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Fitch Affirms The Hanover Insurance Group's Ratings; Outlook Stable
May 5, 2017 / 2:32 PM / 7 months ago

Fitch Affirms The Hanover Insurance Group's Ratings; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, May 05 (Fitch) Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS) rating of The Hanover Insurance Company, the principal operating subsidiary of The Hanover Insurance Group (NYSE: THG). Fitch has also affirmed THG's Issuer Default Rating (IDR) at 'BBB+' and its senior unsecured notes at 'BBB'. The Rating Outlook is Stable. A full list of ratings follows at the end of this press release. The ratings affirmation reflects that performance has broadly been in line with expectations, and no upgrade or downgrade triggers were activated since the last review. KEY RATING DRIVERS The Hanover Insurance Group, Inc.'s (THG) has reported calendar year GAAP underwriting profits for four consecutive years, including a combined ratio of 98.6% and 99.5% for 2016 (full year) and the first three months of 2017, respectively. The current accident-year (AY) combined ratio net of catastrophe losses has improved by over 3 percentage points since 2012 to 92.9 % in full year 2016, reflective of core underwriting improvements from a product mix shift towards specialty commercial lines and changes in geographic mix. International operations centered in Chaucer Holdings PLC (Chaucer) have generated consistently favorable underwriting profits. THG's strengthened domestic reserves by $174 million in the fourth quarter of 2016. Strengthening of commercial lines reserves was $162 million of the total and driven by specific product lines including CMP and general liability, discontinued program business, and surety. Chaucer's reserve development remained favorable since the company was acquired in 2011. Prior year development in the first three months of 2017 was slightly favorable. Future material adverse development is not anticipated and would be viewed as a credit negative. GAAP operating leverage and net leverage remained flat at 1.6x and 4.2x, respectively, at Dec. 31, 2016. The financial leverage ratio (FLR) was 22% at year-end 2016. However, total interest costs are expected to decline, boosting interest coverage, as the company refinanced higher-cost senior notes. The U.S. subsidiaries Prism capital model score was 'Adequate' at year-end 2015. THG's future performance will continue to be affected by catastrophe-related losses, but inherent volatility from these events is reduced somewhat from past years given changes in property business aggregations. While Fitch expects price competition to intensify in most commercial lines product segments, THG's strong agency relationships are focused on smaller commercial business accounts which have traditionally experienced less pricing sensitivity and better policy retention, which could promote better premium rate sustainability compared with peers. The company also expects to expand its personal and commercial lines footprint in underpenetrated geographies going forward. RATING SENSITIVITIES Key rating triggers that could lead to an upgrade of THG's ratings include improvement in GAAP net leverage (premiums written plus total liabilities less debt less reinsurance recoverable divided by shareholders' equity) of 3.8x or better, sustaining a Prism score of 'strong', and sustaining GAAP operating interest coverage at 10x or better. Key ratings triggers that could lead to a downgrade include: a shift to underwriting losses, an unexpected material adverse development of loss reserves, an increase in run-rate FLR to 28% or greater, and GAAP operating interest coverage of 5x or lower. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings with a Stable Outlook: The Hanover Insurance Group --IDR at 'BBB+'; --7.625% senior unsecured notes due 2025 at 'BBB'; --4.5% senior unsecured notes due 2026 at 'BBB'; --8.207% junior subordinated debentures due 2027 at 'BB+'; --6.35% subordinated debentures due March 30, 2053 at 'BB+'. The Hanover Insurance Company Citizens Insurance Company of America --IFS at 'A'. Contact: Primary Analyst Martha M. Butler, CFA Senior Director Fitch Ratings, Inc. +1-312-368-3191 70 W. Madison Street Chicago, IL 60602 Secondary Analyst James B. Auden, CFA Managing Director +1-312-368-3146 Committee Chairperson Mark E. Rouck, CFA Senior Director +1-312-368-2085 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. 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The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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