Liberty Mutual Quarterly Net Fell 98.5%

Liberty Mutual Group reported its third-quarter net income fell 98.5 percent to $6 million compared with $404 million for the quarter last year.

Referring to financial conditions that have battered the marketplace, Liberty Chairman, President and Chief Executive Officer Edmund F. Kelly said management was not cheering, but was pleased given what has occurred.

He pointed to the fact that the company had absorbed $800 million of pretax natural catastrophe losses and approximately $250 million of pretax investment losses and still reported positive.

Mr. Kelly said the company's number-one priority is the merger of Safeco, which was purchased in September, and that management is pleased with the way the integration of the acquired firm is going.

In commercial insurance, he noted, there has been deterioration in pricing, and the company has been happy to let underpriced business go. "Our retention is three or four points off and we're happy with it," he said.

Financially challenged American International Group in its pursuit of the commercial sector is making "stupid moves," which if not halted could be "very destabilizing," said Mr. Kelly.

In the workers' compensation sector, he reported that, excluding California, accident frequency is down while medical cost inflation has increased 68 percent. Reduced payrolls are resulting in reduced premiums, he noted.

In California, he said, legislative reforms that reduced medical costs are being eroded because of increases in the fee schedule, and despite "close to inadequate rates, we're actually seeing new competitors coming in from long distance...at a bad time."

Revenues for the three months ended September 30, 2008 were $6.871 billion, an increase of $282 million, or 4.3 percent over the same period in 2007.

The company said its third-quarter combined ratio (including catastrophes and net incurred losses attributable to prior years) increased 4.4 points to 103.4 percent.

Net written premium for the quarter was reported as $6.5 billion, an increase of $751 million, or 13 percent over the same period in 2007.

Pretax operating income in the quarter was $159 million, a decrease of $363 million, or 69.5 percent from the same period in 2007.

Results in the period included $697 million of losses related to Hurricanes Ike and Gustav.

Cash flow for the third quarter was $880 million, a decrease of $251 million, or 22.2 percent from the same period in 2007.

Revenues for the nine months ended Sept 30 were $20.7 billion, an increase of $1.7 billion, or 8.8 percent over the same period in 2007.

Net written premium for the nine months ended Sept. 30 was $19 billion, an increase of $2.1 billion, or 12.5 percent over the same period in 2007.

Pretax operating income for the nine months was $1 billion, a decrease of $337 million, or 24.2 percent from the same period in 2007.

Net income for the nine months was $666 million, a decrease of $427 million, or 39.1 percent from the same period in 2007. Results in the period include after-tax realized investment losses of $166 million.

Nine-month cash flow from operations was reported as $2.6 billion, a decrease of $355 million, or 12.1 percent from the same period in 2007.

The nine-month combined ratio (including the impact of catastrophes and net incurred losses attributable to prior years) increased 1.9 points to 102.

The firm said that as of Sept. 30, total assets were $105.5 billion, an increase of $10.8 billion over Dec. 31, 2007.

Policyholders' equity was $10.8 billion as of Sept. 30, a decrease of $1.5 billion from Dec. 31, 2007. Included in policyholders' equity was $2.3 billion of after-tax unrealized investment losses.