OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” (Excellent) of the members of Liberty Mutual Insurance Companies (Liberty Mutual). These entities are operating subsidiaries of their ultimate parent company, Liberty Mutual Holding Company Inc. (LMHC) (Boston, MA).
Concurrently, AM Best has affirmed the Long-Term ICRs of “bbb” (Good) of LMHC and Liberty Mutual Group, Inc. (LMGI) (Boston, MA), a wholly owned subsidiary of LMHC, as well as the Long-Term Issue Credit Ratings (Long-Term IR) of LMGI. The outlook of these Credit Ratings (ratings) is stable. (See link below for a detailed listing of the companies and ratings.)
The ratings of Liberty Mutual reflect the group’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management.
Liberty Mutual’s statutory surplus grew 11.1% in 2020, bolstered by a $900 million capital contribution and realized capital gains. Liberty Mutual’s risk-adjusted capitalization remains in excess of the threshold for the very strong categorization, as measured by Best’s Capital Adequacy Ratio (BCAR). The group’s balance sheet benefits from a membership in the Federal Home Loan Bank, which affords additional liquidity, as well as the financial flexibility of its ultimate parent, LMHC, which has access to public capital markets. Additionally, the group’s balance sheet strength is further supported by a comprehensive reinsurance program with highly rate reinsurers. Loss reserve development in 2020 was unfavorable, which continues a pattern of modest adverse development.
Liberty Mutual maintains an elevated level of high-risk assets vs. its property/casualty industry peers, mostly driven by elevated levels of affiliated investments. Furthermore, LMHC, the parent company, has a weaker level of risk-adjusted capital than the operating companies when given no credit for its long-term debt in the calculation, reflecting the materiality of goodwill at the parent level and the challenges it has faced in growing equity in recent years to offset the impact of that goodwill.
AM Best views Liberty Mutual’s operating performance as adequate as its strong level of net investment income has historically offset its underwriting losses over a prolonged period of time, minimizing the impact of those losses on surplus. Statutory net income has been positive in seven of the last 10 calendar years. These generally solid results reflect the group’s market position and the competitive advantages achieved through multiple distribution channels, as well as the extensive use of technology and value-added services. However, Liberty Mutual’s reported underwriting performance continues to trail industry benchmarks on both a five- and 10-year average basis. Persistent underwriting losses have limited growth of equity and have resulted in above average tangible debt/equity leverage at the holding company.
Liberty Mutual’s risk management practices are appropriately comprehensive and sophisticated given the size and complexity of the organization and fully support the ratings. Managing risk is a core competency of the group and integrated throughout its worldwide operations.
LMHC’s rating is supported by adjusted and unadjusted financial leverage that is maintained consistently below 30%.
A complete listing of Liberty Mutual Holding Company Inc.’s and its subsidiaries’ FSRs, Long-Term ICRs and Long-Term IRs also is available.
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