CHICAGO, May 1 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
assigned a 'AA-' (Double-A-Minus) claims paying ability rating to companies
participating in the Liberty Mutual Insurance Company Inter-company Pool
(Liberty Mutual). The Outlook for the rating is Stable.
Rationale for the rating includes Liberty Mutual's strong competitive
position in key markets, high-quality balance sheet, good expense control, and
diverse sources of earnings and cash flows. Partially offsetting these
positives is the company's below-industry-average underwriting profitability,
margin pressure in key markets, and to a lesser extent, integration challenges
associated with acquisitions completed in recent years.
Liberty Mutual is among the largest providers of workers compensation
insurance and risk management services in the United States. The company has
significant expertise in designing, underwriting, and implementing risk
prevention and risk management solutions for large and small companies.
Liberty Mutual markets its workers compensation insurance and risk management
services through a direct sales-force that fosters high client retention and
traditionally has produced an expense advantage over many of its peers.
Conservative reserves and a high-quality liquid investment portfolio
characterize Liberty Mutual's balance sheet. The company has traditionally
experienced a significant amount of favorable prior accident-year reserve
development. Although DCR believes that the price competitive environment
present in recent years may reduce favorable reserve development going
forward, we think Liberty Mutual will continue to maintain a conservative
reserve position.
Liberty Mutual's underwriting profitability has deteriorated in recent
years. Although DCR believes this is partially due to industry-wide trends
such as intense competition in the workers compensation market and rising
loss-cost trends in auto lines, we believe that the company has under-
performed the industry from an underwriting perspective. Liberty Mutual is
attempting to improve its profitability and in 1999 initiated a plan to reduce
annual expenses by $350 million and re-underwrote portions of its book of
business.
Liberty Mutual has a diverse source of premium revenues and cash flows.
The company's domestic property/casualty operation's premium mix is
approximately 60 percent commercial lines and 40 percent personal lines.
Liberty Mutual also has a large group of international subsidiaries, primarily
in Latin America, that provide property/casualty insurance products. In
addition, the company's Keyport Life Insurance Company (Keyport) has a
significant presence in the individual annuity market and other subsidiaries
are well-positioned in the mutual fund and institutional asset management
markets. DCR rates Keyport's claims paying ability 'AA-' (Double-A-Minus).
Liberty Mutual has made several acquisitions in recent years to bolster
its competitive position with small commercial line consumers. While DCR
believes that Liberty Mutual's diversification effort into this market is a
reasonable strategy we also believe that this market is extremely competitive.
In addition, we believe that Liberty Mutual's reliance on third-party
distribution in this market may prevent it from obtaining the expense
advantages it has in other markets.
Participating companies in the Liberty Mutual Inter-company Pool include
the following:
-- Liberty Mutual Insurance Company
-- Liberty Mutual Fire Insurance Company
-- Liberty Insurance Corporation
-- Liberty Surplus Insurance Corporation
-- Liberty Insurance Company of America
-- First Liberty Insurance Corporation
-- LM Insurance Corporation
-- Golden Eagle Insurance Corporation
-- Montgomery Mutual Insurance Company
-- Employers Insurance Company of Wausau
-- Wausau Underwriters Insurance Company
-- Wausau Business Insurance Company
-- Wausau General Insurance Company
-- Merchants & Business Men's Mutual Insurance Company
-- Montgomery Indemnity Company
-- Cumis General Insurance Corporation
For additional information, visit DCR's Web site at http://www.dcrco.com.
DCR's research is also available on Bloomberg at DCR and FirstCall's
BondCall Direct/Research Direct at http://www.firstcall.com, as well as
through other third-party providers.
NOTE: Liberty Mutual has declined to enter into a formal ratings
relationship with DCR. The above ratings are not supported by a contractual
agreement that requires Liberty Mutual to keep DCR fully informed of all
future developments that could affect the rating. The rating is provided by
DCR as a service to those organizations and institutions that use and publish
DCR ratings.
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
CONTACT:
Mark E. Rouck, CPA, CFA, 312-368-2085,
rouck@dcrco.com, or Douglas M. Pawlowski, 312-368-2054,
pawlowski@dcrco.com
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