By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
Perhaps the most surprising thing about the earnings call of Boston-based insurance giant Liberty Mutual Group on Friday, Nov. 5, was that company CEO and Chairman Edmund "Ted" Kelly did not call out specific competitors for cutting prices irresponsibly. That kind of stuff is old news perhaps.
What is new news is that large property/casualty insurers have been able to post good numbers in the third quarter despite the still-soft market and overall economic doldrums, including Liberty Mutual.
Liberty Mutual reported net income of $567 million for the third quarter, an increase of $307 million over the same period in 2009. Net written premium for the quarter was $7.72 billion, up 7.1 percent over last year's quarter. The company's combined ratio taking into account catastrophe losses and prior year incurred losses (an indicator of profitability with below 100 indicating profit) ended at 99.2 percent, a decrease of 1.6 points.
"Overall, we had an excellent quarter with growth in premium writings, profitability and equity," Kelly said in a statement.
What may be of particular interest for our readers is that negative trends in the commercial insurance market appear to be "leveling out" according to Kelly. Liberty Mutual, he reported, saw good growth especially in large commercial accounts.
Still, it's a competitive game out there. Brokers are securing multiple quotes for commercial clients at renewal and aiming for rate decreases line by line, according to Kelly. Carriers are trying to sign insureds to early renewals to avoid them going to the market.
What's more, some key competitors are showing increased interest in writing coastal property. If you're playing Russian roulette and you pull the trigger and nothing happens, then you're willing to play again, as Kelly put it.
THE COMBINED RATIO
Liberty Mutual's combined ratio, as mentioned above, dropped in the third quarter, in part thanks to lower catastrophe losses and improvements in Latin American results, reported Dennis Langwell, Liberty's chief financial officer, during the earnings call.
Yet the ratio was up 1.8 points for the first nine months of 2010 to 102 percent, including the impact of CATs and net incurred prior year losses.
Versus its competitors, that's as much as a 10-point difference with the likes of Chubb (90.1 percent) and Travelers (94 percent), observed Gerry Glombicki, director of the U.S. Insurance Group at Fitch Ratings.
Why? Perhaps it has something to do with the word "Mutual" after "Liberty." Glombicki isn't entirely sure.
"Everybody would like to have better underwriting," he said.
Still, Glombicki sees Liberty Mutual in line with its competitors in terms of the overall results it reported in the third quarter, when no one in his eyes is differentiating themselves.
"It's a big improvement over last year," he said.
It's intriguing to note that Fitch Ratings has made a little Liberty-related news of its own. The firm announced that it will be holding a special teleconference about Liberty Mutual on Tuesday, Nov. 9. This seemed to have Liberty and its analysts scratching their heads during the earnings call.
"We're very puzzled," said CFO Langwell.
Glombicki explained that this isn't the first time Fitch has had a call about one particular company; they do it periodically across all of their groups--and expect to do it more with insurers--when there's a high-profile issue.
In this case, the issue is Liberty Mutual calling off the IPO for Liberty Mutual Agency Corp., which had been an "easy decision," said Kelly.
November 8, 2010
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