Document:

exv10w126

Exhibit 10.126

INVESTMENT MANAGEMENT AGREEMENT

     This Investment Management Agreement (this “Agreement”) is made and entered into this
1st day of January 2010 by and between Safeco Insurance Company of America (the
“Company”), a Washington stock insurance company and Liberty Mutual Group Inc. (the “Advisor”), a
Massachusetts corporation.

     WHEREAS, the Company desires to enter into a contract for the purpose of appointing the
Advisor to manage the assets of its investment portfolios in accordance with the terms hereof; and

     WHEREAS, the Advisor is willing to manage the assets of the Company’s investment portfolios in
accordance with the terms hereof;

     NOW, THEREFORE, the Company and the Advisor hereby agree as follows:

1. Appointment. The Company hereby authorizes and appoints the Advisor as its investment
advisor and, as its agent and attorney-in-fact, to exercise the investment discretion set forth
below with respect to the assets of the Company’s investment portfolios, excluding those accounts
managed by other investment managers (collectively, the “Investment Portfolios”) and the cash,
securities or other property contained therein from time to time. The Company hereby authorizes and
appoints the Advisor, as its agent and attorney-in-fact, to (i) execute all documentation on the
Company’s behalf necessary to open additional accounts in the Company’s name to facilitate
investments made within the investment discretion set forth in the Investment Guidelines, as
defined below, and (ii) to execute all documentation, on the Company’s behalf, to facilitate
investment in securities for the Company’s Investment Portfolios.

2. Scope of Authorization for Investment Discretion. The Advisor shall manage the
Company’s Investment Portfolios in accordance with the investment policy and guidelines set forth
on Appendices A and B respectively (such guidelines, the “Investment Guidelines”), as such
may be amended from time-to-time by written agreement between the parties hereto. In connection
therewith, the Advisor shall have full power to supervise and direct the investment and
reinvestment of the cash, securities and other assets and to engage in such transactions on behalf
of the Company as the Advisor may deem appropriate, in the Advisor’s absolute discretion and
without prior consultation with the Company, subject only to this Agreement and the Investment
Guidelines. The Company hereby acknowledges that the Advisor need not seek approval prior to
engaging in any transaction where such transaction complies with the terms and conditions of the
Investment Guidelines. The Company acknowledges that performance objectives referred to in
Appendices A and B are intended as goals and not as an assurance or guarantee of performance.

The cash and assets of the Company shall be held by third-party custodian(s) that have agreed to
act as custodian(s) for the Company in accordance with the Advisor’s instructions. The Advisor
shall at no time have custody or physical control of the Company’s assets, and the Advisor shall
not be liable for any act or omission of the custodian(s). The Advisor may give instructions to the
custodian(s), in writing or orally. The Company shall instruct the custodian to provide the Advisor
with such periodic reports concerning the status of any Company account as the Advisor may
reasonably request from time to time.

In performing its duties under this Agreement, the Advisor will act in the interests of the
Company, except as otherwise provided herein. The Advisor will not deal with the assets in the
Company’s Account in its own interest or for its own account and, in particular, will not, without

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prior written consent of the Company, as principal, sell assets to, purchase assets from, or borrow
money or other property from the Company’s Account.

Without limiting the foregoing, the Company hereby authorizes the Advisor:

     (a) to act as the Company’s agent and attorney-in-fact with respect to the Company’s
Investment Portfolios and to have complete discretionary control over the composition of the
Investment Portfolios, including the power to make such acquisitions and disposals of investments
as the Advisor considers appropriate, but always in accordance with the Investment Guidelines;

     (b) to issue to brokers instructions to buy or to sell or otherwise trade in or deal with any
asset in the Investment Portfolios;

     (c) to instruct any custodian of any asset in the Investment Portfolios to deliver any
security or other asset sold, exchanged or otherwise disposed of from the Investment Portfolios;

     (d) to pay any fee incurred on behalf of the Company in providing services under this
Agreement, including commission expenses, attendant Securities and Exchange Commission transaction
fees and National Association of Insurance Commissioners transaction fees which shall be paid from
the Investment Portfolios in the conventional manner;

     (e) to delegate any of its responsibilities, duties and authority set forth herein to, or
otherwise to utilize the investment management services of, any of its affiliates provided that the
Advisor will be fully accountable for any acts or omissions of an affiliate pursuant to such an
arrangement, as if such acts or omissions were its own;

     (f) to place any securities on deposit with any governmental authority as may be necessary or
desirable to comply with applicable law, and to substitute other securities in their place;

     (g) to perform any other act necessary or desirable to enable the Advisor to carry out its
obligations under this Agreement; and

     (h) unless directed otherwise by the Company, to vote proxies on behalf of the Investment
Portfolios, solicited by or with respect to the issuers of securities in which the assets of the
Investment Portfolios may be invested, pursuant to proxy voting guidelines maintained by the
Advisor.

3. Reports and Compliance. Advisor shall promptly furnish to or place at the disposal of
the Company, as appropriate, such information, reports, evaluations, analysis, and opinions as the
Company may, at any time or from time to time, reasonably request. Additionally, Advisor shall
furnish such information, reports and evaluations as the Company may from time to time reasonably
request which may be necessary or appropriate in order to enable the Company to maintain oversight
over the Investment Portfolios and assure compliance with the Investment Guidelines.

4. Fees. The Advisor shall be entitled to compensation for its services hereunder as set
forth in Appendix C attached hereto, and which is made part of this Agreement. Commission
expenses and attendant Securities and Exchange Commission transaction fees resulting from
transactions executed on behalf of the Company shall be paid from the Investment Portfolios’
assets. Compensation amounts owing between the parties shall be settled between the parties on a

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quarterly basis and payments of amounts owing shall be made within 45 days after the end of the
calendar quarter.

5. Limits on Advisor Responsibility.

     (a) The Advisor shall not be responsible for the solvency of or the performance of the
obligations of any third party bank, clearing organization, broker, intermediary, nominee or agent
appointed or employed by the Advisor in good faith for the performance of its duties but the
Advisor shall assign to the Company such rights (if any) as the Advisor may have against such
person in the event of the insolvency of any of the above or its failure properly to perform such
obligations and shall give, without further compensation, such assistance as the Company may
reasonably require to exercise such rights.

     (b) The Advisor shall be fully protected in acting and relying upon any written advice,
certificate, notice, instruction, request or other paper or document which the Advisor in good
faith believes to be genuine and to have been signed or presented by an authorized person or other
proper party or parties, and may assume that any person purporting to give such written advice or
other paper or document has been duly authorized to do so unless contrary instructions have been
delivered to the Advisor by the Company.

     (c) The Advisor shall not be liable to the Company for any acts or omissions by the Advisor,
its employees and agents under and in connection with this Agreement, except by reason of acts or
omission constituting negligence, willful misconduct or fraud on the part of the Advisor, including
its employees. Notwithstanding any of the foregoing to the contrary, the provisions of this Section
5 shall not be construed to provide for the exculpation of the Advisor or any affiliate from any
liability to the extent that such liability may not be waived, modified or limited under applicable
law, but shall be construed so as to effectuate the provisions of this Section 5 to the fullest
extent permitted by law.

     (d) The Company shall reimburse and indemnify the Advisor for, and hold it harmless against,
any loss, liability or expense, including, without limit, reasonable counsel fees, incurred on the
part of the Advisor arising out of or in connection with its acceptance of, or the performance of
its duties and obligations under, this Agreement, as well as the costs and expenses of defending
against any claim or liability arising out of or relating to this Agreement unless such loss,
liability or expense is the result of acts or omissions by the Advisor constituting negligence,
willful misconduct or fraud; provided, however, that nothing contained herein shall constitute a
waiver or limitation of any rights which the Company may have under applicable securities or other
laws.

6. Representations and Agreements.

     (a) The Advisor represents to and agrees with the Company that:

          (1) the terms of this Agreement do not violate any obligation by which the Advisor is
bound, whether arising by contract, operation of law or regulation, or otherwise;

          (2) this Agreement has been duly authorized, executed and delivered by the Advisor and
constitutes a legal, valid and binding agreement of the Advisor enforceable in accordance
with its terms, and the Advisor has full power and authority to enter into this Agreement and
to perform its duties hereunder;

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          (3) it shall maintain at all times during the term of this Agreement competent personnel to
perform the duties required of it hereunder, and the Advisor’s expenses in connection therewith
shall be borne by the Advisor; and

          (4) the representations and warranties contained herein shall continue and remain in effect
during the term of this Agreement, and, if at any time during the term of this Agreement any event
occurred which would make any of these foregoing representations untrue, incomplete or inaccurate
in any respect, the Advisor will promptly notify the Company of such event.

     (b) The Company represents to and agrees with the Advisor that:

          (1) the terms of this Agreement do not violate any obligation by which the Company is bound,
whether arising by contract, operation of law or regulation, or otherwise;

          (2) the Company is the sole owner of the assets covered hereby and such assets are free and
clear of any and all liens and restrictions on their transfer or sale, except for applicable
transfer restrictions under various securities laws;

          (3) this Agreement has been duly authorized, executed and delivered by the Company and
constitutes a legal, valid and binding agreement of the Company enforceable in accordance with its
terms, and the Company has full power and authority to enter into this Agreement and to perform its
duties hereunder;

          (4) the Investment Portfolios are not subject to the U.S. Employee Retirement Income Security
Act of 1974, as amended (“ERISA”);

          (5) it is not a “Benefit Plan Investor,” as defined under ERISA;

          (6) the Company will deliver or cause to be delivered to the Advisor in writing, all the
information, documents and instruments that the Advisor may reasonably request in order to perform
its duties hereunder; and

          (7) the representations and warranties contained herein shall continue and remain in effect
during the term of this Agreement, and, if at any time during the term of this Agreement any event
occurred which would make any of these foregoing representations untrue, incomplete or inaccurate
in any respect, the Company will promptly notify the Advisor of such event.

7. Acknowledgements and Consents. The Company acknowledges that:

     (a) the Advisor may place orders for the execution of transactions with or through such
brokers, dealers or banks as the Advisor may select in its sole discretion. In selecting such
broker, Advisor will give primary consideration to obtaining the most favorable price and efficient
execution. The Advisor may consider, in addition, the financial stability and reputation of brokers
and dealers and the brokerage and research services (as those terms are defined in Section 28(e) of
the Securities and Exchange Act of 1934, as amended) provided by brokers and dealers that may
benefit the Company. The Advisor may, and is authorized to, consistent with its duty of best
execution and in compliance with all applicable securities laws, pay a commission for executing a
transaction which may be greater than the amount of the commission another broker or dealer might
have charged for effecting that transaction, provided that the Advisor determines in good faith
that such amount of commission was reasonable in relation to the value of the brokerage and
research services provided. Subject to the foregoing, the Company acknowledges that such research
services rendered may be useful in providing services to clients

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other than the Company, and that not all such information will necessarily be used by the Advisor
in connection with rendering services to the Company. The Company understands and agrees that it
will not direct brokerage, and that the choice of brokers is in the Advisor’s sole discretion;

     (b) (i) the Advisor acts as adviser to other clients and may give advice, and take action,
with respect to any of those clients which may differ from the advice given, or the time or nature
of action taken, with respect to the Company’s Account; (ii) where there is a limited supply of a
security, the Advisor will use its best efforts to allocate or rotate investment opportunities in a
fair and equitable manner, and the Company acknowledges that the Advisor cannot assure, and assumes
no responsibility for, equality among all accounts and customers; (iii) affiliates of the Advisor
and officers, directors and employees of the Advisor and such affiliates of the Advisor may engage
in transactions, or cause or advise other customers to engage in transactions, which may differ
from or be identical to transactions engaged in by the Advisor for the Investment Portfolios and
the Company acknowledges that the Advisor and affiliates of the Advisor and officers, directors and
employees of the Advisor and such affiliates of the Advisor may at any time acquire, increase,
decrease or dispose of positions in securities or other assets which are, at the same time being
acquired, held or disposed of for the Company’s Account; and (iv) the Advisor shall not have any
obligation to recommend any transaction or initiate the purchase or sale of any security or other
asset for the Investment Portfolios which any of such affiliates or any of the officers, directors
or employees of Advisor or such affiliates may engage in for their own accounts or the account of
any other customer, except as otherwise required by applicable law;

     (c) from time to time the Advisor may determine, in its reasonable judgment, to sell a
security for the Company that certain of the Advisor’s investment advisory clients or the clients
of its affiliated broker-dealer wishes to buy, or buy a security that certain of the Advisor’s
investment advisory clients or the clients of its affiliated broker-dealer wishes to sell. Such an
agency-cross transaction could result in the payment of fees to the Advisor by both the Company and
such other client. By execution of this agreement, the Company authorizes and grants consent to the
Advisor to participate in agency-cross transactions involving the Investment Portfolios. The
Company may revoke its consent at any time by written notice to the Advisor; and

     (d)
    the Advisor may aggregate sales and purchase orders for the Company’s Account with similar
orders being made concurrently for other accounts managed by the Advisor, if in the Advisor’s
reasonable judgment such aggregation shall result in an overall economic benefit to the Company’s
Account, taking into consideration the selling or purchase price, brokerage commission and other
expenses; in such case the actual prices applicable to the transaction will be averaged among the
accounts for which the transaction is effected, including the Company’s Account.

8. Termination. This Agreement may be terminated by the Advisor upon 180 days written
notice to the Company, and terminated by the Company at any time upon written notice to the
Advisor, termination effective upon receipt of such notice by the Advisor (the “Termination Date”).
Upon termination, the Advisor shall have no further investment management responsibility for assets
in the Account, but shall have reasonable time, not to exceed 90 days, to transfer assets to a
custodian of the Company’s selection. The fee payable to the Advisor pursuant hereto will be
prorated to the Termination Date and any unearned portion of prepaid fees will be refunded to the
Company.

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9. Enforceability. If any provisions of this Agreement are held invalid or unenforceable,
such
invalidity or unenforceability shall not affect any other provision, and the Agreement shall be
construed and enforced as if such provisions had not been included.

10. Assignment. No assignment of this Agreement, including by operation of law, may be made
by any party to this Agreement without the consent of the other parties hereto. Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon the parties hereto,
their successors and assigns.

11. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or
the breach of the same, shall be settled by arbitration in accordance with the rules of the
American Arbitration Association, or another nationally recognized arbitration association mutually
agreed upon by the parties hereto. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction. All arbitration expenses shall be borne equally by the
Advisor and the Company. Notwithstanding any of the foregoing to the contrary, the provisions of
this Section 11 do not constitute a waiver of any right provided by any applicable law, including
the right to choose the forum, whether arbitration or adjudication, in which to seek resolution of
disputes.

12. Governing Law. This Agreement shall be construed in accordance with applicable
federal law and, to the extent not preempted, the laws of The Commonwealth of Massachusetts
without regard to its conflict of laws principles.

13. Counterparts and Facsimile. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, and all of which, when taken together, shall
constitute one and the same instrument.

14. Entire Agreement/Amendment. This Agreement, including the Appendices hereto,
constitutes the entire agreement among the parties with respect to the subject matter hereof and
supersedes all previous agreements, promises, representations, understandings and negotiations,
whether written or oral, between the parties with respect to the subject matter hereof. This
Agreement, including the Appendices hereto, may not be amended except in writing signed by each of
the parties hereto.

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IN WITNESS WHEREOF, the parties hereto have caused this Investment Management Agreement to be
executed as of the date set forth above.

	 	 	 	 	 
	Safeco Insurance Company of America

 	 	 
	By:  	
 	 	 
	 	Name:  	Michael J. Fallon 	 	 
	 	Title:  	Vice President, Chief Financial Officer and Treasurer 	 	 
	 
	Liberty Mutual Group Inc.

 	 	 
	By:  	
 	 	 
	 	Name:  	A. Alexander Fontanes 	 	 
	 	Title:  	Executive Vice President and Chief Investment Officer 	 	 

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Appendix A

STATEMENT OF INVESTMENT POLICY

	The investment policy of the Company, like that of the other portfolios managed for the accounts of
Liberty Mutual Insurance Group (“LMIG”), has been formulated with two basic tenets in mind. First,
as a property and casualty insurance company, the primary purpose of the investment portfolio is to
support the company’s insurance operations and to be consistent with the company’s objectives for
long-term financial strength in order to meet its obligations to policyholders. Second, as an
insurance company, the preponderance of risk assumed should be in the underwriting of the company’s
insurance products, not in the investment of its assets. Within these broad risk parameters,
management of the portfolio will focus on maximizing the long-term after-tax total rate of return
on invested assets through disciplined asset allocation and security selection, balanced with the
need for the portfolio to produce investment income, stable cash flow, and sufficient liquidity.
Asset management should also provide safety through adequate diversification of risk, the
preservation of principal, and the avoidance of unacceptable levels of asset/liability mismatches.
Within this context, individual investment decisions will be based on fundamental economic,
financial, credit and security analysis/selection combined with relative value considerations among
securities and market sectors. The specific terms and conditions of individual securities and the
specific asset’s fit within the total portfolio framework will be evaluated prior to investment.
The overall policy will be managed through adherence to a set of broadly defined policy guidelines
designed to give the Advisor discretion in meeting portfolio objectives. This investment policy and
the investment guidelines, all of which will be reviewed on a periodic basis in conjunction with
changing regulatory and business requirements, are subject to the final approval of the Company’s
Board of Directors or a duly appointed and authorized committee thereof.

The ongoing implementation of the investment policy will be the responsibility of the Advisor
through the authority granted by the Company’s Board of Directors. The Advisor consists of the
same group of investment professionals responsible for managing the other insurance companies
investment assets of LMIG, currently totaling over $50.0 billion. As such, the implementation and
maintenance of the investment policy will occur within the same basic framework, as LMIG’s other
portfolios and adjusted, when and where appropriate, to accommodate the specific requirements of
the Company. All investment related decisions and transactions will be implemented by those
individuals with proven abilities to do so effectively and that have been granted that authority
by the Company’s Board of Directors through the Chief Investment Officer of LMIG. All investment
transactions will be reported to the Board at the regularly scheduled meetings.

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Appendix B

INVESTMENT GUIDELINES

	 	 	The investments will be managed on a fully discretionary basis, subject to the
guidelines and constraints described below and in a manner consistent with the
overall policy framework. Table 1 below presents broad policy guidelines as to
the percent of total long-term assets that may be invested in any particular
asset category. The level of exposure within the established range will be
governed by the fundamental long-term outlook for total returns within the
given asset category in relation to assessed risk combined with shorter-term
tactical or technical issues. The Advisor may invest up to ten percent of
invested assets in assets not falling within the investments authorized below
provided that the investment is permitted under applicable state regulations
and the transaction is reported to the Board of Directors of the Company or the
authorized committee thereof at its next regularly scheduled meeting.

Table 1

Asset Category Guidelines

	 	 	 	 	 
	 	 	Maximum % of Invested Assets	 	 
	Asset Category	 	or Surplus	 	Limits Within Asset Category
	Debt Obligations:
	 	 	 	 
	 
	 	 	 	 
	U.S Government / Agency — Any Direct
Obligations & Guaranteed Issues Carrying
Full Faith and Credit (Includes Small
Business Administration (“SBA”) and
Government National Mortgage Association
(“GNMA”) Pass-Throughs and Commercial
Mortgage Obligations (“CMO”))

	 	Up to 100% of invested assets
	 	None
	 
	 	 	 	 
	U.S. Agencies & Government Sponsored
Enterprises — Any Direct Obligations &
Guaranteed Issues (Excluding Mortgage
Backed Securities (“MBS”) & CMO Which are
Not Full Faith & Credit))

	 	Up to 50% of invested assets
	 	15% of invested assets per issuer
	 
	 	 	 	 
	MBS & CMO of U.S. Agencies & Government
Sponsored Enterprises

	 	Up to 35% of invested assets
	 	20% of invested assets for
Federal National Mortgage
Association (“FNMA”) and 20% for
Federal Home Loan Mortgage Corp.
(“FHLMC”)
	 
	 	 	 	 
	Non-Agency / Non-Government Sponsored
Enterprise Asset Based Securities (“ABS”),
Commercial Mortgage Backed Securities
(“CMBS”) & Commercial Mortgage Loans

	 	Up to 25% of invested assets
	 	2% of invested assets per deal
	 
	 	 	 	 
	Municipal Obligations

	 	Up to 65% of invested assets
	 	3% of invested assets per issuer
	 
	 	 	 	 
	Corporates:
	 	 	 	 

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	 	 	Maximum % of Invested Assets	 	 
	Asset Category	 	or Surplus	 	Limits Within Asset Category
	Investment Grade

(includes foreign governments)

	 	Up to 60% of invested assets
	 	2% of invested
assets per issuer
	 
	 	 	 	 
	Noninvestment Grade (includes foreign 

governments)

	 	Lesser of 10% of invested
assets or 50% of surplus
	 	0.5% of investment
assets per issuer
(at time of
purchase) or 2% of
invested assets per
issuer (if due to
downgrade)
	 
	 	 	 	 
	Equities:
	 	 	 	 
	 
	 	 	 	 
	Public Common Securities

	 	Lesser of 10% of invested
assets or 50% of surplus
	 	2% of invested
assets per issuer
	 
	 	 	 	 
	Preferred Securities/Direct Investment

	 	Up to 10% of invested assets
	 	2% of invested
assets per issuer
	 
	 	 	 	 
	Limited Partnerships, LLC’s or other
investment fund vehicle.

	 	Lesser of 10% of invested
assets or 50% of surplus
	 	None
	 
	 	 	 	 
	Short-Term Obligations:
	 	 	 	 
	 
	 	 	 	 
	Cash Equivalents or Short-Terms

	 	Up to 100% of invested assets
	 	None

Notwithstanding anything herein to the contrary, the portfolio will at all
times be maintained in compliance with the statutes of the Company’s state of
domicile.

Exposure to all categories with surplus restriction will not exceed 100% of surplus.

Maturity Constraints: The duration of the Company holdings of debt obligations
will be managed commensurate with the general terms of its liabilities.

Credit Quality: The overall credit quality of the Company holdings of debt
obligations will not be below BBB.

Concentration Benefits: If the Company can achieve a specific monetary,
regulatory, or other benefit by concentrating assets above the amounts given in
these guidelines, then, if consistent with state law, the Company may exceed
these guidelines upon approval by the Company’s Chief Investment Officer.

OTHER AUTHORIZED INVESTMENT PRACTICES

	1.	 	Reverse repurchase-agreements may be entered into for purposes
of liquidity management and yield enhancement to the degree that the total
amount outstanding does not exceed 25% of portfolio assets and the
original term does not exceed 90 days. Such reverse repurchase agreements
will be executed in a manner consistent with standard industry practices
regarding the pledging of collateral, marking-to-market, et cetera.
	 
	2.	 	Lending of portfolio securities will be permitted in any
amount up to 40% of portfolio assets and subject to constraints and
provisions as may be agreed upon in a securities lending agreement with an
agent of the portfolio manager’s choice or may be conducted directly by
the portfolio manager. In any event, all securities lending activities
will be conducted in accordance with the guidelines outlined in Addendum
A, attached hereto.

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	3.	 	Mortgage-Backed Securities dollar rolls will be permitted in an amount up to 25%
of total holdings of eligible mortgage-backed securities.

In no event shall the aggregate amount of reverse repurchase agreements, securities lending
transactions, and mortgage-backed securities dollar rolls exceed 40% of the portfolio at
the time any commitments are made.

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Addendum A 

Securities Lending Program

	 	 	The proposed lending program would be structured along the following lines:

	•	 	Lending Activity will remain secondary to the active management of the company’s
portfolios reflecting its role as an enhancement to portfolio income rather than an
alternative investment strategy.
	 
	•	 	Lending will be subject to the following constraints:

	 	(1)	 	No more than 40% of total assets holdings will be on loan at any point in time.
	 
	 	(2)	 	Combined securities lending, dollar-roll, and reverse repurchase activity
will not exceed 40% of total holdings.

	•	 	Exposure to any single borrower from securities lending, excluding repurchase agreements done
as collateral investments will be limited to 5% of total asset holdings.
	 
	•	 	Collateral investments other than repurchase agreements and short-term bank obligations will
be restricted to security types in which the portfolios would normally invest. In addition,
leveraged MBS (mortgage backed securities) products (e.g. IO’s, PO’s, Inverse Floaters, etc.)
will be excluded as repurchase collateral.
	 
	•	 	Collateral investments will be limited to U.S. dollar-denominated
obligations. Investments of cash collateral may be made in issuers
having a split short-term rating, provided that no portion of the
rating is below A2/P2. Foreign issuers will be limited to banks with
the further restrictions that these issuers must carry a minimum
single “A” long-term rating.

	 
	•	 	Letter of Credit will not be taken as collateral.
	 
	•	 	Lending activity and Collateral reports will be generated on a weekly basis.

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Appendix C

to

Investment Management Agreement

by and among

Safeco Insurance Company of America

and

Liberty Mutual Group Inc.

Compensation

Advisor shall receive a quarterly management fee calculated as follows:

{(the market value under US GAAP of all cash and securities in the Company Account on the
first day of each calendar quarter plus the market value under US GAAP of all cash
and securities in the Company Account on the last day of that same calendar quarter)
divided by two} times .00045.

For the purposes of the above calculations, the market value of the securities shall be
determined as of the close of business on the first and last days of each quarter.

Company shall be responsible for all custody related charges and wire transfer fees originating
from the custody account.

13exv10w127

Exhibit 10.127

INVESTMENT MANAGEMENT AGREEMENT

     This Amended and Restated Investment Management Agreement (this “Agreement”) is made
and entered into this 1st day of January 2010 by and between Safeco Insurance Company of
America (the “Company”), a Washington stock insurance company and Liberty Mutual Investment
Advisors LLC (the “Advisor”), a Massachusetts limited liability company and supersedes the
prior agreement between the parties dated September 22, 2008.

     WHEREAS, the Company desires to enter into a contract for the purpose of appointing
the Advisor to manage the assets of its Account (hereinafter defined) in accordance with
the terms hereof; and

     WHEREAS, the Advisor is willing to manage the assets of the Account in accordance with
the terms hereof;

     NOW, THEREFORE, the Company and the Advisor hereby agree as follows:

1. Appointment. The Company hereby authorizes and appoints the Advisor as its
investment advisor and, as its agent and attorney-in-fact, to exercise the investment discretion
set forth below with respect to the assets of the Company’s Account. “Account” shall mean the
assets which Company notifies the Manager shall be included in the Account, together with the
income, proceeds and profits thereon. The Company hereby authorizes and appoints the Advisor, as
its agent and attorney-in-fact, to (i) execute all documentation on the Company’s behalf necessary
to open additional accounts in the Company’s name to facilitate investments made within the
investment discretion set forth in the Investment Guidelines, as defined below, and (ii) to execute
all documentation, on the Company’s behalf, to facilitate investment in securities for the Account.

2. Scope of Authorization for Investment Discretion. The Advisor shall manage the Company’s
Account in accordance with the investment policy and guidelines set forth on Appendices A and B
respectively (such guidelines, the “Investment Guidelines”), as such may be amended from
time-to-time by written agreement between the parties hereto. In connection therewith, the Advisor
shall have full power to supervise and direct the investment and reinvestment of the cash,
securities and other assets and to engage in such transactions on behalf of the Company as the
Advisor may deem appropriate, in the Advisor’s absolute discretion and without prior consultation
with the Company, subject only to this Agreement and the Investment Guidelines. The Company hereby
acknowledges that the Advisor need not seek approval prior to engaging in any transaction where
such transaction complies with the terms and conditions of the Investment Guidelines. The Company
acknowledges that performance objectives referred to in Appendices A and B are intended as goals
and not as an assurance or guarantee of performance.

In performing its duties under this Agreement, the Advisor will act in the interests of the
Company; except as otherwise provided herein. The Advisor will not deal with the assets in the
Company’s Account in its own interest or for its own account and, in particular, will not, without
prior written consent of the Company, as principal, sell assets to, purchase assets from, or borrow
money or other property from the Company’s Account.

Without limiting the foregoing, the Company hereby authorizes the Advisor:

     (a) to act as the Company’s agent and attorney-in-fact with respect to the Company’s
Account and to have complete discretionary control over the composition of the assets in
the Account, including the power to make such acquisitions and disposals of investments as
the Advisor considers appropriate, but always in accordance with the Investment
Guidelines;

1

 

     (b) to issue to brokers instructions to buy or to sell or otherwise trade in or deal
with any asset in the Account;

     (c) to instruct any custodian of any asset in the Account to deliver any security or
other asset sold, exchanged or otherwise disposed of from the Account;

     (d) to pay any fee incurred on behalf of the Company in providing services under this
Agreement, including commission expenses, attendant Securities and Exchange Commission transaction
fees and National Association of Insurance Commissioners transaction fees which shall be paid from
the Account in the conventional manner;

     (e) to delegate any of its responsibilities, duties and authority set forth herein to,
or otherwise to utilize the investment management services of, any of its affiliates
provided that the Advisor will be fully accountable for any acts or omissions of an
affiliate pursuant to such an arrangement, as if such acts or omissions were its own;

     (f) to place any securities on deposit with any governmental authority as may be
necessary or desirable to comply with applicable law, and to substitute other securities in
their place;

     (g) to perform any other act necessary or desirable to enable the Advisor to carry
out its obligations under this Agreement; and `

     (h) unless directed otherwise by the Company, to vote proxies on behalf of the
Account, solicited by or with respect to the issuers of securities in which the assets of
the Account may be invested, pursuant to proxy voting guidelines maintained by the
Advisor.

3. Reports and Compliance. Advisor shall promptly furnish to or place at the disposal of
the
Company, as appropriate, such information, reports, evaluations, analysis, and opinions as the
Company may, at any time or from time to time, reasonably request. Additionally, Advisor shall
furnish such information, reports and evaluations as the Company may from time to time reasonably
request which may be necessary or appropriate in order to enable the Company to maintain oversight
over the Account and assure compliance with the Investment Guidelines.

4. Fees. The Advisor shall be entitled to compensation for its services hereunder as
set forth in Appendix C attached hereto, and which is made part of this Agreement. Commission
expenses and attendant Securities and Exchange Commission transaction fees resulting from
transactions executed on behalf of the Company shall be paid from the Account assets. Compensation
amounts owing between the parties shall be settled between the parties on a quarterly basis and
payments of amounts owing shall be made within 45 days after the end of the calendar quarter.

5. Limits on Advisor Responsibility.

     (a) The Advisor shall not be responsible for the solvency of or the performance of the
obligations of any third party bank, clearing organization, broker, intermediary, nominee
or agent appointed or employed by the Advisor in good faith for the performance of its
duties but the Advisor shall assign to the Company such rights (if any) as the Advisor may
have against such person in the event of the insolvency of any of the above or its failure
properly to perform such obligations and shall give, without further compensation, such
assistance as the Company may reasonably require to exercise such rights.

     (b) The Advisor shall be fully protected in acting and relying upon any written
advice, certificate, notice, instruction, request or other paper or document which the
Advisor in good faith believes to be genuine and to have been signed or presented by an
authorized person or other proper

2

 

party or parties, and may assume that any person purporting to give such written advice or
other paper or document has been duly authorized to do so unless contrary instructions have been
delivered to the Advisor
by the Company.

     (c) The Advisor shall not be liable to the Company for any acts or omissions by the
Advisor, its employees and agents under and in connection with this Agreement, except by
reason of acts or omission constituting negligence, willful misconduct or fraud on the part
of the Advisor, including its employees. Notwithstanding any of the foregoing to the
contrary, the provisions of this Section 5 shall not be construed to provide for the
exculpation of the Advisor or any affiliate from any liability to the extent that such
liability may not be waived, modified or limited under applicable law, but shall be
construed so as to effectuate the provisions of this Section 5 to the fullest extent
permitted by law.

     (d) The Company shall reimburse and indemnify the Advisor for, and hold it harmless
against, any loss, liability or expense, including, without limit, reasonable counsel fees,
incurred on the part of the Advisor arising out of or in connection with its acceptance of,
or the performance of its duties and obligations under, this Agreement, as well as the
costs and expenses of defending against any claim or liability arising out of or relating
to this Agreement unless such loss, liability or expense is the result of acts or omissions
by the Advisor constituting negligence, willful misconduct or fraud; provided, however,
that nothing contained herein shall constitute a waiver or limitation of any rights which
the Company may have under applicable securities or other laws.

6. Representations and Agreements.

     (a) The Advisor represents to and agrees with the Company that:

          (1) the terms of this Agreement do not violate any obligation by which the
Advisor is bound, whether arising by contract, operation of law or regulation, or
otherwise;

          (2) this Agreement has been duly authorized, executed and delivered by the
Advisor and constitutes a legal, valid and binding agreement of the Advisor
enforceable in accordance with its terms, and the Advisor has full power and
authority to enter into this Agreement and to perform its duties hereunder;

          (3) it shall maintain at all times during the term of this Agreement
competent personnel to perform the duties required of it hereunder, and the
Advisor’s expenses in connection therewith shall be borne by the Advisor; and

          (4) the representations and warranties contained herein shall continue and
remain in effect during the term of this Agreement, and, if at any time during the
term of this Agreement any event occurred which would make any of these foregoing
representations untrue, incomplete or inaccurate in any respect, the Advisor will
promptly notify the Company of such event.

     (b) The Company represents to and agrees with the Advisor that:

          (1) the terms of this Agreement do not violate any obligation by which the
Company is bound, whether arising by contract, operation of law or regulation, or
otherwise;

          (2) the Company is the sole owner of the assets covered hereby and such
assets are free and clear of any and all liens and restrictions on their transfer
or sale, except for applicable transfer restrictions under various securities
laws;

          (3) this Agreement has been duly authorized, executed and delivered
by the Company and constitutes a legal, valid and binding agreement of the
Company enforceable in accordance with its

3

 

terms, and the Company has full power and authority to enter into this Agreement and to perform its
duties hereunder;

          (4) the Account is not subject to the U.S. Employee Retirement Income Security
Act of 1974, as amended (“ERISA”);

          (5) it is not a “Benefit Plan Investor,” as defined under ERISA;

          (6) the Company will deliver or cause to be delivered to the Advisor in
writing, all the information, documents and instruments that the Advisor may
reasonably request in order to perform its duties hereunder; and

          (7) the representations and warranties contained herein shall continue and
remain in effect during the term of this Agreement, and, if at any time during the
term of this Agreement any event occurred which would make any of these foregoing
representations untrue, incomplete or inaccurate in any respect, the Company will
promptly notify the Advisor of such event.

7. Acknowledgements and Consents. The Company acknowledges that:

     (a) the Advisor may place orders for the execution of transactions with or through
such brokers, dealers or banks as the Advisor may select in its sole discretion. In
selecting such broker, Advisor will give primary consideration to obtaining the most
favorable price and efficient execution. The Advisor may consider, in addition, the
financial stability and reputation of brokers and dealers and the brokerage and research
services (as those terms are defined in Section 28(e) of the Securities and Exchange Act of
1934, as amended) provided by brokers and dealers that may benefit the Company. The Advisor
may, and is authorized to, consistent with its duty of best execution and in compliance
with all applicable securities laws, pay a commission for executing a transaction which may
be greater than the amount of the commission another broker or dealer might have charged
for effecting that transaction, provided that the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the brokerage and
research services provided. Subject to the foregoing, the Company acknowledges that such
research services rendered may be useful in providing services to clients other than the
Company, and that not all such information will necessarily be used by the Advisor in
connection with rendering services to the Company. The Company understands and agrees that
it will not direct brokerage, and that the choice of brokers is in the Advisor’s sole
discretion;

     (b) (i) the Advisor acts as adviser to other clients and may give advice, and take
action, with respect to any of those clients which may differ from the advice given, or the
time or nature of action taken, with respect to the Company’s Account; (ii) where there is
a limited supply of a security, the Advisor will use its best efforts to allocate or rotate
investment opportunities in a fair and equitable manner, and the Company acknowledges that
the Advisor cannot assure, and assumes no responsibility for, equality among all accounts
and customers; (iii) affiliates of the Advisor and officers, directors and employees of the
Advisor and such affiliates of the Advisor may engage in transactions, or cause or advise
other customers to engage in transactions, which may differ from or be identical to
transactions engaged in by the Advisor for the Account and the Company acknowledges that
the Advisor and affiliates of the Advisor and officers, directors and employees of the
Advisor and such affiliates of the Advisor may at any time acquire, increase, decrease or
dispose of positions in securities or other assets which are, at the same time being
acquired, held or disposed of for the Company’s Account; and (iv) the Advisor shall not
have any obligation to recommend any transaction or initiate the purchase or sale of any
security or other asset for the Account which any of such affiliates or any of the
officers, directors or employees of
Advisor or such affiliates may engage in for their own accounts or the account of any
other customer, except as otherwise required by applicable law;

4

 

     (c) from time to time the Advisor may determine, in its reasonable judgment, to sell a
security for the Company that certain of the Advisor’s investment advisory clients or the
clients of its affiliated broker-dealer wishes to buy, or buy a security that certain of
the Advisor’s investment advisory clients or the clients of its affiliated broker-dealer
wishes to sell. Such an agency-cross transaction could result in the payment of fees to the
Advisor by both the Company and such other client. By execution of this agreement, the
Company authorizes and grants consent to the Advisor to participate in agency-cross
transactions involving the Account. The Company may revoke its consent at any time by
written notice to the Advisor; and

     (d) the Advisor may aggregate sales and purchase orders for the Company’s Account with
similar orders being made concurrently for other accounts managed by the Advisor, if in the
Advisor’s reasonable judgment such aggregation shall result in an overall economic benefit
to the Company’s Account, taking into consideration the selling or purchase price,
brokerage commission and other expenses; in such case the actual prices applicable to the
transaction will be averaged among the accounts for which the transaction is effected,
including the Company’s Account.

8. Termination. This Agreement may be terminated by the Advisor upon 180 days written
notice to the Company, and terminated by the Company at any time upon written notice to the
Advisor, termination effective upon receipt of such notice by the Advisor (the “Termination Date”).
Upon termination, the Advisor shall have no further investment management responsibility for assets
in the Account, but shall have reasonable time, not to exceed 90 days, to transfer assets to a
custodian of the Company’s selection. The fee payable to the Advisor pursuant hereto will be
prorated to the Termination Date and any unearned portion of prepaid fees will be refunded to the
Company.

9. Enforceability. If any provisions of this Agreement are held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provision, and the Agreement shall
be construed and enforced as if such provisions had not been included.

10. Assignment. No assignment of this Agreement, including by operation of law, may be
made by any party to this Agreement without the consent of the other parties hereto. Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon the parties hereto,
their successors and assigns.

11. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach of the same, shall be settled by arbitration in accordance with the rules
of the American Arbitration Association, or another nationally recognized arbitration association
mutually agreed upon by the parties hereto. Judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction. All arbitration expenses shall be borne equally by the
Advisor and the Company.
Notwithstanding any of the foregoing to the contrary, the provisions of this Section 11 do not
constitute a waiver of any right provided by any applicable law, including the right to choose the
forum, whether arbitration or adjudication, in which to seek resolution of disputes.

12. Governing Law. This Agreement shall be construed in accordance with applicable
federal law and, to the extent not preempted, the laws of The Commonwealth of Massachusetts without
regard to its conflict of laws principles.

13. Counterparts and Facsimile. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of which, when taken
together, shall constitute one and the same instrument.

14. Entire Agreement/Amendment. This Agreement, including the Appendices hereto,
constitutes the entire agreement among the parties with respect to the subject matter hereof and
supersedes all previous
agreements, promises, representations, understandings and negotiations, whether written or

5

 

oral, between the parties with respect to the subject matter hereof. This Agreement, including
the Appendices hereto, may not be amended except in writing signed by each of the parties hereto.

IN WITNESS WHEREOF, the parties hereto have caused this Investment Management Agreement to be
executed as of the date set forth above.

	 	 	 	 	 
	Safeco Insurance Company of America

 	 
	By:  	
 	 
	 	Name:  	Michael J. Fallon 	 
	 	Title:  	Vice President, Chief Financial Officer and Treasurer 	 
	 
	Liberty Mutual Investment Advisors LLC

 	 
	By:  	
 	 
	 	Name:  	A. Alexander Fontanes 	 
	 	Title:  	Vice President 	 
	 

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Appendix A

STATEMENT OF INVESTMENT POLICY

The investment policy of the Company like that of the other portfolios managed for the accounts of
Liberty Mutual Group of Companies (LMG) has been formulated with two basic tenets in mind. First,
as property and casualty insurance companies, the primary purpose of the investment portfolio is to
support the Company’s insurance operations and to be consistent with the Company’s objectives for
long-term financial strength in order to meet its obligations to policyholders. Second, as
insurance company, the preponderance of risk assumed should be in the underwriting of the Company’s
insurance products, not in the investment of its assets. Within these broad risk parameters,
management of the portfolio will focus on maximizing the long-term after-tax total rate of return
on invested assets through disciplined asset allocation and security selection, balanced with the
need for the portfolio to produce investment income, stable cash flow, and sufficient liquidity.
Asset management should also provide safety through adequate diversification of risk, the
preservation of principal, and the avoidance of unacceptable levels of asset/liability mismatches.
Within this context, individual investment decisions will be based on fundamental economic,
financial, credit and security analysis/selection combined with relative value considerations among
securities and market sectors. The specific terms and conditions of individual securities and the
specific asset’s fit within the total portfolio framework will be evaluated prior to investment.
The overall policy will be managed through adherence to a set of broadly defined policy guidelines
designed to give the advisor discretion in meeting portfolio objectives. This investment policy and
the investment guidelines, all of which will be reviewed on a periodic basis in conjunction with
changing regulatory and business requirements, are subject to the final approval of the Company’s
Board of Directors or a duly appointed and authorized committee thereof.

The ongoing implementation of the investment policy will be the responsibility of the investment
advisor through the authority granted by the Company’s Board of Directors. The investment advisor
consists of the same group of investment professionals responsible for managing the other insurance
companies investment assets of LMG, currently totaling over $50.0 billion. As such, the
implementation and maintenance of the investment policy will occur within the same basic framework,
as LMG’s other portfolios and adjusted, when and where appropriate, to accommodate the specific
requirements of the Company. All investment related decisions and transactions will be implemented
by those individuals with proven abilities to do so effectively and that have been granted that
authority by the Company’s Board of Director through the Chief Investment Officer of LMG. All
investment transactions will be reported to the respective Boards at its regularly scheduled
meetings.

7

 

Appendix B

INVESTMENT GUIDELINES

The investments will be managed on a full discretionary basis, subject to the guidelines and
constraints described below and in a manner consistent with the overall policy framework. Table 1
below presents broad policy guidelines as to the percent of total long-term assets that may be
invested in any particular asset category. The level of exposure within the established range will
be governed by the fundamental long-term outlook for total returns within the given asset category
in relation to assessed risk combined with shorter-term tactical or technical issues. Any
investment in assets classes other than those outlined in Table 1 will be reviewed with the
Company’s Boards of Directors prior to purchase.

Table 1

Asset Category Guidelines

	 	 	 	 	 
	 	 	Maximum % of Invested	 	 
	Asset Category	 	Assets or Surplus	 	Limits Within Asset Category
	Debt Obligations:
	 	 	 	 
	 
	 	 	 	 
	Noninvestment Grade

	 	Lesser of 5% of assets or 50%
of surplus
	 	0.5% of invested assets per issuer
	 
	 	 	 	 
	Equities:
	 	 	 	 
	 
	 	 	 	 
	Public Common Securities

	 	Lesser of 10% of assets or
50% of surplus
	 	2% of invested assets per issuer
	 
	 	 	 	 
	Preferred Securities / Direct
Investments

	 	Up to 10% of assets	 	2% of invested assets per issuer 
	 
	 	 	 	 
	Limited Partnership, LLC’s
or other investment fund
vehicles

	 	Lesser of 10% of invested
assets or 50% of surplus
	 	None

Maturity Constraints: The expected average maturity of the Company’s holdings of debt
obligations will not exceed 15 years.

OTHER AUTHORIZED INVESTMENT PRACTICES

Reverse repurchase-agreements may be entered into for purposes of liquidity management
and yield enhancement to the degree that the total amount outstanding does not exceed 25% of
portfolio assets and the original term does not exceed 90 days. Such reverse repurchase
agreements will be executed in a manner consistent with standard industry practices regarding
the pledging of collateral, marking-to-market, et cetera.

8

 

Appendix C

to

Investment Management Agreement

by and among

Safeco Insurance Company of America

and

Liberty Mutual Investment Advisors LLC

Compensation

Advisor shall receive a quarterly management fee calculated as follows:

{(the market value under US GAAP of all cash and securities in the Company Account on
the first day of each calendar quarter plus the market value under US GAAP of all cash and
securities in the Company Account on the last day of that same calendar quarter) divided by
two} times .00045.

For the purposes of the above calculations, the market value of the securities shall be
determined as of the close of business on the first and last days of each quarter.

Company shall be responsible for all custody related charges and wire transfer fees originating
from the custody account.

9

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