Reinsurance News

Liberty Mutual cites investment market volatility & loss cost inflation amid Q2 loss

4th August 2022 - Author: Luke Gallin

Re/insurer Liberty Mutual Holding Company has fallen to a net loss of $343 million for the second-quarter of 2022 on the back of investment market volatility and elevated catastrophe losses.

liberty mutualThe Q2 2022 net loss compares with income of $769 million a year earlier, although the company’s H1 2022 result was profitable at $155 million, but down on H1 2021’s gain of more than $1.6 billion.

On the asset side of the balance sheet, Liberty Mutual and its subsidiaries witnessed net realised investment losses of $671 million for the quarter and losses of $815 million for the half-year period.

“While rising interest rates are causing some short-term pressure on investment results, we expect higher net investment income to be a significant tailwind in future periods,” said David Long, Liberty Mutual Chairman and Chief Executive Officer (CEO).

As the investment result took a negative turn, net written premiums (NWP) increased across the business by 15.5% in Q2 to $12.5 billion, and by 13.4% in H1 2022 to $24.1 billion.

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However, catastrophe events had a larger negative impact on Liberty Mutual’s underwriting performance, year-on-year, for both reporting periods. In Q2, cat losses exceeded $1.1 billion compared with $660 million a year earlier, while H1 2022 cat losses hit $1.76 billion, compared with $1.7 billion in H1 2021.

Additionally, income from limited partnerships fell by nearly 51% in Q2 to $469 million, and by more than 53% in H1 2022 to $834 million, when compared with the comparable prior year periods.

While the firm’s expense ratio declined slightly in both Q2 and H1 2022, to 28.7% and 28.7%, respectively, the claims and claim adjustment expense ratio increased to 68.1% in Q2 and to 66.1% in H1 2022.

In fact, catastrophes had a 9.5 percentage point impact on the firm’s combined ratio in Q2 2022, compared with 6.4 percentage points in Q2 2021, contributing to a rise in the combined ratio to 105% for the quarter, compared with 98.1% a year earlier. For the half year, catastrophes had a 7.8 percentage point impact on the combined ratio, which ended June at 102%, compared with 99.8% in H1 2021.

“The underlying combined ratio in the quarter increased 5.0 points to 96.8% reflecting elevated severity in private passenger auto, though margin improvement continued in commercial markets. Accelerated rate and targeted underwriting actions in personal lines will moderate growth and begin to improve the loss ratio in the second half of the year as rate increases earn in over time,” said Long.

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