S&P Global Ratings has revised its outlook for The Hanover Insurance Group Inc. (THG) from negative to stable, citing a sustainable underwriting improvement in the company’s U.S commercial business.
The rating agency also affirmed its ‘A’ issuer credit and financial strength ratings for THG and its core operating subsidiaries.
S&P believes that the company will maintain stable earnings, underwriting performance, and capital adequacy in line with its base case assumptions.
The rating actions also take into consideration the improvement in underwriting profits within THG’s commercial segment, the sustained performance of its personal line business, and its ongoing commitment to maintain very strong capital.
While analysts view THG’s business risk profile as less diversified after the sale of Chaucer in 2018, they noted that the group has undertaken aggressive underwriting actions, expense reduction, and stricter pricing segmentation to improve profitability.
THG also continues to drive growth by enhancing its market data capabilities to help inform risk selection, S&P acknowledged, and its commitment to strengthen digital capabilities is expected to help sustain its competitive profile.
Although unlikely, S&P said it could raise its ratings if THG’s capital adequacy improves to extremely strong and its business risk profile, including operating performance, is comparable to that of its higher-rated peers.
However, the firm also warned that it could lower its ratings if THG’s capital adequacy declines below the current rating level, if earnings and underwriting deteriorating substantially, or if analysts perceive changes to the insurer’s competitive position.