Best Affirms Hanover Insurance Group and Subs Ratings

June 14, 2011

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of The Hanover Insurance Group Property and Casualty Companies and its members. Best also affirmed the ICR of “bbb” and all existing debt ratings of the parent holding company, The Hanover Insurance Group, Inc. (THG).

The outlook for all ratings is stable. Both companies are domiciled in Worcester, Mass.

The ratings reflect The Hanover’s “excellent risk-adjusted capitalization, stemming from consistently favorable operating earnings,” said Best. “Despite consistent dividend payments to THG in recent years, The Hanover has been able to increase surplus over the past five years through solid net investment income, and to a lesser degree, generally favorable underwriting performance.

In addition, the ratings “reflect the company’s prudent risk management and diversified product offerings, especially in the commercial and specialty segments of its book of business. The ratings also recognize moderate financial leverage and the financial flexibility at THG.”

As partial offsetting factors Best cited The Hanover’s “comparatively high underwriting leverage and somewhat elevated expense structure.”

The rating agency also noted that it has previously commented that both The Hanover and THG’s ratings were unchanged following the announcement in April 2011 that THG was proposing to acquire UK-based Chaucer Holdings PLC, a leading specialist insurance group and the parent of Lloyd’s Syndicates 1084 and 1176.

The transaction, which is subject to the approval of regulatory bodies in the United States and United Kingdom, is expected to close during the third quarter of 2011.

Best summarized the companies affected by the rating action as follows:
The FSR of A (Excellent) and ICR of “a” have been affirmed for The Hanover Insurance Group Property and Casualty Companies and its following members:
* AIX Specialty Insurance Company
* Allmerica Financial Alliance Insurance Company
* Allmerica Financial Benefit Insurance Company
* CampMed Casualty & Indemnity Company, Inc. of Maryland
* 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 $199.3 million 7.5% senior unsecured fixed rate notes, due 2020
— “bbb” on $200 million 7.625% senior unsecured debentures, due 2025 (of which $121.4 million remains outstanding)
— “bb+” on $166 million 8.207% junior subordinated deferrable debentures, due 2027 (of which $81.2 million remains outstanding)

Source: A.M. Best

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