Hanover Insurance May Sell International Insurer Chaucer

Telegram & Gazette (Worcester, MA)

April 04--WORCESTER -- Hanover Insurance Group Inc. may sell Chaucer, its international specialty insurance business.

The property and casualty insurer reported last week it had hired Goldman Sachs & Co. to advise on "strategic alternatives" for Chaucer, including a possible sale.

"We believe we have several good and viable options, including a possible sale, and, also, retaining and continuing to manage the development of this valuable business," Michael F. Buckley, Hanover vice president of corporate communications, said in a statement. "Chaucer is a leading underwriter at Lloyd's of London that has made a strong contribution to our company since we acquired it in 2011. We believe it would be an attractive acquisition for many potential acquirers. We also believe Chaucer continues to fit nicely in our portfolio and provides us with valuable diversification and other benefits."

Hanover sells insurance mostly to businesses and individuals. It paid about $474 million for Chaucer in 2011.

Hanover shares have jumped about 5 percent over the last week in trading on the New York Stock Exchange. Hanover stock closed Tuesday at about $118.94 a share.

S&P Global Ratings downgraded its rating of Chaucer on Tuesday to A- from A. It also placed Hanover on "credit watch negative" over uncertainty about how Hanover would use proceeds from a sale, a loss of product and geographic diversification, and concerns about underwriting performance. Underwriting essentially guarantees payment in the event of damage or loss.

"We expect (Hanover) to be less diversified after the potential sale of its international business," S&P reported.

Chaucer is based in London and writes policies through Lloyd's insurance group for ships, nuclear power stations and other unique businesses internationally. In 2017, it posted $849.1 million in net premiums written, or about 17 percent of the nearly $5 billion in net premiums written by Hanover.

Chaucer also reported about $7 million in operating profit last year, before interest expenses and income tax. The unit's results were hurt by expensive catastrophes, including hurricanes Irma, Harvey and Maria, and two earthquakes in Mexico.

Still, the time is near optimal to sell Chaucer, which could run independently or merge with a specialty acquirer, analyst Christopher Campbell of Keefe, Bruyette & Woods wrote last week in a note to clients. Selling could give Hanover cash for stock buybacks and dividends, Mr. Campbell wrote, or it could make Hanover attractive to buyers.

"We do think potentially greater long-term value from a potential Chaucer disposition could be unlocked via strategic simplification, which would make Hanover itself an easier target for a larger acquirer to digest," Mr. Campbell wrote.

Hanover employed about 4,600 people worldwide at the end of 2017, according to a filing with the Securities and Exchange Commission.

Hanover Insurance Group Inc. announced in August last year that it would cut about 160 jobs, laying off about 3 percent of its workforce, and make other unspecified changes to reduce expenses. In November, John C. Roche replaced Joseph M. Zubretsky as president and chief executive officer.

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