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Divestiture of Chaucer makes The Hanover a desirable M&A target: JMP

29th August 2019 - Author: Luke Gallin

Analysts have said that following the successful takeover of its Chaucer business by China Re, domestic-focused insurer The Hanover Insurance Group is a desirable merger and acquisition (M&A) target longer term.

The HanoverNow that the Chaucer divestiture is complete, the core of the domestic franchise of The Hanover is a small/middle market commercial/specialty retail business, which is something that some large, global firms have expressed an interest in acquiring in recent times.

“In the small/middle-market commercial/specialty retail space, there are very few scaled operators, particularly with the strong low to mid-teens ROEs seen at Hanover. We believe this is likely to attract acquisition interest in the company longer term, likely at robust multiples,” says analysts at JMP Securities.

China Re announced it had finalised its takeover of Chaucer in December 2018, noting at the time that the acquisition of the Dublin based Chaucer Insurance Company DAC, and Hanover Australia Hold Co Pty Ltd (SLE), required regulatory approval.

The necessary regulatory approval was received in April of this year, completing the sale of Chaucer to China Re.

Analysts explain that while Chaucer is a desirable franchise in its own right, the domestic business of the firm is a purer play on that desirable market, adding that many interested companies already have Lloyd’s franchises, which means they wouldn’t commit to paying a significant multiple for that piece of the business.

In recent times, The Hanover has made a push in the specialty sector, which has seen the insurer include specialty solutions as part of commercial packages, and also the development of new products driven by client demand.

Furthermore, the fact the firm employs a high-touch, limited agency strategy serves as a competitive advantage, with analysts noting that this separates it from its peers and has helped the firm produce premiums growth at a 7% compound annual growth rate (CAGR) over the past five years.

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