Moody's Downgrades Safeco Ratings, Affirms Liberty Mutual

Moody's Investors Service has affirmed the ratings of Liberty Mutual Group Inc. and its subsidiaries following the completion of the company's $6.2 billion acquisition of Safeco Corporation. The rating agency also downgraded Safeco's ratings to align its ratings with Liberty Mutual's.

LMGI's insurance financial strength ratings were affirmed at "A2," and its senior unsecured debt was affirmed at "Baa2."

Moody's said "the affirmation of Liberty Mutual's ratings is based on the completion of the Safeco acquisition, and related financing, in a manner that is consistent with the company's stated plans at the time of announcement, as well as the group's operational and financial performance in the interim, notwithstanding some negative impact from recent hurricanes...and credit turmoil, which Moody's expects will meaningfully impact third-quarter results for Liberty Mutual and, to a much lesser degree, Safeco."

Safeco's insurance financial strength ratings, meanwhile, were lowered to "A2" from "A1," and the senior debt rating was lowered to "Baa2" from "Baa1." Moody's said the downgrade brings Safeco's ratings into alignment with Liberty Mutual's.

The outlook on all long-term ratings remains negative, Moody's said, which is consistent with the negative outlook assigned to Liberty Mutual when the company announced its agreement to acquire Safeco.

The rating agency added that the continuation of the negative outlook "is based on the decrease in Liberty Mutual's financial flexibility and capital adequacy measures that have resulted from the significant use of internal resources to finance the acquisition, as well as by increased leverage to tangible capital as a result of substantial acquisition-related goodwill intangibles."