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Covid-19 similar to a moderately sized catastrophe loss: Liberty Mutual CEO


The impact of the Covid-19 pandemic to insurance and reinsurance group Liberty Mutual is expected to be similar to a “moderately sized catastrophe loss” according to the firms CEO David Long.

liberty-mutual-logoLiberty Mutual, the global primary insurance and also reinsurance underwriting company, gave an insight into how it expects to be affected by the Covid-19 coronavirus pandemic today.

Chairman and CEO of Liberty Mutual David Long explained, “While the pandemic is still evolving, from a financial perspective we expect the impact of COVID-19 on our insurance operations to be similar to those we have experienced for a moderately sized catastrophe loss.

“The areas of our business most exposed to insurance losses related to the pandemic and resulting economic downturn include trade credit, general liability, workers compensation, and event cancellation coverage, among others.”

None of these business lines are unexpected, as areas where a re/insurer the size of Liberty Mutual would find losses falling.

No mention of property business is perhaps telling, as most re/insurers are keen to avoid forecasting losses to that area of their business given how challenging it currently is to derive just how much in the way of claims to property lines may come through coverage for business interruption.

Liberty Mutual expects the biggest hit to its business will be on the investment side though.

Long explained, “We anticipate the larger impact from COVID-19 will come through our investment portfolio, where we have taken realized and unrealized losses caused by the recent market downturn. We expect our net investment income will be dampened in the coming quarters as well by lower valuations on our private equity investments, which are reported on a quarter lag and thus not recognized in our first quarter results.

“Our liquidity position remains excellent, with access to over $6 billion in total, not including current cash on hand of $1.4 billion. We are confident in the strength and resiliency of our operations to allow us to endure these uncertain times and continue to serve our customers.”

Providing an insight into its soon to be announced first-quarter 2020 results, the re/insurer said that it expects to report net written premiums of roughly $10 billion.

Liberty Mutual noted that Q1 net written premiums were not materially impacted by COVID-19, but the firm expects that the pandemic and the related economic downturn will dampen net written premium growth in future quarters.

A combined ratio of 97% is forecast for Q1, with losses from Covid-19 having a marginal impact on the quarters underwriting result, Liberty Mutual said.

However, the company warned, “We expect a more meaningful impact in the second and third quarters as the situation evolves and we continue to assess our potential exposure.”

Liberty Mutual’s shareholder equity has taken a hit due to the coronavirus pandemic, falling around 2% to roughly $23 billion since the beginning of 2020, the company said.

“The decline in equity is primarily driven by unrealized investment losses, as a result of the market fallout stemming from COVID-19,” it explained.

The re/insurer has not given any insight into the quantum of potential losses it expects from Covid-19 at this time, or whether it expects to make use of any reinsurance arrangements to offset the gross impact of coronavirus claims.

Of course, Liberty Mutual does have its collateralised reinsurance sidecar vehicle Limestone Re in play, but it’s not possible to forecast whether investors backing it could be on the hook for a share of the re/insurers losses.

Limestone Re adjusts the risks it assumes with each issuance of notes, it seems, ranging from U.S. and global catastrophe to property insurance or reinsurance business that has been underwritten by Liberty Mutual businesses and then ceded to investors on a quota share basis using the sidecar.

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