developing potential delivering results...from our underwriting, risk engineering and claims teams....

Developing potential

Delivering results

ANNUAL REPORT 2011

CONTENTS 8 ChiefExecutive’sstatement

12 Directors’report

19 StatementofDirectors’Responsibilities

20 IndependentAuditor’sReport

24 Profitandlossaccount–technicalaccount

25 Profitandlossaccount–non-technicalaccount

26 Statementoftotalrecognisedgainsandlosses

27 Balancesheet

29 Notestothefinancialstatements

Pages8to52(excluding11,18and22)representacompletereproductionoftheannualreportandfinancialstatementsoftheCompany.Allotherpagesdidnotformpartofthesefinancialstatementsandconsequentlyrepresentunauditedinformation.

GWP

+16.2%Our underwriting expertise and ability to identify and meet market needs helped us achieve strong growth in competitive markets.

PROFITS

$69mDespite difficult markets and uncertain economic conditions we continue to achieve profits according to plan.

NET ASSETS

+1.4%Following our seventh consecutive profitable year, our capital and surplus base increased to $700m.

20112010200920082007

GWP (in $000)

20112010200920082007

524,271 543,563577,382

637,404

740,931

THE FIVE YEAR RECORD

1Liberty Mutual Insurance Europe Limited Annual Report 2011

We have broadened the distribution of our products by leveraging Liberty’s global expertise to meet the needs of local markets.

InDubai,Libertycontinuedtobringnewproductstomarketin2011.ButasElieBouchaaya,SeniorVice-PresidentandGeneralManagerofLibertyMiddleEastandNorthAfricaexplains,thisisalwayspartofacarefulstrategicprocess.“Firstwefullyassessthemarket,identifyingexactlywhatcoverisneeded.Next,wedrawonLiberty’sglobaltechnicalexpertiseintheproductline.Thenwebuildthelocalresourcestodelivertheproductsuccessfully,tailoredtolocalconditions.”

Oneexampleduring2011wasthedevelopmentofEventCancellation,withourDubaiofficeworkinginpartnershipwithsistercompanyLibertySyndicates.AsElieexplains,thiswasarelativelynewcovertotheregionbutbyleveragingLibertySyndicates’technicalexpertise,theresultwasastrongproduct

thatcomplementedexistingspecialtyCasualtylines.AnotherexamplewasProfessionalLines,whichsawtheDubaiteamworkingcloselywiththeLondonspecialtyofficetodelivernewproductsintheregion.

WithpoliticalinstabilityacauseofconcernformanyclientsintheMiddleEast,aninnovativenewpackageofcoveracrosscivilcommotion,terrorismandcivilwaralsoprovedsuccessfulin2011,buildingonthegrowthinterrorismlinesintroducedin2010.

Withnewproductssettoemergein2012,theabilityofbrokersandclientstoaccessourworld-classproductsandlocalunderwritingissettocontinue,helpingLibertytogrowintheregion.

Aninnovativenewpackageofcoveracrosscivilcommotion,terrorismandcivilwaralsoprovedsuccessfulin2011.

INTERNATIONAL

EXTENDINGOUR REACH

2 LibertyMutualInsuranceEuropeLimitedAnnualReport2011

Ourproductsarebuiltonprovenunderwritingabilityandexperienceacrosssectors.

AVIATION

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

ENERGy/POWERGENERATION

Weofferaninnovative,flexibleservicecloselygearedtotheneedsoftheenergysectorincludingonshore,offshoreoperationalandconstruction,andpowergeneration.Ourclientsbenefitfromcross-classproductsandbespokepolicycoverfromourunderwriting,riskengineeringandclaimsteams.

CONSTRuCTION

Ourteamofconstructionengineersandunderwriterscombinestechnicalexpertisewithsignificantunderwritingcapacitytodeliverrisktransfersolutionsforawiderangeofheavyindustries,aswellasforbuildingandcivilprojects.

MARINE

Ourspecialistscoveroceancargo,projectcargowithdelayinstart-up,marineliabilities,hullandshipbuilders’risksproducts.Weprovidetailoredrisksolutions,capacityandservicetoourclientsthroughournetworkofglobalmarineprofessionals,claimsandriskengineeringservices.

CASuALTy/GENERALLIABILITy

Anextensiverangeofliabilityproductsisofferedtocommercialclientsinconstruction,manufacturing,leisure,motorsport,transportation,filmandTVproduction.Theseincludebothprimaryandexcesspublicandproductliabilityandemployers’liability.

COMMERCIALPROPERTy

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

COMPETITIVEPRODUCT RANGE


ENVIRONMENTAL

Withgapsinpollutioncoverbecomingincreasinglyapparentundermanytraditionalliabilitypolicies,ourhighlyexperiencedteamunderwritesawiderangeofenvironmentalexposures.Ourproductsprovidebroadandcomprehensivecoverageforpollutionliabilityandenvironmentaldamageliability.

PROFESSIONALINDEMNITy

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

FINANCIALINSTITuTIONS

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

DIRECTORS&OFFICERS

Bothbrokersandclientsbenefitfromourfirst-classservice.Areascoveredincludedirectors’&officers’liability,pensiontrusteeliability,employmentpracticeliability,commercialcrime,andpublicofferingofsecuritiesinsurance.

CRISISMANAGEMENT

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

SuRETy

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

TRADECREDIT/POLITICALRISk

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

STRATEGICASSETS

Modernbusinessesareincreasinglydependentonintangibleassetsandnon-physicalperils.Ourhighlyexperiencedteamoffersinnovative,flexiblesolutionsinareassuchasreputation,intellectualproperty,cyberandprivacyprotection,andnon-damagebusinessinterruption.

4 Liberty Mutual Insurance Europe Limited Annual Report 2011

FLEXIBILITYAND INNOVATION

New products that meet the needs of brokers and clients are key to success in competitive markets. One example is Integrale, which continued to grow in 2011, being offered in new territories and through an online underwriting platform.

IntegralewasdesignedinFrancetosolveaproblem:theDirectors&Officersmarketforsmallandmedium-sizedcompanieswascrowded,competitiveandkeenlypriced.Thesolutionwasanewpackagethatstoodoutfromthecrowd.AswellasDirectors&Officers,IntegraleofferedCrimeandEmploymentPracticesLiabilityInsurancepluskeyManandThreatcover.Policyholderscouldalsoaccessaconsultancyservicecoveringtaxandlegaladviceaswellascrisismanagementsupport.“Asaresult,

byansweringjustafewmorequestionsthanfortheirDirectors&Officerscover,brokersandclientscouldgainvaluableadditionalproductsspecificallytailoredtomeetmiddle-marketneeds,withlimitsandexceptionsthatkeptpricesto,typically,aboutjust30%morethanstandaloneDirectors&Officers”,explainsOlivierMuraire,GeneralManager,SouthernEurope.

Thevalueofsuchanapproachwasquicklyrecognisedbytheindustry:IntegralewontheArgusD’Orawardforinnovationin2008,wassuccessfullyrolledoutinFrancein2009,crossedintoSpainin2011andwaslaunchedasanonlineunderwritingtoolthesameyear.Asaresult,asSeniorunderwriterChristinePujoandunderwriterNadiaGhribexplain,“Integralenowrepresents50%ofournewproductssoldand45%ofourmiddle-marketportfolio.”Andwithitsplannedroll-outintoSwitzerlandexpectedin2012,Integrale’sgrowthlookssettocontinue.

IntegralewontheArgusD’Orawardforinnovationin2008,wassuccessfullyrolledoutinFrancein2009,andcrossedintoSpainin2011.

EuROPE

5LibertyMutualInsuranceEuropeLimitedAnnualReport2011

Aswecontinuedtowidenourproductrangesandstrengthenourteamsacrosstheworld,revenuesincreasedineveryregioninwhichweoperate.

GLOBAL DISTRIBUTIONLOCAL KNOWLEDGE

Liberty Mutual Insurance Europe Limited Annual Report 20116

UK AND IRELAND COMMERCIALBIRMINGhAM|BRISTOL|ChELTENhAM|DuBLIN|LEEDS|LONDON|MANChESTER|SOuThEAST

Ourinvestmentinexpandingourbranchnetwork,strengtheningourunderwritingcapabilitiesandimprovingthequalityandaccessibilityofourservicesmeanswearestronglypositionedtosupportbrokersandclients.Weprovideawiderangeofcommercialinsuranceproductsthroughindependentandnationalbrokers.

+37%BUSINESS VOLUME

LONDONhEADOFFICELONDONMARkET

ActingasagatewaytotheLondonmarketandthebaseforsomeofthemosthighlyskilledinsuranceprofessionalsinEurope,ourheadofficeoffersafullrangeofspecialtyproductsandtheflexibilityrequiredtomeettheneedsofourbrokers.OurcommitmenttotheLondonmarketmeansthatwehavethecapacityandexpertisetounderwritethemostcomplexrisks.

+11.5%BUSINESS VOLUME

INTERNATIONAL DuBAI|hONGkONG|MALAySIA|SINGAPORE

Ourextensivenetworkgiveslocalbrokersandinsurancecompaniesthecapacitytomeetdemandfromsomeoftheworld’sfastestgrowingmarkets.Withexperienceofthelocaltradingenvironmentandawideproductoffering,ourhighlyqualifiedteamshavetheunderwritingauthorityandexpertisetomeetcustomerneedsinavarietyofsectors.

+22%BUSINESS VOLUME

+24.3%BUSINESS VOLUME

CONTINENTAL EUROPE COLOGNE|ThEhAGuE|hAMBuRG|MADRID|PARIS|zuRICh

ThroughindependentandaffiliatedbrokeragefirmsweofferagrowingsuiteofinsuranceproductsinEurope’skeystrategicmarkets.Ourcustomersaremediumandlarge-sizedcompaniesoperatinginawiderangeofindustrysectors,whobenefitfromourtechnicalexpertiseanddeepunderstandingoftheirneeds.


“Iamthereforeverypleasedtoreportthatcommercialactivitiesarealreadyshowingsubstantialtoplinegrowth,withmorescopeaheadtosecureandexpandourpositioninthemarket.”

CHIEF EXECUTIVE’S STATEMENT

STRATEGICGROWTh

Ourbusinessperformedstronglyin2011,withGrossWrittenPremiumup16%at$741mandpre-taxprofitsat$69m.Againstabackdrop

ofhighlycompetitivemarketsandanumberofnaturalandman-madecatastrophesthatimpactedtheinsuranceindustryduring2011,thiswasallthemorecreditable.

Ourperformancewasbuiltonthecombinationofourconservativeapproachtorisk,deepunderwritingexpertiseandtheabilitytoidentifyandrealisegrowthopportunities.Strategicinvestmentsoverpastyearsinnewteams,newproductsandbroadeninggeographicaldistributionarepayingoff,whilenewinvestmentsinthemid-marketsectorarecreatingfurthergrowthpotential.OurpositionintheindustryasarespectedproviderwithstrongtechnicalknowledgeanddeepunderstandingofbrokerneedswasdemonstratedintheInsurance360FinancialandProfessionalLinesInsightReport2011,whichplacedLibertyfourthoutof16majorcarriersforoverallservicequalityandsecondforclaimshandling.

Onceagainwewereabletobuildthestrengthofourcapitalbase,withnetassetsrisingto$700mduring2011.Wemaintainedaconservativestanceonthemanagementofourinvestments,withacontinuedfocusonhigh-qualityfixedintereststocksleadingtototalinvestmentsreturnsinexcessof4%.Asaresultofthisstrongoverallfinancialperformance,wearepleasedtoannouncedividendpaymentstotalling$42mthisyear(for further details please see the directors’ report).

MARkETS

Theyearwascharacterisedbyahighnumberofcatastrophesandrisklosses,withtheJapanesetsunami,Australianfloods,ThaifloodsandNewzealandearthquakealltakingplacein2011,aswellascivilunrestintheeurozoneandMiddleEast.Althoughthecompany(“LMIE”)inevitablyhadsomeexposuretothesetragicevents,therewasnomajorimpactonourbusiness.

Therewascontinuingevidenceofoversupplyandweakpricinginthebroadermarketthroughout2011.Althoughsomepocketssawrateincreasesduringtheyear,theseweresector-specificandpatchy:forexampleenergy,wherestrongdemandfirmedprices,andfinancialandcreditlines,whereeurodebtanddouble-dipfearsimpactedrates.


Wecontinuetobewellreservedagainstthestill-emergingeffectsofthe2007/8globalfinancialcrisisandhavesufferedlittleimpactfromthemorerecentsovereigndebtcrisisinEurope.

REGIONS

AllourregionsgrewrevenueduringtheyearaswecontinuedtoachieveourobjectiveofdiversifyingawayfromourLondonspecialtybusiness.WecontinuedtostrengthenourcontinentalEuropeandInternationaloperations,intermsofbothunderwritingexpertiseandwideningourproductdistribution.Forexample,weintroducedtradecreditlinesinFranceandaddedterrorismlinesinDubai.WehiredanenergyteaminMadridaswellasbuildingourcasualtyandprofessionalindemnitycoverinGermanyandFrance.In2011ourcontinentalEuropeoperationssawrevenuesriseby24%andourInternationalregionsawgrowthof22%.

PRODuCTS

RecentlylaunchedproductssuchasEnvironmentalImpairmentLiability,CrisisManagementandStrategicAssetsexceededplanandwerewellreceivedbybrokers.Infactthelattertwowererecentlycitedbyindustrysourcesaskeyfuturegrowthareas,demonstratingourabilitytopositionourselvesaheadofthecurve.Ourpropertyteam,newin2010,alsogrewrapidly,playingakeyroleinourcommercialoperations.

Therobustnessofourfinanciallinesbusinesswasdemonstratedduringtheyearwhen,despitemanagementturnover,wewereabletomaintainourmarketpositionandinfactgrowrevenues.Thisunderlinedthestrengthanddepthoftheteam,which,asmentionedearlier,achievedahighrankinginthe2011Insurance360financialandprofessionallinesreport.

COMMERCIAL

Thiswasayearofintenseactivityinthecommercialarena,inwhichwestrengthenedourfoundations,almostdoublingstafflevelsduring2011.Iamthereforeverypleasedtoreportthatcommercialactivitiesarealreadyshowingsubstantialtoplinegrowth,withmorescopeaheadtosecureandexpandourpositioninthemarket.

Ournew,muchlargerofficeinBirminghamwasopenedin2011.WealsosetupabranchoperatingfromLondonandcoveringtheSouthEastregion,andanewofficeinLeedswillbeopenedshortly.Webroadeneddistributionofproducts,mainlyourproperty,casualtyandfinanciallinesbutalsoprovidedfurtheropportunitiesforspecialistlines.

Inordertomanagethesechangesefficiently,anumberoforganisationalchangeswerenecessary.Firstly,wecreatedadistinctmid-marketbusinessunitpresentlylocatedwithinourLondonheadquarters.Wealsosetupadedicatedbusinessdevelopmentteamtorefineourapproachtomarketandgeneratebusiness,andappointedaChiefunderwritingOfficersolelyforourcommercialoperations.

Duringthereportingperiod,ourparentcompany,LibertyMutual,acquiredtheIrishbusinessofQuinnInsurance.ThiswillstrengthentheLibertybrandinIrelandandfacilitatefurthergrowthinourDublinoperations.Asaresultoftheacquisition,ChiefOperatingOfficerPatrickO’BrienleftLMIEtotakeonthepositionofChiefExecutive,LibertyInsuranceIreland.JohnMcCammon,formerlyLMIEheadofClaims,wasappointedtoreplacePatrickasChiefOperatingOfficer.


EfficiEncy and sErvicE

We continue to use technology to drive business efficiency and customer service. Examples include the development of a new financial mini-lines portal that provides access to quotes and products, and a new claims platform. We also continue to play an active role in industry technology initiatives and support our staff in achieving professional training accreditation.

The emphasis we place on claims handling was demonstrated in 2011 both by our high ranking in the industry survey mentioned earlier and by our major investment in claims technology referenced above.

sponsorship

in terms of sponsorship we are supporting four British athletes during 2012. We are also continuing our support for up-and-coming racing drivers sam Brabham and alex Brundle which provides a natural fit with our provision of motorsport liability insurance.

ouTlook

in the broader market, we expect conditions to remain much the same in 2012, with oversupply mitigating rate increases and forcing some capacity out of the market.

our primary focus will be on consolidating existing opportunities rather than expanding into new countries or sectors. We will therefore continue to broaden our distribution of current products through existing branches. at the same time, we will remain watchful of opportunities available in the market: where these are attractive, we will launch new products and open new offices to take advantage.

as a result, we anticipate further growth in 2012, although this is unlikely to be at as high a rate as 2011 – a year in which we rapidly expanded our mid-market offering from a low base. Given the strength of our performance in what was a difficult year in the broader market and the global economy in general, i would like to thank all management and staff for their hard work and their expertise in achieving so much during 2011.

sEan p rocks cEo | 29 March 2012

liberty Mutual insurance Europe limited

“strategic investments over past years in new teams, new products and broadening geographical distribution are paying off, while new investments in the mid-market sector are creating further growth potential”


ThestrengthofLibertyMutualInsuranceEurope’sLondonspecialtyteamisbuiltonitsunderstandingofclientneeds.AgoodexampleisourrelationshipwithNationalGrid,wherewehavegonefromofferingasinglelineinoneproductareatosupplyingthemwithtailoredsolutionsthatcrossproductareasandregions.

Therelationshipbeganin2003withNationalGrid’smainLNGimportterminalinIsleofGrain,kent.Impressedbythehigh-qualitymanagementanddesignoftheproject,Libertytookaleadroleincoveringitsexpansionin2005.TherelationshipwasfurthercementedbyinvolvementintheNationalGridpropertyprogramme.Beginningbywritingasmallpartofanexcesslayer,weprogressedtowritingaquota-shareline,taking10%ofa£500mlimit.Whentheclientlaterrequestedalong-termdealforthepropertypolicy,thestrengthofourrelationshipandourclose-upunderstandingoftherisksinvolvedmeantwewereabletodevelopastand-alone,

tailor-madedealinvolvinguniquepaymenttermsandlong-termstability.

havinggraduallyincreasedourinvolvementintheNationalGridengineeringprogramme,Libertywrote100%oftheirrecentLNGcryogenicpipelineconstructionproject.WealsoledunderwritingtermsfortheLondonCableReplacementTunnelproject,amajorinfrastructuredevelopmentthatwillhelppowerLondonforthefuture.

TherelationshipcontinuestogrowandnowincludesSurety,CasualtyandDirectors&Officerslines,plusashareofNationalGrid’spowergenerationassetsintheuS.

LONDONSPECIALTy

WORKINGTOGETHER

11LibertyMutualInsuranceEuropeLimitedAnnualReport2011

Ourstrategyofdiversifyingbothgeographicallyandbyproductlinecontinuestodelivergrowth

DIRECTORS’ REPORT

Boardofdirectors (top left to bottom right):SeanRocks(ChiefExecutiveLMIE),GordonMcBurney(PresidentLIu),DanielForsythe(CEOLIu),DavidPrince,DavidOates,DrJonathanSpencer(non-executive),MalcolmMckenzie(non-executive).

12

Thedirectorshavepleasureinsubmittingtheirreport,togetherwiththeauditedfinancialstatementsofthecompany,fortheyearended31December2011.

PRINCIPALACTIVITyANDREVIEWOFThEBuSINESS

Thecompanyunderwritesmarine,non-marineandaviationinsuranceandreinsurancebusinessfromitsheadofficeinLondonanditsbranchesacrossEurope,theMiddleEastandAsia.

During2011thecompany’sprincipalbusinesslineswereCasualty,SpecialtyCasualty,Aviation,Property,TradeCredit,SuretyandMarine,EnergyandEngineering.CompanystrategycontinuestobetoofferthroughtheindependentbrokernetworkadiverseandgrowingrangeofspecialtyinsuranceproductstomarketsinEurope,theMiddleEastandtheFarEast.During2011,thecompanyfocuswasonextendinggeographicalpresence,broadeningtheproductrange,anddevelopingthecompany’spositionintheukandIrelandmid-marketcorporatesector.

Thecompany’skeyfinancialperformanceindicatorsduringtheyearwereasfollows:

2011 2010 Change$’000 $’000 %

Grosswrittenpremiums 740,931 637,404 16.2

Profitbeforetaxation 69,112 82,358 (16.1)

Netassets 700,147 690,348 1.4

Combinedratio 97.4% 96.4%


Theincreaseinthegrosswrittenpremiumsreflectsorganicgrowthacrossthebusiness,furtherincreasedby$20m(3%)asaresultofpositiveexchangerateeffects,withaverageuSDratesagainstGBPandtheeuroaround3%higherin2011thantheprioryear.however,thepositiveeffectofthisonprofitbeforetaxationwasoutweighedbythecorrespondingincreaseintheuSDvalueofthecompany’sexpenses,whicharepredominantlyGBPandeurodenominated.Thecombinedratioiscalculatedastotaltechnicalchargesexcludingchangeintheequalisationprovision/earnedpremiums,netofreinsurance.Thecombinedratioreflectsabenefittakenfromprioryearclaimoverprovisionsof2.1%(2010: 3.1% benefit),asfurtherexplainedinnote29.

Investmentincome,excludingnetgainsandlossesontherealisationofinvestments,wasconsistentwiththepreviousyear,drivenbylowerinvestmentyields,butoffsetbyhigherinvestedassetvaluesarisingfromstrongoperationalcashflows.Totalinvestmentreturnsof4%reflectedfurtherincreasesinthemarketvalueofthecompany’sbondinvestmentsasmarketyieldscontinuedtodecline.

Thecompanymadenetrealisedgainsonitsinvestmentportfolioof$6.43m(2010: gain of $7.47m).

Thecompanyoperatesininternationalmarketsandrecordednetgainsof$2,613,000during2011(2010: losses of $5,068,000)onthetranslationofnon-uSDcurrenciesintouSD.Inaccordancewiththecompany’saccountingpolicies,againof$2,084,000 (2010: loss of $10,640,000),beingthatpartofthetotalgainrelatingtotheretranslationofthecompany’sprincipaloperatingcurrenciesGBP,euroanduSD,isreflectedintheStatementofTotalRecognisedGainsandLosses,andnotintheprofitandlossaccount.

Netassetsincreasedby$9,799,000,attributabletotheprofitfortheyearof$47,991,000,otherrecognisednetgainsof$4,293,000fortheyear,andaninterimdividendof$42,485,000paidduringtheyear.Thedirectorsdonotrecommendpaymentofafinaldividend(2010: Nil).

PRINCIPALRISkSANDuNCERTAINTIES

TheBoardsetsriskappetiteannuallyaspartofthecompany’sbusinessplanningprocess.

Riskmanagementiscurrentlyundertakenonthreelevels:

• Riskownership–riskownersidentifyrisksandareresponsibleforestablishingandmaintainingappropriatecontrolsoverthoserisks

• Riskcontrol–exercisedbytheRiskCommitteewhichisresponsibleforoversightoftheoperationoftheriskmanagementstrategy;andbytheExecutiveCommittee,whichisresponsibleforthemanagementofriskinaccordancewiththeriskappetitessetbytheBoard.Measuresofriskaremonitoredagainstriskappetiteonaquarterlybasis.TheRiskCommitteeisassistedbytheadvisoryandmonitoringfunctionsofRiskManagementandCompliance.RiskManagementdefinesandprescribesthefinancialandoperationalriskassessmentprocessesforthebusiness,maintainstheriskregisters,andundertakesregularreviewsoftheseriskswiththeriskowners.Complianceadvisesonallareasofregulatoryprinciples,rulesandguidance,andundertakesmonitoringactivityonkeyareasofregulatoryrisk

• Riskassurance–conductedbytheInternalAuditfunctionunderthecontrolanddirectionoftheAuditCommittee.Internalauditconductsaprogrammeofauditscoveringallaspectsofriskownershipandriskcontrol.


Theprincipalrisksanduncertaintiesfacingthecompanyareasfollows:

INSuRANCERISk

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

TheExecutiveCommitteeoftheBoardthenmonitorsperformanceagainstthebusinessplanmonthlythroughtheyear.ReserveadequacyismonitoredbytheReservingCommitteewhichmeetsquarterlytoestablishandreviewtheheldreserves.Akeyelementofthisconsiderationisreviewofthequarterlyreportbythecompany’sactuary,whichincludestheactuarialestimateofrequiredreservestogetherwithdocumentationsupportingthematerialjudgementsandassumptionsmadeinarrivingatthisestimate.

CREDITRISk

Thecompany’sprincipalcreditriskexposureistheriskofnon-performancebyoneormoreofthecompany’sreinsurers.

Akeypartofthecompany’sriskmanagementstrategyisthepurchaseofeffectivereinsuranceacrossalllines.Thecompanypurchasesbothproportionalandnon-proportionalreinsurancelocallyandthroughparticipationinLibertyMutualInsuranceGroupglobaltreaties.Therearealimitednumberofreinsurersworldwidewiththecapacityorcapabilitytoparticipateinthese

globaltreaties.Aconsequenceofthisisadegreeofconcentrationofexposurewiththemajorreinsurers.

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

MARkETRISk

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

ThecompanyhasdelegatedmanagementofitsinvestmentportfoliotoLibertyMutualGroupAssetManagementInc.,thespecialistinvestmentmanagementarmofLibertyMutualInsuranceGroup.TheportfolioismanagedinaccordancewithinvestmentguidelinesestablishedonbehalfofthecompanybytheInvestmentCommittee.Theseguidelinessetoutlimitsonassetquality,counterpartyexposure,assetconcentration,andgeographicalconcentration,compliancewith


which,alongsideinvestmentperformance,ismonitoredbytheCommitteeonaquarterlybasis.

Theportfoliocomprisesabroadspreadofinvestmentgradeinstruments,includingbondsissuedbyeurozonesovereignstatescollectivelyknownasthe“PIIGS”states.TotalvalueofexposuretoPIIGSsovereigndebtislessthan$50mwithinanoverallportfoliovaluedatinexcessof$1.8bn.TheperformanceofPIIGSbondsiscurrentlysubjecttomonthlyreviewandreportingtotheExecutiveCommitteeoftheBoard,andtoformalreviewatastrategiclevelwiththeinvestmentmanagersthroughtheInvestmentCommittee.

Thecompanyfollowsapolicyofmatchingforeigncurrency-denominatedassetsandliabilitiessoastominimisetheimpactofexchangeratemovements.ShareholdersurplusiscurrentlyheldinuSD.

Thus,overall,thecompanyholdslimitednetassetsinnon-uSDcurrenciesandconsequentlyhasnosignificantbalancesheetexposurestoexchangeratemovements.

LIQuIDITyRISk

Liquidityriskistheriskoflosstothecompanyarisingfromthecompanybeinginsufficientlyliquidtomeetallcashflowcommitmentsasandwhentheyfalldue.Itiscompanypolicythatallfundsareheldincashorinreadilymarketableinstruments.

Thisrequirementisreflectedintheinvestmentguidelines.Thedurationofinvestmentinstrumentsismatchedtotheanticipateddurationofliabilitiestopolicyholders;andthecurrencyofinvestmentinstrumentsismatchedtothecurrencyofanticipatedliabilitiestopolicyholders.Shortertermneedsareanticipatedthroughaprocessofcashflowforecastingwiththebackingofabank

loanfacilitywhichcanbedrawnuponifneededtocoverimmediaterequirements.

Thedirectorsbelievethattheseactionsprovideassurancethatthecompanywillbeabletocontinuetomeetitsobligationsasandwhentheyfalldue.Inmakingthisassessment,thedirectorshavefullyconsideredtheeffectofcurrentmarketconditionsonassetvaluesandassetmarketability.

OPERATIONALRISk

Operationalriskisdefinedastheriskoflosstothecompanyarisingfrominadequateorfailedinternalprocesses,people,andsystems.Thecompanymanagesoperationalriskthroughthethreemechanismsofriskownership,riskcontrolandriskassurancedescribedabove.

FuTuREDEVELOPMENTS

Thecompanyfocusfor2012willbeonconsolidatingrecentgrowthandbuildingontheinfrastructureputinplaceoverthepastfewyears.Thecompanyintendstocontinuetobroadentherangeofprofitableinsuranceproductsofferedandtofurtherdevelopthecompany’spositionintheukandIrelandmid-marketcorporatesector.


DIRECTORS’INTERESTS

Thedirectorsofthecompanyduringtheyearanduptothedateofsigningthefinancialstatementswere:

SPRocks Chairman-ChiefExecutiveOfficer

PJO’BrienDirector-ChiefOperatingOfficer(resigned2December2011)

DROates Director

DJPrince Director-ChiefFinancialOfficer

GMVanLoon Director(resigned4January2011)

DTNForsythe(uSA) Non-ExecutiveDirector

GJMcBurney(uSA) Non-ExecutiveDirector

JPSpencer Non-ExecutiveDirector

MGMckenzie Non-ExecutiveDirector

AccordingtotheRegisterofDirectors'Interests,nodirectorhasanybeneficialinterestintheissuedsharecapitalofthecompany.

FIxEDASSETS

Thechangesinthecompany'sfixedassetsfortheyeararesetoutinNote12.

DONATIONS

Duringtheyearthecompanymadecharitabledonationsof$30,435(2010: $32,372)andmadenopoliticaldonations(2010: nil).

EMPLOyEES

Duringtheyearanaveragenumberof454(2010: 402)staffwereemployed.Thetotalaggregateremunerationofemployeesamountedto$84.0m(2010: $71.2m).

ThecompanyoperatesaframeworkforemployeeinformationandconsultationwhichcomplieswiththerequirementsoftheInformationandConsultationofEmployeesRegulations2004.

Thepolicyisprincipallyoperatedthroughthecompany’sintranet,fromwhichemployeesareprovidedwithregularinformationregardingthecompany’sperformance,andareencouragedtopresentsuggestionsandraisequestionsregardingthecompany’sperformance.Inaddition,periodicmeetingsareheldwithmanagement.Thecompanyoperatesdiscretionaryperformance-relatedremunerationschemeswhichenableemployeestoshareinthesuccessofthecompanyandtoberewardedforgoodserviceandincentivisedforfutureperformance.Thecompanyinvestsinstafftrainingtodeveloptheskillsofemployeestomaximisetheservicelevelsprovidedtocustomersandbusinesspartners.

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

GOINGCONCERN

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


disclosurE of inforMaTion To ThE audiTors

so far as each person who was a director of the company at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor in connection with its report, of which the auditor is unaware. having made enquiries of fellow directors of the company and the company’s auditor, each director has taken all the steps that he/she is obliged to take as a director in order to make himself/herself aware of any relevant audit information and to establish that the auditor is aware of that information.

audiTors

Ernst & young llp are deemed to be reappointed in accordance with an elective resolution made under section 485 of the companies act 2006. consequently, the company has dispensed with the requirement to hold an annual General Meeting and re-appoint the auditors. Ernst & young llp have expressed their willingness to continue in office and so have been invited to do so.

approved by the Board of directors and signed on behalf of the Board by:

sEan p rocks, cEo | 29 March 2012coMpany nuMBEr: 1088268

liberty Mutual insurance Europe limited

Registered office and advisers

Directors s p rocks d r oates d J prince d T n forsythe G J McBurney J p spencer M G Mckenzie

Company Secretary n J davenport

Registered Office 3rd floor, Two Minster court Mincing lane london Ec3r 7yE

Company Number 1088268

Corporate Bankers lloyds Banking Group plc city office po Box 72 Gillingham Business park Gillingham kent ME8 0sl

Independent Auditors Ernst & young llp 1 More london place london sE1 2af

17liberty Mutual insurance Europe limited annual report 2011

Significant investment in the commercial mid-market sector was a key feature of 2011, and has been well received by brokers and clients.

Apositioninthemid-marketwasnothingnewforLiberty,butpreviouslyithadbeenbuiltaroundspecialtycasualty.AdecisiontomovetoabroadercommercialpropositionwastakenbecausetherewasanappetiteforLiberty’stechnicalunderwritingcapabilityandanopportunitytobuildonourbrand,evenincompetitivemarkets.Strategically,italsomeantLibertycouldbuildamorediversifiedportfolio.

Thedecisionmeantexpandingandstrengtheningourbranchnetwork.AnewbranchwasopenedintheSouthEastandoneplannedforLeeds,whileouroperationsinourexistingbrancheswereexpanded.Webroadenedourlinestooffercombinedproperty/casualtyaswellasaccesstoother,morespecialistlines.Anotherkeyelementwaschangingnewandexistingbrokers’perceptionofLiberty,whichwas

seenmoreasaspecialtythanacommercialprovider.Adedicatedrelationshipmanagementteamledthiswork,whileunderwriting,riskmanagementandclaimsteamsfocusedonbringingthebestofLiberty’sexpertisetothemid-market.

Asaresult,weenter2012withnewofficesintheSouthEastandLeeds,amuchstrongernetworkallovertheukandDublin,andexcellentbrokerrelationships.Commercialrevenuesrosesubstantiallyin2011andwithanew,bespokeunderwritingplatformindevelopmentandfurtherbranchopeningsanticipated,weexpectfurthermid-marketgrowthin2012andbeyond.

ukANDIRELAND

POWERFULSTRATEGY

Weenter2012withnewofficesintheSouthEastandLeeds.

18 LibertyMutualInsuranceEuropeLimitedAnnualReport2011

ThedirectorsareresponsibleforpreparingtheAnnualReportandthefinancialstatementsinaccordancewithapplicablelawandregulations.

Companylawrequiresthedirectorstopreparefinancialstatementsforeachfinancialyear.underthatlawthedirectorshaveelectedtopreparethefinancialstatementsinaccordancewithunitedkingdomGenerallyAcceptedAccountingPractice(unitedkingdomAccountingStandardsandapplicablelaw).Thefinancialstatementsarerequiredbylawtogiveatrueandfairviewofthestateofaffairsofthecompanyandoftheprofitorlossofthecompanyforthatperiod.Inpreparingthosefinancialstatements,thedirectorsarerequiredto:

• selectsuitableaccountingpoliciesandthenapplythemconsistently;

• makejudgementsandestimatesthatarereasonableandprudent;

• statewhetherapplicableukAccountingStandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosedandexplainedinthefinancialstatements;

• preparethefinancialstatementsonthegoingconcernbasisunlessitisinappropriatetopresumethatthecompanywillcontinueinbusiness.

ThedirectorsareresponsibleforkeepingproperaccountingrecordsthatdisclosewithreasonableaccuracyatanytimethefinancialpositionofthecompanyandtoenablethemtoensurethatthefinancialstatementscomplywiththeCompaniesAct2006.Theyarealsoresponsibleforsafeguardingtheassetsofthecompanyandhencefortakingreasonablestepsforthepreventionanddetectionoffraudandotherirregularities.

Thedirectorsareresponsibleforthemaintenanceandintegrityofthecorporateandfinancialinformationincludedonthecompany’swebsite.Legislationintheunitedkingdomgoverningthepreparationanddisseminationoffinancialstatementsmaydifferfromlegislationinotherjurisdictions.

Statement of directorS’ reSponSibilitieS


WehaveauditedthefinancialstatementsofLibertyMutualInsuranceEuropeLimitedfortheperiodended31December2011whichcomprisetheProfitandLossAccount,theStatementofTotalRecognisedGainsandLosses,theBalanceSheet,andtherelatednotes1to32.ThefinancialreportingframeworkthathasbeenappliedintheirpreparationisapplicablelawandunitedkingdomAccountingStandards(unitedkingdomGenerallyAcceptedAccountingPractice),havingregardtothestatutoryrequirementforinsurancecompaniestomaintainequalisationprovisions.Thenatureofequalisationprovisions,theamountssetasideat31December2011,andtheeffectofthemovementinthoseprovisionsduringtheyearonshareholders’funds,thebalanceonthegeneralbusinesstechnicalaccount,andprofitbeforetax,aredisclosedinnote30.

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

RESPECTIVERESPONSIBILITIESOFDIRECTORSANDAuDITOR

AsexplainedmorefullyintheDirectors’ResponsibilitiesStatementsetoutonpage19,thedirectorsareresponsibleforthepreparationofthefinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview.OurresponsibilityistoauditthefinancialstatementsinaccordancewithapplicablelawandInternationalStandardsonAuditing(ukandIreland).ThosestandardsrequireustocomplywiththeAuditingPracticesBoard’sEthicalStandardsforAuditors.

SCOPEOFThEAuDITOFThEFINANCIALSTATEMENTS

Anauditinvolvesobtainingevidenceabouttheamountsanddisclosuresinthefinancialstatementssufficienttogivereasonableassurancethatthefinancialstatementsarefreefrommaterialmisstatement,whethercausedbyfraudorerror.Thisincludesanassessmentof:whethertheaccountingpoliciesareappropriatetothecompany’scircumstancesandhavebeenconsistentlyappliedandadequatelydisclosed;thereasonablenessofsignificantaccountingestimatesmadebythedirectors;andtheoverallpresentationofthefinancialstatements.Inaddition,wereadallthefinancialandnon-financialinformationintheAnnualReportandFinancialStatementstoidentifymaterialinconsistencieswiththeauditedfinancialstatements.Ifwebecomeawareofanyapparentmaterialmisstatementsorinconsistenciesweconsidertheimplicationsforourreport.

independent auditor’S report to the memberS of liberty mutual inSurance europe limited


OPINIONONFINANCIALSTATEMENTS

Inouropinionthefinancialstatements:

• giveatrueandfairviewofthestateofthecompany’saffairsasat31December2011andofitsprofitfortheyearthenended;

• havebeenproperlypreparedinaccordancewithunitedkingdomGenerallyAcceptedAccountingPractice;and

• havebeenpreparedinaccordancewiththerequirementsoftheCompaniesAct2006.

OPINIONONOThERMATTERPRESCRIBEDByThECOMPANIESACT2006

InouropiniontheinformationgivenintheDirectors’Reportforthefinancialyearforwhichthefinancialstatementsarepreparedisconsistentwiththefinancialstatements.

Mattersonwhichwearerequiredtoreportbyexception

WehavenothingtoreportinrespectofthefollowingmatterswheretheCompaniesAct2006requiresustoreporttoyouif,inouropinion:

• adequateaccountingrecordshavenotbeenkept,orreturnsadequateforouraudithavenotbeenreceivedfrombranchesnotvisitedbyus;or

• thefinancialstatementsarenotinagreementwiththeaccountingrecordsandreturns;or

• certaindisclosuresofdirectors’remunerationspecifiedbylawarenotmade;or

• wehavenotreceivedalltheinformationandexplanationswerequireforouraudit.

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

29th March 2012


SUPPORTING SUCCESS

Our commitment to outstanding performance is reflected in Liberty Mutual Insurance Europe’s support for four British athletes aiming for success at London 2012.

ThewholeworldislookingtoLondonin2012asathletesfromover200countriescompeteforthechanceofwinninggold.Butwhatcansometimesbeforgottenisthelonganddifficultjourneytheseathletesundertaketogetthere.Sointherunuptotheworld’sbiggestsportingevent,wearesupportingthehardwork,talentandcommitmentoffourBritishathletes.BoxerLukeCampbell,paralympiandiscusthrowerDanGreaves,longjumperChrisTomlinsonandgymnasthannahWhelanallbenefitfromfinancialsupportfromLibertytoassisttheirpreparationsduringandbeyondtheLondon2012selectionprocess.

JustasLiberty’soperationsspanukregions,theathletesarefromalloverthecountry–fromtheMidlandsandSouthtotheNorthWestandNorthEast.Ourstaffandbrokersarealsosettobenefitfromtheexperience,withtheathletesgettinginvolvedinLibertyeventsandtakingpartinquestionandanswersessions.

AsSeanRocks,LMIE’sCEOexplains,“ItwillbeavaluableopportunitytosupportBritishathletesandforstaffandbrokerstomeetthesesportspeople,andlearnaboutthewayinwhichtheypreparethemselvesandfocustheirenergies.”

DANGREAVES

LUKECAMPBELL

CHRISTOMLINSONwith CEO SEAN ROCKS

Libertyissupportingthehardwork,talentandcommitmentoffourBritishathletes.

HANNAH WHELAN

FINANCIAL STATEMENTSfor the year ended 31 december 2011

Technical Account - General Business NOTES2011 $000

2010 $000

Grosspremiumswritten 3 740,931 637,404

Outwardreinsurancepremiums (341,138) (298,938)

Netpremiumswritten 399,793 338,466

Changeintheunearnedpremium

-grossamount 2 (60,474) (43,678)

-reinsurers’share 2 28,307 43,468

-netamount 2 (32,167) (210)

Earnedpremiums,netofreinsurance 2 367,626 338,256

Allocatedinvestmentreturntransferredfromthenon-technicalaccount

51,426 49,416

Total Technical Income 419,052 387,672

Claimspaid

-grossamount (196,124) (308,037)

-reinsurers’share 72,863 150,198

-netofreinsurance (123,261) (157,839)

Changeintheprovisionforclaims

-grossamount 28 (234,382) 52,018

-reinsurers’share 28 144,942 (88,165)

-netofreinsurance 28 (89,440) (36,147)

Claimsincurrednetofreinsurance (212,701) (193,986)

Netoperatingexpenses 4 (149,521) (132,161)

Changeintheequalisationprovision 30 (7,871) (5,828)

Total Technical Charges (370,093) (331,975)

Balance on the Technical Account for General Business 48,959 55,697

profit and loSS account for the year ended 31 december 2011


Non-technical Account NOTES2011 $000

2010 $000

Balance on the Technical account for General Business 48,959 55,697

Investmentincomeandgainsonrealisationofinvestments 5 73,383 72,754

Investmentexpensesandcharges 6 (2,333) (2,249)

Foreignexchangegains 529 5,572

Allocated investment return transferred to the general businesstechnicalaccount

(51,426) (49,416)

Profit on ordinary activities before tax 7 69,112 82,358

Taxonprofitonordinaryactivities 8 (21,121) (17,249)

Profit on ordinary activities after tax 21 47,991 65,109

Alltheamountsaboveareinrespectofcontinuingoperations.

Thenotesonpages29to52formpartofthesefinancialstatements.

profit and loSS account for the year ended 31 december 2011 (continued)


Statement of total recogniSed gainS and loSSeS for the year ended 31 december 2011

NOTES2011 $000

2010 $000

Profitonordinaryactivitiesaftertax 21 47,991 65,109

Gains/(losses)arisingfromtheeffectofretranslationofassetsandliabilitiesdenominatedinGBPandEuro

21 2,084 (10,640)

Pensionscheme–Actuarialgain/(loss),netoftax 21 2,209 (606)

Total recognised gains relating to the year 22 52,284 53,863


26 Liberty Mutual Insurance Europe Limited Annual Report 201126 LibertyMutualInsuranceEuropeLimitedAnnualReport2011

balance Sheet aS at 31 december 2011

ASSETS Notes2011 $000

2011 $000

2010 $000

2010 $000

Investments

Investmentsinsubsidiaryundertakings 11 1,846 1,812

Otherfinancialinvestments 13 1,769,928 1,591,099

Depositswithcedingundertakings 19,089 2,942

1,790,863 1,595,853

Reinsurers’ share of technical provisions

Provisionforunearnedpremiums 2 202,374 176,400

Claimsoutstanding 28 841,484 696,928

1,043,858 873,328

Debtors

Debtorsarisingoutofdirect

insuranceoperations 15 226,279 200,427

Debtorsarisingoutof

reinsuranceoperations 38,174 36,146

Otherdebtors 10 10,057 12,318

274,510 248,891

Other assets

Tangibleassets 12 3,556 2,160

Cashatbankandinhand 61,302 110,080

64,858 112,240

Prepayments and accrued income

Accruedinterest 22,686 21,886

Grossdeferredacquisitioncosts 4 56,486 49,022

Otherprepayments 16 2,888 2,576

82,060 73,484

Total assets excluding pension assets 3,256,149 2,903,796

Pensionasset 26 1,302 -

Total assets 3,257,451 2,903,796


27Liberty Mutual Insurance Europe Limited Annual Report 2011 27LibertyMutualInsuranceEuropeLimitedAnnualReport2011

balance Sheet aS at 31 december 2011 (continued)

LIABILITIES Notes2011 $000

2011 $000

2010 $000

2010 $000

Capital and reserves

Calledupsharecapital 20 290,225 290,225

Profitandlossaccount 21 409,922 400,123

700,147 690,348

Technical provisions

Provisionforunearnedpremiums 2 457,486 400,625

Grossclaimsoutstanding 28 1,798,001 1,564,803

Equalisationprovision 30 27,981 19,740

2,283,468 1,985,168

Creditors

Creditorsarisingoutofdirectinsuranceoperations 15 3,376 2,772

Creditorsarisingoutofreinsuranceoperations 107,209 80,523

Othercreditorsincludingtaxationandsocialsecurity 18 86,453 80,285

197,038 163,580

Accrualsanddeferredincome 19 76,798 63,480

Total liabilities excluding pension liability 3,257,451 2,902,576

Pensionliability 26 - 1,220

Total liabilities 3,257,451 2,903,796

ThefinancialstatementswereapprovedbytheBoardofDirectorson29thMarch2012andweresignedonitsbehalfby:

SPRocksDirector–ChiefExecutiveOfficer



1 ACCOUNTING POLICIES

(a) Disclosure requirementsThefinancialstatementshavebeenpreparedincompliancewiththespecialprovisionsrelatingtoinsurancecompaniesinSchedule3oftheLargeandMedium-sizedCompaniesandGroups(AccountsandReports)Regulations2008.

(b) Standard accounting practiceThefinancialstatementscomplywithapplicableaccountingstandardsandtherevisedABIStatementofRecommendedPracticeissuedinDecember2005asamendedinDecember2006.

The company has adopted FinancialReportingStandardNo.1 (Revised 1996), and is therefore exempt from therequirement toprepareacashflowstatementas it isa100%ownedsubsidiaryofLiberty InternationalholdingsIncorporated,and itscashflowsare includedwithin theconsolidatedcashflowstatementofLiberty InternationalholdingsInc.AsallowedunderFinancialReportingStandardNo.8,thecompanyhasnotdisclosedallrelatedpartytransactionswithgroupundertakingsonthebasisthatthecompanyisasubsidiaryundertakingwith100%votingrightscontrolledwithinagroupwhichproducespubliclyavailableconsolidatedfinancial statements inwhich thecompanyisincluded.

(c) Basis of accountingTheannualbasisofaccountinghasbeenappliedtoallclassesofbusinesswrittenbythecompany.

(d) Subsidiary undertakingsThecompanyhasclaimedexemptionfromtheproductionofconsolidatedfinancialstatementsundertheCompaniesAct2006s.400asitisasubsidiaryundertakingwhoseultimateparentcompanyproducesconsolidatedaccountsinamannerequivalenttofinancialstatementsdrawnupundertheprovisionsoftheEu7thCouncilDirective83/349/EECof13June1983basedonArticle54(3)goftheTreatyonConsolidatedAccounts.

Investmentsinsubsidiaryundertakingsareheldatcostlessaccumulatedimpairmentlosses,ifany.

(e) PremiumsGrosswrittenpremiumsrepresentpremiumsreceivableforthewholeperiodofcoverundercontractsinceptingduringthe financial year, together with adjustments arising in the financial year to business written in previous financialyearsandarestatedbeforecommissionsbutnetoftaxes,dutiesleviedonpremiumsandotherdeductions.Outwardreinsurancepremiumsareaccountedforinthesameaccountingperiodasthepremiumsfortherelateddirectinsuranceorinwardsreinsurancebusiness.

(f) Unearned premiumsForbusinessaccountedforonanannualbasis,theproportionofthepremiumswritteninayearrelatingtotheperiodof risk from1January to thesubsequentdatesofexpiryofpolicies iscarried forwardasaprovision forunearnedpremiums.Theprovision iscalculatedon the365thsmethod,or, in respectofengineering /courseofconstructionbusiness,iscalculatedusinganearningsprofilebasedontheconstructionandmaintenanceperiodofspecificpolicies.

(g) Unexpired risksProvisionismadeforanyanticipatedshortfalloftheprovisionforunearnedpremiumsforclaimsandadministrativeexpenseslikelytoariseaftertheendoftheyearfromcontractsconcludedbeforethatdate.Theoverallassessmentofwhetheraprovisionisnecessaryismadeonthebasisofallcategoriesofbusiness.Noaccountistakenoffutureinvestmentincome.

(h) Deferred acquisition costs Commissioncostswhichvarywith,andareprimarily relatedto, theacquisitionofnew insurancecontractsandtherenewalofexistinginsurancecontractsaredeferredtotheextentthattheyareattributabletopremiumsunearnedatthebalancesheetdate.

(i) InvestmentsInvestments, other than debt securities and other fixed interest securities, are stated at their current value. Listedinvestmentsarestatedatbidpricemarketvalueatcloseofbusinessonthebalancesheetdate,oronthelaststockexchangetradingdaybeforethebalancesheetdate.

Redeemablefixedinterestsecurities,heldasaportfolioofsuchsecuritiesintendedtobeheldonanongoingbasis,are

noteS to the financial StatementS


noteS to the financial StatementS (continued)

1 ACCOUNTING POLICIES (continued)

(i) Investments (continued)valuedatamortisedcost.Theamortisationiscalculatedsoastowriteoffthedifferencebetweenthepurchasepriceandthematurityvalueoverthelifeofthesecurity.

Redeemablefixedinterestsecuritiesarereviewedforanypermanentdiminutioninvalueperiodicallyonaholdingbyholdingbasis.Whereapermanentdiminutionisidentified,thecarryingvalueofthesecurityisadjustedtoitsfairvalueatthattimeandthedifferencebetweenthisvalueandthesecurity’samortisedcostisrecordedasarealisedinvestmentlossintheprofitandlossaccount.

(j) Investment income, expenses and chargesInvestment income and expenses are accounted for on an accruals basis. In accordancewith FinancialReportingStandard16“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 in unrealisedgainsand losseson sharesandother variable yield securities andunits in unit trustsdisclosedintheprofitandlossaccount includesanyreversal forpreviouslyrecognisedunrealisedgainsandlossesonsharesandothervariableyieldsecuritiesandunitsinunittrusts,whichweredisposedofintheaccountingperiod.

(l) Outstanding claims Full provision ismade on an individual case basis for the estimated cost of claims notified but not settled by thebalancesheetdateaftertakingintoaccounthandlingcostsandsettlementtrends.Aprovisionforclaimsincurredbutnotreported isestablishedfromstatisticalanalysisundertakenbythecompany’sactuaries.Themethodsusedandtheestimatesmadearereviewedregularly.Whilst thedirectorsconsider that thegrossprovisionforclaimsandtherelatedreinsurancerecoveriesarefairlystatedonthebasisoftheinformationcurrentlyavailabletothem,theultimateliabilitywillvaryasaresultofsubsequentinformationandevents.Anydifferencesbetweenprovisionsandsubsequentsettlementsaredealtwithinthetechnicalaccountsoflateryears.

Incalculatingtheestimatedcostofunpaidclaimsthecompanyusesavarietyofestimationtechniques,generallybaseduponstatisticalanalysesofhistoricalexperience,whichassumesthatthedevelopmentpatternofcurrentclaimswillbeconsistentwithpastexperience.Allowanceismade,however,forchangesoruncertaintieswhichmaycreatedistortionsintheunderlyingstatisticsorwhichmaycausethecostofunsettledclaimstochangewhencomparedwiththecostofpreviouslysettledclaimsincluding:

• changesincompanyprocesseswhichmightaccelerateorslowdownthedevelopmentand/orrecordingofpaidorincurredclaimscomparedwiththestatisticsfrompreviousperiods

• changesinthelegalenvironment

• theeffectsofinflation

• changesinthemixofbusiness

• theimpactoflargelosses

• movementinindustrybenchmarks




(l) Outstanding claims (continued) Acomponentof theseestimationtechniques isusuallytheestimationof thecostofnotifiedbutnotpaidclaims. Inestimatingthecostofthesethecompanyhasregardtoclaimcircumstancesasreported,andinformationavailablefromlossadjustersandinformationonthecostofsettlingclaimswithsimilarcharacteristicsinpreviousperiods.

Largeclaimsimpactingeachrelevantbusinessclasswereassessedseparatelywhereappropriate,beingmeasuredonacase-by-casebasisorprojectedseparatelyinordertoallowforthepossibledistortiveeffectofthedevelopmentandincidenceofthelargeclaims.

Theprovisionforclaimsoutstandingisbasedoninformationavailableatthebalancesheetdateanditisestimatedtogivearesultwithinanormalrangeofoutcomes.Totheextentthattheultimatecostfallsoutsidethisrange,forexamplewhereassumptionsoverclaimsinflationmayalterinfuture,thereisacontingentliabilityinrespectofthisuncertainty.Provisionsarecalculatedallowingforreinsurancerecoveriesandaseparateassetisrecordedforthereinsurers’share,havingregardtocollectability.

(m) Claims management expensesClaimsmanagementexpenseshavebeendeterminedbyanapportionmentofemploymentcosts.

(n) Equalisation provisionsEqualisationprovisionshavebeenestablishedinaccordancewiththerequirementsofthePrudentialSourcebookforInsurersandincludedastheequalisationprovisionwithintechnicalprovisions.

(o) Deferred taxationFinancialReportingStandard19“DeferredTax”requiresfullprovisiontobemadefordeferredtaxassetsandliabilitiesarising from timing differences between the recognition of gains and losses in the financial statements and theirrecognitioninataxcomputation.

Deferredtaxisrecognisedasaliabilityorassetifthetransactionsoreventsthatgivetheentityanobligationtopaymoretaxinthefutureorarighttopaylessorreceivemoretaxinthefuturehaveoccurredbythebalancesheetdate.Deferredtaxassetsarerecognisedtotheextentthatitisregardedasmorelikelythannotthattheywillberecovered.

(p) Exchange ratesAssetsandliabilitiesaretranslatedintouSdollarsattheexchangeratesprevailingatthebalancesheetdate.Incomeandexpensetransactionsaretranslatedusingtherateprevailingatthedateoftransactionsoranappropriateaveragerate.

Principalexchangeratesusedwereasfollows:

Average Closing

uSD:GBP 1.60412 1.56850

uSD:EuR 1.39264 1.30650

ThecompanymaintainsseparatecurrencyledgersforuSdollars,£sterlingandEurobusiness.Theseseparateforeigncurrency ledgersareconsideredbymanagement to represent foreignbranches.Exchangegainsand lossesarisingfromtheretranslationintouSdollarsofthebalancesheetsofthesebranchesusingtheratesofexchangeprevailingatthebalancesheetdate,andtheretranslationintouSdollarsoftheprofitandlossaccountsofthesebranchesusingtheaverageratesofexchangefortheyear,havebeenrecordedinthestatementoftotalrecognisedgainsandlosses.

LedgersareheldinuSdollarsinrespectoftheoverseasbranchesintheFarEastandEurosinrespectoftheoverseasbranchesinEurope.ExchangegainsandlossesarisingfromtheretranslationoftheEuropeanoverseasbranchestouSdollarscontinuetoberecordeddirectlyinthestatementoftotalrecognisedgainsandlosses.

Allotherforeignexchangegainsandlossescontinuetoberecordedinthenon-technicalaccount.




(q) Fixed assetsExpenditureon leasehold improvements,software,computerequipment,motorvehicles,fixtures,fittingsandofficeequipmentiscapitalisedanddepreciatedovertheestimatedusefuleconomiclivesoftheassetsonastraightlinebasis.

Theperiodsusedtodepreciatesuchassetsareasfollow:-

Leaseholdimprovements Remainingleaseterm

Software 1year

ComputerEquipment 1year

MotorVehicles 4years

Fixture,fittingsandofficeequipment 5-10years

Depreciationisincludedaspartofadministrativeexpenses.

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

Defined Benefit Pension SchemeThecompanyhasfullyadoptedaccountingstandardFRS17“RetirementBenefits”.

Thedifferencebetween the fairvalueof theassetsheld in thecompany’sdefinedbenefitpensionschemeand thescheme’sliabilitiesmeasuredonanactuarialbasisusingtheprojectedunitmethodarerecognisedinthecompany’sbalancesheetasapensionschemeassetorliabilityasappropriate.

Thecarryingvalueofanyresultingpensionschemeassetsisrestrictedtotheextentthatthecompanyisabletorecoverthesurpluseitherthroughreducedcontributionsinthefutureorthroughrefundsfromthescheme.Thepensionschemebalanceisrecognizednetofanyrelateddeferredtaxbalance.

Changes in the defined benefit pension scheme asset or liability from factors other than cash contribution by thecompany are charged to the Profit and Loss account or the Statement of Total RecognisedGains and Losses inaccordancewithFRS17“RetirementBenefits”.

Employeesjoiningonorafter1January2002becamemembersofthecompanydefinedcontributionpensionschemes.Contributionsarechargedintheprofitandlossaccountastheybecomepayableinaccordancewiththerulesoftheschemes.

(s) LeasesAssetsheldunderfinanceleasesandhirepurchasecontractsarecapitalisedattheirfairvalueontheinceptionoftheleasesanddepreciatedovertheirestimatedusefullives.Thefinancechargesareallocatedovertheperiodoftheleaseinproportiontothecapitalamountoutstanding.

Rentalsunderoperatingleasesarechargedtotheprofitandlossaccountinequalannualinstalmentsovertheperiodofthelease.

(t) Salvage and subrogation recoveriesAnticipated salvage and subrogation recoveries are calculated on an individual case basis. The level of recoveryestimatedissetonthebasisofinformationwhichiscurrentlyavailable,includingpotentialoutstandingclaimsadvicesandcaselaw.Salvageandsubrogationrecoveriesareincludedinclaimsincurredintheprofitandlossaccount.


2 EARNED PREMIUMS NET OF REINSURANCE

2011Gross

$000Reinsurance

$000Net

$000

Premiumswritten 740,931 (341,138) 399,793

unearnedpremiumscarriedforward (457,486) 202,374 (255,112)

unearnedpremiumbroughtforward 400,625 (176,400) 224,225

Exchangedifferenceonbroughtforward (3,613) 2,332 (1,281)

MovementperTechnicalAccount (60,474) 28,307 (32,167)

Premiumsearned 680,457 (312,831) 367,626

2010Gross

$000Reinsurance

$000Net

$000

Premiumswritten 637,404 (298,938) 338,466

unearnedpremiumscarriedforward (400,625) 176,400 (224,225)

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


MovementperTechnicalAccount (43,678) 43,468 (210)

Premiumsearned 593,726 (255,470) 338,256




3 ANALYSIS OF PREMIUMS WRITTEN, CLAIMS, OPERATING EXPENSES AND REINSURANCE BALANCE

InformationrequiredbytheCompaniesAct2006byclassofbusinessisasfollows:

2011

Gross premium

written $000

Gross premium

earned $000

Gross claims

incurred $000

Gross operating expenses

$000

Reinsurance balance

$000Total $000

Net technical provision

$000

Direct

Marine,Aviation&Transport 194,050 183,277 (166,127) (62,580) 42,801 (2,629) 219,200

PrimaryDirect&FacProperty 61,479 47,467 (60,513) (14,833) 22,582 (5,297) 61,747

PrimaryDirectCommercialLiability 396,363 368,398 (135,341) (115,988) (90,752) 26,317 772,574

PrimaryDirectCommercialFinancial 86,591 78,886 (72,550) (28,030) 2,111 (19,583) 88,962

TotalDirect 738,483 678,028 (434,531) (221,431) (23,258) (1,192) 1,142,483

TotalNon-Prop&PropR/ITreatyBusiness 2,448 2,429 4,025 (587) 729 6,596 61,691

Totals 740,931 680,457 (430,506) (222,018) (22,529) 5,404 1,204,174

2010

Gross premium

written $000

Gross premium

earned $000

Gross claims

incurred $000


$000

Reinsurance balance

$000Total $000


$000

Direct

Marine,Aviation&Transport 168,221 159,067 (48,279) (50,535) (41,970) 18,283 190,319

PrimaryDirect&FacProperty 40,537 38,385 (16,151) (8,999) (9,781) 3,454 50,246

PrimaryDirectCommercialLiability 351,919 333,524 (181,639) (105,607) (67,323) (21,045) 708,492

PrimaryDirectCommercialFinancial 77,527 63,557 (12,034) (23,692) (18,576) 9,255 66,152

TotalDirect 638,204 594,533 (258,103) (188,833) (137,650) 9,947 1,015,209

TotalNon-Prop&PropR/ITreatyBusiness

(800) (807) 2,084 (468) 1,353 2,162 68,725

Totals 637,404 593,726 (256,019) (189,301) (136,297) 12,109 1,083,934



Thecompanyoperatesitsbusinessinthefollowingdivisions:

2011

Gross premium

written $000

Gross premium

earned $000

Gross claims

incurred $000


$000

Reinsurance balance

$000Total $000


$000

LondonMarket 374,619 365,303 (248,345) (101,005) (2,555) 13,398 773,214

ukandIrelandCommercial 130,697 107,935 (65,308) (41,224) (8,063) (6,660) 155,565

ContinentalEurope 126,150 115,958 (66,848) (39,507) (9,721) (118) 160,362

International 109,465 91,261 (50,005) (40,282) (2,190) (1,216) 115,033

Totals 740,931 680,457 (430,506) (222,018) (22,529) 5,404 1,204,174

2010

Gross premium

written $000

Gross premium

earned $000

Gross claims

incurred $000


$000

Reinsurance balance

$000Total $000


$000

LondonMarket 379,717 360,043 (130,892) (104,865) (102,224) 22,062 744,519

ukandIrelandCommercial 66,786 60,990 (31,131) (21,100) (10,014) (1,255) 117,463

ContinentalEurope 101,471 96,904 (54,853) (30,994) (9,032) 2,025 127,152

International 89,430 75,789 (39,143) (32,342) (15,027) (10,723) 94,800

Totals 637,404 593,726 (256,019) (189,301) (136,297) 12,109 1,083,934

Commissions payable in respect of direct insurance amounted to $73,266,000 (2010: $59,497,000). Net TechnicalProvisionsincludeGrossDeferredAcquisitionCostsandDeferredReinsuranceCommissions.

3 ANALYSIS OF PREMIUMS WRITTEN, CLAIMS, OPERATING EXPENSES AND REINSURANCE BALANCE (continued)



4 NET OPERATING EXPENSES

2011Gross

$000Reinsurance

$000Net

$000

Acquisitioncosts 95,899 (81,286) 14,613

Deferredacquisitioncostscarriedforward (56,486) 49,031 (7,455)

Deferredacquisitioncostsbroughtforward 49,022 (40,856) 8,166

Exchangedifferenceonbroughtforward (627) 614 (13)

Changeindeferredacquisitioncosts (8,091) 8,789 698

Incurredacquisitioncosts 87,808 (72,497) 15,311

Administrativeexpenses 134,210

149,521

2010Gross

$000Reinsurance

$000Net

$000

Acquisitioncosts 78,913 (69,830) 9,083

Deferredacquisitioncostscarriedforward (49,022) 40,856 (8,166)

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

Exchangedifferenceonbroughtforward (260) 86 (174)

Changeindeferredacquisitioncosts (6,103) 12,579 6,476

Incurredacquisitioncosts 72,810 (57,251) 15,559

Administrativeexpenses 116,602

132,161

5 INVESTMENT INCOME AND GAINS ON REALISATION OF INVESTMENTS

2011 $000

2010 $000

Incomefromotherfinancialinvestments 66,953 65,284

Netgainsontherealisationofinvestments 6,430 7,470

73,383 72,754



6 INVESTMENT EXPENSES AND CHARGES

2011 $000

2010 $000

Investmentmanagementexpensesincludinginterest 2,333 2,249

7 PROFIT AND LOSS ACCOUNT

Profitonordinaryactivitiesbeforetaxisstated:

2011 $000

2010 $000

After charging

Depreciation 1,270 1,348

Operatingleaserentals:

Motorvehiclesandequipment 878 899

Landandbuildings 7,969 8,103

2011 $000

2010 $000

Auditors’remuneration:

Statutoryauditofcompany’sfinancialstatements 660 636

Otherservicespursuanttolegislation 121 154

Otherservicesrelatingtotax 323 310

Allotherservices–additionalgroupreportingauditrequirementsnotpursuanttolegislation

168 159

Auditofgrouppensionscheme 11 10


2011 $000

2010 $000

Directors’ Remuneration

Emoluments 4,419 5,249

2011 2010

Numberofdirectorswhoaremembersofadefinedbenefitpensionscheme 1 1

2011 2010

highestpaiddirector’sremuneration

Aggregateofemolumentsandawardsunderlongtermincentiveschemes,including$44,938ofpensioncontributions 1,406 1,668

8 TAXATION

(a) Analysis of charge in period

2011 $000

2010 $000

Currenttax:

Currentyear:

Overseastaxation (449) (762)

uktaxation (18,798) (22,829)

Priorperiods (785) 4,483

Totalcurrenttax(seeNote8(b)) (20,032) (19,108)

Deferredtax:

Originationandreversaloftimingdifferences (548) 2,062

Ratechangeadjustment (541) (203)

Totaldeferredtax (1,089) 1,859

Taxchargeonprofitonordinaryactivities (21,121) (17,249)

7 PROFIT AND LOSS ACCOUNT (continued)



(b) Factors affecting tax charges for periodThe tax charged for the period is higher than the standard effective rate of corporation tax in the uk (26.5%).Thedifferencesareexplainedbelow:

2011 $000

2010 $000

Profitonordinaryactivitiesbeforetax 69,112 82,358

Profitonordinaryactivitiesmultipliedbystandardeffectiverateofcorporationtaxintheukof26.5% (2010: 28%) (18,315) (23,061)

Effectsof:unrelievedoverseastaxlossesandwithholdingtaxes (449) -

Effectofdisallowableitems (479) (530)

Tax(under)/overprovidedinpreviousyears (789) 4,483

Currenttaxchargeforyear(seeNote8(a)) (20,032) (19,108)

(c) Factors that may affect future tax chargesOn22June2010theChancellorannouncedthatthemainrateofukcorporationtaxwouldreducefrom28%to27%witheffectfrom1April2011.ThistaxchangebecamesubstantivelyenactedinJuly2010andthereforetheeffectoftheratereductionwasreflectedinthedeferredtaxbalancesat31December2010.

TheChancellorsubsequentlyannouncedafurtherreductioninthemainrateofukcorporationtaxto26%witheffectfrom1April2011,andto25%tobeeffectedfrom1April2012.Theseratechangeswereenactedin2011andthereductionshavethereforebeenreflectedinthedeferredtaxbalancesat31December2011.

Themainrateofcorporationtaxisnowintendedtobereducedfurtherbyonepercentperannumto22%by1April2014.Thesechangeshavenotyetbeensubstantivelyenactedandarethereforenotreflectedintheclosingdeferredtaxbalances.Itisexpectedthattheimpactofthesefutureratechangeswouldreducetheclosingdeferredtaxbalancebyapproximately$533,000.

Basedoncurrentbusinessplans,thecompanyexpectstomakesufficienttaxableprofitsinthenextthreefinancialyearstosupporttherecoverabilityofthedeferredtaxassetrecognisedat31December2011.

8 TAXATION (continued)



9 STAFF NUMBERS AND COSTS

Theaveragenumberofpersonsemployedbythecompany(includingexecutivedirectors)duringtheyear,analysedbycategory,wasasfollows:

2011 2010

underwriting 289 262

Claims 49 46

Administration 116 94

454 402

Theaggregatepayrollcostsofthesepersonswereasfollows:

2011 $000

2010 $000

Wagesandsalaries 68,445 58,238

Socialsecuritycosts 8,346 6,778

Otherpensioncosts 6,566 6,230

83,357 71,246

IncludedinOtherpensionscostsare$308,000 (2010: $171,000 credit)inrespectofthedefinedbenefitschemeand$6,258,000(2010: $6,401,000)inrespectofdefinedcontributionschemes.

10 OTHER DEBTORS

2011 $000

2010 $000

Deferredtaxation(seeNote17) 6,623 7,534

Amountsduefromgroupundertakings 65 827

Otherdebtors 3,369 3,957

10,057 12,318



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:

At1January2011 2,110 9,166 50 11,326

Revaluation 27 321 - 348

Additionsduringtheyear 1,197 1,575 - 2,772

Disposalsduringtheyear - (351) (50) (401)

At31December2011 3,334 10,711 - 14,045

Accumulateddepreciation:

At1January2011 1,504 7,614 48 9,166

Revaluation 128 324 (2) 450

Chargefortheyear 400 866 4 1,270

Disposalsduringtheyear - (347) (50) (397)

At31December2011 2,032 8,457 - 10,489

Netbookvalueat31December2011 1,302 2,254 - 3,556

Netbookvalueat31December2010 606 1,552 2 2,160



13 OTHER FINANCIAL INVESTMENTS

2011 $000

2010 $000

Market valuations

Debtsecuritiesandotherfixedincomesecurities 1,684,824 1,555,801

Depositswithcreditinstitutions 155,996 105,111

TotalMarketValueofOtherFinancialInvestments 1,840,820 1,660,912

Original Cost

Debtsecuritiesandotherfixedincomesecurities 1,623,201 1,497,774

Depositswithcreditinstitutions 155,996 105,111

TotalOriginalCostofOtherFinancialInvestments 1,779,197 1,602,885

Carrying Value

Debtsecuritiesandotherfixedincomesecuritiesatamortisedcost 1,613,933 1,485,988

Depositswithcreditinstitutionsatoriginalcost 155,996 105,111

TotalCarryingValueofOtherFinancialInvestments 1,769,929 1,591,099

Includedintheabovemarketvaluationswereinvestments:

2011 $000

2010 $000

ListedontheukStockExchange 222,169 208,876

Listedonotherinvestmentexchanges 969,009 892,619

1,191,178 1,172,695

Thematurityvalueofdebtsecuritiesandotherfixedincomesecuritiesis$1,591,886,410(2010: $1,469,449,790)andtheunamortisedpremiumamountsto$22,046,382(2010: $18,553,771).



14 AMOUNTS DUE TO AND FROM GROUP UNDERTAKINGS

Thefollowingamountsdue(to)andfromgroupundertakingsareincludedwithin:

2011 $000

2010 $000

Depositswithcedingundertakings 16,329 -

Reinsurers’shareoftechnicalprovisions 106,884 54,547

Debtorsarisingoutofreinsuranceoperations 995 689

Grossdeferredacquisitioncosts 561 309

Technicalprovisions (27,747) (3,173)

Creditorsarisingoutofreinsuranceoperations (9,085) (6,852)

Accrualsanddeferredincome (4,046) (2,927)

Othercreditors (33,982) (33,399)

49,909 9,194

15 DEBTORS AND CREDITORS ARISING OUT OF DIRECT INSURANCE OPERATIONS

Allamountsareowedtoorduefromintermediaries.

16 OTHER PREPAYMENTS

2011 $000

2010 $000

Prepayments 2,888 2,576



17 DEFERRED TAXATION

2011 $000

2010 $000

Othertimingdifferences 6,189 7,986

Assetatstartofyear 7,986 6,241

Timingdifferencesarisinginperiod (548) 2,062

Effectofreductionintaxrate (541) (203)

Deferredtax(charge)/creditinprofitandlossaccount (1,089) 1,859

Effectofforeigncurrencytranslation 28 (326)

TaxationrecognisedintheStatementofTotalRecognisedGainsandLosses (736) 212

Assetatendofyear 6,189 7,986

DeferredtaxassetincludedinOtherdebtors 6,623 7,534

Deferredtax(liability)/assetdeductedfromPensionliability (434) 452

6,189 7,986

18 OTHER CREDITORS INCLUDING TAXATION AND SOCIAL SECURITY

2011 $000

2010 $000

Premiumtaxespayable 23,291 24,379

Corporationtaxespayable 11,245 17,097

Socialsecurity 2,394 967

Othercreditors 49,523 37,842

86,453 80,285

19 ACCRUALS AND DEFERRED INCOME

2011 $000

2010 $000

Deferredreinsurancecommissions 49,031 40,856

Otheraccruals 27,767 22,624

76,798 63,480



20 SHARE CAPITAL

2011 $000

2010 $000

Authorised:

629,187,000(2010: 629,187,000) ordinarysharesof$1each 629,187 629,187

Issuedandfullypaid:

290,225,000(2010: 290,225,000)ordinarysharesof$1each 290,225 290,225

21 RESERVES

Profit & loss Account

Excluding Pension Liability

$000

Pension Liability

$000

Total Profit & loss

Account $000

Balanceat1January2011 401,343 (1,220) 400,123

Profitforfinancialyear 47,593 398 47,991

Interimdividendpaidinthefinancialyear (42,485) - (42,485)

ChangeinFRS17“RetirementBenefits”,netoftax - 2,209 2,209

Gains and losses arising from the retranslation of assets andliabilitiesdenominatedinGBPandEuR 2,169 (85) 2,084

Balanceat31December2011 408,620 1,302 409,922

22 RECONCILIATION OF MOVEMENTS IN SHAREHOLDER’S FUNDS

2011 $000

2010 $000

Totalrecognisedgainsrelatingtotheyear 52,284 53,863

Openingshareholder’sfunds 690,348 666,485

Dividendpaid (42,485) (30,000)

Closingshareholder’sfunds 700,147 690,348



23 COLLATERAL DEPOSITS

Debtsecuritiesanddepositswithcreditinstitutionsamountingto$79,326,619(2010: $62,915,537)havebeenpledgedassecurityinconnectionwithcertainofthecompany’soverseasliabilities.

24 OTHER COMMITMENTS

Annualcommitmentsat31Decemberundernon-cancellableoperatingleasesareshownbelow:

2011 Land and Buildings

$000

2010 Land and Buildings

$000

Operatingleasesexpiringwithinoneyear - -

Operatingleasesexpiringwithintwotofiveyears 6,723 5,366

Operatingleasesexpiringafterfiveyears 81 550

25 CONTINGENT LIABILITY

Thecompanyhasentered intoa letterofcredit in favourof the InstituteofLondonunderwriters (“ILu”) forcertainpotentialliabilitiesinrespectoftheInstitute’sbuildinginLeadenhallStreet,LondonEC3.During2011drawingsontheletterofcreditamountedto$78,425(2010: $19,246)anditsvalueat31December2011was$524,871(2010: $592,063).

On14February2008,thecompanyprovidedaguaranteeonbehalfofafellowgroupundertaking,LibertySyndicateManagementLimited,inrespectofthatcompany’sfinancialobligationsrelatedtoapropertytenancyexpiringon22February2017.Themaximumpotentialobligationofthecompanyundertheguaranteeisdependent,interalia,onfuturerentreviewsbutisestimatedbythecompanytobe$9,643,000.

The company has provided to the Labuan Offshore Financial Services Authority an irrevocable and unconditionalguaranteethatitwillmeetallofthecompany’sobligationsrelatingtoitsinsuranceoperationsinLabuan,Malaysia.



26 DEFINED BENEFIT PENSION SCHEME

Thecompanyparticipates ina fundedgroupdefinedbenefitscheme in theuk, togetherwith fellowsubsidiariesofLibertyMutualholdingCompanyInc.Theschemeisclosedtonewparticipants.TheinformationdisclosedbelowisinrespectofLibertyMutualInsuranceEuropeLimited’sparticipationinthescheme.RegularemployercontributionstotheSchemefortheyearstartingon1January2012areestimatedtobe$684,000.

ThevaluationusedforFRS17disclosureshasbeenbasedonafullassessmentoftheliabilitiesoftheSchemeasat1July2010.ThepresentvaluesoftheSchemeliabilities,therelatedcurrentservicecostandanypastservicecostsweremeasuredusingtheprojectedunitcreditmethod.

Actuarialgainsandlosseshavebeenrecognisedintheperiodinwhichtheyoccur,throughtheStatementofRecognisedGainsandLosses(STRGL).

Following theukGovernment’s announcement in summer 2010, the inflation index to be used to derive statutorypensionincreaseswaschangedfromtheRetailPricesIndex(RPI)totheConsumerPricesIndex(CPI).Duetoanumberofdifferencesbetweentheindices,includingbothconstituentsandconstruction,CPIisexpectedtobelessthanRPIoverthe long-term,whichmeansthattheSchemeliabilitiesreduced.ThechangewasrecognisedatOctober2010,followingthepensiontrustees’decisiontoadoptCPIinthedeterminationofSchemeliabilities.Followingdiscussionswithourpensionsadvisors,werecognisedthereductionasanegativepastservicecost-thatis,asachangetotheconstructiveobligationtoprovidecertainbenefitstoSchememembers.

TheprincipalassumptionsusedbytheindependentqualifiedactuariestocalculatetheliabilitiesunderFRS17aresetoutbelow:

At 31 December2011

%2010

%2009

%

Rateofincreaseinsalaries 4.1 4.5 4.6

RateofincreaseinpensionsinpaymentwhereLimitedPriceIndexation(LPI)applies 2.9 3.3 3.4

Discountrate 4.9 5.3 5.6

Inflationassumption(RPI) 3.1 3.5 3.6

Inflationassumptions(CPI) 2.2 2.7 N/A

Themortalityassumptionsarebasedonstandardmortalitytableswhichallowforfuturemortalityimprovements.Theassumptionsarethatamemberwhoretiresin2024aged60willliveonaverageforafurther29.3yearsafterretirementiftheyaremaleandforafurther30.5yearsiftheyarefemale.

TheCompanyemploysabuildingblockapproachindeterminingthelong-termrateofreturnonpensionschemeassets.historicalmarketsarestudiedandassetswithhighervolatilityareassumedtogeneratehigherreturnsconsistentwithwidelyacceptedcapitalmarketprinciples.TheoverallexpectedrateofreturnonassetsisthenderivedbyaggregatingtheexpectedreturnforeachassetclassovertheactualassetallocationfortheSchemeat31December2011.



Theassetsintheschemeandtheexpectedreturnwere:

At 31 December

Long-term rate of return

expected at 2011

%

Value at 2011 $000


expected at 2010

%

Value at 2010 $000


expected at 2009

%

Value at 2009 $000

Equities 7.8 6,501 8.2 11,112 8.2 10,417

Bonds 4.6 10,707 5.3 7,067 5.2 8,206

Other(property,cashetc) 4.2 12,981 6.1 8,242 4.9 6,316

Totalmarketvalueofassets 30,189 26,421 24,939

Presentvalueofschemeliabilities (28,453) (28,093) (26,783)

Surplus/(deficit)inthescheme 1,736 (1,672) (1,844)

Netpensionasset/(liability)(afteradjustmentfordeferredtax) 1,302 (1,220) (1,327)

Analysis of the amount charged to operating profit

2011 $000

2010 $000

Currentservicecost 563 713

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

2011 $000

2010 $000

Expectedreturnonpensionschemeassets 1,815 1,571

Interestonpensionschemeliabilities (1,560) (1,480)

Netreturn 255 91

26 DEFINED BENEFIT PENSION SCHEME (continued)



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

2011 $000

2010 $000

Actualreturnlessexpectedreturnonpensionschemeassets 955 375

Experiencegainsandlossesarisingontheschemeliabilities 1,391 214

Changesinassumptionsunderlyingthepresentvalueoftheschemeliabilities 599 (1,409)

Actuarialgain/(loss)recognisedinSTRGL 2,945 (820)

Changes to the present value of the defined benefit obligation

2011 $000

2010 $000

Openingdefinedbenefitobligation 28,093 26,783

Movement in year:

2011 $000

2010 $000

Currentservicecost 551 702

Interestcost 1,525 1,458

Contributionsbyparticipants 61 86

Actuarial(gains)/lossesonliabilities (1,945) 1,176

Netbenefitspaidout (358) (377)

Pastservicecosts - (781)

Re-translationofopeningbalance 526 (954)

Closingdefinedbenefitobligation 28,453 28,093




Changes to the fair value of Scheme assets

2011 $000

2010 $000

Openingfairvalueofassets 26,421 24,939

Movementinyear:

Expectedreturnonassets 1,774 1,547

Actuarialgain/(losses)onassets 933 370

Contributionsbytheemployer 864 745

Contributionsbyparticipants 61 86

Netbenefitspaidout (358) (377)

Re-translationofopeningbalance 494 (889)

Closingfairvalueofassets 30,189 26,421

History of experience gains and losses

2011 $000

2010 $000

2009 $000

2008 $000

2007 $000

Totalmarketvalueofassets 30,189 26,421 24,939 19,370 25,476

Presentvalueofschemeliabilities (28,453) (28,093) (26,783) (20,310) (26,881)

Surplus/(deficit)inthescheme 1,736 (1,672) (1,844) (940) (1,405)

Difference between the expected and actual return on scheme assets:

Amount 955 375 2,013 (1,798) 1,711

Percentageofschemeassets 3% 1% 8% (9%) 7%

Experience gains and losses on scheme liabilities:

Amount 1,391 214 (34) (172) 108

Percentageofthepresentvalueoftheschemeliabilities 5% 1% 0% (1%) 0%

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

Amount 2,864 (820) (1,070) (408) 4,732

Percentageofthepresentvalueoftheschemeliabilities 10% (3%) (4%) (2%) 17%

Defined Contribution SchemeThecompanyoperatesadefinedcontributionpensionscheme,theCompanyPensionScheme,foritsemployees.Theassetsoftheschemeareheldseparatelyfromthoseofthecompanyinanindependentlyadministeredfund.Theunpaidcontributionsoutstandingattheyearend,includedinOthercreditors(Note18)are$430,950(2010: $405,646).




27 TRANSACTIONS WITH DIRECTORS AND OFFICERS

Feesof$61,172(2010: $47,963)inrespectofMrMGMckenziewerepaidtoMckenzieConsultingLimited,acompanycontrolledbyMrMGMckenzie.TherewerenoothertransactionsrequiringdisclosurebetweenLibertyMutualInsuranceEuropeLimitedanditsdirectorsandofficersduringtheyearended31December2011.

28 CHANGE IN THE PROVISION FOR CLAIMS

2011Gross

$000Reinsurance

$000Net

$000

Claimsoutstandingcarriedforward (1,798,001) 841,484 (956,517)

Claimsoutstandingbroughtforward 1,564,803 (696,928) 867,875

Exchangedifferenceonbroughtforward (1,184) 386 (798)

MovementperTechnicalAccount (234,382) 144,942 (89,440)

2010Gross

$000Reinsurance

$000Net

$000

Claimsoutstandingcarriedforward (1,564,803) 696,928 (867,875)

Claimsoutstandingbroughtforward 1,642,998 (792,835) 850,163


MovementperTechnicalAccount 52,018 (88,165) (36,147)

29 PRIOR YEARS CLAIMS

Anover-provisionofreservesnetofreinsuranceof$7,799,000(2010: Over-provision $10,373,000)arosebetweentheoutstandingclaimsprovisionatthebeginningoftheyear,paymentsmadeduringtheyearandtheprovisionattheendoftheyear.Theoverprovisionaroseprincipallyasaresultofareviewoftherecognitionofreinsurancerecoveriesunderwholeaccountpolicies,andreservesforCasualtybusinessinthecompany’sAsiabranches.

30 EqUALISATION PROVISION

Theseprovisions,whichamountto$27,981,000asattheyearend(2010: $19,740,000),areinadditiontotheprovisionsrequiredtomeettheanticipatedultimatecostofsettlementofoutstandingclaimsatthebalancesheetdate,andarerequiredbySchedule3oftheLargeandMedium-sizedCompaniesandGroups(AccountsandReports)Regulations2008 to be includedwithin technical provisions in the balance sheet, notwithstanding that it does not represent aliabilitiesatthebalancesheetdate.Thishashadthecumulativeeffectofreducingshareholders’fundsby$20,146,000netoftax(2010: $14,213,000).Themovementinequalisationprovisionsduringtheyearresultedinadecreaseinthegeneralbusinesstechnicalaccountresultof$7,871,000(2010: decrease of $5,828,000)andadecreaseinthenetassetsof$8,241,000(2010: decrease of $6,341,000).



Designedbybrett-lesage.comPhotographypages8&12byAidanMcCarthy

31 PARENTAL GUARANTEE

On 15 February 2002 the board of Liberty Mutual Insurance Company agreed to grant a guarantee covering thecompany’sinsuranceobligations.ThiswasratifiedbytheMassachusetts’DepartmentofInsuranceon10May2002.Theoriginalguaranteewasupdatedandre-issuedon13April2006.

32 ULTIMATE PARENT COMPANY

TheultimateparentcompanyisLibertyMutualholdingCompanyInc.ofBoston,

175BerkeleyStreet,Boston,Massachusetts02117,u.S.A.acompanyincorporatedintheunitedStatesofAmerica.ThesmallesthighergroupofcompaniesforwhichgroupaccountsaredrawnupandofwhichthiscompanyisamemberisLibertyInternationalholdingsIncorporated,acompanyincorporatedandregisteredintheu.S.A.

TheimmediateparentcompanyofLibertyMutualInsuranceEuropeLimitedisLibertyITBukandEuropeLtd.

CopiesofthegroupaccountsofLibertyInternationalholdingsIncorporatedandofLibertyMutualholdingCompanyInc.ofBostonareavailablefromthecompanies’registeredoffice,175BerkeleyStreet,Boston,Massachusetts02117,u.S.A.


LONDON OFFICE:

Head office3rdFloor,TwoMinsterCourtMincingLaneLondonEC3R7yETel:+44(0)2078606600Fax:+44(0)[email protected]

UK OFFICES :

Birmingham7thFloor45ChurchStreetBirminghamB32RTTel:+44(0)1212142100Fax:+44(0)[email protected]

Bristol4thFloor11-12QueenSquareBristolBS14NTTel:+44(0)1179307320Fax:+44(0)[email protected]

CheltenhamStJameshouseStJamesSquareCheltenhamGloucestershireGL503PRTel:+44(0)1242244499Fax:+44(0)[email protected]

Leeds 5thFloor2BondCourtLeedsLS12JzTel:+44(0)1132368280Fax:+44(0)1133912962

Manchester15thFloorLowryhouse17MarbleStreetManchesterM23AWTel:+44(0)1618387900Fax:+44(0)[email protected]

INTERNATIONAL OFFICES :

DubaiOffice8,Floor4GateVillageBuilding5,DIFCDubai,unitedArabEmiratesTel:+97143028000Fax:[email protected]

Hong KongSuites2401-04CityplazaOne1111king’sRoadTaikooShing,IslandEasthongkongTel:+85236552600Fax:[email protected]

MalaysiaSuite9-7WismauOADamansaraIINo.6JalanChangkatSemantanDamansaraheights50490kualaLumpurTel:+60320824000Fax:+60320824050

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

EUROPEAN OFFICES:

CologneImMediaPark850670köln,GermanyTel:+4922150052201Fax:[email protected]

DublinThirdFloorkestrelhouseClanwilliamPlaceDublin2,IrelandTel:+35318180505Fax:[email protected]

The Haguekoninginnegracht222514ABDenhaagNetherlandsTel:+31703028650Fax:[email protected]

HamburgNeuerWall80D-20354hamburg,GermanyTel:+4940360989800Fax:+4940360989811

MadridPaseodelaCastellana,31-8ºB28046Madrid,SpainTel:+34914442867Fax:[email protected]

Paris5boulevarddelaMadeleine75001Paris,FranceTel:+33153059059Fax:[email protected]

ZurichLintheschergasse23Ch–8001zürichSwitzerlandTel:+41442851000Fax:[email protected]


about liberty Mutual insurance europe limited Liberty Mutual Insurance Europe Limited is a wholly owned subsidiary of Liberty Mutual Insurance Group writing both Commercial Lines, trading as Liberty Mutual Insurance (LMI) and Specialty Lines, trading as Liberty International Underwriters (LIU).

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, environmental, strategic assets (including cyber), construction, surety bonds, legal expenses and trade credit insurance. Worldwide offices include North America, Europe, the Middle East, and Asia Pacific.

LIU is part of Liberty Mutual Insurance Group’s International operations, which reported net written premium of $8.2 billion in 2011, an increase of 13.3 per cent over 2010. This constituted 26.3 per cent of Liberty Mutual Insurance Group’s $31.183 billion in net written premium for the year ended December 31, 2011.

about liberty Mutual insurance group“Helping people live safer, more secure lives” since 1912, Boston-based Liberty Mutual Insurance Group is a diversified global insurer and the third largest property and casualty insurer in the U.S. based on A.M. Best Company’s report of 2010 net written premium.

Liberty Mutual Insurance Group also ranks 84th on the Fortune 500 list of largest corporations in the U.S. based on 2011 revenue. As of December 31, 2011, Liberty Mutual Insurance Group had $117.1 billion in consolidated assets, $99.3 billion in consolidated liabilities, and $34.7 billion in annual consolidated revenue.

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

Liberty Mutual Insurance Group (www.libertymutualinsurance.com) employs over 45,000 people in more than 900 offices throughout the world.

GEN257-05-12© 2012 Liberty Mutual Insurance Europe Limited. All rights reserved.

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