Recent Selloff Of Hanover Insurance Group Stock Presents Buying Opportunity

Shares of Hanover are down 8 percent quarter-to-date, which is the worst in the JMP coverage universe. This compares to the +4 percent for the S&P 500 and an average of +6 percent within JMP's coverage universe. Currently, the issue trades very close to its 52-week low.

The brokerage attributes the underperformance to fears that:

1. "CEO Joseph Zubretsky will exercise his 'free pass' as new CEO to cushion reserves."
<li"Some shareholders finding the slightly more aggressive tone surrounding growth in personal lines and at Lloyd's (Chaucer) discomforting at this point in the cycle."
2. "Remaining arbs selling shares as it now appears that a sale of the company is not in the offing."

Related Link: William Blair Says Buy Auto Insurers, "Bad News Is Good News" But, analyst Matthew Carletti stated the investor fears are overblown; even if Zubretsky exercises his right to add to reserves, it would likely result in less than $100 million, which is just a small portion of the market cap incurred recently.

The analyst noted that the potential reserve addition should be negligible versus 2017 estimated pre-tax earnings of $431 million and June 30 shareholders equity of $3.0 billion.