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 June 30, 2012

¨ 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.    Yes  x    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 44,820,118 as of July 31, 2012.

TABLE OF CONTENTS

PART I.    FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Shareholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Interim Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	59
PART II.    OTHER INFORMATION
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 6.	Exhibits	63
SIGNATURES		64

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended June 30,					Six Months Ended June 30,
(in millions, except per share data)	2012		2011			2012		2011
REVENUES
Premiums	$	1,050.0	$	770.5	$		2,085.6	$	1,532.2
Net investment income		68.5		61.0			137.3		121.4
Net realized investment gains (losses):
Net realized gains (losses) from sales and other		(1.8)		14.2			3.2		18.9
Net other–than–temporary impairment losses on investments recognized in earnings		(1.6)		(0.8)			(3.5)		(2.2)
Total net realized investment gains (losses)		(3.4)		13.4			(0.3)		16.7
Fees and other income		12.1		9.0			26.4		17.4
Total revenues		1,127.2		853.9			2,249.0		1,687.7
LOSSES AND EXPENSES
Losses and loss adjustment expenses		732.1		617.5			1,393.5		1,128.5
Policy acquisition expenses		233.1		162.7			461.2		325.2
Interest expense		15.9		10.8			32.1		21.2
Other operating expenses		135.0		123.1			280.3		235.5
Total losses and expenses		1,116.1		914.1			2,167.1		1,710.4
Income (loss) before income taxes		11.1		(60.2)			81.9		(22.7)
Income tax expense (benefit):
Current		(10.9)		(26.4)			28.1		(22.3)
Deferred		12.2		(1.0)			(6.7)		4.5
Total income tax expense (benefit)		1.3		(27.4)			21.4		(17.8)
Income (loss) from continuing operations		9.8		(32.8)			60.5		(4.9)
Gain from sale of Citizens Management, Inc		10.9		-			10.9		-
Net gain from other discontinued operations (net of income tax benefit (expense)) of $0.3 and $(0.4) for the three months ended June 30, 2012 and June 30, 2011 and $0.4 and $(0.1) for the six months ended June 30, 2012 and June 30, 2011)		0.1		0.6			(0.9)		2.0
Net income (loss)	$	20.8	$	(32.2)	$		70.5	$	(2.9)
PER SHARE DATA
Basic
Income (loss) from continuing operations	$	0.22	$	(0.72)	$		1.35	$	(0.11)
Gain from sale of Citizens Management, Inc		0.24		-			0.24		-
Net gain from other discontinued operations		-		0.01			(0.02)		0.05
Net income (loss) per share	$	0.46	$	(0.71)	$		1.57	$	(0.06)
Weighted average shares outstanding		44.9		45.4			44.9		45.4
Diluted
Income (loss) from continuing operations	$	0.22	$	(0.72)	$		1.33	$	(0.11)
Gain from sale of Citizens Management, Inc		0.24		-			0.24		-
Net gain from other discontinued operations		-		0.01			(0.02)		0.05
Net income (loss) per share	$	0.46	$	(0.71)	$		1.55	$	(0.06)
Weighted average shares outstanding		45.4		45.4			45.4		45.4

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

2

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended June 30,							Six Months Ended June 30,
(in millions)		2012			2011			2012			2011
Net income (loss)	$		20.8	$		(32.2)	$		70.5	$		(2.9)
Other comprehensive income:
Available-for-sale securities and derivative instruments:
Net appreciation during the period			26.6			35.4			90.2			35.6
Portion of other-than-temporary impairment losses transferred from other comprehensive income			2.7			2.1			7.3			5.4
Benefit (provision) for deferred income taxes			15.6			(1.6)			(8.7)			1.5
Total available-for-sale securities and derivative instruments			44.9			35.9			88.8			42.5
Pension and postretirement benefits:
Amortization recognized as net periodic benefit costs:
Net actuarial loss			3.3			3.8			6.5			7.7
Prior service cost			(1.0)			(1.3)			(1.9)			(2.6)
Total amortization recognized as net periodic benefit costs			2.3			2.5			4.6			5.1
Provision for deferred income taxes			(0.8)			(0.9)			(1.6)			(1.8)
Total pension and postretirement benefits			1.5			1.6			3.0			3.3
Cumulative foreign currency translation adjustment:
Amount recognized as cumulative foreign currency translation during the period			(12.9)			-			1.4			-
Benefit (provision) for deferred income taxes			4.5			-			(0.5)			-
Total cumulative foreign currency translation adjustment			(8.4)			-			0.9			-
Other comprehensive income			38.0			37.5			92.7			45.8
Comprehensive income	$		58.8	$		5.3	$		163.2	$		42.9

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

3

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except per share data)	June 30, 2012				December 31, 2011
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $6,183.3 and $6,008.7)		$	6,534.8	$		6,284.7
Equity securities, at fair value (cost of $342.8 and $239.9)			367.5			246.4
Other investments			229.1			190.2
Total investments			7,131.4			6,721.3
Cash and cash equivalents			520.8			820.4
Accrued investment income			71.2			71.8
Premiums and accounts receivable, net			1,372.9			1,168.1
Reinsurance recoverable on paid and unpaid losses and unearned premiums			2,434.2			2,262.2
Deferred policy acquisition costs			495.9			458.6
Deferred income taxes			271.6			274.0
Goodwill			184.6			185.5
Other assets			513.9			515.5
Assets of discontinued operations			122.2			121.2
Total assets		$	13,118.7	$		12,598.6
LIABILITIES
Loss and loss adjustment expense reserves		$	5,853.4	$		5,760.3
Unearned premiums			2,529.2			2,292.1
Expenses and taxes payable			580.4			642.9
Reinsurance premiums payable			492.3			378.9
Debt			917.4			911.1
Liabilities of discontinued operations			128.5			129.3
Total liabilities			10,501.2			10,114.6
Commitments and contingencies
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			1,782.2			1,784.8
Accumulated other comprehensive income			303.1			210.4
Retained earnings			1,255.4			1,211.3
Treasury stock, at cost (16.0 and 15.9 million shares)			(723.8)			(723.1)
Total shareholders’ equity			2,617.5			2,484.0
Total liabilities and shareholders’ equity		$	13,118.7	$		12,598.6

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

4

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

		Six Months Ended June 30,
(in millions)		2012		2011
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			1,784.8		1,796.5
Employee and director stock-based awards and other			(2.6)		(14.0)
Balance at end of period			1,782.2		1,782.5
ACCUMULATED OTHER COMPREHENSIVE INCOME
NET UNREALIZED APPRECIATION ON INVESTMENTS AND DERIVATIVE INSTRUMENTS:
Balance at beginning of period			308.7		218.3
Net appreciation during the period:
Net appreciation on available-for-sale securities and derivative instruments			97.5		41.0
Benefit (provision) for deferred income taxes			(8.7)		1.5
			88.8		42.5
Balance at end of period			397.5		260.8
DEFINED BENEFIT PENSION AND POSTRETIREMENT PLANS:
Balance at beginning of period			(86.8)		(81.6)
Amount recognized as net periodic benefit cost during the period			4.6		5.1
Provision for deferred income taxes			(1.6)		(1.8)
			3.0		3.3
Balance at end of period			(83.8)		(78.3)
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT:
Balance at beginning of period			(11.5)		-
Amount recognized as cumulative foreign currency translation during the period			1.4		-
Provision for deferred income taxes			(0.5)		-
			0.9		-
Balance at end of period			(10.6)		-
Total accumulated other comprehensive income			303.1		182.5
RETAINED EARNINGS
Balance at beginning of period			1,211.3		1,246.8
Cumulative effect of accounting change, net of taxes			-		(23.1)
Balance at beginning of period, as adjusted			1,211.3		1,223.7
Net income (loss)			70.5		(2.9)
Dividends to shareholders			(27.0)		(25.0)
Treasury stock issued for less than cost			(3.8)		(5.9)
Recognition of employee stock-based compensation			4.4		9.5
Balance at end of period			1,255.4		1,199.4
TREASURY STOCK
Balance at beginning of period			(723.1)		(720.1)
Shares purchased at cost			(10.0)		-
Net shares reissued at cost under employee stock-based compensation plans			9.3		16.6
Balance at end of period			(723.8)		(703.5)
Total shareholders’ equity	$		2,617.5	$	2,461.5

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

5

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		Six Months Ended June 30,
(in millions)	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$		70.5	$	(2.9)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net loss from retirement of debt			-		2.2
Net realized investment gains (losses)			1.2		(16.4)
Net amortization and depreciation			17.6		7.6
Gain on sale of Citizens Management, Inc.			(10.9)		-
Stock-based compensation expense			6.3		7.3
Amortization of deferred benefit plan costs			4.6		5.1
Deferred income taxes			(7.1)		4.8
Change in deferred acquisition costs			(37.3)		(3.0)
Change in premiums receivable, net of reinsurance premiums payable			(91.3)		9.8
Change in loss, loss adjustment expense and unearned premium reserves			330.9		157.4
Change in reinsurance recoverable			(170.5)		(24.2)
Change in expenses and taxes payable			(45.9)		(11.5)
Other, net			(8.8)		(33.5)
Net cash provided by operating activities			59.3		102.7
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities of fixed maturities			976.1		715.6
Proceeds from disposals of equity securities and other investments			7.0		2.9
Purchases of fixed maturities			(1,154.4)		(546.9)
Purchases of equity securities and other investments			(148.8)		(34.5)
Proceeds from disposal of Citizens Management, Inc., net of cash transferred			5.2		-
Capital expenditures			(6.7)		(4.5)
Net payments related to derivative agreements			(4.4)		(1.9)
Net cash provided by (used in) investing activities			(326.0)		130.7
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of employee stock options			1.3		3.9
Proceeds from debt borrowings			7.4		304.9
Change in collateral related to securities lending program			(11.6)		(30.5)
Dividends paid to shareholders			(27.0)		(25.0)
Repurchases of debt			(0.8)		(57.2)
Repurchases of common stock			(10.0)		-
Other financing activities			(0.3)		(0.6)
Net cash provided by (used in) financing activities			(41.0)		195.5
Effect of exchange rate changes on cash			8.0		-
Net change in cash and cash equivalents			(299.7)		428.9
Net change in cash related to discontinued operations			0.1		2.3
Cash and cash equivalents, beginning of period			820.4		290.4
Cash and cash equivalents, end of period	$		520.8	$	721.6

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

6

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements of The Hanover Insurance Group, Inc. and subsidiaries (“THG” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the requirements of Form 10-Q. Certain financial information that is provided in annual financial statements, but is not required in interim reports, has been omitted.

The interim consolidated financial statements of THG include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America, THG’s principal U.S. domiciled property and casualty companies; Chaucer Holdings plc (“Chaucer”), a specialist underwriting group which operates through the Society and Corporation of Lloyd’s (“Lloyd’s”) and certain other insurance and non-insurance subsidiaries. These legal entities conduct their operations through several business segments discussed in Note 9 – “Segment Information”. The acquisition of Chaucer on July 1, 2011, which has added meaningful business volumes to THG results, has affected the comparability of the interim consolidated financial statements and related footnotes. Results of operations for the three and six months ended June 30, 2012 include results from all of the Company’s business segments. Results of operations for the comparable periods in 2011 do not include any results of Chaucer. Additionally, the interim consolidated financial statements include the Company’s discontinued operations, consisting primarily of the Company’s former life insurance businesses, its accident and health business and its third party administrator. All intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with U.S. GAAP 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.

In the opinion of the Company's management, the accompanying interim consolidated financial statements reflect all adjustments, consisting of normal recurring items, necessary for a fair presentation of the financial position and results of operations. The results of operations for the three and six months ended June 30, 2012 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 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 29, 2012.

2. New Accounting Pronouncements

Recently Implemented Standards

In September 2011, the Financial Accounting Standards Board (“FASB”) issued ASC Update No. 2011-08 (Topic 350) Testing Goodwill for Impairment. This ASC update allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The update provides that an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on its qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The update further improves previous guidance by expanding upon the examples of events and circumstances that an entity should consider in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the update improves the examples of events and circumstances that should be considered by an entity that has a reporting unit with a zero or negative carrying amount in determining whether to measure an impairment loss, if any, under the second step of the goodwill impairment test. This ASC update is effective for annual and interim periods beginning after December 15, 2011, with early adoption permitted. The Company implemented this guidance effective January 1, 2012. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

In June 2011, the FASB issued ASC Update No. 2011-05 (Topic 220) Presentation of Comprehensive Income (“ASC Update No. 2011-05”). This ASC update requires companies to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity is eliminated. In addition, an entity is required to present on the face of the financial statements reclassification adjustments from other comprehensive income to net income. This ASC update should be applied retrospectively and except for the provisions related to reclassification adjustment, is effective for interim and annual periods beginning after December 15, 2011. In December 2011, the FASB issued ASC Update 2011-12 (Topic 220) Comprehensive Income which deferred the implementation date of the reclassification adjustment guidance in ASC Update No. 2011-05. The Company implemented the guidance related to financial statements presentation effective January 1, 2012. The effect of implementing the guidance related to financial statements presentation did not have a significant impact to the Company’s financial statement presentation.

7

In May 2011, the FASB issued ASC Update No. 2011-04 (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASC update results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value for both U.S. GAAP and International Financial Reporting Standards (“IFRS”). The new guidance includes changes to how and when the valuation premise of highest and best use applies, clarification on the application of blockage factors and other premiums and discounts, as well as new and revised disclosure requirements. This ASC update is effective for interim and annual periods beginning after December 15, 2011. The Company implemented this guidance as of January 1, 2012. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

In October 2010, the FASB issued ASC Update No. 2010-26 (Topic 944), Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (a consensus of the FASB Emerging Issues Task Force). This ASC 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 industry practice historically included costs relating to unsuccessful contract acquisition. This ASC is effective for fiscal years beginning after December 15, 2011. Retrospective application to all prior periods upon the date of adoption is permitted. The Company implemented this guidance effective January 1, 2012 and has elected to apply this guidance retrospectively. Retrospective application requires the new accounting principle to be reflected in the earliest period presented as if the accounting principle had always been used. The Company has reflected the impact of the retrospective application as a cumulative effect of a change in accounting principle through equity at the beginning of the earliest reporting period presented within this Form 10 – Q and will reflect this application in all future filings with the SEC. The implementation of this ASC resulted in an after-tax reduction to our stockholders’ equity as of January 1, 2012 of $25.8 million, or 1%. The effect of implementing this guidance was not material to our results of operations on either a historical or prospective basis.

Recently Issued Standards

In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASC Update No. 2012-02 (Topic 350) Testing Indefinite – Lived Intangible Assets for Impairment. This ASC update allows an entity to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite – lived intangible asset is impaired. This assessment should be used as a basis for determining whether it is necessary to perform the quantitative impairment test. An entity would not be required to calculate the fair value of the intangible asset and perform the quantitative test unless the entity determines, based upon its qualitative assessment, that it is more likely than not that its fair value is less than its carrying value. The update further improves previous guidance by expanding upon the examples of events and circumstances that an entity should consider in determining whether it is more likely than not that the fair value of an indefinite – lived intangible asset is less than its carrying amount. The update also allows an entity the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. This ASC update is effective for annual and interim periods beginning after September 15, 2012, with early adoption permitted. The Company does not expect the adoption of ASC Update 2012-02 to have a material impact on its financial position or results of operations.

8

3. Acquisitions and Discontinued Operations

ACQUISITIONS

Chaucer Acquisition

On July 1, 2011, the Company acquired Chaucer, a United Kingdom (“U.K.”) insurance business. Chaucer is a leading specialist managing agency at Lloyd’s. Chaucer underwrites business in several lines of business, including property, marine and aviation, energy, U.K. motor and casualty and other coverages (which include international liability, specialist coverages, and syndicate participations). Chaucer is headquartered in London, with a regional presence in Whitstable, England and locations in Houston, Singapore, Buenos Aires, and Copenhagen.

This transaction is expected to advance the Company’s specialty lines strategy and result in broader product and underwriting capabilities, as well as greater geographic and product diversification. The acquisition adds a presence in the Lloyd’s market, which includes access to international licenses, an excess and surplus insurance business and the ability to syndicate certain risks.

Pro Forma Results

The following unaudited pro forma information presents the combined revenues, net income and net income per share of THG and Chaucer for the three and six months ended June 30, 2011, with pro forma purchase accounting adjustments as if the acquisition had been consummated as of January 1, 2011. This pro forma information is not necessarily indicative of what would have occurred had the acquisition and related transactions been made on January 1, 2011, or of future results of the Company. The Company’s income statement accounts denominated in foreign currencies are translated to U.S. dollars at the average rates of exchange for the period indicated.

	Three Months Ended June 30,		Six Months Ended June 30,
(in millions, except per share data)	2011		2011
Revenue	$	1,052.0	$	2,119.5
Net income (loss)	$	(26.4)	$	(51.9)
Net income (loss) per share – basic	$	(0.58)	$	(1.14)
Net income (loss) per share - diluted	$	(0.58)	$	(1.14)
Weighted average shares outstanding - basic		45.4		45.4
Weighted average shares outstanding - diluted		45.4		45.4

Other

The Company recognized approximately $0.7 and $4.0 million in net foreign currency transaction gains in the Statement of Income during the three and six months ended June 30, 2012.

DISCONTINUED OPERATIONS

Discontinued Third Party Administration Business

On April 30, 2012, the Company completed the sale of its third party administration subsidiary, Citizens Management, Inc. This transaction resulted in a gain of $10.9 million after taxes.

9

4. Income Taxes

Income tax expense for the six months ended June 30, 2012 and 2011 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.

For the six months ended June 30, 2012, the tax provision is comprised of a $4.0 million U.S. federal income tax expense and $17.4 million foreign income tax expense. For the six months ended June 30, 2011, the tax provision was comprised of a $17.8 million U.S. federal income tax benefit.

Certain of the Company’s non-U.S. income is not subject to U.S. tax until repatriated. Foreign taxes on this non – U.S. income are accrued at the local foreign tax rate. This assumption could change, as a result of a sale of the subsidiaries, the receipt of dividends from the subsidiaries, a change in management’s intentions, or as a result of various other events. For the six months ended June 30, 2012, all of the Company’s non – US income is subject to U.S. tax.

The Company or its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions, as well as foreign 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 2007. The IRS audits of the years 2009 and 2010 commenced in June 2012. The Company and its subsidiaries are still subject to U.S. state income tax examinations by tax authorities for years after 2001 and foreign examinations for years after 2008.

10

5. Pension and Other Postretirement Benefit Plans

The components of net periodic pension cost for defined benefit pension and other postretirement benefit plans included in the Company’s results of operations are as follows:

		Three Months Ended June 30,
(in millions)		2012			2011			2012			2011
		Pension Plans						Postretirement Plans
Service cost – benefits earned during the period	$		0.4	$		-	$		0.1	$	-
Interest cost			8.8			7.9			0.5		0.6
Expected return on plan assets			(9.7)			(8.6)			-		-
Recognized net actuarial loss			3.2			3.7			0.1		0.1
Amortization of prior service cost			-			-			(1.0)		(1.3)
Net periodic cost (benefit)	$		2.7	$		3.0	$		(0.3)	$	(0.6)
		Six Months Ended June 30,
(in millions)		2012			2011			2012			2011
		Pension Plans						Postretirement Plans
Service cost – benefits earned during the period	$		0.8	$		-	$		0.1	$	-
Interest cost			17.6			15.8			1.0		1.2
Expected return on plan assets			(19.4)			(17.1)			-		-
Recognized net actuarial loss			6.4			7.5			0.1		0.2
Amortization of prior service cost			-			-			(1.9)		(2.6)
Net periodic cost (benefit)	$		5.4	$		6.2	$		(0.7)	$	(1.2)

11

6. Investments

A. Fixed maturities and equity securities

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

	June 30, 2012
(in millions)	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI Unrealized Losses
Fixed maturities:
U.S. Treasury and government agencies	$	190.5	$	8.5	$	0.2	$	198.8	$	-
Foreign government		302.7		1.9		0.1		304.5		-
Municipal		949.6		83.4		2.7		1,030.3		-
Corporate		3,371.6		230.1		21.7		3,580.0		10.4
Residential mortgage-backed		805.3		41.6		7.8		839.1		5.5
Commercial mortgage-backed		343.9		15.3		0.3		358.9		-
Asset-backed		219.7		4.3		0.8		223.2		-
Total fixed maturities	$	6,183.3	$	385.1	$	33.6	$	6,534.8	$	15.9
Equity securities	$	342.8	$	30.7	$	6.0	$	367.5	$	-
	December 31, 2011
	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI Unrealized Losses
Fixed maturities:
U.S. Treasury and government agencies	$	261.7	$	7.8	$	0.2	$	269.3	$	-
Foreign government		239.1		0.4		0.5		239.0		-
Municipal		964.5		67.4		3.9		1,028.0		-
Corporate		3,218.2		197.7		40.3		3,375.6		13.8
Residential mortgage-backed		816.1		40.9		8.4		848.6		6.1
Commercial mortgage-backed		367.6		12.5		1.0		379.1		-
Asset-backed		141.5		4.3		0.7		145.1		-
Total fixed maturities	$	6,008.7	$	331.0	$	55.0	$	6,284.7	$	19.9
Equity securities	$	239.9	$	15.3	$	8.8	$	246.4	$	-

Other-than-temporary impairments (“OTTI”) unrealized losses in the tables above represent OTTI recognized in accumulated other comprehensive income. This amount excludes net unrealized gains on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date of $23.9 million and $25.1 million as of June 30, 2012 and December 31, 2011, respectively.

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.

(in millions)	June 30, 2012
	Amortized Cost		Fair Value
Due in one year or less	$	438.7	$	443.5
Due after one year through five years		2,104.3		2,200.5
Due after five years through ten years		1,620.2		1,763.6
Due after ten years		651.2		706.0
		4,814.4		5,113.6
Mortgage-backed and asset-backed securities		1,368.9		1,421.2
Total fixed maturities	$	6,183.3	$	6,534.8

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B. Securities in an unrealized loss position

The following tables provide information about the Company’s fixed maturities and equity securities that were in an unrealized loss position at June 30, 2012 and December 31, 2011.

	June 30, 2012
	12 months or less				Greater than 12 months				Total
(in millions)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Fixed maturities:
Investment grade:
U.S. Treasury and government agencies	$	-	$	0.7	$	0.2	$	8.8	$	0.2	$	9.5
Foreign governments		0.1		25.0		-		-		0.1		25.0
Municipal		0.5		33.5		2.2		33.8		2.7		67.3
Corporate		3.2		323.0		8.3		62.3		11.5		385.3
Residential mortgage-backed		1.2		58.1		5.9		21.3		7.1		79.4
Commercial mortgage-backed		-		27.3		0.3		4.8		0.3		32.1
Asset-backed		0.1		30.2		-		-		0.1		30.2
Total investment grade		5.1		497.8		16.9		131.0		22.0		628.8
Below investment grade:
Municipal		-		-		-		2.0		-		2.0
Corporate		4.0		35.2		6.2		59.2		10.2		94.4
Residential mortgage-backed		0.7		9.2		-		-		0.7		9.2
Asset-backed		0.7		0.9		-		-		0.7		0.9
Total below investment grade		5.4		45.3		6.2		61.2		11.6		106.5
Total fixed maturities		10.5		543.1		23.1		192.2		33.6		735.3
Equity securities		4.9		76.9		1.1		7.9		6.0		84.8
Total	$	15.4	$	620.0	$	24.2	$	200.1	$	39.6	$	820.1
	December 31, 2011
	12 months or less				Greater than 12 months				Total
(in millions)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Fixed maturities:
Investment grade:
U.S. Treasury and government agencies	$	0.2	$	57.7	$	-	$	-	$	0.2	$	57.7
Foreign governments		0.5		148.8		-		-		0.5		148.8
Municipal		0.5		28.0		3.4		58.8		3.9		86.8
Corporate		19.9		699.6		8.2		35.6		28.1		735.2
Residential mortgage-backed		5.1		115.8		2.4		9.9		7.5		125.7
Commercial mortgage-backed		0.7		58.0		0.3		4.6		1.0		62.6
Asset-backed		0.2		67.6		-		-		0.2		67.6
Total investment grade		27.1		1,175.5		14.3		108.9		41.4		1,284.4
Below investment grade:
Corporate		8.5		118.0		3.7		14.7		12.2		132.7
Residential mortgage-backed		0.9		8.0		-		-		0.9		8.0
Asset-backed		0.5		0.9		-		-		0.5		0.9
Total below investment grade		9.9		126.9		3.7		14.7		13.6		141.6
Total fixed maturities		37.0		1,302.4		18.0		123.6		55.0		1,426.0
Equity securities		8.8		87.2		-		-		8.8		87.2
Total	$	45.8	$	1,389.6	$	18.0	$	123.6	$	63.8	$	1,513.2

13

The Company views the gross unrealized losses on fixed maturities and equity securities as being temporary since it is its assessment that these securities will recover in the near term, allowing the Company to realize the anticipated long-term economic value. The Company employs a systematic methodology to evaluate declines in fair value below amortized cost for fixed maturity securities or cost for equity securities. In determining OTTI of fixed maturity and equity securities, 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; the general outlook for market conditions in the industry or geographic region in which the issuer operates; and 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, the Company considers 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. With respect to equity securities, the Company considers its 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.

C. Proceeds from sales

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

		Three Months Ended June 30,
		2012								2011
(in millions)		Proceeds from Sales			Gross Gains			Gross Losses		Proceeds from Sales			Gross Gains			Gross Losses
Fixed maturities	$		128.8	$		1.9	$		0.5	$	297.3	$		11.7	$		0.2
Equity securities			2.8			0.5			-		1.8			0.4			-
		Six Months Ended June 30,
		2012								2011
(in millions)		Proceeds from Sales			Gross Gains			Gross Losses		Proceeds from Sales			Gross Gains			Gross Losses
Fixed maturities	$		408.0	$		6.6	$		1.6	$	403.8	$		15.9	$		1.0
Equity securities			3.5			0.5			0.2		1.8			0.4			-

D. Other Investments

The Company held overseas deposits of $153.6 million and $135.1 million at June 30, 2012 and December 31, 2011, respectively, which are investments held in overseas funds and managed exclusively by Lloyd’s. These investments are reflected in other investments in the Consolidated Balance Sheets.

E. Other-than-temporary impairments

For the three months ended June 30, 2012, total OTTI of fixed maturities and equity securities were $2.2 million, of which $1.6 million was recognized in earnings and the remaining $0.6 million was recorded as unrealized losses in accumulated other comprehensive income. For the first six months of 2012, total OTTI of fixed maturities and equity securities were $3.8 million, of which $3.5 million was recognized in earnings and the remaining $0.3 million was recorded as unrealized losses in accumulated other comprehensive income.

For the three months ended June 30, 2011, total OTTI of fixed maturities were $0.5 million. Of this amount, $0.8 million was recognized in earnings, including $0.3 million that was transferred from unrealized losses in accumulated other comprehensive income. For the first six months of 2011, total OTTI of fixed maturities and equity securities were $1.7 million. Of this amount, $2.2 million was recognized in earnings, including $0.5 million that was transferred from unrealized losses in accumulated other comprehensive income.

The methodology and significant inputs used to measure the amount of credit losses on fixed maturities in 2012 and 2011 were 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.

14

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

(in millions)	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Credit losses as of the beginning of the period	$	13.5	$	16.3	$	14.5	$	16.7
Credit losses for which an OTTI was not previously recognized		0.3		-		0.4		-
Additional credit losses on securities for which an OTTI was previously recognized		0.3		-		0.6		0.2
Reduction for securities sold, matured or called during the period		(0.3)		(0.7)		(1.7)		(1.3)
Reduction for securities reclassified as intend to sell		-		(0.8)		-		(0.8)
Credit losses as of the end of the period	$	13.8	$	14.8	$	13.8	$	14.8

F. Restricted assets

In accordance with Lloyd’s operating guidelines, the Company deposits funds at Lloyd’s to support underwriting operations. These funds are available only to fund claim obligations. These restricted assets consisted of approximately $404 million of fixed maturities and $125 million of cash and cash equivalents as of June 30, 2012. The Company also deposits funds with various state and governmental authorities in the U.S. For a discussion of the Company’s deposits with state and governmental authorities, see also Note 3 – “Investments” of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011.

15

7. Fair Value

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. The Company emphasizes the use of observable market data whenever available in determining fair value. 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. A hierarchy of the three broad levels of fair value 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 – Unadjusted 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 since last year.

Cash and Cash Equivalents

The carrying amount approximates fair value. Cash equivalents consist of money market instruments, which are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1.

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 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 such as maturity date, coupon, mandatory principal payment dates, frequency of interest and principal payments, and optional redemption features. Inputs into the fair value applications that are unique by asset class include, but are not limited to:

— U.S. government agencies – determination of direct versus indirect government support and whether any contingencies exist with respect to the timely payment of principal and interest.

— Foreign government – estimates of appropriate market spread versus underlying related sovereign treasury curve(s) dependent on liquidity and direct or contingent support.

— Municipals – 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; restrictive covenants; and security or collateral.

— Residential mortgage-backed securities – 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, in the case of non-agency collateralized mortgage obligations, severity of loss upon default and length of time to recover proceeds following default.

16

• 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.

• Asset-backed securities – overall credit quality, including assessments of the underlying collateral type such as credit card receivables, auto loan receivables, equipment lease receivables and real property lease receivables; geographic diversification; vintage year; historical collateral performance including delinquency, default and casualty trends; economic conditions influencing use rates and resale values; and contract structural 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 utilizing the market approach or broker quotes. 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.

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 2 also includes fair values obtained from net asset values provided by mutual fund investment managers, upon which subscriptions and redemptions can be executed. Level 3 consists of common or preferred 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. The Company holds certain equity securities that have been issued by privately-held entities that do not have an active market and for which the pricing service cannot provide fair values. Generally, the Company estimates fair value for these securities based on the issuer’s book value and market multiples. These securities are reported as Level 3 as market multiples represent significant unobservable inputs.

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 and are reported as Level 2.

Other Investments

Fair values of overseas trust funds are provided by the investment manager based on quoted prices for similar instruments in active markets and are reported as Level 2.

17

Debt

The fair value of debt was 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. Debt is reported as Level 2.

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

(in millions)	June 30, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets
Cash and cash equivalents	$	520.8	$	520.8	$	820.4	$	820.4
Fixed maturities		6,534.8		6,534.8		6,284.7		6,284.7
Equity securities		367.5		367.5		246.4		246.4
Mortgage loans		4.3		4.6		4.7		5.0
Other investments		154.5		154.5		135.1		135.1
Total financial assets	$	7,581.9	$	7,582.2	$	7,491.3	$	7,491.6
Financial Liabilities
Debt	$	917.4	$	1,032.0	$	911.1	$	1,014.9

The Company has processes designed to ensure that the values received from its third party pricing service are accurately recorded, that the data inputs and valuation techniques utilized are appropriate and consistently applied and that the assumptions are reasonable and consistent with the objective of determining fair value. The Company performs a review of the fair value hierarchy classifications and of prices received from its pricing service on a quarterly basis. The Company reviews the pricing services’ policies describing its methodology, 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, if available. 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 2012 and 2011, 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 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 following tables provide, for each hierarchy level, the Company’s assets at June 30, 2012 and December 31, 2011 that are measured at fair value on a recurring basis.

	June 30, 2012
(in millions)	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	198.8	$	73.5	$	125.3	$	-
Foreign governments		304.5		68.8		235.7		-
Municipal		1,030.3		-		1,013.4		16.9
Corporate		3,580.0		-		3,552.6		27.4
Residential mortgage-backed, U.S. agency backed		648.0		-		648.0		-
Residential mortgage-backed, non-agency		191.1		-		190.5		0.6
Commercial mortgage-backed		358.9		-		354.6		4.3
Asset-backed		223.2		-		199.0		24.2
Total fixed maturities		6,534.8		142.3		6,319.1		73.4
Equity securities		357.8		281.9		50.3		25.6
Other investments		153.6		-		153.6		-
Total investment assets at fair value	$	7,046.2	$	424.2	$	6,523.0	$	99.0

18

	December 31, 2011
	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	269.3	$	147.3	$	122.0	$	-
Foreign governments		239.0		-		239.0		-
Municipal		1,028.0		-		1,014.4		13.6
Corporate		3,375.6		-		3,351.8		23.8
Residential mortgage-backed, U.S. agency backed		663.3		-		663.3		-
Residential mortgage-backed, non-agency		185.3		-		180.1		5.2
Commercial mortgage-backed		379.1		-		374.4		4.7
Asset-backed		145.1		-		116.9		28.2
Total fixed maturities		6,284.7		147.3		6,061.9		75.5
Equity securities		237.0		177.4		36.2		23.4
Other investments		135.1		-		135.1		-
Total investment assets at fair value	$	6,656.8	$	324.7	$	6,233.2	$	98.9

The following table provides, for each hierarchy level, the Company’s estimated fair values of financial instruments that are not carried at fair value :

	June 30, 2012
(in millions)	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	520.8	$	520.8	$	-	$	-
Equity securities		9.7		-		9.7		-
Mortgage loans		4.6		-		4.6		-
Other investments		0.9		-		0.9		-
Liabilities:
Debt	$	1,032.0	$	-	$	1,032.0	$	-

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

	Fixed Maturities
(in millions)	Municipal		Corporate		Residential mortgage- backed, non- agency		Commercial mortgage- backed		Asset- backed		Total		Equities Securities		Total Assets
Three Months Ended June 30, 2012
Balance April 1, 2012	$	17.0	$	28.7	$	0.7	$	4.5	$	24.3	$	75.2	$	21.4	$	96.6
Transfers out of Level 3		-		(2.1)		-		-		(1.0)		(3.1)		-		(3.1)
Total gains (losses):
Included in earnings		-		0.2		-		-		0.1		0.3		-		0.3
Included in other comprehensive income - net appreciation (depreciation) on available for sale securities		0.1		(0.3)		-		-		0.3		0.1		4.2		4.3
Purchases and sales:
Purchases		-		1.5		-		-		1.0		2.5		-		2.5
Sales		(0.2)		(0.6)		(0.1)		(0.2)		(0.5)		(1.6)		-		(1.6)
Balance June 30, 2012	$	16.9	$	27.4	$	0.6	$	4.3	$	24.2	$	73.4	$	25.6	$	99.0
Three Months Ended June 30, 2011
Balance April 1, 2011	$	15.9	$	34.3	$	0.6	$	5.3	$	13.4	$	69.5	$	2.9	$	72.4
Transfers out of Level 3		-		(6.5)		-		-		-		(6.5)		-		(6.5)
Total gains:
Included in other comprehensive income - net appreciation on available for sale securities		0.5		0.2		-		-		0.3		1.0		-		1.0
Purchases and sales:
Purchases		-		8.9		-		-		-		8.9		-		8.9
Sales		(0.3)		(0.1)		(0.1)		(0.2)		(0.2)		(0.9)		-		(0.9)
Balance June 30, 2011	$	16.1	$	36.8	$	0.5	$	5.1	$	13.5	$	72.0	$	2.9	$	74.9

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	Fixed Maturities
(in millions)	Municipal		Corporate		Residential mortgage- backed, non- agency		Commercial mortgage- backed		Asset- backed		Total		Equities Securities		Total Assets
Six Months Ended June 30, 2012
Balance January 1, 2012	$	13.6	$	23.8	$	5.2	$	4.7	$	28.2	$	75.5	$	23.4	$	98.9
Transfers into Level 3		-		4.3		-		-		-		4.3		0.1		4.4
Transfers out of Level 3		-		(2.1)		-		-		(8.7)		(10.8)		-		(10.8)
Total gains (losses):
Included in earnings		-		0.3		-		-		-		0.3		(0.2)		0.1
Included in other comprehensive income-net appreciation (depreciation) on available for sale securities		0.7		0.5		0.1		-		(0.7)		0.6		3.0		3.6
Purchases and sales:
Purchases		3.0		1.5		-		-		6.2		10.7		-		10.7
Sales		(0.4)		(0.9)		(4.7)		(0.4)		(0.8)		(7.2)		(0.7)		(7.9)
Balance June 30, 2012	$	16.9	$	27.4	$	0.6	$	4.3	$	24.2	$	73.4	$	25.6	$	99.0
Six Months Ended June 30, 2011
Balance January 1, 2011	$	16.6	$	28.2	$	0.8	$	5.5	$	13.5	$	64.6	$	2.9	$	67.5
Transfers into Level 3		-		3.7		-		-		-		3.7		-		3.7
Transfer out of Level 3		-		(6.5)		-		-		-		(6.5)		-		(6.5)
Total gains (losses):
Included in earnings		-		-		-		-		-		-		(0.5)		(0.5)
Included in other comprehensive income-net appreciation on available for sale securities		0.1		0.3		-		-		0.3		0.7		0.5		1.2
Purchases and sales:
Purchases		-		11.8		-		-		-		11.8		-		11.8
Sales		(0.6)		(0.7)		(0.3)		(0.4)		(0.3)		(2.3)		-		(2.3)
Balance June 30, 2011	$	16.1	$	36.8	$	0.5	$	5.1	$	13.5	$	72.0	$	2.9	$	74.9

During the three and six months ended June 30, 2012 and 2011, 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 six months ended June 30, 2012 or 2011.

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The following table summarizes gains and losses due to changes in fair value that are recorded in net income for Level 3 assets. For the quarter ended June 30, 2011, there was no impact on income relating to Level 3 securities.

Three Months Ended June 30, 2012
(in millions)	Net realized investment gains
Level 3 Assets:
Fixed maturities:
Corporate	$	0.2
Asset-backed		0.1
Total fixed maturities	$	0.3

	Six Months Ended June 30,
	2012						2011
(in millions)	Other-than- temporary impairments		Net realized investment gains (losses)		Total		Other-than- temporary impairments
Level 3 Assets:
Fixed maturities:
Corporate	$	-	$	0.3	$	0.3	$	-
Asset-backed		(0.1)		0.1		-		-
Total fixed maturities		(0.1)		0.4		0.3		-
Equities		-		(0.2)		(0.2)		(0.5)
Total assets	$	(0.1)	$	0.2	$	0.1	$	(0.5)

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The following table provides quantitative information about the significant unobservable inputs used by the Company in the fair value measurements of Level 3 assets as of June 30, 2012. Where discounted cash flows are used, the internally-developed discount rate is adjusted by the significant unobservable inputs shown in the table. Valuations for assets based on broker quotes for which there is a lack of transparency as to inputs used to develop the valuations have been excluded.

	Fair Value (in millions)		Valuation Technique	Significant Unobservable Inputs	Range (Wtd Average)
Fixed maturities:
Municipal	$	16.9	Discounted cash flow	Discount for:   Small issue size   Long maturity   Above-market coupon	1.0-4.0% (3.1%) 0.5%(0.5%) 0.3-1.0% (0.5%)
Corporate		27.2	Discounted cash flow	Discount for:   Credit stress   Above-market coupon   Small issue size   Long maturity	2.5-3.0% (2.5%) 0.3-1.0% (0.7%) 0.3-3.0% (0.6%) 0.5%(0.5%)
Residential mortgage-backed, non-agency		0.6	Discounted cash flow	Discount for:   Small issue size	0.5%(0.5%)
Commercial mortgage-backed		4.3	Discounted cash flow	Discount for:   Credit stress   Small issue size   Above-market coupon   Lease structure	1.0%(1.0%) 0.5%(0.5%) 0.5%(0.5%) 0.3%(0.3%)
Asset-backed		24.2	Discounted cash flow	Discount for:   Long maturity   Small issue size   Above-market coupon   Lease structure	0.5-0.8% (0.7%) 0.3-2.0% (0.6%) 0.3-1.0% (0.4%) 0.3%(0.3%)
Equities		25.5	Market comparables	Net tangible asset market   multiples	1.0X (1.0X)

Significant increases (decreases) in any of the above inputs in isolation would result in a significantly lower (higher) fair value measurement. There are no interrelationships between these inputs which might magnify or mitigate the effect of changes in unobservable inputs on the fair value measurement.

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8. Other Comprehensive Income

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

	Three Months Ended June 30,
	2012						2011
(in millions)	Pre-Tax		Tax Benefit (Expense)		Net of Tax		Pre-Tax		Tax Benefit (Expense)		Net of Tax
Unrealized gains on available-for-sale securities:
Unrealized gains arising during period	$	29.9	$	17.5	$	47.4	$	52.8	$	(0.1)	$	52.7
Less: reclassification adjustments for gains realized in net income		0.7		1.9		2.6		13.4		2.2		15.6
Total available-for-sale securities		29.2		15.6		44.8		39.4		(2.3)		37.1
Unrealized gains (losses) on derivative instruments:
Unrealized gains (losses) arising during period		0.1		-		0.1		(1.9)		0.7		(1.2)
Other comprehensive income	$	29.3	$	15.6	$	44.9	$	37.5	$	(1.6)	$	35.9
	Six Months Ended June 30,
	2012						2011
(in millions)	Pre-Tax		Tax Benefit (Expense)		Net of Tax		Pre-Tax		Tax Benefit (Expense)		Net of Tax
Unrealized gains on available-for- sale securities:
Unrealized gains arising during period	$	100.4	$	(3.5)	$	96.9	$	59.2	$	5.1	$	64.3
Less: reclassification adjustments for gains realized in net income		3.0		5.2		8.2		16.3		4.3		20.6
Total available-for-sale securities		97.4		(8.7)		88.7		42.9		0.8		43.7
Unrealized gains (losses) on derivative instruments:
Unrealized gains (losses) arising during period		0.1		-		0.1		(1.9)		0.7		(1.2)
Other comprehensive income	$	97.5	$	(8.7)	$	88.8	$	41.0	$	1.5	$	42.5

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9. Segment Information

The Company’s primary business operations include insurance products and services provided through four operating segments. These operating segments are Commercial Lines, Personal Lines, Chaucer, and Other Property and Casualty. Commercial Lines includes commercial multiple peril, commercial automobile, workers’ compensation, and other commercial coverages, such as specialty program business, inland marine, surety and other bonds, professional liability and management liability. Personal Lines includes personal automobile, homeowners and other personal coverages. Chaucer includes property, marine and aviation, energy, U.K. motor, and casualty and other coverages (which includes international liability, specialist coverages, and syndicate participations). 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; and, a voluntary pools business which is in run-off. The separate financial information 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. This consists of interest expense on the Company’s senior debentures, junior debentures, subordinated notes, advances under the Company’s collateralized borrowing program with the Federal Home Loan Bank of Boston, letter of credit facility, and capital securities.

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

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Summarized below is financial information with respect to business segments:

		Three Months Ended June 30,					Six Months Ended June 30,
(in millions)		2012			2011			2012			2011
Segment revenues:
Commercial Lines	$		487.3	$		447.9	$		963.0	$		887.2
Personal Lines			388.8			388.2			777.2			774.9
Chaucer			251.8			-			503.5			-
Other Property and Casualty			4.2			5.6			8.7			11.4
Total			1,132.1			841.7			2,252.4			1,673.5
Intersegment revenues			(1.5)			(1.2)			(3.1)			(2.5)
Total segment revenues			1,130.6			840.5			2,249.3			1,671.0
Net realized investment gains			(3.4)			13.4			(0.3)			16.7
Total revenues	$		1,127.2	$		853.9	$		2,249.0	$		1,687.7
Segment income (loss) before income taxes:
Commercial Lines:
GAAP underwriting loss	$		(44.7)	$		(60.1)	$		(47.2)	$		(76.1)
Net investment income			35.0			34.0			70.7			67.6
Other income			0.3			0.8			1.0			1.4
Commercial Lines segment income (loss)			(9.4)			(25.3)			24.5			(7.1)
Personal Lines:
GAAP underwriting loss			(10.4)			(47.0)			(6.2)			(40.6)
Net investment income			21.3			23.1			42.9			45.8
Other income			1.4			1.1			3.1			2.3
Personal Lines segment income (loss)			12.3			(22.8)			39.8			7.5
Chaucer:
GAAP underwriting income			19.2			-			33.9			-
Net investment income			10.2			-			19.6			-
Other income			0.4			-			1.8			-
Chaucer segment income			29.8			-			55.3			-
Other Property and Casualty:
GAAP underwriting income (loss)			(0.8)			-			(1.2)			0.1
Net investment income			1.9			3.9			4.0			8.0
Other net expenses			(2.8)			(3.1)			(5.7)			(6.0)
Other Property and Casualty segment income (loss)			(1.7)			0.8			(2.9)			2.1
Total			31.0			(47.3)			116.7			2.5
Interest expense			(15.9)			(10.8)			(32.1)			(21.2)
Segment income (loss) before income taxes			15.1			(58.1)			84.6			(18.7)
Adjustments to segment income (loss):
Net realized investment gains (losses)			(3.4)			13.4			(0.3)			16.7
Net gain (loss) from retirement of debt			-			0.3			-			(2.2)
Costs related to acquired businesses			(0.9)			(11.1)			(2.4)			(13.8)
Loss on derivative instruments			-			(4.7)			-			(4.7)
Net foreign exchange gains			0.3			-			-			-
Income (loss) before income taxes	$		11.1	$		(60.2)	$		81.9	$		(22.7)

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The following table provides identifiable assets for the Company’s business segments and discontinued operations:

(in millions)	June 30, 2012			December 31, 2011
U.S. Companies	$	8,609.5	$		8,471.6
Chaucer		4,387.0			4,005.8
Discontinued operations		122.2			121.2
Total	$	13,118.7	$		12,598.6

The Company reviews the assets of its U.S. Companies collectively and does not allocate them between the Commercial Lines, Personal Lines, and Other Property and Casualty segments.

10. Stock-based Compensation

Compensation cost and the related tax benefits were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2012		2011		2012		2011
Stock-based compensation expense	$	2.2	$	2.6	$	6.3	$	6.0
Tax benefit		(0.8)		(0.9)		(2.2)		(2.1)
Stock-based compensation expense, net of taxes	$	1.4	$	1.7	$	4.1	$	3.9

Stock Options

Information on the Company’s stock option plan activity is summarized as follows:

	Six Months Ended June 30,
	2012				2011
(in whole shares and dollars)	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding, beginning of period		2,715,430	$	38.57		2,843,909	$	39.22
Granted		517,500		36.81		297,000		46.47
Exercised		(38,524)		30.49		(118,014)		33.13
Forfeited or cancelled		(51,250)		40.18		(18,250)		37.39
Expired		(158,850)		44.04		(256,250)		57.00
Outstanding, end of period		2,984,306		38.07		2,748,395		38.62

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Restricted Stock Units

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

	Six Months Ended June 30,
	2012				2011
(in whole shares and dollars)	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Time-based restricted stock units:
Outstanding, beginning of period		768,529	$	40.17		838,129	$	40.93
Granted		172,691		36.99		111,496		46.10
Vested		(121,522)		35.30		(187,123)		45.14
Forfeited		(26,705)		40.03		(21,944)		41.54
Outstanding, end of period		792,993		40.22		740,558		40.63
Performance and market-based restricted stock units:
Outstanding, beginning of period		69,500	$	45.37		101,680	$	39.62
Granted		94,000		36.75		42,500		46.47
Vested		-		-		(25,055)		45.21
Forfeited		(1,125)		41.16		-		-
Outstanding, end of period		162,375		40.34		119,125		40.89

Performance based restricted stock units are based upon the achievement of the performance metrics at 100%. These units have the potential to range from 0% to 133% of the shares disclosed, which varies based on grant year and individual participation level. Increases above the 100% target level are reflected as granted in the period in which the performance-based stock unit goals are achieved. Decreases below the 100% target level are reflected as forfeited.

In the first three months of 2012, the Company granted market-based awards to certain members of senior management, which are included in the table above as performance and market-based restricted stock activity. The attainment of these stock units are based on the relative total shareholder return (“TSR”) of the Company. This metric is based on a three-year average relative TSR as compared to a Property and Casualty Index of peer companies. The fair value of market based awards was estimated at the date of grant using a valuation model. These units have the potential to range from 0% to 150% of the shares disclosed.

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11. Earnings Per Share and Shareholders’ Equity Transactions

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

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions, except per share data)		2012			2011			2012			2011
Basic shares used in the calculation of earnings per share			44.9			45.4			44.9			45.4
Dilutive effect of securities:
Employee stock options			0.2			-			0.2			-
Non-vested stock grants			0.3			-			0.3			-
Diluted shares used in the calculation of earnings per share			45.4			45.4			45.4			45.4
Per share effect of dilutive securities on income (loss) from continuing operations	$		-	$		-	$		(0.02)	$		-
Per share effect of dilutive securities on net income (loss)	$		-	$		-	$		(0.02)	$		-

Diluted earnings per share for the three months ended June 30, 2012 and 2011 excludes 1.6 million and 1.9 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 six months ended June 30, 2012 and 2011 excludes 1.8 million and 2.2 million, respectively, of common shares issuable under the Company’s stock compensation plans, because their effect would be antidilutive.

12. Commitments and Contingencies

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 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 plaintiff claims that the Plan understated her distributions and those of similarly situated participants by failing to pay an additional so-called “whipsaw” amount reflecting the present value of an estimate of future interest credits from the date of the lump sum distribution to each participant’s retirement age of 65 discounted by applicable IRS rates.

The Plaintiff filed an Amended Complaint adding two new named plaintiffs and additional claims on December 11, 2009. In response, the Company filed a Motion to Dismiss on January 30, 2010. In addition to the pending claim challenging the calculation of lump sum distributions, the Amended Complaint includes: (a) a claim that the Plan failed to calculate participants’ account balances and lump sum payments 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 arising from the various interest crediting and lump sum distribution matters of which Plaintiffs complain. The District Court granted the Company’s Motion to Dismiss the additional claims on statute of limitations grounds by a Memorandum Opinion dated March 31, 2011, leaving the claims substantially as set forth in the original March 12, 2007 complaint. Plaintiffs filed a Motion for Reconsideration of the District Court’s decision to dismiss the additional claims, which was denied with respect to the claims set forth in (a) and (b) above; however, the Court did allow the fiduciary duty claims to stand. On June 22, 2012, the Company and the Plan filed a Motion for Summary Judgment to dismiss the claims of one of the plaintiffs who received his lump sum distribution after December 31, 2003, on the basis that certain amendments to the Plan effective January 1, 2004 eliminated any basis for payment of an additional “whipsaw” amount to participants who received lump sum distributions after December 31, 2003.

At this time, the Company is unable to provide a reasonable estimate of the potential range of ultimate liability if the outcome of the suit is unfavorable. This matter is still in the early stages of litigation. The extent to which any of the Plaintiffs’ multiple theories of liability, some of which are overlapping and others of which are quite complex and novel, are accepted and upheld on appeal will significantly affect the Plan’s or the Company’s potential liability. It is not clear whether a class will be certified or, if certified, how many former or current Plan participants, if any, will be included. The statute of limitations applicable to the alleged class has not yet been finally

29

determined and the extent of potential liability, if any, will depend on this final determination. In addition, assuming for these purposes that the Plaintiffs prevail with respect to claims that benefits accrued or payable under the Plan were understated, then there are numerous possible theories and other variables upon which any revised calculation of benefits as requested under Plaintiffs’ claims could be based. It is likely that any adverse judgment in this case would be against the Plan. Such a judgment would be expected to create a liability for the Plan, with resulting effects on the Plan’s assets available to pay benefits. The Company’s future required funding of the Plan could also be impacted by such a liability.

Hurricane Katrina Litigation

In August 2007, the State of Louisiana 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, and asserts a right to benefit payments from insurers on behalf of current and former Louisiana citizens who have applied for and received or will receive funds through Louisiana’s “Road Home” program. The case was thereafter 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 Louisiana’s 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 30, 2009, Defendants filed a Petition for Permission to Appeal to the United States Court of Appeals for the Fifth Circuit (the “Fifth Circuit”), which was granted. On July 28, 2010, the Fifth Circuit certified the anti-assignment issue to the Louisiana Supreme Court. On May 10, 2011, the Supreme Court of Louisiana issued a decision holding that the anti-assignment provisions were not violative of public policy. The court also indicated, however, that such provisions would only serve to bar post-loss assignments if they clearly and unambiguously expressed that they apply to post-loss assignments. On June 28, 2011, the Fifth Circuit remanded the case to the Federal District Court for further proceedings consistent with the Louisiana’s Supreme Court’s opinion. On April 9, 2012, the court entered an order dismissing the state’s class action allegations; however, this order does not affect the state’s ability to pursue policyholder claims pursuant to alleged assignments obtained from the policyholders.

On April 13, 2012, the court entered a Case Management Order requiring the state to disclose to the defendants specified information regarding the nature of the state’s claims. In June 2012, the state furnished a spreadsheet in response to the Case Management Order. The spreadsheet identifies approximately 1,000 properties with respect to which the state apparently intends to pursue claims against the Company. The Company has reviewed the data provided by the state with respect to these claims and has concluded that it is insufficient to allow the Company to make a reasonable estimate of the potential range of ultimate liability arising from this litigation. The data does not appear to provide credible support for an assertion that the Company paid less than it was legally required to pay with respect to any of the listed claims and, if so, in what amounts.

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. The ultimate resolutions of such proceedings are not expected to 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.

13. Subsequent Events

There were no subsequent events requiring adjustment to the financial statements and no additional disclosures required in the notes to the interim consolidated financial statements.

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PART I

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TABLE OF CONTENTS

Introduction	32
Executive Overview	32
Description of Operating Segments	34
Results of Operations – Net Income	34
Segment Results	36
Investments	46
Other Items	52
Income Taxes	53
Critical Accounting Estimates	54
Statutory Surplus of U.S. Insurance Subsidiaries	54
Lloyd’s Capital Requirement	55
Liquidity and Capital Resources	55
Off-Balance Sheet Arrangements	57
Contingencies and Regulatory Matters	57
Risks and Forward-Looking Statements	57

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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 its subsidiaries (“THG”). Consolidated results of operations and financial condition are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). This discussion 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012.

Results of operations include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America (“Citizens”), our principal U.S. domiciled property and casualty companies; Chaucer Holdings plc (“Chaucer”), and certain other insurance and non-insurance subsidiaries. Effective July 1, 2011, we acquired Chaucer, a specialist insurance underwriting group which operates through the Society and Corporation of Lloyd’s (“Lloyd’s”) and is domiciled in the United Kingdom (“U.K.”). Results of operations include Chaucer’s results in periods subsequent to July 1, 2011. Accordingly, our results for the first six months of 2011 do not include Chaucer’s results. Additionally, our results of operations include our discontinued operations, consisting primarily of our former life insurance businesses, our accident and health business and our third party administrator.

Executive Overview

Business operations consist of four operating segments: Commercial Lines, Personal Lines, Chaucer and Other Property and Casualty.

We completed the acquisition of Chaucer on July 1, 2011, which has added meaningful business volumes to our quarterly results and has affected the comparability of our interim consolidated financial statements and related footnotes. For the three and six months ended June 30, 2012, our discussion of the results of operations includes results from all of our segments. Results of operations for the comparable periods in 2011 do not include any results of Chaucer.

Segment income excluding taxes and interest was $116.7 million for the six months ended June 30, 2012 compared to $2.5 million in the same period in 2011, an increase of $114.2 million. This increase is primarily due to decreased catastrophe and non-catastrophe weather-related losses in the first six months of 2012 in our domestic insurance companies and $55.3 million of segment income generated by Chaucer. This was partially offset by unfavorable development on prior years’ loss and loss adjustment expense (“LAE”) reserves (“prior years’ loss reserves”) in our domestic operations. Pre-tax catastrophe losses were $114.7 million for the six months ended June 30, 2012, of which $9.8 million related to our Chaucer segment. During the six months ended June 30, 2011, pre-tax catastrophe losses were $206.4 million. There was net development on prior years’ loss reserves of zero for the six months ended June 30, 2012, compared to favorable development of $43.8 million in the same period in 2011. During the six months ended June 30, 2012, $26.8 million of favorable development related to our Chaucer segment was offset by $26.8 million of unfavorable development related to our domestic operations.

Commercial Lines

We believe our unique approach to the small commercial market, distinctiveness in the middle market, and continued development of specialty lines provides us with a diversified portfolio of products and delivers significant value to agents and policyholders. The small commercial and middle market businesses are expected to contribute to premium growth in Commercial Lines over the next several years. We continue to pursue our core strategy of developing strong partnerships with agents, distinctive products, franchise value through limited distribution, and industry segmentation.

Growth in our specialty lines continues to be an important part of our strategy, supported by several acquisitions over the past several years. Commercial Lines segment net written premium grew by 13.7% in the first six months of 2012, driven by both our specialty businesses and our core commercial businesses.

We believe these efforts have driven, and will continue to drive, improvement in our overall mix of business and ultimately our underwriting profitability. Underwriting results improved in the first six months of 2012, as compared to the same period in 2011, primarily due to decreased catastrophe losses and increases in rate, partially offset by unfavorable development on prior years’ loss reserves, particularly with respect to our surety contract business.

The competitive nature of the Commercial Lines market requires us to be highly disciplined in our underwriting process to ensure that we write business at acceptable margins. Also, we continue to seek rate increases across our commercial lines, most notably in our property lines as a result of the heightened catastrophe and non-catastrophe weather-related losses that we experienced in recent years and in workers’ compensation as a result of economic stress. In our surety bond business, we continue to shift the business mix toward commercial surety from contract surety and enhance the underwriting tools and standards that we employ.

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Personal Lines

In our Personal Lines business, we focus on partnering with high quality, value-added agencies that deliver consultative selling and stress the importance of account rounding (the conversion of single policy customers to accounts with multiple policies and additional coverages). Almost 70% of our policies in force are account business. We are focused on making investments that help maintain profitability, build a distinctive position in the market, help diversify us geographically from our historical core states of Michigan, Massachusetts, New York, and New Jersey and provide us with profitable growth opportunities.

During the six months ended June 30, 2012, Personal Lines segment net written premiums were $718.5 million compared to $716.0 for the six months ended June 30, 2011. Our ongoing exposure management actions may possibly result in modest declines in our overall Personal Lines net written premiums in 2012.

Underwriting results improved in the first six months of 2012, as compared to the same period in 2011, primarily due to decreased catastrophe and non-catastrophe weather-related losses, partially offset by unfavorable development on prior years’ loss reserves. Unfavorable development on prior years’ loss reserves for the six months ended June 30, 2012 was $11.6 million, compared to favorable development of $20.0 million for the six months ended June 30, 2011. Similar to our strategy in Commercial Lines, we continue to seek additional rate increases in our personal automobile and homeowners lines as a result of the catastrophe and non-catastrophe weather-related losses that the industry experienced in recent years. In addition, continued increases in premium are expected in our target growth states as we seek to improve profitability and diversify from our existing core states.

Chaucer

In our Chaucer business, we deploy specialist underwriters in over 30 major insurance and reinsurance classes, including energy, marine and aviation, U.K. motor, property, and casualty and other coverages. We obtain business through Lloyd’s, the leading international insurance and reinsurance market, which provides us with access to specialist business in over 200 countries and territories worldwide through its international licenses, brand reputation and strong security rating.

Together, our underwriting strength, diverse portfolio and Lloyd’s membership underpin our ability to actively manage the scale, composition and profitable development of this business.

During the six months ended June 30, 2012, our Chaucer segment net written premiums were $530.0 million and net earned premiums were $473.5 million. We benefited from improved pricing within our marine, property and energy classes, following recent high levels of insured market losses. We were not able to achieve meaningful rate increases in the aviation and casualty classes. Also, U.K. motor market rates were relatively flat, following two years of significant increases. However, 2012 underwriting results are generally favorable, due to relatively benign loss activity in most classes.

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Description of Operating Segments

Primary business operations include insurance products and services currently provided through four operating segments. These operating segments are Commercial Lines, Personal Lines, Chaucer and Other Property and Casualty. Commercial Lines includes commercial multiple peril, commercial automobile, workers’ compensation and other commercial coverages, such as specialty program business, inland marine, surety and other bonds, professional liability and management liability. Personal Lines includes personal automobile, homeowners and other personal coverages. Chaucer includes energy, marine and aviation, U.K. motor, property, and casualty and other coverages (which includes international liability, specialist coverages, and syndicate participations). 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; and, a voluntary pools business which is in run-off. 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. This consists of interest on our senior debentures, junior debentures, subordinated notes, advances under our collateralized borrowing program with the Federal Home Loan Bank of Boston (“FHLBB”), letter of credit facility, and capital securities.

Results of Operations – Net Income

Consolidated net income includes the results of our four operating segments (segment income), which we evaluate on a pre-tax basis and we exclude interest expense on debt. Segment income excludes certain other items which we believe are not indicative of our core operations, such as income taxes and net realized investment gains and losses, including net gains and losses on certain derivative instruments. Such gains and losses are excluded since they 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, costs to acquire businesses, 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 a discussion of segment income enhances an investor’s understanding of our results of operations by segregating income attributable to the core operations of the business. However, segment income should not be construed as a substitute for net income.

Catastrophe losses and prior year reserve development are significant components in understanding and assessing the financial performance of our business. Management reviews and evaluates catastrophes and prior year reserve development separate from the other components of earnings. Catastrophes and prior-year reserve development are not predictable as to timing or the amount that will affect the results of our operations and have affected our results in the past few years. Management believes that providing certain financial metrics and trends excluding the effects of catastrophes and prior year reserve development helps investors to understand the variability in periodic earnings and to evaluate the underlying performance of our operations.

Consolidated net income for the three months ended June 30, 2012 was $20.8 million, compared to a loss of $32.2 million for the three months ended June 30, 2011. The $53.0 million increase is primarily due to a decrease in catastrophe losses, income from our Chaucer segment and the gain from the sale of our third party administrator, Citizens Management Inc. (“CMI”), which was completed on April 30, 2012, (see also “Other Items”). Additionally, there were lower costs related to acquired businesses in 2012 as compared to 2011. The higher level of these costs in 2011 related to the Chaucer acquisition. These increases were partially offset by a decrease in favorable development on prior years’ loss reserves and a decrease in realized gains.

Consolidated net income for the six months ended June 30, 2012 was $70.5 million, compared to a loss of $2.9 million for the six months ended June 30, 2011. The $73.4 million increase is primarily due to a decrease in catastrophe losses, income from our recently acquired Chaucer segment, growth in earned premiums in our domestic insurance companies, the gain from the sale of CMI and the aforementioned lower costs related to acquired businesses. These increases were partially offset by a decrease in favorable development on prior years’ loss reserves and a decrease in realized gains.

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The following table reflects segment income and a reconciliation of total segment income to consolidated net income.

	Three Months Ended June 30,							Six Months Ended June 30,
(in millions)		2012			2011			2012			2011
Segment income (loss) before income taxes:
Commercial Lines	$		(9.4)	$		(25.3)	$		24.5	$		(7.1)
Personal Lines			12.3			(22.8)			39.8			7.5
Chaucer			29.8			-			55.3			-
Other Property and Casualty			(1.7)			0.8			(2.9)			2.1
Total			31.0			(47.3)			116.7			2.5
Interest expense			(15.9)			(10.8)			(32.1)			(21.2)
Total segment income (loss) before income taxes			15.1			(58.1)			84.6			(18.7)
Income tax benefit (expense) on segment income			(5.1)			19.7			(28.6)			6.2
Net realized investment gains (losses)			(3.4)			13.4			(0.3)			16.7
Net gain (loss) from retirement of debt			-			0.3			-			(2.2)
Costs related to acquired businesses			(0.9)			(11.1)			(2.4)			(13.8)
Loss on derivative instruments			-			(4.7)			-			(4.7)
Net foreign exchange gains			0.3			-			-			-
Income tax benefit on non-segment income			3.8			7.7			7.2			11.6
Income (loss) from continuing operations			9.8			(32.8)			60.5			(4.9)
Gain from sale of Citizens Management, Inc., net of taxes			10.9			-			10.9			-
Net gain (loss) from other discontinued operations, net of taxes			0.1			0.6			(0.9)			2.0
Net Income (loss)	$		20.8	$		(32.2)	$		70.5	$		(2.9)

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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 interest expense and income taxes and other items which management believes are not indicative of our core operations, including realized gains and losses.

The following table summarizes the results of operations for the periods indicated:

	Three Months Ended     June 30,							Six Months Ended     June 30,
(In millions)		2012			2011			2012			2011
Segment revenues
Net premiums written	$		1,197.6	$		815.4	$		2,214.4	$		1,565.3
Net premiums earned	$		1,050.0	$		770.5	$		2,085.6	$		1,532.2
Net investment income			68.4			61.0			137.2			121.4
Fees and other income			13.7			10.2			29.6			19.9
Total segment revenues			1,132.1			841.7			2,252.4			1,673.5
Losses and operating expenses
Losses and LAE			732.1			617.5			1,393.5			1,128.5
Policy acquisition expenses			233.1			162.7			461.2			325.2
Other operating expenses			135.9			108.8			281.0			217.3
Total losses and operating expenses			1,101.1			889.0			2,135.7			1,671.0
Segment income (loss) before interest and income taxes	$		31.0	$		(47.3)	$		116.7	$		2.5

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

Segment income was $31.0 million in the three months ended June 30, 2012, compared to a loss of $47.3 million in the three months ended June 30, 2011, an increase in earnings of $78.3 million. Chaucer’s results accounted for $29.8 million of this income. Catastrophe related activity for our Commercial and Personal Lines businesses in the quarter was $70.8 million, compared to $156.7 million in the same period of 2011, a decrease of $85.9 million. Excluding the impact of catastrophe related activity, earnings for our Commercial and Personal Lines businesses decreased by $37.4 million. This decrease was primarily due to unfavorable development on prior years’ loss reserves in the quarter compared to favorable development in the same period of 2011. Unfavorable development on prior years’ loss reserves in Commercial and Personal Lines was $22.3 million in the quarter, compared to favorable development of $15.3 million in the same period in 2011.

Net premiums written grew by $382.2 million in the three months ended June 30, 2012, compared to the three months ended June 30, 2011, and net premiums earned grew by $279.5 million. Chaucer accounted for $329.8 million of the premiums written increase and $236.5 million of the net premiums earned increase. The balance of the growth is primarily attributable to Commercial Lines, resulting from strong retention, rate increases and targeted new business expansion.

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Production and Underwriting Results

The following table summarizes GAAP financial information including net premiums written and loss, LAE, expense and combined ratios for the Commercial Lines, Personal Lines and Chaucer segments. 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.

	Three months ended June 30, 2012
(dollars in millions)	Gross Written Premium		Net Written Premium		Net Earned   Premium		Catastrophe Loss Ratios		Loss & LAE Ratios		Expense Ratios		Combined Ratios
Commercial Lines	$	564.2	$	496.7	$	449.2		8.5		73.3		36.4		109.7
Personal Lines		414.3		371.1		364.3		8.9		75.1		26.9		102.0
Chaucer		438.6		329.8		236.5		1.4		54.7		37.2		91.9
Total	$	1,417.1	$	1,197.6	$	1,050.0		7.1		69.8		33.3		103.1
	Three months ended June 30, 2011
(dollars in millions)	Gross Written Premium		Net Written Premium		Net Earned Premium		Catastrophe Loss Ratios		Loss & LAE Ratios		Expense Ratios		Combined Ratios
Commercial Lines	$	494.6	$	440.5	$	408.5		18.9		75.5		39.0		114.5
Personal Lines		399.7		374.6		361.9		22.0		85.4		26.8		112.2
Total	$	894.3	$	815.1	$	770.4		20.3		80.1		33.3		113.4

The following table summarizes net premiums written, and loss and LAE and catastrophe loss ratios by line of business for the Commercial Lines and Personal Lines segments. Loss and LAE and catastrophe loss ratios include prior year reserve development.

	Three Months Ended June 30,
	2012								2011
(dollars in millions)		Net Premiums Written		Loss & LAE Ratios		Cata- strophe Loss Ratios			Net Premiums Written		Loss & LAE Ratios		Cata- strophe Loss Ratios
Commercial Lines:
Commercial multiple peril	$		153.5		79.1		23.7	$		144.7		97.0		41.6
Commercial automobile			71.0		75.8		0.5			64.7		60.5		1.1
Workers’ compensation			48.8		73.0		-			44.2		62.8		-
Other commercial			223.4		68.1		1.9			186.9		66.2		11.2
Total Commercial Lines	$		496.7		73.3		8.5	$		440.5		75.5		18.9
Personal Lines:
Personal automobile	$		227.5		75.8		1.3	$		229.6		71.0		2.7
Homeowners			132.3		76.2		22.6			133.2		114.3		58.8
Other personal			11.3		47.2		6.6			11.8		62.3		14.2
Total Personal Lines	$		371.1		75.1		8.9	$		374.6		85.4		22.0

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The following table summarizes premiums written on a gross and net basis and net premiums earned by line of business for the Chaucer segment.

	Three Months Ended June 30, 2012
(in millions)		Gross Written Premium			Net Written Premium			Net Earned Premium
Chaucer:
Energy	$		127.7	$		87.9	$		44.2
Marine and Aviation			93.0			66.1			58.3
U.K. Motor			76.6			67.3			60.3
Property			92.1			77.8			44.5
Casualty and Other			49.2			30.7			29.2
Total Chaucer	$		438.6	$		329.8	$		236.5

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

	Three Months Ended June 30,
	2012										2011
(in millions)	Commercial Lines		Personal Lines		Chaucer		Other Property and Casualty		Total		Commercial Lines		Personal Lines		Other Property and Casualty		Total
GAAP underwriting profit (loss), excluding prior year reserve development and catastrophes	$	8.2	$	29.8	$	17.4	$	(0.8)	$	54.6	$	7.7	$	26.7	$	(0.1)	$	34.3
Prior year favorable (unfavorable) loss and LAE reserve development		(14.5)		(7.8)		5.1		-		(17.2)		9.3		5.9		0.1		15.3
Pre-tax catastrophe effect		(38.4)		(32.4)		(3.3)		-		(74.1)		(77.1)		(79.6)		-		(156.7)
GAAP underwriting profit (loss)		(44.7)		(10.4)		19.2		(0.8)		(36.7)		(60.1)		(47.0)		-		(107.1)
Net investment income		35.0		21.3		10.2		1.9		68.4		34.0		23.1		3.9		61.0
Fees and other income		3.1		3.2		5.1		2.3		13.7		5.4		3.2		1.6		10.2
Other operating expenses		(2.8)		(1.8)		(4.7)		(5.1)		(14.4)		(4.6)		(2.1)		(4.7)		(11.4)
Segment income (loss) before interest and income taxes	$	(9.4)	$	12.3	$	29.8	$	(1.7)	$	31.0	$	(25.3)	$	(22.8)	$	0.8	$	(47.3)

Commercial Lines

Commercial Lines net premiums written was $496.7 million in the three months ended June 30, 2012, compared to $440.5 million in the three months ended June 30, 2011. This $56.2 million increase was primarily driven by strong retention, rate increases, and targeted new business expansion, including growth in the AIX program business.

Commercial Lines underwriting loss in the three months ended June 30, 2012 was $44.7 million, compared to $60.1 million for the three months ended June 30, 2011, an improvement of $15.4 million. This was primarily due to decreased catastrophe losses, partially offset by unfavorable development on prior years’ loss reserves. Catastrophe losses for the three months ended June 30, 2012 were $38.4 million, compared to $77.1 million for the three months ended June 30, 2011, a decrease of $38.7 million. Unfavorable development on prior years’ loss reserves for the three months ended June 30, 2012 was $14.5 million, compared to favorable development of $9.3 million for the three months ended June 30, 2011, a change of $23.8 million.

Commercial Lines current accident year underwriting profit, excluding catastrophes, was $8.2 million in the three months ended June 30, 2012, compared to $7.7 million for the three months ended June 30, 2011, an increase of $0.5 million. The current quarter’s results benefited from growth in earned premium and the resulting positive effect on our expense ratio, partially offset by higher current accident year losses.

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Pricing in Commercial Lines continues to improve as the industry responds to recent weather-related losses and trends and other factors; however, our ability to increase Commercial Lines net premiums written while maintaining or improving underwriting results may be affected by continuing price competition and the current challenging economic environment. Over the past few years, we have noted a trend of weather-related catastrophe and non-catastrophe losses that have been in excess of longer term averages. Accordingly, we have incorporated increased levels of weather-related loss costs into our expectations.

Personal Lines

Personal Lines net premiums written was $371.1 million in the three months ended June 30, 2012, compared to $374.6 million in the three months ended June 30, 2011, an decrease of $3.5 million. The most significant factors contributing to this decrease were our continued exposure management actions that focus on driving profit improvement through both rate increases and more selective portfolio management. Our actions to reduce exposures, including increases in rate, have resulted in an increase in policy attrition. During the quarter, we terminated relationships with certain agencies in New York, New Jersey and Connecticut as part of our exposure management actions. These decreases were partially offset by higher rates in both our homeowners and personal automobile lines and an increase in policies in force of 3.5% in our target growth states.

Net premiums written in the personal automobile line of business decreased by 0.9%, resulting primarily from a decline in policies in force of 2.6%, primarily as a result of fewer policies in force in New York, Connecticut, Florida, Oklahoma and New Jersey, which we attribute to more selective portfolio management, and to the attrition resulting from rate increases we have implemented despite the competitive pricing environment. This reduction in policies in force was partially offset by the overall effect of rate increases. Net premiums written in the homeowners line of business decreased 0.7%, resulting primarily from a decline in policies in force of 2.0%, primarily as a result of fewer policies in force in New York, Michigan and New Jersey, partially offset by the overall effect of rate increases.

Personal Lines underwriting loss for the three months ended June 30, 2012 was $10.4 million, compared to $47.0 million for the three months ended June 30, 2011, an improvement of $36.6 million. This was primarily due to decreased catastrophe losses and non-catastrophe weather-related losses, partially offset by unfavorable development on prior years’ loss reserves. Catastrophe losses for the three months ended June 30, 2012 were $32.4 million, compared to $79.6 million for the three months ended June 30, 2011, a decrease of $47.2 million. Unfavorable development on prior years’ loss reserves for the three months ended June 30, 2012 was $7.8 million, compared to favorable development of $5.9 million for the three months ended June 30, 2011, a change of $13.7 million.

Personal Lines current accident year underwriting profit, excluding catastrophes, was $29.8 million in the three months ended June 30, 2012, compared to $26.7 million for the three months ended June 30, 2011. This $3.1 million improvement in non-catastrophe current accident year results was primarily due to lower non-catastrophe weather-related losses in our personal automobile and homeowners lines.

Although we have been able to obtain rate increases in our Personal Lines markets and believe that this ability will continue, our ability to maintain and increase Personal Lines net written premium and to maintain and improve underwriting results may be affected by price competition, recent weather-related losses, and regulatory and legal developments. Over the past few years, we have noted a trend of weather-related catastrophe and non-catastrophe losses that have been in excess of longer term averages. Accordingly, we have incorporated more increased levels of weather-related activity and loss trends into our expectations. Our rate actions could adversely affect our ability to increase our policies in force and new business. There is no assurance that we will be able to maintain our current level of production or maintain or increase rates. In addition, our ongoing exposure management may possibly result in modest declines in our overall personal lines net written premiums in 2012.

Chaucer

Chaucer’s net premiums written was $329.8 million for the three months ended June 30, 2012. By line of business, Chaucer’s net premiums written were comprised of 26.7% energy, 23.6% property, 20.4% U.K. motor, 20.0% marine and aviation, and 9.3% casualty and other lines. This mix of business is driven and supported by our specialist underwriting strategy which is focused on actively managing the premium portfolio and risk exposures. Casualty and other lines are primarily comprised of Chaucer’s specialist and international liability lines of business.

Chaucer’s underwriting profit for the three months ended June 30, 2012 was $19.2 million. Catastrophe losses for the three months ended June 30, 2012 were $3.3 million. Favorable development on prior years’ loss reserves for the three months ended June 30, 2012 was $5.1 million.

Chaucer’s underwriting profit, excluding prior year loss development and catastrophes, was $17.4 million in the three months ended June 30, 2012. Underwriting expenses of $88.1 million represented 37.2% of earned premium.

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We have achieved, and expect to continue to achieve, rate increases for a majority of Chaucer lines in 2012. Recent natural catastrophe losses, particularly those affecting the U.S., New Zealand, Japan and Thailand, have triggered property rate rises in the majority of catastrophe-exposed territories. Policy terms and conditions are improving in our energy portfolio, as markets respond to losses in 2011. Within our marine line of business, hull and liability rates are also increasing. The market conditions in our casualty and aviation businesses remain challenging, with over-capacity affecting pricing. In our U.K. motor business, we currently expect limited growth, since current rate increases are slightly below claims inflation following significant price increases since 2010. There can be no assurance that we will be able to maintain or increase our rates in light of economic and regulatory conditions in our markets.

Other Property and Casualty

Other Property and Casualty segment loss was $1.7 million for the three months ended June 30, 2012, compared to a profit of $0.8 million for the three months ended June 30, 2011. The $2.5 million decrease is primarily due to lower net investment income in our holding company.

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Segment income was $116.7 million in the six months ended June 30, 2012, compared to $2.5 million in the six months ended June 30, 2011, an increase in earnings of $114.2 million. Chaucer’s results accounted for $55.3 million of segment income in the six months ended June 30, 2012. Catastrophe related activity for our Commercial and Personal Lines businesses for the six months ended June 30, 2012 was $104.9 million, compared to $206.4 million for the six months ended June 30, 2011, a decrease of $101.5 million. Excluding the impact of catastrophe related activity, earnings for our Commercial and Personal Lines businesses decreased by $42.6 million. This decrease was primarily due to unfavorable development on prior years’ loss reserves, partially offset by more favorable current accident year results. Unfavorable development on prior years’ loss reserves in Commercial and Personal Lines was $26.8 million for the six months ended June 30 2012, compared to favorable development of $43.8 million for the six months ended June 30, 2011, a change of $70.6 million. The favorable current accident year results are primarily due to a lower level of non-catastrophe weather-related losses in Personal Lines.

Net premiums written grew by $649.1 million in the six months ended June 30, 2012, compared to the six months ended June 30, 2011, and net premiums earned grew by $553.4 million. Chaucer accounted for $530.0 million of net premiums written and $473.5 million of net premiums earned in the six months ended June 30, 2012. The balance of the growth is primarily attributable to Commercial Lines, resulting from strong retention, rate increases and targeted new business expansion.

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Production and Underwriting Results

The following table summarizes GAAP financial information including net premiums written and loss, LAE, expense and combined ratios for the Commercial Lines, Personal Lines and Chaucer segments. 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.

	Six months ended June 30, 2012
(dollars in millions)	Gross Written Premium		Net Written Premium		Net Earned Premium		Catastrophe Loss Ratios	Loss & LAE Ratios	Expense Ratios	Combined Ratios
Commercial Lines	$	1,096.8	$	965.6	$	884.1	5.6	67.5	37.6		105.1
Personal Lines		787.5		718.5		727.6	7.6	72.9	27.1		100.0
Chaucer		820.3		530.0		473.5	2.1	56.1	36.7		92.8
Total	$	2,704.6	$	2,214.1	$	2,085.2	5.5	66.8	33.8		100.6
	Six months ended June 30, 2011
(dollars in millions)	Gross Written Premium		Net Written Premium		Net Earned Premium		Catastrophe Loss Ratios	Loss & LAE Ratios	Expense Ratios	Combined Ratios
Commercial Lines	$	961.4	$	849.0	$	809.3	12.9	69.9	39.3		109.2
Personal Lines		766.2		716.0		722.8	14.1	77.9	26.9		104.8
Total	$	1,727.6	$	1,565.0	$	1,532.1	13.5	73.7	33.4		107.1

The following table summarizes net premiums written, and loss and LAE and catastrophe loss ratios by line of business for the Commercial Lines and Personal Lines segments. Loss and LAE and catastrophe loss ratios include prior year reserve development.

	Six Months Ended June 30,
	2012								2011
(dollars in millions)		Net Premiums Written		Loss & LAE Ratios		Cata- strophe Loss Ratios			Net Premiums Written		Loss & LAE Ratios	Cata- strophe Loss Ratios
Commercial Lines:
Commercial multiple peril	$		301.5		68.1		15.4	$		281.9	86.2		28.5
Commercial automobile			141.7		73.7		0.6			126.7	61.9		0.7
Workers’ compensation			103.8		72.8		-			90.0	64.6		-
Other commercial			418.6		63.6		1.2			350.4	60.2		7.5
Total Commercial Lines	$		965.6		67.5		5.6	$		849.0	69.9		12.9
Personal Lines:
Personal automobile	$		460.6		75.5		1.2	$		460.7	70.0		1.4
Homeowners			237.3		70.1		19.2			234.4	94.9		38.4
Other personal			20.6		51.4		6.1			20.9	48.8		8.5
Total Personal Lines	$		718.5		72.9		7.6	$		716.0	77.9		14.1

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The following table summarizes premiums written on a gross and net basis and net premiums earned by line of business for the Chaucer segment.

	Six Months Ended June 30, 2012
(in millions)		Gross Written Premium			Net Written Premium			Net Earned Premium
Chaucer:
Energy	$		199.0	$		111.2	$		83.6
Marine and Aviation			192.5			124.6			112.5
U.K. Motor			143.2			112.8			121.8
Property			179.8			107.4			91.2
Casualty and Other			105.8			74.0			64.4
Total Chaucer	$		820.3	$		530.0	$		473.5

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

	Six Months Ended June 30,
	2012															2011
(in millions)		Commercial Lines			Personal Lines			Chaucer			Other Property and Casualty			Total			Commercial Lines			Personal Lines			Other Property and Casualty			Total
GAAP underwriting profit (loss), excluding prior year reserve development and catastrophes	$		17.3	$		60.8	$		16.9	$		(1.0)	$		94.0	$		4.9	$		41.2	$		(0.1)	$		46.0
Prior year favorable (unfavorable) loss and LAE reserve development			(15.0)			(11.6)			26.8			(0.2)			-			23.6			20.0			0.2			43.8
Pre-tax catastrophe effect			(49.5)			(55.4)			(9.8)			-			(114.7)			(104.6)			(101.8)			-			(206.4)
GAAP underwriting profit (loss)			(47.2)			(6.2)			33.9			(1.2)			(20.7)			(76.1)			(40.6)			0.1			(116.6)
Net investment income			70.7			42.9			19.6			4.0			137.2			67.6			45.8			8.0			121.4
Fees and other income			8.2			6.7			10.4			4.3			29.6			10.3			6.3			3.3			19.9
Other operating expenses			(7.2)			(3.6)			(8.6)			(10.0)			(29.4)			(8.9)			(4.0)			(9.3)			(22.2)
Segment income (loss) before interest and income taxes	$		24.5	$		39.8	$		55.3	$		(2.9)	$		116.7	$		(7.1)	$		7.5	$		2.1	$		2.5

Commercial Lines

Commercial Lines net premiums written was $965.6 million in the six months ended June 30, 2012, compared to $849.0 million in the six months ended June 30, 2011. This $116.6 million increase was primarily driven by strong retention, rate increases, and targeted new business expansion.

Commercial Lines underwriting loss in the six months ended June 30, 2012 was $47.2 million, compared to $76.1 million for the six months ended June 30, 2011, an improvement of $28.9 million. This was primarily due to decreased catastrophe losses and growth in earned premium and the resulting positive effect on our expense ratio, partially offset by unfavorable development on prior years’ loss reserves. Catastrophe losses for the six months ended June 30, 2012 were $49.5 million, compared to $104.6 million for the six months ended June 30, 2011, a decrease of $55.1 million. Unfavorable development on prior years’ loss reserves for the six months ended June 30, 2012 was $15.0 million, compared to favorable development of $23.6 million for the six months ended June 30, 2011, a change of $38.6 million.

Commercial Lines current accident year underwriting profit, excluding catastrophes, was $17.3 million in the six months ended June 30, 2012, compared to $4.9 million for the six months ended June 30, 2011, an increase of $12.4 million. These results benefited from growth in earned premium and the resulting positive effect on our expense ratio, and from what we believe to be an improved mix of business.

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Personal Lines

Personal Lines net premiums written was $718.5 million in the six months ended June 30, 2012, compared to $716.0 million in the six months ended June 30, 2011, an increase of $2.5 million. The factors contributing to this modest increase were higher rates in both our homeowners and personal automobile lines and an increase in policies in force of 3.5% in our target growth states. These increases were partially offset by our continued exposure management actions. Our actions to reduce exposures, including increases in rate, have resulted in an increase in policy attrition.

Net premiums written in the personal automobile line of business for the six months ended June 30, 2012 were $460.6 million comparable to $460.7 million for the six months ended June 30, 2011. Growth in premiums resulting primarily from rate increases were offset by a decline in policies in force of 2.6%, primarily as a result of fewer policies in force in New York, Connecticut, Florida, Oklahoma and New Jersey which we attribute to more selective portfolio management, and to attrition resulting from rate increases we have implemented despite the competitive pricing environment. Net premiums written in the homeowners line of business increased 1.2%, resulting primarily from rate increases, partially offset by a decline in policies in force of 2.0%, primarily as a result of fewer policies in force in New York, Michigan and New Jersey.

Personal Lines underwriting loss for the six months ended June 30, 2012 was $6.2 million, compared to $40.6 million for the six months ended June 30, 2011, an improvement of $34.4 million. This was primarily due to decreased catastrophe losses and non-catastrophe weather-related losses, partially offset by unfavorable development on prior years’ loss reserves. Catastrophe losses for the six months ended June 30, 2012 were $55.4 million, compared to $101.8 million for the six months ended June 30, 2011, a decrease of $46.4 million. Unfavorable development on prior years’ loss reserves for the six months ended June 30, 2012 was $11.6 million, compared to favorable development of $20.0 million for the six months ended June 30, 2011, a change of $31.6 million.

Personal Lines current accident year underwriting profit, excluding catastrophes, was $60.8 million in the six months ended June 30, 2012, compared to $41.2 million for the six months ended June 30, 2011. This $19.6 million increase was primarily due to lower non-catastrophe weather-related losses in our personal automobile and homeowners lines.

Chaucer

Chaucer’s net premiums written was $530.0 million for the six months ended June 30, 2012. By line of business, Chaucer’s net premiums written were comprised of 23.5% marine and aviation, 21.3% U.K. motor, 21.0% energy, 20.3% property, and 13.9% casualty and other lines. This mix of business was driven and supported by our specialist underwriting strategy which is focused on actively managing the premium portfolio and risk exposures.

Chaucer’s underwriting profit for the six months ended June 30, 2012 was $33.9 million. Catastrophe losses for the six months ended June 30, 2012 were $9.8 million, principally due to U.S. tornadoes and the earthquake in Italy. Favorable development on prior years’ loss reserves for the six months ended June 30, 2012 was $26.8 million.

Chaucer’s underwriting profit, excluding prior year loss development and catastrophes, was $16.9 million in the six months ended June 30, 2012. Underwriting expenses of $174.0 million represented 36.7% of earned premium.

Other Property and Casualty

Other Property and Casualty segment loss was $2.9 million for the six months ended June 30, 2012, compared to a profit of $2.1 million for the six months ended June 30, 2011. The $5.0 million decrease is primarily due to lower net investment income in our holding company.

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Reserve for Losses and Loss Adjustment Expenses

The table below provides a reconciliation of the gross beginning and ending reserve for unpaid losses and loss adjustment expenses (including Chaucer with respect to the six month period ended June 30, 2012) as follows:

		Six Months Ended June 30,
(in millions)		2012			2011
Gross loss and LAE reserves, beginning of period	$		5,760.3	$		3,277.7
Reinsurance recoverable on unpaid losses			1,931.8			1,115.5
Net loss and LAE reserves, beginning of period			3,828.5			2,162.2
Net incurred losses and LAE in respect of losses occurring in:
Current year			1,393.5			1,172.3
Prior years			-			(43.8)
Total incurred losses and LAE			1,393.5			1,128.5
Net payments of losses and LAE in respect of losses occurring in:
Current year			476.1			507.5
Prior years			868.4			513.2
Total payments			1,344.5			1,020.7
Effect of foreign exchange rate changes			3.8			-
Net reserve for losses and LAE, end of period			3,881.3			2,270.0
Reinsurance recoverable on unpaid losses			1,972.1			1,136.4
Gross reserve for losses and LAE, end of period	$		5,853.4	$		3,406.4

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

(in millions)		June 30, 2012			December 31, 2011
Workers’ Compensation	$		553.3	$		544.7
Commercial Automobile			250.8			234.9
Commercial Multiple Peril			589.1			550.0
AIX			257.8			239.6
Other Commercial			352.5			360.1
Total Commercial			2,003.5			1,929.3
Personal Automobile			1,353.2			1,366.3
Homeowners and Other			142.5			131.9
Total Personal			1,495.7			1,498.2
Total Chaucer			2,354.2			2,332.8
Total loss and LAE reserves	$		5,853.4	$		5,760.3

Other Commercial lines are primarily comprised of our professional liability, general liability, umbrella, and marine lines. Included in the above table, in the Chaucer segment, are $278.9 million and $302.8 million of reserves related to Chaucer’s Syndicate 4000, consisting of financial and professional liability lines written in 2008 and prior as of June 30, 2012 and December 31, 2011, respectively. Also included in the above table, primarily in Other Commercial lines, are $57.8 million and $59.8 million of asbestos and environmental reserves as of June 30, 2012 and December 31, 2011, respectively.

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Prior Year Development

Loss and LAE reserves for claims incurred in prior years had net development of zero for the six months ended June 30, 2012 compared to favorable development of $43.8 million for the six months ended June 30, 2011. The 2012 activity by segment includes favorable development of $26.8 million for Chaucer, offset by unfavorable development of $26.8 million in other segments, including $15.0 million, $11.6 million and $0.2 million for Commercial Lines, Personal Lines and Other Property and Casualty, respectively. The primary drivers of reserve development for the six months ended June 30, 2012 were as follows:

— Favorable development of previously established reserves in Chaucer’s lines of business as follows:

¡ energy line, primarily in the 2009 and 2010 accident years,

¡ marine and aviation lines, primarily in the 2007 and 2008 accident years, and

¡ within casualty and other lines, specialist liability lines, primarily in the 2010 and 2011 accident years.

— Within other commercial lines, primarily higher than expected losses in our surety line, and to a lesser extent, our AIX program business.

— Higher than expected losses within our commercial automobile line, primarily related to liability coverage in the 2011 accident year.

— Partially offsetting the unfavorable development within Commercial Lines was lower than expected losses within our commercial multiple peril line related to the 2008 through 2011 accident years.

— Within personal lines, higher than expected losses within our personal automobile line, primarily related to liability coverage in the 2011 accident year, and higher than expected homeowners losses from non-catastrophe weather related activity in the latter half of 2011.

The primary drivers for reserve development during the six months ended June 30, 2011 were as follows:

— Lower than expected losses within our personal automobile line across all coverages, primarily related to the 2008 through 2010 accident years.

— Lower than expected losses within the commercial multiple peril line, related to the 2008 through 2010 accident years.

— Lower than expected losses within the workers’ compensation line, primarily related to the 2006 through 2009 accident years.

— Within our other commercial lines, our commercial umbrella line contributed to the favorable development, partially offset by unfavorable development in our professional liability line, primarily related to the 2009 and 2010 accident years.

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Investments

Investment Results

Net investment income increased $7.5 million, or 12.3%, to $68.5 million for the three months ended June 30, 2012, and $15.9 million, or 13.1%, to $137.3 million for the six months ended June 30, 2012. The increase in both periods is primarily due to the acquisition of Chaucer and its related assets and investment income, partially offset by the impact of lower new money yields on fixed maturities. Also, net investment income increased from investments in dividend-yielding equity securities, various higher yielding investment grade fixed maturity securities and investment partnerships, partially offset by the impact of lower operational cash flows in 2012. Average pre-tax earned yield for the U.S. domiciled companies on fixed maturities was 5.14% and 5.35% for the three months ended June 30, 2012 and 2011, respectively, and 5.17% and 5.32% for the six months ended June 30, 2012 and 2011, respectively. Chaucer’s average pre-tax earned yield on fixed maturities was 2.30% and 2.25% for the three and six months ended June 30, 2012, respectively. We expect average investment yields to continue to decline as new money rates remain at historically low levels.

Investment Portfolio

We held cash and investment assets diversified across several asset classes, as follows:

	June 30, 2012						December 31, 2011
(dollars in millions)		Carrying Value		% of Total Carrying Value			Carrying Value		% of Total Carrying Value
Fixed maturities, at fair value	$		6,534.8		85.4%	$		6,284.7		83.3%
Equity securities, at fair value			367.5		4.8			246.4		3.3
Cash and cash equivalents			520.8		6.8			820.4		10.9
Other investments			229.1		3.0			190.2		2.5
Total cash and investments	$		7,652.2		100.0%	$		7,541.7		100.0%

Cash and Investments

Total cash and investments increased $110.5 million, or 1.5%, for the six months ended June 30, 2012, of which fixed maturities increased $250.1 million, equities increased $121.1 million, other investments increased $38.9 million and cash and cash equivalents decreased $299.6 million. Fixed maturities increased and cash and cash equivalents decreased primarily due to the investment of a substantial portion of Chaucer’s cash into fixed maturities. The value of fixed maturities also increased as a result of market value appreciation. Equity securities increased primarily from additional purchases of publicly traded, dividend-yielding stocks, exchange traded funds and mutual funds.

Our fixed maturity portfolio is comprised of corporate securities, taxable and tax-exempt municipal securities, residential mortgage-backed securities, commercial mortgage-backed securities, foreign government securities, asset-backed securities and U.S. government securities.

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The following table provides information about the investment types of our fixed maturities portfolio:

	June 30, 2012
(in millions)   Investment Type	Amortized Cost		Fair Value		Net Unrealized Gain		Change in Net Unrealized During 2012
U.S. Treasury and government agencies	$	190.5	$	198.8	$	8.3	$	0.7
Foreign government		302.7		304.5		1.8		1.9
Municipals:
Taxable		807.3		883.0		75.7		17.3
Tax exempt		142.3		147.3		5.0		(0.1)
Corporate		3,371.6		3,580.0		208.4		51.0
Asset-backed:
Residential mortgage-backed		805.3		839.1		33.8		1.3
Commercial mortgage-backed		343.9		358.9		15.0		3.5
Asset-backed		219.7		223.2		3.5		(0.1)
Total fixed maturities	$	6,183.3	$	6,534.8	$	351.5	$	75.5

Net unrealized gains on fixed maturities increased $75.5 million to $351.5 million at June 30, 2012, compared to $276.0 million at December 31, 2011.

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

		June 30, 2012							December 31, 2011
(dollars in millions)   NAIC Designation	Rating Agency Equivalent Designation	Amortized Cost		Fair Value		% of Total Fair Value			Amortized Cost		Fair Value		% of Total Fair Value
1	Aaa/Aa/A	$	4,405.8	$	4,644.2		71.1%	$		4,325.1	$	4,510.7		71.8%
2	Baa		1,413.5		1,512.6		23.1			1,338.7		1,419.7		22.6
3	Ba		155.1		166.4		2.6			151.2		160.0		2.5
4	B		141.0		145.9		2.2			134.5		136.4		2.2
5	Caa and lower		54.2		52.2		0.8			47.1		44.7		0.7
6	In or near default		13.7		13.5		0.2			12.1		13.2		0.2
Total fixed maturities		$	6,183.3	$	6,534.8		100.0%	$		6,008.7	$	6,284.7		100.0%

Based on ratings by the National Association of Insurance Commissioners (“NAIC”), approximately 94% of the fixed maturity portfolio consisted of investment grade securities at June 30, 2012 and December 31, 2011. The quality of our fixed maturity portfolio remains strong based on ratings, capital structure position, support through guarantees, underlying security, issuer diversification and yield curve position.

In accordance with Lloyd’s operating guidelines, we are required to deposit funds at Lloyd’s to support our underwriting operations. These funds are available only to fund claim obligations. These restricted assets consisted of approximately $404 million of fixed maturities and $125 million of cash and cash equivalents as of June 30, 2012. We also deposit funds with various state and governmental authorities. For a discussion of our deposits with state and governmental authorities, see also Note 3 – “Investments” of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011.

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 7 – “Fair Value” of the Notes to Interim Consolidated Financial Statements.

Although we expect to invest new funds primarily in investment grade fixed maturities, we have invested, and expect to continue to invest, a portion of funds in common equity securities and below investment grade fixed maturities and other assets.

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Municipal bond exposure

Our municipal bond portfolio constitutes approximately 13% of invested assets at June 30, 2012 and is 98% investment grade, without regard to any insurance enhancement. Currently, approximately 27% of the municipal bond portfolio has an insurance enhancement. The portfolio is well diversified by geography, sector and source of payment, and consists primarily of taxable securities. Approximately 63% of the portfolio is invested in revenue bonds and 37% in general obligation bonds. Revenue bonds are backed by the revenue stream generated by the services provided by the issuer, while general obligation bonds are backed by the authority that issued the debt and are secured by the taxing powers of those authorities.

European sovereign and non-sovereign debt exposure

Our European fixed maturity credit exposure at June 30, 2012 was as follows:

					Non-Sovereign
(in millions)	Sovereign				Foreign Agency				Financial				Non-Financial				Total
Country:	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
United Kingdom	$	88.4	$	89.0	$	-	$	-	$	335.6	$	337.4	$	234.1	$	245.7	$	658.1	$	672.1
Germany		0.2		0.2		51.6		52.0		0.2		0.2		65.9		69.4		117.9		121.8
Switzerland		-		-		-		-		16.1		16.3		63.6		69.3		79.7		85.6
France		-		-		4.8		4.8		18.4		17.0		56.4		58.8		79.6		80.6
Supranationals		-		-		75.3		75.7		-		-		-		-		75.3		75.7
The Netherlands		-		-		13.8		13.9		24.0		24.3		9.1		10.8		46.9		49.0
Spain		-		-		-		-		12.4		12.3		27.5		27.2		39.9		39.5
Sweden		-		-		1.0		1.0		14.9		15.5		12.8		13.2		28.7		29.7
Italy		-		-		-		-		-		-		16.1		15.5		16.1		15.5
Belgium		-		-		-		-		-		-		12.9		13.5		12.9		13.5
Ireland		-		-		-		-		-		-		9.4		10.4		9.4		10.4
Portugal		-		-		-		-		-		-		10.8		10.0		10.8		10.0
Norway		-		-		3.3		3.4		2.6		2.5		3.2		3.5		9.1		9.4
Luxembourg		-		-		-		-		-		-		9.5		9.3		9.5		9.3
Denmark		-		-		-		-		-		-		1.8		1.8		1.8		1.8
Total	$	88.6	$	89.2	$	149.8	$	150.8	$	424.2	$	425.5	$	533.1	$	558.4	$	1,195.7	$	1,223.9

Our sovereign debt totals $89.2 million, or 1.2% of investment assets, and is almost exclusively limited to the highly rated country of the U.K. We have no sovereign debt of lower rated countries such as Greece, Ireland, Italy, Portugal and Spain (“GIIPS”). Our supranational and foreign agency exposure totals $150.8 million, or 2.0% of investment assets, and primarily consists of debt securities from the highly rated countries of Germany, the Netherlands, France and Norway. Exposure to European banks, excluding those that are based in the U.K., totals $88.1 million, or 1.2% of investment assets. Also, we hold money market funds totaling $113.3 million, or 1.5% of investment assets, which are comprised of a well-diversified portfolio of short-term debt securities of predominately large financial institutions domiciled in highly rated countries. The remainder of our European non-sovereign debt exposure, excluding the U.K., is $312.7 million, which represents 4.1% of investment assets. Generally, these securities are high quality, large cap multi-national companies that are well diversified by sector, country and issuer. Included in our non-financial, non-sovereign exposure are credits domiciled in Spain, Italy, Ireland and Portugal totaling $63.1 million, or 0.8% of investment assets. These consist of large market capitalization issuers that provide essential products and/or services.

The table above represents all European countries in which we have exposure. We determined country exposures based on the country of domicile for the ultimate parent company of the various issuers we hold; however, in light of the economic and financial inter-relatedness and dependencies that exist among European countries and related financial systems, economic turmoil in one country could trigger a contagion effect on other countries. We believe the quality of our European credit exposure remains sound based on ratings and issuer strength, position in the capital structure, support through guarantees and partial government ownership by highly rated countries, diversity and quality of non-financial issuers and blend of industry exposures, and yield curve position. We believe that we do not have meaningful indirect exposures in our portfolio and we do not invest in credit derivatives.

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We manage our country exposure using fundamental analysis coupled with relative value considerations. Investment decisions are based on the combination of a top-down macroeconomic perspective and bottom-up credit security analysis. We monitor political and economic developments; progress toward attainment of growth and budget targets; developments related to policy, reform and regulatory initiatives from European officials; progress toward funding objectives, including the availability and cost of funding; outlook for credit ratings; ability of banks to meet increased regulatory capital standards, operate in a weakened macroeconomic environment, and maintain adequate liquidity and sufficient access to capital to meet funding requirements; and contagion throughout the financial system as evidenced by increased costs for interbank funding, lower prices for stocks and corporate bonds, as well as the availability of capital.

We actively manage our current holdings and seek securities with the best combination of credit strength and valuation. As we invest new capital, we have a defensive bias based on the uncertainty regarding the strength and duration of economic recovery, downside risks as a result of the European debt crisis and our belief that volatility will remain high based on these challenges. Accordingly, some areas of our focus include providers of essential services or products best positioned to navigate the period of weak growth; industrials with greater international exposure, either locally or via exports, particularly to the developing world, which we view more favorably based on higher growth assumptions for emerging market economies; and financial institutions best positioned regarding asset quality, liquidity and capital adequacy.

Overall economic growth remains weak throughout the European region and is expected to have a dampening effect on earnings growth and credit quality for some time. Volatility remains high and European sovereign risk premiums are elevated, although down from peak levels. Officials in Europe have not been able to engineer a lasting solution to the debt crisis or find a way to address the twin objectives of stimulating economic growth while balancing fiscal budgets. However, we believe leaders remain committed to protecting the currency union and improving financial stability. Although the timing and degree of success toward achieving sustained improvement regarding the European crisis remains highly uncertain, we do not anticipate that any future developments related to our European sovereign and non-sovereign debt exposure will have a material effect on our financial condition, results of operation or liquidity.

Other-than-Temporary Impairments

For the three months ended June 30, 2012, we recognized $1.6 million of other-than-temporary impairments (“OTTI”) on fixed maturities and equity securities in earnings. OTTI on debt securities was $1.4 million, of which $0.9 million related to a below investment grade corporate bond in the utilities sector that we intend to sell and $0.5 million related to estimated credit losses on corporate and residential mortgage-backed securities. Additionally, we recognized OTTI on common stock of $0.2 million. For the three months ended June 30, 2011, we recognized in earnings $0.8 million of OTTI on below investment grade fixed maturity securities which we intended to sell, including $0.6 million related to corporate bonds and $0.2 million related to municipal bonds.

For the first six months of 2012, we recognized in earnings $3.5 million of OTTI, of which $3.3 million related to fixed maturities and $0.2 million related to equity securities. OTTI on debt securities consisted of $2.4 million of below investment grade corporate bonds, primarily in the utilities sector, that we intend to sell and $0.9 million related to estimated credit losses, including $0.5 million on investment grade residential mortgage-backed securities and $0.4 million on below investment grade corporate bonds primarily in the industrial sector. For the first six months of 2011, we recognized $2.2 million of OTTI on fixed maturity and equity securities in earnings. OTTI on debt securities was $1.7 million, primarily on below investment grade bonds that we intended to sell, of which $0.9 million was related to a municipal bond, $0.6 million related to corporate bonds and $0.2 million related to estimated credit losses on investment grade residential mortgage-backed securities. Additionally, we recognized OTTI on a common stock of $0.5 million.

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Unrealized Losses

The following table provides information about our fixed maturities and equity securities that are in an unrealized loss position. (See also Note 6 – “Investments” of the Notes to Interim Consolidated Financial Statements.)

	June 30, 2012				December 31, 2011
(in millions)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Fixed maturities:
Investment grade:
12 months or less	$	5.1	$	497.8	$	27.1	$	1,175.5
Greater than 12 months		16.9		131.0		14.3		108.9
Total investment grade fixed maturities		22.0		628.8		41.4		1,284.4
Below investment grade:
12 months or less		5.4		45.3		9.9		126.9
Greater than 12 months		6.2		61.2		3.7		14.7
Total below investment grade fixed maturities		11.6		106.5		13.6		141.6
Equity securities:
12 months or less		4.9		76.9		8.8		87.2
Greater than 12 months		1.1		7.9		-		-
Total equity securities		6.0		84.8		8.8		87.2
Total	$	39.6	$	820.1	$	63.8	$	1,513.2

Gross unrealized losses on fixed maturities and equity securities decreased $24.2 million, or 37.9%, to $39.6 million at June 30, 2012, compared to $63.8 million at December 31, 2011. The decrease in unrealized losses was primarily attributable to lower interest rates and tightening of credit spreads across all sectors. At June 30, 2012, gross unrealized losses consist primarily of $21.7 million of corporate fixed maturities, $8.1 million of mortgage-backed securities, $6.0 million of equity securities and $2.7 million in municipal securities.

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, 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, such 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 is less robust than we expect or reverts to recessionary trends; 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 are such adverse changes, an OTTI would be recognized as a realized loss. 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.

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The following table sets forth gross unrealized losses for fixed maturities by maturity period and for equity securities at June 30, 2012 and December 31, 2011. 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.

(in millions)		June 30, 2012			December 31, 2011
Due in one year or less	$		0.5	$		1.9
Due after one year through five years			7.0			18.9
Due after five years through ten years			7.2			11.2
Due after ten years			10.0			12.9
			24.7			44.9
Mortgage-backed and asset-backed securities			8.9			10.1
Total fixed maturities			33.6			55.0
Equity securities			6.0			8.8
Total fixed maturities and equity securities	$		39.6	$		63.8

The carrying values of defaulted fixed maturity securities on non-accrual status at June 30, 2012 and December 31, 2011 were not material. The effects of non-accruals 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 $1.2 million for the six months ended June 30, 2012 and 2011. Any defaults in the fixed maturities portfolio in future periods may negatively affect investment income.

Our investment portfolio and shareholders’ equity can be significantly impacted by changes in market values of our securities. As the U.S. and global financial markets and economies remain unstable, market volatility could increase and defaults on fixed income securities could occur. As a result, 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.

Fiscal and monetary policies in place, primarily in the United States and Europe, are supportive of moderate economic growth. The removal or modification of these policies could have an adverse effect on issuers’ level of business activity or liquidity, increasing the probability of future defaults. 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 and we could incur additional realized and unrealized losses in future periods.

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Other Items

Net income also includes the following items:

	Three Months Ended June 30,
(in millions)		Commercial Lines		Personal Lines		Chaucer		Other Property and Casualty		Discontinued Operations		Total
2012
Net realized investment losses		$	(1.9)	$	(1.1)	$	(0.4)	$	-	$	-	$	(3.4)
Costs related to acquired businesses			-		-		-		(0.9)		-		(0.9)
Net foreign exchange gains			-		-		-		0.3		-		0.3
Gain from sale of Citizens Management, Inc			-		-		-		-		10.9		10.9
Other discontinued operations, net of taxes			-		-		-		-		0.1		0.1
2011
Net realized investment gains		$	1.4	$	0.5	$	-	$	11.5	$	-	$	13.4
Gain from the retirement of debt			-		-		-		0.3		-		0.3
Costs related to acquired businesses			-		-		-		(11.1)		-		(11.1)
Loss on derivative instruments			-		-		-		(4.7)		-		(4.7)
Discontinued operations, net of taxes			-		-		-		-		0.6		0.6
	Six Months Ended June 30,
(in millions)		Commercial Lines		Personal Lines		Chaucer		Other Property and Casualty		Discontinued Operations		Total
2012
Net realized investment gains (losses)		$	(0.2)	$	0.1	$	(0.3)	$	0.1	$	-	$	(0.3)
Costs related to acquired businesses			-		-		-		(2.4)		-		(2.4)
Gain from sale of Citizens Management, Inc			-		-		-		-		10.9		10.9
Other discontinued operations, net of taxes			-		-		-		-		(0.9)		(0.9)
2011
Net realized investment gains		$	2.8	$	2.1	$	-	$	11.8	$	-	$	16.7
Net loss from the retirement of debt			-		-		-		(2.2)		-		(2.2)
Costs related to acquired businesses			-		-		-		(13.8)		-		(13.8)
Loss on derivative instruments			-		-		-		(4.7)		-		(4.7)
Discontinued operations, net of taxes			-		-		-		-		2.0		2.0

We manage investment assets for our Commercial Lines, Personal Lines, and Other Property and Casualty segments based on the requirements of our U.S. combined property and casualty companies. We allocate the investment income, expenses and realized gains to our Commercial Lines, Personal Lines and Other Property and Casualty segments based on actuarial information related to the underlying businesses. We manage investment assets separately for our Chaucer segment.

Net realized losses on investments were $3.4 million for the three months ended June 30, 2012 compared to net realized gains on investments of $13.4 million for the three months ended June 30, 2011. Net realized losses in 2012 are primarily due to a $5.1 million loss on futures contracts relating to the release of tax capital loss carryforwards and $1.6 million of impairments principally from fixed maturities, partially offset by $3.3 million of gains recognized primarily from the sale of fixed maturities. Net realized gains in 2011 are primarily due to $14.1 million of gains recognized from the sale of fixed maturities, partially offset by $0.8 million of other-than-temporary impairments from fixed maturities.

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Net realized losses on investments were $0.3 million for the six months ended June 30, 2012 compared to net realized gains on investments of $16.7 million for the six months ended June 30, 2011. Net realized losses in 2012 are primarily due to the aforementioned $5.1 million loss on futures contracts and $3.5 million of impairments principally from fixed maturities, partially offset by $7.4 million of gains recognized primarily from the sale of fixed maturities as well as $0.7 million of gains on foreign currency hedges. Net realized gains in 2011 are primarily due to $18.5 million of gains recognized from the sale of fixed maturities, partially offset by $2.2 million of other-than-temporary impairments from fixed maturities and to a lesser extent, equity securities.

Acquisition costs were $0.9 million for the three months ended June 30, 2012 compared to $11.1 million for the three months ended June 30, 2011. Acquisition costs were $2.4 million for the six months ended June 30, 2012 compared to $13.8 million for the six months ended June 30, 2011. Acquisition costs primarily consist of advisory, legal, and accounting costs associated with the acquisition of Chaucer on July 1, 2011. See Note 3 – “Acquisitions” in this Form 10-Q for additional information.

On April 30, 2012, we completed the sale of our third party administration subsidiary, Citizens Management, Inc (“CMI”). CMI provided third party workers’ compensation and disability program administration services (such as claims administration, loss prevention and medical cost containment and in-house excess workers’ compensation coverage) to public entities, self–insured employers and group programs. CMI generated total revenues of $4.4 million during the four months ended April 30, 2012 and $12.5 million during the year ended December 31, 2011. Income before taxes totaled $0.7 million during the first four months of 2012, while contributing $2.0 million during 2011. Assets and shareholder’s equity transferred as part of this sale totaled $10.9 million and $0.6 million, respectively. This sale resulted in a gain of $10.9 million after taxes and is included in discontinued operations.

Income Taxes

We are subject to the tax laws and regulations of the U.S. and foreign countries in which we operate. We file a consolidated U.S. federal income tax return that includes the holding company and its U.S. subsidiaries. Generally, taxes are accrued at the U.S. statutory tax rate of 35% for income from the U.S. operations. Our primary non-U.S. jurisdiction is the U.K. The U.K. statutory rate decreased from 26% to 25% effective April 1, 2012. We accrue taxes on certain non-U.S. income that is subject to U.S. tax as a result of being owned by a U.S. shareholder at the U.S. rate. Foreign tax credits, where available, are utilized to offset U.S. tax as permitted. Certain of our non-U.S. income is not subject to U.S. tax until repatriated. Foreign taxes on this non-U.S. income are accrued at the local foreign rate and do not have an accrual for U.S. deferred taxes since these earnings are intended to be permanently reinvested overseas.

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

The provision for income taxes from continuing operations was an expense of $1.3 million in the three months ended June 30, 2012, compared to a benefit of $27.4 million during the same period in 2011. These provisions resulted in consolidated effective tax rates of 11.7% of pre-tax income and 45.5% of pre-tax loss for the three months ended June 30, 2012 and 2011, respectively. These provisions reflect the significant fluctuations in pre-tax GAAP results from 2011 to 2012, i.e. pre-tax loss in 2011 versus pre-tax income in 2012, and changes in our valuation allowance related to capital loss carryforwards of an increase of $1.1 million and a decrease of $4.7 million in the second quarter of 2012 and 2011, respectively. In addition, these provisions reflect the benefits related to tax planning strategies implemented in prior years that had been reflected in Accumulated Other Comprehensive Income of $3.6 million and $2.1 million in the second quarter of 2012 and 2011, respectively. Absent these benefits, the provision for income taxes from continuing operations would have been an expense of $3.8 million or 34.2% and a benefit of $20.6 million or 34.2% for the three months ended June 30, 2012 and 2011, respectively.

Income tax provision on segment income was an expense of $5.1 million during the three months ended June 30, 2012, compared to a benefit of $19.7 million during the same period in 2011. These provisions resulted in effective tax rates for segment income of 33.8% and 33.9% in 2012 and 2011, respectively.

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

The provision for income taxes from continuing operations was an expense of $21.4 million for the six months ended June 30, 2012, compared to a benefit of $17.8 million during the same period in 2011. These provisions resulted in consolidated effective tax rates of 26.1% and 78.4% for the six months ended June 30, 2012 and 2011, respectively. These provisions reflect the significant fluctuations in pre-tax GAAP results from 2011 to 2012, i.e. pre-tax loss in 2011 versus pre-tax income in 2012, and decreases in our valuation allowance related to capital loss carryforwards of $5.8 million in the first six months of 2011. In addition, these provisions reflect the benefits related to tax planning strategies implemented in prior years that had been reflected in Accumulated Other Comprehensive Income of $6.6 million and $4.1 million in the first six months of 2012 and 2011, respectively. Absent these benefits, the provision for income taxes from continuing operations would have been an expense of $28.0 million or 34.2% and a benefit of $7.9 million or 34.8% for the six months ended June 30, 2012 and 2011, respectively.

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Income tax provision on segment income was an expense of $28.6 million during the six months ended June 30, 2012, compared to a benefit of $6.2 million during the same period in 2011. These provisions resulted in effective tax rates for segment income of 33.8% and 33.2% in 2012 and 2011, respectively. The increase in the effective rate is primarily due to higher projected underwriting income in 2012.

In June 2012, we completed a transaction which resulted in the realization, for tax purposes only, of unrealized gains in our investment portfolio of $69.6 million. This transaction enabled us to realize capital loss carryforwards to offset this gain, and resulted in the release of $24.4 million of the valuation allowance we held against the deferred tax asset related to these capital loss carryforwards. The release of $24.4 million was recorded as a benefit in accumulated other comprehensive income. This amount will be released into income from continuing operations, related to non-segment income, in future years, as the investment securities subject to these transactions are sold or mature.

The valuation allowance related to our deferred tax asset was $1.1 million at June 30, 2012, compared to $35.9 million at December 31, 2011, a decrease of $34.8 million. The decrease in this valuation allowance resulted from the transaction described above which utilized our capital loss carryforwards, unrealized appreciation in our investment portfolio, and gain on sale of business included in our Consolidated Statements of Income. Accordingly, we recorded decreases in our valuation allowance of $31.9 million as an adjustment to accumulated other comprehensive income and $2.9 million in discontinued operations.

Critical Accounting Estimates

Interim consolidated financial statements have been prepared in conformity with U.S. GAAP and include certain accounting policies that we consider to be critical due to the amount of judgment and uncertainty inherent in the application of those policies. While we believe that the amounts included in our consolidated financial statements reflect our best judgment, the use of different assumptions could produce materially different accounting estimates. As disclosed in our 2011 Annual Report on Form 10-K, we believe the following accounting estimates are critical to our operations and require the most subjective and complex judgment:

— Reserve for losses and loss expenses

— Reinsurance recoverable balances

— Pension benefit obligations

— Other-than-temporary impairments (“OTTI”)

— Deferred tax assets

For a more detailed discussion of these critical accounting estimates, see our Annual Report on Form 10-K for the year ended December 31, 2011.

Statutory Surplus of U.S. Insurance Subsidiaries

The following table reflects statutory surplus of our U.S. insurance subsidiaries:

(in millions)	June 30, 2012		December 31, 2011
Total Statutory Surplus – U.S. Insurance Subsidiaries	$	1,655.1	$  1,582.8

The statutory surplus for our U.S. insurance subsidiaries increased $72.3 million during the first six months of 2012, primarily due to underwriting results, an increase in unrealized gains, and from changes in admitted tax assets and other non-admitted assets.

The NAIC prescribes an annual calculation regarding risk based capital (“RBC”). RBC ratios for regulatory purposes 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 (which includes Citizens and other U.S. insurance subsidiaries), as of June 30, 2012, 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):

(dollars in millions)	Company Action Level	Authorized Control Level	RBC Ratio Industry Scale	RBC Ratio Regulatory Scale
The Hanover Insurance Company	$    604.3	$    302.2	272%	544%

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Lloyd’s Capital Requirement

Chaucer corporate members operate in the Lloyd’s market, which requires that these members deposit funds, referred to as “Funds at Lloyd’s”, to support their underwriting interests. Lloyd’s sets required capital annually for all participating syndicates based on each syndicate’s business plans, the rating and reserving environment, and discussions with regulatory and rating agencies. Although the minimum capital levels are set by Lloyd’s, it is the responsibility of Chaucer to continually monitor the risk profiles of its managed syndicates to ensure that the level of funding remains appropriate. Such capital is comprised of cash and cash equivalents, investments, undrawn letters of credit provided by various banks and other assets. At June 30, 2012, we are in compliance with the capital requirements. We have the following securities, assets and letters of credit pledged to Lloyd’s to satisfy these capital requirements at June 30, 2012 and expect to be able to meet these capital requirements in the future.

(in millions)
Letters of credit	$	180.0
Reinsurance treaty		95.0
Fixed maturities, at fair value		403.7
Cash and cash equivalents		124.8
Total securities, assets and letters of credit pledged to Lloyd’s	$	803.5

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 to us by our U.S. insurance subsidiaries are subject to limitations imposed by regulators, such as prior notice periods and the requirement that dividends in excess of a specified percentage of statutory surplus or prior year’s statutory earnings receive prior approval (so called “extraordinary dividends”).

Dividend payments to the holding company by our Chaucer business are regulated by U.K. law. Dividends from Chaucer are dependent on dividends from its subsidiaries. Annual dividend payments from Chaucer are limited to retained earnings that are not restricted by capital and other requirements for business at Lloyd’s. Also, Chaucer must provide advance notice to the U.K.’s Financial Services Authority (“FSA”) of certain proposed dividends or other payments from FSA regulated entities. There are currently no plans to repatriate dividends to our holding company from Chaucer. In connection with an intercompany borrowing arrangement with the holding company, interest on a $300 million note is paid by Chaucer on a quarterly basis to the holding company. This interest approximates $5 million quarterly and may be deferred at the election of the holding company. If deferred, the interest is added to the principal. For the six months ended June 30, 2012, Chaucer has paid $16 million of interest, including $5 million relating to 2011 to the holding company.

Sources of cash for our insurance subsidiaries primarily consist of 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 provided by operating activities was $59.3 million during the first six months of 2012, as compared to $102.7 million during the first six months of 2011. The $43.4 million decrease primarily resulted from an increase in loss and LAE payments, partially offset by an increase in premiums.

Net cash used in investing activities was $326.0 million during the first six months of 2012, as compared to net cash provided by investing activities of $130.7 million during the first six months of 2011. During 2012, cash used was primarily related to net purchases of fixed maturities as we invested cash from Chaucer and net investments in equity securities. Cash used to purchase investments was partially offset by cash received from the sale of CMI. In 2011, cash provided was primarily related to net sales of fixed maturities used to fund the Chaucer acquisition.

Net cash used in financing activities was $41.0 million during the first six months of 2012, as compared to net cash provided by financing activities of $195.5 million during the first six months of 2011. During 2012, cash used in financing activities primarily resulted from the payment of dividends to shareholders, repurchases of our common stock and repayments of collateral held for our securities lending program, partially offset by the proceeds from the FHLBB debt borrowings. During 2011, cash provided by financing activities primarily resulted from the issuance, on June 17, 2011, of $300.0 million of unsecured senior debentures. Cash received from the issuance of debt was partially offset by the repurchase of $57.2 million of our junior debentures, repayments of collateral related to our securities lending program, and the payment of dividends to our shareholders.

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At June 30, 2012, THG, as a holding company, held approximately $183.7 million of fixed maturities and cash. We believe our holding company assets are sufficient to meet our future obligations, which consists primarily of our dividends to shareholders (as and to the extent declared), the interest on our senior debentures, additional funds relating to the purchase of Chaucer, certain costs associated with benefits due 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 2012 holding company obligations; however, we may decide to do so.

Dividends to common shareholders are subject to quarterly board approval and declaration. During the first six months of 2012, we paid two quarterly dividends, as declared by the Board, of $0.30 per share to our shareholders totaling $27.0 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 relating to current operations, including the funding of our qualified defined benefit pension plan and the Chaucer pension plan. 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 June 30, 2012. As a result, we currently expect that significant cash contributions will not be required for this plan for several years. The Chaucer pension plan is approximately $30 million underfunded as of June 30, 2012. The ultimate payment amounts for both the defined benefit plan and the Chaucer pension plan are 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. 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 since we expect our insurance 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.

Since October 2007 and through June 2012, our Board of Directors has authorized aggregate repurchases of our common stock of up to $500 million. As of June 30, 2012, we have $125.2 million available for repurchases under these repurchase authorizations. 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. During the first six months of 2012 we purchased 0.3 million shares of our common stock through open market purchases at a cost of $10.0 million. Total repurchases under this program as of June 30, 2012 were 8.8 million shares at a cost of $374.8 million. Additionally, from time to time, we may also repurchase debt.

On August 2, 2011, we entered into a $200.0 million committed syndicated credit agreement which expires in August 2015, with an option to increase the facility to $250.0 million assuming no default and satisfaction of certain other conditions. The agreement also includes a $50 million sub-facility for standby letters of credit that can be used for general corporate purposes. Borrowings, if any, under this agreement are unsecured and incur interest at a rate per annum equal to, at our option, a designated base rate or the three – month LIBOR plus applicable margin. The agreement provides covenants, including but not limited to, maintaining at least a certain level of consolidated equity, maximum consolidated leverage ratios, and an RBC ratio at our primary U.S. domiciled property and casualty companies. We had no borrowings under this agreement in 2011 and 2012.

In November 2011, we entered into a Standby Letter of Credit Facility Agreement (the “Facility Agreement”) not to exceed $180.0 million outstanding at any one time, with the option to increase the amount available for issuances of letters of credit to $270.0 million in the aggregate on one occasion only during the term of the Facility Agreement (subject to the consent of all lenders and assuming no default and satisfaction of other specified conditions). The agreement provides certain covenants including, but not limited to, the syndicates’ financial condition. The Facility Agreement is used to provide regulatory capital supporting Chaucer’s underwriting through two managed syndicates. The Facility Agreement expires on December 31, 2016. A letter of credit commission fee on outstanding letters of credit is payable quarterly, and ranges from 1.50% to 2.125% per annum, depending on our credit ratings for portions that are not cash collateralized, and 0.30% per annum for portions that are cash collateralized. In the first six months of 2012, we collateralized $33.0 million of the $180.0 million outstanding letter of credit. In addition to the commission fee on the uncollateralized outstanding letter of credit, a commitment fee in respect of the unutilized commitments under the Facility Agreement is payable quarterly, and ranges from 0.60% to 0.85% per annum, depending on our credit ratings. Chaucer is also required to pay customary agency fees.

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Simultaneous with the Facility Agreement, in November 2011, we entered into a Guaranty Agreement (the “Guaranty Agreement”) with Lloyds TSB Bank plc, as Facility Agent and Security Agent, pursuant to which, we unconditionally guarantee the obligations of Chaucer under the Facility Agreement. The Guaranty Agreement contains certain financial covenants that require us to maintain a minimum net worth, a minimum risk-based capital ratio at our primary U.S. domiciled property and casualty companies and a maximum leverage ratio, and certain negative covenants that limit our ability, among other things, to incur or assume certain debt, grant liens on our property, merge or consolidate, dispose of assets, materially change the nature or conduct of our business and make restricted payments (except, in each case, as provided by certain exceptions). The Guaranty Agreement also contains certain customary representations and warranties.

At June 30, 2012, we were in compliance with the covenants of the aforementioned debt agreements.

Off-Balance Sheet Arrangements

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

Contingencies and Regulatory Matters

Information regarding contingencies and regulatory matters appears in Part I—Note 12 "Commitments and Contingencies" of the Notes to Interim Consolidated Financial Statements.

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, 2011. This Management’s Discussion and Analysis should be read and interpreted in light of such factors.

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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, equity price risk, and foreign currency exchange risk are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2011, included in our Annual Report on Form 10-K for the year ended December 31, 2011. There have been no material changes in the first six months of 2012 to these risks or our management of them.

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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). Under the supervision and with the participation of our management, including our Chief Executive Officer and the Chief Financial Officer, we 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 were no such changes during the quarter ended June 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

Reference is made to the litigation matters captioned “Durand Litigation” and “Hurricane Katrina Litigation” under “Commitments and Contingencies – Legal Proceedings” in Note 12 of the Notes to Interim Consolidated Financial Statements.

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. 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. We wish to caution readers that accuracy with respect to forward-looking projections is difficult and risks and uncertainties, in some cases, have affected and in the future could affect our actual results and could cause our actual results for the remainder of 2012 and beyond to differ materially from historical results and from those expressed in any of our forward-looking statements. We operate in a business environment that is continually changing, and as such, new risk factors may emerge over time. Additionally, our business is conducted in competitive markets and therefore involves a higher degree of risk. 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. Some of the factors that could cause actual results to differ include, but are not limited to, the following:

— changes in the demand for our products;

— risks and uncertainties with respect to our ability to retain profitable policies in force and attract profitable policies;

— changes in our estimates of loss and loss adjustment expense reserves, resulting in adverse loss development;

— changes in frequency and loss trends;

— changes in regulation and economic conditions, particularly with respect to regions where we have geographical concentrations;

— volatile and unpredictable developments, including severe weather and other natural physical events, catastrophes and terrorist actions;

— risks and uncertainties with respect to our ability to collect all amounts due from reinsurers and to maintain current levels of reinsurance in the future at commercially reasonable rates, or at all;

— heightened volatility, fluctuations in interest rates, inflationary pressures, default rates and other factors that affect investment returns from our investment portfolio;

— risks and uncertainties associated with our participation in shared market mechanisms, mandatory reinsurance programs and mandatory and voluntary pooling arrangements;

— an increase in mandatory assessments by state guaranty funds or by Lloyd’s Central Fund;

— actions by our competitors, many of which are larger or have greater financial resources than we do;

— loss or retirement of key employees;

— operating difficulties and other unintended consequences from acquisitions and integration of acquired businesses, the introduction of new products and related technology changes and new operating models;

— changes in our claims-paying and financial strength ratings;

— negative changes in our level of statutory surplus;

— risks and uncertainties with respect to our growth strategies;

— our ability to declare and pay dividends;

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— changes in accounting principles and related financial reporting requirements;

— errors or omissions in connection with the administration of any of our products;

— risks and uncertainties with technology, data security and/or outsourcing relationships may negatively impact our ability to conduct business;

— an inability to be compliant with new regulations such as Solvency II or existing regulation such as Sarbanes-Oxley;

— unfavorable judicial or legislative developments; and

— other factors described in such forward-looking statements.

In addition, historical and future reported financial results include estimates with respect to premiums written and earned, reinsurance recoverables, loss and loss adjustment reserves and development, fair values of certain investments, other assets and liabilities, tax, contingent and other liabilities, and other items. These estimates are subject to change as more information becomes available.

For a more detailed discussion of our risks and uncertainties, see also Item 1A – Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2011.

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

Issuer Purchases of Equity Securities

Shares purchased in the second quarter of 2012 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
April 1 – 30, 2012		-		$	-		-			$135,200,000
May 1 – 31, 2012 (1)		216,915			38.83		216,732			126,800,000
June 1 – 30, 2012 (2)		43,844			37.94		42,756			125,200,000
Total		260,759		$	38.68		259,488		$	125,200,000

(1) Includes 183 shares withheld to satisfy exercise price and/or tax withholding amounts due from employees associated with the exercise or vesting of equity awards.

(2) Includes 1,088 shares withheld to satisfy exercise price and/or tax withholding amounts due from employees associated with the exercise or vesting of equity awards.

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ITEM 6 - EXHIBITS

EX – 10.1	Description of 2012-2013 Non-Employee Director Compensation
EX – 10.2	The Hanover Insurance Group Retirement Savings Plan, as amended
EX – 10.3	The Hanover Insurance Group 2006 Long-Term Incentive Plan, as amended, previously filed as Annex I to the Registrant’s Proxy Statement (Commission File No. 001-13754) filed with the Commission on March 29, 2012 and incorporated herein by reference.
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 June 30, 2012 formatted in eXtensible Business Reporting Language (“XBRL”): (i) Consolidated Statements of Income for the three and six months ended June 30, 2012 and 2011; (ii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011; (iii) Consolidated Balance Sheets at June 30, 2012 and December 31, 2011; (iv) Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2012 and 2011; (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011, and (vi) related notes to these financial statements.

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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
August 2, 2012	/s/ Frederick H. Eppinger, Jr.
Date	Frederick H. Eppinger, Jr.
	President, Chief Executive Officer
	and Director
August 2, 2012	/s/ David B. Greenfield
Date	David B. Greenfield
	Executive Vice President,
	Chief Financial Officer and
	Principal Accounting Officer

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EX-10.1

Exhibit 10.1

The Hanover Insurance Group, Inc.

2012-2013 Compensation of Non-Employee Directors

— For the annual service period beginning on May 15, 2012, the date of the 2012 Annual Meeting of Shareholders —

Standard Fees	Description
Annual Director Retainer
- Stock Component	- $100,000 valuation
	- Granted on May 15, 2012. Issued pursuant to Company’s 2006 Long-Term Incentive Plan (the “2006 Plan”)
- Cash Component	- $60,000
	- Payable on or after May 15, 2012
Committee Chairperson Annual Retainer	- $9,000 for the chairperson of the Nominating and Corporate Governance Committee, payable on or after May 15, 2012
	- $12,500 for the chairperson of the Compensation Committee, payable on or after May 15, 2012
	- $20,000 for the chairperson of the Audit Committee, payable on or after May 15, 2012
Chairman of the Board Retainer	- $100,000 - Payable on or after May 15, 2012
Committee Annual Retainer	- $4,500 for each member of the Nominating and Corporate Governance Committee, payable on or after May 15, 2012
	- $6,250 for each member of the Compensation Committee, payable on or after May 15, 2012
	- $10,000 for each member of the Audit Committee, payable on or after May 15, 2012

Other
Deferred Compensation Plan	- Directors may defer receipt of their cash and stock compensation. Deferred cash amounts are accrued in a memorandum account that is credited with interest derived from the so-called General Agreement on Tariffs and Trade (GATT) Rate (3.02% in 2012). At the election of each director, cash deferrals of retainers may be converted to Common Stock of the Company with such stock issued pursuant to the 2006 Plan
Conversion Program	- At the election of each director, cash retainers may be converted into Common Stock of the Company with such stock issued pursuant to the 2006 Plan
Reimbursable Expenses	- Travel and related expenses incurred in connection with service on the Board of Directors and its Committees
Matching Charitable Contributions	- Company will provide matching contributions to qualified charitable organizations up to $5,000 per director per year

EX-10.2

Exhibit 10.2

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

Amended and restated generally effective January 1, 2010

TABLE OF CONTENTS

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

ARTICLE I	NAME, PURPOSE AND EFFECTIVE DATE OF PLAN AND RESTATED PLAN	1
ARTICLE II	DEFINITIONS	1
ARTICLE III	ELIGIBILITY AND PARTICIPATION	21
ARTICLE IV	EMPLOYER CONTRIBUTIONS AND FORFEITURES	23
ARTICLE V	EMPLOYEE CONTRIBUTIONS AND ROLLOVER CONTRIBUTIONS	29
ARTICLE VI	PROVISIONS APPLICABLE TO TOP HEAVY PLANS	35
ARTICLE VII	LIMITATIONS ON ALLOCATIONS	38
ARTICLE VIII	PARTICIPANT ACCOUNTS AND VALUATION OF ASSETS	43
ARTICLE IX	401(k) ALLOCATION LIMITATIONS	44
ARTICLE X	401(m) ALLOCATION LIMITATIONS	51
ARTICLE XI	IN-SERVICE WITHDRAWALS	55
ARTICLE XII	PLAN LOANS	58
ARTICLE XIII	RETIREMENT, TERMINATION AND DEATH BENEFITS	60
ARTICLE XIV	PLAN FIDUCIARY RESPONSIBILITIES	74
ARTICLE XV	BENEFITS COMMITTEE	78
ARTICLE XVI	INVESTMENT OF THE TRUST FUND	79
ARTICLE XVII	CLAIMS PROCEDURE	83
ARTICLE XVIII	AMENDMENT AND TERMINATION	84
ARTICLE XIX	MISCELLANEOUS	86

THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

ARTICLE I

NAME, PURPOSE AND EFFECTIVE DATE OF PLAN AND RESTATED PLAN

1.01 Name of Plan. The name of the Plan is The Hanover Insurance Group Retirement Savings Plan. Prior to January 1, 2005, the Plan was known as “The Allmerica Financial Employees’ 401(k) Matched Savings Plan”. Effective January 1, 2005, the Plan became known as “The Allmerica Financial Retirement Savings Plan”. Effective December 1, 2005, the Plan became 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 15.04 and 18.05, 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, 2010 (except for those provisions of the Plan which have an alternative effective date). Except to the extent otherwise specifically provided herein, the provisions of the amended and restated Plan as set forth herein shall apply to a Participant who is in the employ of the Employer on or after January 1, 2010. The rights and benefits of any Participant whose employment with the Employer terminated prior to January 1, 2010, shall be determined in accordance with the provisions of the Plan as in effect from time to time prior to January 1, 2010, provided, however, that if the Account balance of any such Participant has not been completely distributed before January 1, 2010, then such Account balance shall be invested, accounted for and distributed in accordance with the provisions of the Plan as set forth in this document except as otherwise required by applicable law or as otherwise specifically provided herein.

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.

2.02 “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.

2.03  (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 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).

2.04 “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.

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

2.06 “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.

2.07 “Automatic Contributions” shall mean the Salary Reduction Contributions that result from the operation of this Section 5.05(c) of the Plan.

2.08 “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.

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

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2.10 “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).

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).

2.11 “Compensation” shall mean:

(a) 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;

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(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;

(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, 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;

(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;

(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 Plan Administrator.

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(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), 402(h), and 403(b).

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.

5

(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.

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

6

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 414(u)(l)) 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.

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.

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(d) For Plan Years beginning on and after January 1, 2008, 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)).

2.12 “Eligible Employee” shall mean an Employee who has satisfied the requirements to participate in this Plan as set forth in Section 3.01.

2.13 “Eligible Participant” shall mean an Eligible Employee subject to the Automatic Contribution Arrangement as provided for in Section 5.05(b) of the Plan.

2.14 “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.

2.15 “Employee” shall mean any individual who is employed by the Employer.

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2.16 “Employer” shall mean The Hanover Insurance Company; provided that, prior to January 1, 2008 “Employer” shall mean First Allmerica Financial Life Insurance Company.

2.17 “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.

2.18 “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.

2.19 “First Allmerica” shall mean First Allmerica Financial Life Insurance Company.

2.20 “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.

2.21 “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.

2.22 “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.

2.23 “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.

2.24 “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 is 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.

2.25 “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 2.25.

(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.

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

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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 Subsection (d)(i) shall also be applied under this paragraph 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 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.

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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 2.25:

(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) for periods prior to January 1, 2008 with First Allmerica; or

(vi) 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 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 workweek 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.

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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 2.25;

(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 2.25 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.

2.26 “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.

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2.27 “Key Employee”. In determining whether the Plan is top-heavy for Plan 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).

2.28 “Limitation Year” shall mean a calendar year. 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).

2.29 “Match Contribution” shall mean the contribution made by the Employer to the Trust pursuant to Section 4.02 of the Plan.

2.30 “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.

2.31 “Non-Elective Employer Contributions” shall mean Employer contributions that are made by the Employer pursuant to Section 4.03 of the Plan.

2.32 “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.

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

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

2.35 “Normal Retirement Age” shall mean the date on which the Participant attains Age 65.

2.36 “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.

2.37 “Participant” shall mean an Eligible Employee and, where the context requires, a Former Participant.

2.38 “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.

2.39 “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.

2.40 “Plan Year” shall mean a calendar year.

2.41 “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.

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2.42 “Qualified Default Investment Alternative” shall mean an investment alternative available to Participants and Beneficiaries that satisfies the requirements of ERISA Section 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).

2.43 “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.

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.

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

(i) Age 55; or

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

2.45 “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.

2.46 “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.

2.47 “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.

2.48 “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.

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

2.50 “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.

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2.51 “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.

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

2.53 “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.

2.54 “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.

2.55 “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.

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.

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

2.57 “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.

2.58 “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.

2.59 “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.

2.60 “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.

2.61 “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).

2.62 “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.

2.63 “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.

2.64 “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.

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2.65 “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.

ARTICLE III

ELIGIBILITY AND PARTICIPATION

3.01 (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.

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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

(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.

Special rules for certain persons who were employed by One Beacon Insurance Group, LTD. or any business entity affiliated with One Beacon Insurance Group, LTD. immediately before being employed by the Employer are stated in Appendix A attached hereto.

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.

Special rules for certain persons who were employed by (i) Professionals Direct, Inc. or its direct or indirect subsidiaries; (ii) Verlan Holdings, Inc. or its direct or indirect subsidiaries; or (iii) AIX Holdings, Inc. or its direct or indirect subsidiaries, immediately before being employed by the Employer are stated in Appendix C attached hereto.

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(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.

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.

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.

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), to the extent and in the manner specified in Sections 3.01(b), 5.04, and 5.05.

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 15th business day of the month following the month in which the Salary Reduction Contributions would have otherwise been payable to the Participant.

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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).

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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”.

4.03 Non-Elective Employer Contributions.

(a) 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.

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.

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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.

(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.

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

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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 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.

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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 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 Contributions under USERRA. For Plan Years beginning on and after January 1, 2008, the Employer shall also make Match Contributions, Top-Heavy minimum contributions and any other Employer contribution for the benefit of Participants who are covered by USERRA. Match 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.

4.06 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.

4.07 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.

4.08 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 4.09.

4.09 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. 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.

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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.

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.

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. 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.

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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.

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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.

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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.

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(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.

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(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 the 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.

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(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.

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.

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.

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(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 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

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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 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.

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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 7.12-7.16 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 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.

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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 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 2008-50 or any superseding guidance, including, but not limited to, the preamble of the Final Treasury Regulations under Code Section 415.

7.05  (a) Aggregation and Disaggregation of Plans. Sections 7.06 through 7.11 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.

7.06 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

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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.

7.07 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.

7.08 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.

7.09 If, pursuant to Section 7.08, 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.

7.10 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.

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

(Sections 7.12 - 7.16 are definitions used in this Article VII).

7.12 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.

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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.

For this purpose, any Excess Amount applied under Section 7.11 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)(2) of the Internal Revenue Code, which is part of a defined benefit pension 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, or 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.

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 2.10; 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 13.11.

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

7.14 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).

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

7.16 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) 100 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

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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. 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.

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.

For Plan Years beginning on or after January 1, 2006, 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 Employees 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.

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If any Highly Compensated Employee is an Eligible Employee 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. For Plan Years beginning on or after January 1, 2006, notwithstanding the foregoing, certain plans shall be separate if mandatorily disaggregated under the regulations of Code Section 401(k).

(b) “Average Actual Deferral Percentage” means the average (expressed as a percentage) of the Actual Deferral Percentages of a group.

(c) “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).

(d) “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.

(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.

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(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:

(i) The Average Actual Deferral Percentage for Eligible Employees 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 Employees 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 Employees who are Highly Compensated Employees does not exceed the Average Actual Deferral Percentage for Non-Highly 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. 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 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.

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(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 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

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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 4.06 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.

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. For Plan Years beginning before January 1, 2009, 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. This section shall be effective for Plan Years beginning on and after January 1, 2006 and before January 1, 2009.

(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 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.

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(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 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.

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).

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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. This section shall be effective for Plan Years beginning on and after January 1, 2006. 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. 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.

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.

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.

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.

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ARTICLE X

401(m) ALLOCATION LIMITATIONS

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.

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. 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). 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.

For Plan Years beginning on or after January 1, 2006, 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 Employees 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.

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If any Highly Compensated Employee is an eligible to participate 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).

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) “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 Employees 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 Employees 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

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by 2, provided that the Average Contribution Percentage for Eligible Employees 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.

10.03  Refund and Forfeiture of Excess 401(m) Contributions. For Plan Years beginning on or after January 1, 2006, notwithstanding any other provision of this Plan except Sections 10.05 and 10.06, Excess 401(m) 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. 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.

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.

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. For Plan Years beginning on and after January 1, 2006:

(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

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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 set forth below.

(b) Targeted Matching Contribution Limit. A Match Contribution with respect to a Salary Reduction Contribution for a Plan Year is not taken into account under the Actual Contribution Percentage Test for a 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 a 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 (i) 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 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

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(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.

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 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, 401(k) and Non-Elective Employer Contribution 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 from the vested portion of his or her Match Contribution or 401(k) Account. During the period beginning January 1, 2004 and ending April 27, 2010 and on and after the date of the compliance letter issued by the Internal Revenue Service in response to the voluntary correction compliance submission (filed by the Plan Sponsor October 29, 2010) that approves the amendment adding this sentence to the Plan, a Participant who has attained age 59^1/2 or is Totally and Permanently Disabled may also withdraw any part or all of the vested portion of his or her Non-Elective Employer Contribution Account. For Plan Years

55

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.

During the period beginning on November 10, 2008 and ending May 26, 2010, a Participant shall have the right to request the Plan Administrator for a “financial hardship” withdrawal in cash which may be funded as provided for above and with amounts from the vested portion of the Participant’s Match Contribution and Non-Elective Employer Contribution Accounts; provided that in the case of the Participant’s Match Contribution Account, any such withdrawal shall be limited to amounts from the portion of the Participant’s Match Contribution Account which is attributable to Match Contributions credited to the Participant’s Match Contribution Account for the Plan Years ending December 31, 2005, 2006, 2007, and 2008 as adjusted for earnings and losses.

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.

(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;

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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;

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 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.

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 13.08.

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 Plan Administrator 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 Plan Administrator’s rules and procedures for Plan loans.

To the extent required under Code Sections 401(a)(11) and 417 and the Regulations promulgated thereunder, a Participant must obtain the consent of his or her spouse, if any, within the 90-day period (180-day period for Plan Years beginning January 1, 2007 and thereafter) 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 Code, but shall be deemed to meet any requirements contained in such section relating to the consent of any subsequent spouse.

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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 Plan Administrator 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. The borrower shall repay any loan 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.

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.

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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 19.03 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, dies, 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 of all Participants, plus earnings thereon, shall be 100% vested and nonforfeitable at all times.

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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.

For Plan Years beginning on or after January 1, 2006, 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).

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 13.06, 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 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.

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 13.08.

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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 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 severs employment 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 13.08. 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  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.

13.05  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 13.08. If a Participant does not designate a Beneficiary and is not married at the date of his or her death, the estate of

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the Participant shall be deemed to be the designated Beneficiary. For Plan Years beginning on and after January 1, 2008, 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 13.08) or (ii) a spouse or former spouse who is an Alternate Payee under a Qualified Domestic Relations Order.

13.06  Distribution of Benefits. 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.

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 13.12 of the Plan, shall be deemed to be an election to defer commencement of payment of any benefit sufficient to satisfy this Section of the Plan. 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, 13.07, 13.11 and 13.12, 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 elect 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 13.08

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Notwithstanding the foregoing, if on the date of severance from employment 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 13.08. If a Former Participant who was married on the date of his or her severance from employment is not married at Age 55, at Age 55 the Former Participant’s Rollover Account (as described in Section 13.03) 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 Beneficiary shall be entitled to a death benefit pursuant to Section 13.03.

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

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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.

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 annuity 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.

13.07  Automatic Joint and Survivor Annuity. Notwithstanding anything in Section 13.06 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

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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 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.

13.08  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 13.05. 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. 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 such 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; 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).

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 benefits. The number of revocations shall not be limited.

13.09  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.

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13.10   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 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.

13.11   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 13.14, 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 non-vested 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 13.06 and 13.13. Notwithstanding the foregoing, such a Participant may elect to have payments commence at any time after termination in accordance with Section 13.06. Partial distributions of vested benefits will not be permitted except in accordance with Section 13.06. The non-vested 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 and before March 27, 2005; 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 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.

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Except as provided below, the non-vested 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 severs employment 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 Trustee has received the required repayment. 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.

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.

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13.12   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 and before March 28, 2005, 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 (180-day period for Plan Years beginning January 1, 2007 and thereafter) 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/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. 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 Code Section 417(a)(3), if applicable, and shall be provided no less than 30 days and no more than 90 days (180 days for Plan Years beginning January 1, 2007 and thereafter) 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 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.

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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) 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.

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 Code Section 401(a)(9) or Code Section 415. 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 Code Section 4975(e)(7)), 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 Code Section 4975(e)(7)) 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.

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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.

13.13   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 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 Code Section 401(a)(9); any hardship distribution described in Code 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. For Plan Years beginning on and after January 1, 2008, 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.

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(ii) Eligible retirement plan: An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified Plan described in Code Section 401(a), that accepts the distributee’s eligible rollover distribution. Effective for Plan Years beginning on and after January 1, 2006, 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. 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.

(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 Code Section 414(p), 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.

(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.

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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 Regulation 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.

13.14   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. 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.

13.15   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 distributions made prior to March 28, 2005, the Plan shall distribute the Participant’s entire vested Account balances as soon as administratively feasible.

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13.16   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 Section 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 a Salary Reduction Contribution or other 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 may take a Qualified Reservist Distribution if the following are satisfied:

(1) the distribution consists solely of elective deferrals (Salary Reduction Contributions);

(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.

ARTICLE XIV

PLAN FIDUCIARY RESPONSIBILITIES

14.01   Plan Fiduciaries. The Plan Fiduciaries shall be:

(i) the Trustee(s) of the Plan;

(ii) the Plan Administrator; and

(iii) such other person or persons as may be designated by the Plan Administrator in accordance with the provisions of this Article XIV.

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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 the Employer 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 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;

(ii) establish an investment policy and funding method consistent with objectives of the Plan and with the requirements of applicable laws and regulations;

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(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

(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 Treasury Regulation Section 1.401(a)-13(c)(2)(iii).

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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 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.

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ARTICLE XV

BENEFITS COMMITTEE

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.

15.04   Costs and Expenses of Administration. 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.

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 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.

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ARTICLE XVI

INVESTMENT OF THE TRUST FUND

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.

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 (“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 he liquidated.

All collective investment trusts and group trusts shall also conform to the terms of the Plan.

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, which directions must be followed by the Trustee, subject to the restriction contained above restricting investments in 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 he 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.

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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; provided that for Plan Years beginning on or after January 1, 2009, the provisions of Section 5.05(f) of the Plan shall apply with respect to a default investment fund selected by the Plan Administrator. 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. 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, except, notwithstanding anything in the Plan to the contrary, and effective at the close of trading on November 2, 2009, directions to invest in 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 in 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 19.01.

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.

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(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.

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(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.

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ARTICLE XVII

CLAIMS PROCEDURE

17.01   Claims Fiduciary. 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.

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.

17.02   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.

17.03   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 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.

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17.04   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 Plan Administrator 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.

17.05   Decision on Review of Denial of Claim. The Plan Administrator 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 XVIII

AMENDMENT AND TERMINATION

18.01   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 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.

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18.02   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. 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.

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 18.05.

Subject to Section 18.05, 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.

18.03   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.

18.04   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 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.

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18.05   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 XIX

MISCELLANEOUS

19.01   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 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.

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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.

19.02   USERRA Compliance. For Plan Years beginning on or after January 1, 2006, 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.

19.03   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.

19.04   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 by reference thereto.

19.05   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.

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19.06   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.

19.07   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 Plan Administrator assumes any liability or responsibility therefor.

19.08   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 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.

19.09   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 Treasury Regulation Section 1.401(a)-21, in addition to all otherwise applicable requirements relating to the specific communication.

19.10   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.

EXECUTED, this 21st day of December, 2011.

The Hanover Insurance Company
By:	/s/ Lorna Stearns
	Lorna D. Stearns, Vice President

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APPENDIX A

Special provisions applicable to Employees formerly employed by One Beacon Insurance Group, LTD. or a business entity affiliated with One Beacon 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., One Beacon Insurance Group, LTD. and certain business entities affiliated with One Beacon Insurance Group, LTD. and (ii) who was employed by One Beacon Insurance Group, LTD. or a business entity affiliated with One Beacon 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 One Beacon Insurance Group, LTD. or any business entity affiliated with One Beacon 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 One Beacon Insurance Group, LTD. or a business entity affiliated with One Beacon 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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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.

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APPENDIX C

Special provisions applicable to Employees formerly employed by (i) Professionals Direct, Inc. or its direct or indirect subsidiaries (“PDI”); (ii) Verlan Holdings, Inc. or its direct or indirect subsidiaries (“Verlan”); or (iii) AIX Holdings, Inc. or its direct or indirect subsidiaries (“AIX”).

(a) PDI

Pursuant to a certain Agreement and Plan of Merger by and among Professionals Direct, Inc., Hanover Acquisition Corp. and The Hanover Insurance Group, Inc. dated June 25, 2007, on September 14, 2007 (the “PDI Closing Date”), an Affiliate of the Employer acquired Professionals Direct, Inc. and its subsidiaries. Employees of PDI who continued to be employed by PDI after the PDI Closing Date (“PDI Closing Hires”) remained employees of PDI (now an Affiliate of Employer) on a separate PDI payroll up to and through December 31, 2007 (the “PDI Transition Period”) when their employment was transferred from PDI to the Employer.

(1) Notwithstanding anything elsewhere in the Plan to the contrary, the following special rules shall apply to PDI Closing Hires:

(i) PDI Closing Hires shall be eligible to participate in the Plan, subject to its provisions, effective as of the PDI Closing Date and to the same extent that such employees would otherwise have been eligible to participate in the Plan had such PDI Closing Hires commenced employment with the Employer on the PDI Closing Date.

(ii) 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 PDI 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 (or if terminated during the PDI Transition Period, until the date of termination) to the same extent as though such period were a period of employment with the Employer.

(iii) Any compensation paid to any such person by PDI prior to the PDI Closing Date shall NOT be taken into account for the purposes of this Plan.

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(b) Verlan

(1) Notwithstanding anything elsewhere in the Plan to the contrary, the following special rules shall apply to each person who became employed by the Employer effective on or about March 14, 2008, in connection with the transactions contemplated by the Agreement and Plan of Merger by and among The Hanover Insurance Group, Inc., Northdale Acquisition Corp. and Verlan Holdings, Inc. dated January 10, 2008, and who was employed by Verlan immediately before being employed by the Employer;

(i) 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 Verlan 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.

(ii) Any compensation paid to any such person by Verlan 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.

(c) AIX

Pursuant to a certain Stock Purchase Agreement by and among AIX Holdings, Inc., certain of its shareholders and The Hanover Insurance Group, Inc. dated August 5, 2008, on November 28, 2008 (the “AIX Closing Date”), an Affiliate of the Employer acquired AIX Holdings, Inc. and its subsidiaries. Employees of AIX who continued to be employed by AIX after the AIX Closing Date (“AIX Closing Hires”) remained employees of AIX (now an Affiliate of Employer) on a separate AIX payroll up to and through December 31, 2009 (the “AIX Transition Period”) when the employment of these employees was transferred from AIX to the Employer. Additionally, those employees hired by AIX during the AIX Transition Period (“AIX Transition Hires”) also remained employees of AIX on a separate AIX payroll until the expiration of the AIX Transition Period when such employees were transferred from AIX to the Employer.

(1) Notwithstanding anything elsewhere in the Plan to the contrary, the following special rules shall apply to AIX Closing Hires and AIX Transition Hires:

(i) AIX Closing Hires shall be eligible to participate in the Plan, subject to its provisions, effective as of the AIX Closing Date and to the same extent that such employees would otherwise have been eligible to participate in the Plan had such AIX Closing Hires commenced employment with the Employer on the AIX Closing Date.

(ii) AIX Transition Hires shall be eligible to participate in the Plan, subject to its provisions, effective as of as their date of hire by AIX and to the same extent that such employees would otherwise have been eligible to participate in the Plan had such AIX Transition Hires commenced employment with the Employer on their date of hire with AIX.

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(iii) 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 AIX 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 (or if terminated during the AIX Transition Period, until the date of termination) to the same extent as though such period were a period of employment with the Employer.

(iv) Any compensation paid to any such person by AIX prior to the AIX Closing Date shall NOT be taken into account for the purposes of this Plan.

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THE HANOVER INSURANCE GROUP

RETIREMENT SAVINGS PLAN

AMENDMENT

To the Restatement Generally Effective January 1, 2010

THIS 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”) is effective January 1, 2010; and

WHEREAS, the Company has reserved the right to amend the Plan any time under Section 18.01 of the Plan; and

WHEREAS, the Company desires to amend the Plan to, among other things, add a Roth feature to the Plan effective January 1, 2011.

NOW, THEREFORE, the Plan is amended effective as of January 1, 2011 except as otherwise specified, as follows:

Insert the following new paragraph at the end of Section 1.03 of the Plan:

“Notwithstanding any other provision of this Plan to the contrary, the Effective Date of the provisions of this Plan that relate to Roth Elective Deferrals is January 1, 2011.”

Delete the definition of the term “Accrued Benefit” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

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

Delete the definition of the term “Automatic Contributions” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

“‘Automatic Contributions’ shall mean the Pre-tax Elective Deferrals that result from the operation of this Section 5.05(c) of the Plan.”

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Delete the definition of the term “Automatic Contribution Arrangement” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

“‘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 Pre-tax Elective Deferrals to the Plan on behalf of the Participant equal to a uniform percentage of Compensation.”

Delete subparagraph (i) in the second paragraph of Section 2.11(a) of the Plan in its entirety and insert the following new definition in lieu thereof:

“(i) incentive compensation paid to Participants pursuant to the Employer’s Executive Long Term Performance Unit Plan or pursuant to any similar or successor cash or equity long-term incentive compensation plan;”

Delete the last sentence of the first paragraph of Section 2.11(b) of the Plan in its entirety and insert the following new definition in lieu thereof:

“Notwithstanding the foregoing, Compensation for purposes of the Plan shall also include Employee elective deferrals under Code Section 402(g)(3), Roth Elective Deferrals and any 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), 402(h), and 403(b).”

Delete paragraph (d)(ii) of Section 2.11 of the Plan in its entirety and insert the following new definition in lieu thereof:

“(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 for the purposes of Code Section 415(c)(3) and Treasury Regulation section 1.415(c)-2 (e.g., for the purposes of Code Section 415, top-heavy provisions of Code Section 416, determination of highly compensated employees under Code Section 414(q)), 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)).”

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Delete the definition of the term “Employee” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

“‘Employee’ shall mean any person reported on the payroll records of the Employer as an Employee who is deemed by the Employer to be a common law Employee. However, the term Employee will not include any individual who is not reported on the payroll records of the Employer or an affiliated Employer as a common law Employee. If such person is later determined by the Employer or by a court or governmental agency to be or to have been an Employee, he or she will only be eligible for participation prospectively and may participate in the Plan as of the next entry date following such determination and after the satisfaction of all other eligibility requirements”

Delete definition of the term “401(k) Account” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

“‘401(k) Account’ shall mean the account established and maintained for each Participant who has directed the Employer to make Pre-tax Elective Deferral 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.”

Insert the following new definitions in Article II of the Plan:

“‘Pre-tax Elective Deferral’ shall mean a Salary Reduction Contribution that is not includible in the gross income of the Eligible Employee on whose behalf the contribution is made at the time that the deferral is made.

‘Roth Elective Deferral’ shall mean a Salary Reduction Contribution that has been irrevocably designated as Roth Elective Deferral by the Participant in his or her Salary Reduction Agreement and that is includible in the Participant’s gross income for tax purposes at the time the deferral is made pursuant to Code Section 402A and any applicable guidance or regulations issued thereunder. Roth Elective Deferrals may be treated as Catch-Up Contributions. Roth Elective Deferrals shall be maintained in a separate account for each Participant who has directed the Employer to make a Roth Elective Deferral to the Trust.

‘Roth Elective Deferral Account’ shall mean the separate account established and maintained for each Participant who has directed the Employer to make a Roth Elective Deferrals to the Trust on his or her behalf to record the contribution and withdrawal of a Participant’s Roth Elective Deferrals and other adjustments as required by the Plan. No contributions other than designated Roth Elective Deferrals and direct rollover contributions described in Code Section 402A(c)(3) may be allocated to a Roth Elective Deferral Account.”

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Delete definition of the term “Salary Reduction Agreement” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

“‘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 of the Plan 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.”

Delete definition of the term “Salary Reduction Contribution” in Article II of the Plan in its entirety and insert the following new definition in lieu thereof:

“‘Salary Reduction Contribution’ shall mean the Pre-tax Elective Deferrals and or Roth Elective Deferrals made by the Employer to the Trust on behalf of an Eligible Employee pursuant to a Salary Reduction Agreement and in accordance with Section 5.04 of the Plan 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.

With respect to any Plan Year the total amount of a Participant’s Salary Reduction Contributions is the sum of all employer contributions made on behalf of such Participant pursuant to a deferral under any qualified cash or deferred arrangement as described in Code Section 401(k), any Simplified Employee Pension Plan with a cash or deferred arrangement as described in Code Section 408(k)(6), any SIMPLE IRA Plan described in Code Section 408(p), any plan as described under Code Section 501(c)(18), and any Employer contributions made on behalf of a Participant for the purchase of an annuity contract under Code Section 403(b) pursuant to a Salary Deferral Agreement.

Pre-tax Elective Deferrals or Roth Elective Deferrals shall not include any deferrals properly distributed as Excess Annual Additions.”

Delete the second paragraph of Section 4.01 of the Plan in its entirety and insert the following new paragraph in lieu thereof:

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

Delete section 4.04(b) of the Plan in its entirety and insert the following new paragraph in lieu thereof:

“(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).”

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Insert the following new paragraph at the end of Section 5.03 of the Plan:

“Effective on and after January 1, 2011 the Plan shall accept a direct rollover from another Roth Elective Deferral Account under a retirement plan as described in Code Section 402A(e)(1) in accordance with such uniform administrative procedures as the Plan Administrator shall establish. Notwithstanding the foregoing sentence, an in-plan Roth rollover shall not be permitted under this Plan. Any rollover of “designated Roth contributions”, as defined in Subsection 6.01(e), shall be subject to the requirements of Code Section 402(c). To the extent the Plan accepts Rollover Contributions of designated Roth contributions, the Plan will separately account for such contributions, including separate accounting for the portion of the Rollover Contribution that is includible in gross income and the portion that is not includible in gross income, if applicable. If the Plan accepts a direct rollover of designated Roth contributions, the Trustee and the Plan Administrator shall be entitled to rely on a statement from the distributing plan’s administrator identifying (i) the Eligible Employee’s basis in the rolled over amounts and (ii) the date on which the Eligible Employee’s 5-taxable-year period of participation (as required under Code Section 402A(d)(2) for a qualified distribution of designated Roth contributions) started under the distributing plan. If the 5-taxable-year period of participation under the distributing plan would end sooner than the Eligible Employee’s 5-taxable-year period of participation under the Plan, the 5-taxable-year period of participation applicable under the distributing plan shall continue to apply with respect to the Rollover Contribution.”

Delete Section 5.04(a) of the Plan in its entirety and insert the following two paragraphs in lieu thereof:

“(a) An Employee who is eligible to participate in the Plan may enter into a Salary Reduction Agreement with the Employer authorizing the Employer to withhold a portion of such Participant’s 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 to make a Salary Reduction Contribution 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 Compensation 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.

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Any such Salary Reduction Contribution shall be credited to the Participant’s 401(k) Account or Roth Elective Deferral account, whichever is applicable. A Participant may terminate deferrals at any time. A Participant may elect at any time to change or discontinue his or her Salary Reduction Agreement upon notice in accordance with uniform and nondiscriminatory procedures as the Plan Administrator shall adopt and communicate to the Participants. Any such election will be effective as soon as practicable following the receipt of the notification by the Plan Administrator or its delegate in accordance with uniform and nondiscriminatory procedures established and communicated to the Participants. The Plan Administrator may amend or terminate said agreement on notice to the affected Participant, if required to maintain the qualified status of the Plan.”

Delete the second paragraph of Section 5.04(b) of the Plan in its entirety and insert the following new paragraph in lieu thereof:

“(b) 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).”

Delete Section 5.05(c)(i) of the Plan in its entirety and insert the following new section in lieu thereof:

“(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 Pre-tax Elective Deferrals 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 Pre-tax Elective Deferrals 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.

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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 Pre-tax Elective Deferrals 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 Pre-tax Elective Deferrals 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 Pre-tax Elective Deferrals 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.”

Delete the first sentence of Section 7.12 of the Plan in its entirety and insert the following new sentence in lieu thereof:

“The sum of the following amounts credited to a Participant’s Accounts for the Limitation Year except as otherwise provided below:

(i) Employer contributions;

(ii) Employee contributions;

(iii) forfeitures; and

(iv) allocations under a simplified employee pension.”

Delete the last paragraph of Section 7.12 of the Plan in its entirety and insert the following new paragraph in lieu thereof:

“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; 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 13.11.”

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Delete the first paragraph of Section 8.01 of the Plan in its entirety and insert the following new paragraph in lieu thereof:

“The Plan Administrator or its agent shall establish a separate recordkeeping account for each Participant showing the fair market value of his or her Plan benefits. Each Participant’s account may be separated for recordkeeping purposes into the following sub-accounts: 401(k) Account, Roth Elective Deferral Account, Match Contribution Account, Non-Elective Employer Contribution Account, Regular Account, Rollover Account, Tax Deductible Contribution Account and Voluntary Contribution Account and such other accounts as the Plan Administrator shall deem appropriate for each Participant to account for the Participant’s Accrued Benefit. All contributions by or on behalf of a Participant shall be deposited to the appropriate Account.”

Add the following new sentence at the end of Section 9.01(d) of the Plan:

“Excess Elective Deferrals shall be treated as Annual Additions under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant’s taxable year. Distribution of Excess Elective Deferrals for a year shall be made first from the Participant’s 401(k) Account to the extent that Pre-tax Elective Deferrals were made for the year.”

Add the following new paragraph after the first paragraph of Section 9.08 of the Plan:

“The Plan Administrator may adopt a uniform written administrative policy that permits a Participant (including a Highly Compensated Employee) who has made Salary Reduction Contributions for a year where such contributions include both pre-tax Elective Deferrals and Roth Elective Deferrals to elect whether the Excess Elective Deferrals, are to be attributed to Pre-tax Elective Deferrals or Roth Elective Deferrals or a combination of the two. In the event that no such administrative policy is adopted, Excess Elective Deferrals will be first attributed to Pre-tax Elective Deferrals, and if such pre-tax contributions are not in an amount sufficient to make full correction, will then be attributed to Roth Elective Deferrals.”

Delete the title and first sentence of Section 11.02 of the Plan in their entirety and insert the following new title and new first sentence in lieu thereof:

“11.02 Withdrawals from Match Contribution, 401(k) Account, Roth Elective Deferral Account, and Non-Elective Employer Contribution 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 from the vested portion of his or her Match Contribution, 401(k) Account, or Roth Elective Deferral Account.”

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Delete the sentence in the first paragraph of Section 11.02 of the Plan beginning “For Plan Years beginning after 1988…” in its entirety and insert the following new sentence in lieu thereof:

“For Plan Years beginning after 1988, an Employee 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”.”

Delete the paragraph in Section 11.02 of the Plan beginning “The processing of applications and any distributions of amounts under this Section…” and insert the following new paragraph in lieu thereof:

“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 Employee.”

Delete the paragraph in Section 11.02 of the Plan beginning “In determining whether a hardship distribution is permissible the following special rules shall apply…” and insert the following new paragraph in lieu thereof:

“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:’

A. Expenses incurred or necessary for medical care that would be deductible under Code Section 213(d) (determined without regard to whether the expenses exceed 7.5% of adjusted gross income) of the Employee, his or her spouse, children and other dependents;

B. The cost directly related to the purchase (excluding mortgage payments) of the principal residence of the Employee;

C. Payment of tuition and related educational expenses (including but not limited to expenses associated with room and board) for up to the next twelve (12) months of post-secondary education for the Employee, his or her spouse, children or other dependents as defined in Code Section 152, without regard to Code Sections 152(b)(1), (b)(2) and (d)(1)(B);

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D. The need to prevent eviction of the Employee, from, or a foreclosure on the mortgage of, the Employee’s principal residence;

E. Effective for the Plan Years commencing on and after January 1, 2012, payments for burial or funeral expenses for the Employee’s deceased parent, spouse, child or dependent as defined in Code Section 152 without regard to Code Section 152(d)(1)(B); or

F. Effective for the Plan Years commencing on and after January 1, 2012, expenses for the repair of damage to the Employee’s principal residence that would qualify for the casualty deduction under Code Section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income).

(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 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 any Employee who has made an Affirmative Election, Salary Reduction Contributions, if any, under such an election shall resume at the end of such suspension period and provided further that in the case of an Eligible Participant who has not made an Affirmative Election, Automatic Contributions shall resume at the end of such suspension period subject to the provisions of Section 5.05 of the Plan.

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 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.”

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Delete the first sentence of Section 11.04 of the Plan in its entirety and insert the following new sentence in lieu thereof:

“The Plan Administrator may impose a dollar minimum for partial withdrawals and may implement on a uniform and nondiscriminatory basis, an ordering rule for in-service withdrawals from a Participant’s Account.”

Delete the fifth paragraph of Section 12.01 of the Plan in its entirety and insert the following new paragraph in lieu thereof:

“If the Plan Administrator approves a request for a loan, funds shall be withdrawn from the recordkeeping sub-accounts, including Roth Elective Deferrals, in the order specified in the loan policy provided that Tax Deductible Voluntary Contributions, plus earnings thereon, may not be used as security for Plan loans.”

Add the following new sentence at the end of Section 13.04 of the Plan:

“Moreover, the Plan will credit the Participant’s qualified military service as service for vesting purposes, as though the Participant had resumed employment under USERRA immediately prior to the Participant’s death.”

Add the following new paragraph at the end of Section 13.06 of the Plan:

“Notwithstanding any provisions of this Plan relating to required minimum distributions under Code section 401(a)(9), a Participant or Beneficiary who would have been required to receive required minimum distributions for 2009 but for the enactment of section 401(a)(9)(H) of the Code (“2009 RMDs”), and who would have satisfied that requirement by receiving distributions that are equal to the 2009 RMDs will not receive those distributions for 2009 unless the Participant or Beneficiary chooses to receive such distributions. Participants and Beneficiaries described in the preceding sentence will be given the opportunity to elect to receive the distributions described in the preceding sentence.”

Insert the following new sentence immediately after the first sentence of the definition of the term, “eligible rollover distribution” as set forth in Section 13.13 of the Plan:

“An eligible rollover distribution also does not include: any corrective distributions of Excess Elective Deferrals or Roth Elective Deferrals under Code Section 402(g), and the income attributable thereto.”

104

Delete the definition of the term, “Direct Rollover” as set forth in Section 13.13 of the Plan in its entirety and insert the following new definition in lieu thereof:

“Direct Rollover: A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. A Direct Rollover of a distribution from a Roth Elective Deferral Account under this Plan will be made to another Roth Elective Deferral Account under an applicable retirement plan described in Code Section 402A(e)(1) or to a Roth IRA described in Code Section 408A, and only to the extent the rollover is permitted under the rules of Code Section 402(c).

Notwithstanding the provisions of this Plan relating to required minimum distributions under Code Section 401(a)(9), and solely for purposes of applying the direct rollover provisions of the Plan, 2009 RMDs (as defined in section 13.06 of the Plan), but only if paid with an additional amount that is an eligible rollover distribution without regard to IRC §401(a)(9)(H), will be treated as eligible rollover distributions.”

Delete the first two paragraphs of Section 13.13(c) of the Plan in their entirety and insert the following new paragraphs in lieu thereof:

“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 or a individual retirement annuity as defined in Code Section 408(a) and 408(b) or Roth IRA as defined in Code Section 408A. 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 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.”

Delete the last sentence of the first paragraph of Section 18.02 of the Plan in its entirety and insert the following new sentence in lieu thereof:

“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 and upon any such partial termination, the rights of all affected employees to the amounts credited to their accounts shall be non-forfeitable.”

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.

105

IN WITNESS WHEREOF, this Amendment has been executed this 21st day of December, 2011.

THE HANOVER INSURANCE COMPANY
By:	/s/ Lorna Stearns
	Lorna D. Stearns, Vice President

106

THE HANOVER INSURANCE GROUP, INC.

RETIREMENT SAVINGS PLAN

SECOND AMENDMENT

to the Restatement Generally Effective January 1, 2010

This Second Amendment is executed by The Hanover Insurance Company, a New Hampshire corporation (the “Corporation”).

WHEREAS, the most recent restatement of the Plan was adopted on December 21, 2010 and was generally effective January 1, 2010, and such restatement was amended by the adoption of the first Amendment on December 21, 2011; and

WHEREAS, the Corporation has reserved the right to amend the Plan any time under Section 19.01 of the Plan; and

WHEREAS, the Corporation now desires to amend the Plan.

NOW, THEREFORE, the Plan is amended as follows:

1. The following new sentence is added immediately following the first sentence of Section 11.02:

“During the period beginning January 1, 2004 and ending April 27, 2010 and on and after January 10, 2012, a Participant who has attained age 59^1/2 or is Totally and Permanently Disabled may also withdraw any part or all of the vested portion of his or her Non-Elective Employer Contribution Account.”

2. The second paragraph of Section 13.06 is deleted in its entirety and the following new paragraph is inserted in lieu thereof:

“All distributions under this Plan will be made in accordance with Code section 401(a)(9), including the incidental death benefit requirements of the Code section, §401 (a)(9)G, regulations §1.401 (a)(9)-2 through §1.401 (a)(9)-9, and any other provisions reflecting Code section 401 (a)(9) that are prescribed in revenue rulings, notices and other guidance published in the Internal Revenue Bulletin. The Plan provisions reflecting Code section 401(a)(9) shall override any distribution options set out in the Plan that are inconsistent with Code section 401(a)(9).”

This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment. Except as amended hereby, the Plan shall remain in full force and effect in accordance with its terms.

IN WITNESS WHEREOF, this Second Amendment has been executed this 20th day of June, 2012.

THE HANOVER INSURANCE COMPANY
By:	/s/ Lorna D. Stearns
	Lorna D. Stearns, Vice President

THE HANOVER INSURANCE GROUP, INC.

RETIREMENT SAVINGS PLAN

THIRD AMENDMENT

to the Restatement Generally Effective January 1, 2010

This Third Amendment is executed by The Hanover Insurance Company, a New Hampshire corporation (the “Corporation”).

WHEREAS, the most recent restatement of the Plan was adopted on December 21, 2010 and was generally effective January 1, 2010, and such restatement was amended by the adoption of the First Amendment on December 21, 2011; and

WHEREAS, the a Second Amendment to the most recent restatement of the Plan has been proposed, and such amendment has not been adopted but shall be; and

WHEREAS, the Corporation has reserved the right to amend the Plan any time under Section 19.01 of the Plan; and

WHEREAS, the Corporation desires to amend the Plan to provide vesting credits to certain employees of the Corporation whose employment with the Corporation will be terminated in connection with the sale of Citizen’s Management, Inc. on or about April 30, 2012.

NOW, THEREFORE, the Plan is amended as follows:

Section 13.01(a) of the Plan is amended by the addition of the following new sentence at the end of second paragraph Section 13.01(a) of:

“Notwithstanding the foregoing provisions of this paragraph, the Match Contribution and Non-Elective Employer Contribution Accounts of each Employee whose employment with The Hanover Insurance Company was terminated in connection with the sale of Citizen’s Management, Inc. on or about April 30, 2012 shall be 100% vested and nonforfeitable upon his or her termination of employment.”

This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment. Except as amended hereby, the Plan shall remain in full force and effect in accordance with its terms.

IN WITNESS WHEREOF, this Second Amendment has been executed this 27th day of April, 2012.

THE HANOVER INSURANCE COMPANY
By:	/s/ Lorna D. 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: August 2, 2012

/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, David B. Greenfield, 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: August 2, 2012

/s/ David B. Greenfield

David B. Greenfield

Executive Vice President,

Chief Financial Officer and

Principal Accounting 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 June 30, 2012 (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: August 2, 2012

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, Chief Financial Officer and Principal Accounting 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 June 30, 2012 (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/ David B. Greenfield

David B. Greenfield

Executive Vice President,

Chief Financial Officer and

Principal Accounting Officer

Dated: August 2, 2012

XML

Proceeds from Sales of Available for Sale Securities and Gross Realized Gains and Losses (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Fixed Maturities
Gain (Loss) on Investments [Line Items]
Proceeds from Sales	$ 128.8	$ 297.3	$ 408.0	$ 403.8
Gross Gains	1.9	11.7	6.6	15.9
Gross Losses	0.5	0.2	1.6	1.0
Equity Securities
Gain (Loss) on Investments [Line Items]
Proceeds from Sales	2.8	1.8	3.5	1.8
Gross Gains	0.5	0.4	0.5	0.4
Gross Losses			$ 0.2

XML

Stock Based Compensation - Additional Information (Detail)	3 Months Ended	6 Months Ended
	Jun. 30, 2012 Year	Jun. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance metric		100.00%
Performance metric, minimum		0.00%
Performance metric, maximum		133.00%
Average period based on relative TSR (in years)	3
Performance And Market-Based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance metric, minimum	0.00%
Performance metric, maximum	150.00%

XML

Segment Information - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2012 Segment
Segment Reporting Information [Line Items]
Operating segments	4

XML

Information Regarding Basic and Diluted Earnings Per Share (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Option Indexed to Issuer's Equity [Line Items]
Basic shares used in the calculation of earnings per share	44.9	45.4	44.9	45.4
Diluted shares used in the calculation of earnings per share	45.4	45.4	45.4	45.4
Per share effect of dilutive securities on income (loss) from continuing operations			$ (0.02)
Per share effect of dilutive securities on net income (loss)			$ (0.02)
Employee Stock Option
Option Indexed to Issuer's Equity [Line Items]
Dilutive effect of securities	0.2		0.2
Non-Vested Stock Grants
Option Indexed to Issuer's Equity [Line Items]
Dilutive effect of securities	0.3		0.3

XML

Schedule of Additional Information about Significant Unobservable Inputs Used in Fair Valuations of Level Three (Detail) (USD $) In Millions, unless otherwise specified							6 Months Ended				6 Months Ended									6 Months Ended													6 Months Ended
	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Jun. 30, 2012 Fair Value, Inputs, Level 3	Jun. 30, 2012 Fair Value, Inputs, Level 3 Municipal	Jun. 30, 2012 Fair Value, Inputs, Level 3 Corporate	Jun. 30, 2012 Fair Value, Inputs, Level 3 Commercial Mortgage-Backed	Jun. 30, 2012 Fair Value, Inputs, Level 3 Asset-Backed	Jun. 30, 2012 Discount For Small Issue Size Fair Value, Inputs, Level 3 Discounted Cash Flow Municipal	Jun. 30, 2012 Discount For Small Issue Size Fair Value, Inputs, Level 3 Discounted Cash Flow Corporate	Jun. 30, 2012 Discount For Small Issue Size Fair Value, Inputs, Level 3 Discounted Cash Flow Residential Mortgage-Backed	Jun. 30, 2012 Discount For Small Issue Size Fair Value, Inputs, Level 3 Discounted Cash Flow Commercial Mortgage-Backed	Jun. 30, 2012 Discount For Small Issue Size Fair Value, Inputs, Level 3 Discounted Cash Flow Asset-Backed	Jun. 30, 2012 Discount For Long Maturity Fair Value, Inputs, Level 3 Discounted Cash Flow Municipal	Jun. 30, 2012 Discount For Long Maturity Fair Value, Inputs, Level 3 Discounted Cash Flow Corporate	Jun. 30, 2012 Discount For Long Maturity Fair Value, Inputs, Level 3 Discounted Cash Flow Asset-Backed	Jun. 30, 2012 Discount For Above Market Coupon Fair Value, Inputs, Level 3 Discounted Cash Flow Municipal	Jun. 30, 2012 Discount For Above Market Coupon Fair Value, Inputs, Level 3 Discounted Cash Flow Corporate	Jun. 30, 2012 Discount For Above Market Coupon Fair Value, Inputs, Level 3 Discounted Cash Flow Commercial Mortgage-Backed	Jun. 30, 2012 Discount For Above Market Coupon Fair Value, Inputs, Level 3 Discounted Cash Flow Asset-Backed	Jun. 30, 2012 Discount For Credit Stress Fair Value, Inputs, Level 3 Discounted Cash Flow Corporate	Jun. 30, 2012 Discount For Credit Stress Fair Value, Inputs, Level 3 Discounted Cash Flow Commercial Mortgage-Backed	Jun. 30, 2012 Discount For Lease Structure Fair Value, Inputs, Level 3 Asset-Backed	Jun. 30, 2012 Equity Securities	Mar. 31, 2012 Equity Securities	Dec. 31, 2011 Equity Securities	Jun. 30, 2011 Equity Securities	Mar. 31, 2011 Equity Securities	Dec. 31, 2010 Equity Securities	Jun. 30, 2012 Equity Securities Fair Value, Inputs, Level 3
Fair Value [Line Items]
Fair value measurement market multiples																																	1.0
Fair value measurement weighted average market multiples																																	1.0
Fair Value	$ 99.0	$ 96.6	$ 98.9	$ 74.9	$ 72.4	$ 67.5		$ 16.9	$ 27.2	$ 4.3				$ 0.6					$ 24.2								$ 25.6	$ 21.4	$ 23.4	$ 2.9	$ 2.9	$ 2.9	$ 25.5
Discount rate							0.30%				0.30%			0.50%	0.50%		0.50%	0.50%				0.50%			1.00%
Discount rate, minimum												1.00%	0.30%			0.50%				0.30%	0.30%		0.30%	2.50%		0.30%
Discount rate, maximum												4.00%	3.00%			0.80%				1.00%	1.00%		2.00%	3.00%		1.00%
Weighted average rate							0.30%				0.30%	3.10%	0.60%	0.50%	0.50%	0.70%	0.50%	0.50%		0.50%	0.70%	0.50%	0.60%	2.50%	1.00%	0.40%

XML

Income Taxes - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Income Taxes [Line Items]
Federal income tax expense	$ 4.0	$ 17.8
Foreign income tax expense	$ 17.4

XML

Commitments and Contingencies - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2012 Year	Nov. 11, 2009 Plaintiff
Commitments and Contingencies Disclosure [Line Items]
Participant's retirement age	65
Treasury rate, years	30
Named plaintiffs		2
Number of defendants	200
Unasserted Claim
Commitments and Contingencies Disclosure [Line Items]
Number of claimed properties	1,000

XML

Fair Value (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value Of Financial Instruments

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

(in millions)	June 30, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets
Cash and cash equivalents	$	520.8	$	520.8	$	820.4	$	820.4
Fixed maturities		6,534.8		6,534.8		6,284.7		6,284.7
Equity securities		367.5		367.5		246.4		246.4
Mortgage loans		4.3		4.6		4.7		5.0
Other investments		154.5		154.5		135.1		135.1
Total financial assets	$	7,581.9	$	7,582.2	$	7,491.3	$	7,491.6
Financial Liabilities
Debt	$	917.4	$	1,032.0	$	911.1	$	1,014.9

Fair Value, Assets Measured on Recurring Basis

The following tables provide, for each hierarchy level, the Company’s assets at June 30, 2012 and December 31, 2011 that are measured at fair value on a recurring basis.

	June 30, 2012
(in millions)	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	198.8	$	73.5	$	125.3	$	-
Foreign governments		304.5		68.8		235.7		-
Municipal		1,030.3		-		1,013.4		16.9
Corporate		3,580.0		-		3,552.6		27.4
Residential mortgage-backed, U.S. agency backed		648.0		-		648.0		-
Residential mortgage-backed, non-agency		191.1		-		190.5		0.6
Commercial mortgage-backed		358.9		-		354.6		4.3
Asset-backed		223.2		-		199.0		24.2
Total fixed maturities		6,534.8		142.3		6,319.1		73.4
Equity securities		357.8		281.9		50.3		25.6
Other investments		153.6		-		153.6		-
Total investment assets at fair value	$	7,046.2	$	424.2	$	6,523.0	$	99.0

	December 31, 2011
	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	269.3	$	147.3	$	122.0	$	-
Foreign governments		239.0		-		239.0		-
Municipal		1,028.0		-		1,014.4		13.6
Corporate		3,375.6		-		3,351.8		23.8
Residential mortgage-backed, U.S. agency backed		663.3		-		663.3		-
Residential mortgage-backed, non-agency		185.3		-		180.1		5.2
Commercial mortgage-backed		379.1		-		374.4		4.7
Asset-backed		145.1		-		116.9		28.2
Total fixed maturities		6,284.7		147.3		6,061.9		75.5
Equity securities		237.0		177.4		36.2		23.4
Other investments		135.1		-		135.1		-
Total investment assets at fair value	$	6,656.8	$	324.7	$	6,233.2	$	98.9

Estimated Fair Values of Financial Instruments Not Carried at Fair Value

The following table provides, for each hierarchy level, the Company’s estimated fair values of financial instruments that are not carried at fair value :

	June 30, 2012
(in millions)	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	520.8	$	520.8	$	-	$	-
Equity securities		9.7		-		9.7		-
Mortgage loans		4.6		-		4.6		-
Other investments		0.9		-		0.9		-
Liabilities:
Debt	$	1,032.0	$	-	$	1,032.0	$	-

Fair Value On Recurring Basis Using Significant Unobservable Inputs (Level 3)

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

	Fixed Maturities
(in millions)	Municipal		Corporate		Residential mortgage- backed, non- agency		Commercial mortgage- backed		Asset- backed		Total		Equities Securities		Total Assets
Three Months Ended June 30, 2012
Balance April 1, 2012	$	17.0	$	28.7	$	0.7	$	4.5	$	24.3	$	75.2	$	21.4	$	96.6
Transfers out of Level 3		-		(2.1)		-		-		(1.0)		(3.1)		-		(3.1)
Total gains (losses):
Included in earnings		-		0.2		-		-		0.1		0.3		-		0.3
Included in other comprehensive income - net appreciation (depreciation) on available for sale securities		0.1		(0.3)		-		-		0.3		0.1		4.2		4.3
Purchases and sales:
Purchases		-		1.5		-		-		1.0		2.5		-		2.5
Sales		(0.2)		(0.6)		(0.1)		(0.2)		(0.5)		(1.6)		-		(1.6)
Balance June 30, 2012	$	16.9	$	27.4	$	0.6	$	4.3	$	24.2	$	73.4	$	25.6	$	99.0
Three Months Ended June 30, 2011
Balance April 1, 2011	$	15.9	$	34.3	$	0.6	$	5.3	$	13.4	$	69.5	$	2.9	$	72.4
Transfers out of Level 3		-		(6.5)		-		-		-		(6.5)		-		(6.5)
Total gains:
Included in other comprehensive income - net appreciation on available for sale securities		0.5		0.2		-		-		0.3		1.0		-		1.0
Purchases and sales:
Purchases		-		8.9		-		-		-		8.9		-		8.9
Sales		(0.3)		(0.1)		(0.1)		(0.2)		(0.2)		(0.9)		-		(0.9)
Balance June 30, 2011	$	16.1	$	36.8	$	0.5	$	5.1	$	13.5	$	72.0	$	2.9	$	74.9

	Fixed Maturities
(in millions)	Municipal		Corporate		Residential mortgage- backed, non- agency		Commercial mortgage- backed		Asset- backed		Total		Equities Securities		Total Assets
Six Months Ended June 30, 2012
Balance January 1, 2012	$	13.6	$	23.8	$	5.2	$	4.7	$	28.2	$	75.5	$	23.4	$	98.9
Transfers into Level 3		-		4.3		-		-		-		4.3		0.1		4.4
Transfers out of Level 3		-		(2.1)		-		-		(8.7)		(10.8)		-		(10.8)
Total gains (losses):
Included in earnings		-		0.3		-		-		-		0.3		(0.2)		0.1
Included in other comprehensive income-net appreciation (depreciation) on available for sale securities		0.7		0.5		0.1		-		(0.7)		0.6		3.0		3.6
Purchases and sales:
Purchases		3.0		1.5		-		-		6.2		10.7		-		10.7
Sales		(0.4)		(0.9)		(4.7)		(0.4)		(0.8)		(7.2)		(0.7)		(7.9)
Balance June 30, 2012	$	16.9	$	27.4	$	0.6	$	4.3	$	24.2	$	73.4	$	25.6	$	99.0
Six Months Ended June 30, 2011
Balance January 1, 2011	$	16.6	$	28.2	$	0.8	$	5.5	$	13.5	$	64.6	$	2.9	$	67.5
Transfers into Level 3		-		3.7		-		-		-		3.7		-		3.7
Transfer out of Level 3		-		(6.5)		-		-		-		(6.5)		-		(6.5)
Total gains (losses):
Included in earnings		-		-		-		-		-		-		(0.5)		(0.5)
Included in other comprehensive income-net appreciation on available for sale securities		0.1		0.3		-		-		0.3		0.7		0.5		1.2
Purchases and sales:
Purchases		-		11.8		-		-		-		11.8		-		11.8
Sales		(0.6)		(0.7)		(0.3)		(0.4)		(0.3)		(2.3)		-		(2.3)
Balance June 30, 2011	$	16.1	$	36.8	$	0.5	$	5.1	$	13.5	$	72.0	$	2.9	$	74.9

Schedule Of Gain And Losses Due To Change In Fair Value Level 3 Assets

The following table summarizes gains and losses due to changes in fair value that are recorded in net income for Level 3 assets. For the quarter ended June 30, 2011, there was no impact on income relating to Level 3 securities.

Three Months Ended June 30, 2012
(in millions)	Net realized investment gains
Level 3 Assets:
Fixed maturities:
Corporate	$	0.2
Asset-backed		0.1
Total fixed maturities	$	0.3

	Six Months Ended June 30,
	2012						2011
(in millions)	Other-than- temporary impairments		Net realized investment gains (losses)		Total		Other-than- temporary impairments
Level 3 Assets:
Fixed maturities:
Corporate	$	-	$	0.3	$	0.3	$	-
Asset-backed		(0.1)		0.1		-		-
Total fixed maturities		(0.1)		0.4		0.3		-
Equities		-		(0.2)		(0.2)		(0.5)
Total assets	$	(0.1)	$	0.2	$	0.1	$	(0.5)

Schedule Of Additional Information About Significant Unobservable Inputs Used In Fair Valuations Of Level 3

The following table provides quantitative information about the significant unobservable inputs used by the Company in the fair value measurements of Level 3 assets as of June 30, 2012. Where discounted cash flows are used, the internally-developed discount rate is adjusted by the significant unobservable inputs shown in the table. Valuations for assets based on broker quotes for which there is a lack of transparency as to inputs used to develop the valuations have been excluded.

	Fair Value (in millions)		Valuation Technique	Significant Unobservable Inputs	Range (Wtd Average)
Fixed maturities:
Municipal	$	16.9	Discounted cash flow	Discount for:   Small issue size   Long maturity   Above-market coupon	1.0-4.0% (3.1%) 0.5%(0.5%) 0.3-1.0% (0.5%)
Corporate		27.2	Discounted cash flow	Discount for:   Credit stress   Above-market coupon   Small issue size   Long maturity	2.5-3.0% (2.5%) 0.3-1.0% (0.7%) 0.3-3.0% (0.6%) 0.5%(0.5%)
Residential mortgage-backed, non-agency		0.6	Discounted cash flow	Discount for:   Small issue size	0.5%(0.5%)
Commercial mortgage-backed		4.3	Discounted cash flow	Discount for:   Credit stress   Small issue size   Above-market coupon   Lease structure	1.0%(1.0%) 0.5%(0.5%) 0.5%(0.5%) 0.3%(0.3%)
Asset-backed		24.2	Discounted cash flow	Discount for:   Long maturity   Small issue size   Above-market coupon   Lease structure	0.5-0.8% (0.7%) 0.3-2.0% (0.6%) 0.3-1.0% (0.4%) 0.3%(0.3%)
Equities		25.5	Market comparables	Net tangible asset market   multiples	1.0X (1.0X)

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Identifiable Assets for Business Segments and Discontinued Operations (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Segment Reporting Information [Line Items]
Discontinued operations	$ 122.2	$ 121.2
Total assets	13,118.7	12,598.6
U.S. Companies
Segment Reporting Information [Line Items]
Identifiable assets	8,609.5	8,471.6
Chaucer
Segment Reporting Information [Line Items]
Identifiable assets	$ 4,387.0	$ 4,005.8

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Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	$ 6,534.8	$ 6,284.7
Equity securities	367.5	246.4
Other investments	153.6	135.1
Total investment assets at fair value	7,046.2	6,656.8
Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities	357.8	237.0
Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	6,534.8	6,284.7
Fixed Maturities | U.S. Treasury And Government Agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	198.8	269.3
Fixed Maturities | Foreign Governments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	304.5	239.0
Fixed Maturities | Municipal
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	1,030.3	1,028.0
Fixed Maturities | Corporate
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	3,580.0	3,375.6
Fixed Maturities | Residential Mortgage Backed Securities U S Agency Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	648.0	663.3
Fixed Maturities | Residential Mortgage-Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	191.1	185.3
Fixed Maturities | Commercial Mortgage-Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	358.9	379.1
Fixed Maturities | Asset-Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	223.2	145.1
Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total investment assets at fair value	424.2	324.7
Fair Value, Inputs, Level 1 | Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities	281.9	177.4
Fair Value, Inputs, Level 1 | Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	142.3	147.3
Fair Value, Inputs, Level 1 | Fixed Maturities | U.S. Treasury And Government Agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	73.5	147.3
Fair Value, Inputs, Level 1 | Fixed Maturities | Foreign Governments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	68.8
Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other investments	153.6	135.1
Total investment assets at fair value	6,523.0	6,233.2
Fair Value, Inputs, Level 2 | Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities	50.3	36.2
Fair Value, Inputs, Level 2 | Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	6,319.1	6,061.9
Fair Value, Inputs, Level 2 | Fixed Maturities | U.S. Treasury And Government Agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	125.3	122.0
Fair Value, Inputs, Level 2 | Fixed Maturities | Foreign Governments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	235.7	239.0
Fair Value, Inputs, Level 2 | Fixed Maturities | Municipal
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	1,013.4	1,014.4
Fair Value, Inputs, Level 2 | Fixed Maturities | Corporate
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	3,552.6	3,351.8
Fair Value, Inputs, Level 2 | Fixed Maturities | Residential Mortgage Backed Securities U S Agency Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	648.0	663.3
Fair Value, Inputs, Level 2 | Fixed Maturities | Residential Mortgage-Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	190.5	180.1
Fair Value, Inputs, Level 2 | Fixed Maturities | Commercial Mortgage-Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	354.6	374.4
Fair Value, Inputs, Level 2 | Fixed Maturities | Asset-Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	199.0	116.9
Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total investment assets at fair value	99.0	98.9
Fair Value, Inputs, Level 3 | Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities	25.6	23.4
Fair Value, Inputs, Level 3 | Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	73.4	75.5
Fair Value, Inputs, Level 3 | Fixed Maturities | Municipal
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	16.9	13.6
Fair Value, Inputs, Level 3 | Fixed Maturities | Corporate
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	27.4	23.8
Fair Value, Inputs, Level 3 | Fixed Maturities | Residential Mortgage-Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	0.6	5.2
Fair Value, Inputs, Level 3 | Fixed Maturities | Commercial Mortgage-Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	4.3	4.7
Fair Value, Inputs, Level 3 | Fixed Maturities | Asset-Backed
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities	$ 24.2	$ 28.2

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Amortized Cost and Fair Value by Maturity Periods for Fixed Maturities (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Schedule of Investments [Line Items]
Due in one year or less, Amortized Cost	$ 438.7
Due after one year through five years, Amortized Cost	2,104.3
Due after five years through ten years, Amortized Cost	1,620.2
Due after ten years, Amortized Cost	651.2
Total fixed maturities, Amortized Cost	4,814.4
Mortgage-backed and asset-backed securities, Amortized Cost	1,368.9
Total fixed maturities, Amortized Cost	6,183.3	6,008.7
Due in one year or less, Fair Value	443.5
Due after one year through five years, Fair Value	2,200.5
Due after five years through ten years, Fair Value	1,763.6
Due after ten years, Fair Value	706.0
Total fixed maturities, Fair Value	5,113.6
Mortgage-backed and asset-backed securities, Fair Value	1,421.2
Fixed maturities, Fair Value	$ 6,534.8	$ 6,284.7

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Summary of Stock Option Plan Activity (Detail) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding, beginning of period, Shares	2,715,430	2,843,909
Granted, Shares	517,500	297,000
Exercised, Shares	(38,524)	(118,014)
Forfeited or cancelled, Shares	(51,250)	(18,250)
Expired, Shares	(158,850)	(256,250)
Outstanding, end of period, Shares	2,984,306	2,748,395
Outstanding, beginning of period, Weighted Average Exercise Price	$ 38.57	$ 39.22
Granted, Weighted Average Exercise Price	$ 36.81	$ 46.47
Exercised, Weighted Average Exercise Price	$ 30.49	$ 33.13
Forfeited or cancelled, Weighted Average Exercise Price	$ 40.18	$ 37.39
Expired, Weighted Average Exercise Price	$ 44.04	$ 57.00
Outstanding, end of period, Weighted Average Exercise Price	$ 38.07	$ 38.62

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Reconciliation of Gross Unrealized Investment Gains or losses to Net Balance (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Investments Unrealized Gain Loss Positions [Line Items]
Unrealized gains arising during period, Pre-Tax	$ 29.9	$ 52.8	$ 100.4	$ 59.2
Less: reclassification adjustments for gains realized in net income, Pre-Tax	0.7	13.4	3.0	16.3
Total available-for-sale securities, Pre-Tax	29.2	39.4	97.4	42.9
Unrealized losses arising during period, Pre-Tax	0.1	(1.9)	0.1	(1.9)
Other comprehensive income	29.3	37.5	97.5	41.0
Unrealized gains arising during period, Tax Benefit (Expense)	17.5	(0.1)	(3.5)	5.1
Less: reclassification adjustments for gains realized in net income	1.9	2.2	5.2	4.3
Total available-for-sale securities, Tax Benefit (Expense)	15.6	(2.3)	(8.7)	0.8
Unrealized losses arising during period, Tax Benefit (Expense)		0.7		0.7
Other comprehensive income	15.6	(1.6)	(8.7)	1.5
Unrealized gains arising during period, Net of Tax	47.4	52.7	96.9	64.3
Less: reclassification adjustments for gains realized in net income, Net of Tax	2.6	15.6	8.2	20.6
Total available-for-sale securities	44.8	37.1	88.7	43.7
Unrealized losses arising during period, Net of Tax	0.1	(1.2)	0.1	(1.2)
Other comprehensive income	$ 44.9	$ 35.9	$ 88.8	$ 42.5

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Basis of Presentation and Principles of Consolidation

6 Months Ended

Jun. 30, 2012

Basis of Presentation and Principles of Consolidation

1. Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements of The Hanover Insurance Group, Inc. and subsidiaries (“THG” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the requirements of Form 10-Q. Certain financial information that is provided in annual financial statements, but is not required in interim reports, has been omitted.

The interim consolidated financial statements of THG include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America, THG’s principal U.S. domiciled property and casualty companies; Chaucer Holdings plc (“Chaucer”), a specialist underwriting group which operates through the Society and Corporation of Lloyd’s (“Lloyd’s”) and certain other insurance and non-insurance subsidiaries. These legal entities conduct their operations through several business segments discussed in Note 9 – “Segment Information”. The acquisition of Chaucer on July 1, 2011, which has added meaningful business volumes to THG results, has affected the comparability of the interim consolidated financial statements and related footnotes. Results of operations for the three and six months ended June 30, 2012 include results from all of the Company’s business segments. Results of operations for the comparable periods in 2011 do not include any results of Chaucer. Additionally, the interim consolidated financial statements include the Company’s discontinued operations, consisting primarily of the Company’s former life insurance businesses, its accident and health business and its third party administrator. All intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with U.S. GAAP 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.

In the opinion of the Company's management, the accompanying interim consolidated financial statements reflect all adjustments, consisting of normal recurring items, necessary for a fair presentation of the financial position and results of operations. The results of operations for the three and six months ended June 30, 2012 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 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 29, 2012.

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Estimated Fair Values of Financial Instruments Not Carried at Fair Value (Detail) (Estimate of Fair Value, Fair Value Disclosure, USD $) In Millions, unless otherwise specified	Jun. 30, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	$ 520.8
Equity securities	9.7
Mortgage loans	4.6
Other investments	0.9
Debt	1,032.0
Fair Value, Inputs, Level 1
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	520.8
Fair Value, Inputs, Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Equity securities	9.7
Mortgage loans	4.6
Other investments	0.9
Debt	$ 1,032.0

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Earnings Per Share and Shareholders' Equity Transactions (Tables)

6 Months Ended

Jun. 30, 2012

Information Regarding Basic and Diluted Earnings Per Share

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

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions, except per share data)		2012			2011			2012			2011
Basic shares used in the calculation of earnings per share			44.9			45.4			44.9			45.4
Dilutive effect of securities:
Employee stock options			0.2			-			0.2			-
Non-vested stock grants			0.3			-			0.3			-
Diluted shares used in the calculation of earnings per share			45.4			45.4			45.4			45.4
Per share effect of dilutive securities on income (loss) from continuing operations	$		-	$		-	$		(0.02)	$		-
Per share effect of dilutive securities on net income (loss)	$		-	$		-	$		(0.02)	$		-

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Stock-based Compensation (Tables)

6 Months Ended

Jun. 30, 2012

Compensation Cost And Related Tax Benefits

Compensation cost and the related tax benefits were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2012		2011		2012		2011
Stock-based compensation expense	$	2.2	$	2.6	$	6.3	$	6.0
Tax benefit		(0.8)		(0.9)		(2.2)		(2.1)
Stock-based compensation expense, net of taxes	$	1.4	$	1.7	$	4.1	$	3.9

Summary Of Stock Option Plan Activity

Information on the Company’s stock option plan activity is summarized as follows:

	Six Months Ended June 30,
	2012				2011
(in whole shares and dollars)	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding, beginning of period		2,715,430	$	38.57		2,843,909	$	39.22
Granted		517,500		36.81		297,000		46.47
Exercised		(38,524)		30.49		(118,014)		33.13
Forfeited or cancelled		(51,250)		40.18		(18,250)		37.39
Expired		(158,850)		44.04		(256,250)		57.00
Outstanding, end of period		2,984,306		38.07		2,748,395		38.62

Summary Of Restricted Stock Activity

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

	Six Months Ended June 30,
	2012				2011
(in whole shares and dollars)	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Time-based restricted stock units:
Outstanding, beginning of period		768,529	$	40.17		838,129	$	40.93
Granted		172,691		36.99		111,496		46.10
Vested		(121,522)		35.30		(187,123)		45.14
Forfeited		(26,705)		40.03		(21,944)		41.54
Outstanding, end of period		792,993		40.22		740,558		40.63
Performance and market-based restricted stock units:
Outstanding, beginning of period		69,500	$	45.37		101,680	$	39.62
Granted		94,000		36.75		42,500		46.47
Vested		-		-		(25,055)		45.21
Forfeited		(1,125)		41.16		-		-
Outstanding, end of period		162,375		40.34		119,125		40.89

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Earnings Per Share and Shareholders Equity Transactions - Additional Information (Detail) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Shareholders Equity and Earnings Per Share [Line Items]
Antidilutive effect on earnings per share	1.6	1.9	1.8	2.2

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Reconciliation for Assets Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012 Fixed Maturities	Jun. 30, 2011 Fixed Maturities	Jun. 30, 2012 Fixed Maturities	Jun. 30, 2011 Fixed Maturities	Jun. 30, 2012 Fixed Maturities Municipal	Jun. 30, 2011 Fixed Maturities Municipal	Jun. 30, 2012 Fixed Maturities Municipal	Jun. 30, 2011 Fixed Maturities Municipal	Jun. 30, 2012 Fixed Maturities Corporate	Jun. 30, 2011 Fixed Maturities Corporate	Jun. 30, 2012 Fixed Maturities Corporate	Jun. 30, 2011 Fixed Maturities Corporate	Jun. 30, 2012 Fixed Maturities Residential Mortgage-Backed	Jun. 30, 2011 Fixed Maturities Residential Mortgage-Backed	Jun. 30, 2012 Fixed Maturities Residential Mortgage-Backed	Jun. 30, 2011 Fixed Maturities Residential Mortgage-Backed	Jun. 30, 2012 Fixed Maturities Commercial Mortgage-Backed	Jun. 30, 2011 Fixed Maturities Commercial Mortgage-Backed	Jun. 30, 2012 Fixed Maturities Commercial Mortgage-Backed	Jun. 30, 2011 Fixed Maturities Commercial Mortgage-Backed	Jun. 30, 2012 Fixed Maturities Asset-Backed	Jun. 30, 2011 Fixed Maturities Asset-Backed	Jun. 30, 2012 Fixed Maturities Asset-Backed	Jun. 30, 2011 Fixed Maturities Asset-Backed	Jun. 30, 2012 Equity Securities	Jun. 30, 2012 Equity Securities	Jun. 30, 2011 Equity Securities	Mar. 31, 2011 Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance April 1, 2011	$ 96.6	$ 72.4	$ 98.9	$ 67.5	$ 75.2	$ 69.5	$ 75.5	$ 64.6	$ 17.0	$ 15.9	$ 13.6	$ 16.6	$ 28.7	$ 34.3	$ 23.8	$ 28.2	$ 0.7	$ 0.6	$ 5.2	$ 0.8	$ 4.5	$ 5.3	$ 4.7	$ 5.5	$ 24.3	$ 13.4	$ 28.2	$ 13.5	$ 21.4	$ 23.4	$ 2.9	$ 2.9
Transfers into Level 3			4.4	3.7			4.3	3.7							4.3	3.7														0.1
Transfer out of Level 3	(3.1)	(6.5)	(10.8)	(6.5)	(3.1)	(6.5)	(10.8)	(6.5)					(2.1)	(6.5)	(2.1)	(6.5)									(1.0)		(8.7)
Included in earnings	0.3		0.1	(0.5)	0.3		0.3						0.2		0.3										0.1					(0.2)	(0.5)
Included in other comprehensive income - net appreciation (depreciation) on available for sale securities	4.3	1.0	3.6	1.2	0.1	1.0	0.6	0.7	0.1	0.5	0.7	0.1	(0.3)	0.2	0.5	0.3			0.1						0.3	0.3	(0.7)	0.3	4.2	3.0	0.5
Purchases	2.5	8.9	10.7	11.8	2.5	8.9	10.7	11.8			3.0		1.5	8.9	1.5	11.8									1.0		6.2
Sales	(1.6)	(0.9)	(7.9)	(2.3)	(1.6)	(0.9)	(7.2)	(2.3)	(0.2)	(0.3)	(0.4)	(0.6)	(0.6)	(0.1)	(0.9)	(0.7)	(0.1)	(0.1)	(4.7)	(0.3)	(0.2)	(0.2)	(0.4)	(0.4)	(0.5)	(0.2)	(0.8)	(0.3)		(0.7)
Balance June 30, 2011	$ 99.0	$ 74.9	$ 99.0	$ 74.9	$ 73.4	$ 72.0	$ 73.4	$ 72.0	$ 16.9	$ 16.1	$ 16.9	$ 16.1	$ 27.4	$ 36.8	$ 27.4	$ 36.8	$ 0.6	$ 0.5	$ 0.6	$ 0.5	$ 4.3	$ 5.1	$ 4.3	$ 5.1	$ 24.2	$ 13.5	$ 24.2	$ 13.5	$ 25.6	$ 25.6	$ 2.9	$ 2.9

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New Accounting Pronouncements - Additional information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2011
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Impact of new accounting guide lines after-tax	$ 25.8
Percentage of reduction on stockholders' equity	1.00%

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Unaudited Pro Forma Information (Detail) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2011
Business Acquisition [Line Items]
Revenue	$ 1,052.0	$ 2,119.5
Net income (loss)	$ (26.4)	$ (51.9)
Net income (loss) per share - basic	$ (0.58)	$ (1.14)
Net income (loss) per share - diluted	$ (0.58)	$ (1.14)
Weighted average shares outstanding - basic	45.4	45.4
Weighted average shares outstanding - diluted	45.4	45.4

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$ 70.5	$ (2.9)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net loss from retirement of debt		2.2
Net realized investment gains	1.2	(16.4)
Net amortization and depreciation	17.6	7.6
Gain on sale of Citizens Management, Inc.	(10.9)
Stock-based compensation expense	6.3	7.3
Amortization of deferred benefit plan costs	4.6	5.1
Deferred income taxes	(7.1)	4.8
Change in deferred acquisition costs	(37.3)	(3.0)
Change in premiums receivable, net of reinsurance premiums payable	(91.3)	9.8
Change in loss, loss adjustment expense and unearned premium reserves	330.9	157.4
Change in reinsurance recoverable	(170.5)	(24.2)
Change in expenses and taxes payable	(45.9)	(11.5)
Other, net	(8.8)	(33.5)
Net cash provided by operating activities	59.3	102.7
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities of fixed maturities	976.1	715.6
Proceeds from disposals of equity securities and other investments	7.0	2.9
Purchases of fixed maturities	(1,154.4)	(546.9)
Purchases of equity securities and other investments	(148.8)	(34.5)
Proceeds from disposal of Citizens Management, Inc., net of cash transferred	5.2
Capital expenditures	(6.7)	(4.5)
Net payments related to derivative agreements	(4.4)	(1.9)
Net cash provided by (used in) investing activities	(326.0)	130.7
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of employee stock options	1.3	3.9
Proceeds from debt borrowings	7.4	304.9
Change in collateral related to securities lending program	(11.6)	(30.5)
Dividends paid to shareholders	(27.0)	(25.0)
Repurchases of debt	(0.8)	(57.2)
Repurchases of common stock	(10.0)
Other financing activities	(0.3)	(0.6)
Net cash provided by (used in) financing activities	(41.0)	195.5
Effect of exchange rate changes on cash	8.0
Net change in cash and cash equivalents	(299.7)	428.9
Net change in cash related to discontinued operations	0.1	2.3
Cash and cash equivalents, beginning of period	820.4	290.4
Cash and cash equivalents, end of period	$ 520.8	$ 721.6

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Acquisitions and Discontinued Operations - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	1 Months Ended	3 Months Ended	6 Months Ended
	Apr. 30, 2012	Jun. 30, 2012	Jun. 30, 2012
Business Acquisitions and Dispositions [Line Items]
Gain on foreign exchange		$ 0.7	$ 4.0
Gain on discontinued operations, after taxes	$ 10.9	$ 10.9	$ 10.9

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Rollforward of Cumulative Amounts Related to Credit Loss Portion of Other than Temporary Impairments Losses (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Schedule of Investments [Line Items]
Credit losses as of the beginning of the period	$ 13.5	$ 16.3	$ 14.5	$ 16.7
Credit losses for which an OTTI was not previously recognized	0.3		0.4
Additional credit losses on securities for which an OTTI was previously recognized	0.3		0.6	0.2
Reduction for securities sold, matured or called during the period	(0.3)	(0.7)	(1.7)	(1.3)
Reduction for securities reclassified as intend to sell		(0.8)		(0.8)
Credit losses as of the end of the period	$ 13.8	$ 14.8	$ 13.8	$ 14.8

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Summary of Restricted Stock Activity (Detail) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Time-Based Restricted Stock Units
Schedule of Share based Compensation Arrangements by Share based Payment Award, Equity Instruments, Other Than Options, Restricted Stock Units [Line Items]
Outstanding, beginning of period, Shares	768,529	838,129
Granted, Shares	172,691	111,496
Vested, Shares	(121,522)	(187,123)
Forfeited, Shares	(26,705)	(21,944)
Outstanding, end of period, Shares	792,993	740,558
Outstanding, beginning of period, Weighted Average Grant Date Fair Value	$ 40.17	$ 40.93
Granted, Weighted Average Grant Date Fair Value	$ 36.99	$ 46.10
Vested, Weighted Average Grant Date Fair Value	$ 35.30	$ 45.14
Forfeited, Weighted Average Grant Date Fair Value	$ 40.03	$ 41.54
Outstanding, end of period, Weighted Average Grant Date Fair Value	$ 40.22	$ 40.63
Performance And Market-Based Restricted Stock Units
Schedule of Share based Compensation Arrangements by Share based Payment Award, Equity Instruments, Other Than Options, Restricted Stock Units [Line Items]
Outstanding, beginning of period, Shares	69,500	101,680
Granted, Shares	94,000	42,500
Vested, Shares		(25,055)
Forfeited, Shares	(1,125)
Outstanding, end of period, Shares	162,375	119,125
Outstanding, beginning of period, Weighted Average Grant Date Fair Value	$ 45.37	$ 39.62
Granted, Weighted Average Grant Date Fair Value	$ 36.75	$ 46.47
Vested, Weighted Average Grant Date Fair Value		$ 45.21
Forfeited, Weighted Average Grant Date Fair Value	$ 41.16
Outstanding, end of period, Weighted Average Grant Date Fair Value	$ 40.34	$ 40.89

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CONSOLIDATED STATEMENTS OF INCOME (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
REVENUES
Premiums	$ 1,050.0	$ 770.5	$ 2,085.6	$ 1,532.2
Net investment income	68.5	61.0	137.3	121.4
Net realized investment gains (losses):
Net realized gains (losses) from sales and other	(1.8)	14.2	3.2	18.9
Net other-than-temporary impairment losses on investments recognized in earnings	(1.6)	(0.8)	(3.5)	(2.2)
Total net realized investment gains (losses)	(3.4)	13.4	(0.3)	16.7
Fees and other income	12.1	9.0	26.4	17.4
Total revenues	1,127.2	853.9	2,249.0	1,687.7
LOSSES AND EXPENSES
Losses and loss adjustment expenses	732.1	617.5	1,393.5	1,128.5
Policy acquisition expenses	233.1	162.7	461.2	325.2
Interest expense	15.9	10.8	32.1	21.2
Other operating expenses	135.0	123.1	280.3	235.5
Total losses and expenses	1,116.1	914.1	2,167.1	1,710.4
Income (loss) before income taxes	11.1	(60.2)	81.9	(22.7)
Income tax expense (benefit):
Current	(10.9)	(26.4)	28.1	(22.3)
Deferred	12.2	(1.0)	(6.7)	4.5
Total income tax expense (benefit)	1.3	(27.4)	21.4	(17.8)
Income (loss) from continuing operations	9.8	(32.8)	60.5	(4.9)
Gain from sale of Citizens Management, Inc	10.9		10.9
Net gain from other discontinued operations (net of income tax benefit (expense)) of $0.3 and $(0.4) for the three months ended June 30, 2012 and June 30, 2011 and $0.4 and $(0.1) for the six months ended June 30, 2012 and June 30, 2011)	0.1	0.6	(0.9)	2.0
Net income (loss)	$ 20.8	$ (32.2)	$ 70.5	$ (2.9)
Basic
Income (loss) from continuing operations	$ 0.22	$ (0.72)	$ 1.35	$ (0.11)
Gain from sale of Citizens Management, Inc	$ 0.24		$ 0.24
Net gain from other discontinued operations		$ 0.01	$ (0.02)	$ 0.05
Net income (loss) per share	$ 0.46	$ (0.71)	$ 1.57	$ (0.06)
Weighted average shares outstanding	44.9	45.4	44.9	45.4
Diluted
Income (loss) from continuing operations	$ 0.22	$ (0.72)	$ 1.33	$ (0.11)
Gain from sale of Citizens Management, Inc	$ 0.24		$ 0.24
Net gain from other discontinued operations		$ 0.01	$ (0.02)	$ 0.05
Net income (loss) per share	$ 0.46	$ (0.71)	$ 1.55	$ (0.06)
Weighted average shares outstanding	45.4	45.4	45.4	45.4

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Summary of Gains and Losses Due to Changes in Fair Value in Net Income for Level Three Assets (Detail) (Fair Value, Inputs, Level 3, USD $) In Millions, unless otherwise specified	6 Months Ended		3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012 Fixed Maturities	Jun. 30, 2012 Fixed Maturities	Jun. 30, 2012 Fixed Maturities Corporate	Jun. 30, 2012 Fixed Maturities Corporate	Jun. 30, 2012 Fixed Maturities Asset Backed Fixed Maturities	Jun. 30, 2012 Fixed Maturities Asset Backed Fixed Maturities	Jun. 30, 2012 Equity Securities	Jun. 30, 2011 Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other-than-temporary impairments	$ (0.1)	$ (0.5)		$ (0.1)				$ (0.1)		$ (0.5)
Net realized investment gains	0.2		0.3	0.4	0.2	0.3	0.1	0.1	(0.2)
Total	$ 0.1			$ 0.3		$ 0.3			$ (0.2)

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Millions, except Per Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Fixed maturities, amortized cost	$ 6,183.3	$ 6,008.7
Equity securities, cost	$ 342.8	$ 239.9
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	20.0	20.0
Preferred stock, issued
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	300.0	300.0
Common stock, shares issued	60.5	60.5
Treasury stock, shares	16.0	15.9

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Amortized Cost and Fair Value of Available for Sale Fixed Maturities and the Cost and Fair Value of Equity Securities (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Fixed maturities, Amortized Cost or Cost	$ 6,183.3	$ 6,008.7
Fixed maturities, Gross Unrealized Gains	385.1	331.0
Fixed maturities, Gross Unrealized Losses	33.6	55.0
Fixed maturities, Fair Value	6,534.8	6,284.7
Fixed maturities, OTTI Unrealized Losses	15.9	19.9
Equity securities, Amortized Cost or Cost	342.8	239.9
Equity securities, Gross Unrealized Gains	30.7	15.3
Equity securities, Gross Unrealized Losses	6.0	8.8
Equity securities, Fair Value	367.5	246.4
Equity securities, OTTI Unrealized Losses
U.S. Treasury And Government Agencies
Schedule of Available-for-sale Securities [Line Items]
Fixed maturities, Amortized Cost or Cost	190.5	261.7
Fixed maturities, Gross Unrealized Gains	8.5	7.8
Fixed maturities, Gross Unrealized Losses	0.2	0.2
Fixed maturities, Fair Value	198.8	269.3
Foreign Governments
Schedule of Available-for-sale Securities [Line Items]
Fixed maturities, Amortized Cost or Cost	302.7	239.1
Fixed maturities, Gross Unrealized Gains	1.9	0.4
Fixed maturities, Gross Unrealized Losses	0.1	0.5
Fixed maturities, Fair Value	304.5	239.0
Municipal
Schedule of Available-for-sale Securities [Line Items]
Fixed maturities, Amortized Cost or Cost	949.6	964.5
Fixed maturities, Gross Unrealized Gains	83.4	67.4
Fixed maturities, Gross Unrealized Losses	2.7	3.9
Fixed maturities, Fair Value	1,030.3	1,028.0
Corporate
Schedule of Available-for-sale Securities [Line Items]
Fixed maturities, Amortized Cost or Cost	3,371.6	3,218.2
Fixed maturities, Gross Unrealized Gains	230.1	197.7
Fixed maturities, Gross Unrealized Losses	21.7	40.3
Fixed maturities, Fair Value	3,580.0	3,375.6
Fixed maturities, OTTI Unrealized Losses	10.4	13.8
Residential Mortgage-Backed
Schedule of Available-for-sale Securities [Line Items]
Fixed maturities, Amortized Cost or Cost	805.3	816.1
Fixed maturities, Gross Unrealized Gains	41.6	40.9
Fixed maturities, Gross Unrealized Losses	7.8	8.4
Fixed maturities, Fair Value	839.1	848.6
Fixed maturities, OTTI Unrealized Losses	5.5	6.1
Commercial Mortgage-Backed
Schedule of Available-for-sale Securities [Line Items]
Fixed maturities, Amortized Cost or Cost	343.9	367.6
Fixed maturities, Gross Unrealized Gains	15.3	12.5
Fixed maturities, Gross Unrealized Losses	0.3	1.0
Fixed maturities, Fair Value	358.9	379.1
Asset-Backed
Schedule of Available-for-sale Securities [Line Items]
Fixed maturities, Amortized Cost or Cost	219.7	141.5
Fixed maturities, Gross Unrealized Gains	4.3	4.3
Fixed maturities, Gross Unrealized Losses	0.8	0.7
Fixed maturities, Fair Value	$ 223.2	$ 145.1

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Acquisitions and Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2012

Pro Forma Results

The following unaudited pro forma information presents the combined revenues, net income and net income per share of THG and Chaucer for the three and six months ended June 30, 2011, with pro forma purchase accounting adjustments as if the acquisition had been consummated as of January 1, 2011. This pro forma information is not necessarily indicative of what would have occurred had the acquisition and related transactions been made on January 1, 2011, or of future results of the Company. The Company’s income statement accounts denominated in foreign currencies are translated to U.S. dollars at the average rates of exchange for the period indicated.

	Three Months Ended June 30,		Six Months Ended June 30,
(in millions, except per share data)	2011		2011
Revenue	$	1,052.0	$	2,119.5
Net income (loss)	$	(26.4)	$	(51.9)
Net income (loss) per share – basic	$	(0.58)	$	(1.14)
Net income (loss) per share - diluted	$	(0.58)	$	(1.14)
Weighted average shares outstanding - basic		45.4		45.4
Weighted average shares outstanding - diluted		45.4		45.4

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Investments - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Schedule of Investments [Line Items]
Net unrealized gains on impaired securities	$ 23.9				$ 25.1
Overseas deposits	153.6		153.6		135.1
Other-than-temporary impairments	2.2	0.5	3.8	1.7
Net other-than-temporary impairment losses on securities recognized in earnings	1.6	0.8	3.5	2.2
Amount transferred from unrealized losses in accumulated other comprehensive income	0.6	0.3	0.3	0.5
Restricted assets, fixed maturities	404		404
Restricted assets, cash and cash equivalents	$ 125		$ 125

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Investments (Tables)

6 Months Ended

Jun. 30, 2012

Amortized Cost And Fair Value Of Available-For-Sale Fixed Maturities, Cost And Fair Value Of Equity Securities

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

	June 30, 2012
(in millions)	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI Unrealized Losses
Fixed maturities:
U.S. Treasury and government agencies	$	190.5	$	8.5	$	0.2	$	198.8	$	-
Foreign government		302.7		1.9		0.1		304.5		-
Municipal		949.6		83.4		2.7		1,030.3		-
Corporate		3,371.6		230.1		21.7		3,580.0		10.4
Residential mortgage-backed		805.3		41.6		7.8		839.1		5.5
Commercial mortgage-backed		343.9		15.3		0.3		358.9		-
Asset-backed		219.7		4.3		0.8		223.2		-
Total fixed maturities	$	6,183.3	$	385.1	$	33.6	$	6,534.8	$	15.9
Equity securities	$	342.8	$	30.7	$	6.0	$	367.5	$	-
	December 31, 2011
	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI Unrealized Losses
Fixed maturities:
U.S. Treasury and government agencies	$	261.7	$	7.8	$	0.2	$	269.3	$	-
Foreign government		239.1		0.4		0.5		239.0		-
Municipal		964.5		67.4		3.9		1,028.0		-
Corporate		3,218.2		197.7		40.3		3,375.6		13.8
Residential mortgage-backed		816.1		40.9		8.4		848.6		6.1
Commercial mortgage-backed		367.6		12.5		1.0		379.1		-
Asset-backed		141.5		4.3		0.7		145.1		-
Total fixed maturities	$	6,008.7	$	331.0	$	55.0	$	6,284.7	$	19.9
Equity securities	$	239.9	$	15.3	$	8.8	$	246.4	$	-

Maturities Of Available-For-Sale Debt Securities

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.

(in millions)	June 30, 2012
	Amortized Cost		Fair Value
Due in one year or less	$	438.7	$	443.5
Due after one year through five years		2,104.3		2,200.5
Due after five years through ten years		1,620.2		1,763.6
Due after ten years		651.2		706.0
		4,814.4		5,113.6
Mortgage-backed and asset-backed securities		1,368.9		1,421.2
Total fixed maturities	$	6,183.3	$	6,534.8

Fixed Maturities And Equity Securities In An Unrealized Loss Position

The following tables provide information about the Company’s fixed maturities and equity securities that were in an unrealized loss position at June 30, 2012 and December 31, 2011.

	June 30, 2012
	12 months or less				Greater than 12 months				Total
(in millions)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Fixed maturities:
Investment grade:
U.S. Treasury and government agencies	$	-	$	0.7	$	0.2	$	8.8	$	0.2	$	9.5
Foreign governments		0.1		25.0		-		-		0.1		25.0
Municipal		0.5		33.5		2.2		33.8		2.7		67.3
Corporate		3.2		323.0		8.3		62.3		11.5		385.3
Residential mortgage-backed		1.2		58.1		5.9		21.3		7.1		79.4
Commercial mortgage-backed		-		27.3		0.3		4.8		0.3		32.1
Asset-backed		0.1		30.2		-		-		0.1		30.2
Total investment grade		5.1		497.8		16.9		131.0		22.0		628.8
Below investment grade:
Municipal		-		-		-		2.0		-		2.0
Corporate		4.0		35.2		6.2		59.2		10.2		94.4
Residential mortgage-backed		0.7		9.2		-		-		0.7		9.2
Asset-backed		0.7		0.9		-		-		0.7		0.9
Total below investment grade		5.4		45.3		6.2		61.2		11.6		106.5
Total fixed maturities		10.5		543.1		23.1		192.2		33.6		735.3
Equity securities		4.9		76.9		1.1		7.9		6.0		84.8
Total	$	15.4	$	620.0	$	24.2	$	200.1	$	39.6	$	820.1

	December 31, 2011
	12 months or less				Greater than 12 months				Total
(in millions)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Fixed maturities:
Investment grade:
U.S. Treasury and government agencies	$	0.2	$	57.7	$	-	$	-	$	0.2	$	57.7
Foreign governments		0.5		148.8		-		-		0.5		148.8
Municipal		0.5		28.0		3.4		58.8		3.9		86.8
Corporate		19.9		699.6		8.2		35.6		28.1		735.2
Residential mortgage-backed		5.1		115.8		2.4		9.9		7.5		125.7
Commercial mortgage-backed		0.7		58.0		0.3		4.6		1.0		62.6
Asset-backed		0.2		67.6		-		-		0.2		67.6
Total investment grade		27.1		1,175.5		14.3		108.9		41.4		1,284.4
Below investment grade:
Corporate		8.5		118.0		3.7		14.7		12.2		132.7
Residential mortgage-backed		0.9		8.0		-		-		0.9		8.0
Asset-backed		0.5		0.9		-		-		0.5		0.9
Total below investment grade		9.9		126.9		3.7		14.7		13.6		141.6
Total fixed maturities		37.0		1,302.4		18.0		123.6		55.0		1,426.0
Equity securities		8.8		87.2		-		-		8.8		87.2
Total	$	45.8	$	1,389.6	$	18.0	$	123.6	$	63.8	$	1,513.2

Proceeds From Sale Of Available-For-Sale Securities

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

		Three Months Ended June 30,
		2012								2011
(in millions)		Proceeds from Sales			Gross Gains			Gross Losses		Proceeds from Sales			Gross Gains			Gross Losses
Fixed maturities	$		128.8	$		1.9	$		0.5	$	297.3	$		11.7	$		0.2
Equity securities			2.8			0.5			-		1.8			0.4			-
		Six Months Ended June 30,
		2012								2011
(in millions)		Proceeds from Sales			Gross Gains			Gross Losses		Proceeds from Sales			Gross Gains			Gross Losses
Fixed maturities	$		408.0	$		6.6	$		1.6	$	403.8	$		15.9	$		1.0
Equity securities			3.5			0.5			0.2		1.8			0.4			-

Rollforward Of Cumulative Amounts Related To Credit Loss Portion Of OTTI Losses

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

(in millions)	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Credit losses as of the beginning of the period	$	13.5	$	16.3	$	14.5	$	16.7
Credit losses for which an OTTI was not previously recognized		0.3		-		0.4		-
Additional credit losses on securities for which an OTTI was previously recognized		0.3		-		0.6		0.2
Reduction for securities sold, matured or called during the period		(0.3)		(0.7)		(1.7)		(1.3)
Reduction for securities reclassified as intend to sell as intend to sell		-		(0.8)		-		(0.8)
Credit losses as of the end of the period	$	13.8	$	14.8	$	13.8	$	14.8

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $) In Millions, unless otherwise specified	Total	COMMON STOCK	ADDITIONAL PAID-IN CAPITAL	NET UNREALIZED APPRECIATION ON INVESTMENTS AND DERIVATIVE INSTRUMENTS:	DEFINED BENEFIT PENSION AND POSTRETIREMENT PLANS:	CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT:	Total accumulated other comprehensive income	RETAINED EARNINGS	TREASURY STOCK
Balance at beginning of period at Dec. 31, 2010		$ 0.6	$ 1,796.5	$ 218.3	$ (81.6)			$ 1,246.8	$ (720.1)
Cumulative effect of accounting change, net of taxes								(23.1)
Net appreciation during the period:
Net appreciation on available-for-sale securities and derivative instruments				41.0
Benefit (provision) for deferred income taxes				1.5
Unrealized gains arising during period, Net of Tax	64.3			42.5
Amount recognized as net periodic benefit cost during the period	5.1				5.1
Employee and director stock-based awards and other			(14.0)
Balance at beginning of period, as adjusted								1,223.7
Provision for deferred income taxes	(1.8)				(1.8)
Net shares reissued at cost under employee stock-based compensation plans									16.6
Net income (loss)	(2.9)							(2.9)
Total pension and postretirement benefits	3.3				3.3
Dividends to shareholders								(25.0)
Treasury stock issued for less than cost								(5.9)
Recognition of employee stock-based compensation								9.5
Balance at end of period at Jun. 30, 2011	2,461.5	0.6	1,782.5	260.8	(78.3)		182.5	1,199.4	(703.5)
Balance at beginning of period at Dec. 31, 2011	2,484.0	0.6	1,784.8	308.7	(86.8)	(11.5)		1,211.3	(723.1)
Net appreciation during the period:
Net appreciation on available-for-sale securities and derivative instruments				97.5
Benefit (provision) for deferred income taxes				(8.7)
Unrealized gains arising during period, Net of Tax	96.9			88.8
Amount recognized as net periodic benefit cost during the period	4.6				4.6
Amount recognized as cumulative foreign currency translation during the period	1.4					1.4
Shares purchased at cost									(10.0)
Employee and director stock-based awards and other			(2.6)
Balance at beginning of period, as adjusted								1,211.3
Provision for deferred income taxes	(1.6)				(1.6)
Provision for deferred income taxes	(0.5)					(0.5)
Net shares reissued at cost under employee stock-based compensation plans									9.3
Net income (loss)	70.5							70.5
Total pension and postretirement benefits	3.0				3.0
Total cumulative foreign currency translation adjustment	0.9					0.9
Dividends to shareholders								(27.0)
Treasury stock issued for less than cost								(3.8)
Recognition of employee stock-based compensation								4.4
Balance at end of period at Jun. 30, 2012	$ 2,617.5	$ 0.6	$ 1,782.2	$ 397.5	$ (83.8)	$ (10.6)	$ 303.1	$ 1,255.4	$ (723.8)

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CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net gain (loss) from discontinued operations, income tax benefit	$ 0.3	$ (0.4)	$ 0.4	$ (0.1)

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Segment Information

6 Months Ended

Jun. 30, 2012

Segment Information

9. Segment Information

The Company’s primary business operations include insurance products and services provided through four operating segments. These operating segments are Commercial Lines, Personal Lines, Chaucer, and Other Property and Casualty. Commercial Lines includes commercial multiple peril, commercial automobile, workers’ compensation, and other commercial coverages, such as specialty program business, inland marine, surety and other bonds, professional liability and management liability. Personal Lines includes personal automobile, homeowners and other personal coverages. Chaucer includes property, marine and aviation, energy, U.K. motor, and casualty and other coverages (which includes international liability, specialist coverages, and syndicate participations). 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; and, a voluntary pools business which is in run-off. The separate financial information 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. This consists of interest expense on the Company’s senior debentures, junior debentures, subordinated notes, advances under the Company’s collateralized borrowing program with the Federal Home Loan Bank of Boston, letter of credit facility, and capital securities.

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

Summarized below is financial information with respect to business segments:

		Three Months Ended June 30,					Six Months Ended June 30,
(in millions)		2012			2011			2012			2011
Segment revenues:
Commercial Lines	$		487.3	$		447.9	$		963.0	$		887.2
Personal Lines			388.8			388.2			777.2			774.9
Chaucer			251.8			-			503.5			-
Other Property and Casualty			4.2			5.6			8.7			11.4
Total			1,132.1			841.7			2,252.4			1,673.5
Intersegment revenues			(1.5)			(1.2)			(3.1)			(2.5)
Total segment revenues			1,130.6			840.5			2,249.3			1,671.0
Net realized investment gains			(3.4)			13.4			(0.3)			16.7
Total revenues	$		1,127.2	$		853.9	$		2,249.0	$		1,687.7
Segment income (loss) before income taxes:
Commercial Lines:
GAAP underwriting loss	$		(44.7)	$		(60.1)	$		(47.2)	$		(76.1)
Net investment income			35.0			34.0			70.7			67.6
Other income			0.3			0.8			1.0			1.4
Commercial Lines segment income (loss)			(9.4)			(25.3)			24.5			(7.1)
Personal Lines:
GAAP underwriting loss			(10.4)			(47.0)			(6.2)			(40.6)
Net investment income			21.3			23.1			42.9			45.8
Other income income			1.4			1.1			3.1			2.3
Personal Lines segment income (loss)			12.3			(22.8)			39.8			7.5
Chaucer:
GAAP underwriting income			19.2			-			33.9			-
Net investment income			10.2			-			19.6			-
Other income			0.4			-			1.8			-
Chaucer segment income			29.8			-			55.3			-
Other Property and Casualty:
GAAP underwriting income (loss)			(0.8)			-			(1.2)			0.1
Net investment income			1.9			3.9			4.0			8.0
Other net expenses			(2.8)			(3.1)			(5.7)			(6.0)
Other Property and Casualty segment income (loss)			(1.7)			0.8			(2.9)			2.1
Total			31.0			(47.3)			116.7			2.5
Interest expense			(15.9)			(10.8)			(32.1)			(21.2)
Segment income (loss) before income taxes			15.1			(58.1)			84.6			(18.7)
Adjustments to segment income (loss):
Net realized investment gains (losses)			(3.4)			13.4			(0.3)			16.7
Net gain (loss) from retirement of debt			-			0.3			-			(2.2)
Costs related to acquired businesses			(0.9)			(11.1)			(2.4)			(13.8)
Loss on derivative instruments			-			(4.7)			-			(4.7)
Net foreign exchange gains			0.3			-			-			-
Income (loss) before income taxes	$		11.1	$		(60.2)	$		81.9	$		(22.7)

The following table provides identifiable assets for the Company’s business segments and discontinued operations:

(in millions)	June 30, 2012			December 31, 2011
U.S. Companies	$	8,609.5	$		8,471.6
Chaucer		4,387.0			4,005.8
Discontinued operations		122.2			121.2
Total	$	13,118.7	$		12,598.6

The Company reviews the assets of its U.S. Companies collectively and does not allocate them between the Commercial Lines, Personal Lines, and Other Property and Casualty segments.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Jul. 31, 2012
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Trading Symbol	THG
Entity Registrant Name	HANOVER INSURANCE GROUP, INC.
Entity Central Index Key	0000944695
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		44,820,118

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Stock-based Compensation

6 Months Ended

Jun. 30, 2012

Stock-based Compensation

10. Stock-based Compensation

Compensation cost and the related tax benefits were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2012		2011		2012		2011
Stock-based compensation expense	$	2.2	$	2.6	$	6.3	$	6.0
Tax benefit		(0.8)		(0.9)		(2.2)		(2.1)
Stock-based compensation expense, net of taxes	$	1.4	$	1.7	$	4.1	$	3.9

Stock Options

Information on the Company’s stock option plan activity is summarized as follows:

	Six Months Ended June 30,
	2012				2011
(in whole shares and dollars)	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding, beginning of period		2,715,430	$	38.57		2,843,909	$	39.22
Granted		517,500		36.81		297,000		46.47
Exercised		(38,524)		30.49		(118,014)		33.13
Forfeited or cancelled		(51,250)		40.18		(18,250)		37.39
Expired		(158,850)		44.04		(256,250)		57.00
Outstanding, end of period		2,984,306		38.07		2,748,395		38.62

Restricted Stock Units

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

	Six Months Ended June 30,
	2012				2011
(in whole shares and dollars)	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Time-based restricted stock units:
Outstanding, beginning of period		768,529	$	40.17		838,129	$	40.93
Granted		172,691		36.99		111,496		46.10
Vested		(121,522)		35.30		(187,123)		45.14
Forfeited		(26,705)		40.03		(21,944)		41.54
Outstanding, end of period		792,993		40.22		740,558		40.63
Performance and market-based restricted stock units:
Outstanding, beginning of period		69,500	$	45.37		101,680	$	39.62
Granted		94,000		36.75		42,500		46.47
Vested		-		-		(25,055)		45.21
Forfeited		(1,125)		41.16		-		-
Outstanding, end of period		162,375		40.34		119,125		40.89

Performance based restricted stock units are based upon the achievement of the performance metrics at 100%. These units have the potential to range from 0% to 133% of the shares disclosed, which varies based on grant year and individual participation level. Increases above the 100% target level are reflected as granted in the period in which the performance-based stock unit goals are achieved. Decreases below the 100% target level are reflected as forfeited.

In the first three months of 2012, the Company granted market-based awards to certain members of senior management, which are included in the table above as performance and market-based restricted stock activity. The attainment of these stock units are based on the relative total shareholder return (“TSR”) of the Company. This metric is based on a three-year average relative TSR as compared to a Property and Casualty Index of peer companies. The fair value of market based awards was estimated at the date of grant using a valuation model. These units have the potential to range from 0% to 150% of the shares disclosed.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Comprehensive Income (Loss) [Line Items]
Net income (loss)	$ 20.8	$ (32.2)	$ 70.5	$ (2.9)
Available-for-sale securities and derivative instruments:
Net appreciation during the period	26.6	35.4	90.2	35.6
Portion of other-than-temporary impairment losses transferred from other comprehensive income	2.7	2.1	7.3	5.4
Benefit (provision) for deferred income taxes	15.6	(1.6)	(8.7)	1.5
Other comprehensive income	44.9	35.9	88.8	42.5
Amortization recognized as net periodic benefit costs:
Net actuarial loss	3.3	3.8	6.5	7.7
Prior service cost	(1.0)	(1.3)	(1.9)	(2.6)
Total amortization recognized as net periodic benefit costs	2.3	2.5	4.6	5.1
Provision for deferred income taxes	(0.8)	(0.9)	(1.6)	(1.8)
Total pension and postretirement benefits	1.5	1.6	3.0	3.3
Cumulative foreign currency translation adjustment:
Amount recognized as cumulative foreign currency translation during the period	(12.9)		1.4
Benefit (provision) for deferred income taxes	4.5		(0.5)
Total cumulative foreign currency translation adjustment	(8.4)		0.9
Other comprehensive income	38.0	37.5	92.7	45.8
Comprehensive income	$ 58.8	$ 5.3	$ 163.2	$ 42.9

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Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes

4. Income Taxes

Income tax expense for the six months ended June 30, 2012 and 2011 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.

For the six months ended June 30, 2012, the tax provision is comprised of a $4.0 million U.S. federal income tax expense and $17.4 million foreign income tax expense. For the six months ended June 30, 2011, the tax provision was comprised of a $17.8 million U.S. federal income tax benefit.

Certain of the Company’s non-U.S. income is not subject to U.S. tax until repatriated. Foreign taxes on this non – U.S. income are accrued at the local foreign tax rate. This assumption could change, as a result of a sale of the subsidiaries, the receipt of dividends from the subsidiaries, a change in management’s intentions, or as a result of various other events. For the six months ended June 30, 2012, all of the Company’s non – US income is subject to U.S. tax.

The Company or its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions, as well as foreign 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 2007. The IRS audits of the years 2009 and 2010 commenced in June 2012. The Company and its subsidiaries are still subject to U.S. state income tax examinations by tax authorities for years after 2001 and foreign examinations for years after 2008.

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Acquisitions and Discontinued Operations

6 Months Ended

Jun. 30, 2012

Acquisitions and Discontinued Operations

3. Acquisitions and Discontinued Operations

ACQUISITIONS

Chaucer Acquisition

On July 1, 2011, the Company acquired Chaucer, a United Kingdom (“U.K.”) insurance business. Chaucer is a leading specialist managing agency at Lloyd’s. Chaucer underwrites business in several lines of business, including property, marine and aviation, energy, U.K. motor and casualty and other coverages (which include international liability, specialist coverages, and syndicate participations). Chaucer is headquartered in London, with a regional presence in Whitstable, England and locations in Houston, Singapore, Buenos Aires, and Copenhagen.

This transaction is expected to advance the Company’s specialty lines strategy and result in broader product and underwriting capabilities, as well as greater geographic and product diversification. The acquisition adds a presence in the Lloyd’s market, which includes access to international licenses, an excess and surplus insurance business and the ability to syndicate certain risks.

Pro Forma Results

The following unaudited pro forma information presents the combined revenues, net income and net income per share of THG and Chaucer for the three and six months ended June 30, 2011, with pro forma purchase accounting adjustments as if the acquisition had been consummated as of January 1, 2011. This pro forma information is not necessarily indicative of what would have occurred had the acquisition and related transactions been made on January 1, 2011, or of future results of the Company. The Company’s income statement accounts denominated in foreign currencies are translated to U.S. dollars at the average rates of exchange for the period indicated.

	Three Months Ended June 30,		Six Months Ended June 30,
(in millions, except per share data)	2011		2011
Revenue	$	1,052.0	$	2,119.5
Net income (loss)	$	(26.4)	$	(51.9)
Net income (loss) per share – basic	$	(0.58)	$	(1.14)
Net income (loss) per share - diluted	$	(0.58)	$	(1.14)
Weighted average shares outstanding - basic		45.4		45.4
Weighted average shares outstanding - diluted		45.4		45.4

Other

The Company recognized approximately $0.7 and $4.0 million in net foreign currency transaction gains in the Statement of Income during the three and six months ended June 30, 2012.

DISCONTINUED OPERATIONS

Discontinued Third Party Administration Business

On April 30, 2012, the Company completed the sale of its third party administration subsidiary, Citizens Management, Inc. This transaction resulted in a gain of $10.9 million after taxes.

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Pension and Other Postretirement Benefit Plans (Tables)

6 Months Ended

Jun. 30, 2012

Components Of Net Periodic Benefit Cost

The components of net periodic pension cost for defined benefit pension and other postretirement benefit plans included in the Company’s results of operations are as follows:

		Three Months Ended June 30,
(in millions)		2012			2011			2012			2011
		Pension Plans						Postretirement Plans
Service cost – benefits earned during the period	$		0.4	$		-	$		0.1	$	-
Interest cost			8.8			7.9			0.5		0.6
Expected return on plan assets			(9.7)			(8.6)			-		-
Recognized net actuarial loss			3.2			3.7			0.1		0.1
Amortization of prior service cost			-			-			(1.0)		(1.3)
Net periodic cost (benefit)	$		2.7	$		3.0	$		(0.3)	$	(0.6)
		Six Months Ended June 30,
(in millions)		2012			2011			2012			2011
		Pension Plans						Postretirement Plans
Service cost – benefits earned during the period	$		0.8	$		-	$		0.1	$	-
Interest cost			17.6			15.8			1.0		1.2
Expected return on plan assets			(19.4)			(17.1)			-		-
Recognized net actuarial loss			6.4			7.5			0.1		0.2
Amortization of prior service cost			-			-			(1.9)		(2.6)
Net periodic cost (benefit)	$		5.4	$		6.2	$		(0.7)	$	(1.2)

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Earnings Per Share and Shareholders' Equity Transactions

6 Months Ended

Jun. 30, 2012

Earnings Per Share and Shareholders' Equity Transactions

11. Earnings Per Share and Shareholders’ Equity Transactions

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

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions, except per share data)		2012			2011			2012			2011
Basic shares used in the calculation of earnings per share			44.9			45.4			44.9			45.4
Dilutive effect of securities:
Employee stock options			0.2			-			0.2			-
Non-vested stock grants			0.3			-			0.3			-
Diluted shares used in the calculation of earnings per share			45.4			45.4			45.4			45.4
Per share effect of dilutive securities on income (loss) from continuing operations	$		-	$		-	$		(0.02)	$		-
Per share effect of dilutive securities on net income (loss)	$		-	$		-	$		(0.02)	$		-

Diluted earnings per share for the three months ended June 30, 2012 and 2011 excludes 1.6 million and 1.9 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 six months ended June 30, 2012 and 2011 excludes 1.8 million and 2.2 million, respectively, of common shares issuable under the Company’s stock compensation plans, because their effect would be antidilutive.

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Fair Value

6 Months Ended

Jun. 30, 2012

Fair Value

7. Fair Value

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. The Company emphasizes the use of observable market data whenever available in determining fair value. 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. A hierarchy of the three broad levels of fair value 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 – Unadjusted 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 since last year.

Cash and Cash Equivalents

The carrying amount approximates fair value. Cash equivalents consist of money market instruments, which are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1.

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 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 such as maturity date, coupon, mandatory principal payment dates, frequency of interest and principal payments, and optional redemption features. Inputs into the fair value applications that are unique by asset class include, but are not limited to:

— U.S. government agencies – determination of direct versus indirect government support and whether any contingencies exist with respect to the timely payment of principal and interest.

— Foreign government – estimates of appropriate market spread versus underlying related sovereign treasury curve(s) dependent on liquidity and direct or contingent support.

— Municipals – 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; restrictive covenants; and security or collateral.

— Residential mortgage-backed securities – 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, in the case of non-agency collateralized mortgage obligations, 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.

• Asset-backed securities – overall credit quality, including assessments of the underlying collateral type such as credit card receivables, auto loan receivables, equipment lease receivables and real property lease receivables; geographic diversification; vintage year; historical collateral performance including delinquency, default and casualty trends; economic conditions influencing use rates and resale values; and contract structural 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 utilizing the market approach or broker quotes. 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.

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 2 also includes fair values obtained from net asset values provided by mutual fund investment managers, upon which subscriptions and redemptions can be executed. Level 3 consists of common or preferred 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. The Company holds certain equity securities that have been issued by privately-held entities that do not have an active market and for which the pricing service cannot provide fair values. Generally, the Company estimates fair value for these securities based on the issuer’s book value and market multiples. These securities are reported as Level 3 as market multiples represent significant unobservable inputs.

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 and are reported as Level 2.

Other Investments

Fair values of overseas trust funds are provided by the investment manager based on quoted prices for similar instruments in active markets and are reported as Level 2.

Debt

The fair value of debt was 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. Debt is reported as Level 2.

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

(in millions)	June 30, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets
Cash and cash equivalents	$	520.8	$	520.8	$	820.4	$	820.4
Fixed maturities		6,534.8		6,534.8		6,284.7		6,284.7
Equity securities		367.5		367.5		246.4		246.4
Mortgage loans		4.3		4.6		4.7		5.0
Other investments		154.5		154.5		135.1		135.1
Total financial assets	$	7,581.9	$	7,582.2	$	7,491.3	$	7,491.6
Financial Liabilities
Debt	$	917.4	$	1,032.0	$	911.1	$	1,014.9

The Company has processes designed to ensure that the values received from its third party pricing service are accurately recorded, that the data inputs and valuation techniques utilized are appropriate and consistently applied and that the assumptions are reasonable and consistent with the objective of determining fair value. The Company performs a review of the fair value hierarchy classifications and of prices received from its pricing service on a quarterly basis. The Company reviews the pricing services’ policies describing its methodology, 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, if available. 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 2012 and 2011, 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 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 following tables provide, for each hierarchy level, the Company’s assets at June 30, 2012 and December 31, 2011 that are measured at fair value on a recurring basis.

	June 30, 2012
(in millions)	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	198.8	$	73.5	$	125.3	$	-
Foreign governments		304.5		68.8		235.7		-
Municipal		1,030.3		-		1,013.4		16.9
Corporate		3,580.0		-		3,552.6		27.4
Residential mortgage-backed, U.S. agency backed		648.0		-		648.0		-
Residential mortgage-backed, non-agency		191.1		-		190.5		0.6
Commercial mortgage-backed		358.9		-		354.6		4.3
Asset-backed		223.2		-		199.0		24.2
Total fixed maturities		6,534.8		142.3		6,319.1		73.4
Equity securities		357.8		281.9		50.3		25.6
Other investments		153.6		-		153.6		-
Total investment assets at fair value	$	7,046.2	$	424.2	$	6,523.0	$	99.0

	December 31, 2011
	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	269.3	$	147.3	$	122.0	$	-
Foreign governments		239.0		-		239.0		-
Municipal		1,028.0		-		1,014.4		13.6
Corporate		3,375.6		-		3,351.8		23.8
Residential mortgage-backed, U.S. agency backed		663.3		-		663.3		-
Residential mortgage-backed, non-agency		185.3		-		180.1		5.2
Commercial mortgage-backed		379.1		-		374.4		4.7
Asset-backed		145.1		-		116.9		28.2
Total fixed maturities		6,284.7		147.3		6,061.9		75.5
Equity securities		237.0		177.4		36.2		23.4
Other investments		135.1		-		135.1		-
Total investment assets at fair value	$	6,656.8	$	324.7	$	6,233.2	$	98.9

The following table provides, for each hierarchy level, the Company’s estimated fair values of financial instruments that are not carried at fair value :

	June 30, 2012
(in millions)	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	520.8	$	520.8	$	-	$	-
Equity securities		9.7		-		9.7		-
Mortgage loans		4.6		-		4.6		-
Other investments		0.9		-		0.9		-
Liabilities:
Debt	$	1,032.0	$	-	$	1,032.0	$	-

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

	Fixed Maturities
(in millions)	Municipal		Corporate		Residential mortgage- backed, non- agency		Commercial mortgage- backed		Asset- backed		Total		Equities Securities		Total Assets
Three Months Ended June 30, 2012
Balance April 1, 2012	$	17.0	$	28.7	$	0.7	$	4.5	$	24.3	$	75.2	$	21.4	$	96.6
Transfers out of Level 3		-		(2.1)		-		-		(1.0)		(3.1)		-		(3.1)
Total gains (losses):
Included in earnings		-		0.2		-		-		0.1		0.3		-		0.3
Included in other comprehensive income - net appreciation (depreciation) on available for sale securities		0.1		(0.3)		-		-		0.3		0.1		4.2		4.3
Purchases and sales:
Purchases		-		1.5		-		-		1.0		2.5		-		2.5
Sales		(0.2)		(0.6)		(0.1)		(0.2)		(0.5)		(1.6)		-		(1.6)
Balance June 30, 2012	$	16.9	$	27.4	$	0.6	$	4.3	$	24.2	$	73.4	$	25.6	$	99.0
Three Months Ended June 30, 2011
Balance April 1, 2011	$	15.9	$	34.3	$	0.6	$	5.3	$	13.4	$	69.5	$	2.9	$	72.4
Transfers out of Level 3		-		(6.5)		-		-		-		(6.5)		-		(6.5)
Total gains:
Included in other comprehensive income - net appreciation on available for sale securities		0.5		0.2		-		-		0.3		1.0		-		1.0
Purchases and sales:
Purchases		-		8.9		-		-		-		8.9		-		8.9
Sales		(0.3)		(0.1)		(0.1)		(0.2)		(0.2)		(0.9)		-		(0.9)
Balance June 30, 2011	$	16.1	$	36.8	$	0.5	$	5.1	$	13.5	$	72.0	$	2.9	$	74.9

	Fixed Maturities
(in millions)	Municipal		Corporate		Residential mortgage- backed, non- agency		Commercial mortgage- backed		Asset- backed		Total		Equities Securities		Total Assets
Six Months Ended June 30, 2012
Balance January 1, 2012	$	13.6	$	23.8	$	5.2	$	4.7	$	28.2	$	75.5	$	23.4	$	98.9
Transfers into Level 3		-		4.3		-		-		-		4.3		0.1		4.4
Transfers out of Level 3		-		(2.1)		-		-		(8.7)		(10.8)		-		(10.8)
Total gains (losses):
Included in earnings		-		0.3		-		-		-		0.3		(0.2)		0.1
Included in other comprehensive income-net appreciation (depreciation) on available for sale securities		0.7		0.5		0.1		-		(0.7)		0.6		3.0		3.6
Purchases and sales:
Purchases		3.0		1.5		-		-		6.2		10.7		-		10.7
Sales		(0.4)		(0.9)		(4.7)		(0.4)		(0.8)		(7.2)		(0.7)		(7.9)
Balance June 30, 2012	$	16.9	$	27.4	$	0.6	$	4.3	$	24.2	$	73.4	$	25.6	$	99.0
Six Months Ended June 30, 2011
Balance January 1, 2011	$	16.6	$	28.2	$	0.8	$	5.5	$	13.5	$	64.6	$	2.9	$	67.5
Transfers into Level 3		-		3.7		-		-		-		3.7		-		3.7
Transfer out of Level 3		-		(6.5)		-		-		-		(6.5)		-		(6.5)
Total gains (losses):
Included in earnings		-		-		-		-		-		-		(0.5)		(0.5)
Included in other comprehensive income-net appreciation on available for sale securities		0.1		0.3		-		-		0.3		0.7		0.5		1.2
Purchases and sales:
Purchases		-		11.8		-		-		-		11.8		-		11.8
Sales		(0.6)		(0.7)		(0.3)		(0.4)		(0.3)		(2.3)		-		(2.3)
Balance June 30, 2011	$	16.1	$	36.8	$	0.5	$	5.1	$	13.5	$	72.0	$	2.9	$	74.9

During the six months ended June 30, 2012 and 2011, 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 six months ended June 30, 2012 or 2011.

The following table summarizes gains and losses due to changes in fair value that are recorded in net income for Level 3 assets. For the quarter ended June 30, 2011, there was no impact on income relating to Level 3 securities.

Three Months Ended June 30, 2012
(in millions)	Net realized investment gains
Level 3 Assets:
Fixed maturities:
Corporate	$	0.2
Asset-backed		0.1
Total fixed maturities	$	0.3

	Six Months Ended June 30,
	2012						2011
(in millions)	Other-than- temporary impairments		Net realized investment gains (losses)		Total		Other-than- temporary impairments
Level 3 Assets:
Fixed maturities:
Corporate	$	-	$	0.3	$	0.3	$	-
Asset-backed		(0.1)		0.1		-		-
Total fixed maturities		(0.1)		0.4		0.3		-
Equities		-		(0.2)		(0.2)		(0.5)
Total assets	$	(0.1)	$	0.2	$	0.1	$	(0.5)

The following table provides quantitative information about the significant unobservable inputs used by the Company in the fair value measurements of Level 3 assets as of June 30, 2012. Where discounted cash flows are used, the internally-developed discount rate is adjusted by the significant unobservable inputs shown in the table. Valuations for assets based on broker quotes for which there is a lack of transparency as to inputs used to develop the valuations have been excluded.

	Fair Value (in millions)		Valuation Technique	Significant Unobservable Inputs	Range (Wtd Average)
Fixed maturities:
Municipal	$	16.9	Discounted cash flow	Discount for:   Small issue size   Long maturity   Above-market coupon	1.0-4.0% (3.1%) 0.5%(0.5%) 0.3-1.0% (0.5%)
Corporate		27.2	Discounted cash flow	Discount for:   Credit stress   Above-market coupon   Small issue size   Long maturity	2.5-3.0% (2.5%) 0.3-1.0% (0.7%) 0.3-3.0% (0.6%) 0.5%(0.5%)
Residential mortgage-backed, non-agency		0.6	Discounted cash flow	Discount for:   Small issue size	0.5%(0.5%)
Commercial mortgage-backed		4.3	Discounted cash flow	Discount for:   Credit stress   Small issue size   Above-market coupon   Lease structure	1.0%(1.0%) 0.5%(0.5%) 0.5%(0.5%) 0.3%(0.3%)
Asset-backed		24.2	Discounted cash flow	Discount for:   Long maturity   Small issue size   Above-market coupon   Lease structure	0.5-0.8% (0.7%) 0.3-2.0% (0.6%) 0.3-1.0% (0.4%) 0.3%(0.3%)
Equities		25.5	Market comparables	Net tangible asset market   multiples	1.0X (1.0X)

Significant increases (decreases) in any of the above inputs in isolation would result in a significantly lower (higher) fair value measurement. There are no interrelationships between these inputs which might magnify or mitigate the effect of changes in unobservable inputs on the fair value measurement.

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Pension and Other Postretirement Benefit Plans

6 Months Ended

Jun. 30, 2012

Pension and Other Postretirement Benefit Plans

5. Pension and Other Postretirement Benefit Plans

The components of net periodic pension cost for defined benefit pension and other postretirement benefit plans included in the Company’s results of operations are as follows:

		Three Months Ended June 30,
(in millions)		2012			2011			2012			2011
		Pension Plans						Postretirement Plans
Service cost – benefits earned during the period	$		0.4	$		-	$		0.1	$	-
Interest cost			8.8			7.9			0.5		0.6
Expected return on plan assets			(9.7)			(8.6)			-		-
Recognized net actuarial loss			3.2			3.7			0.1		0.1
Amortization of prior service cost			-			-			(1.0)		(1.3)
Net periodic cost (benefit)	$		2.7	$		3.0	$		(0.3)	$	(0.6)
		Six Months Ended June 30,
(in millions)		2012			2011			2012			2011
		Pension Plans						Postretirement Plans
Service cost – benefits earned during the period	$		0.8	$		-	$		0.1	$	-
Interest cost			17.6			15.8			1.0		1.2
Expected return on plan assets			(19.4)			(17.1)			-		-
Recognized net actuarial loss			6.4			7.5			0.1		0.2
Amortization of prior service cost			-			-			(1.9)		(2.6)
Net periodic cost (benefit)	$		5.4	$		6.2	$		(0.7)	$	(1.2)

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Investments

6 Months Ended

Jun. 30, 2012

Investments

6. Investments

A. Fixed maturities and equity securities

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

	June 30, 2012
(in millions)	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI Unrealized Losses
Fixed maturities:
U.S. Treasury and government agencies	$	190.5	$	8.5	$	0.2	$	198.8	$	-
Foreign government		302.7		1.9		0.1		304.5		-
Municipal		949.6		83.4		2.7		1,030.3		-
Corporate		3,371.6		230.1		21.7		3,580.0		10.4
Residential mortgage-backed		805.3		41.6		7.8		839.1		5.5
Commercial mortgage-backed		343.9		15.3		0.3		358.9		-
Asset-backed		219.7		4.3		0.8		223.2		-
Total fixed maturities	$	6,183.3	$	385.1	$	33.6	$	6,534.8	$	15.9
Equity securities	$	342.8	$	30.7	$	6.0	$	367.5	$	-
	December 31, 2011
	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI Unrealized Losses
Fixed maturities:
U.S. Treasury and government agencies	$	261.7	$	7.8	$	0.2	$	269.3	$	-
Foreign government		239.1		0.4		0.5		239.0		-
Municipal		964.5		67.4		3.9		1,028.0		-
Corporate		3,218.2		197.7		40.3		3,375.6		13.8
Residential mortgage-backed		816.1		40.9		8.4		848.6		6.1
Commercial mortgage-backed		367.6		12.5		1.0		379.1		-
Asset-backed		141.5		4.3		0.7		145.1		-
Total fixed maturities	$	6,008.7	$	331.0	$	55.0	$	6,284.7	$	19.9
Equity securities	$	239.9	$	15.3	$	8.8	$	246.4	$	-

Other-than-temporary impairments (“OTTI”) unrealized losses in the tables above represent OTTI recognized in accumulated other comprehensive income. This amount excludes net unrealized gains on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date of $23.9 million and $25.1 million as of June 30, 2012 and December 31, 2011, respectively.

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.

(in millions)	June 30, 2012
	Amortized Cost		Fair Value
Due in one year or less	$	438.7	$	443.5
Due after one year through five years		2,104.3		2,200.5
Due after five years through ten years		1,620.2		1,763.6
Due after ten years		651.2		706.0
		4,814.4		5,113.6
Mortgage-backed and asset-backed securities		1,368.9		1,421.2
Total fixed maturities	$	6,183.3	$	6,534.8

B. Securities in an unrealized loss position

The following tables provide information about the Company’s fixed maturities and equity securities that were in an unrealized loss position at June 30, 2012 and December 31, 2011.

	June 30, 2012
	12 months or less				Greater than 12 months				Total
(in millions)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Fixed maturities:
Investment grade:
U.S. Treasury and government agencies	$	-	$	0.7	$	0.2	$	8.8	$	0.2	$	9.5
Foreign governments		0.1		25.0		-		-		0.1		25.0
Municipal		0.5		33.5		2.2		33.8		2.7		67.3
Corporate		3.2		323.0		8.3		62.3		11.5		385.3
Residential mortgage-backed		1.2		58.1		5.9		21.3		7.1		79.4
Commercial mortgage-backed		-		27.3		0.3		4.8		0.3		32.1
Asset-backed		0.1		30.2		-		-		0.1		30.2
Total investment grade		5.1		497.8		16.9		131.0		22.0		628.8
Below investment grade:
Municipal		-		-		-		2.0		-		2.0
Corporate		4.0		35.2		6.2		59.2		10.2		94.4
Residential mortgage-backed		0.7		9.2		-		-		0.7		9.2
Asset-backed		0.7		0.9		-		-		0.7		0.9
Total below investment grade		5.4		45.3		6.2		61.2		11.6		106.5
Total fixed maturities		10.5		543.1		23.1		192.2		33.6		735.3
Equity securities		4.9		76.9		1.1		7.9		6.0		84.8
Total	$	15.4	$	620.0	$	24.2	$	200.1	$	39.6	$	820.1

	December 31, 2011
	12 months or less				Greater than 12 months				Total
(in millions)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Fixed maturities:
Investment grade:
U.S. Treasury and government agencies	$	0.2	$	57.7	$	-	$	-	$	0.2	$	57.7
Foreign governments		0.5		148.8		-		-		0.5		148.8
Municipal		0.5		28.0		3.4		58.8		3.9		86.8
Corporate		19.9		699.6		8.2		35.6		28.1		735.2
Residential mortgage-backed		5.1		115.8		2.4		9.9		7.5		125.7
Commercial mortgage-backed		0.7		58.0		0.3		4.6		1.0		62.6
Asset-backed		0.2		67.6		-		-		0.2		67.6
Total investment grade		27.1		1,175.5		14.3		108.9		41.4		1,284.4
Below investment grade:
Corporate		8.5		118.0		3.7		14.7		12.2		132.7
Residential mortgage-backed		0.9		8.0		-		-		0.9		8.0
Asset-backed		0.5		0.9		-		-		0.5		0.9
Total below investment grade		9.9		126.9		3.7		14.7		13.6		141.6
Total fixed maturities		37.0		1,302.4		18.0		123.6		55.0		1,426.0
Equity securities		8.8		87.2		-		-		8.8		87.2
Total	$	45.8	$	1,389.6	$	18.0	$	123.6	$	63.8	$	1,513.2

The Company views the gross unrealized losses on fixed maturities and equity securities as being temporary since it is its assessment that these securities will recover in the near term, allowing the Company to realize the anticipated long-term economic value. The Company employs a systematic methodology to evaluate declines in fair value below amortized cost for fixed maturity securities or cost for equity securities. In determining OTTI of fixed maturity and equity securities, 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; the general outlook for market conditions in the industry or geographic region in which the issuer operates; and 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, the Company considers 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. With respect to equity securities, the Company considers its 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.

C. Proceeds from sales

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

		Three Months Ended June 30,
		2012								2011
(in millions)		Proceeds from Sales			Gross Gains			Gross Losses		Proceeds from Sales			Gross Gains			Gross Losses
Fixed maturities	$		128.8	$		1.9	$		0.5	$	297.3	$		11.7	$		0.2
Equity securities			2.8			0.5			-		1.8			0.4			-
		Six Months Ended June 30,
		2012								2011
(in millions)		Proceeds from Sales			Gross Gains			Gross Losses		Proceeds from Sales			Gross Gains			Gross Losses
Fixed maturities	$		408.0	$		6.6	$		1.6	$	403.8	$		15.9	$		1.0
Equity securities			3.5			0.5			0.2		1.8			0.4			-

D. Other Investments

The Company held overseas deposits of $153.6 million and $135.1 million at June 30, 2012 and December 31, 2011, respectively, which are investments held in overseas funds and managed exclusively by Lloyd’s. These investments are reflected in other investments in the Consolidated Balance Sheets.

E. Other-than-temporary impairments

For the three months ended June 30, 2012, total OTTI of fixed maturities and equity securities were $2.2 million, of which $1.6 million was recognized in earnings and the remaining $0.6 million was recorded as unrealized losses in accumulated other comprehensive income. For the first six months of 2012, total OTTI of fixed maturities and equity securities were $3.8 million, of which $3.5 million was recognized in earnings and the remaining $0.3 million was recorded as unrealized losses in accumulated other comprehensive income.

For the three months ended June 30, 2011, total OTTI of fixed maturities were $0.5 million. Of this amount, $0.8 million was recognized in earnings, including $0.3 million that was transferred from unrealized losses in accumulated other comprehensive income. For the first six months of 2011, total OTTI of fixed maturities and equity securities were $1.7 million. Of this amount, $2.2 million was recognized in earnings, including $0.5 million that was transferred from unrealized losses in accumulated other comprehensive income.

The methodology and significant inputs used to measure the amount of credit losses on fixed maturities in 2012 and 2011 were 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.

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

(in millions)	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Credit losses as of the beginning of the period	$	13.5	$	16.3	$	14.5	$	16.7
Credit losses for which an OTTI was not previously recognized		0.3		-		0.4		-
Additional credit losses on securities for which an OTTI was previously recognized		0.3		-		0.6		0.2
Reduction for securities sold, matured or called during the period		(0.3)		(0.7)		(1.7)		(1.3)
Reduction for securities reclassified as intend to sell as intend to sell		-		(0.8)		-		(0.8)
Credit losses as of the end of the period	$	13.8	$	14.8	$	13.8	$	14.8

F. Restricted assets

In accordance with Lloyd’s operating guidelines, the Company deposits funds at Lloyd’s to support underwriting operations. These funds are available only to fund claim obligations. These restricted assets consisted of approximately $404 million of fixed maturities and $125 million of cash and cash equivalents as of June 30, 2012. The Company also deposits funds with various state and governmental authorities in the U.S. For a discussion of the Company’s deposits with state and governmental authorities, see also Note 3 – “Investments” of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011.

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Other Comprehensive Income

6 Months Ended

Jun. 30, 2012

Other Comprehensive Income

8. Other Comprehensive Income

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

	Three Months Ended June 30,
	2012						2011
(in millions)	Pre-Tax		Tax Benefit (Expense)		Net of Tax		Pre-Tax		Tax Benefit (Expense)		Net of Tax
Unrealized gains on available-for-sale securities:
Unrealized gains arising during period	$	29.9	$	17.5	$	47.4	$	52.8	$	(0.1)	$	52.7
Less: reclassification adjustments for gains realized in net income		0.7		1.9		2.6		13.4		2.2		15.6
Total available-for-sale securities		29.2		15.6		44.8		39.4		(2.3)		37.1
Unrealized gains (losses) on derivative instruments:
Unrealized gains (losses) arising during period		0.1		-		0.1		(1.9)		0.7		(1.2)
Other comprehensive income	$	29.3	$	15.6	$	44.9	$	37.5	$	(1.6)	$	35.9
	Six Months Ended June 30,
	2012						2011
(in millions)	Pre-Tax		Tax Benefit (Expense)		Net of Tax		Pre-Tax		Tax Benefit (Expense)		Net of Tax
Unrealized gains on available-for- sale securities:
Unrealized gains arising during period	$	100.4	$	(3.5)	$	96.9	$	59.2	$	5.1	$	64.3
Less: reclassification adjustments for gains realized in net income		3.0		5.2		8.2		16.3		4.3		20.6
Total available-for-sale securities		97.4		(8.7)		88.7		42.9		0.8		43.7
Unrealized gains (losses) on derivative instruments:
Unrealized gains (losses) arising during period		0.1		-		0.1		(1.9)		0.7		(1.2)
Other comprehensive income	$	97.5	$	(8.7)	$	88.8	$	41.0	$	1.5	$	42.5

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Components of Net Periodic Pension Cost for Defined Pension Plan and Other Postretirement Benefit Plan (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Pension Benefits
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Service cost - benefits earned during the period	$ 0.4		$ 0.8
Interest cost	8.8	7.9	17.6	15.8
Expected return on plan assets	(9.7)	(8.6)	(19.4)	(17.1)
Recognized net actuarial loss	3.2	3.7	6.4	7.5
Net periodic cost (benefit)	2.7	3.0	5.4	6.2
Postretirement Benefits
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Service cost - benefits earned during the period	0.1		0.1
Interest cost	0.5	0.6	1.0	1.2
Recognized net actuarial loss	0.1	0.1	0.1	0.2
Amortization of prior service cost	(1.0)	(1.3)	(1.9)	(2.6)
Net periodic cost (benefit)	$ (0.3)	$ (0.6)	$ (0.7)	$ (1.2)

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Compensation Cost and Related Tax Benefits (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 2.2	$ 2.6	$ 6.3	$ 6.0
Tax benefit	(0.8)	(0.9)	(2.2)	(2.1)
Stock-based compensation expense, net of taxes	$ 1.4	$ 1.7	$ 4.1	$ 3.9

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Subsequent Events

6 Months Ended

Jun. 30, 2012

Subsequent Events

13. Subsequent Events

There were no subsequent events requiring adjustment to the financial statements and no additional disclosures required in the notes to the interim consolidated financial statements.

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Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2012

Reconciliation Of Gross Unrealized Investment Gains

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

	Three Months Ended June 30,
	2012						2011
(in millions)	Pre-Tax		Tax Benefit (Expense)		Net of Tax		Pre-Tax		Tax Benefit (Expense)		Net of Tax
Unrealized gains on available-for-sale securities:
Unrealized gains arising during period	$	29.9	$	17.5	$	47.4	$	52.8	$	(0.1)	$	52.7
Less: reclassification adjustments for gains realized in net income		0.7		1.9		2.6		13.4		2.2		15.6
Total available-for-sale securities		29.2		15.6		44.8		39.4		(2.3)		37.1
Unrealized gains (losses) on derivative instruments:
Unrealized gains (losses) arising during period		0.1		-		0.1		(1.9)		0.7		(1.2)
Other comprehensive income	$	29.3	$	15.6	$	44.9	$	37.5	$	(1.6)	$	35.9
	Six Months Ended June 30,
	2012						2011
(in millions)	Pre-Tax		Tax Benefit (Expense)		Net of Tax		Pre-Tax		Tax Benefit (Expense)		Net of Tax
Unrealized gains on available-for- sale securities:
Unrealized gains arising during period	$	100.4	$	(3.5)	$	96.9	$	59.2	$	5.1	$	64.3
Less: reclassification adjustments for gains realized in net income		3.0		5.2		8.2		16.3		4.3		20.6
Total available-for-sale securities		97.4		(8.7)		88.7		42.9		0.8		43.7
Unrealized gains (losses) on derivative instruments:
Unrealized gains (losses) arising during period		0.1		-		0.1		(1.9)		0.7		(1.2)
Other comprehensive income	$	97.5	$	(8.7)	$	88.8	$	41.0	$	1.5	$	42.5

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Financial Information with Respect to Business Segments (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Segment Reporting Information [Line Items]
Segment revenues	$ 1,132.1	$ 841.7	$ 2,252.4	$ 1,673.5
Intersegment revenues	(1.5)	(1.2)	(3.1)	(2.5)
Total segment revenues	1,130.6	840.5	2,249.3	1,671.0
Net realized investment gains	(3.4)	13.4	(0.3)	16.7
Total revenues	1,127.2	853.9	2,249.0	1,687.7
Total, Segment income (loss) before income taxes	31.0	(47.3)	116.7	2.5
Interest expense	(15.9)	(10.8)	(32.1)	(21.2)
Segment income (loss) before income taxes	15.1	(58.1)	84.6	(18.7)
Net realized investment gains (losses)	(3.4)	13.4	(0.3)	16.7
Net gain (loss) from retirement of debt		0.3		(2.2)
Costs related to acquired businesses	(0.9)	(11.1)	(2.4)	(13.8)
Loss on derivative instruments		(4.7)		(4.7)
Net foreign exchange gains	0.3
Income (loss) before income taxes	11.1	(60.2)	81.9	(22.7)
Net investment income	68.5	61.0	137.3	121.4
Commercial Lines
Segment Reporting Information [Line Items]
Segment revenues	487.3	447.9	963.0	887.2
Total, Segment income (loss) before income taxes	(9.4)	(25.3)	24.5	(7.1)
GAAP underwriting income (loss)	(44.7)	(60.1)	(47.2)	(76.1)
Net investment income	35.0	34.0	70.7	67.6
Other income	0.3	0.8	1.0	1.4
Personal Lines
Segment Reporting Information [Line Items]
Segment revenues	388.8	388.2	777.2	774.9
Total, Segment income (loss) before income taxes	12.3	(22.8)	39.8	7.5
GAAP underwriting income (loss)	(10.4)	(47.0)	(6.2)	(40.6)
Net investment income	21.3	23.1	42.9	45.8
Other income	1.4	1.1	3.1	2.3
Chaucer
Segment Reporting Information [Line Items]
Segment revenues	251.8		503.5
Total, Segment income (loss) before income taxes	29.8		55.3
GAAP underwriting income (loss)	19.2		33.9
Net investment income	10.2		19.6
Other income	0.4		1.8
Other Property And Casualty
Segment Reporting Information [Line Items]
Segment revenues	4.2	5.6	8.7	11.4
Total, Segment income (loss) before income taxes	(1.7)	0.8	(2.9)	2.1
GAAP underwriting income (loss)	(0.8)		(1.2)	0.1
Net investment income	1.9	3.9	4.0	8.0
Other net expenses	$ (2.8)	$ (3.1)	$ (5.7)	$ (6.0)

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Fair Value of Financial Instruments (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011	Dec. 31, 2010
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	$ 520.8	$ 820.4	$ 721.6	$ 290.4
Fixed maturities	6,534.8	6,284.7
Equity securities	367.5	246.4
Other investments	229.1	190.2
Debt	917.4	911.1
Carrying Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	520.8	820.4
Fixed maturities	6,534.8	6,284.7
Equity securities	367.5	246.4
Mortgage loans	4.3	4.7
Other investments	154.5	135.1
Total financial assets	7,581.9	7,491.3
Debt	917.4	911.1
Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	520.8	820.4
Fixed maturities	6,534.8	6,284.7
Equity securities	367.5	246.4
Mortgage loans	4.6	5.0
Other investments	154.5	135.1
Total financial assets	7,582.2	7,491.6
Debt	$ 1,032.0	$ 1,014.9

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CONSOLIDATED BALANCE SHEETS (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Investments:
Fixed maturities, at fair value (amortized cost of $6,183.3 and $6,008.7)	$ 6,534.8	$ 6,284.7
Equity securities, at fair value (cost of $342.8 and $239.9)	367.5	246.4
Other investments	229.1	190.2
Total investments	7,131.4	6,721.3
Cash and cash equivalents	520.8	820.4
Accrued investment income	71.2	71.8
Premiums and accounts receivable, net	1,372.9	1,168.1
Reinsurance recoverable on paid and unpaid losses and unearned premiums	2,434.2	2,262.2
Deferred policy acquisition costs	495.9	458.6
Deferred income taxes	271.6	274.0
Goodwill	184.6	185.5
Other assets	513.9	515.5
Assets of discontinued operations	122.2	121.2
Total assets	13,118.7	12,598.6
LIABILITIES
Loss and loss adjustment expense reserves	5,853.4	5,760.3
Unearned premiums	2,529.2	2,292.1
Expenses and taxes payable	580.4	642.9
Reinsurance premiums payable	492.3	378.9
Debt	917.4	911.1
Liabilities of discontinued operations	128.5	129.3
Total liabilities	10,501.2	10,114.6
Commitments and contingencies
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	1,782.2	1,784.8
Accumulated other comprehensive income	303.1	210.4
Retained earnings	1,255.4	1,211.3
Treasury stock, at cost (16.0 and 15.9 million shares)	(723.8)	(723.1)
Total shareholders' equity	2,617.5	2,484.0
Total liabilities and shareholders' equity	$ 13,118.7	$ 12,598.6

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New Accounting Pronouncements

6 Months Ended

Jun. 30, 2012

New Accounting Pronouncements

2. New Accounting Pronouncements

Recently Implemented Standards

In September 2011, the Financial Accounting Standards Board (“FASB”) issued ASC Update No. 2011-08 (Topic 350) Testing Goodwill for Impairment. This ASC update allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The update provides that an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on its qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The update further improves previous guidance by expanding upon the examples of events and circumstances that an entity should consider in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the update improves the examples of events and circumstances that should be considered by an entity that has a reporting unit with a zero or negative carrying amount in determining whether to measure an impairment loss, if any, under the second step of the goodwill impairment test. This ASC update is effective for annual and interim periods beginning after December 15, 2011, with early adoption permitted. The Company implemented this guidance effective January 1, 2012. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

In June 2011, the FASB issued ASC Update No. 2011-05 (Topic 220) Presentation of Comprehensive Income (“ASC Update No. 2011-05”). This ASC update requires companies to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity is eliminated. In addition, an entity is required to present on the face of the financial statements reclassification adjustments from other comprehensive income to net income. This ASC update should be applied retrospectively and except for the provisions related to reclassification adjustment, is effective for interim and annual periods beginning after December 15, 2011. In December 2011, the FASB issued ASC Update 2011-12 (Topic 220) Comprehensive Income which deferred the implementation date of the reclassification adjustment guidance in ASC Update No. 2011-05. The Company implemented the guidance related to financial statements presentation effective January 1, 2012. The effect of implementing the guidance related to financial statements presentation did not have a significant impact to the Company’s financial statement presentation.

In May 2011, the FASB issued ASC Update No. 2011-04 (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASC update results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value for both U.S. GAAP and International Financial Reporting Standards (“IFRS”). The new guidance includes changes to how and when the valuation premise of highest and best use applies, clarification on the application of blockage factors and other premiums and discounts, as well as new and revised disclosure requirements. This ASC update is effective for interim and annual periods beginning after December 15, 2011. The Company implemented this guidance as of January 1, 2012. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

In October 2010, the FASB issued ASC Update No. 2010-26 (Topic 944), Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (a consensus of the FASB Emerging Issues Task Force). This ASC 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 industry practice historically included costs relating to unsuccessful contract acquisition. This ASC is effective for fiscal years beginning after December 15, 2011. Retrospective application to all prior periods upon the date of adoption is permitted. The Company implemented this guidance effective January 1, 2012 and has elected to apply this guidance retrospectively. Retrospective application requires the new accounting principle to be reflected in the earliest period presented as if the accounting principle had always been used. The Company has reflected the impact of the retrospective application as a cumulative effect of a change in accounting principle through equity at the beginning of the earliest reporting period presented within this Form 10 – Q and will reflect this application in all future filings with the SEC. The implementation of this ASC resulted in an after-tax reduction to our stockholders’ equity as of January 1, 2012 of $25.8 million, or 1%. The effect of implementing this guidance was not material to our results of operations on either a historical or prospective basis.

Recently Issued Standards

In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASC Update No. 2012-02 (Topic 350) Testing Indefinite – Lived Intangible Assets for Impairment. This ASC update allows an entity to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite – lived intangible asset is impaired. This assessment should be used as a basis for determining whether it is necessary to perform the quantitative impairment test. An entity would not be required to calculate the fair value of the intangible asset and perform the quantitative test unless the entity determines, based upon its qualitative assessment, that it is more likely than not that its fair value is less than its carrying value. The update further improves previous guidance by expanding upon the examples of events and circumstances that an entity should consider in determining whether it is more likely than not that the fair value of an indefinite – lived intangible asset is less than its carrying amount. The update also allows an entity the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. This ASC update is effective for annual and interim periods beginning after September 15, 2012, with early adoption permitted. The Company does not expect the adoption of ASC Update 2012-02 to have a material impact on its financial position or results of operations.

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2012

Financial Information with Respect to Business Segments

Summarized below is financial information with respect to business segments:

		Three Months Ended June 30,					Six Months Ended June 30,
(in millions)		2012			2011			2012			2011
Segment revenues:
Commercial Lines	$		487.3	$		447.9	$		963.0	$		887.2
Personal Lines			388.8			388.2			777.2			774.9
Chaucer			251.8			-			503.5			-
Other Property and Casualty			4.2			5.6			8.7			11.4
Total			1,132.1			841.7			2,252.4			1,673.5
Intersegment revenues			(1.5)			(1.2)			(3.1)			(2.5)
Total segment revenues			1,130.6			840.5			2,249.3			1,671.0
Net realized investment gains			(3.4)			13.4			(0.3)			16.7
Total revenues	$		1,127.2	$		853.9	$		2,249.0	$		1,687.7
Segment income (loss) before income taxes:
Commercial Lines:
GAAP underwriting loss	$		(44.7)	$		(60.1)	$		(47.2)	$		(76.1)
Net investment income			35.0			34.0			70.7			67.6
Other income			0.3			0.8			1.0			1.4
Commercial Lines segment income (loss)			(9.4)			(25.3)			24.5			(7.1)
Personal Lines:
GAAP underwriting loss			(10.4)			(47.0)			(6.2)			(40.6)
Net investment income			21.3			23.1			42.9			45.8
Other income income			1.4			1.1			3.1			2.3
Personal Lines segment income (loss)			12.3			(22.8)			39.8			7.5
Chaucer:
GAAP underwriting income			19.2			-			33.9			-
Net investment income			10.2			-			19.6			-
Other income			0.4			-			1.8			-
Chaucer segment income			29.8			-			55.3			-
Other Property and Casualty:
GAAP underwriting income (loss)			(0.8)			-			(1.2)			0.1
Net investment income			1.9			3.9			4.0			8.0
Other net expenses			(2.8)			(3.1)			(5.7)			(6.0)
Other Property and Casualty segment income (loss)			(1.7)			0.8			(2.9)			2.1
Total			31.0			(47.3)			116.7			2.5
Interest expense			(15.9)			(10.8)			(32.1)			(21.2)
Segment income (loss) before income taxes			15.1			(58.1)			84.6			(18.7)
Adjustments to segment income (loss):
Net realized investment gains (losses)			(3.4)			13.4			(0.3)			16.7
Net gain (loss) from retirement of debt			-			0.3			-			(2.2)
Costs related to acquired businesses			(0.9)			(11.1)			(2.4)			(13.8)
Loss on derivative instruments			-			(4.7)			-			(4.7)
Net foreign exchange gains			0.3			-			-			-
Income (loss) before income taxes	$		11.1	$		(60.2)	$		81.9	$		(22.7)

Business Segments And Discontinued Operations Related To Identifiable Assets

The following table provides identifiable assets for the Company’s business segments and discontinued operations:

(in millions)	June 30, 2012			December 31, 2011
U.S. Companies	$	8,609.5	$		8,471.6
Chaucer		4,387.0			4,005.8
Discontinued operations		122.2			121.2
Total	$	13,118.7	$		12,598.6

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Fixed Maturities and Equity Securities (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	$ 15.4	$ 45.8
12 months or less, Fair Value	620.0	1,389.6
Greater than 12 months, Gross Unrealized Losses	24.2	18.0
Greater than 12 months, Fair Value	200.1	123.6
Total, Gross Unrealized Losses	39.6	63.8
Total, Fair Value	820.1	1,513.2
Fixed Maturities
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	10.5	37.0
12 months or less, Fair Value	543.1	1,302.4
Greater than 12 months, Gross Unrealized Losses	23.1	18.0
Greater than 12 months, Fair Value	192.2	123.6
Total, Gross Unrealized Losses	33.6	55.0
Total, Fair Value	735.3	1,426.0
Fixed Maturities | Investment grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	5.1	27.1
12 months or less, Fair Value	497.8	1,175.5
Greater than 12 months, Gross Unrealized Losses	16.9	14.3
Greater than 12 months, Fair Value	131.0	108.9
Total, Gross Unrealized Losses	22.0	41.4
Total, Fair Value	628.8	1,284.4
Fixed Maturities | Investment grade | U.S. Treasury And Government Agencies
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses		0.2
12 months or less, Fair Value	0.7	57.7
Greater than 12 months, Gross Unrealized Losses	0.2
Greater than 12 months, Fair Value	8.8
Total, Gross Unrealized Losses	0.2	0.2
Total, Fair Value	9.5	57.7
Fixed Maturities | Investment grade | Foreign Governments
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	0.1	0.5
12 months or less, Fair Value	25.0	148.8
Total, Gross Unrealized Losses	0.1	0.5
Total, Fair Value	25.0	148.8
Fixed Maturities | Investment grade | Municipal
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	0.5	0.5
12 months or less, Fair Value	33.5	28.0
Greater than 12 months, Gross Unrealized Losses	2.2	3.4
Greater than 12 months, Fair Value	33.8	58.8
Total, Gross Unrealized Losses	2.7	3.9
Total, Fair Value	67.3	86.8
Fixed Maturities | Investment grade | Corporate
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	3.2	19.9
12 months or less, Fair Value	323.0	699.6
Greater than 12 months, Gross Unrealized Losses	8.3	8.2
Greater than 12 months, Fair Value	62.3	35.6
Total, Gross Unrealized Losses	11.5	28.1
Total, Fair Value	385.3	735.2
Fixed Maturities | Investment grade | Residential Mortgage-Backed
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	1.2	5.1
12 months or less, Fair Value	58.1	115.8
Greater than 12 months, Gross Unrealized Losses	5.9	2.4
Greater than 12 months, Fair Value	21.3	9.9
Total, Gross Unrealized Losses	7.1	7.5
Total, Fair Value	79.4	125.7
Fixed Maturities | Investment grade | Commercial Mortgage-Backed
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses		0.7
12 months or less, Fair Value	27.3	58.0
Greater than 12 months, Gross Unrealized Losses	0.3	0.3
Greater than 12 months, Fair Value	4.8	4.6
Total, Gross Unrealized Losses	0.3	1.0
Total, Fair Value	32.1	62.6
Fixed Maturities | Investment grade | Asset-Backed
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	0.1	0.2
12 months or less, Fair Value	30.2	67.6
Total, Gross Unrealized Losses	0.1	0.2
Total, Fair Value	30.2	67.6
Fixed Maturities | Below Investment Grade
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	5.4	9.9
12 months or less, Fair Value	45.3	126.9
Greater than 12 months, Gross Unrealized Losses	6.2	3.7
Greater than 12 months, Fair Value	61.2	14.7
Total, Gross Unrealized Losses	11.6	13.6
Total, Fair Value	106.5	141.6
Fixed Maturities | Below Investment Grade | Municipal
Schedule of Available-for-sale Securities [Line Items]
Greater than 12 months, Fair Value	2.0
Total, Fair Value	2.0
Fixed Maturities | Below Investment Grade | Corporate
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	4.0	8.5
12 months or less, Fair Value	35.2	118.0
Greater than 12 months, Gross Unrealized Losses	6.2	3.7
Greater than 12 months, Fair Value	59.2	14.7
Total, Gross Unrealized Losses	10.2	12.2
Total, Fair Value	94.4	132.7
Fixed Maturities | Below Investment Grade | Residential Mortgage-Backed
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	0.7	0.9
12 months or less, Fair Value	9.2	8.0
Total, Gross Unrealized Losses	0.7	0.9
Total, Fair Value	9.2	8.0
Fixed Maturities | Below Investment Grade | Asset-Backed
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	0.7	0.5
12 months or less, Fair Value	0.9	0.9
Total, Gross Unrealized Losses	0.7	0.5
Total, Fair Value	0.9	0.9
Equity Securities
Schedule of Available-for-sale Securities [Line Items]
12 months or less, Gross Unrealized Losses	4.9	8.8
12 months or less, Fair Value	76.9	87.2
Greater than 12 months, Gross Unrealized Losses	1.1
Greater than 12 months, Fair Value	7.9
Total, Gross Unrealized Losses	6.0	8.8
Total, Fair Value	$ 84.8	$ 87.2

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies

12. Commitments and Contingencies

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 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 plaintiff claims that the Plan understated her distributions and those of similarly situated participants by failing to pay an additional so-called “whipsaw” amount reflecting the present value of an estimate of future interest credits from the date of the lump sum distribution to each participant’s retirement age of 65 discounted by applicable IRS rates.

The Plaintiff filed an Amended Complaint adding two new named plaintiffs and additional claims on December 11, 2009. In response, the Company filed a Motion to Dismiss on January 30, 2010. In addition to the pending claim challenging the calculation of lump sum distributions, the Amended Complaint includes: (a) a claim that the Plan failed to calculate participants’ account balances and lump sum payments 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 arising from the various interest crediting and lump sum distribution matters of which Plaintiffs complain. The District Court granted the Company’s Motion to Dismiss the additional claims on statute of limitations grounds by a Memorandum Opinion dated March 31, 2011, leaving the claims substantially as set forth in the original March 12, 2007 complaint. Plaintiffs filed a Motion for Reconsideration of the District Court’s decision to dismiss the additional claims, which was denied with respect to the claims set forth in (a) and (b) above; however, the Court did allow the fiduciary duty claims to stand. On June 22, 2012, the Company and the Plan filed a Motion for Summary Judgment to dismiss the claims of one of the plaintiffs who received his lump sum distribution after December 31, 2003, on the basis that certain amendments to the Plan effective January 1, 2004 eliminated any basis for payment of an additional “whipsaw” amount to participants who received lump sum distributions after December 31, 2003.

At this time, the Company is unable to provide a reasonable estimate of the potential range of ultimate liability if the outcome of the suit is unfavorable. This matter is still in the early stages of litigation. The extent to which any of the Plaintiffs’ multiple theories of liability, some of which are overlapping and others of which are quite complex and novel, are accepted and upheld on appeal will significantly affect the Plan’s or the Company’s potential liability. It is not clear whether a class will be certified or, if certified, how many former or current Plan participants, if any, will be included. The statute of limitations applicable to the alleged class has not yet been finally determined and the extent of potential liability, if any, will depend on this final determination. In addition, assuming for these purposes that the Plaintiffs prevail with respect to claims that benefits accrued or payable under the Plan were understated, then there are numerous possible theories and other variables upon which any revised calculation of benefits as requested under Plaintiffs’ claims could be based. It is likely that any adverse judgment in this case would be against the Plan. Such a judgment would be expected to create a liability for the Plan, with resulting effects on the Plan’s assets available to pay benefits. The Company’s future required funding of the Plan could also be impacted by such a liability.

Hurricane Katrina Litigation

In August 2007, the State of Louisiana 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, and asserts a right to benefit payments from insurers on behalf of current and former Louisiana citizens who have applied for and received or will receive funds through Louisiana’s “Road Home” program. The case was thereafter 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 Louisiana’s 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 30, 2009, Defendants filed a Petition for Permission to Appeal to the United States Court of Appeals for the Fifth Circuit (the “Fifth Circuit”), which was granted. On July 28, 2010, the Fifth Circuit certified the anti-assignment issue to the Louisiana Supreme Court. On May 10, 2011, the Supreme Court of Louisiana issued a decision holding that the anti-assignment provisions were not violative of public policy. The court also indicated, however, that such provisions would only serve to bar post-loss assignments if they clearly and unambiguously expressed that they apply to post-loss assignments. On June 28, 2011, the Fifth Circuit remanded the case to the Federal District Court for further proceedings consistent with the Louisiana’s Supreme Court’s opinion. On April 9, 2012, the court entered an order dismissing the state’s class action allegations; however, this order does not affect the state’s ability to pursue policyholder claims pursuant to alleged assignments obtained from the policyholders.

On April 13, 2012, the court entered a Case Management Order requiring the state to disclose to the defendants specified information regarding the nature of the state’s claims. In June 2012, the state furnished a spreadsheet in response to the Case Management Order. The spreadsheet identifies approximately 1,000 properties with respect to which the state apparently intends to pursue claims against the Company. The Company has reviewed the data provided by the state with respect to these claims and has concluded that it is insufficient to allow the Company to make a reasonable estimate of the potential range of ultimate liability arising from this litigation. The data does not appear to provide credible support for an assertion that the Company paid less than it was legally required to pay with respect to any of the listed claims and, if so, in what amounts.

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. The ultimate resolutions of such proceedings are not expected to 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.