Liberty Mutual Group Inc -- Moody’s rates Liberty Mutual Group’s junior subordinated notes Baa3(hyb)
Rating Action:
Moody’s rates Liberty Mutual Group’s junior subordinated
notes Baa3(hyb)
27 January 2021
New York, January 27, 2021 -- Moody’s Investors Service, (“Moody’s”) has assigned a Baa3(hyb)
rating to $800 million of 40-year junior subordinated notes issued by Liberty Mutual Group, Inc.
(Liberty Mutual, Baa2 senior, stable). The company will use net proceeds from the offering for
general corporate purposes. The rating outlook for Liberty Mutual is unchanged at stable.
RATINGS RATIONALE
According to Moody’s, Liberty Mutual's ratings are based on the group's strong market position as a
top four US P&C insurer and a top ten global P&C insurer, as well as its broad diversification across
products and geographies. The company uses multiple distribution platforms to write its personal,
commercial, and specialty lines in the US and internationally. These strengths are tempered by
Liberty Mutual's elevated operational and financial leverage relative to tangible capital, exposure to
catastrophe losses, and potential for adverse reserve development on its long-tail casualty lines.
Another credit concern is the group's lack of access to the public equity markets, which Moody's
believes constrains financial flexibility in the capital-intensive and often volatile P&C insurance
sector.
For the first nine months of 2020, Liberty Mutual reported consolidated net income of $598 million
compared to $1.3 billion for the prior-year period mainly driven by coronavirus-related losses of
$565 million, about half of which were from event cancellation coverage, and significantly higher
catastrophe losses. The coronavirus pandemic could lead to additional earnings volatility for Liberty
Mutual and the industry. Insurers continue to raise commercial rates and tighten policy terms and
conditions in response to rising loss cost trends and low interest rates, which Moody’s expects
will benefit Liberty’s earnings in 2021. Moody’s estimates Liberty Mutual’s pro forma financial
leverage would increase modestly to about 31% as of September 30, 2020, consistent with Moody’s
expectations.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to an upgrade of Liberty Mutual’s ratings include: gross underwriting leverage
consistently below 4x; improvement in adjusted financial leverage (i.e. consistently below 25%,
and below 30% relative to tangible capital); and, sustained strong earnings and internal capital
generation. Factors that could lead to a rating downgrade include: consolidated gross underwriting
leverage above 6x; adjusted financial leverage above 35% (or 45% relative to tangible capital);
pretax operating returns on capital averaging below 3%; or, a decline in policyholders' equity
capitalization by more than 10% as a result of operating or realized investment losses.
Moody’s has assigned the following rating to Liberty Mutual:
$800 million of 40-year junior subordinated notes at Baa3(hyb).
The rating outlook for Liberty Mutual is unchanged at stable.
The principal methodology used in these ratings was Property and Casualty Insurers
Methodology published in November 2019 available at
https://www.moodys.com/
researchdocumentcontentpage.aspx?docid=PBC_1187352
. Alternatively, please see the Rating
Methodologies page on www.moodys.com for a copy of this methodology.
Based in Boston, Massachusetts, Liberty Mutual Group is a diversified group of insurance
companies. The group provides a wide range of insurance products and services in the US, and
internationally, including in Europe and the Lloyd's market, Latin America, and the Asia-Pacific
region. For the first nine months 2020, Liberty Mutual Group reported revenue of $32.0 billion
and consolidated net income of $598 million. As of September 30, 2020, the company reported
consolidated assets of $142.2 billion and total equity of $25.1 billion.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see
the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure
form. Moody’s Rating Symbols and Definitions can be found at:
https://www.moodys.com/
researchdocumentcontentpage.aspx?docid=PBC_79004
.
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