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Liberty Mutual Reports Profit Surge on Fewer Storms

Posted on 27 Oct 2009

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Liberty Mutual Group Inc., the policyholder-owned insurer that purchased Safeco Corp. last year, said profit surged on fewer weather-related claims costs.

Second-quarter net income rose to $265 million from $6 million in the same period a year earlier, Boston-based Liberty Mutual said in a statement today.

The insurer joins companies including Travelers Cos. and Chubb Corp. in reporting rising profits after the U.S. was spared from costly storms. Hurricanes Dolly, Gustav and Ike contributed last year to more than $800 million in pretax catastrophe losses for Liberty Mutual. This year, only one named system, Tropical Storm Claudette, reached U.S. shores.

“The industry benefited in the quarter from improved asset values and favorable weather,” Liberty Mutual Chief Executive Officer Edmund “Ted” Kelly said in a statement today.

Costs from catastrophes plunged 76 percent to $197 million in the third quarter. The insurer reported a realized investment gain of $35 million, compared with a loss of $249 million on holdings in the year-earlier period.

Policyholders’ equity, a measure of assets minus liabilities, rose to $13.8 billion as of Sept. 30, from $11.8 billion on June 30. The insurer had a $943 million unrealized gain on state and municipal debt as of June 30, compared with an unrealized loss of $559 million on the holdings as of Dec. 31. The measures, which don’t count toward net income, are monitored by regulators and debt investors.

Municipal Bonds

State and local government bonds returned 8.1 percent during the July-through-September period, the best quarterly performance in at least two decades, according to the Municipal Master Index that Merrill Lynch & Co. started compiling in 1989.

Liberty Mutual spent 100.6 cents per every premium dollar on claims and expenses, compared with 103.4 cents a year earlier.

The lack of storms may be allowing commercial insurers to continue to cut prices, Advisen Ltd. said last week. Rates have fallen in every quarter since 2004, the Council of Insurance Agents and Brokers said in July. Kelly has compared the industry’s reliance on price cutting to alcoholism and said his company refuses to match competitors who under-price policies.

“The industry has traditionally been like an alcoholic who swears off drink until it reaches the next saloon,” Kelly said in a conference call in July. “And that hasn’t changed.”

Commercial Rates

U.S. commercial rates fell 4.9 percent in the second quarter, CIAB said in July. The Washington-based group hasn’t released third-quarter data. The largest portion of Liberty Mutual’s business is commercial coverage. The company also sells car, home and life insurance.

Travelers last week boosted its quarterly dividend after third-quarter profit quadrupled to $935 million from the same period a year earlier. Chubb’s profit doubled to $596 million.

Liberty Mutual bought Safeco in September 2008, becoming the fifth-largest property and casualty insurer in the U.S., according to data from the National Association of Insurance Commissioners. The Safeco deal was the insurance industry’s biggest transaction since St. Paul Cos. and Travelers Property Casualty Corp. combined in a $17.9 billion merger in 2004 to form Travelers Cos. L

iberty Mutual increased its holdings in financial firms in the three months ended June 30, after reducing its assets in some of the same companies in recent quarters. The insurer bought about 3.51 million shares in Bank of America Corp., and added to its holdings of Wells Fargo & Co. and JPMorgan Chase & Co., according to a regulatory filing.

Liberty Mutual cut investments in Goldman Sachs Group Inc. and Citigroup Inc. by half in the first quarter, and sold shares of Bank of America last year, regulatory filings show. Bank of America shares have more than doubled since the first quarter.