Liberty Mutual issued the results in its Fourth Quarter and Full Year Report
Net income attributable to the Liberty Mutual Holding Company, Inc. (“LMHC”) was down 70% for the year according to the company in its recent Fourth Quarter and Full Year Report for 2015.
Net income for the fourth quarter of 2015 was $411 million, a decrease of $142 million from the 2014 fourth quarter net income of $553 million.
The full year net income results for 2015, as compared to 2014, were more dramatic. In 2014, the company earned $1.8 billion in net income. However, in 2015, the company’s net income nosedived more than 70% to $514 million.
In a conference call explaining the $1.3 billion downswing in net income between 2014 and 2015 results, Liberty Mutual CEO, David Long, cited a number of adverse factors that affected the company’s profits, including, “higher catastrophe losses, foreign exchange and energy related losses.” However, Chairman Long stated that, “Full year operating income was $1.44 billion down from $1.94 billion in the prior year with net written premium up 0.6% or 3.6% on a constant dollar basis.”
Nonrecurring write off for Venezuela operations
In 2015, Liberty Mutual booked an approximately $700 million loss by classifying its Venezuela operations as “discontinued and held for sale.”
Liberty Mutual commenced operations there in 1995, through the purchase of a controlling interest in a major Venezuelan insurance company. The purchase had been facilitated by the Venezuelan government.
However, in 2015, the insurer decided to terminate its future involvement and sell, if possible, its subsidiary because of the hyperinflation and devaluations that have racked the country’s currency.
Venezuela is a major oil producer that has an economy that has been shattered by the plunge in crude oil prices and gross mismanagement of the economy by its government.
“It was a top quality, higher performing entity, which, due to the economic environment, could no longer be fully controlled and operated,” explained Chairman Long about the write-off of the Venezuelan subsidiary.
Fourth Quarter Highlights
The following are highlights that Liberty Mutual noted in its press release announcing its 2015 results:
- Net Written Premium for the twelve months ended December 31, 2015 was $34.533 billion, an increase of $201 million or 0.6% over the same period in 2014.
- Pre-tax operating income before partnerships, LLC and other equity method (loss) income for the twelve months ended December 31, 2015 was $2.026 billion, a decrease of $36 million or 1.7% from the same period in 2014.
- Partnerships, LLC and other equity method (loss) income for the twelve months ended December 31, 2015 was ($34) million, versus $641 million in the same period in 2014.
- Net realized losses for the twelve months ended December 31, 2015 were $24 million, a decrease of $76 million or 76.0% from the same period in 2014.
- Consolidated net income from continuing operations for the twelve months ended December 31, 2015 was $1.443 billion, a decrease of $382 million or 20.9% from the same period in 2014.
- Discontinued operations, net of tax for the twelve months ended December 31, 2015 were ($909) million versus ($35) million in the same period in 2014. Effective September 30, 2015, the Company determined it was appropriate to deconsolidate the Venezuelan operations, and has classified the Venezuelan operations as discontinued operations.
- Net income attributable to LMHC for the twelve months ended December 31, 2015 was $514 million, a decrease of $1.3 billion or 71.7% from the same period in 2014.
- Cash flow provided by operations for the twelve months ended December 31, 2015 was $3.543 billion, an increase of $2.913 billion over the same period in 2014.
- The consolidated combined ratio before catastrophes and net incurred losses attributable to prior years for the twelve months ended December 31, 2015 was 93.0%, an increase of 0.3 points over the same period in 2014. Including the impact of catastrophes and net incurred losses attributable to prior years, the Company’s combined ratio for the twelve months ended December 31, 2015 remained unchanged at 97.8%.
Created new Global Consumer Markets in February
This past February, the company also announced its plans to combine both its Personal Insurance and Liberty International strategic business units to form a new unit entitled Global Consumer Markets. The goal was to harness the complementary strength of each of these two units within the company. As the company outlined in its report:
The local expertise we have in growth markets outside the U.S. coupled with our strong and scalable U.S. personal lines capabilities put us in a unique position to take maximum advantage of opportunities to grow our business globally. The former Personal Insurance and Liberty International strategic business units will now be divisions of Global Consumer Markets and known as U.S. Consumer Markets and International Consumer Markets, respectively.
Personal lines growth through 20,000 affinity groups
According to the documents provided by the mutual insurance company, its Personal Insurance business unit had revenues of $17,036 in 2015. The revenue comprises two market segments: Personal Lines and Safeco.
Liberty Mutual’s Personal Lines products are currently distributed through approximately 2,200 licensed captive sales agents, along with more than 600 licensed telesales counselors, third-party producers and the Internet.
The company says the largest source of its new Personal Lines business, however, is through its more than 20,000 sponsored affinity groups (including employers, professional and alumni associations, credit unions, and other partnerships).
In turn, the company’s Safeco products are distributed nationally through its network of independent agents.
Growth from original creation in 1911 by the Massachusetts Legislature
Liberty Mutual was created in 1911, as “The Massachusetts Employees Insurance Association,” by an act of the Massachusetts Legislature. Its purpose was to provide workers’ compensation insurance for one of the first workers’ compensation systems in the United States.
Since then, the Boston-based company has morphed over the last century into a diversified global insurer and third largest property and casualty insurer in the U.S.
The Company ranks 78th on the Fortune 100 list of largest corporations in the U.S. based on 2014 revenue. LMHC, through its subsidiaries and affiliated companies, offers a wide range of property-casualty insurance products and services to individuals and businesses alike. LMHC employs more than 50,000 people in approximately 900 offices throughout the world