Fitch Ratings has affirmed the 'A' (Strong) Insurer Financial Strength (IFS) rating of The Hanover Insurance Company, the principal operating subsidiary of The Hanover Insurance Group (NYSE: THG).

Fitch has also affirmed THG's senior unsecured notes at 'BBB'. The Rating Outlook remains Stable. All ratings have been subsequently withdrawn.

The ratings were withdrawn for commercial reasons.

Key Rating Drivers

THG has a moderate business profile, with competitive advantages in the U.S. independent agency space, and $5.0 billion in net written premium (NWP) in 2021. The company's business risk profile has a material exposure to regional natural catastrophes, but the inherent volatility was reduced somewhat from changes in property risk aggregations with an expanding geographic profile and shifts in business mix. Product diversification is moderate, with a focus on short-tail lines.

Although capital formation has been relatively modest in recent years due to return of capital to shareholders through dividends and share repurchase, capital sufficiently supports the company's business profile. Shareholders' equity declined by approximately 2% in 2021. The financial leverage ratio (FLR) was 20.9% at YE 2021, within rating sensitivities. U.S. subsidiaries' Prism capital model score was 'Strong' based on 2020 data.

Statutory operating leverage (net premiums written to policyholders' surplus) remains higher than that of peer companies at 1.8x in 2021. The company reported strong statutory surplus growth to over $2.7 billion at YE 2021. GAAP operating leverage was approximately 1.6x at YE 2021.

Additional balance sheet strengths include THG's high-quality, liquid investment portfolio that provides ample liquidity to cover its insurance reserves. Fitch believes THG's reserves are sufficient with recent favorable experience, primarily in commercial lines.

RATING SENSITIVITIES

Rating sensitivities pertaining to the noted ratings are no longer relevant given today's withdrawal.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

Following the withdrawal of ratings for THG, Fitch will no longer be providing the associated ESG Relevance Scores.

RATING ACTIONS

Entity / Debt

Rating

Prior

Citizens Insurance Company of America

Ins Fin Str

A

Affirmed

A

Ins Fin Str

WD

Withdrawn

A

Hanover Insurance Company (The)

Ins Fin Str

A

Affirmed

A

Ins Fin Str

WD

Withdrawn

A

The Hanover Insurance Group, Inc.

LT IDR

BBB+

Affirmed

BBB+

LT IDR

WD

Withdrawn

BBB+

senior unsecured

LT

BBB

Affirmed

BBB

senior unsecured

LT

WD

Withdrawn

BBB

junior subordinated

LT

BB+

Affirmed

BB+

junior subordinated

LT

WD

Withdrawn

BB+

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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