AM Best has 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 Company (Hanover) (King of Prussia, PA). Concurrently, AM Best has maintained the under review with negative implications status for these Credit Ratings (ratings).

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 downgrades reflect AM Best’s view that Hanover’s stand-alone ratings reflect drag from its acquiring company, Mid-Hudson Co-Operative Insurance Company, 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. 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. Management has indicated that 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, 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 disclosed that it is in the process of obtaining an additional layer of reinsurance coverage to mitigate that risk. The ratings will remain under review with negative implications status until AM Best can fully analyze the amount of additional reinsurance being purchased and its impact on overall risk adjusted capitalization. If Hanover fails to secure sufficient reinsurance coverage, it may necessitate a further downgrade.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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