NU Online News Service, Oct. 4, 2:23 p.m. EDT
Standard & Poor's has revised the outlook on Liberty Mutual Group Inc.'s A-minus insurer financial strength ratings to positive from stable, reflecting the group's improved 2010 results and 2011 first-half performance that compares favorably to peers.
"We believe and expect Liberty's workers' compensation book to exert moderate downward pressure on operating profitability, but we expect other lines of business to perform substantially better, with a combined ratio of less than 100," S&P says.
The favorable rating factors are mitigated somewhat by Liberty's historical underwriting losses in commercial lines—mainly related to workers' compensation, its susceptibility to potential prior-year adverse reserve development, and its limited financial flexibility resulting from its relatively low fixed-charge coverage, S&P notes.
But the rating agency says Liberty's management has been shifting its business allocation, and its earnings streams are more diversified. "We expect this to support better operating performance prospectively," S&P says.
S&P adds that it expects Liberty's overall net-premium growth to be in the low-to-mid-single digits in 2011 and 2012—slightly above industry averages—led by domestic personal-lines rate increases and international business, and with less growth from domestic commercial lines, as commercial-lines pricing remains "somewhat soft and the company focusing on underwriting discipline, including reduced workers' compensation writings."
S&P states, "The positive outlook reflects our view that if Liberty continues to improve its operating performance during the next two years, including management's efforts to improve workers' compensation earnings, we could raise our holding company and operating company ratings by one notch."
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