Liberty Mutual Group chairman and CEO David Long said Liberty Mutual Holding Company (LMHC) and its subsidiaries had “a strong year” in 2018, producing “solid earnings” of $2.16 billion and strengthening its capital position following the sizeable catastrophe losses of 2017.
LMHC recently issued its 2018 fourth quarter (Q4) and full-year results. The company reported consolidated net income from continuing operations of $251 million in Q4, up $98 million from $153 million in the prior year quarter. Long attributes this improvement to higher net investment income – including partnerships, LLC, and other equity method income – as well as favorable prior year developments.
“These items were partially offset by realized losses in Q4 2018 versus realized gains in Q4 2017, in addition to higher net catastrophe losses in the fourth quarter of 2018, including around $260 million from Hurricane Michael and $300 million from the California wildfires,” Long explained. “Due to the more material gross catastrophe losses in 2017, and how our aggregate cover responded, we saw greater reinsurance recoveries in the fourth quarter of 2017, leading to higher net catastrophe losses quarter over quarter in 2018.”
Net written premium for the three months ending December 31, 2018, was $9.4 billion, up by $545 million or 6.2% from the prior year quarter. Global Retail Markets (GRM) and Global Risk Solutions (GRS) both contributed to this growth, with the most notable gains coming from GRS.
Within GRM, net written premium for the quarter was $6.6 billion, up 2.9% versus the prior year quarter. This was largely driven by Q4 rate improvement in the US, where private passenger auto rate was up 6.5%, homeowners’ rate was up 3.4%, and business lines were up 6.3%. The GRM combined ratio was 97.3% in the quarter, a 10.3% improvement from the prior year quarter.
“GRM’s pre-tax operating income in Q4 of 2018 was $626 million, a considerable improvement from a pre-tax operating loss of $71 million in Q4 of 2017,” Long added. “The improvement was a result of lower catastrophe losses, improved core underwriting margins in US personal lines, as well as favorable prior year development on some unfavorable prior year re-estimation we did in 2017 that did not recur.”
Within GRS, Q4 top line growth was strong at 11.7%, bringing the net written premium in the quarter up to $2.8 billion. This growth primarily came from favorable rate and new business within specialty insurance (which grew at 15.4%) and reinsurance (which grew at 17.6%). Renewal rates for GRS in the fourth quarter came in at 3.5%, with positive rate in nearly all lines apart from workers’ compensation.
However, the GRS unit was hit hard by the catastrophes in Q4 of 2018, notably Hurricane Michael and the California wildfires. It reported a pre-tax operating loss of $103 million in Q4 versus a pre-tax operating income of $30 million in Q4 of 2017. The GRS combined ratio was 111.7% in the quarter, up from 105.8% in the prior year quarter, largely driven by an elevated catastrophe ratio of 9.5%, an increase of 5.9%.
“All in all, we had an OK fourth quarter which rounded out a strong year,” Long commented. “Following the sizeable catastrophe losses of 2017, we produced solid earnings and further strengthened our capital position. Looking to 2019, we plan to continue this positive momentum, focusing on improving operating results, particularly within GRS North America commercial and specialty, and improving growth in GRM.”
