Fair Value

9 Months Ended

Sep. 30, 2025

4. 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 is 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 Level 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.

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.

The Company utilizes third-party pricing services 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 services prepare estimates of fair value for those securities using pricing techniques 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 governments – 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; and 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.

•

Other asset-backed securities – overall credit quality, including assessments of the underlying collateral type such as corporate loans, credit card receivables, automobile 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 services, 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 services cannot provide fair values. The Company determines fair values for these securities using either matrix pricing, which utilizes the market approach, or broker quotes. The Company will use observable market data as inputs into the fair value techniques, 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, credit stress, 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. The Company estimates fair value for these securities based on prices from recent financing rounds, which may be adjusted for liquidity and other factors, or based on the issuer’s book value and market multiples, and reports them as Level 3. Additionally, the Company may obtain non-binding broker or dealer quotes, which are reported as Level 3.

Other Investments

Other investments primarily include limited partnerships not subject to the equity method of accounting and mortgage participations. The fair values of limited partnerships not subject to the equity method of accounting are based on the net asset value (“NAV”) provided by the general partner, adjusted for recent financial information, and are excluded from the fair value hierarchy.

The estimated fair values of the financial instruments were as follows:


	September 30, 2025				December 31, 2024
	Carrying		Fair		Carrying		Fair
(in millions)	Value		Value		Value		Value
Financial Assets carried at:
Fair Value through Accumulated Other Comprehensive Loss:
Fixed maturities	$	9,498.6	$	9,498.6	$	8,542.2	$	8,542.2
Fair Value through Net Income:
Equity securities		183.2		183.2		157.7		157.7
Other investments		90.6		90.6		86.9		86.9
Amortized Cost/Cost:
Other investments		293.3		283.6		343.7		324.2
Cash and cash equivalents		915.7		915.7		435.5		435.5
Total financial instruments	$	10,981.4	$	10,971.7	$	9,566.0	$	9,546.5

Financial Liabilities carried at:
Amortized Cost:
Debt	$	1,279.8	$	1,264.5	$	784.1	$	744.4

The Company has processes designed to ensure that the values received from its third-party pricing services are accurately recorded, that the data inputs and valuation approaches and techniques utilized are appropriate and consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. The Company reviews the pricing services’ policies describing its methodology, processes, practices and inputs, including various financial models, used to value securities. For assets carried at fair value, the Company performs a review of the fair value hierarchy classifications and of prices received from its pricing services on a quarterly basis. 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 applicable pricing service along with supporting documentation for its review. The Company does not adjust quotes or prices obtained from the pricing services unless the pricing service agrees with the Company’s challenge. During the first nine months of 2025 and 2024, the Company did not adjust any prices received from its pricing services.

Changes in the observability of valuation inputs may result in a reclassification of certain financial assets or liabilities within the fair value hierarchy. As previously discussed, the Company utilizes third-party pricing services for the valuation of the majority of its fixed maturity and equity securities. The pricing services have indicated that they will only produce an estimate of fair value if there is objectively verifiable information to produce a valuation. If a 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 investment assets that were measured at fair value on a recurring basis.


	September 30, 2025
(in millions)	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	461.4	$	338.9	$	122.5	$	—
Foreign governments		2.7		—		2.7		—
Municipals		830.3		—		822.8		7.5
Corporates		4,272.9		—		4,272.9		—
Residential mortgage-backed, U.S. agency backed		1,994.4		—		1,994.4		—
Residential mortgage-backed, non-agency		554.7		—		554.7		—
Commercial mortgage-backed		420.9		—		415.9		5.0
Other asset-backed		961.3		—		961.3		—
Total fixed maturities		9,498.6		338.9		9,147.2		12.5
Equity securities		183.2		161.2		—		22.0
Other investments		17.9		—		14.0		3.9
Total investment assets at fair value	$	9,699.7	$	500.1	$	9,161.2	$	38.4


	December 31, 2024
(in millions)	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	494.2	$	363.9	$	130.3	$	—
Foreign governments		1.9		—		1.9		—
Municipals		893.8		—		886.2		7.6
Corporates		3,805.9		—		3,805.9		—
Residential mortgage-backed, U.S. agency backed		1,790.7		—		1,790.7		—
Residential mortgage-backed, non-agency		333.4		—		333.4		—
Commercial mortgage-backed		522.2		—		516.3		5.9
Other asset-backed		700.1		—		700.1		—
Total fixed maturities		8,542.2		363.9		8,164.8		13.5
Equity securities		157.7		136.9		—		20.8
Other investments		3.9		—		—		3.9
Total investment assets at fair value	$	8,703.8	$	500.8	$	8,164.8	$	38.2

Limited partnerships measured at fair value using the NAV based on an ownership interest in partners’ capital have not been included in the hierarchy tables. At September 30, 2025 and December 31, 2024, the fair values of these investments were $72.7 million and $83.0 million, respectively, approximately 1% of total investment assets.

The following tables provide, for each hierarchy level, the Company’s estimated fair values of financial instruments that were not carried at fair value:


	September 30, 2025
(in millions)	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	915.7	$	915.7	$	—	$	—
Other investments		283.6		—		6.1		277.5
Total financial instruments	$	1,199.3	$	915.7	$	6.1	$	277.5

Liabilities:
Debt	$	1,264.5	$	—	$	1,264.5	$	—


	December 31, 2024
(in millions)	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	435.5	$	435.5	$	—	$	—
Other investments		324.2		—		6.1		318.1
Total financial instruments	$	759.7	$	435.5	$	6.1	$	318.1

Liabilities:
Debt	$	744.4	$	—	$	744.4	$	—

The following tables provide a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).


	Fixed Maturities
(in millions)	Municipals			Commercial mortgage- backed			Total			Equities and Other		Total Assets
Three Months Ended September 30, 2025
Balance July 1, 2025	$	7.5		$	5.1		$	12.6		$	25.5	$	38.1
Total gains:
Included in net realized and unrealized investment gains (losses)		—			—			—			0.4		0.4
Included in other comprehensive income - changes in net unrealized gains on investment securities		0.1			0.1			0.2			—		0.2
Settlements		(0.1	)		(0.2	)		(0.3	)		—		(0.3	)
Balance September 30, 2025	$	7.5		$	5.0		$	12.5		$	25.9	$	38.4
Changes in net unrealized gains for the period included in other comprehensive income for assets held at the end of the period	$	0.1		$	0.1		$	0.2		$	—	$	0.2

Three Months Ended September 30, 2024
Balance July 1, 2024	$	7.9		$	6.7		$	14.6		$	11.5	$	26.1
Total gains (losses):
Included in net realized and unrealized investment gains (losses)		—			—			—			0.1		0.1
Included in other comprehensive income - changes in net unrealized gains on investment securities		0.3			(0.4	)		(0.1	)		—		(0.1	)
Settlements		(0.2	)		(0.1	)		(0.3	)		—		(0.3	)
Balance September 30, 2024	$	8.0		$	6.2		$	14.2		$	11.6	$	25.8
Changes in net unrealized gains for the period included in other comprehensive income for assets held at the end of the period	$	0.3		$	(0.4	)	$	(0.1	)	$	—	$	(0.1	)


	Fixed Maturities
(in millions)	Municipals			Corporates			Commercial mortgage- backed			Total			Equities and Other		Total Assets
Nine Months Ended September 30, 2025
Balance January 1, 2025	$	7.6		$	—		$	5.9		$	13.5		$	24.7	$	38.2
Total gains:
Included in net realized and unrealized investment gains (losses)		—			—			—			—			1.2		1.2
Included in other comprehensive income - changes in net unrealized gains on investment securities		0.3			—			0.3			0.6			—		0.6
Settlements		(0.4	)		—			(1.2	)		(1.6	)		—		(1.6	)
Balance September 30, 2025	$	7.5		$	—		$	5.0		$	12.5		$	25.9	$	38.4
Changes in net unrealized gains for the period included in other comprehensive income for assets held at the end of the period	$	0.3		$	—		$	0.3		$	0.6		$	—	$	0.6

Nine Months Ended September 30, 2024
Balance January 1, 2024	$	8.6		$	0.1		$	7.0		$	15.7		$	11.4	$	27.1
Transfers out of Level 3		—			(0.1	)		—			(0.1	)		—		(0.1	)
Total gains (losses):
Included in net realized and unrealized investment gains (losses)		—			—			—			—			0.2		0.2
Included in other comprehensive income - changes in net unrealized gains on investment securities		0.2			—			(0.4	)		(0.2	)		—		(0.2	)
Settlements		(0.8	)		—			(0.4	)		(1.2	)		—		(1.2	)
Balance September 30, 2024	$	8.0		$	—		$	6.2		$	14.2		$	11.6	$	25.8
Changes in net unrealized gains for the period included in other comprehensive income for assets held at the end of the period	$	0.2		$	—		$	(0.4	)	$	(0.2	)	$	—	$	(0.2	)

There were no securities transferred between Level 2 and Level 3 during the three months ended September 30, 2025 and 2024. There were no securities transferred between Level 2 and Level 3 during the nine months ended September 30, 2025. During the nine months ended September 30, 2024, a fixed maturity security was transferred from Level 3 to Level 2 because it was valued by a pricing service with observable inputs rather than being valued by the Company’s internal matrix model. The Company held no Level 3 liabilities for the nine months ended September 30, 2025 and 2024.

The following table provides quantitative information about the significant unobservable inputs used by the Company in the fair value measurements of Level 3 assets. Valuations of $13.3 million for an equity security based on a dealer quote for which there was a lack of transparency as to inputs used to develop the valuation have been excluded.

          
         September 30, 2025

         December 31, 2024

          
         Valuation

         Significant

         Fair

         Range

         Fair

         Range

         (in millions)

         Technique

         Unobservable Inputs

         Value

         (Wtd Average)

         Value

         (Wtd Average)

         Fixed maturities:

Municipals

Discounted 
cash flow

Discount for: 
   Small issue size

7.5

6.1 - 6.8% (6.7%)

7.6

6.1 - 6.8% (6.7%)

Commercial
mortgage-backed

Discounted 
cash flow

Discount for: 
   Small issue size
   Above-market coupon     
   Lease structure

5.0

5.0% (5.0%)
―
0.3% (0.3%)

5.9

0 - 5.0% (4.7%)
5% (0.5%)
3% (0.3%)

Equity securities

Market
comparables

Net tangible asset

1.4

N/A

1.4

N/A

Internal price based on financing round

Discount for: 
   Market liquidity

7.3

27.0% (27.0%)

7.4

27.0% (27.0%)

         Other

         Discounted 
cash flow

         Discount rate

         3.9

         16.6% (16.6%)

         3.9

         16.6% (16.6%)

The weighted average of the unobservable inputs was weighted by the relative fair value of the securities to which the inputs were applied. Each unobservable input is based on the Company’s subjective opinion and therefore inherently contains a degree of uncertainty. 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. Increases (decreases) in any of these inputs in isolation would result in a lower (higher) fair value measurement. Increases (decreases) in unobservable inputs used in the valuation of equity securities would result in a higher (lower) 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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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-Topic 820
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Reference 4: http://www.xbrl.org/2003/role/disclosureRef
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-URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A

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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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-Topic 820
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-Topic 820
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-Section 50
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-URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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-Section 50
-Paragraph 6A
-Subparagraph (d)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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-Name Accounting Standards Codification
-Section 50
-Paragraph 2
-Subparagraph (h)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482106/820-10-50-2

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
-SubTopic 10
-Name Accounting Standards Codification
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-Paragraph 2
-Subparagraph (g)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482106/820-10-50-2

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Topic 940
-SubTopic 820
-Name Accounting Standards Codification
-Section 50
-Paragraph 1
-Subparagraph (a)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147478119/940-820-50-1

+ Details

HANOVER INSURANCE GROUP, INC. 10-Q