A.M. Best Affirms Ratings Of The Hanover Insurance Group, Inc. And Its Subsidiaries

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) [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. The 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 consistently favorable operating earnings. 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.

Partially offsetting these positive rating factors is 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%.

Although, 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.

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 (Syndicate 1084) (United Kingdom). Subsequently, A.M. Best Europe – Rating Services Limited has withdrawn the ratings at the company’s request. (Please see the June 12, 2012 press release on Syndicate 1084 for further details.)

In July 2011, THG acquired Chaucer Holdings PLC (Chaucer) (United Kingdom), a leading specialist insurance group and the holding company of Syndicate 1084’s managing agent, Chaucer Syndicates Limited, which 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.

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% senior unsecured fixed rate notes, due 2020
-- “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 $120.9 million remains outstanding)
-- “bb+” on $166 million 8.207% 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.

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. Key criteria utilized include: “Understanding BCAR for Property Casualty Insurers”; “Risk Management and the Rating Process for Insurance Companies”; “Catastrophe Analysis in A.M. Best Ratings”; “Rating Members of Insurance Groups”; “Insurance Holding Company and Debt Ratings”; and “Equity Credit for Hybrid Securities.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, 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 © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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