Liberty Mutual Inc. entered an agreement with National Indemnity Co. (NICO), a subsidiary of Berkshire Hathaway Inc., to provide adverse development coverage, subsequently increasing Liberty Mutual's Standard & Poor ratings to 'BBB' from 'BBB-.'
Additionally, all of Liberty Mutual's insurance subsidiaries received an increased S&P rating by one notch. The outlook on all of these companies has also changed to “stable” from “positive,” reflecting the expectation that Liberty Mutual will maintain its current operating performance level.
Under the agreement, NICO will provide adverse development coverage for all of Liberty Mutual's U.S. workers' compensation and A&E liabilities, with an aggregate limit of $6.4 billion.
Prior to the closing, effective retroactively from Jan. 1, 2014, Liberty Mutual Insurance ceded approximately $3.3 billion of existing liabilities under a reinsurance agreement. While NICO will provide approximately $3.2 billion of additional aggregate coverage, Liberty Mutual paid NICO consideration of approximately $3.0 billion and the reinsurance recoverable from NICO is fully collateralized.
According to Standard & Poor, the agreement serves to reduce potential earnings volatility and significantly lowers required capital per S&P's capital model, improving its capital and earnings profile. The agreement with NICO covers Liberty Mutual's potentially volatile A&E liabilities as well as mitigates potential risks from future adverse reserve developments, and as a result the financial risk profile rating has improved to strong from upper adequate, its management and governance rating has been raised from fair to satisfactory.
The stable outlook thus reflects S&P's expectation that Liberty Mutual will maintain at least “A” capital adequacy according to the S&P capital model from 2014 to at least 2016. S&P expects the groups operating performance will also commensurate with P&C industry averages.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
