Liberty Mutual Sees 12% Net Income Increase In 4Q

Boston-based Liberty Mutual reported 2008 fourth-quarter net income rose 12 percent, or $49 million, to $474 million, and management attributed the insurer's positive financial result to an avoidance of risky investments.

For the fourth-quarter period, compared with 2007, revenues increased 18 percent, or $1.23 billion, to $8.15 billion. The company reported a combined ratio for the quarter, including the impact of catastrophes and net incurred losses attributable to prior years, of 94.6, a decrease of 6.1 points.

Net income for all of 2008 was down 25 percent for the year, dropping $378 million from 2007 to $1.14 billion. For the year revenues increased 11 percent, or $2.9 billion, over the prior year to $28.9 billion. The combined ratio for the year stood at 99.9, down 2 points, which included the impact of catastrophes and prior-year net incurred losses.

During a conference call, Edmund F. Kelly, chairman, president and chief executive officer, said that to describe him as "pleased with the results is probably an understatement."

"The current economic crisis is challenging, but our risk management process and operating model have proven stronger than most and have served us well in terms of our ability to succeed in these extreme economic conditions," he said in a statement.

Mr. Kelly said the company remains pleased by its decisions to exit its investments in the public equity markets in 2007 and that it never got involved in the collateralized debt obligations that are now at the root of the financial markets problems. He said the company stayed clear of such investments because they were "something we didn't understand."

He said the company does not need or want any form of federal bailout money, and he said he believes it sets a bad precedent for the insurance industry to be receiving such funds. He said the company also does not support any federal oversight of the insurance industry.

Mr. Kelly was critical of American International Group receiving federal bailout money, saying the company is "overly aggressive on price and terms" and with federal backing "you can do that."

He said the middle market commercial lines are the most aggressively competitive on price and terms, but Liberty Mutual is not competing where rates do not make sense. The company has let retentions drop instead of competing with "overly liberal terms."

While there is much talk about a rate cycle turnaround, he indicated that he thought the talk was delusional, likening it to finding a bump in a snow bank in the middle of winter and believing a crocus will soon sprout. He said too many people are seeing bumps in the snow.

Professional liability rates, said Mr. Kelly, will harden in the wake of losses from the economic crisis and increased litigation. Most other lines remain soft, he said, but commercial property, while under intense competition, is firming.

When asked about Liberty Mutual's long-term strategy, he said the company will concentrate on protecting its capital for the foreseeable future.