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Liberty Mutual net income surges on improved investment returns

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Liberty Mutual Holding Co. Inc.’s net income for the second quarter of 2017 rose more than eightfold on improved investment returns and higher premiums from its Ironshore Inc. acquisition despite a deterioration in its combined ratio amid continued adverse underwriting trends in commercial auto liability.

The Boston-based mutual insurer reported net income of $126 million in the second quarter of 2017 compared with $15 million in the same period last year, “but certainly below where we would like to be,” David Long, chairman, president and CEO, said on the company’s earnings conference call Friday morning.

Net written premium for the second quarter was $9.9 billion, a 9.9% increase over the same period in 2016, according to the earnings report released Friday. Ironshore contributed 2.3 points to that growth, Mr. Long said.

The insurer’s combined ratio deteriorated to 102.7% in the quarter from 101.4%, according to the report.

“Severe weather, particularly in the central U.S., added close to $700 million of catastrophe losses — lower than last year, but still sizeable relative to normalized expectations,” Mr. Long said, adding, however, that key contributors to the deterioration in the combined ratio included auto losses, higher noncatastrophe and weather losses in the homeowner sector and commercial property losses.

Commercial auto premiums rose 9%, the biggest increase in its casualty lines, but “certainly not enough” to offset auto losses, Mr. Long said.

Liberty Mutual completed its $2.9 billion acquisition of 100% ownership interest in Ironshore from Fosun International Ltd. in May. The transaction was partially funded with about $1.1 billion in short-term debt, which is due to be repaid in the third quarter through cash flow operations, Mr. Long said.

Ironshore acquisition and integration costs for the quarter were $26 million, according to the report.

“It will be a significant contributor,” Dennis Langwell, executive vice president and chief financial officer, said during the call. “There are a lot of synergies that we’re expecting to come out of the acquisition; many of them are in reinsurance purchasing practices. But overall, Ironshore brings us scale and capability in excess and surplus lines that we didn’t have prior. It will ramp up through 2018. We think 2019 is when we’re expecting to get most of the run rate synergies out of the business and start to get revenue synergies as well, which we’ve been positively surprised by already.”

Net income for the first half of 2017 rose 16.9% over the same period last year to $477 million, according to the report. Net written premium for the first six months was $19.1 billion, a 7.6% increase from the same period in 2016, according to the report.

Overall Ironshore integration costs were $36 million in the first half.