BOSTON -- Clients of Employers Insurance of Wausau can expect to maintain the same relationships and receive the same products and services from the same brand name despite Wausau's new affiliation with competitor Liberty Mutual Group.

Other than pooling financial results and possible joint initiatives in the future, the two venerable workers compensation insurers will continue to operate as independent mutuals. While the insurers have different distribution systems, they both say they will compete against each other in the commercial insurance marketplace.

Last week, the two companies jointly announced that the Wausau, Wis.-based mutual insurer was joining the Boston-based Liberty Mutual Group, ending Wausau's 13-year affiliation with Columbus, Ohio-based Nationwide Group, which has decided to focus on growing its core personal lines and financial services business.

Terms of the deal, expected to close by year end, were not disclosed pending required regulatory review. As part of Nationwide's affiliation agreement, however, $400 million in surplus notes that Nationwide invested in Wausau will have to be paid back.

"We are really viewing this as a big win for Wausau," said Wausau's president and chief operating officer, Dwight Davis. "The Wausau brand will continue; the services we are known for will continue; and our producer relationships will continue. So what we gain is being associated with a partner that wants to invest and grow the Wausau brand," he explained.

Whereas Nationwide is more committed to personal lines property/casualty and financial service business, Liberty Mutual is more committed to the commercial lines market, Mr. Davis said.

Mr. Davis said he expects the completed transaction will make Wausau stronger financially than it has ever been.

For Liberty Mutual, the addition of Wausau to its family of companies further strengthens its position as the leading provider of workers comp insurance.

In 1997, Liberty Mutual generated $1.96 billion in direct workers comp premiums, according to A.M. Best Co. Last year, Wausau generated $710 million, a company spokesman said.

Combined, Liberty Mutual and Wausau will represent 10.1% of the total workers comp market, with nearly $2.7 billion in direct premiums, according to Best.

Overall, Liberty Mutual and Wausau wrote $7.25 billion in net premium in 1997, of which Liberty Mutual accounted for $5.92 billion and Wausau $1.33 billion.

As of June 1998, Liberty Mutual reported assets of $25.6 billion and policyholders' surplus of $7.2 billion; Wausau reported assets of $3.6 billion and policyholders' surplus of approximately $600 million.

The deal is about "growth opportunity," not an opportunity to squeeze expenses, said Ted Kelly, chairman and chief executive officer of Liberty Mutual in Boston.

When the deal is complete, "the Liberty Group will be either No. 1 or No. 2 in market share in 22 states and by far the largest provider of workers compensation," he said.

Moreover, Wausau brings to Liberty Mutual a different distribution channel. Whereas Liberty Mutual is a direct writer on a majority of its accounts, 65% of Wausau's premium is distributed through brokers and large regional agencies.

Liberty Mutual is a direct writer in the "all-important middle market" -- those accounts generating between $75,000 and $2.5 million in annual premium, Mr. Kelly said. While he believes strongly in direct business, he said Liberty Mutual recognizes a large market segment prefers to purchase insurance through brokers. "With Wausau as part of our family, we now have someone operating through brokerage distribution," he said.

"Managing multiple channels of distribution and channel conflict is an integral part of financial services," Mr. Kelly continued. "Successful companies have to have the ability to manage multiple channels under conflict."

Market observers say the deal makes sense.

Wausau typically serves larger accounts, and Liberty Mutual has a significant presence in the large national account arena, said Matthew Coyle, a director at Standard & Poor's Corp. in New York who tracks both Liberty Mutual and Wausau. Because Nationwide focuses mainly on personal lines and some small commercial accounts, Wausau "fits more with Liberty's profile than it did in the past with Nationwide," Mr. Coyle said.

Richard S. Betterley, president of Betterley Risk Consultants Inc. in Sterling, Mass., agrees.

"The deal makes a lot of sense," he said. "It makes sense for Liberty to get bigger, and it makes sense for Wausau to be bought by a similar company."

"It's truly a win-win," said John Wicher, managing director of Russell Miller Inc. in San Francisco. The deal allows Liberty Mutual to diversify its distribution and complement its existing business; Nationwide is dis-affiliating with a non-core business; and risk managers get to continue to have a strong Wausau with Liberty Mutual as the ultimate parent supporting the company, Mr. Wicher said.

"To me, it's a natural. It's great," said Ronald Komas, vp-risk management at Kohl's Department Stores Inc. in Menomonee Falls, Wis. Kohl's has a longstanding relationship with Liberty Mutual, which underwrites its workers comp and general liability programs, and it recently switched its group health business to Wausau.

"Down the road (the affiliation) will be very, very positive," Mr. Komas predicts. "I think it's a natural, long-term, for the possibility of 24-hour coverage."

Indeed, while executives from both companies say product collaboration was not the driving force behind the affiliation, the two insurers may jointly develop products in the future.

One of the areas they highlight is 24-hour coverage, better known today as integrated disability management.

"We've put lots of emphasis on (integrated disability management) and have built a book of business over the last year," said Mr. Davis of Wausau. While Wausau has invested more in this area than Liberty Mutual, there are other areas in disability management and managed care in which Liberty Mutual has more strength, he said.

By joining forces, "we have a broader base of experience to share results of a very much emerging market," Liberty Mutual's Mr. Kelly said of integrated disability programs. "Shared experience will speed up development of a product."

A.M. Best's A+ rating of Liberty Mutual's 12-member pool will be unchanged by the addition of Wausau, the rating agency said. Upon completion of the deal, Wausau and its three subsidiaries will be assigned the A+ rating.

S&P said its AA rating of Liberty Mutual also will be unaffected by the Wausau addition.

Moody's Investors Service Inc. affirmed its Aa3 insurance financial strength ratings of members of the Liberty Mutual Group following the announcement. The rating affirmation is based largely on the compatibility of Wausau's business with that of Liberty Mutual, Moody's said.