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<br />LIBERTY MUTUAL HOLDING COMPANY INC.
<br />Notes to Consolidated Financial Statements
<br />(dollars in millions)
<br />Unaudited
<br />(4) REINSURANCE
<br />'The Qwtpaoy is party to retroactive reinsurance arcangemems where a significant portion of [br consideration was retained on a `funds held" basis
<br />:cod interest is credited on the balance at a weighted avemhre rate of approximately 7.7% :mnually. 'T'hese contracts resuleeJ in deferred gains (nduding
<br />experience related profit acemals of $195 as of December 37, 2005 and 2004) that are amortized into income using the effective interest meshed over
<br />the estimated settlement periods. During the second yuartrr of ^_005, the Compam- re-estimated the anxnmt of deferred gains and amortization
<br />related xo these reinsur.[nee agreemm~rs. At December 37, 2005 and '_1104, deferred I,nins related xt dxese reinsurance atrangenu~nts were $378 anJ
<br />$973, respectively, and are included in other liabilities u~thin the nrosulidatect balance sheets Interest credited to the funds held balances for the three
<br />months and year ended December 31, 2005 was $26 and $113, respectively, as compared to $23 and $103, for the three months and year ended
<br />December 31, 2004, respectively. Deferred gain amortization for the three months and year ended December 31, 2005 was $18 and $89, respectively,
<br />as compared to $12 and $47, for the three months and year ended December 31, 2004, respectively. Reinsurance recovembles related to these
<br />tmnsacdons including experience related profit accruals were $2,211 and $2,219 as of December 31, 2005 and 2004, respectively.
<br />($) DEBT OUTSTANDING
<br />Debt outstanding at December 31, 2005 and 2004 includes the Following.
<br />Short-term debt:
<br /> 200$ 2004
<br />Commercial paper $ 100 $ 147
<br />Revolving credit facilities 35 29
<br />Curcent maturities of long-tens debt 10 77
<br />Total short-term debt $ 145 $ 253
<br />long-tens debt:
<br /> 2005 2004
<br />8.20%, Surplus Notes, due 2007 $ 121 $ 121
<br />G.75%, Notes, due 2008 15 IS
<br />5.00 % Notes, due 2008 4 14
<br />8.OU % Notes, due 2013 260 260
<br />5.75% Notes, due 2014 500 500
<br />8.50%, Surplus Notes, due 2025 150 150
<br />7.875°/, Surplus Notes, due 2026 250 250
<br />7.63%, Notes, due 2028 3 3
<br />7.00%, Notes due 2034 250 250
<br />6.50%, Notes due 2035 500 -
<br />7.697%, Surplus Notes, due 2097 500 500
<br />7.10 % - 7.86%, Medium Term Notes, with
<br />various maturities 27 27
<br /> 2,580 2,090
<br />Unamordzed discotmt (25) (16)
<br />Total long-term debt excluding current
<br />maturities $ 2,555 $ 2,074
<br />Short-term Debt
<br />The Company issues commercial paper to meet short-term operating needs. The total facility was $600 at December 31, 2005 and 2004 and is
<br />supported by a $750 line of credit fatility which LMGI emceed into on July 25, 2005 to replace its previous 364-day $450 revolving credit facility.
<br />Commercal paper issued and outstanding at December 31, 2005 and 2004 was $100 and $147, respectively. Interest cotes ranged from 2.31 % to
<br />4.45 % in 2005 and 1.08% to 2.50% in 2004.
<br />Long-tame Debt
<br />Payments of interest and principal of the surplus notes are expressly subordinate to all policyholder claims and other obligations of LMIC.
<br />Accordingly, interest and principal payments are contingent upon prior approval of the Commissioner of Insurance of the Commonwealth of
<br />Massachusetts.
<br />On March 22, 2005, the Company issued $500 of 6.50 % unsecured senior notes due 2035.
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