160 Year Old Hanover Retaking its Place as P/C Industry Leader

Eight out of 160 years of history may not seem like a big deal but for Hanover Insurance Group, founded in 1852, the last eight years have seen a series of big deals.

Eight years ago in 2004, the $2.4 billion heavily personal lines super-regional insurer was trying to regain momentum after a big venture into life insurance and annuities by its parent company at the time, Allmerica Financial, went sour.

Today, the Worcester, Mass.-based company has $4 billion in revenues, writes only property/casualty, conducts business on a nationwide basis, underwrites a balanced book of personal, commercial and specialty lines business, and is one of the country’s fastest-growing P/C insurers.

In recent years, the company has been expanding its footprint, diversifying its products, partnering with select independent agents, adding international and excess/surplus capabilities, and earning strong ratings — executing notes it has played to varying degrees of success since its founding 160 years ago.

“I tell people that one of the parts of our journey right now is taking our place again as one of the lead companies in the marketplace and it’s not the first time we did it,” Frederick Eppinger, CEO, told Insurance Journal in a recent wide-ranging interview.

[In excerpts from the interview with Insurance Journal's Andy Simpson, Eppinger discusses among other issues Hanover’s history, its recent acquisitions, his company’s regional approach, his appreciation for independent agents, and whether the late Steve Jobs of Apple would have made it in the property/casualty insurance business.]

After eight years of deals shedding the life and annuity businesses then adding new property/casualty products and expertise by buying business from OneBeacon and London-based Chaucer and others, Eppinger thinks now is a good time for Hanover to grow organically — and reflect.

“We are at a milestone as a company. We’re now a couple years into the expansion out West. With Chaucer we have the Lloyd’s connection again. I feel like it’s not a bad time to step back and reflect on where we are and where we’re going and why I think we’re going to be quite successful,” he said.

“I reflect on the last four years with a horrible recession and all the others things, the financial crisis, and for us to be growing and being upgraded and really thriving in a difficult time, to me it all comes together into a nice story about where the company is.”

Hanover’s History

Hanover Insurance was founded in 1852 in Hanover Square in New York City, which makes it older than big players Allstate, W.R. Berkley, Chubb, CNA and Travelers. It’s one of the 40 oldest companies on the New York Stock Exchange — a fact the company will celebrate today by ringing the closing bell on the floor of the NYSE. Eppinger is to be joined on the bell platform by Marita Zuraitis, president of Hanover’s property/casualty companies, and the company’s executive leadership team.

Hanover started as a fire insurance company. It later added auto, marine and surety, then workers’ compensation, general liability and other casualty lines. It did business with Lloyd’s in London as far back as 1880 and did business in China back in 1920.

Hanover moved its headquarters to central Massachusetts in 1969, the same year it expanded its business in the Midwest with its affiliation with Citizens Insurance Co., based in Michigan.

The insurer has weathered the 1872 Chicago fire, the 1906 San Francisco earthquake, the 1929 stock market crash, and the 2004-2005 hurricanes including Katrina. It also survived the 2008 financial crisis— the only insurer in the country that had its ratings upgraded during this period by A.M. Best, Moody’s and Standard & Poor’s. In 2011, it survived a record $362 million in catastrophe losses.

One of Hanover’s biggest challenges in its history had nothing to do with its property/casualty business. For a period starting in 1992, Hanover came under the umbrella of Allmerica Financial, which included State Mutual, one of the oldest and biggest life insurers. In addition to selling fixed life products, Allmerica became one of the hottest sellers of variable annuities in the late ‘90s. It got into deep trouble, however, after the stock market collapsed following the Sept. 11, 2001, terrorist attacks. The company began struggling to generate investment returns sufficient to meet the guaranteed return it promised the holders of its variable annuities.

Allmerica President and CEO John F. O’Brien, who championed the variable annuity sales, resigned in October 2002. In 2003, the company made the big decision to sell its fixed life insurance business and in August of that year hired Eppinger to take over the company.

Under Eppinger, by 2005, the company had completed restructuring and reinsurance deals that led to its eventual exit from the variable life and annuity businesses. The company also returned to its property/casualty roots and restored its name, Hanover Insurance Group.

The Hanover Insurance Group is now the holding company for a group of insurers that includes The Hanover Insurance Co., based in Worcester, Mass., and Citizens Insurance Company of America, headquartered in Howell, Michigan, and Chaucer Holdings plc, based in London, and their affiliates.

The current news of Hartford Financial Services getting out of the life insurance and annuities business to focus on property/casualty is a déjà vu for Hanover veterans including Eppinger, who himself worked in Hartford’s property/casualty division before returning to his hometown of Worcester and taking over Hanover in 2003.

OneBeacon Deal

Under Eppinger, the company left the life business behind, focusing instead on expanding and diversifying its property/casualty business largely through acquisitions.

While he has overseen about eight acquisitions since he joined Hanover, Eppinger’s deal to acquire the renewal rights to business from OneBeacon Insurance Group in 2009 was one of his biggest and boldest. Hanover acquired the renewal rights to $400 million in small and middle market business. The deal enabled Hanover to not only expand its specialty lines and middle market appeal but also advance its reach into western states.

When the OneBeacon opportunity came up, Eppinger said he saw three advantages: good products, good agent relationships and good talent.

“The product side of it, to me, was very intriguing,” Eppinger told Insurance Journal, referring to the fact that OneBeacon’s core business was industry product lines from the old Atlantic Mutual.

OneBeacon also offered “advantages for their spread and scale, particularly in small commercial, and they had some depth of relati