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Venezuelan woes crush Liberty Mutual's third-quarter results

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Troubles with its Venezuelan operations led Liberty Mutual Holding Co. Inc. and its subsidiaries to post a net loss of $427 million in the third quarter of 2015, compared with net income of $605 million during the same period a year earlier, the Boston-based insurer announced Wednesday.

“Our continuing strong operating performance was masked in the third quarter by a nonrecurring loss of approximately $700 million from the deconsolidation of our Venezuelan subsidiary and energy investment-related losses,” said Liberty Mutual Chairman and CEO David H. Long in a statement accompanying the earnings report.

Effective Sept. 30, the company has determined to deconsolidate the Venezuelan subsidiaries and offer the Venezuelan operations for sale, said Liberty Mutual in a financial statement covering the third quarter results.

“Since 2010, the company's operations in Venezuela have been operating in a hyperinflationary economy with restrictive foreign exchange controls,” the financial statement said. “The evolving conditions in Venezuela, including the increasingly restrictive exchange control regulations and other factors, significantly impact our control over the Venezuelan operations.”

The deconsolidation is reflected in the results contained in the financial statement.

Net written premium for the three months ended Sept. 30 was $8.78 billion, a 2.0% decrease from that of the same period a year earlier. Net investment income for the third quarter dropped 5.6% from that of third quarter 2014 to $759 million. The combined ratio improved to 95.6% from 96.8% a year earlier.

For the first nine months of 2015, Liberty Mutual posted net income of $103 million, a drop of 91.8% from that of the same period a year earlier. Net written premiums for the nine-month period increased 1.2% over those of the same period in 2014 to $26.42 billion, while net investment income for the period decreased 15.9% year-over-year to $2.07 billion. The combined ratio improved to 98.5% from 99.1% for the period.

Oldwick, New Jersey-based rating company A.M. Best Co. said it expects Liberty Mutual's results to improve in the fourth quarter.

“In anticipation of no further Venezuela losses and continued solid underwriting performance, A.M. Best expects that (Liberty Mutual's) profitability will improve in fourth quarter 2015,” Best said Wednesday. “Total equity also will likely improve in the fourth quarter, though decline moderately for the year. Accordingly, the company's consolidated risk-adjusted capitalization, while anticipated to decline in 2015, should remain supportive of its ratings. In addition, financial leverage and coverage ratios also should remain supportive of the company's ratings.”