NU Online News Service, April 10, 3:52 p.m. EDT
A.M. Best Co. said it has revised Liberty Mutual Group's outlook to negative from stable for its financial strength and issuer credit ratings due to the group's "sizable deterioration" in overall capitalization.
The revised outlook also applies to subsidiaries Liberty Mutual Insurance Companies, Liberty Insurance Holdings and their members, as well as Liberty Life Assurance Company of Boston and Liberty Mutual Insurance Europe, Ltd.
Oldwick, N.J.-based A.M. Best said Liberty's deterioration in capital stems from the impact of market conditions, increased level of financial leverage, and limited ability of the parent to improve overall capitalization given its strained financial flexibility.
"Overall capitalization declined significantly in 2008, largely due to unrealized losses of $2.2 billion associated with volatility in the capital markets," Best said. "As such, the financial leverage as measured by debt-to-adjusted tangible capital at LMGI increased to 31.9 percent as of year-end 2008."
Best added that while the group maintains access to sources of liquidity, accessing these sources for other than short-term operating needs would further increase financial leverage, which would create additional downward rating pressure.
The rating agency affirmed the financial strength rating of "A" and issuer credit ratings of "a" of each of the member operating companies, and also extended the FSR, ICRs and outlook to the former operating subsidiaries of Safeco Corporation, which are now members of the Liberty Insurance Holdings pool.
Best said, "Given the group's focus on achieving proper pricing through cycle management, A.M. Best expects profitability to remain solid while growth in overall capitalization will be pressured by ongoing volatility in the investment markets."
Responding to Best's actions, Richard Angevine, Liberty Mutual spokesman, said via e-mail: "Liberty Mutual is pleased with A.M. Best's affirmation of our 'A' rating in this environment. We believe the rating agency's change in our outlook reflects the temporary impact of investment valuations as a result of the extremely volatile and distressed capital markets."
He added, "Liberty Mutual reported net income of $1.1 billion in 2008 despite the general economic downturn. On an absolute basis, and relative to competitors, Liberty had a very good year. This is a tribute to Liberty's strong enterprise risk management and diversification across geographies, lines of business, products and distribution channels."
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