By CYRIL TUOHY, managing editor of Risk & Insurance®
Boston-based Liberty Mutual Group, the commercial and personal lines giant, reported fourth-quarter net income of $456 million, up $9 million or 2 percent over the year-ago period.
Chairman and CEO Edmund F. Kelly, in a March 2 earnings conference call, said that lower catastrophe losses and strong results from the company's international operations in Asia helped offset the intense price competition in the domestic commercial lines sector and the economic slowdown in Europe.
The company reported fourth-quarter catastrophe losses of $115 million, compared with catastrophe losses of $289 million in the year-ago period, which was due mainly to hurricanes Ike and Gustav.
In the commercial-lines segment, Kelly said the competition from other regional and national carriers was so fierce that he was "shocked" at the lack of pricing discipline and terms.
"One large national competitor is very price competitive on all lines and in all regions," he said, without revealing the competitor's name.
Opportunities for attracting new commercial accounts are "very scarce," Kelly added, and in a softening price environment--a market where there is already plenty of capacity and an economy in which exposure values have also declined--carriers are doing everything they can to protect their policies in-force.
Fourth-quarter net written premium, a measure of business volume being underwritten, rose 11.5 percent to $7.1 billion compared with the year-ago period because the company declined to renew a quota share treaty, said Chief Financial Officer Dennis J. Langwell, who was also on the call with analysts.
The most intense competition is for middle market accounts, Kelly said. Smaller carriers are moving up to claim that business and larger carriers are moving down.
WORKERS' COMP AND QUAKE
Kelly also said that Liberty Mutual, the nation's top workers' compensation underwriter, would simply turn down business if the price is too low to maintain underwriting discipline.
"Price in California is not adequate," he told analysts in the earnings call. "We will get price or walk away, so we walked away from middle market business."
While workers' compensation exposures are generally low and frequency trends down on account of the slow economy and an anemic housing market, Kelly also said those trends had been offset by a "big single-digit rise in severity trends" in indemnity and medical claims costs.
The company also reported a combined ratio of 99.9 percent, up 1.3 points from the year-ago period.
Langwell said the company's exposure to the recent Chile earthquake was "not significant," and that the company was covered by a reinsurance contract through a surplus quota share treaty.
The company's retention on the catastrophe loss is "roughly $80 million," Langwell also said. No injuries were reported to the 10 Liberty Mutual employees in and around the city of Concepcion, the area closest to the epicenter, according to Langwell.
Property losses stemming from the magnitude 8.8 quake that hit the country Feb. 27 are "likely to exceed" $2 billion, and economic losses "may exceed" $15 billion, according to estimates by the Boston-based modeling firm AIR Worldwide Corp.
March 8, 2010
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