CHICAGO--(BUSINESS WIRE)--

Fitch Ratings has assigned a 'BBB-' debt rating to Liberty Mutual Group Inc.'s (LMG) new $600 million issuance of 4.25% senior debt due 2023. Additionally, Fitch has affirmed LMG's Issuer Default Rating (IDR) at 'BBB' and insurance operating subsidiaries' (collectively referred to as Liberty Mutual) Insurer Financial Strength (IFS) ratings at 'A-'. The Rating Outlook for all ratings is Stable. (A full list of rating actions follows at the end of this release.)

KEY RATING DRIVERS

The affirmation of 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 new debt issuance ranks equally with LMGI's existing and future unsecured senior indebtedness. Net proceeds from the offering are expected to be used to redeem upcoming maturing notes and for general corporate purposes.

Liberty Mutual's financial leverage as of March 31, 2013 was 28.3% and on a tangible basis 41.1%. The additional $600 million in debt will temporarily increase financial leverage, but with approximately $560 million in debt maturing in the next year the impact on long term financial leverage is negligible.

The new debt carries a lower coupon rate than maturing debt, promoting marginal interest coverage improvement. Interest coverage was 7.2 times (x) as of March 31, 2013 and five year average from 2008-2012 was 3.4x.

LMG's consolidated GAAP combined ratio for the three months ended March 31, 2013 was 98.3% an improvement over the 100.9% reported at March 31, 2012 and the 104.7% reported for full year 2012. A main driver of the improvement was reduced catastrophe losses, offset by a slightly higher expense ratio.

Over the past several years, the unfavorable margin in underwriting performance between Liberty Mutual and its property/casualty insurer peers has reduced particularly on an accident year basis. However, Liberty Mutual's underwriting results still lag those of higher rated peers.

Fitch believes that LMG's capital position provides an adequate cushion against the operational and financial risks the company faces, but capital metrics are weaker than most peers of its size and scale. In 2012, LMG's ratio of GAAP net written premium to adjusted shareholders equity was considerably higher than peers at 2.0x, an increase from 1.9x in 2011. A modest decline in adjusted shareholders equity in 2012 was driven by an increase in the pension liability, and several one-time charges related to debt extinguishment and restructuring charges offset by core operating earnings and realized investment gains.

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Fitch Rates Liberty Mutual's $600MM Debt Offering 'BBB-'