Liberty Mutual cedes over $1.23bn of cat losses to reinsurers

Insurance giant Liberty Mutual ceded $1.234 billion of catastrophe losses to its reinsurance providers after the major catastrophe losses of 2017, which helped the firm to reduce its pre-tax catastrophe loss tally for the year to $3.6 billion.

Liberty Mutual reported that just $17 million of net income for the full-year 2017, as catastrophe losses wiped out much of its profits, down $989 million on the prior year.

David H. Long, Liberty Mutual Chairman and Chief Executive Officer, commented on the results, “For the year, we reported net income of $17 million, versus $1 billion in 2016, driven by record catastrophes, adverse development on commercial automobile, and the charge associated by the change in the tax law.”

After reinsurance, catastrophe losses totalled $3.6 billion for the year and $450 million for the fourth-quarter, both significantly higher than prior years.

As a result, Liberty Mutual’s combined ratio came in at 105.6% for the full-year and 100.5% for Q4.

The impacts of catastrophe loss events would have been significantly greater, were it not for Liberty Mutual’s robust reinsurance program, which came into its own in 2017.

Liberty Mutual made significant reinsurance recoveries during the year, to help it pay catastrophe claims, resulting in the insurer ceding $1.234 billion of its losses to reinsurance partners over the course of 2017. Some of that is likely to have been ceded to third-party capital and capital markets investors.

Alongside the claims already ceded to reinsurance, Liberty Mutual has recorded a significant increase in reinsurance recoverables during the last year, saying that it recorded a $3.386 billion increase in reported reinsurance recoverables, which includes the cessions of catastrophe related loss activity primarily due to the California wildfires and Hurricanes Harvey, Irma, and Maria.

But the impact of the major catastrophe losses is now resulting in some price increases in core business areas for Liberty Mutual.

Long explained, “While the results in 2017 did not meet expectations, we are encouraged by signs of market firming across each of our businesses.”

As we reported previously, but please note this remains unconfirmed at this time, sources said that Liberty Mutual’s collateralised reinsurance sidecar was set to take its share of the 2017 catastrophe loss events.

Sources had said that Liberty Mutual’s reinsurance sidecar vehicle, Limestone Re Ltd., could have been completely wiped out by the insurers losses from hurricanes Harvey, Irma and Maria. The California wildfire losses may also have been covered by the protection Limestone Re provides. But no confirmation has been forthcoming on this to-date.

Reinsurance provisions have played a significant role in helping large primary insurers, like Liberty Mutual, to manage their exposure to the major losses of 2017 and minimise the impact to their balance-sheets and shareholders.

With many of these insurers increasing the size of their programs in response to the 2017 catastrophes, particularly their aggregate coverage arrangements, reinsurance capital is likely to find its role as a balance-sheet buffer increasingly important over the coming years.