Liberty Mutual Posts $111M Q3 Loss, Hurt By CAT Loss, Asbestos Charge

November 6, 2011

Liberty Mutual Group reported a net loss of $111 million for its third quarter. In contrast, the third-largest property/casualty insurer in the U.S. had posted net profit of $567 million during the same quarter last year.

The company’s result was hurt by large catastrophe losses and an asbestos-related charge. Its CAT losses for the quarter came in at $596 million, more than a threefold increase compared to one year ago when the company reported $133 million in CAT losses.

The insurer added an asbestos/environmental charge of $339 million for the quarter. One year ago, the company added just $2 million for the asbestos/environmental charge.

“So the combination of severe weather and strengthening of our asbestos-related reserves largely due to higher legal costs left us with a loss of $111 million in the quarter,” Liberty Mutual Group CEO David Long said during the company’s earnings call on Friday, Nov. 4.

“Catastrophe losses totaled $596 million, with $323 million of that stemming from Hurricane Irene. And we added asbestos reserves upon completion of our biannual ground-up review.”

That said, the business operation delivered strong, improving core results, Liberty Mutual CEO Long emphasized.

“I am now very encouraged by our core operating results. Domestic personal lines displayed strong fundamentals and excellent growth. Our international companies have grown at a double digit rate with strong profitability.

“And our commercial lines businesses are getting rate increases higher than the prior quarter. We remain committed to disciplined underwriting and will shed business where we cannot write a risk at an adequate return.”

In commercial lines, Liberty Mutual is seeing rate increases across all standard lines, but the market is undoubtedly more competitive as account size increases, he added.

In terms of rate, the commercial business achieved mid-to-upper single digit rate increases, “but the industry has a long way to go to achieve appropriate rate levels.”

In workers’ comp, the company achieved an overall rate increase in the mid-single digits, CEO Long said, “which we feel is more than offsetting short-term loss trends.

“I should add that we reduced our workers’ comp writings as a result of walking away from business where we couldn’t get the appropriate price for the risk. Our workers’ comp premium is down almost 10 percent year-to-date and now represents just 12 percent of the total net written premium for the group.”

Net written premium for the quarter came in at $8.16 billion, up 5.6 percent from one year ago. Net investment income came in at $881 million, essentially unchanged from $884 million one year ago.

Net income for the first nine months of the year came in at $81 million, down significantly from $1.1 billion one year ago. Net written premium for the nine months was $23.46 billion, up 5.6 percent from one year ago.

The third quarter consolidated combined ratio before adding in catastrophes, net incurred losses attributable to prior years and current accident year re-estimation came in at 97.9 percent, which is same as last year’s. The combined ratio after adding in these items came in at 110.5 percent, up 11.4 points from last year. Total assets at the end of September were $115.56 billion, a $3.21 billion increase over Dec. 2010.

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