Liberty Mutual: Much More Rate Hikes Needed to Correct Underpricing
The upward pricing trends are continuing in the U.S commercial lines, but much more rate increases are still needed to correct the chronic underpricing in the industry, Liberty Mutual CEO David Long remarked.
“In U.S. commercial lines, the pricing trend continued in the second quarter. I am encouraged but not yet excited by this in light of the chronic underpricing that has persisted in these lines, in particular workers’ compensation — and, of course, we have the continued low interest rate environment in the U.S.,” said CEO Long.
He shared his observations during the Boston-based insurer’s second-quarter earnings call on Wednesday.
One telling sign is the rapid growth in workers’ comp residual markets across the country. “And while I am happy to receive fees, and in all likelihood better profits for servicing these pools, it’s just not healthy for the market,” he noted.
“Some regulators, Massachusetts and New York to name a couple, continue to be unresponsive to the industry rate needs, which is somewhat frustrating. So we have no choice but to continue to push rates until we are comfortable with pricing in commercial lines and that’s what we intend to do.”
For Liberty Mutual, the CEO said, “We are seeking price increases in all lines of business, led by workers’ comp and property. Rate increases were generally consistent with those we saw in the first quarter, with workers’ comp at 9 percent in the second quarter — though, as I said before, much more is needed for us and the industry to become profitable in that line.” In property, rate increases were 8 percent in the quarter, he said.
Long also said his company had outstanding domestic personal-lines growth in the second quarter, coming from both policies in force and the rate activity.
And the international growth — both organic and acquisition-related — was also strong, but it was tampered quite significantly by the impact of the strengthening of the dollar, he observed.
“Profit-wise, we, like most in the industry, continue to take rate increases in both major lines. And also we expect the positive rate trend to persist throughout the year. In homeowners, it’s a similar story. But the most significant increases are, not surprisingly, in the hail-impacted states, which at this point is a pretty robust list of states.”
Liberty Mutual on Wednesday reported $139 million profit for its second quarter, improving from a loss of $179 million during the same period one year ago.
The results were helped by lower catastrophe losses compared to the prior-year period. The combined ratio for the second quarter was 105.9 (including the impact of catastrophes, net incurred losses attributable to prior years and current accident year re-estimation ) — down 6.6 points from one year ago.
Net written premium for the second quarter was $8.34 billion, an increase of $633 million or 8.2 percent over the same period in 2011. Net investment income for the quarter was $832 million, compared to $874 million one year ago.
“Overall we are pleased with the progress in the quarter. We had very healthy premium growth of 8 percent and a significant improvement in profitability — even though the catastrophe losses continued to run at an elevated level, not quite at 2011 levels but elevated nonetheless,” CEO Long said.
“It was a busy quarter for us. We continue to take actions to improve our earnings and growth going forward. We repurchased $800 million of debt and issued $1 billion of new notes to take advantage of low interest rates. We sold our Argentinian workers’ compensation company which we viewed as non-strategic and began the integration of the KIT acquisition in Russia. We also received approval to begin writing business in India.”
On Thursday, A.M. Best affirmed ratings of Liberty Mutual Holding Company Inc. and its subsidiaries.
A.M. Best said it affirmed the financial strength ratings of A (Excellent) and issuer credit ratings of “a” for the members of Liberty Mutual Insurance Companies and Peerless Insurance Company Pool, as well as Liberty Mutual Insurance Europe Limited and Liberty Life Assurance Company of Boston. These entities are all operating subsidiaries of their parent company, Liberty Mutual Holding Company Inc.
The insurance ratings agency said the ratings for Liberty Mutual’s members reflect its solid capitalization, historically favorable operating performance, dominant market profile and strong name recognition, as the group was ranked as the fourth-largest in the United States at year-end 2011, based on net premiums written.
A.M. Best said ratings further acknowledge the organization’s sustainable competitive advantages that are within its multiple distribution channels, the active risk management of its catastrophe exposures as well as solid product and geographic diversification.
Furthermore, A.M. Best noted, Liberty Mutual’s enterprise risk management program has served it well in navigating through the financial, economic and catastrophic events of the past four years.