes excludes net gains and
losses on disposals of businesses, gains and losses related to the repayment of
debt, discontinued operations, costs to acquire businesses, restructuring costs,
the cumulative effect of accounting changes and certain other items. Although
the items excluded from operating income before interest expense and income
taxes are important components in understanding and assessing our overall
financial performance, we believe a discussion of operating income before
interest expense and income taxes enhances an investor's understanding of our
results of operations by highlighting net income attributable to the core
operations of the business. However, operating income before interest expense
and income taxes, which is a non-GAAP measure, should not be construed as a
substitute for income before income taxes or income from continuing operations,
and operating income should not be construed as a substitute for net income.

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Catastrophe losses and prior years' reserve development are significant
components in understanding and assessing the financial performance of our
business. Management reviews and evaluates catastrophes and prior years' reserve
development separately from the other components of earnings. References to
"current accident year underwriting results" exclude prior accident year reserve
development and may also be presented "excluding catastrophes." Prior years'
reserve development and catastrophes are not predictable as to timing or the
amount that will affect the results of our operations and have an effect on each
year's operating and net income. Management believes that providing certain
financial metrics and trends excluding the effects of catastrophes and prior
years' reserve development helps investors to understand the variability in
periodic earnings and to evaluate the underlying performance of our operations.
Discussion of catastrophe losses in this Management's Discussion and Analysis
includes development on prior years' catastrophe reserves and, unless otherwise
indicated, such development is excluded from discussions of prior year loss and
loss adjustment expenses ("LAE") reserve development.

RESULTS OF OPERATIONS - SEGMENTS

The following is our discussion and analysis of the results of operations by
business segment. The operating results are presented before interest expense,
income taxes and other items which management believes are not indicative of our
core operations, including realized gains and losses, as well as unrealized
gains and losses on equity securities, and the results of discontinued
operations.

The following table summarizes the results of operations for the periods
indicated:


YEARS ENDED DECEMBER 31                            2022           2021           2020
(in millions)
Operating revenues
Net premiums written                            $  5,476.5     $  4,993.4     $  4,598.5
Net premiums earned                             $  5,252.3     $  4,770.2     $  4,527.4
Net investment income                                296.3          310.7          265.1
Other income                                          26.5           23.9           27.3
Total operating revenues                           5,575.1        5,104.8        4,819.8
Losses and operating expenses
Losses and LAE                                     3,623.4        3,134.2   

2,844.5

Amortization of deferred acquisition costs 1,093.2 982.7

951.0

Other operating expenses                             573.4          555.6   

539.6

Total losses and operating expenses                5,290.0        4,672.5   

4,335.1

Operating income before interest expense and
income taxes                                    $    285.1     $    432.3     $    484.7


2022 Compared to 2021

Operating income before interest expense and income taxes was $285.1 million for
the year ended December 31, 2022, compared to $432.3 million for the year ended
December 31, 2021, a decrease of $147.2 million. This decrease was primarily due
to higher current accident year losses and lower net favorable development on
prior years' loss reserves, partially offset by earned premium growth. The
higher current accident losses were primarily due to higher severity, as a
result of inflation and supply chain disruptions, and increased accident
frequency in our personal automobile line.

Net premiums written increased $483.1 million for the year ended December 31,
2022, compared to the year ended December 31, 2021. This was primarily due to
pricing and exposure increases and continued strong retention.

2021 Compared to 2020

Operating income before interest expense and income taxes was $432.3 million for
the year ended December 31, 2021, compared to $484.7 million for the year ended
December 31, 2020, a decrease of $52.4 million. This decrease was primarily due
to higher catastrophe losses and increased Personal Lines non-catastrophe
current accident year losses, partially offset by higher net investment income,
earned premium growth, and net favorable development on prior years' loss
reserves. The higher Personal Lines non-catastrophe current accident year losses
were primarily due to higher personal automobile losses, attributable to higher
loss severity and frequency, though 2021 loss frequency was below pre-Pandemic
levels.

Net premiums written increased $394.9 million for the year ended December 31,
2021, compared to the year ended December 31, 2020, primarily due to pricing
increases, a reduction in insured business activity in 2020, and a 2020 premium
refund. During 2020, we returned approximately $30 million of premiums to our
eligible personal automobile customers in all of our markets, providing
financial relief during the Pandemic.

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PRODUCTION AND UNDERWRITING RESULTS

The following tables summarize premiums written on a gross and net basis, net
premiums earned and loss (including catastrophe losses), LAE, expense, and
combined ratios for our Core Commercial, Specialty and Personal Lines segments.
Loss, LAE, catastrophe loss and combined ratios shown below include prior year
reserve development. These items were not meaningful for our Other segment.

                                                   YEAR ENDED DECEMBER 31, 2022
                 Gross          Net           Net
(dollars in    Premiums      Premiums      Premiums       Catastrophe        Loss &         Expense        Combined
millions)       Written       Written       Earned        Loss Ratios      LAE Ratios        Ratios         Ratios
Core
Commercial     $ 2,276.3     $ 1,999.9     $ 1,950.5               9.9            68.5           32.7          101.2
Specialty        1,500.1       1,243.7       1,189.0               2.8            54.0           35.3           89.3
Personal
Lines            2,304.4       2,232.9       2,112.8               8.3            77.8           26.5          104.3
Total          $ 6,080.8     $ 5,476.5     $ 5,252.3               7.7            69.0           30.8           99.8




                                                   YEAR ENDED DECEMBER 31, 2021
                 Gross          Net           Net
(dollars in    Premiums      Premiums      Premiums       Catastrophe        Loss &         Expense        Combined
millions)       Written       Written       Earned        Loss Ratios      LAE Ratios        Ratios         Ratios
Core
Commercial     $ 2,099.5     $ 1,864.8     $ 1,810.9               9.7            67.4           32.9          100.3
Specialty        1,349.4       1,118.9       1,029.9               5.0            57.4           35.5           92.9
Personal
Lines            1,895.4       2,009.7       1,929.4               9.1            68.5           27.7           96.2
Total          $ 5,344.3     $ 4,993.4     $ 4,770.2               8.4            65.7           31.3           97.0



                                                   YEAR ENDED DECEMBER 31, 2020
                 Gross          Net           Net
(dollars in    Premiums      Premiums      Premiums       Catastrophe        Loss &         Expense        Combined
millions)       Written       Written       Earned        Loss Ratios      LAE Ratios        Ratios         Ratios
Core
Commercial     $ 1,949.4     $ 1,726.2     $ 1,703.7               5.3            63.2           33.2           96.4
Specialty        1,251.6       1,006.9         979.6               4.3            58.3           36.5           94.8
Personal
Lines            1,953.5       1,865.4       1,844.1               8.4            64.7           27.7           92.4
Total          $ 5,154.5     $ 4,598.5     $ 4,527.4               6.3            62.8           31.6           94.4


The following tables summarize net premiums written, and loss and LAE and
catastrophe loss ratios by line of business for the Core Commercial, Specialty
and Personal Lines segments. Loss and LAE and catastrophe loss ratios include
prior year reserve development.

                                  YEAR ENDED DECEMBER 31, 2022
                            Net
                          Premiums            Loss &         Catastrophe
(dollars in millions)     Written           LAE Ratios       Loss Ratios
Core Commercial         $    1,999.9               68.5               9.9
Specialty                    1,243.7               54.0               2.8
Personal Lines:
Personal automobile          1,317.2               77.3               0.7
Homeowners & Other             915.7               78.6              19.8
Total Personal Lines         2,232.9               77.8               8.3
Total                   $    5,476.5               69.0               7.7



                                  YEAR ENDED DECEMBER 31, 2021
                            Net
                          Premiums            Loss &         Catastrophe
(dollars in millions)     Written           LAE Ratios       Loss Ratios
Core Commercial         $    1,864.8               67.4               9.7
Specialty                    1,118.9               57.4               5.0
Personal Lines:
Personal automobile          1,230.4               66.0               1.6
Homeowners & Other             779.3               72.6              21.3
Total Personal Lines         2,009.7               68.5               9.1
Total                   $    4,993.4               65.7               8.4




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                                  YEAR ENDED DECEMBER 31, 2020
                            Net
                          Premiums            Loss &         Catastrophe
(dollars in millions)     Written           LAE Ratios       Loss Ratios
Core Commercial         $    1,726.2               63.2               5.3
Specialty                    1,006.9               58.3               4.3
Personal Lines:
Personal automobile          1,151.5               62.7               1.0
Homeowners & Other             713.9               67.9              20.5
Total Personal Lines         1,865.4               64.7               8.4
Total                   $    4,598.5               62.8               6.3

The following tables summarize GAAP underwriting results for our Core
Commercial, Specialty, Personal Lines and Other segments and reconciles them to
operating income (loss) before interest expense and income taxes.

                                                             YEAR ENDED DECEMBER 31, 2022
                                              Core                         Personal
(in millions)                              Commercial       Specialty        Lines        Other       Total
Underwriting profit, excluding prior year
reserve
  development and catastrophes            $      154.7     $     137.9     $    80.0     $     -     $  372.6
Prior year favorable (unfavorable) loss
and LAE reserve
  development on non-catastrophe losses           10.3            19.5          (8.0 )      (1.2 )       20.6
Prior year favorable (unfavorable)
catastrophe development                           17.3             8.7         (14.0 )         -         12.0
Current year catastrophe losses                 (211.0 )         (41.4 )      (162.2 )         -       (414.6 )
Underwriting profit (loss)                       (28.7 )         124.7        (104.2 )      (1.2 )       (9.4 )
Net investment income                            136.2            62.1          86.8        11.2        296.3
Fees and other income                              4.0             5.4          14.1         3.0         26.5
Other operating expenses                          (4.6 )          (6.2 )        (5.5 )     (12.0 )      (28.3 )
Operating income (loss) before interest
expense and income taxes                  $      106.9     $     186.0     $    (8.8 )   $   1.0     $  285.1



                                                             YEAR ENDED DECEMBER 31, 2021
                                              Core                         Personal
(in millions)                              Commercial       Specialty        Lines        Other       Total
Underwriting profit, excluding prior year
reserve
  development and catastrophes            $      150.2     $     105.0     $   217.3     $     -     $  472.5
Prior year favorable (unfavorable) loss
and LAE reserve
  development on non-catastrophe losses           17.8            16.2          23.1        (1.0 )       56.1
Prior year favorable catastrophe
development                                        9.7             2.3           3.0           -         15.0
Current year catastrophe losses                 (185.2 )         (54.1 )      (178.3 )         -       (417.6 )
Underwriting profit (loss)                        (7.5 )          69.4          65.1        (1.0 )      126.0
Net investment income                            146.5            62.9          89.4        11.9        310.7
Fees and other income                              3.3             6.4           9.7         4.5         23.9
Other operating expenses                          (4.3 )          (6.8 )        (5.7 )     (11.5 )      (28.3 )
Operating income before interest expense
and income taxes                          $      138.0     $     131.9     $   158.5     $   3.9     $  432.3




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                                                             YEAR ENDED DECEMBER 31, 2020
                                              Core                         Personal
(in millions)                              Commercial       Specialty        Lines        Other       Total
Underwriting profit (loss), excluding
prior year reserve
  development and catastrophes            $      134.5     $      85.0     $   286.7     $  (0.1 )   $  506.1
Prior year favorable (unfavorable) loss
and LAE reserve
  development on non-catastrophe losses           12.6             6.4           0.7        (4.2 )       15.5
Prior year favorable (unfavorable)
catastrophe development                           14.7             4.1          (1.7 )         -         17.1
Current year catastrophe losses                 (104.3 )         (46.7 )      (152.8 )         -       (303.8 )
Underwriting profit (loss)                        57.5            48.8         132.9        (4.3 )      234.9
Net investment income                            124.2            51.1          76.7        13.1        265.1
Fees and other income                              4.3             5.4          10.6         7.0         27.3
Other operating expenses                          (7.9 )          (8.0 )        (7.7 )     (19.0 )      (42.6 )
Operating income (loss) before interest
expense and income taxes                  $      178.1     $      97.3     $   212.5     $  (3.2 )   $  484.7


2022 Compared to 2021

Core Commercial

Core Commercial net premiums written were $1,999.9 million for the year ended
December 31, 2022, compared to $1,864.8 million for the year ended December 31,
2021. This $135.1 million increase was primarily driven by pricing and exposure
increases.

Core Commercial underwriting loss for the year ended December 31, 2022 was $28.7
million, compared to $7.5 million for the year ended December 31, 2021, an
unfavorable change of $21.2 million. Catastrophe losses for the year ended
December 31, 2022 were $193.7 million, compared to $175.5 million for the year
ended December 31, 2021, an increase of $18.2 million. Net favorable development
on prior years' loss reserves for the year ended December 31, 2022 was $10.3
million, compared to $17.8 million for the year ended December 31, 2021, a
decrease of $7.5 million.

Core Commercial current accident year underwriting profit, excluding
catastrophes, was $154.7 million for the year ended December 31, 2022, compared
to $150.2 million for the year ended December 31, 2021. This $4.5 million
increase was primarily due to earned premium growth. Within current accident
year non-catastrophe losses, higher loss activity in our commercial multiple
peril and commercial automobile lines were partially offset by lower loss
activity in our workers' compensation and miscellaneous property lines.

We continue to manage underwriting performance through rate actions, pricing
segmentation, specific underwriting actions and targeted new business growth.
Our ability to achieve overall rate increases is affected by many factors,
including regulatory activity and the competitive pricing environment,
particularly within the workers' compensation line. See "Contingencies and
Regulatory Matters." Due to uncertainty caused by the increase in inflation and
supply chain disruptions, there is a level of uncertainty in our ability to grow
our business and maintain or improve our underwriting profitability in this
environment. The extent and duration of these uncertainties are unknown and have
resulted in an increase in claims costs, which may persist, and may also result
in reduced premium levels.

Specialty

Specialty net premiums written were $1,243.7 million for the year ended December
31, 2022, compared to $1,118.9 million for the year ended December 31, 2021.
This $124.8 million increase was primarily due to pricing, new business and
exposure increases.

Specialty underwriting profit for the year ended December 31, 2022 was $124.7
million, compared to $69.4 million for the year ended December 31, 2021, an
increase of $55.3 million. Catastrophe losses for the year ended December 31,
2022 were $32.7 million, compared to $51.8 million for the year ended December
31, 2021, a decrease of $19.1 million. The higher catastrophe losses in 2021
were primarily due to freeze events in Texas and surrounding states. Net
favorable development on prior years' loss reserves for the year ended December
31, 2022 was $19.5 million, compared to $16.2 million for the year ended
December 31, 2021, an increase of $3.3 million.

Specialty current accident year underwriting profit, excluding catastrophes, was
$137.9 million for the year ended December 31, 2022, compared to $105.0 million
for the year ended December 31, 2021, an increase of $32.9 million, primarily
due to earned premium growth and lower current accident year losses. Within
current accident year losses, lower losses in Specialty P&C and Professional and
Executive Lines were partially offset by higher losses in the inland marine
line.

We continue to manage underwriting performance through rate actions, pricing
segmentation, specific underwriting actions and targeted new business growth.
Our ability to achieve overall rate increases is affected by many factors,
including regulatory activity and the competitive pricing environment. See
"Contingencies and Regulatory Matters." Due to uncertainty caused by the
increase in inflation and supply chain disruptions, there is a level of
uncertainty in our ability to grow our business and maintain or improve our
underwriting profitability in this environment. The extent and duration of these
uncertainties are unknown and may result in an increase in claims costs and
reduced premium levels.

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Personal Lines

Personal Lines net premiums written were $2,232.9 million for the year ended
December 31, 2022, compared to $2,009.7 million for the year ended December 31,
2021. This $223.2 million increase was primarily driven by renewal price
increases and, to a lesser extent, higher new business.

Net premiums written in the personal automobile line of business for the year
ended December 31, 2022 were $1,317.2 million, compared to $1,230.4 million for
the year ended December 31, 2021, an increase of $86.8 million. Personal
automobile policies in force increased 5.8%. Net premiums written in the
homeowners and other lines of business for the year ended December 31, 2022 were
$915.7 million, compared to $779.3 million for the year ended December 31, 2021,
an increase of $136.4 million. Homeowners policies in force increased 5.6%.

Personal Lines underwriting loss for the year ended December 31, 2022 was $104.2
million, compared to underwriting profit of $65.1 million for the year ended
December 31, 2021, an unfavorable change of $169.3 million. Catastrophe losses
for the year ended December 31, 2022 were $176.2 million, compared to $175.3
million for the year ended December 31, 2021, an increase of $0.9 million.
Unfavorable development on prior years' loss reserves for the year ended
December 31, 2022 was $8.0 million, compared to favorable development of $23.1
million for the year ended December 31, 2021, an unfavorable change of $31.1
million.

Personal Lines current accident year underwriting profit, excluding
catastrophes, was $80.0 million for the year ended December 31, 2022, compared
to $217.3 million for the year ended December 31, 2021. This $137.3 million
decrease was primarily due to higher current accident year loss severity in our
personal automobile and homeowners lines, partially offset by earned premium
growth and lower performance-based agency compensation expenses. We experienced
an increase in personal automobile physical damage and property loss frequency
compared to the unusually low levels experienced in 2021, as well as an increase
in loss severity, driven by inflationary pressures associated with supply chain
issues, higher used vehicle prices, and higher cost of parts and other repair
costs. In addition, homeowners losses have increased due to higher property
severity as a result of higher inflation and higher than usual frequency of
large loss activity and non-weather water-related losses. We have experienced
inflationary pressures on building material and labor costs, supply chain
constraints that increase building and repair times, and increases in lodging
and additional living expense reimbursements.

We have been able to obtain rate increases in our Personal Lines markets and
believe that our ability to obtain increases will continue over the long-term.
Our ability to maintain Personal Lines net premiums written may be affected,
however, by price competition, and regulatory and legal activity and
developments. See "Contingencies and Regulatory Matters." Additionally, these
factors, along with the aforementioned issues contributing to our recent
increase in losses, may also affect our ability to maintain and improve
underwriting results. We monitor these trends and consider them in our rate
actions. Due to uncertainty caused by the increase in inflation and supply chain
disruptions, there is a level of uncertainty in our ability to retain or grow
our business and may result in a continued increase in claims costs.

Other

Our Other segment had operating income of $1.0 million for the year ended
December 31, 2022, compared to $3.9 million for the year ended December 31,
2021, a decrease of $2.9 million.

2021 Compared to 2020

Core Commercial

Core Commercial net premiums written were $1,864.8 million for the year ended
December 31, 2021, compared to $1,726.2 million for the year ended December 31,
2020, an increase of $138.6 million. This increase was primarily driven by an
increase in rate and exposure activity following the reduction in insured
business in 2020 as a result of the Pandemic.

Core Commercial underwriting loss for the year ended December 31, 2021 was $7.5
million, compared to underwriting profit of $57.5 million for the year ended
December 31, 2020, a decrease of $65.0 million. Catastrophe losses for the year
ended December 31, 2021 were $175.5 million, compared to $89.6 million for the
year ended December 31, 2020, an increase of $85.9 million, primarily due to
freeze events in Texas and surrounding states associated with record low
temperatures in the first quarter of 2021 and hurricane Ida and several wind and
hailstorms in the Midwest in the third quarter of 2021. Favorable development on
prior years' loss reserves for the year ended December 31, 2021 was $17.8
million, compared to $12.6 million for the year ended December 31, 2020, an
increase of $5.2 million.

Core Commercial current accident year underwriting profit, excluding
catastrophes, was $150.2 million for the year ended December 31, 2021, compared
to $134.5 million for the year ended December 31, 2020. This $15.7 million
increase was primarily due to earned premium growth, partially offset by higher
current accident year non-catastrophe losses. The higher non-catastrophe losses
were primarily driven by higher loss activity in our commercial multiple peril
line.

Specialty

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Specialty net premiums written were $1,118.9 million for the year ended December
31, 2021, compared to $1,006.9 million for the year ended December 31, 2020, an
increase of $112.0 million. This increase was primarily driven by favorable new
business activity and an increase in rate and exposure activity following the
reduction in insured business in 2020 as a result of the Pandemic.

Specialty underwriting profit for the year ended December 31, 2021 was $69.4
million, compared to $48.8 million for the year ended December 31, 2020, an
increase of $20.6 million. Catastrophe losses for the year ended December 31,
2021 were $51.8 million, compared to $42.6 million for the year ended December
31, 2020, an increase of $9.2 million. Favorable development on prior years'
loss reserves for the year ended December 31, 2021 was $16.2 million, compared
to $6.4 million for the year ended December 31, 2020, an increase of $9.8
million.

Specialty current accident year underwriting profit, excluding catastrophes, was
$105.0 million for the year ended December 31, 2021, compared to $85.0 million
for the year ended December 31, 2020. This $20.0 million increase was primarily
due to earned premium growth and lower expenses.

Personal Lines

Personal Lines net premiums written were $2,009.7 million for the year ended
December 31, 2021, compared to $1,865.4 million for the year ended December 31,
2020, an increase of $144.3 million. During the second quarter of 2020, we
returned approximately $30 million of premiums to our eligible Personal Lines
customers in all our markets, providing financial relief during the Pandemic. In
addition, net premiums written grew due to increased new business, retention
and, to a lesser extent, renewal rate increases.

Net premiums written in the personal automobile line of business for the year
ended December 31, 2021 were $1,230.4 million, compared to $1,151.5 million for
the year ended December 31, 2020, an increase of $78.9 million. Personal
automobile policies in force increased 6.1%. Net premiums written in the
homeowners and other lines of business for the year ended December 31, 2021 were
$779.3 million, compared to $713.9 million for the year ended December 31, 2020,
an increase of $65.4 million. Homeowners policies in force increased 6.0%.

Personal Lines underwriting profit for the year ended December 31, 2021 was
$65.1 million, compared to $132.9 million for the year ended December 31, 2020,
a decrease of $67.8 million. Catastrophe losses for the year ended December 31,
2021 were $175.3 million, compared to $154.5 million for the year ended December
31, 2020. This $20.8 million increase was primarily due to several wind and
hailstorms throughout the Midwest and hurricane Ida during the third quarter of
2021. Favorable development on prior years' loss reserves for the year ended
December 31, 2021 was $23.1 million, compared to $0.7 million for the year ended
December 31, 2020, an increase of $22.4 million.

Personal Lines current accident year underwriting profit, excluding
catastrophes, was $217.3 million for the year ended December 31, 2021, compared
to $286.7 million for the year ended December 31, 2020. This $69.4 million
decrease was primarily due to higher current accident year losses and higher
expenses, primarily due to a non-recurring premium tax benefit in 2020,
partially offset by earned premium growth. The higher current accident year
losses in 2021 were attributable to higher personal automobile loss severity and
frequency, though 2021 loss frequency was below pre-Pandemic levels. In
addition, there were increased weather-related losses in the homeowners line in
2021.

Other

Our Other segment had operating income of $3.9 million for the year ended
December 31, 2021, compared to an operating loss of $3.2 million for the year
ended December 31, 2020, a favorable change of $7.1 million. This improvement
was primarily due to lower charitable contributions in 2021, compared to the
elevated level in 2020. In addition, prior year's results included a $3.3
million reserve increase, based on the receipt of an updated third-party
actuarial study for the legacy Excess and Casualty Reinsurance Association
("ECRA") pool.

RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

Overview of Loss Reserve Estimation Process

We maintain reserves for our insurance products to provide for our ultimate
liability for losses and loss adjustment expenses (our "loss reserves") with
respect to reported and unreported claims incurred as of the end of each
accounting period. These reserves are estimates, taking into account past loss
experience, modified for current trends, as well as prevailing economic, legal
and social conditions. Loss reserves represent our largest liability.

Management's process for establishing loss reserves is a comprehensive process
that involves input from multiple functions throughout our organization,
including actuarial, finance, claims, legal, underwriting, distribution, and
business operations management. The process incorporates facts currently known,
as well as the current, and in some cases, the anticipated, state of the law and
coverage litigation. Based on information currently available, we believe that
the aggregate loss reserves at December 31, 2022 were adequate to cover claims
for losses that had occurred as of that date, including both those known to us
and those yet to be reported. However, as described below, there are significant
uncertainties inherent in the loss reserving process. Our estimate of the
ultimate liability for losses that had occurred as of December 31, 2022 is
expected to change in future periods as we obtain further information, and such
changes could have a material effect on our results of operations and financial
position.

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Our loss reserves include case estimates for claims that have been reported and
estimates for claims that have been incurred but not reported ("IBNR") at the
balance sheet date. They also include estimates of the expenses associated with
processing and settling all reported and unreported claims, less estimates of
anticipated salvage and subrogation recoveries. Our loss reserves are not
discounted to present value.

Case reserves are established by our claim personnel individually, on a claim by
claim basis, and based on information specific to the occurrence and terms of
the underlying policy. For some classes of business, average case reserves are
used initially. Case reserves are periodically reviewed and modified based on
new or additional information pertaining to the claim.

Our ultimate IBNR reserves are estimated by management and our reserving
actuaries on an aggregate basis for each line of business or coverage for loss
and loss expense liabilities not reflected within the case reserves. The sum of
the case reserves and the IBNR reserves represents our estimate of total unpaid
losses and loss adjustment expenses.

We regularly review our loss reserves using a variety of industry accepted
analytical techniques. We update the loss reserves as historical loss experience
develops, additional claims are reported and resolved, and new information
becomes available. Net changes in loss reserves are reflected in operating
results in the period in which the reserves are changed.

The IBNR reserve includes both a provision for claims that have occurred but
have not yet been reported to us, some of which may not yet be known to the
insured, and a provision for future development on reported claims. IBNR
represents a significant proportion of our total net loss reserves, particularly
for long-tail liability classes. In fact, approximately 52% of our aggregate net
loss reserves at December 31, 2022 were for IBNR losses and loss expenses.

Critical Judgments and Key Assumptions

We determine the amount of our net loss reserves (i.e., net of estimated
reinsurance recoverables) based on an estimation process that is complex and
considers information from both company specific and industry data, as well as
general economic and other information. The estimation process utilizes a
combination of objective and subjective information, the blending of which
requires significant professional judgment. There are various assumptions
required, including future trends in frequency and severity of claims,
operational changes in claim handling and case reserving practices, and trends
related to general economic and social conditions. Informed judgments as to our
ultimate exposure to losses are an integral component of our loss reserve
estimation process.

There is greater inherent uncertainty in estimating insurance reserves for
certain types of property and casualty insurance lines, particularly liability
lines, where a longer period of time may elapse before a definitive
determination of ultimate liability and losses may be made (sometimes referred
to as "long-tail" business). In addition, the technological, judicial,
regulatory and political climates involving these types of claims are
continuously evolving. The emergence of the Pandemic during 2020 resulted in an
increased level of uncertainty for many lines of business, particularly for our
long-tail lines. There is also greater uncertainty in establishing reserves with
respect to business that is new to us, particularly new business which is
generated with respect to newly introduced product lines, by newly appointed
agents or in geographies in which we have less experience in conducting
business. In each of these cases, there is less historical experience or
knowledge, and less data upon which we can rely. A combination of business that
is both new to us and has longer development periods provides even greater
uncertainty in estimating insurance reserves. In addition, in recent periods, we
have experienced extensions of the "tails" in certain lines of business as the
full value of claims are presented later than had been our historical
experience. The broad impact of the Pandemic on our claims environment may
extend these "tails" even further. For example, there have been delays in
medical treatments, submission of medical expenses, and deferment of elective
medical procedures, which may have worsened insureds' health status, and which
may result in an increase in our ultimate loss costs. Also, presumptive orders
by relevant state authorities may potentially increase workers' compensation
exposures beyond contractual obligations.

We regularly update our reserve estimates as new information becomes available
and additional events occur which may impact the resolution of unsettled claims.
Reserve adjustments are reflected in the results of operations as adjustments to
losses and LAE. Often, these adjustments are recognized in periods subsequent to
the period in which the underlying policy was written and the loss event
occurred. When these types of subsequent adjustments affect prior years, they
are described separately as "prior year reserve development." Such development
can be either favorable or unfavorable to our financial results and may vary by
line of business. As discussed below, estimated loss and LAE reserves for claims
occurring in prior years, in the aggregate, developed favorably by $20.6
million, $56.1 million and $15.5 million for the years ended December 31, 2022,
2021 and 2020, respectively, although there was some significant variance by
segment. Additionally, our estimated loss and LAE reserves for catastrophe
claims occurring in prior years developed favorably by $12.0 million, $15.0
million and $17.1 million for the years ended December 31, 2022, 2021 and 2020,
respectively. There can be no assurance that current loss and LAE reserves will
be sufficient.

We regularly review our reserving techniques, our overall reserving position and
our reinsurance. Based on (i) our review of historical data, legislative
enactments, judicial decisions, legal developments in impositions of damages and
policy coverage, political attitudes and trends in general economic conditions,
(ii) our review of per claim information, (iii) our historical loss experience
and that of the industry, (iv) the nature of policies written by us, and (v) our
internal estimates of required reserves, we believe that adequate provision has
been made for loss reserves. Given the inherent complexity of our loss reserve
estimation process and the potential variability of the assumptions used, the
actual emergence of losses will vary, perhaps substantially, from the estimate
of losses included in our financial

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statements, particularly in those instances where settlements or other claim
resolutions do not occur until well into the future. Our net loss reserves at
December 31, 2022 were $5.3 billion. Therefore, a relatively small percentage
change in the estimate of net loss reserves would have a material effect on our
results of operations. Similarly, a one percentage point change in the aggregate
loss and LAE ratio resulting from a change in reserve estimation is currently
projected to have an approximate $53 million impact on operating income, based
on 2022 full year premiums written.

The major causes of material uncertainty relating to ultimate losses and LAE
("risk factors") generally vary for each line of business, as well as for each
separately analyzed component of the line of business. In some cases, such risk
factors are explicit assumptions of the estimation method and in others, they
are implicit. For example, a method may explicitly assume that a certain
percentage of claims will close each year, but will implicitly assume that the
legal interpretation of existing contract language will remain substantially
unchanged. Actual results will likely vary from expectations for each of these
assumptions, resulting in an ultimate claim liability that is different from
that being estimated currently.

Some risk factors affect multiple lines of business. Examples include changes in
claim handling and claim reserving practices, changes in claim settlement
patterns due to the Pandemic and other factors, regulatory and legislative
actions, court actions, so-called "social inflation," timeliness of claim
reporting, state mix of claimants and degree of claimant fraud. The extent of
the impact of a risk factor will also vary by components within a line of
business. Individual risk factors are subject to interactions with other risk
factors within line of business components. Thus, risk factors can have
offsetting or compounding effects on required reserves.

Inflation generally increases the cost of losses covered by insurance contracts.
The effect of inflation varies by product. Our insurance premiums are
established before the amount of losses and LAE and the extent to which
inflation may affect such expenses are known. Consequently, we attempt, in
establishing rates and reserves, to anticipate the potential impact of inflation
in the projection of ultimate costs. For example, we monitor, and continue to
experience, increases in medical costs, wages, and legal costs, all of which are
key considerations in setting reserve assumptions for workers' compensation,
bodily injury and other liability lines. We are also monitoring the continued
advancements in technology and design found in automobiles and homes, and the
increased claims settlement costs that result from labor shortages, and repairs
or replacement of such equipment impacted by supply chain disruptions, which
could lead to material shortages and elevated prices of building materials.
Estimated increases are reflected in our current reserve estimates, but
continued increases are expected to contribute to increased losses and LAE in
the future.

We are also defendants in various litigation matters, including putative class
actions, which may seek punitive damages, bad faith or extra-contractual
damages, legal fees and interest, or claim a broader scope of policy coverage or
settlement and payment obligations than our interpretation. Resolution of these
cases is often highly unpredictable and could involve material unanticipated
damage awards. We have experienced, and others in the industry have reported,
increased attorney involvement in claims including Pandemic-related matters,
delayed submissions of medical and other expense claims, court closures
resulting in delayed claim settlements, and a trend toward higher valued
settlements and litigation, all of which contribute to uncertainty regarding
reserve estimates.

Loss and LAE Reserves by Line of Business

Reserving Process Overview

Our loss reserves include amounts related to short-tail and long-tail classes of
business. "Tail" refers to the time period between the occurrence of a loss and
the final settlement of the claim. The longer the time span between the
incidence of a loss and the settlement of the claim (i.e., a longer tail), the
more the ultimate settlement amount may likely vary from our original estimate.

Short-tail classes consist principally of automobile physical and property
damage, commercial property, homeowners property and marine business. For these
property coverages, claims are generally reported and settled shortly after the
loss occurs because the claims relate to tangible property and are more likely
to be discovered shortly after the loss occurs. Consequently, the estimation of
loss reserves for these classes is generally less complex. However, the
estimation of loss reserves for these classes is more complex during periods of
persistent supply chain disruptions and significant inflation in the U.S.
economy, as was experienced during 2022.

While we estimate that approximately half of our written premium is in, what we
would characterize as, shorter-tail classes of business, most of our loss
reserves relate to longer-tail liability classes of business. Long-tailed
classes include automobile liability, commercial liability, third-party coverage
and workers' compensation. For many liability claims, significant periods of
time, ranging up to several years or more, may elapse between the occurrence of
the loss, the discovery and reporting of the loss to us and the settlement of
the claim. As a result, loss experience in the more recent accident years for
long-tailed liability coverage has limited statistical credibility because a
relatively small proportion of losses in these accident years (the calendar
years in which losses are incurred) are reported claims and an even smaller
proportion are paid losses. Liability claims are also more susceptible to
litigation and can be significantly affected by changing contract
interpretations, the legal, political and social environment, the risk and
expense of protracted litigation, and inflation. Consequently, the estimation of
loss reserves for these coverages is more complex and typically subject to a
higher degree of variability and uncertainty compared to short-tailed coverages.

Most of our indirect business from our run-off voluntary and ongoing involuntary
pools is assumed long-tailed casualty reinsurance. Reserve estimates for this
business are therefore subject to the variability caused by extended loss
emergence periods. The estimation

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of loss reserves for this business is further complicated by delays between the
time the claim is reported to the ceding insurer and when it is reported by the
ceding insurer to the pool manager and then to us, and by our dependence on the
quality and consistency of the loss reporting by the ceding company and
actuarial estimates by the pool manager. These reserving factors also apply to
our discontinued assumed accident and health reinsurance pools and arrangements
that are included in our liabilities of discontinued businesses (See "Risk
Factors" in Part I - Item 1A for further discussion).

A review of loss reserves for each of the classes of business in which we write
is conducted regularly, generally quarterly. This review process takes into
consideration a variety of trends that impact the ultimate settlement of claims.
Where appropriate, the review includes a review of overall payment patterns and
the emergence of paid and reported losses relative to expectations.

The loss reserve estimation process relies on the basic assumption that past
experience, adjusted for the effects of current developments and likely trends,
is an appropriate basis for predicting future outcomes. As part of this process,
we use a variety of analytical methods that consider experience, trends and
other relevant factors. IBNR reserves are generally calculated by first
projecting the ultimate cost of all claims that have been reported or expected
to be reported in the future and then subtracting reported losses and loss
expenses. Reported losses include cumulative paid losses and loss expenses plus
case reserves. Within the loss reserving process, standard actuarial methods
which include: (1) loss development factor methods; (2) expected loss methods
(Bornheutter-Ferguson); and (3) adjusted loss methods (Berquist-Sherman), are
given due consideration. These methods are described below:

•

Loss development factor methods generally assume that the losses yet to emerge
for an accident year are proportional to the paid or reported loss amount
observed to date. Historical patterns of the development of paid and reported
losses by accident year can be predictive of the expected future patterns that
are applied to current paid and reported losses to generate estimated ultimate
losses by accident year.

•

Bornheutter-Ferguson methods utilize the product of the expected ultimate losses
times the proportion of ultimate losses estimated to be unreported or unpaid to
calculate IBNR. The expected ultimate losses are based upon current estimates of
ultimate losses from prior accident years, adjusted to reflect expected earned
premium, current rating, claims cost levels and changes in business mix. The
expected losses, and corresponding loss ratios, are a critical component of
Bornheutter-Ferguson methodologies and provide a general reasonability guide.

•

Berquist-Sherman methods are used for estimating reserves in business lines
where historical development patterns may be deemed less reliable for more
recent accident years' ultimate losses. Under these methods, patterns of
historical paid or reported losses are first adjusted to reflect current payment
settlement patterns and case reserve adequacy and then evaluated in the same
manner as the loss development factor methods described above. When the adequacy
of case reserves change, the Berquist-Sherman incurred method may be deemed more
reliable than the reported loss development factor method. Likewise, when the
settlement patterns change, the Berquist-Sherman paid method may be deemed more
reliable than the paid loss development factor method.

In addition to the methods described above, various tailored reserving
methodologies are used for certain businesses. For example, for some low volume
and high volatility classes of business, special reserving techniques are
utilized that estimate IBNR by selecting the loss ratio that balances actual
reported losses to expected reported losses as defined by the estimated
underlying reporting pattern. Also, for some classes with long exposure periods
(e.g., construction defect, engineering and surety), earnings patterns plus an
estimated reporting lag applied to the Bornheutter-Ferguson initial expected
loss ratio are used to estimate IBNR. This is done in order to reflect the
changing average exposure periods by policy year (and consequently accident
year).

In completing the loss reserve analysis, a variety of assumptions must be made
for each line of business, coverage and accident year. Each estimation method
has its own pattern, parameter and/or judgmental dependencies, with no
estimation method being better than the others in all situations. The relative
strengths and weaknesses of the various estimation methods, when applied to a
particular class of business, can also change over time, depending on the
underlying circumstances. In many cases, multiple estimation methods will be
valid for the particular facts and circumstances of the relevant class of
business. The manner of application and the degree of reliance on a given method
will vary by line of business and coverage, and by accident year based on an
evaluation of the above dependencies and the potential volatility of the loss
frequency and severity patterns. The estimation methods selected or given weight
at a particular valuation date are those that are believed to produce the most
reliable indication for the loss reserves being evaluated. Selections
incorporate input from claims personnel, pricing actuaries, and underwriting
management on loss cost trends and other factors that could affect ultimate
losses.

For most classes of shorter-tailed business in our Core Commercial, Specialty
and Personal Lines segments, the emergence of paid and incurred losses generally
exhibits a relatively stable pattern of loss development from one accident year
to the next. Thus, for these classes, the loss development factor method is
generally appropriate. For some of the classes of shorter-tailed business, the
emergence of paid and incurred losses may exhibit a relatively volatile pattern
of loss development from one accident year to the next. In these cases where
there is a relatively low level of reliability placed on the available paid and
incurred loss data, expected loss methods or adjusted loss methods are
considered appropriate for the most recent accident year.

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For longer-tailed lines of business, applying the loss development factor method
often requires even more judgment in selecting development factors, as well as
more significant extrapolation. For those long-tailed lines of business with
high frequency and relatively low per-loss severity (e.g., personal automobile
liability), volatility will often be sufficiently modest for the loss
development factor method to be given significant weight, even in the most
recent accident years, but expected loss methods and adjusted loss methods are
always considered and frequently utilized in the selection process. For those
long-tailed lines of business with low frequency and high loss potential (e.g.,
commercial general liability), anticipated loss experience is less predictable
because of the small number of claims and erratic claim severity patterns. In
these situations, the loss development factor methods may not produce a reliable
estimate of ultimate losses in the most recent accident years since many claims
either have not yet been reported or are only in the early stages of the
settlement process. Therefore, the loss reserve estimates for these accident
years may be based on methods less reliant on extrapolation, such as
Bornheutter-Ferguson. Over time, as a greater number of claims are reported and
the statistical credibility of loss experience increases, loss development
factor methods or adjusted loss methods are given increasing weight.

Management endeavors to apply as much available data as practicable to estimate
the loss reserve amount for each line of business, coverage and accident year,
utilizing varying assumptions, projections and methods. The ultimate outcome is
expected to fall within a range of potential outcomes around this loss reserve
estimated amount.

Our carried reserves for each line of business and coverage are determined based
on our quarterly loss reserving process. In making the determination, we
consider numerous quantitative and qualitative factors. Quantitative factors
include changes in reserve estimates in the period, the maturity of the accident
year, trends observed over the recent past, the level of volatility within a
particular class of business, the estimated effects of reinsurance, including
reinstatement premiums, general economic trends, and other factors. Qualitative
factors may include legal and regulatory developments, changes in claim handling
and case reserving practices, recent entry into new markets or products, changes
in underwriting practices or business mix, concerns that we do not have
sufficient or quality historical reported and paid loss and LAE information with
respect to a particular line or segment of our business, effects of the economy
and political outlook, perceived anomalies in the historical results, evolving
trends or other factors, such as the impact of the Pandemic. In doing so, we
must evaluate whether a change in the data represents credible actionable
information or an anomaly. Such an assessment requires considerable judgment.
Even if a change is determined to be apparent, it is not always possible to
determine the extent of the change. As a result, there can be a time lag between
the emergence of a change and a determination that the change should be
partially or fully reflected in the carried loss reserves. In general, changes
are made more quickly to reserves for more mature accident years and less
volatile classes of business.

Reserving Process Uncertainties

As stated above, numerous factors (both internal and external) contribute to the
inherent uncertainty in the process of establishing loss reserves, including
changes in the rate of inflation for goods and services related to insured
damages (e.g., medical care, home and automobile repairs, etc.), changes in the
judicial interpretation of policy provisions and settlement obligations, changes
in the general attitude of juries in determining damage awards, legislative
actions, such as expanding liability, coverage mandates or expanding or
suspending statutes of limitations which otherwise limit the times within which
claims can be made, changes in the extent of insured injuries, changes in the
trend of expected frequency and/or severity of claims, changes in our book of
business (e.g., change in mix due to new or modified product offerings, new or
rapidly expanding geographic areas, etc.), changes in our underwriting
practices, and changes in claim handling procedures and/or systems. Regarding
our indirect business from voluntary and involuntary pools, we are periodically
provided loss estimates by managers of each pool. We adopt reserve estimates for
the pools that consider this information and other facts.

In addition, we must consider the uncertain effects of emerging or potential
claims and coverage issues that arise as legal, judicial and social conditions,
political risks, and economic conditions change. For example, claims which we
consider closed may be re-opened as additional damages surface or new liability
or damage theories are presented. Also, historically, we have observed more
frequent and higher severity in workers' compensation, bodily injury and other
liability claims and more credit-related losses (for example, in our surety
business) during periods of economic uncertainty or high unemployment. Economic
and labor force dynamics have resulted in many experienced workers retiring from
their positions, who have been replaced with newly skilled workers, which could
result in more workplace accidents. These, and other issues, could have a
negative effect on our loss reserves by either extending coverage beyond the
original underwriting intent or by increasing the number or size of claims.

As part of our loss reserving analysis, we consider the various factors that
contribute to the uncertainty in the loss reserving process. Those factors that
could materially affect our loss reserve estimates include loss development
patterns and loss cost trends, reporting lags, rate and exposure level changes,
the effects of changes in coverage and policy limits, business mix shifts, the
effects of regulatory and legislative developments, economic circumstances, the
effects of changes in judicial interpretations, the effects of emerging claims
and coverage issues, and the effects of changes in claim handling and claim
reserving practices. In making estimates of reserves, however, we do not
necessarily make an explicit assumption for each of these factors. Moreover, all
estimation methods do not utilize the same assumptions and typically no single
method is determinative in the reserve analysis for a line of business and
coverage. Consequently, changes in our loss reserve estimates generally are not
the result of changes in any one assumption. Instead, the variability will be
affected by the interplay of changes in numerous assumptions, many of which are
implicit to the approaches used.

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For each line of business and coverage, we regularly adjust the assumptions and
methods used in the estimation of loss reserves in response to our actual loss
experience, as well as our judgments regarding changes in trends and/or emerging
patterns. In those instances where we primarily utilize analyses of historical
patterns of the development of paid and reported losses, this may be reflected,
for example, in the selection of revised loss development factors. In
longer-tailed classes of business and for which loss experience is less
predictable due to potential changes in judicial interpretations, potential
legislative actions, the cost of litigation or determining liability and the
ultimate loss, inflation, potential claims, shifting claim settlement patterns
due to delayed court proceedings, and other issues, this may be reflected in a
judgmental change in our estimate of ultimate losses for particular accident
years. Most of the insurance policies we have written over many years are
written on an "occurrence" basis, which means we insure specified acts or events
which occurred during the covered period, even if claims first arise from such
events many years later. For example, the industry incurred significant losses
as a result of claims arising from asbestos and environmental damage which
occurred decades ago and was not known at such time, and in many cases policy
limits were available for each year during which such occurrence policies were
in place.

Uncertainties with respect to the impact of the Pandemic could have a material
adverse effect on our carried loss reserves. While we believe that our in-force
Core Commercial and Specialty policies in large part do not cover business
interruption losses related to the Pandemic, legislation has been discussed and
introduced to retroactively amend insurance contracts to provide business
interruption coverage, to impose presumptions on insurance policy
interpretation, and/or limit policy exclusions for losses allegedly related to
the Pandemic. If these changes were to be enacted and upheld, we would be
exposed to a significant unfunded liability.

The future impact of the various factors that contribute to the uncertainty in
the loss reserving process is impossible to predict. There is potential for
significant variation in the development of loss reserves, particularly for
long-tailed classes of business and classes of business that are more vulnerable
to economic or political risks.

Reserving Process for Catastrophe Events

The estimation of claims and claims expense reserves for catastrophes is also
comprised of estimates of losses from reported claims and IBNR, primarily for
damage to property. In general, our estimates for catastrophe reserves are
determined on an event basis by considering various sources of available
information, including specific loss estimates reported to us based on claim
adjuster inspections, overall industry loss estimates, our internal data
regarding exposures related to the geographical location of the event and
estimates of potential subrogation recoveries. However, depending on the nature
of the catastrophe, the estimation process can be further complicated by other
impediments. For example, for hurricanes and other severe wind storms and
wildfires, complications often include the inability of insureds to promptly
report losses, delays in the ability of claims adjusting staff to inspect
losses, difficulties in determining whether wind storm losses are covered by our
homeowners policy (generally for damage caused by wind or wind driven rain) or
are specifically excluded from coverage caused by flood, challenges in
estimating additional living expenses, assessing the impact of demand surge,
exposure to mold or smoke damage, and the effects of numerous other
considerations. Another example is the complication of estimating the cost of
business interruption coverage on Core Commercial and Specialty policies.
Estimates for catastrophes which occur at or near the end of a financial
reporting period, for example Winter Storm Elliott in December 2022, may be even
less reliable since we will have less claims data available and little time to
complete our estimation process. In such situations, we may adapt our practices
to accommodate the circumstances.

For events designated as catastrophes, we generally calculate IBNR reserves
directly as a result of an estimated IBNR claim count and an estimated average
claim amount for each event. Such an assessment involves a comprehensive
analysis of the nature of the event, of policyholder exposures within the
affected geographic area and of available claims intelligence. Depending on the
nature of the event, available claims intelligence could include surveys of
field claims associates within the affected geographic area, aerial photographs
of the affected area, feedback from a catastrophe claims team sent into the
area, as well as data on claims reported as of the financial statement date. In
addition, loss emergence from similar historical events is compared to the
estimated IBNR for our current catastrophe events to help assess the
reasonableness of our estimates. However, in some cases, it may be difficult to
estimate certain catastrophe losses which are unique and do not have instances
of historical precedence, such as the property damage arising from the 2020
riots and civil unrest.

Reserving Sensitivity Analysis

The following discussion presents disclosure related to possible variation in
net reserve estimates (i.e., net of estimated reinsurance recoverables) due to
changes in key assumptions. This information is provided for illustrative
purposes only. Many other assumptions may also lead to material reserve
adjustments. If any such variations do occur, then they would likely occur over
a period of several years and therefore their impact on our results of
operations would be recognized during the same periods. It is important to note,
however, that there is the potential for future variations greater than the
amounts described below and for any such variations to be recognized in a single
quarterly or annual period. No consideration has been given to potential
correlation or lack of correlation among key assumptions or among lines of
business and coverage as described below. As a result, and because there are so
many other factors which affect our net reserve estimate, it would be
inappropriate to take the amounts described below and simply add them together
in an attempt to estimate volatility in total. While we believe these are
reasonably possible scenarios, the following sensitivity analysis is not
illustrative of a net reserve range.

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•

Personal and Commercial Automobile Bodily Injury - loss reserves recorded for
bodily injury on voluntary business were $845.6 million as of December 31, 2022.
A key assumption for bodily injury is the inflation rate underlying the
estimated reserve. A five point change (e.g., 3% changed to 8% or -2%) in the
embedded inflation rate would have changed total reserves by approximately $85
million, either positive or negative, at December 31, 2022.

•

Personal Automobile Personal Injury Protection Medical Payment - loss reserves
recorded for personal injury protection medical payment on voluntary business
were $122.0 million as of December 31, 2022, of which approximately 90% relate
to Michigan policies. A key assumption for this coverage is the inflation rate
underlying the estimated reserve. Given the long reporting pattern for this line
of business, an additional key assumption is the amount of additional
development required to reach full maturity, thereby reflecting ultimate costs,
as represented by the tail factor. A five point change in the embedded inflation
rate (e.g., 6% changed to 11% or 1%) and a one point change to the tail factor
assumption (e.g., 1% changed to 0% or 2%) would have changed total reserves by
approximately $42 million, either positive or negative, at December 31, 2022.

•

Workers' Compensation - loss reserves recorded for workers' compensation on
voluntary business were $481.2 million as of December 31, 2022. A key assumption
for workers' compensation is the inflation rate underlying the estimated
reserve. Given the long reporting pattern for this line of business, an
additional key assumption is the amount of additional development required to
reach full maturity, thereby reflecting ultimate costs, as represented by the
tail factor. A five point change in the embedded inflation rate (e.g., 4%
changed to 9% or -1%) and a one point change to the tail factor assumption
(e.g., 2% changed to 1% or 3%) would have changed total reserves by
approximately $156 million, either positive or negative, at December 31, 2022.

•

Monoline and Multiple Peril General Liability - loss reserves recorded for
monoline and multiple peril general liability on voluntary business were
approximately $1.1 billion as of December 31, 2022. A key assumption for
monoline and multiple peril general liability is the implied adequacy of the
underlying case reserves. A ten point change in case adequacy (e.g., 10%
deficiency changed to 0% or 20% deficiency) would have changed total reserves by
approximately $138 million, either positive or negative, at December 31, 2022.

•

Specialty Programs - loss reserves recorded for Hanover Programs were $303.2
million as of December 31, 2022. Two key assumptions underlying the actuarial
reserve analysis for specialty programs are the inflation rate underlying the
estimated reserve for our commercial automobile liability, general liability and
workers' compensation coverages, as well as the tail factor selection for
workers' compensation. A five point change to the embedded inflation rate for
the aforementioned coverages (e.g., 4% changed to 9% or -1%), and a one point
change in the workers' compensation tail factor on Hanover Programs (e.g., 0.1%
changed to 1.1% or -0.9%) would have changed total reserves by approximately $57
million, either positive or negative, at December 31, 2022.

Carried Reserves and Reserve Rollforward

The following table provides a reconciliation of the gross beginning and ending
reserve for unpaid losses and loss adjustment expenses.

YEARS ENDED DECEMBER 31                            2022           2021      

2020

(in millions)
Gross reserve for losses and LAE, beginning
of year                                         $  6,447.6     $  6,024.0     $  5,654.4
Reinsurance recoverable on unpaid losses           1,693.8        1,641.6   

1,574.8

Net reserve for losses and LAE, beginning of
year                                               4,753.8        4,382.4   

4,079.6

Net incurred losses and LAE in respect of
losses occurring in:
Current year                                       3,656.0        3,205.3   

2,877.8

Prior year non-catastrophe development               (20.6 )        (56.1 )        (15.5 )
Prior year catastrophe development                   (12.0 )        (15.0 )        (17.1 )
Total incurred losses and LAE                      3,623.4        3,134.2   

2,845.2

Net payments of losses and LAE in respect of
losses occurring in:
Current year                                       1,578.9        1,464.1        1,347.7
Prior years                                        1,534.3        1,298.7        1,194.7
Total payments                                     3,113.2        2,762.8        2,542.4

Net reserve for losses and LAE, end of year 5,264.0 4,753.8

4,382.4

Reinsurance recoverable on unpaid losses           1,748.6        1,693.8   

1,641.6

Gross reserve for losses and LAE, end of year $ 7,012.6 $ 6,447.6

  $  6,024.0




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The following table summarizes the gross reserve for losses and LAE by line of
business and division.

DECEMBER 31                          2022          2021          2020
(in millions)
Commercial multiple peril          $ 1,556.6     $ 1,338.4     $ 1,183.9
Workers' compensation                  735.0         698.5         676.6
Commercial automobile                  477.7         473.1         445.0
Other core commercial                  581.6         481.0         421.5
Total Core Commercial                3,350.9       2,991.0       2,727.0
Specialty Property & Casualty          820.6         798.6         681.7
Professional and Executive Lines       529.3         494.9         424.0
Marine                                 136.0         122.5         118.6
Surety and Other                       112.2         106.0          98.3
Total Specialty                      1,598.1       1,522.0       1,322.6
Personal automobile                  1,633.2       1,590.7       1,670.3
Homeowners and Other                   364.9         277.7         237.5
Total Personal Lines                 1,998.1       1,868.4       1,907.8
Total Other                             65.5          66.2          66.6
Total loss and LAE reserves        $ 7,012.6     $ 6,447.6     $ 6,024.0


Loss and LAE reserves in our "Other core commercial" lines include monoline
general liability, commercial umbrella, and monoline property. "Specialty
Property & Casualty" includes program business, specialty industrial and
commercial property, excess and surplus lines and specialty general liability
coverage. "Professional and Executive Lines" includes professional and
management liability, fidelity and crime, and other property and liability lines
for healthcare firms. Loss and LAE reserves in our "Total Other" segment relate
to our run-off voluntary assumed property and casualty reinsurance pools
business and our run-off direct asbestos and environmental business.

Prior Year Development

Conditions and trends that have affected reserve development in the past will
not necessarily recur in the future. As discussed under "Reserving Process
Overview" in the preceding section, our historical loss experience and loss
development patterns are important factors in estimating loss reserves, however,
they are not the only factors we evaluate to establish reserves. Therefore, a
mechanical application of standard actuarial methodologies in projecting
ultimate claims could result in materially different reserves to those held.
Accordingly, it is not appropriate to extrapolate future favorable or
unfavorable development based on amounts experienced in prior periods.

The following table summarizes prior year (favorable) unfavorable development by
segment for the periods indicated:

                                             2022                                      2021                                      2020
                              Loss                                      Loss                                      Loss
                                &                                         &                                         &
(in millions)                  LAE        Catastrophe       Total        LAE        Catastrophe       Total        LAE        Catastrophe       Total
Core Commercial              $ (10.3 )           (17.3 )   $ (27.6 )   $ (17.8 )   $        (9.7 )   $ (27.5 )   $ (12.6 )   $       (14.7 )   $ (27.3 )
Specialty                      (19.5 )            (8.7 )     (28.2 )     (16.2 )            (2.3 )     (18.5 )      (6.4 )            (4.1 )     (10.5 )
Personal Lines                   8.0              14.0        22.0       (23.1 )            (3.0 )     (26.1 )      (0.7 )             1.7         1.0
Other                            1.2                 -         1.2         1.0                 -         1.0         4.2                 -         4.2
Total prior year favorable
development                  $ (20.6 )   $       (12.0 )   $ (32.6 )   $ (56.1 )   $       (15.0 )   $ (71.1 )   $ (15.5 )   $       (17.1 )   $ (32.6 )

Catastrophe Loss Development

In 2022, favorable catastrophe development was $12.0 million, primarily due to
lower than expected losses related to 2021 hurricane Ida. In 2021, favorable
catastrophe development was $15.0 million, primarily due to lower than expected
losses related to certain 2018 through 2020 hurricanes, tornadoes, and other
storms. In 2020, favorable catastrophe development was $17.1 million, primarily
due to lower than expected losses related to certain 2017, 2018, and 2019 wind
storms, winter storms and hurricanes, and the 2017 and 2018 California
wildfires.

2022 Loss and LAE Development, excluding catastrophes

In 2022, net favorable loss and LAE development, excluding catastrophes, was
$20.6 million. Core Commercial favorable development of $10.3 million was
primarily due to lower than expected losses of $32.1 million within the workers'
compensation line in accident years 2013 through 2018 and 2020. This was
partially offset by higher than expected losses of $18.2 million in our
commercial automobile line driven by higher bodily injury and personal injury
protection loss adjustment expenses and loss severity in accident

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years 2016, 2018, 2019, and 2021 due in part to an increased rate of litigated
claims. Specialty favorable development of $19.5 million was primarily due to
lower than expected losses of $25.1 million within our Professional and
Executive division, lower than expected losses of $14.5 million in our surety
line, and lower than expected losses in our Marine division, partially offset by
higher than expected losses of $27.4 million in our Specialty P&C division.
Within Specialty P&C, higher than expected losses of $32.9 million in program
business were partially offset by lower than expected losses in our specialty
industrial line. The higher losses in program business were primarily driven by
general liability coverages, the majority of which relate to programs that are
in run-off and those for which we have initiated non-renewal. Personal Lines
unfavorable development of $8.0 million was primarily due to higher than
expected losses in the homeowners line, primarily in accident year 2021. The
increase in homeowners losses was primarily due to higher severity and longer
cycle times in repair activity, primarily related to claims incurred in the
fourth quarter of 2021.

2021 Loss and LAE Development, excluding catastrophes

In 2021, net favorable loss and LAE development, excluding catastrophes, was
$56.1 million. Core Commercial favorable development of $17.8 million was
primarily due to lower than expected losses of $22.3 million within the workers'
compensation line in accident years 2014 through 2020. Specialty favorable
development of $16.2 million was primarily due to lower than expected losses
within our surety line, primarily in accident years 2013 through 2016, 2018 and
2019, and lower than expected losses in our Marine division in accident years
2019 and 2020, partially offset by higher than expected losses in our general
liability lines. Personal Lines favorable development of $23.1 million was
primarily due to lower than expected losses of $23.5 million in the personal
automobile line, driven by lower bodily injury and personal injury protection
losses, primarily in accident year 2020.

2020 Loss and LAE Development, excluding catastrophes

In 2020, net favorable loss and LAE development, excluding catastrophes, was
$15.5 million. Core Commercial favorable development of $12.6 million was
primarily due to lower than expected losses of $34.9 million within the workers'
compensation line in accident years 2016 through 2019. This was partially offset
by higher than expected losses in our commercial automobile line driven by
higher bodily injury and personal protection losses, primarily in accident years
2017 through 2019, and in our commercial multiple peril line, primarily in
accident years 2017 and 2019. Specialty favorable development of $6.4 million
was primarily due to lower than expected losses in our Marine division, in
accident years 2017 through 2019, partially offset by higher than expected
losses in our general liability lines. In addition, the adverse prior year
development in Other was due to our run-off voluntary assumed property and
casualty reinsurance pools business primarily based on an updated third-party
actuarial study received in the first quarter of 2020 for the legacy ECRA pool
that consists primarily of asbestos and environmental exposures.

Asbestos and Environmental Reserves

As of December 31, 2022, we had $11.9 million of net asbestos and environmental
reserves, comprised of $9.8 million of direct reserves and $2.1 million of
assumed reinsurance pool reserves. This compares to net reserves of $11.7
million and $39.8 million as of December 31, 2021 and 2020, respectively. Ending
loss and LAE reserves for all direct business written by our insurance companies
related to asbestos and environmental damage liability were $9.8 million, $9.6
million and $8.3 million, net of reinsurance of $16.8 million, $16.7 million and
$17.9 million for the years ended December 31, 2022, 2021 and 2020,
respectively. Activity for our direct asbestos and environmental reserves was
not significant to our 2022, 2021 or 2020 financial results. As a result of our
historical direct underwriting mix of Core Commercial and Specialty policies
toward smaller and middle market risks, past asbestos and environmental damage
liability loss experience has remained minimal in relation to our total loss and
LAE incurred experience. Although we attempt to limit our exposures to asbestos
and environmental damage liability through specific policy exclusions, we have
been, and may continue to be, subject to claims related to these exposures.

In addition to reserves we carry to cover exposure in our direct business, we
have established gross and net loss and LAE reserves for assumed reinsurance
pool business with asbestos and environmental damage liability. As of December
31, 2022, we had $30.5 million of gross reserves and $2.1 million of net
reserves for assumed reinsurance pool business. This compares to $31.0 million
of gross loss and LAE reserves and $2.1 million of net loss and LAE reserves at
December 31, 2021, and gross and net loss and LAE reserves of $31.5 million at
December 31, 2020. These reserves relate to pools in which we have terminated
our participation; however, we continue to be subject to claims related to years
in which we were a participant. Results of operations from these pools are
included in our Other segment. A significant part of our gross pool reserves
relates to our participation in the ECRA voluntary pool. In 1982, the pool was
dissolved and since that time, the business has been in run-off. During 2021, we
entered into an agreement to transfer our ECRA pool participations to a
third-party reinsurer. This transfer was executed through a 100% reinsurance
arrangement for our ECRA claim liability participations written during the
period 1950 to 1982. This transaction had no significant impact on our 2021
results of operations.

We estimate our ultimate liability for asbestos, environmental and toxic tort
liability claims, whether resulting from direct business, assumed reinsurance or
pool business, based upon currently known facts, reasonable assumptions where
the facts are not known, current law, and methodologies currently available.
Although these outstanding claims are not believed to be significant, their
existence gives rise to uncertainty and are discussed because of the possibility
that they may become significant. We believe that, notwithstanding the evolution
of case law expanding liability in asbestos and environmental claims, recorded
reserves related to these claims are adequate.

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Nevertheless, the asbestos, environmental and toxic tort liability reserves
could be revised, and any such revisions could have a material adverse effect on
our results of operations for a particular quarterly or annual period, or on our
financial position.

Reinsurance Recoverables
Reinsurance recoverables were $1,964.5 million and $1,907.3 million at December
31, 2022 and December 31, 2021, respectively, of which $111.1 million and $100.4
million, respectively, represent billed recoverables. A reinsurance recoverable
is billed after an eligible reinsured claim is paid by an insurer. Billed
reinsurance recoverables related to the Michigan Catastrophic Claims Association
(the "MCCA") were $50.7 million and $49.8 million at December 31, 2022 and
December 31, 2021, respectively, and billed non-MCCA reinsurance recoverables
totaled $60.4 million and $50.6 million at December 31, 2022 and December 31,
2021, respectively. At December 31, 2022 and December 31, 2021, there were no
billed non-MCCA recoverables outstanding greater than 90 days.

INVESTMENTS

INVESTMENT RESULTS

Net investment income before income taxes was as follows:

DECEMBER 31                       2022        2021        2020
(dollars in millions)
Fixed maturities                 $ 239.3     $ 216.9     $ 222.5
Limited partnerships                35.7        68.2        16.7
Mortgage loans                      16.1        18.0        17.5
Equity securities                   12.0        15.6        14.8
Other investments                    4.6         3.0         3.2
Investment expenses                (11.4 )     (11.0 )      (9.6 )
Net investment income            $ 296.3     $ 310.7     $ 265.1

Earned yield, fixed maturities 3.04 % 2.99 % 3.33 %
Earned yield, total portfolio 3.29 % 3.70 % 3.35 %

The decrease in net investment income in 2022 was primarily due to lower limited
partnership income, partially offset by the continued investment of operational
cash flows and the impact of higher new money yields. The increase in net
investment income in 2021 was primarily due to higher limited partnership income
and, to a lesser extent, the continued investment of operational cash flows,
partially offset by the impact of lower money yields. Income from partnerships
can vary significantly from year to year based on the performance in the
underlying portfolios. Lower income from our limited partnerships in 2022
reflects a more normalized return environment as compared to 2021, where
performance was driven by substantial valuation increases across all private
capital strategies, and which results are not indicative of the long-term
targeted returns for this asset class. Partnership results in 2020, particularly
early in the year, were negatively impacted by Pandemic-related business and
financial market disruptions.

INVESTMENT PORTFOLIO

We held cash and investment assets diversified across several asset classes, as
follows:

DECEMBER 31                                 2022                              2021
                                                 % of Total                        % of Total
                                 Carrying         Carrying         Carrying         Carrying
(dollars in millions)              Value            Value            Value            Value
Fixed maturities, at fair
value                           $   7,481.8              84.9 %   $   7,723.9              82.3 %
Limited partnerships and
other investments                     397.5               4.5           333.4               3.6
Mortgage and other loans              388.6               4.4           434.0               4.6
Equity securities, at fair
value                                 241.9               2.7           661.3               7.0
Cash and cash equivalents             305.0               3.5           230.9               2.5
Total cash and investments      $   8,814.8             100.0 %   $   9,383.5             100.0 %


CASH AND INVESTMENTS

Total cash and investments decreased $568.7 million, or 6.1%, for the year ended
December 31, 2022, primarily due to net market value depreciation and the
funding of financing activities, including our dividend payments and stock
repurchases, partially offset by the continued investment of operational
cashflows.

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The following table provides information about the investment types of our fixed
maturities portfolio:

DECEMBER 31                                                                2022
(in millions)
                                             Amortized
                                           Cost, net of                           Net           Change in Net
                                           Allowance for                       Unrealized       Unrealized for
Investment Type                            Credit Losses      Fair Value          Loss             the Year

U.S. Treasury and government agencies $ 478.9 $ 420.2

  $      (58.7 )   $          (60.6 )
Foreign government                                   2.3              2.2             (0.1 )               (0.5 )
Municipals:
Taxable                                          1,218.4          1,055.7           (162.7 )             (186.5 )
Tax-exempt                                          21.1             20.4             (0.7 )               (1.5 )
Corporate                                        4,064.3          3,729.9           (334.4 )             (493.3 )
Asset-backed:
Residential mortgage-backed                      1,215.3          1,073.8           (141.5 )             (142.9 )
Commercial mortgage-backed                         924.1            836.4            (87.7 )             (109.7 )
Asset-backed                                       370.1            343.2            (26.9 )              (26.8 )
Total fixed maturities                     $     8,294.5     $    7,481.8     $     (812.7 )   $       (1,021.8 )

The change in net unrealized loss on fixed maturities was primarily due to
higher prevailing interest rates and, to a lesser extent, wider credit spreads.

Amortized cost and fair value by rating category were as follows:

DECEMBER 31                                                 2022                                                2021
                           Rating        Amortized                                           Amortized
                           Agency      Cost, net of                           % of         Cost, net of                           % of
(dollars in millions)    Equivalent    Allowance for                       Total Fair      Allowance for                       Total Fair

NAIC Designation Designation Credit Losses Fair Value

 Value         Credit Losses      Fair Value         Value
1                         Aaa/Aa/A     $     5,761.4     $    5,192.4             69.4 %   $     4,867.5     $    4,987.6             64.6 %
2                           Baa              2,177.1          1,949.4             26.1           2,302.2          2,380.4             30.8
3                            Ba                160.3            153.4              2.0             216.9            225.2              2.9
4                            B                 178.9            171.3              2.3             123.2            125.3              1.6
                          Caa and
5                          lower                15.0             14.2              0.2               5.0              5.4              0.1
                         In or near
6                         default                1.8              1.1                -                 -                -                -
Total fixed maturities                 $     8,294.5     $    7,481.8            100.0 %   $     7,514.8     $    7,723.9            100.0 %


Based on ratings by the National Association of Insurance Commissioners
("NAIC"), approximately 96% and 95% of our fixed maturity portfolio consisted of
investment-grade securities at December 31, 2022 and 2021, respectively. The
quality of our fixed maturity portfolio remains strong based on ratings, capital
structure position, support through guarantees, underlying security, issuer
diversification and yield curve position.

Our investment portfolio primarily consists of fixed maturity securities whose
fair value is susceptible to market risk, including interest rate changes. See
also "Quantitative and Qualitative Disclosures about Market Risk." Duration is a
measurement used to quantify our inherent interest rate risk and analyze
invested assets relative to our reserve liabilities.

The duration of our fixed maturity portfolio was as follows:

DECEMBER 31                                2022                                                2021
                        Amortized                                           Amortized
(dollars in           Cost, net of                                        Cost, net of
millions)             Allowance for                       % of Total      Allowance for                       % of Total
Duration              Credit Losses      Fair Value       Fair Value      Credit Losses      Fair Value       Fair Value
0-2 years             $     1,614.2     $    1,580.3             21.1 %   $     1,080.2     $    1,108.3             14.3 %
2-4 years                   2,170.6          2,056.8             27.5           1,581.1          1,660.9             21.5
4-6 years                   2,044.2          1,850.6             24.8           2,263.8          2,349.0             30.4
6-8 years                   2,004.3          1,638.7             21.9           1,603.8          1,622.4             21.0
8-10 years                    339.5            263.6              3.5             854.9            846.5             11.0
10+ years                     121.7             91.8              1.2             131.0            136.8              1.8
Total fixed
maturities            $     8,294.5     $    7,481.8            100.0 %   $     7,514.8     $    7,723.9            100.0 %

Weighted average
duration                                         4.3                                                 4.9


Our fixed maturity and equity securities are carried at fair value. Financial
instruments whose value was determined using significant management judgment or
estimation constituted less than 1% of the total assets we measured at fair
value. See also Note 4 - "Fair Value" in the Notes to Consolidated Financial
Statements.

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Limited partnerships and other investments consist primarily of our interest in
corporate middle market and real estate limited partnerships. Corporate middle
market limited partnerships may invest in senior or subordinated debt, preferred
or common equity or a combination thereof, of privately-held middle market
businesses. Real estate limited partnerships hold equity ownership positions in
real properties and invest in debt secured by real properties. Our limited
partnerships are generally accounted for under the equity method, or as a
practical expedient using the fund's net asset value, with financial information
provided by the partnership on a two or three month lag.

Mortgage and other loans consist of commercial mortgage loan participations,
which represent our interest in commercial mortgage loans originated by a
third-party. We share, on a pro-rata basis, in all related cash flows of the
underlying mortgage loans, which are primarily investment-grade quality and
diversified by geographic area and property type.

Equity securities primarily consist of U.S. income-oriented large capitalization
common stocks and a broadly diversified U.S. equity index exchange-traded fund.

Although we expect to invest new funds primarily in investment-grade fixed
maturities, we have invested, and expect to continue to invest, a portion of
funds in below investment grade fixed maturities, limited partnerships, common
equity securities and other investment assets.

We deposit funds with various state and governmental authorities. See Note 2 -
"Investments" in the Notes to Consolidated Financial Statements for additional
information.

IMPAIRMENTS

For the years ended December 31, 2022, 2021 and 2020, we recognized net
impairments of $16.7 million, $0.7 million and $26.3 million, respectively. In
2022, impairments consisted primarily of losses on intent to sell fixed maturity
securities due to a transfer of certain investment management responsibilities
to an external manager. In 2021, impairments primarily consisted of $1.3 million
on fixed maturities, partially offset by recoveries of credit losses on mortgage
loans. In 2020, impairments primarily consisted of $17.6 million on fixed
maturities, primarily relating to intent to sell securities, and $6.7 million of
estimated credit losses on mortgage loans.

At December 31, 2022 and 2021, the allowance for credit losses on mortgage loans
was $3.2 million and $7.1 million, respectively, and the allowance for credit
losses on available-for-sale securities was $2.1 million and $0.3 million,
respectively.

There were no fixed maturity securities on non-accrual status at December 31,
2022 or 2021, and there was no effect on income for the year ended December 31,
2022. The effects of non-accruals compared with amounts that would have been
recognized in accordance with the original terms of the fixed maturities for the
years ended December 31, 2021 and 2020 were not material. Any defaults in the
fixed maturities portfolio in future periods may negatively affect investment
income.

UNREALIZED LOSSES

Gross unrealized losses on fixed maturities at December 31, 2022 were $817.7
million, an increase of $769.7 million compared to December 31, 2021, primarily
attributable to higher prevailing interest rates and, to a lesser extent, wider
credit spreads. At December 31, 2022, gross unrealized losses consisted
primarily of $337.7 million on corporate fixed maturities, $164.2 million on
municipals, $142.1 million on residential mortgage-backed securities, $87.7
million on commercial mortgage-backed securities and $58.9 million on U.S.
government securities. See also Note 2 - "Investments" in the Notes to
Consolidated Financial Statements.

We view gross unrealized losses on fixed maturities as non-credit related since
it is our assessment that these securities will recover, allowing us to realize
their anticipated long-term economic value. Further, we do not intend to sell,
nor is it more likely than not we will be required to sell, such debt securities
before this expected recovery of amortized cost (see also "Liquidity and Capital
Resources"). Inherent in our assessment are the risks that market factors may
differ from our expectations; we may decide to subsequently sell a security for
unforeseen business needs or an economic purpose; or changes in the credit
assessment from our original assessment may lead us to determine that a sale at
the current value would maximize recovery on such investments. To the extent
that there are such adverse changes, an impairment would be recognized as a
realized loss. Although unrealized losses on fixed maturities are not reflected
in the results of financial operations until they are realized, the fair value
of the underlying investment, which does reflect the unrealized loss, is
reflected in our Consolidated Balance Sheets.

The following table sets forth gross unrealized losses for fixed maturities by
maturity period at December 31, 2022 and 2021. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations, with or without call or prepayment penalties, or we may have the
right to put or sell the obligations back to the issuers.

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DECEMBER 31                                    2022        2021
(in millions)
Due in one year or less                       $   2.4     $    -
Due after one year through five years           108.9        0.7

Due after five years through ten years 382.0 19.4
Due after ten years

                              67.6       10.9
                                                560.9       31.0

Mortgage-backed and asset-backed securities 256.8 17.0
Total fixed maturities

                        $ 817.7     $ 48.0


Our investment portfolio and shareholders' equity can be significantly impacted
by changes in market values of our securities. Market volatility could increase
and defaults on fixed income securities could occur. As a result, we could incur
additional realized and unrealized losses in future periods, which could have a
material adverse impact on our results of operations and/or financial position.

The Federal Reserve ("the Fed") increased the federal funds rate by 4.50% since
the beginning of 2022 and has indicated that ongoing increases to the target
range may be appropriate in 2023 in order to return inflation to 2 percent over
time. The Fed has stated it will also continue to reduce the size of its balance
sheet. Despite these efforts to tame pricing pressures in the U.S., inflation
remains at high levels. The Fed's limited set of quantitative tightening tools
may be insufficient to address certain drivers of price pressures, including
supply and demand imbalances and energy price volatility derived from
geopolitical risk. Tighter financial conditions for businesses and consumers are
increasing the probability of a further economic slowdown in 2023.

We may experience defaults on fixed income securities, particularly with respect
to non-investment grade debt securities. Although we perform rigorous credit
analysis of our fixed income investments, it is difficult to foresee which
issuers, industries or markets will be most affected. As a result, the value of
our fixed maturity portfolio could change rapidly in ways we cannot currently
anticipate, and we could incur additional realized and unrealized losses in
future periods.