Liberty Mutual Group reported second-quarter net income declined 11.5 percent compared to the second quarter of 2007 with weather events negatively impacting strong core operating results.

Net income was reported at $300 million for the quarter compared to $339 million in 2007.

Liberty Mutual listed $313 million in catastrophe losses compared to $122 million in cat losses for the second quarter of 2007--nearly a 157 percent difference.

In a conference call, Chief Financial Officer Dennis Langwell said catastrophe losses were partially offset by a $151 million improvement in prior year net incurred losses.

Net premium earned was listed as $6 billion, an increase of $648 million in the second quarter of 2008 compared to 2007.

The company's combined ratio deteriorated to 101.9, up from 100.1 during the same period for 2007. Catastrophes added 5.4 points to the combined ratio for the quarter, as opposed to 2.4 in 2007.

Net investment income increased 6.2 percent, or $44 million, over the second quarter of 2007 to $754 million pretax, Mr. Langwell said. He added that this was due to a higher investment asset base from strong cash flow, debt issues and net invested assets acquired.

The company reported net realized investment gains of $5 million, an 88.9 percent decline from the $45 million reported in the second quarter of 2007.

In a statement, Edmund F. Kelly, Liberty Mutual chairman, president and chief executive officer, said: "Our balance sheet remains strong with limited exposure to the subprime crisis. While the economic slowdown in the U.S. remains a concern, inflation is a greater concern, but we are extremely well-positioned globally to compete successfully across a broad range of market conditions."

Liberty Mutual noted that it had entered into a definitive agreement on April 23 to acquire, through its subsidiaries, all outstanding shares of Safeco for approximately $6.2 billion. The company said that it reaffirmed its commitment to the acquisition on July 14.

Speaking to rating actions resulting from this announcement, Liberty Mutual said that, on April 23, A.M. Best Co. affirmed the company's "A" financial strength rating with a stable outlook.

Moody's Investor Service affirmed the debt and insurance financial strength ratings, but changed Liberty Mutual Group's long-term ratings to negative from stable. Standard & Poor's Rating Service placed the company's "A" counterparty credit and financial strength ratings on CreditWatch negative following the acquisition announcement.

Standard & Poor's said yesterday that it is keeping its "triple-B" counterparty credit rating of Liberty Mutual Group Inc. (LMGI) on CreditWatch with negative implications.

"Standard & Poor's expects to either affirm or lower the ratings on LMGI and Liberty once we have completed our analysis of Liberty's operating company capitalization as of year-end 2007, the pro forma capitalization as of year-end 2008 following the acquisition of Safeco, and the approval of the transaction by the shareholders of Safeco," the rating agency said.

Standard & Poor's added that it will be meeting soon with Liberty Mutual's management team to discuss the acquisition.