10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

   For the quarterly period ended September 30, 2010

¨   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 1-13754

THE HANOVER INSURANCE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	04-3263626
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

440 Lincoln Street, Worcester, Massachusetts 01653

(Address of principal executive offices) (Zip Code)

(508) 855-1000

(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.    Yesx    No¨

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  ¨

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	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	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  ¨    No  x

The number of shares outstanding of the registrant’s common stock was 45,109,681 as of November 1, 2010.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Income	3
	Consolidated Balance Sheets	5
	Consolidated Statements of Shareholders’ Equity	6
	Consolidated Statements of Comprehensive Income	7
	Consolidated Statements of Cash Flows	8
	Notes to Interim Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	78
Item 4.	Controls and Procedures	78
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	79
Item 1A.	Risk Factors	80
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 6.	Exhibits	85
SIGNATURES		86

PART I - FINANCIAL INFORMATION

ITEM  1 - FINANCIAL STATEMENTS

THE HANOVER INSURANCE GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

		(Unaudited) Quarter Ended     September 30,						(Unaudited) Nine months Ended     September 30,
(In millions except per share data)		2010			2009			2010			2009
REVENUES
Premiums	$		728.0	$		637.4	$		2,092.3	$		1,899.4
Net investment income			61.3			62.1			184.2			188.3
Net realized investment gains (losses):
Net realized gains from sales and other			7.1			6.1			24.3			19.6
Total other-than-temporary impairment losses on securities			(0.2)			(4.5)			(3.5)			(39.1)
Portion of loss transferred (from) to other comprehensive income			(1.2)			(1.6)			(4.0)			9.8
Net other–than–temporary impairment losses on securities recognized in earnings			(1.4)			(6.1)			(7.5)			(29.3)
Total net realized investment gains (losses)			5.7			-			16.8			(9.7)
Fees and other income			9.0			9.0			25.6			25.8
Total revenues			804.0			708.5			2,318.9			2,103.8
LOSSES AND EXPENSES
Losses and loss adjustment expenses			454.6			403.0			1,384.6			1,225.1
Policy acquisition expenses			173.4			146.8			490.8			434.7
Gain from retirement of debt			-			(0.2)			-			(34.5)
Other operating expenses			102.9			91.4			308.0			281.1
Total losses and expenses			730.9			641.0			2,183.4			1,906.4
Income before federal income taxes			73.1			67.5			135.5			197.4
Federal income tax expense (benefit):
Current			21.2			17.8			(8.5)			42.8
Deferred			0.5			1.1			48.2			22.7
Total federal income tax expense			21.7			18.9			39.7			65.5
Income from continuing operations			51.4			48.6			95.8			131.9
Discontinued operations (See Note 3):
Gain from discontinued FAFLIC business (net of tax benefit of $0.3 and $0.3 for the quarters ended September 30, 2010 and 2009 and $0.3 and $0.3 for the nine months ended September 30, 2010 and 2009)			0.5			0.4			0.4			6.3
Gain (loss) from operations of discontinued accident and health insurance business (net of income tax benefit (expense) of $0.1 and ($0.4) or the quarters ended September 30, 2010 and 2009 and $0.3 and ($0.5) for the nine months ended September 30, 2010 and 2009)			0.2			0.7			(0.9)			(2.4)
Gain on disposal of variable life and annuity business			0.1			-			1.0			4.1
Other discontinued operations			0.1			-			0.1			-
Net income	$		52.3	$		49.7	$		96.4	$		139.9

The accompanying notes are an integral part of these consolidated financial statements.

3

THE HANOVER INSURANCE GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

		(Unaudited) Quarter Ended September 30,						(Unaudited) Nine months Ended September 30,
		2010			2009			2010				2009
PER SHARE DATA
Basic
Income from continuing operations	$		1.14	$		0.96	$		2.09		$		2.59
Discontinued operations:
Gain from discontinued FAFLIC business (net of income tax benefit of $0.01 and $0.01 for the quarters ended September 30, 2010 and 2009 and $0.01 and $0.01 for the nine months ended September 30, 2010 and 2009)			0.01			0.01			0.01				0.12
Gain (loss) from operations of discontinued accident and health insurance business (net of income tax benefit (expense) of $0.01 and ($0.01) for the quarters ended September 30, 2010 and 2009 and $0.01 and ($0.01) for the nine months ended September 30, 2010 and 2009)			0.01			0.01			(0.02	)			(0.04	)
Gain on disposal of variable life insurance and annuity business			-			-			0.03				0.08
Net income per share	$		1.16	$		0.98	$		2.11		$		2.75
Weighted average shares outstanding			44.9			50.7			45.7				51.0
Diluted
Income from continuing operations	$		1.12	$		0.95	$		2.06		$		2.57
Discontinued operations:
Gain from discontinued FAFLIC business (net of income tax benefit of $0.01 and $0.01 for the quarters ended September 30, 2010 and 2009 and $0.01 and $0.01 for the nine months ended September 30, 2010 and 2009)			0.02			0.01			0.01				0.12
Gain (loss) from operations of discontinued accident and health insurance business (net of income tax benefit (expense) of $0.01 and ($0.01) for the quarters ended September 30, 2010 and 2009 and $0.01 and ($0.01) for the nine months ended September 30, 2010 and 2009)			0.01			0.01			(0.02	)			(0.05	)
Gain on disposal of variable life insurance and annuity business			-			-			0.03				0.08
Net income per share	$		1.15	$		0.97	$		2.08		$		2.72
Weighted average shares outstanding			45.7			51.2			46.4				51.4

The accompanying notes are an integral part of these consolidated financial statements.

4

THE HANOVER INSURANCE GROUP, INC .

CONSOLIDATED BALANCE SHEETS

(In millions, except per share data)		(Unaudited) September 30, 2010			December 31,     2009
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $4,588.8 and $4,520.3)	$		4,904.6	$		4,615.6
Equity securities, at fair value (cost of $112.3 and $57.3)			125.7			69.2
Mortgage loans and other long-term investments			41.2			32.3
Total investments			5,071.5			4,717.1
Cash and cash equivalents			271.6			316.5
Accrued investment income			53.5			52.3
Premiums, accounts and notes receivable, net			807.8			590.8
Reinsurance receivable on paid and unpaid losses and ceded unearned premiums			1,230.3			1,197.9
Deferred policy acquisition costs			346.0			286.3
Deferred federal income taxes			116.2			228.6
Goodwill			179.4			171.4
Other assets			386.3			351.2
Assets of discontinued operations			134.1			130.6
Total assets	$		8,596.7	$		8,042.7
LIABILITIES
Policy liabilities and accruals:
Losses and loss adjustment expenses	$		3,232.1	$		3,153.9
Unearned premiums			1,553.6			1,300.5
Total policy liabilities and accruals			4,785.7			4,454.4
Expenses and taxes payable			523.7			603.2
Reinsurance premiums payable			33.2			58.5
Long-term debt			640.0			433.9
Liabilities of discontinued operations			135.3			134.1
Total liabilities			6,117.9			5,684.1
Commitments and contingencies (Note 14)
SHAREHOLDERS’ EQUITY
Preferred stock, $0.01 par value, 20.0 million shares authorized, none issued			-			-
Common stock, $0.01 par value, 300.0 million shares authorized, 60.5 million shares issued			0.6			0.6
Additional paid-in capital			1,798.6			1,808.5
Accumulated other comprehensive income			203.2			28.8
Retained earnings			1,201.3			1,141.1
Treasury stock at cost (15.6 and 13.0 million shares)			(724.9)			(620.4)
Total shareholders’ equity			2,478.8			2,358.6
Total liabilities and shareholders’ equity	$		8,596.7	$		8,042.7

The accompanying notes are an integral part of these consolidated financial statements.

5

THE HANOVER INSURANCE GROUP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

		(Unaudited) Nine months Ended September 30,
(In millions)		2010			2009
PREFERRED STOCK
Balance at beginning and end of period	$		-	$		-
COMMON STOCK
Balance at beginning and end of period			0.6			0.6
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period			1,808.5			1,803.8
Employee and director stock-based awards and other			(9.9)			4.0
Balance at end of period			1,798.6			1,807.8
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS:
Balance at beginning of period			107.7			(276.1)
Cumulative effect of change in accounting principle			-			(33.3)
Balance at beginning of period, as adjusted			107.7			(309.4)
Net appreciation during the period:
Net appreciation on available-for-sale securities			227.1			428.8
(Provision) benefit for deferred federal income taxes			(57.4)			(30.2)
			169.7			398.6
Balance at end of period			277.4			89.2
DEFINED BENEFIT PENSION AND POSTRETIREMENT PLANS:
Balance at beginning of period			(78.9)			(108.7)
Amounts arising in the period			-			(1.6)
Amortization during the period:
Amount recognized as net periodic benefit cost			7.3			14.9
Provision for deferred federal income taxes			(2.6)			(4.6)
			4.7			8.7
Balance at end of period			(74.2)			(100.0)
Total accumulated other comprehensive income (loss)			203.2			(10.8)
RETAINED EARNINGS
Balance at beginning of period			1,141.1			949.8
Cumulative effect of change in accounting principle			-			33.3
Balance at beginning of period, as adjusted			1,141.1			983.1
Net income			96.4			139.9
Dividends to shareholders			(35.9)			-
Treasury stock issued for less than cost			(7.9)			(4.1)
Recognition of share-based compensation			7.6			2.5
Balance at end of period			1,201.3			1,121.4
TREASURY STOCK
Balance at beginning of period			(620.4)			(482.2)
Shares purchased at cost			(126.0)			(36.2)
Net shares reissued at cost under employee stock-based compensation plans			21.5			6.5
Balance at end of period			(724.9)			(511.9)
Total shareholders’ equity	$		2,478.8	$		2,407.1

The accompanying notes are an integral part of these consolidated financial statements.

6

THE HANOVER INSURANCE GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	(Unaudited) Quarter Ended September 30,				(Unaudited) Nine months Ended September 30,
(In millions)	2010		2009		2010		2009
Net income	$	52.3		49.7	$	96.4	$	139.9
Other comprehensive income:
Available-for-sale securities:
Net appreciation during the period		101.4		189.4		227.1		428.8
Provision for deferred federal income taxes		(25.9)		(30.4)		(57.4)		(30.2)
Total available-for-sale securities		75.5		159.0		169.7		398.6
Pension and postretirement benefits:
Amounts arising in the period		-		-		-		(1.6)
Amortization recognized as net periodic benefit costs:
Net actuarial loss		4.3		6.8		12.9		20.4
Prior service cost		(1.5)		(1.5)		(4.4)		(4.3)
Transition asset		(0.4)		(0.4)		(1.2)		(1.2)
Total amortization recognized as net periodic benefit costs		2.4		4.9		7.3		14.9
Provision for deferred federal income taxes		(0.9)		(1.7)		(2.6)		(4.6)
Total pension and postretirement benefits		1.5		3.2		4.7		8.7
Other comprehensive income		77.0		162.2		174.4		407.3
Comprehensive income	$	129.3	$	211.9	$	270.8	$	547.2

The accompanying notes are an integral part of these consolidated financial statements.

7

THE HANOVER INSURANCE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		(Unaudited)              Nine months Ended             September 30,
(In millions)		2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$		96.4	$		139.9
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Gain on disposal of variable life insurance and annuity business			(1.0)			(4.1)
Gain from sale of FAFLIC			(0.4)			(6.3)
Gain from retirement of debt			-			(34.5)
Net realized investment (gains) losses			(16.4)			13.0
Net amortization and depreciation			12.0			9.0
Stock-based compensation expense			8.6			8.9
Amortization of deferred benefit plan costs			7.4			14.9
Deferred federal income taxes			48.1			22.7
Change in deferred acquisition costs			(58.5)			(20.4)
Change in premiums and notes receivable, net of reinsurance premiums payable			(241.9)			(35.1)
Change in accrued investment income			(0.9)			(1.2)
Change in policy liabilities and accruals, net			276.2			(36.5)
Change in reinsurance receivable			(14.7)			27.2
Change in expenses and taxes payable			(104.6)			(80.8)
Other, net			(25.3)			10.2
Net cash (used in) provided by operating activities			(15.0)			26.9
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities of available-for-sale fixed maturities			998.6			1,749.2
Proceeds from disposals of equity securities and other investments			36.1			1.4
Proceeds from mortgages sold, matured or collected			8.8			10.7
Proceeds from the sale of FAFLIC			-			105.8
Cash transferred with sale of FAFLIC			-			(108.1)
Purchase of available-for-sale fixed maturities			(981.7)			(2,078.4)
Purchase of other investments			(95.3)			(31.0)
Net cash used for business acquisitions			(13.3)			-
Capital expenditures			(6.6)			(6.6)
Other investing items			-			1.5
Net cash used in investing activities			(53.4)			(355.5)
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of options			9.3			1.6
Proceeds from long term debt			205.6			125.0
Change in collateral related to securities lending program			(23.4)			75.8
Dividends paid to shareholders			(35.9)			-
Repurchase of long-term debt			(0.4)			(125.9)
Repurchases of common stock			(130.6)			(36.1)
Other financing activities			0.1			0.1
Net cash provided by financing activities			24.7			40.5
Net change in cash and cash equivalents			(43.7)			(288.1)
Net change in cash related to discontinued operations			(1.2)			123.6
Cash and cash equivalents, beginning of period			316.5			397.7
Cash and cash equivalents, end of period	$		271.6	$		233.2

The accompanying notes are an integral part of these consolidated financial statements.

8

THE HANOVER INSURANCE GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements of The Hanover Insurance Group, Inc. (“THG” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the requirements of Form 10-Q.

The interim consolidated financial statements of THG include the accounts of The Hanover Insurance Company (“Hanover Insurance”), and Citizens Insurance Company of America (“Citizens”), THG’s principal property and casualty companies; and certain other insurance and non-insurance subsidiaries. These legal entities conduct their operations through several business segments discussed in Note 11. All significant intercompany accounts and transactions have been eliminated. On January 2, 2009, the Company sold First Allmerica Financial Life Insurance Company (“FAFLIC”) to Commonwealth Annuity and Life Insurance Company (“Commonwealth Annuity”), a subsidiary of the Goldman Sachs Group, Inc. (“Goldman Sachs”). Results related to the sale of FAFLIC are reported as discontinued operations. Accounts associated with the accident and health insurance business that was retained by the Company have been classified as assets and liabilities of discontinued operations in the consolidated Balance Sheets (See Note 3 – Discontinued Operations).

The accompanying interim consolidated financial statements reflect, in the opinion of the Company’s management, all adjustments necessary for a fair presentation of the financial position and results of operations. The results of operations for the nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with generally accepted accounting principles requires the Company 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 financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2. New Accounting Pronouncements

Recently Implemented Standards

Accounting Standards Codification (“ASC”) 105, Generally Accepted Accounting Principles (“ASC 105”) reorganized by topic existing accounting and reporting guidance issued by the Financial Accounting Standards Board (“FASB”) into a single source of authoritative generally accepted accounting principles (“GAAP”) to be applied by nongovernmental entities. All guidance contained in the ASC carries an equal level of authority. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Accordingly, all other accounting literature will be deemed “non-authoritative”. ASC 105 is effective on a prospective basis for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has implemented the guidance included in ASC 105 as of July 1, 2009. The implementation of this guidance changed the Company’s references to GAAP authoritative guidance but did not impact the Company’s financial position or results of operations.

As of April 1, 2009, the Company adopted the guidance included in ASC 320, Investments - Debt and Equity Securities (“ASC 320”), which modifies the assessment of other-than-temporary impairments (“OTTI”) for fixed maturity securities, as well as the method of recording and reporting OTTI. Under the new guidance, if a company intends to sell or more likely than not will be required to sell a fixed maturity security before recovery of its amortized cost basis, the amortized cost of the security is reduced to its fair value, with a corresponding charge to earnings. If a company does not intend to sell the fixed maturity security, or more likely than not will not be required to sell it, the company is required to separate the other-than-temporary impairment into the portion which represents the credit loss and the amount related to all other factors. The amount of the estimated loss attributable to credit is recognized in earnings and the amount related to non-credit factors is recognized in accumulated other comprehensive income, net of applicable taxes. A cumulative effect adjustment was recognized by the Company upon adoption of this guidance to reclassify the non-credit component of previously recognized impairments from retained earnings to accumulated other comprehensive income. The Company increased the amortized cost basis of these fixed maturity securities and recorded a cumulative effect adjustment of $33.3 million as an increase to retained earnings and reduction to accumulated other comprehensive income. (See further disclosure in Note 8 – Investments).

ASC 805, Business Combinations (“ASC 805”) contains guidance which was intended to provide additional clarification of application issues regarding initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. ASC 805 was effective for business combinations initiated on or after

9

the first annual reporting period beginning after December 15, 2008. The Company implemented this guidance effective January 1, 2009. Implementing this guidance did not have an effect on the Company’s financial position or results of operations; however, it will likely have an impact on the Company’s accounting for future business combinations, but the effect is dependent upon acquisitions, if any, that are made in the future.

In December 2009, the FASB issued ASC Update 2009-17, Consolidation (Topic 810) – Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASC Update 2009-17”) which codified Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R). This guidance amends FASB Interpretation No. 46R, Consolidation of Variable Interest Entities an interpretation of ARB No. 51 to require an analysis to determine whether a company has a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has a) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. The statement requires an ongoing assessment of whether a company is the primary beneficiary of a variable interest entity when the holders of the entity, as a group, lose power, through voting or similar rights, to direct the actions that most significantly affect the entity’s economic performance. This statement also enhances disclosures about a company’s involvement in variable interest entities. ASC Update 2009-17 is effective as of the beginning of the first annual reporting period that begins after November 15, 2009. The Company implemented this guidance as of January 1, 2010. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) includes guidance that was issued by the FASB which is to be considered when determining whether or not a transaction is orderly and clarifies the valuation of securities in markets that are not active. This guidance includes information related to a company’s use of judgment, in addition to market information, in certain circumstances to value assets which have inactive markets. This fair value guidance in ASC 820 was effective for interim and annual reporting periods ending after June 15, 2009.

In August 2009, the FASB issued ASC Update No. 2009-05, Fair Value Measurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value. This update amends ASC 820, Fair Value Measurements and Disclosures and provides further guidance on measuring the fair value of a liability. The guidance establishes the types of valuation techniques to be used to value a liability when a quoted market price in an active market for the identical liability is not available, such as the use of an identical or similar liability when traded as an asset. The guidance also further clarifies that a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are both Level 1 fair value measurements. If adjustments are required to be applied to the quoted price, it results in a level 2 or 3 fair value measurement. The guidance provided in the update is effective for the first reporting period (including interim periods) beginning after issuance.

In September 2009, the FASB issued ASC Update No. 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) (“ASC Update No. 2009-12”). This update sets forth guidance on using the net asset value per share provided by an investee to estimate the fair value of an alternative investment. Specifically, the update permits a reporting entity to measure the fair value of this type of investment on the basis of the net asset value per share of the investment (or its equivalent) if all or substantially all of the underlying investments used in the calculation of the net asset value is consistent with ASC 820. The update also requires additional disclosures by each major category of investment, including, but not limited to, fair value of underlying investments in the major category, significant investment strategies, redemption restrictions, and unfunded commitments related to investments in the major category. The amendments in this update are effective for interim and annual periods ending after December 15, 2009.

In January 2010, the FASB issued ASC Update 2010-06 (Topic 820) – Improving Disclosures about Fair Value Measurements (“ASC Update 2010-06). This update amends ASC 820 and requires new and clarified disclosures for fair value measurements. The guidance requires that transfers in and out of Levels 1 and 2 be disclosed separately, including a description of the reasons for such transfers. Additionally, the reconciliation of fair value measurements of Level 3 assets should separately disclose information about purchases, sales, issuance and settlements in a gross, rather than net disclosure presentation. The guidance further clarifies that fair value disclosures should be separately presented for each class of assets and liabilities and disclosures should be provided for valuation techniques and inputs for both recurring and non-recurring fair value measurements related to Level 2 and Level 3 categories. The disclosure guidance provided in the update is effective for reporting periods beginning after December 15, 2009. The Company implemented this guidance effective at January 1, 2010. Implementing this guidance did not have an effect on the Company’s financial position or results of operations.

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The Company applied the provisions of ASC 820 to its financial assets and liabilities upon adoption at January 1, 2008 and adopted the remaining provisions relating to certain nonfinancial assets and liabilities on January 1, 2009. The difference between the carrying amounts and fair values of those financial instruments held upon initial adoption, on January 1, 2008, was recognized as a cumulative effect adjustment to the opening balance of retained earnings and was not material to the Company’s financial position or results of operations. The Company implemented the guidance related to orderly transactions under current market conditions as of April 1, 2009, which also was not material to the Company’s financial position or results of operations. Furthermore, the implementation as of October 1, 2009 of ASC Update No. 2009-05 and ASC Update No. 2009-12 did not have a material effect on the Company’s financial position or results of operations. (See further disclosure in Note 9 – Fair Value).

ASC 855, Subsequent Events (“ASC 855”), and as modified by ASC update 2010-9, Amendments to Certain Recognition and Disclosure Requirements, includes guidance that was issued by the FASB in May 2009, and is consistent with current auditing standards in defining a subsequent event. Additionally, the guidance provides for disclosure regarding the existence of a company’s evaluation of its subsequent events. ASC 855 defines two types of subsequent events, “recognized” and “non-recognized”. Recognized subsequent events provide additional evidence about conditions that existed at the date of the balance sheet and are required to be reflected in the financial statements. Non-recognized subsequent events provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date and, therefore, are not required to be reflected in the financial statements. However, certain non-recognized subsequent events may require disclosure to prevent the financial statements from being misleading. This guidance was effective prospectively for interim or annual financial periods ending after June 15, 2009. The Company implemented the guidance included in ASC 855 as of April 1, 2009 and the updated guidance as of December 31, 2009. The effect of implementing the guidance was not material to the Company’s financial position or results of operations.

In December 2009, the FASB issued ASC Update 2009-16 Transfers and Servicing (Topic 860) - Accounting for Transfers of Financial Assets (“ASC Update 2009-16”) which codified Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140. This guidance revises FASB Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Extinguishment of Liabilities a replacement of FASB Statement 125 and requires additional disclosures about transfers of financial assets, including securitization transactions, and any continuing exposure to the risks related to transferred financial assets. It also eliminates the concept of a “qualifying special-purpose entity”, changes the requirements for derecognizing financial assets, and enhances disclosure requirements. ASC Update 2009-16 is effective prospectively, for annual periods beginning after November 15, 2009, and interim and annual periods thereafter. The Company has implemented this guidance as of January 1, 2010. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

Recently Issued Standards

In October 2010, the FASB issued ASC Update 2010-26 (Topic 944) Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (a consensus of the FASB Emerging Issues Task Force). This update provides clarity in defining which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral, commonly known as deferred acquisition costs. Additionally, this update specifies that only costs associated with the successful acquisition of a policy or contract may be deferred, whereas current industry practice often includes costs relating to unsuccessful contract acquisitions. This ASC Update is effective for fiscal years beginning after December 15, 2011. The Company is currently assessing the impact of this guidance to its financial position and results of operations.

3. Discontinued Operations

Discontinued operations primarily consist of: (i) FAFLIC’s discontinued operations, including both the loss associated with the sale of FAFLIC on January 2, 2009 and the loss or income resulting from its prior business operations; (ii) losses or gains associated with the sale of the variable life insurance and annuity business in 2005; and (iii) the discontinued accident and health insurance business.

The following table summarizes the results for this discontinued business for the periods indicated:

	(Unaudited) Quarter Ended September 30,				(Unaudited) Nine months Ended September 30,
(In millions)	2010		2009		2010		2009
Gain from operations of discontinued FAFLIC business, net of taxes	$	0.5	$	0.4	$	0.4	$	6.3
Gain on disposal of variable life and annuity business, net of taxes	$	0.1	$	-	$	1.0	$	4.1
Gain (loss) from discontinued accident and health insurance business, net of taxes	$	0.2	$	0.7	$	(0.9)	$	(2.4)
Other discontinued operations, net of taxes	$	0.1	$	-	$	0.1	$	-

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FAFLIC Discontinued Operations

On January 2, 2009, THG sold its remaining life insurance subsidiary, FAFLIC, to Commonwealth Annuity, a subsidiary of Goldman Sachs. Approval was obtained from the Massachusetts Division of Insurance for a pre-close dividend from FAFLIC consisting of designated assets with a statutory book value of approximately $130 million. Total proceeds from the sale, including the dividend, were approximately $230 million, net of transaction costs. Additionally, coincident with the sale transaction, Hanover Insurance and FAFLIC entered into a reinsurance contract whereby Hanover Insurance assumed FAFLIC’s discontinued accident and health insurance business. THG has also indemnified Commonwealth Annuity for certain litigation, regulatory matters and other liabilities related to the pre-closing activities of the business transferred. The Company recognized, in 2008, a $77.3 million loss associated with this transaction.

The gain from FAFLIC’s discontinued operations was $0.5 million and $0.4 million, net of tax, for the quarter and $0.4 million and $6.3 million, net of tax, for the nine months ended September 30, 2010 and 2009, respectively, and resulted primarily from a change in the Company’s estimate of indemnification liabilities related to the sale.

As of September 30, 2010, the Company’s total gross indemnification liability provided in connection with the sale of FAFLIC was $1.2 million. The Company regularly reviews and updates this liability for legal and regulatory matter indemnities. Although the Company believes its current estimate for this liability is appropriate, there can be no assurance that these estimates will not materially increase in the future. Adjustments to this reserve are recorded in the results of the Company in the period in which they are determined.

Variable Life Insurance and Annuity Business

On December 30, 2005, the Company sold its run-off variable life insurance and annuity business to Goldman Sachs, including the reinsurance of 100% of the variable business of FAFLIC. The Company agreed to indemnify Goldman Sachs for certain litigation, regulatory matters and other liabilities relating to the pre-closing activities of the business that was sold. In the third quarter of 2010, the Company recorded gains of $0.1 million, net of tax, and in the first nine months of 2010 and 2009, respectively, the Company recorded gains of $1.0 million and $4.1 million, net of tax, primarily due to a change in the Company’s estimate of indemnification liabilities.

As of September 30, 2010, the Company’s total gross liability for guarantees and indemnifications provided in connection with the disposal of its variable life insurance and annuity business was $4.1 million. The Company regularly reviews and updates this liability for legal and regulatory matter indemnities. Although the Company believes its current estimate for this liability is appropriate, there can be no assurance that these estimates will not materially increase in the future. Adjustments to this reserve are recorded in the results of the Company in the period in which they are determined.

Accident and Health Insurance Business

During 1999, the Company exited its accident and health insurance business, consisting of its Employee Benefit Services business, its Affinity Group Underwriters business and its accident and health assumed reinsurance pool business. Prior to 1999, these businesses comprised substantially all of the former Corporate Risk Management Services segment. Accordingly, the operating results of the discontinued segment have been reported in accordance with Accounting Principles Board Opinion No. 30, Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (“APB Opinion No. 30”). On January 2, 2009, Hanover Insurance directly assumed a portion of the accident and health insurance business; and therefore continues to apply APB Opinion No. 30 to this business. In addition, the remainder of the FAFLIC accident and health business was reinsured by Hanover Insurance and has been reported in accordance with ASC 205.

During the quarters ended September 30, 2010 and 2009, the Company recognized gains of $0.2 million and $0.7 million, net of tax, respectively, from its discontinued accident and health insurance business. For the nine months ended September 30, 2010 and 2009, the Company recognized losses of $0.9 million and $2.4 million, net of tax, related to this business. Losses for the nine months ended September 30, 2010 were driven by increased reserves resulting from the Company’s current interpretation of the provisions of the Patient Protection and Affordable Care Act, as well as realized investment losses due to impairments. These were partially offset by net investment income. Losses for the nine months ended September 30, 2009 primarily reflect realized investment losses due to impairments.

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At September 30, 2010 and December 31, 2009, the portion of the discontinued accident and health insurance business that was directly assumed had assets of $58.9 million and $54.0 million, respectively, consisting primarily of invested assets, and liabilities of approximately $53.3 million and $48.7 million, respectively, consisting primarily of policy liabilities. At September 30, 2010 and December 31, 2009, the assets and liabilities of this business, as well as those of the reinsured portion of the accident and health insurance business are classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheets.

4. Other Significant Transactions

On September 23, 2010, June 7, 2010 and March 22, 2010, the Company paid dividends of 25 cents per share to its issued and outstanding common stock shareholders of record at the close of business on September 10, 2010, May 24, 2010 and March 8, 2010, respectively. The total dividends paid in the quarters ended September 30, 2010, June 30, 2010 and March 31, 2010 were $11.6 million, $12.0 million and $12.3 million, respectively. On an annualized basis, these dividend payments represent a 33% increase over the annual dividend of 75 cents, paid in December 2009. The holding company receives dividends from its insurance subsidiaries; such dividends are restricted through state regulation. Both Citizens and Hanover Insurance paid dividends to their parent companies in 2009. Citizens could not pay a dividend to Hanover Insurance without the prior approval of the state regulators until June 2010. Beginning in June 2010, Citizens was able to pay up to $70.3 million without the prior approval of state regulators. In September 2010, Citizens declared a $70 million dividend to Hanover Insurance. Hanover Insurance cannot pay a dividend to the holding company without the prior approval of the state regulators until December 2010. In December 2010, the maximum dividend that Hanover Insurance can pay without the prior approval of state regulators will be $173.7 million.

On June 14, 2010, the Company purchased approximately 11 acres of developable land in Worcester, Massachusetts for $5 million. A portion of the land will be developed with the construction of a new 200,000 square foot office building and the redevelopment of an adjacent parking garage. In addition, the Company signed a 17 year lease agreement with a tenant for the new building and garage. The tenant is an unaffiliated public company with an investment grade credit rating. Through September 30, 2010, the Company capitalized $6.8 million in related lease acquisition, legal, architectural and associated costs. Development costs are estimated between $65 million and $70 million and the project will be financed, in part, through the issuance of collateralized debt through the Company’s membership in the Federal Home Loan Bank of Boston (“FHLBB”). In July 2010, Hanover Insurance committed to borrow $46.3 million from the FHLBB to finance the project. These borrowings will be drawn in several increments from July 2010 to January 2012. On July 19, 2010, Hanover Insurance received an advance of $7.6 million from this commitment. Amounts drawn from the $46.3 million mature on July 20, 2020 and carry fixed interest rates with a weighted average of 3.88%. (See also below for further information related to participation in the FHLBB’s collateralized borrowing program).

On March 31, 2010, the Company acquired Campania for a cash purchase price of approximately $24 million, subject to various terms and conditions. Campania specializes in insurance solutions for portions of the healthcare industry.

Through October 2010, the Company’s Board of Directors has authorized aggregate repurchases of the Company’s common stock of up to $500 million, including a recent $100 million increase in the program. Under the repurchase authorizations, the Company may repurchase its common stock from time to time, in amounts and prices and at such times as deemed appropriate, subject to market conditions and other considerations. The Company’s repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. The Company is not required to purchase any specific number of shares or to make purchases by any certain date under this program. On March 30, 2010 and December 8, 2009, the Company entered into accelerated share repurchase agreements with Barclays Bank PLC, acting through its agent Barclays Capital, Inc., for the immediate repurchase of 2.3 million and 2.4 million shares, respectively, of the Company’s common stock at a cost of approximately $100.9 million and $100.6 million, respectively (in each case, subject to adjustment). The Company settled its accelerated stock repurchase program initiated in December 2009 on June 23, 2010 for an additional payment of $4.6 million provided to Barclays Bank PLC. Total repurchases under these programs as of September 30, 2010 were 7.9 million shares at a cost of $338.8 million.

On February 23, 2010, the Company issued $200.0 million aggregate principal amount of 7.50% senior unsecured notes due March 1, 2020. The senior debentures are subject to certain restrictive covenants, including limitations on the issuance or disposition of capital stock of restricted subsidiaries and limitations on liens. These debentures pay interest semi-annually on March 1 and September 1.

On December 3, 2009, the Company entered into a renewal rights agreement with OneBeacon Insurance Group, LTD. (“OneBeacon”). Through this agreement, the Company acquired access to a portion of OneBeacon’s small and middle market commercial business at renewal, including industry programs and middle market niches. This transaction included consideration of approximately $23 million, plus certain potential additional consideration, primarily representing purchased renewal rights intangible assets which are included as Other Assets in the Consolidated Balance Sheets. The agreement was effective for renewals beginning January 1, 2010.

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On September 25, 2009, Hanover Insurance received an advance of $125 million through its membership in the FHLBB as part of a collateralized borrowing program. This advance bears interest at a fixed rate of 5.50% per annum over a twenty-year term. The proceeds from the borrowing were used by Hanover Insurance to acquire AIX and its subsidiaries from the holding company. As noted above, in July 2010 an additional $7.6 million advance was received from the FHLBB. As collateral to the FHLBB for all advances received as of September 30, 2010, Hanover Insurance has pledged government agency securities with a fair value of $153.7 million. Collateral pledged to the FHLBB totaled $142.0 million as of December 31, 2009. The fair value of the collateral pledged must be maintained at certain specified levels of the borrowed amount, which can vary depending on the type of assets pledged. If the fair value of this collateral declines below these specified levels, Hanover Insurance would be required to pledge additional collateral or repay outstanding borrowings. Hanover Insurance is permitted to voluntarily repay the outstanding borrowings at any time, subject to a repayment fee. As a requirement of membership in the FHLBB, Hanover Insurance acquired $2.5 million of FHLBB stock, and as a condition to participating in the FHLBB’s collateralized borrowing program, it was required to purchase additional shares of FHLBB stock in an amount equal to 4.5% of its outstanding borrowings. Such purchases totaled $6.0 million through September 30, 2010.

The Company liquidated AFC Capital Trust I (the “Trust”) on July 30, 2009. Each holder of 8.207% Series B Capital Securities (“Capital Securities”) as of that date received a principal amount of the Company’s Series B 8.207% Junior Subordinated Deferrable Interest Debentures (“Junior Debentures”) due February 3, 2027 equal to the liquidation amount of the Capital Securities held by such holder. The liquidation of the Trust did not have a material effect on the Company’s results of operations or financial position.

On June 29, 2009, prior to liquidating the Trust, the Company completed a cash tender offer to repurchase a portion of its Capital Securities that were issued by the Trust and a portion of its 7.625% Senior Debentures (“Senior Debentures”) due in 2025 that were issued by THG. As of that date, $69.3 million of Capital Securities were tendered at a price equal to $800 per $1,000 of face value. In addition, the Company accepted for tender a principal amount of $77.3 million of Senior Debentures. Depending on the time of tender, holders of the Senior Debentures accepted for purchase received a price of either $870 or $900 per $1,000 of face value. Separately, the Company held $65.0 million of Capital Securities previously repurchased at a discount in the open market prior to the tender offer, and $1.1 million of Senior Debentures. The Company recognized a pre-tax gain of $34.5 million in 2009 as a result of such purchases. During the first quarter of 2010, the Company repurchased $0.4 million of Junior Debentures at a slight gain. As of September 30, 2010, a net principal amount of $165.3 million of their Junior Debentures and $121.4 million of their Senior Debentures, which are not held by us, remained outstanding.

5. Debt

Long-term debt consists of the following:

(In millions)	(Unaudited)     September 30, 2010		December 31, 2009
Senior debentures (unsecured) maturing March 1, 2020	$	199.3	$	-
Senior debentures (unsecured) maturing October 16, 2025		121.4		121.4
Holding Company junior subordinated debentures		165.3		165.7
FHLBB borrowing		132.6		125.0
Capital securities		17.4		17.8
Surplus notes		4.0		4.0
	$	640.0	$	433.9

On February 23, 2010, the Company issued $200 million aggregate principal amount of 7.50% senior unsecured notes due March 1, 2020. The senior debentures are subject to certain restrictive covenants, including limitations on the issuance or disposition of capital stock of restricted subsidiaries and limitations on liens. These debentures pay interest semi-annually (See also Note 4 – Other Significant Transactions). The Company is in compliance with the covenants associated with this indenture.

The Company also holds senior unsecured notes issued with a face value of $200.0 million on October 16, 1995. In 2009, the Company repurchased a portion of these senior debentures with a face value of $78.4 million. The remaining senior debentures have a $121.4 million face value, pay interest semi-annually at a rate of 7.625% and mature on October 16, 2025. The senior debentures are subject to certain restrictive covenants, including limitations on the issuance or disposition of stock of restricted subsidiaries and limitations on

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liens (See also Note 4 – Other Significant Transactions). The Company is in compliance with the covenants associated with this indenture.

AFC Capital Trust I issued $300.0 million of preferred securities in 1997, the proceeds of which were used to purchase junior subordinated debentures issued by the Company. The Company liquidated the Trust on July 30, 2009. Each holder of Capital Securities as of that date received a principal amount of the Company’s Series B Junior Subordinated Deferrable Interest Debentures equal to the liquidation amount of the Capital Securities held by such holder. In 2010 and 2009, the Company repurchased a portion of these debentures with a face value of $0.4 million and $134.3 million, respectively. These junior subordinated debentures have a face value of $165.3 million and $165.7 million as of September 30, 2010 and December 31, 2009, respectively, and consistent with the capital securities, pay cumulative dividends semi-annually at 8.207% and mature February 3, 2027 (See also Note 4 – Other Significant Transactions). These securities are subject to certain restrictive covenants, with which the Company is in compliance. In addition, the Company holds $3.0 million of capital securities related to Professionals Direct, Inc., and $14.4 million of capital securities related to AIX Holdings, Inc. as of September 30, 2010.

In September 2009, Hanover Insurance received an advance of $125.0 million through its membership in the FHLBB as part of a collateralized borrowing program (“FHLBB 2009”). This advance bears interest at a fixed rate of 5.50% per annum over a twenty-year term. In July 2010, the Company committed to borrow an additional $46.3 million from FHLBB to finance the development of City Square. These borrowings will be drawn in several increments from July 2010 to January 2012. All amounts mature on July 20, 2020 and carry fixed interest rates with a weighted average of 3.88%. Through September 30, 2010, the Company has borrowed $7.6 million under this arrangement (“FHLBB 2010”). All interest associated with this additional $46.3 million will be capitalized through the construction phase of the City Square project. As collateral to FHLBB, Hanover Insurance has pledged government agency securities with a fair value of $153.7 million and $142.0 million as of September 30, 2010 and December 31, 2009, respectively (See also Note 4 – Other Significant Transactions). The Company is in compliance with the covenants associated with these borrowings.

In June 2007, the Company entered into a $150.0 million committed syndicated credit agreement which expired in June 2010. There were no borrowings under this agreement. The agreement provided covenants, including, but not limited to, maintaining a certain level of equity and an RBC ratio in the Company’s primary property and casualty companies of at least 175% (based on the Industry Scale). The Company was in compliance with the covenants of this agreement for the duration of the contract. The Company did not renew or replace this syndicated credit agreement upon expiration. Additionally, the Company had no commercial paper borrowings as of September 30, 2010 and the Company does not anticipate utilizing commercial paper in the near term.

Interest expense was $32.8 million for the nine months ended September 30, 2010 and $27.2 million for the nine months ended September 30, 2009 and included interest related to the Company’s senior debentures, junior subordinated debentures, FHLBB borrowings, capital securities and surplus notes. All interest expense is recorded in other operating expenses.

6. Federal Income Taxes

Federal income tax expense for the nine months ended September 30, 2010 and 2009 has been computed using estimated effective tax rates. These rates are revised, if necessary, at the end of each successive interim period to reflect current estimates of the annual effective tax rates.

The Company or its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company and its subsidiaries are no longer subject to U.S. federal income tax examinations by tax authorities for years before 2005. In September 2009, the Company received a Revenue Agents Report for the 2005 and 2006 IRS audit. The Company has agreed to all proposed adjustments other than a disallowance of Separate Account Dividends Received Deductions for which the Company has requested an Appeals conference. Due to available net operating loss carryovers and the 2005 sale of Allmerica Financial Life Insurance and Annuity Company, the effects of the proposed adjustments do not materially affect the Company’s financial position. The IRS audits of the years 2007 and 2008 commenced in April 2010. The Company and its subsidiaries are still subject to U.S. state income tax examinations by tax authorities for years after 1998.

7. Pension and Other Postretirement Benefit Plans

The Company’s defined benefit pension plans, which provided retirement benefits based on a cash balance formula, were frozen as of January 1, 2005; therefore, no further cash balance allocations have been credited for plan years beginning on or after January 1, 2005. In addition, certain transition group employees were eligible for a grandfathered benefit based upon service and compensation; such benefits were also frozen at January 1, 2005 levels with an annual transition pension adjustment. The Company has additional unfunded pension plans and postretirement plans to provide benefits to certain full-time employees, former FAFLIC agents, retirees and their dependents.

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The components of net periodic benefit cost for pension and other postretirement benefit plans are as follows:

		(Unaudited) Quarter Ended September 30,
(In millions)		2010			2009			2010			2009
		Pension Benefits						Postretirement Benefits
Service cost – benefits earned during the period	$		0.1	$		0.1	$		-	$		-
Interest cost			8.2			8.4			0.7			0.7
Expected return on plan assets			(8.8)			(6.4)			-			-
Recognized net actuarial loss			4.2			6.7			0.1			0.1
Amortization of transition asset			(0.4)			(0.4)			-			-
Amortization of prior service cost			-			-			(1.5)			(1.4)
Net periodic cost (benefit)	$		3.3	$		8.4	$		(0.7)	$		(0.6)
		(Unaudited) Nine months Ended September 30,
		2010			2009			2010			2009
		Pension Benefits						Postretirement Benefits
Service cost – benefits earned during the period	$		0.1	$		0.1	$		0.1	$		0.1
Interest cost			24.5			25.4			2.0			2.1
Expected return on plan assets			(26.3)			(19.1)			-			-
Recognized net actuarial loss			12.6			20.2			0.3			0.2
Amortization of transition asset			(1.2)			(1.2)			-			-
Amortization of prior service cost			-			-			(4.4)			(4.3)
Net periodic cost (benefit)	$		9.7	$		25.4	$		(2.0)	$		(1.9)

On January 4, 2010, the Company made a discretionary contribution of $100.0 million to the qualified defined benefit pension plan. With this contribution, and based upon the current estimate of liabilities and certain assumptions regarding investment return and other factors, the Company’s qualified defined benefit pension plan is essentially fully funded.

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8. Investments

A. Fixed maturities and equity securities

The Company holds investments in fixed maturities and equity securities, which are classified as available for sale, in accordance with ASC 320, Investments – Debt and Equity Securities.

The amortized cost and fair value of available-for-sale fixed maturities and equity securities were as follows:

(In millions)	(Unaudited) September 30, 2010
					Gross Unrealized Losses
	Amortized     Cost (1)		Gross Unrealized Gains		Unrealized Losses		OTTI Unrealized Losses (2)			Fair Value
U.S. Treasury securities and U.S. government and agency securities	$	232.4	$	8.3	$	0.5	$	-		$	240.2
States and political subdivisions		931.9		48.1		7.6		-			972.4
Foreign governments		3.0		-		-		-			3.0
Corporate fixed maturities		2,404.8		239.8		3.2		25.5			2,615.9
Residential mortgage-backed securities		787.0		48.5		0.7		8.4			826.4
Commercial mortgage-backed securities		346.2		21.3		1.2		-			366.3
Total fixed maturities, including assets of discontinued operations		4,705.3		366.0		13.2		33.9			5,024.2
Less: fixed maturities of discontinued operations		(116.5)		(9.1)		(0.2)		(5.8	)		(119.6)
Total fixed maturities, excluding discontinued operations	$	4,588.8	$	356.9	$	13.0	$	28.1		$	4,904.6
Equity securities, excluding discontinued operations	$	112.3	$	13.7	$	0.3	$	-		$	125.7
(In millions)	December 31, 2009
					Gross Unrealized Losses
	Amortized     Cost (1)		Gross Unrealized Gains		Unrealized Losses		OTTI Unrealized Losses (2)			Fair Value
U.S. Treasury securities and U.S. government and agency securities	$	355.2	$	3.2	$	3.7		$       -			$    354.7
States and political subdivisions		844.7		13.1		25.6		-			832.2
Foreign governments		3.0		-		-		-			3.0
Corporate fixed maturities		2,243.7		131.4		14.3		29.9			2,330.9
Residential mortgage-backed securities		858.8		29.7		3.4		10.7			874.4
Commercial mortgage-backed securities		334.5		10.1		7.4		-			337.2
Total fixed maturities, including assets of discontinued operations		4,639.9		187.5		54.4		40.6			4,732.4
Less: fixed maturities of discontinued operations		(119.6)		(6.0)		(2.0)		(6.8	)		(116.8)
Total fixed maturities, excluding discontinued operations	$	4,520.3	$	181.5	$	52.4		$      33.8			$4,615.6
Equity securities, excluding discontinued operations	$	57.3	$	12.2	$	0.3		$       -			$     69.2

(1) Amortized cost for fixed maturities and cost for equity securities.

(2) Represents other-than-temporary impairments recognized in accumulated other comprehensive income. Amount excludes net unrealized gains on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date of $39.2 million and $30.1 million as of September 30, 2010 and December 31, 2009, respectively.

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The amortized cost and fair value by maturity periods for fixed maturities are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, or the Company may have the right to put or sell the obligations back to the issuers. Mortgage-backed securities are included in the category representing their stated maturity.

(In millions)	(Unaudited) September 30, 2010
	Amortized     Cost		Fair Value
Due in one year or less		$182.9		$      185.9
Due after one year through five years		1,218.8		1,309.3
Due after five years through ten years		1,570.5		1,716.2
Due after ten years		1,733.1		1,812.8
Total fixed maturities, including assets of discontinued operations		4,705.3		5,024.2
Less: fixed maturities of discontinued operations		(116.5)		(119.6)
Total fixed maturities, excluding assets of discontinued operations		$    4,588.8		$      4,904.6

B. Securities in an unrealized loss position

The following tables provide information about the Company’s fixed maturities and equity securities that are in an unrealized loss position at September 30, 2010 and December 31, 2009:

	(Unaudited) September 30, 2010
	12 months or less				Greater than 12 months				Total
(In millions)	Gross Unrealized Losses and OTTI		Fair Value		Gross Unrealized Losses and OTTI		Fair Value		Gross Unrealized Losses and OTTI (1)		Fair Value
Fixed maturities:
Investment grade:
U.S. Treasury securities and U.S. government and agency securities	$	-	$	11.1	$	0.5	$	-	$	0.5	$	11.1
States and political subdivisions		2.1		29.7		5.5		94.3		7.6		124.0
Corporate fixed maturities		0.3		13.7		12.3		96.9		12.6		110.6
Residential mortgage-backed securities		0.1		35.8		9.0		33.0		9.1		68.8
Commercial mortgage-backed securities		-		5.8		1.2		8.1		1.2		13.9
Total investment grade		2.5		96.1		28.5		232.3		31.0		328.4
Below investment grade (2):
Corporate fixed maturities		0.7		20.4		15.4		124.9		16.1		145.3
Total fixed maturities		3.2		116.5		43.9		357.2		47.1		473.7
Equity securities:
Common equity securities		0.3		11.4		-		-		0.3		11.4
Total (3)	$	3.5	$	127.9	$	43.9	$	357.2	$	47.4	$	485.1

(1) Includes $33.9 million unrealized loss related to other-than-temporary impairment losses recognized in other comprehensive income, of which $15.1 million are below investment grade aged greater than 12 months.

(2) Substantially all below investment grade securities with an unrealized loss had been rated by the NAIC, Standard & Poor’s or Moody’s at September 30, 2010.

(3) Includes discontinued accident and health insurance business of $6.0 million in total gross unrealized losses with $40.5 million in fair value at September 30, 2010.

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	December 31, 2009
	12 months or less				Greater than 12 months				Total
(In millions)	Gross Unrealized Losses and OTTI		Fair Value		Gross Unrealized Losses and OTTI		Fair Value		Gross Unrealized Losses and OTTI (1)		Fair Value
Fixed maturities:
Investment grade:
U.S. Treasury securities and U.S. government and agency securities	$	3.7	$	170.8	$	-	$	-	$	3.7	$	170.8
States and political subdivisions		9.0		275.2		15.6		176.5		24.6		451.7
Corporate fixed maturities		3.4		115.8		13.3		152.7		16.7		268.5
Residential mortgage-backed securities		6.6		89.1		7.5		62.6		14.1		151.7
Commercial mortgage-backed securities		0.4		13.5		7.0		30.0		7.4		43.5
Total investment grade		23.1		664.4		43.4		421.8		66.5		1,086.2
Below investment grade (2):
States and political subdivisions		0.2		8.7		0.8		8.2		1.0		16.9
Corporate fixed maturities		10.6		84.1		16.9		150.1		27.5		234.2
Total below investment grade		10.8		92.8		17.7		158.3		28.5		251.1
Total fixed maturities		33.9		757.2		61.1		580.1		95.0		1,337.3
Equity securities:
Common equity securities		-		-		0.3		1.4		0.3		1.4
Total (3)	$	33.9	$	757.2	$	61.4	$	581.5	$	95.3	$	1,338.7

(1) Includes $40.6 million unrealized loss related to other-than-temporary impairment losses recognized in other comprehensive income, of which $14.8 million are below investment grade aged greater than 12 months.

(2) Substantially all below investment grade securities with an unrealized loss had been rated by the NAIC, Standard & Poor’s or Moody’s at December 31, 2009.

(3) Includes discontinued accident and health insurance business of $8.8 million in total gross unrealized losses with $55.0 million in fair value at December 31, 2009.

The Company employs a systematic methodology to evaluate declines in fair value below amortized cost for all investments. The methodology utilizes a quantitative and qualitative process ensuring that available evidence concerning the declines in fair value below amortized cost is evaluated in a disciplined manner. In determining whether a decline in fair value below amortized cost is other-than-temporary, the Company evaluates several factors and circumstances, including the issuer’s overall financial condition; the issuer’s credit and financial strength ratings; the issuer’s financial performance, including earnings trends, dividend payments and asset quality; any specific events which may influence the operations of the issuer; a weakening of the general market conditions in the industry or geographic region in which the issuer operates; the length of time and the degree to which the fair value of an issuer’s securities remains below the Company’s cost; with respect to fixed maturity investments, any factors that might raise doubt about the issuer’s ability to pay all amounts due according to the contractual terms and whether the Company expects to recover the entire amortized cost basis of the security; and with respect to equity securities, the Company’s ability and intent to hold the investment for a period of time to allow for a recovery in value. The Company applies these factors to all securities.

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The following tables provide information on the Company’s gross unrealized losses of fixed maturity securities by credit ratings, including ratings of securities with third party guarantees, as of September 30, 2010 and December 31, 2009.

	(Unaudited) September 30, 2010
(In millions)	AAA		AA			A			BBB			Total investment grade			BB			B			CCC and below			Total below investment grade			Total
U.S. Treasury securities and U.S government and agency securities	$	0.5	$	-		$	-		$	-		$	0.5		$	-		$	-		$	-		$	-		$	0.5
States and political subdivisions		0.3		0.9			1.8			4.6			7.6			-			-			-			-			7.6
Corporate fixed maturities		-		0.4			1.8			10.4			12.6			6.4			4.6			5.1			16.1			28.7
Residential mortgage-backed securities		0.7		0.5			-			7.9			9.1			-			-			-			-			9.1
Commercial mortgage-backed securities		-		-			1.2			-			1.2			-			-			-			-			1.2
Total fixed maturities, including discontinued operations		1.5		1.8			4.8			22.9			31.0			6.4			4.6			5.1			16.1			47.1
Less: losses included in discontinued operations		-		-			-			(3.1	)		(3.1	)		(2.2	)		(0.2	)		(0.5	)		(2.9	)		(6.0)
Total fixed maturities, excluding discontinued operations	$	1.5	$	1.8		$	4.8		$	19.8		$	27.9		$	4.2		$	4.4		$	4.6		$	13.2		$	41.1
	December 31, 2009
(In millions)	AAA		AA			A			BBB			Total investment grade			BB			B			CCC and below			Total below investment grade			Total
U.S. Treasury securities and U.S. government and agency securities	$	3.7	$	-		$	-		$	-		$	3.7		$	-		$	-		$	-		$	-		$	3.7
States and political subdivisions		4.1		7.3			4.8			8.4			24.6			0.8			-			0.2			1.0			25.6
Corporate fixed maturities		-		1.4			7.1			8.2			16.7			11.8			9.7			6.0			27.5			44.2
Residential mortgage-backed securities		2.4		1.4			7.9			2.4			14.1			-			-			-			-			14.1
Commercial mortgage-backed securities		0.5		0.8			6.1			-			7.4			-			-			-			-			7.4
Total fixed maturities, including discontinued operations		10.7		10.9			25.9			19.0			66.5			12.6			9.7			6.2			28.5			95.0
Less: losses included in discontinued operations		-		(0.2	)		(1.4	)		(3.2	)		(4.8	)		(0.5	)		(2.8	)		(0.7	)		(4.0	)		(8.8)
Total fixed maturities, excluding discontinued operations	$	10.7	$	10.7		$	24.5		$	15.8		$	61.7		$	12.1		$	6.9		$	5.5		$	24.5		$	86.2

C. Other-than-temporary impairments

For the three months ended September 30, 2010, total other-than-temporary impairments on fixed maturities were $0.2 million. Of this amount, $1.4 million was recognized in earnings, including $1.2 million that was transferred from unrealized losses in accumulated other comprehensive income, net of taxes. Of the $1.4 million loss recorded in earnings, $1.2 million related to below investment grade corporate bonds in the industrial sector that we intend to sell and $0.2 million was estimated credit losses on above investment grade residential mortgage-backed securities.

For the first nine months of 2010, total other-than-temporary impairments on fixed maturities and equity securities were $3.5 million. Of this amount, $7.5 million was recognized in earnings, including $4.0 million that was transferred from unrealized losses in accumulated other comprehensive income, net of taxes. Of the $7.5 million recorded in earnings, $3.0 million related to debt securities that the Company intends to sell, $2.6 million was estimated credit losses on debt securities and $1.9 million related to common stocks. Other-than-temporary impairments recognized on debt securities during the first nine months of 2010 primarily included $2.4 million on

20

investment grade residential mortgage-backed securities, $1.4 million on below investment grade corporate bonds in the industrial sector and $1.2 million on investment grade corporate bonds in the industrial sector.

For the three months ended September 30, 2009, total other-than-temporary impairments on fixed maturities and equity securities were $4.5 million, of which $6.1 million was recognized in earnings, including $1.6 million that was transferred from unrealized losses in accumulated other comprehensive income, net of taxes. Of the OTTI recognized in earnings, $4.0 million was estimated credit losses, primarily on below investment grade debt securities, including $1.7 million on corporate bonds in the industrial and financial sectors, $1.4 million on residential mortgage-backed securities, and $0.8 million on a municipal bond. In addition, OTTI recognized in earnings included $1.7 million related to investment grade corporate debt securities in the financial sector that the Company intended to sell and $0.5 million from perpetual preferred securities primarily in the industrial sector.

For the nine months ended September 30, 2009, other-than-temporary impairments on fixed maturities and equity securities were $39.1 million, of which $29.3 million was recognized in earnings and the remaining $9.8 million was recorded as unrealized losses in accumulated other comprehensive income, net of taxes. Of the OTTI recognized in earnings, $13.2 million related primarily to below investment grade corporate bonds in the industrial sector that the Company intended to sell and $9.5 million were from perpetual preferred securities primarily in the finance sector. In addition, the Company recorded OTTI of $6.6 million that was estimated credit losses on below investment grade debt securities, including $3.5 million on corporate bonds that were primarily in the financial and industrial sectors, $1.7 million on residential mortgage-backed securities and $1.4 million on a municipal bond.

The methodology and significant inputs used to measure the amount of credit losses in 2010 and 2009 are as follows:

Asset-backed securities, including commercial and residential mortgage-backed securities - the Company utilized cash flow estimates based on bond specific facts and circumstances that include collateral characteristics, expectations of delinquency and default rates, loss severity, prepayment speeds and structural support, including subordination and guarantees.

Corporate bonds – the Company utilized a financial model that derives expected cash flows based on probability-of-default factors by credit rating and asset duration and loss-given-default factors based on security type. These factors are based on historical data provided by an independent third-party rating agency.

Municipals – the Company utilized cash flow estimates based on bond specific facts and circumstances that may include the political subdivision’s taxing authority, the issuer’s ability to adjust user fees or other sources of revenue to satisfy its debt obligations and the ability to access insurance or guarantees.

The following table provides rollforwards of the cumulative amounts related to the Company’s credit loss portion of the OTTI losses on debt securities for which the non-credit portion of the loss is included in other comprehensive income:

(In millions)	(Unaudited) Quarter Ended September 30, 2010			(Unaudited) Nine months Ended September 30, 2010			(Unaudited) Quarter Ended September 30, 2009			(Unaudited) Period from April 1, 2009 to   September 30,   2009(1)
Credit losses as of the beginning of the period	$	21.0		$	22.1		$	19.9		$	17.3
Credit losses for which an OTTI was not previously recognized		-			0.3			0.9			3.5
Additional credit losses on securities for which an OTTI was previously recognized		0.2			2.4			3.1			3.1
Reductions for securities sold or matured during the period		(3.3	)		(6.9	)		(0.4	)		(0.4)
Reductions for securities reclassified as intend to sell		(0.4	)		(0.4	)		-			-
Credit losses as of the end of the period	$	17.5		$	17.5		$	23.5		$	23.5

(1) The effective date of the section of ASC 320 requiring this disclosure was April 1, 2009.

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D. Proceeds from voluntary sales

The proceeds from voluntary sales of available-for-sale securities and the gross realized gains and gross realized losses on those sales were as follows:

	(Unaudited) Quarter Ended September 30, 2010						(Unaudited) Quarter Ended September 30, 2009
(In millions)	Proceeds from Voluntary Sales		Gross Gains		Gross Losses		Proceeds from Voluntary Sales		Gross Gains		Gross Losses
Fixed maturities		$    195.2		$      8.4		$      0.1		$        247.2		$        7.4		$        2.0
Equity securities		-		-		-		-		-		-
	(Unaudited) Nine months Ended September 30, 2010						(Unaudited) Nine months Ended September 30, 2009
(In millions)	Proceeds from Voluntary Sales		Gross Gains		Gross Losses		Proceeds from Voluntary Sales		Gross Gains		Gross Losses
Fixed maturities		$    371.3		$    17.9		$      1.4		$     1,243.8		$      30.5		$      12.0
Equity securities		25.8		6.2		-		-		-		-

9. Fair Value

The Company follows the guidance in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), as it relates to the fair value of its financial assets and liabilities. ASC 820 provides for a standard definition of fair value to be used in new and existing pronouncements. This guidance requires disclosure of fair value information about certain financial instruments (insurance contracts, real estate, goodwill and taxes are excluded) for which it is practicable to estimate such values, whether or not these instruments are included in the balance sheet. The fair values presented for certain financial instruments are estimates which, in many cases, may differ significantly from the amounts that could be realized upon immediate liquidation.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, i.e., exit price, in an orderly transaction between market participants and also provides a hierarchy for determining fair value, which emphasizes the use of observable market data whenever available. The three broad levels defined by the hierarchy are as follows, with the highest priority given to Level 1 as these are the most reliable, and the lowest priority given to Level 3.

Level 1 – Quoted prices in active markets for identical assets.

Level 2 – Quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, or other inputs that are observable or can be corroborated by observable market data, including model-derived valuations.

Level 3 – Unobservable inputs that are supported by little or no market activity.

When more than one level of input is used to determine fair value, the financial instrument is classified as Level 2 or 3 according to the lowest level input that has a significant impact on the fair value measurement.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments and have not changed during the year:

Cash and Cash Equivalents

For these short-term investments, the carrying amount approximates fair value.

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Fixed Maturities

Level 1 securities generally include U.S. Treasury issues and other securities that are highly liquid and for which quoted market prices are available. Level 2 securities are valued using pricing for similar securities and pricing models that incorporate observable inputs including, but not limited to yield curves and issuer spreads. Level 3 securities include issues for which little observable data can be obtained, primarily due to the illiquid nature of the securities, and for which significant inputs used to determine fair value are based on the Company’s own assumptions. Non-binding broker quotes are also included in Level 3.

The Company utilizes a third party pricing service for the valuation of the majority of its fixed maturity securities and receives one quote per security. When quoted market prices in an active market are available, they are provided by the pricing service as the fair value and such values are classified as Level 1. 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 for those securities using pricing applications based on a market approach. Inputs into the fair value pricing applications which are common to all asset classes include benchmark U.S. Treasury security yield curves, reported trades of identical or similar fixed maturity securities, broker/dealer quotes of identical or similar fixed maturity securities and structural characteristics of the security, such as maturity date, coupon, mandatory principal payment dates, frequency of interest and principal payments and optional principal redemption features. Inputs into the fair value applications that are unique by asset class include, but are not limited to:

— States and political subdivisions - overall credit quality, including assessments of the level and variability of: sources of payment such as income, sales or property taxes, levies or user fees; credit support such as insurance; state or local economic and political base; natural resource availability; and susceptibility to natural or man-made catastrophic events such as hurricanes, earthquakes or acts of terrorism.

— Corporate fixed maturities - overall credit quality, including assessments of the level and variability of: industry economic sensitivity; company financial policies; quality of management; regulatory environment; competitive position; indenture restrictive covenants; and security or collateral.

— Residential mortgage-backed securities, U.S. agency pass-thrus and collateralized mortgage obligations (“CMOs”) - estimates of prepayment speeds based upon: historical prepayment rate trends; underlying collateral interest rates; geographic concentration; vintage year; borrower credit quality characteristics; interest rate and yield curve forecasts; U.S. government support programs; tax policies; and delinquency/default trends.

— Residential mortgage-backed securities, non-agency CMOs - estimates of prepayment speeds based upon: historical prepayment rate trends; underlying collateral interest rates; geographic concentration; vintage year; borrower credit quality characteristics; interest rate and yield curve forecasts; U.S. government support programs; tax policies; delinquency/default trends; and severity of loss upon default and length of time to recover proceeds following default.

— Commercial mortgage-backed securities - overall credit quality, including assessments of the level and variability of: collateral type such as office, retail, residential, lodging, or other; geographic concentration by region, state, metropolitan statistical area and locale; vintage year; historical collateral performance including defeasance, delinquency, default and special servicer trends; and capital structure support features.

Generally, all prices provided by the pricing service, except actively traded securities with quoted market prices, are reported as Level 2.

The Company holds privately placed fixed maturity securities and certain other fixed maturity securities that do not have an active market and for which the pricing service cannot provide fair values. The Company determines fair values for these securities using either matrix pricing or broker quotes utilizing the market approach. The Company will use observable market data as inputs into the fair value applications, as discussed in the determination of Level 2 fair values, to the extent it is available, but is also required to use a certain amount of unobservable judgment due to the illiquid nature of the securities involved. Unobservable judgment reflected in the Company’s matrix model accounts for estimates of additional spread required by market participants for factors such as issue size, structural complexity, high bond coupon, long maturity term or other unique features. These matrix-priced securities are reported as Level 2 or Level 3, depending on the significance of the impact of unobservable judgment on the security’s value. Additionally, the Company may obtain non-binding broker quotes which are reported as Level 3.

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Equity Securities

Level 1 includes publicly traded securities valued at quoted market prices. Level 2 includes securities that are valued using pricing for similar securities and pricing models that incorporate observable inputs. Level 3 consists of common stock of private companies for which observable inputs are not available.

The Company utilizes a third party pricing service for the valuation of the majority of its equity securities and receives one quote for each equity security. When quoted market prices in an active market are available, they are provided by the pricing service as the fair value and such values are classified as Level 1. Generally, all prices provided by the pricing service, except quoted market prices, are reported as Level 2. Occasionally, the Company may obtain non-binding broker quotes which are reported as Level 3.

Mortgage Loans

Fair values are estimated by discounting the future contractual cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings.

Legal Indemnities

Fair values are estimated using probability-weighted discounted cash flow analyses.

Long-term Debt

The fair value of long-term debt is estimated based on quoted market prices. If a quoted market price is not available, fair values are estimated using discounted cash flows that are based on current interest rates and yield curves for debt issuances with maturities and credit risks consistent with the debt being valued.

The estimated fair values of the financial instruments were as follows:

(In millions)	(Unaudited) September 30, 2010				December 31, 2009
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets
Cash and cash equivalents		$      272.9		$      272.9		$      316.7		$      316.7
Fixed maturities		5,024.2		5,024.2		4,732.4		4,732.4
Equity securities		125.7		125.7		69.3		69.3
Mortgage loans		5.7		6.0		14.1		15.0
Total financial assets, including financial assets of discontinued operations		5,428.5		5,428.8		5,132.5		5,133.4
Less: financial assets of discontinued operations		(120.9)		(120.9)		(117.1)		(117.1)
Total financial assets of continuing operations		$   5,307.6		$   5,307.9		$   5,015.4		$   5,016.3
Financial Liabilities
Deposit contracts		$           -		$           -		$          2.0		$          2.0
Legal indemnities		5.3		5.3		7.0		7.0
Long-term debt		640.0		664.4		433.9		387.9
Total financial liabilities of continuing operations (1)		$      645.3		$      669.7		$      442.9		$      396.9
(1)    There were no financial liabilities associated with the discontinued operations.

The Company performs a review of the fair value hierarchy classifications and of prices received from its third party pricing service on a quarterly basis. The Company reviews the pricing services’ policy describing its processes, practices and inputs, including various financial models used to value securities. Also, the Company reviews the portfolio pricing. Securities with changes in prices that exceed a defined threshold are verified to independent sources such as Bloomberg. If upon review, the Company is not satisfied with the validity of a given price, a pricing challenge would be submitted to the pricing service along with supporting documentation for its review. The Company does not adjust quotes or prices obtained from the pricing service unless the pricing service agrees with the Company’s challenge. During the nine months ended September 30, 2010, the Company did not adjust any prices received from brokers or its pricing service.

Changes in the observability of valuation inputs may result in a reclassification of certain financial assets or liabilities within the fair value hierarchy. Reclassifications between levels of the fair value hierarchy are reported as of the beginning of the period in which the

24

reclassification occurs. As previously discussed, the Company utilizes a third party pricing service for the valuation of the majority of its fixed maturities and equity securities. The pricing service has indicated that it 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 will use observable market data to the extent it is available, but may also be required to make assumptions for market based inputs that are unavailable due to market conditions.

The Company currently holds fixed maturity securities and equity securities for which fair value is determined on a recurring basis. The following tables present for each hierarchy level, the Company’s assets that were measured at fair value at September 30, 2010 and December 31, 2009.

	(Unaudited) Fair Value at September 30, 2010
(In millions)	Total			Level 1			Level 2			Level 3
Fixed maturities:
U.S. Treasury securities and U.S. government and agency securities	$	240.2		$	99.4		$	140.8		$	-
States and political subdivisions		972.4			-			957.8			14.6
Foreign governments		3.0			-			3.0			-
Corporate fixed maturities		2,615.9			-			2,568.7			47.2
Residential mortgage-backed securities, U.S. agency backed		673.0			-			673.0			-
Residential mortgage-backed securities, non-agency		153.4			-			152.4			1.0
Commercial mortgage-backed securities		366.3			-			360.6			5.7
Total fixed maturities		5,024.2			99.4			4,856.3			68.5
Equity securities (1)		117.2			104.1			9.3			3.8
Total investment assets at fair value, including assets of discontinued operations		5,141.4			203.5			4,865.6			72.3
Investment assets of discontinued operations at fair value		(119.6	)		(0.3	)		(118.7	)		(0.6)
Total investment assets of continuing operations at fair value	$	5,021.8		$	203.2		$	4,746.9		$	71.7
	Fair Value at December 31, 2009
(In millions)	Total			Level 1			Level 2			Level 3
Fixed maturities:
U.S. Treasury securities and U.S. government and agency securities	$	354.7		$	100.6		$	254.1		$	-
States and political subdivisions		832.2			-			816.7			15.5
Foreign governments		3.0			-			3.0			-
Corporate fixed maturities		2,330.9			-			2,292.8			38.1
Residential mortgage-backed securities, U.S. agency backed		689.0			-			689.0			-
Residential mortgage-backed securities, non-agency		185.4			-			185.4			-
Commercial mortgage-backed securities		337.2			-			331.0			6.2
Total fixed maturities		4,732.4			100.6			4,572.0			59.8
Equity securities (1)		60.6			51.0			6.8			2.8
Total investment assets at fair value, including assets of discontinued operations		4,793.0			151.6			4,578.8			62.6
Investment assets of discontinued operations at fair value		(116.9	)		(0.3	)		(116.6	)		-
Total investment assets of continuing operations at fair value	$	4,676.1		$	151.3		$	4,462.2		$	62.6

  (1) Excludes equities carried at cost of $8.5 million at September 30, 2010 and $8.7 million at December 31, 2009, which consists primarily of Federal Home Loan Bank common stock.

The table below presents a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

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	(Unaudited) Quarter Ended September 30, 2010
	Fixed Maturities
(In millions)	States and political   subdivisions		Corporate		Residential mortgage- backed   securities, non-   agency		Commercial   mortgage- backed securities		Total		Equities		Total   Assets
Balance July 1, 2010	$	14.9	$	46.9	$	1.1	$	5.9	$	68.8	$	2.8	$	71.6
Transfers into Level 3		-		3.8		-				3.8				3.8
Transfers out of Level 3		-		(2.7)		-		-		(2.7)		-		(2.7)
Total gains:
Included in earnings		-		0.1		-		-		0.1		-		0.1
Included in other comprehensive income		0.1		0.7		-		-		0.8		-		0.8
Purchases and sales:
Purchases		-		0.5		-		-		0.5		1.0		1.5
Sales		(0.4)		(2.1)		(0.1)		(0.2)		(2.8)		-		(2.8)
Balance September 30, 2010	$	14.6	$	47.2	$	1.0	$	5.7	$	68.5	$	3.8	$	72.3

	(Unaudited) Quarter Ended September 30, 2009
	Fixed Maturities
(In millions)	States and political subdivisions		Corporate		Commercial mortgage- backed securities		Total		Equities		Total Assets
Balance July 1, 2009	$	18.4	$	41.6	$	10.6	$	70.6	$	1.2	$	71.8
Transfers out of Level 3		(2.1)		(3.4)		-		(5.5)		-		(5.5)
Total (losses) gains:
Included in earnings		(0.1)		-		-		(0.1)		-		(0.1)
Included in other comprehensive income		0.2		1.6		0.3		2.1		-		2.1
Purchases and sales:
Purchases		0.9		6.9		0.2		8.0		-		8.0
Sales		(0.2)		(1.3)		(0.2)		(1.7)		-		(1.7)
Balance September 30, 2009	$	17.1	$	45.4	$	10.9	$	73.4	$	1.2	$	74.6

	(Unaudited) Nine months Ended September 30, 2010
	Fixed Maturities
(In millions)	States and political subdivisions		Corporate		Residential mortgage- backed securities, non- agency		Commercial mortgage- backed securities		Total		Equities		Total Assets
Balance January 1, 2010	$	15.5	$	38.1	$	-	$	6.2	$	59.8	$	2.8	$	62.6
Transfers into Level 3		-		17.3		-		-		17.3		-		17.3
Transfers out of Level 3		-		(4.7)		-		-		(4.7)		-		(4.7)
Total gains (losses):
Included in earnings		-		0.2		-		-		0.2		(0.3)		(0.1)
Included in other comprehensive income		0.3		1.9		-		-		2.2		0.3		2.5
Purchases and sales:
Purchases		-		2.8		1.4		-		4.2		1.0		5.2
Sales		(1.2)		(8.4)		(0.4)		(0.5)		(10.5)		-		(10.5)
Balance September 30, 2010	$	14.6	$	47.2	$	1.0	$	5.7	$	68.5	$	3.8	$	72.3

	(Unaudited) Nine months Ended September 30, 2009
	Fixed Maturities
(In millions)	States and political subdivisions		Corporate		Residential mortgage-backed securities, U.S. agency backed		Commercial mortgage backed securities		Total		Equities		Total Assets
Balance January 1, 2009	$	18.2	$	44.5	$	6.9	$	19.5	$	89.1	$	1.2	$	90.3
Assets of discontinued operations sold with FAFLIC		(0.1)		(3.4)		-		(2.3)		(5.8)		-		(5.8)
Transfers out of Level 3		(2.1)		(11.9)		-		(10.0)		(24.0)		-		(24.0)
Total (losses) gains:
Included in earnings		(0.3)		(0.4)		0.2		-		(0.5)		-		(0.5)
Included in other comprehensive income		(0.6)		3.5		-		0.9		3.8		-		3.8
Purchases and sales:
Purchases		3.1		17.5		-		3.3		23.9		-		23.9
Sales		(1.1)		(4.4)		(7.1)		(0.5)		(13.1)		-		(13.1)
Balance September 30, 2009	$	17.1	$	45.4	$	-	$	10.9	$	73.4	$	1.2	$	74.6

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During the nine months ended September 30, 2010 and 2009, the Company transferred fixed maturities between Level 2 and Level 3 primarily as a result of assessing the significance of unobservable inputs on the fair value measurement. There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2010.

The following table summarizes gains and losses due to changes in fair value that are recorded in net income for Level 3 assets.

	(Unaudited) Quarter Ended September 30, 2010						(Unaudited) Quarter Ended September 30, 2009
(In millions)	Other-than-     temporary     impairments		Net realized investment gains		Total		Other-than- temporary impairments		Net realized investment gains		Total
Level 3 Assets:
Fixed maturities:
States and political subdivisions	$	-	$	-	$	-	$	-	$	(0.1)	$	(0.1)
Corporate fixed maturities		-		0.1		0.1		(0.1)		0.1		-
Total assets	$	-	$	0.1	$	0.1	$	(0.1)	$	-	$	(0.1)
	(Unaudited) Nine months Ended September 30, 2010						(Unaudited) Nine months Ended September, 2009
(In millions)	Other-than- temporary impairments		Net realized investment gains		Total		Other-than- temporary impairments		Net realized investment gains (losses)		Total
Level 3 Assets:
Fixed maturities:
States and political subdivisions	$	-	$	-	$	-	$	-	$	(0.3)	$	(0.3)
Corporate fixed maturities		-		0.2		0.2		(0.9)		0.5		(0.4)
Residential mortgage-backed securities, U.S. agency backed		-		-		-		-		0.2		0.2
Total fixed maturities		-		0.2		0.2		(0.9)		0.4		(0.5)
Equity securities:		(0.3)		-		(0.3)		-		-		-
Total assets	$	(0.3)	$	0.2	$	(0.1)	$	(0.9)	$	0.4	$	(0.5)

10. Other Comprehensive Income

The following table provides a reconciliation of gross unrealized investment gains to the net balance shown in the Consolidated Statements of Comprehensive Income:

	(Unaudited)     Quarter Ended     September 30,						(Unaudited) Nine months Ended September 30,
(In millions)		2010			2009		2010		2009
Unrealized appreciation on available-for-sale securities:
Unrealized holding gains arising during period, net of income tax expense of $26.4 and $26.9 for the quarters ended September 30, 2010 and 2009 and $58.1 and $26.7 for the nine months ended September 30, 2010 and 2009	$		84.4	$		162.5	$	187.7	$	389.2
Less: reclassification adjustment for gains (losses) included in net income, net of income tax (expense) benefit of $(0.5) and $3.5 for the quarters ended September 30, 2010 and 2009 and $(0.7) and $3.5 for the nine months ended September 30, 2010 and 2009			8.9			3.5		18.0		(9.4)
Other comprehensive income	$		75.5	$		159.0	$	169.7	$	398.6

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11. Segment Information

The Company’s primary business operations include insurance products and services in three property and casualty operating segments. These segments are Personal Lines, Commercial Lines, and Other Property and Casualty. Personal Lines includes personal automobile, homeowners and other personal coverages, while Commercial Lines includes commercial multiple peril, commercial automobile, workers’ compensation, and other commercial coverages, such as inland marine, bond, specialty program business, professional liability and management liability. In addition, the Other Property and Casualty segment consists of: Opus Investment Management, Inc., which markets investment management services to institutions, pension funds and other organizations; earnings on holding company assets; as well as voluntary pools in which the Company has not actively participated since 1995. Additionally, prior to the sale of FAFLIC on January 2, 2009, the operations included the results of this run-off life insurance and annuity business as a separate segment. This business is now reflected as discontinued operations. The separate financial information of each segment is presented consistent with the way results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company reports interest expense related to its debt separately from the earnings of its operating segments. The Company’s debt consists of senior debentures, junior subordinated debentures, advances under the Company’s collateralized borrowing program with FHLBB, capital securities and surplus notes.

Management evaluates the results of the aforementioned segments on a pre-tax basis. Segment income excludes certain items which are included in net income, such as federal income taxes and net realized investment gains and losses, because fluctuations in these gains and losses are determined by interest rates, financial markets and the timing of sales. Also, segment income excludes net gains and losses on disposals of businesses, discontinued operations, restructuring costs, extraordinary items, the cumulative effect of accounting changes and certain other items. Although the items excluded from segment income may be significant components in understanding and assessing the Company’s financial performance, management believes that the presentation of segment income enhances an investor’s understanding of the Company’s results of operations by highlighting net income attributable to the core operations of the business. However, segment income should not be construed as a substitute for net income determined in accordance with generally accepted accounting principles.

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Summarized below is financial information with respect to business segments:

		(Unaudited) Quarter Ended September 30,						(Unaudited) Nine months Ended September 30,
(In millions)		2010			2009			2010			2009
Segment revenues:
Property and Casualty:
Personal Lines	$		397.1	$		397.2	$		1,190.3	$		1,186.0
Commercial Lines			397.2			308.4			1,099.3			912.5
Other Property and Casualty			5.1			3.9			15.9			17.9
Total Property and Casualty			799.4			709.5			2,305.5			2,116.4
Intersegment revenues			(1.1)			(1.0)			(3.4)			(2.9)
Total segment revenues			798.3			708.5			2,302.1			2,113.5
Adjustments to segment revenues:
Net realized investment gains (losses)			5.7			-			16.8			(9.7)
Total revenues	$		804.0	$		708.5	$		2,318.9	$		2,103.8
Segment income before federal income taxes and discontinued operations:
Property and Casualty:
Personal Lines:
GAAP underwriting income (loss)	$		15.2	$		(4.1)	$		(8.7)	$		(33.4)
Net investment income			25.4			27.8			76.6			81.4
Other income			2.4			3.7			6.1			8.1
Personal Lines segment income			43.0			27.4			74.0			56.1
Commercial Lines:
GAAP underwriting income (loss)			2.3			5.2			(22.5)			41.3
Net investment income			32.3			31.9			96.6			93.2
Other income			0.5			1.6			0.7			2.7
Commercial Lines segment income			35.1			38.7			74.8			137.2
Other Property and Casualty:
GAAP underwriting income			0.4			10.3			0.7			10.6
Net investment income			3.6			2.4			11.0			13.3
Other net expenses			(2.9)			(5.2)			(9.0)			(17.4)
Other Property and Casualty segment income			1.1			7.5			2.7			6.5
Total Property and Casualty			79.2			73.6			151.5			199.8
Interest expense on debt			(11.8)			(6.3)			(32.8)			(27.2)
Segment income before federal income taxes			67.4			67.3			118.7			172.6
Adjustments to segment income:
Net realized investment gains (losses)			5.7			-			16.8			(9.7)
Gain on retirement of debt			-			0.2			-			34.5
Income from continuing operations before federal income taxes	$		73.1	$		67.5	$		135.5	$		197.4

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Summarized below is financial information with respect to business segments:

		Identifiable Assets
(In millions)		(Unaudited)     September 30,     2010			December 31,     2009
Property and Casualty (1)	$		8,473.2	$		7,922.6
Assets of discontinued operations (2)			134.1			130.6
Intersegment eliminations			(10.6)			(10.5)
Total	$		8,596.7	$		8,042.7

(1) The Company reviews assets based on the total Property and Casualty Group and does not allocate between the Personal Lines, Commercial Lines and Other Property and Casualty segments.

(2) Includes assets related to the Company’s discontinued accident and health insurance business.

12. Stock-based Compensation

Compensation cost and the related tax benefits were as follows:

	(Unaudited) Quarter Ended September 30,				(Unaudited) Nine months Ended September 30,
(In millions)	2010		2009		2010		2009
Stock-based compensation expense		$    3.1	$	3.1	$	8.6	$	8.5
Tax benefit		(1.1)		(1.1)		(3.0)		(3.0)
Stock-based compensation expense, net of taxes		$    2.0	$	2.0	$	5.6	$	5.5

Stock Options

Information on the Company’s stock option plan activity is summarized below.

	(Unaudited) Nine months Ended September 30, 2010				(Unaudited) Nine months Ended September 30, 2009
(In whole shares and dollars)	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding, beginning of period		3,131,142	$	39.16		2,998,821	$	41.02
Granted		389,750		42.45		530,000		34.13
Exercised		(249,468)		37.07		(49,058)		33.61
Forfeited or cancelled		(138,760)		45.12		(98,805)		44.51
Expired		(125,400)		44.91		(184,100)		52.07
Outstanding, end of period		3,007,264		39.25		3,196,858		39.24

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Restricted Stock and Restricted Stock Units

The following tables summarize activity information about employee restricted stock and restricted stock units:

	(Unaudited) Nine months Ended September 30, 2010				(Unaudited) Nine months Ended September 30, 2009
(In whole shares and dollars)	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted     Average     Grant Date     Fair Value
Restricted stock and restricted stock units:
Outstanding, beginning of period		700,904	$	41.12		470,905	$	45.41
Granted		352,445		42.62		290,005		34.33
Vested and exercised		(117,583)		47.97		(9,391)		44.77
Forfeited		(78,104)		40.58		(40,014)		42.02
Outstanding, end of period		857,662		40.85		711,505		41.14
Performance-based restricted stock units:
Outstanding, beginning of period (1)		145,635	$	42.79		164,442	$	46.10
Granted (1)		41,250		42.15		47,375		34.19
Vested and exercised		(31,558)		48.46		(40,507)		46.28
Forfeited (2)		(31,396)		46.26		(23,404)		46.78
Outstanding, end of period (1)		119,931		40.05		147,906		40.67

(1) Performance based restricted stock units are based upon the achievement of the performance metric at 100%. These units have the potential to range from 0% to 175% of the shares disclosed, which varies based on grant year and individual participation level. Increases to the 100% target level are reflected as granted in the period in which performance-based stock unit goals are achieved. Decreases from the 100% target level are reflected as forfeited in the period in which the achievement of the performance-based stock unit goals are estimated to be no longer probable.

(2) In 2010 and 2009, respectively, 11,472 and 20,654 performance-based stock units were included as forfeited due to completion levels less than 100% for units originally granted in 2007. The weighted average grant date fair value for these awards was $48.46. Additionally, in 2010, 20,044 performance-based stock units were included as forfeited due to estimated completion levels of less than 100% for units originally granted in 2008. The weighted average grant date fair value for this award was $45.21.

13. Earnings Per Share

The following table provides share information used in the calculation of the Company’s basic and diluted earnings per share:

		(Unaudited)         Quarter Ended         September 30,						(Unaudited) Nine months Ended September 30,
(In millions, except per share data)		2010			2009			2010			2009
Basic shares used in the calculation of earnings per share			44.9			50.7			45.7			51.0
Dilutive effect of securities:
Employee stock options			0.3			0.2			0.3			0.1
Non-vested stock grants and other			0.5			0.3			0.4			0.3
Diluted shares used in the calculation of earnings per share			45.7			51.2			46.4			51.4
Per share effect of dilutive securities on income from continuing operations	$		(0.02)	$		(0.01)	$		(0.03)	$		(0.02)
Per share effect of dilutive securities on net income	$		(0.01)	$		(0.01)	$		(0.03)	$		(0.03)

Diluted earnings per share for the quarter ended September 30, 2010 and 2009 excludes 1.1 million and 1.8 million, respectively, of common shares issuable under the Company’s stock compensation plans, because their effect would be antidilutive. Diluted earnings per share for the nine months ended September 30, 2010 and 2009 excludes 1.6 million and 2.5 million, respectively, of common shares issuable under the Company’s stock compensation plans, because their effect would be antidilutive.

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14. Commitments and Contingencies

LITIGATION

Durand Litigation

On March 12, 2007, a putative class action suit captioned Jennifer A. Durand v. The Hanover Insurance Group, Inc., The Allmerica Financial Cash Balance Pension Plan was filed in the United States District Court for the Western District of Kentucky. The named plaintiff, a former employee who received a lump sum distribution from the Company’s Cash Balance Plan (the “Plan”) at or about the time of her termination, claims that she and others similarly situated did not receive the appropriate lump sum distribution because in computing the lump sum, the Company understated the accrued benefit in the calculation. The Company filed a Motion to Dismiss on the basis that the Plaintiff failed to exhaust administrative remedies, which motion was granted without prejudice in a decision dated November 7, 2007. This decision was reversed by an order dated March 24, 2009 issued by the United States Court of Appeals for the Sixth Circuit, and the case was remanded to the district court.

The Plaintiff filed an Amended Complaint on December 11, 2009. In response, the Company filed a Motion to Dismiss on January 30, 2010. In addition to the pending calculation of the lump sum distribution claim, the Amended Complaint includes: (a) a claim that the Plan failed to calculate participants’ account balances properly because interest credits were based solely upon the performance of each participant’s selection from among various hypothetical investment options (as the Plan provided) rather than crediting the greater of that performance or the 30 year Treasury rate; (b) a claim that the 2004 Plan amendment, which changed interest crediting for all participants from the performance of participant’s investment selections to the 30 year Treasury rate, reduced benefits in violation of the Employee Retirement Income Security Act of 1974 (“ERISA”) for participants who had account balances as of the amendment date by not continuing to provide them performance-based interest crediting on those balances; and (c) claims for breach of fiduciary duty and ERISA notice requirements for not properly informing participants of the various interest crediting and lump sum distribution matters of which Plaintiffs complain. In the Company’s judgment, the outcome is not expected to be material to its financial position, although it could have a material effect on the results of operations for a particular quarter or annual period and on the funding of the Plan.

Hurricane Katrina Litigation

The Company has been named as a defendant in various litigation including putative class actions, relating to disputes arising from damages which occurred as a result of Hurricane Katrina in 2005. As of September 30, 2010, there were approximately 50 such cases. These cases have been filed in both Louisiana state courts and federal district courts. These cases generally involve, among other claims, disputes as to the amount of reimbursable claims in particular cases (e.g. how much of the damage to an insured property is attributable to flood and therefore not covered, and how much is attributable to wind, which may be covered), as well as the scope of insurance coverage under homeowners and commercial property policies due to flooding, civil authority actions, loss of landscaping, business interruption and other matters. Certain of these cases claim a breach of duty of good faith or violations of Louisiana insurance claims handling laws or regulations and involve claims for punitive or exemplary damages.

On August 23, 2007, the State of Louisiana (individually and on behalf of the State of Louisiana, Division of Administration, Office of Community Development) filed a putative class action in the Civil District Court for the Parish of Orleans, State of Louisiana, entitled State of Louisiana, individually and on behalf of State of Louisiana, Division of Administration, Office of Community Development ex rel The Honorable Charles C. Foti, Jr., The Attorney General For the State of Louisiana, individually and as a class action on behalf of all recipients of funds as well as all eligible and/or future recipients of funds through The Road Home Program v. AAA Insurance, et al., No. 07-8970. The Complaint named as defendants over 200 foreign and domestic insurance carriers, including the Company. Plaintiff seeks to represent a class of current and former Louisiana citizens who have applied for and received or will receive funds through Louisiana’s “Road Home” program. On August 29, 2007, Plaintiff filed an Amended Petition in this case, asserting myriad claims, including claims for breach of: contract, the implied covenant of good faith and fair dealing, fiduciary duty and Louisiana’s bad faith statutes. Plaintiff seeks relief in the form of, among other things, declarations that (a) the efficient proximate cause of losses suffered by putative class members was windstorm, a covered peril under their policies; (b) the second efficient proximate cause of their losses was storm surge, which Plaintiff contends is not excluded under class members’ policies; (c) the damage caused by water entering affected parishes of Louisiana does not fall within the definition of “flood”; (d) the damages caused by water entering Orleans Parish and the surrounding area was a result of a man-made occurrence and are properly covered under class members’ policies; (e) many class members suffered total losses to their residences; and (f) many class members are entitled to recover the full value for their residences stated on their policies pursuant to the Louisiana Valued Policy Law. In accordance with these requested declarations, Plaintiff seeks to recover amounts that it alleges should have been paid to policyholders under their insurance agreements, as well as penalties, attorneys’ fees, and costs. The case has been removed to the Federal District Court for the Eastern District of Louisiana.

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On March 5, 2009, the court issued an Order granting in part and denying in part a Motion to Dismiss filed by Defendants. The court dismissed all claims for bad faith and breach of fiduciary duty and all claims for flood damages under policies with flood exclusions or asserted under the Valued Policy Law, but rejected the insurers' arguments that the purported assignments from individual claimants to the state were barred by anti-assignment provisions in the insurers' policies. On April 16, 2009, the court denied a Motion for Reconsideration of its ruling regarding the anti-assignment provisions, but certified the issue as ripe for immediate appeal. On April 30, 2009, Defendants filed a Petition for Permission to Appeal to the United States Court of Appeals for the Fifth Circuit (“Fifth Circuit”), which was granted. Defendants’ appeal is currently pending. On July 28, 2010, the Fifth Circuit certified the issue to the Louisiana Supreme Court.

The Company has established its loss and LAE reserves on the assumption that it will not have any liability under the “Road Home” or similar litigation, and that it will otherwise prevail in litigation as to the cause of certain large losses and not incur extra contractual or punitive damages.

REGULATORY AND INDUSTRY DEVELOPMENTS

Certain unfavorable economic conditions may contribute to an increase in the number of insurance companies that are under regulatory supervision. This may result in an increase in mandatory assessments by state guaranty funds, or voluntary payments by solvent insurance companies to cover losses to policyholders of insolvent or rehabilitated companies. Mandatory assessments, which are subject to statutory limits, can be partially recovered through a reduction in future premium taxes in some states. The Company is not able to reasonably estimate the potential impact of any such future assessments or voluntary payments.

Over the past three years, state-sponsored insurers, reinsurers and involuntary pools have increased significantly, particularly in those states which have Atlantic or Gulf Coast exposures. As a result, the potential assessment exposure of insurers doing business in such states and the attendant collection risks have increased, particularly, in the Company’s case, in the states of Massachusetts, Louisiana and Florida. Such actions and related regulatory restrictions on rate increases, underwriting and the ability to non-renew business may limit the Company’s ability to reduce the potential exposure to hurricane related losses. At this time, the Company is unable to predict the likelihood or impact of any such potential assessments or other actions.

The Governor of Michigan has endorsed a number of proposals by her appointed Automobile and Home Insurance Consumer Advocate which would, among other things, change the current rate approval process from the current “file and use” system to “prior approval”, mandate “affordable” rates, eliminate territorial ratings, reduce the threshold for lawsuits to be filed in “at fault” incidents, and prohibit the use of certain underwriting criteria such as credit-based insurance scores. The Michigan legislature is currently considering these and other proposals, including one to require insurance companies to offer “low cost” personal automobile prices. The Office of Financial and Insurance Regulation (“OFIR”) previously issued regulations prohibiting the use of credit scores to rate personal lines insurance policies, which regulations were the subject of litigation being reviewed by the Michigan Supreme Court. Pending a determination by the Michigan Supreme Court, OFIR was enjoined from disapproving rates on the basis that they were based in part on credit-based insurance scores. In a decision issued on July 8, 2010, the Michigan Supreme Court held that the regulations issued by the OFIR prohibiting the use of credit scores to rate personal lines insurance policies were invalid. On November 9, 2009, the Michigan Board of Canvassers issued preliminary approval allowing proponents to begin collecting signatures as the first step in placing a ballot initiative in front of voters in November of 2010. The proposed ballot question would have required a number of changes for the property and casualty market, including, subject to limitations, the rollback of rates by up to 20% for all lines with the exception of workers’ compensation and surety, and an additional 20% rollback of personal automobile rates for “good drivers”. Proponents of the ballot initiative, however, did not present the required number of valid signatures by the May 2010 deadline and the proposed ballot initiative failed. At this time, the Company is unable to predict the likelihood of adoption or impact on its business of any such proposals or regulations, but any such restrictions could have an adverse effect on its results of operations.

On August 1, 2010, the Michigan Supreme Court issued a decision in a case captioned McCormick v. Carrier, et. al, overturning the so-called Kreiner decision, and in so doing, the Company believes that the Court significantly expanded the circumstances under which claimants can sue for non-economic losses resulting from automobile accidents in Michigan. Although the full implications and application of the McCormick decision are not yet understood and may evolve in the future, the Company believes that the revised standard will adversely affect both past claims which are not finally resolved, as well as future claims. Although the Company’s reserves reflect the Company’s best estimate of the impact of this decision, in light of evolving law and the uncertain application of this new standard, the Company cannot be certain as to the adequacy of these reserves or of the Company’s ability to raise rates for liability coverage of Michigan personal and commercial automobile polices to reflect the additional losses it expects to incur.

In May 2010, the Massachusetts Attorney General’s Office published draft regulations purporting to provide greater consumer protections under the recently implemented “managed competition” system for Massachusetts private passenger automobile insurance. Hearings were held in June and the record date for comment has been extended twice, from August 6, 2010 to September 22, 2010 and again to November 22, 2010. The proposed changes would significantly alter the current system of managed competition and change the manner in which insurers and agents operate in the market place, particularly for companies such as Hanover Insurance, which distribute

33

through independent agents. At this time, the Company is uncertain as to whether the draft regulations will be revised or ultimately implemented and cannot predict the potential impact of any such regulations on its business.

From time to time, proposals have been made to establish a federal based insurance regulatory system and to allow insurers to elect either federal or state-based regulation (“optional federal chartering”). In light of the current economic crisis and the focus on increased regulatory controls, particularly with regard to financial institutions, there has been renewed interest in such proposals. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Financial Reform Act”) was enacted. The Financial Reform Act includes a provision to establish a Federal Insurance Office, with the primary purpose of collecting information to better understand insurance issues at the federal level and to resolve certain issues affecting foreign insurance companies doing business in the United States. The Financial Reform Act also contains provisions affecting financial institutions, credit rating agencies and other commercial and consumer businesses. THG is currently reviewing the legislation and while it expects that the legislation will have little direct impact on the Company’s operations, it does not yet know the indirect consequences to the financial services sector, the Company’s business or its Commercial Lines policyholders.

At this time, the Company is also uncertain of the various collateral consequences of the Patient Protection and Affordable Care Act on its business and on the property and casualty industry in general.

OTHER MATTERS

The Company has been named a defendant in various other legal proceedings arising in the normal course of business. In addition, the Company is involved, from time to time, in examinations, investigations and proceedings by governmental and self-regulatory agencies. The potential outcome of any such action or regulatory proceedings in which the Company has been named a defendant or the subject of an inquiry or investigation, and its ultimate liability, if any, from such action or regulatory proceedings, is difficult to predict at this time. In the Company’s opinion, based on the advice of legal counsel, the ultimate resolutions of such proceedings will not have a material effect on its financial position, although they could have a material effect on the results of operations for a particular quarter or annual period.

RESIDUAL MARKETS

The Company is required to participate in residual markets in various states, which generally pertain to high risk insureds, disrupted markets or lines of business or geographic areas where rates are regarded as excessive. The results of the residual markets are not subject to the predictability associated with the Company’s own managed business, and are significant to the workers’ compensation line of business, the homeowners line of business and both the personal and commercial automobile lines of business.

15. Subsequent Events

There were no subsequent events requiring adjustments to the financial statements. Additionally, there were no subsequent events requiring disclosure.

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PART I

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TABLE OF CONTENTS

Introduction	36
Executive Overview	36
Description of Operating Segments	38
Results of Operations	38
Segment Results	40
Property and Casualty	40
Discontinued Operations	57
Other Items	58
Investment Portfolio	60
Income Taxes	65
Critical Accounting Estimates	67
Other Significant Transactions	69
Statutory Surplus of Insurance Subsidiaries	70
Liquidity and Capital Resources	70
Off-Balance Sheet Arrangements	72
Contingencies and Regulatory Matters	72
Rating Agency Actions	75
Risks and Forward-Looking Statements	75
Glossary of Selected Insurance Terms	75

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Introduction

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist readers in understanding the interim consolidated results of operations and financial condition of The Hanover Insurance Group, Inc. and subsidiaries (“THG”) and should be read in conjunction with the interim Consolidated Financial Statements and related footnotes included elsewhere in this Quarterly Report on Form 10-Q and the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Our results of operations include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America (“Citizens”), our principal property and casualty companies; and certain other insurance and non-insurance subsidiaries. On January 2, 2009, we sold First Allmerica Financial Life Insurance Company (“FAFLIC”) to Commonwealth Annuity and Life Insurance Company (“Commonwealth Annuity”), a subsidiary of The Goldman Sachs Group, Inc. (“Goldman Sachs”). For all prior periods presented, operations from FAFLIC are reflected as discontinued operations.

Executive Overview

Our property and casualty business includes our Personal Lines segment, our Commercial Lines segment and our Other Property and Casualty segment.

With respect to segment results, during the first nine months of 2010, our pre-tax segment earnings declined from the same period in 2009, primarily as a result of increased catastrophe losses in the first nine months of 2010. Pre-tax catastrophe losses increased $51.2 million, to $143.5 million for the first nine months of 2010, compared to $92.3 million for the same period in 2009. Although third quarter catastrophe activity was consistent with the prior year, our company and the industry in general, experienced a high level of catastrophes during the first half of 2010. In addition, decreased favorable development on prior years’ loss and loss adjustment expense (“LAE”) reserves and higher underwriting expenses contributed to the overall decline. These results were partially offset by more favorable current accident year loss results.

We, and the industry in general, continue to experience pricing pressures, predominantly in Commercial Lines. We believe that our ongoing agency relationships, position in the marketplace and strong product set, position us well relative to many of our competitors in our principal markets.

Although our expense ratio is higher than that of some of our peer companies and other competitors, we have made an explicit decision to invest further in our business in support of our partner agent strategy. In Personal Lines, we are investing to improve the competitiveness of our products and in technology and systems enhancements intended to make our interactions with agents more efficient. In Commercial Lines, most of our investments are directed toward expanding our product capabilities and offerings in various niches and differentiated products, as well as investments in systems improvements. In addition, we recently started to expand our Commercial Lines offerings into selected states in the western part of the country. Our renewal rights transaction with OneBeacon Insurance Group (“OneBeacon”) supported both our Commercial Lines product expansion, as well as our western geographic expansion. As a result of these actions and for the first time in recent company history, our Commercial Lines net written premiums exceeded our Personal Lines net written premiums during the first nine months of 2010.

Personal Lines

In our Personal Lines business, the market continues to be very competitive, with continued pressure on agents from direct writers, as well as from the increased usage of real time comparative rating tools. We maintain our focus on partnering with high quality, value added agencies that stress the importance of account rounding (the conversion of single policy customers to accounts with multiple policies and/or additional coverages), and consultative selling. We are focused on making investments that are intended to help us maintain profitability, build a distinctive position in the market, such as through our Think Hanover initiative, and provide us with profitable growth opportunities.

Our Think Hanover initiative is intended to enhance retention and strengthen our value proposition for agents, including by introducing broad and innovative product offerings. In 2009, we introduced a substantially improved product suite (The Hanover Household) to make it easier for agents to write more lines of business per household. We also modified our operating model and improved our agency automation, which is intended to deliver a more competitive sales and services experience for agents (Front Line Excellence).

Current market conditions continue to be challenging as pricing pressures and economic conditions remain difficult and we face uncertain legal and regulatory environments, especially in Michigan and Massachusetts. These competitive and economic

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pressures and legal and regulatory concerns have limited our growth and retention of business in Michigan and Massachusetts, our largest states, and elsewhere. We are working closely with our partner agents in these and our other core states to remain a significant writer with strong margins.

During the first nine months of 2010, we continued our mix management initiatives relating to our Connections^® Auto product to improve the overall profitability of the business. We remain focused on reducing our growth in less profitable automobile segments and increasing our multi-car and total account business consistent with our account rounding strategy. We experienced slightly negative growth levels in our personal automobile business through the first nine months of 2010.

We believe that our Connections Auto product will help us profitably grow our market share over time. The Connections Auto product is designed to be competitively priced for a wide spectrum of drivers through its multivariate rating application, which calculates rates based upon the magnitude and correlation of multiple risk factors. At the same time, a core strategy is to broaden our portfolio offerings and write “total accounts”, which are accounts that include multiple personal line coverages for the same customer. Account business has historically provided us with stronger margins and superior retention. Total account business represents approximately two-thirds of our Personal Lines business.

Our homeowners product, Connections^® Home, is intended to improve our competitiveness for total account business by making it easier and more efficient for our agents to write business with us and by providing more comprehensive coverage options for policyholders. In addition, in 15 states, we have introduced a more sophisticated, multivariate pricing approach to our homeowners product which is intended to better align rates with the underlying risk of each customer. We plan to continue to implement this price segmentation in our other states. We also continue to refine our products and work closely with high potential agents to increase the percentage of their business they place with us and to ensure that it is consistent with our preferred mix of business. Additionally, we remain focused on diversifying our state mix beyond our four core states of Michigan, Massachusetts, New York and New Jersey. We expect these efforts to contribute to profitable growth and improved retention in our Personal Lines segment over time.

Commercial Lines

In the Commercial Lines market, aggressive price competition requires us to be highly disciplined in our underwriting process to ensure that we write business only at acceptable margins. In certain lines of business where the weak economy may be a particularly important factor, such as surety and workers’ compensation, we have endeavored to adjust pricing and/or take a more conservative approach to risk selection in order to more appropriately reflect the higher risk of loss.

In December 2009, we entered into a renewal rights agreement with OneBeacon, further strengthening our competitive position and advancing our expansion efforts in the western states. Through the agreement, we acquired access to a portion of OneBeacon’s small and middle market commercial business at renewal, much of which fits into our current industry specific programs and middle market niches. Additionally, the transaction allowed for the development of new segment, niche and industry-specific program business. On January 1, 2010, we began renewing these policies through a reinsurance arrangement with OneBeacon whereby such policies are underwritten on OneBeacon policy forms and using OneBeacon systems. During the second quarter of 2010, we began converting renewals to our policy forms. We expect this conversion process to continue until late 2011.

We also continue to develop our segmentation of Commercial Lines, including our specialty businesses, which on average are expected to offer higher margins over time and enable us to deliver a more complete product portfolio to our agents and policyholders. Our specialty business, including marine and bond lines, now account for over one-third of our Commercial Lines premiums written. Growth in our specialty business continues to be a significant part of our strategy. Our ongoing focus on expanding our product offerings in our specialized businesses is evidenced by our acquisitions. Over the past three years, we have acquired several specialized businesses, including Professionals Direct, Inc. (“PDI”), which we market as Hanover Professionals, a professional liability insurance carrier for principally small to medium-sized legal practices; Verlan Holdings, Inc. (“Verlan”), which we market as Hanover Specialty Industrial, a provider of property insurance to small and medium-sized chemical, paint, solvent and other manufacturing and distribution companies; and AIX Holdings, Inc. (“AIX”), a specialty property and casualty insurance carrier that focuses on underwriting and managing program business. In January 2010, we acquired Benchmark Professional Insurance Services, Inc., a provider of insurance solutions to the design professionals industry, including architects and engineers. We acquired Campania Holding Company, Inc. (“Campania”) on March 31, 2010, which specializes in insurance solutions for portions of the healthcare professionals industry, including durable medical equipment suppliers, behavioral health specialists, eldercare providers, and podiatrists. Most recently, we entered into an agreement with the Insurance Company of the West (“ICW”) that is expected to build our surety capabilities in our western expansion states. In addition to these businesses, we have developed several niche insurance programs, such as for schools, religious institutions, moving and storage companies and human services organizations, such as non-profit youth and community service organizations, and we have added additional segmentation to our core middle market commercial products, including real estate, hospitality and wholesale distributors. As a

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complementary initiative, we have introduced products focused on management liability, specifically non-profit directors and officers liability and employment practices liability, and coverage for private company directors and officers liability.

In addition, we have made a number of enhancements to our core products and technology platforms that are intended to drive more total account placements in our small commercial business, which we believe will enhance margins. Our focus continues to be on improving and expanding our partnerships with a limited number of agents.

We believe our small commercial capabilities, distinctiveness in the middle market, and continued development of specialty business provides us with a more diversified portfolio of products and enables us to deliver significant value to our agents and policyholders. We believe these efforts will enable us to improve the overall mix of our business and ultimately our underwriting profitability.

Investment Portfolio

Our investment holdings totaled approximately $5.5 billion at September 30, 2010 and consist primarily of investment grade fixed maturities with net unrealized gains of $318.9 million, and cash and cash equivalents.

Recent developments have illustrated that the U.S. and global financial markets and economies, while continuing to recover, remain tenuous as market values have and could continue to fluctuate. Issuers of securities continue to be challenged by adverse business and liquidity circumstances and therefore unanticipated bond defaults could increase, particularly with respect to non-investment grade securities. Credit spreads of taxable municipal bonds, corporate bonds and commercial and residential mortgage-backed securities tightened during the period, resulting in increased unrealized gains in the first nine months of 2010. The first nine months of 2010 have continued the positive momentum the financial markets experienced in the latter half of 2009; however, uncertainty still exists in these markets, and with respect to the potential impact on our business of the current difficult economy.

Description of Operating Segments

Our primary business operations include insurance products and services in three property and casualty operating segments. These segments are Personal Lines, Commercial Lines and Other Property and Casualty. Personal Lines includes personal automobile, homeowners and other personal coverages, while Commercial Lines includes commercial multiple peril, commercial automobile, workers’ compensation and other commercial coverages, such as inland marine, bonds, specialty program business, professional liability and management liability. In addition, the Other Property and Casualty segment consists of Opus Investment Management, Inc. (“Opus”), which markets investment management services to institutions, pension funds and other organizations, earnings on holding company assets, as well as voluntary pools business in which we have not actively participated since 1995. Additionally, prior to the sale of FAFLIC on January 2, 2009, our operations included the results of this run-off life insurance and annuity business as a separate segment. We present the separate financial information of each segment consistent with the manner in which our chief operating decision maker evaluates results in deciding how to allocate resources and in assessing performance.

We report interest expense related to our debt separately from the earnings of our operating segments. Our debt consists of senior debentures, junior subordinated debentures, advances under our collateralized borrowing program with the Federal Home Loan Bank of Boston (“FHLBB”), capital securities and surplus notes.

Results of Operations

Our consolidated net income includes the results of our three operating segments (segment income), which we evaluate on a pre-tax basis, and our interest expense on debt. Segment income excludes certain items which we believe are not indicative of our core operations. The income of our segments excludes items such as federal income taxes and net realized investment gains and losses, because fluctuations in these gains and losses are determined by interest rates, financial markets and the timing of sales. Also, segment income excludes net gains and losses on disposals of businesses, discontinued operations, restructuring costs, extraordinary items, the cumulative effect of accounting changes and certain other items. Although the items excluded from segment income may be significant components in understanding and assessing our financial performance, we believe segment income enhances an investor’s understanding of our results of operations by highlighting net income attributable to the core operations of the business. However, segment income should not be construed as a substitute for net income determined in accordance with generally accepted accounting principles (“GAAP”).

Catastrophe losses are a significant component in understanding and assessing the financial performance of our business. However, catastrophic events make it difficult to assess the underlying trends in this business. Management believes that providing certain financial metrics and trends excluding the effects of catastrophes helps investors to understand the variability in periodic earnings and to evaluate the underlying performance of our operations.

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Our consolidated net income for the third quarter of 2010 of $52.3 million increased slightly from the same period in 2009 during which our consolidated net income was $49.7 million. The P&C group’s segment earnings increased $5.6 million, which was essentially offset by a $5.5 million increase in interest expense on our debt.

Our consolidated net income for the first nine months of 2010 was $96.4 million, compared to $139.9 million for the same period in 2009. The $43.5 million decrease is primarily due a $37.2 million decline in after-tax segment income, principally driven by higher catastrophe losses, which increased $33.3 million, net of taxes. Results in 2009 included a $34.3 million pre-tax gain ($22.3 million, net of taxes) associated with a tender offer whereby we repurchased a portion of our mandatorily redeemable preferred securities and our senior debentures during the second quarter of 2009 (see also “Significant Transactions”). In addition, earnings from our discontinued operations decreased by $7.3 million. Partially offsetting these decreases was a $26.5 million improvement in our net realized investment position, from a loss of $9.7 million in the first nine months of 2009, to a gain of $16.8 million in the first nine months of 2010.

The following table reflects segment income as determined in accordance with generally accepted accounting principles and a reconciliation of total segment income to consolidated net income.

		Quarter Ended       September 30,						Nine months Ended        September 30,
(In millions)		2010			2009			2010			2009
Segment income before federal income taxes:
Property and Casualty
Personal Lines	$		43.0	$		27.4	$		74.0	$		56.1
Commercial Lines			35.1			38.7			74.8			137.2
Other Property and Casualty			1.1			7.5			2.7			6.5
Total Property and Casualty			79.2			73.6			151.5			199.8
Interest expense on debt			(11.8)			(6.3)			(32.8)			(27.2)
Total segment income before federal income taxes			67.4			67.3			118.7			172.6
Federal income tax expense on segment income			(22.7)			(22.0)			(40.2)			(56.9)
Net realized investment gains (losses)			5.7			-			16.8			(9.7)
Gain on retirement of debt			-			0.2			-			34.5
Federal income tax benefit (expense) on non-segment income			1.0			3.1			0.5			(8.6)
Income from continuing operations, net of taxes			51.4			48.6			95.8			131.9
Discontinued operations (net of taxes):
Gain from discontinued FAFLIC business			0.5			0.4			0.4			6.3
Gain (loss) from discontinued accident and health insurance business			0.2			0.7			(0.9)			(2.4)
Gain on disposal of variable life insurance and annuity business			0.1			-			1.0			4.1
Other discontinued operations			0.1			-			0.1			-
Net income	$		52.3	$		49.7	$		96.4	$		139.9

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Segment Results

The following is our discussion and analysis of the results of operations by business segment. The segment results are presented before taxes and other items which management believes are not indicative of our core operations, including realized gains and losses.

Property and Casualty

The following table summarizes the results of operations for the Property and Casualty group for the periods indicated:

		Quarter Ended             September 30,						Nine months Ended          September 30,
(In millions)		2010			2009			2010			2009
Segment revenues
Net premiums written	$		803.7	$		688.8	$		2,330.9	$		1,981.8
Net premiums earned	$		728.0	$		637.4	$		2,092.3	$		1,899.4
Net investment income			61.3			62.1			184.2			187.9
Other income			10.1			10.0			29.0			29.1
Total segment revenues			799.4			709.5			2,305.5			2,116.4
Losses and operating expenses
Losses and LAE			454.6			403.0			1,384.6			1,225.1
Policy acquisition expenses			173.4			146.8			490.8			434.7
Other operating expenses			92.2			86.1			278.6			256.8
Total losses and operating expenses			720.2			635.9			2,154.0			1,916.6
Segment income	$		79.2	$		73.6	$		151.5	$		199.8

Quarter Ended September 30, 2010 Compared to Quarter Ended September 30, 2009

The Property and Casualty group’s segment income increased $5.6 million, or 7.6%, to $79.2 million, in the third quarter of 2010, compared to $73.6 million in the third quarter of 2009. Catastrophe related activity decreased by $0.6 million in the quarter, to $24.1 million, from $24.7 million in the same period of 2009. Excluding the impact of catastrophe related activity, earnings would have increased by $5.0 million. This increase was primarily due to more favorable current accident year loss results with improvements in both Personal and Commercial Lines, partially offset by lower favorable development on prior years’ loss and LAE reserves and slightly lower net investment income. Favorable development on prior years’ loss and LAE reserves decreased $16.9 million in the quarter to $25.9 million, from $42.8 million in the same period in 2009.

Production and Underwriting Results

The following table summarizes GAAP net premiums written and GAAP loss, LAE, expense and combined ratios for the Personal Lines and Commercial Lines segments. GAAP loss, LAE, catastrophe loss and combined ratios shown below include prior year reserve development. These items are not meaningful for our Other Property and Casualty segment.

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		Quarter Ended September 30,
	2010								2009
(In millions, except ratios)		GAAP Net Premiums Written		GAAP Loss Ratios (1)(2)		Catastrophe loss Ratios (3)			GAAP Net Premiums Written		GAAP Loss Ratios (1)(2)		Catastrophe loss Ratios (3)
Personal Lines:
Personal automobile	$		239.1		59.7		0.6	$		249.1		59.9		0.3
Homeowners			137.9		53.9		11.6			136.5		62.8		12.7
Other personal			11.4		37.1		2.9			11.1		38.1		3.1
Total Personal Lines			388.4		57.1		4.3			396.7		60.3		4.2
Commercial Lines:
Workers’ compensation			46.2		54.3		-			27.8		48.3		-
Commercial automobile			61.2		57.0		0.2			47.4		50.9		1.7
Commercial multiple peril			151.8		44.4		3.3			98.7		49.8		8.9
Other commercial			156.1		42.5		2.8			118.2		42.1		0.4
Total Commercial Lines			415.3		46.6		2.3			292.1		46.7		3.4
Total	$		803.7		51.9		3.3	$		688.8		52.9		3.9
		2010							2009
		GAAP LAE Ratio		GAAP Expense Ratio		GAAP Combined Ratio (4)(5)			GAAP LAE Ratio		GAAP Expense Ratio		GAAP Combined Ratio (4)(5)
Personal Lines			10.6		27.4		95.1			10.8		29.1		100.2
Commercial Lines			10.4		42.0		99.1			9.6		41.5		97.8
Total			10.5		34.6		97.0			10.3		34.3		97.6

(1) GAAP loss ratio is a common industry measurement of the results of property and casualty insurance underwriting. This ratio reflects incurred claims compared to premiums earned. Our GAAP loss ratios include catastrophe losses.

(2) Includes policyholders’ dividends.

(3) Catastrophe loss ratio reflects incurred catastrophe claims compared to premiums earned.

(4) GAAP combined ratio is a common industry measurement of the results of property and casualty insurance underwriting. This ratio is the sum of incurred claims, claim expenses and underwriting expenses incurred to premiums earned. Our GAAP combined ratios also include the impact of catastrophes. Federal income taxes, net investment income and other non-underwriting expenses are not reflected in the GAAP combined ratio.

(5) Total includes favorable development of $0.1 million and $10.5 million for the quarters ended September 30, 2010 and 2009, respectively, which is reflected in our Other Property and Casualty segment.

The following table summarizes GAAP underwriting results for the Personal Lines, Commercial Lines and Other Property and Casualty segments and reconciles it to GAAP segment income.

	Quarter Ended September 30,
	2010													2009
		Personal Lines			Commercial Lines			Other Property and Casualty			Total			Personal Lines			Commercial Lines			Other Property and Casualty			Total
GAAP underwriting profit (loss), excluding prior year reserve development and catastrophes	$		21.8	$		(6.0)	$		0.3	$		16.1	$		0.3	$		(6.8)	$		(0.2)	$		(6.7)
Prior year favorable loss and LAE reserve development			9.3			16.5			0.1			25.9			11.0			21.3			10.5			42.8
Pretax catastrophe effect			(15.9)			(8.2)			-			(24.1)			(15.4)			(9.3)			-			(24.7)
GAAP underwriting profit (loss)			15.2			2.3			0.4			17.9			(4.1)			5.2			10.3			11.4
Net investment income (1)			25.4			32.3			3.6			61.3			27.8			31.9			2.4			62.1
Fees and other income			3.9			4.7			1.5			10.1			3.7			4.8			1.5			10.0
Other operating expenses			(1.5)			(4.2)			(4.4)			(10.1)			-			(3.2)			(6.7)			(9.9)
Segment income	$		43.0	$		35.1	$		1.1	$		79.2	$		27.4	$		38.7	$		7.5	$		73.6

(1) We manage investment assets for our property and casualty business based on the requirements of the entire Property and Casualty group. We allocate net investment income to each of our Property and Casualty segments based on actuarial information related to the underlying business.

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Personal Lines

Personal Lines net premiums written decreased $8.3 million, or 2.1%, to $388.4 million for the third quarter of 2010. The most significant factors contributing to lower net premiums written are our decision to reduce our market concentration in Louisiana and our continued focus on driving profit improvement in our core states, resulting in lower new business activity. These decreases were partially offset by our efforts to diversify our Personal Lines business into targeted growth states. Policies in force in our target growth states increased.

Net premiums written in the personal automobile line of business declined 4.0%, primarily as a result of lower policies in force in Massachusetts, Michigan, and New York, which we attribute to our efforts to improve or maintain margins in those states. Net premiums written in the homeowners line of business increased 1.0%, resulting from an increase in policies in force of 1.7% at the end of the third quarter of 2010, compared to the third quarter of 2009. Policies in force in the homeowners line increased in the majority of our states, primarily from our account rounding initiatives.

Personal Lines underwriting profit, excluding prior year loss and LAE reserve development and catastrophes, increased $21.5 million, to $21.8 million, in the third quarter of 2010, from $0.3 million in the third quarter of 2009. This increase was primarily due to more favorable current accident year loss results, principally resulting from benign loss trends, which we attribute to improved non-catastrophe weather, an improvement in our mix of business, shifting to a greater proportion of whole account business, as well as continued rate increases in both the personal automobile and homeowners lines. Additionally, operating expenses decreased, primarily due to lower technology costs and lower employee related expenses, including lower pension costs, as well as the favorable resolution of a loss contingency.

Favorable development on prior years’ loss and LAE reserves decreased $1.7 million, to $9.3 million in 2010, from $11.0 million in the third quarter of 2009.

Although we have been able to obtain rate increases in our Personal Lines markets, our ability to maintain and increase Personal Lines net written premium and to maintain and improve underwriting results could be affected by increasing price competition, regulatory and legal developments and the difficult economic conditions, particularly in Michigan and Massachusetts, which are our largest states.

Most of our new personal automobile business and an increasing proportion of our entire personal automobile business, currently approximately 60%, is written with our Connections Auto product. Connections Auto is designed to match the rate with the underlying risk for segmented groups of customers in a highly competitive marketplace. New business, whether written through our Connections Auto or legacy products, generally experiences higher loss ratios than our renewal business, and is more difficult to predict, particularly in states in which we have less experience and data. However, we believe that complete accounts offer better profitability and retention over time. Our ability to grow and be profitable will depend, in part, on our ability to continue to improve margins in the Connections Auto product and through our agency-centric, account rounding strategy, particularly as Connections Auto products account for an increasing proportion of our total personal automobile business. Our ability to grow could also be adversely affected by various underwriting, pricing and agency management actions.

It is difficult to predict the impact that the current difficult economic environment will have on our Personal Lines business. Our ability to increase pricing may continue to be impacted as agents and consumers become more price sensitive, customers shop for policies more frequently or aggressively, and agents increase their utilization of comparative rating models. Additionally, new business premiums, retention levels and renewal premiums may decrease as policyholders reduce coverages or change deductibles to reduce premiums, home values decline, foreclosures increase and policyholders retain older or less expensive automobiles. Additionally, claims frequency could increase as policyholders submit and pursue claims more aggressively than in the past, fraud incidences may increase, or we may experience higher incidents of abandoned properties or poorer maintenance which may also result in more claims activity. We have also experienced higher incidents of claims for uninsured or underinsured policy coverages as a greater percentage of the motoring public eliminates or reduces their liability coverages, thus exposing our policyholders to the greater likelihood of claims against uninsured or underinsured automobile coverages. Our Personal Lines segment could also be affected by an ensuing consolidation of independent insurance agencies.

In addition, as discussed under “Contingencies and Regulatory Matters – Certain Regulatory and Industry Developments”, certain states have taken, and others may take, actions which significantly affect the property and casualty insurance market, including ordering rate reductions for personal automobile and homeowners insurance products and subjecting insurance companies that do business in that state to onerous underwriting or other restrictions and potentially significant assessments. In addition, the Michigan Supreme Court recently issued a decision which we believe will significantly increase certain unresolved past claims and

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future claims for non-economic damages resulting from automobile accidents in that state. Such state actions or our responses thereto could have a significant impact on our underwriting margins and growth prospects, as well as our flexibility in managing our geographic mix of business. For example, starting in June 2010, we entered into an agreement to reduce approximately half of our Louisiana homeowners policies, a process that will continue over the next year, and which represents approximately 1% of our current total policies in force in our homeowners line of business.

Notwithstanding these concerns, we believe that our agency distribution strategy, the strength of our market share in key states, our account rounding strategy, the relatively inelastic demand for insurance products and our capital position, place us in a good position to manage these issues and concerns relative to many of our peer competitors.

Commercial Lines

Commercial Lines net premiums written increased $123.2 million, or 42.2%, to $415.3 million for the third quarter of 2010. This increase was primarily driven by increased premiums associated with the OneBeacon renewal rights transaction of $76.6 million, and growth in our managed program business through AIX, which accounted for $16.3 million, as well as growth in various niche and segmented businesses. Also benefiting the overall growth comparison in net premiums written was a slight improvement in rate.

Commercial Lines underwriting loss, excluding prior year loss and LAE reserve development and catastrophes, improved $0.8 million, to a loss of $6.0 million, in the third quarter of 2010, compared to a loss of $6.8 million in the third quarter of 2009. This change was primarily due to more favorable current accident year loss results in most of our commercial lines of business. This increase was partially offset by higher underwriting and loss adjustment expenses, principally attributable to higher variable compensation, increased costs in our specialty business, including our recently acquired subsidiaries, costs associated with our westward expansion initiative, and higher technology costs.

Favorable development on prior years’ loss and LAE reserves decreased $4.8 million, to $16.5 million in the third quarter 2010, from $21.3 million for the third quarter of 2009.

We continue to experience significant price competition in all lines of business in our Commercial Lines segment. The industry is also experiencing overall rate decreases. Our ability to increase Commercial Lines net premiums written while maintaining or improving underwriting results may be affected by continuing price competition and the difficult economic conditions.

It is difficult to measure and predict the impact of the current difficult economic environment on our Commercial Lines segment. We may continue to experience downward pressure on new business levels, retention and renewal rates and renewal premiums. The overall decline in the economy has resulted in reductions in demand for insurance products and services as more companies cease to do business and there are fewer business start-ups, particularly as small businesses are affected by a decline in overall consumer and business spending. Our Commercial Lines segment could also be affected by an ensuing consolidation of independent insurance agencies. In addition, economic conditions may also continue to impact our surety bond business, especially in the small to middle market contractor business.

Notwithstanding these concerns, we believe that our agency distribution strategy, our broad product offerings, the strength of our growing specialty businesses, disruptions in the marketplace which may result in improved pricing and new business, the relatively inelastic demand for insurance products and our capital position, place us in a good position to manage these issues and concerns relative to many of our peer competitors.

Other Property and Casualty

Segment income of the Other Property and Casualty segment decreased $6.4 million, to $1.1 million for the quarter ended September 30, 2010, from $7.5 million in the same period of 2009. The decrease is primarily due to lower favorable development in our run-off voluntary pools, partially offset by lower pension costs.

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Investment Results

Net investment income before taxes decreased $0.8 million, or 1.3%, to $61.3 million for the quarter ended September 30, 2010. This decrease is primarily due to the utilization of fixed maturities to fund certain corporate actions, such as stock repurchases and a $100 million contribution to our pension plan on January 4, 2010, partially offset by higher income from opportunistic investments in fixed maturities, the continued investment of cash, principally into the bond market, and proceeds from our senior debt issuance. The average pre-tax earned yield on fixed maturities was 5.5% for both the third quarter of 2010 and 2009. If new money rates remain at their current lower levels, they will result in declines in average pre-tax investment yields in future periods.

Nine months Ended September 30, 2010 Compared to Nine months Ended September 30, 2009

The Property and Casualty group’s segment income decreased $48.3 million, or 24.2%, to $151.5 million, in the nine months ended September 30 2010, compared to $199.8 million in the nine months ended September 30, 2009. Catastrophe related activity increased by $51.2 million for the nine months ended September 30, 2010, to $143.5 million, from $92.3 million in the same period of 2009. Excluding the impact of catastrophe related activity, earnings would have increased by $2.9 million. This increase was primarily due to more favorable current accident year loss results with improvements in both Personal and Commercial Lines, partially offset by lower favorable development on prior years’ loss and LAE reserves, higher expenses and lower net investment income. Favorable development on prior years’ loss and LAE reserves decreased $40.8 million in the first nine months of 2010 to $87.4 million, from $128.2 million for the same period in 2009. Additionally, other operating expenses increased primarily due to increased costs in our specialty business, including our recently acquired subsidiaries, our Commercial Lines westward expansion initiative and higher variable compensation, partially offset by lower pension costs.

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Production and Underwriting Results

The following table summarizes GAAP net premiums written and GAAP loss, LAE, expense and combined ratios for the Personal Lines and Commercial Lines segments. These items are not meaningful for our Other Property and Casualty segment.

	Nine months Ended September 30,
	2010								2009
(In millions, except ratios)			GAAP Net Premiums Written	GAAP Loss Ratios (1)(2)		Catastrophe loss Ratios (3)			GAAP Net Premiums Written	GAAP Loss Ratios (1)(2)		Catastrophe   loss   Ratios (3)
Personal Lines:
Personal automobile		$	717.4		60.1		1.2	$	740.6		59.5		0.6
Homeowners			365.3		67.2		22.6		344.8		72.6		18.0
Other personal			32.2		36.9		3.8		30.3		32.8		2.4
Total Personal Lines			1,114.9		61.8		8.2		1,115.7		62.7		5.9
Commercial Lines:
Workers’ compensation			127.0		49.7		-		88.3		48.4		-
Commercial automobile			192.3		51.0		0.4		147.8		50.9		0.8
Commercial multiple peril			440.0		52.7		11.3		289.4		49.8		8.2
Other commercial			456.4		46.0		3.7		340.4		38.0		1.6
Total Commercial Lines			1,215.7		49.4		5.3		865.9		45.3		3.5
Total		$	2,330.6		56.0		6.9	$	1,981.6		54.8		4.9
			2010						2009
			GAAP   LAE Ratio	GAAP Expense Ratio		GAAP Combined Ratio (4) (5)			GAAP LAE Ratio	GAAP Expense Ratio		GAAP   Combined   Ratio (4)(5)
Personal Lines			10.5		27.7		100.0		10.9		28.5		102.1
Commercial Lines			9.9		42.7		102.1		8.1		41.2		94.6
Total			10.2		34.7		100.9		9.7		33.9		98.4

(1)	GAAP loss ratio is a common industry measurement of the results of property and casualty insurance underwriting. This ratio reflects incurred claims compared to premiums earned. Our GAAP loss ratios include catastrophe losses.
(2)	Includes policyholders’ dividends.
(3)	Catastrophe loss ratio reflects incurred catastrophe claims compared to premiums earned.
(4)	GAAP combined ratio is a common industry measurement of the results of property and casualty insurance underwriting. This ratio is the sum of incurred claims, claim expenses and underwriting expenses incurred to premiums earned. Our GAAP combined ratios also include the impact of catastrophes. Federal income taxes, net investment income and other non-underwriting expenses are not reflected in the GAAP combined ratio.
(5)	Total includes favorable development of $0.6 million and $10.4 million for the nine months ended September 30, 2010 and 2009, respectively, which is reflected in our Other Property and Casualty segment.

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The following table summarizes GAAP underwriting results for the Personal Lines, Commercial Lines and Other Property and Casualty segments and reconciles it to GAAP segment income.

	Nine months Ended September 30,
	2010												2009
		Personal Lines			Commercial Lines			Other Property and Casualty			Total			Personal Lines			Commercial Lines			Other Property and Casualty			Total
GAAP underwriting profit (loss), excluding prior year reserve development and catastrophes	$		45.7	$		(20.2)	$		0.1	$		25.6	$		(9.1)	$		(8.5)	$		0.2	$		(17.4)
Prior year favorable loss and LAE reserve development			36.6			50.2			0.6			87.4			39.8			78.0			10.4			128.2
Pretax catastrophe effect			(91.0)			(52.5)			-			(143.5)			(64.1)			(28.2)			-			(92.3)
GAAP underwriting (loss) profit			(8.7)			(22.5)			0.7			(30.5)			(33.4)			41.3			10.6			18.5
Net investment income (1)			76.6			96.6			11.0			184.2			81.4			93.2			13.3			187.9
Fees and other income			10.4			14.0			4.6			29.0			10.8			14.0			4.3			29.1
Other operating expenses			(4.3)			(13.3)			(13.6)			(31.2)			(2.7)			(11.3)			(21.7)			(35.7)
Segment income	$		74.0	$		74.8	$		2.7	$		151.5	$		56.1	$		137.2	$		6.5	$		199.8

(1) We manage investment assets for our property and casualty business based on the requirements of the entire Property and Casualty group. We allocate net investment income to each of our Property and Casualty segments based on actuarial information related to the underlying business.

Personal Lines

Personal Lines net premiums written were essentially flat, decreasing $0.8 million, or 0.1%, to $1,114.9 million for the nine months ended September 30, 2010. A factor contributing to lower net premiums written is our continued focus on driving profit improvement in our core states, resulting in lower new business activity. This was largely offset by our efforts to diversify our Personal Lines business into targeted growth states. Policies in force in our targeted growth states increased.

Net premiums written in the personal automobile line of business declined 3.1%, primarily as a result of lower policies in force in Massachusetts, Michigan, Georgia and New York, which we attribute to our efforts to improve or maintain margins in those states. Net premiums written in the homeowners line of business increased 5.9%, resulting from rate increases and an increase in policies in force of 1.7% at the end of the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009. Policies in force increased in our homeowners line in the majority of our states primarily from our account rounding initiatives.

Personal Lines underwriting loss decreased $24.7 million, to $8.7 million, in the nine months ended September 30, 2010, compared to a loss of $33.4 million in the nine months ended September 30, 2009. This decrease was primarily due to more favorable current accident year loss results, principally resulting from benign loss trends, which we attribute to improved non-catastrophe weather, and improvement in our mix of business, shifting to a greater proportion of whole account business, continued rate increases in both personal automobile and homeowners lines, and lower expenses. These were partially offset by increased catastrophe losses due to several severe hail and wind storms. Catastrophe related activity increased $26.9 million in the first nine months of 2010, from $64.1 million in 2009 to $91.0 million in 2010.

Personal Lines underwriting profit, excluding prior year loss and LAE reserve development and catastrophes, increased $54.8 million, to $45.7 million, in the nine months ended September 30, 2010, compared to a loss of $9.1 million in the nine months ended September 30, 2009. This increase was primarily due to more favorable current accident year loss results, principally resulting from lower frequency of losses, which we attribute to improved non-catastrophe weather and benign loss trends. Additionally, we experienced an improvement in our mix of business, shifting to a greater proportion of whole account business, as well as continued rate increases on both personal automobile and homeowners lines. In addition, underwriting and other operating expenses decreased, primarily due to lower employee related expenses, including lower pension costs, the favorable resolution of a loss contingency and lower technology costs.

Favorable prior year loss and LAE reserve development during the nine months ended September 30, 2010 decreased by $3.2 million from $39.8 million to $36.6 million. Included in the current year results was approximately $2 million of favorable LAE development, principally related to a change in the cost factors used for establishing unallocated loss adjustment expense reserves. LAE in the nine months ended September 30, 2009 included a benefit of approximately $2 million, primarily associated with prior accident years, related to a change in our unallocated loss adjustment expense reserving methodology.

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Commercial Lines

Commercial Lines net premiums written increased $349.8 million, or 40.4%, to $1,215.7 million for the nine months ended September 30, 2010. This increase was primarily driven by increased premiums associated with the OneBeacon renewal rights transaction of $226.9 million, and growth in our managed program business through AIX, which accounted for $55.4 million, as well as growth in various niche and segmented businesses. Also affecting the overall growth comparison in net premiums written was a slight improvement in rate. Additionally, our core lines’ net premium written was affected by a decrease in exposures in our commercial multiple peril, commercial auto and workers’ compensation lines as a result of the difficult economic conditions.

Commercial Lines underwriting profit decreased $63.8 million, to a loss of $22.5 million, in the nine months ended September 30, 2010, compared to profit of $41.3 million in the nine months ended September 30, 2009. This decrease was primarily due to a reduction in favorable loss and LAE reserve development, increased catastrophe losses resulting from several severe hail, wind and thunderstorm events, and to higher expenses, partially offset by more favorable current accident year loss results. Catastrophe related activity increased $24.3 million in the first nine months of 2010, from $28.2 million in 2009 to $52.5 million in 2010.

Commercial Lines underwriting loss, excluding prior year loss and LAE reserve development and catastrophes, increased $11.7 million, to a loss of $20.2 million, in the nine months ended September 30, 2010, compared to a loss of $8.5 million in the nine months ended September 30, 2009. This change was primarily due to higher operating expenses, principally attributable to increased costs associated with our specialty businesses, including our recently acquired subsidiaries, increased costs related to our westward expansion initiative, increased variable compensation and higher technology costs. This change was partially offset by more favorable current accident year loss results primarily in our surety bond and commercial multiple peril businesses.

Favorable prior year loss and LAE reserve development decreased by $27.8 million in the nine months ended September 30, 2010 compared to the same period in the prior year. Included in the current year results was approximately $8 million of favorable LAE development, principally related to a change in the cost factors used for establishing unallocated LAE reserves. LAE in the nine months ended September 30, 2009 included a benefit of $18.0 million, including $14.4 million associated with prior accident years, related to a change in our unallocated loss adjustment expense reserving methodology.

Other Property and Casualty

Segment income of the Other Property and Casualty segment decreased $3.8 million, to $2.7 million for the nine months ended September 30, 2010, from $6.5 million in the same period of 2009. The decrease is primarily due to lower favorable development in our run-off voluntary pools, partially offset by lower pension costs.

Investment Results

Net investment income before taxes decreased $3.7 million, or 2.0%, to $184.2 million for the nine months ended September 30, 2010. This decrease is primarily due to the utilization of fixed maturities to fund certain corporate actions, such as common stock and corporate debt repurchases and a $100 million contribution to our pension plan on January 4, 2010. The impact of lower new money yields in recent periods also contributed to the decline. These decreases were partially offset by the continued investment of cash into the bond market and strategic investments in fixed maturities. The average pre-tax earned yield on fixed maturities was 5.5% for the first nine months of 2010 and 5.6% for the first nine months of 2009. If new money rates remain at their current lower levels, they will result in further declines in average pre-tax investment yields in future periods.

Reserve for Losses and Loss Adjustment Expenses

Overview of Loss Reserve Estimation Process

We maintain reserves for our property and casualty products to provide for our ultimate liability for losses and loss adjustment expenses (our “loss reserves”) with respect to reported and unreported claims incurred as of the end of each accounting period. These reserves are estimates, taking into account past loss experience, modified for current trends, as well as prevailing economic, legal and social conditions. Loss reserves represent our largest liability.

Our loss reserves include case estimates for claims that have been reported and estimates for claims that have been incurred but not reported (“IBNR”) at the balance sheet date. They also include estimates of the expenses associated with processing and settling all reported and unreported claims, less estimates of anticipated salvage and subrogation recoveries. Our loss reserves are not discounted to present value.

Case reserves are established by our claim personnel individually on a claim by claim basis and based on information specific to the occurrence and terms of the underlying policy. For some classes of business, average case reserves are used initially. Case reserves are periodically reviewed and modified based on new or additional information pertaining to the claim.

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IBNR reserves are estimated by management and our reserving actuaries on an aggregate basis for each line of business, coverage and accident year for all loss and loss expense liabilities not reflected within the case reserves. The sum of the case reserves and the IBNR reserves represents our estimate of total unpaid loss and loss adjustment expense.

We regularly review our loss reserves using a variety of actuarial techniques. We update the reserve estimates as historical loss experience develops, additional claims are reported and resolved and new information becomes available. Any changes in estimates are reflected in operating results in the period in which the estimates are changed.

IBNR reserve estimates are generally calculated by first projecting the ultimate cost of all claims that have occurred or are expected to occur in the future in aggregate and then subtracting reported losses and loss expenses. Reported losses include cumulative paid losses and loss expenses plus case reserves. The IBNR reserve includes a provision for claims that have occurred but have not yet been reported to us, some of which may not yet be known to the insured, as well as a provision for future development on reported claims. IBNR represents a significant proportion of our total net loss reserves, particularly for long tail liability classes. In fact, approximately 48% of our aggregate net loss reserves at September 30, 2010 were for IBNR losses and loss expenses.

Management’s process for establishing loss reserves is primarily based on the results of our reserving actuaries quarterly reserving process; however, there are a number of other factors in addition to the actuarial point estimates as further described under the section below entitled “Loss and LAE Reserves by Line of Business.” In establishing our loss reserves, we consider facts currently known and the present state of the law and coverage litigation. Based on all information currently available, we believe that the aggregate loss reserves at September 30, 2010 were adequate to cover claims for losses that had occurred as of that date, including both those known to us and those yet to be reported. However, as described below, there are significant uncertainties inherent in the loss reserving process. It is therefore possible that management’s estimate of the ultimate liability for losses that had occurred as of September 30, 2010 may change, which could have a material effect on our results of operations and financial condition.

Management’s Review of Judgments and Key Assumptions

We determine the amount of our loss reserves based on an estimation process that is very complex and uses information from both company specific and industry data, as well as general economic information. The estimation process is a combination of objective and subjective information, the blending of which requires significant actuarial and business judgment. There are various assumptions required including future trends in frequency and severity of claims, trends in total loss costs, operational changes in claim handling processes, and trends related to general economic and social conditions. As a result, informed subjective estimates and judgments as to our ultimate exposure to losses are an integral component of our loss reserving process.

Given the inherent complexity of our loss reserving process and the potential variability of the assumptions used, the actual emergence of losses could vary, perhaps substantially, from the estimate of losses included in our financial statements, particularly in those instances where settlements do not occur until well into the future. Our net loss reserves at September 30, 2010 were $2.2 billion. Therefore, a relatively small percentage change in the estimate of net loss reserves would have a material effect on our results of operations.

There is greater inherent uncertainty in estimating insurance reserves for certain types of property and casualty insurance lines, particularly workers’ compensation, personal and bodily injury in our automobile lines, and other liability lines, where a longer period of time may elapse before a definitive determination of ultimate liability and losses may be made. In addition, the technological, judicial, regulatory and political climates involving these types of claims change regularly. There is also greater uncertainty in establishing reserves with respect to new business, particularly new business which is generated with respect to newly introduced product lines, by newly appointed agents or in geographies in which we have less experience in conducting business, such as the program business written by our AIX subsidiary. In such cases, there is less historical experience or knowledge and less data upon which the actuaries can rely. Historically, we have limited the issuance of long-tailed other liability policies, including directors and officers (“D&O”) liability, errors and omissions (“E&O”) liability and medical malpractice liability. With the acquisition of Hanover Professionals in 2007, which writes lawyers professional E&O coverage, and the introduction of new specialty coverages, we are modestly increasing and expect to continue to increase our exposure to longer-tailed liability lines, including D&O coverages.

We regularly update our reserve estimates as new information becomes available and further events occur which may impact the resolution of unsettled claims. Reserve adjustments are reflected in the results of operations as adjustments to losses and LAE. Often, these adjustments are recognized in periods subsequent to the period in which the underlying policy was written and the loss event occurred. When these types of subsequent adjustments affect prior years, they are described separately as “prior year reserve development”. Such development can be either favorable or unfavorable to our financial results and may vary by line of business.

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Inflation generally increases the cost of losses covered by insurance contracts. The effect of inflation varies by product. Our property and casualty insurance premiums are established before the amount of losses and LAE and the extent to which inflation may affect such expenses are known. Consequently, we attempt, in establishing rates and reserves, to anticipate the potential impact of inflation and increasing medical costs in the projection of ultimate costs. We have experienced increasing medical and attendant care costs, including those associated with personal automobile personal injury protection claims, particularly in Michigan, as well as in our workers’ compensation line in most states. This increase is reflected in our reserve estimates, but continued increases could contribute to increased losses and LAE in the future.

We regularly review our reserving techniques, our overall reserving position and our reinsurance. Based on (i) our review of historical data, legislative enactments, judicial decisions, legal developments in impositions of damages and policy coverage, political attitudes and trends in general economic conditions, (ii) our review of per claim information, (iii) our historical loss experience and that of the industry, (iv) the relatively short-term nature of most policies written by us, and (v) our internal estimates of required reserves, we believe that adequate provision has been made for loss reserves. However, establishment of appropriate reserves is an inherently uncertain process and there can be no certainty that current established reserves will prove adequate in light of subsequent actual experience. A significant change to the estimated reserves could have a material impact on our results of operations and financial position. An increase or decrease in reserve estimates would result in a corresponding decrease or increase in financial results. For example, each one percentage point change in the aggregate loss and LAE ratio resulting from a change in reserve estimation is currently projected to have an approximate $25 million impact on property and casualty segment income, based on 2009 full year premiums.

As discussed below, estimated loss and LAE reserves for claims occurring in prior years developed favorably by $87.4 million and $128.2 million for the nine months ended September 30, 2010 and 2009, respectively, which represents 4.0% and 6.1% of net loss reserves held, respectively.

The major causes of material uncertainty relating to ultimate losses and loss adjustment expenses (“risk factors”) generally vary for each line of business, as well as for each separately analyzed component of the line of business. In some cases, such risk factors are explicit assumptions of the estimation method and in others, they are implicit. For example, a method may explicitly assume that a certain percentage of claims will close each year, but will implicitly assume that the legal interpretation of existing contract language will remain unchanged. Actual results will likely vary from expectations for each of these assumptions, resulting in an ultimate claim liability that is different from that being estimated currently.

Some risk factors will affect more than one line of business. Examples include changes in claim department practices, changes in settlement patterns, regulatory and legislative actions, court actions, timeliness of claim reporting, state mix of claimants, and degree of claimant fraud. Additionally, there is also a higher degree of uncertainty due to growth in our newly acquired companies, for which we have limited historical claims experience. The extent of the impact of a risk factor will also vary by components within a line of business. Individual risk factors are also subject to interactions with other risk factors within line of business components. Thus, risk factors can have offsetting or compounding effects on required reserves.

We are also defendants in various litigation, including putative class actions, which claim punitive damages or claim a broader scope of policy coverage than our interpretation, particularly in connection with losses incurred from Hurricane Katrina. The reserves established with respect to Hurricane Katrina assume that we will prevail with respect to these matters (See also “Contingencies and Regulatory Matters”). Although we believe our current Hurricane Katrina reserves are adequate, there can be no assurance that our ultimate costs associated with this event will not substantially exceed these estimates. We have fully utilized all of our available reinsurance with respect to losses and LAE related to Hurricane Katrina.

Loss and LAE Reserves by Line of Business

Reserves Other than those Relating to Asbestos and Environmental Claims

Our loss reserves include amounts related to short tail and long tail classes of business. “Tail” refers to the time period between the occurrence of a loss and the settlement of the claim. The longer the time span between the incidence of a loss and the settlement of the claim, the more the ultimate settlement amount can vary.

Short tail classes consist principally of automobile physical damage, homeowners, commercial property and marine business. For these coverages, claims are generally reported and settled shortly after the loss occurs because the claims relate to tangible property and are more likely to be discovered shortly after the loss occurs. Consequently, the estimation of loss reserves for these classes is less complex.

While 57% of our written premium is in short tailed classes of business, most of our loss reserves relate to longer tail liability classes of business. Long tail classes include commercial liability, automobile liability, workers’ compensation and other types of

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third party coverage. For many liability claims, significant periods of time, ranging up to several years or more, may elapse between the occurrence of the loss, the discovery and reporting of the loss to us and the settlement of the claim. As a result, loss experience in the more recent accident years for the long tail liability coverage has limited statistical credibility because a relatively small proportion of losses in these accident years are reported claims and an even smaller proportion are paid losses. An accident year is the calendar year in which a loss is incurred. Liability claims are also more susceptible to litigation and can be significantly affected by changing contract interpretations, the legal environment and the expense of protracted litigation. Consequently, the estimation of loss reserves for these coverages is more complex and typically subject to a higher degree of variability compared to short tail coverages.

Most of our indirect business from voluntary and involuntary pools is long tail casualty reinsurance. Reserve estimates for this business are therefore subject to the variability caused by extended loss emergence periods. The estimation of loss reserves for this business is further complicated by delays between the time the claim is reported to the ceding insurer and when it is reported by the ceding insurer to us and by our dependence on the quality and consistency of the loss reporting by the ceding company.

Our reserving actuaries, who are independent of the business units, perform a comprehensive review of loss reserves for each of the numerous classes of business we write at the end of each quarter. This review process takes into consideration a variety of trends that impact the ultimate settlement of claims, including the emergence of paid and reported losses relative to expectations.

The loss reserve estimation process relies on the basic assumption that past experience, adjusted for the effects of current developments and likely trends, is an appropriate basis for predicting future outcomes. As part of this process, our actuaries use a variety of actuarial methods that analyze experience, trends and other relevant factors. The principal standard actuarial methods used by our actuaries in the loss reserve reviews include loss development factor methods, expected loss methods (Bornheutter-Ferguson), and adjusted loss methods (Berquist-Sherman).

Loss development factor methods generally assume that the losses yet to emerge for an accident year are proportional to the paid or reported loss amount observed so far. Historical patterns of the development of paid and reported losses by accident year can be predictive of the expected future patterns that are applied to current paid and reported losses to generate estimated ultimate losses by accident year.

Bornheutter-Ferguson methods calculate IBNR directly for each accident year as the product of expected ultimate losses times the proportion of ultimate losses estimated to be unreported or unpaid (obtained from the loss development factor methods). Expected ultimate losses are determined by multiplying the expected loss ratio times earned premium. The expected loss ratio uses loss ratios from prior accident years adjusted to reflect current revenue and cost levels. The expected loss ratio is a critical component of Bornheutter-Ferguson and provides a general reasonability guide for all reserving methods.

Berquist-Sherman methods are used in cases where historical development patterns may be deemed less optimal for use in estimating ultimate losses of recent accident years. Under these methods, patterns of historical paid or reported losses are first adjusted to reflect current payment settlement patterns and case reserve adequacy and then evaluated in the same manner as the paid or reported loss development factor methods described above. The reported loss development factor method can be less appropriate when the adequacy of case reserves suddenly changes, while the paid loss development factor method can likewise be less appropriate when settlement patterns suddenly change.

For some low volume and high volatility classes of business, special reserving techniques are utilized that estimate IBNR by selecting the loss ratio that balances actual reported losses to expected reported losses as defined by the estimated underlying reporting pattern.

In completing their loss reserve analysis, our actuaries are required to determine the most appropriate actuarial methods to employ for each line of business, coverage and accident year. Each estimation method has its own pattern, parameter and/or judgmental dependencies, with no estimation method being better than the others in all situations. The relative strengths and weaknesses of the various estimation methods when applied to a particular class of business can also change over time, depending on the underlying circumstances. In many cases, multiple estimation methods will be valid for the particular facts and circumstances of the relevant class of business. The manner of application and the degree of reliance on a given method will vary by line of business and coverage, and by accident year based on our actuaries’ evaluation of the above dependencies and the potential volatility of the loss frequency and severity patterns. The estimation methods selected or given weight by our actuaries at a particular valuation date are those that are believed to produce the most reliable indication for the loss reserves being evaluated. Selections incorporate input from claims personnel, pricing actuaries, and underwriting management on loss cost trends and other factors that could affect ultimate losses.

For short tail classes, the emergence of paid and incurred losses generally exhibits a reasonably stable pattern of loss development from one accident year to the next. Thus, for these classes in the vast majority of cases, the loss development factor method is

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generally appropriate. In certain cases where there is a relatively low level of reliability placed on the available paid and incurred loss data, expected loss methods or adjusted loss methods are considered appropriate for the most recent accident year.

For long tail lines of business, applying the loss development factor method often requires more judgment in selecting development factors as well as more significant extrapolation. For those long tail lines of business with high frequency and relatively low per-loss severity (e.g., personal automobile liability), volatility will often be sufficiently modest for the loss development factor method to be given significant weight, even in the most recent accident years, but expected loss methods and adjusted loss methods are always considered and frequently utilized in the selection process. For those long tail lines of business with low frequency and high loss potential (e.g., commercial liability), anticipated loss experience is less predictable because of the small number of claims and erratic claim severity patterns. In these situations, the loss development factor methods may not produce a reliable estimate of ultimate losses in the most recent accident years since many claims either have not yet been reported or are only in the early stages of the settlement process. Therefore, the actuarial estimates for these accident years are based on methods less reliant on extrapolation, such as Bornheutter-Ferguson. Over time, as a greater number of claims are reported and the statistical credibility of loss experience increases, loss development factor methods or adjusted loss methods are given increasingly more weight.

Using all the available data, our actuaries select an indicated loss reserve amount for each line of business, coverage and accident year based on the various assumptions, projections and methods. The total indicated reserve amount determined by our actuaries is an aggregate of the indicated reserve amounts for the individual classes of business. The ultimate outcome is likely to fall within a range of potential outcomes around this indicated amount, but the indicated amount is not expected to be precisely the ultimate liability.

As stated above, numerous factors (both internal and external) contribute to the inherent uncertainty in the process of establishing loss reserves, including changes in the rate of inflation for goods and services related to insured damages (e.g., medical care, home repairs, etc.), changes in the judicial interpretation of policy provisions, changes in the general attitude of juries in determination of damages, legislative actions, changes in the extent of insured injuries, changes in the trend of expected frequency and/or severity of claims, changes in our book of business (e.g., change in mix due to new product offerings, new geographic areas, etc.), changes in our underwriting norms, and changes in claim handling procedures and/or systems. Regarding our indirect business from voluntary and involuntary pools, we are provided loss estimates by managers of each pool. We adopt reserve estimates for the pools that consider this information and other facts.

In addition, we must consider the uncertain effects of emerging or potential claims and coverage issues that arise as legal, judicial and social conditions change. These issues could have a negative effect on our loss reserves by either extending coverage beyond the original underwriting intent or by increasing the number or size of claims. As a result of these potential issues, the uncertainties inherent in estimating ultimate claim costs on the basis of past experience have further complicated the already complex loss reserving process.

As part of our loss reserving analysis, we take into consideration the various factors that contribute to the uncertainty in the loss reserving process. Those factors that could materially affect our loss reserve estimates include loss development patterns and loss cost trends, rate and exposure level changes, the effects of changes in coverage and policy limits, business mix shifts, the effects of regulatory and legislative developments, the effects of changes in judicial interpretations, the effects of emerging claims and coverage issues and the effects of changes in claim handling practices. In making estimates of reserves, however, we do not necessarily make an explicit assumption for each of these factors. Moreover, all estimation methods do not utilize the same assumptions and typically no single method is determinative in the reserve analysis for a line of business and coverage. Consequently, changes in our loss reserve estimates generally are not the result of changes in any one assumption. Instead, the variability will be affected by the interplay of changes in numerous assumptions, many of which are implicit to the approaches used.

For each line of business and coverage, we regularly adjust the assumptions and actuarial methods used in the estimation of loss reserves in response to our actual loss experience, as well as our judgments regarding changes in trends and/or emerging patterns. In those instances where we primarily utilize analyses of historical patterns of the development of paid and reported losses, this may be reflected, for example, in the selection of revised loss development factors. In those long tail classes of business that comprise a majority of our loss reserves and for which loss experience is less predictable due to potential changes in judicial interpretations, potential legislative actions, the cost of litigation or determining liability and the ultimate loss, inflation and potential claims issues, this may be reflected in a judgmental change in our estimate of ultimate losses for particular accident years.

The future impact of the various factors that contribute to the uncertainty in the loss reserving process is extremely difficult to predict. There is potential for significant variation in the development of loss reserves, particularly for long tail classes of business. We do not derive statistical loss distributions or confidence levels around our loss reserve estimate, and as a result, do not have

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reserve range estimates to disclose. Actuarial ranges of reasonable estimates are not a true reflection of the potential volatility between carried loss reserves and the ultimate settlement amount of losses incurred prior to the balance sheet date. This is due, among other reasons, to the fact that actuarial ranges are developed based on known events as of the valuation date whereas the ultimate disposition of losses is subject to the outcome of events and circumstances that were unknown as of the valuation date.

The following tables and related discussion includes disclosure of possible variation from current actuarial estimates of loss reserves due to a change in certain key assumptions for the primary long tail coverages within our major lines of business which typically represent the areas of greatest uncertainty in our reserving process. We believe that the estimated variation in reserves detailed below is a reasonable estimate of the possible variation that may occur in the future, and are provided to illustrate the relationship between claim reporting patterns and expected loss ratios, respectively, on actuarial loss reserve estimates for the lines identified. However, if such variation did occur, it would likely occur over a period of several years and therefore its impact on our results of operations would be spread over the same period. It is important to note, however, that there is the potential for future variation greater than the amounts discussed below and for any such variations to be recognized in a single quarterly or annual period.

As noted, the tables below illustrate the relationship between the impact on our actuarial loss reserve estimates of reasonably likely variations to claim reporting patterns and expected actuarial estimates of ultimate loss costs, two key actuarial assumptions used to estimate our net reserves at September 30, 2010, from the assumptions utilized by our actuaries. The five point change to our expected loss ratio selections, which incorporate variability in both ultimate frequency and severity, are within the historical variation present in our prior accident year development. The three month change to reporting patterns represent claims reporting that is both faster and slower than our current reporting assumption for reported loss patterns and this degree of change is within the historical variation present in actual reporting patterns. A faster reporting pattern results in lower indicated net loss reserves due to the presumption that a higher proportion of ultimate claims have been reported thus far; and therefore, a lower proportion of ultimate claims needs to be carried as IBNR. A slower reporting pattern results in higher indicated net loss reserves due to the presumption that a lower proportion of ultimate claims have been reported thus far; and therefore, a higher proportion of ultimate claims needs to be carried as IBNR.

The results show the cumulative dollar difference between our current actuarial estimate and the estimate that we would develop if our understanding with respect to loss reporting patterns and ultimate loss costs were different by three months or five points, respectively. No consideration has been given to potential correlation or lack of correlation among key assumptions or among lines of business and coverage. As a result, it would be inappropriate to take the amounts described below and add them together in an attempt to estimate volatility in total. While we believe these are reasonably likely scenarios, we do not believe the reader should consider the below sensitivity analysis as an actual reserve range.

Expected Dollar Effect on Actuarial Loss Reserve Estimates
Personal Automobile Bodily Injury
(In millions)
	Change in Expected Loss Ratio
Reporting Pattern	5 points         lower		Unchanged		5 points         higher
3 months faster	$	(16)	$	(13)	$	(10)
Unchanged		(3)		-		3
3 months slower		26		30		33

Example: Personal Automobile Bodily Injury, if losses are actually developing and emerging three months slower than we anticipate in our models, our actuarial estimate for this coverage would be understated by $30 million. If our assumed payment patterns are consistent with our expectations, but the expected loss ratio in our model is 5% too low, then our actuarial estimate for this coverage would be understated by $3 million.

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Expected Dollar Effect on Actuarial Loss Reserve Estimates
Workers’ Compensation Indemnity
(In millions)
	Change in Expected Loss Ratio
Reporting Pattern	5 points         lower		Unchanged		5 points         higher
3 months faster	$	(3)	$	(1)	$	1
Unchanged		(2)		-		2
3 months slower		1		3		5
Workers’ Compensation Medical
(In millions)
	Change in Expected Loss Ratio
Reporting Pattern	5 points lower		Unchanged		5 points higher
3 months faster	$	(4)	$	(3)	$	(2)
Unchanged		(1)		-		1
3 months slower		1		2		3
Commercial Multiple Peril Liability
(In millions)
	Change in Expected Loss Ratio
Reporting Pattern	5 points lower		Unchanged		5 points higher
3 months faster	$	(6)	$	(2)	$	2
Unchanged		(4)		-		4
3 months slower		(2)		2		6

Senior management meets with our reserving actuaries at the end of each quarter to review the results of the latest actuarial loss reserve analysis. Based on this quarterly process, management determines the carried reserve for each line of business and coverage and assesses the reasonableness of the difference between recorded and actuarially indicated reserves. In making the determination, management considers numerous factors, such as changes in actuarial indications in the period, the maturity of the accident year, trends observed over the recent past, the level of volatility within a particular class of business, general economic trends, and other factors not fully captured in the actuarial reserve analysis. In doing so, management must evaluate whether a change in the data represents credible actionable information or an anomaly. Such an assessment requires considerable judgment. Even if a change is determined to be apparent, it is not always possible to determine the extent of the change. As a result, there can be a time lag between the emergence of a change and a determination that the change should be reflected in the carried loss reserves. In general, changes are made more quickly to more mature accident years and less volatile classes of business.

As described more fully under “Contingencies and Regulatory Matters – Certain Regulatory and Industry Developments”, on August 1, 2010, the Michigan Supreme Court issued a decision in a case captioned McCormick v. Carrier, et al, overturning the so-called Kreiner decision, and in doing so, we believe the Court significantly expanded the circumstances under which claimants can sue for non-economic losses (for example, pain and suffering) resulting from automobile accidents in Michigan. We believe the revised standard will significantly increase certain unresolved past claims and future claims for non-economic damages in our personal automobile line. Accordingly, we established our actuarial point estimates based upon our understanding of the current state of the law as of September 30, 2010. As of June 30, 2010 and December 31, 2009, our actuarial point estimates were established based upon the prior law and management considered the likelihood of an adverse decision in this matter in establishing additional recorded net reserves greater than actuarially indicated reserves. As a result, the actuarial point estimate for the personal automobile line as of September 30, 2010 was increased by approximately $15 million to take into account the estimated effects of the new law. A corresponding and offsetting decrease was made to the reserve established in excess of the actuarial point estimate for this line of business.

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The table below shows our recorded reserves, net of reinsurance, and the related actuarial reserve point estimates by line of business at September 30, 2010 and December 31, 2009.

	September 30, 2010				December 31, 2009
(In millions)	Recorded     Net Reserves		Actuarial         Point Estimate		Recorded     Net Reserves		Actuarial     Point Estimate
Personal Automobile	$	641.5	$	626.1	$	663.6	$	632.9
Homeowners		115.8		108.8		88.6		83.9
Other Personal Lines		19.3		19.5		20.2		19.2
Workers’ Compensation		327.8		317.3		334.5		324.6
Commercial Automobile		165.5		161.3		157.4		152.2
Commercial Multiple Peril		422.6		403.5		395.3		372.7
Other Commercial Lines		337.7		325.2		287.5		274.8
Asbestos and Environmental		10.4		10.4		11.3		11.4
Pools and Other		118.0		118.0		133.5		133.5
Total	$	2,158.6	$	2,090.1	$	2,091.9	$	2,005.2

At September 30, 2010 and December 31, 2009, total recorded net reserves were 3.3% and 4.3% greater than actuarially indicated reserves, respectively. The principal factors considered by management, in addition to the actuarial point estimates, in determining the recorded reserves vary by line of business.

In our Commercial Lines segment, management considered the growth in our specialty lines, including our acquisitions over the past few years, inland marine and bond businesses, product mix changes and recent adverse frequency and severity trends in certain coverages. Management considered the recent trends in our contract surety bond business where higher loss trends have emerged in recent quarters related to declining general economic conditions. Additionally, management considered the potential for adverse development in workers’ compensation where losses tend to emerge over long periods of time, trends are cyclical related to general economic conditions, and rising medical costs, while moderating, have continued to be a concern. With the growth of our specialty lines, we are modestly increasing our exposure to longer tailed liability lines and there is less historical experience and less actuarial data available, all of which results in less certainty when estimating ultimate reserves. In our commercial multiple peril line, management considered the potential for adverse development due to increasing legal defense costs related to exposures, such as personal injury, advertising injury, Chinese drywall, and other complex cases that may continue to trend higher than expected.

In our Personal Lines segment, management considered the Michigan Supreme Court’s recent decision to overturn the so-called Kreiner decision and the resulting increase in our actuarial indications during the quarter as described above, the potential impact of the adverse frequency and development trends in personal and bodily injury claims in our automobile line related to the 2008 through 2010 accident years and the related potential for continued adverse trends due to costs shifting from health insurers to property and casualty insurers resulting from continued economic concerns and health insurance coverage trends, all of which have added additional uncertainty to future development in our personal automobile line. Additionally, management considered the growth in our new business in a number of states where there is additional uncertainty in the ultimate profitability and development of reserves due to the unseasoned nature of our new business and new agency relationships in these markets. Although our experience and data in these areas is growing with the passage of time, a sufficient number of years of actuarial data is not yet available to base loss estimates solely on this data in new geographical areas and agency relationships and with new products. As a result, there is less certainty when estimating ultimate reserves and more judgment by management is required. In our homeowners line, management also considered the potential for adverse development related to catastrophe losses.

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The table below provides a reconciliation of the gross beginning and ending reserve for unpaid losses and LAE as follows:

	Nine months Ended September 30,
(In millions)	2010			2009
Reserve for losses and LAE, beginning of period	$	3,152.1	$		3,201.3
Incurred losses and LAE, net of reinsurance recoverable:
Provision for insured events of current year		1,471.0			1,352.9
Decrease in provision for insured events of prior years; favorable development		(87.4)			(128.2)
Total incurred losses and LAE		1,383.6			1,224.7
Payments, net of reinsurance recoverable:
Losses and LAE attributable to insured events of current year		726.9			665.6
Losses and LAE attributable to insured events of prior years		620.2			653.8
Total payments		1,347.1			1,319.4
Change in reinsurance recoverable on unpaid losses		4.2			(21.8)
Purchase of Campania		37.2			-
Reserve for losses and LAE, end of period	$	3,230.0	$		3,084.8

The table below summarizes the gross reserve for losses and LAE by line of business.

(In millions)		September 30, 2010			December 31, 2009
Personal Automobile	$		1,316.7	$		1,303.4
Homeowners and Other			145.8			140.1
Total Personal			1,462.5			1,443.5
Workers’ Compensation			522.3			524.1
Commercial Automobile			219.9			217.4
Commercial Multiple Peril			468.1			449.7
Other Commercial			557.2			517.4
Total Commercial			1,767.5			1,708.6
Total reserve for losses and LAE	$		3,230.0	$		3,152.1

The total reserve for losses and LAE as disclosed in the above table increased by $77.9 million for the nine months ended September 30, 2010.

Prior Year Development by Line of Business

When trends emerge that we believe affect the future settlement of claims, we adjust our reserves accordingly. Reserve adjustments are reflected in the Consolidated Statements of Income as adjustments to losses and LAE. Often, we recognize these adjustments in periods subsequent to the period in which the underlying loss event occurred. These types of subsequent adjustments are disclosed and discussed separately as “prior year reserve development”. Such development can be either favorable or unfavorable to our financial results.

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The following table summarizes the change in the provision for insured events of prior years.

		Nine months Ended September 30,
(In millions)		2010			2009
(Decrease) increase in loss provision for insured events of prior years:
Personal Automobile	$		(27.8)	$		(44.5)
Homeowners and Other			(1.9)			6.2
Total Personal			(29.7)			(38.3)
Workers’ Compensation			(16.8)			(17.1)
Commercial Automobile			(4.6)			(4.7)
Commercial Multiple Peril			(16.8)			(16.1)
Other Commercial			0.7			(20.0)
Total Commercial			(37.5)			(57.9)
Voluntary Pools			(0.6)			(10.4)
Decrease in loss provision for insured events of prior years			(67.8)			(106.6)
Decrease in LAE provision for insured events of prior years			(19.6)			(21.6)
Decrease in total loss and LAE provision for insured events of prior years	$		(87.4)	$		(128.2)

Estimated loss reserves for claims occurring in prior years developed favorably by $67.8 million and $106.6 million during the first nine months of 2010 and 2009, respectively. The favorable loss reserve development during the first nine months of 2010 is primarily the result of lower than expected severity in the personal automobile line across all coverages and lower frequency in the personal automobile line in property coverages, primarily related to the 2007 through 2009 accident years, and lower than expected severity in the workers’ compensation line, primarily related to the 2004 through 2009 accident years. In addition, lower than expected severity in the commercial multiple peril line related to the 2007 through 2009 accident years and in the commercial umbrella line related to the 2008 and 2009 accident years contributed to the favorable development, partially offset by unfavorable development in our bond line primarily related to the 2009 accident year.

The favorable loss reserve development during the first nine months of 2009 is primarily the result of lower than expected severity of bodily injury in the personal automobile line, primarily in the 2000 through 2008 accident years, lower than expected severity in the workers’ compensation line, primarily in the 2000 through 2008 accident years and lower than expected severity in the commercial multiple peril line, primarily in the 2000 through 2007 accident years. In addition, lower than expected severity in the bond line, lower projected losses in our run-off voluntary pools and lower projected exposures to asbestos and environmental liability for our direct written business contributed to the favorable development. Partially offsetting the favorable development was unfavorable non-catastrophe weather-related property loss development, primarily related to our commercial property, homeowners and personal automobile physical damage lines.

During the first nine months of 2010 and 2009, estimated LAE reserves for claims occurring in prior years developed favorably by $19.6 million and $21.6 million, respectively. In 2009, we changed our unallocated loss adjustment expense reserving methodology from that based on cash payments to that based on unit costs, which resulted in a $20.0 million benefit, of which $16.0 million related to prior years. We believe that the methodology based on unit costs is more representative of our future costs of settling our existing claims. The 2010 amount includes $9.8 million of favorable development resulting from a change in the cost factors used for establishing unallocated loss adjustment expense reserves.

Although we have experienced significant favorable development in both losses and LAE in recent years, there can be no assurance that this level of favorable development will occur in the future. We believe that we will experience less favorable prior year development in future years than we experienced recently. The factors that resulted in the favorable development of prior year reserves, including the aforementioned changes in LAE reserves, are considered in our ongoing process for establishing current accident year reserves. In light of our recent years of favorable development, the factors driving this development were considered to varying degrees in setting the more recent years’ accident year reserves. As a result, we expect the current and most recent accident year reserves not to develop as favorably as they have in the past. In light of the significance, in recent periods, of favorable development to our Property and Casualty group’s segment income, declines in favorable development could be material to our results of operations.

Asbestos and Environmental Reserves

Although we attempt to limit our exposures to asbestos and environmental damage liability through specific policy exclusions, we have been and may continue to be subject to claims related to these exposures. Ending loss and LAE reserves for all direct

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business written by our property and casualty companies related to asbestos and environmental damage liability, included in the reserve for losses and LAE, were $10.4 and $11.3 million at September 30, 2010 and December 31, 2009, respectively, net of reinsurance of $19.9 at September 30, 2010 and December 31, 2009. In recent years average asbestos and environmental payments have declined modestly. As a result of our historical direct underwriting mix of Commercial Lines policies toward smaller and middle market risks, past asbestos and environmental damage liability loss experience has remained minimal in relation to our total loss and LAE incurred experience.

In addition, and not included in the numbers above, we have established loss and LAE reserves for assumed reinsurance pool business with asbestos and environmental damage liability of $34.9 million and $45.6 million at September 30, 2010 and December 31, 2009, respectively. These reserves relate to pools in which we have terminated our participation; however, we continue to be subject to claims related to years in which we were a participant. The $10.7 million decrease in these reserves during the first nine months of 2010 was primarily due to a large claim settlement within these pools. A significant part of our pool reserves relates to our participation in the Excess and Casualty Reinsurance Association (“ECRA”) voluntary pool from 1950 to 1982. In 1982, the pool was dissolved and since that time, the business has been in runoff. Our percentage of the total pool liabilities varied from 1% to 6% during these years. Our participation in this pool has resulted in average paid losses of approximately $2 million annually over the past ten years. Because of the inherent uncertainty regarding the types of claims in these pools, we cannot provide assurance that our reserves will be sufficient.

We estimate our ultimate liability for asbestos, environmental and toxic tort liability claims, whether resulting from direct business, assumed reinsurance or pool business, based upon currently known facts, reasonable assumptions where the facts are not known, current law and methodologies currently available. Although these outstanding claims are not significant, their existence gives rise to uncertainty and are discussed because of the possibility that they may become significant. We believe that, notwithstanding the evolution of case law expanding liability in asbestos and environmental claims, recorded reserves related to these claims are adequate. Nevertheless, the asbestos, environmental and toxic tort liability reserves could be revised, and any such revisions could have a material adverse effect on our results of operations for a particular quarterly or annual period or on our financial position.

Reinsurance

We maintain a reinsurance program designed to protect against large or unusual loss and LAE activity. Information regarding our reinsurance coverages is described in the “Reinsurance” section on pages 13 and 14 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. Effective July 1, 2010, for a twelve month term, we renewed our property catastrophe occurrence treaty for those coverages in excess of $700 million. For our $200 million excess of $700 million property catastrophe coverage layer, we previously retained 50% of the losses associated with this layer. Beginning on July 1, 2010, 100% of losses in this layer will be covered by reinsurance. Also, effective July 1, 2010, for a twelve month term, we purchased an additional $100 million excess of $900 million property catastrophe coverage layer. Both of these layers only provide coverage for perils in the Northeast.

Discontinued Operations

Discontinued operations primarily consist of: (i) FAFLIC’s discontinued operations, including both the loss associated with the sale of FAFLIC on January 2, 2009 and the loss or income resulting from its prior business operations; (ii) losses or gains associated with the sale of the variable life insurance and annuity business in 2005; and (iii) the discontinued accident and health insurance business.

FAFLIC Discontinued Operations

On January 2, 2009, we sold our remaining life insurance subsidiary, FAFLIC, to Commonwealth Annuity, a subsidiary of Goldman Sachs. In connection with the sale, FAFLIC paid a dividend consisting of designated assets with a statutory book value of approximately $130 million. Total net proceeds from the sale, including the dividend, were approximately $230 million, net of transaction costs. Additionally, coincident with the sale transaction, Hanover Insurance and FAFLIC entered into a reinsurance contract whereby Hanover Insurance assumed FAFLIC’s discontinued accident and health insurance business. We also agreed to indemnify Commonwealth Annuity for certain litigation, regulatory matters and other liabilities related to the pre-closing activities of the business transferred. We recognized, in 2008, a $77.3 million loss associated with this transaction.

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The following table summarizes the results for this discontinued business for the periods indicated:

	Quarter Ended September 30,					Nine months Ended September 30,
(In millions)	2010		2009		2010			2009
Gain from discontinued FAFLIC business, net of taxes	$	0.5	$	0.4	$		0.4	$	6.3

Gains, net of taxes, from FAFLIC’s discontinued operations of $0.5 million and $0.4 million for the quarters ended September 30, 2010 and September 30, 2009, respectively and $0.4 million and $6.3 million for the nine months ended September 30, 2010 and September 30, 2009, respectively, resulted primarily from a change in our estimate of indemnification liabilities related to the sale.

In connection with the sales transaction, we agreed to indemnify Commonwealth Annuity for certain legal, regulatory and other matters that existed as of the sale and established a gross liability of $9.9 million. As of September 30, 2010, our total gross liability was $1.2 million. Although we believe our current estimate for this liability is appropriate, there can be no assurance that this estimate will be sufficient to pay future expenses associated with these guarantees.

Variable Life Insurance and Annuity Business

On December 30, 2005, we sold our run-off variable life insurance and annuity business to Goldman Sachs and indemnified Goldman Sachs for certain litigation, regulatory matters and other liabilities relating to the pre-closing activities. Results currently consist primarily of expense and recoveries relating to indemnification obligations incurred in connection with this sale. The following table summarizes the results for this discontinued business for the periods indicated:

	Quarter Ended September 30,					Nine months Ended September 30,
(In millions)	2010		2009		2010			2009
Gain on disposal of variable life insurance and annuity business, net of taxes	$	0.1	$	-	$		1.0	$	4.1

For the quarter and nine months ended September 30, 2010, we recorded gains of $0.1 million and $1.0 million, net of taxes, respectively, and for the nine months ended September 30, 2009, we recorded gains of $4.1 million, net of taxes, primarily related to changes in our estimate of indemnification liabilities related to the 2005 sale of this business.

As of September 30, 2010, our total gross liability for guarantees and indemnifications provided in connection with the disposal of our former variable life insurance and annuity business was $4.1 million. Although we believe our current estimate for this liability is appropriate, there can be no assurance that this estimate will be sufficient to pay future expenses associated with these guarantees.

Accident and Health Insurance Business

During the quarters ended September 30, 2010 and 2009, we recognized gains of $0.2 million and $0.7 million, respectively, from our discontinued accident and health insurance business. For the nine months ended September 30, 2010 and 2009, we recognized losses of $0.9 million and $2.4 million, respectively, related to this business. Losses for the nine months ended September 30, 2010 were driven by increased reserves resulting from our current interpretation of the provisions of the Patient Protection and Affordable Care Act (“PPACA”), as well as realized investment losses due to impairments. These were partially offset by net investment income. Losses for the nine months ended September 30, 2009 primarily reflect realized investment losses due to impairments.

Other Items

Net realized gains on investments were $5.7 million in the third quarter of 2010. This compares to no net realized gains or losses in the same period of 2009. Net realized gains in 2010 are primarily due to $10.4 million of gains recognized primarily from the sale of fixed maturities, partially offset by a $3.7 million loss on futures contracts relating to the release of tax capital loss carryforwards (see Income Taxes) and $1.4 million of impairments from both fixed maturities and equity securities. In 2009, impairments of $6.1 million primarily from fixed maturities were offset by $6.1 million of gains recognized from the sale of fixed maturities.

Net realized gains on investments were $16.8 million for the first nine months of 2010 compared to net realized losses of $9.7 million for the same period of 2009. Net realized gains in the first nine months of 2010 are due to $26.4 million of gains

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recognized primarily from the sale of fixed maturities and, to a lesser extent, equity securities, partially offset by $7.5 million of impairments from both fixed maturities and equity securities. Net realized losses in the first nine months of 2009 are due to $29.3 million of impairments from fixed maturities and equity securities, partially offset by $19.8 million of gains recognized primarily from the sale of fixed maturities.

Net income includes the following items:

	Quarter Ended September 30, 2010
	Property and Casualty
(In millions)	Personal Lines			Commercial Lines		Other Property and     Casualty (2)		Discontinued Operations		Total
Net realized investment gains (1)	$		1.7	$	3.6	$	0.4	$	-	$	5.7
Gain from operations of discontinued FAFLIC business, net of taxes			-		-		-		0.5		0.5
Gain from discontinued accident and health insurance business, net of taxes			-		-		-		0.2		0.2
Gain on disposal of variable life insurance and annuity business, net of taxes			-		-		-		0.1		0.1
Other discontinued operations, net of taxes			-		-		-		0.1		0.1
		Quarter Ended September 30, 2009
		Property and Casualty
(In millions)	Personal Lines			Commercial Lines		Other Property and     Casualty (2)		Discontinued Operations		Total
Net realized investment (losses) gains (1)	$		(0.7)	$	(0.4)	$	1.1	$	-	$	-
Gain on retirement of debt			-		-		0.2		-		0.2
Gain from operations of discontinued FAFLIC business, net of taxes business			-		-		-		0.4		0.4
Gain from discontinued accident and health insurance business, net of taxes			-		-		-		0.7		0.7
		Nine months Ended September 30, 2010
		Property and Casualty
(In millions)	Personal Lines			Commercial Lines		Other Property and     Casualty (2)		Discontinued Operations		Total
Net realized investment gains (1)	$		8.8	$	7.4	$	0.6	$	-	$	16.8
Gain from operations of discontinued FAFLIC business, net of taxes			-		-		-		0.4		0.4
Loss from discontinued accident and health insurance business, net of taxes			-		-		-		(0.9)		(0.9)
Gain on disposal of variable life insurance and annuity business, net of taxes			-		-		-		1.0		1.0
Other discontinued operations, net of taxes			-		-		-		0.1		0.1

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	Nine months Ended September 30, 2009
		Property and Casualty
(In millions)	Personal Lines				Commercial Lines			Other Property and Casualty (2)			Discontinued Operations			Total
Net realized investment (losses) gains (1)	$		(6.6)	$		(5.7)	$		2.6	$		-	$		(9.7)
Gain on retirement of debt			-			-			34.5			-			34.5
Gain from operations of discontinued FAFLIC business, net of taxes			-			-			-			6.3			6.3
Loss from discontinued accident and health insurance business, net of taxes			-			-			-			(2.4)			(2.4)
Gain on disposal of variable life insurance and annuity business, net of taxes			-			-			-			4.1			4.1

(1) We manage investment assets for our property and casualty business based on the requirements of the entire property and casualty group. We allocate the investment income, expenses and realized (losses) gains to our Personal Lines, Commercial Lines and Other Property and Casualty segments based on actuarial information related to the underlying businesses.

(2) Includes corporate eliminations.

Investment Portfolio

We held general account investment assets diversified across several asset classes, as follows:

	September 30, 2010					December 31, 2009
(In millions, except percentage data)	Carrying Value		% of Total Carrying Value			Carrying Value		% of Total     Carrying Value
Fixed maturities (1)	$	5,024.2		91.9%	$		4,732.4		91.9%
Equity securities (1)		125.7		2.3			69.3		1.3
Mortgages		5.7		0.1			14.1		0.3
Cash and cash equivalents (1)		272.9		5.0			316.7		6.1
Real estate and other long-term investments		35.5		0.7			18.2		0.4
Total, including assets of discontinued operations (2)		5,464.0		100.0%			5,150.7		100.0%
Investment assets of discontinued operations (2)		(120.9)					(117.1)
Total investment assets of continuing operations	$	5,343.1			$		5,033.6

(1) We carry these investments at fair value.

(2) Investment assets of discontinued operations include our discontinued accident and health insurance business.

Investment Assets

The following discussion includes the investment assets of our continuing operations, as well as the investment assets of our discontinued accident and health insurance business.

Total investment assets increased $313.3 million, or 6.1%, to $5.5 billion for the first nine months of 2010, of which fixed maturities increased $291.8 million, equities increased $56.4 million, and cash and cash equivalents decreased $43.8 million. The increase in fixed maturities is primarily due to market value appreciation and the increase in equity securities is primarily due to additional net investments in 2010. The net decrease in cash and cash equivalents is primarily attributable to additional stock repurchases and a $100.0 million contribution to our pension plan on January 4, 2010, partially offset by proceeds from our senior debt issuance.

Our fixed maturity portfolio is comprised primarily of investment grade corporate securities, taxable and tax-exempt issues of state and local governments, residential mortgage-backed securities, commercial mortgage-backed securities, U.S. government and agency securities and asset-backed securities.

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The following table provides information about the investment type and credit quality of our fixed maturities portfolio:

September 30, 2010
(In millions, except percentage data)   Investment Type	Rating Agency Equivalent Designation		Amortized Cost		Fair Value		Net Unrealized Gain (1)		Change in Net     Unrealized Gains     for the Period
Corporates:
NAIC 1		Aaa/Aa/A	$	929.6	$	1,016.2	$	86.6	$	54.3
NAIC 2		Baa		1,061.6		1,163.7		102.1		53.6
NAIC 3 and below		Ba, B, Caa and lower		342.3		359.6		17.3		13.4
Total Corporates				2,333.5		2,539.5		206.0		121.3
Asset-backed:
Residential mortgage-backed securities				787.0		826.4		39.4		23.8
Commercial mortgage-backed securities				346.2		366.3		20.1		17.4
Asset-backed securities				74.3		79.4		5.1		2.6
Municipals:
Taxable				778.1		813.0		34.9		51.5
Tax exempt				153.8		159.4		5.6		1.5
U.S. government				232.4		240.2		7.8		8.3
Total fixed maturities (2)			$	4,705.3	$	5,024.2	$	318.9	$	226.4

(1) Includes $33.9 million unrealized loss related to other-than-temporary impairment losses recognized in other comprehensive income.

(2) Includes discontinued accident and health insurance business of $116.5 million in amortized cost and $119.6 million in fair value at September 30, 2010.

During the first nine months of 2010, our net unrealized gains on fixed maturities increased $226.4 million, or 245%, to a net unrealized gain of $318.9 million at September 30, 2010 from $92.5 million at December 31, 2009.

Amortized cost and carrying value by rating category were as follows:

September 30, 2010								December 31, 2009
(In millions, except   percentage data)   NAIC Designation	Rating Agency Equivalent Designation	Amortized Cost		Carrying     Value		% of Total    Carrying    Value		Amortized Cost		Carrying     Value		% of Total     Carrying     Value
1	Aaa/Aa/A	$	3,138.0	$	3,335.5		66.4%	$	3,120.8	$	3,168.0		66.9%
2	Baa		1,214.2		1,318.1		26.2		1,198.0		1,240.3		26.2
3	Ba		177.8		185.2		3.7		138.2		130.5		2.8
4	B		113.8		119.6		2.4		93.1		98.0		2.1
5	Caa and lower		52.0		54.1		1.1		84.0		88.0		1.9
6	In or near default		9.5		11.7		0.2		5.8		7.6		0.1
Total fixed maturities (1)		$	4,705.3	$	5,024.2		100.0%	$	4,639.9	$	4,732.4		100.0%

(1) Includes discontinued accident and health insurance business of $116.5 million in amortized cost and $119.6 million in fair value at September 30, 2010 and $119.6 million in amortized cost and $116.8 million in fair value at December 31, 2009.

Based on ratings by the National Association of Insurance Commissioners (“NAIC”), approximately 93% of our fixed maturity portfolio consisted of investment grade securities at September 30, 2010 and December 31, 2009.

The quality of our fixed maturity portfolio remains strong based on ratings, capital structure position, support through guarantees, underlying security, parent ownership and yield curve position. We do not hold any securities in the following sectors: subprime mortgages, either directly or through our mortgage-backed securities; collateralized debt obligations; collateralized loan obligations; or credit derivatives. Commercial mortgage-backed securities (“CMBS”) constitute $366.3 million of our invested assets, of which approximately 20% is fully defeased with U.S. government securities. The portfolio is seasoned, with approximately 72% of our CMBS holdings from pre-2005 vintages, 10% from the 2007 vintage, 6% from the 2006 vintage and 12% from the 2005 vintage. The CMBS portfolio is of high quality with approximately 72% being AAA rated and 28% rated AA or A. The CMBS portfolio has a weighted average loan-to-value ratio of approximately 74% and credit enhancement of approximately 23% as of September 30, 2010. Our municipal bond portfolio constitutes approximately 18% of invested assets and is substantially all investment grade. Financial guarantor insurance enhanced municipal bonds were $261.1 million, or approximately 27% of our municipal bond portfolio as of September 30, 2010. Without regard to the insurance enhancement, 99% of our municipal bond portfolio is investment grade as of September 30, 2010.

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At September 30, 2010, $71.1 million of our fixed maturities were invested in traditional private placement securities compared to $77.9 million at December 31, 2009. Fair values of traditional private placement securities are determined either by a third party broker or by pricing models that use discounted cash flow analyses.

Our fixed maturity and equity securities are classified as available-for-sale and are carried at fair value. Financial instruments whose value is determined using significant management judgment or estimation constitute less than 2% of the total assets we measured at fair value. (See also Note 9 – Fair Value).

Although we expect to invest new funds primarily in cash, cash equivalents and investment grade fixed maturities, we have invested, and may continue to invest a portion of funds in common equity securities and below investment grade fixed maturities and other assets. The average earned yield on fixed maturities was 5.5% for the nine months ended September 30, 2010 and for the year ended December 31, 2009, respectively. If new money rates remain at their current lower levels, they will result in declines in average pre-tax investment yields in future periods.

Other-than-Temporary Impairments

For the quarter ended September 30, 2010, we recognized $1.4 million of other-than-temporary impairments on fixed maturities in earnings, primarily related to below investment grade corporate bonds in the industrial sector that we intend to sell. For the quarter ended September 30, 2009, we recognized $6.1 million of other-than-temporary impairments on fixed maturities and equities in earnings, which included $1.7 million primarily from below investment grade corporate bonds in the industrial and financial sectors, $1.7 million from investment grade corporate bonds in the finance sector, and $1.4 million from below investment grade residential mortgage-backed securities.

For the first nine months of 2010, we recognized $7.5 million of other-than-temporary impairments on fixed maturities and equity securities in earnings, of which $3.0 million related to debt securities that we intend to sell, $2.6 million was estimated credit losses on debt securities and $1.9 million related to common stocks. Other-than-temporary impairments recognized on debt securities during the first nine months of 2010 primarily included $2.4 million on investment grade residential mortgage-backed securities, $1.4 million on below investment grade corporate bonds in the industrial sector, and $1.2 million on investment grade corporate bonds in the industrial sector. For the nine months ended September 30, 2009, we recognized other-than-temporary impairments of $29.3 million in earnings, which included $19.8 million primarily from below investment grade corporate bonds in the industrial and financial sectors and $9.5 million from perpetual preferred securities primarily in the finance sector.

In our determination of other-than-temporary impairments, we consider several factors and circumstances, including the issuer’s overall financial condition; the issuer’s credit and financial strength ratings; the issuer’s financial performance, including earnings trends, dividend payments, and asset quality; any specific events which may influence the operations of the issuer; a weakening of the general market conditions in the industry or geographic region in which the issuer operates; the length of time and the degree to which the fair value of an issuer’s securities remains below our cost; with respect to fixed maturity investments, any factors that might raise doubt about the issuer’s ability to pay all amounts due according to the contractual terms and whether we expect to recover the entire amortized cost basis of the security; and with respect to equity securities, our ability and intent to hold the investment for a period of time to allow for a recovery in value. We apply these factors to all securities.

We monitor corporate fixed maturity securities with unrealized losses on a quarterly basis and more frequently when necessary to identify potential credit deterioration whether due to ratings downgrades, unexpected price variances, and/or company or industry specific concerns. We apply consistent standards of credit analysis which includes determining whether the issuer is current on its contractual payments, and we consider past events, current conditions and reasonable forecasts to evaluate whether we expect to recover the entire amortized cost basis of the security. We utilize valuation declines as a potential indicator of credit deterioration, and apply additional levels of scrutiny in our analysis as the severity of the decline increases or duration persists.

For our impairment review of asset-backed fixed maturity securities, we forecast our best estimate of the prospective future cash flows of the security to determine if we expect to recover the entire amortized cost basis of the security. Our analysis includes estimates of underlying collateral default rates based on historical and projected delinquency rates and estimates of the amount and timing of potential recovery. We consider all available information relevant to the collectibility of the security, including information about the remaining payment terms of the security, prepayment speeds, the financial condition of the issuer, industry analyst reports, sector credit ratings and other market data when developing our estimate of the expected cash flows.

When an other-than-temporary impairment of a debt security occurs, and we intend to sell or more likely than not will be required to sell the investment before recovery of its amortized cost basis, the amortized cost of the security is reduced to its fair value, with a corresponding charge to earnings, which reduces net income and earnings per share. If we do not intend to sell the fixed maturity investment and more likely than not will not be required to sell it, we separate the other-than-temporary impairment into the amount we estimate represents the credit loss and the amount related to all other factors. The amount of the estimated loss

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attributable to credit is recognized in earnings, which reduces net income and earnings per share. The amount of the estimated other-than-temporary impairment that is non-credit related is recognized in other comprehensive income, net of applicable taxes.

We estimate the amount of the other-than-temporary impairment that relates to credit by comparing the amortized cost of the debt security with the net present value of the debt security’s projected future cash flows, discounted at the effective interest rate implicit in the investment prior to impairment. The non-credit portion of the impairment is equal to the difference between the fair value and the net present value of the fixed maturity security at the impairment measurement date.

Other-than-temporary impairments of equity securities are recorded as realized losses, which reduce net income and earnings per share. The new cost basis of an impaired security is not adjusted for subsequent increases in estimated fair value.

Temporary declines in market value are recorded as unrealized losses, which do not affect net income and earnings per share, but reduce other comprehensive income, which is reflected in our Consolidated Balance Sheets. We cannot provide assurance that the other-than-temporary impairments will be adequate to cover future losses or that we will not have substantial additional impairments in the future.

Unrealized Losses

The following tables provide information about our fixed maturities and equity securities that are in an unrealized loss position.

	September 30, 2010
	12 months or less				Greater than 12 months				Total
(In millions)	Gross   Unrealized   Losses and   OTTI		Fair Value		Gross Unrealized Losses and OTTI		Fair Value		Gross Unrealized Losses and OTTI (1)		Fair       Value
Fixed maturities:
Investment grade:
U.S. Treasury securities and U.S. government and agency securities	$	-	$	11.1	$	0.5	$	-	$	0.5	$	11.1
States and political subdivisions		2.1		29.7		5.5		94.3		7.6		124.0
Corporate fixed maturities		0.3		13.7		12.3		96.9		12.6		110.6
Residential mortgage-backed securities		0.1		35.8		9.0		33.0		9.1		68.8
Commercial mortgage-backed securities		-		5.8		1.2		8.1		1.2		13.9
Total investment grade		2.5		96.1		28.5		232.3		31.0		328.4
Below investment grade (2):
Corporate fixed maturities		0.7		20.4		15.4		124.9		16.1		145.3
Total fixed maturities		3.2		116.5		43.9		357.2		47.1		473.7
Equity securities:
Common equity securities		0.3		11.4		-		-		0.3		11.4
Total (3)	$	3.5	$	127.9	$	43.9	$	357.2	$	47.4	$	485.1

(1) Includes $33.9 million of unrealized losses related to OTTI losses recognized in other comprehensive income, of which $15.1 million are below investment grade aged greater than 12 months.

(2) Substantially all below investment grade securities with an unrealized loss had been rated by the NAIC, Standard & Poor’s or Moody’s at September 30, 2010.

(3) Includes discontinued accident and health insurance business of $6.0 million in gross unrealized losses with $40.5 million in fair value at September 30, 2010.

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	December 31, 2009
	12 months or less				Greater than 12 months				Total
(In millions)	Gross   Unrealized   Losses and   OTTI		Fair Value		Gross Unrealized Losses and OTTI		Fair Value		Gross Unrealized Losses and OTTI (1)		Fair Value
Fixed maturities:
Investment grade:
U.S. Treasury securities and U.S. government and agency securities	$	3.7	$	170.8	$	-	$	-	$	3.7	$	170.8
States and political subdivisions		9.0		275.2		15.6		176.5		24.6		451.7
Corporate fixed maturities		3.4		115.8		13.3		152.7		16.7		268.5
Residential mortgage-backed securities		6.6		89.1		7.5		62.6		14.1		151.7
Commercial mortgage-backed securities		0.4		13.5		7.0		30.0		7.4		43.5
Total investment grade		23.1		664.4		43.4		421.8		66.5		1,086.2
Below investment grade (2):
States and political subdivisions		0.2		8.7		0.8		8.2		1.0		16.9
Corporate fixed maturities		10.6		84.1		16.9		150.1		27.5		234.2
Total below investment grade		10.8		92.8		17.7		158.3		28.5		251.1
Total fixed maturities		33.9		757.2		61.1		580.1		95.0		1,337.3
Equity securities:
Common equity securities		-		-		0.3		1.4		0.3		1.4
Total (3)	$	33.9	$	757.2	$	61.4	$	581.5	$	95.3	$	1,338.7

(1) Includes $40.6 million unrealized loss related to other-than-temporary impairment losses recognized in other comprehensive income, of which $14.8 million are below investment grade aged greater than 12 months.

(2) Substantially all below investment grade securities with an unrealized loss had been rated by the NAIC, Standard & Poor’s or Moody’s at December 31, 2009.

(3) Includes discontinued accident and health insurance business of $8.8 million in gross unrealized losses with $55.0 million in fair value at December 31, 2009.

Gross unrealized losses on fixed maturities and equity securities decreased $47.9 million, or 50%, to $47.4 million at September 30, 2010, compared to $95.3 million at December 31, 2009. The decrease in unrealized losses was primarily due to lower interest rates and tightening of credit spreads of taxable municipal bonds, corporate bonds, and commercial and residential mortgage-backed securities during the first nine months of 2010. At September 30, 2010, gross unrealized losses primarily consist of $28.7 million in corporate fixed maturities, $10.3 million in mortgage-backed securities and $5.6 million in taxable municipal bonds. Gross unrealized losses on corporate fixed maturities include $18.6 million in the financial sector, $9.6 million in the industrial sector and $0.5 million in utilities and other.

Obligations of states and political subdivisions, the U.S. Treasury, U.S. government and agency securities had associated gross unrealized losses of $8.1 million and $29.3 million at September 30, 2010 and December 31, 2009, respectively.

Substantially all below investment grade securities with an unrealized loss had been rated by the NAIC, Standard & Poor’s or Moody’s.

We view the gross unrealized losses on fixed maturities and equity securities as being temporary since it is our assessment that these securities will recover in the near term, as evidenced by the improvement in unrealized losses during the past year, allowing us to realize their anticipated long-term economic value. With respect to gross unrealized losses on fixed maturities, we do not intend to sell nor is it more likely than not we will be required to sell debt securities before this expected recovery of amortized cost (See also “Liquidity and Capital Resources”). With respect to equity securities, we have the intent and ability to retain such investments for the period of time anticipated to allow for this expected recovery in fair value. The risks inherent in our assessment methodology include the risk that, subsequent to the balance sheet date, market factors may differ from our expectations; the global economic recovery takes longer and is less robust than we expect; we may decide to subsequently sell a security for unforeseen business needs; or changes in the credit assessment or equity characteristics from our original assessment may lead us to determine that a sale at the current value would maximize recovery on such investments. To the extent that there

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are such adverse changes, an other-than-temporary impairment would be recognized. Although unrealized losses are not reflected in the results of financial operations until they are realized or deemed “other-than-temporary”, the fair value of the underlying investment, which does reflect the unrealized loss, is reflected in our Consolidated Balance Sheets.

The following table sets forth gross unrealized losses for fixed maturities by maturity period and for equity securities at September 30, 2010 and December 31, 2009. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties, or we may have the right to put or sell the obligations back to the issuers. Mortgage-backed securities are included in the category representing their ultimate maturity.

(In millions)	September 30, 2010		December 31, 2009
Due in one year or less	$	2.0	$	0.5
Due after one year through five years		8.3		14.0
Due after five years through ten years		10.7		23.0
Due after ten years		26.1		57.5
Total fixed maturities		47.1		95.0
Equity securities		0.3		0.3
Total fixed maturities and equity securities (1)	$	47.4	$	95.3

(1) Includes discontinued accident and health insurance business of $6.0 million and $8.8 million in gross unrealized losses at September 30, 2010 and December 31, 2009, respectively.

Our investment portfolio and shareholders’ equity can be and have been significantly impacted by changes in market values of our securities. Although we have seen improvement in unrealized losses during 2009 and in the first nine months of 2010, economic conditions remain tenuous, market values could continue to fluctuate, and defaults on fixed income securities could increase. As a result, depending on market conditions, we could incur additional realized and unrealized losses in future periods, which could have a material adverse impact on our results of operations and/or financial position.

The carrying values of defaulted fixed maturity securities on non-accrual status at September 30, 2010 and December 31, 2009 were not material. The effects of non-accruals for the nine months ended September 30, 2010 and 2009, compared with amounts that would have been recognized in accordance with the original terms of the fixed maturities, were reductions in net investment income of $1.7 million and $2.4 million, respectively. Any defaults in the fixed maturities portfolio in future periods may negatively affect investment income.

The U.S. and global financial markets and economies, while continuing to recover, remain in a state of uncertainty and instability. Several issuers continue to face adverse business and liquidity circumstances, increasing the possibility of unanticipated defaults in the future. While we may experience defaults on fixed income securities, particularly with respect to non-investment grade securities, it is difficult to foresee which issuers, industries or markets will be affected. As a result, the value of our fixed maturity portfolio could change rapidly in ways we cannot currently anticipate. Depending on market conditions, we could incur additional realized and unrealized losses in future periods.

Income Taxes

We file a consolidated United States federal income tax return that includes the holding company and its domestic subsidiaries (including non-insurance operations).

Quarter Ended September 30, 2010 Compared to Quarter Ended September 30, 2009

The provision for federal income taxes from continuing operations was an expense of $21.7 million during the third quarter of 2010, compared to $18.9 million during the same period in 2009. These provisions resulted in consolidated effective federal tax rates of 29.7% and 28.0% for the quarters ended September 30, 2010 and 2009, respectively. The 2010 and 2009 provisions reflect a decrease in our valuation allowance related to capital loss carryforwards of $3.0 million and $3.4 million, respectively. Absent the aforementioned benefits, the provision for federal income taxes from continuing operations would have been an expense of $24.7 million or 33.8% and an expense of $22.3 million or 33.0% for the quarter ended September 30, 2010 and 2009, respectively. The increase in the rate in 2010 is primarily due to a decrease in low-income housing tax credits and an increase in nondeductible expenses described below.

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Our federal income tax expense on segment income was $22.7 million during the third quarter of 2010, compared to $22.0 million during the same period in 2009. These provisions resulted in effective tax rates for segment income of 33.7% and 32.7% in 2010 and 2009, respectively. The increase in 2010 is primarily due to a decrease in low-income housing tax credits and an increase in nondeductible expenses described below.

Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009

The provision for federal income taxes from continuing operations was an expense of $39.7 million for the first nine months of 2010, compared to $65.5 million during the same period in 2009. These provisions resulted in consolidated effective federal tax rates of 29.3% and 33.2% for the nine months ended September 30, 2010 and 2009, respectively. The decrease in the tax rate is primarily due to a decrease in our valuation allowance related to capital loss carryforwards, as a result of our realized gains.

Our federal income tax expense on segment income was $40.2 million for the first nine months of 2010, compared to $56.9 million during the same period in 2009. These provisions resulted in effective tax rates for segment income of 33.9% and 33.0% in 2010 and 2009, respectively. The increase in 2010 is primarily due to a decrease in low-income housing tax credits and an increase in nondeductible expense described below.

In January 2010, we made a $100.0 million pension contribution which resulted in both a current deduction of $35.0 million and the utilization (reduction) of a deferred tax asset of the same amount. This contribution is the principal reason for the current tax benefit of $8.5 million in the first nine months of the year.

As of September 30, 2010, we have alternative minimum tax (“AMT”) credit carryforwards of $113.8 million. We expect to utilize these tax credits during the next three to four years. The result of their utilization will be a lower current tax rate offset by a higher deferred tax provision, and also lower cash expenditures for federal income taxes during the utilization period. Once the minimum tax credits have been fully utilized, we expect our current tax rate to be closer to the statutory rate of 35%. Although there is no expiration on AMT credit carryforwards, we cannot be certain that we will utilize them as quickly as our expectations.

In March 2010, the PPACA was enacted. This act includes a provision to eliminate the tax deductibility of retiree health care costs to the extent of federal subsidies received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D coverage effective in tax years after December 31, 2012. As a result, under PPACA, the deductible temporary difference and any related deferred tax asset on the employer’s balance sheet associated with the federal subsidy may be reduced. Since we do not receive a federal retiree drug subsidy, the enactment of PPACA has no impact on our deferred tax asset. Another aspect of the PPACA which could impact us is the partial non-deductibility of certain employee compensation, beginning in 2013. There is considerable uncertainty as to whom these provisions will apply and as to the methodology required in calculating the non-deductible amount. However, under our current interpretation, this statute, as currently written, would apply to us with respect to limited amounts of employee compensation. For 2010, we estimate that our incremental tax expense will be approximately $0.8 million, of which $0.5 million is reflected in our financial statements for the nine months ended September 30, 2010. As the PPACA legislation is clarified, these amounts may change or we may be exempted from this aspect of the PPACA entirely.

In the first nine months of 2010, we decreased the valuation allowance related to our deferred tax asset by a total of $29.5 million, from $195.6 million to $166.1 million. This decrease has several components. First, in July and September of 2010, we completed transactions which resulted in the realization, for tax purposes only, of unrealized gains in our investment portfolio of $37.1 million and $31.1 million, respectively. As a result of these transactions during the nine months ended September 30, 2010, we were able to release $23.9 million of the valuation allowance we held against the deferred tax asset related to these capital loss carryforwards as an increase in Accumulated Other Comprehensive Income. The remainder of the decrease in the valuation allowance is related to realized capital gains in continuing operations, partially offset by realized capital losses in Discontinued Operations, and as a result of sales of securities subsequent to September 30, 2010. The result of all of these items is that we recorded decreases in our valuation allowance of $22.1 million and $6.3 million as an increase in Accumulated Other Comprehensive Income and a decrease in Federal Income Tax Expense, respectively, partially offset by an increase in our valuation allowance of $0.1 million recorded as a decrease in our net gain in Discontinued Operations. In addition, we recorded a decrease in our valuation allowance in connection with the sale of FAFLIC of $1.2 million as income in Discontinued Operations.

A corporation is entitled to a tax deduction from gross income for a portion of any dividend which was received from a domestic corporation that is subject to income tax. This is referred to as a “dividends received deduction.” In prior years, we have taken this dividends received deduction when filing our federal income tax return. Many separate accounts held by life insurance companies

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receive dividends from such domestic corporations, and therefore, were regarded as entitled to this dividends received deduction. In its Revenue Ruling 2007-61, issued on September 25, 2007, the IRS announced its intention to issue regulations with respect to certain computational aspects of the dividends received deduction on separate account assets held in connection with variable annuity contracts. Revenue Ruling 2007-61 suspended a revenue ruling issued in August 2007 that purported to change accepted industry and IRS interpretations of the statutes governing these computational questions. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other members of the public will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are not yet known, but they could result in the elimination of some or all of the separate account dividends received deduction tax benefit that we receive. We believe that it is more likely than not that any such regulation would apply prospectively only, and application of this regulation is not expected to be material to our results of operations in any future annual period. However, there can be no assurance that the outcome of the revenue ruling will be as anticipated. We believe that retroactive application would not materially affect our financial position or results of operations. In September 2009, as part of the audit of 2005 and 2006, the IRS disallowed our dividends received deduction relating to separate account assets for both years 2005 and 2006. We challenged the disallowance by filing a formal protest, and have requested an IRS Appeals conference. Should we ultimately be unsuccessful in our challenge, due to tax attributes and the sale of Allmerica Financial Life Insurance and Annuity Company, the effects of this proposed adjustment should not be material to our financial position or results of operations.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements. These statements have been prepared in accordance with GAAP, which requires us 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 financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following critical accounting estimates are those which we believe affect the more significant judgments and estimates used in the preparation of our financial statements. Additional information about our other significant accounting policies and estimates may be found in Note 1 - “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2009.

Property & Casualty Insurance Loss Reserves

See Segment Results – Reserve for Losses and Loss Adjustment Expenses for a discussion of our critical accounting estimates for loss reserves.

Property and Casualty Reinsurance Recoverables

We share a significant amount of insurance risk of the primary underlying contracts with various insurance entities through the use of reinsurance contracts. As a result, when we experience loss events that are subject to a reinsurance contract, reinsurance recoveries are recorded. The amount of the reinsurance recoverable can vary based on the size of the individual loss or the aggregate amount of all losses in a particular line, book of business or an aggregate amount associated with a particular accident year. The valuation of losses recoverable depends on whether the underlying loss is a reported loss, or an incurred but not reported loss. For reported losses, we value reinsurance recoverables at the time the underlying loss is recognized, in accordance with contract terms. For incurred but not reported losses, we estimate the amount of reinsurance recoverable based on the terms of the reinsurance contracts and historical reinsurance recovery information and apply that information to the gross loss reserve estimates. The most significant assumption we use is the average size of the individual losses for those claims that have occurred but have not yet been recorded by us. The reinsurance recoverable is based on what we believe are reasonable estimates and is disclosed separately on the financial statements. However, the ultimate amount of the reinsurance recoverable is not known until all losses are settled.

Pension Benefit Obligations

Prior to 2005, we provided pension retirement benefits to substantially all of our employees based on a defined benefit cash balance formula. In addition to the cash balance allocation, certain transition group employees, who had met specified age and service requirements as of December 31, 1994, were eligible for a grandfathered benefit based primarily on the employees’ years of service and compensation during their highest five consecutive plan years of employment. As of January 1, 2005, the defined benefit pension plans were frozen.

We account for our pension plans in accordance with ASC 715, Compensation – Retirement Benefits. In order to measure the liabilities and expense associated with these plans, we must make various estimates and key assumptions, including discount rates used to value liabilities, assumed rates of return on plan assets, employee turnover rates and anticipated mortality rates. These estimates and assumptions are reviewed at least annually and are based on our historical experience, as well as current facts and circumstances. In addition, we use outside actuaries to assist in measuring the expenses and liabilities associated with this plan.

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The discount rate enables us to state expected future cash flows as a present value on the measurement date. We also use this discount rate in the determination of our pre-tax pension expense or benefit. A lower discount rate increases the present value of benefit obligations and increases pension expense. As of December 31, 2009 and 2008, we determined our discount rate utilizing an independent yield curve which provides for a portfolio of high quality bonds that are expected to match the cash flows of our pension plan. Bond information used in the yield curve was provided by Standard & Poor’s and included only those rated AA- or better as of December 31, 2009 and 2008, respectively. At December 31, 2009, based upon our qualified plan assets and liabilities in relation to this discount curve, we decreased our discount rate to 6.125%, from 6.625% at December 31, 2008.

To determine the expected long-term return on plan assets, we consider the historical mean returns by asset class for passive indexed strategies, as well as current and expected asset allocations and adjust for certain factors that we believe will have an impact on future returns. For the years ended December 31, 2009 and 2008, the expected rate of return on plan assets was 7.50% and 7.75%, respectively. The decrease reflects our strategy to shift investment assets from equity securities to fixed maturity investments over the next few years. Actual returns on plan assets in excess of these expected returns will generally reduce our net actuarial losses (or increase actuarial gains) that are reflected in our accumulated other comprehensive income balance in shareholders’ equity, whereas actual returns on plan assets which are less than expected returns will generally increase our net actuarial losses (or decrease actuarial gains) that are reflected in accumulated other comprehensive income. These gains or losses are amortized into expense in future years.

Holding all other assumptions constant, sensitivity to changes in our key assumptions related to our qualified defined benefit pension plan are as follows:

Discount Rate – A 25 basis point increase in discount rate would decrease our pension expense in 2010 by $1.6 million and decrease our projected benefit obligation by approximately $11.6 million. A 25 basis point reduction in the discount rate would increase our pension expense by $1.7 million and increase our projected benefit obligation by approximately $12.1 million.

Expected Return on Plan Assets – A 25 basis point increase or decrease in the expected return on plan assets would decrease or increase our pension expense in 2010 by $1.3 million.

Other-than-Temporary Impairments

We employ a systematic methodology to evaluate declines in fair values below amortized cost for all investments. The methodology utilizes a quantitative and qualitative process ensuring that available evidence concerning the declines in fair value below amortized cost is evaluated in a disciplined manner. In determining whether a decline in fair value below amortized cost is other-than-temporary, we evaluate several factors and circumstances, including the issuer’s overall financial condition; the issuer’s credit and financial strength ratings; the issuer’s financial performance, including earnings trends, dividend payments and asset quality; any specific events which may influence the operations of the issuer; a weakening of the general market conditions in the industry or geographic region in which the issuer operates; the length of time and the degree to which the fair value of an issuer’s securities remains below our cost; with respect to fixed maturity investments, any factors that might raise doubt about the issuer’s ability to pay all amounts due according to the contractual terms and whether we expect to recover the entire amortized cost basis of the security; and with respect to equity securities, our ability and intent to hold the investment for a period of time to allow for a recovery in value. We apply these factors to all securities.

We monitor corporate fixed maturity securities with unrealized losses on a quarterly basis and more frequently when necessary to identify potential credit deterioration whether due to ratings downgrades, unexpected price variances, and/or company or industry specific concerns. We apply consistent standards of credit analysis which includes determining whether the issuer is current on its contractual payments, and we consider past events, current conditions and reasonable forecasts to evaluate whether we expect to recover the entire amortized cost basis of the security. We utilize valuation declines as a potential indicator of credit deterioration, and apply additional levels of scrutiny in our analysis as the severity of the decline increases or duration persists.

For our impairment review of asset-backed fixed maturity securities, we forecast our best estimate of the prospective future cash flows of the security to determine if we expect to recover the entire amortized cost basis of the security. Our analysis includes estimates of underlying collateral default rates based on historical and projected delinquency rates and estimates of the amount and timing of potential recovery. We consider all available information relevant to the collectibility of the security, including information about the remaining payment terms of the security, prepayment speeds, the financial condition of the issuer, industry analyst reports, sector credit ratings and other market data when developing our estimate of the expected cash flows.

When an other-than-temporary impairment of a fixed maturity security occurs, and we intend to sell or more likely than not will be required to sell the investment before recovery of its amortized cost basis, the amortized cost of the security is reduced to its fair value, with a corresponding charge to earnings, which reduces net income and earnings per share. If we do not intend to sell the fixed maturity investment or more likely than not will not be required to sell it, we separate the other-than-temporary impairment into the amount we estimate represents the credit loss and the amount related to all other factors. The amount of the estimated loss

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attributable to credit is recognized in earnings, which reduces net income and earnings per share. The amount of the estimated other-than-temporary impairment that is non-credit related is recognized in other comprehensive income, net of applicable taxes.

We estimate the amount of the other-than-temporary impairment that relates to credit by comparing the amortized cost of the fixed maturity security with the net present value of the fixed maturity security’s projected future cash flows, discounted at the effective interest rate implicit in the investment prior to impairment. The non-credit portion of the impairment is equal to the difference between the fair value and the net present value of the fixed maturity security at the impairment measurement date.

Other-than-temporary impairments of equity securities are recorded as realized losses, which reduce net income and earnings per share. The new cost basis of an impaired security is not adjusted for subsequent increases in estimated fair value.

Temporary declines in market value are recorded as unrealized losses, which do not affect net income and earnings per share, but reduce other comprehensive income, which is reflected in our Consolidated Balance Sheets. We cannot provide assurance that the other-than-temporary impairments will be adequate to cover future losses or that we will not have additional impairments in the future. (See “Investment Portfolio” for further discussion regarding other-than-temporary impairments and securities in an unrealized loss position).

Other Significant Transactions

On September 23, 2010, June 7, 2010 and March 22, 2010, we paid dividends of 25 cents per share to our shareholders of record at the close of business on September 10, 2010, May 24, 2010 and March 8, 2010, respectively. The total dividends paid in the quarters ended September 30, 2010, June 30, 2010 and March 31, 2010 were $11.6 million, $12.0 million and $12.3 million, respectively. On an annualized basis, these dividend payments represent a 33% increase over the annual dividend of 75 cents, paid in December 2009.

On June 14, 2010, we purchased approximately 11 acres of developable land in Worcester, Massachusetts for $5 million. A portion of the land will be developed with the construction of a new 200,000 square foot office building and the redevelopment of an adjacent parking garage. In addition, we signed a 17 year lease agreement with a tenant for the new building and garage. The tenant is an unaffiliated public company with an investment grade credit rating. Through September 30, 2010, we capitalized $6.8 million in related lease acquisition, legal, architectural and associated costs. Development costs are estimated between $65 million and $70 million and the project will be financed, in part, through the issuance of collateralized debt through our membership in the FHLBB. In July 2010, Hanover Insurance committed to borrow $46.3 million from the FHLBB to finance the project. These borrowings will be drawn down in several increments from July 2010 to January 2012. On July 19, 2010, Hanover Insurance received an advance of $7.6 million from this commitment. Amounts drawn from the $46.3 million mature on July 20, 2020 and carry fixed interest rates with a weighted average of 3.88%. (See also below for further information related to participation in the FHLBB’s collateralized borrowing program).

On March 31, 2010, we acquired Campania for a cash purchase price of approximately $24 million, subject to various terms and conditions. Campania specializes in insurance solutions for portions of the healthcare industry.

Through October 2010, our Board of Directors has authorized aggregate repurchases of our common stock of up to $500 million, including a recent $100 million increase in the program. Under the repurchase authorizations, we may repurchase our common stock from time to time, in amounts and prices and at such times as we deem appropriate, subject to market conditions and other considerations. Our repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. We are not required to purchase any specific number of shares or to make purchases by any certain date under this program. On March 30, 2010 and December 8, 2009, we entered into accelerated share repurchase agreements with Barclays Bank PLC, acting through its agent Barclays Capital, Inc., for the immediate repurchase of 2.3 million and 2.4 million shares, respectively, of our common stock at a cost of approximately $100.9 million and $100.6 million, respectively (in each case, subject to adjustment). We settled our accelerated stock repurchase program initiated in December 2009 on June 23, 2010 for an additional payment of $4.6 million provided to Barclays Bank PLC. Total repurchases as of September 30, 2010 were 7.9 million shares at a cost of $338.8 million.

On February 23, 2010, we issued $200.0 million aggregate principal amount of 7.50% senior unsecured notes due March 1, 2020. The senior debentures are subject to certain restrictive covenants, including limitations on the issuance or disposition of capital stock of restricted subsidiaries and limitations on liens. These debentures pay interest semi-annually on March 1 and September 1.

On December 3, 2009, we entered into a renewal rights agreement with OneBeacon. Through this agreement, we acquired access to a portion of OneBeacon’s small and middle market commercial business at renewal, including industry programs and middle market niches. This transaction included consideration of approximately $23 million, plus certain potential additional consideration, primarily representing purchased renewal rights intangible assets which are included as Other Assets in our Consolidated Balance Sheets. The agreement was effective for renewals beginning January 1, 2010.

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On September 25, 2009, Hanover Insurance received an advance of $125 million through its membership in the FHLBB as part of a collateralized borrowing program. This advance bears interest at a fixed rate of 5.50% per annum over a twenty-year term. The proceeds from these borrowings were used by Hanover Insurance to acquire AIX and its subsidiaries from the holding company. As collateral to the FHLBB for all advances received as of September 30, 2010, Hanover Insurance has pledged government agency securities with a fair value of $153.7 million. Collateral pledged to the FHLBB totaled $142.0 million as of December 31, 2009. The fair value of the collateral pledged must be maintained at certain specified levels of the borrowed amount, which can vary depending on the type of assets pledged. If the fair value of this collateral declines below these specified levels, Hanover Insurance would be required to pledge additional collateral or repay outstanding borrowings. Hanover Insurance is permitted to voluntarily repay the outstanding borrowings at any time, subject to a repayment fee. As a requirement of membership in the FHLBB, Hanover Insurance acquired $2.5 million of FHLBB stock, and as a condition to participating in the FHLBB’s collateralized borrowing program, it was required to purchase additional shares of FHLBB stock in an amount equal to 4.5% of its outstanding borrowings. Such purchases totaled $6.0 million through September 30, 2010.

We liquidated AFC Capital Trust I (the “Trust”) on July 30, 2009. Each holder of 8.207% Series B Capital Securities (“Capital Securities”) as of that date received a principal amount of our Series B 8.207% Junior Subordinated Deferrable Interest Debentures (“Junior Debentures”) due February 3, 2027 equal to the liquidation amount of the Capital Securities held by such holder. The liquidation of the Trust did not have a material effect on our results of operations or financial position.

On June 29, 2009, prior to liquidating the Trust, we completed a cash tender offer to repurchase a portion of our Capital Securities that were issued by the Trust and a portion of our 7.625% Senior Debentures (“Senior Debentures”) due in 2025 that were issued by THG. As of that date, $69.3 million of Capital Securities were tendered at a price equal to $800 per $1,000 of face value. In addition, we accepted for tender a principal amount of $77.3 million of Senior Debentures. Depending on the time of tender, holders of the Senior Debentures accepted for purchase received a price of either $870 or $900 per $1,000 of face value. Separately, we held $65.0 million of Capital Securities previously repurchased at a discount in the open market prior to the tender offer, and $1.1 million of Senior Debentures. We recognized a pre-tax gain of $34.5 million in 2009 as a result of such purchases. During the first quarter of 2010, we repurchased $0.4 million of Junior Debentures at a slight gain. As of September 30, 2010, a net principal amount of $165.3 million of our Junior Debentures and $121.4 million of these Senior Debentures, which are not held by us, remained outstanding.

Statutory Surplus of Insurance Subsidiaries

The following table reflects the consolidated statutory surplus for our property and casualty businesses as of September 30, 2010 and December 31, 2009:

(In millions)	September 30, 2010		December 31, 2009
Total Statutory Surplus – Combined P&C Companies	$	1,795.3	$	1,741.6

The consolidated statutory surplus increased $53.7 million during the first nine months of 2010. The increase is primarily due to underwriting results and net realized gains in the first nine months of 2010.

The NAIC prescribes an annual calculation regarding risk based capital (“RBC”). RBC ratios for regulatory purposes, as described in the glossary, are expressed as a percentage of the capital required to be above the Authorized Control Level (the “Regulatory Scale”); however, in the insurance industry RBC ratios are widely expressed as a percentage of the Company Action Level. The following table reflects the Company Action Level, the Authorized Control Level and RBC ratios for Hanover Insurance, as of September 30, 2010, expressed both on the Industry Scale (Total Adjusted Capital divided by the Company Action Level) and Regulatory Scale (Total Adjusted Capital divided by Authorized Control Level):

(In millions, except ratios)	Company Action Level		Authorized Control Level		RBC Ratio Industry Scale		RBC Ratio Regulatory Scale
The Hanover Insurance Company	$	543.0	$	271.5		328%		656%

Liquidity and Capital Resources

Liquidity is a measure of our ability to generate sufficient cash flows to meet the cash requirements of business operations. As a holding company, our primary ongoing source of cash is dividends from our insurance subsidiaries. However, dividend payments

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to us by our insurance subsidiaries are subject to limitations imposed by state regulators, such as the requirement that cash dividends be paid out of unreserved and unrestricted earned surplus. The payment of “extraordinary” dividends, as defined, from any of our insurance subsidiaries is restricted.

Sources of cash for our insurance subsidiaries primarily include premiums collected, investment income and maturing investments. Primary cash outflows are paid claims, losses and loss adjustment expenses, policy acquisition expenses, other underwriting expenses and investment purchases. Cash outflows related to losses and loss adjustment expenses can be variable because of uncertainties surrounding settlement dates for liabilities for unpaid losses and because of the potential for large losses either individually or in the aggregate. We periodically adjust our investment policy to respond to changes in short-term and long-term cash requirements.

Net cash used in operating activities was $15.0 million during the first nine months of 2010, compared to net cash provided by operations of $26.9 million in 2009. The increase in net cash used primarily resulted from a $100 million contribution to our qualified pension plan in January 2010.

Net cash used in investing activities was $53.4 million during the first nine months of 2010, compared to net cash used of $355.5 million for the same period of 2009. During 2010, cash used was primarily related to our net purchases of equity securities. During 2009, cash was primarily used as we invested the proceeds from the sale of our Life Companies into fixed maturities and began reinvesting a portion of existing cash into fixed maturities. This investing activity was partially offset by cash provided from sales of fixed maturities to fund the repurchase of corporate debt and our stock repurchase program.

Net cash provided by financing activities was $24.7 million during the first nine months of 2010, compared to cash provided by financing activities of $40.5 million in 2009. During 2010, cash provided by financing activities primarily resulted from proceeds from the issuance, on February 23, 2010, of unsecured senior debentures. Cash received from the issuance of debt was substantially offset by repurchases of treasury stock, our quarterly dividend payments to shareholders in the first nine months of 2010 and repayments of collateral related to our securities lending program. During 2009, cash provided by financing activities primarily resulted from a $125 million advance received as part of the FHLBB collateralized borrowing program and cash collateral received related to our securities lending program. These proceeds were partially offset by the aforementioned cash tender offer (see Significant Transactions discussion) to repurchase a portion of our debt securities and net repurchases of our common stock under our stock repurchase program.

At September 30, 2010, THG, as a holding company, held $349.2 million of fixed maturities and cash. We believe our holding company assets are sufficient to meet our future obligations through the remainder of 2010, which currently consist primarily of interest on our senior debentures, our dividends to shareholders, costs associated with retirement benefits provided to our former life employees and agents, and to the extent required, payments related to indemnification of liabilities associated with the sale of various subsidiaries. We do not expect that it will be necessary to dividend additional funds from our insurance subsidiaries in order to fund 2010 holding company obligations; however, we may decide to do so.

In the fourth quarter of 2009, the Board announced plans to follow a quarterly dividend schedule, subject to quarterly board approval and declaration. During the first nine months of 2010, we paid three quarterly dividends, as declared by the Board, of twenty-five cents per share each to our shareholders totaling $35.9 million. We believe that our holding company assets are sufficient to provide for future shareholder dividends should the Board of Directors declare them.

We expect to continue to generate sufficient positive operating cash to meet all short-term and long-term cash requirements, including the funding of our qualified defined benefit pension plan. On January 4, 2010, we made a discretionary contribution of $100.0 million to the qualified defined benefit pension plan. With this contribution and based upon the current estimate of liabilities and certain assumptions regarding investment returns and other factors, our qualified defined benefit pension plan is essentially fully funded as of the date of this contribution. As a result, we currently expect that significant cash contributions will not be required for this plan for several years. However, the ultimate payment amount is based on several assumptions, including but not limited to, the rate of return on plan assets, the discount rate for benefit obligations, mortality experience, interest crediting rates and the ultimate valuation and determination of benefit obligations. Since differences between actual plan experience and our assumptions are likely, changes to our funding obligations in future periods are possible.

Our insurance subsidiaries maintain a high degree of liquidity within their respective investment portfolios in fixed maturity and short-term investments. In the early part of 2009 and prior, the financial markets experienced unprecedented declines in value, especially in the financial and industrial sectors. Many securities currently held by THG and its subsidiaries experienced the impact of these significant changes in market value. Due to lower interest rates and the continued tightening of credit spreads in our taxable municipal bonds, corporate bonds, and commercial and residential mortgage-backed securities portfolios in the first nine months of 2010, we experienced an improvement in our unrealized position in 2010, resulting in net unrealized gains of $333.8 million on securities held at September 30, 2010. We believe that the quality of the assets we hold will allow us to realize the long-term economic value of our portfolio, including securities that are currently in an unrealized loss position. We do not anticipate the need to sell these securities to meet our insurance subsidiaries’ cash requirements. We expect our insurance

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subsidiaries to generate sufficient operating cash to meet all short-term and long-term cash requirements. However, there can be no assurance that unforeseen business needs or other items will not occur causing us to have to sell those securities in a loss position before their values fully recover; thereby causing us to recognize impairment charges in that time period.

Through October 2010, our Board of Directors has authorized aggregate repurchases of our common stock of up to $500 million, including a recent $100 million increase in the program. Our repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. We are not required to purchase any specific number of shares or to make purchases by any certain date under this program. On March 30, 2010, we entered into an accelerated share repurchase agreement with Barclays Bank PLC, acting through its agent Barclays Capital, Inc., and utilized a portion of our existing share repurchase authorization for the immediate repurchase of 2.3 million shares of our common stock at a cost of $100.9 million (subject to adjustment). Additionally, we settled our accelerated stock repurchase program initiated in December 2009 on June 23, 2010 for an additional $4.6 million payment provided to Barclays Bank PLC. Including the accelerated share repurchases and aforementioned settlement, during the first nine months of 2010, we repurchased 2.9 million shares at a cost of $130.6 million. Total repurchases under this program as of September 30, 2010 were 7.9 million shares at a cost of approximately $338.8 million. We may also repurchase our Senior or Junior Debentures on an opportunistic basis.

On February 23, 2010, we issued $200.0 million aggregate principal amount of 7.5% senior unsecured notes due March 1, 2020. Net proceeds of the offering were approximately $197 million. We plan to use the net proceeds of the issuance for general corporate and working capital purposes, which may include repurchase of shares of our common stock, capital expenditures, possible acquisitions and any other general corporate purposes. The lenders under the syndicated credit agreement discussed below waived the covenant that limited additional borrowing in order to permit us to complete this offering.

In June 2007, we entered into a $150.0 million committed syndicated credit agreement which expired in June 2010. There were no borrowings under this agreement. The agreement provided for covenants, including, but not limited to, maintaining a certain level of equity and an RBC ratio in our primary property and casualty companies of at least 175% (based on the Industry Scale). We were in compliance with the covenants of this agreement during the duration of the contract. We did not renew or replace this syndicated credit agreement upon expiration. Additionally, we had no commercial paper borrowings as of September 30, 2010 and we do not anticipate utilizing commercial paper in the near term.

Off-Balance Sheet Arrangements

We currently do not have any material off-balance sheet arrangements that are reasonably likely to have an effect on our financial position, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources.

Contingencies and Regulatory Matters

Litigation

Durand Litigation

On March 12, 2007, a putative class action suit captioned Jennifer A. Durand v. The Hanover Insurance Group, Inc., The Allmerica Financial Cash Balance Pension Plan was filed in the United States District Court for the Western District of Kentucky. The named plaintiff, a former employee who received a lump sum distribution from our Cash Balance Plan (the “Plan”) at or about the time of her termination, claims that she and others similarly situated did not receive the appropriate lump sum distribution because in computing the lump sum, we understated the accrued benefit in the calculation. We filed a Motion to Dismiss on the basis that the Plaintiff failed to exhaust administrative remedies, which motion was granted without prejudice in a decision dated November 7, 2007. This decision was reversed by an order dated March 24, 2009 issued by the United States Court of Appeals for the Sixth Circuit, and the case was remanded to the district court.

The Plaintiff filed an Amended Complaint on December 11, 2009. In response, we filed a Motion to Dismiss on January 30, 2010. In addition to the pending calculation of the lump sum distribution claim, the Amended Complaint includes: (a) a claim that the Plan failed to calculate participants’ account balances properly because interest credits were based solely upon the performance of each participant’s selection from among various hypothetical investment options (as the Plan provided) rather than crediting the greater of that performance or the 30 year Treasury rate; (b) a claim that the 2004 Plan amendment, which changed interest crediting for all participants from the performance of participant’s investment selections to the 30 year Treasury rate, reduced benefits in violation of ERISA for participants who had account balances as of the amendment date by not continuing to provide them performance-based interest crediting on those balances; and (c) claims for breach of fiduciary duty and ERISA notice requirements for not properly informing participants of the various interest crediting and lump sum distribution matters of which Plaintiffs complain. In our judgment, the outcome is not expected to be material to our financial position, although it could have a material effect on the results of operations for a particular quarter or annual period and on the funding of the Plan.

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Hurricane Katrina Litigation

We have been named as a defendant in various litigation, including putative class actions, relating to disputes arising from damages which occurred as a result of Hurricane Katrina in 2005. As of September 30, 2010, there were approximately 50 such cases. These cases have been filed in both Louisiana state courts and federal district courts. These cases generally involve, among other claims, disputes as to the amount of reimbursable claims in particular cases (e.g. how much of the damage to an insured property is attributable to flood and therefore not covered, and how much is attributable to wind, which may be covered), as well as the scope of insurance coverage under homeowners and commercial property policies due to flooding, civil authority actions, loss of landscaping, business interruption and other matters. Certain of these cases claim a breach of duty of good faith or violations of Louisiana insurance claims handling laws or regulations and involve claims for punitive or exemplary damages.

On August 23, 2007, the State of Louisiana (individually and on behalf of the State of Louisiana, Division of Administration, Office of Community Development) filed a putative class action in the Civil District Court for the Parish of Orleans, State of Louisiana, entitled State of Louisiana, individually and on behalf of State of Louisiana, Division of Administration, Office of Community Development ex rel The Honorable Charles C. Foti, Jr., The Attorney General For the State of Louisiana, individually and as a class action on behalf of all recipients of funds as well as all eligible and/or future recipients of funds through The Road Home Program v. AAA Insurance, et al., No. 07-8970. The Complaint named as defendants over 200 foreign and domestic insurance carriers, including us. Plaintiff seeks to represent a class of current and former Louisiana citizens who have applied for and received or will receive funds through Louisiana’s “Road Home” program. On August 29, 2007, Plaintiff filed an Amended Petition in this case, asserting myriad claims, including claims for breach of: contract, the implied covenant of good faith and fair dealing, fiduciary duty and Louisiana’s bad faith statutes. Plaintiff seeks relief in the form of, among other things, declarations that (a) the efficient proximate cause of losses suffered by putative class members was windstorm, a covered peril under their policies; (b) the second efficient proximate cause of their losses was storm surge, which Plaintiff contends is not excluded under class members’ policies; (c) the damage caused by water entering affected parishes of Louisiana does not fall within the definition of “flood”; (d) the damages caused by water entering Orleans Parish and the surrounding area was a result of a man-made occurrence and are properly covered under class members’ policies; (e) many class members suffered total losses to their residences; and (f) many class members are entitled to recover the full value for their residences stated on their policies pursuant to the Louisiana Valued Policy Law. In accordance with these requested declarations, Plaintiff seeks to recover amounts that it alleges should have been paid to policyholders under their insurance agreements, as well as penalties, attorneys’ fees, and costs. The case has been removed to the Federal District Court for the Eastern District of Louisiana.

On March 5, 2009, the court issued an Order granting in part and denying in part a Motion to Dismiss filed by Defendants. The court dismissed all claims for bad faith and breach of fiduciary duty and all claims for flood damages under policies with flood exclusions or asserted under the Valued Policy Law, but rejected the insurers’ arguments that the purported assignments from individual claimants to the state were barred by anti-assignment provisions in the insurers’ policies. On April 16, 2009, the court denied a Motion for Reconsideration of its ruling regarding the anti-assignment provisions, but certified the issue as ripe for immediate appeal. On April 30, 2009, Defendants filed a Petition for Permission to Appeal to the United States Court of Appeals for the Fifth Circuit (“Fifth Circuit”), which was granted. Defendants’ appeal is currently pending. On July 28, 2010, the Fifth Circuit certified the issue to the Louisiana Supreme Court.

We have established our loss and LAE reserves on the assumption that we will not have any liability under the “Road Home” or similar litigation, and that we will otherwise prevail in litigation as to the cause of certain large losses and not incur extra contractual or punitive damages.

Certain Regulatory and Industry Developments

Unfavorable economic conditions may contribute to an increase in the number of insurance companies that are under regulatory supervision. This may result in an increase in mandatory assessments by state guaranty funds, or voluntary payments by solvent insurance companies to cover losses to policyholders of insolvent or rehabilitated companies. Mandatory assessments, which are subject to statutory limits, can be partially recovered through a reduction in future premium taxes in some states. We are not able to reasonably estimate the potential impact of any such future assessments or voluntary payments.

Over the past three years, state-sponsored insurers, reinsurers and involuntary pools have increased significantly, particularly in those states which have Atlantic or Gulf Coast exposures. As a result, the potential assessment exposure of insurers doing business in such states and the attendant collection risks have increased, particularly, in our case, in the states of Massachusetts, Louisiana and Florida. Such actions and related regulatory restrictions on rate increases, underwriting and the ability to non-renew business may limit our ability to reduce the potential exposure to hurricane related losses. At this time, we are unable to predict the likelihood or impact of any such potential assessments or other actions.

The Governor of Michigan has endorsed a number of proposals by her appointed Automobile and Home Insurance Consumer Advocate which would, among other things, change the current rate approval process from the current “file and use” system to “prior approval”, mandate “affordable” rates, eliminate territorial ratings, reduce the threshold for lawsuits to be filed in “at fault”

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incidents, and prohibit the use of certain underwriting criteria such as credit-based insurance scores. The Michigan legislature has from time to time considered these and other proposals, including one to require insurance companies to offer “low cost” personal automobile prices. The Office of Financial and Insurance Regulation (“OFIR”) previously issued regulations prohibiting the use of credit scores to rate personal lines insurance policies, which regulations were the subject of litigation being reviewed by the Michigan Supreme Court. Pending a determination by the Michigan Supreme Court, OFIR was enjoined from disapproving rates on the basis that they were based in part on credit-based insurance scores. In a decision issued on July 8, 2010, the Michigan Supreme Court held that the regulations issued by the OFIR prohibiting the use of credit scores to rate personal lines insurance policies were invalid. On November 9, 2009, the Michigan Board of Canvassers issued preliminary approval allowing proponents to begin collecting signatures as the first step in placing a ballot initiative in front of voters in November 2010. The proposed ballot question would have required a number of changes for the property and casualty market, including, subject to certain limitations, the rollback of rates by up to 20% for all lines with the exception of workers’ compensation and surety, and an additional 20% rollback of personal automobile rates for “good drivers”. Proponents of the ballot initiative, however, did not present the required number of valid signatures by the May 2010 deadline. Accordingly, the proposed ballot initiative failed. At this time, we are unable to predict the likelihood of adoption or impact on our business of any such proposals or regulations, but any such restrictions could have an adverse effect on our results of operations.

On August 1, 2010, the Michigan Supreme Court issued a decision in a case captioned McCormick v. Carrier, et. al, overturning the so-called Kreiner decision, and in so doing, we believe that the Court significantly expanded the circumstances under which claimants can sue for non-economic losses resulting from automobile accidents in Michigan. Although the full implications and application of the McCormick decision are not yet understood and may evolve in the future, we believe that the revised standard will adversely affect both past claims which are not finally resolved, as well as future claims. Although our reserves reflect our best estimate of the impact of this decision, in light of evolving law and the uncertain application of this new standard, we cannot be certain as to the adequacy of these reserves or of our ability to raise rates for liability coverage of Michigan personal and commercial automobile polices to reflect the additional losses we expect to incur.

In May 2010, the Massachusetts Attorney General’s Office published draft regulations purporting to provide greater consumer protections under the recently implemented “managed competition” system for Massachusetts private passenger automobile insurance. Hearings were held in June and the record date for comment has been extended twice, from August 6, 2010 to September 22, 2010 and again to November 22, 2010. The proposed changes would significantly alter the current system of managed competition and change the manner in which insurers and agents operate in the market place, particularly for companies such as Hanover Insurance, which distribute through independent agents. At this time, we are uncertain as to whether the draft regulations will be revised or ultimately implemented and cannot predict the potential impact of any such regulations on our business.

From time to time, proposals have been made to establish a federal based insurance regulatory system and to allow insurers to elect either federal or state-based regulation (“optional federal chartering”). In light of the recent economic crisis and the focus on increased regulatory controls, particularly with regard to financial institutions, there has been renewed interest in such proposals.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Financial Reform Act”) was enacted. The Financial Reform Act includes a provision to establish a Federal Insurance Office with the primary purpose of collecting information to better understand insurance issues at the federal level and to resolve certain issues affecting foreign insurance companies doing business in the United States. The Financial Reform Act also contains provisions affecting financial institutions, credit rating agencies and other commercial and consumer businesses. We are currently reviewing the legislation and while we expect that it will have little direct impact on our operations, we do not yet know the indirect consequences to the financial services sector, our business or our Commercial Lines policyholders.

At this time, we are also uncertain of the various collateral consequences of the Patient Protection and Affordable Care Act on our business and the property and casualty industry in general.

Other Matters

We have been named a defendant in various other legal proceedings arising in the normal course of business. In addition, we are involved, from time to time, in examinations, investigations and proceedings by governmental and self-regulatory agencies. The potential outcome of any such action or regulatory proceedings in which we have been named a defendant or the subject of an inquiry or investigation, and our ultimate liability, if any, from such action or regulatory proceedings, is difficult to predict at this time. In our opinion, based on the advice of legal counsel, the ultimate resolutions of such proceedings will not have a material effect on our financial position, although they could have a material effect on the results of operations for a particular quarter or annual period.

Residual Markets

We are required to participate in residual markets in various states, which generally pertain to high risk insureds, disrupted markets or lines of business or geographic areas where rates are regarded as excessive. The results of the residual markets are not

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subject to the predictability associated with our own managed business, and are significant to the workers’ compensation line of business, the homeowners line of business and both the personal and commercial automobile lines of business.

Rating Agency Actions

Insurance companies are rated by rating agencies to provide both industry participants and insurance consumers information on specific insurance companies. Higher ratings generally indicate the rating agencies’ opinion regarding financial stability and a stronger ability to pay claims.

We believe that strong ratings are important factors in marketing our products to our agents and customers, since rating information is broadly disseminated and generally used throughout the industry. Insurance company financial strength ratings are assigned to an insurer based upon factors deemed by the rating agencies to be relevant to policyholders and are not directed toward protection of investors. Such ratings are neither a rating of securities nor a recommendation to buy, hold or sell any security.

On May 25, 2010, Standard & Poor’s upgraded the outlook of our property and casualty insurance companies’ financial strength rating from “stable” to “positive”. Additionally, Standard & Poor’s upgraded the outlook for our holding company debt ratings from “stable” to “positive”.

Risks and Forward-Looking Statements

Information regarding risk factors and forward-looking information appears in Part II – Item 1A of this Quarterly Report on Form 10-Q and in Part I – Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. This Management’s Discussion and Analysis should be read and interpreted in light of such factors.

Glossary of Selected Insurance Terms

Account rounding – The conversion of single policy customers to accounts with multiple policies and/or additional coverages.

Benefit payments – Payments made to an insured or their beneficiary in accordance with the terms of an insurance policy.

Casualty insurance – Insurance that is primarily concerned with the losses caused by injuries to third persons and their property (other than the policyholder) and the related legal liability of the insured for such losses.

Catastrophe – A severe loss, resulting from natural and manmade events, including risks such as hurricane, fire, earthquake, windstorm, tornado, hailstorm, severe winter weather, explosion, terrorism and other similar events.

Catastrophe loss – Loss and directly identified loss adjustment expenses from catastrophes. The Insurance Services Office (“ISO”) Property Claim Services (“PCS”) defines a catastrophe loss as an event that causes $25 million or more in industry insured property losses and affects a significant number of property and casualty policyholders and insurers. In addition to those catastrophe events declared by ISO, claims management also generally includes within the definition of a “catastrophe loss”, an event that causes approximately $5 million or more in company insured property losses and affects in excess of one hundred policyholders.

Cede; cedent; ceding company – When a party reinsures its liability with another, it “cedes” business and is referred to as the “cedent” or “ceding company”.

Combined ratio, GAAP – This ratio is the GAAP equivalent of the statutory ratio that is widely used as a benchmark for determining an insurer’s underwriting performance. A ratio below 100% generally indicates profitable underwriting prior to the consideration of investment income. A combined ratio over 100% generally indicates unprofitable underwriting prior to the consideration of investment income. The combined ratio is the sum of the loss ratio, the loss adjustment expense ratio and the underwriting expense ratio.

Credit spread – The difference between the yield on the debt securities of a particular corporate debt issue and the yield of a similar maturity of U.S. Treasury debt securities.

Current year accident results – A measure of the estimated earnings impact of current premiums offset by estimated loss experience and expenses for the current accident year. This measure includes the estimated increase in revenue associated with higher prices (premiums), including those caused by price inflation and changes in exposure, partially offset by higher volume driven expenses and inflation of loss costs. Volume driven expenses include policy acquisition costs such as commissions paid to property and casualty agents which are typically based on a percentage of premium dollars.

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Dividends received deduction – A corporation is entitled to a special tax deduction from gross income for dividends received from a domestic corporation that is subject to income tax.

Earned premium – The portion of a premium that is recognized as income, or earned, based on the expired portion of the policy period, that is, the period for which loss coverage has actually been provided. For example, after six months, $50 of a $100 annual premium is considered earned premium. The remaining $50 of annual premium is unearned premium. Net earned premium is earned premium net of reinsurance.

Excess of loss reinsurance – Reinsurance that indemnifies the insured against all or a specific portion of losses under reinsured policies in excess of a specified dollar amount or “retention”.

Expense Ratio, GAAP – The ratio of underwriting expenses to premiums earned for a given period.

Exposure – A measure of the rating units or premium basis of a risk; for example, an exposure of a number of automobiles.

Frequency – The number of claims occurring during a given coverage period.

Inland Marine Insurance – In Commercial Lines, this is a type of coverage developed for shipments that do not involve ocean transport. It covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. In the context of Personal Lines, this term relates to floater policies that cover expensive personal items such as fine art and jewelry.

Loss adjustment expenses (“LAE”) – Expenses incurred in the adjusting, recording, and settlement of claims. These expenses include both internal company expenses and outside services. Examples of LAE include claims adjustment services, adjuster salaries and fringe benefits, legal fees and court costs, investigation fees and claims processing fees.

Loss adjustment expense (“LAE”) ratio, GAAP – The ratio of loss adjustment expenses to earned premiums for a given period.

Loss costs – An amount of money paid for a property and casualty claim.

Loss ratio, GAAP – The ratio of losses to premiums earned for a given period.

Loss reserves – Liabilities established by insurers to reflect the estimated cost of claims payments and the related expenses that the insurer will ultimately be required to pay in respect of insurance it has written. Reserves are established for losses and for LAE.

Multivariate product – An insurance product, the pricing for which is based upon the magnitude of, and correlation between, multiple rating factors. In practical application, the term refers to the foundational analytics and methods applied to the product construct. Our Connections Auto product is an example of a multivariate product.

Peril – A cause of loss.

Property insurance – Insurance that provides coverage for tangible property in the event of loss, damage or loss of use.

Rate – The pricing factor upon which the policyholder’s premium is based.

Rate increase (Commercial Lines) – Represents the average change in premium on renewal policies caused by the estimated net effect of base rate changes, discretionary pricing, inflation or changes in policy level exposure.

Rate increase (Personal Lines) – The estimated cumulative premium effect of approved rate actions during the prior policy period applied to a policy’s renewal premium.

Reinstatement premium – A pro-rata reinsurance premium that may be charged for reinstating the amount of reinsurance coverage reduced as the result of a reinsurance loss payment under a reinsurance treaty. For example, in 2005 this premium was required to ensure that our property catastrophe occurrence treaty, which was exhausted by Hurricane Katrina, was available again in the event of another large catastrophe loss in 2005.

Reinsurance – An arrangement in which an insurance company, or a reinsurance company, known as the reinsurer, agrees to indemnify another insurance or reinsurance company, known as the ceding company, against all or a portion of the insurance or reinsurance risks underwritten by the ceding company under one or more policies. Reinsurance can provide a ceding company with several benefits, including a reduction in net liability on risks and catastrophe protection from large or multiple losses. Reinsurance does not legally discharge the primary insurer from its liability with respect to its obligations to the insured.

Risk based capital (“RBC”) – A method of measuring the minimum amount of capital appropriate for an insurance company to support its overall business operations in consideration of its size and risk profile. The RBC ratio for regulatory purposes is calculated as total adjusted capital divided by required risk based capital. Total adjusted capital for property and casualty

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companies is capital and surplus, adjusted for the non-tabular reserve discount applicable to our assumed discontinued accident and health insurance business. The Company Action Level is the first level at which regulatory involvement is specified based upon the level of capital. Regulators may take action for reasons other than triggering various RBC action levels. The various action levels are summarized as follows:

• The Company Action Level, which equals 200% of the Authorized Control Level, requires a company to prepare and submit an RBC plan to the commissioner of the state of domicile. An RBC plan proposes actions which a company may take in order to bring statutory capital above the Company Action Level. After review, the commissioner will notify the company if the plan is satisfactory.

• The Regulatory Action Level, which equals 150% of the Authorized Control Level, requires the insurer to submit to the commissioner of the state of domicile an RBC plan, or if applicable, a revised RBC plan. After examination or analysis, the commissioner will issue an order specifying corrective actions to be taken.

• The Authorized Control Level authorizes the commissioner of the state of domicile to take whatever regulatory actions considered necessary to protect the best interest of the policyholders and creditors of the insurer.

• The Mandatory Control Level, which equals 70% of the Authorized Control Level, authorizes the commissioner of the state of domicile to take actions necessary to place the company under regulatory control (i.e., rehabilitation or liquidation).

Security Lending – We engage our banking provider to lend securities from our investment portfolio to third parties. These lent securities are fully collateralized by cash. We monitor the fair value of the securities on a daily basis to assure that the collateral is maintained at a level of at least 102% of the fair value of the loaned securities. We record securities lending collateral as a cash equivalent, with an offsetting liability in expenses and taxes payable.

Severity – A monetary increase in the loss costs associated with the same or similar type of event or coverage.

Specialty Lines – A major component of our Other Commercial Lines. There is no accepted industry definition of “specialty lines”, but for our purpose specialty lines consist of products such as inland and ocean marine, bond business, professional liability, management liability and various other program businesses. When discussing net written premiums and other financial measures of our specialty businesses, we include non-specialty premiums that are written as part of the entire account.

Statutory accounting principles – Recording transactions and preparing financial statements in accordance with the rules and procedures prescribed or permitted by insurance regulatory authorities including the NAIC, which in general reflect a liquidating, rather than going concern, concept of accounting.

Underwriting – The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company will accept risks.

Underwriting expenses – Expenses incurred in connection with the acquisition, pricing and administration of a policy.

Underwriting expense ratio, GAAP – The ratio of underwriting expenses to earned premiums in a given period.

Unearned premiums – The portion of a premium representing the unexpired amount of the contract term as of a certain date.

Written premium – The premium assessed for the entire coverage period of a property and casualty policy without regard to how much of the premium has been earned. See also earned premium. Net written premium is written premium net of reinsurance.

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ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Our market risks, the ways we manage them, and sensitivity to changes in interest rates are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2009, included in our Annual Report on Form 10-K for the year ended December 31, 2009. There have been no material changes in the first nine months of 2010 to these risks or our management of them.

ITEM 4

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures Evaluation

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Based on our controls evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective to provide reasonable assurance that (i) the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) material information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the internal control over financial reporting, as required by Rule 13a-15(d) of the Exchange Act, to determine whether any changes occurred during the period covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that there was no such change during the quarter ended September 30, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

Durand Litigation

On March 12, 2007, a putative class action suit captioned Jennifer A. Durand v. The Hanover Insurance Group, Inc., The Allmerica Financial Cash Balance Pension Plan was filed in the United States District Court for the Western District of Kentucky. The named plaintiff, a former employee who received a lump sum distribution from our Cash Balance Plan (the “Plan”) at or about the time of her termination, claims that she and others similarly situated did not receive the appropriate lump sum distribution because in computing the lump sum, we understated the accrued benefit in the calculation. We filed a Motion to Dismiss on the basis that the Plaintiff failed to exhaust administrative remedies, which motion was granted without prejudice in a decision dated November 7, 2007. This decision was reversed by an order dated March 24, 2009 issued by the United States Court of Appeals for the Sixth Circuit, and the case was remanded to the district court.

The Plaintiff filed an Amended Complaint on December 11, 2009. In response, we filed a Motion to Dismiss on January 30, 2010. In addition to the pending calculation of the lump sum distribution claim, the Amended Complaint includes: (a) a claim that the Plan failed to calculate participants’ account balances properly because interest credits were based solely upon the performance of each participant’s selection from among various hypothetical investment options (as the Plan provided) rather than crediting the greater of that performance or the 30 year Treasury rate; (b) a claim that the 2004 Plan amendment, which changed interest crediting for all participants from the performance of participant’s investment selections to the 30 year Treasury rate, reduced benefits in violation of ERISA for participants who had account balances as of the amendment date by not continuing to provide them performance-based interest crediting on those balances; and (c) claims for breach of fiduciary duty and ERISA notice requirements for not properly informing participants of the various interest crediting and lump sum distribution matters of which Plaintiffs complain. In our judgment, the outcome is not expected to be material to our financial position, although it could have a material effect on the results of operations for a particular quarter or annual period and on the funding of the Plan.

Hurricane Katrina Litigation

On August 23, 2007, the State of Louisiana (individually and on behalf of the State of Louisiana, Division of Administration, Office of Community Development) filed a putative class action in the Civil District Court for the Parish of Orleans, State of Louisiana, entitled State of Louisiana, individually and on behalf of State of Louisiana, Division of Administration, Office of Community Development ex rel The Honorable Charles C. Foti, Jr., The Attorney General For the State of Louisiana, individually and as a class action on behalf of all recipients of funds as well as all eligible and/or future recipients of funds through The Road Home Program v. AAA Insurance, et al., No. 07-8970. The Complaint named as defendants over 200 foreign and domestic insurance carriers, including us. Plaintiff seeks to represent a class of current and former Louisiana citizens who have applied for and received or will receive funds through Louisiana’s “Road Home” program. On August 29, 2007, Plaintiff filed an Amended Petition in this case, asserting myriad claims, including claims for breach of: contract, the implied covenant of good faith and fair dealing, fiduciary duty and Louisiana’s bad faith statutes. Plaintiff seeks relief in the form of, among other things, declarations that (a) the efficient proximate cause of losses suffered by putative class members was windstorm, a covered peril under their policies; (b) the second efficient proximate cause of their losses was storm surge, which Plaintiff contends is not excluded under class members’ policies; (c) the damage caused by water entering affected parishes of Louisiana does not fall within the definition of “flood”; (d) the damages caused by water entering Orleans Parish and the surrounding area was a result of a man-made occurrence and are properly covered under class members’ policies; (e) many class members suffered total losses to their residences; and (f) many class members are entitled to recover the full value for their residences stated on their policies pursuant to the Louisiana Valued Policy Law. In accordance with these requested declarations, Plaintiff seeks to recover amounts that it alleges should have been paid to policyholders under their insurance agreements, as well as penalties, attorneys’ fees, and costs. The case has been removed to the Federal District Court for the Eastern District of Louisiana.

On March 5, 2009, the court issued an Order granting in part and denying in part a Motion to Dismiss filed by Defendants. The court dismissed all claims for bad faith and breach of fiduciary duty and all claims for flood damages under policies with flood exclusions or asserted under the Valued Policy Law, but rejected the insurers’ arguments that the purported assignments from individual claimants to the state were barred by anti-assignment provisions in the insurers’ policies. On April 16, 2009, the court denied a Motion for Reconsideration of its ruling regarding the anti-assignment provisions, but certified the issue as ripe for immediate appeal. On April 30, 2009, Defendants filed a Petition for Permission to Appeal to the United States Court of Appeals for the Fifth Circuit (“Fifth Circuit”), which was granted. Defendants’ appeal is currently pending. On July 28, 2010, the Fifth Circuit certified the issue to the Louisiana Supreme Court.

We have established our loss and LAE reserves on the assumption that we will not have any liability under the “Road Home” or similar litigation.

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ITEM 1A –RISK FACTORS

This document 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. We wish to caution readers that the following important factors, among others, in some cases have affected and in the future could affect our actual results and could cause our actual results for the remainder of 2010 and beyond to differ materially from historical results and from those expressed in any of our forward-looking statements. When used in our Management’s Discussion and Analysis, the words “believes”, “anticipates”, “expects”, “projections”, “outlook”, “should”, “could”, “plan”, “guidance”, “likely”, “on track to”, “targeted” and similar expressions are intended to identify forward-looking statements. See also Item 1A – Risk Factors in our Annual Report on Form 10-K for the period ended December 31, 2009.

The factors that may impact our forward-looking statements include, but are not limited to the factors listed below. Those factors that represent risks that have changed since our Annual Report on Form 10-K for the period ended December 31, 2009 are presented in bold.

We operate in a business environment that is continually changing. As such, new risk factors may emerge over time. We cannot predict these new risk factors nor can we assess the impact, if any, that they may have on our business in the future. Our business is conducted in competitive markets and therefore involves a higher degree of risk. Accuracy with respect to forward-looking projections is difficult.

We generate most of our revenues and earnings through our property and casualty insurance subsidiaries. The results of companies in the property and casualty insurance industry historically have been subject to significant fluctuations and uncertainties. Our profitability could be affected significantly by (i) adverse loss development or loss adjustment expense for events we (including our recently acquired subsidiaries) have insured in either the current or prior years, including risks indirectly insured through various mandatory market mechanisms or through discontinued pools which are included in the Other Property and Casualty segment and in the operations of the discontinued accident and health insurance business, or the expected decline in the amount of favorable development that has been realized in recent periods, which could be material, particularly in light of the significance of favorable development as a contributor to the Property and Casualty Group’s segment income; (ii) an inability to retain profitable policies in force and attract profitable policies in our Personal Lines and Commercial Lines segments, whether as the result of an increasingly competitive product pricing environment, the adoption by competitors of strategies to increase agency appointments and commissions, the significant marketing and advertising expenditures of our competitors, or otherwise; (iii) heightened competition, including the intensification of price competition and increased marketing efforts by our competitors, the entry of new competitors and the introduction of new products by new and existing competitors, or as the result of consolidation within the financial services industry and the entry of additional financial institutions into the insurance industry; (iv) failure to obtain new customers, retain existing customers or reductions of policies in force or reduction in policy coverages by existing customers, whether as a result of recent competition or otherwise (including as we convert business available pursuant to the renewal rights agreement we entered into with OneBeacon Insurance Company in December 2009 to our own policy forms and systems instead of through the current reinsurance arrangements with OneBeacon); (v) increases in costs, particularly those occurring after the time our products are priced, including construction, automobile repair, and medical and rehabilitation costs, and as a result of “cost shifting” from medical providers or health insurers or other payors (such as Medicare or Medicaid) to casualty and liability insurers (whether as a result of an increasing number of injured parties without health insurance, coverage changes in health policies to make such coverage, in certain circumstances, secondary to other policies, the recent adoption of national healthcare legislation, or implementation of the Medicare Secondary Payer Act which will require reporting and impose other requirements with respect to medical and related claims paid with respect to Medicare eligible individuals). As it relates to construction, there are often temporary increases in the cost of building supplies and construction labor after a significant event (the so called “demand surge” that causes the cost of labor, construction materials and other items to increase in a geographic area affected by a catastrophe); (vi) restrictions on insurance underwriting and rates, including as a result of proposals by the Governor of Michigan and certain legislators with respect to automobile insurance; (vii) adverse state and federal legislation or regulation, including mandated decreases in rates, the inability to obtain further rate increases, limitations on premium levels, increases in minimum capital and reserve requirements, coverage and benefit mandates, limitations on the ability to manage care and utilization, requirements to write certain classes of business or in certain geographies, increased assessments or higher premium or other taxes, enhanced ability to pierce “no fault” thresholds or recover non-economic damages (such as “pain and suffering”), limitations on the use of credit-based insurance scoring, such as proposals to ban the use of credit-based insurance scores with respect to personal lines in Florida and other states or as proposed by Congress from time to time, restrictions on the use of certain compensation arrangements with agents and brokers, as well as continued compliance with state and federal regulations; (viii) adverse changes in the ratings obtained from independent rating agencies, such as Moody’s, Standard and Poor’s, Fitch and A.M. Best, whether due to investment impairments, additional capital requirements, our underwriting performance or other factors, including future rating agency requirements that may result from the current global economic crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act or otherwise; (ix) industry-wide change resulting from proposed regulations,

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investigations and inquiries relating to compensation arrangements with insurance brokers and agents; (x) disruptions caused by the introduction of new Personal and Commercial Lines products and related technology changes, new Personal and Commercial Lines operating models including the impact of our acquisitions of Professionals Direct, Inc., Verlan Holdings, Inc., AIX Holdings, Inc., and Campania Holding Company, Inc., and the renewal rights agreement we entered into with OneBeacon Insurance Company, or other recent and future acquisitions, including potential reserve deficiencies, distribution channel conflicts or disruptions in personnel or operating models; (xi) changes in our exposure as a result of the introduction of new Commercial Lines products, particularly those with longer “tails” such as the new Human Services non-profit directors and officers and employment practices liability policies, the introduction of private company directors and officers coverage or the architects and engineers business written in conjunction with the acquisition of Benchmark Professional Insurance Services, Inc.; (xii) the impact on our Company as a result of the federal government’s recent adoption of (a) national healthcare legislation, including the potential impact on certain of our insurance product coverages, lines of business and discontinued operations, and the potential impact on the deductability for tax purposes of certain employee compensation; and (b) financial services reform legislation (the Dodd-Frank Wall Street Reform and Consumer Protection Act).

In July 2010, in response to the recent global financial crisis, The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. This legislation provides for enhanced regulation for the financial services industry through initiatives including, but not limited to, the creation of a Federal Insurance Office and several federal oversight agencies, the requiring of more transparency, accountability and focus in protecting investors and businesses, input of shareholders regarding executive compensation, and enhanced empowerment of regulators to pursue those who engage in financial fraud and unethical business practices. We do not yet know what the impact of this legislation and related regulations will be on our business operations or the insurance industry in general.

Additionally, our profitability could be affected by adverse catastrophe experience (including terrorism), severe weather or other unanticipated significant losses. Further, certain new catastrophe models assume an increased frequency and severity of certain weather events, and financial strength rating agencies are placing increased emphasis on capital and reinsurance adequacy for insurers with certain geographic concentrations of risk, particularly in coastal areas. We have significant concentration of exposures in certain areas, including portions of the Northeast and Southeast and derive a material amount of revenues from operations in the Midwest. There are also concerns that the higher level of weather-related catastrophes and other losses incurred by the industry in recent years (including the elevated level of non-catastrophe weather-related losses experienced by the industry over the past two years) is indicative of changing weather patterns, whether as a result of changing climate (“global warming”) or otherwise, which could cause such events to persist. This would lead to higher overall losses which we may not be able to recoup, particularly in the current economic and competitive environment. It would also likely increase the risks of writing property insurance in coastal areas, particularly in jurisdictions which restrict pricing and underwriting flexibility.

Underwriting results and segment income could be adversely affected by further changes in our net loss and LAE estimates related to significant events or emerging risks such as “Chinese drywall” claims. Chinese drywall claims consist of individual and class action litigation related to the installation of drywall manufactured in China which allegedly emits a foul odor and gases which allegedly cause respiratory, sleep and other health problems and cause corrosion of metal substances. Although it is too soon to assess the merits of such claims or our potential liability for indemnity and defense costs, such claims involve or may involve drywall distributors and installers, contractors, homeowners and others.

The risks and uncertainties in our business that may affect net loss, LAE and reserve estimates and future performance, including the difficulties in arriving at such estimates, should be considered. Estimating losses following any major catastrophe or with respect to emerging issues is an inherently uncertain process. Factors that add to the complexity in these events include the legal and regulatory uncertainty, the complexity of factors contributing to the losses, delays in claim reporting and with respect to areas with significant property damage, the impact of “demand surge” and a slower pace of recovery resulting from the extent of damage sustained in the affected areas. Emerging issues may involve complex coverage, liability and other costs which could significantly affect LAE. As a result, there can be no assurance that our ultimate costs associated with these events or issues will not be substantially different from current estimates.

Additionally, future operating results as compared to prior years and forward-looking information regarding Personal Lines and Commercial Lines segment information on written and earned premiums, policies in force, underwriting results and segment income may also be adversely affected by competitive and regulatory pressures affecting rates. In addition, underwriting results and segment income could be adversely affected by changes in frequency and loss trends. Results in Personal Lines business may also be adversely affected by pricing decreases, market disruptions (including any caused by the current economic environment, particularly in Michigan) and legislative proposals (including (i) proposals in Michigan to reduce rates and subject rates to prior regulatory approval, expand coverage, limit territorial ratings, require insurers to issue “low-cost” policies or increase penalties for delays in claim payments; (ii) the significant expansion of circumstances in which parties can recover non-economic damages for bodily injury claims in automobile accidents in Michigan as a result of the recent decision by the Michigan Supreme Court to overturn the so-called Kreiner decision; and (iii) the potential legislative and

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executive branch intervention related to regulations issued by the Massachusetts Commissioner of Insurance to reform the Massachusetts personal automobile market, including recent proposed regulations issued by the Massachusetts Attorney General, which could significantly change the “managed competition” environment and result in market disruption, particularly with respect to companies that distribute through independent agents). Additionally, the introduction of “managed competition” in Massachusetts has resulted in overall rate level reductions and an increase in regulatory scrutiny by the Massachusetts Attorney General, and we face additional uncertainty regarding our ability to attract and retain customers in this market as new and larger carriers enter and increase their market share in Massachusetts as a result of “managed competition”.

Also, our Personal Lines business production and earnings may be unfavorably affected by the continued growth of our multivariate auto product as a proportion of our total personal automobile premium, and our focus on total account business (i.e., policyholders who have both automobile and homeowner insurance with us), if we experience adverse selection because of pricing, operational difficulties or implementation impediments with independent agents, or if we fail to grow or sustain growth in new markets after the introduction of new products or the appointment of new agents. In addition, there are increased underwriting risks associated with premium growth and the introduction of new products or programs in both our Personal and Commercial Lines businesses, as well as the appointment of new agencies and the expansion into new geographical areas, and we have experienced increased loss ratios with respect to our new personal automobile business, which is written through our Connections Auto product, particularly in certain states where we have less experience and data.

Similarly, the introduction of new Commercial Lines products, including through our acquired subsidiaries and the development of new niche and specialty lines, presents new risks. Certain new specialty products may present longer “tail” risks and increased volatility in profitability. Our expansion into new western states, including California, presents additional underwriting risks since the regulatory, geographic, natural risk, legal environment, demographic, business, economic and other characteristics of these states present challenges different from those in the states in which we currently do business.

Additionally, during the past few years we have made, and our current plans are to continue to make, significant investments in our Personal Lines and Commercial Lines businesses to, among other things, strengthen our product offerings and service capabilities, improve technology and our operating models, build expertise in our personnel, and expand our distribution capabilities, with the ultimate goal of achieving significant and sustained profitable growth and obtaining favorable returns on these investments. In order for these investment strategies to be profitable, we must achieve profitable premium growth and successfully implement our operating models so that our expenses do not increase proportionately with growth. The ability to grow profitably throughout the property and casualty business “cycle” is crucial to our current strategy. There can be no assurance that we will be successful in profitably growing our business, or that we will not be required to alter our current strategy due to changes in our markets or an inability to successfully maintain acceptable margins on new business or for other reasons, in which case written and earned premium, segment income and net book value could be adversely affected.

Significant increases in recent years and expected further increases in the number of participants or insureds in state-sponsored reinsurance pools, FAIR Plans or other residual market and reinsurance mechanisms, particularly in the states of Michigan (where for example, the Michigan Catastrophic Claims Association, a mechanism which facilitates Michigan’s unique unlimited personal injury protection medical coverage, operates with an increasingly large deficit), Massachusetts, Louisiana and Florida, combined with regulatory restrictions on the ability to adequately price, underwrite, or non-renew business, could expose us to significant exposures and assessment risks. We are subject to mandatory assessments by state guaranty funds; an increase in these assessments could adversely affect our results of operations and financial condition.

Our discontinued Life Companies businesses may be affected by (i) adverse loss and expense development related to our discontinued assumed accident and health reinsurance pool business or failures of our reinsurers to timely pay their obligations (especially in light of the fact that historically these pools sometimes involved multiple layers of overlapping reinsurers, or so called “spirals”); and (ii) the impact of contingent liabilities, including litigation and regulatory matters, assumed or retained by THG in connection with the sale of such business and the impact of other indemnification obligations owed from THG to Goldman Sachs and/or Commonwealth Annuity (including with respect to existing and potential litigation), as well as other contractual obligations.

Other market fluctuations and general economic, market and political conditions also may negatively affect our business and profitability. These conditions include (i) the difficulties of estimating the impact of uncertain trends in the U.S. and global financial markets on the value of our investment portfolio and related impact on our other comprehensive income, shareholders’ equity, and future investment income, including the amount of realized losses and impairments which will be recognized in future financial reports and our ability and intent to hold such investments until recovery; (ii) the impact on our capital and liquidity of the uncertain trends in the U.S. and global economies, including as a result of defaults in our fixed income investment portfolio and the market decline in the value of non-government backed investments; (iii) changes in interest rates causing a reduction of investment income or in the market value of interest rate-sensitive investments; (iv) higher service, administrative or general expense due to the need for additional advertising, marketing, administrative or management information systems expenditures; (v) the inability to attract, or the loss or retirement of, key executives or other key employees, and increased costs associated with the replacement of

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key executives or employees; (vi) changes in our liquidity due to changes in asset and liability matching, including the effect of defaults of debt securities; (vii) failure of a reinsurer of our policies to pay its liabilities under reinsurance or coinsurance contracts or adverse effects on the cost and availability of reinsurance (including as a result of any such insurer’s losses in its investment portfolio as a result of the current economic conditions or the result of significant catastrophes such as the September 11, 2001 terrorist attacks or Hurricane Katrina); (viii) changes in the mix of assets comprising our investment portfolios and changes in general market conditions that may cause the market value of our investment portfolio to fluctuate, including the expansion of current concerns regarding sub-prime mortgages and prime mortgages as well as residential and commercial mortgage-backed or other debt securities and concerns relative to the ratings and capitalization of municipal bond and mortgage guarantees or developments that negatively impact our investment in real estate, such as increased development costs, construction delays and tenant defaults; (ix) losses resulting from our participation in certain reinsurance pools, including pools in which we no longer participate but may have unquantified potential liabilities relating to asbestos, environmental and other latent exposure matters, or from fronting arrangements where the reinsurer does not meet all of its reinsurance obligations; (x) defaults or impairments of debt securities held by us; (xi) higher employee benefit costs due to the prior year declines in the market values of defined benefit retirement plan assets resulting from the economic crisis in 2009 and prior, interest rate fluctuations, regulatory requirements or judicial interpretations of benefits (including with respect to our Cash Balance Plan which is the subject of the Durand litigation), or as a result of the recent enactment of national healthcare legislation. Additional deterioration in market conditions or adverse decision or settlement in the Durand litigation could result in a need to provide for more funding into the qualified plan to maintain levels that meet regulatory minimums; (xii) the effects of our restructuring actions, including any resulting from our review of operational matters related to our business, including a review of our markets, products, organization, financial capabilities, agency management, regulatory environment, ancillary businesses and service processes; (xiii) errors or omissions in connection with the administration of any of our products; (xiv) breaches of our information technology security systems or other operational disruptions or breaches which result in the loss or compromise of confidential financial, personal, medical or other information about our policyholders, claimants, agents or others with whom we do business; (xv) interruptions in our ability to conduct business as a result of terrorist actions, catastrophes or other significant events affecting infrastructure, and delays in recovery of our operating capabilities; and (xvi) U.S. inflationary pressures, particularly with respect to medical and health care, automobile repair and construction costs, all of which are significant components of our indemnity liabilities under policies we issue to our customers, and which could also impact the adequacy of reserves we have set aside for prior accident years.

Uncertain trends in the global financial markets may adversely affect our investment portfolio, shareholders’ equity and overall performance. Global financial markets, in 2009 and prior, experienced unprecedented and challenging conditions, including a tightening in the availability of credit and the failure of several large financial institutions. As a result, certain government bodies and central banks worldwide, including the U.S. Treasury Department and the U.S. Federal Reserve, undertook unprecedented intervention programs, the effects of which remain uncertain. Recently, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. This legislation is far-reaching and expands regulation throughout the financial services sector, including insurance companies. Among the new provisions is the creation of a Federal Insurance Office which has been established to gather information about the industry while monitoring all consumers’ access to affordable insurance products and monitoring the industry for systemic risk. This regulation also includes, but is not limited to, the creation of The Consumer Financial Protection Bureau and the Financial Stability Oversight Council, processes intended to eliminate taxpayer bailouts, increased transparency around complex instruments, shareholders’ input regarding executive compensation, and seeks to strengthen regulatory oversight by empowering regulators to protect American families and businesses from fraudulent and unethical business practices. We are unable to predict at this time the impact that the creation of the Federal Insurance Office or the entire Dodd-Frank Wall Street Reform and Consumer Protection Act will have on our business, including any impact on the results of operations or financial position. The U.S. economy has experienced and may continue to experience significant declines in employment, household wealth, and lending. If conditions further deteriorate, our business could be further affected in different ways. Turbulence in the U.S. economy and contraction in the credit markets could further adversely affect our profitability, demand for our products or our ability to raise rates, and could also result in further declines in market value and future impairments of our investment assets. There can be no assurances that conditions in the global financial markets will not worsen and/or further adversely affect our investment portfolio and overall performance. Recessionary economic periods and higher unemployment are historically accompanied by higher claims activity, particularly in the personal and workers’ compensation lines of business and higher defaults in contractors’ bonds (which often lag behind the general economy), which we wrote and continue to write through our surety bond business.

We experienced in 2008 and 2009, and may again experience net unrealized losses on our investments, especially during a period of heightened volatility, which could have a material adverse effect on our results of operations or financial condition.

Our investment portfolio and shareholders’ equity can be and has been significantly impacted by the changes in the market values of our securities. Currently, and principally as a result of the current interest rate and credit environment, we have significant unrealized investment gains which have favorably affected our current book value. Changes in those markets could result in unrealized and realized losses in future periods, and adversely affect the liquidity of our

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investments, which could have a material adverse impact on our results of operations and our financial position. If, following such declines, we are unable to hold our investment assets until they recover in value, we would incur other-than-temporary impairments which would be recognized as realized losses in our results of operations and reduce net income and earnings per share. Temporary declines in market value are recorded as unrealized losses, which do not affect net income and earnings per share, but reduce other comprehensive income, which is reflected on our Consolidated Balance Sheets. We cannot provide assurance that the other-than-temporary impairments we have recognized will, in fact, be adequate to cover future losses or that we will not have additional impairments and/or unrealized investment losses in the future. In addition, our current borrowings from the FHLBB, as well as committed additional borrowings of $36.8 million to partially finance construction of a building to be leased to a third-party, are secured by collateral. If the fair value of the pledged collateral falls below specified levels, we would be required to pledge additional collateral or repay any outstanding FHLBB borrowings. We also assume investment risks if the costs of construction of the above-referenced building exceed our estimate or generate other liabilities or if the investment grade third-party tenant defaults on its lease obligations.

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ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The Board of Directors has authorized a stock repurchase program which provides for aggregate repurchases of up to $500 million, including a recent $100 million increase in the program. Under the repurchase authorizations, we may repurchase our common stock from time to time, in amounts and prices and at such times as deemed appropriate, subject to market conditions and other considerations. Our repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. We are not required to purchase any specific number of shares or to make purchases by any certain date under this program. Total repurchases under this program as of September 30, 2010 were 7.9 million shares at a cost of $338.8 million. These repurchases include two accelerated share repurchase agreements with Barclays Bank PLC, acting through its agent, Barclays Capital, Inc., for repurchases of 2.3 million shares of our common stock at an initial cost of approximately $100.9 million on March 30, 2010 and repurchases of 2.4 million shares at an initial cost of approximately $100.6 million on December 8, 2009. The accelerated stock repurchase program initiated in December 2009 was settled on June 23, 2010. An additional $4.6 million was provided to Barclays Bank PLC as a result of this final settlement. The cost of shares purchased through the March 30, 2010 accelerated share repurchase agreement is subject to adjustment. Shares purchased in the third quarter of 2010 are as follows:

Period	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 (1)
July 1 – 31, 2010		656 (2)	$	43.40 (2)	-	$	61,100,000
August 1 – 31, 2010		1,043 (2)		44.33 (2)	-		61,100,000
September 1 – 30, 2010		1,158 (2)		44.95 (2)	-		61,100,000
Total		2,857 (2)	$	44.37 (2)	-	$	61,100,000

(1) In October 2010, the Board of Directors authorized a $100 million increase to this program, which is excluded from the table above.

(2) Shares were withheld to satisfy tax withholding amount due from employee upon their receipt of previously restricted stock units.

ITEM 6 - EXHIBITS

EX – 10.1	The Hanover Insurance Group Retirement Savings Plan, as amended.
EX – 31.1	Certification of the Chief Executive Officer, pursuant to 15 U.S.C. 78m, 78o(d), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
EX – 31.2	Certification of the Chief Financial Officer, pursuant to 15 U.S.C. 78m, 78o(d), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
EX – 32.1	Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
EX – 32.2	Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
EX – 101	The following materials from The Hanover Insurance Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 formatted in eXtensible Business Reporting Language (“XBRL”): (i) Consolidated Statements of Income for the quarter and nine months ended September 30, 2010 and 2009; (ii) Consolidated Balance Sheets at September 30, 2010 and December 31, 2009; (iii) Consolidated Statements of Shareholders’ Equity for the nine months ended September 30, 2010 and 2009; (iv) Consolidated Statements of Comprehensive Income for the quarter and nine months ended September 30, 2010 and 2009; (v) Consolidated

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Statements of Cash Flows for the nine months ended September 30, 2010 and 2009, and (vi) related notes to these financial statements, tagged as blocks of text.

SIGNATURES

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

	The Hanover Insurance Group, Inc Registrant
November 4, 2010		/s/ Frederick H. Eppinger, Jr.
Date		Frederick H. Eppinger, Jr.
		President, Chief Executive Officer
		and Director
November 4, 2010		/s/ Steven J. Bensinger
Date		Steven J. Bensinger
		Executive Vice President
		and Chief Financial Officer

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EX-10.1

EXHIBIT 10.1

Rev. eff. 12/01/05

TABLE OF CONTENTS

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

ARTICLE	TITLE	PAGE
I	NAME, PURPOSE AND EFFECTIVE DATE OF PLAN AND RESTATED PLAN		1
II	DEFINITIONS		1
III	ELIGIBILITY AND PARTICIPATION		18
IV	EMPLOYER CONTRIBUTIONS AND FORFEITURES		20
V	EMPLOYEE CONTRIBUTIONS AND ROLLOVER CONTRIBUTIONS		23
VI	PROVISIONS APPLICABLE TO TOP HEAVY PLANS		24
VII	LIMITATIONS ON ALLOCATIONS		27
VIII	PARTICIPANT ACCOUNTS AND VALUATION OF ASSETS		31
IX	401(k) ALLOCATION LIMITATIONS		32
X	401(m) ALLOCATION LIMITATIONS		36
XI	IN-SERVICE WITHDRAWALS		39
XII	PLAN LOANS		41
XIII	RETIREMENT, TERMINATION AND DEATH BENEFITS		43
XIV	PLAN FIDUCIARY RESPONSIBILITIES		54
XV	RETIREMENT PLAN COMMITTEE		57
XVI	INVESTMENT OF THE TRUST FUND		58
XVII	INDIVIDUAL LIFE INSURANCE AND ANNUITY POLICIES		59
XVIII	CLAIMS PROCEDURE		61
XIX	AMENDMENT AND TERMINATION		62
XX	MISCELLANEOUS		64

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

ARTICLE I

NAME, PURPOSE AND EFFECTIVE DATE OF PLAN AND RESTATED PLAN

1.01 Name of Plan. This Plan is an amendment and restatement of The Allmerica Financial Employees’ 401(k) Matched Savings Plan. Effective January 1, 2005, this Plan was known as The Allmerica Financial Retirement Savings Plan. Effective December 1, 2005, this Plan shall be known as The Hanover Insurance Group Retirement Savings Plan.

1.02 Purpose. This Plan has been established for the exclusive benefit of the Plan Participants and their Beneficiaries, and as far as possible shall be administered in a manner consistent with this intent and consistent with the requirements of Section 401 of the Code.

Subject to Section 19.05, under no circumstances shall any contributions made to the Plan be used for, or be diverted to, purposes other than for the exclusive benefit of Plan Participants or their Beneficiaries.

1.03 Plan and Plan Restatement Effective Date. The effective date of this Plan was November 22, 1961. The effective date of this amended and restated Plan is January 1, 2005 (except for these provisions of the Plan which have an alternative effective date). Except to the extent otherwise specifically provided herein, (i) the terms and conditions of this amended and restated Plan shall apply only to those employed by the Employer on or after January 1, 2005 and (ii) the rights and benefits accruing under the Plan to those who separated from service prior to January 1, 2005 shall be determined in accordance with the terms of the Plan in effect on the date of their separation from service.

ARTICLE II

DEFINITIONS

The terms defined in this Article shall have the meanings stated herein unless the context clearly indicates otherwise.

2.01 “Accrued Benefit” shall mean the sum of the balances in a Participant’s 401(k) Account, Match Contribution Account, Non-Elective Employer Contribution Account, Regular Account, Rollover Account, Tax Deductible Contribution Account and Voluntary Contribution Account.

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2.02 (a)     “Affiliate” shall mean any corporation affiliated with the Employer through the action of such corporation’s board

         of directors and the Employer’s Board of Directors.

(b) Affiliate shall also mean:

(i) Any corporation or corporations which together with the Employer constitute a controlled group of corporations or an “affiliated service group”, as described in Sections 414 (b) and 414 (m) of the Internal Revenue Code as now enacted or as later amended and in regulations promulgated thereunder; and

(ii) Any partnerships or proprietorships under the common control of the Employer.

2.03 “Age” shall mean the age of a person at his or her last birthday.

2.04 “Beneficiary” shall mean the person, trust, organization or estate designated to receive Plan benefits payable on or after the death of a Participant.

2.05 “Catch-up Contributions” shall mean Salary Reduction Contributions made to the Plan that are in excess of an otherwise applicable Plan limit and that are made by Participants who are Age 50 or over by the end of their taxable years. An “otherwise applicable Plan limit” is a limit in the Plan that applies to Salary Reduction Contributions without regard to Catch-up Contributions, such as the limits on Annual Additions, the dollar limitation on Salary Reduction Contributions under Code Section 402(g) (not counting Catch-up Contributions) and the limit imposed by the Actual Deferral Percentage (ADP) test under Code Section 401(k)(3). Catch-up Contributions for a Participant for a taxable year may not exceed the dollar limit on Catch-up Contributions under Code Section 414(v)(2)(B)(i) for the taxable year. The dollar limit on Catch-up Contributions under Code Section 414(v)(2)(B)(i) is $1,000 for taxable years beginning in 2002, increasing by $1,000 for each year thereafter up to $5,000 for taxable years beginning in 2006 and later years. After 2006, the $5,000 limit will be adjusted by the Secretary of the Treasury for cost-of-living increases under Code Section 414(v)(2)(C). Any such adjustments will be in multiples of $500.

Catch-up Contributions are not subject to the limits on Annual Additions, are not counted in the ADP test and are not counted in determining the minimum top-heavy allocation under Code Section 416 (but Catch-up Contributions made in prior years are counted in determining whether the Plan is top-heavy).

2.06 “Compensation” shall mean:

(a) For purposes of Articles IX and X, for purposes of determining a Participant’s 401(k) Salary Reduction Contributions pursuant to Section 3.01(b) and for

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purposes of determining an eligible Employee’s Non-Elective Employer Contribution pursuant to Section 4.03, Compensation shall mean the total wages or salary, overtime, bonuses, and any other taxable remuneration paid to an Employee by the Employer during the Plan Year, while the Employee is a Plan Participant, as reported on the Participant’s W-2 for the Plan Year. Provided, however, that Compensation for this purpose shall be determined without reduction for (i) any Code Section 401(k) Salary Reduction Contributions contributed to the Plan on the Participant’s behalf for the Plan Year and (ii) the amount of any salary reduction contributions contributed on the Participant’s behalf for the Plan Year to any Code Section 125 plan sponsored by the Employer.

Notwithstanding the above, for purposes of determining a Participant’s Salary Reduction Contributions pursuant to Section 3.01(b) and for purposes of determining an eligible Employee’s Non-Elective Employer Contribution pursuant to Section 4.03, Compensation shall not include:

(i) incentive compensation paid to Participants pursuant to the Employer’s Executive Long Term Performance Unit Plan or pursuant to any similar or successor executive incentive compensation plan;

(ii) Employer contributions to a deferred compensation plan or arrangement (other than Salary Reduction Contributions to a Section 401(k) or 125 plan, as described above) either for the year of deferral or for the year included in the Participant’s gross income;

(iii) any income which is received by or on behalf of a Participant in connection with the grant, receipt, settlement, exercise, lapse of risk of forfeiture or restriction on transferability, or disposition of any stock option, stock award, stock grant, stock appreciation right or similar right or award granted under any plan, now or hereafter in effect, of the Employer or any successor to the Employer, the Employer’s parent, any such successor’s parent, any subsidiaries or affiliates of the Employer, or any stock or securities underlying any such option, award, grant or right;

(iv) severance payments paid in a lump sum;

(v) Code Section 79 imputed income; long term disability and workers’ compensation benefit payments;

(vi) taxable moving expense allowances or taxable tuition or other educational reimbursements;

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(vii) for Plan Years commencing after December 31, 1998, compensation paid in the form of commissions;

(viii) non-cash taxable benefits provided to executives, including the taxable value of Employer-paid club memberships, chauffeur services and Employer-provided automobiles; and

(ix) other taxable amounts received other than cash compensation for services rendered, as determined by the Retirement Plan Committee.

(b) For purposes of Section 4.04 (Minimum Employer Contributions for Top Heavy Plans) and for purposes of Article VII (Limitations on Allocations) the term “Compensation” means a Participant’s wages, salaries, fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includible in gross income (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Section 1.62-2(c) of the Regulations)), and excluding the following:

(i) Employer contributions to a plan of deferred compensation which are not includible in the Employee’s gross income for the taxable year in which contributed, or Employer contributions under a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation;

(ii) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee becomes freely transferable or is no longer subject to a substantial risk of forfeiture;

(iii) Amounts realized for the sale, exchange or other disposition of stock acquired under a qualified stock option; and

(iv) Other amounts which received special tax benefits.

Notwithstanding the foregoing, Compensation for purposes of the Plan shall also include Employee elective deferrals under Code Section 402(g)(3), and amounts contributed or deferred by the Employer at the election of the Employee and not includible in the gross income of the Employee, by reason of Code Sections 125, 132(f)(4), 402(e)(3) and 402(h)(1)(B).

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Additionally, amounts under Code Section 125 include any amounts not available to a Participant in cash in lieu of group health coverage because the Participant is unable to certify that he has other health coverage (deemed Code Section 125 compensation). Such an amount will be treated as an amount under Code Section 125 only if the Employer does not request or collect information regarding the Participant’s other health coverage as part of the enrollment process for the health plan.

For purposes of applying the limitations of Article VII, Compensation for a Limitation Year is the Compensation actually paid or includible in gross income during such Year.

(c) Notwithstanding (a) and (b) above, for any Plan Year beginning after December 31, 2001, the annual Compensation of each Participant taken into account for determining all benefits provided under the Plan for any Plan Year shall not exceed $200,000, as adjusted for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code.

Notwithstanding (a) and (b) above, for the Plan Years beginning on or after January 1, 1994 and before January 1, 2002, the annual Compensation of each Participant taken into account for determining all benefits provided under the Plan for any Plan Year shall not exceed $150,000. This limitation shall be adjusted for inflation by the Secretary under Code Section 401(a)(17)(B) in multiples of $10,000 by applying an inflation adjustment factor and rounding the result down to the next multiple of $10,000 (increases of less than $10,000 are disregarded).

The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined beginning in such calendar year.

If Compensation is being determined for a Plan Year that contains fewer than 12 calendar months, then the annual Compensation limit is an amount equal to the annual Compensation limit for the calendar year in which the Compensation period begins multiplied by the ratio obtained by dividing the number of full months in the period by 12.

2.07 “Eligibility Computation Period” shall mean, for Plan Years commencing prior to January 1, 2005, a period of twelve consecutive months commencing on an Employee’s Employment Commencement Date or, if an Employee does not complete at least 1,000 Hours of Service during such initial period, such Employee’s Eligibility Computation Period shall mean the Plan Year commencing with the first Plan Year following the Employee’s Employment Commencement Date and, if necessary, each succeeding Plan Year.

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2.08 “Employee” shall mean any employee who is employed by the Employer.

2.09 “Employer” shall mean First Allmerica Financial Life Insurance Company (herein sometimes referred to as “First Allmerica”).

2.10 “Employment Commencement Date” shall mean the date on which an Employee first performs an Hour of Service or, in the case of an Employee who has a One Year Break in Service, the date on which he or she first performs an Hour of Service after such Break.

2.11 “Fiduciary” shall mean any person who (i) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets; (ii) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so; or (iii) has any discretionary authority or discretionary responsibility in the administration of the Plan, including, but not limited to, the Trustee and the Plan Administrator.

2.12 “Five Percent Owner” shall mean, in the case of a corporation, any person who owns (or is considered as owning within the meaning of Code Section 416(i)) more than five percent of the outstanding stock of the Employer or stock possessing more than five percent of the total combined voting power of all stock of the Employer. In the case of an Employer that is not a corporation, “Five Percent Owner” shall mean any person who owns or under applicable regulations is considered as owning more than five percent of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), and (m) shall be treated as separate employers.

2.13 “Former Participant” shall mean a person who has been an active Participant, but who has ceased to actively participate in the Plan for any reason.

2.14 “401(k) Account” shall mean the account established and maintained for each Participant who has directed the Employer to make Salary Reduction Contributions to the Trust on his or her behalf or for whom the Employer has made 401(k) Employer Contributions to the Trust on his or her behalf, and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

2.15 “401(k) Employer Contribution” shall mean a 401(k) contribution made by the Employer to the Trust for Plan Years prior to 1995 pursuant to Section 4.01 of the Plan as in effect prior to 1995.

2.16 “Highly Compensated Employee” shall mean any Employee who:

(a) was a Five Percent Owner at any time during the Plan Year or the preceding Plan Year; or

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(b) for the preceding Plan Year:

(i) had Compensation from the Employer in excess of $80,000 (as adjusted pursuant to Code Section 414(q)(1)); and

(ii) for such preceding Year was in the top-paid group of Employees for such preceding Year.

For purposes of this Section the “top-paid group” for a Plan Year are the top 20% of Employees ranked on the basis of Compensation paid during such Year.

In addition to the foregoing, the term “Highly Compensated Employee” shall also mean any former Employee who separated from service prior to the Plan Year, performs no service for the Employer during the Plan Year, and was an actively employed Highly Compensated Employee in the separation year or any Plan Year ending on or after the date the Employee attained Age 55.

For purposes of this Section Compensation means Compensation determined for purposes of Article VII (Limitations on Allocations), but, for Plan Years beginning before January 1, 1998, without regard to Code Sections 125, 402(e)(3), and 402(h)(1)(B).

The determination of who is a Highly Compensated Employee, including the determinations of the numbers and identity of employees in the top-paid group and the Compensation that is considered will be made in accordance with Section 414(q) of the Code and regulations thereunder.

2.17 “Hour of Service” shall mean:

(a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. For purposes of the Plan an Employee who is exempt from the requirements of the Fair Labor Standards Act of 1938, as amended, shall be credited with 45 Hours of Service for each complete or partial week he or she would be credited with at least one Hour of Service under this Section 2.17.

(b) Each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. Notwithstanding the preceding sentence:

(i) No more than 1000 hours shall be credited to an Employee under this Subsection (b) on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period);

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(ii) No hours shall be credited under this Subsection (b) for any payments made or due under a plan maintained solely for the purpose of complying with any applicable worker’s compensation, unemployment compensation or disability insurance laws; and

(iii) No hours shall be credited under this Subsection (b) for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee.

For purposes of this Subsection (b) a payment shall be deemed to be made by or due from an Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly, through, among others, a trust fund or insurer, to which the Employer contributes or pays premiums.

(c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service shall not be both credited under Subsections (a) or (b), as the case may be, and under this Subsection. No more than 501 Hours shall be credited under this Subsection for a period of time during which an Employee did not or would not have performed duties.

(d) Special rules for determining Hours of Service under Subsection (b) or (c) for reasons other than the performance of duties.

In the case of a payment which is made or due which results in the crediting of Hours of Service under Subsection (b) or in the case of an award or agreement for back pay, to the extent that such an award or agreement is made with respect to a period during which an Employee performs no duties, the number of Hours of Service to be credited shall be determined as follows:

(i) In the case of a payment made or due which is calculated on the basis of units of time (such as hours, days, weeks or months), the number of Hours of Service to be credited for “exempt” Employees described in Subsection (a) shall be determined as provided in such Subsection. For all other Employees, the Hours of Service to be credited shall be those regularly scheduled hours in such unit of time; provided, however, that when a non-exempt Employee does not have regularly scheduled hours, such Employee shall be credited with 8 Hours of Service for each workday for which he or she is entitled to be credited with Hours of Service under paragraph (b).

(ii) Except as provided in Paragraph (d)(iii), in the case of a payment made or due which is not calculated on the basis of units of time, the number of Hours of Service to be credited shall be equal to the amount of the payment divided by the Employee’s most recent hourly rate of compensation (as determined below) before the period during which no duties are performed.

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A. The hourly rate of compensation of Employees paid on an hourly basis shall be the most recent hourly rate of such Employees.

B. In the case of Employees whose compensation is determined on the basis of a fixed rate for specified periods of time (other than hours) such as days, weeks or months, the hourly rate of compensation shall be the Employee’s most recent rate of compensation for a specified period of time (other than an hour), divided by the number of hours regularly scheduled for the performance of duties during such period of time. The rule described in Paragraph (d)(i) shall also be applied under this subparagraph to Employees without a regular work schedule.

C. In the case of Employees whose compensation is not determined on the basis of a fixed rate for specified periods of time, the Employee’s hourly rate of compensation shall be the lowest hourly rate of compensation paid to Employees in the same job classification as that of the Employee or, if no Employees in the same job classification have an hourly rate, the minimum wage as established from time to time under Section 6(a)(1) of the Fair Labor Standards Act of 1938, as amended.

(iii) Rule against double credit. An Employee shall not be credited on account of a period during which no duties are performed with more hours than such Employee would have been credited but for such absence.

(e) Crediting of Hours of Service to computation periods.

(i) Hours of Service described in Subsection (a) shall be credited to the Employee for the computation period or periods in which the duties are performed.

(ii) Hours of Service described in Subsection (b) shall be credited as follows:

A. Hours of Service credited to an Employee on account of a payment which is calculated on the basis of units of time (such as hours, days, weeks or months) shall be credited to the

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computation period or periods in which the period during which no duties are performed occurs, beginning with the first unit of time to which the payment relates.

B. Hours of Service credited to an Employee by reason of a payment which is not calculated on the basis of units of time shall be credited to the computation period in which the period during which no duties are performed occurs, or if the period during which no duties are performed extends beyond one computation period, such Hours of Service shall be allocated between not more than the first two computation periods in accordance with reasonable rules established by the Employer, which rules shall be consistently applied with respect to all Employees within the same job classification, reasonably defined.

(iii) Hours of Service described in Subsection (c) shall be credited to the computation period or periods to which the award or agreement for back pay pertains, rather than to the computation period in which the award, agreement or payment is made.

(f) For purposes of the Plan, Hours of Service shall also include Hours of Service determined in accordance with the rules set forth in this Section 2.17:

(i) with the Employer in a position in which he or she was not eligible to participate in this Plan; or

(ii) as a Career Agent or General Agent of First Allmerica; or

(iii) for periods prior to January 1, 1998, with Citizens, Hanover, or as an employee of a General Agent of First Allmerica; or

(iv) with Financial Profiles, Inc., or Advantage Insurance Network, Affiliates of First Allmerica, including periods of service completed prior to the date each became an Affiliate; or

(v) with an Affiliate.

(g) Rules for Non-Paid Leaves of Absence. For purposes of the Plan, a Participant will also be credited with Hours of Service during any non-paid leave of absence granted by the Employer. Except as provided in Subsection (a) for exempt Employees, the number of Hours of Service to be credited under this Subsection (g) shall be the number of regularly scheduled working hours in each workday during the leave of absence; provided, however, that no more than the number of Hours in one regularly scheduled work year of

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the Employer will be credited for each non-paid leave of absence. In the case of a non-exempt Employee without a regular work schedule, the number of Hours to be credited shall be based on a 40 hour work week and an 8 hour workday. Hours of Service described in this Subsection (g) shall be credited to the Employee for the computation period or periods during which the leave of absence occurs.

Notwithstanding the foregoing, for Plan Years beginning after December 31, 1998, all Employees (exempt and non-exempt) shall be credited with 8 Hours of Service for each workday for which they are entitled to be credited with Hours of Service for a non-paid leave of absence pursuant to this Subsection (g).

(h) Rules for Maternity or Paternity Leaves of Absence. In addition to the foregoing rules, solely for purposes of determining whether a One Year Break in Service has occurred in a computation period, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such Hours cannot be determined, 8 Hours of Service per day of such absence. Provided, however, that:

(i) Hours shall not be credited under both this Paragraph (h) and one of the other Paragraphs of this Section 2.17;

(ii) no more than 501 Hours shall be credited for each maternity or paternity absence; and

(iii) if a maternity or paternity leave extends beyond one Plan Year, the Hours shall be credited to the Plan Year in which the absence begins to the extent necessary to prevent a One Year Break in service, otherwise such Hours shall be credited to the following Plan Year.

For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (i) by reason of the pregnancy of the individual, (ii) by reason of a birth of a child of the individual, (iii) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (iv) for purposes of caring for such child for a period beginning immediately following such birth or placement.

(i) Other Federal Law. Nothing in this Section 2.17 shall be construed to alter, amend, modify, invalidate, impair or supersede any law of the United States or any rule or regulation issued under any such law.

2.18 “Insurer” shall mean First Allmerica or any of its life insurance company affiliates.

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2.19 “Internal Revenue Code” or “Code” shall mean the Internal Revenue Code of 1986, as amended and any future Internal Revenue Code or similar Internal Revenue laws.

2.20 “Key Employee”. In determining whether the Plan is top-heavy for Plans Years beginning after December 31, 2001, “Key Employee” shall mean any Employee or former Employee (including any deceased Employee) who at any time during the Plan Year that includes the determination date is an officer of the Employer having an annual Compensation greater than $130,000 (as adjusted under Section 416(i)(l) of the Code for Plan Years beginning after December 31, 2002), a Five Percent Owner, or a 1-percent owner of the Employer having an annual Compensation of more than $150,000. In determining whether a Plan is top heavy for Plan Years beginning before January 1, 2002, “Key Employee” shall mean any Employee or former Employee (including any deceased Employee) who at any time during the 5-year period ending on the determination date, is an officer of the employer having an annual Compensation that exceeds 50 percent of the dollar limitation under Code Section 415(b)(l)(A), an owner (or considered an owner under Code Section 318) of one of the ten largest interests in the Employer if such individual’s Compensation exceeds 100 percent of the dollar limitation under Code Section 415(c)(l)(A), a Five Percent Owner or a 1-percent owner of the Employer who has an annual Compensation of more than $150,000.

The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Internal Revenue Code and the regulations thereunder. For purposes of determining whether a Participant is a Key Employee, the Participant’s Compensation means Compensation as defined for purposes of Article VII, but for Plan Years beginning before January 1, 1998, without regard to Code Sections 125, 402(e)(3), and 402(h)(1)(B).

2.21 “Limitation Year” shall mean a calendar year.

2.22 “Match Contribution” shall mean a Salary Reduction Match Contribution made by the Employer to the Trust pursuant to Section 4.02 of the Plan. Match Contributions and earnings thereon shall be 50% vested and nonforfeitable after one Year of Service and 100% vested and nonforfeitable after two Years of Service. Notwithstanding the foregoing, Match Contributions and earnings thereon shall be 100% vested and nonforfeitable at all times for those Participants who have completed at least one Hour of Service on or before December 31, 2004.

2.23 “Match Contribution Account” shall mean the account established for each Participant for whom the Employer has allocated Match Contributions to the Trust and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

2.24 “Non-Elective Employer Contributions” shall mean Employer contributions that are made by the Employer pursuant to Section 4.03 of the Plan, whether or not the

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Employee has directed the Employer to make Salary Reduction Contributions to the Trust on his or her behalf. Eligibility to receive a Non-Elective Employer Contribution for a Plan Year is dependent upon the Employee remaining employed by First Allmerica on the last day of the Plan Year except where the Employee has terminated employment on account of death or retirement. Non-Elective Employer Contributions and earnings thereon shall be 50% vested and nonforfeitable after one Year of Service and 100% vested after two Years of Service. Notwithstanding the foregoing, Non-Elective Employer Contributions and earnings thereon shall be 100% vested and nonforfeitable at all times for those Employees who have completed at least one Hour of Service on or before December 31, 2004.

2.25 “Non-Elective Employer Contribution Account” shall mean the account established for each Employee for whom the Employer has made a Non-Elective Employer Contribution to the Trust and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

2.26 “Non-Highly Compensated Employee” shall mean any Employee who is not a Highly Compensated Employee.

2.27 “Non-Key Employee” shall mean any Employee who is not a Key Employee.

2.28 “Normal Retirement Age” shall mean the date on which the Participant attains Age 65. An actively employed Participant shall become fully vested in his or her Accrued Benefit upon attaining Normal Retirement Age.

2.29 “One Year Break in Service” shall mean any vesting computation period during which an Employee does not complete more than 500 Hours of Service.

Provided, however, for Plan Years commencing prior to January 1, 2005, for purposes of Article III, “One Year Break in Service” shall mean an Eligibility Computation Period during which an Employee does not complete more than 500 Hours of Service.

2.30 “Participant” shall mean any Employee who has met all of the requirements for participation under this Plan and has not for any reason become ineligible to participate further in the Plan.

2.31 “Plan Year” shall mean a calendar year.

2.32 “Profits” shall mean the net income or profits of the Employer for each calendar year before dividends to policyholders and federal income taxes and excluding capital gains and losses, as determined by the Employer in accordance with the accounting method used in computing the same or similar item for Annual Statement purposes, except that, in determining such figure, contributions under this Plan and Trust for the Plan Year shall not be taken into account.

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“Accumulated Profits” shall mean the accumulated net earnings or profits of the Employer.

The determination by First Allmerica of Profits and Accumulated Profits shall be final and conclusively binding on all parties.

2.33 “Policy” shall mean any form of individual life insurance or annuity contract, including any supplementary agreements or riders issued in connection therewith, issued by the Insurer on the life of a Participant. Any life insurance death benefits referred to in the following paragraphs of this Section 2.33 pertain to amounts purchased with other than Voluntary After-Tax Contributions.

(a) If ordinary life insurance contracts are purchased for a Participant, the aggregate life insurance premium for a Participant shall be less than 50% of the aggregate Employer contributions made on behalf of such Participant plus allocations of any forfeitures credited to the Accounts of such Participant. For purposes of these incidental insurance provisions, ordinary life insurance contracts are contracts with both non-decreasing death benefits and non-increasing premiums.

(b) If term insurance and universal life policies are used, the aggregate life insurance premium for a Participant shall not exceed 25% of the aggregate Employer contributions made on behalf of such Participant plus allocation of any forfeitures credited to the Accounts of such Participant.

(c) If a combination of ordinary life insurance and other life insurance policies is used, the aggregate premium for the ordinary life insurance plus twice the aggregate premium for the other life insurance shall be less than 50% of the aggregate Employer contributions made by the Employer on behalf of the Participant plus allocations of any forfeitures credited to the Accounts of such Participant.

The limitation on aggregate life insurance premium payments stated in this Section 2.33 shall not apply to any funds, from whatever source, which have accumulated in the Participant’s Account for a period of two (2) or more years, and are applied toward the purchase of such life insurance. Provided, however, that in no event may Tax Deductible Voluntary Contributions be invested in Policies of life insurance.

2.34 “Qualified Domestic Relations Order” shall mean any judgment, decree or order (including approval of a property settlement agreement) which:

(i) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of a Participant;

(ii) is made pursuant to a state domestic relations law (including a community property law);

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(iii) constitutes a “qualified domestic relations order” within the meaning of Section 414(p) of the Code; and

(iv) is entered on or after January 1, 1985.

2.35 “Qualified Early Retirement Age” shall mean the later of:

(i) Age 55; or

(ii) the date on which the Participant begins participation.

2.36 “Qualified Joint and Survivor Annuity” shall mean an annuity for the life of the Participant, with a survivor annuity for the life of his or her spouse in an amount equal to 50% of the amount of the annuity payable during the joint lives of the Participant and his or her spouse, and which is the amount of benefit which can be purchased by the Participant’s Accrued Benefit.

2.37 “Regular Account” shall mean the account established and maintained for each Participant for whom the Employer has allocated Regular Employer Contributions to the Trust, and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

2.38 “Regular Employer Contribution” shall mean a Regular Contribution made by the Employer to the Trust for years prior to 1995 pursuant to Section 4.01 of the Plan as in effect prior to 1995.

2.39 “Retirement Plan Committee” shall mean the persons charged by the Employer with the interpretation and administration of the Plan, as provided in Section 14.06 hereof.

2.40 “Rollover Account” shall mean the account established and maintained for each Participant who has made a Rollover Contribution to the Trust or whose accrued benefit from another qualified plan has been transferred to this Trust in accordance with Section 5.03 of the Plan, and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

2.41 “Rollover Contribution” shall mean a contribution made to the Trust pursuant to Section 5.03 of the Plan.

2.42 “Suspense Account” shall mean the account established by the Trustee for maintaining contributions and forfeitures which have not yet been allocated to Participants.

2.43 “Tax Deductible Contribution Account” shall mean the account established and maintained for each Participant who has made a Tax Deductible Voluntary Contribution to the Trust, and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

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2.44 “Tax Deductible Voluntary Contribution” shall mean a contribution made to the Trust for years before 1987 and pursuant to Section 5.02 of the Plan as in effect prior to 1995.

2.45 “Top Heavy Plan” shall mean for any Plan Year beginning after December 31, 1983 that any of the following conditions exists:

(i) If the top heavy ratio (as defined in Article VI) for this Plan exceeds 60 percent and this Plan is not part of any required aggregation group or permissive aggregation group of plans.

(ii) If this Plan is a part of a required aggregation group of plans (but not part of a permissive aggregation group) and the top heavy ratio for the group of plans exceeds 60 percent.

(iii) If this Plan is a part of a required aggregation group and part of a permissive aggregation group of plans and the top heavy ratio for the permissive aggregation group exceeds 60 percent.

See Article VI for requirements and additional definitions applicable to Top Heavy Plans.

2.46 “Top Heavy Plan Year” shall mean that, for a particular Plan Year, the Plan is a Top Heavy Plan.

2.47 “Totally and Permanently Disabled” shall mean the inability of a Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

In determining the nature, extent and duration of any Participant’s disability, the Plan Administrator may select a physician to examine the Participant. The final determination of the nature, extent and duration of such disability shall be made solely by the Plan Administrator upon the basis of such evidence as he or she deems necessary and acting in accordance with uniform principles consistently applied.

2.48 “Trustee” shall mean the bank or trust company or person or persons who shall be constituted the original trustee or trustees for the Plan and Trust created therefor, and also any and each successor trustee or trustees.

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2.49 “Trust Fund” shall mean, include and consist of any payments made to the Trustee by the Employer under the Plan and Trust Indenture, or the investments thereof, together with all income and gains of every nature thereon which shall be added to the principal thereof by the Trustee, less all losses thereon and all payments therefrom. The Trust Fund assets shall include any Policy issued to the Plan Trustee to fund benefits of the Plan.

2.50 “Trust Indenture” or “Trust” shall mean the Trust Indenture between the Employer and the Trustee in the form annexed hereto, and any and all amendments thereof or thereto.

2.51 “Valuation Date” shall mean each day as of which the value of the Trust Fund shall be calculated. The Plan Administrator reserves the right to change the frequency of Valuation Dates; provided, however, that in no event shall Valuation Dates occur less frequently than once each calendar quarter.

2.52 “Voluntary After-Tax Contributions” shall mean a contribution made to the Trust for years prior to 1995 pursuant to Section 5.01 of the Plan as in effect prior to 1995.

2.53 “Voluntary Contribution Account” shall mean the account established and maintained for each Participant who has made a Voluntary After-Tax Contribution to the Trust, and all earnings and appreciation thereon, less any withdrawals therefrom and any losses and expenses charged thereto.

2.54 “Year of Service” shall mean, for purposes of determining vesting under Article XIII, the twelve consecutive month period, commencing on the first day an Employee completes an Hour of Service and in which the Employee completes at least 1,000 Hours of Service. Thereafter, for purposes of determining vesting under Article XIII, the determination of a Year of Service will commence on the anniversary of the first day the Employee completed an Hour of Service and the twelve consecutive month period that follows, provided the Employee completes at least 1,000 Hours of Service during such period.

Provided, however, for purposes of determining Plan entry under Article III for Plan Years commencing prior to January 1, 2005, “Year of Service” means an Eligibility Computation Period during which an Employee completes at least 1,000 Hours of Service.

In computing a “Year of Service” for purposes of the Plan, each twelve month period shall be considered as completed as of the close of business on the last working day which occurs within such period, provided that the Employee had completed at least 1,000 Hours of Service during the period ending on such date.

Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service shall be provided in accordance with Section 414(u) of the Internal Revenue Code.

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ARTICLE III

ELIGIBILITY AND PARTICIPATION

3.01    (a) In General. Eligible Employees who were actively employed by the Employer, and who were Participants in the prior version of the Plan became Participants in this Plan on January 1, 2005.

For Plan Years beginning prior to January 1, 2005, every Employee shall be eligible to become a Plan Participant on the first day of the calendar month coincident with or following completion of one Year of Service, provided he or she is then employed in an eligible class of Employees.

Notwithstanding the foregoing, an Employee shall be eligible to become a Plan Participant upon completion of one Hour of Service by entering into a salary reduction agreement with the Employer in accordance with section 3.01(b). For Plan Years beginning prior to January 1, 2005, Employees shall be eligible to receive Match Contributions effective on the first day of the calendar month coincident with or following completion of one Year of Service, provided they are then employed in an eligible class of Employees. For Plan Years beginning on or after January 1, 2005, Employees shall be eligible to receive Match Contributions upon completion of one Hour of Service, provided they are then employed in an eligible class of Employees.

Notwithstanding the foregoing, the following Employees shall not be eligible to become or remain active Participants hereunder:

(i) All Employees holding a General Agent’s Contract with the Employer or with an Affiliate;

(ii) All Employees holding a Career Agent’s or Annuity Specialist’s Contract with the Employer or with an Affiliate;

(iii) Leased Employees within the meaning of Code Sections 414(n) and (o);

(iv) A contractor’s employee, i.e., a person working for a company providing goods or services (including temporary employee services) to the Employer or to an Affiliate whom the Employer does not regard to be its common law employee, as evidenced by its failure to withhold taxes from his or her compensation, even if the individual is actually the Employer’s common law Employee; or

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(v) An independent contractor, i.e., a person who is classified by the Employer as an independent contractor, as evidenced by its failure to withhold taxes from his or her compensation, even if the individual is actually the Employer’s common law Employee.

(b) Employee Participation. Effective on or after the date an Employee first becomes eligible to participate in the Plan, the Employee may direct the Employer to reduce his or her Compensation in order that the Employer may make Salary Reduction Contributions to the Plan, including Catch-up Contributions, on the Employee’s behalf. Any such Employee shall become a Participant on the date his or her salary reduction agreement becomes effective. Such direction shall be made in a form approved by the Plan Administrator (including, if applicable, by means of telephone, computer, or other paperless media). The Compensation of any eligible Employee electing salary reduction shall be reduced by the whole percentage requested by the Employee; provided, however, that the Plan Administrator will identify a maximum whole percentage on an annual basis and the Plan Administrator may reduce the Employee’s Compensation by a smaller percentage or refuse to enter into a salary reduction agreement with the Employee if the requirements of the Internal Revenue Code for salary reduction plans qualified under Section 401(k) and 414(v) of the Internal Revenue Code would otherwise be violated. Any salary reduction agreement shall become effective as soon as administratively feasible after the Employee elects to have his or her salary reduced.

A Participant may elect at any time to change or discontinue his or her salary reduction agreement with the Employer. Unless otherwise agreed to by the Plan Administrator, the election shall become effective as soon as administratively feasible after the Employee elects such change or discontinuance.

3.02 Classification Changes. In the event of a change in job classification, such that an Employee, although still in the employment of the Employer, no longer is an eligible Employee, all contributions to be allocated on his or her behalf shall cease and any amount credited to the Employee’s Accounts on the date the Employee shall become ineligible shall continue to vest, become payable or be forfeited, as the case may be, in the same manner and to the same extent as if the Employee had remained a Participant.

If a Participant’s salary reduction agreement is terminated because he or she is no longer a member of an eligible class of Employees, but the Participant has not terminated his or her employment, such Employee shall again be eligible to enter into a new salary reduction agreement immediately upon his or her return to an eligible class of Employees. If such Participant terminates his or her employment with the Employer, he or she shall again be eligible to enter into a salary reduction agreement immediately upon his or her recommencement of service as an eligible Employee.

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In the event an Employee who is not a member of the eligible class of Employees becomes a member of the eligible class, such Employee shall be eligible to participate immediately.

3.03 Participant Cooperation. Each eligible Employee who becomes a Participant hereunder thereby agrees to be bound by all of the terms and conditions of this Plan and Trust. Each eligible Employee, by becoming a Participant hereunder, agrees to cooperate fully with the Insurer to which application may be made for a Policy or Policies providing benefits under the terms of this Plan, including completion and signing of such forms as are required by the Insurer.

ARTICLE IV

EMPLOYER CONTRIBUTIONS AND FORFEITURES

4.01 Salary Reduction Contributions. The Employer shall make Salary Reduction Contributions to the Plan and Trust, including Catch-up Contributions described in Code Section 414(v), out of current or Accumulated Profits for each Plan Year to the extent and in the manner specified in Subsection 3.01(b).

Salary Reduction Contributions, including Catch-up Contributions described in Code Section 414(v), shall be allocated to a Participant’s 401(k) Account as soon as administratively feasible after the earliest date on which such contributions can reasonably be segregated from the Employer’s general assets but in no event later than the 15^th business day of the month following the month in which the Salary Reduction Contributions would have otherwise been payable to the Participant.

4.02 Employer Matching Contributions. For Plan Years beginning on or after January 1, 2005, unless otherwise voted by the Board of Directors of the Employer, for each pay period that an eligible Salary Reduction Contribution is made by a Participant to the Trust, not to exceed the Code Section 402(g) limitation and not including Catch-up Contributions, the Employer shall make a Match Contribution to the Trust on the Participant’s behalf equal to 100% of the first 5% of the Participant’s Salary Reduction Contributions, not including Catch-up Contributions, made during the pay period. Such Match Contribution shall be made to the Match Contribution Account established for the Participant.

Note that Catch-up Contributions made by an eligible Participant shall not be matched in any event.

The Employer shall contribute Employer Matching Contributions to the Trust Fund as soon as practicable following the end of each pay period. Such contributions shall be made in cash (or in Employer Stock if so directed by the Board) and shall be allocated in accordance with the Plan current match formula to the Match Contribution Account of each eligible Participant. Such Match Contributions shall be invested per the directions of Participants in accordance with Section 16.02.

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For Plan Years beginning on or after January 1, 2005, within 30 days following the end of each Plan Year, if required, the Employer shall make a “true-up” Match Contribution to the Match Contribution Account of each Participant employed by the Employer on the last day of the Plan Year, such that the Employer match for such eligible Participants for the Plan Year shall be 100% of the eligible Employer Matching Contribution percentage of each such Participant’s Salary Reduction Contributions made during the entire Plan Year, not including Catch-up Contributions, not merely 100% of the eligible Employer Matching Contribution percentage of the Participant’s Salary Reduction Contributions, not including Catch-up Contributions, made each pay period.

4.03 Non-Elective Employer Contributions. For Plan Years beginning on or after January 1, 2005, unless otherwise voted by the Board of Directors of the Employer, eligible Employees who are employed by the Employer on the last day of the Plan Year will receive an Employer paid contribution, whether or not the Employee has elected to participate in the Plan, equal to 3% of eligible Plan Compensation. The contribution shall be made in cash or Employer Stock (if Employer Stock is so directed by the Board to be contributed). Such contribution shall be made to the Non-Elective Employer Contribution Account to be established for each such Employee and shall be invested per the direction of the Participant in accordance with Section 16.02 of the Plan.

4.04 Minimum Employer Contribution for Top Heavy Plan Years.

(a) Minimum Allocation for Non-Key Employees. Notwithstanding anything in the Plan to the contrary except (b) through (e) below, for any Top Heavy Plan Year Employer Contributions allocated to the Accounts of each Non-Key Employee Participant shall be equal to at least three percent of such Non-Key Employee’s Compensation (as defined for purposes of Article VII as limited by Section 401(a)(17) of the Code) for the Plan Year. However, should the Employer Contributions allocated to the Accounts of each Key Employee for such Top Heavy Plan Year be less than three percent of each Key Employee’s Compensation, the Employer Contribution allocated to the Accounts of each Non-Key Employee shall be equal to the largest percentage allocated to Accounts of a Key Employee. The preceding sentence shall not apply if this Plan is required to be included in an aggregation group (as described in Section 416 of the Internal Revenue Code) if such plan enables a defined benefit plan required to be included in such group to meet the requirements of Code Section 401(a)(4) or 410. For purposes of determining the percentage of Employer Contributions allocated to the Accounts of Key Employees, Salary Reduction Contributions made on their behalf shall be counted and be

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considered to be Employer Contributions. However, in determining whether a minimum Employer Contribution has been made to a Non-Key Employee’s Accounts, Salary Reduction Contributions made on his or her behalf shall be excluded and not considered.

(b) For purposes of the minimum allocations set forth above, the percentage allocated to the Accounts of any Key Employee shall be equal to the ratio of the sum of the Employer Contributions allocated on behalf of such Key Employee divided by the Employee’s Compensation for the Plan Year (as defined for purposes of Article VII), not in excess of the applicable Compensation dollar limitation imposed by Code Section 401(a)(17).

(c) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Accounts of all Non-Key Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Non-Key Employee Participants who have failed to complete a Year of Service.

(d) Notwithstanding anything herein to the contrary, in any Plan Year in which a Non-Key Employee is a Participant in both this Plan and a defined benefit pension plan included in a Required or Permissive Group of Top Heavy Plans, the Employer shall not be required to provide a Non-Key Employee with both the full separate minimum defined benefit plan benefit and the full separate minimum defined Contribution plan allocation described in this Section. Therefore, if the Employer maintains such a defined benefit and defined contribution plan, the top-heavy minimum benefits shall be provided as follows:

(i) If a Non-Key Employee is a participant in such defined benefit plan but is not a Participant in this defined contribution plan, the minimum benefits provided for Non-Key Employees in the defined benefit plan shall be provided to the employee if the defined benefit plan is a Top Heavy Plan and the minimum contributions described in this Section 4.04 shall not be provided.

(ii) If a Non-Key Employee is a participant in such defined benefit plan and is also a Participant in this defined contribution plan, the minimum benefits for Non-Key Employee participants in Top Heavy Plans provided in the defined benefit plan shall not be applicable to any such Non-Key Employee who receives the full maximum contribution described in the preceding sentence.

Notwithstanding anything herein to the contrary, no minimum contribution will be required under this Plan (or the minimum contribution under this Plan will be reduced, as the case may be) for any Plan Year if the Employer

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maintains another qualified defined contribution plan under which a minimum contribution is being made for such year for the Participant in accordance with Section 416 of the Internal Revenue Code.

(e) The minimum allocation required under this Section 4.04 (to the extent required to be nonforfeitable under Section 416(b) of the Code) may not be forfeited under Code Sections 411(a)(3)(B) or 411(a)(3)(D).

4.05 Application of Forfeitures. Amounts forfeited during a Plan Year shall be used to reduce Match Contributions for that Plan Year and each succeeding Plan Year, if necessary.

4.06 Limitations upon Employer Contributions. In no event shall the Employer contribution for any Plan Year exceed the maximum allowable under Sections 404 and 415 of the Internal Revenue Code or any similar or subsequent provision.

4.07 Payment of Contributions to Trustee. The Employer shall make payment of all contributions, including Participant contributions which shall be remitted to the Employer by payroll deduction or otherwise, directly to the Trustee in accordance with this Article IV but subject to Section 4.08.

4.08 Receipt of Contributions by Trustee. The Trustee shall accept and hold under the Trust such contributions of money, or other property approved by the Employer for acceptance by the Trustee, on behalf of the Employer and Participants as it may receive from time to time from the Employer, other than cash it is instructed to remit to the Insurer for deposit with the Insurer. However, the Employer may pay contributions directly to the Insurer and such payment shall be deemed a contribution to the Trust to the same extent as if payment had been made to the Trustee. All such contributions shall be accompanied by written instructions from the Employer accounting for the manner in which they are to be credited and specifying the appropriate Participant Account to which they are to be allocated.

ARTICLE V

EMPLOYEE CONTRIBUTIONS AND ROLLOVER CONTRIBUTIONS

5.01 Voluntary After-Tax Contributions. For Plan Years beginning prior to January 1, 1995, a Participant could contribute Voluntary After-Tax Contributions to the Plan and Trust in each Plan Year during which he or she was a Plan Participant in amounts as determined under the Plan in effect prior to 1995.

The Plan shall separately account for: (i) pre-1987 Voluntary After-Tax Contributions; (ii) investment income attributable to pre-1987 Voluntary After-Tax Contributions; and (iii) post-1986 Voluntary After-Tax Contributions and income attributable to such contributions.

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5.02 Tax Deductible Voluntary Contributions. The Plan Administrator will not accept Tax Deductible Voluntary Contributions made for years after 1986. Such contributions made for years prior to that date will be maintained in a separate account which will be nonforfeitable at all times, and which shall include gains and losses in accordance with Section 8.02. No part of the Tax Deductible Voluntary Contributions Account shall be used to purchase life insurance.

5.03 Rollover Contributions. With the consent of the Plan Administrator, the Trustee may accept funds transferred from other pension, profit sharing or stock bonus plans qualified under Section 401(a) of the Internal Revenue Code or Rollover Contributions, provided that the plan from which such funds are transferred permits the transfer to be made.

In the event of a transfer or Rollover Contribution to this Plan, the Plan Administrator shall maintain a 100% vested and nonforfeitable account for the amount transferred and its share of the Trust Fund’s accretions or losses, to be known as the Participant’s Rollover Account. Transferred and Rollover Contributions shall be separately accounted for.

“Rollover Contribution” means any rollover contribution described in Code Sections 402(c)(4), 403(a)(4), 403(b)(8), 408(d)(3) or 457(e)(16).

An Employee who makes a contribution to the Plan described in this Section shall become a Plan Participant on the date the Trustee accepts the contribution. However, no Employer Contributions will be made on behalf of such Employee, nor will the Employee be eligible to direct the Employer to make Salary Reduction Contributions on his or her behalf, until the Employee satisfies the Plan eligibility requirements for such contributions set forth in Article III.

Notwithstanding the above, for Plan Years beginning January 1, 1999 and thereafter, the Trustee shall no longer accept funds transferred from plans qualified under 401(a) of the Internal Revenue Code unless the transferor plan is maintained by the Employer or by an Affiliate. Rollover Contributions to the Plan shall continue to be allowed in accordance with this Section 5.03.

ARTICLE VI

PROVISIONS APPLICABLE TO TOP HEAVY PLANS

6.01 In general. For any Top Heavy Plan Year, the Plan shall provide the minimum contribution for Non-Key Employees described in Section 4.04.

If the Plan is or becomes a Top Heavy Plan, the provisions of this Article will supersede any conflicting provisions in the Plan.

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6.02 Determination of Top Heavy Status.

(a) This Plan shall be a Top Heavy Plan for any Plan Year commencing after December 31, 1983 if any of the following conditions exists:

(i) If the top heavy ratio for this Plan exceeds 60 percent and this Plan is not part of any required aggregation group or permissive aggregation group of plans.

(ii) If this Plan is a part of a required aggregation group of plans but not part of a permissive aggregation group and the top heavy ratio for the group of plans exceeds 60 percent.

(iii) If this Plan is a part of a required aggregation group and part of a permissive aggregation group of plans and the top heavy ratio for the permissive aggregation group exceeds 60 percent.

(b) The Plan top heavy ratio shall be determined as follows:

(i) Defined Contribution Plans Only: If the Employer maintains one or more defined contribution plans (including any Simplified Employee Pension Plan, as defined in Section 408(k) of the Code) and the Employer has not maintained any defined benefit plan which during the 1-year period (5-year period in determining whether the Plan is Top Heavy for Plan Years beginning before January 1, 2002) ending on the determination date(s) has or has had accrued benefits, the top-heavy ratio for this Plan alone or for the required or permissive aggregation group, as appropriate, is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the determination date(s) (including any part of any account balance distributed in the 1-year period ending on the determination date(s) (5-year period ending on the determination date in the case of a distribution made for a reason other than severance from employment, death or disability and in determining whether the Plan is Top Heavy for Plan Years beginning before January 1, 2002), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the 1-year period ending on the determination date(s)) (5-year period ending on the determination date in the case of a distribution made for a reason other than severance from employment, death or disability and in determining whether the Plan is Top Heavy for Plan Years beginning before January 1, 2002), both computed in accordance with Section 416 of the Code and the Regulations thereunder. Both the numerator and denominator of the

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top-heavy ratio are increased to reflect any contribution not actually made as of the determination date, but which is required to be taken into account on that date under Section 416 of the Code and the Regulations thereunder.

(ii) Defined Contribution and Defined Benefit Plans: If the Employer maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Employer maintains or has maintained one or more defined benefit plans which during the 1-year period (5-year period in determining whether the Plan is Top Heavy for Plan Years beginning before January 1, 2002) ending on the determination date(s) has or has had any accrued benefits, the top-heavy ratio for any required or permissive aggregation group, as appropriate, is a fraction, the numerator of which is the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with (i) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the determination date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all Participants, determined in accordance with (i) above, and the present value of accrued benefits under the defined benefit plan or plans for all Participants as of the determination date(s), all determined in accordance with Section 416 of the Code and the Regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the top-heavy ratio are increased for any distribution of an accrued benefit made in the 1-year period ending on the determination date (5-year period ending on the determination date in the case of a distribution made for a reason other than severance from employment, death or disability and in determining whether the Plan is Top Heavy for Plan Years beginning before January 1, 2002).

(iii) Determination of Values of Account Balances and Accrued Benefits: For purposes of (i) and (ii) above the value of Account balances and the present value of Accrued Benefits will be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the determination date, except as provided in Section 416 of the Code and the Regulations thereunder for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of a Participant (1) who is not a Key Employee but who was Key Employee in a prior year, or (2) who has not had at least one Hour of Service with the Employer at any time during the 1-year period (five-year period in determining whether the Plan is Top Heavy for Plan Years

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beginning before January 1, 2002) ending on the determination date will be disregarded. The calculation of the top-heavy ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Section 416 of the Code and the Regulations thereunder. Tax Deductible Voluntary Employee contributions will not be taken into account for purposes of computing the top-heavy ratio. When aggregating plans the value of account balances and accrued benefits will be calculated with reference to the determination dates that fall within the same calendar year.

The Accrued Benefit of a Participant other than a Key Employee shall be determined under (i) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer; or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Section 411(b)(l)(C) of the Code.

(c) Permissive aggregation group: The required aggregation group of plans plus any other plan or plans of the Employer which, when considered as a group with the required aggregation group, would continue to satisfy the requirements of Section 401(a)(4) and 410 of the Internal Revenue Code.

(d) Required aggregation group: (i) Each qualified plan of the Employer in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the Plan has terminated), and (ii) any other qualified plan of the Employer which enables a plan described in (i) to meet the requirements of Section 401(a)(4) or 410 of the Internal Revenue Code.

(e) Determination date: The last day of the preceding Plan Year.

(f) Present Value: Present value shall be based on the 1971 Group Annuity Table, unprojected for post-retirement mortality, with no assumption for pre-retirement withdrawal and interest at the rate of 5% per annum.

ARTICLE VII

LIMITATIONS ON ALLOCATIONS

(See Sections 7.11-7.15 for definitions applicable to this Article VII).

7.01 If the Participant does not participate in, and has never participated in another qualified plan, a welfare benefit fund (as defined in Section 419(e) of the Code), an individual

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medical account (as defined in Section 415(l)(2) of the Code) or a simplified employee pension (as defined in Section 408(k) of the Code), maintained by the Employer, the amount of Annual Additions which may be credited to the Participant’s Accounts for any Limitation Year will not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan. If the Employer contribution that would otherwise be contributed or allocated to the Participant’s Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount.

7.02 Prior to determining the Participant’s actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable estimation of the Participant’s annual Compensation for the Limitation Year, uniformly determined for all Participants similarly situated.

7.03 As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant’s actual Compensation for the Limitation Year.

7.04 If, pursuant to Section 7.03, or as a result of the allocation of forfeitures, any Excess Amount and earnings attributable thereto will be disposed of as follows:

(i) Any Voluntary After-Tax Contributions (plus attributable earnings), to the extent they would reduce the Excess Amount, will be distributed to the Participant;

(ii) Any Salary Reduction Contributions to the extent they would reduce the Excess Amount, will be distributed to the Participant; and

(iii) If after the application of paragraphs (i) and (ii) an Excess Amount still exists, the Excess Amount will be held unallocated in a Suspense Account. The Suspense Account will be applied to reduce future Employer Match Contributions for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year if necessary.

For Plan Years beginning January 1, 1998 and thereafter, if any Match Contributions are attributable to returned Salary Reduction Contributions in (ii) above, such Match Contributions shall be forfeited and applied in accordance with Section 4.05.

If a Suspense Account is in existence at any time during the Limitation Year pursuant to this Section, it will not participate in the allocation of the Trust’s investment gains and losses.

If a Suspense Account is in existence at any time during a particular Limitation Year, all amounts in the Suspense Account must be allocated and reallocated to Participants’

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Accounts before any Employer contributions may be made to the Plan for that Limitation Year. Excess amounts may not be distributed to Participants or Former Participants.

Sections 7.05 through 7.10 (These Sections apply if, in addition to this Plan, the Participant is covered under another qualified defined contribution plan, a welfare benefit fund, an individual medical account or a simplified employee pension maintained by the Employer during any Limitation Year.)

7.05 The Annual Additions which may be credited to a Participant’s Accounts under this Plan for any such Limitation Year will not exceed the Maximum Permissible Amount reduced by the Annual Additions credited to a Participant’s account under the other plans, welfare benefit funds, individual medical accounts and simplified employee pensions for the same Limitation Year. If the Annual Additions with respect to the Participant under other defined contribution plans, welfare benefit funds, individual medical accounts and simplified employee pensions maintained by the Employer are less than the Maximum Permissible Amount and the Employer contribution that would otherwise be contributed or allocated to the Participant’s Accounts under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans and funds for the Limitation Year will equal the Maximum Permissible Amount. If the Annual Additions with respect to the Participant under such other defined contribution plans, welfare benefit funds, individual medical accounts and simplified employee pensions in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant’s Accounts under this Plan for the Limitation Year.

7.06 Prior to determining the Participant’s actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount in the manner described in Section 7.02.

7.07 As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant’s actual Compensation for the Limitation Year.

7.08 If, pursuant to Section 7.07, or as a result of the allocation of forfeitures, a Participant’s Annual Additions under this Plan and such other plans would result in an Excess Amount for a Limitation Year, the Excess Amount will be deemed to consist of the Annual Additions last allocated, except that Annual Additions attributable to a simplified employee pension will be deemed to have been allocated first, followed by Annual Additions to a welfare benefit fund or individual medical account, regardless of the actual allocation date.

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7.09 If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the Excess Amount attributed to this Plan will be the product of:

(i) the total Excess Amount allocated as of such date, times

(ii) the ratio of (A) the Annual Additions allocated to the Participant for the Limitation Year as of such date under this Plan to (B) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all the other qualified defined contribution plans.

7.10 Any Excess Amount attributed to this Plan will be disposed of in the manner described in Section 7.04.

(Sections 7.11—7.15 are definitions used in this Article VII).

7.11 Annual Additions—The sum of the following amounts credited to a Participant’s Accounts for the Limitation Year:

(i) Employer contributions (including Salary Reduction Contributions);

(ii) Employee contributions;

(iii) forfeitures; and

(iv) allocations under a simplified employee pension.

For this purpose, any Excess Amount applied under Sections 7.04 or 7.10 in the Limitation Year to reduce Employer contributions will be considered Annual Additions for such Limitation Year.

Amounts allocated after March 31, 1984, to an individual medical account, as defined in Section 415(l)(1) of the Internal Revenue Code, which is part of a defined benefit plan maintained by the Employer, are treated as annual additions to a defined contribution plan. Also, amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a Key Employee, as defined in Section 419(A)(d)(3) of the Code, under a welfare benefit fund, as defined in Code Section 419(e), maintained by the Employer, are treated as annual additions to a defined contribution plan.

7.12 Defined Contribution Dollar Limitation—$40,000 as adjusted under Code Section 415(d).

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7.13 Employer—For purposes of this Article, Employer shall mean the Employer that adopts this plan and all members of a controlled group of corporations (as defined in Section 414(b) of the Code as modified by Section 415(h)), all trades or business under common control (as defined in Code Section 414(c) as modified by Section 415(h) of the Code), or all members of an affiliated service group (as defined in Code Section 414(m) of the Code) of which the Employer is a part, and any other entity required to be aggregated with the Employer pursuant to regulations promulgated under Code Section 414(o).

7.14 Excess Amount—The excess of the Participant’s Annual Additions for the Limitation Year over the Maximum Permissible Amount.

7.15 Maximum Permissible Amount—The maximum Annual Addition that may be contributed or allocated to a Participant’s Accounts under the Plan for any Limitation Year shall not exceed the lesser of:

(i) the Defined Contribution Dollar Limitation; or

(ii) 25 percent of the Participant’s Compensation for the Limitation Year.

The Compensation limitation referred to in (ii) shall not apply to any contribution for medical benefits (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as an Annual Addition under Section 415(c)(1) or 419A(d)(2) of the Code.

If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12-consecutive month period, the maximum permissible amount will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction:

Number of months in the short Limitation Year

12

ARTICLE VIII

PARTICIPANT ACCOUNTS AND VALUATION OF ASSETS

8.01 Participant Accounts. The Trustee shall establish and maintain a 401(k) Account, Match Contribution Account, Non-Elective Employer Contribution Account, Regular Account, Rollover Account, Tax Deductible Contribution Account and Voluntary Contribution Account for each Participant, when appropriate, to account for the Participant’s Accrued Benefit. All contributions by or on behalf of a Participant shall be deposited to the appropriate Account.

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The Plan Administrator shall instruct the Trustee to credit all appropriate amounts to each Participant’s Accounts, including contributions made by or on behalf of the Participant and any Policies issued on the life of the Participant. The Plan Administrator shall keep records which shall include the Account balances of each Participant.

8.02 Valuation of Trust Fund. As of each Valuation Date the Trustee shall determine (or cause to be determined) the net worth of the assets of the Trust Fund and report such value to the Plan Administrator in writing. In determining such net worth, the Trustee shall evaluate the assets of the Trust Fund at their fair market value as of such Valuation Date. In making any such valuation of the Trust Fund, the Trustee shall not include any contributions made by the Employer which have not been allocated to Participant Accounts prior to such Valuation Date or any Policies purchased as investments for Participant Accounts.

ARTICLE IX

401(k) ALLOCATION LIMITATIONS

9.01 Definitions. For purposes of this Article, the following definitions shall be used:

(a) “Actual Deferral Percentage” or “ADP” means the ratio (expressed as a percentage) of Salary Reduction Contributions, other than Catch-up Contributions, made on behalf of an Eligible Participant to that Participant’s Compensation for the Plan Year. Two Actual Deferral Percentages shall be calculated and used, one including and the second excluding any Salary Reduction Contributions that are included in the Contribution Percentage of the Participant as defined in Plan Section 10.01(b). The Plan Administrator may include 100% vested and non-forfeitable Match Contributions made for the Participant for the Plan Year in the above described numerator, if such inclusion is made on a uniform nondiscriminatory basis for all Participants; however, Match Contributions that are included in the Actual Deferral Percentage of the Participant may not be included in the numerator of the Contribution Percentage of the Participant as defined in Section 10.01(b). To be considered as contributed for a given Plan Year for purposes of inclusion in a given Actual Deferral Percentage, Contributions must be made by the end of the 12 month period immediately following the Plan Year to which the contribution relates.

Additionally, if one or more other plans allowing contributions under Code Section 401(k) are considered with this Plan as one for purposes of Code Section 401(a)(4) or 410(b), the Actual Deferral Percentages for all Eligible Participants under all such plans shall be determined as if this Plan and all such other plans were one; for Plan Years beginning after 1989, such Plans must have the same Plan Year. If any Highly Compensated Employee is also

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an Eligible Participant in one or more other plans allowing contributions under Code Section 401(k), the Actual Deferral Percentage for that Employee shall be determined as if this Plan and all such other plans were one; if such plans have different Plan Years, the Plan Years ending with or within the same calendar year shall be used.

(b) “Average Actual Deferral Percentage” means the average (expressed as a percentage) of the Actual Deferral Percentages of a group.

(c) “Eligible Participant” means a Participant eligible to have Salary Reduction Contributions made on his or her behalf.

(d) “Excess 401(k) Contributions” means with respect to any Plan Year, the excess of: (i) the aggregate amount of Employer contributions actually taken into account in computing the Actual Deferral Percentages of Highly Compensated Employees for such Plan Year, over (ii) the maximum amount of such contributions permitted by the Actual Deferral Percentage Test (determined by hypothetically reducing the numerators of Highly Compensated Employees in order of their Actual Deferral Percentages beginning with the highest of such percentages).

(e) “Excess Elective Deferrals” means those Salary Reduction Contributions of a Participant that either (1) are made during the Participant’s taxable year and exceed the dollar limitation under Code Section 402(g) (including, if applicable, the dollar limitation on Catch-up Contributions defined in Code Section 414(v)) for such year; or (2) are made during a calendar year and exceed the dollar limitation under Code Section 402(g) (including, if applicable, the dollar limitation on Catch-up Contributions defined in Code Section 414(v)) for the Participant’s taxable year beginning in such calendar year, counting only Salary Reduction Contributions made under this Plan and any other 401(k) qualified retirement plan, contract or arrangement maintained by the Employer.

9.02 Average Actual Deferral Percentage Tests. The Average Actual Deferral Percentage for Highly Compensated Employees for each Plan Year compared to the Average Actual Deferral Percentage for Non-Highly Compensated Employees for the Plan Year must satisfy one of the following tests:

(i) The Average Actual Deferral Percentage for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Average Actual Deferral Percentage for Non-Highly Compensated Employees for the Plan Year multiplied by 1.25; or

(ii) The Average Actual Deferral Percentage for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Average Actual Deferral Percentage for Non-Highly Compensated Employees for the Plan Year multiplied by 2, provided that the Average Actual Deferral Percentage for Eligible Participants who are Highly Compensated Employees does not exceed the Average Actual Deferral Percentage for Non-Highly

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Compensated Employees for the Plan Year by more than two (2) percentage points.

A Participant is a Highly Compensated Employee for a particular Plan Year if he or she meets the definition of a Highly Compensated Employee in effect for that Plan Year. Similarly, a Participant is a Non-Highly Compensated Employee for a particular Plan Year if he or she does not meet the definition of a Highly Compensated Employee in effect for that Plan Year.

For Plan Years beginning on or after January 1, 1999, all eligible Non-Highly Compensated Employees who have not met the age and service requirements of Code Section 410(a)(1)(A), may be disregarded in performing the Average Actual Deferral Percentage Tests as provided in Code Section 401(k)(3)(F) and the Regulations thereunder.

9.03 Refund of Excess 401(k) Contributions. Notwithstanding any other provision of this Plan except Section 9.05, Excess 401(k) Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts such Excess 401(k) Contributions were allocated for the preceding Plan Year. Excess 401(k) Contributions are allocated to the Highly Compensated Employees with the largest dollar amounts of Employer contributions taken into account in calculating the Actual Deferral Percentage test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest dollar amount of such Employer contributions and continuing in descending order until all the Excess Contributions have been allocated. For purposes of the preceding sentence, the “largest amount” is determined after distribution of any Excess 401(k) Contributions. The income or loss allocable to Excess 401(k) Contributions allocated to each Participant shall be the income or loss allocable to the 401(k) Contributions for the Plan Year multiplied by a fraction, the numerator of which is the Participant’s Excess 401(k) Contributions for the Plan Year and the denominator of which is the sum of all Accounts of the contribution types to which Excess 401(k) Contributions have been attributed as of the Plan Year and the sum of such contribution types made during the Plan Year, determined without regard to any income or loss occurring during such Plan Year. The Plan Administrator shall make every effort to make all required distributions and forfeitures within 2 ¹/2 months of the end of the affected Plan Year; however, in no event shall such distributions be made later than the end of the following Plan Year. Distributions and forfeitures made later than 2 ¹/2 months after the end of the affected Plan Year will be subject to tax under Code Section 4979.

All forfeitures arising under this Section shall be applied as specified in Section 4.05 of the Plan and treated as arising in the Plan Year after that in which the Excess 401(k) Contributions were made; however, no forfeitures arising under this Section shall be allocated to the Account of any affected Highly Compensated Employee.

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Excess 401(k) Contributions shall be treated as Annual Additions under the Plan.

For a period of four 12 month periods beginning from the given Plan Year, or such other period as the Secretary of the Treasury may designate, the Employer shall maintain records showing what contributions and Compensation were used to satisfy this Section and Section 9.02.

9.04 Accounting for Excess 401(k) Contributions. Excess 401(k) Contributions allocated to a Participant shall be distributed from the Participant’s 401(k) Account and Match Contribution Account (if applicable) in proportion to the Participant’s Salary Reduction Contributions and Employer Match Contributions (to the extent used in the Actual Deferral Percentage Test) for the Plan Year.

9.05 Special Contributions. Notwithstanding any other provisions of this Plan except Section 9.09, in lieu of distributing Excess 401(k) Contributions as provided in Section 9.03, the Employer may make 401(k) Employer Contributions on behalf of Non-Highly Compensated Employees that are sufficient to satisfy either of the actual deferral percentage tests.

9.06 Maximum Salary Reduction Contributions. No Employee shall be permitted to have Salary Reduction Contributions made under this Plan, other than Catch-up Contributions, during any calendar year in excess of $7,000 (or such other amount as is designated by the Secretary of the Treasury as the limit under Code Section 402(g)).

9.07 Participant Claims. Participants under other plans described in Code Sections 401(k), 408(k) or 403(b) may submit a claim to the Plan Administrator specifying the amount of their Excess Elective Deferral. Such claim shall: (i) be in writing; (ii) be submitted no later than March 1 of the year after the Excess Elective Deferral was made; and (iii) state that such amount, when added to amounts deferred under other plans described in Code Sections 401(k), 408(k) or 403(b), exceeds $7,000 (or such other amount as the Secretary of the Treasury may designate).

9.08 Distribution of Excess Elective Deferrals. Notwithstanding any other provision of this Plan, Excess Elective Deferrals and income allocable thereto shall be distributed to the affected Participant no later than the April 15 following the calendar year in which such Excess Elective Deferrals were made. For Plan Years beginning after 1990, allocable income or loss shall be income or loss allocable to Salary Reduction Contributions for the Plan Year multiplied by a fraction, the numerator of which is the Participant’s Excess Elective Deferrals for the Plan Year and the denominator is the Participant’s Salary Reduction Contribution Account as of the beginning of the Plan Year and the sum of such contribution types made during the Plan Year, determined without regard to any income or loss occurring during such Plan Year.

Notwithstanding any provision of this Plan to the contrary, any Match Contributions plus earnings that are attributable to any Excess Elective Deferrals that have been

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refunded shall be forfeited. All such forfeitures shall be treated as arising in the Plan Year after that in which the refunded Excess Deferrals were made and shall be used to reduce future Employer Match Contributions.

9.09 Operation in Accordance With Regulations. The determination and treatment of Actual Deferral Percentages and Excess 401(k) Contributions, and the operation of the Average Actual Deferral Percentage Test shall be in accordance with such additional requirements as may be prescribed by the Secretary of the Treasury.

ARTICLE X

401(m) ALLOCATION LIMITATIONS

10.01 Definitions. For purposes of this Article, the following Definitions shall be used:

(a) “Average Contribution Percentage” means the average (expressed as a percentage) of the Contribution Percentages of a group.

(b) “Contribution Percentage” means the ratio (expressed as a percentage) of: the Employer Match and Voluntary After Tax Contributions made on behalf of the Participant to the Participant’s Compensation for the Plan Year. The Plan Administrator may include Salary Reduction Contributions (other than Catch-up Contributions) for the Participant for the Plan Year in the above described numerator, if such inclusion is made on a uniform nondiscriminatory basis for all Participants. To be considered as contributed for a given Plan Year for purposes of inclusion in a given Average Contribution Percentage, Contributions must be made by the end of the 12 month period immediately following the Plan Year to which the contribution relates. The Plan Administrator may not include Employer Match Contributions in the numerator to the extent such contributions are included in the Actual Deferral Percentage of the Participant, as defined in Section 9.01(a), and may not include Salary Reduction Contributions unless Section 9.02 can be satisfied by both including and excluding such Salary Reduction Contributions.

Additionally, if one or more other Plans allowing contributions under Code Section 401(k), voluntary after tax contributions or employer match Contributions are considered with this Plan as one for purposes of Code Section 401(a)(4) or 410(b), the Contribution Percentages for all eligible participants under all such plans shall be determined as if this Plan and all such others were one; for Plan Years beginning after 1989, such Plans must have the same Plan Year.

If any Highly Compensated Employee is also an eligible participant in one or more other plans allowing contributions under Code Section 401(k), voluntary after tax contributions or employer match Contributions, the

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Contribution Percentage for that Employee shall be determined as if this Plan and all such other plans were one; if such plans have different Plan Years, the Plan Years ending with or within the same calendar year shall be used.

For Plan Years beginning January 1, 1999 and thereafter, all eligible Non-Highly Compensated Employees who have not met the age and service requirements of section 410(a)(1)(A), may be disregarded in performing the Average Contribution Percentage Tests as provided in Code Section 401(m)(5)(C).

Notwithstanding the foregoing, in determining a Participant’s Contribution Percentage Employer Match Contributions shall not include Match Contributions forfeited because they were attributable to Excess 401(k) Contributions or to Excess Elective Deferrals.

(c) “Eligible Participant” means a Participant eligible to have Employer Match, Salary Reduction or Voluntary After Tax Contributions made on his or her behalf.

(d) “Excess 401(m) Contributions” means with respect to any Plan Year, the excess of: (1) the aggregate Contribution Percentage amounts taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year; over (2) the maximum Contribution Percentage amounts permitted by the Average Contribution Percentage test (determined by hypothetically reducing the numerators of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such Percentages).

10.02 Average Contribution Percentage Tests. The Average Contribution Percentage for Highly Compensated Employees for each Plan Year compared to the Average Contribution Percentage for Non-Highly Compensated Employees for the Plan Year must satisfy one of the following tests:

(i) The Average Contribution Percentage for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Average Contribution Percentage for Non-Highly Compensated Employees for the Plan Year multiplied by 1.25; or

(ii) The Average Contribution Percentage for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Average Contribution Percentage for Non-Highly Compensated Employees for the Plan Year multiplied by 2, provided that the Average Contribution Percentage for Eligible Participants who are Highly Compensated Employees does not exceed the Average Contribution Percentage for Non-Highly Compensated Employees for the Plan Year by more than two (2) percentage points.

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10.03 Refund and Forfeiture of Excess 401(m) Contributions. Notwithstanding any other provision of this Plan except Sections 10.05 and 10.06, Excess 401(m) Contributions and the income or loss allocable thereto treated as Employer Match, Salary Reduction, Voluntary After Tax or 401(k) Employer Contributions shall be distributed to affected Highly Compensated Employees. The income or loss shall be income or loss allocable to the affected accounts for the Plan Year multiplied by a fraction, the numerator of which is the Participant’s Excess 401(m) Contributions for the Plan Year and the denominator of which is the sum of all Accounts of the Contribution types to which Excess 401(m) Contributions have been attributed as of the beginning of the Plan Year and the sum of such contribution types made during the Plan Year, determined without regard to any income or loss occurring during such Plan Year. The Plan Administrator shall make every effort to refund all Excess 401(m) Contributions within 2 ¹/2 months of the end of the affected Plan Year; however, in no event shall Excess 401(m) Contributions be refunded later than the end of the following Plan Year. Distributions made later than 2 ¹/2 months after the end of the affected Plan Year will be subject to tax under Code Section 4979.

Notwithstanding any provision of this Plan to the contrary, any Match Contributions plus earnings that are attributable to any Excess 401(m) Contributions that have been refunded shall be forfeited. All such forfeitures shall be treated as arising in the Plan Year after that in which the refunded Excess 401(m) Contributions were made and shall be used to reduce future Employer Match Contributions.

For a period of four 12 month periods beginning from the given Plan Year, or such other period as the Secretary of the Treasury may designate, the Employer shall maintain records showing what contributions and compensation were used to satisfy this Section and Section 10.02.

10.04 Accounting for Excess 401(m) Contributions. Excess 401(m) Contributions allocated to a Participant shall be forfeited, if forfeitable or distributed on a pro-rata basis from the Participant’s Voluntary After Tax Contribution Account, 401(k) Account and Match Contribution Account.

10.05 Special 401(k) Employer Contributions. Notwithstanding any other provisions of this Plan except Section 10.07, in lieu of refunding Excess 401(m) Contributions as provided in Section 10.03, the Employer may make 401(k) Employer Contributions on behalf of Non-Highly Compensated Employees that are sufficient to satisfy the Average Contribution Percentage test.

10.06 Order of Determinations. The determination of Excess 401(m) Contributions shall be made after first determining Excess Elective Deferrals, and then determining Excess 401(k) Contributions.

10.07 Operation in Accordance With Regulations. The determination and treatment of Contribution Percentages and Excess 401(m) Contributions, and the operation of the

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Average Contribution Percentage Test shall be in accordance with such additional requirements as may be prescribed by the Secretary of the Treasury.

ARTICLE XI

IN-SERVICE WITHDRAWALS

11.01 Withdrawals from Tax Deductible Contribution or Voluntary Contribution Accounts. A Participant shall have the right at any time to request the Plan Administrator for a withdrawal in cash of amounts in his or her Tax Deductible Contribution Account or Voluntary Contribution Account.

11.02 Withdrawals from Match Contribution or 401(k) Accounts. At any time after a Participant attains Age 59 ¹/2 or is Totally and Permanently Disabled, a Participant shall have the right to request the Plan Administrator for a withdrawal in cash of amounts in his or her Match Contribution or 401(k) Account. For Plan Years beginning after 1988, a Participant shall have the right at any time to request the Plan Administrator for a withdrawal in cash of Salary Reduction Contributions, with earnings accrued thereon as of December 31, 1988 for “financial hardship”. For Plan Years beginning after 1991, financial hardship distributions may be increased by 401(k) Employer Contributions plus earnings thereon, as of December 31, 1988. The Plan Administrator shall determine whether an event constitutes a financial hardship. Such determination shall be based upon non-discriminatory rules and procedures, which shall be conclusive and binding upon all persons.

The processing of applications and any distributions of amounts under this Section shall be made as soon as administratively feasible. The amount of a distribution based upon “financial hardship,” less any income and penalty taxes, cannot exceed the amount required to meet the immediate financial need created by the hardship and not reasonably available from other resources of the Participant.

In determining whether a hardship distribution is permissible the following special rules shall apply:

(i) The following are the only financial needs considered immediate and heavy: deductible medical expenses (whether incurred or necessary to obtain medical care)(within the meaning of Section 213(d) of the Code) of the Employee, the Employee’s spouse, children, or dependents (within the meaning of Code Section 152); the purchase (excluding mortgage payments) of a principal residence for the Employee; payment of tuition, related educational fees, and room and board expenses for the next twelve months of post-secondary education for the Employee, the Employee’s spouse, children or dependents; or the need to prevent the eviction of the Employee from, or a foreclosure on the mortgage of, the Employee’s principal residence.

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(ii) A distribution will be considered as necessary to satisfy an immediate and heavy financial need of the Employee only if:

(A) The Employee has obtained all distributions, other than hardship distributions, and all nontaxable loans under all plans maintained by the Employer;

(B) All plans maintained by the Employer provide that the Employee’s Elective Deferrals (and Employee Contributions) will be suspended for six months (twelve months for hardship distributions made prior to January 1, 2002) after the receipt of the hardship distribution;

(C) The distribution, less any income and penalty taxes, is not in excess of the amount of an immediate and heavy financial need; and

(D) In addition for hardship distributions made before 2002, all plans maintained by the Employer provide that the Employee may not make Elective Deferrals for the Employee’s taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Section 402(g) of the Code for such taxable year less the amount of such Employee’s Elective Deferrals for the taxable year of the hardship distribution.

11.03 Withdrawals from Regular or Rollover Accounts. Once a Participant has participated in the Plan for two years, at any time thereafter the Participant shall have the right at any time to request the Plan Administrator for a withdrawal in cash of amounts allocated to his or her Rollover Account. For Plan Years beginning January 1, 1999, and thereafter, the Participant may request a withdrawal of cash amounts allocated to his or her Rollover Account immediately upon the Trustee’s receipt of such Rollover Contribution. Once a Participant’s Regular Account is 100% vested the Participant shall have the right at any time to request the Plan Administrator for a withdrawal in cash of amounts allocated to such Account; provided, however, that unless the Participant is over Age 59 ¹/2 or is Permanently and Totally Disabled, the amount subject to withdrawal shall not include amounts attributable to contributions made to the Regular Account during the two-year period preceding the date of payment.

11.04 Rules for In-Service Withdrawals. The Plan Administrator may impose a dollar minimum for partial withdrawals. If the amount in the Participant’s appropriate Account is less than the minimum, the Plan Administrator shall pay the Participant the entire amount then in the Participant’s Account from which the withdrawal is to be made if a withdrawal of the entire amount is otherwise permissible under the rules set forth in this Article. If the entire amount cannot be paid under such rules, whatever amount is permissible shall be paid.

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In the case of a withdrawal from a Rollover Account described in Section 13.03, if necessary to comply with the joint and survivor rules of Code Sections 401(a)(11) and 417, the Plan Administrator shall require the consent of any Participant’s spouse before making any in-service withdrawal. Any such consent shall satisfy the requirements of Section 13.07.

Any amount to be withdrawn shall be payable as of the Valuation Date coincident with or next following the date which is 15 days following receipt of the written request by the Plan Administrator.

ARTICLE XII

PLAN LOANS

12.01 General Rules. Upon the application of any Participant, Beneficiary or, for Plan Years beginning prior to January 1, 1999 an alternate payee entitled to Plan benefits pursuant to a Qualified Domestic Relations Order, the Plan Administrator may enter into a loan agreement with such person and authorize the Trustee to make a loan pursuant thereto. The amount of any such loan and the provisions for its repayment shall be in accordance with such non-discriminatory rules and procedures as are adopted by the Retirement Plan Committee and uniformly applied to all borrowers. Such written procedures shall be part of this Plan document.

Applications for loans will be made to the Plan Administrator using forms provided by the Plan Administrator. Loan applications meeting the requirements of this Article will be granted and all borrowers must execute a promissory note meeting the requirements of this Article.

Plan loans shall be granted on a uniform nondiscriminatory basis, so that they are available to all borrowers on a reasonably equivalent basis and are not made available to highly compensated Employees or officers of the Employer in an amount greater than the amount made available to other Employees. Loans will be made available to Former Participants to the extent required by regulations issued by the Department of Labor under Section 408(b) of ERISA and to other Former Participants as is needed to satisfy Code Section 401(a)(4) and the Regulations promulgated thereunder. Such loans shall be adequately secured, shall bear a reasonable rate of interest and shall provide for periodic repayment over a reasonable period of time, all in accordance with the Committee’s rules and procedures for Plan loans.

To the extent required under Sections 401(a)(11) and 417 of the Internal Revenue Code and the Regulations promulgated thereunder, a Participant must obtain the consent of his or her spouse, if any, within the 90 day period before the time the Participant’s Accrued Benefit is used as security for a Plan loan. A new consent is required if the Accrued Benefit is used for any increase in the amount of security. The consent shall comply with the requirements of Section 417 of the Internal Revenue

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Code, but shall be deemed to meet any requirements contained in such section relating to the consent of any subsequent spouse.

Tax Deductible Voluntary Contributions, plus earnings thereon, may not be used as security for Plan loans.

The Plan Administrator may not require a minimum loan amount greater than $1,000.

No loan shall be made to the extent such loan when added to the outstanding balance of all other loans to the borrower would exceed one-half ( ¹/2) of the present value of the nonforfeitable Accrued Benefit of the borrower under the Plan (but not more than $50,000 reduced by the difference between the highest outstanding balance during the previous 365 days and the current outstanding balance).

For purposes of calculating the above limitations, all loans and accrued benefits from all plans of the Employer and other members of a group of employers described in Code Sections 414(b), (c) and (m) are aggregated.

The Plan Administrator shall determine a reasonable rate of interest for each loan by identifying the rate(s) charged for similar and equivalent commercial loans by institutions in the business of making loans. No loan shall be granted to any borrower or other person who already has a total of two loans or more outstanding under this Plan or any other plan maintained by the Employer (or five loans outstanding for Plan Years beginning before January 1, 1996) or who is in default on any loan.

The Retirement Plan Committee may direct the Trustee to deduct from a Participant’s Accounts under the Plan a reasonable fee (as determined by the Committee) to offset the cost of processing and administering the loan.

12.02 Loan Repayments. Any such loans shall be repaid by the borrower in accordance with the loan agreement. Loans shall provide for periodic repayment, with payment to be no less frequent than quarterly over a period not to exceed five (5) years; provided, however, that loans used to acquire any dwelling unit which, within a reasonable time, is to be used (determined at the time the loan is made) as a principal residence of a Participant, may provide for periodic repayment, with payment to be no less frequent than quarterly over a reasonable period of time that exceeds five (5) years.

In the event the loan is not repaid within the time period prescribed, the Plan Administrator shall direct the Trustee to deduct the total amount due and payable, plus interest thereon, from distributable amounts in the borrower’s Accounts. If distributable amounts in the borrower’s Accounts are not sufficient to repay such amount, the Plan Administrator shall enforce the terms of any agreement providing additional security for the loan and shall pursue such other remedies available at law to collect the indebtedness.

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In the event of a loan default, attachment of the borrower’s Accrued Benefit will not occur until a distributable event occurs in the Plan. Default shall occur upon the earlier of any uncured failure to make payments in accordance with the promissory note or the death of the borrower.

Loan repayments will be suspended under this Plan as permitted under 414(u)(4) of the Internal Revenue Code.

ARTICLE XIII

RETIREMENT, TERMINATION AND DEATH BENEFITS

13.01 Retirement or Termination from Service. The Accrued Benefit of each Employee who was hired prior to December 2, 1986 and who became a Participant in the Plan on or prior to January 1, 1989, shall be 100% vested and nonforfeitable at all times. The Regular Account of Employees who are hired on or after December 2, 1986 and who become Participants after December 31, 1988 shall vest according to the following schedule:

Completed Years of Service	Vested Percentage
Less than 2	0
2	25
3	50
4	75
5	100

The Match Contribution and Non-Elective Employer Contribution Accounts of each Employee who was hired after December 1,1986 shall be 50% vested and nonforfeitable after the completion of one Year of Service and 100% vested and nonforfeitable after the completion of two Years of Service. Provided, however, that the Match Contribution and Non-Elective Employer Contribution Accounts of such Employees shall be 100% vested and nonforfeitable at all times for such Employees who completed at least one Hour of Service on or before December 31, 2004.

Any amendment to the above schedule shall comply with the requirements of Section 20.02 of the Plan.

Notwithstanding the foregoing, each actively employed Participant’s Accrued Benefit shall become 100% vested and nonforfeitable when the Participant attains his or her Normal Retirement Age or becomes Totally and Permanently Disabled.

The Salary Reduction Contributions, Employer Match Contributions contributed to the Plan for Plan Years commencing prior to January 1, 2005, 401(k) Employer Contributions, Tax Deductible Contributions and Voluntary After-Tax Contributions

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of all Participants, plus earnings thereon, shall be 100% vested and nonforfeitable at all times.

Upon a Participant’s attainment of his or her Normal Retirement Age or termination of employment, the Participant shall be entitled to a benefit that can be provided by the value of his or her vested Accrued Benefit in accordance with the further provisions of this Article.

The Plan Administrator shall notify the Trustee when the Normal Retirement Age or termination of employment of each Participant shall occur and shall also advise the Trustee as to the manner in which retirement or termination benefits are to be distributed to a Participant, subject to the provisions of this Article. Upon receipt of such notification and subject to the other provisions of this Article, the Trustee shall take such action as may be necessary in order to distribute the Participant’s vested Accrued Benefit.

13.02 Late Retirement Benefits. If a Participant shall continue in active employment following his or her Normal Retirement Age, he or she shall continue to participate under the Plan and Trust. Except as provided in Section 13.05, upon actual retirement such Participant shall be entitled to a benefit that can be provided by the value of his or her Accrued Benefit. Late Retirement benefits shall be distributed in accordance with the further provisions of this Article.

13.03 Death Benefits. If a Participant or Former Participant shall die prior to the commencement of any benefits otherwise provided under this Article XIII, except as provided below his or her Beneficiary shall be entitled to a lump sum death benefit equal to the amount credited to the Participant’s Accounts as of the date the Plan Administrator (or Insurer, in the case of amounts allocated to any Policy) receives due proof of the Participant’s death. A Participant’s death benefit shall also include the death proceeds of any Policy allocated to one of the Participant’s Accounts. In lieu of receiving benefits in a lump sum, a Beneficiary may elect to receive benefits under any option described in Section 13.05.

Notwithstanding anything in the Plan to the contrary, if a Participant or Former Participant is married on the date of his or her death, Plan pre-retirement death benefits will be paid to the Participant’s or Former Participant’s then spouse unless such spouse has consented to payment to another Beneficiary, as provided in Section 13.07.

Notwithstanding the first paragraph, if a Rollover Account is being maintained for a married Participant who dies prior to the commencement of Plan benefits and if any portion of the amount in the Rollover Account is attributable to amounts transferred directly (or indirectly from another transferee Plan) to this Plan from a defined benefit pension plan, from a money purchase pension plan or from a stock bonus or profit sharing plan which would otherwise provide for a life annuity form of payment to the Participant, the amount in the Rollover Account will be used to purchase a life annuity

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for the Participant’s spouse unless the Participant has requested that the Rollover Account be distributed in a different form or be paid to another Beneficiary. Any such request must be made during the election period which shall begin on the first day of the Plan Year in which the Participant attains Age 35 and shall end on the date of the Participant’s death. If a Participant separates from service prior to the first day of the Plan Year in which Age 35 is attained, with respect to the value of the Rollover Account as of the date of separation, the election period shall begin on the date of separation. Any such request must be consented to by the Participant’s spouse. To be effective, the spousal consent must meet the requirements of Section 13.07. Any annuity provided with a portion of Participant’s Rollover Account in accordance with this paragraph shall be payable for the life of the Participant’s spouse and shall commence on the date the Participant would have attained Age 55 or, if the Participant was over Age 55 on the date of his or her death, such life annuity shall commence immediately. For Plan Years beginning January 1, 1998 and thereafter, at the request of the spouse, such Rollover Account may be used to purchase a life annuity or may be taken in another form allowed under the Plan at an earlier or later commencement date.

If a Participant shall die subsequent to the commencement of any benefit otherwise provided under this Article XIII, the death benefit, if any, shall be determined in accordance with the benefit option in effect for the Participant.

The Plan Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the Accounts of a deceased Participant or a deceased Former Participant as the Administrator deems necessary. The Administrator’s determination of death and of the right of any person to receive payment shall be conclusive and binding on all persons.

13.04 Designation of Beneficiary. Each Participant shall designate his or her Beneficiary on a form provided by the Plan Administrator, and such designation may include primary and contingent beneficiaries; provided, however, that if a Participant or Former Participant is married on the date of his or her death, the Participant’s then spouse shall be the Participant’s Beneficiary unless such spouse consented to the designation of another Beneficiary in accordance with Section 13.07. If a Participant does not designate a Beneficiary and is not married at the date of his or her death, the estate of the Participant shall be deemed to be the designated Beneficiary.

Notwithstanding the foregoing, Policy proceeds shall be payable to the Trustee as beneficiary and the Trustee shall pay the Policy proceeds to the appropriate Plan Beneficiary.

13.05 Distribution of Benefits. The Plan Administrator shall direct the Trustee to make, or cause the Insurer to make, payment of any benefits provided under this Article XIII upon the event giving rise to distribution of such benefit, or within 60 days thereafter.

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All distributions required under the Plan shall be determined and made in accordance with Code Section 401(a)(9) and Regulations issued thereunder.

Unless the Participant elects otherwise, distribution of benefits will begin no later than the 60th day after the latest of the close of the Plan Year in which:

(i) the Participant attains Age 65 ;

(ii) occurs the 10th anniversary of the year in which the Participant commenced participation in the Plan; or,

(iii) the Participant terminates service with the Employer.

Notwithstanding the foregoing, the failure of a Participant and spouse to consent to a distribution when a benefit is immediately distributable, within the meaning of Section 13.11 of the Plan, shall be deemed to be an election to defer commencement of payment of any benefit sufficient to satisfy this Section. Except as provided in this Article, in no event will benefits begin to be distributed prior to the later of Age 62 or Normal Retirement Age without the consent of the Participant.

Except as provided below and in Sections 13.03, 13.06, 13.10 and 13.11, if benefits become payable to a Participant as a result of termination of employment or retirement, the Participant’s vested Accrued Benefit shall be distributed by the Trustee in such manner as the Participant shall direct, in accordance with one or more of the options listed below. Provided, however, that a married Participant may not choose an option involving a life contingency without the consent of his or her spouse. To be effective, the spousal consent must meet the requirements of Section 13.07.

Notwithstanding the foregoing, if on the date of separation from service of a married Participant prior to the attainment of his or her Qualified Early Retirement Age a Rollover Account as described in Section 13.03 is being maintained for the Participant, such Account will remain in force until the Former Participant attains Age 55 when, if the Former Participant is then married, the value of such Rollover Account will be used to purchase a Qualified Joint and Survivor Annuity for the benefit of the Former Participant and his or her then spouse. At any time prior to the date of purchase, the Former Participant may request that his or her Rollover Account be distributed under one or more of the options listed below; provided, however, that if the Former Participant is married on the date of the request, the Former Participant’s then spouse must consent thereto. To be effective, the spousal consent must meet the requirements of Section 13.07. If a Former Participant who was married on the date of his or her separation from service is not married at Age 55, at Age 55 the Former Participant’s Rollover Account shall be distributed by the Trustee in such manner as the Former Participant shall direct, in accordance with one or more of the options listed below. If a Former Participant entitled to a deferred benefit pursuant to this paragraph dies prior to Age 55 and prior to commencement of Plan benefits, his or her

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Beneficiary shall be entitled to a death benefit pursuant to Section 13.03.

If a Qualified Joint and Survivor Annuity is not required under the above rules or under the requirements of Section 13.06, a Participant’s Accrued Benefit shall be distributed by the Trustee in such manner as the Participant shall direct, in accordance with one or more of the following ways, and which may be paid in cash or in kind, or a combination of them:

(i) One sum.

(ii) An annuity for the life of the Participant.

(iii) An annuity for the joint lives of the Participant and his or her spouse with 50%, 66  ²/3% or 100% (whichever is specified when this option is elected) of such amount payable as an annuity for life to the survivor. No further benefits are payable after the death of both the Participant and his or her spouse.

(iv) An annuity for the life of the Participant with installment payments for a period certain not longer than the life expectancy of the Participant.

(v) Installment payments for a period certain not longer than the life expectancy of the Participant and his or her spouse.

All optional forms of benefits shall be actuarially equivalent.

Notwithstanding anything in the Plan to the contrary, any annuity Policy which is distributed by the Trustee shall provide by its terms that the same shall not be sold, transferred, assigned, discounted, pledged or encumbered in any way except to or through the insurer, and then only in accordance with a right conferred under the terms of the Policy.

Notwithstanding anything in the Plan to the contrary, the entire interest of a Participant must be distributed or begin to be distributed no later than the Participant’s Required Beginning Date.

The Required Beginning Date of a Participant is the first day of April of the calendar year following the calendar year in which the Participant attains age 70 ¹/2; provided, however, that a Participant, who is not a Five Percent Owner and who does not retire by the end of the calendar year in which such Participant reaches age 70 ¹/2, may elect to defer their Required Beginning Date to the first day of April of the calendar year following the calendar year in which the Participant retires. If, after the date of such election, a Participant becomes a Five Percent Owner, the Required Beginning Date is the first day of April following the later of: (i) the calendar year in which the Participant attains age 70 ¹/2; or (ii) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a Five Percent Owner, or the calendar year in which the Participant retires.

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13.06 Automatic Joint and Survivor Annuity. Notwithstanding anything in Section 13.05 to the contrary, if a Rollover Account as described in Section 13.03 is being maintained for a married Participant and if Plan benefits become payable to such Participant on or after the Participant’s Qualified Early Retirement Age, such Rollover Account will be used to purchase a Qualified Joint and Survivor Annuity unless the Participant has elected otherwise. To be effective, any election out of a Qualified Joint and Survivor Annuity must be consented to by the Participant’s spouse at the time Plan benefits become payable. Any Participant election and spousal consent shall be in accordance with the rules of Section 13.07.

13.07 Participant Elections and Spousal Consents. Married Participants may choose a Beneficiary other than their spouse or, in the case of a Rollover Account described in Section 13.03, may choose a form of retirement benefit other than a Qualified Joint and Survivor Annuity. Any Beneficiary designation shall be in accordance with the requirements of Section 13.04. Any election out of a Qualified Joint and Survivor Annuity must be in writing and may be made during the election period which shall be the 90-day period ending on the annuity starting date. To be effective, any designation of a Beneficiary who is not the spouse of the Participant on the date of the Participant’s death or any election out of the Qualified Joint and Survivor Annuity must be consented to by Participant’s spouse. For purposes of this Section the term “spouse” means the lawful spouse of the Participant on the date of the Participant’s death or on the date Plan benefits commence, whichever is applicable.

To be effective, spousal consent must be in writing on a form furnished by or satisfactory to the Plan Administrator and witnessed by a Plan representative or notary public. Provided, however, spousal consent shall not be required under such circumstances as may be prescribed by the Plan Administrator in accordance with Rules and Regulations promulgated by the Secretary and the Treasury. Any spousal consent will be valid only with respect to the spouse who signs the consent. Additionally, a revocation of an election out of a Qualified Joint and Survivor Annuity may be made by a Participant without the consent of the spouse at any time before the commencement of plan benefits. The number of revocations shall not be limited.

13.08 Distribution to a Minor Participant or Beneficiary. In the event a distribution is to be made to a minor, then the Plan Administrator may, in the Administrator’s sole discretion, direct that such distribution be paid to the legal guardian of the minor, or if none, to a parent of such minor or a responsible adult with whom the minor maintains his or her residence, or to the custodian for such minor under the Uniform Gift to Minors Act, if such is permitted by the laws of the state in which said minor resides. Such a payment to the legal guardian or parent of a minor or to such a custodian shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof.

13.09 Location of Participant or Beneficiary Unknown. In the event that all, or any portion, of the distribution payable to a Participant or his or her Beneficiary hereunder shall, at

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the expiration of five years after it shall become payable, remain unpaid solely by reason of the inability of the Plan Administrator, after sending a registered letter, return receipt requested, to the payee’s last known address, and after reasonable effort, to ascertain the whereabouts of such Participant or his or her Beneficiary, the amount so distributable shall be forfeited and allocated in accordance with the terms of this Plan. In the event a Participant or Beneficiary is located subsequent to his or her benefit being forfeited, such benefit shall be restored.

13.10 Small Balances; Forfeitures; Restoration of Benefits Upon Reemployment. If a Participant terminates from employment and the present value of the Participant’s vested Accrued Benefit does not exceed (or at the time of any prior distribution did not exceed) $3,500 ($5,000 for periods between January 1, 1998 and March 27, 2005), except as provided in Section 13.13, for distributions made prior to March 28, 2005, the Participant will receive a lump sum distribution of the present value of the entire vested portion of such Accrued Benefit and the nonvested portion will be forfeited and applied to reduce Employer Match Contributions. Provided, however, if a Rollover Account described in Section 13.03 is being maintained for a Participant, no such distribution may be made to the Participant after Age 55 unless the Participant (and the spouse of the Participant) consents in writing to such distribution. For purposes of this paragraph, for terminations occurring at any time (including terminations occurring on or after March 28, 2005), if the value of the Participant’s vested Accrued Benefit is zero, the Participant shall be deemed to have received a distribution of such vested Accrued Benefit.

If a Participant terminates from employment and the present value of the Participant’s vested Accrued Benefit exceeds $3,500 ($5,000 for periods between January 1, 1998 and March 27, 2005), or any dollar amount if the distribution would otherwise be made on or after March 28, 2005, the Participant’s vested Accrued Benefit shall be deferred to the earliest of the Participant’s death, Total and Permanent Disability or attainment of Normal Retirement Age, at which time such vested benefit shall be payable in accordance with Sections 13.05 and 13.12. Notwithstanding the foregoing, such a Participant may elect to have payments commence at any time after termination in accordance with Section 13.05. Partial distributions of vested benefits will not be permitted except in accordance with Section 13.05. The nonvested portion of the Participant’s Accrued Benefit shall be forfeited when the Participant incurs five consecutive One Year Breaks in Service or, if earlier, when the Participant or his or her spouse (or surviving spouse) receives a distribution of his or her vested Accrued Benefit.

Notwithstanding the above, the $5,000 amount shall apply to any Participant with a vested Accrued Benefit on or after January 1, 1998, including those Participants whose vested Accrued Benefit exceeded the prior cash-out amount under the Plan. Further, in determining whether the vested Accrued Benefit exceeds $5,000 for

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distributions made in accordance with this Section on or after October 17, 2000, the look-back rule shall not apply, except in the case of periodic distributions already in effect.

Except as provided below, the nonvested portion of the Accrued Benefit of any terminated Participant will be used to reduce Employer Match Contributions for the Plan Year in which the forfeiture occurs and for subsequent Plan Years, if necessary. A Participant who separates from service and who subsequently resumes employment with the Employer will again become a Participant on the entry date determined in accordance with Plan Section 3.01.

If a Former Participant is subsequently reemployed, the following rules shall also be applicable:

(i) If any Former Participant shall be reemployed by the Employer before incurring five consecutive One Year Breaks in Service, and such Former Participant had received a distribution of his or her vested Accrued Benefit prior to his or her reemployment, his or her forfeited Account balance shall be reinstated if he or she repays the full amount attributable to Employer Contributions which was distributed to him or her, not including, at the Participant’s option, amounts attributable to any Salary Reduction Contributions. Such repayment must be made by the Former Participant before the date on which the individual incurs five consecutive One Year Breaks in Service following the date of distribution. A Participant who was deemed to have received a distribution of his or her vested amount shall be deemed to have repaid such amount as of the first date on which he or she again becomes a Participant. In the event the Former Participant does repay the full amount distributed to him or her, the forfeited portion of the Participant’s Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the date of distribution.

(ii) Restorations of forfeitures will be made as of the date that the Plan Administrator is notified that the required repayment has been received by the Trustee. Any forfeiture amount that must be restored to a Participant’s Account will be taken from any forfeitures that have not yet been applied and, if the amount of forfeitures available for this purpose is insufficient, the Employer will make a timely supplemental contribution of an amount sufficient to enable the Trustee to restore the forfeiture amount to the Participant’s Account.

(iii) If a Former Participant resumes service after incurring five consecutive One Year Breaks in Service, forfeited amounts will not be restored under any circumstances.

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If a Former Participant resumes service before incurring five consecutive One Year Breaks in Service, both the pre-break and post-break service will count in vesting both any restored pre-break and post-break employer-derived Account balance.

13.11 Restrictions on Immediate Distributions

(a) If the value of a Participant’s vested Accrued Benefit derived from Employer and Employee Contributions exceeds (or at the time of any prior distribution exceeded) $3,500 ($5,000 for Plan Years beginning January 1, 1998 and thereafter) and the Accrued Benefit is immediately distributable, the Participant and the Participant’s spouse (or where either the Participant or the spouse has died, the survivor must consent to any distribution of such Accrued Benefit. Notwithstanding the above, in determining whether such consent is necessary, the $5,000 amount shall apply to any Participant with an Accrued Benefit on or after January 1, 1998, including those Participants whose Accrued Benefit exceeded the prior cash-out amount under the Plan. Further, in determining whether such consent is necessary for distributions on or after October 17, 2000, the look-back rule shall not apply, except in the case of periodic distributions already in effect.

Except as provided below, the consent of the Participant and the Participant’s spouse shall be obtained in writing within the 90-day period ending on the annuity starting date. The annuity starting date is the first day of the first period for which an amount is paid as an annuity or any other form. The Plan Administrator shall notify the Participant and the Participant’s spouse of the right to defer any distribution until the Participant’s Accrued Benefit is no longer immediately distributable. Such notification shall include a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Section 417(a)(3) of the Code, if applicable, and shall be provided no less than 30 days and no more than 90 days prior to the annuity starting date. However, distribution may commence less than 30 days after the notice described in the preceding sentence is given, provided the distribution is one to which sections 401(a)(11) and 417 of the Internal Revenue Code do not apply, the Plan Administrator clearly informs the participant that the participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and the participant, after receiving the notice, affirmatively elects a distribution.

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For Plan Years beginning January 1, 1998, and thereafter, the annuity starting date for a distribution to which 401(a)(11) and 417 apply, in a form other than a qualified joint and survivor annuity, may be less than 30 days after receipt of the written explanation required in accordance with 417 (or the annuity date may precede receipt of such notice) provided: (a) the participant has been provided with information that clearly indicates that the participant has at least 30 days to consider whether to waive the qualified joint and survivor annuity; and (b) the Participant receives the notice at least 7 days prior to the later of the Participant’s annuity starting date or the date he receives a distribution from the Plan, and the Participant may revoke his or her election until the later of these two dates.

Notwithstanding the foregoing, only the Participant need consent to the commencement of a distribution in the form of a Qualified Joint and Survivor Annuity while the Accrued Benefit is immediately distributable. Furthermore, if payment in the form of a Qualified Joint and Survivor Annuity is not required with respect to the Participant, only the Participant need consent to the distribution of an Accrued Benefit that is immediately distributable. The consent of the Participant or the Participant’s spouse shall not be required to the extent that a distribution is required to satisfy Section 401(a)(9) or Section 415 of the Code. In addition, upon termination of this Plan if the Plan does not offer an annuity option (purchased from a commercial provider) and if the Employer or any entity within the same controlled group as the Employer does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code), the Participant’s Accrued Benefit may, without the Participant’s consent, be distributed to the Participant. However, if any entity within the same controlled group as the Employer maintains another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code) then the Participant’s Accrued Benefit will be transferred, without the Participant’s consent, to the other plan if the Participant does not consent to an immediate distribution.

An Accrued Benefit is immediately distributable if any part of the Accrued Benefit could be distributed to the Participant (or surviving spouse) before the Participant attains (or would have attained if not deceased) the later of Normal Retirement Age or age 62.

13.12 Rollovers to Other Qualified Plans.

(a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election under this Article, a distributee

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may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover.

(b) Definitions.

(i) Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee’s designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; any hardship distribution described in section 401(k)(2)(B)(i)(iv) received after December 31, 1998; the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and any other distribution(s) that is reasonably expected to total less than $200 during a year.

(ii) Eligible retirement plan: An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified Plan described in section 401(a) of the Code, that accepts the distributee’s eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity.

(iii) Distributee: A distributee includes an Employee or former Employee. In addition, the Employee’s or former Employee’s surviving spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse.

(iv) Direct rollover: A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.

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13.13 Payment under Qualified Domestic Relations Orders. Notwithstanding any provisions of the Plan to the contrary, if there is entered any Qualified Domestic Relations Order that affects the payment of benefits hereunder, such benefits shall be paid in accordance with the applicable requirements of such Order, provided that such Order (i) does not require the Plan to provide any type or form of benefits, or any option, that is not otherwise provided hereunder, (ii) does not require the Plan to provide increased benefits, and (iii) does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a Qualified Domestic Relations Order.

To the extent required or permitted by any such Order, at any time on or after the date the Plan Administrator has determined that the Order is a Qualified Domestic Relations Order, the alternate payee shall have the right to request the Plan Administrator to commence distribution of benefits under the Plan regardless of whether the Participant is otherwise entitled to a distribution at such time under the Plan.

13.14 Notwithstanding anything in the Plan to the contrary, effective January 1, 2002, for purposes of computing the value of involuntary distributions of vested Accrued Benefits of $5,000 or less, the value of a Participant’s nonforfeitable Account balances shall be determined without regard to that portion of the Account balances that are attributable to Rollover Contributions (and earnings allocable thereto) within the meaning of Code Sections 402(c)(4), 403(a)(4), 403(b)(8), 408(d)(3) and 457(e)(16). If the value of the Participant’s nonforfeitable Account balances as so determined is $5,000 or less, for periods prior to March 28, 2005, the Plan shall distribute the Participant’s entire vested Account balances as soon as administratively feasible.

ARTICLE XIV

PLAN FIDUCIARY RESPONSIBILITIES

14.01 Plan Fiduciaries. The Plan Fiduciaries shall be:

(i) the Board of Directors of First Allmerica;

(ii) the Trustee(s) of the Plan;

(iii) the Plan Administrator;

(iv) the Retirement Plan Committee; and

such other person or persons as may be designated as a Fiduciary by First Allmerica or by its Chief Executive Officer in accordance with the further provisions of this Article XIV.

14.02 General Fiduciary Duties. Each Plan Fiduciary shall discharge his or her duties solely

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in the interest of the Participants and their Beneficiaries and act:

(i) for the exclusive purpose of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses of administering the Plan;

(ii) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;

(iii) by diversifying the investments of the Plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so, if the Fiduciary has the responsibility to invest plan assets; and

(iv) in accordance with the documents and instruments governing the Plan insofar as such documents and instruments are consistent with the provisions of current laws and regulations.

Each Plan Fiduciary shall perform the duties specifically assigned to him or her. No Plan Fiduciary shall have any responsibility for the performance or non-performance of any duties not specifically allocated to him or her.

14.03 Duties of the Board of Directors. The Board of Directors shall:

(i) establish an investment policy and funding method consistent with objectives of the Plan and with the requirements of applicable laws and regulations;

(ii) invest Plan assets except to the extent that they have delegated investment duties to an Investment Manager; and

(iii) evaluate from time to time investment policy and the performance of any Investment Manager or Investment Advisor appointed by it.

14.04 Duties of the Trustee(s). The specific responsibilities and duties of the Trustee(s) are set forth in the Trust Indenture between First Allmerica and the Trustee(s). In general the Trustee(s) shall:

(i) invest Plan assets, subject to directions from the Board of Directors or from any duly appointed Investment Manager;

(ii) maintain adequate records of receipts, disbursements, and other transactions involving the Plan; and

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(iii) prepare such reports, statements, tax returns and other forms as may be required under the Trust Indenture or applicable laws and regulations.

14.05 Duties of the Plan Administrator. The Plan Administrator is First Allmerica. The Plan Administrator shall:

(i) administer the Plan on a day-to-day basis in accordance with the provisions of this Plan and all other pertinent documents;

(ii) retain and maintain Plan records, including Participant census data, participation dates, compensation records, and such other records necessary or desirable for proper Plan administration;

(iii) prepare and arrange for delivery to Participants of such summaries, descriptions, announcements and reports as are required to be given to participants under applicable laws and regulations;

(iv) file with the U.S. Department of Labor, the Internal Revenue Service and other regulatory agencies on a timely basis all required reports, forms and other documents; and

(v) prepare and furnish to the Trustee(s) sufficient records and data to enable the Trustee(s) to properly perform its obligations under the Trust Indenture.

Notwithstanding any provision elsewhere to the contrary, the Plan Administrator shall have total discretion to fulfill the above responsibilities as it sees fit on a uniform and consistent basis and as it believes a prudent person acting in a like capacity and familiar with such matters would do.

14.06 Duties of the Retirement Plan Committee. The Retirement Plan Committee shall:

(i) interpret and construe the Plan;

(ii) determine questions of eligibility and of rights of Participants and their Beneficiaries;

(iii) provide guidelines for the Plan Administrator, as required for the orderly and uniform administration of the Plan; and

(iv) exercise overall control of the operation and administration of the Plan in matters not allocated to some other Fiduciary either by the terms of this Plan or by delegation from the Chief Executive Officer of First Allmerica.

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Notwithstanding any provisions elsewhere to the contrary, the Retirement Plan Committee shall have total discretion to fulfill the above responsibilities as they see fit on a uniform and consistent basis and as they believe a prudent person acting in a like capacity and familiar with such matters would do.

14.07 Designation of Fiduciaries. The Board of Directors of First Allmerica shall have the authority to appoint and remove Trustee(s) in accordance with the Trust Indenture. The Board of Directors may appoint and remove an Investment Manager and delegate to said Investment Manager power to manage, acquire or dispose of any assets of the Plan.

While there is an Investment Manager, the Board of Directors shall have no obligation under this Plan with regard to the performance or non-performance of the duties delegated to the Investment Manager.

All other Fiduciaries shall be appointed by the Chief Executive Officer of First Allmerica. In making his or her delegation, he or she may designate all of the responsibilities to one person or he or she may allocate the responsibilities, on a continuing basis or on an ad hoc basis, to one or more individuals either jointly or severally. No individual named a Fiduciary shall have any responsibility for the performance or non-performance of any responsibilities or duties not allocated to him or her.

The appointing authority of a Fiduciary shall periodically, but not less frequently than annually, review the performance of each fiduciary appointed in order to carry out the general fiduciary duties specified in Section 14.02 and, where appropriate, take or recommend remedial action.

14.08 Delegation of Duties by a Fiduciary. Except as provided in this Plan or in the appointment as a Fiduciary, no Plan Fiduciary may delegate his or her fiduciary responsibilities. If authorized by the appointing authority, a Fiduciary may appoint such agents as may be deemed necessary and delegate to such agents any non-fiduciary powers or duties, whether ministerial or discretionary. No Fiduciary or agent of a Fiduciary who is a full-time employee of the Employer will receive any compensation from the Plan for his or her services.

ARTICLE XV

RETIREMENT PLAN COMMITTEE

15.01 Appointment of Retirement Plan Committee. The Committee shall consist of three or more members appointed by the Chief Executive Officer of the Employer, who shall also designate one of the members as chairman. Each member of the Committee and its chairman shall serve at the pleasure of the Chief Executive Officer of the Employer.

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15.02 Retirement Plan Committee to Act by Majority Vote, etc. The Committee shall act by majority vote of all members. All actions, determinations, interpretations and decisions of the Committee with respect to any matter within their jurisdiction will be conclusive and binding on all persons. Any person may rely conclusively upon any action if certified by the Committee.

15.03 Records and Reports of the Retirement Plan Committee. The Committee shall keep a record of all of its proceedings and acts, and shall keep such books of account, records and other data as may be necessary for the proper administration of the Plan and file or deliver to Participants and their Beneficiaries whatever reports are required by any regulatory authority.

15.04 Costs and Expenses of Administration. All expenses and costs of administering the Plan, including Trustee’s fees, shall be paid by the Employer. Effective September 22, 1998, notwithstanding any provisions of the Plan to the contrary (but subject to the provisions of Section 12.01), all clerical, legal and other expenses of the Plan and the Trust, including Trustee’s fees, shall be paid by the Plan, except to the extent the Employer elects to pay such amounts; provided, however, that if the Employer pays such amounts it shall be reimbursed by the Trust for such amounts unless the Employers elects not to be so reimbursed.

ARTICLE XVI

INVESTMENT OF THE TRUST FUND

16.01 In General. Subject to the direction of the Board of Directors or any duly appointed Investment Manager in accordance with Section 14.07 (or subject to the direction of the Plan Administrator if a Participant has requested that an individual life insurance or annuity Policy be issued on his or her life in accordance with Article XVII), the Trustee shall receive all contributions to the Trust and shall hold, invest and control the whole or any part of the assets in accordance with the provisions of the annexed Trust Indenture.

16.02 Investment of the Trust Fund. In order to provide retirement and other benefits for Plan Participants and their Beneficiaries, the Trustee shall invest Plan assets in one or more permissible investments specified in the Trust Indenture and in such collective investment trusts or group trusts that may be established for the primary objective of investing in securities issued by Allmerica Financial Corporation, which investments shall be considered as investments in qualifying employer securities as defined in Section 407(d) of the Employee Retirement Income Security Act of 1974, as amended, as directed by the Board of Directors of the Employer. Such permissible investments shall include the Allmerica Financial Corporation Stock Fund, a group trust established by the Allmerica Trust Company, N.A. for the purposes of investing in the common stock of Allmerica Financial Corporation (“The AFC Stock Fund”). In addition, when directed by the Plan Administrator per the request of a Participant,

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Plan assets shall be invested in individual life insurance and annuity Policies in accordance with Article XVII. The Insurer shall only issue life insurance and annuity policies which conform to the terms of the Plan. All collective investment trusts and group trusts shall also confirm to the terms of the Plan. Notwithstanding the foregoing, in no event may amounts allocated to Participant’s Tax Deductible Contribution Account be invested in Policies of life insurance.

Each Participant is responsible and has sole discretion to give directions to the Trustee in such form as the Trustee may require concerning the investment of his or her Accrued Benefit in one or more of the investments made available in accordance with the preceding paragraph, which directions must be followed by the Trustee, subject to the restrictions on life insurance premiums described in Article XVII. All voting rights with respect to a Participant’s investment in the AFC Stock Fund shall be the responsibility of that Participant, and the Trustee shall receive direction from the Participant for such voting rights. Neither the Plan Administrator, the Trustee, the Employer nor any other person shall be under any duty to question any investment, voting or other direction of the Participant or make any suggestions to the Participant in connection therewith, and the Trustee shall comply as promptly as practicable with directions given by the Participant hereunder. All such directions may be of continuing nature or otherwise and may be revoked by the Participant at any time in such form as the Trustee may require. Neither the Plan Administrator, the Trustee, the Employer nor any other person shall be responsible or liable for any costs, losses or expenses which may arise or result from or be related to the compliance or refusal or failure to comply with any directions from the Participant. The Trustee may refuse to comply with any direction from the Participant in the event the Trustee, in its sole or absolute discretion, deems such directions improper by virtue of applicable law or regulations. For purposes of this section, all references to “Participant” shall include all Beneficiaries of Participants who are deceased and any Alternate Payees under a Qualified Domestic Relations Order, as provided for in Section 20.01.

ARTICLE XVII

INDIVIDUAL LIFE INSURANCE AND ANNUITY POLICIES

17.01 General Rules. For Plan Years beginning prior to January 1, 1999, once a Participant becomes 100% vested, upon the written request of the Participant made to the Plan Administrator, the Administrator in its sole discretion shall direct the Trustee to purchase an individual life insurance or annuity Policy from the Insurer to be issued upon the life of the Participant. Any such Policy shall be of the type requested by the Participant, subject to the following:

(a) each Policy shall be issued by the Insurer to the Trustee only and shall provide for premiums to be payable in accordance with the terms of the Policy. Purchase of Policies in accordance with this Section 17.01 shall constitute an investment of amounts allocated to the appropriate Account

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of the Participant, and each such Account shall be reduced by the amount paid for such Policies;

(b) any purchase of life insurance Policies shall be subject to the incidental death benefit restrictions specified in Section 2.33;

(c) as provided in Section 13.04, the Trustee shall be designated as beneficiary of any individual life insurance or annuity Policy issued hereunder, and upon the death of the Participant the Trustee shall pay the Policy proceeds to the appropriate Plan Beneficiary;

(d) each Policy shall be a Policy between the Insurer and Trustee and shall reserve to the Trustee all rights, options and benefits;

(e) each life insurance Policy shall provide a full or increasing death benefit, or if an annuity Policy is issued, contain a provision for refund in the event of the death of the annuitant;

(f) each Policy shall provide settlement options (including lump sum cash payment in the event of the surrender or maturity of such Policy) subject, however, to Section 13.05;

(g) any dividend payable while a Policy is on a premium paying basis shall be applied or accumulated as indicated on the Policy application for the benefit of the Participant on whose life the Policy was issued;

(h) all classes of life insurance Policies purchased hereunder shall be alike or substantially alike as to settlement option provisions, cash values, and as to other Policy provisions, subject, however, to the provisions of Section 17.01(i), 17.01(j) and 17.01(k);

(i) if an eligible Employee is determined to be insurable by the Insurer at its standard rates, a Policy shall be obtained upon his or her life, if available from the Insurer, which provides a life insurance death benefit prior to retirement to which the eligible Employee is entitled;

(j) if an eligible Employee is not insurable at the standard rates of such Insurer, if such coverage is available from the Insurer, the Policy shall provide for a reduced but increasing death benefit as determined by the Insurer (usually called increasing or graded death benefit);

(k) if an eligible Employee is not insurable at the standard rates of the Insurer, each Employer may elect to pay any excess premium that may be required in order to obtain a Policy providing for full death benefits described in Section 17.01(i), if the Insurer shall agree to issue such a Policy;

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(l) the Trustee shall have the right at any time, or from time to time, to increase or decrease the amount of any life insurance and annuity policy coverages under the Plan and within the limits prescribed in Section 2.33;

(m) in no event may amounts allocated to a Participant’s Tax Deductible Contribution Account be invested in Policies of life insurance; and

(n) the Insurer shall only issue Policies which conform to the terms of the Plan.

17.02 Procedure Followed to Obtain Policies. When requested by the Plan Administrator, the Trustee shall apply to the Insurer for Policies on the lives of Participants with completed applications as may be required by the Insurer, such Policies to have benefits which are purchasable by a premium or stipulated payment equal to the portion of the contribution allocated for that purpose.

ARTICLE XVIII

CLAIMS PROCEDURE

18.01 Claims Fiduciary. The Plan Administrator and Retirement Plan Committee will act as Claims Fiduciaries except to the extent that the Chief Executive Officer of the Employer has allocated the function to someone else.

Notwithstanding any provision elsewhere to be contrary, the Claims Fiduciaries shall have total discretion to fulfill their fiduciary duties as they see fit on a uniform and consistent basis as they believe a prudent person acting in a like capacity and familiar with such matters would do.

18.02 Claims for Benefits. Claims for benefits under the Plan may be filed with the Plan Administrator on forms supplied by the Employer. For the purpose of this procedure, “claim” means a request for a Plan benefit by a Participant or a Beneficiary of a Participant. If the basis of the claim includes documentation not a part of the records of the Plan or of the Employer, all such documentation must be included with the claim.

18.03 Notice of Denial of Claim. If a claim is wholly or partially denied, the Plan Administrator shall notify the claimant of the denial of the claim within a reasonable period of time. Such notice of denial (i) shall be in writing, (ii) shall be written in a manner calculated to be understood by the claimant, and (iii) shall contain (A) the specific reason or reasons for denial of the claim, (B) a specific reference to the pertinent Plan provisions upon which the denial is based, (C) a description of any

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additional material or information necessary for the claimant to perfect the claim, along with an explanation why such material or information is necessary, and (D) an explanation of the Plan’s claim review procedure. Unless special circumstances require an extension of time for processing the claim, the Plan Administrator shall notify the claimant of the claim denial no later than 90 days after receipt of the claim. If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 90-day period. The extension notice shall indicate the special circumstances requiring the extension of time and the date by which the Plan Administrator expects to render the final decision.

18.04 Request for Review of Denial of Claim. Within 120 days of the receipt of the claimant of the written notice of the denial of the claim, or such later time as shall be deemed reasonable taking into account the nature of the benefit subject to the claim and any other attendant circumstances or if the claim has not been granted within a reasonable period of time, the claimant may file a written request with the Retirement Plan Committee to conduct a full and fair review of the denial of the claimant’s claim for benefits. In connection with the claimant’s appeal of the denial of his or her benefit, the claimant may review pertinent documents and may submit issues and comments in writing.

18.05 Decision on Review of Denial of Claim. The Retirement Plan Committee shall deliver to the claimant a written decision on the claim promptly, but not later than 60 days, after the receipt of the claimant’s request for review, except that if there are special circumstances which require an extension of time for processing, the aforesaid 60-day period may be extended to 120 days. Such decision shall (i) be written in a manner calculated to be understood by the claimant, (ii) include specific reasons for the decision, and (iii) contain specific references to the pertinent Plan provisions upon which the decision is based.

ARTICLE XIX

AMENDMENT AND TERMINATION

19.01 Employer May Amend Plan. The Plan may be modified or amended in whole or in part by the action of the Board of Directors of the Employer at any time or times, and retroactively if it is deemed advisable by the Directors to conform the Plan to conditions which must be met to qualify the Plan or the Trust Indenture for tax benefits available under the applicable provisions of the Internal Revenue Code as it exists at any such time or times; provided, however, that no such modifications or amendment shall make it possible for any part of the Trust Fund to be used for purposes other than the exclusive benefit of the Participants or their Beneficiaries.

Notwithstanding the foregoing, no amendment to the Plan shall decrease a Participant’s Accrued Benefit or eliminate an optional form of distribution. Furthermore, no amendment to the Plan shall have the effect of decreasing a

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Participant’s vested Accrued Benefit determined without regard to such amendment as of the later of the date such amendment is adopted or the date it becomes effective.

19.02 Employer May Discontinue Plan. The Employer reserves the right at any time to partially terminate the Plan or to terminate the Plan in its entirety. Any such termination or partial termination of such Plan shall become effective immediately upon receipt by the Trustee of a copy of the vote or resolutions of the Directors of the Employer terminating its Plan, certified as true and correct by the clerk or secretary of the Employer.

In the event of termination of the Plan there shall be a 100% vesting and nonforfeitability of all rights and benefits under this Trust and Plan irrespective of the length of participation under the Plan. However, the Trust shall remain in existence, and all of the provisions of the Trust shall remain in force which are necessary in the sole opinion of the Trustees other than the provisions relating to Employer and Employee contributions. All of the assets on hand on the date specified in such resolution shall be held, administered and distributed by the Trustees in the manner provided in the Plan, except that a Participant shall have a 100% vested and nonforfeitable interest in his or her Accounts, subject to Section 19.05.

Subject to Section 19.05, any other remaining assets of the Trust Fund shall also be vested in Participants on a pro rata basis based on their respective Accrued Benefit in relation to the aggregate of the Accrued Benefits of all Participants.

In the event of a partial termination of Plan, this section will only apply to those Participants who are affected by such partial termination of Plan.

In the event that the Board of Directors of the Employer shall decide to terminate completely the Plan and Trust, they shall be terminated as of a date to be specified in certified copies of its resolution to be delivered to the Trustees. Upon termination of the Plan and Trust, after payment of all expenses and proportional adjustment of Participants’ Accounts to reflect such expenses, fund profits or losses and reallocations to the date of termination, each Participant shall be entitled to receive in cash any amounts then credited to his or her Participants’ Accounts.

19.03 Discontinuance of Contributions. In the event that the Employer shall completely discontinue its contributions, each Participant or Beneficiary of a Participant affected shall be fully vested in any values credited to his or her Participant’s accounts.

All of the assets on hand on the date contributions are discontinued shall be held, administered and distributed by the Trustees in the manner provided in the Plan.

19.04 Merger and Consolidation of Plan, Transfer of Plan Assets or Liabilities. In the case of any merger, consolidation with or transfer of assets or liabilities by the Employer to another plan, each Participant in the Plan on the date of the transaction shall have a

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benefit in the surviving plan (determined as if such plan were terminated immediately after the transaction) at least equal to the benefit to which he or she would have been entitled to receive immediately prior to the transaction if the plan had then terminated.

19.05 Return of Employer Contributions Under Special Circumstances. Notwithstanding any provisions of this Plan to the contrary:

(a) Any monies or other Plan assets held in Trust by the Trustee attributable to any contributions made to this Plan by the Employer because of a mistake of fact may be returned to the Employer within one year after the date of contribution.

(b) Any monies or other Plan assets held in Trust by the Trustee attributable to any contribution made by the Employer which is conditional on the initial qualification of the Plan, as amended, under the Internal Revenue Code may be refunded to the Employer; provided that:

(i) the Plan amendment is submitted to the Internal Revenue Service for qualification within one year from the date the amendment is adopted, and

(ii) Such contribution that was made conditioned upon Plan requalification is returned to the Employer within one year after the date the Plan’s requalification is denied.

(c) Any monies or other Plan assets held in Trust by the Trustee attributable to any contribution made by the Employer which is conditional on the deductibility of such contribution may be refunded to the Employer, to the extent the deduction is disallowed under Section 404 of the Code, within one year after the date of such disallowance.

ARTICLE XX

MISCELLANEOUS

20.01 Protection of Employee Interest. No Participant, Beneficiary or other person, including alternate payees entitled to benefits pursuant to a Qualified Domestic Relations Order, shall have the right to assign, pledge, alienate or convey any right, benefit or payment to which he or she shall be entitled in accordance with the provisions of the Plan, and any such attempted assignment, pledge, alienation or conveyance shall be null and void and of no effect. To the extent permitted by law, none of the benefits, payments, proceeds or rights herein created and provided for shall in any way be subject to any debts, contracts or engagements of any Participant, Beneficiary, alternate payee or other person entitled to benefits hereunder, nor to any suits, actions or other judicial process to levy upon or attach the same for the payment

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thereof. Provided, however, that this provision does not preclude the Plan Administrator from complying with the terms of a Qualified Domestic Relations Order.

If any Participant shall attempt to alienate or assign his or her interest provided by the Plan, the Plan Administrator shall take such steps as it deems necessary to preserve such interest for the benefit of the Participant or his or her Beneficiary.

Notwithstanding anything in this Section or Plan to the contrary, the Plan Administrator (i) shall comply with the terms of any Qualified Domestic Relations Order, as described in Section 414(p) of the Internal Revenue Code entered on or after January 1, 1985, and (ii) shall comply with the terms of any domestic relations order entered before January 1, 1985 if the Administrator is paying benefits pursuant to such order on such date.

20.02 USERRA Compliance. Notwithstanding any provisions of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with the rules and requirements of the Uniformed Services Employment and Reemployment Rights Act of 1994 (“ERISA”) and Section 414(u) of the Code.

20.03 Amendment to Vesting Schedule. No amendment to the Plan vesting schedule shall deprive a Participant of his or her nonforfeitable rights to benefits accrued to the date of the amendment. Further, if the vesting schedule of the Plan is amended, or the Plan is amended in any way that directly or indirectly affects the computation of a Participant’s nonforfeitable percentage, each Participant with at least 3 Years of Service with the Employer may elect, within a reasonable period after the adoption of the amendment, to have his or her nonforfeitable percentage computed under the Plan without regard to such amendment. The period during which the election may be made shall commence with the date the amendment is adopted and shall end on the latest of:

(i) 60 days after the amendment is adopted;

(ii) 60 days after the amendment becomes effective; or

(iii) 60 days after the Participant is issued written notice of the amendment by the Employer or Plan Administrator.

20.04 Meaning of Words Used in Plan. Wherever any words are used herein in the masculine gender, they shall be construed as though they were also used in the feminine or neuter gender in all cases where they would so apply. Wherever any words are used herein in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply.

Titles used herein are for general information only and this Plan is not to be construed

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by reference thereto.

20.05 Plan Does Not Create Nor Modify Employment Rights. The Plan and Trust shall not be construed as creating or modifying any contracts of employment between the Employer and any Participant. All Employees of the Employer shall be subject to discharge to the same extent that they would have been if the Plan and Trust had never been adopted.

20.06 Massachusetts Law Controls. This Plan shall be governed by the laws of the Commonwealth of Massachusetts to the extent that they are not pre-empted by the laws of the United States of America.

20.07 Payments to Come from Trust Fund. All benefits and amounts payable under the Plan or Trust Indenture shall be paid or provided for solely from the Trust Fund, and neither the Employer nor the Retirement Plan Committee assumes any liability or responsibility therefor.

20.08 Receipt and Release for Payments. Any payment to any Participant, his or her legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of this Plan and Trust, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee, the Employer and the Insurer, any of whom may require such Participant, legal representative, Beneficiary, guardian, custodian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee, Employer or Insurer.

EXECUTED, this 29^th day of December, 2005

First Allmerica Financial Life Insurance Company
By:	/s/ Susan Korthase
Name:	Susan Korthase
Title:	Vice President, Chief HR Officer

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FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

ACTION BY UNANIMOUS CONSENT OF DIRECTORS

March 5, 2007

In accordance with Section 3.8 of the Bylaws of First Allmerica Financial Life Insurance Company (the “Company”), a Massachusetts insurance company, we the undersigned, being all of the members of the Board of Directors of the aforesaid Company, hereby unanimously adopt the following resolution:

VOTE: That for the 2006 Plan Year only, Section 4.03 of The Hanover Insurance Group Retirement Savings Plan (the “Plan”) is hereby amended to read as follows:

4.03 Non-Elective Employer Contributions. Notwithstanding anything in the Plan to the contrary, for the 2006 Plan Year only, and subject to compliance with applicable Code discrimination laws, rules and regulations, all Employees, other than First Allmerica Operating Committee Members, employed by the Employer on December 31, 2006, shall receive an extra Employer paid contribution of $500, whether or not the Employee has elected to participate in the Plan. Such extra contribution shall be in addition to 3% of eligible Compensation, which shall be paid as an Employer contribution to all eligible Employees employed by the Employer on December 31, 2006.

Provided, however that employees who voluntarily terminated between January 1, 2007 and March 5, 2007, or employees who were terminated between such dates for cause, are not eligible for the extra company paid $500 award.

The contribution and extra contribution shall be made in cash. Such contribution and extra contribution shall be made to the Non-Elective Employer Contribution Account established for each eligible Employee and shall be invested per the direction of the Participant in accordance with Section 16.02 of the Plan.

/s/ Bryan D. Allen	/s/ Edward J. Parry III
Bryan D. Allen	Edward J. Parry III
/s/ Frederick H. Eppinger	/s/ Marilyn T. Smith
Frederick H. Eppinger	Marilyn T. Smith
/s/ J. Kendall Huber	/s/ Gregory D. Tranter
J. Kendall Huber	Gregory D. Tranter
/s/ Mark C. McGivney	/s/ Ann K. Tripp
Mark C. McGivney	Ann K. Tripp

1

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

SECOND AMENDMENT

to the Restatement Generally Effective January 1, 2005

This Second Amendment is executed by First Allmerica Financial Life Insurance Company, a Massachusetts life insurance company (the “Company”).

WHEREAS, the Company established The Hanover Insurance Group Retirement Savings Plan, formerly known as the “The Allmerica Financial Retirement Savings Plan” and before that “The Allmerica Financial Employees’ 401(k) Matched Savings Plan”, (the “Plan”) effective November 22, 1961 and has amended and restated the Plan in certain respects subsequent to its effective date, including the most recent restatement of the Plan generally effective January 1, 2005 and the first amendment thereto adopted on March 5, 2007; and

WHEREAS, the Company has reserved the right to amend the Plan any time under Section 19.01 of the Plan; and

WHEREAS, the Company now desires to further amend the Plan;

NOW, THEREFORE, the Plan is amended effective as of the date hereof unless otherwise specified, as follows:

1. For Plan Years beginning on or after January 1, 2006, the words “separation from service” in Section 1.03 and in the sixth paragraph of Section 13.05 are deleted and the words “severance from employment” are inserted in lieu thereof and the words “separates from service” in the third paragraph of Section 13.03 and the fourth paragraph of Section 13.11 are deleted and the words “severs employment” are inserted in lieu thereof.

2. The following new definition is added to Article II:

“Plan Administrator” shall mean the Benefits Committee, which shall have fiduciary responsibility for the interpretation and administration of the Plan, as provided for in Article XIV. Members of the Benefits Committee shall be appointed as provided for in Section 15.01 hereof.

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3. Section 2.39 is deleted in its entirety.

4. Each of the references to “Retirement Plan Committee” throughout the Plan, including those contained in Sections 2.06(a), 12.01, 14.01, 14.06, 15.01, 15.02, 15.03, 18.01, 18.04, 18.05, and 20.07 is changed to “Plan Administrator”, except as otherwise provided for in this Amendment.

5. For Plan Years beginning on or after January 1, 2006, the following new sentence is added to first paragraph of Section 3.01(b):

Except for occasional, bona fide administrative considerations, Salary Reduction Contributions made pursuant to a salary reduction agreement cannot precede the earlier of (1) the performance of services relating to the contribution and (2) when the compensation that is subject to the election would be currently available to the Participant in the absence of an election to defer.

6. The second sentence of the third paragraph of Section 4.02 is deleted in its entirety and the following new sentence is inserted in lieu thereof:

Such contributions shall be made in cash and shall be allocated in accordance with the Plan current match formula to the Match Contribution Account of each eligible Participant.

7. The second sentence of Section 4.03 is deleted in its entirety and the following new sentence is inserted in lieu thereof:

The contribution shall be made in cash.

8. For Plan Years beginning on or after January 1, 2006, the second paragraph of Section 9.01(a) is deleted in its entirety and the following new paragraphs are inserted in lieu thereof:

Additionally, if one or more other plans allowing contributions under Code Section 401(k) are considered with this Plan as one for purposes of Code Section 401(a)(4) or 410(b), the Actual Deferral Percentages for all Eligible Participants under all such plans shall be determined as if this Plan and all such other plans were one; provided that for Plan Years beginning on and after January 1, 2006 the requirements of Treasury Regulation section 1.401(k)-1(b)(4)(iii)(B) are met.

If any Highly Compensated Employee is an Eligible Participant in one or more other plans maintained by the same employer, which allow contributions under Code Section 401(k), the Actual Deferral Percentage for that Employee shall be determined as if this Plan and all such other plans were one; if such plans have different plan years, all contributions that are made under all such plans during the plan year being tested shall be aggregated, without regard to the plan years of the other plans. However, for Plan Years beginning before January 1, 2006, if the plans have different Plan Years, then all such cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be separate if mandatorily disaggregated under the regulations of Code Section 401(k).

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9. For Plan Years beginning on or after January 1, 2006, Section 9.03 is deleted in its entirety and the following new Section 9.03 is inserted in lieu thereof:

9.03 Refund of Excess 401(k) Contributions. Notwithstanding any other provision of this Plan except Section 9.05, Excess 401(k) Contributions, adjusted for allocable income (gain or loss), including an adjustment for income for the period between the end of the Plan Year and the date of the distribution (the “gap period”), shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts such Excess 401(k) Contributions were allocated for the preceding Plan Year. The Plan Administrator has the discretion to determine and allocate income using any of the methods set forth below:

(A) Reasonable method of allocating income. The Plan Administrator may use any reasonable method for computing the income allocable to Excess 401(k) Contributions, provided that the method does not violate Code section 401(a)(4), is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income to Participant’s Accounts. A Plan will not fail to use a reasonable method for computing the income allocable to Excess 401(k) Contributions merely because the income allocable to Excess 401(k) Contributions is determined on a date that is no more than seven (7) days before the distribution.

(B) Alternative method of allocating income. The Plan Administrator may allocate income to Excess 401(k) Contributions for the Plan Year by multiplying the income for the Plan Year allocable to the Salary Reduction Contributions and other amounts taken into account for the purposes of the Average Actual Deferral Percentage Tests (set forth in Section 9.02) including contributions made for the Plan Year, by a fraction, the numerator of which is the Excess 401(k) Contributions for the Participant for the Plan Year, and the denominator of which is the sum of the:

(i) Account balance attributable to Salary Reduction Contributions and other amounts taken into account for the purposes of the Average Actual Deferral Percentage Tests (set forth in Section 9.02) as of the beginning of the Plan Year, and

(ii) Any additional amount of such contributions made for the Plan Year.

(C) Safe harbor method of allocating gap period income. The Plan Administrator may use the safe harbor method in this paragraph to determine income on excess contributions for the gap period. Under this

3

safe harbor method, income on Excess 401(k) Contributions for the gap period is equal to ten percent (10%) of the income allocable to Excess 401(k) Contributions for the Plan Year that would be determined under paragraph (b) above, multiplied by the number of calendar months that have elapsed since the end of the Plan Year. For purposes of calculating the number of calendar months that have elapsed under the safe harbor method, a corrective distribution that is made on or before the fifteenth (15th) day of a month is treated as made on the last day of the preceding month and a distribution made after the fifteenth day of a month is treated as made on the last day of the month.

(D) Alternative method for allocating Plan Year and gap period income. The Plan Administrator may determine the income for the aggregate of the Plan Year and the gap period, by applying the alternative method provided by paragraph (b) above to this aggregate period. This is accomplished by (1) substituting the income for the Plan Year and the gap period, for the income for the Plan Year, and (2) substituting the amounts taken into account for the purposes of the Average Actual Deferral Percentage Tests (set forth in Section 9.02) for the Plan Year and the gap period, for the amounts taken into account for the purposes of the Average Actual Deferral Percentage Tests (set forth in Section 9.02) for the Plan Year in determining the fraction that is multiplied by that income.

Excess 401(k) Contributions are allocated to the Highly Compensated Employees with the largest dollar amounts of Employer contributions taken into account in calculating the Actual Deferral Percentage test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest dollar amount of such Employer contributions and continuing in descending order until all the Excess 401(k) Contributions have been allocated. For purposes of the preceding sentence, the “largest amount” is determined after distribution of any Excess 401(k) Contributions.

The Plan Administrator shall make every effort to make all required distributions and forfeitures within 2 ¹/2 months of the end of the affected Plan Year; however, in no event shall such distributions be made later than the end of the following Plan Year. Distributions and forfeitures made later than 2 ¹/2 months after the end of the affected Plan Year will be subject to tax under Code Section 4979.

All forfeitures arising under this Section shall be applied as specified in Section 4.05 of the Plan and treated as arising in the Plan Year after that in which the Excess 401(k) Contributions were made; however, no forfeitures arising under this Section shall be allocated to the Account of any affected Highly Compensated Employee.

Excess 401(k) Contributions shall be treated as Annual Additions under the Plan.

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For a period of four 12-month periods beginning from the given Plan Year, or such other period as the Secretary of the Treasury may designate, the Employer shall maintain records showing what contributions and Compensation were used to satisfy this Section and Section 9.02.

10. For Plan Years beginning on or after January 1, 2006, Section 9.05 is deleted in its entirety and the following new Section 9.05 is inserted in lieu thereof:

9.05 Special Contributions.

(a) Correction by Employer Contribution. Notwithstanding any other provisions of this Plan except Section 9.09, in lieu of distributing Excess 401(k) Contributions as provided in Section 9.03, the Employer may make 401(k) Employer Contributions on behalf of Non-Highly Compensated Employees that are sufficient to satisfy either of the Average Actual Deferral Percentage Tests. If a failed Average Actual Deferral Percentage Test is to be corrected by making such contributions, then any such corrective contribution made on behalf of any Non-Highly Compensated Employees shall not exceed the targeted contribution limits of set forth below, or in the case of a corrective contribution that is a Qualified Matching Contribution, the targeted contribution limit of Section 10.05.

(b) Targeted Contribution Limit. Qualified Nonelective Contributions (as defined in Treasury Regulation section 1.401(k)-6) cannot be taken into account in determining the “actual deferral ratio” (ADR) for a Plan Year for a Non-Highly Compensated Employee (NHCE) to the extent such contributions exceed the product of that NHCE’s Code section 414(s) compensation and the greater of five percent (5%) or two (2) times the Plan’s “representative contribution rate.” Any Qualified Nonelective Contribution taken into account under an Average Contribution Percentage Test under Treasury Regulation Section 1.40l(m)-2(a)(6) (including the determination of the representative contribution rate for purposes of Treasury Regulation section 1.401(m)-2(a)(6)(v)(B)), is not permitted to be taken into account for purposes of this Section (including the determination of the “representative contribution rate” under this Section). For purposes of this Section:

(i) The Plan’s “representative contribution rate” is the lowest “applicable contribution rate” of any eligible NHCE among a group of eligible NHCEs that consists of half of all eligible NHCEs for the Plan Year (or, if greater, the lowest “applicable contribution rate” of any eligible NHCE who is in the group of all eligible NHCEs for the Plan Year and who is employed by the Employer on the last day of the Plan Year), and

(ii) The “applicable contribution rate” for an eligible NHCE is the sum of the Qualified Matching Contributions (as defined in Treasury Regulation section 1.401(k)-6) taken into account in determining

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the ADR for the eligible NHCE for the Plan Year and the Qualified Nonelective Contributions made for the eligible NHCE for the Plan Year, divided by the eligible NHCE’s Code section 414(s) compensation for the same period.

Qualified Matching Contributions may only be used to calculate an ADR to the extent that such Qualified Matching Contributions are matching contributions that are not precluded from being taken into account under the Average Contribution Percentage Test for the Plan Year under the rules of Treasury Regulation section 1.401(m)-2(a)(5)(ii) and as set forth in Section 10.02 of this Plan.

(c) Limitation on QNEC’s and QMAC’s. Qualified Nonelective Contributions (as defined in Treasury Regulation section 1.401(k)-6) and Qualified Matching Contributions (as defined in Treasury Regulation section 1.401(k)-6) cannot be taken into account to determine an Actual Deferral Percentage to the extent such contributions are taken into account for purposes of satisfying any other Average Actual Deferral Percentage Test, any Average Contribution Percentage Test, or the requirements of Treasury Regulation section 1.401(k)-3, 1.401(m)-3, or 1.401(k)-4.

11. For Plan Years beginning on or after January 1, 2006, Section 9.08 is deleted in its entirety and the following new Section 9.08 is inserted in lieu thereof:

9.08 Distribution of Excess Elective Deferrals. Notwithstanding any other provision of this Plan, Excess Elective Deferrals adjusted for allocable income (gain or loss), including an adjustment for income for the period between the end of the Plan Year and the date of the distribution (the “gap period”) shall be distributed to the affected Participant no later than the April 15 following the calendar year in which such Excess Elective Deferrals were made.

For the purpose of this section, “income” shall be determined and allocated in accordance with the provisions of Section 9.03 of this Plan, except that such section shall be applied (i) by substituting the term “Excess Elective Deferrals” for “Excess 401(k) Contributions” therein, (ii) by ignoring references to “and other amounts taken into account for the purposes of the Average Actual Deferral Percentage Tests (set forth in Section 9.02)”, (iii) by substituting “Excess Elective Deferrals for the taxable year” for “the amounts taken into account under the Average Actual Deferral Percentage Tests for the Plan Year” and (iv) by ignoring the reference to the “Alternative method for allocating Plan Year and gap period income”.

No distribution of an Excess Elective Deferral shall be made unless the correcting distribution is made after the date on which the Plan received the Excess Elective Deferral and both the Participant and the Plan designates the distribution as a distribution of an Excess Elective Deferral.

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Notwithstanding any provision of this Plan to the contrary, any Match Contributions plus earnings that are attributable to any Excess Elective Deferrals that have been refunded shall be forfeited. All such forfeitures shall be treated as arising in the Plan Year after that in which the refunded Excess Deferrals were made and shall be used to reduce future Employer Match Contributions.

12. For Plan Years beginning on or after January 1, 2006, the second sentence of Section 10.01(a) is deleted in its entirety and the following new second sentence is inserted in lieu thereof:

Salary Reduction Contributions (other than Catch-up Contributions) made on behalf of Participants who are Non-Highly Compensated Employees which could be used to satisfy the Code section 401(k)(3) limits (set forth in section 9.02 hereof) but are not necessary to be taken into account in order to satisfy such limits, may instead be in included the above described numerator, to the extent permitted by Treasury Regulation section 1.401(m)-2(a)(6).

13. For Plan Years beginning on or after January 1, 2006, the second and third paragraphs paragraph of Section 10.01(b) are deleted in their entirety and the following new paragraphs are inserted in lieu thereof:

Additionally, if one or more other Plans allowing contributions under Code Section 401(k), voluntary after tax contributions or employer match Contributions are considered with this Plan as one for purposes of Code Section 401(a)(4) or 410(b), the Contribution Percentages for all eligible participants under all such plans shall be determined as if this Plan and all such others were one; provided that for Plan Years beginning on and after January 1, 2006 the requirements of Treasury Regulation section 1.401(m)-1(b)(4)(iii)(B) are met.

If any Highly Compensated Employee is an Eligible Participant in one or more other plans maintained by the same employer, which allow contributions under Code Section 401(k), voluntary after tax contributions or employer match Contributions, the Contribution Percentage for that Employee shall be determined as if this Plan and all such other plans were one; if such plans have different plan years, all contributions that are made under all such plans during the Plan Year being tested shall be aggregated, without regard to the plan years of the other plans. However, for Plan Years beginning before January 1, 2006, if the plans have different plan years, then all such plans having plan years ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be separate if mandatorily disaggregated under the regulations of Code Section 401(m).

14. For Plan Years beginning on or after January 1, 2006, Section 10.03 is deleted in its entirety and the following new Section 10.03 is inserted in lieu thereof:

10.03 Refund and Forfeiture of Excess 401(m) Contributions. Notwithstanding any other provision of this Plan except Sections 10.05 and 10.06, Excess 401(m)

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Contributions adjusted for allocable income (gain or loss), including an adjustment for income for the period between the end of the Plan Year and the date of the distribution (the “gap period”) shall be distributed to affected Highly Compensated Employees.

For the purpose of this section, “income” shall be determined and allocated in accordance with the provisions of Section 9.03 of this Plan, except that such section shall be applied (i) by substituting the term “Excess 401(m) Contributions” for “Excess 401(k) Contributions” therein, and (ii) by substituting amounts taken into account for the purposes of the Average Contribution Percentage Tests for amounts taken into account for the purposes of the Average Actual Deferral Percentage Tests.

The Plan Administrator shall make every effort to refund all Excess 401(m) Contributions within 2 ¹/2 months of the end of the affected Plan Year; however, in no event shall Excess 401(m) Contributions be refunded later than the end of the following Plan Year. Distributions made later than 2 ¹/2 months after the end of the affected Plan Year will be subject to tax under Code Section 4979.

Notwithstanding any provision of this Plan to the contrary, any Match Contributions plus earnings that are attributable to any Excess 401(m) Contributions that have been refunded shall be forfeited. All such forfeitures shall be treated as arising in the Plan Year after that in which the refunded Excess 401(m) Contributions were made and shall be used to reduce future Employer Match Contributions.

For a period of four 12-month periods beginning from the given Plan Year, or such other period as the Secretary of the Treasury may designate, the Employer shall maintain records showing what contributions and compensation were used to satisfy this Section and Section 10.02.

15. For Plan Years beginning on or after January 1, 2006, Section 10.05 is deleted in its entirety and the following new Section 10.05 is inserted in lieu thereof:

10.05 Special 401(k) Employer Contributions.

(a) Correction by Employer Contribution. Notwithstanding any other provisions of this Plan except Section 10.07, in lieu of refunding Excess 401(m) Contributions as provided in Section 10.03, the Employer may make 401(k) Employer Contributions on behalf of Non-Highly Compensated Employees that are sufficient to satisfy the Average Contribution Percentage test. If a failed Average Contribution Percentage Test is to be corrected by making such contributions, then any such corrective contribution made on behalf of any Non-Highly Compensated Employees shall not exceed the targeted contribution limits of set forth below,

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(b) Targeted Matching Contribution Limit. A matching contribution with respect to an Salary Reduction Contribution for a Plan Year is not taken into account under the Actual Contribution Percentage Test for an NHCE to the extent it exceeds the greatest of:

(i) five percent (5%) of the NHCE’s Code Section 414(s) compensation for the Plan Year;

(ii) the NHCE’s Salary Reduction Contributions for the Plan Year; and

(iii) the product of two (2) times the Plan’s “representative matching rate” and the NHCE’s Salary Reduction Contributions for the Plan Year.

For purposes of this Section, the Plan’s “representative matching rate” is the lowest “matching rate” for any eligible NHCE among a group of NHCEs that consists of half of all eligible NHCEs in the Plan for the Plan Year who make Salary Reduction Contributions for the Plan Year (or, if greater, the lowest “matching rate” for all eligible NHCEs in the Plan who are employed by the Employer on the last day of the Plan Year and who make Salary Reduction Contributions for the Plan Year).

For purposes of this Section, the “matching rate” for an Employee generally is the matching contributions made for such Employee divided by the Employee’s Salary Reduction Contributions for the Plan Year. If the matching rate is not the same for all levels of Salary Reduction Contributions for an Employee, then the Employee’s “matching rate” is determined assuming that an Employee’s Salary Reduction Contributions are equal to six percent (6%) of Code Section 414(s) compensation.

(c) Targeted QNEC limit. Qualified Nonelective Contributions (as defined in Treasury Regulation section 1.40l(k)-6) cannot be taken into account under the Actual Contribution Percentage Test for a Plan Year for an NHCE to the extent such contributions exceed the product of that NHCE’s Code Section 414(s) compensation and the greater of five percent (5%) or two (2) times the Plan’s “representative contribution rate.” Any Qualified Nonelective Contribution taken into account under an Actual Deferral Percentage Test under Treasury Regulation section 1.401 (k)-2(a)(6) (including the determination of the “representative contribution rate” for purposes of Treasury Regulation section 1.401(k)-2(a)(6)(iv)(B)) is not permitted to be taken into account for purposes of this Section (including the determination of the “representative contribution rate” for purposes of subsection (a) below). For purposes of this Section:

(i) The Plan’s “representative contribution rate” is the lowest “applicable contribution rate” of any eligible NHCE among a

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group of eligible NHCEs that consists of half of all eligible NHCEs for the Plan Year (or, if greater, the lowest “applicable contribution rate” of any eligible NHCE who is in the group of all eligible NHCEs for the Plan Year and who is employed by the Employer on the last day of the Plan Year), and

(ii) The “applicable contribution rate” for an eligible NHCE is the sum of the matching contributions (as defined in Treasury Regulation section 1.401 (m)-l(a)(2)) taken into account in determining the “actual contribution ratio” for the eligible NHCE for the Plan Year and the Qualified Nonelective Contributions made for that NHCE for the Plan Year, divided by that NHCE’s Code section 414(s) compensation for the Plan Year.

16. For Plan Years beginning on or after January 1, 2006, Section 13.01 is amended by the addition of the following new paragraph:

A Participant whose employment status changes from that of a common law employee to that of a “leased employee” within the meaning of Code section 414(n) shall not be considered to have a severance from employment for the purposes of this section and this Article of the Plan (unless the safe harbor plan requirements described in Code section 414(n)(5) are met).

17. For Plan Years beginning on or after January 1, 2007, the words “no more than 90 days” in the second paragraph of Section 13.11(a) shall be deleted and the words “no more than 90 days (180 days for Plan Years beginning January 1, 2007 and thereafter)” shall be inserted in lieu thereof and the words “90-day period” in the fourth paragraph of Section 12.01, “ in the first paragraph of Section 13.07, and the second paragraph of and Section 13.11(a) shall be deleted and the words “90-day period (180-day period for Plan Years beginning January 1, 2007 and thereafter)” shall be inserted in lieu thereof.

18. The last sentence of the second paragraph and the third paragraph of Section 7.07(c)(ii) is deleted in their entirety and the following new sentence and paragraph are inserted in lieu thereof:

However, distribution may commence less than 30 days after the notice described in the preceding sentence is given, provided the distribution is not one to which Code Section 417 applies, the Participant is clearly informed of his or her right to take 30 days after receiving the notice to decide whether or not to elect a distribution (and, if applicable, a particular distribution option), and the Participant, after receiving the notice, affirmatively elects to receive the distribution prior to the expiration of the 30-day minimum period.

For Plan Years beginning January 1, 1998, and thereafter, if a distribution is one to which Code Sections 411(a)(11)(A) and 417 applies, a Participant may commence receiving a distribution in a form other than a Qualified Joint and Survivor Annuity less than 30 days after receipt of the written explanation described in the preceding paragraph provided: (1)

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the Participant has been provided with information that clearly indicates that the Participant has at least 30 days to consider whether to waive the Qualified Joint and Survivor Annuity and elect (with spousal consent) a form of distribution other than a Qualified Joint and Survivor Annuity; (2) the Participant is permitted to revoke any affirmative distribution election at least until the Distribution Commencement Date or, if later, at any time prior to the expiration of the 7-day period that begins the day after the explanation of the Qualified Joint and Survivor Annuity is provided to the Participant; and (3) the Distribution Commencement Date is after the date the written explanation was provided to the Participant. For distributions on or after December 31, 1996, the Distribution Commencement Date may be a date prior to the date the written explanation is provided to the Participant if the distribution does not commence until at least 30 days after such written explanation is provided, subject to the waiver of the 30-day period. For the purposes of this paragraph, the Distribution Commencement Date is the date a Participant commences distributions from the Plan. If a Participant commences distribution with respect to a portion of his/her Account Balance, a separate Distribution Commencement Date applies to any subsequent distribution. If distribution is made in the form of an annuity, the Distribution Commencement Date is the first day of the first period for which annuity payments are made.

19. For Plan Years beginning on or after January 1, 2006, the following sentences are added to Section 13.12(b)(2)(ii):

Eligible Retirement Plan also means an annuity contract described in Code section 403(b) and an eligible plan under Code section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan.

20. The following sentences are added to Section 13.13:

Except as specifically provided in a Qualified Domestic Relations Order, amounts distributed under this section shall be taken pro rata from the investment options in which each of the Participant’s Accounts is invested. The Plan Administrator shall establish reasonable procedures to determine whether an order or other decree is a Qualified Domestic Relations Order, and to administer distributions under such orders.

21. Article XIV is deleted in its entirety and the following new Article XIV is inserted in lieu thereof:

PLAN FIDUCIARY RESPONSIBILITIES

14.01 Plan Fiduciaries. The Plan Fiduciaries shall be:

(i) the Trustee(s) of the Plan;

(ii) the Plan Administrator;

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(v) such other person or persons as may be designated by the Plan Administrator in accordance with the provisions of this Article XIV.

14.02 General Fiduciary Duties. Each Plan Fiduciary shall discharge his or her duties solely in the interest of the Participants and their Beneficiaries and act:

(i) for the exclusive purpose of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses of administering the Plan;

(ii) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;

(iii) by diversifying the investments of the Plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so, if the Fiduciary has the responsibility to invest plan assets; and

(iv) in accordance with the documents and instruments governing the Plan insofar as such documents and instruments are consistent with the provisions of current laws and regulations.

Each Plan Fiduciary shall perform the duties specifically assigned to him or her. No Plan Fiduciary shall have any responsibility for the performance or non-performance of any duties not specifically allocated to him or her.

14.03 Duties of the Trustee(s). The specific responsibilities and duties of the Trustee(s) are set forth in the Trust Indenture between First Allmerica and the Trustee(s). In general the Trustee(s) shall:

(i) invest Plan assets, subject to directions from the Plan Administrator or from any duly appointed investment manager;

(ii) maintain adequate records of receipts, disbursements, and other transactions involving the Plan; and

(iii) prepare such reports, statements, tax returns and other forms as may be required under the Trust Indenture or applicable laws and regulations.

14.04 Powers and Duties of the Plan Administrator. The Plan Administrator is the Benefits Committee. The Plan Administrator shall have the power, discretionary authority, and duty to interpret the provisions of the Plan and to make all decisions and take all actions and that shall be necessary or proper in order to carry out the provisions of the Plan. Without limiting the generality of the foregoing, the Plan Administrator shall:

(i) monitor compliance with the provisions of ERISA and other applicable laws with respect to the Plan;

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(ii) establish an investment policy and funding method consistent with objectives of the Plan and with the requirements of applicable laws and regulations;

(iii) invest Plan assets except to the extent that the Plan Administrator has delegated such investment duties to an investment manager;

(iv) evaluate from time to time investment policy and the performance of any investment manager or investment advisor appointed by it;

(v) interpret and construe the Plan in order to resolve any ambiguities therein;

(vi) determine all questions concerning the eligibility of any person to participate in the Plan, the right to and the amount of any benefit payable under the Plan to or on behalf of an individual and the date on which any individual ceases to be a Participant, with any such determination to be conclusively binding and final, to the extent permitted by applicable law, upon all persons interested or claiming an interest in the Plan;

(vii) establish guidelines as required for the orderly and uniform administration of the Plan;

(viii) exercise overall control of the operation and administration of the Plan in matters not allocated to some other Fiduciary by the terms of this Plan.

(ix) administer the Plan on a day-to-day basis in accordance with the provisions of this Plan and all other pertinent documents;

(x) retain and maintain Plan records, including Participant census data, participation dates, compensation records, and such other records necessary or desirable for proper Plan administration;

(xi) prepare and arrange for delivery to Participants of such summaries, descriptions, announcements and reports as are required to be given to participants under applicable laws and regulations;

(xii) file with the U.S. Department of Labor, the Internal Revenue Service and other regulatory agencies on a timely basis all required reports, forms and other documents;

(xiii) prepare and furnish to the Trustee(s) sufficient records and data to enable the Trustee(s) to properly perform its obligations under the Trust Indenture; and

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(xiv) to take appropriate actions required to correct any errors made in determining the eligibility of any employee for benefits under the Plan or the amount of benefits payable under the Plan and in correcting any error made in computing the benefits of any participant or beneficiary, the Plan Administrator may make equitable adjustments (an increase or decrease) in the amount of any future benefits payable under the Plan, including the recovery of any overpayment of benefits paid from the Plan as provided in Treas. Reg. § 1.401(a)-13(c)(2)(iii).

The Plan Administrator may appoint or employ such advisers or assistants as the Plan Administrator deems necessary and may delegate to any one or more of its members any responsibility it may have under the Plan or designate any other person or persons to carry out any responsibility it may have under the Plan.

Notwithstanding any provisions elsewhere to the contrary, the Plan Administrator shall have total discretion to fulfill the above responsibilities as the Plan Administrator sees fit on a uniform and consistent basis and as the Plan Administrator believes a prudent person acting in a like capacity and familiar with such matters would do.

14.05 Designation of Fiduciaries. The Plan Administrator shall have the authority to appoint and remove Trustee(s) in accordance with the Trust Indenture. The Plan Administrator may appoint and remove an investment manager and delegate to said investment manager power to manage, acquire or dispose of any assets of the Plan.

While there is an investment manager, the Plan Administrator shall have no obligation under this Plan with regard to the performance or non-performance of the duties delegated to the investment manager.

The Plan Administrator shall appoint all other Fiduciaries of this Plan. In making its appointment or delegation of authority, the Plan Administrator may designate all of the responsibilities to one person or it may allocate the responsibilities, on a continuing basis or on an ad hoc basis, to one or more individuals either jointly or severally. No individual named a Fiduciary shall have any responsibility for the performance or non-performance of any responsibilities or duties not allocated to him or her.

The appointing authority of a Fiduciary shall periodically, but not less frequently than annually, review the performance of each fiduciary appointed in order to carry out the general fiduciary duties specified in Section 14.02 and, where appropriate, take or recommend remedial action.

14.06 Delegation of Duties by a Fiduciary. Except as provided in this Plan or in the appointment as a Fiduciary, no Plan Fiduciary may delegate his or her fiduciary responsibilities. If authorized by the appointing authority, a Fiduciary may

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appoint such agents as may be deemed necessary and delegate to such agents any non-fiduciary powers or duties, whether ministerial or discretionary. No Fiduciary or agent of a Fiduciary who is a full-time employee of the Employer will receive any compensation from the Plan for his or her services, but the Employer or the Plan shall pay all expenses that such employee reasonably incurs in the discharge of his or her duties.

22. Article XV is renamed “BENEFITS COMMITTEE”.

23. Sections 15.01, 15.02 and 15.03 shall be deleted in their entirety and the following new Sections 15.01, 15.02 and 15.03 is inserted in lieu thereof:

15.01 Appointment of Benefits Committee. The Benefits Committee shall consist of three or more members appointed from time to time by the President of the Employer (the “President”), who shall also designate one of the members as chairman. Each member of the Benefits Committee and its chairman shall serve at the pleasure of the President.

15.02 Benefits Committee to Act by Majority Vote, etc. The Benefits Committee shall act by majority vote of all members. All actions, determinations, interpretations and decisions of the Benefits Committee with respect to any matter within their jurisdiction will be conclusive and binding on all persons. Any person may rely conclusively upon any action if certified by the Benefits Committee.

Notwithstanding the above, a member of the Benefits Committee who is also a Participant shall not vote or act upon any matter relating solely or primarily to him or herself.

15.03 Records and Reports of the Benefits Committee. The Benefits Committee shall keep a record of all of its proceedings and acts, and shall keep such books of account, records and other data as may be necessary for the proper administration of the Plan and file or deliver to Participants and their Beneficiaries whatever reports are required by any regulatory authority.

24. The following new Section 15.05 is added to Article XV immediately following Section 15.04:

15.05 Indemnification of the Plan Administrator and Assistants. The Employer shall indemnify and defend to the extent permitted under the By-Laws of the Employer any Employee or former Employee (i) who serves or has served as a member of the Benefits Committee, (ii) who has been appointed to assist the Benefits Committee in administering the Plan, or (iii) to whom the Benefits Committee has delegated any of its duties or responsibilities against any liabilities, damages, costs and expenses (including attorneys’ fees and amounts paid in settlement of any claims approved by the Employer) occasioned by any act or omission to act in connection with the Plan, if such act or omission to act is in good faith and

15

without gross negligence; provided that such Employee or former Employee is not otherwise indemnified or saved harmless under any liability insurance or other indemnification arrangement.

25. Section 16.01 is deleted in its entirety and the following new Section 16.01 is inserted in lieu thereof:

16.01 In General. Subject to the direction of the Plan Administrator or any duly appointed investment manager in accordance with Section 14.05 (or subject to the direction of the Plan Administrator if a Participant has requested that an individual life insurance or annuity Policy be issued on his or her life in accordance with Article XVII), the Trustee shall receive all contributions to the Trust and shall hold, invest and control the whole or any part of the assets in accordance with the provisions of the annexed Trust Indenture.

26. The first sentence of Section 16.02 is deleted in its entirety and the following new sentence is inserted in lieu thereof:

In order to provide retirement and other benefits for Plan Participants and their Beneficiaries, the Trustee shall invest Plan assets in one or more permissible investments specified in the Trust Indenture (“Permissible Investments”) and in such collective investment trusts or group trusts that may be established for the primary objective of investing in securities issued by The Hanover Group Insurance, Inc., which investments shall be considered as investments in qualifying employer securities as defined in Section 407(d) of the Employee Retirement Income Security Act of 1974, as amended. Such permissible investments shall include The Hanover Insurance Group Company Stock Fund, a group trust established for the purposes of investing in the common stock of The Hanover Insurance Group (“The Employer Stock Fund”).

27. The second paragraph of Section 16.02 is deleted in its entirety and the following new paragraph is inserted in lieu thereof:

This Plan is intended to comply with the requirements of Section 404(c) of ERISA. Each Participant is responsible and has sole discretion to give directions to the Trustee in such form as the Trustee may require concerning the investment of his or her Accrued Benefit in one or more of the Permissible Investments subject to the restrictions on life insurance premiums described in Article XVII. The designation by a Participant of the allocation of his Accrued Benefit among the Permissible Investments may be made from time to time, with such frequency and in accordance with such procedures as established and set forth in the Trust Indenture and applied in a uniform nondiscriminatory manner. Any such procedure shall be communicated to the Participants and designed with the intention of permitting the Participants to exercise control over the assets in their respective accounts within the meaning of Section 404(c) of the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder. If and to the extent that a Participant fails to designate an allocation of his Accrued Benefit, in whole or in part, the Trustee shall allocate and invest such assets in the default investment fund selected by the

16

Plan Administrator. Otherwise, the Trustee shall allocate and invest the assets of the Trust in accordance with the Participant’s selections subject to the restrictions on life insurance premiums described in Article XVII. All voting rights with respect to a Participant’s investment in the Employer Stock Fund shall be the responsibility of that Participant, and the Trustee shall receive direction from the Participant for such voting rights. Neither the Plan Administrator, the Trustee, the Employer nor any other person shall be under any duty to question any investment, voting or other direction of the Participant or make any suggestions to the Participant in connection therewith, and the Trustee shall comply as promptly as practicable with directions given by the Participant hereunder. All such directions may be of continuing nature or otherwise and may be revoked by the Participant at any time in such form as the Trustee may require. Neither the Plan Administrator, the Trustee, the Employer nor any other person shall be responsible or liable for any costs, losses or expenses which may arise or result from or be related to the compliance or refusal or failure to comply with any directions from the Participant. The Trustee may refuse to comply with any direction from the Participant in the event the Trustee, in its sole or absolute discretion, deems such direction improper by virtue of applicable law or regulations. For purposes of this section, all references to “Participant” shall include all Beneficiaries of Participants who are deceased and any Alternate Payees under a Qualified Domestic Relations Order, as provided for in Section 20.01.

28. The first sentence of Section 18.01 is deleted in its entirety and the following new sentence is inserted in lieu thereof:

The Plan Administrator will act as Claims Fiduciary except to the extent that the Plan Administrator has delegated the function to some other person or persons, committee or entity.

29. For Plan Years beginning on or after January 1, 2006, Section 20.02 is deleted in its entirety and the following new Section 20.02 is inserted in lieu thereof:

20.02 Notwithstanding any provisions of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with the rules and requirements of the Uniformed Services Employment and Reemployment Rights Act of 1994 and Section 414(u) of the Code. “Make-up” Salary Reduction Contributions made by reason of an eligible Employee’s qualified military service under Code section 414(u) shall not be taken into account for any year when calculating an employee’s Actual Deferral Percentage (under Section 9.1(a)) as provided for in Treasury Regulation section 1.401(k)-2(a)(5)(v) and matching contributions thereon shall not be taken into account for any year when calculating an employee’s Average Contribution Percentage (under Section 10.1(a)) as provided for in Treasury Regulation section 1.401(m)-2(a)(5)(vi).

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30. This Amendment is intended, in part, as a good faith compliance with the requirements of the Final Regulations issued under Section 401(k) and 401(m) of the Internal Revenue Code that were published on December 29, 2004.

31. This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment.

IN WITNESS WHEREOF, this Second Amendment has been executed this 26th day of June 2007.

FIRST ALLMERICA FINANCIAL LIFE INSURANCE
By:	/s/ Lorna Stearns
	Authorized Representative

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THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

THIRD AMENDMENT

to the Restatement Generally Effective January 1, 2005

This Third Amendment is executed by The Hanover Insurance Company, a New Hampshire company (the “Company”).

WHEREAS, Immediately prior to January 1, 2008, First Allmerica Financial Life Insurance Company (“FAFLIC”) sponsored The Hanover Insurance Group Retirement Savings Plan, formerly known as the “The Allmerica Financial Retirement Savings Plan” and before that “The Allmerica Financial Employees’ 401(k) Matched Savings Plan”, (the “Plan”);

WHEREAS, FAFLIC transferred sponsorship of, and the liabilities and obligations associated with the Plan to The Hanover Insurance Company (the “Company”) effective as of January 1, 2008 and the Company agreed to assume sponsorship of, and the liabilities and obligations associated with the Plan as of such date;

WHEREAS, The Plan was established effective as of November 22, 1961 and was amended and restated in certain respects subsequent to its effective date,

WHEREAS, The most recent restatement of the Plan was adopted on December 29, 2005 and was generally effective January 1, 2005, and such restatement was amended by the adoption of the First Amendment on March 5, 2007, and the Second Amendment on June 26, 2007;

WHEREAS, the Company (and the Company as successor in interest to FAFLIC) has reserved the right to amend the Plan any time under Section 19.01 of the Plan; and

WHEREAS, the Company desires to amend the Plan to reflect the votes adopted by the Board of Directors of the Company at its December 19, 2007 meeting;

NOW, THEREFORE, the Plan is amended effective as of January 1, 2008 as follows:

1

1. Section 2.09 of the Plan is deleted in its entirety and the following new Section 2.09 inserted in lieu thereof:

2.09 “Employer” shall mean The Hanover Insurance Company provided that prior to January 1, 2008 “Employer” shall mean First Allmerica Financial Life Insurance Company.

2. The following new Section 2.11A is added to Article II:

2.11A “First Allmerica” shall mean First Allmerica Financial Life Insurance Company.

3. Paragraph (v) of Section 2.17(f) of the Plan is deleted in its entirety and the following new paragraphs (v) and (vi) are inserted in lieu thereof:

(v) for periods prior to January 1, 2008 with First Allmerica; or

(vi) with an Affiliate.

4. References to “First Allmerica” in Sections 2.24, 2.33, and 14.03 shall be deleted and replaced by references to “the Employer” in such sections.

5. This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment.

IN WITNESS WHEREOF, this Third Amendment has been executed this 30^th day of April 2008.

THE HANOVER INSURANCE COMPANY
By:	/s/ Lorna Stearns
	Authorized Representative

2

THE HANOVER INSURANCE GROUP, INC.

RETIREMENT SAVINGS PLAN

FOURTH AMENDMENT

to the Restatement Generally Effective January 1, 2005

This Fourth Amendment is executed by The Hanover Insurance Company, a New Hampshire company (the “Company”).

WHEREAS, the most recent restatement of the Plan was adopted on December 29, 2005 and was generally effective January 1, 2005, and such restatement was amended by the adoption of the First Amendment on March 5, 2007, the Second Amendment on June 26, 2007, and the Third Amendment on April 30, 2008;

WHEREAS, the Company has reserved the right to amend the Plan any time under Section 19.01 of the Plan; and

WHEREAS, the Company now desires to amend the Plan.

NOW, THEREFORE, the Plan is amended effective as of January 1, 2008 as follows:

1. The first sentence of Section 4.02 of the Plan is deleted in its entirety and the following new sentences are inserted in lieu thereof:

For Plan Years beginning on or after January 1, 2009, unless otherwise voted by the Board of Directors of the Employer, for each pay period that an eligible Salary Reduction Contribution is made by a Participant to the Trust, not to exceed the Code Section 402(g) limitation and not including Catch-up Contributions, the Employer shall make a Match Contribution to the Trust on the Participant’s behalf equal to 100% of the Participant’s Salary Reduction Contributions that do not exceed 6% of the Participant’s Compensation, not including Catch-up Contributions, made during the pay period.

For Plan Years beginning on or after January 1,2005 and before January 1, 2009, unless otherwise voted by the Board of Directors of the Employer, for each pay period that an eligible Salary Reduction Contribution is made by a Participant to the Trust, not to exceed the Code Section 402(g) limitation and not including Catch-up Contributions, the Employer shall make a Match Contribution to the Trust on the Participant’s behalf equal to 100% of the first 5% of the Participant’s Salary Reduction Contributions, not including Catch-up Contributions, made during the pay period.

2. Section 4.03 of the Plan be deleted in its entirety and the following language inserted in lieu thereof:

Section 4.03. Non-Elective Employer Contributions

(a) For Plan Years beginning on or after January 1, 2008, eligible Employees who are employed by the Employer on the last day of the Plan Year will receive an Employer paid contribution, whether or not the Employee has elected to participate in the Plan, in an amount equal to 2% of the Employee’s eligible Plan Compensation, unless otherwise voted by the Board of Directors of the Employer.

For Plan Years beginning on or after January 1, 2005 and before January 1, 2008, unless otherwise voted by the Board of Directors of the Employer, eligible Employees who are employed by the Employer on the last day of the Plan Year will receive an Employer paid contribution, whether or not the Employee has elected to participate in the Plan, equal to 3% of eligible Plan Compensation.

The contribution shall be made in cash. Such contribution shall be made to the Non-Elective Employer Contribution Account to be established for each such Employee and shall be invested per the direction of the Participant in accordance with Section 16.02 of the Plan.

(b) Notwithstanding anything in the Plan to the contrary, for the 2006 Plan Year only, and subject to compliance with applicable Code discrimination laws, rules and regulations, all Employees, other than First Allmerica Operating Committee Members, employed by the Employer on December 31, 2006, shall receive an extra Employer paid contribution of $500, whether or not the Employee has elected to participate in the Plan.

Provided, however that Employees who voluntarily terminated between January 1, 2007 and March 5, 2007, or employees who were terminated between such dates for cause, are not eligible for the extra company paid $500 award.

The contribution and extra contribution shall be made in cash. Such contribution and extra contribution shall be made to the Non-Elective Employer Contribution Account established for each eligible Employee and shall be invested per the direction of the Participant in accordance with Section 16.02 of the Plan.

This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment.

IN WITNESS WHEREOF, this Fourth Amendment has been executed this 19th day of November, 2008.

THE HANOVER INSURANCE COMPANY
By:	/s/ Lorna Stearns
	Authorized Representative

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

FIFTH AMENDMENT

to the Restatement Generally Effective January 1, 2005

This Fifth Amendment is executed by The Hanover Insurance Company, a New Hampshire life insurance company (the “Company”).

WHEREAS, The most recent restatement of the Plan was adopted on December 29, 2005 and was generally effective January 1, 2005, and such restatement was amended by the adoption of the First Amendment on March 5, 2007, the Second Amendment on June 26, 2007, and the Third Amendment on April 30, 2008; and the Fourth Amendment on November 2, 2008;

WHEREAS, the Company has reserved the right to amend the Plan any time under Section 19.01 of the Plan;

WHEREAS, the Company has reserved the right to amend the Plan any time under Section XII of the Plan; and

WHEREAS, the Company desires to amend the Plan.

NOW, THEREFORE, the Plan is amended as follows:

1. Effective as of January 1, 2009, the Plan is amended as follows:

Section 1. General Information and Provisions

1.1 Effect of Amendment. This Amendment supersedes any conflicting provisions of the Hanover Insurance Group Retirement Savings Plan (the “Plan”), any administrative policy regarding Elective Deferrals, and/or the Plan’s funding policy. Furthermore, this Amendment supersedes any State (or Commonwealth) law that would directly or indirectly prohibit or restrict the inclusion of an Automatic Contribution Arrangement in the Plan, pursuant to ERISA §514(e)(l) and Department of Labor Regulation §2550.404c–5(f).

1.2 Good Faith Compliance. This document is an Amendment to the Plan, any administrative policy regarding Elective Deferrals, and/or the Plan’s funding policy; is intended as good faith compliance with all current guidance with respect to Automatic Contribution Arrangements; and will incorporate any subsequent guidance with respect to Automatic Contribution Arrangements, even to the extent that such subsequent guidance would modify the terms of this Amendment.

Section 2. Elective Deferrals

2.1 Elective Deferrals. All of the Elective Deferrals that are withheld under the Automatic Contribution Arrangement will be treated as Pre-Tax Elective Deferrals.

Section 3. Eligible Participants

3.1 Eligible Participants. The following classes of Participants are Eligible Participants and will be subject to the Automatic Contribution Arrangement:

(a) New Participants. New Participants who are eligible to make Elective Deferrals and who are entering the Elective Deferral component of the Plan.

(b) Participants Who Have Not Made an Election. Participants who are eligible to make Elective Deferrals, and who have not made an election with respect to Elective Deferrals.

Section 4. Duration/Expiration of Automatic Contribution Overriding Election

4.1 Duration/Expiration of Automatic Contribution Overriding Election. The Automatic Contribution Overriding Election will not expire, but will remain in force until changed by the Eligible Participant. An Eligible Participant need not execute a subsequent Automatic Contribution Overriding Election in order to have the prior Automatic Contribution Overriding Election apply to the Automatic Contribution Percentage or Qualified Percentage of a subsequent Plan Year. Any subsequent change to the Automatic Contribution Overriding Election will be made in accordance with the terms and conditions of the Plan relating to the modification of Elective Deferrals.

Section 5. Type of Automatic Contribution Arrangement

5.1 Type of Automatic Contribution Arrangement. The type of Automatic Contribution Arrangement which this Amendment reflects is a Qualified Automatic Contribution Arrangement as described in PPA §902(a), which added Code §401(k)(13).

Section 6. Qualified Automatic Contribution Arrangement

6.1 Effective Date. The Qualified Automatic Contribution Arrangement is effective for Plan Years beginning on or after January 1, 2009.

6.2 Initial Qualified Percentage. An Eligible Participant will be treated as having elected to have the Employer make Elective Deferrals to the Plan in an amount equal to 3% of Compensation as the Qualified Percentage in the first Applicable Plan Year.

6.3 Qualified Percentage for Subsequent Applicable Plan Years. An Eligible Participant will be treated as having elected to have the Employer make Elective Deferrals to the Plan in the amounts equal to the following percentages of Compensation as the Qualified Percentages in subsequent Applicable Plan Years after the first Applicable Plan Year:

3%	of Compensation as the Qualified Percentage in the second Applicable Plan Year.
4%	of Compensation as the Qualified Percentage in the third Applicable Plan Year.
5%	of Compensation as the Qualified Percentage in the fourth Applicable Plan Year.
6%	of Compensation as the Qualified Percentage in any subsequent Applicable Plan Year after the fourth Applicable Plan Year.

6.4 Matching Contribution Requirement.

(a) Enhanced Matching Contribution. The Employer will make a matching contribution equal to 100% of a Participant’s Elective Deferrals that do not exceed 6% of Compensation as provided for in Section 4.02 of the Plan. Such matching contribution will be made on behalf of any Participant who is eligible to make an

Elective Deferral component of the Plan who makes Elective Deferrals. The ratio of such matching contributions to Elective Deferrals of a Participant who is a highly compensated employee must not exceed the ratio of such matching contributions to Elective Deferrals of any Participant who is a non-highly compensated employee with Elective Deferrals at the same percentage of Compensation as any highly compensated employee. Furthermore, the ratio of a Participant’s matching contributions to the Participant’s Elective Deferrals may not increase as the amount of a Participant’s Elective Deferrals increases.

(b) Compensation. The term “Compensation” means, for purposes of the matching contribution, means as “Compensation” as defined in the Plan document, which definition of compensation qualifies as a nondiscriminatory definition of compensation under Code §414(s) and the Treasury Regulations thereunder. The Compensation measuring period is the Plan Year.

(c) Withdrawal Restrictions. The matching contribution is subject to the withdrawal restrictions set forth in Code §401(k)(2)(B) and Treasury Regulation §1.401(k)-1(d).

6.5 Vesting Schedule. A Participant’s sub-account that holds the matching contribution will be subject to the vesting schedule set forth in Section 2.22 of the Plan.

6.6 Usage of Forfeitures. With respect to any forfeiture of the non-vested interest in a Participants sub-account that contains the matching contribution, the Administrator may elect to use all or any portion of the forfeitures to pay administrative expenses incurred by the Plan. Forfeitures that are not used to pay administrative expenses will be used first to restore previous forfeitures of Participants accounts as necessary and permitted pursuant to the provisions of the Plan. Forfeitures that are not used to pay administrative expenses and are not used to satisfy the provisions of the previous sentence will then be allocated/used to reduce the matching contribution provided for in Section 6.4(a).

6.7 Exemption from ADP Test. Notwithstanding anything in the Plan to the contrary, the Plan will be treated as meeting the ADP test as set forth in Code §401(k)(3)(A)(ii) in any Plan Year in which the Plan includes a Qualified Automatic Contribution Arrangement pursuant to PPA §902(a), which added Code §401 (k)( I3)(A).

6.8 Limited Exemption from ACP Test. Notwithstanding anything in the Plan to the contrary, the Plan shall be treated as having satisfied the ACP test as set forth in Code §401(m)(2) only with respect to the matching contribution in any Plan Year in which the Plan includes a Qualified Automatic Contribution Arrangement pursuant to PPA §902(b), which revised Code §401(m)(12).

6.9 Limited Exemption from Top Heavy. Notwithstanding anything in the Plan to the contrary, in any Plan Year in which the Plan consists solely of: Employer contributions consisting of matching contributions which meet the requirements of Code §401(m)(12), then such Plan will not be treated as a top heavy Plan and will be exempt from the top heavy requirements of Code §416. Furthermore, if the Plan (but for the prior sentence) would be treated as a top heavy Plan because the Plan is a member of an aggregation group which is a top heavy group, then the contributions under the Plan may be taken into account in determining whether any other plan in the aggregation group meets the top heavy requirements of Code §416.

Section 7. Default Investment

7.1 Default Investment. If a Participant or beneficiary has the opportunity to direct the investment of the assets in his or her account (but does not direct the investment of such assets), then such assets in his or her account will be invested in a Qualified Default Investment Alternative.

7.2 Transfer from Qualified Default Investment Alternative. Any Participant or beneficiary on whose behalf assets are invested in a Qualified Default Investment Alternative may transfer, in whole or in part,

such assets to any other investment alternative available under the Plan with a frequency consistent with that afforded to a Participant or beneficiary who elected to invest in the Qualified Default Investment Alternative, but not less frequently than once within any 3-month period.

(a) No Fees during First 90 Days. Any Participant’s or beneficiary’s election to make such transfer from the Qualified Default Investment Alternative, a Permissible Withdrawal during the 90-day period beginning on the date of the Participant’s first Elective Deferral as determined under Code §4l4(w)(2)(B), or other first investment in a Qualified Default Investment Alternative on behalf of a Participant or beneficiary, will not be subject to any restrictions, fees or expenses (including surrender charges, liquidation or exchange fees, redemption fees and similar expenses charged in connection with the liquidation of, or transfer from, the investment), except as permitted in Department of Labor Regulation §2550.404c–5(c)(5)(ii)(B).

(b) Limited Fees after First 90 Days. Following the end of the 90-day period described in paragraph (a), any transfer from the Qualified Default Investment Alternative a Permissible Withdrawal will not be subject to any restrictions, fees or expenses not otherwise applicable to a Participant or beneficiary who elected to invest in that Qualified Default Investment Alternative.

7.3 Broad Range of Investment Alternatives. The Plan must offer a “broad range of investment alternatives” within the meaning of Department of Labor Regulation §2550.404c–l(b)(3).

7.4 Materials Must Be Provided. A fiduciary must provide to a Participant or beneficiary the materials set forth in Department of Labor Regulation §2550.404c-1(b)(2)(i)(B)(l)(viii) and (ix) and Department of Labor Regulation §404c-l(b)(2)(i)(B)(2) relating to a Participant’s or beneficiary’s investment in a Qualified Default Investment Alternative.

Section 8. Notice Requirements

8.1 Content and Timing of Notice for Automatic Contribution Arrangement. Within a reasonable period before the beginning of each Plan Year, Eligible Participants to whom the Automatic Contribution Arrangement applies for such Plan Year must receive a sufficiently accurate and comprehensive written notice of their rights and obligations under the Automatic Contribution Arrangement. Such notice will be written in a manner calculated to be understood by the average Eligible Participant to whom the Automatic Contribution Arrangement applies. The notice must explain (a) under the Automatic Contribution Arrangement, the Eligible Participant’s right pursuant to a Automatic Contribution Overriding Election to elect either (1) not to have Elective Deferrals made on the Eligible Participant’s behalf, or (2) to have Elective Deferrals made at a different percentage; and (b) how contributions made under the Automatic Contribution Arrangement will be invested in the absence of any investment election by the Eligible Participant (the default investment(s)). After receipt of the notice described in this paragraph, any Eligible Participant to whom the Automatic Contribution Arrangement relates must have a reasonable period of time before the first Elective Deferral is made to exercise the rights set forth within the notice including, but not limited to, executing an Automatic Contribution Overriding Election.

8.2 Content and Timing of Notice for Qualified Default Investment Alternative. The following provisions apply to the notice required by a Qualified Default Investment Alternative:

(a) Manner. Such notice will be written in a manner calculated to be understood by the average Plan Participant.

(b) Content. Such notice will contain the following:

(1) A description of the circumstances under which assets in the individual account of a Participant or beneficiary may be invested on behalf of the Participant or beneficiary in a Qualified Default Investment Alternative; and, if applicable, an explanation of the circumstances under which Elective Deferrals will be made on behalf of a Participant, the percentage of such Elective Deferrals, and the right of the Participant to elect not to have such Elective Deferrals made on the Participant’s behalf (or to elect to have such Elective Deferrals made at a different percentage);

(2) An explanation of the right of Participants and beneficiaries to direct the investment of assets in their individual accounts;

(3) A description of the Qualified Default Investment Alternative, including a description of the investment objectives, risk and return characteristics (if applicable), and fees and expenses attendant to the Qualified Default Investment Alternative;

(4) A description of the right of the Participants and beneficiaries on whose behalf assets are invested in a Qualified Default Investment Alternative to direct the investment of those assets to any other investment alternative under the Plan, including a description of any applicable restrictions, fees or expenses in connection with such transfer; and

(5) An explanation of where the Participants and beneficiaries can obtain investment information concerning the other investment alternatives available under the Plan.

(c) Timing. The Participant or beneficiary on whose behalf an investment in a Qualified Default Investment Alternative may be made must be furnished such notice during the following periods:

(1) At least 30 days in advance of the Participant’s Entry Date of the Elective Deferral component of the Plan (or such other component of the Plan in which a Participant’s account may be invested in a Qualified Default Investment Alternative), or at least 30 days in advance of the date of any first investment in a Qualified Default Investment Alternative on behalf of a Participant or beneficiary; and

(2) Within a reasonable period of time of at least 30 days in advance of each subsequent Plan Year.

Section 9. Definitions

9.1 Applicable Plan Year. The term “Applicable Plan Year” means, for purposes of determining the Qualified Percentage that applies to a specific Eligible Participant, a specific Plan Year. The first Applicable Plan Year is the Plan Year that contains the date upon which an Eligible Participant could first have had Elective Deferrals withheld under the Qualified Automatic Contribution Arrangement, regardless of whether the Eligible Participant executes an Automatic Contribution Overriding Election. Subsequent Applicable Plan Years are based upon the number of Plan Years after the first Applicable Plan Year, regardless of whether the Eligible Participant executes an Automatic Contribution Overriding Election.

9.2 Automatic Contribution Arrangement. The term “Automatic Contribution Arrangement” means any arrangement under which (a) a Participant may elect to have the Employer make payments as Elective Deferrals under the Plan on his or her behalf, or to receive such payments directly in cash, and (b) an Eligible Participant is treated as having elected to have the Employer make Elective Deferrals to the Plan, in an amount equal to a uniform percentage of Compensation until such Eligible Participant executes an Automatic Contribution Overriding Election; such percentage may be set forth in either this Amendment or such other Plan documentation as permitted by law. An Automatic Contribution Arrangement includes a Qualified Automatic Contribution Arrangement.

9.3 Automatic Contribution Percentage. The term “Automatic Contribution Percentage” means, with respect to an Eligible Automatic Contribution Arrangement the percent of Compensation that an Eligible Participant is treated as having elected to have the Employer make as Elective Deferrals to the Plan, as set forth in this Amendment or such other Plan documentation as permitted by law.

9.4 Automatic Contribution Overriding Election. The term “Automatic Contribution Overriding Election” means an affirmative election by an Eligible Participant to override the Automatic Contribution Percentage or Qualified Percentage that is applicable to such Eligible Participant. The Automatic Contribution Overriding Election will provide either (a) to not have Elective Deferrals made under the Automatic Contribution Arrangement, or (b) to have Elective Deferrals made at a percentage of Compensation different than the Automatic Contribution Percentage or Qualified Percentage, at the percentage of Compensation specified in the Automatic Contribution Overriding Election.

9.5 Compensation. The term “Compensation” means, except for purposes of the matching contribution compensation as defined in the Plan for the component or the purpose for which the compensation relates. However, if the Plan is a Qualified Automatic Contribution Arrangement, then the term “Compensation” means, for purposes of the matching contribution, compensation as defined in Section 6.4(b).

9.6 Effective Date of the Automatic Contribution Arrangement. The term “Effective Date of the Automatic Contribution Arrangement” means the effective date set forth in Section 6.1.

9.7 Eligible Automatic Contribution Arrangement. The term “Eligible Automatic Contribution Arrangement” means an Automatic Contribution Arrangement that meets all of the requirements of Code §414(w)(3) including, but limited to, a Qualified Default Investment Alternative and the applicable notice requirements.

9.8 Elective Deferral. The term “Elective Deferral” means an Employer contribution as described in Code §402(g)(3).

9.9 Eligible Participant. The term “Eligible Participant” means a Participant in the Plan subject to the Automatic Contribution Arrangement.

9.10 Entry Date. The term “Entry Date” means the date or dates on which an employee who is eligible to participate in the Elective Deferral component of the Plan becomes a Participant in such component of the Plan, or, if applicable, the date or dates on which an employee who is eligible to participate in another component of the Plan becomes a Participant in such other component of the Plan.

9.11 Excess Aggregate Contributions. The term “Excess Aggregate Contributions” means amounts as described in Code §4979(d).

9.12 Excess Contributions. The term “Excess Contributions” means amounts as described in Code §4979(c).

9.13 Permissible Withdrawal. The term “Permissible Withdrawal” means any withdrawal from an Eligible Automatic Contribution Arrangement which meets the following requirements:

(a) Employee’s Election and Timing. The distribution is made pursuant to an election by an Eligible Participant, and such election is made no later than 90 days after the date of the first Elective Deferral with respect to the Eligible Participant under the Eligible Automatic Contribution Arrangement;

(b) Only Elective Deferrals and Earnings. The distribution consists of only Elective Deferrals (and earnings attributable thereto):

9.14 Amount of Distribution. The amount of the distribution is equal to the amount of Elective Deferrals made with respect to the first payroll period to which the Eligible Automatic Contribution Arrangement applies to

the Eligible Participant and any succeeding payroll period beginning before the effective date of the election pursuant to paragraph (a) (and earnings attributable thereto).

9.15 PPA. The term “PPA” means the Pension Protection Act of 2006.

9.16 Plan Year. The term “Plan Year” means computation period as set forth in the Plan document.

9.17 Pre-Tax Elective Deferral. The term “Pre-Tax Elective Deferral” means an Elective Deferral that is not includible in the Participant’s gross income at the time that the Elective Deferral is deferred.

9.18 Qualified Automatic Contribution Arrangement. The term “Qualified Automatic Contribution Arrangement” means an Automatic Contribution Arrangement that meets all of the requirements set forth in Code §40l(k)(13)(B) including, but not limited to, the applicable Qualified Percentage for the Applicable Plan Year, the required Employer contributions of the matching contributions, and the applicable notice requirements.

9.19 Qualified Default Investment Alternative. The term “Qualified Default Investment Alternative” means an investment alternative available to Participants and beneficiaries, subject to the following rules:

(a) No Employer Securities. The Qualified Default Investment Alternative does not hold or permit the acquisition of Employer securities, except as permitted by Department of Labor Regulation §2550.404c–5(e)(1)(ii);

(b) Transfer Permitted. The Qualified Default Investment Alternative permits a Participant or beneficiary to transfer, in whole or in part, his or her investment from the Qualified Default Investment Alternative to any other investment alternative available under the Plan, pursuant to the rules of Department of Labor Regulation §2550.404c–5(c)(5);

(c) Management. The Qualified Default Investment Alternative is:

(1) Managed by: (A) an investment manager, within the meaning of ERISA §3(38); (B) a Plan trustee that meets the requirements of ERISA §3(38)(A), (B) and (C); or (C) the Sponsor Employer who is a named fiduciary within the meaning of ERISA §402(a)(2);

(2) An investment company registered under the Investment Company Act of 1940; or

(3) An investment product or fund described in Department of Labor Regulation §2550.404c–5(e)(4)(iv) or (v); and

(d) Types of Permitted Investments. The Qualified Default Investment Alternative is one of the following:

(1) An investment fund product or model portfolio that applies generally accepted investment theories, is diversified so as to minimize the risk of large losses and that is designed to provide varying degrees of long-term appreciation and capital preservation through a mix of equity and fixed income exposures based on the Participant’s age, target retirement date (such as normal retirement age under the Plan) or life expectancy, but is not required to take into account risk tolerances, investments or other preferences of an individual Participant or beneficiary.

(2) An investment fund product or model portfolio that applies generally accepted investment theories, is diversified so as to minimize the risk of large losses and that is designed to provide long-term appreciation and capital preservation through a mix of equity and fixed income exposures consistent with a target level of risk appropriate for Participants of the Plan as a whole, but is not required to take into account the age, risk tolerances, investments or other preferences of an individual Participant or beneficiary.

(3) An investment management service with respect to which a fiduciary, within the meaning of Department of Labor Regulation §2550.404c–5(e)(3)(i), applying generally accepted investment theories, allocates the assets of a Participant’s individual account to achieve varying degrees of long-term appreciation and capital preservation through a mix of equity and fixed income exposures, offered through investment alternatives available under the plan, based on the Participant’s age, target retirement date (such as normal retirement age under the Plan) or life expectancy, but is not required to take into account risk tolerances, investments or other preferences of an individual Participant.

(4) An investment product or fund designed to preserve principal and provide a reasonable rate of return, whether or not such return is guaranteed, consistent with liquidity. Such investment product shall: (A) Seek to maintain, over the term of the investment, the dollar value that is equal to the amount invested in the product; and (B) Be offered by a State or federally regulated financial institution. Such investment product or fund described in this paragraph shall constitute a Qualified Default Investment Alternative for not more than 120 days after the date of the Participant’s first Elective Deferral as determined under Code §414(w)(2)(B) or other first investment.

(5) An investment product or fund designed to guarantee principal and a rate of return generally consistent with that earned on intermediate investment grade bonds, while providing liquidity for withdrawals by Participants and beneficiaries, including transfers to other investment alternatives. Such investment product must meet the following requirements: (A) There are no fees or surrender charges imposed in connection with withdrawals initiated by a Participant or beneficiary; and (B) Principal and rates of return are guaranteed by a State or federally regulated financial institution. Such investment product or fund described in this paragraph will constitute a Qualified Default Investment Alternative solely for purposes of assets invested in such product or fund before December 24, 2007.

An investment fund product or model portfolio that meets the requirements of this paragraph (d) may be offered through variable annuity or similar contracts, common or collective trust funds, or pooled investment funds without regard to whether such contracts or funds provide annuity purchase rights, investment guarantees, death benefit guarantees, or other features ancillary to the investment fund product or model portfolio.

9.20 Qualified Percentage. The term “Qualified Percentage” means the uniform percentage of Compensation that an Eligible Participant is treated as having elected to have the Employer make to the Plan as Elective

Deferrals under a Qualified Automatic Contribution Arrangement. Under no circumstances can the Qualified Percentage exceed 10%.

9.21 Safe Harbor 401(k) and/or 401(m) Plan. The term “Safe Harbor 401(k) and/or 401(m) Plan” means a 401(k) plan which meets all of the requirements of Code §401(k)(12) and/or a 401(m) plan which meets all of the requirements of Code §401(m)(l1) for a Plan Year.

9.22 Year of Vesting Service. The term “Year of Vesting Service” means either (a) if used for vesting purposes, a year of service (as defined in the Plan); (b) if used for vesting purposes, a whole year (or 1-year) period of service (as defined in the Plan); or (c) any other one year period that is used for vesting purposes in the Plan.”

2. The first sentence of Section 9.03 is deleted in its entirety and the following new sentence is inserted in lieu thereof:

“Notwithstanding any other provision of this Plan except Section 9.05, Excess 401(k) Contributions, adjusted for allocable income (gain or loss), including for Plan Years beginning on and after January 1, 2006 and before January 1, 2008, an adjustment for income for the period between the end of the Plan Year and the date of the distribution (the “gap period”), shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts such Excess 401(k) Contributions were allocated for the preceding Plan Year.

3. Section 13.12(b)(ii) is amended by the addition of the following sentence:

“For Plan Years beginning on and after January 1, 2007, an Eligible Retirement Plan shall also include a Roth Individual Retirement Account as defined in Section 408A(b) of the Code.”

4. The first paragraph of section 19.02 is amended by the addition of the following sentence:

“For Plan Years beginning on or after January 1, 2007, a partial plan termination shall be deemed to have occurred based on the facts and circumstances in existence at the time as required by Section 1.411(d)-2(b)(1) of the Treasury Regulations and Revenue Ruling 2007-43.”

5. Article XX of the Plan is amended by the addition of the following Section 20.09”

“20.09 Electronic Communications. Effective for Plan Years beginning on or after January 1, 2007, any electronic communications made by the Plan to Participants in regards to eligible rollover distribution tax notices, Participant consents to distributions, and tax withholding notices shall comply with the requirements contained in Section 1.401(a)-21 of the Treasury Regulations, in addition to all otherwise applicable requirements relating to the specific communication.”

This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment.

IN WITNESS WHEREOF, this Fifth Amendment has been executed this 22 day of December 2008.

THE HANOVER INSURANCE COMPANY
By:	/s/ Lorna Stearns
	Authorized Representative

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

SIXTH AMENDMENT

to the Restatement Generally Effective January 1, 2005

This Sixth Amendment is executed by The Hanover Insurance Company, a New Hampshire corporation (the “Company”).

WHEREAS, the most recent restatement of the Plan was adopted on December 29, 2005 and was generally effective January 1, 2005, and such restatement was amended by the adoption of the First Amendment on March 5, 2007, the Second Amendment on June 26, 2007, the Third Amendment on April 30, 2008, the Fourth Amendment on November 2, 2008, and the Fifth Amendment on December 22, 2008;

WHEREAS, the Company has reserved the right to amend the Plan any time under Section 19.01 of the Plan; and

WHEREAS, the Company desires to amend the Plan.

NOW, THEREFORE, the Plan is amended, effective as of January 1, 2008, as follows:

1. Section 2.02(b) is deleted in its entirety and the following new 2.02(b) is inserted in lieu thereof:

“Affiliate shall also mean any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o).”

2. Section 2.21 is amended by the addition of the following sentence at the end thereof:

“The Limitation Year may only be changed by a Plan amendment. If the Plan is terminated effective as of a date other than the last day of the Plan’s Limitation Year, then the Plan shall be treated as if the Plan had been amended to change its Limitation Year and, in any such case, the Defined Contribution Dollar Limitation shall be prorated as prescribed by Treasury Regulation Section 1.415(j)-1(d)(3).”

3. Section 2.06(a)(iv) is deleted in its entirety and the following new 2.06(a)(iv) is inserted in lieu thereof:

“(iv) severance payments paid in a lump sum, provided that for Plan Years beginning on and after January 1, 2008 such excluded severance payments shall not include any payment of regular compensation for services during the participant’s regular working hours, or compensation for services outside the Participant’s regular working hours (such as overtime or shift differential).

commissions, bonuses, or other similar payments, if the payment would have been paid to the Participant prior to a severance from employment, if the Participant had continued in employment with the Employer and if the payment is made by the later of 2 ¹/2 months after the Participant’s severance from employment or by the end of the Plan Year in which the Participant’s severance from employment occurs.”

4. Section 2.06(c) is amended by the addition of the following language:

“For purposes of applying the limitations of Article VII with respect to Limitation Years beginning on and after July 1, 2007, the following provisions shall be applicable.

(i) Compensation paid after severance from employment. Compensation actually paid or includible in gross income during a Limitation Year shall be adjusted, as set forth herein, for the following types of compensation paid after a Participant’s severance from employment with the Employer (or any Affiliate). However, amounts described in Paragraphs A. and B. below shall only be included in Compensation for such Limitation Year to the extent such amounts are paid by the later of 2 ¹/2 months after severance from employment or by the end of the Limitation Year that includes the date of such severance from employment. Any other payment of compensation paid after severance of employment that is not described in the following types of compensation shall not be considered Compensation for such Limitation Year, even if payment is made within the time period specified above.

A. Regular Pay. Compensation shall include regular pay after severance of employment if: (1) The payment is regular compensation for services during the participant’s regular working hours, or compensation for services outside the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments; and (2) The payment would have been paid to the Participant prior to a severance from employment if the Participant had continued in employment with the Employer.

B. Leave Cashouts And Deferred Compensation. Leave cashouts shall be included in Compensation if those amounts would have been included in the definition of Compensation if they were paid prior to the Participant’s severance from employment, and the amounts are payment for unused accrued bona fide sick, vacation, or other leave, but only if the Participant would have been able to use the leave if employment had continued. In addition, deferred compensation shall be included in Compensation if the compensation would have been included in the definition of Compensation if it had been paid prior to the Participant’s severance from employment, and the compensation is received pursuant to a nonqualified unfunded deferred compensation plan, but only if the payment would have been paid at the same time if the Participant had continued in employment with the Employer and only to the extent that the payment is includible in the Participant’s gross income.

C. Salary Continuation Payments For Military Service Participants. Compensation shall not include payments to an individual who does not currently perform services for the Employer by reason of qualified military service (as that term is used in Code Section 4l4(u)(1)) to the extent those payments do not exceed the amounts the individual would have received if the individual had continued to perform services for the Employer rather than entering qualified military service.

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D. Salary Continuation Payments For Disabled Participants. Compensation does not include compensation paid to a Participant who is permanently and totally disabled (as defined in Code Section 22(e)(3)).

(ii) Compensation for a Limitation Year but not paid during the Limitation Year. Compensation for a Limitation Year shall not include amounts earned but not paid during the Limitation Year solely because of the timing of pay periods and pay dates.

(iii) Inclusion Of Certain Nonqualified Deferred Compensation Amounts. Compensation for a Limitation Year shall include amounts that are includible in the gross income of a Participant under the rules of Code Section 409A or because the amounts are constructively received by the Participant.”

5. Section 7.04 is deleted in its entirety (not including the unnumbered paragraph immediately preceding Plan Section 7.05) and the following new 7.04 is inserted in lieu thereof:

“Excess Annual Additions. Notwithstanding any provision of the Plan to the contrary, if the Annual Additions (within the meaning of Code Section 415) are exceeded for any Participant, then the Plan may only correct such excess in accordance with the Employee Plans Compliance Resolution System (EPCRS) as set forth in Revenue Procedure 2006-27 or any superseding guidance, including, but not limited to, the preamble of the Final Treasury Regulations under Code Section 415.”

6. The unnumbered paragraph immediately preceding Plan Section 7.05 of the Plan is deleted in its entirety and the following new Section 7.04A is inserted in lieu thereof:

“7.04A.

(a) Aggregation and Disaggregation of Plans. Sections 7.05 through 7.10 apply if, in addition to this Plan, the Participant is covered under another qualified defined contribution plan, a welfare benefit fund, an individual medical account or a simplified employee pension maintained by the Employer during any Limitation Year. The term “Employer” for this purpose means the Employer that adopts this Plan and all members of a controlled group or an affiliated service group that includes the Employer (within the meaning of Code Sections 414(b), (c), (m) or (o)), except that for purposes of this Section, the determination shall be made by applying Code Section 415(h), and shall take into account tax-exempt organizations under Treasury Regulation Section 1.414(c)-5, as modified by Treasury Regulation Section 1.415(a)-1(f)(1). For purposes of this Section:

(i) A former Employer is a “predecessor employer” with respect to a participant in a plan maintained by an Employer if the Employer maintains a plan under which the participant had accrued a benefit while performing services for the former Employer, but only if that benefit is provided under the plan maintained by the Employer. For this purpose, the formerly affiliated plan rules in Treasury Regulation Section 1.415(f)-1(b)(2) apply as if the Employer and predecessor Employer constituted a single employer under the rules described in Treasury Regulation Section 1.415(a)-1(f)(1) and (2) immediately prior to the cessation of affiliation (and as if they constituted two, unrelated employers under the rules described in Treasury Regulation Section 1.415(a)-1(f)(1) and (2) immediately after the cessation of affiliation) and cessation of affiliation was the event that gives rise to the predecessor employer relationship, such as a transfer of benefits or plan sponsorship.

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(ii) With respect to an Employer of a Participant, a former entity that antedates the Employer is a “predecessor employer” with respect to the Participant if, under the facts and circumstances, the employer constitutes a continuation of all or a portion of the trade or business of the former entity.

(b) Break-Up Of An Affiliate Employer Or An Affiliated Service Group. For purposes of aggregating plans for Code Section 415, a “formerly affiliated plan” of an employer is taken into account for purposes of applying the Code Section 415 limitations to the Employer, but the formerly affiliated plan is treated as if it had terminated immediately prior to the “cessation of affiliation.” For purposes of this paragraph, a “formerly affiliated plan” of an Employer is a plan that, immediately prior to the cessation of affiliation, was actually maintained by one or more of the entities that constitute the employer (as determined under the employer affiliation rules described in Treasury Regulation Section 1.415(a)-1(f)(1) and (2), and immediately after the cessation of affiliation, is not actually maintained by any of the entities that constitute the employer (as determined under the employer affiliation rules described in Treasury Regulation Section 1.415(a)-1(f)(1) and (2). For purposes of this paragraph, a “cessation of affiliation” means the event that causes an entity to no longer be aggregated with one or more other entities as a single employer under the employer affiliation rules described in Treasury Regulation Section 1.415(a)-1(f)(1) and (2) (such as the sale of a subsidiary outside a controlled group), or that causes a plan to not actually be maintained by any of the entities that constitute the employer under the employer affiliation rules of Treasury Regulation Section 1.415(a)-1(f)(1) and (2) (such as a transfer of plan sponsorship outside of a controlled group).

(c) Midyear Aggregation. Two or more defined contribution plans that are not required to be aggregated pursuant to Code Section 415(f) and the Regulations thereunder as of the first day of a Limitation Year do not fail to satisfy the requirements of Code Section 415 with respect to a Participant for the Limitation Year merely because they are aggregated later in that Limitation Year, provided that no annual additions are credited to the Participant’s account after the date on which the plans are required to be aggregated.”

7. Section 7.11 is amended by the addition of the following sentence immediately after the first sentence of the section:

“Employee and Employer make-up contributions under USERRA received during the current Limitation Year shall be treated as Annual Additions with respect to the Limitation Year to which the make-up contributions are attributable.”

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8. Section 7.11 is amended by the addition of the following language:

Restorative Payments. Annual additions shall not include restorative payments. A restorative payment is a payment made to restore losses to a Plan resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a fiduciary duty under ERISA or under other applicable federal or state law, where participants who are similarly situated are treated similarly with respect to the payments. Generally, payments are restorative payments only if the payments are made in order to restore some or all of the Plan’s losses due to an action (or a failure to act) that creates a reasonable risk of liability for such a breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the Plan). This includes payments to a plan made pursuant to a Department of Labor order, the Department of Labor’s Voluntary Fiduciary Correction Program, or a court-approved settlement, to restore losses to a qualified defined contribution plan on account of the breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the Plan). Payments made to the Plan to make up for losses due merely to market fluctuations and other payments that are not made on account of a reasonable risk of liability for breach of a fiduciary duty under ERISA are not restorative payments and generally constitute contributions that are considered Annual Additions.

Other Amounts. Annual Additions shall not include: (1) The direct transfer of a benefit or employee contributions from a qualified plan to this Plan; (2) Rollover contributions (as described in Code Section 401(a)(31), 402(c)(1), 403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16)); (3) Repayments of loans made to a participant from the Plan; (4) Catch-up Contributions as defined in Plan Section 2.05; and (5) Repayments of amounts described in Code Section 411(a)(7)(B) (in accordance with Code Section 411(a)(7)(C)) and Code Section 411(a)(3)(D), as well as Employer restorations of benefits that are required pursuant to such repayments, as provide for in Plan Section 13.10.”

9. Section 15.04 is deleted in its entirety and the following new Section 15.04 is inserted in lieu thereof:

“Notwithstanding any provisions of the Plan to the contrary (but subject to the provisions of Section 12.01), all clerical, legal and other expenses of the Plan and the Trust, including Trustee’s fees, shall be paid by the Plan, except to the extent the Employer elects to pay such amounts; provided, however, that if the Employer pays such amounts it shall be reimbursed by the Trust for such amounts unless the Employers elects not to be so reimbursed.”

This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment.

IN WITNESS WHEREOF, this Sixth Amendment has been executed this 9th day of September, 2009.

THE HANOVER INSURANCE COMPANY
By:	/s/ Lorna W. Stearns
	Authorized Representative

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

SEVENTH AMENDMENT

to the Restatement Generally Effective January 1, 2005

This Seventh Amendment is executed by The Hanover Insurance Company, a New Hampshire corporation (the “Company”).

WHEREAS, the most recent restatement of The Hanover Insurance Group Retirement Savings Plan (the “Plan”) was adopted on December 29, 2005 and was generally effective January 1, 2005, and such restatement was amended by the adoption of the First Amendment on March 5, 2007, the Second Amendment on June 26, 2007, the Third Amendment on April 30, 2008, the Fourth Amendment on November 19, 2008, the Fifth Amendment on December 22, 2008, and the Sixth Amendment on September 9, 2009;

WHEREAS, the Company has reserved the right to amend the Plan pursuant to Section 19.01 of the Plan; and

WHEREAS, the Company now desires to amend the Plan to provide (i) that no new investments into The Hanover Insurance Group Company Stock Fund will be accepted after the close of trading on November 2, 2009, and (ii) that The Hanover Insurance Group Stock Fund be discontinued and liquidated effective at the close of trading on December 30, 2011.

NOW, THEREFORE, effective as of the date hereof, the Plan is amended as follows:

1. Existing Section 16.02 of the Plan is deleted in its entirety, and the following is substituted in its place:

“In order to provide retirement and other benefits for Plan Participants and their Beneficiaries, the Trustee shall invest Plan assets in one or more permissible investments specified in the Trust Indenture (“Permissible Investments”) and in such collective investment trusts or group trusts that may be established for the primary objective of investing in securities issued by The Hanover Insurance Group, Inc., which investments shall be considered as investments in qualifying employer securities as defined in Section 407(d) of the Employee Retirement Income Security Act of 1974, as amended. Except as otherwise provided in this Section, such Permissible Investments shall include The Hanover Insurance Group Company Stock Fund, a group trust established for the purposes of investing in the common stock of The Hanover Insurance Group, Inc. (“The Employer Stock Fund”). Notwithstanding anything else in the Plan to the contrary, after the close of trading on November 2, 2009, the Trustee shall not invest any Plan assets to acquire an interest in The Employer Stock Fund for or on behalf of a Participant. Notwithstanding anything else in the Plan to the contrary, effective after the close of trading on December 30, 2011. The Employer Stock Fund shall automatically stop being offered as a Permissible Investment under the Plan and shall be liquidated.

In addition, when directed by the Plan Administrator per the request of a Participant Plan assets shall be invested in individual life insurance and annuity Policies in accordance

with Article XVII. The Insurer shall only issue life insurance and annuity policies which conform to the terms of the Plan. All collective investment trusts and group trusts shall also conform to the terms of the Plan. Notwithstanding the foregoing, in no event may amounts allocated to Participant’s Tax Deductible Contribution Account be invested in Policies of life insurance.

This Plan is intended to comply with the requirements of Section 404(c) of ERISA. Each Participant is responsible and has sole discretion to give directions to the Trustee in such form as the Trustee may require concerning the investment of his or her Accrued Benefit in one or more of the Permissible Investments subject to the restrictions on life insurance premiums described in Article XVII and, effective at the close of trading on November 2, 2009, the prohibition contained in this Section denying future investments into The Employer Stock Fund. The designation by a Participant of the allocation of his Accrued Benefit among the Permissible Investments may be made from time to time, with such frequency and in accordance with such procedures as are established and set forth in the Trust Indenture and applied in a uniform nondiscriminatory manner; provided, however, that notwithstanding the foregoing, effective at the close of trading on November 2, 2009, a Participant shall not designate an increase to the allocation of his Accrued Benefit in The Employer Stock Fund as that allocation existed at the close of trading on November 2, 2009. Any such procedure shall be communicated to the Participants and designed with the intention of permitting the Participants to exercise control over the assets in their respective accounts within the meaning of Section 404(c) of the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

Notwithstanding anything else in the Plan to the contrary, if and to the extent a Participant has assets invested in The Employer Stock Fund as of the close of trading on November 2, 2009, such Participant shall be provided an opportunity before the close of trading on December 30, 2011 to give directions to the Trustee to transfer such assets out of the Employer Stock Fund and into another Permissible Investment. Notwithstanding anything in the Plan to the contrary, if and to the extent that (i) a Participant fails to designate an allocation of his Accrued Benefit, in whole or in part, (ii) a Participant’s attempted allocation into The Employer Stock Fund is disregarded under this Section, or (iii) a Participant has any assets invested in The Employer Stock Fund as of the close of business on December 30, 2011, the Trustee shall allocate and invest such assets in the default investment fund which has been selected by the Plan Administrator. Otherwise, the Trustee shall allocate and invest the assets of the Trust in accordance with the Participant’s selections, subject to the restrictions on life insurance premiums described in Article XVII and, effective as provided in this Section, to the prohibition on investments into The Employer Stock Fund. All voting rights with respect to a Participant’s investment in The Employer Stock Fund shall be the responsibility of that Participant, and the Trustee shall receive direction from the Participant for such voting rights.

Neither the Plan Administrator, the Trustee, the Employer nor any other person shall be under any duty to question any investment, voting or other direction of the Participant or make any suggestions to the Participant in connection therewith, and the Trustee shall comply as promptly as practicable with directions given by the Participant hereunder,

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except, notwithstanding anything in the Plan to the contrary, and effective at the close of trading on November 2, 2009, directions to invest into The Employer Stock Fund. All such directions may be of continuing nature or otherwise and may be revoked by the Participant at any time in such form as the Trustee may require. Neither the Plan Administrator, the Trustee, the Employer nor any other person shall be responsible or liable for any costs, losses or expenses which may arise or result from or be related to the compliance or refusal or failure to comply with any directions from the Participant. The Trustee may refuse to comply with any direction from the Participant in the event the Trustee, in its sole or absolute discretion, deems such direction improper by virtue of applicable law or regulations or as may be necessary or appropriate, in the sole discretion of the Trustee, to prevent future investments by the Participant into The Employer Stock Fund, effective at the close of trading on November 2, 2009. For purposes of this Section, all references to “Participant” shall include all Beneficiaries of Participants who are deceased and any Alternate Payees under a Qualified Domestic Relations Order, as provided for in Section 20.01.”

IN WITNESS WHEREOF, this Seventh Amendment to the Plan has been executed this 18th day of September, 2009.

THE HANOVER INSURANCE COMPANY
By:	/s/ Lorna W. Stearns
	Authorized Representative

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THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

EIGHTH AMENDMENT

To the Restatement Generally Effective January 1, 2005

THIS EIGHTH AMENDMENT is executed by The Hanover Insurance Company, a New Hampshire corporation (the “Company”).

WHEREAS, the most recent restatement of The Hanover Insurance Group Retirement Savings Plan (the “Plan”) was adopted on December 29, 2005 and was generally effective January 1, 2005, and such restatement was amended by the adoption of the First Amendment on March 5, 2007, the Second Amendment on June 26, 2007, the Third Amendment on April 30, 2008, the Fourth Amendment on November 19, 2008; the Fifth Amendment on December 22, 2008; the Sixth Amendment on September 9, 2009; and the Seventh Amendment on September 18, 2009;

WHEREAS, the Company has reserved the right to amend the Plan any time under Section 19.01 of the Plan; and

WHEREAS, the Company desires to amend the Plan to address, among other things, certain provisions of the Pension Protection Act of 2006 (PPA), Worker, Retiree, and Employer Recovery Act of 2008 (PPA Technical Corrections Act) and the Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008 and intends that this Amendment provide good faith compliance with the requirements of those provisions.

NOW, THEREFORE, the Plan is amended effective for Plan Years beginning on or after January 1, 2008 (unless otherwise indicated), as follows:

1. Article II of the Plan is amended by the addition of the following new definition:

“‘USERRA’ shall mean the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended. Notwithstanding any provision of the Plan to the contrary, contributions, benefits, Plan loan repayment, suspensions and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u).”

2. Section 2.06 is amended by the addition of the following new paragraphs at the end of the section:

“(d) Notwithstanding paragraphs (a), (b) and (c) above,

(i) USERRA. For purposes of Employee and Employer make-up contributions, Compensation during the period of military service shall be deemed to be the Compensation the Employee would have received during such period if the Employee were not in qualified military service, based on the rate of pay the Employee would have received from the Employer but for the absence due to military leave. If the Compensation the Employee would have received during the leave is not reasonably certain, Compensation will be equal to the Employee’s average Compensation from the Employer during the twelve (12) month period immediately preceding the military leave or, if shorter, the Employee’s actual period of employment with the Employer.

(ii) Differential wage payments. For years beginning after December 31, 2008, (i) an individual receiving a differential wage payment, as defined by Code Section 3401(h)(2), shall be treated as an employee of the employer making the payment, (ii) the differential wage payment shall be treated as compensation, and (iii) the plan shall not be treated as failing to meet the requirements of any provision described in Code Section 414(u)(1)(C) by reason of any contribution or benefit which is based on the differential wage payment. Subparagraph (iii) of the foregoing sentence shall apply only if all employees of the Employer performing service in the uniformed services described in Code Section 3401(h)(2)(A) are entitled to receive differential wage payments (as defined in Code Section 3401(h)(2)) on reasonably equivalent terms and, if eligible to participate in a retirement plan maintained by the employer, to make contributions based on the payments on reasonably equivalent terms (taking into account Code Sections 410(b)(3), (4), and (5)).”

3. Section 2.34, which defines the term “Qualified Domestic Relations Order”, is amended by the addition of the following new paragraph at the end of the section:

“Effective April 6, 2007, a domestic relations order that otherwise satisfies the requirements for a qualified domestic relations order (QDRO) will not fail to be a QDRO: (i) solely because the order is issued after, or revises, another domestic relations order or QDRO; or (ii) solely because of the time at which the order is issued, including issuance after the annuity starting date or after the Participant’s death.”

4. Section 3.01 is amended by the addition of the following new paragraph, paragraph (c), immediately following Section 3.01(b):

“Make-up Elective Deferrals under USERRA. A Participant who has the right to make-up elective deferrals (Salary Reduction Contributions) under USERRA shall be permitted to increase his or her elective deferral with respect to a make-up year without regard to any provision limiting contributions for such Plan Year. Make-up contributions shall be limited to the maximum amount permitted under the Plan and the statutory limitations applicable with respect to the make-up year. Employee-related make-up contributions must be made within the time period beginning on the date of reemployment and continuing for the lesser of five (5) years or three (3) times the period of military service.”

5. Section 4.01 is amended by changing the reference from “Section 3.01(b)” to “Sections 3.01(b) and (c).”

6. Article IV of the Plan is amended by the addition of the following new section, Section 4.04A, immediately following Section 4.04:

“4.04A Contributions Under USERRA. The Employer shall also make Matching Contributions, Top-Heavy minimum contributions and any other Employer contribution for the benefit of Participants who are covered by USERRA. Employer Matching Contributions under USERRA shall be made in the Plan Year for which the Participant exercises his or her right to make-up elective deferrals contributions (Salary Reduction Contributions) for prior years. Top-Heavy minimum contributions and other Employer contributions for USERRA protected Service shall be made during the Plan Year in which the individual returns to employment with the Employer. Employer contributions required under USERRA are not increased or decreased with respect to Plan investment earnings for the period to which such contributions relate. The Employer’s contribution for any Plan Year shall be subject to the limitations on allocations contained in Article VII.”

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7. Section 9.03 is amended by the addition of the following new sentence immediately after the first sentence of the first paragraph of the section:

“Notwithstanding the forgoing, for Plan Years beginning after December 31, 2007, the requirement that Excess Contributions be adjusted for allocable income (gain or loss) during gap period shall no longer apply.”

8. Section 9.08 is amended by the addition of the following new sentence at the end of the first paragraph of the section:

“Notwithstanding the forgoing, for Plan Years beginning after December 31, 2007, the requirement that Excess Elective Deferrals be adjusted for allocable income (gain or loss) during gap period income pursuant to Code Section 402(g)(2)(A)(ii) shall no longer apply.”

9. Section10.03 is amended by the addition of the following sentence as a new paragraph at the end of the section:

“Notwithstanding the forgoing, for Plan Years beginning after December 31, 2007, the requirement that Excess 401(m) Contributions be adjusted for gap period income shall no longer apply to Excess Aggregate Contributions.”

10. Article XIII is amended by the addition of the following new section, Section 13.03A, immediately following Section 13.03:

“13.03A Death Benefits Under USERRA. Effective for deaths occurring on or after January 1, 2007, in the case of a Participant who dies while performing qualified military service as defined in Code Section 414(u), the survivors of the Participant are entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) provided under the Plan had the Participant resumed and then terminated employment on account of death.”

11. Section 13.04 is amended by the addition of the following new sentence at the end of the first paragraph of Section 13.04:

“If a Participant completes or has completed a Beneficiary designation in which the Participant designates his or her Spouse as the Beneficiary, and the Participant and the Participant’s Spouse are legally divorced subsequent to the date of such designation, then the designation of such Spouse as a Beneficiary hereunder will be deemed null and void unless the Participant, subsequent to the legal divorce, reaffirms the designation by completing a new Beneficiary designation form.

Effective for distributions made after June 9, 2009, a designated Beneficiary will also include a non-spouse designated Beneficiary. For this purpose, a non-spouse Designated Beneficiary means a Designated Beneficiary other than (i) a surviving spouse (as defined in section 13.07) or (ii) a spouse or former spouse who is an Alternate Payee under a Qualified Domestic Relations Order.”

12. Section 13.05 is amended by deleting the following language in its entirety: “An annuity for the joint lives of the Participant and his or her spouse with 50%, 66 2/3% or 100% (whichever is specified when

3

this option is elected) of such amount payable as an annuity for life to the survivor” and by substituting the following language in lieu thereof: “An annuity for the joint lives of the Participant and his or her spouse with 50%, 66 2/3%, 75% or 100% (whichever is specified when this option is elected) of such amount payable as an annuity for life to the survivor.”

13. The last sentence of the first paragraph of Section 13.07 is deleted in its entirety and the following new sentence is inserted in lieu thereof:

“For purposes of this Section the term “spouse” means the lawful spouse of the Participant on the date of the Participant’s death or on the date Plan benefits commence, whichever is applicable; provided that a former Spouse will be treated in the same manner as a Spouse to the extent provided under a Qualified Domestic Relations Order as described in Code Section 414(p).”

14. The third sentence of the second paragraph of Section 13.11 deleted in its entirety and the following new sentence is inserted in lieu thereof:

“The Plan Administrator shall notify the Participant and/or the Participant’s spouse of the right to defer any distribution until the Participant’s Accrued Benefit is no longer immediately distributable and, effective for Plan Years beginning after December 31, 2006, the consequences of failing to defer receipt of the distribution.”

15. Section 13.12(b)(i) is amended by the addition of the following sentence at the end of the section:

“A portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, effective January 1, 2007, such portion may be transferred only to an individual retirement account or individual retirement annuity described in Code section 408(a) or Code Section 408(b), or to a qualified plan described in Code Section 401(a) or Code Section 403(a), or to an annuity contract described in Code Section 403(b), which plan or contract agrees to separately account for amounts so transferred, including separate accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible. Effective January 1, 2008, such portion may also be transferred to a Roth IRA, provided that for amounts transferred in 2008 or in 2009, the same income and tax filing restrictions that apply to a rollover from a traditional IRA to a Roth IRA are complied with by the distributee.”

16. The last sentence of Section 13.12(b)(ii) is deleted in its entirety and the following sentence is inserted in lieu thereof:

“For Eligible Rollover Distributions made after December 31, 2007, an Eligible Retirement Plan shall also include a Roth individual retirement account as described in Section 408A of the Code, provided that for Eligible Rollover Distributions made in 2008 or in 2009, the same income and tax filing status restrictions that apply to a rollover from a traditional IRA into a Roth IRA, will also apply to rollovers to a Roth IRA.”

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17. Section 13.12 is amended by the addition of the following paragraph, paragraph (c), immediately following paragraph (b):

“(c) Effective for distributions made after June 9, 2009, in the case of an Eligible Rollover Distribution to a non-spouse designated Beneficiary defined in paragraph 13.04, an Eligible Retirement Plan is an individual retirement or individual retirement annuity as defined in Code Sections 408(a) and 408(b). A Direct Rollover of a distribution by a non-spouse Beneficiary is a rollover of an Eligible Rollover Distribution for purposes of Code Section 402(c) only. Accordingly, the distribution is not subject to the Direct Rollover requirements of Code Section 401(a)(31), the notice requirements of Code Section 402(f), or the mandatory withholding requirements of Code Section 3405(c). If an amount is distributed from a Plan and is received by a non-spouse Beneficiary, the distribution is not eligible for rollover.

Effective for distributions made on or after June 9, 2009, in the case of an Eligible Rollover Distribution to a non-spouse designated Beneficiary, an Eligible Retirement Plan also includes a Roth IRA as defined in Code Section 408A. A non-spouse designated Beneficiary, other than a former Spouse who is an Alternate Payee under a qualified Domestic Relations Order, cannot elect to treat the Roth IRA as his or her own. In the case of a rollover where the non-spouse designated Beneficiary cannot treat the Roth IRA as his or her own, required minimum distributions from the Roth IRA are determined in accordance with Notice 2007-7, Q&As 17, 18 and 19 and any subsequent IRS guidance. For taxable years beginning before January 1, 2010, a non-spouse designated Beneficiary cannot make a qualified rollover contribution to a Roth IRA from an Eligible Retirement Plan other than a Roth IRA, if he or she has modified adjusted gross income exceeding $100,000 or is married and files a separate return. For purposes of this paragraph, to the extent provided in rules prescribed by the Secretary, a trust maintained for the benefit of one or more designated beneficiaries shall be treated in the same manner as a designated Beneficiary.

For purposes of this paragraph, to the extent provided in rules prescribed by the Secretary, a trust maintained for the benefit of one or more designated beneficiaries shall be treated in the same manner as a designated Beneficiary.”

18. Article XIII is amended by the addition of the following new section, Section 13.15, immediately following Section 13.14:

“13.15 USERRA. For years beginning after December 31, 2008, the following rules shall apply:

(a) Severance from Employment. An individual shall be treated as having been severed from employment for purposes of Code Section 401(k)(2)(B)(i)(I) during any period the individual is performing service in the uniformed services described in Code §3401(h)(2)(A). If an individual performing such service in the uniformed services elects to receive a distribution by reason of severance from employment, the individual may not make an elective deferral or employee contribution during the 6-month period beginning on the date of the distribution.

(b) Qualified Reservist Distribution under USERRA. A Participant who is ordered or called to active duty or called to active duty may take a Qualified Reservist Distribution if the following are satisfied:

(1) the distribution consists solely of elective deferrals (salary reduction contributions);

5

(2) the participant was ordered or called to active duty for a period in excess of one hundred and seventy nine (179) days or for an indefinite period; and

(3) the distribution from the plan is made during the period which begins on the date of such order or call and ends at the close of the active duty period.

The ten percent (10%) early withdrawal penalty tax will not apply to a qualified reservist distribution, which meets the requirements stated above.”

19. Section 3.01(a) of the Plan is amended by the addition of the following new sentence at the end of such section:

“The rights of each person (i) who became employed by the Employer on or after December 3, 2009, in connection with the transactions contemplated by the Renewal Rights and Asset Purchase Agreement dated December 3, 2009 by and among The Hanover Insurance Company, The Hanover Insurance Group, Inc., OneBeacon Insurance Group, LTD. and certain business entities affiliated with One Beacon Insurance Group, LTD. and (ii) who was employed by OneBeacon Insurance Group, LTD. or a business entity affiliated with OneBeacon Insurance Group, LTD. immediately before being employed by the Employer shall be subject to the provisions of Appendix A attached hereto.”

20. The Plan is amended by the addition Appendix A at the end of the Plan:

“EXHIBIT A

Special Provisions Applicable to Employees formerly employed by OneBeacon Insurance Group, LTD. or a business entity affiliated with OneBeacon Insurance Group, LTD.

Notwithstanding anything elsewhere in the Plan to the contrary, the following special rules shall apply to each person (i) who became employed by the Employer on or after December 3, 2009, in connection with the transactions contemplated by the Renewal Rights and Asset Purchase Agreement dated December 3, 2009 by and among The Hanover Insurance Company, The Hanover Insurance Group, Inc., OneBeacon Insurance Group, LTD. and certain business entities affiliated with OneBeacon Insurance Group, LTD. and (ii) who was employed by OneBeacon Insurance Group, LTD. or a business entity affiliated with OneBeacon Insurance Group, LTD. immediately before being employed by the Employer:

1. For the purposes of vesting, each such person shall be given a past service credit under the Plan for his or her period of employment with OneBeacon Insurance Group, LTD. or any business entity affiliated with OneBeacon Insurance Group, LTD. from his most recent date of hire as shown on records furnished to the Employer to and including the date on which such person became employed by the Employer to the same extent as though such period were a period of employment with the Employer.

2. Any compensation paid to any such person by OneBeacon Insurance Group, LTD. or a business entity affiliated with OneBeacon Insurance Group, LTD. prior to the date on which such person became employed by the Employer shall NOT be taken into account for the purposes of this Plan.”

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This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment and, except as hereby amended; the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, this Eighth Amendment has been executed this 17th day of December, 2009.

THE HANOVER INSURANCE COMPANY
By:	/s/ Lorna W. Stearns
	Authorized Representative

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THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

NINTH AMENDMENT

To the Restatement Generally Effective January 1, 2005

THIS NINTH AMENDMENT is executed by The Hanover Insurance Company, a New Hampshire corporation (the “Company”).

WHEREAS, the most recent restatement of The Hanover Insurance Group Retirement Savings Plan (the “Plan”) was adopted on December 29, 2005 and was generally effective January 1, 2005, and such restatement was amended by the adoption of the First Amendment on March 5, 2007, the Second Amendment on June 26, 2007, the Third Amendment on April 30, 2008, the Fourth Amendment on November 19, 2008; the Fifth Amendment on December 22, 2008; the Sixth Amendment on September 9, 2009; the Seventh Amendment on September 18, 2009; and the Eighth Amendment on December 17, 2009; and

WHEREAS, the Company has reserved the right to amend the Plan any time under Section 19.01 of the Plan.

NOW, THEREFORE, the Plan is amended as follows:

1. Section 4.03 of the Plan is amended by the addition of the following new paragraph (c):

(c) Notwithstanding any other provision in the Plan to the contrary, for the 2010 Plan Year only, and subject to compliance with applicable Code discrimination laws, rules and regulations, each Participant who was an Employee on December 31, 2009, has been continuously employed from December 31, 2009 through March 1, 2010 and who earned Compensation during the Plan Year ended December 31, 2009, shall receive an Employer paid contribution of $500, whether or not such Employee has elected to make Salary Reduction Contributions to the Plan during such continuous period of employment. This Employer contribution shall be made in cash to the Non-Elective Employer Contribution Account established for any such eligible Employee as soon after March 1, 2010 as is practicable and shall be invested per the direction of the Participant in accordance with Section 16.02 of the Plan.

This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment and, except as hereby amended; the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, this Ninth Amendment has been executed this 25th day of February, 2010.

THE HANOVER INSURANCE COMPANY
By:	/s/ Lorna W. Stearns
	Authorized Representative

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

TENTH AMENDMENT

To the Restatement Generally Effective January 1, 2005

THIS TENTH AMENDMENT is executed by The Hanover Insurance Company, a New Hampshire corporation (the “Company”).

WHEREAS, the most recent restatement of The Hanover Insurance Group Retirement Savings Plan (the “Plan”) was adopted on December 29, 2005 and was generally effective January 1, 2005, and such restatement was amended by the adoption of the First Amendment on March 5, 2007; the Second Amendment on June 26, 2007; the Third Amendment on April 30, 2008; the Fourth Amendment on November 19, 2008; the Fifth Amendment on December 22, 2008; the Sixth Amendment on September 9, 2009; the Seventh Amendment on September 18, 2009; the Eighth Amendment on December 17, 2009; and the Ninth Amendment on February 25, 2010; and

WHEREAS, the Company has reserved the right to amend the Plan any time under Section 19.01 of the Plan; and

WHEREAS, the Company desires to amend the Plan to reflect certain provisions of the Worker, Retiree and Employer Recovery Act of 2008, and to reflect the provisions of the final Treasury Regulations relating to qualified automatic contribution arrangements.

NOW, THEREFORE, the Plan is amended effective as of January 1, 2009 except as otherwise provided as follows:

1. Article II of the Plan is amended by the addition of the following new definitions and section references in Article II and throughout the Plan are renumbered to reflect the addition of such definitions:

“‘Account’ shall mean an account established and maintained pursuant to Section 8.01 for each Participant, when appropriate, to account for the Participant’s Accrued Benefit.

‘Affirmative Election’ shall mean an election by an Eligible Participant to (a) have Salary Reduction Contributions made at the percentage of Compensation specified in his or her Salary Reduction Agreement, or (b) not have Salary Reduction Contributions made on his or her behalf.

‘Automatic Contributions’ shall mean the Salary Reduction Contributions that result from the operation of this Section 5.05(c) of the Plan.

‘Automatic Contribution Arrangement’ shall mean the arrangement set forth in Section 5.05 of the Plan pursuant to which, in the absence of an Affirmative Election, an Employee, who is eligible to participate in the Plan is treated as having elected to direct the Employer to reduce his or her Compensation in order that the Employer may make Salary Reduction Contributions to the Plan on behalf of the Participant equal to a uniform percentage of Compensation.

‘Eligible Employee’ shall mean an Employee who has satisfied the requirements to participate in this Plan as set forth in Section 3.01.

‘Eligible Participant’ shall mean an Eligible Employee subject to the Automatic Contribution Arrangement as provided for in Section 5.05(b) of the Plan.

‘Permissible Withdrawal’ shall mean a withdrawal by an Eligible Participant who is enrolled in the Automatic Contribution Account prior to January 1, 2011 pursuant to Section 5.05(e) of this Plan which meets the following rules:

(a) Election and Timing of Election. The withdrawal is made pursuant to an election by an Eligible Participant and such election is made no later than 90 days after the date of the first Automatic Contribution with respect to the Eligible Participant under the Automatic Contribution Arrangement. The effective date of any such election shall not be after the earlier of (i) the pay date for the second pay period that begins after the date the election is made; and (ii) the first pay date that occurs at least 30 days after the election is made.

(b) Amount of Withdrawal. The amount of such withdrawal shall be equal to the amount of the Automatic Contributions made through the effective date of the Participant’s election (described in (a) above), adjusted for allocable gains and losses to the date of such withdrawal.

‘Qualified Automatic Contribution Arrangement (“QACA”)’ shall mean a qualified automatic contribution arrangement that meets the requirements of Code Section 401(k)(13)(B). Effective for Plan Years beginning on or after January 1, 2009, this Plan is intended to satisfy the requirements of Code Section 401(k)(13)(B) including but not limited to, the automatic enrollment and contribution provisions and the applicable notice requirements of Section 5.05 and the required Employer contributions of the Match Contribution made by the Employer to the Trust pursuant to Section 4.02 of the Plan. Further, this Plan is intended to be an eligible automatic contribution arrangement that satisfies the provisions of Code Section 414(w)(3) with respect to Eligible Participants who are enrolled in the Automatic Contribution Arrangement prior to January 1, 2011.

‘Qualified Default Investment Alternative’ shall mean an investment alternative available to Participants and Beneficiaries that satisfies the requirements of ERISA § 404(c)(5) and the applicable Department of Labor regulations thereunder and shall be subject to the following rules:

(a) No Employer Securities. The Qualified Default Investment Alternative does not hold or permit the acquisition of Employer securities, except as permitted by Department of Labor Regulation Section 2550.404c–5(e)(1)(ii);

(b) Transfer Permitted. The Qualified Default Investment Alternative permits a Participant or Beneficiary to transfer, in whole or in part, his or her investment from the Qualified Default Investment Alternative to any other investment alternative available under the Plan, pursuant to the rules of Department of Labor Regulation Section 2550.404c–5(c)(5);

(c) Management. The Qualified Default Investment Alternative is:

(1) Managed by: (A) an investment manager, within the meaning of ERISA Section 3(38); (B) a Plan trustee that meets the requirements of ERISA Section 3(38)(A), (B) and (C); or (C) the Sponsor Employer who is a named fiduciary within the meaning of ERISA Section 402(a)(2);

(2) An investment company registered under the Investment Company Act of 1940; or

(3) An investment product or fund described in Department of Labor Regulation Section 2550.404c–5(e)(4)(iv) or (v); and

(d) Types of Permitted Investments. The Qualified Default Investment Alternative must be an investment product or fund described in Department of Labor Regulation Section 2550.404c–5(e)(4).

‘Salary Reduction Agreement’ shall mean an agreement between the Employer and an Eligible Employee as set forth in Sections 3.01(b) and 5.04 pursuant to which the Eligible Employee authorizes the Employer to withhold a specified percentage of his or her Compensation (otherwise payable in cash) for deposit to the Plan on behalf of such Employee.

‘Salary Reduction Contribution’ shall mean a pre-tax contribution made by the Employer on behalf of an Eligible Employee pursuant to a Salary Reduction Agreement and or an Automatic Contribution made by the Employer on behalf of an Eligible Participant pursuant to the Automatic Contribution Arrangement provisions of Section 5.05 of the Plan.”

2. The first two sentences and the first clause of the third sentence of paragraph (a) of the definition of the term definition, “Compensation” in Article II and the two subparagraphs thereunder (i) and (ii) of the Plan are deleted in their entirety and the following new language is inserted in lieu thereof:

“For purposes of Articles IX and X, for purposes of determining a Participant’s Salary Reduction Contributions pursuant to Section 3.01(b), 5.04, and 5.05 and for purposes of determining an Eligible Employee’s Match Contribution under Section 4.02 and Non-Elective Employer Contribution pursuant to Section 4.03, Compensation shall mean the total wages or salary, overtime, bonuses, and any other taxable remuneration paid to an Employee by the Employer during the Plan Year, while the Employee is a Participant, as reported on the Participant’s W-2 for the Plan Year. Provided, however, that Compensation for this purpose shall be determined without reduction for (i) any Salary Reduction Contributions contributed to the Plan on the Participant’s behalf for the Plan Year; and (ii) any other amount which is contributed or deferred by the Employer at the election of a Participant which is not includible in the gross income of the Participant by reason of Code Section 125, 132(f)(4), 402(e)(3), 402(h), or 403(b).

Notwithstanding the above, for purposes of determining a Participant’s Salary Reduction Contributions pursuant to Section 3.01(b), 5.04, and 5.05 and for purposes of determining an Eligible Employee’s Match Contribution under Section 4.02 and Non-Elective Employer Contribution pursuant to Section 4.03, Compensation shall not include:

(i) incentive compensation paid to Participants pursuant to the Employer’s Executive Long Term Performance Unit Plan or pursuant to any similar or successor executive incentive compensation plan;

(ii) Employer contributions to a deferred compensation plan or arrangement (other than (i) Salary Reduction Contributions contributed to the Plan on the Participant’s behalf for the Plan Year; and (ii) any other amount which is contributed or deferred by the Employer at the election of a Participant which is not includible in the gross income of the Participant by reason of Code Section 125, 132(f)(4), 402(e)(3), 402(h), or 403(b)) either for the year of deferral or for the year included in the Participant’s gross income;”

3. The definition of the term, “Top Heavy Plan” in Article II of the Plan is amended by the addition of the following new paragraph:

“For Plan Years beginning on and after January 1, 2009, the Match Contribution provided for in Section 4.02 may also be used to satisfy the minimum contribution requirement for a Top-Heavy Plan, provided no other contribution is made to the Plan for that Plan Year. Further,

notwithstanding anything in the Plan to the contrary, in any Plan Year beginning on and after January 1, 2009 in which Employer contributions to the Plan consist solely of the Match Contribution provided for in Section 4.02, then such Plan will not be treated as a Top Heavy Plan and will be exempt from the top heavy requirements of Code Section 416. Furthermore, if the Plan (but for the prior sentence) would be treated as a Top Heavy Plan because the Plan is a member of an aggregation group which is a top heavy group, then the contributions under the Plan may be taken into account in determining whether any other plan in the aggregation group meets the top heavy requirements of Code Section 416.”

4. The first three paragraphs of Section 3.01(a) of the Plan are deleted in their entirety and the following new paragraphs are inserted in lieu thereof:

“(a) “In General. Employees who are employed by the Employer on January 1, 2010 and who were eligible to participate in this Plan on December 31, 2009 shall be Participants in this Plan on January 1, 2010.

For Plan Years beginning on and after January 1, 2005, an Employee shall be eligible to participate in this Plan upon completion of one Hour of Service, provided the Employee is then employed in an eligible class of Employees. For Plan Years beginning prior to January 1, 2005, an Employee shall be eligible to participate in this Plan on the first day of the calendar month coincident with or following the completion of one Year of Service, provided the Employee is then employed in an eligible class of Employees.

For Plan Years beginning on or after January 1, 2005, an Employee shall be eligible to receive Match Contributions upon completion of one Hour of Service, provided the Employee is then employed in an eligible class of Employees. For Plan Years beginning prior to January 1, 2005, an Employee shall be eligible to receive Match Contributions effective on the first day of the calendar month coincident with or following completion of one Year of Service, provided the Employee is then employed in an eligible class of Employees.”

5. Section 3.01(b) of the Plan is deleted in its entirety and the following new section 3.01(b) is inserted in lieu thereof:

“(b) Employee Participation. On or after the date an Employee first becomes eligible to participate in the Plan, the Employee may direct the Employer to reduce his or her Compensation in order that the Employer may make Salary Reduction Contributions to the Plan, including Catch-up Contributions, on the Employee’s behalf-in accordance with Section 5.04; provided that for Plan Years beginning on January 1, 2009 and thereafter, any Eligible Participant shall be subject to the automatic enrollment and contribution provisions of Section 5.05.”

6. The first paragraph of Section 4.01 of the Plan is deleted in its entirety and the following new paragraph is inserted in lieu thereof:

“4.01 Salary Reduction Contributions. The Employer shall make Salary Reduction Contributions to the Plan and Trust, including Catch-up Contributions described in Code Section 414(v), to the extent and in the manner specified in Sections 3.01(b), 5.04, and 5.05.”

7. Section 4.02 of the Plan is deleted in its entirety and following new Section 4.02 is inserted in lieu thereof:

“4.02 Match Contributions.

(a) For Plan Years beginning on or after January 1, 2009, for each pay period during a Plan Year that a Salary Reduction Contribution is made to the Plan on behalf of a Participant, the Employer shall make a Match Contribution to the Plan on behalf of the Participant equal to 100% of such Salary Reduction Contributions that do not exceed 6% of the Participant’s Compensation for such pay period; provided that no such Match Contribution shall be made with respect to any part or all of any such Salary Reduction Contribution that, when added to other such Salary Reduction Contributions made to the Plan on behalf of the Participant during the Plan Year, would cause the applicable dollar amount under Code Section 402(g)(1)(B) to be exceeded for such Plan Year unless the Salary Reduction Contribution may be treated as a Catch-up Contribution that does not exceed the limitation under Code Section 402(g)(1)(C). All such Match Contributions shall be made to the Match Contribution Account established for the Participant as soon after each such pay period as practicable.

For Plan Years beginning on or after January 1, 2005 and before January 1, 2009, unless otherwise voted by the Board of Directors of the Employer, for each pay period that an eligible Salary Reduction Contribution is made by a Participant to the Trust, not to exceed the Code Section 402(g)(1)(B) limitation and not including Catch-up Contributions, the Employer shall make a Match Contribution to the Trust on the Participant’s behalf equal to 100% of the first 5% of the Participant’s Salary Reduction Contributions, not including Catch-up Contributions, made during the pay period. Such Match Contribution shall be made to the Match Contribution Account established for the Participant.

The Employer shall contribute Match Contributions to the Trust Fund as soon as practicable following the end of each pay period. Such Match Contributions shall be made in cash and shall be allocated to the Match Contribution Account of each Participant. Such Match Contributions shall be invested per the directions of Participants in accordance with Section 16.02.

For Plan Years beginning on and after January 1, 2009, within 30 days following the end of each Plan Year, if required, the Employer shall make a “true-up” Match Contribution to the Match Contribution Account of each Participant employed by the Employer during the Plan Year, such that the total amount of Match Contributions for each Participant for the Plan Year shall be equal to 100% of the Participant’s Salary Reduction Contributions that do not exceed 6% of the Participant’s Compensation for such Plan Year (and not merely 100% of the Participant’s Salary Reduction Contributions that do not exceed 6% of the Participant’s Compensation for each pay period during the Plan Year); provided that no such Match Contribution shall be made with respect to any part or all of any such Salary Reduction Contributions that would cause the applicable dollar amount under Code Section 402(g)(1)(B) to be exceeded for such Plan Year unless the Salary Reduction Contribution can be treated as a Catch-up Contribution that does not exceed the limitation under Code Section 402(g)(1)(C).

For Plan Years beginning on or after January 1, 2005 and before January 1, 2009, within 30 days following the end of each Plan Year, if required, the Employer shall make a “true-up” Match Contribution to the Match Contribution Account of each Participant employed by the Employer on the last day of the Plan Year, such that the Match Contribution for such eligible Participant for the Plan Year shall be 100% of the eligible Employer Match Contribution percentage of each such Participant’s Salary Reduction Contributions made during the entire Plan Year, not including Catch-up Contributions, not merely 100% of the eligible Employer Match Contribution percentage

of the Participant’s Salary Reduction Contributions, not including Catch-up Contributions, made each pay period during the Plan Year.

(b) For Plan Years beginning on or after January 1, 2009, (i) the Match Contributions made pursuant to Section 4.02(a) shall be subject to the withdrawal restrictions set forth in Code Section 401(k)(2)(B) and Treasury Regulation Section 1.401(k)-1(d); and (ii) pursuant to Code Section 401(k)(2)(B) and Treasury Regulations Section 1.401(k)-1(d), such contributions (and earnings thereon) shall not be distributable earlier than severance from employment, death, disability, an event described in Code Section 401(k)(10), or the attainment of age 59 ¹/2 and shall not be eligible for distribution for reasons of “financial hardship”.”

8. Article V of the Plan is amended by the addition of the following new Sections 5.04 and 5.05:

“5.04. Salary Reduction Contributions.

(a) An Employee who is eligible to participate in the Plan may execute a Salary Reduction Agreement to reduce his or her Compensation in order to make Salary Reduction Contributions to the Plan, including Catch-up Contributions. The Salary Reduction Agreement shall be made in a form approved by the Plan Administrator (including, if applicable, by means of telephone, computer, or other paperless media). The Compensation of any Eligible Employee electing salary reduction shall be reduced by the whole percentage requested by the Employee; provided, however, that the Plan Administrator shall identify the maximum whole percentage on an annual basis. Any Salary Reduction Agreement shall become effective as soon as administratively feasible after the Employee elects to have his or her salary reduced. For Plan Years beginning on or after January 1, 2006, except for occasional, bona fide administrative considerations, Salary Reduction Contributions made pursuant to a Salary Reduction Agreement cannot precede the earlier of (1) the performance of services relating to the contribution and (2) when the compensation that is subject to the election would be currently available to the Participant in the absence of an election to defer.

A Participant may elect at any time to change or discontinue his or her Salary Reduction Agreement. Unless otherwise agreed to by the Plan Administrator, the election shall become effective as soon as administratively feasible after the Employee elects such change or discontinuance.

(b) Make-up Elective Deferrals under USERRA. Effective for Plan Years beginning on and after January 1, 2008, a Participant who has the right to make-up elective deferrals (Salary Reduction Contributions) under USERRA shall be permitted to increase his or her elective deferral with respect to a make-up year without regard to any provision limiting contributions for such Plan Year. Make-up contributions shall be limited to the maximum amount permitted under the Plan and the statutory limitations applicable with respect to the make-up year. Employee-related make-up contributions must be made within the time period beginning on the date of reemployment and continuing for the lesser of five (5) years or three (3) times the period of military service.

For Plan Years beginning prior to January 1, 2009, “Make-up” Salary Reduction Contributions made by reason of an Eligible Employee’s qualified military service under Code section 414(u) shall not be taken into account for any year when calculating an employee’s Actual Deferral Percentage (under Section 9.01(a)) as provided for in Treasury Regulation section 1.401(k)-2(a)(5)(v) and Match Contributions thereon shall not be taken into account for any year when calculating an employee’s Average Contribution Percentage (under Section 10.01(a)) as provided for in Treasury Regulation section 1.401(m)-2(a)(5)(vi).

5.05 Qualified Automatic Contribution Arrangement (“QACA”).

(a) Effective Date of the QACA. Effective for Plan Years beginning on or after January 1, 2009, the provisions of this Section 5.05 of the Plan shall apply to each Participant subject to the QACA and the Employer will provide the Match Contribution specified in Section 4.02 of the Plan. This Section 5.05 of the Plan supersedes any State (or Commonwealth) law that would directly or indirectly prohibit or restrict the inclusion of an automatic contribution arrangement in the Plan, pursuant to ERISA Section 514(e)(1) and Department of Labor Regulation Section 2550.404c–5(f).

(b) Participants Subject to the QACA. The following Eligible Employees shall be Eligible Participants subject to the Automatic Contribution Arrangement:

(i) Each Employee who becomes eligible to participate in the Plan on and after January 1, 2009 and is eligible to make a Salary Reduction Contribution.

(ii) Each Employee who became eligible to participate in the Plan prior to January 1, 2009 and who is eligible to participate in the Plan on January 1, 2009, except any such Participant who had in effect a Salary Reduction Agreement on such date (regardless of the amount of the Salary Reduction Contribution affirmatively elected under the agreement).

(c) Automatic Contribution Arrangement.

(i) Automatic Contributions. Except as provided in Section 5.05(d) of the Plan, an Eligible Participant will be treated as having elected to direct the Employer to reduce his or her Compensation in order that the Employer may make Salary Reduction Contributions to the Plan equal to the following uniform percentages of Compensation:

A. Initial Period. An Eligible Participant will be treated as having elected to have the Employer make Salary Reduction Contributions to the Plan in an amount equal to 3% of his or her Compensation during the initial period. For this purpose, the initial period begins when the Employee is first subject to the Automatic Contributions default election under this Section 5.05(c)(i) and ends on the last day of the following Plan Year.

B. Subsequent Plan Years. For the three Plan Years immediately following the initial period, an Eligible Participant will be treated as having elected to have the Employer make Salary Reduction Contributions to the Plan in the amounts equal to 4%, 5% and 6% respectively, of his or her Compensation. For all Plan Years thereafter, an Eligible Participant will be treated as having elected to have the Employer make Salary Reduction Contributions to the Plan in the amounts equal to 6% of his or her Compensation.

C. Treatment of Rehires. The default percentages of Compensation stated above for the purposes of the Automatic Contributions are based on the date the initial period begins, regardless of whether the Employee continues to be eligible to make Salary Reduction Contributions under the Plan after that date. Thus, the applicable percentage is generally determined based on the number of years since an Automatic Contribution was first made on behalf of an Eligible Participant. However, if Automatic Contributions are not made on behalf of an Eligible Participant for an entire Plan Year (e.g., due to termination of employment), such Eligible Participant shall be treated as having a new initial period for determining

the default percentage of Compensation stated above (if Automatic Contributions are to recommence with respect to the Eligible Participant), regardless of what minimum percentage would otherwise apply to that Eligible Participant.

(ii) Effective Date of Automatic Contributions. The effective date of the first Automatic Contribution provided for in paragraph (i) above, will be as soon after an Eligible Participant becomes subject to the QACA as is practicable, consistent with (a) applicable law, and (b) the objective of affording the Eligible Participant a reasonable period of time after receipt of the notice to make an Affirmative Election (and, an investment election). However, in no event will the Automatic Contribution be effective later than the earlier of (a) the pay date for the second payroll period that begins after the date the QACA safe harbor notice (described in Section 5.05(f) of the Plan) is provided to the Eligible Participant, or (b) the first pay date that occurs at least 30 days after the QACA safe harbor notice is provided to the Eligible Participant.

(d) Rules Related to Automatic Contributions.

(i) Affirmative Election to Override Automatic Contributions. An Eligible Participant will have a reasonable period of time after receipt of the notice to make an Affirmative Election (and, an investment election). The Automatic Contributions provided for in Section 5.05(c) of the Plan shall cease with respect to an Eligible Participant as soon as administratively feasible after the Eligible Participant makes an Affirmative Election. An Eligible Participant’s Affirmative Election will not expire, but will remain in force until changed by the Eligible Participant. An Eligible Participant need not execute a subsequent or new Affirmative Election in order to have the prior or old Affirmative Election apply to override the Automatic Contributions provided for in Section 5.05(c) of the Plan in any subsequent Plan Year. Any subsequent change to an Eligible Participant’s Affirmative Election will be made in accordance with Section 5.04 of the Plan relating to a Participant’s right to elect at any time to change or discontinue his or her Salary Reduction Agreement.

(ii) Applying Statutory Limits to Automatic Contributions. The Automatic Contributions provided for in Section 5.05(c) of the Plan shall be limited each Plan Year so as not to exceed the limits of Code Sections 401(a)(17), 402(g)(1), or 415.

(iii) No Automatic Contributions during Hardship Suspension. No Automatic Contributions provided in Section 5.05(c) of the Plan shall apply during the six-month period of suspension, under Section 11.02 of the Plan, of a Participant’s right to make Salary Reduction Contributions to the Plan following a distribution for “financial hardship”.

(e) Permissible Withdrawals.

(i) Withdrawal Election. An Eligible Participant who is enrolled in the Automatic Contribution Arrangement prior to January 1, 2011 may elect to make a Permissible Withdrawal of the Automatic Contributions that are made to the Plan on his or her behalf.

(ii) Forfeiture of Match Contribution. Notwithstanding the vesting provisions of this Plan, any amounts attributable to Match Contributions allocated to the Match Contribution Account of an Eligible Participant with respect to Automatic Contributions that have been withdrawn pursuant to this Section 5.05(e) shall be forfeited. In the event that Match Contributions would otherwise be allocated to the Eligible Participant’s Match

Contribution Account with respect to Automatic Contributions that have been so withdrawn, the Employer shall not contribute such Match Contributions to the Plan.

(f) Default Investment. If an Eligible Participant does not direct the investment of the assets in his or her Account, including the Automatic Contributions and Match Contributions related thereto, then such assets will be invested in a Qualified Default Investment Alternative as provided for in Section 16.03 of the Plan.

(g) Notice Requirements for QACA Safe Harbor. The notice requirement is satisfied if each Eligible Participant is given an annual notice of his or her rights and obligations under the Plan and the notice provided satisfies the content requirement and the timing requirement as follows:

(i) The notice shall be sufficiently accurate and comprehensive to inform the Eligible Participant of the Eligible Participant’s rights and obligations under the Plan and written in a manner calculated to be understood by the average Eligible Participant. The notice shall accurately describe: (1) the Match Contribution formula stated in Section 4.02 of the Plan; (2) any other contributions under the Plan and the conditions under which such contributions are made; (3) the type and amount of Compensation that may be deferred under the Plan; (4) how to make cash or deferred elections, including any administrative requirements that apply to such elections; (5) the periods available under the Plan for making cash or deferred elections; (6) withdrawal and vesting provisions applicable to contributions under the Plan; and (7) information that makes it easy to obtain additional information about the Plan; provided that the notice requirement with respect to the information described in items (2), (3), and (4) may be satisfied by cross-reference to the applicable sections of the Plan’s summary plan description. In addition, the notice shall accurately describe: (1) the Automatic Contributions that will be made on behalf of the Eligible Participant in the absence of an Affirmative Election; (2) the Eligible Participant’s right to elect not to have the Automatic Contributions made on his or her behalf (or to elect to have Salary Reduction Contributions made in a percentage of Compensation different than that which is provided for in Section 5.05(c) of the Plan, at the percentage of Compensation specified in his or her Salary Reduction Agreement); (3) how contributions made under the Automatic Contribution Arrangement will be invested in the absence of any investment election by the Eligible Participant; and (4) with respect to Eligible Participants who are enrolled in the Automatic Contribution Account prior to January 1, 2011, the Eligible Participant’s right to make a Permissible Withdrawal of the Automatic Contributions made on his or her behalf and the procedures for doing so. After receipt of the notice described in this paragraph, any Eligible Participant to whom the Automatic Contribution Arrangement relates must have a reasonable period of time before the first Automatic Contribution is made to exercise the rights set forth within the notice including, but not limited to, executing an Affirmative Election to override the Automatic Contributions provided for in Section 5.05(c) of the Plan.

(ii) If the notice is provided to Eligible Participants within a reasonable period before the beginning of each Plan Year (or in the Plan Year an Employee becomes eligible, within a reasonable period before the Employee becomes eligible), the Plan shall satisfy the notice requirements. Notwithstanding the foregoing general rule, a notice shall be deemed to have been provided in timely manner if the notice is provided to each Employee who is eligible to participate in the Plan for the Plan Year at least thirty (30) days but no more than ninety (90) days before the beginning of the Plan Year. If an Employee does not receive the notice because he or she only becomes eligible to participate in the Plan after the ninetieth day before the beginning of the Plan Year, the requirement to give the notice

will be satisfied if the notice is provided not more than ninety (90) days before the Employee becomes eligible to participate in the Plan, but in no event later than the date the Employee becomes eligible to participate in the Plan.

(iii) Each Eligible Participant may make or modify a deferral election during the thirty (30) day period immediately following receipt of the notice described above, as provided for in Section 5.04 of the Plan.

(iv) The Plan may provide the notice in writing or by electronic means. If provided electronically, the notice must be no less understandable than a written paper document and at the time of delivery of the electronic notice, the Employee is advised that he or she may request to receive the notice in writing at no additional charge.”

9. Delete paragraph (c) of Section 9.01 in its entirety and change the section references throughout the Plan to reflect the deletion of paragraph (c) of Section 9.01 and change all references from “Eligible Participant” in Article IX of the Plan to “Eligible Employee”.

10. The first clause of the first sentence of Section 9.02 of the Plan is deleted in its entirety and following language is inserted in lieu thereof (creating paragraphs (a) and (b) of Section 9.02):

“(a) For Plan Years beginning on or after January 1, 2009, the Plan will be treated as meeting the actual deferral percentage test set forth in Code Section 401(k)(3)(A)(ii) in each Plan Year with respect to which the Qualified Automatic Contribution Arrangement provisions of this Plan remain in effect.

(b) For Plan Years beginning before January 1, 2009, the Average Actual Deferral Percentage for Highly Compensated Employees for each Plan Year compared to the Average Actual Deferral Percentage for Non-Highly Compensated Employees for the Plan Year must satisfy one of the following tests:”

11. The first sentence of Section 9.03 of the Plan is deleted in its entirety and following new sentence is inserted in lieu thereof:

“For Plan Years beginning before January 1, 2009, notwithstanding any other provision of this Plan except Section 9.05, Excess 401(k) Contributions as adjusted for gain or loss, including for the Plan Year ended December 31, 2007, an adjustment for gain or loss for the period between the end of the Plan Year and the date of the distribution (the “gap period”), shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts such Excess 401(k) Contributions were allocated for the preceding Plan Year.”

12. Section 9.04 is amended to provide that it applies to Plan Years beginning before January 1, 2009 and Section 9.05 is amended to provide that it applies to Plan Years beginning on and after January 1, 2006 and before January 1, 2009.

13. Article X of the Plan amended by the addition of the following language immediately before Section 10.01:

“For Plan Years beginning on or after January 1, 2009, the Plan will be treated as meeting the actual contribution percentage test set forth in Code Section 401(m)(2) in each Plan Year with respect to which the Qualified Automatic Contribution Arrangement provisions of this Plan remain in effect. The following provisions of this Article shall apply with respect to Plan Years prior to January 1, 2009 unless otherwise noted.”

14. Delete the second sentence of paragraph (b) of Section 10.01 in its entirety and insert in lieu thereof the following new sentence:

“For Plan Years beginning on and after January 1, 2006, Salary Reduction Contributions (other than Catch-up Contributions) made on behalf of Participants who are Non-Highly Compensated Employees which could be used to satisfy the Code section 401(k)(3) limits (set forth in Section 9.02(b) hereof) but are not necessary to be taken into account in order to satisfy such limits, may instead be included in the above described numerator, to the extent permitted by Treasury Regulation section 1.401(m)-2(a)(6).”

15. Delete paragraph (c) of Section 10.01 in its entirety and change the section references throughout the Plan to reflect the deletion of paragraph (c) of Section 10.01 and change all references from “Eligible Participant” in Article X of the Plan to “Eligible Employee”.

16. Paragraphs B. and D. of Section 11.02(ii) are deleted in their entirety and the following new Paragraphs B. and D. of Section 11.02(ii) are inserted in lieu thereof:

“B. All plans maintained by the Employer provide that the Employee’s Salary Reduction Contributions (and any other Employee contributions) will be suspended for six months (twelve months for hardship distributions made prior to January 1, 2002) after the receipt of the hardship distribution; provided that in the case of an Eligible Participant, Automatic Contributions shall resume at the end of such suspension period subject to the provisions of Section 5.05 of the Plan;

D. In addition for hardship distributions made before 2002, all plans maintained by the Employer provide that the Employee may not make Salary Reduction Contributions for the Employee’s taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Section 402(g)(1) of the Code for such taxable year less the amount of such Salary Reduction Contributions for the taxable year of the hardship distribution.”

17. Paragraph (c) of Section 13.12 of the Plan is deleted in its entirety and the following new paragraph (c) is inserted in lieu thereof:

“(c) For distributions after June 9, 2009, a non-spouse Beneficiary who is a “designated beneficiary” under Code Section 401(a)(9)(E) and the regulations thereunder, by a direct trustee-to-trustee transfer (“direct rollover”), may roll over all or any portion of his or her distribution to an individual retirement account the Beneficiary establishes for purposes of receiving the distribution. In order to be able to roll over the distribution, the distribution otherwise must satisfy the definition of an eligible rollover distribution.

Although a non-spouse Beneficiary may roll over directly a distribution as provided in above, any distribution made prior to January 1, 2010 is not subject to the direct rollover requirements of Code 401(a)(31) (including Code Section 401(a)(31)(B), the notice requirements of Code Section 402(f) or the mandatory withholding requirements of Code Section 3405(c)). If a non-spouse Beneficiary receives a distribution from the Plan, the distribution is not eligible for a “60-day” rollover.

If the Participant’s named Beneficiary is a trust, the Plan may make a direct rollover to an individual retirement account on behalf of the trust, provided the trust satisfies the requirements to be a “designated beneficiary” within the meaning of Code Section 401(a)(9)(E).

A non-spouse Beneficiary may not roll over an amount which is a required minimum distribution, as determined under applicable Treasury Regulations and other Internal Revenue Service guidance. If the Participant dies before his or her required beginning date and the non-spouse Beneficiary

rolls over to an IRA the maximum amount eligible for rollover, the Beneficiary may elect to use either the 5-year rule or the life expectancy rule, pursuant to Treasury Regulations Section 1.401(a)(9)-3, A-4(c), in determining the required minimum distributions from the IRA that receives the non-spouse Beneficiary’s distribution.”

18. Article XVI of the Plan amended by the addition of the following new section 16.03 immediately after section 16.02 of the Plan:

“16.03 Default Investment.

(a) General Rules.

(i) Qualified Default Investment Alternative. If a Participant or Beneficiary has the opportunity to direct the investment of the assets in his or her Account (but does not direct the investment of such assets), then such assets in his or her Account will be invested in a Qualified Default Investment Alternative.

(ii) Transfer from Qualified Default Investment Alternative. Any Participant or Beneficiary on whose behalf assets are invested in a Qualified Default Investment Alternative may transfer, in whole or in part, such assets to any other investment alternative available under the Plan with a frequency consistent with that afforded to a Participant or Beneficiary who elected to invest in the Qualified Default Investment Alternative, but not less frequently than once within any 3-month period.

(iii) No Fees during First 90 Days. Any Participant’s or Beneficiary’s election to make such transfer from the Qualified Default Investment Alternative, or a Permissible Withdrawal (by any Eligible Participant who is enrolled in the Automatic Contribution Arrangement prior to January 1, 2011), or other first investment in a Qualified Default Investment Alternative on behalf of a Participant or Beneficiary, will not be subject to any restrictions, fees or expenses (including surrender charges, liquidation or exchange fees, redemption fees and similar expenses charged in connection with the liquidation of, or transfer from, the investment), except as permitted in Department of Labor Regulation Section 2550.404c–5(c)(5)(ii)(B).

(iv) Limited Fees after First 90 Days. Following the end of the 90-day period described in paragraph (iii), any transfer described in paragraph (ii) above or Permissible Withdrawal (by any Eligible Participant who is enrolled in the Automatic Contribution Arrangement prior to January 1, 2011) shall not be subject to any restrictions, fees or expenses not otherwise applicable to a Participant or Beneficiary who elected to invest in that Qualified Default Investment Alternative.

(v) Materials Must Be Provided. A Plan fiduciary shall provide to a Participant or Beneficiary the materials set forth in Department of Labor Regulation Section 2550.404c-1(b)(2)(i)(B)(1)(viii) and (ix) and Department of Labor Regulation Section 404c-1(b)(2)(i)(B)(2) relating to a Participant’s or Beneficiary’s investment in a Qualified Default Investment Alternative.

(b) Notice Requirements. The following provisions apply to the notice required by a Qualified Default Investment Alternative:

(i) Manner. Such notice will be written in a manner calculated to be understood by the average Plan Participant.

(ii) Content. Such notice will contain the following:

A. A description of the circumstances under which assets in the individual Account of a Participant or Beneficiary may be invested on behalf of the Participant or Beneficiary in a Qualified Default Investment Alternative; and, if applicable, an explanation of the circumstances under which Automatic Contributions will be made on behalf of a Participant, the percentage of Compensation that such Automatic Contributions represent, and the right of the Participant to elect not to have such made on the Participant’s behalf (or to elect to have Salary Reduction Contributions made at a different percentage);

B. An explanation of the right of Participants and Beneficiaries to direct the investment of assets in their individual accounts;

C. A description of the Qualified Default Investment Alternative, including a description of the investment objectives, risk and return characteristics (if applicable), and fees and expenses attendant to the Qualified Default Investment Alternative;

D. A description of the right of the Participants and Beneficiaries on whose behalf assets are invested in a Qualified Default Investment Alternative to direct the investment of those assets to any other investment alternative under the Plan, including a description of any applicable restrictions, fees or expenses in connection with such transfer; and

E. An explanation of where the Participants and Beneficiaries can obtain investment information concerning the other investment alternatives available under the Plan.

(iii) Timing. The Participant or Beneficiary on whose behalf an investment in a Qualified Default Investment Alternative may be made must be furnished such notice during the following periods: (1) At least 30 days in advance of the Participant’s eligibility to participate in the Plan, or at least 30 days in advance of the date of any first investment in a Qualified Default Investment Alternative on behalf of a Participant or Beneficiary; and (2) Within a reasonable period of time of at least 30 days in advance of each subsequent Plan Year.”

19. The second sentence of Section 20.02 is deleted in its entirety (and moved to Section 5.04(b) as above provided).

This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment and, except as hereby amended; the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, this Tenth Amendment has been executed this 14th day of September, 2010.

THE HANOVER INSURANCE COMPANY
By:	/s/ Lorna Stearns
	Authorized Representative

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

ELEVENTH AMENDMENT

To the Restatement Generally Effective January 1, 2005

THIS ELEVENTH AMENDMENT is executed by The Hanover Insurance Company, a New Hampshire corporation (the “Company”).

WHEREAS, the most recent restatement of The Hanover Insurance Group Retirement Savings Plan (the “Plan”) was adopted on December 29, 2005 and was generally effective January 1, 2005, and such restatement was amended by the adoption of the First Amendment on March 5, 2007; the Second Amendment on June 26, 2007; the Third Amendment on April 30, 2008; the Fourth Amendment on November 19, 2008; the Fifth Amendment on December 22, 2008; the Sixth Amendment on September 9, 2009; the Seventh Amendment on September 18, 2009; the Eighth Amendment on December 17, 2009; the Ninth Amendment on February 25, 2010; and the Tenth Amendment on September 14, 2010; and

WHEREAS, the Company has reserved the right to amend the Plan any time under Section 19.01 of the Plan; and

WHEREAS, the Company desires to amend the Plan to address the participation of certain employees of the Company who were formerly employed by (i) Campania Holding Company, Inc. or its direct or indirect subsidiaries; (ii) Benchmark Professional Insurance Services, Inc. or its direct or indirect subsidiaries; or (iii) Insurance Company of the West or its direct or indirect subsidiaries;

WHEREAS, the Company desires to amend the Plan to remove the provisions of the Plan that relate to the investment of Plan assets in individual life insurance and annuity policies, because (i) such investments were only permitted with respect to Plan Years beginning prior to January 1, 1999; (ii) no Plan assets are currently invested in such policies; and (ii) the removal of such provisions will have no effect on any participant in the Plan; and

WHEREAS, the Company desires to amend the Plan to clarify the provisions of the Plan that relate to vesting and make such other changes in the Plan as the Company deems desirable.

NOW, THEREFORE, the Plan is amended effective as of January 1, 2010 except as otherwise specified, as follows:

1. Article II of the Plan is amended by the addition of the following new definition and section references in Article II and throughout the Plan are renumbered to reflect the addition of such definition.

“‘Annuity Starting Date’ shall mean the first day of the first period for which the Plan pays an amount as an annuity. In the case of a payment not in an annuity form, Annuity Starting Date shall mean the first day of the first period for which the benefit form is paid.”

2. Delete the last sentence in the first paragraph of the definition of the term “Catch-up Contributions” in its entirety.

3. Delete the definition of the term “Former Participant” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

“‘Former Participant’ shall mean a person on whose behalf an Account is maintained, who was an Eligible Employee but who is not entitled to accrue a benefit under this Plan because he or she has ceased to be eligible to participate in the Plan for any reason.”

4. Delete the definition of the term “Internal Revenue Code” or “Code” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

“Internal Revenue Code” or “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection to the Code, includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces any such section or subsection, and also includes reference to any regulation issued pursuant to or with respect to such section or subsection.”

5. Delete the definition of the term “Insurer” in Article II of the Plan and change the section references throughout the Plan to reflect the deletion of the section of the Plan that defines the term “Insurer”.

6. Delete the definition of the term “Match Contribution” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

“‘Match Contribution’ shall mean the contribution made by the Employer to the Trust pursuant to Section 4.02 of the Plan.”

7. Delete the definition of the term “Non-Elective Employer Contributions” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

“‘Non-Elective Employer Contributions’” shall mean Employer contributions that are made by the Employer pursuant to Section 4.03 of the Plan.”

8. Delete the definition of the term “Normal Retirement Age” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

“‘Normal Retirement Age’ shall mean the date on which the Participant attains Age 65.”

9. Delete definition of the term “Participant” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

“‘Participant’ shall mean an Eligible Employee and, where the context requires, a Former Participant.”

10. Delete the definition of the term “Policy” in Article II of the Plan and change the section references throughout the Plan to reflect the deletion of the Plan that defines the term, “Policy”.

11. Delete the definition of the term “Profits”, including the definition of the term “Accumulated Profits”, in Article II of the Plan and change the section references throughout the Plan to reflect the deletion of the section of the Plan that defines the terms “Profits” and “Accumulated Profits”.

12. Delete the last sentence of the definition of the term “Trust Fund” in its entirety.

13. Section 3.01(a) of the Plan is amended by the addition of the following new sentence at the end of such section:

“Special rules for certain persons who were employed by (i) Campania Holding Company, Inc. or its direct or indirect subsidiaries; (ii) Benchmark Professional Insurance Services, Inc. or its direct or indirect subsidiaries; or (iii) Insurance Company of the West or its direct or indirect subsidiaries, immediately before being employed by the Employer are stated in Appendix B attached hereto.”

14. Delete the last sentence of Section 3.03 in its entirety.

15. Delete the first paragraph of Section 4.03(a) in its entirety and insert the following new paragraphs in lieu thereof

“For Plan Years beginning on or after January 1, 2010, the Board of Directors of the Employer may, in its discretion, determine to make a Non-Elective Employer Contribution to the Plan on behalf of the Employer for each Eligible Employee who is employed by the Employer on the last day of such Plan Year in an amount equal to a uniform percentage of each such Employee’s Compensation. Any such contribution shall be made in cash to the Non-Elective Employer Contribution Account established for each such Eligible Employee.

For Plan Years beginning on or after January 1, 2008 and before January 1, 2010, Eligible Employees who are employed by the Employer on the last day of the Plan Year will receive an Employer paid contribution in an amount equal to 2% of the Employee’s Compensation, unless otherwise voted by the Board of Directors of the Employer.”

16. Delete the first and second sentence of Section 4.08 in its entirety and insert the following new sentence in lieu thereof:

“The Trustee shall accept and hold under the Trust such contributions of money, or other property approved by the Employer for acceptance by the Trustee, on behalf of the Employer and Participants as it may receive from time to time from the Employer.”

17. Delete the last sentence of Section 5.02 in its entirety.

18. Delete the last sentence of Section 5.03 in its entirety and insert the following two new sentences in lieu thereof:

“Notwithstanding the foregoing, for Plan Years beginning on and after January 1, 2011, the Trustee shall not accept funds transferred from any such plan, which would otherwise provide for a life annuity form of payment to the Participant. Rollover Contributions to the Plan shall continue to be allowed in accordance with this Section 5.03.”

19. Renumber “Section 7.04A” as “Section 7.05” of Article VII and change the section references throughout the Plan to reflect the deletion of the change in the numbering of this section. Delete the parenthetical at the beginning Article VII in its entirety and insert the following parenthetical in lieu thereof: “(See Sections 7.12-7.16 for definitions applicable to this Article VII).” Delete the parenthetical before Section 7.12 in its entirety and insert the following parenthetical in lieu thereof: “(Sections 7.12-7.16 are definitions used in this Article VII).”

20. Delete the first sentence of the second paragraph of Section 8.01 in its entirety and insert the following new sentence in lieu thereof:

“The Plan Administrator shall instruct the Trustee to credit all appropriate amounts to each Participant’s Accounts.”

21. Delete the last sentence of Section 8.02 in its entirety and insert the following new sentence in lieu thereof:

“In making any such valuation of the Trust Fund, the Trustee shall not include any contributions made by the Employer, which have not been allocated to Participant Accounts prior to such Valuation Date.”

22. Delete the third paragraph of Section 13.01 in its entirety and insert the following new paragraph in lieu thereof:

“Notwithstanding the foregoing, each actively employed Participant’s Accrued Benefit shall become 100% vested and nonforfeitable when the Participant attains his or her Normal Retirement Age, dies, or becomes Totally and Permanently Disabled.”

23. Delete the first paragraph of Section 13.03 in its entirety and insert the following new paragraph in lieu thereof:

“If a Participant or Former Participant shall die prior to the commencement of any benefits otherwise provided under this Article XIII, except as provided below, his or her Beneficiary shall be entitled to a lump sum death benefit equal to the amount credited to the Participant’s Account as of the date the Plan Administrator receives due proof of the Participant’s death. In lieu of receiving benefits in a lump sum, a Beneficiary may elect to receive benefits under any option described in Section 13.06; provided that effective January 1, 2011, in lieu of receiving a lump sum death benefit, and except with respect to amounts held in a Rollover Account as described below in this Section, the Beneficiary of a Participant may only elect to receive benefits under the installment payment option described in Section 13.06.”

24. Delete the last sentence of Section 13.04 in its entirety.

25. Delete the first sentence of Section 13.05 in its entirety and insert the following new sentence in lieu thereof:

“The Plan Administrator shall direct the Trustee to make payment of any benefits provided under this Article XIII upon the event giving rise to distribution of such benefit, or within 60 days thereafter.”

26. Delete the seventh paragraph of Section 13.05 in its entirety and insert the following new paragraphs in lieu thereof:

“Prior to January 1, 2011, if a Qualified Joint and Survivor Annuity is not required under the above rules or pursuant to Section 13.07, a Participant’s Accrued Benefit shall be distributed by the Trustee in such manner as the Participant shall elect, in accordance with one or more of the following methods of distribution, which may be paid in cash or in kind, or a combination of them:

(i) One lump sum payment.

(ii) An annuity for the life of the Participant.

(iii) An annuity for the joint lives of the Participant and his or her spouse with 50%, 66^2/3%, 75% or 100% (whichever is specified when this option is elected) of such amount payable as an annuity for life to the survivor. No further benefits are payable after the death of both the Participant and his or her spouse.

(iv) An annuity for the life of the Participant with installment payments for a period certain not longer than the life expectancy of the Participant.

(v) Installment payments for a period certain not longer than the life expectancy of the Participant and his or her spouse.

On and after January 1, 2011, the portion of the Participant’s Accrued Benefit that is attributable to a Rollover Account as described in Section 13.03 shall be distributed by the Trustee in such manner as the Participant shall elect, in accordance with one or more of the above-described methods of distribution, which may be paid in cash or in kind, or a combination of them; provided that an in-kind distribution shall only be available with respect to an annuity contract that is purchased by the Trustee at the time of distribution or shares of common stock of The Hanover Insurance Group that are held in the Participant’s Account at the time of distribution as represented by the Participant’s investment in The Employer Stock Fund (defined in Section 16.02 of the Plan).

On and after January 1, 2011, the portion of the Participant’s Accrued Benefit that is not attributable to a Rollover Account as described in Section 13.03 shall be distributed by the Trustee in such manner as the Participant shall elect, in accordance with one or more of the following methods of distribution, which may be paid in cash or in kind, or a combination of them; provided that an in-kind distribution shall only be available with respect to shares of common stock of The Hanover Insurance Group. Inc. that are held in the Participant’s Account at the time of distribution as represented by the Participant’s investment in The Employer Stock Fund (defined in Section 16.02 of the Plan:

(i) One lump sum payment.

(ii) Installment payments for a period certain not longer than the life expectancy of the Participant and his or her spouse.

All optional forms of benefits shall be actuarially equivalent.

27. Delete the third sentence of Section 13.07 in its entirety and insert the following new sentence in lieu thereof:

“Any election (by a Participant on whose behalf a Rollover Account as described in Section 13.03 is maintained) out of a Qualified Joint and Survivor Annuity must be in writing and may be made during the election period, which shall be the 90-day period (180-day period for Plan Years beginning January 1, 2007 and thereafter) ending on the annuity starting date.”

28. Delete Section 16.01 in its entirety and insert the following new Section 16.01 in lieu thereof:

“16.01 In General. Subject to the direction of the Plan Administrator or any duly appointed investment manager in accordance with Section 14.05, the Trustee shall receive all contributions to the Trust and shall hold, invest and control the whole or any part of the assets in accordance with the provisions of the annexed Trust Indenture.”

29. Delete the second paragraph of Section 16.02 in its entirety and insert the following new paragraph in lieu thereof:

“All collective investment trusts and group trusts shall also conform to the terms of the Plan.”

30. Delete the second sentence of the third paragraph of Section 16.02 in its entirety and insert the following new sentence in lieu thereof:

“Each Participant is responsible and has sole discretion to give directions to the Trustee in such form as the Trustee may require concerning the investment of his or her Accrued Benefit in one or more of the Permissible Investments, which directions must be followed by the Trustee, subject to the restriction contained above restricting investments in The Employer Stock Fund.”

31. Delete the third sentence of the fourth paragraph of Section 16.02 in its entirety and insert the following new sentence in lieu thereof:

“Otherwise, the Trustee shall allocate and invest the assets of the Trust in accordance with the Participant’s selections as provided in this Section, subject to the restriction on investments in The Employer Stock Fund.”

32. Delete Article XVII of the Plan in its entirety and change the Article and section references throughout the Plan to reflect the deletion of Article XVII.

33. The first sentence of the second paragraph of Section 19.01 (as in effect before the deletion of Article XVII as set forth in Section 32 of this Amendment) is deleted in its entirety the following new sentence is inserted in lieu thereof:

“Notwithstanding the above paragraph, an amendment to the Plan may not decrease a Participant’s Accrued Benefit and may not reduce or eliminate a benefit, right or feature of this Plan that is protected under Code Section 411(d)(6) (except as provided for by the Code or the Treasury Regulations issued thereunder) determined immediately prior to the date of adoption, or if later, the effective date of the amendment. Should any early retirement benefit or other optional retirement benefits be changed by amendment to this Plan, all benefits accrued prior to the date of such amendment shall not be reduced.”

34. Delete Section 20.08 (as in effect before the deletion of Article XVII as set forth in Section 32 of this Amendment) in its entirety and insert the following new Section 20.08 in lieu thereof:

“Receipt and Release for Payments. Any payment to any Participant, his or her legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of this Plan and Trust, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, any of whom may require such Participant, legal representative, Beneficiary, guardian, custodian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer.”

35. The following new section 20.10 (as in effect before the deletion of Article XVII as set forth in Section 32 of this Amendment) shall be added to Article XX:

“Plan Interpretation. If, due to errors in drafting, any Plan provision does not accurately reflect its intended meaning, as demonstrated by consistent interpretations or other evidence of intent, or as determined by the Plan Administrator in its sole and exclusive judgment, the provision shall be considered ambiguous and shall be interpreted by all Plan fiduciaries in a fashion consistent with its intent, as determined by the Employer in its sole discretion. The Employer shall amend the Plan retroactively to cure any such ambiguity. This section may not be invoked by any person to require the Plan to be interpreted in a manner that is inconsistent with its interpretation by Plan fiduciaries.”

36. The Plan is amended by the addition of the following Appendix B at the end of the Plan:

“Appendix B

Special provisions applicable to Employees formerly employed by (i) Campania Holding Company, Inc. or its direct or indirect subsidiaries (“Campania”); (ii) Benchmark Professional Insurance Services, Inc. or its direct or indirect subsidiaries (“Benchmark”); or (iii) Insurance Company of the West or its direct or indirect subsidiaries (“ICW”).

Notwithstanding anything elsewhere in the Plan to the contrary, the following special rules shall apply to each person who became employed by the Employer:

• On or about January 15, 2010, in connection with the transactions contemplated by the Stock Purchase Agreement by and among The Hanover Insurance Group, Inc., Richard J. O’Gorman, Katherine Dimitrakopoulos and Benchmark Professional Insurance Services, Inc. dated January 15, 2010, and who was employed by Benchmark immediately before being employed by the Employer;

• On about March 31, 2010, in connection with the transactions contemplated by the Stock Purchase Agreement by and among The Hanover Insurance Group, Inc., Iona LLC, Campania Holding Company, Inc. and the Principal Members of Iona, LLC, dated January 15, 2010, and who was employed by Campania immediately before being employed by the Employer; or

• On or after July 8, 2010, in connection with the transactions contemplated by Surety Business Transition Agreement by and among Insurance Company of the West, certain of its insurance company subsidiaries and The Hanover Insurance Company dated July 8, 2010, and who was employed by ICW immediately before being employed by the Employer.

1. For the purposes of vesting, each such person shall be given a past service credit under the Plan for his or her period of employment with, as applicable, Campania, Benchmark or ICW, that immediately preceded his or her employment with the Employer, from his or her most recent date of hire as shown on records furnished to the Employer to and including the date on which such person became employed by the Employer to the same extent as though such period were a period of employment with the Employer.

2. Any compensation paid to any such person by, as applicable, Campania, Benchmark or ICW prior to the date on which such person became employed by the Employer shall NOT be taken into account for the purposes of this Plan.

This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment and, except as hereby amended; the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, this Eleventh Amendment has been executed this 13th day of October, 2010.

THE HANOVER INSURANCE COMPANY
By:	/s/ Lorna Stearns
	Lorna D. Stearns, Vice President

EX-31.1

Exhibit 31.1

CERTIFICATION AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Frederick H. Eppinger, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Hanover Insurance Group, Inc.;

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 registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) 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 registrant 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(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 registrant’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 registrant’s internal control over financial reporting.

Date: November 4, 2010

/s/ Frederick H. Eppinger, Jr.

Frederick H. Eppinger, Jr.

President, Chief Executive Officer
and Director

EX-31.2

Exhibit 31.2

CERTIFICATION AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Steven J. Bensinger, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Hanover Insurance Group, Inc.;

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 registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) 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 registrant 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(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 registrant’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 registrant’s internal control over financial reporting.

Date: November 4, 2010

/s/ Steven J. Bensinger

Steven J. Bensinger

Executive Vice President
and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as President, Chief Executive Officer and Director of The Hanover Insurance Group, Inc. (the “Company”), does hereby certify that to the undersigned’s knowledge:

1) the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) the information contained in the Company’s Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Frederick H. Eppinger, Jr.

Frederick H. Eppinger, Jr.

President, Chief Executive Officer
and Director

Dated: November 4, 2010

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Executive Vice President and Chief Financial Officer of The Hanover Insurance Group, Inc. (the “Company”), does hereby certify that to the undersigned’s knowledge:

1) the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) the information contained in the Company’s Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Steven J. Bensinger

Steven J. Bensinger

Executive Vice President
and Chief Financial Officer

Dated: November 4, 2010