OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating (FSR) of A
(Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of
“a” of most of the members of Liberty Mutual Insurance Companies
(Liberty Mutual). These entities are operating subsidiaries of their
ultimate parent company, Liberty Mutual Holding Company Inc. (LMHC)
(Boston, MA).
Concurrently, AM Best has affirmed the Long-Term ICRs of “bbb” of LMHC
and Liberty Mutual Group, Inc. (LMGI) (Boston, MA), a wholly owned
subsidiary of LMHC, as well as the Long-Term Issue Credit Ratings
(Long-Term IR) of LMGI. The outlook of these Credit Ratings (ratings) is
stable. (See link below for a detailed listing of the companies and
ratings.)
AM Best also has assigned a Long-Term IR of “bbb” to LMGI’s $1 billion
of 4.569% senior unsecured notes due 2029. Proceeds were used to redeem
$270 million of LMGI’s 5.00% senior unsecured notes due 2021, $277
million of its 4.95% senior unsecured notes due 2022 and $453 million of
its 4.25% senior unsecured notes due 2023. Additionally, AM Best has
assigned a Long-Term IR of “bb+” to LMGI’s EUR 500 million of 3.625%
junior subordinated notes due 2059 (first call May 23, 2024). The
outlook assigned to these ratings is stable.
LMGI used the net proceeds to repay the $300 million outstanding on its
6.324% (original coupon interest rate 7%) Series B junior subordinated
notes due 2067 and to repurchase $196 million of LMGI’s $700 million of
7.80% Series A junior subordinated notes due 2087 (par value call date
March 15, 2037), pursuant to LMGI’s tender offer for these securities,
which expires June 6, 2019.
Assuming these transactions are completed as contemplated above, Liberty
Mutual’s financial leverage will be unchanged while interest coverage
should improve modestly due to the lower coupon rate on the new junior
subordinated notes versus the existing coupon rates on the junior
unsecured notes that LMGI plans to redeem. LMGI’s maturity profile also
will be extended.
The FSR of A (Excellent) and the Long-Term ICR of “a” of Ironshore
Europe Designated Activity Company, a member of Liberty Mutual, are
unchanged by these actions and remain under review with negative
implications. AM Best expects these ratings to remain under review until
the completion of AM Best’s assessment following the company’s expected
acquisition by Hamilton Insurance Group, Ltd.
The ratings of Liberty Mutual’s other members reflect the group’s
balance sheet strength, which AM Best categorizes as very strong, as
well as its adequate operating performance, favorable business profile,
and appropriate enterprise risk management (ERM).
The Liberty Mutual rating unit’s statutory surplus rose by approximately
$2.3 billion, or 13%, in 2018, driven by near break-even underwriting
results and solid investment income that more than offset $1.7 billion
of unrealized investment losses during the period. These results reflect
significant improvement from 2017, when surplus declined by roughly $2.1
billion, or 11%, driven by underwriting losses stemming from unusually
high natural catastrophe activity during the period, as well as a
write-down of deferred tax assets that was related to U.S. tax reform.
Liberty Mutual’s risk-adjusted capitalization has consistently exceeded
the threshold for the very strong categorization, as measured by Best’s
Capital Adequacy Ratio (BCAR). The group’s balance sheet benefits from
the use of a comprehensive reinsurance program with highly rated
reinsurers, as well as financial flexibility achieved through its
ultimate parent, LMHC, which has access to the capital markets.
Membership in the Federal Home Loan Bank affords additional borrowing
capability. Loss reserve development was favorable in the 2018 calendar
year but has occasionally been modestly unfavorable. Liberty Mutual
maintains an elevated level of high-risk assets versus its personal
insurance peers, which is driven by a high level of affiliated
investment leverage.
AM Best views Liberty Mutual’s operating performance as adequate,
characterized by relatively strong investment income and generally solid
underwriting performance. While the group’s operating performance
deteriorated sharply in 2017, largely due to catastrophe losses stemming
from Hurricanes Harvey, Irma and Maria, as well as wildfires in the
fourth quarter, the group’s results rebounded in 2018, as catastrophe
losses returned to normalized levels. Despite occasional variability in
underwriting performance, the Liberty Mutual rating unit has reported
positive statutory operating income in seven of the past 10 calendar
years. The usually solid results reflect the group’s sustainable
competitive advantages achieved through multiple distribution
capabilities, as well as the extensive utilization of technology and
value-added services. Liberty Mutual’s underwriting performance,
nevertheless, continues to trail the personal lines industry benchmark
slightly when viewed on a five- and 10-year average basis.
Liberty Mutual’s business profile is viewed as a favorable rating
factor. The group has a strong, diversified business profile that serves
to protect its earnings stream. Liberty Mutual is engaged principally in
underwriting virtually all lines of personal and commercial
property/casualty (P/C) business and ranks as the third-largest P/C
insurance group in the United States, and fifth-largest P/C insurer
globally, based on direct written premium at year-end 2018.
Additionally, the group is highly diversified by product and geography
with approximately 54% of net written premiums derived from personal
lines and 46% derived from commercial lines. The broader Liberty
enterprise currently operates in 30 countries and economies around the
globe, although roughly 80% of its premium is generated in the U.S.
Domestic direct written premiums (DWP) are diversified with the largest
state, California, accounting for only 11% of DWP.
Liberty Mutual continues to benefit from its name recognition, customer
service, technological advantages, strategic alliances in managed care,
and breadth of its products and value-added services. Insurance products
and services are distributed primarily through independent agents and a
direct sales force. The direct sales force affords Liberty Mutual with a
significant competitive expense advantage relative to its peers, while
also enhancing the group’s overall franchise value.
Liberty Mutual’s risk management practices are appropriately
comprehensive and sophisticated given the size and complexity of the
organization and fully support the recommended ratings. The group has an
extensive ERM program in place that is proven and demonstrable. Managing
risk is a core competency of the group and integrated throughout its
worldwide operations.
LMHC’s rating is supported by adjusted and unadjusted financial leverage
that is consistently maintained below 30%, run rate interest coverage of
between 4.0x-5.0x and solid liquidity measures.
A complete
listing of Liberty Mutual Holding Company Inc.’s and its
subsidiaries’ FSRs, Long-Term ICRs and Long-Term IRs also is available.
This press release relates to Credit Ratings that have been published
on AM Best’s website. For all rating information relating to the release
and pertinent disclosures, including details of the office responsible
for issuing each of the individual ratings referenced in this release,
please see AM Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and AM Best press releases, please view Guide
for Media – Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.
AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.
Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.
Contacts
Gregory Dickerson
Senior Financial Analyst
+
1 908 439 2200, ext. 5161
[email protected]
Christopher Sharkey
Manager, Public Relations
+1
908 439 2200, ext. 5159
[email protected]
Jennifer Marshall, CPCU, ARM
Director
+1 908
439 2200, ext. 5327
[email protected]
Jim Peavy
Director, Public Relations
+1 908
439 2200, ext. 5644
[email protected]
