OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has affirmed the financial strength ratings (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” for the members of Liberty Mutual Insurance Companies (Liberty Mutual) and Peerless Insurance Company Pool (PIC Pool) (Keene, NH), as well as Liberty Mutual Insurance Europe Limited (LMIE) (United Kingdom) and Liberty Life Assurance Company of Boston (Liberty Life). These entities are all operating subsidiaries of their ultimate parent company, Liberty Mutual Holding Company Inc. (LMHC).

Concurrently, A.M. Best has affirmed the ICRs of “bbb” of LMHC and Liberty Mutual Group, Inc. (LMGI), a wholly owned subsidiary of LMHC, as well as all debt ratings of LMGI. The outlook for all the above ratings is stable. In addition, A.M. Best has affirmed the short-term debt rating of AMB-2 of LMGI. All the above named companies are domiciled in Boston, MA, except where specified. (See link below for a detailed listing of the companies and ratings.)

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. The 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, 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.

The positive rating factors for Liberty Mutual are somewhat offset by its relatively high underwriting leverage measures and deterioration in operating results in recent years, largely driven by weakened underwriting results (mainly reflecting increased catastrophe losses and less favorable prior year loss reserve development in 2010 and 2011) and lower net investment income.

The ratings for PIC Pool members recognize its sound capitalization, favorable operating performance and strong regional market presence. The ratings further acknowledge the sustainable competitive advantages of the PIC Pool’s strong independent agency relationships, as well as management’s solid risk mitigation and geographic and product diversification strategies. The PIC Pool, which consists mainly of the Liberty Mutual Agency Corporation’s (LMAC) strategic business unit, provides the platform for Liberty Mutual to enhance its ongoing efforts to penetrate small commercial and personal markets through independent agents throughout the United States. PIC Pool’s market presence has developed through a number of acquisitions over the years, which have provided it with strong regional brand recognition, market expertise, increased utilization of its independent agency force, in addition to improved geographic spread and product diversification.

The positive rating factors for the PIC Pool are somewhat offset by elevated underwriting leverage measures, a modestly above-average expense ratio and lower net investment income in recent years. Furthermore, while policyholder surplus grew significantly in 2009 and its risk-adjusted capitalization improved considerably, surplus declined 31% in 2010, largely due to a $2.8 billion intercompany dividend payment to its parent, Liberty Mutual Insurance Company (LMIC), prior to the postponed LMAC initial public offering. The group’s surplus rose a modest 2% in 2011, basically reflecting significant catastrophe losses. As a result, PIC Pool’s risk-adjusted capitalization remains well below the year-end 2009 level, but continues to support its current rating level.

The ratings for Liberty Mutual and PIC Pool members also consider the financial flexibility provided by LMHC, which maintains financial leverage that is in line with its current ratings, as well as additional liquidity through its access to capital markets and lines of credit. Additionally, LMHC benefits from the solid operating performance of its global operations.

The ratings of LMIE acknowledge its solid capitalization, strong operating performance and brand recognition achieved as a strategic member of the established global franchise led by LMIC. These positive rating factors are partially offset by the weakened economies in its European markets, which will likely inhibit growth in the near term.

The ratings of Liberty Life recognize its established business profile in the individual and group markets, improved operating earnings trend and strong risk-adjusted capital position. Moreover, the ratings also reflect Liberty Mutual’s explicit support and its commitment to maintain favorable capital levels at Liberty Life.

Partially offsetting these positive rating factors are Liberty Life’s continued losses in its closed block of single payment immediate annuity line of business and a belief that growing profitability over the near term will be challenging, particularly given the competitive nature of the individual life and group disability income markets and the current low interest rate environment.

While A.M. Best believes LMHC and its operating companies’ ratings are well positioned at their current rating levels, negative rating actions could occur if underwriting and operating performance falls below A.M. Best’s expectations or risk-adjusted capitalization weakens to a level that no longer supports current ratings.

For a complete listing of Liberty Mutual Holding Company Inc. and its subsidiaries’ FSRs, ICRs and debt ratings, please visit www.ambest.com/press/072602libertymutual.pdf.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding BCAR for Property/Casualty Insurers”; “Understanding Universal BCAR”; “Rating Members of Insurance Groups”; “The Treatment of Terrorism Risk in the Rating Evaluation”; “Risk Management and the Rating Process for Insurance Companies”; “Catastrophe Analysis in A.M. Best Ratings”; “Gauging the Basis Risk of Catastrophe Bonds”; “Insurance Holding Company and Debt Ratings”; “Equity Credit for Hybrid Securities”; “Rating Surplus Note and Insurance Trust-Preferred CDOs”; “Analyzing Commercial Paper Programs”; and “Understanding BCAR for Life/Health Insurers.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
W. Dolson Smith, CFA,908-439-2200, ext. 5379
Senior Financial Analyst
w.dolson.smith@ambest.com
or
Michael J. Lagomarsino, CFA,908-439-2200, ext. 5810
Assistant Vice President
michael.lagomarsino@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Source: A.M. Best Co.