A.M. Best Co. 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), collectively referred to as The Hanover Insurance Group Property and Casualty Companies, all of which are based in Worcester, Massachusetts.
Best also affirmed the ICR of “bbb” and all of THG’s existing debt ratings, and said the outlook for the ratings is stable.
The ratings reflect The Hanover’s “solid 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 sustain its surplus base over the past five years through solid net investment income, which is somewhat offset by catastrophes and other weather related losses resulting in fluctuating 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 financial flexibility at THG.”
As partial offsetting factors Best cited “The Hanover’s comparatively high underwriting leverage, somewhat elevated expense structure and pressure on underwriting results caused by significant weather-related losses, as witnessed especially in 2011 when it posted a combined ratio of nearly 107 percent.”
Best’s report indicated that athough, “The Hanover’s underlying book of business, excluding catastrophe results, continues to perform reasonably well, negative rating pressure may result from a continued deterioration in overall underwriting performance (which includes catastrophe and other weather related losses) and/or a decline in overall risk-adjusted capitalization levels.
“Conversely, there also could be potential positive movement in the ratings from a restoration of positive underwriting performance and continued favorable operating performance coupled with increased levels of risk-adjusted capitalization that is sustained over a period of time.”
In addition the report explained that on June 12, 2012, A.M. Best Europe – Rating Services Limited affirmed the FSR of ‘A’ (Excellent) and ICR of “a+” of Lloyd’s Syndicate 1084, and then it withdrew the ratings at the company’s request.
THG acquired Chaucer Holdings PLC in July 2011. The company is a specialist insurance group and the holding company of Syndicate 1084’s managing agent, Chaucer Syndicates Limited.
Best said the acquisition has “further diversified the organization’s book of business both in terms of product offerings and geographic spread. The acquisition of Chaucer also has given THG a global platform with which to create marketing and cross-selling opportunities for its entire range of businesses, which is well balanced between personal, commercial and specialty lines.”
Best summarized the companies affected by its rating actions as follows:
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. 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 $200 million 7.5 percent senior unsecured fixed rate notes, due 2020
— “bbb” on $300 million 6.375 percent senior unsecured fixed rate notes, due 2021
— “bbb” on $199.5 million7.625 percent senior unsecured debentures, due 2025 (of which $120.9 million remains outstanding)
— “bb+” on $166 million 8.207 percent junior subordinated deferrable debentures, due 2027 (of which $59.7 million remains outstanding)
The ICR of “bbb-” has been withdrawn for Professional Direct, Inc., a subsidiary of The Hanover Insurance Group, Inc.
Source: A.M. Best
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