The ratings of Liberty Mutual Insurance Cos. and its members remain unchanged following yesterday’s announcement that Liberty Mutual Group Inc. (LMGI), through its operating subsidiaries, will be acquiring Safeco Corp., according to A.M. Best Cos. The outlook for Liberty Mutual and LMGI’s ratings is stable, says A.M. Best.
However, A.M. Best Co. placed the issuer credit ratings (ICR) of “a+” of Safeco Insurance Cos. and its members under review with negative implications. A.M. Best also has placed the ICR of “bbb+” and debt ratings of “bbb+” of Safeco Corp. under review with negative implications. Safeco’s financial strength rating (FSR) of “A” (Excellent) with a positive outlook is unchanged at this time.
LMGI and Safeco have entered into an agreement in principle for the acquisition of Safeco and are entering the regulatory approval process with the transaction expected to close during third quarter 2008. The entities to be acquired will be integrated as members of the Liberty Insurance Holdings (LIH) pool. LMGI has integrated a number of similar transactions over the years. A.M. Best says the rating agency will continue to monitor the progress of the integration going forward.
On March 5, 2008, A.M. Best affirmed the financial strength ratings (FSR) of “A” (Excellent) and issuer credit ratings (ICR) of “a” of Liberty Mutual and LIH. Additionally, A.M. Best affirmed the FSR of “A” (Excellent) and ICR of “a” of Liberty Life Assurance Co. of Boston.
With the acquisition of Safeco, LMGI is purchasing a consistently profitable book of business as a regional provider of property/casualty insurance products predominantly in western states, says A.M. Best. The transaction assists LIH in achieving personal lines scale through enhanced product and geographic diversification while improving the independent agency distribution network. The transaction is not subject to financing contingencies; however, it will be funded with available cash and Liberty Mutual will issue up to $1.5 billion of junior subordinated securities (hybrid debt) and senior debt. Absent this issuance, Liberty Mutual has adequate liquidity to fund the entire transaction with existing cash and using bridge financing to permit an orderly liquidation of investments.
Post transaction, Liberty Mutual will have limited financial flexibility for future events relative to its ratings based on current financial leverage measures.
The positive outlook on Safeco’s FSR is expected to be revised to stable following the closing of the transaction.
The ICRs of “a+” have been placed under review with negative implications for Safeco Insurance Companies and its following members:
American Economy Insurance Co.
American States Insurance Co.
American States Insurance Co. of Texas
American States Lloyds Insurance Co.
American States Preferred Insurance Co.
First National Insurance Co. of America
General Insurance Co. of America
Safeco Insurance Co. of America
Safeco Insurance Co. of Illinois
Safeco Insurance Co. of Indiana
Safeco Insurance Co. of Oregon
Safeco National Insurance Co.
Safeco Lloyds Insurance Co.
Safeco Surplus Lines Insurance Co.
The ICR of “bbb+” has been placed under review with negative implications for Safeco Corporation.
The following debt ratings have been placed under review with negative
— “bbb+” on $300 million 4.875% senior unsecured notes, due 2010
— “bbb+” on $204.0 million 7.25% senior unsecured notes, due 2012
The following indicative ratings have been placed under review with negative implications:
— “bbb+” on senior unsecured notes
— “bbb” on subordinated debt
— “bbb-” on preferred stock
Source: A.M. Best, www.ambest.com/ratings
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