Standard & Poor's announced yesterday it lowered Liberty Mutual Group's financial strength ratings to "A-" from "A," a move the insurer called a "disservice to Liberty Mutual and our policyholders."

S&P said it took the action following the close of Liberty Mutual's $6.2 billion acquisition of Safeco. The rating agency cited Liberty Mutual's "diminished financial flexibility, below-rating-level earnings (as measured by return on revenue), and aggressive pricing and growth strategy" as reasons for the downgrade.

Liberty Mutual, in response said that decision contradicts S&P's prior announcements. The insurer said S&P: put it on CreditWatch with negative implications when the Safeco acquisition was announced in April. The rating agency subsequently said it expected to affirm the ratings if Liberty Mutual's capitalization was not materially below what is required for the current rating.

Liberty Mutual said, "On July 23, Standard & Poor's announced that they expected to affirm Liberty's ratings 'if capital and earnings remain strong' but could lower ratings 'if pro forma capital and earnings were materially below the appropriate level for the rating.' In fact, Liberty's reported pre-tax operating income of nearly $900 million in the first six months of 2008 was approximately three percent higher than the same period in 2007.

"In addition, Liberty's pro forma capital adequacy using Standard & Poor's published criteria indicates Liberty's capital is adequate to maintain our 'A' rating."

The insurer also took issue with S&P's view of its pricing and growth strategy. Liberty Mutual said S&P had given the insurer's enterprise risk management strategy a "Strong" rating seven months ago.

In the rating announcement, though, John Iten, S&P primary credit analyst, said the view on Liberty Mutual's growth strategy has changed. The strategy, he said, is "more aggressive than that of the industry overall," and the changing risk profile has led to uncertainty regarding how the insurer will manage the next few years of declining prices.