OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a” for the members of Liberty Mutual Insurance Companies (Liberty Mutual), as well as Liberty Mutual Insurance Europe Limited (LMIE) (United Kingdom) and Liberty Life Assurance Company of Boston (Liberty Life) (Dover, NH). These entities are operating subsidiaries of their ultimate parent company, Liberty Mutual Holding Company Inc. (LMHC).
Concurrently, A.M. Best has affirmed the ICRs of “bbb” of LMHC and Liberty Mutual Group, Inc. (LMGI), a wholly owned subsidiary of LMHC, as well as the issue ratings of LMGI. The outlook for all the above ratings is stable. In addition, A.M. Best has affirmed the short-term issue rating of AMB-2 of LMGI. All the above named companies are domiciled in Boston, MA, except where specified. (See link below for a detailed listing of the companies and ratings.)
The ratings for Liberty Mutual’s members reflect the group’s solid capitalization, historically favorable operating performance, dominant market profile and strong brand-name recognition, as the group ranked as the fourth-largest property/casualty insurer in the United States at year-end 2014, based on net premiums written. The ratings further acknowledge the sustainable competitive advantages of the group’s multiple distribution channels, active risk management of its catastrophe exposures, in-house expertise in traditional and alternative investments, and solid product and geographic diversification. Furthermore, Liberty Mutual’s enterprise risk management program has served as a competitive advantage in navigating through the financial, economic and catastrophic events in recent years.
Management’s strategic objectives remain focused on improving Liberty Mutual’s financial performance through product, geographic and distribution channel diversification, while maintaining a sustainable competitive advantage in its core business operations. As part of this strategy, management remains focused on reducing business risk, diversifying earnings and improving operating leverage. Over the past several years, the achievement of these objectives has been evidenced by the group’s measured acquisitions and divestitures, proactive strategies in the marketplace, as well as reinsurance transactions. In addition, Liberty Mutual’s extensive unbundled service capabilities, risk management services and strategic alliances with managed care networks provide a significant competitive advantage and a superior market profile.
The positive rating factors for Liberty Mutual’s members are somewhat offset by the group’s relatively high underwriting leverage measures, above-average higher-risk assets relative to peers (which includes significant affiliated international insurance operations), and less profitable operating results in the earlier years of the most recent five-year period, largely driven by weakened underwriting results, substantial catastrophe losses in years 2010 through 2012 and unfavorable prior year loss reserve development in years 2011 through 2013, which influenced underwriting results to some extent. A.M. Best views the group’s purchase of the adverse development cover for its workers’ compensation and asbestos and environmental liabilities, effective Jan. 1, 2014, as lessening the uncertainty of these liabilities going forward and enhancing the group’s risk-adjusted capitalization.
While Liberty Mutual’s capitalization was strained in 2008 and early 2009 following deteriorating operating results, unrealized capital losses and the capital outlay for the purchase of Safeco Corporation, policyholders’ surplus and capitalization have improved following the recovery of the financial markets and currently support its ratings. While significantly lower underwriting losses were reported in 2013 and 2014, largely due to more stringent underwriting practices and lower catastrophe experience, A.M. Best anticipates an increasingly competitive underwriting environment and investment losses in higher-risk assets will likely pressure the group’s operating profitability and the internal generation of surplus in the near term. The group’s above-average higher risk assets include non-investment grade bonds; common stocks; energy and metals and mining operations and other Schedule BA investments, including significant affiliate international insurance companies.
The ratings of Liberty Mutual’s members also consider the financial flexibility provided by LMHC, which maintains financial leverage that is in line with its current ratings, as well as additional liquidity through its access to capital markets and lines of credit. Additionally, LMHC benefits from its global operations.
The ratings of LMIE acknowledge its solid risk-adjusted capitalization, strong five-year average operating performance and brand recognition achieved as a strategic member of the global franchise led by Liberty Mutual Insurance Company (LMIC). The ratings also consider the explicit support provided by LMIC in the form of a financial guarantee, as well as operating synergies achieved with affiliates. These positive rating factors are partially offset LMIE’s earnings fluctuations, recent above-average growth, and risks associated with achieving adequate pricing given challenging underwriting conditions in its markets.
The ratings of Liberty Life recognize its strategic role within LMHC, its strong risk-adjusted capitalization, positive earnings trend and well-established business profile in the individual and group insurance markets. In addition, the ratings also reflect Liberty Mutual’s explicit support in the form of an unconditional guarantee and also recent capital contributions as evidence of the commitment to maintain favorable capital levels at Liberty Life.
Partially offsetting these positive rating factors are the competitive nature of Liberty Life’s individual life and group disability income markets, the impact of the low interest rate environment and its continued losses in its discontinued business lines. A.M. Best believes that despite these challenges, Liberty Life remains well positioned to support its long-term profitability.
For a complete listing of Liberty Mutual Holding Company Inc. and its subsidiaries’ FSRs, ICRs and issue ratings, please visit Liberty Mutual Holding Company Inc.
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
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