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BEST'S CREDIT RATING ACTION

Best’s News & Research Service - July 27, 2022 03:10 PM (EDT)

AM Best Affirms Credit Ratings of Liberty Mutual Holding Company Inc. and Subsidiaries

  • July 27, 2022 03:10 PM (EDT)

Oldwick //BestWire// - AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” (Excellent) 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” (Good) 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.)

In addition, AM Best has assigned a Long-Term IR of “bbb” (Good) to the $1.0 billion 5.5% senior unsecured notes, due 2052, recently issued by LMGI (Boston, MA). The notes are guaranteed by LMHC and LMHC Massachusetts Holdings, Inc. The outlook assigned to the rating is stable.

The ratings of Liberty Mutual reflect the group’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management.

Liberty Mutual’s statutory surplus grew by 16% in 2021, bolstered by an $862 million capital contribution, as well as significant investment income and realized capital gains. Liberty Mutual’s risk-adjusted capitalization is expected to be maintained at an assessment of at least very strong, as measured by Best’s Capital Adequacy Ratio (BCAR). The group’s balance sheet benefits from a membership in the Federal Home Loan Bank, which affords additional liquidity, as well as the financial flexibility of its ultimate parent, LMHC, which has access to public capital markets. Additionally, the group’s balance sheet strength is supported further by a comprehensive reinsurance program with highly rated reinsurers.

Liberty Mutual maintains an elevated level of high-risk assets in comparison with its property/casualty industry peers, mostly driven by elevated levels of affiliated investments, and has faced periods of modest prior-year adverse reserve development. Furthermore, LMHC, the parent company, has a weaker level of risk-adjusted capital than the operating companies when given no credit for its long-term debt in the calculation, reflecting the materiality of goodwill at the parent level, albeit the impact has lessened through year-end 2021 due to growth in equity in recent years.

AM Best views Liberty Mutual’s operating performance as adequate as its strong level of net investment income has offset its underwriting losses over a prolonged period of time, minimizing the impact of those losses on surplus. These generally profitable operating results reflect the group’s market position and the competitive advantages achieved through multiple distribution channels, as well as the extensive use of technology and value-added services. However, Liberty Mutual’s reported underwriting performance continues to trail industry benchmarks on a five- and 10-year average basis, reflective of catastrophe and non-catastrophe losses. These continual underwriting losses have tempered growth of equity, a factor in the above-average tangible debt/equity leverage at the holding company.

Liberty Mutual’s risk management practices are appropriately comprehensive and sophisticated given the size and complexity of the organization and fully support the ratings. Managing risk is a core competency of the group and integrated throughout its worldwide operations, and efforts to further refine risk management capabilities are continuously underway.

LMHC’s rating is supported by adjusted and unadjusted financial leverage that historically has been maintained below 30%. While LMHC’s interest coverage ratios have been variable over time, its access to liquidity has served to offset any concerns.

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 Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.



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