Best Revises Liberty Mutual Group Outlook to Negative; Affirms Ratings

April 10, 2009

A.M. Best Co. has revised the outlook to negative from stable for the financial strength (FSR) and issuer credit ratings (ICR) of Liberty Mutual Group, Inc. (LMGI), Liberty Mutual Insurance Companies and Liberty Insurance Holdings (LIH) and their members, as well as, Liberty Life Assurance Company of Boston and the UK-based Liberty Mutual Insurance Europe, Ltd. (LMIE). These companies are all operating subsidiaries of LMGI.

Best has also affirmed the FSR of ‘A’ (Excellent) and ICRs of “a” of each of the member operating companies and has extended the FSR, ICRs and outlook to the former operating subsidiaries of Safeco Corporation, all of which are now members of the LIH pool.

In addition Best affirmed the ICRs of “bbb” for Liberty Mutual Holding Company Inc. and LMGI, along with the debt ratings of LMGI, Safeco and Ohio Casualty Corporation, and has assigned debt ratings of “bbb” to the recently issued $280.6 million senior unsecured notes due 2010, $187.4 million senior unsecured notes due 2012 and $179.6 million senior unsecured notes due 2014 of LMGI, issued in exchange for debt existing at both Safeco and Ohio Casualty. Best has also withdrawn the shelf ratings for Safeco and Ohio Casualty. The outlook for all ratings is negative.

Concurrent, with the integration of the Safeco operating companies into the LIH pool, an NR-5 (Not Formally Followed) has been assigned to the FSR and an “nr” to the ICR of the Safeco Insurance Companies. All companies are located in Boston, MA, except where specified. (See link below for a detailed listing of the ratings.)

“These rating actions reflect the sizeable deterioration in overall capitalization of LMGI given the impact of market conditions, increased level of financial leverage and limited ability of the parent to improve overall capitalization given its strained financial flexibility, Best explained.”Overall capitalization declined significantly in 2008, largely due to unrealized losses of $2.2 billion associated with volatility in the capital markets.

“As such, the financial leverage as measured by debt-to-adjusted tangible capital at LMGI increased to 31.9 percent as of year-end 2008. While LMGI maintains access to significant sources of liquidity, accessing these sources for other than short-term operating needs would further increase financial leverage, which would create additional downward rating pressure.”

In addition Best noted that “Liberty Mutual is the nation’s third-largest commercial lines writer and seventh-largest personal lines writer in the United States based on direct premiums written, inclusive of the acquisition of Safeco, which closed during third quarter 2008.

“The group operates globally, utilizing four business units: personal markets, commercial markets, agency markets and international. Given the group’s focus on achieving proper pricing through cycle management, A.M. Best expects profitability to remain solid while growth in overall capitalization will be pressured by ongoing volatility in the investment markets.

“The affirmation of the ratings for Liberty Life recognizes its established market profile, solid risk-adjusted capital position and improved statutory operating results. Furthermore, the ratings acknowledge Liberty Mutual’s explicit capital support and its commitment to maintain favorable capital levels at Liberty Life.

“LMIE’s rating affirmations reflect its solid balance sheet strength, strong operating performance within niche markets, brand recognition and the explicit support provided by its parent, Liberty Mutual.”

For a complete listing of Liberty Mutual Group, Inc.’s FSRs, ICRs and debt ratings, go to:

Source: A.M. Best –

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