Moody’s changes outlook on Hanover Group to positive

Moody’s Investors Service has changed its outlook on the ratings of The Hanover Insurance Group, Inc. (NYSE: THG) and its subsidiary, Hanover Insurance Company, to positive from stable.”The positive outlook reflects stronger risk-adjusted capitalization, improving underwriting results, and more stable business flow from its network of independent agents,” Moody’s announced in a press release.The move brings Hanover Re full circle from the negative outlook it received as a result of the insurer’s large losses as a result of the 2005 hurricane season. Mood’y had changed the company’s outlook from negative to stable in Feb. 2, 2006.According to Moody’s, “concerns amongst [Hanover’s] independent agents, particularly in the wake of last year’s hurricane losses, seem to have moderated as evidenced by a rebound in retention rates (particularly for commercial lines) and policy counts. Policies in force increased in the most recent quarter (relative to the prior year quarter) for the first time in more than four years.”Moody’s said its outlook took into account negative factors such as The Hanover Insurance Group’s “limited scale, relatively high cost structure, and geographic concentration in a limited number of states.” In particular, the rating agency noted Hanover’s concentration of more than half of its business in three U.S. states — Michigan, Massachusetts, and New York “all of which have been historically challenging for personal lines insurers.”Moody’s said it expects The Hanover Group to show “overall combined ratios in the high 90s, assuming a normal level of catastrophe losses, positive business flow from agents, a ratio of holding company cash and invested assets to total debt greater than 40%, and prudent capital management.”