The Hanover Bets Big on Specialty Lines

By | May 27, 2009

The Hanover’s CEO Fred Eppinger says the specialty lines business will be a key growth engine for the Worcester, Massachusetts-based super-regional insurer in the next several years.

Over the last year, revenue from specialty lines at The Hanover has grown from roughly $65 million to $500 million, fueled by a spending spree that includes the purchase or expansion of specialty products, services and companies – including last year’s acquisition of Windsor, Connecticut-based specialty insurer AIX Holdings.

Eppinger’s big plans for The Hanover come just as ratings agency A.M. Best upgraded the financial ratings for the insurer to an “A,” marking the third ratings firm in 15 months to upgrade The Hanover. Considering the state of the industry as a whole, an upgrade in the current market is rare. But viewed in the context of The Hanover’s recent history, it’s nothing short of amazing.

Back in 2003, the company sat on the verge of ruin, and Eppinger led a dramatic turnaround effort to ditch The Hanover’s life insurance business to focus on its core property/casualty business. The sell off of the life business was finally completed last year.

The financial conservatism created by the distress of the company in 2003 made Eppinger and other execs step back and focus more acutely on underwriting, rather than investment gains, as the key driver of The Hanover, he said. “I made it very clear that were in the underwriting business,” he said. “Our portfolio is very conservative around investment grade bonds. Our skill is in underwriting, and not” playing the market.

That conservative, investment-wary approach partially laid the roots five years ago for the financial stability the company is now seeing, Eppinger said. The upgrade, he added, “is a very important mark in the journey we have made… this allows us to be one the most important companies for independent agents over the next two years.”

The company’s capital base is $1 billion stronger than in 2003, and Eppinger said The Hanover has $400 million at the holding company level, that he plans to leverage by investing in new products and services, and bringing in talent from distressed, larger competitors.

Over the short term, Eppinger said The Hanover will focus on improving product offerings in specialty lines, and providing greater access for agents to those markets. Eppinger also said The Hanover will continue to grow in niche middle-market lines for institutions, schools and nonprofits, which have also been significant revenue drivers for the insurer.

That also means growing The Hanover’s presence across the country. The Hanover writes currently in 35 states, but lacks a physical presence in 30.

“With the disruption in the industry, we have had agents ask us to expand,” Eppinger said. “Our footprint will grow.”

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