Liberty Mutual '16 FY profit up but motor hits Q4, Ironshore deal on track

US-based property/casualty insurer Liberty Mutual Holding Company reported attributable net income of $1.01 billion for 2016, an increase of $492 million versus the same period in 2015.

Attributable net income in the fourth quarter was down by $268 million year-on-year at $143 million.

“Fourth quarter operating income was $359 million, down from $525 million in the prior year, primarily due to elevated loss trends within US personal and commercial auto liability,” said David Long, chairman and CEO in a statement.

“Full year net income nearly doubled to just over $1 billion despite higher catastrophe losses and the auto trends. Growth remained healthy, with net written premium up 6 percent in the quarter and 3 and a half percent for the year.”

Liberty Mutual is in the process of acquiring Bermuda-based property/casualty insurer Ironshore.

China’s biggest conglomerate Fosun had acquired the remaining 80 percent stake in Ironshore but has grappled with the way in which rating agency AM Best has viewed the deal, specifically the high level of debt leverage it ended up with.

In December 2016 Liberty Mutual unveiled plans to acquire a 100 percent ownership interest in Ironshore via a stock purchase agreement believed to be worth around $3 billion pending closing price adjustments.

“Ironshore, and their accomplished management team, will bring additional scale, expertise, innovation and market relationships to our existing Global Specialty business, and will solidify our position as a leader in the specialty space,” Long said.

The transaction is expected to close in the first half of 2017 pending regulatory approvals and customary closing conditions.

After the deal announcement in December, S&P had noted that the deal could boost the market position of Liberty Mutual in certain strategic markets.

“We recognise that Ironshore could elevate Liberty Mutual's presence in the US excess-and-surplus-lines market, and the acquisition is consistent with the group's long-term strategy to increase its specialty bandwidth. We expect Ironshore's management team to remain intact with minimal defections and moderate expense savings,” said S&P Global Ratings credit analyst Tracy Dolin.

Meanwhile, AM Best said that the modest size of the transaction, along with Ironshore’s historical profitability, limits any execution and integration risks associated with the pending acquisition. The proposed transaction will also not be subject to any financing conditions.

“In addition to an established management team, with a successful track record within specialty lines, the deal provides Liberty Mutual’s specialty lines operations with enhanced scale, diversification, distribution and capabilities. Liberty Mutual has been focusing on growing its specialty lines operations and capabilities and this transaction helps to accelerate those aspirations,” AM Best said.

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