Liberty Mutual Group reported second-quarter net income declined11.5 percent compared to the second quarter of 2007 with weatherevents negatively impacting strong core operating results.

Net income was reported at $300 million for the quarter comparedto $339 million in 2007.

Liberty Mutual listed $313 million in catastrophe lossescompared to $122 million in cat losses for the second quarter of2007--nearly a 157 percent difference.

In a conference call, Chief Financial Officer Dennis Langwellsaid catastrophe losses were partially offset by a $151 millionimprovement in prior year net incurred losses.

Net premium earned was listed as $6 billion, an increase of $648million in the second quarter of 2008 compared to 2007.

The company's combined ratio deteriorated to 101.9, up from100.1 during the same period for 2007. Catastrophes added 5.4points to the combined ratio for the quarter, as opposed to 2.4 in2007.

Net investment income increased 6.2 percent, or $44 million,over the second quarter of 2007 to $754 million pretax, Mr.Langwell said. He added that this was due to a higher investmentasset base from strong cash flow, debt issues and net investedassets acquired.

The company reported net realized investment gains of $5million, an 88.9 percent decline from the $45 million reported inthe second quarter of 2007.

In a statement, Edmund F. Kelly, Liberty Mutual chairman,president and chief executive officer, said: "Our balance sheetremains strong with limited exposure to the subprime crisis. Whilethe economic slowdown in the U.S. remains a concern, inflation is agreater concern, but we are extremely well-positioned globally tocompete successfully across a broad range of marketconditions."

Liberty Mutual noted that it had entered into a definitiveagreement on April 23 to acquire, through its subsidiaries, alloutstanding shares of Safeco for approximately $6.2 billion. Thecompany said that it reaffirmed its commitment to the acquisitionon July 14.

Speaking to rating actions resulting from this announcement,Liberty Mutual said that, on April 23, A.M. Best Co. affirmed thecompany's "A" financial strength rating with a stable outlook.

Moody's Investor Service affirmed the debt and insurancefinancial strength ratings, but changed Liberty Mutual Group'slong-term ratings to negative from stable. Standard & Poor'sRating Service placed the company's "A" counterparty credit andfinancial strength ratings on CreditWatch negative following theacquisition announcement.

Standard & Poor's said yesterday that it is keeping its"triple-B" counterparty credit rating of Liberty Mutual Group Inc.(LMGI) on CreditWatch with negative implications.

"Standard & Poor's expects to either affirm or lower theratings on LMGI and Liberty once we have completed our analysis ofLiberty's operating company capitalization as of year-end 2007, thepro forma capitalization as of year-end 2008 following theacquisition of Safeco, and the approval of the transaction by theshareholders of Safeco," the rating agency said.

Standard & Poor's added that it will be meeting soon withLiberty Mutual's management team to discuss the acquisition.