NU Online News Service, Nov. 19, 11:15 p.m. EST

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Liberty Mutual Chairman and Chief Executive Officer Edmund "Ted"Kelly said only strong companies that recognize global businessopportunities will succeed because they will be poised to takeadvantage of the market when it improves.

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Any company with operations only in North America "will betotally irrelevant" eventually, "except as a niche company," hetold an audience at The Annual Executive Conferences in New York,presented by National Underwriter.

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Several years ago Liberty Mutual faced staying a "smallish"North American company but chose to expand worldwide to tap into agrowing middle class in countries outside the U.S. It sold off itslife and annuity business to concentrate on being a multi-channelproperty and casualty carrier.

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Mr. Kelly talked about the company's success in Brazil,Portugal, Venezuela, Spain and Argentina. Earlier this monthLiberty Mutual announced plans to expand to India.

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The executive said the way commercial insurance is written is"patent nonsense" and is "run irrationally."

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"There are no sufficient controls at the middle-market level,"he said, adding the workers' compensation business "doesn't makeany sense," as companies continue to write to an average 119combined ratio in a 3-4 percent interest rate environment.

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"Workers' compensation business is a time bomb on the balancesheet of the industry," Mr. Kelly said. Still, carriers continue towrite the business because it is "remarkable easy money."

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He said, "Prosperity hides the cracks in the fa?ade," referringto workers' compensation business. Previously, inflation was lowand profit was made on "dumb luck." Now, he said, during theeconomic downturn, the industry looks and sees it is "not so good"at writing this business.

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Liberty Mutual is "absolutely convinced there will be a surge ininflation," Mr. Kelly said. The company has been reducing itsworkers' compensation exposure, he said.

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Yet, because of its actions to expand to other countries andtake into account a rise in inflation, Liberty Mutual is in a goodposition to take advantage of opportunities for mergers andacquisitions.

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"Strong companies will have their pickings" when flailingcompanies are looking to consolidate, he added.

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Liberty Mutual said that net income for the third quarter was $567 million for theperiod ended Sept. 30, up 118 percent from the $260 million earnedin the same period a year ago.

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During a conference call at the time the CEO said LibertyMutual's decision to back off an initial public offering of LibertyMutual Agency Corporation was an easy one because the companydidn't need the capital. He said the insurer would continue tomonitor the market to determine if pricing improves enough tore-launch the IPO.

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