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05 Dec 2016
Pending acquisition of Ironshore Inc. for $3 billion.
New York, December 05, 2016 -- Moody's Investors Service has affirmed the Baa2 senior debt rating
of Liberty Mutual Group, Inc. (Liberty) and the A2 insurance
financial strength (IFS) ratings of its primary property and casualty
insurance subsidiaries, following today's announcement that
Liberty has agreed to acquire the outstanding shares of Ironshore Inc.
for approximately $3 billion in cash from Fosun International Limited,
subject to closing price adjustments. The transaction is expected
to close in the first half of 2017 subject to regulatory approvals in
various jurisdictions. The rating outlook for Liberty Mutual is
In affirming Liberty Mutual's ratings, Moody's said
that the proposed acquisition of Ironshore has strategic benefits for
Liberty as it would significantly expand Liberty's global specialty
operations, particularly in the US excess and surplus (E&S)
lines market. Ironshore is the 10th largest E&S writer and
would provide Liberty with additional specialty underwriting and distribution
capabilities and earnings potential. However, Moody's
views the transaction overall as credit negative, given expected
increases in operational leverage when considered relative to tangible
capital (excluding goodwill), coupled with marginally higher catastrophe
risk. The acquisition also carries integration and execution risk,
and incrementally raises Liberty's underwriting and reserving risk
profile, given the somewhat long-tail and intrinsically volatile
nature of Ironshore's business. Ironshore's management
is expected to remain following the close of the transaction.
According to Moody's, Liberty Mutual's ratings are based
on the company's solid market position in commercial and personal
lines insurance as one of the largest property & casualty insurance
groups in the US, with a significant international presence.
Other credit strengths include the breadth of its product and distribution
platforms and good asset quality. These strengths are tempered
by the group's elevated operational and financial leverage,
exposure to catastrophe losses, and potential adverse reserve development
on its long-tail casualty lines (moderately mitigated by a retroactive
reinsurance arrangement for workers' compensation and asbestos and
environmental (A&E) reserves). Another credit concern is the
parent company's access to debt-only capital, which
we believe constrains financial flexibility in the capital-intensive
and often volatile P&C insurance sector.
Factors that could lead to an upgrade for Liberty Mutual include the following:
1) gross underwriting leverage consistently below 4x; 2) further
improvement in adjusted financial leverage (below 25%, and
below 30% relative to tangible capital); and 3) sustained
strong earnings and internal capital generation. Factors that could
lead to a downgrade for Liberty Mutual include the following: 1)
consolidated gross underwriting leverage above 6.5x (adjusted for
certain reinsurance balances); 2) adjusted financial leverage above
35% (or 45% relative to tangible capital given significant
acquisition-related goodwill intangibles); 3) pre-tax
operating returns on capital averaging below 5%; and/or 4)
a decline in policyholders' equity capitalization by more than 10%
as a result of operating or realized investment losses.
The following ratings have been affirmed:
- Liberty Mutual Group Inc.: backed senior unsecured
debt at Baa2; backed junior subordinated debt at Baa3 (hyb);
backed commercial paper at Prime-2 (guaranteed by Liberty Mutual
- Liberty Mutual Insurance Company: insurance financial strength
at A2; surplus notes at Baa2 (hyb); long-term issuer
rating at Baa1;
- Liberty International Underwriters Pte Ltd: insurance financial
strength at A3
Insurance financial strength ratings at A2 for other members of the Liberty
Mutual and affiliated intercompany pool, including the following:
-First Liberty Insurance Corporation
-First National Insurance Co. of America
-General Insurance Co., America
-Insurance Company of Illinois
-LM Insurance Corporation
-Liberty Insurance Corporation
-Liberty Insurance Underwriters, Inc.
-Liberty Mutual Fire Insurance Company
-Liberty Surplus Insurance Corp
-Ohio Casualty Insurance Company
-Ohio Security Insurance Company
-Peerless Insurance Company
-Safeco Insurance Co. of America
-Safeco Insurance Co. of Illinois
-Safeco National Insurance Co.
-Wausau Business Insurance Company
-Wausau General Insurance Company
-Wausau Underwriters Insurance Co.
-West American Insurance Company
-American Economy Insurance Co.
-American Fire and Casualty Company
-American States Insurance Co.
-American States Preferred Insurance Co.
-Employers Insurance Company of Wausau
Based in Boston, Massachusetts, Liberty Mutual Group is a
diversified international group of insurance companies. The group
provides a wide range of insurance products and services in the US,
and internationally, including in Europe and the Lloyd's market,
Latin America, and the Asia-Pacific region. For the
first nine months 2016, Liberty Mutual Group had revenue of $28.6
billion and net income of $863 million. As of 30 September
2016, the company reported consolidated assets of $128 billion
and total equity of $21.7 billion.
The principal methodology used in these ratings was "Global Property and
Casualty Insurers" published in June 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jasper Cooper, CFA
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Marc R. Pinto, CFA
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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