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Liberty Mutual CEO: Rate hikes not yet catching up to higher liability costs

Swelling court verdicts and medical cost inflation contributed to the trends that drove up losses for Liberty Mutual Holding Co. Inc.'s commercial business lines in the second quarter.

Some of the liability developments that added to costs for Liberty Mutual caught the insurer off guard because they are exceeding their historical trend lines, Chairman and CEO David Long said during a conference call to discuss earnings.

The insurer's loss trends have been consistent with what the rest of the industry is seeing, Long said. Clientele in the market have been receptive to higher premium rates, but price increases have yet to catch up with expenses.

"The problem is, even though we're getting pretty good price, the trends remain elevated," the CEO said.

Those higher losses have been relatively recent, driven in part by higher-than-expected court verdicts and medical inflation, though theories around the industry vary about what is behind the overall escalation, Long said. Liberty Mutual believes its rate hikes will eventually catch up to the costs, but it will take longer than normal for that to happen, Long said.

Along with general liability, commercial auto continues to run into profitability challenges, executives said.

One area of concern in general liability, where the company has been increasing rates to cover heightened losses, has been some surprising response in the market, Long said. Where Liberty Mutual loses customers from rate increases, it has lost out to smaller regional insurers that the company has not historically considered competitors, the CEO said.

Since the company recognized the loss trends in the third quarter of 2018, it has done some re-underwriting for its book of business, reduced some areas of coverage, brought down capacity on some excess lines and abandoned some programs that the company does not believe can reach profitability soon enough, said Dennis Langwell, president of the company's global risk solutions business.

Litigation financing, in which a third party funds lawsuit expenses, has also been extending the life and cost of some legal claims, Langwell said. The company expects that trend to continue.

"That's a major factor that's going to be something we continue to monitor as we look at loss ratios," Langwell said.