S&P Downgrades Liberty Mutual
NU Online News Service, May 5, 11:36 a.m. EDT?Standard & Poor's Ratings Services, citing concerns about what it said was a deteriorating capital position and a possible reserve shortfall, downgraded the Liberty Mutual Insurance Company counterparty credit and financial strength ratings to "A" from "A-Plus."
The ratings cut also includes Liberty Mutual's surplus notes, which were lowered to "Triple-B-Plus" from "A-Minus". Liberty Mutual has been removed from the CreditWatch status, where it was placed on April 4, and the outlook was put at "Negative".
John Iten, a credit analyst at the New York-based ratings agency, said, "The ratings actions reflect a significant deterioration in the company's capital position in the past two years, weak operating results in recent years before 2002, and concerns about reserve adequacy including the potential increase in liability for asbestos exposure."
S&P said it expects the company's capital adequacy to improve this year. Additionally, Liberty Mutual's underwriting results would also be helped by higher pricing in "virtually all lines" this year and into 2004.
The ratings agency predicted that the company's statutory combined ratio for this year would drop below last year's level of 108 percent. And this expected improvement in underwriting results, S&P said, should help strengthen Liberty Mutual's capitalization.
However, more downgrades could follow if Liberty Mutual's bottom line fails to match S&P's expectation. The "Negative" outlook shows that S&P is willing to cut the ratings again, if earnings and surplus don't improve as expected, the ratings agency said.
Headquartered in Boston, Liberty Mutual is the eighth-largest property-casualty insurer in the United States, with about 60 percent of its business coming from the sale of commercial insurance products.
The company is one of the largest workers' compensation insurers in the nation–this line constitutes some 30 percent of Liberty Mutual 's total net written premiums. The company also offers homeowners and auto insurance, retirement products, and group and individual life insurance.
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