A.M. Best Affirms Ratings of The Hanover Insurance Group, Inc. and Its Subsidiaries

Business Wire


A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and 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 The Hanover Insurance Group Property and Casualty Companies (The Hanover). Additionally, A.M. Best has affirmed the ICR of “bbb” and all existing debt ratings of THG. The outlook for all 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 favorable operating earnings especially in years with milder weather patterns. Catastrophe losses coupled with other weather-related events as well as historic periodic dividend payments to THG hindered surplus appreciation in earlier years. However, suspension of the dividend coupled with reduced losses from milder weather patterns and improved risk management along with favorable equity markets have enabled the group to increase surplus by 20% in 2013.

In addition, the ratings reflect The Hanover’s sound business profile and diversified product offerings, especially in the commercial and specialty segments of its book of business. Furthermore, the subsidiaries of THG also benefit from its moderate financial leverage and financial flexibility.

Partially offsetting these positive rating factors are The Hanover’s comparatively high underwriting leverage and pressure on underwriting results caused by significant weather-related losses, as witnessed especially in 2011 and 2012 when it posted a combined ratio of 106% and 109%, respectively. The Hanover has undertaken various risk management actions to mitigate its exposure to catastrophe losses, including initiatives to change its business profile by further diversifying its lines of business by emphasizing less catastrophe prone casualty business and reducing property exposures. Also, it has reduced its historical geographic concentration in the Northeast, particularly in areas impacted by Superstorm Sandy in 2012 as well as the Midwest and South, which were impacted by tornado/hail activity in 2011, by emphasizing further expansion in Western states. Additionally, The Hanover has undertaken several rate actions and 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, excluding catastrophe results continues to steadily improve, as witnessed by a significantly improved combined ratio of 100% for 2013. However, any future positive rating movement in its current ratings and/or outlook will require sustained improvement in operating performance in the form of profitable underwriting results (which includes catastrophes and other weather-related losses) as well as maintenance of favorable risk-adjusted capitalization levels.

Conversely, a sudden deterioration in underwriting performance and/or an unfavorable operating performance coupled with decreased levels of risk-adjusted capitalization could result in potential negative pressure on the ratings and/or outlook.

The FSR of A (Excellent) and ICRs of “a” have been affirmed for the following subsidiaries of The Hanover Insurance Group, Inc.:

  • AIX Specialty Insurance Company
  • Allmerica Financial Alliance Insurance Company
  • Allmerica Financial Benefit Insurance Company
  • Campmed Casualty & Indemnity Company, Inc.
  • Citizens Insurance Company of America
  • Citizens Insurance Company of Ohio
  • Citizens Insurance Company of the Midwest
  • Citizens Insurance Company of Illinois
  • The Hanover American Insurance Company
  • The Hanover Insurance Company
  • The Hanover Lloyd’s Insurance Company
  • The Hanover New Jersey Insurance Company
  • Massachusetts Bay Insurance Company
  • NOVA Casualty Company
  • Professionals Direct Insurance Company
  • Verlan Fire Insurance Company

The following debt ratings have been affirmed:

The Hanover Insurance Group, Inc.—

-- “bbb” on $200 million 7.5% senior unsecured fixed rate notes, due 2020 (of which $165.1 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 $81.2 million remains outstanding)
-- “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

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Company
Neil Das Gupta, 908-439-2200, ext. 5206
Senior Financial Analyst
Joseph A. Burtone, 908-439-2200, ext. 5125
Assistant Vice President
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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