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Commercial Markets ended 2003 with strong growth, excellent cash flow and solid earnings, driven by continued disciplined underwriting, double-digit rate increases, strong customer retention and selective new business growth. This group of businesses concluded the year with pre-tax operating income of $412 million, revenue of $5.3 billion, cash flow of $832 million, and a 106.1 percent combined ratio. Well-established as a leading workers compensation insurance provider, Commercial Markets placed renewed emphasis in 2003 on growing its commercial property, auto and liability lines.

Organized into distinct operating units — National, Business, Wausau, Specialty Risk and Group Markets — each provides high-quality products and services to clearly defined customer segments through its chosen distribution channels. All share the singular goal of lowering their customers’ overall cost of risk through the dedicated efforts of a highly skilled workforce using effective, efficient technology.

Some tools that help them do so are their extranet portals, customized and secure web sites that allow Commercial Markets businesses and their customers to exchange information and transact business over the internet. National Market, for example, has more than 450 customer sites and 3,600 individual users. Liberty Mutual Business Direct, the Business Market portal, has 3,500 sites serving 60 percent of its customers.

The typical National Market customer has multi-state operations and annual premium in excess of $2.5 million. Serving them are National Market’s 50 account executives, working in cooperation with the customer’s brokers and advisers. National Market net written premium increased 16 percent to $1.2 billion due to rate increases and higher new business levels across all major products: workers compensation, commercial automobile, general liability and umbrella. Premium retention increased to 86.6 percent from 85.8 percent in 2002.

Business Market uses its own sales force of approximately 320 licensed sales representatives to sell to middle-market businesses; those with all-lines annual premium between $75,000 and $2.5 million. Its 2003 net written premium increased 20 percent to $1.2 billion, reflecting strong new premium growth, rate increases and lower reinsurance premium. Wausau Commercial Market, which distributes its products and services to middle-market businesses through approximately 270 independent brokers and agents, and its own 130 licensed sales agents, increased its net written premium by 18 percent to $839 million in 2003 due to rate increases and lower reinsurance premium.

Specialty Risk Market, which includes Liberty Mutual Property, Liberty Mutual Surety and Captive Services, uses National, Business and Wausau distribution channels, as well as its own broker channels, to provide property insurance, surety and fidelity bonds, and captive programs to a wide range of customers. Its 2003 net written premium increased 19 percent to $311 million. Group Market, which sells group life and disability products through a direct sales force working with brokers and benefits consultants, increased its net written premium by three percent to $331 million.

Each unit’s operating performance in 2003, the significant momentum they have in their expanding distribution capabilities, their underwriting expertise, and their top-tier customer service and loss management capabilities position Commercial Markets to succeed in any market environment.

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