10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from:  to

Commission file number: 1-13754

THE HANOVER INSURANCE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	04-3263626
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
440 Lincoln Street, Worcester, Massachusetts	01653
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:

(508) 855-1000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $.01 par value	New York Stock Exchange
7 5/8% Senior Debentures due 2025	New York Stock Exchange
6.35% Subordinated Debentures due 2053	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes  ☒    No   ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.    Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

Based on the closing sales price of June 30, 2016, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was $3,607,314,213.

The number of shares outstanding of the registrant’s common stock, $0.01 par value, was 42,501,269 shares as of February 17, 2017.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of The Hanover Insurance Group, Inc.’s Proxy Statement to be filed pursuant to Regulation 14A relating to the 2017 Annual Meeting of Shareholders to be held May 16, 2017are incorporated by reference in Part III.

THE HANOVER INSURANCE GROUP, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016

TABLE OF CONTENTS

Item	Description	Page
Part I
1	Business	3
1A.	Risk Factors	21
1B.	Unresolved Staff Comments	37
2	Properties	37
3	Legal Proceedings	37
4	Mine Safety Disclosures	37
Part II
5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
	Equity Securities	38
6	Selected Financial Data	40
7	Management's Discussion and Analysis of Financial Condition and Results of Operations	41
7A.	Quantitative and Qualitative Disclosures About Market Risk	83
8	Financial Statements and Supplementary Data	84
9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	144
9A.	Controls and Procedures	144
9B.	Other Information	144
Part III
10	Directors, Executive Officers and Corporate Governance	145
11	Executive Compensation	147
12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	148
13	Certain Relationships and Related Transactions, and Director Independence	148
14	Principal Accounting Fees and Services	148
Part IV
15	Exhibits, Financial Statement Schedules	149
	Exhibits Index	150
16	Form 10-K Summary	154
	Signatures	155

PART I

ITEM 1 — BUSINESS

ORGANIZATION

The Hanover Insurance Group, Inc. (“THG”) is a holding company organized as a Delaware corporation in 1995. We trace our roots to as early as 1852, when the Hanover Fire Insurance Company was founded. Our primary business operations are property and casualty insurance products and services. We market our domestic products and services through independent agents and brokers in the United States (“U.S.”) and conduct business internationally through a whollyowned subsidiary, Chaucer Holdings Limited (“Chaucer”), which operates through the Society and Corporation of Lloyd’s (“Lloyd’s”) and is domiciled in the United Kingdom (“U.K.”). Our consolidated financial statements include the accounts of THG; The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America (“Citizens”), which are our principal U.S. domiciled property and casualty subsidiaries; Chaucer; and other insurance and non-insurance subsidiaries. Our results of operations also include the results of our discontinued operations, consisting primarily of our former life insurance and accident and health businesses.

INFORMATION ABOUT OPERATING SEGMENTS

We conduct our business operations through four operating segments. These segments are Commercial Lines, Personal Lines, Chaucer and Other. We report interest expense related to our corporate debt separately from the earnings of our operating segments.

Information with respect to each of our segments is included in “Results of Operations - Segments” in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 14 – “Segment Information” in the Notes to the Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K.

Information with respect to geographic concentrations is included in the “Description of Business by Segment” in Part 1 – Item 1 and in Note 14 – “Segment Information” in the Notes to the Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K.

The following is a discussion of our operating segments.

GENERAL

In our Commercial Lines and Personal Lines segments, we underwrite commercial and personal property and casualty insurance through Hanover Insurance, Citizens and other THG subsidiaries, through an independent agent and broker network concentrated in the Northeast, Midwest and Southeast U.S. We also continue to actively grow our Commercial Lines’ presence in the Western region of the U.S., particularly in California, which now is our largest state for Commercial Lines as measured by net premiums written. Our Chaucer segment is a specialist insurance underwriting group which operates through Lloyd’s and writes business globally. Included in our Other segment are Opus Investment Management, Inc. (“Opus”), a wholly owned subsidiary of THG, which provides investment management services to our insurance and non-insurance companies, as well as to unaffiliated institutions, pension funds and other organizations; earnings on holding company assets; and a discontinued voluntary pools business.

Our business strategy focuses on providing our agents and customers stability, financial strength, and competitive insurance products while prudently growing and diversifying our product and geographical business mix. We conduct our U.S. business with an emphasis on agency relationships and active agency management, disciplined underwriting, pricing, quality claim handling, and customer service. Our Lloyd’s business is focused on disciplined and specialized underwriting in selected markets. Annually, we write over $5 billion in gross premiums, including approximately $4 billion domestically. Based on net U.S. premiums written, we rank among the top 25 property and casualty insurers in the United States.

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RISKS

The industry’s profitability and cash flow can be, and historically has been, significantly affected by numerous factors, including price; competition; volatile and unpredictable developments, such as extreme weather conditions, catastrophes and other disasters; legal and regulatory developments affecting pricing, underwriting, policy coverage and other aspects of doing business, as well as insurer and insureds’ liability; extra-contractual liability; size of jury awards; acts of terrorism; fluctuations in interest and currency rates or the value of investments; and other general economic conditions and trends, such as inflationary pressure or unemployment, that may affect the adequacy of reserves or the demand for insurance products. Our investment portfolio and its future returns may be further impacted by the capital markets and current economic conditions, which could affect our liquidity, the amount of realized losses and impairments that will be recognized, credit default levels, our ability to hold such investments until recovery and other factors. Additionally, the economic conditions in geographic locations where we conduct business, especially those locations where our business is concentrated, may affect the growth and profitability of our business. The regulatory environments in those locations, including any pricing, underwriting or product controls, shared market mechanisms or mandatory pooling arrangements, and other conditions, such as our agency relationships, affect the growth and profitability of our business. Our loss and loss adjustment expense (“LAE”) reserves are based on estimates, principally involving case assessments and actuarial projections, at a given time, of what we expect the ultimate settlement and administration of claims will cost based on facts and circumstances then known, predictions of future events, estimates of future trends in claims frequency and severity and judicial theories of liability, costs of repairs and replacement, legislative activity and other factors. We regularly reassess our estimate of loss reserves and LAE, both for current and past years, and resulting changes have and will affect our reported profitability and financial position.

Reference is also made to “Risk Factors” in Part 1 – Item 1A of this Form 10-K.

LINES OF BUSINESS

We underwrite commercial and personal property and casualty insurance coverage through our Commercial Lines, Personal Lines and Chaucer operating segments.

Commercial Lines

Our Commercial Lines segment generated $2.5 billion, or 50.3%, of consolidated operating revenues and $2.4 billion, or 50.3%, of net premiums written, for the year ended December 31, 2016.

The following table provides net premiums written by line of business for our Commercial Lines segment.

		Net Premiums
YEAR ENDED DECEMBER 31, 2016		Written	% of Total
(in millions, except ratios)
Commercial multiple peril	$	792.9	33.6	%
Commercial automobile		307.1	13.0
Workers' compensation		285.6	12.1
Other commercial lines:
Inland marine		231.0	9.8
AIX program business		200.0	8.4
Management and professional liability		195.0	8.3
Surety		68.2	2.9
Specialty property		65.8	2.8
Other		215.9	9.1
Total	$	2,361.5	100.0	%

Our Commercial Lines product suite provides agents and customers with products designed for small, middle and specialized markets.

Commercial Lines coverages include:

Commercial multiple peril coverage insures businesses against third-party general liability from accidents occurring on their premises or arising out of their operations, such as injuries sustained from products sold. It also insures business property for damage, such as that caused by fire, wind, hail, water damage (which may include flood), theft and vandalism.

Commercial automobile coverage insures businesses against losses incurred from personal bodily injury, bodily injury to third parties, property damage to an insured’s vehicle and property damage to other vehicles and property. Commercial automobile policies are often written in conjunction with other commercial policies.

Workers’ compensation coverage insures employers against employee medical and indemnity claims resulting from injuries related to work. Workers’ compensation policies are often written in conjunction with other commercial policies.

Other commercial lines is comprised of:

· inland marine coverage insures businesses against physical losses to property, such as contractor’s equipment, builders’ risk and goods in transit, and also covers jewelers block, fine art and other valuables;

· AIX program business provides coverage to markets where there are specialty coverage or risk management needs, including commercial multiple peril, workers’ compensation, commercial automobile, general liability and other commercial coverages;

· management and professional liability coverage provides protection for directors and officers of companies that may be sued in connection with their performance, and errors and omissions protection to companies and individuals against negligence or bad faith, as well as protection for employment practices liability and fidelity and crime;

· surety provides businesses with contract surety coverage in the event of performance or non-payment claims, and commercial surety coverage related to fiduciary or regulatory obligations;

· specialty property provides insurance to small and medium-sized chemical, paint, solvent and other related manufacturing and distribution companies; and

· other commercial lines coverages include monoline general liability, umbrella, healthcare and miscellaneous commercial property. Our healthcare coverage includes product liability, medical professional liability and general liability coverages provided to selected portions of the healthcare industry including eldercare providers, durable medical equipment suppliers, podiatrists and behavioral health specialists.

Our strategy in Commercial Lines focuses on building deep relationships with partner agents through differentiated product offerings, industry segmentation, and franchise value through limited distribution. We continue to make enhancements to our products and technology platforms that are intended to drive more total account placements in our small commercial and middle market business, while delivering enhanced margins in our specialty businesses. This aligns with our focus of delivering the capabilities that will help broaden the depth and breadth of our partnerships with a limited number of agents.

Our small commercial, middle market and specialty businesses each constitute approximately one-third of our total Commercial Lines business. Small commercial offerings, which generally include premiums of $50,000 or less, deliver value through product expertise, local presence, and ease of doing business. Middle market accounts require greater claim and underwriting expertise, as well as a focus on industry segments where we can deliver differentiation in the market and value to agents and customers. Small and middle market accounts comprise approximately $1.5 billion of the Commercial Lines segment. Our specialty lines of business include inland marine, program business, management and professional liability, surety and specialty property.

In our small commercial and middle market businesses, we offer coverages and capabilities in several key industries including technology, schools, and human services organizations, such as non-profit youth and community service organizations. We also provide further segmentation in our core middle market commercial products, including real estate, hospitality, manufacturing, contractors and wholesale distributors.

Part of our strategy is to expand our specialty lines offerings in order to provide our agents and policyholders with a broader product portfolio and to increase our market penetration. As part of our strategy, we have over time acquired various specialized businesses aimed at further diversifying and growing our specialty lines. We used these acquisitions as platforms to expand our product offerings and grow through our existing agency and broker distribution network.

We believe our small commercial capabilities, distinctiveness in the middle market, and continued development of specialty business provides us with a more diversified portfolio of products and enables us to deliver significant value to our agents and policyholders. We believe these efforts will enable us to continue to improve the overall mix of our business and ultimately our underwriting profitability.

Personal Lines

Our Personal Lines segment generated $1.6 billion, or 31.4%, of consolidated operating revenues and $1.5 billion, or 32.4%, of net premiums written, for the year ended December 31, 2016.

The following table provides net premiums written by line of business for our Personal Lines segment.

		Net Premiums
YEAR ENDED DECEMBER 31, 2016		Written	% of Total
(in millions, except ratios)
Personal automobile	$	953.6	62.7	%
Homeowners		529.7	34.8
Other		37.9	2.5
Total	$	1,521.2	100.0	%

Personal Lines coverages include:

Personal automobile coverage insures individuals against losses incurred from personal bodily injury, bodily injury to third parties, property damage to an insured’s vehicle, and property damage to other vehicles and other property.

Homeowners coverage insures individuals for losses to their residences and personal property, such as those caused by fire, wind, hail, water damage (excluding flood), theft and vandalism, and against third-party liability claims.

Other personal lines are comprised of personal inland marine (jewelry, art, etc.), umbrella, fire, personal watercraft, earthquake and other miscellaneous coverages.

Our strategy in Personal Lines is to build account–oriented business through our partner agencies, with a focus on greater geographic diversification. The market for our Personal Lines business continues to be very competitive, with continued pressure on independent agents from direct writers, as well as from the increased usage of real time comparative rating tools and increasingly sophisticated rating and pricing tools. We maintain a focus on partnering with high quality, value added agencies that stress the importance of consultative selling and account rounding (the conversion of single policy customers to accounts with multiple policies and/or additional coverages). We are focused on making investments that are intended to help us maintain profitability, build a distinctive position in the market, and provide us with profitable growth opportunities. We continue to refine our products and to work closely with these high potential agents to increase the percentage of business they place with us and to ensure that it is consistent with our preferred mix of business. Additionally, we remain focused on further diversifying our state mix beyond the largest historical core states of Michigan, Massachusetts and New York. We expect these efforts to decrease our risk concentrations and our dependency on these three states, as well as to contribute to improved profitability over time.

Chaucer

Our Chaucer segment generated $0.9 billion, or 18.1%, of consolidated operating revenues and $0.8 billion, or 17.4%, of net premiums written, for the year ended December 31, 2016.

The following table provides net premiums written by line of business for our Chaucer segment.

		Net Premiums
YEAR ENDED DECEMBER 31, 2016		Written	% of Total
(in millions, except ratios)
Marine and aviation	$	268.7	32.9	%
Property		141.8	17.4
Energy		97.5	11.9
Casualty and other		308.1	37.8
Total	$	816.1	100.0	%

The Chaucer segment is comprised of international business written through Lloyd’s, including:  

Marine and aviation includes worldwide direct, facultative and treaty business. The marine account provides cover for hull, liability, war, terrorism, aviation war, cargo, political risk and trade credit, specie, fine art and ports and terminals. The aviation account insures airline hull and liability, general aviation, refuellers, aviation products, and satellite.

Property includes treaty business, as well as direct and facultative coverage for commercial and industrial risks against physical damage and business interruption. The treaty account covers cedants on a global basis, predominantly on an “excess of loss” basis for both per risk and catastrophe coverage, with a limited amount of proportional treaty and reinsurance assumed business.

Energy encompasses exploration and production, construction, downstream, operational power and renewables, insuring against physical damage, business interruption, control of well, seepage and pollution and liabilities. Energy also includes a nuclear account, which provides coverage across the nuclear fuel cycle from raw uranium and nuclear fuel to the shipment and storage of waste, with the majority of the exposure relating to power generation at nuclear power stations. In addition to providing coverage for physical damage to civil nuclear power stations, nuclear also provides limited liability coverage.

Casualty and other provides liability coverage internationally, including our expanded U.S. casualty business, for professional and commercial risks on a direct and treaty basis, credit and bond, crime and professional liability coverage for financial institutions, medical malpractice, excess workers’ compensation and accident and health. Other lines also encompass liabilities arising from previous participations on risks insured by third-party Lloyd’s syndicates, which provided liability coverage to financial institutions.

Included in Chaucer’s net premiums written for the year ended December 31, 2016 was $236.5 million of business that is assumed through reinsurance treaties. These net premiums written are reflected primarily in the property and casualty and other lines.

Chaucer is a specialist insurance underwriting group that participates in the Lloyd’s market through the provision of capital to support the underwriting activities of syndicates at Lloyd’s and the ownership of Chaucer Syndicates Limited (“CSL”), a managing agent. CSL manages two syndicates currently underwriting at Lloyd’s, for which we provide capital to support their underwriting activities.

Chaucer provides capital to Syndicate 1084, which underwrites a range of property, marine, aviation, casualty and energy products for commercial clients worldwide; and Syndicate 1176, which primarily provides protection against physical damage and limited liability exposures from power generation at nuclear power stations. The energy line of business includes $18.7 million of net premiums written from Syndicate 1176. Our economic interests in Syndicates 1084 and 1176 were 100% and 57%, respectively, in both the 2016 and 2015 underwriting years.

Chaucer has broad underwriting expertise to support its diversified underwriting portfolio that, we believe, provides many benefits, including capital diversification, volatility management and long-term protection of our underwriting capabilities. We actively manage our portfolio, transferring underwriting capital to increase premium volumes during periods of increased rates, while remaining selective or reducing our capital and premium volumes in those lines where rates are under pressure.

Overall, we believe that the strength and depth of our underwriting teams, together with the broad diversity of our underwriting portfolio and our membership in the Lloyd’s market, underpin our ability to manage both the scale and composition of our business. Moreover, these strengths, combined with our continued active management of our portfolio and the underwriting opportunities available, provide a sound basis for the profitable development of the Chaucer business.

Other

The Other segment consists of: Opus, which provides investment advisory services to affiliates and also manages approximately $1.4 billion of assets for unaffiliated institutions such as insurance companies, retirement plans and foundations; earnings on holding company assets; and our discontinued voluntary pools business.

MARKETING AND DISTRIBUTION

We serve a variety of standard, specialty and targeted industry markets. Consistent with our objective to diversify our underwriting risks on a geographic and line of business basis, we currently have a split of approximately one-third each of domestic standard Commercial Lines, international and domestic specialty lines, and domestic standard Personal Lines. Our Commercial and Personal Lines segments, comprising our principal domestic U.S. subsidiaries, distribute our products primarily through an independent agent network. Our Chaucer segment, comprising our international business, distributes primarily through insurance brokers in the Lloyd’s market.

Commercial and Personal Lines

Our Commercial and Personal Lines agency distribution strategy and field structure are designed to maintain a strong focus on local markets and the flexibility to respond to specific market conditions. During 2016, we wrote 20.0% of our Commercial and Personal Lines business in Michigan and 9.5% in Massachusetts. Our structure is a key factor in the establishment and maintenance of productive, long-term relationships with mid-sized, well-established independent agencies. We maintain 42 local offices across 30 states. The majority of processing support for these locations is provided from Worcester, Massachusetts; Howell, Michigan; Salem, Virginia; and Windsor, Connecticut.

Independent agents account for substantially all of the sales of our Commercial and Personal Lines property and casualty products. Agencies are appointed based on profitability, track record, financial stability, professionalism, and business strategy. Once appointed, we monitor their performance and, subject to legal and regulatory requirements, may take actions as necessary to change these business relationships, such as discontinuing the authority of the agent to underwrite certain products or revising commissions or bonus opportunities. We compensate agents primarily through base commissions and bonus plans that are tied to an agency’s written premium, growth and profitability.

We are licensed to sell property and casualty insurance in all fifty states in the U.S., as well as in the District of Columbia. We actively market Commercial Lines policies throughout the U.S. in 37 states and Personal Lines policies in 18 states.

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The following table provides our top Commercial and Personal Lines geographical markets based on total net premiums written in the state in 2016.

YEAR ENDED DECEMBER 31, 2016	Commercial Lines				Personal Lines				Total Commercial and Personal Lines
(in millions, except ratios)		Net Premiums Written	% of Total			Net Premiums Written	% of Total			Net Premiums Written	% of Total
Michigan	$	125.8	5.3	%	$	652.4	42.9	%	$	778.2	20.0	%
Massachusetts		165.6	7.0			202.5	13.3			368.1	9.5
New York		233.6	9.9			117.0	7.7			350.6	9.0
California		298.9	12.7			-	-			298.9	7.7
New Jersey		133.2	5.6			55.0	3.6			188.2	4.8
Illinois		102.4	4.3			85.4	5.6			187.8	4.8
Texas		178.4	7.6			-	-			178.4	4.6
Connecticut		55.4	2.3			69.0	4.5			124.4	3.2
Georgia		72.9	3.1			38.1	2.5			111.0	2.9
Maine		61.9	2.6			46.7	3.1			108.6	2.8
Virginia		66.0	2.8			31.9	2.1			97.9	2.5
Florida		78.3	3.3			-	-			78.3	2.0
New Hampshire		41.6	1.8			33.0	2.2			74.6	1.9
Indiana		42.8	1.8			29.9	2.0			72.7	1.9
Wisconsin		40.3	1.7			32.1	2.1			72.4	1.9
Louisiana		38.3	1.6			33.1	2.2			71.4	1.8
Tennessee		42.4	1.8			27.9	1.8			70.3	1.8
North Carolina		58.2	2.5			3.0	0.2			61.2	1.6
Ohio		34.6	1.5			24.8	1.6			59.4	1.5
Minnesota		56.5	2.4			-	-			56.5	1.5
Other		434.4	18.4			39.4	2.6			473.8	12.3
Total	$	2,361.5	100.0	%	$	1,521.2	100.0	%	$	3,882.7	100.0	%

We manage our Commercial Lines portfolio, which includes our core and specialty businesses, with a focus on growth from the most profitable industry segments within our underwriting expertise. Our core business is generally comprised of several coordinated commercial lines of business, including small and middle market accounts, which include targeted industry segments. Such business is split between small accounts, generally having less than $50,000 in premium, and middle market accounts, those with premium over $50,000, with most middle market accounts having less than $250,000 of premium. Additionally, we have multiple specialty lines of business, which include inland marine, program business, management and professional liability, surety and specialty property. The Commercial Lines segment seeks to maintain strong agency relationships as a strategy to secure and retain our agents’ best business. We monitor quality of business written through ongoing quality review efforts, accountability for which is shared at the local, regional and corporate levels.

We manage Personal Lines business with a focus on acquiring and retaining quality accounts. Currently, approximately 83% of our policies in force are account business. Approximately 56% of our Personal Lines net premium written is generated in the combined states of Michigan and Massachusetts. In Michigan, based upon direct premiums written for 2016, we underwrite approximately 6% of the state’s total market.

Approximately 66% of our Michigan Personal Lines business is in the personal automobile line and 32% is in the homeowners line. Michigan business represents approximately 45% of our total personal automobile net premiums written and 40% our total homeowners net premiums written. In Michigan, we are a principal market for many of our appointed agencies, with approximately $1.7 million of total direct premiums written per agency in 2016.

Approximately 69% of our Massachusetts Personal Lines business is in the personal automobile line and 28% is in the homeowners line. Massachusetts business represents approximately 15% of our total personal automobile net premiums written and approximately 11% of our total homeowners net premiums written.

We sponsor local and national agent advisory councils to gain the benefit of our agents’ insight and enhance our relationships. These councils provide feedback, input on the development of products and services, guidance on marketing efforts, support for our strategies, and assist us in enhancing our local market presence.

Chaucer

Chaucer underwrites business primarily from Lloyd’s brokers and underwriting agencies. We primarily compensate brokers and underwriting agencies through commission payments.

In the Lloyd’s market, brokers approach Chaucer with individual insurance and reinsurance risk opportunities for underwriter consideration. Brokers also gain access to Chaucer’s products through selected underwriting agencies (also referred to as coverholders), to which Chaucer has granted limited authority to make underwriting decisions on individual risks. In general, risks written through underwriting agencies are smaller in terms of both exposure and premium. Risks are placed in Lloyd’s through a subscription placement process whereby generally several syndicates take a share of a contract rather than one insurer taking 100% on a direct basis. This facilitates the spreading of large and complex risks across a number of insurers, while limiting the underwriting risk of each insurer.

We have an international network of offices to improve our access to high quality risks worldwide. This is expected to improve the diversification of our underwriting and our ability to manage our portfolio. We have offices in Denmark to improve access to business opportunities in Continental Europe, in Singapore, which includes an underwriting presence in China and Labuan, Malaysia to improve access to business opportunities in the Asia region, and in Miami, Florida to provide underwriting representation for business opportunities from Latin America. We also have an office in Oslo, Norway, to provide access to the Norwegian and regional North Sea energy sector.

The following table provides a geographical breakdown of Chaucer’s total gross premiums written (“GPW”) based on the location of risk:

YEAR ENDED DECEMBER 31, 2016	% of Total GPW in Chaucer Segment
United States	25.8	%
Americas, excluding the United States	11.5
Middle East and Africa	6.4
Asia Pacific	5.9
Europe	5.1
United Kingdom	1.9
Worldwide and other (1)	43.4
Total	100.0	%

(1) “Worldwide and other” comprises insured risks that move across multiple geographic areas due to their mobile nature or insured risks that are fixed in locations that span more than one geographic area. These contracts include, for example, marine and aviation hull, satellite and offshore energy exploration and production risks that can move across multiple geographic areas and assumed risks where the cedant insures risks in two or more geographic zones.

Other

With respect to our Other segment business, we market our investment advisory services directly through Opus.

PRICING AND COMPETITION

The property and casualty industry is a very competitive market. Our competitors include national, international, regional and local companies that sell insurance through various distribution channels, including independent agencies, captive agency forces, brokers and direct to consumers through the internet or otherwise. They also include mutual insurance companies, reciprocals and exchanges. In the Commercial and Personal Lines segments, we market through independent agents and brokers and compete for business on the basis of product, price, agency and customer service, local relationships, ratings, and effective claims handling, among other things. We believe that our emphasis on maintaining strong agency relationships and a local presence in our markets, coupled with investments in products, operating efficiency, technology and effective claims handling, enable us to compete effectively. Our broad product offerings in Commercial Lines and total account strategy in Personal Lines are instrumental to our ability to capitalize on these relationships and improve profitability.

We seek to achieve targeted combined ratios in each of our product lines. Targets vary by product and geography and change with market conditions. The targeted combined ratios reflect competitive market conditions, investment yield expectations, our loss payout patterns, and target returns on equity. This strategy is intended to enable us to achieve measured growth and consistent profitability.

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For all major product lines, we employ pricing teams which produce exposure and experience-based rating models to support underwriting and pricing decisions. In addition, in the Commercial and Personal Lines segments, we seek to utilize our understanding of local markets to achieve superior underwriting results. We rely on market information provided by our local agents and on the knowledge of staff in the local branch offices. Since we maintain a strong regional focus and a significant market share in a number of states, we can better apply our knowledge and experience in making underwriting and rate setting decisions. Also, we seek to gather objective and verifiable information at a policy level during the underwriting process, including prior loss experience, past driving records and, where permitted, credit histories.

The Commercial and Personal Lines segments are not dependent on a single customer or even a few customers, for which the loss of any one or more would have an adverse effect upon the insurance operations for these segments.

We market Chaucer product offerings through insurance brokers in the Lloyd’s specialty market, which provides access to business from clients and coverholders. We are able to attract business through our recognized capability to serve as the lead underwriter in most classes we write, particularly in classes where such lead ability is sought by clients and recognized by following underwriters. This requires significant underwriting and claims handling expertise in very specialized lines of business. Our competitors include large international insurance companies and other Lloyd’s managing underwriters. Broker relationships that are ten percent or more of total Chaucer 2016 gross premiums written are with Aon Benfield (18%), Marsh & McLennan Companies (16%), Willis Group (11%) and JLT Group (11%).  

CLAIMS MANAGEMENT

Claims management includes the receipt of initial loss notifications, generation of appropriate responses to claim reports, loss appraisals, identification and handling of coverage issues, determination of whether further investigation is required, retention of legal representation where appropriate, establishment of case reserves, approval of loss payments and notification to reinsurers. Part of our strategy focuses on efficient, timely, and fair claim settlements to meet customer service expectations and maintain valuable independent agent relationships. Additionally, effective claims management is important to our business as claim payments and related loss adjustment expenses are our single largest expenditures.

Commercial and Personal Lines

We utilize experienced claims adjusters, appraisers, medical specialists, managers and attorneys to manage our claims. Our U.S. property and casualty operations have field claims adjusters located throughout the states and regions in which we do business. Claims field staff members work closely with the independent agents who bound the policies under which coverage is claimed. Claims office adjusting staff is supported by general adjusters for large property and large casualty losses, by automobile and heavy equipment damage appraisers for automobile material damage losses, and by medical specialists whose principal concentration is on workers’ compensation and automobile injury cases. Additionally, the claims offices are supported by staff attorneys, both in the home office and in regional locations, who specialize in litigation defense and claim settlements. We have a catastrophe response team to assist policyholders impacted by severe weather events. This team mobilizes quickly to impacted regions, often in advance for a large tracked storm, to support our local claims adjusters and facilitate a timely response to resulting claims. We also maintain a special unit that investigates suspected insurance fraud and abuse. We utilize claims processing technology which allows most of the smaller and more routine Personal Lines claims to be processed at centralized locations.

Chaucer

The Chaucer claims team is responsible for establishing case reserves, loss and LAE cost management, exposure mitigation and litigation management. Chaucer engages third-party administrators to handle claims in certain cases and authorizes selected agencies to manage claims under risks which they have bound on Chaucer’s behalf.

For claims where Chaucer is the lead syndicate, our appointed claims adjusters establish the case reserves and may appoint attorneys, loss adjusters or other third-party experts. For claims where Chaucer is not the lead syndicate, the Lloyd’s syndicate leading the risk establishes case reserves in conjunction with professional third-party adjusters, and then advises all other syndicates participating on the risk of the loss reserve requirements. In such cases, the Chaucer claims team reviews material claims and developments.

CATASTROPHES

We are subject to claims arising out of catastrophes, which historically have had a significant impact on our results of operations and financial condition. Coverage for such events is a core part of our business, and we expect to experience catastrophe losses in the future, which could have a material adverse impact on our financial results and position. Catastrophes can be caused by various events, including, among others, hurricanes, tornadoes and other windstorms, earthquakes, hail, severe winter weather, fire, explosions, and terrorism. The incidence and severity of catastrophes are inherently unpredictable.

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Commercial and Personal Lines

We endeavor to manage our catastrophe risks through underwriting procedures, including the use of deductibles and specific exclusions for floods and earthquakes, subject to regulatory restrictions and competitive pressures, and through geographic exposure management and reinsurance. The catastrophe reinsurance program is structured to protect us on a per-occurrence basis. We monitor geographic location and coverage concentrations in order to manage corporate exposure to catastrophic events. Although catastrophes can cause losses in a variety of property and casualty lines, commercial multiple peril and homeowners property coverages have, in the past, generated the majority of catastrophe-related claims.

Chaucer

Individual commercial and industrial risks within our property, marine and aviation and energy lines include protection against natural or man-made catastrophes worldwide. We accept these risks on direct, facultative, and proportional and excess of loss treaty bases. We seek to manage such risks through limiting the proportion of any individual risk or class of risk we assume and managing geographic concentration, and through the purchase of reinsurance.

We purchase reinsurance to limit our exposure to individual risks and catastrophic events. This includes facultative reinsurance, to limit the exposure on a specified risk; specific excess and proportional treaty, to limit exposure to individual contracts or risks within specified classes of business; and catastrophe excess of loss reinsurance, to limit exposure to any one event that might affect more than one individual contract.

The level of reinsurance that Chaucer purchases is dependent on a number of factors, including our underwriting risk appetite for catastrophe risk, the specific risks inherent in each line or class of business risk written and the pricing, coverage and terms and conditions available from the reinsurance market.

TERRORISM

As a result of the continuing threat of terrorist attacks worldwide, the insurance industry maintains a high level of focus with respect to the potential for losses caused by terrorist acts. These losses may encompass people, property and business operations covered under workers’ compensation, commercial multiple peril and other Commercial Lines policies. In certain cases, we are not able to exclude coverage for these losses, either because of regulatory requirements or competitive pressures. We continually evaluate the potential effect of these low frequency, but potentially high severity events in our overall pricing and underwriting plans, especially for policies written in major metropolitan areas.

Private sector catastrophe reinsurance is limited and generally unavailable for losses attributed to acts of terrorism, particularly those involving nuclear, biological, chemical and/or radiological events. As a result, the industry’s primary reinsurance protection against large-scale terrorist attacks in the U.S. is provided through a Federal program that provides compensation for insured losses resulting from acts of terrorism. Additionally, certain terrorism-related risks embedded in our Commercial and Personal Lines are covered under the existing Catastrophe, Property per Risk and Casualty Excess of Loss corporate reinsurance treaties (see “Reinsurance” for additional information).

The Terrorism Risk Insurance Act of 2002 established the Terrorism Risk Insurance Program (the “U.S. Program”). Coverage under the U.S. Program applies to workers’ compensation, commercial multiple peril and certain other Commercial Lines policies for U.S. direct written policies. The Terrorism Risk Insurance Program Reauthorization Act of 2015 (“TRIPRA”) extended the U.S. Program through December 31, 2020. All commercial property and casualty insurers licensed in the U.S. participate in the program. Under the program, a participating issuer, in exchange for making terrorism insurance available, may be entitled to be reimbursed by the Federal Government for a portion of its aggregate losses. The U.S. Program does not cover losses in surety, Personal Lines or certain other lines of business. Losses caused by terrorist acts are not excluded from homeowners or personal automobile policies.

As required by the current U.S. Program, we offer policyholders in specific lines of commercial insurance the option to elect terrorism coverage. In order for a loss to be covered under the U.S. Program, the loss must meet aggregate industry loss minimums and must be the result of an act of terrorism as certified by the Secretary of the Treasury in consultation with the Secretary of Homeland Security and the U.S. Attorney General. Losses from acts which do not qualify or are not so certified will not receive the benefit of the U.S. Program and in fact, may be deemed covered losses whether or not terrorism coverage was purchased. The current U.S. Program requires insurance carriers to retain 17% of any claims from a certified terrorist event in excess of the federally mandated deductible in 2017, subject to an annual industry-wide cap of $100 billion. This retention will increase by 1% each calendar year until it reaches 20% in 2020. The federally mandated deductible represents 20% of direct earned premium for the covered lines of business of the prior year. In 2016, our deductible was $381 million, which represents 17.4% of year-end 2015 statutory policyholder surplus of our U.S. domestic insurers, and is estimated to be $396 million in 2017, representing 18.2% of 2016 year-end statutory policyholder surplus.

Given the unpredictability of terrorism losses, future losses from acts of terrorism could be material to our operating results, financial position, and/or liquidity. We attempt to manage our exposures on an individual line of business basis and in the aggregate by one-half square mile grids.

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Chaucer’s direct written U.S. policies are also covered under the provisions of TRIPRA. Generally, terrorism coverage is excluded from the commercial property classes and coverages that Chaucer writes, including in its world-wide nuclear energy business, although a limited portion of Chaucer’s property and political risk business outside of the U.S. provides terrorism coverage. We manage this exposure through policy limits, monitoring of risk aggregation and reinsurance. For Chaucer’s nuclear energy business, most of our liability coverage includes losses resulting from acts of terrorism, although Chaucer normally ensures that the net liability involved does not exceed 50% of the full exposure, whether property, liability or combined. 

REGULATION

Commercial and Personal Lines

Our U.S. property and casualty insurance subsidiaries are subject to extensive regulation in the various states in which they transact business and are supervised by the individual state insurance departments. Numerous aspects of our business are subject to regulation, including premium rates, mandatory covered risks, limitations on the ability to non-renew or reject business, prohibited exclusions, licensing and appointment of agents, restrictions on the size of risks that may be insured under a single policy, reserves and provisions for unearned premiums, losses and other obligations, deposits of securities for the benefit of policyholders, investments and capital, policy forms and coverages, advertising, and other conduct, including restrictions on the use of credit information and other factors in underwriting, as well as other underwriting and claims practices. States also regulate various aspects of the contractual relationships between insurers and independent agents.

Such laws, rules and regulations are usually overseen and enforced by the various state insurance departments, as well as through private rights of action and increasingly, by state attorneys general. Such regulations or enforcement actions are often responsive to current consumer and political sensitivities, such as automobile and homeowners insurance rates and coverage forms, or which may arise after a major event. Such rules and regulations may result in rate suppression, limit our ability to manage our exposure to unprofitable or volatile risks, or lead to fines, premium refunds or other adverse consequences. The federal government also may regulate aspects of our businesses, such as the use of insurance (credit) scores in underwriting and the protection of confidential information.

In addition, as a condition to writing business in certain states, insurers are required to participate in various pools or risk sharing mechanisms or to accept certain classes of risk, regardless of whether such risks meet its underwriting requirements for voluntary business. Some states also limit or impose restrictions on the ability of an insurer to withdraw from certain classes of business. For example, Massachusetts, New York, and California each impose material restrictions on a company’s ability to materially reduce its exposures or to withdraw from certain lines of business in their respective states. The state insurance departments can impose significant charges on an insurer in connection with a market withdrawal or refuse to approve withdrawal plans on the grounds that they could lead to market disruption. Laws and regulations that limit cancellation and non-renewal of policies or that subject withdrawal plans to prior approval requirements may significantly restrict our ability to exit unprofitable markets.

Over the past several years, other state-sponsored insurers, reinsurers or involuntary pools have increased, particularly in those states which have Atlantic or Gulf Coast storm exposures. As a result, the potential assessment exposure of insurers doing business in such states and the attendant collection risks have increased. Such actions and related regulatory restrictions may limit our ability to reduce our potential exposure to hurricane-related losses.

The insurance laws of many states subject property and casualty insurers doing business in those states to statutory property and casualty guaranty fund assessments. The purpose of a guaranty fund is to protect policyholders by requiring that solvent property and casualty insurers pay the insurance claims of insolvent insurers. These guaranty associations generally pay these claims by assessing solvent insurers proportionately based on the insurer’s share of voluntary premiums written in the state. While most guaranty associations provide for recovery of assessments through subsequent rate increases, surcharges or premium tax credits, there is no assurance that insurers will ultimately recover these assessments, which could be material, particularly following a large catastrophe or in markets which become disrupted.

We are subject to periodic financial and market conduct examinations conducted by state insurance departments. We are also required to file annual and other reports with state insurance departments relating to the financial condition of our insurance subsidiaries and other matters. The National Association of Insurance Commissioners (“NAIC”) and the Federal Insurance Office are each actively engaged in reviewing and considering proposed insurer risk-based capital standards, risk analysis, solvency assessments and other regulatory initiatives.

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Chaucer

Chaucer is regulated by both the Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”), who together have responsibility for the U.K. financial services industry, including insurers, insurance intermediaries and the Lloyd’s market. The PRA is responsible for the prudential supervision of, among other financial institutions, the Lloyd’s market, with a particular focus on financial stability. The FCA focuses on conduct of business issues, with a particular focus on consumer protection and market integrity. In addition, Chaucer is supervised by the Council of Lloyd’s, which is the franchisor for all Lloyd’s operations.

The PRA, FCA and Council of Lloyd’s have common objectives in ensuring the appropriate regulation of the Lloyd’s market and, to minimize duplication, the PRA and FCA have arrangements with Lloyd’s for co-operation on supervision and enforcement. Lloyd’s, which is regulated by both the PRA and FCA, has responsibility under the Lloyd’s Act 1982 (“the Lloyd’s Act”) for the implementation of certain PRA and FCA prescribed rules relating to the operation of the Lloyd’s market. Lloyd’s prescribes, in respect of its managing agents and corporate members, minimum standards relating to their management and control, solvency and various other requirements. The PRA and FCA directly monitor compliance of Lloyd’s managing agents with the systems and controls that Lloyd’s prescribes.

The Council of Lloyd’s has wide discretionary powers to regulate Lloyd’s underwriting. For example, it may change the basis of allocation for syndicate expenses or the capital requirements for syndicate participations. Exercising any of these powers might affect the return on an investment of the corporate member, such as Chaucer, in a given underwriting year. In addition, the annual business plans of each syndicate are subject to the review and approval of the Lloyd’s Franchise Board, which is responsible for business planning and monitoring for all syndicates.

We participate in the Lloyd’s market through our ownership of CSL, a managing agent with responsibility for the management of Syndicates 1084 and 1176, for which we provide capital to support their underwriting activities. Our membership in Lloyd’s requires us to comply with its bylaws and regulations, the Lloyd’s Act and the applicable provisions of the Financial Services and Markets Act of 2000. These include the requirement to provide capital (referred to as “Funds at Lloyd’s”) in the form of cash, securities or letters of credit in an amount agreed with by Lloyd’s under the capital setting regime of the PRA. The completion of an annual capital adequacy exercise enables each corporate member to calculate the capital required. These requirements allow Lloyd’s to evaluate whether each corporate member has sufficient assets to meet its underwriting liabilities plus a required solvency margin.

If a corporate member of Lloyd’s is unable to meet its policyholder obligations, such obligations may be payable by the Lloyd’s Central Fund, which acts similar to a state guaranty fund in the U.S. If Lloyd’s determines that the Central Fund needs to be increased, it has the power to assess premium levies on all current Lloyd’s members. The Council of Lloyd’s has discretion to call or assess up to 3% of a member’s underwriting capacity as a Central Fund contribution.

Solvency II

The European Union (“E.U.”) has adopted a directive, known as Solvency II, covering capital requirements, risk management and regulatory reporting for insurance organizations that imposes economic risk-based solvency requirements across all E.U. member states that comprise three pillars. First, there are quantitative capital requirements, based on a valuation of the entire balance sheet of an insurance organization. Second, Solvency II requires insurance organizations to undertake a qualitative regulatory review, including governance, internal controls, enterprise risk management and the supervisory review process. Third, to enhance market discipline, insurance organizations must report their financial conditions to regulators. We believe that we are in compliance with this regulatory regime, which commenced January 1, 2016.

Other

In addition to the U.K. and E.U. regulations, Chaucer is subject to regulation in the U.S through the Lloyd’s market. The Lloyd’s market has licenses to engage in insurance business in Illinois, Kentucky and the U.S. Virgin Islands and operates as an eligible excess and surplus lines insurer in all other states and territories. Lloyd’s is also an accredited reinsurer in all states and territories. Lloyd’s maintains various trust funds in the state of New York to protect its U.S. business and is subject to regulation by the New York Insurance Department, which acts as the domiciliary department for Lloyd’s U.S. trust funds. There are also deposit trust funds in other U.S. states to support Lloyd’s excess and surplus lines insurance and reinsurance business.

See also Note 18 — “Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K.

INVOLUNTARY RESIDUAL MARKETS

As a condition of our license to write business in various domestic states and international jurisdictions, we are required to participate in mandatory property and casualty residual market mechanisms which provide insurance coverages where such coverage may not otherwise be available at rates deemed reasonable. Such mechanisms provide coverage primarily for personal and commercial property, personal and commercial automobile, and workers’ compensation, and include assigned risk plans, reinsurance facilities and involuntary pools, joint underwriting associations, fair access to insurance requirements (“FAIR”) plans, and commercial automobile insurance plans.

For example, since most states compel the purchase of a minimal level of automobile liability insurance, states have developed shared market mechanisms to provide the required coverages and in many cases, optional coverages, to those drivers who, because of their driving records or other factors, cannot find insurers who will insure them voluntarily. Also, FAIR plans and other similar property insurance shared market mechanisms increase the availability of property insurance in circumstances where homeowners are unable to obtain insurance at rates deemed reasonable, such as in coastal areas or in areas subject to other hazards. Licensed insurers writing business in such states are often required to pay assessments to cover reserve deficiencies generated by such plans.

With respect to FAIR plans and other similar property insurance shared market mechanisms that have significant exposures, it is difficult to accurately estimate our potential financial exposure for future events. Assessments following a large coastal event, particularly one affecting Massachusetts, Florida, Louisiana or New York, could be material to our results of operations. Our participation in such shared markets or pooling mechanisms is generally proportional to our direct writings for the type of coverage written by the specific pooling mechanism in the applicable state or other jurisdiction. For example, we are subject to mandatory participation in the Michigan Assigned Claims (“MAC”) facility. MAC is an assigned claim plan covering people injured in uninsured motor vehicle accidents. Our participation in the MAC facility is based on our share of personal and commercial automobile direct written premium in the state and resulted in underwriting losses of $11.7 million in 2016, $12.1 million in 2015 and $11.7 million in 2014. There were no other mandatory residual market mechanisms that were significant to our 2016, 2015 or 2014 results of operations.

RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Reference is made to “Results of Operations - Segments – Reserve for Losses and Loss Adjustment Expenses” of Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K.

The following table reconciles reserves determined in accordance with accounting practices prescribed or permitted by U.S. insurance statutory authorities (“U.S. Statutory”) and the U.K. financial services regulatory authorities (“U.K. Statutory”) for our domestic and Chaucer operations, respectively, to reserves determined in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The primary difference between the U.S. Statutory reserves and our U.S. GAAP reserves is the requirement, on a U.S. GAAP basis, to present reinsurance recoverables as an asset, whereas U.S. Statutory guidance provides that reserves are reflected net of the corresponding reinsurance recoverables. There are no significant differences between U.K. Statutory reserves and our U.S. GAAP reserves. We do not use discounting techniques in establishing U.S. GAAP reserves for losses and LAE, nor have we participated in any loss portfolio transfers or other similar transactions.

DECEMBER 31		2016		2015		2014
(in millions)
U.S. Statutory reserve for losses and LAE	$	3,402.1	$	2,995.6	$	2,819.0
U.K. Statutory reserve for losses and LAE		2,289.4		2,369.4		2,421.0
Total Statutory reserve for losses and LAE		5,691.5		5,365.0		5,240.0
U.S. GAAP adjustments:
Reinsurance recoverables on unpaid losses of our U.S.
insurance subsidiaries		1,349.2		1,295.3		1,256.3
Reserves for discontinued operations		(88.8)		(89.2)		(113.6)
Other		(2.5)		3.3		9.0
U.S. GAAP reserve for losses and LAE	$	6,949.4	$	6,574.4	$	6,391.7

Reserves for discontinued operations of our U.S. insurance subsidiaries are included in liabilities of discontinued operations for U.S. GAAP and loss and loss adjustment expenses for Statutory reporting.

ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE RESERVE DEVELOPMENT

Information regarding loss and loss adjustment expense reserve development appears in Note 17 – “Liabilities For Outstanding Claims, Losses and Loss Adjustment Expenses” in the Notes to Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K.

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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 Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K, 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. The process for establishing reserves is subject to considerable variability and requires the use of informed estimates and judgments. Important details, such as specific loss development expectations for particular years, events or individual insurance contracts cannot be determined by analyzing the highly summarized information provided within this annual report.  In addition to analyzing loss data and development patterns at a more granular level, we incorporate additional information into our reserving process, such as pricing and market conditions, the presence or absence of large losses including catastrophes, changes in our business mix, including the split of short-tailed and long-tailed classes of business, and other factors.  In this regard, a mechanical application of standard actuarial methodologies in evaluating the adequacy of our reserves and extrapolating future favorable or unfavorable development would not be appropriate, in particular as it relates to Chaucer. 

Additionally, due to the highly specialized nature of the Lloyd’s business, many of our business classes at Chaucer are characterized by low frequency, but potentially high severity loss events.   This results in claims experience and development patterns that are less predictable and more volatile than most of our domestic Personal and Commercial lines businesses. In addition, Chaucer’s reinsurance business and high excess property layers often experience delays in claim reporting which increases the risk of delayed recognition of loss reserve development. Thus additional knowledge and understanding of the exposures and often complex underlying claims issues is required to arrive at a reliable reserve.  Also, the composition of the Chaucer portfolio has changed meaningfully throughout the period since our acquisition in 2011, making historical reserve development patterns less relevant to our current business mix.  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.

REINSURANCE

Reinsurance Program Overview

We maintain ceded reinsurance programs designed to protect against large or unusual loss and LAE activity. We utilize a variety of reinsurance agreements, which are intended to control our individual policy and aggregate exposure to large property and casualty losses, stabilize earnings and protect capital resources. These programs include facultative reinsurance (to limit exposure on a specified policy); specific excess and proportional treaty reinsurance (to limit exposure on individual policies or risks within specified classes of business); and catastrophe excess of loss reinsurance (to limit exposure to any one event that might impact more than one individual contract). Catastrophe reinsurance protects us, as the ceding insurer, from significant losses arising from a single event including, among others, hurricanes, tornadoes and other windstorms, earthquakes, hail, severe winter weather, fire, explosions and terrorism. We determine the appropriate amount of reinsurance based upon our evaluation of the risks insured, exposure analyses prepared by consultants, our risk appetite and on market conditions, including the availability and pricing of reinsurance.

We cede to reinsurers a portion of our risk based upon insurance policies subject to such reinsurance. Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to us. We believe that the terms of our reinsurance contracts are consistent with industry practice in that they contain standard terms with respect to lines of business covered, limit and retention, arbitration and occurrence. We believe our reinsurers are financially sound, based upon our ongoing review of their financial statements, financial strength ratings assigned to them by rating agencies, their reputations in the reinsurance marketplace, our collections history, advice from third parties, and the analysis and guidance of our reinsurance advisors.

Although we exclude coverage of nuclear, chemical or biological events from the Personal Lines and Commercial Lines policies we write in the U.S., we are statutorily required to provide this coverage in our workers’ compensation policies. We have workers’ compensation reinsurance coverage under our casualty reinsurance treaty of approximately $80 million for terrorism losses, limited to approximately $10 million for losses that result from nuclear, chemical or biological events. All other U.S.-based exposure or treaties exclude such coverage. Further, under TRIPRA, our retention of U.S. domestic losses in 2017 from such events, if deemed certified terrorist events, is limited to 17% of losses in excess of an approximate $396 million deductible, up to a combined annual aggregate limit for the federal government and all insurers of $100 billion. Such events could be material to our financial position or results of operations. See “Terrorism” for additional information.

Reference is made to Note 16 — “Reinsurance” in the Notes to Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K. Reference is also made to “Involuntary Residual Markets”.

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Commercial and Personal Lines

Our 2017 reinsurance program for our Commercial Lines and Personal Lines segments is substantially consistent with our 2016 program design. The following discussion summarizes both our 2016 and 2017 reinsurance programs for our Commercial Lines and Personal Lines segments (excluding coverage available under the U.S. federal terrorism program which is described under “Terrorism”), but does not purport to be a complete description of the program or the various restrictions or limitations which may apply:

· Our Commercial Lines and Personal Lines segments were primarily protected by a property catastrophe occurrence treaty, a property per risk excess of loss treaty, as well as a casualty excess of loss treaty, with retentions of $200 million, $2 million, and $2 million, respectively. We have lower retentions in place for certain lines, as discussed below.

· The property catastrophe occurrence treaty provides coverage, on an occurrence basis, up to $1.1 billion countrywide, less a $200 million retention, with no co-participation, for all defined perils.

· The property per risk excess of loss treaty provides coverage, on a per risk basis, up to $100 million, less a $2 million retention, with no co-participations.

· The casualty excess of loss treaty provides coverage, on a per occurrence basis for each loss, up to $75 million less a $2 million retention, with no co-participation. Umbrella and excess liability lines share coverage with casualty lines within the $2 million to $10 million layers, subject to a maximum umbrella limit of $5 million. There is also separate umbrella and excess liability only coverage that provides protection for the $5 million to $25 million layer. The casualty program provides coverage for management liability and healthcare lines in a $1 million to $2 million layer, with co-participation of 50% for management liability.

· For 2016 and 2017, Commercial Lines segments are further protected by excess of loss treaty agreements for specific lines of business. For example, the surety and fidelity bond excess of loss treaty provides coverage, on a per principal basis, up to $40 million, less a $5 million retention, with co-participations ranging from 5% to 30% for individual layers placed within the treaty.

· In addition to certain layers of coverage from our Commercial and Personal Lines segment reinsurance program as described above, the Commercial Lines AIX Holdings, Inc. (“AIX”) program business also includes surplus share, quota share, excess of loss, facultative and other forms of reinsurance that cover the writings from AIX specialty and proprietary programs. There are approximately 48 different AIX programs, and the reinsurance structure is customized to fit the exposure profile for each program.

Our intention is to renew the surety and fidelity bond treaty, the property per risk excess of loss treaty and the property catastrophe treaty in July 2017 with the same or similar terms and conditions, but there can be no assurance that we will be able to maintain our current levels of reinsurance, pricing and terms and conditions. Our 2017 casualty excess of loss treaty is effective January 1, 2017 for a twelve month period.

Chaucer

Chaucer’s 2017 reinsurance program is substantially consistent with the 2016 program design. The 2016 and 2017 Chaucer reinsurance programs contain a combination of reinsurance treaties that either provide coverage across several lines or are specific to individual lines of business or classes of business within certain lines. Generally, for each line or class of Chaucer’s business, there are a variety of proportional, excess of loss (mainly occurrence basis), facultative and other treaty forms, which work in conjunction to manage against severity, and to a certain extent, frequency. Chaucer’s 2017 net retentions are generally consistent with the 2016 levels.

The Chaucer programs described below are substantially in place as of February 1, 2017 and we expect to implement throughout the year any remaining parts of the program as described; however, there can be no assurances that we will be successful in placing reinsurance for each line as planned. The following discussion summarizes both our 2016 and 2017 reinsurance programs for the Chaucer segment, but does not purport to be a complete description of the program or the various restrictions or limitations which may apply. The limit figures below are presented net of treaty co-participation.

We purchase proportional and non-proportional reinsurance, which is intended to provide sufficient underwriting capacity to effectively conduct business in the Lloyd’s market and to protect against frequency and severity of losses.

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For the property lines reinsurance coverage in 2016 and 2017:

· The direct property catastrophe occurrence reinsurance for selected international territories provides coverage up to approximately $44 million and $45 million, respectively, less retentions of approximately $8 million for both years.

· The assumed property catastrophe reinsurance for selected international territories provides coverage up to approximately $108 million and $140 million, less retentions of approximately $19 million and $15 million, respectively. Additionally, the assumed property catastrophe occurrence reinsurance for the United States provides coverage up to approximately $114 million and $150 million, respectively, less retentions of approximately $25 million for both years.

· The direct property per risk excess of loss reinsurance provides coverage up to approximately $10 million and $15 million, respectively, less retentions of approximately $3 million for both years.

· The assumed property per risk excess of loss reinsurance provides coverage up to approximately $10 million for both years, less retentions of approximately $5 million for both years.

The casualty direct and facultative portfolio has reinsurance coverage in 2016 and 2017 of up to approximately $38 million and $50 million, respectively, less a retention of approximately $2 million for both years. The US casualty treaty portfolio has workers’ compensation catastrophe reinsurance coverage of up to $78 million in 2016 and 2017, less a retention of $8 million for both years.

For the energy, marine and aviation lines reinsurance coverage in 2016 and 2017:

· The nuclear energy lines occurrence reinsurance provides coverage up to approximately $163 million and $174 million, less retentions of approximately $42 million and $46 million, respectively, at consistent rates of exchange. 

· The non-nuclear energy lines occurrence reinsurance provides coverage up to approximately $140 million and $130 million, less retentions of approximately $15 million and $13 million, respectively.

· The direct marine lines excess of loss reinsurance provides coverage, on a per occurrence basis, up to approximately $102 million and $105 million, respectively, less retentions of approximately $5 million for both years.

· The assumed marine excess of loss reinsurance provides coverage, on an occurrence basis, up to approximately $37 million and $42 million, respectively, less retentions of approximately $6 million for both years. 

· The direct political violence lines reinsurance provides coverage, on a per occurrence basis, up to approximately $107 million and $115 million, respectively, less retentions of approximately $8 million for both years.

· The direct political risks lines reinsurance provides coverage on a per risk basis, up to approximately $13 million and $15 million, respectively, less retentions of $3 million for both years. The direct credit lines reinsurance provides coverage on a per risk basis, up to approximately $7 million and $8 million, respectively, less retentions of $3 million for both years. In addition, event coverage is provided for both lines of business up to $33 million, less retentions of $13 million for both years.

· The aviation lines reinsurance provides coverage, on a per occurrence basis, up to approximately $63 million and $68 million, respectively, less retentions of approximately $3 million for both years.

For Chaucer’s 2016 U.S. casualty treaty lines, we have entered into a whole account aggregate excess of loss contract.  The contract covers the U.S. casualty treaty lines exposures, except specialty risks and workers’ compensation clash, and provides coverage up to a 117% loss ratio, less retention of a 47% loss ratio. This contract does not meet the risk transfer requirements of GAAP and is accounted for using the deposit accounting method.  The deposit asset for this contract was approximately $28 million as of December 31, 2016. For 2017, we expect to renew this treaty with similar coverage, terms and conditions and will evaluate whether it meets risk transfer requirements at the time of placement.

Reinsurance Recoverables

Other than our investment portfolio, the single largest asset class is our reinsurance receivables, which consist of our estimate of amounts recoverable from reinsurers with respect to losses incurred to date (including losses incurred but not reported) and unearned premiums, net of amounts estimated to be uncollectible. This estimate depends upon a number of factors, including an estimate of the amount of reserves attributable to business written in various lines and in various years. This estimate is expected to be revised at each reporting period and such revisions, which could be material, affect our results of operations and financial position. Reinsurance recoverables include amounts due from both United States and state mandatory reinsurance or other risk sharing mechanisms, and private reinsurers to whom we have voluntarily ceded business.

We are subject to concentration of risk with respect to reinsurance ceded to various mandatory residual markets, facilities and pooling mechanisms. As a condition to conduct business in various states, we are required to participate in residual market mechanisms, facilities and pooling arrangements which usually are designed to provide insurance coverages to individuals or other entities that are otherwise unable to purchase such coverage voluntarily or at rates deemed reasonable. These market mechanisms, facilities and pooling arrangements comprise $925.9 million of our total reinsurance recoverables on paid and unpaid losses and unearned premiums at December 31, 2016 and include, among others, the Michigan Catastrophic Claims Association (“MCCA”).

The MCCA is a mandatory reinsurance association which reinsures claims under Michigan’s unlimited personal injury protection coverage which is required under all Michigan automobile insurance policies. The MCCA reinsures all such claims in excess of a statutorily established company retention, currently $545,000. Funding for MCCA comes from assessments against automobile insurers based upon their share of insured automobiles in the state. Insurers are allowed to pass along this cost to Michigan automobile policyholders. This recoverable accounted for 64% of our total personal automobile gross reserves at December 31, 2016 and 2015. Reinsurance recoverables related to MCCA were $911.2 million and $906.5 million at December 31, 2016 and 2015, respectively. Because the MCCA is supported by assessments permitted by statute, and there have been no significant uncollectible balances from MCCA identified during the three years ending December 31, 2016, we believe that we have no significant exposure to uncollectible reinsurance balances from this entity.

In addition to the reinsurance ceded to various residual market mechanisms, facilities and pooling arrangements we have $1,685.9 million of reinsurance assets due from traditional reinsurers as of December 31, 2016. These amounts are due principally from highly-rated reinsurers, defined as rated A- or higher by A.M. Best Rating Agency or other equivalent rating. The following table displays balances recoverable from our ten largest reinsurance groups at December 31, 2016, along with the group’s rating from the indicated rating agency. The contractual obligations under reinsurance agreements are typically with individual subsidiaries of the group or syndicates at Lloyd’s and are not typically guaranteed by other group members or syndicates at Lloyd’s. Reinsurance recoverables are comprised of paid losses recoverable, outstanding losses recoverable, incurred but not reported losses recoverable, and ceded unearned premium.

REINSURERS	A.M.  Best Rating		Reinsurance Recoverable
(in millions)
Lloyd's Syndicates	A	$	506.8
Munich Reinsurance Companies	A+		160.2
HDI Group	A		137.9
Alleghany Corporation	A		102.9
XL Group PLC	A		97.6
Swiss Re Ltd.	A+		68.7
Partner Re Ltd. Companies	A		63.0
Toa Reinsurance Company Ltd.	A+		57.4
Third Point Reinsurance Ltd.	A-		54.4
Aspen Insurance Holdings Ltd.	A		34.6
Subtotal			1,283.5
All other reinsurers			402.4
Residual markets, facilities and pooling arrangements			925.9
Total		$	2,611.8

Reinsurance recoverable balances in the table above are shown before consideration of balances owed to reinsurers and any potential rights of offset, including collateral held by us, and are net of an allowance for uncollectible recoverables. Reinsurance treaties are generally purchased on an annual basis. Treaties typically contain provisions that allow us to demand that a reinsurer post letters of credit or assets as security if a reinsurer is an unauthorized reinsurer under applicable regulations or if its rating falls below a predetermined contractual level. In regards to reinsurance recoverables due from Lloyd’s Syndicates, as part of the Lloyd’s “chain of security” afforded to all of its policyholders, recourse is available to the Lloyd’s Central Fund in the event of the failure of an individual syndicate and its capital providers.

Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate our obligation to pay claims to our policyholders. Accordingly, we bear credit risk with respect to our reinsurers. Specifically, our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all of these claims. In addition, from time to time insurers and reinsurers may disagree on the scope of the reinsurance or on the underlying insured risks. Any of these events would increase our costs and could have a material adverse effect on our business.

We have established a reserve for uncollectible reinsurance of $13.1 million as of December 31, 2016, or 0.5% of the total reinsurance recoverable balance, which was determined by considering reinsurer specific default risk on paid and unpaid recoverables as indicated by their financial strength ratings, any ongoing solvency issues, any current risk of dispute on paid recoverables, our collection experience and the development of our ceded loss reserves. There have been no significant balances determined to be uncollectible and thus no significant charges recorded during 2016 for uncollectible reinsurance recoverables.

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Our exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets. When reinsurance for our Commercial and Personal Lines segments is placed, our standards of acceptability generally require that a reinsurer must have a minimum policyholder surplus of $500 million, a rating from A.M. Best and/or S&P of “A” or better, or an equivalent financial strength if not rated. Similarly, the Chaucer segment generally requires all reinsurers to have a rating from S&P of “A-” or better and minimum level of net assets of $500 million. In addition, for lower rated reinsurers, certain reinsurers for our United States insurance operations that have not been granted authorized status by an insurance company’s state of domicile, and in certain other circumstances, reinsurers must generally provide collateral equal to 100% of estimated reinsurance recoverables. The collateral can serve to mitigate credit risk.

DISCONTINUED OPERATIONS

Discontinued operations primarily include our former life insurance businesses, which were sold prior to 2009, and our discontinued accident and health business.

Our former life insurance businesses include indemnity obligations for which we have established reserves.

The discontinued accident and health business includes interests in 25 accident and health reinsurance pools and arrangements that we retained subsequent to the sale of First Allmerica Financial Life Insurance Company (“FAFLIC”), all of which were assumed by Hanover Insurance in connection with the transaction. We ceased writing new premiums in this business in 1999, subject to certain contractual obligations. The reinsurance pool business consists primarily of the medical and disability portions of workers’ compensation risks, long-term care, assumed personal accident, individual medical, long-term disability, and special risk business. This business also includes residual health insurance policies. Total claim reserves for the assumed accident and health business were $88.4 million at December 31, 2016, net of recoverables from third-party reinsurers of  $0.4  million at December 31, 2016. Assets and liabilities related to the discontinued accident and health business are reflected as assets and liabilities of discontinued operations.

Loss estimates associated with substantially all of the discontinued accident and health business are provided by managers of each pool. We adopt reserve estimates for this business that consider this information, expected returns on assets assigned to this business and other facts. We update these reserves as new information becomes available and further events occur that may affect the ultimate resolution of unsettled claims. We believe that the reserves recorded related to this business are adequate. However, since reserve and loss cost estimates related to the discontinued accident and health business are dependent on several assumptions, including, but not limited to, future health care costs, persistency of medical care inflation, investment performance, claims, particularly in the long-term care business, morbidity and mortality assumptions, and these assumptions can be impacted by technical developments and advancements in the medical field and other factors, there can be no assurance that the reserves established for this business will prove sufficient. Revisions to these reserves could have a material adverse effect on our results of operations for a particular quarterly or annual period or on our financial position.

Discontinued operations, in total, generated a net loss of $1.0 million during 2016, primarily related to our discontinued accident and health business.

INVESTMENT PORTFOLIO

We held $8.7 billion of investment assets, including cash and cash equivalents, at December 31, 2016. Approximately 84% of our investment assets were comprised of fixed maturities, which included both investment grade and below investment grade public and private debt securities; 7% consisted of equity securities;6% included other investments which consisted primarily ofmortgage participations, limited partnershipsand overseas deposits; and the remaining 3% were comprised of cash and cash equivalents. These investments are generally of high quality and our fixed maturities and equities are broadly diversified across sectors of the fixed income and equity markets.

Opus manages our investment portfolio, including the selection and monitoring of external asset managers for our non-U.S. dollar fixed maturity portfolios, U.S. commercial mortgage loan participations and certain other investments. Our overall investment strategy is intended to balance investment income with credit and interest rate risk, while maintaining sufficient liquidity and providing the opportunity for capital growth. The asset allocation process takes into consideration the types of business written and the level of surplus required to support our different businesses and the risk return profiles of the underlying asset classes. We look to balance the goals of capital preservation, net investment income stability, liquidity and total return. For certain portfolios in which fixed maturities are denominated in U.K. pounds sterling and Euros, we employ two external asset managers with international market expertise to manage these portfolios.  Assets managed by these asset managers totaled approximately $298 million of non-U.S. dollar-denominated investments at December 31, 2016. We select and monitor managers based on investment style, performance and corporate governance.

The majority of our assets are invested in the fixed income markets. Through fundamental research and credit analysis, with a focus on value investing, we seek to identify a portfolio of stable income-producing higher quality U.S. government, foreign government, municipal, corporate, residential and commercial mortgage-backed securities and asset-backed securities. We have a general policy of diversifying investments both within and across major investment and industry sectors to mitigate credit and interest rate risk. We monitor the credit quality of our investments and our exposure to individual markets, borrowers, industries, sectors and, in the case ofcommercial mortgage-backed securities and commercial mortgage loan participations, property types and geographic locations.

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Investments held by our insurance subsidiaries are subject to diversification requirements under state insurance laws and other regulatory requirements. The investment portfolio duration is approximately 4.5 years and is generally maintained in the range of 1 to 2 times the duration of our insurance liabilities. We seek to maintain sufficient liquidity to support our cash flow requirements by monitoring the cash requirements associated with our insurance and corporate liabilities, laddering the maturities within the portfolio, closely monitoring our investment durations, holding high quality liquid public securities and managing the purchases and sales of assets.

Reference is made to “Investments” in Management’s Discussion and Analysis of the Financial Condition and Results of Operations of this Form 10-K.

RATING AGENCIES

Insurance companies are rated by rating agencies to provide both industry participants and insurance consumers information on specific insurance companies. Higher ratings generally indicate the rating agencies’ opinion regarding financial stability and a stronger ability to pay claims.

We believe that strong ratings are important factors in marketing our products to our agents and customers, since rating information is broadly disseminated and generally used throughout the industry. We believe that a rating of “A-” or higher from A.M. Best Co. is particularly important for our business. Insurance company financial strength ratings are assigned to an insurer based upon factors deemed by the rating agencies to be relevant to policyholders and are not directed toward protection of investors. Such ratings are neither a rating of securities nor a recommendation to buy, hold or sell any security.

EMPLOYEES

As of December 31, 2016, we had approximately 4,900 employees, with approximately 4,500 located in the United States, and 400 internationally, almost all of whom are located in the United Kingdom. We believe our relations with employees are good.

EXECUTIVE OFFICERS OF THE REGISTRANT

Reference is made to “Directors and Executive Officers of the Registrant” in Part III - Item 10 of this Form 10-K.

AVAILABLE INFORMATION

We file our annual report on Form 10-K, quarterly reports on Form 10-Q, periodic information on Form 8-K, our proxy statement, and other required information with the Securities and Exchange Commission (“SEC”). Shareholders may read and copy any materials on file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Shareholders may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website, http://www.sec.gov, which contains reports, proxy and information statements and other information with respect to our filings.

Our website address is http://www.hanover.com. We make available free of charge on or through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Additionally, our Code of Conduct is available, free of charge, on our website. Our Corporate Governance Guidelines and the charters of our Audit Committee, Compensation Committee, Committee of Independent Directors and Nominating and Corporate Governance Committee, are available on our website. All documents are also available in print to any shareholder who requests them.

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ITEM 1A–RISK FACTORS

RISK FACTORS AND FORWARD LOOKING STATEMENTS

We wish to caution readers that the following important factors, among others, 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 forward-looking statements made from time to time by us on the basis of our then-current expectations. When used in this Form 10-K, the words “believes”, “anticipates”, “expects”, “projections”, “outlook”, “should”, “could”, “plan”, “guidance”, “likely”, “on track to”, “targeted” and similar expressions are intended to identify forward-looking statements. Our businesses are in rapidly changing and competitive markets and involve a high degree of risk and unpredictability. Forward-looking projections are subject to these risks and unpredictability.

Our results may fluctuate as a result of cyclical or non-cyclical changes in the property and casualty insurance industry.

The property and casualty insurance industry historically has been subject to significant fluctuations and uncertainties. Our profitability is affected significantly by the following items:

· increases in costs, particularly increases occurring after the time our insurance products are priced, including construction, automobile repair, and medical and rehabilitation costs. This includes “cost shifting” from health insurers to casualty and liability insurers (whether as a result of an increasing number of injured parties without health insurance, coverage changes in health policies to make such coverage secondary to casualty policies, the implementation or repeal of national healthcare legislation, lower reimbursement rates for the same procedure by health insurers or government-sponsored insurance, or the implementation of the Medicare Secondary Payer Act, which imposes reporting and other requirements with respect to medical and related claims paid for Medicare eligible individuals). As it relates to construction, there are often temporary increases in the cost of building supplies and construction labor after a significant event (for example, so called “demand surge” that causes the cost of labor, construction materials and other items to increase in a geographic area affected by a catastrophe). In addition, we are limited in our ability to negotiate and manage reimbursable expenses incurred by our policyholders;

· competitive and regulatory pressures, which affect the prices of our products and the nature of the risks covered;

· volatile and unpredictable developments, including severe weather, catastrophes, terrorist actions and global conflicts;

· legal, regulatory and socio-economic developments, such as new theories of insured and insurer liability and related claims and extra-contractual awards such as punitive damages, and increases in the size of jury awards or changes in applicable laws and regulations (such as changes in the thresholds affecting “no fault” liability or when non-economic damages are recoverable for bodily injury claims or coverage requirements);

· fluctuations in interest rates, inflationary pressures, default rates, commodity prices, foreign exchange rates and other factors that affect net income, including with respect to investment returns and operating results for certain of our lines of business such as trade credit; and

· other general economic conditions and trends that may affect the adequacy of reserves.

The demand for property and casualty insurance can also vary significantly based on general economic conditions (either nationally or regionally and, with respect to our Chaucer segment, internationally), rising as the overall level of economic activity increases and falling as such activity decreases. Loss patterns also tend to vary inversely with local economic conditions, increasing during difficult or unstable economic times and moderating during economic upswings or periods of stability. The fluctuations in demand and competition could produce unpredictable underwriting results.

Actual losses from claims against our property and casualty insurance subsidiaries may exceed their reserves for claims.

Our property and casualty insurance subsidiaries maintain reserves to cover their estimated ultimate liability for losses and loss adjustment expenses with respect to reported and unreported claims incurred as of the end of each accounting period. Reserves do not represent an exact calculation of liability. Rather, reserves represent estimates, involving actuarial projections and judgments at a given time, of what we expect the ultimate settlement and administration of incurred claims will cost based on facts and circumstances then known, predictions of future events, estimates of future trends in claims frequency and severity and judicial theories of liability, costs of repair and replacement, legislative activity and myriad other factors.

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The inherent uncertainties of estimating reserves are greater for certain types of property and casualty insurance lines. These include automobile bodily injury liability, automobile personal injury protection, and workers’ compensation, where a longer period of time may elapse before a definitive determination of ultimate liability may be made, environmental liability, where the technological, judicial and political climates involving these types of claims are continuously evolving, and casualty coverages such as professional liability. There is also greater uncertainty in establishing reserves with respect to new business, particularly new business that is generated with respect to newer product lines, such as our management and professional liability, healthcare, and cyber-risk lines by newly appointed agents or in geographies where we have less experience in conducting business. In these cases, there is less historical experience or knowledge and less data upon which the actuaries can rely. Estimating reserves is further complicated by unexpected claims or unintended coverages that emerge due to changing conditions. These emerging issues may increase the size or number of claims beyond our underwriting intent and may not become apparent for many years after a policy is issued. These losses are reflected as prior year reserve development. Although we undertake underwriting actions designed to limit losses once emerging issues are identified, we remain subject to losses on policies issued during those years preceding the underwriting actions.

Additionally, the introduction of new Commercial Lines products, including through several acquired subsidiaries, the development of new niche and specialty lines and the introduction of new or expanded lines of business at Chaucer, present new risks. Certain new specialty products, such as the human services program, non-profit directors and officers liability and employment practices liability policies, lawyers and other professional liability policies, healthcare lines and private company directors and officers coverage may also require a longer period of time (the so-called “tail”) to determine the ultimate liability associated with the claims and may produce more volatility in our results and less certainty in our accident year reserves. Some lines of business, such as surety, are less susceptible to establishing reserves based on actuarial or historical experience and losses may be episodic, depending on economic and other factors.

We regularly review our reserving techniques, reinsurance and the overall adequacy of our reserves based upon, among other things:

· our review of historical data, legislative enactments, judicial decisions, legal developments in imposition of damages, changes in political attitudes and trends in general economic conditions;

· our review of per claim information;

· historical loss experience of our property and casualty insurance subsidiaries and the industry as a whole; and

· the terms of our property and casualty insurance policies.

Underwriting results and operating income could be adversely affected by further changes in our net loss and LAE estimates related to significant events or emerging risks, such as risks related to attacks on or breaches of computer network systems (“cyber-risks”), privacy regulations or disruptions caused by major power grid failures or widespread electrical and electronic equipment failure due to aging infrastructure, natural factors like hurricanes, earthquakes and solar flares or man-made factors like terrorism.

Estimating losses following any major catastrophe or with respect to emerging claims is an inherently uncertain process. Factors that add to the complexity of estimating losses from these events include the legal and regulatory uncertainty, the complexity of factors contributing to the losses, delays in claim reporting, and with respect to areas with significant property damage, the impact of “demand surge” and a slower pace of recovery resulting from the extent of damage sustained in the affected areas due, in part, to the availability and cost of resources to effect repairs. Emerging claims issues may involve complex coverage, liability and other costs which could significantly affect LAE. As a result, there can be no assurance that our ultimate costs associated with these events or issues will not be substantially different from current estimates (for example, actual losses arising from an event like Superstorm Sandy could have varied widely depending on the interpretation of various policy provisions). Investors should consider the risks and uncertainties in our business that may affect net loss and LAE reserve estimates and future performance, including the difficulties in arriving at such estimates.

Anticipated losses associated with business interruption exposure, the impact of wind versus water as the cause of loss, disputes over the extent of damage caused by hail storms, supplemental payments on previously closed claims caused by the development of latent damages or new theories of liability and inflationary pressures could also have a negative impact on future loss reserve development.

Because of the inherent uncertainties involved in setting reserves and establishing current and prior-year “loss picks”, including those related to catastrophes, we cannot provide assurance that the existing reserves or future reserves established by our property and casualty insurance subsidiaries will prove adequate in light of subsequent events. Our results of operations and financial condition could therefore be materially affected by adverse loss development for events that we insured in prior periods.

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Due to geographical concentration in our U.S. property and casualty business, changes in economic, regulatory and other conditions in the regions where we operate could have a significant negative impact on our business as a whole.  Geographic concentrations also expose us to losses that are potentially disproportionate to our market share in the event of natural or other catastrophes.

We generate a significant portion of our U.S. property and casualty insurance net premiums written and earnings in Michigan, Massachusetts and other states in the Northeast, including New York. For the year ended December 31, 2016, approximately 20% and 10% of our net premiums written in our U.S. property and casualty business were generated in the states of Michigan and Massachusetts, respectively. Many states in which we do business impose significant rate control and residual market charges, and restrict an insurer’s ability to exit such markets. The revenues and profitability of our property and casualty insurance subsidiaries are subject to prevailing economic, regulatory, demographic and other conditions, including adverse weather in Michigan and the Northeast. Because of our geographic concentration in certain regions, our business as a whole could be significantly affected by changes in the economic, regulatory and other conditions in such areas.

Further, certain new catastrophe models assume an increase in frequency and severity of certain weather events, whether as a result of potential global climate change or otherwise. Financial strength rating agencies are placing increased emphasis on capital and reinsurance adequacy for insurers with certain geographic concentrations of risk which may be subject to disproportionate risk of loss. These factors also may result in insurers seeking to diversify their geographic exposure, which could result in increased regulatory restrictions in those markets where insurers seek to exit or reduce coverage, as well as an increase in competitive pressures in less weather-exposed markets.

Our profitability may be adversely affected if our pricing models differ materially from actual results.

The profitability of our business depends on the extent to which our actual claims experience is consistent with the assumptions we use in pricing our policies. We price our business in a manner that is intended to be consistent, over time, with actual results and return objectives. Our estimates and models, and/or the assumptions behind them, may differ materially from actual results.

If we fail to appropriately price the risks we insure, fail to change or are too slow to change our pricing model to appropriately reflect our current experience, or if our claims experience is more frequent or severe than our underlying risk assumptions, our profit margins may be negatively affected. If we underestimate the frequency and/or severity of extreme adverse events occurring, our financial condition may be adversely affected. If we overestimate the risks we are exposed to, we may overprice our products, and new business growth and retention of our existing business may be adversely affected.

Limitations on the ability to predict the potential impact of weather events and catastrophes may impact our future profits and cash flows.

Our business is subject to claims arising out of catastrophes that may have a significant impact on our results of operations and financial condition. We may experience catastrophe losses that could have a material adverse impact on our business. Catastrophes can be caused by various events, including hurricanes, floods, earthquakes, tornadoes, wind, hail, fires, drought, severe winter weather, volcanic eruptions, tropical storms, tsunamis, sabotage, terrorist actions, explosions, nuclear accidents, solar flares, and power outages. The frequency and severity of catastrophes are inherently unpredictable.

The extent of gross losses from a catastrophe is a function of the total amount of insured exposure in the area affected by the event and the severity of the event. The extent of net losses depends on the amount and collectability of reinsurance.

Additionally, the severity of certain catastrophes could be so significant that it impacts the ability of certain locations to recover their economic viability in the near term, which could also have a significant negative impact on our business.

Although catastrophes can cause losses in a variety of property and casualty lines, homeowners and commercial multiple peril property insurance have, in the past, generated the vast majority of our catastrophe-related claims. Our catastrophe losses have historically been principally weather-related, particularly from hurricanes, as well as snow and ice damage from winter storms. However, Chaucer’s international operations subject us to greater diversity in the types and geographic distribution of potential catastrophe losses. For example, Chaucer incurred catastrophe losses in 2016 from wildfires in Canada and earthquakes in Ecuador and New Zealand, in 2015 from a port explosion in China andin 2014 from snowstorms in Japan, a hurricane in Mexico and tornado and hail storms in the U.S.

Although the insurance industry and rating agencies have developed various models intended to help estimate potential insured losses under thousands of scenarios, there is no reliable way of predicting the probability of such events or the magnitude of such losses before a specific event occurs. We utilize various models and other techniques in an attempt to measure and manage potential catastrophe losses within various income and capital risk appetites. However, such models and techniques have many limitations. In addition, due to historical concentrations of business, regulatory restrictions and other factors, our ability to manage such concentrations is limited, particularly in the Northeast and in the state of Michigan.

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We purchase catastrophe reinsurance as protection against catastrophe losses. Based upon an ongoing review of our reinsurers’ financial statements, financial strength ratings assigned to them by rating agencies, their reputations in the reinsurance marketplace, our collections history with them and the analysis and guidance of our reinsurance advisors, we believe that the financial condition of our reinsurers is sound. However, reinsurance is subject to counterparty risks, including those resulting from over-concentration of exposures within the industry. In setting our retention levels and coverage limits, we also consider our level of statutory surplus and exposures, as well as the current reinsurance pricing environment. Should we experience losses from one significant or several large catastrophes, there can be no assurance that our reinsurance program will provide adequate coverage levels.

Our business is dependent on our ability to manage risk, and the failure of the risk mitigation strategies we utilize could have a material adverse effect on our financial condition or results of operations.

Our business performance is highly dependent on our ability to manage operational risks that arise from a large number of day-to-day business activities, including insurance underwriting, claims processing, servicing, investment, financial and tax reporting, compliance with regulatory requirements and other activities. We utilize a number of strategies to mitigate our insurance risk exposure, including: engaging in thorough underwriting, utilizing limits, deductibles and exclusions to mitigate policy risk, reviewing the terms and conditions of our policies, focusing on our risk aggregation by product line, geography, industry type, credit exposure and other bases, and ceding insurance risk. We seek to monitor and control our exposure to risks arising out of these activities through an enterprise-wide risk management framework. However, there are inherent limitations in all of these tactics, and no assurance can be given that these processes and procedures will effectively control all known risks or effectively identify unforeseen risks or that an event or series of events will not result in loss levels in excess of our probable maximum loss models, which could have a material adverse effect on our financial condition or results of operations. It is also possible that losses could manifest themselves in ways that we do not anticipate and that our risk mitigation strategies are not designed to address. Such a manifestation of losses could have a material adverse effect on our financial condition or results of operations. These risks may be heightened during times of challenging macro economic conditions.

We cannot guarantee the adequacy of or ability to maintain our current level of reinsurance coverage.  

Similar to insurance companies, reinsurance companies can also be adversely impacted when catastrophes occur. There can be no assurance that we will be able to maintain our current levels of reinsurance coverage. In particular, and as discussed under “Reinsurance Program Overview” of this Form 10-K, not all of our 2017 reinsurance programs for the Commercial and Personal Lines and Chaucer business are fully placed. Future catastrophic events and other changes in the reinsurance marketplace, including as a result of investment losses or disruptions due to challenges in the financial markets that have occurred or could occur in the future, may adversely affect our ability to obtain such coverages, as well as adversely affect the cost of obtaining that coverage.

Additionally, the availability, scope of coverage, cost, and creditworthiness of reinsurance could continue to be adversely affected as a result of not only new catastrophes, but also terrorist attacks and the perceived risks associated with future terrorist activities, global conflicts, and the changing legal and regulatory environment (including changes which could create new insured risks). Federal reinsurance for terrorism risks coverage offered by insurers is available under TRIPRA, but it only applies to certified events of terrorism (as defined in TRIPRA) and contains certain caps and deductibles. Although TRIPRA coverage is in effect through December 31, 2020, should this program not be renewed or should it be modified unfavorably by the government in the future, private reinsurance for events of terrorism may not be available to us or available at reasonable or acceptable rates.

Although we monitor their financial soundness, we cannot be sure that our reinsurers will pay in a timely fashion, if at all.

We purchase reinsurance by transferring part of the risk that we have assumed (known as ceding) to reinsurance companies in exchange for part of the premium we receive in connection with the risk. As of December 31, 2016, our reinsurance receivable (including from the MCCA) amounted to approximately $2.6 billion. Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, it does not relieve us (the reinsured) of our liability to our policyholders or, in cases where we are a reinsurer, to our reinsureds. Accordingly, we bear counterparty risk with respect to our reinsurers. Although we monitor the credit quality of our reinsurers, we cannot be sure that they will pay the reinsurance recoverables owed to us currently or in the future or that they will pay such recoverables on a timely basis.

Climate change may adversely impact our results of operations.

There are concerns that the higher level of weather-related catastrophes and other losses incurred by the industry in prior years is indicative of changing weather patterns, whether as a result of climate-warming trends caused by human activities (“global climate change”) or otherwise, which could cause such events to persist. Increased weather-related catastrophes would lead to higher overall losses, which we may not be able to recoup, particularly in the current economic and competitive environment, and higher reinsurance costs. As noted above, certain catastrophe models assume an increase in frequency and severity of certain weather events, which could result in a disproportionate impact on insurers with certain geographic concentrations of risk. This would also likely increase the risks of writing property insurance in coastal areas, particularly in jurisdictions that restrict pricing and underwriting flexibility.

In addition, global climate change could have an impact on assets in which we invest, resulting in realized and unrealized losses in future periods that could have a material adverse impact on our results of operations and/or financial position. It is not possible to foresee which, if any, assets, industries or markets will be materially and adversely affected, nor is it possible to foresee the magnitude of such effect.

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We may incur financial losses resulting from our participation in shared market mechanisms, mandatory reinsurance programs and mandatory and voluntary pooling arrangements.

In most of the U.S. jurisdictions in which we operate, our property and casualty insurance subsidiaries are required to participate in mandatory property and casualty shared market mechanisms, government-sponsored reinsurance programs or pooling arrangements. These arrangements are designed to provide various insurance coverages to individuals or other entities that otherwise are unable to purchase such coverage or to support the costs of uninsured motorist claims in a particular state or region. We cannot predict whether our participation in these shared market mechanisms or pooling arrangements will provide underwriting profits or losses to us. For the year ended December 31, 2016, we experienced an underwriting loss of $12.7 million from participation in these mechanisms and pooling arrangements, compared to underwriting losses of $13.2 million and $15.1 million in 2015 and 2014, respectively. We may face similar or more significant earnings fluctuations in the future.

Additionally, increases in the number of participants or insureds in state-sponsored reinsurance pools, FAIR Plans or other residual market mechanisms, particularly in the states of Massachusetts, Florida, Louisiana and New York combined with regulatory restrictions on the ability to adequately price, underwrite, or non-renew business, as well as new legislation, or changes in existing case law, could expose us to significant exposures and risks of increased assessments from these residual market mechanisms. There could also be significant adverse impact as a result of losses incurred in those states due to hurricane exposure, as well as the declining number of carriers providing coverage in those regions. We are unable to predict the likelihood or impact of such potential assessments or other actions.

We also have credit risk associated with certain mandatory reinsurance programs such as the MCCA. The MCCA was created to fund Michigan’s unique unlimited personal injury protection benefit. As of December 31, 2016, our estimated reinsurance recoverable from the MCCA was $911.2 million. In most years, the MCCA operates with a deficit which may fluctuate significantly based on investment returns, discount rates, incurred claims, annual assessments and other factors.

In addition, we may be adversely affected by liabilities resulting from our previous participation in certain voluntary property and casualty assumed reinsurance pools. We have terminated participation in virtually all property and casualty voluntary pools, but remain subject to claims related to periods in which we participated. The property and casualty industry’s assumed reinsurance businesses have suffered substantial losses during the past several years, particularly related to environmental and asbestos exposure for property and casualty coverages, in some cases resulting from incidents alleged to have occurred decades ago. Due to the inherent volatility in these businesses, possible issues related to the enforceability of reinsurance treaties in the industry and the recent history of increased losses, we cannot provide assurance that our current reserves are adequate or that we will not incur losses in the future. Our operating results and financial position may be adversely affected by liabilities resulting from any such claims in excess of our loss estimates. As of December 31, 2016, our reserves for these pools totaled $40.0 million.

Our businesses are heavily regulated, and changes in regulation may reduce our profitability.

Our U.S. insurance businesses are subject to supervision and regulation by the state insurance authority in each state in which we transact business. This system of supervision and regulation relates to numerous aspects of an insurance company’s business and financial condition, including limitations on the authorization of lines of business, underwriting limitations, the ability to utilize credit-based insurance scores in underwriting, the ability to terminate agents, supervisory and liability responsibilities for agents, the setting of premium rates, the requirement to write certain classes of business which we might otherwise avoid or charge different premium rates, restrictions on the ability to withdraw from certain lines of business, the establishment of standards of solvency, the licensing of insurers and agents, compensation of agents, concentration of investments, levels of reserves, the payment of dividends, transactions with affiliates, changes of control, protection of private information of our agents, policyholders, claimants and others (which may include highly sensitive financial or medical information or other private information such as social security numbers, driving records, drivers license numbers, etc.) and the approval of policy forms. From time to time, various states and Congress have proposed to prohibit or otherwise restrict the use of credit-based insurance scores in underwriting or rating our Personal Lines business. The elimination of the use of credit-based insurance scores could cause significant disruption to our business and our confidence in our pricing and underwriting. Most insurance regulations are designed to protect the interests of policyholders rather than stockholders and other investors.

Legislative and regulatory restrictions are constantly evolving and are subject to then current political pressures. For example, following Superstorm Sandy, the states of New Jersey and New York were considering proposals such as homeowners’ “Bill of Rights”, restrictions on storm deductibles and additional mandatory claim handling guidelines. More recently, the California Insurance Commissioner requested that all insurers operating in California voluntarily divest from any investments they may have in thermal coal. Such actions also occur at the federal level, such as the U.S. Department of Housing and Urban Development’s proposal that may increase the legal risk of providing homeowners and commercial residential property insurance by imposing liability for discrimination on the basis of a disparate-impact theory even without any evidence of discriminatory intent. The prospects for this proposal under the current president’s administration are unknown at this time. Some states are also considering mandating owners of firearms to purchase liability insurance.

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In addition, The Dodd-Frank Wall Street Reform and Consumer Protection Act provides for enhanced regulation for the financial services industry through initiatives including, but not limited to, the creation of a Federal Insurance Office and several federal oversight agencies, the requiring of more transparency, accountability and focus in protecting investors and businesses, input of shareholders regarding executive compensation, and enhanced empowerment of regulators to pursue those who engage in financial fraud and unethical business practices. The prospects for these initiatives are in question since the last U.S. election. The SEC adopted regulations designed to encourage, reward, and protect “whistleblowers”, whether or not they first report the potential infraction to the company for correction or remedial action.

Also, the federal Medicare, Medicaid and SCHIP Extension Act mandates reporting and other requirements applicable to property and casualty insurance companies which make payments to or on behalf of claimants who are eligible for Medicare benefits. These requirements have made bodily injury claim resolutions more difficult, particularly for complex matters or for injuries requiring treatment over an extended period, and impose significant penalties for non-compliance and reporting errors. These requirements also have increased the circumstances under which the federal government may seek to recover from insurers amounts paid to claimants in circumstances where the government had previously paid benefits. In January 2013, the Strengthening Medicare and Repaying Taxpayers Act was signed into law and provided for implementation over a staggered period of time. We are continuing to monitor the effect of this law on our ability to settle cases and our exposure to federal recoupment claims.

With respect to our U.S. insurance business, state regulatory oversight and various proposals at the federal level may in the future adversely affect our ability to sustain adequate returns in certain lines of business or in some cases, operate the line profitably. In recent years, the state insurance regulatory framework has come under increased federal scrutiny, and certain state legislatures have considered or enacted laws that alter and, in many cases, increase state authority to regulate insurance companies and insurance holding company systems.

Our business could be negatively impacted by adverse state, federal and foreign legislation or regulation, or judicial developments, including those resulting in:

· decreases in rates;

· limitations on premium levels;

· coverage and benefit mandates;

· limitations on the ability to manage care and utilization or other claim costs;

· requirements to write certain classes of business or in certain geographies;

· restrictions on underwriting, on methods of compensating independent producers, or on our ability to cancel or renew certain business (which negatively affects our ability to reduce concentrations of property risks);

· higher liability exposures for our insureds;

· increased assessments or higher premium or other taxes; and

· enhanced ability to pierce “no fault” thresholds or recover non-economic damages (such as “pain and suffering”).

These regulations serve to protect the customers and other third parties who deal with us and are heavily influenced by the then current political environment. If we are found to have violated an applicable regulation, administrative or judicial proceedings may be initiated against us which could result in censures, fines, civil penalties (including punitive damages), the issuance of cease-and-desist orders, premium refunds or the reopening of closed claim files, among other consequences. These actions could have a material adverse effect on our financial position and results of operations.

From time to time, Congress, as well as state, local and foreign governments, also consider legislation that could increase our tax costs. For example,  organizations such as the Organization for Economic Cooperation and Development propose legislation to regulatory agencies that, if enacted, may have a material impact on our income tax provision. Additionally, the 2016 election results make U.S. tax reform more likely in the near future. This tax reform may include reductions in the U.S. corporate income tax rate, potential changes in the cost of cross border reinsurance, and changes to the tax base, which may impact our effective tax rate in future years, as well as the carrying value of our net deferred tax asset.

In addition, we are reliant upon independent agents and brokers to market our products. Changes in regulations related to insurance agents and brokers that materially impact the profitability of the agent and broker business or that restrict the ability of agents and brokers to market and sell insurance products would have a material adverse effect on our business.

With respect to our U.K. insurance business, Chaucer’s regulated subsidiaries are subject to the U.K.’s PRA and FCA regulations and are subject to limitations and approval requirements with respect to payments of dividends, return of capital and becoming a borrower, guarantor or provider of security interest on any financial obligations and other aspects of its operations.

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The PRA and FCA have substantial powers of intervention in relation to the Lloyd’s managing agents, such as Chaucer, which they regulate, including the power to remove their authorization to manage Lloyd’s syndicates. In addition, each year the PRA requires Lloyd’s to satisfy an annual solvency test that measures whether Lloyd’s has sufficient assets in the aggregate to meet all outstanding liabilities of its members, both current and run-off. If Lloyd’s fails this test, the PRA may require Lloyd’s to cease trading and/or its members to cease or reduce underwriting. The FCA focuses on conduct of business issues with a particular focus on consumer protection and market integrity. Future regulatory changes or rulings by the PRA and FCA could interfere with our business strategy or financial assumptions, possibly resulting in a material adverse effect on our profitability.

Additionally, the Lloyd’s worldwide insurance and reinsurance business is subject to various regulations, laws, treaties and other applicable policies of the European Union, as well as each nation, state and locality in which it operates. Material changes in governmental requirements and laws could have an adverse effect on Lloyd’s and its member companies, including Chaucer.

From time to time, we are also involved in investigations and proceedings by U.S., U.K., state and other governmental and self-regulatory agencies. We cannot provide assurance that these investigations, proceedings and inquiries will not result in actions that would adversely affect our results of operations or financial condition. 

As a specialist in Lloyd’s insurance group, Chaucer is subject to a number of risks which could materially and adversely affect us.

As a specialist in Lloyd’s insurance group, Chaucer is subject to a number of specific risk factors and uncertainties, including without limitation:

· its reliance on insurance and reinsurance brokers and Lloyd’s distribution channels to distribute and market its products (so called “coverholders”), including its reliance on four major brokers who each were responsible for ten percent or more of Chaucer’s gross written premium in 2016;

· its obligations to maintain funds at Lloyd’s to support its underwriting activities;

· its risk-based capital requirement being assessed periodically by Lloyd’s and being subject to variation;

· its reliance on ongoing approvals from Lloyd’s, the PRA and FCA and other regulators to conduct its business, including a requirement that its Annual Business Plan be approved by Lloyd’s before the start of underwriting for each account year;

· its obligations to contribute to the Lloyd’s Central Fund and pay levies to Lloyd’s;

· its financial strength rating is derived from the rating assigned to Lloyd’s, and Chaucer has very limited ability to directly affect the overall Lloyd’s rating;

· its ongoing ability to utilize Lloyd’s trading licenses in order to underwrite business outside the United Kingdom, including Chaucer’s ability to write business in the European market if the United Kingdom withdraws, as planned, from the European Union and Lloyd’s does not obtain alternative licensing permissions;

· its ongoing exposure to levies and charges in order to underwrite at Lloyd’s; and

· the requirement to maintain deposits in the United States for U.S. site risks it underwrites.

Whenever a member of Lloyd’s is unable to pay its policyholder obligations, such obligations may be payable by the Lloyd’s Central Fund. If Lloyd’s determines that the Central Fund needs to be increased, it has the power to assess premium levies on current Lloyd’s members up to 3% of a member’s underwriting capacity in any one year. We do not believe that any assessment is likely in the foreseeable future and have not provided allowance for such an assessment. However, based on our 2017 estimated underwriting capacity at Lloyd’s of £731.4 million, the December 31, 2016 exchange rate of 1.23 dollars per GBP and assuming the maximum 3% assessment, we could be assessed up to approximately $27.1 million in 2017.

We are subject to litigation risks, including risks relating to the application and interpretation of contracts, and adverse outcomes in litigation and legal proceedings could adversely affect our results of operations and financial condition.

We are subject to litigation risks, including risks relating to the application and interpretation of insurance and reinsurance contracts, and are routinely involved in litigation that challenges specific terms and language incorporated into property and casualty contracts, such as claims reimbursements, covered perils and exclusion clauses, among others, or the interpretation or administration of such contracts. We are also involved in legal actions that do not arise in the ordinary course of business, some of which assert claims for substantial amounts. Adverse outcomes, including with respect to the matter captioned “Durand Litigation” under “Commitments and Contingencies – Legal Proceedings” in Note 18 in the Notes to the Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K, could materially affect our results of operations and financial condition.

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We are subject to mandatory assessments by state guaranty funds; an increase in these assessments could adversely affect our results of operations and financial condition.

All fifty states of the United States and the District of Columbia have insurance guaranty fund laws requiring property and casualty insurance companies doing business within the state to participate in guaranty associations. These associations are organized to pay contractual obligations under insurance policies issued by impaired or insolvent insurance companies. The associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired or insolvent insurer is engaged. Although mandatory assessments by state guaranty funds that are used to cover losses to policyholders of insolvent or rehabilitated companies can be substantially recovered through policyholder surcharges or a reduction in future premium taxes in many states (provided the collecting insurer continues to write business in such state), there can be no assurance that all funds will be recoupable in the future. During 2016, we had a total assessment of $4.1 million levied against us, with refunds of $0.1 million received in 2016 for a total net assessment of $4.0 million. As of December 31, 2016, we have $0.6 million of reserves related to guaranty fund assessments. In the future, these assessments may increase above levels experienced in the current and prior years. Future increases in these assessments depend upon the rate of insolvencies of insurance companies. An increase in assessments could adversely affect our results of operations and financial condition. 

If we are unable to attract and retain qualified personnel, or if we experience the loss or retirement of key executives or other key employees, we may not be able to compete effectively and our operations could be impacted significantly.

Our future success will be affected by our continued ability to attract, develop and retain qualified executives and other key employees, particularly those experienced in the property and casualty industry and the Lloyd’s market.

Our profitability could be adversely affected by our relationships with our agencies.

We periodically review agencies, including managing general agencies, with which we do business to identify those that do not meet our profitability standards or are not strategically aligned with our business. Following these periodic reviews, we may restrict such agencies’ access to certain types of policies or terminate our relationship with them, subject to applicable contractual and regulatory requirements which limit our ability to terminate agents or which require us to renew policies. We may not achieve the desired results from these measures, and our failure to do so could negatively affect our operating results and financial position.

In addition, we could be adversely affected if our agencies, including managing general agencies, with which we do business exceed the authority that we have given them or breach the obligations that they owe to us. Although we routinely monitor our agency relationships, such actions could expose us to liability and have a negative impact on our results of operations and financial condition.

We may be affected by disruptions caused by the introduction of new products, related technology changes, and new operating models in Commercial Lines, Personal Lines and Chaucer businesses and recent or future acquisitions, and expansion into new geographic areas. We could also be affected by an inability to retain profitable policies in force and attract profitable policies in our Commercial Lines, Personal Lines and Chaucer segments, particularly in light of a competitive product pricing environment and the adoption by competitors of strategies to increase agency appointments and commissions, increase advertising, and more effectively utilize “big data”.

There are increased underwriting risks associated with premium growth and the introduction of new products or programs in our Commercial Lines, Personal Lines and Chaucer businesses. Additionally, we have increased underwriting risks associated with the appointment of new agencies and managing general agencies and with the expansion into new geographical areas, including international expansion.

The introduction of new Commercial Lines products, including through our acquired subsidiaries and the development of new niche and specialty lines, presents new risks. Certain new specialty products may present longer “tail” risks and increased volatility in profitability. Our expansion into western states, including California, presents additional underwriting risks since the regulatory, geographic, natural risk, legal environment, demographic, business, economic and other characteristics of these states present challenges different from those in the states in which we historically have conducted business.

Our Personal Lines production and earnings may be unfavorably affected by the continued introduction of new products, expanded risk appetities and our focus on account business (i.e., policyholders who have both automobile and homeowner insurance with us) which we believe, despite pricing discounts, will ultimately be more profitable business. We may also experience adverse selection, which occurs when insureds with larger risks purchase our products because of favorable pricing, under-pricing, operational difficulties or implementation impediments with independent agents or the inability to grow new markets after the introduction of new products or the appointment of new agents.

As we enter new states or regions or grow business in our identified growth states, there can be no assurance that we won’t experience higher loss trends than anticipated. 

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Chaucer’s proposed non-Lloyd’s insurance company to be based in Ireland is intended to provide an alternative platform for writing certain insured risks, and will be subject to oversight by the Central Bank of Ireland. There can be no assurances that the anticipated benefits of operating in this new jurisdiction will materialize as planned. Additionally, the expansion of Chaucer’s political risk and trade credit business, including in Africa and through the planned Irish insurer, and development of its accident and health business, present new risks.

We may experience difficulties with technology, data security and/or outsourcing relationships, which could have a negative impact on our ability to conduct our business.

We use computer systems to store, retrieve, evaluate and utilize customer and company data and information. Our computer, information technology and telecommunications systems, in turn, interface with and rely upon third-party systems. Our business is highly dependent on our ability, and the ability of certain third parties, to access these systems to perform necessary business functions, including, without limitation, providing insurance quotes, processing premium payments, making changes to existing policies, filing and paying claims, providing customer support and managing our investment portfolios. Systems attacks, failures or outages could compromise our ability to perform these functions in a timely manner, which could harm our ability to conduct business and hurt our relationships with our business partners and customers. In the event of a disaster such as a natural catastrophe, an industrial accident, a blackout, a computer virus, a cyber security attack, a terrorist attack or war, or interference from solar flares, our systems may be inaccessible to our employees, customers or business partners for an extended period of time. Even if our employees are able to report to work, they may be unable to perform their duties for an extended period of time if our data or systems are disabled or destroyed or if our disaster recovery plans are inadequate or suffer from unforeseen consequences. This could result in a materially adverse effect on our business results and liquidity.

In addition, we routinely transmit and receive personal, confidential and proprietary information by e-mail and other electronic means. While we attempt to utilize secure transmission capabilities with third-party vendors and others with whom we do business, we may be unable to put in place secure capabilities with all of such vendors and third parties and, in addition, these third parties may not have appropriate controls in place to protect the confidentiality of the information.

Our systems, like others in the financial services industry, are potentially vulnerable to cyber security risks, and we are subject to potential disruption caused by such activities. Large corporations such as ours are subject to near daily attacks on their systems. Such attacks may have various goals, from seeking confidential information to causing operational disruption. Although to date such activities have not resulted in material disruptions to our operations or, to our knowledge, material breach of any security or confidential information, no assurance can be provided that such disruptions or breach will not occur in the future. As cyber attacks become more prevalent and the methods used to perpetrate them change, we may be required to devote additional personnel or systems resources to protecting our data security or investigating or remediating any perceived vulnerabilities. Such resources could be costly in time and expenses and could detract from resources spent on our core property and casualty insurance operations.

Additionally, we could be subject to liability if confidential customer information is misappropriated from our computer systems, those of our vendors or others with whom we do business, or otherwise. Despite whatever security measures may be in place, any such systems may be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. Any well-publicized compromise of security could deter people from entering into transactions that involve transmitting confidential information, or damage our reputation, which could have a material adverse effect on our business.

We outsource certain technology and business process functions to third parties and may do so increasingly in the future. If we do not effectively develop, implement and monitor our outsourcing strategy, third-party providers do not perform as anticipated or we experience technological or other problems with a transition, we may not realize productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business. Our outsourcing of certain technology and business process functions to third parties may expose us to enhanced risk related to data security, which could result in monetary and reputational damages. In addition, our ability to receive services from third-party providers outside of the United States might be impacted by cultural differences, political instability, unanticipated regulatory requirements or policies inside or outside of the United States. As a result, our ability to conduct our business might be adversely affected.

Integration of acquired businesses involves a number of risks, and there can be no assurance that we will be successful integrating recent and future acquisitions.

There can be no assurance that we will be able to successfully integrate recent and any future acquisitions or that we will not assume unknown liabilities and reserve deficiencies in connection with such acquisitions. If we are unable to successfully integrate new businesses, then we could be impeded from realizing the benefits of an acquisition. The integration process could disrupt our business, and a failure to successfully integrate newer businesses could have a material adverse effect on our business, financial condition and results of operations. The difficulties of integrating an acquisition and risks to our business include, among others:

· unanticipated issues in integrating information, communications and other systems;

· unanticipated incompatibility of logistics, marketing and administration methods;

· maintaining employee morale and retaining key employees;

· integrating the business cultures of different companies;

· preserving important strategic, reinsurance and other relationships;

· integrating legal and financial controls in multiple jurisdictions;

· consolidating corporate and administrative infrastructures and eliminating duplicative operations;

· the diversion of management’s attention from ongoing business concerns;

· integrating geographically separate organizations;

· unexpected or overlapping concentrations of risk where one event or series of events can affect many insured parties;

· significant transaction costs, including the effect of exchange rate fluctuations;

· risks and uncertainties in our ability to increase the investment yield on the investment portfolio;

· uncertainties in our ability to decrease leverage as a result of adding future earnings to our capital base;

· risks and uncertainties regarding the volatility of underwriting results in a combined entity;

· the ability to more efficiently manage capital;

· the ability to improve renewal rates and increase new property and casualty policy counts;

· the ability to increase or maintain certain property and casualty insurance rates;

· complying with laws, rules and regulations in multiple jurisdictions, including new and multiple employment regulations, regulations relating to the conduct of business activities such as the U.K. Bribery Act, sanctions imposed by the U.S., E.U. or U.K. on doing business with certain foreign countries or other persons, tax, privacy, information security, and environmental-related laws; and

· the impact of new product or line of business introductions and our ability to meet projected return on capital targets.

In addition, even if we are able to successfully integrate recent and future acquisitions, we may not realize the full benefits of such acquisitions, including the synergies, cost savings or underwriting or growth opportunities that we expect. It is possible that these benefits may not be achieved within the anticipated time frame, or at all.

Our international operations expose us to additional risks which could cause a material adverse effect on our business, financial position and results of operations.

Our operations extend to countries outside the U.S., and operating globally increases the scope of our risks and exposes us to certain additional risks, including but not limited to:

· an expansion in the scope of the risks to which our U.S. operations are subject as an insurance company, such as risk of adverse loss development, litigation, investment risks and the possibility of significant catastrophe losses (as a result of natural disasters, nuclear accidents, severe weather and terrorism) occurring outside the U.S.;

· compliance with a variety of national and local laws, regulations and practices of the countries in which we do business and adherence to any changes in such laws, regulations and practices affecting the insurance industry in such countries;

· the effect of the Brexit Referendum and related consequences on (i) Chaucer’s licensing permissions in European Union member states if Lloyd’s does not obtain alternative licensing permissions; (ii) market conditions in the U.K. and the European market; and (iii) foreign exchange volatility;

· adverse changes, including as a result of political instability,  in the economies in which we operate; and

· requirements, such as those enforced by Her Majesty’s Treasury, Asset Freezing Unit (U.K.) and the U.S. Treasury’s Office of Foreign Asset Controls, to comply with various U.K., U.S., E.U. or other sanctions imposed on doing business with, or affecting, certain countries, their citizens, specially designated nationals or other persons doing business with any such countries or persons.

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Intense competition could negatively affect our ability to maintain or increase our profitability.

We compete, and will continue to compete, with a large number of companies, including international, national and regional insurers, mutual companies, specialty insurance companies, so called “off-shore” companies which enjoy certain tax advantages, underwriting agencies and financial services institutions. We also compete with mutual insurance companies, reciprocal and exchange companies which may not have shareholders and may have different profitability targets than publicly or privately owned companies. Chaucer competes with numerous other Lloyd’s syndicates and managing agents, domestic and international insurers and government or government-sponsored insurance or reinsurance mechanisms. In recent years, there has been substantial consolidation and convergence among companies in the financial services industry, resulting in increased competition from large, well-capitalized financial services firms. Many of our competitors have greater financial, technical and operating resources than we do, greater access to “big data,” and may be able to offer a wider range of, or more sophisticated, commercial and personal line products. Some of our competitors also have different marketing and sales strategies than we do and market and sell their products to consumers directly. Some companies are seeking to protect new products with patents or other legal protections, which may create new legal exposures or limit our ability to develop competing products. In addition, competition in the U.S. and international property and casualty insurance markets has intensified over the past several years. This competition has had and may continue to have an adverse impact on our revenues and profitability.

A number of new, proposed or potential legislative or industry developments could further increase competition in our industry. These developments include:

· the implementation of commercial lines deregulation in several states;

· programs in which state-sponsored entities provide property insurance in catastrophe-prone areas or other alternative markets types of coverage;

· increased competition from off-shore tax advantaged insurance companies; and

· changing practices caused by the internet and the increased usage of real time comparative rating tools and claims management processes, which have led to greater competition in the insurance business in general, particularly on the basis of price.

We could face heightened competition resulting from the entry of new competitors and the introduction of new products by new and existing competitors. Additionally, recent entries into the property and casualty marketplace by large technology companies, retail companies and other non-traditional insurance providers, who aim to leverage their information about and direct access to customers, may increase competition. Increased competition could make it difficult for us to obtain new customers, retain existing customers or maintain policies in force by existing customers. It could also result in increasing our service, administrative, policy acquisition or general expense due to the need for additional advertising and marketing of our products. In addition, our administrative, technology and management information systems expenditures could increase substantially as we try to maintain or improve our competitive position.

We compete for business not just on the basis of price, but also on the basis of product coverages, reputation, financial strength, quality of service (including claims adjustment service), experience and breadth of product offering. We cannot provide assurance that we will be able to maintain a competitive position in the markets in which we operate, or that we will be able to expand our operations into new markets. If we fail to do so, our business could be materially adversely affected.

We are rated by several rating agencies, and downgrades to our ratings could adversely affect our operations.

Our ratings are important in establishing our competitive position and marketing the products of our insurance companies to our agents and customers, since rating information is broadly disseminated and generally used throughout the industry.

Our insurance company subsidiaries are rated by A.M. Best, Moody’s, and Standard & Poor’s. These ratings reflect a rating agency’s opinion of our insurance subsidiaries’ financial strength, operating performance, strategic position and ability to meet their obligations to policyholders. These ratings are not evaluations directed to investors, and are not recommendations to buy, sell or hold our securities. Our ratings are subject to periodic review by the rating agencies, and we cannot guarantee the continued retention or improvement of our current ratings. This is particularly true in the current economic environment where rating agencies may increase their capital requirements or other criteria for various rating levels. In addition, Chaucer’s rating is derived from the rating assigned to Lloyd’s, and Chaucer has very limited ability to directly affect the overall Lloyd’s rating.

A downgrade in one or more of our or any of our subsidiaries’ claims-paying ratings could negatively impact our business and competitive position, particularly in lines where customers require us to maintain minimum ratings. Additionally, a downgrade in one or more of our debt ratings could adversely impact our ability to access the capital markets and other sources of funds, increase the cost of current credit facilities, and/or adversely affect pricing of new debt sought in the capital markets in the future.

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Negative changes in our level of statutory surplus could adversely affect our ratings and profitability.

The capacity for a U.S. insurance company’s growth in premiums is in part a function of its statutory surplus. Maintaining appropriate levels of statutory surplus, as measured by state insurance regulators, is considered important by state insurance regulatory authorities and by rating agencies that rate insurers’ claims-paying abilities and financial strength. As our business grows, or due to other factors, regulators may require that additional capital be contributed to increase the level of statutory surplus. Failure to maintain certain levels of statutory surplus could result in increased regulatory scrutiny, action by state regulatory authorities or a downgrade by private rating agencies. Our surplus is affected by, among other things, results of operations and investment gains, losses, impairments, and dividends from the insurance operating company to its parent company. A number of these factors affecting our level of statutory surplus are, in turn, influenced by factors that are out of our control, including the frequency and severity of catastrophes, changes in policyholder behavior, changes in rating agency models and economic factors such as changes in equity markets, credit markets, interest rates or foreign currency exchange rates.

The National Association of Insurance Commissioners, or NAIC, uses a system for assessing the adequacy of statutory capital for U.S. property and casualty insurers. The system, known as risk-based capital, is in addition to the states’ fixed dollar minimum capital and other requirements. The system is based on risk-based formulas that apply prescribed factors to the various risk elements in an insurer’s business and investments to report a minimum capital requirement proportional to the amount of risk assumed by the insurer. We believe that any failure to maintain appropriate levels of statutory surplus would have an adverse impact on our ability to grow our business profitably.

We may not be able to grow as quickly or as profitably as we intend, which is important to our current strategy.

Over the past several years, we have made and our current plans are to continue to make, significant investments in our Commercial and Personal Lines of business, and we have increased expenses and made acquisitions in order to, among other things, strengthen our product offerings and service capabilities, expand into new geographic areas, improve technology and our operating models, build expertise in our personnel, and expand our distribution capabilities, with the ultimate goal of achieving significant, sustained growth. The ability to achieve significant profitable premium growth in order to earn adequate returns on such investments and expenses, and to grow further without proportionate increases in expenses, is an important part of our current strategy. There can be no assurance that we will be successful at profitably growing our business, or that we will not alter our current strategy due to changes in our markets or an inability to successfully maintain acceptable margins on new business or for other reasons, in which case premiums written and earned, operating income and net book value could be adversely affected.

An impairment in the carrying value of goodwill and intangible assets could negatively impact our consolidated results of operations and shareholders’ equity.

Upon an acquisition of a business, we record goodwill and intangible assets at fair value. Goodwill and intangible assets determined to have indefinite useful lives are not amortized, while other intangible assets are amortized over their estimated useful lives. Goodwill and intangible assets that are not amortized are reviewed for impairment at least annually. Evaluating the recoverability of such assets requires us to rely on estimates and assumptions related to return on equity, margin, growth rates, discount rates, and other data. There are inherent uncertainties related to these factors, and significant judgment is required in applying these factors. Goodwill and intangible asset impairment charges can result from declines in operating results, divestitures or sustained market declines and other factors. As of December 31, 2016, goodwill and intangible assets that are not amortized totaled $246.8 million and represented 8.6% of shareholders’ equity. Our legacy Hanover and Citizens businesses represent 53% of this balance; Chaucer represents 21% of this balance; AIX represents 20% of this balance; and, the remaining acquisitions combined represent 6% of this balance. Although we believe these assets are recoverable, we cannot provide assurance that future market or business conditions would not result in the impairment of a portion of these assets. Impairment charges could materially affect our financial position and our financial results in the quarter or annual period in which they are recognized.

We could be subject to additional losses related to the sale of our discontinued FAFLIC and variable life insurance and annuity businesses.

On January 2, 2009, we sold our remaining life insurance subsidiary, FAFLIC, to Commonwealth Annuity and Life Insurance Company. Coincident with the sale transaction, Hanover Insurance and FAFLIC entered into a reinsurance contract whereby Hanover Insurance assumed FAFLIC’s discontinued accident and health insurance business. We previously owned Commonwealth Annuity, but sold it in 2005 in conjunction with our disposal of our variable life insurance and annuity business.

In connection with these transactions, we have agreed to indemnify Commonwealth Annuity for certain contingent liabilities, including litigation and other regulatory matters. We have established a reserve related to these contractual indemnifications. Although we believe that this reserve is adequate, we cannot provide assurance that costs related to these indemnifications when they ultimately settle, will not exceed our current reserve.

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We may incur financial losses related to our discontinued assumed accident and health reinsurance pools and arrangements.

We previously participated, through FAFLIC, in approximately 40 assumed accident and health reinsurance pools and arrangements. The business was retained in the sale of FAFLIC and assumed by Hanover Insurance through a reinsurance agreement. During 1999, we ceased writing new premiums in this business, subject to certain contractual obligations. The reinsurance pool business consisted primarily of the medical and disability portions of workers’ compensation risks, long-term care pools, assumed personal accident, individual medical, long-term disability and special risk business. We are currently monitoring and managing the run-off of our related participation in the 25 pools with remaining liabilities.

Under these arrangements, we variously acted as a reinsurer, a reinsured or both. In some instances, we ceded significant exposures to other reinsurers in the marketplace. The potential risk to us as a participant in these pools is primarily that other companies that reinsured this business from us may seek to avoid or fail to timely pay their reinsurance obligations (especially in light of the fact that historically these pools sometimes involved multiple layers of overlapping reinsurers, or so-called “spirals”) or may become insolvent. Thus, we are exposed to both assumed losses and to credit risk related to these pools. We are not currently engaged in any significant disputes in respect to this business. At this time, we do not anticipate that any significant portion of recorded reinsurance recoverables will be uncollectible. However, we cannot provide assurance that all recoverables are collectible and should these recoverables prove to be uncollectible, our results of operations and financial position may be negatively affected.

We believe our reserves for the accident and health assumed and ceded reinsurance business appropriately reflect current claims, unreported losses and likely investment returns on related assets supporting these reserves. However, due to the inherent volatility in this business and the reporting lag of losses that tend to develop over time and which ultimately affect excess covers, there can be no assurance that current reserves are adequate or that we will not have additional losses in the future. Although we have discontinued participation in these reinsurance arrangements, unreported claims related to the years in which we were a participant may be reported, and previously reported claims may develop unfavorably. If any such unreported claims or unfavorable development is reported to us, our results of operations and financial position may be negatively impacted. In addition, the passage of the Federal Healthcare Act has caused us to have to expand our benefits for a portion of the residual healthcare policies with limited ability to increase premiums.

Other market fluctuations and general economic, market and political conditions may also negatively affect our business, profitability and investment portfolio.

It is difficult to predict the impact of a challenging economic environment on our business. In Commercial Lines, a difficult economy has resulted in reductions in demand for insurance products and services as there are more companies ceasing to do business and there are fewer business start-ups, particularly as small businesses are affected by a decline in overall consumer and business spending. Additionally, claims frequency could increase as policyholders submit and pursue claims more aggressively than in the past, fraud incidences may increase, or we may experience higher incidents of abandoned properties or poorer maintenance, which may also result in more claims activity. We have experienced higher workers’ compensation claims as injured employees take longer to return to work, increased surety losses as construction companies experience financial pressures and higher retroactive premium returns as audit results reflect lower payrolls. Our business could also be affected by an ensuing consolidation of independent insurance agencies. Our ability to increase pricing has been impacted as agents and policyholders have been more price sensitive, customers shop for policies more frequently or aggressively, utilize comparative rating models or, in Personal Lines in particular, turn to direct sales channels rather than independent agents. We have also experienced decreased new business premium levels, retention and renewal rates, and renewal premiums. Specifically in Personal Lines, policyholders may reduce coverages or change deductibles to reduce premiums, experience declining home values, or be subject to increased foreclosures, and policyholders may retain older or less expensive automobiles and purchase or insure fewer ancillary items such as boats, trailers and motor homes for which we provide coverages. Additionally, if as a result of a difficult economic environment, drivers continue to eliminate automobile insurance coverage or to reduce their bodily injury limit, we may be exposed to more uninsured and underinsured motorist coverage losses.

Chaucer’s business is similarly subject to risks related to the economy. In addition to the risks noted above, adverse economic conditions could negatively affect our ability to obtain letters of credit utilized by Chaucer to underwrite business through Lloyd’s.

At December 31, 2016, we held approximately $9 billion of investment assets in categories such as fixed maturities, equity securities, other investments, and cash and short-term investments. Our investments are primarily concentrated in the U.S. domestic market; however, we have exposure to international markets as well, with approximately 15% of our cash and investment assets invested in foreign markets. Our investment returns, and thus our profitability, statutory surplus and shareholders’ equity, may be adversely affected from time to time by conditions affecting our specific investments and, more generally, by bond, stock, real estate and other market fluctuations and general economic, market and political conditions, including the impact of changing government policies and geopolitical risks. Many of these broader market conditions are out of our control. Our ability to make a profit on insurance products depends in part on the returns on investments supporting our obligations under these products, and the value of specific investments may fluctuate substantially depending on the foregoing conditions. We may use a variety of strategies to hedge our exposure to interest and currency rates and other market risks. However, hedging strategies are not always available and carry certain credit risks, and our hedging could be ineffective. Moreover, increased government regulation of certain derivative transactions used to hedge certain market risks has served to prevent (or otherwise substantially increase the cost associated with) hedging such risks.

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Additionally, the aggregate performance of our investment portfolio depends to a significant extent on the ability of our investment managers to select and manage appropriate investments. As a result, we are also exposed to operational risks which may include, but are not limited to, a failure to follow our investment guidelines, technological and staffing deficiencies and inadequate disaster recovery plans. The failure of these investment managers to perform their services in a manner consistent with our expectations and investment objectives could adversely affect our ability to conduct our business.

Debt securities comprise a material portion of our investment portfolio. The concentration of our investment portfolio in any one type of investment, industry or geography could have a disproportionately adverse effect on our investment portfolio. The issuers of debt securities, as well as borrowers under the loans we make, customers, trading counterparties, counterparties under swaps and other derivative contracts, banks which have commitments under our various borrowing arrangements, and reinsurers, may be affected by declining market conditions or credit weaknesses. These parties may default on their obligations to us due to lack of liquidity, downturns in the economy or real estate values, operational failure, bankruptcy or other reasons. Future increases in interest rates from current near-historic lows could result in increased defaults as borrowers are unable to pay the additional borrowing costs on variable rate securities or obtain refinancing. We cannot assure you that further impairment charges will not be necessary in the future. In addition, evaluation of available-for-sale securities for other-than-temporary impairment includes inherent uncertainty and subjective determinations. We cannot be certain that such impairments are adequate as of any stated date. Our ability to fulfill our debt and other obligations could be adversely affected by the default of third parties on their obligations owed to us.

Deterioration in the global financial markets may adversely affect our investment portfolio and have a related impact on our other comprehensive income, shareholders’ equity and overall investment performance. In recent years, global financial markets experienced unprecedented and challenging conditions, including a tightening in the availability of credit, the failure of several large financial institutions and concerns about the creditworthiness of the sovereign debt of several European and other countries. As a result, certain government bodies and central banks worldwide, including the U.S. Treasury Department and the U.S. Federal Reserve, provided for unprecedented intervention programs, the efficacy of which remain uncertain.

In addition, our current borrowings from the Federal Home Loan Bank of Boston (“FHLBB”) are secured by collateral. If the fair value of pledged collateral falls below specific levels, we would be required to pledge additional collateral or repay any outstanding FHLBB borrowings.

Market conditions also affect the value of assets under our employee pension plans, including our U.S. Cash Balance Plan and Chaucer pension plan. The expense or benefit related to our employee pension plans results from several factors, including, but not limited to, changes in the market value of plan assets, interest rates, regulatory requirements or judicial interpretation of benefits. At December 31, 2016, our U.S. plan assets included approximately 85% of fixed maturities and 15% of equity securities and other assets. At December 31, 2016, our Chaucer pension plan assets included approximately 55% of equities, 35% of fixed maturities, and 10% of real estate funds. The Chaucer pension plan had net liabilities that exceeded assets by approximately $16 million as of December 31, 2016. Additionally, our net liabilities exceed assets by approximately $54 million and $38 million for our U.S. qualified and U.S. non-qualified (which is an unfunded plan) pension plans, respectively, at December 31, 2016. Declines in the market value of plan assets and interest rates from levels at December 31, 2016, among other factors, could impact our funding estimates and negatively affect our results of operations. Deterioration in market conditions and differences between our assumptions and actual occurrences, and behaviors, including judicial determinations of ultimate benefit obligations pursuant to the Durand case discussed elsewhere, or otherwise, could result in a need to fund more into the qualified plans to maintain an appropriate funding level. 

We may experience unrealized losses on our investments, especially during a period of heightened volatility, which could have a material adverse effect on our results of operations or financial condition.

Our investment portfolio and shareholders’ equity can be, and in the past have been, significantly impacted by the changes in the market values of our securities. U.S. and global financial markets and economies remain uncertain. This could result in unrealized and realized losses in future periods, and adversely affect the liquidity of our investments, which could have a material adverse impact on our results of operations and our financial position. At December 31, 2016, our financial position is benefited by $190.0 million as a result of unrealized gains, largely driven by the low interest rate environment. Information with respect to interest rate sensitivity is included in “Quantitative and Qualitative Disclosures” in Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K. Valuation of financial instruments (i.e., Level 1, 2, or 3) include methodologies, estimates, assumptions and judgments that are inherently subjective and open to different interpretations and could result in changes to investment valuations or the ability to receive such valuations on sale. During periods of market disruption it may be difficult to value certain of our securities if trading becomes less frequent and/or market data becomes less observable. In addition, in times of financial market disruption, certain asset classes that were in active markets with significant observable data may become illiquid. In those cases, the valuation process includes inputs that are less observable and require more subjectivity and judgment by management.

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If, following such declines, we are unable to hold our investment assets until they recover in value, or if such asset value never recovers, we would incur other-than-temporary impairments which would be recognized as realized losses in our results of operations, reduce net income and earnings per share and adversely affect our liquidity. Temporary declines in market value are recorded as unrealized losses, which do not affect net income and earnings per share, but reduce other comprehensive income, which is reflected on our Consolidated Balance Sheets. We cannot provide assurance that we will not have additional other-than-temporary impairments and/or unrealized investment losses in the future. Likewise, there can be no assurance that our investment portfolio will retain the net unrealized gains reflected on the balance sheet as of December 31, 2016, since such gains are dependent on prevailing interest rates, credit ratings and creditworthiness and general economic and other factors.

We invest a portion of our portfolio in common stock or preferred stocks. The value of these assets fluctuates with the equity markets. Particularly in times of economic weakness, the market value and liquidity of these assets may decline, and may impact net income, capital and cash flows.

We are exposed to significant capital market risks related to changes in interest rates, credit spreads, equity prices and foreign exchange rates, which may adversely affect our results of operations, financial position or cash flows.

We are exposed to significant capital markets risk related to changes in interest rates, credit spreads, equity prices and foreign currency exchange rates. If significant, declines in equity prices, changes in interest rates, changes in credit spreads and the strengthening or weakening of foreign currencies against the U.S. dollar could have a material adverse effect on our results, financial position or cash flows. Our exposure to interest rate risk relates primarily to the market price and cash flow variability associated with changes in interest rates. Our investment portfolio contains interest rate sensitive instruments, such as fixed income securities, which may be adversely affected by changes in interest rates from governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. A rise in market yields would reduce the fair value of our investment portfolio, but provide the opportunity to earn higher rates of return on funds reinvested. A further decline in interest rates, on the other hand, would increase the fair value of our investment portfolio, but we would earn lower rates of return on reinvested assets. We may be forced to liquidate investments prior to maturity at a loss in order to cover liabilities, and such liquidation could be accelerated in the event of significant loss events, such as catastrophes. Although we take measures to manage the economic risks of investing in a changing interest rate environment, we may not be able to mitigate the interest rate risk of our assets relative to our liabilities.

Our investment portfolio is invested primarily in high quality, investment-grade fixed income securities. However, we also invest in non-investment-grade high yield fixed income securities and alternative investments. These securities, which pay a higher rate of interest, also have a higher degree of credit or default risk. These securities may also be less liquid in times of economic weakness or market disruptions. Additionally, the reported value of our investments do not necessarily reflect the lowest current market price for the asset, and if we require significant amounts of cash on short notice, we may have difficulty selling our investments in a timely manner, be forced to sell them for less than we otherwise would have been able to realize, or both. While we have procedures to monitor the credit risk and liquidity of our invested assets, we expect from time to time, and particularly in periods of economic weakness, to experience default losses in our portfolio. This would result in a corresponding reduction of net income, capital and cash flows.

Inflationary pressures may negatively impact expenses, reserves and the value of investments.  

Inflationary pressures in the geographies in which we operate may negatively impact reserves and the value of investments. In particular, inflationary pressures in the U.S. with respect to medical and health care, automobile repair and construction costs, all of which are significant components of our indemnity liabilities under policies we issue to our customers, and which could also impact the adequacy of reserves we have set aside for prior accident years, may have a negative effect on our results of operations. Inflationary pressures also cause or contribute to, or are the result of, increases in interest rates, which would reduce the fair value of our investment portfolio.

Our operations may be adversely impacted by foreign currency fluctuations.

Our reporting currency is the U.S. dollar. The functional currencies of our Chaucer segment are the U.S. dollar, U.K. pound sterling and the Canadian dollar. Exchange rate fluctuations relative to the functional currencies may materially impact our financial position. Further, our Chaucer segment transacts business and maintains assets and liabilities in currencies different than its functional currency, which exposes us to changes in currency exchange rates. In addition, locally required capital levels are invested in local currencies in order to satisfy regulatory requirements and to support local insurance operations regardless of currency fluctuations. We attempt to manage our foreign currency exposure through matching of assets and liabilities, and may also utilize derivatives from time to time. Despite our mitigation efforts, exposure to foreign exchange loss could have a material adverse effect on our reported earnings and book value. Chaucer’s trade credit business is also susceptible to losses as a result of exchange rate fluctuations.

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We are a holding company and rely on our insurance company subsidiaries for cash flow; we may not be able to receive dividends from our subsidiaries in needed amounts and may be required to provide capital to support their operations.

We are a holding company for a diversified group of insurance companies, and our principal assets are the shares of capital stock of these subsidiaries. Our ability to make required interest payments on our debt, as well as our ability to pay operating expenses and pay dividends to shareholders depends upon the receipt of sufficient funds from our subsidiaries. The payment of dividends by our insurance company subsidiaries is subject to regulatory restrictions and will depend on the surplus and future earnings of these subsidiaries, as well as these regulatory restrictions. We are required to notify insurance regulators prior to paying any dividends from our U.S. insurance subsidiaries, pre-approval is required with respect to “extraordinary dividends”, and distributions from Chaucer are subject to various requirements imposed by Lloyd’s and the PRA and FCA.

Because of the regulatory limitations on the payment of dividends from our insurance company subsidiaries, we may not always be able to receive dividends from these subsidiaries at times and in amounts necessary to meet our debt and other obligations. The inability of our subsidiaries to pay dividends to us in an amount sufficient to meet our debt interest and funding obligations would have a material adverse effect on us. These regulatory dividend restrictions also impede our ability to transfer cash and other capital resources among our subsidiaries.

Similarly, our insurance subsidiaries may require capital from the holding company to support their operations. For example, our holding company has provided a guaranty for the benefit of our Chaucer segment to support the letter of credit agreement supplied to support Chaucer’s Funds at Lloyd’s requirements.

Our dependence on our insurance subsidiaries for cash flow, and their potential need for capital support, exposes us to the risk of changes in their ability to generate sufficient cash inflows from new or existing customers or from increased cash outflows. Cash outflows may result from claims activity, expense payments or investment losses. Because of the nature of our business, claims activity can arise suddenly and in amounts which could outstrip our capital or liquidity resources. Reductions in cash flow or capital demands from our subsidiaries could have a material adverse effect on our business and results of operations.

We may require additional capital or credit in the future, which may not be available or only available on unfavorable terms.

We monitor our capital adequacy on a regular basis. Our future capital and liquidity requirements depend on many factors, including our premiums written, loss reserves and claim payments, investment portfolio composition and risk exposures, the availability of letters and lines of credit, as well as regulatory and rating agency capital requirements. In addition, our capital strength can affect our ratings, and therefore is important to our ability to underwrite. The quality of our claims paying and financial strength ratings are evaluated by independent rating agencies. Such ratings affect our ability to write quality business, our borrowing expenses and our ability to raise capital.

Our Chaucer business is required to satisfy Lloyd’s minimum capital standards. We satisfy Lloyd’s “member deposit funds” requirement (referred to as Funds at Lloyd’s or “FAL”), in part, through a standby letter of credit. If the letters of credit were drawn, we would expect to use a syndicated credit facility to pay such obligation, which would increase our debt borrowings. Our ability to borrow under this facility is conditioned upon the satisfaction of covenants and other requirements contained in the facility. If the syndicated credit facility was not available to repay this letter of credit facility, we would need to obtain capital elsewhere, and face the risk that alternative financing, such as through cash or other borrowings, would not be available at acceptable terms, if at all. In addition, no assurance can be given as to how much business Lloyd’s will permit Chaucer to underwrite in any single year or as to the viability and cost of change to our current capital structure.

To the extent that our existing capital is insufficient or unavailable to fund our future operating requirements and/or cover claim losses, we may need to raise additional funds through financings or limit our growth. Any equity or debt financing, if available, may be on terms that are unfavorable to us. In the case of equity financings, dilution to our shareholders could result and, in any case, such securities may have rights, preferences, and privileges that are senior to our common stock. If we are not able to obtain additional capital as necessary, our business, results of operations and financial condition could be adversely affected.

Errors or omissions in connection with the administration of any of our products may cause our business and profitability to be negatively impacted.

We are responsible to our policyholders for administering their policies, premiums and claims and ensuring that appropriate records are maintained which reflect their transactions. We are subject to risks that errors or omissions of information occurred with respect to the administration of our products. We are also subject to misconduct and fraud on the part of our employees and agents. As a result, we are subject to risks of liabilities associated with “bad faith”, unfair claims practices, unfair trade practices or similar allegations. Such risks may stem from allegations of agents, vendors, policyholders, claimants, members of Lloyd’s syndicates, reinsurers, regulators, states’ attorneys general, Lloyd’s, the PRA and FCA, or other international regulators, or others. We may incur charges associated with any errors and omissions previously made or which are made in future periods. These charges may result from our obligation to policyholders to correct any errors or omissions or refund premiums, non-compliance with regulatory requirements, from fines imposed by regulatory authorities, or from other items, which may affect our financial position or results of operations.

We are subject to the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar worldwide anti-bribery laws, which impose restrictions and may carry substantial penalties. Violations of these laws or allegations of such violations could cause a material adverse effect on our business, financial position and results of operations.

The U.S. Foreign Corrupt Practices Act and anti-bribery laws in other jurisdictions, including anti-bribery legislation in the U.K. that took effect in 2011, generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business or other commercial advantage. Our policies mandate compliance with these anti-bribery laws, which often carry substantial penalties. We cannot assure you that our internal control policies and procedures always will protect us from reckless or other inappropriate acts committed by our affiliates, employees, agents or coverholders. Violations of these laws, or allegations of such violations, could have a material adverse effect on our business, financial position and results of operations.

ITEM 1B–UNRESOLVED STAFF COMMENTS

None.

ITEM 2–PROPERTIES

We own our headquarters, located at 440 Lincoln Street, Worcester, Massachusetts, with approximately 803,000 square feet.

We also own office space located in a three-building complex located at 808 North Highlander Way, Howell, Michigan, with approximately 140,000 square feet, where various business operations are conducted. Certain of our properties have been leased to unrelated third parties or are available for lease.

We lease office space located at 30 Fenchurch Street, London, United Kingdom. We also lease offices throughout the United States and in select locations worldwide for branch sales, underwriting and claims processing functions, and the operations of acquired subsidiaries.

We believe that our facilities are adequate for our present needs in all material respects.

ITEM 3–LEGAL PROCEEDINGS

Reference is made to the litigation matter captioned “Durand Litigation” included in Note 18 - “Commitments and Contingencies – Legal Proceedings” in the Notes to Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K.

ITEM 4–MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5–MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

COMMON STOCK AND STOCKHOLDER OWNERSHIP

Our common stock is traded on the New York Stock Exchange under the symbol “THG”. On February 17, 2017, we had approximately 18,543 shareholders of record and 42,501,269 shares outstanding. On the same date, the trading price of our common stock was $90.46 per share.

COMMON STOCK PRICES

The following tables set forth the high and low sales prices of our common stock for the periods indicated:

2016		High (1)		Low (1)
First Quarter	$	90.68	$	76.90
Second Quarter	$	91.15	$	80.41
Third Quarter	$	84.58	$	74.10
Fourth Quarter	$	91.66	$	74.88
2015
First Quarter	$	73.47	$	67.74
Second Quarter	$	74.90	$	68.55
Third Quarter	$	83.28	$	74.76
Fourth Quarter	$	87.42	$	76.00

(1) Common stock prices were obtained from a third-party service provider.

DIVIDENDS

The Board of Directors declared dividends in 2016 and 2015 as follows:

Per Share Amount		2016		2015
First Quarter	$	0.46	$	0.41
Second Quarter	$	0.46	$	0.41
Third Quarter	$	0.46	$	0.41
Fourth Quarter	$	0.50	$	0.46

We currently expect that comparable cash dividends will be paid in the future; however, the payment of future dividends on our common stock will be determined by the Board of Directors from time to time based upon cash available at our holding company, our results of operations and financial condition and such other factors as the Board of Directors considers relevant.

Dividends to shareholders may be funded from dividends paid to us from our subsidiaries. Dividends from insurance subsidiaries are subject to restrictions imposed by state insurance laws and regulations and for our foreign subsidiaries, to restrictions imposed by the PRA and Lloyd’s. See “Liquidity and Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 13 – “Dividend Restrictions” in the Notes to Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K.

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ISSUER PURCHASES OF EQUITY SECURITIES

The Board of Directors has authorized a stock repurchase program which provides for aggregate repurchases of up to $900 million. Under the repurchase authorizations, we may repurchase our common stock from time to time, in amounts and prices and at such times as deemed appropriate, subject to market conditions and other considerations. Our repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. We are not required to purchase any specific number of shares or to make purchases by any certain date under this program. Total repurchases under this program as of December 31, 2016 were 14.0 million shares at a cost of $716.4 million.

Shares purchased in the fourth quarter of 2016 are as follows:

PERIOD	Total Number of Shares Purchased		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (in millions)
October 1 - 31, 2016	-	$	-	-	$	184
November 1 - 30, 2016 (1)	6,020		78.99	5,250		184
December 1 - 31, 2016 (2)	89,819		91.53	-		184
Total	95,839	$	90.75	5,250	$	184

(1)Includes 770 shares withheld to satisfy tax withholding amounts due from employees related to the receipt of stock which resulted from the exercise or vesting of equity awards.

(2)Reflects shares withheld to satisfy tax withholding amounts due from employees related to the receipt of stock which resulted from the exercise or vesting of equity awards. 

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ITEM 6 -SELECTED FINANCIAL DATA

FIVE YEAR SUMMARY OF SELECTED FINANCIAL HIGHLIGHTS

YEARS ENDED DECEMBER 31		2016		2015		2014		2013		2012
(in millions, except per share data)
Statements of Income
Revenues
Premiums	$	4,628.1	$	4,704.8	$	4,710.3	$	4,450.5	$	4,239.1
Net investment income		279.4		279.1		270.3		269.0		276.6
Net realized investment gains		8.6		19.5		50.1		33.5		23.6
Fees and other income		29.7		30.6		36.9		40.7		51.4
Total revenues		4,945.8		5,034.0		5,067.6		4,793.7		4,590.7
Losses and Expenses
Losses and loss adjustment expenses		2,964.7		2,884.1		2,927.5		2,761.1		2,974.4
Amortization of deferred acquisition costs		1,035.2		1,033.2		1,040.0		971.0		938.1
Net loss from repayment of debt		88.3		24.1		0.1		27.7		5.1
Gain on disposal of U.K. motor business		(1.1)		(38.4)		-		-		-
Other operating expenses		666.4		691.6		722.0		704.8		644.4
Total losses and expenses		4,753.5		4,594.6		4,689.6		4,464.6		4,562.0
Income before income taxes		192.3		439.4		378.0		329.1		28.7
Income tax expense (benefit)		36.2		108.6		95.7		83.4		(17.4)
Income from continuing operations		156.1		330.8		282.3		245.7		46.1
Discontinued operations		(1.0)		0.7		(0.3)		5.3		9.8
Net income	$	155.1	$	331.5	$	282.0	$	251.0	$	55.9
Net income per common share (diluted)	$	3.59	$	7.40	$	6.28	$	5.59	$	1.23
Dividends declared per common share	$	1.88	$	1.69	$	1.52	$	1.36	$	1.23
Balance Sheets (at December 31)
Total assets	$	14,220.4	$	13,781.2	$	13,748.9	$	13,367.3	$	13,478.6
Debt		786.4		803.1		892.7		892.5		843.1
Total liabilities		11,362.9		10,936.8		10,904.9		10,772.8		10,883.2
Shareholders' equity		2,857.5		2,844.4		2,844.0		2,594.5		2,595.4

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

TABLE OF CONTENTS

Introduction	42
Executive Overview	42
Description of Operating Segments	43
Results of Operations - Consolidated	43
Results of Operations - Segments	45
Investments	65
Other Items	69
Quantitative and Qualitative Disclosures about Market Risk	70
Income Taxes	71
Critical Accounting Estimates	72
Statutory Surplus of U.S. Insurance Subsidiaries	76
Lloyd’s Capital Requirement	76
Liquidity and Capital Resources	77
Off-Balance Sheet Arrangements	80
Contingencies and Regulatory Matters	80
Rating Agencies	80
Risks and Forward-Looking Statements	80
Glossary of Selected Insurance Terms	81

a

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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 U.S. domiciled property and casualty companies; Chaucer Holdings Limited (“Chaucer”), our United Kingdom (“U.K.”) domiciled specialist insurance underwriting group which operates through the Society and Corporation of Lloyd’s (“Lloyd’s”); and other insurance and non-insurance subsidiaries. Results of operations include our discontinued operations, consisting primarily of our former life insurance businesses and our accident and health business.

EXECUTIVE OVERVIEW

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

Net income was $155.1 million in 2016, compared to $331.5 million in 2015. In 2016, net income was adversely affected by lower operating income driven by unfavorable development on prior years’ loss and loss adjustment expense (“LAE”) reserves, partially offset by lower catastrophe and current accident year losses. (See discussion below). Additionally, net income was adversely affected by prepayment charges of $56.0 million, net of tax, which we paid in the second quarter in connection with the redemption of $380.0 million in higher coupon debt following our issuance of $375.0 million of 4.50% senior debentures.

Operating income before interest expense and income taxes (a non-GAAP financial measure; see also “Results of Operations – Consolidated” below) was $322.8 million in 2016 compared to $466.1 million in 2015, a decrease of $143.3 million. This decrease is due to unfavorable development on prior years’ loss and LAE reserves (“prior years’ loss reserves”), partially offset by lower catastrophe losses and current accident year losses. Unfavorable development on prior years’ loss reserves was $140.3 million in 2016, compared to favorable development of $94.3 million in 2015. Pre-tax catastrophe losses were $125.1 million in 2016, compared to $181.3 million during 2015. As explained later in this document, a portion of the change in operating income before interest expense and income taxes is also attributable to the effect of foreign exchange fluctuations. The fourth quarter of 2016 included a reserve charge of $174.1 million as a result of our fourth quarter reserve review. See also “2016 Fourth Quarter Domestic Business Loss and LAE Reserve Increase” section below for further discussion.

We are continuing efforts to improve our underwriting results in both our Commercial and Personal Lines, through rate increases and improvements to our mix of business. At Chaucer, we continued to experience significant competitive pressure on rates in 2016, which is expected to persist in 2017. In response to these challenging market conditions, we actively manage Chaucer’s underwriting portfolio, using our expertise, distinctive underwriting capabilities and market knowledge to target specific attractive underwriting opportunities.

Commercial Lines

We believe our 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. The small commercial and middle market businesses are expected to contribute to premium growth in Commercial Lines over the next several years as we continue to pursue our core strategy of developing strong partnerships with agents, distinctive products, franchise value through limited distribution, and industry segmentation. Growth in our specialty lines continues to be an important part of our strategy.

We believe these efforts have driven, and will continue to drive, improvement in our overall mix of business and our underwriting profitability. Commercial Lines net premiums written grew by 3.5% in 2016, driven by both our core commercial and specialty businesses. This growth is primarily due to rate and exposure increases, strong retention and targeted new business expansion.

Underwriting results declined in 2016, as compared to 2015, due toa significant increase in unfavorable development on prior years’ loss reserves, partially offset by lower current accident year losses and lower catastrophe losses. Excluding the aforementioned reserve charge in the fourth quarter of 2016, current accident year results improved across most lines. 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 our lines of business.

Personal Lines

Personal Lines focuses on partnering with high quality, value-oriented agencies that deliver consultative selling and stress the importance of account rounding (the conversion of single policy customers to accounts with multiple policies and additional coverages). Approximately 83% of our policies in force are account business. We are focused on making investments that help maintain profitability, build a distinctive position in the market, help diversify us geographically from our largest historical core states of Michigan, Massachusetts and New York, and provide us with profitable growth opportunities.

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Net premiums written grew by 5.2% in 2016, primarily due to increased rates in both the homeowners and personal automobile lines, as well as improved new business trends and higher retention. Underwriting results improved in 2016, as compared to 2015, primarily due to lower catastrophe losses and improved current accident year loss performance, partially offset by unfavorable development on prior years’ loss reserves and higher expenses. We continue to seek rate increases that keep pace with underlying loss cost trends, subject to regulatory and competitive considerations.

Chaucer

Chaucer deploys specialist underwriters in over 30 major insurance and reinsurance classes, including marine and aviation, property, energy, casualty and other coverages. We obtain business through Lloyd’s, the leading international insurance and reinsurance market, which provides us with access to specialist business in over 200 countries and territories worldwide through its international licenses, brand reputation and strong security rating. Our underwriting strength, diverse portfolio and Lloyd’s membership underpin our ability to actively manage the scale, composition and profitable development of this business.

Underwriting results declined in 2016, as compared to 2015, primarily due to higher current accident year losses, lower favorable development on prior years’ loss reserves, and higher expenses, partially offset by lower catastrophe losses. Chaucer’s net premiums written declined by 8.2% in 2016, primarily due to a planned increase in ceded reinsurance premiums, as we continue to manage our overall underwriting risk given the challenging market conditions. 

DESCRIPTION OF OPERATING SEGMENTS

Primary business operations include insurance products and services currently provided through four operating segments. Our domestic operating segments are Commercial Lines, Personal Lines, and Other. Our international operating segment is Chaucer. Commercial Lines includes commercial multiple peril, commercial automobile, workers’ compensation and other commercial coverages, such as inland marine, specialty program business, management and professional liability, surety and specialty property. Personal Lines includes personal automobile, homeowners and other personal coverages. Chaucer includes marine and aviation, property, energy, casualty and other coverages (which includes international liability, specialist liability coverages, and syndicate participations) and, prior to June 30, 2015, U.K. motor. Effective June 30, 2015, we transferred our U.K. motor business to an unaffiliated U.K.-based insurance provider. Accordingly, results from the Chaucer segment no longer include this business subsequent to June 30, 2015. 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; and, a discontinued voluntary 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 debentures, subordinated debentures, collateralized borrowings with the Federal Home Loan Bank of Boston (“FHLBB”), and letter of credit facility. 

RESULTS OF OPERATIONS – CONSOLIDATED

2016 Compared to 2015

Consolidated net income was $155.1 million in 2016, compared to $331.5 million in 2015. The decrease of $176.4 million is primarily due to lower operating income of $95.6 million, principally from $105.4 million of unfavorable development on prior years’ loss reserves, or approximately 2% of total net reserves (including development on catastrophe losses), partially offset by lower catastrophe losses and current accident year losses. Consolidated net income for the year ended December 31, 2016 also included net losses from the repayment of debt of $57.4 million, net of tax, compared to $15.7 million, net of tax, for the year ended December 31, 2015. Additionally, the year ended December 31, 2015, included after-tax gains of $40.6 million from the disposal of the U.K. motor business.

2015 Compared to 2014

Consolidated net income was $331.5 million in 2015, compared to $282.0 million in 2014. The increase of $49.5 million is primarily due to higher operating income of $47.3 million, principally from lower catastrophe losses and a lower expense ratio.  Additionally, consolidated net income in 2015 included the $40.6 million net gain from the disposal of the U.K. motor business. These increases were partially offset by lower net realized investment gains and an increase in net losses from repayments of debt. Net realized investment gains decreased during 2015 primarily as a result of an increase in other-than-temporary impairments (“OTTI”), and from lower gains from the sale of securities. Additionally, the year ended December 31, 2014 included after-tax losses of $7.9 million from the settlement of a portion of the defined benefit pension plan obligation.  

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The following table reflects operating income 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		2016		2015		2014
(in millions)
Operating income (loss) before interest expense and income taxes:
Commercial Lines	$	35.9	$	143.3	$	139.9
Personal Lines		178.4		149.3		99.0
Chaucer		126.8		183.7		177.6
Other		(18.3)		(10.2)		(9.7)
Operating income before interest expense and income taxes		322.8		466.1		406.8
Interest expense on debt		(54.9)		(60.6)		(65.8)
Operating income before income taxes		267.9		405.5		341.0
Income tax expense on operating income		(83.5)		(125.5)		(108.3)
Operating income		184.4		280.0		232.7
Non-operating items:
Net realized investment gains		8.6		19.5		50.1
Net loss from repayment of debt		(88.3)		(24.1)		(0.1)
Gain on disposal of U.K. motor business		1.1		38.4		-
Loss from settlement of pension obligation		-		-		(12.1)
Other		3.0		0.1		(0.9)
Income tax benefit on non-operating items		47.3		16.9		12.6
Income from continuing operations, net of taxes		156.1		330.8		282.3
Net (loss) gain from discontinued operations, net of taxes		(1.0)		0.7		(0.3)
Net income	$	155.1	$	331.5	$	282.0

Non-GAAP Financial Measures

In addition to consolidated net income, discussed above, we assess our financial performance based upon pre-tax “operating income,” and we assess the operating performance of each of our four operating segments based upon the pre-tax operating income (loss) generated by each segment. As reflected in the table above, operating income before taxes excludes interest expense on debt and certain other items which we believe are not indicative of our core operations, such as net realized 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 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 taxes are important components in understanding and assessing our overall financial performance, we believe a discussion of operating income before 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 taxes, which is a non-GAAP measure, should not be construed as a substitute for income before income taxes, 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. Catastrophes and prior years’ reserve development 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 of Financial Condition and Results of Operations includes development on prior years’ catastrophe reserves and, unless otherwise indicated, such development is excluded from discussions on 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, taxes and other items which management believes are not indicative of our core operations, including realized gains and losses.

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

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Operating revenues
Net premiums written	$	4,698.8	$	4,616.8	$	4,810.1
Net premiums earned	$	4,628.1	$	4,704.8	$	4,710.3
Net investment income		279.4		279.1		270.3
Other income		29.7		30.6		36.9
Total operating revenues		4,937.2		5,014.5		5,017.5
Losses and operating expenses
Losses and LAE		2,964.7		2,884.1		2,927.5
Amortization of deferred acquisition costs		1,035.2		1,033.2		1,040.0
Other operating expenses		614.5		631.1		643.2
Total losses and operating expenses		4,614.4		4,548.4		4,610.7
Operating income before interest expense and income taxes	$	322.8	$	466.1	$	406.8

2016 Compared to 2015

Operating income before interest expense and income taxes was $322.8 million for the year ended December 31, 2016, compared to $466.1 million for the year ended December 31, 2015, a decrease of $143.3 million. This decrease was primarily due to higher unfavorable prior years’ loss reserve development, partially offset by lower catastrophe and current accident year losses. Unfavorable development on prior years’ loss reserves was $140.3 million for the year ended December 31, 2016, compared to favorable development of $94.3 million for the year ended December 31, 2015, a change of $234.6 million.Catastrophe-related activity for the year ended December 31, 2016 was $125.1 million, compared to $181.3 million for the year ended December 31, 2015, a decrease of $56.2 million.  Lower current accident year losses in our domestic segment were partially offset by higher losses in our Chaucer segment.

Net premiums written increased by $82.0 million for the year ended December 31, 2016, compared to the year ended December 31, 2015. This increase was primarily the result of growth in our domestic lines, partially offset by a planned increase in ceded reinsurance premiums in the Chaucer business.

2015 Compared to 2014

Operating income before interest expense and income taxes was $466.1 million for the year ended December 31, 2015, compared to $406.8 million for the year ended December 31, 2014, an increase of $59.3 million. This increase was due primarily to lower catastrophe losses, a lower expense ratio and higher net investment income, partially offset by higher large loss activity in the Chaucer segment and lower favorable development on prior years’ loss reserves.

Catastrophe-related activity for the year ended December 31, 2015 was $181.3 million, compared to $223.0 million for the year ended December 31, 2014, a decrease of $41.7 million.  

Favorable development on prior years’ loss reserves was $94.3 million for the year ended December 31, 2015, compared to $99.1 million for the year ended December 31, 2014, a decrease of $4.8 million.

Excluding the effect of our transfer of the U.K. motor business, net premiums written increased by $112.7 million for the year ended December 31, 2015, compared to the year ended December 31, 2014. This increase was primarily driven by pricing increases, increased retention, and targeted new business expansion primarily in Commercial Lines. U.K. motor net premium written was $(8.3) million and $297.7 million in 2015 and 2014, respectively.

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Foreign Exchange

Most of Chaucer’s transactions are denominated in the currencies that we use to settle transactions with Lloyd’s, specifically the U.S. Dollar, the U.K. Pound Sterling (“GBP”) and the Canadian Dollar. These are Chaucer’s functional currencies under U.S. GAAP. A portion of Chaucer’s transactions and its assets and liabilities are denominated in other currencies, such as the Euro, the Swiss Franc, the Australian Dollar and the Japanese Yen. Changes in the value of these currencies versus the functional currencies, particularly versus the GBP, cause transactional gains and losses during each reporting period. During 2016, the GBP weakened meaningfully against most currencies. We believe that this was due, in large part, to the effect of the U.K’s referendum vote to discontinue its membership in the European Union (“Brexit Referendum”). In contrast, during 2015 and 2014, the GBP strengthened against most currencies. The following table summarizes the total effect of Chaucer’s foreign exchange transactional gains and losses on comprehensive income:

YEARS ENDED DECEMBER 31		2016		2015		2014
in millions
Effect of revaluing loss and LAE reserves	$	(36.9)	$	13.4	$	11.8
Effect of revaluing overseas deposits and cash		11.5		(0.5)		(4.6)
Effect of revaluing premium receivables		3.4		(1.2)		(2.9)
Total FX effect on operating income before interest
expense and income taxes		(22.0)		11.7		4.3
FX losses reflected in net realized investment gains		(0.7)		(3.4)		(1.3)
Total FX effect on income before income taxes		(22.7)		8.3		3.0
Unrealized FX gains (losses) from investment securities		8.3		(1.2)		(4.7)
Total pre-tax effect of transactional FX (losses) gains on
comprehensive income		(14.4)		7.1		(1.7)
Income tax benefit (expense)		5.0		(2.5)		0.6
Total effect of transactional FX  (losses) gains on
comprehensive income	$	(9.4)	$	4.6	$	(1.1)

During 2016, foreign exchange losses reduced pre-tax operating income by approximately $22.0 million compared to foreign exchange gains on pre-tax operating income of approximately $11.7 million and $4.3 million in 2015 and 2014, respectively. This was due primarily to the revaluation of loss and LAE reserves in various currencies, particularly the Euro, the Australian Dollar and the Japanese Yen, partially offset by the revaluation of investments in overseas deposits and cash. In addition, during 2016, pre-tax unrealized foreign exchange gains from Euro-denominated investment securities were $8.3 million, which was reflected as an increase to accumulated other comprehensive income. During 2015 and 2014 the pre-tax unrealized foreign exchange impact from Euro-denominated investment securities was a loss of $1.2 million and $4.7 million, respectively.

Although we endeavor to balance assets and liabilities for our foreign currencies, a certain level of net exposure to exchange rate fluctuations persists. We monitor and seek to limit the extent of this exposure. These transactional foreign exchange gains and losses are unlikely to be material to our financial position, although they may be more significant to our financial results of operations in any one period.

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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, LAE, expense and combined ratios for the Commercial Lines, Personal Lines and Chaucer segments. Loss, LAE, catastrophe loss and combined ratios shown below include prior year reserve development. These items are not meaningful for our Other segment.

	YEAR ENDED DECEMBER 31, 2016
(dollars in millions)		Gross Premiums Written		Net Premiums Written		Net Premiums Earned	Catastrophe Loss Ratios	Loss & LAE Ratios	Expense Ratios	Combined Ratios
Commercial Lines	$	2,686.2	$	2,361.5	$	2,318.0	3.0	69.1	36.0	105.1
Personal Lines		1,604.6		1,521.2		1,471.5	3.2	63.6	28.7	92.3
Chaucer		1,106.6		816.1		838.6	1.0	50.0	40.4	90.4
Total	$	5,397.4	$	4,698.8	$	4,628.1	2.7	64.1	34.5	98.6
	YEAR ENDED DECEMBER 31, 2015
(dollars in millions)		Gross Premiums Written		Net Premiums Written		Net Premiums Earned	Catastrophe Loss Ratios	Loss & LAE Ratios	Expense Ratios	Combined Ratios
Commercial Lines	$	2,592.5	$	2,281.9	$	2,227.0	4.0	64.0	36.4	100.4
Personal Lines		1,530.5		1,445.6		1,426.6	5.3	66.0	28.2	94.2
Chaucer		1,321.5		889.3		1,051.2	1.6	49.2	38.3	87.5
Total	$	5,444.5	$	4,616.8	$	4,704.8	3.9	61.3	34.4	95.7
	YEAR ENDED DECEMBER 31, 2014
(dollars in millions)		Gross Premiums Written		Net Premiums Written		Net Premiums Earned	Catastrophe Loss Ratios	Loss & LAE Ratios	Expense Ratios	Combined Ratios
Commercial Lines	$	2,442.5	$	2,155.9	$	2,081.4	4.2	63.1	37.1	100.2
Personal Lines		1,517.3		1,422.8		1,407.1	7.6	69.6	28.1	97.7
Chaucer		1,505.6		1,231.4		1,221.8	2.4	51.9	38.1	90.0
Total	$	5,465.4	$	4,810.1	$	4,710.3	4.7	62.2	34.7	96.9

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The following table summarizes 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, 2016
(dollars in millions)		Net Premiums Written	Loss & LAE Ratios	Catastrophe Loss Ratios
Commercial Lines:
Commercial multiple peril	$	792.9	66.7	5.8
Commercial automobile		307.1	78.6	0.8
Workers' compensation		285.6	50.6	-
Other commercial		975.9	73.2	2.4
Total Commercial Lines		2,361.5	69.1	3.0
Personal Lines:
Personal automobile		953.6	72.2	0.6
Homeowners		529.7	49.9	7.8
Other personal		37.9	43.1	2.9
Total Personal Lines		1,521.2	63.6	3.2
Total	$	3,882.7	67.2	3.1
	YEAR ENDED DECEMBER 31, 2015
(dollars in millions)		Net Premiums Written	Loss & LAE Ratios	Catastrophe Loss Ratios
Commercial Lines:
Commercial multiple peril	$	752.6	61.7	7.4
Commercial automobile		306.0	78.2	0.2
Workers' compensation		267.8	50.6	-
Other commercial		955.5	64.9	3.7
Total Commercial Lines		2,281.9	64.0	4.0
Personal Lines:
Personal automobile		900.0	71.1	0.5
Homeowners		507.4	59.7	14.0
Other personal		38.2	32.2	2.6
Total Personal Lines		1,445.6	66.0	5.3
Total	$	3,727.5	64.8	4.5
	YEAR ENDED DECEMBER 31, 2014
(dollars in millions)		Net Premiums Written	Loss & LAE Ratios	Catastrophe Loss Ratios
Commercial Lines:
Commercial multiple peril	$	705.1	62.2	10.4
Commercial automobile		302.6	76.6	0.4
Workers' compensation		247.8	68.0	-
Other commercial		900.4	57.7	1.8
Total Commercial Lines		2,155.9	63.1	4.2
Personal Lines:
Personal automobile		884.1	72.5	1.0
Homeowners		499.0	67.1	19.5
Other personal		39.7	38.3	2.5
Total Personal Lines		1,422.8	69.6	7.6
Total	$	3,578.7	65.8	5.6

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The following table summarizes premiums written on a gross and net basis and net premiums earned by line of business for the Chaucer segment.

	YEAR ENDED DECEMBER 31, 2016
(in millions)		Gross Premiums Written		Net Premiums Written		Net Premiums Earned
Chaucer:
Marine and aviation	$	356.9	$	268.7	$	267.3
Property		230.1		141.8		144.1
Energy		158.7		97.5		125.5
Casualty and other		360.9		308.1		301.7
Total Chaucer	$	1,106.6	$	816.1	$	838.6
	YEAR ENDED DECEMBER 31, 2015
(in millions)		Gross Premiums Written		Net Premiums Written		Net Premiums Earned
Chaucer:
Marine and aviation	$	354.2	$	286.9	$	277.6
Property		236.1		166.9		169.1
Energy		198.6		136.2		174.8
U.K. motor		187.5		(8.3)		135.4
Casualty and other		345.1		307.6		294.3
Total Chaucer	$	1,321.5	$	889.3	$	1,051.2
	YEAR ENDED DECEMBER 31, 2014
(in millions)		Gross Premiums Written		Net Premiums Written		Net Premiums Earned
Chaucer:
Marine and aviation	$	374.6	$	304.8	$	284.1
Property		245.4		179.2		187.6
Energy		247.2		173.0		200.0
U.K. motor		319.1		297.7		305.9
Casualty and other		319.3		276.7		244.2
Total Chaucer	$	1,505.6	$	1,231.4	$	1,221.8

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The following table summarizes GAAP underwriting results for the Commercial Lines, Personal Lines, Chaucer and Other segments and reconciles it to operating income (loss) before interest expense and income taxes.  

	YEAR ENDED DECEMBER 31, 2016
(in millions)		Commercial Lines		Personal Lines		Chaucer		Other		Total
Underwriting profit (loss), excluding prior year
reserve development and catastrophes	$	171.1	$	155.1	$	(7.0)	$	(2.5)	$	316.7
Prior year (unfavorable) favorable loss and LAE reserve
development on non-catastrophe losses		(223.0)		(4.3)		95.3		(8.3)		(140.3)
Prior year favorable (unfavorable)
catastrophe development		3.7		(6.3)		37.5		-		34.9
Current year catastrophe losses		(73.8)		(40.7)		(45.5)		-		(160.0)
Underwriting (loss) profit		(122.0)		103.8		80.3		(10.8)		51.3
Net investment income		158.5		69.5		45.7		5.7		279.4
Fees and other income		8.5		11.4		7.1		2.7		29.7
Other operating expenses		(9.1)		(6.3)		(6.3)		(15.9)		(37.6)
Operating income (loss) before interest expense and
income taxes	$	35.9	$	178.4	$	126.8	$	(18.3)	$	322.8
	YEAR ENDED DECEMBER 31, 2015
(in millions)		Commercial Lines		Personal Lines		Chaucer		Other		Total
Underwriting profit (loss), excluding prior year
reserve development and catastrophes	$	121.2	$	128.1	$	28.2	$	(1.6)	$	275.9
Prior year (unfavorable) favorable loss and LAE reserve
development on non-catastrophe losses		(45.2)		19.7		120.1		(0.3)		94.3
Prior year (unfavorable) favorable
catastrophe development		(2.0)		(9.1)		32.9		-		21.8
Current year catastrophe losses		(86.7)		(66.7)		(49.7)		-		(203.1)
Underwriting (loss) profit		(12.7)		72.0		131.5		(1.9)		188.9
Net investment income		156.3		72.5		45.9		4.4		279.1
Fees and other income		8.4		12.2		7.0		3.0		30.6
Other operating expenses		(8.7)		(7.4)		(0.7)		(15.7)		(32.5)
Operating income (loss) before interest expense and
income taxes	$	143.3	$	149.3	$	183.7	$	(10.2)	$	466.1
	YEAR ENDED DECEMBER 31, 2014
(in millions)		Commercial Lines		Personal Lines		Chaucer		Other		Total
Underwriting profit (loss), excluding prior year
reserve development and catastrophes	$	88.7	$	123.4	$	46.7	$	(1.7)	$	257.1
Prior year (unfavorable) favorable  loss and LAE reserve
development on non-catastrophe losses		(9.2)		5.1		104.6		(1.4)		99.1
Prior year (unfavorable) favorable
catastrophe development		(4.9)		-		23.2		-		18.3
Current year catastrophe losses		(82.9)		(106.4)		(52.0)		-		(241.3)
Underwriting (loss) profit		(8.3)		22.1		122.5		(3.1)		133.2
Net investment income		149.4		71.9		44.2		4.8		270.3
Fees and other income		8.2		12.0		13.7		3.0		36.9
Other operating expenses		(9.4)		(7.0)		(2.8)		(14.4)		(33.6)
Operating income (loss) before interest expense and
income taxes	$	139.9	$	99.0	$	177.6	$	(9.7)	$	406.8

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2016 Compared to 2015

Commercial Lines

Commercial Lines net premiums written were $2,361.5 million for the year ended December 31, 2016, compared to $2,281.9 million for the year ended December 31, 2015. This $79.6 million increase was primarily driven by pricing increases, strong retention, and targeted new business expansion.

Commercial Lines underwriting loss for the year ended December 31, 2016 was $122.0 million, compared to $12.7 million for the year ended December 31, 2015, a change of $109.3 million. Unfavorable development on prior years’ loss reserves (“prior year development”) for the year ended December 31, 2016 was $223.0 million, compared to $45.2 million for the year ended December 31, 2015, an unfavorable change of $177.8 million, primarily due to higher than expected losses in other commercial lines of $168.0 million, which includes our AIX program business of $75.3 million. This was principally driven by losses in accident years 2014 and prior, primarily from programs which have since been terminated, as well as higher than expected losses in our general liability lines of $56.0 million, and higher than expected losses in surety lines of $35.3 million. We also experienced unfavorable prior year development in our commercial multiple peril line of $74.2 million and in our commercial automobile line of $27.5 million. These items were partially offset by favorable prior year development in our workers’ compensation line of $46.7 million. Catastrophe-related losses decreased for the year ended December 31 2016 at $70.1 million, compared to $88.7 million for the year ended December 31, 2015.

Commercial Lines current accident year underwriting profit, excluding catastrophes, was $171.1 million for the year ended December 31, 2016, compared to $121.2 million for the year ended December 31, 2015. This $49.9 million improvement was primarily due to improved current accident year loss performance, primarily due to property coverages in our commercial multiple peril and inland marine lines, premium growth and lower expenses.

We are continuing efforts to improve our underwriting results, including through increased rates; however, our ability to increase Commercial Lines net premiums written while maintaining or improving underwriting results is expected to be affected by price competition and the challenging economic environment. We continue to monitor these trends and consider them in our rate actions.

Personal Lines

Personal Lines net premiums written were $1,521.2 million for the year ended December 31, 2016, compared to $1,445.6 million for the year ended December 31, 2015, an increase of $75.6 million. This was primarily due to increased rates in both the personal automobile and homeowners lines of business, as well as improved new business trends and higher retention.

Net premiums written in the personal automobile line of business for the year ended December 31, 2016 were $953.6 million, compared to $900.0 million for the year ended December 31, 2015, an increase of $53.6 million. This increase was primarily due to rate increases, as well as an increase in policies in force of 1.4%. Net premiums written in the homeowners line of business for the year ended December 31, 2016 were $529.7 million, compared to $507.4 million for the year ended December 31, 2015, an increase of $22.3 million. This is attributable to rate increases, as well as an increase in policies in force of 1.8%.

Personal Lines underwriting profit for the year ended December 31, 2016 was $103.8 million, compared to $72.0 million for the year ended December 31, 2015, an improvement of $31.8 million. Catastrophe losses for the year ended December 31, 2016 were $47.0 million, compared to $75.8 million for the year ended December 31, 2015, a decrease of $28.8 million. Unfavorable development on prior years’ loss reserves for the year ended December 31, 2016 was $4.3 million, compared to favorable prior year development of $19.7 million for the year ended December 31, 2015, a decline of $24.0 million.

Personal Lines current accident year underwriting profit, excluding catastrophes, was $155.1 million in the year ended December 31, 2016, compared to $128.1 million for the year ended December 31, 2015. This $27.0 million increase was primarily a result of lower weather-related property losses, primarily in our homeowners line of business, as well as rate increases.

Although we have been able to obtain rate increases in our Personal Lines markets and believe that our ability to obtain these increases will continue, our ability to maintain Personal Lines net premiums written and to maintain and improve underwriting results may be affected by price competition, recent years’ weather-related losses, our exposure management actions, and regulatory and legal developments. We monitor these trends and consider them in our rate actions.

Chaucer

Chaucer’s net premiums written were $816.1 million for the year ended December 31, 2016, compared to $889.3 million for the year ended December 31, 2015. This decline of $73.2 million was primarily due to a planned increase in ceded reinsurance premiums as we manage our overall underwriting risk given the challenging market conditions, as well as from lower premium volumes in our energy line where underwriting conditions continued to reflect the effects of low oil prices, and in our aviation line,  partially offset by growth in our marine and casualty lines.

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Chaucer’s underwriting profit for the year ended December 31, 2016 was $80.3 million, compared to $131.5 million for the year ended December 31, 2015, a decrease of $51.2 million. This decrease is primarily due to higher current accident year losses, lower favorable prior year reserve development and higher expenses, partially offset by lower catastrophe losses. Favorable development on prior years’ loss reserves for the year ended December 31, 2016 was $95.3 million, compared to $120.1 million for the year ended December 31, 2015, a decrease of $24.8 million, including the effect of foreign exchange fluctuations (see “Foreign Exchange” section above for further discussion). Catastrophe losses for the year ended December 31, 2016 were $8.0 million, compared to $16.8 million for the year ended December 31, 2015, a decrease of $8.8 million.

Chaucer’s current accident year underwriting loss, excluding catastrophes, was $7.0 million in the year ended December 31, 2016, compared to an underwriting profit of $28.2 million for the year ended December 31, 2015. This $35.2 million change was primarily due to higher large losses in the marine line, including trade credit coverages related to poor market conditions and underlying commodity price-sensitive accounts, and an increased frequency of losses in our property line, partially offset by lower large losses in the energy line.

We continue to experience significant competition across the international insurance industry. Current pricing conditions in all markets continue to be affected by high industry capacity and competition, and a continued absence of major losses in our markets. There can be no assurance that we will be able to maintain adequate rates in light of economic conditions in our markets. Additionally, because of the inherently volatile nature of losses in many of our product lines, we may continue to experience large losses or an elevated level of losses from these or other product lines.

Other

Other operating losses were $18.3 million for the year ended December 31, 2016, compared to $10.2 million for the year ended December 31, 2015, an increase of $8.1 million primarily due to unfavorable prior year reserve development in our run-off voluntary pools business.

2015 Compared to 2014

Commercial Lines

Commercial Lines net premiums written were $2,281.9 million for the year ended December 31, 2015, compared to $2,155.9 million for the year ended December 31, 2014. This $126.0 million increase was primarily driven by pricing increases, increased retention, and targeted new business expansion.

Commercial Lines underwriting loss for the year ended December 31, 2015 was $12.7 million, compared to $8.3 million for the year ended December 31, 2014, a decline of $4.4 million. Unfavorable development on prior years’ loss reserves for the year ended December 31, 2015 was $45.2 million, compared to $9.2 million for the year ended December 31, 2014, an increase of $36.0 million.  Catastrophe-related losses increased slightly for theyear ended December 31 2015 at $88.7 million, compared to $87.8 million for the year ended December 31, 2014. Unfavorable prior year development was due to higher than expected losses in other commercial lines of $53.7 million, which includes our AIX program business. This was principally driven by losses in accident years 2013 and prior, primarily from programs which have since been terminated and from higher than expected losses in our general liability lines, partially offset by favorable development in our commercial umbrella and healthcare lines, also included in other commercial lines. We also experienced unfavorable prior year development in our commercial automobile line of $23.4 million. These items were partially offset by favorable prior year development in our workers’ compensation line of $46.9 million.

Commercial Lines current accident year underwriting profit, excluding catastrophes, was $121.2 million for the year ended December 31, 2015, compared to $88.7 million for the year ended December 31, 2014. This $32.5 million improvement was primarily due to growth in earned premium, underwriting expense efficiencies, and improved loss performance in all major lines of business that resulted from our pricing and underwriting actions.

Personal Lines

Personal Lines net premiums written were $1,445.6 million for the year ended December 31, 2015, compared to $1,422.8 million for the year ended December 31, 2014, an increase of $22.8 million. This was due primarily to increased rates and improved retention in both the personal automobile and homeowners lines of business.

Net premiums written in the personal automobile line of business for the year ended December 31, 2015 were $900.0 million compared to $884.1 million for the year ended December 31, 2014, an increase of $15.9 million. This increase was primarily due to rate increases, partially offset by a decline in policies in force of 3.2%. Net premiums written in the homeowners line of business for the year ended December 31, 2015 were $507.4 million, compared to $499.0 million for the year ended December 31, 2014, an increase of $8.4 million. This is attributable to rate increases which offset a decline in policies in force of 1.9%.

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Personal Lines underwriting profit for the year ended December 31, 2015 was $72.0 million, compared to $22.1 million for the year ended December 31, 2014, an improvement of $49.9 million. Catastrophe losses for the year ended December 31, 2015 were $75.8 million, compared to $106.4 million for the year ended December 31, 2014, a decrease of $30.6 million. Favorable development on prior years’ loss reserves for the year ended December 31, 2015 was $19.7 million, compared to $5.1 million for the year ended December 31, 2014, an increase of $14.6 million, primarily from the homeowners line.

Personal Lines current accident year underwriting profit, excluding catastrophes, was $128.1 million in the year ended December 31, 2015, compared to $123.4 million for the year ended December 31, 2014. This $4.7 million improvement was primarily a result of our ongoing pricing and underwriting actions in both lines of business, partially offset by higher large loss experience in the homeowners line, largely due to fire.

Chaucer

Chaucer’s net premiums written were $889.3 million for the year ended December 31, 2015, compared to $1,231.4 million for the year ended December 31, 2014. This decline of $342.1 million was primarily due to the aforementioned transfer of the U.K. motor business. Excluding the U.K. motor business, net premiums written declined by $36.1 million or 3.9%, primarily due to lower volumes in the energy, marine and property lines, partially offset by growth in the specialist liability line.

Chaucer’s underwriting profit for the year ended December 31, 2015 was $131.5 million, compared to $122.5 million for the year ended December 31, 2014, an increase of $9.0 million. This increase is primarily due to higher favorable development on prior years’ loss reserves, lower catastrophe losses and lower expenses, partially offset by higher large loss activity in the energy line. Favorable development on prior years’ loss reserves for the year ended December 31, 2015 was $120.1 million, compared to $104.6 million for the year ended December 31, 2014, an increase of $15.5 million. Catastrophe losses for the year ended December 31, 2015 were $16.8 million, compared to $28.8 million for the year ended December 31, 2014, a decrease of $12.0 million.

Chaucer’s current accident year underwriting profit, excluding catastrophes, was $28.2 million in the year ended December 31, 2015, compared to $46.7 million for the year ended December 31, 2014. This $18.5 million decline was primarily due to higher large losses in the energy line, partially offset by lower losses in the aviation and property lines.

Other

Other operating losses were $10.2 million for the year ended December 31, 2015, compared to $9.7 million for the year ended December 31, 2014, an increase of $0.5 million.

RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

Overview of Loss Reserve Estimation Process

We maintain reserves for our property and casualty 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 and 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, 2016 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, 2016 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 property and casualty loss reserves are not discounted to present value.

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

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

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

The IBNR reserve includes 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 52% of our aggregate net loss reserves at December 31, 2016 were for IBNR losses and loss expenses.

Critical Judgments and Key Assumptions

We determine the amount of our loss reserves based on an estimation process that is very complex and considers information from both company specific and industry data, as well as general economic and other information. The estimation process is 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.

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, 2016 were $4.7 billion. Therefore, a relatively small percentage change in the estimate of net loss reserves would have a material effect on our results of operations.

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. In addition, the technological, judicial, regulatory and political climates involving these types of claims are continuously evolving. 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, such as certain new program business written by AIX, Chaucer’s U.S. casualty treaty and international liability lines, our professional liability specialty lines, our excess and surplus specialty lines, and business written in the western part of the United States. In some 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. The Chaucer business acquired in 2011 contains several liability lines, of which financial institution and professional liability, U.S. casualty treaty liability, international liability and energy liability, contribute the most uncertainty. Chaucer’s U.S. casualty treaty lines have grown in 2015 and 2016, due to our expanded underwriting capabilities.

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 developed unfavorably by $140.3 million for the year ended December 31, 2016, and developed favorably by $94.3 million, and $99.1 million for the years ended December 31, 2015, and 2014, respectively. Additionally, our estimated loss and LAE reserves for catastrophe claims occurring in prior years developed favorably by $34.9 million, $21.8 million and $18.3 million for the years ended December 31, 2016, 2015 and 2014, respectively. However, 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. However, establishment of appropriate reserves is an inherently uncertain process, and there can be no certainty that current established reserves will prove adequate in light of subsequent actual experience. A significant change to the estimated reserves could have a material impact on our results of operations and financial position. An increase or decrease in reserve estimates would result in a corresponding decrease or increase in financial results. For example, each 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 $46 million impact on operating income, based on 2016 full year premiums.

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

Some risk factors affect multiple lines of business. Examples include changes in claim handling and claim reserving practices, changes in claim settlement patterns, regulatory and legislative actions, court actions, timeliness of claim reporting, state mix of claimants, and degree of claimant fraud. Additionally, there is also a higher degree of uncertainty due to growth in our newly acquired businesses, with respect to which we have less familiarity and, in some cases, limited historical claims experience. 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 property and casualty 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 have seen recent increasing trends in medical costs, wages and legal costs, which are key considerations in setting reserve assumptions for workers’ compensation and other liability lines. We are also monitoring the continued advancements in technology and design found in automobiles and homes and the potential for increased claims settlement costs that may result from repairs or replacement of such equipment. Increases are reflected in our current reserve estimates, but continued increases could 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 are often highly unpredictable and could involve material unanticipated damage awards.

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 damage, homeowners property, commercial property and marine business. The Chaucer business, while having more longer-tail coverages than our traditional U.S. business, contains a substantial book of worldwide property insurance and reinsurance business, including certain high excess property layers, marine property, aviation property and energy property business, which has relatively short development patterns. For these property coverages, claims are generally reported and settled shortly after the loss occurs because the claims relate to tangible property and are more likely to be discovered shortly after the loss occurs. Consequently, the estimation of loss reserves for these classes is generally less complex. However, this is less true for our Chaucer assumed reinsurance business and high excess property layers where there is often a longer period of time between the date a claim is incurred and the date the claim is reported to us, as the reinsurer, as compared with our direct insurance operations. This delay in reporting and recognition of the extent of a loss may be greater where Chaucer is not the lead syndicate handling a claim. Therefore, the risk of delayed recognition of loss reserve development is higher for our assumed reinsurance and high excess property layers than for our direct insurance lines.

While we estimate that a majority of our written premium is in what we would characterize as shorter-tailed classes of business, most of our loss reserves relate to longer-tail liability classes of business. Long-tailed classes include commercial liability, automobile liability, workers’ compensation, contract surety and other types of third-party coverage. Chaucer’s longer-tailed lines include aviation liability, trade credit and political risk classes, marine liability, energy liability, nuclear liability, U.S. casualty treaty liability, international liability, specialist liability, and financial institutions and professional liability. 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 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.

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Most of our indirect business from discontinued voluntary and involuntary pools is 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.

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

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

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

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

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

In addition to the methods described above, various tailored reserving methodologies are used for certain businesses. For example, for some low volume and high volatility classes of business, special reserving techniques are utilized that estimate IBNR by selecting the loss ratio that balances actual reported losses to expected reported losses as defined by the estimated underlying reporting pattern. Also, for some classes with long exposure periods (e.g., energy, construction, engineering and political risks), 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 many of the classes of shorter-tailed business in our Chaucer segment, the emergence of paid and incurred losses may exhibit a relatively volatile pattern of loss development from one accident year to the next. In certain cases where there is a relatively low level of reliability placed on the available paid and incurred loss data, expected loss methods or adjusted loss methods are considered appropriate for the most recent accident year.

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For longer-tailed lines of business, applying the loss development factor method often requires even more judgment in selecting development factors, as well as more significant extrapolation. For those long-tailed lines of business with high frequency and relatively low per-loss severity (e.g., personal automobile liability), volatility will often be sufficiently modest for the loss development factor method to be given significant weight, even in the most recent accident years, but expected loss methods and adjusted loss methods are always considered and frequently utilized in the selection process. For those long-tailed lines of business with low frequency and high loss potential (e.g., commercial 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 are based on methods less reliant on extrapolation, such as Bornheutter-Ferguson. Over time, as a greater number of claims are reported and the statistical credibility of loss experience increases, loss development factor methods or adjusted loss methods are given increasing weight.

Management endeavors to apply as much available data as practicable to estimate the loss reserve amount for each line of business, coverage and accident year, utilizing varying assumptions, projections and methods. The ultimate outcome is likely 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 this 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. 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 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, 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 product offerings, new 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 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, 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. These and other issues could have a negative effect on our loss reserves by either extending coverage beyond the original underwriting intent or by increasing the number or size of claims.

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

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For each line of business and coverage, we regularly adjust the assumptions and methods used in the estimation of loss reserves in response to our actual loss experience, as well as our judgments regarding changes in trends and/or emerging patterns. In those instances where we primarily utilize analyses of historical patterns of the development of paid and reported losses, this may be reflected, for example, in the selection of revised loss development factors. In longer-tailed classes of business and for which loss experience is less predictable due to potential changes in judicial interpretations, potential legislative actions, the cost of litigation or determining liability and the ultimate loss, inflation, potential claims and other issues, this may be reflected in a judgmental change in our estimate of ultimate losses for particular accident years.

The Chaucer segment contains run-off business comprised of liability lines, notably financial institutions and professional liability business. There is particular uncertainty around the reserve estimates in respect of business written in 2007 and 2008 which have been subject to claims arising out of the financial turmoil in that time period, particularly in the financial institutions book. These claims are unlikely to be settled for some time since they contain numerous coverage issues and in many cases involve class action lawsuits that are likely to take several years to resolve. We have utilized substantially all of our available reinsurance with respect to losses and LAE related to financial institutions business written in 2008.

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 also comprises 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, and our internal data regarding exposures related to the geographical location of the event. 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, 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 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, and challenges in estimating additional living expenses, assessing the impact of demand surge, exposure to mold 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 which affect our Commercial and Personal Lines business segments, 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, 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.

For events designated as catastrophes which affect our Chaucer business segment, we initially calculate IBNR reserves using a ground up exposure by exposure analysis based on each cedant or insured. These are supported by broker supplied information, catastrophe modeling and industry event estimates. As more specific claim level data becomes available over time for each catastrophe event, these initial estimates are revised and updated by looking at the paid and incurred claim development and by considering it in comparison to previous catastrophe loss events.

Reserving Sensitivity Analysis

The following discussion presents disclosure related to possible variation in net reserve estimates 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 likely scenarios, the reader should not consider the following sensitivity analysis as illustrative of a net reserve range.

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· Personal and Commercial Automobile Bodily Injury – reserves recorded for bodily injury on U.S. voluntary business were $595.8 million as of December 31, 2016. 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 $53 million, either positive or negative, respectively, at December 31, 2016.

· Personal Automobile Personal Injury Protection Medical Payment – reserves recorded for personal injury protection medical payment on U.S. voluntary business were $144.2 million as of December 31, 2016. 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., 1.02 changed to 1.01 or 1.03) would have changed total reserves by approximately $67 million, either positive or negative, at December 31, 2016.

· Workers’ Compensation – reserves recorded for workers’ compensation on U.S. voluntary business were $369.2 million as of December 31, 2016. 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 $83 million, either positive or negative, at December 31, 2016.

· Monoline and Multiple Peril General Liability – reserves recorded for monoline and multiple peril general liability on U.S. voluntary business were $672.0 million as of December 31, 2016. 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 $63 million, either positive or negative, at December 31, 2016.

· Specialty Programs – reserves recorded (including allocated LAE) for the AIX Companies were $342.3 million as of December 31, 2016. 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 AIX program business would have changed total reserves by approximately $50 million at December 31, 2016.

· New classes of business – claims reserves recorded for new classes of Chaucer business (primarily within international liability, U.S. casualty treaty and new lines written in overseas offices) were $221.7 million as of December 31, 2016. An increase in the ultimate loss ratio by 5%, 10% and 15% in the 2014 and prior, 2015 and 2016 years of account, respectively, on these classes would have increased total reserves by approximately $33 million at December 31, 2016.

· Casualty classes of business – claims reserves recorded for casualty classes of Chaucer business were $457.6 million as of December 31, 2016. An increase in the ultimate loss ratio of 2.5% across all classes and years of account would have increased total reserves by approximately $41 million at December 31, 2016.

· Trade Credit Coverages – Chaucer has experienced losses in its trade credit coverages within the marine line primarily attributable to the worldwide drop in commodity prices in 2016. Claims reserves for these losses as of December 31, 2016 were $21 million. If Chaucer were to experience another 10 individual claims, at the same average cost of the 28 notified to date, and were to not make any subrogation type recoveries (on existing or the new claims) then this would have increased total reserves by approximately $21 million at December 31, 2016.

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Carried Reserves and Reserve Rollforward

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

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Gross loss and LAE reserves, beginning of year	$	6,574.4	$	6,391.7	$	6,231.5
Reinsurance recoverable on unpaid losses		2,280.8		1,983.0		2,030.4
Net loss and LAE reserves, beginning of year		4,293.6		4,408.7		4,201.1
Net incurred losses and LAE in respect of losses occurring in:
Current year		2,859.3		3,000.2		3,044.9
Prior year non-catastrophe development		140.3		(94.3)		(99.1)
Prior year catastrophe development		(34.9)		(21.8)		(18.3)
Total incurred losses and LAE		2,964.7		2,884.1		2,927.5
Net payments of losses and LAE in respect of losses occurring in:
Current year		1,142.7		1,245.6		1,328.7
Prior years		1,367.2		1,418.4		1,398.9
Total payments		2,509.9		2,664.0		2,727.6
Commutation of Chaucer Flagstone reinsurance agreement		-		-		85.7
Transfer of U.K. motor business		-		(300.6)		-
Effect of foreign exchange rate changes		(73.8)		(34.6)		(78.0)
Net reserve for losses and LAE, end of year		4,674.6		4,293.6		4,408.7
Reinsurance recoverable on unpaid losses		2,274.8		2,280.8		1,983.0
Gross reserve for losses and LAE, end of year	$	6,949.4	$	6,574.4	$	6,391.7

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

DECEMBER 31		2016		2015		2014
(in millions)
Commercial multiple peril	$	899.7	$	725.1	$	661.5
Workers' compensation		580.2		615.2		615.2
Commercial automobile		374.2		336.2		307.8
Other commercial lines
AIX program business		453.2		398.6		342.9
General liability		261.9		204.8		181.5
Surety		72.4		36.2		19.2
Umbrella		112.6		95.1		89.6
Other lines		311.5		228.2		182.6
Total other commercial lines		1,211.6		962.9		815.8
Total Commercial Lines		3,065.7		2,639.4		2,400.3
Personal automobile		1,430.2		1,407.5		1,407.0
Homeowners and other personal		123.8		120.2		121.4
Total Personal		1,554.0		1,527.7		1,528.4
Total Chaucer		2,289.4		2,372.5		2,425.8
Total Other Segment		40.3		34.8		37.2
Total loss and LAE reserves	$	6,949.4	$	6,574.4	$	6,391.7

Within other commercial lines in the table above, general liability is comprised of both monoline general liability and certain management and professional liability coverages, and other lines is primarily comprised of lawyers professional liability, fidelity, marine, miscellaneous property, and healthcare lines. Loss and LAE reserve development in our Other Segment is related to our run-off voluntary assumed reinsurance pools business. Also included in the above table, primarily in other lines, are $61.0 million, $57.7 million and $60.6 million of asbestos and environmental reserves as of December 31, 2016, 2015 and 2014, respectively. Included in the Chaucer segment in the above table are $117.0 million, $166.0 million and $203.3 million of reserves as of December 31, 2016, 2015 and 2014, respectively, related to Chaucer’s financial and professional liability lines written in 2008 and prior periods.

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Prior Year Development

In 2016, total net unfavorable prior year loss and LAE development, including catastrophe losses, was $105.4 million, or approximately 2% of total net reserves, comprised of unfavorable non-catastrophe loss and LAE development of $140.3 million, partially offset by favorable catastrophe loss development of $34.9 million.  In 2015, total net favorable prior year loss and LAE development, including catastrophe losses, was $116.1 million, or approximately 3% of total net reserves, comprised of favorable non-catastrophe loss and LAE development of $94.3 million and favorable catastrophe loss development of $21.8 million. In 2014, total net favorable prior year loss and LAE development, including catastrophe losses, was $117.4 million, or approximately 3% of total net reserves, comprised of favorable non-catastrophe loss and LAE development of $99.1 million and favorable catastrophe loss development of $18.3 million. 

As a result of our 2016 fourth quarter reserve review of domestic lines of business, as discussed further below, carried domestic reserves for prior accident years, excluding catastrophes, were increased by $174.1 million in the fourth quarter, of which $161.5 million related to Commercial Lines. The majority of this adjustment is attributed to our long-tailed commercial liability coverages, including our AIX program business. In general, higher than expected loss and LAE emergence in 2016 led us to adjust our reserve assumptions in our fourth quarter reserve review and place greater weight on the adverse severity trends experienced in the most recent calendar years. 

It is not possible to know whether the factors that affected loss reserves in the year ended December 31, 2016 will also occur in future periods. As discussed in detail in this Form 10-K, there are inherent uncertainties in estimating reserves for losses and LAE and we encourage you to read this Form 10-K for more information about our reserving process and the judgments, uncertainties and risks associated therewith.

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

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Commercial multiple peril	$	74.2	$	15.0	$	(4.9)
Workers’ compensation		(46.7)		(46.9)		(5.6)
Commercial automobile		27.5		23.4		15.1
Other commercial lines:
AIX program business		75.3		70.7		10.9
General liability		56.0		14.3		2.3
Surety		35.3		1.5		(5.2)
Umbrella		(9.0)		(19.4)		(1.4)
Other lines		10.4		(13.4)		(2.0)
Total other commercial lines		168.0		53.7		4.6
Total Commercial Segment		223.0		45.2		9.2
Personal automobile		4.8		(7.2)		(5.9)
Homeowners and other personal lines		(0.5)		(12.5)		0.8
Total Personal Segment		4.3		(19.7)		(5.1)
Total Chaucer Segment		(95.3)		(120.1)		(104.6)
Total Other Segment		8.3		0.3		1.4
Total loss and LAE reserve development, excluding catastrophes	$	140.3	$	(94.3)	$	(99.1)

2016 Loss and LAE Development, excluding catastrophes

In 2016, net unfavorable loss and LAE development was $140.3 million, primarily as a result of net unfavorable development of $223.0 million for Commercial Lines, partially offset by favorable development of $95.3 million for Chaucer. The net unfavorable Commercial Lines development primarily resulted from higher than expected losses in other commercial lines of $168.0 million, which includes the AIX program business. This was primarily driven by AIX programs and business classes which have since been terminated or substantially revised, general liability coverages in accident years 2012 through 2015, and surety bonds in accident years 2012 through 2015. We also experienced higher than expected losses within the commercial multiple peril line of $74.2 million for accident years 2012 through 2015 and the commercial automobile line of $27.5 million in accident years 2012 through 2014, both primarily within liability coverages. Partially offsetting the unfavorable development was lower than expected losses of $46.7 million within the workers’ compensation line, primarily related to accident years 2013 through 2015, and, to a lesser extent, our commercial umbrella line related to accident year 2015.

Chaucer’s favorable development during 2016 was primarily the result of lower than expected losses in the energy line of $27.6 million, primarily in the 2013 through 2015 accident years, in the marine and aviation line of $24.2 million, primarily in the 2008, 2009, 2014 and 2015 accident years and in the property line of $17.5 million, primarily in the 2013 through 2015 accident years. Additionally, Chaucer experienced lower than expected losses within casualty and other lines, specifically the specialist and international liability lines, of $13.4 million, primarily in the 2014 and prior accident years. Partially offsetting Chaucer’s favorable development was the unfavorable impact of foreign exchange rate movements on prior years’ loss reserves. See “Foreign Exchange” section above for further discussion.

2015 Loss and LAE Development, excluding catastrophes

In 2015, net favorable loss and LAE development was $94.3 million, primarily as a result of favorable development of $120.1 million for Chaucer, partially offset by net unfavorable development of $45.2 million for Commercial Lines. As a result of our year-end 2015 reserve review of domestic commercial and personal lines of business, carried reserves were adjusted among several of these lines of business, impacting the prior year development by line, although these adjustments had no impact on aggregate domestic carried reserves.

Chaucer’s favorable development was primarily the result of lower than expected losses in the energy line of $39.9 million, primarily in the 2012 through 2014 accident years, in the marine and aviation line of $29.6 million, primarily in the 2010, 2012 and 2013 accident years and the property line of $18.5 million, primarily in the 2012 through 2014 accident years. Additionally, Chaucer experienced lower than expected losses within casualty and other lines, specifically the specialist and international liability lines, of $21.9 million primarily in the 2008, 2011 and 2013 accident years. Chaucer’s favorable development was also partially attributable to the favorable impact of foreign exchange rate movements on prior years’ loss reserves. See “Foreign Exchange” section above for further discussion.  

The net unfavorable Commercial Lines development primarily resulted from higher than expected losses in other commercial lines of $53.7 million. This was primarily driven by AIX programs and business classes which have since been terminated and general liability lines in accident years 2009 through 2012, partially offset by lower than expected losses in the commercial umbrella line in accident years 2012 through 2014 and in the healthcare line in accident years 2010 through 2014. We also experienced higher than expected losses within the commercial automobile line of $23.4 million, primarily related to liability coverage in accident years 2011 through 2013, and in the commercial multiple peril line, primarily in accident years 2008, 2009 and 2011. Partially offsetting the unfavorable development was lower than expected losses of $46.9 million within the workers’ compensation line, primarily related to accident years 2005 through 2014, and, to a lesser extent, our commercial umbrella line, primarily related to our 2012 through 2014 accident years.

2014 Loss and LAE Development, excluding catastrophes

In 2014, net favorable loss and LAE development was $99.1 million, primarily as a result of favorable development of $104.6 million for Chaucer, partially offset by net unfavorable development of $9.2 million for Commercial Lines. Chaucer’s favorable development was primarily the result of lower than expected losses in the marine and aviation line of $40.1 million, primarily in the 2011 through 2013 accident years. Additionally, Chaucer experienced lower than expected losses within the property line of $21.5 million, primarily in the 2010 through 2013 accident years, and in casualty and other lines, specifically the specialty liability line of $21.4 million, primarily in the 2010 and 2013 accident years. Chaucer’s favorable development was also partially attributable to the favorable impact of foreign exchange rate movements on prior years’ loss reserves. See “Foreign Exchange” section above for further discussion.

The net unfavorable Commercial Lines development primarily resulted from higher than expected large losses within the commercial automobile coverages of $23.1 million, which includes the AIX program business, primarily related to liability coverage in the 2009 through 2012 accident years. Partially offsetting the unfavorable development was lower than expected losses within the workers’ compensation line, primarily related to the 2007 through 2012 accident years, and the surety line, primarily related to the 2013 accident year.

Catastrophe Loss Development

In 2016, favorable catastrophe development was $34.9 million, primarily due to lower than expected losses in our property line, within our Chaucer segment, of $28.1 million and to a lesser extent, in our commercial multiple peril line, within Commercial Lines. In 2015, favorable catastrophe development was $21.8 million, primarily due to lower than expected losses in our property line, within our Chaucer segment, of $25.3 million, partially offset by higher than expected losses in our homeowners line, within our Personal Lines segment. In 2014, favorable catastrophe development was $18.3 million, primarily due to lower than expected losses in our property, marine and energy lines, within our Chaucer segment, of $23.2 million, partially offset by higher than expected losses in our Commercial Lines segment.

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2016 Fourth Quarter Domestic Business Loss and LAE Reserve Increase

The table below provides a summary of (favorable)/unfavorable loss and LAE reserve development excluding catastrophes for the three months ended December 31, 2016:

(in millions)
Commercial multiple peril	$	43.7
Workers’ compensation		(32.0)
Commercial automobile		18.4
Other commercial lines:
AIX program business		49.6
General liability		45.2
Surety		37.9
Umbrella		(9.4)
Other lines		8.1
Total other commercial lines		131.4
Total Commercial Lines Segment		161.5
Personal automobile		8.2
Homeowners and other personal lines		(3.0)
Total Personal Lines Segment		5.2
Total Other Segment		7.4
Total domestic business loss and LAE reserve development, excluding catastrophes(1)	$	174.1

(1) For the three months ended December 31, 2016, prior year favorable reserve development for catastrophes was $2.0 million for our domestic business.

Through the first nine months of 2016, we recorded $61.5 million of unfavorable loss and LAE reserve development for our domestic business excluding catastrophes, driven by higher than expected large losses in our commercial liability coverages, primarily in our commercial multiple peril line and both our AIX program business and general liability coverages that are within other commercial lines. Additionally, we incurred higher than expected legal defense costs, a component of LAE expenses, during the first nine months of 2016. Other product lines also reported increased claim activity, including commercial automobile and surety.

There was an increased level of loss and LAE activity recorded in certain lines in 2015 that continued throughout 2016, and in some cases intensified into the fourth quarter, and appears to represent longer-term trends that management concluded required recognition. As a result of these trends, during the fourth quarter of 2016, we performed a more in-depth actuarial reserve review in several areas. We assessed the recent large loss activity in our monoline and multiple peril general liability and surety lines and the emergence of such relative to the timing and amounts of expected large losses. For surety, the majority of the recent large loss activity emerged throughout 2016 and intensified during the fourth quarter. We also conducted additional analyses of our general liability coverages and AIX program business within other commercial lines. The results of these analyses indicated that the assumed tail risk included in the loss development patterns needed to be increased. Our claims and actuarial staff also conducted a review of legal defense costs and other claim-specific adjusting expenses as a result of an emerging trend of increased expenses in the these areas over recent quarters. This review concluded that the ultimate costs of these loss adjustment expense were higher than previously estimated, causing management to record an increase in estimated LAE, primarily in our commercial multiple peril and general liability product lines.

As a result of our fourth quarter reserve review, we recognized unfavorable prior year reserve development of $174.1 million for our domestic business excluding catastrophes, largely driven by adverse emergence in most Commercial Lines liability coverages reflecting worsening trends in the number and nature of high severity losses and higher than anticipated legal defense costs. We reacted to this adverse emergence by updating our assumptions about loss severity, loss development patterns, expected loss ratios and loss adjustment expenses for the most recent accident years, placing greater weight on the adverse severity trends experienced in the most recent calendar years. The adverse development in our AIX program business was primarily due to the general liability and commercial automobile liability coverages in the 2011 through 2014 accident years. Additionally, we recognized adverse development in our general liability and commercial multiple peril coverages primarily in accident years 2012 through 2015, contract surety business primarily related to the 2012 through 2015 accident years, and commercial automobile line primarily related to liability coverages for accident years 2012 through 2014. These increases in Commercial Lines reserves were partially offset by favorable development in our workers’ compensation line, primarily in the 2013 through 2015 accident years and, to a lesser extent, our commercial umbrella coverage in the 2015 accident year. The adverse prior year reserve development for personal lines was primarily due to higher than expected losses in our bodily injury coverage in accident years 2013 through 2015. The adverse prior year development for our Other segment was due to our run-off voluntary assumed reinsurance pools business. The reserve increase was based on an updated third-party actuarial study received in the fourth quarter for the Excess and Casualty Reinsurance Association (“ECRA”) pool that primarily consists of asbestos and environmental exposures.

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Asbestos and Environmental Reserves

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. Ending loss and LAE reserves for all direct business written by our property and casualty companies related to asbestos and environmental damage liability were $9.9 million, $9.5 million and $10.1 million, net of reinsurance of $19.9 million, $20.5 million, and $21.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Activity for our asbestos and environmental reserves was not significant to our 2016, 2015 or 2014 financial results. In recent years, average asbestos and environmental payments have declined modestly. 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.

In addition, we have established gross and net loss and LAE reserves for assumed reinsurance pool business with asbestos and environmental damage liability of $31.2 million, $27.7 million and $29.1 million at December 31, 2016, 2015 and 2014, 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 pool reserves relates to our participation in the ECRA voluntary pool from 1950 to 1982. In 1982, the pool was dissolved and since that time, the business has been in run-off. Our percentage of the total pool liabilities varied from 1% to 6% during these years. Our participation in this pool has resulted in average paid losses of approximately $2 million annually over the past ten years. Our ECRA reserves were increased by $7.4 million based on an updated third-party actuarial study received in the fourth quarter.

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 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

We maintain a reinsurance program designed to protect against large or unusual losses and LAE activity. We utilize a variety of reinsurance agreements that are intended to control our exposure to large property and casualty losses, stabilize earnings and protect capital resources, including facultative reinsurance, excess of loss reinsurance and catastrophe reinsurance. We determine the appropriate amount of reinsurance based upon our evaluation of the risks insured, exposure analyses prepared by consultants, our capital allocation models and on market conditions, including the availability and pricing of reinsurance. Reinsurance contracts do not relieve us from our primary obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to us. We believe that the terms of our reinsurance contracts are consistent with industry practice in that they contain standard terms and conditions with respect to lines of business covered, limit and retention, arbitration and occurrence. Based on an ongoing review of our reinsurers’ financial statements, their history of timely payments to us, reported financial strength ratings from rating agencies, and the analysis and guidance of our reinsurance advisors, we believe that our reinsurers are financially sound.

Catastrophe reinsurance serves to protect us, as the ceding insurer, from significant losses arising from a single event including, among others, hurricanes, tornadoes and other windstorms, earthquakes, hail, severe winter weather, fire, explosions, and terrorism. Although we believe our catastrophe reinsurance program, including our retention and co-participation amounts for 2017, are appropriate given our surplus level and the current reinsurance pricing environment, there can be no assurance that our reinsurance program will provide coverage levels that will prove adequate should we experience losses from one significant or several large catastrophes during 2017. Additionally, as a result of the current economic environment, as well as losses incurred by reinsurers in the past several years, the availability and pricing of appropriate reinsurance programs may be adversely affected in future renewal periods. We may not be able to pass these costs on to policyholders in the form of higher premiums or assessments.

See “Reinsurance” in Item 1 – Business of this Form 10-K for further information on our reinsurance programs and “Reinsurance Recoverable Balances” within “Critical Accounting Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K for discussion of our critical accounting estimates for reinsurance recoverable balances.

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INVESTMENTS

INVESTMENT RESULTS

Net investment income before income taxes was as follows:

DECEMBER 31		2016		2015		2014
(dollars in millions)
Fixed maturities	$	245.1	$	253.8	$	255.8
Equity securities		18.6		17.5		16.5
Other investments		26.7		18.1		9.0
Investment expenses		(11.0)		(10.3)		(11.0)
Net investment income	$	279.4	$	279.1	$	270.3
Earned yield, fixed maturities		3.51%		3.61%		3.71%
Earned yield, total portfolio		3.38%		3.44%		3.42%

The increase in net investment income in both 2016 and 2015 was primarily due tothe investment of higher operational cash flows and to additional income from our commercial mortgage loan participations, private equity partnerships and equity securities. These increases were partially offset by the impact of lower new money yields, the effect of lower investment assets associated with our repurchases of stock, repayments of debt and the transfer of the U.K. motor business. We expect average investment 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	2016				2015
(dollars in millions)		Carrying Value	% of Total Carrying Value			Carrying Value	% of Total Carrying Value
Fixed maturities, at fair value	$	7,331.3	84.0	%	$	6,983.4	84.2	%
Equity securities, at fair value		584.4	6.7			576.6	7.0
Other investments		533.8	6.1			393.4	4.7
Cash and cash equivalents		282.6	3.2			338.8	4.1
Total cash and investments	$	8,732.1	100.0	%	$	8,292.2	100.0	%

CASH AND INVESTMENTS

Total cash and investments increased $439.9 million, or 5.3%, for the year ended December 31, 2016 primarily due to positive operational cashflows and market value appreciation, partially offset by funding various financing activities, including stock repurchases and debt repayments.

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

DECEMBER 31	2016
(in millions)
Investment Type		Amortized Cost		Fair Value		Net Unrealized Gain (Loss)		Change in Net Unrealized for the Year
U.S. Treasury and government agencies	$	342.5	$	341.1	$	(1.4)	$	(3.4)
Foreign government		235.8		240.7		4.9		3.8
Municipals:
Taxable		964.2		993.8		29.6		(13.3)
Tax-exempt		101.6		101.6		-		(2.9)
Corporate		3,989.8		4,053.8		64.0		72.9
Asset-backed:
Residential mortgage-backed		978.2		974.2		(4.0)		(12.5)
Commercial mortgage-backed		550.6		554.3		3.7		2.2
Asset-backed		72.4		71.8		(0.6)		-
Total fixed maturities	$	7,235.1	$	7,331.3	$	96.2	$	46.8

The increase in net unrealized gains on fixed maturities was primarily due to narrower corporate credit spreads in 2016.

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

DECEMBER 31		2016						2015
(dollars in millions) NAIC Designation	Rating Agency Equivalent Designation		Amortized Cost		Fair Value	% of Total Fair Value			Amortized Cost		Fair Value	% of Total Fair Value
1	Aaa/Aa/A	$	4,867.7	$	4,927.6	67.2	%	$	4,849.3	$	4,939.9	70.7	%
2	Baa		1,955.4		1,975.8	26.9			1,648.3		1,646.0	23.6
3	Ba		203.2		210.8	2.9			219.4		206.4	3.0
4	B		195.9		203.7	2.8			185.0		172.3	2.5
5	Caa and lower		11.8		11.9	0.2			26.6		15.6	0.2
6	In or near default		1.1		1.5	-			5.4		3.2	-
Total fixed maturities		$	7,235.1	$	7,331.3	100.0	%	$	6,934.0	$	6,983.4	100.0	%

Based on ratings by the National Association of Insurance Commissioners (“NAIC”), approximately 94% of the fixed maturity portfolio consisted of investment grade securities at December 31, 2016 and December 31, 2015. 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, specifically interest rate changes. 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	2016						2015
(dollars in millions) Duration		Amortized Cost		Fair Value	% of Total Fair Value			Amortized Cost		Fair Value	% of Total Fair Value
0-2 years	$	1,168.6	$	1,190.2	16.2	%	$	1,271.9	$	1,289.7	18.5	%
2-4 years		2,107.4		2,171.2	29.6			1,820.4		1,836.7	26.3
4-6 years		1,941.4		1,971.8	26.9			2,225.1		2,236.5	32.0
6-8 years		1,426.7		1,423.0	19.4			1,395.5		1,394.1	20.0
8-10 years		515.1		498.4	6.8			140.5		144.5	2.1
10+ years		75.9		76.7	1.1			80.6		81.9	1.1
Total fixed maturities	$	7,235.1	$	7,331.3	100.0	%	$	6,934.0	$	6,983.4	100.0	%
Weighted average duration:				4.5						4.3

Our fixed maturity portfolio remains well laddered with a weighted average duration of 4.5 years, which is within our target range of 1 to 2 times the duration of our insurance liabilities.

We deposit funds with various state and governmental authorities as well as with Lloyd’s. See Note 3 - “Investments” in the Notes to Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K for additional information.

Our fixed maturity and equity securities are classified as available-for-sale and 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 5 - “Fair Value” in the Notes to Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K.

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

Other investments consisted primarily of participations in commercial mortgage loan obligations, investments in private equity limited partnerships and overseas deposits. Commercial mortgage loan participations 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 investment-grade quality and diversified by geographic area and property type. Our investments in limited partnerships include interests in middle market private credit, mezzanine and buyout funds.  Overseas deposits are foreign and U.S. dollar-denominated investments maintained in overseas funds and managed exclusively by Lloyd’s. These funds are required in order to protect policyholders in overseas markets and enable Chaucer to operate in those markets. Access to those funds is restricted, and we have no control over the investment strategy.

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 common equity securities, below investment grade fixed maturities and other investment assets.

OTHER-THAN-TEMPORARY IMPAIRMENTS

For the years ended December 31, 2016,  2015 and 2014 we recognized in earnings$27.9 million, $26.8 million, and $5.5 million, respectively, of OTTI on fixed maturityand equity securities. In 2016, OTTI consisted primarily of $16.1 million on fixed maturities we intended to sell, $8.8 million related to estimated credit losses on fixed maturities and $2.7 million on equity securities. In 2015, OTTI consisted of $16.0 million related to estimated credit losses on fixed maturities, $4.0 million on fixed maturities we intended to sell and $6.8 million on equities. OTTI in 2016 and 2015 related to the energy sector was $16.6 million and $19.6 million, respectively.

UNREALIZED LOSSES

The following table provides information about our fixed maturities and equity securities that were in an unrealized loss position including the length of time the securities have been in an unrealized loss position. See also Note 3  - “Investments” in the Notes to Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K.

DECEMBER 31	2016				2015
(in millions)		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Fixed maturities:
Investment grade:
12 months or less	$	60.2	$	2,356.9	$	43.3	$	2,168.8
Greater than 12 months		8.7		134.1		25.5		323.4
Total investment grade fixed maturities		68.9		2,491.0		68.8		2,492.2
Below investment grade:
12 months or less		1.2		46.0		19.6		165.5
Greater than 12 months		12.2		81.8		26.5		63.2
Total below investment grade fixed maturities		13.4		127.8		46.1		228.7
Equity securities:
12 months or less		0.7		16.3		7.6		166.8
Total	$	83.0	$	2,635.1	$	122.5	$	2,887.7

Gross unrealized losses on fixed maturities and equity securities decreased$39.5 million compared to December 31, 2015, primarily attributable to narrower credit spreads. At December 31, 2016, gross unrealized losses consisted primarily of $49.0 million of corporate fixed maturities,$13.6 million of residential mortgage-backed securities and $9.2 million on municipal securities.

We view gross unrealized losses on fixed maturities and equity securities as temporary since it is our assessment that these securities will recover in the near term, allowing us to realize their anticipated long-term economic value. With respect to gross unrealized losses on fixed maturities, 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” in Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K). With respect to equity securities, we have the intent and ability to retain such investments for the period of time anticipated to allow for this expected recovery in fair value. Inherent in our assessment are the risks that, subsequent to the balance sheet date, market factors may differ from our expectations; the global economic recovery is less robust than we expect or reverts to recessionary trends; unexpected fiscal, tax or trade policies may be implemented with unfavorable impacts on investment values; stress in the commodities sectors, including oil and gas and metals and mining, may persist for an extended period of time; we may decide to subsequently sell a security for unforeseen business needs; or changes in the credit assessment or equity characteristics 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 OTTI would be recognized as a realized loss. Although unrealized losses are not reflected in the results of financial operations until they are realized or deemed “other-than-temporary”, the fair value of the underlying investment, which does reflect the unrealized loss, is reflected in our Consolidated Balance Sheets.

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The following table sets forth gross unrealized losses for fixed maturities by maturity period and for equity securities at December 31, 2016 and 2015. 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		2016		2015
(in millions)
Due in one year or less	$	0.3	$	1.5
Due after one year through five years		15.9		26.5
Due after five years through ten years		37.6		66.1
Due after ten years		10.0		10.8
		63.8		104.9
Mortgage-backed and asset-backed securities		18.5		10.0
Total fixed maturities		82.3		114.9
Equity securities		0.7		7.6
Total fixed maturities and equity securities	$	83.0	$	122.5

The carrying values of fixed maturity securities on non-accrual status at December 31, 2016 and 2015 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, were reductions in net investment income of $1.1 million, $0.8 million and $2.1 million for the years ended December 31, 2016, 2015 and 2014, respectively. Any defaults in the fixed maturities portfolio in future periods may negatively affect investment income.

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.

Monetary policies in the developed economies, particularly in the United States, Europe and Japan, are supportive of moderate economic growth, while fiscal policies are more divergent and subject to change. Major central banks continue to closely monitor developments in global financial markets and the outlook for growth and are committed to adjust monetary policy as required to provide liquidity funding, support growth and achieve inflation targets. In the United States, the Federal Reserve (the “Fed”) increased its target for the federal funds rate by 0.25% in December and raised its range to 0.50% to 0.75%. The Fed expects that labor market conditions will strengthen further and inflation will rise to 2 percent over the medium term. The Fed has communicated that the timing and size of future adjustments to the federal funds rate will depend on the realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. Based on the Fed’s December 2016 economic projections, the federal funds target rate may be increased by 0.25% two or three times during 2017. While the Fed believes near-term risks to the economic outlook appear roughly balanced, they continue to closely monitor inflation indicators and global economic and financial developments.

While the United States has reduced its extraordinary measures and begun to tighten monetary policy, other major central banks continue with their stimulus policies as they seek higher growth and confront inflation and inflation expectations running below target. The removal, modification or suggestion of changes in these policies could have an adverse effect on prevailing market interest rates and on issuers’ level of business activity or liquidity, increasing the probability of future defaults. Fundamental conditions in the corporate sector generally remain sound. Operating conditions for metals and mining and oil and gas producers remain challenged, but improvement in supply/demand fundamentals has recently provided greater stability. While we may experience defaults on fixed income securities, particularly with respect to non-investment grade debt securities, it is difficult to foresee which issuers, industries or markets, other than those previously cited, will be 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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OTHER ITEMS

Net income also included the following items:

		YEARS ENDED DECEMBER 31
(in millions)
2016		Commercial Lines		Personal Lines		Chaucer		Other		Discontinued Operations		Total
Net realized investment gains (losses)	$	7.5	$	3.5	$	(0.9)	$	(1.5)	$	-	$	8.6
Net loss from repayment of debt		-		-		-		(88.3)		-		(88.3)
Gain on disposal of U.K. motor business		-		-		1.1		-		-		1.1
Other non-operating items		2.5		-		0.3		0.2		-		3.0
Discontinued operations, net of tax		-		-		-		-		(1.0)		(1.0)
2015
Net realized investment gains	$	12.3	$	6.4	$	0.4		0.4	$	-	$	19.5
Net loss from repayment of debt		-		-		-		(24.1)		-		(24.1)
Gain on disposal of U.K. motor business		-		-		38.4	$	-		-		38.4
Other non-operating items		-		(0.2)		0.2		0.1		-		0.1
Discontinued operations, net of tax		-		-		-		-		0.7		0.7
2014
Net realized investment gains (losses)	$	20.7	$	10.0	$	20.8	$	(1.4)	$	-	$	50.1
Loss from settlement of pension obligation		(4.8)		(2.2)		-		(5.1)		-		(12.1)
Net loss from repayment of debt		-		-		-		(0.1)		-		(0.1)
Other non-operating items		(0.9)		(0.3)		0.3		-		-		(0.9)
Discontinued operations, net of tax		-		-		-		-		(0.3)		(0.3)

We manage investment assets for our Commercial Lines, Personal Lines, and Other segments based on the requirements of our U.S. combined property and casualty companies. We allocate the investment income, expenses and realized gains and losses to our Commercial Lines, Personal Lines and Other segments based on actuarial information related to the underlying businesses. We manage investment assets separately for our Chaucer segment.

Net realized gains on investments were $8.6 million, $19.5 million, and $50.1 million for 2016, 2015, and 2014, respectively. Net realized gains in 2016 were primarily due to $36.4 million of gains recognized from the sale of securities, primarilyequities, and to a lesser extent, fixed maturities. These gains were partially offset by $27.9 million of OTTI losses.Net realized gains in 2015 were primarily due to $39.9 million of gains recognized from the sale of equity securities and, to a lesser extent, fixed maturities, and $6.4 million of gains from other investments, primarily partnerships. These gains were partially offset by $26.8 million of OTTI losses. Net realized gains in 2014 were primarily due to $55.4 million of gains recognized from the sale of equity securities and to a lesser extent, fixed maturities, partially offset by $5.5 million of OTTI losses.

In 2016, we redeemed senior debentures with a net carrying value of $375.2 million at a cost of $461.3 million, resulting in a loss of $86.1 million. Additionally, in 2016 we repurchased senior debentures with a net carrying value of $11.9 million at a cost of $14.1 million, resulting in a loss of $2.2 million. In 2015, through several transactions, we repurchased senior debentures with a net carrying value of $90.2 million at a cost of $114.3 million, resulting in a loss of $24.1 million.

Effective June 30, 2015, we transferred our U.K. motor business to an unaffiliated U.K.-based insurance provider, which resulted in the recognition of a $40.6 million gain, net of tax. See also “Disposal of U.K. Motor Business” in Note 2 – "Dispositions of Businesses” in the Notes to Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K.

During 2014, we provided eligible former employees with a one-time choice of electing to receive a lump-sum settlement of their remaining qualified definedpension benefit. Including this voluntary lump-sum program, we settled $55.1 million of our pension obligations with an equal amount paid from plan assets. As a result, we recorded settlement losses of $10.8 million, reflecting the accelerated recognition of unamortized losses in the plan proportionate to the obligation that was settled. Additionally, we terminated a small qualified plan,which also resulted in the accelerated recognition of unamortized losses of $1.3 million.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE SENSITIVITY

Operations are subject to risk resulting from interest rate fluctuations, which may adversely impact the valuation of the investment portfolio. In a rising interest rate environment, the value of the fixed maturity sector, which comprises 84% of our investment portfolio, may decline as a result of decreases in the fair value of the securities. Our intent is to hold securities to maturity and recover the decline in valuation as prices accrete to par. However, our intent may change prior to maturity due to changes in the financial markets, our analysis of an issuer’s credit metrics and prospects, or as a result of changes in cash flow needs. Interest rate fluctuations may also reduce net investment income and as a result, profitability. The portfolio may realize lower yields and therefore lower net investment income on securities because the securities with prepayment and call features may prepay at a different rate than originally projected. Also, funds may not be available to invest at higher interest rates.

In a declining interest rate environment, prepayments and calls may increase as issuers exercise their option to refinance at lower rates. The resulting funds would be reinvested at lower yields.

The following table illustrates the estimated impact on the fair value of our fixed maturity portfolio at December 31, 2016 and 2015 of hypothetical changes in prevailing interest rates, defined as changes in interest rates on U.S. Treasury debt. It does not reflect changes in credit spreads, liquidity spreads and other factors that affect the value of securities. Since changes in prevailing interest rates are often accompanied by changes in these other factors, the reader should not assume that an actual change in interest rates would result in the values illustrated.

(dollars in millions)
INVESTMENT TYPE		+300bp		+200bp		+100bp		0		-100bp		-200bp		-300bp
Residential mortgage-backed
securities	$	820	$	870	$	920	$	975	$	1,015	$	1,025	$	1,020
Municipal securities		960		1,005		1,050		1,095		1,145		1,180		1,195
All other fixed maturity securities		4,635		4,830		5,040		5,260		5,485		5,680		5,735
Total December 31, 2016	$	6,415	$	6,705	$	7,010	$	7,330	$	7,645	$	7,885	$	7,950
Total December 31, 2015	$	6,145	$	6,410	$	6,690	$	6,985	$	7,260	$	7,455	$	7,485

Our overall investment strategy is intended to balance investment income with credit and interest rate risk, while maintaining sufficient liquidity and the opportunity for capital growth. The asset allocation process takes into consideration the types of business written and the level of surplus required to support our different businesses and the risk return profiles of the underlying asset classes. We look to balance the goals of capital preservation, net investment income stability, liquidity and total return.

The majority of our assets are invested in the fixed income markets. Through fundamental research and credit analysis, with a focus on value investing, our investment professionals seek to identify a portfolio of stable income-producing higher quality U.S. government, foreign government, municipal, corporate, residential and commercial mortgage-backed securities and asset-backed securities. We have a general policy of diversifying investments both within and across major investment and industrial sectors to mitigate credit and interest rate risk. We monitor the credit quality of our investments and our exposure to individual markets, borrowers, industries, sectors and, in the case of commercial mortgage-backed securities and commercial mortgage loan participations, property types and geographic locations. In addition, we currently carry debt that is subject to interest rate risk, which was issued at fixed interest rates between 4.50% and 8.207%. Current market conditions, in light of our risk tolerance, restrict our ability to invest fixed income assets at similar rates of return; therefore, earnings on a similar level of assets are not sufficient to cover current debt interest costs.

EQUITY PRICE RISK

Our equity securities portfolio is exposed to equity price risk arising from potential volatility in equity market prices. Portfolio characteristics are analyzed regularly and price risk is actively managed through a variety of techniques. A hypothetical increase or decrease of 10% in the market price of our equity securities would have resulted in an increase or decrease in the fair value of the equity securities portfolio of approximately $58 million at December 31, 2016 and 2015, respectively.

FOREIGN CURRENCY EXCHANGE RISK

Chaucer has exposure to foreign currency risk, most notably in insurance contracts and invested assets. Some of the insurance contracts provide that ultimate losses may be payable in foreign currencies depending on the country of original loss. Foreign currency exchange rate risk exists to the extent that there is an increase in the exchange rate of the foreign currency in which losses are ultimately owed. Thus, Chaucer attempts to manage foreign currency risk by seeking to match liabilities under insurance and reinsurance policies that are payable in foreign currencies with cash and investments that are denominated in such currencies. We may also utilize foreign currency forward contracts as part of our investment strategy. The principal currency creating foreign exchange investment risk for us is the U.K. pound sterling, and to a lesser extent, the Canadian dollar, Euro, Australian dollar and Swiss franc. A hypothetical 10% reduction in the value of foreign denominated investments would be expected to produce a loss in fair value of approximately $58 million and $59 million at December 31, 2016 and 2015, respectively.

INCOME TAXES

We are subject to the tax laws and regulations of the U.S. and foreign countries in which we operate. We file a consolidated U.S. federal income tax return that includes the holding company and its U.S. subsidiaries. Generally, taxes are accrued at the U.S. statutory tax rate of 35% for income from the U.S. operations. Our primary non-U.S. jurisdiction is in the U.K. In July 2013, the U.K. statutory tax rate decreased from 23% to 21% effective April 1, 2014 and from 21% to 20% effective April 1, 2015. In November 2015, the U.K. statutory tax rate decreased from 20% to 19% effective April 1, 2017 and from 19% to 18% effective April 1, 2020 respectively. A further decrease in the U.K. tax rate was enacted in September 2016 to reduce the U.K. statutory rate from 19% to 17% rather than to the previously enacted rate of 18%, effective April 1, 2020.  We accrue taxes on certain non-U.S. income that is subject to U.S. tax at the U.S. tax rate. Foreign tax credits, where available, are utilized to offset U.S. tax as permitted. Certain of our non-U.S. income is not subject to U.S. tax until repatriated. Foreign taxes on this non-U.S. income are accrued at the local foreign rate and do not have an accrual for U.S. deferred taxes since these earnings are intended to be indefinitely reinvested overseas.

The provision for income taxes from continuing operations was an expense of $36.2 million, $108.6 million and $95.7 million in 2016, 2015 and 2014, respectively. These amounts resulted in consolidated effective tax rates of 18.8%, 24.7% and 25.3% on pre-tax income for 2016, 2015 and 2014, respectively. These provisions reflect benefits related to tax planning strategies implemented in prior years of $20.7 million, $13.3 million and $16.2 million in 2016, 2015 and 2014, respectively. The provision for 2015 reflects a $15.6 million tax savings, net of a $1.7 million provision for uncertain tax positions, on the transfer of the U.K. motor business. The transfer of the U.K. motor business was structured as a tax-free reorganization exempt from current U.S. and U.K. taxation under the business exemption and substantial shareholdings exemption rules, respectively. Since the proceeds from this transaction are expected to be indefinitely reinvested overseas, U.S. taxes have not been recognized. The provision for 2014 also included a benefit related to the reduction of a valuation allowance of $2.9 million, and a $6.9 million benefit related to foreign exchange loss deductions on our 2013 and 2014 U.S. tax returns. Absent these benefits, the provision for income taxes for 2016, 2015, and 2014 would have been expenses of $56.9 million, or 29.6%, $137.5 million, or 31.3%, and $121.7 million, or 32.2%, respectively. The decrease in the 2016 effective tax rate is primarily due to lower underwriting income. The decrease in the 2015 effective tax rate is primarily due to an increase in our recognition of foreign tax credits for taxes paid in certain foreign jurisdictions.

The income tax provision on operating income was an expense of $83.5 million, $125.5 million and $108.3 million for 2016, 2015 and 2014, respectively. These provisions resulted in effective tax rates for operating income of 31.2%, 30.9% and 31.8% in 2016, 2015 and 2014, respectively.  The increase in the 2016 effective tax rate is primarily due to a decrease in our operating income for 2016, whereas the decrease in the 2015 effective tax rate is primarily due to the increase in our recognition of foreign tax credits.

Included in our deferred tax net asset as of December 31, 2016 are assets of $72.3 million related to alternative minimum tax (“AMT”) credit carryforwards and $22.3 million related to foreign tax credit carryforwards. We may utilize these credits to offset future taxable income. The result of their utilization will be a lower current tax rate offset by a higher deferred tax provision, and also lower cash expenditures for federal income taxes during the utilization period. There is no expiration on AMT credit carryforwards, and our foreign tax credit carryforwards will expire in 2026. It is our opinion that there will be sufficient future U.S. and U.K. taxable income to utilize these tax credit carryforwards. Our estimate of the amount and likely realization of tax credit carryforwards may change over time.

During 2014, we released the valuation allowance related to our deferred tax assets of $2.9 million recorded in 2013. The release of this valuation allowance resulted from appreciation in our investment portfolio and is recorded as a $2.9 million decrease in our income tax expense.

In prior years, we completed several transactions which resulted in the realization, for tax purposes only, of unrealized gains in our investment portfolio. As a result of these transactions, we were able to realize capital losses carried forward and to release the valuation allowance recorded against the deferred tax asset related to these losses.  The releases of valuation allowances were recorded as a benefit in accumulated other comprehensive income.  Previously unrealized benefits of $20.7 million, $13.3 million and $16.2 million attributable to non-operating income, are recognized as part of our income from continuing operations during 2016, 2015 and 2014, respectively. The remaining amount of $57.5 million in accumulated other comprehensive income will be released into income from continuing operations in future years, as the investment securities subject to these transactions are sold or mature.

The IRS audits of the years 2007 through 2010 were settled in 2014 with no material impact to our financial position or results of operations. There is no ongoing audit on our open tax years.

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CRITICAL ACCOUNTING ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon the 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 included in Financial Statements and Supplementary Data of this Form 10-K.

RESERVE FOR LOSSES AND LOSS EXPENSES

See “Reserve for Losses and Loss Adjustment Expenses” within “Results of Operations – Segments” in Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K for a discussion of our critical accounting estimates for loss reserves.

REINSURANCE RECOVERABLE BALANCES

We share insurance risk of the primary underlying contracts with various insurance entities through the use of reinsurance contracts. As a result, when we experience loss events that are subject to a reinsurance contract, reinsurance recoveries are recorded. The amount of the reinsurance recoverable can vary based on the size of the individual loss or the aggregate amount of all losses in a particular line, book of business or an aggregate amount associated with a particular accident year. The valuation of losses recoverable depends on whether the underlying loss is a reported loss, or an incurred but not reported loss. For reported losses, we value reinsurance recoverables at the time the underlying loss is recognized, in accordance with contract terms. For incurred but not reported losses, we estimate the amount of reinsurance recoverable based on the terms of the reinsurance contracts and historical reinsurance recovery information and apply that information to the gross loss reserve estimates. The most significant assumption we use is the average size of the individual losses for those claims that have occurred but have not yet been reported to us. The reinsurance recoverable is based on what we believe are reasonable estimates and is disclosed separately on the financial statements. However, the ultimate amount of the reinsurance recoverable is not known until all losses are settled.

Reinsurance recoverables recorded on insurance losses ceded under reinsurance contracts are subject to judgments and uncertainties similar to those involved in estimating gross loss reserves, as disclosed above. In addition to these uncertainties, our reinsurance recoverables may prove uncollectible if the reinsurers are unable or unwilling to perform under the reinsurance contracts. In establishing our reinsurance allowance for amounts deemed uncollectible, we evaluate the financial condition of our reinsurers and monitor concentration of credit risk arising from our exposure to individual reinsurers. To determine if an allowance is necessary, we consider, among other factors, published financial information, reports from rating agencies, payment history, collateral held and our legal right to offset balances recoverable against balances we may owe. Our reinsurance allowance for doubtful accounts is subject to uncertainty and volatility due to the time lag involved in collecting amounts recoverable from reinsurers. Over the period of time that losses occur, reinsurers are billed and amounts are ultimately collected, economic conditions, as well as the operational and financial performance of particular reinsurers, may change, and these changes may affect the reinsurers’ willingness and ability to meet their contractual obligation to us. It is also difficult to fully evaluate the impact of major catastrophic events on the financial stability of reinsurers, as well as the access to capital that reinsurers may have when such events occur. The ceding of insurance does not legally discharge us from our primary liability for the full amount of the policies, and we will be required to pay the loss and bear collection risk even if the reinsurers fail to meet their obligations under the reinsurance contracts.

PENSION BENEFIT OBLIGATIONS

We currently have a U.S. qualified defined benefit plan, a defined benefit pension plan for our international subsidiary, Chaucer, and several smaller non–qualified benefit plans. In order to measure the liabilities and expense 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. Additionally, our Chaucer pension plan must also take into consideration inflation 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 expenses and liabilities associated with our defined benefit pension plans.

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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 over the past few years, are the discount rate and the return on plan asset assumptions. The discount rate enables us to state expected future cash flows 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 lower discount rate increases the present value of benefit obligations and increases pension expense. We determined our discount rate for the domestic and Chaucer plans 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, 2016 and 2015, respectively, and had been rated by at least two well-known rating agencies. The following provides the discount rates for our qualified pension plan and Chaucer plan for the periods indicated.

	U.S. Qualified Plan	Chaucer Plan
Discount Rate Assumptions:
2016	4.25%	2.85%
2015	4.875%	3.85%

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 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 income 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 income. These gains or losses are amortized into expense in future years. The U.S. qualified plan held assets consisting of approximately 85% fixed maturities and 15% equities at December 31, 2016. The composition of Chaucer’s plan assets are approximately 55% equities, 35% fixed maturities, and 10% real estate funds at December 31, 2016.

	U.S. Qualified Plan	Chaucer Plan
Expected Return on Asset Assumptions:
2016	5.25%	5.45%
2015	5.00%	5.45%

The increase in returns for the U.S. plan reflects long-term expectations for improvements, including increased interest rates, in the fixed maturities market in general.

Net actuarial losses of $40.5 million and $5.9 million were reflected as decreases to accumulated other comprehensive income in 2016 and 2015, respectively.  Net actuarial losses in 2016 resulted primarily from decreases in the discount rate as compared to the prior year that were partially offset by benefits from investments gains experienced during the year. Net actuarial losses in 2015 resulted primarily from lower than expected investment gains that were experienced during the year that were partially offset by a slight increase from the change in the discount rate as compared to the prior year. The change in these actuarial gains and losses is amortized into earnings in future periods. In 2016 and 2015, amortization of actuarial losses from prior years was  $10.1 million and $10.5 million, respectively.  

Expenses related to our defined benefit plans are generally calculated based upon information available at the beginning of the plan year. Our pre-tax expense related to our defined benefit plans was $11.7 million and $10.9 million for 2016 and 2015, respectively. Given the positive effect of our actual investment experience in 2016, and taking into consideration the decrease in discount rates for 2017, pension related expenses are expected to increase from $11.7 million in 2016 to approximately $13.7 million in 2017.

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Holding all other assumptions constant (using the December 31, 2016 GBP to U.S. dollar conversion rate of 1.23), sensitivity to changes in our key assumptions related to our pension plans is as follows:

(in millions)		U.S. Qualified Plan		Chaucer Plan
Discount Rate -
25 basis point increase
Change in Benefit Obligation	$	(10.8)	$	(7.8)
Change in 2017 Expense		(1.2)		(1.3)
25 basis point decrease
Change in Benefit Obligation		11.3		8.3
Change in 2017 Expense		1.3		1.4
Expected Return on Plan Assets -
25 basis point increase
Change in 2017 Expense		(1.1)		(0.3)
25 basis point decrease
Change in 2017 Expense		1.1		0.3

OTHER-THAN-TEMPORARY IMPAIRMENTS

We employ a systematic methodology to evaluate declines in fair values below amortized cost for all fixed maturity and equity security investments. The methodology utilizes a quantitative and qualitative process that seeks to ensure that available evidence concerning the declines in fair value below amortized cost is evaluated in a disciplined manner. In determining whether a decline in fair value below amortized cost is other-than-temporary, we evaluate several factors and circumstances, including the issuer’s overall financial condition; the issuer’s credit and financial strength ratings; the issuer’s financial performance, including earnings trends, dividend payments and asset quality; any specific events which may influence the operations of the issuer; the general outlook for market conditions in the industry or geographic region in which the issuer operates; and the length of time and the degree to which the fair value of an issuer’s securities remains below our cost. With respect to fixed maturity investments, we consider factors that might raise doubt about the issuer’s ability to make contractual payments as they become due and whether we expect to recover the entire amortized cost basis of the security. With respect to equity securities, we consider our ability and intent to hold the investment for a period of time to allow for a recovery in value.

We monitor corporate fixed maturity securities with unrealized losses on a quarterly basis and more frequently when necessary to identify potential credit deterioration, as evidenced by ratings downgrades, unexpected price variances, and/or company or industry specific concerns. We apply consistent standards of credit analysis which includes determining whether the issuer is current on its contractual payments, and we consider past events, current conditions and reasonable forecasts to evaluate whether we expect to recover the entire amortized cost basis of the security. We utilize valuation declines as a potential indicator of credit deterioration and apply additional levels of scrutiny in our analysis as the severity of the decline increases or duration persists.

For our impairment review of asset-backed fixed maturity securities, we forecast our best estimate of the prospective future cash flows of the security to determine if we expect to recover the entire amortized cost basis of the security. Our analysis includes estimates of underlying collateral default rates based on historical and projected delinquency rates and estimates of the amount and timing of potential recovery. We consider available information relevant to the collectability of cash flows, including information about the payment terms of the security, prepayment speeds, the financial condition of the underlying borrowers, collateral trustee reports, credit ratings analysis and other market data when developing our estimate of the expected cash flows.

When an OTTI of a fixed maturity security occurs, and we intend to sell or more likely than not will be required to sell the investment before recovery of its amortized cost basis, the amortized cost of the security is reduced to its fair value, with a corresponding charge to earnings, which reduces net income and earnings per share. If we do not intend to sell the fixed maturity investment or more likely than not will not be required to sell it, we separate the OTTI into the amount we estimate represents the credit loss and the amount related to all other factors. The amount of the estimated loss attributable to credit is recognized in earnings, which reduces net income and earnings per share. The amount of the estimated OTTI that is non-credit related is recognized in other comprehensive income, net of applicable taxes.

We estimate the amount of the OTTI that relates to credit by comparing the amortized cost of the fixed maturity security with the net present value of the fixed maturity security’s projected future cash flows, discounted at the effective interest rate implicit in the investment prior to impairment. The non-credit portion of the impairment is equal to the difference between the fair value and the net present value of the fixed maturity security at the impairment measurement date.

OTTIs of equity securities are recorded as realized losses, which reduce net income and earnings per share. The new cost basis of an impaired security is not adjusted for subsequent increases in estimated fair value.

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Temporary declines in market value are recorded as unrealized losses, which do not affect net income and earnings per share, but reduce accumulated other comprehensive income, which is reflected in our Consolidated Balance Sheets. We cannot provide assurance that the OTTIs will be adequate to cover future losses or that we will not have substantial additional impairments in the future. See “Investments” in Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K for further discussion regarding OTTIs and securities in an unrealized loss position.  

DEFERRED TAX ASSETS

Deferred tax assets and liabilities primarily result from temporary differences between the amounts recorded in our consolidated financial statements and the tax basis of our assets and liabilities and loss and tax credit carryforwards. These temporary differences are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse.

The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Consideration is given to available positive and negative evidence, including reversals of deferred tax liabilities, projected future taxable income in each tax jurisdiction, tax planning strategies and recent financial operations. Valuation allowances are established if, based on the weight of available information, it is more likely than not that all or some portion of the deferred tax assets will not be realized. The determination of the valuation allowance for our deferred tax assets requires management to make certain judgments and assumptions. Our judgments and assumptions are subject to change given the inherent uncertainty in predicting future performance and specific industry and investment market conditions. Changes in valuation allowances are generally reflected in income tax expense or as an adjustment to other comprehensive income depending on the nature of the item for which the valuation allowance is being recorded.

The following are the components of our deferred tax assets and liabilities as of December 31, 2016.  There were no valuation allowances required as of December 31, 2016.

DEFERRED TAX ASSETS (LIABILITIES)		Amount
(in millions)
Tax attributes
Tax credit carryforwards	$	94.6
Other
Loss, LAE and unearned premium reserves, net		183.9
Deferred acquisition costs		(141.0)
Employee benefit plans		44.4
Investments, net		(27.9)
Software capitalization		(28.9)
Deferred Lloyd's underwriting income		(32.7)
Other, net		22.7
		20.5
Total	$	115.1

We have $72.3 million of alternative minimum tax credit carryforwards and $22.3 million of foreign tax credit carryforwards. The alternative minimum tax credit carryforwards have no expiration date and may be used to offset regular federal income taxes due from future income. The foreign tax credit carryforwards will expire beginning in 2026 and may be used to offset federal income taxes due from future foreign-sourced income. In addition, we have operating loss carryforwards from our Chaucer segment, which have no expiration date. Based on our projection of future economic conditions, taxable income, reversals of existing taxable temporary liabilities, and our strategic tax planning strategies, we believe that these tax credit carryforwards and operating loss carryforwards will be fully realized.

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STATUTORY SURPLUS OF U.S. INSURANCE SUBSIDIARIES

The following table reflects statutory surplus for our U.S. insurance subsidiaries:

DECEMBER 31		2016		2015
(in millions)
Total Statutory Capital and Surplus - U.S. Insurance Subsidiaries	$	2,173.4	$	2,192.8

The statutory capital and surplus for our U.S. insurance subsidiaries decreased $19.4 million during 2016,  primarily due to a $218.8 million dividend paid by Hanover Insurance to THG and an increase in the minimum pension liability, partially offset by operating results and unrealized and realized gains on investments.

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 U.S. insurance subsidiaries), as of December 31, 2016 and 2015, 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):

(dollars in millions) DECEMBER 31, 2016		Company Action Level		Authorized Control Level	RBC Ratio Industry Scale		RBC Ratio Regulatory Scale
The Hanover Insurance Company	$	884.0	$	442.0	245	%	490	%
DECEMBER 31, 2015
The Hanover Insurance Company	$	757.1	$	378.5	288	%	576	%

LLOYD’S CAPITAL REQUIREMENT

Chaucer, through its corporate member, operates in the Lloyd’s market, which requires that each member deposit funds, referred to as “Funds at Lloyd’s”, to support its underwriting interests. Lloyd’s sets required capital annually for all participating syndicates based on each syndicate’s business plans, the rating and reserving environment, and discussions with regulatory and rating agencies. Although the minimum capital levels are set by Lloyd’s, it is the responsibility of Chaucer to continually monitor the risk profiles of its managed syndicates to ensure that the level of funding remains appropriate. Such capital is comprised of investments, undrawn letters of credit provided by various banks, and cash and cash equivalents.

We have the following securities, letters of credit and cash and cash equivalents pledged to Lloyd’s to satisfy these capital requirements at December 31, 2016. At December 31, 2016, we are in compliance with the capital requirements and expect to be able to meet these capital requirements in the future.

DECEMBER 31, 2016
(in millions)
Fixed maturities, at fair value	$	491.2
Letters of credit		209.6
Cash and cash equivalents		6.3
Total pledged to Lloyd's	$	707.1

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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 U.S. 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 $218.8 million in dividends to the holding company during 2016. No dividends were paid to the holding company by Hanover Insurance in 2015 or 2014.

Dividend payments to the holding company by Chaucer are regulated by U.K. law. Dividends from Chaucer are dependent on dividends from its subsidiaries. Annual dividend payments from Chaucer are limited to retained earnings that are not restricted by capital and other requirements for business at Lloyd’s. Also, Chaucer must provide advance notice to the U.K.’s Prudential Regulation Authority (“PRA”) of certain proposed dividends or other payments from PRA regulated entities. Chaucer paid $79.5 million, $61.3 million and $68.7 million in dividends during 2016, 2015 and 2014, respectively, to the holding company.

In connection with an intercompany borrowing arrangement between Chaucer and the holding company, interest on a $300 million note is paid by Chaucer on a quarterly basis to the holding company. This interest may be deferred at the election of the holding company. If deferred, the interest is added to the principal. Chaucer paid interest to the holding company totaling $22.4million in 2016 and $22.5 million in both 2015 and 2014.

Sources of cash for our insurance subsidiaries primarily consist of premiums collected, investment income and maturing investments. Primary cash outflows are paid claims, 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 $737.6 million during 2016, as compared to $438.4 million in 2015 and $564.7 million in 2014. The $299.2 million increase in 2016 compared to 2015 was primarily due to lower reinsurance payments in 2016 as compared to 2015. In 2015, reinsurance payments were made in connection with the disposal of the U.K. motor business that did not recur in 2016. Also contributing to the increase in cash were lower claims payments during 2016. These increases were partially offset by slightly lower premium collections during 2016. The $126.3 million change in 2015 compared to 2014 was primarily due to higher federal income tax payments resulting from increased earnings, an increase in reinsurance payments, primarily due to the aforementioned disposal of the U.K. motor business, and slightly lower premium collections during 2015. These decreases were partially offset by lower claims payments.

Net cash used in investing activities was $495.4 million during 2016, as compared to $171.5 million during 2015 and $600.7 million in 2014. During 2016, cash used in investing activities primarily related to net purchases of fixed maturities, commercial mortgage loan participations, and other investments. These cash outflows were partially offset by proceeds from net sales of equity securities. During 2015, cash used in investing activities primarily related to net purchases of commercial mortgage loan participations and fixed maturities. These cash outflows were partially offset by net cash received from the disposal of the U.K. motor business. In 2014, cash used in investing activities primarily related to net purchases of fixed maturities, equity securities, and other investments. See Note 3 – “Investments” in the Notes to Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K.

Net cash used in financing activities was $295.0 million during 2016, as compared to $294.7 million during 2015 and $71.7 million in 2014. During 2016, cash used in financing activities primarily resulted from the repayment of debt, repurchases of common stock, and dividend payments to shareholders. These cash outflows were partially offset by cash inflows related to the issuance, on April 8, 2016, of $375.0 million of senior unsecured debentures. During 2015, cash used in financing activities primarily resulted from repurchases of common stock, repayments of debt and dividend payments to shareholders. During 2014, cash used in financing activities primarily resulted from the payment of dividends to shareholders and the repurchase of common stock, partially offset by cash inflows related to the exercise of employee stock options.

Dividends to common shareholders are subject to quarterly board approval and declaration. During 2016, as declared by the Board, we paid three quarterly dividends of $0.46 per share and one quarterly dividend of $0.50 per share to our shareholders totaling $80.4 million. We believe that our holding company assets are sufficient to provide for future shareholder dividends should the Board of Directors declare them.

At December 31, 2016, THG, as a holding company, held approximately $126.5 million of fixed maturities and cash. We believe our holding company assets will be sufficient to meet our 2017 obligations, which consist primarily of dividends to our shareholders (as and to the extent declared), the interest on our senior and subordinated debentures, certain costs associated with benefits due to our former life employees and agents, and, to the extent required, payments related to indemnification of liabilities associated with the sale of various subsidiaries. As discussed below, we have, and opportunistically may continue to, repurchase our common stock and debt. We may decide to provide funds to the holding company for these or other opportunities through dividends or short-term intercompany lending arrangements.

We expect to continue to generate sufficient positive operating cash to meet all short-term and long-term cash requirements relating to current operations, including the funding of our qualified defined benefit pension plan and the Chaucer pension plan. Based upon the current estimate of liabilities and certain assumptions regarding investment returns and other factors, our qualified defined benefit pension plan and Chaucer pension plan collectively have plan liabilities in excess of plan assets ofapproximately $69 million. The ultimate payment amounts for our benefit plans are based on several assumptions, including but not limited to, the rate of return on plan assets, the discount rate for benefit obligations, mortality experience, interest crediting rates, inflation and the ultimate valuation and determination of benefit obligations. Since differences between actual plan experience and our assumptions are almost certain, changes both positive and negative to our current funding status and ultimately our obligations in future periods are likely.

Our insurance subsidiaries maintain a high degree of liquidity within their respective investment portfolios in fixed maturity and short-term investments. We believe that the quality of the assets we hold will allow us to realize the long-term economic value of our portfolio, including securities that are currently in an unrealized loss position. We do not anticipate the need to sell these securities to meet our insurance subsidiaries’ cash requirements since we expect our insurance subsidiaries to generate sufficient operating cash to meet all short-term and long-term cash requirements. However, there can be no assurance that unforeseen business needs or other items will not occur causing us to have to sell those securities in a loss position before their values fully recover, thereby causing us to recognize impairment charges in that time period.

Our Board of Directors has authorized aggregate repurchases of our common stock of up to $900 million. Under the repurchase authorizations, the Company may repurchase, from time to time, common shares in amounts, at prices and at such times as the Company deems appropriate, subject to market conditions and other considerations. Repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. We are not required to purchase any specific number of shares or to make purchases by any certain date under this program. During 2016, we repurchased approximately 1.3 million shares of our common stock at a cost of $105.6 million.

On April 8, 2016, we issued $375.0 million aggregate principal amount of 4.50% senior unsecured debentures due April 15, 2026. Net proceeds of the debt issuance were $370.7 million. The net proceeds were used, together with cash on hand, to redeem outstanding 7.50% senior notes due March 1, 2020 and 6.375% senior notes due June 15, 2021, resulting in a pre-tax loss of $86.1 million, related primarily to the required “make-whole” provision in these issuances. During the fourth quarter of 2016, we also repurchased senior debentures with a net carrying value of $11.9 million at a cost of $14.1 million, resulting in a loss of $2.2 million. During 2015, we repurchased senior debentures with a net carrying value of $90.2 million at a cost of $114.3 million, resulting in a loss of $24.1 million. Additional information related to all borrowings is in Note 6 – “Debt and Credit Arrangements” in the Notes to Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K.

We have a $200.0 million credit agreement which expires in November 2018, with an option to increase the facility to $300.0 million assuming no default and satisfaction of certain other conditions. The agreement also includes a $50 million sub-facility for standby letters of credit that can be used for general corporate purposes.  Borrowings, if any, under the agreement are unsecured and incur interest at a rate per annum equal to, the higher of (a) the prime commercial lending rate of the administrative agent, (b) the Federal Funds Rate plus half of a percent, or (c) the one month Adjusted LIBOR plus one percent and any applicable margin. The agreement contains financial covenants including, but not limited to, maintaining at least a certain level of consolidated equity, maximum consolidated leverage ratios and requires certain of our subsidiaries to maintain a minimum RBC ratio. We had no borrowings under this agreement during 2016, 2015 and 2014.

Membership in the FHLBB provides us with access to additional liquidity based on our stock holdings and pledged collateral. At December 31, 2016, we had additional borrowing capacity of $57.6 million. There were no borrowings outstanding under this agreement at December 31, 2016; however, we have borrowed and may continue to borrow, from time to time, through this facility to provide short term liquidity.

On October 15, 2015, we entered into a Standby Letter of Credit Facility Agreement (the “Facility Agreement”) not to exceed £170.0 million (or $209.6 million) outstanding at any one time, with the option to increase the amount available for issuances of letters of credit to £235.0 million (or $289.8 million) in the aggregate on one occasion only during the term of the Facility Agreement (subject to the consent of all lenders and assuming no default and satisfaction of other specified conditions). The Facility Agreement provides certain covenants including, but not limited to, the syndicates’ financial condition.  The Facility Agreement provides regulatory capital supporting Chaucer’s underwriting activities for the 2015, 2016 and 2017 years of account and each prior open year of account. The Facility Agreement is generally renewed biennially to support new underwriting years. 

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The Facility agreement is subject to a letter of credit commission fee on outstanding letters of credit that is payable quarterly.  The Facility Agreement fee ranges from 1.125% to 1.50% per annum, depending on our credit ratings for portions that are not cash collateralized, and 0.275% per annum for portions that are cash collateralized. We may, from time to time, collateralize a portion of the outstanding letter of credit. In addition to the commission fee on the uncollateralized outstanding letter of credit, a commitment fee in respect of the unutilized commitments under the Facility Agreement is payable quarterly, and ranges from 0.394% to 0.525% per annum, depending on our credit ratings. Chaucer is also required to pay customary agency fees. We paid $3.5 million and $3.7 million in interest costs in 2016 and 2015, respectively.

Simultaneous with the Facility Agreement, we entered into a Guaranty Agreement (the “Guaranty Agreement”) with Lloyds Bank plc, as Facility Agent and Security Agent, pursuant to which, we unconditionally guarantee the obligations of Chaucer under the Facility Agreement. The Guaranty Agreement contains certain financial covenants that require us to maintain a minimum net worth, a minimum risk-based capital ratio at our primary U.S. domiciled property and casualty companies and a maximum leverage ratio, and certain negative covenants that limit our ability, among other things, to incur or assume certain debt, grant liens on our property, merge or consolidate, dispose of assets, materially change the nature or conduct of our business and make restricted payments (except, in each case, as provided by certain exceptions). The Guaranty Agreement also contains certain customary representations and warranties. 

At December 31, 2016, we were in compliance with the covenants of our debt and credit agreements.

CONTRACTUAL OBLIGATIONS

Financing obligations generally include repayment of our senior debentures, subordinated debentures, borrowings from the FHLBB, and operating lease payments. The following table represents our annual payments related to the contractual principal and interest payments of these financing obligations as of December 31, 2016 and operating lease payments reflect expected cash payments based upon lease terms. In addition, we also have included our estimated payments related to our loss and LAE obligations and our current expectation of payments to be made to support the obligations of our benefit plans. The following table also includes commitments to purchase investment securities at a future date. Actual payments may differ from the contractual and/or estimated payments in the table.

DECEMBER 31, 2016	Maturity less than 1 year		Maturity 1-3 years		Maturity 4-5 years		Maturity in excess of 5 years		Total
(in millions)
Debt (1)	$	-	$	-	$	-	$	797.3	$	797.3
Interest associated with debt (1)		47.7		89.4		89.4		523.2		749.7
Operating lease commitments (2)		16.7		27.3		14.8		2.9		61.7
Qualified defined benefit pension plan funding obligations (3)		7.4		-		-		-		7.4
Non-qualified defined benefit pension and post-retirement
benefit obligation (4)		4.0		6.7		6.0		12.6		29.3
Investment commitments (5)		43.2		51.6		15.2		0.1		110.1
Loss and LAE obligations (6)		2,206.0		2,220.5		952.0		1,570.9		6,949.4

(1) Debt includes our senior debentures due in 2026, which pay annual interest at a rate of 4.50%, our senior debentures due in 2025, which pay annual interest at a rate of 7.625%, our subordinated debentures due in 2053, which pay annual interest at a rate of 6.35%, and our subordinated debentures due in 2027, which pay cumulative dividends at an annual rate of 8.207%. Payments related to the principal amounts of these agreements represent contractual maturity; therefore, principal and interest associated with these obligations are reflected in the above table based upon the contractual maturity dates. In addition, we have $125.0 million of borrowings under a collateralized borrowing program with the FHLBB that pays interest monthly at a rate of 5.50% annually. Such borrowings are available for a twenty-year term or through September 25, 2029. Also, interest includes contractual interest related to the uncollateralized portion of our £170.0 million Standby Letter of Credit Facility.

(2) Our U.S. and international subsidiaries are lessees with a number of operating leases.

(3) Reflects the minimum amount expected to be contributed to the Chaucer plan based upon results of its triennial funding review, expected to be completed in 2017, and the plan’s current funded status. We do not expect to make any significant contributions to our U.S. qualified plan in order to meet our minimum funding requirements for the next several years and therefore no contributions to that plan are included in this schedule. However, additional contributions may be required in the future to both plans based on the level of pension assets and liabilities in future periods.

The ultimate payment amount for our pension plans are based on several assumptions, including, but not limited to, the rate of return on plan assets, the discount rate for benefit obligations, mortality experience, interest crediting rates and the ultimate valuation of benefit obligations. Differences between actual plan experience and our assumptions are likely and will likely result in changes to our funding obligations in future periods.

(4) Non-qualified defined benefit pension and postretirement benefit obligations reflect estimated payments to be made through plan year 2026 for pension, postretirement and postemployment benefits, although it is likely that payments will be made beyond 2026. Estimates of these payments and the payment patterns are based upon historical experience.

(5) Investment commitments relate primarily to partnerships.

(6) Unlike many other forms of contractual obligations, loss and LAE reserves do not have definitive due dates and the ultimate payment dates are subject to a number of variables and uncertainties. As a result, the total loss and LAE reserve payments to be made by period, as shown in the table, are estimates based principally on historical experience.

OFF-BALANCE SHEET ARRANGEMENTS

We currently do not have any material off-balance sheet arrangements that are reasonably likely to have an effect on our financial position, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources.

CONTINGENCIES AND REGULATORY MATTERS

Information regarding litigation and legal contingencies appears in Note 18—“Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in Financial Statements and Supplementary Data of this Form 10-K. Information related to certain regulatory and industry developments are contained in “Regulation” in Part 1 - Item 1 of this Form 10-K and in “Risk Factors” in Part 1 – Item 1A of this Form 10-K.

RATING AGENCIES

Insurance companies are rated by rating agencies to provide both industry participants and insurance consumers information on specific insurance companies. Higher ratings generally indicate the rating agencies’ opinion regarding financial stability and a stronger ability to pay claims.

We believe that strong ratings are important factors in marketing our products to our agents and customers, since rating information is broadly disseminated and generally used throughout the industry. Insurance company financial strength ratings are assigned to an insurer based upon factors deemed by the rating agencies to be relevant to policyholders and are not directed toward protection of investors. Such ratings are neither a rating of securities nor a recommendation to buy, hold or sell any security. Customers typically focus on claims-paying ratings, while creditors focus on debt ratings. Investors use both to evaluate a company’s overall financial strength.

RISKS AND FORWARD-LOOKING STATEMENTS

Management’s Discussion and Analysis contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. For a discussion of indicators of forward-looking statements and specific important factors that could cause actual results to differ materially from those contained in forward-looking statements, see “Risk Factors” in Part 1 – Item 1A of this Form 10-K. This Management’s Discussion and Analysis should be read and interpreted in light of such factors.

66

GLOSSARY OF SELECTED INSURANCE TERMS

Account business - Customers with multiple policies and/or coverages.

Account rounding – The conversion of single policy customers to accounts with multiple policies and/or additional coverages.

Benefit payments – Payments made to an insured or their beneficiary in accordance with the terms of an insurance policy.

Capacity – The maximum amount of business which may be accepted by a syndicate or a corporate member on a syndicate, expressed in terms of gross premium written, net of commission.

Casualty insurance – Insurance that is primarily concerned with the losses caused by injuries to third persons and their property (other than the policyholder) and the related legal liability of the insured for such losses.

Catastrophe – A severe loss, resulting from natural or manmade events, including, among others, hurricanes, tornadoes and other windstorms, earthquakes, hail, severe winter weather, fire, explosions, and terrorism.

Catastrophe loss – Loss and directly identified loss adjustment expenses from catastrophes, including development on prior years’ catastrophe loss reserves. The Insurance Services Office (“ISO”) Property Claim Services (“PCS”) defines a catastrophe loss as an event that causes $25 million or more in U.S. industry insured property losses and affects a significant number of property and casualty policyholders and insurers. In addition to those catastrophe events declared by ISO, claims management also generally includes within the definition of a “catastrophe loss”, a property loss event that causes approximately $5 million or more in Company insured losses and affects in excess of one hundred policy holders or multiple independent risks. For the international business in our Chaucer segment, management utilizes a “catastrophe loss” definition that is substantially consistent with the ISO definition framework.

Cede; cedent; ceding company – When a party reinsures its liability with another, it “cedes” business and is referred to as the “cedent” or “ceding company”.

Corporate member – A company admitted to membership of Lloyd’s and which provides capital in support of a Lloyd’s syndicate to enable the syndicate to undertake underwriting risks.

Credit spread – The difference between the yield on the debt securities of a particular corporate debt issue and the yield of a similar maturity of U.S. Treasury debt securities.

Current accident year results – A non-GAAP measure of the estimated earnings impact of current premiums offset by estimated loss experience and expenses for the current accident year. This measure includes the estimated increase in revenue associated with higher prices (premiums), including those caused by price inflation and changes in exposure, partially offset by higher volume driven expenses and inflation of loss costs. Volume driven expenses include acquisition costs such as commissions paid to agents, which are typically based on a percentage of premium dollars.

Earned premium – The portion of a premium that is recognized as income, or earned, based on the expired portion of the policy period, that is, the period for which loss coverage has actually been provided. For example, after six months, $50 of a $100 annual premium is generally considered earned premium. The remaining $50 of annual premium is unearned premium. Net earned premium is earned premium net of reinsurance.

Economic interest – The share of syndicate underwriting capacity supported by capital from Chaucer Holdings Limited.

Excess of loss reinsurance – Reinsurance that indemnifies the insured against all or a specific portion of losses under reinsured policies in excess of a specified dollar amount or “retention”.

Exposure – As it relates to underwriting, a measure of the rating units or premium basis of a risk; for example, an exposure of a number of automobiles. As it relates to loss events, the maximum value of claims made on an insurer from an event or events that would result in the total exhaustion of the cover or indemnity offered by an insurance policy.

Exposure management actions – Actions that focus on improving underwriting profitability and/or lessening earnings volatility by reducing our exposures and property concentrations in certain geographies and lines that are more prone to both catastrophe and non-catastrophe losses. These actions include, but are not limited to, non-renewal, rate increases, stricter underwriting standards and higher deductible utilization, agency management actions, and more selective portfolio management by modifying our business mix.

Frequency – The number of claims occurring during a given coverage period.

Funds at Lloyd’s – Funds held in trust at Lloyd’s as security for the policyholders and to support a corporate member’s overall underwriting activities. The funds must be in a form approved by Lloyd’s and be maintained at certain specified levels.

Inland Marine Insurance – In Commercial Lines, this is a type of coverage developed for shipments that do not involve ocean transport. It covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. In the context of Personal Lines, this term relates to floater policies that cover expensive personal items such as fine art and jewelry.

Loss adjustment expenses (“LAE”) – Expenses incurred in the adjusting, recording, and settlement of claims. These expenses include both internal company expenses and outside services. Allocated LAE (“ALAE”) refers to defense and cost containment expenses, including legal fees, court costs, and investigation fees.  Unallocated LAE (“ULAE”) refers to expenses that generally cannot be associated with a specific claim. ULAE includes internal costs such as salaries, fringe benefits and other overhead costs associated with the claim settlement processand external adjustment and appraisal fees.

Loss costs – An amount of money paid for an insurance claim.

Loss reserves – Liabilities established by insurers to reflect the estimated cost of claims payments and the related expenses that the insurer will ultimately be required to pay in respect of insurance it has written. Reserves are established for losses and for LAE.

Managing agent – An agent that runs the affairs of a syndicate.

Peril – A cause of loss.

Price(ing) increase or decrease (Commercial Lines and Chaucer) – Represents the average change in premium on renewed policies caused by the estimated net effect of base rate changes, discretionary pricing, inflation or changes in policy level exposure or insured risk.

Price(ing) increase or decrease (Personal Lines) – The estimated cumulative premium effect of approved rate actions applied to policies available for renewal, regardless of whether or not policies are actually renewed. Pricing changes do not represent actual increases or decreases realized by the Company.

Property insurance – Insurance that provides coverage for tangible property in the event of loss, damage or loss of use.

Rate – The estimated pure pricing factor upon which the policyholder’s premium is based excluding changes in exposure or risk.

Ratios: (1)

Catastrophe loss ratio –The ratio of catastrophe losses incurred to premiums earned.

Combined ratio – This ratio is the GAAP equivalent of the statutory ratio that is widely used as a benchmark for determining an insurer’s underwriting performance. A ratio below 100% generally indicates profitable underwriting prior to the consideration of investment income. A combined ratio over 100% generally indicates unprofitable underwriting prior to the consideration of investment income. The combined ratio is the sum of the loss and loss adjustment expense ratio and the expense ratio.

Expense Ratio – The ratio of underwriting expenses (including the amortization of deferred acquisition costs), less premium installment fee income and premium charge offs, to premiums earned for a given period.

Loss and Loss adjustment expense (“LAE”) ratio – The ratio of loss and loss adjustment expenses to premiums earned for a given period.

Loss ratio – The ratio of losses to premiums earned for a given period.

Reinstatement premium – A pro-rata reinsurance premium that may be charged for reinstating the amount of reinsurance coverage reduced as the result of a reinsurance loss payment under a reinsurance treaty. For events that we are the insured party, the charge would decrease premiums; for events where we provide reinsurance coverage, the charge would increase premiums. For example, in 2005, this premium was required to ensure that our property catastrophe occurrence treaty, which was exhausted by Hurricane Katrina, was available again in the event of another large catastrophe loss in 2005.

Reinsurance – An arrangement in which an insurance company, or a reinsurance company, known as the reinsurer, agrees to indemnify another insurance or reinsurance company, known as the ceding company, against all or a portion of the insurance or reinsurance risks underwritten by the ceding company under one or more policies. Reinsurance can provide a ceding company with several benefits, including a reduction in net liability on risks and catastrophe protection from large or multiple losses. Reinsurance does not legally discharge the primary insurer from its liability with respect to its obligations to the insured.

Risk based capital (“RBC”) – A method of measuring the minimum amount of capital appropriate for an insurance company to support its overall business operations in consideration of its size and risk profile. The RBC ratio for regulatory purposes is calculated as total adjusted capital divided by required risk based capital. Total adjusted capital for property and casualty companies is capital and surplus, adjusted for the non-tabular reserve discount applicable to our assumed discontinued accident and health insurance business. The Company Action Level is the first level at which regulatory involvement is specified based upon the level of capital.

Regulators may take action for reasons other than triggering various RBC action levels. The various action levels are summarized as follows:

· The Company Action Level, which equals 200% of the Authorized Control Level, requires a company to prepare and submit a RBC plan to the commissioner of the state of domicile. A RBC plan proposes actions which a company may take in order to bring statutory capital above the Company Action Level. After review, the commissioner will notify the company if the plan is satisfactory.

· The Regulatory Action Level, which equals 150% of the Authorized Control Level, requires the insurer to submit to the commissioner of the state of domicile an RBC plan, or if applicable, a revised RBC plan. After examination or analysis, the commissioner will issue an order specifying corrective actions to be taken.

· The Authorized Control Level authorizes the commissioner of the state of domicile to take whatever regulatory actions are considered necessary to protect the best interest of the policyholders and creditors of the insurer.

· The Mandatory Control Level, which equals 70% of the Authorized Control Level, authorizes the commissioner of the state of domicile to take actions necessary to place the company under regulatory control (i.e., rehabilitation or liquidation).

Security Lending – We engage our banking provider to lend securities from our investment portfolio to third parties. These lent securities are fully collateralized by cash. We monitor the fair value of the securities on a daily basis to assure that the collateral is maintained at a level of at least 102% of the fair value of the loaned securities. We record securities lending collateral as a cash equivalent, with an offsetting liability in expenses and taxes payable.

Severity – A monetary increase in the loss costs associated with the same or similar type of event or coverage.

Solvency II – European Commission-led fundamental review of the capital adequacy regime for the European insurance industry.

Specialty Lines – A major component of our other commercial lines. There is no accepted industry definition of “specialty lines”, but for our purpose specialty lines consist of products such as inland and ocean marine, surety, specialty property, professional liability, management liability and various other program businesses. When discussing net premiums written and other financial measures of our specialty businesses, we may include non-specialty premiums that are written as part of the entire account.

Statutory accounting practices – Recording transactions and preparing financial statements in accordance with the rules and procedures prescribed or permitted by insurance regulatory authorities including the NAIC, which in general reflect a liquidating, rather than going concern, concept of accounting.

Syndicate – A group of members underwriting insurance at Lloyd’s through the agency of a managing agent, to whom a particular syndicate number is assigned.

Underwriting – The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company will accept risks.

Underwriting expenses – Expenses incurred in connection with the acquisition, pricing and administration of a policy or contract, and other insurance company expenses unrelated to claims handling or investments.

Unearned premiums – The portion of a premium representing the unexpired amount of the contract term as of a certain date.

Written premium – The premium assessed for the entire coverage period of an insurance policy or contract without regard to how much of the premium has been earned. See also “Earned premium” above. Net premium written is written premium net of reinsurance.

(1)Ratios may not be comparable to similarly titled measures of other companies.

ITEM 7A–QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to “Quantitative and Qualitative Disclosures about Market Risk” in Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K.

67

ITEM 8  –  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

The Hanover Insurance Group, Inc.:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of The Hanover Insurance Group, Inc. and its subsidiaries at December 31, 2016 and December 31, 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A.  Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Boston, MA

February 22, 2017

68

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions, except per share data)
Revenues
Premiums	$	4,628.1	$	4,704.8	$	4,710.3
Net investment income		279.4		279.1		270.3
Net realized investment gains (losses):
Net realized gains from sales and other		36.5		46.3		55.6
Net other–than–temporary impairment losses on investments recognized
in earnings		(27.9)		(26.8)		(5.5)
Total net realized investment gains		8.6		19.5		50.1
Fees and other income		29.7		30.6		36.9
Total revenues		4,945.8		5,034.0		5,067.6
Losses and expenses
Losses and loss adjustment expenses		2,964.7		2,884.1		2,927.5
Amortization of deferred acquisition costs		1,035.2		1,033.2		1,040.0
Interest expense		54.9		60.6		65.8
Gain on disposal of U.K. motor business		(1.1)		(38.4)		-
Net loss from repayment of debt		88.3		24.1		0.1
Other operating expenses		611.5		631.0		656.2
Total losses and expenses		4,753.5		4,594.6		4,689.6
Income before income taxes		192.3		439.4		378.0
Income tax expense:
Current		52.1		55.8		27.1
Deferred		(15.9)		52.8		68.6
Total income tax expense		36.2		108.6		95.7
Income from continuing operations		156.1		330.8		282.3
Net (loss) gain from discontinued operations (net of income tax benefit
of $2.8,  $0.5 and $0.1 in 2016, 2015 and 2014)		(1.0)		0.7		(0.3)
Net income	$	155.1	$	331.5	$	282.0
Earnings per common share:
Basic:
Income from continuing operations	$	3.65	$	7.53	$	6.41
Net (loss) gain from discontinued operations		(0.02)		0.02		-
Net income per share	$	3.63	$	7.55	$	6.41
Weighted average shares outstanding		42.8		43.9		44.0
Diluted:
Income from continuing operations	$	3.61	$	7.39	$	6.29
Net (loss) gain from discontinued operations		(0.02)		0.01		(0.01)
Net income per share	$	3.59	$	7.40	$	6.28
Weighted average shares outstanding		43.2		44.8		44.9

The accompanying notes are an integral part of these consolidated financial statements.

69

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Net income	$	155.1	$	331.5	$	282.0
Other comprehensive income (loss), net of tax:
Available-for-sale securities:
Net appreciation (depreciation) during the period		28.8		(138.0)		40.0
Change in other-than-temporary impairment losses recognized in other
comprehensive income (loss)		7.3		(13.0)		1.6
Total available-for-sale securities		36.1		(151.0)		41.6
Pension and postretirement benefits:
Net actuarial losses and prior service costs arising in the period		(30.3)		(2.8)		(22.6)
Amortization recognized as net periodic benefit and postretirement cost		6.4		8.5		14.4
Total pension and postretirement benefits		(23.9)		5.7		(8.2)
Cumulative foreign currency translation adjustment:
Amount recognized as cumulative foreign currency translation during the
period		(3.3)		(7.2)		(4.6)
Total other comprehensive income (loss), net of tax		8.9		(152.5)		28.8
Comprehensive income	$	164.0	$	179.0	$	310.8

The accompanying notes are an integral part of these consolidated financial statements.

70

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31		2016		2015
(in millions, except share data)
Assets
Investments:
Fixed maturities, at fair value (amortized cost of $7,235.1 and $6,934.0)	$	7,331.3	$	6,983.4
Equity securities, at fair value (cost of $498.4 and $528.5)		584.4		576.6
Other investments		533.8		393.4
Total investments		8,449.5		7,953.4
Cash and cash equivalents		282.6		338.8
Accrued investment income		61.7		62.9
Premiums and accounts receivable, net		1,438.1		1,391.7
Reinsurance recoverable on paid and unpaid losses and unearned premiums		2,611.8		2,635.0
Deferred acquisition costs		517.5		508.8
Deferred income taxes		115.1		137.9
Goodwill		184.8		186.0
Other assets		479.8		483.7
Assets of discontinued operations		79.5		83.0
Total assets	$	14,220.4	$	13,781.2
Liabilities
Loss and loss adjustment expense reserves	$	6,949.4	$	6,574.4
Unearned premiums		2,561.0		2,540.8
Expenses and taxes payable		728.0		724.9
Reinsurance premiums payable		251.9		205.2
Debt		786.4		803.1
Liabilities of discontinued operations		86.2		88.4
Total liabilities		11,362.9		10,936.8
Commitments and contingencies
Shareholders’ Equity
Preferred stock, par value $0.01 per share; 20.0 million shares authorized; none issued		-		-
Common stock, par value $0.01 per share; 300.0 million shares authorized; 60.5 million shares
issued		0.6		0.6
Additional paid-in capital		1,846.7		1,833.5
Accumulated other comprehensive income		62.8		53.9
Retained earnings		1,875.6		1,803.5
Treasury stock at cost (18.1 and 17.5 million shares)		(928.2)		(847.1)
Total shareholders’ equity		2,857.5		2,844.4
Total liabilities and shareholders’ equity	$	14,220.4	$	13,781.2

The accompanying notes are an integral part of these consolidated financial statements.

71

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Preferred Stock
Balance at beginning and end of year	$	-	$	-	$	-
Common Stock
Balance at beginning and end of year		0.6		0.6		0.6
Additional Paid-in Capital
Balance at beginning of year		1,833.5		1,830.7		1,830.1
Employee and director stock-based awards and other		13.2		2.8		0.6
Balance at end of year		1,846.7		1,833.5		1,830.7
Accumulated Other Comprehensive Income (Loss), net of tax
Net Unrealized Appreciation (Depreciation) on Investments:
Balance at beginning of year		149.9		300.9		259.3
Net appreciation (depreciation) on available-for-sale securities		36.1		(151.0)		41.6
Balance at end of year		186.0		149.9		300.9
Defined Benefit Pension and Postretirement Plans:
Balance at beginning of year		(78.6)		(84.3)		(76.1)
Net amount arising in the period		(30.3)		(2.8)		(22.6)
Net amount recognized as net periodic benefit cost		6.4		8.5		14.4
Balance at end of year		(102.5)		(78.6)		(84.3)
Cumulative Foreign Currency Translation Adjustment:
Balance at beginning of year		(17.4)		(10.2)		(5.6)
Amount recognized as cumulative foreign currency translation during the year		(3.3)		(7.2)		(4.6)
Balance at end of year		(20.7)		(17.4)		(10.2)
Total accumulated other comprehensive income		62.8		53.9		206.4
Retained Earnings
Balance at beginning of year		1,803.5		1,558.7		1,349.1
Net income		155.1		331.5		282.0
Dividends to shareholders		(80.4)		(74.2)		(67.0)
Stock-based compensation		(2.6)		(12.5)		(5.4)
Balance at end of year		1,875.6		1,803.5		1,558.7
Treasury Stock
Balance at beginning of year		(847.1)		(752.4)		(762.9)
Shares purchased at cost		(105.6)		(127.3)		(20.4)
Net shares reissued at cost under employee stock-based compensation plans		24.5		32.6		30.9
Balance at end of year		(928.2)		(847.1)		(752.4)
Total shareholders’ equity	$	2,857.5	$	2,844.4	$	2,844.0

The accompanying notes are an integral part of these consolidated financial statements.

72

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Cash Flows From Operating Activities
Net income	$	155.1	$	331.5	$	282.0
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on disposal of U.K. motor business		(1.1)		(38.4)		-
Net loss from repayment of debt		88.3		24.1		0.1
Net realized investment gains		(8.6)		(19.1)		(50.2)
Net amortization and depreciation		30.7		30.2		33.5
Stock-based compensation expense		12.0		12.3		15.1
Amortization of defined benefit plan costs		9.9		12.7		22.1
Deferred income tax expense		(13.2)		53.1		68.6
Change in deferred acquisition costs		(7.8)		6.9		(19.6)
Change in premiums receivable, net of reinsurance premiums payable		(28.2)		(52.5)		(184.1)
Change in loss, loss adjustment expense and unearned premium reserves		527.8		121.0		256.3
Change in reinsurance recoverable		(35.8)		(27.0)		115.9
Change in expenses and taxes payable		6.9		(1.0)		12.5
Other, net		1.6		(15.4)		12.5
Net cash provided by operating activities		737.6		438.4		564.7
Cash Flows From Investing Activities
Proceeds from disposals and maturities of fixed maturities		1,602.3		1,696.4		1,323.1
Proceeds from disposals of equity securities and other investments		271.1		329.4		175.2
Purchase of fixed maturities		(2,020.9)		(1,792.2)		(1,710.1)
Purchase of equity securities and other investments		(351.2)		(428.8)		(379.7)
Cash received from disposal of U.K. motor business, net of cash transferred		6.9		44.3		-
Capital expenditures		(15.7)		(19.5)		(11.2)
Other investing activities		12.1		(1.1)		2.0
Net cash used in investing activities		(495.4)		(171.5)		(600.7)
Cash Flows From Financing Activities
Proceeds from exercise of employee stock options		16.2		16.6		12.6
Proceeds from debt borrowings, net		370.7		-		-
Change in cash collateral related to securities lending program		(6.4)		15.7		7.4
Dividends paid to shareholders		(80.4)		(74.2)		(67.0)
Repayment of debt		(475.4)		(114.3)		(0.7)
Repurchases of common stock		(105.6)		(127.3)		(20.4)
Other financing activities		(14.1)		(11.2)		(3.6)
Net cash used in financing activities		(295.0)		(294.7)		(71.7)
Effect of exchange rate changes on cash		(3.4)		(6.7)		(5.2)
Net change in cash and cash equivalents		(56.2)		(34.5)		(112.9)
Cash and cash equivalents, beginning of year		338.8		373.3		486.2
Cash and cash equivalents, end of year	$	282.6	$	338.8	$	373.3
Supplemental Cash Flow Information
Interest payments	$	53.1	$	60.8	$	64.1
Income tax net payments	$	29.7	$	56.9	$	8.4

The accompanying notes are an integral part of these consolidated financial statements.

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Basis of Presentation and Principles of Consolidation

The consolidated financial statements of The Hanover Insurance Group, Inc. (“THG” or the “Company”), include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America (“Citizens”), THG’s principal U.S. domiciled property and casualty companies; Chaucer Holdings Limited (“Chaucer”), a specialist insurance underwriting group which operates through the Society and Corporation of Lloyd’s (“Lloyd’s”); and certain other insurance and non-insurance subsidiaries. These legal entities conduct their operations through several business segments discussed in Note 14 – “Segment Information”. The consolidated financial statements also include the Company’s discontinued operations, consisting primarily of the Company’s former life insurance businesses, and its accident and health business. All intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) requires the Company 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. In the opinion of the Company’s management these financial statements reflect all adjustments, consisting of normal recurring items necessary for a fair presentation of the financial position and results of operations.

B. Investments

Fixed maturities and equity securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses, net of taxes, reported in accumulated other comprehensive income, a separate component of shareholders’ equity. The amortized cost of fixed maturities is adjusted for amortization of premiums and accretion of discounts to maturity.

Other investments consist primarily of mortgage participations, limited partnerships and overseas deposits. Mortgage participations represent interests in commercial mortgage loans originated and serviced by a third-party of which the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgage loans. Due to certain reacquisition rights retained by the third-party in the loan participation, these investments are accounted for as secured borrowings under Accounting Standards Codification (“ASC”) 860, Transfers and Servicing (“ASC 860”). Mortgage participations are stated at unpaid principal balances adjusted for deferred fees or expenses, net of reserves. Reserves on mortgages are established and are collectively evaluated based on losses expected by the Company for loans that may not be collectible in full. In establishing reserves, the Company considers, among other things, the estimated fair value of the underlying collateral.

Investments in limited partnership interests include interests in private equity funds. Where the Company’s interest is so minor that it exercises virtually no influence over operating and financial policies, investments in limited partnership interests are accounted for in accordance with the cost method of accounting; all other investments in limited partnership interests are accounted for in accordance with the equity method of accounting.

Overseas deposits are investments maintained in overseas funds and managed exclusively by Lloyd’s. These funds are required in order to protect policyholders in overseas markets and enable the Company to operate in those markets. Overseas deposits are carried at fair value. Realized and unrealized gains and losses on overseas deposits, including the impact of foreign currency movements, are reflected in the income statement in the period the gain or loss was generated.

Net investment income includes interest, dividends and income from limited partnership interests and overseas deposits. Interest income is recognized based on the effective yield method which includes the amortization of premiums and accretion of discounts. The effective yield used to determine the amortization for fixed maturities subject to prepayment risk, such as mortgage-backed and asset-backed securities, is recalculated and adjusted periodically based upon actual historical and projected future cash flows. The adjustment to yields for highly rated prepayable fixed maturities are accounted for using the retrospective method. The adjustment to yields for all other prepayable fixed maturities are accounted for using the prospective method. Fixed maturities and mortgage participations that are delinquent are placed on non-accrual status, and thereafter interest income is recognized only when cash payments are received.

Realized investment gains and losses are reported as a component of revenues based upon specific identification of the investment assets sold. When an other-than-temporary decline in value of a specific investment is deemed to have occurred, and a charge to earnings is required, the Company recognizes a realized investment loss.

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The Company reviews investments in an unrealized loss position to identify other-than-temporary declines in value. When it is determined that a decline in value of an equity security is other-than-temporary, the Company reduces the cost basis of the security to fair value with a corresponding charge to earnings. When an other-than-temporary decline in value of a debt security is deemed to have occurred, the Company must assess whether it intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If the debt security meets either of these two criteria, an other-than-temporary impairment (“OTTI”) is recognized in earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the impairment measurement date. If the Company does not intend to sell the debt security and it is not more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, the credit loss portion of an OTTI is recorded through earnings while the portion attributable to all other factors is recorded separately as a component of other comprehensive income. The amount of the OTTI that relates to credit is estimated by comparing the amortized cost of the fixed maturity security with the net present value of the security’s projected future cash flows, discounted at the effective interest rate implicit in the investment prior to impairment. The non-credit portion of the impairment is equal to the difference between the fair value and the net present value of the security’s cash flows at the impairment measurement date. Once an OTTI has been recognized, the new amortized cost basis of the security is equal to the previous amortized cost less the amount of OTTI recognized in earnings. For equity method investments, an impairment is recognized when evidence demonstrates that an other-than-temporary loss in value has occurred, including the absence of the ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment.  

C. Financial Instruments

In the normal course of business, the Company may enter into transactions involving various types of financial instruments, including debt, investments such as fixed maturities, equity securities and mortgage loans, investment and loan commitments, swap contracts, option contracts, forward contracts and futures contracts. These instruments involve credit risk and could also be subject to risk of loss due to interest rate and foreign currency fluctuation. The Company evaluates and monitors each financial instrument individually and, when appropriate, obtains collateral or other security to minimize losses.

D. Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, amounts due from banks and highly liquid debt instruments purchased with an original maturity of three months or less.

E. Deferred Acquisition Costs

Acquisition costs consist of commissions, underwriting costs and other costs, which vary with, and are primarily related to, the successful production of premiums. Acquisition costs are deferred and amortized over the terms of the insurance policies.

Deferred acquisition costs (“DAC”) for each operating segment are reviewed to determine if the costs are recoverable from future income, including investment income. If such costs are determined to be unrecoverable, they are expensed at the time of determination. Although recoverability of DAC is not assured, the Company believes it is more likely than not that all of these costs will be recovered. The amount of DAC considered recoverable, however, could be reduced in the near term if the estimates of total revenues discussed above are reduced or permanently impaired as a result of a disposition of a line of business. The amount of amortization of DAC could be revised in the near term if any of the estimates discussed above are revised.

F. Reinsurance Recoverables

The Company shares certain insurance risks it has underwritten, through the use of reinsurance contracts, with various insurance entities. Reinsurance accounting is followed for ceded transactions when the risk transfer provisions of ASC 944, Financial Services – Insurance (“ASC 944”), have been met. As a result, when the Company experiences loss or claims events that are subject to a reinsurance contract, reinsurance recoverables are recorded. The amount of the reinsurance recoverable can vary based on the terms of the reinsurance contract, the size of the individual loss or claim, or the aggregate amount of all losses or claims in a particular line or book of business or an aggregate amount associated with a particular accident year. The valuation of losses or claims recoverable depends on whether the underlying loss or claim is a reported loss or claim, or an incurred but not reported loss. For reported losses and claims, the Company values reinsurance recoverables at the time the underlying loss or claim is recognized, in accordance with contract terms. For incurred but not reported losses, the Company estimates the amount of reinsurance recoverables based on the terms of the reinsurance contracts and historical reinsurance recovery information and applies that information to the gross loss reserve. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured business and the balance is disclosed separately in the financial statements. However, the ultimate amount of the reinsurance recoverable is not known until all losses and claims are settled. Allowances are established for amounts deemed uncollectible and reinsurance recoverables are recorded net of these allowances. The Company evaluates the financial condition of its reinsurers and monitors concentration risk to minimize its exposure to significant credit losses from individual reinsurers.

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G. Property, Equipment and Capitalized Software

Property, equipment, leasehold improvements and capitalized software are recorded at cost, less accumulated depreciation and amortization. Depreciation is generally provided using the straight-line method over the estimated useful lives of the related assets, which generally range from 3 to 30 years. The estimated useful life for capitalized software is generally 5 to 7 years. Amortization of leasehold improvements is provided using the straight-line method over the lesser of the term of the leases or the estimated useful life of the improvements.

The Company tests for the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company recognizes impairment losses only to the extent that the carrying amounts of long-lived assets exceed the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. When an impairment loss occurs, the Company reduces the carrying value of the asset to fair value and no longer depreciates the asset. Fair values are estimated using discounted cash flow analysis.

H. GOODWILL AND INTANGIBLE ASSETS

In accordance with the provisions of ASC 350, Intangibles- Goodwill and Other, the Company carries its goodwill at cost, net of amortization accumulated prior to January 1, 2002, and net of impairments. Increases to goodwill are generated through acquisition and represent the excess of the cost of an acquisition over the fair value of net assets acquired, including any intangibles acquired. Since January 1, 2002, goodwill is no longer amortized but rather, is reviewed for impairment. Additionally, acquisitions can also produce intangible assets, which have either a definite or indefinite life. Intangible assets with definite lives are amortized over that life, whereas those intangible assets determined to have an indefinite life are reviewed at least annually for impairment.

The Company tests for the recoverability of goodwill and intangible assets with indefinite lives annually or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company recognizes impairment losses only to the extent that the carrying amounts of reporting units with goodwill exceed the fair value. The amount of the impairment loss that is recognized is determined based upon the excess of the carrying value of goodwill compared to the implied fair value of the goodwill, as determined with respect to all assets and liabilities of the reporting unit. The Company has performed its annual review of goodwill and intangible assets with indefinite lives for impairment in the fourth quarters of 2016 and 2015 with no impairments recognized. At December 31, 2016 and 2015, Chaucer held intangible assets with indefinite lives of $47.0 million and $56.2 million, respectively, which represents approximately 76% and 74% of the Company’s balance, respectively. In addition, at December 31, 2016 and 2015, goodwill held by Chaucer was $6.0 million and $7.2 million, respectively. The remaining balance relates to the U.S. Companies. The changes in the value of intangible assets with indefinite lives from December 31, 2015 represent foreign exchange differences arising during 2016 whereas the changes in the value of intangible assets with indefinite lives during 2015 were primarily related to the disposition of the U.K. motor business on June 30, 2015. See Note 2 – “Dispositions of Businesses”.

I. LIABILITIES FOR LOSSES, LAE, AND UNEARNED PREMIUMS

Liabilities for outstanding claims, losses and loss adjustment expenses (“LAE”) are estimates of payments to be made for reported losses and LAE and estimates of losses and LAE incurred but not reported. These liabilities are determined using case basis evaluations and statistical analyses of historical loss patterns and represent estimates of the ultimate cost of all losses incurred but not paid. These estimates are continually reviewed and adjusted as necessary; adjustments are reflected in current operations. Estimated amounts of salvage and subrogation on unpaid losses are deducted from the liability for unpaid claims.

Premiums for direct and assumed business are reported as earned on a pro-rata basis over the contract period. The unexpired portion of these premiums is recorded as unearned premiums.

All losses, LAE and unearned premium liabilities are based on the various estimates discussed above. Although the adequacy of these amounts cannot be assured, the Company believes that it is more likely than not that these liabilities and accruals will be sufficient to meet future obligations of policies in force. The amount of liabilities and accruals, however, could be revised in the near-term if the estimates discussed above are revised.

J. Debt

The Company’s debt at December 31, 2016 includes senior debentures, subordinated debentures, and collateralized borrowings with the Federal Home Loan Bank of Boston (“FHLBB”). Debt instruments are carried at principal amount borrowed, net of any applicable unamortized discounts and issuance costs. See Note 6 – “Debt and Credit Arrangements”.  

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K. Premium, Premium Receivable, Fee Revenue and Related Expenses

Insurance premiums written are generally recorded at the policy inception and are primarily earned on a pro-rata basis over the terms of the policies for all products. Premiums written include estimates, primarily in the Chaucer segment, that are derived from multiple sources, which include the historical experience of the underlying business, similar businesses and available industry information. These estimates are regularly reviewed and updated, and any resulting adjustments are included in the current year’s results. Unearned premium reserves represent the portion of premiums written that relates to the unexpired terms of the underlying in-force insurance policies and reinsurance contracts. Premium receivables reflect the unpaid balance of premium written as of the balance sheet date. Premium receivables are generally short-term in nature and are reported net of an allowance for estimated uncollectible premium accounts. The Company reviews its receivables for collectability at the balance sheet date. The allowance for uncollectible accounts was not material as of December 31, 2016 and 2015. Ceded premiums are charged to income over the applicable term of the various reinsurance contracts with third-party reinsurers. Reinsurance reinstatement premiums, when required, are recognized in the same period as the loss event that gave rise to the reinstatement premiums. Losses and related expenses are matched with premiums, resulting in their recognition over the lives of the contracts. This matching is accomplished through estimated and unpaid losses and amortization of deferred acquisition costs.

L. Income Taxes

The Company is subject to the tax laws and regulations of the U.S. and foreign countries in which it operates. The Company files a consolidated U.S. federal income tax return that includes the holding company and its U.S. subsidiaries. Generally, taxes are accrued at the U.S. statutory tax rate of 35% for income from the U.S. operations. The Company’s primary non-U.S. jurisdiction is the United Kingdom (“U.K.”). In July 2013, the U.K. statutory rate decreased from 23% to 21% effective April 1, 2014 and from 21% to 20% effective April 1, 2015. In November 2015, the U.K. statutory tax rate decreased from 20% to 19% effective April 1, 2017 and from 19% to 18% effective April 1, 2020. A further decrease was enacted in September 2016 to reduce the U.K. statutory rate from 19% to 17%, instead of the 18%, effective April 1, 2020. The Company accrues taxes on certain non-U.S. income that is subject to U.S. tax at the U.S. tax rate. Foreign tax credits, where available, are utilized to offset U.S. tax as permitted. Certain non-U.S. income of the Company is not subject to U.S. tax until repatriated. Foreign taxes on this non-U.S. income are accrued at the local foreign rate and do not have an accrual for U.S. deferred taxes since these earnings are intended to be indefinitely reinvested overseas.

The Company’s accounting for income taxes represents its best estimate of various events and transactions.

Deferred income taxes are generally recognized when assets and liabilities have different values for financial statement and tax reporting purposes, and for other temporary taxable and deductible differences as defined by ASC 740, Income Taxes (“ASC 740”). These temporary differences are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. These differences result primarily from insurance reserves, deferred acquisition costs, tax credit carryforwards, employee benefit plans and deferred Lloyd’s underwriting income.

The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Consideration is given to all available positive and negative evidence, including reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. Valuation allowances are established if, based on available information, it is determined that it is more likely than not that all or some portion of the deferred tax assets will not be realized. Changes in valuation allowances are generally reflected in income tax expense or as an adjustment to other comprehensive income (loss) depending on the nature of the item for which the valuation allowance is being recorded.

M. Stock-Based Compensation

The Company recognizes the fair value of compensation costs for all share-based payments, including employee stock options, in the financial statements. Unvested awards are generally expensed on a straight line basis, by tranche, over the vesting period of the award. The Company’s stock-based compensation plans are discussed further in Note 11 – “Stock-Based Compensation Plans”.

N. Earnings Per Share

Earnings per share (“EPS”) for the years ended December 31, 2016, 2015 and 2014 is based on a weighted average of the number of shares outstanding during each year. Basic and diluted EPS is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. The weighted average shares outstanding used to calculate basic EPS differ from the weighted average shares outstanding used in the calculation of diluted EPS due to the effect of dilutive employee stock options, nonvested stock grants and other contingently issuable shares. If the effect of such items is antidilutive, the weighted average shares outstanding used to calculate diluted EPS are equal to those used to calculate basic EPS.

Options to purchase shares of common stock whose exercise prices are greater than the average market price of the common shares are not included in the computation of diluted earnings per share because the effect would be antidilutive.

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O. Foreign Currency

The Company’s reporting currency is the U.S. dollar. The functional currencies of the Company’s foreign operations are the U.K. pound sterling (“GBP”), U.S. dollar, and Canadian dollar. Assets and liabilities of foreign operations are translated into the U.S. dollar using the exchange rates in effect at the balance sheet date. Revenues and expenses of foreign operations are translated using the average exchange rate for the period. Gains or losses from translating the financial statements of foreign operations are recorded in the cumulative translation adjustment, as a separate component of accumulated other comprehensive income. Gains and losses arising from transactions denominated in a foreign currency, other than the Company’s functional currencies, are included in net income (loss), except for the Company’s foreign currency denominated available-for-sale investments. The Company’s foreign currency denominated available-for-sale investments’ change in exchange rates between the local currency and the functional currency at each balance sheet date represents an unrealized appreciation or depreciation in value of these securities, and is included as a component of accumulated other comprehensive income.

The Company manages its exposure to foreign currency risk primarily by matching assets and liabilities denominated in the same currency. To the extent that assets and liabilities in foreign currencies are not matched, the Company is exposed to foreign currency risk. For functional currencies, the related exchange rate fluctuations are reflected in other comprehensive income (loss). The Company translated Chaucer’s balance sheet at December 31, 2016 and 2015 from GBP to U.S. dollars using a conversion rate of 1.23 and 1.47, respectively. The Company recognized $22.3 million in foreign currency transaction losses in the Consolidated Statements of Income during the year ended December 31, 2016, and $8.5 million and $3.3 million in foreign currency transaction gains for the years ended December 31, 2015 and 2014, respectively. These amounts include realized losses of Euro denominated securities of $0.7 million, $3.4 million, and $1.3 million in 2016, 2015, and 2014, respectively.

P. New Accounting Pronouncements

Recently Implemented Standards

In May 2015, the Financial Accounting Standards Board (“FASB”) issued ASC Update No. 2015-09, (Topic 944) Financial Services- Insurance:Disclosures about Short-Duration Contracts. This ASC update requires several additional disclosures regarding short-duration insurance contracts, including; disaggregated incurred and paid claims development information, quantitative and qualitative information about claim frequency and duration, and the sum of incurred but not reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses along with a description of reserving methodologies. This information is required to be presented by accident year, for the number of years for which claims typically remain outstanding, but need not exceed 10 years. A reconciliation of the claims development disclosures to the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses, including a separate disclosure for reinsurance recoverables is also required for each period presented in the statement of financial position. In addition, this ASC update requires insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements.  The updated guidance is effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The Company implemented this guidance beginning with its disclosures for the year ended December 31, 2016. The effect of implementing this guidance was not material to the Company’s financial position or results of operations, as the update is disclosure related.

In April 2015, the FASB issued ASC Update No. 2015-03, (Subtopic 835-30) Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. This ASC update requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of a debt liability, consistent with debt discounts or premiums, and amortization of debt issuance cost shall be reported as interest expense. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASC update. The updated guidance is to be applied on a retrospective basis and early adoption is permitted. The update is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company implemented this guidance effective January 1, 2016. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

In August 2014, the FASB issued ASC Update No. 2014-15, (Subtopic 205-40)Presentation of Financial Statements– Going Concern.This ASC update provides guidance on determining when and how to disclose going concern uncertainties in the financial statements, and requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. The updated guidance is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early adoption is permitted. The Company implemented this guidance beginning with the year-ended December 31, 2016. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

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In April 2014, the FASB issued ASC Update No. 2014-08, (Topic 205 and Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASC update modifies the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. Also, this update requires additional financial statement disclosures about discontinued operations, as well as disposals of an individually significant component of an entity that do not qualify for discontinued operations presentation. This ASC update was effective for all disposals (or classifications as held for sale) of components of an entity that occurred within annual and interim periods beginning on or after December 15, 2014 and for all businesses that, on acquisition, were classified as held for sale that also occurred within interim and annual periods beginning on or after December 15, 2014. The Company implemented this guidance effective January 1, 2015. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

Recently Issued Standards

In January 2017, the FASB issued ASC Update No. 2017-04, (Topic 350) Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment. This guidance eliminates step 2 from the goodwill impairment test. Instead, an entity should perform its goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, including any applicable income tax effects, and recognize an impairment for the amount by which the carrying amount exceeds the reporting units fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The updated guidance is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASC Update No. 2017-04 to have a material impact on its financial position or results of operations.

In January 2017, the FASB issued ASC Update No. 2017-01, (Topic 805) Business Combinations – Clarifying the Definition of a Business. The amendments in this update provide a more robust framework to use in determining when a set of assets and activities constitute a business. This guidance narrows the definition of a business by providing specific requirements that contribute to the creation of outputs that must be present to be considered a business. The guidance further clarifies the appropriate accounting when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets is that of an acquisition (disposition) of assets, not a business. This framework will reduce the number of transactions that an entity must further evaluate to determine whether transactions are business combinations or asset acquisitions. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied on a prospective basis. Early adoption is permitted only for transactions that have not been reported in financial statements that have been issued. The Company does not expect the adoption of ASC Update No. 2017-01 to have a material impact on its financial position or results of operations.

In November 2016, the FASB issued ASC Update No. 2016-18 (Topic 230) Statement of Cash Flows – Restricted Cash (a consensus of the FASB Emerging Issues Task Force). The amendments in this update require that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Current GAAP does not include specific guidance on the cash flow classification and presentation of changes in restricted cash. The updated guidance is effective for interim and annual periods beginning after December 15, 2017 and is required to be applied using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. However, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. Implementing this guidance is not expected to have a significant impact on the Company’s statement of cash flows, as restricted cash, if any, is currently included in total cash and cash equivalents.

In October 2016, the FASB issued ASC Update No. 2016-16, (Topic 740) Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory. Under current GAAP, the tax effects of intra-entity transfers of assets (intercompany sales) are deferred until the assets are sold to an outside party or otherwise recovered through use. This ASC update eliminates this deferral of taxes for assets other than inventory and requires the recognition of taxes when the transfer occurs. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. Early adoption is permitted, but this election must be made in the first interim period of the adoption year. The adoption of ASC Update No. 2016-16 is not expected to have any net impact on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASC Update No. 2016-15, (Topic 230) Classification of Certain Cash Receipts and Cash Payments. This ASC update provides specific guidance on the presentation of certain cash flow items where there is currently diversity in practice, including, but not limited to, debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied retrospectively unless impracticable. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASC Update No. 2016-15.

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In June 2016, the FASB issued ASC Update No. 2016-13, (Topic 326) Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASC update introduces new guidance for the accounting for credit losses on financial instruments within its scope. A new model, referred to as the current expected credit losses model, requires an entity to determine credit-related impairment losses for financial instruments held at amortized cost and to estimate these expected credit losses over the life of an exposure (or pool of exposures). The estimate of expected credit losses should consider both historical and current information, reasonable and supportable forecasts, as well as estimates of prepayments. The estimated credit losses and subsequent adjustment to such loss estimates, will be recorded through an allowance account which is deducted from the amortized cost of the financial instrument, with the offset recorded in current earnings. ASC No. 2016-13 also modifies the impairment model for available-for-sale debt securities. The new model will require an estimate of expected credit losses only when the fair value is below the amortized cost of the asset, thus the length of time the fair value of an available-for-sale debt security has been below the amortized cost will no longer affect the determination of whether a credit loss exists. In addition, credit losses on available-for-sale debt securities will be limited to the difference between the security’s amortized cost basis and its fair value. The updated guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for periods beginning after December 15, 2018. The Company is evaluating the impact of the adoption of ASC Update No. 2016-13 on its financial position and results of operations.

In March 2016, the FASB issued ASC Update No. 2016-09, (Topic 718) Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This ASC update requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement, and be treated as discreet items in the reporting period in which they occur. Additionally, excess tax benefits will be classified with other income tax cash flows as an operating activity and cash paid by an employer when directly withholding shares for tax withholding purposes will be classified as a financing activity. Awards that are used to settle employee tax liabilities will be allowed to qualify for equity classification for withholdings up to the maximum statutory tax rates in applicable jurisdictions. Regarding forfeitures, a company can make an entity-wide accounting policy election to either continue estimating the number of awards that are expected to vest or account for forfeitures when they occur. The updated guidance is effective for interim and annual periods beginning after December 15, 2016. The Company will adopt this standard effective January 1, 2017 and will retain its current forfeiture policy of accruing the compensation cost based on the number of awards that are expected to vest. The effect this guidance will have on the Company’s results of operations is dependent on the future tax benefits or deficiencies that are recognized related to stock-based compensations awards, and could be material in any one quarterly or annual period. The adoption of this guidance is not expected to result in any cumulative effect adjustments and will not have a material impact on the liquidity of the Company.

In February 2016, the FASB issued ASC Update No. 2016-02, (Topic 842) Leases. This ASC update requires a lessee to recognize a right-of-use asset, which represents the lessee’s right to use a specified asset for the lease term, and a corresponding lease liability, which represents a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, for all leases that extend beyond 12 months. For finance or capital leases, interest on the lease liability will be recognized separately from amortization of the right-of-use asset in the statements of income and comprehensive income. In addition, the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. For operating leases, the asset and liability will be amortized as a single lease cost, such that the cost of the lease is allocated over the lease term, on a generally straight-line basis, with all cash flows included within operating activities in the statement of cash flows. The updated guidance is effective for interim and annual periods beginning after December 15, 2018 and is required to be implemented by applying a modified retrospective transition approach. The Company is continuing to evaluate the impact of the adoption of ASC Update No. 2016-02 on its results of operations. It is expected that assets and liabilities will increase based on the present value of remaining lease payments for leases in place at the adoption date; however, the impact is not expected to be significant to the Company’s financial position.

In January 2016, the FASB issued ASC Update No. 2016-01, (Subtopic 825-10) Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This ASC update requires unconsolidated equity investments to be measured at fair value with changes in the fair value recognized in net income, except for those accounted for under the equity method. This update eliminates the cost method for equity investments without readily determinable fair values and replaces with other methods, including the use of Net Asset Value (“NAV”). Additionally, when a public entity is required to measure fair value for disclosure purposes and holds financial instruments measured at amortized cost, the updated guidance requires these instruments to be measured using exit price. It also requires financial assets and financial liabilities to be presented separately in the notes to the financial statements, grouped by measurement category and form of financial asset. The updated guidance is effective for annual periods beginning after December 15, 2017. The Company will adopt the guidance effective January 1, 2018 through a cumulative effect adjustment to retained earnings. The adoption is not expected to have a material impact on the Company’s financial position. The impact to the Company is expected to be increased volatility in net income beginning in 2018; the magnitude of such volatility will depend on the composition of the Company’s investment portfolio in the future and changes in the fair value of the Company’s investments.

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In May 2014, the FASB issued ASC Update No. 2014-09, (Topic 606) Revenue from Contracts with Customers. This ASC was issued to clarify the principles for recognizing revenue. Insurance contracts and financial instrument transactions are not within the scope of this updated guidance, and; therefore, only an insignificant amount of the Company’s revenue is subject to this updated guidance. In August 2015, the FASB issued ASC Update No. 2015-14, (Topic 606) Revenue from Contracts with Customers, which deferred the effective date of ASC Update No. 2014-09 by one year. Accordingly, the updated guidance is effective for periods beginning after December 15, 2017 and is not expected to have a material effect on the Company’s financial position or results of operations.

Q. Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

2. DISPOSITIONS OF BUSINESSES

Disposal of U.K. Motor Business

Effective June 30, 2015, the Company transferred its U.K. motor business to an unaffiliated U.K.-based insurance provider. The transaction was executed through a 100 percent reinsurance arrangement for prior claim liabilities and in-force policies written by this division and the sale of two entities associated with this business. Total consideration from the sale of the Chaucer subsidiaries was $64.9 million and the transaction resulted in a net gain of $40.6 million.

The components of the gain are as follows:

(in millions)
Total consideration	$	64.9
Less:
Carrying value of subsidiaries		(7.6)
Intangibles and goodwill disposed (1)		(17.7)
Transaction expenses and employee-related and other costs (2)		(7.7)
Realized gain on investments transferred as part of reinsurance agreement (3)		5.8
Other items		0.7
Pre-tax gain		38.4
Income tax benefit		2.2
Net gain	$	40.6

(1) Reflects $17.2 million of indefinite-lived intangible assets associated with the U.K. motor business upon THG’s purchase of Chaucer in July 2011 and $0.5 million of goodwill.

(2) Transaction costs include legal, actuarial and other professional fees.

(3) As part of the reinsurance agreement, investments were transferred, resulting in the recognition of net realized investment gains that were previously reflected in accumulated other comprehensive income.

In connection with the reinsurance arrangement, insurance liabilities of approximately $443 million were ceded, including $137.4 million of written premiums, and approximately $419 million of investments, cash, and premiums receivable were transferred.  The $25 million difference between assets and liabilities approximates the DAC balance associated with this business. 

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Discontinued Operations

Discontinued operations primarily consist of the Company’s former life insurance businesses, which were sold prior to 2009, and its discontinued accident and health business.

The Company’s former life insurance businesses include indemnity obligations for which it established reserves.

During 1999, the Company exited its accident and health insurance business, consisting of its Employee Benefit Services business, its Affinity Group Underwriters business and its accident and health assumed reinsurance pool business. Prior to 1999, these businesses comprised substantially all of the former Corporate Risk Management Services segment. Accordingly, the operating results of the discontinued segment have been reported in accordance with Accounting Principles Board Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (“APB Opinion No. 30”). On January 2, 2009, Hanover Insurance directly assumed a portion of the accident and health business; and therefore continues to apply APB Opinion No. 30 to this business. In addition, the remainder of the Discontinued First Allmerica Financial Life Insurance Company (“FAFLIC”) accident and health business was reinsured by Hanover Insurance in connection with the sale of FAFLIC to Commonwealth Annuity, and has been reported in accordance with ASC 205, Presentation of Financial Statements.  

At December 31, 2016 and 2015, the portion of the discontinued accident and health business that was directly assumed had assets of $57.6 million and $54.5 million, respectively, consisting primarily of invested assets, and liabilities of $49.3 million and $46.5 million, respectively, consisting primarily of policy liabilities. At December 31, 2016 and 2015, the assets and liabilities of this business, as well as those of the reinsured portion of the accident and health business are classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheets.

Discontinued operations for the years ended December 31, 2016, 2015 and 2014 resulted in losses of $1.0 million, gains of $0.7 million and losses of $0.3 million, respectively, net of tax.

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3. INVESTMENTS

A. FIXED MATURITIES AND EQUITY SECURITIES

The amortized cost and fair value of available-for-sale fixed maturities and the cost and fair value of equity securities were as follows:

DECEMBER 31, 2016
(in millions)		Amortized		Gross		Gross				OTTI
		Cost or		Unrealized		Unrealized				Unrealized
		Cost		Gains		Losses		Fair Value		Losses
Fixed maturities:
U.S. Treasury and government agencies	$	342.5	$	3.7	$	5.1	$	341.1	$	-
Foreign government		235.8		5.4		0.5		240.7		-
Municipal		1,065.8		38.8		9.2		1,095.4		-
Corporate		3,989.8		113.0		49.0		4,053.8		15.8
Residential mortgage-backed		978.2		9.6		13.6		974.2		0.4
Commercial mortgage-backed		550.6		7.8		4.1		554.3		-
Asset-backed		72.4		0.2		0.8		71.8		-
Total fixed maturities	$	7,235.1	$	178.5	$	82.3	$	7,331.3	$	16.2
Equity securities	$	498.4	$	86.7	$	0.7	$	584.4	$	-
DECEMBER 31, 2015
(in millions)		Amortized		Gross		Gross				OTTI
		Cost or		Unrealized		Unrealized				Unrealized
		Cost		Gains		Losses		Fair Value		Losses
Fixed maturities:
U.S. Treasury and government agencies	$	447.1	$	5.5	$	3.5	$	449.1	$	-
Foreign government		244.7		2.6		1.5		245.8		-
Municipal		1,074.5		50.0		4.2		1,120.3		-
Corporate		3,699.9		86.8		95.7		3,691.0		27.5
Residential mortgage-backed		887.6		13.4		4.9		896.1		0.3
Commercial mortgage-backed		499.6		5.8		4.3		501.1		-
Asset-backed		80.6		0.2		0.8		80.0		-
Total fixed maturities	$	6,934.0	$	164.3	$	114.9	$	6,983.4	$	27.8
Equity securities	$	528.5	$	55.7	$	7.6	$	576.6	$	-

OTTI unrealized losses in the tables above represent OTTI recognized in accumulated other comprehensive income. This amount excludes net unrealized gains on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date of $21.4million and $1.1 million as of December 31, 2016 and 2015, respectively.

The Company participates in a security lending program for the purpose of enhancing income. Securities on loan to various counterparties had a fair value of $29.9 million and $36.2 million at December 31, 2016 and 2015, respectively, and were fully collateralized by cash. The fair value of the loaned securities is monitored on a daily basis, and the collateral is maintained at a level of at least 102% of the fair value of the loaned securities. Securities lending collateral is recorded by the Company in cash and cash equivalents, with an offsetting liability included in expenses and taxes payable.

At December 31, 2016 and 2015, fixed maturities with fair values of $251.6 million and $217.4 million, respectively, and amortized cost of $238.5 million and $206.5 million, respectively, were on deposit with various state and governmental authorities.

In accordance with Lloyd’s operating guidelines, the Company deposits funds at Lloyd’s to support underwriting operations. These funds are available only to fund claim obligations. At December 31, 2016 and 2015, fixed maturities with a fair value of $491.2 million and $440.6 million, respectively, and cash of $6.3 million and $7.0 million, respectively, were on deposit with Lloyd’s.

The Company enters into various agreements that may require its fixed maturities to be held as collateral by others. At December 31, 2016 and 2015, fixed maturities with a fair value of $217.9 million and $188.1 million, respectively, were held as collateral for collateralized borrowings and other arrangements. Of these amounts, $201.8 million and $176.0 million related to the FHLBB collateralized borrowing program at December 31, 2016 and 2015, respectively. See Note 6—“Debt and Credit Arrangements” for additional information related to the Company’s FHLBB program.

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The amortized cost and fair value by maturity periods for fixed maturities are shown below. 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 the Company may have the right to put or sell the obligations back to the issuers.

DECEMBER 31		2016
(in millions)		Amortized
		Cost		Fair Value
Due in one year or less	$	373.3	$	376.9
Due after one year through five years		3,132.1		3,217.4
Due after five years through ten years		1,806.1		1,802.1
Due after ten years		322.4		334.6
		5,633.9		5,731.0
Mortgage-backed and asset-backed securities		1,601.2		1,600.3
Total fixed maturities	$	7,235.1	$	7,331.3

B. UNREALIZED GAINS AND LOSSES

Unrealized gains and losses on available-for-sale and other securities are summarized in the following table.

YEARS ENDED DECEMBER 31
(in millions)				Equity
		Fixed		Securities and
2016		Maturities		Other		Total
Net appreciation, beginning of year	$	116.5	$	33.4	$	149.9
Net appreciation on available-for-sale securities		36.9		39.2		76.1
Change in OTTI losses recognized in other comprehensive income		11.2		-		11.2
Provision for deferred income taxes		(37.5)		(13.7)		(51.2)
		10.6		25.5		36.1
Net appreciation, end of year	$	127.1	$	58.9	$	186.0
2015
Net appreciation, beginning of year	$	250.0	$	50.9	$	300.9
Net depreciation on available-for-sale securities		(164.9)		(26.8)		(191.7)
Change in OTTI losses recognized in other comprehensive income		(20.0)		-		(20.0)
Provision for deferred income taxes		51.4		9.3		60.7
		(133.5)		(17.5)		(151.0)
Net appreciation, end of year	$	116.5	$	33.4	$	149.9
2014
Net appreciation, beginning of year	$	212.1	$	47.2	$	259.3
Net appreciation on available-for-sale securities		76.3		10.2		86.5
Change in OTTI losses recognized in other comprehensive income		2.4		-		2.4
Provision for deferred income taxes		(40.8)		(6.5)		(47.3)
		37.9		3.7		41.6
Net appreciation, end of year	$	250.0	$	50.9	$	300.9

Equity securities and other balances at December 31, 2016, 2015 and 2014 include after-tax net appreciation on other invested assets of $2.5 million, $2.2 million and $2.6 million, respectively.

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C. SECURITIES IN AN UNREALIZED LOSS POSITION

The following tables provide information about the Company’s fixed maturities and equity securities that were in an unrealized loss position at December 31, 2016 and 2015 including the length of time the securities have been in an unrealized loss position:

DECEMBER 31, 2016		12 months or less				Greater than 12 months				Total
(in millions)		Gross				Gross				Gross
		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
		Losses		Value		Losses		Value		Losses		Value
Fixed maturities:
Investment grade:
U.S. Treasury and government
agencies	$	5.1	$	165.9	$	-	$	-	$	5.1	$	165.9
Foreign governments		0.5		55.0		-		1.8		0.5		56.8
Municipal		7.2		268.4		2.0		29.3		9.2		297.7
Corporate		30.6		1,081.0		5.0		64.2		35.6		1,145.2
Residential mortgage-backed		12.1		570.0		1.5		29.0		13.6		599.0
Commercial mortgage-backed		4.1		187.5		-		6.3		4.1		193.8
Asset-backed		0.6		29.1		0.2		3.5		0.8		32.6
Total investment grade		60.2		2,356.9		8.7		134.1		68.9		2,491.0
Below investment grade:
Corporate		1.2		45.9		12.2		81.8		13.4		127.7
Residential mortgage-backed		-		0.1		-		-		-		0.1
Total below investment grade		1.2		46.0		12.2		81.8		13.4		127.8
Total fixed maturities		61.4		2,402.9		20.9		215.9		82.3		2,618.8
Equity securities		0.7		16.3		-		-		0.7		16.3
Total	$	62.1	$	2,419.2	$	20.9	$	215.9	$	83.0	$	2,635.1
DECEMBER 31, 2015		12 months or less				Greater than 12 months				Total
(in millions)		Gross				Gross				Gross
		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
		Losses		Value		Losses		Value		Losses		Value
Fixed maturities:
Investment grade:
U.S. Treasury and government
agencies	$	1.5	$	139.0	$	2.0	$	77.2	$	3.5	$	216.2
Foreign governments		0.8		63.6		0.7		8.4		1.5		72.0
Municipal		2.3		143.0		1.9		57.4		4.2		200.4
Corporate		30.7		1,138.3		18.9		122.3		49.6		1,260.6
Residential mortgage-backed		3.0		334.5		1.9		47.0		4.9		381.5
Commercial mortgage-backed		4.2		293.8		0.1		9.7		4.3		303.5
Asset-backed		0.8		56.6		-		1.4		0.8		58.0
Total investment grade		43.3		2,168.8		25.5		323.4		68.8		2,492.2
Below investment grade:
Corporate		19.6		165.5		26.5		63.2		46.1		228.7
Total fixed maturities		62.9		2,334.3		52.0		386.6		114.9		2,720.9
Equity securities		7.6		166.8		-		-		7.6		166.8
Total	$	70.5	$	2,501.1	$	52.0	$	386.6	$	122.5	$	2,887.7

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The Company views gross unrealized losses on fixed maturities and equity securities as being temporary since it is its assessment that these securities will recover in the near term, allowing the Company to realize the anticipated long-term economic value. The Company employs a systematic methodology to evaluate declines in fair value below amortized cost for fixed maturity securities or cost for equity securities. In determining OTTI of fixed maturity and equity securities, the Company evaluates several factors and circumstances, including the issuer’s overall financial condition; the issuer’s credit and financial strength ratings; the issuer’s financial performance, including earnings trends, dividend payments and asset quality; any specific events which may influence the operations of the issuer; the general outlook for market conditions in the industry or geographic region in which the issuer operates; and the length of time and the degree to which the fair value of an issuer’s securities remains below the Company’s cost. With respect to fixed maturity investments, the Company considers any factors that might raise doubt about the issuer’s ability to make contractual payments as they come due and whether the Company expects to recover the entire amortized cost basis of the security. With respect to equity securities, the Company considers its ability and intent to hold the investment for a period of time to allow for a recovery in value.

D. OTHER INVESTMENTS

The Company’s mortgage participations were $297.6 million and $200.9 million at December 31, 2016 and 2015, respectively. Participating interests in commercial mortgage loans are originated and serviced by a third-party.  For these investments, the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgages. Mortgage participations were comprised of the following property types and geographic locations.

DECEMBER 31	2016		2015
(in millions)
Property Type:
Office	$	109.8	$	75.0
Retail		64.7		58.8
Hotel		40.4		19.2
Apartments		38.4		33.4
Industrial		30.0		15.0
Mixed use		15.0		-
Valuation allowance		(0.7)		(0.5)
Total	$	297.6	$	200.9

DECEMBER 31	2016		2015
(in millions)
Geographic Region:
South Atlantic	$	72.0	$	47.0
Pacific		65.0		50.0
Mid-Atlantic		53.5		23.6
West South Central		51.3		35.0
New England		21.1		10.0
East North Central		10.4		10.8
West North Central		10.0		10.0
Other		15.0		15.0
Valuation allowance		(0.7)		(0.5)
Total	$	297.6	$	200.9

At December 31, 2016, scheduled maturities of mortgage participations were as follows: due in 2017 - $0.5 million; 2020 - $10.0 million; 2021 – $50.0 million and thereafter - $237.1 million. There were no scheduled loan maturities in 2018 or 2019. Actual maturities could differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties and loans may be refinanced. During 2016, the Company did not refinance any loans based on terms that differed from current market rates.

Other investments also include interests in limited partnerships and overseas deposits of $121.3 million and$102.2 million, respectively, at December 31, 2016, and $79.9 million and $100.9 million, respectively, at December 31, 2015.

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E. OTHER

At December 31, 2016, the Company had no concentration of investments in a single investee that exceeded 10% of shareholders’ equity except for fixed maturities invested in Federal Home Loan Mortgage Corp. (“FHLMC”) and mortgage participations with a highly rated single third-party. At December 31, 2016, the Company held FHLMC with fair value of $542.2 million and mortgage participations with a carrying value of $295.9 million. At December 31, 2015, the Company had no concentration of investments in a single investee that exceeds 10% of shareholders’ equity except for fixed maturities invested in FHLMC and Federal National Mortgage Association (“FNMA”). At December 31, 2015, the Company held FHLMC and FNMA with fair values of $467.9 million and $298.1 million, respectively.

At December 31, 2016, there were contractual investment commitments of up to $128.8 million.

4. INVESTMENT INCOME AND GAINS AND LOSSES

A. NET INVESTMENT INCOME

The components of net investment income were as follows:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Fixed maturities	$	245.1	$	253.8	$	255.8
Equity securities		18.6		17.5		16.5
Other investments		26.7		18.1		9.0
Gross investment income		290.4		289.4		281.3
Less investment expenses		(11.0)		(10.3)		(11.0)
Net investment income	$	279.4	$	279.1	$	270.3

The carrying values of fixed maturity securities on non-accrual status at December 31, 2016 and 2015 were not material. The effects of non-accruals for the years ended December 31, 2016, 2015 and 2014, compared with amounts of net investment income that would have been recognized in accordance with the original terms of the fixed maturities, were reductions of $1.1 million, $0.8 million and $2.1 million, respectively.

B. NET REALIZED INVESTMENT GAINS AND LOSSES

Net realized gains (losses) on investments were as follows:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Equity securities	$	25.4	$	29.4	$	45.8
Fixed maturities		(16.6)		(13.9)		4.5
Other investments		(0.2)		4.0		(0.2)
Net realized investment gains	$	8.6	$	19.5	$	50.1

Included in the net realized investment gains (losses) were OTTI of investment securities recognized in earnings totaling $27.9 million, $26.8 million and $5.5 million in 2016, 2015 and 2014, respectively.

Other-than-temporary-impairments

For 2016, total OTTI was $21.2 million. Of this amount, $27.9 million was recognized in earnings including $6.7 million which was transferred from unrealized losses in accumulated other comprehensive income (“AOCI”).  The $27.9 million of OTTI recognized in earnings relates primarily to $16.1 million of fixed maturity securities that the Company intended to sell, $8.8 million of credit impairments and$2.7 million of equities.

For 2015, total OTTI was $49.5 million. Of this amount, $26.8 million was recognized in earnings and the remaining $22.7 million was recorded as unrealized losses in AOCI.  The $26.8 million of OTTI recognized in earnings relates to $16.0 million of credit impairments, $4.0 million of fixed maturity securities that the Company intended to sell and $6.8 million of equities.

For 2014, total OTTI was $5.4 million. Of this amount, $5.5 million was recognized in earnings including $0.1 million which was transferred from unrealized losses in AOCI.  The $5.5 million of OTTI recognized in earnings was related to fixed maturity securities that the Company intended to sell.

The methodology and significant inputs used to measure the amount of credit losses on fixed maturities in 2016 and 2015 were as follows:

Corporate bonds - the Company utilized a financial model that derives expected cash flows based on probability-of-default factors by credit rating and asset duration and loss-given-default factors based on security type. These factors are based on historical data provided by an independent third-party rating agency. In addition, other market data relevant to the realizability of contractual cash flows may be considered.

There were no credit impairments in 2014.

The following table provides rollforwards of the cumulative amounts related to the Company’s credit loss portion of the OTTI losses on fixed maturity securities for which the non-credit portion of the loss is included in other comprehensive income.

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Credit losses as of the beginning of the year	$	18.0	$	4.2	$	7.8
Credit losses on securities for which an OTTI was not previously recognized		6.4		8.3		-
Additional credit losses on securities for which an OTTI was previously
recognized		2.4		7.7		-
Reductions for securities sold, matured or called		(4.6)		(1.8)		(3.2)
Reductions for securities reclassified as intend to sell		(12.2)		(0.4)		(0.4)
Credit losses as of the end of the year	$	10.0	$	18.0	$	4.2

The proceeds from sales of available-for-sale securities and the gross realized gains and gross realized losses on those sales, were as follows:

YEARS ENDED DECEMBER 31
(in millions)
		Proceeds		Gross		Gross
2016		from Sales		Gains		Losses
Fixed maturities	$	563.8	$	11.7	$	7.0
Equity securities	$	245.0	$	31.1	$	3.0
2015
Fixed maturities	$	1,167.6	$	15.0	$	9.3
Equity securities	$	270.0	$	36.9	$	4.2
2014
Fixed maturities	$	349.5	$	5.8	$	2.6
Equity securities	$	156.1	$	46.2	$	0.8

Proceeds from sales of fixed maturities in 2015 included proceeds of $379.6 million from the transfer of fixed maturity investments in connection with the disposal of the U.K. motor business and related gross gains of $6.4 million and gross losses of $0.6 million.

5. FAIR VALUE

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, i.e., exit price, in an orderly transaction between market participants. The Company emphasizes the use of observable market data whenever available in determining fair value. Fair values presented for certain financial instruments are estimates which, in many cases, may differ significantly from the amounts that could be realized upon immediate liquidation. A hierarchy of the three broad levels of fair value are as follows, with the highest priority given to Level 1 as these are the most observable, and the lowest priority given to Level 3:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data, including model-derived valuations.

Level 3 – Unobservable inputs that are supported by little or no market activity.

When more than one level of input is used to determine fair value, the financial instrument is classified as Level 2 or 3 according to the lowest level input that has a significant impact on the fair value measurement.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments and have not changed since last year.

CASH AND CASH EQUIVALENTS

The carrying amount approximates fair value. Cash equivalents primarily consist of money market instruments, which are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are classified as Level 1.

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FIXED MATURITIES

Level 1 securities generally include U.S. Treasury issues and other securities that are highly liquid and for which quoted market prices are available. Level 2 securities are valued using pricing for similar securities and pricing models that incorporate observable inputs including, but not limited to yield curves and issuer spreads. Level 3 securities include issues for which little observable data can be obtained, primarily due to the illiquid nature of the securities, and for which significant inputs used to determine fair value are based on the Company’s own assumptions. Non-binding broker quotes are also included in Level 3.

The Company utilizes a third-party pricing service for the valuation of the majority of its fixed maturity securities and receives one quote per security. When quoted market prices in an active market are available, they are provided by the pricing service as the fair value and such values are classified as Level 1. Since fixed maturities other than U.S. Treasury securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value for those securities using pricing applications based on a market approach. Inputs into the fair value pricing common to all asset classes include: benchmark U.S. Treasury security yield curves; reported trades of identical or similar fixed maturity securities; broker/dealer quotes of identical or similar fixed maturity securities and structural characteristics such as maturity date, coupon, mandatory principal payment dates, frequency of interest and principal payments, and optional redemption features. Inputs into the fair value applications that are unique by asset class include, but are not limited to:

· U.S. government agencies – determination of direct versus indirect government support and whether any contingencies exist with respect to the timely payment of principal and interest.

· Foreign government – estimates of appropriate market spread versus underlying related sovereign treasury curve(s) dependent on liquidity and direct or contingent support.

· Municipals – overall credit quality, including assessments of the level and variability of: sources of payment such as income, sales or property taxes, levies or user fees; credit support such as insurance; state or local economic and political base; natural resource availability; and susceptibility to natural or man-made catastrophic events such as hurricanes, earthquakes or acts of terrorism.

· Corporate fixed maturities – overall credit quality, including assessments of the level and variability of: economic sensitivity; liquidity; corporate financial policies; management quality; regulatory environment; competitive position; ownership; restrictive covenants; and security or collateral.

· Residential mortgage-backed securities – estimates of prepayment speeds based upon: historical prepayment rate trends; underlying collateral interest rates; geographic concentration; vintage year; borrower credit quality characteristics; interest rate and yield curve forecasts; government or monetary authority support programs; tax policies; delinquency/default trends; and, in the case of non-agency collateralized mortgage obligations, severity of loss upon default and length of time to recover proceeds following default.

· Commercial mortgage-backed securities – overall credit quality, including assessments of the value and supply/demand characteristics of: collateral type such as office, retail, residential, lodging, or other; geographic concentration by region, state, metropolitan statistical area and locale; vintage year; historical collateral performance including defeasance, delinquency, default and special servicer trends; and capital structure support features.

· Asset-backed securities – overall credit quality, including assessments of the underlying collateral type such as credit card receivables, auto loan receivables and equipment lease receivables; geographic diversification; vintage year; historical collateral performance including delinquency, default and casualty trends; economic conditions influencing use rates and resale values; and contract structural support features.

Generally, all prices provided by the pricing service, except actively traded securities with quoted market prices, are reported as Level 2.

The Company holds privately placed fixed maturity securities and certain other fixed maturity securities that do not have an active market and for which the pricing service cannot provide fair values. The Company determines fair values for these securities using either matrix pricing utilizing the market approach or broker quotes. The Company will use observable market data as inputs into the fair value applications, as discussed in the determination of Level 2 fair values, to the extent it is available, but is also required to use a certain amount of unobservable judgment due to the illiquid nature of the securities involved. Unobservable judgment reflected in the Company’s matrix model accounts for estimates of additional spread required by market participants for factors such as issue size, structural complexity, high bond coupon or other unique features. These matrix-priced securities are reported as Level 2 or Level 3, depending on the significance of the impact of unobservable judgment on the security’s value. Additionally, the Company may obtain non-binding broker quotes which are reported as Level 3.

EQUITY SECURITIES

Level 1 consists of publicly traded securities, including exchange traded funds, valued at quoted market prices. Level 2 includes securities that are valued using pricing for similar securities and pricing models that incorporate observable inputs. Level 3 consists of common or preferred stock of private companies for which observable inputs are not available.

The Company utilizes a third-party pricing service for the valuation of the majority of its equity securities and receives one quote for each equity security. When quoted market prices in an active market are available, they are provided by the pricing service as the fair value and such values are classified as Level 1. The Company holds certain equity securities that have been issued by privately held entities that do not have an active market and for which the pricing service cannot provide fair values. Generally, the Company estimates fair value for these securities based on the issuer’s book value and market multiples. These securities are reported as Level 2 or Level 3 depending on the significance of the impact of unobservable judgment on the security’s value. Additionally, the Company may obtain non-binding broker quotes which are reported as Level 3.

OTHER INVESTMENTS

Other investments primarily include mortgage participations, overseas trust funds required in connection with the Company’s Lloyd’s business and cost basis limited partnerships. Fair values of mortgage participations and other mortgage loans are estimated by discounting the contractual cash flows using the rates at which similar loans would be made to borrowers with comparable credit ratings and are reported as Level 3. Fair values of overseas trust funds are provided by the investment manager based on quoted prices for similar instruments in active markets and are reported as Level 2. The fair values of cost basis limited partnerships are based on the net asset value provided by the general partner and recent financial information and are excluded from the fair value hierarchy.  

DEBT

The fair value of debt is estimated based on quoted market prices for identical or similar issuances. If a quoted market price is not available, fair values are estimated using discounted cash flows that are based on current interest rates and yield curves for debt issuances with maturities and credit risks consistent with the debt being valued. Debt is reported as Level 2.

The estimated fair value of the financial instruments were as follows:

DECEMBER 31		2016				2015
(in millions)		Carrying		Fair		Carrying		Fair
		Value		Value		Value		Value
Financial Assets
Cash and cash equivalents	$	282.6	$	282.6	$	338.8	$	338.8
Fixed maturities		7,331.3		7,331.3		6,983.4		6,983.4
Equity securities		584.4		584.4		576.6		576.6
Other investments		497.8		497.6		365.4		367.9
Total financial assets	$	8,696.1	$	8,695.9	$	8,264.2	$	8,266.7
Financial Liabilities
Debt	$	786.4	$	841.9	$	803.1	$	927.8

The Company has processes designed to ensure that the values received from its third-party pricing service are accurately recorded, that the data inputs and valuation techniques utilized are appropriate and consistently applied and that the assumptions are reasonable and consistent with the objective of determining fair value. The Company performs a review of the fair value hierarchy classifications and of prices received from its pricing service on a quarterly basis. The Company reviews the pricing services’ policies describing its methodology, processes, practices and inputs, including various financial models used to value securities. Also, the Company reviews the portfolio pricing, including a process for which securities with changes in prices that exceed a defined threshold are verified to independent sources, if available. If upon review, the Company is not satisfied with the validity of a given price, a pricing challenge would be submitted to the pricing service along with supporting documentation for its review. The Company does not adjust quotes or prices obtained from the pricing service unless the pricing service agrees with the Company’s challenge. During 2016 and 2015, the Company did not adjust any prices received from its pricing service.

Changes in the observability of valuation inputs may result in a reclassification of certain financial assets or liabilities within the fair value hierarchy. Reclassifications between levels of the fair value hierarchy are reported as of the beginning of the period in which the reclassification occurs. As previously discussed, the Company utilizes a third-party pricing service for the valuation of the majority of its fixed maturities and equity securities. The pricing service has indicated that it will only produce an estimate of fair value if there is objectively verifiable information to produce a valuation. If the pricing service discontinues pricing an investment, the Company will use observable market data to the extent it is available, but may also be required to make assumptions for market based inputs that are unavailable due to market conditions.

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The following tables provide, for each hierarchy level, the Company’s assets that were measured at fair value on a recurring basis.

	DECEMBER 31, 2016
(in millions)		Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	341.1	$	209.5	$	131.6	$	-
Foreign government		240.7		47.3		193.4		-
Municipal		1,095.4		-		1,064.4		31.0
Corporate		4,053.8		-		4,049.6		4.2
Residential mortgage-backed, U.S. agency backed		924.4		-		924.4		-
Residential mortgage-backed, non-agency		49.8		-		49.8		-
Commercial mortgage-backed		554.3		-		539.3		15.0
Asset backed		71.8		-		71.8		-
Total fixed maturities		7,331.3		256.8		7,024.3		50.2
Equity securities		574.6		573.1		-		1.5
Other investments		106.3		-		102.2		4.1
Total investment assets at fair value	$	8,012.2	$	829.9	$	7,126.5	$	55.8
	DECEMBER 31, 2015
(in millions)		Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	449.1	$	193.6	$	255.5	$	-
Foreign government		245.8		52.5		193.3		-
Municipal		1,120.3		-		1,085.9		34.4
Corporate		3,691.0		-		3,687.3		3.7
Residential mortgage-backed, U.S. agency backed		824.5		-		824.5		-
Residential mortgage-backed, non-agency		71.6		-		71.6		-
Commercial mortgage-backed		501.1		-		484.1		17.0
Asset backed		80.0		-		79.5		0.5
Total fixed maturities		6,983.4		246.1		6,681.7		55.6
Equity securities		567.7		566.4		-		1.3
Other investments		104.5		-		100.9		3.6
Total investment assets at fair value	$	7,655.6	$	812.5	$	6,782.6	$	60.5

The following tables provide, for each hierarchy level, the Company’s estimated fair values of financial instruments that were not carried at fair value.

	DECEMBER 31, 2016
(in millions)		Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	282.6	$	282.6	$	-	$	-
Equity securities		9.8		-		9.8		-
Other investments		297.2		-		-		297.2
Liabilities:
Debt	$	841.9	$	-	$	841.9	$	-
	DECEMBER 31, 2015
(in millions)		Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	338.8	$	338.8	$	-	$	-
Equity securities		8.9		-		8.9		-
Other investments		203.5		-		-		203.5
Liabilities:
Debt	$	927.8	$	-	$	927.8	$	-

Investments measured at fair value using net asset value based on an ownership interest in partners’ capital have not been included in the tables above. The fair values of these investments were $94.1 million and $59.9 million as of December 31, 2016 and 2015, respectively, which were approximately 1% of total investment assets.

The following tables provide a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

YEAR ENDED DECEMBER 31, 2016	Fixed Maturities
(in millions)		Municipal		Corporate		Commercial mortgage-backed		Asset-backed		Total		Equity and Other		Total Assets
Balance at beginning of year	$	34.4	$	3.7	$	17.0	$	0.5	$	55.6	$	4.9	$	60.5
Transfers out of Level 3		(1.2)		-		-		-		(1.2)		-		(1.2)
Total gains (losses):
Included in total net realized investment
gains (losses)		0.1		(0.2)		-		-		(0.1)		-		(0.1)
Included in other comprehensive
income - net appreciation (depreciation) on available-for-sale securities		0.6		0.6		(0.2)		-		1.0		0.7		1.7
Purchases and sales:
Purchases		-		0.3		-		-		0.3		-		0.3
Sales		(2.9)		(0.2)		(1.8)		(0.5)		(5.4)		-		(5.4)
Balance at end of year	$	31.0	$	4.2	$	15.0	$	-	$	50.2	$	5.6	$	55.8
YEAR ENDED DECEMBER 31, 2015	Fixed Maturities
(in millions)		Municipal		Corporate		Commercial mortgage-backed		Asset-backed		Total		Equity and Other		Total Assets
Balance at beginning of year	$	25.7	$	9.6	$	21.4	$	-	$	56.7	$	5.0	$	61.7
Transfers into Level 3		-		-		-		1.3		1.3		-		1.3
Transfers out of Level 3		-		(4.6)		-		-		(4.6)		-		(4.6)
Total losses:
Included in other comprehensive
income - net depreciation on available-for-sale securities		(0.5)		(0.8)		(1.0)		(0.1)		(2.4)		(0.1)		(2.5)
Purchases and sales:
Purchases		11.2		-		-		-		11.2		-		11.2
Sales		(2.0)		(0.5)		(3.4)		(0.7)		(6.6)		-		(6.6)
Balance at end of year	$	34.4	$	3.7	$	17.0	$	0.5	$	55.6	$	4.9	$	60.5

During the years ended December 31, 2016 and 2015, the Company transferred fixed maturities between Level 2 and Level 3 primarily as a result of assessing the significance of unobservable inputs on the fair value measurement. There were no transfers between Level 1 and Level 2 during 2016 or 2015. There were no Level 3 liabilities held by the Company for years ended December 31, 2016 and 2015.

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The following table provides quantitative information about the significant unobservable inputs used by the Company in the fair value measurements of Level 3 assets. Where discounted cash flows were used in the valuation of fixed maturities, the internally-developed discount rate was adjusted by the significant unobservable inputs shown in the table. Valuations of $0.6 million for securities based on broker quotes for which there was a lack of transparency as to inputs used to develop the valuations have been excluded.

DECEMBER 31,				2016			2015
	Valuation	Significant		Fair	Range		Fair	Range
(in millions)	Technique	Unobservable Inputs		Value	(Wtd Average)		Value	(Wtd Average)
Fixed maturities:
Municipal	Discounted	Discount for:	$	31.0		$	34.4
	cash flow	Small issue size			0.7 - 6.8%  (3.3%)			0.6 - 6.8%  (3.2%)
		Credit stress			0.9 - 1.5%  (1.2%)			0.9 - 1.5%  (1.2%)
		Above-market coupon			0.3 - 0.5%  (0.4%)			0.3 - 1.0%  (0.4%)
Corporate	Discounted	Discount for:		4.0			3.7
	cash flow	Small issue size			2.0 - 2.5%  (2.1%)			1.0%  (1.0%)
		Credit stress			1.0%  (1.0%)			10.0%  (10.0%)
		Above-market coupon			0.3 - 0.8%  (0.6%)			0.3 - 0.8%  (0.6%)
Commercial	Discounted	Discount for:		15.0			17.0
mortgage-backed	cash flow	Small issue size			1.9 - 3.1%  (2.6%)			0.5 - 1.0%  (0.5%)
		Above-market coupon			0.5%  (0.5%)			0.5%  (0.5%)
		Lease structure			0.3%  (0.3%)			0.3%  (0.3%)
Asset backed	Discounted	Discount for:		-			0.5
	cash flow	Small issue size			N/A			0.7%  (0.7%)
Equity securities	Market	Net tangible asset		1.1			1.1
	comparables	market multiples			1.0X  (1.0X)			1.0X  (1.0X)
Other	Discounted	Discount rate		4.1	18.0%  (18.0%)		3.6	18.0%  (18.0%)
	cash flow

Significant increases (decreases) in any of the above inputs in isolation would result in a significantly lower (higher) fair value measurement. There were no interrelationships between these inputs which might magnify or mitigate the effect of changes in unobservable inputs on the fair value measurement.

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6. DEBT AND CREDIT ARRANGEMENTS

Debt consists of the following:

DECEMBER 31		2016		2015
(in millions)
Senior debentures maturing April 15, 2026	$	375.0	$	-
Senior debentures maturing October 15, 2025		62.6		74.6
Senior debentures maturing June 15, 2021		-		300.0
Senior debentures maturing March 1, 2020		-		80.0
Subordinated debentures maturing March 30, 2053		175.0		175.0
Subordinated debentures maturing February 3, 2027		59.7		59.7
FHLBB borrowings (secured)		125.0		125.0
Total principal debt		797.3		814.3
Unamortized debt issuance costs		(10.9)		(11.2)
Total	$	786.4	$	803.1

On April 8, 2016, the Company issued $375.0 million aggregate principal amount of 4.50% senior unsecured debentures due April 15, 2026. Net proceeds from the issuance were $370.7 million. On May 21, 2016, the proceeds, together with cash on hand, were used to redeem the outstanding 7.50% senior notes due March 1, 2020 and the 6.375% senior notes due June 15, 2021.The redemption of these notes resulted in a pre-tax loss of $86.1 million.

The Company also held 7.625% senior unsecured debentures that were issued on October 16, 1995 with a par value of $200.0 million. As of December 31, 2016 and 2015, the remaining 7.625% senior debentures have a par value of $62.6 million and $74.6 million, respectively, and mature on October 15, 2025.

Both of the Company’s outstanding senior debentures are subject to certain restrictive covenants, including limitations on the issuance or disposition of stock of restricted subsidiaries and limitations on liens, and pay interest semi-annually.

The Company also held $175.0 million aggregate principal amount of 6.35% subordinated unsecured debentures due March 30, 2053. These debentures pay interest quarterly. The Company may redeem these debentures in whole at any time, or in part from time to time, on or after March 30, 2018, at a redemption price equal to their principal amount plus accrued and unpaid interest. In addition, the Company’s subordinated debentures maturing February 3, 2027 have a par value of $59.7 million as of December 31, 2016 and 2015 and pay cumulative dividends semi-annually at 8.207%.  

In 2016, in addition to the redemption of the senior debentures maturing June 15, 2021 and March 1, 2020, the Company repurchased senior debentures maturing October 15, 2025, with a carrying value of $11.9 million at a cost of $14.1 million, resulting in a pre-tax loss of $2.2 million.

In 2015, the Company repurchased senior debentures maturing March 1, 2020, with a carrying value of $83.7 million at a cost of $106.0 million, resulting in a pre-tax loss of $22.3 million, and senior debentures maturing October 15, 2025, with a carrying value of $6.5 million at a cost of $8.3 million, resulting in a pre-tax loss of $1.8 million.

In 2009, Hanover Insurance received a $125.0 million FHLBB advance through its membership in the FHLBB. This collateralized advance bears interest at a fixed rate of 5.50% per annum over a twenty-year term. As collateral to FHLBB, the Company pledged government agency securities with a fair value of $201.8 million and $176.0 million, for the aggregate borrowings of $125.0 million as of December 31, 2016 and December 31, 2015, respectively. The fair value of the collateral pledged must be maintained at certain specified levels of the borrowed amount, which can vary depending on the type of assets pledged. If the fair value of this collateral declines below these specified levels, the Company would be required to pledge additional collateral or repay outstanding borrowings. The Company is permitted to voluntarily repay the outstanding borrowings at any time, subject to a repayment fee. As a requirement of membership in the FHLBB, the Company maintains a certain level of investment in FHLBB stock. Total holdings of FHLBB stock were $9.8 million and $8.9 million at December 31, 2016 and 2015, respectively.

At December 31, 2016, the Company had a $200.0 million credit agreement which expires in November 2018. The Company had no borrowings under this agreement. Additionally, the Company had a Standby Letter of Credit Facility not to exceed £170.0 million (or $209.6 million). This Letter of Credit Facility provides regulatory capital supporting Chaucer’s underwriting activities for the 2015, 2016 and 2017 years of account and each prior open year of account. Simultaneous with this agreement, THG entered into a Guaranty Agreement with Lloyds Bank plc, as Facility Agent and Security Agent, pursuant to which THG unconditionally guarantees the obligations of Chaucer under the Letter of Credit Facility.

Interest expense was $54.9 million, $60.6 million, and $65.8 million in 2016, 2015 and 2014, respectively. At December 31, 2016, the Company was in compliance with the covenants associated with all of its debt indentures and credit arrangements.

7. INCOME TAXES

Provisions for income taxes have been calculated in accordance with the provisions of ASC 740. A summary of the components of income before income taxes and income tax expense in the Consolidated Statements of Income are shown below:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Income before income taxes:
U.S.	$	70.8	$	220.9	$	185.6
Non-U.S.		121.5		218.5		192.4
	$	192.3	$	439.4	$	378.0

Income tax expense includes the following components:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Current:
U.S.	$	16.8	$	32.7	$	4.5
Non-U.S.		35.3		23.1		22.6
Total current		52.1		55.8		27.1
Deferred:
U.S.		(20.4)		44.0		51.1
Non-U.S.		4.5		8.8		17.5
Total deferred		(15.9)		52.8		68.6
Total income tax expense	$	36.2	$	108.6	$	95.7

The income tax expense attributable to the consolidated results of continuing operations is different from the amount determined by multiplying income from continuing operations before income taxes by the U.S. statutory federal income tax rate of 35%. The sources of the difference and the tax effects of each were as follows:

YEARS ENDED DECEMBER 31		2016			2015			2014
(in millions)
Expected income tax expense	$	67.3		$	153.7		$	132.3
Tax difference related to investment disposals and maturities		(20.7)			(13.3)			(16.2)
Effect of foreign operations		(6.6)			(7.8)			(8.1)
Dividend received deduction		(3.3)			(3.1)			(2.6)
Tax-exempt interest		(1.1)			(1.4)			(1.7)
Foreign tax credits		(0.6)			(5.6)			-
Gain on disposal of U.K. motor business exempt from tax		-			(17.3)			-
Foreign exchange losses		-			-			(6.9)
Change in valuation allowance		-			-			(2.9)
Nondeductible expenses		1.4			1.6			1.8
Change in liability for uncertain tax positions		-			1.7			-
Other, net		(0.2)			0.1			-
Income tax expense	$	36.2		$	108.6		$	95.7
Effective tax rate		18.8	%		24.7	%		25.3	%

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The following are the components of the Company’s deferred tax assets and liabilities (excluding those associated with its discontinued operations).

DECEMBER 31		2016		2015
(in millions)
Deferred tax assets:
Loss, LAE and unearned premium reserves, net	$	183.9	$	179.0
Tax credit carryforwards		94.6		70.5
Employee benefit plans		44.4		39.6
Investments, net		-		12.4
Other		54.9		53.6
		377.8		355.1
Less: Valuation allowance		-		-
		377.8		355.1
Deferred tax liabilities:
Deferred acquisition costs		141.0		134.9
Deferred Lloyd's underwriting income		32.7		22.4
Software capitalization		28.9		26.9
Investments, net		27.9		-
Other		32.2		33.0
		262.7		217.2
Net deferred tax asset	$	115.1	$	137.9

Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax assets will not be realized.

The Company’s deferred tax asset as of December 31, 2016 included assets of $72.3 million related to alternative minimum tax credit carryforwards and$22.3million related to foreign tax credit carryforwards. The alternative minimum tax credit carryforwards have no expiration date, and the foreign tax credit carryforwards will expire beginning in 2026. The Company has utilized in 2016 and may continue to utilize the credits to offset regular federal income taxes due from future income, and although the Company believes that these assets are fully recoverable, there can be no certainty that future events will not affect their recoverability. The Company believes, based on objective evidence, it is more likely than not that the remaining deferred tax assets will be realized.

In prior years, the Company completed several transactions which resulted in the realization, for tax purposes only, of unrealized gains in its investment portfolio. As a result of these transactions, the Company was able to realize capital losses carried forward and to release the valuation allowance recorded against the deferred tax asset related to these losses.  The releases of valuation allowances were recorded as a benefit in accumulated other comprehensive income. Previously unrealized benefits of $20.7 million, $13.3 million and $16.2 million attributable to non-operating income, are recognized as part of income from continuing operations during 2016, 2015 and 2014, respectively. The remaining amount of $57.5 million in accumulated other comprehensive income will be released into income from continuing operations in future years, as the investment securities subject to these transactions are sold or mature.

Although most of the Company’s non-U.S. income is subject to U.S. federal income tax, certain of its non-U.S. income is not subject to U.S. federal income tax until repatriated. Foreign taxes on this non-U.S. income are accrued at the local foreign tax rate, as opposed to the higher U.S. statutory tax rate, since these earnings currently are expected to be indefinitely reinvested overseas. This assumption could change, as a result of a sale of the subsidiaries, the receipt of dividends from the subsidiaries, a change in management’s intentions, or as a result of various other events. The Company has not made a provision for U.S. taxes on $23.5 million, $69.8 million and $23.3 million of non-U.S. income for 2016, 2015 and 2014, respectively. However, in the future, if such earnings were distributed to the Company, taxes of $43.4 million would be payable on the accumulated undistributed earnings and would be reflected in the tax provision for the year in which these earnings are no longer intended to be indefinitely reinvested overseas, assuming all foreign tax credits are realized.

92

The table below provides a reconciliation of the beginning and ending liability for uncertain tax positions as follows:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Liability at beginning of year, net	$	3.0	$	1.3	$	1.4
Additions for tax positions of prior years		0.4		1.7		(0.1)
Settlements/subtractions for tax positions of prior years		(0.7)		-		(4.8)
Deferred deductions		-		-		4.8
Liability at end of year, net	$	2.7	$	3.0	$	1.3

In 2014, the IRS audits of the years 2007 through 2010 were settled with no material impact to the Company’s financial position or results of operations.

There are no tax positions at December 31, 2016, 2015 and 2014 for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, a change in the timing of deductions would not impact the annual effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits in federal income tax expense. The Company had accrued interest of $0.2 million and $0.6 million as of December 31, 2016 and 2015, respectively. For the years ended December 31, 2016, 2015 and 2014 the Company recognized a release of interest of $0.4 million, and expense of $0.1 million and $0.5 million, respectively. The Company has not recognized any penalties associated with unrecognized tax benefits.

In 2017, the Company is expecting to release $0.6 million of liability due to the expiration of a statute of limitations.

The  Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions, as well as foreign jurisdictions. The Company and its subsidiaries are subject to U.S. federal income tax examinations by tax authorities for years after 2012, U.S. state income tax examinations for years after 2012 and foreign examinations for years after 2012.  

8. PENSION PLANS

DEFINED BENEFIT PLANS

The Company recognizes the funded status of its defined benefit plans in its Consolidated Balance Sheets. The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation of the Company’s defined benefit plans. The Company is required to aggregate separately all overfunded plans from all underfunded plans.

U.S. Defined Benefit Plans

Prior to 2005, THG provided retirement benefits to substantially all of its employees under defined benefit pension plans. These plans were based on a defined benefit cash balance formula, whereby the Company annually provided an allocation to each covered employee based on a percentage of that employee’s eligible salary, similar to a defined contribution plan arrangement. In addition to the cash balance allocation, certain transition group employees who had met specified age and service requirements as of December 31, 1994 were eligible for a grandfathered benefit based primarily on the employees’ years of service and compensation during their highest five consecutive plan years of employment. The Company’s policy for the plans is to fund at least the minimum amount required by the Employee Retirement Income Security Act of 1974 (“ERISA”).

As of January 1, 2005, the defined benefit pension plans were frozen and since that date, no further cash balance allocations have been credited to participants. Participants’ accounts are credited with interest daily, based upon the General Agreement of Trades and Tariffs rate (the 30-year Treasury Bond interest rate). In addition, the grandfathered benefits for the transition group were also frozen at January 1, 2005 levels with an annual transition pension adjustment calculated at an interest rate equal to 5% per year up to 35 years of completed service, and 3% thereafter. As of December 31, 2016, based on current estimates of plan liabilities and other assumptions, the projected benefit obligation of the qualified defined benefit pension plan exceeds plan assets by approximately $54 million.

Chaucer Pension Plan

Prior to 2002, the Chaucer segment provided defined benefit pension retirement benefits to certain of its employees. As of December 31, 2001, the defined benefit pension plan was closed to new members, and as of December 31, 2016 the plan is no longer accruing for future salary increases. The defined benefit obligation for this plan is based on the employees’ years of service and final pensionable salary. Contributions are made at least annually to this plan by both the Company and by employees. As of December 31, 2016, based on current estimates of plan liabilities and other assumptions, the projected benefit obligation of the qualified defined benefit pension plan exceeds plan assets by approximately $16 million.

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Assumptions

In order to measure the expense associated with these plans, management must make various estimates and assumptions, including discount rates used to value liabilities, assumed rates of return on plan assets, employee turnover rates and anticipated mortality rates, for example. The estimates used by management are based on the Company’s historical experience, as well as current facts and circumstances. In addition, the Company uses outside actuaries to assist in measuring the expense and liability associated with these plans.

The Company measures the funded status of its plans as of the date of its year-end statement of financial position. The Company utilizes a measurement date of December 31st to determine its benefit obligations, consistent with the date of its Consolidated Balance Sheets.

Weighted average assumptions used to determine pension benefit obligations are as follows:

DECEMBER 31	2016	2015	2014
U.S.
Discount rate - qualified plan	4.25%	4.88%	4.38%
Discount rate - non-qualified plan	4.25%	4.75%	4.25%
Cash balance interest crediting rate	3.50%	3.50%	3.50%
Chaucer
Discount rate	2.85%	3.85%	3.75%
Rate of increase in future compensation (1)	3.15%	3.10%	3.00%

(1) The salary increase assumption as of December 31, 2016 is used to calculate the curtailment gain that resulted from the cessation of future salary increases.

The Company utilizes a measurement date of January 1st to determine its periodic pension costs. Weighted average assumptions used to determine net periodic pension costs for the defined benefit plans are as follows:

YEARS ENDED DECEMBER 31	2016	2015	2014
U.S.
Qualified plan
Discount rate	4.88%	4.38%	5.00%
Expected return on plan assets	5.25%	5.00%	5.50%
Cash balance interest crediting rate	3.50%	3.50%	3.50%
Non-qualified plan
Discount rate	4.75%	4.25%	5.00%
Chaucer
Discount rate	3.85%	3.75%	4.50%
Rate of increase in future compensation	3.10%	3.00%	3.15%
Expected return on plan assets	5.45%	5.45%	6.55%

The expected rates of return were determined by using historical mean returns for each asset class, adjusted for certain factors believed to have an impact on future returns. These returns are generally weighted to the plan’s actual asset allocation. For the U.S. defined benefit plans, an increase in the expected return on plan assets for 2016 to 5.25% reflects long-term expectations for improvements, including increased interest rates, in the fixed maturities market in general. For the Chaucer plan, the expected rate of return on plan assets was 5.45%,  for both the years ended December 31, 2016 and 2015. The Company reviews and updates, at least annually, its expected return on plan assets based on changes in the actual assets held by the plans and market conditions.

Plan Assets

U.S. Qualified Defined Benefit Plan

The Company utilizes a target allocation strategy, which focuses on creating a mix of assets that will generate modest growth from equity securities while minimizing volatility in the Company’s earnings from changes in the markets and economic environment. Various factors are taken into consideration in determining the appropriate asset mix, such as census data, actuarial valuation information and capital market assumptions. The Company reviews and updates, at least annually, the target allocation and makes changes periodically.

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The following table provides 2016 target allocations and actual invested asset allocations for 2016 and 2015.

DECEMBER 31	2016 TARGET LEVELS	2016	2015
Fixed income securities:
Fixed maturities	83%	83%	84%
Money market funds	2%	2%	1%
Total fixed income securities	85%	85%	85%
Equity securities:
Domestic	12%	12%	12%
International	3%	3%	3%
Total equity securities	15%	15%	15%
Total plan assets	100%	100%	100%

The following tables present, for each hierarchy level, the U.S. qualified defined benefit plan’s investment assets that are measured at fair value at December 31, 2016 and 2015. Refer to Note 5 – “Fair Value” for a description of the different levels in the Fair Value Hierarchy.

DECEMBER 31	2016								2015
(in millions)		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Fixed income securities:
Fixed maturities	$	53.7	$	23.0	$	-	$	30.7	$	42.0	$	10.3	$	-	$	31.7
Money market funds		7.1		7.1		-		-		4.7		4.7		-		-
Total investments at fair value	$	60.8	$	30.1	$	-	$	30.7	$	46.7	$	15.0	$	-	$	31.7

Fixed Income Securities

Securities classified as Level 1 at December 31, 2016 and 2015 include actively traded mutual funds and publicly traded securities, which are valued at quoted market prices. Securities classified as Level 3 at December 31, 2016 and 2015 include assets held in a fixed account of an insurance company. The fair value of the investment is estimated using a comparable public market financial institution derived fair value curve that uses non-observable inputs for market liquidity and unique credit characteristics of its underlying securities.

The Plan also holds investments measured at fair value using NAV based on the value of the underlying investments, which is determined independently by the investment manager and have not been included in the table above. These includeinvestments in commingled pools and investment-grade fixed income securities, held in a custom fund, and commingled pools that primarily invest in publicly traded common stocks and international equity securities. The daily NAV, which is not published as a quoted market price for these investments, is used as the basis for transactions. Redemption of these funds is not subject to restriction. The fair values of these investments are as follows:

DECEMBER 31	2016		2015
Fixed maturities	$	322.4	$	355.6
Equity securities:
Domestic		53.9		54.6
International		16.2		15.9
Total equity		70.1		70.5
Total investments carried at NAV	$	392.5	$	426.1

The table below provides a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

YEAR ENDED DECEMBER 31		2016
(in millions)
Balance at beginning of period	$	31.7
Actual return on plan assets related to assets still held		(1.0)
Balance at end of year	$	30.7

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Chaucer Pension Plan

The investment strategy of the Chaucer defined benefit pension plan is to invest primarily in growth assets in the form of equity funds that are expected to provide a positive return exceeding inflation over the longer term in order to protect the existing and future liabilities of the pension plan. In order to reduce volatility and diversify the portfolio, the target allocation includes an exposure to corporate bond and commercial property funds. This allocation plan is reviewed annually, and target allocation changes are made as appropriate.

The following table provides 2016 target allocations and actual invested asset allocations for 2016 and 2015.

DECEMBER 31	2016 TARGET LEVELS	2016	2015
Fixed income securities:
Fixed maturities	30%	34%	32%
Equity securities:
Domestic (United Kingdom)	15%	14%	14%
International	45%	41%	42%
Total equity securities	60%	55%	56%
Real estate funds	10%	11%	12%
Total plan assets	100%	100%	100%

The Chaucer plan only holds cash and equivalents and investments measured at fair value using NAV. These investments include pooled funds that are valued at the close of business using a third-party pricing service. These values are adjusted by the fund manager to reflect outstanding dividends, taxes and investment fees and other expenses to calculate the NAV.

Real estate fund investments are also valued based upon the values of the net assets of the fund. Although the NAV is calculated daily, transactions also consider cash inflows and outflows of the fund. The price where units are transacted includes the NAV, which is adjusted for investment charges and other estimated acquisition costs such as legal fees, taxes, planning and architect fees, survey and agent fees, among others.The following table presents the Chaucer defined benefit plan’s investment assets at December 31, 2016 and 2015.

DECEMBER 31		2016		2015
(in millions)
Cash and equivalents	$	0.3	$	0.6
Fixed income securities:
Fixed maturities		39.4		38.7
Equity securities:
Domestic (United Kingdom)		16.0		17.0
International		48.0		52.4
Total equity securities		64.0		69.4
Real estate funds		12.8		14.8
Total investments carried at NAV	$	116.5	$	123.5

Obligations and Funded Status

The Company recognizes the current net underfunded status of its plans in its Consolidated Balance Sheets. Changes in the funded status of the plans are reflected as components of either net income or accumulated other comprehensive loss or income. The components of accumulated other comprehensive loss or income are reflected as either a net actuarial gain or loss or a net prior service cost.

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The following table reflects the benefit obligations, fair value of plan assets and funded status of the plans at December 31, 2016 and 2015.

DECEMBER 31	U.S. Qualified Pension Plan				U.S. Non-Qualified     Pension Plan				Chaucer Pension Plan
(in millions)		2016		2015		2016		2015		2016		2015
Accumulated benefit obligation	$	506.8	$	500.5	$	38.0	$	37.8	$	132.2	$	126.0
Change in benefit obligation:
Projected benefit obligation, beginning of
period		500.5		538.5		37.8		40.6		128.3		137.5
Employee contributions		-		-		-		-		0.2		0.3
Service cost - benefits earned during the
period		-		-		-		-		0.8		1.1
Interest cost		23.2		22.5		1.7		1.7		4.5		5.1
Actuarial losses (gains)		29.4		(23.3)		1.7		(1.3)		25.9		(0.7)
Benefits paid		(46.3)		(37.2)		(3.2)		(3.2)		(1.8)		(5.8)
Curtailment gain		-		-		-		-		(2.4)		(1.8)
Foreign currency translation		-		-		-		-		(23.3)		(7.4)
Projected benefit obligation, end of year		506.8		500.5		38.0		37.8		132.2		128.3
Change in plan assets:
Fair value of plan assets, beginning of
period		472.8		513.4		-		-		123.5		131.8
Actual return on plan assets		26.8		(3.4)		-		-		15.4		3.3
Contributions		-		-		3.2		3.2		0.8		1.3
Benefits paid		(46.3)		(37.2)		(3.2)		(3.2)		(1.8)		(5.8)
Foreign currency translation		-		-		-		-		(21.4)		(7.1)
Fair value of plan assets, end of year		453.3		472.8		-		-		116.5		123.5
Funded status of the plans	$	(53.5)	$	(27.7)	$	(38.0)	$	(37.8)	$	(15.7)	$	(4.8)

Contributions include $0.2 and $0.3 million of Chaucer employee contributions during 2016 and 2015, respectively. All other contributions for all plans were made by the Company.

Components of Net Periodic Pension Cost

The components of total net periodic pension cost are as follows:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Service cost - benefits earned during the period	$	0.7	$	1.1	$	1.5
Interest cost		29.5		29.3		33.7
Expected return on plan assets		(29.6)		(31.6)		(36.6)
Recognized net actuarial loss		13.5		13.9		11.7
Amortization of prior service cost		-		-		0.1
Settlement loss		-		-		12.1
Curtailment gain		(2.4)		(1.8)		-
Net periodic pension cost	$	11.7	$	10.9	$	22.5

During 2016, the Chaucer plan was closed to future salary accruals, which eliminated any remaining benefits to be accumulated in future periods, and resulted in a $2.4 million curtailment gain. An equal and offsetting expense was included in recognized net actuarial losses in the above table.

During 2015, the Company transferred its U.K. motor business (See also “Disposal of U.K. Motor Business” in Note 2 – “Dispositions of Businesses”). As a result of this transaction, participants of the Chaucer plan who worked in this line also transferred to the unaffiliated U.K.-based insurance provider. Accordingly, they no longer are active participants of this plan and the liability was reduced resulting in a $1.8 million curtailment gain. An equal and offsetting expense was included in recognized net actuarial losses in the above table.  

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During 2014, the Company announced a program to offer voluntary lump-sum pension payout options to eligible former employees that, if accepted, would settle the Company’s obligation to them. The program provided participants with a one-time choice of electing to receive a lump-sum settlement of their remaining pension benefit. As part of this voluntary lump-sum program, the Company settled $55.1 million of its pension obligations with an equal amount paid from plan assets. As a result, the Company recorded settlement losses of $10.8 million, reflecting the accelerated recognition of unamortized losses in the plan proportionate to the obligation that was settled. These settlement charges were recorded in other operating expenses with a corresponding balance sheet reduction in accumulated other comprehensive income. Additionally, the Company terminated another of its small qualified plans, accelerating the recognition of unamortized losses of $1.3 million.

The following table reflects the total amounts recognized in accumulated other comprehensive income relating to both the U.S. defined benefit pension plans and the Chaucer pension plan as of December 31, 2016 and 2015.

DECEMBER 31		2016		2015
(in millions)
Net actuarial loss	$	150.4	$	119.4

The unrecognized net actuarial gains (losses) which exceed 10% of the greater of the projected benefit obligation or the fair value of plan assets are amortized as a component of net periodic pension cost over the next five years. The following table reflects the total estimated amount of actuarial losses that will be amortized from accumulated other comprehensive income into net periodic pension cost in 2017 (the estimated expense related to the Chaucer plan was converted to U.S. dollars at an exchange rate of 1.23):

ESTIMATED AMORTIZATION IN 2017		Expense
(in millions)
Net actuarial loss	$	15.8

Contributions

In accordance with ERISA guidelines, the Company is not required to fund its U.S. qualified benefit plan in 2017. The Company expects to contribute $3.2 million to its U.S. non-qualified pension plan to fund 2017 benefit payments and at a minimum, $7.4 million to the Chaucer pension plan; although additional contributions may be made into the Chaucer plan. (Estimated contributions related to the Chaucer plan were converted to U.S. dollars at an exchange rate of 1.23). At this time, no additional discretionary contributions are expected to be made into the U.S. plans during 2017, and the Company does not expect that any funds will be returned from the plans to the Company during 2017.

Benefit Payments

The Company estimates that benefit payments over the next 10 years will be as follows:

YEARS ENDED DECEMBER 31		2017		2018		2019		2020		2021		2022-2026
(in millions)
U.S. qualified pension plan	$	38.8	$	37.7	$	37.6	$	37.4	$	37.5	$	174.9
U.S. non-qualified pension plan	$	3.2	$	3.1	$	3.0	$	3.1	$	2.9	$	13.5
Chaucer pension plan	$	1.6	$	1.7	$	1.8	$	1.8	$	1.9	$	10.8

The benefit payments are based on the same assumptions used to measure the Company’s benefit obligations at the end of 2016. Benefit payments related to the U.S. qualified plan and the Chaucer plan will be made from plan assets held in trusts and not included with Company assets, whereas those payments related to the non-qualified plan will be provided for by the Company. Expected benefits related to the Chaucer pension plan were converted to U.S. dollars at an exchange rate of 1.23.

DEFINED CONTRIBUTION PLAN

In addition to the defined benefit plans, THG provides a defined contribution 401(k) plan for its U.S. employees, whereby the Company matches employee elective 401(k) contributions, up to a maximum of 6% of eligible compensation in 2016, 2015, and 2014. The Company’s expense for this matching provision was $21.4 million, $20.1 million and $19.9 million for 2016, 2015 and 2014, respectively. In addition to this matching provision, the Company can elect to make an annual contribution to employees’ accounts. Additional contributions amounted to $2.0 million and $2.1 million for the 2015 and 2014 plan years, respectively.

Chaucer also provides a defined contribution plan for its employees that provides for employer provided contributions. The Company’s expense for 2016, 2015 and 2014 was $3.9 million, $4.8 million and $6.1 million, respectively.

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9. OTHER POSTRETIREMENT BENEFIT PLANS

In addition to the Company’s pension plans, the Company also has postretirement medical benefits that it provides to former agents and retirees and their dependents, and a limited number of full-time employees. The plans, which are funded by the Company through either a Health Reimbursement Arrangement (“HRA”) or directly, provide access to benefits including hospital and major medical, with certain limits, and have varying co-payments and deductibles, depending on the plan. Generally, employees who were actively employed on December 31, 1995 became eligible with at least 15 years of service after the age of 40. Effective January 1, 1996, the Company revised these benefits so as to establish limits on future benefit payments to beneficiaries of retired participants and to restrict eligibility to then current employees. In 2009, the Company changed the postretirement medical benefits, only as they relate to current employees who still qualified for participation in the plan under the above formula. For these participants, the plan provided for only post age 65 benefits. In 2015, the Company amended the plan to only provide this benefit to those participants who retire before January 1, 2018, further limiting the number of current employees who are eligible to participate in this plan. The population of agents receiving postretirement benefits was frozen as of December 31, 2002, when the Company ceased its distribution of proprietary life and annuity products. This plan is unfunded.

The Company has recognized the funded status of its postretirement benefit plans in its Consolidated Balance Sheets. Since the plans are unfunded, the amount recognized in the Consolidated Balance Sheets is equal to the accumulated benefit obligation of the plans. The components of accumulated other comprehensive income or loss are reflected as either a net actuarial gain or loss or a net prior service cost.

Obligation and Funded Status

The following table reflects the funded status of these plans:

DECEMBER 31		2016		2015
(in millions)
Change in benefit obligation:
Accumulated postretirement benefit obligation, beginning of year	$	12.1	$	17.0
Interest cost		0.5		0.5
Net actuarial loss		1.0		0.1
Benefits paid		(2.0)		(2.5)
Plan amendment		-		(3.0)
Accumulated postretirement benefit obligation, end of year		11.6		12.1
Fair value of plan assets, end of year		-		-
Funded status of plans	$	(11.6)	$	(12.1)

Benefit Payments

The Company estimates that benefit payments over the next 10 years will be as follows:

YEARS ENDING DECEMBER 31
(in millions)
2017	$	1.4
2018		1.3
2019		1.2
2020		1.1
2021		1.0
2022 - 2026		4.1

The benefit payments are based on the same assumptions used to measure the Company’s benefit obligation at the end of 2016 and reflect benefits attributable to estimated future service.

Components of Net Periodic Postretirement Expense (Benefit)

The components of net periodic postretirement expense (benefit) were as follows:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Service cost	$	-	$	-	$	0.1
Interest cost		0.5		0.5		0.8
Recognized net actuarial loss		0.2		0.2		0.1
Amortization of prior service cost (benefit)		(1.4)		(1.4)		(1.9)
Net periodic postretirement benefit	$	(0.7)	$	(0.7)	$	(0.9)

The following table reflects the balances in accumulated other comprehensive income relating to the Company’s postretirement benefit plans:

DECEMBER 31		2016		2015
(in millions)
Net actuarial loss	$	4.1	$	3.3
Net prior service cost		(1.8)		(3.3)
	$	2.3	$	-

The following table reflects the estimated amortization to be recognized in net periodic benefit cost in 2017:

Estimated Amortization in 2017		Expense (Benefit)
(in millions)
Net actuarial loss	$	0.2
Net prior service cost		(1.4)
	$	(1.2)

Assumptions

Employers are required to measure the funded status of their plans as of the date of their year-end statement of financial position. As such, the Company has utilized a measurement date of December 31, 2016 and 2015, to determine its postretirement benefit obligations, consistent with the date of its Consolidated Balance Sheets. Weighted average discount rate assumptions used to determine postretirement benefit obligations and periodic postretirement costs are as follows:

YEARS ENDED DECEMBER 31	2016	2015
Postretirement benefit obligations discount rate	4.13%	4.63%
Postretirement benefit cost discount rate	4.63%	4.38%

Assumed health care cost trend rates are as follows:

DECEMBER 31	2016	2015
Health care cost trend rate assumed for next year	6.50%	7.00%
Rate to which the cost trend is assumed to decline (ultimate trend rate)	4.50%	5.00%
Year the rate reaches the ultimate trend rate	2024	2020

A one-percentage point change in assumed health care cost trend rates in each year would have an immaterial effect on net periodic benefit cost during 2016 and accumulated postretirement benefit obligation at December 31, 2016.

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10. OTHER COMPREHENSIVE INCOME

The following table provides changes in other comprehensive income.

YEARS ENDED
DECEMBER 31	2016						2015						2014
				Tax						Tax						Tax
				Benefit		Net of				Benefit		Net of				Benefit		Net of
(in millions)		Pre-Tax		(Expense)		Tax		Pre-Tax		(Expense)		Tax		Pre-Tax		(Expense)		Tax
Unrealized gains (losses) on
available-for-sale securities:
Unrealized gains (losses)
arising during period (net of pre-tax, ceded unrealized gains of $0.8 million  for the year ended December 31, 2014)	$	95.9	$	(33.4)	$	62.5	$	(199.3)	$	69.5	$	(129.8)	$	138.7	$	(45.7)	$	93.0
Amount of realized gains
from sales and other		(36.5)		(8.0)		(44.5)		(39.6)		0.7		(38.9)		(55.3)		0.3		(55.0)
Portion of other-than-
temporary impairment losses recognized in earnings		27.9		(9.8)		18.1		27.2		(9.5)		17.7		5.5		(1.9)		3.6
Net unrealized gains
(losses)		87.3		(51.2)		36.1		(211.7)		60.7		(151.0)		88.9		(47.3)		41.6
Pension and postretirement
benefits:
Net (loss) gain arising in the
period from net actuarial (losses) gains and prior service costs		(43.1)		12.8		(30.3)		(3.5)		0.7		(2.8)		(33.6)		11.0		(22.6)
Loss on settlement of pension
obligation		-		-		-		-		-		-		12.1		(4.2)		7.9
Amortization of net
actuarial loss and prior service cost recognized as net periodic benefit cost		9.9		(3.5)		6.4		12.7		(4.2)		8.5		10.0		(3.5)		6.5
Cumulative foreign currency
translation adjustment:
Foreign currency
translation recognized during the period		(5.1)		1.8		(3.3)		(11.1)		3.9		(7.2)		(7.1)		2.5		(4.6)
Other comprehensive income
(loss)	$	49.0	$	(40.1)	$	8.9	$	(213.6)	$	61.1	$	(152.5)	$	70.3	$	(41.5)	$	28.8

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Reclassifications out of accumulated other comprehensive income were as follows:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
	Amount Reclassified from
Details about Accumulated Other	Accumulated						Affected Line Item in the Statement
Comprehensive Income Components	Other Comprehensive Income						Where Net Income is Presented
Unrealized gains (losses) on available-for-
sale securities	$	36.4	$	39.9	$	55.2	Net realized gains from sales and other
							Net other-than-temporary impairment losses
		(27.9)		(26.8)		(5.5)	on investments recognized in earnings
		8.5		13.1		49.7	Total before tax
		17.8		8.7		1.6	Tax benefit
		26.3		21.8		51.3
		(0.1)		(0.6)		0.1	Other, net of tax
		26.2		21.2		51.4	Net of tax
Amortization of defined benefit pension							Loss adjustment expenses and other
and postretirement plans		(9.9)		(12.7)		(22.1)	operating expenses
		3.5		4.2		7.7	Tax benefit
		(6.4)		(8.5)		(14.4)	Net of tax
Total reclassifications for the period	$	19.8	$	12.7	$	37.0	Net of tax

The amount reclassified from accumulated other comprehensive income for the pension and postretirement benefits was allocated approximately 40% to loss adjustment expenses and 60% to other operating expenses for each of the years ended December 31, 2016, 2015 and 2014. In 2014, $12.1 million of this amount represented the accelerated recognition of unamortized losses due to the settlement of pension plan obligations.

11. STOCK-BASED COMPENSATION PLANS

On May 20, 2014, shareholders approved The Hanover Insurance Group 2014 Long-Term Incentive Plan (the “2014 Stock Plan”). With respect to new share-based award issuances, the 2014 Stock Plan replaced The Hanover Insurance Group, Inc. 2006 Long-Term Incentive Plan (the “2006 Stock Plan”) and authorized the issuance of 6,100,000 shares in a new share pool plus any shares subject to outstanding awards under the 2006 Stock Plan that may become available for reissuance as a result of the cash settlement, forfeiture, expiration or cancellation of such awards. The 2014 Stock Plan provides for the granting of the same types of awards as the 2006 Stock Plan, including stock options and stock appreciation rights (“SARS”), restricted and unrestricted stock, stock units, performance and market-based stock awards, and cash awards. In accordance with the 2014 Stock Plan, the issuance of one share of common stock in the form of an option or SAR will reduce the share pool by one share, whereas the issuance of one share of common stock for the other types of stock awards provided by the plan will reduce the pool by 3.8 shares. As of December 31, 2016, there were 5,332,623 shares available for grants under the 2014 Stock Plan.

Additionally, on May 20, 2014, shareholders approved The Hanover Insurance Group 2014 Employee Stock Purchase Plan (the “ESPP Plan”) and the Chaucer Share Incentive Plan (the “SIP Plan”), authorizing the issuance of 2,500,000 and 750,000 shares, respectively, under such plans. As of December 31, 2016, 2,411,811 shares and 699,018 shares were available for grant under the ESPP Plan and the SIP Plan, respectively.

Compensation cost for the years ended December 31, 2016, 2015, and 2014 totaled $12.0 million, $12.3 million and $15.1 million, respectively. Related tax benefits were $4.2 million, $4.3 million and $5.3 million, respectively.

STOCK OPTIONS

Under the 2014 Stock Plan, options may be granted to eligible employees, directors or consultants at an exercise price equal to the market price of the Company’s common stock on the date of grant. Option shares may be exercised subject to the terms prescribed by the Compensation Committee of the Board of Directors (the “Committee”) at the time of grant. Options granted in 2016, 2015 and 2014 generally vest over 3 years with 33 1/3% vesting in each year. Options must be exercised not later than ten years from the date of grant.

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Information on the Company’s stock options is summarized below.

YEARS ENDED DECEMBER 31	2016			2015			2014
(in whole shares and dollars)	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price
Outstanding, beginning of year	1,619,948	$	56.57	2,236,620	$	46.61	2,049,173	$	41.18
Granted	587,340		82.17	663,900		70.34	687,700		58.06
Exercised	(589,666)		48.99	(1,051,664)		44.47	(444,200)		39.33
Forfeited or cancelled (1)	(221,470)		68.61	(228,908)		54.78	(56,053)		45.99
Outstanding, end of year (1)	1,396,152	$	68.63	1,619,948	$	56.57	2,236,620	$	46.61
Exercisable, end of year	441,256	$	53.59	360,585	$	46.10	726,321	$	43.55

(1) Included in outstanding shares at the end of 2015 in this table and in subsequent metrics were 128,334 options that were previously granted to the Company’s former CEO. These options were subsequently forfeited in 2016 and are included in the table in the amounts forfeited or cancelled in 2016.

Cash received for options exercised for the years ended December 31, 2016, 2015 and 2014 was $15.8 million, $15.9 million and $10.9 million, respectively. The intrinsic value of options exercised for the years ended December 31, 2016, 2015 and 2014 was $21.1 million, $38.7 million and $10.6 million, respectively.

The excess tax expense realized from options exercised for the years ended December 31, 2016, 2015 and 2014 was $5.6 million, $9.7 million, and $5.9 million, respectively. The aggregate intrinsic value at December 31, 2016 for shares outstanding and shares exercisable was $31.2 million and $16.5 million, respectively. At December 31, 2016, the weighted average remaining contractual life for shares outstanding and shares exercisable was 8.1 years and 6.5 years, respectively. Additional information about employee options outstanding and exercisable at December 31, 2016 is included in the following table:

		Options Outstanding				Options Currently Exercisable
Range of Exercise Prices		Number	Weighted Average Remaining Contractual Lives		Weighted Average Exercise Price	Number		Weighted Average Exercise Price
$	34.19 to $46.47	188,603	5.15	$	40.64	188,603	$	40.64
$	57.99 to $62.57	269,907	7.15		58.05	145,994		58.06
$	69.09 to $73.30	381,182	8.17		70.30	105,910		70.30
$	74.88 to $90.42	556,460	9.38		82.11	749		79.54

The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. For all options granted through December 31, 2016, the exercise price equaled the market price on the grant date. Compensation cost related to options is based upon the grant date fair value and expensed on a straight-line basis over the service period for each separately vesting portion of the option as if the option was, in substance, multiple awards.

The weighted average grant date fair value of options granted during the years ended December 31, 2016, 2015 and 2014 was $10.83,  $9.72 and $8.96, respectively.

The following significant assumptions were used to determine the fair value for options granted in the years indicated.

	2016		2015		2014
Dividend yield	2.04% to 2.46	%	2.03% to 2.37	%	2.07% to 2.55	%
Expected volatility	18.08% to 21.31	%	17.63% to 22.24	%	18.07% to 24.38	%
Weighted average expected volatility	19.57	%	20.19	%	23.00	%
Risk-free interest rate	0.77% to 1.97	%	0.70% to 1.75	%	0.53% - 1.92	%
Expected term, in years	2.5 to 5.5		2.5 to 5.5		2.5 to 5.5

The expected dividend yield is based on the Company’s dividend payout rate(s), in the year noted. Expected volatility is based generally on the Company’s historical daily stock price volatility. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term of options granted represents the period of time that options are expected to be outstanding and is derived primarily using historical exercise, forfeit and cancellation behavior, along with certain other factors expected to differ from historical data.

The fair value of shares that vested during the years ended December 31, 2016 and 2015 was $26.8 million and $20.4 million, respectively. As of December 31, 2016, the Company had unrecognized compensation expense of $5.0 million related to unvested stock options that is expected to be recognized over a weighted average period of 1.6 years.

RESTRICTED STOCK UNITS

Stock grants may be awarded to eligible employees at a price established by the Committee (which may be zero). Under the 2014 Stock Plan, the Company may award shares of restricted stock, restricted stock units, as well as shares of unrestricted stock. Restricted stock grants may vest based upon performance criteria, market criteria or continued employment and be in the form of shares or units. Vesting periods are established by the Committee.

The Company granted market-based restricted share units in 2016, 2015 and 2014.These units generally vest after 3 years of continued employment and after the achievement of certain stock performance targets. The Company also granted restricted stock units to eligible employees in 2016, 2015 and 2014 that generally vest after 3 years of continued employment.

The following table summarizes information about employee restricted stock units:

YEARS ENDED DECEMBER 31	2016			2015			2014
	Shares		Weighted Average Grant Date Fair Value	Shares		Weighted Average Grant Date Fair Value	Shares		Weighted Average Grant Date Fair Value
Time-based restricted stock
units:
Outstanding, beginning of
year	301,897	$	54.54	384,923	$	45.63	525,980	$	41.20
Granted	143,107		83.43	93,631		70.75	102,131		58.78
Vested	(139,183)		42.97	(138,307)		41.22	(231,078)		41.45
Forfeited	(36,758)		69.07	(38,350)		52.75	(12,110)		43.67
Outstanding, end of year	269,063	$	73.91	301,897	$	54.54	384,923	$	45.63
Performance and market-based
restricted stock units:
Outstanding, beginning of
year	196,142	$	47.89	218,338	$	44.24	184,626	$	40.42
Granted	126,796		73.42	82,025		48.55	60,338		55.73
Vested	(144,141)		40.95	(82,748)		38.99	(22,826)		44.78
Forfeited (1)	(63,740)		58.54	(21,473)		47.53	(3,800)		37.90
Outstanding, end of year (1)	115,057	$	78.82	196,142	$	47.89	218,338	$	44.24

(1) Included in outstanding shares at the end of 2015 were 56,500 market-based restricted stock units that were previously granted to the Company’s former CEO. These units were subsequently forfeited in 2016 and are included above in the amounts forfeited in 2016.

In 2016, 2015 and 2014, the Company granted market-based awards totaling 87,213,  80,738, and 56,625, respectively, to certain members of senior management, which are included in the table above as performance and market-based restricted stock activity. The vesting of these stock units is based on the relative total shareholder return (“TSR”) of the Company. This metric is generally based on relative TSR for a three year period as compared to a group of Property and Casualty peer companies. The fair value of market based awards was estimated at the date of grant using a valuation model. These units have the potential to range from 0% to 150% of the shares disclosed. Included in the amount granted above in 2016 were 30,453 shares related to market-based awards that achieved a payout in excess of 100%.Also included in the amounts granted above for the performance-based restricted stock units were 1,949 shares related to awards that a performance metric in excess of 100% was achieved. All of these awards vested in 2016.

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Performance-based restricted stock units are based upon the achievement of the performance metric at 100%. These units have the potential to range from 0% to 200% of the shares disclosed, which varies based on grant year and individual participation level. Increases above the 100% target level are reflected as granted in the period in which performance-based stock unit goals are achieved. Decreases below the 100% target level are reflected as forfeited.

In 2016, performance and market-based stock units of 2,268 and 30,134 were included as granted due to completion levels in excess of 100% for units granted in 2014 and 2013, respectively.The weighted average grant date fair value of these awards was $57.00 and $41.77, respectively. In 2015, performance and market-based stock units of 3,125 and 36,875 were included as granted due to completion levels in excess of 100% for units granted in 2013 and 2012, respectively. The weighted average grant date fair value of these awards was $42.44 and $36.47, respectively. In 2014, performance and market-based stock units of 2,888 were included as granted due to completion levels in excess of 100% for units granted in 2012. The weighted average grant date fair value of these awards was $43.31.

The intrinsic value of restricted stock and restricted stock units that vested during the years ended December 31, 2016, 2015 and 2014 was $5.4 million, $4.4 million and $4.2 million, respectively. The intrinsic value for performance and market-based restricted stock units that vested in 2016, 2015 and 2014 was $5.8 million, $2.6 million and $0.3 million, respectively. Forfeitures included in the table above for 2016, 2015 and 2014 related entirely to market-based restricted stock units.

At December 31, 2016, the aggregate intrinsic value of restricted stock units was $24.5 million and the weighted average remaining contractual life was 1.4 years. The aggregate intrinsic value of performance and market-based restricted stock units was $10.5 million and the weighted average remaining contractual life was 2.1 years. As of December 31, 2016, there was $17.4 million of total unrecognized compensation cost related to unvested restricted stock units and performance and market-based restricted stock units, assuming performance and market-based restricted stock units are achieved at 100% of the performance metric. The cost is expected to be recognized over a weighted average period of 2.4 years. Compensation cost associated with restricted stock, restricted stock units and performance and market-based restricted stock units is generally calculated based upon grant date fair value, which is determined using current market prices.

12. EARNINGS PER SHARE AND SHAREHOLDERS’ EQUITY TRANSACTIONS

The following table provides weighted average share information used in the calculation of the Company’s basic and diluted earnings per share:

DECEMBER 31		2016		2015		2014
(in millions, except per share data)
Basic shares used in the calculation of earnings per share		42.8		43.9		44.0
Dilutive effect of securities:
Employee stock options		0.2		0.5		0.5
Non-vested stock grants		0.2		0.4		0.4
Diluted shares used in the calculation of earnings per share		43.2		44.8		44.9
Per share effect of dilutive securities on income from continuing operations	$	(0.04)	$	(0.14)	$	(0.12)
Per share effect of dilutive securities on net income	$	(0.04)	$	(0.15)	$	(0.13)

Diluted earnings per share during 2016, 2015 and 2014 excludes 0.6 million, 0.6 million and 0.7 million, respectively, of common shares issuable under the Company’s stock compensation plans, because their effect would be antidilutive.

The Company’s Board of Directors has authorized aggregate repurchases of the Company’s common stock of up to $900 million. Under the repurchase authorizations, the Company may repurchase, from time to time, common shares in amounts, at prices and at such times as the Company deems appropriate, subject to market conditions and other considerations. Repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. The Company is not required to purchase any specific number of shares or to make purchases by any certain date under this program.As of December 31, 2016, the Company has $183.6 million available for repurchases under these repurchase authorizations. During 2016, the Company purchased 1.3 million shares of the Company’s common stock at a cost of $105.6 million.

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13. DIVIDEND RESTRICTIONS

U.S. INSURANCE SUBSIDIARIES

The individual law of all states, including New Hampshire and Michigan, where Hanover Insurance and Citizens are domiciled, respectively, restrict the payment of dividends to stockholders by insurers. These laws affect the dividend paying ability of Hanover Insurance and Citizens.

Pursuant to New Hampshire’s statute, the maximum dividends and other distributions that an insurer may pay in any twelve month period, without prior approval of the New Hampshire Insurance Commissioner, is limited to 10% of such insurer’s statutory policyholder surplus as of the preceding December 31. Hanover Insurance declared dividends to its parent totaling $218.8 million in 2016. No dividends were declared by Hanover Insurance in 2015 or 2014. Hanover Insurance cannot declare a further dividend to its parent without prior approval until April 2017, at which time the maximum dividend payable without prior approval would be $216.8 million.

Pursuant to Michigan’s statute, the maximum dividends and other distributions that an insurer may pay in any twelve month period, without prior approval of the Michigan Insurance Commissioner, is limited to the greater of 10% of policyholders’ surplus as of December 31 of the immediately preceding year or the statutory net income less net realized gains, for the immediately preceding calendar year. Citizens declared dividends to its parent, Hanover Insurance, totaling $70.0 million, $63.0 million and $66.0 million in 2016, 2015 and 2014, respectively. At December 31, 2016, the maximum dividend payable without prior approval was  $30.0 million. In December 2017, the maximum dividend declared payable without prior approval will increase by $70.0 million to a total amount of $100.0 million.

The statutes in both New Hampshire and Michigan require that prior notice to the respective Insurance Commissioner of any proposed dividend be provided and such Commissioner may, in certain circumstances, prohibit the payment of the proposed dividend.

CHAUCER

Dividend payments from Chaucer to its parent are regulated by U.K. law. Dividends from Chaucer are dependent on dividends from its subsidiaries. Annual dividend payments from Chaucer are limited to retained earnings that are not restricted by capital and other requirements for business at Lloyd’s. Also, Chaucer must provide advance notice to the U.K.’s Prudential Regulation Authority (“PRA”) of certain proposed dividends or other payments from PRA regulated entities. Dividend payments to THG from Chaucer entities totaled $79.5 million, $61.3 million and $68.7 million in 2016, 2015 and 2014, respectively.

14. SEGMENT INFORMATION

The Company’s primary business operations include insurance products and services provided through four operating segments. The domestic operating segments are Commercial Lines, Personal Lines and Other, and the Company’s international operating segment is Chaucer. Commercial Lines includes commercial multiple peril, commercial automobile, workers’ compensation, and other commercial coverages, such as inland marine, specialty program business, management and professional liability and surety. Personal Lines includes personal automobile, homeowners and other personal coverages. Chaucer includes marine and aviation,property, energy, casualty and other coverages (which includes international liability, specialist coverages, and syndicate participations), and U.K. motor business prior to June 30, 2015. Effective June 30, 2015, the Company transferred it U.K. motor business to an unaffiliated party. Included in Other are Opus Investment Management, Inc., which markets investment management services to institutions, pension funds and other organizations; earnings on holding company assets; and, a discontinued voluntary pools business. The separate financial information is presented consistent with the way results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company reports interest expense related to debt separately from the earnings of its operating segments. This consists of interest on the Company’s senior debentures, subordinated debentures, collateralized borrowings with the Federal Home Loan Bank of Boston, and letter of credit facility. Management evaluates the results of the aforementioned segments based on operating income before taxes,excluding interest expense on debt. Operating income before taxes excludes certain items which are included in net income, such as net realized 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 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 taxes may be important components in understanding and assessing the Company’s overall financial performance, management believes that the presentation of operating income before taxes enhances an investor’s understanding of the Company’s results of operations by highlighting net income attributable to the core operations of the business. However, operating income before taxes should not be construed as a substitute for income before income taxes and operating income should not be construed as a substitute for net income.

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Summarized below is financial information with respect to the Company’s business segments.

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Operating revenues:
Commercial Lines	$	2,485.0	$	2,391.7	$	2,239.0
Personal Lines		1,552.4		1,511.3		1,491.0
Chaucer		891.4		1,104.1		1,279.7
Other		8.4		7.4		7.8
Total		4,937.2		5,014.5		5,017.5
Net realized investment gains		8.6		19.5		50.1
Total revenues	$	4,945.8	$	5,034.0	$	5,067.6
Operating income (loss) before interest expense and income taxes:
Commercial Lines:
Underwriting loss	$	(122.0)	$	(12.7)	$	(8.3)
Net investment income		158.5		156.3		149.4
Other expense		(0.6)		(0.3)		(1.2)
Commercial Lines operating income		35.9		143.3		139.9
Personal Lines:
Underwriting income		103.8		72.0		22.1
Net investment income		69.5		72.5		71.9
Other income		5.1		4.8		5.0
Personal Lines operating income		178.4		149.3		99.0
Chaucer:
Underwriting income		80.3		131.5		122.5
Net investment income		45.7		45.9		44.2
Other income		0.8		6.3		10.9
Chaucer operating income		126.8		183.7		177.6
Other:
Underwriting loss		(10.8)		(1.9)		(3.1)
Net investment income		5.7		4.4		4.8
Other expense		(13.2)		(12.7)		(11.4)
Other operating loss		(18.3)		(10.2)		(9.7)
Operating income before interest expense and income taxes		322.8		466.1		406.8
Interest on debt		(54.9)		(60.6)		(65.8)
Operating income before income taxes		267.9		405.5		341.0
Non-operating income items:
Net realized investment gains		8.6		19.5		50.1
Net loss from repayment of debt		(88.3)		(24.1)		(0.1)
Net gain on disposal of U.K. motor business		1.1		38.4		-
Loss from settlement of pension obligation		-		-		(12.1)
Other non-operating items		3.0		0.1		(0.9)
Income before income taxes	$	192.3	$	439.4	$	378.0

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The following table provides identifiable assets for the Company’s business segments and discontinued operations:

DECEMBER 31		2016		2015
(in millions)	Identifiable Assets
U.S. Companies	$	10,225.4	$	9,616.0
Chaucer		3,915.5		4,082.2
Discontinued operations		79.5		83.0
Total	$	14,220.4	$	13,781.2

The Company reviews the assets of its U.S. Companies collectively and does not allocate them among the Commercial Lines, Personal Lines and Other segments.

GEOGRAPHIC CONCENTRATIONS

The following table presents the Company’s gross premiums written (“GPW”) based on the location of the risk:

YEARS ENDED DECEMBER 31	2016	2015	2014
	% of Total GPW
United States	85%	81%	78%
United Kingdom	-	4%	6%
Worldwide and other	15%	15%	16%
Total	100%	100%	100%

The worldwide and other category includes insured risks that move across multiple geographic areas, including the U.S. and U.K., due to their mobile nature or insured risks that are fixed in locations that span more than one geographic area, and risks located in a single country outside the U.S. and U.K. These contracts include, for example, marine and aviation, hull, satellite, offshore energy exploration and production risks that can move across multiple geographic areas and assumed risks where the cedant insures risks in two or more geographic zones. These risks may include U.S. and U.K. insured risks.

Long-lived assets located outside the U.S. were not material for the years ended December 31, 2016 or 2015. The Company does not have revenue from transactions with a single agent or broker amounting to 10 percent or more of its consolidated revenue.

15. LEASE COMMITMENTS

Rental expenses for operating leases amounted to $18.5 million, $17.4 million and $20.4 million in 2016, 2015 and 2014, respectively. These expenses relate primarily to building leases of the Company. At December 31, 2016, future minimum rental payments under non-cancelable operating leases were $61.7 million, payable as follows: 2017 - $16.7 million; 2018 - $15.1 million; 2019 - $12.2 million; 2020 - $9.6 million and 2021 and thereafter - $8.1 million. It is expected that in the normal course of business, leases that expire may be renewed or replaced by leases on other property and equipment.

16. REINSURANCE

In the normal course of business, the Company seeks to reduce the losses that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. Reinsurance transactions are accounted for in accordance with the provisions of ASC 944.

Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company determines the appropriate amount of reinsurance based on evaluations of the risks accepted and analyses prepared by consultants and on market conditions (including the availability and pricing of reinsurance). The Company also believes that the terms of its reinsurance contracts are consistent with industry practice in that they contain standard terms with respect to lines of business covered, limit and retention, arbitration and occurrence. The Company believes that its reinsurers are financially sound. This belief is based upon an ongoing review of its reinsurers’ financial statements, reported financial strength ratings from rating agencies, reputations in the marketplace, and the analysis and guidance of THG’s reinsurance advisors.

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As a condition to conduct certain business in various states, the Company is required to participate in residual market mechanisms, facilities and pooling arrangements such as the Michigan Catastrophic Claims Association (“MCCA”). The Company is subject to concentration of risk with respect to reinsurance ceded to the MCCA. Funding for MCCA comes from assessments against automobile insurers based upon their share of insured automobiles in the state. Insurers are allowed to pass along this cost to Michigan automobile policyholders. The Company ceded to the MCCA premiums earned and losses and LAE incurred of $58.6 million and $75.0 million in 2016, $67.7 million and $78.8 million in 2015 and $73.4 million and $99.2 million in 2014. The MCCA represented 34.9% of the total reinsurance receivable balance at December 31, 2016. Reinsurance recoverables related to MCCA were $911.2 million and $906.5 million at December 31, 2016 and 2015, respectively. Because the MCCA is supported by assessments permitted by statute, and there have been no significant uncollectible balances from MCCA identified during the three years ending December 31, 2016, the Company believes that it has no significant exposure to uncollectible reinsurance balances from this entity. The Lloyd’s Syndicates total reinsurance receivable balance was $506.8 million as of December 31, 2016, as compared to $606.5 million as of December 31, 2015. The Lloyd’s receivable represented 19.4% of the total reinsurance receivable balance at December 31, 2016. 

The following table provides the effects of reinsurance.

YEARS ENDED DECEMBER 31		2016			2015			2014
(in millions)
Premiums written:
Direct	$	4,826.0		$	4,811.3		$	4,777.3
Assumed (1)		571.4			633.2			688.1
Ceded (2) (3)		(698.6)			(827.7)			(655.3)
Net premiums written	$	4,698.8		$	4,616.8		$	4,810.1
Premiums earned:
Direct	$	4,746.6		$	4,814.4		$	4,679.8
Assumed (1)		601.7			655.6			696.4
Ceded (2) (3)		(720.2)			(765.2)			(665.9)
Net premiums earned	$	4,628.1		$	4,704.8		$	4,710.3
Percentage of assumed to net premiums earned		13.00	%		13.93	%		14.78	%
Losses and LAE:
Direct	$	3,188.2		$	3,008.5		$	3,019.4
Assumed (1)		289.4			312.4			266.1
Ceded (2) (4)		(512.9)			(436.8)			(358.0)
Net losses and LAE	$	2,964.7		$	2,884.1		$	2,927.5

(1) Assumed reinsurance activity primarily relates to the Chaucer segment.

(2) Effective June 30, 2015, the Company transferred its U.K. motor business through a 100% reinsurance arrangement. This transaction resulted in the increase of approximately $196 million, $133 million and $90 million for ceded premiums written, premiums earned and losses and LAE, respectively, for the year ended December 31, 2015. See also “Disposal of U.K. Motor Business” in Note 2 – “Dispositions of Businesses”.

(3) The decrease in ceded reinsurance premiums from 2015 to 2016 is primarily due to the above mentioned non-recurring U.K. motor activity in 2015, partially offset by a planned increase in Chaucer’s ceded reinsurance premiums as the Company continues to manage its overall underwriting risk.

(4) The increase in ceded losses and LAE from 2015 to 2016 is primarily due to the aforementioned increase in Chaucer’s reinsurance purchases in 2016 and due to a higher level of ceded large loss activity in certain Chaucer and domestic lines in 2016. These increases in ceded losses and LAE were partially offset by the above mentioned non-recurring U.K. motor activity in 2015.

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17. LIABILITIES FOR OUTSTANDING CLAIMS, LOSSES AND LOSS ADJUSTMENT EXPENSES

Reserving Process Overview

Management’s process for establishing loss reserves is a comprehensive process that involves input from multiple functions throughout the organization, including actuarial, finance, claims, legal, underwriting, distribution and business operations management. A review of loss reserves for each of the classes of business which the Company writes is conducted regularly, generally quarterly. This review process takes into consideration a variety of trends that impact the ultimate settlement of claims. Where appropriate, the review includes a review of overall payment patterns and the emergence of paid and reported losses relative to expectations.

The loss reserve estimation process relies on the basic assumption that past experience, adjusted for the effects of current developments and likely trends, is an appropriate basis for predicting future outcomes. As part of this process, the Company uses a variety of analytical methods that consider experience, trends and other relevant factors. Incurred but not reported (“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 adjustment expenses. IBNR reserves include both incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses. Reported losses include cumulative paid losses and loss adjustment expenses plus outstanding case reserves. The Company’s ultimate IBNR reserves are estimated by management and 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. Case reserves are established by claim personnel individually on a claim by claim basis and based on information specific to the occurrence and terms of the underlying policy. Case reserves are periodically reviewed and modified based on new or additional information pertaining to the claim.

For events designated as catastrophes which affect the Commercial and Personal Lines business segments, the Company generally calculates 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. For events designated as catastrophes that affect the Chaucer business segment, the Company initially calculates IBNR reserves using a ground up exposure by exposure analysis based on each cedant or insured. These are supported by broker supplied information, catastrophe modeling and industry event estimates.

Carried reserves for each line of business and coverage are determined based on this quarterly loss reserving process. In making the determination, the Company considers 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, concerns that the Company does not have sufficient or quality historical reported and paid loss and LAE information with respect to a particular line or segment of business, effects of the economy and political outlook, perceived anomalies in the historical results, evolving trends or other factors.

Reserve Rollforward and Prior Year Development

The Company regularly updates its reserve estimates as new information becomes available and further events occur which may impact the resolution of unsettled claims. Reserve adjustments are reflected in 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 loss event occurred. These types of subsequent adjustments are described as “prior years’ loss reserves”. Such development can be either favorable or unfavorable to the Company’s financial results and may vary by line of business. In this section, all amounts presented include catastrophe losses and LAE, unless otherwise indicated.

108

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

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Gross loss and LAE reserves, beginning of year	$	6,574.4	$	6,391.7	$	6,231.5
Reinsurance recoverable on unpaid losses		2,280.8		1,983.0		2,030.4
Net loss and LAE reserves, beginning of year		4,293.6		4,408.7		4,201.1
Net incurred losses and LAE in respect of losses occurring in:
Current year		2,859.3		3,000.2		3,044.9
Prior years		105.4		(116.1)		(117.4)
Total incurred losses and LAE		2,964.7		2,884.1		2,927.5
Net payments of losses and LAE in respect of losses occurring in:
Current year		1,142.7		1,245.6		1,328.7
Prior years		1,367.2		1,418.4		1,398.9
Total payments		2,509.9		2,664.0		2,727.6
Commutation of Chaucer Flagstone reinsurance agreement		-		-		85.7
Transfer of U.K. motor business		-		(300.6)		-
Effect of foreign exchange rate changes		(73.8)		(34.6)		(78.0)
Net reserve for losses and LAE, end of year		4,674.6		4,293.6		4,408.7
Reinsurance recoverable on unpaid losses		2,274.8		2,280.8		1,983.0
Gross reserve for losses and LAE, end of year	$	6,949.4	$	6,574.4	$	6,391.7

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

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Commercial multiple peril	$	68.8	$	11.6	$	(2.5)
Workers’ compensation		(46.7)		(46.9)		(5.6)
Commercial automobile		27.5		23.3		15.1
Other commercial lines:
AIX program business		75.1		74.7		10.9
General liability		56.0		14.3		2.3
Surety		35.3		1.5		(5.2)
Umbrella		(8.9)		(17.8)		(1.4)
Other lines		12.2		(13.5)		0.5
Total other commercial lines		169.7		59.2		7.1
Total Commercial Lines Segment		219.3		47.2		14.1
Personal automobile		4.8		(7.2)		(5.9)
Homeowners and other personal lines		5.8		(3.4)		0.8
Total Personal Lines Segment		10.6		(10.6)		(5.1)
Total Chaucer Segment		(132.8)		(153.0)		(127.8)
Total Other Segment		8.3		0.3		1.4
Total loss and LAE reserve development, including catastrophes	$	105.4	$	(116.1)	$	(117.4)

Within other commercial lines, general liability is comprised of both monoline general liability and certain management and professional liability coverages and other lines is primarily comprised of lawyers professional liability, fidelity, marine, miscellaneous property, and healthcare lines. Loss and LAE reserve development in the Other segment is related to run-off voluntary assumed reinsurance pools business.

109

As a result of continuing trends in the Company’s business, reserves including catastrophes have been re-estimated for all prior accident years and were increased by $105.4 million in 2016 in comparison to decreases of $116.1 million and $117.4 million in 2015 and 2014, respectively.  As a result of the Company’s 2016 fourth quarter reserve review of domestic lines of business, as discussed further below, carried reserves for prior accident years for domestic lines excluding catastrophes were increased by $174.1 million in the fourth quarter, of which $161.5 million related to Commercial Lines. The majority of this adjustment is attributed to long-tailed commercial liability coverages, including AIX program business. In general, higher than expected loss and LAE emergence in 2016 led the Company to adjust its reserve assumptions in its year-end reserve review and place greater weight on the adverse large loss and severity trends experienced in the most recent calendar years. 

2016

In 2016, net unfavorable loss and LAE development was $105.4 million, primarily as a result of net unfavorable development of $219.3 million for Commercial Lines, partially offset by favorable development of $132.8 million for Chaucer. The net unfavorable Commercial Lines development primarily resulted from higher than expected losses in other commercial lines of $169.7 million, which includes the AIX program business. This was primarily driven by AIX programs and business classes which have since been terminated or substantially revised, general liability coverages in accident years 2012 through 2015, and surety bonds in accident years 2012 through 2015. The Company also experienced higher than expected losses within the commercial multiple peril lines of $68.8 million for accident years 2012 through 2015 and commercial automobile of $27.5 million in accident years 2012 through 2014, both primarily within liability coverages. Partially offsetting the unfavorable development was lower than expected losses of $46.7 million within the workers’ compensation line, primarily related to accident years 2013 through 2015, and, to a lesser extent, the commercial umbrella line primarily related to the 2015 accident year.

Chaucer’s favorable development during 2016 was primarily the result of lower than expected losses in the property line of $45.6 million, primarily in the 2013 through 2015 accident years, the energy line of $31.9 million, primarily in the 2013 through 2015 accident years, and in the marine and aviation lines of $27.4 million, primarily in the 2008, 2009, 2014 and 2015 accident years. Additionally, Chaucer experienced lower than expected losses within casualty and other lines, specifically the specialist and international liability lines, of $15.3 million, primarily in the 2014 and prior accident years. Partially offsetting Chaucer’s favorable development was the unfavorable impact of foreign exchange rate movements on prior years’ loss reserves.

2015

In 2015, net favorable loss and LAE development was $116.1 million, primarily as a result of favorable development of $153.0 million for Chaucer, partially offset by net unfavorable development of $47.2 million for Commercial Lines. As a result of the Company’s year-end 2015 reserve review of domestic commercial and personal lines of business, carried reserves were adjusted among several of these lines of business, impacting the prior year development by line, although these adjustments had no impact on aggregate domestic carried reserves.

Chaucer’s favorable development was primarily the result of lower than expected losses in the property line of $43.8 million, primarily in the 2011 through 2014 accident years, the energy line of $42.1 million, primarily in the 2012 through 2014 accident years, and in the marine and aviation lines of $34.2 million, primarily in the 2010, 2012 and 2013 accident years. Additionally, Chaucer experienced lower than expected losses within casualty and other lines, specifically the specialist and international liability lines, of $22.7 million primarily in the 2008, 2011 and 2013 accident years. Chaucer’s favorable development was also partially attributable to the favorable impact of foreign exchange rate movements on prior years’ loss reserves.

The net unfavorable Commercial Lines development primarily resulted from higher than expected losses in other commercial lines of $59.2 million. This was primarily driven by AIX programs and business classes which have since been terminated and general liability lines in accident years 2009 through 2012, partially offset by lower than expected losses in the commercial umbrella line in accident years 2012 through 2014 and in the healthcare line in accident years 2010 through 2014. The Company also experienced higher than expected losses within the commercial automobile line of $23.3 million, primarily related to liability coverage in accident years 2011 through 2013, and in the commercial multiple peril lines, primarily in accident years 2008, 2009 and 2011. Partially offsetting the unfavorable development was lower than expected losses of $46.9 million within the workers’ compensation line, primarily related to accident years 2005 through 2014, and, to a lesser extent, the commercial umbrella line related to accident years 2012 through 2014.

2014

In 2014, net favorable loss and LAE development was $117.4 million, primarily as a result of favorable development of $127.8 million for Chaucer, partially offset by net unfavorable development of $14.1 million for Commercial Lines. Chaucer’s favorable development was primarily the result of lower than expected losses in the marine and aviation lines of $47.4 million, primarily in the 2011 through 2013 accident years. Additionally, Chaucer experienced lower than expected losses within the property line of $30.6  million, primarily in the 2010 through 2013 accident years, and in casualty and other lines, specifically the specialty liability line of $21.4 million, primarily in the 2010 and 2013 accident years. Chaucer’s favorable development was also partially attributable to the favorable impact of foreign exchange rate movements on prior years’ loss reserves.

110

The net unfavorable Commercial Lines development primarily resulted from higher than expected large losses within the commercial automobile coverages of $23.1 million, which includes the AIX program business, primarily related to liability coverage in the 2009 through 2012 accident years.  Partially offsetting the unfavorable development was lower than expected losses within the workers’ compensation line, primarily related to the 2007 through 2012 accident years, and the surety line, primarily related to the 2013 accident year.

2016 Fourth Quarter Domestic Business Loss and LAE Reserve Increase

The table below provides a summary of (favorable)/unfavorable loss and LAE reserve development excluding catastrophes for the three months ended December 31, 2016:

(in millions)
Commercial multiple peril	$	43.7
Workers’ compensation		(32.0)
Commercial automobile		18.4
Other commercial lines:
AIX program business		49.6
General liability		45.2
Surety		37.9
Umbrella		(9.4)
Other lines		8.1
Total other commercial lines		131.4
Total Commercial Lines Segment		161.5
Personal automobile		8.2
Homeowners and other personal lines		(3.0)
Total Personal Lines Segment		5.2
Total Other Segment		7.4
Total domestic business loss and LAE reserve development, excluding catastrophes(1)	$	174.1

(1) For the three months ended December 31, 2016, prior year reserve development for catastrophes was favorable of $2.0 million for the domestic business.

Through the first nine months of 2016, the Company recorded $61.5 million of unfavorable loss and LAE reserve development for the domestic business, excluding catastrophes, driven by higher than expected large losses in commercial liability coverages, primarily in the commercial multiple peril line and both the AIX program business and general liability coverages that are within other commercial lines. Additionally, the Company incurred higher than expected legal defense costs, a component of LAE expenses, during the first nine months of 2016. Other product lines also reported increased claim activity, including commercial automobile and surety.

There was an increased level of loss and LAE activity recorded in certain lines in 2015 that continued throughout 2016, and in some cases intensified into the fourth quarter, and appears to represent longer-term trends that management concluded required recognition. As a result of these trends, during the fourth quarter of 2016, the Company performed a more in-depth actuarial reserve review in several areas. The Company assessed the recent large loss activity in the monoline and multiple peril general liability and surety lines and the emergence of such relative to the timing and amounts of expected large losses. For surety, the recent large loss activity emerged throughout 2016 and intensified during the fourth quarter. The Company also conducted additional analyses of general liability coverages and AIX program business within other commercial lines. The results of these analyses indicated that the assumed tail risk included in the loss development patterns needed to be increased. Claims and actuarial staff also conducted a review of legal defense costs and other claim-specific adjusting expenses as a result of an emerging trend of increased expenses in these areas over recent quarters. This review concluded that the ultimate costs of these loss adjustment expenses were higher than previously estimated, causing management to record an increase in estimated LAE, primarily in the commercial multiple peril and general liability product lines.

111

As a result of the fourth quarter reserve review, the Company recognized unfavorable prior year reserve development of $174.1 million for the domestic business, excluding catastrophes, largely driven by adverse emergence in most Commercial Lines liability coverages reflecting worsening trends in the number and nature of high severity losses and higher than anticipated legal defense costs. The Company reacted to this adverse emergence by updating assumptions about loss severity, loss development patterns, expected loss ratios and loss adjustment expenses for the most recent accident years, placing greater weight on the adverse severity trends experienced in the most recent calendar years. The adverse development in the AIX program business was primarily due to the general liability and commercial automobile liability coverages in the 2011 through 2014 accident years. Additionally, the Company recognized adverse development in general liability and commercial multiple peril coverages primarily in accident years 2012 through 2015, contract surety business primarily related to the 2012 through 2015 accident years, and the commercial automobile line, primarily related to liability coverages for accident years 2012 through 2014. These increases in Commercial Lines reserves were partially offset by favorable development in the workers’ compensation line, primarily in the 2013 through 2015 accident years and, to a lesser extent, commercial umbrella coverage in the 2015 accident year. The adverse prior year reserve development for Personal Lines was primarily due to higher than expected losses in bodily injury coverage in accident years 2013 through 2015. The adverse prior year development for the Other segment was due to run-off voluntary assumed reinsurance pools business. The reserve increase was based on an updated third-party actuarial study received in the fourth quarter for a pool that primarily consists of asbestos and environmental exposures.

Carried Reserves

The table below summarizes the gross, ceded and net reserve for losses and LAE and reconciles to the incurred claims development in the following section. Accordingly, the commercial multiple peril, workers’ compensation and commercial automobile liability lines presentation includes AIX program business. Chaucer is presented in two components, its ongoing core lines and it’s reinsured and run-off lines.

YEAR ENDED DECEMBER 31,	2016						2015
(in millions)	Gross		Ceded		Net		Gross		Ceded		Net
Commercial multiple peril	$	978.0	$	(82.1)	$	895.9	$	813.1	$	(59.2)	$	753.9
Workers’ compensation		715.5		(171.4)		544.1		713.1		(178.0)		535.1
Commercial automobile liability		431.7		(27.2)		404.5		390.3		(28.4)		361.9
Other lines		980.8		(195.6)		785.2		757.7		(159.2)		598.5
Total Commercial Lines and other		3,106.0		(476.3)		2,629.7		2,674.2		(424.8)		2,249.4
Personal automobile liability		1,416.8		(865.6)		551.2		1,395.0		(863.5)		531.5
Homeowners and other personal lines		137.2		(7.3)		129.9		132.7		(7.0)		125.7
Total Personal Lines		1,554.0		(872.9)		681.1		1,527.7		(870.5)		657.2
Chaucer core lines		1,832.4		(552.5)		1,279.9		1,767.6		(508.5)		1,259.1
Chaucer reinsured and run-off lines		457.0		(373.1)		83.9		604.9		(477.0)		127.9
Total Chaucer		2,289.4		(925.6)		1,363.8		2,372.5		(985.5)		1,387.0
Total loss and LAE reserves	$	6,949.4	$	(2,274.8)	$	4,674.6	$	6,574.4	$	(2,280.8)	$	4,293.6

Within total Commercial Lines and other, other lines is primarily comprised of general liability, including voluntary pools, umbrella, professional and management liability, marine, surety, and healthcare lines. Chaucer core lines includes marine and aviation, energy, property and casualty lines, primarily consisting of international liability and specialist liability coverages. Chaucer reinsured and run-off lines include financial and professional liability lines written in 2008 and prior and U.K. motor business, which was transferred through a 100 percent reinsurance contract as of June 30, 2015. Included in the above table, primarily in other lines, are $61.0 million and $57.7 million of gross asbestos and environmental reserves as of December 31, 2016 and 2015, respectively.

112

Incurred claims development tables

For the following net reserve components, commercial multiple peril, workers’ compensation, commercial automobile liability, personal automobile liability and Chaucer core lines, the Company is presenting incurred claims development tables by accident year. The commercial multiple peril, workers’ compensation and commercial automobile liability lines presentation includes AIX program business. In each of these tables, the Company is presenting the number of years for which claims are typically outstanding, which is consistent with the period at which substantially all of the reserve development has emerged based on past history. The tables presented below include cumulative incurred loss and allocated loss adjustment expenses (“ALAE”), cumulative paid loss and ALAE and IBNR balances at December 31, 2016. IBNR includes both incurredbutnotreported liabilities and expected development on reported claims. In addition, cumulative incurred claim counts are presented as of December 31, 2016 and claim duration is presented in a separate table disclosing the average annual percentage payout of incurred claims by age, net of reinsurance. Claim duration is calculated as an average of paid loss and ALAE divided by incurred loss and ALAE by elapsed year.  The incurred claims development tables presented are reconciled to the net carried reserves in the preceding table as of December 31, 2016.

For the domestic lines, incurred claim count information presented represents claim frequency by individual claimant and measures the frequency of direct claim settlements that have resulted in or are expected to result in claim payments. Claim count information is presented in a manner consistent with that used in the quarterly loss reserving process. A single claim event, particularly in automobile lines, may result in multiple individual claimants and, therefore, multiple claim counts. Incurred claim counts are comprised of outstanding claims and those that are closed with a loss payment and exclude those that are closed without a loss payment. A single claim event may result in multiple claims closed with a payment when a claim is subsequently reopened with further payment. In this case, a reopened claim payment is counted as an incremental claim settlement. Claim count information is not available for direct and assumed participations in various involuntary pools and residual market mechanisms, which represent approximately 5% or less of the total gross earned premium and gross incurred claims for the lines presented. Incurred claim counts are also not adjusted for the effect of claims ceded as part of reinsurance programs, although the incurred losses and cumulative paid losses presented in the following tables are presented net of reinsurance ceded.

For Chaucer core lines, the incurred claim count information presented represents claim frequency by individual claimant and measures the frequency of expected claim settlements that have resulted in or are expected to result in claim payments. While claim count information is only utilized in a limited portion of Chaucer’s quarterly loss reserving process, the counts in the following Chaucer table are presented in a manner consistent with those used by the actuaries. A single claim event may result in multiple individual claimants, and therefore, multiple claim counts. Incurred claim counts are comprised of outstanding claims and those that are closed with a loss payment and exclude those that are closed without payment. A single claim event may result in multiple claims closed with a payment when payments are made in multiple currencies. In this case, the payment in each currency is counted as an incremental claim count. A portion of the coverholder and assumed reinsurance business is reported as block claims, which represent multiple underlying individual claims for a particular loss event or for multiple loss events. Claim count information is not available for the underlying claims related to block claims, and block claims represent approximately 10% of gross incurred losses for Chaucer core lines. Therefore, these block claims are not included in the claim count information presented. Incurred claim counts are also not adjusted for the effects of claims ceded as part of reinsurance programs, although the incurred losses and cumulative paid losses presented in the following tables are presented net of reinsurance ceded.

113

Commercial multiple peril
(in millions)													As of
Incurred Losses and ALAE, Net of Reinsurance													December 31, 2016
YEARS ENDED DECEMBER 31,															Cumulative
															Incurred
Accident		2011		2012		2013		2014		2015					Claim
Year		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2011	$	455.4	$	453.3	$	469.1	$	478.8	$	494.7	$	505.4	$	17.2	19,163
2012				480.0		462.8		456.2		459.7		475.6		20.5	17,054
2013						380.0		362.5		367.9		391.8		33.9	14,911
2014								443.9		439.6		464.8		62.9	16,102
2015										446.0		456.3		100.1	15,810
2016												447.1		181.7	15,512
Total											$	2,741.0
Cumulative Paid Losses and ALAE, Net of Reinsurance
YEARS ENDED DECEMBER 31,
Accident		2011		2012		2013		2014		2015
Year		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016
2011	$	217.8	$	328.5	$	381.5	$	418.6	$	454.0	$	471.5
2012				175.8		307.5		350.8		389.3		424.2
2013						137.6		221.5		262.3		306.4
2014								171.7		267.8		316.0
2015										161.9		260.1
2016												140.3
Total											$	1,918.5

Total reserves for 2011 – 2016 accident years (incurred - paid)		822.5
Total reserves for 2010 and prior accident years		55.7
Unallocated loss adjustment expense		17.7
Net reserves at December 31, 2016	$	895.9

114

Workers' compensation
(in millions)																						As of
Incurred Losses and ALAE, Net of Reinsurance																						December 31, 2016
YEARS ENDED DECEMBER 31,																								Cumulative
																								Incurred
Accident			2007		2008		2009		2010		2011		2012		2013		2014		2015					Claim
Year			Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2007	(1)	$	79.2	$	82.2	$	80.5	$	78.6	$	77.3	$	76.5	$	75.6	$	75.8	$	75.1	$	74.9	$	1.3	7,591
2008	(1)				88.9		93.9		88.0		81.5		81.5		80.6		79.8		80.5		80.4		1.6	8,930
2009							93.8		87.6		82.5		80.3		79.4		79.2		77.5		77.5		1.2	8,014
2010									115.5		116.9		115.8		115.9		116.3		114.9		114.7		2.6	10,152
2011											141.4		144.2		144.3		145.5		143.8		146.7		7.5	12,428
2012													176.3		171.1		165.2		157.2		162.9		12.6	12,983
2013															179.3		167.4		160.1		154.4		15.6	11,612
2014																	182.1		172.9		154.7		22.3	10,748
2015																			189.6		164.2		38.2	11,158
2016																					189.6		75.1	14,103
Total																				$	1,320.0
Cumulative Paid Losses and ALAE, Net of Reinsurance
YEARS ENDED DECEMBER 31,
Accident			2007		2008		2009		2010		2011		2012		2013		2014		2015
Year			Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016
2007	(1)	$	15.1	$	34.9	$	46.5	$	54.4	$	59.6	$	62.0	$	63.9	$	65.5	$	66.5	$	67.3
2008	(1)				17.9		40.2		52.9		60.8		64.8		67.1		69.8		71.0		72.4
2009							19.2		41.2		54.6		61.6		65.4		68.6		69.8		70.8
2010									22.1		57.2		76.9		89.5		96.5		101.0		104.2
2011											30.0		71.3		97.3		114.0		122.9		128.0
2012													30.4		74.8		102.6		120.1		130.7
2013															30.9		74.6		101.2		114.0
2014																	30.6		70.5		92.3
2015																			28.0		65.7
2016																					33.9
Total																				$	879.3

Total reserves for 2007 – 2016 accident years (incurred - paid)		440.7
Total reserves for 2006 and prior accident years		87.5
Unallocated loss adjustment expense and other		15.9
Net reserves at December 31, 2016	$	544.1

(1) The incurred and cumulative paid losses and ALAE, IBNR and incurred claim counts retroactively include AIX business for all periods presented, including those periods that pre-date the acquisition of AIX on November 30, 2008.

Commercial automobile liability
(in millions)													As of
Incurred Losses and ALAE, Net of Reinsurance													December 31, 2016
YEARS ENDED DECEMBER 31,															Cumulative
															Incurred
Accident		2011		2012		2013		2014		2015					Claim
Year		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2011	$	120.4	$	142.1	$	148.0	$	162.8	$	177.0	$	179.6	$	2.4	15,457
2012				166.8		167.5		173.7		189.9		198.0		5.7	14,786
2013						177.7		179.4		205.3		227.5		16.7	15,309
2014								168.5		163.3		177.3		28.7	13,464
2015										163.4		168.3		51.0	12,723
2016												157.0		87.6	10,748
Total											$	1,107.7
Cumulative Paid Losses and ALAE, Net of Reinsurance
YEARS ENDED DECEMBER 31,
Accident		2011		2012		2013		2014		2015
Year		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016
2011	$	27.7	$	64.7	$	102.4	$	135.5	$	160.5	$	170.2
2012				33.3		77.0		117.0		156.9		176.3
2013						35.9		89.6		137.6		176.3
2014								33.1		70.8		102.7
2015										32.2		63.8
2016												27.8
Total											$	717.1

Total reserves for 2011 – 2016 accident years (incurred - paid)		390.6
Total reserves for 2010 and prior accident years		9.6
Unallocated loss adjustment expense		4.3
Net reserves at December 31, 2016	$	404.5

115

Personal automobile liability
(in millions)											As of
Incurred Losses and ALAE, Net of Reinsurance											December 31, 2016
YEARS ENDED DECEMBER 31,													Cumulative
													Incurred
Accident		2012		2013		2014		2015					Claim
Year		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2012	$	358.4	$	366.9	$	366.3	$	376.5	$	379.8	$	5.7	51,700
2013				348.2		339.6		338.3		343.0		6.5	49,278
2014						323.1		304.1		308.8		15.1	43,268
2015								327.4		334.1		40.5	41,989
2016										337.9		109.7	39,477
Total									$	1,703.6
Cumulative Paid Losses and ALAE, Net of Reinsurance
YEARS ENDED DECEMBER 31,
Accident		2012		2013		2014		2015
Year		Unaudited		Unaudited		Unaudited		Unaudited		2016
2012	$	126.6	$	234.6	$	305.1	$	342.2	$	361.8
2013				115.3		210.5		273.3		310.1
2014						107.2		188.6		241.1
2015								112.9		205.4
2016										112.8
Total									$	1,231.2

Total reserves for 2012 – 2016 accident years (incurred - paid)		472.4
Total reserves for 2011 and prior accident years		66.5
Unallocated loss adjustment expense		12.3
Net reserves at December 31, 2016	$	551.2

116

Chaucer core lines
(in millions)														As of
Incurred Losses and ALAE, Net of Reinsurance (1)														December 31, 2016
YEARS ENDED DECEMBER 31,																Cumulative
																Incurred
Accident			2011		2012		2013		2014		2015					Claim
Year			Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2011	(2)	$	640.9	$	597.7	$	605.3	$	586.0	$	586.2	$	575.7	$	33.4	6,940
2012					420.5		337.2		342.4		325.0		318.0		31.5	5,690
2013							418.2		381.8		369.4		360.1		54.0	5,618
2014									457.7		391.6		397.1		80.4	6,934
2015											488.4		410.5		136.8	7,216
2016													505.2		329.9	4,404
Total												$	2,566.6
Cumulative Paid Losses and ALAE, Net of Reinsurance (1)
YEARS ENDED DECEMBER 31,
Accident			2011		2012		2013		2014		2015
Year			Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016
2011	(2)	$	134.2	$	296.3	$	391.0	$	438.6	$	489.3	$	513.2
2012					55.4		144.7		200.0		228.7		246.7
2013							58.2		158.4		228.4		257.5
2014									52.0		162.2		227.8
2015											52.5		146.8
2016													79.1
Total												$	1,471.1

Total reserves for 2011 – 2016 accident years (incurred - paid)		1,095.5
Total reserves for 2010 and prior accident years		129.5
Reserves for nuclear energy classes		31.8
Unallocated loss adjustment expense and other		23.1
Net reserves at December 31, 2016	$	1,279.9

(1) Chaucer incurred losses and ALAE and paid losses and ALAE that are denominated in foreign currencies are converted to U.S. dollars as of December 31, 2016, the most recent balance sheet date, for all years presented.

(2) The incurred and cumulative paid losses and ALAE, IBNR and reported claim counts retroactively includes the 6 month period that pre-dates the acquisition of Chaucer on July 1, 2011. Additionally, during 2011 Chaucer experienced an elevated level of high severity catastrophe events. For example, three such events, the February 2011 New Zealand earthquake, March 2011 Japanese tsunami and October 2011 Thailand floods totaled approximately $125 million of incurred losses, and each event was in excess of $30 million. Chaucer experienced no catastrophe events in excess of $30 million from 2012 through 2016.

117

The following table is information about average historical claims duration as of December 31, 2016. The table is computed based on the paid and incurred claims data, net of reinsurance, for the accident years presented in the preceding claims development tables.

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance:
Unaudited
	1	2	3	4	5	6	7	8	9	10
Commercial multiple peril	36.5%	22.6%	10.1%	8.9%	7.2%	3.5%
Workers' compensation	20.0%	27.3%	16.5%	10.1%	5.9%	3.5%	2.6%	1.6%	1.6%	1.0%
Commercial automobile liability	17.3%	21.3%	20.1%	18.5%	11.9%	5.4%
Personal automobile liability	33.8%	27.6%	17.9%	10.3%	5.2%
Chaucer core lines	16.4%	27.0%	17.5%	8.4%	7.2%	4.1%

18. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Durand Litigation

On March 12, 2007, a putative class action suit captioned Jennifer A. Durand v. The Hanover Insurance Group, Inc., and The Allmerica Financial Cash Balance Pension Plan, was filed in the United States District Court for the Western District of Kentucky. The named plaintiff, a former employee of the Company’s former life insurance and annuity business who received a lump sum distribution from the Company’s Cash Balance Plan (the “Plan”) at or about the time of her separation from the company, claims that she and others similarly situated did not receive the appropriate lump sum distribution because in computing the lump sum, the Company and the Plan understated the accrued benefit in the calculation. The plaintiff claims that the Plan underpaid her distributions and those of similarly situated participants by failing to pay an additional so-called “whipsaw” amount reflecting the present value of an estimate of future interest credits from the date of the lump sum distribution to each participant’s retirement age of 65 (“whipsaw claim”).

The plaintiff filed an Amended Complaint adding two new named plaintiffs and additional claims on December 11, 2009.  Two of the three new claims set forth in the Amended Complaint were dismissed by the District Court, which action was upheld in November 2015 by the U.S. Court of Appeals, Sixth Circuit.  The District Court, however, did allow to stand the portion of the Amended Complaint which set forth claims against the Company for breach of fiduciary duty and failure to meet notice requirements arising under the Employee Retirement Income Security Act of 1974 (“ERISA”) from the various interest crediting and lump sum distribution matters of which plaintiffs complain, but only as to plaintiffs’ “whipsaw” claim that remained in the case. On December 17, 2013, the Court entered an order certifying a class to bring “whipsaw” and related breach of fiduciary duty claims consisting of all persons who received a lump sum distribution between March 1, 1997 and December 31, 2003. The Company filed a summary judgment motion, prior to the decision on the appeal, that was based on the statute of limitations and seeks to dismiss the subclass of plaintiffs who received lump sum distributions prior to March 13, 2002.  This summary judgment motion has been stayed pending additional discovery.

At this time, the Company is unable to provide a reasonable estimate of the potential range of ultimate liability if the outcome of the suit is unfavorable. The statute of limitations applicable to the sub-class consisting of all persons who received lump sum distributions between March 1, 1997 and March 12, 2002 has not yet been finally determined, and the extent of potential liability, if any, will depend on this determination. In addition, assuming for these purposes that the plaintiffs prevail with respect to claims that benefits accrued or payable under the Plan were understated, then there are numerous possible theories and other variables upon which any revised calculation of benefits as requested under plaintiffs’ claims could be based. Any adverse judgment in this case against the Plan would be expected to create a liability for the Plan, with resulting effects on the Plan’s assets available to pay benefits. The Company’s future required funding of the Plan could also be impacted by such a liability.

Other Matters

The Company has been named a defendant in various other legal proceedings arising in the normal course of business. In addition, the Company is involved, from time to time, in examinations, investigations and proceedings by governmental and self-regulatory agencies. The potential outcome of any such action or regulatory proceedings in which the Company has been named a defendant or the subject of an inquiry or investigation, and its ultimate liability, if any, from such action or regulatory proceedings, is difficult to predict at this time. The ultimate resolutions of such proceedings are not expected to have a material effect on its financial position, although they could have a material effect on the results of operations for a particular quarter or annual period.

118

Residual Markets

The Company is required to participate in residual markets in various states, which generally pertain to high risk insureds, disrupted markets or lines of business or geographic areas where rates are regarded as excessive. The results of the residual markets are not subject to the predictability associated with the Company’s own managed business, and are significant to both the personal and commercial automobile lines of business and the workers’ compensation line of business.

19. STATUTORY FINANCIAL INFORMATION

The Company’s U.S. insurance subsidiaries are required to file annual statements with state regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis), as codified by the National Association of Insurance Commissioners. Permitted statutory accounting practices encompass all accounting practices that are not prescribed; such practices differ from state to state, may differ from company to company within a state, and may change in the future. The Company’s U.S. insurance subsidiaries did not have any permitted practices as of or for the years ended December 31, 2016, 2015 and 2014.

Statutory capital and surplus differs from shareholders’ equity reported in accordance with generally accepted accounting principles primarily because under the statutory basis of accounting, deferred acquisition costs are expensed when incurred and the recognition of deferred tax assets is based on different recoverability assumptions.

The following table provides statutory net income for the year ended December 31 and statutory capital and surplus as of December 31 for the periods indicated:

(in millions)		2016		2015		2014
Statutory Net Income
U.S. Insurance Subsidiaries	$	158.0	$	175.9	$	204.3
Statutory Capital and Surplus
U.S. Insurance Subsidiaries	$	2,173.4	$	2,192.8	$	2,057.1

The minimum statutory capital and surplus necessary to satisfy the Company’s regulatory requirements was $442.0 million, $378.5 million and $374.6 million, which equals the Authorized Control Level at December 31, 2016, 2015 and 2014, respectively.

119

20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The quarterly results of operations for 2016 and 2015 are summarized below.

THREE MONTHS ENDED
(in millions, except per share data)
2016		March 31		June 30		Sept. 30		Dec. 31
Total revenues	$	1,227.6	$	1,222.0	$	1,241.2	$	1,255.0
Income (loss) from continuing operations	$	78.1	$	1.9	$	88.3	$	(12.2)
Net income (loss)	$	78.2	$	2.0	$	88.4	$	(13.5)
Income (loss) from continuing operations per share:
Basic	$	1.82	$	0.04	$	2.07	$	(0.29)
Diluted(1)	$	1.79	$	0.04	$	2.06	$	(0.29)
Net income (loss) per share:
Basic	$	1.82	$	0.05	$	2.07	$	(0.32)
Diluted(1)	$	1.80	$	0.05	$	2.06	$	(0.32)
Dividends declared per share	$	0.46	$	0.46	$	0.46	$	0.50
(1)  Per diluted share amounts in the fourth quarter exclude commons stock equivalents since the impact of these instruments was
antidilutive.
In the second quarter of 2016, the Company issued $375 million aggregate principal amount of 4.5% senior unsecured debentures.
The net proceeds were used, together with cash on hand, to redeem outstanding senior notes, resulting in a pre-tax loss of $86.1
million. The after-tax effect of this loss was to decrease diluted earnings per share from income from continuing operations in the
quarter by $1.29. See also Note 6 - "Debt and Credit Arrangements" for further information
In the fourth quarter of 2016, the Company recorded an adjustment to increase carried reserves for prior accident years by $174.1
million. The after-tax effect of this charge was to decrease diluted earnings per share from income from continuing operations in the
quarter by $2.66. See also "2016 Fourth Quarter Domestic Business Loss and LAE Reserve Increase" in Note 17 - "Liabilities for
Outstanding Claims, Losses and Loss Adjustment Expenses" for further information.
THREE MONTHS ENDED
(in millions, except per share data)
2015		March 31		June 30		Sept. 30		Dec. 31
Total revenues	$	1,298.7	$	1,297.1	$	1,233.5	$	1,204.7
Income from continuing operations	$	54.9	$	120.9	$	77.2	$	77.8
Net income	$	54.9	$	120.7	$	78.3	$	77.6
Income from continuing operations per share:
Basic	$	1.24	$	2.74	$	1.75	$	1.80
Diluted	$	1.22	$	2.69	$	1.72	$	1.76
Net income per share:
Basic	$	1.24	$	2.73	$	1.78	$	1.79
Diluted	$	1.22	$	2.68	$	1.74	$	1.76
Dividends declared per share	$	0.41	$	0.41	$	0.41	$	0.46

Due to the use of weighted average shares outstanding when calculating earnings per common share, the sum of the quarterly per common share data may not equal the per common share data for the year.

21. SUBSEQUENT EVENTS

There were no subsequent events requiring adjustment to the financial statements and no additional disclosures required in the notes to the consolidated financial statements.

120

ITEM 9–CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A–CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES EVALUATION

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act).

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Based on our controls evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective to provide reasonable assurance that (i) the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) material information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the updated Internal Control – Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the updated framework in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2016.  

The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

CHANGES IN INTERNAL CONTROL

Our management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the internal control over financial reporting, as required by Rule 13a-15(d) of the Exchange Act, to determine whether any changes occurred during the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, the Chief Executive and Chief Financial Officer concluded that there was no such change during the last quarter of the fiscal year covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B-OTHER INFORMATION

None.

121

PART III

ITEM 10–DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

DIRECTORS OF THE REGISTRANT

Except for the portion about executive officers and our Code of Conduct which is set forth below, this information is incorporated herein by reference from the Proxy Statement for the Annual Meeting of Shareholders to be held on May 16, 2017 to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is biographical information concerning our executive officers.

Mark L. Berthiaume, 60

Executive Vice President,  Chief Administration Officer

Mr. Berthiaume joined THG in 2014 as Senior Vice President, Chief Administration Officer. Prior to joining the Company, from 2001 to 2014, Mr. Berthiaume held a number of senior roles with The Chubb Corporation, last serving as Senior Vice President, International Chief Information Officer. Previously, Mr. Berthiaume was Vice President, Specialty Insurance Chief Information Officer of Orion Capital/Royal and Sunalliance Insurance Group, from 1995 to 2001, and prior to that he held a number of systems development and support positions with several insurance companies, including THG.

Christine Bilotti-Peterson, 46

Executive Vice President, Chief Human Resources Officer

Ms. Bilotti-Peterson has led Human Resources since June 2014. From January 2013 to June 2014 she served as Vice President, Human Resources for our Commercial, Specialty and Personal Lines Division. Prior to joining THG, Ms. Bilotti-Peterson spent 15 years in a variety of positions at The Hartford Financial Services Group, Inc., last serving as Vice President, Human Resources. Ms. Bilotti-Peterson started her career with Korn Ferry International, where she placed C-level executives primarily in Insurance, Financial Services and Technology.

Jeffrey M. Farber, 52

Executive Vice President, Chief Financial Officer

Mr. Farber joined THG in October 2016, initially as Executive Vice President – Senior Finance Officer before assuming the role of Chief Financial Officer in November 2016. Mr. Farber joined THG after spending the last five years with American International Group (AIG). He joined AIG as Senior Vice President and Deputy Chief Financial Officer and then was appointed Chief Risk Officer, Commercial and Consumer Business. Prior to AIG, Mr. Farber served as Executive Vice President and Chief Financial Officer of GAMCO Investors, Inc., a public company asset manager. Previously, he held senior accounting and finance roles at The Bear Stearns Companies, Inc., most recently as Senior Managing Director, Controller and Senior Vice President, responsible for finance, tax and global procurement. He began his career at Deloitte & Touche LLP, rising to partner in the firm.

John Fowle, 47

Chief Executive Officer and Chief Underwriting Officer, Chaucer

Mr. Fowle was appointed Chief Executive Officer of Chaucer in February 2017 and Chief Underwriting Officer of Chaucer in January 2016. From 2009 to 2016, Mr. Fowle served as Active Underwriter of Chaucer Syndicate 1084. Mr. Fowle was previously Head of the Specialist Lines Division of Chaucer, as well as having responsibility for the overall strategy for Property. Prior to joining Chaucer, he worked in both the company and Lloyd’s markets.

J. Kendall Huber, 62

Executive Vice President

General Counsel and Assistant Secretary

Mr. Huber has been General Counsel and Assistant Secretary since joining THG in 2000. Prior to joining THG, Mr. Huber was Executive Vice President, General Counsel and Secretary of Promus Hotel Corporation from 1999 to 2000. Previously, Mr. Huber was Vice President and Deputy General Counsel of Legg Mason, Inc. from 1998 to 1999, and of USF&G Corporation, where he was employed from 1990 to 1998. Mr. Huber was previously with the law firm now known as DLA Piper and a Lieutenant, U.S. Navy Judge Advocate General’s Corps.

122

Mark L. Keim, 51

Executive Vice President, Corporate Development and Strategy

Mr. Keim joined THG in November 2016. Prior to joining THG, in 2010 Mr. Keim co-founded HealthReveal, Inc., a big data analytics company, serving as its Chief Financial Officer until joining THG. Previously, he held key leadership roles at Aetna, Inc., from 2008 to 2014, serving as global head of strategy and corporate development, as well as president of the organization's venture capital business. Before joining Aetna, he was senior vice president, strategy and business development at General Electric Company’s GE Capital division, and held financial leadership roles at PepsiCo, Inc. and Salomon Brothers.

Richard W. Lavey, 49

Executive Vice President

President, Personal Lines, Field Operations and Chief Marketing Officer

Mr. Lavey has been President, Personal Lines since November 2014, Chief Marketing Officer since 2011 and assumed responsibility for Field Operations in August 2016. Mr. Lavey joined THG in 2004 and during this time has also served in the following roles: Chief Distribution Officer, Senior Vice President, Operations and Marketing; Regional President, Northeast; and Vice President, Field Operations and Marketing & Distribution. Prior to joining the Company, Mr. Lavey worked for The Hartford Financial Services Group, Inc. and The Travelers Corp.

John C. Roche, 53

Executive Vice President

President, Commercial Lines

In August of 2016, in addition to his current responsibility as head of Business Insurance, Mr. Roche was given management responsibility for Specialty Insurance and named President of Commercial Lines.  Mr. Roche had been Executive Vice President, President Business Insurance since 2013 and had led Field Operations since 2014. Prior to that he served as Senior Vice President, President Business Insurance from 2009 to 2013. From 2007 to 2009, Mr. Roche served as Vice President, Field Operations and from 2006 to 2007, Mr. Roche was Vice President, Underwriting and Product Management, Commercial Lines. From 1994 to 2006, Mr. Roche served in a variety of leadership positions at St. Paul Travelers Companies, Inc., last serving as Vice President, Commercial Accounts. Previously, Mr. Roche served in a variety of underwriting and management positions at Fireman’s Fund Insurance Company and Atlantic Mutual Insurance Company.

Mark Welzenbach, 57

Executive Vice President, Chief Claims Officer

Mr. Welzenbach has been Chief Claims Officer of THG since joining the Company in 2005. Before joining the Company, Mr. Welzenbach was Senior Vice President, Claims for The Hartford Financial Services Group, Inc. from 1995 to 2005. Prior to that, he was Director of Claims from 1991 to 1995 for Travelers Insurance Company. Mr. Welzenbach began his career as a practicing attorney.

Joseph M. Zubretsky, 60

President, Chief Executive Officer

Mr. Zubretsky joined THG in June 2016 after almost nine years at Aetna, Inc., one of the nation’s largest healthcare benefits and insurance providers, where he most recently served as Chief Executive Officer of Healthagen Holdings, a group of healthcare services and information technology companies.  Prior to that, from 2013 to 2014, he served as Senior Executive Vice President leading Aetna’s National Businesses, and from 2007 to 2013 served as Aetna’s Chief Financial Officer.  Prior to joining Aetna in 2007, Mr. Zubretsky served in a variety of senior management roles in the healthcare and financial services sector.  Mr. Zubretsky began his career as an accountant, rising to partnership in the national insurance industry group at the accounting firm then known as Coopers & Lybrand.

OTHER SENIOR CORPORATE OFFICERS OF THE REGISTRANT

Warren E. Barnes,  55

Vice President and Corporate Controller

Principal Accounting Officer

Mr. Barnes was appointed Principal Accounting Officer in 2015. Mr. Barnes joined the Company in 1993, and has been its Controller since 1997. Before joining the Company, Mr. Barnes was employed from 1985 to 1993 by the public accounting firm then known as Price Waterhouse. He is a certified public accountant in the Commonwealth of Massachusetts.

123

Ann K. Tripp, 58

Senior Vice President, Chief Investment Officer

President, Opus Investment Management, Inc.

Ms. Tripp has been Chief Investment Officer and President of Opus Investment Management, Inc. since 2006. She joined the Company in 1987, and prior to becoming our Chief Investment Officer, served in a variety of increasingly senior roles within our investment department. Ms. Tripp is also the Investment Officer of the Hanover Insurance Group Foundation and serves on the board and sub-committees of several area non-profit organizations.

Pursuant to section 4.4 of the Company’s by-laws, each officer shall hold office until the first meeting of the Board of Directors following the next annual meeting of the shareholders and until his or her respective successor is chosen and qualified unless a shorter period shall have been specified by the terms of his or her election or appointment, or in each case until such officer sooner dies, resigns, is removed or becomes disqualified.

ANNUAL MEETING OF SHAREHOLDERS

The Board of Directors of THG has scheduled the 2017 Annual Meeting of Shareholders for May 16, 2017. The record date for determining the shareholders of the Company entitled to notice of and to vote at such Annual Meeting is March 17, 2017.

CODE OF CONDUCT

Our Code of Conduct is available, free of charge, on our website at www.hanover.com under “About Us – Corporate Governance – Company Policies”. The Code of Conduct applies to our directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer and Controller. We will disclose any future amendments to the Code of Conduct (other than technical, administrative or non-substantive amendments) within four business days following the date of such amendment. While we do not expect to grant waivers to our Code of Conduct, any such waivers to our Chief Executive Officer, Chief Financial Officer or Controller will be posted on our website at www.hanover.com, as required by applicable law or New York Stock Exchange requirements. A printed copy of the Code of Conduct will be provided free of charge by contacting the Company’s Corporate Secretary at the Company’s headquarters, 440 Lincoln Street, Worcester, MA 01653.

ITEM 11–EXECUTIVE COMPENSATION

Incorporated herein by reference from the Proxy Statement for the Annual Meeting of Shareholders to be held May 16, 2017, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934.

124

ITEM 12–SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information as of December 31, 2016 with respect to compensation plans under which equity securities of the Company are authorized for issuance.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)		Weighted average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (2)
Equity compensation plans approved by
security holders	1,820,072	$	68.63	8,443,452
Equity compensation plans not approved by
security holders	-		-	-
Total	1,820,072	$	68.63	8,443,452

(1) Includes 423,920 shares of Common Stock which may be issued upon vesting of outstanding restricted stock units, performance-based restricted stock units (assuming the maximum award amount), or market-based restricted stock units (assuming the maximum award amount). The weighted average exercise price does not take these awards into account.

(2) On May 20, 2014, shareholders approved The Hanover Insurance Group 2014 Long-Term Incentive Plan (the “2014 Stock Plan”). With respect to new share-based award issuances, the 2014 Stock Plan replaced The Hanover Insurance Group, Inc. 2006 Long-Term Incentive Plan (the “2006 Stock Plan”) and authorized the issuance of 6,100,000 shares in a newshare pool plus any shares subject to outstanding awards under the 2006 Stock Plan that may become available for reissuance as a result of the cash settlement, forfeiture, expiration or cancellation of such awards. Inaccordance with the 2014 Stock Plan, the issuance of one share of common stock in the form of an option or SAR will reduce the share pool byoneshare, whereas the issuance of one share ofcommon stock for the other types of stock awards provided by the plan will reduce the pool by3.8shares. Additionally, on May 20, 2014, the shareholders approved The Hanover Insurance Group 2014 Employee Stock Purchase plan and the Chaucer Share Incentive Plan, authorizing the issuance of2,500,000and750,000shares, respectively, under such plans.

Additional information related to Security Ownership of Certain Beneficial Owners and Management is incorporated herein by reference from the Proxy Statement for the Annual Meeting of Shareholders to be held May 16, 2017, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934.

ITEM 13–CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated herein by reference from the Proxy Statement for the Annual Meeting of Shareholders to be held May 16, 2017, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934.

ITEM 14–PRINCIPAL ACCOUNTING FEES AND SERVICES

Incorporated herein by reference from the Proxy Statement for the Annual Meeting of Shareholders to be held May 16, 2017, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934.

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PART IV

ITEM 15–EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(A)(1) FINANCIAL STATEMENTS

The consolidated financial statements and accompanying notes thereto are included on pages 84 to 143 of this Form 10-K.

		Page No. in this Report
Report of Independent Registered Public Accounting Firm		84
Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014		85
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014		86
Consolidated Balance Sheets as of December 31, 2016 and 2015		87
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2016, 2015 and 2014		88
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014		89
Notes to Consolidated Financial Statements		90
(A)(2) FINANCIAL STATEMENTS SCHEDULES
		Page No. in this Report
I	Summary of Investments - Other than Investments in Related Parties	156
II	Condensed Financial Information of Registrant	157
III	Supplementary Insurance Information	160
IV	Reinsurance	161
V	Valuation and Qualifying Accounts	162
VI	Supplemental Information Concerning Property and Casualty Insurance Operations	163

126

(A)(3) EXHIBIT INDEX

2.1	Stock Purchase Agreement, dated as of August 22, 2005, between The Goldman Sachs Group, Inc., as Buyer, and the Registrant, as Seller (the schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K), previously filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on August 24, 2005 and incorporated herein by reference.
2.2	Stock Purchase Agreement, dated as of July 30, 2008, by and between the Registrant and Commonwealth Annuity and Life Insurance Company (the schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K), previously filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on August 4, 2008 and incorporated herein by reference.
3.1	Certificate of Incorporation of the Registrant, previously filed as Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 16, 2006 and incorporated herein by reference.
3.2	Amended By-Laws of the Registrant, previously filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 21, 2006 and incorporated herein by reference.
4.1	Specimen Certificate of the Registrant’s Common Stock, previously filed as Exhibit 4 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 16, 2006 and incorporated herein by reference.
4.2	Form of Indenture relating to the Debentures between the Registrant, as issuer, and State Street Bank & Trust Company, as trustee, previously filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 (File No. 33-96764) filed with the Commission on September 11, 1995 and incorporated herein by reference.
4.3	Form of Global Debenture relating to the Registrant’s 7 5/8% Senior Debentures due 2025, previously filed as Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 16, 2006 and incorporated herein by reference.
4.4	Indenture, dated February 3, 1997, relating to the Registrant’s Junior Subordinated Debentures, previously filed as Exhibit 3 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 5, 1997 and incorporated herein by reference.
4.5	First Supplemental Indenture, dated July 30, 2009, amending the indenture dated February 3, 1997 relating to the Junior Subordinated Debentures of the Registrant, previously filed as Exhibit 4.5 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 1, 2010 and incorporated herein by reference.
4.6	Form of Global Security representing $300,000,000 principal amount of Junior Subordinated Debentures of the Registrant, previously filed as Exhibit 4.6 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 1, 2010 and incorporated herein by reference.
4.7	Indenture, dated January 21, 2010, between the Registrant, as issuer, and U.S. Bank National Association, as trustee, previously filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3 ASR (File No. 333-164446) filed with the Commission on January 21, 2010 and incorporated herein by reference.
4.8	First Supplemental Indenture (to the Indenture dated January 21, 2010), dated February 23, 2010, related to the Registrant’s 7.50% Notes due 2020, between the Registrant, as issuer, and U.S. Bank National Association, as trustee, including the form of Global Note attached as Exhibit A thereto, previously filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 23, 2010 and incorporated herein by reference.
4.9	Second Supplemental Indenture (to the Indenture dated January 21, 2010), dated as of June 17, 2011, between the Registrant, as issuer, and U.S. Bank National Association, as trustee, including the form of Global Note attached as Exhibit A thereto, previously filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 17, 2011 and incorporated herein by reference.
4.10	Indenture, dated as of March 20, 2013, by and between the Registrant, as issuer, and U.S. Bank National Association, as trustee, previously filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3 (File No: 333-187373) filed with the Commission on March 20, 2013 and incorporated herein by reference.
4.11	First Supplemental Indenture (to the Indenture dated as of March 20, 2013), dated as of March 27, 2013, related to the 6.35% Subordinated Debentures due 2053, between the Registrant, as issuer, and U.S. Bank National Association, as trustee, previously filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on March 27, 2013 and incorporated herein by reference.
4.12	Form of Security Certificate representing the 6.35% Subordinated Debentures due 2053, previously filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on March 27, 2013 and incorporated herein by reference.
4.13	Base Indenture, dated as of April 8, 2016, between the Registrant, as issuer, and U.S. Bank National Association, as trustee, previously filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on April 8, 2016 and incorporated herein by reference.
4.14	First Supplemental Indenture (to the Base Indenture dated as of April 8, 2016), as of April 8, 2016, between the Registrant, as issuer, and U.S. Bank National Association, as trustee, previously filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on April 8, 2016 and incorporated herein by reference.
4.15	Form of Security Certificate representing the 4.5% Notes due 2026, previously filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Commission on April 8, 2016 and incorporated herein by reference.
	Management agrees to furnish the Securities and Exchange Commission, upon request, a copy of any other agreements or instruments of the Registrant and its subsidiaries defining the rights of holders of any non-registered debt whose authorized principal amount does not exceed 10% of the Registrant’s total consolidated assets.
+10.1	State Mutual Life Assurance Company of America Excess Benefit Retirement Plan, previously filed as Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 (No. 33-91766) filed with the Commission on May 1, 1995 and incorporated herein by reference.
+10.2	The Hanover Insurance Group Cash Balance Pension Plan, as amended, previously filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 4, 2016 and incorporated herein by reference.
+10.3	The Hanover Insurance Group Retirement Savings Plan, as amended.
+10.4	The Hanover Insurance Group, Inc. Amended and Restated Non-Qualified Retirement Savings Plan, previously filed as Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 24, 2011 and incorporated herein by reference.
+10.5	The Hanover Insurance Group, Inc. 2006 Long-Term Incentive Plan, as amended, previously filed as Annex I to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on March 29, 2012 and incorporated herein by reference.
+10.6	Form of Non-Qualified Stock Option Agreement under The Hanover Insurance Group, Inc. 2006 Long-Term Incentive Plan, previously filed as Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 27, 2009 and incorporated herein by reference.
+10.7	Form of Non-Qualified Stock Option Agreement under The Hanover Insurance Group, Inc. 2006 Long-Term Incentive Plan, previously filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 8, 2011 and incorporated herein by reference.
+10.8	Amendment to Outstanding Stock Options Issued under the Registrant’s 2006 Long-Term Incentive Plan, previously filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 8, 2011 and incorporated herein by reference.
+10.9	Form of Non-Qualified Stock Option Agreement under The Hanover Insurance Group, Inc. 2006 Long-Term Incentive Plan, previously filed as Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 26, 2013 and incorporated herein by reference.
+10.10	Amendment to outstanding Stock Options issued under The Hanover Insurance Group, Inc. 2006 Long-Term Incentive Plan, previously filed as Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2016 and incorporated herein by reference.
+10.11	Form of Restricted Stock Unit Agreement under The Hanover Insurance Group, Inc. 2006 Long-Term Incentive Plan, previously filed as Exhibit 10.40 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 26, 2013 and incorporated herein by reference.
+10.12	Form of Performance-Based Restricted Stock Unit Agreement under The Hanover Insurance Group, Inc. 2006 Long-Term Incentive Plan previously filed as Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 26, 2013 and incorporated herein by reference.
+10.13	The Hanover Insurance Group 2014 Long-Term Incentive Plan, previously filed as Annex I to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 3, 2014 and incorporated herein by reference.
+10.14	Form of Non-Qualified Stock Option Agreement under The Hanover Insurance Group 2014 Long-Term Incentive Plan, previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 20, 2014 and incorporated herein by reference.
+10.15	Amendment to outstanding Stock Options issued under The Hanover Insurance Group 2014 Long-Term Incentive Plan, previously filed as Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2016 and incorporated herein by reference.
+10.16	Form of Non-Qualified Stock Option Agreement under The Hanover Insurance Group 2014 Long-Term Incentive Plan, previously filed as Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2016 and incorporated herein by reference.
+10.17	Form of Non-Qualified Stock Option Agreement under The Hanover Insurance Group 2014 Long-Term Incentive Plan for Chief Executive Officer, previously filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on July 29, 2016 and incorporated herein by reference.
+10.18	Form of Non-Qualified Stock Option Agreement under The Hanover Insurance Group 2014 Long-Term Incentive Plan for Chief Financial Officer, previously filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 4, 2016 and incorporated herein by reference.
+10.19	Form of Performance-Based Restricted Stock Unit Agreement under The Hanover Insurance Group 2014 Long-Term Incentive Plan, previously filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 20, 2014 and incorporated herein by reference.
+10.20	Form of Performance-Based Restricted Stock Unit Agreement under The Hanover Insurance Group 2014 Long-Term Incentive Plan, previously filed as Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2016 and incorporated herein by reference.
+10.21	Form of Performance-Based Restricted Stock Unit Agreement under The Hanover Insurance Group 2014 Long-Term Incentive Plan for Chief Executive Officer, previously filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on July 29, 2016 and incorporated herein by reference.
+10.22	Form of Performance-Based Restricted Stock Unit Agreement under The Hanover Insurance Group 2014 Long-Term Incentive Plan for Chief Financial Officer, previously filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 4, 2016 and incorporated herein by reference.
+10.23	Form of Restricted Stock Unit Agreement under The Hanover Insurance Group 2014 Long-Term Incentive Plan, previously filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 20, 2014 and incorporated herein by reference.
+10.24	The Hanover Insurance Group, Inc. 2014 Executive Short-Term Incentive Compensation Plan, previously filed as Annex IV to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 3, 2014 and incorporated herein by reference.
+10.25	The Hanover Insurance Group, Inc. Amended and Restated Employment Continuity Plan, previously filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 11, 2008 and incorporated herein by reference.
+10.26	Form of Side Letter Agreement for New Participants in The Hanover Insurance Group Amended and Restated Employment Continuity Plan waiving right to IRC §280G “Gross-Up” Payments, previously filed as Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on July 29, 2016 and incorporated herein by reference.
+10.27	Description of 2015— 2016 Non-Employee Director Compensation, previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on July 30, 2015 and incorporated herein by reference.
+10.28	Description of 2016— 2017 Non-Employee Director Compensation, previously filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on July 29, 2016 and incorporated herein by reference.
+10.29	The Hanover Insurance Group, Inc. Non-Employee Director Deferral Plan, previously filed as Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 27, 2009 and incorporated herein by reference.
+10.30	Offer Letter, dated August 14, 2003, between the Registrant and Frederick H. Eppinger, Jr., as amended December 10, 2008, previously filed as Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 27, 2009 and incorporated herein by reference.
+10.31	Description of compensatory arrangements with Frederick H. Eppinger, Jr., previously filed as Item 5.02 in the Registrant’s Current Report on Form 8-K filed with the Commission on September 16, 2015 and incorporated herein by reference.
+10.32	Description of compensatory arrangements with David B. Greenfield, previously filed as Item 5.02 in the Registrant’s Current Report on Form 8-K filed with the Commission on December 4, 2015 and incorporated herein by reference.
+10.33	Offer Letter, dated October 26, 2015, between the Registrant and Eugene M. Bullis, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on October 29, 2015 and incorporated herein by reference.
+10.34	Transition Letter dated May 24, 2016 by and between Frederick H. Eppinger and the Registrant, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 24, 2016 and incorporated herein by reference.
+10.35	Extension Letter, effective May 5, 2016, by and between Eugene M. Bullis and the Registrant, previously filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 5, 2016 and incorporated herein by reference.
+10.36	Offer Letter, dated May 15, 2016, by and between Joseph M. Zubretsky and the Registrant, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 16, 2016 and incorporated herein by reference.
+10.37	Offer Letter, dated September 21, 2016, by and between Jeffrey M. Farber and the Registrant, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 23, 2016 and incorporated herein by reference.
+10.38	Separation Agreement, dated August 5, 2016, by and between Andrew S. Robinson and the Registrant.
+10.39	Description of 2015 Named Executive Officer Short-Term Incentive Compensation Program Awards, 2016 Named Executive Officer Short-Term Compensation Programs and 2016 Named Executive Officer Long-Term Incentive Compensation Programs, previously filed as Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2016 and incorporated herein by reference.
+10.40	IRC Section 162(m) Deferral Letter for Certain Executive Officers of the Registrant, previously filed as Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 27, 2009 and incorporated herein by reference.
+10.41	Chaucer Pension Scheme, as amended, previously filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 9, 2011 and incorporated herein by reference.
+10.42	The Chaucer Share Incentive Plan, previously filed as Annex II to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 3, 2014 and incorporated herein by reference.
+10.43	The Hanover Insurance Group Amended and Restated 2014 Employee Stock Purchase Plan, previously filed as Exhibit 10.3 to the Registrant’s Registration Statement on Form S-8 (File No. 333-196107) filed with the Commission on May 20, 2014 and incorporated herein by reference.
+10.44	Form of Leadership Transition Severance Agreement, previously filed as Exhibit 10.40 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2016 and incorporated herein by reference.
10.45	Federal Home Loan Bank of Boston Agreement for Advances, Collateral Pledge, and Security Agreement, dated September 11, 2009, previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 4, 2009 and incorporated herein by reference.
10.46	Form of Accident and Health Coinsurance Agreement between The Hanover Insurance Company, as Reinsurer, and First Allmerica Financial Life Insurance Company (the schedules and certain exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K), previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on August 4, 2008 and incorporated herein by reference.
10.47	Credit Agreement, dated November 12, 2013, among the Registrant, as Borrower, JPMorgan Chase Bank, N.A., as administrative agent, and various other lender parties, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 18, 2013 and incorporated herein by reference.
10.48	Standby Letter of Credit Facility Agreement, dated October 15, 2015, among Chaucer Holdings Limited, Chaucer Corporate Capital (No. 3) Limited and the lenders party thereto from time to time, Lloyds Bank plc and ING Bank N.V., London Branch as mandated lead arrangers and Lloyds Bank plc as bookrunner, overdraft provider, facility agent of the other Finance Parties (as defined therein) and security agent to the Secured Parties (as defined therein), previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on October 20, 2015 and incorporated herein by reference.
10.49	Guaranty Agreement, dated October 15, 2015, among the Registrant and Lloyds Bank plc, as Facility Agent and Security Agent (each as defined therein), previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on October 20, 2015 and incorporated herein by reference.
12.1	Computation of Ratio of Earnings to Fixed Charges
21	Subsidiaries of THG
23	Consent of Independent Registered Public Accounting Firm
24	Power of Attorney
31.1	Certification of the Chief Executive Officer, pursuant to 15 U.S.C. 78m, 78o(d), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer, pursuant to 15 U.S.C. 78m, 78o(d), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Internal Revenue Service Ruling dated April 15, 1995 previously filed as Exhibit 99.1 to the Registrant’s Registration Statement on Form S-1 (No. 33-91766) filed with the Commission on May 1, 1995 and incorporated herein by reference.
101	The following materials from The Hanover Insurance Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016 formatted in eXtensible Business Reporting Language (“XBRL”): (i) Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014; (ii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014; (iii) Consolidated Balance Sheets at December 31, 2016 and 2015; (iv) Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2016, 2015 and 2014; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014; (vi) related notes to these consolidated financial statements; and (vii) Financial Statement Schedules.

+Management contract or compensatory plan or arrangement.

ITEM 16 – FORM 10-K SUMMARY

None.

127

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		THE HANOVER INSURANCE GROUP, INC.
		Registrant
Date: February 22, 2017	By:	/S/ JOSEPH M. ZUBRETSKY
		Joseph M. Zubretsky,
		President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: February 22, 2017	By:	/S/ JOSEPH M. ZUBRETSKY
		Joseph M. Zubretsky,
		President, Chief Executive Officer and Director
Date: February 22, 2017	By:	/S/ JEFFREY M. FARBER
		Jeffrey M. Farber,
		Executive Vice President and Chief Financial Officer
Date: February 22, 2017	By:	/S/ WARREN E. BARNES
		Warren E. Barnes,
		Vice President, Corporate Controller and Principal Accounting Officer
Date: February 22, 2017	By:	*
		Michael P. Angelini,
		Chairman of the Board
Date: February 22, 2017	By:	*
		Richard H. Booth,
		Director
Date: February 22, 2017	By:	*
		Jane D. Carlin,
		Director
Date: February 22, 2017	By:	*
		P. Kevin Condron,
		Director
Date: February 22, 2017	By:	*
		Cynthia L. Egan,
		Director
Date: February 22, 2017	By:	*
		Karen C. Francis, Director
Date: February 22, 2017	By:	*
		Daniel T. Henry,
		Director
Date: February 22, 2017	By:	*
		Wendell J. Knox,
		Director
Date: February 22, 2017	By:	*
		Joseph R. Ramrath,
		Director
Date: February 22, 2017	By:	*
		Harriett Tee Taggart,
		Director
Date: February 22, 2017	*By:	/S/ JEFFREY M. FARBER
		Jeffrey M. Farber,
		Attorney-in-fact

SCHEDULE I

THE HANOVER INSURANCE GROUP, INC.

SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN RELATED PARTIES

DECEMBER 31, 2016
(in millions)
Type of investment		Cost (1)		Value		Amount at which shown in the balance sheet
Fixed maturities:
Bonds:
United States Government and government agencies and authorities	$	1,272.6	$	1,265.5	$	1,265.5
States, municipalities and political subdivisions		1,065.4		1,095.0		1,095.0
Foreign governments		235.8		240.7		240.7
Public utilities		454.1		461.9		461.9
All other corporate bonds		4,204.2		4,265.2		4,265.2
Total fixed maturities		7,232.1		7,328.3		7,328.3
Equity securities:
Common stocks:
Public utilities		96.3		120.6		120.6
Banks, trusts and insurance companies		21.7		25.9		25.9
Industrial, miscellaneous and all other		376.8		426.9		426.9
Nonredeemable preferred stocks		3.6		11.0		11.0
Total equity securities		498.4		584.4		584.4
Mortgage loans on real estate (2)		297.6		297.2		297.6
Real estate		8.6		8.6		8.6
Other long-term investments (3)		223.7		227.8		227.6
Short-term investments		3.0		3.0		3.0
Total investments	$	8,263.4	$	8,449.3	$	8,449.5

(1) For equity securities, represents original cost, and for fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums and accretion of discounts.

(2) Includes $296.6 million of participating interests in commercial mortgage loans originated and serviced by a third-party. The Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgages. Due to certain reacquisition rights retained by the third-party in the loan participation arrangement, the Company accounted for its participatory interest in mortgage loans as secured borrowings.

(3) The cost of other long-term investments differs from the carrying value due to market value changes in the Company's equity ownership of limited partnership investments. The value of other long-term investments differs from the carrying value due to cost basis partnership investments.

 The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

128

SCHEDULE II

THE HANOVER INSURANCE GROUP, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY

STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Revenues
Net investment income	$	4.9	$	4.1	$	3.9
Net realized gains from sales and other		-		1.0		-
Interest income from loan to subsidiary		22.4		22.5		22.5
Other income		0.5		0.1		0.1
Total revenues		27.8		27.7		26.5
Expenses
Interest expense		46.1		53.9		54.7
Loss from repayment of debt		88.3		24.1		0.1
Employee benefit related expenses		7.0		7.0		11.1
Interest expense on loan from subsidiary		6.3		-		-
Benefit related to acquired businesses		-		(0.7)		-
Other operating expenses		8.6		7.6		7.5
Total expenses		156.3		91.9		73.4
Net loss before income taxes and equity in income of subsidiaries		(128.5)		(64.2)		(46.9)
Income tax benefit		75.6		49.5		52.1
Equity in income of subsidiaries		207.0		345.2		277.4
Income from continuing operations		154.1		330.5		282.6
Income (loss) from discontinued operations (net of income tax benefit
of $1.7,  $0.4 and $0.2 in 2016, 2015 and 2014)		1.0		1.0		(0.6)
Net income		155.1		331.5		282.0
Other comprehensive income (loss), net of tax		8.9		(152.5)		28.8
Comprehensive income	$	164.0	$	179.0	$	310.8

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

129

SCHEDULE II (CONTINUED)

THE HANOVER INSURANCE GROUP, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY

BALANCE SHEETS

DECEMBER 31		2016		2015
(in millions, except per share data)
Assets
Fixed maturities - at fair value (amortized cost of $116.5 and $121.1)	$	116.4	$	121.3
Equity securities - at fair value (cost of $1.0)		1.1		1.1
Cash and cash equivalents		10.1		8.6
Investments in subsidiaries		3,513.8		3,262.5
Net receivable from subsidiaries (1)		16.6		222.8
Deferred income tax receivable		31.7		7.4
Current income tax receivable		-		1.1
Other assets		1.1		2.5
Total assets	$	3,690.8	$	3,627.3
Liabilities
Expenses and state taxes payable	$	8.0	$	18.1
Current income tax payable		30.5		-
Interest payable		8.2		7.9
Debt		786.6		756.9
Total liabilities		833.3		782.9
Shareholders' Equity
Preferred stock, par value $0.01 per share, 20.0 million shares authorized, none issued		-		-
Common stock, par value $0.01 per share, 300.0 million shares authorized, 60.5 million shares issued		0.6		0.6
Additional paid-in-capital		1,846.7		1,833.5
Accumulated other comprehensive income		62.8		53.9
Retained earnings		1,875.6		1,803.5
Treasury stock at cost (18.1 and 17.5 million)		(928.2)		(847.1)
Total shareholders' equity		2,857.5		2,844.4
Total liabilities and shareholders' equity	$	3,690.8	$	3,627.3

(1) Net receivable from subsidiaries in 2015 includes a $300.0 million note receivable from The Hanover Insurance Holdings, Ltd., parent company of Chaucer Holdings, Ltd. In 2016, this note receivable was contributed to The Hanover (Barbados) Capital, SRL, a wholly-owned subsidiary of THG.

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

130

SCHEDULE II (CONTINUED)

THE HANOVER INSURANCE GROUP, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Cash flows from operating activities
Net income	$	155.1	$	331.5	$	282.0
Adjustments to reconcile net income to net cash
provided by operating activities:
(Gain) loss from discontinued operations		(1.0)		(1.0)		0.6
Net realized investment gains		-		(1.0)		-
Loss from retirement of debt		88.3		24.1		0.1
Equity in net income of subsidiaries		(207.0)		(345.2)		(277.4)
Dividends received from subsidiaries		228.1		5.1		70.2
Deferred income tax (benefit) expense		(39.0)		35.7		(29.9)
Change in expenses and taxes payable		20.7		(2.6)		11.4
Change in net receivable from subsidiaries		30.6		(5.9)		16.9
Other, net		8.3		6.1		4.3
Net cash provided by operating activities		284.1		46.8		78.2
Cash flows from investing activities
Proceeds from disposals and maturities of fixed maturities		82.4		70.0		25.6
Purchase of fixed maturities		-		(11.9)		(28.6)
Net cash used for business acquisitions		(2.2)		(2.3)		(2.3)
Net cash provided by (used in) investing activities		80.2		55.8		(5.3)
Cash flows from financing activities
Proceeds from debt borrowings		370.7		-		-
Proceeds from long-term intercompany borrowings		125.0		-		-
(Repayments) proceeds from short-term intercompany borrowings		(102.7)		102.7		-
Repurchases of debt		(571.9)		(15.1)		(0.7)
Repurchase of common stock		(105.6)		(127.3)		(20.4)
Dividends paid to shareholders		(80.4)		(74.2)		(67.0)
Proceeds from exercise of employee stock options		16.2		16.6		12.6
Other financing activities		(14.1)		(11.2)		(3.6)
Net cash used in financing activities		(362.8)		(108.5)		(79.1)
Net change in cash and cash equivalents		1.5		(5.9)		(6.2)
Cash and cash equivalents, beginning of year		8.6		14.5		20.7
Cash and cash equivalents, end of year	$	10.1	$	8.6	$	14.5

Included in other operating cash flows was the cash portion of dividends received from unconsolidated subsidiaries. Additionally, investment assets of $78.5 million,  $76.9 million and $1.0 million were transferred to the parent company in 2016, 2015 and 2014, respectively, to settle dividend obligations and other intercompany balances.

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

131

SCHEDULE III

THE HANOVER INSURANCE GROUP, INC.

SUPPLEMENTARY INSURANCE INFORMATION

DECEMBER 31, 2016
(in millions)
Segments		Deferred acquisition costs		Future policy benefits, losses, claims and loss expenses		Unearned premiums		Other policy claims and benefits payable		Premium revenue		Net investment income		Benefits, claims, losses and settlement expenses		Amortization of deferred acquisition costs		Other operating expenses		Premiums written
Commercial,
Personal and Other	$	402.8	$	4,663.8	$	1,995.1	$	6.4	$	3,789.5	$	233.7	$	2,545.4	$	803.6	$	593.7	$	3,882.7
Chaucer		114.7		2,289.4		569.0		-		838.6		45.7		419.3		231.6		113.7		816.1
Interest on Debt		-		-		-		-		-		-		-		-		54.9		-
Eliminations		-		(10.2)		(3.1)		-		-		-		-		-		(7.6)		-
Total	$	517.5	$	6,943.0	$	2,561.0	$	6.4	$	4,628.1	$	279.4	$	2,964.7	$	1,035.2	$	754.7	$	4,698.8
DECEMBER 31, 2015
(in millions)
Segments		Deferred acquisition costs		Future policy benefits, losses, claims and loss expenses		Unearned premiums		Other policy claims and benefits payable		Premium revenue		Net investment income		Benefits, claims, losses and settlement expenses		Amortization of deferred acquisition costs		Other operating expenses		Premiums written
Commercial,
Personal and Other	$	385.5	$	4,204.6	$	1,892.3	$	5.6	$	3,653.6	$	233.2	$	2,367.4	$	778.0	$	508.0	$	3,727.5
Chaucer		123.3		2,372.5		651.7		-		1,051.2		45.9		516.7		255.2		154.5		889.3
Interest on Debt		-		-		-		-		-		-		-		-		60.6		-
Eliminations		-		(8.3)		(3.2)		-		-		-		-		-		(7.4)		-
Total	$	508.8	$	6,568.8	$	2,540.8	$	5.6	$	4,704.8	$	279.1	$	2,884.1	$	1,033.2	$	715.7	$	4,616.8
DECEMBER 31, 2014
(in millions)
Segments		Deferred acquisition costs		Future policy benefits, losses, claims and loss expenses		Unearned premiums		Other policy claims and benefits payable		Premium revenue		Net investment income		Benefits, claims, losses and settlement expenses		Amortization of deferred acquisition costs		Other operating expenses		Premiums written
Commercial,
Personal and Other	$	370.3	$	3,966.3	$	1,819.1	$	5.1	$	3,488.5	$	226.1	$	2,293.8	$	748.5	$	480.4	$	3,578.7
Chaucer		155.4		2,425.8		768.1		-		1,221.8		44.2		633.7		291.5		182.9		1,231.4
Interest on Debt		-		-		-		-		-		-		-		-		65.8		-
Eliminations		-		(5.5)		(3.3)		-		-		-		-		-		(7.0)		-
Total	$	525.7	$	6,386.6	$	2,583.9	$	5.1	$	4,710.3	$	270.3	$	2,927.5	$	1,040.0	$	722.1	$	4,810.1

SCHEDULE IV

THE HANOVER INSURANCE GROUP, INC.

REINSURANCE

Incorporated herein by reference to Note 16 —“Reinsurance” in the Notes of the Consolidated Financial Statements included in Financial Statements and Supplemental Data of this Form 10-K.

132

SCHEDULE V

THE HANOVER INSURANCE GROUP, INC.

VALUATION AND QUALIFYING ACCOUNTS

DECEMBER 31
			Additions
(in millions) Description		Balance at beginning of period		Charged to costs and expenses		Charged to other accounts(1)		Deductions		Balance at end of period
2016
Allowance for doubtful accounts	$	3.2	$	8.7	$	-	$	(8.2)	$	3.7
Allowance for uncollectible reinsurance recoverables (2)		9.7		3.4		0.1		(0.1)		13.1
	$	12.9	$	12.1	$	0.1	$	(8.3)	$	16.8
2015
Allowance for doubtful accounts	$	3.2	$	9.7	$	-	$	(9.7)	$	3.2
Allowance for uncollectible reinsurance recoverables (3)		15.9		-		0.2		(6.4)		9.7
	$	19.1	$	9.7	$	0.2	$	(16.1)	$	12.9
2014
Allowance for doubtful accounts	$	3.1	$	9.4	$	-	$	(9.3)	$	3.2
Allowance for uncollectible reinsurance recoverables		20.7		0.9		(0.3)		(5.4)		15.9
	$	23.8	$	10.3	$	(0.3)	$	(14.7)	$	19.1

(1) Amounts charged to other accounts include foreign exchange gains and losses.  

(2) 2016 activity primarily relates to the impairment of a receivable that is associated with a single reinsurance counterparty that was placed into conservation by the state of California in July 2016. This counterparty is not involved in the Company’s ongoing reinsurance program and the entire receivable related to this counterparty resulted from to a one-time block reinsurance transaction that occurred in 2012 as part of the Company’s exposure management actions.

(3) Includes a deduction of $5.4 million related to the transfer of the U.K. motor business on June 30, 2015.

133

SCHEDULE VI

THE HANOVER INSURANCE GROUP, INC.

SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS

YEARS ENDED DECEMBER 31
(in millions)
Affiliation with Registrant		Deferred acquisition costs		Reserves for unpaid claims and claim adjustment expenses (1)		Discount, if any, deducted from previous column (2)		Unearned premiums (1)		Earned premiums		Net investment income
Consolidated Property and Casualty
Subsidiaries
2016	$	517.5	$	6,949.4	$	-	$	2,561.0	$	4,628.1	$	279.4
2015	$	508.8	$	6,574.4	$	-	$	2,540.8	$	4,704.8	$	279.1
2014	$	525.7	$	6,391.7	$	-	$	2,583.9	$	4,710.3	$	270.3
			Claims and claim adjustment expenses incurred related to
				Current year		Prior years		Amortization of deferred acquisition costs		Paid claims and claim adjustment expenses		Premiums written
2016			$	2,859.3	$	105.4	$	1,035.2	$	2,509.9	$	4,698.8
2015			$	3,000.2	$	(116.1)	$	1,033.2	$	2,664.0	$	4,616.8
2014			$	3,044.9	$	(117.4)	$	1,040.0	$	2,727.6	$	4,810.1

(1) Reserves for unpaid claims and claim adjustment expenses are shown gross of $2,274.8 million, $2,280.8 million and $1,983.0 million of reinsurance recoverable on unpaid losses in 2016, 2015 and 2014, respectively. Unearned premiums are shown gross of prepaid premiums of $222.4 million, $256.2 million and $197.8 million in 2016, 2015 and 2014, respectively. Reserves for unpaid claims and claims adjustment expense also include policyholder dividends.

(2) The Company does not use discounting techniques.

134

EX-10.3

Exhibit 10.3

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

Amended and restated generally effective January 1, 2015

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TABLE OF CONTENTS

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

ARTICLE I	NAME, PURPOSE AND EFFECTIVE DATE OF PLAN AND RESTATED PLAN	1
ARTICLE II	DEFINITIONS	1
ARTICLE III	ELIGIBILITY AND PARTICIPATION	21
ARTICLE IV	EMPLOYER CONTRIBUTIONS AND FORFEITURES	23
ARTICLE V	EMPLOYEE CONTRIBUTIONS AND ROLLOVER CONTRIBUTIONS	27
ARTICLE VI	PROVISIONS APPLICABLE TO TOP HEAVY PLANS	33
ARTICLE VII	LIMITATIONS ON ALLOCATIONS	35
ARTICLE VIII	PARTICIPANT ACCOUNTS AND VALUATION OF ASSETS	41
ARTICLE IX	401(k) ALLOCATION LIMITATIONS	41
ARTICLE X	401(m) ALLOCATION LIMITATIONS	43
ARTICLE XI	IN-SERVICE WITHDRAWALS	43
ARTICLE XII	PLAN LOANS	45
ARTICLE XIII	RETIREMENT, TERMINATION AND DEATH BENEFITS	47
ARTICLE XIV	PLAN FIDUCIARY RESPONSIBILITIES	61
ARTICLE XV	BENEFITS COMMITTEE	64
ARTICLE XVI	INVESTMENT OF THE TRUST FUND	65
ARTICLE XVII	CLAIMS PROCEDURE	68
ARTICLE XVIII	AMENDMENT AND TERMINATION	70
ARTICLE XIX	MISCELLANEOUS	72

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THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

ARTICLE I

NAME, PURPOSE AND EFFECTIVE DATE OF PLAN AND RESTATED PLAN

1.01Name of Plan.  The name of the Plan is The Hanover Insurance Group Retirement Savings Plan.  Prior to January 1, 2005, the Plan was known as “The Allmerica Financial Employees’ 401(k) Matched Savings Plan”.  Effective January 1, 2005, the Plan became known as “The Allmerica Financial Retirement Savings Plan”.  Effective December 1, 2005, the Plan became known as “The Hanover Insurance Group Retirement Savings Plan”.

1.02Purpose.  This Plan has been established for the exclusive benefit of the Plan Participants and their Beneficiaries and as far as possible shall be administered in a manner consistent with this intent and consistent with the requirements of Code Section 401.

Subject to Sections15.04 and 18.05, under no circumstances shall any contributions made to the Plan be used for, or be diverted to, purposes other than for the exclusive benefit of Plan Participants or their Beneficiaries.

1.03Plan and Plan Restatement Effective Date.  The effective date of this Plan was November 22, 1961.  The effective date of this amended and restated Plan is January1, 2015 (except for those provisions of the Plan which have an alternative effective date).  Except to the extent otherwise specifically provided herein, the provisions of the amended and restated Plan as set forth herein shall apply to a  Participant who is employed by the Employer on or after January 1, 2015.The rights and benefits of any Participant whose employment with the Employer terminated prior to January1,2015,  shall be determined in accordance with the provisions of the Plan as in effect from time to time prior to January 1, 2015,  provided, however, that if the Account balance of any such Participant has not been completely distributed before January 1, 2015, then such Account balance shall be invested, accounted for and distributed in accordance with the provisions of the Plan as set forth in this document except as otherwise required by applicable law or as otherwise specifically provided herein.

ARTICLE II

DEFINITIONS

The terms defined in this Article shall have the meanings stated herein unless the context clearly indicates otherwise.

2.01“Accrued Benefit” shall mean the sum of the balances in a Participant’s 401(k) Account, Roth Elective Deferral Account,  Match Contribution Account, Non-Elective

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Employer Contribution Account, Regular Account, Rollover Account, Tax Deductible Contribution Account and Voluntary Contribution Account.

2.02     “Account” shall mean an account established and maintained pursuant to Section 8.01 for each Participant, when appropriate, to account for the Participant’s Accrued Benefit.

2.03     (a)      “Affiliate” shall mean any corporation affiliated with the Employer through the action of such corporation’s board of directors and the Employer’s Board of Directors.

(b)“Affiliate” shall also mean any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Code Section 414(o)and the regulations thereunder.

2.04“Affirmative Election” shall mean an election by an Eligible Participant to (a) make Salary Reduction Contributions to the Plan at the whole percentage of his or her Compensation or at the separate whole percentages of his or her salary and other Compensationspecified in his or her Salary Reduction Agreement, or (b) not to make Salary Reduction Contributions to the Plan.

2.05“Age” shall mean the age of a person at his or her last birthday.

2.06“Annuity Starting Date” shall mean the first day of the first period for which the Plan pays an amount as an annuity. In the case of a payment not in an annuity form, Annuity Starting Date shall mean the first day of the first period for which the benefit form is paid.

2.07“Automatic Contributions” shall mean the Pre-tax Elective Deferrals that result from the operation of Section 5.05(c).

2.08“Automatic Contribution Arrangement” shall mean the arrangement set forth in Section 5.05 pursuant to which, in the absence of an Affirmative Election,an Employee, who is eligible to participate in the Plan is treated as having elected to direct the Employer to reduce his or her Compensation in order that the Employer may make Pre-tax Elective Deferrals to the Plan on behalf of the Participant equal to a uniform percentage of Compensation.

2.09“Beneficiary” shall mean the person, trust, organization or estate designated to receive Plan benefits payable on or after the death of a Participant.

2.10“Catch-up Contributions” shall mean Salary Reduction Contributions made to the Plan that are in excess of an otherwise applicable Plan limit and that are made by

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Participants who are Age 50 or over by the end of their taxable years.  An “otherwise applicable Plan limit” is a limit in the Plan that applies to Salary Reduction Contributions without regard to Catch-up Contributions, such as the limits on Annual Additions, the dollar limitation on Salary Reduction Contributions under Code Section 402(g) (not counting Catch-up Contributions).  Catch-up Contributions for a Participant for a taxable year may not exceed the dollar limit on Catch-up Contributions under Code Section 414(v)(2)(B)(i) for the taxable year asadjusted for increases in the cost of living in accordance with Code Section 414(v)(2)(C).

Catch-up Contributions are not subject to the limits on Annual Additions, are not counted in the ADP test and are not counted in determining the minimum top-heavy allocation under Code Section 416 (but Catch-up Contributions made in prior years are counted in determining whether the Plan is top-heavy).

2.11“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.  Reference to any section or subsection to the Code, includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces any such section or subsection, and also includes reference to any regulation issued pursuant to or with respect to such section or subsection.

2.12“Compensation” shall mean:

(a)For purposes of Articles IX and X, for purposes of determining a Participant’s Salary Reduction Contributions pursuant to Section 3.01(b), 5.04, and 5.05 and for purposes of determining an Eligible Employee’s Match Contribution under Section 4.02 and Non-Elective Employer Contribution pursuant to Section 4.03, Compensation shall mean the total wages or salary, overtime, bonuses, and any other taxable remuneration paid to an Employee by the Employer during the Plan Year, while the Employee is a Participant, as reported on the Participant’s W-2 for the Plan Year.  Provided,  however, that Compensation for this purpose shall be determined without reduction for (i) any Salary Reduction Contributions contributed to the Plan on the Participant’s behalf for the Plan Year and (ii) any other amount which is contributed or deferred by the Employer at the election of a Participant which is not includible in the gross income of the Participant by reason of Code Section 125, 132(f)(4), 402(e)(3), 402(h), or 403(b).

Notwithstanding the above, for purposes of determining a Participant’s Salary Reduction Contributions pursuant to Section 3.01(b), 5.04, and 5.05 and for purposes of determining an Eligible Employee’s Match Contribution under Section 4.02 and Non-Elective Employer Contribution pursuant to Section 4.03, Compensation shall not include:

(i)incentive compensation paid to Participants pursuant to the Employer’s Executive Long Term Performance Unit Plan or pursuant to any similar or successor cash or equity long-term incentive compensation plan;

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(ii)Employer contributions to a deferred compensation plan or arrangement (other than (i) Salary Reduction Contributions contributed to the Plan on the Participant’s behalf for the Plan Year; and (ii) any other amount which is contributed or deferred by the Employer at the election of a Participant which is not includible in the gross income of the Participant by reason of Code Section 125, 132(f)(4), 402(e)(3), 402(h), or 403(b)) either for the year of deferral or for the year included in the Participant’s gross income;

(iii)any income which is received by or on behalf of a Participant in connection with the grant, receipt, settlement, exercise, lapse of risk of forfeiture or restriction on transferability, or disposition of any stock option, stock award, stock grant, stock appreciation right or similar right or award granted under any plan, now or hereafter in effect, of the Employer or any successor to the Employer, the Employer’s parent, any such successor’s parent, any subsidiaries or affiliates of the Employer, or any stock or securities underlying any such option, award, grant or right;

(iv)severance payments paid in a lump sum, provided that for Plan Years beginning on and after January 1, 2008 such excluded severance payments shall not include any payment of regular compensation for services during the Participant’s regular working hours, or compensation for services outside the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments, if the payment would have been paid to the Participant prior to a severance from employment, if the Participant had continued in employment with the Employer and if the payment is made by the later of 2½months after the Participant’s severance from employment or by the end of the Plan Year in which the Participant’s severance from employment occurs;

(v)Code Section 79 imputed income; long term disability and workers’ compensation benefit payments;

(vi)taxable moving expense allowances or taxable tuition or other educational reimbursements;

(vii)for Plan Years commencing after December 31, 1998, compensation paid in the form of commissions;

(viii)non-cash taxable benefits provided to executives, including the taxable value of Employer-paid club memberships, chauffeur services and Employer-provided automobiles; and

(ix)other taxable amounts received other than cash compensation for services rendered, as determined by the Plan Administrator.

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(b)For purposes of Section 4.04 (Minimum Employer Contributions for Top Heavy Plans) and for purposes of Article VII (Limitations on Allocations) the term “Compensation” means a Participant’s wages, salaries, fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includible in gross income (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Treasury Regulation Section 1.62-2(c)), and excluding the following:

(i)Employer contributions to a plan of deferred compensation which are not includible in the Employee’s gross income for the taxable year in which contributed, or Employer contributions under a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation;

(ii)Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee becomes freely transferable or is no longer subject to a substantial risk of forfeiture;

(iii)Amounts realized for the sale, exchange or other disposition of stock acquired under a qualified stock option; and

(iv)Other amounts which received special tax benefits.

Notwithstanding the foregoing, Compensation for purposes of the Plan shall also include Employee elective deferrals under Code Section 402(g)(3), Roth Elective Deferrals and any amounts contributed or deferred by the Employer at the election of the Employee and not includible in the gross income of the Employee, by reason of Code Sections 125, 132(f)(4), 402(e)(3), 402(h), and 403(b).

Additionally, amounts under Code Section 125 include any amounts not available to a Participant in cash in lieu of group health coverage because the Participant is unable to certify that he has other health coverage (deemed Code Section 125 compensation).  Such an amount will be treated as an amount under Code Section 125 only if the Employer does not request or collect information regarding the Participant’s other health coverage as part of the enrollment process for the health plan.

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For purposes of applying the limitations of Article VII, Compensation for a Limitation Year is the Compensation actually paid or includible in gross income during such Year.

(c)Notwithstanding (a) and (b) above, the annual Compensation of each Participant taken into account for determining all benefits provided under the Plan for any Plan Year shall not exceed $265,000, as adjusted for increases in the cost of living in accordance with Code Section 401(a)(17)(B) for Plan Years beginning after December 31, 2015.

The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined beginning in such calendar year.

If Compensation is being determined for a Plan Year that contains fewer than 12 calendar months, then the annual Compensation limit is an amount equal to the annual Compensation limit for the calendar year in which the Compensation period begins multiplied by the ratio obtained by dividing the number of full months in the period by 12.

For purposes of applying the limitations of Article VII with respect to Limitation Years the following provisions shall be applicable.

(i)        Compensation paid after severance from employment. Compensation actually paid or includible in gross income during a Limitation Year shall be adjusted, as set forth herein, for the following types of compensation paid after a Participant’s severance from employment with the Employer (or any Affiliate). However, amounts described in Paragraphs A. and B. below shall only be included in Compensation for such Limitation Year to the extent such amounts are paid by the later of 2½ months after severance from employment or by the end of the Limitation Year that includes the date of such severance from employment.  Any other payment of compensation paid after severance of employment that is not described in the following types of compensation shall not be considered Compensation for such Limitation Year, even if payment is made within the time period specified above.

A.Regular Pay. Compensation shall include regular pay after severance of employment if: (1) The payment is regular compensation for services during the Participant’s regular working hours, or compensation for services outside the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments; and (2) The payment would have been paid to the Participant prior to a severance from employment if the Participant had continued in employment with the Employer.

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B.Leave Cashouts And Deferred Compensation. Leave cashouts shall be included in Compensation if those amounts would have been included in the definition of Compensation if they were paid prior to the Participant’s severance from employment, and the amounts are payment for unused accrued bona fide sick, vacation, or other leave, but only if the Participant would have been able to use the leave if employment had continued. In addition, deferred compensation shall be included in Compensation if the compensation would have been included in the definition of Compensation if it had been paid prior to the Participant’s severance from employment, and the compensation is received pursuant to a nonqualified unfunded deferred compensation plan, but only if the payment would have been paid at the same time if the Participant had continued in employment with the Employer and only to the extent that the payment is includible in the Participant’s gross income.

C.Salary Continuation Payments for Military Service Participants. Compensation shall not include payments to an individual who does not currently perform services for the Employer by reason of qualified military service (as that term is used in Code Section 414(u)(l)) to the extent those payments do not exceed the amounts the individual would have received if the individual had continued to perform services for the Employer rather than entering qualified military service.

D.Salary Continuation Payments for Disabled Participants. Compensation does not include compensation paid to a Participant who is permanently and totally disabled (as defined in Code Section 22(e)(3)).

(ii)Compensation for a Limitation Year but not paid during the Limitation Year.  Compensation for a Limitation Year shall not include amounts earned but not paid during the Limitation Year solely because of the timing of pay periods and pay dates.

(iii)Inclusion of Certain Nonqualified Deferred Compensation Amounts. Compensation for a Limitation Year shall include amounts that are includible in the gross income of a Participant under the rules of Code Section 409A or because the amounts are constructively received by the Participant.

(d)Notwithstanding paragraphs (a), (b) and (c) above,

(i)USERRA.  For purposes of Employee and Employer make-up contributions, Compensation during the period of military service shall be deemed to be the Compensation the Employee would have received

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during such period if the Employee were not in qualified military service, based on the rate of pay the Employee would have received from the Employer but for the absence due to military leave. If the Compensation the Employee would have received during the leave is not reasonably certain, Compensation will be equal to the Employee’s average Compensation from the Employer during the twelve (12) month period immediately preceding the military leave or, if shorter, the Employee’s actual period of employment with the Employer.

(ii)       Differential Wage Payments.  An individual receiving a differential wage payment, as defined by Code Section 3401(h)(2), shall be treated as an Employee of the Employer making the payment.  The differential wage payment shall be treated as Compensation for the purposes of Code Section 415(c)(3) and Treasury Regulation Section 1.415-(c)(2) (e.g., for the purposes of Code Section 415, top-heavy provisions of Code Section 416, determination of highly compensated employees under Code Section 414(q)).  The Plan shall not be treated as failing to meet the requirements of any provision described in Code Section 414(u)(1)(C) by reason of any contribution or benefit which is based on the differential wage payment.  The foregoing sentence shall apply only if all Employees of the Employer performing service in the uniformed services described in Code Section 3401(h)(2)(A) are entitled to receive differential wage payments (as defined in Code Section 3401(h)(2)) on reasonably equivalent terms and, if eligible to participate in a retirement plan maintained by the Employer, to make contributions based on the payments on reasonably equivalent terms (taking into account Code Sections 410(b)(3), (4), and (5)).

2.13“Eligible Employee” shall mean an Employee who has satisfied the requirements to participate in this Plan as set forth in Section 3.01.

2.14“Eligible Participant” shall mean an Eligible Employee subject to the Automatic Contribution Arrangement as provided for in Section 5.05(b).  

2.15“Employee” shall mean any person reported on the payroll records of the Employer as an Employee who is deemed by the Employer to be a common law Employee. However, the term Employee will not include any individual who is not reported on the payroll records of the Employer or an affiliated Employer as a common law Employee.  If such person is later determined by the Employer or by a court or governmental agency to be or to have been an Employee, he or she will only be eligible for participation prospectively and may participate in the Plan as soon as reasonably practicable following such determination and after the satisfaction of all other eligibility requirements.

2.16“Employer” shall mean The Hanover Insurance Company; provided that, prior to January 1, 2008 “Employer” shall mean First Allmerica Financial Life Insurance Company.

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2.17“Employment Commencement Date” shall mean the date on which an Employee first performs an Hour of Service or, in the case of an Employee who has a One Year Break in Service, the date on which he or she first performs an Hour of Service after such Break.

2.18“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amendedfrom time to time.

2.19“Excess Elective Deferrals” shall mean those Salary Reduction Contributions of a Participant that either (1) are made during the Participant’s taxable year and exceed the dollar limitation under Code Section 402(g) (including, if applicable, the dollar limitation on Catch-up Contributions defined in Code Section 414(v)) for such year; or (2) are made during a calendar year and exceed the dollar limitation under Code Section 402(g) (including, if applicable, the dollar limitation on Catch-up Contributions defined in Code Section 414(v)) for the Participant’s taxable year beginning in such calendar year, counting only Salary Reduction Contributions made under this Plan and any other 401(k) qualified retirement plan, contract or arrangement maintained by the Employer. Excess Elective Deferrals shall be treated as Annual Additions under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant’s taxable year. 

2.20“Fiduciary” shall mean any person who (i) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets; (ii) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so; or (iii) has any discretionary authority or discretionary responsibility in the administration of the Plan, including, but not limited to, the Trustee and the Plan Administrator.

2.21“First Allmerica” shall mean First Allmerica Financial Life Insurance Company.

2.22“Five Percent Owner” shall mean, in the case of a corporation, any person who owns (or is considered as owning within the meaning of Code Section 416(i)) more than five percent of the outstanding stock of the Employer or stock possessing more than five percent of the total combined voting power of all stock of the Employer.  In the case of an Employer that is not a corporation, “Five Percent Owner” shall mean any person who owns or under applicable regulations is considered as owning more than five percent of the capital or profits interest in the Employer.  In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), and (m) shall be treated as separate employers.

2.23“Former Participant” shall mean a person on whose behalf an Account is maintained,  who was an Eligible Employee but who is not entitled to accrue a benefit under this Plan because he or she has ceased to be eligible to participate in the Plan for any reason.

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2.24“401(k) Account” shall mean the account established and maintained for each Participant who has directed the Employer to make Pre-tax Elective Deferral Contributions to the Trust on his or her behalf or for whom the Employer has made 401(k) Employer Contributions to the Trust on his or her behalf, and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

2.25“401(k) Employer Contribution” shall mean a 401(k) contribution made by the Employer to the Trust for Plan Years prior to 1995 pursuant to Section 4.01 of the Plan as in effect prior to 1995.

2.26“Highly Compensated Employee” shall mean any Employee who:

(a)was a Five Percent Owner at any time during the Plan Year or the preceding Plan Year; or

(b)for the preceding Plan Year:

(i)had Compensation from the Employer in excess of $120,000 as adjusted for increases in the cost of living in accordance with Code Section 414(q)(1) for Plan Years beginning after December 31, 2015; and

(ii)       for such preceding Year was in the top-paid group of Employees for such preceding Year.

For purposes of this Section the “top-paid group” for a Plan Year is the top 20% of Employees ranked on the basis of Compensation paid during such Year.

In addition to the foregoing, the term “Highly Compensated Employee” shall also mean any former Employee who separated from service prior to the Plan Year, performs no service for the Employer during the Plan Year, and was an actively employed Highly Compensated Employee in the separation year or any Plan Year ending on or after the date the Employee attained Age 55.

For purposes of this Section Compensation means Compensation determined for purposes of Article VII (Limitations on Allocations).

The determination of who is a Highly Compensated Employee, including the determinations of the numbers and identity of Employees in the top-paid group and the Compensation that is considered will be made in accordance with Code Section 414(q) and the regulations thereunder.

2.27“Hour of Service” shall mean:

(a)Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer.  For purposes of the Plan an Employee who is exempt from the requirements of the Fair Labor Standards

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Act of 1938, as amended, shall be credited with 45 Hours of Service for each complete or partial week he or she would be credited with at least one Hour of Service under this Section.

(b)Each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. Notwithstanding the preceding sentence:

(i)        No more than 1000 hours shall be credited to an Employee under this Subsection (b) on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period);

(ii)       No hours shall be credited under this Subsection (b) for any payments made or due under a plan maintained solely for the purpose of complying with any applicable worker’s compensation, unemployment compensation or disability insurance laws; and

(iii)      No hours shall be credited under this Subsection (b) for a payment, which solely reimburses an Employee for medical or medically related expenses incurred by the Employee.

For purposes of this Subsection (b) a payment shall be deemed to be made by or due from an Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly, through, among others, a trust fund or insurer, to which the Employer contributes or pays premiums.

(c)       Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer.  The same Hours of Service shall not be both credited under Subsections (a) or (b), as the case may be, and under this Subsection.  No more than 501 Hours shall be credited under this Subsection for a period of time during which an Employee did not or would not have performed duties.

(d)       Special rules for determining Hours of Service under Subsection (b) or (c) for reasons other than the performance of duties.

In the case of a payment which is made or due which results in the crediting of Hours of Service under Subsection (b) or in the case of an award or agreement for back pay, to the extent that such an award or agreement is made with respect to a period during which an Employee performs no duties, the number of Hours of Service to be credited shall be determined as follows:

(i)        In the case of a payment made or due which is calculated on the basis of units of time (such as hours, days, weeks or months), the number of Hours of Service to be credited for “exempt” Employees described in

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Subsection (a) shall be determined as provided in such Subsection.  For all other Employees, the Hours of Service to be credited shall be those regularly scheduled hours in such unit of time; provided, however, that when a non-exempt Employee does not have regularly scheduled hours, such Employee shall be credited with 8 Hours of Service for each workday for which he or she is entitled to be credited with Hours of Service under paragraph (b).

(ii)      Except as provided in Paragraph (d)(iii), in the case of a payment made or due which is not calculated on the basis of units of time, the number of Hours of Service to be credited shall be equal to the amount of the payment divided by the Employee’s most recent hourly rate of compensation (as determined below) before the period during which no duties are performed.

A.        The hourly rate of compensation of Employees paid on an hourly basis shall be the most recent hourly rate of such Employees.

B.        In the case of Employees whose compensation is determined on the basis of a fixed rate for specified periods of time (other than hours) such as days, weeks or months, the hourly rate of compensation shall be the Employee’s most recent rate of compensation for a specified period of time (other than an hour), divided by the number of hours regularly scheduled for the performance of duties during such period of time.  The rule described in Subsection (d)(i) shall also be applied under this paragraph to Employees without a regular work schedule.

C.        In the case of Employees whose compensation is not determined on the basis of a fixed rate for specified periods of time, the Employee’s hourly rate of compensation shall be the lowest hourly rate of compensation paid to Employees in the same job classification as that of the Employee or, if no Employees in the same job classification have an hourly rate, the minimum wage as established from time to time under Section 6(a)(1) of the Fair Labor Standards Act of 1938, as amended.

(iii)      Rule against double credit.  An Employee shall not be credited on account of a period during which no duties are performed with more hours than such Employee would have been credited but for such absence.

(e)       Crediting of Hours of Service to computation periods.

(i)        Hours of Service described in Subsection (a) shall be credited to the Employee for the computation period or periods in which the duties are performed.

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(ii)       Hours of Service described in Subsection (b) shall be credited as follows:

A.Hours of Service credited to an Employee on account of a payment which is calculated on the basis of units of time (such as hours, days, weeks or months) shall be credited to the computation period or periods in which the period during which no duties are performed occurs, beginning with the first unit of time to which the payment relates.

B.Hours of Service credited to an Employee by reason of a payment which is not calculated on the basis of units of time shall be credited to the computation period in which the period during which no duties are performed occurs, or if the period during which no duties are performed extends beyond one computation period, such Hours of Service shall be allocated between not more than the first two computation periods in accordance with reasonable rules established by the Employer, which rules shall be consistently applied with respect to all Employees within the same job classification, reasonably defined.

(iii)Hours of Service described in Subsection (c) shall be credited to the computation period or periods to which the award or agreement for back pay pertains, rather than to the computation period in which the award, agreement or payment is made.

(f)For purposes of the Plan, Hours of Service shall also include Hours of Service determined in accordance with the rules set forth in this Section 2.27:

(i)with the Employer in a position in which he or she was not eligible to participate in this Plan; or

(ii)as a Career Agent or General Agent of First Allmerica; or

(iii)for periods prior to January 1, 1998, with Citizens, Hanover, or as an employee of a General Agent of First Allmerica; or

(iv)with Financial Profiles, Inc., or Advantage Insurance Network, Affiliates of First Allmerica, including periods of service completed prior to the date each became an Affiliate; or

(v)for periods prior to January 1, 2008 with First Allmerica; or

(vi)with an Affiliate.

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(g)Rules for Non-Paid Leaves of Absence.  For purposes of the Plan, a Participant will also be credited with Hours of Service during any non-paid leave of absence granted by the Employer.  Except as provided in Subsection (a) for exempt Employees, the number of Hours of Service to be credited under this Subsection (g) shall be the number of regularly scheduled working hours in each workday during the leave of absence; provided, however, that no more than the number of Hours in one regularly scheduled work year of the Employer will be credited for each non-paid leave of absence.  In the case of a non-exempt Employee without a regular work schedule, the number of Hours to be credited shall be based on a 40-hour workweek and an 8-hour workday.  Hours of Service described in this Subsection (g) shall be credited to the Employee for the computation period or periods during which the leave of absence occurs.

Notwithstanding the foregoing, for Plan Years beginning after December31,1998, all Employees (exempt and non-exempt) shall be credited with 8 Hours of Service for each workday for which they are entitled to be credited with Hours of Service for a non-paid leave of absence pursuant to this Subsection (g).

(h)       Rules for Maternity or Paternity Leaves of Absence.  In addition to the foregoing rules, solely for purposes of determining whether a One Year Break in Service has occurred in a computation period, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such Hours cannot be determined, 8 Hours of Service per day of such absence.  Provided,  however, that:

(i)Hours shall not be credited under both this Paragraph (h) and one of the other Paragraphs of this Section 2.27;

(ii)       no more than 501 Hours shall be credited for each maternity or paternity absence; and

(iii)if a maternity or paternity leave extends beyond one Plan Year, the Hours shall be credited to the Plan Year in which the absence begins to the extent necessary to prevent a One Year Break in service, otherwise such Hours shall be credited to the following Plan Year.

For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (i) by reason of the pregnancy of the individual, (ii) by reason of a birth of a child of the individual, (iii) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (iv) for purposes of caring for such child for a period beginning immediately following such birth or placement.

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(i)Other Federal Law.  Nothing in this Section shall be construed to alter, amend, modify, invalidate, impair or supersede any law of the United States or any rule or regulation issued under any such law.

2.28“Key Employee”shall mean, for the purposes of determining whether the Plan is top-heavy, any Employee or former Employee (including any deceased Employee) who at any time during the Plan Year that includes the determination date is an officer of the Employer having an annual Compensation greater than $170,000 (as adjusted under Code Section 416(i)(l) for Plan Years beginning after December 31, 2015), a Five Percent Owner, or a 1-percent owner of the Employer having an annual Compensation of more than $150,000.

The determination of who is a Key Employee will be made in accordance with Code Section 416(i)(1) and the regulations thereunder.  For purposes of determining whether a Participant is a Key Employee, the Participant’s Compensation means Compensation as defined for purposes of Article VII.

2.29“Limitation Year” shall mean a calendar year.  The Limitation Year may only be changed by a Plan amendment. If the Plan is terminated effective as of a date other than the last day of the Plan’s Limitation Year, then the Plan shall be treated as if the Plan had been amended to change its Limitation Year and, in any such case, the Defined Contribution Dollar Limitation shall be prorated as prescribed by Treasury Regulation Section 1.415(j)-1(d)(3).

2.30“Match Contribution” shall mean the contribution made by the Employer to the Trust pursuant to Section 4.02.

2.31“Match Contribution Account” shall mean the account established for each Participant for whom the Employer has allocated Match Contributions to the Trust and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

2.32“Non-Elective Employer Contributions” shall mean Employer contributions that are made by the Employer pursuant to Section 4.03.

2.33“Non-Elective Employer Contribution Account” shall mean the account established for each Employee for whom the Employer has made a Non-Elective Employer Contribution to the Trust and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

2.34“Non-Highly Compensated Employee” shall mean any Employee who is not a Highly Compensated Employee.

2.35“Non-Key Employee” shall mean any Employee who is not a Key Employee.

2.36“Normal Retirement Age” shall mean the date on which the Participant attains Age 65.

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2.37“One Year Break in Service” shall mean any vesting computation period during which an Employee does not complete more than 500 Hours of Service.

2.38“Participant” shall mean an Eligible Employee and, where the context requires, a Former Participant.

2.39“Plan Administrator” shall mean the Benefits Committee, which shall have fiduciary responsibility for the interpretation and administration of the Plan, as provided for in Article XIV.  Members of the Benefits Committee shall be appointed as provided for in Section 15.01 hereof.

2.40“Plan Year” shall mean a calendar year.

2.41“Pre-tax Elective Deferral”shall mean a Salary Reduction Contribution that isnot includible in the gross income of the Eligible Employee on whose behalf the contribution is made at the time that the deferral is made.

2.42“Qualified Automatic Contribution Arrangement (“QACA”)” shall mean a qualified automatic contribution arrangement that meets the requirements of Code Section 401(k)(13)(B).  This Plan is intended to satisfy the requirements of Code Section 401(k)(13)(B) including but not limited to, the automatic enrollment and contribution provisions and the applicable notice requirements of Section 5.05 and the required Employer contributions of the Match Contribution made by the Employer to the Trust pursuant to Section 4.02.

2.43“Qualified Default Investment Alternative” shall mean an investment alternative available to Participants and Beneficiaries that satisfies the requirements of ERISA Section 404(c)(5) and the regulations thereunder and shall be subject to the following rules:

(a)No Employer Securities.  The Qualified Default Investment Alternative does not hold or permit the acquisition of Employer securities, except as permitted by Department of Labor Regulation Section 2550.404c-5(e)(1)(ii);

(b)Transfer Permitted.  The Qualified Default Investment Alternative permits a Participant or Beneficiary to transfer, in whole or in part, his or her investment from the Qualified Default Investment Alternative to any other investment alternative available under the Plan, pursuant to the rules of Department of Labor Regulation Section 2550.404c-5(c)(5);

(c)Management.  The Qualified Default Investment Alternative is:

(1)Managed by:  (A) an investment manager, within the meaning of ERISA Section 3(38); (B) a Plan trustee that meets the requirements of ERISA Section 3(38)(A), (B) and (C); or (C) the Sponsor Employer who is a named fiduciary within the meaning of ERISA Section 402(a)(2);

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(2)An investment company registered under the Investment Company Act of 1940; or

(3)An investment product or fund described in Department of Labor Regulation Section 2550.404c–5(e)(4)(iv) or (v); and

(d)Types of Permitted Investments.  The Qualified Default Investment Alternative must be an investment product or fund described in Department of Labor Regulation Section 2550.404c–5(e)(4).

2.44“Qualified Domestic Relations Order” shall mean any judgment, decree or order (including approval of a property settlement agreement) which:

(i)relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of a Participant;

(ii)       is made pursuant to a state domestic relations law (including a community property law);

(iii)constitutes a “qualified domestic relations order” within the meaning of Code Section 414(p); and

(iv)is entered on or after January 1, 1985.

Effective April 6, 2007, a domestic relations order that otherwise satisfies the requirements for a qualified domestic relations order (QDRO) will not fail to be a QDRO: (i) solely because the order is issued after, or revises, another domestic relations order or QDRO; or (ii) solely because of the time at which the order is issued, including issuance after the annuity starting date or after the Participant’s death.

2.45“Qualified Early Retirement Age” shall mean the later of:

(i)Age 55; or

(ii)the date on which the Participant begins participation.

2.46“Qualified Joint and Survivor Annuity” shall mean an annuity for the life of the Participant, with a survivor annuity for the life of his or her spouse in an amount equal to 50% of the amount of the annuity payable during the joint lives of the Participant and his or her spouse, and which is the amount of benefit which can be purchased by the Participant’s Accrued Benefit.

2.47“Regular Account” shall mean the account established and maintained for each Participant for whom the Employer has allocated Regular Employer Contributions to the Trust, and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

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2.48“Regular Employer Contribution” shall mean a Regular Contribution made by the Employer to the Trust for years prior to 1995 pursuant to Section 4.01as in effect prior to 1995.

2.49“Rollover Account” shall mean the account established and maintained for each Participant who has made a Rollover Contribution to the Trust or whose accrued benefit from another qualified plan has been transferred to this Trust in accordance with Section 5.03 of the Plan, and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

2.50“Rollover Contribution” shall mean a contribution made to the Trust pursuant to Section 5.03.

2.51“Roth Elective Deferral” shall mean a Salary Reduction Contributionthat has been irrevocably designated as Roth Elective Deferral by the Participant in his or her Salary Reduction Agreement and that is includible in the Participant’s gross income for tax purposes at the time the deferral is made pursuant to Code Section 402A and any applicable guidance or regulations issued thereunder.  Roth Elective Deferrals may be treated as Catch-Up Contributions.  Roth Elective Deferrals shall be maintained in a separate account for each Participant who has directed the Employer to make a Roth Elective Deferral to the Trust.

2.52“Roth Elective Deferral Account” shall mean the separate account established and maintained for each Participant who has directed the Employer to make a Roth Elective Deferral to the Trust on his or her behalf to record the contribution and withdrawal of a Participant’s Roth Elective Deferrals and other adjustments as required by the Plan.  No contributions other than designated Roth Elective Deferrals and direct rollover contributions described in Code Section 402A(c)(3) may be allocated to a Roth Elective Deferral Account.

2.53“Salary Reduction Agreement” shall mean an agreement between the Employer and an Eligible Employee as set forth in Sections 3.01(b), 5.04 and 5.05 pursuant to which the Eligible Employee authorizes the Employer to withhold the specified whole percentage of his or her Compensation or the specified separate whole percentages of his or her salary and other Compensation for deposit to the Plan on behalf of such Eligible Employee.

2.54“Salary Reduction Contribution” shall mean the Pre-tax Elective Deferrals and or Roth Elective Deferrals  made by the Employer to the Truston behalf of an Eligible Employee pursuant to a Salary Reduction Agreement and in accordance with Section 5.04 and or an Automatic Contribution made by the Employer on behalf of an Eligible Participant pursuant to the Automatic Contribution Arrangement provisions of Section 5.05.

With respect to any Plan Year the total amount of a Participant’s Salary Reduction Contributions is the sum of all employer contributions made on behalf of such Participant pursuant to a deferral under any qualified cash or deferred arrangement as

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described in Code Section 401(k), any Simplified Employee Pension Plan with a cash or deferred arrangement as described in Code Section 408(k)(6), any SIMPLE IRA Plan described in Code Section 408(p), any plan as described under Code Section 501(c)(18), and any Employer contributions made on behalf of a Participant for the purchase of an annuity contract under Code Section 403(b) pursuant to a Salary Deferral Agreement.

Pre-tax Elective Deferrals or Roth Elective Deferrals shall not include any deferrals properly distributed as Excess Annual Additions.

2.55“Spouse” or “spouse” means the individual person to whom a Participant is legally married for Federal tax purposes on the applicable date required by the context or as otherwise provided for in the Plan; provided, however, that from June 26, 2013 through September 15, 2013, any reference to those terms means the individual, if any, to whom the Participant is married in a marriage that is recognized under the laws of the state of the Participant’s residence on that date.

2.56“Suspense Account” shall mean the account established by the Trustee for maintaining contributions and forfeitures which have not yet been allocated to Participants.

2.57“Tax Deductible Contribution Account” shall mean the account established and maintained for each Participant who has made a Tax Deductible Voluntary Contribution to the Trust, and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

2.58“Tax Deductible Voluntary Contribution” shall mean a contribution made to the Trust for years before 1987 and pursuant to Section 5.02 as in effect prior to 1995.

2.59“Top Heavy Plan” shall mean for any Plan Year that any of the following conditions exists:

(i)If the top heavy ratio (as defined in Article VI) for this Plan exceeds 60 percent and this Plan is not part of any required aggregation group or permissive aggregation group of plans.

(ii)If this Plan is a part of a required aggregation group of plans (but not part of a permissive aggregation group) and the top heavy ratio for the group of plans exceeds 60 percent.

(iii)      If this Plan is a part of a required aggregation group and part of a permissive aggregation group of plans and the top heavy ratio for the permissive aggregation group exceeds 60 percent.

See Article VI for requirements and additional definitions applicable to Top Heavy Plans.

The Match Contribution provided for in Section 4.02 may also be used to satisfy the minimum contribution requirement for a Top-Heavy Plan, provided no other

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contribution is made to the Plan for that Plan Year.  Further, notwithstanding anything in the Plan to the contrary, in any Plan Year in which Employer contributions to the Plan consist solelyof the Match Contribution provided for in Section 4.02, then such Plan will not be treated as a Top Heavy Plan and will be exempt from the top heavy requirements of Code Section 416.  Furthermore, if the Plan (but for the prior sentence) would be treated as a Top Heavy Plan because the Plan is a member of an aggregation group which is a top heavy group, then the contributions under the Plan may be taken into account in determining whether any other plan in the aggregation group meets the top heavy requirements of Code Section 416.

2.60“Top Heavy Plan Year” shall mean that, for a particular Plan Year, the Plan is a Top Heavy Plan.

2.61“Totally and Permanently Disabled” shall mean the inability of a Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

In determining the nature, extent and duration of any Participant’s disability, the Plan Administrator may select a physician to examine the Participant.  The final determination of the nature, extent and duration of such disability shall be made solely by the Plan Administrator upon the basis of such evidence as he or she deems necessary and acting in accordance with uniform principles consistently applied.

2.62“Trustee” shall mean the bank or trust company or person or persons who shall be constituted the original trustee or trustees for the Plan and Trust created therefor, and also any and each successor trustee or trustees.

2.63“Trust Fund” shall mean, include and consist of any payments made to the Trustee by the Employer under the Plan and Trust Indenture, or the investments thereof, together with all income and gains of every nature thereon which shall be added to the principal thereof by the Trustee, less all losses thereon and all payments therefrom.

2.64“Trust Indenture” or “Trust” shall mean the Trust Indenture between the Employer and the Trustee in the form annexed hereto, and any and all amendments thereof or thereto.

2.65“USERRA” shall mean the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended.  Notwithstanding any provision of the Plan to the contrary, contributions, benefits, Plan loan repayment, suspensions and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u).

2.66“Valuation Date” shall mean each day as of which the value of the Trust Fund shall be calculated.  The Plan Administrator reserves the right to change the frequency of Valuation Dates; provided, however, that in no event shall Valuation Dates occur less frequently than once each calendar quarter.

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2.67“Voluntary After-Tax Contributions” shall mean a contribution made to the Trust for years prior to 1995 pursuant to Section 5.01 as in effect prior to 1995.

2.68“Voluntary Contribution Account” shall mean the account established and maintained for each Participant who has made a Voluntary After-Tax Contribution to the Trust, and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

2.69“Year of Service” shall mean, for purposes of determining vesting under Article XIII, the twelve consecutive month period, commencing on the first day an Employee completes an Hour of Service and in which the Employee completes at least 1,000 Hours of Service.  Thereafter, for purposes of determining vesting under Article XIII, the determination of a Year of Service will commence on the anniversary of the first day the Employee completed an Hour of Service and the twelve consecutive month period that follows, provided the Employee completes at least 1,000 Hours of Service during such period.

In computing a “Year of Service” for purposes of the Plan, each twelve-month period shall be considered as completed as of the close of business on the last working day, which occurs within such period, provided that the Employee had completed at least 1,000 Hours of Service during the period ending on such date.

Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service shall be provided in accordance with CodeSection 414(u).

ARTICLE III

ELIGIBILITY AND PARTICIPATION

3.01(a)In General.  Employees who are employed by the Employer on January1,2015 and who were eligible to participate in this Plan on December31, 2014 shall be Participants in this Plan on January 1, 2015.

An Employee shall be eligible to participate in this Plan upon completion of one Hour of Service, provided the Employee is then employed in an eligible class of Employees.

An Employee shall be eligible to receive Match Contributions upon completion of one Hour of Service, provided the Employee is then employed in an eligible class of Employees.

Notwithstanding the foregoing, the following Employees shall not be eligible to become or remain active Participants hereunder:

(i)All Employees holding a General Agent’s Contract with the Employer or with an Affiliate;

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(ii)All Employees holding a Career Agent’s or Annuity Specialist’s Contract with the Employer or with an Affiliate;

(iii)Leased Employees within the meaning of Code Sections 414(n) and (o);

(iv)A contractor’s employee, i.e., a person working for a company providing goods or services (including temporary employee services) to the Employer or to an Affiliate whom the Employer does not regard to be its common law employee, as evidenced by its failure to withhold taxes from his or her compensation, even if the individual is actually the Employer’s common law Employee; or

(v)An independent contractor, i.e., a person who is classified by the Employer as an independent contractor, as evidenced by its failure to withhold taxes from his or her compensation, even if the individual is actually the Employer’s common law Employee.

Special rules for certain persons who were employed by One Beacon Insurance Group, LTD. or any business entity affiliated with One Beacon Insurance Group, LTD. immediately before being employed by the Employer are stated in Appendix A attached hereto.

Special rules for certain persons who were employed by (i) Campania Holding Company, Inc. or its direct or indirect subsidiaries; (ii) Benchmark Professional Insurance Services, Inc. or its direct or indirect subsidiaries; or (iii) Insurance Company of the West or its direct or indirect subsidiaries, immediately before being employed by the Employer are stated in Appendix B attached hereto.

Special rules for certain persons who were employed by (i) Professionals Direct, Inc. or its direct or indirect subsidiaries; (ii) Verlan Holdings, Inc. or its direct or indirect subsidiaries; or (iii) AIX Holdings, Inc. or its direct or indirect subsidiaries, immediately before being employed by the Employer are stated in Appendix C attached hereto.

(b)Employee Participation.  On or after the date an Employee first becomes eligible to participate in the Plan, the Employee may direct the Employer to reduce his or her Compensation in order that the Employer may make Salary Reduction Contributionsto the Plan, including Catch-up Contributions, on the Employee’s behalf in accordance with Section 5.04; provided that any Eligible Participant shall be subject to the automatic enrollment and contribution provisions of Section 5.05. 

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3.02Classification Changes.  In the event of a change in job classification, such that an Employee, although still in the employment of the Employer, no longer is an Eligible Employee, all contributions to be allocated on his or her behalf shall cease and any amount credited to the Employee’s Accounts on the date the Employee shall become ineligible shall continue to vest, become payable or be forfeited, as the case may be, in the same manner and to the same extent as if the Employee had remained a Participant.

If a Participant’s Salary Reduction Agreement is terminated because he or she is no longer a member of an eligible class of Employees, but the Participant has not terminated his or her employment, such Employee shall again be eligible to enter into a new Salary Reduction Agreement immediately upon his or her return to an eligible class of Employees.  If such Participant terminates his or her employment with the Employer, he or she shall again be eligible to enter into a Salary Reduction Agreement immediately upon his or her recommencement of service as an Eligible Employee.

In the event an Employee who is not a member of the eligible class of Employees becomes a member of the eligible class, such Employee shall be eligible to participate immediately.

3.03   Participant Cooperation.  Each eligible Employee who becomes a Participant hereunder thereby agrees to be bound by all of the terms and conditions of this Plan and Trust.

ARTICLEIV

EMPLOYER CONTRIBUTIONS AND FORFEITURES

4.01     Salary Reduction Contributions.  The Employer shall make Salary Reduction Contributions to the Plan and Trust, including Catch-up Contributions described in Code Section 414(v), to the extent and in the manner specified in Sections 3.01(b), 5.04, and 5.05.

Salary Reduction Contributions, including Catch-up Contributions described in Code Section 414(v), shall be allocated, as applicable, to a Participant’s 401(k) Account and or Roth Elective Deferral Account as soon as administratively feasible after being withheld from the Participant’s Compensation at the earliest date on which such contributions can reasonably be segregated from the Employer’s general assets but  no later than the 15th business day of the month following the month in which the Salary Reduction Contributions would have otherwise been payable to the Participant.

4.02     Match Contributions.

(a)For each pay period during a Plan Year that a Salary Reduction Contribution is made to the Plan on behalf of a Participant, the Employer shall make a Match Contribution to the Plan on behalf of the Participant equal to 100% of such Salary Reduction Contributions that do not exceed 6% of the Participant’s Compensation for such pay period;  provided that no such Match Contribution

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shall be made with respect to any part or all of any such Salary Reduction Contribution that, when added to other such Salary Reduction Contributions made to the Plan on behalf of the Participant during the Plan Year, would cause the applicable dollar amount under Code Section 402(g)(1)(B) to be exceeded for such Plan Year unless the Salary Reduction Contribution may be treated as a Catch-up Contribution that does not exceed the limitation under Code Section 402(g)(1)(C).  All such Match Contributions shall be made to the Match Contribution Account established for the Participant as soon after each such pay period as practicable.

The Employer shall contribute Match Contributions to the Trust Fund as soon as practicable following the end of each pay period.  Such Match Contributions shall be made in cash and shall be allocated to the Match Contribution Account of each Participant.  Such Match Contributions shall be invested per the directions of Participants in accordance with the provisions of Article XVI.

Within 30 days following the end of each Plan Year, if required, the Employer shall make a “true-up” Match Contribution to the Match Contribution Account of each Participant employed by the Employer during the Plan Year, such that the total amount of Match Contributions for each Participant for the Plan Year shall be equal to 100% of the Participant’s Salary Reduction Contributions that do not exceed 6% of the Participant’s Compensation for such Plan Year (and not merely 100% of the Participant’s Salary Reduction Contributions that do not exceed 6% of the Participant’s Compensation for each pay period during the Plan Year); provided that no such Match Contribution shall be made with respect to any part or all of any such Salary Reduction Contributions that would cause the applicable dollar amount under Code Section 402(g)(1)(B) to be exceeded for such Plan Year unless the Salary Reduction Contribution can be treated as a Catch-up Contribution that does not exceed the limitation under Code Section 402(g)(1)(C).

(b)The Match Contributions made pursuant to Section 4.02(a) shall be subject to the withdrawal restrictions set forth in Code Section 401(k)(2)(B) and Treasury Regulation Section 1.401(k)-1(d).  Pursuant to such restrictions, such contributions (and earnings thereon) shall not be distributable earlier than severance from employment, death, disability, an event described in Code Section 401(k)(10), or the attainment of age 59½ and shall not be eligible for distribution for reasons of “financial hardship”.

4.03     Non-Elective Employer Contributions.

(a)The Board of Directors of the Employer may, in its discretion, determine to make a Non-Elective Employer Contribution to the Plan on behalf of the Employer for each Eligible Employee who is employed by the Employer on the last day of such Plan Year in an amount equal to a uniform percentage of each such Employee’s Compensation.  Any such contribution shall be made in

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cash to the Non-Elective Employer Contribution Account established for each such Eligible Employee. 

The contribution shall be made in cash.  Such contribution shall be made to the Non-Elective Employer Contribution Account to be established for each such Employee and shall be invested per the direction of the Participant in accordance within accordance with the provisions of Article XVI.

(b)Notwithstanding any other provision in the Plan to the contrary and subject to compliance with applicable Code discrimination laws, rules and regulations, each Participant who was an Employee on December 31, 2014, has been continuously employed from December 31, 2014 through March 2, 2015 and who earned Compensation during the Plan Year ended December 31, 2014, shall receive an Employer paid contribution of $500.00, whether or not such Employee has elected to make Salary Reduction Contributions to the Plan during such continuous period of employment.  This Employer contribution shall be made in cash to the Non-Elective Employer Contribution Account established for any such eligible Participant on or as soon after March 2, 2015 as is practicable and shall be invested per the direction of the Participant in accordance with the provisions of Article XVI.

4.04     Minimum Employer Contribution for Top Heavy Plan Years.

(a)Minimum Allocation for Non-Key Employees.  Notwithstanding anything in the Plan to the contrary except (b) through (e) below, for any Top Heavy Plan Year Employer Contributions allocated to the Accounts of each Non-Key Employee Participant shall be equal to at least three percent of such Non-Key Employee’s Compensation (as defined for purposes of Article VII as limited by Code Section 401(a)(17)) for the Plan Year.  However, should the Employer Contributions allocated to the Accounts of each Key Employee for such Top Heavy Plan Year be less than three percent of each Key Employee’s Compensation, the Employer Contribution allocated to the Accounts of each Non-Key Employee shall be equal to the largest percentage allocated to Accounts of a Key Employee.  The preceding sentence shall not apply if this Plan is required to be included in an aggregation group (as described in Code Section 416) if such plan enables a defined benefit plan required to be included in such group to meet the requirements of Code Section 401(a)(4) or 410.  For purposes of determining the percentage of Employer Contributions allocated to the Accounts of Key Employees, Salary Reduction Contributionsmade on their behalf shall be counted and be considered to be Employer Contributions.  However, in determining whether a minimum Employer Contribution has been made to a Non-Key Employee’s Accounts, Salary Reduction Contributions made on his or her behalf shall be excluded and not considered.

(b)For purposes of the minimum allocations set forth above, the percentage allocated to the Accounts of any Key Employee shall be equal to the ratio of the sum of the Employer Contributions allocated on behalf of such Key

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Employee divided by the Employee’s Compensation for the Plan Year (as defined for purposes of Article VII), not in excess of the applicable compensation dollar limitation imposed by Code Section 401(a)(17).

(c)For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Accounts of all Non-Key Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Non-Key Employee Participants who have failed to complete a Year of Service.

(d)Notwithstanding anything herein to the contrary, in any Plan Year in which a Non-Key Employee is a Participant in both this Plan and a defined benefit pension plan included in a Required or Permissive Group of Top Heavy Plans, the Employer shall not be required to provide a Non-Key Employee with both the full separate minimum defined benefit plan benefit and the full separate minimum defined Contribution plan allocation described in this Section.  Therefore, if the Employer maintains such a defined benefit and defined contribution plan, the top-heavy minimum benefits shall be provided as follows:

(i)If a Non-Key Employee is a participant in such defined benefit plan but is not a Participant in this defined contribution plan, the minimum benefits provided for Non-Key Employees in the defined benefit plan shall be provided to the Employee if the defined benefit plan is a Top Heavy Plan and the minimum contributions described in this Section 4.04 shall not be provided.

(ii)If a Non-Key Employee is a participant in such defined benefit plan and is also a Participant in this defined contribution plan, the minimum benefits for Non-Key Employee participants in Top Heavy Plans provided in the defined benefit plan shall not be applicable to any such Non-Key Employee who receives contributions and forfeitures equal to 5% of his or her compensation in this Plan.

Notwithstanding anything herein to the contrary, no minimum contribution will be required under this Plan (or the minimum contribution under this Plan will be reduced, as the case may be) for any Plan Year if the Employer maintains another qualified defined contribution plan under which a minimum contribution is being made for such year for the Participant in accordance with CodeSection 416.  

(e)The minimum allocation required under this Section 4.04 (to the extent required to be nonforfeitable under Code Section 416(b)) may not be forfeited under Code Sections 411(a)(3)(B) or 411(a)(3)(D).

4.05     Contributions under USERRA.  For Plan Years beginning on and after January 1, 2008, the Employer shall also make Match Contributions, Top-Heavy minimum

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contributions and any other Employer contribution for the benefit of Participants who are covered by USERRA.  Match Contributions under USERRA shall be made in the Plan Year for which the Participant exercises his or her right to make-up elective deferrals contributions (Salary Reduction Contributions) for prior years.  Top-Heavy minimum contributions and other Employer contributions for USERRA protected service shall be made during the Plan Year in which the individual returns to employment with the Employer.  Employer contributions required under USERRA are not increased or decreased with respect to Plan investment earnings for the period to which such contributions relate.  The Employer’s contribution for any Plan Year shall be subject to the limitations on allocations contained in Article VII.

4.06     Application of Forfeitures.  Amounts forfeited during a Plan Year shall be used to reduce Match Contributions for that Plan Year and each succeeding Plan Year, if necessary.

4.07     Limitations upon Employer Contributions.  In no event shall the Employer contribution for any Plan Year exceed the maximum allowable under Code Sections 404 and 415 or any similar or subsequent provision.

4.08Payment of Contributions to Trustee.  The Employer shall make payment of all contributions, including Participant contributions, which shall be remitted to the Employer by payroll deduction or otherwise, directly to the Trustee in accordance with this Article IV but subject to Section 4.09.

4.09Receipt of Contributions by Trustee.  The Trustee shall accept and hold under the Trust such contributions of money, or other property approved by the Employer for acceptance by the Trustee, on behalf of the Employer and Participants as it may receive from time to time from the Employer.  All such contributions shall be accompanied by written instructions from the Employer accounting for the manner in which they are to be credited and specifying the appropriate Participant Account to which they are to be allocated.

ARTICLE V

EMPLOYEE CONTRIBUTIONS AND ROLLOVER CONTRIBUTIONS

5.01Voluntary After-Tax Contributions.  For Plan Years beginning prior to January1,1995, a Participant could contribute Voluntary After-Tax Contributions to the Plan and Trust in each Plan Year during which he or she was a Plan Participant in amounts as determined under the Plan in effect prior to 1995.

The Plan shall separately account for: (i) pre-1987 Voluntary After-Tax Contributions; (ii) investment income attributable to pre-1987 Voluntary After-Tax Contributions; and (iii) post-1986 Voluntary After-Tax Contributions and income attributable to such contributions.

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5.02Tax Deductible Voluntary Contributions.  The Plan Administrator will not accept Tax Deductible Voluntary Contributions made for years after 1986.  Such contributions made for years prior to that date will be maintained in a separate account which will be nonforfeitable at all times, and which shall include gains and losses in accordance with Section 8.02.

5.03Rollover Contributions.  With the consent of the Plan Administrator, the Trustee may accept funds transferred from other pension, profit sharing or stock bonus plans qualified under Section 401(a) of the Internal Revenue Code or Rollover Contributions, provided that the plan from which such funds are transferred permits the transfer to be made.

In the event of a transfer or Rollover Contribution to this Plan, the Plan Administrator shall maintain a 100% vested and nonforfeitable account for the amount transferred and its share of the Trust Fund’s accretions or losses, to be known as the Participant’s Rollover Account.  Transferred and Rollover Contributions shall be separately accounted for.

“Rollover Contribution” means any rollover contribution described in Code Sections 402(c)(4), 403(a)(4), 403(b)(8), 408(d)(3) or 457(e)(16).

An Employee who makes a contribution to the Plan described in this Section shall become a Plan Participant on the date the Trustee accepts the contribution.  However, no Employer Contributions will be made on behalf of such Employee, nor will the Employee be eligible to direct the Employer to make Salary Reduction Contributions on his or her behalf, until the Employee satisfies the Plan eligibility requirements for such contributions set forth in Article III.

The Trustee shall not accept funds transferred from plans qualified under Code Section 401(a) unless the transferor plan is maintained by the Employer or by an Affiliate.   Notwithstanding the foregoing the Trustee shall not accept funds transferred from any such plan, which would otherwise provide for a life annuity form of payment to the Participant. 

The Plan shall accept a direct rollover from another Roth Elective Deferral Account under a retirement plan as described in Code Section 402A(e)(1) in accordance with such uniform administrative procedures as the Plan Administrator shall establish.Notwithstanding the foregoing sentence, an in-plan Roth rollover shall not be permitted under this Plan.  Any rollover of “designated Roth contributions”, as defined in Subsection 6.01(e), shall be subject to the requirements of Code Section 402(c). To the extent the Plan accepts Rollover Contributions of designated Roth contributions, the Plan will separately account for such contributions, including separate accounting for the portion of the Rollover Contribution that is includible in gross income and the portion that is not includible in gross income, if applicable.  If the Plan accepts a direct rollover of designated Roth contributions, the Trustee and the Plan Administrator shall be entitled to rely on a statement from the distributing plan’s administrator identifying (i) the Eligible Employee’s basis in the rolled over amounts and (ii) the date on which

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the Eligible Employee’s 5-taxable-year period of participation (as required under Code Section 402A(d)(2) for a qualified distribution of designated Roth contributions) started under the distributing plan.  If the 5-taxable-year period of participation under the distributing plan would end sooner than the Eligible Employee’s 5-taxable-year period of participation under the Plan, the 5-taxable-year period of participation applicable under the distributing plan shall continue to apply with respect to the Rollover Contribution.

5.04Salary Reduction Contributions.

(a)An Eligible Employee or Eligible Participant may enter into a Salary Reduction Agreement with the Employer authorizing the Employer to withhold a portion of his or her Compensation in order to make Salary Reduction Contributions to the Plan, including Catch-up Contributions.  The Salary Reduction Agreement shall be in such form as the Plan Administrator shall approve (including, if applicable by such means as telephonic communication or electronic media).  Each Eligible Employee or Eligible Participant who enters into a Salary Reduction Agreement shall specify a whole percentage of his or her Compensation or separate whole percentages of his or her salary and other Compensationto be withheld by the Employer and deposited to the Plan on his or her behalf.  Each Salary Reduction Agreement shall become effective as soon after the Eligible Employee or Eligible Participant has entered into the Salary Reduction Agreement as is administratively feasible.  Except for occasional, bona fide administrative considerations, Salary Reduction Contributions made pursuant to a Salary Reduction Agreement cannot precede the earlier of (1) the performance of services relating to the contribution and (2) when the Compensation that is subject to the election would be currently available to the Participant in the absence of an election to defer.

Any such Salary Reduction Contribution shall be credited to the Participant’s 401(k) Account or Roth Elective Deferral account, whichever is applicable. A Participant may terminate deferrals at any time.  A Participant may elect at any time to change or discontinue his or her Salary Reduction Agreement upon notice in accordance with uniform and nondiscriminatory procedures as the Plan Administrator shall adopt and communicate to the Participants.  Any such election will be effective as soon as practicable following the receipt of the notification by the Plan Administrator or its delegate in accordance with uniform and nondiscriminatory procedures established and communicated to the Participants.  The Plan Administrator may amend or terminate said agreement on notice to the affected Participant, if required to maintain the qualified status of the Plan.

(b)Make-up Elective Deferrals under USERRA.  A  Participant who has the right to make-up elective deferrals (Salary Reduction Contributions) under USERRA shall be permitted to increase his or her elective deferral with respect to a make-up year without regard to any provision limiting contributions for such Plan Year.  Make-up contributions shall be limited to the maximum

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amount permitted under the Plan and the statutory limitations applicable with respect to the make-up year.  Employee-related make-up contributions must be made within the time period beginning on the date of reemployment and continuing for the lesser of five (5) years or three (3) times the period of military service.

5.05Qualified Automatic Contribution Arrangement (“QACA”).

(a)Effective Date of the QACA.  Effective for Plan Years beginning on or after January 1, 2009, the provisions of this Section 5.05 shall apply to each Participant subject to the QACA and the Employer will provide theMatch Contribution specified in Section 4.02.  This Section 5.05 supersedes any State (or Commonwealth) law that would directly or indirectly prohibit or restrict the inclusion of an automatic contribution arrangement in the Plan, pursuant to ERISA Section 514(e)(1) and Department of Labor Regulation Section 2550.404c–5(f).

(b)Participants Subject to the QACA.  The following Eligible Employees shall be Eligible Participants subject to the Automatic Contribution Arrangement:

(i)Each Employee who becomes eligible to participate in the Plan on and after January 1, 2009 and is eligible to make a Salary Reduction Contribution.

(ii)Each Employee who became eligible to participate in the Plan prior to January 1, 2009 and who is eligible to participate in the Plan on January 1, 2009, except any such Participant who had in effect a Salary Reduction Agreement on such date (regardless of the amount of the Salary Reduction Contribution affirmatively elected under the agreement).

(c)Automatic Contribution Arrangement.

(i)Automatic Contributions.  Except as provided in Section 5.05(d), an Eligible Participant will be treated as having elected to direct the Employer to reduce his or her Compensation in order that the Employer may make Pre-tax Elective Deferrals to the Plan equal to the following uniform percentages of Compensation:

A.Initial Period.  An Eligible Participant will be treated as having elected to have the Employer make Pre-tax Elective Deferrals to the Plan in an amount equal to 3% of his or her Compensation during the initial period.  For this purpose, the initial period begins when the Employee is first subject to the Automatic Contributions default election under this Section 5.05(c)(i) and ends on the last day of the following Plan Year.

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B.Subsequent Plan Years.  For the three Plan Years immediately following the initial period, an Eligible Participant will be treated as having elected to have the Employer make Pre-tax Elective Deferrals to the Plan in the amounts equal to 4%, 5% and 6% respectively, of his or her Compensation.  For all Plan Years thereafter, an Eligible Participant will be treated as having elected to have the Employer make Pre-tax Elective Deferrals to the Plan in the amounts equal to 6% of his or her Compensation.

C.Treatment of Rehires.  The default percentages of Compensation stated above for the purposes of the Automatic Contributions are based on the date the initial period begins, regardless of whether the Employee continues to be eligible to make Pre-tax Elective Deferrals under the Plan after that date. Thus, the applicable percentage is generally determined based on the number of years since an Automatic Contribution was first made on behalf of an Eligible Participant.  However, if Automatic Contributions are not made on behalf of an Eligible Participant for an entire Plan Year (e.g., due to termination of employment), such Eligible Participant shall be treated as having a new initial period for determining the default percentage of Compensation stated above (if Automatic Contributions are to recommence with respect to the Eligible Participant), regardless of what minimum percentage would otherwise apply to that Eligible Participant.

(ii)Effective Date of Automatic Contributions.  The effective date of the first Automatic Contribution provided for in paragraph (i) above, will be as soon after an Eligible Participant becomes subject to the QACA as is practicable, consistent with (a) applicable law, and (b) the objective of affording the Eligible Participant a reasonable period of time after receipt of the notice to make an Affirmative Election (and, an investment election).  However, in no event will the Automatic Contribution be effective later than the earlier of (a) the pay date for the second payroll period that begins after the date the QACA safe harbor notice (described in Section 5.05(e)) is provided to the Eligible Participant, or (b) the first pay date that occurs at least 30 days after the QACA safe harbor notice is provided to the Eligible Participant.

(d)Rules Related to Automatic Contributions.

(i)Affirmative Election to Override Automatic Contributions.  An Eligible Participant will have a reasonable period of time after receipt of the notice to make an Affirmative Election (and, an investment election).  The Automatic Contributions provided for in Section 5.05(c) shall cease with respect to an Eligible Participant as soon as administratively feasible after the Eligible Participant makes an Affirmative Election.  An Eligible Participant’s Affirmative Election will not expire, but will

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remain in force until changed by the Eligible Participant.  An Eligible Participant need not execute a subsequent or new Affirmative Election in order to have the prior or old Affirmative Election apply to override the Automatic Contributions provided for in Section 5.05(c) in any subsequent Plan Year.  Any subsequent change to an Eligible Participant’s Affirmative Election will be made in accordance with Section 5.04 relating to a Participant’s right to elect at any time to change or discontinue his or her Salary Reduction Agreement.

(ii)Applying Statutory Limits to Automatic Contributions. The Automatic Contributions provided for in Section 5.05(c) shall be limited each Plan Year so as not to exceed the limits of Code Sections 401(a)(17), 402(g)(1), or 415.

(iii)No Automatic Contributions during Hardship Suspension.  No Automatic Contributions provided in Section 5.05(c) shall apply during the six-month period of suspension, under Section 11.02, of a Participant’s right to make Salary Reduction Contributions to the Plan following a distribution for “financial hardship”.

(e)Default Investment.  If an Eligible Participant does not direct the investment of the assets in his or her Account, including the Automatic Contributions and Match Contributions related thereto, then such assets will be invested in a Qualified Default Investment Alternative as provided for in Section 16.03.

(f)Notice Requirements for QACA Safe Harbor.  The notice requirement is satisfied if each Eligible Participant is given an annual notice of the his or her rights and obligations under the Plan and the notice provided satisfies the content requirement and the timing requirement as follows:

(i)The notice shall be sufficiently accurate and comprehensive to inform the Eligible Participant of the Eligible Participant’s rights and obligations under the Plan and written in a manner calculated to be understood by the average Eligible Participant. The notice shall accurately describe:  (1) the Match Contribution formula stated in Section 4.02; (2) any other contributions under the Plan and the conditions under which such contributions are made; (3) the type and amount of Compensation that may be deferred under the Plan; (4) how to make cash or deferred elections, including any administrative requirements that apply to such elections; (5) the periods available under the Plan for making cash or deferred elections; (6) withdrawal and vesting provisions applicable to contributions under the Plan; and (7) information that makes it easy to obtain additional information about the Plan; provided that the notice requirement with respect to the information described in items (2), (3), and (4) may be satisfied by cross-reference to the applicable sections  of the Plan’s summary plan description.  In addition, the notice shall accurately describe:  (1) the

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Automatic Contributions that will be made on behalf of the Eligible Participant in the absence of an Affirmative Election; (2) the Eligible Participant’s right to elect not to have the Automatic Contributions made on his or her behalf (or to elect to have Salary Reduction Contributionsmade in a percentage of Compensation different than that which is provided for in Section 5.05(c), at the percentage of Compensation specified in his or her Salary Reduction Agreement); and (3) how contributions made under the Automatic Contribution Arrangement will be invested in the absence of any investment election by the Eligible Participant.  After receipt of the notice described in this paragraph, any Eligible Participant to whom the Automatic Contribution Arrangement relates must have a reasonable period of time before the first Automatic Contribution is made to exercise the rights set forth within the notice including, but not limited to, executing an Affirmative Election to override the Automatic Contributions provided for in Section 5.05(c).

(ii)If the notice is provided to Eligible Participants within a reasonable period before the beginning of each Plan Year (or in the Plan Year an Employee becomes eligible, within a reasonable period before the Employee becomes eligible), the Plan shall satisfy the notice requirements.  Notwithstanding the foregoing general rule, a notice shall be deemed to have been provided in timely manner if the notice is provided to each Employee who is eligible to participate in the Plan for the Plan Year at least thirty (30) days but no more than ninety (90) days before the beginning of the Plan Year.  If an Employee does not receive the notice because he or she only becomes eligible to participate in the Plan after the ninetieth day before the beginning of the Plan Year, the requirement to give the notice will be satisfied if the notice is provided not more than ninety (90) days before the Employee becomes eligible to participate in the Plan, but in no event later than the date the Employee becomes eligible to participate in the Plan.

(iii)Each Eligible Participant may make or modify a deferral election during the thirty (30) day period immediately following receipt of the notice described above, as provided for in Section 5.04.

(iv)The Plan may provide the notice in writing or by electronic means.  If provided electronically, the notice must be no less understandable than a written paper document and at the time of delivery of the electronic notice, the Employee is advised that he or she may request to receive the notice in writing at no additional charge.

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ARTICLE VI

PROVISIONS APPLICABLE TO TOP HEAVY PLANS

6.01In General.  For any Top Heavy Plan Year, the Plan shall provide the minimum contribution for Non-Key Employees described in Section 4.04.

If the Plan is or becomes a Top Heavy Plan, the provisions of this Article will supersede any conflicting provisions in the Plan.

6.02Determination of Top Heavy Status.

(a)This Plan shall be a Top Heavy Plan for any Plan Year if any of the following conditions exists:

(i)If the top heavy ratio for this Plan exceeds 60 percent and this Plan is not part of any required aggregation group or permissive aggregation group of plans.

(ii)If this Plan is a part of a required aggregation group of plans but not part of a permissive aggregation group and the top heavy ratio for the group of plans exceeds 60 percent.

(iii)If this Plan is a part of a required aggregation group and part of a permissive aggregation group of plans and the top heavy ratio for the permissive aggregation group exceeds 60 percent.

(b)The Plan top heavy ratio shall be determined as follows:

(i)Defined Contribution Plans Only: If the Employer maintains one or more defined contribution plans (including any Simplified Employee Pension Plan, as defined in Code Section 408(k)) and the Employer has not maintained any defined benefit plan which during the 5-year period ending on the determination date(s) has or has had accrued benefits, the top-heavy ratio for this Plan alone or for the required or permissive aggregation group, as appropriate, is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the determination date(s) (including any part of any account balance distributed in the 1-year period ending on the determination date(s) (5-year period ending on the determination date in the case of a distribution made for a reason other than severance from employment, death or disability), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the 1-year period ending on the determination date(s)) (5-year period ending on the determination date in the case of a distribution made for a reason other than severance from employment, death or disability), both computed in accordance with Code Section 416 and the

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regulations thereunder.  Both the numerator and denominator of the top-heavy ratio are increased to reflect any contribution not actually made as of the determination date, but which is required to be taken into account on that date under Code Section 416 and the regulations thereunder.

(ii)Defined Contribution and Defined Benefit Plans: If the Employer maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Employer maintains or has maintained one or more defined benefit plans which during the 5-year period ending on the determination date(s) has or has had any accrued benefits, the top-heavy ratio for any required or permissive aggregation group, as appropriate, is a fraction, the numerator of which is the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with (i) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the determination date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all Participants, determined in accordance with (i) above, and the present value of accrued benefits under the defined benefit plan or plans for all Participants as of the determination date(s), all determined in accordance with Code Section 416 and the regulations thereunder.  The accrued benefits under a defined benefit plan in both the numerator and denominator of the top-heavy ratio are increased for any distribution of an accrued benefit made in the 1-year period ending on the determination date(s) (5-year period ending on the determination date in the case of a distribution made for a reason other than severance from employment, death or disability).

(iii)Determination of Values of Account Balances and Accrued Benefits: For purposes of (i) and (ii) above the value of Account balances and the present value of Accrued Benefits will be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the determination date, except as provided in Code Section 416 and the regulations thereunder for the first and second plan years of a defined benefit plan.  The account balances and accrued benefits of a Participant (1) who is not a Key Employee but who was Key Employee in a prior year, or (2) who has not had at least one Hour of Service with the Employer at any time during the 1-year period ending on the determination date will be disregarded.  The calculation of the top-heavy ratio and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code Section 416 and the regulations thereunder.  Tax Deductible Voluntary Employee contributions will not be taken into account for purposes of computing the top-heavy ratio.  When aggregating plans the value of

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account balances and accrued benefits will be calculated with reference to the determination dates that fall within the same calendar year.

The Accrued Benefit of a Participant other than a Key Employee shall be determined under (i) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer; or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code Section 411(b)(l)(C).

(c)Permissive aggregation group: The required aggregation group of plans plus any other plan or plans of the Employer which, when considered as a group with the required aggregation group, would continue to satisfy the requirements of Code Sections 401(a)(4) and 410.

(d)Required aggregation group: (i) Each qualified plan of the Employer in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the Plan has terminated), and (ii) any other qualified plan of the Employer which enables a plan described in (i) to meet the requirements ofCode Section 401(a)(4) or 410.

(e)Determination date: The last day of the preceding Plan Year.

(f)Present Value: Present value shall be based on the 1971 Group Annuity Table, unprojected for post-retirement mortality, with no assumption for pre-retirement withdrawal and interest at the rate of 5% per annum.

ARTICLE VII

LIMITATIONS ON ALLOCATIONS

(See Sections 7.12-7.16 for definitions applicable to this Article VII).

7.01If the Participant does not participate in, and has never participated in another qualified plan, a welfare benefit fund (as defined in Code Section 419(e)), an individual medical account (as defined in Code Section 415(l)(2)) or a simplified employee pension (as defined in Code Section 408(k)), maintained by the Employer, the amount of Annual Additions which may be credited to the Participant’s Accounts for any Limitation Year will not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan.  If the Employer contribution that would otherwise be contributed or allocated to the Participant’s Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount.

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7.02Prior to determining the Participant’s actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable estimation of the Participant’s annual Compensation for the Limitation Year, uniformly determined for all Participants similarly situated.

7.03As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant’s actual Compensation for the Limitation Year.

7.04Excess Annual Additions. Notwithstanding any provision of the Plan to the contrary, if the Annual Additions (within the meaning of Code Section 415) are exceeded for any Participant, then the Plan may only correct such excess in accordance with the Employee Plans Compliance Resolution System (EPCRS) as set forth in Revenue Procedure 2008-50 or any superseding guidance, including, but not limited to, the preamble of the Final Treasury Regulations under Code Section 415.

7.05(a)Aggregation and Disaggregation of Plans. Sections 7.06 through 7.11 apply if, in addition to this Plan, the Participant is covered under another qualified defined contribution plan, a welfare benefit fund, an individual medical account or a simplified employee pension maintained by the Employer during any Limitation Year. The term “Employer” for this purpose means the Employer that adopts this Plan and all members of a controlled group or an affiliated service group that includes the Employer (within the meaning of Code Sections 414(b), (c), (m) or (o)), except that for purposes of this Section, the determination shall be made by applying Code Section 415(h), and shall take into account tax-exempt organizations under Treasury Regulation Section 1.414(c)-5, as modified by Treasury Regulation Section 1.415(a)-1(f)(1). For purposes of this Section:

(i)A former Employer is a “predecessor employer” with respect to a Participant in a plan maintained by an Employer if the Employer maintains a plan under which the Participant had accrued a benefit while performing services for the former Employer, but only if that benefit is provided under the plan maintained by the Employer. For this purpose, the formerly affiliated plan rules in Treasury Regulation Section 1.415(f)-1(b)(2) apply as if the Employer and predecessor Employer constituted a single employer under the rules described in Treasury Regulation Section 1.415(a)-1(f)(1) and (2) immediately prior to the cessation of affiliation (and as if they constituted two, unrelated employers under the rules described in Treasury Regulation Section 1.415(a)-1(f)(1) and (2) immediately after the cessation of affiliation) and cessation of affiliation was the event that gives rise to the predecessor employer relationship, such as a transfer of benefits or plan sponsorship.

(ii)With respect to an Employer of a Participant, a former entity that antedates the Employer is a “predecessor employer” with respect to the

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Participant if, under the facts and circumstances, the employer constitutes a continuation of all or a portion of the trade or business of the former entity.

(b)Break-Up of an Affiliate Employer or an Affiliated Service Group. For purposes of aggregating plans for Code Section 415, a “formerly affiliated plan” of an employer is taken into account for purposes of applying the Code Section 415 limitations to the Employer, but the formerly affiliated plan is treated as if it had terminated immediately prior to the “cessation of affiliation.” For purposes of this paragraph, a “formerly affiliated plan” of an Employer is a plan that, immediately prior to the cessation of affiliation, was actually maintained by one or more of the entities that constitute the employer (as determined under the employer affiliation rules described in Treasury Regulation Section 1.415(a)-1(f)(1) and (2)), and immediately after the cessation of affiliation, is not actually maintained by any of the entities that constitute the employer (as determined under the employer affiliation rules described in Treasury Regulation Section 1.415(a)-1(f)(1) and (2)). For purposes of this paragraph, a “cessation of affiliation” means the event that causes an entity to no longer be aggregated with one or more other entities as a single employer under the employer affiliation rules described in Treasury Regulation Section 1.415(a)-1(f)(1) and (2) (such as the sale of a subsidiary outside a controlled group), or that causes a plan to not actually be maintained by any of the entities that constitute the employer under the employer affiliation rules of Treasury Regulation Section 1.415(a)-1(f)(1) and (2) (such as a transfer of plan sponsorship outside of a controlled group).

(c)Midyear Aggregation. Two or more defined contribution plans that are not required to be aggregated pursuant to Code Section 415(f) and the regulations thereunder as of the first day of a Limitation Year do not fail to satisfy the requirements of Code Section 415 with respect to a Participant for the Limitation Year merely because they are aggregated later in that Limitation Year, provided that no Annual Additions are credited to the Participant’s Account after the date on which the plans are required to be aggregated.

7.06The Annual Additions which may be credited to a Participant’s Accounts under this Plan for any such Limitation Year will not exceed the Maximum Permissible Amount reduced by the Annual Additions credited to a Participant’s Account under the other plans, welfare benefit funds, individual medical accounts and simplified employee pensions for the same Limitation Year.  If the Annual Additions with respect to the Participant under other defined contribution plans, welfare benefit funds, individual medical accounts and simplified employee pensions maintained by the Employer are less than the Maximum Permissible Amount and the Employer contribution that would otherwise be contributed or allocated to the Participant’s Accounts under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans and funds for the Limitation Year will equal the Maximum Permissible Amount.  If the Annual Additions with respect to the

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Participant under such other defined contribution plans, welfare benefit funds, individual medical accounts and simplified employee pensions in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant’s Accounts under this Plan for the Limitation Year.

7.07Prior to determining the Participant’s actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount in the manner described in Section 7.02.

7.08As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant’s actual Compensation for the Limitation Year.

7.09If, pursuant to Section 7.08, or as a result of the allocation of forfeitures, a Participant’s Annual Additions under this Plan and such other plans would result in an Excess Amount for a Limitation Year, the Excess Amount will be deemed to consist of the Annual Additions last allocated, except that Annual Additions attributable to a simplified employee pension will be deemed to have been allocated first, followed by Annual Additions to a welfare benefit fund or individual medical account, regardless of the actual allocation date.

7.10If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the Excess Amount attributed to this Plan will be the product of:

(i)      the total Excess Amount allocated as of such date, times

(ii)     the ratio of (A) the Annual Additions allocated to the Participant for the Limitation Year as of such date under this Plan to (B) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all the other qualified defined contribution plans.

7.11Any Excess Amount attributed to this Plan will be disposed of in the manner described in Section 7.04.

(Sections 7.12 - 7.16 are definitions used in this Article VII).

7.12Annual Additions.  The sum of the following amounts credited to a Participant’s Accounts for the Limitation Year except as otherwise provided below.

(i)Employer contributions (including Salary Reduction Contributions);

(ii)Employee contributions;

(iii)    forfeitures; and

(iv)     allocations under a simplified employee pension.

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Employee and Employer make-up contributions under USERRA received during the current Limitation Year shall be treated as Annual Additions with respect to the Limitation Year to which the make-up contributions are attributable.

For this purpose, any Excess Amount applied under Section7.11 in the Limitation Year to reduce Employer contributions will be considered Annual Additions for such Limitation Year.

Amounts allocated to an individual medical account, as defined in Code Section 415(l)(2), which is part of a defined benefit pension plan maintained by the Employer, are treated as Annual Additions to a defined contribution plan.  Also, amounts derived from contributions paid or accrued, which are attributable to post-retirement medical benefits allocated to the separate account of a Key Employee, as defined in Code Section 419(A)(d)(3), or under a welfare benefit fund, as defined in Code Section 419(e), maintained by the Employer, are treated as Annual Additions to a defined contribution plan.

Restorative Payments. Annual Additions shall not include restorative payments. A restorative payment is a payment made to restore losses to a Plan resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a fiduciary duty under ERISA or under other applicable federal or state law, where Participants who are similarly situated are treated similarly with respect to the payments. Generally, payments are restorative payments only if the payments are made in order to restore some or all of the Plan’s losses due to an action (or a failure to act) that creates a reasonable risk of liability for such a breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the Plan). This includes payments to a plan made pursuant to a Department of Labor order, the Department of Labor’s Voluntary Fiduciary Correction Program, or a court-approved settlement, to restore losses to a qualified defined contribution plan on account of the breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the Plan). Payments made to the Plan to make up for losses due merely to market fluctuations and other payments that are not made on account of a reasonable risk of liability for breach of a fiduciary duty under ERISA are not restorative payments and generally constitute contributions that are considered Annual Additions.

Other Amounts. Annual Additions shall not include: (1) The direct transfer of a benefit or employee contributions from a qualified plan to this Plan; (2) Rollover contributions (as described in Code Section 401(a)(31), 402(c)(1), 403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16)); (3) Repayments of loans made to a Participant from the Plan; (4) Catch-up Contributions; and (5) Repayments of amounts described in Code Section 411(a)(7)(B) (in accordance with Code Section 411(a)(7)(C)) and Code Section 411(a)(3)(D), as well as Employer restorations of benefits that are required pursuant to such repayments, as provided for in Section 13.11.

7.13Defined Contribution Dollar Limitation.  $53,000 (in 2015) asadjusted for increases in the cost of living in accordance with Code Section 415(d).

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7.14Employer.  For purposes of this Article, Employer shall mean the Employer that adopts this Plan and all members of a controlled group of corporations (as defined in Code Section 414(b) as modified by Section 415(h)), all trades or business under common control (as defined in Code Section 414(c) as modified by Code Section 415(h)), or all members of an affiliated service group (as defined in Code Section 414(m)) of which the Employer is a part, and any other entity required to be aggregated with the Employer pursuant to Code Section 414(o)and the regulations thereunder.

7.15Excess Amount.  The excess of the Participant’s Annual Additions for the Limitation Year over the Maximum Permissible Amount.

7.16Maximum Permissible Amount.  The maximum Annual Addition that may be contributed or allocated to a Participant’s Accounts under the Plan for any Limitation Year shall not exceed the lesser of:

(i)the Defined Contribution Dollar Limitation; or

(ii)100 percent of the Participant’s Compensation for the Limitation Year.

The Compensation limitation referred to in (ii) shall not apply to any contribution for medical benefits (within the meaning of Code Section 401(h) or 419A(f)(2)) which is otherwise treated as an Annual Addition under Code Section 415(c)(1) or 419A(d)(2).

If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12-consecutive month period, the maximum permissible amount will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction:

Number of months in the short Limitation Year

12

ARTICLE VIII

PARTICIPANT ACCOUNTS AND VALUATION OF ASSETS

8.01Participant Accounts.  The Plan Administrator or its agent shall establish a separate recordkeeping account for each Participant showing the fair market value of his or her Plan benefits.  Each Participant’s account may be separated for recordkeepingpurposes into the following sub-accounts: 401(k) Account, Roth Elective Deferral Account, Match Contribution Account, Non-Elective Employer Contribution Account, Regular Account, Rollover Account, Tax Deductible Contribution Account and Voluntary Contribution Account and such other accounts as the Plan Administrator shall deem appropriate for each Participant to account for the Participant’s Accrued Benefit.  All contributions by or on behalf of a Participant shall be deposited to the appropriate Account.

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The Plan Administrator shall instruct the Trustee to credit all appropriate amounts to each Participant’s Accounts.  The Plan Administrator shall keep records, which shall include the Account balances of each Participant.

8.02Valuation of Trust Fund.  As of each Valuation Date the Trustee shall determine (or cause to be determined) the net worth of the assets of the Trust Fund and report such value to the Plan Administrator in writing.  In determining such net worth, the Trustee shall evaluate the assets of the Trust Fund at their fair market value as of such Valuation Date.  In making any such valuation of the Trust Fund, the Trustee shall not include any contributions made by the Employer, which have not been allocated to Participant Accounts prior to such Valuation Date.

ARTICLE IX

401(k) ALLOCATION LIMITATIONS

9.01Average Actual Deferral Percentage Tests.  This Plan will be treated as meeting the actual deferral percentage test set forth in Code Section 401(k)(3)(A)(ii) in each Plan Year with respect to which the Qualified Automatic Contribution Arrangement provisions of this Plan remain in effect.

9.02Maximum Salary Reduction Contributions.  No Employee shall be permitted to have Salary Reduction Contributions made under this Plan, other than Catch-up Contributions, during any calendar year in excess of the applicable dollar amount under Code Section 402(g).

9.03Participant Excess Elective Deferral Claims.  Participants under other plans described in Code Sections 401(k), 408(k) or 403(b) may submit a claim to the Plan Administrator specifying the amount of their Excess Elective Deferral.  Such claim shall: (i) be in writing; (ii) be submitted no later than March 1 of the year after the Excess Elective Deferral was made; and (iii) state that such amount, when added to amounts deferred under other plans described in Code Sections 401(k), 408(k) or 403(b), exceeds the applicable dollar amount under Code Section 402(g)).

9.04Distribution of Excess Elective Deferrals.  Excess Elective Deferrals adjusted for allocable income (gain or loss), but NOT including any adjustment for income or loss for the period between the end of the Plan Year and the date of the distribution (the “gap period”) shall be distributed to the affected Participant no later than the April 15thdate following the calendar year in which such Excess Elective Deferrals were made.

The Plan Administrator may use any reasonable method for computing the income or loss allocable to Excess Elective Deferrals, provided that the method does not violate Code Section 401(a)(4), is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan in allocating income to Participant’s Accounts.  A Plan will not fail to use a reasonable method for computing the income or loss allocable to Excess Elective Deferrals merely because

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the income allocable to Excess Elective Deferrals determined on a date that is no more than seven (7) days before the distribution.

The Plan Administrator may adopt a uniform written administrative policy that permits a Participant (including a Highly Compensated Employee) who has made Salary Reduction Contributions for a year where such contributions include both pre-tax Elective Deferrals and Roth Elective Deferrals to elect whether the Excess Elective Deferrals, are to be attributed to Pre-tax Elective Deferrals or Roth Elective Deferrals or a combination of the two. In the event that no such administrative policy is adopted, Excess Elective Deferrals will be first attributed to Pre-tax Elective Deferrals, and if such pre-tax contributions are not in an amount sufficient to make full correction, will then be attributed to Roth Elective Deferrals.

No distribution of an Excess Elective Deferral shall be made unless the correcting distribution is made after the date on which the Plan received the Excess Elective Deferral and both the Participant and the Plan designates the distribution as a distribution of an Excess Elective Deferral.

Notwithstanding any provision of this Plan to the contrary, any Match Contributions plus earnings that are attributable to any Excess Elective Deferrals that have been refunded shall be forfeited.  All such forfeitures shall be treated as arising in the Plan Year after that in which the refunded Excess Elective Deferrals were made and shall be used to reduce future Employer Match Contributions.

9.05Operation in Accordance With Regulations.  The determination and treatment of Excess Elective Deferrals shall be made in accordance with such additional requirements as may be prescribed by the Secretary of the Treasury.

ARTICLE X

401(m) ALLOCATION LIMITATIONS

10.01Average Contribution Percentage Tests.  This Plan will be treated as meeting the actual contribution percentage test set forth in Code Section 401(m)(2) in each Plan Year with respect to which the Qualified Automatic Contribution Arrangement provisions of this Plan remain in effect.

ARTICLE XI

IN-SERVICE WITHDRAWALS

11.01Withdrawals from Tax Deductible Contribution or Voluntary Contribution Accounts.  A Participant shall have the right at any time to request the Plan Administrator for a withdrawal in cash of amounts in his or her Tax Deductible Contribution Account or Voluntary Contribution Account.

11.02Withdrawals from Match Contribution, 401(k) Account, Roth Elective Deferral Account, and Non-Elective Employer Contribution Accounts.  At any time after a

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Participant attains Age 59½ or is Totally and Permanently Disabled, a Participant shall have the right to request the Plan Administrator for a withdrawal in cash of amounts from the vested portion of his or her Match Contribution Account, 401(k) Account,  or Roth Elective Deferral Account.  A Participant who has attained age 59½ or is Totally and Permanently Disabled may also withdraw any part or all of the vested portion of his or her Non-Elective Employer Contribution Account. 

A Participant who is an Employee shall have the right at any time to request the Plan Administrator for a withdrawal in cash of his or her Salary Reduction Contributions and 401(k) Employer Contributions made by the Employer to the Plan on his or her behalf, with earnings accrued thereon as of December 31, 1988 for “financial hardship”.

The Plan Administrator shall determine whether an event constitutes a financial hardship as provided for in this Section.  Any such determination shall be based upon non-discriminatory rules and procedures, which shall be conclusive and binding upon all persons.The amount of a distribution based upon “financial hardship,” less any income and penalty taxes, shall not exceed the amount required to meet the immediate financial need created by the hardship and not reasonably available from other resources of the Employee.

In determining whether a hardship distribution is permissible the following special rules shall apply:

(i)The following are the only financial needs considered immediate and heavy:

A.Expenses incurred or necessary for medical care that would be deductible under Code Section 213(d) (determined without regard to whether the expenses exceed 7.5% of adjusted gross income) of the Employee, his or her spouse, children and other dependents;

B.The cost directly related to the purchase (excluding mortgage payments) of the principal residence of the Employee;

C.Payment of tuition and related educational expenses (including but not limited to expenses associated with room and board) for up to the next twelve (12) months of post-secondary education for the Employee, his or her spouse, children or other dependents as defined in Code Section 152, without regard to Code Sections 152(b)(1), (b)(2) and (d)(1)(B);

D.The need to prevent eviction of the Employee,  from, or a foreclosure on the mortgage of, the Employee’s principal residence;

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E.Payments for burial or funeral expenses for the Employee’sdeceased parent, spouse, child or dependent as defined in Code Section 152 without regard to Code Section 152(d)(1)(B); or

F.Expenses for the repair of damage to the Employee’sprincipal residence that would qualify for the casualty deduction under Code Section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income).

(ii)A distribution will be considered as necessary to satisfy an immediate and heavy financial need of the Employee only if:

A.The Employee has obtained all distributions, other than hardship distributions, and all nontaxable loans under all plans maintained by the Employer;

B.All plans maintained by the Employer provide that the Employee’s Salary Reduction Contributions (and any other Employee contributions) will be suspended for six months after the receipt of the hardship distribution;provided that in the case of anyEmployee who has made an Affirmative Election, Salary Reduction Contributions, if any, under such an election shall resume at the end of such suspension period and provided further that in the case of an Eligible Participant who has not made an Affirmative Election, Automatic Contributions shall resume at the end of such suspension period subject to the provisions of Section 5.05; and

C.The distribution, less any income and penalty taxes, is not in excess of the amount of an immediate and heavy financial need.

The processing of applications and any distributions of amounts under this Section shall be made as soon as administratively feasible. 

11.03Withdrawals from Regular or Rollover Accounts.  Once a Participant has participated in the Plan for two years, at any time thereafter the Participant shall have the right at any time to request the Plan Administrator for a withdrawal in cash of amounts allocated to his or her Rollover Account.  A Participant may request a withdrawal of cash amounts allocated to his or her Rollover Account immediately upon the Trustee’s receipt of such Rollover Contribution.  Once a Participant’s Regular Account is 100% vested the Participant shall have the right at any time to request the Plan Administrator for a withdrawal in cash of amounts allocated to such Account; provided,  however, that unless the Participant is over Age 59½ or is Permanently and Totally Disabled, the amount subject to withdrawal shall not include amounts attributable to contributions made to the Regular Account during the two-year period preceding the date of payment.

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11.04Rules for In-Service Withdrawals.  The Plan Administrator may impose a dollar minimum for partial withdrawals and may implement on a uniform and nondiscriminatory basis, an ordering rule for in-service withdrawals from a Participant’s Account.  If the amount in the Participant’s appropriate Account is less than the minimum, the Plan Administrator shall pay the Participant the entire amount then in the Participant’s Account from which the withdrawal is to be made if a withdrawal of the entire amount is otherwise permissible under the rules set forth in this Article.  If the entire amount cannot be paid under such rules, whatever amount is permissible shall be paid.

In the case of a withdrawal from a Rollover Account described in Section 13.03, if necessary to comply with the joint and survivor rules of Code Sections 401(a)(11) and 417, the Plan Administrator shall require the consent of any Participant’s spouse before making any in-service withdrawal.  Any such consent shall satisfy the requirements of Section 13.08.

Any amount to be withdrawn shall be payable as of the Valuation Date coincident with or next following the date which is 15 days following receipt of the written request by the Plan Administrator.

ARTICLE XII

PLAN LOANS

12.01General Rules.  Upon the application of any Participant or Beneficiary the Plan Administrator may enter into a loan agreement with such person and authorize the Trustee to make a loan pursuant thereto.  The amount of any such loan and the provisions for its repayment shall be in accordance with such non-discriminatory rules and procedures as are adopted by the Plan Administrator and uniformly applied to all borrowers.  Such written procedures shall be part of this Plan document.

Applications for loans will be made to the Plan Administrator using forms provided by the Plan Administrator.  Loan applications meeting the requirements of this Article will be granted and all borrowers must execute a promissory note meeting the requirements of this Article.

Plan loans shall be granted on a uniform nondiscriminatory basis, so that they are available to all borrowers on a reasonably equivalent basis and are not made available to highly compensated Employees or officers of the Employer in an amount greater than the amount made available to other Employees.  Loans will be made available to Former Participants to the extent required by regulations issued by the Department of Labor under ERISA Section 408(b) and to other participants as needed to satisfy Code Section 401(a)(4) and the regulations thereunder.  Such loans shall be adequately secured, shall bear a reasonable rate of interest and shall provide for periodic repayment over a reasonable period of time, all in accordance with the Plan Administrator’s rules and procedures for Plan loans.

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To the extent required under Code Sections 401(a)(11) and 417 and the regulations thereunder, a Participant must obtain the consent of his or her spouse, if any, within the 180-day period before the time the Participant’s Accrued Benefit is used as security for a Plan loan.  A new consent is required if the Accrued Benefit is used for any increase in the amount of security.  The consent shall comply with the requirements of CodeSection 417, but shall be deemed to meet any requirements contained in such section relating to the consent of any subsequent spouse.

If the Plan Administrator approves a request for a loan, funds shall be withdrawn from the recordkeeping sub-accounts, including Roth Elective Deferrals, in the order specified in the loan policy provided that Tax Deductible Voluntary Contributions, plus earnings thereon, may not be used as security for Plan loans.

The Plan Administrator may not require a minimum loan amount greater than $1,000.

No loan shall be made to the extent such loan when added to the outstanding balance of all other loans to the borrower would exceed one-half (½) of the present value of the nonforfeitable Accrued Benefit of the borrower under the Plan (but not more than $50,000 reduced by the difference between the highest outstanding balance during the previous 365 days and the current outstanding balance).

For purposes of calculating the above limitations, all loans and accrued benefits from all plans of the Employer and other members of a group of employers described in Code Sections 414(b), (c) and (m) are aggregated.

The Plan Administrator shall determine a reasonable rate of interest for each loan by identifying the rate(s) charged for similar and equivalent commercial loans by institutions in the business of making loans.  No loan shall be granted to any borrower or other person who already has a total of two loans or more outstanding under this Plan or any other plan maintained by the Employer or who is in default on any loan.

The Plan Administrator may direct the Trustee to deduct from a Participant’s Accounts under the Plan a reasonable fee (as determined by the Committee) to offset the cost of processing and administering the loan.

12.02Loan Repayments.  The borrower shall repay any loan in accordance with the loan agreement.  Loans shall provide for periodic repayment, with payment to be no less frequent than quarterly over a period not to exceed five (5) years; provided,  however, that loans used to acquire any dwelling unit which, within a reasonable time, is to be used (determined at the time the loan is made) as a principal residence of a Participant, may provide for periodic repayment, with payment to be no less frequent than quarterly over a reasonable period of time that exceeds five (5) years.

In the event the loan is not repaid within the time period prescribed, the Plan Administrator shall direct the Trustee to deduct the total amount due and payable, plus interest thereon, from distributable amounts in the borrower’s Accounts.  If distributable amounts in the borrower’s Accounts are not sufficient to repay such amount, the Plan Administrator shall enforce the terms of any agreement providing

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additional security for the loan and shall pursue such other remedies available at law to collect the indebtedness.

In the event of a loan default, attachment of the borrower’s Accrued Benefit will not occur until a distributable event occurs in the Plan.  Default shall occur upon the earlier of any uncured failure to make payments in accordance with the promissory note or the death of the borrower.

Loan repayments will be suspended under this Plan as permitted under Code Section 414(u)(4).

ARTICLE XIII

RETIREMENT, TERMINATION AND DEATH BENEFITS

13.01Retirement or Termination from Service.  The Accrued Benefit of each Employee who was hired prior to December 2, 1986 and who became a Participant in the Plan on or prior to January 1, 1989, shall be 100% vested and nonforfeitable at all times.  The Regular Account of Employees who are hired on or after December 2, 1986 and who become Participants after December 31, 1988 shall vest according to the following schedule:

Completed Years of Service	Vested Percentage
Less Than 2	0
2	25
3	50
4	75
5	100

The Match Contribution and Non-Elective Employer Contribution Accounts of each Employee who was hired after December 1, 1986 shall be 50% vested and nonforfeitable after the completion of one Year of Service and 100% vested and nonforfeitable after the completion of two Years of Service.  Provided,  however, that the Match Contribution and Non-Elective Employer Contribution Accounts of such Employees shall be 100% vested and nonforfeitable at all times for such Employees who completed at least one Hour of Service on or before December 31, 2004. Notwithstanding the foregoing provisions of this paragraph, the Match Contribution and Non-Elective Employer Contribution Accounts of each Employee whose employment with The Hanover Insurance Company was terminated in connection with the sale of Citizen’s Management, Inc. on or about April 30, 2012 shall be 100% vested and nonforfeitable upon his or her termination of employment.  Notwithstanding the foregoing provisions of this paragraph, the Match Contribution and Non-Elective Employer Contribution Accounts of each of the following two Employees whose employment with The Hanover Insurance Company was terminated in connection with a transaction between AIX and First Community Insurance Company pursuant to a certain Market Facilitation Agreement dated February 14, 2013 shall be 100% vested and nonforfeitable upon his or her termination of employment: PeggyCarreira and Maida Pacheco.

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Any amendment to the above provisions of this Section, including the above vesting schedule, shall comply with the requirements of Section 19.03.

Notwithstanding the foregoing, each actively employed Participant’s Accrued Benefit shall become 100% vested and nonforfeitable when the Participant attains his or her Normal Retirement Age, dies, or becomes Totally and Permanently Disabled.

The Salary Reduction Contributions, Employer Match Contributions contributed to the Plan for Plan Years commencing prior to January 1, 2005, 401(k) Employer Contributions, Tax Deductible Contributions and Voluntary After-Tax Contributions of all Participants, plus earnings thereon, shall be 100% vested and nonforfeitable at all times.

Upon a Participant’s attainment of his or her Normal Retirement Age or termination of employment, the Participant shall be entitled to a benefit that can be provided by the value of his or her vested Accrued Benefit in accordance with the provisions of this Article.

The Plan Administrator shall notify the Trustee when the Normal Retirement Age or termination of employment of each Participant shall occur and shall also advise the Trustee as to the manner in which retirement or termination benefits are to be distributed to a Participant, subject to the provisions of this Article.  Upon receipt of such notification and subject to the other provisions of this Article, the Trustee shall take such action as may be necessary in order to distribute the Participant’s vested Accrued Benefit.

A  Participant whose employment status changes from that of a common law employee to that of a “leased employee” within the meaning of Code Section 414(n) shall not be considered to have a severance from employment for the purposes of this Section and this Article (unless the safe harbor plan requirements described in Code Section 414(n)(5) are met).

13.02Late Retirement Benefits.  If a Participant shall continue in active employment following his or her Normal Retirement Age, he or she shall continue to participate under the Plan and Trust.  Except as provided in Section 13.06, upon actual retirement such Participant shall be entitled to a benefit that can be provided by the value of his or her Accrued Benefit.  Late Retirement benefits shall be distributed in accordance with the further provisions of this Article.

13.03Death Benefits.  If a Participant or Former Participant shall die prior to the commencement of any benefits otherwise provided under this Article XIII, except as provided below, his or her Beneficiary shall be entitled to a lump sum death benefit equal to the amount credited to the Participant’s Account as of the date the Plan Administrator receives due proof of the Participant’s death.  In lieu of receiving benefits in a lump sum, a Beneficiary may elect to receive benefits under any option described in Section 13.06; provided that in lieu of receiving a lump sum death benefit, and except with respect to amounts held in a Rollover Account as described

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below in this Section, the Beneficiary of a Participant may only elect to receive benefits under the installment payment option described in Section 13.06.

Notwithstanding anything in the Plan to the contrary, if a Participant or Former Participant is married on the date of his or her death, Plan pre-retirement death benefits will be paid to the Participant’s or Former Participant’s then spouse unless such spouse has consented to payment to another Beneficiary, as provided in Section 13.08.

Notwithstanding the first paragraph, if a Rollover Account is being maintained for a married Participant who dies prior to the commencement of Plan benefits and if any portion of the amount in the Rollover Account is attributable to amounts transferred directly (or indirectly from another transferee Plan) to this Plan from a defined benefit pension plan, from a money purchase pension plan or from a stock bonus or profit sharing plan which would otherwise provide for a life annuity form of payment to the Participant, the amount in the Rollover Account will be used to purchase a life annuity for the Participant’s spouse unless the Participant has requested that the Rollover Account be distributed in a different form or be paid to another Beneficiary.  Any such request must be made during the election period, which shall begin on the first day of the Plan Year in which the Participant attains Age 35 and shall end on the date of the Participant’s death.  If a Participant severs employment prior to the first day of the Plan Year in which Age 35 is attained, with respect to the value of the Rollover Account as of the date of separation, the election period shall begin on the date of separation.  Any such request must be consented to by the Participant’s spouse.  To be effective, the spousal consent must meet the requirements of Section 13.08.  Any annuity provided with a portion of Participant’s Rollover Account in accordance with this paragraph shall be payable for the life of the Participant’s spouse and shall commence on the date the Participant would have attained Age 55 or, if the Participant was over Age 55 on the date of his or her death, such life annuity shall commence immediately.  At the request of the spouse, such Rollover Account may be used to purchase a life annuity or may be taken in another form allowed under the Plan at an earlier or later commencement date.

If a Participant shall die subsequent to the commencement of any benefit otherwise provided under this Article XIII, the death benefit, if any, shall be determined in accordance with the benefit option in effect for the Participant.

The Plan Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the Accounts of a deceased Participant or a deceased Former Participant, as the Administrator deems necessary.  The Administrator’s determination of death and of the right of any person to receive payment shall be conclusive and binding on all persons.

13.04Death Benefits Under USERRA.  In the case of a Participant who dies while performing qualified military service as defined in Code Section 414(u), the survivors of the Participant are entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) provided under the Plan had the

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Participant resumed and then terminated employment on account of death.  Moreover, the Plan will credit the Participant’s qualified military service as service for vesting purposes, as though the Participant had resumed employment under USERRA immediately prior to the Participant’s death.

13.05Designation of Beneficiary.  Each Participant shall designate his or her Beneficiary on a form provided by the Plan Administrator, and such designation may include primary and contingent beneficiaries; provided,  however, that if a Participant or Former Participant is married on the date of his or her death, the Participant’s then spouse shall be the Participant’s Beneficiary unless such spouse consented to the designation of another Beneficiary in accordance with Section 13.08.  If a Participant does not designate a Beneficiary and is not married at the date of his or her death, the estate of the Participant shall be deemed to be the designated Beneficiary. If a Participant has completed a Beneficiary designation in which the Participant designates his or her spouse as the Beneficiary, and the Participant and the Participant’s spouse are legally divorced subsequent to the date of such designation, then the designation of such spouse as a Beneficiary hereunder will be deemed null and void unless the Participant, subsequent to the legal divorce, reaffirms the designation by completing a new Beneficiary designation form.

A  designated Beneficiary shall include a non-spouse designated Beneficiary.  For this purpose, a non-spouse designated Beneficiary means a designated Beneficiary other than (i) a surviving spouse (as defined in Section 13.08) or (ii) a spouse or former spouse who is an Alternate Payee under a Qualified Domestic Relations Order.

13.06Distribution of Benefits.  The Plan Administrator shall direct the Trustee to make payment of any benefits provided under this Article XIII upon the event giving rise to distribution of such benefit, or within 60 days thereafter.

All distributions under this Plan will be made in accordance with Code Section 401(a)(9), including the incidental death benefit requirements of Code Section, §401(a)(9)G, Treasury Regulations Sections 1.401(a)(9)-2 through 1.401(a)(9)-9, and any other provisions reflecting Code Section 401(a)(9) that are prescribed in revenue rulings, notices and other guidance published in the Internal Revenue Bulletin. The Plan provisions reflecting Code Section 401(a)(9) shall override any distribution options set out in the Plan that are inconsistent with Code Section 401(a)(9).

Unless the Participant elects otherwise, distribution of benefits will begin no later than the 60th day after the latest of the close of the Plan Year in which:

(i)the Participant attains Age 65;

(ii)occurs the 10th anniversary of the year in which the Participant commenced participation in the Plan; or,

(iii)the Participant terminates service with the Employer.

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Notwithstanding the foregoing, the failure of a Participant and spouse to consent to a distribution when a benefit is immediately distributable, within the meaning of Section 13.12, shall be deemed to be an election to defer commencement of payment of any benefit sufficient to satisfy this Section.  Except as provided in this Article, in no event will benefits begin to be distributed prior to the later of Age 62 or Normal Retirement Age without the consent of the Participant.

Except as provided below and in Sections 13.03, 13.07, 13.11 and 13.12, if benefits become payable to a Participant as a result of termination of employment or retirement, the Participant’s vested Accrued Benefit shall be distributed by the Trustee in such manner as the Participant shall direct, in accordance with one or more of the options listed below.  Provided,  however, that a married Participant may not elect an option involving a life contingency without the consent of his or her spouse.  To be effective, the spousal consent must meet the requirements of Section 13.08.

Notwithstanding the foregoing, if on the date of severance from employment of a married Participant prior to the attainment of his or her Qualified Early Retirement Age a Rollover Account as described in Section 13.03 is being maintained for the Participant, such Account will remain in force until the Former Participant attains Age 55 when, if the Former Participant is then married, the value of such Rollover Account will be used to purchase a Qualified Joint and Survivor Annuity for the benefit of the Former Participant and his or her then spouse.  At any time prior to the date of purchase, the Former Participant may request that his or her Rollover Account be distributed under one or more of the options listed below; provided,  however, that if the Former Participant is married on the date of the request, the Former Participant’s then spouse must consent thereto.  To be effective, the spousal consent must meet the requirements of Section 13.08.  If a Former Participant who was married on the date of his or her severance from employment is not married at Age 55, at Age 55 the Former Participant’s Rollover Account (as described in Section 13.03) shall be distributed by the Trustee in such manner as the Former Participant shall direct, in accordance with one or more of the options listed below.  If a Former Participant entitled to a deferred benefit pursuant to this paragraph dies prior to Age 55 and prior to commencement of Plan benefits, his or her Beneficiary shall be entitled to a death benefit pursuant to Section 13.03.

If a Qualified Joint and Survivor Annuity is not required under the above rules or pursuant to Section 13.07, the portion of the Participant’s Accrued Benefit that is attributable to a Rollover Account as described in Section 13.03 shall be distributed by the Trustee in such manner as the Participant shall elect, in accordance with one or more of the following methods of distribution, which may be paid in cash or in kind, or a combination of them;  provided that an in-kind distribution shall only be available with respect to an annuity contract that is purchased by the Trustee at the time of distribution:

(i)One lump sum payment.

(ii)An annuity for the life of the Participant.

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(iii)An annuity for the joint lives of the Participant and his or her spouse with 50%, 662/3%, 75% or 100% (whichever is specified when this option is elected) of such amount payable as an annuity for life to the survivor.  No further benefits are payable after the death of both the Participant and his or her spouse.

(iv)An annuity for the life of the Participant with installment payments for a period certain not longer than the life expectancy of the Participant.

(v)Installment payments for a period certain not longer than the life expectancy of the Participant and his or her spouse.

The portion of the Participant’s Accrued Benefit that is not attributable to a Rollover Account as described in Section 13.03 shall be distributed by the Trustee in such manner as the Participant shall elect, in accordance with one or more of the following methods of distribution, which shall be paid in cash:

(i)One lump sum payment.

(ii)Installment payments for a period certain not longer than the life expectancy of the Participant and his or her spouse.

All optional forms of benefits shall be actuarially equivalent.

Notwithstanding anything in the Plan to the contrary, any annuity policy which is distributed by the Trustee shall provide by its terms that the same shall not be sold, transferred, assigned, discounted, pledged or encumbered in any way except to or through the insurer, and then only in accordance with a right conferred under the terms of the annuity policy.

Notwithstanding anything in the Plan to the contrary, the entire interest of a Participant must be distributed or begin to be distributed no later than the Participant’s Required Beginning Date.

The Required Beginning Date of a Participant is the first day of April of the calendar year following the calendar year in which the Participant attains age 70½;  provided,  however, that a Participant, who is not a Five Percent Owner and who does not retire by the end of the calendar year in which such Participant reaches age 70½, may elect to defer their Required Beginning Date to the first day of April of the calendar year following the calendar year in which the Participant retires.  If, after the date of such election, a Participant becomes a Five Percent Owner, the Required Beginning Date is the first day of April following the later of: (i) the calendar year in which the Participant attains age 70½; or (ii) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a Five Percent Owner, or the calendar year in which the Participant retires.

Notwithstanding any provisions of this Plan relating to required minimum distributions under Code Section 401(a)(9), a Participant or Beneficiary who would

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have been required to receive required minimum distributions for 2009 but for the enactment of Code Section 401(a)(9)(H) (“2009 RMDs”), and who would have satisfied that requirement by receiving distributions that are equal to the 2009 RMDs will not receive those distributions for 2009 unless the Participant or Beneficiary chooses to receive such distributions.  Participants and Beneficiaries described in the preceding sentence will be given the opportunity to elect to receive the distributions described in the preceding sentence.

13.07Automatic Joint and Survivor Annuity.  Notwithstanding anything in Section 13.06 to the contrary, if a Rollover Account as described in Section 13.03 is being maintained for a married Participant and if Plan benefits become payable to such Participant on or after the Participant’s Qualified Early Retirement Age, such Rollover Account will be used to purchase a Qualified Joint and Survivor Annuity unless the Participant has elected otherwise.  To be effective, any election out of a Qualified Joint and Survivor Annuity must be consented to by the Participant’s spouse at the time Plan benefits become payable.  Any election (by a Participant on whose behalf a Rollover Account as described in Section 13.03 is maintained) out of a Qualified Joint and Survivor Annuity must be in writing and may be made during the election period, which shall be the 180-day period ending on the annuity starting date.

13.08Participant Elections and Spousal Consents.  Married Participants may choose a Beneficiary other than their spouse or, in the case of a Rollover Account described in Section 13.03, may choose a form of retirement benefit other than a Qualified Joint and Survivor Annuity.  Any Beneficiary designation shall be in accordance with the requirements of Section 13.05.  Any election (by a Participant on whose behalf a Rollover Account as described in Section 13.03 is maintained) out of a Qualified Joint and Survivor Annuity must be in writing and may be made during the election period, which shall be the 180-day period ending on the annuity starting date.  To be effective, any designation of a Beneficiary who is not the spouse of the Participant on the date of the Participant’s death or any such election out of the Qualified Joint and Survivor Annuity must be consented to by Participant’s spouse.  For purposes of this Section the term “spouse” means the spouse of the Participant on the date of the Participant’s death or on the date Plan benefits commence, whichever is applicable; provided that a former spouse will be treated in the same manner as a spouse to the extent provided under a Qualified Domestic Relations Order as described in Code Section 414(p).

To be effective, spousal consent must be in writing on a form furnished by or satisfactory to the Plan Administrator and witnessed by a Plan representative or notary public.  Provided,  however, spousal consent shall not be required under such circumstances as may be prescribed by the Plan Administrator in accordance with rules and regulations promulgated by the Secretary and the Treasury.  Any spousal consent will be valid only with respect to the spouse who signs the consent.  Additionally, a revocation of an election out of a Qualified Joint and Survivor Annuity may be made by a Participant without the consent of the spouse at any time before the commencement of benefits.  The number of revocations shall not be limited.

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13.09Distribution to a Minor Participant or Beneficiary.  In the event a distribution is to be made to a minor, then the Plan Administrator may, in the Administrator’s sole discretion, direct that such distribution be paid to the legal guardian of the minor, or if none, to a parent of such minor or a responsible adult with whom the minor maintains his or her residence, or to the custodian for such minor under the Uniform Gift to Minors Act, if such is permitted by the laws of the state in which said minor resides.  Such a payment to the legal guardian or parent of a minor or to such a custodian shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof.

13.10Location of Participant or Beneficiary Unknown.  In the event that all, or any portion, of the distribution payable to a Participant or his or her Beneficiary hereunder shall, at the expiration of five years after it shall become payable, remain unpaid solely by reason of the inability of the Plan Administrator, after sending a registered letter, return receipt requested, to the payee’s last known address, and after reasonable effort, to ascertain the whereabouts of such Participant or his or her Beneficiary, the amount so distributable shall be forfeited and allocated in accordance with the terms of this Plan.  In the event a Participant or Beneficiary is located subsequent to his or her benefit being forfeited, such benefit shall be restored.

13.11Forfeitures; Restoration of Benefits Upon Reemployment.  If a Participant terminates from employment,the Participant’s vested Accrued Benefit shall be deferred to the earliest of the Participant’s death, Total and Permanent Disability or attainment of Normal Retirement Age, at which time such vested benefit shall be payable in accordance with Sections 13.06 and 13.13.

Notwithstanding the foregoing, such a Participant may elect to have payments commence at any time after termination in accordance with Section 13.06.  Partial distributions of vested benefits will not be permitted except in accordance with Section 13.06.  The non-vested portion of the Participant’s Accrued Benefit shall be forfeited when the Participant incurs five consecutive One Year Breaks in Service or, if earlier, when the Participant or his or her spouse (or surviving spouse) receives a distribution of his or her vested Accrued Benefit.If the value of the Participant’s vested Accrued Benefit is zero when the Participant terminates employment, the Participant shall be deemed to have received a distribution of such vested Accrued Benefit.

Except as provided below, the non-vested portion of the Accrued Benefit of any terminated Participant will be used to reduce Employer Match Contributions for the Plan Year in which the forfeiture occurs and for subsequent Plan Years, if necessary. 

A Participant who severs employment and who subsequently resumes employment with the Employer will again become a Participant when the Participant becomes an Eligible Employee.  If a Former Participant is subsequently reemployed, the following rules shall also be applicable:

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(i)If any Former Participant shall be reemployed by the Employer before incurring five consecutive One Year Breaks in Service, and such Former Participant had received a distribution of his or her vested Accrued Benefit prior to his or her reemployment, his or her forfeited Account balance shall be reinstated if he or she repays the full amount attributable to Employer Contributions which was distributed to him or her, not including, at the Participant’s option, amounts attributable to any Salary Reduction Contributions.  Such repayment must be made by the Former Participant before the date on which the individual incurs five consecutive One Year Breaks in Service following the date of distribution.  A Participant who was deemed to have received a distribution of his or her vested amount shall be deemed to have repaid such amount as of the first date on which he or she again becomes a Participant.  In the event the Former Participant does repay the full amount distributed to him or her, the forfeited portion of the Participant’s Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the date of distribution.

(ii)Restorations of forfeitures will be made as of the date that the Plan Administrator is notified that the Trustee has received the required repayment.  Any forfeiture amount that must be restored to a Participant’s Account will be taken from any forfeitures that have not yet been applied and, if the amount of forfeitures available for this purpose is insufficient, the Employer will make a timely supplemental contribution of an amount sufficient to enable the Trustee to restore the forfeiture amount to the Participant’s Account.

(iii)If a Former Participant resumes service after incurring five consecutive One Year Breaks in Service, forfeited amounts will not be restored under any circumstances.

If a Former Participant resumes service before incurring five consecutive One Year Breaks in Service, both the pre-break and post-break service will count in vesting both any restored pre-break and post-break employer-derived Account balance.

13.12Restrictions on Immediate Distributions.

(a)If the value of a Participant’s vested Accrued Benefit is immediately distributable, the Participant and the Participant’s spouse (or where either the Participant or the spouse has died, the survivor) must consent to any distribution of such Accrued Benefit. 

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Except as provided below, the consent of the Participant and the Participant’s spouse shall be obtained in writing within the 180-day period ending on the annuity starting date.  The annuity starting date is the first day of the first period for which an amount is paid as an annuity or any other form.  The Plan Administrator shall notify the Participant and/or the Participant’s spouse of the right to defer any distribution until the Participant’s Accrued Benefit is no longer immediately distributable and the consequences of failing to defer receipt of the distribution.  Such notification shall include a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Code Section 417(a)(3), if applicable, and shall be provided no less than 30 days and no more than 180 days prior to the annuity starting date.

However, distribution may commence less than 30 days after the notice described in the preceding sentence is given, provided the distribution is not one to which Code Section 417 applies, the Participant is clearly informed of his or her right to take 30 days after receiving the notice to decide whether or not to elect a distribution (and, if applicable, a particular distribution option), and the Participant, after receiving the notice, affirmatively elects to receive the distribution prior to the expiration of the 30-day minimum period.

If a distribution is one to which Code Sections 411(a)(11)(A) and 417 applies, a Participant may commence receiving a distribution in a form other than a Qualified Joint and Survivor Annuity less than 30 days after receipt of the written explanation described in the preceding paragraph provided: (1) the Participant has been provided with information that clearly indicates that the Participant has at least 30 days to consider whether to waive the Qualified Joint and Survivor Annuity and elect (with spousal consent) a form of distribution other than a Qualified Joint and Survivor Annuity; (2) the Participant is permitted to revoke any affirmative distribution election at least until the Distribution Commencement Date or, if later, at any time prior to the expiration of the 7-day period that begins the day after the explanation of the Qualified Joint and Survivor Annuity is provided to the Participant; and (3) the Distribution Commencement Date is after the date the written explanation was provided to the Participant.  The Distribution Commencement Date may be a date prior to the date the written explanation is provided to the Participant if the distribution does not commence until at least 30 days after such written explanation is provided, subject to the waiver of the 30-day period.  For the purposes of this paragraph, the Distribution Commencement Date is the date a Participant commences distributions from the Plan.  If a Participant commences distribution with respect to a portion of his/her Account Balance, a separate Distribution Commencement Date applies to any subsequent distribution.  If distribution is made in the form of an annuity, the Distribution Commencement Date is the first day of the first period for which annuity payments are made.

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Notwithstanding the foregoing, only the Participant need consent to the commencement of a distribution in the form of a Qualified Joint and Survivor Annuity while the Accrued Benefit is immediately distributable.  Furthermore, if payment in the form of a Qualified Joint and Survivor Annuity is not required with respect to the Participant, only the Participant need consent to the distribution of an Accrued Benefit that is immediately distributable.  The consent of the Participant or the Participant’s spouse shall not be required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or 415.  In addition, upon termination of this Plan if the Plan does not offer an annuity option (purchased from a commercial provider) and if the Employer or any entity within the same controlled group as the Employer does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)), the Participant’s Accrued Benefit may, without the Participant’s consent, be distributed to the Participant.  However, if any entity within the same controlled group as the Employer maintains another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)) then the Participant’s Accrued Benefit will be transferred, without the Participant’s consent, to the other plan if the Participant does not consent to an immediate distribution.

An Accrued Benefit is immediately distributable if any part of the Accrued Benefit could be distributed to the Participant (or surviving spouse) before the Participant attains (or would have attained if not deceased) the later of Normal Retirement Age or age 62.

13.13Rollovers to Other Qualified Plans.

(a)Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election under this Article, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a Direct Rollover.For purposes of determining the portion of a disbursement of benefits from the Plan to a distributee that is not includible in gross income under Code Section 72, the guidance under I.R.S. Notice 2014-54 shall be followed.

(b)Definitions.

(i)Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee’s designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code

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Section 401(a)(9); any hardship distribution described in Code Section 401(k)(2)(B)(i)(iv); the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities);any corrective distributions of Excess Elective Deferrals or Roth Elective Deferrals under Code Section 402(g), and the income attributable thereto; and any other distribution(s) that is reasonably expected to total less than $200 during a year.  A portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because it consists of after-tax employee contributions which are not includible in gross income.  However, such portion may be transferred only to an individual retirement account or individual retirement annuity described in Code Section 408(a) or 408(b), or to a qualified plan described in Code Section 401(a) or an annuity plan described in Code Section 403(a), or to an annuity contract described in Code Section 403(b), which plan or contract agrees to separately account for amounts so transferred, including separate accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.  Such portion may also be transferred to a Roth IRA.

(ii)Eligible retirement plan: An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified Plan described in Code Section 401(a), that accepts the distributee’s eligible rollover distribution,  an annuity contract described in Code Section 403(b) and an eligible plan under Code Section 457(b), which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan.  An Eligible Retirement Plan shall also include a Roth individual retirement account as described in Code Section 408A.

(iii)Distributee: A distributee includes an Employee or former Employee.  In addition, the Employee’s or former Employee’s surviving spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse.

(iv)Direct Rollover: A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.A Direct Rollover of a distribution from a Roth Elective Deferral Account under this Plan will be made to another Roth Elective Deferral Account under an applicable retirement plan described in Code Section 402A(e)(1) or to a Roth IRA described in Code Section 408A, and only to the extent the rollover is permitted under the rules of Code Section 402(c).

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Notwithstanding the provisions of this Plan relating to required minimum distributions under Code Section 401(a)(9),  and solely for purposes of applying the direct rollover provisions of the Plan, 2009 RMDs (as defined in Section 13.06), but only if paid with an additional amount that is an eligible rollover distribution without regard to IRC §401(a)(9)(H), will be treated as eligible rollover distributions.

(c)A non-spouse Beneficiary who is a “designated beneficiary” under Code Section 401(a)(9)(E) and the regulations thereunder, by a direct trustee-to-trustee transfer (“direct rollover”), may roll over all or any portion of his or her distribution to an individual retirement account or an individual retirement annuity as defined in Code Section 408(a) and 408(b) or Roth IRA as defined in Code Section 408A, that is established on behalf of the Beneficiary.  In order to be able to roll over the distribution, the distribution otherwise must satisfy the definition of an eligible rollover distribution.If a non-spouse Beneficiary receives a distribution from the Plan, the distribution is not eligible for a “60-day” rollover.

If the Participant’s named Beneficiary is a trust, the Plan may make a direct rollover to an individual retirement account on behalf of the trust, provided the trust satisfies the requirements to be a “designated beneficiary” within the meaning of Code Section 401(a)(9)(E).

A non-spouse Beneficiary may not roll over an amount which is a required minimum distribution, as determined under applicable Treasury Regulations and other Internal Revenue Service guidance.  If the Participant dies before his or her required beginning date and the non-spouse Beneficiary rolls over to an IRA the maximum amount eligible for rollover, the Beneficiary may elect to use either the 5-year rule or the life expectancy rule, pursuant to Treasury Regulation Section 1.401(a)(9)-3Q&A-4(c), in determining the required minimum distributions from the IRA that receives the non-spouse Beneficiary’s distribution.

13.14Payment under Qualified Domestic Relations Orders.  Notwithstanding any provisions of the Plan to the contrary, if there is entered any Qualified Domestic Relations Order that affects the payment of benefits hereunder, such benefits shall be paid in accordance with the applicable requirements of such Order, provided that such Order (i) does not require the Plan to provide any type or form of benefits, or any option, that is not otherwise provided hereunder, (ii) does not require the Plan to provide increased benefits, and (iii) does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a Qualified Domestic Relations Order.

To the extent required or permitted by any such Order, at any time on or after the date the Plan Administrator has determined that the Order is a Qualified Domestic Relations Order, the alternate payee shall have the right to request the Plan Administrator to commence distribution of benefits under the Plan regardless of

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whether the Participant is otherwise entitled to a distribution at such time under the Plan.  Except as specifically provided in a Qualified Domestic Relations Order, amounts distributed under this Section shall be taken pro rata from the investment options in which each of the Participant’s Accounts is invested.  The Plan Administrator shall establish reasonable procedures to determine whether an order or other decree is a Qualified Domestic Relations Order, and to administer distributions under such orders.

13.15USERRA.

(a)Severance from Employment.  An individual shall be treated as having been severed from employment for purposes of Code Section 401(k)(2)(B)(i)(I) during any period the individual is performing service in the uniformed services described in Code Section3401(h)(2)(A).  If an individual performing such service in the uniformed services elects to receive a distribution by reason of severance from employment, the individual may not make a Salary Reduction Contribution or other Employee contribution during the 6-month period beginning on the date of the distribution.

(b)Qualified Reservist Distribution under USERRA.  A Participant who is ordered or called to active duty may take a Qualified Reservist Distribution if the following are satisfied:

(1)the distribution consists solely of elective deferrals (Salary Reduction Contributions);

(2)the Participant was ordered or called to active duty for a period in excess of one hundred and seventy nine (179) days or for an indefinite period; and

(3)the distribution from the Plan is made during the period which begins on the date of such order or call and ends at the close of the active duty period.

The ten percent (10%) early withdrawal penalty tax will not apply to a qualified reservist distribution, which meets the requirements stated above.

ARTICLE XIV

PLAN FIDUCIARY RESPONSIBILITIES

14.01Plan Fiduciaries.  The Plan Fiduciaries shall be:

(i)        the Trustee(s) of the Plan;

(ii)the Plan Administrator; and

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(iii)such other person or persons as may be designated by the Plan Administrator in accordance with the provisions of this Article XIV.

14.02General Fiduciary Duties.  Each Plan Fiduciary shall discharge his or her duties solely in the interest of the Participants and their Beneficiaries and act:

(i)for the exclusive purpose of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses of administering the Plan;

(ii)with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;

(iii)by diversifying the investments of the Plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so, if the Fiduciary has the responsibility to invest plan assets; and

(iv)in accordance with the documents and instruments governing the Plan insofar as such documents and instruments are consistent with the provisions of current laws and regulations.

Each Plan Fiduciary shall perform the duties specifically assigned to him or her.  No Plan Fiduciary shall have any responsibility for the performance or non-performance of any duties not specifically allocated to him or her.

14.03Duties of the Trustee(s).  The specific responsibilities and duties of the Trustee(s) are set forth in the Trust Indenture between the Employer and the Trustee(s).  In general the Trustee(s) shall:

(i)invest Plan assets, subject to directions from the Plan Administrator or from any duly appointed investment manager;

(ii)maintain adequate records of receipts, disbursements, and other transactions involving the Plan; and

(iii)prepare such reports, statements, tax returns and other forms as may be required under the Trust Indenture or applicable laws and regulations.

14.04Powers and Duties of the Plan Administrator.  The Plan Administrator is the Benefits Committee.  The Plan Administrator shall have the power, discretionary authority, and duty to interpret the provisions of the Plan and to make all decisions and take all actions that shall be necessary or proper in order to carry out the provisions of the Plan.  Without limiting the generality of the foregoing, the Plan Administrator shall:

(i)monitor compliance with the provisions of ERISA and other applicable laws with respect to the Plan;

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(ii)establish an investment policy and funding method consistent with objectives of the Plan and with the requirements of applicable laws and regulations;

(iii)invest Plan assets except to the extent that the Plan Administrator has delegated such investment duties to an investment manager;

(iv)evaluate from time to time investment policy and the performance of any investment manager or investment advisor appointed by it;

(v)interpret and construe the Plan in order to resolve any ambiguities therein;

(vi)determine all questions concerning the eligibility of any person to participate in the Plan, the right to and the amount of any benefit payable under the Plan to or on behalf of an individual and the date on which any individual ceases to be a Participant, with any such determination to be conclusively binding and final, to the extent permitted by applicable law, upon all persons interested or claiming an interest in the Plan;

(vii)   establish guidelines as required for the orderly and uniform administration of the Plan;

(viii)exercise overall control of the operation and administration of the Plan in matters not allocated to some other Fiduciary by the terms of this Plan;

(ix)  administer the Plan on a day-to-day basis in accordance with the provisions of this Plan and all other pertinent documents;

(x)retain and maintain Plan records, including Participant census data, participation dates, compensation records, and such other records necessary or desirable for proper Plan administration;

(xi)   prepare and arrange for delivery to Participants of such summaries, descriptions, announcements and reports as are required to be given to Participants under applicable laws and regulations;

(xii)  file with the U.S. Department of Labor, the Internal Revenue Service and other regulatory agencies on a timely basis all required reports, forms and other documents;

(xiii) prepare and furnish to the Trustee(s) sufficient records and data to enable the Trustee(s) to properly perform its obligations under the Trust Indenture; and

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(xiv)  to take appropriate actions required to correct any errors made in determining the eligibility of any Employee for benefits under the Plan or the amount of benefits payable under the Plan and in correcting any error made in computing the benefits of any Participant or Beneficiary, the Plan Administrator may make equitable adjustments (an increase or decrease) in the amount of any future benefits payable under the Plan, including the recovery of any overpayment of benefits paid from the Plan as provided in Treasury Regulation Section 1.401(a)‑13(c)(2)(iii).

The Plan Administrator may appoint or employ such advisers or assistants as the Plan Administrator deems necessary and may delegate to any one or more of its members any responsibility it may have under the Plan or designate any other person or persons to carry out any responsibility it may have under the Plan.

Notwithstanding any provisions elsewhere to the contrary, the Plan Administrator shall have total discretion to fulfill the above responsibilities as the Plan Administrator sees fit on a uniform and consistent basis and as the Plan Administrator believes a prudent person acting in a like capacity and familiar with such matters would do.

14.05Designation of Fiduciaries.  The Plan Administrator shall have the authority to appoint and remove Trustee(s) in accordance with the Trust Indenture.  The Plan Administrator may appoint and remove an investment manager and delegate to said investment manager power to manage, acquire or dispose of any assets of the Plan.

While there is an investment manager, the Plan Administrator shall have no obligation under this Plan with regard to the performance or non-performance of the duties delegated to the investment manager.

The Plan Administrator shall appoint all other Fiduciaries of this Plan.  In making its appointment or delegation of authority, the Plan Administrator may designate all of the responsibilities to one person or it may allocate the responsibilities, on a continuing basis or on an ad hoc basis, to one or more individuals either jointly or severally.  No individual named a Fiduciary shall have any responsibility for the performance or non-performance of any responsibilities or duties not allocated to him or her.

The appointing authority of a Fiduciary shall periodically, but not less frequently than annually, review the performance of each fiduciary appointed in order to carry out the general fiduciary duties specified in Section 14.02 and, where appropriate, take or recommend remedial action.

14.06Delegation of Duties by a Fiduciary.  Except as provided in this Plan or in the appointment as a Fiduciary, no Plan Fiduciary may delegate his or her fiduciary responsibilities.  If authorized by the appointing authority, a Fiduciary may appoint such agents as may be deemed necessary and delegate to such agents any non-fiduciary powers or duties, whether ministerial or discretionary.  No Fiduciary or agent of a Fiduciary who is a full-time employee of the Employer will receive any

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compensation from the Plan for his or her services, but the Employer or the Plan shall pay all expenses that such employee reasonably incurs in the discharge of his or her duties.

ARTICLE XV

BENEFITS COMMITTEE

15.01Appointment of Benefits Committee.  The Benefits Committee shall consist of three or more members appointed from time to time by the president of the Employer (the “President”), who shall also designate one of the members as chairman.  Each member of the Benefits Committee and its chairman shall serve at the pleasure of the President.

15.02Benefits Committee to Act by Majority Vote, etc.  The Benefits Committee shall act by majority vote of all members.  All actions, determinations, interpretations and decisions of the Benefits Committee with respect to any matter within their jurisdiction will be conclusive and binding on all persons.  Any person may rely conclusively upon any action if certified by the Benefits Committee.

Notwithstanding the above, a member of the Benefits Committee who is also a Participant shall not vote or act upon any matter relating solely or primarily to him or herself.

15.03Records and Reports of the Benefits Committee.  The Benefits Committee shall keep a record of all of its proceedings and acts, and shall keep such books of account, records and other data as may be necessary for the proper administration of the Plan and file or deliver to Participants and their Beneficiaries whatever reports are required by any regulatory authority.

15.04Costs and Expenses of Administration.  Notwithstanding any provisions of the Plan to the contrary (but subject to the provisions of Section 12.01), all clerical, legal and other expenses of the Plan and the Trust, including Trustee’s fees, shall be paid by the Plan, except to the extent the Employer elects to pay such amounts; provided,  however, that if the Employer pays such amounts it shall be reimbursed by the Trust for such amounts unless the Employers elects not to be so reimbursed.

15.05Indemnification of the Plan Administrator and Assistants.  The Employer shall indemnify and defend to the extent permitted under the By-Laws of the Employer any Employee or former Employee (i) who serves or has served as a member of the Benefits Committee, (ii) who has been appointed to assist the Benefits Committee in administering the Plan, or (iii) to whom the Benefits Committee has delegated any of its duties or responsibilities against any liabilities, damages, costs and expenses (including attorneys’ fees and amounts paid in settlement of any claims approved by the Employer) occasioned by any act or omission to act in connection with the Plan, if such act or omission to act is in good faith and without gross negligence; provided that such Employee or former Employee is not otherwise indemnified or saved harmless under any liability insurance or other indemnification arrangement.

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ARTICLE XVI

INVESTMENT OF THE TRUST FUND

16.01In General.  Subject to the direction of the Plan Administrator or any duly appointed investment manager in accordance with Section 14.05, the Trustee shall receive all contributions to the Trust and shall hold, invest and control the whole or any part of the assets in accordance with the provisions of the annexed Trust Indenture.

16.02Investment of the Trust Fund.  In order to provide retirement and other benefits for Plan Participants and their Beneficiaries, the Trustee shall invest Plan assets in one or more permissible investments specified in the Trust Indenture (“Permissible Investments”).

All collective investment trusts and group trusts shall also conform to the terms of the Plan.

This Plan is intended to comply with the requirements of ERISA Section 404(c). Each Participant is responsible and has sole discretion to give directions to the Trustee in such form as the Trustee may require concerning the investment of his or her Accrued Benefit in one or more of the Permissible Investments, which directions must be followed by the Trustee.  The designation by a Participant of the allocation of his Accrued Benefit among the Permissible Investments may be made from time to time, with such frequency and in accordance with such procedures as are established and set forth in the Trust Indenture and applied in a uniform nondiscriminatory manner.  Any such procedure shall he communicated to the Participants and designed with the intention of permitting the Participants to exercise control over the assets in their respective accounts within the meaning of ERISA Section 404(c) and the regulations thereunder.

Neither the Plan Administrator, the Trustee,  the Employer nor any other person shall be under any duty to question any investment, voting or other direction of the Participant or make any suggestions to the Participant in connection therewith, and the Trustee shall comply as promptly as practicable with directions given by the Participant hereunder.  All such directions may be of continuing nature or otherwise and may be revoked by the Participant at any time in such form as the Trustee may require.  Neither the Plan Administrator, the Trustee, the Employer nor any other person shall be responsible or liable for any costs losses or expenses which may arise or result from or be related to the compliance or refusal or failure to comply with any directions from the Participant.  The Trustee may refuse to comply with any direction from the Participant in the event the Trustee, in its sole or absolute discretion, deems such direction improper by virtue of applicable law or regulations.  For purposes of this Section, all references to “Participant” shall include all Beneficiaries of Participants who are deceased and any Alternate Payees under a Qualified Domestic Relations Order, as provided for in Section 19.01.

16.03Default Investment.

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(a)General Rules.

(i)Qualified Default Investment Alternative.  If a Participant or Beneficiary has the opportunity to direct the investment of the assets in his or her Account (but does not direct the investment of such assets), then such assets in his or her Account will be invested in a Qualified Default Investment Alternative.

(ii)Transfer from Qualified Default Investment Alternative.Any Participant or Beneficiary on whose behalf assets are invested in a Qualified Default Investment Alternative may transfer, in whole or in part, such assets to any other investment alternative available under the Plan with a frequency consistent with that afforded to a Participant or Beneficiary who elected to invest in the Qualified Default Investment Alternative, but not less frequently than once within any 3-month period.

(iii)No Fees during First 90 Days.  Any Participant’s or Beneficiary’s election to make such transfer from the Qualified Default Investment Alternativeor other first investment in a Qualified Default Investment Alternative on behalf of a Participant or Beneficiary, will not be subject to any restrictions, fees or expenses (including surrender charges, liquidation or exchange fees, redemption fees and similar expenses charged in connection with the liquidation of, or transfer from, the investment), except as permitted in Department of Labor Regulation Section 2550.404c–5(c)(5)(ii)(B).

(iv)Limited Fees after First 90 Days.  Following the end of the 90-day period described in paragraph (iii), any transfer described in paragraph (ii) above shall not be subject to any restrictions, fees or expenses not otherwise applicable to a Participant or Beneficiary who elected to invest in that Qualified Default Investment Alternative.

(v)Materials Must Be Provided.  A Plan fiduciary shall provide to a Participant or Beneficiary the materials set forth in Department of Labor Regulation Section 2550.404c-1(b)(2)(i)(B)(1)(viii) and (ix) and Department of Labor Regulation Section 404c-1(b)(2)(i)(B)(2) relating to a Participant’s or Beneficiary’s investment in a Qualified Default Investment Alternative.

(b)Notice Requirements.  The following provisions apply to the notice required by a Qualified Default Investment Alternative:

(i)Manner.  Such notice will be written in a manner calculated to be understood by the average Plan Participant.

(ii)Content.  Such notice will contain the following:

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A.A description of the circumstances under which assets in the individual account of a Participant or Beneficiary may be invested on behalf of the Participant or Beneficiary in a Qualified Default Investment Alternative; and, if applicable, an explanation of the circumstances under which Automatic Contributions will be made on behalf of a Participant, the percentage of Compensation that such Automatic Contributions represent, and the right of the Participant to elect not to have such made on the Participant’s behalf (or to elect to have Salary Reduction Contributions made at a different percentage);

B.An explanation of the right of Participants and Beneficiaries to direct the investment of assets in their individual accounts;

C.A description of the Qualified Default Investment Alternative, including a description of the investment objectives, risk and return characteristics (if applicable), and fees and expenses attendant to the Qualified Default Investment Alternative;

D.A description of the right of the Participants and Beneficiaries on whose behalf assets are invested in a Qualified Default Investment Alternative to direct the investment of those assets to any other investment alternative under the Plan, including a description of any applicable restrictions, fees or expenses in connection with such transfer; and

E.An explanation of where the Participants and Beneficiaries can obtain investment information concerning the other investment alternatives available under the Plan.

(iii)Timing.  The Participant or Beneficiary on whose behalf an investment in a Qualified Default Investment Alternative may be made must be furnished such notice during the following periods:  (1) At least 30 days in advance of the Participant’s eligibility to participate in the Plan, or at least 30 days in advance of the date of any first investment in a Qualified Default Investment Alternative on behalf of a Participant or Beneficiary; and (2) Within a reasonable period of time of at least 30 days in advance of each subsequent Plan Year.

ARTICLE XVII

CLAIMS PROCEDURE

17.01Claims Fiduciary.  The Plan Administrator will act as Claims Fiduciary except to the extent that the Plan Administrator has delegated the function to some other person or persons, committee or entity.

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Notwithstanding any provision elsewhere to be contrary, the Claims Fiduciaries shall have total discretion to fulfill their fiduciary duties as they see fit on a uniform and consistent basis as they believe a prudent person acting in a like capacity and familiar with such matters would do.

17.02Claims for Benefits.  Claims for benefits under the Plan may be filed with the Plan Administrator on forms supplied by the Employer.  For the purpose of this procedure, “claim” means a request for a Plan benefit by a Participant or a Beneficiary of a Participant.  If the basis of the claim includes documentation not a part of the records of the Plan or of the Employer, all such documentation must be included with the claim.

17.03Notice of Denial of Claim.  If a claim is wholly or partially denied, the Plan Administrator shall notify the claimant of the denial of the claim within a reasonable period of time.  Such notice of denial (i) shall be in writing, (ii) shall be written in a manner calculated to be understood by the claimant, and (iii) shall contain (A) the specific reason or reasons for denial of the claim, (B) a specific reference to the pertinent Plan provisions upon which the denial is based, (C) a description of any additional material or information necessary for the claimant to perfect the claim, along with an explanation why such material or information is necessary, and (D) an explanation of the Plan’s claim review procedure.  Unless special circumstances require an extension of time for processing the claim, the Plan Administrator shall notify the claimant of the claim denial no later thanninety (90) days after receipt of the claim.  If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 90-day period.  The extension notice shall indicate the special circumstances requiring the extension of time and the date by which the Plan Administrator expects to render the final decision.

17.04Request for Review of Denial of Claim.  Within 120 days of the receipt of the claimant of the written notice of the denial of the claim, or such later time as shall be deemed reasonable taking into account the nature of the benefit subject to the claim and any other attendant circumstances or if the claim has not been granted within a reasonable period of time, the claimant may file a written request with the Plan Administrator to conduct a full and fair review of the denial of the claimant’s claim for benefits.  In connection with the claimant’s appeal of the denial of his or her benefit, the claimant may review pertinent documents and may submit issues and comments in writing.

17.05Decision on Review of Denial of Claim.  The Plan Administrator shall deliver to the claimant a written decision on the claim promptly, but not later than 60 days, after the receipt of the claimant’s request for review, except that if there are special circumstances, which require an extension of time for processing, the aforesaid 60-day period may be extended to 120 days.  Such decision shall (i) be written in a manner calculated to be understood by the claimant, (ii) include specific reasons for the decision, and (iii) contain specific references to the pertinent Plan provisions upon which the decision is based.

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17.06Limitations Periods for Filing Claims and Legal Actions.  To be considered timely filed under the Plan’s claims proceduresand notwithstanding anything in this Plan to the contrary, a claim for benefits filed after January 31, 2016 must be filed with the appropriate Claims Fiduciary under Sections 17.02 or 17.04 before the first (1st) anniversary of the date on which claimant knew or reasonably should have known of the principal facts upon which the claim is based.  Notwithstanding anything in this Plan to the contrary, a legal action to recover Plan benefits or to enforce or clarify rights under the Plan under ERISA Section 502, ERISA Section 510 or under any other provision of law, whether statutory or not, may not be brought after January 31, 2016 by any claimant on any matter pertaining to this Plan unless the legal action is initiated in the proper forum before the earlier of (i) the expiration of thirty (30) completed calendar months after the date on which the claimant knew or reasonably should have known of the principal facts on which the claim is based, or (ii) the expiration of six (6) completed calendar months after the claimant has exhausted the applicable claims procedures under this Plan. For the purposeof applyingthis Section, knowledge of all facts that the Participant knew or reasonably should have known will be imputed to every claimant who is, or who purports to be, a Beneficiary of the Participant or otherwise purports to derive an entitlement to a Plan benefit or a Plan right by reference to the Participant.

Exhaustion of the Plan’s claims procedures is mandatory for every claim and dispute of whatever nature or from whatever source and arising under this Plan. As to such claims and disputes, no claimant shall be permitted to commence any legal action to recover Plan benefits or to enforce or clarify rights under the Plan under ERISA Section 502, ERISA Section 510 or under any other provision of law, whether or not statutory, until the applicable claims procedures set forth in the Plan have been exhausted in their entirety.

In any legal action described in this Section, all explicit and all implicit determinations by the Administrator, any Claims Fiduciaryand all other persons determining or reviewing claims in such legal action (including, but not limited to, determinations as to whether the claim, or a request for a review of a denied claim, was timely filed) shall be afforded the maximum deference permitted by law.

Any interpretation,determination or other action of such persons shall be subject tochange only if it was arbitrary or capricious or a more serious abuse ofdiscretion.  Any external review of a final decision or action by such personsreviewing a claim under this Plan shall be based only on such evidence presented toor considered by such persons at the time they made the decision or decisions thatare the subject of review.

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ARTICLE XVIII

AMENDMENT AND TERMINATION

18.01Employer May Amend Plan.  The Plan may be modified or amended in whole or in part by the action of the Board of Directors of the Employer at any time or times, and retroactively if it is deemed advisable by the Directors to conform the Plan to conditions which must be met to qualify the Plan or the Trust Indenture for tax benefits available under the applicable provisions of the Internal Revenue Code as it exists at any such time or times; provided,  however, that no such modifications or amendment shall make it possible for any part of the Trust Fund to be used for purposes other than the exclusive benefit of the Participants or their Beneficiaries.

Notwithstanding the above paragraph, an amendment to the Plan may not decrease a Participant’s Accrued Benefit, and may not reduce or eliminate a benefit, right or feature of this Plan that is protected under Code Section 411(d)(6) (except as provided for by the Code or the Treasury Regulations issued thereunder) determined immediately prior to the date of adoption, or if later, the effective date of the amendment.  Should any early retirement benefit or other optional retirement benefits be changed by amendment to this Plan, all benefits accrued prior to the date of such amendment shall not be reduced.

18.02Employer May Discontinue Plan.  The Employer reserves the right at any time to partially terminate the Plan or to terminate the Plan in its entirety.  Any such termination or partial termination of such Plan shall become effective immediately upon receipt by the Trustee of a copy of the vote or resolutions of the Directors of the Employer terminating its Plan, certified as true and correct by the clerk or secretary of the Employer.  A partial plan termination shall be deemed to have occurred based on the facts and circumstances in existence at the time as required by Section 1.411(d)-2(b)(1) of the Treasury Regulations and Revenue Ruling 2007-43 and upon any such partial termination, the rights of all affected employees to the amounts credited to their accounts shall be non-forfeitable.

In the event of termination of the Plan there shall be a 100% vesting and nonforfeitability of all rights and benefits under this Trust and Plan irrespective of the length of participation under the Plan.  However, the Trust shall remain in existence, and all of the provisions of the Trust shall remain in force, which are necessary in the sole opinion of the Trustees other than the provisions relating to Employer and Employee contributions.  All of the assets on hand on the date specified in such resolution shall be held, administered and distributed by the Trustees in the manner provided in the Plan, except that a Participant shall have a 100% vested and nonforfeitable interest in his or her Accounts, subject to Section 18.05.

Subject to Section 18.05, any other remaining assets of the Trust Fund shall also be vested in Participants on a pro rata basis based on their respective Accrued Benefit in relation to the aggregate of the Accrued Benefits of all Participants.  In the event of a

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partial termination of Plan, this Section will only apply to those Participants who are affected by such partial termination of Plan.  In the event that the Board of Directors of the Employer shall decide to terminate completely the Plan and Trust, they shall be terminated as of a date to be specified in certified copies of its resolution to be delivered to the Trustees.  Upon termination of the Plan and Trust, after payment of all expenses and proportional adjustment of Participants’ Accounts to reflect such expenses, fund profits or losses and reallocations to the date of termination, each Participant shall be entitled to receive in cash any amounts then credited to his or her Participants’ Accounts.

18.03Discontinuance of Contributions.  In the event that the Employer shall completely discontinue its contributions, each Participant or Beneficiary of a Participant affected shall be fully vested in any values credited to his or her Participant’s Accounts.  All of the assets on hand on the date contributions are discontinued shall be held, administered and distributed by the Trustees in the manner provided in the Plan.

18.04Merger and Consolidation of Plan, Transfer of Plan Assets or Liabilities.  In the case of any merger, consolidation with or transfer of assets or liabilities by the Employer to another plan, each Participant in the Plan on the date of the transaction shall have a benefit in the surviving plan (determined as if such plan were terminated immediately after the transaction) at least equal to the benefit to which he or she would have been entitled to receive immediately prior to the transaction if the plan had then terminated.

18.05Return of Employer Contributions Under Special Circumstances.  Notwithstanding any provisions of this Plan to the contrary:

(a)Any monies or other Plan assets held in Trust by the Trustee attributable to any contributions made to this Plan by the Employer because of a mistake of fact may be returned to the Employer within one year after the date of contribution.

(b)Any monies or other Plan assets held in Trust by the Trustee attributable to any contribution made by the Employer which is conditional on the initial qualification of the Plan, as amended, under the Internal Revenue Code may be refunded to the Employer; provided that:

(i)the Plan amendment is submitted to the Internal Revenue Service for qualification within one year from the date the amendment is adopted, and

(ii)Such contribution that was made conditioned upon Plan requalification is returned to the Employer within one year after the date the Plan’s requalification is denied.

(c)Any monies or other Plan assets held in Trust by the Trustee attributable to any contribution made by the Employer which is conditional on the deductibility of such contribution may be refunded to the Employer, to the extent the deduction is disallowed under Code Section 404, within one year after the date of such disallowance.

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ARTICLE XIX

MISCELLANEOUS

19.01Protection of Employee Interest.  No Participant, Beneficiary or other person, including alternate payees entitled to benefits pursuant to a Qualified Domestic Relations Order, shall have the right to assign, pledge, alienate or convey any right, benefit or payment to which he or she shall be entitled in accordance with the provisions of the Plan, and any such attempted assignment, pledge, alienation or conveyance shall be null and void and of no effect.  To the extent permitted by law, none of the benefits, payments, proceeds or rights herein created and provided for shall in any way be subject to any debts, contracts or engagements of any Participant, Beneficiary, alternate payee or other person entitled to benefits hereunder, nor to any suits, actions or other judicial process to levy upon or attach the same for the payment thereof.  Provided,  however, that this provision does not preclude the Plan Administrator from complying with the terms of a Qualified Domestic Relations Order.

If any Participant shall attempt to alienate or assign his or her interest provided by the Plan, the Plan Administrator shall take such steps as it deems necessary to preserve such interest for the benefit of the Participant or his or her Beneficiary.

Notwithstanding anything in this Section or in the Plan to the contrary, the Plan Administrator (i) shall comply with the terms of any Qualified Domestic Relations Order, as described in Code Section 414(p) entered on or after January 1, 1985, and (ii) shall comply with the terms of any domestic relations order entered before January 1, 1985 if the Administrator is paying benefits pursuant to such order on such date.

19.02USERRA Compliance.  Notwithstanding any provisions of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with the rules and requirements of the Uniformed Services Employment and Reemployment Rights Act of 1994 and Code Section 414(u).

19.03Amendment to Vesting Schedule.  No amendment to the Plan vesting schedule shall deprive a Participant of his or her nonforfeitable rights to benefits accrued to the date of the amendment.  Further, if the vesting schedule of the Plan is amended, or the Plan is amended in any way that directly or indirectly affects the computation of a Participant’s nonforfeitable percentage, each Participant with at least 3 Years of Service with the Employer may elect, within a reasonable period after the adoption of the amendment, to have his or her nonforfeitable percentage computed under the Plan without regard to such amendment.  The period during which the election may be made shall commence with the date the amendment is adopted and shall end on the latest of:

(i)60 days after the amendment is adopted;

(ii)60 days after the amendment becomes effective; or

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(iii)60 days after the Participant is issued written notice of the amendment by the Employer or Plan Administrator.

19.04Meaning of Words Used in Plan.  Wherever any words are used herein in the masculine gender, they shall be construed as though they were also used in the feminine or neuter gender in all cases where they would so apply.  Wherever any words are used herein in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply. 

Titles used herein are for general information only and this Plan is not to be construed by reference thereto.

19.05Plan Does Not Create Nor Modify Employment Rights.  The Plan and Trust shall not be construed as creating or modifying any contracts of employment between the Employer and any Participant.  All Employees of the Employer shall be subject to discharge to the same extent that they would have been if the Plan and Trust had never been adopted.

19.06Massachusetts Law Controls.  This Plan shall be governed by the laws of the Commonwealth of Massachusetts to the extent that they are not pre-empted by the laws of the United States of America.

19.07Payments to Come from Trust Fund.  All benefits and amounts payable under the Plan or Trust Indenture shall be paid or provided for solely from the Trust Fund, and neither the Employer nor the Plan Administrator assumes any liability or responsibility therefor.

19.08Receipt and Release for Payments.  Any payment to any Participant, his or her legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of this Plan and Trust, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, any of whom may require such Participant, legal representative, Beneficiary, guardian, custodian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer.

19.09Electronic Communications.Any electronic communications made by the Plan to Participants in regards to eligible rollover distribution tax notices, Participant consents to distributions, and tax withholding notices shall comply with the requirements contained in Treasury Regulation Section 1.401(a)-21, in addition to all otherwise applicable requirements relating to the specific communication.

19.10Plan Interpretation.If, due to errors in drafting, any Plan provision does not accurately reflect its intended meaning, as demonstrated by consistent interpretations or other evidence of intent, or as determined by the Plan Administrator in its sole and exclusive judgment, the provision shall be considered ambiguous and shall be interpreted by all Plan fiduciaries in a fashion consistent with its intent, as determined

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by the Employer in its sole discretion.  The Employer shall amend the Plan retroactively to cure any such ambiguity.  This Section may not be invoked by any person to require the Plan to be interpreted in a manner that is inconsistent with its interpretation by Plan fiduciaries.

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EXECUTED, this 26th day of January, 2016.

TheHanoverInsuranceCompany
By:	/s/ElenaPatronas
	Name:ElenaPatronas
	Title: Vice President

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APPENDIX A

Special provisions applicable to Employees formerly employed by One Beacon Insurance Group, LTD. or a business entity affiliated with One Beacon Insurance Group, LTD.

Notwithstanding anything elsewhere in the Plan to the contrary, the following special rules shall apply to each person (i) who became employed by the Employer on or after December 3, 2009, in connection with the transactions contemplated by the Renewal Rights and Asset Purchase Agreement dated December 3, 2009 by and among The Hanover Insurance Company, The Hanover Insurance Group, Inc., One Beacon Insurance Group, LTD. and certain business entities affiliated with One Beacon Insurance Group, LTD. and (ii) who was employed by One Beacon Insurance Group, LTD. or a business entity affiliated with One Beacon Insurance Group, LTD. immediately before being employed by the Employer:

1.For the purposes of vesting, each such person shall be given a past service credit under the Plan for his or her period of employment with One Beacon Insurance Group, LTD. or any business entity affiliated with One Beacon Insurance Group, LTD. from his most recent date of hire as shown on records furnished to the Employer to and including the date on which such person became employed by the Employer to the same extent as though such period were a period of employment with the Employer.

2.Any compensation paid to any such person by One Beacon Insurance Group, LTD. or a business entity affiliated with One Beacon Insurance Group, LTD. prior to the date on which such person became employed by the Employer shall NOT be taken into account for the purposes of this Plan.

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APPENDIX B

Special provisions applicable to Employees formerly employed by (i) Campania Holding Company, Inc. or its direct or indirect subsidiaries (“Campania”); (ii) Benchmark Professional Insurance Services, Inc. or its direct or indirect subsidiaries (“Benchmark”); or (iii) Insurance Company of the West or its direct or indirect subsidiaries (“ICW”).

Notwithstanding anything elsewhere in the Plan to the contrary, the following special rules shall apply to each person who became employed by the Employer:

· On or about January 15, 2010, in connection with the transactions contemplated by the Stock Purchase Agreement by and among The Hanover Insurance Group, Inc., Richard J. O’Gorman, Katherine Dimitrakopoulos and Benchmark Professional Insurance Services, Inc. dated January 15, 2010, and who was employed by Benchmark immediately before being employed by the Employer;

· On about March 31, 2010, in connection with the transactions contemplated by the Stock Purchase Agreement by and among The Hanover Insurance Group, Inc., Iona LLC, Campania Holding Company, Inc. and the Principal Members of Iona, LLC, dated January 15, 2010, and who was employed by Campania immediately before being employed by the Employer; or

· On or after July 8, 2010, in connection with the transactions contemplated by Surety Business Transition Agreement by and among Insurance Company of the West, certain of its insurance company subsidiaries and The Hanover Insurance Company dated July 8, 2010, and who was employed by ICW immediately before being employed by the Employer.

1.For the purposes of vesting, each such person shall be given a past service credit under the Plan for his or her period of employment with, as applicable, Campania, Benchmark or ICW, that immediately preceded his or her employment with the Employer, from his or her most recent date of hire as shown on records furnished to the Employer to and including the date on which such person became employed by the Employer to the same extent as though such period were a period of employment with the Employer.

2.         Any compensation paid to any such person by, as applicable, Campania, Benchmark or ICW prior to the date on which such person became employed by the Employer shall NOT be taken into account for the purposes of this Plan.

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APPENDIX C

Special provisionsapplicable to Employees formerly employed by (i) Professionals Direct, Inc. or its direct or indirect subsidiaries (“PDI”); (ii) Verlan Holdings, Inc. or its direct or indirect subsidiaries (“Verlan”); or (iii) AIX Holdings, Inc. or its direct or indirect subsidiaries (“AIX”).

(a)PDI

Pursuant to a certain Agreement and Plan of Merger by and among Professionals Direct, Inc., Hanover Acquisition Corp. and The Hanover Insurance Group, Inc. dated June 25, 2007, on September 14, 2007 (the “PDI Closing Date”), an Affiliate of the Employer acquired Professionals Direct, Inc. and its subsidiaries.  Employees of PDI who continued to be employed by PDI after the PDI Closing Date (“PDI Closing Hires”) remained employees of PDI (now an Affiliate of Employer) on a separate PDI payroll up to and through December 31, 2007 (the “PDI Transition Period”) when their employment was transferred from PDI to the Employer.

(1)Notwithstanding anything elsewhere in the Plan to the contrary, the following special rules shall apply to PDI Closing Hires:

(i)PDI Closing Hires shall be eligible to participate in the Plan, subject to its provisions, effective as of the PDI Closing Date and to the same extent that such employees would otherwise have been eligible to participate in the Plan had such PDI Closing Hires commenced employment with the Employer on the PDI Closing Date.

(ii)For the purposes of vesting, each such person shall be given a past service credit under the Plan for his or her period of employment with PDI that immediately preceded his or her employment with the Employer, from his or her most recent date of hire as shown on records furnished to the Employer to and including the date on which such person became employed by the Employer (or if terminated during the PDI Transition Period, until the date of termination) to the same extent as though such period were a period of employment with the Employer.

(iii)Any compensation paid to any such person by PDI prior to the PDI Closing Date shall NOT be taken into account for the purposes of this Plan.

(b)Verlan

(1)Notwithstanding anything elsewhere in the Plan to the contrary, the following special rules shall apply to each person who became employed by the Employer effective on or about March 14, 2008, in connection with the transactions contemplated by the Agreement and Plan of Merger by and among The Hanover Insurance Group, Inc., Northdale Acquisition Corp. and Verlan

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Holdings, Inc. dated January 10, 2008, and who was employed by Verlan immediately before being employed by the Employer;

(i)For the purposes of vesting, each such person shall be given a past service credit under the Plan for his or her period of employment with Verlan that immediately preceded his or her employment with the Employer, from his or her most recent date of hire as shown on records furnished to the Employer to and including the date on which such person became employed by the Employer to the same extent as though such period were a period of employment with the Employer.

(ii)Any compensation paid to any such person by Verlan prior to the date on which such person became employed by the Employer shall NOT be taken into account for the purposes of this Plan.

(c)AIX

Pursuant to a certain Stock Purchase Agreement by and among AIX Holdings, Inc., certain of its shareholders and The Hanover Insurance Group, Inc. dated August 5, 2008, on November 28, 2008 (the “AIX Closing Date”), an Affiliate of the Employer acquired AIX Holdings, Inc. and its subsidiaries.  Employees of AIX who continued to be employed by AIX after the AIX Closing Date (“AIX Closing Hires”) remained employees of AIX (now an Affiliate of Employer) on a separate AIX payroll up to and through December 31, 2009 (the “AIX Transition Period”) when the employment of these employees was transferred from AIX to the Employer.  Additionally, those employees hired by AIX during the AIX Transition Period (“AIX Transition Hires”) also remained employees of AIX on a separate AIX payroll until the expiration of the AIX Transition Period when such employees were transferred from AIX to the Employer.

(1)Notwithstanding anything elsewhere in the Plan to the contrary, the following special rules shall apply to AIX Closing Hires and AIX Transition Hires:

(i)AIX Closing Hires shall be eligible to participate in the Plan, subject to its provisions, effective as of the AIX Closing Date and to the same extent that such employees would otherwise have been eligible to participate in the Plan had such AIX Closing Hires commenced employment with the Employer on the AIX Closing Date.

(ii)AIX Transition Hires shall be eligible to participate in the Plan, subject to its provisions, effective as of as their date of hire by AIX and to the same extent that such employees would otherwise have been eligible to participate in the Plan had such AIX Transition Hires commenced employment with the Employer on their date of hire with AIX.

(iii)For the purposes of vesting, each such person shall be given a past service credit under the Plan for his or her period of employment with

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AIX that immediately preceded his or her employment with the Employer, from his or her most recent date of hire as shown on records furnished to the Employer to and including the date on which such person became employed by the Employer (or if terminated during the AIX Transition Period, until the date of termination) to the same extent as though such period were a period of employment with the Employer.

(iv)Any compensation paid to any such person by AIX prior to the AIX Closing Date shall NOT be taken into account for the purposes of this Plan.

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THEHANOVERINSURANCEGROUP

RETIREMENTSAVINGSPLAN

FIRSTAMENDMENT

TotheRestatementGenerallyEffectiveJanuary1,2015

THISAMENDMENT isexecutedbyTheHanoverInsuranceCompany,aNew Hampshirecorporation(the"Company").

WHEREAS,themostrecentrestatementofTheHanoverInsuranceGroupRetirement SavingsPlan(the"Plan")iseffectiveJanuary1,2015;and

WHEREAS,theCompanyhasreservedtherighttoamendthePlananytimeunder Section18.01of thePlan;and

WHEREAS,theCompanydesirestoamendthePlantoclarifyParticipants' rightswith respecttothedistributionoftheirbenefitseffectiveJanuary1,2017.

NOW,THEREFORE, thePlanis amendedeffectiveasofJanuary1,2017asfollows:

1.TheeighthparagraphofSection13.06ofthePlanbe deletedandthefollowing newparagraphinsertedinlieuthereof:

The portion of the Participant’s Accrued Benefit that is not attributable to a Rollover Account as described in Section 13.03 shall be distributed in whole or in part by the Trustee in such a manner as the Participant shall elect, in accordance with one of more of the following methods of distribution, which shall be paid in cash:

(i)Onelumpsumpayment.

(ii)Installmentpaymentsforaperiodcertainnotlongerthanthelife expectancyoftheParticipantandhisorherspouse.

This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment and, except as hereby amended, the Plan shall remain in full force and effect.

INWITNESSWHEREOF,thisAmendmenthasbeenexecutedthis13thdayofDecember,2016.

THE HANOVER INSURANCE COMPANY

ElenaPatronas,VicePresident

ClientMatteril7776/00008iAJ551873 DOC

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EX-10.38

Exhibit 10.38

August  5, 2016

Mr. Andrew S. Robinson

Executive Vice President

The Hanover Insurance Group, Inc.

440 Lincoln Street

Worcester, MA 01653

Dear Andrew:

In light of the pending reorganization of your current responsibilities and the elimination of your position as Executive Vice President, President-Specialty, Head of Corporate Development and Chief Risk Officer, you have resigned from The Hanover.  Accordingly, this letter (the “Separation Agreement” or “Agreement”) shall serve as written notice that your employment with The Hanover Insurance Company, its subsidiaries and affiliates, including but not limited to The Hanover Insurance Group, Inc. (collectively referred to herein as the “Company”) will end as of September 1, 2016 (the “Separation Date”).  This Agreement outlines the terms of your separation from the Company and the severance compensation for which you will be eligible provided you agree to the terms and conditions stated herein.  

1. Non-Working Notice (Garden Leave).  In exchange for your execution of this Separation Agreement, from the date hereof, up to and including September 1, 2016 (“Garden Leave Period”) you will be placed in a non-working status.  During this Garden Leave Period, you will not be expected to perform your ordinary duties or come into the office, but will be expected to cooperate and actively assist with the orderly and efficient transition of your responsibilities.  You will continue to be employed by the Company during the Garden Leave Period and will receive your current pay and benefits.  In the event you become employed elsewhere during your Garden Leave, your employment with the Company will be immediately terminated, and you will be paid out the balance of your Garden Leave in a lump sum payment on the next regularly scheduled payroll date.

2. Compensation.  In consideration of your performance of the covenants and other agreements set forth herein, you will be entitled to receive the following severance compensation:

(a) Leadership Transition Severance Payment.  Pursuant to the terms of that certain Leadership Transition Severance Arrangement between you and the Company dated February 23, 2016, you will receive a payment of $767,250 (1.65x your current base salary), in a single lump sum sixty (60) days following your Separation Date;

(b) Long-Term Compensation Payment.We are mindful that you otherwise would have vested in certain equity awards in February 2017 that now will be forfeited in their entirety even though you have completed a meaningful portion of the service requirement for such vesting.  In light of these circumstances, we will pay you $375,000 (the “Long-Term Cash Award”).  The Long-Term Cash Award will be payable in a single lump sum on March 10, 2017.  The payment of the Long-Term Cash Award is contingent upon your compliance with the terms of this Agreement and your written confirmation, executed immediately prior to the payment of the Long-Term Cash Award, that you have and will continue to comply with, all covenants and agreements to which you have previously agreed, in such form as shall be acceptable to the Company;

(c) Chaucer Board Fee.  You will receive your 2016 annual Chaucer Board Fee, pro-rated based upon the number of regularly scheduled meetings you attended during 2016 prior to your Separation Date.  Such amount will be paid within 30 days following the Effective Date;

(d) Outplacement Services.  The Company will provide you with up to twelve (12) months of executive outplacement assistance; and

(e) Financial Planning Services.  The Company will provide you a payment of $9,500 to offset costs associated with the continued provision of financial planning services through our current provider through April 30, 2017.  Such amount will be paid within 30 days following the Effective Date.

3. Resignation of Officer/Director Position(s).  You hereby resign from your officer and director positions with the Company effective on the date hereof.  (See Exhibit A).

4. Vacation Entitlement.  The Company will pay you for any accrued and unused vacation time to which you are entitled as of your Separation Date.  You are not required to sign this Agreement in order to receive your accrued and unused vacation pay.

5. Outstanding Long-Term Incentive Compensation Awards. 

(a) Stock Options.  To the extent you have any outstanding, unexercised stock options, you should review the applicable Equity Agreements (as defined below) for an explanation of your rights with respect to such options.  This information is available by logging on to Fidelity NetBenefits®http://netbenefits.fidelity.com, or by contacting a Human Resources representative.Notwithstanding the terms and conditions of the applicable Equity Agreements, on the earlier of the Separation Date or the Effective Date (as defined below), all outstanding but unvested stock options issued to you by the Company shall be automatically canceled and forfeited and returned to the Company for no consideration.

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(b) Stock Awards/Long Term Cash Awards.  Notwithstanding the terms and conditions of the applicable Equity Agreements, on the earlier of the Separation Date or the Effective Date, all outstanding but unvested restricted stock units, performance-based restricted stock units, shares of restricted stock or long-term cash awards issued to you by the Company shall be automatically canceled and forfeited and returned to the Company for no consideration.

Any agreements, plan documents, plans, governing resolutions of the Compensation Committee of the Board of Directors or other agreements or documents pursuant to which awards of any stock options, stock units or stock or other equity-based awards of any kind were granted to you or which otherwise govern the terms of any such awards, are herein referred to as “Equity Agreements”.

6. Payment for Money Owed/Withholding.  You acknowledge that all monies owed to you by the Company have been paid, including all monies owed for all hours worked, including overtime, if applicable, and that any payments made pursuant to this Agreement will be subject to applicable federal and state income tax withholding and other lawful deductions.

7. 409A Compliance.  This Agreement is intended to be exempt from or to comply with the requirements of Code Section 409A and the Treasury regulations and other applicable guidance issued by the Treasury Department and/or the Internal Revenue Service (collectively, “Section 409A”), and shall be interpreted and administered consistent with such intent.  The Company shall have no obligation to you in the event of any failure of any payment or permitted deferral under this Agreement to comply with Section 409A.  To the extent required for compliance with the requirements of Section 409A, references in the Agreement to a termination of employment shall mean a “separation from service” as defined by Section 409A.  Each payment made under this Agreement shall be designated as a “separate payment” within the meaning of Section 409A of the Code.

8. Employment Continuity Plan; Recoupment Policy.

(a) On the earlier of the Separation Date or the Effective Date you shall no longer be a participant in the Company’s Amended and Restated Employment Continuity Plan (sometimes referred to as a “change-in-control plan”) and shall no longer be entitled to any benefits under such plan, but this action shall not abridge your obligations under the related Agreement Related to Non-Solicitation and Other Matters dated November 14, 2008 (“CIC Agreement”),  which shall continue in full force and effect in accordance with its terms; and

(b) Nothing herein shall affect the Company’s rights or your obligations under its Policy Regarding Recoupment of Formulae-Based Performance Compensation, to which you consented and acknowledged by letter dated January 19, 2011.

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9. Non-Solicitation, Non-Hire, Non-Interference, Non-Disparagement, Confidentiality and Other Agreements.  In consideration of the payments provided for in this Agreement and other consideration previously provided and hereby acknowledged, you hereby confirm that you shall continue to be bound by, and shall comply with:

(a) the covenants, agreements and other undertakings set forth in the CIC Agreement, including, without limitation, section 1 (relating to non-solicitation/non-hire of employees and non-solicitation/interference with agents and customers, for a period of two years following your Separation Date), Section 5 (non-disparagement) and section 6 (cooperation);

(b) the covenants, agreements and other undertakings set forth in each of the Equity Agreements;  

(c) the covenants, agreements and other undertakings set forth in your offer letter executed onJuly 11, 2006; and

(d) the covenants, agreements and other undertakings set forth in the Confidentiality and Non-Disclosure Agreement executed on October 15, 2015.

10. References.  The Company will adhere to its “no reference” policy by responding to all inquiries regarding your employment with only information related to your dates of employment and position(s) held.  Additionally, while the Company does not determine eligibility for unemployment benefits it will not contest your application for such benefits.

11. Cooperation.  You agree to be available to respond to questions and/or inquiries and provide other information concerning matters that were within the scope of your responsibilities during your employment with the Company.  It is anticipated that most matters can be addressed through phone calls and/or e-mails.  Certain matters, however, may require meetings at mutually acceptable times and places.  You also agree to cooperate fully with the Company in connection with any existing or future litigation involving the Company to the extent the Company deems your cooperation necessary.  In connection with the provision of any such litigation assistance, the Company will compensate you at a rate equal to your base salary rate in effect as of the Separation Date and will reimburse you for any related reasonable and necessary expenses, such as expenses for travel, lodging, and meals.

12. Return of Company Property.  You agree to return to the Company, no later than the Separation Date, all property of the Company.  For purposes of this section, “property of the Company” includes, but is not limited to:  keys, corporate credit and calling cards, cell phone, PDA, laptop or personal computer, or any other equipment issued to you by the Company, including, but not limited to, books, supplies, computer programs, originals and copies of all company documents, including customer and client lists, vendor information, financial records and information, technical data, and any other materials, whether prepared by you or by others, but excluding anything owned by you, individually.

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13. Group Insurance Continuation/COBRA Benefits.  You will be receiving information regarding your eligibility to continue your medical and dental insurance under COBRA.  You do not have to sign this Agreement in order to access COBRA benefits.  Nevertheless, you should go to the health insurance exchange in your state to determine whether under your circumstances you are better choosing COBRA or accessing medical and dental coverage under the health insurance exchange.  You acknowledge that in the event you become disabled prior to your Separation Date, you may be eligible for STD and/or LTD benefits; however, your employment will be terminated on your Separation Date.

14. Code of Conduct Disclosure of Securities/SOX Violations. The Company seeks toensure compliance with its Code of Conduct, other Company policies and federal andstate laws and regulations, and imposes on each of its officers, directors, employeesand others a duty to report potential violations. This includes the duty to report to theCompany any conduct, act, or omission by the Company that you believe mayconstitute a violation of the Sarbanes-Oxley Act of 2002 (“SOX”) or other securitieslaws, including any fraud on investors or potential investors, financial improprieties,and/or any other unlawful conduct (hereafter collectively “unlawful conduct”). TheCompany provides mechanisms to encourage compliance with this duty, includingthe ability to report matters anonymously to an independent, third party companythrough the Employee Alert Line at 1-800-533-2547, or at the Web site:www.listenupreports.com, and if any person subject to the Code of Conduct does notbelieve that the matter has been adequately handled, then it should be reported inwriting to the General Counsel or the Director of the Internal Audit Department, or inappropriate circumstances involving issues regarding the integrity of the Company’sfinancial statements or other unlawful conduct as defined above, to the Chairman ofthe Audit Committee of the Board of Directors. You acknowledge this responsibilityunder the Company’s Code of Conduct. The Company’s Code of Conduct prohibitsretaliation for any such reporting and your entitlement to compensation under theAgreement will not be affected in any manner by the reporting of unlawful conducton the part of the Company. The officers of the Company are not aware of any factsthat would give rise to a claim by the Company or its affiliates against you.

15. Waiver and Release.  In consideration for the compensation hereunder, and for other good and sufficient consideration contained herein and otherwise, the receipt of which is hereby acknowledged, you hereby release and discharge the Company and its past or present officers, directors, employees, agents and attorneys, whether directly or indirectly, and whether individually or in their official capacities (collectively, the “Releasees”), from all actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, claims, complaints, liabilities, promises, torts, debts, damages, judgments, rights or demands whatsoever, whether existing or contingent, known or unknown, suspected or unsuspected, including without limitation, all claims in law or in equity (collectively, “Claims”) which you ever had, now have or hereafter may have against the Releasees to the date of your execution of this Agreement, including any claims for any alleged violation of any federal, state, or local law, regulation or public policy relating to or having any bearing, directly or indirectly, on the terms and conditions of your employment with the Company or the termination of your employment with the Company.

5

In addition, you understand and acknowledge that there are various federal, state and local laws that prohibit employment discrimination on the basis of age, sex, race, color, marital status, national origin, religion, disability, sexual orientation and other legally protected categories, and that these laws are enforced by the courts and various government agencies.  You intend to give up any rights you may have under these laws or any other laws with respect to your affiliation with the Releasees, employment by the Company, or the ending of your employment with the Company.  You hereby release and forever discharge the Releasees from any and all actions, causes of action and claims whatsoever for wages, severance, stock options, bonuses, damages, including pain and suffering and emotional harm arising out of any promise, agreement or contract, known or unknown, suspected or unsuspected, you ever had, now have, or shall have against the Releasees with respect to any matter, event or condition occurring or arising on or prior to the date of your execution of this Agreement, including, but not limited to, claims for breach of an implied or expressed employment contract, claims for unlawful discharge, claims for outstanding wages, claims alleging a violation of federal and state wage and hour laws, Title VII of the Civil Rights Act, as amended, the Age Discrimination in Employment Act of 1967, as amended, Section 1981 of the Civil Rights Action of 1991, The Americans with Disabilities Act, The Equal Pay Act, the Family Medical and Leave Act, federal and state Wage and Hour Laws, including but not limited to, Mass. Gen. Laws ch. 149 Section 148, et. seq. and Mass. Gen. Laws ch.151, Section 1A et. seq.,the Employee Retirement Income Security Act of 1974, federal and state whistle blower laws and other claims pursuant to federal, state or local law regarding discrimination based on race, age, sex, religion, marital status, disability, sexual orientation, or national origin, claims for alleged violation of any other local, state, and federal law, regulations, ordinance or public policy relating to or having any bearing, directly or indirectly, on the terms or conditions of your employment with the Company, the termination of such employment, as well as all claims pursuant to common law, or claims arising directly or indirectly out of your employment by or termination of employment with the Company.  The recitation of specific claims in this paragraph is without prejudice to the general release in the first paragraph of this Section and is not intended to limit the scope of the general release.

You further agree to release and discharge the Releasees not only from any and all claims which you could have made on your own behalf or on behalf of others, but also from those which may or could be brought by any other person, governmental authority or organization on your behalf, and you specifically waive any right to recover any damage awards as a member of any class in a case in which any claim(s) against the Releases are made involving any matters.

You acknowledge that you may later discover facts different from, or in addition to, what you know to be true for matters released in this Agreement.  Notwithstanding any such different or additional facts, you agree that this Agreement will remain in effect as to all claims released under the Agreement.

This Release does not apply to any claims arising solely after the execution of this Agreement or to any claims arising from a breach of this Agreement.

6

Notwithstanding the foregoing, nothing in this Agreement shall bar or prohibit you from contacting, filing a charge or complaint with, seeking assistance from or participating in any proceeding before any federal or state administrative agency, including the Equal Employment Opportunity Commission, to the extent permitted by applicable federal, state and/or local law.  You understand and agree, however, that you will be prohibited to the fullest extent authorized by law from obtaining monetary damages or other personal relief in any such agency proceeding.

16. Period of Review.Waiver of Rights and Claims Under the ADEA.You are hereby informed, in writing, that you are waiving any rights and/or claims for damages you have or may have under the Age Discrimination in Employment Action of 1967, as amended (“ADEA”).

i. Waiver in Exchange for Consideration.  You agree that, in exchange for the consideration set forth in this Agreement, which you would not otherwise be entitled to receive, you specifically and voluntarily waive such rights and/or claims under the ADEA you might have against the Releasees to the extent such rights and/or claims arose prior to the date this Agreement was executed.

ii. No waiver of Claims Arising After Execution of Agreement.  You understand and agree that you are not waiving any rights or claims under the ADEA that may arise after the date this Agreement is executed.

iii. Knowing and Voluntary.  You agree that you have carefully read and fully understand all of the provisions of this Agreement, and that you knowingly and voluntarily agree to all the terms set forth in this Agreement.  You acknowledge that in entering into this Agreement, you are not relying on any representation, promise or inducement made by the Company, or its attorneys, with the exception of those promises described in this document.

iv. Opportunity to Consult Legal Counsel.  By this Agreement, the Company is advising you, in writing, to consult with legal counsel before signing the Agreement.  You acknowledge that you have not been subjected to any undue or improper influence interfering with the exercise of your free will in deciding whether or not to consult with counsel prior to signing the Agreement.

v. Review.  You understand that you have twenty-one (21) days in which to consider this Agreement prior to signing it, but may waive all or part of the review period if you choose.  If you fail to return this Agreement within 21 days of the date you receive it, the Company will consider you to have rejected its offer of the payment and benefits provided herein.  You acknowledge that any changes to this Agreement, material or otherwise, will not restart the 21-day review period.

7

vi. Revocation.  You understand further that, once you have signed this Agreement, you have seven (7) days in which to revoke it.  You understand that such seven-day period is mandatory and may not be waived.  You understand and agree that any notice of revocation you may wish to make must be in writing and received by the Company within the seven-day revocation period, and in no case later than 5:00 p.m. on the seventh day.  Any such notice of revocation must be directed to HR Solutions, 440 Lincoln Street, S-251, Worcester, MA 01653.  You further understand that the Agreement does not become effective or enforceable and that no payment will be made under the Agreement until the seven-day revocation period has expired.

vii. Effective Date.  The Effective Date of this Agreement will be the eighth day after you sign it.  If the Company does not receive written notice from you within the seven-day revocation period that you are exercising your right of revocation, the Agreement will automatically become effective as of the Effective Date.

17. Successors and Assigns.  This Agreement shall be binding upon you, your heirs, executors, administrators and assigns, and upon the Company, its successors and assigns.

18. Completeness of Agreement.  This Agreement contains all the terms and conditions agreed upon by the parties with reference to the subject matter contained in this Agreement.  No other agreement, oral or otherwise, will be deemed to exist or to bind either of the parties to this Agreement.  No representative of any party to this Agreement had or has any authority to make any representation or promise not contained in this Agreement, and each of the parties to this Agreement acknowledge that such party has not executed this Agreement in reliance upon any such representation or promise.  This Agreement cannot be modified except by a written instrument signed by both parties.

19. Severability.  The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.  Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision hereof shall be prohibited by or be invalid under such law, that provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating or nullifying the remainder of that provision or any other provision of this Agreement.  The language of all the parts of this Agreement and Release shall be construed as a whole, according to its fair meaning, and not strictly for or against either party.

20. Massachusetts Law.  This Agreement shall be executed as an agreement under seal and it shall be governed by the laws of the Commonwealth of Massachusetts without giving effect to the principles of conflicts of laws of such state.  All disputes arising under or out of this Agreement will be brought in courts of competent jurisdiction located within the Commonwealth of Massachusetts.

8

Very truly yours,

THE HANOVER INSURANCE COMPANY

By: /s/ Christine Bilotti-Peterson

Christine Bilotti-Peterson

Senior Vice President and CHRO

I knowingly understand and voluntarily agree and accept the terms and conditions set forth above.

/s/ Andrew S. Robinson

Andrew S. Robinson

Date:  August 12, 2016

9

Exhibit A

August 5, 2016

The Hanover Insurance Company

440 Lincoln Street

Worcester,  MA01653

Ihereby resign, effectiveAugust  5, 2016,all of my officer and director positions held in The Hanover Insurance Group, Inc. and each of its subsidiaries or affiliates.

Very truly yours,

_____________________________

Andrew S. Robinson

10

EX-12.1

Exhibit 12.1

The Hanover Insurance Group, Inc.

Computation of Ratio of Earnings to Fixed Charges

(in millions, except ratios)

	Fiscal Years Ended December 31
	2016	2015	2014	2013	2012
Income before income taxes	192.3	439.4	378.0	329.1	28.7
Fixed charges:
Interest expense	54.9	60.6	65.8	65.8	62.5
Interest portion of rental expense	6.1	5.7	6.7	7.1	7.4
Total fixed charges	61.0	66.3	72.5	72.9	69.9
Income before income taxes and fixed charges	253.3	505.7	450.5	402.0	98.6
Ratio of earnings to fixed charges	4.152	7.627	6.214	5.514	1.411

EX-21

Exhibit 21

Direct and Indirect Subsidiaries of the Registrant

I. The Hanover Insurance Group, Inc. (Delaware)

A.Opus Investment Management, Inc. (Massachusetts)

a.The Hanover Insurance Company (New Hampshire)

1.Citizens Insurance Company of America (Michigan)

2.Allmerica Financial Benefit Insurance Company (Michigan)

3.Allmerica Plus Insurance Agency, Inc. (Massachusetts)

4.The Hanover American Insurance Company (New Hampshire)

5.Hanover Texas Insurance Management Company, Inc. (Texas)

6.Citizens Insurance Company of Ohio (Ohio)

7.Citizens Insurance Company of The Midwest (Indiana)

8.The Hanover New Jersey Insurance Company (New Hampshire)

9.Massachusetts Bay Insurance Company (New Hampshire)

10.Allmerica Financial Alliance Insurance Company (New Hampshire)

11.Professionals Direct, Inc. (Michigan)

(i)Professionals Direct Insurance Services, Inc. (Michigan)

12.Verlan Fire Insurance Company (New Hampshire)

13.The Hanover National Insurance Company (New Hampshire)

14.AIX Holdings, Inc. (Delaware)

(i)Nova American Group, Inc. (New York) 

1.NOVA Casualty Company (New York)

a.AIX Specialty Insurance Company (Delaware)

(ii)AIX, Inc. (Delaware)

1.AIX Insurance Services of California, Inc. (California)

15.440 Lincoln Street Holding Company LLC (Massachusetts)

16.Campmed Casualty & Indemnity Company, Inc. (New Hampshire)

17.CitySquare II Investment Company LLC (Massachusetts)

(i)Front Street Financing LLC (Massachusetts)

18. The Hanover Atlantic Insurance Company Ltd. (Bermuda)

19.Chaucer Insurance Company Designated Activity Company (Ireland)

b.Citizens Insurance Company of Illinois (Illinois)

c.CitySquare II Development Co. LLC (Massachusetts)

B.VeraVest Investments, Inc. (Massachusetts)

C.Verlan Holdings, Inc. (Maryland)

a.Hanover Specialty Insurance Brokers, Inc. (Virginia)

D.Campania Holding Company, Inc. (Virginia)

E.Educators Insurance Agency, Inc. (Massachusetts)

F.The Hanover (Barbados) Capital SRL (Barbados)

G.The Hanover Insurance International Holdings Limited (United Kingdom)

a.Chaucer Holdings Limited (United Kingdom)

1.ALIT Insurance Holdings Limited (United Kingdom)

(i)Aberdeen Underwriting Advisers Limited (United Kingdom)

(ii)ALIT Underwriting Limited (United Kingdom)

1.ALIT (No. 1) Limited (United Kingdom)

2.ALIT (No. 2) Limited (United Kingdom)

3.ALIT (No. 3) Limited (United Kingdom)

4.ALIT (No. 4) Limited (United Kingdom)

5.ALIT (No. 5) Limited (United Kingdom)

2.Chaucer Corporate Capital (No. 2) Limited (United Kingdom)

3.Chaucer Corporate Capital (No. 3) Limited (United Kingdom)

4.Chaucer Corporate Capital Limited (United Kingdom)

5.Chaucer Insurance Group PLC (United Kingdom)

6.Chaucer Capital Investments Limited (United Kingdom)

(i)CH 1997 Limited (United Kingdom)

1.Chaucer Consortium Underwriting Limited (United Kingdom)

2.Chaucer Dedicated Limited (United Kingdom)

3.Chaucer Underwriting A/S (Denmark)

4.INSURANCE4CARGOSERVICES Limited (United Kingdom)

(ii)Chaucer Syndicates Limited (United Kingdom)

1. Lonham Limited (United Kingdom)

a.Lonham Group Limited (United Kingdom)

2. Chaucer Labuan Limited (Malaysia)

3. Chaucer GmbH (Germany)

4. Chaucer Latin America SA (Argentina)

5. Chaucer Singapore Pte. Limited (Singapore)

6. Chaucer Syndicate Services Limited (United Kingdom)

7. Chaucer Oslo AS (Norway)

8. Chaucer Underwriting Services Limited (United Kingdom)

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-210328) and Form S-8 (No. 333-24929, No. 333-31397, No. 333-134394, No. 333-134395 and No. 333-196107) of The Hanover Insurance Group, Inc. of our report dated February 22, 2017 relating to the financial statements, financial statement schedules and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Boston, MA

February 22, 2017

EX-24

Exhibit 24

POWER OF ATTORNEY

    We, the undersigned, hereby severally constitute and appoint Joseph M. Zubretsky, J. Kendall Huber, and Jeffrey M. Farber, each of them singly, our true and lawful attorneys, with full power in each of them, to sign for and in each of our names and in any and all capacities, the Form 10-K of The Hanover Insurance Group, Inc. (the "Company") and any other filings made on behalf of said Company pursuant to the requirements of the Securities Exchange Act of 1934, and to file the same with all exhibits and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and each of them, acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done, hereby ratifying and confirming all that said attorneys or any of them may lawfully do or cause to be done by virtue hereof.  Witness our hands and common seal on the date set forth below.

Signature	Title	Date
/s/ Joseph M. Zubretsky		February 17, 2017
Joseph M. Zubretsky	President, Chief Executive Officer and Director
/s/ Jeffrey M. Farber		February 17, 2017
Jeffrey M. Farber	Executive Vice President and Chief Financial Officer
/s/ Warren E. Barnes		February 17, 2017
Warren E. Barnes	Vice President,  Corporate Controller and Principal Accounting Officer
/s/ Michael P. Angelini		February 17, 2017
Michael P. Angelini	Chairman of the Board
/s/ Richard H. Booth		February 17, 2017
Richard H. Booth	Director
/s/ Jane D. Carlin		February 17, 2017
Jane D. Carlin	Director
/s/ P. Kevin Condron		February 17, 2017
P. Kevin Condron	Director
/s/Cynthia L. Egan		February 17, 2017
Cynthia L. Egan	Director
/s/ Karen C. Francis		February 17, 2017
Karen C. Francis	Director
/s/ Daniel T. Henry		February 17, 2017
Daniel T. Henry	Director
/s/ Wendell J. Knox		February 17, 2017
Wendell J. Knox	Director
/s/ Joseph R. Ramrath		February 17, 2017
Joseph R. Ramrath	Director
/s/ Harriett Tee Taggart		February 17, 2017
Harriett Tee Taggart	Director

EX-31.1

Exhibit 31.1

CERTIFICATION AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph M. Zubretsky, certify that:

1.I have reviewed this annual report on Form 10-K of The Hanover Insurance Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February22, 2017

,

/s/ Joseph M. Zubretsky

Joseph M. Zubretsky

President, Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

CERTIFICATION AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey M. Farber, certify that:

1.I have reviewed this annual report on Form 10-K of The Hanover Insurance Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February22, 2017

/s/ Jeffrey M. Farber

Jeffrey M. Farber

Executive Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as President, Chief Executive Officer andDirectorof The Hanover Insurance Group, Inc. (the “Company”), does hereby certify that to the undersigned’s knowledge:

1)the Company’s Annual Report on Form 10-K for the period ended December 31, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)the information contained in the Company’s Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Joseph M. Zubretsky

Joseph M. Zubretsky

President, Chief Executive Officer andDirector

Dated: February22, 2017

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Executive Vice President and Chief Financial Officerof The Hanover Insurance Group, Inc. (the “Company”), does hereby certify that to the undersigned’s knowledge:

1)the Company’s Annual Report on Form 10-K for the period ended December  31, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)the information contained in the Company’s Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jeffrey M. Farber

Jeffrey M. Farber

Executive Vice President and

Chief Financial Officer

Dated: February22, 2017

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Feb. 17, 2017	Jun. 30, 2016
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
Entity Registrant Name	HANOVER INSURANCE GROUP, INC.
Entity Central Index Key	0000944695
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 3,607,314,213
Entity Common Stock, Shares Outstanding		42,501,269

XML

Consolidated Statements Of Income - USD ($) shares in Millions, $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Revenues
Premiums	$ 4,628.1	$ 4,704.8	$ 4,710.3
Net investment income	279.4	279.1	270.3
Net realized investment gains (losses):
Net realized gains from sales and other	36.5	46.3	55.6
Net other-than-temporary impairment losses on investments recognized in earnings	(27.9)	(26.8)	(5.5)
Total net realized investment gains	8.6	19.5	50.1
Fees and other income	29.7	30.6	36.9
Total revenues	4,945.8	5,034.0	5,067.6
Losses and expenses
Losses and loss adjustment expenses	2,964.7	2,884.1	2,927.5
Amortization of deferred acquisition costs	1,035.2	1,033.2	1,040.0
Interest expense	54.9	60.6	65.8
Gain on disposal of U.K. motor business	(1.1)	(38.4)
Net loss from repayment of debt	88.3	24.1	0.1
Other operating expenses	611.5	631.0	656.2
Total losses and expenses	4,753.5	4,594.6	4,689.6
Income before income taxes	192.3	439.4	378.0
Income tax expense:
Current	52.1	55.8	27.1
Deferred	(15.9)	52.8	68.6
Total income tax expense	36.2	108.6	95.7
Income from continuing operations	156.1	330.8	282.3
Net (loss) gain from discontinued operations (net of income tax benefit of $2.8, $0.5 and $0.1 in 2016, 2015 and 2014)	(1.0)	0.7	(0.3)
Net income	$ 155.1	$ 331.5	$ 282.0
Basic:
Income from continuing operations	$ 3.65	$ 7.53	$ 6.41
Net (loss) gain from discontinued operations	(0.02)	0.02
Net income per share	$ 3.63	$ 7.55	$ 6.41
Weighted average shares outstanding	42.8	43.9	44.0
Diluted:
Income from continuing operations	$ 3.61	$ 7.39	$ 6.29
Net (loss) gain from discontinued operations	(0.02)	0.01	(0.01)
Net income per share	$ 3.59	$ 7.40	$ 6.28
Weighted average shares outstanding	43.2	44.8	44.9

XML

Consolidated Statements Of Income (Parenthetical) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Statement [Abstract]
Net (loss) gain from discontinued operations, income tax benefit (expense)	$ 2.8	$ 0.5	$ 0.1

XML

Consolidated Statements Of Comprehensive Income - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Consolidated Statements Of Comprehensive Income [Abstract]
Net income	$ 155.1	$ 331.5	$ 282.0
Available-for-sale securities:
Net appreciation (depreciation) during the period	28.8	(138.0)	40.0
Change in other-than-temporary impairment losses recognized in other comprehensive income (loss)	7.3	(13.0)	1.6
Total available-for-sale securities	36.1	(151.0)	41.6
Pension and postretirement benefits:
Net actuarial losses and prior service costs arising in the period	(30.3)	(2.8)	(22.6)
Amortization recognized as net periodic benefit and postretirement cost	6.4	8.5	14.4
Total pension and postretirement benefits	(23.9)	5.7	(8.2)
Cumulative foreign currency translation adjustment:
Amount recognized as cumulative foreign currency translation during the year	(3.3)	(7.2)	(4.6)
Total other comprehensive income (loss), net of tax	8.9	(152.5)	28.8
Comprehensive income	$ 164.0	$ 179.0	$ 310.8

XML

Consolidated Balance Sheets - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Assets
Fixed maturities, at fair value (amortized cost of $7,235.1 and $6,934.0)	$ 7,331.3	$ 6,983.4
Equity securities, at fair value (cost of $498.4 and $528.5)	584.4	576.6
Other investments	533.8	393.4
Total investments	8,449.5	7,953.4
Cash and cash equivalents	282.6	338.8
Accrued investment income	61.7	62.9
Premiums and accounts receivable, net	1,438.1	1,391.7
Reinsurance recoverable on paid and unpaid losses and unearned premiums	2,611.8	2,635.0
Deferred acquisition costs	517.5	508.8
Deferred income taxes	115.1	137.9
Goodwill	184.8	186.0
Other assets	479.8	483.7
Assets of discontinued operations	79.5	83.0
Total assets	14,220.4	13,781.2
Liabilities
Loss and loss adjustment expense reserves	6,949.4	6,574.4
Unearned premiums	2,561.0	2,540.8
Expenses and taxes payable	728.0	724.9
Reinsurance premiums payable	251.9	205.2
Debt	786.4	803.1
Liabilities of discontinued operations	86.2	88.4
Total liabilities	11,362.9	10,936.8
Commitments and contingencies
Shareholders' Equity
Preferred stock, par value $0.01 per share; 20.0 million shares authorized; none issued
Common stock, par value $0.01 per share; 300.0 million shares authorized; 60.5 million shares issued	0.6	0.6
Additional paid-in capital	1,846.7	1,833.5
Accumulated other comprehensive income	62.8	53.9
Retained earnings	1,875.6	1,803.5
Treasury stock at cost (18.1 and 17.5 million shares)	(928.2)	(847.1)
Total shareholders' equity	2,857.5	2,844.4
Total liabilities and shareholders' equity	$ 14,220.4	$ 13,781.2

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Consolidated Balance Sheets [Abstract]
Fixed maturities, amortized cost	$ 7,235.1	$ 6,934.0
Equity securities, cost	$ 498.4	$ 528.5
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, issued	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	60,500,000	60,500,000
Treasury stock, shares	18,100,000	17,500,000

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Consolidated Statements Of Shareholders' Equity - USD ($) $ in Millions	Common Stock	Additional Paid-in Capital	Net Unrealized Appreciation (Depreciation) on Investments:	Defined Benefit Pension and Postretirement Plans	Cumulative Foreign Currency Translation Adjustment	Retained Earnings	Treasury Stock	Total
Balance at beginning of year at Dec. 31, 2013	$ 0.6	$ 1,830.1	$ 259.3	$ (76.1)	$ (5.6)	$ 1,349.1	$ (762.9)
Net income						282.0		$ 282.0
Shares purchased at cost							(20.4)
Employee and director stock-based awards and other		0.6
Net appreciation (depreciation) on available-for-sale securities			41.6					41.6
Net amount arising in the period				(22.6)				(22.6)
Net amount recognized as net periodic benefit cost				14.4				(14.4)
Amount recognized as cumulative foreign currency translation during the year					(4.6)			(4.6)
Dividends to shareholders						(67.0)
Total accumulated other comprehensive income					206.4			28.8
Net shares reissued at cost under employee stock-based compensation plans							30.9
Stock-based compensation						(5.4)
Balance at end of year at Dec. 31, 2014	0.6	1,830.7	300.9	(84.3)	(10.2)	1,558.7	(752.4)	2,844.0
Net income						331.5		331.5
Shares purchased at cost							(127.3)
Employee and director stock-based awards and other		2.8
Net appreciation (depreciation) on available-for-sale securities			(151.0)					(151.0)
Net amount arising in the period				(2.8)				(2.8)
Net amount recognized as net periodic benefit cost				8.5				(8.5)
Amount recognized as cumulative foreign currency translation during the year					(7.2)			(7.2)
Dividends to shareholders						(74.2)
Total accumulated other comprehensive income					53.9			(152.5)
Net shares reissued at cost under employee stock-based compensation plans							32.6
Stock-based compensation						(12.5)
Balance at end of year at Dec. 31, 2015	$ 0.6	1,833.5	149.9	(78.6)	(17.4)	1,803.5	(847.1)	2,844.4
Net income						155.1		155.1
Shares purchased at cost							(105.6)
Employee and director stock-based awards and other		13.2
Net appreciation (depreciation) on available-for-sale securities			36.1					36.1
Net amount arising in the period				(30.3)				(30.3)
Net amount recognized as net periodic benefit cost				6.4				(6.4)
Amount recognized as cumulative foreign currency translation during the year					(3.3)			(3.3)
Dividends to shareholders						(80.4)
Total accumulated other comprehensive income					62.8			8.9
Net shares reissued at cost under employee stock-based compensation plans							24.5
Stock-based compensation						(2.6)
Balance at end of year at Dec. 31, 2016		$ 1,846.7	$ 186.0	$ (102.5)	$ (20.7)	$ 1,875.6	$ (928.2)	$ 2,857.5

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Consolidated Statements Of Cash Flows - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash Flows From Operating Activities
Net income	$ 155.1	$ 331.5	$ 282.0
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on disposal of U.K. motor business	(1.1)	(38.4)
Net loss from repayment of debt	88.3	24.1	0.1
Net realized investment gains	(8.6)	(19.1)	(50.2)
Net amortization and depreciation	30.7	30.2	33.5
Stock-based compensation expense	12.0	12.3	15.1
Amortization of defined benefit plan costs	9.9	12.7	22.1
Deferred income tax expense	(13.2)	53.1	68.6
Change in deferred acquisition costs	(7.8)	6.9	(19.6)
Change in premiums receivable, net of reinsurance premiums payable	(28.2)	(52.5)	(184.1)
Change in loss, loss adjustment expense and unearned premium reserves	527.8	121.0	256.3
Change in reinsurance recoverable	(35.8)	(27.0)	115.9
Change in expenses and taxes payable	6.9	(1.0)	12.5
Other, net	1.6	(15.4)	12.5
Net cash provided by operating activities	737.6	438.4	564.7
Cash Flows From Investing Activities
Proceeds from disposals and maturities of fixed maturities	1,602.3	1,696.4	1,323.1
Proceeds from disposals of equity securities and other investments	271.1	329.4	175.2
Purchase of fixed maturities	(2,020.9)	(1,792.2)	(1,710.1)
Purchase of equity securities and other investments	(351.2)	(428.8)	(379.7)
Cash received from disposal of U.K. motor business, net of cash transferred	6.9	44.3
Capital expenditures	(15.7)	(19.5)	(11.2)
Other investing activities	12.1	(1.1)	2.0
Net cash used in investing activities	(495.4)	(171.5)	(600.7)
Cash Flows From Financing Activities
Proceeds from exercise of employee stock options	16.2	16.6	12.6
Proceeds from debt borrowings, net	370.7
Change in cash collateral related to securities lending program	(6.4)	15.7	7.4
Dividends paid to shareholders	(80.4)	(74.2)	(67.0)
Repayment of debt	(475.4)	(114.3)	(0.7)
Repurchases of common stock	(105.6)	(127.3)	(20.4)
Other financing activities	(14.1)	(11.2)	(3.6)
Net cash used in financing activities	(295.0)	(294.7)	(71.7)
Effect of exchange rate changes on cash	(3.4)	(6.7)	(5.2)
Net change in cash and cash equivalents	(56.2)	(34.5)	(112.9)
Cash and cash equivalents, beginning of year	338.8	373.3	486.2
Cash and cash equivalents, end of year	282.6	338.8	373.3
Supplemental Cash Flow Information
Interest payments	53.1	60.8	64.1
Income tax net payments	$ 29.7	$ 56.9	$ 8.4

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Summary Of Significant Accounting Policies

12 Months Ended

Dec. 31, 2016

Summary Of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Basis of Presentation and Principles of Consolidation

The consolidated financial statements of The Hanover Insurance Group, Inc. (“THG” or the “Company”), include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America (“Citizens”), THG’s principal U.S. domiciled property and casualty companies; Chaucer Holdings Limited (“Chaucer”), a specialist insurance underwriting group which operates through the Society and Corporation of Lloyd’s (“Lloyd’s”); and certain other insurance and non-insurance subsidiaries. These legal entities conduct their operations through several business segments discussed in Note 14 – “Segment Information”. The consolidated financial statements also include the Company’s discontinued operations, consisting primarily of the Company’s former life insurance businesses, and its accident and health business. All intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) requires the Company 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. In the opinion of the Company’s management these financial statements reflect all adjustments, consisting of normal recurring items necessary for a fair presentation of the financial position and results of operations.

B. Investments

Fixed maturities and equity securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses, net of taxes, reported in accumulated other comprehensive income, a separate component of shareholders’ equity. The amortized cost of fixed maturities is adjusted for amortization of premiums and accretion of discounts to maturity.

Other investments consist primarily of mortgage participations, limited partnerships and overseas deposits. Mortgage participations represent interests in commercial mortgage loans originated and serviced by a third-party of which the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgage loans. Due to certain reacquisition rights retained by the third-party in the loan participation, these investments are accounted for as secured borrowings under Accounting Standards Codification (“ASC”) 860, Transfers and Servicing (“ASC 860”). Mortgage participations are stated at unpaid principal balances adjusted for deferred fees or expenses, net of reserves. Reserves on mortgages are established and are collectively evaluated based on losses expected by the Company for loans that may not be collectible in full. In establishing reserves, the Company considers, among other things, the estimated fair value of the underlying collateral.

Investments in limited partnership interests include interests in private equity funds. Where the Company’s interest is so minor that it exercises virtually no influence over operating and financial policies, investments in limited partnership interests are accounted for in accordance with the cost method of accounting; all other investments in limited partnership interests are accounted for in accordance with the equity method of accounting.

Overseas deposits are investments maintained in overseas funds and managed exclusively by Lloyd’s. These funds are required in order to protect policyholders in overseas markets and enable the Company to operate in those markets. Overseas deposits are carried at fair value. Realized and unrealized gains and losses on overseas deposits, including the impact of foreign currency movements, are reflected in the income statement in the period the gain or loss was generated.

Net investment income includes interest, dividends and income from limited partnership interests and overseas deposits. Interest income is recognized based on the effective yield method which includes the amortization of premiums and accretion of discounts. The effective yield used to determine the amortization for fixed maturities subject to prepayment risk, such as mortgage-backed and asset-backed securities, is recalculated and adjusted periodically based upon actual historical and projected future cash flows. The adjustment to yields for highly rated prepayable fixed maturities are accounted for using the retrospective method. The adjustment to yields for all other prepayable fixed maturities are accounted for using the prospective method. Fixed maturities and mortgage participations that are delinquent are placed on non-accrual status, and thereafter interest income is recognized only when cash payments are received.

Realized investment gains and losses are reported as a component of revenues based upon specific identification of the investment assets sold. When an other-than-temporary decline in value of a specific investment is deemed to have occurred, and a charge to earnings is required, the Company recognizes a realized investment loss.

The Company reviews investments in an unrealized loss position to identify other-than-temporary declines in value. When it is determined that a decline in value of an equity security is other-than-temporary, the Company reduces the cost basis of the security to fair value with a corresponding charge to earnings. When an other-than-temporary decline in value of a debt security is deemed to have occurred, the Company must assess whether it intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If the debt security meets either of these two criteria, an other-than-temporary impairment (“OTTI”) is recognized in earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the impairment measurement date. If the Company does not intend to sell the debt security and it is not more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, the credit loss portion of an OTTI is recorded through earnings while the portion attributable to all other factors is recorded separately as a component of other comprehensive income. The amount of the OTTI that relates to credit is estimated by comparing the amortized cost of the fixed maturity security with the net present value of the security’s projected future cash flows, discounted at the effective interest rate implicit in the investment prior to impairment. The non-credit portion of the impairment is equal to the difference between the fair value and the net present value of the security’s cash flows at the impairment measurement date. Once an OTTI has been recognized, the new amortized cost basis of the security is equal to the previous amortized cost less the amount of OTTI recognized in earnings. For equity method investments, an impairment is recognized when evidence demonstrates that an other-than-temporary loss in value has occurred, including the absence of the ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment.  

C. Financial Instruments

In the normal course of business, the Company may enter into transactions involving various types of financial instruments, including debt, investments such as fixed maturities, equity securities and mortgage loans, investment and loan commitments, swap contracts, option contracts, forward contracts and futures contracts. These instruments involve credit risk and could also be subject to risk of loss due to interest rate and foreign currency fluctuation. The Company evaluates and monitors each financial instrument individually and, when appropriate, obtains collateral or other security to minimize losses.

D. Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, amounts due from banks and highly liquid debt instruments purchased with an original maturity of three months or less.

E. Deferred Acquisition Costs

Acquisition costs consist of commissions, underwriting costs and other costs, which vary with, and are primarily related to, the successful production of premiums. Acquisition costs are deferred and amortized over the terms of the insurance policies.

Deferred acquisition costs (“DAC”) for each operating segment are reviewed to determine if the costs are recoverable from future income, including investment income. If such costs are determined to be unrecoverable, they are expensed at the time of determination. Although recoverability of DAC is not assured, the Company believes it is more likely than not that all of these costs will be recovered. The amount of DAC considered recoverable, however, could be reduced in the near term if the estimates of total revenues discussed above are reduced or permanently impaired as a result of a disposition of a line of business. The amount of amortization of DAC could be revised in the near term if any of the estimates discussed above are revised.

F. Reinsurance Recoverables

The Company shares certain insurance risks it has underwritten, through the use of reinsurance contracts, with various insurance entities. Reinsurance accounting is followed for ceded transactions when the risk transfer provisions of ASC 944, Financial Services – Insurance (“ASC 944”), have been met. As a result, when the Company experiences loss or claims events that are subject to a reinsurance contract, reinsurance recoverables are recorded. The amount of the reinsurance recoverable can vary based on the terms of the reinsurance contract, the size of the individual loss or claim, or the aggregate amount of all losses or claims in a particular line or book of business or an aggregate amount associated with a particular accident year. The valuation of losses or claims recoverable depends on whether the underlying loss or claim is a reported loss or claim, or an incurred but not reported loss. For reported losses and claims, the Company values reinsurance recoverables at the time the underlying loss or claim is recognized, in accordance with contract terms. For incurred but not reported losses, the Company estimates the amount of reinsurance recoverables based on the terms of the reinsurance contracts and historical reinsurance recovery information and applies that information to the gross loss reserve. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured business and the balance is disclosed separately in the financial statements. However, the ultimate amount of the reinsurance recoverable is not known until all losses and claims are settled. Allowances are established for amounts deemed uncollectible and reinsurance recoverables are recorded net of these allowances. The Company evaluates the financial condition of its reinsurers and monitors concentration risk to minimize its exposure to significant credit losses from individual reinsurers.

G. Property, Equipment and Capitalized Software

Property, equipment, leasehold improvements and capitalized software are recorded at cost, less accumulated depreciation and amortization. Depreciation is generally provided using the straight-line method over the estimated useful lives of the related assets, which generally range from 3 to 30 years. The estimated useful life for capitalized software is generally 5 to 7 years. Amortization of leasehold improvements is provided using the straight-line method over the lesser of the term of the leases or the estimated useful life of the improvements.

The Company tests for the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company recognizes impairment losses only to the extent that the carrying amounts of long-lived assets exceed the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. When an impairment loss occurs, the Company reduces the carrying value of the asset to fair value and no longer depreciates the asset. Fair values are estimated using discounted cash flow analysis.

H. GOODWILL AND INTANGIBLE ASSETS

In accordance with the provisions of ASC 350, Intangibles- Goodwill and Other, the Company carries its goodwill at cost, net of amortization accumulated prior to January 1, 2002, and net of impairments. Increases to goodwill are generated through acquisition and represent the excess of the cost of an acquisition over the fair value of net assets acquired, including any intangibles acquired. Since January 1, 2002, goodwill is no longer amortized but rather, is reviewed for impairment. Additionally, acquisitions can also produce intangible assets, which have either a definite or indefinite life. Intangible assets with definite lives are amortized over that life, whereas those intangible assets determined to have an indefinite life are reviewed at least annually for impairment.

The Company tests for the recoverability of goodwill and intangible assets with indefinite lives annually or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company recognizes impairment losses only to the extent that the carrying amounts of reporting units with goodwill exceed the fair value. The amount of the impairment loss that is recognized is determined based upon the excess of the carrying value of goodwill compared to the implied fair value of the goodwill, as determined with respect to all assets and liabilities of the reporting unit. The Company has performed its annual review of goodwill and intangible assets with indefinite lives for impairment in the fourth quarters of 2016 and 2015 with no impairments recognized. At December 31, 2016 and 2015, Chaucer held intangible assets with indefinite lives of $47.0 million and $56.2 million, respectively, which represents approximately 76% and 74% of the Company’s balance, respectively. In addition, at December 31, 2016 and 2015, goodwill held by Chaucer was $6.0 million and $7.2 million, respectively. The remaining balance relates to the U.S. Companies. The changes in the value of intangible assets with indefinite lives from December 31, 2015 represent foreign exchange differences arising during 2016 whereas the changes in the value of intangible assets with indefinite lives during 2015 were primarily related to the disposition of the U.K. motor business on June 30, 2015. See Note 2 – “Dispositions of Businesses”.

I. LIABILITIES FOR LOSSES, LAE, AND UNEARNED PREMIUMS

Liabilities for outstanding claims, losses and loss adjustment expenses (“LAE”) are estimates of payments to be made for reported losses and LAE and estimates of losses and LAE incurred but not reported. These liabilities are determined using case basis evaluations and statistical analyses of historical loss patterns and represent estimates of the ultimate cost of all losses incurred but not paid. These estimates are continually reviewed and adjusted as necessary; adjustments are reflected in current operations. Estimated amounts of salvage and subrogation on unpaid losses are deducted from the liability for unpaid claims.

Premiums for direct and assumed business are reported as earned on a pro-rata basis over the contract period. The unexpired portion of these premiums is recorded as unearned premiums.

All losses, LAE and unearned premium liabilities are based on the various estimates discussed above. Although the adequacy of these amounts cannot be assured, the Company believes that it is more likely than not that these liabilities and accruals will be sufficient to meet future obligations of policies in force. The amount of liabilities and accruals, however, could be revised in the near-term if the estimates discussed above are revised.

J. Debt

The Company’s debt at December 31, 2016 includes senior debentures, subordinated debentures, and collateralized borrowings with the Federal Home Loan Bank of Boston (“FHLBB”). Debt instruments are carried at principal amount borrowed, net of any applicable unamortized discounts and issuance costs. See Note 6 – “Debt and Credit Arrangements”.  

K. Premium, Premium Receivable, Fee Revenue and Related Expenses

Insurance premiums written are generally recorded at the policy inception and are primarily earned on a pro-rata basis over the terms of the policies for all products. Premiums written include estimates, primarily in the Chaucer segment, that are derived from multiple sources, which include the historical experience of the underlying business, similar businesses and available industry information. These estimates are regularly reviewed and updated, and any resulting adjustments are included in the current year’s results. Unearned premium reserves represent the portion of premiums written that relates to the unexpired terms of the underlying in-force insurance policies and reinsurance contracts. Premium receivables reflect the unpaid balance of premium written as of the balance sheet date. Premium receivables are generally short-term in nature and are reported net of an allowance for estimated uncollectible premium accounts. The Company reviews its receivables for collectability at the balance sheet date. The allowance for uncollectible accounts was not material as of December 31, 2016 and 2015. Ceded premiums are charged to income over the applicable term of the various reinsurance contracts with third-party reinsurers. Reinsurance reinstatement premiums, when required, are recognized in the same period as the loss event that gave rise to the reinstatement premiums. Losses and related expenses are matched with premiums, resulting in their recognition over the lives of the contracts. This matching is accomplished through estimated and unpaid losses and amortization of deferred acquisition costs.

L. Income Taxes

The Company is subject to the tax laws and regulations of the U.S. and foreign countries in which it operates. The Company files a consolidated U.S. federal income tax return that includes the holding company and its U.S. subsidiaries. Generally, taxes are accrued at the U.S. statutory tax rate of 35% for income from the U.S. operations. The Company’s primary non-U.S. jurisdiction is the United Kingdom (“U.K.”). In July 2013, the U.K. statutory rate decreased from 23% to 21% effective April 1, 2014 and from 21% to 20% effective April 1, 2015. In November 2015, the U.K. statutory tax rate decreased from 20% to 19% effective April 1, 2017 and from 19% to 18% effective April 1, 2020. A further decrease was enacted in September 2016 to reduce the U.K. statutory rate from 19% to 17%, instead of the 18%, effective April 1, 2020. The Company accrues taxes on certain non-U.S. income that is subject to U.S. tax at the U.S. tax rate. Foreign tax credits, where available, are utilized to offset U.S. tax as permitted. Certain non-U.S. income of the Company is not subject to U.S. tax until repatriated. Foreign taxes on this non-U.S. income are accrued at the local foreign rate and do not have an accrual for U.S. deferred taxes since these earnings are intended to be indefinitely reinvested overseas.

The Company’s accounting for income taxes represents its best estimate of various events and transactions.

Deferred income taxes are generally recognized when assets and liabilities have different values for financial statement and tax reporting purposes, and for other temporary taxable and deductible differences as defined by ASC 740, Income Taxes (“ASC 740”). These temporary differences are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. These differences result primarily from insurance reserves, deferred acquisition costs, tax credit carryforwards, employee benefit plans and deferred Lloyd’s underwriting income.

The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Consideration is given to all available positive and negative evidence, including reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. Valuation allowances are established if, based on available information, it is determined that it is more likely than not that all or some portion of the deferred tax assets will not be realized. Changes in valuation allowances are generally reflected in income tax expense or as an adjustment to other comprehensive income (loss) depending on the nature of the item for which the valuation allowance is being recorded.

M. Stock-Based Compensation

The Company recognizes the fair value of compensation costs for all share-based payments, including employee stock options, in the financial statements. Unvested awards are generally expensed on a straight line basis, by tranche, over the vesting period of the award. The Company’s stock-based compensation plans are discussed further in Note 11 – “Stock-Based Compensation Plans”.

N. Earnings Per Share

Earnings per share (“EPS”) for the years ended December 31, 2016, 2015 and 2014 is based on a weighted average of the number of shares outstanding during each year. Basic and diluted EPS is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. The weighted average shares outstanding used to calculate basic EPS differ from the weighted average shares outstanding used in the calculation of diluted EPS due to the effect of dilutive employee stock options, nonvested stock grants and other contingently issuable shares. If the effect of such items is antidilutive, the weighted average shares outstanding used to calculate diluted EPS are equal to those used to calculate basic EPS.

Options to purchase shares of common stock whose exercise prices are greater than the average market price of the common shares are not included in the computation of diluted earnings per share because the effect would be antidilutive.

O. Foreign Currency

The Company’s reporting currency is the U.S. dollar. The functional currencies of the Company’s foreign operations are the U.K. pound sterling (“GBP”), U.S. dollar, and Canadian dollar. Assets and liabilities of foreign operations are translated into the U.S. dollar using the exchange rates in effect at the balance sheet date. Revenues and expenses of foreign operations are translated using the average exchange rate for the period. Gains or losses from translating the financial statements of foreign operations are recorded in the cumulative translation adjustment, as a separate component of accumulated other comprehensive income. Gains and losses arising from transactions denominated in a foreign currency, other than the Company’s functional currencies, are included in net income (loss), except for the Company’s foreign currency denominated available-for-sale investments. The Company’s foreign currency denominated available-for-sale investments’ change in exchange rates between the local currency and the functional currency at each balance sheet date represents an unrealized appreciation or depreciation in value of these securities, and is included as a component of accumulated other comprehensive income.

The Company manages its exposure to foreign currency risk primarily by matching assets and liabilities denominated in the same currency. To the extent that assets and liabilities in foreign currencies are not matched, the Company is exposed to foreign currency risk. For functional currencies, the related exchange rate fluctuations are reflected in other comprehensive income (loss). The Company translated Chaucer’s balance sheet at December 31, 2016 and 2015 from GBP to U.S. dollars using a conversion rate of 1.23 and 1.47, respectively. The Company recognized $22.3 million in foreign currency transaction losses in the Consolidated Statements of Income during the year ended December 31, 2016, and $8.5 million and $3.3 million in foreign currency transaction gains for the years ended December 31, 2015 and 2014, respectively. These amounts include realized losses of Euro denominated securities of $0.7 million, $3.4 million, and $1.3 million in 2016, 2015, and 2014, respectively.

P. New Accounting Pronouncements

Recently Implemented Standards

In May 2015, the Financial Accounting Standards Board (“FASB”) issued ASC Update No. 2015-09, (Topic 944) Financial Services- Insurance:Disclosures about Short-Duration Contracts. This ASC update requires several additional disclosures regarding short-duration insurance contracts, including; disaggregated incurred and paid claims development information, quantitative and qualitative information about claim frequency and duration, and the sum of incurred but not reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses along with a description of reserving methodologies. This information is required to be presented by accident year, for the number of years for which claims typically remain outstanding, but need not exceed 10 years. A reconciliation of the claims development disclosures to the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses, including a separate disclosure for reinsurance recoverables is also required for each period presented in the statement of financial position. In addition, this ASC update requires insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements.  The updated guidance is effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The Company implemented this guidance beginning with its disclosures for the year ended December 31, 2016. The effect of implementing this guidance was not material to the Company’s financial position or results of operations, as the update is disclosure related.

In April 2015, the FASB issued ASC Update No. 2015-03, (Subtopic 835-30) Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. This ASC update requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of a debt liability, consistent with debt discounts or premiums, and amortization of debt issuance cost shall be reported as interest expense. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASC update. The updated guidance is to be applied on a retrospective basis and early adoption is permitted. The update is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company implemented this guidance effective January 1, 2016. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

In August 2014, the FASB issued ASC Update No. 2014-15, (Subtopic 205-40)Presentation of Financial Statements– Going Concern.This ASC update provides guidance on determining when and how to disclose going concern uncertainties in the financial statements, and requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. The updated guidance is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early adoption is permitted. The Company implemented this guidance beginning with the year-ended December 31, 2016. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

In April 2014, the FASB issued ASC Update No. 2014-08, (Topic 205 and Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASC update modifies the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. Also, this update requires additional financial statement disclosures about discontinued operations, as well as disposals of an individually significant component of an entity that do not qualify for discontinued operations presentation. This ASC update was effective for all disposals (or classifications as held for sale) of components of an entity that occurred within annual and interim periods beginning on or after December 15, 2014 and for all businesses that, on acquisition, were classified as held for sale that also occurred within interim and annual periods beginning on or after December 15, 2014. The Company implemented this guidance effective January 1, 2015. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

Recently Issued Standards

In January 2017, the FASB issued ASC Update No. 2017-04, (Topic 350) Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment. This guidance eliminates step 2 from the goodwill impairment test. Instead, an entity should perform its goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, including any applicable income tax effects, and recognize an impairment for the amount by which the carrying amount exceeds the reporting units fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The updated guidance is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASC Update No. 2017-04 to have a material impact on its financial position or results of operations.

In January 2017, the FASB issued ASC Update No. 2017-01, (Topic 805) Business Combinations – Clarifying the Definition of a Business. The amendments in this update provide a more robust framework to use in determining when a set of assets and activities constitute a business. This guidance narrows the definition of a business by providing specific requirements that contribute to the creation of outputs that must be present to be considered a business. The guidance further clarifies the appropriate accounting when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets is that of an acquisition (disposition) of assets, not a business. This framework will reduce the number of transactions that an entity must further evaluate to determine whether transactions are business combinations or asset acquisitions. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied on a prospective basis. Early adoption is permitted only for transactions that have not been reported in financial statements that have been issued. The Company does not expect the adoption of ASC Update No. 2017-01 to have a material impact on its financial position or results of operations.

In November 2016, the FASB issued ASC Update No. 2016-18 (Topic 230) Statement of Cash Flows – Restricted Cash (a consensus of the FASB Emerging Issues Task Force). The amendments in this update require that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Current GAAP does not include specific guidance on the cash flow classification and presentation of changes in restricted cash. The updated guidance is effective for interim and annual periods beginning after December 15, 2017 and is required to be applied using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. However, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. Implementing this guidance is not expected to have a significant impact on the Company’s statement of cash flows, as restricted cash, if any, is currently included in total cash and cash equivalents.

In October 2016, the FASB issued ASC Update No. 2016-16, (Topic 740) Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory. Under current GAAP, the tax effects of intra-entity transfers of assets (intercompany sales) are deferred until the assets are sold to an outside party or otherwise recovered through use. This ASC update eliminates this deferral of taxes for assets other than inventory and requires the recognition of taxes when the transfer occurs. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. Early adoption is permitted, but this election must be made in the first interim period of the adoption year. The adoption of ASC Update No. 2016-16 is not expected to have any net impact on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASC Update No. 2016-15, (Topic 230) Classification of Certain Cash Receipts and Cash Payments. This ASC update provides specific guidance on the presentation of certain cash flow items where there is currently diversity in practice, including, but not limited to, debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied retrospectively unless impracticable. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASC Update No. 2016-15.

In June 2016, the FASB issued ASC Update No. 2016-13, (Topic 326) Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASC update introduces new guidance for the accounting for credit losses on financial instruments within its scope. A new model, referred to as the current expected credit losses model, requires an entity to determine credit-related impairment losses for financial instruments held at amortized cost and to estimate these expected credit losses over the life of an exposure (or pool of exposures). The estimate of expected credit losses should consider both historical and current information, reasonable and supportable forecasts, as well as estimates of prepayments. The estimated credit losses and subsequent adjustment to such loss estimates, will be recorded through an allowance account which is deducted from the amortized cost of the financial instrument, with the offset recorded in current earnings. ASC No. 2016-13 also modifies the impairment model for available-for-sale debt securities. The new model will require an estimate of expected credit losses only when the fair value is below the amortized cost of the asset, thus the length of time the fair value of an available-for-sale debt security has been below the amortized cost will no longer affect the determination of whether a credit loss exists. In addition, credit losses on available-for-sale debt securities will be limited to the difference between the security’s amortized cost basis and its fair value. The updated guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for periods beginning after December 15, 2018. The Company is evaluating the impact of the adoption of ASC Update No. 2016-13 on its financial position and results of operations.

In March 2016, the FASB issued ASC Update No. 2016-09, (Topic 718) Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This ASC update requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement, and be treated as discreet items in the reporting period in which they occur. Additionally, excess tax benefits will be classified with other income tax cash flows as an operating activity and cash paid by an employer when directly withholding shares for tax withholding purposes will be classified as a financing activity. Awards that are used to settle employee tax liabilities will be allowed to qualify for equity classification for withholdings up to the maximum statutory tax rates in applicable jurisdictions. Regarding forfeitures, a company can make an entity-wide accounting policy election to either continue estimating the number of awards that are expected to vest or account for forfeitures when they occur. The updated guidance is effective for interim and annual periods beginning after December 15, 2016. The Company will adopt this standard effective January 1, 2017 and will retain its current forfeiture policy of accruing the compensation cost based on the number of awards that are expected to vest. The effect this guidance will have on the Company’s results of operations is dependent on the future tax benefits or deficiencies that are recognized related to stock-based compensations awards, and could be material in any one quarterly or annual period. The adoption of this guidance is not expected to result in any cumulative effect adjustments and will not have a material impact on the liquidity of the Company.

In February 2016, the FASB issued ASC Update No. 2016-02, (Topic 842) Leases. This ASC update requires a lessee to recognize a right-of-use asset, which represents the lessee’s right to use a specified asset for the lease term, and a corresponding lease liability, which represents a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, for all leases that extend beyond 12 months. For finance or capital leases, interest on the lease liability will be recognized separately from amortization of the right-of-use asset in the statements of income and comprehensive income. In addition, the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. For operating leases, the asset and liability will be amortized as a single lease cost, such that the cost of the lease is allocated over the lease term, on a generally straight-line basis, with all cash flows included within operating activities in the statement of cash flows. The updated guidance is effective for interim and annual periods beginning after December 15, 2018 and is required to be implemented by applying a modified retrospective transition approach. The Company is continuing to evaluate the impact of the adoption of ASC Update No. 2016-02 on its results of operations. It is expected that assets and liabilities will increase based on the present value of remaining lease payments for leases in place at the adoption date; however, the impact is not expected to be significant to the Company’s financial position.

In January 2016, the FASB issued ASC Update No. 2016-01, (Subtopic 825-10) Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This ASC update requires unconsolidated equity investments to be measured at fair value with changes in the fair value recognized in net income, except for those accounted for under the equity method. This update eliminates the cost method for equity investments without readily determinable fair values and replaces with other methods, including the use of Net Asset Value (“NAV”). Additionally, when a public entity is required to measure fair value for disclosure purposes and holds financial instruments measured at amortized cost, the updated guidance requires these instruments to be measured using exit price. It also requires financial assets and financial liabilities to be presented separately in the notes to the financial statements, grouped by measurement category and form of financial asset. The updated guidance is effective for annual periods beginning after December 15, 2017. The Company will adopt the guidance effective January 1, 2018 through a cumulative effect adjustment to retained earnings. The adoption is not expected to have a material impact on the Company’s financial position. The impact to the Company is expected to be increased volatility in net income beginning in 2018; the magnitude of such volatility will depend on the composition of the Company’s investment portfolio in the future and changes in the fair value of the Company’s investments.

In May 2014, the FASB issued ASC Update No. 2014-09, (Topic 606) Revenue from Contracts with Customers. This ASC was issued to clarify the principles for recognizing revenue. Insurance contracts and financial instrument transactions are not within the scope of this updated guidance, and; therefore, only an insignificant amount of the Company’s revenue is subject to this updated guidance. In August 2015, the FASB issued ASC Update No. 2015-14, (Topic 606) Revenue from Contracts with Customers, which deferred the effective date of ASC Update No. 2014-09 by one year. Accordingly, the updated guidance is effective for periods beginning after December 15, 2017 and is not expected to have a material effect on the Company’s financial position or results of operations.

Q. Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

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Dispositions Of Businesses

12 Months Ended

Dec. 31, 2016

Dispositions Of Businesses [Abstract]

Dispositions Of Businesses

2. DISPOSITIONS OF BUSINESSES

Disposal of U.K. Motor Business

Effective June 30, 2015, the Company transferred its U.K. motor business to an unaffiliated U.K.-based insurance provider. The transaction was executed through a 100 percent reinsurance arrangement for prior claim liabilities and in-force policies written by this division and the sale of two entities associated with this business. Total consideration from the sale of the Chaucer subsidiaries was $64.9 million and the transaction resulted in a net gain of $40.6 million.

The components of the gain are as follows:

(in millions)
Total consideration	$	64.9
Less:
Carrying value of subsidiaries		(7.6)
Intangibles and goodwill disposed (1)		(17.7)
Transaction expenses and employee-related and other costs (2)		(7.7)
Realized gain on investments transferred as part of reinsurance agreement (3)		5.8
Other items		0.7
Pre-tax gain		38.4
Income tax benefit		2.2
Net gain	$	40.6

(1) Reflects $17.2 million of indefinite-lived intangible assets associated with the U.K. motor business upon THG’s purchase of Chaucer in July 2011 and $0.5 million of goodwill.

(2) Transaction costs include legal, actuarial and other professional fees.

(3) As part of the reinsurance agreement, investments were transferred, resulting in the recognition of net realized investment gains that were previously reflected in accumulated other comprehensive income.

In connection with the reinsurance arrangement, insurance liabilities of approximately $443 million were ceded, including $137.4 million of written premiums, and approximately $419 million of investments, cash, and premiums receivable were transferred.  The $25 million difference between assets and liabilities approximates the DAC balance associated with this business. 

Discontinued Operations

Discontinued operations primarily consist of the Company’s former life insurance businesses, which were sold prior to 2009, and its discontinued accident and health business.

The Company’s former life insurance businesses include indemnity obligations for which it established reserves.

During 1999, the Company exited its accident and health insurance business, consisting of its Employee Benefit Services business, its Affinity Group Underwriters business and its accident and health assumed reinsurance pool business. Prior to 1999, these businesses comprised substantially all of the former Corporate Risk Management Services segment. Accordingly, the operating results of the discontinued segment have been reported in accordance with Accounting Principles Board Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (“APB Opinion No. 30”). On January 2, 2009, Hanover Insurance directly assumed a portion of the accident and health business; and therefore continues to apply APB Opinion No. 30 to this business. In addition, the remainder of the Discontinued First Allmerica Financial Life Insurance Company (“FAFLIC”) accident and health business was reinsured by Hanover Insurance in connection with the sale of FAFLIC to Commonwealth Annuity, and has been reported in accordance with ASC 205, Presentation of Financial Statements.  

At December 31, 2016 and 2015, the portion of the discontinued accident and health business that was directly assumed had assets of $57.6 million and $54.5 million, respectively, consisting primarily of invested assets, and liabilities of $49.3 million and $46.5 million, respectively, consisting primarily of policy liabilities. At December 31, 2016 and 2015, the assets and liabilities of this business, as well as those of the reinsured portion of the accident and health business are classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheets.

Discontinued operations for the years ended December 31, 2016, 2015 and 2014 resulted in losses of $1.0 million, gains of $0.7 million and losses of $0.3 million, respectively, net of tax.

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Investments

12 Months Ended

Dec. 31, 2016

Investments [Abstract]

Investments

3. INVESTMENTS

A. FIXED MATURITIES AND EQUITY SECURITIES

The amortized cost and fair value of available-for-sale fixed maturities and the cost and fair value of equity securities were as follows:

DECEMBER 31, 2016
(in millions)		Amortized		Gross		Gross				OTTI
		Cost or		Unrealized		Unrealized				Unrealized
		Cost		Gains		Losses		Fair Value		Losses
Fixed maturities:
U.S. Treasury and government agencies	$	342.5	$	3.7	$	5.1	$	341.1	$	-
Foreign government		235.8		5.4		0.5		240.7		-
Municipal		1,065.8		38.8		9.2		1,095.4		-
Corporate		3,989.8		113.0		49.0		4,053.8		15.8
Residential mortgage-backed		978.2		9.6		13.6		974.2		0.4
Commercial mortgage-backed		550.6		7.8		4.1		554.3		-
Asset-backed		72.4		0.2		0.8		71.8		-
Total fixed maturities	$	7,235.1	$	178.5	$	82.3	$	7,331.3	$	16.2
Equity securities	$	498.4	$	86.7	$	0.7	$	584.4	$	-
DECEMBER 31, 2015
(in millions)		Amortized		Gross		Gross				OTTI
		Cost or		Unrealized		Unrealized				Unrealized
		Cost		Gains		Losses		Fair Value		Losses
Fixed maturities:
U.S. Treasury and government agencies	$	447.1	$	5.5	$	3.5	$	449.1	$	-
Foreign government		244.7		2.6		1.5		245.8		-
Municipal		1,074.5		50.0		4.2		1,120.3		-
Corporate		3,699.9		86.8		95.7		3,691.0		27.5
Residential mortgage-backed		887.6		13.4		4.9		896.1		0.3
Commercial mortgage-backed		499.6		5.8		4.3		501.1		-
Asset-backed		80.6		0.2		0.8		80.0		-
Total fixed maturities	$	6,934.0	$	164.3	$	114.9	$	6,983.4	$	27.8
Equity securities	$	528.5	$	55.7	$	7.6	$	576.6	$	-

OTTI unrealized losses in the tables above represent OTTI recognized in accumulated other comprehensive income. This amount excludes net unrealized gains on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date of $21.4million and $1.1 million as of December 31, 2016 and 2015, respectively.

The Company participates in a security lending program for the purpose of enhancing income. Securities on loan to various counterparties had a fair value of $29.9 million and $36.2 million at December 31, 2016 and 2015, respectively, and were fully collateralized by cash. The fair value of the loaned securities is monitored on a daily basis, and the collateral is maintained at a level of at least 102% of the fair value of the loaned securities. Securities lending collateral is recorded by the Company in cash and cash equivalents, with an offsetting liability included in expenses and taxes payable.

At December 31, 2016 and 2015, fixed maturities with fair values of $251.6 million and $217.4 million, respectively, and amortized cost of $238.5 million and $206.5 million, respectively, were on deposit with various state and governmental authorities.

In accordance with Lloyd’s operating guidelines, the Company deposits funds at Lloyd’s to support underwriting operations. These funds are available only to fund claim obligations. At December 31, 2016 and 2015, fixed maturities with a fair value of $491.2 million and $440.6 million, respectively, and cash of $6.3 million and $7.0 million, respectively, were on deposit with Lloyd’s.

The Company enters into various agreements that may require its fixed maturities to be held as collateral by others. At December 31, 2016 and 2015, fixed maturities with a fair value of $217.9 million and $188.1 million, respectively, were held as collateral for collateralized borrowings and other arrangements. Of these amounts, $201.8 million and $176.0 million related to the FHLBB collateralized borrowing program at December 31, 2016 and 2015, respectively. See Note 6—“Debt and Credit Arrangements” for additional information related to the Company’s FHLBB program.

The amortized cost and fair value by maturity periods for fixed maturities are shown below. 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 the Company may have the right to put or sell the obligations back to the issuers.

DECEMBER 31		2016
(in millions)		Amortized
		Cost		Fair Value
Due in one year or less	$	373.3	$	376.9
Due after one year through five years		3,132.1		3,217.4
Due after five years through ten years		1,806.1		1,802.1
Due after ten years		322.4		334.6
		5,633.9		5,731.0
Mortgage-backed and asset-backed securities		1,601.2		1,600.3
Total fixed maturities	$	7,235.1	$	7,331.3

B. UNREALIZED GAINS AND LOSSES

Unrealized gains and losses on available-for-sale and other securities are summarized in the following table.

YEARS ENDED DECEMBER 31
(in millions)				Equity
		Fixed		Securities and
2016		Maturities		Other		Total
Net appreciation, beginning of year	$	116.5	$	33.4	$	149.9
Net appreciation on available-for-sale securities		36.9		39.2		76.1
Change in OTTI losses recognized in other comprehensive income		11.2		-		11.2
Provision for deferred income taxes		(37.5)		(13.7)		(51.2)
		10.6		25.5		36.1
Net appreciation, end of year	$	127.1	$	58.9	$	186.0
2015
Net appreciation, beginning of year	$	250.0	$	50.9	$	300.9
Net depreciation on available-for-sale securities		(164.9)		(26.8)		(191.7)
Change in OTTI losses recognized in other comprehensive income		(20.0)		-		(20.0)
Provision for deferred income taxes		51.4		9.3		60.7
		(133.5)		(17.5)		(151.0)
Net appreciation, end of year	$	116.5	$	33.4	$	149.9
2014
Net appreciation, beginning of year	$	212.1	$	47.2	$	259.3
Net appreciation on available-for-sale securities		76.3		10.2		86.5
Change in OTTI losses recognized in other comprehensive income		2.4		-		2.4
Provision for deferred income taxes		(40.8)		(6.5)		(47.3)
		37.9		3.7		41.6
Net appreciation, end of year	$	250.0	$	50.9	$	300.9

Equity securities and other balances at December 31, 2016, 2015 and 2014 include after-tax net appreciation on other invested assets of $2.5 million, $2.2 million and $2.6 million, respectively.

C. SECURITIES IN AN UNREALIZED LOSS POSITION

The following tables provide information about the Company’s fixed maturities and equity securities that were in an unrealized loss position at December 31, 2016 and 2015 including the length of time the securities have been in an unrealized loss position:

DECEMBER 31, 2016		12 months or less				Greater than 12 months				Total
(in millions)		Gross				Gross				Gross
		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
		Losses		Value		Losses		Value		Losses		Value
Fixed maturities:
Investment grade:
U.S. Treasury and government
agencies	$	5.1	$	165.9	$	-	$	-	$	5.1	$	165.9
Foreign governments		0.5		55.0		-		1.8		0.5		56.8
Municipal		7.2		268.4		2.0		29.3		9.2		297.7
Corporate		30.6		1,081.0		5.0		64.2		35.6		1,145.2
Residential mortgage-backed		12.1		570.0		1.5		29.0		13.6		599.0
Commercial mortgage-backed		4.1		187.5		-		6.3		4.1		193.8
Asset-backed		0.6		29.1		0.2		3.5		0.8		32.6
Total investment grade		60.2		2,356.9		8.7		134.1		68.9		2,491.0
Below investment grade:
Corporate		1.2		45.9		12.2		81.8		13.4		127.7
Residential mortgage-backed		-		0.1		-		-		-		0.1
Total below investment grade		1.2		46.0		12.2		81.8		13.4		127.8
Total fixed maturities		61.4		2,402.9		20.9		215.9		82.3		2,618.8
Equity securities		0.7		16.3		-		-		0.7		16.3
Total	$	62.1	$	2,419.2	$	20.9	$	215.9	$	83.0	$	2,635.1
DECEMBER 31, 2015		12 months or less				Greater than 12 months				Total
(in millions)		Gross				Gross				Gross
		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
		Losses		Value		Losses		Value		Losses		Value
Fixed maturities:
Investment grade:
U.S. Treasury and government
agencies	$	1.5	$	139.0	$	2.0	$	77.2	$	3.5	$	216.2
Foreign governments		0.8		63.6		0.7		8.4		1.5		72.0
Municipal		2.3		143.0		1.9		57.4		4.2		200.4
Corporate		30.7		1,138.3		18.9		122.3		49.6		1,260.6
Residential mortgage-backed		3.0		334.5		1.9		47.0		4.9		381.5
Commercial mortgage-backed		4.2		293.8		0.1		9.7		4.3		303.5
Asset-backed		0.8		56.6		-		1.4		0.8		58.0
Total investment grade		43.3		2,168.8		25.5		323.4		68.8		2,492.2
Below investment grade:
Corporate		19.6		165.5		26.5		63.2		46.1		228.7
Total fixed maturities		62.9		2,334.3		52.0		386.6		114.9		2,720.9
Equity securities		7.6		166.8		-		-		7.6		166.8
Total	$	70.5	$	2,501.1	$	52.0	$	386.6	$	122.5	$	2,887.7

The Company views gross unrealized losses on fixed maturities and equity securities as being temporary since it is its assessment that these securities will recover in the near term, allowing the Company to realize the anticipated long-term economic value. The Company employs a systematic methodology to evaluate declines in fair value below amortized cost for fixed maturity securities or cost for equity securities. In determining OTTI of fixed maturity and equity securities, the Company evaluates several factors and circumstances, including the issuer’s overall financial condition; the issuer’s credit and financial strength ratings; the issuer’s financial performance, including earnings trends, dividend payments and asset quality; any specific events which may influence the operations of the issuer; the general outlook for market conditions in the industry or geographic region in which the issuer operates; and the length of time and the degree to which the fair value of an issuer’s securities remains below the Company’s cost. With respect to fixed maturity investments, the Company considers any factors that might raise doubt about the issuer’s ability to make contractual payments as they come due and whether the Company expects to recover the entire amortized cost basis of the security. With respect to equity securities, the Company considers its ability and intent to hold the investment for a period of time to allow for a recovery in value.

D. OTHER INVESTMENTS

The Company’s mortgage participations were $297.6 million and $200.9 million at December 31, 2016 and 2015, respectively. Participating interests in commercial mortgage loans are originated and serviced by a third-party.  For these investments, the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgages. Mortgage participations were comprised of the following property types and geographic locations.

DECEMBER 31	2016		2015
(in millions)
Property Type:
Office	$	109.8	$	75.0
Retail		64.7		58.8
Hotel		40.4		19.2
Apartments		38.4		33.4
Industrial		30.0		15.0
Mixed use		15.0		-
Valuation allowance		(0.7)		(0.5)
Total	$	297.6	$	200.9

DECEMBER 31	2016		2015
(in millions)
Geographic Region:
South Atlantic	$	72.0	$	47.0
Pacific		65.0		50.0
Mid-Atlantic		53.5		23.6
West South Central		51.3		35.0
New England		21.1		10.0
East North Central		10.4		10.8
West North Central		10.0		10.0
Other		15.0		15.0
Valuation allowance		(0.7)		(0.5)
Total	$	297.6	$	200.9

At December 31, 2016, scheduled maturities of mortgage participations were as follows: due in 2017 - $0.5 million; 2020 - $10.0 million; 2021 – $50.0 million and thereafter - $237.1 million. There were no scheduled loan maturities in 2018 or 2019. Actual maturities could differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties and loans may be refinanced. During 2016, the Company did not refinance any loans based on terms that differed from current market rates.

Other investments also include interests in limited partnerships and overseas deposits of $121.3 million and$102.2 million, respectively, at December 31, 2016, and $79.9 million and $100.9 million, respectively, at December 31, 2015.

E. OTHER

At December 31, 2016, the Company had no concentration of investments in a single investee that exceeded 10% of shareholders’ equity except for fixed maturities invested in Federal Home Loan Mortgage Corp. (“FHLMC”) and mortgage participations with a highly rated single third-party. At December 31, 2016, the Company held FHLMC with fair value of $542.2 million and mortgage participations with a carrying value of $295.9million. At December 31, 2015, the Company had no concentration of investments in a single investee that exceeds 10% of shareholders’ equity except for fixed maturities invested in FHLMC and Federal National Mortgage Association (“FNMA”). At December 31, 2015, the Company held FHLMC and FNMA with fair values of $467.9 million and $298.1 million, respectively.

At December 31, 2016, there were contractual investment commitments of up to $128.8 million.

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Investment Income and Gains and Losses

12 Months Ended

Dec. 31, 2016

Investments [Abstract]

Investment Income and Gains and Losses

4. INVESTMENT INCOME AND GAINS AND LOSSES

A. NET INVESTMENT INCOME

The components of net investment income were as follows:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Fixed maturities	$	245.1	$	253.8	$	255.8
Equity securities		18.6		17.5		16.5
Other investments		26.7		18.1		9.0
Gross investment income		290.4		289.4		281.3
Less investment expenses		(11.0)		(10.3)		(11.0)
Net investment income	$	279.4	$	279.1	$	270.3

The carrying values of fixed maturity securities on non-accrual status at December 31, 2016 and 2015 were not material. The effects of non-accruals for the years ended December 31, 2016, 2015 and 2014, compared with amounts of net investment income that would have been recognized in accordance with the original terms of the fixed maturities, were reductions of $1.1 million, $0.8 million and $2.1 million, respectively.

B. NET REALIZED INVESTMENT GAINS AND LOSSES

Net realized gains (losses) on investments were as follows:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Equity securities	$	25.4	$	29.4	$	45.8
Fixed maturities		(16.6)		(13.9)		4.5
Other investments		(0.2)		4.0		(0.2)
Net realized investment gains	$	8.6	$	19.5	$	50.1

Included in the net realized investment gains (losses) were OTTI of investment securities recognized in earnings totaling $27.9 million, $26.8 million and $5.5 million in 2016, 2015 and 2014, respectively.

Other-than-temporary-impairments

For 2016, total OTTI was $21.2 million. Of this amount, $27.9 million was recognized in earnings including $6.7 million which was transferred from unrealized losses in accumulated other comprehensive income (“AOCI”).  The $27.9 million of OTTI recognized in earnings relates primarily to $16.1 million of fixed maturity securities that the Company intended to sell, $8.8 million of credit impairments and$2.7 million of equities.

For 2015, total OTTI was $49.5 million. Of this amount, $26.8 million was recognized in earnings and the remaining $22.7 million was recorded as unrealized losses in AOCI.  The $26.8 million of OTTI recognized in earnings relates to $16.0 million of credit impairments, $4.0 million of fixed maturity securities that the Company intended to sell and $6.8 million of equities.

For 2014, total OTTI was $5.4 million. Of this amount, $5.5 million was recognized in earnings including $0.1 million which was transferred from unrealized losses in AOCI.  The $5.5 million of OTTI recognized in earnings was related to fixed maturity securities that the Company intended to sell.

The methodology and significant inputs used to measure the amount of credit losses on fixed maturities in 2016 and 2015 were as follows:

Corporate bonds - the Company utilized a financial model that derives expected cash flows based on probability-of-default factors by credit rating and asset duration and loss-given-default factors based on security type. These factors are based on historical data provided by an independent third-party rating agency. In addition, other market data relevant to the realizability of contractual cash flows may be considered.

There were no credit impairments in 2014.

The following table provides rollforwards of the cumulative amounts related to the Company’s credit loss portion of the OTTI losses on fixed maturity securities for which the non-credit portion of the loss is included in other comprehensive income.

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Credit losses as of the beginning of the year	$	18.0	$	4.2	$	7.8
Credit losses on securities for which an OTTI was not previously recognized		6.4		8.3		-
Additional credit losses on securities for which an OTTI was previously
recognized		2.4		7.7		-
Reductions for securities sold, matured or called		(4.6)		(1.8)		(3.2)
Reductions for securities reclassified as intend to sell		(12.2)		(0.4)		(0.4)
Credit losses as of the end of the year	$	10.0	$	18.0	$	4.2

The proceeds from sales of available-for-sale securities and the gross realized gains and gross realized losses on those sales, were as follows:

YEARS ENDED DECEMBER 31
(in millions)
		Proceeds		Gross		Gross
2016		from Sales		Gains		Losses
Fixed maturities	$	563.8	$	11.7	$	7.0
Equity securities	$	245.0	$	31.1	$	3.0
2015
Fixed maturities	$	1,167.6	$	15.0	$	9.3
Equity securities	$	270.0	$	36.9	$	4.2
2014
Fixed maturities	$	349.5	$	5.8	$	2.6
Equity securities	$	156.1	$	46.2	$	0.8

Proceeds from sales of fixed maturities in 2015 included proceeds of $379.6 million from the transfer of fixed maturity investments in connection with the disposal of the U.K. motor business and related gross gains of $6.4 million and gross losses of $0.6 million.

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Fair Value

12 Months Ended

Dec. 31, 2016

Fair Value [Abstract]

Fair Value

5. FAIR VALUE

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, i.e., exit price, in an orderly transaction between market participants. The Company emphasizes the use of observable market data whenever available in determining fair value. Fair values presented for certain financial instruments are estimates which, in many cases, may differ significantly from the amounts that could be realized upon immediate liquidation. A hierarchy of the three broad levels of fair value are as follows, with the highest priority given to Level 1 as these are the most observable, and the lowest priority given to Level 3:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data, including model-derived valuations.

Level 3 – Unobservable inputs that are supported by little or no market activity.

When more than one level of input is used to determine fair value, the financial instrument is classified as Level 2 or 3 according to the lowest level input that has a significant impact on the fair value measurement.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments and have not changed since last year.

CASH AND CASH EQUIVALENTS

The carrying amount approximates fair value. Cash equivalents primarily consist of money market instruments, which are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are classified as Level 1.

FIXED MATURITIES

Level 1 securities generally include U.S. Treasury issues and other securities that are highly liquid and for which quoted market prices are available. Level 2 securities are valued using pricing for similar securities and pricing models that incorporate observable inputs including, but not limited to yield curves and issuer spreads. Level 3 securities include issues for which little observable data can be obtained, primarily due to the illiquid nature of the securities, and for which significant inputs used to determine fair value are based on the Company’s own assumptions. Non-binding broker quotes are also included in Level 3.

The Company utilizes a third-party pricing service for the valuation of the majority of its fixed maturity securities and receives one quote per security. When quoted market prices in an active market are available, they are provided by the pricing service as the fair value and such values are classified as Level 1. Since fixed maturities other than U.S. Treasury securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value for those securities using pricing applications based on a market approach. Inputs into the fair value pricing common to all asset classes include: benchmark U.S. Treasury security yield curves; reported trades of identical or similar fixed maturity securities; broker/dealer quotes of identical or similar fixed maturity securities and structural characteristics such as maturity date, coupon, mandatory principal payment dates, frequency of interest and principal payments, and optional redemption features. Inputs into the fair value applications that are unique by asset class include, but are not limited to:

· U.S. government agencies – determination of direct versus indirect government support and whether any contingencies exist with respect to the timely payment of principal and interest.

· Foreign government – estimates of appropriate market spread versus underlying related sovereign treasury curve(s) dependent on liquidity and direct or contingent support.

· Municipals – overall credit quality, including assessments of the level and variability of: sources of payment such as income, sales or property taxes, levies or user fees; credit support such as insurance; state or local economic and political base; natural resource availability; and susceptibility to natural or man-made catastrophic events such as hurricanes, earthquakes or acts of terrorism.

· Corporate fixed maturities – overall credit quality, including assessments of the level and variability of: economic sensitivity; liquidity; corporate financial policies; management quality; regulatory environment; competitive position; ownership; restrictive covenants; and security or collateral.

· Residential mortgage-backed securities – estimates of prepayment speeds based upon: historical prepayment rate trends; underlying collateral interest rates; geographic concentration; vintage year; borrower credit quality characteristics; interest rate and yield curve forecasts; government or monetary authority support programs; tax policies; delinquency/default trends; and, in the case of non-agency collateralized mortgage obligations, severity of loss upon default and length of time to recover proceeds following default.

· Commercial mortgage-backed securities – overall credit quality, including assessments of the value and supply/demand characteristics of: collateral type such as office, retail, residential, lodging, or other; geographic concentration by region, state, metropolitan statistical area and locale; vintage year; historical collateral performance including defeasance, delinquency, default and special servicer trends; and capital structure support features.

· Asset-backed securities – overall credit quality, including assessments of the underlying collateral type such as credit card receivables, auto loan receivables and equipment lease receivables; geographic diversification; vintage year; historical collateral performance including delinquency, default and casualty trends; economic conditions influencing use rates and resale values; and contract structural support features.

Generally, all prices provided by the pricing service, except actively traded securities with quoted market prices, are reported as Level 2.

The Company holds privately placed fixed maturity securities and certain other fixed maturity securities that do not have an active market and for which the pricing service cannot provide fair values. The Company determines fair values for these securities using either matrix pricing utilizing the market approach or broker quotes. The Company will use observable market data as inputs into the fair value applications, as discussed in the determination of Level 2 fair values, to the extent it is available, but is also required to use a certain amount of unobservable judgment due to the illiquid nature of the securities involved. Unobservable judgment reflected in the Company’s matrix model accounts for estimates of additional spread required by market participants for factors such as issue size, structural complexity, high bond coupon or other unique features. These matrix-priced securities are reported as Level 2 or Level 3, depending on the significance of the impact of unobservable judgment on the security’s value. Additionally, the Company may obtain non-binding broker quotes which are reported as Level 3.

EQUITY SECURITIES

Level 1 consists of publicly traded securities, including exchange traded funds, valued at quoted market prices. Level 2 includes securities that are valued using pricing for similar securities and pricing models that incorporate observable inputs. Level 3 consists of common or preferred stock of private companies for which observable inputs are not available.

The Company utilizes a third-party pricing service for the valuation of the majority of its equity securities and receives one quote for each equity security. When quoted market prices in an active market are available, they are provided by the pricing service as the fair value and such values are classified as Level 1. The Company holds certain equity securities that have been issued by privately held entities that do not have an active market and for which the pricing service cannot provide fair values. Generally, the Company estimates fair value for these securities based on the issuer’s book value and market multiples. These securities are reported as Level 2 or Level 3 depending on the significance of the impact of unobservable judgment on the security’s value. Additionally, the Company may obtain non-binding broker quotes which are reported as Level 3.

OTHER INVESTMENTS

Other investments primarily include mortgage participations, overseas trust funds required in connection with the Company’s Lloyd’s business and cost basis limited partnerships. Fair values of mortgage participations and other mortgage loans are estimated by discounting the contractual cash flows using the rates at which similar loans would be made to borrowers with comparable credit ratings and are reported as Level 3. Fair values of overseas trust funds are provided by the investment manager based on quoted prices for similar instruments in active markets and are reported as Level 2. The fair values of cost basis limited partnerships are based on the net asset value provided by the general partner and recent financial information and are excluded from the fair value hierarchy.  

DEBT

The fair value of debt is estimated based on quoted market prices for identical or similar issuances. If a quoted market price is not available, fair values are estimated using discounted cash flows that are based on current interest rates and yield curves for debt issuances with maturities and credit risks consistent with the debt being valued. Debt is reported as Level 2.

The estimated fair value of the financial instruments were as follows:

DECEMBER 31		2016				2015
(in millions)		Carrying		Fair		Carrying		Fair
		Value		Value		Value		Value
Financial Assets
Cash and cash equivalents	$	282.6	$	282.6	$	338.8	$	338.8
Fixed maturities		7,331.3		7,331.3		6,983.4		6,983.4
Equity securities		584.4		584.4		576.6		576.6
Other investments		497.8		497.6		365.4		367.9
Total financial assets	$	8,696.1	$	8,695.9	$	8,264.2	$	8,266.7
Financial Liabilities
Debt	$	786.4	$	841.9	$	803.1	$	927.8

The Company has processes designed to ensure that the values received from its third-party pricing service are accurately recorded, that the data inputs and valuation techniques utilized are appropriate and consistently applied and that the assumptions are reasonable and consistent with the objective of determining fair value. The Company performs a review of the fair value hierarchy classifications and of prices received from its pricing service on a quarterly basis. The Company reviews the pricing services’ policies describing its methodology, processes, practices and inputs, including various financial models used to value securities. Also, the Company reviews the portfolio pricing, including a process for which securities with changes in prices that exceed a defined threshold are verified to independent sources, if available. If upon review, the Company is not satisfied with the validity of a given price, a pricing challenge would be submitted to the pricing service along with supporting documentation for its review. The Company does not adjust quotes or prices obtained from the pricing service unless the pricing service agrees with the Company’s challenge. During 2016 and 2015, the Company did not adjust any prices received from its pricing service.

Changes in the observability of valuation inputs may result in a reclassification of certain financial assets or liabilities within the fair value hierarchy. Reclassifications between levels of the fair value hierarchy are reported as of the beginning of the period in which the reclassification occurs. As previously discussed, the Company utilizes a third-party pricing service for the valuation of the majority of its fixed maturities and equity securities. The pricing service has indicated that it will only produce an estimate of fair value if there is objectively verifiable information to produce a valuation. If the pricing service discontinues pricing an investment, the Company will use observable market data to the extent it is available, but may also be required to make assumptions for market based inputs that are unavailable due to market conditions.

The following tables provide, for each hierarchy level, the Company’s assets that were measured at fair value on a recurring basis.

	DECEMBER 31, 2016
(in millions)		Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	341.1	$	209.5	$	131.6	$	-
Foreign government		240.7		47.3		193.4		-
Municipal		1,095.4		-		1,064.4		31.0
Corporate		4,053.8		-		4,049.6		4.2
Residential mortgage-backed, U.S. agency backed		924.4		-		924.4		-
Residential mortgage-backed, non-agency		49.8		-		49.8		-
Commercial mortgage-backed		554.3		-		539.3		15.0
Asset backed		71.8		-		71.8		-
Total fixed maturities		7,331.3		256.8		7,024.3		50.2
Equity securities		574.6		573.1		-		1.5
Other investments		106.3		-		102.2		4.1
Total investment assets at fair value	$	8,012.2	$	829.9	$	7,126.5	$	55.8
	DECEMBER 31, 2015
(in millions)		Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	449.1	$	193.6	$	255.5	$	-
Foreign government		245.8		52.5		193.3		-
Municipal		1,120.3		-		1,085.9		34.4
Corporate		3,691.0		-		3,687.3		3.7
Residential mortgage-backed, U.S. agency backed		824.5		-		824.5		-
Residential mortgage-backed, non-agency		71.6		-		71.6		-
Commercial mortgage-backed		501.1		-		484.1		17.0
Asset backed		80.0		-		79.5		0.5
Total fixed maturities		6,983.4		246.1		6,681.7		55.6
Equity securities		567.7		566.4		-		1.3
Other investments		104.5		-		100.9		3.6
Total investment assets at fair value	$	7,655.6	$	812.5	$	6,782.6	$	60.5

The following tables provide, for each hierarchy level, the Company’s estimated fair values of financial instruments that were not carried at fair value.

	DECEMBER 31, 2016
(in millions)		Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	282.6	$	282.6	$	-	$	-
Equity securities		9.8		-		9.8		-
Other investments		297.2		-		-		297.2
Liabilities:
Debt	$	841.9	$	-	$	841.9	$	-
	DECEMBER 31, 2015
(in millions)		Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	338.8	$	338.8	$	-	$	-
Equity securities		8.9		-		8.9		-
Other investments		203.5		-		-		203.5
Liabilities:
Debt	$	927.8	$	-	$	927.8	$	-

Investments measured at fair value using net asset value based on an ownership interest in partners’ capital have not been included in the tables above. The fair values of these investments were $94.1 million and $59.9 million as of December 31, 2016 and 2015, respectively, which were approximately 1% of total investment assets.

The following tables provide a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

YEAR ENDED DECEMBER 31, 2016	Fixed Maturities
(in millions)		Municipal		Corporate		Commercial mortgage-backed		Asset-backed		Total		Equity and Other		Total Assets
Balance at beginning of year	$	34.4	$	3.7	$	17.0	$	0.5	$	55.6	$	4.9	$	60.5
Transfers out of Level 3		(1.2)		-		-		-		(1.2)		-		(1.2)
Total gains (losses):
Included in total net realized investment
gains (losses)		0.1		(0.2)		-		-		(0.1)		-		(0.1)
Included in other comprehensive
income - net appreciation (depreciation) on available-for-sale securities		0.6		0.6		(0.2)		-		1.0		0.7		1.7
Purchases and sales:
Purchases		-		0.3		-		-		0.3		-		0.3
Sales		(2.9)		(0.2)		(1.8)		(0.5)		(5.4)		-		(5.4)
Balance at end of year	$	31.0	$	4.2	$	15.0	$	-	$	50.2	$	5.6	$	55.8
YEAR ENDED DECEMBER 31, 2015	Fixed Maturities
(in millions)		Municipal		Corporate		Commercial mortgage-backed		Asset-backed		Total		Equity and Other		Total Assets
Balance at beginning of year	$	25.7	$	9.6	$	21.4	$	-	$	56.7	$	5.0	$	61.7
Transfers into Level 3		-		-		-		1.3		1.3		-		1.3
Transfers out of Level 3		-		(4.6)		-		-		(4.6)		-		(4.6)
Total losses:
Included in other comprehensive
income - net depreciation on available-for-sale securities		(0.5)		(0.8)		(1.0)		(0.1)		(2.4)		(0.1)		(2.5)
Purchases and sales:
Purchases		11.2		-		-		-		11.2		-		11.2
Sales		(2.0)		(0.5)		(3.4)		(0.7)		(6.6)		-		(6.6)
Balance at end of year	$	34.4	$	3.7	$	17.0	$	0.5	$	55.6	$	4.9	$	60.5

During the years ended December 31, 2016 and 2015, the Company transferred fixed maturities between Level 2 and Level 3 primarily as a result of assessing the significance of unobservable inputs on the fair value measurement. There were no transfers between Level 1 and Level 2 during 2016 or 2015. There were no Level 3 liabilities held by the Company for years ended December 31, 2016 and 2015.

The following table provides quantitative information about the significant unobservable inputs used by the Company in the fair value measurements of Level 3 assets. Where discounted cash flows were used in the valuation of fixed maturities, the internally-developed discount rate was adjusted by the significant unobservable inputs shown in the table. Valuations of $0.6 million for securities based on broker quotes for which there was a lack of transparency as to inputs used to develop the valuations have been excluded.

DECEMBER 31,				2016			2015
	Valuation	Significant		Fair	Range		Fair	Range
(in millions)	Technique	Unobservable Inputs		Value	(Wtd Average)		Value	(Wtd Average)
Fixed maturities:
Municipal	Discounted	Discount for:	$	31.0		$	34.4
	cash flow	Small issue size			0.7 - 6.8%  (3.3%)			0.6 - 6.8%  (3.2%)
		Credit stress			0.9 - 1.5%  (1.2%)			0.9 - 1.5%  (1.2%)
		Above-market coupon			0.3 - 0.5%  (0.4%)			0.3 - 1.0%  (0.4%)
Corporate	Discounted	Discount for:		4.0			3.7
	cash flow	Small issue size			2.0 - 2.5%  (2.1%)			1.0%  (1.0%)
		Credit stress			1.0%  (1.0%)			10.0%  (10.0%)
		Above-market coupon			0.3 - 0.8%  (0.6%)			0.3 - 0.8%  (0.6%)
Commercial	Discounted	Discount for:		15.0			17.0
mortgage-backed	cash flow	Small issue size			1.9 - 3.1%  (2.6%)			0.5 - 1.0%  (0.5%)
		Above-market coupon			0.5%  (0.5%)			0.5%  (0.5%)
		Lease structure			0.3%  (0.3%)			0.3%  (0.3%)
Asset backed	Discounted	Discount for:		-			0.5
	cash flow	Small issue size			N/A			0.7%  (0.7%)
Equity securities	Market	Net tangible asset		1.1			1.1
	comparables	market multiples			1.0X  (1.0X)			1.0X  (1.0X)
Other	Discounted	Discount rate		4.1	18.0%  (18.0%)		3.6	18.0%  (18.0%)
	cash flow

Significant increases (decreases) in any of the above inputs in isolation would result in a significantly lower (higher) fair value measurement. There were no interrelationships between these inputs which might magnify or mitigate the effect of changes in unobservable inputs on the fair value measurement.

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Debt and Credit Arrangements

12 Months Ended

Dec. 31, 2016

Debt and Credit Arrangements [Abstract]

Debt and Credit Arrangements

6. DEBT AND CREDIT ARRANGEMENTS

Debt consists of the following:

DECEMBER 31		2016		2015
(in millions)
Senior debentures maturing April 15, 2026	$	375.0	$	-
Senior debentures maturing October 15, 2025		62.6		74.6
Senior debentures maturing June 15, 2021		-		300.0
Senior debentures maturing March 1, 2020		-		80.0
Subordinated debentures maturing March 30, 2053		175.0		175.0
Subordinated debentures maturing February 3, 2027		59.7		59.7
FHLBB borrowings (secured)		125.0		125.0
Total principal debt		797.3		814.3
Unamortized debt issuance costs		(10.9)		(11.2)
Total	$	786.4	$	803.1

On April 8, 2016, the Company issued $375.0 million aggregate principal amount of 4.50% senior unsecured debentures due April 15, 2026. Net proceeds from the issuance were $370.7 million. On May 21, 2016, the proceeds, together with cash on hand, were used to redeem the outstanding 7.50% senior notes due March 1, 2020 and the 6.375% senior notes due June 15, 2021.The redemption of these notes resulted in a pre-tax loss of $86.1 million.

The Company also held 7.625% senior unsecured debentures that were issued on October 16, 1995 with a par value of $200.0 million. As of December 31, 2016 and 2015, the remaining 7.625% senior debentures have a par value of $62.6 million and $74.6 million, respectively, and mature on October 15, 2025.

Both of the Company’s outstanding senior debentures are subject to certain restrictive covenants, including limitations on the issuance or disposition of stock of restricted subsidiaries and limitations on liens, and pay interest semi-annually.

The Company also held $175.0 million aggregate principal amount of 6.35% subordinated unsecured debentures due March 30, 2053. These debentures pay interest quarterly. The Company may redeem these debentures in whole at any time, or in part from time to time, on or after March 30, 2018, at a redemption price equal to their principal amount plus accrued and unpaid interest. In addition, the Company’s subordinated debentures maturing February 3, 2027 have a par value of $59.7 million as of December 31, 2016 and 2015 and pay cumulative dividends semi-annually at 8.207%.  

In 2016, in addition to the redemption of the senior debentures maturing June 15, 2021 and March 1, 2020, the Company repurchased senior debentures maturing October 15, 2025, with a carrying value of $11.9 million at a cost of $14.1 million, resulting in a pre-tax loss of $2.2 million.

In 2015, the Company repurchased senior debentures maturing March 1, 2020, with a carrying value of $83.7 million at a cost of $106.0 million, resulting in a pre-tax loss of $22.3 million, and senior debentures maturing October 15, 2025, with a carrying value of $6.5 million at a cost of $8.3 million, resulting in a pre-tax loss of $1.8 million.

In 2009, Hanover Insurance received a $125.0 million FHLBB advance through its membership in the FHLBB. This collateralized advance bears interest at a fixed rate of 5.50% per annum over a twenty-year term. As collateral to FHLBB, the Company pledged government agency securities with a fair value of $201.8 million and $176.0 million, for the aggregate borrowings of $125.0 million as of December 31, 2016 and December 31, 2015, respectively. The fair value of the collateral pledged must be maintained at certain specified levels of the borrowed amount, which can vary depending on the type of assets pledged. If the fair value of this collateral declines below these specified levels, the Company would be required to pledge additional collateral or repay outstanding borrowings. The Company is permitted to voluntarily repay the outstanding borrowings at any time, subject to a repayment fee. As a requirement of membership in the FHLBB, the Company maintains a certain level of investment in FHLBB stock. Total holdings of FHLBB stock were $9.8 million and $8.9 million at December 31, 2016 and 2015, respectively.

At December 31, 2016, the Company had a $200.0 million credit agreement which expires in November 2018. The Company had no borrowings under this agreement. Additionally, the Company had a Standby Letter of Credit Facility not to exceed £170.0 million (or $209.6 million). This Letter of Credit Facility provides regulatory capital supporting Chaucer’s underwriting activities for the 2015, 2016 and 2017 years of account and each prior open year of account. Simultaneous with this agreement, THG entered into a Guaranty Agreement with Lloyds Bank plc, as Facility Agent and Security Agent, pursuant to which THG unconditionally guarantees the obligations of Chaucer under the Letter of Credit Facility.

Interest expense was $54.9 million, $60.6 million, and $65.8 million in 2016, 2015 and 2014, respectively. At December 31, 2016, the Company was in compliance with the covenants associated with all of its debt indentures and credit arrangements.

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Income Taxes

12 Months Ended

Dec. 31, 2016

Income Taxes [Abstract]

Income Taxes

7. INCOME TAXES

Provisions for income taxes have been calculated in accordance with the provisions of ASC 740. A summary of the components of income before income taxes and income tax expense in the Consolidated Statements of Income are shown below:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Income before income taxes:
U.S.	$	70.8	$	220.9	$	185.6
Non-U.S.		121.5		218.5		192.4
	$	192.3	$	439.4	$	378.0

Income tax expense includes the following components:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Current:
U.S.	$	16.8	$	32.7	$	4.5
Non-U.S.		35.3		23.1		22.6
Total current		52.1		55.8		27.1
Deferred:
U.S.		(20.4)		44.0		51.1
Non-U.S.		4.5		8.8		17.5
Total deferred		(15.9)		52.8		68.6
Total income tax expense	$	36.2	$	108.6	$	95.7

The income tax expense attributable to the consolidated results of continuing operations is different from the amount determined by multiplying income from continuing operations before income taxes by the U.S. statutory federal income tax rate of 35%. The sources of the difference and the tax effects of each were as follows:

YEARS ENDED DECEMBER 31		2016			2015			2014
(in millions)
Expected income tax expense	$	67.3		$	153.7		$	132.3
Tax difference related to investment disposals and maturities		(20.7)			(13.3)			(16.2)
Effect of foreign operations		(6.6)			(7.8)			(8.1)
Dividend received deduction		(3.3)			(3.1)			(2.6)
Tax-exempt interest		(1.1)			(1.4)			(1.7)
Foreign tax credits		(0.6)			(5.6)			-
Gain on disposal of U.K. motor business exempt from tax		-			(17.3)			-
Foreign exchange losses		-			-			(6.9)
Change in valuation allowance		-			-			(2.9)
Nondeductible expenses		1.4			1.6			1.8
Change in liability for uncertain tax positions		-			1.7			-
Other, net		(0.2)			0.1			-
Income tax expense	$	36.2		$	108.6		$	95.7
Effective tax rate		18.8	%		24.7	%		25.3	%

The following are the components of the Company’s deferred tax assets and liabilities (excluding those associated with its discontinued operations).

DECEMBER 31		2016		2015
(in millions)
Deferred tax assets:
Loss, LAE and unearned premium reserves, net	$	183.9	$	179.0
Tax credit carryforwards		94.6		70.5
Employee benefit plans		44.4		39.6
Investments, net		-		12.4
Other		54.9		53.6
		377.8		355.1
Less: Valuation allowance		-		-
		377.8		355.1
Deferred tax liabilities:
Deferred acquisition costs		141.0		134.9
Deferred Lloyd's underwriting income		32.7		22.4
Software capitalization		28.9		26.9
Investments, net		27.9		-
Other		32.2		33.0
		262.7		217.2
Net deferred tax asset	$	115.1	$	137.9

Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax assets will not be realized.

The Company’s deferred tax asset as of December 31, 2016 included assets of $72.3 million related to alternative minimum tax credit carryforwards and$22.3million related to foreign tax credit carryforwards. The alternative minimum tax credit carryforwards have no expiration date, and the foreign tax credit carryforwards will expire beginning in 2026. The Company has utilized in 2016 and may continue to utilize the credits to offset regular federal income taxes due from future income, and although the Company believes that these assets are fully recoverable, there can be no certainty that future events will not affect their recoverability. The Company believes, based on objective evidence, it is more likely than not that the remaining deferred tax assets will be realized.

In prior years, the Company completed several transactions which resulted in the realization, for tax purposes only, of unrealized gains in its investment portfolio. As a result of these transactions, the Company was able to realize capital losses carried forward and to release the valuation allowance recorded against the deferred tax asset related to these losses.  The releases of valuation allowances were recorded as a benefit in accumulated other comprehensive income. Previously unrealized benefits of $20.7 million, $13.3 million and $16.2 million attributable to non-operating income, are recognized as part of income from continuing operations during 2016, 2015 and 2014, respectively. The remaining amount of $57.5 million in accumulated other comprehensive income will be released into income from continuing operations in future years, as the investment securities subject to these transactions are sold or mature.

Although most of the Company’s non-U.S. income is subject to U.S. federal income tax, certain of its non-U.S. income is not subject to U.S. federal income tax until repatriated. Foreign taxes on this non-U.S. income are accrued at the local foreign tax rate, as opposed to the higher U.S. statutory tax rate, since these earnings currently are expected to be indefinitely reinvested overseas. This assumption could change, as a result of a sale of the subsidiaries, the receipt of dividends from the subsidiaries, a change in management’s intentions, or as a result of various other events. The Company has not made a provision for U.S. taxes on $23.5 million, $69.8 million and $23.3 million of non-U.S. income for 2016, 2015 and 2014, respectively. However, in the future, if such earnings were distributed to the Company, taxes of $43.4 million would be payable on the accumulated undistributed earnings and would be reflected in the tax provision for the year in which these earnings are no longer intended to be indefinitely reinvested overseas, assuming all foreign tax credits are realized.

The table below provides a reconciliation of the beginning and ending liability for uncertain tax positions as follows:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Liability at beginning of year, net	$	3.0	$	1.3	$	1.4
Additions for tax positions of prior years		0.4		1.7		(0.1)
Settlements/subtractions for tax positions of prior years		(0.7)		-		(4.8)
Deferred deductions		-		-		4.8
Liability at end of year, net	$	2.7	$	3.0	$	1.3

In 2014, the IRS audits of the years 2007 through 2010 were settled with no material impact to the Company’s financial position or results of operations.

There are no tax positions at December 31, 2016, 2015 and 2014 for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, a change in the timing of deductions would not impact the annual effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits in federal income tax expense. The Company had accrued interest of $0.2 million and $0.6 million as of December 31, 2016 and 2015, respectively. For the years ended December 31, 2016, 2015 and 2014 the Company recognized a release of interest of $0.4 million, and expense of $0.1 million and $0.5 million, respectively. The Company has not recognized any penalties associated with unrecognized tax benefits.

In 2017, the Company is expecting to release $0.6 million of liability due to the expiration of a statute of limitations.

The  Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions, as well as foreign jurisdictions. The Company and its subsidiaries are subject to U.S. federal income tax examinations by tax authorities for years after 2012, U.S. state income tax examinations for years after 2012 and foreign examinations for years after 2012.  

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Pension Plans

12 Months Ended

Dec. 31, 2016

Pension Plans [Abstract]

Pension Plans

8. PENSION PLANS

DEFINED BENEFIT PLANS

The Company recognizes the funded status of its defined benefit plans in its Consolidated Balance Sheets. The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation of the Company’s defined benefit plans. The Company is required to aggregate separately all overfunded plans from all underfunded plans.

U.S. Defined Benefit Plans

Prior to 2005, THG provided retirement benefits to substantially all of its employees under defined benefit pension plans. These plans were based on a defined benefit cash balance formula, whereby the Company annually provided an allocation to each covered employee based on a percentage of that employee’s eligible salary, similar to a defined contribution plan arrangement. In addition to the cash balance allocation, certain transition group employees who had met specified age and service requirements as of December 31, 1994 were eligible for a grandfathered benefit based primarily on the employees’ years of service and compensation during their highest five consecutive plan years of employment. The Company’s policy for the plans is to fund at least the minimum amount required by the Employee Retirement Income Security Act of 1974 (“ERISA”).

As of January 1, 2005, the defined benefit pension plans were frozen and since that date, no further cash balance allocations have been credited to participants. Participants’ accounts are credited with interest daily, based upon the General Agreement of Trades and Tariffs rate (the 30-year Treasury Bond interest rate). In addition, the grandfathered benefits for the transition group were also frozen at January 1, 2005 levels with an annual transition pension adjustment calculated at an interest rate equal to 5% per year up to 35 years of completed service, and 3% thereafter. As of December 31, 2016, based on current estimates of plan liabilities and other assumptions, the projected benefit obligation of the qualified defined benefit pension plan exceeds plan assets by approximately $54 million.

Chaucer Pension Plan

Prior to 2002, the Chaucer segment provided defined benefit pension retirement benefits to certain of its employees. As of December 31, 2001, the defined benefit pension plan was closed to new members, and as of December 31, 2016 the plan is no longer accruing for future salary increases. The defined benefit obligation for this plan is based on the employees’ years of service and final pensionable salary. Contributions are made at least annually to this plan by both the Company and by employees. As of December 31, 2016, based on current estimates of plan liabilities and other assumptions, the projected benefit obligation of the qualified defined benefit pension plan exceeds plan assets by approximately $16 million.

Assumptions

In order to measure the expense associated with these plans, management must make various estimates and assumptions, including discount rates used to value liabilities, assumed rates of return on plan assets, employee turnover rates and anticipated mortality rates, for example. The estimates used by management are based on the Company’s historical experience, as well as current facts and circumstances. In addition, the Company uses outside actuaries to assist in measuring the expense and liability associated with these plans.

The Company measures the funded status of its plans as of the date of its year-end statement of financial position. The Company utilizes a measurement date of December 31st to determine its benefit obligations, consistent with the date of its Consolidated Balance Sheets.

Weighted average assumptions used to determine pension benefit obligations are as follows:

DECEMBER 31	2016	2015	2014
U.S.
Discount rate - qualified plan	4.25%	4.88%	4.38%
Discount rate - non-qualified plan	4.25%	4.75%	4.25%
Cash balance interest crediting rate	3.50%	3.50%	3.50%
Chaucer
Discount rate	2.85%	3.85%	3.75%
Rate of increase in future compensation (1)	3.15%	3.10%	3.00%

(1) The salary increase assumption as of December 31, 2016 is used to calculate the curtailment gain that resulted from the cessation of future salary increases.

The Company utilizes a measurement date of January 1st to determine its periodic pension costs. Weighted average assumptions used to determine net periodic pension costs for the defined benefit plans are as follows:

YEARS ENDED DECEMBER 31	2016	2015	2014
U.S.
Qualified plan
Discount rate	4.88%	4.38%	5.00%
Expected return on plan assets	5.25%	5.00%	5.50%
Cash balance interest crediting rate	3.50%	3.50%	3.50%
Non-qualified plan
Discount rate	4.75%	4.25%	5.00%
Chaucer
Discount rate	3.85%	3.75%	4.50%
Rate of increase in future compensation	3.10%	3.00%	3.15%
Expected return on plan assets	5.45%	5.45%	6.55%

The expected rates of return were determined by using historical mean returns for each asset class, adjusted for certain factors believed to have an impact on future returns. These returns are generally weighted to the plan’s actual asset allocation. For the U.S. defined benefit plans, an increase in the expected return on plan assets for 2016 to 5.25% reflects long-term expectations for improvements, including increased interest rates, in the fixed maturities market in general. For the Chaucer plan, the expected rate of return on plan assets was 5.45%,  for both the years ended December 31, 2016 and 2015. The Company reviews and updates, at least annually, its expected return on plan assets based on changes in the actual assets held by the plans and market conditions.

Plan Assets

U.S. Qualified Defined Benefit Plan

The Company utilizes a target allocation strategy, which focuses on creating a mix of assets that will generate modest growth from equity securities while minimizing volatility in the Company’s earnings from changes in the markets and economic environment. Various factors are taken into consideration in determining the appropriate asset mix, such as census data, actuarial valuation information and capital market assumptions. The Company reviews and updates, at least annually, the target allocation and makes changes periodically.

The following table provides 2016 target allocations and actual invested asset allocations for 2016 and 2015.

DECEMBER 31	2016 TARGET LEVELS	2016	2015
Fixed income securities:
Fixed maturities	83%	83%	84%
Money market funds	2%	2%	1%
Total fixed income securities	85%	85%	85%
Equity securities:
Domestic	12%	12%	12%
International	3%	3%	3%
Total equity securities	15%	15%	15%
Total plan assets	100%	100%	100%

The following tables present, for each hierarchy level, the U.S. qualified defined benefit plan’s investment assets that are measured at fair value at December 31, 2016 and 2015. Refer to Note 5 – “Fair Value” for a description of the different levels in the Fair Value Hierarchy.

DECEMBER 31	2016								2015
(in millions)		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Fixed income securities:
Fixed maturities	$	53.7	$	23.0	$	-	$	30.7	$	42.0	$	10.3	$	-	$	31.7
Money market funds		7.1		7.1		-		-		4.7		4.7		-		-
Total investments at fair value	$	60.8	$	30.1	$	-	$	30.7	$	46.7	$	15.0	$	-	$	31.7

Fixed Income Securities

Securities classified as Level 1 at December 31, 2016 and 2015 include actively traded mutual funds and publicly traded securities, which are valued at quoted market prices. Securities classified as Level 3 at December 31, 2016 and 2015 include assets held in a fixed account of an insurance company. The fair value of the investment is estimated using a comparable public market financial institution derived fair value curve that uses non-observable inputs for market liquidity and unique credit characteristics of its underlying securities.

The Plan also holds investments measured at fair value using NAV based on the value of the underlying investments, which is determined independently by the investment manager and have not been included in the table above. These includeinvestments in commingled pools and investment-grade fixed income securities, held in a custom fund, and commingled pools that primarily invest in publicly traded common stocks and international equity securities. The daily NAV, which is not published as a quoted market price for these investments, is used as the basis for transactions. Redemption of these funds is not subject to restriction. The fair values of these investments are as follows:

DECEMBER 31	2016		2015
Fixed maturities	$	322.4	$	355.6
Equity securities:
Domestic		53.9		54.6
International		16.2		15.9
Total equity		70.1		70.5
Total investments carried at NAV	$	392.5	$	426.1

The table below provides a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

YEAR ENDED DECEMBER 31		2016
(in millions)
Balance at beginning of period	$	31.7
Actual return on plan assets related to assets still held		(1.0)
Balance at end of year	$	30.7

Chaucer Pension Plan

The investment strategy of the Chaucer defined benefit pension plan is to invest primarily in growth assets in the form of equity funds that are expected to provide a positive return exceeding inflation over the longer term in order to protect the existing and future liabilities of the pension plan. In order to reduce volatility and diversify the portfolio, the target allocation includes an exposure to corporate bond and commercial property funds. This allocation plan is reviewed annually, and target allocation changes are made as appropriate.

The following table provides 2016 target allocations and actual invested asset allocations for 2016 and 2015.

DECEMBER 31	2016 TARGET LEVELS	2016	2015
Fixed income securities:
Fixed maturities	30%	34%	32%
Equity securities:
Domestic (United Kingdom)	15%	14%	14%
International	45%	41%	42%
Total equity securities	60%	55%	56%
Real estate funds	10%	11%	12%
Total plan assets	100%	100%	100%

The Chaucer plan only holds cash and equivalents and investments measured at fair value using NAV. These investments include pooled funds that are valued at the close of business using a third-party pricing service. These values are adjusted by the fund manager to reflect outstanding dividends, taxes and investment fees and other expenses to calculate the NAV.

Real estate fund investments are also valued based upon the values of the net assets of the fund. Although the NAV is calculated daily, transactions also consider cash inflows and outflows of the fund. The price where units are transacted includes the NAV, which is adjusted for investment charges and other estimated acquisition costs such as legal fees, taxes, planning and architect fees, survey and agent fees, among others.The following table presents the Chaucer defined benefit plan’s investment assets at December 31, 2016 and 2015.

DECEMBER 31		2016		2015
(in millions)
Cash and equivalents	$	0.3	$	0.6
Fixed income securities:
Fixed maturities		39.4		38.7
Equity securities:
Domestic (United Kingdom)		16.0		17.0
International		48.0		52.4
Total equity securities		64.0		69.4
Real estate funds		12.8		14.8
Total investments carried at NAV	$	116.5	$	123.5

Obligations and Funded Status

The Company recognizes the current net underfunded status of its plans in its Consolidated Balance Sheets. Changes in the funded status of the plans are reflected as components of either net income or accumulated other comprehensive loss or income. The components of accumulated other comprehensive loss or income are reflected as either a net actuarial gain or loss or a net prior service cost.

The following table reflects the benefit obligations, fair value of plan assets and funded status of the plans at December 31, 2016 and 2015.

DECEMBER 31	U.S. Qualified Pension Plan				U.S. Non-Qualified     Pension Plan				Chaucer Pension Plan
(in millions)		2016		2015		2016		2015		2016		2015
Accumulated benefit obligation	$	506.8	$	500.5	$	38.0	$	37.8	$	132.2	$	126.0
Change in benefit obligation:
Projected benefit obligation, beginning of
period		500.5		538.5		37.8		40.6		128.3		137.5
Employee contributions		-		-		-		-		0.2		0.3
Service cost - benefits earned during the
period		-		-		-		-		0.8		1.1
Interest cost		23.2		22.5		1.7		1.7		4.5		5.1
Actuarial losses (gains)		29.4		(23.3)		1.7		(1.3)		25.9		(0.7)
Benefits paid		(46.3)		(37.2)		(3.2)		(3.2)		(1.8)		(5.8)
Curtailment gain		-		-		-		-		(2.4)		(1.8)
Foreign currency translation		-		-		-		-		(23.3)		(7.4)
Projected benefit obligation, end of year		506.8		500.5		38.0		37.8		132.2		128.3
Change in plan assets:
Fair value of plan assets, beginning of
period		472.8		513.4		-		-		123.5		131.8
Actual return on plan assets		26.8		(3.4)		-		-		15.4		3.3
Contributions		-		-		3.2		3.2		0.8		1.3
Benefits paid		(46.3)		(37.2)		(3.2)		(3.2)		(1.8)		(5.8)
Foreign currency translation		-		-		-		-		(21.4)		(7.1)
Fair value of plan assets, end of year		453.3		472.8		-		-		116.5		123.5
Funded status of the plans	$	(53.5)	$	(27.7)	$	(38.0)	$	(37.8)	$	(15.7)	$	(4.8)

Contributions include $0.2 and $0.3 million of Chaucer employee contributions during 2016 and 2015, respectively. All other contributions for all plans were made by the Company.

Components of Net Periodic Pension Cost

The components of total net periodic pension cost are as follows:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Service cost - benefits earned during the period	$	0.7	$	1.1	$	1.5
Interest cost		29.5		29.3		33.7
Expected return on plan assets		(29.6)		(31.6)		(36.6)
Recognized net actuarial loss		13.5		13.9		11.7
Amortization of prior service cost		-		-		0.1
Settlement loss		-		-		12.1
Curtailment gain		(2.4)		(1.8)		-
Net periodic pension cost	$	11.7	$	10.9	$	22.5

During 2016, the Chaucer plan was closed to future salary accruals, which eliminated any remaining benefits to be accumulated in future periods, and resulted in a $2.4 million curtailment gain. An equal and offsetting expense was included in recognized net actuarial losses in the above table.

During 2015, the Company transferred its U.K. motor business (See also “Disposal of U.K. Motor Business” in Note 2 – “Dispositions of Businesses”). As a result of this transaction, participants of the Chaucer plan who worked in this line also transferred to the unaffiliated U.K.-based insurance provider. Accordingly, they no longer are active participants of this plan and the liability was reduced resulting in a $1.8 million curtailment gain. An equal and offsetting expense was included in recognized net actuarial losses in the above table.  

During 2014, the Company announced a program to offer voluntary lump-sum pension payout options to eligible former employees that, if accepted, would settle the Company’s obligation to them. The program provided participants with a one-time choice of electing to receive a lump-sum settlement of their remaining pension benefit. As part of this voluntary lump-sum program, the Company settled $55.1 million of its pension obligations with an equal amount paid from plan assets. As a result, the Company recorded settlement losses of $10.8 million, reflecting the accelerated recognition of unamortized losses in the plan proportionate to the obligation that was settled. These settlement charges were recorded in other operating expenses with a corresponding balance sheet reduction in accumulated other comprehensive income. Additionally, the Company terminated another of its small qualified plans, accelerating the recognition of unamortized losses of $1.3 million.

The following table reflects the total amounts recognized in accumulated other comprehensive income relating to both the U.S. defined benefit pension plans and the Chaucer pension plan as of December 31, 2016 and 2015.

DECEMBER 31		2016		2015
(in millions)
Net actuarial loss	$	150.4	$	119.4

The unrecognized net actuarial gains (losses) which exceed 10% of the greater of the projected benefit obligation or the fair value of plan assets are amortized as a component of net periodic pension cost over the next five years. The following table reflects the total estimated amount of actuarial losses that will be amortized from accumulated other comprehensive income into net periodic pension cost in 2017 (the estimated expense related to the Chaucer plan was converted to U.S. dollars at an exchange rate of 1.23):

ESTIMATED AMORTIZATION IN 2017		Expense
(in millions)
Net actuarial loss	$	15.8

Contributions

In accordance with ERISA guidelines, the Company is not required to fund its U.S. qualified benefit plan in 2017. The Company expects to contribute $3.2 million to its U.S. non-qualified pension plan to fund 2017 benefit payments and at a minimum, $7.4 million to the Chaucer pension plan; although additional contributions may be made into the Chaucer plan. (Estimated contributions related to the Chaucer plan were converted to U.S. dollars at an exchange rate of 1.23). At this time, no additional discretionary contributions are expected to be made into the U.S. plans during 2017, and the Company does not expect that any funds will be returned from the plans to the Company during 2017.

Benefit Payments

The Company estimates that benefit payments over the next 10 years will be as follows:

YEARS ENDED DECEMBER 31		2017		2018		2019		2020		2021		2022-2026
(in millions)
U.S. qualified pension plan	$	38.8	$	37.7	$	37.6	$	37.4	$	37.5	$	174.9
U.S. non-qualified pension plan	$	3.2	$	3.1	$	3.0	$	3.1	$	2.9	$	13.5
Chaucer pension plan	$	1.6	$	1.7	$	1.8	$	1.8	$	1.9	$	10.8

The benefit payments are based on the same assumptions used to measure the Company’s benefit obligations at the end of 2016. Benefit payments related to the U.S. qualified plan and the Chaucer plan will be made from plan assets held in trusts and not included with Company assets, whereas those payments related to the non-qualified plan will be provided for by the Company. Expected benefits related to the Chaucer pension plan were converted to U.S. dollars at an exchange rate of 1.23.

DEFINED CONTRIBUTION PLAN

In addition to the defined benefit plans, THG provides a defined contribution 401(k) plan for its U.S. employees, whereby the Company matches employee elective 401(k) contributions, up to a maximum of 6% of eligible compensation in 2016, 2015, and 2014. The Company’s expense for this matching provision was $21.4 million, $20.1 million and $19.9 million for 2016, 2015 and 2014, respectively. In addition to this matching provision, the Company can elect to make an annual contribution to employees’ accounts. Additional contributions amounted to $2.0 million and $2.1 million for the 2015 and 2014 plan years, respectively.

Chaucer also provides a defined contribution plan for its employees that provides for employer provided contributions. The Company’s expense for 2016, 2015 and 2014 was $3.9 million, $4.8 million and $6.1 million, respectively.

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Other Postretirement Benefit Plans

12 Months Ended

Dec. 31, 2016

Other Postretirement Benefit Plans [Abstract]

Other Postretirement Benefit Plans

9. OTHER POSTRETIREMENT BENEFIT PLANS

In addition to the Company’s pension plans, the Company also has postretirement medical benefits that it provides to former agents and retirees and their dependents, and a limited number of full-time employees. The plans, which are funded by the Company through either a Health Reimbursement Arrangement (“HRA”) or directly, provide access to benefits including hospital and major medical, with certain limits, and have varying co-payments and deductibles, depending on the plan. Generally, employees who were actively employed on December 31, 1995 became eligible with at least 15 years of service after the age of 40. Effective January 1, 1996, the Company revised these benefits so as to establish limits on future benefit payments to beneficiaries of retired participants and to restrict eligibility to then current employees. In 2009, the Company changed the postretirement medical benefits, only as they relate to current employees who still qualified for participation in the plan under the above formula. For these participants, the plan provided for only post age 65 benefits. In 2015, the Company amended the plan to only provide this benefit to those participants who retire before January 1, 2018, further limiting the number of current employees who are eligible to participate in this plan. The population of agents receiving postretirement benefits was frozen as of December 31, 2002, when the Company ceased its distribution of proprietary life and annuity products. This plan is unfunded.

The Company has recognized the funded status of its postretirement benefit plans in its Consolidated Balance Sheets. Since the plans are unfunded, the amount recognized in the Consolidated Balance Sheets is equal to the accumulated benefit obligation of the plans. The components of accumulated other comprehensive income or loss are reflected as either a net actuarial gain or loss or a net prior service cost.

Obligation and Funded Status

The following table reflects the funded status of these plans:

DECEMBER 31		2016		2015
(in millions)
Change in benefit obligation:
Accumulated postretirement benefit obligation, beginning of year	$	12.1	$	17.0
Interest cost		0.5		0.5
Net actuarial loss		1.0		0.1
Benefits paid		(2.0)		(2.5)
Plan amendment		-		(3.0)
Accumulated postretirement benefit obligation, end of year		11.6		12.1
Fair value of plan assets, end of year		-		-
Funded status of plans	$	(11.6)	$	(12.1)

Benefit Payments

The Company estimates that benefit payments over the next 10 years will be as follows:

YEARS ENDING DECEMBER 31
(in millions)
2017	$	1.4
2018		1.3
2019		1.2
2020		1.1
2021		1.0
2022 - 2026		4.1

The benefit payments are based on the same assumptions used to measure the Company’s benefit obligation at the end of 2016 and reflect benefits attributable to estimated future service.

Components of Net Periodic Postretirement Expense (Benefit)

The components of net periodic postretirement expense (benefit) were as follows:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Service cost	$	-	$	-	$	0.1
Interest cost		0.5		0.5		0.8
Recognized net actuarial loss		0.2		0.2		0.1
Amortization of prior service cost (benefit)		(1.4)		(1.4)		(1.9)
Net periodic postretirement benefit	$	(0.7)	$	(0.7)	$	(0.9)

The following table reflects the balances in accumulated other comprehensive income relating to the Company’s postretirement benefit plans:

DECEMBER 31		2016		2015
(in millions)
Net actuarial loss	$	4.1	$	3.3
Net prior service cost		(1.8)		(3.3)
	$	2.3	$	-

The following table reflects the estimated amortization to be recognized in net periodic benefit cost in 2017:

Estimated Amortization in 2017		Expense (Benefit)
(in millions)
Net actuarial loss	$	0.2
Net prior service cost		(1.4)
	$	(1.2)

Assumptions

Employers are required to measure the funded status of their plans as of the date of their year-end statement of financial position. As such, the Company has utilized a measurement date of December 31, 2016 and 2015, to determine its postretirement benefit obligations, consistent with the date of its Consolidated Balance Sheets. Weighted average discount rate assumptions used to determine postretirement benefit obligations and periodic postretirement costs are as follows:

YEARS ENDED DECEMBER 31	2016	2015
Postretirement benefit obligations discount rate	4.13%	4.63%
Postretirement benefit cost discount rate	4.63%	4.38%

Assumed health care cost trend rates are as follows:

DECEMBER 31	2016	2015
Health care cost trend rate assumed for next year	6.50%	7.00%
Rate to which the cost trend is assumed to decline (ultimate trend rate)	4.50%	5.00%
Year the rate reaches the ultimate trend rate	2024	2020

A one-percentage point change in assumed health care cost trend rates in each year would have an immaterial effect on net periodic benefit cost during 2016 and accumulated postretirement benefit obligation at December 31, 2016.

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Other Comprehensive Income

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Other Comprehensive Income

10. OTHER COMPREHENSIVE INCOME

The following table provides changes in other comprehensive income.

YEARS ENDED
DECEMBER 31	2016						2015						2014
				Tax						Tax						Tax
				Benefit		Net of				Benefit		Net of				Benefit		Net of
(in millions)		Pre-Tax		(Expense)		Tax		Pre-Tax		(Expense)		Tax		Pre-Tax		(Expense)		Tax
Unrealized gains (losses) on
available-for-sale securities:
Unrealized gains (losses)
arising during period (net of pre-tax, ceded unrealized gains of $0.8 million  for the year ended December 31, 2014)	$	95.9	$	(33.4)	$	62.5	$	(199.3)	$	69.5	$	(129.8)	$	138.7	$	(45.7)	$	93.0
Amount of realized gains
from sales and other		(36.5)		(8.0)		(44.5)		(39.6)		0.7		(38.9)		(55.3)		0.3		(55.0)
Portion of other-than-
temporary impairment losses recognized in earnings		27.9		(9.8)		18.1		27.2		(9.5)		17.7		5.5		(1.9)		3.6
Net unrealized gains
(losses)		87.3		(51.2)		36.1		(211.7)		60.7		(151.0)		88.9		(47.3)		41.6
Pension and postretirement
benefits:
Net (loss) gain arising in the
period from net actuarial (losses) gains and prior service costs		(43.1)		12.8		(30.3)		(3.5)		0.7		(2.8)		(33.6)		11.0		(22.6)
Loss on settlement of pension
obligation		-		-		-		-		-		-		12.1		(4.2)		7.9
Amortization of net
actuarial loss and prior service cost recognized as net periodic benefit cost		9.9		(3.5)		6.4		12.7		(4.2)		8.5		10.0		(3.5)		6.5
Cumulative foreign currency
translation adjustment:
Foreign currency
translation recognized during the period		(5.1)		1.8		(3.3)		(11.1)		3.9		(7.2)		(7.1)		2.5		(4.6)
Other comprehensive income
(loss)	$	49.0	$	(40.1)	$	8.9	$	(213.6)	$	61.1	$	(152.5)	$	70.3	$	(41.5)	$	28.8

Reclassifications out of accumulated other comprehensive income were as follows:

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
	Amount Reclassified from
Details about Accumulated Other	Accumulated						Affected Line Item in the Statement
Comprehensive Income Components	Other Comprehensive Income						Where Net Income is Presented
Unrealized gains (losses) on available-for-
sale securities	$	36.4	$	39.9	$	55.2	Net realized gains from sales and other
							Net other-than-temporary impairment losses
		(27.9)		(26.8)		(5.5)	on investments recognized in earnings
		8.5		13.1		49.7	Total before tax
		17.8		8.7		1.6	Tax benefit
		26.3		21.8		51.3
		(0.1)		(0.6)		0.1	Other, net of tax
		26.2		21.2		51.4	Net of tax
Amortization of defined benefit pension							Loss adjustment expenses and other
and postretirement plans		(9.9)		(12.7)		(22.1)	operating expenses
		3.5		4.2		7.7	Tax benefit
		(6.4)		(8.5)		(14.4)	Net of tax
Total reclassifications for the period	$	19.8	$	12.7	$	37.0	Net of tax

The amount reclassified from accumulated other comprehensive income for the pension and postretirement benefits was allocated approximately 40% to loss adjustment expenses and 60% to other operating expenses for each of the years ended December 31, 2016, 2015 and 2014. In 2014, $12.1 million of this amount represented the accelerated recognition of unamortized losses due to the settlement of pension plan obligations.

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Stock-based Compensation Plans

12 Months Ended

Dec. 31, 2016

Stock-based Compensation Plans [Abstract]

Stock-based Compensation Plans

11. STOCK-BASED COMPENSATION PLANS

On May 20, 2014, shareholders approved The Hanover Insurance Group 2014 Long-Term Incentive Plan (the “2014 Stock Plan”). With respect to new share-based award issuances, the 2014 Stock Plan replaced The Hanover Insurance Group, Inc. 2006 Long-Term Incentive Plan (the “2006 Stock Plan”) and authorized the issuance of 6,100,000 shares in a new share pool plus any shares subject to outstanding awards under the 2006 Stock Plan that may become available for reissuance as a result of the cash settlement, forfeiture, expiration or cancellation of such awards. The 2014 Stock Plan provides for the granting of the same types of awards as the 2006 Stock Plan, including stock options and stock appreciation rights (“SARS”), restricted and unrestricted stock, stock units, performance and market-based stock awards, and cash awards. In accordance with the 2014 Stock Plan, the issuance of one share of common stock in the form of an option or SAR will reduce the share pool by one share, whereas the issuance of one share of common stock for the other types of stock awards provided by the plan will reduce the pool by 3.8 shares. As of December 31, 2016, there were 5,332,623 shares available for grants under the 2014 Stock Plan.

Additionally, on May 20, 2014, shareholders approved The Hanover Insurance Group 2014 Employee Stock Purchase Plan (the “ESPP Plan”) and the Chaucer Share Incentive Plan (the “SIP Plan”), authorizing the issuance of 2,500,000 and 750,000 shares, respectively, under such plans. As of December 31, 2016, 2,411,811 shares and 699,018 shares were available for grant under the ESPP Plan and the SIP Plan, respectively.

Compensation cost for the years ended December 31, 2016, 2015, and 2014 totaled $12.0 million, $12.3 million and $15.1 million, respectively. Related tax benefits were $4.2 million, $4.3 million and $5.3 million, respectively.

STOCK OPTIONS

Under the 2014 Stock Plan, options may be granted to eligible employees, directors or consultants at an exercise price equal to the market price of the Company’s common stock on the date of grant. Option shares may be exercised subject to the terms prescribed by the Compensation Committee of the Board of Directors (the “Committee”) at the time of grant. Options granted in 2016, 2015 and 2014 generally vest over 3 years with 33 1/3% vesting in each year. Options must be exercised not later than ten years from the date of grant.

Information on the Company’s stock options is summarized below.

YEARS ENDED DECEMBER 31	2016			2015			2014
(in whole shares and dollars)	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price
Outstanding, beginning of year	1,619,948	$	56.57	2,236,620	$	46.61	2,049,173	$	41.18
Granted	587,340		82.17	663,900		70.34	687,700		58.06
Exercised	(589,666)		48.99	(1,051,664)		44.47	(444,200)		39.33
Forfeited or cancelled (1)	(221,470)		68.61	(228,908)		54.78	(56,053)		45.99
Outstanding, end of year (1)	1,396,152	$	68.63	1,619,948	$	56.57	2,236,620	$	46.61
Exercisable, end of year	441,256	$	53.59	360,585	$	46.10	726,321	$	43.55

(1) Included in outstanding shares at the end of 2015 in this table and in subsequent metrics were 128,334 options that were previously granted to the Company’s former CEO. These options were subsequently forfeited in 2016 and are included in the table in the amounts forfeited or cancelled in 2016.

Cash received for options exercised for the years ended December 31, 2016, 2015 and 2014 was $15.8 million, $15.9 million and $10.9 million, respectively. The intrinsic value of options exercised for the years ended December 31, 2016, 2015 and 2014 was $21.1 million, $38.7 million and $10.6 million, respectively.

The excess tax expense realized from options exercised for the years ended December 31, 2016, 2015 and 2014 was $5.6 million, $9.7 million, and $5.9 million, respectively. The aggregate intrinsic value at December 31, 2016 for shares outstanding and shares exercisable was $31.2 million and $16.5 million, respectively. At December 31, 2016, the weighted average remaining contractual life for shares outstanding and shares exercisable was 8.1 years and 6.5 years, respectively. Additional information about employee options outstanding and exercisable at December 31, 2016 is included in the following table:

		Options Outstanding				Options Currently Exercisable
Range of Exercise Prices		Number	Weighted Average Remaining Contractual Lives		Weighted Average Exercise Price	Number		Weighted Average Exercise Price
$	34.19 to $46.47	188,603	5.15	$	40.64	188,603	$	40.64
$	57.99 to $62.57	269,907	7.15		58.05	145,994		58.06
$	69.09 to $73.30	381,182	8.17		70.30	105,910		70.30
$	74.88 to $90.42	556,460	9.38		82.11	749		79.54

The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. For all options granted through December 31, 2016, the exercise price equaled the market price on the grant date. Compensation cost related to options is based upon the grant date fair value and expensed on a straight-line basis over the service period for each separately vesting portion of the option as if the option was, in substance, multiple awards.

The weighted average grant date fair value of options granted during the years ended December 31, 2016, 2015 and 2014 was $10.83,  $9.72 and $8.96, respectively.

The following significant assumptions were used to determine the fair value for options granted in the years indicated.

	2016		2015		2014
Dividend yield	2.04% to 2.46	%	2.03% to 2.37	%	2.07% to 2.55	%
Expected volatility	18.08% to 21.31	%	17.63% to 22.24	%	18.07% to 24.38	%
Weighted average expected volatility	19.57	%	20.19	%	23.00	%
Risk-free interest rate	0.77% to 1.97	%	0.70% to 1.75	%	0.53% - 1.92	%
Expected term, in years	2.5 to 5.5		2.5 to 5.5		2.5 to 5.5

The expected dividend yield is based on the Company’s dividend payout rate(s), in the year noted. Expected volatility is based generally on the Company’s historical daily stock price volatility. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term of options granted represents the period of time that options are expected to be outstanding and is derived primarily using historical exercise, forfeit and cancellation behavior, along with certain other factors expected to differ from historical data.

The fair value of shares that vested during the years ended December 31, 2016 and 2015 was $26.8 million and $20.4 million, respectively. As of December 31, 2016, the Company had unrecognized compensation expense of $5.0 million related to unvested stock options that is expected to be recognized over a weighted average period of 1.6 years.

RESTRICTED STOCK UNITS

Stock grants may be awarded to eligible employees at a price established by the Committee (which may be zero). Under the 2014 Stock Plan, the Company may award shares of restricted stock, restricted stock units, as well as shares of unrestricted stock. Restricted stock grants may vest based upon performance criteria, market criteria or continued employment and be in the form of shares or units. Vesting periods are established by the Committee.

The Company granted market-based restricted share units in 2016, 2015 and 2014.These units generally vest after 3 years of continued employment and after the achievement of certain stock performance targets. The Company also granted restricted stock units to eligible employees in 2016, 2015 and 2014 that generally vest after 3 years of continued employment.

The following table summarizes information about employee restricted stock units:

YEARS ENDED DECEMBER 31	2016			2015			2014
	Shares		Weighted Average Grant Date Fair Value	Shares		Weighted Average Grant Date Fair Value	Shares		Weighted Average Grant Date Fair Value
Time-based restricted stock
units:
Outstanding, beginning of
year	301,897	$	54.54	384,923	$	45.63	525,980	$	41.20
Granted	143,107		83.43	93,631		70.75	102,131		58.78
Vested	(139,183)		42.97	(138,307)		41.22	(231,078)		41.45
Forfeited	(36,758)		69.07	(38,350)		52.75	(12,110)		43.67
Outstanding, end of year	269,063	$	73.91	301,897	$	54.54	384,923	$	45.63
Performance and market-based
restricted stock units:
Outstanding, beginning of
year	196,142	$	47.89	218,338	$	44.24	184,626	$	40.42
Granted	126,796		73.42	82,025		48.55	60,338		55.73
Vested	(144,141)		40.95	(82,748)		38.99	(22,826)		44.78
Forfeited (1)	(63,740)		58.54	(21,473)		47.53	(3,800)		37.90
Outstanding, end of year (1)	115,057	$	78.82	196,142	$	47.89	218,338	$	44.24

(1) Included in outstanding shares at the end of 2015 were 56,500 market-based restricted stock units that were previously granted to the Company’s former CEO. These units were subsequently forfeited in 2016 and are included above in the amounts forfeited in 2016.

In 2016, 2015 and 2014, the Company granted market-based awards totaling 87,213,  80,738, and 56,625, respectively, to certain members of senior management, which are included in the table above as performance and market-based restricted stock activity. The vesting of these stock units is based on the relative total shareholder return (“TSR”) of the Company. This metric is generally based on relative TSR for a three year period as compared to a group of Property and Casualty peer companies. The fair value of market based awards was estimated at the date of grant using a valuation model. These units have the potential to range from 0% to 150% of the shares disclosed. Included in the amount granted above in 2016 were 30,453 shares related to market-based awards that achieved a payout in excess of 100%.Also included in the amounts granted above for the performance-based restricted stock units were 1,949 shares related to awards that a performance metric in excess of 100% was achieved. All of these awards vested in 2016.

Performance-based restricted stock units are based upon the achievement of the performance metric at 100%. These units have the potential to range from 0% to 200% of the shares disclosed, which varies based on grant year and individual participation level. Increases above the 100% target level are reflected as granted in the period in which performance-based stock unit goals are achieved. Decreases below the 100% target level are reflected as forfeited.

In 2016, performance and market-based stock units of 2,268 and 30,134 were included as granted due to completion levels in excess of 100% for units granted in 2014 and 2013, respectively.The weighted average grant date fair value of these awards was $57.00 and $41.77, respectively. In 2015, performance and market-based stock units of 3,125 and 36,875 were included as granted due to completion levels in excess of 100% for units granted in 2013 and 2012, respectively. The weighted average grant date fair value of these awards was $42.44 and $36.47, respectively. In 2014, performance and market-based stock units of 2,888 were included as granted due to completion levels in excess of 100% for units granted in 2012. The weighted average grant date fair value of these awards was $43.31.

The intrinsic value of restricted stock and restricted stock units that vested during the years ended December 31, 2016, 2015 and 2014 was $5.4 million, $4.4 million and $4.2 million, respectively. The intrinsic value for performance and market-based restricted stock units that vested in 2016, 2015 and 2014 was $5.8 million, $2.6 million and $0.3 million, respectively. Forfeitures included in the table above for 2016, 2015 and 2014 related entirely to market-based restricted stock units.

At December 31, 2016, the aggregate intrinsic value of restricted stock units was $24.5 million and the weighted average remaining contractual life was 1.4 years. The aggregate intrinsic value of performance and market-based restricted stock units was $10.5 million and the weighted average remaining contractual life was 2.1 years. As of December 31, 2016, there was $17.4 million of total unrecognized compensation cost related to unvested restricted stock units and performance and market-based restricted stock units, assuming performance and market-based restricted stock units are achieved at 100% of the performance metric. The cost is expected to be recognized over a weighted average period of 2.4 years. Compensation cost associated with restricted stock, restricted stock units and performance and market-based restricted stock units is generally calculated based upon grant date fair value, which is determined using current market prices.

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Earnings Per Share and Shareholders' Equity Transactions

12 Months Ended

Dec. 31, 2016

Earnings Per Share and Shareholders’ Equity Transactions [Abstract]

Earnings Per Share and Shareholders' Equity Transactions

12. EARNINGS PER SHARE AND SHAREHOLDERS’ EQUITY TRANSACTIONS

The following table provides weighted average share information used in the calculation of the Company’s basic and diluted earnings per share:

DECEMBER 31		2016		2015		2014
(in millions, except per share data)
Basic shares used in the calculation of earnings per share		42.8		43.9		44.0
Dilutive effect of securities:
Employee stock options		0.2		0.5		0.5
Non-vested stock grants		0.2		0.4		0.4
Diluted shares used in the calculation of earnings per share		43.2		44.8		44.9
Per share effect of dilutive securities on income from continuing operations	$	(0.04)	$	(0.14)	$	(0.12)
Per share effect of dilutive securities on net income	$	(0.04)	$	(0.15)	$	(0.13)

Diluted earnings per share during 2016, 2015 and 2014 excludes 0.6 million, 0.6 million and 0.7 million, respectively, of common shares issuable under the Company’s stock compensation plans, because their effect would be antidilutive.

The Company’s Board of Directors has authorized aggregate repurchases of the Company’s common stock of up to $900 million. Under the repurchase authorizations, the Company may repurchase, from time to time, common shares in amounts, at prices and at such times as the Company deems appropriate, subject to market conditions and other considerations. Repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. The Company is not required to purchase any specific number of shares or to make purchases by any certain date under this program.As of December 31, 2016, the Company has $183.6 million available for repurchases under these repurchase authorizations. During 2016, the Company purchased 1.3 million shares of the Company’s common stock at a cost of $105.6 million.

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Dividend Restrictions

12 Months Ended

Dec. 31, 2016

Dividend Restrictions [Abstract]

Dividend Restrictions

13. DIVIDEND RESTRICTIONS

U.S. INSURANCE SUBSIDIARIES

The individual law of all states, including New Hampshire and Michigan, where Hanover Insurance and Citizens are domiciled, respectively, restrict the payment of dividends to stockholders by insurers. These laws affect the dividend paying ability of Hanover Insurance and Citizens.

Pursuant to New Hampshire’s statute, the maximum dividends and other distributions that an insurer may pay in any twelve month period, without prior approval of the New Hampshire Insurance Commissioner, is limited to 10% of such insurer’s statutory policyholder surplus as of the preceding December 31. Hanover Insurance declared dividends to its parent totaling $218.8 million in 2016. No dividends were declared by Hanover Insurance in 2015 or 2014. Hanover Insurance cannot declare a further dividend to its parent without prior approval until April 2017, at which time the maximum dividend payable without prior approval would be $216.8 million.

Pursuant to Michigan’s statute, the maximum dividends and other distributions that an insurer may pay in any twelve month period, without prior approval of the Michigan Insurance Commissioner, is limited to the greater of 10% of policyholders’ surplus as of December 31 of the immediately preceding year or the statutory net income less net realized gains, for the immediately preceding calendar year. Citizens declared dividends to its parent, Hanover Insurance, totaling $70.0 million, $63.0 million and $66.0 million in 2016, 2015 and 2014, respectively. At December 31, 2016, the maximum dividend payable without prior approval was  $30.0 million. In December 2017, the maximum dividend declared payable without prior approval will increase by $70.0 million to a total amount of $100.0 million.

The statutes in both New Hampshire and Michigan require that prior notice to the respective Insurance Commissioner of any proposed dividend be provided and such Commissioner may, in certain circumstances, prohibit the payment of the proposed dividend.

CHAUCER

Dividend payments from Chaucer to its parent are regulated by U.K. law. Dividends from Chaucer are dependent on dividends from its subsidiaries. Annual dividend payments from Chaucer are limited to retained earnings that are not restricted by capital and other requirements for business at Lloyd’s. Also, Chaucer must provide advance notice to the U.K.’s Prudential Regulation Authority (“PRA”) of certain proposed dividends or other payments from PRA regulated entities. Dividend payments to THG from Chaucer entities totaled $79.5 million, $61.3 million and $68.7 million in 2016, 2015 and 2014, respectively.

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Segment Information

12 Months Ended

Dec. 31, 2016

Segment Information [Abstract]

Segment Information

14. SEGMENT INFORMATION

The Company’s primary business operations include insurance products and services provided through four operating segments. The domestic operating segments are Commercial Lines, Personal Lines and Other, and the Company’s international operating segment is Chaucer. Commercial Lines includes commercial multiple peril, commercial automobile, workers’ compensation, and other commercial coverages, such as inland marine, specialty program business, management and professional liability and surety. Personal Lines includes personal automobile, homeowners and other personal coverages. Chaucer includes marine and aviation,property, energy, casualty and other coverages (which includes international liability, specialist coverages, and syndicate participations), and U.K. motor business prior to June 30, 2015. Effective June 30, 2015, the Company transferred it U.K. motor business to an unaffiliated party. Included in Other are Opus Investment Management, Inc., which markets investment management services to institutions, pension funds and other organizations; earnings on holding company assets; and, a discontinued voluntary pools business. The separate financial information is presented consistent with the way results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company reports interest expense related to debt separately from the earnings of its operating segments. This consists of interest on the Company’s senior debentures, subordinated debentures, collateralized borrowings with the Federal Home Loan Bank of Boston, and letter of credit facility. Management evaluates the results of the aforementioned segments based on operating income before taxes,excluding interest expense on debt. Operating income before taxes excludes certain items which are included in net income, such as net realized 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 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 taxes may be important components in understanding and assessing the Company’s overall financial performance, management believes that the presentation of operating income before taxes enhances an investor’s understanding of the Company’s results of operations by highlighting net income attributable to the core operations of the business. However, operating income before taxes should not be construed as a substitute for income before income taxes and operating income should not be construed as a substitute for net income.

Summarized below is financial information with respect to the Company’s business segments.

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Operating revenues:
Commercial Lines	$	2,485.0	$	2,391.7	$	2,239.0
Personal Lines		1,552.4		1,511.3		1,491.0
Chaucer		891.4		1,104.1		1,279.7
Other		8.4		7.4		7.8
Total		4,937.2		5,014.5		5,017.5
Net realized investment gains		8.6		19.5		50.1
Total revenues	$	4,945.8	$	5,034.0	$	5,067.6
Operating income (loss) before interest expense and income taxes:
Commercial Lines:
Underwriting loss	$	(122.0)	$	(12.7)	$	(8.3)
Net investment income		158.5		156.3		149.4
Other expense		(0.6)		(0.3)		(1.2)
Commercial Lines operating income		35.9		143.3		139.9
Personal Lines:
Underwriting income		103.8		72.0		22.1
Net investment income		69.5		72.5		71.9
Other income		5.1		4.8		5.0
Personal Lines operating income		178.4		149.3		99.0
Chaucer:
Underwriting income		80.3		131.5		122.5
Net investment income		45.7		45.9		44.2
Other income		0.8		6.3		10.9
Chaucer operating income		126.8		183.7		177.6
Other:
Underwriting loss		(10.8)		(1.9)		(3.1)
Net investment income		5.7		4.4		4.8
Other expense		(13.2)		(12.7)		(11.4)
Other operating loss		(18.3)		(10.2)		(9.7)
Operating income before interest expense and income taxes		322.8		466.1		406.8
Interest on debt		(54.9)		(60.6)		(65.8)
Operating income before income taxes		267.9		405.5		341.0
Non-operating income items:
Net realized investment gains		8.6		19.5		50.1
Net loss from repayment of debt		(88.3)		(24.1)		(0.1)
Net gain on disposal of U.K. motor business		1.1		38.4		-
Loss from settlement of pension obligation		-		-		(12.1)
Other non-operating items		3.0		0.1		(0.9)
Income before income taxes	$	192.3	$	439.4	$	378.0

The following table provides identifiable assets for the Company’s business segments and discontinued operations:

DECEMBER 31		2016		2015
(in millions)	Identifiable Assets
U.S. Companies	$	10,225.4	$	9,616.0
Chaucer		3,915.5		4,082.2
Discontinued operations		79.5		83.0
Total	$	14,220.4	$	13,781.2

The Company reviews the assets of its U.S. Companies collectively and does not allocate them among the Commercial Lines, Personal Lines and Other segments.

GEOGRAPHIC CONCENTRATIONS

The following table presents the Company’s gross premiums written (“GPW”) based on the location of the risk:

YEARS ENDED DECEMBER 31	2016	2015	2014
	% of Total GPW
United States	85%	81%	78%
United Kingdom	-	4%	6%
Worldwide and other	15%	15%	16%
Total	100%	100%	100%

The worldwide and other category includes insured risks that move across multiple geographic areas, including the U.S. and U.K., due to their mobile nature or insured risks that are fixed in locations that span more than one geographic area, and risks located in a single country outside the U.S. and U.K. These contracts include, for example, marine and aviation, hull, satellite, offshore energy exploration and production risks that can move across multiple geographic areas and assumed risks where the cedant insures risks in two or more geographic zones. These risks may include U.S. and U.K. insured risks.

Long-lived assets located outside the U.S. were not material for the years ended December 31, 2016 or 2015. The Company does not have revenue from transactions with a single agent or broker amounting to 10 percent or more of its consolidated revenue.

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Lease Commitments

12 Months Ended

Dec. 31, 2016

Lease Commitments [Abstract]

Lease Commitments

15. LEASE COMMITMENTS

Rental expenses for operating leases amounted to $18.5 million, $17.4 million and $20.4 million in 2016, 2015 and 2014, respectively. These expenses relate primarily to building leases of the Company. At December 31, 2016, future minimum rental payments under non-cancelable operating leases were $61.7 million, payable as follows: 2017 - $16.7 million; 2018 - $15.1 million; 2019 - $12.2 million; 2020 - $9.6 million and 2021 and thereafter - $8.1 million. It is expected that in the normal course of business, leases that expire may be renewed or replaced by leases on other property and equipment.

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Reinsurance

12 Months Ended

Dec. 31, 2016

Reinsurance [Abstract]

Reinsurance

16. REINSURANCE

In the normal course of business, the Company seeks to reduce the losses that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. Reinsurance transactions are accounted for in accordance with the provisions of ASC 944.

Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company determines the appropriate amount of reinsurance based on evaluations of the risks accepted and analyses prepared by consultants and on market conditions (including the availability and pricing of reinsurance). The Company also believes that the terms of its reinsurance contracts are consistent with industry practice in that they contain standard terms with respect to lines of business covered, limit and retention, arbitration and occurrence. The Company believes that its reinsurers are financially sound. This belief is based upon an ongoing review of its reinsurers’ financial statements, reported financial strength ratings from rating agencies, reputations in the marketplace, and the analysis and guidance of THG’s reinsurance advisors.

As a condition to conduct certain business in various states, the Company is required to participate in residual market mechanisms, facilities and pooling arrangements such as the Michigan Catastrophic Claims Association (“MCCA”). The Company is subject to concentration of risk with respect to reinsurance ceded to the MCCA. Funding for MCCA comes from assessments against automobile insurers based upon their share of insured automobiles in the state. Insurers are allowed to pass along this cost to Michigan automobile policyholders. The Company ceded to the MCCA premiums earned and losses and LAE incurred of $58.6 million and $75.0 million in 2016, $67.7 million and $78.8 million in 2015 and $73.4 million and $99.2 million in 2014. The MCCA represented 34.9% of the total reinsurance receivable balance at December 31, 2016. Reinsurance recoverables related to MCCA were $911.2 million and $906.5 million at December 31, 2016 and 2015, respectively. Because the MCCA is supported by assessments permitted by statute, and there have been no significant uncollectible balances from MCCA identified during the three years ending December 31, 2016, the Company believes that it has no significant exposure to uncollectible reinsurance balances from this entity. The Lloyd’s Syndicates total reinsurance receivable balance was $506.8 million as of December 31, 2016, as compared to $606.5 million as of December 31, 2015. The Lloyd’s receivable represented 19.4% of the total reinsurance receivable balance at December 31, 2016. 

The following table provides the effects of reinsurance.

YEARS ENDED DECEMBER 31		2016			2015			2014
(in millions)
Premiums written:
Direct	$	4,826.0		$	4,811.3		$	4,777.3
Assumed (1)		571.4			633.2			688.1
Ceded (2) (3)		(698.6)			(827.7)			(655.3)
Net premiums written	$	4,698.8		$	4,616.8		$	4,810.1
Premiums earned:
Direct	$	4,746.6		$	4,814.4		$	4,679.8
Assumed (1)		601.7			655.6			696.4
Ceded (2) (3)		(720.2)			(765.2)			(665.9)
Net premiums earned	$	4,628.1		$	4,704.8		$	4,710.3
Percentage of assumed to net premiums earned		13.00	%		13.93	%		14.78	%
Losses and LAE:
Direct	$	3,188.2		$	3,008.5		$	3,019.4
Assumed (1)		289.4			312.4			266.1
Ceded (2) (4)		(512.9)			(436.8)			(358.0)
Net losses and LAE	$	2,964.7		$	2,884.1		$	2,927.5

(1) Assumed reinsurance activity primarily relates to the Chaucer segment.

(2) Effective June 30, 2015, the Company transferred its U.K. motor business through a 100% reinsurance arrangement. This transaction resulted in the increase of approximately $196 million, $133 million and $90 million for ceded premiums written, premiums earned and losses and LAE, respectively, for the year ended December 31, 2015. See also “Disposal of U.K. Motor Business” in Note 2 – “Dispositions of Businesses”.

(3) The decrease in ceded reinsurance premiums from 2015 to 2016 is primarily due to the above mentioned non-recurring U.K. motor activity in 2015, partially offset by a planned increase in Chaucer’s ceded reinsurance premiums as the Company continues to manage its overall underwriting risk.

(4) The increase in ceded losses and LAE from 2015 to 2016 is primarily due to the aforementioned increase in Chaucer’s reinsurance purchases in 2016 and due to a higher level of ceded large loss activity in certain Chaucer and domestic lines in 2016. These increases in ceded losses and LAE were partially offset by the above mentioned non-recurring U.K. motor activity in 2015.

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Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2016

Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Abstract]

Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses

17. LIABILITIES FOR OUTSTANDING CLAIMS, LOSSES AND LOSS ADJUSTMENT EXPENSES

Reserving Process Overview

Management’s process for establishing loss reserves is a comprehensive process that involves input from multiple functions throughout the organization, including actuarial, finance, claims, legal, underwriting, distribution and business operations management. A review of loss reserves for each of the classes of business which the Company writes is conducted regularly, generally quarterly. This review process takes into consideration a variety of trends that impact the ultimate settlement of claims. Where appropriate, the review includes a review of overall payment patterns and the emergence of paid and reported losses relative to expectations.

The loss reserve estimation process relies on the basic assumption that past experience, adjusted for the effects of current developments and likely trends, is an appropriate basis for predicting future outcomes. As part of this process, the Company uses a variety of analytical methods that consider experience, trends and other relevant factors. Incurred but not reported (“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 adjustment expenses. IBNR reserves include both incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses. Reported losses include cumulative paid losses and loss adjustment expenses plus outstanding case reserves. The Company’s ultimate IBNR reserves are estimated by management and 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. Case reserves are established by claim personnel individually on a claim by claim basis and based on information specific to the occurrence and terms of the underlying policy. Case reserves are periodically reviewed and modified based on new or additional information pertaining to the claim.

For events designated as catastrophes which affect the Commercial and Personal Lines business segments, the Company generally calculates 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. For events designated as catastrophes that affect the Chaucer business segment, the Company initially calculates IBNR reserves using a ground up exposure by exposure analysis based on each cedant or insured. These are supported by broker supplied information, catastrophe modeling and industry event estimates.

Carried reserves for each line of business and coverage are determined based on this quarterly loss reserving process. In making the determination, the Company considers 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, concerns that the Company does not have sufficient or quality historical reported and paid loss and LAE information with respect to a particular line or segment of business, effects of the economy and political outlook, perceived anomalies in the historical results, evolving trends or other factors.

Reserve Rollforward and Prior Year Development

The Company regularly updates its reserve estimates as new information becomes available and further events occur which may impact the resolution of unsettled claims. Reserve adjustments are reflected in 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 loss event occurred. These types of subsequent adjustments are described as “prior years’ loss reserves”. Such development can be either favorable or unfavorable to the Company’s financial results and may vary by line of business. In this section, all amounts presented include catastrophe losses and LAE, unless otherwise indicated.

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

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Gross loss and LAE reserves, beginning of year	$	6,574.4	$	6,391.7	$	6,231.5
Reinsurance recoverable on unpaid losses		2,280.8		1,983.0		2,030.4
Net loss and LAE reserves, beginning of year		4,293.6		4,408.7		4,201.1
Net incurred losses and LAE in respect of losses occurring in:
Current year		2,859.3		3,000.2		3,044.9
Prior years		105.4		(116.1)		(117.4)
Total incurred losses and LAE		2,964.7		2,884.1		2,927.5
Net payments of losses and LAE in respect of losses occurring in:
Current year		1,142.7		1,245.6		1,328.7
Prior years		1,367.2		1,418.4		1,398.9
Total payments		2,509.9		2,664.0		2,727.6
Commutation of Chaucer Flagstone reinsurance agreement		-		-		85.7
Transfer of U.K. motor business		-		(300.6)		-
Effect of foreign exchange rate changes		(73.8)		(34.6)		(78.0)
Net reserve for losses and LAE, end of year		4,674.6		4,293.6		4,408.7
Reinsurance recoverable on unpaid losses		2,274.8		2,280.8		1,983.0
Gross reserve for losses and LAE, end of year	$	6,949.4	$	6,574.4	$	6,391.7

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

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Commercial multiple peril	$	68.8	$	11.6	$	(2.5)
Workers’ compensation		(46.7)		(46.9)		(5.6)
Commercial automobile		27.5		23.3		15.1
Other commercial lines:
AIX program business		75.1		74.7		10.9
General liability		56.0		14.3		2.3
Surety		35.3		1.5		(5.2)
Umbrella		(8.9)		(17.8)		(1.4)
Other lines		12.2		(13.5)		0.5
Total other commercial lines		169.7		59.2		7.1
Total Commercial Lines Segment		219.3		47.2		14.1
Personal automobile		4.8		(7.2)		(5.9)
Homeowners and other personal lines		5.8		(3.4)		0.8
Total Personal Lines Segment		10.6		(10.6)		(5.1)
Total Chaucer Segment		(132.8)		(153.0)		(127.8)
Total Other Segment		8.3		0.3		1.4
Total loss and LAE reserve development, including catastrophes	$	105.4	$	(116.1)	$	(117.4)

Within other commercial lines, general liability is comprised of both monoline general liability and certain management and professional liability coverages and other lines is primarily comprised of lawyers professional liability, fidelity, marine, miscellaneous property, and healthcare lines. Loss and LAE reserve development in the Other segment is related to run-off voluntary assumed reinsurance pools business.

As a result of continuing trends in the Company’s business, reserves including catastrophes have been re-estimated for all prior accident years and were increased by $105.4 million in 2016 in comparison to decreases of $116.1 million and $117.4 million in 2015 and 2014, respectively.  As a result of the Company’s 2016 fourth quarter reserve review of domestic lines of business, as discussed further below, carried reserves for prior accident years for domestic lines excluding catastrophes were increased by $174.1 million in the fourth quarter, of which $161.5 million related to Commercial Lines. The majority of this adjustment is attributed to long-tailed commercial liability coverages, including AIX program business. In general, higher than expected loss and LAE emergence in 2016 led the Company to adjust its reserve assumptions in its year-end reserve review and place greater weight on the adverse large loss and severity trends experienced in the most recent calendar years. 

2016

In 2016, net unfavorable loss and LAE development was $105.4 million, primarily as a result of net unfavorable development of $219.3 million for Commercial Lines, partially offset by favorable development of $132.8 million for Chaucer. The net unfavorable Commercial Lines development primarily resulted from higher than expected losses in other commercial lines of $169.7 million, which includes the AIX program business. This was primarily driven by AIX programs and business classes which have since been terminated or substantially revised, general liability coverages in accident years 2012 through 2015, and surety bonds in accident years 2012 through 2015. The Company also experienced higher than expected losses within the commercial multiple peril lines of $68.8 million for accident years 2012 through 2015 and commercial automobile of $27.5 million in accident years 2012 through 2014, both primarily within liability coverages. Partially offsetting the unfavorable development was lower than expected losses of $46.7 million within the workers’ compensation line, primarily related to accident years 2013 through 2015, and, to a lesser extent, the commercial umbrella line primarily related to the 2015 accident year.

Chaucer’s favorable development during 2016 was primarily the result of lower than expected losses in the property line of $45.6 million, primarily in the 2013 through 2015 accident years, the energy line of $31.9 million, primarily in the 2013 through 2015 accident years, and in the marine and aviation lines of $27.4 million, primarily in the 2008, 2009, 2014 and 2015 accident years. Additionally, Chaucer experienced lower than expected losses within casualty and other lines, specifically the specialist and international liability lines, of $15.3 million, primarily in the 2014 and prior accident years. Partially offsetting Chaucer’s favorable development was the unfavorable impact of foreign exchange rate movements on prior years’ loss reserves.

2015

In 2015, net favorable loss and LAE development was $116.1 million, primarily as a result of favorable development of $153.0 million for Chaucer, partially offset by net unfavorable development of $47.2 million for Commercial Lines. As a result of the Company’s year-end 2015 reserve review of domestic commercial and personal lines of business, carried reserves were adjusted among several of these lines of business, impacting the prior year development by line, although these adjustments had no impact on aggregate domestic carried reserves.

Chaucer’s favorable development was primarily the result of lower than expected losses in the property line of $43.8 million, primarily in the 2011 through 2014 accident years, the energy line of $42.1 million, primarily in the 2012 through 2014 accident years, and in the marine and aviation lines of $34.2 million, primarily in the 2010, 2012 and 2013 accident years. Additionally, Chaucer experienced lower than expected losses within casualty and other lines, specifically the specialist and international liability lines, of $22.7 million primarily in the 2008, 2011 and 2013 accident years. Chaucer’s favorable development was also partially attributable to the favorable impact of foreign exchange rate movements on prior years’ loss reserves.

The net unfavorable Commercial Lines development primarily resulted from higher than expected losses in other commercial lines of $59.2 million. This was primarily driven by AIX programs and business classes which have since been terminated and general liability lines in accident years 2009 through 2012, partially offset by lower than expected losses in the commercial umbrella line in accident years 2012 through 2014 and in the healthcare line in accident years 2010 through 2014. The Company also experienced higher than expected losses within the commercial automobile line of $23.3 million, primarily related to liability coverage in accident years 2011 through 2013, and in the commercial multiple peril lines, primarily in accident years 2008, 2009 and 2011. Partially offsetting the unfavorable development was lower than expected losses of $46.9 million within the workers’ compensation line, primarily related to accident years 2005 through 2014, and, to a lesser extent, the commercial umbrella line related to accident years 2012 through 2014.

2014

In 2014, net favorable loss and LAE development was $117.4 million, primarily as a result of favorable development of $127.8 million for Chaucer, partially offset by net unfavorable development of $14.1 million for Commercial Lines. Chaucer’s favorable development was primarily the result of lower than expected losses in the marine and aviation lines of $47.4 million, primarily in the 2011 through 2013 accident years. Additionally, Chaucer experienced lower than expected losses within the property line of $30.6  million, primarily in the 2010 through 2013 accident years, and in casualty and other lines, specifically the specialty liability line of $21.4 million, primarily in the 2010 and 2013 accident years. Chaucer’s favorable development was also partially attributable to the favorable impact of foreign exchange rate movements on prior years’ loss reserves.

The net unfavorable Commercial Lines development primarily resulted from higher than expected large losses within the commercial automobile coverages of $23.1 million, which includes the AIX program business, primarily related to liability coverage in the 2009 through 2012 accident years.  Partially offsetting the unfavorable development was lower than expected losses within the workers’ compensation line, primarily related to the 2007 through 2012 accident years, and the surety line, primarily related to the 2013 accident year.

2016 Fourth Quarter Domestic Business Loss and LAE Reserve Increase

The table below provides a summary of (favorable)/unfavorable loss and LAE reserve development excluding catastrophes for the three months ended December 31, 2016:

(in millions)
Commercial multiple peril	$	43.7
Workers’ compensation		(32.0)
Commercial automobile		18.4
Other commercial lines:
AIX program business		49.6
General liability		45.2
Surety		37.9
Umbrella		(9.4)
Other lines		8.1
Total other commercial lines		131.4
Total Commercial Lines Segment		161.5
Personal automobile		8.2
Homeowners and other personal lines		(3.0)
Total Personal Lines Segment		5.2
Total Other Segment		7.4
Total domestic business loss and LAE reserve development, excluding catastrophes(1)	$	174.1

(1) For the three months ended December 31, 2016, prior year reserve development for catastrophes was favorable of $2.0 million for the domestic business.

Through the first nine months of 2016, the Company recorded $61.5 million of unfavorable loss and LAE reserve development for the domestic business, excluding catastrophes, driven by higher than expected large losses in commercial liability coverages, primarily in the commercial multiple peril line and both the AIX program business and general liability coverages that are within other commercial lines. Additionally, the Company incurred higher than expected legal defense costs, a component of LAE expenses, during the first nine months of 2016. Other product lines also reported increased claim activity, including commercial automobile and surety.

There was an increased level of loss and LAE activity recorded in certain lines in 2015 that continued throughout 2016, and in some cases intensified into the fourth quarter, and appears to represent longer-term trends that management concluded required recognition. As a result of these trends, during the fourth quarter of 2016, the Company performed a more in-depth actuarial reserve review in several areas. The Company assessed the recent large loss activity in the monoline and multiple peril general liability and surety lines and the emergence of such relative to the timing and amounts of expected large losses. For surety, the recent large loss activity emerged throughout 2016 and intensified during the fourth quarter. The Company also conducted additional analyses of general liability coverages and AIX program business within other commercial lines. The results of these analyses indicated that the assumed tail risk included in the loss development patterns needed to be increased. Claims and actuarial staff also conducted a review of legal defense costs and other claim-specific adjusting expenses as a result of an emerging trend of increased expenses in these areas over recent quarters. This review concluded that the ultimate costs of these loss adjustment expenses were higher than previously estimated, causing management to record an increase in estimated LAE, primarily in the commercial multiple peril and general liability product lines.

As a result of the fourth quarter reserve review, the Company recognized unfavorable prior year reserve development of $174.1 million for the domestic business, excluding catastrophes, largely driven by adverse emergence in most Commercial Lines liability coverages reflecting worsening trends in the number and nature of high severity losses and higher than anticipated legal defense costs. The Company reacted to this adverse emergence by updating assumptions about loss severity, loss development patterns, expected loss ratios and loss adjustment expenses for the most recent accident years, placing greater weight on the adverse severity trends experienced in the most recent calendar years. The adverse development in the AIX program business was primarily due to the general liability and commercial automobile liability coverages in the 2011 through 2014 accident years. Additionally, the Company recognized adverse development in general liability and commercial multiple peril coverages primarily in accident years 2012 through 2015, contract surety business primarily related to the 2012 through 2015 accident years, and the commercial automobile line, primarily related to liability coverages for accident years 2012 through 2014. These increases in Commercial Lines reserves were partially offset by favorable development in the workers’ compensation line, primarily in the 2013 through 2015 accident years and, to a lesser extent, commercial umbrella coverage in the 2015 accident year. The adverse prior year reserve development for Personal Lines was primarily due to higher than expected losses in bodily injury coverage in accident years 2013 through 2015. The adverse prior year development for the Other segment was due to run-off voluntary assumed reinsurance pools business. The reserve increase was based on an updated third-party actuarial study received in the fourth quarter for a pool that primarily consists of asbestos and environmental exposures.

Carried Reserves

The table below summarizes the gross, ceded and net reserve for losses and LAE and reconciles to the incurred claims development in the following section. Accordingly, the commercial multiple peril, workers’ compensation and commercial automobile liability lines presentation includes AIX program business. Chaucer is presented in two components, its ongoing core lines and it’s reinsured and run-off lines.

YEAR ENDED DECEMBER 31,	2016						2015
(in millions)	Gross		Ceded		Net		Gross		Ceded		Net
Commercial multiple peril	$	978.0	$	(82.1)	$	895.9	$	813.1	$	(59.2)	$	753.9
Workers’ compensation		715.5		(171.4)		544.1		713.1		(178.0)		535.1
Commercial automobile liability		431.7		(27.2)		404.5		390.3		(28.4)		361.9
Other lines		980.8		(195.6)		785.2		757.7		(159.2)		598.5
Total Commercial Lines and other		3,106.0		(476.3)		2,629.7		2,674.2		(424.8)		2,249.4
Personal automobile liability		1,416.8		(865.6)		551.2		1,395.0		(863.5)		531.5
Homeowners and other personal lines		137.2		(7.3)		129.9		132.7		(7.0)		125.7
Total Personal Lines		1,554.0		(872.9)		681.1		1,527.7		(870.5)		657.2
Chaucer core lines		1,832.4		(552.5)		1,279.9		1,767.6		(508.5)		1,259.1
Chaucer reinsured and run-off lines		457.0		(373.1)		83.9		604.9		(477.0)		127.9
Total Chaucer		2,289.4		(925.6)		1,363.8		2,372.5		(985.5)		1,387.0
Total loss and LAE reserves	$	6,949.4	$	(2,274.8)	$	4,674.6	$	6,574.4	$	(2,280.8)	$	4,293.6

Within total Commercial Lines and other, other lines is primarily comprised of general liability, including voluntary pools, umbrella, professional and management liability, marine, surety, and healthcare lines. Chaucer core lines includes marine and aviation, energy, property and casualty lines, primarily consisting of international liability and specialist liability coverages. Chaucer reinsured and run-off lines include financial and professional liability lines written in 2008 and prior and U.K. motor business, which was transferred through a 100 percent reinsurance contract as of June 30, 2015. Included in the above table, primarily in other lines, are $61.0 million and $57.7 million of gross asbestos and environmental reserves as of December 31, 2016 and 2015, respectively.

Incurred claims development tables

For the following net reserve components, commercial multiple peril, workers’ compensation, commercial automobile liability, personal automobile liability and Chaucer core lines, the Company is presenting incurred claims development tables by accident year. The commercial multiple peril, workers’ compensation and commercial automobile liability lines presentation includes AIX program business. In each of these tables, the Company is presenting the number of years for which claims are typically outstanding, which is consistent with the period at which substantially all of the reserve development has emerged based on past history. The tables presented below include cumulative incurred loss and allocated loss adjustment expenses (“ALAE”), cumulative paid loss and ALAE and IBNR balances at December 31, 2016. IBNR includes both incurredbutnotreported liabilities and expected development on reported claims. In addition, cumulative incurred claim counts are presented as of December 31, 2016 and claim duration is presented in a separate table disclosing the average annual percentage payout of incurred claims by age, net of reinsurance. Claim duration is calculated as an average of paid loss and ALAE divided by incurred loss and ALAE by elapsed year.  The incurred claims development tables presented are reconciled to the net carried reserves in the preceding table as of December 31, 2016.

For the domestic lines, incurred claim count information presented represents claim frequency by individual claimant and measures the frequency of direct claim settlements that have resulted in or are expected to result in claim payments. Claim count information is presented in a manner consistent with that used in the quarterly loss reserving process. A single claim event, particularly in automobile lines, may result in multiple individual claimants and, therefore, multiple claim counts. Incurred claim counts are comprised of outstanding claims and those that are closed with a loss payment and exclude those that are closed without a loss payment. A single claim event may result in multiple claims closed with a payment when a claim is subsequently reopened with further payment. In this case, a reopened claim payment is counted as an incremental claim settlement. Claim count information is not available for direct and assumed participations in various involuntary pools and residual market mechanisms, which represent approximately 5% or less of the total gross earned premium and gross incurred claims for the lines presented. Incurred claim counts are also not adjusted for the effect of claims ceded as part of reinsurance programs, although the incurred losses and cumulative paid losses presented in the following tables are presented net of reinsurance ceded.

For Chaucer core lines, the incurred claim count information presented represents claim frequency by individual claimant and measures the frequency of expected claim settlements that have resulted in or are expected to result in claim payments. While claim count information is only utilized in a limited portion of Chaucer’s quarterly loss reserving process, the counts in the following Chaucer table are presented in a manner consistent with those used by the actuaries. A single claim event may result in multiple individual claimants, and therefore, multiple claim counts. Incurred claim counts are comprised of outstanding claims and those that are closed with a loss payment and exclude those that are closed without payment. A single claim event may result in multiple claims closed with a payment when payments are made in multiple currencies. In this case, the payment in each currency is counted as an incremental claim count. A portion of the coverholder and assumed reinsurance business is reported as block claims, which represent multiple underlying individual claims for a particular loss event or for multiple loss events. Claim count information is not available for the underlying claims related to block claims, and block claims represent approximately 10% of gross incurred losses for Chaucer core lines. Therefore, these block claims are not included in the claim count information presented. Incurred claim counts are also not adjusted for the effects of claims ceded as part of reinsurance programs, although the incurred losses and cumulative paid losses presented in the following tables are presented net of reinsurance ceded.

Commercial multiple peril
(in millions)													As of
Incurred Losses and ALAE, Net of Reinsurance													December 31, 2016
YEARS ENDED DECEMBER 31,															Cumulative
															Incurred
Accident		2011		2012		2013		2014		2015					Claim
Year		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2011	$	455.4	$	453.3	$	469.1	$	478.8	$	494.7	$	505.4	$	17.2	19,163
2012				480.0		462.8		456.2		459.7		475.6		20.5	17,054
2013						380.0		362.5		367.9		391.8		33.9	14,911
2014								443.9		439.6		464.8		62.9	16,102
2015										446.0		456.3		100.1	15,810
2016												447.1		181.7	15,512
Total											$	2,741.0
Cumulative Paid Losses and ALAE, Net of Reinsurance
YEARS ENDED DECEMBER 31,
Accident		2011		2012		2013		2014		2015
Year		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016
2011	$	217.8	$	328.5	$	381.5	$	418.6	$	454.0	$	471.5
2012				175.8		307.5		350.8		389.3		424.2
2013						137.6		221.5		262.3		306.4
2014								171.7		267.8		316.0
2015										161.9		260.1
2016												140.3
Total											$	1,918.5

Total reserves for 2011 – 2016 accident years (incurred - paid)		822.5
Total reserves for 2010 and prior accident years		55.7
Unallocated loss adjustment expense		17.7
Net reserves at December 31, 2016	$	895.9

Workers' compensation
(in millions)																						As of
Incurred Losses and ALAE, Net of Reinsurance																						December 31, 2016
YEARS ENDED DECEMBER 31,																								Cumulative
																								Incurred
Accident			2007		2008		2009		2010		2011		2012		2013		2014		2015					Claim
Year			Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2007	(1)	$	79.2	$	82.2	$	80.5	$	78.6	$	77.3	$	76.5	$	75.6	$	75.8	$	75.1	$	74.9	$	1.3	7,591
2008	(1)				88.9		93.9		88.0		81.5		81.5		80.6		79.8		80.5		80.4		1.6	8,930
2009							93.8		87.6		82.5		80.3		79.4		79.2		77.5		77.5		1.2	8,014
2010									115.5		116.9		115.8		115.9		116.3		114.9		114.7		2.6	10,152
2011											141.4		144.2		144.3		145.5		143.8		146.7		7.5	12,428
2012													176.3		171.1		165.2		157.2		162.9		12.6	12,983
2013															179.3		167.4		160.1		154.4		15.6	11,612
2014																	182.1		172.9		154.7		22.3	10,748
2015																			189.6		164.2		38.2	11,158
2016																					189.6		75.1	14,103
Total																				$	1,320.0
Cumulative Paid Losses and ALAE, Net of Reinsurance
YEARS ENDED DECEMBER 31,
Accident			2007		2008		2009		2010		2011		2012		2013		2014		2015
Year			Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016
2007	(1)	$	15.1	$	34.9	$	46.5	$	54.4	$	59.6	$	62.0	$	63.9	$	65.5	$	66.5	$	67.3
2008	(1)				17.9		40.2		52.9		60.8		64.8		67.1		69.8		71.0		72.4
2009							19.2		41.2		54.6		61.6		65.4		68.6		69.8		70.8
2010									22.1		57.2		76.9		89.5		96.5		101.0		104.2
2011											30.0		71.3		97.3		114.0		122.9		128.0
2012													30.4		74.8		102.6		120.1		130.7
2013															30.9		74.6		101.2		114.0
2014																	30.6		70.5		92.3
2015																			28.0		65.7
2016																					33.9
Total																				$	879.3

Total reserves for 2007 – 2016 accident years (incurred - paid)		440.7
Total reserves for 2006 and prior accident years		87.5
Unallocated loss adjustment expense and other		15.9
Net reserves at December 31, 2016	$	544.1

(1) The incurred and cumulative paid losses and ALAE, IBNR and incurred claim counts retroactively include AIX business for all periods presented, including those periods that pre-date the acquisition of AIX on November 30, 2008.

Commercial automobile liability
(in millions)													As of
Incurred Losses and ALAE, Net of Reinsurance													December 31, 2016
YEARS ENDED DECEMBER 31,															Cumulative
															Incurred
Accident		2011		2012		2013		2014		2015					Claim
Year		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2011	$	120.4	$	142.1	$	148.0	$	162.8	$	177.0	$	179.6	$	2.4	15,457
2012				166.8		167.5		173.7		189.9		198.0		5.7	14,786
2013						177.7		179.4		205.3		227.5		16.7	15,309
2014								168.5		163.3		177.3		28.7	13,464
2015										163.4		168.3		51.0	12,723
2016												157.0		87.6	10,748
Total											$	1,107.7
Cumulative Paid Losses and ALAE, Net of Reinsurance
YEARS ENDED DECEMBER 31,
Accident		2011		2012		2013		2014		2015
Year		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016
2011	$	27.7	$	64.7	$	102.4	$	135.5	$	160.5	$	170.2
2012				33.3		77.0		117.0		156.9		176.3
2013						35.9		89.6		137.6		176.3
2014								33.1		70.8		102.7
2015										32.2		63.8
2016												27.8
Total											$	717.1

Total reserves for 2011 – 2016 accident years (incurred - paid)		390.6
Total reserves for 2010 and prior accident years		9.6
Unallocated loss adjustment expense		4.3
Net reserves at December 31, 2016	$	404.5

Personal automobile liability
(in millions)											As of
Incurred Losses and ALAE, Net of Reinsurance											December 31, 2016
YEARS ENDED DECEMBER 31,													Cumulative
													Incurred
Accident		2012		2013		2014		2015					Claim
Year		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2012	$	358.4	$	366.9	$	366.3	$	376.5	$	379.8	$	5.7	51,700
2013				348.2		339.6		338.3		343.0		6.5	49,278
2014						323.1		304.1		308.8		15.1	43,268
2015								327.4		334.1		40.5	41,989
2016										337.9		109.7	39,477
Total									$	1,703.6
Cumulative Paid Losses and ALAE, Net of Reinsurance
YEARS ENDED DECEMBER 31,
Accident		2012		2013		2014		2015
Year		Unaudited		Unaudited		Unaudited		Unaudited		2016
2012	$	126.6	$	234.6	$	305.1	$	342.2	$	361.8
2013				115.3		210.5		273.3		310.1
2014						107.2		188.6		241.1
2015								112.9		205.4
2016										112.8
Total									$	1,231.2

Total reserves for 2012 – 2016 accident years (incurred - paid)		472.4
Total reserves for 2011 and prior accident years		66.5
Unallocated loss adjustment expense		12.3
Net reserves at December 31, 2016	$	551.2

Chaucer core lines
(in millions)														As of
Incurred Losses and ALAE, Net of Reinsurance (1)														December 31, 2016
YEARS ENDED DECEMBER 31,																Cumulative
																Incurred
Accident			2011		2012		2013		2014		2015					Claim
Year			Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2011	(2)	$	640.9	$	597.7	$	605.3	$	586.0	$	586.2	$	575.7	$	33.4	6,940
2012					420.5		337.2		342.4		325.0		318.0		31.5	5,690
2013							418.2		381.8		369.4		360.1		54.0	5,618
2014									457.7		391.6		397.1		80.4	6,934
2015											488.4		410.5		136.8	7,216
2016													505.2		329.9	4,404
Total												$	2,566.6
Cumulative Paid Losses and ALAE, Net of Reinsurance (1)
YEARS ENDED DECEMBER 31,
Accident			2011		2012		2013		2014		2015
Year			Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016
2011	(2)	$	134.2	$	296.3	$	391.0	$	438.6	$	489.3	$	513.2
2012					55.4		144.7		200.0		228.7		246.7
2013							58.2		158.4		228.4		257.5
2014									52.0		162.2		227.8
2015											52.5		146.8
2016													79.1
Total												$	1,471.1

Total reserves for 2011 – 2016 accident years (incurred - paid)		1,095.5
Total reserves for 2010 and prior accident years		129.5
Reserves for nuclear energy classes		31.8
Unallocated loss adjustment expense and other		23.1
Net reserves at December 31, 2016	$	1,279.9

(1) Chaucer incurred losses and ALAE and paid losses and ALAE that are denominated in foreign currencies are converted to U.S. dollars as of December 31, 2016, the most recent balance sheet date, for all years presented.

(2) The incurred and cumulative paid losses and ALAE, IBNR and reported claim counts retroactively includes the 6 month period that pre-dates the acquisition of Chaucer on July 1, 2011. Additionally, during 2011 Chaucer experienced an elevated level of high severity catastrophe events. For example, three such events, the February 2011 New Zealand earthquake, March 2011 Japanese tsunami and October 2011 Thailand floods totaled approximately $125 million of incurred losses, and each event was in excess of $30 million. Chaucer experienced no catastrophe events in excess of $30 million from 2012 through 2016.

The following table is information about average historical claims duration as of December 31, 2016. The table is computed based on the paid and incurred claims data, net of reinsurance, for the accident years presented in the preceding claims development tables.

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance:
Unaudited
	1	2	3	4	5	6	7	8	9	10
Commercial multiple peril	36.5%	22.6%	10.1%	8.9%	7.2%	3.5%
Workers' compensation	20.0%	27.3%	16.5%	10.1%	5.9%	3.5%	2.6%	1.6%	1.6%	1.0%
Commercial automobile liability	17.3%	21.3%	20.1%	18.5%	11.9%	5.4%
Personal automobile liability	33.8%	27.6%	17.9%	10.3%	5.2%
Chaucer core lines	16.4%	27.0%	17.5%	8.4%	7.2%	4.1%

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2016

Commitments and Contingencies [Abstract]

Commitments and Contingencies

18. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Durand Litigation

On March 12, 2007, a putative class action suit captioned Jennifer A. Durand v. The Hanover Insurance Group, Inc., and The Allmerica Financial Cash Balance Pension Plan, was filed in the United States District Court for the Western District of Kentucky. The named plaintiff, a former employee of the Company’s former life insurance and annuity business who received a lump sum distribution from the Company’s Cash Balance Plan (the “Plan”) at or about the time of her separation from the company, claims that she and others similarly situated did not receive the appropriate lump sum distribution because in computing the lump sum, the Company and the Plan understated the accrued benefit in the calculation. The plaintiff claims that the Plan underpaid her distributions and those of similarly situated participants by failing to pay an additional so-called “whipsaw” amount reflecting the present value of an estimate of future interest credits from the date of the lump sum distribution to each participant’s retirement age of 65 (“whipsaw claim”).

The plaintiff filed an Amended Complaint adding two new named plaintiffs and additional claims on December 11, 2009.  Two of the three new claims set forth in the Amended Complaint were dismissed by the District Court, which action was upheld in November 2015 by the U.S. Court of Appeals, Sixth Circuit.  The District Court, however, did allow to stand the portion of the Amended Complaint which set forth claims against the Company for breach of fiduciary duty and failure to meet notice requirements arising under the Employee Retirement Income Security Act of 1974 (“ERISA”) from the various interest crediting and lump sum distribution matters of which plaintiffs complain, but only as to plaintiffs’ “whipsaw” claim that remained in the case. On December 17, 2013, the Court entered an order certifying a class to bring “whipsaw” and related breach of fiduciary duty claims consisting of all persons who received a lump sum distribution between March 1, 1997 and December 31, 2003. The Company filed a summary judgment motion, prior to the decision on the appeal, that was based on the statute of limitations and seeks to dismiss the subclass of plaintiffs who received lump sum distributions prior to March 13, 2002.  This summary judgment motion has been stayed pending additional discovery.

At this time, the Company is unable to provide a reasonable estimate of the potential range of ultimate liability if the outcome of the suit is unfavorable. The statute of limitations applicable to the sub-class consisting of all persons who received lump sum distributions between March 1, 1997 and March 12, 2002 has not yet been finally determined, and the extent of potential liability, if any, will depend on this determination. In addition, assuming for these purposes that the plaintiffs prevail with respect to claims that benefits accrued or payable under the Plan were understated, then there are numerous possible theories and other variables upon which any revised calculation of benefits as requested under plaintiffs’ claims could be based. Any adverse judgment in this case against the Plan would be expected to create a liability for the Plan, with resulting effects on the Plan’s assets available to pay benefits. The Company’s future required funding of the Plan could also be impacted by such a liability.

Other Matters

The Company has been named a defendant in various other legal proceedings arising in the normal course of business. In addition, the Company is involved, from time to time, in examinations, investigations and proceedings by governmental and self-regulatory agencies. The potential outcome of any such action or regulatory proceedings in which the Company has been named a defendant or the subject of an inquiry or investigation, and its ultimate liability, if any, from such action or regulatory proceedings, is difficult to predict at this time. The ultimate resolutions of such proceedings are not expected to have a material effect on its financial position, although they could have a material effect on the results of operations for a particular quarter or annual period.

Residual Markets

The Company is required to participate in residual markets in various states, which generally pertain to high risk insureds, disrupted markets or lines of business or geographic areas where rates are regarded as excessive. The results of the residual markets are not subject to the predictability associated with the Company’s own managed business, and are significant to both the personal and commercial automobile lines of business and the workers’ compensation line of business.

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Statutory Financial Information

12 Months Ended

Dec. 31, 2016

Statutory Financial Information [Abstract]

Statutory Financial Information

19. STATUTORY FINANCIAL INFORMATION

The Company’s U.S. insurance subsidiaries are required to file annual statements with state regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis), as codified by the National Association of Insurance Commissioners. Permitted statutory accounting practices encompass all accounting practices that are not prescribed; such practices differ from state to state, may differ from company to company within a state, and may change in the future. The Company’s U.S. insurance subsidiaries did not have any permitted practices as of or for the years ended December 31, 2016, 2015 and 2014.

Statutory capital and surplus differs from shareholders’ equity reported in accordance with generally accepted accounting principles primarily because under the statutory basis of accounting, deferred acquisition costs are expensed when incurred and the recognition of deferred tax assets is based on different recoverability assumptions.

The following table provides statutory net income for the year ended December 31 and statutory capital and surplus as of December 31 for the periods indicated:

(in millions)		2016		2015		2014
Statutory Net Income
U.S. Insurance Subsidiaries	$	158.0	$	175.9	$	204.3
Statutory Capital and Surplus
U.S. Insurance Subsidiaries	$	2,173.4	$	2,192.8	$	2,057.1

The minimum statutory capital and surplus necessary to satisfy the Company’s regulatory requirements was $442.0 million, $378.5 million and $374.6 million, which equals the Authorized Control Level at December 31, 2016, 2015 and 2014, respectively.

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Quarterly Results of Operations

12 Months Ended

Dec. 31, 2016

Quarterly Results of Operations [Abstract]

Quarterly Results of Operations

20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The quarterly results of operations for 2016 and 2015 are summarized below.

THREE MONTHS ENDED
(in millions, except per share data)
2016		March 31		June 30		Sept. 30		Dec. 31
Total revenues	$	1,227.6	$	1,222.0	$	1,241.2	$	1,255.0
Income (loss) from continuing operations	$	78.1	$	1.9	$	88.3	$	(12.2)
Net income (loss)	$	78.2	$	2.0	$	88.4	$	(13.5)
Income (loss) from continuing operations per share:
Basic	$	1.82	$	0.04	$	2.07	$	(0.29)
Diluted(1)	$	1.79	$	0.04	$	2.06	$	(0.29)
Net income (loss) per share:
Basic	$	1.82	$	0.05	$	2.07	$	(0.32)
Diluted(1)	$	1.80	$	0.05	$	2.06	$	(0.32)
Dividends declared per share	$	0.46	$	0.46	$	0.46	$	0.50
(1)  Per diluted share amounts in the fourth quarter exclude commons stock equivalents since the impact of these instruments was
antidilutive.
In the second quarter of 2016, the Company issued $375 million aggregate principal amount of 4.5% senior unsecured debentures.
The net proceeds were used, together with cash on hand, to redeem outstanding senior notes, resulting in a pre-tax loss of $86.1
million. The after-tax effect of this loss was to decrease diluted earnings per share from income from continuing operations in the
quarter by $1.29. See also Note 6 - "Debt and Credit Arrangements" for further information
In the fourth quarter of 2016, the Company recorded an adjustment to increase carried reserves for prior accident years by $174.1
million. The after-tax effect of this charge was to decrease diluted earnings per share from income from continuing operations in the
quarter by $2.66. See also "2016 Fourth Quarter Domestic Business Loss and LAE Reserve Increase" in Note 17 - "Liabilities for
Outstanding Claims, Losses and Loss Adjustment Expenses" for further information.
THREE MONTHS ENDED
(in millions, except per share data)
2015		March 31		June 30		Sept. 30		Dec. 31
Total revenues	$	1,298.7	$	1,297.1	$	1,233.5	$	1,204.7
Income from continuing operations	$	54.9	$	120.9	$	77.2	$	77.8
Net income	$	54.9	$	120.7	$	78.3	$	77.6
Income from continuing operations per share:
Basic	$	1.24	$	2.74	$	1.75	$	1.80
Diluted	$	1.22	$	2.69	$	1.72	$	1.76
Net income per share:
Basic	$	1.24	$	2.73	$	1.78	$	1.79
Diluted	$	1.22	$	2.68	$	1.74	$	1.76
Dividends declared per share	$	0.41	$	0.41	$	0.41	$	0.46

Due to the use of weighted average shares outstanding when calculating earnings per common share, the sum of the quarterly per common share data may not equal the per common share data for the year.

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Subsequent Events

12 Months Ended

Dec. 31, 2016

Subsequent Events [Abstract]

Subsequent Events

21. SUBSEQUENT EVENTS

There were no subsequent events requiring adjustment to the financial statements and no additional disclosures required in the notes to the consolidated financial statements.

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SCHEDULE I SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES

12 Months Ended

Dec. 31, 2016

SCHEDULE I SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES [Abstract]

SCHEDULE I SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES

SCHEDULE I

THE HANOVER INSURANCE GROUP, INC.

SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN RELATED PARTIES

DECEMBER 31, 2016
(in millions)
Type of investment		Cost (1)		Value		Amount at which shown in the balance sheet
Fixed maturities:
Bonds:
United States Government and government agencies and authorities	$	1,272.6	$	1,265.5	$	1,265.5
States, municipalities and political subdivisions		1,065.4		1,095.0		1,095.0
Foreign governments		235.8		240.7		240.7
Public utilities		454.1		461.9		461.9
All other corporate bonds		4,204.2		4,265.2		4,265.2
Total fixed maturities		7,232.1		7,328.3		7,328.3
Equity securities:
Common stocks:
Public utilities		96.3		120.6		120.6
Banks, trusts and insurance companies		21.7		25.9		25.9
Industrial, miscellaneous and all other		376.8		426.9		426.9
Nonredeemable preferred stocks		3.6		11.0		11.0
Total equity securities		498.4		584.4		584.4
Mortgage loans on real estate (2)		297.6		297.2		297.6
Real estate		8.6		8.6		8.6
Other long-term investments (3)		223.7		227.8		227.6
Short-term investments		3.0		3.0		3.0
Total investments	$	8,263.4	$	8,449.3	$	8,449.5

(1) For equity securities, represents original cost, and for fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums and accretion of discounts.

(2) Includes $296.6 million of participating interests in commercial mortgage loans originated and serviced by a third-party. The Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgages. Due to certain reacquisition rights retained by the third-party in the loan participation arrangement, the Company accounted for its participatory interest in mortgage loans as secured borrowings.

(3) The cost of other long-term investments differs from the carrying value due to market value changes in the Company's equity ownership of limited partnership investments. The value of other long-term investments differs from the carrying value due to cost basis partnership investments.

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

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SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT PARENT COMPANY ONLY

12 Months Ended

Dec. 31, 2016

SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT PARENT COMPANY ONLY [Abstract]

SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT PARENT COMPANY ONLY STATEMENTS OF INCOME

SCHEDULE II

THE HANOVER INSURANCE GROUP, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY

STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Revenues
Net investment income	$	4.9	$	4.1	$	3.9
Net realized gains from sales and other		-		1.0		-
Interest income from loan to subsidiary		22.4		22.5		22.5
Other income		0.5		0.1		0.1
Total revenues		27.8		27.7		26.5
Expenses
Interest expense		46.1		53.9		54.7
Loss from repayment of debt		88.3		24.1		0.1
Employee benefit related expenses		7.0		7.0		11.1
Interest expense on loan from subsidiary		6.3		-		-
Benefit related to acquired businesses		-		(0.7)		-
Other operating expenses		8.6		7.6		7.5
Total expenses		156.3		91.9		73.4
Net loss before income taxes and equity in income of subsidiaries		(128.5)		(64.2)		(46.9)
Income tax benefit		75.6		49.5		52.1
Equity in income of subsidiaries		207.0		345.2		277.4
Income from continuing operations		154.1		330.5		282.6
Income (loss) from discontinued operations (net of income tax benefit
of $1.7,  $0.4 and $0.2 in 2016, 2015 and 2014)		1.0		1.0		(0.6)
Net income		155.1		331.5		282.0
Other comprehensive income (loss), net of tax		8.9		(152.5)		28.8
Comprehensive income	$	164.0	$	179.0	$	310.8

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

SCHEDULE II (CONTINUED)

THE HANOVER INSURANCE GROUP, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY

BALANCE SHEETS

DECEMBER 31		2016		2015
(in millions, except per share data)
Assets
Fixed maturities - at fair value (amortized cost of $116.5 and $121.1)	$	116.4	$	121.3
Equity securities - at fair value (cost of $1.0)		1.1		1.1
Cash and cash equivalents		10.1		8.6
Investments in subsidiaries		3,513.8		3,262.5
Net receivable from subsidiaries (1)		16.6		222.8
Deferred income tax receivable		31.7		7.4
Current income tax receivable		-		1.1
Other assets		1.1		2.5
Total assets	$	3,690.8	$	3,627.3
Liabilities
Expenses and state taxes payable	$	8.0	$	18.1
Current income tax payable		30.5		-
Interest payable		8.2		7.9
Debt		786.6		756.9
Total liabilities		833.3		782.9
Shareholders' Equity
Preferred stock, par value $0.01 per share, 20.0 million shares authorized, none issued		-		-
Common stock, par value $0.01 per share, 300.0 million shares authorized, 60.5 million shares issued		0.6		0.6
Additional paid-in-capital		1,846.7		1,833.5
Accumulated other comprehensive income		62.8		53.9
Retained earnings		1,875.6		1,803.5
Treasury stock at cost (18.1 and 17.5 million)		(928.2)		(847.1)
Total shareholders' equity		2,857.5		2,844.4
Total liabilities and shareholders' equity	$	3,690.8	$	3,627.3

(1) Net receivable from subsidiaries in 2015 includes a $300.0 million note receivable from The Hanover Insurance Holdings, Ltd., parent company of Chaucer Holdings, Ltd. In 2016, this note receivable was contributed to The Hanover (Barbados) Capital, SRL, a wholly-owned subsidiary of THG.

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

SCHEDULE II (CONTINUED)

THE HANOVER INSURANCE GROUP, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Cash flows from operating activities
Net income	$	155.1	$	331.5	$	282.0
Adjustments to reconcile net income to net cash
provided by operating activities:
(Gain) loss from discontinued operations		(1.0)		(1.0)		0.6
Net realized investment gains		-		(1.0)		-
Loss from retirement of debt		88.3		24.1		0.1
Equity in net income of subsidiaries		(207.0)		(345.2)		(277.4)
Dividends received from subsidiaries		228.1		5.1		70.2
Deferred income tax (benefit) expense		(39.0)		35.7		(29.9)
Change in expenses and taxes payable		20.7		(2.6)		11.4
Change in net receivable from subsidiaries		30.6		(5.9)		16.9
Other, net		8.3		6.1		4.3
Net cash provided by operating activities		284.1		46.8		78.2
Cash flows from investing activities
Proceeds from disposals and maturities of fixed maturities		82.4		70.0		25.6
Purchase of fixed maturities		-		(11.9)		(28.6)
Net cash used for business acquisitions		(2.2)		(2.3)		(2.3)
Net cash provided by (used in) investing activities		80.2		55.8		(5.3)
Cash flows from financing activities
Proceeds from debt borrowings		370.7		-		-
Proceeds from long-term intercompany borrowings		125.0		-		-
(Repayments) proceeds from short-term intercompany borrowings		(102.7)		102.7		-
Repurchases of debt		(571.9)		(15.1)		(0.7)
Repurchase of common stock		(105.6)		(127.3)		(20.4)
Dividends paid to shareholders		(80.4)		(74.2)		(67.0)
Proceeds from exercise of employee stock options		16.2		16.6		12.6
Other financing activities		(14.1)		(11.2)		(3.6)
Net cash used in financing activities		(362.8)		(108.5)		(79.1)
Net change in cash and cash equivalents		1.5		(5.9)		(6.2)
Cash and cash equivalents, beginning of year		8.6		14.5		20.7
Cash and cash equivalents, end of year	$	10.1	$	8.6	$	14.5

Included in other operating cash flows was the cash portion of dividends received from unconsolidated subsidiaries. Additionally, investment assets of $78.5 million,  $76.9 million and $1.0 million were transferred to the parent company in 2016, 2015 and 2014, respectively, to settle dividend obligations and other intercompany balances.

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

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SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION

12 Months Ended

Dec. 31, 2016

SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION [Abstract]

SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION

SCHEDULE III

THE HANOVER INSURANCE GROUP, INC.

SUPPLEMENTARY INSURANCE INFORMATION

DECEMBER 31, 2016
(in millions)
Segments		Deferred acquisition costs		Future policy benefits, losses, claims and loss expenses		Unearned premiums		Other policy claims and benefits payable		Premium revenue		Net investment income		Benefits, claims, losses and settlement expenses		Amortization of deferred acquisition costs		Other operating expenses		Premiums written
Commercial,
Personal and Other	$	402.8	$	4,663.8	$	1,995.1	$	6.4	$	3,789.5	$	233.7	$	2,545.4	$	803.6	$	593.7	$	3,882.7
Chaucer		114.7		2,289.4		569.0		-		838.6		45.7		419.3		231.6		113.7		816.1
Interest on Debt		-		-		-		-		-		-		-		-		54.9		-
Eliminations		-		(10.2)		(3.1)		-		-		-		-		-		(7.6)		-
Total	$	517.5	$	6,943.0	$	2,561.0	$	6.4	$	4,628.1	$	279.4	$	2,964.7	$	1,035.2	$	754.7	$	4,698.8
DECEMBER 31, 2015
(in millions)
Segments		Deferred acquisition costs		Future policy benefits, losses, claims and loss expenses		Unearned premiums		Other policy claims and benefits payable		Premium revenue		Net investment income		Benefits, claims, losses and settlement expenses		Amortization of deferred acquisition costs		Other operating expenses		Premiums written
Commercial,
Personal and Other	$	385.5	$	4,204.6	$	1,892.3	$	5.6	$	3,653.6	$	233.2	$	2,367.4	$	778.0	$	508.0	$	3,727.5
Chaucer		123.3		2,372.5		651.7		-		1,051.2		45.9		516.7		255.2		154.5		889.3
Interest on Debt		-		-		-		-		-		-		-		-		60.6		-
Eliminations		-		(8.3)		(3.2)		-		-		-		-		-		(7.4)		-
Total	$	508.8	$	6,568.8	$	2,540.8	$	5.6	$	4,704.8	$	279.1	$	2,884.1	$	1,033.2	$	715.7	$	4,616.8
DECEMBER 31, 2014
(in millions)
Segments		Deferred acquisition costs		Future policy benefits, losses, claims and loss expenses		Unearned premiums		Other policy claims and benefits payable		Premium revenue		Net investment income		Benefits, claims, losses and settlement expenses		Amortization of deferred acquisition costs		Other operating expenses		Premiums written
Commercial,
Personal and Other	$	370.3	$	3,966.3	$	1,819.1	$	5.1	$	3,488.5	$	226.1	$	2,293.8	$	748.5	$	480.4	$	3,578.7
Chaucer		155.4		2,425.8		768.1		-		1,221.8		44.2		633.7		291.5		182.9		1,231.4
Interest on Debt		-		-		-		-		-		-		-		-		65.8		-
Eliminations		-		(5.5)		(3.3)		-		-		-		-		-		(7.0)		-
Total	$	525.7	$	6,386.6	$	2,583.9	$	5.1	$	4,710.3	$	270.3	$	2,927.5	$	1,040.0	$	722.1	$	4,810.1

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SCHEDULE IV REINSURANCE

12 Months Ended

Dec. 31, 2016

SCHEDULE IV REINSURANCE [Abstract]

SCHEDULE IV REINSURANCE

SCHEDULE IV

THE HANOVER INSURANCE GROUP, INC.

REINSURANCE

Incorporated herein by reference to Note 16 —“Reinsurance” in the Notes of the Consolidated Financial Statements included in Financial Statements and Supplemental Data of this Form 10-K.

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SCHEDULE V VALUATION AND QUALIFYING ACCOUNTS

12 Months Ended

Dec. 31, 2016

SCHEDULE V VALUATION AND QUALIFYING ACCOUNTS [Abstract]

SCHEDULE V VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE V

THE HANOVER INSURANCE GROUP, INC.

VALUATION AND QUALIFYING ACCOUNTS

DECEMBER 31
			Additions
(in millions) Description		Balance at beginning of period		Charged to costs and expenses		Charged to other accounts(1)		Deductions		Balance at end of period
2016
Allowance for doubtful accounts	$	3.2	$	8.7	$	-	$	(8.2)	$	3.7
Allowance for uncollectible reinsurance recoverables (2)		9.7		3.4		0.1		(0.1)		13.1
	$	12.9	$	12.1	$	0.1	$	(8.3)	$	16.8
2015
Allowance for doubtful accounts	$	3.2	$	9.7	$	-	$	(9.7)	$	3.2
Allowance for uncollectible reinsurance recoverables (3)		15.9		-		0.2		(6.4)		9.7
	$	19.1	$	9.7	$	0.2	$	(16.1)	$	12.9
2014
Allowance for doubtful accounts	$	3.1	$	9.4	$	-	$	(9.3)	$	3.2
Allowance for uncollectible reinsurance recoverables		20.7		0.9		(0.3)		(5.4)		15.9
	$	23.8	$	10.3	$	(0.3)	$	(14.7)	$	19.1

(1) Amounts charged to other accounts include foreign exchange gains and losses.  

(2) 2016 activity primarily relates to the impairment of a receivable that is associated with a single reinsurance counterparty that was placed into conservation by the state of California in July 2016. This counterparty is not involved in the Company’s ongoing reinsurance program and the entire receivable related to this counterparty resulted from to a one-time block reinsurance transaction that occurred in 2012 as part of the Company’s exposure management actions.

(3) Includes a deduction of $5.4 million related to the transfer of the U.K. motor business on June 30, 2015.

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SCHEDULE VI SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS

12 Months Ended

Dec. 31, 2016

SCHEDULE VI SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS [Abstract]

SCHEDULE VI SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS

SCHEDULE VI

THE HANOVER INSURANCE GROUP, INC.

SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS

YEARS ENDED DECEMBER 31
(in millions)
Affiliation with Registrant		Deferred acquisition costs		Reserves for unpaid claims and claim adjustment expenses (1)		Discount, if any, deducted from previous column (2)		Unearned premiums (1)		Earned premiums		Net investment income
Consolidated Property and Casualty
Subsidiaries
2016	$	517.5	$	6,949.4	$	-	$	2,561.0	$	4,628.1	$	279.4
2015	$	508.8	$	6,574.4	$	-	$	2,540.8	$	4,704.8	$	279.1
2014	$	525.7	$	6,391.7	$	-	$	2,583.9	$	4,710.3	$	270.3
			Claims and claim adjustment expenses incurred related to
				Current year		Prior years		Amortization of deferred acquisition costs		Paid claims and claim adjustment expenses		Premiums written
2016			$	2,859.3	$	105.4	$	1,035.2	$	2,509.9	$	4,698.8
2015			$	3,000.2	$	(116.1)	$	1,033.2	$	2,664.0	$	4,616.8
2014			$	3,044.9	$	(117.4)	$	1,040.0	$	2,727.6	$	4,810.1

(1) Reserves for unpaid claims and claim adjustment expenses are shown gross of $2,274.8 million, $2,280.8 million and $1,983.0 million of reinsurance recoverable on unpaid losses in 2016, 2015 and 2014, respectively. Unearned premiums are shown gross of prepaid premiums of $222.4 million, $256.2 million and $197.8 million in 2016, 2015 and 2014, respectively. Reserves for unpaid claims and claims adjustment expense also include policyholder dividends.

(2) The Company does not use discounting techniques.  

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

Summary Of Significant Accounting Policies [Abstract]

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

A. Basis of Presentation and Principles of Consolidation

The consolidated financial statements of The Hanover Insurance Group, Inc. (“THG” or the “Company”), include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America (“Citizens”), THG’s principal U.S. domiciled property and casualty companies; Chaucer Holdings Limited (“Chaucer”), a specialist insurance underwriting group which operates through the Society and Corporation of Lloyd’s (“Lloyd’s”); and certain other insurance and non-insurance subsidiaries. These legal entities conduct their operations through several business segments discussed in Note 14 – “Segment Information”. The consolidated financial statements also include the Company’s discontinued operations, consisting primarily of the Company’s former life insurance businesses, and its accident and health business. All intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) requires the Company 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. In the opinion of the Company’s management these financial statements reflect all adjustments, consisting of normal recurring items necessary for a fair presentation of the financial position and results of operations.

INVESTMENTS

B. Investments

Fixed maturities and equity securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses, net of taxes, reported in accumulated other comprehensive income, a separate component of shareholders’ equity. The amortized cost of fixed maturities is adjusted for amortization of premiums and accretion of discounts to maturity.

Other investments consist primarily of mortgage participations, limited partnerships and overseas deposits. Mortgage participations represent interests in commercial mortgage loans originated and serviced by a third-party of which the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgage loans. Due to certain reacquisition rights retained by the third-party in the loan participation, these investments are accounted for as secured borrowings under Accounting Standards Codification (“ASC”) 860, Transfers and Servicing (“ASC 860”). Mortgage participations are stated at unpaid principal balances adjusted for deferred fees or expenses, net of reserves. Reserves on mortgages are established and are collectively evaluated based on losses expected by the Company for loans that may not be collectible in full. In establishing reserves, the Company considers, among other things, the estimated fair value of the underlying collateral.

Investments in limited partnership interests include interests in private equity funds. Where the Company’s interest is so minor that it exercises virtually no influence over operating and financial policies, investments in limited partnership interests are accounted for in accordance with the cost method of accounting; all other investments in limited partnership interests are accounted for in accordance with the equity method of accounting.

Overseas deposits are investments maintained in overseas funds and managed exclusively by Lloyd’s. These funds are required in order to protect policyholders in overseas markets and enable the Company to operate in those markets. Overseas deposits are carried at fair value. Realized and unrealized gains and losses on overseas deposits, including the impact of foreign currency movements, are reflected in the income statement in the period the gain or loss was generated.

Net investment income includes interest, dividends and income from limited partnership interests and overseas deposits. Interest income is recognized based on the effective yield method which includes the amortization of premiums and accretion of discounts. The effective yield used to determine the amortization for fixed maturities subject to prepayment risk, such as mortgage-backed and asset-backed securities, is recalculated and adjusted periodically based upon actual historical and projected future cash flows. The adjustment to yields for highly rated prepayable fixed maturities are accounted for using the retrospective method. The adjustment to yields for all other prepayable fixed maturities are accounted for using the prospective method. Fixed maturities and mortgage participations that are delinquent are placed on non-accrual status, and thereafter interest income is recognized only when cash payments are received.

Realized investment gains and losses are reported as a component of revenues based upon specific identification of the investment assets sold. When an other-than-temporary decline in value of a specific investment is deemed to have occurred, and a charge to earnings is required, the Company recognizes a realized investment loss.

The Company reviews investments in an unrealized loss position to identify other-than-temporary declines in value. When it is determined that a decline in value of an equity security is other-than-temporary, the Company reduces the cost basis of the security to fair value with a corresponding charge to earnings. When an other-than-temporary decline in value of a debt security is deemed to have occurred, the Company must assess whether it intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If the debt security meets either of these two criteria, an other-than-temporary impairment (“OTTI”) is recognized in earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the impairment measurement date. If the Company does not intend to sell the debt security and it is not more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, the credit loss portion of an OTTI is recorded through earnings while the portion attributable to all other factors is recorded separately as a component of other comprehensive income. The amount of the OTTI that relates to credit is estimated by comparing the amortized cost of the fixed maturity security with the net present value of the security’s projected future cash flows, discounted at the effective interest rate implicit in the investment prior to impairment. The non-credit portion of the impairment is equal to the difference between the fair value and the net present value of the security’s cash flows at the impairment measurement date. Once an OTTI has been recognized, the new amortized cost basis of the security is equal to the previous amortized cost less the amount of OTTI recognized in earnings. For equity method investments, an impairment is recognized when evidence demonstrates that an other-than-temporary loss in value has occurred, including the absence of the ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment.  

FINANCIAL INSTRUMENTS

C. Financial Instruments

In the normal course of business, the Company may enter into transactions involving various types of financial instruments, including debt, investments such as fixed maturities, equity securities and mortgage loans, investment and loan commitments, swap contracts, option contracts, forward contracts and futures contracts. These instruments involve credit risk and could also be subject to risk of loss due to interest rate and foreign currency fluctuation. The Company evaluates and monitors each financial instrument individually and, when appropriate, obtains collateral or other security to minimize losses.

CASH AND CASH EQUIVALENTS

D. Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, amounts due from banks and highly liquid debt instruments purchased with an original maturity of three months or less.

DEFERRED ACQUISITION COSTS

E. Deferred Acquisition Costs

Acquisition costs consist of commissions, underwriting costs and other costs, which vary with, and are primarily related to, the successful production of premiums. Acquisition costs are deferred and amortized over the terms of the insurance policies.

Deferred acquisition costs (“DAC”) for each operating segment are reviewed to determine if the costs are recoverable from future income, including investment income. If such costs are determined to be unrecoverable, they are expensed at the time of determination. Although recoverability of DAC is not assured, the Company believes it is more likely than not that all of these costs will be recovered. The amount of DAC considered recoverable, however, could be reduced in the near term if the estimates of total revenues discussed above are reduced or permanently impaired as a result of a disposition of a line of business. The amount of amortization of DAC could be revised in the near term if any of the estimates discussed above are revised.

REINSURANCE RECOVERABLES

F. Reinsurance Recoverables

The Company shares certain insurance risks it has underwritten, through the use of reinsurance contracts, with various insurance entities. Reinsurance accounting is followed for ceded transactions when the risk transfer provisions of ASC 944, Financial Services – Insurance (“ASC 944”), have been met. As a result, when the Company experiences loss or claims events that are subject to a reinsurance contract, reinsurance recoverables are recorded. The amount of the reinsurance recoverable can vary based on the terms of the reinsurance contract, the size of the individual loss or claim, or the aggregate amount of all losses or claims in a particular line or book of business or an aggregate amount associated with a particular accident year. The valuation of losses or claims recoverable depends on whether the underlying loss or claim is a reported loss or claim, or an incurred but not reported loss. For reported losses and claims, the Company values reinsurance recoverables at the time the underlying loss or claim is recognized, in accordance with contract terms. For incurred but not reported losses, the Company estimates the amount of reinsurance recoverables based on the terms of the reinsurance contracts and historical reinsurance recovery information and applies that information to the gross loss reserve. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured business and the balance is disclosed separately in the financial statements. However, the ultimate amount of the reinsurance recoverable is not known until all losses and claims are settled. Allowances are established for amounts deemed uncollectible and reinsurance recoverables are recorded net of these allowances. The Company evaluates the financial condition of its reinsurers and monitors concentration risk to minimize its exposure to significant credit losses from individual reinsurers.

PROPERTY, EQUIPMENT AND CAPITALIZED SOFTWARE

G. Property, Equipment and Capitalized Software

Property, equipment, leasehold improvements and capitalized software are recorded at cost, less accumulated depreciation and amortization. Depreciation is generally provided using the straight-line method over the estimated useful lives of the related assets, which generally range from 3 to 30 years. The estimated useful life for capitalized software is generally 5 to 7 years. Amortization of leasehold improvements is provided using the straight-line method over the lesser of the term of the leases or the estimated useful life of the improvements.

The Company tests for the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company recognizes impairment losses only to the extent that the carrying amounts of long-lived assets exceed the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. When an impairment loss occurs, the Company reduces the carrying value of the asset to fair value and no longer depreciates the asset. Fair values are estimated using discounted cash flow analysis.

GOODWILL AND INTANGIBLE ASSETS

H. GOODWILL AND INTANGIBLE ASSETS

In accordance with the provisions of ASC 350, Intangibles- Goodwill and Other, the Company carries its goodwill at cost, net of amortization accumulated prior to January 1, 2002, and net of impairments. Increases to goodwill are generated through acquisition and represent the excess of the cost of an acquisition over the fair value of net assets acquired, including any intangibles acquired. Since January 1, 2002, goodwill is no longer amortized but rather, is reviewed for impairment. Additionally, acquisitions can also produce intangible assets, which have either a definite or indefinite life. Intangible assets with definite lives are amortized over that life, whereas those intangible assets determined to have an indefinite life are reviewed at least annually for impairment.

The Company tests for the recoverability of goodwill and intangible assets with indefinite lives annually or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company recognizes impairment losses only to the extent that the carrying amounts of reporting units with goodwill exceed the fair value. The amount of the impairment loss that is recognized is determined based upon the excess of the carrying value of goodwill compared to the implied fair value of the goodwill, as determined with respect to all assets and liabilities of the reporting unit. The Company has performed its annual review of goodwill and intangible assets with indefinite lives for impairment in the fourth quarters of 2016 and 2015 with no impairments recognized. At December 31, 2016 and 2015, Chaucer held intangible assets with indefinite lives of $47.0 million and $56.2 million, respectively, which represents approximately 76% and 74% of the Company’s balance, respectively. In addition, at December 31, 2016 and 2015, goodwill held by Chaucer was $6.0 million and $7.2 million, respectively. The remaining balance relates to the U.S. Companies. The changes in the value of intangible assets with indefinite lives from December 31, 2015 represent foreign exchange differences arising during 2016 whereas the changes in the value of intangible assets with indefinite lives during 2015 were primarily related to the disposition of the U.K. motor business on June 30, 2015. See Note 2 – “Dispositions of Businesses”.

LIABILITIES FOR LOSSES, LAE, AND UNEARNED PREMIUMS

I. LIABILITIES FOR LOSSES, LAE, AND UNEARNED PREMIUMS

Liabilities for outstanding claims, losses and loss adjustment expenses (“LAE”) are estimates of payments to be made for reported losses and LAE and estimates of losses and LAE incurred but not reported. These liabilities are determined using case basis evaluations and statistical analyses of historical loss patterns and represent estimates of the ultimate cost of all losses incurred but not paid. These estimates are continually reviewed and adjusted as necessary; adjustments are reflected in current operations. Estimated amounts of salvage and subrogation on unpaid losses are deducted from the liability for unpaid claims.

Premiums for direct and assumed business are reported as earned on a pro-rata basis over the contract period. The unexpired portion of these premiums is recorded as unearned premiums.

All losses, LAE and unearned premium liabilities are based on the various estimates discussed above. Although the adequacy of these amounts cannot be assured, the Company believes that it is more likely than not that these liabilities and accruals will be sufficient to meet future obligations of policies in force. The amount of liabilities and accruals, however, could be revised in the near-term if the estimates discussed above are revised.

DEBT

J. Debt

The Company’s debt at December 31, 2016 includes senior debentures, subordinated debentures, and collateralized borrowings with the Federal Home Loan Bank of Boston (“FHLBB”). Debt instruments are carried at principal amount borrowed, net of any applicable unamortized discounts and issuance costs. See Note 6 – “Debt and Credit Arrangements”.  

PREMIUM, PREMIUM RECEIVABLE, FEE REVENUE AND RELATED EXPENSES

K. Premium, Premium Receivable, Fee Revenue and Related Expenses

Insurance premiums written are generally recorded at the policy inception and are primarily earned on a pro-rata basis over the terms of the policies for all products. Premiums written include estimates, primarily in the Chaucer segment, that are derived from multiple sources, which include the historical experience of the underlying business, similar businesses and available industry information. These estimates are regularly reviewed and updated, and any resulting adjustments are included in the current year’s results. Unearned premium reserves represent the portion of premiums written that relates to the unexpired terms of the underlying in-force insurance policies and reinsurance contracts. Premium receivables reflect the unpaid balance of premium written as of the balance sheet date. Premium receivables are generally short-term in nature and are reported net of an allowance for estimated uncollectible premium accounts. The Company reviews its receivables for collectability at the balance sheet date. The allowance for uncollectible accounts was not material as of December 31, 2016 and 2015. Ceded premiums are charged to income over the applicable term of the various reinsurance contracts with third-party reinsurers. Reinsurance reinstatement premiums, when required, are recognized in the same period as the loss event that gave rise to the reinstatement premiums. Losses and related expenses are matched with premiums, resulting in their recognition over the lives of the contracts. This matching is accomplished through estimated and unpaid losses and amortization of deferred acquisition costs.

INCOME TAXES

L. Income Taxes

The Company is subject to the tax laws and regulations of the U.S. and foreign countries in which it operates. The Company files a consolidated U.S. federal income tax return that includes the holding company and its U.S. subsidiaries. Generally, taxes are accrued at the U.S. statutory tax rate of 35% for income from the U.S. operations. The Company’s primary non-U.S. jurisdiction is the United Kingdom (“U.K.”). In July 2013, the U.K. statutory rate decreased from 23% to 21% effective April 1, 2014 and from 21% to 20% effective April 1, 2015. In November 2015, the U.K. statutory tax rate decreased from 20% to 19% effective April 1, 2017 and from 19% to 18% effective April 1, 2020. A further decrease was enacted in September 2016 to reduce the U.K. statutory rate from 19% to 17%, instead of the 18%, effective April 1, 2020. The Company accrues taxes on certain non-U.S. income that is subject to U.S. tax at the U.S. tax rate. Foreign tax credits, where available, are utilized to offset U.S. tax as permitted. Certain non-U.S. income of the Company is not subject to U.S. tax until repatriated. Foreign taxes on this non-U.S. income are accrued at the local foreign rate and do not have an accrual for U.S. deferred taxes since these earnings are intended to be indefinitely reinvested overseas.

The Company’s accounting for income taxes represents its best estimate of various events and transactions.

Deferred income taxes are generally recognized when assets and liabilities have different values for financial statement and tax reporting purposes, and for other temporary taxable and deductible differences as defined by ASC 740, Income Taxes (“ASC 740”). These temporary differences are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. These differences result primarily from insurance reserves, deferred acquisition costs, tax credit carryforwards, employee benefit plans and deferred Lloyd’s underwriting income.

The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Consideration is given to all available positive and negative evidence, including reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. Valuation allowances are established if, based on available information, it is determined that it is more likely than not that all or some portion of the deferred tax assets will not be realized. Changes in valuation allowances are generally reflected in income tax expense or as an adjustment to other comprehensive income (loss) depending on the nature of the item for which the valuation allowance is being recorded.

STOCK-BASED COMPENSATION

M. Stock-Based Compensation

The Company recognizes the fair value of compensation costs for all share-based payments, including employee stock options, in the financial statements. Unvested awards are generally expensed on a straight line basis, by tranche, over the vesting period of the award. The Company’s stock-based compensation plans are discussed further in Note 11 – “Stock-Based Compensation Plans”.

EARNINGS PER SHARE

N. Earnings Per Share

Earnings per share (“EPS”) for the years ended December 31, 2016, 2015 and 2014 is based on a weighted average of the number of shares outstanding during each year. Basic and diluted EPS is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. The weighted average shares outstanding used to calculate basic EPS differ from the weighted average shares outstanding used in the calculation of diluted EPS due to the effect of dilutive employee stock options, nonvested stock grants and other contingently issuable shares. If the effect of such items is antidilutive, the weighted average shares outstanding used to calculate diluted EPS are equal to those used to calculate basic EPS.

Options to purchase shares of common stock whose exercise prices are greater than the average market price of the common shares are not included in the computation of diluted earnings per share because the effect would be antidilutive.

FOREIGN CURRENCY

O. Foreign Currency

The Company’s reporting currency is the U.S. dollar. The functional currencies of the Company’s foreign operations are the U.K. pound sterling (“GBP”), U.S. dollar, and Canadian dollar. Assets and liabilities of foreign operations are translated into the U.S. dollar using the exchange rates in effect at the balance sheet date. Revenues and expenses of foreign operations are translated using the average exchange rate for the period. Gains or losses from translating the financial statements of foreign operations are recorded in the cumulative translation adjustment, as a separate component of accumulated other comprehensive income. Gains and losses arising from transactions denominated in a foreign currency, other than the Company’s functional currencies, are included in net income (loss), except for the Company’s foreign currency denominated available-for-sale investments. The Company’s foreign currency denominated available-for-sale investments’ change in exchange rates between the local currency and the functional currency at each balance sheet date represents an unrealized appreciation or depreciation in value of these securities, and is included as a component of accumulated other comprehensive income.

The Company manages its exposure to foreign currency risk primarily by matching assets and liabilities denominated in the same currency. To the extent that assets and liabilities in foreign currencies are not matched, the Company is exposed to foreign currency risk. For functional currencies, the related exchange rate fluctuations are reflected in other comprehensive income (loss). The Company translated Chaucer’s balance sheet at December 31, 2016 and 2015 from GBP to U.S. dollars using a conversion rate of 1.23 and 1.47, respectively. The Company recognized $22.3 million in foreign currency transaction losses in the Consolidated Statements of Income during the year ended December 31, 2016, and $8.5 million and $3.3 million in foreign currency transaction gains for the years ended December 31, 2015 and 2014, respectively. These amounts include realized losses of Euro denominated securities of $0.7 million, $3.4 million, and $1.3 million in 2016, 2015, and 2014, respectively.

NEW ACCOUNTING PRONOUNCEMENTS

P. New Accounting Pronouncements

Recently Implemented Standards

In May 2015, the Financial Accounting Standards Board (“FASB”) issued ASC Update No. 2015-09, (Topic 944) Financial Services- Insurance:Disclosures about Short-Duration Contracts. This ASC update requires several additional disclosures regarding short-duration insurance contracts, including; disaggregated incurred and paid claims development information, quantitative and qualitative information about claim frequency and duration, and the sum of incurred but not reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses along with a description of reserving methodologies. This information is required to be presented by accident year, for the number of years for which claims typically remain outstanding, but need not exceed 10 years. A reconciliation of the claims development disclosures to the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses, including a separate disclosure for reinsurance recoverables is also required for each period presented in the statement of financial position. In addition, this ASC update requires insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements.  The updated guidance is effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The Company implemented this guidance beginning with its disclosures for the year ended December 31, 2016. The effect of implementing this guidance was not material to the Company’s financial position or results of operations, as the update is disclosure related.

In April 2015, the FASB issued ASC Update No. 2015-03, (Subtopic 835-30) Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. This ASC update requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of a debt liability, consistent with debt discounts or premiums, and amortization of debt issuance cost shall be reported as interest expense. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASC update. The updated guidance is to be applied on a retrospective basis and early adoption is permitted. The update is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company implemented this guidance effective January 1, 2016. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

In August 2014, the FASB issued ASC Update No. 2014-15, (Subtopic 205-40)Presentation of Financial Statements– Going Concern.This ASC update provides guidance on determining when and how to disclose going concern uncertainties in the financial statements, and requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. The updated guidance is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early adoption is permitted. The Company implemented this guidance beginning with the year-ended December 31, 2016. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

In April 2014, the FASB issued ASC Update No. 2014-08, (Topic 205 and Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASC update modifies the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. Also, this update requires additional financial statement disclosures about discontinued operations, as well as disposals of an individually significant component of an entity that do not qualify for discontinued operations presentation. This ASC update was effective for all disposals (or classifications as held for sale) of components of an entity that occurred within annual and interim periods beginning on or after December 15, 2014 and for all businesses that, on acquisition, were classified as held for sale that also occurred within interim and annual periods beginning on or after December 15, 2014. The Company implemented this guidance effective January 1, 2015. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

Recently Issued Standards

In January 2017, the FASB issued ASC Update No. 2017-04, (Topic 350) Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment. This guidance eliminates step 2 from the goodwill impairment test. Instead, an entity should perform its goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, including any applicable income tax effects, and recognize an impairment for the amount by which the carrying amount exceeds the reporting units fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The updated guidance is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASC Update No. 2017-04 to have a material impact on its financial position or results of operations.

In January 2017, the FASB issued ASC Update No. 2017-01, (Topic 805) Business Combinations – Clarifying the Definition of a Business. The amendments in this update provide a more robust framework to use in determining when a set of assets and activities constitute a business. This guidance narrows the definition of a business by providing specific requirements that contribute to the creation of outputs that must be present to be considered a business. The guidance further clarifies the appropriate accounting when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets is that of an acquisition (disposition) of assets, not a business. This framework will reduce the number of transactions that an entity must further evaluate to determine whether transactions are business combinations or asset acquisitions. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied on a prospective basis. Early adoption is permitted only for transactions that have not been reported in financial statements that have been issued. The Company does not expect the adoption of ASC Update No. 2017-01 to have a material impact on its financial position or results of operations.

In November 2016, the FASB issued ASC Update No. 2016-18 (Topic 230) Statement of Cash Flows – Restricted Cash (a consensus of the FASB Emerging Issues Task Force). The amendments in this update require that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Current GAAP does not include specific guidance on the cash flow classification and presentation of changes in restricted cash. The updated guidance is effective for interim and annual periods beginning after December 15, 2017 and is required to be applied using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. However, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. Implementing this guidance is not expected to have a significant impact on the Company’s statement of cash flows, as restricted cash, if any, is currently included in total cash and cash equivalents.

In October 2016, the FASB issued ASC Update No. 2016-16, (Topic 740) Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory. Under current GAAP, the tax effects of intra-entity transfers of assets (intercompany sales) are deferred until the assets are sold to an outside party or otherwise recovered through use. This ASC update eliminates this deferral of taxes for assets other than inventory and requires the recognition of taxes when the transfer occurs. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. Early adoption is permitted, but this election must be made in the first interim period of the adoption year. The adoption of ASC Update No. 2016-16 is not expected to have any net impact on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASC Update No. 2016-15, (Topic 230) Classification of Certain Cash Receipts and Cash Payments. This ASC update provides specific guidance on the presentation of certain cash flow items where there is currently diversity in practice, including, but not limited to, debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied retrospectively unless impracticable. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASC Update No. 2016-15.

In June 2016, the FASB issued ASC Update No. 2016-13, (Topic 326) Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASC update introduces new guidance for the accounting for credit losses on financial instruments within its scope. A new model, referred to as the current expected credit losses model, requires an entity to determine credit-related impairment losses for financial instruments held at amortized cost and to estimate these expected credit losses over the life of an exposure (or pool of exposures). The estimate of expected credit losses should consider both historical and current information, reasonable and supportable forecasts, as well as estimates of prepayments. The estimated credit losses and subsequent adjustment to such loss estimates, will be recorded through an allowance account which is deducted from the amortized cost of the financial instrument, with the offset recorded in current earnings. ASC No. 2016-13 also modifies the impairment model for available-for-sale debt securities. The new model will require an estimate of expected credit losses only when the fair value is below the amortized cost of the asset, thus the length of time the fair value of an available-for-sale debt security has been below the amortized cost will no longer affect the determination of whether a credit loss exists. In addition, credit losses on available-for-sale debt securities will be limited to the difference between the security’s amortized cost basis and its fair value. The updated guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for periods beginning after December 15, 2018. The Company is evaluating the impact of the adoption of ASC Update No. 2016-13 on its financial position and results of operations.

In March 2016, the FASB issued ASC Update No. 2016-09, (Topic 718) Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This ASC update requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement, and be treated as discreet items in the reporting period in which they occur. Additionally, excess tax benefits will be classified with other income tax cash flows as an operating activity and cash paid by an employer when directly withholding shares for tax withholding purposes will be classified as a financing activity. Awards that are used to settle employee tax liabilities will be allowed to qualify for equity classification for withholdings up to the maximum statutory tax rates in applicable jurisdictions. Regarding forfeitures, a company can make an entity-wide accounting policy election to either continue estimating the number of awards that are expected to vest or account for forfeitures when they occur. The updated guidance is effective for interim and annual periods beginning after December 15, 2016. The Company will adopt this standard effective January 1, 2017 and will retain its current forfeiture policy of accruing the compensation cost based on the number of awards that are expected to vest. The effect this guidance will have on the Company’s results of operations is dependent on the future tax benefits or deficiencies that are recognized related to stock-based compensations awards, and could be material in any one quarterly or annual period. The adoption of this guidance is not expected to result in any cumulative effect adjustments and will not have a material impact on the liquidity of the Company.

In February 2016, the FASB issued ASC Update No. 2016-02, (Topic 842) Leases. This ASC update requires a lessee to recognize a right-of-use asset, which represents the lessee’s right to use a specified asset for the lease term, and a corresponding lease liability, which represents a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, for all leases that extend beyond 12 months. For finance or capital leases, interest on the lease liability will be recognized separately from amortization of the right-of-use asset in the statements of income and comprehensive income. In addition, the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. For operating leases, the asset and liability will be amortized as a single lease cost, such that the cost of the lease is allocated over the lease term, on a generally straight-line basis, with all cash flows included within operating activities in the statement of cash flows. The updated guidance is effective for interim and annual periods beginning after December 15, 2018 and is required to be implemented by applying a modified retrospective transition approach. The Company is continuing to evaluate the impact of the adoption of ASC Update No. 2016-02 on its results of operations. It is expected that assets and liabilities will increase based on the present value of remaining lease payments for leases in place at the adoption date; however, the impact is not expected to be significant to the Company’s financial position.

In January 2016, the FASB issued ASC Update No. 2016-01, (Subtopic 825-10) Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This ASC update requires unconsolidated equity investments to be measured at fair value with changes in the fair value recognized in net income, except for those accounted for under the equity method. This update eliminates the cost method for equity investments without readily determinable fair values and replaces with other methods, including the use of Net Asset Value (“NAV”). Additionally, when a public entity is required to measure fair value for disclosure purposes and holds financial instruments measured at amortized cost, the updated guidance requires these instruments to be measured using exit price. It also requires financial assets and financial liabilities to be presented separately in the notes to the financial statements, grouped by measurement category and form of financial asset. The updated guidance is effective for annual periods beginning after December 15, 2017. The Company will adopt the guidance effective January 1, 2018 through a cumulative effect adjustment to retained earnings. The adoption is not expected to have a material impact on the Company’s financial position. The impact to the Company is expected to be increased volatility in net income beginning in 2018; the magnitude of such volatility will depend on the composition of the Company’s investment portfolio in the future and changes in the fair value of the Company’s investments.

In May 2014, the FASB issued ASC Update No. 2014-09, (Topic 606) Revenue from Contracts with Customers. This ASC was issued to clarify the principles for recognizing revenue. Insurance contracts and financial instrument transactions are not within the scope of this updated guidance, and; therefore, only an insignificant amount of the Company’s revenue is subject to this updated guidance. In August 2015, the FASB issued ASC Update No. 2015-14, (Topic 606) Revenue from Contracts with Customers, which deferred the effective date of ASC Update No. 2014-09 by one year. Accordingly, the updated guidance is effective for periods beginning after December 15, 2017 and is not expected to have a material effect on the Company’s financial position or results of operations.

RECLASSIFICATIONS

Q. Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

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Dispositions Of Businesses (Tables)

12 Months Ended

Dec. 31, 2016

Dispositions Of Businesses [Abstract]

Components of Gain From Disposal of U.K. Motor Business

The components of the gain are as follows:

(in millions)
Total consideration	$	64.9
Less:
Carrying value of subsidiaries		(7.6)
Intangibles and goodwill disposed (1)		(17.7)
Transaction expenses and employee-related and other costs (2)		(7.7)
Realized gain on investments transferred as part of reinsurance agreement (3)		5.8
Other items		0.7
Pre-tax gain		38.4
Income tax benefit		2.2
Net gain	$	40.6

(1) Reflects $17.2 million of indefinite-lived intangible assets associated with the U.K. motor business upon THG’s purchase of Chaucer in July 2011 and $0.5 million of goodwill.

(2) Transaction costs include legal, actuarial and other professional fees.

(3) As part of the reinsurance agreement, investments were transferred, resulting in the recognition of net realized investment gains that were previously reflected in accumulated other comprehensive income.

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Investments (Tables)

12 Months Ended

Dec. 31, 2016

Investments [Abstract]

Schedule of Available-for-sale Securities Reconciliation

DECEMBER 31, 2016
(in millions)		Amortized		Gross		Gross				OTTI
		Cost or		Unrealized		Unrealized				Unrealized
		Cost		Gains		Losses		Fair Value		Losses
Fixed maturities:
U.S. Treasury and government agencies	$	342.5	$	3.7	$	5.1	$	341.1	$	-
Foreign government		235.8		5.4		0.5		240.7		-
Municipal		1,065.8		38.8		9.2		1,095.4		-
Corporate		3,989.8		113.0		49.0		4,053.8		15.8
Residential mortgage-backed		978.2		9.6		13.6		974.2		0.4
Commercial mortgage-backed		550.6		7.8		4.1		554.3		-
Asset-backed		72.4		0.2		0.8		71.8		-
Total fixed maturities	$	7,235.1	$	178.5	$	82.3	$	7,331.3	$	16.2
Equity securities	$	498.4	$	86.7	$	0.7	$	584.4	$	-
DECEMBER 31, 2015
(in millions)		Amortized		Gross		Gross				OTTI
		Cost or		Unrealized		Unrealized				Unrealized
		Cost		Gains		Losses		Fair Value		Losses
Fixed maturities:
U.S. Treasury and government agencies	$	447.1	$	5.5	$	3.5	$	449.1	$	-
Foreign government		244.7		2.6		1.5		245.8		-
Municipal		1,074.5		50.0		4.2		1,120.3		-
Corporate		3,699.9		86.8		95.7		3,691.0		27.5
Residential mortgage-backed		887.6		13.4		4.9		896.1		0.3
Commercial mortgage-backed		499.6		5.8		4.3		501.1		-
Asset-backed		80.6		0.2		0.8		80.0		-
Total fixed maturities	$	6,934.0	$	164.3	$	114.9	$	6,983.4	$	27.8
Equity securities	$	528.5	$	55.7	$	7.6	$	576.6	$	-

Investments Classified by Contractual Maturity Date

DECEMBER 31		2016
(in millions)		Amortized
		Cost		Fair Value
Due in one year or less	$	373.3	$	376.9
Due after one year through five years		3,132.1		3,217.4
Due after five years through ten years		1,806.1		1,802.1
Due after ten years		322.4		334.6
		5,633.9		5,731.0
Mortgage-backed and asset-backed securities		1,601.2		1,600.3
Total fixed maturities	$	7,235.1	$	7,331.3

Unrealized Gains and Losses on Available-For-Sale and Other Securities

YEARS ENDED DECEMBER 31
(in millions)				Equity
		Fixed		Securities and
2016		Maturities		Other		Total
Net appreciation, beginning of year	$	116.5	$	33.4	$	149.9
Net appreciation on available-for-sale securities		36.9		39.2		76.1
Change in OTTI losses recognized in other comprehensive income		11.2		-		11.2
Provision for deferred income taxes		(37.5)		(13.7)		(51.2)
		10.6		25.5		36.1
Net appreciation, end of year	$	127.1	$	58.9	$	186.0
2015
Net appreciation, beginning of year	$	250.0	$	50.9	$	300.9
Net depreciation on available-for-sale securities		(164.9)		(26.8)		(191.7)
Change in OTTI losses recognized in other comprehensive income		(20.0)		-		(20.0)
Provision for deferred income taxes		51.4		9.3		60.7
		(133.5)		(17.5)		(151.0)
Net appreciation, end of year	$	116.5	$	33.4	$	149.9
2014
Net appreciation, beginning of year	$	212.1	$	47.2	$	259.3
Net appreciation on available-for-sale securities		76.3		10.2		86.5
Change in OTTI losses recognized in other comprehensive income		2.4		-		2.4
Provision for deferred income taxes		(40.8)		(6.5)		(47.3)
		37.9		3.7		41.6
Net appreciation, end of year	$	250.0	$	50.9	$	300.9

Schedule of Unrealized Loss on Investments

DECEMBER 31, 2016		12 months or less				Greater than 12 months				Total
(in millions)		Gross				Gross				Gross
		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
		Losses		Value		Losses		Value		Losses		Value
Fixed maturities:
Investment grade:
U.S. Treasury and government
agencies	$	5.1	$	165.9	$	-	$	-	$	5.1	$	165.9
Foreign governments		0.5		55.0		-		1.8		0.5		56.8
Municipal		7.2		268.4		2.0		29.3		9.2		297.7
Corporate		30.6		1,081.0		5.0		64.2		35.6		1,145.2
Residential mortgage-backed		12.1		570.0		1.5		29.0		13.6		599.0
Commercial mortgage-backed		4.1		187.5		-		6.3		4.1		193.8
Asset-backed		0.6		29.1		0.2		3.5		0.8		32.6
Total investment grade		60.2		2,356.9		8.7		134.1		68.9		2,491.0
Below investment grade:
Corporate		1.2		45.9		12.2		81.8		13.4		127.7
Residential mortgage-backed		-		0.1		-		-		-		0.1
Total below investment grade		1.2		46.0		12.2		81.8		13.4		127.8
Total fixed maturities		61.4		2,402.9		20.9		215.9		82.3		2,618.8
Equity securities		0.7		16.3		-		-		0.7		16.3
Total	$	62.1	$	2,419.2	$	20.9	$	215.9	$	83.0	$	2,635.1
DECEMBER 31, 2015		12 months or less				Greater than 12 months				Total
(in millions)		Gross				Gross				Gross
		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
		Losses		Value		Losses		Value		Losses		Value
Fixed maturities:
Investment grade:
U.S. Treasury and government
agencies	$	1.5	$	139.0	$	2.0	$	77.2	$	3.5	$	216.2
Foreign governments		0.8		63.6		0.7		8.4		1.5		72.0
Municipal		2.3		143.0		1.9		57.4		4.2		200.4
Corporate		30.7		1,138.3		18.9		122.3		49.6		1,260.6
Residential mortgage-backed		3.0		334.5		1.9		47.0		4.9		381.5
Commercial mortgage-backed		4.2		293.8		0.1		9.7		4.3		303.5
Asset-backed		0.8		56.6		-		1.4		0.8		58.0
Total investment grade		43.3		2,168.8		25.5		323.4		68.8		2,492.2
Below investment grade:
Corporate		19.6		165.5		26.5		63.2		46.1		228.7
Total fixed maturities		62.9		2,334.3		52.0		386.6		114.9		2,720.9
Equity securities		7.6		166.8		-		-		7.6		166.8
Total	$	70.5	$	2,501.1	$	52.0	$	386.6	$	122.5	$	2,887.7

Schedule of Other Investments

DECEMBER 31	2016		2015
(in millions)
Property Type:
Office	$	109.8	$	75.0
Retail		64.7		58.8
Hotel		40.4		19.2
Apartments		38.4		33.4
Industrial		30.0		15.0
Mixed use		15.0		-
Valuation allowance		(0.7)		(0.5)
Total	$	297.6	$	200.9

DECEMBER 31	2016		2015
(in millions)
Geographic Region:
South Atlantic	$	72.0	$	47.0
Pacific		65.0		50.0
Mid-Atlantic		53.5		23.6
West South Central		51.3		35.0
New England		21.1		10.0
East North Central		10.4		10.8
West North Central		10.0		10.0
Other		15.0		15.0
Valuation allowance		(0.7)		(0.5)
Total	$	297.6	$	200.9

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Investment Income and Gains and Losses (Tables)

12 Months Ended

Dec. 31, 2016

Investments [Abstract]

Components of Net Investment Income

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Fixed maturities	$	245.1	$	253.8	$	255.8
Equity securities		18.6		17.5		16.5
Other investments		26.7		18.1		9.0
Gross investment income		290.4		289.4		281.3
Less investment expenses		(11.0)		(10.3)		(11.0)
Net investment income	$	279.4	$	279.1	$	270.3

Schedule of Net Realized Gains (Losses) on Investments

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Equity securities	$	25.4	$	29.4	$	45.8
Fixed maturities		(16.6)		(13.9)		4.5
Other investments		(0.2)		4.0		(0.2)
Net realized investment gains	$	8.6	$	19.5	$	50.1

Rollforward of Cumulative Amounts Related to Credit Loss Portion of OTTI Losses

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Credit losses as of the beginning of the year	$	18.0	$	4.2	$	7.8
Credit losses on securities for which an OTTI was not previously recognized		6.4		8.3		-
Additional credit losses on securities for which an OTTI was previously
recognized		2.4		7.7		-
Reductions for securities sold, matured or called		(4.6)		(1.8)		(3.2)
Reductions for securities reclassified as intend to sell		(12.2)		(0.4)		(0.4)
Credit losses as of the end of the year	$	10.0	$	18.0	$	4.2

Schedule of Realized Gain (Loss)

YEARS ENDED DECEMBER 31
(in millions)
		Proceeds		Gross		Gross
2016		from Sales		Gains		Losses
Fixed maturities	$	563.8	$	11.7	$	7.0
Equity securities	$	245.0	$	31.1	$	3.0
2015
Fixed maturities	$	1,167.6	$	15.0	$	9.3
Equity securities	$	270.0	$	36.9	$	4.2
2014
Fixed maturities	$	349.5	$	5.8	$	2.6
Equity securities	$	156.1	$	46.2	$	0.8

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Fair Value (Tables)

12 Months Ended

Dec. 31, 2016

Fair Value [Abstract]

Fair Value of Financial Instruments

DECEMBER 31		2016				2015
(in millions)		Carrying		Fair		Carrying		Fair
		Value		Value		Value		Value
Financial Assets
Cash and cash equivalents	$	282.6	$	282.6	$	338.8	$	338.8
Fixed maturities		7,331.3		7,331.3		6,983.4		6,983.4
Equity securities		584.4		584.4		576.6		576.6
Other investments		497.8		497.6		365.4		367.9
Total financial assets	$	8,696.1	$	8,695.9	$	8,264.2	$	8,266.7
Financial Liabilities
Debt	$	786.4	$	841.9	$	803.1	$	927.8

Fair Value, Assets Measured on Recurring Basis

	DECEMBER 31, 2016
(in millions)		Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	341.1	$	209.5	$	131.6	$	-
Foreign government		240.7		47.3		193.4		-
Municipal		1,095.4		-		1,064.4		31.0
Corporate		4,053.8		-		4,049.6		4.2
Residential mortgage-backed, U.S. agency backed		924.4		-		924.4		-
Residential mortgage-backed, non-agency		49.8		-		49.8		-
Commercial mortgage-backed		554.3		-		539.3		15.0
Asset backed		71.8		-		71.8		-
Total fixed maturities		7,331.3		256.8		7,024.3		50.2
Equity securities		574.6		573.1		-		1.5
Other investments		106.3		-		102.2		4.1
Total investment assets at fair value	$	8,012.2	$	829.9	$	7,126.5	$	55.8
	DECEMBER 31, 2015
(in millions)		Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	449.1	$	193.6	$	255.5	$	-
Foreign government		245.8		52.5		193.3		-
Municipal		1,120.3		-		1,085.9		34.4
Corporate		3,691.0		-		3,687.3		3.7
Residential mortgage-backed, U.S. agency backed		824.5		-		824.5		-
Residential mortgage-backed, non-agency		71.6		-		71.6		-
Commercial mortgage-backed		501.1		-		484.1		17.0
Asset backed		80.0		-		79.5		0.5
Total fixed maturities		6,983.4		246.1		6,681.7		55.6
Equity securities		567.7		566.4		-		1.3
Other investments		104.5		-		100.9		3.6
Total investment assets at fair value	$	7,655.6	$	812.5	$	6,782.6	$	60.5

Estimated Fair Values of Financial Instruments Not Carried at Fair Value

	DECEMBER 31, 2016
(in millions)		Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	282.6	$	282.6	$	-	$	-
Equity securities		9.8		-		9.8		-
Other investments		297.2		-		-		297.2
Liabilities:
Debt	$	841.9	$	-	$	841.9	$	-
	DECEMBER 31, 2015
(in millions)		Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	338.8	$	338.8	$	-	$	-
Equity securities		8.9		-		8.9		-
Other investments		203.5		-		-		203.5
Liabilities:
Debt	$	927.8	$	-	$	927.8	$	-

Fair Value on Recurring Basis Using Significant Unobservable Inputs (Level 3)

YEAR ENDED DECEMBER 31, 2016	Fixed Maturities
(in millions)		Municipal		Corporate		Commercial mortgage-backed		Asset-backed		Total		Equity and Other		Total Assets
Balance at beginning of year	$	34.4	$	3.7	$	17.0	$	0.5	$	55.6	$	4.9	$	60.5
Transfers out of Level 3		(1.2)		-		-		-		(1.2)		-		(1.2)
Total gains (losses):
Included in total net realized investment
gains (losses)		0.1		(0.2)		-		-		(0.1)		-		(0.1)
Included in other comprehensive
income - net appreciation (depreciation) on available-for-sale securities		0.6		0.6		(0.2)		-		1.0		0.7		1.7
Purchases and sales:
Purchases		-		0.3		-		-		0.3		-		0.3
Sales		(2.9)		(0.2)		(1.8)		(0.5)		(5.4)		-		(5.4)
Balance at end of year	$	31.0	$	4.2	$	15.0	$	-	$	50.2	$	5.6	$	55.8
YEAR ENDED DECEMBER 31, 2015	Fixed Maturities
(in millions)		Municipal		Corporate		Commercial mortgage-backed		Asset-backed		Total		Equity and Other		Total Assets
Balance at beginning of year	$	25.7	$	9.6	$	21.4	$	-	$	56.7	$	5.0	$	61.7
Transfers into Level 3		-		-		-		1.3		1.3		-		1.3
Transfers out of Level 3		-		(4.6)		-		-		(4.6)		-		(4.6)
Total losses:
Included in other comprehensive
income - net depreciation on available-for-sale securities		(0.5)		(0.8)		(1.0)		(0.1)		(2.4)		(0.1)		(2.5)
Purchases and sales:
Purchases		11.2		-		-		-		11.2		-		11.2
Sales		(2.0)		(0.5)		(3.4)		(0.7)		(6.6)		-		(6.6)
Balance at end of year	$	34.4	$	3.7	$	17.0	$	0.5	$	55.6	$	4.9	$	60.5

Schedule of Additional Information About Significant Unobservable Inputs Used in Fair Valuations of Level 3

DECEMBER 31,				2016			2015
	Valuation	Significant		Fair	Range		Fair	Range
(in millions)	Technique	Unobservable Inputs		Value	(Wtd Average)		Value	(Wtd Average)
Fixed maturities:
Municipal	Discounted	Discount for:	$	31.0		$	34.4
	cash flow	Small issue size			0.7 - 6.8%  (3.3%)			0.6 - 6.8%  (3.2%)
		Credit stress			0.9 - 1.5%  (1.2%)			0.9 - 1.5%  (1.2%)
		Above-market coupon			0.3 - 0.5%  (0.4%)			0.3 - 1.0%  (0.4%)
Corporate	Discounted	Discount for:		4.0			3.7
	cash flow	Small issue size			2.0 - 2.5%  (2.1%)			1.0%  (1.0%)
		Credit stress			1.0%  (1.0%)			10.0%  (10.0%)
		Above-market coupon			0.3 - 0.8%  (0.6%)			0.3 - 0.8%  (0.6%)
Commercial	Discounted	Discount for:		15.0			17.0
mortgage-backed	cash flow	Small issue size			1.9 - 3.1%  (2.6%)			0.5 - 1.0%  (0.5%)
		Above-market coupon			0.5%  (0.5%)			0.5%  (0.5%)
		Lease structure			0.3%  (0.3%)			0.3%  (0.3%)
Asset backed	Discounted	Discount for:		-			0.5
	cash flow	Small issue size			N/A			0.7%  (0.7%)
Equity securities	Market	Net tangible asset		1.1			1.1
	comparables	market multiples			1.0X  (1.0X)			1.0X  (1.0X)
Other	Discounted	Discount rate		4.1	18.0%  (18.0%)		3.6	18.0%  (18.0%)
	cash flow

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Debt and Credit Arrangements (Tables)

12 Months Ended

Dec. 31, 2016

Debt and Credit Arrangements [Abstract]

Schedule of Long-Term Debt

DECEMBER 31		2016		2015
(in millions)
Senior debentures maturing April 15, 2026	$	375.0	$	-
Senior debentures maturing October 15, 2025		62.6		74.6
Senior debentures maturing June 15, 2021		-		300.0
Senior debentures maturing March 1, 2020		-		80.0
Subordinated debentures maturing March 30, 2053		175.0		175.0
Subordinated debentures maturing February 3, 2027		59.7		59.7
FHLBB borrowings (secured)		125.0		125.0
Total principal debt		797.3		814.3
Unamortized debt issuance costs		(10.9)		(11.2)
Total	$	786.4	$	803.1

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

Income Taxes [Abstract]

Components of Income Before Income Taxes

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Income before income taxes:
U.S.	$	70.8	$	220.9	$	185.6
Non-U.S.		121.5		218.5		192.4
	$	192.3	$	439.4	$	378.0

Components of Income Tax Expense (Benefit)

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Current:
U.S.	$	16.8	$	32.7	$	4.5
Non-U.S.		35.3		23.1		22.6
Total current		52.1		55.8		27.1
Deferred:
U.S.		(20.4)		44.0		51.1
Non-U.S.		4.5		8.8		17.5
Total deferred		(15.9)		52.8		68.6
Total income tax expense	$	36.2	$	108.6	$	95.7

Schedule of Effective Income Tax Rate Reconciliation

YEARS ENDED DECEMBER 31		2016			2015			2014
(in millions)
Expected income tax expense	$	67.3		$	153.7		$	132.3
Tax difference related to investment disposals and maturities		(20.7)			(13.3)			(16.2)
Effect of foreign operations		(6.6)			(7.8)			(8.1)
Dividend received deduction		(3.3)			(3.1)			(2.6)
Tax-exempt interest		(1.1)			(1.4)			(1.7)
Foreign tax credits		(0.6)			(5.6)			-
Gain on disposal of U.K. motor business exempt from tax		-			(17.3)			-
Foreign exchange losses		-			-			(6.9)
Change in valuation allowance		-			-			(2.9)
Nondeductible expenses		1.4			1.6			1.8
Change in liability for uncertain tax positions		-			1.7			-
Other, net		(0.2)			0.1			-
Income tax expense	$	36.2		$	108.6		$	95.7
Effective tax rate		18.8	%		24.7	%		25.3	%

Schedule of Deferred Tax Assets and Liabilities

DECEMBER 31		2016		2015
(in millions)
Deferred tax assets:
Loss, LAE and unearned premium reserves, net	$	183.9	$	179.0
Tax credit carryforwards		94.6		70.5
Employee benefit plans		44.4		39.6
Investments, net		-		12.4
Other		54.9		53.6
		377.8		355.1
Less: Valuation allowance		-		-
		377.8		355.1
Deferred tax liabilities:
Deferred acquisition costs		141.0		134.9
Deferred Lloyd's underwriting income		32.7		22.4
Software capitalization		28.9		26.9
Investments, net		27.9		-
Other		32.2		33.0
		262.7		217.2
Net deferred tax asset	$	115.1	$	137.9

Summary of Income Tax Uncertainties

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Liability at beginning of year, net	$	3.0	$	1.3	$	1.4
Additions for tax positions of prior years		0.4		1.7		(0.1)
Settlements/subtractions for tax positions of prior years		(0.7)		-		(4.8)
Deferred deductions		-		-		4.8
Liability at end of year, net	$	2.7	$	3.0	$	1.3

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Pension Plans (Tables)

12 Months Ended

Dec. 31, 2016

Retirement Plans [Line Items]

Schedule of Weighted Average Assumptions

Weighted average assumptions used to determine pension benefit obligations are as follows:

DECEMBER 31	2016	2015	2014
U.S.
Discount rate - qualified plan	4.25%	4.88%	4.38%
Discount rate - non-qualified plan	4.25%	4.75%	4.25%
Cash balance interest crediting rate	3.50%	3.50%	3.50%
Chaucer
Discount rate	2.85%	3.85%	3.75%
Rate of increase in future compensation (1)	3.15%	3.10%	3.00%

(1) The salary increase assumption as of December 31, 2016 is used to calculate the curtailment gain that resulted from the cessation of future salary increases.

The Company utilizes a measurement date of January 1st to determine its periodic pension costs. Weighted average assumptions used to determine net periodic pension costs for the defined benefit plans are as follows:

YEARS ENDED DECEMBER 31	2016	2015	2014
U.S.
Qualified plan
Discount rate	4.88%	4.38%	5.00%
Expected return on plan assets	5.25%	5.00%	5.50%
Cash balance interest crediting rate	3.50%	3.50%	3.50%
Non-qualified plan
Discount rate	4.75%	4.25%	5.00%
Chaucer
Discount rate	3.85%	3.75%	4.50%
Rate of increase in future compensation	3.10%	3.00%	3.15%
Expected return on plan assets	5.45%	5.45%	6.55%

Summary of Plan Assets Investment Measured at Fair Value

DECEMBER 31	2016								2015
(in millions)		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Fixed income securities:
Fixed maturities	$	53.7	$	23.0	$	-	$	30.7	$	42.0	$	10.3	$	-	$	31.7
Money market funds		7.1		7.1		-		-		4.7		4.7		-		-
Total investments at fair value	$	60.8	$	30.1	$	-	$	30.7	$	46.7	$	15.0	$	-	$	31.7

Schedule of Benefit Obligations, Plan Assets and Funded Status of Plans

DECEMBER 31	U.S. Qualified Pension Plan				U.S. Non-Qualified     Pension Plan				Chaucer Pension Plan
(in millions)		2016		2015		2016		2015		2016		2015
Accumulated benefit obligation	$	506.8	$	500.5	$	38.0	$	37.8	$	132.2	$	126.0
Change in benefit obligation:
Projected benefit obligation, beginning of
period		500.5		538.5		37.8		40.6		128.3		137.5
Employee contributions		-		-		-		-		0.2		0.3
Service cost - benefits earned during the
period		-		-		-		-		0.8		1.1
Interest cost		23.2		22.5		1.7		1.7		4.5		5.1
Actuarial losses (gains)		29.4		(23.3)		1.7		(1.3)		25.9		(0.7)
Benefits paid		(46.3)		(37.2)		(3.2)		(3.2)		(1.8)		(5.8)
Curtailment gain		-		-		-		-		(2.4)		(1.8)
Foreign currency translation		-		-		-		-		(23.3)		(7.4)
Projected benefit obligation, end of year		506.8		500.5		38.0		37.8		132.2		128.3
Change in plan assets:
Fair value of plan assets, beginning of
period		472.8		513.4		-		-		123.5		131.8
Actual return on plan assets		26.8		(3.4)		-		-		15.4		3.3
Contributions		-		-		3.2		3.2		0.8		1.3
Benefits paid		(46.3)		(37.2)		(3.2)		(3.2)		(1.8)		(5.8)
Foreign currency translation		-		-		-		-		(21.4)		(7.1)
Fair value of plan assets, end of year		453.3		472.8		-		-		116.5		123.5
Funded status of the plans	$	(53.5)	$	(27.7)	$	(38.0)	$	(37.8)	$	(15.7)	$	(4.8)

Components of Net Periodic Pension Cost

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Service cost - benefits earned during the period	$	0.7	$	1.1	$	1.5
Interest cost		29.5		29.3		33.7
Expected return on plan assets		(29.6)		(31.6)		(36.6)
Recognized net actuarial loss		13.5		13.9		11.7
Amortization of prior service cost		-		-		0.1
Settlement loss		-		-		12.1
Curtailment gain		(2.4)		(1.8)		-
Net periodic pension cost	$	11.7	$	10.9	$	22.5

Accumulated Other Comprehensive (Income) Loss Related to Postretirement Benefit Plans

DECEMBER 31		2016		2015
(in millions)
Net actuarial loss	$	150.4	$	119.4

Summary of Estimated Amount Amortized From Accumulated Other Comprehensive Income (Loss) Into Net Periodic Pension Cost

ESTIMATED AMORTIZATION IN 2017		Expense
(in millions)
Net actuarial loss	$	15.8

Schedule of Expected Benefit Payments

YEARS ENDED DECEMBER 31		2017		2018		2019		2020		2021		2022-2026
(in millions)
U.S. qualified pension plan	$	38.8	$	37.7	$	37.6	$	37.4	$	37.5	$	174.9
U.S. non-qualified pension plan	$	3.2	$	3.1	$	3.0	$	3.1	$	2.9	$	13.5
Chaucer pension plan	$	1.6	$	1.7	$	1.8	$	1.8	$	1.9	$	10.8

U.S. Qualified Defined Benefit Plans [Member]

Retirement Plans [Line Items]

Summary of Target Allocations and Invested Asset Allocations

DECEMBER 31	2016 TARGET LEVELS	2016	2015
Fixed income securities:
Fixed maturities	83%	83%	84%
Money market funds	2%	2%	1%
Total fixed income securities	85%	85%	85%
Equity securities:
Domestic	12%	12%	12%
International	3%	3%	3%
Total equity securities	15%	15%	15%
Total plan assets	100%	100%	100%

Summary of Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs

YEAR ENDED DECEMBER 31		2016
(in millions)
Balance at beginning of period	$	31.7
Actual return on plan assets related to assets still held		(1.0)
Balance at end of year	$	30.7

Chaucer Pension Plan [Member]

Retirement Plans [Line Items]

Summary of Target Allocations and Invested Asset Allocations

DECEMBER 31	2016 TARGET LEVELS	2016	2015
Fixed income securities:
Fixed maturities	30%	34%	32%
Equity securities:
Domestic (United Kingdom)	15%	14%	14%
International	45%	41%	42%
Total equity securities	60%	55%	56%
Real estate funds	10%	11%	12%
Total plan assets	100%	100%	100%

Schedule of Fair Values of Investments

DECEMBER 31		2016		2015
(in millions)
Cash and equivalents	$	0.3	$	0.6
Fixed income securities:
Fixed maturities		39.4		38.7
Equity securities:
Domestic (United Kingdom)		16.0		17.0
International		48.0		52.4
Total equity securities		64.0		69.4
Real estate funds		12.8		14.8
Total investments carried at NAV	$	116.5	$	123.5

Investments Net Asset Value [Member]

Retirement Plans [Line Items]

Schedule of Fair Values of Investments

DECEMBER 31	2016		2015
Fixed maturities	$	322.4	$	355.6
Equity securities:
Domestic		53.9		54.6
International		16.2		15.9
Total equity		70.1		70.5
Total investments carried at NAV	$	392.5	$	426.1

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Other Postretirement Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2016

Schedule of Benefit Obligations, Plan Assets and Funded Status of Plans

DECEMBER 31	U.S. Qualified Pension Plan				U.S. Non-Qualified     Pension Plan				Chaucer Pension Plan
(in millions)		2016		2015		2016		2015		2016		2015
Accumulated benefit obligation	$	506.8	$	500.5	$	38.0	$	37.8	$	132.2	$	126.0
Change in benefit obligation:
Projected benefit obligation, beginning of
period		500.5		538.5		37.8		40.6		128.3		137.5
Employee contributions		-		-		-		-		0.2		0.3
Service cost - benefits earned during the
period		-		-		-		-		0.8		1.1
Interest cost		23.2		22.5		1.7		1.7		4.5		5.1
Actuarial losses (gains)		29.4		(23.3)		1.7		(1.3)		25.9		(0.7)
Benefits paid		(46.3)		(37.2)		(3.2)		(3.2)		(1.8)		(5.8)
Curtailment gain		-		-		-		-		(2.4)		(1.8)
Foreign currency translation		-		-		-		-		(23.3)		(7.4)
Projected benefit obligation, end of year		506.8		500.5		38.0		37.8		132.2		128.3
Change in plan assets:
Fair value of plan assets, beginning of
period		472.8		513.4		-		-		123.5		131.8
Actual return on plan assets		26.8		(3.4)		-		-		15.4		3.3
Contributions		-		-		3.2		3.2		0.8		1.3
Benefits paid		(46.3)		(37.2)		(3.2)		(3.2)		(1.8)		(5.8)
Foreign currency translation		-		-		-		-		(21.4)		(7.1)
Fair value of plan assets, end of year		453.3		472.8		-		-		116.5		123.5
Funded status of the plans	$	(53.5)	$	(27.7)	$	(38.0)	$	(37.8)	$	(15.7)	$	(4.8)

Schedule of Expected Benefit Payments

YEARS ENDED DECEMBER 31		2017		2018		2019		2020		2021		2022-2026
(in millions)
U.S. qualified pension plan	$	38.8	$	37.7	$	37.6	$	37.4	$	37.5	$	174.9
U.S. non-qualified pension plan	$	3.2	$	3.1	$	3.0	$	3.1	$	2.9	$	13.5
Chaucer pension plan	$	1.6	$	1.7	$	1.8	$	1.8	$	1.9	$	10.8

Components of Net Periodic Pension Cost

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Service cost - benefits earned during the period	$	0.7	$	1.1	$	1.5
Interest cost		29.5		29.3		33.7
Expected return on plan assets		(29.6)		(31.6)		(36.6)
Recognized net actuarial loss		13.5		13.9		11.7
Amortization of prior service cost		-		-		0.1
Settlement loss		-		-		12.1
Curtailment gain		(2.4)		(1.8)		-
Net periodic pension cost	$	11.7	$	10.9	$	22.5

Accumulated Other Comprehensive (Income) Loss Related to Postretirement Benefit Plans

DECEMBER 31		2016		2015
(in millions)
Net actuarial loss	$	150.4	$	119.4

Summary of Estimated Amount Amortized From Accumulated Other Comprehensive Income (Loss) Into Net Periodic Pension Cost

ESTIMATED AMORTIZATION IN 2017		Expense
(in millions)
Net actuarial loss	$	15.8

Postretirement Plans

Schedule of Benefit Obligations, Plan Assets and Funded Status of Plans

DECEMBER 31		2016		2015
(in millions)
Change in benefit obligation:
Accumulated postretirement benefit obligation, beginning of year	$	12.1	$	17.0
Interest cost		0.5		0.5
Net actuarial loss		1.0		0.1
Benefits paid		(2.0)		(2.5)
Plan amendment		-		(3.0)
Accumulated postretirement benefit obligation, end of year		11.6		12.1
Fair value of plan assets, end of year		-		-
Funded status of plans	$	(11.6)	$	(12.1)

Schedule of Expected Benefit Payments

YEARS ENDING DECEMBER 31
(in millions)
2017	$	1.4
2018		1.3
2019		1.2
2020		1.1
2021		1.0
2022 - 2026		4.1

Components of Net Periodic Pension Cost

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Service cost	$	-	$	-	$	0.1
Interest cost		0.5		0.5		0.8
Recognized net actuarial loss		0.2		0.2		0.1
Amortization of prior service cost (benefit)		(1.4)		(1.4)		(1.9)
Net periodic postretirement benefit	$	(0.7)	$	(0.7)	$	(0.9)

Accumulated Other Comprehensive (Income) Loss Related to Postretirement Benefit Plans

DECEMBER 31		2016		2015
(in millions)
Net actuarial loss	$	4.1	$	3.3
Net prior service cost		(1.8)		(3.3)
	$	2.3	$	-

Summary of Estimated Amount Amortized From Accumulated Other Comprehensive Income (Loss) Into Net Periodic Pension Cost

Estimated Amortization in 2017		Expense (Benefit)
(in millions)
Net actuarial loss	$	0.2
Net prior service cost		(1.4)
	$	(1.2)

Summary of Weighted-Average Assumptions Used to Determine Pension Benefit Obligations

YEARS ENDED DECEMBER 31	2016	2015
Postretirement benefit obligations discount rate	4.13%	4.63%
Postretirement benefit cost discount rate	4.63%	4.38%

Assumed Health Care Cost Trend Rates

DECEMBER 31	2016	2015
Health care cost trend rate assumed for next year	6.50%	7.00%
Rate to which the cost trend is assumed to decline (ultimate trend rate)	4.50%	5.00%
Year the rate reaches the ultimate trend rate	2024	2020

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Other Comprehensive Income (Tables)

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Changes in Other Comprehensive Income

YEARS ENDED
DECEMBER 31	2016						2015						2014
				Tax						Tax						Tax
				Benefit		Net of				Benefit		Net of				Benefit		Net of
(in millions)		Pre-Tax		(Expense)		Tax		Pre-Tax		(Expense)		Tax		Pre-Tax		(Expense)		Tax
Unrealized gains (losses) on
available-for-sale securities:
Unrealized gains (losses)
arising during period (net of pre-tax, ceded unrealized gains of $0.8 million  for the year ended December 31, 2014)	$	95.9	$	(33.4)	$	62.5	$	(199.3)	$	69.5	$	(129.8)	$	138.7	$	(45.7)	$	93.0
Amount of realized gains
from sales and other		(36.5)		(8.0)		(44.5)		(39.6)		0.7		(38.9)		(55.3)		0.3		(55.0)
Portion of other-than-
temporary impairment losses recognized in earnings		27.9		(9.8)		18.1		27.2		(9.5)		17.7		5.5		(1.9)		3.6
Net unrealized gains
(losses)		87.3		(51.2)		36.1		(211.7)		60.7		(151.0)		88.9		(47.3)		41.6
Pension and postretirement
benefits:
Net (loss) gain arising in the
period from net actuarial (losses) gains and prior service costs		(43.1)		12.8		(30.3)		(3.5)		0.7		(2.8)		(33.6)		11.0		(22.6)
Loss on settlement of pension
obligation		-		-		-		-		-		-		12.1		(4.2)		7.9
Amortization of net
actuarial loss and prior service cost recognized as net periodic benefit cost		9.9		(3.5)		6.4		12.7		(4.2)		8.5		10.0		(3.5)		6.5
Cumulative foreign currency
translation adjustment:
Foreign currency
translation recognized during the period		(5.1)		1.8		(3.3)		(11.1)		3.9		(7.2)		(7.1)		2.5		(4.6)
Other comprehensive income
(loss)	$	49.0	$	(40.1)	$	8.9	$	(213.6)	$	61.1	$	(152.5)	$	70.3	$	(41.5)	$	28.8

Reclassifications Out of Accumulated Other Comprehensive Income

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
	Amount Reclassified from
Details about Accumulated Other	Accumulated						Affected Line Item in the Statement
Comprehensive Income Components	Other Comprehensive Income						Where Net Income is Presented
Unrealized gains (losses) on available-for-
sale securities	$	36.4	$	39.9	$	55.2	Net realized gains from sales and other
							Net other-than-temporary impairment losses
		(27.9)		(26.8)		(5.5)	on investments recognized in earnings
		8.5		13.1		49.7	Total before tax
		17.8		8.7		1.6	Tax benefit
		26.3		21.8		51.3
		(0.1)		(0.6)		0.1	Other, net of tax
		26.2		21.2		51.4	Net of tax
Amortization of defined benefit pension							Loss adjustment expenses and other
and postretirement plans		(9.9)		(12.7)		(22.1)	operating expenses
		3.5		4.2		7.7	Tax benefit
		(6.4)		(8.5)		(14.4)	Net of tax
Total reclassifications for the period	$	19.8	$	12.7	$	37.0	Net of tax

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Stock-based Compensation Plans (Tables)

12 Months Ended

Dec. 31, 2016

Stock-based Compensation Plans [Abstract]

Summary of Stock Option Plan Activity

YEARS ENDED DECEMBER 31	2016			2015			2014
(in whole shares and dollars)	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price
Outstanding, beginning of year	1,619,948	$	56.57	2,236,620	$	46.61	2,049,173	$	41.18
Granted	587,340		82.17	663,900		70.34	687,700		58.06
Exercised	(589,666)		48.99	(1,051,664)		44.47	(444,200)		39.33
Forfeited or cancelled (1)	(221,470)		68.61	(228,908)		54.78	(56,053)		45.99
Outstanding, end of year (1)	1,396,152	$	68.63	1,619,948	$	56.57	2,236,620	$	46.61
Exercisable, end of year	441,256	$	53.59	360,585	$	46.10	726,321	$	43.55

Included in outstanding shares at the end of 2015 in this table and in subsequent metrics were 128,334 options that were previously granted to the Company’s former CEO. These options were subsequently forfeited in 2016 and are included in the table in the amounts forfeited or cancelled in 2016.

Schedule of Stock Options by Exercise Price Range

		Options Outstanding				Options Currently Exercisable
Range of Exercise Prices		Number	Weighted Average Remaining Contractual Lives		Weighted Average Exercise Price	Number		Weighted Average Exercise Price
$	34.19 to $46.47	188,603	5.15	$	40.64	188,603	$	40.64
$	57.99 to $62.57	269,907	7.15		58.05	145,994		58.06
$	69.09 to $73.30	381,182	8.17		70.30	105,910		70.30
$	74.88 to $90.42	556,460	9.38		82.11	749		79.54

Schedule of Stock Option Valuation Assumptions

	2016		2015		2014
Dividend yield	2.04% to 2.46	%	2.03% to 2.37	%	2.07% to 2.55	%
Expected volatility	18.08% to 21.31	%	17.63% to 22.24	%	18.07% to 24.38	%
Weighted average expected volatility	19.57	%	20.19	%	23.00	%
Risk-free interest rate	0.77% to 1.97	%	0.70% to 1.75	%	0.53% - 1.92	%
Expected term, in years	2.5 to 5.5		2.5 to 5.5		2.5 to 5.5

Summary of Restricted Stock Activity

YEARS ENDED DECEMBER 31	2016			2015			2014
	Shares		Weighted Average Grant Date Fair Value	Shares		Weighted Average Grant Date Fair Value	Shares		Weighted Average Grant Date Fair Value
Time-based restricted stock
units:
Outstanding, beginning of
year	301,897	$	54.54	384,923	$	45.63	525,980	$	41.20
Granted	143,107		83.43	93,631		70.75	102,131		58.78
Vested	(139,183)		42.97	(138,307)		41.22	(231,078)		41.45
Forfeited	(36,758)		69.07	(38,350)		52.75	(12,110)		43.67
Outstanding, end of year	269,063	$	73.91	301,897	$	54.54	384,923	$	45.63
Performance and market-based
restricted stock units:
Outstanding, beginning of
year	196,142	$	47.89	218,338	$	44.24	184,626	$	40.42
Granted	126,796		73.42	82,025		48.55	60,338		55.73
Vested	(144,141)		40.95	(82,748)		38.99	(22,826)		44.78
Forfeited (1)	(63,740)		58.54	(21,473)		47.53	(3,800)		37.90
Outstanding, end of year (1)	115,057	$	78.82	196,142	$	47.89	218,338	$	44.24

Included in outstanding shares at the end of 2015 were 56,500 market-based restricted stock units that were previously granted to the Company’s former CEO. These units were subsequently forfeited in 2016 and are included above in the amounts forfeited in 2016.

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Earnings Per Share and Shareholders' Equity Transactions (Tables)

12 Months Ended

Dec. 31, 2016

Earnings Per Share and Shareholders’ Equity Transactions [Abstract]

Information Regarding Basic and Diluted Earnings Per Share

DECEMBER 31		2016		2015		2014
(in millions, except per share data)
Basic shares used in the calculation of earnings per share		42.8		43.9		44.0
Dilutive effect of securities:
Employee stock options		0.2		0.5		0.5
Non-vested stock grants		0.2		0.4		0.4
Diluted shares used in the calculation of earnings per share		43.2		44.8		44.9
Per share effect of dilutive securities on income from continuing operations	$	(0.04)	$	(0.14)	$	(0.12)
Per share effect of dilutive securities on net income	$	(0.04)	$	(0.15)	$	(0.13)

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Segment Information (Tables)

12 Months Ended

Dec. 31, 2016

Segment Information [Abstract]

Financial Information with Respect to Business Segments

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Operating revenues:
Commercial Lines	$	2,485.0	$	2,391.7	$	2,239.0
Personal Lines		1,552.4		1,511.3		1,491.0
Chaucer		891.4		1,104.1		1,279.7
Other		8.4		7.4		7.8
Total		4,937.2		5,014.5		5,017.5
Net realized investment gains		8.6		19.5		50.1
Total revenues	$	4,945.8	$	5,034.0	$	5,067.6
Operating income (loss) before interest expense and income taxes:
Commercial Lines:
Underwriting loss	$	(122.0)	$	(12.7)	$	(8.3)
Net investment income		158.5		156.3		149.4
Other expense		(0.6)		(0.3)		(1.2)
Commercial Lines operating income		35.9		143.3		139.9
Personal Lines:
Underwriting income		103.8		72.0		22.1
Net investment income		69.5		72.5		71.9
Other income		5.1		4.8		5.0
Personal Lines operating income		178.4		149.3		99.0
Chaucer:
Underwriting income		80.3		131.5		122.5
Net investment income		45.7		45.9		44.2
Other income		0.8		6.3		10.9
Chaucer operating income		126.8		183.7		177.6
Other:
Underwriting loss		(10.8)		(1.9)		(3.1)
Net investment income		5.7		4.4		4.8
Other expense		(13.2)		(12.7)		(11.4)
Other operating loss		(18.3)		(10.2)		(9.7)
Operating income before interest expense and income taxes		322.8		466.1		406.8
Interest on debt		(54.9)		(60.6)		(65.8)
Operating income before income taxes		267.9		405.5		341.0
Non-operating income items:
Net realized investment gains		8.6		19.5		50.1
Net loss from repayment of debt		(88.3)		(24.1)		(0.1)
Net gain on disposal of U.K. motor business		1.1		38.4		-
Loss from settlement of pension obligation		-		-		(12.1)
Other non-operating items		3.0		0.1		(0.9)
Income before income taxes	$	192.3	$	439.4	$	378.0

Identifiable Assets by Business Segment

DECEMBER 31		2016		2015
(in millions)	Identifiable Assets
U.S. Companies	$	10,225.4	$	9,616.0
Chaucer		3,915.5		4,082.2
Discontinued operations		79.5		83.0
Total	$	14,220.4	$	13,781.2

Gross Written Premium by Geographical Area

YEARS ENDED DECEMBER 31	2016	2015	2014
	% of Total GPW
United States	85%	81%	78%
United Kingdom	-	4%	6%
Worldwide and other	15%	15%	16%
Total	100%	100%	100%

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Reinsurance (Tables)

12 Months Ended

Dec. 31, 2016

Reinsurance [Abstract]

Schedule of Effects of Reinsurance

YEARS ENDED DECEMBER 31		2016			2015			2014
(in millions)
Premiums written:
Direct	$	4,826.0		$	4,811.3		$	4,777.3
Assumed (1)		571.4			633.2			688.1
Ceded (2) (3)		(698.6)			(827.7)			(655.3)
Net premiums written	$	4,698.8		$	4,616.8		$	4,810.1
Premiums earned:
Direct	$	4,746.6		$	4,814.4		$	4,679.8
Assumed (1)		601.7			655.6			696.4
Ceded (2) (3)		(720.2)			(765.2)			(665.9)
Net premiums earned	$	4,628.1		$	4,704.8		$	4,710.3
Percentage of assumed to net premiums earned		13.00	%		13.93	%		14.78	%
Losses and LAE:
Direct	$	3,188.2		$	3,008.5		$	3,019.4
Assumed (1)		289.4			312.4			266.1
Ceded (2) (4)		(512.9)			(436.8)			(358.0)
Net losses and LAE	$	2,964.7		$	2,884.1		$	2,927.5

(1) Assumed reinsurance activity primarily relates to the Chaucer segment.

(2) Effective June 30, 2015, the Company transferred its U.K. motor business through a 100% reinsurance arrangement. This transaction resulted in the increase of approximately $196 million, $133 million and $90 million for ceded premiums written, premiums earned and losses and LAE, respectively, for the year ended December 31, 2015. See also “Disposal of U.K. Motor Business” in Note 2 – “Dispositions of Businesses”.

(3) The decrease in ceded reinsurance premiums from 2015 to 2016 is primarily due to the above mentioned non-recurring U.K. motor activity in 2015, partially offset by a planned increase in Chaucer’s ceded reinsurance premiums as the Company continues to manage its overall underwriting risk.

The increase in ceded losses and LAE from 2015 to 2016 is primarily due to the aforementioned increase in Chaucer’s reinsurance purchases in 2016 and due to a higher level of ceded large loss activity in certain Chaucer and domestic lines in 2016. These increases in ceded losses and LAE were partially offset by the above mentioned non-recurring U.K. motor activity in 2015.

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Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses (Tables)

12 Months Ended

Dec. 31, 2016

Schedule of Liability for Unpaid Losses and Loss Adjustment Expenses

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Gross loss and LAE reserves, beginning of year	$	6,574.4	$	6,391.7	$	6,231.5
Reinsurance recoverable on unpaid losses		2,280.8		1,983.0		2,030.4
Net loss and LAE reserves, beginning of year		4,293.6		4,408.7		4,201.1
Net incurred losses and LAE in respect of losses occurring in:
Current year		2,859.3		3,000.2		3,044.9
Prior years		105.4		(116.1)		(117.4)
Total incurred losses and LAE		2,964.7		2,884.1		2,927.5
Net payments of losses and LAE in respect of losses occurring in:
Current year		1,142.7		1,245.6		1,328.7
Prior years		1,367.2		1,418.4		1,398.9
Total payments		2,509.9		2,664.0		2,727.6
Commutation of Chaucer Flagstone reinsurance agreement		-		-		85.7
Transfer of U.K. motor business		-		(300.6)		-
Effect of foreign exchange rate changes		(73.8)		(34.6)		(78.0)
Net reserve for losses and LAE, end of year		4,674.6		4,293.6		4,408.7
Reinsurance recoverable on unpaid losses		2,274.8		2,280.8		1,983.0
Gross reserve for losses and LAE, end of year	$	6,949.4	$	6,574.4	$	6,391.7

Schedule of (Favorable)/Unfavorable Loss and LAE Reserve Development

YEARS ENDED DECEMBER 31		2016		2015		2014
(in millions)
Commercial multiple peril	$	68.8	$	11.6	$	(2.5)
Workers’ compensation		(46.7)		(46.9)		(5.6)
Commercial automobile		27.5		23.3		15.1
Other commercial lines:
AIX program business		75.1		74.7		10.9
General liability		56.0		14.3		2.3
Surety		35.3		1.5		(5.2)
Umbrella		(8.9)		(17.8)		(1.4)
Other lines		12.2		(13.5)		0.5
Total other commercial lines		169.7		59.2		7.1
Total Commercial Lines Segment		219.3		47.2		14.1
Personal automobile		4.8		(7.2)		(5.9)
Homeowners and other personal lines		5.8		(3.4)		0.8
Total Personal Lines Segment		10.6		(10.6)		(5.1)
Total Chaucer Segment		(132.8)		(153.0)		(127.8)
Total Other Segment		8.3		0.3		1.4
Total loss and LAE reserve development, including catastrophes	$	105.4	$	(116.1)	$	(117.4)

Schedule of Carried Reserves

YEAR ENDED DECEMBER 31,	2016						2015
(in millions)	Gross		Ceded		Net		Gross		Ceded		Net
Commercial multiple peril	$	978.0	$	(82.1)	$	895.9	$	813.1	$	(59.2)	$	753.9
Workers’ compensation		715.5		(171.4)		544.1		713.1		(178.0)		535.1
Commercial automobile liability		431.7		(27.2)		404.5		390.3		(28.4)		361.9
Other lines		980.8		(195.6)		785.2		757.7		(159.2)		598.5
Total Commercial Lines and other		3,106.0		(476.3)		2,629.7		2,674.2		(424.8)		2,249.4
Personal automobile liability		1,416.8		(865.6)		551.2		1,395.0		(863.5)		531.5
Homeowners and other personal lines		137.2		(7.3)		129.9		132.7		(7.0)		125.7
Total Personal Lines		1,554.0		(872.9)		681.1		1,527.7		(870.5)		657.2
Chaucer core lines		1,832.4		(552.5)		1,279.9		1,767.6		(508.5)		1,259.1
Chaucer reinsured and run-off lines		457.0		(373.1)		83.9		604.9		(477.0)		127.9
Total Chaucer		2,289.4		(925.6)		1,363.8		2,372.5		(985.5)		1,387.0
Total loss and LAE reserves	$	6,949.4	$	(2,274.8)	$	4,674.6	$	6,574.4	$	(2,280.8)	$	4,293.6

Schedule of Incurred Claims Development

Commercial multiple peril
(in millions)													As of
Incurred Losses and ALAE, Net of Reinsurance													December 31, 2016
YEARS ENDED DECEMBER 31,															Cumulative
															Incurred
Accident		2011		2012		2013		2014		2015					Claim
Year		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2011	$	455.4	$	453.3	$	469.1	$	478.8	$	494.7	$	505.4	$	17.2	19,163
2012				480.0		462.8		456.2		459.7		475.6		20.5	17,054
2013						380.0		362.5		367.9		391.8		33.9	14,911
2014								443.9		439.6		464.8		62.9	16,102
2015										446.0		456.3		100.1	15,810
2016												447.1		181.7	15,512
Total											$	2,741.0
Cumulative Paid Losses and ALAE, Net of Reinsurance
YEARS ENDED DECEMBER 31,
Accident		2011		2012		2013		2014		2015
Year		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016
2011	$	217.8	$	328.5	$	381.5	$	418.6	$	454.0	$	471.5
2012				175.8		307.5		350.8		389.3		424.2
2013						137.6		221.5		262.3		306.4
2014								171.7		267.8		316.0
2015										161.9		260.1
2016												140.3
Total											$	1,918.5

Total reserves for 2011 – 2016 accident years (incurred - paid)		822.5
Total reserves for 2010 and prior accident years		55.7
Unallocated loss adjustment expense		17.7
Net reserves at December 31, 2016	$	895.9

Workers' compensation
(in millions)																						As of
Incurred Losses and ALAE, Net of Reinsurance																						December 31, 2016
YEARS ENDED DECEMBER 31,																								Cumulative
																								Incurred
Accident			2007		2008		2009		2010		2011		2012		2013		2014		2015					Claim
Year			Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2007	(1)	$	79.2	$	82.2	$	80.5	$	78.6	$	77.3	$	76.5	$	75.6	$	75.8	$	75.1	$	74.9	$	1.3	7,591
2008	(1)				88.9		93.9		88.0		81.5		81.5		80.6		79.8		80.5		80.4		1.6	8,930
2009							93.8		87.6		82.5		80.3		79.4		79.2		77.5		77.5		1.2	8,014
2010									115.5		116.9		115.8		115.9		116.3		114.9		114.7		2.6	10,152
2011											141.4		144.2		144.3		145.5		143.8		146.7		7.5	12,428
2012													176.3		171.1		165.2		157.2		162.9		12.6	12,983
2013															179.3		167.4		160.1		154.4		15.6	11,612
2014																	182.1		172.9		154.7		22.3	10,748
2015																			189.6		164.2		38.2	11,158
2016																					189.6		75.1	14,103
Total																				$	1,320.0
Cumulative Paid Losses and ALAE, Net of Reinsurance
YEARS ENDED DECEMBER 31,
Accident			2007		2008		2009		2010		2011		2012		2013		2014		2015
Year			Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016
2007	(1)	$	15.1	$	34.9	$	46.5	$	54.4	$	59.6	$	62.0	$	63.9	$	65.5	$	66.5	$	67.3
2008	(1)				17.9		40.2		52.9		60.8		64.8		67.1		69.8		71.0		72.4
2009							19.2		41.2		54.6		61.6		65.4		68.6		69.8		70.8
2010									22.1		57.2		76.9		89.5		96.5		101.0		104.2
2011											30.0		71.3		97.3		114.0		122.9		128.0
2012													30.4		74.8		102.6		120.1		130.7
2013															30.9		74.6		101.2		114.0
2014																	30.6		70.5		92.3
2015																			28.0		65.7
2016																					33.9
Total																				$	879.3

Total reserves for 2007 – 2016 accident years (incurred - paid)		440.7
Total reserves for 2006 and prior accident years		87.5
Unallocated loss adjustment expense and other		15.9
Net reserves at December 31, 2016	$	544.1

(1) The incurred and cumulative paid losses and ALAE, IBNR and incurred claim counts retroactively include AIX business for all periods presented, including those periods that pre-date the acquisition of AIX on November 30, 2008.

Commercial automobile liability
(in millions)													As of
Incurred Losses and ALAE, Net of Reinsurance													December 31, 2016
YEARS ENDED DECEMBER 31,															Cumulative
															Incurred
Accident		2011		2012		2013		2014		2015					Claim
Year		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2011	$	120.4	$	142.1	$	148.0	$	162.8	$	177.0	$	179.6	$	2.4	15,457
2012				166.8		167.5		173.7		189.9		198.0		5.7	14,786
2013						177.7		179.4		205.3		227.5		16.7	15,309
2014								168.5		163.3		177.3		28.7	13,464
2015										163.4		168.3		51.0	12,723
2016												157.0		87.6	10,748
Total											$	1,107.7
Cumulative Paid Losses and ALAE, Net of Reinsurance
YEARS ENDED DECEMBER 31,
Accident		2011		2012		2013		2014		2015
Year		Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016
2011	$	27.7	$	64.7	$	102.4	$	135.5	$	160.5	$	170.2
2012				33.3		77.0		117.0		156.9		176.3
2013						35.9		89.6		137.6		176.3
2014								33.1		70.8		102.7
2015										32.2		63.8
2016												27.8
Total											$	717.1

Total reserves for 2011 – 2016 accident years (incurred - paid)		390.6
Total reserves for 2010 and prior accident years		9.6
Unallocated loss adjustment expense		4.3
Net reserves at December 31, 2016	$	404.5

Personal automobile liability
(in millions)											As of
Incurred Losses and ALAE, Net of Reinsurance											December 31, 2016
YEARS ENDED DECEMBER 31,													Cumulative
													Incurred
Accident		2012		2013		2014		2015					Claim
Year		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2012	$	358.4	$	366.9	$	366.3	$	376.5	$	379.8	$	5.7	51,700
2013				348.2		339.6		338.3		343.0		6.5	49,278
2014						323.1		304.1		308.8		15.1	43,268
2015								327.4		334.1		40.5	41,989
2016										337.9		109.7	39,477
Total									$	1,703.6
Cumulative Paid Losses and ALAE, Net of Reinsurance
YEARS ENDED DECEMBER 31,
Accident		2012		2013		2014		2015
Year		Unaudited		Unaudited		Unaudited		Unaudited		2016
2012	$	126.6	$	234.6	$	305.1	$	342.2	$	361.8
2013				115.3		210.5		273.3		310.1
2014						107.2		188.6		241.1
2015								112.9		205.4
2016										112.8
Total									$	1,231.2

Total reserves for 2012 – 2016 accident years (incurred - paid)		472.4
Total reserves for 2011 and prior accident years		66.5
Unallocated loss adjustment expense		12.3
Net reserves at December 31, 2016	$	551.2

Chaucer core lines
(in millions)														As of
Incurred Losses and ALAE, Net of Reinsurance (1)														December 31, 2016
YEARS ENDED DECEMBER 31,																Cumulative
																Incurred
Accident			2011		2012		2013		2014		2015					Claim
Year			Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016	IBNR		Count
2011	(2)	$	640.9	$	597.7	$	605.3	$	586.0	$	586.2	$	575.7	$	33.4	6,940
2012					420.5		337.2		342.4		325.0		318.0		31.5	5,690
2013							418.2		381.8		369.4		360.1		54.0	5,618
2014									457.7		391.6		397.1		80.4	6,934
2015											488.4		410.5		136.8	7,216
2016													505.2		329.9	4,404
Total												$	2,566.6
Cumulative Paid Losses and ALAE, Net of Reinsurance (1)
YEARS ENDED DECEMBER 31,
Accident			2011		2012		2013		2014		2015
Year			Unaudited		Unaudited		Unaudited		Unaudited		Unaudited		2016
2011	(2)	$	134.2	$	296.3	$	391.0	$	438.6	$	489.3	$	513.2
2012					55.4		144.7		200.0		228.7		246.7
2013							58.2		158.4		228.4		257.5
2014									52.0		162.2		227.8
2015											52.5		146.8
2016													79.1
Total												$	1,471.1

Total reserves for 2011 – 2016 accident years (incurred - paid)		1,095.5
Total reserves for 2010 and prior accident years		129.5
Reserves for nuclear energy classes		31.8
Unallocated loss adjustment expense and other		23.1
Net reserves at December 31, 2016	$	1,279.9

(1) Chaucer incurred losses and ALAE and paid losses and ALAE that are denominated in foreign currencies are converted to U.S. dollars as of December 31, 2016, the most recent balance sheet date, for all years presented.

(2) The incurred and cumulative paid losses and ALAE, IBNR and reported claim counts retroactively includes the 6 month period that pre-dates the acquisition of Chaucer on July 1, 2011. Additionally, during 2011 Chaucer experienced an elevated level of high severity catastrophe events. For example, three such events, the February 2011 New Zealand earthquake, March 2011 Japanese tsunami and October 2011 Thailand floods totaled approximately $125 million of incurred losses, and each event was in excess of $30 million. Chaucer experienced no catastrophe events in excess of $30 million from 2012 through 2016.

Computation of Historical Claims on Paid and Incurred Claims Data, Net of Reinsurance

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance:
Unaudited
	1	2	3	4	5	6	7	8	9	10
Commercial multiple peril	36.5%	22.6%	10.1%	8.9%	7.2%	3.5%
Workers' compensation	20.0%	27.3%	16.5%	10.1%	5.9%	3.5%	2.6%	1.6%	1.6%	1.0%
Commercial automobile liability	17.3%	21.3%	20.1%	18.5%	11.9%	5.4%
Personal automobile liability	33.8%	27.6%	17.9%	10.3%	5.2%
Chaucer core lines	16.4%	27.0%	17.5%	8.4%	7.2%	4.1%

U.S. Companies

Schedule of (Favorable)/Unfavorable Loss and LAE Reserve Development

(in millions)
Commercial multiple peril	$	43.7
Workers’ compensation		(32.0)
Commercial automobile		18.4
Other commercial lines:
AIX program business		49.6
General liability		45.2
Surety		37.9
Umbrella		(9.4)
Other lines		8.1
Total other commercial lines		131.4
Total Commercial Lines Segment		161.5
Personal automobile		8.2
Homeowners and other personal lines		(3.0)
Total Personal Lines Segment		5.2
Total Other Segment		7.4
Total domestic business loss and LAE reserve development, excluding catastrophes(1)	$	174.1

For the three months ended December 31, 2016, prior year reserve development for catastrophes was favorable of $2.0 million for the domestic business.

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Statutory Financial Information (Tables)

12 Months Ended

Dec. 31, 2016

Statutory Financial Information [Abstract]

Statutory Accounting Practices Disclosure

(in millions)		2016		2015		2014
Statutory Net Income
U.S. Insurance Subsidiaries	$	158.0	$	175.9	$	204.3
Statutory Capital and Surplus
U.S. Insurance Subsidiaries	$	2,173.4	$	2,192.8	$	2,057.1

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Quarterly Results of Operations (Tables)

12 Months Ended

Dec. 31, 2016

Quarterly Results of Operations [Abstract]

Schedule of Quarterly Financial Information

THREE MONTHS ENDED
(in millions, except per share data)
2016		March 31		June 30		Sept. 30		Dec. 31
Total revenues	$	1,227.6	$	1,222.0	$	1,241.2	$	1,255.0
Income (loss) from continuing operations	$	78.1	$	1.9	$	88.3	$	(12.2)
Net income (loss)	$	78.2	$	2.0	$	88.4	$	(13.5)
Income (loss) from continuing operations per share:
Basic	$	1.82	$	0.04	$	2.07	$	(0.29)
Diluted(1)	$	1.79	$	0.04	$	2.06	$	(0.29)
Net income (loss) per share:
Basic	$	1.82	$	0.05	$	2.07	$	(0.32)
Diluted(1)	$	1.80	$	0.05	$	2.06	$	(0.32)
Dividends declared per share	$	0.46	$	0.46	$	0.46	$	0.50
(1)  Per diluted share amounts in the fourth quarter exclude commons stock equivalents since the impact of these instruments was
antidilutive.
In the second quarter of 2016, the Company issued $375 million aggregate principal amount of 4.5% senior unsecured debentures.
The net proceeds were used, together with cash on hand, to redeem outstanding senior notes, resulting in a pre-tax loss of $86.1
million. The after-tax effect of this loss was to decrease diluted earnings per share from income from continuing operations in the
quarter by $1.29. See also Note 6 - "Debt and Credit Arrangements" for further information
In the fourth quarter of 2016, the Company recorded an adjustment to increase carried reserves for prior accident years by $174.1
million. The after-tax effect of this charge was to decrease diluted earnings per share from income from continuing operations in the
quarter by $2.66. See also "2016 Fourth Quarter Domestic Business Loss and LAE Reserve Increase" in Note 17 - "Liabilities for
Outstanding Claims, Losses and Loss Adjustment Expenses" for further information.
THREE MONTHS ENDED
(in millions, except per share data)
2015		March 31		June 30		Sept. 30		Dec. 31
Total revenues	$	1,298.7	$	1,297.1	$	1,233.5	$	1,204.7
Income from continuing operations	$	54.9	$	120.9	$	77.2	$	77.8
Net income	$	54.9	$	120.7	$	78.3	$	77.6
Income from continuing operations per share:
Basic	$	1.24	$	2.74	$	1.75	$	1.80
Diluted	$	1.22	$	2.69	$	1.72	$	1.76
Net income per share:
Basic	$	1.24	$	2.73	$	1.78	$	1.79
Diluted	$	1.22	$	2.68	$	1.74	$	1.76
Dividends declared per share	$	0.41	$	0.41	$	0.41	$	0.46

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Summary Of Significant Accounting Policies (Details) - USD ($)									12 Months Ended
	Apr. 01, 2020	Mar. 31, 2020	Apr. 01, 2017	Mar. 31, 2017	Apr. 01, 2015	Mar. 31, 2015	Apr. 01, 2014	Mar. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Summary Of Significant Accounting Policies [Line Items]
Goodwill									$ 184,800,000	$ 186,000,000
Impairment recognized									$ 0	$ 0
U.S. federal income tax rate									35.00%
Current exchange rate between GBP and US dollars									1.23	1.47
Net foreign currency transaction gains									$ 22,300,000	$ 8,500,000	$ 3,300,000
Euro Denominated Securities [Member]
Summary Of Significant Accounting Policies [Line Items]
Net foreign currency transaction gains									700,000	3,400,000	$ 1,300,000
Chaucer [Member]
Summary Of Significant Accounting Policies [Line Items]
Goodwill									6,000,000	7,200,000
Intangible assets									$ 47,000,000	$ 56,200,000
Company's balance of intangible assets									76.00%	74.00%
U.K. [Member]
Summary Of Significant Accounting Policies [Line Items]
Non-U.S. jurisdiction income tax rate					20.00%	21.00%	21.00%	23.00%
U.K. [Member] | Scenario, Forecast [Member]
Summary Of Significant Accounting Policies [Line Items]
Non-U.S. jurisdiction income tax rate			19.00%	20.00%
Minimum [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, equipment and leasehold improvements, estimated useful lives									3 years
Minimum [Member] | U.K. [Member] | Scenario, Forecast [Member]
Summary Of Significant Accounting Policies [Line Items]
Non-U.S. jurisdiction income tax rate	17.00%	19.00%
Minimum [Member] | Software [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, equipment and leasehold improvements, estimated useful lives									5 years
Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, equipment and leasehold improvements, estimated useful lives									30 years
Maximum [Member] | U.K. [Member] | Scenario, Forecast [Member]
Summary Of Significant Accounting Policies [Line Items]
Non-U.S. jurisdiction income tax rate	18.00%	19.00%
Maximum [Member] | Software [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, equipment and leasehold improvements, estimated useful lives									7 years

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Dispositions Of Businesses (Narrative) (Details) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2015 USD ($) entity	Dec. 31, 2016 USD ($)		Dec. 31, 2015 USD ($)		Dec. 31, 2014 USD ($)
Significant Acquisitions and Disposals [Line Items]
Reinsurance arrangement	100.00%
Entites sold | entity	2
Proceeds	$ 64.9
Net gain	40.6
Insurance liabilities ceded	443.0
Written premiums ceded	137.4	$ 698.6	[1],[2]	$ 827.7	[1],[2]	$ 655.3	[1],[2]
Investments, cash, and premiums receivable transferred	419.0
DAC balance written off	$ 25.0
Assets of discontinued operations		79.5		83.0
Liabilities of discontinued operations		86.2		88.4
Net (loss) gain from discontinued operations (net of income tax (benefit) expense		(1.0)		0.7		$ (0.3)
Discontinued Accident And Health Insurance Business [Member]
Significant Acquisitions and Disposals [Line Items]
Assets of discontinued operations		57.6		54.5
Liabilities of discontinued operations		$ 49.3		$ 46.5

[1] Effective June 30, 2015, the Company transferred its U.K. motor business through a 100% reinsurance arrangement. This transaction resulted in the increase of approximately $196 million, $133 million and $90 million for ceded premiums written, premiums earned and losses and LAE, respectively, for the year ended December 31, 2015. See also "Disposal of U.K. Motor Business" in Note 2 - "Dispositions of Businesses".

[2] The decrease in ceded reinsurance premiums from 2015 to 2016 is primarily due to the above mentioned non-recurring U.K. motor activity in 2015, partially offset by a planned increase in Chaucer's ceded reinsurance premiums as the Company continues to manage its overall underwriting risk.

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Dispositions Of Businesses (Components of Gain From Disposal of U.K. Motor Business) (Details) - USD ($) $ in Millions		6 Months Ended	12 Months Ended
		Jun. 30, 2015	Dec. 31, 2016	Dec. 31, 2015
Significant Acquisitions and Disposals [Line Items]
Total consideration		$ 64.9
Pre-tax gain			$ (1.1)	$ (38.4)
Net gain		40.6
Disposal Group, Disposed of by Sale, Not Discontinued Operations [Member]
Significant Acquisitions and Disposals [Line Items]
Total consideration		64.9
Carrying value of subsidiaries		(7.6)
Intangibles and goodwill disposed	[1]	(17.7)
Transaction expenses and employee-related and other costs	[2]	(7.7)
Realized gain on investments transferred as part of reinsurance agreement	[3]	5.8
Other items		0.7
Pre-tax gain		38.4
Income tax benefit		2.2
Net gain		40.6
Indefinite-lived intangible assets		17.2
Goodwill		$ 0.5

[1] Reflects $17.2 million of indefinite-lived intangible assets associated with the U.K. motor business upon THG's purchase of Chaucer in July 2011 and $0.5 million of goodwill.

[2] Transaction costs include legal, actuarial and other professional fees.

[3] As part of the reinsurance agreement, investments were transferred, resulting in the recognition of net realized investment gains that were previously reflected in accumulated other comprehensive income.

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Investments (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Schedule of Investments [Line Items]
Net unrealized gains on impaired securities	$ 21,400,000	$ 1,100,000
Cash collateral maintained	102.00%
Restricted assets, fixed maturities	$ 491,200,000	440,600,000
Restricted assets, cash and cash equivalents	6,300,000	7,000,000
Net appreciation on other invested assets	$ 2,500,000	2,200,000	$ 2,600,000
Concentration of investment in a iingle investee, maximum	10.00%
Contractual investment commitments	$ 128,800,000
Other investments	533,800,000	393,400,000
Due in one year or less, Amortized Cost	373,300,000
Due in year four, Amortized Cost	3,132,100,000
Overseas Deposit [Member]
Schedule of Investments [Line Items]
Other investments	102,200,000	100,900,000
Federal Home Loan Mortgage Corp.
Schedule of Investments [Line Items]
Marketable securities, fixed maturities	542,200,000	467,900,000
Federal National Mortgage Association [Member]
Schedule of Investments [Line Items]
Marketable securities, fixed maturities		298,100,000
Mortgage Participations [Member]
Schedule of Investments [Line Items]
Restricted assets, fixed maturities at carrying value	295,900,000
Security Lending Program
Schedule of Investments [Line Items]
Securities on loan, fair value	29,900,000	36,200,000
U.S. Treasury and government agencies
Schedule of Investments [Line Items]
Securities on loan, fair value	251,600,000	217,400,000
Fixed maturities deposit, amortized cost	238,500,000	206,500,000
Collateralized Borrowings And Other Arrangements
Schedule of Investments [Line Items]
Securities on loan, fair value	217,900,000	188,100,000
Federal Home Loan Bank of Boston
Schedule of Investments [Line Items]
Securities on loan, fair value	201,800,000	176,000,000
Mortgage loans on real estate
Schedule of Investments [Line Items]
Other investments	297,600,000	200,900,000
Due in one year or less, Amortized Cost	500,000
Due in year two, Amortized Cost	0
Due in year three, Amortized Cost	0
Due in year four, Amortized Cost	10,000,000
Due in year five, Amortized Cost	50,000,000
Due in year six and thereafter, Amortized Cost	237,100,000
Limited Partnership [Member]
Schedule of Investments [Line Items]
Other investments	$ 121,300,000	$ 79,900,000

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Investments (Schedule of Available-for-sale Securities Reconciliation) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost or Cost	$ 7,235.1	$ 6,934.0
Gross Unrealized Gains	178.5	164.3
Gross Unrealized Losses	82.3	114.9
Fair Value	7,331.3	6,983.4
OTTI Unrealized Losses	16.2	27.8
U.S. Treasury and government agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost or Cost	342.5	447.1
Gross Unrealized Gains	3.7	5.5
Gross Unrealized Losses	5.1	3.5
Fair Value	341.1	449.1
Foreign government
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost or Cost	235.8	244.7
Gross Unrealized Gains	5.4	2.6
Gross Unrealized Losses	0.5	1.5
Fair Value	240.7	245.8
Municipal
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost or Cost	1,065.8	1,074.5
Gross Unrealized Gains	38.8	50.0
Gross Unrealized Losses	9.2	4.2
Fair Value	1,095.4	1,120.3
Corporate
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost or Cost	3,989.8	3,699.9
Gross Unrealized Gains	113.0	86.8
Gross Unrealized Losses	49.0	95.7
Fair Value	4,053.8	3,691.0
OTTI Unrealized Losses	15.8	27.5
Residential mortgage-backed, non-agency
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost or Cost	978.2	887.6
Gross Unrealized Gains	9.6	13.4
Gross Unrealized Losses	13.6	4.9
Fair Value	974.2	896.1
OTTI Unrealized Losses	0.4	0.3
Commercial mortgage-backed
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost or Cost	550.6	499.6
Gross Unrealized Gains	7.8	5.8
Gross Unrealized Losses	4.1	4.3
Fair Value	554.3	501.1
Asset backed
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost or Cost	72.4	80.6
Gross Unrealized Gains	0.2	0.2
Gross Unrealized Losses	0.8	0.8
Fair Value	71.8	80.0
Equity Securities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost or Cost	498.4	528.5
Gross Unrealized Gains	86.7	55.7
Gross Unrealized Losses	0.7	7.6
Fair Value	$ 584.4	$ 576.6

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Investments (Investments Classified by Contractual Maturity Date) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Investments [Abstract]
Due in one year or less, Amortized Cost	$ 373.3
Due after one year through five years, Amortized Cost	3,132.1
Due after five years through ten years, Amortized Cost	1,806.1
Due after ten years, Amortized Cost	322.4
Gross fixed maturities, Amortized Cost	5,633.9
Mortgage-backed and asset-backed securities, Amortized Cost	1,601.2
Total fixed maturities, Amortized Cost	7,235.1	$ 6,934.0
Due in one year or less, Fair Value	376.9
Due after one year through five years, Fair Value	3,217.4
Due after five years through ten years, Fair Value	1,802.1
Due after ten years, Fair Value	334.6
Gross fixed maturities, Fair Value	5,731.0
Mortgage-backed and asset-backed securities, Fair Value	1,600.3
Fixed maturities, Fair Value	$ 7,331.3	$ 6,983.4

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Investments (Unrealized Gains and Losses on Available-For-Sale and Other Securities) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Schedule of Available-for-sale Securities [Line Items]
Net appreciation, beginning of year	$ 2.2	$ 2.6
Net appreciation, beginning of year	2.5	2.2	$ 2.6
Net Unrealized Appreciation (Depreciation) on Investments:
Schedule of Available-for-sale Securities [Line Items]
Net appreciation, beginning of year	149.9	300.9	259.3
Net (depreciation) appreciation on available-for-sale securities	76.1	(191.7)	86.5
Change in OTTI losses recognized in other comprehensive income	11.2	(20.0)	2.4
Provision for deferred income taxes	(51.2)	60.7	(47.3)
Total adjustment	36.1	(151.0)	41.6
Net appreciation, beginning of year	186.0	149.9	300.9
Fixed Maturities | Net Unrealized Appreciation (Depreciation) on Investments:
Schedule of Available-for-sale Securities [Line Items]
Net appreciation, beginning of year	116.5	250.0	212.1
Net (depreciation) appreciation on available-for-sale securities	36.9	(164.9)	76.3
Change in OTTI losses recognized in other comprehensive income	11.2	(20.0)	2.4
Provision for deferred income taxes	(37.5)	51.4	(40.8)
Total adjustment	10.6	(133.5)	37.9
Net appreciation, beginning of year	127.1	116.5	250.0
Equity Securities And Other | Net Unrealized Appreciation (Depreciation) on Investments:
Schedule of Available-for-sale Securities [Line Items]
Net appreciation, beginning of year	33.4	50.9	47.2
Net (depreciation) appreciation on available-for-sale securities	39.2	(26.8)	10.2
Provision for deferred income taxes	(13.7)	9.3	(6.5)
Total adjustment	25.5	(17.5)	3.7
Net appreciation, beginning of year	$ 58.9	$ 33.4	$ 50.9

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Investments (Schedule of Unrealized Loss on Investments) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	$ 62.1	$ 70.5
12 months or less, Fair Value	2,419.2	2,501.1
Greater than 12 months, Gross Unrealized Losses	20.9	52.0
Greater than 12 months, Fair Value	215.9	386.6
Total, Gross Unrealized Losses	83.0	122.5
Total, Fair Value	2,635.1	2,887.7
Investment grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	60.2	43.3
12 months or less, Fair Value	2,356.9	2,168.8
Greater than 12 months, Gross Unrealized Losses	8.7	25.5
Greater than 12 months, Fair Value	134.1	323.4
Total, Gross Unrealized Losses	68.9	68.8
Total, Fair Value	2,491.0	2,492.2
Below Investment Grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	1.2
12 months or less, Fair Value	46.0
Greater than 12 months, Gross Unrealized Losses	12.2
Greater than 12 months, Fair Value	81.8
Total, Gross Unrealized Losses	13.4
Total, Fair Value	127.8
Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	61.4	62.9
12 months or less, Fair Value	2,402.9	2,334.3
Greater than 12 months, Gross Unrealized Losses	20.9	52.0
Greater than 12 months, Fair Value	215.9	386.6
Total, Gross Unrealized Losses	82.3	114.9
Total, Fair Value	2,618.8	2,720.9
U.S. Treasury and government agencies | Investment grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	5.1	1.5
12 months or less, Fair Value	165.9	139.0
Greater than 12 months, Gross Unrealized Losses		2.0
Greater than 12 months, Fair Value		77.2
Total, Gross Unrealized Losses	5.1	3.5
Total, Fair Value	165.9	216.2
Foreign government | Investment grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	0.5	0.8
12 months or less, Fair Value	55.0	63.6
Greater than 12 months, Gross Unrealized Losses		0.7
Greater than 12 months, Fair Value	1.8	8.4
Total, Gross Unrealized Losses	0.5	1.5
Total, Fair Value	56.8	72.0
Municipal | Investment grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	7.2	2.3
12 months or less, Fair Value	268.4	143.0
Greater than 12 months, Gross Unrealized Losses	2.0	1.9
Greater than 12 months, Fair Value	29.3	57.4
Total, Gross Unrealized Losses	9.2	4.2
Total, Fair Value	297.7	200.4
Corporate | Investment grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	30.6	30.7
12 months or less, Fair Value	1,081.0	1,138.3
Greater than 12 months, Gross Unrealized Losses	5.0	18.9
Greater than 12 months, Fair Value	64.2	122.3
Total, Gross Unrealized Losses	35.6	49.6
Total, Fair Value	1,145.2	1,260.6
Corporate | Below Investment Grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	1.2	19.6
12 months or less, Fair Value	45.9	165.5
Greater than 12 months, Gross Unrealized Losses	12.2	26.5
Greater than 12 months, Fair Value	81.8	63.2
Total, Gross Unrealized Losses	13.4	46.1
Total, Fair Value	127.7	228.7
Residential mortgage-backed, non-agency | Investment grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	12.1	3.0
12 months or less, Fair Value	570.0	334.5
Greater than 12 months, Gross Unrealized Losses	1.5	1.9
Greater than 12 months, Fair Value	29.0	47.0
Total, Gross Unrealized Losses	13.6	4.9
Total, Fair Value	599.0	381.5
Residential mortgage-backed, non-agency | Below Investment Grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Fair Value	0.1
Total, Fair Value	0.1
Commercial mortgage-backed | Investment grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	4.1	4.2
12 months or less, Fair Value	187.5	293.8
Greater than 12 months, Gross Unrealized Losses		0.1
Greater than 12 months, Fair Value	6.3	9.7
Total, Gross Unrealized Losses	4.1	4.3
Total, Fair Value	193.8	303.5
Asset backed | Investment grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	0.6	0.8
12 months or less, Fair Value	29.1	56.6
Greater than 12 months, Gross Unrealized Losses	0.2
Greater than 12 months, Fair Value	3.5	1.4
Total, Gross Unrealized Losses	0.8	0.8
Total, Fair Value	32.6	58.0
Equity Securities
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	0.7	7.6
12 months or less, Fair Value	16.3	166.8
Total, Gross Unrealized Losses	0.7	7.6
Total, Fair Value	$ 16.3	$ 166.8

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Investments (Schedule of Other Investments) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Schedule of Investments [Line Items]
Other investments	$ 533.8	$ 393.4
Mortgage loans on real estate
Schedule of Investments [Line Items]
Other investments	297.6	200.9
Mortgage loans on real estate | Office [Member]
Schedule of Investments [Line Items]
Other investments	109.8	75.0
Mortgage loans on real estate | Retail [Member]
Schedule of Investments [Line Items]
Other investments	64.7	58.8
Mortgage loans on real estate | Hotel [Member]
Schedule of Investments [Line Items]
Other investments	40.4	19.2
Mortgage loans on real estate | Apartments [Member]
Schedule of Investments [Line Items]
Other investments	38.4	33.4
Mortgage loans on real estate | Industrial [Member]
Schedule of Investments [Line Items]
Other investments	30.0	15.0
Mortgage loans on real estate | Mixed Use [Member]
Schedule of Investments [Line Items]
Other investments	15.0
Mortgage loans on real estate | Valuation Allowance [Member]
Schedule of Investments [Line Items]
Other investments	(0.7)	(0.5)
Mortgage loans on real estate | South Atlantic [Member]
Schedule of Investments [Line Items]
Other investments	72.0	47.0
Mortgage loans on real estate | Pacific [Member]
Schedule of Investments [Line Items]
Other investments	65.0	50.0
Mortgage loans on real estate | Mid-Atlantic [Member]
Schedule of Investments [Line Items]
Other investments	53.5	23.6
Mortgage loans on real estate | West South Central [Member]
Schedule of Investments [Line Items]
Other investments	51.3	35.0
Mortgage loans on real estate | New England [Member]
Schedule of Investments [Line Items]
Other investments	21.1	10.0
Mortgage loans on real estate | East North Central [Member]
Schedule of Investments [Line Items]
Other investments	10.4	10.8
Mortgage loans on real estate | West North Central [Member]
Schedule of Investments [Line Items]
Other investments	10.0	10.0
Mortgage loans on real estate | Other Locations [Member]
Schedule of Investments [Line Items]
Other investments	$ 15.0	$ 15.0

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Investment Income and Gains and Losses (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Gain (Loss) on Investments [Line Items]
Non-accruals of fixed maturity securities	$ 1,100,000	$ 800,000	$ 2,100,000
Net other-than-temporary impairment losses on securities recognized in earnings	27,900,000	26,800,000	5,500,000
Net other-than-temporary impairment losses recorded in accumulated other comprehensive income	6,700,000	(22,700,000)	100,000
Other-than-temporary impairments	21,200,000	49,500,000	5,400,000
Credit impairments	6,400,000	8,300,000
Credit Impairments
Gain (Loss) on Investments [Line Items]
Credit impairments	8,800,000	16,000,000	0
Fixed Maturities Held-for-Sale
Gain (Loss) on Investments [Line Items]
Net other-than-temporary impairment losses on securities recognized in earnings	16,100,000	4,000,000	$ 5,500,000
Equity Securities
Gain (Loss) on Investments [Line Items]
Net other-than-temporary impairment losses on securities recognized in earnings	$ 2,700,000	6,800,000
Disposal Group, Disposed of by Sale, Not Discontinued Operations [Member]
Gain (Loss) on Investments [Line Items]
Gross gains		6,400,000
Gross losses		600,000
Disposal Group, Disposed of by Sale, Not Discontinued Operations [Member] | Fixed Maturities
Gain (Loss) on Investments [Line Items]
Proceeds from sale of investments		$ 379,600,000

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Investment Income and Gains and Losses (Components of Net Investment Income) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Gain (Loss) on Investments [Line Items]
Gross investment income	$ 290.4	$ 289.4	$ 281.3
Less investment expenses	(11.0)	(10.3)	(11.0)
Net investment income	279.4	279.1	270.3
Fixed Maturities
Gain (Loss) on Investments [Line Items]
Gross investment income	245.1	253.8	255.8
Equity Securities
Gain (Loss) on Investments [Line Items]
Gross investment income	18.6	17.5	16.5
Other Investments [Member]
Gain (Loss) on Investments [Line Items]
Gross investment income	$ 26.7	$ 18.1	$ 9.0

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Investment Income and Gains and Losses (Schedule of Net Realized Gains Losses on Investments) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Gain (Loss) on Investments [Line Items]
Net realized investment gains	$ 8.6	$ 19.5	$ 50.1
Equity Securities
Gain (Loss) on Investments [Line Items]
Net realized investment gains	25.4	29.4	45.8
Fixed Maturities
Gain (Loss) on Investments [Line Items]
Net realized investment gains	(16.6)	(13.9)	4.5
Other Investments [Member]
Gain (Loss) on Investments [Line Items]
Net realized investment gains	$ (0.2)	$ 4.0	$ (0.2)

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Investment Income and Gains and Losses (Rollforward of Cumulative Amounts Related to Credit Loss Portion of OTTI Losses) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Investments [Abstract]
Credit losses at beginning of period	$ 18.0	$ 4.2	$ 7.8
Credit losses on securities for which an OTTI was not previously recognized	6.4	8.3
Additional credit losses on securities for which an OTTI was previously recognized	2.4	7.7
Reductions for securities sold, matured or called	(4.6)	(1.8)	(3.2)
Reductions for securities reclassified as intended to sell	(12.2)	(0.4)	(0.4)
Credit losses at the end of the year	$ 10.0	$ 18.0	$ 4.2

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Investment Income and Gains and Losses (Proceeds from Sale of Available for Sale Securities) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Fixed Maturities
Gain (Loss) on Investments [Line Items]
Proceeds from Sales	$ 563.8	$ 1,167.6	$ 349.5
Gross Gains	11.7	15.0	5.8
Gross Losses	7.0	9.3	2.6
Equity Securities
Gain (Loss) on Investments [Line Items]
Proceeds from Sales	245.0	270.0	156.1
Gross Gains	31.1	36.9	46.2
Gross Losses	$ 3.0	$ 4.2	$ 0.8

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Fair Value (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Fair Value Measurements [Line Items]
Transfer between Level 1 and Level 2	$ 0	$ 0
Fair value of liabilities held	0	0
Fair value of investments	$ 94,100,000	$ 59,900,000
Percent of total investment assets	1.00%	1.00%
Level 3
Fair Value Measurements [Line Items]
Valuations excluded	$ 600,000

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Fair Value (Fair Value of Financial Instruments) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Carrying Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	$ 282.6	$ 338.8
Total financial assets	8,696.1	8,264.2
Debt	786.4	803.1
Carrying Value | Fixed Maturities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
investments	7,331.3	6,983.4
Carrying Value | Equity Securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
investments	584.4	576.6
Carrying Value | Other Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
investments	497.8	365.4
Estimate of Fair Value, Fair Value Disclosure
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	282.6	338.8
Total financial assets	8,695.9	8,266.7
Debt	841.9	927.8
Estimate of Fair Value, Fair Value Disclosure | Fixed Maturities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
investments	7,331.3	6,983.4
Estimate of Fair Value, Fair Value Disclosure | Equity Securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
investments	584.4	576.6
Estimate of Fair Value, Fair Value Disclosure | Other Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
investments	$ 497.6	$ 367.9

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Fair Value (Assets and Liabilities Measured at Fair Value on Recurring Basis) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	$ 7,331.3	$ 6,983.4
Equity securities	584.4	576.6
Other investments	533.8	393.4
Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total investment assets at fair value	8,012.2	7,655.6
Fair Value, Measurements, Recurring | U.S. Treasury and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	341.1	449.1
Fair Value, Measurements, Recurring | Foreign government
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	240.7	245.8
Fair Value, Measurements, Recurring | Municipal
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	1,095.4	1,120.3
Fair Value, Measurements, Recurring | Corporate
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	4,053.8	3,691.0
Fair Value, Measurements, Recurring | Residential Mortgage Backed Securities U S Agency Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	924.4	824.5
Fair Value, Measurements, Recurring | Residential mortgage-backed, non-agency
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	49.8	71.6
Fair Value, Measurements, Recurring | Commercial mortgage-backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	554.3	501.1
Fair Value, Measurements, Recurring | Asset-backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	71.8	80.0
Fair Value, Measurements, Recurring | Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	7,331.3	6,983.4
Fair Value, Measurements, Recurring | Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities	574.6	567.7
Fair Value, Measurements, Recurring | Other Investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other investments	106.3	104.5
Fair Value, Measurements, Recurring | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total investment assets at fair value	829.9	812.5
Fair Value, Measurements, Recurring | Level 1 | U.S. Treasury and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	209.5	193.6
Fair Value, Measurements, Recurring | Level 1 | Foreign government
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	47.3	52.5
Fair Value, Measurements, Recurring | Level 1 | Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	256.8	246.1
Fair Value, Measurements, Recurring | Level 1 | Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities	573.1	566.4
Fair Value, Measurements, Recurring | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total investment assets at fair value	7,126.5	6,782.6
Fair Value, Measurements, Recurring | Level 2 | U.S. Treasury and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	131.6	255.5
Fair Value, Measurements, Recurring | Level 2 | Foreign government
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	193.4	193.3
Fair Value, Measurements, Recurring | Level 2 | Municipal
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	1,064.4	1,085.9
Fair Value, Measurements, Recurring | Level 2 | Corporate
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	4,049.6	3,687.3
Fair Value, Measurements, Recurring | Level 2 | Residential Mortgage Backed Securities U S Agency Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	924.4	824.5
Fair Value, Measurements, Recurring | Level 2 | Residential mortgage-backed, non-agency
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	49.8	71.6
Fair Value, Measurements, Recurring | Level 2 | Commercial mortgage-backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	539.3	484.1
Fair Value, Measurements, Recurring | Level 2 | Asset-backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	71.8	79.5
Fair Value, Measurements, Recurring | Level 2 | Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	7,024.3	6,681.7
Fair Value, Measurements, Recurring | Level 2 | Other Investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other investments	102.2	100.9
Fair Value, Measurements, Recurring | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total investment assets at fair value	55.8	60.5
Fair Value, Measurements, Recurring | Level 3 | Municipal
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	31.0	34.4
Fair Value, Measurements, Recurring | Level 3 | Corporate
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	4.2	3.7
Fair Value, Measurements, Recurring | Level 3 | Commercial mortgage-backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	15.0	17.0
Fair Value, Measurements, Recurring | Level 3 | Asset-backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities		0.5
Fair Value, Measurements, Recurring | Level 3 | Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	50.2	55.6
Fair Value, Measurements, Recurring | Level 3 | Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities	1.5	1.3
Fair Value, Measurements, Recurring | Level 3 | Other Investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other investments	$ 4.1	$ 3.6

XML

Fair Value (Estimated Fair Values of Financial Instruments Not Carried at Fair Value) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Equity securities	$ 584.4	$ 576.6
Other investments	94.1	59.9
Estimate of Fair Value, Fair Value Disclosure
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	282.6	338.8
Equity securities	9.8	8.9
Other investments	297.2	203.5
Debt	841.9	927.8
Estimate of Fair Value, Fair Value Disclosure | Level 1
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	282.6	338.8
Estimate of Fair Value, Fair Value Disclosure | Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Equity securities	9.8	8.9
Debt	841.9	927.8
Estimate of Fair Value, Fair Value Disclosure | Level 3
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Other investments	$ 297.2	$ 203.5

XML

Fair Value (Fair Value on Recurring Basis Using Significant Unobservable Inputs (Level 3)) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at beginning of year	$ 60.5	$ 61.7
Transfers into Level 3		1.3
Transfers out of Level 3	(1.2)	(4.6)
Included in total net realized investment gains (losses)	(0.1)
Included in other comprehensive income - net appreciation (depreciation) on available-for-sale securities	1.7	(2.5)
Purchases	0.3	11.2
Sales	(5.4)	(6.6)
Balance at end of year	55.8	60.5
Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at beginning of year	55.6	56.7
Transfers into Level 3		1.3
Transfers out of Level 3	(1.2)	(4.6)
Included in total net realized investment gains (losses)	(0.1)
Included in other comprehensive income - net appreciation (depreciation) on available-for-sale securities	1.0	(2.4)
Purchases	0.3	11.2
Sales	(5.4)	(6.6)
Balance at end of year	50.2	55.6
Fixed Maturities | Municipal
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at beginning of year	34.4	25.7
Transfers out of Level 3	(1.2)
Included in total net realized investment gains (losses)	0.1
Included in other comprehensive income - net appreciation (depreciation) on available-for-sale securities	0.6	(0.5)
Purchases		11.2
Sales	(2.9)	(2.0)
Balance at end of year	31.0	34.4
Fixed Maturities | Corporate
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at beginning of year	3.7	9.6
Transfers out of Level 3		(4.6)
Included in total net realized investment gains (losses)	(0.2)
Included in other comprehensive income - net appreciation (depreciation) on available-for-sale securities	0.6	(0.8)
Purchases	0.3
Sales	(0.2)	(0.5)
Balance at end of year	4.2	3.7
Fixed Maturities | Commercial mortgage-backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at beginning of year	17.0	21.4
Included in other comprehensive income - net appreciation (depreciation) on available-for-sale securities	(0.2)	(1.0)
Sales	(1.8)	(3.4)
Balance at end of year	15.0	17.0
Fixed Maturities | Asset-backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at beginning of year	0.5
Transfers into Level 3		1.3
Included in other comprehensive income - net appreciation (depreciation) on available-for-sale securities		(0.1)
Sales	(0.5)	(0.7)
Balance at end of year		0.5
Equity Securities and Other Investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at beginning of year	4.9	5.0
Included in other comprehensive income - net appreciation (depreciation) on available-for-sale securities	0.7	(0.1)
Balance at end of year	$ 5.6	$ 4.9

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Fair Value (Schedule of Additional Information About Significant Unobservable Inputs Used in Fair Valuations of Level 3) (Details) $ in Millions	12 Months Ended
	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Fair Value [Line Items]
Fair Value	$ 55.8	$ 60.5	$ 61.7
Income Approach Valuation Technique | Level 3 | Municipal
Fair Value [Line Items]
Fair Value	31.0	34.4
Income Approach Valuation Technique | Level 3 | Corporate
Fair Value [Line Items]
Fair Value	4.0	3.7
Income Approach Valuation Technique | Level 3 | Commercial mortgage-backed
Fair Value [Line Items]
Fair Value	15.0	17.0
Income Approach Valuation Technique | Level 3 | Asset-backed
Fair Value [Line Items]
Fair Value		0.5
Income Approach Valuation Technique | Level 3 | Other securities
Fair Value [Line Items]
Fair Value	$ 4.1	$ 3.6
Discount For Small Issue Size | Income Approach Valuation Technique | Level 3 | Corporate
Fair Value [Line Items]
Range (Weighted Average)		1.00%
Discount For Small Issue Size | Income Approach Valuation Technique | Level 3 | Asset-backed
Fair Value [Line Items]
Range (Weighted Average)		0.70%
Discount For Small Issue Size | Income Approach Valuation Technique | Level 3 | Minimum [Member] | Municipal
Fair Value [Line Items]
Range (Weighted Average)	0.70%	0.60%
Discount For Small Issue Size | Income Approach Valuation Technique | Level 3 | Minimum [Member] | Corporate
Fair Value [Line Items]
Range (Weighted Average)	2.00%
Discount For Small Issue Size | Income Approach Valuation Technique | Level 3 | Minimum [Member] | Commercial mortgage-backed
Fair Value [Line Items]
Range (Weighted Average)	1.90%	0.50%
Discount For Small Issue Size | Income Approach Valuation Technique | Level 3 | Maximum [Member] | Municipal
Fair Value [Line Items]
Range (Weighted Average)	6.80%	6.80%
Discount For Small Issue Size | Income Approach Valuation Technique | Level 3 | Maximum [Member] | Corporate
Fair Value [Line Items]
Range (Weighted Average)	2.50%
Discount For Small Issue Size | Income Approach Valuation Technique | Level 3 | Maximum [Member] | Commercial mortgage-backed
Fair Value [Line Items]
Range (Weighted Average)	3.10%	1.00%
Discount For Small Issue Size | Income Approach Valuation Technique | Level 3 | Weighted Average [Member] | Municipal
Fair Value [Line Items]
Range (Weighted Average)	3.30%	3.20%
Discount For Small Issue Size | Income Approach Valuation Technique | Level 3 | Weighted Average [Member] | Corporate
Fair Value [Line Items]
Range (Weighted Average)	2.10%	1.00%
Discount For Small Issue Size | Income Approach Valuation Technique | Level 3 | Weighted Average [Member] | Commercial mortgage-backed
Fair Value [Line Items]
Range (Weighted Average)	2.60%	0.50%
Discount For Small Issue Size | Income Approach Valuation Technique | Level 3 | Weighted Average [Member] | Asset-backed
Fair Value [Line Items]
Range (Weighted Average)		0.70%
Discount For Above Market Coupon | Income Approach Valuation Technique | Level 3 | Commercial mortgage-backed
Fair Value [Line Items]
Range (Weighted Average)	0.50%	0.50%
Discount For Above Market Coupon | Income Approach Valuation Technique | Level 3 | Minimum [Member] | Municipal
Fair Value [Line Items]
Range (Weighted Average)	0.30%	0.30%
Discount For Above Market Coupon | Income Approach Valuation Technique | Level 3 | Minimum [Member] | Corporate
Fair Value [Line Items]
Range (Weighted Average)	0.30%	0.30%
Discount For Above Market Coupon | Income Approach Valuation Technique | Level 3 | Maximum [Member] | Municipal
Fair Value [Line Items]
Range (Weighted Average)	0.50%	1.00%
Discount For Above Market Coupon | Income Approach Valuation Technique | Level 3 | Maximum [Member] | Corporate
Fair Value [Line Items]
Range (Weighted Average)	0.80%	0.80%
Discount For Above Market Coupon | Income Approach Valuation Technique | Level 3 | Weighted Average [Member] | Municipal
Fair Value [Line Items]
Range (Weighted Average)	0.40%	0.40%
Discount For Above Market Coupon | Income Approach Valuation Technique | Level 3 | Weighted Average [Member] | Corporate
Fair Value [Line Items]
Range (Weighted Average)	0.60%	0.60%
Discount For Above Market Coupon | Income Approach Valuation Technique | Level 3 | Weighted Average [Member] | Commercial mortgage-backed
Fair Value [Line Items]
Range (Weighted Average)	0.50%	0.50%
Discount For Credit Stress | Income Approach Valuation Technique | Level 3 | Corporate
Fair Value [Line Items]
Range (Weighted Average)	1.00%	10.00%
Discount For Credit Stress | Income Approach Valuation Technique | Level 3 | Minimum [Member] | Municipal
Fair Value [Line Items]
Range (Weighted Average)	0.90%	0.90%
Discount For Credit Stress | Income Approach Valuation Technique | Level 3 | Maximum [Member] | Municipal
Fair Value [Line Items]
Range (Weighted Average)	1.50%	1.50%
Discount For Credit Stress | Income Approach Valuation Technique | Level 3 | Weighted Average [Member] | Municipal
Fair Value [Line Items]
Range (Weighted Average)	1.20%	1.20%
Discount For Credit Stress | Income Approach Valuation Technique | Level 3 | Weighted Average [Member] | Corporate
Fair Value [Line Items]
Range (Weighted Average)	1.00%	10.00%
Discount For Lease Structure | Income Approach Valuation Technique | Level 3 | Commercial mortgage-backed
Fair Value [Line Items]
Range (Weighted Average)	0.30%	0.30%
Discount For Lease Structure | Income Approach Valuation Technique | Level 3 | Weighted Average [Member] | Commercial mortgage-backed
Fair Value [Line Items]
Range (Weighted Average)	0.30%	0.30%
Net Tangible Asset Market Multiples | Market comparables [Member] | Level 3 | Equity Securities
Fair Value [Line Items]
Fair Value	$ 1.1	$ 1.1
Fair value measurement market multiples	1.0	1.0
Net Tangible Asset Market Multiples | Market comparables [Member] | Level 3 | Weighted Average [Member] | Equity Securities
Fair Value [Line Items]
Fair value measurement market multiples	1.0	1.0
Discount Rate [Member] | Income Approach Valuation Technique | Level 3 | Other securities
Fair Value [Line Items]
Range (Weighted Average)	18.00%	18.00%
Discount Rate [Member] | Income Approach Valuation Technique | Level 3 | Weighted Average [Member] | Other securities
Fair Value [Line Items]
Range (Weighted Average)	18.00%	18.00%

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Debt and Credit Arrangements (Schedule of Long Term Debt) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Debt Instrument [Line Items]
Total principal debt	$ 797.3	$ 814.3
Unamortized debt discount	(10.9)	(11.2)
Total	786.4	803.1
Senior debentures maturing April 15, 2026 [Member]
Debt Instrument [Line Items]
Total principal debt	375.0
Senior debentures maturing October 15, 2025 [Member]
Debt Instrument [Line Items]
Total principal debt	62.6	74.6
Senior debentures maturing June 15, 2021 [Member]
Debt Instrument [Line Items]
Total principal debt		300.0
Senior debentures maturing March 1, 2020 [Member]
Debt Instrument [Line Items]
Total principal debt		80.0
Subordinated debentures maturing March 30, 2053 [Member]
Debt Instrument [Line Items]
Total principal debt	175.0	175.0
Subordinated debentures maturing February 3, 2027 [Member]
Debt Instrument [Line Items]
Total principal debt	59.7	59.7
FHLBB borrowings (secured) [Member]
Debt Instrument [Line Items]
Total principal debt	$ 125.0	$ 125.0

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Debt and Credit Arrangements (Narrative) (Details) £ in Millions		12 Months Ended
	May 21, 2016 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2009 USD ($)	Dec. 31, 2016 GBP (£)	Dec. 31, 2016 USD ($)	Jun. 30, 2016 USD ($)
Debt Instrument [Line Items]
Gain (loss) on the repurchase of debt		$ (88,300,000)	$ (24,100,000)	$ (100,000)
Federal Home Loan Bank Stock			8,900,000				$ 9,800,000
Long-term Debt, Gross			$ 814,300,000				797,300,000
Line of Credit Facility, Maximum Borrowing Capacity							$ 200,000,000
Line Of Credit Facility Maturity Month And Year		2018-11
Foreign Currency Exchange Rate Translation 1			1.47			1.23	1.23
Interest Expense Debt		$ 54,900,000	$ 60,600,000	65,800,000
Standby Letters of Credit [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity						£ 170.0	$ 209,600,000
Federal Home Loan Bank of Boston
Debt Instrument [Line Items]
Debt instrument interest rate					5.50%
Advance received					$ 125,000,000
Length of debt instrument					20 years
Collateralized Borrowing Program [Member]
Debt Instrument [Line Items]
Advance received			125,000,000				125,000,000
Securities Held As Collateral At Fair Value			176,000,000				201,800,000
Senior debentures maturing April 15, 2026 [Member]
Debt Instrument [Line Items]
Debt issuance date		Apr. 08, 2016
Aggregate principal amount							$ 375,000,000	$ 375,000,000
Debt instrument interest rate						4.50%	4.50%	4.50%
Maturity date		Apr. 15, 2026
Proceeds from issuance		$ 370,700,000
Long-term Debt, Gross							$ 375,000,000
Subordinated debentures maturing March 30, 2053 [Member]
Debt Instrument [Line Items]
Aggregate principal amount							$ 175,000,000
Debt instrument interest rate						6.35%	6.35%
Maturity date		Mar. 30, 2053
Debt Instrument Redemption Date		Mar. 30, 2018
Long-term Debt, Gross			175,000,000				$ 175,000,000
Senior Unsecured Notes Issued On October 16, 1995 [Member]
Debt Instrument [Line Items]
Debt issuance date		Oct. 16, 1995
Aggregate principal amount							$ 200,000,000
Debt instrument interest rate						7.625%	7.625%
Maturity date		Oct. 15, 2025
Long-term Debt, Gross			74,600,000				$ 62,600,000
8.207% Subordinated Debentures [Member]
Debt Instrument [Line Items]
Aggregate principal amount			$ 59,700,000				59,700,000
Maturity date		Feb. 03, 2027
Interest rate of Series B Subordinated Deferrable Interest Debentures		8.207%	8.207%
Senior debentures maturing October 15, 2025 [Member]
Debt Instrument [Line Items]
Maturity date			Oct. 15, 2025
Repurchase of senior debentures			$ 6,500,000				11,900,000
Repurchase of senior debentures at cost			8,300,000				14,100,000
Gain (loss) on the repurchase of debt		$ 2,200,000	1,800,000
Long-term Debt, Gross			$ 74,600,000				$ 62,600,000
Senior debentures maturing March 1, 2020 [Member]
Debt Instrument [Line Items]
Debt instrument interest rate						7.50%	7.50%
Maturity date		Mar. 01, 2020	Mar. 01, 2020
Repurchase of senior debentures			$ 83,700,000
Repurchase of senior debentures at cost			106,000,000
Gain (loss) on the repurchase of debt			22,300,000
Long-term Debt, Gross			80,000,000
Senior debentures maturing June 15, 2021 [Member]
Debt Instrument [Line Items]
Debt instrument interest rate						6.375%	6.375%
Maturity date		Jun. 15, 2021
Long-term Debt, Gross			300,000,000
Senior debentures maturing March 1, 2020 And June 15, 2021 [Member]
Debt Instrument [Line Items]
Gain (loss) on the repurchase of debt	$ 86,100,000
The Hanover Insurance Group [Member]
Debt Instrument [Line Items]
Gain (loss) on the repurchase of debt		$ (88,300,000)	(24,100,000)	(100,000)
Interest Expense Debt		$ 46,100,000	$ 53,900,000	$ 54,700,000

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Income Taxes (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2017
Income Taxes [Line Items]
U.S. statutory federal income tax rate	35.00%
Deferred tax asset, alternative minimum tax carryforward	$ 72,300,000
Deferred tax assets, Foreign tax credit carryforwards	$ 22,300,000
Foreign tax credit carryforwards expiration date	2026
Net realized investment gains	$ 8,600,000	$ 19,500,000	$ 50,100,000
Foreign income permanently reinvested	23,500,000	69,800,000	23,300,000
Estimated taxes payable on undistributed earnings	43,400,000
Deferred deductions	700,000		4,800,000
Liability for uncertain tax positions	0	0	0
Accrued interest	200,000	600,000
Unrecognized Tax Benefits, Interest on Income Taxes Expense	400,000	100,000	500,000
Accumulated Other Comprehensive Incoome [Member]
Income Taxes [Line Items]
Realized Gains In Accumulated Other Comprehensive Income To Be Released Into Income From Continuing Operations In Future	57,500,000
Non-Operating Income [Member]
Income Taxes [Line Items]
Income recognized in continuing operations related to non-segment income	$ 20,700,000	$ 13,300,000	$ 16,200,000
Scenario, Forecast [Member]
Income Taxes [Line Items]
Liability due to the expiration of statute of limitations				$ 600,000

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Income Taxes (Components of Income Before Income Taxes) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Taxes [Abstract]
U.S.	$ 70.8	$ 220.9	$ 185.6
Non-U.S.	121.5	218.5	192.4
Income before income taxes	$ 192.3	$ 439.4	$ 378.0

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Income Taxes (Components of Income Tax Expense (Benefit)) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Taxes [Abstract]
Current income taxes, U.S.	$ 16.8	$ 32.7	$ 4.5
Current income taxes, Non-U.S.	35.3	23.1	22.6
Total current	52.1	55.8	27.1
Deferred income taxes, U.S.	(20.4)	44.0	51.1
Deferred income taxes, Non-U.S.	4.5	8.8	17.5
Total deferred	(15.9)	52.8	68.6
Total income tax expense	$ 36.2	$ 108.6	$ 95.7

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Income Taxes (Schedule of Effective Income Tax Rate Reconciliation) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Taxes [Abstract]
Expected income tax expense	$ 67.3	$ 153.7	$ 132.3
Tax difference related to investment disposals and maturities	(20.7)	(13.3)	(16.2)
Effect of foreign operations	(6.6)	(7.8)	(8.1)
Dividend received deduction	(3.3)	(3.1)	(2.6)
Tax-exempt interest	(1.1)	(1.4)	(1.7)
Foreign tax credits	(0.6)	(5.6)
Gain on disposal of U.K. motor business exempt from tax		(17.3)
Foreign exchange losses			(6.9)
Change in valuation allowance			(2.9)
Nondeductible expenses	1.4	1.6	1.8
Change in liability for uncertain tax positions		1.7
Other, net	(0.2)	0.1
Total income tax expense	$ 36.2	$ 108.6	$ 95.7
Effective tax rate	18.80%	24.70%	25.30%

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Income Taxes (Schedule of Deferred Tax Assets and Liabilities) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Income Taxes [Abstract]
Loss, LAE and unearned premium reserves, net	$ 183.9	$ 179.0
Tax credit carryforwards	94.6	70.5
Employee benefit plans	44.4	39.6
Investments, net		12.4
Other	54.9	53.6
Deferred tax assets, gross	377.8	355.1
Deferred tax assets, total	377.8	355.1
Deferred acquisition costs	141.0	134.9
Deferred Lloyd's underwriting income	32.7	22.4
Software capitalization	28.9	26.9
Investments, net	27.9
Other	32.2	33.0
Deferred tax liabilities, total	262.7	217.2
Net deferred tax asset	$ 115.1	$ 137.9

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Income Taxes (Summary of Income Tax Uncertainties) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Taxes [Abstract]
Liability at beginning of year, net	$ 3.0	$ 1.3	$ 1.4
Additions for tax positions of prior years	0.4	1.7	(0.1)
Settlements/subtractions for tax positions of prior years	(0.7)		(4.8)
Deferred deductions			4.8
Liability at end of year, net	$ 2.7	$ 3.0	$ 1.3

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Pension Plan (Narrative) (Details)		12 Months Ended
	Jan. 01, 2005	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Retirement Plans [Line Items]
Interest rate used calculating annual transition pension adjustment for specified completed period of service	5.00%
Defined benefit plan, maximum number of years of completed service used in calculating the annual transition pension adjustment	35 years
Interest rate used calculating annual transition pension adjustment, thereafter	3.00%
Projected benefit obligation, defined benefit pension plans exceeds plan assets		$ 54,000,000
Employee contributions		200,000	$ 300,000
Curtailment gain		2,400,000	$ 1,800,000
Lump-sum settlements				$ 55,100,000
Settlement loss				(12,100,000)
Accelerated recognition of gains (losses)				$ 1,300,000
Estimated future contributions in next fiscal year		$ 0
Maximum percentage contributed by employer		6.00%	6.00%	6.00%
Defined contribution plan expense		$ 21,400,000	$ 20,100,000	$ 19,900,000
Additional cost contribution			2,000,000	2,100,000
Additional cost contribution		$ 3,900,000	$ 4,800,000	$ 6,100,000
Defined Benefit Plan Foreign Currency Exchange Rate		1.23
Minimum [Member]
Retirement Plans [Line Items]
Percentage of unrecognized net actuarial gains (losses) as projected benefit obligation, amortized as component of net periodic pension cost		10.00%
Chaucer Pension Plan [Member]
Retirement Plans [Line Items]
Projected benefit obligation, defined benefit pension plans exceeds plan assets		$ 16,000,000
Expected rate of return on plan assets		5.45%	5.45%	6.55%
Estimated future contributions in next fiscal year		$ 7,400,000
U.S. Qualified Defined Benefit Plans [Member]
Retirement Plans [Line Items]
Expected rate of return on plan assets		5.25%
Settlement loss				$ 10,800,000
Estimated future contributions in next fiscal year		$ 3,200,000

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Pension Plans (Schedule of Weighted Average Assumptions Used to Determine Pension Benefit Obligations) (Details)		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Qualified Plan
Defined Benefit Plan Disclosure [Line Items]
Discount rate		4.25%	4.88%	4.38%
Nonqualified Plan
Defined Benefit Plan Disclosure [Line Items]
Discount rate		4.25%	4.75%	4.25%
Chaucer Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Discount rate		2.85%	3.85%	3.75%
Rate of increase in future compensation	[1]	3.15%	3.10%	3.00%

[1] The salary increase assumption as of December 31, 2016 is used to calculate the curtailment gain that resulted from the cessation of future salary increases.

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Pension Plans (Schedule of Weighted Average Assumptions Used to Determine Net Periodic Pension Costs) (Details)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
U.S. Qualified Defined Benefit Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Expected return on plan assets	5.25%
Cash balance interest crediting rate	3.50%	3.50%	3.50%
Qualified Plan
Defined Benefit Plan Disclosure [Line Items]
Discount rate	4.88%	4.38%	5.00%
Expected return on plan assets	5.25%	5.00%	5.50%
Cash balance interest crediting rate	3.50%	3.50%	3.50%
Nonqualified Plan
Defined Benefit Plan Disclosure [Line Items]
Discount rate	4.75%	4.25%	5.00%
Chaucer Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Discount rate	3.85%	3.75%	4.50%
Expected return on plan assets	5.45%	5.45%	6.55%
Rate of increase in future compensation	3.10%	3.00%	3.15%

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Pension Plans (Summary of Target Allocations and Invested Asset Allocations) (Details)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
U.S. Qualified Defined Benefit Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	100.00%
Total Fixed Income and Equity Securities	100.00%	100.00%
U.S. Qualified Defined Benefit Plans [Member] | Fixed Maturities
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	83.00%
Total Fixed Income and Equity Securities	83.00%	84.00%
U.S. Qualified Defined Benefit Plans [Member] | Money Market Funds
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	2.00%
Total Fixed Income and Equity Securities	2.00%	1.00%
U.S. Qualified Defined Benefit Plans [Member] | Fixed Income Securities
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	85.00%
Total Fixed Income and Equity Securities	85.00%	85.00%
U.S. Qualified Defined Benefit Plans [Member] | Domestic
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	12.00%
Total Fixed Income and Equity Securities	12.00%	12.00%
U.S. Qualified Defined Benefit Plans [Member] | International
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	3.00%
Total Fixed Income and Equity Securities	3.00%	3.00%
U.S. Qualified Defined Benefit Plans [Member] | Equity Securities
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	15.00%
Total Fixed Income and Equity Securities	15.00%	15.00%
Chaucer Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	100.00%
Total Fixed Income and Equity Securities	100.00%	100.00%
Chaucer Pension Plan [Member] | Fixed Maturities
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	30.00%
Total Fixed Income and Equity Securities	34.00%	32.00%
Chaucer Pension Plan [Member] | Domestic
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	15.00%
Total Fixed Income and Equity Securities	14.00%	14.00%
Chaucer Pension Plan [Member] | International
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	45.00%
Total Fixed Income and Equity Securities	41.00%	42.00%
Chaucer Pension Plan [Member] | Equity Securities
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	60.00%
Total Fixed Income and Equity Securities	55.00%	56.00%
Chaucer Pension Plan [Member] | Real Estate Funds
Defined Benefit Plan Disclosure [Line Items]
Total Fixed Income and Equity Securities, TARGET LEVELS	10.00%
Total Fixed Income and Equity Securities	11.00%	12.00%

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Pension Plans (Summary of Plan Assets Investment Measured At Fair Value) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
U.S. Qualified Defined Benefit Plans [Member]
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	$ 453.3	$ 472.8	$ 513.4
Chaucer Pension Plan [Member]
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	116.5	123.5	$ 131.8
Chaucer Pension Plan [Member] | Cash and Cash Equivalents [Member]
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	0.3	0.6
Chaucer Pension Plan [Member] | Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	39.4	38.7
Chaucer Pension Plan [Member] | Domestic
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	16.0	17.0
Chaucer Pension Plan [Member] | International
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	48.0	52.4
Chaucer Pension Plan [Member] | Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	64.0	69.4
Chaucer Pension Plan [Member] | Real Estate Funds
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	12.8	14.8
Estimate of Fair Value, Fair Value Disclosure | U.S. Qualified Defined Benefit Plans [Member]
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	60.8	46.7
Estimate of Fair Value, Fair Value Disclosure | U.S. Qualified Defined Benefit Plans [Member] | Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	53.7	42.0
Estimate of Fair Value, Fair Value Disclosure | U.S. Qualified Defined Benefit Plans [Member] | Money Market Funds
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	7.1	4.7
Estimate of Fair Value, Fair Value Disclosure | Chaucer Pension Plan [Member]
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	116.5	123.5
Estimate of Fair Value, Fair Value Disclosure | Level 1 | U.S. Qualified Defined Benefit Plans [Member]
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	30.1	15.0
Estimate of Fair Value, Fair Value Disclosure | Level 1 | U.S. Qualified Defined Benefit Plans [Member] | Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	23.0	10.3
Estimate of Fair Value, Fair Value Disclosure | Level 1 | U.S. Qualified Defined Benefit Plans [Member] | Money Market Funds
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	7.1	4.7
Estimate of Fair Value, Fair Value Disclosure | Level 3 | U.S. Qualified Defined Benefit Plans [Member]
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	30.7	31.7
Estimate of Fair Value, Fair Value Disclosure | Level 3 | U.S. Qualified Defined Benefit Plans [Member] | Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Invested assets, fair value	$ 30.7	$ 31.7

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Pension Plans (Schedule of Fair Values of Investments) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Mar. 31, 2016	Dec. 31, 2015
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fixed maturities	$ 7,331.3		$ 6,983.4
Equity securities	584.4		576.6
Investments Net Asset Value [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fixed maturities		$ 322.4	355.6
Equity securities		70.1	70.5
Total investments carried at NAV		392.5	426.1
Investments Net Asset Value [Member] | Domestic
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Equity securities		53.9	54.6
Investments Net Asset Value [Member] | International
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Equity securities		$ 16.2	15.9
The Hanover Insurance Group [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fixed maturities	116.4		121.3
Equity securities	$ 1.1		$ 1.1

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Pension Plans (Summary for Assets Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs) (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at beginning of year	$ 60.5	$ 61.7
Purchases		1.3
Balance at end of year	55.8	60.5
U.S. Qualified Defined Benefit Plans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at beginning of year	31.7
Actual return on plan assets related to assets still held	(1.0)
Balance at end of year	30.7	31.7
Chaucer Pension Plan [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign currency translation	$ (21.4)	$ (7.1)

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Pension Plans (Fair Value of Plan Assets and Funded Status of Plans) (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Benefit Plan Disclosure [Line Items]
Service cost - benefits earned during the period	$ 0.7	$ 1.1	$ 1.5
Interest cost	29.5	29.3	33.7
Settlements			55.1
U.S. Qualified Defined Benefit Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Accumulated benefit obligation	506.8	500.5
Projected benefit obligation, beginning of period	500.5	538.5
Interest cost	23.2	22.5
Actuarial losses (gains)	29.4	(23.3)
Benefits paid	(46.3)	(37.2)
Projected benefit obligation, end of year	506.8	500.5	538.5
Fair value of plan assets, beginning of period	472.8	513.4
Actual return on plan assets	26.8	(3.4)
Benefits paid	(46.3)	(37.2)
Fair value of plan assets, end of year	453.3	472.8	513.4
Funded status of the plans	(53.5)	(27.7)
U.S. Non Qualified Pension Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Accumulated benefit obligation	38.0	37.8
Projected benefit obligation, beginning of period	37.8	40.6
Interest cost	1.7	1.7
Actuarial losses (gains)	1.7	(1.3)
Benefits paid	(3.2)	(3.2)
Projected benefit obligation, end of year	38.0	37.8	40.6
Contributions	3.2	3.2
Benefits paid	(3.2)	(3.2)
Funded status of the plans	(38.0)	(37.8)
Chaucer Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Accumulated benefit obligation	132.2	126.0
Projected benefit obligation, beginning of period	128.3	137.5
Employee contributions	0.2	0.3
Service cost - benefits earned during the period	0.8	1.1
Interest cost	4.5	5.1
Actuarial losses (gains)	25.9	(0.7)
Benefits paid	(1.8)	(5.8)
Curtailment gain	(2.4)	(1.8)
Foreign currency translation	(23.3)	(7.4)
Projected benefit obligation, end of year	132.2	128.3	137.5
Fair value of plan assets, beginning of period	123.5	131.8
Actual return on plan assets	15.4	3.3
Contributions	0.8	1.3
Benefits paid	(1.8)	(5.8)
Foreign currency translation	(21.4)	(7.1)
Fair value of plan assets, end of year	116.5	123.5	$ 131.8
Funded status of the plans	$ (15.7)	$ (4.8)

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Pension Plans (Components of Net Periodic Benefit Cost) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Pension Plans [Abstract]
Service cost - benefits earned during the period	$ 0.7	$ 1.1	$ 1.5
Interest cost	29.5	29.3	33.7
Expected return on plan assets	(29.6)	(31.6)	(36.6)
Recognized net actuarial loss	13.5	13.9	11.7
Amortization of prior service cost (benefit)			0.1
Settlement loss			12.1
Curtailment gain	(2.4)	(1.8)
Net periodic pension cost	$ 11.7	$ 10.9	$ 22.5

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Pension Plans (Summary of Amounts Recognized in Accumulated Other Comprehensive Income Loss) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Pension Plans [Abstract]
Net actuarial loss	$ 150.4	$ 119.4

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Pension Plans (Summary of Estimated Amount Amortized from Accumulated Other Comprehensive Income Loss into Net Periodic Pension Cost) (Details) $ in Millions	12 Months Ended
	Dec. 31, 2016 USD ($)
Pension Plans [Abstract]
Net actuarial loss	$ 15.8

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Pension Plans (Summary of Estimated Benefit Payments) (Details) $ in Millions	Dec. 31, 2016 USD ($)
U.S. Qualified Defined Benefit Plans [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
2017	$ 38.8
2018	37.7
2019	37.6
2020	37.4
2021	37.5
2022-2026	174.9
U.S. Non Qualified Pension Plans [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
2017	3.2
2018	3.1
2019	3.0
2020	3.1
2021	2.9
2022-2026	13.5
Chaucer Pension Plan [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
2017	1.6
2018	1.7
2019	1.8
2020	1.8
2021	1.9
2022-2026	$ 10.8

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Other Postretirement Benefit Plans (Narrative) (Details) - Postretirement Plans	12 Months Ended
	Dec. 31, 2016
1995 Postretirement Health Coverage [Member]
Retirement Plans [Line Items]
Eligibility age	40 years
2009 Postretirement Health Coverage [Member]
Retirement Plans [Line Items]
Eligibility age	65 years
Minimum [Member] | 1995 Postretirement Health Coverage [Member]
Retirement Plans [Line Items]
Service period required to avail postretirement benefits (in years)	15 years

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Other Postretirement Benefit Plans (Fair Value of Plan Assets and Funded Status of Plans) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 0.7	$ 1.1	$ 1.5
Interest cost	29.5	29.3	33.7
Postretirement Plans
Defined Benefit Plan Disclosure [Line Items]
Accumulated benefit obligation, beginning of year	12.1	17.0
Service cost			0.1
Interest cost	0.5	0.5	0.8
Net actuarial loss	1.0	0.1
Benefits paid	(2.0)	(2.5)
Plan amendment		(3.0)
Accumulated benefit obligation, end of year	11.6	12.1	$ 17.0
Fair value of plan assets, end of year
Funded status of plans	$ (11.6)	$ (12.1)

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Other Postretirement Benefit Plans (Schedule of Expected Benefit Payments) (Details) - Postretirement Plans $ in Millions	Dec. 31, 2016 USD ($)
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
2017	$ 1.4
2018	1.3
2019	1.2
2020	1.1
2021	1.0
2022-2026	$ 4.1

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Other Postretirement Benefit Plans (Components of Net Periodic Pension Cost) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Service cost	$ 0.7	$ 1.1	$ 1.5
Interest cost	29.5	29.3	33.7
Recognized net actuarial loss	13.5	13.9	11.7
Amortization of prior service cost (benefit)			0.1
Settlement loss			12.1
Net periodic pension cost	11.7	10.9	22.5
Postretirement Plans
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Service cost			0.1
Interest cost	0.5	0.5	0.8
Recognized net actuarial loss	0.2	0.2	0.1
Amortization of prior service cost (benefit)	(1.4)	(1.4)	(1.9)
Net periodic pension cost	$ (0.7)	$ (0.7)	$ (0.9)

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Other Postretirement Benefit Plans (Accumulated Other Comprehensive (Income) Loss Related to Postretirement Benefit Plans) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Net actuarial loss	$ 150.4	$ 119.4
Postretirement Plans
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Net actuarial loss	4.1	3.3
Net prior service cost	(1.8)	(3.3)
Amounts recognized in accumulated other comprehensive income	$ 2.3

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Other Postretirement Benefit Plans (Summary of Estimated Amount Amortized From Accumulated Other Comprehensive Income (Loss) Into Net Periodic Pension Cost) (Details) $ in Millions	12 Months Ended
	Dec. 31, 2016 USD ($)
Defined Benefit Plan Disclosure [Line Items]
Net actuarial loss	$ 15.8
Postretirement Plans
Defined Benefit Plan Disclosure [Line Items]
Net actuarial loss	0.2
Net prior service cost	(1.4)
Estimated amount of actuarial losses that will be amortized	$ (1.2)

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Other Postretirement Benefit Plans (Summary of Weighted-Average Assumptions Used to Determine Pension Benefit Obligations) (Details) - Postretirement Plans	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan Disclosure [Line Items]
Postretirement benefit obligations discount rate	4.13%	4.63%
Postretirement benefit cost discount rate	4.63%	4.38%

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Other Postretirement Benefit Plans (Assumed Health Care Cost Trend Rates) (Details) - Postretirement Plans	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan Disclosure [Line Items]
Health care cost trend rate assumed for next year	6.50%	7.00%
Rate to which the cost trend is assumed to decline (ultimate trend rate)	4.50%	5.00%
Year the rate reaches the ultimate trend rate	2024	2020

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Other Comprehensive Income (Narrative) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Equity [Abstract]
Loss Adjustment Expense	40.00%	40.00%	40.00%
Percentage Of Other Operating Expenses	60.00%	60.00%	60.00%
Accelerated recognition of unamortized losses			$ 12.1

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Other Comprehensive Income (Changes in Other Comprehensive Income) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Unrealized gains (losses) arising during period, Pre-Tax	$ 95.9	$ (199.3)	$ 138.7
Amount of realized gains from sales and other, Pre-tax	36.5	39.6	55.3
Portion of other-than-temporary impairment losses recognized in earnings, Pre-tax	27.9	27.2	5.5
Net unrealized gains (losses), Pre-tax	87.3	(211.7)	88.9
Net actuarial gain (loss) arising during the period, Pre-Tax	(43.1)	(3.5)	(33.6)
Loss on settlement of pension obligation, Pre-Tax			12.1
Amortization of net actuarial loss and prior service cost recognized as net periodic benefit cost, Pre-tax	9.9	12.7	10.0
Foreign currency translation recognized during the period, Pre-tax	(5.1)	(11.1)	(7.1)
Other comprehensive income (loss), Pre-tax	49.0	(213.6)	70.3
Unrealized gains (losses) arising during period, Tax Benefit (Expense)	(33.4)	69.5	(45.7)
Amount of realized gains from sales and other, Tax Benefit (Expense)	(8.0)	0.7	0.3
Portion of other-than-temporary impairment losses recognized in earnings, Tax Benefit (Expense)	(9.8)	(9.5)	(1.9)
Net unrealized gains (losses), Tax Benefit (Expense)	(51.2)	60.7	(47.3)
Net actuarial gain (loss) arising during the period, Tax Benefit (Expense)	12.8	0.7	11.0
Loss on settlement of pension obligation, Tax Benefit (Expense)			(4.2)
Amortization of net actuarial loss and prior service cost recognized as net periodic benefit cost, Tax Benefit (Expense)	(3.5)	(4.2)	(3.5)
Foreign currency translation recognized during the period, Tax Benefit (Expense)	1.8	3.9	2.5
Other comprehensive income (loss), Tax Benefit (Expense)	(40.1)	61.1	(41.5)
Unrealized gains (losses) arising during period, Net of Tax	62.5	(129.8)	93.0
Amount of realized gains from sales and other, Net of Tax	(44.5)	(38.9)	(55.0)
Portion of other-than-temporary impairment losses recognized in earnings, Net of Tax	18.1	17.7	3.6
Total available-for-sale securities	36.1	(151.0)	41.6
Net actuarial gain (loss) arising in the period, Net of Tax	(30.3)	(2.8)	(22.6)
Loss on settlement of pension obligation, Net of Tax			7.9
Amortization of net actuarial loss and prior service cost recognized as net periodic benefit cost, Net of Tax	6.4	8.5	6.5
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax, Total	(3.3)	(7.2)	(4.6)
Total other comprehensive income (loss), net of tax	8.9	(152.5)	28.8
Net of pre-tax, ceded unrealized gains (losses)			0.8
The Hanover Insurance Group [Member]
Total other comprehensive income (loss), net of tax	$ 8.9	$ (152.5)	$ 28.8

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Other Comprehensive Income (Reclassifications out of Accumulated Other Comprehensive Income) (Details) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains from sales and other									$ 36.5	$ 46.3	$ 55.6
Total losses and expenses									(4,753.5)	(4,594.6)	(4,689.6)
Net other-than-temporary impairment losses on investments recognized in earnings									(27.9)	(26.8)	(5.5)
Total before tax									192.3	439.4	378.0
Tax benefit (expense)									(36.2)	(108.6)	(95.7)
Income from continuing operations	$ (12.2)	$ 88.3	$ 1.9	$ 78.1	$ 77.8	$ 77.2	$ 120.9	$ 54.9	156.1	330.8	282.3
Other, net of tax									(1.0)	0.7	(0.3)
Net of tax	$ (13.5)	$ 88.4	$ 2.0	$ 78.2	$ 77.6	$ 78.3	$ 120.7	$ 54.9	155.1	331.5	282.0
Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net of tax									19.8	12.7	37.0
Reclassification out of Accumulated Other Comprehensive Income | Net Unrealized Appreciation (Depreciation) on Investments:
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains from sales and other									36.4	39.9	55.2
Net other-than-temporary impairment losses on investments recognized in earnings									(27.9)	(26.8)	(5.5)
Total before tax									8.5	13.1	49.7
Tax benefit (expense)									17.8	8.7	1.6
Income from continuing operations									26.3	21.8	51.3
Other, net of tax									(0.1)	(0.6)	0.1
Net of tax									26.2	21.2	51.4
Reclassification out of Accumulated Other Comprehensive Income | Defined Benefit Pension and Postretirement Plans
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total losses and expenses									(9.9)	(12.7)	(22.1)
Tax benefit (expense)									3.5	4.2	7.7
Net of tax									$ (6.4)	$ (8.5)	$ (14.4)

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Stock-based Compensation Plans (Narrative) (Details) - USD ($) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	May 20, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 12.0	$ 12.3	$ 15.1
Tax benefit from compensation expense	$ 4.2	4.3	5.3
Vesting period	3 years
Award expiration Period	10 years
Cash received for options exercised	$ 15.8	15.9	10.9
Intrinsic value of options exercised	21.1	$ 38.7	$ 10.6
Aggregate intrinsic value, outstanding	31.2
Aggregate intrinsic value, exercisable	$ 16.5
Weighted average remaining contractual life, outstanding (in years)	8 years 1 month 6 days
Weighted average remaining contractual life, exercisable (in years)	6 years 6 months
Weighted average grant date fair value of options granted	$ 10.83	$ 9.72	$ 8.96
Fair value of vested shares	$ 26.8	$ 20.4
Share-based Compensation Arrangement by Share-Based Payment Award, Options, Tax Expense Realized from Options Exercised	$ 5.6	$ 9.7	$ 5.9
Share-based Compensation Arrangement by Share-based Payment Award, Reduction in Shares Available for Grant per Share Issued	3.8
Vesting Each Year [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting rate	33.33%	33.33%	33.33%	33.33%
2014 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized under plan	6,100,000
Number of shares available for grant	5,332,623
ESPP Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized under plan					2,500,000
Number of shares available for grant	2,411,811
SIP Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized under plan					750,000
Number of shares available for grant	699,018
Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense	$ 5.0
Unrecognized compensation expense, weighted average period of recognition	1 year 7 months 6 days
Performance-based restricted stock units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance metric for performance based restricted stock units	100.00%
Performance metric for performance based restricted stock units minimum potential range	0.00%
Performance metric for performance based restricted stock units maximum potential range	200.00%
Granted, Shares	1,949
Increase as grant in period, percentage	100.00%
Decrease as forfeited, percentage	100.00%
Intrinsic value of awards vested	$ 5.8	$ 2.6	$ 0.3
Performance metric achieved	100.00%
Performance And Market-Based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense	$ 17.4
Unrecognized compensation expense, weighted average period of recognition	2 years 4 months 24 days
Performance metric for performance based restricted stock units	100.00%
Performance metric for performance based restricted stock units minimum potential range	0.00%
Performance metric for performance based restricted stock units maximum potential range	150.00%
Aggregate instrinsic value	$ 10.5
Weighted average remaining contractual life	2 years 1 month 6 days
Performance And Market-Based Restricted Stock Units | 2013 Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	3 years
Granted, Shares	2,268	3,125
Granted, Weighted Average Grant Date Fair Value	$ 41.77	$ 42.44
Performance And Market-Based Restricted Stock Units | 2013 Grants [Member] | Vesting Rate After Three Years [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	3 years
Performance And Market-Based Restricted Stock Units | 2014 Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted, Weighted Average Grant Date Fair Value	$ 57.00
Performance And Market-Based Restricted Stock Units | 2012 Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted, Shares	30,134	36,875	2,888
Granted, Weighted Average Grant Date Fair Value		$ 36.47	$ 43.31
Increase as grant in period, percentage			100.00%
Performance And Market-Based Restricted Stock Units | 2012 and 2013 Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Increase as grant in period, percentage	100.00%	100.00%
Market-based awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted, Shares	87,213	80,738	56,625
Restricted Stock and Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Intrinsic value of awards vested	$ 5.4	$ 4.4	$ 4.2
Aggregate instrinsic value	$ 24.5
Weighted average remaining contractual life	1 year 4 months 24 days
Market-Based Awards That Achieved Payout In Excess Of 100% [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted, Shares	30,453

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Stock-based Compensation Plans (Summary of Stock Option Plan Activity) (Details) - $ / shares		12 Months Ended
		Dec. 31, 2016		Dec. 31, 2015		Dec. 31, 2014
Shares
Outstanding, beginning of period, Shares		1,619,948	[1]	2,236,620	[1]	2,049,173
Granted, Shares		587,340		663,900		687,700
Exercised, Shares		(589,666)		(1,051,664)		(444,200)
Forfeited or cancelled, Shares	[1]	(221,470)		(228,908)		(56,053)
Outstanding, end of period, Shares	[1]	1,396,152		1,619,948		2,236,620
Weighted Average Exercise Price
Outstanding, beginning of period, Weighted Average Exercise Price		$ 56.57	[1]	$ 46.61	[1]	$ 41.18
Granted, Weighted Average Exercise Price		82.17		70.34		58.06
Exercised, Weighted Average Exercise Price		48.99		44.47		39.33
Forfeited or cancelled, Weighted Average Exercise Price	[1]	68.61		54.78		45.99
Outstanding, end of period, Weighted Average Exercise Price	[1]	$ 68.63		$ 56.57		$ 46.61
Additional Disclosures
Exercisable, end of year (Shares)		441,256		360,585		726,321
Exercisable, end of year (Weighted Average Exercise Price)		$ 53.59		$ 46.10		$ 43.55
Chief Executive Officer [Member]
Additional Disclosures
Shares forfeited or cancelled that are no longer expected to vest				128,334

[1] Included in outstanding shares at the end of 2015 in this table and in subsequent metrics were 128,334 options that were previously granted to the Company's former CEO. These options were subsequently forfeited in 2016 and are included in the table in the amounts forfeited or cancelled in 2016.

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Stock-based Compensation Plans (Schedule of Stock Options by Exercise Price Range) (Details)	12 Months Ended
	Dec. 31, 2016 $ / shares shares
Exercise Price Range One [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Range Limit	$ 34.19
Range of Exercise Prices, Upper Range Limit	$ 46.47
Options Outstanding, Number | shares	188,603
Options Outstanding, Weighted Average Remaining Contractual Lives	5 years 1 month 24 days
Options Outstanding, Weighted Average Exercise Price	$ 40.64
Options Currently Exercisable, Number | shares	188,603
Options Currently Exercisable, Weighted Average Exercise Price	$ 40.64
Exercise Price Range Two [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Range Limit	57.99
Range of Exercise Prices, Upper Range Limit	$ 62.57
Options Outstanding, Number | shares	269,907
Options Outstanding, Weighted Average Remaining Contractual Lives	7 years 1 month 24 days
Options Outstanding, Weighted Average Exercise Price	$ 58.05
Options Currently Exercisable, Number | shares	145,994
Options Currently Exercisable, Weighted Average Exercise Price	$ 58.06
Exercise Price Range Three [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Range Limit	69.09
Range of Exercise Prices, Upper Range Limit	$ 73.30
Options Outstanding, Number | shares	381,182
Options Outstanding, Weighted Average Remaining Contractual Lives	8 years 2 months 1 day
Options Outstanding, Weighted Average Exercise Price	$ 70.30
Options Currently Exercisable, Number | shares	105,910
Options Currently Exercisable, Weighted Average Exercise Price	$ 70.30
Exercise Price Range Four [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Range Limit	74.88
Range of Exercise Prices, Upper Range Limit	$ 90.42
Options Outstanding, Number | shares	556,460
Options Outstanding, Weighted Average Remaining Contractual Lives	9 years 4 months 17 days
Options Outstanding, Weighted Average Exercise Price	$ 82.11
Options Currently Exercisable, Number | shares	749
Options Currently Exercisable, Weighted Average Exercise Price	$ 79.54

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Stock-based Compensation Plans (Schedule of Stock Option Valuation Assumptions) (Details) - Employee Stock Option	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expected volatility, minimum	18.08%	17.63%	18.07%
Expected volatility, maximum	21.31%	22.24%	24.38%
Weighted average expected volatility	19.57%	20.19%	23.00%
Risk-free interest rate, minimum	0.77%	0.70%	0.53%
Risk-free interest rate, maximum	1.97%	1.75%	1.92%
Minimum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Dividend yield	2.04%	2.03%	2.07%
Expected term, in years	2 years 6 months	2 years 6 months	2 years 6 months
Maximum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Dividend yield	2.46%	2.37%	2.55%
Expected term, in years	5 years 6 months	5 years 6 months	5 years 6 months

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Stock-based Compensation Plans (Summary of Restricted Stock Activity) (Details) - $ / shares		12 Months Ended
		Dec. 31, 2016		Dec. 31, 2015		Dec. 31, 2014
Restricted Stock Units (RSUs) [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Outstanding, beginning of period, Shares		301,897		384,923		525,980
Granted, Shares		143,107		93,631		102,131
Vested, Shares		(139,183)		(138,307)		(231,078)
Forfeited, Shares		(36,758)		(38,350)		(12,110)
Outstanding, end of period, Shares		269,063		301,897		384,923
Outstanding, beginning of period, Weighted Average Grant Date Fair Value		$ 54.54		$ 45.63		$ 41.20
Granted, Weighted Average Grant Date Fair Value		83.43		70.75		58.78
Vested, Weighted Average Grant Date Fair Value		42.97		41.22		41.45
Forfeited, Weighted Average Grant Date Fair Value		69.07		52.75		43.67
Outstanding, end of period, Weighted Average Grant Date Fair Value		$ 73.91		$ 54.54		$ 45.63
Performance Shares [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Outstanding, beginning of period, Shares		196,142	[1]	218,338	[1]	184,626
Granted, Shares		126,796		82,025		60,338
Vested, Shares		(144,141)		(82,748)		(22,826)
Forfeited, Shares	[1]	(63,740)		(21,473)		(3,800)
Outstanding, end of period, Shares	[1]	115,057		196,142		218,338
Outstanding, beginning of period, Weighted Average Grant Date Fair Value		$ 47.89	[1]	$ 44.24	[1]	$ 40.42
Granted, Weighted Average Grant Date Fair Value		73.42		48.55		55.73
Vested, Weighted Average Grant Date Fair Value		40.95		38.99		44.78
Forfeited, Weighted Average Grant Date Fair Value	[1]	58.54		47.53		37.90
Outstanding, end of period, Weighted Average Grant Date Fair Value	[1]	$ 78.82		$ 47.89		$ 44.24
Chief Executive Officer [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares forfeited or cancelled that are no longer expected to vest				128,334
Chief Executive Officer [Member] | Market-Based Restricted Stock Units [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares forfeited or cancelled that are no longer expected to vest				56,500

[1] Included in outstanding shares at the end of 2015 were 56,500 market-based restricted stock units that were previously granted to the Company's former CEO. These units were subsequently forfeited in 2016 and are included above in the amounts forfeited in 2016.

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Earnings Per Share and Shareholders Equity Transactions (Narrative) (Details) - USD ($) shares in Millions, $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Earnings Per Share and Shareholders’ Equity Transactions [Abstract]
Antidilutive securities excluded from calculation of earnings per share	0.6	0.6	0.7
Repurchases common stock, authorized	$ 900.0
Repurchases common stock, available for repurchases	$ 183.6
Repurchases common stock, shares	1.3
Repurchases common stock, value	$ 105.6

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Earnings Per Share and Shareholders’ Equity Transactions (Information Regarding Basic and Diluted Earnings Per Share) (Details) - $ / shares shares in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Basic shares used in the calculation of earnings per share	42.8	43.9	44.0
Diluted shares used in the calculation of earnings per share	43.2	44.8	44.9
Per share effect of dilutive securities on income from continuing operations	$ (0.04)	$ (0.14)	$ (0.12)
Per share effect of dilutive securities on income from net income	$ (0.04)	$ (0.15)	$ (0.13)
Employee Stock Option
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Dilutive effect of securities	0.2	0.5	0.5
Non-Vested Stock Grants
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Dilutive effect of securities	0.2	0.4	0.4

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Dividend Restrictions (Details) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
NEW HAMPSHIRE
Statutory Accounting Practices [Line Items]
Percentage of policyholder's surplus distributes as dividends and other distributions		10.00%
Dividends declared		$ 0	$ 0	$ 0
MICHIGAN
Statutory Accounting Practices [Line Items]
Percentage of policyholder's surplus distributes as dividends and other distributions		10.00%
Dividends declared		$ 70,000,000	63,000,000	66,000,000
U.K. [Member]
Statutory Accounting Practices [Line Items]
Dividends declared		79,500,000	$ 61,300,000	$ 68,700,000
Maximum [Member] | MICHIGAN
Statutory Accounting Practices [Line Items]
Maximum dividends payable without prior approval of state regulators		$ 30,000,000
Scenario, Forecast [Member] | NEW HAMPSHIRE
Statutory Accounting Practices [Line Items]
Maximum dividends payable without prior approval of state regulators	$ 216,800,000
Scenario, Forecast [Member] | MICHIGAN
Statutory Accounting Practices [Line Items]
Maximum dividends payable without prior approval of state regulators	100,000,000
Increase in maximum dividends payable without prior approval of state regulators	$ 70,000,000

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Segment Information (Narrative) (Details)	12 Months Ended
	Dec. 31, 2016 segment
Segment Information [Abstract]
Operating segments	4

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Segment Information (Financial Information with Respect to Business Segments) (Details) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Segment Reporting Information [Line Items]
Operating revenues									$ 4,937.2	$ 5,014.5	$ 5,017.5
Net realized investment gains									8.6	19.5	50.1
Total revenues	$ 1,255.0	$ 1,241.2	$ 1,222.0	$ 1,227.6	$ 1,204.7	$ 1,233.5	$ 1,297.1	$ 1,298.7	4,945.8	5,034.0	5,067.6
Net investment income									279.4	279.1	270.3
Interest on debt									(54.9)	(60.6)	(65.8)
Operating income before income taxes									267.9	405.5	341.0
Gain on disposal of U.K. motor business									1.1	38.4
Loss from settlement of pension obligation											(12.1)
Net loss from repayment of debt									(88.3)	(24.1)	(0.1)
Other non-operating items									3.0	0.1	(0.9)
Income before income taxes									192.3	439.4	378.0
Operating Segments [Member]
Segment Reporting Information [Line Items]
Operating income (loss) before interest expense and income taxes									322.8	466.1	406.8
Commercial Lines [Member]
Segment Reporting Information [Line Items]
Operating revenues									2,485.0	2,391.7	2,239.0
Underwriting income (loss)									(122.0)	(12.7)	(8.3)
Net investment income									158.5	156.3	149.4
Other income (expense)									(0.6)	(0.3)	(1.2)
Operating income (loss) before interest expense and income taxes									35.9	143.3	139.9
Personal Lines [Member]
Segment Reporting Information [Line Items]
Operating revenues									1,552.4	1,511.3	1,491.0
Underwriting income (loss)									103.8	72.0	22.1
Net investment income									69.5	72.5	71.9
Other income (expense)									5.1	4.8	5.0
Operating income (loss) before interest expense and income taxes									178.4	149.3	99.0
Chaucer [Member]
Segment Reporting Information [Line Items]
Operating revenues									891.4	1,104.1	1,279.7
Underwriting income (loss)									80.3	131.5	122.5
Net investment income									45.7	45.9	44.2
Other income (expense)									0.8	6.3	10.9
Operating income (loss) before interest expense and income taxes									126.8	183.7	177.6
Other [Member]
Segment Reporting Information [Line Items]
Operating revenues									8.4	7.4	7.8
Underwriting income (loss)									(10.8)	(1.9)	(3.1)
Net investment income									5.7	4.4	4.8
Other expense									(13.2)	(12.7)	(11.4)
Operating income (loss) before interest expense and income taxes									$ (18.3)	$ (10.2)	$ (9.7)

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Segment Information (Identifiable Assets by Business Segment) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Segment Reporting Information [Line Items]
Discontinued operations	$ 79.5	$ 83.0
Identifiable assets	14,220.4	13,781.2
U.S. Companies
Segment Reporting Information [Line Items]
Identifiable assets	10,225.4	9,616.0
Chaucer
Segment Reporting Information [Line Items]
Identifiable assets	$ 3,915.5	$ 4,082.2

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Segment Information (Gross Written Premium by Geographical Area) (Details)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Segment Reporting Information [Line Items]
Gross written premium, percentage	100.00%	100.00%	100.00%
UNITED STATES
Segment Reporting Information [Line Items]
Gross written premium, percentage	85.00%	81.00%	78.00%
U.K. [Member]
Segment Reporting Information [Line Items]
Gross written premium, percentage		4.00%	6.00%
Worldwide And Other
Segment Reporting Information [Line Items]
Gross written premium, percentage	15.00%	15.00%	16.00%

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Lease Commitments (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Lease Commitments [Abstract]
Rental expenses for operating leases	$ 18.5	$ 17.4	$ 20.4
Future minimum rental payments	61.7
Future minimum rental payments, 2017	16.7
Future minimum rental payments, 2018	15.1
Future minimum rental payments, 2019	12.2
Future minimum rental payments, 2020	9.6
Future minimum rental payments, 2021 and thereafter	$ 8.1

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Reinsurance (Narrative) (Details) - USD ($) $ in Millions		12 Months Ended
		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Effects of Reinsurance [Line Items]
Property and casualty premiums earned, Ceded	[1],[2]	$ 720.2	$ 765.2	$ 665.9
Property and casualty losses and LAE, Ceded	[1],[3]	512.9	436.8	358.0
Reinsurance recoverable on paid and unpaid losses and unearned premiums		2,611.8	2,635.0
MCCA [Member]
Effects of Reinsurance [Line Items]
Property and casualty premiums earned, Ceded		58.6	67.7	73.4
Property and casualty losses and LAE, Ceded		75.0	78.8	$ 99.2
Reinsurance recoverable on paid and unpaid losses and unearned premiums		$ 911.2	906.5
MCCA [Member] | Reinsurance Receivable [Member]
Effects of Reinsurance [Line Items]
Percentage of reinsurance receivable represented by segment		34.90%
Lloyd’s Syndicates [Member]
Effects of Reinsurance [Line Items]
Reinsurance recoverable on paid and unpaid losses and unearned premiums		$ 506.8	$ 606.5
Lloyd’s Syndicates [Member] | Reinsurance Receivable [Member]
Effects of Reinsurance [Line Items]
Percentage of reinsurance receivable represented by segment		19.40%

[1] Effective June 30, 2015, the Company transferred its U.K. motor business through a 100% reinsurance arrangement. This transaction resulted in the increase of approximately $196 million, $133 million and $90 million for ceded premiums written, premiums earned and losses and LAE, respectively, for the year ended December 31, 2015. See also "Disposal of U.K. Motor Business" in Note 2 - "Dispositions of Businesses".

[2] The decrease in ceded reinsurance premiums from 2015 to 2016 is primarily due to the above mentioned non-recurring U.K. motor activity in 2015, partially offset by a planned increase in Chaucer's ceded reinsurance premiums as the Company continues to manage its overall underwriting risk.

[3] The increase in ceded losses and LAE from 2015 to 2016 is primarily due to the aforementioned increase in Chaucer's reinsurance purchases in 2016 and due to a higher level of ceded large loss activity in certain Chaucer and domestic lines in 2016. These increases in ceded losses and LAE were partially offset by the above mentioned non-recurring U.K. motor activity in 2015.

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Reinsurance (Schedule of Effects of Reinsurance) (Details) - USD ($) $ in Millions		6 Months Ended	12 Months Ended
		Jun. 30, 2015	Dec. 31, 2016		Dec. 31, 2015		Dec. 31, 2014
Effects Of Reinsurance [Line Items]
Property and casualty premiums written, Direct			$ 4,826.0		$ 4,811.3		$ 4,777.3
Property and casualty premiums written, Assumed	[1]		571.4		633.2		688.1
Property and casualty premiums written, Ceded		$ (137.4)	(698.6)	[2],[3]	(827.7)	[2],[3]	(655.3)	[2],[3]
Property and casualty premiums written, Net			4,698.8		4,616.8		4,810.1
Property and casualty premiums earned, Direct			4,746.6		4,814.4		4,679.8
Property and casualty premiums earned, Assumed	[1]		601.7		655.6		696.4
Property and casualty premiums earned, Ceded	[2],[3]		(720.2)		(765.2)		(665.9)
Premiums Earned, Net, Total			$ 4,628.1		$ 4,704.8		$ 4,710.3
Percentage of assumed to net premiums earned			13.00%		13.93%		14.78%
Property and casualty losses and LAE, Direct			$ 3,188.2		$ 3,008.5		$ 3,019.4
Property and casualty losses and LAE, Assumed	[1]		289.4		312.4		266.1
Property and casualty losses and LAE, Ceded	[2],[4]		(512.9)		(436.8)		(358.0)
Policyholder Benefits and Claims Incurred, Net, Total			$ 2,964.7		2,884.1		2,927.5
reinsurance arrangement			100.00%
Written premiums ceded		$ 137.4	$ 698.6	[2],[3]	827.7	[2],[3]	655.3	[2],[3]
Premiums	[2],[3]		$ 720.2		765.2		$ 665.9
U.K. Motor Business [Member]
Effects Of Reinsurance [Line Items]
Property and casualty premiums written, Ceded					(196.0)
Property and casualty premiums earned, Ceded					(133.0)
Written premiums ceded					196.0
Premiums					133.0
Loss and loss adjustment expense					$ 90.0

[1] Assumed reinsurance activity primarily relates to the Chaucer segment.

[2] Effective June 30, 2015, the Company transferred its U.K. motor business through a 100% reinsurance arrangement. This transaction resulted in the increase of approximately $196 million, $133 million and $90 million for ceded premiums written, premiums earned and losses and LAE, respectively, for the year ended December 31, 2015. See also "Disposal of U.K. Motor Business" in Note 2 - "Dispositions of Businesses".

[3] The decrease in ceded reinsurance premiums from 2015 to 2016 is primarily due to the above mentioned non-recurring U.K. motor activity in 2015, partially offset by a planned increase in Chaucer's ceded reinsurance premiums as the Company continues to manage its overall underwriting risk.

[4] The increase in ceded losses and LAE from 2015 to 2016 is primarily due to the aforementioned increase in Chaucer's reinsurance purchases in 2016 and due to a higher level of ceded large loss activity in certain Chaucer and domestic lines in 2016. These increases in ceded losses and LAE were partially offset by the above mentioned non-recurring U.K. motor activity in 2015.

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Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses (Narrative) (Details) - USD ($) $ in Millions		3 Months Ended	9 Months Ended	12 Months Ended
		Dec. 31, 2016	Sep. 30, 2016	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008	Dec. 31, 2007
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development				$ 105.4	$ (116.1)	$ (117.4)
Percent reinsured				100.00%
Net reserves		$ 6,949.4		$ 6,949.4	6,574.4	6,391.7	$ 6,231.5
Commercial Lines [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development		161.5		219.3	47.2	14.1
Other Commercial Lines [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development				169.7	59.2	7.1
Commercial Automobile Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		1,107.7		1,107.7
Favorable unfavorable loss and LAE development				27.5	23.3	15.1
Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		1,320.0		1,320.0
Favorable unfavorable loss and LAE development				(46.7)	(46.9)	(5.6)
AIX Program Business [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development				75.1	74.7	10.9
Commercial Multiple Peril Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		2,741.0		2,741.0
Favorable unfavorable loss and LAE development				68.8	11.6	(2.5)
Chaucer [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development				(132.8)	(153.0)	(127.8)
Net reserves		2,289.4		2,289.4	2,372.5
U.S. Companies
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development	[1]	174.1
U.S. Companies | Commercial Lines [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development		161.5
U.S. Companies | Other Commercial Lines [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development		131.4
U.S. Companies | Commercial Automobile Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development		18.4
U.S. Companies | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development		(32.0)
U.S. Companies | AIX Program Business [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development		49.6
U.S. Companies | Commercial Multiple Peril Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development		43.7
U.K. Motor Business [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Loss and LAE development trend					90.0
Year 2007 [Member] | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years	[2]	74.9		74.9	75.1	75.8	75.6	$ 76.5	$ 77.3	$ 78.6	$ 80.5	$ 82.2	$ 79.2
Year 2008 [Member] | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years	[2]	80.4		80.4	80.5	79.8	80.6	81.5	81.5	88.0	93.9	$ 88.9
Year 2009 [Member] | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		77.5		77.5	77.5	79.2	79.4	80.3	82.5	87.6	$ 93.8
Year 2010 [Member] | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		114.7		114.7	114.9	116.3	115.9	115.8	116.9	$ 115.5
Year 2011 [Member] | Commercial Automobile Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		179.6		179.6	177.0	162.8	148.0	142.1	120.4
Year 2011 [Member] | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		146.7		146.7	143.8	145.5	144.3	144.2	141.4
Year 2011 [Member] | Commercial Multiple Peril Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		505.4		505.4	494.7	478.8	469.1	453.3	$ 455.4
Year 2012 [Member] | Commercial Automobile Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		198.0		198.0	189.9	173.7	167.5	166.8
Year 2012 [Member] | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		162.9		162.9	157.2	165.2	171.1	176.3
Year 2012 [Member] | Commercial Multiple Peril Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		475.6		475.6	459.7	456.2	462.8	$ 480.0
Year 2013 [Member] | Commercial Automobile Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		227.5		227.5	205.3	179.4	177.7
Year 2013 [Member] | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		154.4		154.4	160.1	167.4	179.3
Year 2013 [Member] | Commercial Multiple Peril Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		391.8		391.8	367.9	362.5	$ 380.0
Year 2014 [Member] | Commercial Automobile Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		177.3		177.3	163.3	168.5
Year 2014 [Member] | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		154.7		154.7	172.9	182.1
Year 2014 [Member] | Commercial Multiple Peril Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		464.8		464.8	439.6	443.9
Year 2015 [Member] | Commercial Automobile Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		168.3		168.3	163.4
Year 2015 [Member] | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		164.2		164.2	189.6
Year 2015 [Member] | Commercial Multiple Peril Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		456.3		456.3	446.0
Year 2016 [Member] | Commercial Automobile Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		157.0		157.0
Year 2016 [Member] | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		189.6		189.6
Year 2016 [Member] | Commercial Multiple Peril Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Carried reserves for prior accident years		447.1		447.1
Years 2005 To 2014 [Member] | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development					46.9
Years 2011 To 2013 [Member] | Commercial Automobile Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development				23.0	23.3
Years 2011 To 2013 [Member] | Chaucer [Member] | Marine And Aviation Lines [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development						(47.4)
Years 2011 To 2013 [Member] | Chaucer [Member] | Aviation Lines [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development						4.0
Years 2011 To 2014 [Member] | Chaucer [Member] | Property Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development					(43.8)
Years 2014 And Prior [Member] | Chaucer [Member] | Specialty Liability Lines [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development				15.3
Years 2012 To 2014 [Member] | Commercial Automobile Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development				27.5
Years 2012 To 2014 [Member] | Chaucer [Member] | Energy Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development					(42.1)
Years 2012 To 2015 [Member] | Commercial Multiple Peril Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development				68.8
Years 2013 To 2015 [Member] | Workers’ Compensation Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development				46.7
Years 2013 To 2015 [Member] | Chaucer [Member] | Property Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development				(45.6)
Years 2013 To 2015 [Member] | Chaucer [Member] | Energy Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development				(31.9)
Years 2010, 2012 and 2013 [Member] | Chaucer [Member] | Marine And Aviation Lines [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development					(34.2)
Years 2008, 2011 and 2013 [Member] | Chaucer [Member] | Specialty Liability Lines [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development					(22.7)
Years 2008, 2009, 2017, and 2015 [Member] | Chaucer [Member] | Marine And Aviation Lines [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development				(27.4)
Years 2010 and 2013 [Member] | Chaucer [Member] | Property Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development						(30.6)
Years 2010 and 2013 [Member] | Chaucer [Member] | Specialty Liability Lines [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development						(21.4)
Years 2009 To 2012 [Member] | Commercial Automobile Line [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development						$ 23.1
Asbestos Issue [Member]
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Net reserves		61.0		$ 61.0	$ 57.7
Excluding Catastrophes [Member] | U.S. Companies
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Line Items]
Favorable unfavorable loss and LAE development		$ 174.1	$ 61.5

[1] (in millions)Commercial multiple peril$ 43.7Workers' compensation (32.0)Commercial automobile 18.4Other commercial lines:AIX program business 49.6General liability 45.2Surety 37.9Umbrella (9.4)Other lines 8.1Total other commercial lines 131.4 Total Commercial Lines Segment 161.5Personal automobile 8.2Homeowners and other personal lines (3.0) Total Personal Lines Segment 5.2 Total Other Segment 7.4Total domestic business loss and LAE reserve development, excluding catastrophes(1)$ 174.1For the three months ended December 31, 2016, prior year reserve development for catastrophes was favorable of $2.0 million for the domestic business.

[2] The incurred and cumulative paid losses and ALAE, IBNR and incurred claim counts retroactively include AIX business for all periods presented, including those periods that pre-date the acquisition of AIX on November 30, 2008.

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Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses (Schedule of Liability for Unpaid Losses and Loss Adjustment Expenses) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses [Abstract]
Gross loss and LAE reserves, beginning of year	$ 6,574.4	$ 6,391.7	$ 6,231.5
Reinsurance recoverable on unpaid losses, beginning of year	2,280.8	1,983.0	2,030.4
Net loss and LAE reserves, beginning of year	4,293.6	4,408.7	4,201.1
Net incurred losses and LAE in respect of losses occurring in current year	2,859.3	3,000.2	3,044.9
Net incurred losses and LAE in respect of losses occurring in prior years	105.4	(116.1)	(117.4)
Total incurred losses and LAE	2,964.7	2,884.1	2,927.5
Net payments of losses and LAE in respect of losses occurring in Current year	1,142.7	1,245.6	1,328.7
Net payments of losses and LAE in respect of losses occurring in Prior years	1,367.2	1,418.4	1,398.9
Total payments	2,509.9	2,664.0	2,727.6
Commutation of Chaucer Flagstone reinsurance agreement			85.7
Transfer of U.K. motor business		(300.6)
Effect of foreign exchange rate changes	(73.8)	(34.6)	(78.0)
Net reserve for losses and LAE, end of year	4,674.6	4,293.6	4,408.7
Reinsurance recoverable on unpaid losses, end of year	2,274.8	2,280.8	1,983.0
Gross reserve for losses and LAE, end of year	$ 6,949.4	$ 6,574.4	$ 6,391.7

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Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses (Schedule of (Favorable)/Unfavorable Loss and LAE Reserve Development) (Details) - USD ($) $ in Millions		3 Months Ended	12 Months Ended
		Dec. 31, 2016	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			$ 105.4	$ (116.1)	$ (117.4)
U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes	[1]	$ 174.1
Commercial Multiple Peril Line [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			68.8	11.6	(2.5)
Commercial Multiple Peril Line [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		43.7
Workers’ Compensation Line [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			(46.7)	(46.9)	(5.6)
Workers’ Compensation Line [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		(32.0)
Commercial Automobile Line [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			27.5	23.3	15.1
Commercial Automobile Line [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		18.4
AIX Program Business [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			75.1	74.7	10.9
AIX Program Business [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		49.6
General Liability [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			56.0	14.3	2.3
General Liability [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		45.2
Surety Product Line [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			35.3	1.5	(5.2)
Surety Product Line [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		37.9
Umbrella Line [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			(8.9)	(17.8)	(1.4)
Umbrella Line [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		(9.4)
Other Lines [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			12.2	(13.5)	0.5
Other Lines [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		8.1
Other Commercial Lines [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			169.7	59.2	7.1
Other Commercial Lines [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		131.4
Commercial Lines [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		161.5	219.3	47.2	14.1
Commercial Lines [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		161.5
Personal Automobile Lines [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			4.8	(7.2)	(5.9)
Personal Automobile Lines [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		8.2
Homeowners And Other Personal Lines [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			5.8	(3.4)	0.8
Homeowners And Other Personal Lines [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		(3.0)
Personal Lines [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			10.6	(10.6)	(5.1)
Personal Lines [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		5.2
Chaucer [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			(132.8)	(153.0)	(127.8)
Other Segment [Member]
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes			$ 8.3	$ 0.3	$ 1.4
Other Segment [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		7.4
Catastrophes [Member] | U.S. Companies
Short-duration Insurance Contracts, Reconciliation of Claims Development to Liability [Line Items]
Loss and LAE reserve development, including catastrophes		$ 2.0

[1] (in millions)Commercial multiple peril$ 43.7Workers' compensation (32.0)Commercial automobile 18.4Other commercial lines:AIX program business 49.6General liability 45.2Surety 37.9Umbrella (9.4)Other lines 8.1Total other commercial lines 131.4 Total Commercial Lines Segment 161.5Personal automobile 8.2Homeowners and other personal lines (3.0) Total Personal Lines Segment 5.2 Total Other Segment 7.4Total domestic business loss and LAE reserve development, excluding catastrophes(1)$ 174.1For the three months ended December 31, 2016, prior year reserve development for catastrophes was favorable of $2.0 million for the domestic business.

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Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses (Schedule of Carried Reserves) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Gross	$ 6,949.4	$ 6,574.4	$ 6,391.7	$ 6,231.5
Ceded	(2,274.8)	(2,280.8)
Net	4,674.6	4,293.6	$ 4,408.7	$ 4,201.1
Commercial And Other Line [Member]
Gross	3,106.0	2,674.2
Ceded	(476.3)	(424.8)
Net	2,629.7	2,249.4
Personal Lines [Member]
Gross	1,554.0	1,527.7
Ceded	(872.9)	(870.5)
Net	681.1	657.2
Chaucer [Member]
Gross	2,289.4	2,372.5
Ceded	(925.6)	(985.5)
Net	1,363.8	1,387.0
Commercial Multiple Peril Line [Member] | Commercial And Other Line [Member]
Gross	978.0	813.1
Ceded	(82.1)	(59.2)
Net	895.9	753.9
Workers’ Compensation Line [Member] | Commercial And Other Line [Member]
Gross	715.5	713.1
Ceded	(171.4)	(178.0)
Net	544.1	535.1
Commercial Automobile Line [Member] | Commercial And Other Line [Member]
Gross	431.7	390.3
Ceded	(27.2)	(28.4)
Net	404.5	361.9
Other Commercial Lines [Member] | Commercial And Other Line [Member]
Gross	980.8	757.7
Ceded	(195.6)	(159.2)
Net	785.2	598.5
Personal Automobile Lines [Member] | Personal Lines [Member]
Gross	1,416.8	1,395.0
Ceded	(865.6)	(863.5)
Net	551.2	531.5
Homeowners And Other Personal Lines [Member] | Personal Lines [Member]
Gross	137.2	132.7
Ceded	(7.3)	(7.0)
Net	129.9	125.7
Core Lines [Member] | Chaucer [Member]
Gross	1,832.4	1,767.6
Ceded	(552.5)	(508.5)
Net	1,279.9	1,259.1
Reinsured And Run-Off Lines [Member] | Chaucer [Member]
Gross	457.0	604.9
Ceded	(373.1)	(477.0)
Net	$ 83.9	$ 127.9

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Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses (Schedule of Incurred Claims Development) (Details) $ in Millions		12 Months Ended	60 Months Ended
		Dec. 31, 2011 USD ($) item	Dec. 31, 2016 USD ($) claim	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)	Dec. 31, 2010 USD ($)	Dec. 31, 2009 USD ($)	Dec. 31, 2008 USD ($)	Dec. 31, 2007 USD ($)
Commercial Multiple Peril Line [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			$ 2,741.0
Cumulative Paid Losses and ALAE			1,918.5
Unallocated loss adjustment expense			17.7
Net reserves			895.9
Commercial Multiple Peril Line [Member] | Year 2011 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance		$ 455.4	505.4	$ 494.7	$ 478.8	$ 469.1	$ 453.3
IBNR			$ 17.2
Cumulative Incurred Claim Count | claim			19,163
Cumulative Paid Losses and ALAE		217.8	$ 471.5	454.0	418.6	381.5	328.5
Commercial Multiple Peril Line [Member] | Year 2012 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			475.6	459.7	456.2	462.8	480.0
IBNR			$ 20.5
Cumulative Incurred Claim Count | claim			17,054
Cumulative Paid Losses and ALAE			$ 424.2	389.3	350.8	307.5	175.8
Commercial Multiple Peril Line [Member] | Year 2013 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			391.8	367.9	362.5	380.0
IBNR			$ 33.9
Cumulative Incurred Claim Count | claim			14,911
Cumulative Paid Losses and ALAE			$ 306.4	262.3	221.5	137.6
Commercial Multiple Peril Line [Member] | Year 2014 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			464.8	439.6	443.9
IBNR			$ 62.9
Cumulative Incurred Claim Count | claim			16,102
Cumulative Paid Losses and ALAE			$ 316.0	267.8	171.7
Commercial Multiple Peril Line [Member] | Year 2015 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			456.3	446.0
IBNR			$ 100.1
Cumulative Incurred Claim Count | claim			15,810
Cumulative Paid Losses and ALAE			$ 260.1	161.9
Commercial Multiple Peril Line [Member] | Year 2016 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			447.1
IBNR			$ 181.7
Cumulative Incurred Claim Count | claim			15,512
Cumulative Paid Losses and ALAE			$ 140.3
Commercial Multiple Peril Line [Member] | Years 2011 To 2016 [Member]
Claims Development [Line Items]
Total reserves for accident years			822.5
Commercial Multiple Peril Line [Member] | Years 2010 And Prior [Member]
Claims Development [Line Items]
Total reserves for accident years			55.7
Workers’ Compensation Line [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			1,320.0
Cumulative Paid Losses and ALAE			879.3
Unallocated loss adjustment expense			15.9
Net reserves			544.1
Workers’ Compensation Line [Member] | Year 2007 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance	[1]	77.3	74.9	75.1	75.8	75.6	76.5	$ 78.6	$ 80.5	$ 82.2	$ 79.2
IBNR	[1]		$ 1.3
Cumulative Incurred Claim Count | claim	[1]		7,591
Cumulative Paid Losses and ALAE	[1]	59.6	$ 67.3	66.5	65.5	63.9	62.0	54.4	46.5	34.9	$ 15.1
Workers’ Compensation Line [Member] | Year 2008 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance	[1]	81.5	80.4	80.5	79.8	80.6	81.5	88.0	93.9	88.9
IBNR	[1]		$ 1.6
Cumulative Incurred Claim Count | claim	[1]		8,930
Cumulative Paid Losses and ALAE	[1]	60.8	$ 72.4	71.0	69.8	67.1	64.8	52.9	40.2	$ 17.9
Workers’ Compensation Line [Member] | Year 2009 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance		82.5	77.5	77.5	79.2	79.4	80.3	87.6	93.8
IBNR			$ 1.2
Cumulative Incurred Claim Count | claim			8,014
Cumulative Paid Losses and ALAE		54.6	$ 70.8	69.8	68.6	65.4	61.6	41.2	$ 19.2
Workers’ Compensation Line [Member] | Year 2010 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance		116.9	114.7	114.9	116.3	115.9	115.8	115.5
IBNR			$ 2.6
Cumulative Incurred Claim Count | claim			10,152
Cumulative Paid Losses and ALAE		57.2	$ 104.2	101.0	96.5	89.5	76.9	$ 22.1
Workers’ Compensation Line [Member] | Year 2011 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance		141.4	146.7	143.8	145.5	144.3	144.2
IBNR			$ 7.5
Cumulative Incurred Claim Count | claim			12,428
Cumulative Paid Losses and ALAE		30.0	$ 128.0	122.9	114.0	97.3	71.3
Workers’ Compensation Line [Member] | Year 2012 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			162.9	157.2	165.2	171.1	176.3
IBNR			$ 12.6
Cumulative Incurred Claim Count | claim			12,983
Cumulative Paid Losses and ALAE			$ 130.7	120.1	102.6	74.8	30.4
Workers’ Compensation Line [Member] | Year 2013 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			154.4	160.1	167.4	179.3
IBNR			$ 15.6
Cumulative Incurred Claim Count | claim			11,612
Cumulative Paid Losses and ALAE			$ 114.0	101.2	74.6	30.9
Workers’ Compensation Line [Member] | Year 2014 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			154.7	172.9	182.1
IBNR			$ 22.3
Cumulative Incurred Claim Count | claim			10,748
Cumulative Paid Losses and ALAE			$ 92.3	70.5	30.6
Workers’ Compensation Line [Member] | Year 2015 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			164.2	189.6
IBNR			$ 38.2
Cumulative Incurred Claim Count | claim			11,158
Cumulative Paid Losses and ALAE			$ 65.7	28.0
Workers’ Compensation Line [Member] | Year 2016 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			189.6
IBNR			$ 75.1
Cumulative Incurred Claim Count | claim			14,103
Cumulative Paid Losses and ALAE			$ 33.9
Workers’ Compensation Line [Member] | Years 2007 To 2016 [Member]
Claims Development [Line Items]
Total reserves for accident years			440.7
Workers’ Compensation Line [Member] | Years 2006 And Prior [Member]
Claims Development [Line Items]
Total reserves for accident years			87.5
Commercial Automobile Line [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			1,107.7
Cumulative Paid Losses and ALAE			717.1
Unallocated loss adjustment expense			4.3
Net reserves			404.5
Commercial Automobile Line [Member] | Year 2011 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance		120.4	179.6	177.0	162.8	148.0	142.1
IBNR			$ 2.4
Cumulative Incurred Claim Count | claim			15,457
Cumulative Paid Losses and ALAE		27.7	$ 170.2	160.5	135.5	102.4	64.7
Commercial Automobile Line [Member] | Year 2012 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			198.0	189.9	173.7	167.5	166.8
IBNR			$ 5.7
Cumulative Incurred Claim Count | claim			14,786
Cumulative Paid Losses and ALAE			$ 176.3	156.9	117.0	77.0	33.3
Commercial Automobile Line [Member] | Year 2013 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			227.5	205.3	179.4	177.7
IBNR			$ 16.7
Cumulative Incurred Claim Count | claim			15,309
Cumulative Paid Losses and ALAE			$ 176.3	137.6	89.6	35.9
Commercial Automobile Line [Member] | Year 2014 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			177.3	163.3	168.5
IBNR			$ 28.7
Cumulative Incurred Claim Count | claim			13,464
Cumulative Paid Losses and ALAE			$ 102.7	70.8	33.1
Commercial Automobile Line [Member] | Year 2015 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			168.3	163.4
IBNR			$ 51.0
Cumulative Incurred Claim Count | claim			12,723
Cumulative Paid Losses and ALAE			$ 63.8	32.2
Commercial Automobile Line [Member] | Year 2016 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			157.0
IBNR			$ 87.6
Cumulative Incurred Claim Count | claim			10,748
Cumulative Paid Losses and ALAE			$ 27.8
Commercial Automobile Line [Member] | Years 2011 To 2016 [Member]
Claims Development [Line Items]
Total reserves for accident years			390.6
Commercial Automobile Line [Member] | Years 2010 And Prior [Member]
Claims Development [Line Items]
Total reserves for accident years			9.6
Personal Automobile Lines [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			1,703.6
Cumulative Paid Losses and ALAE			1,231.2
Unallocated loss adjustment expense			12.3
Net reserves			551.2
Personal Automobile Lines [Member] | Year 2012 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			379.8	376.5	366.3	366.9	358.4
IBNR			$ 5.7
Cumulative Incurred Claim Count | claim			51,700
Cumulative Paid Losses and ALAE			$ 361.8	342.2	305.1	234.6	126.6
Personal Automobile Lines [Member] | Year 2013 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			343.0	338.3	339.6	348.2
IBNR			$ 6.5
Cumulative Incurred Claim Count | claim			49,278
Cumulative Paid Losses and ALAE			$ 310.1	273.3	210.5	115.3
Personal Automobile Lines [Member] | Year 2014 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			308.8	304.1	323.1
IBNR			$ 15.1
Cumulative Incurred Claim Count | claim			43,268
Cumulative Paid Losses and ALAE			$ 241.1	188.6	107.2
Personal Automobile Lines [Member] | Year 2015 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			334.1	327.4
IBNR			$ 40.5
Cumulative Incurred Claim Count | claim			41,989
Cumulative Paid Losses and ALAE			$ 205.4	112.9
Personal Automobile Lines [Member] | Year 2016 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance			337.9
IBNR			$ 109.7
Cumulative Incurred Claim Count | claim			39,477
Cumulative Paid Losses and ALAE			$ 112.8
Personal Automobile Lines [Member] | Years 2012 To 2016 [Member]
Claims Development [Line Items]
Total reserves for accident years			472.4
Personal Automobile Lines [Member] | Years 2011 And Prior [Member]
Claims Development [Line Items]
Total reserves for accident years			66.5
Chaucer [Member] | Core Lines [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance	[2]		2,566.6
Cumulative Paid Losses and ALAE	[2]		1,471.1
Nuclear Energy	[2]		31.8
Unallocated loss adjustment expense	[2]		23.1
Net reserves	[2]		1,279.9
Chaucer [Member] | Core Lines [Member] | Year 2011 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance	[2],[3]	640.9	575.7	586.2	586.0	605.3	597.7
IBNR	[2],[3]		$ 33.4
Cumulative Incurred Claim Count | claim	[2],[3]		6,940
Cumulative Paid Losses and ALAE	[2],[3]	$ 134.2	$ 513.2	489.3	438.6	391.0	296.3
Number of catastrophic events | item		3
Incurred losses		$ 125.0
Chaucer [Member] | Core Lines [Member] | Year 2011 [Member] | Earthquake [Member]
Claims Development [Line Items]
Excess of incurred losses		30.0
Chaucer [Member] | Core Lines [Member] | Year 2011 [Member] | Flood [Member]
Claims Development [Line Items]
Excess of incurred losses		$ 30.0
Chaucer [Member] | Core Lines [Member] | Year 2012 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance	[2]		318.0	325.0	342.4	337.2	420.5
IBNR	[2]		$ 31.5
Cumulative Incurred Claim Count | claim	[2]		5,690
Cumulative Paid Losses and ALAE	[2]		$ 246.7	228.7	200.0	144.7	$ 55.4
Chaucer [Member] | Core Lines [Member] | Year 2013 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance	[2]		360.1	369.4	381.8	418.2
IBNR	[2]		$ 54.0
Cumulative Incurred Claim Count | claim	[2]		5,618
Cumulative Paid Losses and ALAE	[2]		$ 257.5	228.4	158.4	$ 58.2
Chaucer [Member] | Core Lines [Member] | Year 2014 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance	[2]		397.1	391.6	457.7
IBNR	[2]		$ 80.4
Cumulative Incurred Claim Count | claim	[2]		6,934
Cumulative Paid Losses and ALAE	[2]		$ 227.8	162.2	$ 52.0
Chaucer [Member] | Core Lines [Member] | Year 2015 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance	[2]		410.5	488.4
IBNR	[2]		$ 136.8
Cumulative Incurred Claim Count | claim	[2]		7,216
Cumulative Paid Losses and ALAE	[2]		$ 146.8	$ 52.5
Chaucer [Member] | Core Lines [Member] | Year 2016 [Member]
Claims Development [Line Items]
Incurred Losses and ALAE, Net of Reinsurance	[2]		505.2
IBNR	[2]		$ 329.9
Cumulative Incurred Claim Count | claim	[2]		4,404
Cumulative Paid Losses and ALAE	[2]		$ 79.1
Chaucer [Member] | Core Lines [Member] | Years 2011 To 2016 [Member]
Claims Development [Line Items]
Total reserves for accident years	[2]		1,095.5
Chaucer [Member] | Core Lines [Member] | Years 2010 And Prior [Member]
Claims Development [Line Items]
Total reserves for accident years	[2]		129.5
Chaucer [Member] | Core Lines [Member] | Years 2012 To 2016 [Member]
Claims Development [Line Items]
Excess of incurred losses			$ 30.0

[1] The incurred and cumulative paid losses and ALAE, IBNR and incurred claim counts retroactively include AIX business for all periods presented, including those periods that pre-date the acquisition of AIX on November 30, 2008.

[2] Total reserves for 2011 - 2016 accident years (incurred - paid) 1,095.5Total reserves for 2010 and prior accident years 129.5Reserves for nuclear energy classes 31.8Unallocated loss adjustment expense and other 23.1Net reserves at December 31, 2016$ 1,279.9Chaucer incurred losses and ALAE and paid losses and ALAE that are denominated in foreign currencies are converted to U.S. dollars as of December 31, 2016, the most recent balance sheet date, for all years presented.

[3] The incurred and cumulative paid losses and ALAE, IBNR and reported claim counts retroactively includes the 6 month period that pre-dates the acquisition of Chaucer on July 1, 2011. Additionally, during 2011 Chaucer experienced an elevated level of high severity catastrophe events. For example, three such events, the February 2011 New Zealand earthquake, March 2011 Japanese tsunami and October 2011 Thailand floods totaled approximately $125 million of incurred losses, and each event was in excess of $30 million. Chaucer experienced no catastrophe events in excess of $30 million from 2012 through 2016.

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Liabilities For Outstanding Claims, Losses And Loss Adjustment Expenses (Computation of Historical Claims on Paid and Incurred Claims Data, Net of Reinsurance) (Details)	Dec. 31, 2016
Commercial Multiple Peril Line [Member]
Short-duration Insurance Contracts, Historical Claims Duration [Line Items]
1	36.50%
2	22.60%
3	10.10%
4	8.90%
5	7.20%
6	3.50%
Workers’ Compensation Line [Member]
Short-duration Insurance Contracts, Historical Claims Duration [Line Items]
1	20.00%
2	27.30%
3	16.50%
4	10.10%
5	5.90%
6	3.50%
7	2.60%
8	1.60%
9	1.60%
10	1.00%
Commercial Automobile Line [Member]
Short-duration Insurance Contracts, Historical Claims Duration [Line Items]
1	17.30%
2	21.30%
3	20.10%
4	18.50%
5	11.90%
6	5.40%
Personal Automobile Lines [Member]
Short-duration Insurance Contracts, Historical Claims Duration [Line Items]
1	33.80%
2	27.60%
3	17.90%
4	10.30%
5	5.20%
Chaucer [Member] | Core Lines [Member]
Short-duration Insurance Contracts, Historical Claims Duration [Line Items]
1	16.40%
2	27.00%
3	17.50%
4	8.40%
5	7.20%
6	4.10%

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Commitments and Contingencies (Narrative) (Details)	Dec. 11, 2009 plaintiff claim	Mar. 12, 2007
Commitments and Contingencies [Abstract]
Participant's retirement age		65 years
Named plaintiffs | plaintiff	2
Claims dismissed	2
New claims	3

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Statutory Financial Information (Narrative) (Details) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Statutory Financial Information [Abstract]
Minimum staturtory capital and surplus required	$ 442.0	$ 378.5	$ 374.6

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Statutory Financial Information (Statutory Accounting Practices Disclosure) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Statutory Financial Information [Abstract]
Statutory Net Income	$ 158.0	$ 175.9	$ 204.3
Statutory Capital and Surplus	$ 2,173.4	$ 2,192.8	$ 2,057.1

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Quarterly Results of Operations (Narrative) (Details) - USD ($)	3 Months Ended												12 Months Ended
	Dec. 31, 2016		Sep. 30, 2016	[1]	Jun. 30, 2016		Mar. 31, 2016	[1]	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Quarterly Financial Data [Line Items]
Gain (loss) on the repurchase of debt													$ (88,300,000)	$ (24,100,000)	$ (100,000)
Prior accident years													$ 1,367,200,000	$ 1,418,400,000	$ 1,398,900,000
Net income per share, Diluted	$ (0.32)	[1]	$ 2.06		$ 0.05	[1]	$ 1.80		$ 1.76	$ 1.74	$ 2.68	$ 1.22	$ 3.59	$ 7.40	$ 6.28
Senior debentures maturing April 15, 2026 [Member]
Quarterly Financial Data [Line Items]
Aggregate principal amount	$ 375,000,000				$ 375,000,000								$ 375,000,000
Debt instrument interest rate	4.50%				4.50%								4.50%
Senior Notes [Member]
Quarterly Financial Data [Line Items]
Gain (loss) on the repurchase of debt					$ (86,100,000)
After-tax effect on diluted earnings per share					$ 1.29
Restatement Adjustment [Member]
Quarterly Financial Data [Line Items]
Prior accident years	$ 174,100,000
Net income per share, Diluted	$ 2.66

[1] Per diluted share amounts in the fourth quarter exclude commons stock equivalents since the impact of these instruments was antidilutive.

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Quarterly Results of Operations (Schedule of Quarterly Financial Information) (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended												12 Months Ended
	Dec. 31, 2016		Sep. 30, 2016		Jun. 30, 2016		Mar. 31, 2016		Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Quarterly Results of Operations [Abstract]
Total revenues	$ 1,255.0		$ 1,241.2		$ 1,222.0		$ 1,227.6		$ 1,204.7	$ 1,233.5	$ 1,297.1	$ 1,298.7	$ 4,945.8	$ 5,034.0	$ 5,067.6
Income (loss) from continuing operations	(12.2)		88.3		1.9		78.1		77.8	77.2	120.9	54.9	156.1	330.8	282.3
Net income (loss)	$ (13.5)		$ 88.4		$ 2.0		$ 78.2		$ 77.6	$ 78.3	$ 120.7	$ 54.9	$ 155.1	$ 331.5	$ 282.0
Income from (loss) continuing operations, Basic	$ (0.29)		$ 2.07		$ 0.04		$ 1.82		$ 1.80	$ 1.75	$ 2.74	$ 1.24	$ 3.65	$ 7.53	$ 6.41
Income from (loss) continuing operations, Diluted	(0.29)	[1]	2.06	[1]	0.04	[1]	1.79	[1]	1.76	1.72	2.69	1.22	3.61	7.39	6.29
Net income (loss) per share, Basic	(0.32)		2.07		0.05		1.82		1.79	1.78	2.73	1.24	3.63	7.55	6.41
Net income (loss) per share, Diluted	(0.32)	[1]	2.06	[1]	0.05	[1]	1.80	[1]	1.76	1.74	2.68	1.22	$ 3.59	$ 7.40	$ 6.28
Dividends declared per share	$ 0.50		$ 0.46		$ 0.46		$ 0.46		$ 0.46	$ 0.41	$ 0.41	$ 0.41

[1] Per diluted share amounts in the fourth quarter exclude commons stock equivalents since the impact of these instruments was antidilutive.

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SCHEDULE I SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES (Details) $ in Millions	Dec. 31, 2016 USD ($)
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	$ 8,263.4	[1]
Value	8,449.3
Amount at which shown in the balance sheet	8,449.5
U.S. Treasury and government agencies
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	1,272.6	[1]
Value	1,265.5
Amount at which shown in the balance sheet	1,265.5
States, municipalities and political subdivisions
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	1,065.4	[1]
Value	1,095.0
Amount at which shown in the balance sheet	1,095.0
Foreign governments
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	235.8	[1]
Value	240.7
Amount at which shown in the balance sheet	240.7
Public Utilities Bonds
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	454.1	[1]
Value	461.9
Amount at which shown in the balance sheet	461.9
All other corporate bonds
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	4,204.2	[1]
Value	4,265.2
Amount at which shown in the balance sheet	4,265.2
Fixed Maturities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	7,232.1	[1]
Value	7,328.3
Amount at which shown in the balance sheet	7,328.3
Public utilities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	96.3	[1]
Value	120.6
Amount at which shown in the balance sheet	120.6
Banks, trust and insurance companies
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	21.7	[1]
Value	25.9
Amount at which shown in the balance sheet	25.9
Industrial, miscellaneous and all other
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	376.8	[1]
Value	426.9
Amount at which shown in the balance sheet	426.9
Nonredeemable preferred stocks
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	3.6	[1]
Value	11.0
Amount at which shown in the balance sheet	11.0
Equity Securities Investment Summary [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	498.4	[1]
Value	584.4
Amount at which shown in the balance sheet	584.4
Mortgage loans on real estate
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	297.6	[1],[2]
Value	297.2	[2]
Amount at which shown in the balance sheet	297.6	[2]
Real estate
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	8.6	[1]
Value	8.6
Amount at which shown in the balance sheet	8.6
Other Investments
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	223.7	[1],[3]
Value	227.8	[3]
Amount at which shown in the balance sheet	227.6	[3]
Short-term Investments
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	3.0	[1]
Value	3.0
Amount at which shown in the balance sheet	3.0
Loan Participations and Assignments [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	$ 296.6

[1] For equity securities, represents original cost, and for fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums and accretion of discounts.

[2] Includes $296.6 million of participating interests in commercial mortgage loans originated and serviced by a third-party. The Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgages. Due to certain reacquisition rights retained by the third-party in the loan participation arrangement, the Company accounted for its participatory interest in mortgage loans as secured borrowings.

[3] The cost of other long-term investments differs from the carrying value due to market value changes in the Company's equity ownership of limited partnership investments. The value of other long-term investments differs from the carrying value due to cost basis partnership investments.

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SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT PARENT COMPANY ONLY (STATEMENTS OF INCOME) (Details) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Condensed Financial Statements, Captions [Line Items]
Net investment income									$ 279.4	$ 279.1	$ 270.3
Net realized gains from sales and other									36.5	46.3	55.6
Total revenues	$ 1,255.0	$ 1,241.2	$ 1,222.0	$ 1,227.6	$ 1,204.7	$ 1,233.5	$ 1,297.1	$ 1,298.7	4,945.8	5,034.0	5,067.6
Interest expense									54.9	60.6	65.8
Loss from repayment of debt									88.3	24.1	0.1
Other operating expenses									611.5	631.0	656.2
Total losses and expenses									4,753.5	4,594.6	4,689.6
Income tax benefit									(16.8)	(32.7)	(4.5)
Income from continuing operations	(12.2)	88.3	1.9	78.1	77.8	77.2	120.9	54.9	156.1	330.8	282.3
Net income	$ (13.5)	$ 88.4	$ 2.0	$ 78.2	$ 77.6	$ 78.3	$ 120.7	$ 54.9	155.1	331.5	282.0
Net loss from discontinued operations, income tax benefit (expense)									2.8	0.5	0.1
Other comprehensive income (loss), Net of Tax									8.9	(152.5)	28.8
Comprehensive income									164.0	179.0	310.8
The Hanover Insurance Group [Member]
Condensed Financial Statements, Captions [Line Items]
Net investment income									4.9	4.1	3.9
Net realized gains from sales and other										1.0
Interest income from loan to subsidiary									22.4	22.5	22.5
Other income									0.5	0.1	0.1
Total revenues									27.8	27.7	26.5
Interest expense									46.1	53.9	54.7
Loss from repayment of debt									88.3	24.1	0.1
Employee benefit related expenses									7.0	7.0	11.1
Benefit related to acquired businesses										(0.7)
Interest expense on loan from subsidiary									6.3
Other operating expenses									8.6	7.6	7.5
Total losses and expenses									156.3	91.9	73.4
Net loss before income taxes and equity in income of subsidiaries									(128.5)	(64.2)	(46.9)
Income tax benefit									75.6	49.5	52.1
Equity in income of subsidiaries									207.0	345.2	277.4
Income from continuing operations									154.1	330.5	282.6
Income (loss) from discontinued operations (net of income tax benefit Income (loss) from discontinued operations (net of income tax benefit									1.0	1.0	(0.6)
Net income									155.1	331.5	282.0
Net loss from discontinued operations, income tax benefit (expense)									1.7	0.4	0.2
Other comprehensive income (loss), Net of Tax									8.9	(152.5)	28.8
Comprehensive income									$ 164.0	$ 179.0	$ 310.8

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SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT PARENT COMPANY ONLY (BALANCE SHEETS) (Details) - USD ($) $ / shares in Units, $ in Millions		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Assets
Fixed maturities - at fair value (amortized cost of $116.5 and $121.1)		$ 7,331.3	$ 6,983.4
Equity securities - at fair value (cost of $1.0)		584.4	576.6
Cash and cash equivalents		282.6	338.8	$ 373.3	$ 486.2
Deferred income tax receivable		377.8	355.1
Deferred income tax receivable		115.1	137.9
Other assets		479.8	483.7
Total assets		14,220.4	13,781.2
Liabilities
Debt		786.4	803.1
Total liabilities		11,362.9	10,936.8
Shareholders' Equity
Preferred stock, par value $0.01 per share; 20.0 million shares authorized; none issued
Common stock, par value $0.01 per share; 300.0 million shares authorized; 60.5 million shares issued		0.6	0.6
Additional paid-in capital		1,846.7	1,833.5
Accumulated other comprehensive income		62.8	53.9
Retained earnings		1,875.6	1,803.5
Treasury stock at cost (18.1 and 17.5 million)		(928.2)	(847.1)
Total shareholders' equity		2,857.5	2,844.4	2,844.0
Total liabilities and shareholders' equity		14,220.4	13,781.2
Fixed maturities, amortized cost		7,235.1	6,934.0
Equity securities, cost		$ 498.4	$ 528.5
Preferred stock, par value		$ 0.01	$ 0.01
Preferred stock, shares authorized		20,000,000	20,000,000
Preferred stock, shares issued		0	0
Common stock, par value		$ 0.01	$ 0.01
Common stock, shares authorized		300,000,000	300,000,000
Common stock, shares issued		60,500,000	60,500,000
Treasury stock, shares		18,100,000	17,500,000
Loan receivable from subsidiary		$ 300.0	$ 300.0
The Hanover Insurance Group [Member]
Assets
Fixed maturities - at fair value (amortized cost of $116.5 and $121.1)		116.4	121.3
Equity securities - at fair value (cost of $1.0)		1.1	1.1
Cash and cash equivalents		10.1	8.6	$ 14.5	$ 20.7
Investments in subsidiaries		3,513.8	3,262.5
Net receivable from subsidiaries	[1]	16.6	222.8
Deferred income tax receivable		31.7	7.4
Current income taxes receivable			1.1
Other assets		1.1	2.5
Total assets		3,690.8	3,627.3
Liabilities
Expenses and state taxes payable		8.0	18.1
Current income tax payable		30.5
Interest payable		8.2	7.9
Debt		786.6	756.9
Total liabilities		833.3	782.9
Shareholders' Equity
Preferred stock, par value $0.01 per share; 20.0 million shares authorized; none issued
Common stock, par value $0.01 per share; 300.0 million shares authorized; 60.5 million shares issued		0.6	0.6
Additional paid-in capital		1,846.7	1,833.5
Accumulated other comprehensive income		62.8	53.9
Retained earnings		1,875.6	1,803.5
Treasury stock at cost (18.1 and 17.5 million)		(928.2)	(847.1)
Total shareholders' equity		2,857.5	2,844.4
Total liabilities and shareholders' equity		3,690.8	3,627.3
Fixed maturities, amortized cost		116.5	121.1
Equity securities, cost		$ 1.0	$ 1.0
Preferred stock, par value		$ 0.01	$ 0.01
Preferred stock, shares authorized		20,000,000	20,000,000
Preferred stock, shares issued		0	0
Common stock, par value		$ 0.01	$ 0.01
Common stock, shares authorized		300,000,000	300,000,000
Common stock, shares issued		60,500,000	60,500,000
Treasury stock, shares		18,100,000	17,500,000

[1] Net receivable from subsidiaries in 2015 includes a $300.0 million note receivable from The Hanover Insurance Holdings, Ltd., parent company of Chaucer Holdings, Ltd. In 2016, this note receivable was contributed to The Hanover (Barbados) Capital, SRL, a wholly-owned subsidiary of THG.

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SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT PARENT COMPANY ONLY (STATEMENTS OF CASH FLOWS) (Details) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash Flows From Operating Activities
Net income	$ (13.5)	$ 88.4	$ 2.0	$ 78.2	$ 77.6	$ 78.3	$ 120.7	$ 54.9	$ 155.1	$ 331.5	$ 282.0
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains									(8.6)	(19.1)	(50.2)
Loss from retirement of debt									88.3	24.1	0.1
Deferred income tax (benefit) expense									(13.2)	53.1	68.6
Change in expenses and taxes payable									6.9	(1.0)	12.5
Net cash provided by operating activities									737.6	438.4	564.7
Cash Flows From Investing Activities
Proceeds from disposals and maturities of fixed maturities									1,602.3	1,696.4	1,323.1
Purchase of fixed maturities									(2,020.9)	(1,792.2)	(1,710.1)
Net cash used in investing activities									(495.4)	(171.5)	(600.7)
Cash Flows From Financing Activities
Proceeds from debt borrowings									370.7
Repurchases of debt									(475.4)	(114.3)	(0.7)
Repurchase of common stock									(105.6)	(127.3)	(20.4)
Dividends paid to shareholders									(80.4)	(74.2)	(67.0)
Proceeds from exercise of employee stock options									16.2	16.6	12.6
Other financing activities									(14.1)	(11.2)	(3.6)
Net cash used in financing activities									(295.0)	(294.7)	(71.7)
Net change in cash and cash equivalents									(56.2)	(34.5)	(112.9)
Cash and cash equivalents, beginning of year				338.8				373.3	338.8	373.3	486.2
Cash and cash equivalents, end of year	282.6				338.8				282.6	338.8	373.3
The Hanover Insurance Group [Member]
Cash Flows From Operating Activities
Net income									155.1	331.5	282.0
Adjustments to reconcile net income to net cash provided by operating activities:
(Gain) loss from discontinued operations									(1.0)	(1.0)	0.6
Net realized investment gains										(1.0)
Loss from retirement of debt									88.3	24.1	0.1
Equity in net income of subsidiaries									(207.0)	(345.2)	(277.4)
Dividends received from subsidiaries									228.1	5.1	70.2
Deferred income tax (benefit) expense									(39.0)	35.7	(29.9)
Change in expenses and taxes payable									20.7	(2.6)	11.4
Change in net receivable from subsidiaries									30.6	(5.9)	16.9
Other, net									8.3	6.1	4.3
Net cash provided by operating activities									284.1	46.8	78.2
Cash Flows From Investing Activities
Proceeds from disposals and maturities of fixed maturities									82.4	70.0	25.6
Purchase of fixed maturities										(11.9)	(28.6)
Net cash used for business acquisitions									(2.2)	(2.3)	(2.3)
Net cash used in investing activities									80.2	55.8	(5.3)
Cash Flows From Financing Activities
Proceeds from debt borrowings									370.7
Proceeds from long-term intercompany borrowings									125.0
(Repayments) Proceeds from short-term intercompany borrowings									102.7	(102.7)
Repurchases of debt									(571.9)	(15.1)	(0.7)
Repurchase of common stock									(105.6)	(127.3)	(20.4)
Dividends paid to shareholders									(80.4)	(74.2)	(67.0)
Proceeds from exercise of employee stock options									16.2	16.6	12.6
Other financing activities									(14.1)	(11.2)	(3.6)
Net cash used in financing activities									(362.8)	(108.5)	(79.1)
Net change in cash and cash equivalents									1.5	(5.9)	(6.2)
Cash and cash equivalents, beginning of year				$ 8.6				$ 14.5	8.6	14.5	20.7
Cash and cash equivalents, end of year	$ 10.1				$ 8.6				$ 10.1	$ 8.6	$ 14.5

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SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT PARENT COMPANY ONLY (Narrative) (Details) - The Hanover Insurance Group [Member] - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Supplementary Insurance Information, by Segment [Line Items]
Cash portion of dividends received from unconsolidated subsidiaries	$ 228.1	$ 5.1	$ 70.2
Investment assets transferred to the parent company to settle dividend balances	$ 78.5	$ 76.9	$ 1.0

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SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Supplementary Insurance Information, by Segment [Line Items]
Deferred acquisition costs	$ 517.5	$ 508.8	$ 525.7
Future policy benefits, losses, claims and loss expenses	6,943.0	6,568.8	6,386.6
Unearned premiums	2,561.0	2,540.8	2,583.9
Other policy claims and benefits payable	6.4	5.6	5.1
Premium revenue	4,628.1	4,704.8	4,710.3
Net investment income	279.4	279.1	270.3
Benefits, claims, losses and settlement expenses	2,964.7	2,884.1	2,927.5
Amortization of deferred acquisition costs	1,035.2	1,033.2	1,040.0
Other operating expenses	754.7	715.7	722.1
Premiums written	4,698.8	4,616.8	4,810.1
Eliminations
Supplementary Insurance Information, by Segment [Line Items]
Future policy benefits, losses, claims and loss expenses	(10.2)	(8.3)	(5.5)
Unearned premiums	(3.1)	(3.2)	(3.3)
Other operating expenses	(7.6)	(7.4)	(7.0)
Commercial, Personal and Other
Supplementary Insurance Information, by Segment [Line Items]
Deferred acquisition costs	402.8	385.5	370.3
Future policy benefits, losses, claims and loss expenses	4,663.8	4,204.6	3,966.3
Unearned premiums	1,995.1	1,892.3	1,819.1
Other policy claims and benefits payable	6.4	5.6	5.1
Premium revenue	3,789.5	3,653.6	3,488.5
Net investment income	233.7	233.2	226.1
Benefits, claims, losses and settlement expenses	2,545.4	2,367.4	2,293.8
Amortization of deferred acquisition costs	803.6	778.0	748.5
Other operating expenses	593.7	508.0	480.4
Premiums written	3,882.7	3,727.5	3,578.7
Chaucer [Member]
Supplementary Insurance Information, by Segment [Line Items]
Deferred acquisition costs	114.7	123.3	155.4
Future policy benefits, losses, claims and loss expenses	2,289.4	2,372.5	2,425.8
Unearned premiums	569.0	651.7	768.1
Premium revenue	838.6	1,051.2	1,221.8
Net investment income	45.7	45.9	44.2
Benefits, claims, losses and settlement expenses	419.3	516.7	633.7
Amortization of deferred acquisition costs	231.6	255.2	291.5
Other operating expenses	113.7	154.5	182.9
Premiums written	816.1	889.3	1,231.4
Interest On Debt
Supplementary Insurance Information, by Segment [Line Items]
Other operating expenses	$ 54.9	$ 60.6	$ 65.8

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SCHEDULE V VALUATION AND QUALIFYING ACCOUNTS (Details) - USD ($) $ in Millions		3 Months Ended	12 Months Ended
		Jun. 30, 2015	Dec. 31, 2016		Dec. 31, 2015		Dec. 31, 2014
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at beginning of period			$ 12.9		$ 19.1		$ 23.8
Charged to costs and expenses	[1]		12.1		9.7		10.3
Charged to other accounts	[2]		0.1		0.2		(0.3)
Deductions			(8.3)		(16.1)		(14.7)
Balance at end of period			16.8		12.9		19.1
Allowance for doubtful accounts
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at beginning of period			3.2		3.2		3.1
Charged to costs and expenses	[1]		8.7		9.7		9.4
Deductions			(8.2)		(9.7)		(9.3)
Balance at end of period			3.7		3.2		3.2
Allowance for uncollectible reinsurance recoverables
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at beginning of period			9.7	[1],[3]	15.9	[3]	20.7
Charged to costs and expenses	[1]		3.4				0.9
Charged to other accounts	[2]		0.1	[1]	0.2	[3]	(0.3)
Deductions			(0.1)	[1]	(6.4)	[3]	(5.4)
Balance at end of period			$ 13.1	[1]	$ 9.7	[1],[3]	$ 15.9	[3]
Allowance for uncollectible reinsurance recoverables | U.K. Motor Business [Member]
Valuation and Qualifying Accounts Disclosure [Line Items]
Deductions		$ 5.4

[1] 2016 activity primarily relates to the impairment of a receivable that is associated with a single reinsurance counterparty that was placed into conservation by the state of California in July 2016. This counterparty is not involved in the Company's ongoing reinsurance program and the entire receivable related to this counterparty resulted from to a one-time block reinsurance transaction that occurred in 2012 as part of the Company's exposure management actions.

[2] Amounts charged to other accounts include foreign exchange gains and losses.

[3] Includes a deduction of $5.4 million related to the transfer of the U.K. motor business on June 30, 2015.

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SCHEDULE VI SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS (Details) - USD ($) $ in Millions		12 Months Ended
		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Net incurred losses and LAE in respect of losses occurring in current year		$ 2,859.3	$ 3,000.2	$ 3,044.9
Net incurred losses and LAE in respect of losses occurring in prior years		(105.4)	116.1	117.4
Reinsurance Recoverables On Unpaid Losses Property Casualty Liability		2,274.8	2,280.8	1,983.0	$ 2,030.4
Prepaid premiums, gross		222.4	256.2	197.8
Consolidated Property and Casualty Insurance Entity [Member]
Deferred acquisition costs		517.5	508.8	525.7
Reserves for unpaid claims and claim adjustment expenses	[1]	6,949.4	6,574.4	6,391.7
Discount, if any, deducted from previous column	[2]
Unearned premiums	[1]	2,561.0	2,540.8	2,583.9
Earned premiums		4,628.1	4,704.8	4,710.3
Net investment income		279.4	279.1	270.3
Net incurred losses and LAE in respect of losses occurring in current year	[1]	2,859.3	3,000.2	3,044.9
Net incurred losses and LAE in respect of losses occurring in prior years	[2]	105.4	(116.1)	(117.4)
Amortization of deferred acquisition costs	[1]	1,035.2	1,033.2	1,040.0
Paid claims and claim adjustment expenses		2,509.9	2,664.0	2,727.6
Premiums written		$ 4,698.8	$ 4,616.8	$ 4,810.1

[1] Reserves for unpaid claims and claim adjustment expenses are shown gross of $2,274.8 million, $2,280.8 million and $1,983.0 million of reinsurance recoverable on unpaid losses in 2016, 2015 and 2014, respectively. Unearned premiums are shown gross of prepaid premiums of $222.4 million, $256.2 million and $197.8 million in 2016, 2015 and 2014, respectively. Reserves for unpaid claims and claims adjustment expense also include policyholder dividends.

[2] The Company does not use discounting techniques