Near-record catastrophe losses in the first half of the year have prompted a rethink around Liberty Mutual Insurance’s gross writing strategy and pricing, but not its reinsurance, according to the insurance giant’s chief financial officer.
“As always, we will evaluate what we think are the most effective structures and what’s available in the market, both in terms of capacity and pricing,” Liberty Mutual CFO Chris Peirce told analysts during Liberty Mutual’s Q2 2023 results presentation late last week.
“But at this point, we’re not seeing any activity that’s causing us to rethink the effectiveness of our reinsurance structures.”
Liberty Mutual Holdings saw its Q2 net loss swell to $585 million compared to $343 million in the same period last year. Catastrophe losses, particularly from severe wind and hail events in Oklahoma, Texas, and Colorado, more than doubled to $2.27 billion from $1.1 billion.
The combined ratio for Q2 2023 sat at 109.4%, an increase of 3.8 points compared to Q2 2022.
More reinsurance isn’t the answer to elevated cat activity, Peirce stressed.
“I don’t think reinsurance is the solution, and I can tell you, the reinsurers don’t think so either,” he said.
“If you tried to solve it that way, it will end up being very expensive and not the right answer. That’s something we must address through gross underwriting, including pricing and underwriting actions.
Aside from cat losses, “challenging macro trends” from last year that carried over into 2023 also adversely impacted the property & casualty insurer’s performance.
“We're actively navigating the prolonged loss cost pressures through rate actions, tightened underwriting and reduced media spend to slow new policy growth in our most profit challenged markets,” said Hamid Mirza, president of global retail markets (GRM), which encompasses Liberty Mutual’s personal and small commercial business.
“However, historically severe catastrophes have presented additional challenges to our profitability in the second quarter. Our singular focus is to restore profitability over the second half of the year and heading into 2024.”
GRM’s combined ratio in the quarter was 113.9%, up 4.6 points from the prior year quarter.
Additionally, continued monetary inflation and legal system abuse also contributed to pressures, according to Liberty Mutual president and CEO Tim Sweeney. The CEO said Liberty Mutual would seek to achieve “the necessary rate” to combat elevated loss trends.
“Inflationary pressures, particularly in personal auto and property, have not eased to the degree we anticipated, emphasizing the need to be more selective in our underwriting,” he said.
Last month, Liberty Mutual Insurance announced it would discontinue its business owner policies in California beginning in the fall, and would now renew current policies after December.
Sweeney addressed several recent actions by Liberty Mutual to drive up profitability following a comprehensive review of its operations.
Liberty Mutual’s GRM US segment is set to become a standalone business called US retail markets. The new unit will be led by Mirza.
The restructuring led to around 370 jobs being cut across the US, effective as of September.
US retail markets will be exclusively focused on personal and small commercial lines in the US, “sharpening our focus on our most important, mature market,” Sweeney added.
At the same time, Liberty Mutual is also homing in on Asia Pacific as a “key region poised for strong profitable growth.” The company is moving its GRM east operations into its global risk solutions (GRS) division and renaming it Asia retail markets.
“This realignment will allow us to combine and leverage our strongest enterprise capabilities to drive success in that region,” said Sweeney. “I'm excited for the future and believe that these operational changes will position us for sustainable success.”
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