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Liberty Mutual sees larger COVID-19 impacts through its investments: CEO Long

28th April 2020 - Author: Luke Gallin

David Long, the Chairman and Chief Executive Officer (CEO) of Liberty Mutual Holding Company, Inc., expects the financial impact from the ongoing COVID-19 pandemic on the firm’s re/insurance operations to be similar to a moderately sized catastrophe loss.

coronavirusIn an announcement, the CEO of Liberty Mutual Holding Company, which is the parent of the Liberty Mutual Insurance group of entities, provided an update on the impact of the COVID-19 coronavirus pandemic on its first-quarter 2020 results.

According to Long, the firm anticipates that the larger impact from the virus outbreak will come through its investment portfolio, where its taken unrealised and realised losses as a result of the COVID-19-induced market downturn.

“We expect our net investment income will be dampened in the coming quarters as well by lower valuations on our private equity investments, which are reported on a quarter lag and thus not recognized in our first quarter results. Our liquidity position remains excellent, with access to over $6 billion in total, not including current cash on hand of $1.4 billion.

“We are confident in the strength and resiliency of our operations to allow us to endure these uncertain times and continue to serve our customers,” said Long.

As at the end of the first-quarter of 2020, Liberty Mutual anticipates total equity of approximately $23 billion, which would be a decline of 2% from the end of last year. The company attributes this decline mostly to unrealised investment losses, driven by the economic downturn being caused by the pandemic.

Although the pandemic continues to unfold and the duration and severity remains unclear, Long said that the company expects that from a financial standpoint, “we expect the impact of COVID-19 on our insurance operations to be similar to those we have experienced for a moderately sized catastrophe loss.”

In addition, Long explains that the areas of business the company is most exposed to on its insurance underwriting relating to the pandemic and the resulting economic volatility, includes trade credit, general liability, workers compensation, and event cancellation, among others.

Sticking with the underwriting side of the balance sheet, and Liberty Mutual expects net written premiums to reach $10 billion in Q1 2020. Ultimately, the firm’s Q1 net written premiums were not materially impacted by the outbreak, but moving forward, the company expects the pandemic to have a negative influence on premium growth.

It’s a similar message with the combined ratio, which Liberty Mutual anticipates to reach 97% at the end of the first-quarter of 2020. While in the first-quarter the COVID-19 outbreak did not have a meaningful impact on the combined ratio, in both the second and third quarters of the year, Liberty Mutual sees this impact as growing as the global situation evolves.

“As we face this unprecedented time, our heartfelt thanks go out to healthcare and other essential workers, and we extend our deepest sympathies to those most impacted by the pandemic.

“Our top priority as a company has been the health and well-being of our employees, customers, partners and the communities where we live and work. As such, we have mobilized virtually all our employees to work from home, while continuing to provide top-tier service to our customers and have announced premium refund programs for our personal auto and small commercial policyholders to provide some relief in these difficult times,” said Long.

Liberty Mutual is scheduled to report its first-quarter 2020 financial results on the 14th of May, 2020.

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