Fitch Rates Liberty Mutual's $750MM Debt Offering 'BBB-'

Fitch Ratings has assigned a 'BBB-' debt rating to Liberty Mutual Group Inc.'s (LMG) new $750 million issuance of 4.85% senior debt due 2044.

Fitch affirmed Liberty Mutual's ratings on April 8, 2014. For additional information, see Fitch's press release 'Fitch Affirms Liberty Mutual at 'BBB' & IFS at 'A-'; Outlook Stable'.

KEY RATING DRIVERS

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 help finance a previously announced adverse development cover with National Indemnity Company (NICO), for substantially all of Liberty Mutual's U.S. workers compensation, asbestos and environmental (A&E) liabilities.

Liberty Mutual's pro forma financial leverage as of March 31, 2014, including the additional debt, was 28.2% and on a tangible basis 34.9%.

Reported interest coverage was 7.4 times (x) as of March 31, 2014 and five year average from 2009-2013 was 3.6x. Fitch believes that GAAP fixed charge coverage will range in the mid-single digits over the near term.

RATING SENSITIVITIES

Key rating triggers that could lead to an upgrade include:

--Improved performance in underwriting results with a combined ratio of approximately 103% or better on both an accident and calendar year basis;

--A sustained improvement in Prism score to 'Strong' category or higher.

--Financial leverage ratio below 25%.

Key rating triggers that could lead to downgrade include:

--A return to accident year underwriting results that trail large multi-line peers by significant margin;

--Material weakening in LMG's current reserve position, as measured by a return to a period of multiple years of unfavorable reserve development greater than 5% of prior year equity;

--Failure to achieve a fixed charge coverage ratio of 5.0x over several years;

--Another large acquisition in the near term, especially if the balance sheet was weakened through increased financial leverage of 35% or higher.

Fitch has assigned a 'BBB-' to the following debt issues:

Liberty Mutual Group, Inc.

--$750 million 4.85% notes due 2044.

Additional information is available at 'www.fitchratings.com'.

THE ISSUER DID NOT PARTICIPATE IN THE RATING PROCESS OTHER THAN THROUGH THE MEDIUM OF ITS PUBLIC DISCLOSURE.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Nov. 13, 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=841188

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