Inflation and Severe Weather Impact Earnings
Boston-based insurer Liberty Mutual (“Liberty”) reported a mixed bag in its third quarter 2023 earnings released last week, as the company battled inflationary pressures and severe weather events.
Liberty’s President and Chief Executive Officer, Tim Sweeney, broke down the numbers, highlighting a rebound into profit territory compared to a net loss in the same quarter of the previous year.
For the third quarter, Liberty’s net income hit $219 million, a reversal from the $353 million net loss in the same period last year. However, for the first nine months of 2023, Liberty posted a net loss of $441 million, wider than the $198 million loss in the first three quarters of 2022.
Underwriting Challenges from Inflation and Catastrophes
Behind the recovery in quarterly profits was Liberty’s property and casualty underwriting, which faced challenges from both inflation and storms. Hurricane Ian weighed heavily on the insurer’s catastrophe losses, which hit $1.1 billion in the quarter. That was down from the massive $1.4 billion in catastrophe claims a year ago, but it remained elevated.
At the same time, the combination of rising claims costs and premium hikes to cover those costs pushed Liberty’s key property-casualty combined ratio to 102.6% in the quarter. That measure of profitability improved markedly by 4.1% from last year’s third-quarter combined ratio of 106.7% but still shows a negative gap between premiums and payouts.
The global risk solutions division, covering commercial clients, fared better at 95.6% thanks to solid underwriting. However, Liberty said it continues to push for a 95% combined ratio target there.
Increase in net written premiums for 2023
Net written premium for the nine months ended September 30, 2023, was $35.152 billion, an increase of $537 million over the same period in 2022
For the three months ended September 30, 2023, the net written premium was $12.160 billion, an increase of $312 million over the same period in 2022
Pressure Points Across Business Lines
Drilling down into Liberty’s sprawling business lines highlights the pressure points. Its core U.S. retail market unit, which includes auto and home insurance, posted a combined ratio of 109.7 for the first nine months of 2023, versus 103.6% for the same period in 2022. Liberty attributed the increase to “inflation and severe weather impacting US personal lines.”
- In personal lines auto, the company reported elevated non-catastrophe losses driven by increased claims frequency and severity. This led Liberty to take targeted underwriting actions to address persistent severity and frequency trends.
- Private passenger automobile NWP decreased $186 million. The decrease reflects targeted actions to reduce new business growth and targeted underwriting actions to address persistent severity and frequency trends and higher ceded net written premium.
- For homeowners insurance, Liberty again saw high non-catastrophe losses stemming from elevated severit, and has pushed through rate hikes to counter rising severity trends
- Homeowners NWP increased $251 million. The increase reflects an increase in average written premium due to rate actions to offset rising personal lines severity and frequency trends and the acquisition of SAM.
Investment Income Lifts Results
The bright spot for Liberty was its investment portfolio, where higher interest rates lifted net investment income by 69% to $1.1 billion in the quarter from $662 million a year ago. That helped offset some of the challenges in its core underwriting franchise.
Outlook Focused on Rate Hikes
Looking ahead, Liberty said it is taking “aggressive rate and non-rate actions” in its U.S. retail unit, signaling more premium hikes to stem underwriting losses. The insurer also sees global risk solutions moving “toward its targets.”
With catastrophe losses difficult to predict and inflation still high, Liberty faces a bumpy road ahead. But its diverse franchise and sprawling investment portfolio should help it weather the challenges. Returns likely hinge on the success of its push to raise rates and tighten underwriting.
For more information
For more detailed financial information on Liberty Mutual’s Q3 2023 performance, visit its Investor Relations website at www.libertymutualgroup.com/investors. For more about the company, visit www.libertymutualinsurance.com.
About Liberty Mutual
In business since 1912 and headquartered in Boston, today Liberty Mutual is the fifth-largest global property and casualty insurer based on 2022 gross written premium. It ranks 86th on the Fortune 100 list of largest corporations in the U.S. based on 2022 revenue. As of December 31, 2022, it had $50.0 billion in annual consolidated revenue.
Liberty Mutual employs over 50,000 people in 29 countries around the world. It offers a wide range of insurance products and services, including coverages for personal automobiles, homeowners, specialty lines, reinsurance, commercial multiple-peril, workers’ compensation, commercial automobile, general liability, surety, and commercial property.