A.M. Best Co. has affirmed the financial strength ratings (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” for the members of Liberty Mutual Insurance Companies and Peerless Insurance Company Pool, 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 their ultimate parent company, Liberty Mutual Holding Company Inc. (LMHC).
Best also affirmed the ICRs of “bbb” of LMHC and Liberty Mutual Group, Inc. (LMGI), a wholly owned subsidiary of LMHC, as well as all debt ratings of LMGI. The outlook for all the above ratings is stable.
In addition Best has affirmed the short-term debt rating of AMB-2 of LMGI. All the above named companies are domiciled in Boston, MA, except where specified.
The ratings for Liberty Mutual’s members reflect its “solid capitalization, historically favorable operating performance, dominant market profile and strong name recognition, as the group was ranked as the fourth-largest in the United States at year-end 2011, based on net premiums written,” Best explained.
The ratings further acknowledge the organization’s “sustainable competitive advantages that are within its multiple distribution channels, the active risk management of its catastrophe exposures as well as solid product and geographic diversification. Furthermore, Liberty Mutual’s enterprise risk management program has served it well in navigating through the financial, economic and catastrophic events of the past four years.”
As partial offsetting factors Best cited Liberty Mutual’s “relatively high underwriting leverage measures and deterioration in operating results in recent years, largely driven by weakened underwriting results (mainly reflecting increased catastrophe losses and less favorable prior year loss reserve development in 2010 and 2011) and lower net investment income.
“The ratings for PIC Pool members recognize its sound capitalization, favorable operating performance and strong regional market presence. The ratings further acknowledge the sustainable competitive advantages of the PIC Pool’s strong independent agency relationships, as well as management’s solid risk mitigation and geographic and product diversification strategies.”
Best explained that the “PIC Pool, which consists mainly of the Liberty Mutual Agency Corporation’s (LMAC) strategic business unit, provides the platform for Liberty Mutual to enhance its ongoing efforts to penetrate small commercial and personal markets through independent agents throughout the United States. PIC Pool’s market presence has developed through a number of acquisitions over the years, which have provided it with strong regional brand recognition, market expertise, increased utilization of its independent agency force, in addition to improved geographic spread and product diversification.”
As offsetting factors concerning the PIC Pool, Best cited its “elevated underwriting leverage measures, a modestly above-average expense ratio and lower net investment income in recent years. Furthermore, while policyholder surplus grew significantly in 2009 and its risk-adjusted capitalization improved considerably, surplus declined 31 percent in 2010, largely due to a $2.8 billion intercompany dividend payment to its parent, Liberty Mutual Insurance Company (LMIC), prior to the postponed LMAC initial public offering. The group’s surplus rose a modest 2 percent in 2011, basically reflecting significant catastrophe losses. As a result, PIC Pool’s risk-adjusted capitalization remains well below the year-end 2009 level, but continues to support its current rating level.
“The ratings for Liberty Mutual and PIC Pool 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 the solid operating performance of its global operations.
“The ratings of LMIE acknowledge its solid capitalization, strong operating performance and brand recognition achieved as a strategic member of the established global franchise led by LMIC. These positive rating factors are partially offset by the weakened economies in its European markets, which will likely inhibit growth in the near term.
“The ratings of Liberty Life recognize its established business profile in the individual and group markets, improved operating earnings trend and strong risk-adjusted capital position. Moreover, the ratings also reflect Liberty Mutual’s explicit support and its commitment to maintain favorable capital levels at Liberty Life.”
However, Best indicated that “Liberty Life’s continued losses in its closed block of single payment immediate annuity line of business and a belief that growing profitability over the near term will be challenging, particularly given the competitive nature of the individual life and group disability income markets and the current low interest rate environment.”
Best said that while it believes “LMHC and its operating companies’ ratings are well positioned at their current rating levels, negative rating actions could occur if underwriting and operating performance falls below Best’s expectations or risk-adjusted capitalization weakens to a level that no longer supports current ratings.
A complete ratings listing of Liberty Mutual Holding Company Inc. and its subsidiaries’ FSRs, ICRs and debt ratings may be obtained.
Source: A.M. Best