Liberty Mutual’s Q2 Profits Up; Combined Ratio at 98%

July 24, 2008

Bad weather and a poor economy hampered Liberty Mutual Group’s (LMG) second quarter results but revenues overall were up 10.4 percent over second quarter 2007, the company reported today.

Liberty Mutual reported the group’s net income of $300 million and $660 million for the three and six months ended June 30, 2008, decreased $39 million and $29 million, respectively, from the same periods in 2007. However, revenues for the three months ended June 30, 2008 were $6.948 billion, an increase of $653 million or 10.4 percent over the same period in 2007.

“Bad weather tempered another quarter of strong core operating results from each of our SBU’s,” said Edmund F. Kelly, chairman, president and CEO, Liberty Mutual. “The fundamentals of our businesses remain sound but require continued underwriting vigilance and pricing discipline due to competitive pressures.”

Kelly said Liberty Mutual’s balance sheet remains strong with limited exposure to the sub-prime crisis. “While the economic slowdown in the U.S. remains a concern, inflation is a greater concern, but we are extremely well-positioned globally to compete successfully across a broad range of market conditions,” he said in a statement.

Second Quarter Highlights
– Net written premium for the three months ended June 30, 2008 was $6.279 billion, an increase of $802 million or 14.6 percent over the same period in 2007.

– The combined ratio before catastrophes and net incurred losses attributable to prior years for the three months ended June 30, 2008 was 98.0 percent, an increase of 1.5 points over the same period in 2007. Including the impact of catastrophes and net incurred losses attributable to prior years, the company’s combined ratio for the three months ended June 30, 2008 increased 1.8 points to 101.9 percent.

– Pre-tax income for the three months ended June 30, 2008 was $412 million, a decrease of $86 million or 17.3 percent from the same period in 2007. Results in the period reflect a decrease in realized investment gains of $40 million.

– Net income for the three months ended June 30, 2008 was $300 million, a decrease of $39 million or 11.5 percent from the same period in 2007.

– Cash flow from operations for the three months ended June 30, 2008 was $1.079 billion, an increase of $292 million or 37.1 percent over the same period in 2007.

Year-to-Date Highlights
– Revenues for the six months ended June 30, 2008 were $13.833 billion, an increase of $1.395 billion or 11.2 percent over the same period in 2007.

– The combined ratio before catastrophes and net incurred losses attributable to prior years for the six months ended June 30, 2008 was 98.5 percent, an increase of 0.7 points over the same period in 2007. Including the impact of catastrophes and net incurred losses attributable to prior years, the company’s combined ratio for the six months ended June 30, 2008 increased 0.7 points to 101.3 percent.

– Pre-tax income for the six months ended June 30, 2008 was $892 million, a decrease of $106 million or 10.6 percent from the same period in 2007. Results in the period reflect a decrease in realized investment gains of $132 million.

– Net income for the six months ended June 30, 2008 was $660 million, a decrease of $29 million or 4.2 percent from the same period in 2007.

– Cash flow from operations for the six months ended June 30, 2008 was $1.692 billion, a decrease of $104 million or 5.8 percent from the same period in 2007.

Financial Condition as of June 30, 2008
– Total assets were $99.877 billion as of June 30, 2008, an increase of $5.135 billion over December 31, 2007.

– Policyholders’ equity was $12.265 billion as of June 30, 2008, a decrease of $101 million from December 31, 2007.

– Statutory surplus as regards policyholders for the combined operations of Liberty Mutual Insurance Company (“LMIC”) and its U.S. affiliates was $15.371 billion as of June 30, 2008, an increase of $1.216 billion from December 31, 2007.

Other 2008 Q2 Highlights
On April 23, 2008, LMG and Safeco Corporation (“Safeco”) announced that they entered into a definitive agreement pursuant to which Liberty Mutual Group, through its subsidiaries, will acquire all outstanding shares of common stock of Safeco for $68.25 per share or approximately $6.2 billion. The proposed transaction, which has been approved by the boards of directors of both companies, is subject to approval by Safeco’s shareholders and customary regulatory approvals and conditions. The transaction is targeted to close in the third quarter of 2008.

On June 29, 2008, Liberty Insurance Company Limited (“LICL”), a wholly owned subsidiary of LMG, was granted approval to establish a branch in Beijing by the China Insurance Regulatory Commission. Beijing is the first branch established by LICL in China and will offer various personal lines products, including auto and a wide range of commercial lines products with a focus on small-to-medium enterprises.

On May 29, 2008, Liberty Mutual Group Inc. issued $1.25 billion of 10.75 percent Series C junior subordinated notes having a final maturity of 2088 and a final fixed rate interest payment date of 2038. This security receives high levels of equity treatment by the rating agencies. The proceeds from the offering are being used to finance the Safeco transaction.

Source: Liberty Mutual Group

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