lmie annual report 2009

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SUSTAINABLE GROWTH STRONG FOUNDATIONSANNUAL REPORT 2009

About Liberty Mutual Insurance Europe Limited (LMIE)Liberty Mutual Insurance Europe (www.liueurope.com) is a wholly owned subsidiary of global insurer Liberty Mutual Group and trades under the Liberty International Underwriters (LIU) name.

About Liberty International Underwriters (LIU)Established in 1999, Liberty International Underwriters (www.libertyiu.com) provides a diverse range of specialty products distributed exclusively through the independent broker network. The LIU staff of over 1,300 professionals offers core products in marine, aviation, energy, engineering, global crisis management, property, casualty, professional liability, directors & officers, surety bonds, legal expenses and trade credit insurance. Worldwide offices include North America, Europe and Asia Pacific. LIU is part of Liberty Mutual Group’s International operations, which reported net written premium of $7.1 billion in 2009, an increase of 4.8 per cent over 2008. This constituted 25.1 per cent of Liberty Mutual Group’s $28.26 billion in net written premium for the year ended December 31, 2009.

About Liberty Mutual Group (LMG)Boston-based Liberty Mutual Group is a diversified global insurer and fifth largest property and casualty insurer in the U.S. based on 2008 direct written premium. The Company also ranks 71st on the Fortune 500 list of largest corporations in the U.S. based on 2009 revenue. As of December 31, 2009, Liberty Mutual Group had $109.5 billion in consolidated assets, $95.0 billion in consolidated liabilities, and $31.1 billion in annual consolidated revenue.

Liberty Mutual Group offers a wide range of insurance products and services, including personal automobile, homeowners, workers compensation, commercial multiple peril, commercial automobile, general liability, global specialty, group disability, assumed reinsurance, fire, and surety.

Liberty Mutual Group (http://www.libertymutualgroup.com) employs over 45,000 people in more than 900 offices throughout the world.

GEN159-04-10

As a leading commercial lines insurer we provide a wide range of products, all backed by dedicated underwriting expertise and high-quality service.

Our strength is built on a cautious and highly focused attitude towards risk that has helped us to grow consistently despite testing market conditions.

These strong foundations, along with a real understanding of our clients’ needs, ensure that we are well placed to sustain this growth.

Contents

8 ChiefExecutive’sstatement

12 Directors’report

19 Statementofdirectors’responsibilities

20 Auditors’report

24 Profitandlossaccount(technical)

25 Profitandlossaccount(non-technical)

26 Statementoftotalrecognisedgainsandlosses

27 Balancesheet

29 Notestothefinancialstatements

Pages9to52(excludingpages11,18and22)representacompletereproductionoftheannualreportandfinancialstatementsoftheCompany.Allotherpagesdidnotformpartofthesefinancialstatementsandconsequentlyrepresentunauditedinformation.

1LibertyMutualInsuranceEuropeLimitedAnnualReport2009

Diversification

+14%WecontinuetoachieveourkeystrategyofdiversifyingawayfromoursuccessfulUKandIrelandbasebygrowingourInternationalandContinentalEuropeanbusinesses.

Profitability

$61mDespitedifficultmarketsanduncertaineconomicconditionswecontinuetoachieveprofitsaccordingtoplan.

Assets

+7%Followingourseventhconsecutiveprofitableyear,ourcapitalandsurplusbaseincreasedto$666m.

2 LibertyMutualInsuranceEuropeLimitedAnnualReport2009

Liberty’sstrongreputationforclaimshandlingisbuiltonourexpertise,excellentserviceandanintegratedbusinessmodelthatseesunderwriters,engineersandclaimspersonnelworkingtogethertoensurethebestpossibleresultforbothLibertyandourcustomers.Theexamplebelowshowshowthisworksinpractice.

In2009anelectricalfaultresultedindamagetoageneratorunitatapowerplantinThailand.Asleadreinsurer,Liberty’sSingaporebranchhadcoveredtheplantfromconstructionthroughtooperation.OliverNewick,ExecutiveAdjuster,explainswhathappened.“Anearthfaultonageneratorrotorresultedinthelossofoneoftwopowerblocks,eachofwhichproduces745MWofelectricity.Itwasimportanttogetitbackinuseassoonaspossible,andthatmeantputtingateaminplacethatcouldworkwiththeinsuredtoestablishtherootcause,identifytherightsolutionandthenimplementit.”

WithSingaporeclaimshandlerClarenceTingonthegroundintheregionandaninternationallyrenownedUKgeneratorexpertactingasconsultant,thechallengewastoassesswhetherthegeneratorcouldbesafelyrepairedandplacedbackintoserviceorneededreplacing.“Bybringingtogetherthemanufacturers,ourconsultantandtheinsured,wewereabletosatisfyallpartiesthattherepairwouldbetechnicallyfeasiblewithnoincreasedoperationalrestrictionsorrisk”,Oliveradds.

Theresult?Thegeneratorwasrepairedandupandrunningin100days,andtheclaimwassettledfor$4.5m.(Bycontrast,aclaimforanewgeneratorcouldhavebeenashighas$40mandtheequipmentwouldhavebeenoutofoperationforoverayear.)

Theinsuredwasappreciativeofourhighlevelofserviceandcontinuestobeoneofourcorecustomers.“Despitetheseriousnatureoftheproblem,Liberty’sthoroughapproachresultedinagoodoutcomeforallparties,”concludesOliver.

CASESTUDY

DeLIVeRInG eXCeLLent seRVICe


eneRGy/PoweR GeneRAtIon

Weofferaninnovative,flexibleservicecloselygearedtotheneedsoftheenergysectorincludingonshore,offshoreandpowergeneration.Ourclientsbenefitfromcross-classproductsandbespokepolicycoverfromourunderwriting,riskengineeringandclaimsteams.

AVIAtIon

Ourhighlyexperiencedteamservessecond-tierandsmallerinternationalflagcarrierairlines,withaspecificfocusonstart-ups.Wealsowriteasubstantialbookofindustrialaidandrotorwingequipment.Otherspecialistareasinclude‘totallossonly’andnon-criticalproductsliabilitycover.

CAsuALty/GeneRAL LIAbILIty

Weofferanextensiverangeofliabilityproductstocommercialclientsinconstruction,manufacturing,leisure,motorsport,transportation,andfilmandTVproduction.Theseincludebothprimaryandexcesspublicandproductliabilityandemployers’liability.

PRoPeRty

Ourspecialistteamhasin-depthunderstandingandmanyyearsofindustryexperience.Focusingonmaterialdamageandbusinessinterruptioncover,theyofferafull-servicepropositionthatcombinesunderwriting,riskengineeringandclaimsexpertise.

ConstRuCtIon

Ourconstructionteamofengineersandunderwriterscombinestechnicalexpertisewithsignificantunderwritingcapacitytodeliverrisktransfersolutionsforawiderangeofheavyindustries,aswellasforbuildingandcivilprojects.

MARIne

Ourspecialistteamcoversoceancargo,projectcargo,marineliabilities,hullandshipbuilder’srisk.Wemeettheneedsofourclientsthroughanetworkofglobalmarineprofessionals,claimsandriskengineeringservices.

bRoAD PRoDuCt RAnGe DeeP knowLeDGeOur cOmprehensive prOduct range means that we can meet all Our clients’ needs. and Our specialist teams ensure that each insurance line is backed by the expertise tO fully understand and suppOrt individual requirements.


PRofessIonAL InDeMnIty

Ourmarket-leadingunderwriterscanarrangecoveronaprimaryorexcessbasisforbothtraditionalandemergingprofessions.Theseincludeaccountants,architects,brokers,designers,estateagents,propertymanagers,solicitorsandindependentfinancialadvisers.

CRIsIs MAnAGeMent

Wehelpclientstoavoidor,ifnecessary,manageamajorcrisisandmitigatetheriskofproductcontaminationandproductrecall.Ourkidnapandransomcoverprovidesgovernments,internationalcorporationsandprivateindividualsaroundtheworldwithprevention,trainingandresponseservices.

enVIRonMentAL

Withenvironmentallegislationanincreasingconcernformanybusinesses,ourhighlyexperiencedteamunderwritesawiderangeofenvironmentalexposures.Ourproductsofferprovidersbroadandcomprehensivecoverageforpollutionliability.

DIReCtoRs & offICeRs

Bothbrokersandclientscanbenefitfromourfirst-classservice.AreascoveredincludeDirectors&Officersliability,pensiontrusteeliability,employmentpracticeliability,commercialcrime,andplacementofsecuritiesindemnity.

tRADe CReDIt/ PoLItICAL RIsk

Weinsuretradecreditandpoliticalrisksinemergingmarkets.Ourfocusisoninsuranceagainstdefaultbyindividualbuyersorsuppliers.Wealsoprotectagainstthenon-honouringoflettersofcreditandcoverpre-shipmentrisk,currencyinconvertibility,expropriation,andunfairbondcalling.

fInAnCIAL InstItutIons

Asaleadinginsurerinthissector,weoffertailor-madecoverforfinancialinstitutions.Productsinclude:blanketbondsforbankingorganisations;specialistcoverageforcrime,includingelectronicandcomputercrime;andprofessionalindemnityforalltypesoffinancialinstitutions.

suRety

Weprovidesuretybondsandguaranteespredominantlyforlargequotedorprivately-ownedorganisations.Wespecialiseinservingtheconstruction,engineering,manufacturing,electronics,defence,shipbuilding,oilandgas,transportationandretailindustries.

PRODUCTRANgE


Libertybroughtitsglobalexpertiseandinnovationtonewmarketsin2009byexpandingitsmarineportfoliointoEuropeandtheMiddleEast.“WehadnotwrittenmarinebusinessoutofLondonbefore,buttheappointmentinJuneofMichaelNukkasAssistantVicePresident,Marinehashelpedustoaddressthat”,explainsRichardPursey,HeadofExploration,ProductionandMarine.

“Libertyhasaworldwidereputationinthemarinesector,soitmadealotofsensetobringthesecoreproductstoEuropeandtheMiddleEast,”saysMike.ItalsomakessenseforLiberty’scustomers.“Withourexistingstrengthsintheenergyandconstructionfields,therearenaturalsynergiesforexistingcustomerswhoarealsolookingtocovertheirmarineassetsandliabilities”,headds.Examplesofthesesynergiesincludeapowerplantoperatorenabledtoinsure

thesafedeliveryofitscriticalmachineryandamanufacturercoveredforthesafetransportationofitsproducts.

Byofferinginnovativeproductsthatwillcovercargoallthewayfromloadingtodelivery,insuringagainstdelayinstart-upandcompletion,alongwithprovidingin-houseriskengineeringandclaimsserviceandexpertise,Libertyisabletostayaheadofthecompetition.“Ourin-houseengineeringandunderwritingexpertisemeansthatwecanoffermoreoptionstoourcustomersandrespondtotheirindividualneedsmoreeffectively”,Mikeadds.

Despitethesubduedshippingmarketin2009,LibertyhasalreadymadeinroadsthisyearintheUK&Ireland,EuropeandtheMiddleEastmarkets.AndMikebelievesthatthereisstillplentyofscopeinthesectorthatwillenableustoestablishpositioningforsustainablegrowth.“Wecancontinuetogrowbecauseofthestrengthofourproductsandthewaytheyaredifferentiatedfromothersinthemarket”,saysMike,“andthatwillstandusingoodsteadforthefuture.”

CASESTUDY

InnoVAtIon In new MARkets


GLobAL PResenCeLoCAL eXPeRtIsethe clOser we are tO Our markets, the better placed we are tO meet yOur needs. that’s why yOu will find us wOrking with Our clients tO deliver lOcal sOlutiOns that draw On liberty’s glObal strength and expertise.

We received excellent broker support for our new product offering, enabling us to achieve our 2009 targets.JULIEROSS,ASSISTANTVICEPRESIDENT,CRISISMANAgEMENT

LonDon head OfficeOurcommitmenttotheLondonmarketmeansthatwehavethecapacityandexpertisetounderwritecomplexrisks.In2009,LibertycontinuedtoinvestinitsspecialtyofferingwiththelaunchofnewproductcapabilityinLondoninProperty,Marine,Environmental,CrisisManagementandIndependentFinancialAdvisers.Wewillcontinuethisexpansion,whereappropriate,tobetterserveourclients.

business volume +2.7%

In challenging economic conditions we continued to make significant progress in 2009 by identifying market opportunities and aligning our products and resources to take advantage of them.DAVIDBYRNE,IRELANDBRANCHMANAgER

uk AnD IReLAnD cOmmercial bristOl cheltenham dublin manchesterWehaveastrongcommitmenttotheUKandIrishregionalmarkets,providingawiderangeofcommercialinsuranceproductsthroughindependentandnationalbrokers.Ourexpandingbranchnetwork,combinedwithourunderwritingcapabilitiesandaccessibleservice,meanswearestronglypositionedtosupportbrokersandclients.

business volume +8.3%


In a mature and competitive market, we have continued to grow because of the strength of our broker relationships.ROBgROENINg,NETHERLANDSBRANCHMANAgER

ContInentAL euRoPe cOlOgne the hague madrid paris zurichThroughindependentandaffiliatedbrokeragefirmsweofferagrowingsuiteofspecialtyinsuranceproductsinEurope’skeystrategicmarkets.Ourcustomersarelargeandmediumsizecompaniesoperatinginawiderangeofindustrysectors.

business volume

+18.1%

When the construction market weakened, we reacted by building capacity in other lines. As a result our skilled local team delivered ahead of plan.ELIEBOUCHAAYA,REgIONALMANAgER,MIDDLEEASTANDNORTHAFRICA

InteRnAtIonALdubai hOng kOng kuala lumpur mumbai singapOreOurextensivenetworkgiveslocalbrokersandinsurancecompaniesthecapacitytomeetdemandfromsomeoftheworld’sfastest-growingmarkets.Withexperienceofthelocaltradingenvironmentandawideproductoffering,ourhighlyqualifiedteamshavetheunderwritingauthorityandexpertisetomeetcustomerneedsinavarietyofsectors.

business volume +10%


ChIef eXeCutIVe’s stAteMentthis has been anOther gOOd year fOr Our business, with grOss written premium (gwp) up 6% at $577m and prOfits On plan at $61m.


Thishasbeenanothergoodyearforourbusiness,withgrosswrittenpremium(gWP)up6%at$577mandprofitsonplanat$61m.

Althoughmarketshavebeenhighlycompetitivein2009,ourstrategyofdiversifyingbothgeographicallyandbyproductlinehasenabledustocontinuegrowing.Inaddition,ourcarefulandfocusedattitudetoriskhasensuredthatthisgrowthhasbeenbuiltonfirmfoundations,withthevalueofourcapitalandreservesupby7%to$666m.

Wehavecontinuedtoselectrisksandsectorscarefullyaccordingtoourtraditionalinsurancevalues:soundunderwritingdiscipline,highlevelsoftechnicalexpertiseandexcellentservicetoourcustomers.Byfocusingonthebottom-linepotentialofnewbusiness,ratherthanitsabilitytoaddmarketshare,wehaveensuredourgrowthissustainablyprofitable.

Profitabilityisonplanwithacombinedratiobelow100%.Wemaintainedaconservativestanceonthemanagementofourinvestments,andcontinuedtofocusonhigh-qualityfixedintereststocks.Totalreturnsinexcessof7%werewellaheadofexpectations.

MARkets

Thebroaderinsurancemarketcontinuestobeimpactedbyover-supplywithrateincreaseslimitedtothoselineswhichhavebeenaffectedbysignificantmarketevents.However,thereislittlesignofareductioninmarketcapacityoranimprovementinthegeneralratingenvironment.Theinsurancemarketisnotimmunetotheoveralleconomicenvironmentandtherecessionaffectedboththevolumeandvalueofpremiumswritten.Ontheflipside,therehasbeennodiscernibleincreaseinrecession-relatedclaimsnotificationsoractivity.

Wecontinuetomonitormarketconditionscarefullyandtofinetuneourunderwritingguidelinesaccordingly.

busIness ReVIew

2009hasprimarilybeenoneofconsolidationaswecontinuedtoembedthechangesandinvestmentsthatwemadeoverthelasttwoyears.Thesechangessawustakeonnewbusinesslines,broadenourinternationalpresenceandrestructureintofourgeographicaldivisions–eachbetterpositionedtorespondtotheindividualcharacteristicsofitsmarket.Itispleasingtoreportthatnotonlyhaveweachievedthestrategicobjectiveswesetout,butthattheyhavedeliveredstrongly.Forexample,ourContinentalEuropeandivisiongrewby18%in2009,whileourUKCommercialdivisiongrewby8%.Furthernewlinesweintroduced,suchasenvironmentalliability,havealsoperformedwell,withdemandrisingasnewEuropeandirectivescomeintoplace.Ournewcrisismanagementlinehasalsomadeagoodstart,whileestablishedlinessuchasaviationandspecialtycasualtyperformedstronglyaswell.AllourfourregionaldivisionsincreasedgWPduringtheyear,withourMiddleEasternofficeinDubairecoveringwellfromtherapidfallinconstructionactivityexperiencedintheregionin2009.

Themostsignificantdevelopmentin2009hasbeentheadditionofahighlyqualifiedandwellrespectedpropertyteamactiveintheUKandIrelandcommercialmarket.Thisfillsanimportantgapinourproductrange,providingstrongsynergiesandofferingmoreopportunitytocrosssellbetweenourpropertyandliabilitysides.AnothernewdevelopmenthasbeenthelaunchofourmarinecargolineinLondonandPariswhere–withglobaltradestabilisingduring2009–wehaveseenactivitypickingupinthesecondhalfoftheyear.


InDustRy InItIAtIVes

WecontinuetopreparefortheimplementationofSolvencyII,believingthat,althoughimplementationpresentsasignificantchallenge,itsimpactonenterpriseriskmanagementwillprovidesomebenefittotheindustry.Electronictradingandclaimshandlingsystemshavegreatpotentialtoimproveserviceandefficiency,andwecontinuetobeattheforefrontofdevelopmentsinthissphere.

LookInG AheAD

Althoughitislikelythatmarketswillremainflatforthenext12monthsorlonger,webelievethattherewillstillbecertainopportunitiesforgrowth.Torealisethemprofitablywewillleverageourspecialistexpertiseandfocuscarefullyonsectorandriskselection.Wewillbroadenourdistributionofexistingproductsbyincreasingthenumberoflinesavailablethroughourexistingbranches,therebymaximisingthepotentialofourofficesandcreatingcross-sellingopportunitieswithexistingclients.Iamconfidentthatthisstrategy,alongwiththesolidfoundationswearebuildingupon,willenableustocontinuetogrowdespitethechallengingmarketconditions.

Finally,Iwouldliketotakethisopportunitytothankeveryone,atalllevelsoftheorganisation,fortheirhardworkanddedicationduring2009.

SEANPROCKSCEO|29MARCH2010

CHIEFEXECUTIVE’SSTATEMENT


LibertybeganprovidingEnvironmentalImpairmentLiabilitycoveratthebeginningof2009andisplayingavitalpartinhelpingcompaniesacrossEuropetomeettoughnewlegislation.

TheEU’sEnvironmentalLiabilityDirectiveclearlydefinescompanies’liability,mandatesconsistentstandardsthroughoutEuropeandrequirescompaniestomakefinancialprovisionfordamagetheymaycausetotheenvironment.“Itmakesitclearthatgeneralliabilityinsurancedoesnotadequatelycovertherisksandthatbusinessesrequireapolicythatspecificallymeetstheneedsofthenewdirective”,saysDuncanSpencer,VicePresident,EnvironmentalImpairmentLiability.

SouthernEuropewasidentifiedasakeymarket,andaccessedviapartnershipwithsister-companyLibertySeguros.“Theyareawell-knownandrespectedbrandinPortugal

andthatgaveusastrongbasisforextendingourreachtothosecustomerswhowouldmostbenefitfromthenewproductline”,addsDuncan.

WithSpainsettoimplementthenewdirectiveduring2010,DuncanhashissightssetfirmlyonfurthergrowththroughLiberty’sMadridoffice,wherelocalunderwritingexpertisecanbringanevenbetterunderstandingofclientneeds.“Eachmarketisdifferentandyouonlyfindthatoutbybeingthere.Forexample,inPortugalwewonalotofbusinessinthewastemanagementsectorbecauseweunderstoodthatitoperatesverydifferentlyfromtheUK,whereitisdominatedbyafewlargecorporates.”

Eveninanewproductarea,Libertyalwaysensuresthatithasthein-depthexperiencenecessarytofullyunderstandboththerisksandthesectorstheycover.EILisnoexception.“Ourcoreteamhas20years’experienceintheenvironmentalinsurancesectorandafurther20intheengineeringfield”,saysDuncan,“andweexpecttomakefurtherhiresaswecontinuetobroadenourreachinthisexcitingnewmarket.”

CASESTUDY

bRoADenInG ouR ReACh


Thedirectorshavepleasureinsubmittingtheirreport,togetherwiththeauditedfinancialstatementsofthecompany,fortheyearended31December2009.

PRInCIPAL ACtIVIty AnD ReVIew of the busIness

Thecompanyunderwritesmarine,non-marineandaviationinsuranceandreinsurancebusinessfromitsheadofficeinLondonanditsbranchesacrossEurope,theMiddleEastandAsia.

During2009thecompany’sprincipalbusinesslineswereCasualty,SpecialtyCasualty,Aviation,Property,TradeCredit,SuretyandMarine,EnergyandEngineering.CompanystrategycontinuestobetooffertomarketsinEurope,theMiddleEastandtheFarEastadiverseandgrowingrangeofspecialtyinsuranceproductsdistributedthroughtheindependentbrokernetwork.

DIReCtoRs’ RePoRtOur strategy Of diversifying bOth geOgraphically and by prOduct linecOntinues tO deliver grOwth. in 2009, gwp rOse by 6.2%.

BoardofDirectors (left to right):gerardvanLoon,PatrickO’Brien,DanielForsythe(CEOLIU),SeanRocks(ChiefExecutiveLMIE),gordonMcBurney(PresidentLIU),DavidPrince,DavidOates.Inset:non-executivedirectors,MalcolmMcKenzieandDrJonathanSpencer.


Thecompany’skeyfinancialperformanceindicatorsduringtheyearwereasfollows:

2009 2008 Change$’000 $’000 %

grosswrittenpremium 577,382 543,563 6.2

Profitbeforetaxation 60,788 72,429 (16.1)

Netassets 666,485 625,735 6.5

Combinedratio 99.3% 81.7%

Thecombinedratioiscalculatedastotaltechnicalchargesexcludingchangeintheequalisationprovision/earnedpremiums,netofreinsurance.Thecombinedratioreflectsa3.5%benefitfromprioryearclaimsoverprovision(2008:13.5%benefit)anda5%increaseinnetcommissionsreflectingreductionincommissionsreceivablefromreinsurersfollowingthemovefromquotasharetoexcessoflossreinsurancecovers.

Investmentincome,excludingnetgains/lossesontherealisationofinvestments,was$3,705,000lowerthanin2008,drivenbylowerinvestmentyields.Totalreturns

(includingunrealisedgains/lossesonfixedincomesecurities)werehigher,however,duetoincreasesinthemarketvalueofbonds.

Thecompanymadenetrealisedgainsonitsinvestmentportfolioof$2,790,000(2008:lossof$20,110,000).The2008resultwasfurtheraffectedbylossesof$27,497,000onthecompany’sequityportfolio,whichwasliquidatedduringthatyear.

Thecompanyoperatesininternationalmarkets.AsaresultoftheweakeningoftheUSDduring2009,thecompanyrecordedtotallossesof$3,495,256(2008:lossof$31,004,293)onthetranslationofnon-USDcurrenciesintoUSD.Inaccordancewiththecompany’saccountingpolicies,$2,899,000ofthisloss(netoftaxation)(2008:$23,438,000ofloss(netoftaxation)),beingthatpartofthetotallossrelatingtotheretranslationofthecompany’sprincipaloperatingcurrenciesgBP,EuroandUSD,isreflectedintheStatementofTotalRecognisedgainsandLossesandnotintheprofitandlossaccount.


Netassetsincreasedby$40,749,000,attributabletotheprofitfortheyearof$44,419,000andotherrecognisednetlossesof$3,669,000fortheyear.Thedirectorsdonotrecommendpaymentofadividend(2008:Nil).

PRInCIPAL RIsks AnD unCeRtAIntIes

TheBoardsetsriskappetiteannuallyaspartofthecompany’sbusinessplanningprocess.

Therolesofoversight,assessmentandreviewintheriskmanagementprocessaredelegatedbytheBoardtotheAuditCommitteeandimplementedbytheRiskCommittee(RC).TheRCistheseniormanagementforumresponsibleforoversightofthecompany’sriskframeworkacrossthebusinessunitandcompanyfunctionsandformonitoringoperationalriskandrelatedpoliciesandprocessesastheyareappliedthroughoutthecompany.TheRCsubmitsaquarterlyreporttotheExecutiveCommitteeandAuditCommittee.

Theprincipalrisksanduncertaintiesfacingthecompanyareasfollows:

InsuRAnCe RIsk

Insuranceriskincludestherisksthatapolicywillbewrittenfortoolowapremiumorwillprovideinappropriatecover(underwritingrisk),thatthefrequencyorseverityofinsuredeventswillbehigherthanexpected(claimsrisk),andthatestimatesofclaimssubsequentlyprovetobeinsufficient(reservingrisk).TheBoardmanagesinsuranceriskbyagreeingitsappetitefortheserisksannuallythroughthebusinessplan,whichsetsouttargetsforvolumes,pricing,linesizesandretentionbyclassofbusiness.TheExecutiveCommitteeoftheBoardthenmonitorsperformanceagainstthebusinessplanmonthlythroughthe

year.ReserveadequacyismonitoredbytheReservingCommitteewhichmeetsquarterlytoestablishandreviewtheheldreserves.Akeyelementofthisconsiderationisreviewofthequarterlyreportbythecompany’sactuary,whichincludestheactuarialestimateofrequiredreservestogetherwithdocumentationsupportingthematerialjudgementsandassumptionsmadeinarrivingatthisestimate.

CReDIt RIsk

Thecompany’sprincipalcreditriskexposureistheriskofnon-performancebyoneormoreofthecompany’sreinsurers.

Akeypartofthecompany’sriskmanagementstrategyisthepurchaseofeffectivereinsuranceacrossalllines.Thecompanypurchasesbothproportionalandnon-proportionalreinsurancelocallyandthroughparticipationinLibertyMutualgroupglobaltreaties.Therearealimitednumberofreinsurersworldwidewiththecapacityorcapabilitytoparticipateintheseglobaltreaties.Aconsequenceofthisisadegreeofconcentrationofexposurewiththemajorreinsurers.

ThecompanyhasestablishedaReinsuranceCommitteewhichapprovesallreinsurancetreatiesandassessesandisrequiredtoapproveallnewreinsurersbeforebusinessisplacedwiththem.CarriersmustbeAratedorbetter.Reinsurerexposureisreviewedquarterly.Thecompanyusesadefaultriskmodeltodetermineaneedforspecificprovisionsagainstreinsurernon-performancewhichareadjustedonaquarterlybasis.Changesintheamountoftheprovisionsarereflectedintheprofitandlossaccount.

DIRECTORS’REPORT


MARket RIsk

Marketriskisdefinedastheriskoflosstothecompanyarisingfromfluctuationsinthevaluesofitsassets,theamountofitsliabilities,ortheincomefromitsassets.Sourcesofmarketriskforthecompanyincludemovementsininterestrates,equityvalues,andexchangerates.Suchmovementswouldpotentiallyaffectthevalueofthecompany’scashandinvestmentportfolioandtheincometherefrom.Thecompanyunderwritesinsurancepoliciesinseveralcurrenciesandconsequentlyhasanexposuretoretranslationgainsandlossesarisingfromtheimpactofchangesinexchangeratesontechnicalassetsandliabilitiesdenominatedinforeigncurrencies.

Thecompany’sinvestmentportfolioismanagedbytheinvestmentdepartmentofLibertyMutualgroupinaccordancewithinvestmentguidelinesestablishedonbehalfofthecompanybytheInvestmentCommittee.Theseguidelinessetoutlimitsonassetquality,counterpartyexposure,assetconcentration,andgeographicalconcentrationwhicharemonitoredbytheCommitteeeachquarter.During2008,thecompanysoldallofitsequityholdings,eliminatingcurrentexposuretofluctuationsinequityvalues.

Thecompanyfollowsapolicyofmatchingforeigncurrency-denominatedassetsandliabilitiessoastominimisetheimpactofexchangeratemovements.Followingachangeinpolicyin2008,shareholdersurplusiscurrentlyheldinUSD.Thusoverallthecompanyholdslimitednetassetsinnon-USDcurrenciesandconsequentlyhasnosignificantbalancesheetexposurestoexchangeratemovements.

LIquIDIty RIsk

Liquidityriskistheriskoflosstothecompanyarisingfromthecompanybeinginsufficientlyliquidtomeetallcashflowcommitmentsasandwhentheyfalldue.Itiscompanypolicythatallfundsareheldincashorinreadily-marketableinstruments.

Thisrequirementisreflectedintheinvestmentguidelines.Thedurationofinvestmentinstrumentsismatchedtotheanticipateddurationofliabilitiestopolicyholdersandthecurrencyofinvestmentinstrumentsismatchedtothecurrencyofanticipatedliabilitiestopolicyholders.Shortertermneedsareanticipatedthroughaprocessofcashflowforecastingwiththebackingofabankloanfacilitywhichcanbedrawnuponifneededtocoverimmediaterequirements.

Thedirectorsbelievethattheseactionsprovideassurancethatthecompanywillbeabletocontinuetomeetitsobligationsasandwhentheyfalldue.Inmakingthisassessment,thedirectorshavefullyconsideredtheeffectofcurrentmarketconditionsonassetvaluesandassetmarketability.

oPeRAtIonAL RIsk

Operationalriskisdefinedastheriskoflosstothecompanyarisingfrominadequateorfailedinternalprocesses,people,andsystems.Thecompanymanagesoperationalriskthroughtwoprincipalmechanisms.Firstly,allidentifiedrisksareassignedaRiskOwnerwhoisresponsibletotheRiskCommitteeforestablishingandmaintainingappropriatecontrolsoverthatrisk.Secondly,theAuditCommitteeoverseestheexecutionofthecompany’sintegratedauditplanwhichincludesacontinuousprogrammeoftestingofcontrols,reportingofresults,andimplementationofanyrequiredremedialaction.


futuRe DeVeLoPMents

ThecompanyintendstocontinuetopursueopportunitiesforgrowthinEurope,theMiddleEast,andtheFarEast,throughextendinggeographicalpresenceandbroadeningtherangeofspecialtyinsuranceproductsthatareoffered.

DIReCtoRs’ InteRests

Thedirectorsofthecompanyduringtheyearanduptothedateofsigningthefinancialstatementswere:

SPRocks Chairman-ChiefExecutiveOfficer

PJO'Brien Director-ChiefOperatingOfficerandCompanySecretary

DROates Director

DJPrince Director-ChiefFinancialOfficer

gMvanLoon Director

DTNForsythe(USA) Non-ExecutiveDirector

gJMcBurney(USA) Non-ExecutiveDirector

JPSpencer Non-ExecutiveDirector

MgMcKenzie Non-ExecutiveDirector

AccordingtotheRegisterofDirectors’Interests,nodirectorhasanybeneficialinterestintheissuedsharecapitalofthecompany.

fIXeD Assets

Thechangesinthecompany’sfixedassetsfortheyeararesetoutinNote12.

DonAtIons

Duringtheyearthecompanymadecharitabledonationsof$34,091(2008:$71,042)andmadenopoliticaldonations(2008:nil).

eMPLoyees

Duringtheyearanaveragenumberof373(2008:307)staffwereemployed.Thetotalaggregateremunerationofemployeesamountedto$61.4m(2008:$63.3m).

Thecompanyoperatesdiscretionaryperformance-relatedremunerationschemeswhichenableemployeestoshareinthesuccessofthecompanyandtoberewardedforgoodserviceandincentivisedforfutureperformance.Thecompanyinvestsinstafftrainingtodeveloptheskillsofemployeestomaximisetheservicelevelsprovidedtocustomersandbusinesspartners.

Fullandfairconsiderationisgiventotherecruitmentofdisabledpeopleandtotheofferingofpropertraining,careerdevelopmentandpromotionopportunitiesforthem.Everyeffortismadetoretain,insuitableemployment,anymemberofstaffwhobecomesdisabledwhilstemployedbythecompany.Wherethisisnotpossible,apermanenthealthinsuranceschemeisinplaceforthosestaffwhoareunabletoreturntosuitableemployment.

GoInG ConCeRn

Thefinancialstatementshavebeenpreparedonagoingconcernbasis.Inassessingwhetherthegoingconcernbasisisappropriate,thedirectorshaveconsideredtheinformationcontainedinthefinancialstatements,thecompany’slatestbusinessplan,andthecompany’scurrentsolvencycalculations.Thedirectorsaresatisfiedthatthecompanyhasadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Accordingly,theycontinuetoadoptthegoingconcernbasisinpreparingtheannualreportandfinancialstatements.

DIRECTORS’REPORT

DIsCLosuRe of InfoRMAtIon to the AuDItoRs

Sofaraseachpersonwhowasadirectorofthecompanyatthedateofapprovingthisreportisaware,thereisnorelevantauditinformation,beinginformationneededbytheauditorinconnectionwithitsreport,ofwhichtheauditorisunaware.Havingmadeenquiriesoffellowdirectorsofthecompanyandthecompany’sauditor,eachdirectorhastakenallthestepsthathe/sheisobligedtotakeasadirectorinordertomakehimself/herselfawareofanyrelevantauditinformationandtoestablishthattheauditorisawareofthatinformation.

AuDItoRs

Ernst&YoungLLParedeemedtobereappointedinaccordancewithanelectiveresolutionmadeunderSection485oftheCompaniesAct2006.Consequently,thecompanyhasdispensedwiththerequirementtoholdanAnnualgeneralMeetingandre-appointtheauditors.Ernst&YoungLLPhaveexpressedtheirwillingnesstocontinueinofficeandsohavebeeninvitedtodoso.

ApprovedbytheBoardofDirectorsandsignedonbehalfoftheBoardby:

SEANPROCKSCEO|29MARCH2010COMPANYNUMBER:1088268

Registered office and advisers

DirectorsSPRocksPJO’BrienDROatesDJPrincegMvanLoonDTNForsythegJMcBurneyJPSpencerMgMcKenzie

Company secretaryPJO’Brien

Liberty Mutual Insurance europe Limited Registered office:3rdFloor,TwoMinsterCourtMincingLane,LondonEC3R7YETel:+44(0)2078606600Fax:+44(0)2078606290

Registered in englandRegisteredNumber:1088268AuthorisedandregulatedbytheFinancialServicesAuthority(FSAnumber202205)©2010LibertyMutualInsuranceEuropeLimited.Allrightsreserved.

Corporate bankersLloydsBankinggroupPlcCityOfficePOBox72gillinghamBusinessParkgillinghamKentME80SL

Independent AuditorsErnst&YoungLLP1MoreLondonPlaceLondonSE12AF

LibertyMutualInsuranceEuropeLimitedAnnualReport2009 17


CASESTUDY

eXtenDInG ouR CAPAbILItIes

ThearrivalofRichardCoxonasHeadofUK&IrelandCommercialPropertyin2009,alongwithhishighlyexperiencedunderwritingandriskengineeringteam,markedthebeginningofanewcapabilityincommercialpropertyinsurance.

Withover24years’experienceintheLondoninsurancemarket,whatdidRichardfinddifferentatLiberty?“TheIntegratedBusinessUnit(IBU)philosophyisamajordifferentiator.Theunderwriting,engineeringandclaimshandlingfunctionsallworkinginclosepartnershipprovideLibertywithabetterunderstandingofriskandalsogivetheclientandbrokerenhancedlevelsofservice.”

Liberty’spropertylinesfollowthesameformulaweusethroughoutthebusiness:carefulchoiceofrisk,tailoredproductsandhavingexpertisewhereweneedit–ontheground.AlthoughoperationsarecurrentlycentredinLondonandDublin,theplanistoexpandthroughouttheUKregionsand

thenintoEurope.“ThefirstyearisallaboutbuildingourUKcapabilityanddevelopingasoundplatformforthebusiness.Communicatingourpropositiontobrokersisvitalandwehavealreadyachievedsuccesswithexcitingnewbusinesswinsinthefirstsixmonths.”

RichardbelievesthatLiberty’sriskengineeringexpertiseisalsoamajordifferentiator.“Wewanttodevelopclosepartnershipswithourclientsandhelpthemunderstandandmitigaterisktotheirbusiness.Thisbenefitsbothclientandinsurerasreducedexposuresensureamoreattractivecompanytoinsure,withlowerpremiumstoreflectanimprovedrisk”.

Despitecompetitivemarkets,RichardseesopportunitiesaheadaspropertyprovidesthemissinglinkinLiberty’sproductrangeandcreatesstrongsynergieswithourotherproductlines.Forexample,buildprojectsthatarecoveredbyourconstructionunderwriterscancontinuetobeinsuredbyLibertywhentheymoveintotheoperationalstage.

Byintroducingpropertylinesin2009,Libertyhasaddedavaluableandimportantcapabilitythatlookssettogrow.


ThedirectorsareresponsibleforpreparingtheAnnualReportandthefinancialstatementsinaccordancewithapplicablelawandregulations.

Companylawrequiresthedirectorstopreparefinancialstatementsforeachfinancialyear.UnderthatlawthedirectorshaveelectedtopreparethefinancialstatementsinaccordancewithUnitedKingdomgenerallyAcceptedAccountingPractice(UnitedKingdomAccountingStandardsandapplicablelaw).Thefinancialstatementsarerequiredbylawtogiveatrueandfairviewofthestateofaffairsofthecompanyandoftheprofitorlossofthecompanyforthatperiod.Inpreparingthosefinancialstatements,thedirectorsarerequiredto:

• selectsuitableaccountingpoliciesandthenapplythemconsistently;

• makejudgementsandestimatesthatarereasonableandprudent;

• statewhetherapplicableUKAccountingStandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosedandexplainedinthefinancialstatements;

• preparethefinancialstatementsonthegoingconcernbasisunlessitisinappropriatetopresumethatthecompanywillcontinueinbusiness.

ThedirectorsareresponsibleforkeepingproperaccountingrecordsthatdisclosewithreasonableaccuracyatanytimethefinancialpositionofthecompanyandtoenablethemtoensurethatthefinancialstatementscomplywiththeCompaniesAct2006.Theyarealsoresponsibleforsafeguardingtheassetsofthecompanyandhencefortakingreasonablestepsforthepreventionanddetectionoffraudandotherirregularities.

Thedirectorsareresponsibleforthemaintenanceandintegrityofthecorporateandfinancialinformationincludedonthecompany’swebsite.LegislationintheUnitedKingdomgoverningthepreparationanddisseminationoffinancialstatementsmaydifferfromlegislationinotherjurisdictions.

STATEMENTOFDIRECTORS’RESPONSIBILITIES


INDEPENDENTAUDITORS’REPORTTOTHEMEMBERS

OFLIBERTYMUTUALINSURANCEEUROPELIMITED

WehaveauditedthefinancialstatementsofLibertyMutualInsuranceEuropeLimitedfortheperiodended31December2009whichcomprisetheProfitandLossAccount,theBalanceSheetandtherelatednotes1to32.ThefinancialreportingframeworkthathasbeenappliedintheirpreparationisapplicablelawandUnitedKingdomAccountingStandards(UnitedKingdomgenerallyAcceptedAccountingPractice).

Thisreportismadesolelytothecompany’smembers,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.Ourauditworkhasbeenundertakensothatwemightstatetothecompany’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthanthecompanyandthecompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.

ResPeCtIVe ResPonsIbILItIes of DIReCtoRs AnD AuDItoRs

AsexplainedmorefullyintheDirectors’ResponsibilitiesStatementsetoutonpage19,thedirectorsareresponsibleforthepreparationofthefinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview.OurresponsibilityistoauditthefinancialstatementsinaccordancewithapplicablelawandInternationalStandardsonAuditing(UKandIreland).ThosestandardsrequireustocomplywiththeAuditingPracticesBoard’s(APB’s)EthicalStandardsforAuditors.

sCoPe of the AuDIt of the fInAnCIAL stAteMents

Anauditinvolvesobtainingevidenceabouttheamountsanddisclosuresinthefinancialstatementssufficienttogivereasonableassurancethatthefinancialstatementsarefreefrommaterialmisstatement,whethercausedbyfraudorerror.Thisincludesanassessmentof:whethertheaccountingpoliciesareappropriatetothecompany’scircumstancesandhavebeenconsistentlyappliedandadequatelydisclosed;thereasonablenessofsignificantaccountingestimatesmadebythedirectors;andtheoverallpresentationofthefinancialstatements.


oPInIon on fInAnCIAL stAteMents

Inouropinionthefinancialstatements:

• giveatrueandfairviewofthestateofthecompany’saffairsasat31December2009andofitsprofitfortheyearthenended;

• havebeenproperlypreparedinaccordancewithUnitedKingdomgenerallyAcceptedAccountingPractice;and

• havebeenpreparedinaccordancewiththerequirementsoftheCompaniesAct2006.

oPInIon on otheR MAtteR PResCRIbeD by the CoMPAnIes ACt 2006

InouropiniontheinformationgivenintheDirectors’Reportforthefinancialyearforwhichthefinancialstatementsarepreparedisconsistentwiththefinancialstatements.

MAtteRs on whICh we ARe RequIReD to RePoRt by eXCePtIon

WehavenothingtoreportinrespectofthefollowingmatterswheretheCompaniesAct2006requiresustoreporttoyouif,inouropinion:

• adequateaccountingrecordshavenotbeenkept,orreturnsadequateforouraudithavenotbeenreceivedfrombranchesnotvisitedbyus;or

• thefinancialstatementsarenotinagreementwiththeaccountingrecordsandreturns;or

• certaindisclosuresofdirectors’remunerationspecifiedbylawarenotmade;or

• wehavenotreceivedalltheinformationandexplanationswerequireforouraudit.

Stuart Wilson (Senior Statutory Auditor) for and on behalf of Ernst & Young LLP, London

30 March 2010


AsoneofLiberty’skeyprioritiesisachievingsustainablegrowth,itisimportantthatwecarryoutouractivitiesinawaythatreflectsthislong-termfocus.Thatmeansconservingpreciousresources,acknowledgingthatwearepartofawidercommunityandactingresponsiblyinallourbusinessactivities.

Wearecommittedtoreducingwasteinanumberofways.Forexample,inourLondonofficesweusemotion-sensitivelightingandvirtualserverstoensurethatenergyuseisminimised.Inadditionwenotonlyrecycleofficepaperandgeneralmaterial,wehavealsointroducedmeasurestorecycleprintertoner,back-uptapesandcomputerhardware.

Inthewidercommunity,wecontributedtomorethan40charitiesin2009,boththroughdirectdonationsandbysupportingstaffwhowereinvolvedinfundraising.Forexample40employeestookpartintheStandardCharteredgreatCityRace,runinaidoftheeyecarecharitySeeingisBelieving.OthercharitiessupportedincludetheBritishHeartFoundation,Barnado’s,HelpforHeroes,StJohn’sAmbulance,ThePlace2Be,theBritishLungFoundationandRNID.Aswellashelpingourstafftoraisemoney,wealsoencouragethemtogivetheirtimeandskillstovaluablecausesthatvaryfromhelpingoutinlocalschoolstoanimalconservationworkwithLondonZoo.

Thesearejustsomeofthewaysinwhichsustainablethinkingisbenefittingourbusiness,theenvironmentandthewidercommunity.

sustAInAbLe thInkInG


fInAnCIAL stAteMents foR the yeAR enDeD 31 DeCeMbeR 2009


technical account - general business notes2009 $000

2008 $000

grosspremiumswritten 3 577,382 543,563

Outwardreinsurancepremiums (210,137) (180,295)

Netpremiumswritten 367,245 363,268

Changeintheunearnedpremium

-grossamount 2 (33,593) (30,473)

-reinsurers'share 2 18,157 (30,458)

-netamount 2 (15,436) (60,931)

Earnedpremiums,netofreinsurance 2 351,809 302,337

Allocatedinvestmentreturntransferredfromthenon-technicalaccount

45,413 12,469

total technical Income 397,222 314,806

Claimspaid

-grossamount (263,914) (249,817)

-reinsurers'share 122,881 101,385

-netofreinsurance (141,033) (148,432)

Changeintheprovisionforclaims

-grossamount 28 17,862 24,461

-reinsurers'share 28 (88,041) (21,007)

-netofreinsurance 28 (70,179) 3,454

Claimsincurrednetofreinsurance (211,212) (144,978)

Netoperatingexpenses 4 (138,144) (102,044)

Changeintheequalisationprovision 30 (5,866) (3,922)

total technical Charges (355,222) (250,944)

balance on the technical Account for General business 42,000 63,862

PROFITANDLOSSACCOUNTFORTHE

YEARENDED31DECEMBER2009


non-technical account notes2009 $000

2008 $000

balance on the technical Account for General business 42,000 63,862

Investmentincomeandgainsonrealisationofinvestments 5 66,735 47,540

Unrealised(losses)oninvestments - (27,497)

Investmentexpensesandcharges 6 (1,933) (1,970)

Foreignexchange(losses)/gains (601) 2,963

Allocatedinvestmentreturntransferredtothegeneralbusinesstechnicalaccount (45,413) (12,469)

Profit on ordinary activities before tax 7 60,788 72,429

Taxonprofitonordinaryactivities 8 (16,369) (23,439)

Profit on ordinary activities after tax 21 44,419 48,990

Alltheamountsaboveareinrespectofcontinuingoperations.

Theinclusionofunrealisedgainsandlossesintheprofitandlossaccountisnotdeemedtobeadeparturefromtheunmodifiedhistoricalcostbasisofaccountingandthereforeaseparatenoteofhistoricalcostprofitsandlosseshasnotbeenincluded.

Thenotesonpages29to52formpartofthesefinancialstatements.

PROFITANDLOSSACCOUNTFORTHE

YEARENDED31DECEMBER2009


STATEMENTOFTOTALRECOgNISEDgAINSANDLOSSES

FORTHEYEARENDED31DECEMBER2009

notes2009 $000

2008 $000

Profitonordinaryactivitiesaftertax 21 44,419 48,990

(Losses)arisingfromtheeffectofretranslationofassetsandliabilitiesdenominatedingBPandEuro,netoftax

21 (2,899) (23,438)

Pensionscheme-Actuarial(loss),netoftax 21 (770) (177)

total recognised gains relating to the year 22 40,750 25,375



BALANCESHEETASAT31DECEMBER2009

Assets notes2009 $000

2009 $000

2008 $000

2008 $000

Investments

Investmentsinsubsidiaryundertakings 11 1,877 1,759

Otherfinancialinvestments 13 1,542,274 1,374,638

Depositswithcedingundertakings 3,314 10,045

1,547,465 1,386,442

Reinsurers' share of technical provisions

Provisionforunearnedpremiums 2 133,988 112,837

Claimsoutstanding 28 792,835 852,382

926,823 965,219

Debtors

Debtorsarisingoutofdirect

insuranceoperations 15 177,815 155,341

Debtorsarisingoutof

reinsuranceoperations 74,563 49,233

Otherdebtors 10 8,824 11,583

261,202 216,157

other assets

Tangibleassets 12 2,667 3,035

Cashatbankandinhand 50,975 53,819

53,642 56,854

Prepayments and accrued income

Accruedinterest 22,284 18,920

grossdeferredacquisitioncosts 4 43,179 36,781

Otherprepaymentsand

accruedincome 16 2,457 1,690

67,920 57,391

total assets 2,857,052 2,682,063



BALANCESHEETASAT31DECEMBER2009(continued)

LIAbILItIes notes2009 $000

2009 $000

2008 $000

2008 $000

Capital and reserves

Calledupsharecapital 20 290,225 290,225

Profitandlossaccount 21 376,260 335,510

666,485 625,735

technical provisions

Provisionforunearnedpremiums 2 360,676 312,754

grossclaimsoutstanding 28 1,642,997 1,609,350

Equalisationprovisions 30 14,426 7,902

2,018,099 1,930,006

Creditors

Creditorsarisingoutofdirectinsuranceoperations 15 240 211

Creditorsarisingoutofreinsuranceoperations 58,175 39,906

Othercreditorsincludingtaxationandsocialsecurity 18 63,883 40,145

122,298 80,262

Accrualsanddeferredincome 19 48,843 45,383

total liabilities excluding pension liability 2,855,725 2,681,386

Pensionliability 26 1,327 677

total liabilities 2,857,052 2,682,063

ThefinancialstatementswereapprovedbytheBoardofDirectorson29March2010andweresignedonitsbehalfby:


SEANPROCKSCEO|29MARCH2010


NOTESTOTHEFINANCIALSTATEMENTS

1 ACCountInG PoLICIes

(a) Disclosure requirementsThefinancialstatementshavebeenprepared incompliancewith thespecialprovisions relating to insurancecompanies in Section 3 of the Large and Medium-sized Companies and groups (Accounts and Reports)Regulations2008.

(b) standard accounting practiceThe financial statements comply with applicable accounting standards and the revised ABI Statement ofRecommendedPracticeissuedinDecember2005asamendedinDecember2006.

ThecompanyhasadoptedFinancialReportingStandardNo.1 (Revised1996),and is thereforeexempt fromthe requirement toprepareacashflowstatement as it is a100%ownedsubsidiaryof Liberty InternationalHoldingsIncorporated,anditscashflowsareincludedwithintheconsolidatedcashflowstatementofLibertyInternationalHoldingsInc.AsallowedunderFinancialReportingStandardNo.8,thecompanyhasnotdisclosedallrelatedpartytransactionswithgroupundertakingsonthebasisthatthecompanyisasubsidiaryundertakingwith100%votingrightscontrolledwithinagroupwhichproducespubliclyavailableconsolidatedfinancialstatementsinwhichthecompanyisincluded.

(c) basis of accountingTheannualbasisofaccountinghasbeenappliedtoallclassesofbusinesswrittenbythecompany.

(d) subsidiary undertakingsThe company has claimed exemption from the production of consolidated financial statements undertheCompanies Act 2006 s.400 as it is a subsidiary undertakingwhose ultimate parent company producesconsolidatedaccounts in amanner equivalent to financial statementsdrawnupunder theprovisionsof theEU7thCouncilDirective83/349/EECof13June1983basedonArticle54(3)goftheTreatyonConsolidatedAccounts.

Investmentsinsubsidiaryundertakingsareheldatcostlessaccumulatedimpairmentlosses,ifany.

(e) Premiumsgrosswrittenpremiumsrepresentpremiumsreceivableforthewholeperiodofcoverundercontractsinceptingduringthefinancialyear,togetherwithadjustmentsarisinginthefinancialyeartobusinesswritteninpreviousfinancial years and are stated before commissions but net of taxes, duties levied on premiums and otherdeductions.Outwardreinsurancepremiumsareaccountedforinthesameaccountingperiodasthepremiumsfortherelateddirectinsuranceorinwardsreinsurancebusiness.

(f) unearned premiumsForbusinessaccountedforonanannualbasis,theproportionofthepremiumswritteninayearrelatingtotheperiodofriskfrom1Januarytothesubsequentdatesofexpiryofpoliciesiscarriedforwardasaprovisionforunearnedpremiums.Theprovisioniscalculatedonthe365thsmethod,or,inrespectofengineering/courseofconstructionbusiness,iscalculatedusinganearningsprofilebasedontheconstructionandmaintenanceperiodofspecificpolicies.

(g) unexpired risksProvision is made for any anticipated shortfall of the provision for unearned premiums for claims andadministrativeexpenseslikelytoariseaftertheendoftheyearfromcontractsconcludedbeforethatdate.Theoverallassessmentofwhetheraprovisionisnecessaryismadeonthebasisofallcategoriesofbusiness.Noaccountistakenoffutureinvestmentincome.


(h) Deferred acquisition costs Commissioncostswhichvarywith,andareprimarilyrelatedto,theacquisitionofnewinsurancecontractsandthe renewalofexisting insurancecontractsaredeferred to theextent that theyareattributable topremiumsunearnedatthebalancesheetdate.

(i) InvestmentsInvestments,otherthandebtsecuritiesandotherfixedinterestsecurities,arestatedattheircurrentvalue.Listedinvestmentsarestatedatbidpricemarketvalueatcloseofbusinessonthebalancesheetdate,oronthelaststockexchangetradingdaybeforethebalancesheetdate.

Redeemablefixedinterestsecurities,heldasaportfolioofsuchsecuritiesintendedtobeheldonanongoingbasis,arevaluedatamortisedcost.Theamortisationiscalculatedsoastowriteoffthedifferencebetweenthepurchasepriceandthematurityvalueoverthelifeofthesecurity.

Redeemablefixedinterestsecuritiesarereviewedforanypermanentdiminutioninvalueperiodicallyonaholdingbyholdingbasis.Whereapermanentdiminutionisidentified,thecarryingvalueofthesecurityisadjustedtoitsfairvalueatthattimeandthedifferencebetweenthisvalueandthesecurity’samortisedcostisrecordedasarealisedinvestmentlossintheprofitandlossaccount.

(j) Investment income, expenses and chargesInvestmentincomeandexpensesareaccountedforonanaccrualsbasis.InaccordancewithFinancialReportingStandard16“CurrentTax”,dividendsarerecognisedattheamountreceivablewithoutanyattributabletaxcredit.

Investmentincome(whichincludestheamortisationchargeinrespectofinvestmentscarriedatamortisedcost),realisedgainsandlossesarisingfromthedisposalofinvestments,andunrealisedgainsandlossesaredealtwiththroughthenon-technicalaccountandthenreallocatedinparttothetechnicalaccounttoreflectthatproportionoftheinvestmentreturnarisingontechnicalprovisions.

Realisedgainsorlossesrepresentthedifferencebetweennetsalesproceeds(orfairvalueinthecaseofimpairments)andpurchaseprice,orinthecaseofdebtsecuritiesandotherfixedinterestsecurities,amortisedcost.

(k) unrealised gains and losses on shares and other variable yield securities and units in unit trustsUnrealisedgainsandlossesonsharesandothervariableyieldsecuritiesandunitsinunittrustsrepresentthedifferencebetweenthemarketvalueatthebalancesheetdateandtheirpurchaseprice,oriftheyhavebeenpreviouslyrevalued,thevaluationatthelastbalancesheetdate.

Themovement inunrealisedgainsand lossesonsharesandothervariableyieldsecuritiesandunits inunittrustsdisclosedintheprofitandlossaccountincludesanyreversalforpreviouslyrecognisedunrealisedgainsandlossesonsharesandothervariableyieldsecuritiesandunitsinunittrusts,whichweredisposedofintheaccountingperiod.

(l) outstanding claims Fullprovisionismadeonanindividualcasebasisfortheestimatedcostofclaimsnotifiedbutnotsettledbythebalancesheetdateaftertakingintoaccounthandlingcostsandsettlementtrends.Aprovisionforclaimsincurredbutnotreportedisestablishedfromstatisticalanalysisundertakenbythecompany’sactuaries.Themethodsusedandtheestimatesmadearereviewedregularly.Whilstthedirectorsconsiderthatthegrossprovisionforclaimsandtherelatedreinsurancerecoveriesarefairlystatedonthebasisoftheinformationcurrentlyavailabletothem,theultimateliabilitywillvaryasaresultofsubsequentinformationandevents.Anydifferencesbetweenprovisionsandsubsequentsettlementsaredealtwithinthetechnicalaccountsoflateryears.

NOTESTOTHEFINANCIALSTATEMENTS(continued)

1 ACCountInG PoLICIes (continued)


(l) outstanding claims (continued) Incalculatingtheestimatedcostofunpaidclaimsthecompanyusesavarietyofestimationtechniques,generallybaseduponstatisticalanalysesofhistoricalexperience,whichassumesthatthedevelopmentpatternofcurrentclaimswillbeconsistentwithpastexperience.Allowanceismade,however,forchangesoruncertaintieswhichmaycreatedistortionsintheunderlyingstatisticsorwhichmaycausethecostofunsettledclaimstochangewhencomparedwiththecostofpreviouslysettledclaimsincluding:

•changesincompanyprocesseswhichmightaccelerateorslowdownthedevelopmentand/orrecordingofpaidorincurredclaimscomparedwiththestatisticsfrompreviousperiods

•changesinthelegalenvironment

•theeffectsofinflation

•changesinthemixofbusiness

•theimpactoflargelosses

•movementinindustrybenchmarks

Acomponentoftheseestimationtechniquesisusuallytheestimationofthecostofnotifiedbutnotpaidclaims.Inestimatingthecostofthesethecompanyhasregardtoclaimcircumstancesasreported,andinformationavailablefromlossadjustersandinformationonthecostofsettlingclaimswithsimilarcharacteristicsinpreviousperiods.

Large claims impacting each relevant business class were assessed separately where appropriate, beingmeasuredonacase-by-casebasisorprojectedseparatelyinordertoallowforthepossibledistortiveeffectofthedevelopmentandincidenceofthelargeclaims.

The provision for claims outstanding is based on information available at the balance sheet date and it isestimatedtogivearesultwithinanormalrangeofoutcomes.Totheextentthattheultimatecostfallsoutsidethisrange,forexamplewhereassumptionsoverclaimsinflationmayalterinfuture,thereisacontingentliabilityinrespectofthisuncertainty.Provisionsarecalculatedallowingforreinsurancerecoveriesandaseparateassetisrecordedforthereinsurers’share,havingregardtocollectability.

(m) Claims management expenseClaimsmanagementexpenseshavebeendeterminedbyanapportionmentofemploymentcosts.

(n) equalisation provisionsEqualisationprovisionshavebeenestablishedinaccordancewiththerequirementsofthePrudentialSourcebookforInsurersandincludedastheequalisationprovisionwithintechnicalprovisions.

(o) Deferred taxationFinancialReportingStandard19“DeferredTax”requiresfullprovisiontobemadefordeferredtaxassetsandliabilitiesarisingfromtimingdifferencesbetweentherecognitionofgainsandlossesinthefinancialstatementsandtheirrecognitioninataxcomputation.

Deferredtaxisrecognisedasaliabilityorassetifthetransactionsoreventsthatgivetheentityanobligationtopaymoretaxinthefutureorarighttopaylessorreceivemoretaxinthefuturehaveoccurredbythebalancesheetdate.Deferredtaxassetsarerecognisedtotheextentthatitisregardedasmorelikelythannotthattheywillberecovered.




(p) exchange ratesAssetsandliabilitiesaretranslatedintoUSdollarsattheexchangeratesprevailingatthebalancesheetdate.Income and expense transactions are translated using the rate prevailing at the date of transactions or anappropriateaveragerate.

Principalexchangeratesusedwereasfollows:

Average Closing

USD:gBP 1.5592 1.5965

USD:EUR 1.3997 1.4249

ThecompanymaintainsseparatecurrencyledgersforUSdollars,£sterlingandEurobusiness.Theseseparateforeigncurrency ledgersareconsideredbymanagement torepresent foreignbranches.ExchangegainsandlossesarisingfromtheretranslationintoUSdollarsofthebalancesheetsofthesebranchesusingtheratesofexchangeprevailingatthebalancesheetdate,andtheretranslationintoUSdollarsoftheprofitandlossaccountsofthesebranchesusingtheaverageratesofexchangefortheyear,havebeenrecordedinthestatementoftotalrecognisedgainsandlosses.

LedgersareheldinUSdollarsinrespectoftheoverseasbranchesintheFarEastandEurosinrespectoftheoverseasbranchesinEurope.ExchangegainsandlossesarisingfromtheretranslationoftheEuropeanoverseasbranchestoUSdollarscontinuetoberecordeddirectlyinthestatementoftotalrecognisedgainsandlosses.

Allotherforeignexchangegainsandlossescontinuetoberecordedinthenon-technicalaccount.

(q) fixed assetsExpenditureonleaseholdimprovements,software,computerequipment,motorvehicles,fixtures,fittingsandofficeequipment iscapitalisedanddepreciatedover theestimatedusefuleconomic livesof theassetsonastraightlinebasis.

Theperiodsusedtodepreciatesuchassetsareasfollows:

Leaseholdimprovements Remainingleaseterm

Software 1year

ComputerEquipment 1year

MotorVehicles 4years

Fixture,fittingsandofficeequipment 5-10years

Depreciationisincludedaspartofadministrativeexpenses.




(r) Pension costsThecompanyparticipatesinagroupcontributorypensionscheme.Contributionstotheschemearechargedtotheprofitandlossaccountsoastospreadthecostofpensionsoveremployees’workingliveswiththecompany.Variationsarisingfromactuarialsurplusesarespreadovertheaverageremainingservicelivesofmemberstotheextentthattheresultingcreditdoesnotexceedtheregularcost.

Defined benefit Pension schemeThecompanyhasfullyadoptedaccountingstandardFRS17“RetirementBenefits”.

Thedifferencebetweenthefairvalueoftheassetsheldinthecompany’sdefinedbenefitpensionschemeandthescheme’sliabilitiesmeasuredonanactuarialbasisusingtheprojectedunitmethodarerecognisedinthecompany’sbalancesheetasapensionschemeassetorliabilityasappropriate.

Thecarryingvalueofanyresultingpensionschemeassetsisrestrictedtotheextentthatthecompanyisabletorecoverthesurpluseitherthroughreducedcontributionsinthefutureorthroughrefundsfromthescheme.Thepensionschemebalanceisrecognizednetofanyrelateddeferredtaxbalance.

ChangesinthedefinedbenefitpensionschemeassetorliabilityfromfactorsotherthancashcontributionbythecompanyarechargedtotheProfitandLossaccountortheStatementofTotalRecognisedgainsandLossesinaccordancewithFRS17“RetirementBenefits”.

Employeesjoiningonorafter1January2002becamemembersofthecompanydefinedcontributionpensionschemes.Contributionsarechargedintheprofitandlossaccountastheybecomepayableinaccordancewiththerulesoftheschemes.

(s) LeasesAssetsheldunderfinanceleasesandhirepurchasecontractsarecapitalisedattheirfairvalueontheinceptionoftheleasesanddepreciatedovertheirestimatedusefullives.Thefinancechargesareallocatedovertheperiodoftheleaseinproportiontothecapitalamountoutstanding.

Rentalsunderoperatingleasesarechargedtotheprofitandlossaccountinequalannualinstalmentsovertheperiodofthelease.

(t) salvage and subrogation recoveriesAnticipatedsalvageandsubrogationrecoveriesarecalculatedonanindividualcasebasis.Thelevelofrecoveryestimatedissetonthebasisofinformationwhichiscurrentlyavailable,includingpotentialoutstandingclaimsadvicesandcaselaw.Salvageandsubrogationrecoveriesareincludedinclaimsincurredintheprofitandlossaccount.




2 eARneD PReMIuMs net of ReInsuRAnCe

2009Gross

$000Reinsurance

$000net

$000

Premiumsreceivable 577,382 (210,137) 367,245

Unearnedpremiumscarriedforward (360,676) 133,988 (226,688)

Unearnedpremiumbroughtforward 312,754 (112,837) 199,917

Exchangedifferenceonbroughtforward 14,329 (2,994) 11,335

MovementperTechnicalAccount (33,593) 18,157 (15,436)

Premiumsearned 543,789 (191,980) 351,809

2008Gross

$000Reinsurance

$000net

$000

Premiumsreceivable 543,563 (180,295) 363,268

Unearnedpremiumscarriedforward (312,754) 112,837 (199,917)

Unearnedpremiumbroughtforward 304,802 (150,437) 154,365

Exchangedifferenceonbroughtforward (22,521) 7,142 (15,379)

MovementperTechnicalAccount (30,473) (30,458) (60,931)

Premiumsearned 513,090 (210,753) 302,337




3 AnALysIs of PReMIuMs wRItten, CLAIMs, oPeRAtInG eXPenses AnD ReInsuRAnCe bALAnCe

InformationrequiredbytheCompaniesAct2006byclassofbusinessisasfollows:

2009

Gross premium

written $000

Gross premium

earned $000

Gross claims

incurred $000

Gross operating expenses

$000

Reinsurance balance

$000

net technical provision

$000

Direct

Marine,AviationandTransport 155,420 157,150 (61,400) (49,859) (40,878) 195,534

PrimaryDirect&FacProperty 32,579 32,174 (19,627) (7,947) 601 51,501

PrimaryDirectCommercialLiability 326,802 304,180 (148,473) (92,233) (78,633) 669,815

PrimaryDirectCommercialFinancial 61,861 49,600 (22,802) (17,835) (6,691) 59,497

TotalDirect 576,662 543,104 (252,302) (167,874) (125,601) 976,347

TotalNon-Prop&PropR/ITreatyBusiness 720 685 6,250 (434) (1,375) 85,688

Totals 577,382 543,789 (246,052) (168,308) (126,976) 1,062,035

2008

Gross premium

written $000

Gross premium

earned $000

Gross claims

incurred $000


$000

Reinsurance balance

$000


$000

Direct

Marine,AviationandTransport 145,821 144,382 (136,250) (44,276) 31,990 184,833

PrimaryDirect&FacProperty 29,578 25,624 (11,811) (5,846) (2,227) 48,418

PrimaryDirectCommercialLiability 313,216 301,176 (81,232) (79,741) (114,186) 568,086

PrimaryDirectCommercialFinancial 54,940 41,586 (23,404) (14,119) (2,579) 47,939

TotalDirect 543,555 512,768 (252,697) (143,982) (87,002) 849,276

TotalNon-Prop&PropR/ITreatyBusiness 8 322 27,341 (745) (690) 95,797

Totals 543,563 513,090 (225,356) (144,727) (87,692) 945,073

Commissionspayableinrespectofdirectinsuranceamountedto$55,529,000(2008:$51,344,000).



Thecompanyoperatesitsbusinessinthefollowingdivisions:

2009

Gross premium

written $000

Gross premium

earned $000

Gross claims

incurred $000


$000

Reinsurance balance

$000


$000

London 362,646 348,150 (127,798) (98,266) (109,484) 757,674

UKandIreland 54,085 49,406 (28,193) (17,654) (7,042) 108,366

ContinentalEurope 88,517 80,054 (46,244) (25,604) (9,827) 116,049

International 72,134 66,179 (43,817) (26,784) (623) 79,946

Totals 577,382 543,789 (246,052) (168,308) (126,976) 1,062,035

2008

Gross premium

written $000

Gross premium

earned $000

Gross claims

incurred $000


$000

Reinsurance balance

$000


$000

London 353,112 346,401 (153,075) (86,619) (54,189) 705,106

UKandIreland 49,949 46,819 (31,287) (17,889) (2,474) 96,015

ContinentalEurope 74,948 66,767 (41,916) (20,232) (4,604) 81,826

International 65,554 53,103 922 (19,987) (26,425) 62,126

Totals 543,563 513,090 (225,356) (144,727) (87,692) 945,073

3 AnALysIs of PReMIuMs wRItten, CLAIMs, oPeRAtInG eXPenses AnD ReInsuRAnCe bALAnCe (continued)



4 net oPeRAtInG eXPenses

2009Gross

$000Reinsurance

$000net

$000

Acquisitioncosts 70,736 (32,806) 37,930

Deferredacquisitioncostscarriedforward (43,179) 28,363 (14,816)

Deferredacquisitioncostsbroughtforward 36,781 (24,969) 11,812

Exchangedifferenceonbroughtforward 1,220 (752) 468

Changeindeferredacquisitioncosts (5,178) 2,642 (2,536)

Incurredacquisitioncosts 65,558 (30,164) 35,394

Administrativeexpenses 102,750

138,144

2008Gross

$000Reinsurance

$000net

$000

Acquisitioncosts 63,637 (27,777) 35,860

Deferredacquisitioncostscarriedforward (36,781) 24,969 (11,812)

Deferredacquisitioncostsbroughtforward 34,088 (41,797) (7,709)

Exchangedifferenceonbroughtforward (2,343) 1,922 (421)

Changeindeferredacquisitioncosts (5,036) (14,906) (19,942)

Incurredacquisitioncosts 58,601 (42,683) 15,918

Administrativeexpenses 86,126

102,044

5 InVestMent InCoMe AnD GAIns/(Losses) on ReALIsAtIon of InVestMents

2009 $000

2008 $000

Incomefromotherfinancialinvestments 63,945 67,650

Netgains/(losses)ontherealisationofinvestments 2,790 (20,110)

66,735 47,540



6 InVestMent eXPenses AnD ChARGes

2009 $000

2008 $000

Investmentmanagementexpensesincludinginterest 1,933 1,970

1,933 1,970

7 PRofIt AnD Loss ACCount

Profitonordinaryactivitiesbeforetaxisstated:

2009 $000

2008 $000

After crediting

Incomefromlistedinvestments 65,367 63,513

After charging

Depreciation 1,326 689

Operatingleaserentals:

Motorvehiclesandequipment 885 513

Landandbuildings 6,536 5,620

Directors'emoluments:

Fees 86 101

Remunerationasexecutives 4,873 4,377

Pensioncontributions 456 479

2009 $000

2008 $000

Auditors'remuneration:

Statutoryauditofcompany’sfinancialstatements 521 282

Otherservicespursuanttolegislation 111 100

Taxservices 262 160

Servicesrelatingtoinformationtechnology - -

Allotherservices–additionalgroupreportingauditrequirementsnotpursuanttolegislation 154 262

Auditofgrouppensionscheme 11 15



7 PRofIt AnD Loss ACCount (continued)

2009 $000

2008 $000

Directors' Remuneration

Emoluments 5,415 4,957

2009 2008

Numberofdirectorswhoaremembersofadefinedbenefitpensionscheme 1 1

2009 $000

2008 $000

Highestpaiddirector'sremuneration

Aggregateofemolumentsandawardsunderlongtermincentiveschemes,including$108,000pensioncontributions 1,694 1,486

8 tAXAtIon

(a) Analysis of charge in period

2009 $000

2008 $000

Currenttax:

Overseastaxation 3,438 (4,693)

UKtaxation (20,859) (17,034)

Totalcurrenttax(seeNote8(b)) (17,421) (21,727)

Deferredtax:

Originationandreversaloftimingdifferences 1,052 (1,712)

Totaldeferredtax 1,052 (1,712)

Taxchargeonprofitonordinaryactivities (16,369) (23,439)

(b) factors affecting tax charges for periodThetaxchargedfortheperiodishigherthanthestandardeffectiverateofcorporationtaxintheUK(28percent).Thedifferencesareexplainedoverleaf.



(b)Factorsaffectingtaxchargesforperiod(continued)

2009 $000

2008 $000

Profitonordinaryactivitiesbeforetax 60,788 72,429

ProfitonordinaryactivitiesmultipliedbystandardeffectiverateofcorporationtaxintheUKof28%(2008:28.5%) (17,021) (20,642)

Effectsof:

Unrelievedoverseastaxlossesandwithholdingtaxes 250 (1,695)

Effectofdisallowableitems (1,226) (1,439)

Taxoverprovidedinpreviousyears 1,628 337

Short-termtimingdifferences (1,052) 1,712

Currenttaxchargeforyear(seeNote8(a)) (17,421) (21,727)

(c) factors that may affect future tax chargesBased on current business plans, the company expects tomake sufficient taxable profits in the next threefinancialyearstosupporttherecoverabilityofthedeferredtaxassetrecognisedat31December2009.

9 stAff nuMbeRs AnD Costs

The average number of persons employed by the company (including executive directors) during the year,analysedbycategory,wasasfollows:

2009 2008

Underwriting 245 190

Claims 44 38

Administration 84 79

373 307

Theaggregatepayrollcostsofthesepersonswereasfollows:

2009 $000

2008 $000

Wagesandsalaries 52,102 52,924

Redundancycosts 12 407

Socialsecuritycosts 4,527 5,038

Otherpensioncosts(seeNote26) 4,765 4,884

61,406 63,253

8 tAXAtIon (continued)



10 otheR DebtoRs

2009 $000

2008 $000

Deferredtaxation(seeNote17) 5,724 4,598

Otherdebtors 3,100 6,985

8,824 11,583

11 InVestMents In subsIDIARy unDeRtAkInGs

Detailsofthecompany’sinvestmentsinsubsidiaryundertakings,allofwhichproducetheirfinancialstatementsat31Decembereachyear,areasfollows:

nametype of business

Class of shares held (all held directly)

Percentage of nominal value and voting rights held by the company

Country of incorporation and operation

VisionUnderwritingLimited UnderwritingAgency

Ordinary 100% UK

VisionEmploymentHealthandSafetyLimited

HealthandSafetyServices

Ordinary 100% UK

VisionRiskManagementLimited RiskManagement

Ordinary 100% UK



12 tAnGIbLe Assets

Leasehold Improvements

$000

fixtures, fittings &

equipment $000

Motor Vehicles $000

total $000

Cost:

At1January2009 1,675 8,061 50 9,786

Revaluation 134 434 - 568

Additionsduringtheyear 107 730 - 837

Disposalsduringtheyear - (36) - (36)

At31December2009 1,916 9,189 50 11,155

Accumulateddepreciation:

At1January2009 897 5,841 12 6,750

Revaluation 67 376 - 443

Chargefortheyear 298 1,012 18 1,328

Disposalsduringtheyear - (33) - (33)

At31December2009 1,262 7,196 30 8,488

Netbookvalueat31December2009 654 1,993 20 2,667

Netbookvalueat31December2008 778 2,220 37 3,035



13 otheR fInAnCIAL InVestMents

2009 $000

2008 $000

Market valuations

Debtsecuritiesandotherfixedincomesecurities 1,499,900 1,259,031

Depositswithcreditinstitutions 97,732 134,804

TotalMarketValueofOtherFinancialInvestments 1,597,632 1,393,835

original Cost

Debtsecuritiesandotherfixedincomesecurities 1,460,613 1,248,989

Depositswithcreditinstitutions 97,732 134,804

TotalOriginalCostofOtherFinancialInvestments 1,558,345 1,383,793

Carrying Value

Debtsecuritiesandotherfixedincomesecuritiesatamortisedcost 1,444,542 1,239,834

Depositswithcreditinstitutionsatoriginalcost 97,732 134,804

TotalCarryingValueofOtherFinancialInvestments 1,542,274 1,374,638

Includedintheabovemarketvaluationswereinvestments:

2009 $000

2008 $000

ListedontheUKStockExchange 213,536 164,533

Listedonotherinvestmentexchanges 884,104 795,507

1,097,640 960,040

Thematurityvalueofdebtsecuritiesandotherfixedincomesecuritiesis$1,431,809,994(2008:$1,161,300,000)andtheunamortisedpremiumamountsto$15,591,799(2008:$11,868,000).



14 AMounts Due to AnD fRoM GRouP unDeRtAkInGs

Thefollowingamountsdue(to)andfromgroupundertakingsareincludedwithin:

2009 $000

2008 $000

Otherdebtors - 3,219

grossdeferredacquisitioncosts 31 27

Debtorsarisingoutofreinsuranceoperations 9,129 3,579

Reinsurers’shareoftechnicalprovisions 46,985 49,933

Othercreditors (20,067) (351)

Accrualsanddeferredincome (2,287) (3,559)

Creditorsarisingoutofreinsuranceoperations (4,909) (25,548)

Technicalprovisions (1,209) (901)

27,673 26,399

15 DebtoRs AnD CReDItoRs ARIsInG out of DIReCt InsuRAnCe oPeRAtIons

Allamountsareowedtoorduefromintermediaries.

16 otheR PRePAyMents AnD ACCRueD InCoMe

2009 $000

2008 $000

Prepayments 2,457 1,690

2,457 1,690



17 DefeRReD tAXAtIon

2009 $000

2008 $000

Othertimingdifferences 6,241 4,861

Assetatstartofyear 4,861 6,731

Timingdifferencesarisinginperiod 1,052 (1,712)

Deferredtaxcredit/(charge)inprofitandlossaccount 1,052 (1,712)

TaxationrecognisedintheStatementofTotalRecognisedgainsandLosses 328 (158)

Assetatendofyear 6,241 4,861

DeferredtaxassetincludedinOtherdebtors 5,724 4,598

DeferredtaxassetdeductedfromPensionliability 517 263

6,241 4,861

18 otheR CReDItoRs InCLuDInG tAXAtIon AnD soCIAL seCuRIty

2009 $000

2008 $000

Socialsecurity 1,012 585

Premiumtaxespayable 23,708 20,350

Overseastaxespayable 252 2,081

Corporationtax 10,845 16,249

Bankoverdraft 4,000 -

Othercreditors 24,066 880

63,883 40,145

19 ACCRuALs AnD DefeRReD InCoMe

2009 $000

2008 $000

Deferredreinsurancecommissions 28,363 24,969

Otheraccruals 20,480 20,414

48,843 45,383


20 shARe CAPItAL

2009 $000

2008 $000

Authorised:

629,187,000(2008:629,187,000)ordinarysharesof$1each 629,187 629,187

Issued and fully paid:

290,225,000(2008:290,225,000)ordinarysharesof$1each 290,225 290,225

21 ReseRVes

Profit & loss Account

excluding Pension Liability

$000

Pension Liability

$000

total Account

$000

Balanceat1January2009 336,187 (677) 335,510

Profitforfinancialyear 44,229 190 44,419

Pensionscheme-Actuarialloss ChangeinFRS17“RetirementBenefits”,netoftax - (770) (770)

gainsandlossesarisingfromtheretranslationofassetsandliabilitiesdenominatedingBPandEuros,netoftax (2,829) (70) (2,899)

Balanceat31December2009 377,587 (1,327) 376,260

22 ReConCILIAtIon of MoVeMents In shARehoLDeRs’ funDs

2009 $000

2008 $000

Totalrecognisedgainsrelatingtotheyear 40,750 25,375

Openingshareholders’funds 625,735 600,360

Closingshareholders’funds 666,485 625,735



23 CoLLAteRAL DePosIts

Debtsecuritiesanddepositswithcreditinstitutionsamountingto$53,450,030(2008:$28,043,629)havebeenpledgedassecurityinconnectionwithcertainofthecompany’soverseasliabilities.

24 otheR CoMMItMents

Annualcommitmentsat31Decemberundernon-cancellableoperatingleasesareshownbelow:

2009 Land and buildings

$000

2008 Land and buildings

$000

Operatingleasesexpiringwithintwotofiveyears 5,456 4,716

Operatingleasesexpiringafterfiveyears - 582

25 ContInGent LIAbILIty

ThecompanyhasenteredintoaletterofcreditinfavouroftheInstituteofLondonUnderwriters(“ILU”)forcertainpotentialliabilitiesinrespectoftheInstitute’sbuildinginLeadenhallStreet,LondonEC3.During2009drawingsontheletterofcreditamountedto$37,895(2008:$45,601)anditsvalueat31December2009was$639,943(2008:$625,909).

On 14 February 2007, the company provided a guarantee on behalf of a fellow group undertaking, LibertySyndicateManagementLimited,inrespectofthatcompany’sfinancialobligationsrelatedtoapropertytenancyexpiring on 22 February 2017. The maximum potential obligation of the company under the guarantee isdependent,interalia,onfuturerentreviewsbutisestimatedbythecompanytobe£11,550,000.

ThecompanyhasprovidedtotheLabuanOffshoreFinancialServicesAuthorityanirrevocableandunconditionalguaranteethatitwillmeetallofthecompany’sobligationsrelatingtoitsinsuranceoperationsinLabuan,Malaysia.




26 DefIneD benefIt PensIon sCheMe

ThecompanyparticipatesinagroupdefinedbenefitschemeintheUKtogetherwithfellowsubsidiariesofLibertyMutualHoldingCompanyInc.TheinformationdisclosedbelowisonlyinrespectofLibertyMutualInsuranceEuropeLimited’sparticipationinthescheme.

Composition of the schemeA full actuarial valuationwas carried out at 1 July 2008 and updated to 31 December 2009 by a qualifiedindependentactuary.Themajorassumptionsusedbytheactuarywere:

At 31 December2009

%2008

%2007

%

Rateofincreaseinsalaries 4.6 4.2 4.5

RateofincreaseinpensionsinpaymentwhereLimitedPriceIndexation(LPI)applies 3.4 3.1 3.4

Discountrate 5.6 5.9 5.8

Inflationassumption 3.6 3.2 3.5

Loadingformortalityimprovements 0.0 0.0 0.0

Mortalitytablecode PA92MediumCohort

PA92MediumCohort

PA92MediumCohort

Theassetsintheschemeandtheexpectedreturnwere:

At 31 December

Long-term rate of return

expected at 2009

%

Value at 2009 $000


expected at 2008

%

Value at 2008 $000


expected at 2007

%

Value at 2007 $000

Equities 8.2 10,417 8.0 6,670 9.0 15,095

Bonds 5.2 8,206 5.1 7,293 4.6 9,121

Other(property,cashetc) 4.9 6,316 5.6 5,407 4.6 1,260

Totalmarketvalueofassets 24,939 19,370 25,476

Presentvalueofschemeliabilities (26,783) (20,310) (26,881)

Deficitinthescheme (1,844) (940) (1,405)

Netpensionliability(afteradjustmentfordeferredtax) (1,327) (677) (984)

Analysis of the amount charged to operating profit

2009 $000

2008 $000

Currentservicecost 520 618



Analysis of the amount credited / (charged) to net investment income

2009 $000

2008 $000

Expectedreturnonpensionschemeassets 1,298 1,705

Interestonpensionschemeliabilities (1,278) (1,445)

Netreturn 20 260

Analysis of amount recognised in statement of total recognised gains and losses (“stRGL”)

2009 $000

2008 $000

Actualreturnlessexpectedreturnonpensionschemeassets 2,013 (1,798)

Experiencegainsandlossesarisingontheschemeliabilities (34) (172)

Changesinassumptionsunderlyingthepresentvalueoftheschemeliabilities (3,049) 1,562

ActuariallossrecognisedinSTRgL (1,070) (408)

Movement in deficit during the year

2009 $000

2008 $000

Deficitinschemeatbeginningoftheyear (940) (1,405)

Movementinyear:

Currentservicecost (520) (618)

Contributions 763 894

Netinvestmentincome 20 260

Actuarial(deficit) (1,070) (408)

Retranslationofopeningbalance (97) 337

Deficitinschemeatendoftheyear (1,844) (940)

26 DefIneD benefIt PensIon sCheMe (continued)


26 DefIneD benefIt PensIon sCheMe (continued)

history of experience gains and losses

2009 $000

2008 $000

2007 $000

2006 $000

2005 $000

Totalmarketvalueofassets 24,939 19,370 25,476 22,024 17,167

Presentvalueofschemeliabilities (26,783) (20,310) (26,881) (27,624) (24,272)

Deficitinthescheme (1,844) (940) (1,405) (5,600) (7,105)

Difference between the expected and actual return on scheme assets:

Amount 2,013 (1,798) 1,711 1,169 1,229

Percentageofschemeassets 8% (9%) 7% 5% 7%

experience gains and losses on scheme liabilities:

Amount (34) (172) 108 66 345

Percentageofthepresentvalueoftheschemeliabilities 0% (1%) 0% 0% 1%

total amount recognised in statement of total recognised gains and losses:

Amount (1,070) (408) 4,732 2,758 (1,814)

Percentageofthepresentvalueoftheschemeliabilities (4%) (2%) 17% 10% (7%)

Defined Contribution schemeThecompanyoperatesadefinedcontributionpensionscheme,theCompanyPensionScheme,foritsemployees.Theassetsof theschemeareheldseparately from thoseof thecompany inan independentlyadministeredfund.Theunpaidcontributionsoutstandingattheyearend,includedinOthercreditors(Note18)are$405,711(2008:$339,295).

Duringtheyearended31December,thecompany’scontributionstotheaboveschemeswere:

2009 $000

2008 $000

Definedbenefitscheme 763 894

Pensiondeficit–changeinFRS17“RetirementBenefits” (263) (536)

500 358

Definedcontributionscheme 4,265 4,526

4,765 4,884



27 tRAnsACtIons wIth DIReCtoRs AnD offICeRs

Remunerationof$38,980 (2008:$49,000) in respectofMrMgMcKenziewaspaid toMcKenzieConsultingLimited, a companycontrolledbyMrMgMcKenzie. Therewerenoother transactions requiringdisclosurebetween Liberty Mutual Insurance Europe Limited and its directors and officers during the year ended 31December2009.

28 ChAnGe In the PRoVIsIon foR CLAIMs

2009Gross

$000Reinsurance

$000net

$000

Claimsoutstandingcarriedforward (1,642,997) 792,835 (850,162)

Claimsoutstandingbroughtforward 1,609,350 (852,382) 756,968

Exchangedifferenceonbroughtforward 51,509 (28,494) 23,015

MovementperTechnicalAccount 17,862 (88,041) (70,179)

2008Gross

$000Reinsurance

$000net

$000

Claimsoutstandingcarriedforward (1,609,350) 852,382 (756,968)

Claimsoutstandingbroughtforward 1,789,085 (961,528) 827,557

Exchangedifferenceonbroughtforward (155,274) 88,139 (67,135)

MovementperTechnicalAccount 24,461 (21,007) 3,454

29 PRIoR yeARs CLAIMs

Anover-provisionof$12,387,000(2008:over-provision$40,871,000)hasarisenbetweentheoutstandingclaimsprovisionatthebeginningoftheyear,paymentsmadeduringtheyearandtheprovisionattheendoftheyear.

30 equALIsAtIon PRoVIsIon

These provisions, which are in addition to the provisions required to meet the anticipated ultimate costof settlement of outstanding claims at the balance sheet date, are required by Section 3 of the Large andMedium-sizedCompaniesandgroups(AccountsandReports)Regulations2008tobeincludedwithintechnicalprovisionsinthebalancesheet,notwithstandingthattheydonotrepresentliabilitiesatthebalancesheetdate.Thishashadthecumulativeeffectofreducingshareholders’fundsby$10,387,000netoftax(2008:$5,650,000).Themovementinequalisationprovisionsduringtheyearresultedinadecreaseinthegeneralbusinesstechnicalaccount result of $5,866,000 (2008: decrease of $3,922,000) and the profit before taxation of $6,524,000(2008:decreaseof$2,544,000).



Designedbybrett-lesage.comPhotographypages8&12-13byAidanMcCarthy

31 PARentAL GuARAntee

On15February2002theboardofLibertyMutualInsuranceCompanyagreedtograntaguaranteecoveringthecompany’sinsuranceobligations.ThiswasratifiedbytheMassachusetts’DepartmentofInsuranceon10May2002.Theoriginalguaranteewasupdatedandre-issuedon13April2006.

32 uLtIMAte PARent CoMPAny

TheultimateparentcompanyisLibertyMutualHoldingCompanyInc.ofBoston,175BerkeleyStreet,Boston,Massachusetts02117,U.S.A.acompany incorporated in theUnitedStatesofAmerica.ThesmallesthighergroupofcompaniesforwhichgroupaccountsaredrawnupandofwhichthiscompanyisamemberisLibertyInternationalHoldingsIncorporated,acompanyincorporatedandregisteredintheU.S.A.

The immediateparentcompanyofLibertyMutual InsuranceEuropeLimited isLiberty InternationalHoldingsIncorporated.CopiesofthegroupaccountsofLibertyInternationalHoldingsIncorporatedandofLibertyMutualHolding Company Inc. of Boston are available from the companies’ registered office, 175 Berkeley Street,Boston,Massachusetts02117,U.S.A.



LonDon offICe:

head office3rdFloor,TwoMinsterCourtMincingLaneLondonEC3R7YETel: +44(0)2078606600Fax:+44(0)[email protected]

uk offICes:

bristol4thFloor11-12QueenSquareBristolBS14NTTel: +44(0)1179307320Fax:+44(0)[email protected]

CheltenhamVisionUnderwritingStJamesHouseStJamesSquareCheltenhamgloucestershiregL503PRTel: +44(0)1242244499Fax:+44(0)[email protected]

Manchester8thFloor55SpringgardensManchesterM22BYTel: +44(0)1612427890Fax:+44(0)[email protected]

InteRnAtIonAL offICes:

Dubai gV05,4thFloorDIFCPOBox506574Dubai,UnitedArabEmiratesTel: +97143028000Fax:[email protected]

hong kong Suites2401-04CityplazaOne1111King’sRoadTaikooShing,IslandEastHongKongTel: +85236552600Fax:[email protected]

India OfficeNo.84MakerChamberVIBackbayReclamationNarimanPointMumbai400021IndiaTel: +912261438000Fax:+912261438080

Malaysia Suite9-7WismaUOADamansaraIINo.6JalanChangkatSemantanDamansaraHeights50490KualaLumpurTel: +60320824000Fax:+60320824050

singapore OneRafflesQuay#37-02NorthTowerSingapore048583Tel: +6566229160Fax:[email protected]

euRoPeAn offICes:

Cologne ImMediaPark850670Köln,germanyTel: +4922150052201Fax:[email protected]

Dublin guildHouseguildStreet,IFSCDublin1,IrelandTel: +35318180505Fax:[email protected]

the hague Koninginnegracht212514ABDenHaagNetherlandsTel: +31(0)703028650Fax:+31(0)[email protected]

Madrid c/generalArrando,7-1º/2º28010Madrid,EspanaTel: +34(0)914442867Fax:+34(0)[email protected]

Paris 3RueScribeParis,France75009Tel: +33153059059Fax:[email protected]

Zurich Lintheschergasse23CH–8001ZürichSwitzerlandTel: +41442851000Fax:[email protected]

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SUSTAINABLE GROWTH STRONG FOUNDATIONSANNUAL REPORT 2009

About Liberty Mutual Insurance Europe Limited (LMIE)Liberty Mutual Insurance Europe (www.liueurope.com) is a wholly owned subsidiary of global insurer Liberty Mutual Group and trades under the Liberty International Underwriters (LIU) name.

About Liberty International Underwriters (LIU)Established in 1999, Liberty International Underwriters (www.libertyiu.com) provides a diverse range of specialty products distributed exclusively through the independent broker network. The LIU staff of over 1,300 professionals offers core products in marine, aviation, energy, engineering, global crisis management, property, casualty, professional liability, directors & officers, surety bonds, legal expenses and trade credit insurance. Worldwide offices include North America, Europe and Asia Pacific. LIU is part of Liberty Mutual Group’s International operations, which reported net written premium of $7.1 billion in 2009, an increase of 4.8 per cent over 2008. This constituted 25.1 per cent of Liberty Mutual Group’s $28.26 billion in net written premium for the year ended December 31, 2009.

About Liberty Mutual Group (LMG)Boston-based Liberty Mutual Group is a diversified global insurer and fifth largest property and casualty insurer in the U.S. based on 2008 direct written premium. The Company also ranks 71st on the Fortune 500 list of largest corporations in the U.S. based on 2009 revenue. As of December 31, 2009, Liberty Mutual Group had $109.5 billion in consolidated assets, $95.0 billion in consolidated liabilities, and $31.1 billion in annual consolidated revenue.

Liberty Mutual Group offers a wide range of insurance products and services, including personal automobile, homeowners, workers compensation, commercial multiple peril, commercial automobile, general liability, global specialty, group disability, assumed reinsurance, fire, and surety.

Liberty Mutual Group (http://www.libertymutualgroup.com) employs over 45,000 people in more than 900 offices throughout the world.

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lmie annual report 2009

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