Best Affirms Liberty Mutual, Subs ‘A’ Ratings; Outlook Negative

A.M. Best Co. has affirmed the financial strength ratings (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Liberty Mutual Insurance Companies and Peerless Insurance Company Pool and their members, as well as UK-based Liberty Mutual Insurance Europe Limited (LMIE) and Liberty Life Assurance Company of Boston. All of these entities are operating subsidiaries of the ultimate parent company, Liberty Mutual Holding Company Inc. (LMHC).

Best also affirmed the ICRs of “bbb” for LMHC, Liberty Mutual Group, Inc. (LMGI), Ohio Casualty Corporation and Safeco Corporation, as well as all debt ratings of LMGI. However, Best said that its outlook for all of the ratings is negative. All companies are domiciled in Boston, Mass. except where specified.

Best explained that the ratings reflect “LMGI’s favorable operating performance, sound capitalization, strong global brand name recognition, as well as Liberty Mutual’s dominant market profile, as it was ranked as the fourth-largest insurance group in the United States, based on direct premiums written, at year-end 2009. The ratings further acknowledge LMGI’s sustainable competitive advantages of its multiple distribution channels, active risk management of its catastrophe and investment exposures and solid product and geographic diversification.”

Best also pointed out that the Peerless Pool is “a strategic component of Liberty Mutual’s agency markets business unit,” which provides the “platform for the group to enhance its ongoing efforts to penetrate small commercial and personal markets. LMGI’s market presence has been enhanced in recent years through a number of acquisitions, which have provided it with strong regional brand name recognition, market expertise, increased utilization of its independent agency force, as well as improved geographic spread and product diversification.”

However, Best indicated that these “positive rating factors are somewhat offset by the modest deterioration in operating results at Liberty Mutual, driven largely by deteriorating underwriting results and lower investment gains.

“Additionally, LMGI’s overall capitalization was strained in 2008 and early 2009, following deteriorating operating results, modest unrealized capital losses and the capital outlay for the purchase of Safeco Corporation.

The situation has now somewhat improved. Best noted that “following the recovery of the financial markets in 2009, Liberty Mutual’s statutory surplus increased $2.4 billion or 19 percent in 2009, and the overall group’s GAAP equity increased $4.1 billion or 40 percent to $14.5 billion.”

As a result, Best said it believes LMGI is “adequately capitalized to face the challenges posed by current market conditions; however, the rating outlook reflects a modest level of capitalization and the weakened operating performance that will continue to be sensitive to economic conditions and financial market results.

“The affirmation of the ratings for LMIE recognize its solid balance sheet strength, strong operating performance within niche markets, brand recognition and the explicit support provided by its parent, Liberty Mutual Insurance Company.

“The affirmation of the ratings for Liberty Life acknowledges its established business profile in the individual and group markets, improved position of its investment portfolio and strong risk-adjusted capital position. Furthermore, the ratings also reflect Liberty Mutual’s explicit support and its commitment to maintain favorable capital levels at Liberty Life.

“Partially offsetting these positive rating factors are Liberty Life’s reduction in statutory profitability in recent years and the impact of the economic downturn on its group long-term disability book of business.

For a complete listing of Liberty Mutual Holding Company Inc. and its subsidiaries’ FSRs, ICRs and debt ratings, go to: www.ambest.com/press/061104libertymutual.pdf.

Source: A.M. Best