Liberty Mutual Holding Company Inc. and its subsidiaries produced net income from continuing operations of $274 million for the third-quarter of 2019, while the firm also announced a new adverse development cover (ADC) arrangement with Berkshire Hathaway’s National Indemnity Company (NICO).
For the first nine months of the year, Liberty Mutual’s net income from continuing operations reached $1.394 billion, which is up slightly from the $1.382 billion recorded a year earlier.
According to the firm’s Chairman and Chief Executive Officer (CEO), David Long, the relatively stable net income for both periods was driven by a favourable investment performance, somewhat offset by higher current accident year loss ratios from the increased liability loss trends impacting the sector.
“Regarding liability trends, we believe that the current level of rate increases are in excess of loss trends and, subsequent to the quarter, we entered into an adverse development cover to protect against potential future development across several casualty lines,” said Long.
Specifically, on November 5th, the company entered into an ADC with NICO, a subsidiary of Warren Buffett’s Berkshire Hathaway, providing coverage up to $1.3 billion in reinsurance protection across a number of U.S. workers comp, commercial auto, and general liability business. The protection attaches at $8 billion combined aggregate reserves with sublimits on certain lines.
Liberty Mutual explains that immediately, the ADC provides cover for $300 million in reserves ceded at inception, retention of $400 million by Liberty Mutual and $1 billion of coverage for losses in excess of that retention. NICO received a cash consideration of $462 million for the protection, and the contract will be accounted for on a retrospective basis.
Turning back to the firm’s results for the quarter, and net written premiums increased by more than 1% to $10.4 billion.
Partnerships, LLC and other equity method income fell by nearly 13% to $162 million, while the insurer recorded net realised gains of $81 million in Q3 2019, compared with net realised losses of $104 million for the same period in 2018.
Unit linked life insurance for the period was a loss of $12 million versus zero for the third-quarter of 2018.
Liberty Mutual reveals that Ironshore acquisition and integration costs in the quarter declined by nearly 43% to $4 billion, while restructuring costs fell by $23 million year-over-year, to $3 million.
The firm’s combined ratio for the third-quarter of 2019 reached 102.5%, which is up 3 points on the same period in 2018. However, excluding the impacts of catastrophes, net incurred losses attributable to prior years and current year re-estimations, the combined ratio was 95.6%, which is an increase of 0.9 points on the same period a year earlier.
