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, as well as UK-based Liberty Mutual Insurance Europe Limited (LMIE) and Liberty Life Assurance Company of Boston. These entities are all 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 the 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 the group’s solid capitalization, historically favorable operating performance, dominant market profile and strong brand-name recognition, as it was ranked as the fourth largest property/casualty insurer in the United States at year-end 2012, based on net premiums written,” Best said.
“The ratings further acknowledge the sustainable competitive advantages of the group’s multiple distribution channels, active risk management of its catastrophe exposures, in-house expertise in alternative investments and its 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 five years.”
Best also stressed that management’s strategic objectives “remain focused on improving Liberty Mutual’s financial performance through product, geographic and distribution channel diversification, while maintaining a sustainable competitive advantage in its core business operations.
“As part of this strategy, management remains focused on reducing business risk, diversifying earnings and improving operating leverage. In addition, Liberty Mutual’s extensive unbundled service capabilities, risk management services and strategic alliances with managed care networks provide a significant competitive advantage and a superior market profile.”
As partial offsetting factors Best cited “the group’s relatively high underwriting leverage measures and the deterioration in its operating results over the past several years, largely driven by weakened underwriting results (reflecting increased catastrophe losses and less favorable prior year loss reserve development in years 2010 through 2012) and lower investment income. However, barring substantial catastrophe losses, the group’s underwriting and overall operating performance should improve in the near term reflecting more stringent underwriting and increased pricing in recent quarters.
“The ratings for Liberty Mutual 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 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-name recognition achieved as a strategic member of the established global franchise led by Liberty Mutual Insurance Company.” However, Best also indicated that these positive rating factors “are partially offset by the weakened economies in LMIE’s European markets, which will likely inhibit growth in the near term.
The ratings of Liberty Life recognize its strategic role within LMHC, its strong risk-adjusted capitalization, positive earnings trend and well established business profile in the individual and group insurance markets. In addition, the ratings also reflect Liberty Mutual’s explicit support and its commitment to maintain favorable capital levels at Liberty Life.”
As partial offsetting factors Best noted “Liberty Life’s continued losses in its closed block of single payment immediate annuity line as well as the impact of losses from its discontinued business and the competitive nature of its individual life and group disability income markets.” Best added that it “believes that despite these challenges, Liberty Life remains well positioned to support its long-term profitability having a more than adequate level of risk-adjusted capitalization.”
In conclusion Best explained that while it “believes LMHC and its operating subsidiaries ratings are appropriately 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 their current ratings.
Best has also made available a complete listing of Liberty Mutual Holding Company Inc. and its subsidiaries’ FSRs, ICRs and debt ratings on its website.
Source: A.M. Best
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