Liberty Mutual Reaches Reinsurance Deal With National Indemnity

By Noah Buhayar | July 18, 2014

Liberty Mutual Insurance said it has reached a deal with National Indemnity Co. (NICO), a subsidiary of Berkshire Hathaway Inc., on a combined aggregate adverse development cover for substantially all of Liberty Mutual’s U.S. workers’ compensation, asbestos and environmental liabilities.

Effective Jan. 1, 2014, Liberty Mutual Insurance ceded approximately $3.3 billion of existing liabilities under a retroactive reinsurance agreement. NICO will provide approximately $3.2 billion of additional aggregate adverse development cover.

Liberty Mutual said it paid NICO total consideration of approximately $3.0 billion.

Liberty Mutual said the agreement covers its potentially volatile U.S. asbestos and environmental liabilities arising under insurance and reinsurance policies with effective dates before January 1, 2005, as well as workers’ compensation liabilities for injuries or accidents occurring before Jan. 1, 2014.

NICO will assume responsibility for claims handling related to the asbestos and environmental claims. Liberty Mutual Insurance will continue to handle all workers’ compensation claims.

“We believe that this agreement further strengthens our financial position as it eliminates a substantial source of uncertainty in these liabilities and allows us to focus on execution in our core businesses,” said David H. Long, Liberty Mutual Insurance chairman and chief executive officer, in a statement announcing the agreement.

Liberty Mutual operates globally and is the third largest property/casualty insurer in the U.S. based on 2013 direct written premium.

Standard & Poor’s approved of Liberty Mutual’s actions, raising its outlook on all of Liberty’s companies to stable from positive. S&P’s credit and debt ratings on parent company Liberty Mutual Group are now “BBB,” up from “BBB-.” Financial strength ratings for the insurance operating companies are now set at “A,” up from “A-.”

“As a result of this transaction, our view of Liberty’s financial risk profile has improved to strong from upper adequate, and we now regard its management and governance as satisfactory rather than fair,” S&P Aanalyst Tracy Dolin said in the agency’s ratings update for the company.

NICO has been involved in reinsurance deals like this in the past, including ones with Lloyd’s Equitas (2006), AIG’s global property/casualty insurer Chartis and its asbestos liabilities (2010), and an asbestos deal with CNA Financial (2010).

CEO Long has been pursuing a strategy for Liberty Mutual of growing where it “can do so profitably and contracting elsewhere, with a heavy emphasis on improving underwriting performance,” as he worded it last October commenting on results.

Liberty Mutual is one of a number of large insurers that has been lowering its profile in the profit-challenged workers’ compensation line in recent years, although it still remains the top individual workers’ compensation writer in the country. In January, it announced it was selling its Florida-based workers’ compensation unit, Summit Holdings Southeast Inc., to American Financial Group for $250 million. Summit has approximately $520 million of premium writings in the Southeast.

Liberty Mutual has been expanding globally. Last October the insurer said it was buying the 49 percent stake in the former Quinn Insurance Ltd. in Ireland that it didn’t already own and soon after that it entered Mexico with the purchase of a surety company. Earlier this month it moved to gain a bigger role in the market for large, complex global property risks by expanding its National Accounts Property unit and added five underwriters.

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