Liberty Mutual Downgraded

A.M. Best Co. downgraded the financial strength rating to “A” (Excellent) from “A+” (Superior) of Liberty Mutual Insurance Cos., based in Boston, Mass. Also downgraded was the financial strength rating of Liberty Northwest Group, Portland, Ore. to “A” (Excellent) from “A+” (Superior). The financial strength rating of “A” (Excellent) of Liberty Insurance Holdings, Keene, N.H., was affirmed. All of these ratings have a negative outlook.

Liberty Mutual experienced deterioration in capitalization and, despite significant improvement in 2002, weak operating returns in recent years. Statutory surplus has declined considerably over the last few years, largely driven by unrealized losses from the bearish equity markets; adverse loss reserve development related to the rising medical inflation and increased asbestos claim trends affecting the industry; and in 2001, the impact of the World Trade Center catastrophe.

With the group’s operating returns hovering below historical profitability levels, A.M. Best has concerns regarding reserve adequacy, particularly on older workers’ compensation and asbestos claims and the potential for adverse development to dampen underwriting profitability going forward. Exposure of capitalization to potential unrealized investment losses or adverse loss reserve development is also a concern.

Liberty Mutual Group is a diversified international group of insurance companies and one of the largest multi-line insurers in the North American P/C industry. Liberty Mutual is one of the leading private providers of worker’ compensation insurance in the U.S.