Liberty Mutual reports loss on cats, event cancellations

Liberty Mutual Holdings Co. reported a $320 million net loss in the second quarter of 2020 compared with a $397 million profit in the same period last year largely due to event cancellation losses from COVID-19, natural catastrophes and civil unrest, the insurer reported Thursday. 

In addition, the effect of the pandemic on the economy hurt the insurer’s investment results.

“As to be expected, COVID-19 and the related economic downturn significantly impacted our insurance and investment results,” said David Long, Boston-based Liberty Mutual’s chairman and CEO on an earnings call. “These losses … reside entirely within our global risk solutions business.”

The insurer reported $878 million in catastrophe losses for the quarter — which includes civil unrest losses— and $529 million in losses from COVID-19, according to the statement. The overall combined ratio deteriorated 4 points to 105.2% in the quarter compared with the second quarter of 2019.

Liberty Mutual reported revenue of $10.17 billion for the second quarter, a 5.7% dip in from the same quarter 2019.  

Liberty Mutual’s investment income declined to $144 million in the second quarter from $1.37 billion in the same quarter in 2019, according to the insurer’s financial analysis. 

In the global risk solutions segment, which includes large account business, net written premium increased to $2.95 billion, a 9.5% improvement over the same quarter in 2019, but the segment’s combined ratio deteriorated to 116.2% from 106.0% in the same period last year, with 18 points attributed to COVID-19 losses, the analysis said.

“The largest driver of the COVID-19 impact was event cancellation product line, which contributed approximately 9 points,” said Dennis Langwell, executive vice president and president of Liberty’s global risk solutions segment, on the earnings call. He attributed about $100 million to property-related losses and expected litigation costs and about $260 million to contingent lines event cancellation. 

Mr. Langwell said the insurer applied exclusions for pandemics to event cancelation policies beginning in January 2020 and estimates that it could see about $50 million related to additional event cancelations in 2021. 

In the global retail markets segment, which includes personal and small U.S. business lines, net written premium declined 5.7% in the second quarter 2020 to $6.86 million, but the combined ratio held almost steady at 98.9%. 

“The main driver of the decline (in the segment) was the premium relief program in U.S. business and personal lines,” said Timothy Sweeney, executive vice president and president of GRM. In March, the insurer provided premium relief for personal auto and small commercial business owners policyholders hit by the pandemic.

The insurer reported its sharpest net premium declines from the second quarter in its commercial auto line, which reported a 20.3% decline to $429 million and its workers compensation line, which reported an 18.3% decline to $421 million.

The insurer has “seen some losses come in but not a lot” for coronavirus-related workers compensation losses, Mr. Langwell said. 

“But this isn’t over — we don’t know how workers compensation will play out for additional exposures in subsequent periods,” he said. “We expect the impact of COVID-19 coupled with the low interest rate environment … to be a catalyst for more meaningful rate increase in workers compensation going forward.”

More insurance and risk management news on the coronavirus crisis here.