HANOVER INSURANCE GROUP, INC. – 10-K – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TABLE OF CONTENTS

  Introduction                                                   35

  Executive Overview                                             35

  Description of Operating Segments                              36

  Results of Operations - Consolidated                           36

  Results of Operations - Segments                               38

  Investments                                                    52

  Quantitative and Qualitative Disclosures about Market Risk     56

  Other Items                                                    57

  Income Taxes                                                   57

  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 and life insurance businesses.

EXECUTIVE OVERVIEW

Business operations consist of three operating segments: Commercial Lines,
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.

The global pandemic ("Pandemic") has significantly impacted the U.S. and global
financial markets and economies since March 2020. Circumstances relating to the
Pandemic are unprecedented in scope and impact, continue to evolve, are complex
and uncertain, and are outside our control. Our investment portfolio was
affected by the deterioration in investment markets during March 2020, as well
as volatility in the subsequent months. In addition, we experienced both
favorable and adverse effects from the Pandemic on our underwriting results and
operations, as well as our financial condition, during the period from March
2020 through December 2021. Several uncertainties persist related to the
Pandemic, including, among others, return to work initiatives, virus variants,
vaccination rates, driving patterns, court caseloads and backlogs, and
inflationary pressures. We continue to believe that the Pandemic's impacts on
our near-term results should be manageable. However, the severity, duration and
long-term impacts of the Pandemic may affect the property and casualty insurance
industry, our business, and our financial results over the intermediate and
long-term. (See "Contingencies and Regulatory Matters" and "Item 1A - Risk
Factors" for further discussion).

Net income was $418.7 million in 2021, compared to $358.7 million in 2020, an
increase of $60.0 million, primarily due to changes in the fair value of equity
securities and, to a lesser extent, $26.3 million of impairments on fixed income
securities in the prior year that did not recur in 2021, partially offset by
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 $432.3 million in 2021 compared to $484.7 million in 2020, a
decrease of $52.4 million. This decrease was primarily due to higher catastrophe
losses and higher Personal Lines non-catastrophe losses, partially offset by
higher net investment income, earned premium growth, and net favorable
development on prior years' loss and loss adjustment expense ("LAE") reserves
("prior years' loss reserves"). The higher Personal Lines non-catastrophe losses
were primarily due to higher personal automobile losses, attributable to higher
loss severity and frequency, though 2021 loss frequency remains below
pre-Pandemic levels.

Pre-tax catastrophe losses were $402.6 million in 2021, compared to $286.7
million in 2020. The increase of $115.9 million was primarily due to hurricane
Ida and several wind events and hailstorms in the Midwest during the third
quarter of 2021 and the freeze events in Texas and surrounding states during the
first quarter of 2021. Net favorable development on prior years' loss reserves
was $56.1 million in 2021, compared to $15.5 million in 2020, an increase of
$40.6 million.

Commercial Lines

Our account-focused approach to the small commercial market, distinctiveness in
the middle market, and continued development of specialty lines provides us with
a diversified portfolio of products and delivers significant value to agents and
policyholders. We continue to pursue our core strategy of developing strong
relationships with agents, enhanced franchise value through selective
distribution, distinctive products and coverages, and through continued
investment in industry specialization. Net premiums written increased 9.2% in
2021 compared to 2020, primarily due to increased exposures and rate increases,
following the reduction in insured business activity in 2020 as a result of the
Pandemic.

Underwriting results declined in 2021, primarily due to higher catastrophe
losses, partially offset by earned premium growth, favorable development of
prior years' loss reserves, and lower expenses. The competitive nature of the
Commercial Lines 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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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 (the conversion of single policy customers to accounts with
multiple policies and/or additional coverages, to address customers' broader
objectives). Approximately 87% 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 7.7% in 2021, compared to the same period in
2020, which includes a return of approximately $30 million of premiums in 2020
to our eligible personal automobile customers in all our markets, providing
financial relief during the Pandemic. Excluding the impact of the premium
refund, net premiums written grew by 6.0%, primarily due to increased new
business, retention and, to a lesser extent, renewal rate increases.
Underwriting results declined in 2021, primarily due to higher non-catastrophe
losses, catastrophe losses, and expenses, partially offset by favorable
development of prior years' loss reserves and earned premium growth. The higher
expenses were primarily due to the absence in 2021 of a non-recurring premium
tax benefit of $13.8 million from a Michigan refund related to tax years 2014
through 2016 that was received in 2020.

DESCRIPTION OF OPERATING SEGMENTS

Primary business operations include insurance products and services currently
provided through three operating segments: Commercial Lines, Personal Lines and
Other. Commercial Lines includes commercial multiple peril, commercial
automobile, workers' compensation, and other commercial coverages, such as
management and professional liability, marine, Hanover Programs, specialty
industrial and commercial property, monoline general liability and surety.
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 a
run-off voluntary property and casualty pools business. We present the separate
financial information of each segment 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 of interest on our senior and subordinated debentures.

RESULTS OF OPERATIONS - CONSOLIDATED

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.

2020 Compared to 2019

Consolidated net income was $358.7 million in 2020, compared to $425.1 million
in 2019, a decrease of $66.4 million. The year over year comparison of
consolidated net income reflects a decrease in after-tax net realized and
unrealized investment gains of $82.5 million, principally related to changes in
the fair value of equity securities. This was partially offset by an increase in
operating income before interest expense and income taxes of $31.1 million,
primarily due to lower non-catastrophe current accident year losses, primarily
in our personal and commercial automobile lines, and favorable development on
prior years' loss reserves, partially offset by higher catastrophe losses and,
to a lesser extent, lower net investment income.

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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                            2021           2020           2019
(in millions)
Operating income (loss) before interest
expense and income taxes:
Commercial Lines                                $    269.9     $    275.4     $    300.1
Personal Lines                                       158.5          212.5          144.9
Other                                                  3.9           (3.2 )          8.6
Operating income before interest expense and
income taxes                                         432.3          484.7   

453.6

Interest expense on debt                             (34.0 )        (37.1 )        (37.5 )
Operating income before income taxes                 398.3          447.6   

416.1

Income tax expense on operating income               (80.0 )        (92.6 )        (84.5 )
Operating income                                     318.3          355.0   

331.6

Non-operating items:
Net realized and unrealized investment gains         123.0            5.0   

109.4

Net loss from repayment of debt                          -           (6.2 )            -
Other                                                    -           (1.6 )         (3.4 )
Income tax benefit (expense) on non-operating
items                                                (21.3 )          9.8           (8.6 )
Income from continuing operations, net of
taxes                                                420.0          362.0   

429.0

Discontinued operations (net of taxes):
Income from Chaucer business                           1.2            0.4   

0.4

Loss from discontinued life businesses                (2.5 )         (3.7 )         (4.3 )
Net income                                      $    418.7     $    358.7     $    425.1


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 three 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.

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
LAE reserve development.

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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                            2021           2020           2019
(in millions)
Operating revenues
Net premiums written                            $  4,993.4     $  4,598.5     $  4,581.7
Net premiums earned                             $  4,770.2     $  4,527.4     $  4,474.5
Net investment income                                310.7          265.1          281.3
Other income                                          23.9           27.3           25.5
Total operating revenues                           5,104.8        4,819.8        4,781.3
Losses and operating expenses
Losses and LAE                                     3,134.2        2,844.5   

2,864.6

Amortization of deferred acquisition costs           982.7          951.0   

926.7

Other operating expenses                             555.6          539.6   

536.4

Total losses and operating expenses                4,672.5        4,335.1   

4,327.7

Operating income before interest expense and
income taxes                                    $    432.3     $    484.7     $    453.6


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 remains below
pre-Pandemic levels.

Net premiums written increased by $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 the
aforementioned 2020 premium refund.

2020 Compared to 2019

Operating income before interest expense and income taxes was $484.7 million for
the year ended December 31, 2020, compared to $453.6 million for the year ended
December 31, 2019, an increase of $31.1 million. This increase was primarily due
to lower non-catastrophe current accident year losses primarily in our personal
and commercial automobile lines, and favorable development on prior years' loss
reserves, partially offset by higher catastrophe losses and lower net investment
income. The lower non-catastrophe current accident year losses reflect a reduced
level of economic activity as a result of the Pandemic. The increase in
catastrophe losses was primarily due to higher property damages related to riots
and civil unrest in several major cities across the country, hurricane Isaias,
wildfires on the West Coast, and wind and hailstorms in the Midwest and
Southeast.

Net premiums written increased by $16.8 million for the year ended December 31,
2020, compared to the year ended December 31, 2019. Premiums grew during 2020 in
both our Commercial and Personal Lines segments, partially offset by the
personal automobile premium refund of approximately $30 million in the second
quarter of 2020.

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PRODUCTION AND UNDERWRITING RESULTS

The following table summarizes premiums written on a gross and net basis, net
premiums earned and loss (including catastrophe losses), LAE, expense and
combined ratios for the Commercial Lines 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, 2021
                                    Gross          Net           Net
                                  Premiums      Premiums      Premiums       Catastrophe        Loss &         Expense       Combined
(dollars in millions)              Written       Written       Earned      

 Loss Ratios      LAE Ratios       Ratios         Ratios
Commercial Lines                  $ 3,448.9     $ 2,983.7     $ 2,840.8               8.0            63.8          33.8           97.6
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
                                  Premiums      Premiums      Premiums       Catastrophe        Loss &         Expense       Combined
(dollars in millions)              Written       Written       Earned        Loss Ratios      LAE Ratios       Ratios         Ratios
Commercial Lines                  $ 3,201.0     $ 2,733.1     $ 2,683.3               4.9            61.4          34.4           95.8
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



                                                                      YEAR ENDED DECEMBER 31, 2019
                                    Gross          Net           Net
                                  Premiums      Premiums      Premiums       Catastrophe        Loss &         Expense       Combined
(dollars in millions)              Written       Written       Earned        Loss Ratios      LAE Ratios       Ratios         Ratios
Commercial Lines                  $ 3,127.3     $ 2,707.2     $ 2,654.2               3.1            60.6          34.6           95.2
Personal Lines                      1,991.2       1,874.5       1,820.3               4.7            68.9          27.4           96.3
Total                             $ 5,118.5     $ 4,581.7     $ 4,474.5               3.8            64.0          31.6           95.6


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

                                      YEAR ENDED DECEMBER 31, 2021
                                Net
                              Premiums            Loss &         Catastrophe
(dollars in millions)         Written           LAE Ratios       Loss Ratios
Commercial Lines:
Commercial multiple peril   $      978.6               76.2              17.5
Commercial automobile              349.0               64.4               0.4
Workers' compensation              354.7               52.9                 -
Other commercial                 1,301.4               56.8               5.0
Total Commercial Lines           2,983.7               63.8               8.0
Personal Lines:
Personal automobile              1,230.4               66.0               1.6
Homeowners                         704.1               75.5              23.1
Other personal                      75.2               43.9               2.7
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
Commercial Lines:
Commercial multiple peril   $      921.7               68.6               9.3
Commercial automobile              336.0               69.0               0.6
Workers' compensation              320.3               49.5                 -
Other commercial                 1,155.1               56.6               4.1
Total Commercial Lines           2,733.1               61.4               4.9
Personal Lines:
Personal automobile              1,151.5               62.7               1.0
Homeowners                         653.4               71.1              22.1
Other personal                      60.5               31.6               2.5
Total Personal Lines             1,865.4               64.7               8.4
Total                       $    4,598.5               62.8               6.3



                                      YEAR ENDED DECEMBER 31, 2019
                                Net
                              Premiums            Loss &         Catastrophe
(dollars in millions)         Written           LAE Ratios       Loss Ratios
Commercial Lines:
Commercial multiple peril   $      909.4               63.0               7.5
Commercial automobile              336.1               71.9               0.4
Workers' compensation              334.6               50.7                 -
Other commercial                 1,127.1               58.3               1.4
Total Commercial Lines           2,707.2               60.6               3.1
Personal Lines:
Personal automobile              1,186.1               74.0               0.5
Homeowners                         636.9               61.5              12.8
Other personal                      51.5               41.5               2.8
Total Personal Lines             1,874.5               68.9               4.7
Total                       $    4,581.7               64.0               3.8

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

                                                        YEAR ENDED DECEMBER 31, 2021
                                            Commercial       Personal
(in millions)                                 Lines           Lines          Other         Total
Underwriting profit, excluding prior
year reserve
  development and catastrophes             $      255.2     $    217.3     $       -     $   472.5
Prior year favorable (unfavorable) loss
and LAE reserve
  development on non-catastrophe losses            34.0           23.1          (1.0 )        56.1
Prior year favorable catastrophe
development                                        12.0            3.0             -          15.0
Current year catastrophe losses                  (239.3 )       (178.3 )           -        (417.6 )
Underwriting profit (loss)                         61.9           65.1          (1.0 )       126.0
Net investment income                             209.4           89.4          11.9         310.7
Fees and other income                               9.7            9.7           4.5          23.9
Other operating expenses                          (11.1 )         (5.7 )       (11.5 )       (28.3 )
Operating income before interest expense
and income taxes                           $      269.9     $    158.5     $     3.9     $   432.3


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                                                        YEAR ENDED DECEMBER 31, 2020
                                            Commercial       Personal
(in millions)                                 Lines           Lines          Other         Total
Underwriting profit (loss), excluding
prior year reserve
  development and catastrophes             $      219.5     $    286.7     $    (0.1 )   $   506.1
Prior year favorable (unfavorable) loss
and LAE reserve
  development on non-catastrophe losses            19.0            0.7          (4.2 )        15.5
Prior year favorable (unfavorable)
catastrophe development                            18.8           (1.7 )           -          17.1
Current year catastrophe losses                  (151.0 )       (152.8 )           -        (303.8 )
Underwriting profit (loss)                        106.3          132.9          (4.3 )       234.9
Net investment income                             175.3           76.7          13.1         265.1
Fees and other income                               9.7           10.6           7.0          27.3
Other operating expenses                          (15.9 )         (7.7 )       (19.0 )       (42.6 )
Operating income (loss) before interest
expense and income taxes                   $      275.4     $    212.5     $    (3.2 )   $   484.7



                                                        YEAR ENDED DECEMBER 31, 2019
                                            Commercial       Personal
(in millions)                                 Lines           Lines          Other         Total
Underwriting profit (loss), excluding
prior year reserve
  development and catastrophes             $      176.0     $    171.8     $    (0.1 )   $   347.7
Prior year favorable (unfavorable) loss
and LAE reserve
  development on non-catastrophe losses            28.7          (26.6 )        (1.2 )         0.9
Prior year favorable catastrophe
development                                        24.6            2.9             -          27.5
Current year catastrophe losses                  (107.8 )        (89.0 )           -        (196.8 )
Underwriting profit (loss)                        121.5           59.1          (1.3 )       179.3
Net investment income                             180.1           80.1          21.1         281.3
Fees and other income                               9.2           11.4           4.9          25.5
Other operating expenses                          (10.7 )         (5.7 )       (16.1 )       (32.5 )
Operating income before interest expense
and income taxes                           $      300.1     $    144.9     $     8.6     $   453.6


2021 Compared to 2020

Commercial Lines

Commercial Lines net premiums written were $2,983.7 million for the year ended
December 31, 2021, compared to $2,733.1 million for the year ended December 31,
2020. This $250.6 million increase was primarily driven by increased exposures
and rate increases following the reduction in insured business activity in 2020,
as a result of the Pandemic.

Commercial Lines underwriting profit for the year ended December 31, 2021 was
$61.9 million, compared to $106.3 million for the year ended December 31, 2020,
a decrease of $44.4 million. Catastrophe losses for the year ended December 31,
2021 were $227.3 million, compared to $132.2 million for the year ended December
31, 2020. The $95.1 million increase was 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, excluding catastrophes, for the year ended December 31, 2021 was $34.0
million, compared to $19.0 million for the year ended December 31, 2020, an
increase of $15.0 million.

Commercial Lines current accident year underwriting profit, excluding
catastrophes, was $255.2 million for the year ended December 31, 2021, compared
to $219.5 million for the year ended December 31, 2020, an increase of $35.7
million, primarily due to earned premium growth and lower expenses. Within
non-catastrophe current accident year losses, lower loss activity in our
miscellaneous property, inland marine and surety lines was partially offset by
higher loss activity in our commercial multiple peril and specialty industrial
lines.

We continue to manage underwriting performance through increased rates, 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 current competitive pricing environment,
particularly within the workers' compensation line. Due to uncertainty caused by
the Pandemic, there is a level of uncertainty in our ability to grow our
business, and to maintain or improve our underwriting profitability in this
environment. The extent and duration of the Pandemic's future disruption to our
businesses are unknown and may result in continued moderation in claims volumes,
due to periodic disruptions in business activity, and in corresponding premium
levels.

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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 automobile 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 by 6.1%. Net premiums written in the
homeowners line of business for the year ended December 31, 2021 were $704.1
million, compared to $653.4 million for the year ended December 31, 2020, an
increase of $50.7 million. Homeowners policies in force increased by 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. The increase of $20.8 million 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 in 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 2020 non-recurring premium tax benefit, 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 remains below pre-Pandemic levels. In addition, there
were increased weather-related losses in the homeowners line in 2021.

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 longer term.
Our ability to maintain Personal Lines net premiums written may be affected,
however, by price competition, and regulatory and legal activity, economic
conditions and other developments. See "Contingencies and Regulatory Matters."
Additionally, these factors, along with weather-related loss volatility, 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 Pandemic, there is a level of uncertainty in our ability to retain or grow
our business, and to maintain or improve our underwriting profitability in this
environment.

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.

2020 Compared to 2019

Commercial Lines

Commercial Lines net premiums written were $2,733.1 million for the year ended
December 31, 2020, compared to $2,707.2 million for the year ended December 31,
2019, an increase of $25.9 million. The modest premium growth during 2020
reflects a reduction of insured business activity as a result of the Pandemic.

Commercial Lines underwriting profit for the year ended December 31, 2020 was
$106.3 million, compared to $121.5 million for the year ended December 31, 2019,
a decrease of $15.2 million. Catastrophe-related losses for the year ended
December 31, 2020 were $132.2 million, compared to $83.2 million for the year
ended December 31, 2019, an increase of $49.0 million. Favorable development on
prior years' loss reserves, excluding catastrophes, for the year ended December
31, 2020 was $19.0 million, compared to $28.7 million for the year ended
December 31, 2019, a decrease of $9.7 million.

Commercial Lines current accident year underwriting profit, excluding
catastrophes, was $219.5 million for the year ended December 31, 2020, compared
to $176.0 million for the year ended December 31, 2019. This $43.5 million
increase was primarily due to lower non-catastrophe current accident year
losses. The lower current year non-catastrophe losses were primarily due to
lower large loss activity in our specialty industrial property and marine lines,
and lower losses in our commercial automobile line, partially offset by reserve
provisions for exposures due to the Pandemic and to higher property losses in
our commercial multiple peril line. The reserve provisions for exposures due to
the Pandemic of approximately $19 million were primarily reflected in our
workers' compensation, healthcare, commercial multiple peril, management and
professional liability, and surety lines. The lower non-catastrophe current
accident year losses reflect a reduced level of economic activity as a result of
the Pandemic.

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Personal Lines

Personal Lines net premiums written were $1,865.4 million for the year ended
December 31, 2020, compared to $1,874.5 million for the year ended December 31,
2019, a decrease of $9.1 million. During the second quarter of 2020, we returned
approximately $30 million of premiums to our eligible Personal Lines automobile
customers in all markets, providing financial relief during the
Pandemic. Excluding the impact of the premium refund, net premiums written would
have increased 1.1%.

Net premiums written in the personal automobile line of business for the year
ended December 31, 2020 were $1,151.5 million, compared to $1,186.1 million for
the year ended December 31, 2019, a decrease of $34.6 million. This decrease was
primarily due to the aforementioned premium refund of approximately $30 million
and a decrease in policies in force of 2.8%. Net premiums written in the
homeowners line of business for the year ended December 31, 2020 were $653.4
million, compared to $636.9 million for the year ended December 31, 2019, an
increase of $16.5 million. This increase was primarily driven by pricing
increases, partially offset by a 1.1% decrease in policies in force.

Personal Lines underwriting profit for the year ended December 31, 2020 was
$132.9 million, compared to $59.1 million for the year ended December 31, 2019,
an increase of $73.8 million. Catastrophe losses for the year ended December 31,
2020 were $154.5 million, compared to $86.1 million for the year ended December
31, 2019, an increase of $68.4 million. Favorable development on prior years'
loss reserves for the year ended December 31, 2020 was $0.7 million, compared to
unfavorable development of $26.6 million for the year ended December 31, 2019, a
favorable change of $27.3 million.

Personal Lines current accident year underwriting profit, excluding
catastrophes, was $286.7 million in the year ended December 31, 2020, compared
to $171.8 million for the year ended December 31, 2019. This $114.9 million
increase was primarily due to lower current accident year losses in our personal
automobile line, and, to a lesser extent, a non-recurring premium tax
benefit. Personal automobile losses were lower due to fewer accidents and
decreased claim activity resulting from fewer miles driven as a result of the
Pandemic.

Other

Other operating losses were $3.2 million for the year ended December 31, 2020,
compared to other operating income of $8.6 million for the year ended December
31, 2019, a decrease of $11.8 million. This was primarily due to lower net
investment income as a result of the deployment of proceeds in 2019 from the
sale of our former Chaucer business, as well as increased charitable
contributions in 2020.

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, 2021 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, 2021 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.

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.

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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 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, as
well as 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 51% of our aggregate net
loss reserves at December 31, 2021 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 both 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 our management and professional
liability lines, we are modestly increasing, and expect to continue to increase,
our exposure to longer-tailed liability lines, including directors and officers
liability, errors and omissions liability, and product liability coverages. 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 may
be delays in both medical treatments and submission of medical expenses and
deferment of elective medical procedures, which may have worsened insureds'
health status, which may increase our ultimate loss costs. Also, presumptive
orders by relevant state authorities have potentially increased 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 $56.1
million, $15.5 million and $0.9 million for the years ended December 31, 2021,
2020 and 2019, respectively, although there was some significant variance by
line of business. Additionally, our estimated loss and LAE reserves for
catastrophe claims occurring in prior years developed favorably by $15.0
million, $17.1 million and $27.5 million for the years ended December 31, 2021,
2020 and 2019, 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 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, 2021 were $4.8 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 $50 million
impact on operating income, based on 2021 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

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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, 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 COVID-19-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.

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 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 life 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.

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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 Commercial 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.

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

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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.

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

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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.

The impact of the Pandemic could have a material adverse effect on our carried
loss reserves. While we believe that our in-force Commercial Lines 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 Commercial Lines policies. Estimates for
catastrophes which occur at or near the end of a financial reporting period 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 reader should not consider the following
sensitivity analysis as illustrative of a net reserve range.

• Personal and Commercial Automobile Bodily Injury - loss reserves recorded

for bodily injury on voluntary business were $826.7 million as of

December 31, 2021. A key assumption for bodily injury is the inflation

rate underlying the estimated reserve. A five point change (e.g., 4%

changed to 9% or -1%) in the embedded inflation rate would have changed

total reserves by approximately $70 million, either positive or negative,

        respectively, at December 31, 2021.


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    •   Personal Automobile Personal Injury Protection Medical Payment - loss
        reserves recorded for personal injury protection medical payment on
        voluntary business were $139.6 million as of December 31, 2021, of which

approximately 97% relates 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 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 $47 million, either positive

or negative, at December 31, 2021.

• Workers' Compensation - loss reserves recorded for workers' compensation

on voluntary business were $464.3 million as of December 31, 2021. 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 and a one point change to the tail factor
        assumption would have changed total reserves by approximately $150
        million, either positive or negative, at December 31, 2021.

• Monoline and Multiple Peril General Liability - loss reserves recorded for

monoline and multiple peril general liability on voluntary business were

approximately $1.0 billion as of December 31, 2021. 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 $113 million, either positive or negative, at

December 31, 2021.

• Specialty Programs - loss reserves recorded for Hanover Programs were

$376.5 million as of December 31, 2021. 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, and a one point
        change in the workers' compensation tail factor on Hanover Programs would

have changed total reserves by approximately $53 million at December 31,

2021.

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                            2021           2020      

2019

(in millions)
Gross reserve for losses and LAE, beginning
of year                                         $  6,024.0     $  5,654.4     $  5,304.1
Reinsurance recoverable on unpaid losses           1,641.6        1,574.8   

1,472.6

Net reserve for losses and LAE, beginning of
year                                               4,382.4        4,079.6   

3,831.5

Net incurred losses and LAE in respect of
losses occurring in:
Current year                                       3,205.3        2,877.8   

2,893.0

Prior year non-catastrophe development               (56.1 )        (15.5 )         (0.9 )
Prior year catastrophe development                   (15.0 )        (17.1 )        (27.5 )
Total incurred losses and LAE                      3,134.2        2,845.2   

2,864.6

Net payments of losses and LAE in respect of
losses occurring in:
Current year                                       1,464.1        1,347.7        1,315.4
Prior years                                        1,298.7        1,194.7        1,301.1
Total payments                                     2,762.8        2,542.4        2,616.5

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

4,079.6

Reinsurance recoverable on unpaid losses           1,693.8        1,641.6   

1,574.8

Gross reserve for losses and LAE, end of year $ 6,447.6 $ 6,024.0

  $  5,654.4


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

DECEMBER 31                                      2021          2020          2019
(in millions)
Commercial multiple peril                      $ 1,365.6     $ 1,211.0     $ 1,122.0
Workers' compensation                              721.6         699.4         698.2
Commercial automobile                              484.9         454.8         427.0
Other commercial lines:
Hanover Programs                                   613.0         565.3         512.9
Management and professional liability              407.9         340.8         281.5
Monoline general liability                         308.2         280.3         265.5
Umbrella                                           279.1         230.2         197.9

Specialty industrial and commercial property 130.0 76.9

    71.1
Surety                                             100.9          93.6          76.9
Marine                                              98.9          94.0          95.9
Other lines                                         29.2          29.5          28.4
Total other commercial lines                     1,967.2       1,710.6       1,530.1
Total Commercial Lines                           4,539.3       4,075.8       3,777.3
Personal automobile                              1,590.7       1,670.3       1,645.1
Homeowners and other personal                      277.7         237.5         194.3
Total Personal Lines                             1,868.4       1,907.8       1,839.4
Total Other Segment                                 39.9          40.4          37.7
Total loss and LAE reserves                    $ 6,447.6     $ 6,024.0     $ 5,654.4


"Other commercial lines - Other lines" in the table above, is primarily
comprised of our fidelity and crime line of business. Loss and LAE reserves in
our "Total Other Segment" relate to our run-off voluntary assumed reinsurance
pools 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:

                                                2021                                      2020                                      2019
                                 Loss                                      Loss                                      Loss
                                   &                                         &                                         &
(in millions)                     LAE        Catastrophe       Total        LAE        Catastrophe       Total        LAE        Catastrophe       Total
Commercial Lines                $ (34.0 )           (12.0 )   $ (46.0 )   $ (19.0 )   $       (18.8 )   $ (37.8 )   $ (28.7 )   $       (24.6 )   $ (53.3 )
Personal Lines                    (23.1 )            (3.0 )     (26.1 )      (0.7 )             1.7         1.0        26.6              (2.9 )      23.7
Other Segment                       1.0                 -         1.0         4.2                 -         4.2         1.2                 -         1.2
Total prior year favorable
  development                   $ (56.1 )   $       (15.0 )   $ (71.1 )   $ (15.5 )   $       (17.1 )   $ (32.6 )   $  (0.9 )   $       (27.5 )   $ (28.4 )

Catastrophe Loss Development

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. In 2019, favorable catastrophe development was $27.5
million, primarily due to lower than expected losses related to the 2017 and
2018 California wildfires, including the sale of subrogation rights on certain
California wildfire losses, and the 2018 hurricane Florence.

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Loss and LAE Development, excluding catastrophes

The following table provides a summary of (favorable) unfavorable loss and LAE
reserve development, excluding catastrophes.

YEARS ENDED DECEMBER 31                            2021           2020           2019
(in millions)
Commercial multiple peril                       $     (4.7 )   $     14.2     $     (6.6 )
Workers' compensation                                (23.1 )        (36.0 )        (32.6 )
Commercial automobile                                  3.4           15.5            6.4
Other commercial lines                                (9.6 )        (12.7 )          4.1
Total Commercial Lines                               (34.0 )        (19.0 )        (28.7 )
Personal automobile                                  (23.5 )          4.5           22.0
Homeowners and other personal lines                    0.4           (5.2 )          4.6
Total Personal Lines                                 (23.1 )         (0.7 )         26.6
Total Other Segment                                    1.0            4.2            1.2
Total loss and LAE reserve development,
excluding catastrophes                          $    (56.1 )   $    (15.5 ) 

$ (0.9 )

2021 Loss and LAE Development, excluding catastrophes

In 2021, net favorable loss and LAE development, excluding catastrophes, was
$56.1 million. Commercial Lines favorable development of $34.0 million was
primarily due to lower than expected losses of $23.1 million within the workers'
compensation line in accident years 2014 through 2020, and in our other
commercial lines. Within other commercial lines, including Hanover Programs,
lower than expected losses of $19.3 million in our commercial miscellaneous
property and specialty industrial property lines, primarily in accident years
2019 and 2020, and lower than expected losses in our surety line, primarily in
accident years 2013 through 2016, 2018 and 2019, were partially offset by higher
than expected losses of $25.6 million within the general liability lines,
primarily in accident years 2018 through 2020. 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. In addition,
Other Segment unfavorable development of $1.0 million was due to adverse loss
trends in our run-off voluntary assumed property and casualty reinsurance pools
business, which includes asbestos and environmental reserves.

2020 Loss and LAE Development, excluding catastrophes

In 2020, net favorable loss and LAE development, excluding catastrophes, was
$15.5 million. Commercial Lines favorable development of $19.0 million was
primarily due to lower than expected losses of $36.0 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 the commercial multiple peril line, primarily in accident
years 2017 and 2019. Within other commercial lines, lower than expected losses
in our marine line, in accident years 2017 through 2019 and specialty industrial
property lines were partially offset by higher than expected losses in the
general liability coverages within Hanover Programs. In addition, the adverse
prior development in our Other Segment 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
Excess and Casualty Reinsurance Association ("ECRA") pool that consists
primarily of asbestos and environmental exposures.

2019 Loss and LAE Development, excluding catastrophes

In 2019, net favorable loss and LAE development, excluding catastrophes, was
$0.9 million. Commercial Lines favorable development of $28.7 million was
primarily due to lower than expected losses of $32.6 million within the workers'
compensation line in accident years 2015 through 2018, and lower than expected
losses in our commercial multiple peril line, primarily in accident years 2015
through 2016, partially offset by higher than expected losses in our commercial
automobile and other commercial lines. Higher than expected losses in the
commercial automobile line was driven by higher bodily injury severity and
personal injury protection in accident years 2016 through 2017. Within other
commercial lines, higher than expected losses of $24.6 million in Hanover
Programs, primarily in accident years 2011, 2013, 2015, and 2017, was partially
offset by lower than expected losses in our general liability, marine and surety
lines. Personal Lines unfavorable development of $26.6 million was primarily due
to higher than expected losses of $22.0 million in the personal automobile line,
driven by bodily injury severity and personal injury protection in accident
years 2016 through 2017. In addition, Other Segment unfavorable development of
$1.2 million was due to adverse loss trends in our run-off voluntary assumed
property and casualty reinsurance pools business which includes asbestos and
environmental reserves.

Asbestos and Environmental Reserves

As of December 31, 2021, we have $11.7 million of net asbestos and environmental
reserves, comprised of $9.6 million of direct reserves and $2.1 million of
assumed reinsurance pool reserves. This compares to net reserves of $39.8
million and $37.9 million as of December 31, 2020 and 2019, respectively. Ending
loss and LAE reserves for all direct business written by our insurance companies
related to asbestos and environmental damage liability were $9.6 million, $8.3
million and $8.4 million, net of reinsurance of $16.7

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million, $17.9 million and $17.6 million for the years ended December 31, 2021,
2020 and 2019, respectively. Activity for our direct asbestos and environmental
reserves was not significant to our 2021, 2020 or 2019 financial results. As a
result of our historical direct underwriting mix of Commercial Lines 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, 2021, we have $31.0 million of gross reserves and $2.1 million of net
reserves for assumed reinsurance pool business. This compares to gross and net
loss and LAE reserves of $31.5 million and $29.5 million at December 31, 2020
and 2019, respectively. 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. 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 $1,907.3 million and $1,874.3 million at December
31, 2021 and December 31, 2020, respectively, of which $100.4 million and $88.4
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 MCCA were $49.8 million and $35.5
million at December 31, 2021 and December 31, 2020, respectively, and billed
non-MCCA reinsurance recoverables totaled $50.6 million and $52.9 million at
December 31, 2021 and December 31, 2020, respectively. As of December 31, 2021
and 2020, there were no balances outstanding greater than 90 days.

INVESTMENTS

INVESTMENT RESULTS

Net investment income before income taxes was as follows:

DECEMBER 31                       2021        2020        2019
(dollars in millions)
Fixed maturities                 $ 216.9     $ 222.5     $ 232.4
Limited partnerships                68.2        16.7        19.7
Mortgage loans                      18.0        17.5        16.3
Equity securities                   15.6        14.8        16.3
Other investments                    3.0         3.2         5.3
Investment expenses                (11.0 )      (9.6 )      (8.7 )
Net investment income            $ 310.7     $ 265.1     $ 281.3

Earned yield, fixed maturities 2.99 % 3.33 % 3.58 %
Earned yield, total portfolio 3.70 % 3.35 % 3.65 %

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 new money
yields. Higher income from our limited partnerships primarily reflects increased
valuations resulting from positive performance of the funds' underlying equity
holdings. Limited partnership results in 2020, particularly early in the year,
were negatively impacted by Pandemic-related business and financial market
disruptions. Income from partnerships can vary significantly from period to
period and neither the elevated results during 2021, nor the weak results in
2020, reflect expected long-term returns for this asset class. The decrease in
net investment income in 2020 was primarily due to the impact of lower new money
yields, the deployment of cash during 2019 for accelerated share repurchases and
special dividends, and lower limited partnership income. These decreases were
partially offset by the continued

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investment of operational cash flows. We expect average fixed income yields to
continue to decline as new money rates remain lower than embedded book yields.

INVESTMENT PORTFOLIO

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

DECEMBER 31                                   2021                           2020
                                                  % of Total                     % of Total
                                   Carrying        Carrying       Carrying        Carrying
(dollars in millions)                Value          Value           Value          Value
Fixed maturities, at fair value    $ 7,723.9             82.3 %   $ 7,454.4             83.2 %
Equity securities, at fair value       661.3              7.0         598.5              6.7
Mortgage and other loans               434.0              4.6         467.6              5.2
Other investments                      333.4              3.6         325.6              3.6
Cash and cash equivalents              230.9              2.5         120.6              1.3
Total cash and investments         $ 9,383.5            100.0 %   $ 8,966.7            100.0 %


CASH AND INVESTMENTS

Total cash and investments increased $416.8 million, or 4.6%, for the year ended
December 31, 2021, primarily due to the continued investment of operational cash
flows, partially offset by the funding of financing activities, including our
stock repurchases and dividend payments, and by net market value depreciation.

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

DECEMBER 31                                                                2021
(in millions)
                                             Amortized
                                           Cost, net of                            Net           Change in Net
                                           Allowance for                       Unrealized       Unrealized for
Investment Type                            Credit Losses      Fair Value       Gain (Loss)         the Year
U.S. Treasury and government agencies      $       394.3     $      396.2     $         1.9     $         (13.7 )
Foreign government                                   2.2              2.6               0.4                (0.1 )
Municipals:
Taxable                                          1,149.2          1,173.0              23.8               (36.1 )
Tax-exempt                                          27.0             27.8               0.8                (0.9 )
Corporate                                        3,931.2          4,090.1             158.9              (182.5 )
Asset-backed:
Residential mortgage-backed                      1,068.2          1,069.6               1.4               (31.1 )
Commercial mortgage-backed                         802.4            824.4              22.0               (32.6 )
Asset-backed                                       140.3            140.2              (0.1 )              (2.7 )
Total fixed maturities                     $     7,514.8     $    7,723.9     $       209.1     $        (299.7 )

The decrease in net unrealized gains on fixed maturities was primarily due to
higher prevailing interest rates.

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

DECEMBER 31                                                 2021                                                2020
                           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     $     4,867.5     $    4,987.6             64.6 %   $     4,590.6     $    4,894.2             65.7 %
2                           Baa              2,302.2          2,380.4             30.8           2,075.6          2,258.9             30.3
3                            Ba                216.9            225.2              2.9             162.3            173.6              2.3
4                            B                 123.2            125.3              1.6             109.3            118.3              1.6
                          Caa and
5                          lower                 5.0              5.4              0.1               7.3              7.7              0.1
                         In or near
6                         default                  -                -                -               0.5              1.7                -
Total fixed maturities                 $     7,514.8     $    7,723.9            100.0 %   $     6,945.6     $    7,454.4            100.0 %


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Based on ratings by the National Association of Insurance Commissioners
("NAIC"), approximately 95% and 96% of our fixed maturity portfolio consisted of
investment grade securities at December 31, 2021 and 2020, 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                               2021                                                2020
                       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            $     1,080.2     $    1,108.3             14.3 %   $     1,460.6     $    1,510.5             20.3 %
2-4 years                  1,581.1          1,660.9             21.5           1,738.4          1,872.5             25.1
4-6 years                  2,263.8          2,349.0             30.4           1,570.0          1,734.0             23.3
6-8 years                  1,603.8          1,622.4             21.0           1,016.6          1,134.0             15.2
8-10 years                   854.9            846.5             11.0             812.2            837.8             11.2
10+ years                    131.0            136.8              1.8             347.8            365.6              4.9
Total fixed
maturities           $     7,514.8     $    7,723.9            100.0 %   $     6,945.6     $    7,454.4            100.0 %
Weighted average
duration                                        4.9                                                 4.8


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.

Equity securities primarily consist of U.S. income-oriented large capitalization
common stocks and developed market equity index exchange-traded funds.

Mortgage and other loans consist primarily 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.

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.

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 limited partnerships, common equity securities, below investment grade
fixed maturities 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, 2021, 2020 and 2019, we recognized in earnings
$0.7 million, $26.3 million and $2.0 million, respectively, of impairments. 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 intend-to-sell securities, and $6.7 million of estimated credit
losses on mortgage loans. In 2019, impairments consisted entirely of corporate
fixed maturity securities.

At December 31, 2021 and 2020, the allowance for credit losses on mortgage loans
was $7.1 million and $7.9 million, respectively. The allowance for credit losses
on available-for-sale securities was $0.3 million and $0.1 million at December
31, 2021 and 2020, respectively.

There were no fixed maturity securities on non-accrual status at December 31,
2021. The carrying values of fixed maturity securities on non-accrual status at
December 31, 2020 were not material. 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, 2020 and 2019 were
also not material. Any defaults in the fixed maturities portfolio in future
periods may negatively affect investment income.

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UNREALIZED LOSSES

Gross unrealized losses on fixed maturities at December 31, 2021 were $48.0
million, an increase of $44.7 million compared to December 31, 2020, primarily
attributable to higher prevailing interest rates. At December 31, 2021, gross
unrealized losses consisted primarily of $15.6 million on corporate fixed
maturities, $11.0 million on residential mortgage-backed securities, $8.0 on
municipals and $7.4 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; the global economic recovery following the
Pandemic takes longer than current expectations; we may decide to subsequently
sell a security for unforeseen business needs; 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, 2021 and 2020. 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.
DECEMBER 31                                                2021             

2020

(in millions)
Due after one year through five years                  $        0.7        $                          -
Due after five years through ten years                         19.4                                 0.5
Due after ten years                                            10.9                                 2.0
                                                               31.0                                 2.5
Mortgage-backed and asset-backed securities                    17.0                                 0.8
Total fixed maturities                                 $       48.0     $                           3.3


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.

Positive economic growth in the U.S. continues, driven by the strength of the
labor market and consumer spending. Risks to the economic outlook remain,
including new variants of COVID-19 and various supply chain and labor market
imbalances. With progress on vaccinations and strong policy support, indicators
of economic activity and employment have continued to strengthen. The sectors
most adversely affected by the Pandemic have improved recently, but remain below
pre-Pandemic levels of economic activity. Job gains have been solid in recent
months and unemployment rates have declined substantially. Inflation has risen
to the highest levels in many years, well beyond the Federal Reserve's (the
"Fed") target of 2%. Overall financial conditions have been accommodative, in
part reflecting policy measures to support the economy and the flow of credit to
U.S. households and businesses. However, the path of the economy depends on the
course of COVID-19. Progress on vaccinations and an easing of supply constraints
are expected to support continued gains in economic activity and employment as
well as a reduction in inflation. It is unclear how such actions and
inflationary pressures will affect the continued economic recovery and our
investment portfolio.

With inflation having exceeded their 2% target for some time, combined with
improvement in the labor market, the Fed announced a reduction in its asset
purchase program with its cessation expected in March 2022. The Fed's asset
purchase program represents a significant source of demand for certain sectors
of the fixed income market and even a well-telegraphed, gradual winding down of
the program may result in market disruption.  In addition, the Fed's most recent
projections released in December signaled the greatest likelihood to begin
raising interest rates would be in 2022, assuming forecasts for growth,
unemployment and inflation are achieved.

Fundamental conditions in certain corporate sectors remain challenging, such as
the lodging and hospitality sectors, which still face lower than pre-Pandemic
levels of demand. 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.



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