10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 001-10898

The Travelers Companies, Inc.

(Exact name of registrant as specified in its charter)

Minnesota	41-0518860
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

485 Lexington Avenue

New York, NY 10017

(Address of principal executive offices) (Zip Code)

(917) 778-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

The number of shares of the Registrant’s Common Stock, without par value, outstanding at July 16, 2010 was 469,989,766.

The Travelers Companies, Inc.

Quarterly Report on Form 10-Q

For Quarterly Period Ended June 30, 2010

TABLE OF CONTENTS

		Page
	Part I — Financial Information
Item 1.	Financial Statements:
	Consolidated Statement of Income (Unaudited) — Three Months and Six Months Ended June 30, 2010 and 2009	3
	Consolidated Balance Sheet — June 30, 2010 (Unaudited) and December 31, 2009	4
	Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) — Six Months Ended June 30, 2010 and 2009	5
	Consolidated Statement of Cash Flows (Unaudited) — Six Months Ended June 30, 2010 and 2009	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	72
Item 4.	Controls and Procedures	72
	Part II — Other Information
Item 1.	Legal Proceedings	72
Item 1A.	Risk Factors	72
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 5.	Other Information	73
Item 6.	Exhibits	73
	SIGNATURES	73
	EXHIBIT INDEX	74

2

PART 1 — FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

(in millions, except per share amounts)

	Three Months Ended June 30,					Six Months Ended June 30,
	2010			2009		2010			2009
Revenues
Premiums	$	5,340		$	5,353	$	10,570		$	10,654
Net investment income	762			658		1,515			1,200
Fee income	76			89		155			162
Net realized investment gains (losses)	(31		)	13		(6		)	(201		)
Other revenues	32			49		64			82
Total revenues	6,179			6,162		12,298			11,897
Claims and expenses
Claims and claim adjustment expenses	3,419			3,335		6,807			6,525
Amortization of deferred acquisition costs	950			953		1,879			1,897
General and administrative expenses	832			839		1,679			1,621
Interest expense	97			94		195			186
Total claims and expenses	5,298			5,221		10,560			10,229
Income before income taxes	881			941		1,738			1,668
Income tax expense	211			201		421			266
Net income	$	670		$	740	$	1,317		$	1,402
Net income per share
Basic	$	1.37		$	1.27	$	2.63		$	2.40
Diluted	$	1.35		$	1.27	$	2.60		$	2.38
Weighted average number of common shares outstanding
Basic	484.5			575.8		496.3			580.1
Diluted	490.8			579.8		502.6			584.9

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Net Realized Investment Gains (Losses)
Other-than-temporary impairment losses:
Total gains (losses)	$	2		$	(75	)	$	1		$	(259	)
Portion of losses recognized in accumulated other changes in equity from nonowner sources	(6		)	45			(15		)	45
Other-than-temporary impairment losses	(4		)	(30		)	(14		)	(214		)
Other net realized investment gains (losses)	(27		)	43			8			13
Net realized investment gains (losses)	$	(31	)	$	13		$	(6	)	$	(201	)

See notes to consolidated financial statements (unaudited).

3

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)

	June 30,2010			December 31,2009
	(Unaudited)
Assets
Fixed maturities, available for sale, at fair value (including $146 and $90 subject to securities lending) (amortized cost $61,561 and $63,311)	$	64,891		$	65,847
Equity securities, available for sale, at fair value (cost $389 and $373)	585			451
Real estate	846			865
Short-term securities	3,859			4,852
Other investments	2,948			2,950
Total investments	73,129			74,965
Cash	266			255
Investment income accrued	799			825
Premiums receivable	5,840			5,471
Reinsurance recoverables	12,273			12,816
Ceded unearned premiums	848			916
Deferred acquisition costs	1,804			1,758
Deferred tax asset	368			672
Contractholder receivables	5,595			5,797
Goodwill	3,365			3,365
Other intangible assets	543			588
Other assets	2,193			2,132
Total assets	$	107,023		$	109,560
Liabilities
Claims and claim adjustment expense reserves	$	52,271		$	53,127
Unearned premium reserves	11,092			10,861
Contractholder payables	5,595			5,797
Payables for reinsurance premiums	467			546
Debt	6,276			6,527
Other liabilities	5,036			5,287
Total liabilities	80,737			82,145
Shareholders’ equity
Preferred Stock Savings Plan—convertible preferred stock (0.2 shares issued and outstanding)	72			79
Common stock (1,748.6 shares authorized; 470.8 and 520.3 shares issued and outstanding)	19,884			19,593
Retained earnings	17,285			16,315
Accumulated other changes in equity from nonowner sources	1,690			1,219
Treasury stock, at cost (255.6 and 199.6 shares)	(12,645		)	(9,791		)
Total shareholders’ equity	26,286			27,415
Total liabilities and shareholders’ equity	$	107,023		$	109,560

See notes to consolidated financial statements (unaudited).

4

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in millions)

For the six months ended June 30,	2010			2009
Convertible preferred stock—savings plan
Balance, beginning of year	$	79		$	89
Redemptions during period	(7		)	(6		)
Balance, end of period	72			83
Common stock
Balance, beginning of year	19,593			19,242
Employee share-based compensation	209			44
Compensation amortization under share-based plans and other changes	82			67
Balance, end of period	19,884			19,353
Retained earnings
Balance, beginning of year	16,315			13,314
Cumulative effect of adoption of updated accounting guidance at April 1, 2009	—			71
Net income	1,317			1,402
Dividends	(345		)	(352		)
Other	(2		)	7
Balance, end of period	17,285			14,442
Accumulated other changes in equity from nonowner sources, net of tax
Balance, beginning of year	1,219			(900		)
Cumulative effect of adoption of updated accounting guidance at April 1, 2009	—			(71		)
Change in net unrealized gain (loss) on investment securities:
Having no credit losses recognized in the consolidated statement of income	476			1,026
Having credit losses recognized in the consolidated statement of income	44			53
Net change in unrealized foreign currency translation and other changes	(49		)	150
Balance, end of period	1,690			258
Treasury stock (at cost)
Balance, beginning of year	(9,791		)	(6,426		)
Treasury shares acquired — share repurchase authorization	(2,800		)	(750		)
Net shares acquired related to employee share-based compensation plans	(54		)	(40		)
Balance, end of period	(12,645		)	(7,216		)
Total common shareholders’ equity	26,214			26,837
Total shareholders’ equity	$	26,286		$	26,920
Common shares outstanding
Balance, beginning of year	520.3			585.1
Treasury shares acquired — share repurchase authorization	(55.0		)	(18.5		)
Net shares issued under employee share-based compensation plans	5.5			0.9
Balance, end of period	470.8			567.5
Summary of changes in equity from nonowner sources
Net income	$	1,317		$	1,402
Other changes in equity from nonowner sources, net of tax	471			1,229
Total changes in equity from nonowner sources	$	1,788		$	2,631

See notes to consolidated financial statements (unaudited).

5

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

(in millions)

For the six months ended June 30,	2010			2009
Cash flows from operating activities
Net income	$	1,317		$	1,402
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment losses	6			201
Depreciation and amortization	411			415
Deferred federal income tax expense (benefit)	51			(31		)
Amortization of deferred acquisition costs	1,879			1,897
Equity in (income) loss from other investments	(116		)	252
Premiums receivable	(382		)	(194		)
Reinsurance recoverables	528			538
Deferred acquisition costs	(1,930		)	(1,945		)
Claims and claim adjustment expense reserves	(692		)	(351		)
Unearned premium reserves	270			227
Other	(291		)	(622		)
Net cash provided by operating activities	1,051			1,789
Cash flows from investing activities
Proceeds from maturities of fixed maturities	2,478			2,389
Proceeds from sales of investments:
Fixed maturities	2,781			1,864
Equity securities	27			31
Real estate	10			—
Other investments	189			140
Purchases of investments:
Fixed maturities	(3,940		)	(4,271		)
Equity securities	(19		)	(18		)
Real estate	(8		)	(9		)
Other investments	(227		)	(186		)
Net (purchases) sales of short-term securities	1,050			(1,223		)
Securities transactions in course of settlement	2			366
Other	(145		)	(205		)
Net cash provided by (used in) investing activities	2,198			(1,122		)
Cash flows from financing activities
Payment of debt	(250		)	(141		)
Issuance of debt	—			494
Dividends paid to shareholders	(343		)	(350		)
Issuance of common stock — employee share options	199			28
Treasury stock acquired — share repurchase authorization	(2,804		)	(750		)
Treasury stock acquired — net employee share-based compensation	(40		)	(28		)
Excess tax benefits from share-based payment arrangements	5			2
Net cash used in financing activities	(3,233		)	(745		)
Effect of exchange rate changes on cash	(5		)	10
Net increase (decrease) in cash	11			(68		)
Cash at beginning of year	255			350
Cash at end of period	$	266		$	282
Supplemental disclosure of cash flow information
Income taxes paid	$	309		$	363
Interest paid	$	200		$	185

See notes to consolidated financial statements (unaudited).

6

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation

The interim consolidated financial statements include the accounts of The Travelers Companies, Inc. (together with its subsidiaries, the Company). These financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP) and are unaudited.  In the opinion of the Company’s management, all adjustments necessary for a fair presentation have been reflected.  Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted.  All material intercompany transactions and balances have been eliminated.  Certain reclassifications have been made to the 2009 financial statements and notes to conform to the 2010 presentation.  The accompanying interim consolidated financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s 2009 Annual Report on Form 10-K.

The preparation of the interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and claims and expenses during the reporting period. Actual results could differ from those estimates.

Adoption of Accounting Standards Updates

Amendments to Accounting for Variable Interest Entities

In June 2009, the FASB issued updated guidance on the accounting for variable interest entities that eliminates the concept of a qualifying special-purpose entity and the quantitative-based risks and rewards calculation for determining which company, if any, has a controlling financial interest in a variable interest entity.  The updated guidance requires an analysis of whether a company has: (1) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (2) the obligation to absorb the losses that could potentially be significant to the entity or the right to receive benefits from the entity that could potentially be significant to the entity.  An entity is required to be re-evaluated as a variable interest entity when the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights to direct the activities that most significantly impact the entity’s economic performance.  Additional disclosures are required about a company’s involvement in variable interest entities and an ongoing assessment of whether a company is the primary beneficiary.

The updated guidance is effective for all variable interest entities owned on or formed after January 1, 2010.  The adoption of this guidance did not have any effect on the Company’s results of operations, financial position or liquidity.

Nature of Operations

The Company is organized into three reportable business segments: Business Insurance; Financial, Professional & International Insurance; and Personal Insurance.  These segments reflect the manner in which the Company’s businesses are currently managed and represent an aggregation of products and services based on type of customer, how the business is marketed and the manner in which risks are underwritten.  The specific business segments are as follows:

Business Insurance

The Business Insurance segment offers a broad array of property and casualty insurance and insurance-related services to its clients primarily in the United States. Business Insurance is organized into the following six groups, which collectively comprise Business Insurance Core operations: Select Accounts; Commercial Accounts; National Accounts; Industry-Focused Underwriting; Target Risk Underwriting; and Specialized Distribution.

Business Insurance also includes the Special Liability Group (which manages the Company’s asbestos and environmental liabilities) and the assumed reinsurance and certain international and other runoff operations, which collectively are referred to as Business Insurance Other.

7

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

1.BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued

Financial, Professional & International Insurance

The Financial, Professional & International Insurance segment includes surety and management liability coverages, which primarily use credit-based underwriting processes, as well as property and casualty products that are primarily marketed on a domestic basis in the United Kingdom, the Republic of Ireland and Canada, and on an international basis through Lloyd’s.  The segment includes the Bond & Financial Products group as well as the International group.

Personal Insurance

The Personal Insurance segment writes virtually all types of property and casualty insurance covering personal risks. The primary coverages in Personal Insurance are automobile and homeowners insurance sold to individuals.

2.SEGMENT INFORMATION

The following tables summarize the components of the Company’s revenues, operating income and total assets by reportable business segments:

(for the three monthsended June 30,in millions)	BusinessInsurance		Financial, Professional & International Insurance		PersonalInsurance		TotalReportableSegments
2010
Premiums	$	2,663	$	855	$	1,822	$	5,340
Net investment income	537		110		115		762
Fee income	76		—		—		76
Other revenues	7		7		18		32
Total operating revenues (1)	$	3,283	$	972	$	1,955	$	6,210
Operating income (1)	$	567	$	172	$	19	$	758
2009
Premiums	$	2,770	$	810	$	1,773	$	5,353
Net investment income	451		107		100		658
Fee income	89		—		—		89
Other revenues	12		7		21		40
Total operating revenues (1)	$	3,322	$	924	$	1,894	$	6,140
Operating income (1)	$	560	$	133	$	88	$	781

8

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2.SEGMENT INFORMATION, Continued

(for the six monthsended June 30,in millions)	BusinessInsurance		Financial, Professional & International Insurance		PersonalInsurance		TotalReportableSegments
2010
Premiums	$	5,291	$	1,679	$	3,600	$	10,570
Net investment income	1,065		221		229		1,515
Fee income	155		—		—		155
Other revenues	13		13		38		64
Total operating revenues (1)	$	6,524	$	1,913	$	3,867	$	12,304
Operating income (1)	$	1,134	$	258	$	78	$	1,470
2009
Premiums	$	5,527	$	1,611	$	3,516	$	10,654
Net investment income	806		211		183		1,200
Fee income	162		—		—		162
Other revenues	18		13		42		73
Total operating revenues (1)	$	6,513	$	1,835	$	3,741	$	12,089
Operating income (1)	$	1,107	$	281	$	242	$	1,630

(1)Operating revenues for reportable business segments exclude net realized investment gains (losses). Operating income for reportable business segments equals net income excluding the after-tax impact of net realized investment gains (losses).

9

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2.SEGMENT INFORMATION, Continued

Business Segment Reconciliations

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2010			2009			2010			2009
Revenue reconciliation
Earned premiums
Business Insurance:
Commercial multi-peril	$	730		$	727		$	1,440		$	1,445
Workers’ compensation	605			623			1,205			1,256
Commercial automobile	471			490			942			969
Property	423			446			846			892
General liability	433			484			858			966
Other	1			—			—			(1		)
Total Business Insurance	2,663			2,770			5,291			5,527
Financial, Professional & International Insurance:
Fidelity and surety	286			252			533			500
General liability	222			233			448			461
International	313			293			631			585
Other	34			32			67			65
Total Financial, Professional & International Insurance	855			810			1,679			1,611
Personal Insurance:
Automobile	921			925			1,825			1,843
Homeowners and other	901			848			1,775			1,673
Total Personal Insurance	1,822			1,773			3,600			3,516
Total earned premiums	5,340			5,353			10,570			10,654
Net investment income	762			658			1,515			1,200
Fee income	76			89			155			162
Other revenues	32			40			64			73
Total operating revenues for reportable segments	6,210			6,140			12,304			12,089
Other revenues	—			9			—			9
Net realized investment gains (losses)	(31		)	13			(6		)	(201		)
Total consolidated revenues	$	6,179		$	6,162		$	12,298		$	11,897
Income reconciliation, net of tax
Total operating income for reportable segments	$	758		$	781		$	1,470		$	1,630
Interest Expense and Other (1)	(68		)	(49		)	(149		)	(99		)
Total operating income	690			732			1,321			1,531
Net realized investment gains (losses)	(20		)	8			(4		)	(129		)
Total consolidated net income	$	670		$	740		$	1,317		$	1,402

(1)The primary component of Interest Expense and Other is after-tax interest expense of $63 million and $61 million for the three months ended June 30, 2010 and 2009, respectively, and $127 million and $121 million for the six months ended June 30, 2010 and 2009, respectively.  The totals for the three months and six months ended June 30, 2009 included benefits of $14 million and $28 million, respectively, from the favorable resolution of various prior year tax matters.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2.SEGMENT INFORMATION, Continued

(in millions)	June 30,2010		December 31,2009
Asset reconciliation:
Business Insurance	$	79,429	$	81,705
Financial, Professional & International Insurance	13,931		13,920
Personal Insurance	13,069		13,328
Total assets for reportable segments	106,429		108,953
Other assets (1)	594		607
Total consolidated assets	$	107,023	$	109,560

(1)The primary components of other assets at both dates were other intangible assets and deferred taxes.

3.INVESTMENTS

Fixed Maturities

The amortized cost and fair value of investments in fixed maturities classified as available for sale were as follows:

	Amortized		Gross Unrealized				Fair
(at June 30, 2010, in millions)	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities	$	2,053	$	111	$	—	$	2,164
Obligations of states, municipalities and political subdivisions	39,090		2,149		17		41,222
Debt securities issued by foreign governments	1,742		61		1		1,802
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	4,612		277		79		4,810
All other corporate bonds	14,023		889		61		14,851
Redeemable preferred stock	41		2		1		42
Total	$	61,561	$	3,489	$	159	$	64,891

	Amortized		Gross Unrealized				Fair
(at December 31, 2009, in millions)	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities	$	2,490	$	85	$	1	$	2,574
Obligations of states, municipalities and political subdivisions	39,459		1,915		41		41,333
Debt securities issued by foreign governments	1,912		48		3		1,957
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	5,182		190		165		5,207
All other corporate bonds	14,221		623		116		14,728
Redeemable preferred stock	47		2		1		48
Total	$	63,311	$	2,863	$	327	$	65,847

Equity Securities

The cost and fair value of investments in equity securities were as follows:

			Gross Unrealized				Fair
(at June 30, 2010, in millions)	Cost		Gains		Losses		Value
Common stock	$	198	$	161	$	6	$	353
Non-redeemable preferred stock	191		49		8		232
Total	$	389	$	210	$	14	$	585

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3.INVESTMENTS, Continued

			Gross Unrealized				Fair
(at December 31, 2009, in millions)	Cost		Gains		Losses		Value
Common stock	$	175	$	46	$	2	$	219
Non-redeemable preferred stock	198		48		14		232
Total	$	373	$	94	$	16	$	451

Variable Interest Entities

Entities which do not have sufficient equity at risk to allow the entity to finance its activities without additional financial support or in which the equity investors, as a group, do not have the characteristic of a controlling financial interest are referred to as variable interest entities (VIE). A VIE is consolidated by the variable interest holder that is determined to have the controlling financial interest (primary beneficiary) as a result of having both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE’s capital structure, contractual terms, nature of the VIE’s operations and purpose and the Company’s relative exposure to the related risks of the VIE on the date it becomes initially involved in the VIE. The Company reassesses its VIE determination with respect to an entity on an ongoing basis.

The Company is involved in the normal course of business with VIEs primarily as a passive investor in limited partner equity interests issued by third party VIEs. These include investments in private equity limited partnerships, hedge funds and real estate partnerships where the Company is not related to the general partner. These investments are generally accounted for under the equity method and reported in the Company’s consolidated balance sheet as other investments unless the Company is deemed the primary beneficiary. These equity interests generally cannot be redeemed. Distributions from these investments are received by the Company as a result of liquidation of the underlying investments of the funds and/or as income distribution. The Company’s maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported in the Company’s consolidated balance sheet and any unfunded commitment. Neither the carrying amounts nor the unfunded commitments related to these VIEs are material.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3.INVESTMENTS, Continued

Unrealized Investment Losses

The following tables summarize, for all investments in an unrealized loss position at June 30, 2010 and December 31, 2009, the aggregate fair value and gross unrealized losses by length of time those securities have been continuously in an unrealized loss position.

	Less than 12 months				12 months or longer				Total
(at June 30, 2010, in millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Fixed maturities
U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities	$	50	$	—	$	—	$	—	$	50	$	—
Obligations of states, municipalities and political subdivisions	1,309		8		160		9		1,469		17
Debt securities issued by foreign governments	56		—		43		1		99		1
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	104		1		806		78		910		79
All other corporate bonds	536		19		505		42		1,041		61
Redeemable preferred stock	5		1		3		—		8		1
Total fixed maturities	2,060		29		1,517		130		3,577		159
Equity securities
Common stock	55		6		7		—		62		6
Non-redeemable preferred stock	13		—		89		8		102		8
Total equity securities	68		6		96		8		164		14
Total	$	2,128	$	35	$	1,613	$	138	$	3,741	$	173

13

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3.INVESTMENTS, Continued

	Less than 12 months				12 months or longer				Total
(at December 31, 2009, in millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Fixed maturities
U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities	$	1,018	$	1	$	—	$	—	$	1,018	$	1
Obligations of states, municipalities and political subdivisions	1,901		24		250		17		2,151		41
Debt securities issued by foreign governments	282		3		—		—		282		3
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	313		4		988		161		1,301		165
All other corporate bonds	1,079		22		1,100		94		2,179		116
Redeemable preferred stock	6		1		3		—		9		1
Total fixed maturities	4,599		55		2,341		272		6,940		327
Equity securities
Common stock	59		1		17		1		76		2
Non-redeemable preferred stock	9		—		83		14		92		14
Total equity securities	68		1		100		15		168		16
Total	$	4,667	$	56	$	2,441	$	287	$	7,108	$	343

The following table summarizes, for all fixed maturities and equity securities reported at fair value for which fair value is less than 80% of amortized cost at June 30, 2010, the gross unrealized investment loss by length of time those securities have continuously been in an unrealized loss position of greater than 20% of amortized cost:

	Period For Which Fair Value Is Less Than 80% of Amortized Cost
(in millions)	3 Months or Less		Greater Than 3 Months, 6 Months or Less		Greater Than 6 Months, 12 Months or Less		Greater Than 12 Months		Total
Fixed maturities
Mortgage-backed securities	$	1	$	—	$	—	$	21	$	22
Other	1		—		—		23		24
Total fixed maturities	2		—		—		44		46
Equity securities	6		—		—		—		6
Total	$	8	$	—	$	—	$	44	$	52

14

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3.INVESTMENTS, Continued

Impairment Charges

Impairment charges included in net realized investment gains (losses) in the consolidated statement of income were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2010		2009		2010		2009
Fixed maturities
U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities	$	—	$	—	$	—	$	—
Obligations of states, municipalities and political subdivisions	—		—		—		—
Debt securities issued by foreign governments	—		—		—		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1		7		2		58
All other corporate bonds	—		16		5		72
Redeemable preferred stock	—		—		—		—
Total fixed maturities	1		23		7		130
Equity securities
Common stock	1		—		2		15
Non-redeemable preferred stock	—		5		—		64
Total equity securities	1		5		2		79
Other investments	2		2		5		5
Total	$	4	$	30	$	14	$	214

In the second quarter of 2009, the Company adopted updated accounting guidance that changed the reporting of other-than-temporary impairments (OTTI).  As a result, the credit component of OTTI on fixed maturities was reported separately effective April 1, 2009, the date of adoption.

The following tables present a roll-forward of the credit component of other-than-temporary impairments (OTTI) on fixed maturities recognized in the consolidated statement of income for which a portion of the other-than-temporary impairment was recognized in accumulated other changes in equity from nonowner sources for the periods April 1 through June 30, 2010 and 2009, and January 1, 2010 through June 30, 2010:

April 1, 2010 through June 30, 2010(in millions)	Cumulative OTTI Credit Losses Recognized for Securities Held, Beginning of Period		Additions for OTTI Securities Where No Credit Losses Were Previously Recognized		Additions for OTTI Securities Where Credit Losses Have Been Previously Recognized		Reductions Due to Sales/Defaults of Credit- Impaired Securities			Adjustments to Book Value of Credit- Impaired Securities due to Changes in Cash Flows		Cumulative OTTI Credit Losses Recognized for Securities Still Held, End of Period
Fixed maturities
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	$	47	$	—	$	1	$	(3	)	$	—	$	45
All other corporate bonds	92		—		—		(7		)	—		85
Total fixed maturities	$	139	$	—	$	1	$	(10	)	$	—	$	130

15

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3.INVESTMENTS, Continued

January 1, 2010 through June 30, 2010(in millions)	Cumulative OTTI Credit Losses Recognized for Securities Held, Beginning of Period		Additions for OTTI Securities Where No Credit Losses Were Previously Recognized		Additions for OTTI Securities Where Credit Losses Have Been Previously Recognized		Reductions Due to Sales/Defaults of Credit- Impaired Securities			Adjustments to Book Value of Credit- Impaired Securities due to Changes in Cash Flows		Cumulative OTTI Credit Losses Recognized for Securities Still Held, End of Period
Fixed maturities
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	$	46	$	—	$	2	$	(3	)	$	—	$	45
All other corporate bonds	93		—		2		(11		)	1		85
Total fixed maturities	$	139	$	—	$	4	$	(14	)	$	1	$	130

April 1, 2009 through June 30, 2009(in millions)	Cumulative OTTI Credit Losses Recognized for Securities Held, Beginning of Period		Additions for OTTI Securities Where No Credit Losses Were Previously Recognized		Additions for OTTI Securities Where Credit Losses Have Been Previously Recognized		Reductions Due to Sales/Defaults of Credit- Impaired Securities		Adjustments to Book Value of Credit- Impaired Securities due to Changes in Cash Flows		Cumulative OTTI Credit Losses Recognized for Securities Still Held, End of Period
Fixed maturities
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	$	13	$	2	$	5	$	—	$	—	$	20
All other corporate bonds	82		4		9		—		—		95
Total fixed maturities	$	95	$	6	$	14	$	—	$	—	$	115

4.FAIR VALUE MEASUREMENTS

The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance.  The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets, and requires that observable inputs be used in the valuations when available.  The disclosure of fair value estimates in the fair value accounting guidance hierarchy is based on whether the significant inputs into the valuation are observable.  In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions.  The three levels of the hierarchy are as follows:

·Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.

·Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

·Level 3 - Valuations based on models where significant inputs are not observable.  The unobservable inputs reflect the Company’s own assumptions about the inputs that market participants would use.

16

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4.FAIR VALUE MEASUREMENTS, Continued

Valuation of Investments Reported at Fair Value in Financial Statements

The fair value of a financial instrument is the estimated amount at which the instrument could be exchanged in an orderly transaction between knowledgeable, unrelated, willing parties, i.e., not in a forced transaction.  The estimated fair value of a financial instrument may differ from the amount that could be realized if the security was sold in an immediate sale, e.g., a forced transaction.  Additionally, the valuation of fixed maturity investments is more subjective when markets are less liquid due to the lack of market based inputs, which may increase the potential that the estimated fair value of an investment is not reflective of the price at which an actual transaction would occur.

For investments that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in Level 1 of the hierarchy.  The Company receives the quoted market prices from a third party, nationally recognized pricing service (pricing service).  When quoted market prices are unavailable, the Company utilizes a pricing service to determine an estimate of fair value, which is mainly used for its fixed maturity investments.  The fair value estimates provided from this pricing service are included in the amount disclosed in Level 2 of the hierarchy.  If quoted market prices and an estimate from a pricing service are unavailable, the Company produces an estimate of fair value based on internally developed valuation techniques, which, depending on the level of observable market inputs, will render the fair value estimate as Level 2 or Level 3.  The Company bases all of its estimates of fair value for assets on the bid price as it represents what a third-party market participant would be willing to pay in an arm’s length transaction.

Fixed Maturities

The Company utilizes a pricing service to estimate fair value measurements for approximately 99% of its fixed maturities.  The pricing service utilizes market quotations for fixed maturity securities that have quoted prices in active markets.  Since fixed maturities other than U.S. Treasury securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value measurements for these securities using its proprietary pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings and matrix pricing.  Additionally, the pricing service uses an Option Adjusted Spread model to develop prepayment and interest rate scenarios.

The pricing service evaluates each asset class based on relevant market information, relevant credit information, perceived market movements and sector news.  The market inputs utilized in the pricing evaluation, listed in the approximate order of priority, include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events.  The extent of the use of each market input depends on the asset class and the market conditions.  Depending on the security, the priority of the use of inputs may change or some market inputs may not be relevant.  For some securities, additional inputs may be necessary.

The pricing service utilized by the Company has indicated that they will only produce an estimate of fair value if there is objectively verifiable information to produce a valuation.  If the pricing service discontinues pricing an investment, the Company would be required to produce an estimate of fair value using some of the same methodologies as the pricing service but would have to make assumptions for market-based inputs that are unavailable due to market conditions.

The fair value estimates of most fixed maturity investments are based on observable market information rather than market quotes.  Accordingly, the estimates of fair value for such fixed maturities, other than U.S. Treasury securities, provided by the pricing service are included in the amount disclosed in Level 2 of the hierarchy.  The estimated fair value of U.S. Treasury securities is included in the amount disclosed in Level 1 as the estimates are based on unadjusted market prices.

The Company holds privately placed corporate bonds and estimates the fair value of these bonds using an internal matrix that is based on market information regarding interest rates, credit spreads and liquidity.  The underlying source data for calculating the matrix of credit spreads relative to the U.S. Treasury curve are the Merrill Lynch U.S. Corporate Index and the Merrill Lynch High Yield BB Rated Index.  The Company includes the fair value estimates of these corporate bonds in Level 2, since all significant inputs are market observable.  As many of these securities are issued by public companies, the Company compares the estimates of fair value to the fair values of these companies’ publicly traded debt to test the validity of the internal pricing matrix.

17

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4.FAIR VALUE MEASUREMENTS, Continued

While the vast majority of the Company’s municipal bonds are included in Level 2, the Company holds a small number of municipal bonds which are not valued by the pricing service and estimates the fair value of these bonds using an internal pricing matrix with some unobservable inputs that are significant to the valuation.  Due to the limited amount of observable market information, the Company includes the fair value estimates for these particular bonds in Level 3.  Additionally, the Company holds a small amount of fixed maturities that have characteristics that make them unsuitable for matrix pricing.  For these fixed maturities, the Company obtains a quote from a broker (typically a market maker).  Due to the disclaimers on the quotes that indicate that the price is indicative only, the Company includes these fair value estimates in Level 3.

Equities — Public Common and Preferred

For public common and preferred stocks, the Company receives prices from a nationally recognized pricing service that are based on observable market transactions and includes these estimates in the amount disclosed in Level 1.  The estimated fair value of stocks having transfer restrictions that expire within one year was determined by adjusting the observed market price of the securities for a liquidity discount which takes into consideration the restrictions that existed at June 30, 2010 and is based on market observable inputs.  As a result of adjusting the market price to reflect the impact of the transfer restrictions on estimated fair value, the Company discloses these holdings in Level 2.  Infrequently, current market quotes in active markets are unavailable for certain non-redeemable preferred stocks held by the Company.  In these instances, the Company receives an estimate of fair value from the pricing service that provides fair value estimates for the Company’s fixed maturities. The service utilizes some of the same methodologies to price the non-redeemable preferred stocks as it does for the fixed maturities. The Company includes the fair value estimate for these non-redeemable preferred stocks in the amount disclosed in Level 2.

Other Investments

Common Stock with Transfer Restrictions and Other

The estimated fair value of stocks having transfer restrictions that expire after one year was determined using the same methodology described above, and is disclosed in Level 2.  The Company holds investments in non-public common and preferred equity securities, with a fair value estimate of $48 million at June 30, 2010, reported in other investments, where the fair value estimate is determined either internally or by an external fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals.  Due to the significant unobservable inputs in these valuations, the Company includes the total fair value estimate for all of these investments at June 30, 2010 in the amount disclosed in Level 3. The Company holds investments in various publicly-traded securities which are reported in other investments.  The $38 million fair value of these investments at June 30, 2010 is disclosed in Level 1.  These investments include securities in the Company’s trading portfolio ($20 million), mutual funds ($16 million) and other small holdings ($2 million).

Derivatives

The Company holds non-public warrants in a public company and has convertible bonds containing embedded conversion options that are valued separately from the host bond contract.  The Company estimates fair value for the warrants using an option pricing model with observable market inputs.  Because the warrants are not market traded and information concerning market participants is not available, the Company includes the fair value estimate of $70 million at June 30, 2010 in the amount disclosed in Level 3 - other investments.

18

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4.FAIR VALUE MEASUREMENTS, Continued

Fair Value Hierarchy

The following tables present the level within the fair value hierarchy at which the Company’s financial assets and financial liabilities are measured on a recurring basis at June 30, 2010 and December 31, 2009.

(at June 30, 2010, in millions)	Total		Level 1		Level 2		Level 3
Invested assets:
Fixed maturities
U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities	$	2,164	$	2,147	$	17	$	—
Obligations of states, municipalities and political subdivisions	41,222		—		41,113		109
Debt securities issued by foreign governments	1,802		—		1,802		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	4,810		—		4,809		1
All other corporate bonds	14,851		—		14,733		118
Redeemable preferred stock	42		41		1		—
Total fixed maturities	64,891		2,188		62,475		228
Equity securities
Common stock	353		231		122		—
Non-redeemable preferred stock	232		141		91		—
Total equity securities	585		372		213		—
Other investments (1)	272		38		116		118
Total	$	65,748	$	2,598	$	62,804	$	346

(1)The amount in Level 3 includes $70 million of non-public stock purchase warrants of a publicly-held company.

The Company did not have significant transfers between Levels 1 and 2 during the six months ended June 30, 2010.

19

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4.             FAIR VALUE MEASUREMENTS, Continued

(at December 31, 2009, in millions)	Total		Level 1		Level 2		Level 3
Invested assets:
Fixed maturities
U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities	$	2,574	$	2,517	$	57	$	—
Obligations of states, municipalities and political subdivisions	41,333		—		41,232		101
Debt securities issued by foreign governments	1,957		—		1,957		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	5,207		—		5,184		23
All other corporate bonds	14,728		—		14,612		116
Redeemable preferred stock	48		36		12		—
Total fixed maturities	65,847		2,553		63,054		240
Equity securities
Common stock	219		219		—		—
Non-redeemable preferred stock	232		138		94		—
Total equity securities	451		357		94		—
Other investments (1)	413		46		213		154
Total	$	66,711	$	2,956	$	63,361	$	394

(1)The amount in Level 3 includes $94 million of non-public stock purchase warrants of a publicly-held company.

20

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4.FAIR VALUE MEASUREMENTS, Continued

The following tables present the changes in the Level 3 fair value category during the three months and six months ended June 30, 2010, and the twelve months ended December 31, 2009.

Three Months Ended June 30, 2010 (in millions)	FixedMaturities			OtherInvestments			Total
Balance at March 31, 2010	$	250		$	138		$	388
Total realized and unrealized investment gains (losses):
Included in realized investment gains (losses) (1)	1			(16		)	(15		)
Included in increases (decreases) in accumulated other changes in equity from nonowner sources	9			(1		)	8
Purchases, sales and settlements/maturities:
Purchases	10			—			10
Sales	(1		)	(3		)	(4		)
Settlements/maturities	(17		)	—			(17		)
Gross transfers into Level 3	3			—			3
Gross transfers out of Level 3	(27		)	—			(27		)
Balance at June 30, 2010	$	228		$	118		$	346
Amount of total realized investment losses for the period included in the consolidated statement of income attributable to changes in the fair value of assets still held at the reporting date	$	—		$	(14	)	$	(14	)

(1)      Includes impairments on investments held at the end of the period as well as amortization on fixed maturities.

Six Months Ended June 30, 2010 (in millions)	FixedMaturities			OtherInvestments			Total
Balance at December 31, 2009	$	240		$	154		$	394
Total realized and unrealized investment gains (losses):
Included in realized investment gains (losses) (1)	2			(25		)	(23		)
Included in increases (decreases) in accumulated other changes in equity from nonowner sources	11			(3		)	8
Purchases, sales and settlements/maturities:
Purchases	25			—			25
Sales	(7		)	(8		)	(15		)
Settlements/maturities	(22		)	—			(22		)
Gross transfers into Level 3	7			—			7
Gross transfers out of Level 3	(28		)	—			(28		)
Balance at June 30, 2010	$	228		$	118		$	346
Amount of total realized investment losses for the period included in the consolidated statement of income attributable to changes in the fair value of assets still held at the reporting date	$	—		$	(24	)	$	(24	)

(1)      Includes impairments on investments held at the end of the period as well as amortization on fixed maturities.

21

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4.FAIR VALUE MEASUREMENTS, Continued

Twelve Months Ended December 31, 2009 (in millions)	FixedMaturities			OtherInvestments			Total
Balance at December 31, 2008	$	154		$	311		$	465
Total realized and unrealized investment gains (losses):
Included in realized investment gains (losses) (1)	(5		)	(4		)	(9		)
Included in increases (decreases) in accumulated other changes in equity from nonowner sources	11			73			84
Purchases, sales and settlements/maturities:
Purchases	128			4			132
Sales	(12		)	—			(12		)
Settlements/maturities	(18		)	—			(18		)
Gross transfers into Level 3	9			—			9
Gross transfers out of Level 3	(27		)	(230		)	(257		)
Balance at December 31, 2009	$	240		$	154		$	394
Amount of total realized investment gains for the period included in the consolidated statement of income attributable to changes in the fair value of assets still held at the reporting date	$	—		$	7		$	7

(1)Includes impairments on investments held at the end of the period as well as amortization on fixed maturities.

The Company had no financial assets or financial liabilities that were measured at fair value on a non-recurring basis during the six months ended June 30, 2010 or twelve months ended December 31, 2009.

Financial Instruments Disclosed, But Not Carried, At Fair Value

The Company uses various financial instruments in the normal course of its business. The Company’s insurance contracts are excluded from fair value of financial instruments accounting guidance and, therefore, are not included in the amounts discussed below.

The carrying values of cash, short-term securities and investment income accrued approximated their fair values.

The carrying values of $614 million and $629 million of financial instruments classified as other assets approximated their fair values at June 30, 2010 and December 31, 2009, respectively. The carrying values of $3.54 billion and $3.89 billion of financial instruments classified as other liabilities at June 30, 2010 and December 31, 2009, respectively, also approximated their fair values. Fair value is determined using various methods including discounted cash flows, as appropriate for the various financial instruments.

The carrying value and fair value of the Company’s debt at June 30, 2010 were $6.28 billion and $6.76 billion, respectively. The respective totals at December 31, 2009 were $6.53 billion and $6.82 billion.  The Company utilized a pricing service to estimate fair value measurements for approximately 96% of its debt, other than commercial paper, at each of June 30, 2010 and December 31, 2009.  The pricing service utilized market quotations for debt that has quoted prices in active markets.  For the small amount of the Company’s debt securities for which a pricing service is not used, the Company utilized pricing estimates from a nationally recognized broker/dealer to estimate fair value.  If estimates of fair value are unavailable from the pricing service or the broker/dealer, the Company produced an estimate of fair value based on internally developed valuation techniques which are based on a discounted cash flow methodology and incorporates all available relevant observable market inputs.

The fair value of commercial paper included in debt outstanding at June 30, 2010 and December 31, 2009 approximated its book value because of its short-term nature.

22

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

5.GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table presents the carrying amount of the Company’s goodwill by segment at June 30, 2010 and December 31, 2009:

(in millions)	June 30,2010		December 31, 2009
Business Insurance	$	2,168	$	2,168
Financial, Professional & International Insurance	557		557
Personal Insurance	613		613
Other	27		27
Total	$	3,365	$	3,365

Other Intangible Assets

The following tables present a summary of the Company’s other intangible assets by major asset class at June 30, 2010 and December 31, 2009:

(at June 30, 2010, in millions)	Gross Carrying Amount		Accumulated Amortization		Net
Intangible assets subject to amortization
Customer-related	$	935	$	754	$	181
Fair value adjustment on claims and claim adjustment expense reserves and reinsurance recoverables (1)	191		45		146
Total intangible assets subject to amortization	1,126		799		327
Intangible assets not subject to amortization	216		—		216
Total other intangible assets	$	1,342	$	799	$	543

(at December 31, 2009, in millions)	Gross Carrying Amount		Accumulated Amortization		Net
Intangible assets subject to amortization
Customer-related	$	935	$	722	$	213
Fair value adjustment on claims and claim adjustment expense reserves and reinsurance recoverables (1)	191		32		159
Total intangible assets subject to amortization	1,126		754		372
Intangible assets not subject to amortization	216		—		216
Total other intangible assets	$	1,342	$	754	$	588

(1)The time value of money and the risk margin (cost of capital) components of the intangible asset run off at different rates, and, as such, the amount recognized in income may be a net benefit in some periods and a net expense in other periods.

23

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

5.GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents a summary of the Company’s amortization expense for other intangible assets by major asset class:

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2010		2009		2010		2009
Customer-related	$	15	$	17	$	32	$	38
Fair value adjustment on claims and claim adjustment expense reserves and reinsurance recoverables	6		7		13		14
Total amortization expense	$	21	$	24	$	45	$	52

Intangible asset amortization expense is estimated to be $41 million for the remainder of 2010, $69 million in 2011, $52 million in 2012, $45 million in 2013 and $43 million in 2014.

6.DEBT

On April 15, 2010, the Company’s $250 million, 8.125% senior notes matured and were fully paid from internally-generated funds.

On June 10, 2010, the Company entered into a three-year, $1.0 billion revolving credit agreement with a syndicate of financial institutions, replacing its five-year, $1.0 billion credit agreement that expired on that date.  Pursuant to the credit agreement covenants, the Company must maintain a minimum consolidated net worth (generally defined as shareholders’ equity plus certain trust preferred and mandatorily convertible securities, reduced for goodwill and other intangible assets).  That threshold is adjusted downward by an amount equal to 70% of the aggregate amount of common stock repurchased by the Company after March 31, 2010, up to a maximum deduction of $1.75 billion.  The threshold was $15.12 billion at June 30, 2010, and will decline to a minimum of $14.35 billion during the term of the credit agreement, subject to the Company repurchasing an additional $1.10 billion of its common stock.  The Company must also maintain a ratio of total debt to the sum of total debt plus consolidated net worth of not greater than 0.40 to 1.00.  In addition, the credit agreement contains other customary restrictive covenants as well as certain customary events of default, including with respect to a change in control, which is defined to include the acquisition of 35% or more of the Company’s voting stock and certain changes in the composition of the Company’s board of directors.  At June 30, 2010, the Company was in compliance with these covenants.  Generally, the cost of borrowing under this agreement will range from LIBOR plus 100 basis points to LIBOR plus 175 basis points depending on the Company’s credit ratings.  At June 30, 2010, that cost would have been LIBOR plus 125 basis points, had there been any amounts outstanding under the credit agreement.  

7.SHARE REPURCHASE AUTHORIZATION

Since May 2006, the Company’s board of directors has approved four common share repurchase authorizations, for a cumulative authorization of up to $16 billion of shares of the Company’s common stock.  Under these authorizations, the most recent of which totaled $6 billion and was approved by the board of directors in October 2009, repurchases may be made from time to time in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, in private transactions or otherwise.  The authorizations do not have a stated expiration date.  The timing and actual number of shares to be repurchased in the future will depend on a variety of factors, including the Company’s financial position, earnings, catastrophe losses, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions), market conditions and other factors.  During the three months and six months ended June 30, 2010, the Company repurchased 28.0 million and 55.0 million shares, respectively, under its share repurchase authorization, for a total cost of approximately $1.40 billion and $2.80 billion, respectively.  The average cost per share repurchased was $50.07 and $50.96, respectively.  At June 30, 2010, the Company had $3.71 billion of capacity remaining under the share repurchase authorization.

24

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

8.CHANGES IN EQUITY FROM NONOWNER SOURCES

The Company’s total changes in equity from nonowner sources were as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
(in millions, after-tax)	2010			2009		2010			2009
Net income	$	670		$	740	$	1,317		$	1,402
Change in net unrealized gain (loss) on investment securities:
Having no credit losses recognized in the consolidated statement of income	422			339		476			1,026
Having credit losses recognized in the consolidated statement of income	21			53		44			53
Other changes	(24		)	169		(49		)	150
Total changes in equity from nonowner sources	$	1,089		$	1,301	$	1,788		$	2,631

25

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

9.EARNINGS PER SHARE

The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations:

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions, except per share amounts)	2010			2009			2010			2009
Basic
Net income, as reported	$	670		$	740		$	1,317		$	1,402
Preferred stock dividends	—			(1		)	(1		)	(2		)
Participating share-based awards — allocated income	(5		)	(5		)	(10		)	(10		)
Net income available to common shareholders — basic	$	665		$	734		$	1,306		$	1,390
Diluted
Net income available to common shareholders	$	665		$	734		$	1,306		$	1,390
Effect of dilutive securities:
Convertible preferred stock	—			1			1			2
Zero coupon convertible notes	—			—			—			1
Net income available to common shareholders — diluted	$	665		$	735		$	1,307		$	1,393
Common shares
Basic
Weighted average shares outstanding	484.5			575.8			496.3			580.1
Diluted
Weighted average shares outstanding	484.5			575.8			496.3			580.1
Weighted average effects of dilutive securities:
Stock options and performance shares	4.5			1.9			4.5			1.9
Convertible preferred stock	1.8			2.1			1.8			2.1
Zero coupon convertible notes	—			—			—			0.8
Total	490.8			579.8			502.6			584.9
Net Income per Common Share
Basic	$	1.37		$	1.27		$	2.63		$	2.40
Diluted	$	1.35		$	1.27		$	2.60		$	2.38

10.SHARE-BASED INCENTIVE COMPENSATION

The following presents information for fully vested stock option awards at June 30, 2010:

Stock Options	Number	Weighted Average Exercise Price		Weighted Average Contractual Life Remaining	AggregateIntrinsic Value($ in millions)
Vested at end of period (1)	22,145,303	$	46.17	2.3 Years	$	102
Exercisable at end of period	18,526,354	$	46.08	2.8 Years	$	90

(1) Represents awards for which the requisite service has been rendered, including those that are retirement eligible.

26

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

10.SHARE-BASED INCENTIVE COMPENSATION, Continued

The total compensation cost recognized in earnings for all share-based incentive compensation awards was $29 million and $28 million for the three months ended June 30, 2010 and 2009, respectively, and $71 million and $65 million for the six months ended June 30, 2010 and 2009, respectively.  The related tax benefit recognized in the consolidated statement of income was $10 million and $9 million for the three months ended June 30, 2010 and 2009, respectively, and $25 million and $22 million for the six months ended June 30, 2010 and 2009, respectively.

The total unrecognized compensation cost related to all nonvested share-based incentive compensation awards at June 30, 2010 was $162 million, which is expected to be recognized over a weighted-average period of 2.0 years. The total unrecognized compensation cost related to all nonvested share-based incentive compensation awards at December 31, 2009 was $111 million, which was expected to be recognized over a weighted-average period of 1.7 years.

11.PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS

The following tables summarize the components of net periodic benefit cost for the Company’s pension and postretirement benefit plans recognized in the consolidated statement of income.

	Pension Plans						Postretirement Benefit Plans
(for the three months ended June 30, in millions)	2010			2009			2010		2009
Net Periodic Benefit Cost:
Service cost	$	24		$	20		$	—	$	—
Interest cost on benefit obligation	32			32			3		5
Expected return on plan assets	(46		)	(44		)	—		(1		)
Amortization of unrecognized:
Prior service benefit	(1		)	(2		)	—		—
Net actuarial loss	15			6			—		—
Net expense	$	24		$	12		$	3	$	4

	Pension Plans						Postretirement Benefit Plans
(for the six months ended June 30, in millions)	2010			2009			2010		2009
Net Periodic Benefit Cost:
Service cost	$	48		$	40		$	—	$	—
Interest cost on benefit obligation	64			63			7		9
Expected return on plan assets	(92		)	(87		)	—		(1		)
Amortization of unrecognized:
Prior service benefit	(2		)	(3		)	—		—
Net actuarial loss	30			11			—		—
Net expense	$	48		$	24		$	7	$	8

27

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

12.          CONTINGENCIES, COMMITMENTS AND GUARANTEES

Contingencies

The following section describes the major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which any of their properties are subject.

Asbestos- and Environmental-Related Proceedings

In the ordinary course of its insurance business, the Company receives claims for insurance arising under policies issued by the Company asserting alleged injuries and damages from asbestos- and environmental-related exposures that are the subject of related coverage litigation, including, among others, the litigation described below.  The Company continues to be subject to aggressive asbestos-related litigation.  The conditions surrounding the final resolution of these claims and the related litigation continue to change.  The Company is defending asbestos- and environmental-related litigation vigorously and believes that it has meritorious defenses; however, the outcomes of these disputes are uncertain.  In this regard, the Company employs dedicated specialists and aggressive resolution strategies to manage asbestos and environmental loss exposure, including settling litigation under appropriate circumstances.

Asbestos Direct Action Litigation — In October 2001 and April 2002, two purported class action suits (Wise v. Travelers and Meninger v. Travelers) were filed against Travelers Property Casualty Corp. (TPC) and other insurers (not including The St. Paul Companies, Inc. (SPC)) in state court in West Virginia. These and other cases subsequently filed in West Virginia were consolidated into a single proceeding in the Circuit Court of Kanawha County, West Virginia. The plaintiffs allege that the insurer defendants engaged in unfair trade practices in violation of state statutes by inappropriately handling and settling asbestos claims. The plaintiffs seek to reopen large numbers of settled asbestos claims and to impose liability for damages, including punitive damages, directly on insurers.  Similar lawsuits alleging inappropriate handling and settling of asbestos claims were filed in Massachusetts and Hawaii state courts.  These suits are collectively referred to as the Statutory and Hawaii Actions.

In March 2002, the plaintiffs in consolidated asbestos actions pending before a mass tort panel of judges in West Virginia state court amended their complaint to include TPC as a defendant, alleging that TPC and other insurers breached alleged duties to certain users of asbestos products.  The plaintiffs seek damages, including punitive damages. Lawsuits seeking similar relief and raising similar allegations, primarily violations of purported common law duties to third parties, have also been asserted in various state courts against TPC and SPC. The claims asserted in these suits are collectively referred to as the Common Law Claims.

The federal bankruptcy court that had presided over the bankruptcy of TPC’s former policyholder Johns-Manville Corporation issued a temporary injunction prohibiting the prosecution of the Statutory Actions (but not the Hawaii Actions), the Common Law Claims and an additional set of cases filed in various state courts in Texas and Ohio, and enjoining certain attorneys from filing any further lawsuits against TPC based on similar allegations. Notwithstanding the injunction, additional common law claims were filed against TPC.

In November 2003, the parties reached a settlement of the Statutory and Hawaii Actions.  This settlement includes a lump-sum payment of up to $412 million by TPC, subject to a number of significant contingencies. In May 2004, the parties reached a settlement resolving substantially all pending and similar future Common Law Claims against TPC.  This settlement requires a payment of up to $90 million by TPC, subject to a number of significant contingencies.  Among the contingencies for each of these settlements is a final order of the bankruptcy court clarifying that all of these claims, and similar future asbestos-related claims against TPC, are barred by prior orders entered by the bankruptcy court (“the 1986 Orders”).

28

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

12.          CONTINGENCIES, COMMITMENTS AND GUARANTEES, Continued

On August 17, 2004, the bankruptcy court entered an order approving the settlements and clarifying that the 1986 Orders barred the pending Statutory and Hawaii Actions and substantially all Common Law Claims pending against TPC (“the Clarifying Order”). The Clarifying Order also applies to similar direct action claims that may be filed in the future.

On March 29, 2006, the U.S. District Court for the Southern District of New York substantially affirmed the Clarifying Order while vacating that portion of the order that required all future direct actions against TPC to first be approved by the bankruptcy court before proceeding in state or federal court.

Various parties appealed the district court’s March 29, 2006 ruling to the U.S. Court of Appeals for the Second Circuit.  On February 15, 2008, the Second Circuit issued an opinion vacating on jurisdictional grounds the District Court’s approval of the Clarifying Order.  On February 29, 2008, TPC and certain other parties to the appeals filed petitions for rehearing and/or rehearing en banc, requesting reinstatement of the district court’s judgment, which were denied.  TPC and certain other parties filed Petitions for Writ of Certiorari in the United States Supreme Court seeking review of the Second Circuit’s decision, and on December 12, 2008, the Petitions were granted.

On June 18, 2009, the Supreme Court ruled in favor of TPC, reversing the Second Circuit’s February 15, 2008 decision, finding, among other things, that the 1986 Orders are final and generally bar the Statutory and Hawaii actions and substantially all Common Law Claims against TPC.  Further, the Supreme Court ruled that the bankruptcy court had jurisdiction to issue the Clarifying Order.  However, since the Second Circuit had not ruled on certain additional issues, principally related to procedural matters and the adequacy of notice provided to certain parties, the Supreme Court remanded the case to the Second Circuit for further proceedings on those specific issues.  On October 21, 2009, all but one of the objectors to the Clarifying Order requested that the Second Circuit dismiss their appeal of the order approving the settlement, and that request was granted.  On March 22, 2010, the Second Circuit issued an opinion in which it found that the notice of the 1986 Orders provided to the remaining objector was insufficient to bar contribution claims by that objector against TPC. On April 5, 2010, TPC filed a Petition for Rehearing and Rehearing En Banc with the Second Circuit, requesting further review of its March 22, 2010 opinion, which was denied on May 25, 2010.  TPC presently intends to file a Petition for Writ of Certiorari in the United States Supreme Court seeking review of the Second Circuit’s March 22, 2010 opinion.

SPC, which is not covered by the Manville bankruptcy court rulings or the settlements described above, is a party to pending direct action cases in Texas state court asserting common law claims.  All such cases that are still pending and in which SPC has been served are currently on the inactive docket in Texas state court.  If any of those cases becomes active, SPC intends to litigate those cases vigorously. SPC was previously a defendant in similar direct actions in Ohio state court. Those actions have all been dismissed following favorable rulings by Ohio trial and appellate courts.

Currently, it is not possible to predict legal outcomes and their impact on the future development of claims and litigation relating to asbestos and environmental claims. Any such development will be affected by future court decisions and interpretations, as well as changes in applicable legislation. Because of these uncertainties, additional liabilities may arise for amounts in excess of the current related reserves. In addition, the Company’s estimate of ultimate claims and claim adjustment expenses may change. These additional liabilities or increases in estimates, or a range of either, cannot now be reasonably estimated and could result in income statement charges that could be material to the Company’s results of operations in future periods.

Other Proceedings

Broker Anti-Trust Litigation — In 2005, four putative class action lawsuits were brought against a number of insurance brokers and insurers, including the Company and/or certain of its affiliates, by plaintiffs who allegedly purchased insurance products through one or more of the defendant brokers.  The plaintiffs alleged that various insurance brokers conspired with each other and with various insurers, including the Company and/or certain of its affiliates, to artificially inflate premiums, allocate brokerage customers and rig bids for insurance products offered to those customers. To the extent they were not originally filed there, the federal class actions were transferred to the U.S. District Court for the District of New Jersey and were consolidated for pre-trial proceedings with other class actions under the caption In re Insurance Brokerage Antitrust

29

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

12.          CONTINGENCIES, COMMITMENTS AND GUARANTEES, Continued

Litigation. On August 1, 2005, various plaintiffs, including the four named plaintiffs in the above-referenced class actions, filed an amended consolidated class action complaint naming various brokers and insurers, including the Company and certain of its affiliates, on behalf of a putative nationwide class of policyholders. The complaint included causes of action under the Sherman Act, the Racketeer Influenced and Corrupt Organizations Act (RICO), state common law and the laws of the various states prohibiting antitrust violations. The complaint sought monetary damages, including punitive damages and trebled damages, permanent injunctive relief, restitution, including disgorgement of profits, interest and costs, including attorneys’ fees.  All defendants moved to dismiss the complaint for failure to state a claim.  After giving plaintiffs multiple opportunities to replead, the court dismissed the Sherman Act claims on August 31, 2007 and the RICO claims on September 28, 2007, both with prejudice, and declined to exercise supplemental jurisdiction over the state law claims. The plaintiffs appealed the district court’s decisions to the U.S. Court of Appeals for the Third Circuit. Oral argument before the Third Circuit took place on April 21, 2009. The parties continue to await a ruling from the Third Circuit. Additional individual actions have been brought in state and federal courts against the Company involving allegations similar to those in In re Insurance Brokerage Antitrust Litigation, and further actions may be brought. The Company believes that all of these lawsuits have no merit and intends to defend vigorously.

Other — In addition to those described above, the Company is involved in numerous lawsuits, not involving asbestos and environmental claims, arising mostly in the ordinary course of business operations, either as a liability insurer defending third-party claims brought against policyholders or as an insurer defending claims brought against it relating to coverage or the Company’s business practices. In addition, from time to time, the Company is involved in proceedings addressing disputes with its reinsurers regarding the collection of amounts due under the Company’s reinsurance agreements.  While the ultimate resolution of these legal proceedings could be material to the Company’s results of operations in a future period, in the opinion of the Company’s management, none would likely have a material adverse effect on the Company’s financial position or liquidity.

Other Commitments and Guarantees

Commitments

Investment Commitments — The Company has unfunded commitments to private equity limited partnerships and real estate partnerships in which it invests. These commitments were $1.26 billion and $1.32 billion at June 30, 2010 and December 31, 2009, respectively.

Guarantees

The Company has contingent obligations for guarantees related to letters of credit, issuance of debt securities, certain investments, third-party loans related to certain investments and various indemnifications, including those related to the sale of business entities.  The Company also provides standard indemnifications to service providers in the normal course of business.  The indemnification clauses are often standard contractual terms.  Certain of these guarantees and indemnifications have no stated or notional amounts or limitation to the maximum potential future payments, and, accordingly, the Company is unable to develop an estimate of the maximum potential payments for such arrangements.  At June 30, 2010, the maximum amount of the Company’s obligation for guarantees of certain investments and third-party loans related to certain investments that are quantifiable was $84 million, approximately $40 million of which would be recoverable from a third party.

In the ordinary course of selling business entities to third parties, the Company has agreed to indemnify purchasers for losses arising out of breaches of representations and warranties with respect to the business entities being sold, covenants and obligations of the Company and/or its subsidiaries following the closing, and in certain cases obligations arising from undisclosed liabilities, adverse reserve development, imposition of additional taxes due to either a change in the tax law or an adverse interpretation of the tax law, or certain named litigation.  Such indemnification provisions generally survive for periods ranging from 12 months following the applicable closing date to the expiration of the relevant statutes of limitations, although in some cases there may be other agreed upon term limitations or no term limitations.  Certain of these contingent obligations are subject to deductibles which have to be incurred by the obligee before the Company is obligated to make payments.  The maximum amount of the Company’s contingent obligation for indemnifications related to the sale of business entities that are quantifiable was $1.34 billion at June 30, 2010, of which $11 million was recognized on the balance sheet at that date.

30

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

13.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

The following consolidating financial statements of the Company have been prepared pursuant to Rule 3-10 of Regulation S-X. These consolidating financial statements have been prepared from the Company’s financial information on the same basis of accounting as the consolidated financial statements. The Travelers Companies, Inc. has fully and unconditionally guaranteed certain debt obligations of TPC, its wholly-owned subsidiary, which totaled $1.20 billion at June 30, 2010.

Prior to the merger between TPC and SPC, TPC fully and unconditionally guaranteed the payment of all principal, premiums, if any, and interest on certain debt obligations of its wholly-owned subsidiary, Travelers Insurance Group Holdings, Inc. (TIGHI). The Travelers Companies, Inc. has fully and unconditionally guaranteed such guarantee obligations of TPC. TPC is deemed to have no assets or operations independent of TIGHI. Consolidating financial information for TIGHI has not been presented herein because such financial information would be substantially the same as the financial information provided for TPC.

31

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

13.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF INCOME (Unaudited)

For the three months ended June 30, 2010

(in millions)	TPC		OtherSubsidiaries			Travelers (1)			Eliminations			Consolidated
Revenues
Premiums	$	3,610	$	1,730		$	—		$	—		$	5,340
Net investment income	517		242			3			—			762
Fee income	76		—			—			—			76
Net realized investment gains (losses)	8		(25		)	(14		)	—			(31		)
Other revenues	27		5			—			—			32
Total revenues	4,238		1,952			(11		)	—			6,179
Claims and expenses
Claims and claim adjustment expenses	2,277		1,142			—			—			3,419
Amortization of deferred acquisition costs	629		321			—			—			950
General and administrative expenses	566		264			2			—			832
Interest expense	19		—			78			—			97
Total claims and expenses	3,491		1,727			80			—			5,298
Income (loss) before income taxes	747		225			(91		)	—			881
Income tax expense (benefit)	176		66			(31		)	—			211
Equity in net income of subsidiaries	—		—			730			(730		)	—
Net income	$	571	$	159		$	670		$	(730	)	$	670

(in millions)	TPC			OtherSubsidiaries			Travelers (1)			Eliminations		Consolidated
Net Realized Investment Gains (Losses)
Other-than-temporary impairment losses:
Total gains (losses)	$	2		$	—		$	—		$	—	$	2
Portion of losses recognized in accumulated other changes in equity from nonowner sources	(4		)	(2		)	—			—		(6		)
Other-than-temporary impairment losses	(2		)	(2		)	—			—		(4		)
Other net realized investment gains (losses)	10			(23		)	(14		)	—		(27		)
Net realized investment gains (losses)	$	8		$	(25	)	$	(14	)	$	—	$	(31	)

(1)The Travelers Companies, Inc., excluding its subsidiaries.

32

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

13.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF INCOME (Unaudited)

For the three months ended June 30, 2009

(in millions)	TPC		OtherSubsidiaries			Travelers (1)			Eliminations			Consolidated
Revenues
Premiums	$	3,628	$	1,725		$	—		$	—		$	5,353
Net investment income	424		227			7			—			658
Fee income	90		(1		)	—			—			89
Net realized investment gains (losses)	18		(5		)	—			—			13
Other revenues	41		9			—			(1		)	49
Total revenues	4,201		1,955			7			(1		)	6,162
Claims and expenses
Claims and claim adjustment expenses	2,221		1,114			—			—			3,335
Amortization of deferred acquisition costs	635		318			—			—			953
General and administrative expenses	569		266			4			—			839
Interest expense	19		—			76			(1		)	94
Total claims and expenses	3,444		1,698			80			(1		)	5,221
Income (loss) before income taxes	757		257			(73		)	—			941
Income tax expense (benefit)	170		55			(24		)	—			201
Equity in net income of subsidiaries	—		—			789			(789		)	—
Net income	$	587	$	202		$	740		$	(789	)	$	740

(in millions)	TPC			OtherSubsidiaries			Travelers (1)		Eliminations		Consolidated
Net Realized Investment Gains (Losses)
Other-than-temporary impairment losses:
Total losses	$	(49	)	$	(26	)	$	—	$	—	$	(75	)
Portion of losses recognized in accumulated other changes in equity from nonowner sources	28			17			—		—		45
Other-than-temporary impairment losses	(21		)	(9		)	—		—		(30		)
Other net realized investment gains	39			4			—		—		43
Net realized investment gains (losses)	$	18		$	(5	)	$	—	$	—	$	13

(1)           The Travelers Companies, Inc., excluding its subsidiaries.

33

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

13.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF INCOME (Unaudited)

For the six months ended June 30, 2010

(in millions)	TPC		OtherSubsidiaries			Travelers (1)			Eliminations			Consolidated
Revenues
Premiums	$	7,133	$	3,437		$	—		$	—		$	10,570
Net investment income	1,036		473			6			—			1,515
Fee income	155		—			—			—			155
Net realized investment gains (losses)	29		(11		)	(24		)	—			(6		)
Other revenues	55		9			—			—			64
Total revenues	8,408		3,908			(18		)	—			12,298
Claims and expenses
Claims and claim adjustment expenses	4,502		2,305			—			—			6,807
Amortization of deferred acquisition costs	1,245		634			—			—			1,879
General and administrative expenses	1,140		531			8			—			1,679
Interest expense	37		—			158			—			195
Total claims and expenses	6,924		3,470			166			—			10,560
Income (loss) before income taxes	1,484		438			(184		)	—			1,738
Income tax expense (benefit)	347		115			(41		)	—			421
Equity in net income of subsidiaries	—		—			1,460			(1,460		)	—
Net income	$	1,137	$	323		$	1,317		$	(1,460	)	$	1,317

(in millions)	TPC			OtherSubsidiaries			Travelers (1)			Eliminations		Consolidated
Net Realized Investment Gains (Losses)
Other-than-temporary impairment losses:
Total gains (losses)	$	5		$	(4	)	$	—		$	—	$	1
Portion of losses recognized in accumulated other changes in equity from nonowner sources	(10		)	(5		)	—			—		(15		)
Other-than-temporary impairment losses	(5		)	(9		)	—			—		(14		)
Other net realized investment gains (losses)	34			(2		)	(24		)	—		8
Net realized investment gains (losses)	$	29		$	(11	)	$	(24	)	$	—	$	(6	)

(1)           The Travelers Companies, Inc., excluding its subsidiaries.

34

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

13.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF INCOME (Unaudited)

For the six months ended June 30, 2009

(in millions)	TPC			OtherSubsidiaries			Travelers (1)			Eliminations			Consolidated
Revenues
Premiums	$	7,215		$	3,439		$	—		$	—		$	10,654
Net investment income	755			432			13			—			1,200
Fee income	163			(1		)	—			—			162
Net realized investment losses	(88		)	(80		)	(33		)	—			(201		)
Other revenues	71			12			—			(1		)	82
Total revenues	8,116			3,802			(20		)	(1		)	11,897
Claims and expenses
Claims and claim adjustment expenses	4,357			2,168			—			—			6,525
Amortization of deferred acquisition costs	1,268			629			—			—			1,897
General and administrative expenses	1,060			551			10			—			1,621
Interest expense	37			—			150			(1		)	186
Total claims and expenses	6,722			3,348			160			(1		)	10,229
Income (loss) before income taxes	1,394			454			(180		)	—			1,668
Income tax expense (benefit)	301			80			(115		)	—			266
Equity in net income of subsidiaries	—			—			1,467			(1,467		)	—
Net income	$	1,093		$	374		$	1,402		$	(1,467	)	$	1,402

(in millions)	TPC			OtherSubsidiaries			Travelers (1)			Eliminations		Consolidated
Net Realized Investment Gains (Losses)
Other-than-temporary impairment losses:
Total losses	$	(158	)	$	(101	)	$	—		$	—	$	(259	)
Portion of losses recognized in accumulated other changes in equity from nonowner sources	28			17			—			—		45
Other-than-temporary impairment losses	(130		)	(84		)	—			—		(214		)
Other net realized investment gains (losses)	42			4			(33		)	—		13
Net realized investment losses	$	(88	)	$	(80	)	$	(33	)	$	—	$	(201	)

(1)           The Travelers Companies, Inc., excluding its subsidiaries.

35

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

13.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING BALANCE SHEET (Unaudited)

At June 30, 2010

(in millions)	TPC		Other Subsidiaries		Travelers (1)			Eliminations			Consolidated
Assets
Fixed maturities, available for sale, at fair value (including $146 subject to securities lending) (amortized cost $61,561)	$	44,166	$	20,713	$	12		$	—		$	64,891
Equity securities, available for sale, at fair value (cost $389)	193		339		53			—			585
Real estate	1		845		—			—			846
Short-term securities	1,094		375		2,390			—			3,859
Other investments	1,887		990		71			—			2,948
Total investments	47,341		23,262		2,526			—			73,129
Cash	109		156		1			—			266
Investment income accrued	539		260		—			—			799
Premiums receivable	3,865		1,975		—			—			5,840
Reinsurance recoverables	8,031		4,242		—			—			12,273
Ceded unearned premiums	621		227		—			—			848
Deferred acquisition costs	1,549		255		—			—			1,804
Deferred tax asset	208		107		53			—			368
Contractholder receivables	4,195		1,400		—			—			5,595
Goodwill	2,411		954		—			—			3,365
Other intangible assets	341		202		—			—			543
Investment in subsidiaries	—		—		29,025			(29,025		)	—
Other assets	1,895		285		60			(47		)	2,193
Total assets	$	71,105	$	33,325	$	31,665		$	(29,072	)	$	107,023
Liabilities
Claims and claim adjustment expense reserves	$	34,197	$	18,074	$	—		$	—		$	52,271
Unearned premium reserves	7,518		3,574		—			—			11,092
Contractholder payables	4,195		1,400		—			—			5,595
Payables for reinsurance premiums	250		217		—			—			467
Debt	1,193		9		5,121			(47		)	6,276
Other liabilities	3,754		1,019		263			—			5,036
Total liabilities	51,107		24,293		5,384			(47		)	80,737
Shareholders’ equity
Preferred Stock Savings Plan—convertible preferred stock (0.2 shares issued and outstanding)	—		—		72			—			72
Common stock (1,748.6 shares authorized; 470.8 shares issued and outstanding)	—		391		19,884			(391		)	19,884
Additional paid-in capital	11,207		6,959		—			(18,166		)	—
Retained earnings	7,207		1,001		17,280			(8,203		)	17,285
Accumulated other changes in equity from nonowner sources	1,584		681		1,690			(2,265		)	1,690
Treasury stock, at cost (255.6 shares)	—		—		(12,645		)	—			(12,645		)
Total shareholders’ equity	19,998		9,032		26,281			(29,025		)	26,286
Total liabilities and shareholders’ equity	$	71,105	$	33,325	$	31,665		$	(29,072	)	$	107,023

(1)           The Travelers Companies, Inc., excluding its subsidiaries.

36

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

13.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING BALANCE SHEET (Unaudited)

At December 31, 2009

(in millions)	TPC		Other Subsidiaries		Travelers (1)			Eliminations			Consolidated
Assets
Fixed maturities, available for sale, at fair value (including $90 subject to securities lending) (amortized cost $63,311)	$	44,532	$	21,022	$	293		$	—		$	65,847
Equity securities, available for sale, at fair value (cost $373)	196		198		57			—			451
Real estate	2		863		—			—			865
Short-term securities	2,241		750		1,861			—			4,852
Other investments	1,826		1,029		95			—			2,950
Total investments	48,797		23,862		2,306			—			74,965
Cash	132		122		1			—			255
Investment income accrued	547		275		3			—			825
Premiums receivable	3,648		1,823		—			—			5,471
Reinsurance recoverables	8,260		4,556		—			—			12,816
Ceded unearned premiums	788		128		—			—			916
Deferred acquisition costs	1,507		251		—			—			1,758
Deferred tax asset	460		173		39			—			672
Contractholder receivables	4,268		1,529		—			—			5,797
Goodwill	2,411		954		—			—			3,365
Other intangible assets	356		232		—			—			588
Investment in subsidiaries	—		—		30,608			(30,608		)	—
Other assets	1,871		248		59			(46		)	2,132
Total assets	$	73,045	$	34,153	$	33,016		$	(30,654	)	$	109,560
Liabilities
Claims and claim adjustment expense reserves	$	34,622	$	18,505	$	—		$	—		$	53,127
Unearned premium reserves	7,504		3,357		—			—			10,861
Contractholder payables	4,268		1,529		—			—			5,797
Payables for reinsurance premiums	309		237		—			—			546
Debt	1,192		9		5,372			(46		)	6,527
Other liabilities	3,832		1,221		234			—			5,287
Total liabilities	51,727		24,858		5,606			(46		)	82,145
Shareholders’ equity
Preferred Stock Savings Plan—convertible preferred stock (0.2 shares issued and outstanding)	—		—		79			—			79
Common stock (1,748.6 shares authorized; 520.3 shares issued and outstanding)	—		391		19,593			(391		)	19,593
Additional paid-in capital	11,206		6,960		—			(18,166		)	—
Retained earnings	8,852		1,399		16,310			(10,246		)	16,315
Accumulated other changes in equity from nonowner sources	1,260		545		1,219			(1,805		)	1,219
Treasury stock, at cost (199.6 shares)	—		—		(9,791		)	—			(9,791		)
Total shareholders’ equity	21,318		9,295		27,410			(30,608		)	27,415
Total liabilities and shareholders’ equity	$	73,045	$	34,153	$	33,016		$	(30,654	)	$	109,560

(1)           The Travelers Companies, Inc., excluding its subsidiaries.

37

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

13.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

For the six months ended June 30, 2010

(in millions)	TPC			Other Subsidiaries			Travelers (1)			Eliminations			Consolidated
Cash flows from operating activities
Net income	$	1,137		$	323		$	1,317		$	(1,460	)	$	1,317
Net adjustments to reconcile net income to net cash provided by operating activities	(164		)	(494		)	2,434			(2,042		)	(266		)
Net cash provided by (used in) operating activities	973			(171		)	3,751			(3,502		)	1,051
Cash flows from investing activities
Proceeds from maturities of fixed maturities	1,540			928			10			—			2,478
Proceeds from sales of investments:
Fixed maturities	1,647			1,134			—			—			2,781
Equity securities	19			8			—			—			27
Real estate	—			10			—			—			10
Other investments	136			53			—			—			189
Purchases of investments:
Fixed maturities	(2,432		)	(1,508		)	—			—			(3,940		)
Equity securities	(1		)	(18		)	—			—			(19		)
Real estate	—			(8		)	—			—			(8		)
Other investments	(133		)	(94		)	—			—			(227		)
Net sales (purchases) of short-term securities	1,147			432			(529		)	—			1,050
Securities transactions in course of settlement	6			(4		)	—			—			2
Other	(143		)	(2		)	—			—			(145		)
Net cash provided by (used in) investing activities	1,786			931			(519		)	—			2,198
Cash flows from financing activities
Payment of debt	—			—			(250		)	—			(250		)
Dividends paid to shareholders	—			—			(343		)	—			(343		)
Issuance of common stock — employee share options	—			—			199			—			199
Treasury shares acquired — share repurchase authorization	—			—			(2,804		)	—			(2,804		)
Treasury shares acquired — net employee share-based compensation	—			—			(40		)	—			(40		)
Excess tax benefits from share-based payment arrangements	—			—			5			—			5
Dividends paid to parent company	(2,782		)	(721		)	—			3,503			—
Capital contributions and loans between subsidiaries	—			—			1			(1		)	—
Net cash used in financing activities	(2,782		)	(721		)	(3,232		)	3,502			(3,233		)
Effect of exchange rate changes on cash	—			(5		)	—			—			(5		)
Net increase (decrease) in cash	(23		)	34			—			—			11
Cash at beginning of year	132			122			1			—			255
Cash at end of period	$	109		$	156		$	1		$	—		$	266
Supplemental disclosure of cash flow information
Income taxes paid (received)	$	235		$	119		$	(45	)	$	—		$	309
Interest paid	$	36		$	—		$	164		$	—		$	200

(1)           The Travelers Companies, Inc., excluding its subsidiaries.

38

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

13.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, Continued

CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

For the six months ended June 30, 2009

(in millions)	TPC			Other Subsidiaries			Travelers (1)			Eliminations			Consolidated
Cash flows from operating activities
Net income	$	1,093		$	374		$	1,402		$	(1,467	)	$	1,402
Net adjustments to reconcile net income to net cash provided by operating activities	22			270			527			(432		)	387
Net cash provided by operating activities	1,115			644			1,929			(1,899		)	1,789
Cash flows from investing activities
Proceeds from maturities of fixed maturities	1,262			1,107			20			—			2,389
Proceeds from sales of investments:
Fixed maturities	737			1,123			4			—			1,864
Equity securities	2			29			—			—			31
Other investments	116			24			—			—			140
Purchases of investments:
Fixed maturities	(1,955		)	(2,316		)	—			—			(4,271		)
Equity securities	—			(18		)	—			—			(18		)
Real estate	—			(9		)	—			—			(9		)
Other investments	(114		)	(72		)	—			—			(186		)
Net sales (purchases) of short-term securities	(254		)	236			(1,205		)	—			(1,223		)
Securities transactions in course of settlement	352			14			—			—			366
Other	(197		)	(8		)	—			—			(205		)
Net cash provided by (used in) investing activities	(51		)	110			(1,181		)	—			(1,122		)
Cash flows from financing activities
Payment of debt	—			—			(141		)	—			(141		)
Issuance of debt	—			—			494			—			494
Dividends paid to shareholders	—			—			(350		)	—			(350		)
Issuance of common stock — employee share options	—			—			28			—			28
Treasury shares acquired — share repurchase authorization	—			—			(750		)	—			(750		)
Treasury shares acquired — net employee share-based compensation	—			—			(28		)	—			(28		)
Excess tax benefits from share-based payment arrangements	—			—			2			—			2
Dividends paid to parent company	(1,086		)	(814		)	—			1,900			—
Capital contributions and loans between subsidiaries	—			—			1			(1		)	—
Net cash used in financing activities	(1,086		)	(814		)	(744		)	1,899			(745		)
Effect of exchange rate changes on cash	—			10			—			—			10
Net increase (decrease) in cash	(22		)	(50		)	4			—			(68		)
Cash at beginning of year	183			167			—			—			350
Cash at end of period	$	161		$	117		$	4		$	—		$	282
Supplemental disclosure of cash flow information
Income taxes paid (received)	$	421		$	41		$	(99	)	$	—		$	363
Interest paid	$	36		$	—		$	149		$	—		$	185

(1)           The Travelers Companies, Inc., excluding its subsidiaries.

39

Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of the financial condition and results of operations of The Travelers Companies, Inc. (together with its subsidiaries, the Company).

FINANCIAL HIGHLIGHTS

2010 Second Quarter Consolidated Results of Operations

·Net income of $670 million, or $1.37 per share basic and $1.35 per share diluted

·Net earned premiums of $5.34 billion

·Catastrophe losses of $439 million pretax ($285 million after-tax)

·Pretax net favorable prior year reserve development of $384 million ($251 million after-tax)

·GAAP combined ratio of 95.2%

·Pretax net investment income of $762 million ($617 million after-tax)

2010 Second Quarter Consolidated Financial Condition

·Total investments of $73.13 billion; fixed maturities and short-term securities comprise 94% of total investments

·Total assets of $107.02 billion

·Total debt of $6.28 billion, resulting in a debt-to-total capital ratio of 19.3% (20.8% excluding net unrealized investment gains (losses), net of tax)

·Repurchased 28.0 million common shares for total cost of $1.40 billion under share repurchase authorization

·Shareholders’ equity of $26.29 billion; book value per common share of $55.67, up 18% from June 30, 2009

·Holding company liquidity of $2.40 billion

CONSOLIDATED OVERVIEW

The Company provides a wide range of property and casualty insurance products and services to businesses, government units, associations and individuals, primarily in the United States and in selected international markets.

40

Consolidated Results of Operations

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions, except ratio and per share amounts)	2010			2009			2010			2009
Revenues
Premiums	$	5,340		$	5,353		$	10,570		$	10,654
Net investment income	762			658			1,515			1,200
Fee income	76			89			155			162
Net realized investment gains (losses)	(31		)	13			(6		)	(201		)
Other revenues	32			49			64			82
Total revenues	6,179			6,162			12,298			11,897
Claims and expenses
Claims and claim adjustment expenses	3,419			3,335			6,807			6,525
Amortization of deferred acquisition costs	950			953			1,879			1,897
General and administrative expenses	832			839			1,679			1,621
Interest expense	97			94			195			186
Total claims and expenses	5,298			5,221			10,560			10,229
Income before income taxes	881			941			1,738			1,668
Income tax expense	211			201			421			266
Net income	$	670		$	740		$	1,317		$	1,402
Net income per share
Basic	$	1.37		$	1.27		$	2.63		$	2.40
Diluted	$	1.35		$	1.27		$	2.60		$	2.38
GAAP combined ratio
Loss and loss adjustment expense ratio	63.3		%	61.4		%	63.6		%	60.5		%
Underwriting expense ratio	31.9			31.8			32.2			31.4
GAAP combined ratio	95.2		%	93.2		%	95.8		%	91.9		%
Incremental impact of direct to consumer initiative on GAAP combined ratio	0.6		%	0.6		%	0.6		%	0.6		%

The Company’s discussions of net income and segment operating income included in the following discussion are presented on an after-tax basis.  Discussions of the components of net income and segment operating income are presented on a pretax basis, unless otherwise noted.  Discussions of net income per common share are presented on a diluted basis.

Overview

Diluted net income per share of $1.35 in the second quarter of 2010 increased by 6% over the same period of 2009, despite a decline in reported net income, reflecting the favorable impact of common share repurchases over the previous twelve months.  Net income of $670 million in the second quarter of 2010 decreased by $70 million from the same period of 2009, primarily reflecting the impact of an increase in catastrophe losses and net realized investment losses (compared with net realized gains in the second quarter of 2009), partially offset by increases in net investment income and net favorable prior year reserve development.  Catastrophe losses in the second quarters of 2010 and 2009 totaled $439 million and $200 million, respectively. Net favorable prior year reserve development in the second quarters of 2010 and 2009 totaled $384 million and $261 million, respectively.  Net income in the second quarter of 2009 also reflected a reduction in income tax expense of $19 million resulting from the favorable resolution of various prior year tax matters and a $26 million reduction in the estimate of property windpool assessments related to Hurricane Ike that had been recorded in general and administrative expenses in 2008.

41

Diluted net income per share of $2.60 in the first six months of 2010 increased by 9% over the same period of 2009, despite a decline in reported net income, also reflecting the favorable impact of common share repurchases over the previous twelve months.  Net income of $1.32 billion in the first six months of 2010 was $85 million lower than in the same period of 2009, primarily reflecting the impact of an increase in catastrophe losses, partially offset by a decline in net realized investment losses and increases in net investment income and net favorable prior year reserve development.  Catastrophe losses in the first six months of 2010 and 2009 totaled $910 million and $283 million, respectively. Net favorable prior year reserve development in the first six months of 2010 and 2009 totaled $678 million and $519 million, respectively.  Net income in the first six months of 2009 also reflected a reduction in income tax expense of $88 million resulting from the favorable resolution of various prior year tax matters and an $87 million reduction in the estimate of property windpool assessments related to Hurricane Ike that had been recorded in general and administrative expenses in 2008.

Revenues

Earned Premiums

Earned premiums in the second quarter of 2010 totaled $5.34 billion, a decrease of $13 million, or less than 1%, from the same 2009 period.  Through the first six months of 2010, earned premiums of $10.57 billion were $84 million, or 1%, lower than the same 2009 period.  In the Business Insurance segment, earned premiums in the second quarter and first six months of 2010 declined 4% from the respective periods of 2009 despite strong business retention levels.  The declines were primarily attributable to reduced insured exposures due to lower levels of economic activity.  In the Financial, Professional & International Insurance segment, the 6% and 4% increases in earned premiums over the second quarter and first six months of 2009, respectively, were primarily attributable to lower reinsurance costs and changes in the structure of reinsurance coverage, as well as increased business volume in the International group over the preceding twelve months.  Favorable foreign currency exchange rates also contributed to earned premium growth in both periods of 2010.  In the Personal Insurance segment, earned premium growth of 3% and 2% over the second quarter and first six months of 2009, respectively, reflected continued strong business retention rates, renewal price increases and growth in new business volumes during the preceding twelve months.

Net Investment Income

The following table sets forth information regarding the Company’s investments.

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in millions)	2010			2009			2010			2009
Average investments (a)	$	71,294		$	72,589		$	71,987		$	72,713
Pretax net investment income	762			658			1,515			1,200
After-tax net investment income	617			547			1,227			1,021
Average pretax yield (b)	4.3		%	3.6		%	4.2		%	3.3		%
Average after-tax yield (b)	3.5		%	3.0		%	3.4		%	2.8		%

(a)Excludes net unrealized investment gains and losses, net of tax, and reflects cash, receivables for investment sales, payables on investment purchases and accrued investment income.

(b)Excludes net realized investment gains and losses and net unrealized investment gains and losses.

Net investment income of $762 million in the second quarter of 2010 was $104 million, or 16%, higher than in the same period of 2009.  Non-fixed maturity investments generated net investment income of $89 million in the second quarter of 2010, compared with negative net investment income of $33 million in the second quarter of 2009.  This increase was partially offset by a slight decline in investment income from fixed maturity investments, driven by lower long-term reinvestment interest rates available for maturing securities and lower short-term interest rates.  In the first six months of 2010, net investment income of $1.52 billion was $315 million, or 26%, higher than in the same period of 2009, driven by the same factors described above for the second quarter increase in net investment income.  Non-fixed maturity investments generated net investment income of $155 million in the first six months of 2010, compared with negative net investment income of $208 million in the same period of 2009.  The increase in net investment income from non-fixed maturity investments in 2010 reflected improved investment market conditions.

42

Fee Income

The National Accounts market in the Business Insurance segment is the primary source of the Company’s fee-based business.  The $13 million and $7 million declines in fee income in the second quarter and first six months of 2010, respectively, compared with the same periods of 2009 are described in the Business Insurance segment discussion that follows.

Net Realized Investment Gains (Losses)

The following table sets forth information regarding the Company’s net realized investment gains (losses).

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2010			2009			2010			2009
Net Realized Investment Gains (Losses)
Other-than-temporary impairment losses:
Total gains (losses)	$	2		$	(75	)	$	1		$	(259	)
Portion of losses recognized in accumulated other changes in equity from nonowner sources	(6		)	45			(15		)	45
Other-than-temporary impairment losses	(4		)	(30		)	(14		)	(214		)
Other net realized investment gains (losses)	(27		)	43			8			13
Net realized investment gains (losses)	$	(31	)	$	13		$	(6	)	$	(201	)

Other-Than-Temporary Impairment Losses on Investments — In the second quarter of 2010, impairments included in net income totaled $4 million.  In the second quarter of 2009, impairments included in net income totaled $30 million.  Impairments in the fixed maturity portfolio in the second quarter of 2009 totaled $23 million, which included $7 million of impairments related to structured mortgage securities, $13 million related to various issuers’ deteriorated financial position and $3 million related to securities with respect to which the Company had the intent to sell.  Impairments in the second quarter of 2009 also included $5 million related to equity investments and $2 million related to other investments.  The majority of equity impairments in the second quarter of 2009 were related to issuers in the financial industry.

Through the first six months of 2010, impairment losses included in net income totaled $14 million.  In the first six months of 2009, impairments included in net income totaled $214 million.  Impairments in the fixed maturity portfolio in the first six months of 2009 totaled $130 million, which included $58 million of impairments related to structured mortgage securities, $60 million related to various issuers’ deteriorated financial position and $12 million with respect to which the Company had the intent to sell.  Impairments in the first six months of 2009 also included $79 million related to equity investments and $5 million related to other investments.  The majority of equity impairments in the first six months of 2009 were related to issuers in the financial industry.

Other Net Realized Investment Gains (Losses) — Other net realized investment losses in the second quarter of 2010 totaled $27 million, which included $26 million of net realized investment losses related to U.S. Treasury futures contracts which are used to shorten the duration of the Company’s fixed maturity portfolio, $14 million of net realized investment losses related to the Company’s holdings of stock purchase warrants of a publicly held company, and $8 million of net realized investment losses related to foreign currency exchange. These net realized investment losses were partially offset by $18 million of net realized investment gains related to fixed maturity investments and $3 million of net realized gains related to equity and other investments.  In the second quarter of 2009, other net realized investment gains totaled $43 million, which included $25 million of net realized investment gains related to U.S. Treasury futures contracts, net realized investment gains of $21 million related to fixed maturity investments, $12 million of net investment losses related to foreign currency exchange rates and $9 million of net investment gains related to the sales of equity securities and other investments.

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Through the first six months of 2010, other net realized investment gains totaled $8 million, which included $46 million of net realized investment gains related to fixed maturity investments and $19 million of net realized investment gains related to equity securities and other investments.  These net realized investment gains were partially offset by $33 million of net realized investment losses related to U.S. Treasury futures contracts and $24 million of net realized investment losses related to the Company’s holdings of stock purchase warrants of a publicly-held company.  Other net realized investment gains for the first six months of 2009 were $13 million, which included the net realized investment gains and losses described above in the second quarter of 2009, and also included $32 million of net realized losses related to the Company’s holdings of stock purchase warrants of a publicly-held company.

Claims and Expenses

Claims and claim adjustment expenses totaled $3.42 billion in the second quarter of 2010, $84 million, or 3%, higher than in the second quarter 2009.  The 2010 total included $439 million of catastrophe losses and $384 million of net favorable prior year reserve development, whereas the 2009 second quarter total included $200 million of catastrophe losses and $261 million of net favorable prior year reserve development.  The 2010 total also reflected a decline in non-catastrophe weather-related losses, primarily in the Personal Insurance segment.  Catastrophe losses in the second quarters of 2010 and 2009 primarily resulted from numerous wind and hail storms, as well as flooding.

In the first six months of 2010, claims and claim adjustment expenses totaled $6.81 billion, an increase of $282 million, or 4%, over the total in the same period of 2009. The 2010 total included $910 million of catastrophe losses and $678 million of net favorable prior year reserve development, whereas the comparable 2009 total included $283 million of catastrophe losses and $519 million of net favorable prior year reserve development.  In addition to the storms and flooding described above in the second quarter, catastrophe losses in the first six months of 2010 also included losses from severe winter storms in the first quarter of the year.

The Business Insurance segment accounted for the majority of net favorable prior year reserve development in the second quarter and first six months of 2010, driven by better than expected loss results in the property, workers’ compensation and commercial automobile product lines for recent accident years.  In addition, better than expected loss results in this segment in recent years resulted in a favorable re-estimation of reserves for unallocated loss adjustment expenses in the second quarter of 2010.  In the Financial, Professional & International Insurance segment, the Bond & Financial Products group and the International group both recorded net favorable prior year reserve development in the second quarter and first six months of 2010.  The Personal Insurance segment also experienced a small amount of net favorable prior year reserve development in the second quarter and first six months of 2010, primarily in various property coverages.

The Company’s three business segments each experienced net favorable prior year reserve development in the second quarter and first six months of 2009.  The majority of net favorable prior year reserve development occurred in the Business Insurance segment, resulting from better than expected loss development primarily for recent accident years in the general liability, commercial multi-peril, property and commercial automobile product lines, and in the Personal Insurance segment, primarily due to favorable loss experience related to Hurricanes Katrina and Ike.

Factors contributing to net favorable prior year reserve development in each segment are discussed in more detail in the segment discussions that follow.

The amortization of deferred acquisition costs totaled $950 million in the second quarter of 2010, slightly lower than in the same period of 2009.  In the first six months of 2010, the amortization of deferred acquisition costs totaled $1.88 billion, 1% lower than in the same period of 2009.  The declines in both periods of 2010 were consistent with the decline in earned premiums.

General and administrative expenses totaled $832 million in the second quarter of 2010, a decrease of $7 million, or 1%, from the total in the same period of 2009.  The decrease in 2010 was concentrated in the Business Insurance segment, primarily reflecting declines in advertising and compensation expenses, as well as lower expenses related to operations in runoff.  In the first six months of 2010, general and administrative expenses totaled $1.68 billion, an increase of $58 million, or 4%, over the same period of 2009, primarily reflecting the impact of the 2009 second quarter and year-to-date reductions of $26 million and $87 million, respectively, in the estimate of property windpool assessments related to Hurricane Ike due to a decline in estimated insurance industry losses related to Hurricane Ike.

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Interest Expense

Interest expense of $97 million in the second quarter of 2010 was $3 million higher than in the same period of 2009.  In the first six months of 2010, interest expense totaled $195 million, an increase of $9 million, or 5%, over interest expense of $186 million in the same period of 2009.  The increases in both periods of 2010 primarily reflected higher average levels of debt outstanding.

GAAP Combined Ratio

The consolidated GAAP combined ratio of 95.2% in the second quarter of 2010 was 2.0 points higher than the consolidated GAAP combined ratio of 93.2% in the same 2009 period.  The consolidated loss and loss adjustment expense ratio of 63.3% in the second quarter of 2010 was 1.9 points higher than the loss and loss adjustment expense ratio of 61.4% in the same 2009 period.  Catastrophe losses accounted for 8.2 points of the 2010 second quarter loss and loss adjustment expense ratio, whereas the 2009 second quarter loss and loss adjustment expense ratio included a 3.7 point impact from catastrophe losses. The 2010 and 2009 second quarter loss and loss adjustment expense ratios included 7.2 point and 4.9 point benefits from net favorable prior year reserve development, respectively.

The consolidated GAAP combined ratio of 95.8% in the first six months of 2010 was 3.9 points higher than the consolidated GAAP combined ratio of 91.9% in the same 2009 period.  The consolidated loss and loss adjustment expense ratio of 63.6% in the first six months of 2010 was 3.1 points higher than the loss and loss adjustment expense ratio of 60.5% in the same 2009 period.  Catastrophe losses accounted for 8.6 points of the 2010 loss and loss adjustment expense ratio, whereas the 2009 loss and loss adjustment expense ratio included a 2.7 point impact from catastrophe losses.  The 2010 and 2009 loss and loss adjustment expense ratios included 6.4 point and 4.9 point benefits from net favorable prior year reserve development, respectively.

The loss and loss adjustment expense ratios excluding catastrophe losses and prior year reserve development for the second quarter and first six months of 2010 were 0.3 points and 1.3 points lower, respectively, than the 2009 ratios on the same basis.  The improvement in the adjusted year-to-date 2010 loss ratio was concentrated in the Personal Insurance segment and reflected earned rate increases modestly outpacing loss cost trends, as well as a decline in non-catastrophe weather-related losses.  The consolidated loss ratios reported in the second quarter and first six months of 2009 did not reflect the favorable re-estimation of the 2009 loss and loss adjustment expense ratio (primarily in the Business Insurance segment) that occurred in the second half of 2009.

The underwriting expense ratio of 31.9% for the second quarter of 2010 was 0.1 points higher than the second quarter 2009 underwriting expense ratio of 31.8%.  Through the first six months of 2010, the underwriting expense ratio of 32.2% was 0.8 points higher than the underwriting expense ratio of 31.4% in the same period of 2009.  The second quarter and year-to-date 2009 underwriting expense ratios reflected 0.5 point and 0.8 point benefits, respectively, resulting from the $26 million and $87 million reductions, respectively, in the estimate of property windpool assessments related to Hurricane Ike.

Written Premiums

Consolidated gross and net written premiums were as follows:

	Gross Written Premiums
	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2010		2009		2010		2009
Business Insurance	$	2,996	$	3,046	$	6,114	$	6,340
Financial, Professional & International Insurance	915		975		1,813		1,817
Personal Insurance	2,063		1,948		3,850		3,675
Total	$	5,974	$	5,969	$	11,777	$	11,832

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	Net Written Premiums
	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2010		2009		2010		2009
Business Insurance	$	2,795	$	2,813	$	5,629	$	5,776
Financial, Professional & International Insurance	889		914		1,570		1,477
Personal Insurance	2,004		1,878		3,740		3,555
Total	$	5,688	$	5,605	$	10,939	$	10,808

Gross written premiums in the second quarter of 2010 increased slightly over the same 2009 period and net written premiums increased 1% over the second quarter of 2009.  The increases in both gross and net written premiums in the second quarter of 2010 were concentrated in the Personal Insurance segment, partially offset by declines in the Business Insurance segment due to lower levels of economic activity in recent quarters that impacted exposure changes at renewal, audit premium adjustments, policy endorsements and mid-term cancellations, as well as declines in the Financial, Professional & International Insurance segment.  New business volume declined from the second quarter of 2009, as modest growth in the Personal Insurance segment was more than offset by declines in new business volume in the Business Insurance and Financial, Professional & International Insurance segments.  Retention rates remained high across all business segments.  The impact of renewal rate changes on premiums remained positive in the Personal Insurance and Financial, Professional & International Insurance segments, but was flat in the Business Insurance segment.

In the first six months of 2010, gross written premiums decreased by less than 1%, whereas net written premiums increased by 1%, over the same period of 2009.  The difference in changes between gross and net written premiums in the first six months of 2010 was concentrated in the Financial, Professional & International Insurance segment, largely due to lower reinsurance costs and changes in the structure of the Company’s reinsurance during the first quarter that directionally aligned retentions in the Company’s International business with its U.S. practices.  The impact of new business volume, retention rates and renewal rate changes on net written premiums for the first six months of 2010 was consistent with that described above for the second quarter.

RESULTS OF OPERATIONS BY SEGMENT

The Company is organized into three reportable business segments: Business Insurance; Financial, Professional & International Insurance; and Personal Insurance.  These segments reflect the manner in which the Company’s businesses are currently managed and represent an aggregation of products and services based on type of customer, how the business is marketed and the manner in which risks are underwritten.

Business Insurance

The Business Insurance segment offers a broad array of property and casualty insurance and insurance-related services to its clients primarily in the United States. Business Insurance is organized into the following six groups, which collectively comprise Business Insurance Core operations: Select Accounts, Commercial Accounts, National Accounts, Industry-Focused Underwriting, Target Risk Underwriting and Specialized Distribution.

Business Insurance also includes the Special Liability Group (which manages the Company’s asbestos and environmental liabilities) and the assumed reinsurance and certain international and other runoff operations, which collectively are referred to as Business Insurance Other.

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Results of the Company’s Business Insurance segment were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in millions)	2010			2009			2010			2009
Revenues
Earned premiums	$	2,663		$	2,770		$	5,291		$	5,527
Net investment income	537			451			1,065			806
Fee income	76			89			155			162
Other revenues	7			12			13			18
Total revenues	$	3,283		$	3,322		$	6,524		$	6,513
Total claims and expenses	$	2,529		$	2,587		$	5,018		$	5,121
Operating income	$	567		$	560		$	1,134		$	1,107
Loss and loss adjustment expense ratio	59.5		%	57.6		%	59.1		%	57.7		%
Underwriting expense ratio	32.3			32.2			32.5			31.7
GAAP combined ratio	91.8		%	89.8		%	91.6		%	89.4		%

Overview

Operating income of $567 million in the second quarter of 2010 was $7 million, or 1%, higher than in the same period of 2009.  In the first six months of 2010, operating income totaled $1.13 billion, an increase of $27 million, or 2%, over the same period of 2009.  For both periods of 2010, increases in net investment income and net favorable prior year reserve development were largely offset by an increase in catastrophe losses.  In addition, operating income in the second quarter and first six months of 2009 included benefits of $3 million and $41 million, respectively, from the favorable resolution of various prior year tax matters, and $12 million and $38 million reductions, respectively, in the estimate of property windpool assessments related to Hurricane Ike.  Catastrophe losses in the second quarter and first six months of 2010 totaled $179 million and $314 million, respectively, compared with $59 million and $71 million in the respective periods of 2009.  Net favorable prior year reserve development in the second quarter and first six months of 2010 totaled $303 million and $545 million, respectively.  Net favorable prior year reserve development totaled $216 million and $398 million in the respective periods of 2009, respectively.

Earned Premiums

Earned premiums of $2.66 billion in the second quarter of 2010 decreased $107 million, or 4%, from the same period of 2009.  In the first six months of 2010, earned premiums of $5.29 billion were also 4% lower than in the same period of 2009.  The declines in both periods of 2010 were primarily attributable to reduced insured exposures due to lower levels of economic activity.

Net Investment Income

Net investment income in the second quarter and first six months of 2010 increased by $86 million and $259 million, respectively, over the same periods of 2009.  Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion herein for a description of the factors contributing to the increase in the Company’s consolidated net investment income.

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Fee Income

National Accounts is the primary source of fee income due to its service businesses, which include claim and loss prevention services to large companies that choose to self-insure a portion of their insurance risks, as well as claims and policy management services to workers’ compensation residual market pools.  Fee income in the second quarter and first six months of 2010 decreased by $13 million and $7 million from the respective 2009 periods, primarily reflecting lower serviced premium and claim volume due to the de-population of workers’ compensation residual market pools, the impact of both lower claim volume and lower loss costs (as fees are based either on the number of claims serviced or as a percentage of losses) driven by workers’ compensation reforms and overall lower claim frequency.  Lower new business volume due to lower levels of economic activity and increased competition also contributed to the lack of growth in fee income in recent quarters.

Claims and Expenses

Claims and claim adjustment expenses in the second quarter of 2010 totaled $1.62 billion, a decrease of $23 million, or 1%, from the same 2009 period.  Claims and claim adjustment expenses in the first six months of 2010 totaled $3.20 billion, a decrease of $58 million, or 2%, from the same 2009 period.  Net favorable prior year reserve development in the second quarter and first six months of 2010 totaled $303 million and $545 million, respectively, compared with net favorable prior year reserve development of $216 million and $398 million in the respective periods of 2009.  Catastrophe losses in the second quarter and first six months of 2010 totaled $179 million and $314 million, respectively, compared with $59 million and $71 million in the respective periods of 2009.  Catastrophe losses in the second quarter and first six months of both 2010 and 2009 primarily resulted from numerous wind and hail storms, as well as flooding.  Catastrophe losses in the first six months of 2010 also included losses from severe winter storms in the first quarter of the year.

Net favorable prior year reserve development in the second quarter and first six months of 2010 was driven by better than expected loss results in the property, workers’ compensation and commercial automobile product lines for recent accident years.  In addition, better than expected loss results in this segment in recent years resulted in a favorable re-estimation of reserves for unallocated loss adjustment expenses in the second quarter of 2010.  The property product line improvement primarily occurred in the 2009 accident year as a result of better than expected claim emergence trends in the Industry-Focused Underwriting and Target Risk Underwriting groups.  Net favorable prior year reserve development in the workers’ compensation product line was concentrated in the 2006-2009 accident years and resulted from lower than expected claim frequency for the 2009 accident year and better than expected loss emergence for the prior periods.  The Company believes that the improvement in the commercial automobile product line, which occurred primarily in the 2009 accident year, resulted from the economic downturn causing fewer vehicles to be on the road and driving fewer miles, leading to lower than expected frequency and severity of losses.  The net favorable prior year reserve development in these product lines was partially offset by a $35 million increase to environmental reserves recorded in the second quarter of 2010, which is discussed in further detail in the “Environmental Claims and Litigation” section herein.

Net favorable prior year reserve development in the second quarter and first six months of 2009 was driven by better than expected loss results primarily concentrated in the general liability, commercial multi-peril, property and commercial automobile product lines for recent accident years.  The general liability and commercial multi-peril product lines experienced better than anticipated loss development that was attributable to several factors, including what the Company believes to be improved legal and judicial environments, as well as enhanced risk control, underwriting and claim process initiatives.  The property product line improvement primarily occurred in the latter part of the 2008 accident year as a result of better than expected claim emergence trends.  The commercial automobile line of business experienced better than expected loss development that was attributable to what the Company believes was more favorable legal and judicial environments, claim handling initiatives focused on the automobile line of insurance and improvements in auto safety technology.  The net favorable prior year reserve development in these product lines was partially offset by a $70 million increase to environmental reserves recorded in the second quarter of 2009.

The amortization of deferred acquisition costs totaled $439 million and $864 million in the second quarter and first six months of 2010, respectively, 2% and 4% lower, respectively, than in the respective periods of 2009.  The declines in both periods of 2010 were consistent with the declines in earned premiums.

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General and administrative expenses in the second quarter of 2010 totaled $469 million, $24 million lower than in the same period of 2009.  In the first six months of 2010, general and administrative expenses of $950 million were $10 million lower than the total in the same period of 2009.  The 2009 second quarter and six-month totals included $12 million and $38 million reductions, respectively, in the estimate of property windpool assessments related to Hurricane Ike that had been recorded in general and administrative expenses in 2008.  Adjusting for those reductions in 2009, general and administrative expenses in the second quarter and first six months of 2010 were $36 million and $48 million lower, respectively, than in the same periods of 2009, primarily reflecting lower advertising and compensation expenses, as well as lower expense related to operations in runoff.

GAAP Combined Ratio

The GAAP combined ratio of 91.8% in the second quarter of 2010 was 2.0 points higher than the GAAP combined ratio of 89.8% in the same 2009 period.  The loss and loss adjustment expense ratio of 59.5% in the second quarter of 2010 was 1.9 points higher than the comparable second quarter 2009 ratio of 57.6%, primarily due to an increase in catastrophe losses.  Catastrophe losses in the second quarters of 2010 and 2009 accounted for 6.7 points and 2.1 points of the loss and loss adjustment expense ratio, respectively.  Net favorable prior year reserve development provided 11.3 point and 7.8 point benefits to the loss and loss adjustment expense ratio in the second quarters of 2010 and 2009, respectively.  The 2010 second quarter loss and loss adjustment expense ratio excluding catastrophe losses and prior year reserve development was 0.8 points higher than the 2009 ratio on the same basis, primarily reflecting reduced underwriting margins related to pricing and loss cost trends.

The GAAP combined ratio of 91.6% in the first six months of 2010 was 2.2 points higher than the GAAP combined ratio of 89.4% in the same 2009 period.  In the first six months of 2010, the loss and loss adjustment expense ratio of 59.1% was 1.4 points higher than the 2009 ratio of 57.7%.  Catastrophe losses in the first six months of 2010 and 2009 accounted for 6.0 points and 1.3 points of the loss and loss adjustment expense ratio, respectively.  Net favorable prior year reserve development provided 10.3 point and 7.2 point benefits to the loss and loss adjustment expense ratio in the first six months of 2010 and 2009, respectively.  The loss and loss adjustment expense ratio in the first six months of 2010 excluding catastrophe losses and prior year reserve development was 0.2 points lower than the 2009 ratio on the same basis.  The loss ratio reported in the second quarter and first six months of 2009 did not reflect the favorable re-estimation of the 2009 loss and loss adjustment expense ratio that occurred in the second half of 2009.

The underwriting expense ratio of 32.3% for the second quarter of 2010 was 0.1 points higher than the second quarter 2009 underwriting expense ratio of 32.2%.  In the first six months of 2010, the underwriting expense ratio of 32.5% was 0.8 points higher than the underwriting expense ratio of 31.7% in the same 2009 period.  The underwriting expense ratios in the second quarter and first six months of 2009 included 0.4 point and 0.7 point benefits, respectively, from the reduction in the estimate of windpool assessments described above.  Adjusting for these factors in 2009, the underwriting expense ratios for the second quarter and first six months of 2010 were 0.3 points lower and 0.1 points higher, respectively, than the 2009 underwriting expense ratios.  The improvement in the second quarter 2010 adjusted expense ratio reflected the decline in expenses described above.

Written Premiums

The Business Insurance segment’s gross and net written premiums by market were as follows:

	Gross Written Premiums
	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2010		2009		2010		2009
Select Accounts	$	720	$	741	$	1,430	$	1,479
Commercial Accounts	614		603		1,364		1,357
National Accounts	250		303		577		712
Industry-Focused Underwriting	588		587		1,203		1,247
Target Risk Underwriting	572		559		1,073		1,076
Specialized Distribution	247		247		463		470
Total Business Insurance Core	2,991		3,040		6,110		6,341
Business Insurance Other	5		6		4		(1		)
Total Business Insurance	$	2,996	$	3,046	$	6,114	$	6,340

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	Net Written Premiums
	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2010		2009		2010		2009
Select Accounts	$	716	$	732	$	1,418	$	1,463
Commercial Accounts	581		564		1,287		1,274
National Accounts	194		227		420		486
Industry-Focused Underwriting	584		581		1,153		1,198
Target Risk Underwriting	469		458		881		880
Specialized Distribution	247		247		462		469
Total Business Insurance Core	2,791		2,809		5,621		5,770
Business Insurance Other	4		4		8		6
Total Business Insurance	$	2,795	$	2,813	$	5,629	$	5,776

In Business Insurance Core, gross written premiums in the second quarter of 2010 decreased by 2% from the second quarter of 2009, and net written premiums decreased by 1% from the second quarter of 2009.  In the first six months of 2010, gross written premiums decreased by 4% from the same period of 2009, and net written premiums decreased 3% from the first six months of 2009.  The decline in gross and net written premiums in both periods of 2010 was driven in large part by lower levels of economic activity in recent quarters that impacted exposure changes at renewal, audit premium adjustments, policy endorsements and mid-term cancellations.  The difference in rates of decline between gross and net written premiums in both periods of 2010 was concentrated in Residual Markets within National Accounts.  A significant portion of gross written premiums for products offered by Residual Markets is ceded to other insurers and residual market pools.  As a result, the decline in gross written premiums did not have a proportional impact on net written premiums.

Select Accounts.  Net written premiums of $716 million in the second quarter of 2010 declined 2% from the same period of 2009.  In the first six months of 2010, net written premiums of $1.42 billion were 3% lower than in the same 2009 period.  The declines in 2010 were primarily due to reduced insured exposures driven by lower levels of economic activity.  Business retention rates remained strong, but declined from the prior year periods.  Renewal premium changes were positive in the second quarter and first six months of 2010 and increased over the same periods of 2009, reflecting positive renewal rate changes.  New business volume in 2010 declined from the second quarter and first six months of 2009, driven by lower business volumes from larger risks where marketplace competition remains high.

Commercial Accounts.  Net written premiums of $581 million in the second quarter of 2010 increased 3% over the prior year quarter.  In the first six months of 2010, net written premiums of $1.29 billion were 1% higher than in the same period of 2009.  The increases were primarily driven by slightly positive renewal premium changes in both periods of 2010, as renewal rate changes remained positive.  Insured exposures in the second quarter of 2010 were level with the same period of 2009.  Through the first six months of 2010, insured exposures declined from the same period of 2009, driven by lower levels of economic activity. Business retention rates in the second quarter and first six months of 2010 remained strong and were consistent with the prior year periods.  New business levels in the second quarter of 2010 declined from the same 2009 period; however, through the first six months of 2010, new business levels were consistent with the same period of 2009.

National Accounts. Net written premiums of $194 million in the second quarter of 2010 decreased 15% from the prior year quarter.  In the first six months of 2010, net written premiums of $420 million were 14% lower than in the same period of 2009.  The declines in 2010 were due to reduced insurance exposures driven by lower levels of economic activity and lower new business volume in the current year, as well as a higher level of prior year premium adjustments booked in 2009 than in 2010.

Industry-Focused Underwriting.  Net written premiums of $584 million in the second quarter of 2010 increased slightly over the same 2009 period. In the first six months of 2010, net written premiums of $1.15 billion declined 4% from the same period of 2009.  The decline in year-to-date premium volume was concentrated in the Oil & Gas, Construction and Technology business units, reflecting market conditions in these industries.

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Target Risk Underwriting.  Net written premiums of $469 million in the second quarter of 2010 were 2% higher than in the prior year quarter.  In the first six months of 2010, net written premiums of $881 million were level with the same period of 2009.  Premium volume in the Excess Casualty business unit increased in the second quarter and first six months of 2010 as compared to the same periods of 2009.

Specialized Distribution. Net written premiums of $247 million in the second quarter of 2010 were level with the same period of 2009.  In the first six months of 2010, net written premiums of $462 million were 1% lower than in the same period of 2009.

Financial, Professional & International Insurance

The Financial, Professional & International Insurance segment includes surety and management liability coverages, which primarily use credit-based underwriting processes, as well as property and casualty products that are primarily marketed on a domestic basis in the United Kingdom, the Republic of Ireland and Canada, and on an international basis through Lloyd’s.  The segment includes the Bond & Financial Products group as well as the International group.

Results of the Company’s Financial, Professional & International Insurance segment were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in millions)	2010			2009			2010			2009
Revenues
Earned premiums	$	855		$	810		$	1,679		$	1,611
Net investment income	110			107			221			211
Other revenues	7			7			13			13
Total revenues	$	972		$	924		$	1,913		$	1,835
Total claims and expenses	$	715		$	739		$	1,533		$	1,465
Operating income	$	172		$	133		$	258		$	281
Loss and loss adjustment expense ratio	48.1		%	54.4		%	55.1		%	54.5		%
Underwriting expense ratio	35.2			36.5			35.9			36.0
GAAP combined ratio	83.3		%	90.9		%	91.0		%	90.5		%

Overview

Operating income of $172 million in the second quarter of 2010 was $39 million, or 29%, higher than in the prior year quarter, primarily reflecting an increase in net favorable prior year reserve development.  In the first six months of 2010, operating income of $258 million was $23 million, or 8%, lower than the same 2009 period, primarily driven by an increase in catastrophe losses, partially offset by an increase in net favorable prior year reserve development.  Net favorable prior year reserve development totaled $72 million and $106 million in the second quarter and first six months of 2010, respectively, compared with $11 million and $23 million in the respective periods of 2009.  Catastrophe losses in the first six months of 2010 totaled $89 million, which primarily resulted from an earthquake in Chile during the first quarter.  Catastrophe losses in the same period of 2009 totaled $2 million.

Earned Premiums

Earned premiums of $855 million and $1.68 billion in the second quarter and first six months of 2010, respectively, increased 6% and 4% over the respective prior year periods, primarily attributable to lower reinsurance costs and the impact of changes in the structure of the Company’s reinsurance during the first quarter that directionally aligned retentions in the Company’s International business with its U.S. practices.  Increased business volume in the International group and the favorable impact of foreign currency exchange rates also contributed to earned premium growth in both periods of 2010.

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Net Investment Income

Net investment income in the second quarter and first six months of 2010 increased by $3 million and $10 million, respectively, over the same periods of 2009.  Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion herein for a description of the factors contributing to the changes in the Company’s consolidated net investment income in the second quarter and first six months of 2010 compared with the same periods of 2009.

Claims and Expenses

Claims and claim adjustment expenses in the second quarter of 2010 totaled $414 million, a decrease of $28 million, or 7%, from the same 2009 period, primarily reflecting an increase in net favorable prior year reserve development, partially offset by the impact of an increase in business volume in the International group.  Net favorable prior year reserve development totaled $72 million and $11 million in the second quarters of 2010 and 2009, respectively.  The majority of net favorable prior year reserve development in the second quarter of 2010 occurred in the Bond & Financial Products group and was related to better than expected results for recent accident years for the directors & officers and errors & omissions lines of business, and favorable loss experience in the surety line of business.  Several product lines in the International group’s United Kingdom operations also experienced net favorable prior year reserve development in the second quarter of 2010.  Catastrophe losses in the second quarter of 2010 totaled $3 million, compared with $2 million in the same 2009 period.

In the first six months of 2010, claims and claim adjustment expenses totaled $930 million, an increase of $46 million, or 5%, over the same 2009 period.  The increase primarily reflected an increase in catastrophe losses, increased business volume in the International group and the unfavorable impact of foreign currency exchange rates, partially offset by an increase in net favorable prior year reserve development.  Catastrophe losses totaled $89 million in the first six months of 2010, compared with $2 million in the same period of 2009.  The earthquake in Chile in the first quarter accounted for the majority of catastrophe losses in 2010.  Net favorable prior year reserve development in the first six months of 2010 and 2009 totaled $106 million and $23 million, respectively.  The 2010 total was driven by the same factors described above for the second quarter, as well as net favorable prior year reserve development in several lines of business at Lloyd’s in the first quarter of the year.

The amortization of deferred acquisition costs totaled $153 million in the second quarter of 2010, 2% higher than in the same period of 2009.  In the first six months of 2010, the amortization of deferred acquisition costs totaled $306 million, 3% higher than in the same period of 2009.  The increases were consistent with the increases in earned premiums in 2010.  General and administrative expenses in the second quarter and first six months of 2010 totaled $148 million and $297 million, respectively, compared with $146 million and $284 million in the respective periods of 2009.  The increase in the year-to-date total primarily reflected an increase in employee-related costs in the International group.

GAAP Combined Ratio

The GAAP combined ratio of 83.3% in the second quarter of 2010 was 7.6 points lower than the GAAP combined ratio of 90.9% in the same 2009 period.  The loss and loss adjustment expense ratio of 48.1% in the second quarter of 2010 was 6.3 points lower than the 2009 ratio of 54.4%.  The 2010 ratio included an 8.4 point benefit from net favorable prior year reserve development and a 0.4 point impact from catastrophe losses, whereas the 2009 ratio included a 1.4 point benefit from net favorable prior year reserve development and a 0.2 point impact from catastrophe losses.  Excluding catastrophe losses and prior year reserve development, the loss and loss adjustment expense ratio for the second quarter of 2010 was 0.5 points higher than the second quarter 2009 ratio on the same basis.

The GAAP combined ratio of 91.0% in the first six months of 2010 was 0.5 points higher than the GAAP combined ratio of 90.5% in the same 2009 period.  In the first six months of 2010, the loss and loss adjustment expense ratio of 55.1% was 0.6 points higher than the ratio of 54.5% in the same period of 2009. The 2010 ratio included a 6.3 point benefit from net favorable prior year reserve development and a 5.3 point impact from catastrophes, whereas the 2009 ratio included a 1.5 point benefit from net favorable prior year reserve development and a 0.1 point impact from catastrophe losses.  The loss and loss adjustment expense ratio in the first six months of 2010 excluding catastrophe losses and prior year reserve development was 0.2 points higher than the 2009 ratio on the same basis.

The underwriting expense ratio of 35.2% in the second quarter of 2010 was 1.3 points lower than in the same period of 2009.  The underwriting expense ratio of 35.9% for the first six months of 2010 was 0.1 point lower than the underwriting expense ratio in the same period of 2009.  The decreases in 2010 reflected the benefit of the increase in earned premiums resulting from the reinsurance changes described above.

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Written Premiums

The Financial, Professional & International Insurance segment’s gross and net written premiums by market were as follows:

	Gross Written Premiums
	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2010		2009		2010		2009
Bond & Financial Products	$	527	$	569	$	1,056	$	1,094
International	388		406		757		723
Total Financial, Professional & International Insurance	$	915	$	975	$	1,813	$	1,817

	Net Written Premiums
	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2010		2009		2010		2009
Bond & Financial Products	$	559	$	558	$	921	$	892
International	330		356		649		585
Total Financial, Professional & International Insurance	$	889	$	914	$	1,570	$	1,477

The Financial, Professional & International Insurance segment’s gross written premiums of $915 million in the second quarter of 2010 decreased 6% from the same period of 2009, whereas net written premiums of $889 million decreased 3% from the second quarter of 2009.  Net written premiums for the Bond & Financial Products group exceeded gross written premiums for the second quarter of 2010 primarily due to a reduction in surety reinsurance costs associated with prior year reinsurance treaties.  The decline in net written premium volume in the second quarter of 2010 was driven by the International group and was primarily the result of underwriting actions taken and the competitive marketplace at Lloyd’s and in the United Kingdom and Ireland.  In the Bond & Financial Products group, net written premiums in the second quarter of 2010 were virtually level with the prior year quarter, as a reduction in surety reinsurance costs discussed above was offset by premium declines in the Public Company Liability and Professional Liability business units.  Through the first six months of 2010, gross written premiums of $1.81 billion were slightly lower than in the same period of 2009, whereas net written premiums of $1.57 billion increased 6% over the same period of 2009.  The growth in net written premiums in the first six months of 2010 was largely due to lower reinsurance costs in the Bond & Financial Products group and the International group, and changes in the structure of the Company’s reinsurance that directionally aligned retentions in the Company’s International business with its U.S. practices.

In the Bond & Financial Products group (excluding the surety line of business, for which the following are not relevant measures), business retention rates in the second quarter and first six months of 2010 remained strong but declined slightly from the same 2009 periods primarily due to continued underwriting actions in the Professional Liability business unit.  Renewal premium changes in the second quarter and first six months of 2010 were slightly negative, primarily reflecting reduced insured exposures due to underwriting actions taken and lower levels of economic activity.  New business volume in the second quarter and first six months of 2010 declined from the same 2009 periods, which reflected increased business opportunities in 2009 due to market disruption and increasingly competitive market conditions in 2010.  For the International group (also excluding the surety line of business), business retention rates in the second quarter and first six months of 2010 were consistent with the same periods of 2009, while new business volume declined from the same periods of 2009.  Renewal price changes were slightly negative in the second quarter of 2010, but positive for the first six months of 2010.

Personal Insurance

The Personal Insurance segment writes virtually all types of property and casualty insurance covering personal risks. The primary coverages in Personal Insurance are automobile and homeowners insurance sold to individuals.  Personal Insurance writes almost all of its insurance coverage through agents, brokers and other intermediaries, which collectively comprise its Agency book of business.

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Results of the Company’s Personal Insurance segment were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in millions)	2010			2009			2010			2009
Revenues
Earned premiums	$	1,822		$	1,773		$	3,600		$	3,516
Net investment income	115			100			229			183
Other revenues	18			21			38			42
Total revenues	$	1,955		$	1,894		$	3,867		$	3,741
Total claims and expenses	$	1,952		$	1,788		$	3,799		$	3,437
Operating income	$	19		$	88		$	78		$	242
Loss and loss adjustment expense ratio	76.0		%	70.5		%	74.3		%	67.6		%
Underwriting expense ratio	29.9			29.1			30.0			28.8
GAAP combined ratio	105.9		%	99.6		%	104.3		%	96.4		%
Incremental impact of direct to consumer initiative on GAAP combined ratio	1.9		%	1.9		%	1.8		%	1.7		%

Overview

Operating income of $19 million in the second quarter of 2010 was $69 million, or 78%, lower than operating income in the same period of 2009.  Through the first six months of 2010, operating income of $78 million was $164 million, or 68%, lower than in the same 2009 period.  The decline in operating income in the second quarter of 2010 primarily reflected increases in catastrophe losses and declines in net favorable prior year reserve development, partially offset by an increase in net investment income.  The decline in operating income for the first six months of 2010 reflected these same factors, which were partially offset by a reduction in non-catastrophe weather-related losses compared with the same 2009 period.  In addition, operating income in the second quarter and first six months of 2009 included $14 million and $48 million reductions, respectively, in the estimate of property windpool assessments related to Hurricane Ike that had been recorded in general and administrative expenses in 2008.  Catastrophe losses in the second quarter and first six months of 2010 totaled $257 million and $507 million, respectively, compared with $139 million and $210 million in the respective periods of 2009.  Net favorable prior year reserve development in the second quarter and first six months of 2010 totaled $9 million and $27 million, respectively, compared with $34 million and $98 million in the respective periods of 2009.

Earned Premiums

Earned premiums of $1.82 billion in the second quarter of 2010 increased $49 million, or 3%, over earned premiums in the same period of 2009.  In the first six months of 2010, earned premiums of $3.60 billion were $84 million, or 2%, higher than in the same 2009 period. The increases reflected continued strong business retention rates, continued renewal premium increases and growth in new business volume during the preceding twelve months.

Net Investment Income

Net investment income in the second quarter and first six months of 2010 increased by $15 million and $46 million over the respective periods of 2009. Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion herein for a description of the factors contributing to the increase in the Company’s consolidated net investment income in the second quarter and first six months of 2010 compared with the same periods of 2009.

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Claims and Expenses

Claims and claim adjustment expenses in the second quarter of 2010 totaled $1.38 billion, an increase of $135 million, or 11%, over the same period of 2009.  Through the first six months of 2010, claims and claim adjustment expenses totaled $2.67 billion, an increase of $294 million, or 12%, over the same period of 2009.  The totals in both periods of 2010 reflected an increase in catastrophe losses, a reduction in net favorable prior year reserve development and increased business volume.  The year-to-date total in 2010 also reflected a decline in non-catastrophe weather-related losses.  Catastrophe losses in the second quarter and first six months of 2010 totaled $257 million and $507 million, respectively, compared with $139 million and $210 million in the respective periods of 2009.  Catastrophe losses in both 2010 and 2009 resulted from several wind and hail storms.

Net favorable prior year reserve development in the second quarter and first six months of 2010 totaled $9 million and $27 million, respectively, compared with $34 million and $98 million in the respective periods of 2009.  Net favorable prior year reserve development in both periods of 2010 was concentrated in the Homeowners and Other product line. The second quarter 2009 net favorable prior year reserve development was concentrated in the Homeowners and Other product line and primarily reflected favorable loss experience related to Hurricane Ike.  The net favorable prior year reserve development in the first six months of 2009 primarily reflected favorable loss experience related to Hurricanes Ike and Katrina.

The amortization of deferred acquisition costs totaled $358 million and $709 million in the second quarter and first six months of 2010, respectively, compared with $352 million and $701 million in the respective periods of 2009, consistent with earned premium levels in all periods.

General and administrative expenses in the second quarter of 2010 totaled $210 million, $23 million higher than in the same period of 2009.  In the first six months of 2010, general and administrative expenses of $417 million were $60 million higher than in the same period of 2009.  The 2009 second quarter and year-to-date totals reflected $14 million and $48 million reductions, respectively, in the estimate of property windpool assessments related to Hurricane Ike.  Adjusting for the impact of windpool assessments in 2009, general and administrative expenses in the second quarter and first six months of 2010 increased 4% and 3%, respectively, over the same periods of 2009, primarily reflecting growth in business volume and continued investments to support business growth and product development, including the Company’s direct to consumer initiative.

GAAP Combined Ratio

The GAAP combined ratio of 105.9% in the second quarter of 2010 was 6.3 points higher than the GAAP combined ratio of 99.6% in the same 2009 period.  The loss and loss adjustment expense ratio of 76.0% in the second quarter of 2010 was 5.5 points higher than the comparable 2009 ratio of 70.5%.  Catastrophe losses accounted for 14.0 points of the 2010 second quarter loss and loss adjustment expense ratio, whereas the 2009 second quarter loss and loss adjustment expense ratio included a 7.9 point impact of the cost of catastrophes.  The loss and loss adjustment expense ratio for the second quarter of 2010 and 2009 included 0.5 point and 1.9 point benefits, respectively, from net favorable prior year reserve development.

The GAAP combined ratio of 104.3% in the first six months of 2010 was 7.9 points higher than the GAAP combined ratio of 96.4% in the same 2009 period.  In the first six months of 2010, the loss and loss adjustment expense ratio of 74.3% was 6.7 points higher than the comparable 2009 ratio of 67.6%.  Catastrophe losses accounted for 14.1 points of the loss and loss adjustment expense ratio for the first six months of 2010, whereas the loss and loss adjustment expense ratio for the first six months of 2009 included a 6.0 point impact of catastrophe losses.  The loss and loss adjustment expense ratio for the first six months of 2010 and 2009 included 0.8 point and 2.8 point benefits, respectively, from net favorable prior year reserve development.

The loss and loss adjustment expense ratios excluding catastrophe losses and prior year reserve development for the second quarter and first six months of 2010 were 2.0 points and 3.4 points lower, respectively, than the 2009 ratios on the same basis, primarily reflecting the favorable impact of rate increases modestly outpacing loss cost trends and declines in non-catastrophe weather-related losses compared with the same periods of 2009.

The underwriting expense ratio of 29.9% for the second quarter of 2010 was 0.8 points higher than the second quarter 2009 underwriting expense ratio of 29.1%.  In the first six months of 2010, the underwriting expense ratio of 30.0% was 1.2 points higher than the underwriting expense ratio of 28.8% in the same 2009 period.  The 2009 second quarter and year-to-date underwriting expense ratios included 0.8 point and 1.4 point benefits, respectively, from the reduction in the estimate of windpool assessments described above.

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Agency Written Premiums

Gross and net written premiums by product line were as follows for the Personal Insurance segment’s Agency business, which comprises business written through agents, brokers and other intermediaries, and represents almost all of the segment’s gross and net written premiums:

	Gross Written Premiums
	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2010		2009		2010		2009
Agency Automobile	$	951	$	919	$	1,868	$	1,843
Agency Homeowners and Other	1,089		1,018		1,938		1,810
Total Agency Personal Insurance	$	2,040	$	1,937	$	3,806	$	3,653

	Net Written Premiums
	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2010		2009		2010		2009
Agency Automobile	$	945	$	914	$	1,858	$	1,831
Agency Homeowners and Other	1,035		952		1,838		1,701
Total Agency Personal Insurance	$	1,980	$	1,866	$	3,696	$	3,532

Gross and net Agency written premiums in the second quarter of 2010 increased 5% and 6%, respectively, over the totals in the same period of 2009.  In the first six months of 2010, gross Agency written premiums increased 4%, and net Agency written premiums increased 5% over the respective totals in the same period of 2009.

In the Agency Automobile line of business, net written premiums in the second quarter and first six months of 2010 increased 3% and 1%, respectively, over the same periods of 2009. The increases in both periods of 2010 primarily reflected the impact on written premiums of the introduction of twelve-month policy terms in certain markets in 2010.  Excluding the impact of the change in policy terms, Agency Automobile net written premiums in the second quarter and first six months of 2010 were virtually level with the same periods of 2009.  Business retention rates remained strong and new business levels increased over the second quarter and first six months of 2009.  Renewal price changes were positive in both periods of 2010 but declined from the respective periods of 2009.

In the Agency Homeowners and Other line of business, net written premiums in the second quarter and first six months of 2010 grew 9% and 8%, respectively, over the same periods of 2009.  Growth in both periods of 2010 was driven by changes in the timing of certain reinsurance, as well as increases in renewal premium changes and new business levels.  Business retention rates remained strong and were consistent with the second quarter and first six months of 2009.

The Personal Insurance segment had approximately 7.6 million and 7.4 million policies in force at June 30, 2010 and 2009, respectively.

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Interest Expense and Other

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2010			2009			2010			2009
Operating loss	$	(68	)	$	(49	)	$	(149	)	$	(99	)

The $19 million increase in operating loss in Interest Expense and Other in the second quarter of 2010 over the same period of 2009 primarily reflected a benefit of $14 million from the favorable resolution of various prior year tax matters in the second quarter of 2009, as well as an increase in interest expense.  The $50 million increase in operating loss in the first six months of 2010 compared with the same 2009 period reflected a benefit of $28 million from the favorable resolution of various prior year tax matters in the first six months of 2009.  In addition, the operating loss in the first six months of 2010 included a $12 million increase in tax expense associated with recent federal health care legislation, and an increase in interest expense.  After-tax interest expense in the second quarter and first six months of 2010 totaled $63 million and $127 million, respectively, compared with $61 million and $121 million in the respective periods of 2009.

ASBESTOS CLAIMS AND LITIGATION

The Company believes that the property and casualty insurance industry has suffered from court decisions and other trends that have attempted to expand insurance coverage for asbestos claims far beyond the intent of insurers and policyholders. While the Company has experienced a decrease in new asbestos claims over the past several years, the Company continues to receive a significant number of asbestos claims from the Company’s policyholders (which includes others seeking coverage under a policy), including claims against the Company’s policyholders by individuals who do not appear to be impaired by asbestos exposure.  Factors underlying these claim filings include intensive advertising by lawyers seeking asbestos claimants and the focus by plaintiffs on previously peripheral defendants.  The focus on these defendants is primarily the result of the number of traditional asbestos defendants who have sought bankruptcy protection in previous years.  In addition to contributing to the overall number of claims, bankruptcy proceedings may increase the volatility of asbestos-related losses by initially delaying the reporting of claims and later by significantly accelerating and increasing loss payments by insurers, including the Company. The bankruptcy of many traditional defendants has also caused increased settlement demands against those policyholders who are not in bankruptcy but that remain in the tort system. Currently, in many jurisdictions, those who allege very serious injury and who can present credible medical evidence of their injuries are receiving priority trial settings in the courts, while those who have not shown any credible disease manifestation are having their hearing dates delayed or placed on an inactive docket. This trend of prioritizing claims involving credible evidence of injuries, along with the focus on previously peripheral defendants, contributes to the claims and claim adjustment expense payments experienced by the Company.  The Company’s asbestos-related claims and claim adjustment expense experience also has been impacted by the unavailability of other insurance sources potentially available to policyholders, whether through exhaustion of policy limits or through the insolvency of other participating insurers.

The Company continues to be involved in coverage litigation concerning a number of policyholders, some of whom have filed for bankruptcy, who in some instances have asserted that all or a portion of their asbestos-related claims are not subject to aggregate limits on coverage. In these instances, policyholders also may assert that each individual bodily injury claim should be treated as a separate occurrence under the policy. It is difficult to predict whether these policyholders will be successful on both issues. To the extent both issues are resolved in a policyholder’s favor and other Company defenses are not successful, the Company’s coverage obligations under the policies at issue would be materially increased and bounded only by the applicable per-occurrence limits and the number of asbestos bodily injury claims against the policyholders.   Accordingly, although the Company has seen a moderation in the overall risk associated with these lawsuits, it remains difficult to predict the ultimate cost of these claims.

Many coverage disputes with policyholders are only resolved through settlement agreements. Because many policyholders make exaggerated demands, it is difficult to predict the outcome of settlement negotiations. Settlements involving bankrupt policyholders may include extensive releases which are favorable to the Company but which could result in settlements for larger amounts than originally anticipated. There also may be instances where a court may not approve a proposed settlement, which may result in additional litigation and potentially less beneficial outcomes for the Company. As in the past, the Company will continue to pursue settlement opportunities.

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In addition to claims against policyholders, proceedings have been launched directly against insurers, including the Company, by individuals challenging insurers’ conduct with respect to the handling of past asbestos claims and by individuals seeking damages arising from alleged asbestos-related bodily injuries.  The Company anticipates the filing of other direct actions against insurers, including the Company, in the future. It is difficult to predict the outcome of these proceedings, including whether the plaintiffs will be able to sustain these actions against insurers based on novel legal theories of liability. The Company believes it has meritorious defenses to these claims and has received favorable rulings in certain jurisdictions.

Travelers Property Casualty Corp. (TPC), a wholly-owned subsidiary of the Company, had entered into settlement agreements, which are subject to a number of contingencies, in connection with a number of these direct action claims.  These settlement agreements had been approved by the court in connection with proceedings initiated by TPC in the Johns Manville bankruptcy court.  On March 29, 2006, the U.S. District Court for the Southern District of New York substantially affirmed the bankruptcy court’s orders, while vacating that portion of the bankruptcy court’s orders which required all future direct actions against TPC to first be approved by the bankruptcy court before proceeding in state or federal court. Various parties appealed the district court’s ruling to the U.S. Court of Appeals for the Second Circuit.  On February 15, 2008, the Second Circuit issued an opinion vacating on jurisdictional grounds the district court’s approval of the bankruptcy court’s order that barred the filing of certain direct action claims against TPC in the future. TPC and certain other parties filed Petitions for Writ of Certiorari in the United States Supreme Court seeking review of the Second Circuit’s decision. Those petitions were granted and on June 18, 2009, the Supreme Court ruled in favor of the Company, reversing the Second Circuit’s decision. However, since the Second Circuit had not ruled on several additional issues principally related to procedural matters and the adequacy of notice provided to certain parties, the Supreme Court remanded the case to the Second Circuit for further proceedings on those specific issues.  On March 22, 2010, the Second Circuit issued an opinion in which it found that the notice of the 1986 Orders provided to the remaining objector was insufficient to bar contribution claims by that objector against TPC. On April 5, 2010, TPC filed a Petition for Rehearing and Rehearing En Banc with the Second Circuit, requesting further review of its March 22, 2010 opinion, which was denied on May 25, 2010.  TPC presently intends to file a Petition for Writ of Certiorari in the United States Supreme Court seeking review of the Second Circuit’s March 22, 2010 opinion. (For a description of these matters, see note 12 to the consolidated financial statements).

Because each policyholder presents different liability and coverage issues, the Company generally reviews the exposure presented by each policyholder at least annually.  Among the factors which the Company may consider in the course of this review are: available insurance coverage, including the role of any umbrella or excess insurance the Company has issued to the policyholder; limits and deductibles; an analysis of the policyholder’s potential liability; the jurisdictions involved; past and anticipated future claim activity and loss development on pending claims; past settlement values of similar claims; allocated claim adjustment expense; potential role of other insurance; the role, if any, of non-asbestos claims or potential non-asbestos claims in any resolution process; and applicable coverage defenses or determinations, if any, including the determination as to whether or not an asbestos claim is a product/completed operation claim subject to an aggregate limit and the available coverage, if any, for that claim.

The Company’s quarterly asbestos reserve review includes an analysis of exposure and claim payment patterns by policyholder category, as well as recent settlements, policyholder bankruptcies, judicial rulings and legislative actions. Developing payment patterns among policyholders in the “home office and field office” and “assumed reinsurance and other” categories are also analyzed.  In addition, the Company reviews its historical gross and net loss and expense paid experience, year-by-year, to assess any emerging trends, fluctuations, or characteristics suggested by the aggregate paid activity.  For certain policyholders an estimate of the gross ultimate exposure for indemnity and related claim adjustment expense is determined, and for those policyholders the Company calculates, by each policy year, a ceded reinsurance projection based on any applicable facultative and treaty reinsurance, past ceded experience and reinsurance collections.  Conventional actuarial methods are not utilized to establish asbestos reserves nor have the Company’s evaluations resulted in any way of determining a meaningful average asbestos defense or indemnity payment.

Net asbestos losses and expenses paid in the first six months of 2010 were $165 million, compared with $123 million in the same period of 2009.  The increase in paid losses in 2010 reflected the final payment of a previously reserved settlement.  Approximately 36% and 20% of total net paid losses in the first six months of 2010 and 2009, respectively, related to policyholders with whom the Company had entered into settlement agreements limiting the Company’s liability.  Net asbestos reserves totaled $2.59 billion at June 30, 2010, compared with $2.79 billion at June 30, 2009.

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The following table displays activity for asbestos losses and loss expenses and reserves:

(at and for the six months ended June 30, in millions)	2010			2009
Beginning reserves:
Direct	$	3,097		$	3,299
Ceded	(339		)	(385		)
Net	2,758			2,914
Incurred losses and loss expenses:
Direct	—			—
Ceded	—			—
Net	—			—
Losses paid:
Direct	230			163
Ceded	(65		)	(40		)
Net	165			123
Ending reserves:
Direct	2,867			3,136
Ceded	(274		)	(345		)
Net	$	2,593		$	2,791

See “—Uncertainty Regarding Adequacy of Asbestos and Environmental Reserves.”

ENVIRONMENTAL CLAIMS AND LITIGATION

The Company continues to receive claims from policyholders who allege that they are liable for injury or damage arising out of their alleged disposition of toxic substances. Mostly, these claims are due to various legislative as well as regulatory efforts aimed at environmental remediation. For instance, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), enacted in 1980 and later modified, enables private parties as well as federal and state governments to take action with respect to releases and threatened releases of hazardous substances. This federal statute permits the recovery of response costs from some liable parties and may require liable parties to undertake their own remedial action. Liability under CERCLA may be joint and several with other responsible parties.

The Company has been, and continues to be, involved in litigation involving insurance coverage issues pertaining to environmental claims. The Company believes that some court decisions have interpreted the insurance coverage to be broader than the original intent of the insurers and policyholders. These decisions often pertain to insurance policies that were issued by the Company prior to the mid-1980s. These decisions continue to be inconsistent and vary from jurisdiction to jurisdiction. Environmental claims when submitted rarely indicate the monetary amount being sought by the claimant from the policyholder, and the Company does not keep track of the monetary amount being sought in those few claims which indicate a monetary amount.

The resolution of environmental exposures by the Company generally occurs by settlement on a policyholder-by-policyholder basis as opposed to a claim-by-claim basis.  Generally, the Company strives to extinguish any obligations it may have under any policy issued to the policyholder for past, present and future environmental liabilities and extinguish any pending coverage litigation dispute with the policyholder.  This form of settlement is commonly referred to as a “buy-back” of policies for future environmental liability. In addition, many of the agreements have also extinguished any insurance obligation which the Company may have for other claims, including but not limited to asbestos and other cumulative injury claims.  The Company and its policyholders may also agree to settlements which extinguish any liability arising from known specified sites or claims.  These agreements also include appropriate indemnities and hold harmless provisions to protect the Company.  The Company’s general purpose in executing these agreements is to reduce the Company’s potential environmental exposure and eliminate the risks presented by coverage litigation with the policyholder and related costs.

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In establishing environmental reserves, the Company evaluates the exposure presented by each policyholder and the anticipated cost of resolution, if any. In the course of this analysis, the Company generally considers the probable liability, available coverage, relevant judicial interpretations and historical value of similar exposures. In addition, the Company considers the many variables presented, such as the nature of the alleged activities of the policyholder at each site; the allegations of environmental harm at each site; the number of sites; the total number of potentially responsible parties at each site; the nature of environmental harm and the corresponding remedy at each site; the nature of government enforcement activities at each site; the ownership and general use of each site; the overall nature of the insurance relationship between the Company and the policyholder, including the role of any umbrella or excess insurance the Company has issued to the policyholder; the involvement of other insurers; the potential for other available coverage, including the number of years of coverage; the role, if any, of non-environmental claims or potential non-environmental claims in any resolution process; and the applicable law in each jurisdiction. Conventional actuarial techniques are not used to estimate these reserves.

In its review of environmental reserves, the Company considers: past settlement payments; changing judicial and legislative trends; its reserves for the costs of litigating environmental coverage matters; the potential for policyholders with smaller exposures to be named in new clean-up actions for both on- and off-site waste disposal activities; the potential for adverse development; the potential for additional new claims beyond previous expectations; and the potential higher costs for new settlements.

The duration of the Company’s investigation and review of these claims and the extent of time necessary to determine an appropriate estimate, if any, of the value of the claim to the Company vary significantly and are dependent upon a number of factors. These factors include, but are not limited to, the cooperation of the policyholder in providing claim information, the pace of underlying litigation or claim processes, the pace of coverage litigation between the policyholder and the Company and the willingness of the policyholder and the Company to negotiate, if appropriate, a resolution of any dispute pertaining to these claims. Because these factors vary from claim-to-claim and policyholder-by-policyholder, the Company cannot provide a meaningful average of the duration of an environmental claim. However, based upon the Company’s experience in resolving these claims, the duration may vary from months to several years.

The Company continues to receive notices from policyholders tendering claims for the first time. These policyholders generally present smaller exposures, have fewer sites and are lower tier defendants.  Further, in many instances clean-up costs have been reduced because regulatory agencies are willing to accept risk-based site analyses and more efficient clean-up technologies. However, the Company has experienced modest upward development in the expected defense and settlement costs for certain of its pending policyholders.  As a result, the Company increased its net environmental reserves by $35 million in the second quarter of 2010. The Company increased its net environmental reserves by $70 million in the second quarter of 2009, due to a slight increase in the number of policyholders tendering claims for the first time and upward development in the expected defense and settlement costs for certain of its pending policyholders.

Net paid losses in the first six months of 2010 and 2009 were $35 million and $56 million, respectively. At June 30, 2010, approximately 93% of the net environmental reserve (approximately $364 million) was carried in a bulk reserve and included unresolved environmental claims, incurred but not reported environmental claims and the anticipated cost of coverage litigation disputes relating to these claims. The bulk reserve the Company carries is established and adjusted based upon the aggregate volume of in-process environmental claims and the Company’s experience in resolving those claims. The balance, approximately 7% of the net environmental reserve (approximately $29 million), consists of case reserves.

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The following table displays activity for environmental losses and loss expenses and reserves:

(at and for the six months ended June 30, in millions)	2010			2009
Beginning reserves:
Direct	$	389		$	400
Ceded	4			14
Net	393			414
Incurred losses and loss expenses:
Direct	45			85
Ceded	(10		)	(15		)
Net	35			70
Losses paid:
Direct	35			60
Ceded	—			(4		)
Net	35			56
Ending reserves:
Direct	399			425
Ceded	(6		)	3
Net	$	393		$	428

UNCERTAINTY REGARDING ADEQUACY OF ASBESTOS AND ENVIRONMENTAL RESERVES

As a result of the processes and procedures described above, management believes that the reserves carried for asbestos and environmental claims at June 30, 2010 are appropriately established based upon known facts, current law and management’s judgment. However, the uncertainties surrounding the final resolution of these claims continue, and it is difficult to determine the ultimate exposure for asbestos and environmental claims and related litigation. As a result, these reserves are subject to revision as new information becomes available and as claims develop. The continuing uncertainties include, without limitation, the risks and lack of predictability inherent in complex litigation, any impact from the bankruptcy protection sought by various asbestos producers and other asbestos defendants, a further increase or decrease in asbestos and environmental claims beyond that which is anticipated, the role of any umbrella or excess policies the Company has issued, the resolution or adjudication of disputes pertaining to the amount of available coverage for asbestos and environmental claims in a manner inconsistent with the Company’s previous assessment of these claims, the number and outcome of direct actions against the Company, future developments pertaining to the Company’s ability to recover reinsurance for asbestos and environmental claims and the unavailability of other insurance sources potentially available to policyholders, whether through exhaustion of policy limits or through the insolvency of other participating insurers. In addition, uncertainties arise from the insolvency or bankruptcy of policyholders and other defendants. It is also not possible to predict changes in the legal, regulatory and legislative environment and their impact on the future development of asbestos and environmental claims.  This development will be affected by future court and regulatory decisions and interpretations, as well as changes in applicable legislation.  It is also difficult to predict the ultimate outcome of complex coverage disputes until settlement negotiations near completion and significant legal questions are resolved or, failing settlement, until the dispute is adjudicated. This is particularly the case with policyholders in bankruptcy where negotiations often involve a large number of claimants and other parties and require court approval to be effective. As part of its continuing analysis of asbestos and environmental reserves, the Company continues to study the implications of these and other developments.  (Also see note 12 to the consolidated financial statements).

Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess of the current related reserves.  In addition, the Company’s estimate of claims and claim adjustment expenses may change.  These additional liabilities or increases in estimates, or a range of either, cannot now be reasonably estimated and could result in income statement charges that could be material to the Company’s operating results in future periods.

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INVESTMENT PORTFOLIO

The majority of funds available for investment are deployed in a widely diversified portfolio of high quality, liquid taxable U.S. government, tax-exempt U.S. municipal bonds, and taxable corporate and U.S. agency mortgage-backed bonds. The Company closely monitors the duration of its fixed maturity investments, and investment purchases and sales are executed with the objective of having adequate funds available to satisfy the Company’s insurance and debt obligations. The weighted average credit quality of the Company’s fixed maturity portfolio, both including and excluding U.S. Treasury securities, was “Aa2” at June 30, 2010 and December 31, 2009. Below investment grade securities represented 2.9% and 2.7% of the total fixed maturity investment portfolio at June 30, 2010 and December 31, 2009, respectively. The average effective duration of fixed maturities and short-term securities was 3.8 (4.0 excluding short-term securities) at June 30, 2010, compared with 3.9 (4.2 excluding short-term securities) at December 31, 2009.

The Company’s fixed maturity investment portfolio at June 30, 2010 included $41.22 billion of securities which are obligations of states, municipalities and political subdivisions (collectively referred to as the municipal bond portfolio). Included in the municipal bond portfolio are $6.81 billion of advance refunded or escrowed-to-maturity bonds. Advance refunded and escrowed-to-maturity bonds are bonds for which an irrevocable trust has been established to fund the remaining payments of principal and interest. Such escrow accounts are verified as to their sufficiency by an external auditor and are almost exclusively comprised of U.S. Treasury securities. The municipal bond portfolio is diversified across the United States, the District of Columbia and Puerto Rico, and includes general obligation and revenue bonds issued by states, cities, counties, school districts, and similar issuers. On April 2, 2009, municipal securities issued by local governments within the United States were assigned a negative outlook by Moody’s Investors Service. On February 22, 2010, Moody’s affirmed that negative outlook.

The Company bases its investment decision on the credit characteristics of the municipal security; however, its municipal bond portfolio includes a number of securities that were enhanced by third-party insurance for the payment of principal and interest in the event of an issuer default.  Of the insured municipal securities in the Company’s investment portfolio at June 30, 2010, approximately 99% were rated at A3 or above, and approximately 90% were rated at Aa3 or above, without the benefit of insurance.  The Company believes that a loss of the benefit of insurance would not result in a material adverse impact on the Company’s results of operations, financial position or liquidity, due to the underlying credit strength of the issuers of the securities, as well as the Company’s ability and intent to hold the securities.  The average credit rating of the underlying issuers of these securities was “Aa2” at June 30, 2010.  The average credit rating of the entire municipal bond portfolio was “Aa1” at June 30, 2010 with and without the third-party insurance.

At June 30, 2010 and December 31, 2009, the Company held commercial mortgage-backed securities (CMBS, including FHA project loans) of $663 million and $714 million, respectively. At June 30, 2010, approximately $216 million of these securities, or the loans backing such securities, contained guarantees by the U.S. government or a government-sponsored enterprise and $19 million were comprised of Canadian non-guaranteed securities. The average credit rating of the $447 million of non-guaranteed securities at June 30, 2010 was “Aaa,” and 90% of those securities were issued in 2004 and prior years. The CMBS portfolio is supported by loans that are diversified across economic sectors and geographical areas.  The Company does not believe this portfolio exposes it to a material adverse impact on its results of operations, financial position or liquidity, due to the portfolio’s relatively small size and the underlying credit strength of these securities.

The Company makes investments in residential collateralized mortgage obligations (CMOs) that typically have high credit quality, offer good liquidity and are expected to provide an advantage in yield compared to U.S. Treasury securities. The Company’s investment strategy is to purchase CMO tranches which offer the most favorable return given the risks involved. One significant risk evaluated is prepayment sensitivity. While prepayment risk (either shortening or lengthening of duration) and its effect on total return cannot be fully controlled, particularly when interest rates move dramatically, the Company’s investment strategy generally favors securities that control this risk within expected interest rate ranges. The Company does invest in other types of CMO tranches if a careful assessment indicates a favorable risk/return tradeoff. The Company does not purchase residual interests in CMOs.

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At June 30, 2010 and December 31, 2009, the Company held CMOs classified as available for sale with a fair value of $2.39 billion and $2.58 billion, respectively (in addition to the CMBS securities of $663 million and $714 million, respectively, described above). Approximately 38% and 37% of the Company’s CMO holdings are guaranteed by or fully collateralized by securities issued by GNMA, FNMA or FHLMC at June 30, 2010 and December 31, 2009, respectively. In addition, at June 30, 2010 and December 31, 2009, the Company held $2.43 billion and $2.63 billion, respectively, of GNMA, FNMA, FHLMC (excluding FHA project loans which are included with CMBS) mortgage-backed pass-through securities classified as available for sale. The average credit rating of all of the above securities was “Aa1” at June 30, 2010 and December 31, 2009.

The Company’s fixed maturity investment portfolio at June 30, 2010 and December 31, 2009 included asset-backed securities collateralized by sub-prime mortgages and collateralized mortgage obligations backed by alternative documentation mortgages with a collective fair value of $279 million and $270 million, respectively (comprising approximately 0.4% of the Company’s total fixed maturity investments at June 30, 2010 and December 31, 2009). The disruption in secondary investment markets for mortgage-backed securities in recent years provided the Company with the opportunity to selectively acquire additional asset-backed securities collateralized by sub-prime mortgages at discounted prices. The Company purchased $10 million and $74 million of such securities during the six months ended June 30, 2010 and the year ended December 31, 2009, respectively. The Company defines sub-prime mortgage-backed securities as investments in which the underlying loans primarily exhibit one or more of the following characteristics: low FICO scores, above-prime interest rates, high loan-to-value ratios or high debt-to-income ratios. Alternative documentation securitizations are those in which the underlying loans primarily meet the government-sponsored entity’s requirements for credit score but do not meet the government-sponsored entity’s guidelines for documentation, property type, debt and loan-to-value ratios. The average credit rating on these securities and obligations held by the Company was “Baa1” and “A3” at June 30, 2010 and December 31, 2009, respectively.

The Company’s real estate investments include warehouses and office buildings and other commercial land and properties that are directly owned. The carrying value of these investments totaled $846 million and $865 million at June 30, 2010 and December 31, 2009, respectively.

The Company’s other investments are primarily comprised of private equity limited partnerships, hedge funds, real estate partnerships, joint ventures, mortgage loans, venture capital (through direct ownership and limited partnerships) and trading securities. These asset classes have historically provided a higher return than fixed maturity investments but are subject to more volatility. Net investment income provided by these asset classes totaled $68 million and $115 million in the second quarter and first six months of 2010, respectively, compared with negative net investment income of $59 million and $248 million in the respective periods of 2009. The losses in 2009 reflected market conditions. The carrying value of the Company’s other investments at both June 30, 2010 and December 31, 2009 was $2.95 billion.

REINSURANCE RECOVERABLES

For a description of the Company’s reinsurance recoverables, refer to Reinsurance Recoverables in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

The following table summarizes the composition of the Company’s reinsurance recoverable assets:

(in millions)	June 30, 2010			December 31, 2009
Gross reinsurance recoverables on paid and unpaid claims and claim adjustment expenses	$	7,585		$	8,138
Allowance for uncollectible reinsurance	(464		)	(523		)
Net reinsurance recoverables	7,121			7,615
Structured settlements	3,425			3,456
Mandatory pools and associations	1,727			1,745
Total reinsurance recoverables	$	12,273		$	12,816

The $494 million decline in net reinsurance recoverables since December 31, 2009 primarily reflected cash collections and prior year reserve reductions.

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OUTLOOK

The following discussion provides outlook information for certain key drivers of the Company’s results of operations and capital position.

Premiums. The Company’s earned premiums are a function of net written premium volume. Net written premiums comprise both renewal business and new business, and are recognized as earned premium over the life of the underlying policies. When business renews, the amount of net written premiums associated with that business may increase or decrease (renewal premium change) as a result of increases or decreases in rate and/or insured exposures, which the Company considers as a measure of units of exposure. Net written premiums from both renewal and new business, and therefore earned premiums, are impacted by competitive market conditions as well as general economic conditions, which, particularly in the case of the Business Insurance segment, affect audit premium adjustments, policy endorsements and mid-term cancellations. Net written premiums are also impacted by the structure of reinsurance programs and related costs.

The Company expects retention levels (the amount of expiring premium that renews, before the impact of renewal premium changes) will remain strong, generally consistent with recent periods, in each of its business segments.  In the Business Insurance segment, the Company expects that renewal premium changes, including the components of rate changes and insured exposures, will not meaningfully change during the remainder of 2010 and into early 2011 compared with the first half of 2010.  In the Financial, Professional & International Insurance segment, the Company expects renewal premium changes in the remainder of 2010 and into early 2011 will be level with or slightly lower than in the first half of 2010.  With regard to the components comprising renewal premium changes in this segment, the Company expects that during the remainder of 2010 and into early 2011 both rate changes and changes in insured exposures will be flat or slightly negative.  In the Personal Insurance segment, the Company expects that Agency Automobile renewal premium changes, while positive, will decrease slightly in the remainder of 2010 and into early 2011 from levels in the first half of 2010.  For its Agency Homeowners’ and Other business, the Company expects renewal premium changes in the remainder of 2010 and into early 2011 will remain generally consistent with the first half of 2010.

The pricing environment for new business generally has less of an impact on underwriting profitability than renewal rate changes, given the volume of new business relative to renewal business. While property and casualty insurance market conditions are expected to remain competitive in the remainder of 2010 for new business, the Company believes it is well-positioned to capitalize on new business opportunities as agents, brokers and customers seek to place business with high-quality carriers. In addition, the Company announced in 2009 that it launched a new distribution channel that markets personal insurance products directly to consumers, which is expected to generate modest growth in premium volume for Personal Insurance in 2010 and into early 2011.

While economic conditions have recently improved and U.S. gross domestic product experienced growth in the latter part of 2009 and early 2010, that trend may not continue and the U.S. economy may enter into a “double dip” recession. Further, if growth continues, it may be at a slow rate for an extended period of time. In addition, other economic conditions, such as the commercial and residential real estate environment and employment rates, may continue to be weak. If weak economic conditions persist or deteriorate, low levels of economic activity could impact exposure changes at renewal and our ability to write business at acceptable rates. Additionally, such low levels of economic activity could adversely impact audit premium adjustments, policy endorsements and mid-term cancellations after policies are written. All of the foregoing, in turn, could adversely impact net written premiums in 2010 and into early 2011. Since earned premiums lag net written premiums, earned premiums could be adversely impacted in the remainder of 2010 and into early 2011.

Underwriting Gain/Loss. The anticipated impact of competitive market conditions and general economic conditions on the Company’s earned premiums, as discussed above, coupled with an expected modest increase in loss costs, will likely result in modestly reduced underwriting profitability during the remainder of 2010 and into 2011, as compared with 2009. In addition, the Company’s direct to consumer initiative in the Personal Insurance segment, discussed above, while intended to enhance the Company’s long-term ability to compete successfully in a consumer-driven marketplace, is expected to remain unprofitable for a number of years as this book of business grows and matures.

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In recent periods, the Company has experienced net favorable prior year reserve development, driven by better than expected loss experience in all of the Company’s segments for prior loss years.  If better than expected loss experience continues, the Company may recognize additional net favorable prior year reserve development in the remainder of 2010 and into 2011.  However, better than expected loss experience may not continue or may reverse, in which case the Company may recognize no favorable prior year reserve development or may recognize unfavorable prior year reserve development in future periods. The ongoing review of prior year claim and claim adjustment expense reserves, or other changes in current period circumstances, may result in the Company revising current year loss estimates upward or downward in future periods.

Catastrophe losses are inherently unpredictable from year to year, and the Company’s results of operations would be adversely impacted by significant catastrophe losses in the remainder of 2010 and into 2011.

Investments. The Company expects to continue to focus its investment strategy on maintaining a high-quality investment portfolio and a relatively low average effective duration. The Company’s invested assets at June 30, 2010 totaled $73.13 billion, of which 94% was invested in fixed maturity and short-term securities, with the remaining 6% invested in equity securities, real estate, private equity limited partnerships, hedge funds, and real estate partnerships.

Net investment income is a material contributor to the Company’s results of operations. While investment returns are difficult to predict and inherently uncertain, in the remainder of 2010 and into 2011 the Company expects investment returns for its fixed maturity investment portfolio to be generally consistent with recent periods, and returns for its short-term and non-fixed maturity investment portfolios to remain challenged. Short-term interest rates are expected to remain at or near historically low levels. The Company expects investment income in its non-fixed maturity investment portfolio during the remainder of 2010 and into 2011 to be consistent with the first six months of 2010. However, if general economic conditions and/or investment market conditions deteriorate in the remainder of 2010 and into 2011, the Company could also experience a reduction in net investment income and/or significant realized investment losses, including impairments.

Capital Position. The Company believes it has a strong capital position and expects to continue its common share repurchase program in the remainder of 2010 as part of its continuing efforts to maximize shareholder value. During the remainder of 2010, the Company expects to repurchase approximately $1.2 billion of its common shares under its share repurchase authorization. The actual amount of share repurchases may be materially different and will depend on a variety of factors, including the Company’s earnings, corporate and regulatory requirements, share price, catastrophe losses, strategic initiatives and other market conditions.

The Company had a net after-tax unrealized investment gain of $2.19 billion in its fixed maturity investment portfolio at June 30, 2010. While the Company does not attempt to predict future interest rate movements, a rising interest rate environment would reduce the market value of fixed maturity investments and, therefore, reduce shareholders’ equity, and a declining interest rate environment would have the opposite effects.

Many of the statements in this “Outlook” section are forward-looking statements, which are subject to risks and uncertainties that are often difficult to predict and beyond the Company’s control.  Actual results could differ materially from those expressed or implied by such forward-looking statements.  Further, such forward-looking statements speak only as of the date of this report and the Company undertakes no obligation to update them.  See “—Forward Looking Statements.” For a discussion of potential risks and uncertainties that could impact the Company’s results of operations or financial position, see “Item 1A—Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, and “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in this report.

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet the short- and long-term cash requirements of its business operations. The liquidity requirements of the Company’s business have been met primarily by funds generated from operations, asset maturities and income received on investments. Cash provided from these sources is used primarily for claims and claim adjustment expense payments and operating expenses. The timing and amount of catastrophe claims are inherently unpredictable. Such claims increase liquidity requirements. The timing and amount of reinsurance recoveries may be affected by reinsurer solvency and reinsurance coverage disputes. Additionally, the variability of asbestos-related claim payments, as well as the volatility of potential judgments and settlements arising out of litigation, may also result in increased liquidity requirements. It is the opinion of the Company’s management that the Company’s future liquidity needs will be adequately met from all of the above sources.

At June 30, 2010, total cash and short-term invested assets aggregating $2.40 billion were held at the holding company. The assets held at the holding company are sufficient to meet the holding company’s current liquidity requirements and are more than two times the Company’s target level. These liquidity requirements primarily include shareholder dividends and debt service. The Company has a shelf registration with the Securities and Exchange Commission which permits it to issue securities from time to time.

On June 10, 2010, the Company entered into a three-year, $1.0 billion revolving credit agreement with a syndicate of financial institutions, replacing its five-year, $1.0 billion credit agreement that expired on that date.  Pursuant to the credit agreement covenants, the Company must maintain a minimum consolidated net worth (generally defined as shareholders’ equity plus certain trust preferred and mandatorily convertible securities, reduced for goodwill and other intangible assets).  That threshold is adjusted downward by an amount equal to 70% of the aggregate amount of common stock repurchased by the Company after March 31, 2010, up to a maximum deduction of $1.75 billion.  The threshold was $15.12 billion at June 30, 2010, and will decline to a minimum of $14.35 billion during the term of the credit agreement, subject to the Company repurchasing an additional $1.10 billion of its common stock.  The Company must also maintain a ratio of total debt to the sum of total debt plus consolidated net worth of not greater than 0.40 to 1.00.  In addition, the credit agreement contains other customary restrictive covenants as well as certain customary events of default, including with respect to a change in control, which is defined to include the acquisition of 35% or more of the Company’s voting stock and certain changes in the composition of the Company’s board of directors.  At June 30, 2010, the Company was in compliance with these covenants.  Generally, the cost of borrowing under this agreement will range from LIBOR plus 100 basis points to LIBOR plus 175 basis points depending on the Company’s credit ratings. At June 30, 2010, that cost would have been LIBOR plus 125 basis points, had there been any amounts outstanding under the credit agreement.  This line of credit also backs up the Company’s $800 million commercial paper program, of which $100 million was outstanding at June 30, 2010. The Company is not reliant on its commercial paper program to meet its operating cash flow needs.

The Company currently utilizes uncollateralized letters of credit issued by major banks with an aggregate limit of approximately $408 million to provide much of the capital needed to support its obligations at Lloyd’s. If uncollateralized letters of credit are not available at a reasonable price or at all in the future, the Company can collateralize these letters of credit or may have to seek alternative means of supporting its obligations at Lloyd’s, which could include utilizing holding company funds on hand.

Operating Activities

Net cash flows provided by operating activities in the first six months of 2010 and 2009 totaled $1.05 billion and $1.79 billion, respectively. Cash flows in the first six months of 2010 reflected a higher level of catastrophe loss payments and lower collected premiums compared with the first six months of 2009.

Investing Activities

Net cash flows provided by investing activities in the first six months of 2010 totaled $2.20 billion, compared with net cash flows used in investing activities in the first six months of 2009 of $1.12 billion. Net cash provided by investing activities in the first six months of 2010, along with cash flows provided by operating activities, was principally deployed in common share repurchases. Fixed maturity securities accounted for the majority of investment purchases, sales and maturities in both years.

The Company’s management of the duration of the fixed maturity investment portfolio generally produces a duration that exceeds the estimated duration of the Company’s net insurance liabilities. The average effective duration of fixed maturities and short-term securities was 3.8 (4.0 excluding short-term securities) at June 30, 2010, compared with 3.9 (4.2 excluding short-term securities) at December 31, 2009.

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The primary goals of the Company’s asset liability management process are to satisfy the insurance liabilities, manage the interest rate risk embedded in those insurance liabilities and maintain sufficient liquidity to cover fluctuations in projected liability cash flows. Generally, the expected principal and interest payments produced by the Company’s fixed maturity portfolio adequately fund the estimated runoff of the Company’s insurance reserves. Although this is not an exact cash flow match in each period, the substantial degree by which the market value of the fixed maturity portfolio exceeds the expected present value of the net insurance liabilities, as well as the positive cash flow from newly sold policies and the large amount of high quality liquid bonds, provide assurance of the Company’s ability to fund claim payments without having to sell illiquid assets or access credit facilities.

Financing Activities

Net cash flows used in financing activities in the first six months of 2010 totaled $3.23 billion, compared with $745 million in the same 2009 period. The 2010 total primarily reflected common share repurchases, dividends to shareholders and the repayment of debt, partially offset by the proceeds from employee stock option exercises. On April 15, 2010, the Company’s $250 million, 8.125% senior notes matured and were fully paid from internally-generated funds. The 2009 total primarily reflected the repayment of debt and dividends to shareholders, partially offset by the proceeds from employee stock option exercises.

Dividends paid to shareholders totaled $343 million and $350 million in the first six months of 2010 and 2009, respectively. The declaration and payment of future dividends to holders of the Company’s common stock will be at the discretion of the Company’s board of directors and will depend upon many factors, including the Company’s financial position, earnings, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints and other factors as the board of directors deems relevant. Dividends would be paid by the Company only if declared by its board of directors out of funds legally available, subject to any other restrictions that may be applicable to the Company.

Since May 2006, the Company’s board of directors has approved four common share repurchase authorizations, for a cumulative authorization of up to $16 billion of shares of the Company’s common stock. Under these authorizations, the most recent of which totaled $6 billion and was approved by the board of directors in October 2009, repurchases may be made from time to time in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, in private transactions or otherwise.  The authorizations do not have a stated expiration date. The timing and actual number of shares to be repurchased in the future will depend on a variety of factors, including the Company’s financial position, earnings, catastrophe losses, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions), market conditions and other factors. During the three months and six months ended June 30, 2010, the Company repurchased 28.0 million shares and 55.0 million shares, respectively, under its share repurchase authorization for a total cost of approximately $1.40 billion and $2.80 billion, respectively. The average cost per share repurchased was $50.07 and $50.96, respectively. At June 30, 2010, the Company had $3.71 billion of capacity remaining under its share repurchase authorization.

The following table summarizes the components of the Company’s capital structure at June 30, 2010 and December 31, 2009.

(in millions)	June 30, 2010			December 31, 2009
Debt:
Short-term	$	123		$	373
Long-term	6,165			6,165
Net unamortized fair value adjustments and debt issuance costs	(12		)	(11		)
Total debt	6,276			6,527
Preferred shareholders’ equity	72			79
Common shareholders’ equity:
Common stock and retained earnings, less treasury stock	24,524			26,117
Accumulated other changes in equity from nonowner sources	1,690			1,219
Total shareholders’ equity	26,286			27,415
Total capitalization	$	32,562		$	33,942

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The $1.38 billion decrease in total capitalization from December 31, 2009 reflected the impact of common share repurchases under the Company’s share repurchase authorization totaling $2.80 billion, shareholder dividends of $345 million and the repayment of $250 million of debt, partially offset by net income of $1.32 billion in the first six months of 2010.

The following table provides a reconciliation of total capitalization excluding net unrealized gain on investments to total capitalization presented in the foregoing table.

(dollars in millions)	June 30, 2010			December 31, 2009
Total capitalization excluding net unrealized gain on investments	$	30,181		$	32,081
Net unrealized gain on investments, net of taxes	2,381			1,861
Total capitalization	$	32,562		$	33,942
Debt-to-total capital ratio	19.3		%	19.2		%
Debt-to-total capital ratio excluding net unrealized gain on investments	20.8		%	20.3		%

The debt-to-total capital ratio excluding net unrealized gain on investments is calculated by dividing (a) debt by (b) total capitalization excluding net unrealized investment gains and losses, net of taxes. Net unrealized investment gains and losses can be significantly impacted by both discretionary and other economic factors and are not necessarily indicative of operating trends. Accordingly, in the opinion of the Company’s management, the debt-to-capital ratio calculated on this basis provides another useful metric to understand the Company’s financial leverage position. The Company’s debt-to-total capital ratio of 20.8% at June 30, 2010 calculated on this basis approximated its targeted level.

Catastrophe Reinsurance Coverage

The Company utilizes several catastrophe reinsurance treaties with unaffiliated reinsurers and a catastrophe bond program to help manage its exposure to losses resulting from catastrophes.

General Catastrophe Reinsurance Treaty. The general catastrophe reinsurance treaty covers the accumulation of net property losses arising out of one occurrence. The treaty covers all of the Company’s exposures in the United States and Canada and their possessions and waters contiguous thereto, the Caribbean and Mexico. The treaty only provides coverage for terrorism events in limited circumstances and excludes entirely losses arising from nuclear, biological, chemical or radiological attacks.

The following table summarizes the Company’s coverage under its General Catastrophe Treaty, effective for the period July 1, 2010 through June 30, 2011:

Layer of Loss	Reinsurance Coverage In-Force
$0 - $1.0 billion	Loss 100% retained by the Company, except for certain losses covered by the Earthquake Excess-of-Loss Treaty as described below
$1.0 billion - $1.5 billion	20.0% ($100 million) of loss covered by treaty; 80.0% ($400 million) of loss retained by Company
$1.5 billion - $2.25 billion	56.7% ($425 million) of loss covered by treaty; 43.3% ($325 million) of loss retained by Company
Greater than $2.25 billion	100% of loss retained by Company, except for certain losses incurred in the Northeastern United States, which are covered by the Catastrophe Bond Program and Northeast Catastrophe Treaty as described below.

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Catastrophe Bond Program. On December 18, 2009, Longpoint Re II, Ltd. (Longpoint Re II), a newly formed independent Cayman Islands insurance company, successfully completed an offering to unrelated investors of $500 million aggregate principal amount of catastrophe bonds. In connection with the offering, the Company and Longpoint Re II entered into two reinsurance agreements (covering a three-year and four-year period, respectively), each providing up to $250 million of reinsurance to the Company from losses resulting from certain hurricane events in the northeastern United States.

Under the terms of these reinsurance agreements, the Company is obligated to pay annual reinsurance premiums to Longpoint Re II for the reinsurance coverage. The reinsurance agreements entered into by the Company with Longpoint Re II utilize a dual trigger that is based upon the Company’s covered losses incurred and an index that is created by applying predetermined percentages to insured industry losses in each state in the covered area as reported by Property Claim Services, a division of Insurance Services Offices, Inc. (owned by Verisk Analytics, Inc.). The reinsurance agreements entered into with Longpoint Re II as part of the catastrophe bond program meet the requirements to be accounted for as reinsurance in accordance with the guidance for reinsurance contracts. Amounts payable to the Company under the reinsurance agreements will be determined by the index-based losses, which are designed to approximate the Company’s actual losses from any covered event. The amount of actual losses and index losses from any covered event may differ. The principal amount of the catastrophe bonds will be reduced by any amounts paid to the Company under the reinsurance agreements.

The index-based losses attachment point and maximum limit are reset annually to maintain modeled probabilities of attachment and expected loss on the respective catastrophe bonds equal to the initial modeled probabilities of attachment and expected loss. With regard to the Longpoint Re II program, the two reinsurance agreements entered into on December 18, 2009 provide protection for covered events occurring before or on December 18, 2012 and December 18, 2013, respectively. The Company will be entitled to begin recovering amounts under the two reinsurance agreements if the index-based losses in the covered area for a single occurrence reach an initial attachment amount of $2.250 billion. The full $250 million coverage amount of each agreement is available on a proportional basis until index-based losses reach a maximum $2.850 billion limit. The Company has not incurred any losses that have resulted in a recovery under the Longpoint Re II agreements since their inception.

As with any reinsurance agreement, there is credit risk associated with collecting amounts due from reinsurers.  With regard to Longpoint Re II, the credit risk is mitigated by two reinsurance trust accounts, one for each agreement. Each reinsurance trust account has been funded by Longpoint Re II with money market funds that invest solely in direct government obligations backed by the U.S. government with maturities of no more than 13 months. The money market funds must have a principal stability rating of at least AAAm by Standard & Poor’s. Other permissible investments include repurchase and reverse repurchase agreements collateralized by direct government obligations backed by the U.S. government with terms of no more than 397 calendar days, and cash.

At the time the agreements were entered into, the Company determined that Longpoint Re II was a variable interest entity (VIE), but concluded that it did not have a variable interest in the entity. Accordingly, the Company does not consolidate Longpoint Re II in its consolidated financial statements. Refer to the “Catastrophe Reinsurance” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 for further discussion of the Company’s evaluation and conclusion with regard to Longpoint Re II’s status as a VIE.

Northeast Catastrophe Reinsurance Treaty. In addition to its General Catastrophe treaty and its multi-year catastrophe bond program, the Company also is party to a Northeast General Catastrophe treaty which provides up to $600 million of coverage, subject to a $2.25 billion retention, for losses arising from hurricanes, earthquakes and winter storm or freeze losses from Virginia to Maine for the period July 1, 2010 through June 30, 2011. Losses from a covered event (occurring over several days) anywhere in the United States, Canada, the Caribbean and Mexico may be used to satisfy the retention. Recoveries under the catastrophe bond programs (if any) would be first applied to reduce losses subject to this treaty.

Earthquake Excess-of-Loss Reinsurance Treaty. The Company’s earthquake treaty provides for up to $150 million of coverage, subject to a $125 million retention, for earthquake losses incurred under polices written by the National Property business unit in the Company’s Business Insurance segment for the period July 1, 2010 through June 30, 2011.

International Reinsurance Treaties. For business underwritten in Canada, the United Kingdom, Republic of Ireland and in the Company’s operations at Lloyd’s, separate reinsurance protections are purchased locally that have lower net retentions more commensurate with the size of the respective local balance sheet.  The Company conducts an ongoing review of its risk and catastrophe coverages and makes changes as it deems appropriate.

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CRITICAL ACCOUNTING ESTIMATES

For a description of the Company’s critical accounting estimates, refer to “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.  The Company considers its most significant accounting estimates to be those applied to claims and claim adjustment expense reserves and related reinsurance recoverables, investment valuation and impairments, and goodwill impairments.  Except as discussed below, there have been no material changes to the Company’s critical accounting estimates since December 31, 2009.

Claims and Claim Adjustment Expense Reserves

The table below displays the Company’s gross claims and claim adjustment expense reserves by product line. A portion of the Company’s gross claims and claim adjustment expense reserves (totaling $3.27 billion at June 30, 2010) are for asbestos and environmental claims and related litigation. While the ongoing review of asbestos and environmental claims and associated liabilities considers the inconsistencies of court decisions as to coverage, plaintiffs’ expanded theories of liability and the risks inherent in complex litigation and other uncertainties, in the opinion of the Company’s management, it is possible that the outcome of the continued uncertainties regarding these claims could result in liability in future periods that differs from current reserves by an amount that could be material to the Company’s future operating results. See the preceding discussion of “Asbestos Claims and Litigation” and “Environmental Claims and Litigation.”

Gross claims and claim adjustment expense reserves by product line were as follows:

	June 30, 2010						December 31, 2009
(in millions)	Case		IBNR		Total		Case		IBNR		Total
General liability	$	6,017	$	10,860	$	16,877	$	6,368	$	11,542	$	17,910
Property	979		704		1,683		1,211		771		1,982
Commercial multi-peril	1,887		1,813		3,700		1,878		1,762		3,640
Commercial automobile	2,236		1,126		3,362		2,262		1,294		3,556
Workers’ compensation	9,369		7,149		16,518		9,355		7,122		16,477
Fidelity and surety	601		1,147		1,748		661		1,091		1,752
Personal automobile	1,426		977		2,403		1,457		994		2,451
Homeowners and personal—other	675		946		1,621		633		717		1,350
International and other	2,311		1,978		4,289		2,003		1,933		3,936
Property-casualty	25,501		26,700		52,201		25,828		27,226		53,054
Accident and health	62		8		70		64		9		73
Claims and claim adjustment expense reserves	$	25,563	$	26,708	$	52,271	$	25,892	$	27,235	$	53,127

The $856 million decline in gross claims and claim adjustment expense reserves since December 31, 2009 reflected ongoing claims and claim adjustment expense activity, including losses incurred and payments, as well as favorable prior year reserve development and payments related to operations in runoff, partially offset by $910 million of catastrophe losses incurred during the first six months of 2010.

Asbestos and environmental reserves are included in the General liability, Commercial multi-peril and International and other lines in the summary table above.  Asbestos and environmental reserves are discussed separately; see “Asbestos Claims and Litigation”, “Environmental Claims and Litigation” and “Uncertainty Regarding Adequacy of Asbestos and Environmental Reserves.”

FUTURE APPLICATION OF ACCOUNTING STANDARDS

See note 1 to the consolidated financial statements for a discussion of recently issued accounting pronouncements.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

FORWARD-LOOKING STATEMENTS

This report contains, and management may make, certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements, other than statements of historical facts, may be forward-looking statements.  Specifically, earnings guidance, statements about the Company’s share repurchase plans (which repurchase plans depend on a variety of factors, including the Company’s financial position, earnings, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, catastrophe losses, other investment opportunities (including mergers and acquisitions), market conditions and other factors) and statements about the potential impact of recent or future disruption in the investment markets and other economic conditions on the Company’s investment portfolio and underwriting results, among others, are forward looking, and the Company may make forward-looking statements about, among other things, its results of operations (including, among others, premium volume, premium rates (either for new or renewal business), net and operating income, investment income and performance, return on equity, expected current returns and combined ratio) and financial condition; the sufficiency of the Company’s asbestos and other reserves (including, among others, asbestos claim payment patterns); the impact of emerging claims issues; the cost and availability of reinsurance coverage; catastrophe losses; the impact of investment, economic and underwriting market conditions; and strategic initiatives.  The Company cautions investors that such statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond the Company’s control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.

Some of the factors that could cause actual results to differ include, but are not limited to, the following: catastrophe losses could materially and adversely affect the Company’s results of operations, its financial position and/or liquidity, and could adversely impact the Company’s ratings, the Company’s ability to raise capital and the availability and cost of reinsurance; during or following a period of financial market disruption or prolonged economic downturn, the Company’s business could be materially and adversely affected; the Company’s investment portfolio may suffer reduced returns or material losses, including as a result of a challenging economic environment that impacts the credit of municipal or other issuers in the Company’s portfolio; if actual claims exceed the Company’s loss reserves, or if changes in the estimated level of loss reserves are necessary, the Company’s financial results could be materially and adversely affected; the Company’s business could be harmed because of its potential exposure to asbestos and environmental claims and related litigation; the Company is exposed to, and may face adverse developments involving, mass tort claims such as those relating to exposure to potentially harmful products or substances; the effects of emerging claim and coverage issues on the Company’s business are uncertain; the intense competition that the Company faces could harm its ability to maintain or increase its business volumes and profitability; the Company may not be able to collect all amounts due to it from reinsurers, and reinsurance coverage may not be available to the Company in the future at commercially reasonable rates or at all; the Company is exposed to credit risk in certain of its business operations; the Company’s businesses are heavily regulated and changes in regulation (including as a result of the adoption of financial services reform legislation) may reduce the Company’s profitability and limit its growth; a downgrade in the Company’s claims-paying and financial strength ratings could adversely impact the Company’s business volumes, adversely impact the Company’s ability to access the capital markets and increase the Company’s borrowing costs; the inability of the Company’s insurance subsidiaries to pay dividends to the Company’s holding company in sufficient amounts would harm the Company’s ability to meet its obligations and to pay future shareholder dividends; disruptions to the Company’s relationships with its independent agents and brokers could adversely affect the Company; the Company’s efforts to develop new products (including its direct to consumer initiative in Personal Insurance) or expand in targeted markets may not be successful, may create enhanced risks and may adversely impact results; the Company’s business success and profitability depend, in part, on effective information technology systems and on continuing to develop and implement improvements in technology; if the Company experiences difficulties with technology, data security and/or outsourcing relationships the Company’s ability to conduct its business could be negatively impacted; acquisitions and integration of acquired businesses may result in operating difficulties and other unintended consequences; the Company is subject to a number of risks associated with its business outside the United States; the Company could be adversely affected if its controls to ensure compliance with guidelines, policies and legal and regulatory standards are not effective; the Company’s businesses may be adversely affected if it is unable to hire and retain qualified employees; and loss of or significant restriction on the use of credit scoring in the pricing and underwriting of Personal Insurance products could reduce the Company’s future profitability.

The Company’s forward-looking statements speak only as of the date of this report or as of the date they are made, and the Company undertakes no obligation to update forward-looking statements.  For a more detailed discussion of these factors, see the information under the caption “Risk Factors” in the Company’s most recent annual report on Form 10-K filed with the Securities and Exchange Commission and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in the Company’s most recent annual report on Form 10-K.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in the Company’s market risk components since December 31, 2009.

Item 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.  Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2010.  Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2010, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

There were no changes in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

The information required with respect to this item can be found in Note 12 to the Company’s unaudited condensed consolidated financial statements contained in this quarterly report and is incorporated by reference into this Item 1.

Item 1A.  RISK FACTORS

For a discussion of the Company’s potential risks or uncertainties, please see “Risk Factors” in Part I, Item 1A of the Company’s 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission.  In addition, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Outlook” and “— Critical Accounting Estimates” herein and in the 2009 Form 10-K.  There have been no material changes to the risk factors disclosed in Part I, Item 1A of the Company’s 2009 Annual Report on Form 10-K.

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth information regarding repurchases by the Company of its common stock during the periods indicated.

ISSUER PURCHASES OF EQUITY SECURITIES

Period Beginning	Period Ending	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs
April 1, 2010	April 30, 2010	3,932,628	$	51.88	3,899,654	$	4,907,364,840
May 1, 2010	May 31, 2010	11,874,967	49.58		11,631,200	4,330,612,228
June 1, 2010	June 30, 2010	12,432,749	49.97		12,431,043	3,709,481,853
Total		28,240,344	$	50.07	27,961,897	$	3,709,481,853

72

The Company repurchased 278,447 shares during the three-month period ended June 30, 2010 that were not part of the publicly announced share repurchase authorization, representing shares repurchased to cover payroll withholding taxes in connection with the vesting of restricted stock awards and exercises of stock options, and shares used to cover the exercise price of certain stock options that were exercised.  Since May 2006, the Company’s board of directors has approved four common share repurchase authorizations, for a cumulative authorization of up to $16 billion of shares of the Company’s common stock.

Item 5.OTHER INFORMATION

All of the Company’s executive officers hold equity in the Company in excess of the required level under the Company’s executive stock ownership policy.  For a summary of this policy as currently in effect, see “Stock Ownership Guidelines” under “Executive Compensation — Compensation Discussion and Analysis” in the Company’s proxy statement filed with the SEC on March 17, 2010.  From time to time, some of the Company’s executives may determine that it is advisable to diversify their investments for personal financial planning reasons, or may seek liquidity for other reasons, and may sell shares of common stock of the Company in the open market, in private transactions or to the Company.  To effect such sales, some of the Company’s executives have entered into, and may in the future enter into, trading plans designed to comply with the Company’s Securities Trading Policy and the provisions of Rule 10b5-1 under the Securities Exchange Act of 1934.  The trading plans will not reduce any of the executives’ ownership of the Company’s shares below the applicable executive stock ownership guidelines.  The Company does not undertake any obligation to report Rule 10b5-1 plans that may be adopted by any employee or director of the Company in the future, or to report any modifications or termination of any publicly announced plan.

As of June 30, 2010, Jay S. Fishman, Chairman of the Board and Chief Executive Officer, and Jay S. Benet, Vice Chairman and Chief Financial Officer, were the only “named executive officers” (i.e. an executive officer named in the compensation disclosures in the Company’s proxy statement) that have entered into Rule 10b5-1 trading plans that remain in effect. The trading plans extend from approximately four to nine months from the date of this report. Under the Company’s stock ownership guidelines, Mr. Fishman has a target ownership level established as the lesser of 150,000 shares or the equivalent value of 500% of base salary, and Mr. Benet has a target ownership level established as the lesser of 30,000 shares or the equivalent value of 300% of base salary (as such amounts are calculated for purposes of the stock ownership guidelines). See “Executive Compensation—Compensation Discussion and Analysis—Stock Ownership Guidelines” in the Company’s proxy statement filed with the SEC on March 17, 2010.

Item 6.EXHIBITS

See Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, The Travelers Companies, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		THE TRAVELERS COMPANIES, INC.
		(Registrant)
Date: July 22, 2010	By	/S/ MATTHEW S. FURMAN
	Matthew S. Furman Senior Vice President (Authorized Signatory)
Date: July 22, 2010	By	/S/ DOUGLAS K. RUSSELL
	Douglas K. Russell Senior Vice President and Corporate Controller (Principal Accounting Officer)

73

EXHIBIT INDEX

Exhibit Number		Description of Exhibit
3.1		Amended and Restated Articles of Incorporation of The Travelers Companies, Inc. (the Company), effective as of May 1, 2007, were filed as Exhibit 3.1 to the Company’s quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2007, and are incorporated herein by reference.
3.2		Amended and Restated Bylaws of the Company, effective as of February 18, 2009, were filed as Exhibit 3.2 to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008, and are incorporated herein by reference.
10.1	†	Current Director Compensation Program, effective as of May 4, 2010.
10.2	†	Revolving Credit Agreement, dated June 10, 2010.
12.1	†	Statement regarding the computation of the ratio of earnings to fixed charges and the ratio of earnings to combined fixed charges and preferred stock dividends.
31.1	†	Certification of Jay S. Fishman, Chairman and Chief Executive Officer of the Company, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	†	Certification of Jay S. Benet, Vice Chairman and Chief Financial Officer of the Company, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	†	Certification of Jay S. Fishman, Chairman and Chief Executive Officer of the Company, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	†	Certification of Jay S. Benet, Vice Chairman and Chief Financial Officer of the Company, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
101.1	†	The following financial information from The Travelers Companies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 formatted in XBRL: (i) Consolidated Statement of Income for the three months and six months ended June 30, 2010 and 2009; (ii) Consolidated Balance Sheet at June 30, 2010 and December 31, 2009; (iii) Consolidated Statement of Changes in Shareholders’ Equity for the six months ended June 30, 2010 and 2009; (iv) Consolidated Statement of Cash Flows for the six months ended June 30, 2010 and 2009; and (v) Notes to Consolidated Financial Statements.

†Filed herewith.

Copies of any of the exhibits referred to above will be furnished to security holders who make written request therefor to The Travelers Companies, Inc., 385 Washington Street, Saint Paul, MN 55102, Attention: Corporate Secretary.

The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries.  Therefore, the Company is not filing any instruments evidencing long-term debt.  However, the Company will furnish copies of any such instrument to the Securities and Exchange Commission upon request.

74

EX-10.1

Exhibit 10.1

CURRENT DIRECTOR COMPENSATION PROGRAM

As of May 4, 2010

1.Annual Retainer:  $100,000 - Paid in quarterly installments in arrears at the end of each quarter in cash or, if the director so elects, in deferred stock units to be distributed at a later date designated by the director.

2.Annual Deferred Stock Award:  $150,000 — Awarded to incumbent directors, who are nominated for re-election at the next shareholders’ meeting in May, on the day the Compensation Committee grants equity awards to management in early February on the closing price per share of this Corporation’s common stock on the date the Compensation Committee approves the awards in the form of deferred stock units (with vesting of such deferred stock units to occur one day prior to the date of the annual shareholder meeting occurring in the year following the year of the date of grant) and which are distributed either in a lump sum six months after termination of service as a director or, if the director so elects, in annual installments beginning at least six months following termination of service as a director.

3.Committee Chair Fees:  Currently, the annual amount of committee chair fees, which are paid quarterly in arrears, are as follows:  Audit - $25,000, Compensation - $20,000, Nominating and Governance - $20,000, Investment and Capital Markets - $20,000, Risk - $20,000 and Advisory Committee on Public Policy - $5,000.

4.Lead Director:   Effective November 2, 2006, the Board established the position of Lead Director of the Board and agreed that the Lead Director will be paid $25,000 per year (payable in arrears in quarterly installments as of the last business day of each quarter).

EX-10.2

Exhibit 10.2

CONFORMED*

EXECUTION COPY

U.S. $1,000,000,000

THREE YEAR CREDIT AGREEMENT*

Dated as of June 10, 2010

Among

THE TRAVELERS COMPANIES, INC.

as Borrower

and

THE INITIAL LENDERS NAMED HEREIN

as Initial Lenders

and

BANK OF AMERICA, N.A.

as Administrative Agent

and

BANC OF AMERICA SECURITIES LLC

CITIGROUP GLOBAL MARKETS INC.

J.P. MORGAN SECURITIES INC.

WELLS FARGO SECURITIES, LLC,

as Joint Lead Arrangers

and

CITIBANK N.A.

JPMORGAN CHASE BANK, N.A.

WELLS FARGO BANK, NATIONAL ASSOCIATION

as Co-Syndication Agents

and

U.S. BANK NATIONAL ASSOCIATION

as Documentation Agent

*  Conformed to show signatures

TABLE OF CONTENTS

ARTICLE I
SECTION 1.01.	Certain Defined Terms	1
SECTION 1.02.	Computation of Time Periods	15
SECTION 1.03.	Accounting Terms	15
ARTICLE II
SECTION 2.01.	The Revolving Credit Advances and Letters of Credit	16
SECTION 2.02.	Making the Revolving Credit Advances	18
SECTION 2.03.	Issuance of and Drawings and Reimbursement Under Letters of Credit	19
SECTION 2.04.	Fees	23
SECTION 2.05.	Optional Termination or Reduction of the Commitments	24
SECTION 2.06.	Repayment of Revolving Credit Advances	24
SECTION 2.07.	Interest on Revolving Credit Advances	25
SECTION 2.08.	Interest Rate Determination	26
SECTION 2.09.	Optional Conversion of Revolving Credit Advances	27
SECTION 2.10.	Prepayments of Revolving Credit Advances	27
SECTION 2.11.	Increased Costs	27
SECTION 2.12.	Illegality	29
SECTION 2.13.	Payments and Computations	29
SECTION 2.14.	Taxes	30
SECTION 2.15.	Sharing of Payments, Etc.	32
SECTION 2.16.	Evidence of Debt	33
SECTION 2.17.	Use of Proceeds	33
SECTION 2.18.	Increase in the Aggregate Commitments	33
SECTION 2.19.	Extension of Termination Date	35
SECTION 2.20.	Replacement of Lenders	36
SECTION 2.21.	Cash Collateral	37
SECTION 2.22.	Defaulting Lenders	38
ARTICLE III
SECTION 3.01.	Conditions Precedent to Effectiveness of Sections 2.01	40
SECTION 3.02.	Conditions Precedent to Each Revolving Credit Borrowing, Issuance, Commitment Increase and Extension of the Termination Date	41
SECTION 3.03.	Determinations Under Section 3.01	41
ARTICLE IV
SECTION 4.01.	Representations and Warranties of the Borrower	42
ARTICLE V
SECTION 5.01.	Affirmative Covenants	43
SECTION 5.02.	Negative Covenants	46
SECTION 5.03.	Financial Covenants	48

i

ARTICLE VI
SECTION 6.01.	Events of Default	48
SECTION 6.02.	Actions in Respect of the Letters of Credit upon Default	50
SECTION 6.03.	Application of Funds	51
ARTICLE VII
SECTION 7.01.	Authorization and Action	52
SECTION 7.02.	Agent’s Reliance, Etc.	52
SECTION 7.03.	Delegation of Duties	53
SECTION 7.04.	Rights as a Lender	53
SECTION 7.05.	Lender Credit Decision	53
SECTION 7.06.	Indemnification	53
SECTION 7.07.	Successor Agent	54
SECTION 7.08.	Other Agents	55
ARTICLE VIII
SECTION 8.01.	Amendments, Etc.	55
SECTION 8.02.	Notices, Etc.	56
SECTION 8.03.	No Waiver; Remedies	58
SECTION 8.04.	Costs; Expenses; and Indemnification	58
SECTION 8.05.	Right of Set-off	59
SECTION 8.06.	Binding Effect	60
SECTION 8.07.	Assignments and Participations	60
SECTION 8.08.	Confidentiality	63
SECTION 8.09.	Governing Law	63
SECTION 8.10.	Execution in Counterparts	63
SECTION 8.11.	Jurisdiction, Etc.	63
SECTION 8.12.	No Liability of the Issuing Banks	64
SECTION 8.13.	No Advisory or Fiduciary Responsibility	64
SECTION 8.14.	Survival of Representations and Warranties	64
SECTION 8.15.	Patriot Act	64
SECTION 8.16.	Waiver of Jury Trial	65

ii

Schedules

Schedule 1.01 – Lender Commitments

Schedule 4.01(e) – Accounting Matters

Schedule 5.02(a) – Existing Liens

Schedule 8.02 – Notice Information

Exhibits

Exhibit A	-	Form of Revolving Credit Note
Exhibit B	-	Form of Notice of Revolving Credit Borrowing
Exhibit C	-	Form of Assignment and Assumption
Exhibit D	-	Form of Opinion of Counsel for the Borrower

iii

THREE YEAR CREDIT AGREEMENT

Dated as of June 10, 2010

THE TRAVELERS COMPANIES, INC., a Minnesota corporation (the “Borrower”), the banks, financial institutions and other institutional lenders party hereto (the “Initial Lenders”), CITIGROUP USA, INC., JPMORGAN CHASE BANK, N.A. and WELLS FARGO BANK, NATIONAL ASSOCIATION, as co-syndication agents, BANC OF AMERICA SECURITIES LLC, CITIGROUP GLOBAL MARKETS INC., J.P. MORGAN SECURITIES INC. and WELLS FARGO SECURITIES, LLC, as joint lead arrangers (the “Joint Lead Arrangers”), and BANK OF AMERICA, N.A. (“Bank of America”), as agent (the “Agent”) and issuer of letters of credit (“Initial Issuing Bank”) for the Lenders (as hereinafter defined), agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01.  Certain Defined Terms.  As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“Administrative Questionnaire” means an Administrative Questionnaire in the form from time to time in use by the Agent.

“Agreement” means this Three Year Credit Agreement dated as of June 10, 2010 among the Borrower, the Initial Lenders, the Initial Issuing Banks, the Agent and each Lender from time to time party hereto, together with all amendments, modifications, restatements, or supplements thereof.

“Agent” has the meaning specified in the preamble hereto.

“Affiliate” means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person.

“Agent’s Account” means the account of the Agent set forth on Schedule 8.02 maintained by the Agent at Bank of America, or such other account as the Agent may from time to time notify the Borrower and the Lenders.

“Applicable Lending Office” means, with respect to each Lender, such Lender’s Domestic Lending Office in the case of a Base Rate Advance and such Lender’s Eurodollar Lending Office in the case of a Eurodollar Rate Advance.

“Applicable Margin” means for Base Rate Advances and Eurodollar Rate Advances, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:

Public Debt Rating S&P/Moody’s	Applicable Margin for Eurodollar Rate Advances		Applicable Margin for Base Rate Advances
Level 1 At least AA- or Aa3	0.90	%	0.00	%
Level 2 Lower than Level 1 but at least A+ or A1	1.00	%	0.00	%
Level 3 Lower than Level 2 but at least A or A2	1.10	%	0.10	%
Level 4 Lower than Level 3 but at least A- or A3	1.30	%	0.30	%
Level 5 Lower than Level 4	1.50	%	0.50	%

“Applicable Percentage” means, as of any date a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:

Public Debt Rating S&P/Moody’s	Applicable Percentage
Level 1 At least AA- or Aa3	0.10	%
Level 2 Lower than Level 1 but at least A+ or A1	0.125	%
Level 3 Lower than Level 2 but at least A or A2	0.15	%
Level 4 Lower than Level 3 but at least A- or A3	0.20	%
Level 5 Lower than Level 4	0.25	%

“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit C hereto.

“Assuming Lender” has the meaning specified in Section 2.18(d).

“Assumption Agreement” has the meaning specified in Section 2.18(d)(ii).

“Auto-Extension Letter of Credit” has the meaning specified in Section 2.03(a)(iv).

“Available Amount” of any Letter of Credit means, at any time, unless otherwise specified herein, the stated amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuing Bank Document related thereto, provides for one or more automatic increases in the stated

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amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.

“Bank of America” means Bank of America, N.A. and its permitted successors and assigns.

“Base Rate” means for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” and (c) the Eurodollar Rate plus 1.00%.  The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.  Any change in such prime rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.

“Base Rate Advance” means a Revolving Credit Advance that bears interest as provided in Section 2.07(a)(i).

“Board” means the Board of Governors of the Federal Reserve System of the United States of America.

“Business Day” means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market.

“Cash Collateral Account” has the meaning specified in Section 2.21(b).

“Cash Collateralize” means to pledge and deposit with or deliver to the Agent, for the benefit of the Agent or an Issuing Bank (as applicable) and the Lenders, as collateral for L/C Obligations (other than L/C Obligations owing in connection with a Secured Letter of Credit) or obligations of Lenders to fund participations in respect thereof (as the context may require), cash or deposit account balances or, if each of the Borrower and the Issuing Bank benefitting from such collateral shall agree, other credit support, in each case pursuant to documentation in form and substance reasonably satisfactory to (a) the Agent, (b) the applicable Issuing Bank, and (c) the Borrower.  “Cash Collateral” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.

“Commitment” means a Revolving Credit Commitment or a Letter of Credit Commitment.

“Commitment Date” has the meaning specified in Section 2.18(b).

“Commitment Increase” has the meaning specified in Section 2.18(a).

“Commitment Letter” the Commitment Letter dated as of May 10, 2010 among the Borrower, Bank of America, N.A., Banc of America Securities LLC, Citibank, N.A., Citigroup Global Markets Inc., JPMorgan Chase Bank, N.A., J.P. Morgan Securities Inc., Wells Fargo Bank, National Association and Wells Fargo Securities, LLC.

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“Confidential Information” means all non-public information that the Borrower furnishes to the Agent or any Lender, but does not include any such information that is or becomes generally available to the public or that is or becomes available to the Agent or such Lender from a source other than the Borrower, provided such source is reasonably believed by the Agent or such Lender, as applicable, not to be in violation of a confidentiality agreement with the Borrower.

“Consenting Lender” has the meaning specified in Section 2.19(b).

“Consolidated” refers to the consolidation of accounts in accordance with GAAP.

“Convert”, “Conversion” and “Converted” each refers to a conversion of Revolving Credit Advances of one Type into Revolving Credit Advances of the other Type pursuant to Section 2.08 or 2.09.

“Debt” of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of such Person’s business that (x) are not overdue by more than 120 days or (y) are being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments (excluding, for the avoidance of doubt, surety bonds, fidelity bonds and other similar insurance products), (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that are or should be, in accordance with GAAP, recorded as capital leases (the amount of Debt attributable thereto to be the capitalized amount thereof in accordance with GAAP), (f) all obligations, contingent or otherwise, of such Person in respect of acceptances, letters of credit or similar extensions of credit, (g) all obligations of such Person in respect of Hedge Agreements, (h) all Debt of others referred to in clauses (a) through (g) above or clause (i) below guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (1) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (3) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) for the purpose of enabling the debtor to make payment of such Debt or (4) otherwise to assure the holder of any such Debt against loss, and (i) all Debt of others referred to in clauses (a) through (h) above secured by any Lien on property (including, without limitation, accounts and contract rights) owned by such Person (the amount of Debt attributable thereto to be equal to the lesser of (i) the amount of such Debt and (ii) the fair market value of the property subject to such Lien), even though such Person has not assumed or become liable for the payment of such Debt.  For purposes of calculating the amount of Debt pursuant to clause (g) of the foregoing definition, such amount shall be equal to the amount that would be payable (giving effect to netting arrangements) by the relevant Person if the Hedge Agreement were terminated at such time.

“Default” means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both, in each case, as specified in Section 6.01.

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“Defaulting Lender” means, subject to Section 2.22(b), any Lender that, as reasonably determined by the Agent (which determination shall be made either at the Agent’s discretion or promptly at the request of the Borrower), (a) has failed to perform any of its funding obligations hereunder, including in respect of its Revolving Credit Advances or participations in respect of Letters of Credit (other than Secured Letters of Credit), within three Business Days of the date required to be funded by it hereunder, (b) has notified the Borrower or the Agent that it does not intend to comply with its funding obligations or has made a public statement to that effect with respect to its funding obligations hereunder or under other agreements in which it commits to extend credit, (c) has failed, within three Business Days after request by the Agent (which request shall be made either at the Agent’s discretion or promptly at the request of the Borrower), to confirm in a manner reasonably satisfactory to the Agent that it will comply with its funding obligations, or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, (ii) had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or a custodian appointed for it, or (iii) taken any action in furtherance of, or indicated its consent to, approval of or acquiescence in any such proceeding or appointment; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a governmental authority.

“Disclosed Litigation” has the meaning specified in Section 3.01(b).

“Domestic Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending Office” in such Lender’s Administrative Questionnaire or in the Assumption Agreement or the Assignment and Assumption pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.

“Effective Date” has the meaning specified in Section 3.01.

“Eligible Assignee” means (i) a Lender; (ii) an Affiliate of a Lender; and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 8.07, the Borrower, such approval not to be unreasonably withheld or delayed, provided, that if an Event of Default has occurred and is continuing such that the Borrower does not have a right of approval with respect to any Eligible Assignee under this clause (iii), such Person shall be a commercial bank organized or licensed under the laws of the United States, or any State thereof, or organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having a combined capital and surplus of at least $500,000,000; provided, that such bank is acting through a branch agency located and licensed in the United States (unless the Borrower otherwise approves such Eligible Assignee); provided, however, that neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee.

“Environmental Law” means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of hazardous materials.

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“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

“ERISA Affiliate” means any Person that for purposes of Title IV of ERISA is a member of the Borrower’s controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Internal Revenue Code.

“ERISA Event” means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC or would have been waived under the regulations in effect under Section 4043 of ERISA as of the date of this Agreement, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding standard waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of the Borrower or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA that is treated as a withdrawal under such Section; (e) the withdrawal by the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the imposition of a lien under Section 303(k) of ERISA with respect to any Plan; (g) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan, provided, however, that the event or condition described in Section 4042(a)(4) shall be an ERISA Event only if the PBGC shall have notified the Borrower or any ERISA Affiliate that it intends to terminate, or appoint a trustee to administer, a Plan on such basis; (h) the determination that any Plan is considered an at risk plan within the meaning of Section 303 of ERISA or Section 430 of the Internal Revenue Code; or (i) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate.

“Eurodollar Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Eurodollar Lending Office” in such Lender’s Administrative Questionnaire or in the Assumption Agreement or the Assignment and Assumption pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or in each such case, such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.

“Eurodollar Rate” means:

(a)           for any Interest Period with respect to a Eurodollar Rate Advance, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or such other commercially available source providing quotations of BBA LIBOR as may be designated by the Agent from time to time) at approximately 11:00 A.M. (London time) two London Banking Days prior to the commencement of such Interest Period, for U.S. dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period.  If such rate is not available at such time for any reason, then the “Eurodollar Rate” for such Interest

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Period shall be the rate per annum equal to the average of the Quoted Rates supplied to the Agent by the Reference Banks; and

(b)           for any interest calculation with respect to a Base Rate Advance on any date, the rate per annum equal to (i) BBA LIBOR, at approximately 11:00 A.M. (London time) determined two London Banking Days prior to such date for U.S. dollar deposits being delivered in the London interbank market for a term of one month commencing that day or (ii) if such published rate is not available at such time for any reason, the rate per annum determined by the Agent to be the rate at which deposits in U.S. dollars for delivery on the date of determination in same day funds in the approximate amount of the Base Rate Advance being made or maintained and with a term equal to one month would be offered by Bank of America’s London Branch to major banks in the London interbank eurodollar market at their request at the date and time of determination.

“Eurodollar Rate Advance” means a Revolving Credit Advance that bears interest as provided in Section 2.07(a)(ii).

“Events of Default” has the meaning specified in Section 6.01.

“Excluded Taxes” shall mean, with respect to a Lender, Agent or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder or under the Revolving Credit Notes, (i) Taxes imposed on its overall net income, branch profits taxes and franchise and similar taxes imposed on it in lieu of net income taxes, by a jurisdiction as a result of the recipient’s present or former connection with such jurisdiction (other than a connection arising solely from the transactions contemplated herein), including the jurisdiction in which an Applicable Lending Office is located, (ii) any U.S. withholding taxes imposed on amounts payable with respect to such Lender on the date on which such Lender becomes a party to this agreement, (iii) in the case of a Non-U.S. Lender, any U.S. withholding taxes imposed as a result of such Lender’s failure to comply with Section 2.14(e), except as provided in Section 2.14(f), (iv) any withholding taxes that are imposed as a result of any relocation of such Lender’s Applicable Lending Office to which payments by or on behalf of the Borrower is made and which relocation occurs after such Lender becomes a Lender (other than changes in such Lender’s Eurodollar Lending Office to mitigate certain increased costs or funding restrictions imposed upon such Lender referred to in Section 2.11), and (v) Taxes that are imposed on any “withholdable payment” payable to such Non-U.S. Lender as a result of its failure to satisfy the applicable requirements of Section 1471 or 1472 of the Internal Revenue Code.

“Extension Date” has the meaning specified in Section 2.19(b).

“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Agent.

“Fronting Exposure” means, at any time there is a Defaulting Lender, with respect to an Issuing Bank, such Defaulting Lender’s Ratable Share of the outstanding L/C Obligations other

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than L/C Obligations owing in connection with a Secured Letter of Credit or as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof.

“GAAP” has the meaning specified in Section 1.03.

“Hedge Agreements” means interest rate swap, basis swaps, credit derivative transactions, forward rate transactions, cap, floor or collar agreements, interest rate future or option contracts, currency swap agreements, cross-currency rate swap transactions, currency future or option contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, and other similar agreements or any combination of the foregoing (including any options to enter into any of the foregoing).

“Honor Date” has the meaning specified in Section 2.03(c)(i).

“Increase Date” has the meaning specified in Section 2.18(a).

“Increasing Lender” has the meaning specified in Section 2.18(b).

“Indemnified Taxes” shall mean all Taxes imposed with respect to a payment made pursuant to this Agreement other than Excluded Taxes.

“Initial Issuing Bank” has the meaning specified in the preamble hereto.

“Initial Lenders” has the meaning specified in the preamble hereto.

“Insurance Subsidiary” means any Subsidiary of the Borrower that is licensed by any governmental authority to engage in the insurance business by issuing insurance policies or entering into Reinsurance Agreements.

“Interest Period” means, for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, with respect to Eurodollar Rate Advances, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below.  The duration of each such Interest Period shall be one, two, three or six months (or such other period as may be requested by the Borrower and acceptable to the Agent and each Lender), as the Borrower may, upon notice received by the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that:

(a)           the Borrower may not select any Interest Period that ends after the Termination Date;

(b)           Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Revolving Credit Borrowing shall be of the same duration;

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(c)           whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and

(d)           whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

“Invested Assets” means cash, cash equivalents, short term investments, investments held for sale and any other assets which are treated as investments under GAAP.

“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of Issuance).

“Issuance” with respect to any Letter of Credit means the issuance, amendment (to the extent that same increases the Available Amount thereunder), renewal or extension of such Letter of Credit (other than an Auto-Extension Letter of Credit).

“Issuing Bank” means Bank of America and any Lender designated as an “Issuing Bank” hereunder by written notice to such effect to the Agent by the Borrower and such Lender so long as such Lender expressly agrees to perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as an Issuing Bank and notifies the Agent of its Applicable Lending Office (which information shall be recorded by the Agent in the Register).

“Issuing Bank Documents” means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the applicable Issuing Bank and the Borrower (or any Subsidiary) or in favor of the applicable Issuing Bank and relating to such Letter of Credit.

“L/C Obligations” means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts.  For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with the definition of “Available Amount”.  For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

“L/C Related Documents” has the meaning specified in Section 2.06(b)(i).

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“Lenders” means, on any date of determination, each Initial Lender, each Issuing Bank, each Assuming Lender, and each Person that has become a party hereto pursuant to Section 8.07, which are party hereto on such date.

“Letter of Credit” has the meaning specified in Section 2.01(b)(i).

“Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the applicable Issuing Bank.

“Letter of Credit Commitment” means, at any time, with respect to each Issuing Bank, the obligation of such Issuing Bank to issue Letters of Credit for the account of the Borrower and its specified Subsidiaries in (a) the amount set forth opposite the Issuing Bank’s name on Schedule 1.01 hereto or (b) in the notice designating such Issuing Bank as an Issuing Bank hereunder, in each case as such amount may be increased at or prior to such time pursuant to Section 2.18 or reduced at or prior to such time pursuant to Section 2.05.

“Letter of Credit Facility” means, at any time, an amount equal to the least of (a) the aggregate amount of the Issuing Banks’ Letter of Credit Commitments at such time, (b) $250,000,000, as such amount may be increased at or prior to such time pursuant to Section 2.18 and (c) the aggregate amount of the Revolving Credit Commitments, as such amount may be reduced at or prior to such time pursuant to Section 2.05.

“Letter of Credit Fee” has the meaning specified in Section 2.04(b).

“Lien” means any lien, security interest or other charge or encumbrance of any kind, including, without limitation, the lien or retained security title of a conditional vendor and mortgage, deed of trust or other encumbrance on title to real property.

“London Banking Day” means any day on which dealings in U.S. dollar deposits are conducted by and between banks in the London interbank eurodollar market.

“Mandatory Convertible Securities” means, as of any date, debt issued by the Borrower that is mandatorily convertible into common equity so long as the Borrower provides satisfactory evidence to the Agent and the Required Lenders that such debt is afforded equity capital credit by S&P.

“Margin Stock” has the meaning assigned to such term in Regulation U.

“Material Adverse Change” means any material adverse change in the business, financial condition or results of operations of the Borrower and its Subsidiaries taken as a whole.

“Material Adverse Effect” means a material adverse effect on (a) the business, financial condition or operations of the Borrower and its Subsidiaries taken as a whole, (b) the legality, validity or enforceability of this Agreement or any Revolving Credit Note or (c) the ability of the Borrower to perform its payment obligations under this Agreement or any Revolving Credit Note.

“Moody’s” means Moody’s Investors Service, Inc.

“Multiemployer Plan” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate is making or accruing an obligation to

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make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions.

“Multiple Employer Plan” means, at a particular time, a Single Employer Plan, as defined in Section 4001(a)(15) of ERISA, (a) that is maintained for employees of the Borrower or any ERISA Affiliate and at least one contributing sponsor of such plan is a Person other than the Borrower and the ERISA Affiliates or (b) in respect of which the Borrower or any ERISA Affiliate would under Section 4064 or 4069 of ERISA be deemed to be a “contributing sponsor” as defined in Section 4001(a)(13) of ERISA if such plan were terminated at such time.

“Net Worth” of the Borrower means, as of any date, its total shareholders’ equity determined in accordance with GAAP plus (a) the amount of Trust Preferred Securities to the extent that the amount of Trust Preferred Securities do not exceed 15% of Total Capital plus (b) the amount of Mandatory Convertible Securities to the extent that the amount of Mandatory Convertible Securities plus Trust Preferred Securities do not in the aggregate exceed 25% of Total Capital.

“Non-Consenting Lender” has the meaning specified in Section 2.19(b).

“Non-Extension Notice Date” has the meaning specified in Section 2.03(a)(iv).

“Non-U.S. Lender” has the meaning specified in Section 2.14(e).

“Notice of Revolving Credit Borrowing” has the meaning specified in Section 2.02(a).

“Other Taxes” has the meaning specified in Section 2.14(b).

“PBGC” means the Pension Benefit Guaranty Corporation (or any successor).

“Permitted Liens” means:  (a) Liens for taxes, imposts, duties, assessments and governmental charges, withholdings imposed by any governmental authority or levies to the extent not required to be paid under Section 5.01(b) hereof; (b) Liens imposed by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 60 days; (c) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes.

“Person” means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof.

“Plan” means a Single Employer Plan or a Multiple Employer Plan.

“Platform” has the meaning specified in Section 8.02(b).

“Primary Policies” means any insurance policies issued by an Insurance Subsidiary.

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“Public Debt Rating” means, as of any date, the lowest rating that has been most recently announced by either S&P or Moody’s, as the case may be, for non-credit enhanced long-term senior unsecured debt issued by the Borrower.  For purposes of the foregoing, (a) if only one of S&P and Moody’s shall have in effect a Public Debt Rating, the Applicable Margin and the Applicable Percentage shall be determined by reference to the available rating; (b) if neither S&P nor Moody’s shall have in effect a Public Debt Rating, the Applicable Margin and the Applicable Percentage will be set in accordance with Level 5 under the definition of “Applicable Margin” or “Applicable Percentage”, as the case may be; (c) if the ratings established by S&P and Moody’s shall fall within different levels, the Applicable Margin and the Applicable Percentage shall be based upon the higher rating unless such ratings differ by two or more levels, in which case the applicable level will be one level above the lower of such levels; (d) if any rating established by S&P or Moody’s shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change; and (e) if S&P or Moody’s shall change the basis on which ratings are established, each reference to the Public Debt Rating announced by S&P or Moody’s, as the case may be, shall refer to the then equivalent rating by S&P or Moody’s, as the case may be.

“Public Filings” means the public filings of the Borrower.

“Quotation Day” in respect of the determination of the Eurodollar Rate for any Interest Period, means the day on which quotations would normally be given by prime banks in the London interbank market for U.S. Dollar deposits for delivery on the first day of such Interest Period; provided that if quotations would normally be given on more than one date, the Quotation Day for such Interest Period shall be the last of such dates.

“Quoted Rate” means, with respect to any Revolving Credit Borrowing, Conversion or continuation, the rate at which U.S. dollar deposits for delivery on the first day of the relevant Interest Period in immediately available funds in the approximate amount of the Eurodollar Rate Borrowing being made, Converted or continued are offered by the applicable Reference Bank in the London interbank market at 11:00 A.M. (London time) on the Quotation Day prior to the commencement of such Interest Period.

“Ratable Share” of any amount means, with respect to any Lender at any time, subject to adjustment as provided in Section 2.22, the product of such amount times a fraction the numerator of which is the amount of such Lender’s Revolving Credit Commitment at such time (or, if the Revolving Credit Commitments shall have been terminated pursuant to Section 2.05 or 6.01, such Lender’s Revolving Credit Commitment as in effect immediately prior to such termination) and the denominator of which is the aggregate amount of all Revolving Credit Commitments at such time (or, if the Revolving Credit Commitments shall have been terminated pursuant to Section 2.05 or 6.01, the aggregate amount of all Revolving Credit Commitments as in effect immediately prior to such termination).

“Reference Banks” means Bank of America, Citibank, N.A., JPMorgan Chase Bank, N.A., and Wells Fargo Bank, National Association.

“Register” has the meaning specified in Section 8.07(e).

“Regulation U” means Regulation U of the Board as from time to time in effect.

“Reinsurance Agreements” means any agreement, contract, treaty, certificate or other arrangement whereby the Borrower or any Subsidiary agrees to assume from or reinsure an

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insurer or reinsurer all or part of the liability of such insurer or reinsurer under a policy or policies of insurance issued by such insurer or reinsurer.

“Required Lenders” means at any time Lenders owed more than 50% in interest of the then aggregate unpaid principal amount of the Revolving Credit Advances and L/C Obligations owing to Lenders, or, if no such principal amount is then outstanding, Lenders having more than 50% of the Revolving Credit Commitments.

“Restricted Margin Stock” means Margin Stock owned by the Borrower or any Subsidiary which represents not more than 25% of the aggregate value (determined in accordance with Regulation U), on a consolidated basis, of the property and assets of the Borrower and the Subsidiaries that is subject to the provisions of Section 5.02(a).

“Revolving Credit Advance” means an advance by a Lender to the Borrower as part of a Revolving Credit Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance (each of which shall be a “Type” of Revolving Credit Advance).

“Revolving Credit Borrowing” means a borrowing consisting of simultaneous Revolving Credit Advances of the same Type made by each of the Lenders pursuant to Section 2.01.

“Revolving Credit Commitment” means as to any Lender (a) the amount set forth opposite such Lender’s name on Schedule 1.01 hereto as such Lender’s “Revolving Credit Commitment”, (b) if such Lender has become a Lender hereunder pursuant to an Assumption Agreement, the amount set forth in such Assumption Agreement or (c) if such Lender has entered into an Assignment and Assumption, the amount set forth for such Lender in the Register maintained by the Agent pursuant to Section 8.07(e), as such amount may be reduced pursuant to Section 2.05 or increased pursuant to Section 2.18.

“Revolving Credit Note” means a promissory note of the Borrower payable to the order of any Lender, delivered pursuant to a request made under Section 2.16 in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the Revolving Credit Advances made by such Lender, together with all amendments, modifications, restatements, or supplements thereof.

“S&P” means Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc, and any successor thereto.

“Secured L/C Account” means an interest bearing deposit account to be established and maintained by the Borrower with the Agent or another financial institution selected by the Borrower, over which the Agent shall have control (as such term is defined in the Uniform Commercial Code), upon terms as may be reasonably satisfactory to the Agent and the Borrower.

“Secured Letter of Credit” means a Letter of Credit irrevocably designated by the Borrower for which the Borrower maintains on deposit in the Secured L/C Account cash in an amount equal to the Available Amount of such Letter of Credit.  The Borrower may by notice to the Agent from time to time pursuant to Section 2.03(g) designate which outstanding Letters of Credit at such time shall be “Secured Letters of Credit.”

“SEC” means the Securities and Exchange Commission, or any governmental authority succeeding to any of its principal functions.

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“Significant Subsidiary” means any Subsidiary that constitutes a “significant subsidiary” under Regulation S-X promulgated by the Securities and Exchange Commission, as in effect from time to time.

“Single Employer Plan” means, at a particular time, a single employer plan, as defined in Section 4001(a)(15) of ERISA, (a) that is maintained for employees of the Borrower or any ERISA Affiliate and no Person other than the Borrower and the ERISA Affiliates is a contributing sponsor of such plan or (b) in respect of which the Borrower or any ERISA Affiliate would under Section 4069 of ERISA be deemed to be a “contributing sponsor” as defined in Section 4001(a)(13) of ERISA if such plan were terminated at such time.

“St. Paul Fire” means St. Paul Fire and Marine Insurance Company, a Minnesota corporation.

“Subsidiary” of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of the issued and outstanding capital interests having ordinary voting power to elect a majority of the Board of Directors or comparable governing body of such entity (irrespective of whether at the time capital interests of any other class or classes of such entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries.

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any governmental authority, including any interest, additions to tax or penalties applicable thereto.

“Termination Date” means the earlier of (a) June 10, 2013, subject to the extension thereof pursuant to Section 2.19 and (b) the date of termination in whole of the Commitments pursuant to Section 2.05 or 6.01; provided, however, that the Termination Date of any Lender that is a Non-Consenting Lender to any requested extension pursuant to Section 2.19 shall be the Termination Date of such Lender in effect immediately prior to the applicable Extension Date for all purposes of this Agreement.

“Total Capital” means the sum, without duplication, of (a) all items that would, in accordance with GAAP, be classified as indebtedness on a Consolidated balance sheet of the Borrower and its consolidated Subsidiaries, (b) total Consolidated shareholders’ equity of the Borrower and its consolidated Subsidiaries determined in accordance with GAAP, (c) Trust Preferred Securities and (d) Mandatory Convertible Securities.

“Total Consolidated Debt” means, as of any date, all items that, in accordance with GAAP, would be classified as indebtedness on a Consolidated balance sheet of the Borrower and its consolidated Subsidiaries (excluding items which appear in the footnotes only, other than Trust Preferred Securities), provided that (a) Total Consolidated Debt shall not include any indebtedness represented by Trust Preferred Securities except to the extent that such Trust Preferred Securities (other than those convertible to equity) exceed 15% of Total Capital and (b) Total Consolidated Debt shall not include any indebtedness represented by Mandatory Convertible Securities except to the extent that such Mandatory Convertible Securities plus Trust Preferred Securities exceed 25% of Total Capital; provided, however, that in the event the notes related to the Mandatory Convertible Securities remain outstanding following the exercise of

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forward purchase contracts related to such Mandatory Convertible Securities, then such outstanding notes will constitute indebtedness thereafter.

“Trust Preferred Securities” means, as of any date, all items in respect of trust preferred securities that would, in accordance with GAAP, be classified as indebtedness on a Consolidated balance sheet (or the footnotes thereto) of the Borrower and its consolidated Subsidiaries.

“Unissued Letter of Credit Commitment” means, with respect to any Issuing Bank, the obligation of such Issuing Bank to issue Letters of Credit for the account of the Borrower or its specified Subsidiaries in an amount equal to the excess of (a) the amount of its Letter of Credit Commitment over (b) the aggregate Available Amount of all Letters of Credit issued by such Issuing Bank.

“Unreimbursed Amount” has the meaning specified in Section 2.03(c)(i).

“Unrestricted Margin Stock” means any Margin Stock owned by the Borrower or any Subsidiary which is not Restricted Margin Stock.

“Unused Commitment” means, with respect to each Lender at any time, (a) such Lender’s Revolving Credit Commitment at such time minus (b) the sum of (i) the aggregate principal amount of all Revolving Credit Advances made by such Lender (in its capacity as a Lender) and outstanding at such time, plus (ii) such Lender’s Ratable Share of (A) the aggregate Available Amount of all the Letters of Credit outstanding at such time and (B) the aggregate principal amount of all Revolving Credit Advances made by each Issuing Bank pursuant to Section 2.03(c) that have not been ratably funded by such Lender and outstanding at such time.

“Voting Stock” means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency.

SECTION 1.02.  Computation of Time Periods.  In this Agreement in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.

SECTION 1.03.  Accounting Terms.  All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles as in effect from time to time (“GAAP”); provided that, if the Borrower notifies the Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change in GAAP or in the application thereof shall have become effective (“Fixed GAAP”) until such notice shall have been withdrawn or such provision amended in accordance herewith; provided that after the initial quarter in which such change in GAAP or in the application thereof occurs, such provision shall only be required to be interpreted on the basis of Fixed GAAP as described above to the extent reasonably practicable as determined in good faith by the Borrower (and then only until such notice shall have been withdrawn or such provision amended in accordance herewith); provided, further that in the event that Borrower determines in good faith that interpreting such provision on the basis of Fixed GAAP after the initial quarter in which such change in GAAP or in the

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application thereof occurs is not reasonably practicable, then the Borrower and the Agent shall negotiate in good faith to amend such provision within 90 days of the request for such amendment (it being understood that if the Borrower and the Agent are unable to agree on an amendment within such a time period, the Agreement shall continue in full force and effect and the Borrower and the Agent shall continue in good faith to seek agreement on an amendment).

ARTICLE II

AMOUNTS AND TERMS OF THE REVOLVING CREDIT ADVANCES
AND LETTERS OF CREDIT

SECTION 2.01.  The Revolving Credit Advances and Letters of Credit.

(a)Revolving Credit Advances.  Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Revolving Credit Advances to the Borrower from time to time on any Business Day during the period from the Effective Date until the Termination Date in an amount not to exceed such Lender’s Unused Commitment (immediately prior to the making of such Revolving Credit Advance).  Each Revolving Credit Borrowing shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Revolving Credit Advances of the same Type made, or continued as or converted into Eurodollar Rate Advances or Base Rate Advances, on the same day by the Lenders ratably according to their respective Revolving Credit Commitments.  Within the limits of each Lender’s Revolving Credit Commitment, the Borrower may borrow under this Section 2.01(a), prepay pursuant to Section 2.10 and reborrow under this Section 2.01(a).

(b)Letters of Credit.

(i)Each Issuing Bank agrees, on the terms and conditions hereinafter set forth, in reliance upon the agreements of the other Lenders set forth in this Agreement, to issue and amend standby letters of credit (each, a “Letter of Credit”) for the account of the Borrower and its specified Subsidiaries from time to time on any Business Day during the period from the Effective Date until the seventh Business Day prior to the Termination Date in an aggregate Available Amount (i) for all Letters of Credit not to exceed at any time the Letter of Credit Facility at such time, (ii) for all Letters of Credit issued by each Issuing Bank not to exceed at any time such Issuing Bank’s Letter of Credit Commitment at such time and (iii) for each such Letter of Credit not to exceed an amount equal to the Unused Commitments (immediately prior to such Issuance) of the Lenders at such time.  No Letter of Credit shall have an expiration date (including all rights of the Borrower or the beneficiary to require renewal) later than five Business Days prior to the Termination Date, unless all Lenders have approved such expiration date.  Within the limits referred to above, the Borrower may from time to time request the Issuance of Letters of Credit under this Section 2.01(b).

(ii)Subject to Section 2.03(a)(iv), unless otherwise agreed by the Issuing Bank and all the Lenders, no Issuing Bank shall issue any Letter of Credit if the expiry date of the requested Letter of Credit would occur more than twelve months after the date of issuance.

(iii)No Issuing Bank shall be under any obligation to issue any Letter of Credit if:

(A)          any order, judgment or decree of any governmental authority or arbitrator shall by its terms purport to enjoin or restrain such Issuing Bank from issuing the Letter of Credit, or any law applicable to such Issuing Bank or any directive (whether or not having the force of law) from any governmental authority with jurisdiction over

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such Issuing Bank shall prohibit, or direct that such Issuing Bank refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or shall impose upon such Issuing Bank with respect to the Letter of Credit any restriction, reserve or capital requirement (for which such Issuing Bank is not otherwise entitled to be compensated hereunder) not in effect on the Effective Date, or shall impose upon such Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Effective Date (and for which such Issuing Bank is not otherwise entitled to be compensated hereunder) and which, in each case, such Issuing Bank in good faith deems material to it;

(B)           the Issuance of such Letter of Credit would violate one or more policies of such Issuing Bank applicable to Letters of Credit generally, so long as such policies are consistently applied by such Issuing Bank to its customers and to letters of credit issued by it, such policies are not unusual to similarly situated financial institutions and such policies are not contrary to the express contractual obligations of such Issuing Bank under this Agreement;

(C)           except as otherwise agreed by the Agent and such Issuing Bank, the Letter of Credit is in an initial stated amount less than $500,000;

(D)          the Letter of Credit is to be denominated in a currency other than U.S. dollars; or

(E)           any Lender is at that time a Defaulting Lender, unless such Issuing Bank has entered into arrangements, including the delivery of Cash Collateral, satisfactory to such Issuing Bank (in its reasonable discretion) with the Borrower or such Lender to eliminate such Issuing Bank’s actual or potential Fronting Exposure (after giving effect to Section 2.22(a)(iv)) with respect to the Defaulting Lender arising from either the Letter of Credit then proposed to be issued or that Letter of Credit and all other L/C Obligations as to which such Issuing Bank has actual or potential Fronting Exposure, as it may elect in its reasonable discretion;

(iv)An Issuing Bank shall, subject to clauses (i), (ii), and (iii) above, amend any Letter of Credit at the request of the Borrower if such Issuing Bank would be permitted at such time to issue the Letter of Credit in its amended form under the terms hereof; provided, that if such Issuing Bank would not be permitted to issue the Letter of Credit in its amended form, it may amend such Letter of Credit so long as such amendment does not increase the amount of such Letter of Credit, extend the expiration date (including all rights of the Borrower or the beneficiary to require renewal) later than seven Business Days prior to the Termination Date, or provide for an expiry date of such Letter of Credit more than twelve months after the date of such amendment, and further so long as the beneficiary of the Letter of Credit accepts the proposed amendment to the Letter of Credit.

(v)Each Issuing Bank shall act on behalf of the Lenders with respect to any Letters of Credit issued by such Issuing Bank and the Issuing Bank Documents associated therewith, and such Issuing Bank shall have all of the benefits and immunities (A) provided to the Agent in Article VII with respect to any acts taken or omissions suffered by such Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and Issuing Bank Documents pertaining to such Letters of Credit as fully as if the term “Agent” as used in Article VII included such Issuing Bank with respect to such acts or omissions, and (B) as additionally provided herein with respect to the such Issuing Bank.

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SECTION 2.02.  Making the Revolving Credit Advances.

(a)           Except as otherwise provided in Section 2.03(c), each Revolving Credit Borrowing shall be made on notice, given not later than (x) 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate Advances or (y) 11:00 A.M. (New York City time) on the date of the proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Base Rate Advances, by the Borrower to the Agent, which shall give to each Lender prompt notice thereof by telecopier.  Each such notice of a Revolving Credit Borrowing (a “Notice of Revolving Credit Borrowing”) shall be by telephone, confirmed immediately in writing, or telecopier in substantially the form of Exhibit B hereto, specifying therein the requested (i) date of such Revolving Credit Borrowing, (ii) Type of Revolving Credit Advances comprising such Revolving Credit Borrowing, (iii) aggregate amount of such Revolving Credit Borrowing, and (iv) in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Revolving Credit Advance.  Each Lender shall, before 1:00 P.M. (New York City time) on the date of such Revolving Credit Borrowing make available for the account of its Applicable Lending Office to the Agent at the Agent’s Account, in same day funds, such Lender’s ratable portion of such Revolving Credit Borrowing.  After the Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will promptly make such funds available to the Borrower at the Agent’s address referred to in Section 8.02.

(b)           Anything in subsection (a) above to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for any Revolving Credit Borrowing if the aggregate amount of such Revolving Credit Borrowing is less than $10,000,000 or if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08 or 2.12 and (ii) the Eurodollar Rate Advances may not be outstanding as part of more than twelve separate Revolving Credit Borrowings.

(c)           In the case of any Revolving Credit Borrowing that the related Notice of Revolving Credit Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure of the Borrower to borrow such funds on the date specified in such Notice of Revolving Credit Borrowing, whether as a result of any failure to fulfill on or before the date specified in such Notice of Revolving Credit Borrowing for such Revolving Credit Borrowing the applicable conditions set forth in Section 3.02 or otherwise, including, without limitation, any loss (excluding loss of anticipated profits, indirect losses and special or consequential damages), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Revolving Credit Advance to be made by such Lender as part of such Revolving Credit Borrowing when such Revolving Credit Advance, as a result of such failure, is not made on such date.

(d)           Unless the Agent shall have received notice from a Lender prior to the date of any Revolving Credit Borrowing of Eurodollar Rate Advances (or in the case of any Revolving Credit Borrowing of Base Rate Advances, prior to 1:00 P.M. (New York City time) on the date of such Revolving Credit Borrowing) that such Lender will not make available to the Agent such Lender’s ratable portion of such Revolving Credit Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Revolving Credit Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount.  If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is

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repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Revolving Credit Advances comprising such Revolving Credit Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender’s Revolving Credit Advance as part of such Revolving Credit Borrowing for purposes of this Agreement.

(e)           The failure of any Lender to make the Revolving Credit Advance to be made by it as part of any Revolving Credit Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Revolving Credit Advance on the date of such Revolving Credit Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Revolving Credit Advance to be made by such other Lender on the date of any Revolving Credit Borrowing.

SECTION 2.03.  Issuance of and Drawings and Reimbursement Under Letters of Credit.

(a)           Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit.

(i)            Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to the applicable Issuing Bank (with a copy to the Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a duly authorized officer of the Borrower.  Such Letter of Credit Application must be received by the applicable Issuing Bank and the Agent not later than 11:00 A.M. at least two Business Days (or such later date and time as the Agent and such Issuing Bank may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be.  In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the applicable Issuing Bank: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; (G) the purpose and nature of the requested Letter of Credit; and (H) such other matters as the applicable Issuing Bank may reasonably request.

(ii)           In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the applicable Issuing Bank (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as such Issuing Bank may reasonably request.  Additionally, the Borrower shall furnish to each Issuing Bank and the Agent such other documents and information pertaining to such requested Letter of Credit Issuance, including any Issuing Bank Documents, as such Issuing Bank or the Agent may reasonably request.

(iii)          Promptly after receipt of any Letter of Credit Application, the applicable Issuing Bank will confirm with the Agent (by telephone or in writing) that the Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, such Issuing Bank will provide the Agent with a copy thereof.  Unless the applicable Issuing Bank has received written notice from any Lender, the Agent or Borrower, at least one Business Day prior to the requested date of Issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Section 3.02 shall not then be satisfied, then, subject to the terms and conditions hereof, such Issuing Bank shall, on the requested date, issue a Letter of Credit for the account of the Borrower or its applicable Subsidiary or enter into the applicable amendment, as

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the case may be, in each case in a format that is consistent with such Issuing Bank’s usual and customary business practices.

(iv)          If the Borrower so requests in any applicable Letter of Credit Application, the applicable Issuing Bank may, in its sole discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an “Auto-Extension Letter of Credit”); provided that any such Auto-Extension Letter of Credit must permit the applicable Issuing Bank to prevent any such extension at least once in each twelve-month period (commencing with the date of Issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued.  Unless otherwise directed by the applicable Issuing Bank, the Borrower shall not be required to make a specific request to such Issuing Bank for any such extension.  Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the applicable Issuing Bank to permit the extension of such Letter of Credit at any time to an expiry date not more than twelve months after the date of such extension, and not later than seven days prior to the Termination Date; provided, however, that the applicable Issuing Bank shall not permit any such extension if (A) such Issuing Bank has determined that it would not be permitted, or would have no obligation, at such time to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section 2.01(b) or otherwise), or (B) an Event of Default has occurred and is continuing and it has received notice (which may be by telephone or in writing) on or before the day that is seven Business Days before the Non-Extension Notice Date from the Agent that the Required Lenders have elected not to permit such extension.

(v)           Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the applicable Issuing Bank will also deliver to the Borrower and the Agent a true and complete copy of such Letter of Credit or amendment.

(b)           Participations.  Immediately upon the Issuance of each Letter of Credit (or an amendment to a Letter of Credit increasing or decreasing the amount thereof) and without any further action on the part of the applicable Issuing Bank or any Lender, such Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Lender’s Ratable Share of the Available Amount of such Letter of Credit.  The Borrower hereby agrees to each such participation.  Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this Section 2.03(b) in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Revolving Credit Commitments, and that each such payment in respect of the purchase of such participations shall be made without any offset, abatement, withholding or reduction whatsoever.  Each Lender further acknowledges and agrees that its participation in each Letter of Credit will be automatically adjusted to reflect such Lender’s Ratable Share of the Available Amount of such Letter of Credit at each time such Lender’s Revolving Credit Commitment is amended pursuant to a Commitment Increase in accordance with Section 2.18, an assignment in accordance with Section 8.07 or otherwise pursuant to this Agreement.

(c)           Drawing and Reimbursements; Funding of Participations.

(i)            Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the applicable Issuing Bank shall promptly notify the Borrower and the Agent thereof.  Not later than 1:00 P.M. (New York City time) on the date of

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any payment by the applicable Issuing Bank under a Letter of Credit (each such date, an “Honor Date”), the Borrower shall reimburse such Issuing Bank through the Agent in an amount equal to the amount of such drawing; provided that the applicable Issuing Bank has notified the Borrower by 10:00 A.M. (New York City time) on the Honor Date that such drawing is to be paid on the Honor Date, otherwise the Borrower shall reimburse such Issuing Bank, together with interest at the Base Rate plus the Applicable Margin, on the Business Day immediately following the day that the Borrower receives such notice from such Issuing Bank.  If the Borrower fails to so reimburse such Issuing Bank by such time, the Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (the “Unreimbursed Amount”), and the amount of such Lender’s Ratable Share thereof.  In such event (but subject to the parenthetical at the end of the last sentence of this Section), payment of such drawing shall be deemed to be a Revolving Credit Borrowing consisting of Base Rate Advances disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to whether (A) the making of such a Revolving Credit Advance would exceed such Issuing Bank’s Unused Commitment or (B) the satisfaction of the conditions set forth in Section 3.02.  Any notice given by an Issuing Bank or the Agent pursuant to this Section 2.03(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.  Any Revolving Credit Borrowing deemed to be made pursuant to this Section to reimburse the Issuing Bank for any Unreimbursed Amount shall relieve the Borrower of its obligations to reimburse such Unreimbursed Amount (except that such Unreimbursed Amount will not be deemed to be a Revolving Credit Borrowing and the Borrower shall not be relieved of its obligation to reimburse such Unreimbursed Amount, if an Event of Default under Section 6.01(e) shall have occurred, and this Section shall not relieve the Borrower’s obligations under any Revolving Credit Borrowing).

(ii)           Each Lender shall upon any notice pursuant to Section 2.03(c)(i) make funds available (and the Agent may apply Cash Collateral or, as provided in Section 2.03(g), cash on deposit in the Secured L/C Account for this purpose) for the account of the applicable Issuing Bank at the Agent’s Account in an amount equal to its Ratable Share of any Unreimbursed Amount not later than 1:00 P.M. (New York City time) on the Business Day (which may be the Honor Date) specified in such notice by the Agent, whereupon, each Lender that so makes funds available shall be deemed to have made a Revolving Credit Advance to the Borrower in such amount, or, if an Event of Default under Section 6.01(e) shall have occurred, such Lender shall be deemed to have purchased a participation in such Unreimbursed Amount.  The Agent shall remit the funds so received to the applicable Issuing Bank.

(iii)          Until each Lender funds its Revolving Credit Advance or participation in any Unreimbursed Amount pursuant to this Section 2.03(c) to reimburse the applicable Issuing Bank for any amount drawn under any Letter of Credit, interest in respect of such Lender’s Ratable Share of such amount shall be solely for the account of such Issuing Bank.

(iv)          Each Lender’s obligation to make Revolving Credit Advances or purchase participations in any Unreimbursed Amounts to reimburse the applicable Issuing Bank for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against such Issuing Bank, the Borrower or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, (C) or the failure to satisfy the conditions set forth in Section 3.02, or (D) any other occurrence, event or condition, whether or not similar to any of the foregoing.

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(v)           If any Lender fails to make available to the Agent for the account of the applicable Issuing Bank any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.03(c) by the time specified in Section 2.03(c)(ii), then, without limiting the other provisions of this Agreement, such Issuing Bank shall be entitled to recover from such Lender (acting through the Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to such Issuing Bank at a rate per annum equal to the Federal Funds Rate, plus any administrative, processing or similar fees customarily charged by such Issuing Bank in connection with the foregoing.  If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Base Rate Advance included in the relevant Revolving Credit Borrowing.  A certificate of the applicable Issuing Bank submitted to any Lender (through the Agent) with respect to any amounts owing under this clause (v) shall be conclusive absent manifest error.

(d)           Repayment of Participations.

(i)            At any time after an Issuing Bank has made a payment under any Letter of Credit and has received from any Lender such Lender’s participation purchase in respect of such payment in accordance with Section 2.03(c), if the Agent receives for the account of such Issuing Bank any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Cash Collateral or, as provided in Section 2.03(g), applied thereto by the Agent), the Agent will distribute to such Lender its Ratable Share thereof in the same funds as those received by the Agent.

(ii)           If any payment received by the Agent for the account of the applicable Issuing Bank pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in Section 2.14 (including pursuant to any settlement entered into by such Issuing Bank in its discretion), each Lender shall pay to the Agent for the account of such Issuing Bank its Ratable Share thereof on demand of the Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect.  The obligations of the Lenders under this clause (d) shall survive the payment in full of all amounts owing hereunder and the termination of this Agreement.

(e)           Applicability of ISP.  Unless otherwise expressly agreed by the applicable Issuing Bank and the Borrower when a Letter of Credit is issued the rules of the ISP shall apply to each Letter of Credit.

(f)            Failure to Make Revolving Credit Advances.  The failure of any Lender to make the Revolving Credit Advance to be made by it or to purchase the participation to be purchased by it on the date specified in Section 2.03(c) shall not relieve any other Lender of its obligation hereunder to make its Revolving Credit Advance or to purchase its participation on such date, but no Lender shall be responsible for the failure of any other Lender to make the Revolving Credit Advance to be made by such other Lender or to purchase the participation to be purchased by it on such date.

(g)           Secured Letters of Credit.  The Borrower may from time to time irrevocably designate any Letter of Credit to be a Secured Letter of Credit by notice to the Agent (with a copy to the applicable Issuing Bank).  Upon any drawing under any Secured Letter of Credit, to the extent cash is on deposit in the Secured L/C Account, such cash shall, at the Borrower’s option, be applied to reimburse the applicable Issuing Bank to the extent permitted by applicable law and to the extent the Borrower elects not to reimburse such drawing as provided in Section 2.03(c).  Subject to Section 6.02, to the extent any

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Secured Letters of Credit shall have expired or been drawn upon, any excess amounts in such Secured L/C Account shall be returned to the Borrower at the Borrower’s request.

(h)           Letters of Credit Issued for Subsidiaries.  Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary, the Borrower shall be obligated to reimburse such Issuing Bank hereunder for any and all drawings under such Letter of Credit.  The Borrower hereby acknowledges that the Issuance of Letters of Credit for the account of Subsidiaries inures to the benefit of the Borrower, and that the Borrower’s business derives substantial benefits from the businesses of such Subsidiaries.

SECTION 2.04.  Fees.

(a)           Facility Fee.  Subject to adjustment as provided in Section 2.22, the Borrower agrees to pay to the Agent for the account of each Lender a facility fee on the aggregate amount of such Lender’s Commitment from the date hereof in the case of each Initial Lender and from the effective date specified in the Assumption Agreement or in the Assignment and Assumption pursuant to which it became a Lender in the case of each other Lender until the Termination Date of such Lender at a rate per annum equal to the Applicable Percentage in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December, commencing June 30, 2010, and on the Termination Date of such Lender and on the date after the Termination Date of such Lender on which all Revolving Credit Advances and L/C Obligations owing to such Lender cease to be outstanding.

(b)           Letter of Credit Fees.

(i)            The Borrower shall pay to the Agent for the account of each Lender in accordance with its Ratable Share a Letter of Credit fee (the “Letter of Credit Fee”) for (A) the average daily aggregate Available Amount of all Secured Letters of Credit issued and outstanding from time to time at a rate per annum equal to 0.50% and (B) the average daily aggregate Available Amount of all other Letters of Credit issued and outstanding from time to time at a rate per annum equal to the Applicable Margin for Eurodollar Rate Advances in effect from time to time; provided that, any Letter of Credit Fees otherwise payable for the account of a Defaulting Lender with respect to any Letter of Credit (other than a Secured Letter of Credit) as to which such Defaulting Lender has not provided Cash Collateral satisfactory to the applicable Issuing Bank pursuant to this Section 2.04 shall be payable, to the maximum extent permitted by applicable law, to the other Lenders in accordance with the upward adjustments in their respective Ratable Shares allocable to such Letter of Credit pursuant to Section 2.22(a)(iv), and to such Issuing Bank for its own account to the extent of such Issuing Bank’s Fronting Exposure with the balance of such fee being retained by the Borrower.  Letter of Credit Fees shall be (A) due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the Issuance of such Letter of Credit, on the Termination Date and thereafter on the date that any Letter of Credit expiring after the Termination Date ceases to be outstanding and (B) computed on a quarterly basis in arrears.  In calculating the Letter of Credit Fee, if there is any change in the Applicable Margin during any quarter, the daily Available Amount under each Letter of Credit shall be computed and multiplied by the Applicable Margin separately for each period during such quarter that such Applicable Margin was in effect.

(ii)           The Borrower shall pay directly to the applicable Issuing Bank for its own account a fronting fee with respect to each Letter of Credit issued by such Issuing Bank, at such rate and at such times as are separately agreed in writing between the Borrower and such Issuing Bank.  In addition, the Borrower shall pay directly to the applicable Issuing Bank for its own

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account the customary issuance, presentation, amendment and other processing fees, and other standard out-of-pocket costs and charges, of such Issuing Bank relating to letters of credit as from time to time in effect as the Borrower and such Issuing Bank shall agree.  Such customary fees and standard costs and charges shall be reasonably documented and shall be due and payable promptly upon receipt of an invoice and are nonrefundable.

(c)           Agent’s Fees.  The Borrower shall pay to the Agent for its own account such fees as may from time to time be separately agreed between the Borrower and the Agent.

SECTION 2.05.  Optional Termination or Reduction of the Commitments.  The Borrower shall have the right, upon at least three Business Days’ notice to the Agent, to terminate in whole or permanently reduce ratably in part the Unused Commitments or the Unissued Letter of Credit Commitments of the Lenders, provided that each partial reduction shall be in the aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof; provided further that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Agent on or prior to the specified effective date) if such condition is not satisfied.

SECTION 2.06.  Repayment of Revolving Credit Advances.

(a)           Revolving Credit Advances.  The Borrower shall repay to the Agent for the account of each Lender on its Termination Date the aggregate principal amount of the Revolving Credit Advances then outstanding and owing to such Lender.

(b)           Letter of Credit Drawings.  The obligation of the Borrower to reimburse drawings under any Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances (it being understood that any such payment by the Borrower is without prejudice to, and does not constitute a waiver of, any rights the Borrower might have or might acquire as a result of the payment by any Lender of any draft or the reimbursement by the Borrower thereof, including, without limitation, pursuant to Section 8.12):

(i)            any lack of validity or enforceability of this Agreement, any Revolving Credit Note, any Letter of Credit Application, any Letter of Credit or any other agreement or instrument relating thereto (all of the foregoing being, collectively, the “L/C Related Documents”);

(ii)           any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Borrower in respect of any L/C Related Document or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents;

(iii)          the existence of any claim, set-off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for which any such beneficiary or any such transferee may be acting), any Issuing Bank, the Agent, any Lender or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction;

(iv)          any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

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(v)           payment by any Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not comply with the terms of such Letter of Credit;

(vi)          any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any guarantee, for all or any of the obligations of the Borrower in respect of the L/C Related Documents; or

(vii)         without prejudice to the other provisions of this Agreement, any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor.

The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance by the applicable Issuing Bank with the Borrower’s instructions with respect to such Letter of Credit or other irregularity with respect to such Letter of Credit, the Borrower will promptly notify the applicable Issuing Bank.

In the event and to the extent that the provisions of any Letter of Credit Application shall conflict with this Agreement, the provisions of this Agreement shall govern (and in no event shall any provisions of any such Letter of Credit Application regarding representations, warranties, covenants, events of default, set-off rights or collateral be effective).

SECTION 2.07.  Interest on Revolving Credit Advances.

(a)           Scheduled Interest.  The Borrower shall pay interest on the unpaid principal amount of each Revolving Credit Advance owing to each Lender from the date of such Revolving Credit Advance until such principal amount shall be paid in full, at the following rates per annum:

(i)            Base Rate Advances.  During such periods as such Revolving Credit Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (x) the Base Rate in effect from time to time plus (y) the Applicable Margin in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December during such periods and on the date such Base Rate Advance shall be Converted or paid in full.

(ii)           Eurodollar Rate Advances.  During such periods as such Revolving Credit Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Revolving Credit Advance to the sum of (x) the Eurodollar Rate for such Interest Period for such Revolving Credit Advance plus (y) the Applicable Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full.

(b)           Default Interest.  Upon the occurrence and during the continuance of an Event of Default, the Agent may, and upon the request of the Required Lenders shall, require the Borrower to pay interest (“Default Interest”) on (i) the overdue and unpaid principal amount of each Revolving Credit Advance owing to each Lender which is not paid when due whether at stated maturity, upon acceleration or otherwise, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Revolving Credit Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee, including any Letter of Credit Fees, or other amount payable

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hereunder that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum (the “Default Rate”) equal at all times to 2% per annum above the rate per annum required to be paid on Base Rate Advances pursuant to clause (a)(i) above; provided, however, that following acceleration of the Revolving Credit Advances pursuant to Section 6.01, Default Interest shall accrue and be payable hereunder whether or not previously required by the Agent.

SECTION 2.08.  Interest Rate Determination.

(a)           If with respect to any determination of the Eurodollar Rate the Agent determines (which determination shall be conclusive absent manifest error) that BBA LIBOR will not be available on a Quotation Day using Reuters or another commercially available source providing quotations of BBA LIBOR, the Agent shall promptly request that each Reference Bank supply it with its Quoted Rate, and the Eurodollar Rate to be used to determine the interest rate applicable to the relevant Revolving Credit Borrowing, Conversion or continuation shall be the average of the Quoted Rates supplied to the Agent by the Reference Banks.  If the Agent makes such request and one or more Reference Banks fails to supply its Quoted Rate to the Agent by 11:30 A.M. (London time) on a Quotation Day, the applicable Eurodollar Rate shall (subject to Section 2.08(f)) be determined on the basis of the Quoted Rates supplied by the remaining Reference Banks.  The Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.07(a)(i) or (ii), and the rate, if any, furnished by each Reference Bank for the purpose of determining the interest rate under Section 2.07(a)(ii).

(b)           If the Required Lenders reasonably determine that for any reason in connection with any request for a Eurodollar Rate Loan or a Conversion thereto or continuation thereof that (i) U.S. dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurodollar Rate Advance, (ii) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Advance or in connection with an existing or proposed Base Rate Advance, or (iii) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Advance does not adequately and fairly reflect the cost to such Lenders of funding such Advance, the Agent will promptly so notify the Borrower and each Lender.  Thereafter, (A) the obligation of the Lenders to make or maintain Eurodollar Rate Advances shall be suspended, and (B) in the event of a determination described in the preceding sentence with respect to the Eurodollar Rate component of the Base Rate, the utilization of the Eurodollar Rate component in determining the Base Rate shall be suspended, in each case until the Agent (upon the instruction of the Required Lenders) revokes such notice.  Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, Conversion to or continuation of Eurodollar Rate Advance or, failing that, will be deemed to have converted such request into a request for a Revolving Credit Borrowing of Base Rate Advances in the amount specified therein.

(c)           If the Borrower shall fail to select the duration of any Interest Period for any outstanding Eurodollar Rate Advances in accordance with the provisions contained in the definition of “Interest Period” in Section 1.01, the Agent will forthwith so notify the Borrower and the Lenders and such Revolving Credit Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances.

(d)           On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Revolving Credit Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Eurodollar Rate Advances shall automatically Convert into Base Rate Advances.

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(e)           If an Event of Default has occurred and is continuing and the Required Lenders through the Agent so notify the Borrower, then, so long as such Event of Default is continuing (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Eurodollar Rate Advances into, Eurodollar Rate Advances shall be suspended.

(f)            Without limitation of the provisions of Section 2.08(b), if, with respect to any Revolving Credit Borrowing, Conversion or continuation for which the Eurodollar Rate is to be determined by reference to the Quoted Rates supplied to the Agent by the Reference Banks in accordance with Section 2.08(a), no Reference Banks supply the Agent with a Quoted Rate, then the Agent shall give notice thereof to the Borrower and the Lenders in writing as promptly as practicable thereafter, and the interest rate applicable to such Revolving Credit Borrowing, Conversion or continuation shall be the Base Rate plus the Applicable Margin.

SECTION 2.09.  Optional Conversion of Revolving Credit Advances.  The Borrower may on any Business Day, upon notice given to the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12, Convert all Revolving Credit Advances of one Type comprising the same Revolving Credit Borrowing into Revolving Credit Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be subject to Section 2.02(b) and no Conversion of any Revolving Credit Advances shall result in more separate Revolving Credit Borrowings than permitted under Section 2.02(b).  Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Revolving Credit Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for each such Revolving Credit Advance.  Each notice of Conversion shall be irrevocable and binding on the Borrower.

SECTION 2.10.  Prepayments of Revolving Credit Advances.  The Borrower may, upon notice at least two Business Days’ prior to the date of such prepayment, in the case of Eurodollar Rate Advances, and not later than 11:00 A.M. (New York City time) on the date of such prepayment, in the case of Base Rate Advances, to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given, the Borrower shall prepay the outstanding principal amount of the Revolving Credit Advances comprising part of the same Revolving Credit Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (y) in the event of any such prepayment of a Eurodollar Rate Borrowing, the Borrower shall be entitled to select the Eurodollar Rate Borrowings to be prepaid and shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(c).

SECTION 2.11.  Increased Costs.

(a)           If any governmental authority shall have in effect at any time during the term of this Agreement any reserve, liquid asset or similar requirement with respect to any category of deposits or liabilities customarily used to fund Eurodollar Rate Advances or by reference to which interest rates applicable to Eurodollar Rate Advances are determined, and the result of such requirement shall be to increase the cost to any Lender of making or maintaining any Eurodollar Rate Advances (excluding for purposes of this Section 2.11 any such increased costs resulting from (i) Indemnified Taxes or Other Taxes (in both cases as to which Section 2.14 shall govern) and (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state

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under the laws of which such Lender is organized or has its Applicable Lending Office, or any political subdivision thereof) and such Lender shall have requested, by notice to the Borrower and the Agent (which notice shall specify the costs applicable to such Lender), compensation under this paragraph, then the Borrower will pay to such Lender following delivery of such notice (until the earlier of the date such Lender shall advise the Borrower that such requirement is no longer in effect or the date such Lender shall withdraw such request) such additional amounts as shall be necessary to compensate such Lender for such increased costs;

(b)           If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) after the date hereof, there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances or of agreeing to issue or of issuing or maintaining or participating in Letters of Credit (excluding for purposes of this Section 2.11 any such increased costs resulting from (i) Taxes or Other Taxes (in both cases as to which Section 2.14 shall govern), and (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable Lending Office, or any political subdivision thereof) then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost;

(c)           If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender’s commitment to lend or to issue or participate in Letters of Credit hereunder and other commitments of such type or the Issuance or maintenance of or participation in the Letters of Credit, then, upon demand by such Lender (with a copy of such demand to the Agent), the Borrower shall pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender’s commitment to lend or to issue or participate in Letters of Credit hereunder or to the Issuance or maintenance of or participation in any Letters of Credit;

provided, however, that with respect to clauses (a), (b), and (c) above, before delivering such notice or making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost or increase in capital and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender.  In the case of clauses (b) and (c) above, a certificate as to such amounts, submitted to the Borrower and the Agent by such Lender, shall constitute prima facie evidence of the amounts required to be paid by the Borrower in respect thereof, absent manifest error.

(d)           Failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.11 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate such Lender pursuant to this Section 2.11 for any increased costs or reductions incurred more than 180 days prior to the date that such Lender notifies the Borrower of the change in or in the interpretation of law or regulation giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefore; provided further that, if the change in or in the interpretation of law or regulation giving rise to such increased costs

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or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.

SECTION 2.12.  Illegality.  Notwithstanding any other provision of this Agreement, if any Lender shall notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, (a) each Eurodollar Rate Advance will automatically, upon such demand, Convert into a Base Rate Advance or a Revolving Credit Advance that bears interest at the rate set forth in Section 2.07(a)(i), as the case may be, and (b) the obligation of the Lenders to make Eurodollar Rate Advances or to Convert Revolving Credit Advances into Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist; provided, however, that before making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Eurodollar Lending Office if the making of such a designation would allow such Lender or its Eurodollar Lending Office to continue to perform its obligations to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances and would not, in the judgment of such Lender, be otherwise disadvantageous to such Lender.

SECTION 2.13.  Payments and Computations.

(a)           All payments to be made by the Borrower hereunder shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff.  Unless otherwise expressly provided herein, the Borrower shall make each payment or prepayment hereunder not later than 12:00 noon (New York City time) on the day when due in U.S. Dollars to the Agent at the Agent’s Account in same day funds.  The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal, interest, fees or commissions ratably (other than amounts payable pursuant to Section 2.04(b) or (c), 2.11, 2.14 or 8.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement.  Upon any Assuming Lender becoming a Lender hereunder as a result of a Commitment Increase pursuant to Section 2.18 or an extension of the Termination Date pursuant to Section 2.19, and upon the Agent’s receipt of such Lender’s Assumption Agreement and recording of the information contained therein in the Register, from and after the applicable Increase Date or Extension Date, as the case may be, the Agent shall make all payments hereunder and under any Revolving Credit Notes issued in connection therewith in respect of the interest assumed thereby to the Assuming Lender.  Upon its acceptance of an Assignment and Assumption and recording of the information contained therein in the Register pursuant to Section 8.07(e), from and after the effective date specified in such Assignment and Assumption, the Agent shall make all payments hereunder and under the Revolving Credit Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Assumption shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves.

(b)           All computations of interest based on the Base Rate (including at such time as the Base Rate is determined by reference to the Eurodollar Rate) shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed.  All other computations of interest based on the Eurodollar Rate or in respect of facility fees and Letter of Credit Fees shall be made by the Agent on the basis of a year of 360 days and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year).  Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error.

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(c)           Whenever any payment hereunder or under the Revolving Credit Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest, fee or commission, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

(d)           Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Agent for the account of the Lenders or an Issuing Bank hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date in accordance herewith and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender.  If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate.

SECTION 2.14.  Taxes.

(a)           Any and all payments by the Borrower to or for the account of any Lender or the Agent hereunder or under the Revolving Credit Notes or any other documents to be delivered hereunder shall be made, in accordance with Section 2.13 or the applicable provisions of such other documents, free and clear of and without deduction for any Indemnified Taxes or Other Taxes, provided that if the Borrower shall be required by law to deduct any Indemnified Taxes (including Other Taxes) from or in respect of any sum payable hereunder or under any Revolving Credit Note or any other documents to be delivered hereunder to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.

(b)           In addition, the Borrower shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under the Revolving Credit Notes or any other documents to be delivered hereunder or from the execution, delivery or registration of, performing under, or otherwise with respect to, this Agreement or the Revolving Credit Notes or any other documents to be delivered hereunder (hereinafter referred to as “Other Taxes”).

(c)           The Borrower shall indemnify each Lender and the Agent for and hold it harmless against the full amount of any Indemnified Taxes or Other Taxes (including, without limitation, taxes of any kind imposed or asserted by any jurisdiction on amounts payable under this Section 2.14) imposed on or paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto; provided, however, that the Borrower shall not be obligated to make payment to any Lender in respect of penalties, interest and other similar liabilities attributable to such Indemnified Taxes or Other Taxes if such penalties, interest or other similar liabilities are reasonably attributable to the conduct of, or any failure to act by, such Lender, except as permitted under this Agreement.  This indemnification shall be made within 30 days from the date such Lender or the Agent (as the case may be) makes written demand therefor.  The Lender or Agent requesting indemnification pursuant to this subsection (c) shall provide the Borrower with evidence

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reasonably satisfactory to the Borrower documenting the payment by the Lender or Agent of such taxes for which they are requesting indemnification pursuant to this subsection (c).

(d)           Within 30 days after receiving written request from the Agent following the payment of any Indemnified Taxes or Other Taxes, the Borrower shall furnish to the Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing the payment of such Indemnified Taxes or Other Taxes to the extent such a receipt is issued therefor, or other written proof of payment thereof that is reasonably satisfactory to the Agent.

(e)           Each Lender (or Assignee) that is not a “U.S. Person” as defined in Section 7701(a)(30) of the Internal Revenue Code (a “Non-U.S. Lender”) shall deliver to the Borrower and the Agent (or, in the case of a participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service (“IRS”) Form W-8BEN, Form W-8ECI or Form W-8IMY (together with any applicable underlying IRS forms), or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Internal Revenue Code with respect to payments of “portfolio interest”, a certificate to the effect that such Non-U.S. Lender is not (i) a “bank” within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, (ii) a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Internal Revenue Code, or (iii) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Internal Revenue Code and the applicable IRS Form W-8, or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and any Revolving Credit Note.  Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any participant, on or before the date such participant purchases the related participation) and from time to time thereafter upon the request of the Borrower or the Agent.  In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender.  Each Non-U.S. Lender shall promptly notify the Borrower and the Agent at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose).  Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section that such Non-U.S. Lender is not legally able to deliver.

(f)            For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form, certificate or other document described in Section 2.14(e) (other than if such failure is due to a change in law, or in the interpretation or application thereof, occurring subsequent to the date on which a form, certificate or other document originally was required to be provided, or if such form, certificate or other document otherwise is not required under subsection (e) above), such Lender shall not be entitled to indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender become subject to Taxes because of its failure to deliver a form, certificate or other document required hereunder, the Borrower shall take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes.

(g)           Any Lender claiming any additional amounts payable pursuant to this Section 2.14 agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such Indemnified Taxes or Other Taxes that it may thereafter be entitled to and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender.

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(h)           If the Agent or any Lender determines, in its sole discretion, that it is entitled to a refund or credit with respect to any Indemnified Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.14 it shall pay over such refund or credit to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.14 with respect to the Indemnified Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Agent or such Lender and without interest (other than any interest paid by the relevant governmental authority with respect to such refund); provided, that the Borrower, upon the request of the Agent or such Lender, agrees to repay the amount paid over to the Borrower to the Agent or such Lender in the event the Agent or such Lender is required to repay such refund (plus any interest imposed by the relevant governmental authority) to such governmental authority. This paragraph shall not be construed to require the Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.

SECTION 2.15.  Sharing of Payments, Etc.  If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Revolving Credit Advances or L/C Obligations owing to it (other than pursuant to Section 2.11, 2.14 or 8.04(c)) in excess of its Ratable Share of payments on account of the Revolving Credit Advances or L/C Obligations obtained by all the Lenders, such Lender shall notify the Agent of such fact and forthwith purchase from the other Lenders such participations or subparticipations in the Revolving Credit Advances or L/C Obligations owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that (i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and (ii) the provisions of this Section 2.15 shall not be construed to apply to (A) any payment made by or on behalf of the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender), (B) the application of Cash Collateral provided for in Section 2.21, or (C) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Revolving Credit Advances or subparticipations in L/C Obligations to any assignee or participant, other than an assignment to the Borrower or any Subsidiary thereof (as to which the provisions of this Section 2.15 shall apply).  The Borrower agrees that any Lender so purchasing a participation or subparticipation from another Lender pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off provided in Section 8.05) with respect to such participation or subparticipation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation or subparticipation.

To the extent that any payment by or on behalf of the Borrower is made to the Agent, any Issuing Bank or any Lender, or the Agent, any Issuing Bank or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent, such Issuing Bank or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or otherwise, then (i) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (ii) each Lender and each Issuing Bank severally agrees to pay to the Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect.  The obligations of the Lenders and the Issuing Banks under clause (ii) of the preceding sentence

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shall survive the payment in full of all obligations owing under this Agreement or any Revolving Credit Note and the termination of this Agreement.

SECTION 2.16.  Evidence of Debt.

(a)           The Revolving Credit Advances made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Agent in the ordinary course of business.  Entries made in good faith in the accounts or records maintained by the Agent and each Lender shall be conclusive absent manifest error of the amount of the Revolving Credit Advances made by the Lenders to the Borrower and the interest and payments thereon.  Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations.  In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Agent in respect of such matters, the accounts and records of the Agent shall control in the absence of manifest error.  Upon the request of any Lender made through the Agent, the Borrower shall execute and deliver to such Lender (through the Agent) a Revolving Credit Note, which shall evidence such Lender’s Revolving Credit Advances in addition to such accounts or records.  Each Lender may attach schedules to its Revolving Credit Note and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.

(b)           In addition to the accounts and records referred to in subsection (a), each Lender and the Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit.  In the event of any conflict between the accounts and records maintained by the Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Agent shall control in the absence of manifest error.

SECTION 2.17.  Use of Proceeds.  The proceeds of the Revolving Credit Advances shall be available (and the Borrower agrees that it shall use such proceeds) solely for general corporate purposes of the Borrower and its Subsidiaries, including commercial paper back up, not in contravention of this Agreement or any Revolving Note.

SECTION 2.18.  Increase in the Aggregate Commitments.

(a)           The Borrower may, at any time after the Effective Date and prior to the Termination Date, by notice to the Agent, request that the aggregate amount of the Revolving Credit Commitments be increased (with, at the Borrower’s option and subject to the agreement of an Issuing Bank (not to be unreasonably withheld or delayed), a proportionate increase in the Letter of Credit Facility) by an amount of $10,000,000 or an integral multiple of $10,000,000 in excess thereof (each a “Commitment Increase”) to be effective as of a date that is at least 90 days prior to the scheduled Termination Date then in effect (the “Increase Date”) as specified in the related notice to the Agent; provided, however that (i) in no event shall the aggregate amount of the Revolving Credit Commitments at any time exceed $1,500,000,000 and (ii) on the date of any request by the Borrower for a Commitment Increase and on the related Increase Date the applicable conditions set forth in Section 3.02 shall be satisfied.

(b)           The Agent shall promptly notify one or more Lenders (as requested by the Borrower) of a request by the Borrower for a Commitment Increase, which notice shall include (i) the proposed amount of such requested Commitment Increase, (ii) the proposed Increase Date and (iii) the date by which the applicable Lenders wishing to participate in the Commitment Increase must commit to an increase in the amount of their respective Revolving Credit Commitments (the “Commitment Date”).  Each applicable Lender that is willing to participate in such requested Commitment Increase (each an

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“Increasing Lender”) shall, in its sole discretion, give written notice to the Agent on or prior to the Commitment Date of the amount by which it is willing to increase its Revolving Credit Commitment.  If the applicable Lenders notify the Agent that they are willing to increase the amount of their respective Revolving Credit Commitments by an aggregate amount that exceeds the amount of the requested Commitment Increase, the requested Commitment Increase shall be allocated among the applicable Lenders willing to participate therein in such amounts as are agreed between the Borrower and the Agent.

(c)           Promptly following each Commitment Date, the Agent shall notify the Borrower as to the amount, if any, by which the applicable Lenders are willing to participate in the requested Commitment Increase.  If the aggregate amount by which the applicable Lenders are willing to participate in any requested Commitment Increase on any such Commitment Date is less than the requested Commitment Increase, then the Borrower may extend offers to one or more Eligible Assignees to participate in any portion of the requested Commitment Increase that has not been committed to by the applicable Lenders as of the applicable Commitment Date; provided, however, that the Revolving Credit Commitment of each such Eligible Assignee shall be in an amount of $20,000,000 or an integral multiple of $1,000,000 in excess thereof.

(d)           On each Increase Date, each Eligible Assignee that accepts an offer to participate in a requested Commitment Increase in accordance with Section 2.18(b) (each such Eligible Assignee and each Eligible Assignee that agrees to an extension of the Termination Date in accordance with Section 2.19(c), an “Assuming Lender”) shall become a Lender party to this Agreement as of such Increase Date and the Revolving Credit Commitment of each Increasing Lender for such requested Commitment Increase shall be so increased by such amount (or by the amount allocated to such Lender pursuant to the last sentence of Section 2.18(b)) as of such Increase Date; provided, however, that the Agent shall have received on or before such Increase Date the following, each dated such date:

(i)            (A) certified copies of resolutions of the Board of Directors or committee thereof of the Borrower or the Executive Committee of such Board approving the Commitment Increase and the corresponding modifications to this Agreement and (B) an opinion of counsel for the Borrower (which may be in-house counsel), in substantially the form of Exhibit E hereto;

(ii)           an assumption agreement from each Assuming Lender, if any, in form and substance satisfactory to the Borrower and the Agent (each an “Assumption Agreement”), duly executed by such Eligible Assignee, the Agent and the Borrower; and

(iii)          confirmation from each Increasing Lender of the increase in the amount of its Commitment in a writing satisfactory to the Borrower and the Agent.

On each Increase Date, upon fulfillment of the conditions set forth in the immediately preceding sentence of this Section 2.18(d), the Agent shall notify the Lenders (including, without limitation, each Assuming Lender) and the Borrower, on or before 1:00 P.M. (New York City time), by telecopier, of the occurrence of the Commitment Increase to be effected on such Increase Date and shall record in the Register the relevant information with respect to each Increasing Lender and each Assuming Lender on such date.

(e)           On the Increase Date, if any Revolving Credit Advances are then outstanding, the Borrower shall borrow from all or certain of the Lenders and/or (subject to compliance by the Borrower with Section 8.04(c)) prepay Revolving Credit Advances of all or certain of the Lenders such that, after giving effect thereto, the Revolving Credit Advances (including, without limitation, the Types and Interest Periods thereof) shall be held by the Lenders (including for such purposes the Increasing Lenders and the Assuming Lenders) ratably in accordance with their respective Revolving Credit Commitments.  On and after each Increase Date, the Ratable Share of each Lender’s participation in Letters of Credit and

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in Revolving Credit Advances from draws under Letters of Credit shall be calculated after giving effect to each such Commitment Increase.

SECTION 2.19.  Extension of Termination Date.

(a)           At least 60 days but not more than 90 days prior to any anniversary of the Effective Date, the Borrower, by written notice to the Agent, may request an extension of the Termination Date in effect at such time by one year from its then scheduled expiration (which request may be conditioned on a minimum level of Revolving Credit Commitments from Consenting Lenders and Assuming Lenders).  The Agent shall promptly notify each Lender of such request, and each Lender shall in turn, in its sole discretion, not later than 30 days prior to such anniversary date, notify the Borrower and the Agent in writing as to whether such Lender will consent to such extension.  If any Lender shall fail to notify the Agent and the Borrower in writing of its consent to any such request for extension of the Termination Date at least 30 days prior to the applicable anniversary date, such Lender shall be deemed to be a Non-Consenting Lender with respect to such request.  The Agent shall notify the Borrower not later than 25 days prior to the applicable anniversary date of the decision of the Lenders regarding the Borrower’s request for an extension of the Termination Date.

(b)           If all the Lenders consent in writing to any such request in accordance with subsection (a) of this Section 2.19, the Termination Date in effect at such time shall, effective as at the applicable anniversary date (the “Extension Date”), be extended for one year; provided that on each Extension Date the applicable conditions set forth in Section 3.02 shall be satisfied.  If less than all of the Lenders consent in writing to any such request in accordance with subsection (a) of this Section 2.19, the Termination Date in effect at such time shall, effective as at the applicable Extension Date and subject to subsection (d) of this Section 2.19, be extended as to those Lenders that so consented (each a “Consenting Lender”) but shall not be extended as to any other Lender (each a “Non-Consenting Lender”).  To the extent that the Termination Date is not extended as to any Lender pursuant to this Section 2.19 and the Revolving Credit Commitment of such Lender is not assumed in accordance with subsection (c) of this Section 2.19 on or prior to the applicable Extension Date, the Revolving Credit Commitment of such Non-Consenting Lender shall automatically terminate in whole on such unextended Termination Date without any further notice or other action by the Borrower, such Lender or any other Person; provided that such Non-Consenting Lender’s rights under Sections 2.11, 2.14 and 8.04, and its obligations under Section 7.06, shall survive the Termination Date for such Lender as to matters occurring prior to such date.  It is understood and agreed that no Lender shall have any obligation whatsoever to agree to any request made by the Borrower for any requested extension of the Termination Date.

(c)           If less than all of the Lenders consent to any such request pursuant to subsection (a) of this Section 2.19, the Agent shall promptly so notify the Consenting Lenders, and each Consenting Lender may, in its sole discretion, give written notice to the Agent not later than ten days prior to the Extension Date of the amount of the Non-Consenting Lenders’ Revolving Credit Commitments for which it is willing to accept an assignment.  If the Consenting Lenders notify the Agent that they are willing to accept assignments of Revolving Credit Commitments in an aggregate amount that exceeds the amount of the Revolving Credit Commitments of the Non-Consenting Lenders, such Revolving Credit Commitments shall be allocated among the Consenting Lenders willing to accept such assignments in such amounts as are agreed between the Borrower and the Agent.  If after giving effect to the assignments of Revolving Credit Commitments described above there remains any Revolving Credit Commitments of Non-Consenting Lenders, the Borrower may arrange for one or more Consenting Lenders or other Eligible Assignees as Assuming Lenders to assume, effective as of the Extension Date, any Non-Consenting Lender’s Revolving Credit Commitment and all of the obligations of such Non-Consenting Lender under this Agreement thereafter arising, without recourse to or warranty by, or expense to, such Non-Consenting Lender; provided, however, that the amount of the Revolving Credit Commitment of any

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such Assuming Lender as a result of such substitution shall in no event be less than $20,000,000 unless the amount of the Revolving Credit Commitment of such Non-Consenting Lender is less than $20,000,000, in which case such Assuming Lender shall assume all of such lesser amount; and provided further that:

(i)            any such Consenting Lender or Assuming Lender shall have paid to such Non-Consenting Lender (A) the aggregate principal amount of, and any interest accrued and unpaid to the effective date of the assignment on, the outstanding Revolving Credit Advances, if any, of such Non-Consenting Lender plus (B) any accrued but unpaid facility fees owing to such Non-Consenting Lender as of the effective date of such assignment;

(ii)           all additional costs reimbursements, expense reimbursements and indemnities payable to such Non-Consenting Lender, and all other accrued and unpaid amounts owing to such Non-Consenting Lender hereunder, as of the effective date of such assignment shall have been paid to such Non-Consenting Lender; and

(iii)          with respect to any such Assuming Lender, the applicable processing and recordation fee required under Section 8.07(b) for such assignment shall have been paid;

provided further that such Non-Consenting Lender’s rights under Sections 2.11, 2.14 and 8.04, and its obligations under Section 7.06, shall survive such substitution as to matters occurring prior to the date of substitution.  At least five Business Days prior to any Extension Date, (A) each such Assuming Lender, if any, shall have delivered to the Borrower and the Agent an Assumption Agreement, duly executed by such Assuming Lender, such Non-Consenting Lender, the Borrower and the Agent and (B) any such Consenting Lender shall have delivered confirmation in writing satisfactory to the Borrower and the Agent as to the increase in the amount of its Commitment.  Upon the payment or prepayment of all amounts referred to in clauses (i), (ii) and (iii) of the immediately preceding sentence, each such Consenting Lender or Assuming Lender, as of the Extension Date, will be substituted for such Non-Consenting Lender under this Agreement and shall be a Lender for all purposes of this Agreement, without any further acknowledgment by or the consent of the other Lenders, and the obligations of each such Non-Consenting Lender hereunder shall, by the provisions hereof, be released and discharged.

(d)           If (after giving effect to any assignments or assumptions pursuant to subsection (c) of this Section 2.19) Lenders having Commitments equal to at least 50% of the Revolving Credit Commitments in effect immediately prior to the Extension Date consent in writing to a requested extension (whether by execution or delivery of an Assumption Agreement or otherwise) not later than one Business Day prior to such Extension Date, the Agent shall so notify the Borrower, and, subject to the satisfaction of the applicable conditions in Section 3.02, the Termination Date then in effect shall be extended for the additional one year period as described in subsection (a) of this Section 2.19, and all references in this Agreement, and in the Revolving Credit Notes, if any, to the “Termination Date” shall, with respect to each Consenting Lender and each Assuming Lender for such Extension Date, refer to the Termination Date as so extended.  Promptly following each Extension Date, the Agent shall notify the Lenders (including, without limitation, each Assuming Lender) of the extension of the scheduled Termination Date in effect immediately prior thereto and shall thereupon record in the Register the relevant information with respect to each such Consenting Lender and each such Assuming Lender.  On and after each Extension Date, the Ratable Share of each Lender’s participation in Letters of Credit and in L/C Obligations shall be calculated after giving effect to the Revolving Credit Commitments of the Lenders after the occurrence of such Extension Date.

SECTION 2.20.  Replacement of Lenders.  If any Lender requests compensation under Section 2.11 or notifies the Agent under Section 2.12 that the making of Eurodollar Rate Advances would

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be unlawful, or if the Borrower is required to pay any additional amount to any Lender or any governmental authority for the account of any Lender pursuant to Section 2.14, or if any Lender becomes a Defaulting Lender or fails to approve any amendment to this Agreement which is approved by the Required Lenders, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 8.07), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) if the assignee is not a Lender, the Borrower shall have received the prior written consent of the Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Revolving Credit Advances, accrued interest thereon, accrued fees and all other amounts then due and payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.11 or payments required to be made pursuant to Section 2.14, such assignment will result in a reduction in such compensation or payments at the time of such assignment.  A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

SECTION 2.21.  Cash Collateral.

(a)           Certain Credit Support Events.  Upon the occurrence of an Event of Default that is continuing, at the request of the Agent with the consent of the Required Lenders, or at the request of the Required Lenders, as contemplated by Section 6.02, the Borrower shall, immediately pay to the Agent in same day funds at the office of the Agent set forth on Schedule 8.02 for deposit in the Cash Collateral Account, an amount equal to the then outstanding amount of all such L/C Obligations.  At any time that there shall exist a Defaulting Lender, promptly upon the request of the Agent or an Issuing Bank, the Borrower shall deliver to the Agent Cash Collateral in an amount sufficient to cover all Fronting Exposure (after giving effect to Section 2.22(a)(iv) and any Cash Collateral provided by the Defaulting Lender).

(b)           Grant of Security Interest.  All Cash Collateral (other than credit support not constituting funds subject to deposit) shall be maintained in blocked, interest bearing deposit accounts at Bank of America (the “Cash Collateral Account”).  The Borrower, and to the extent provided by any Lender, such Lender, hereby grants to (and subjects to the control of) the Agent, for the benefit of the Agent, the Issuing Banks and the Lenders, and agrees to maintain, a first priority security interest in all such cash, deposit accounts and all balances therein, and all other property so provided as collateral pursuant hereto, and in all proceeds of the foregoing, all as security for the obligations to which such Cash Collateral may be applied pursuant to Section 2.21(c).  If at any time the Agent determines that Cash Collateral is subject to any right or claim of any Person other than the Agent as herein provided, or that the total amount of such Cash Collateral is less than the applicable Fronting Exposure and other obligations secured thereby, the Borrower or the relevant Defaulting Lender will, promptly upon demand by the Agent, pay or provide to the Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency.

(c)           Application.  Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under any of this Section 2.21 or Sections 2.03, 2.22 or 6.02 in respect of Letters of Credit shall be held and applied to the satisfaction of the specific L/C Obligations, obligations to fund participations therein (including, as to Cash Collateral provided by a Defaulting Lender, any interest accrued on such obligation) and other obligations for which the Cash Collateral was so provided, prior to any other application of such property as may be provided for herein.

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(d)           Release.  Cash Collateral (or the appropriate portion thereof) provided to reduce Fronting Exposure or other obligations shall be released promptly following (i) the elimination of the applicable Fronting Exposure or other obligations giving rise thereto (including by the termination of Defaulting Lender status of the applicable Lender (or, as appropriate, its assignee following compliance with Section 8.07)) or (ii) there exists excess Cash Collateral; provided, however, (x) that Cash Collateral which the Borrower shall have furnished pursuant to Section 6.02 shall not be released during the continuance of an Event of Default (and following application as provided in this Section 2.21 may be otherwise applied in accordance with Section 6.03), and (y) any Lender providing Cash Collateral and an Issuing Bank, as applicable, may agree that Cash Collateral shall not be released but instead held to support future anticipated Fronting Exposure or other obligations.

SECTION 2.22.  Defaulting Lenders.

(a)           Adjustments.  Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:

(i)            Waivers and Amendments.  That Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in Section 8.01.

(ii)           Reallocation of Payments.  Any payment of principal, interest, fees or other amounts received by the Agent for the account of that Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VI or otherwise, and including any amounts made available to the Agent by that Defaulting Lender pursuant to Section 8.05), shall be applied at such time or times as may be determined by the Agent as follows: first, to the payment of any amounts owing by that Defaulting Lender to the Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by that Defaulting Lender to any Issuing Bank hereunder; third, if so determined by the Agent or requested by any Issuing Bank, to be held as Cash Collateral for future funding obligations of that Defaulting Lender of any participation in any Letter of Credit; fourth, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Revolving Credit Advance in respect of which that Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Agent; fifth, if so determined by the Agent and the Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of that Defaulting Lender to fund Revolving Credit Advance under this Agreement; sixth, to the payment of any amounts owing to the Lenders or the Issuing Banks as a result of any judgment of a court of competent jurisdiction obtained by any Lender or any Issuing Bank against that Defaulting Lender as a result of that Defaulting Lender’s breach of its obligations under this Agreement; seventh, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against that Defaulting Lender as a result of that Defaulting Lender’s breach of its obligations under this Agreement; and eighth, to that Defaulting Lender or as otherwise directed by a court of competent jurisdiction, provided that if (A) such payment referred to in this clause “eighth” is a payment of the principal amount of any Revolving Credit Advance in respect of which that Defaulting Lender has not fully funded its appropriate share and (B) such Revolving Credit Advances were made at a time when the conditions set forth in Section 3.02 were satisfied or waived, or such Revolving Credit Advances were made pursuant to Section 2.03(c), such payment shall be applied solely to pay the Revolving Credit Advances of all non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Revolving Credit Advances of that Defaulting Lender.  Any payments, prepayments or other amounts paid or

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payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section 2.22(a)(ii) shall be deemed paid to and redirected by that Defaulting Lender, and each Lender irrevocably consents hereto.

(iii)          Certain Fees.  That Defaulting Lender (A) shall be entitled to receive any facility fee pursuant to Section 2.04(a) for any period during which that Lender is a Defaulting Lender only to extent allocable to the sum of (1) aggregate outstanding amount of the Revolving Credit Advances funded by it and (2) its Ratable Share of the stated amount of Letters of Credit for which such Defaulting Lender has provided Cash Collateral pursuant to Section 2.22(a)(ii) (and the Borrower shall (x) be required to pay to each Issuing Bank the amount of such fee allocable to its Fronting Exposure arising from that Defaulting Lender and (y) not be required to pay the remaining amount of such fee that otherwise would have been required to have been paid to that Defaulting Lender) and (B) shall be limited in its right to receive Letter of Credit Fees as provided in Section 2.04(b).

(iv)          Reallocation of Ratable Shares to Reduce Fronting Exposure.  During any period in which there is a Defaulting Lender, for purposes of computing the amount of the obligation of each non-Defaulting Lender to acquire, refinance or fund participations in Letters of Credit (other than Secured Letters of Credit) pursuant to Section 2.03, the “Ratable Share” of each non-Defaulting Lender shall be computed without giving effect to the Commitment of that Defaulting Lender; provided, that, (A) each such reallocation shall be given effect only if, at the date the applicable Lender becomes a Defaulting Lender, no Default or Event of Default exists (provided that such reallocation shall occur when the applicable Default or Event of Default has been cured or waived); and (B) after giving effect to any such allocation, the sum of (1) the aggregate outstanding amount of Revolving Credit Advances owing to that non-Defaulting Lender, plus (2) the amount of L/C Obligations of that non-Defaulting Lender shall not exceed the Revolving Credit Commitment of that non-Defaulting Lender.

(v)           Non-Pro Rata Commitment Reduction.  During any period in which a Lender is a Defaulting Lender, the Borrower may (in its discretion) apply all or any portion to be specified by the Borrower of any optional reduction of unused Commitments under Section 2.06 to the unused Commitments of any one or more Defaulting Lenders specified by the Borrower before applying any remaining reduction to all Lenders in the manner otherwise specified in Section 2.06.

(b)           Defaulting Lender Cure.  If the Borrower, the Agent, and the Issuing Banks agree in writing in their sole discretion that a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, purchase that portion of outstanding Revolving Credit Advances of the other Lenders or take such other actions as the Agent may determine to be necessary to cause the Revolving Credit Advances and funded and unfunded participations in Letters of Credit to be held on a pro rata basis by the Lenders in accordance with their Ratable Shares (without giving effect to Section 2.22(a)(iv)), whereupon that Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.

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ARTICLE III

CONDITIONS TO EFFECTIVENESS AND LENDING

SECTION 3.01.  Conditions Precedent to Effectiveness of Section 2.01.  Section 2.01 shall become effective on and as of the first date (the “Effective Date”) on which the following conditions precedent have been satisfied:

(a)           Except as disclosed in the Public Filings, there shall have occurred no Material Adverse Change since December 31, 2009.

(b)           The Borrower shall have notified each Lender and the Agent in writing as to the proposed Effective Date, and the Agent shall have confirmed to the Borrower in writing that the Effective Date has occurred.

(c)           The Borrower shall have paid all accrued fees and expenses of the Agent, the Joint Lead Arrangers, and the Lenders (including the accrued fees and expenses of counsel to the Agent) that have been invoiced at least two Business Days prior to the proposed Effective Date.

(d)           On the Effective Date, the following statements shall be true and the Agent shall have received for the account of each Lender a certificate signed by a duly authorized officer of the Borrower, dated the Effective Date, stating that:

(i)            The representations and warranties contained in Section 4.01 are correct on and as of the Effective Date, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date, and

(ii)           No event has occurred and is continuing that constitutes a Default.

(e)           The Agent shall have received on or before the Effective Date the following, each dated such day, in form and substance satisfactory to the Agent and (except for the Revolving Credit Notes) in sufficient copies for each Lender:

(i)            The Revolving Credit Notes to the order of the Lenders to the extent requested by any Lender pursuant to Section 2.16.

(ii)           Certified copies of the resolutions of the Board of Directors of the Borrower approving this Agreement and the Revolving Credit Notes, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement and the Revolving Credit Notes.

(iii)          A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement and the Revolving Credit Notes and the other documents to be delivered hereunder.

(iv)          One or more favorable opinions of counsel to the Borrower, substantially in the form of Exhibit D hereto and as to such other matters as any Lender through the Agent may reasonably request.

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(f)            The Borrower shall have terminated the commitments (or such commitments shall have been terminated in accordance with their terms), and paid in full all Debt, interest, fees and other amounts then due and payable, under the Five Year Credit Agreement dated as of June 10, 2005, among the Borrower, the lenders and agents parties thereto and Citicorp USA, Inc., as administrative agent and each of the Lenders that is a party to such credit facility hereby waives, upon execution of this Agreement the requirement of prior notice under such credit facility relating to the termination of commitments thereunder.

SECTION 3.02.  Conditions Precedent to Each Revolving Credit Borrowing, Issuance, Commitment Increase and Extension of the Termination Date.  The obligation of each Lender to make a Revolving Credit Advance (other than a Revolving Credit Advance made by any Issuing Bank or any Lender pursuant to Section 2.03(c)) on the occasion of each Revolving Credit Borrowing, the obligation of each Issuing Bank to issue a Letter of Credit, each Commitment Increase and each extension of the Termination Date pursuant to Section 2.19 shall be subject to the conditions precedent that the Effective Date shall have occurred and on the date of such Revolving Credit Borrowing or such Issuance, such Commitment Increase or the applicable Extension Date the following statements shall be true (and each of the giving of the applicable Notice of Revolving Credit Borrowing, Letter of Credit Application, request for Commitment Increase, request for extension of the Termination Date and the acceptance by the Borrower of the proceeds of such Revolving Credit Borrowing or such Issuance shall constitute a representation and warranty by the Borrower that on the date of such Revolving Credit Borrowing, such Issuance, such Commitment Increase or such extension of the Termination Date such statements are true):

(a)           the representations and warranties contained in Section 4.01 (except, in the case of Revolving Credit Borrowings or Issuances, the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof) are correct in all material respects on and as of such date, before and after giving effect to such Revolving Credit Borrowing, such Issuance, such Commitment Increase or such extension of the Termination Date and to the application of the proceeds therefrom, as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date;

(b)           no event has occurred and is continuing, or would result from such Revolving Credit Borrowing, such Issuance, such Commitment Increase or such extension of the Termination Date or from the application of the proceeds therefrom, that constitutes a Default; and

(c)           the Borrower is in pro forma compliance with Section 5.03(a) and Section 5.03(b) on and as of such date after giving effect to such Revolving Credit Borrowing and to the application of proceeds therefrom, such Commitment Increase or such extension of the Termination Date.

SECTION 3.03.  Determinations Under Section 3.01.  For purposes of determining compliance with the conditions specified in Section 3.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Agent responsible for the transactions contemplated by this Agreement shall have received notice from such Lender prior to the date that the Borrower, by notice to the Lenders, designates as the proposed Effective Date, specifying its objection thereto.  The Agent shall promptly notify the Lenders of the occurrence of the Effective Date.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES

SECTION 4.01.  Representations and Warranties of the Borrower.  The Borrower represents and warrants as follows:

(a)           The Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota, (ii) has all corporate powers and authority required to carry on its business as now conducted and (iii) has all licenses, authorizations, consents and approvals required to carry on its business as now conducted, except where the failure to have any such license, authorization, consent or approval could not reasonably be expected to have a Material Adverse Effect.  Each of the Borrower and each Significant Subsidiary is duly qualified as a foreign corporation, licensed and in good standing in each jurisdiction where qualification or licensing is required by the nature of its business or the character and location of its property, business or customers, where the failure to be so qualified, licensed and/or in good standing could reasonably be expected to have a Material Adverse Effect.

(b)           The execution, delivery and performance by the Borrower of this Agreement and the Revolving Credit Notes to be delivered by it, and the consummation of the transactions contemplated hereby, are within the Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene the Borrower’s charter or by-laws, (ii) violate any law, rule, regulation, order, writ, judgment, decree, determination or award applicable to the Borrower if such violation could reasonably be expected to have a Material Adverse Effect or (iii) violate or constitute a default under any contractual restriction binding on or affecting the Borrower if such violation or default could reasonably be expected to have a Material Adverse Effect or subject the Lenders, Agent or the Joint Lead Arrangers to liability.

(c)           No authorization or approval, and no notice to or filing with, any governmental authority or regulatory body or any other Person is required for the due execution, delivery and performance by the Borrower of this Agreement or the Revolving Credit Notes to be delivered by it, except for those that have been duly obtained, taken, given or made and are in full force and effect and except to the extent the failure to get any such authorization or approval or give any such notice or make any such filing could not be reasonably expected to have a Material Adverse Effect.

(d)           This Agreement has been, and each of the Revolving Credit Notes to be delivered by it when delivered hereunder will have been, duly executed and delivered by the Borrower.  This Agreement is, and each of the Revolving Credit Notes when delivered hereunder will be, the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with their respective terms, subject to (i) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally, (ii) the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (iii) an implied covenant of good faith and fair dealing.

(e)           Except as disclosed on Schedule 4.01(e), (i) the Consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 2009, and the related Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, accompanied by an opinion of KPMG LLP, independent public accountants, and (ii) the Consolidated balance sheet of the Borrower and its Subsidiaries as at March 31, 2010, which set forth the financial condition of the Borrower and is Subsidiaries, and the related Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the three months then ended, duly certified by the chief financial officer

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or chief accounting officer of the Borrower, copies of which have been furnished to each Lender, fairly present in all material respects, subject, in the case of said balance sheet as at March 31, 2010, and said statements of income and cash flows for the three months then ended, to year-end audit adjustments and the absence of certain notes, the Consolidated financial condition of the Borrower and its Subsidiaries as at such dates and the Consolidated results of the operations of the Borrower and its Subsidiaries for the periods ended on such dates, all in accordance with GAAP.  Except as otherwise disclosed in the Public Filings, since December 31, 2009, there has been no Material Adverse Change.

(f)            There is no pending or, to the knowledge of the Borrower, threatened action, suit, investigation, litigation or proceeding, including, without limitation, under any Environmental Law, affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator that (i) except as disclosed in the Public Filings, could be reasonably likely to have a Material Adverse Effect, and there shall have been no additional claim made in respect of any action, suit, investigation, litigation or proceeding disclosed in the Public Filings that could be reasonably likely to have a Material Adverse Effect (except if such additional claim is disclosed in the Public Filings) or (ii) purports to affect the legality, validity or enforceability of this Agreement or any Revolving Credit Note or the consummation of the transactions contemplated hereby.

(g)           (i) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock that would result in or otherwise cause a violation of Regulation U with respect to any extensions of credit made by a Lender under this Agreement.

(ii) The Borrower will not use the proceeds of any Revolving Credit Advance in any manner that would result in or otherwise cause of violation of Regulation U with respect to any extensions of credit made by a Lender under this Agreement.

(h)           The Borrower is not an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

(i)            Borrower and each of its Subsidiaries is in compliance with all applicable laws, rules, regulations and orders, including, without limitation, compliance with ERISA and Environmental Laws, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect.

ARTICLE V

COVENANTS OF THE BORROWER

SECTION 5.01.  Affirmative Covenants.  So long as any Revolving Credit Advance shall remain unpaid, any Letter of Credit is outstanding or any Lender shall have any Commitment hereunder, the Borrower will:

(a)           Compliance with Laws, Etc.  Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and Environmental Laws, except to the extent that failure to so comply would not reasonably be expected to have a Material Adverse Effect.

(b)           Payment of Taxes, Etc.  Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property that, if unpaid, might by law become a Lien or charge upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its

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property (other than Permitted Liens); provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim (x) that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained or (y) the non-payment of which, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

(c)           Maintenance of Insurance.  Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as the Borrower shall from time to time determine, based on its experience and knowledge of the industry, are of a character usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates; provided, however, that the Borrower and its Subsidiaries may self-insure to the extent consistent with prudent business practice.

(d)           Preservation of Corporate Existence, Etc.  (i) Preserve and maintain its corporate existence (other than pursuant to any transaction permitted under Section 5.02(b)), (ii) cause each of its Significant Subsidiaries to preserve and maintain its corporate existence (other than pursuant to any merger or consolidation of a Significant Subsidiary with any other Person) except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect and (iii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

(e)           Visitation Rights.  Without limitation of Section 8.08, at any reasonable time and from time to time during normal business hours, permit the Agent at the request of any of the Lenders or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants.

(f)            Keeping of Books.  Except as disclosed on Schedule 4.01(e), the Borrower will keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets of the Borrower, and reported on a consolidated basis in accordance with GAAP.

(g)           Maintenance of Properties, Etc.  Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition (ordinary wear and tear excepted) except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

(h)           Transactions with Affiliates.  Conduct, and cause each of its Subsidiaries to conduct, all material transactions otherwise permitted under this Agreement with any of their Affiliates on terms that are fair and reasonable and no less favorable to the Borrower or such Subsidiary than it would obtain in a comparable arm’s-length transaction with a Person not an Affiliate, except for transactions between or among the Borrower and/or its Subsidiaries.

(i)            Reporting Requirements.  Furnish to the Lenders:

(i)            as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Borrower, the Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such quarter and Consolidated statements of

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income and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, duly certified (subject to year-end audit adjustments) by the chief financial officer or chief accounting officer of the Borrower as having been prepared in accordance with GAAP and certificates of the chief financial officer or chief accounting officer of the Borrower as to compliance with the terms of this Agreement and setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 5.03, provided that in the event of any change in generally accepted accounting principles used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 5.03, after notification of a request for an amendment as contemplated under Section 1.03, a statement of reconciliation conforming such financial statements to Fixed GAAP; provided further that the Borrower shall only be required to provide any such statement of reconciliation with respect to the initial quarter in which any such change in GAAP occurs and only if an amendment has not been agreed upon prior to the date the compliance certificate referred to above is delivered pursuant to this clause (i);

(ii)           as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, containing the Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such fiscal year, in each case accompanied by an opinion by KPMG LLP or other independent public accountants of nationally recognized standing and, in addition, the Borrower will provide a certificate of its chief financial officer or chief accounting officer setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 5.03, provided that in the event of any change in generally accepted accounting principles used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 5.03, after notification of a request for an amendment as contemplated under Section 1.03, a statement of reconciliation conforming such financial statements to Fixed GAAP; provided further that the Borrower shall only be required to provide any such statement of reconciliation with respect to the initial quarter in which any such change in GAAP occurs and only if an amendment has not been agreed upon prior to the date the compliance certificate referred to above is delivered pursuant to this clause (ii);

(iii)          as soon as possible and in any event within five days after any senior officer becomes aware or should have become aware of the occurrence of each Default continuing on the date of such statement, a statement of the chief financial officer or chief accounting officer of the Borrower setting forth details of such Default and the action that the Borrower has taken and proposes to take with respect thereto;

(iv)          promptly after the sending or filing thereof, copies of all reports and registration statements that the Borrower or any Subsidiary files with the SEC;

(v)           such other information respecting the Borrower or any of its Subsidiaries as any Lender through the Agent may from time to time reasonably request.

Reports, financial statements and other information required to be delivered by Borrower pursuant to clauses (i), (ii), (iii), (iv) and (v) of this subsection (i) shall be deemed to have been delivered on the date on which the Borrower posts such reports, financial statements or other information on its website on the Internet at www.travelers.com, at www.sec.gov or at such other website identified by the Borrower in a notice to the Agent and the Lenders and that is accessible by the Lenders without charge; provided that the Borrower shall deliver paper copies of such information to any Lender promptly upon request of such Lender through the Agent and provided

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further that the Lenders shall be deemed to have received such information on the date such information is posted at the website pursuant to this sentence.

(j)            Use of Proceeds.  Use the proceeds of any Revolving Credit Advance for general corporate purposes, including commercial paper backup, not in contravention of this Agreement or any Revolving Credit Note.

SECTION 5.02.  Negative Covenants.  So long as any Revolving Credit Advance shall remain unpaid, any Letter of Credit is outstanding or any Lender shall have any Commitment hereunder, the Borrower will not:

(a)           Liens, Etc.  Create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien on or with respect to any of its properties, whether now owned or hereafter acquired (other than Unrestricted Margin Stock), other than:

(i)            Permitted Liens,

(ii)           purchase money Liens upon or in any real property or equipment acquired or held by the Borrower or any Subsidiary in the ordinary course of business to secure the purchase price of such property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition of such property or equipment, or Liens existing on such property or equipment at the time of its acquisition (other than any such Liens created in contemplation of such acquisition that were not incurred to finance the acquisition of such property) or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided, however, that no such Lien shall extend to or cover any properties of any character other than the real property or equipment being acquired, and no such extension, renewal or replacement shall extend to or cover any properties not theretofore subject to the Lien being extended, renewed or replaced,

(iii)          the Liens existing on the Effective Date and described on Schedule 5.02(a) hereto,

(iv)          Liens on property of a Person existing at the time such Person is merged into or consolidated with the Borrower or any Subsidiary of the Borrower or becomes a Subsidiary of the Borrower; provided that such Liens were not created in contemplation of such merger, consolidation or acquisition and do not extend to any assets other than those of the Person so merged into or consolidated with the Borrower or such Subsidiary or acquired by the Borrower or such Subsidiary,

(v)           Liens arising in connection with capital lease obligations; provided, however, that no such Lien shall extend to or cover any property or assets other than the property and assets subject to such capital lease obligations,

(vi)          Liens arising in connection with repurchase agreements, reverse purchase agreements and other similar agreements for the purchase, sale or loan of securities, in each case in the ordinary course of business; provided that no such Lien shall extend to or cover any property or assets other than the securities subject thereto,

(vii)         Liens on accounts or notes receivable (whether such accounts or notes receivable constitute accounts, instruments, chattel paper or general intangibles) and other related assets, and sales or discounts on the foregoing, arising solely in connection with the securitization thereof (whether in one transaction or in a series of transactions); provided that no such Lien shall extend

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to or cover any property or assets other than the receivables and related assets subject to such securitization,

(viii)        Liens on Invested Assets pursuant to trust, letter of credit or other security arrangements in connection with Reinsurance Agreements or Primary Policies;

(ix)           other Liens securing Debt and other obligations in an aggregate principal amount, which, together with, without duplication, all other Liens permitted by clauses (iv) through (viii) above and this clause (ix), secures Debt and other obligations in an aggregate principal amount at the time such Debt or other obligations are incurred not to exceed 15% of the Net Worth of the Borrower and its Subsidiaries on a consolidated basis as of the last day of the immediately preceding fiscal period for which financial statements have been delivered,

(x)            the replacement, extension or renewal of any Lien permitted by clause (iii) or (iv) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount or change in any direct or contingent obligor) of the Debt secured thereby, and

(xi)           any Lien on any asset of St. Paul Fire securing a reimbursement obligation arising from the issuance of a letter of credit for the account of St. Paul Fire (or one of its Affiliates) in the ordinary course of business.

(b)           Mergers, Etc.  Merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person, except that (i) the Borrower may merge or consolidate with or into any other Person so long as (A) the Borrower is the surviving corporation or, (B) if it is not the surviving entity, (x) the surviving entity shall have assumed all of the obligations of the Borrower under this Agreement pursuant to documentation reasonably satisfactory to the Agent and shall thereafter be deemed to be the Borrower for all purposes hereunder, (y) immediately following the closing date of such consolidation or merger, the surviving entity shall have senior long-term unsecured debt ratings from at least two nationally recognized rating agencies that are at least equal to the Borrower’s ratings immediately preceding the closing date of such consolidation or merger, but in any event such rating shall not be lower than BBB- by S&P or lower than Baa3 by Moody’s, and (z) the surviving entity shall be an entity organized or existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof, and (ii) and the Borrower may convey, transfer, lease or otherwise dispose of all or substantially all of its assets to any other Person, so long as (A) such other Person shall have assumed all of the obligations of the Borrower under this Agreement pursuant to documentation reasonably satisfactory to the Agent and shall thereafter be deemed to be the Borrower for all purposes hereunder (B) immediately following the closing date of such consolidation or merger, the acquiring entity shall have senior long-term unsecured debt ratings from at least two nationally recognized rating agencies that are at least equal to the Borrower’s ratings immediately preceding the closing date of such conveyance, but in any event no such rating shall be lower than BBB- by S&P or lower than Baa3 by Moody’s, transfer, lease or disposition and (C) the acquiring entity shall be an entity organized or existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof; provided that, in all cases, that no Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom.

(c)           Accounting Changes.  Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as required or permitted by GAAP or statutory accounting principles.

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(d)           Use of Proceeds.  Use the proceeds of any Revolving Credit Advance to purchase or carry Margin Stock or to extend credit to others for the purpose of purchasing or carrying Margin Stock or to refund indebtedness originally incurred for such purpose, to the extent that such use of the proceeds would result in or otherwise cause a violation of Regulation U.

SECTION 5.03.  Financial Covenants.  So long as any Revolving Credit Advance shall remain unpaid, any Letter of Credit is outstanding or any Lender shall have any Commitment hereunder, the Borrower will:

(a)           Tangible Net Worth.  Maintain, as of the end of each fiscal quarter as calculated in each compliance certificate delivered pursuant to Section 5.01(i)(i) and (ii), or, in the case of Section 3.02(c), as of the date of and after giving effect to any Revolving Credit Borrowing and to the application of proceeds therefrom, any Commitment Increase or any extension of the Termination Date, an excess of Consolidated Net Worth over goodwill and other intangible assets of not less than (i) $16,100,000,000 minus (ii) 70.0% of the aggregate amount of repurchases of capital stock of the Borrower consummated by the Borrower since March 31, 2010; provided that the amount subtracted pursuant to this clause (ii) shall not exceed $1,750,000,000.

(b)           Leverage Ratio.  Maintain, as of the end of each fiscal quarter as calculated in each compliance certificate delivered pursuant to Section 5.01(i)(i) and (ii), a ratio of Total Consolidated Debt to the sum of Total Consolidated Debt plus Consolidated Net Worth of not greater than 0.40 to 1.00.

ARTICLE VI

EVENTS OF DEFAULT

SECTION 6.01.  Events of Default.  If any of the following events (“Events of Default”) shall occur and be continuing:

(a)           The Borrower shall fail to pay any principal of any Revolving Credit Advance when the same becomes due and payable; or the Borrower shall fail to pay any interest on any Revolving Credit Advance or, to the extent any L/C Obligation is not deemed to be converted to a Revolving Credit Borrowing under the last sentence of Section 2.03(c)(i), any Unreimbursed Amount or make any other payment of fees or other amounts payable under this Agreement or any Revolving Credit Note within three Business Days after the same becomes due and payable; or

(b)           Any representation or warranty made by the Borrower (or any of its officers) herein or in any Revolving Credit Note shall prove to have been incorrect in any material respect when made or deemed made; or

(c)           (i) The Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(d), (h) or (i)(iii), 5.02 or 5.03, or (ii) the Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Borrower by the Agent or any Lender, provided that it shall not be an Event of Default for a failure to provide a notice of Default under Section 5.01(i)(iii) with respect to a Default under clause (ii) of this Section until the day which is 30 days after any senior officer becomes aware or should have become aware of the occurrence of such Default at which time the failure to provide such notice shall be an Event of Default; or

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(d)           (i) The Borrower or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt that is outstanding in a principal amount or, in the case of a Hedge Agreement, net amount, of at least $100,000,000 in the aggregate (but excluding Debt outstanding hereunder) of the Borrower or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue (A) after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt and (B) for two Business Days following receipt by Borrower of notice of such failure to pay when due and payable; or (ii) the Borrower or any of its Subsidiaries shall fail to observe, perform or comply with any other agreement or condition relating to any such Debt other than, with respect to Debt consisting of any Hedge Agreements, termination events or similar events pursuant to the terms of such Hedge Agreements, and such failure shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such failure to observe, conform or comply is to accelerate the maturity of such Debt or declare such Debt due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or

(e)           The Borrower or any of its Significant Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Significant Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Borrower or any of its Significant Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or

(f)            Judgments or orders for the payment of money in excess of $100,000,000 in the aggregate shall be rendered against the Borrower or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment following a failure of the Borrower or any of its Subsidiaries to pay the amount of such order and such proceedings shall remain unstayed for 10 consecutive Business Days or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment or order shall not be an Event of Default under this Section 6.01(f) if and for so long as (i) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering payment thereof and (ii) such insurer, which shall be rated at least “A” by A.M. Best Company, has been notified of, and has not disputed the claim made for payment of, the amount of such judgment or order; or

(g)           (i) Any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of the Borrower (or other securities convertible into such Voting Stock) representing 35% or more of the combined voting power of all Voting Stock of the Borrower; or (ii) during any period of up to 24 consecutive months, commencing before or after the date of this Agreement, individuals who at the beginning of such 24-month period were directors of the Borrower (“Continuing Directors”) shall cease for any reason (other

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than due to death or disability) to constitute a majority of the board of directors of the Borrower; provided, however that individuals (x) appointed by a majority of the remaining members of the board of directors of the Borrower or (y) nominated for election by a majority of the remaining members of the board of directors of the Borrower and thereafter elected as directors by the shareholders of the Borrower, shall constitute Continuing Directors; or

(h)           The Borrower or any of its ERISA Affiliates shall incur, or shall be reasonably likely to incur, liabilities relating to any Plans as a result of one or more of the following:  (i) the occurrence of any ERISA Event; (ii) the partial or complete withdrawal of the Borrower or any of its ERISA Affiliates from a Multiemployer Plan within the meaning of Part 1 of Subtitle E of Title IV of ERISA; or (iii) the reorganization (within the meaning of Section 4241 of ERISA) or the termination of a Multiemployer Plan pursuant to Section 4041A or 4042 of ERISA, which in the case of clause (i), (ii) and (iii) individually or in the aggregate would have a Material Adverse Effect; or

(i)            (i) any insurance commissioner or any other state insurance regulatory official shall intervene through legal proceedings and assume control of any portion of the business of the Borrower or any Significant Subsidiary, or (ii) any insurance commissioner or any State insurance regulatory official shall initiate any legal proceeding not dismissed or stayed within 90 days, with a view toward intervening, in the control of a portion of the business of the Borrower or any Significant Subsidiary, which actions in the foregoing clauses (i) or (ii) could be reasonably expected to result in a Material Adverse Effect with respect to the Borrower and its Significant Subsidiaries, taken as a whole; provided that the provisions of clauses (i) and (ii) shall not include normal regulatory practices, including the review and approval of rates and forms, market conduct examinations, financial examinations, and other routine examinations conducted in the ordinary course of business with respect to the Borrower and its Significant Subsidiaries;

then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Lender to make Revolving Credit Advances (other than Revolving Credit Advances to be made by an Issuing Bank or a Lender pursuant to Section 2.03(c)) and of the Issuing Banks to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Revolving Credit Advances, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Revolving Credit Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (A) the obligation of each Lender to make Revolving Credit Advances (other than Revolving Credit Advances to be made by an Issuing Bank or a Lender pursuant to Section 2.03(c)) and of the Issuing Banks to issue Letters of Credit shall automatically be terminated and (B) the Revolving Credit Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.

SECTION 6.02.  Actions in Respect of the Letters of Credit upon Default.  If any Event of Default shall have occurred and be continuing, the Agent may with the consent, or shall at the request, of the Required Lenders, require that the Borrower provide Cash Collateral pursuant to the terms of Section 2.21; provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective without further act of the Agent or any Lender.  If at any time thereafter the Agent determines that the funds held in the Secured L/C Account and the Cash Collateral Account are less than the then outstanding amount of all

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L/C Obligations, then the Borrower will, forthwith upon demand by the Agent, pay to the Agent, as additional funds, which the Agent determines to be free and clear of any right and claim, which additional funds shall be deposited and held in the Secured L/C Account or the Cash Collateral Account, as appropriate, an amount equal to the excess of (a) such then outstanding amount of all L/C Obligations over (b) the total amount of funds, if any, then held in the Secured L/C Account and the Cash Collateral Account.

SECTION 6.03.  Application of Funds.  After the exercise of remedies provided for in Sections 6.01 or 6.02 (or after the Revolving Credit Advances have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 6.02), any amounts received on account of the amounts owing under this Agreement or any Revolving Credit Note shall, subject to the provisions of Sections 2.03(g), 2.21 and 2.22, be applied by the Agent in the following order:

First, to payment of that portion of the obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Agent and amounts payable under Article III) payable under this Agreement or other writing to the Agent in its capacity as such;

Second, to payment of that portion of the obligations constituting amounts payable pursuant to the second sentence of Section 8.04(a) to the Lenders and the Issuing Banks (including fees, charges and disbursements of counsel to the respective Lenders and the Issuing Banks), ratably among them in proportion to the respective amounts described in this clause Second payable to them;

Third, to payment of that portion of the obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Revolving Credit Borrowings and other obligations, ratably among the Lenders and the Issuing Banks in proportion to the respective amounts described in this clause Third payable to them;

Fourth, to payment of that portion of the obligations constituting unpaid principal of the Revolving Credit Borrowings, ratably among the Lenders and the Issuing Banks in proportion to the respective amounts described in this clause Fourth held by them;

Fifth, to payment of that portion of the obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit Fees and amounts payable pursuant to clause Second above) payable under this Agreement to the Lenders and the Issuing Banks (including fees, charges and disbursements of counsel to the respective Lenders and the Issuing Banks and amounts payable under Section 2.13), ratably among them in proportion to the respective amounts described in this clause Fifth payable to them;

Sixth, to the Agent for the account of the Issuing Banks, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit to the extent not otherwise Cash Collateralized by the Borrower pursuant to Sections 2.03 and 2.21;

Last, the balance, if any, after all of the obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by law.

Subject to Sections 2.03(c) and 2.22, amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur.  Subject to Section 2.03(g), amounts deposited in the Secured L/C Account with respect to Secured Letters of Credit shall be applied to satisfy drawings under such

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Secured Letters of Credit as the occur.  After the exercise of remedies provided for in Sections 6.01 or 6.02, if any amount remains on deposit in the Cash Collateral Account or the Secured L/C Account after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other obligations, if any, in the order set forth above.

ARTICLE VII

THE AGENT

SECTION 7.01.  Authorization and Action.  Each Lender (in its capacities as a Lender and Issuing Bank, as applicable) hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto.  As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Revolving Credit Notes), the Agent shall not be required to exercise any discretion (other than such discretion as is delegated to the Agent under the terms of this Agreement, together with such powers as are reasonably incidental thereto) or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Agent shall believe in good faith shall be necessary, under the circumstances), and such instructions shall be binding upon all Lenders and all holders of Revolving Credit Notes; provided, however, that the Agent shall not be required to take any action that, in its opinion or in the opinion of counsel to the Agent, exposes the Agent or its Affiliates and their officers, directors, employees, agents and advisors to personal liability or that is contrary to this Agreement or applicable law.  The Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement.  The provisions of this Article are solely for the benefit of the Agent, the Lenders, and the Issuing Banks, and the Borrower shall not have rights as a third party beneficiary of any of such provisions.

SECTION 7.02.  Agent’s Reliance, Etc.  Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct.  Without limitation of the generality of the foregoing, the Agent:  (i) may treat the Lender that made any Revolving Credit Advance as the holder of the Debt resulting therefrom until the Agent receives and accepts an Assumption Agreement entered into by an Assuming Lender as provided in Section 2.18 or 2.19, as the case may be, or an Assignment and Assumption entered into by such Lender, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance, observance or satisfaction of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or the existence at any time of any Default or to inspect the property (including the books and records) of the Borrower; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, this Agreement or any other instrument or document furnished pursuant hereto; (vi) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by electronic message, Internet website posting, telecopier, or other distribution) believed by it to be genuine and signed or sent by the proper party or parties and may rely upon any statement made to it orally or by telephone and believed by it to have been made by the

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proper Person, and shall not incur any liability for relying thereon; (viii) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing; shall not be deemed to have knowledge of any Default unless and until notice describing such Default is given to the Agent by the Borrower, a Lender, or an Issuing Bank; (ix) shall not be responsible for the contents of any certificate, report, or other document delivered hereunder or in connection herewith; (ix) shall not be responsible for the satisfaction of any condition set forth in Article III or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Agent; it being understood that in determining compliance with any condition hereunder to the making of a Revolving Credit Advance or the Issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or an Issuing Bank, the Agent may presume that such condition is satisfactory to such Lender or such Issuing Bank unless the Agent shall have received notice to the contrary from such Lender or such Issuing Bank prior to the making of such Revolving Credit Advance or the Issuance of such letter of Credit.  The Agent may consult with legal counsel, independent accountants, and other experts selected by it, as well as the Borrower and its representatives, and shall not be liable to the Lenders or the Issuing Banks for any action taken or not taken by it in accordance with the advice of any such counsel, accountants, or experts.

SECTION 7.03.  Delegation of Duties.  The Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any Revolving Credit Note by or through any one or more sub-agents appointed by the Agent.  The Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective officers, directors, employees, agents and advisors.  The exculpatory provisions of this Article VII shall apply to any such sub-agent and to the respective officers, directors, employees, agents and advisors of the Agent and any such sub agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent.

SECTION 7.04.  Rights as a Lender  The Person serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Agent hereunder in its individual capacity.  Such Person and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from, act as the financial advisor or in any other advisory capacity for, and generally engage in any kind of business with, the Borrower, any of its Subsidiaries and any Person who may do business with or own securities of the Borrower or any Subsidiary or Affiliate thereof, all as if such Person were not the Agent and without any duty to account therefor to the Lenders.  The Agent shall have no duty to disclose information obtained or received by it or any of its Affiliates relating to the Borrower or its Subsidiaries to the extent such information was obtained or received in any capacity other than as Agent.

SECTION 7.05.  Lender Credit Decision.  Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

SECTION 7.06.  Indemnification.

(a)           The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of the Revolving Credit Advances (and any participations in Letter of Credit) then owed to each of them (or if no Revolving Credit Advances are

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at the time outstanding, ratably according to the respective amounts of their Revolving Credit Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement (collectively, the “Indemnified Costs”), provided that no Lender shall be liable for any portion of the Indemnified Costs resulting from the Agent’s gross negligence or willful misconduct.  Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Agent is not reimbursed for such expenses by the Borrower.  In the case of any investigation, litigation or proceeding giving rise to any Indemnified Costs, this Section 7.06 applies whether any such investigation, litigation or proceeding is brought by the Agent, any Lender or a third party.

(b)           Each Lender severally agrees to indemnify the Issuing Banks (to the extent not promptly reimbursed by the Borrower) from and against such Lender’s Ratable Share of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against any such Issuing Bank in any way relating to or arising out of this Agreement, any Revolving Credit Note, or any action taken or omitted by such Issuing Bank hereunder or in connection herewith; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Issuing Bank’s gross negligence or willful misconduct.  Without limitation of the foregoing, each Lender agrees to reimburse any such Issuing Bank promptly upon demand for its Ratable Share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Borrower under Section 8.04, to the extent that such Issuing Bank is not promptly reimbursed for such costs and expenses by the Borrower.

(c)           The failure of any Lender to reimburse the Agent or any Issuing Bank promptly upon demand for its Ratable Share of any amount required to be paid by the Lenders to the Agent as provided herein shall not relieve any other Lender of its obligation hereunder to reimburse the Agent or any Issuing Bank for its Ratable Share of such amount, but no Lender shall be responsible for the failure of any other Lender to reimburse the Agent or any Issuing Bank for such other Lender’s Ratable Share of such amount.  Without prejudice to the survival of any other agreement of any Lender hereunder, the agreement and obligations of each Lender contained in this Section 7.06 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the Revolving Credit Notes.  Each of the Agent and each Issuing Bank agrees to return to the Lenders their respective Ratable Shares of any amounts paid under this Section 7.06 that are subsequently reimbursed by the Borrower.

SECTION 7.07.  Successor Agent.

(a)           The Agent may resign at any time by giving written notice thereof to the Lenders, the Issuing Banks, and the Borrower and may be removed at any time with cause by the Required Lenders.  Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent with the consent, if no Event of Default has occurred and is continuing, of the Borrower, which consent shall not be unreasonably withheld or delayed.  If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent’s giving of notice of resignation or the Required Lenders’ removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a

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commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000; provided that if the Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (i) the retiring Agent shall be discharged from its duties and obligations hereunder and under any Revolving Credit Note and (ii) all payments, communications and determinations provided to be made by, to or through the Agent shall instead be made by or to each Lender and each Issuing Bank directly, until such time as the Required Lenders appoint a successor Agent as provided for above in this Section.  Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring or retired Agent, and the retiring or retired Agent shall be discharged from its duties and obligations under this Agreement (if not already discharged therefrom as provided above in this Section 7.07(a)).  After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. The fees payable by the Borrower to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor.  After the retiring Agent’s resignation hereunder and under any Revolving Credit Note, the provisions of this Article VII and Section 8.04 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective officers, directors, employees, agents and advisors in respect of any actions taken or omitted to be taken by any of them while the retiring Agent was acting as Agent.

(b)           Any resignation by the Person then acting as Agent pursuant to this Section 7.07 shall also constitute, in the sole discretion of such Person, its resignation as an Issuing Bank with respect to any Letters of Credit issued after the date of such resignation.  Upon the acceptance of a successor’s appointment as Agent hereunder, (i) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the resigning Issuing Bank, (ii) the resigning Issuing Bank shall be discharged from all of its respective duties and obligations hereunder or under any Revolving Credit Note, and (iii) the successor Issuing Bank shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the resigning Issuing Bank to effectively assume the obligations of the resigning Issuing Bank with respect to such Letters of Credit.

SECTION 7.08.  Other Agents.  Each Lender hereby acknowledges that no documentation agent or any other Lender designated as any “Agent” on the cover page hereof or in the preamble hereto (other than Bank of America in its capacity as Agent) shall have any powers, duties, or responsibilities under this Agreement, except in its capacity, as applicable, as the Agent, a Lender, or an Issuing Bank hereunder.

ARTICLE VIII

MISCELLANEOUS

SECTION 8.01.  Amendments, Etc.  No amendment or waiver of any provision of this Agreement or the Revolving Credit Notes, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing, signed by the Required Lenders, and the Borrower, and notice of such amendment or waiver shall be provided to the Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by each Lender directly affected thereby, do any of the following:  (a) waive any of the conditions specified in Section 3.01, (b) extend or increase the Commitments of the Lenders (or reinstate any Commitment terminated pursuant to Section 6.01), other than increases of Commitments as provided in Section 2.18

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and extensions of Commitments as provided in Section 2.19, (c) reduce the principal of, or rate of interest on, any Revolving Credit Advance or (subject to clause (iii) of the last proviso in this Section 8.01) any fees or other amounts payable hereunder or under any Revolving Credit Note, (d) change Section 6.03 in a manner that would alter the ratable sharing of payments required thereby; provided, however, that only the consent of the Required Lenders shall be necessary to amend the definition of “Default Interest” or “Default Rate” or to waive any obligation of the Borrower to pay Default Interest or interest or Letter of Credit Fees at the Default Rate; (e) postpone any date fixed by this Agreement or the Revolving Credit Notes for any payment or mandatory prepayment of principal, interest, fees, or other amounts due to the Lenders hereunder or under the Revolving Credit Notes, other than extensions of the Termination Date as provided in Section 2.19; (f) change the percentage of the Revolving Credit Commitments or of the aggregate unpaid principal amount of the Revolving Credit Advances, or the number of Lenders, that shall be required for the Lenders or any of them to take any action hereunder, (g) release any of the collateral in the Secured L/C Account, the Cash Collateral Account or other collateral pledged pursuant to this Agreement, other than releases in accordance with the terms hereof; or (h) amend this Section 8.01; and provided further that (i) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement or any Revolving Credit Note; (ii) no amendment, waiver or consent shall, unless in writing and signed by each Issuing Bank adversely affected thereby in addition to the Lenders required above to take such action, affect the rights or obligations of such Issuing Bank in its capacity as such under this Agreement; and (iii) any fee letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto.  Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that (x) the Commitment of any Defaulting Lender may not be increased or extended without the consent of such Defaulting Lender and (y) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by its terms affects any Defaulting Lender more adversely than other affected Lenders shall require the consent of such Defaulting Lender.

SECTION 8.02.  Notices, Etc.

(a)           All notices and other communications provided for hereunder shall be either (x) in writing (including telecopier communication) and mailed, emailed, telecopied or delivered; provided that the foregoing, with respect to electronic communication, shall not apply to notices to the Borrower, to any Lender or any Issuing Bank pursuant to Article II if the Borrower, such Lender or such Issuing Bank, as applicable, has notified the Agent that it is incapable of receiving notices under such Article by electronic communication or (y) as and to the extent set forth in Section 8.02(b) and in the proviso to this Section 8.02(a), if to the Borrower, to the address, telecopier number, electronic mail address or telephone number specified on Schedule 8.02 or such other address(es) as shall be designated by the Borrower in a written notice to the Agent; if to any Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire; and if to Agent or an Issuing Lender, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 8.02; or, as to the Agent, at such other address as shall be designated by such party in a written notice to the Borrower and the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent, provided that materials required to be delivered pursuant to Section 5.01(i)(i), (ii), (iii), (iv) or (v) shall, at the option of the Borrower, be delivered to the Agent as specified in Section 5.01 or 8.02(b).  All such notices and other communications shall be deemed to be given or made upon the earlier to occur of (i) actual receipt by the relevant party hereto and (ii) (A) if delivered by hand or by overnight courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail, four (4) Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile, when sent and receipt has

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been confirmed by telephone; (D) if delivered by email, upon confirmation of receipt (provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient), except that notices and communications to the Agent pursuant to Article II, III or VII shall not be effective until received by the Agent; and (E) other than notices delivered pursuant to Section 5.01, if posted to an Internet or intranet website, upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (D) of notification that such notice or communication is available and identifying the website address therefore.  Delivery by telecopier or other electronic imaging means of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Revolving Credit Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof.

(b)           So long as Bank of America or any of its Affiliates is the Agent, materials required to be delivered pursuant to Section 5.01(i)(i), (ii), (iii), (iv) and (v) may be delivered to the Agent in an electronic medium in a format acceptable to the Agent and the Lenders by e-mail at jessica.l.torres@baml.com.  The Borrower agrees that the Agent may make such materials, as well as any other written information, documents, instruments and other material relating to the Borrower, any of its Subsidiaries or any other materials or matters relating to this Agreement, the Revolving Credit Notes or any of the transactions contemplated hereby (collectively, the “Communications”) available to the Lenders by posting such notices on Intralinks or a substantially similar electronic system (the “Platform”).

(c)           Each Lender agrees that notice to it (as provided in the next sentence) (a “Notice”) specifying that any Communications have been posted to the Platform shall constitute effective delivery of such information, documents or other materials to such Lender for purposes of this Agreement; provided that if requested by any Lender the Agent shall deliver a copy of the Communications to such Lender by email or telecopier.  Each Lender agrees (i) to notify the Agent in writing of such Lender’s e-mail address to which a Notice may be sent by electronic transmission (including by electronic communication) on or before the date such Lender becomes a party to this Agreement (and from time to time thereafter to ensure that the Agent has on record an effective e-mail address for such Lender) and (ii) that any Notice may be sent to such e-mail address.

(d)           The Platform.  THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.”  THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS.  NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM.  In no event shall the Agent or any of its officers, directors, employees, agents and advisors (collectively, the “Agent Parties”) have any liability to the Borrower, any Lender, any Issuing Bank or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrower’s or the Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to the Borrower, any Lender, any Issuing Bank or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).

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SECTION 8.03.  No Waiver; Remedies.  No failure by any Lender, any Issuing Bank or the Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

Notwithstanding anything to the contrary contained herein or in any Revolving Credit Note, the authority to enforce rights and remedies hereunder and under any Revolving Credit Note against the Borrower shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Agent in accordance with Section 6.01 for the benefit of all the Lenders and the Issuing Banks; provided, however, that the foregoing shall not prohibit (a) the Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Agent) hereunder and under any Revolving Credit Note, (b) each Issuing Bank from exercising the rights and remedies that inure to its benefit (solely in its capacity as Issuing Bank, as the case may be) hereunder and under any Revolving Credit Note, (c) any Lender from exercising setoff rights in accordance with Section 8.05 (subject to the terms of Section 2.14), (d) one or more Lenders appointed by the Required Lenders from exercising such lawful rights and remedies hereunder and under any Revolving Credit Note, as the Required Lenders may direct, in the event the Agent shall have been directed by the Required Lenders in writing to exercise such rights and remedies and shall have refused to do so, (e) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to the Borrower under any law relating to bankruptcy, insolvency or reorganization or relief of debtors; and provided, further, that if at any time there is no Person acting as Agent hereunder and under any Revolving Credit Note, then (i) the Required Lenders shall have the rights otherwise ascribed to the Agent pursuant to Section 6.01 and (ii) in addition to the matters set forth in clauses (b), (c) and (d) of the preceding proviso and subject to Section 2.14, any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders.

SECTION 8.04.  Costs; Expenses; and Indemnification.

(a)           The Borrower agrees to pay promptly all reasonable costs and expenses of the Agent in connection with the preparation, syndication, execution, delivery, administration, modification and amendment of this Agreement, the Revolving Credit Notes and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of one counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under this Agreement.  The Borrower further agrees to pay promptly all costs and expenses of the Agent and the Lenders, if any, in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, the Revolving Credit Notes and the other documents to be delivered hereunder, including, without limitation, fees and expenses of one counsel for the Agent and the Lenders (including in connection with the enforcement of rights under this Section 8.04(a)), unless the Agent and the Lenders have conflicting interests that cannot reasonably be represented by one counsel, in which case such expenses shall include the reasonable fees and disbursements of no more than such number of counsels as are necessary to represent such conflicting interests).  All references in this clause (a) to fees and expenses shall be deemed to refer to invoiced and reasonably documented out-of-pocket fees and expenses.

(b)           The Borrower agrees to indemnify and hold harmless the Agent and each Lender and each of their respective Affiliates and their officers, directors, employees, agents and advisors (each, an “Indemnified Party”) from and against any and all claims, damages, penalties, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel (limited in the case of

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legal fees and expenses to the reasonable fees and expenses of one counsel to the Indemnified Parties unless the Indemnified Parties have conflicting interests that cannot reasonably be represented by one counsel, in which case such expenses shall include the reasonable fees and disbursements of no more than such number of counsels as are necessary to represent such conflicting interests)) incurred by or asserted or awarded against any Indemnified Party, in each case by a third party and arising out of or in connection with or by reason of any investigation, litigation or proceeding (or preparation of a defense in connection therewith) with respect to the Revolving Credit Notes, this Agreement, the arrangement or syndication of this Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Revolving Credit Advances or Letters of Credit, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct or the gross negligence or willful misconduct of such Indemnified Party’s controlled Affiliates or its or their officers, directors or employees.  Each party hereto agrees not to assert any claim for special, indirect, consequential or punitive damages against the Agent, any Lender, the Borrower, any of their Affiliates, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, arising out of or otherwise relating to the Revolving Credit Notes, this Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Revolving Credit Advances, provided that this sentence shall not relieve the Borrower from any of its obligations hereunder, including, without limitation any of its indemnification obligations set forth in this Agreement.  All references in this clause (b) to fees and expenses shall be deemed to refer to invoiced and reasonably documented out-of-pocket fees and expenses.

(c)           If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by the Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Revolving Credit Advance, as a result of a payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or 2.12, acceleration of the maturity of the Revolving Credit Notes pursuant to Section 6.01 or for any other reason, or by an Eligible Assignee to a Lender other than on the last day of the Interest Period for such Revolving Credit Advance upon an assignment of rights and obligations under this Agreement pursuant to Section 8.07 as a result of a demand by the Borrower pursuant to Section 8.07(b), the Borrower shall, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss (excluding loss of anticipated profits, indirect losses and special or consequential damages), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Revolving Credit Advance.

(d)           Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in Sections 2.11, 2.14 and 8.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the Revolving Credit Notes.

SECTION 8.05.  Right of Set-off.  Upon (i) the occurrence and during the continuance of any Event of Default under Section 6.01(a) and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Agent to declare the Revolving Credit Advances due and payable pursuant to the provisions of Section 6.01, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and any Revolving Credit Note held by such Lender which are then due and payable.  Each Lender agrees promptly to notify the Borrower after any such set-off and application, provided that the

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failure to give such notice shall not affect the validity of such set-off and application.  The rights of each Lender and its Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender and its Affiliates may have.

SECTION 8.06.  Binding Effect; Integration .  This Agreement shall become effective (other than Section 2.01, which shall only become effective upon satisfaction of the conditions precedent set forth in Section 3.01) when it shall have been executed by the Borrower and the Agent and when the Agent shall have been notified by each Initial Lender that such Initial Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders.  Upon the effectiveness of this Agreement, the reimbursement and indemnification obligations of the Borrower in the seventh and eighth paragraphs of the Commitment Letter and the representations, warranties and covenants of the Borrower in the sixth paragraph of the Commitment Letter shall automatically be terminated and be superseded by the applicable provisions of this Agreement.

SECTION 8.07.  Assignments and Participations.

(a)           No Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section 8.07, (ii) by way of participation in accordance with the provisions of subsection (f) of this Section 8.07, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (h) of this Section 8.07 (and any other attempted assignment or transfer by any Lender shall be null and void).  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, participants to the extent provided in subsection (f) of this Section 8.07 and, to the extent expressly contemplated hereby, the respective officers, directors, employees, agents and advisors of each of the Agent, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)           Each Lender may and, if demanded by the Borrower in accordance with Section 2.20, upon at least five Business Days’ notice to such Lender and the Agent, will assign to one or more Persons all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Revolving Credit Commitment, the Revolving Credit Advances owing to it, its participations in Letters of Credit and the Revolving Credit Note or Revolving Credit Notes held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender or an assignment of all of a Lender’s rights and obligations under this Agreement, the amount of the Revolving Credit Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Assumption with respect to such assignment) shall in no event be less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof, unless the Borrower and the Agent otherwise agree, (iii) each such assignment shall be to an Eligible Assignee, (iv) each such assignment made as a result of a demand by the Borrower pursuant to this Section 8.07(b) shall be arranged by the Borrower after consultation with the Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (v) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrower pursuant to this Section 8.07(b) unless and until such Lender shall have received one or more payments from either the Borrower or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Revolving Credit

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Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement, (vi) the consent of the Issuing Banks (such consent not to be unreasonably withheld or delayed) shall be required for any assignment that increases the obligation of the assignee to participate in exposure under one or more Letters of Credit (whether or not then outstanding), and (vii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Assumption, together with an Administrative Questionnaire from any assignee that is not a Lender, and any Revolving Credit Note subject to such assignment and a processing and recordation fee of $3,500 payable by the assignor or the Eligible Assignee, as applicable, provided, however, that in the case of each assignment made as a result of a demand by the Borrower, such recordation fee shall be payable by the Borrower except that no such recordation fee shall be payable in the case of an assignment made at the request of the Borrower to an Eligible Assignee that is an existing Lender, and (viii) any Lender may, without the approval of the Borrower and the Agent, assign all or a portion of its rights to any of its Affiliates.  Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Assumption, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Assumption, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Assumption, relinquish its rights (other than its rights under Section 2.11, 2.14 and 8.04 to the extent any claim thereunder relates to an event arising prior such assignment) and be released from its obligations (other than its obligations under Section 8.05 to the extent any claim thereunder relates to an event arising prior to such assignment) under this Agreement (and, in the case of an Assignment and Assumption covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

(c)           By executing and delivering an Assignment and Assumption, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows:  (i) other than as provided in such Assignment and Assumption, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Assumption; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender, including providing such documentation as is required under Section 2.14(e).

(d)           Upon its receipt of an Assignment and Assumption executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Revolving Credit

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Notes subject to such assignment, the Agent shall, if such Assignment and Assumption has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Assumption, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower.

(e)           The Agent shall maintain at its address referred to in Section 8.02 a copy of each Assumption Agreement and each Assignment and Assumption delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Revolving Credit Advances owing to, each Lender from time to time (the “Register”).  The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement.  The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

(f)            Each Lender may sell participations to one or more banks or other entities (other than the Borrower or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Revolving Credit Advances owing to it and any Revolving Credit Note or Revolving Credit Notes held by it); provided, however, that (i) such Lender’s obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, including, without limitation, any obligations with respect to taxes and indemnities, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Revolving Credit Note for all purposes of this Agreement, (iv) the Borrower, the Agent, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement or any Revolving Credit Note, or any consent to any departure by the Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Revolving Credit Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or interest on, the Revolving Credit Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation.

(g)           Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information relating to the Borrower received by it from such Lender and the Borrower shall be a named third party beneficiary under such confidentiality agreement executed by such assignee or participant or proposed assignee or participant.

(h)           Each Lender that sells a participation, acting solely for this purpose as an agent of the Borrower, shall maintain a register on which it enters the name and address of each participant and the principal amounts (and stated interest) of each participant’s interest in the Revolving Credit Notes or other obligations under this Agreement (the “Participant Register”), provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register to the Borrower or any other Person (including the identity of any Participant or any information relating to a Participant’s interest in any Revolving Credit Advance or its other obligations under this Agreement or any Revolving Credit Note) except to the extent that such disclosure is necessary to establish that the Revolving Credit

62

Advances or such other obligations are in registered form under Section 5f.103-1(c) of the United States Treasury Regulations.

(i)            Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Revolving Credit Advances owing to it and any Revolving Credit Note or Revolving Credit Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board.

SECTION 8.08.  Confidentiality.  Neither the Agent nor any Lender shall disclose any Confidential Information to any other Person without the consent of the Borrower, other than (a) to the Agent’s or such Lender’s Affiliates and their officers, directors, employees, agents and advisors in connection with the performance of this Agreement with the Agent or such Lender being responsible for compliance by the Agent’s or such Lender’s Affiliates and their officers, directors, employees, agents and advisors with the provisions of this Section 8.08 and, as contemplated by Section 8.07(g), to actual or prospective assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) as requested or required by any state, federal or foreign authority or examiner regulating banks, banking or other financial institutions or self-regulatory body and (d) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder.  The Agent and the Lenders shall use Confidential Information solely for the purposes contemplated by this Agreement and shall not use such information for any other purpose, including using such information in connection with trading in the securities of the Borrower and or its Affiliates.

SECTION 8.09.  Governing Law.  This Agreement and the Revolving Credit Notes shall be governed by, and construed in accordance with, the laws of the State of New York.

SECTION 8.10.  Execution in Counterparts.  This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.  Delivery of an executed counterpart of a signature page to this Agreement by telecopier or other electronic imaging means shall be effective as delivery of a manually executed counterpart of this Agreement.

SECTION 8.11.  Jurisdiction, Etc.  (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the Revolving Credit Notes, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court.  The Borrower hereby irrevocably consents to the service of process in any action or proceeding in such courts by the mailing thereof by any parties hereto by registered or certified mail, postage prepaid, to the Borrower at its address specified pursuant to Section 8.02.  Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or the Revolving Credit Notes in the courts of any jurisdiction.

(b)           Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying

63

of venue of any suit, action or proceeding arising out of or relating to this Agreement or the Revolving Credit Notes in any New York State or federal court.  Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

SECTION 8.12.  No Liability of the Issuing Banks.  Subject to the next sentence, the Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit.  Neither an Issuing Bank nor any of its officers or directors shall be liable or responsible for:  (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by such Issuing Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the Borrower shall have a claim against such Issuing Bank, and such Issuing Bank shall be liable to the Borrower, to the extent of any direct, but not consequential, damages suffered by the Borrower that the Borrower proves were caused by such Issuing Bank’s willful misconduct or gross negligence when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof.  In furtherance and not in limitation of the foregoing, such Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; provided that nothing herein shall be deemed to excuse such Issuing Bank if it acts with gross negligence or willful misconduct in accepting such documents.

SECTION 8.13.  No Advisory or Fiduciary Responsibility.  In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any Revolving Credit Note), the Borrower acknowledges and agrees that: (a)(i) the arranging and other services regarding this Agreement provided by the Agent, the Arrangers and the Lenders are arm’s-length commercial transactions between the Borrower, on the one hand, and the Agent, the Arrangers and the Lenders, on the other hand, (ii) the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (iii) the Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by any Revolving Credit Note; (b)(i) each of the Agent, the Arrangers and the Lenders is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower and (ii) neither the Agent nor any of the Arrangers nor any of the Lenders has any obligation to the Borrower with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in any Revolving Credit Note; and (iii) the Agent, the Arrangers, the Lenders, and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower, and neither the Agent nor any of the Arrangers nor any of the Lenders has any obligation to disclose any of such interests to the Borrower.

SECTION 8.14.  Survival of Representations and Warranties.  All representations and warranties made hereunder and in any Revolving Credit Note or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof and shall terminate when no Revolving Credit Advance shall remain unpaid, no Letter of Credit is outstanding and no Lender shall have any Commitment hereunder.

SECTION 8.15.  Patriot Act.  Each Lender that is subject to the Act (as hereinafter defined) and the Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law

64

October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Agent, as applicable, to identify the Borrower in accordance with the Act.  The Borrower shall, promptly following a request by the Agent or any Lender, provide all documentation and other information that the Agent or such Lender reasonably requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the Act.

SECTION 8.16.  Waiver of Jury Trial.  Each of the Borrower, the Agent and the Lenders hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the Revolving Credit Notes or the actions of the Agent or any Lender in the negotiation, administration, performance or enforcement thereof.

65

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

THE TRAVELERS COMPANIES, INC., as Borrower
By:	/s/ Jay S. Benet
	Name:	Jay S. Benet
	Title:	Vice Chairman and Chief Financial Officer
By:	/s/ Maria Olivo
	Name:	Maria Olivo
	Title:	Executive Vice President and Treasurer

Signature Page to
The Travelers Companies Credit Agreement

BANK OF AMERICA, N.A., as Administrative Agent
By:	/s/ Aamir Saleem
	Name:	Aamir Saleem
	Title:	Vice President

Signature Page to
The Travelers Companies Credit Agreement

BANK OF AMERICA, N.A., as a Lender and Issuing Bank
By:	/s/ John Kushnerick
	Name:	John Kushnerick
	Title:	Vice President

Signature Page to
The Travelers Companies Credit Agreement

CITIBANK N.A., as a Lender
By:	/s/ Maureen Maroney
	Name:	Maureen Maroney
	Title:	Vice President

Signature Page to

The Travelers Companies Credit Agreement

JPMORGAN CHASE BANK, N.A., as a Lender
By:	/s/ Mike Murray
	Name:	Mike Murray
	Title:	Executive Director

Signature Page to

The Travelers Companies Credit Agreement

WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender
By:	/s/ Kimberly Shaffer
	Name:	Kimberly Shaffer
	Title:	Managing Director

Signature Page to
The Travelers Companies Credit Agreement

U.S. BANK NATIONAL ASSOCIATION, as a Lender
By:	/s/ Evan Glass
	Name:	Evan Glass
	Title:	Vice President

Signature Page to

The Travelers Companies Credit Agreement

BARCLAYS BANK PLC, as a Lender
By:	/s/ Alicia Borys
	Name:  Alicia Borys
	Title:  Assistant Vice President

Signature Page to

The Travelers Companies Credit Agreement

DEUTSCHE BANK AG NEW YORK BRANCH, as a Lender
By:	/s/ John S. McGill
	Name:	John S. McGill
	Title:	Director
By:	/s/ Robert Chesley
	Name:	Robert Chesley
	Title:	Director

Signature Page to

The Travelers Companies Credit Agreement

GOLDMAN SACHS BANK USA, as a Lender
By:	/s/ Mark Walton
	Name:  Mark Walton
	Title:  Authorized Signatory

Signature Page to

The Travelers Companies Credit Agreement

HSBC BANK USA, N.A., as a Lender
By:	/s/ Lawrence M. Karp
	Name:	Lawrence M. Karp
	Title:	Senior Vice President
Address:		452 Fifth Avenue
		New York, NY 10018
Attention:		Lawrence Karp
Telephone:		212-525-3803
Facsimile:		212-642-1864
Email Address:
lawrence.karp@us.hsbc.com

Signature Page to

The Travelers Companies Credit Agreement

MORGAN STANLEY BANK, N.A., as a Lender
By:	/s/ Ryan Vetsch
	Name:  Ryan Vetsch
	Title:  Vice President

Signature Page to

The Travelers Companies Credit Agreement

UBS LOAN FINANCE LLC, as a Lender
By:	/s/ Irja R. Otsa
	Name:  Irja R. Otsa
	Title:  Associate Director
By:	/s/ Mary E. Evans
	Name:  Mary E. Evans
	Title:  Associate Director

Signature Page to

The Travelers Companies Credit Agreement

THE BANK OF NEW YORK MELLON, as a Lender
By:	/s/ Adim Offurum
	Name:  Adim Offerum
	Title:  Vice President

Signature Page to

The Travelers Companies Credit Agreement

ROYAL BANK OF CANADA, as a Lender
By:	/s/ Tim Stephens
	Name:	Tim Stephens
	Title:	Director

Signature Page to

The Travelers Companies Credit Agreement

Schedule 1.01 — Lender Commitments

Lender	Percentage	Commitment
Bank of America, N.A.	11.500000000	$	115,000,000
Citibank N.A.	11.500000000	$	115,000,000
JPMorgan Chase Bank, N.A.	11.500000000	$	115,000,000
Wells Fargo Bank, National Association	11.500000000	$	115,000,000
U.S. Bank National Association	10.000000000	$	100,000,000
Barclays Bank PLC	6.000000000	$	60,000,000
Deutsche Bank AG New York Branch	6.000000000	$	60,000,000
Goldman Sachs Bank USA	6.000000000	$	60,000,000
HSBC Bank USA, N.A.	6.000000000	$	60,000,000
Morgan Stanley Bank, N.A.	6.000000000	$	60,000,000
UBS Loan Finance LLC	6.000000000	$	60,000,000
The Bank of New York Mellon	4.000000000	$	40,000,000
Royal Bank of Canada	4.000000000	$	40,000,000
TOTAL	100.000000000	$	1,000,000,000

Schedule 4.01(e) - Accounting Matters

1.On July 23, 2004, the Borrower announced that it was seeking guidance from the staff of the Division of Corporation Finance of the SEC with respect to the appropriate purchase accounting treatment for certain second quarter 2004 adjustments totaling $1.63 billion ($1.07 billion after-tax). The Borrower recorded these adjustments as charges in its consolidated statement of income in the second quarter of 2004. Through an informal comment process, the staff of the Division of Corporation Finance subsequently asked for further information, which the Borrower provided. Specifically, the staff asked for information concerning the Borrower’s adjustments to certain of The St. Paul Companies, Inc.’s (“SPC’s”) insurance reserves and reserves for reinsurance recoverables and premiums due from policyholders, and how those adjustments may relate to SPC’s reserves for periods prior to the merger of SPC and Travelers Property Casualty Corp. (“TPC”). After reviewing the staff’s questions and comments and discussions with the Borrower’s independent auditors, the Borrower continues to believe that its accounting treatment for these adjustments is appropriate. If, however, the staff disagrees, some or all of the adjustments may not be recorded as charges in the Borrower’s consolidated statement of income, thereby increasing net income for the second quarter and full year 2004 and increasing shareholders’ equity at December 31, 2004 and at the end of each succeeding calendar year through December 31, 2009, and at March 31, 2010, in each case by the approximate after-tax amount of the change. The effect on tangible shareholders’ equity (adjusted for the effects of deferred taxes associated with goodwill and other intangible assets) at each date would not be material.  Increases to goodwill and deferred tax liabilities would be reflected on the Borrower’s balance sheet at April 1, 2004, either due to purchase accounting or adjustment of SPC’s reserves prior to the merger of SPC and TPC. On May 3, 2006, the Borrower received a letter from the Division of Enforcement of the SEC (the Division) advising the Borrower that it is conducting an inquiry relating to the second quarter 2004 adjustments and the April 1, 2004 merger between SPC and TPC.  The Borrower cooperated with the Division’s requests for information.

2.Other comments from the SEC or any other Governmental Authority or third party that the Borrower may receive from time to time that do not result from material non-compliance with GAAP, and any other immaterial non-compliance with GAAP.

Schedule 5.02(a) - Existing Liens

None

Schedule 8.02 — Notice Information

BORROWER’S OFFICE, AGENT’S OFFICE, AND ISSUING BANK’S OFFICE;
CERTAIN ADDRESSES FOR NOTICES

BORROWER:

The Travelers Companies, Inc.

485 Lexington Avenue, 8th Floor

New York, NY 10017

Attention: Treasurer

Fax Number: 917-778-7033

Telephone: 860 277-8330

Email: molivo@travelers.com

With a copy to

One Tower Square

Hartford, CT 06183

AND TO

The Travelers Companies, Inc.

485 Lexington Avenue, 8th Floor

New York, NY 10017

Attention: Corporate Secretary

Fax Number: 866-825-3699

Telephone: 917-778-6828

Email: mfurman@travelers.com

With a copy to

One Tower Square

Hartford, CT 06183

AGENT:

Agent’s Office
(for payments and requests for credit extensions):
Bank of America, N.A.
2001 Clayton Road, Building B
CA4-702-02-25:
Concord, CA  94520
Attention:  Jessica Popejoy
Telephone:  925-675-8139
Telecopier:  888-969-9232
Electronic Mail:  jessica.l.torres@baml.com
Account No.:  3750836479
Ref:  The Travelers Companies, Inc.
ABA# 026009593

Other Notices as Agent:

Bank of America, N.A.
Agency Management
1455 Market Street
CA5-701-05-19:
San Francisco, CA  94103
Attention:  Aamir Saleem
Telephone:  415-436-2769
Telecopier:  415-503-5089
Electronic Mail:  aamir.saleem@baml.com

ISSUING BANK:

Bank of America, N.A.
Trade Operations-Pennsylvania
1 Fleet Way
PA6-580-02-30:
Scranton, PA  18507
Attention:  Michael A. Grizzanti
Telephone:  570-330-4214
Telecopier:  800-755-8743
Electronic Mail:  michael.a.grizzanti@baml.com

2

EXHIBIT A - FORM OF

REVOLVING CREDIT NOTE

U.S.$                                     Dated:                               , 201   

FOR VALUE RECEIVED, the undersigned, THE TRAVELERS COMPANIES, INC., a Minnesota corporation (the “Borrower”), HEREBY PROMISES TO PAY to the order of                                                    (the “Lender”) for the account of its Applicable Lending Office on the Termination Date (each as defined in the Credit Agreement referred to below) of such Lender the principal sum of U.S.$[amount of the Lender’s Commitment in figures] or, if less, the aggregate principal amount of the outstanding and unpaid amount of the Revolving Credit Advances made by the Lender to the Borrower pursuant to the Three Year Credit Agreement dated as of June 10, 2010 among the Borrower, the Lender and certain other lenders parties thereto, Citicorp USA Inc., JPMorgan Chase Bank, N.A., and Wells Fargo Bank, National Association, as syndication agents, Banc of America Securities LLC, Citigroup Global Markets Inc., J.P. Morgan Securities Inc., and Wells Fargo Securities, LLC, as joint lead arrangers, and Bank of America, N.A., as an issuer of letters of credit and as Agent for the Lender and such other lenders (as amended or modified from time to time, the “Credit Agreement”; the terms defined therein being used herein as therein defined) and outstanding on such date.

The Borrower promises to pay interest on the unpaid principal amount of each Revolving Credit Advance from the date of such Revolving Credit Advance until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement.

Both principal and interest are payable in lawful money of the United States of America to Bank of America, as Agent, at the Agent’s Account, in same day funds.  Each Revolving Credit Advance owing to the Lender by the Borrower pursuant to the Credit Agreement, and all payments made on account of principal thereof, shall be recorded by the Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Promissory Note.

This Promissory Note is one of the Revolving Credit Notes referred to in, and is entitled to the benefits of, the Credit Agreement.  The Credit Agreement, among other things, (i) provides for the making of Revolving Credit Advances by the Lender to the Borrower from time to time in an aggregate amount not to exceed at any time outstanding the U.S. dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such Revolving Credit Advance being evidenced by this Promissory Note and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified.

THE TRAVELERS COMPANIES, INC.
By:
	Name:
	Title:

ADVANCES AND PAYMENTS OF PRINCIPAL

Date Amount ofAdvance Amount ofPrincipal Paidor Prepaid Unpaid PrincipalBalance NotationMade By

2

EXHIBIT B - FORM OF NOTICE OF

REVOLVING CREDIT BORROWING

Bank of America, N.A., as Agent

for the Lenders parties

to the Credit Agreement

referred to below

2001 Clayton Road, Building B

CA4-702-02-25

Concord, CA  94520

Attention:  Jessica Popejoy

[Date]

Ladies and Gentlemen:

The undersigned, The Travelers Companies, Inc., refers to the Three Year Credit Agreement, dated as of June 10, 2010 (as amended or modified from time to time, the “Credit Agreement”, the terms defined therein being used herein as therein defined), among the undersigned, certain Lenders parties thereto, Citicorp USA, Inc., JPMorgan Chase Bank, N.A., and Wells Fargo Bank, National Association, as syndication agents, Banc of America Securities LLC, Citigroup Global Markets Inc., J.P. Morgan Securities Inc., and Wells Fargo Securities, LLC, as joint lead arrangers, and Bank of America, N.A., as a letter of credit issuer and as Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests a Revolving Credit Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Revolving Credit Borrowing (the “Proposed Revolving Credit Borrowing”) as required by Section 2.02(a) of the Credit Agreement:

(i)The Business Day of the Proposed Revolving Credit Borrowing is                               , 201  .

(ii)The Type of Revolving Credit Advances comprising the Proposed Revolving Credit Borrowing is [Base Rate Advances] [Eurodollar Rate Advances].

(iii)The aggregate amount of the Proposed Revolving Credit Borrowing is $                              .

[(iv)The initial Interest Period for each Eurodollar Rate Advance made as part of the Proposed Revolving Credit Borrowing is            month[s].]

The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Revolving Credit Borrowing:

(A)the representations and warranties contained in Section 4.01 of the Credit Agreement (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof) are correct in all material respects, before and after giving effect to the Proposed Revolving Credit Borrowing and to the application of the proceeds therefrom, as though made on and as of such date except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date;

(B)no event has occurred and is continuing, or would result from such Proposed Revolving Credit Borrowing or from the application of the proceeds therefrom, that constitutes a Default; and

(C)the Borrower is and will be in pro forma compliance with Sections 5.03(a) and 5.03(b) of the Credit Agreement on and as of such date after giving effect to the Proposed Revolving Credit Borrowing and to the application of the proceeds therefrom.

Very truly yours,
THE TRAVELERS COMPANIES, INC.
By:
	Name:
	Title:

2

EXHIBIT C - FORM OF

ASSIGNMENT AND ASSUMPTION

ASSIGNMENT AND ASSUMPTION

This Assignment and Assumption (this “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [the][each](2) Assignor identified in item 1 below ([the][each, an] “Assignor”) and [the][each](3) Assignee identified in item 2 below ([the][each, an] “Assignee”).  [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees](4) hereunder are several and not joint.](5)  Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee.  The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignor’s][the respective Assignors’] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the Credit Agreement (including, without limitation, the participations in Letters of Credit held by the Assignor) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] “Assigned Interest”).  Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.

1.Assignor[s]:                                                              

2.Assignee[s]:                                                              

(2)	For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language.
(3)	For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language.
(4)	Select as appropriate.
(5)	Include bracketed language if there are either multiple Assignors or multiple Assignees.

[for each Assignee, indicate [Affiliate][Approved Fund] of [identify Lender]]

3.Borrower(s):The Travelers Companies, Inc.

4.Administrative Agent:Bank of America, N.A., as the administrative agent under the Credit Agreement

5.Credit Agreement:Three Year Credit Agreement dated as of June 10, 2010 among the Borrower, the Lender and certain other lenders parties thereto, Citicorp USA, Inc., JPMorgan Chase Bank, N.A., and Wells Fargo Bank, National Association, as syndication agents, Banc of America Securities LLC, Citigroup Global Markets Inc., J.P. Morgan Securities Inc., and Wells Fargo Securities, LLC, as joint lead arrangers, and Bank of America, N.A., as an issuer of letters of credit and as Agent for the Lenders.

6.Assigned Interest[s]:

Assignor[s](6)	Assignee[s](7)	Aggregate Amount of Revolving Credit Commitment for all Lenders(8)	Amount of Revolving Credit Commitment Assigned	Percentage Assigned of Revolving Credit Commitment(9)
		$	$		%
		$	$		%
		$	$		%

[7.Trade Date:                                     ]

Effective Date:                                     , 20     [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR
[NAME OF ASSIGNOR]
By:
	Name:
	Title:

(6)	List each Assignor, as appropriate.
(7)	List each Assignee, as appropriate.
(8)	Amounts in this column and in the column immediately to the right to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.
(9)	Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.

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ASSIGNEE
[NAME OF ASSIGNEE]
By:
	Name:
	Title:

[Consented to and](10) Accepted:

BANK OF AMERICA, N.A., as

  Administrative Agent

By:
	Name:
	Title:
[Consented to:](11)
By:
	Name:
	Title:
By:
	Name:
	Title:

(10)	To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.
(11)	To be added only if the consent of the Borrower and/or other parties (e.g. Issuing Banks) is required by the terms of the Credit Agreement.

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ANNEX 1 TO ASSIGNMENT AND ASSUMPTION

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1.Representations and Warranties.

1.1.Assignor.  [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

1.2.Assignee.  [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all the requirements to be an assignee under Section 8.07(b) of the Credit Agreement (subject to such consents, if any, as may be required under Section 8.07(b) of the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 5.01(i)(i) and (ii) thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) if it is a Foreign Lender, attached hereto is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance upon the Administrative Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement, (ii) confirms that it is an Eligible Assignee, and (iii) it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender.

2.Payments.  From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date.

3.General Provisions.  This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns.  This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument.  Delivery of an

4

executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption.  This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.

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EXHIBIT D - FORM OF

OPINION OF COUNSEL

FOR THE BORROWER

(IN-HOUSE)

June 10, 2010

To each of the Lenders parties

to the Credit Agreement dated

as of June 10, 2010

among The Travelers Companies, Inc.,

said Lenders and Bank of America N.A.,

as Agent for said Lenders, and

to Bank of America N.A., as Agent

The Travelers Companies, Inc.

Ladies and Gentlemen:

This opinion is furnished to you pursuant to Article III of the Three-Year Credit Agreement, dated as of June 10, 2010 (the “Credit Agreement”), among The Travelers Companies, Inc. (the “Borrower”), the Lenders parties thereto, Banc of America Securities LLC, Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and Wells Fargo Securities, LLC, as joint lead arrangers, and Bank of America, N.A., as administrative agent for said Lenders. Terms defined in the Credit Agreement are used herein as therein defined.

I am an attorney licensed to practice law in the State of Minnesota, and I am also the Deputy Corporate Secretary of the Borrower. I am aware of the negotiation, execution and delivery of the Credit Agreement.

In that connection, I have examined or caused members of the Borrower’s legal department to examine:

(1)The Credit Agreement;

(2)The documents furnished by the Borrower pursuant to Article III of the Credit Agreement;

(3)The Amended and Restated Articles of Incorporation of the Borrower and all amendments thereto (the “Charter”);

(4)The bylaws of the Borrower and all amendments thereto (the “Bylaws”); and

(5)A certificate of the Secretary of State of Minnesota, dated June 9, 2010, attesting to the continued corporate existence and good standing of the Borrower in that State.

I have also examined the originals, or copies certified to my satisfaction, of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower, and agreements, instruments and other documents, as I have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, I have relied upon certificates of the Borrower or its officers or of public officials.  I have assumed the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Initial Lenders and the Agent.

My opinions expressed below are limited to the law of the State of Minnesota and the Federal law of the United States.

Based upon, and subject to, the foregoing, I am of the following opinion:

1.The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota.

2.The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes, and the consummation of the transactions contemplated thereby by the Borrower, are within the Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do not violate (i) the Charter or the Bylaws or (ii) any law, rule or regulation applicable to the Borrower if, in the case of (ii), such violation could reasonably be expected to have a Material Adverse Effect.  The Credit Agreement has been, and the Notes when executed will be, duly executed and delivered on behalf of the Borrower.

3.To the best of my knowledge, there are no pending or overtly threatened actions or proceedings against the Borrower before any court, governmental agency or arbitrator that purport to affect the legality, validity, binding effect or enforceability of the Credit Agreement or any of the Notes or the consummation of the transactions contemplated thereby.

Very truly yours,

Wendy C. Skjerven

Deputy Corporate Secretary

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EXHIBIT D - FORM OF

OPINION OF COUNSEL

FOR THE BORROWER

(SIMPSON THACHER
& BARTLETT LLP)

June 10, 2010

Bank of America, N.A., as Administrative
     Agent under the Credit Agreement, as hereinafter
     defined (the “Administrative Agent”)

and

The Lenders listed on Schedule I hereto

Re:Three Year Credit Agreement dated as of June 10, 2010 (the “Credit Agreement”) among The Travelers Companies, Inc., a Minnesota corporation (the “Company”), the lending institutions identified in the Credit Agreement (the “Lenders”) and the Administrative Agent

Ladies and Gentlemen:

We have acted as counsel to the Company in connection with the preparation, execution and delivery of the following documents: (i) the Credit Agreement and (ii) the Revolving Credit Notes delivered to the Lenders on the date hereof (the Revolving Credit Notes, together with the Credit Agreement, collectively the “Credit Documents”).  Unless otherwise indicated, capitalized terms used but not defined herein shall have the respective meanings set forth in the Credit Agreement.  This opinion is furnished to you pursuant to Section 3.01(e)(iv) of the Credit Agreement.

We have examined the following:

(i)the Credit Agreement, signed by the Company and by the Administrative Agent and the Lenders; and

(ii)the Revolving Credit Notes, signed by the Company.

In addition, we have examined, and have relied as to matters of fact upon, the documents delivered to you at the closing, and upon originals, or duplicates or certified or conformed copies, of such corporate records, agreements, documents and other instruments and such certificates or comparable documents of public officials and of officers and representatives of the Company, and have made such other investigations, as we have deemed relevant and necessary in connection with the opinions hereinafter set forth.  In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity

to original documents of all documents submitted to us as duplicates or certified or conformed copies and the authenticity of the originals of such latter documents.  In addition, we have relied as to certain matters of fact upon the representations made in the Credit Documents.

Based upon and subject to the foregoing, and subject to the qualifications and limitations set forth herein, we are of the opinion that:

1.The execution and delivery of the Credit Agreement by the Company, its borrowings in accordance with the terms of the Credit Agreement and performance of its payment obligations thereunder will not result in any violation of, assuming that proceeds of borrowings will be used in accordance with the terms of the Credit Agreement, any Federal or New York statute or any rule or regulation issued pursuant to any New York or Federal statute.

2.Assuming that each of the Credit Documents is a valid and legally binding obligation of each of the parties thereto other than the Company and assuming that  (a) the Company is validly existing and in good standing under the laws of Minnesota, and has duly authorized, executed and delivered the Credit Documents in accordance with its organizational documents, (b) execution, delivery and performance by the Company of the Credit Documents do not violate the laws of the State of Minnesota or any other applicable laws (excepting the law of the State of New York and the federal laws of the United States), (c) execution, delivery and performance by the Company of the Credit Documents do not constitute a breach or violation of any agreement or instrument which is binding upon the Company and (d) the Company is not an “investment company” within the meaning of, and subject to regulation under, the Investment Company Act of 1940, as amended, each Credit Document constitutes the valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms.

3.The execution and delivery of the Credit Agreement by the Company and the making of the Loans under the Credit Agreement will not violate Regulation T, U or X of the Board of Governors of the Federal Reserve System.

4.The Company is not an “investment company” within the meaning of, and subject to regulation under, the Investment Company Act of 1940, as amended.

Our opinion in paragraph 2 above is subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, (ii) general equitable principles (whether considered in a proceeding in equity or at law) and (iii) an implied covenant of good faith and fair dealing.

We express no opinion with respect to:

(i)the effect of any provision of the Credit Documents which is intended to permit modification thereof only by means of an agreement in writing signed by the parties thereto;

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(ii)the effect of any provision of the Credit Documents insofar as it provides that any Person purchasing a participation from a Lender or other Person may exercise set-off or similar rights with respect to such participation or that any Lender or other Person may exercise set-off or similar rights other than in accordance with applicable law;

(iii)the effect of any provision of the Credit Documents imposing penalties or forfeitures;

(iv)the enforceability of any provision of the Credit Documents to the extent that such provision constitutes a waiver of illegality as a defense to performance of contract obligations; and

(v)the effect of any provision of the Credit Documents relating to indemnification or exculpation in connection with violations of any securities laws or relating to indemnification, contribution or exculpation in connection with willful, reckless or criminal acts or gross negligence of the indemnified or exculpated Person or the Person receiving contribution.

In connection with the provisions of the Credit Documents whereby the parties submit to the jurisdiction of the courts of the United States of America located in the City and State of New York, we note the limitations of 28 U.S.C. §§ 1331 and 1332 on subject matter jurisdiction of the Federal courts.  In connection with the provisions of the Credit Documents which relate to forum selection (including, without limitation, any waiver of any objection to venue or any objection that a court is an inconvenient forum), we note that under NYCPLR § 510 a New York State court may have discretion to transfer the place of trial, and under 28 U.S.C. § 1404(a) a United States District Court has discretion to transfer an action from one Federal court to another.

With respect to matters of the laws of the State of Minnesota, we understand that you are relying on the opinion of Wendy C. Skjerven, Deputy Corporate Secretary of the Company dated the date hereof.

We do not express any opinion herein concerning any law other than the law of the State of New York and the federal law of the United States.

This opinion letter is rendered to you in connection with the above described transactions.  This opinion letter may not be relied upon by you for any other purpose, or relied upon by, or furnished to, any other person, firm or corporation without our prior written consent; provided that this opinion may be furnished to, but not relied upon by (i) any person that purchases an interest or a participation in the Commitments or Loans, (ii) any auditor or regulatory authority having jurisdiction over a Lender and (iii) any other person pursuant to court order or judicial process.

Very truly yours,

SIMPSON THACHER & BARTLETT LLP

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SCHEDULE I

THE LENDERS

Bank of America, N.A.

Citibank, N.A.

JPMorgan Chase Bank, N.A.

Wells Fargo Bank, National Association

U.S. Bank National Association

Barclays Bank PLC

Deutsche Bank AG New York Branch

Goldman Sachs Bank USA

HSBC Bank USA, N.A.

Morgan Stanley Bank, N.A.

UBS Loan Finance LLC

The Bank of New York Mellon

Royal Bank of Canada

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EX-12.1

Exhibit 12.1

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except ratios)	2010		2009		2010		2009
Income before income taxes	$	881	$	941	$	1,738	$	1,668
Interest	97		94		195		186
Portion of rentals deemed to be interest	16		19		33		39
Income available for fixed charges	$	994	$	1,054	$	1,966	$	1,893
Fixed charges:
Interest	$	97	$	94	$	195	$	186
Portion of rentals deemed to be interest	16		19		33		39
Total fixed charges	113		113		228		225
Preferred stock dividend requirements	1		1		2		2
Total fixed charges and preferred stock dividend requirements	$	114	$	114	$	230	$	227
Ratio of earnings to fixed charges	8.70		9.35		8.53		8.44
Ratio of earnings to combined fixed charges and preferred stock dividend requirements	8.78		9.26		8.61		8.35

The ratio of earnings to fixed charges is computed by dividing income available for fixed charges by the fixed charges. For purposes of this ratio, fixed charges consist of that portion of rentals deemed representative of the appropriate interest factor.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jay S. Fishman, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 of The Travelers Companies, Inc. (the Company);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c)evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:	July 22, 2010	By:	/S/ JAY S. FISHMAN
			Jay S. Fishman Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jay S. Benet, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 of The Travelers Companies, Inc. (the Company);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c)evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:	July 22, 2010	By:	/S/ JAY S. BENET
			Jay S. Benet Vice Chairman and Chief Financial Officer

EX-32.1

Exhibit 32.1

THE TRAVELERS COMPANIES, INC.

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and 18 U.S.C. Section 1350, the undersigned officer of The Travelers Companies, Inc. (the “Company”), hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	July 22, 2010	By:	/S/ JAY S. FISHMAN
			Name: Jay S. Fishman Title: Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

THE TRAVELERS COMPANIES, INC.

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and 18 U.S.C. Section 1350, the undersigned officer of The Travelers Companies, Inc. (the “Company”), hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	July 22, 2010	By:	/S/ JAY S. BENET
			Name: Jay S. Benet Title: Vice Chairman and Chief Financial Officer