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A.M. Best Affirms Credit Ratings of Liberty Mutual Holding Company Inc. and Its Subsidiaries
[May 16, 2018]

A.M. Best Affirms Credit Ratings of Liberty Mutual Holding Company Inc. and Its Subsidiaries


A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of "a" 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).

Concurrently, A.M. Best has affirmed the Long-Term ICRs of "bbb" of LMHC and Liberty Mutual Group, Inc. (LMGI), 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. In addition, A.M. Best has affirmed the Short-Term Issue Credit Rating (Short-Term IR) of AMB-2 of LMGI. All the above named companies are domiciled in Boston, MA. (See link below for a detailed listing of the companies and ratings.)

A.M. Best also has affirmed the Long-Term ICR of "bbb" of Ironshore Inc. (Ironshore) (Cayman Islands). The outlook of this rating is stable. Concurrently, A.M. Best has withdrawn the Long-Term ICR of "bbb" as the company has requested to no longer participate in A.M. Best interactive rating process. Following its May 2017 acquisition by Liberty Mutual, Ironshore is now an intermediate, private holding company with no outstanding debt.

The ratings of Liberty Mutual's members reflect the group's balance sheet strength, which A.M. 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 declined by approximately $2.2 billion, or 11%, in 2017, driven by underwriting losses stemming from unusually high natural catastrophe activity during the period, as well as a significant write-down of deferred tax assets that was related to U.S. tax reform. Despite the surplus decline, Liberty Mutual's risk-adjusted capitalization comfortably exceeds 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. These strengths are offset partially by a pattern of modest adverse loss reserve development and Liberty Mutual's elevated level of high risk assets when compared with other rating units, which is driven by a high level of affiliated investment leverage.

A.M. Best views Liberty Mutual's operating performance as adequate, characterized by relatively strong investment income and generally solid underwriting performance. However, the group's operating performance deteriorated sharply in 2017, largelydue to catastrophe losses stemming from Hurricanes Harvey, Irma and Maria, each of which made landfall in the third-quarter of 2017, as well as wildfires in the fourth quarter. Despite 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 slightly trail the personal lines industry benchmark when viewed on a five- and 10-year average basis.



Liberty Mutual's business profile is viewed as a favorable rating factor as 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 gross written premiums (GWP) at year-end 2017. Additionally, the group is highly diversified by product and geography with 57% of net written premiums derived from personal lines and 43% derived from commercial lines. Liberty Mutual currently operates in 30 countries and economies around the globe. Domestic direct written premiums (DWP) are diversified with the largest state, California, only accounting for approximately 11% of DWP. Liberty Mutual continues to thrive on 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.

For a complete listing of Liberty Mutual Holding Company Inc. and its subsidiaries' FSRs, Long-Term ICRs and Long- and Short-Term IRs, please visit Liberty Mutual Holding Company Inc.

This press release relates to Credit Ratings that have been published on A.M. 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 A.M. 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 A.M. Best press releases, please view Guide for Media - Proper Use of Best's Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.


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