Analysis: A Healthy Hanover Moves Ahead

Safe from the storm, CEO Fred Eppinger gears up for such other challenges as enlarging the insurance giant's geographic turf

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Having reestablished Hanover's reputation, Eppinger is now moving into new geographical terrain. On Jan. 1, he'll launch a push into seven Western states, including giant markets like California, Arizona, and Colorado. Though Hanover will be hunting on new ground, Eppinger is sticking with the same agent-focused strategy. To build that business quickly, he bought from OneBeacon Insurance Group the rights to renew as much as $400 million worth of business as it comes up for renewal. The cost to Hanover: $23.25 million plus a 10% cut of any premiums renewed above $200 million.

Hanover, which has cut back on its underperforming agents in many existing markets, including a 40% drop in Massachusetts alone, won't be taking on every agent who was working with OneBeacon. Eppinger expects to add only a modest subset of OneBeacon's agents.

Additional growth will come from further customizing the products the company offers. By adding especially attractive bells and whistles to its policies, such as special types of coverage to suit the needs of a specialized slice of an industry, Hanover can gain market share without having to compete on price, says Robert Lull, CEO of Capacity Coverage, an agency in Mahwah, N.J. Lull does about $15 million of business a year with Hanover today, up from nothing five years ago, all because of that willingness to customize. For example, Lull insures a lot of school bus operators, a noncyclical business that's held up well even in the downturn.

After building a special form of surety insurance policy designed to guarantee the kids will be picked up, Hanover has become Capacity Coverage's top supplier of all school bus insurance. Pre-Eppinger, Hanover was "an old-fashioned, traditional, nothing-out-of-the-box insurance company of which there were hundreds in the U.S.," says Joseph Fico, president and CEO of Portland (Me.)-based TD Insurance, another agency. "They're not that way anymore."

Byrnes is a senior writer for BusinessWeek.