Liberty Mutual Group Reports Third Quarter 2009 Results

BOSTON--(BUSINESS WIRE)--Liberty Mutual Group (“LMG” or the “Company”) today reported net income of $265 million for the three months ended September 30, 2009, an increase of $259 million over the same period in 2008.

“We and the industry benefited in the quarter from improved asset values and favorable weather. We remain committed to disciplined underwriting, reserving and overall risk management to maintain our strong balance sheet.”

“We are pleased with our results in the quarter,” said Edmund F. Kelly, Chairman, President and CEO of Liberty Mutual Group Inc. “We and the industry benefited in the quarter from improved asset values and favorable weather. We remain committed to disciplined underwriting, reserving and overall risk management to maintain our strong balance sheet.”

Third Quarter Highlights

Revenues for the three months ended September 30, 2009 were $7.916 billion, an increase of $1.045 billion or 15.2% over the same period in 2008.
Net written premium for the three months ended September 30, 2009 was $7.207 billion, an increase of $661 million or 10.1% over the same period in 2008.
Pre-tax operating income before private equity (loss) income for the three months ended September 30, 2009 was $263 million, an increase of $114 million or 76.5% over the same period in 2008.
Pre-tax operating income for the three months ended September 30, 2009 was $258 million, an increase of $99 million or 62.3% over the same period in 2008.
Net income for the three months ended September 30, 2009 was $265 million, an increase of $259 million from the same period in 2008.
Cash flow from operations for the three months ended September 30, 2009 was $580 million, a decrease of $300 million or 34.1% from the same period in 2008.
The combined ratio before catastrophes¹ and net incurred losses attributable to prior years²for the three months ended September 30, 2009 was 97.9%, an increase of 3.0 points over the same period in 2008. Including the impact of catastrophes and net incurred losses attributable to prior years, the Company’s combined ratio for the three months ended September 30, 2009 decreased 2.8 points to 100.6%.

Year-to-Date Highlights

Revenues for the nine months ended September 30, 2009 were $23.152 billion, an increase of $2.448 billion or 11.8% over the same period in 2008.
Net written premium for the nine months ended September 30, 2009 was $21.139 billion, an increase of $2.058 billion or 10.8% over the same period in 2008.
Pre-tax operating income before private equity (loss) income for the nine months ended September 30, 2009 was $1.094 billion, an increase of $164 million or 17.6% over the same period in 2008.
Pre-tax operating income for the nine months ended September 30, 2009 was $696 million, a decrease of $362 million or 34.2% from the same period in 2008.
Net income for the nine months ended September 30, 2009 was $567 million, a decrease of $99 million or 14.9% from the same period in 2008.
Cash flow from operations for the nine months ended September 30, 2009 was $1.568 billion, a decrease of $1.004 billion or 39.0% from the same period in 2008.
The combined ratio before catastrophes and net incurred losses attributable to prior yearsfor the nine months ended September 30, 2009 was 98.0%, an increase of 0.7 points from the same period in 2008. Including the impact of catastrophes and net incurred losses attributable to prior years, the Company’s combined ratio for the nine months ended September 30, 2009 decreased 1.9 points to 100.1%.

Financial Condition as of September 30, 2009

Total assets were $109.996 billion as of September 30, 2009, an increase of $5.680 billion over December 31, 2008.
Policyholders’ equity was $13.833 billion as of September 30, 2009, an increase of $3.673 billion over December 31, 2008.
Long-term debt, including current maturities of long-term debt, was $5.885 billion as of September 30, 2009, a decrease of $204 million from December 31, 2008. The decrease primarily reflects year-to-date debt repurchases of $207 million.

Consolidated Results of Operations for the Three and Six Months Ended September 30, 2009:

	Three Months Ended September 30,						Nine Months Ended September 30,
$ in Millions	2009		2008		Change		2009		2008		Change
Revenues	$7,916		$6,871		15.2	%	$23,152		$20,704		11.8	%
PTOI before catastrophes, net incurred losses attributable to prior years and private equity (loss) income	$575		$661		(13.0	)	$1,644		$1,758		(6.5	)
Catastrophes¹:
-September 2008 Hurricanes	(2	)	(697	)	(99.7	)	(16	)	(697	)	(97.7	)
-All other²	(195	)	(111	)	75.7		(760	)	(590	)	28.8
Net incurred losses attributable to prior years:
- Asbestos & environmental³	(361	)	(1	)	NM		(364	)	(5	)	NM
- All other⁴	246		297		(17.2	)	590		464		27.2
Pre-tax operating income before private equity (loss) income	263		149		76.5		1,094		930		17.6
Private equity (loss) income⁵	(5	)	10		NM		(398	)	128		NM
Pre-tax operating income	258		159		62.3		696		1,058		(34.2	)
Realized gains (losses), net	35		(249	)	NM		14		(256	)	NM
Federal and foreign income tax (expense) benefit	(28	)	96		NM		(143	)	(136	)	5.1
Net income	$265		$6		NM		$567		$666		(14.9	%)
Cash flow from operations	$580		$880		(34.1	%)	$1,568		$2,572		(39.0	%)

1		Catastrophes include all current and prior year catastrophe losses including assessments from TWIA and exclude losses related to the Company’s external reinsurance assumed lines (assumed voluntary reinsurance and reinsurance assumed through Lloyd’s Syndicate 4472) except for losses related to the events of September 11, 2001, the 2004 U.S. Hurricanes, the 2005 U.S. Hurricanes and the September 2008 Hurricanes. Catastrophe losses, where applicable, include the impact of accelerated earned catastrophe premiums and earned reinstatement premiums.
2		Catastrophe losses ceded under the homeowners quota share treaty are included to the extent that the ceded combined ratio exceeds 100.0%.
3		Net of allowance for uncollectible reinsurance reduction of ($70) million for the three and nine months ended September 30, 2009, and zero and $7 million for the comparable periods of 2008.
4		Net of earned premium attributable to prior years of $(73) million and ($71) million for the three and nine months ended September 30, 2009, and $14 million and $11 million for the comparable periods of 2008. Net of amortization of deferred gains on retroactive reinsurance of $17 million and $52 million for the three and nine months ended September 30, 2009, and $17 million and $53 million for the comparable periods of 2008.
5		Private equity (loss) income is included in net investment income in the accompanying statements of income.
NM = Not Meaningful

Financial Information: Liberty Mutual Group’s financial results, management's discussion and analysis of operating results and financial condition, accompanying financial statements and other supplemental financial information for the three and nine months ended September 30, 2009 are available on the Company's Investor Relations web site at www.libertymutual.com/investors.

Conference Call Information: At 10:30 a.m. EDT today, Edmund F. Kelly, Liberty Mutual Group Chairman, President and CEO, will host a conference call to discuss the Company's financial results. To listen to the call and participate in the Q&A, please dial 800-857-2190 fifteen minutes before the starting time, providing the pass code “Liberty” when prompted. A replay will be available until 5:00 p.m. on November 3, 2009 at 866-473-2109.

About Liberty Mutual Group

Boston-based Liberty Mutual Holding Company Inc., the parent corporation of the Liberty Mutual Group of entities (“LMG” or the “Company”), is a diversified global insurer and fifth largest property and casualty insurer in the U.S. based on 2008 direct written premium. The Company also ranks 86^th on the Fortune 500 list of largest corporations in the United States based on 2008 revenue. As of December 31, 2008, LMG had $104.316 billion in consolidated assets, $94.156 billion in consolidated liabilities, and $28.855 billion in annual consolidated revenue.

LMG, through its subsidiaries and affiliated companies, offers a wide range of property-casualty insurance products and services to individuals and businesses alike. In 2001 and 2002, the Company formed a mutual holding company structure, whereby the three principal mutual insurance companies, Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company and Employers Insurance Company of Wausau, each became separate stock insurance companies under the ownership of Liberty Mutual Holding Company Inc.

Functionally, the Company conducts substantially all of its business through four strategic business units: Personal Markets, Commercial Markets, Agency Markets and International. Each business unit operates independently of the others and has dedicated sales, underwriting, claims, actuarial, financial and certain information technology resources. Management believes this structure allows each business unit to execute its business strategy and/or to make acquisitions without impacting or disrupting the operations of the Company’s other business units.

LMG employs more than 45,000 people in more than 900 offices throughout the world. For a full description of the Company’s business operations, products and distribution channels, please visit Liberty Mutual’s Investor Relations web site at www.libertymutual.com/investors.

Forward Looking Statements

This press release contains forward looking statements concerning the Company’s future financial and business performance. Forward looking statements represent the Company’s beliefs concerning future operations, strategies, financial results or other developments, and contain words and phrases such as “may,” “expects,” “should,” “believes,” “anticipates,” “estimates,” “intends” or similar expressions. Because these forward looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond the Company’s control or are subject to change, actual results could be materially different.

In particular, the sufficiency of the Company’s reserves for (i) asbestos, (ii) environmental ((i) and (ii) together “A&E”), and (iii) toxic tort (i.e., claims that arise primarily from exposure to chemical or other potentially hazardous products or substances, including welding rod, lead paint and silica related claims), as well as its results of operations, financial condition and liquidity, to the extent impacted by the sufficiency of the Company’s A&E and toxic tort reserves, are subject to a number of potential adverse developments including adverse developments involving A&E and toxic tort claims and the related level and outcome of litigation, the willingness of parties, including the Company, to settle disputes, the interpretation of aggregate policy coverage limits, the Company’s ability to recover reinsurance for A&E, toxic tort and other claims, the legal, economic, regulatory, and legislative environments, and their impact on the future development of A&E and toxic tort claims, and the impact of bankruptcies of various asbestos producers and related peripheral businesses.

Some of the other factors that could cause actual results to differ include, but are not limited to, the following: the Company’s inability to obtain price increases or maintain market share due to competition or otherwise; the performance of the Company’s investment portfolio, which could suffer reduced returns or losses adversely affecting the Company’s profitability, capitalization and liquidity; market conditions that may limit the Company’s ability to replace maturing liabilities in a timely manner or that may make it difficult to value the Company’s investments; developments in U.S. and global financial and capital markets, including changes in interest rates, rates of inflation, credit spreads, equity prices and foreign exchange rates; losses due to defaults of individual issuers and defaults of the collateral backing certain investments; recessionary U.S. and global economic conditions, which could adversely affect the Company’s ability to grow its business profitably; the potential effect of legislation and other governmental initiatives taken in response to stress in financial markets and economic conditions; insufficiency of, or changes in, loss reserves; the occurrence of catastrophic events, both natural and man-made, including terrorist acts, with a severity or frequency exceeding the Company’s expectations; adverse changes in loss cost trends, including inflationary pressures in medical costs and automobile and home repair costs; developments relating to coverage and liability for mold claims; the effects of corporate bankruptcies; adverse developments in the cost, availability and/or ability to collect reinsurance, which may be adversely affected by current economic conditions; the Company's ability to successfully integrate operations, personnel and technology from its acquisitions, including the acquisition of Safeco Corporation (“Safeco”) and its subsidiaries; the ability of the Company’s subsidiaries to pay dividends to the Company; adverse results or other consequences from legal proceedings; the impact of regulatory investigations or reforms, including governmental actions regarding the compensation of brokers and agents and the purchase and sale of nontraditional products and related disclosures; unusual loss activity resulting from adverse weather conditions, including hurricanes, hail, tornados, snowfall and winter conditions; repatriation of foreign earnings; judicial expansion of policy coverage and the impact of new theories of liability; the impact of legislative actions, including proposed Federal legislation related to natural catastrophe funds and financial services regulation reform; larger than expected assessments for guaranty funds and mandatory pooling arrangements; a downgrade in the Company’s claims-paying and financial strength ratings, which could adversely affect its business volumes, adversely affect its ability to access the debt markets and increase its borrowing costs; the loss or significant restriction on the Company’s ability to use credit scoring in the pricing and underwriting of Personal Lines policies; and changes to the risk-based capital requirements. The Company’s forward looking statements speak only as of the date of this report or as of the date they are made and should be regarded solely as the Company’s current plans, estimates and beliefs. For a detailed discussion of these and other cautionary statements, visit the Company’s Investor Relations web site at www.libertymutual.com/investors.

¹ Catastrophes include all current and prior year catastrophe losses including assessments from the Texas Windstorm Insurance Association (“TWIA”) and exclude losses related to the Company’s external reinsurance assumed lines (assumed voluntary reinsurance and reinsurance assumed through Lloyd’s Syndicate 4472) except for losses related to the events of September 11, 2001, the 2004 U.S. Hurricanes, the 2005 U.S. Hurricanes and the September 2008 Hurricanes. Catastrophe losses, where applicable, include the impact of accelerated earned catastrophe premiums and earned reinstatement premiums.

² Net incurred losses attributable to prior years is defined as incurred losses attributable to prior years (excluding prior year losses related to natural catastrophes and the events of September 11, 2001) including both earned premium attributable to prior years and amortization of retroactive reinsurance gains.