East Meets West

The Hanover Group Expands Out West, Enters Agreement With OneBeacon

The Hanover Insurance Group Inc.’s CEO Frederick H. Eppinger expects the western United States to be a key growth driver for the super-regional insurer in the next several years. Having entered into a renewal rights agreement with OneBeacon Insurance Group, Worcester, Mass.-based The Hanover sees the agreement as a natural fit because it allowed the company to pickup about $100 million worth of business in the West, and expand its footprint quickly in the region, as well as in specialty niches.

Through the agreement, The Hanover expects to acquire access to as much as $400 million in OneBeacon small and middle market commercial business nationwide at renewal, including industry programs and middle market niches. At the same time, the transaction will expand The Hanover’s segment, niche and industry program business, adding nearly 20 programs to its portfolio. The agreement became effective for renewals beginning Jan. 1, 2010.

The company also will acquire additional scale in its core commercial lines, along with product and service capabilities. “The additional scale will enable us to leverage the investments we make in people, products and services across a larger premium base,” Eppinger said. “Our agent partners will be able to address more of their customer needs and to capitalize on additional growth opportunities.”

In small commercial, the company plans to roll out product enhancements across more than a dozen programs, including apartments, contractors, manufacturers, restaurants, retail, human services, technology and others.

In the middle market, it will offer new coverages in several segments, including brewers, cultural institutions, food industries, media, printers, retail and professional services. The company also plans to make enhancements in several others, including real estate, wholesalers, metal workers and plastics.

The Hanover expects to form new partnerships with approximately 200 independent agents and to write additional business with another 300 independent agents who represent both companies in the small and middle markets. It also plans to hire approximately 100 OneBeacon employees, strengthening its field and field support teams, while ensuring a smooth conversion of the renewal business.

“We have been very thoughtful about where we will pursue new agency appointments and deeper partnerships, as well as where we will take advantage of opportunities to hire some very committed and talented people,” Eppinger said.

Expansion in Western States

A western expansion is something Eppinger has been exploring for the past couple of years. “A number of our partner agents have asked us to do it, and it was just a matter of time … but given the disruption in the marketplace, some opportunities presented themselves, and we decided to accelerate [the expansion] this year to make sure that by January 1, we could be on the ground in seven states,” he said.

The Hanover began writing business January 1 in Arizona, California, Colorado, New Mexico, Oregon, Utah and Washington. The company has opened offices in Denver and Sacramento, and plans to open offices in Phoenix, Los Angeles, San Francisco, and Seattle.

“Our launch into the West is part of a strategic and disciplined approach to growth, which is enabling us to capitalize on our strong momentum, the increasing interest in our products and services outside of our current footprint, and a number of emerging opportunities with some of the country’s best independent agents,” Eppinger said. “We are very excited about the progress we have made in the West, and about the potential for this renewal rights arrangement to accelerate our growth plans there. There are tremendous synergies between our western expansion initiative and this renewal rights arrangement.”

Responsive Distribution

As part of the expansion, The Hanover is planning to appoint 200 agents in the seven western states and has developed a suite of middle market, niche and specialty products for the region. Approximately 80 to 100 agents will be appointed out of the OneBeacon portfolio, but the remaining agents will likely be new to the company.

“We have a value proposition with our agents that says we will invest in winning agents and innovation, and in product. We will limit the amount we appoint so they have franchise value, and they will have authority so they can be responsive,” Eppinger said.

While the economy’s been difficult in some areas “the western markets also have real growth,” Eppinger said. “They also have … sophisticated agents who are really good at selling expertise and insight in various areas. …That’s why our niches and our segmented business will work so well there, because there tends to be a very sophisticated customer base and a very sophisticated distribution.”

The West is more geographically spread out than the East, but The Hanover has developed technology that allows its underwriters to be remote and keep in close contact with agents.

“I think that the growth aspects, the breadth of the area, the sophistication of the distribution, make it both an attractive place for us, but also an exciting place for us because if you look at those seven states, they represent 30 percent to 40 percent of the premium that we target in the whole country. And so the upside for us is enormous,” Eppinger said.

Bright Spots Ahead

Eppinger said he expects his company will continue to make more acquisitions, but none on the OneBeacon scale. “We don’t have to do any acquisitions, but I fully expect given the disruption in the marketplace, we will continually look for that. … I think it’s going to be mostly small fill-ins around some of the specialty areas.”

Some of the areas he said The Hanover plans to expand in are in health care, assisted living, transportation, professional business, ocean, fidelity and small technology.

“We’re very big in niches,” Eppinger said. “One of the promises that I make to our agents is that no company will be more innovative in the next five years than us in the industry. We believe in taking expense risk. What I mean by that is we believe in building the capabilities and the insight, and building products from there, which means you invest a little bit more, you have a little bit higher expense ratio, but you don’t get into problems with getting into businesses you don’t understand.”

Eventually, The Hanover will have a mix of 50 percent commercial lines and 50 percent personal lines business. Now, specialty business is growing the fastest, but Eppinger expects the commercial versus personal lines ratio to balance out in three to five years.

“In the West, we’re obviously leading with our commercial lines products, but I would imagine over time, as the market is disrupted on the personal lines side, we will take advantage of that as well,” he said.

Eppinger expects a gradual firming of prices through 2010. He said The Hanover has been able to take advantage of recent market disruptions to grow. “In times of turmoil, a lot of insurance companies have to shrink to sustain themselves, and that’s why you see share shift to the winners from the losers,” Eppinger said. “We believe it’s going to happen in the next two years, in a relatively significant way.”

It’s clear the CEO is confident in his company’s future success. In the past year, revenue from specialty lines at The Hanover has grown from roughly $65 million to $500 million, and three ratings agencies have upgraded the company’s financial rating.

“Our vision is to become a world class super-regional … to bring together the best of the national companies, which means scale and product capability, with the best of the regional companies, which is about responsiveness and local knowledge,” Eppinger said.

Listen to a podcast of the interview with CEO Fred Eppinger at Insurance Journal TV at www.insurancejournal.tv.

Topics Agencies Excess Surplus Tech