CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK - MAY 19, 2016 04:35 PM (EDT)
A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a” of the subsidiaries of the parent holding company, The Hanover Insurance Group, Inc. (THG) [NYSE: THG], collectively referred to as Hanover Insurance Group Property and Casualty Companies (The Hanover). Additionally, A.M. Best has affirmed the ICR of “bbb” and all existing issue ratings of THG. The outlook for each of these ratings is stable. All above named companies are headquartered in Worcester, MA. (Please see below for a detailed listing of the companies and ratings.)
The ratings reflect The Hanover’s solid risk-adjusted capitalization stemming from a favorable operating earnings trend and prudent capital management. Exposure management and re-underwriting have significantly improved geographic and product diversification, resulting in profitability and earnings stability. Underwriting results in recent years have also partially benefited from relatively milder weather patterns compared with the historic catastrophic weather-related losses during earlier periods. The improved underwriting results, coupled with favorable investment returns, have enabled the group to substantially increase surplus by nearly 40% since 2013. In addition, the ratings reflect The Hanover’s sound business profile and diversified product offerings, especially within its commercial and specialty lines of business. The acquisition of Chaucer, a Lloyd’s market syndicate, has also enabled The Hanover to further diversify its risk exposures and create a global platform for marketing and cross-selling opportunities for its products, thus potentially achieving greater consistency in its operating performance and improving long-term earnings and risk-adjusted capitalization. Furthermore, the subsidiaries of THG benefit from its moderate financial leverage and financial flexibility.
Partially offsetting these positive rating factors are The Hanover’s comparatively high underwriting leverage and elevated, but improving, expense position. Following the adverse underwriting results caused by significant weather-related losses in earlier periods, The Hanover undertook various risk management actions to mitigate its exposure to catastrophe losses. These steps included initiatives to significantly improve its business profile by diversifying its footprint and increasing writings of casualty and specialty lines and de-emphasizing catastrophe prone property business. It expanded commercial lines into Western states reducing its legacy geographic concentration in the Northeast. Additionally, The Hanover continues to take rate actions where needed and has implemented targeted exposure reductions in localized areas using portfolio optimization tools.
Partly as a result of these initiatives, The Hanover’s underlying book of business continues to evolve as evidenced by the improved combined ratios reported in recent years. Future positive rating actions could occur if the current maintenance of favorable risk-adjusted capitalization can be sustained and underwriting results improve. However, renewed pressure on the rating could result from a return to unfavorable operating trends seen in prior years.
The rating affirmations also acknowledge the recent appointment of Joseph M. Zubretsky as president and chief executive officer, effective June 20, 2016. Zubretsky will also join The Hanover’s board of directors. The announcement of The Hanover’s next CEO had been anticipated as Frederick H. Eppinger had announced his intention to retire. With the selection of an accomplished leader and insurance veteran, and given the organization’s strong senior management team, an orderly transition to Zubretsky’s leadership is expected.
The FSR of A (Excellent) and the ICRs of “a” have been affirmed for the following subsidiaries of The
Hanover Insurance Group, Inc.:
The following issue ratings have been affirmed:
The Hanover Insurance Group, Inc.—
— “bbb” on $200 million 7.5% senior unsecured fixed rate notes, due 2020 (of which $80.0 million remains outstanding)
— “bbb” on $300 million 6.375% senior unsecured fixed rate notes, due 2021
— “bbb” on $199.5 million 7.625% senior unsecured debentures, due 2025 (of which $74.6 million remains outstanding)
— “bbb” on $375.0 million 4.5% senior unsecured fixed rate notes, due 2026
— “bb+” on $166 million 8.207% subordinated deferrable debentures, due 2027 (of which $59.7 million remains outstanding)
— “bb+” on $175 million 6.350% subordinated deferrable debentures, due 2053
The following indicative ratings under the shelf registration have been affirmed:
The Hanover Insurance Group, Inc.—
— “bbb” on senior unsecured debt
— “bb+” on subordinated debt
— “bb+” on preferred stock
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source.