AM Best Downgrades Hanover Fire & Casualty of Pennsylvania
Analysts at AM Best recently downgraded the Financial Strength Rating (FSR) to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb-” (Good) from “bbb” (Good) of Hanover Fire & Casualty Insurance Co in King of Prussia, Pennsylvania.
AM Best also said it has maintained the under review with negative implications status for these credit ratings.
AM Best said the ratings reflect Hanover’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
The rating agency said the downgrades reflect its analysts’ view that Hanover’s stand-alone ratings “reflect drag” from its new owner, Mid-Hudson Co-Operative Insurance Co., which has a lower AM Best rating with an FSR of B+ (Good) and a Long-Term ICR of “bbb-” (Good).
“The continuation of the under review with negative implications status reflects a decline in Hanover’s risk-adjusted capitalization and uncertainty concerning its decline in overall risk adjusted capitalization due to an increase in its potential gross and net probable maximum losses in the event of a longer tail weather-related events,” the rating agency said.
As a result of the increase in potential catastrophe losses the company’s overall risk-adjusted capitalization declined considerably from a BCAR indication of strongest when it was originally placed under review to its current BCAR indication of adequate, according to AM Best..
According to management, there has been “no meaningful change in policy forms or coverage limits” and the increase in probable maximum losses is a function of growth in premium in 2024 and 2025 as well as general inflation factors.
At present, AM Best said Hanover’s adequate level of balance sheet strength is exposed to a heightened level of tail risk. New ownership along with Hanover’s management team has told AM Best that the company is obtaining an additional layer of reinsurance coverage to mitigate that risk.
AM Best said the ratings will remain under review with negative implications status until it can fully analyze the amount of additional reinsurance and its impact on overall risk adjusted capitalization. If Hanover fails to secure sufficient reinsurance coverage, it may necessitate a further downgrade.
Hanover writes predominantly personal property lines of business including fire and other liability, burglary/theft, allied lines and homeowners.
Mid-Hudson Acquisition
In February, Mid-Hudson Co-Operative Insurance Co. announced it had signed a securities purchase agreement to acquire Hanover Fire Holdings, Inc. The financing included $4.0 million in cash and a $3.5 million bank loan.
Mid-Hudson is the lead operating company within Mid-Hudson Group, a predominantly New York State property carrier looking to expand its geographical footprint and the Hanover acquisition provides access to additional states.
At the time, AM Best noted that the acquisition would afford Mid-Hudson Group the potential to add new products, pricing flexibility, and greater geographic diversification of premium sources.
AM Best also said that although debt leverage would be increased for the group, it was within an acceptable range. Further, risk-adjusted capitalization was expected to remain at a level that supports the consolidated group, the ratings agency said.
In July, AM Best revised the outlooks to stable from negative of the companies in the Mid-Hudson Group. At the same time, the ratings agency affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Ratings of “bbb-” (Good) of the same companies: Claverack Cooperative Insurance Co., Midrox Insurance Co., and Mid-Hudson Co-Operative Insurance Co.
In July AM Best analysts explained that the revised outlooks to stable from negative reflected improvements in Mid-Hudson Group’s operating profitability as well as its risk-adjusted capitalization, in 2025 and continuing in 2026.