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Liberty Mutual net income sinks on higher auto losses

Liberty Mutual net income sinks on higher auto losses

Liberty Mutual Holding Co. Inc. on Wednesday reported net income of $143 million for the fourth quarter of 2016, down 65.2% from the year-ago period.

Net written premiums for quarter rose 6.1% to $8.615 billion.

The insurer’s consolidated combined ratio deteriorated to 97.6% from 95.9% in the prior-year period.

Chairman and CEO David H. Long said fourth-quarter operating income was down primarily due to elevated losses in U.S. personal and commercial auto liability. During a Thursday conference call with investors, Mr. Long said that toward the end of 2015 “we began to observe elevated collision severity of close to 6% which impacted personal auto physical damage results.” 

“We identified two primary causes for the increase,” he said. “First, and not surprisingly, the increase in highway miles — perhaps, and more importantly, the increase in distracted driving highway miles leading to more serious accidents. And second, repairs to cars with advanced driver assistance systems involve a higher number of parts replaced by claim and an increase in labor hours per claim. We expected to see similar claims in property damage liability in commercial auto, which we did three to six months later. In short, the severity of claims is increasing, driven at least in part by the fact that safer vehicles are more expensive to repair.”

Mr. Long said the company did a test of minor front-end damage on a 2016 versus a 2014 model of the same car. The cost to repair the 2016 model— which had adaptive cruise control, sensors and LED headlights — was double that of the 2014 vehicle.

“Suffice to say both personal and commercial auto markets are in need of additional rate,” he said.

In December, Liberty Mutual Insurance Co. announced it was buying Hamilton, Bermuda-based Ironshore Inc. from Chinese conglomerate Fosun International Ltd. for about $3 billion. Mr. Long said the transaction is expected to close in the first half of the year, pending regulatory approvals and customary closing conditions.

“We’re pretty excited about having Ironshore management team on board,” Mr. Long said. “They’re an accomplished group which will considerably enhance our expertise, innovation, and relationships as well as our market position in the specialty space.”

Liberty Mutual’s full-year net income increased 95.7% over the previous year to $1.01 billion. Net written premiums for year increased 3.4% to $35.71 billion. The consolidated combined ratio deteriorated to 98.4% from 97.8%.




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