A.M. Best Comments on Liberty Mutual's Acquisition; Assigns Debt Ratings.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--May 23, 2003 A.M. Best Co. has announced the current financial strength and debt ratings of the Liberty Mutual Insurance Companies (Liberty Mutual) (Boston) remain unchanged following its announcement regarding the acquisition of Prudential Financial Inc.'s (NYSE NYSE See: New York Stock Exchange : PRU PRU Prudential Financial PRU Pupil Referral Unit PRU Photographic Reconnaissance Unit PRU Potomac Rugby Union (Washington, DC) PRU Provincial Reconnaissance Unit PRU Projets de Rénovation Urbaine PRU Pruhonice ) (Newark, NJ) U.S. property/casualty operations in 47 states--excluding New Jersey, specialty auto and affinity businesses--for approximately $540 million. Concurrently, A.M. Best has assigned an indicative rating of "bbb" to $413 million of seller notes to be issued by Liberty Mutual Group, Inc., the direct parent of Liberty Mutual Insurance Company, to Prudential Financial. The three seller notes mature in five and ten year tranches Tranches A piece, portion or slice of a deal or structured financing. This portion is one of several related securities that are offered at the same time but have different risks, rewards and/or maturities. "Tranche" is the French word for "slice". and will rank pari passu [Latin, By an equal progress; equably; ratably; without preference.] Used especially to describe creditors who, in marshalling assets, are entitled to receive out of the same fund without any precedence over each other. PARI PASSU. By the same gradation. with Liberty Mutual Group's senior unsecured obligations. On March 7, 2003, A.M. Best downgraded Liberty Mutual's financial strength rating to A (Excellent) from A+ (Superior). A.M. Best also assigned a senior debt rating of "a-" to Liberty Mutual's medium term notes, an AMB-1 rating for commercial paper issued by Liberty Mutual Capital Corporation as well as a "bbb+" rating for surplus notes issued by Liberty Mutual Insurance Company. This acquisition, which gives Liberty Mutual a potential $1.0 billion book of personal auto and homeowners renewals, is consistent with the group's strategy to diversify its product offerings by efficiently expanding its personal lines segment. With a long-term distribution agreement in place, Liberty Mutual will also have access to Prudential Financial's captive agency force. Due to the increased diversification of Liberty Mutual's operations and hard market conditions, A.M. Best anticipates that the acquisition will strengthen the group's earnings potential over the next few years. With strong premium rate increases across all lines in 2002, cash flow has also improved considerably across all business units, and policyholder Policyholder An individual who owns an insurance policy. retention remains strong. However, in recent years, significant reserve charges have weakened weak·en tr. & intr.v. weak·ened, weak·en·ing, weak·ens To make or become weak or weaker. weak  en·er n. overall capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. and dampened earnings. A.M. Best continues to
have concerns regarding reserve adequacy, particularly on older
workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. claims and unfunded asbestos asbestos, mineralasbestos, common name for any of a variety of silicate minerals within the amphibole and serpentine groups that are fibrous in structure and more or less resistant to acid and fire. liabilities. Stability of capitalization remains exposed to potential unrealized investment losses or adverse loss reserve development, which could lead to downward rating pressure. Accordingly, the outlook for all debt and property/casualty financial strength ratings remains negative. For a complete listing of Liberty Mutual Insurance Companies' financial strength and debt ratings, please visit http://www.ambest.com/press/052302libertymutual.pdf. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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