HANOVER INSURANCE GROUP, INC. (THG)

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TABLE OF CONTENTS

27

Table of Contents

Introduction

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist readers in understanding the interim 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 interim consolidated financial statements and related footnotes included elsewhere in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 20, 2026.

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.

The following discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may address, among other things, our growth strategy; expected developments in our business, including losses and loss reserves; the impact of our routine reserve reviews; our expectations regarding our investment activities or results; our proposed actions in response to trends in our business; as well as our expectations, intentions and other statements that are not historical facts. Words such as: “believes,” “anticipates,” “expects,” “may,” “projections,” “outlook,” “intends,” “should,” “could,” “will,” “plan,” “goal,” “guidance,” “likely,” “on track to,” “potential,” “continue,” “targeted,” “designed,” “positioned,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. We caution readers that accuracy with respect to forward-looking projections is difficult and subject to risks and uncertainties. Those risks and uncertainties, in some cases, have affected, and in the future could affect, our actual results and could cause our actual results to differ materially from historical results and from those expressed in any of our forward-looking statements. In addition to some of the factors in the discussion below, other important factors that could cause actual results to differ materially from those contained in forward-looking statements, are set forth in “Risk Factors” in Part II – Item 1A of this Quarterly Report on Form 10-Q and in Part I – Item 1A of our 2025 Annual Report on Form 10-K.

Executive Overview

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

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

During the six months ended June 30, 2026, our net income was $378.4 million, compared to $285.3 million for the six months ended June 30, 2025, an improvement of $93.1 million. This favorable change was primarily due to higher after-tax 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 $502.1 million for the six months ended June 30, 2026, compared to $396.3 million for the six months ended June 30, 2025, an improvement of $105.8 million. This increase was primarily due to improvements in current accident year losses, principally in Personal Lines, higher net investment income, earned premium growth and lower catastrophe losses.

Pre-tax catastrophe losses were $190.7 million for the six months ended June 30, 2026, compared to $203.1 million during the same period of 2025, a decrease of $12.4 million. The catastrophe losses in the first six months of 2026 were primarily due to severe convective storms across multiple states. Included in pre-tax catastrophe losses were $61.7 million and $18.0 million for the six months ended June 30, 2026 and 2025, respectively, of favorable prior year catastrophe reserve development. The favorable development in the first six months of 2026 largely related to 2025 catastrophe events. Net favorable development on prior years’ non-catastrophe loss reserves was $46.5 million for the six months ended June 30, 2026, compared to $38.2 million for the six months ended June 30, 2025, an increase of $8.3 million.

Core Commercial

Core Commercial includes two businesses, small commercial and middle market, both of which focus on account business, including coverage for commercial multiple peril, commercial automobile, workers’ compensation and other core commercial (commercial umbrella, monoline general liability, claims-made liability, and monoline property). Small commercial focuses on small businesses, with annual policy premiums generally up to $50,000. Middle market provides coverage to mid-sized businesses with annual policy premiums generally between $50,000 and $500,000. Middle market offers coverage in distinct industry segments, including technology, human services, manufacturing, retail, and real estate, among others. We believe that our account-focused approach to the small commercial market and distinctiveness in the middle market, including our diversified portfolio of products, delivers significant value to agents and policyholders. We continue to pursue our core strategy of developing strong relationships with independent agents, enhancing franchise value through selective distribution, distinctive products and coverages, and through continued investment in products for additional industry segmentation.

28

Table of Contents

Net premiums written increased 5.7% in the first six months of 2026, compared to the same period in 2025, primarily due to renewal price increases and, to a lesser extent, an increase in new business volume. Operating income before interest expense and income taxes increased in the first six months of 2026, compared to the same period in 2025, primarily due to higher net investment income, improvements in current accident year underwriting results and lower catastrophe losses. The competitive nature of the Core Commercial market requires us to be highly disciplined in our underwriting process to ensure that we write business at acceptable margins, and we continue to seek rate increases across many lines of business, as appropriate.

Specialty

Specialty offers a comprehensive suite of products focused predominately on small to mid-sized businesses. This includes numerous specialized product areas that are organized into four distinct divisions – Marine and Industrial Property, Professional and Executive Lines, E&S and Alternative Markets, and Surety and Other. We believe that this diverse set of Specialty products, distributed primarily through independent agents, including wholesalers, helps to enhance our overall agent value and increase growth opportunities by providing agents easier access to placement solutions for Specialty needs, including those that complement Core Commercial accounts.

Net premiums written increased 3.4% in the first six months of 2026, compared to the same period in 2025, primarily due to an increase in new business volume and, to a lesser extent, renewal price increases. Operating income before interest expense and income taxes increased in the first six months of 2026 compared to the same period in 2025, primarily due to lower catastrophe losses and higher net investment income. The competitive nature of the Specialty market requires us to be highly disciplined in our underwriting process to ensure that we write business at acceptable margins, and we continue to seek rate increases across many lines of business, as appropriate.

Personal Lines

Personal Lines focuses on working with high quality, value-oriented agencies that deliver consultative selling to customers and stress the importance of total account solutions, which is the conversion of single policy customers to accounts with multiple policies and/or additional coverages, to address customers’ broader needs and objectives. Approximately 89% of our policies in force (“PIF”) 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 2.7% in the first six months of 2026, compared to the same period in 2025, primarily due to higher new business and, to a lesser extent, the impact of renewal price increases. Operating income before interest expense and income taxes increased in the first six months of 2026, compared to the same period in 2025, primarily due to improvement in current accident year underwriting results and higher favorable development on prior year reserves.

Description of Segments

Primary business operations include insurance products and services currently provided through four reporting segments: Core Commercial, Specialty, Personal Lines and Other. Core Commercial includes commercial multiple peril, commercial automobile, workers’ compensation, and other commercial lines coverages provided to small and mid-sized businesses. Specialty includes four divisions of business: Marine and Industrial Property, Professional and Executive Lines, E&S and Alternative Markets, and Surety and Other. E&S and Alternative Markets includes coverages such as excess and surplus lines, program business (providing commercial insurance to markets with specialized coverage or risk management need related to groups of similar businesses) and specialty general liability coverage. Personal Lines includes personal automobile, homeowners and other personal coverages, such as umbrella. The Other segment includes earnings on holding company assets; holding company and other expenses, including certain costs associated with retirement benefits related to employees and agents of the Company’s former life insurance subsidiaries; and our run-off direct asbestos and environmental business, run-off voluntary assumed property and casualty pools, and run-off product liability business.

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

29

Table of Conten

[Excerpt truncated for page length; source filing is linked above.]

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These statements have been prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following critical accounting estimates are those which we believe affect the more significant judgments and estimates used in the preparation of our financial statements. Additional information about other significant accounting policies and estimates may be found in Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.

RESERVE FOR LOSSES AND LOSS EXPENSES

See “Reserve for Losses and Loss Adjustment Expenses” within “Results of Operations – Segments” for a discussion of our critical accounting estimates for loss reserves.

REINSURANCE RECOVERABLE BALANCES

See “Reinsurance Recoverables” in Part I – Item 1 for information on our reinsurance recoverable balances.

PENSION BENEFIT OBLIGATIONS

We currently have a qualified defined benefit plan and several smaller non–qualified benefit plans. In order to measure the liabilities and expenses associated with these plans, we must make various estimates and key assumptions, including discount rates used to value liabilities, assumed rates of return on plan assets, employee turnover rates and anticipated mortality rates. These estimates and assumptions are reviewed at least annually and are based on our historical experience, as well as current facts and circumstances. In addition, we use outside actuaries to assist in measuring the liabilities and expenses associated with our defined benefit pension plan.

Two significant assumptions used in the determination of benefit plan obligations and expenses that are dependent on market factors, which have been subject to a greater level of volatility in recent years, are the discount rate and the return on plan asset assumptions. The discount rate enables us to state expected future benefit payments as a present value on the measurement date. We also use this discount rate in the determination of our pre-tax pension expense or benefit. A higher discount rate decreases the present value of benefit obligations and decreases pension expense. We determined our discount rate for the qualified benefit plan utilizing independent yield curves which provide for a portfolio of high quality bonds that are expected to match the cash flows of our pension plans. Bond information used in the yield curve included only those rated Aa or better as of December 31, 2025 and 2024, respectively, and had been rated by at least two well-known rating agencies. The discount rates used to value liabilities in our qualified pension plan were 5.75% and 6.125% as of December 31, 2025 and 2024, respectively.

To determine the expected long-term return on plan assets, we generally consider historical mean returns by asset class for passive indexed strategies, as well as current and expected asset allocations, and adjust for certain factors that we believe will have an impact

57

Table of Contents

on future returns. Actual returns on plan assets in any given year seldom result in the achievement of the expected rate of return on assets. Actual returns on plan assets in excess of these expected returns will generally reduce our net actuarial losses (or increase actuarial gains) that are reflected in the accumulated other comprehensive loss balance in shareholders’ equity, whereas actual returns on plan assets that are less than expected returns will generally increase our net actuarial losses (or decrease actuarial gains) that are reflected in accumulated other comprehensive loss. These gains or losses are amortized into expense in future years. The qualified benefit plan held assets consisting of approximately 90% fixed maturities and 10% equity securities at December 31, 2025. The expected return on asset assumption was 5.875% in both 2025 and 2024. Asset returns are reflected net of administrative expenses.

Net actuarial losses related to the qualified benefit plan of $4.3 million and $6.9 million were reflected as changes to accumulated other comprehensive loss in 2025 and 2024, respectively. Net actuarial losses in 2025 resulted from a decrease in the discount rate, partially offset by higher than expected investment returns. Net actuarial losses in 2024 resulted from lower than expected investment returns during the year, partially offset by an increase in the discount rate. In 2025 and 2024, amortization of actuarial losses from prior years were $6.5 million and $6.6 million, respectively.

Expenses related to our qualified benefit plan are generally calculated based upon information available at the beginning of the plan year. Our pre-tax expense related to our qualified benefit plan was $6.8 million and $5.5 million for 2025 and 2024, respectively.

Holding all other assumptions constant, sensitivity to changes in our key assumptions related to our qualified benefit plan is as follows:

INVESTMENT CREDIT LOSSES

We evaluate our fixed maturity securities and mortgage loan participations for expected credit losses on a quarterly basis, and more frequently when necessary, and we monitor the sufficiency of our credit loss allowance using both quantitative and qualitative considerations which are subject to risks and uncertainties. We apply consistent standards of credit analysis to our fixed maturity securities including, among others, evaluation of rating downgrades, unexpected price variances, industry-specific concerns, the financial condition of issuers or underlying borrowers, collateral default rates, and estimates of projected cash flows. For mortgage loan participations, we also consider risk ratings based on property characteristics including geographical markets, loan-to-value and debt service coverage ratios, and risk factors associated with property type.

We cannot provide assurance that the impairments will be adequate to cover future losses or that we will not have substantial additional impairments in the future. See Note 2 – “Investments” and Note 3 – “Investment Income and Gains and Losses” in the Notes to Consolidated Financial Statements for further discussion regarding securities in an unrealized loss position and impairments.

58

Table of Contents

STATUTORY SURPLUS OF INSURANCE SUBSIDIARIES

The following table reflects statutory surplus for our insurance subsidiaries:

The statutory capital and surplus for our insurance subsidiaries increased $366.2 million during 2025. This increase was primarily due to operating profits, partially offset by payments of $295.0 million in dividends to its parent company and, to a lesser extent, net realized and unrealized investment losses.

The NAIC prescribes an annual calculation regarding risk based capital (“RBC”). RBC ratios for regulatory purposes, as described in the glossary, are expressed as a percentage of the capital required to be above the Authorized Control Level (the “Regulatory Scale”); however, in the insurance industry, RBC ratios are widely expressed as a percentage of the Company Action Level. The following table reflects the Company Action Level, the Authorized Control Level and RBC ratios for Hanover Insurance (which includes Citizens and other insurance subsidiaries), as of December 31, 2025 and 2024, expressed both on the Industry Scale (Total Adjusted Capital divided by the Company Action Level) and Regulatory Scale (Total Adjusted Capital divided by Authorized Control Level):

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of our ability to generate sufficient cash flows to meet the cash requirements of business operations. As a holding company, our primary ongoing source of cash is dividends from our insurance subsidiaries. However, dividend payments to us by our insurance subsidiaries are subject to limitations imposed by regulators, such as prior notice periods and the requirement that dividends in excess of a specified percentage of statutory surplus or prior year’s statutory earnings receive prior approval (so called “extraordinary dividends”). Hanover Insurance paid $295.0 million and $100.0 million in dividends, which were provided to the holding company in 2025 and 2024, respectively.

Sources of cash for our insurance subsidiaries primarily consist of premiums collected, investment income and maturing investments. Primary cash outflows are payments for losses and loss adjustment expenses, policy and contract acquisition expenses, other underwriting expenses, and investment purchases. Cash outflows related to losses and loss adjustment expenses can be variable because of uncertainties surrounding settlement dates for liabilities for unpaid losses and because of the potential for large losses, either individually or in the aggregate. We periodically adjust our investment policy to respond to changes in short-term and long-term cash requirements.

Net cash provided by operating activities was $1,178.1 million during 2025 compared to $806.4 million during 2024. The $371.7 million increase in cash provided was primarily due to an increase in premiums received and lower loss and LAE payments made during 2025 compared to 2024, partially offset by higher federal income tax payments made in 2025.

Net cash used in investing activities was $666.2 million during 2025 compared to $540.9 million during 2024. During both 2025 and 2024, cash used in investing activities primarily related to net purchases of fixed maturities.

Net cash provided by financing activities was $175.2 million during 2025 compared to net cash used in financing activities of $145.5 million during 2024. During 2025, cash provided by financing activities primarily resulted from the issuance of $500.0 million aggregate principal amount of 5.50% senior unsecured debentures. Net proceeds of the debt issuance were $495.0 million, which is partially offset by quarterly dividend payments to our shareholders, repurchases of common stock through the open market, and the repayment of $61.8 million of outstanding 7.625% senior debentures on their October 15, 2025 maturity date. During 2024, cash used in financing activities primarily resulted from the payment of quarterly dividends to our shareholders and, to a lesser extent, from repurchases of common stock through the open market.

Dividends to common shareholders are subject to quarterly board approval and declaration. During 2025, we paid dividends that totaled $130.6 million. This included three quarterly dividends of $0.90 pe

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]