“Things got a bit messy in the second quarter.”
That’s how David Long, chairman and CEO of Liberty Mutual Holding Co., summarized his firm’s second quarter results, which saw a 36 percent decline in consolidated net income to $249 million, during a call with analysts on Wednesday.
Results were affected by currency volatility in Venezuela, higher catastrophe losses and energy sector woes, along with ongoing competitive pressures and low interest rates.
Catastrophe losses were up almost 20 percent for the quarter to $800 million due to storms in Australia, Europe and the U.S.
The combined ratio including catastrophes for the quarter was 102.4, an increase of 2.1 points versus the same period in 2014.
Consolidated pre-tax operating income fell by $382 million to $171 million.
Net operating income for the quarter was $115 million, a decrease of $263 million or 69.6 percent from the same period in 2014.
Venezuela’s devaluation caused a loss of $81 million loss in the second compared to gain of $92 million profit in the same period last year. Dennis Langwell, chief financial officer, said during the conference call that the situation in Venezuela isn’t expected to get better anytime soon and may require some operational moves by Liberty Mutual.
Among the good news, however, net written premium was up six percent overall and each of its four business units –Personal Insurance, Commercial Insurance, Liberty International and Global Specialty (including surety) — grew.
Asked about the effect of recent merger activity in the property/casualty business, Long said overall he does not see much of an impact for Liberty Mutual, except that in the deal where ACE Limited is buying Chubb Insurance, it will mean two competitors becoming one.
Otherwise, he said he sees Liberty Mutual as an acquirer that will continue to look for opportunities.
Long said the personal lines market continues to face stiff competition.
“The bigger guys keep getting bigger,” he said, referring to the largest auto writers.
While some other auto insurers have reported increasing claims frequency, Liberty Mutual said its auto claims frequency has been flat.
Liberty Mutual’s Personal Insurance, which encompasses automobile and homeowners and includes sales by Safec, saw its pretax operating income for the quarter fall to $66 million, a decrease of $74 million, attributable in part to higher catastrophe losses, auto physical damage losses and expense ratios.
Including the impact of catastrophes, the total Personal Insurance combined ratio for the three months ended June 30, 2015 was 101.6.
Private passenger auto net written premium was $2.471 billion for the quarter, an increase of $105 million. The increases largely reflect rate and model year increases.
Homeowners written premium for the quarter was $1.806 billion, up $108 million.
Long said getting new commercial lines business “while holding the line on prices” remains a challenge in today’s marketplace.
Liberty Mutual’s Commercial Insurance reported net written premium for the quarter increased $82 million to $2.359 billion. Commercial Insurance pre-tax operating income came in at $256 million for the quarter, a $17 million improvement.
Including the impact of catastrophes, the total combined ratio for the three months ended June 30, 2015 for Commercial Insurance was 100.0, a decrease of 0.6 points from the same period in 2014.
Liberty International sells to individuals and businesses in foreign markets, with private passenger automobile insurance being its largest line of business. The unit was realigned in the third quarter of 2014.
In July, the company sold its Great Britain personal motor book of business to Chaucer Insurance Services Ltd. The company said it will now focus on making changes to its operations in Ireland and has plans to transfer the customer management of its Northern Ireland policies on renewal to Hughes Insurance Services Limited.
Net written premium for Liberty International grew $294 million in the quarter to $1.746 billion. Excluding the significant negative impact of foreign exchange driven by the strengthening of the U.S. dollar, the change in both periods reflects local currency growth due to an increase in private passenger auto business in Brazil and increases in sum insured values in the auto line of business resulting from inflation in Venezuela, the acquisition of Malaysia in the third quarter of 2014, and other due to internal reinsurance program changes, according to the financial statement.
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