Seven more states. $400 million in commercial lines premiums. A $100 million increase in its stock repurchase plan. And that was all within one week.
The Hanover Insurance Co., based in Worcester, bought renewal rights to a bevy of commercial insurance lines from Canton’s OneBeacon Insurance Company on Dec. 3, taking a large leap into new territory out west.
But that’s the just latest in a string of restructuring moves from the company, which has strongly expanded its commercial operations while doing some housecleaning at the same time.
In the last year, The Hanover purchased Connecticut’s AIX Holdings and Maryland’s Verlan Holdings, both of which expanded its commercial lines and geographical footprint. But the company also sold off the vestiges of its life insurance business in the past year, sweeping out the last of a bygone era.
“They’ve finally figured out who they want to be as a company,” said Karen Pauli, analyst with Needham-based TowerGroup, by way of explanation.
Like many insurers, The Hanover spent much of the past 15 years or so going back and forth between missions, Pauli said, but in the past few years has shown the signs of a company that’s aggressively pursuing a specific set of goals.
Amy Banek, spokeswoman for The Hanover, said the company began its string of purchases in 2007 with Professionals Direct, a law firm liability business. Since then, it has launched or enhanced more than 30 other products, with the aim to boost local agents’ performance in those markets.
The Hanover is still considered a “super-regional” company, Pauli said, opposed to a worldwide behemoth like AIG, “but it’s getting more super-regional all the time.”
One hallmark of such super-regionals – including companies such as Travelers and Chubb – is that they emerged in decent shape from the recent financial rollercoaster, and are in a good position to expand because of it, she said. The Hanover had its game plan intact before the economic roils of the past couple years, and has stuck with it.
Instead of building its own shop in new areas, The Hanover announced it has entered into a renewal rights agreement to buy access to as much as $400 million in OneBeacon’s small- and middle-market commercial business, with renewals starting Jan. 1.
In addition, the company is going to add its own stamp to certain parts of the existing business, rolling out coverage enhancements for things like breweries, printers, cultural institutions, food industries and more. The lines are located in a smattering of Western states, from Arizona to Washington.
A move like that might sound risky, but it can be a relatively conservative strategy, according to Steven Weisbart, economist with the Insurance Information Institute. He said it’s often easier to buy up lines rather than try to grow one’s own in a new territory. This way, the buyer has an understanding of the lines’ past performance in those particular markets and doesn’t have to start from scratch.
“From a financial management point of view, this is actually a more prudent, more conservative approach,” Weisbart said.
And if a company is in a position to launch a larger foray into multiple lines and states at once, so much the better – that way, loss exposure is spread out over a larger area and can cushion concentrated losses if they arise.
As for seller OneBeacon, spokeswoman Carmen Duarte said the company made the deal because The Hanover was “a strong partner” that was dedicated to beefing up its commercial lines portfolio. Duarte declined to say whether The Hanover approached OneBeacon or vice versa.
Pauli added that OneBeacon’s sale was consistent with its strategy, too. OneBeacon has made purchases of its own in the past year, in areas such as antique cars and the energy sector, which the company has attributed to its niche-oriented plans.
“Hanover and OneBeacon are good examples of [companies] who have really decided what they’re going to be good at and what they choose not to do,” she said.
