Liberty Mutual Posts $427 Million Loss on Venezuela, Energy

  • U.S. insurer plans to discontinue Venezuelan operations
  • Venezuelan losses driven by inflation, devalution of currency

Liberty Mutual Holding Co., the second-largest U.S. property-casualty insurer, posted its worst loss in at least a decade on costs tied to scaling back operations in Venezuela and the declining value of some energy-related investments.

The loss of $427 million compares with a profit of $605 million in the same period last year, Boston-based Liberty Mutual said in a statement on its website Wednesday. The insurer took a $690 million impairment charge on its Venezuelan operations and plans to classify them as discontinued and held for sale, according to the statement.

Losses in Venezuela have been driven by the nation’s soaring inflation and devaluation of the currency, company management said in an August earnings call. Liberty Mutual Chairman and Chief Executive Officer David H. Long said he estimated annual inflation of 140 percent in June. Venezuela hasn’t published inflation statistics in a year.

“Our continuing strong operating performance was masked in the third quarter by a nonrecurring loss of approximately $700 million from the deconsolidation of our Venezuelan subsidiary and energy investment-related losses,” Long said in Wednesday’s statement.

Bolivar’s Decline

The bolivar has tumbled 80 percent on the black market this year, and is valued at about 16 U.S. cents. While Liberty Mutual books its holdings in Venezuela at the so-called sicad rate of 13.5 per dollar, the company has become increasingly wary of its ability to do so going forward, it said in a separate statement on Wednesday.

Marking to the so-called simadi rate, which has been adopted by some other international companies, would imply a devaluation of 93 percent. These conditions, which the company says are unlikely to change soon, have made it difficult for Liberty Mutual to retain control over its local operations, it said in the statement.

The insurer has reached a deal for the sale of Seguros Caracas de Liberty Mutual to Venezuelan investor Humberto Gil, the owner of Grupo Fidens, Richard Angevine, a spokesman for the U.S. insurer, said in a statement that didn’t disclose terms.

Oil Slump

The outlook for local units of international companies in Venezuela has dimmed amid plunging prices for crude oil. Energy assets accounted for about 4.1 percent of Liberty Mutual’s portfolio as of Sept. 30, including bond and natural-resources partnerships. The insurer also has direct investments in oil and gas wells. Oil is trading near the lowest in six years.

Liberty Mutual’s third-quarter loss was the deepest since at least 2004. It compares with a $234 million loss in the fourth quarter of 2012, which was driven by Superstorm Sandy. Data before 2004 wasn’t immediately available.

Liberty Mutual and larger rival State Farm Mutual Automobile Insurance Co. are each owned by policyholders.

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