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Personal Market delivers auto, home, life and other personal insurance products using a unique multiple-channel distribution strategy. This business ended 2003 with revenue of $4.7 billion, pre-tax operating income of $397 million and a 97.9 percent combined ratio. Contributing to this strong performance were record auto and homeowner sales, a customer retention rate that exceeded 90 percent, and premium rate increases. Personal Market also acquired Prudential Financial’s property and casualty insurance business (“PruPac”) in late 2003, and the financial results include two months of PruPac results.

The PruPac acquisition, which included operations in 47 states, makes Liberty Mutual the eighth-largest writer of personal lines P&C insurance in the U.S., based on 2003 direct written premium. The acquisition provided Personal Market with $1.1 billion of premium and a new channel of distribution: 2,700 Prudential life insurance agents. Further sharpening focus on its profitable U.S. operations, Personal Market announced in January 2004 an agreement to sell its Canadian personal lines property and casualty operations to Meloche Monnex, Inc.

Historically almost exclusively dependent on a captive sales force, Personal Market has successfully diversified its distribution network over the last several years. Today, telephonic direct response sales centers, Prudential’s exclusive agents and the internet complement the proven effectiveness of the Personal Market’s 1,100 sales reps, who work out of 360 local offices. Critical to the success of the multi-channel distribution strategy has been Personal Market’s affinity marketing program. In fact, Personal Market’s more than 8,300 sponsoring affinity groups — employers, credit unions, and professional and alumni associations — account for almost 70 percent of new business sales.

The rationale behind Personal Market’s distribution network proved itself in 2003 with both its local sales force and direct response centers reporting record sales. The local sales force sold 333,000 new business policies, a 22 percent improvement over 2002, while the direct response centers in Phoenix, Ariz., and Orlando, Fla., sold 123,000 new business policies, or 55 percent more than a year ago. On the life insurance side, Personal Market sold $164 million of life insurance through its bank distribution channel, 46 percent more than a year ago. In fact, Liberty Mutual is one of the leaders in selling life insurance products through banks.

Whatever the distribution channel, Personal Market’s strategy is to provide fairly priced and comprehensive products that meet its customers’ needs and exceed their service expectations. Whether it be a visit to a local office, a telephone call, written correspondence, or the submission of a claim via the internet, the goal is for every interaction to be a

favorable one. Personal Market’s customer service ratings continue to improve each year, thanks most recently to the increased service rep availability and responsiveness gained through new phone systems and other technological enhancements, but we can and will do even better.

With its continued focus on customer service, proactive safety education and community commitment, Personal Market’s longer-term goal is continued growth and recognition as the premier provider of personal lines insurance.

Underlying this service emphasis is Personal Market’s proactive approach to helping its customers live safer more secure lives. For example, for the past 30 years, Liberty Lines, Personal Market’s consumer magazine, has furnished Liberty Mutual policyholders with the latest facts and advice related to auto and home safety. Since 1992, Personal

Market has partnered with SADD (Students Against Destructive Decisions) to tackle teen safety, an important issue facing Liberty Mutual customers. And the new Liberty Mutual Rewards program provides value-added discounts on auto- and home-related products and services, along with safety and maintenance information.

Personal Market employees are also deeply committed to the communities in which they conduct business. In 2003 alone, the Personal Market conducted hundreds of educational seminars across the country that promote safe driving, identity theft prevention and other useful topics. And, in 2004, we will proudly unveil a fire safety exhibit at Epcot® at

Walt Disney World® Resort, where guests will participate in an interactive exhibit, called “Where’s the Fire,” to learn about common and uncommon causes of household fires and how to prevent them from occurring.

With its continued focus on customer service, proactive safety education and community commitment, Personal Market’s longer-term goal is continued growth and recognition as the premier provider of personal lines insurance.

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