Report of Independent Registered Public Accounting Firm
Ernst & Young LLP 200 Clarendon Street Boston, MA 02116
Tel: +1 617 266 2000 Fax: +1 617 266 5843
Report of Independent Registered Public Accounting Firm
The Board of Directors Liberty Mutual Holding Company Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Liberty Mutual Holding Company Inc. (the Company) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income (loss), changes in total equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission "(2013 framework)," and our report dated February 26, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission.
We conducted our audits in accordance with the auditing standards of PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
1802-2605130
A member firm of Ernst & Young Global Limited
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 1996.
February 26, 2018
1802-2605130
A member firm of Ernst & Young Global Limited
Ernst & Young LLP 200 Clarendon Street Boston, MA 02116
Tel: +1 617 266 2000 Fax: +1 617 266 5843
Report of Independent Registered Public Accounting Firm
The Board of Directors Liberty Mutual Holding Company Inc.
Opinion on Internal Control over Financial Reporting
We have audited Liberty Mutual Holding Company Inc.'s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). In our opinion, Liberty Mutual Holding Company Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on COSO criteria.
As indicated in the accompanying Management's Report on the Effectiveness of Internal Control Over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Ironshore Inc., which is included in the 2017 consolidated financial statements of the Company and constituted 5.38% and 16.19% of total assets and equity, respectively, as of December 31, 2017 and 1.65% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Ironshore Inc.
We also have audited, in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheets of Liberty Mutual Holding Company Inc. as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in total equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and our report dated February 26, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on the Effectiveness of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
1802-2605130
A member firm of Ernst & Young Global Limited
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission.
We conducted our audit in accordance with the auditing standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
February 26, 2018
1802-2605130
A member firm of Ernst & Young Global Limited
LIBERTY MUTUAL HOLDING COMPANY INC. Consolidated Statements of Income (dollars in millions)
Revenues Premiums earned Net investment income Fee and other revenues Net realized gains (losses)
Total revenues
Claims, Benefits and Expenses Benefits, claims and claim adjustment expenses Operating costs and expenses Amortization of deferred policy acquisition costs Interest expense Interest credited to policyholders
Total claims, benefits and expenses
Loss on extinguishment of debt
Ironshore acquisition & integration costs
Restructuring costs (Loss) income from continuing operations before income tax expense and non-controlling interest
Income tax expense Consolidated net (loss) income from continuing operations
Discontinued operations (net of income tax expense of $115, $64 and $83 in 2017, 2016 and 2015 respectively)
Consolidated net income
Less: Net income attributable to non-controlling interest Net income attributable to Liberty Mutual Holding Company Inc.
Net Realized Gains (Losses) Other-than-temporary impairment losses Other net realized gains
Total net realized gains (losses)
See accompanying notes to the audited consolidated financial statements.
Years Ended December 31,
2017
2016
2015
$ 35,789 $ 32,987 $ 32,191
2,296
1,849
1,968
856
740
840
468
(125)
7
39,409
35,451
35,006
27,189 6,644 5,062
441 39 39,375
(1)
(86)
(91) (144)
50 (194)
22,215 6,514 4,851
445 64 34,089
(76)
-
(70) 1,216
265 951
21,414 6,714 4,602
438 63 33,231
(1)
-
1,774
457 1,317
213
118
(783)
19
1,069
534
2
63
20
$
17 $
1,006 $
514
2017
$
(344)
812
$
468
2016
$
(366)
241
$
(125)
2015
$
(369)
376
$
7
1
................
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