For Liberty CEO, actions = words

Ted Kelly, CEO of Liberty Mutual, tells us what he really thinks:

I think insurance stocks stink . . .Until there is some common sense in commercial pricing, we don’t think insurance stocks will be fairly valued.

That was National Underwriter’s takeaway from the company’s earnings release Thursday.

So I’ve built a chart of combined ratios from the Q4 management discussion and analysis (pdf from this web location):

Commercial casualty - get it?

As the chart shows, the company is booking 101.3% for the year, a sliver above 2009. International and personal lines hold fairly steady from a year earlier (100% and 95% respectively). The outlier here is commercial business, up to 110.9%. (Liberty Mutual Agency Corp – independent agents, split about 50-50 between personal and commercial – also rose, but remained below 100% combined.)

Meanwhile, Kelly told Bloomberg News inflation could be between 8% and 9% in three or four years. Consistent with that, the company has been shortening the duration – the average time to maturity – of its bond portfolio. To keep investment income up, it’s letting the quality of its paper slip a tiny bit. Investment in investment grade securities fell to 89% of its portfolio at year end, from 92%, per this chart from p. 37 of the MD&A:

A little slip

So here’s a man who puts his money where his mouth is.


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