Rights of Members & Annual Meeting

WHAT IS "LIBERTY MUTUAL HOLDING COMPANY INC." AND WHO ARE ITS MEMBERS?

WHAT IS "LIBERTY MUTUAL HOLDING COMPANY INC."?

Liberty Mutual Holding Company Inc. is a Massachusetts mutual holding company that operates primarily through four strategic business units (1) Commercial Insurance, (2) Personal Insurance, (3) Global Specialty and (4) Liberty International. These business units utilize various "Liberty Mutual" trade names and trademarks including, without limitation, "Liberty Mutual Insurance”, “Liberty Mutual Insurance Group”,  "Liberty Mutual Personal Markets"; "Liberty Mutual Surety"; "A Liberty Mutual Insurance Company"; "Liberty International"; and similar types of names as may be adopted from time to time. Each of these strategic business units market and underwrite insurance policies issued by the numerous insurance entities owned or controlled by Liberty Mutual Holding Company Inc., including (1) stock insurance companies, (2) stock insurance companies that were formerly mutual insurance companies and (3) other affiliated insurance entities (collectively "LMHC Insurance Companies"). The rights and privileges associated with insurance policies and other obligations issued by the LMHC Insurance Companies vary in certain ways described below.

WHO IS A "MEMBER" OF LIBERTY MUTUAL HOLDING COMPANY INC.?

Members are persons appearing as the named insured on an in-force policy, or as principal in the case of a surety bond, issued by "Member Companies." Our Member Companies include only the following stock insurance companies (1) Liberty Mutual Insurance Company, (2) Liberty Mutual Fire Insurance Company, (3) Employers Insurance of Wausau, and (4) Liberty Mutual Personal Insurance Company. These Member Companies were formerly mutual insurance companies whose policyholders elected to form a mutual holding company. These formations were reviewed and approved by the governing state insurance regulatory authorities.

Policyholders or holders of surety bonds or other insurance obligations issued by LMHC Insurance Companies that are not Member Companies ARE NOT members of Liberty Mutual Holding Company Inc. and are, therefore, not entitled to any such rights of members.

WHAT ARE RIGHTS OF MEMBERS?

Members of Liberty Mutual Holding Company Inc. have uncertificated rights conferred by law, including the rights to: (1) vote for the election of directors at annual meetings of Liberty Mutual Holding Company Inc. as well as other matters requiring a membership vote; (2) share in any distribution of, or receive consideration based upon, the value of Liberty Mutual Holding Company Inc. in liquidation, demutualization, dissolution or otherwise under its articles of organization and bylaws, or otherwise as provided by law; and (3) receive member dividends as, if and when declared and paid by the Board of Directors.

WHEN IS THE MEMBERS ANNUAL MEETING OF LIBERTY MUTUAL HOLDING COMPANY INC.?

It is held on the second Wednesday of April at its headquarters located at 175 Berkeley Street, Boston, Massachusetts.

New Massachusetts Compensation Disclosure Law

Named Executive Officer and Director Compensation Disclosures for 2012

The following tables and related footnotes provide information to the members of Liberty Mutual Holding Company Inc. (the "Company") regarding the compensation provided in fiscal year 2012 to the Company’s chief executive officer, principal financial officer, its three other most highly compensated executive officers or other former executive officers (collectively "named executive officers"), and its directors, all as required by Section 19X of Chapter 175 of the Massachusetts General Laws (the "Disclosure Statute") signed into law on July 8, 2012.

The Disclosure Statute is also applicable to Liberty Mutual Mid-Atlantic Insurance Company and Montgomery Mutual Insurance Company. Both of these entities are mutual insurance companies domiciled in Massachusetts and controlled by the Company (collectively the "Liberty MA Mutual Companies"). The Company notes that none of the executive officers or directors of the Liberty MA Mutual Companies received any compensation from their respective companies in 2012.
 

Compensation Paid to Named Executive Officers in 2012

Name and Principal Position	Year	Salary	Bonus	All Other Compensation (1)	Total (2)
David H. Long President and Chief Executive Officer (3)	2012	$1,000,000	$3,585,801	$357,491	$4,943,292
Dennis J. Langwell Senior Vice President and Chief Financial Officer (3)	2012	$700,000	$1,048,530	$106,407	$1,854,937
A. Alexander Fontanes Executive Vice President and Chief Investment Officer	2012	$818,269	$2,779,700	$150,960	$3,748,929
Timothy Sweeney Executive Vice President	2012	$743,269	$2,265,942	$92,993	$3,102,204
J. Paul Condrin III Executive Vice President	2012	$804,615	$1,668,685	$118,625	$2,591,925

 AUs and RUs Awarded in 2012

Name and Principal Position	Target Value of Appreciation Units Awarded (4)	Target Value of Restricted Units Awarded (5)
David H. Long President and Chief Executive Officer	$3,200,053	$800,160
Dennis J. Langwell Senior Vice President and Chief Financial Officer	$839,960	$209,937
A. Alexander Fontanes Executive Vice President and Chief Investment Officer	$1,279,973	$319,904
Timothy Sweeney Executive Vice President	$1,160,013	$289,913
J. Paul Condrin III Executive Vice President	$1,264,019	$315,905

AUs Exercised and RUs Redeemed in 2012

Name and Principal Position	Value Realized on AUs Exercised (2)	Value Realized on RUs Redeemed (2)
David H. Long President and Chief Executive Officer	$60,000	$335,488
Dennis J. Langwell Senior Vice President and Chief Financial Officer	--	--
A. Alexander Fontanes Executive Vice President and Chief Investment Officer	$930,000	$1,961,228
J. Paul Condrin III Executive Vice President	$60,000	$826,952
Timothy Sweeney Executive Vice President	$10,000	$45,660

 Compensation Paid for Director Services in 2012

Name and Principal Position		Year	Totals (6)
Michael Babcock	Director	2012	$214,121
Charles Clough	Director	2012	$153,564
Gary Countryman	Director	2012	$148,792
Nicholas Donofrio	Director	2012	$161,964
Francis Doyle	Director	2012	$228,093
John P. Hamill	Director	2012	$148,351
Marian L. Heard	Director	2012	$224,889
Edmund F. Kelly	Chairman and Director	2012	$422,636
David H. Long (6)	Director	2012	--
John P. Manning	Director	2012	$186,187
Thomas May	Director	2012	$202,456
Stephen Page	Director	2012	$134,040
Ellen Rudnick	Director	2012	$208,449
Martin Slark	Director	2012	$188,259
William Van Faasen	Director	2012	$224,730
Annette Verschuren	Director	2012	$279,465

SEE ACCOMPANYING FOOTNOTES FOR ADDITIONAL INFORMATION ON THE COMPENSATION DESCRIBED ABOVE 

Footnotes to Compensation Disclosures

(1) “All Other Compensation” consists of the taxable portion of  perquisites provided to the named executive officers and other forms of compensation, including car allowances, parking, personal financial planning and tax preparation services, security, annual physical examinations, matching contribution under the Company’s retirement savings plans (e.g. – 401(k) plan); and in the case of Mr. Long only, the personal use of corporate aircraft.

Pension plans provide income for periods of retirement and are structured to reward and retain employees for long service.  The Company sponsors a defined benefit pension plan covering substantially all of the Company’s employees with at least one year of service (the “LM Retirement  Plan”).  Should the benefit for an eligible individual exceed the tax-qualified limits, the excess is provided from an un-funded, non-qualified plan (the “Non-Qualified Plan”).  Given the level of their compensation the named executive officers are all participants in the Non-Qualified Plan.  The basic formula for determining an employee’s and a named executive officer’s annual pension benefit at normal retirement under the Liberty Mutual retirement plans is equal to the sum of a named individual’s 35 year service benefit and an excess service benefit earned for credited service greater than 35 years, where:
 

• 35 Year Service Benefit — The formula for the first 35 years of credited service results in a benefit at normal retirement for a named individual based on final average pay.  The percentage of final average pay used to determine the benefit for credited service through December 31, 2010 is 54% minus 50% of the Social Security benefit, and for credited service beginning on or after January 1, 2011, 35% minus 35% of the Social Security benefit.  The benefit of a participant with less than 35 years of credited service will be reduced on a pro rata basis for each year of credited service less than 35; and
• Excess Service Benefit — For the first 5 years of credited service in excess of 35 years, an annual accrual equal to 0.5% of final average pay.

Final average pay under the Liberty Mutual retirement plans is equal to the average of a named individual’s eligible compensation for the highest five consecutive calendar years during the last ten calendar years of employment.   No long-term incentive compensation (e.g. – AUs or RUs exercised), “All Other Compensation” or severance is included as part of final average pay.   The Company also sponsors a Section 401(k) plan covering substantially all of the Company’s employees (the “LM 401(k) Plan”) that allows them to set aside eligible pay, subject to a Company match, on a tax advantaged basis.  The Non-Qualified Plan also allows participants to elect to set aside eligible pay that is not otherwise allowed for under the Company’s 401(k) Plan due to tax law limits for payment at a fixed future date or beginning at retirement.  Certain amounts set aside for savings under the Non-Qualified Plan are also matched by the Company under the same match formula that applies to employees generally under the LM 401(k) Plan.  Under both the LM 401 (k) Plan and the Non-Qualified Plan, amounts set aside by a participant and the matching contributions, are invested in one or more investment options elected by the participants and their account balances are adjusted accordingly for their respective investment gains or losses. 
See footnote (3) for additional information concerning elections under the Non-Qualified Plan.

(2) See table entitled “AUs Exercised and RUs Redeemed in 2012” for additional compensation paid to the named executive officers in 2012.  This table sets forth the specific cash proceeds received in 2012 by the named executive officers from AUs exercised and RUs redeemed from grants previously awarded and vested as of March 31, 2012 including any related tax gross-up.  AUs are granted with a 10 year term.  AUs can be exercised when vested at the personal discretion and timing of the named executive officer, but within a redemption window, which is in the second quarter of the calendar year.  Redemption decisions concerning RUs must be made by the named executive officer prior to the grant and redemption is deferred to either (a) a fixed date beyond the vesting period or (b) upon retirement.  See footnotes (4) and (5) for additional information concerning AUs and RUs.

(3) In accordance with their rights under the Non-Qualified Plan, Mr. Long and Mr. Langwell also received a return of previously set aside funds, including the related match and earnings thereon resulting from their personal investment directions, of $170,387 and $1,284,648, respectively.  See footnote (1) for additional information concerning the Non-Qualified Plan.

(4) The named executive officers were awarded certain amounts of appreciation units (“AUs”) under the Liberty Mutual Executive Partnership Plan (“EPP”) in 2012.  Each AU is a bookkeeping entry that entitles the holder to a payment of cash at a later time. An AU has no immediate cash value. Instead, the named executive officer may only become entitled to a later cash payment to the extent that there is an increase in the unit value after the grant date. The increase or decrease in unit value after the grant date is measured based on the change in the Company’s book value.  The reported amounts reflect the target AU compensation at the grant date. The target AU compensation is determined based upon reference to market data for executives with similar responsibilities and with companies of similar size and complexity to the Company provided by an independent consultant engaged by the compensation committee of the board.  There can be no assurance that the target AU compensation will actually be delivered as the actual amount realized will vary based upon the performance of the Company and the time period the AUs are held prior to exercise. AUs generally vest over a 4 year period in annual increments of 25%. See footnote (2) for additional information concerning AUs.

(5) The named executive officers were awarded certain amounts of restricted units (“RUs”) under the Liberty Mutual Executive Partnership Deferred Compensation Plan (“EPDCP”) in 2012.  Each RU is a bookkeeping entry that entitles the holder to a payment of cash at a later time. The value of each RUs is based on the Company’s book value.  The reported amounts reflect the target RU compensation at the grant date. The target RU compensation is determined based upon reference to market data for executives with similar responsibilities and with companies of similar size and complexity to the Company provided by an independent consultant engaged by the compensation committee of the board.  There can be no assurance that the target RU compensation will actually be delivered as the actual amount realized will vary based upon the performance of the Company and the time period the RUs are held prior to redemption. RUs generally vest over a 4 year period in annual increments of 25%.  See footnote (2) for additional information concerning RUs.   

(6) Mr. Long as an executive of the Company does not receive any additional compensation for serving as a director.  Only non-executive directors receive compensation for their director services.  Non-executive directors receive an annual retainer plus an additional fee for each board meeting attended.  A non-executive chairman of the board receives (a) an additional annual retainer, included in the table above, for serving in such capacity, but does not receive any fees for attendance at board meetings or serving as a member of, or attending, committee meetings, and (b) perquisites in 2012 totaling $109,989 including parking, car allowance and the personal use of corporate aircraft.  Non-executive board members also received fees or retainers, if applicable, (a) for serving as a member of separate committees of the board and for attending meetings of such committees, (b) for serving as a chairman of such committees, or (c) for serving as lead director.  Non-executive directors receive additional items including (a) certain medical, dental and business travel benefits, all of which are included in the above disclosure table, and (b) subject to satisfaction of specific terms and conditions, additional deferred payments, limited in time and scope, upon termination of their board service and (c) matching contributions to charitable organizations up to $7,500 per year.