OREANDA-NEWS. June 10, 2015. Fitch Ratings has affirmed Liberty Mutual Group Inc.'s (LMG) Issuer Default Rating (IDR) at 'BBB'. Additionally, Fitch has affirmed LMG's insurance operating subsidiaries' (collectively referred to as Liberty Mutual) Insurer Financial Strength (IFS) ratings at 'A-'. The Rating Outlook is Stable for all ratings. (A full list of rating actions follows at the end of this release.)

KEY RATING DRIVERS
LMG's ratings are based on the company's established and sustainable positions in its chosen markets, benefits derived from the company's multiple distribution channels, adequate capitalization and financial performance.

LMG's consolidated GAAP calendar year combined ratio for the first quarter of 2015 was 97.1% and 97.5% for full-year 2014, an improvement over the full-year 2013 ratio of 99.7%. Results in 2014 improved despite an increase in catastrophe losses, representing 4.8% of earned premium, up from 3.9% in 2013. Liberty Mutual traditionally generates weaker underwriting results relative to higher rated peers, but this differential has moderately narrowed in recent years, particularly on an accident year basis.

LMP reported modest favorable reserve development of \\$45 million in 2014 which had a negligible impact on the 2014 calendar-year combined ratio. This experience contrasts favorably with three consecutive years of slightly adverse reported reserve development from 2012-2014

LMG's capital position provides an adequate cushion against the operational and financial risks the company faces, but capital ratios are less favourable relative to peers. At year-end 2014, LMG's ratio of GAAP net property/casualty written premium to shareholders equity was considerably higher than peers at 1.7x but an improvement over prior years 1.8x.

Liberty Mutual's Prism score was 'Adequate' based on year-end 2013 financials, and Fitch anticipates that full-year 2014 are likely to improve, largely as a result of Liberty Mutual's 9.6% reported increase in statutory policyholders surplus to \\$19.2 billion in 2014. Liberty Mutual's Prism results will also likely be positively affected by lower operating and reserve leverage. An improvement under this measure of capital could be a catalyst for future positive rating actions.

LMG's financial leverage ratio at Mar. 31, 2015 was 28.5%, up from 28.4% at the prior year-end. GAAP fixed charge coverage improved to 8.1x in 2014 compared to 6.9x at the prior year-end.

RATING SENSITIVITIES
Key rating triggers that could lead to an upgrade include:

--Maintenance of improved performance in underwriting results with a combined ratio of approximately 103% or better on both an accident and calendar year basis;
--A sustained Prism score of 'Strong' category or higher.
--Financial leverage ratio below 25%.
--Continued favorable reserve development and stability in reserve position.

Key rating triggers that could lead to a downgrade include:

--A return to accident year underwriting losses that trail large multi-line peers by significant margin;
--Material weakening in the company's current reserve position, potentially indicated by a period of multiple years of unfavorable reserve development greater than 5% of prior year equity;
--Failure to maintain a fixed charge coverage ratio of 5.0x;
--A large acquisition that unfavourably changes the operating profile or is financed in a manner that adds balance sheet risk through a financial leverage ratio of 35% or higher.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

Liberty Mutual Group, Inc.
--IDR at 'BBB' Outlook Stable;
--\\$249 million 6.7% notes due 2016 at 'BBB-';
--\\$600 million 5.0% notes due 2021 at 'BBB-';
--\\$750 million 4.95% notes due 2022 at 'BBB-';
--\\$1 billion 4.25% notes due 2023 at 'BBB-';
--\\$3 million 7.625% notes due 2028 at 'BBB-';
--\\$231 million 7% notes due 2034 at 'BBB-';
--\\$471 million 6.5% notes due 2035 at 'BBB-';
--\\$19 million 7.5% notes due 2036 at 'BBB-';
--\\$750 million 6.5% notes due 2042 at 'BBB-';
--\\$1,050 million 4.85% notes due 2044 at 'BBB-';
--\\$300 million 7% junior subordinated notes due 2067 at 'BB';
--\\$700 million 7.8% junior subordinated notes due 2087 at 'BB';
--\\$255 million 10.75% junior subordinated notes due 2088 at 'BB'.

Liberty Mutual Group, Inc.
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.

Liberty Mutual Insurance Co.
--IDR at 'BBB+' Outlook Stable;
--\\$140 million 8.5% surplus notes due 2025 at 'BBB';
--\\$227 million 7.875% surplus notes due 2026 at 'BBB';
--\\$260 million 7.697% surplus notes due 2097 at 'BBB'.

Ohio Casualty Corporation
--IDR at 'BBB' Outlook Stable;
Fitch has affirmed the IFS of the members of Liberty Mutual Second Amended and Restated Intercompany Reinsurance Agreement at 'A-' with a Stable Outlook:

--America First Insurance Company
--America First Lloyd's Insurance Company
--American Economy Insurance Company
--American Fire and Casualty Company
--American States Insurance Company
--American States Insurance Company of Texas
--American States Lloyds Insurance Company
--American States Preferred Insurance Company
--Bridgefield Casualty Insurance Company
--Bridgefield Employers Insurance Company
--Colorado Casualty Ins. Company
--Consolidated Insurance Company
--Employers Insurance Company of Wausau
--Excelsior Insurance Company
--First National Insurance Company of America
--General Insurance Company of America
--Golden Eagle Ins. Corporation
--Hawkeye-Security Insurance Company
--Indiana Insurance Company
--Insurance Company of Illinois
--Liberty County Mutual Insurance Company
--Liberty Insurance Corporation
--Liberty Insurance Underwriters Inc.
--Liberty Lloyds of Texas Insurance Company
--Liberty Mutual Fire Insurance Company
--Liberty Mutual Insurance Company
--Liberty Mutual Mid-Atlantic Insurance Company
--Liberty Mutual Personal Insurance Company
--Liberty Personal Insurance Company
--Liberty Surplus Insurance Corporation
--LM General Insurance Company
--LM Insurance Corporation
--LM Property and Casualty Insurance Company
--Mid-American Fire & Casualty Company
--Montgomery Mutual Insurance Company
--National Insurance Association
--Ohio Security Insurance Company
--Peerless Indemnity Insurance Company
--Peerless Insurance Company
--Safeco Insurance Company of America
--Safeco Insurance Company of Illinois
--Safeco Insurance Company of Indiana
--Safeco Insurance Company of Oregon
--Safeco Lloyds Insurance Company
--Safeco National Insurance Company
--Safeco Surplus Lines Insurance Company
--The First Liberty Insurance Corporation
--The Midwestern Indemnity Company
--The Netherlands Insurance Company
--The Ohio Casualty Insurance Company
--Wausau Business Insurance Company
--Wausau General Insurance Company
--Wausau Underwriters Insurance Company
--West American Insurance Company

Fitch has affirmed the IFS of the following companies that participate in a 100% quota share at 'A-' with a Stable Outlook:

--Liberty Northwest Insurance Corporation
--North Pacific Insurance Company
--Oregon Automobile Insurance Company