NU Online News Service, May 8, 3:45 p.m. EDT
Despite a down economy and ratings issues with a number of insurers, The Hanover Insurance Group Property and Casualty Companies has been upgraded by A.M. Best Company.
Best announced today that it had upgraded the financial strength rating (FSR) of Hanover to "A" (Excellent) from "A-minus" (Excellent), and the issuer credit ratings (ICR) to "A" from "A-minus" for Hanover Insurance Group and its members.
Best's action represents the third time The Hanover's financial strength ratings have been upgraded over the past 15 months. Two of the industry's other leading independent analysts–Moody's Investors Service and Standard & Poor's–upgraded the company's ratings last year.
"This is one of those moments in time when you pause, and it's quite a milestone for the company because it's so hard to do," said Frederick H. Eppinger, chief executive officer of The Hanover Insurance Group.
He noted the lack of other U.S. insurers "in the last 50 years that went from 'A' all the way to 'B-plus' and back to 'A.'"
One reason this is so difficult to achieve in the United States, he said, is that most downgraded p-c insurers have their ratings lowered because of "asbestos, environmental long-tail things that are frankly hard to get out of. You can get into a death spiral based on balance sheet."
He added that Hanover was fortunate in that it never had any of those challenges. Rather, he said, it was risks from its life company that created capital pressure.
Thus, five years ago the company began selling pieces of its life business, completing the selloff five months ago.
Mr. Eppinger said the upgrade "creates a tremendous opportunity for us in expanding and frankly solidifying our business, because people know we're committed to building something that will last."
He said his goal when he joined the company five-and-a-half years ago was to build "a world-class institution that will last through the cycles and for a long period of time that people can put trust in."
At the core of that, he added, is "financial strength, because what we do for a living is we take care of people when something horrible happens."
Best said the upgrades reflect Hanover's excellent risk-adjusted capitalization, stemming from improved operating earnings and the elimination of dividends paid from 2003 through 2007.
In recent years, Best said, Hanover has sustained profitability and retained surplus through improved underwriting performance and favorable reserve development.
The ratings further reflect the improved financial leverage and flexibility since 2003, said Best, adding that it recognizes the benefits from the sale of the company's life insurance business.
Partially offsetting the positive rating factors, Best said, is Hanover's comparatively high underwriting leverage–primarily attributable to significant dividends paid to THG prior to 2002, which considerably reduced surplus. However, leverage measures have trended lower in recent years, Best noted.
For Best's Credit Ratings, an overview of the rating process and rating methodologies, visit www.ambest.com/ratings.
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