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Liberty Mutual's reserve strengthening drove industrywide loss ratio up in Q3

Reserve strengthening in the commercial auto line of a single insurer during the third quarter drove the industrywide loss ratio up almost five percentage points, compared with the previous year.

The action taken by Liberty Mutual Holding Co. Inc. sent the industrywide loss ratio to 75.35% compared to 70.74% during the same period a year ago. Excluding Liberty Mutual, the loss ratio would have been 69.43%, according to an S&P Global Market Intelligence analysis.

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The insurer added $400 million in additional reserves from the prior year, Liberty Mutual Chairman and CEO David Long said during a third-quarter earnings call, according to a transcript. That reserve strengthening contributed to Liberty Mutual's loss ratio of 188.34% for the quarter.

Even without the reserve development, the deterioration of Liberty Mutual's loss ratio outpaced its premium growth. It earned $331.9 million in direct premiums for the quarter, a year-over-year increase of 8.31%. But its loss ratio excluding the reserve development grew to 66.62%, up from 54.01% in the same quarter last year.

Long expressed concern for the company's profitability in the commercial auto business during the earnings call. Liberty Mutual will "continue to push rate in commercial," he said.

Across the industry, commercial auto premiums grew during the quarter. Insurers recorded direct earned premiums of $6.68 billion, up 8.28% year over year. The 30 largest insurers, which account for about 70% of the industry's total premiums, grew their direct premiums earned 7.64% year over year to $4.67 billion for the quarter.

Six out of top 30 commercial auto insurers Nationwide Mutual Group, American International Group Inc., Chubb Ltd., The Hartford Financial Services Group Inc., W. R. Berkley Corp. and Allstate Corp. saw declines in their year-over-year premiums earned. Nationwide Mutual dropped to fourth place in the third quarter compared to the prior-year period, while AIG slipped two positions to eighth after its premiums declined 23.56% on a year-over-year basis.

The highest year-over-year growth was registered by James River Group Holdings Ltd. at 106.11%, which allowed the group to join the largest commercial auto insurers in the quarter.

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SNL offers a variety of tools to analyze underwriting performance of insurance companies. Click here for a template to review quarterly underwriting information for insurance companies.

Quarterly underwriting information by line of business is available in Parts 1 and 2 of the NAIC quarterly statements filed by U.S. insurance subsidiaries. This information is also available in the U.S. Insurance Statutory Financials database in SNLxl.