The executive said the way commercial insurance is written is "patent nonsense" and is "run irrationally."

"There are no sufficient controls at the middle-market level," he said, adding the workers' compensation business "doesn't make any sense," as companies continue to write to an average 119 combined ratio in a 3-4 percent interest rate environment.

"Workers' compensation business is a time bomb on the balance sheet of the industry," Mr. Kelly said. Still, carriers continue to write the business because it is "remarkable easy money."

He said, "Prosperity hides the cracks in the fa?ade," referring to workers' compensation business. Previously, inflation was low and profit was made on "dumb luck." Now, he said, during the economic downturn, the industry looks and sees it is "not so good" at writing this business.

Liberty Mutual is "absolutely convinced there will be a surge in inflation," Mr. Kelly said. The company has been reducing its workers' compensation exposure, he said.

Yet, because of its actions to expand to other countries and take into account a rise in inflation, Liberty Mutual is in a good position to take advantage of opportunities for mergers and acquisitions.

"Strong companies will have their pickings" when flailing companies are looking to consolidate, he added.

Liberty Mutual said that net income for the third quarter was $567 million for the period ended Sept. 30, up 118 percent from the $260 million earned in the same period a year ago.

During a conference call at the time the CEO said Liberty Mutual's decision to back off an initial public offering of Liberty Mutual Agency Corporation was an easy one because the company didn't need the capital. He said the insurer would continue to monitor the market to determine if pricing improves enough to re-launch the IPO.