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By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

Perhaps one of the most entertaining reasons to listen to a Liberty Mutual earnings call is to listen to Chairman and CEO Edmund "Ted" Kelly rail against the competition.

In the Boston-based insurer's second-quarter earnings call this week, he suggested, as he has before, that one insurer in particular is behaving very aggressively in the commercial space. In addition, at least one to two competitors are very aggressive in the largest national accounts space, he said.

Another carrier--or maybe one of the aforementioned?--supposedly increased commissions for property insurance brokers to 18 percent from the standard 15 percent.

"Customers are of course pushing hard considering their straits," he explained, adding that brokers are delivering multiple quotes for their clients to meet this increased consumerism by insurance buyers.

Some would argue that Kelly's complaints, which he has been asserting for several quarters now, are getting old. But such straight-shooting is always refreshing in corporate America, especially at a public company during an earnings call. (A spokesperson from Liberty Mutual declined to elaborate on Kelly's comments.)

The entire property/casualty insurance industry, not just Kelly, isn't pleased with the continuing soft market.

"The industry was expecting it to turn and it hasn't," said Michelle Baurkot, assistant vice president and an analyst with ratings agency A.M. Best & Co.

Of course, the real meat and potatoes of Liberty's earning call were its second-quarter figures.

For Baurkot, she suggested getting at the drivers underlying the numbers on the press release. How was Liberty Mutual's overall revenue base? Is it growing, and how so? Are its underwriting losses escalating? Are income levels going down? Has the company's loss ratio been eroding?

Well, let's see. As for its combined ratio, Liberty Mutual reported a ratio of 96.6 percent, a decrease of 2.3 points from the same period in 2009--when you take out catastrophes and net incurred losses attributable to prior years. Add in CATs and prior year reserve issues, and they had a 104.7 percent combined ratio, an increase of 4.4 points from the year-ago period.

Revenues in the second quarter were $8.06 billion, an increase of $236 million, or 3 percent.

Net written premium was $7.28 billion, an increase of $379 million or 5.5 percent over the second quarter of 2009. That increase is in large part because of personal homeowner's and auto in the United States, reported company Chief Financial Officer Dennis J. Langwell.

Internationally, Liberty Mutual scored 13.6 percent growth in net written premium over the year-ago period if you exclude foreign exchange and the Venezuelan devaluation, 2.4 percent if you don't.

Second-quarter pretax operating income, however, was $188 million, a drop of $210 million, or 52.8 percent from the year-ago period. Operating results, along with the combined ratio, are considered indicators of underwriting performance.

Cash flows from operations dropped by $17 million or 2.8 percent to $585 million, the company also reported.

Catastrophe losses had a big part to play in Liberty Mutual's earnings. In the second quarter, the hit was $497 million, an increase of 96.4 percent over the prior-year period. For the six-month period, CAT losses amounted to $908 million, an increase of 56.8 percent over the prior-year period.

"Of course Mother Nature had her say," Kelly said in the earnings call, adding that Midwest hail storms had the biggest impact.

Overall, Baurkot used the adjective "modest" to describe Liberty Mutual's results. "In this environment, I think a lot of companies are happy to have modest results at this point," she said.

August 6, 2010

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