Liberty Mutual Holding Company

175 Berkeley Street
Boston, Massachusetts 02116-5066
U.S.A.
Telephone: (617) 357-9500
Fax: (617) 350-7648
Web site: http://www.libertymutual.com

Private Company
Incorporated: 1912 as Massachusetts Employees Insurance Association
Employees: 35,000
Total Assets: $55.87 billion (2002)
NAIC: 551112 Offices of Other Holding Companies

Liberty Mutual Holding Company is the holding company formed in 2002 by Liberty Mutual Insurance Company and affiliated companies as a way to better compete against stock-based insurers. The Boston-based company is composed of a diversified international group of insurance companies, ranked 129th on the 2003 Fortune 500 list of the largest U.S. corporations and boasting $56 billion in consolidated assets and $14.5 billion in consolidated revenue. The lion's share of the group's business is workers' compensation insurance, offered under several well-known brand names, such as Liberty Mutual and Wausau. Aside from offering insurance to businesses, Liberty Mutual also provides auto, home, life, and other insurance products to individuals in the United States and Canada. Liberty International offers insurance products around the world, including specialty casualty and casualty; marine, energy, and engineering insurance; and reinsurance. It is in the overseas markets that Liberty Mutual sees its greatest growth potential for the future.

Forming the Company in 1912

The history of Liberty Mutual is tied to the rise of workmen's compensation, now referred to as workers' compensation. According to scholars, the concept dates back as far as the days of Charlemagne, embodied in tribal laws. The first workers' compensation system was introduced in Germany in 1884, followed in 1897 by the first English Workmen's Compensation Act. In the United States some coverage was already being provided by private insurers, such as Lumbermen's Mutual Casualty Company, a Chicago firm devoted to lumberjacks. Early in the 20th century, workers' compensation laws were passed at both the state and federal level, which led to public backing for coverage. Maryland enacted a workers' compensation law as early as 1902, but two years later it was declared unconstitutional. The first law to pass muster in the United States was the Federal Employees Compensation Act of 1908. The first constitutional state law was passed in Wisconsin in 1911. Over the course of the next dozen years most of the states passed workers' compensation laws, although it would take until 1949 before the last state, Mississippi, enacted legislation.

In 1911 the Massachusetts Legislature passed a law mandating that employers provide workers' compensation. To meet this need, the forefather to Liberty Mutual was formed: The Massachusetts Employees Insurance Association (MEIA). It was formed by 15 executives as a mutual company, owned for the benefit of policyholders rather than stockholders, and began operations in Boston on July 1, 1912. From the beginning, the company took steps to provide safety measures for workers, not just provide payments once they were seriously injured or killed on the job. In 1912 some 20,000 U.S. workers lost their lives in accidents. The company advocated, and even helped to design, early machine guards to protect workers from such dangerous equipment as woodworking machinery, power presses, press brakes, milling machines, and drill presses. MEIA opened its first branch office in Springfield, Massachusetts, in 1914 and looked to diversify its offerings but was limited by law to liability coverage. Instead, it forged an alliance with the United Mutual Fire Insurance Company, a mutual fire insurance company chartered by Massachusetts in 1908. It would one day change its name to Liberty Mutual Fire Insurance and eventually become one of the components of Liberty Mutual Holding Company.

The Massachusetts Legislature passed new laws in 1915 that allowed MEIA to write all types of public liability insurance, resulting in the company issuing its first automobile policy. The following year further legislation permitted the company to do business outside of Massachusetts. Because of its growing range of activities, Massachusetts Employees Insurance Association was no longer a suitable name; thus in August 1917 the company changed its name to Liberty Mutual Insurance Company. In 1919 it launched its first advertising campaign. Liberty Mutual moved beyond the boundaries of the United States in 1925 when it began operating in Canada in conjunction with salespeople employed by the Rexall Drug Company, selling and servicing policies referred by the drug salespeople. In 1927 Liberty Mutual set up shop in Ontario, Canada at Rexall's headquarters. In the meantime, Liberty Mutual continued in its efforts to prevent workplace accidents. In 1921, at the height of the silent era of film, the company produced two safety films: The Outlaw and The Hand of Fate. It was estimated that more than 250,000 workers and plant managers viewed these films. On the automobile insurance side, Liberty Mutual in 1930 began distributing safety materials to high school students in drivers' education courses.

Becoming the Top Writer of Workers' Comp in the 1930s

Despite the difficulty of doing business during the Great Depression, Liberty Mutual was able to prosper in the 1930s. In 1936 it became the number one writer of workers' compensation insurance, the same year that it broke ground on a new headquarters in Boston. By the middle of the following year, Liberty Mutual was operating in all 48 states (some 20 years before the addition of Alaska and Hawaii). With the advent of World War II, Liberty Mutual became international in scope. To support the country's war effort, industry ramped up production and Liberty Mutual kept pace, providing workers' compensation coverage to customers' operations in both the United States and overseas, including such remote locations as Somaliland, Greenland, and Guam. Liberty personnel were captured by the Japanese army on Wake Island and in the Philippines and confined in prisoner of war camps for the duration of the war. It was also during World War II, as a response to the large number of seriously wounded soldiers returning home, that Liberty Mutual in 1943 launched an experimental rehabilitation center in Boston, with the goal of helping the injured to lead productive lives. The experiment quickly became a permanent feature of the workers' compensation field, during times of war and peace. Another Liberty Mutual innovation was introduced in 1943: the establishment of its Medical Advisors Network, a group of specialists available to review the cases of the seriously injured to help assure both workers and employers that a proper medical treatment plan was being pursued. Another advance attributed to Liberty Mutual during the 1940s was the development of the first escalator emergency shutoff switch, a device that would become a building code requirement for all U.S. escalators in 1960.

Liberty Mutual's commitment to safety was further reflected by the 1954 founding of a state-of-the-art laboratory, the Liberty Mutual Research Center in Hopkinton, Massachusetts. The Center became involved in a wide range of activities, including developing tests to determine fatigue caused by workplace activities and creating an emergency assistance program for truck drivers. In 1957, at a time when 100 people were killed each day on U.S. highways, Liberty Mutual worked with Cornell University to create prototype "survival cars," featuring seat belts and headrests. These cars toured the country, seen by millions, and even made an appearance on the popular television game show I've Got a Secret. This Liberty Mutual initiative helped convince automakers to introduce a number of safety features that have become standard, such as collapsible steering columns and air bags, as well as headrests and safety belts. In addition, Liberty Mutual in 1964 opened the Skid Control School at Hopkinton to teach driver trainers how to control vehicles during skids and other emergency situations, techniques that they could then teach to commercial vehicle drivers. Liberty Mutual research center also worked with the Massachusetts Institute of Technology in the early 1960s to develop the Boston Elbow, the first battery-powered prosthetic elbow, which was a major improvement over the old harness and cable method that required a person to shrug to make the device operate. The Boston Elbow, now known as the Boston Digital Arm, used muscle signals from the surface of the skin to control the limb and allowed for a greater range of motion and the ability to lift much heavier weights. In addition, in the 1960s Liberty Mutual did pioneering research in the field of ergonomics, which would be influential in the safe-lifting criteria adopted by the National Institute of Occupational Safety and Health.

In 1964 Liberty Life Assurance Company of Boston was created to offer a full range of individual and group life insurance products. Liberty Mutual then became involved in the worldwide insurance market, establishing in 1967 Liberty International Insurance Agency, Inc., a wholly owned brokerage corporation that was able to accommodate the foreign insurance needs of American policyholders doing business in other countries, either by placing foreign insurance or through reinsurance. In 1973 Liberty Mutual opened its first wholly owned international office, located in London, to participate in the international reinsurance market. By now, Liberty Mutual had topped the $2 billion level in written premiums.

Developments in the 1980s included the establishment of The Back School at the company's Boston rehabilitation center. The program helped people learn how to live productive lives in spite of severe lower back pain. In the field of ergonomics, Liberty Mutual completed important cumulative trauma disorder research, simulating in the laboratory that kind of stress caused by such activities as repetitive assembly work, manual screw driving, and the use of pliers and knives. This work was then used to determine desirable wrist postures and grips, as well as establishing the maximum acceptable force for repetitive wrist motion. Of further note during the decade was the 1985 foundation of Liberty Financial Services, allowing the company to offer financial services. In that same year, Liberty Mutual launched a program to establish small local offices throughout the United States and Canada.

Company Perspectives:

We are proactive in safeguarding what you cherish most in this world—your family, your home, your business, and most of all, your future.

The 1990s proved to be a time of expansion and challenge for Liberty Mutual and the insurance industry as a whole. In 1993 the company established Liberty International Holdings, a venture that not only offered its health and safety services to foreign countries but also allowed it to underwrite commercial risks in international markets. In 1995 Liberty Financial was spun off as a public company, the same year that a new London subsidiary was formed, Liberty Reinsurance Co., to act as a global reinsurer. Liberty Mutual took other steps in the 1990s to bolster its international business. Through a series of acquisitions it gained a presence in Colombia, Hong Kong, the Philippines, and Singapore. On the domestic front, Liberty Mutual made a number of acquisitions to form its Regional Agency Markets organization. In 1998 it established an affiliation with Employers Insurance of Wausau that increased the number of Liberty Mutual's workers' compensation premiums by more than a third. Liberty Mutual's commitment to research also was reinforced during the decade with the establishment of the Center for Disability Research at the Hopkinton facility.

Many Mutuals Converting to Stock Ownership in the 1990s

Changes in the insurance industry during the 1990s began to have an impact on Liberty Mutual. Long-term changes undertaken by many mutual insurance companies came to fruition when a number of them decided to convert to stock ownership in order to gain stock as a currency to use in acquisitions and thereby achieve greater growth. In 1992 the Equitable Life Assurance Society converted, followed by State Mutual Life Assurance in 1995, and Farm Family Mutual Insurance and American Mutual Life Assurance in 1996. When giant Prudential Insurance Company decided to convert to stock ownership in 1998, the industry reached a tipping point and the other major players made plans to follow suit, all believing that they had no choice but to grow larger or face a slow death. Conversion plans used by mutual insurance companies fell under three general types. A "full" demutualization plan compensated policy-holders with stock in the newly formed holding company or with cash, all insurance policies remaining in effect. A "subscription rights demutualization" conversion offered no compensation to policyholders other than the right to purchase stock in the new company before the general public. Under the final option, the insurer formed a holding company, which was owned by policyholders and controlled a majority stake in the insurance company, now its subsidiary.

Massachusetts passed a law in 1998 that permitted a mutual to adopt the mutual holding company structure. In 2000 Liberty Mutual announced that it planned to change its legal structure to a mutual holding company, citing the difficulty it had in acquiring other companies because of a limited access to capital. The idea was to create a three-tiered structure. Liberty Mutual Holding Company would stand on top, followed by a holding company—which had the potential of becoming a vehicle for a public equity offering for as much as 49 percent—and then at the base Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and Employers Insurance of Wausau. Although management indicated that it had no immediate intention of taking the holding company public, opponents of the conversion quickly pointed out that in the event of an offering policyholders, while retaining majority control, were not in line to receive any compensation for the portion of the company sold off. Liberty Mutual was clearly not prepared for the political firestorm that grew out of this criticism. Massachusetts Democrats denounced the conversion and threatened to pass legislation to thwart Liberty Mutual's plan, urging instead that if the insurer wanted to become a public enterprise that it opt for a full conversion and fairly compensate its policyholders. Liberty Mutual fought back, even hinting that it might have to move out of the state if denied the right to reorganize. The company also faced a shareholders suit. In the end the suit was settled out of court and the conversion plan was presented to shareholders, who overwhelmingly approved it. In 2002 Liberty Mutual Holding Company was formed as part of the execution of the mutual holding company plan.

While the conversion was completed, Liberty Financial was sold as part of an effort to focus on the property and casualty insurance business. Perhaps of more importance was the company's increased emphasis on overseas expansion. In July 2003, Liberty Mutual acquired the Spanish operations of MetLife Inc. On that occasion, Liberty Mutual's CEO, Edmund F. Kelly, told the press, "Business is going to be increasingly global. Either we expand internationally, or over time we become less important."

Key Dates:

1912:

The company is formed as the Massachusetts Employees Insurance Association.

1917:

The name is changed to Liberty Mutual Insurance Company.

1937:

The company is operating in all 48 states.

1954:

Liberty Mutual Research Center opens.

1972:

The company tops the $2 billion mark in written premiums.

1985:

Liberty Financial is established.

1998:

An alliance is formed with Employers Insurance of Wausau.

2002:

Shareholders approve the conversion plan, and Liberty Mutual Holding Company is formed.

2003:

With an increasing emphasis on overseas expansion, the company acquires the Spanish operations of MetLife Inc.

Principal Subsidiaries

Liberty Mutual Fire Insurance Company; Liberty Mutual Insurance Company; Employers Insurance of Wausau.

Principal Competitors

The Allstate Corporation; Prudential Financial, Inc.; State Farm Insurance Companies.

Further Reading

Sclafane, Susanne, "Liberty Mutual Sets Stage for MHC Structure," National Underwriter Property & Casualty-Risk & Benefits Management, September 25, 2000, p. 4.

——, "Mass. Democrats Oppose Liberty Conversion," National Underwriter Property & Casualty-Risk & Benefits Management, January 29, 2001.

Walsh, Tom, "Backlash Grows Against Liberty," Boston Herald, February 4, 2001, p. 31.

——, "Taking Liberties? Foes Say Reorganization Is Unfair to Policy-holders," Boston Herald, November 26, 2000, p. 31.

—Ed Dinger