HANOVER INSURANCE GROUP, INC. (Form: 10-Q, Received: 08/09/2011 14:35:01)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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

June 30, 2011 For the quarterly period ended June 30, 2011

¨	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.

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

The number of shares outstanding of the registrant’s common stock was 45,462,909 as of August 2, 2011.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Income	2

	Consolidated Balance Sheets	3

	Consolidated Statements of Shareholders’ Equity	4

	Consolidated Statements of Comprehensive Income	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	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	48

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 6.	Exhibits	54

SIGNATURES		55

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Quarter Ended June 30,						Six Months Ended June 30,
(In millions, except per share data)	2011			2010			2011			2010
R EVENUES
Premiums	$	770.5		$	697.8		$	1,532.2		$	1,364.3
Net investment income		61.0			61.8			121.4			122.9
Net realized investment gains (losses):
Net realized gains from sales and other		14.2			3.6			18.9			17.2
Net other–than–temporary impairment losses recognized in income		(0.8	)		(3.4	)		(2.2	)		(6.1	)

Total net realized investment gains		13.4			0.2			16.7			11.1

Fees and other income		9.0			8.5			17.4			16.6

Total revenues		853.9			768.3			1,687.7			1,514.9

LOSSES AND EXPENSES
Losses and loss adjustment expenses		617.5			498.4			1,128.5			930.0
Policy acquisition expenses		181.3			163.0			362.1			317.4
Interest expense		10.8			11.7			21.2			21.0
Other operating expenses		104.0			92.1			198.1			184.1

Total losses and expenses		913.6			765.2			1,709.9			1,452.5

(Loss) income before federal income taxes		(59.7	)		3.1			(22.2	)		62.4

Federal income tax (benefit) expense:
Current		(26.4	)		(1.4	)		(22.3	)		(29.7	)
Deferred		(0.9	)		2.3			4.6			47.7

Total federal income tax (benefit) expense		(27.3	)		0.9			(17.7	)		18.0

(Loss) income from continuing operations		(32.4	)		2.2			(4.5	)		44.4
Gain (loss) from discontinued operations (net of income tax (expense) benefit of $(0.4) and $0.2 for the quarter ended June 30, 2011 and June 30, 2010 and $(0.1) and $0.1 for the six months ended June 30, 2011 and June 30, 2010)		0.6			0.1			2.0			(0.3	)

Net (loss) income	$	(31.8	)	$	2.3		$	(2.5	)	$	44.1

PER SHARE DATA
Basic
(Loss) income from continuing operations	$	(0.71	)	$	0.05		$	(0.10	)	$	0.96
Gain from discontinued operations		0.01			—			0.04			—

Net (loss) income per share	$	(0.70	)	$	0.05		$	(0.06	)	$	0.96

Weighted average shares outstanding		45.4			44.9			45.4			46.2

Diluted
(Loss) income from continuing operations	$	(0.71	)	$	0.05		$	(0.10	)	$	0.95
Gain (loss) from discontinued operations		0.01			—			0.04			(0.01	)

Net (loss) income per share	$	(0.70	)	$	0.05		$	(0.06	)	$	0.94

Weighted average shares outstanding		45.4			45.5			45.4			46.8

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

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(In millions, except per share data)	June 30, 2011			December 31, 2010
(In millions, except per share data)	June 30, 2011			December 31, 2010
A SSETS
Investments:
Fixed maturities, at fair value (amortized cost of $4,466.3 and $4,598.8)	$	4,697.9		$	4,797.9
Equity securities, at fair value (cost of $147.8 and $120.7)		164.2			128.6
Other investments		44.0			39.4

Total investments		4,906.1			4,965.9

Cash and cash equivalents		721.6			290.4
Accrued investment income		53.7			53.8
Premiums and accounts receivable, net		760.9			772.0
Reinsurance recoverable on paid and unpaid losses		1,280.9			1,254.2
Deferred policy acquisition costs		348.9			345.3
Deferred federal income taxes		173.1			177.4
Goodwill		178.8			179.2
Other assets		428.9			398.1
Assets of discontinued operations		128.4			133.6

Total assets	$	8,981.3		$	8,569.9

L IABILITIES
Loss and loss adjustment expense reserves	$	3,406.4		$	3,277.7
Unearned premiums		1,553.0			1,520.3
Expenses and taxes payable		519.0			541.7
Reinsurance premiums payable		33.1			34.4
Debt		857.9			605.9
Liabilities of discontinued operations		126.9			129.4

Total liabilities		6,496.3			6,109.4

Commitments and contingencies

S HAREHOLDERS ’ 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		1,782.5			1,796.5
Accumulated other comprehensive income		182.5			136.7
Retained earnings		1,222.9			1,246.8
Treasury stock, at cost (15.3 and 15.6 million shares)		(703.5	)		(720.1	)

Total shareholders’ equity		2,485.0			2,460.5

Total liabilities and shareholders’ equity	$	8,981.3		$	8,569.9

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

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)


	Six Months Ended June 30,
(In millions)	2011			2010
P REFERRED S TOCK
Balance at beginning and end of period	$	—		$	—

C OMMON S TOCK
Balance at beginning and end of period		0.6			0.6

A DDITIONAL P AID -I N C APITAL
Balance at beginning of period		1,796.5			1,808.5
Employee and director stock-based awards and other		(14.0	)		(11.8	)

Balance at end of period		1,782.5			1,796.7

A CCUMULATED O THER C OMPREHENSIVE I NCOME (L OSS )
N ET U NREALIZED A PPRECIATION ON I NVESTMENTS A ND D ERIVATIVE I NSTRUMENTS :
Balance at beginning of period		218.3			107.7
Net appreciation during the period:
Net appreciation on available-for-sale securities and derivative instruments		41.0			125.7
Benefit (provision) for deferred federal income taxes		1.5			(31.5	)

		42.5			94.2

Balance at end of period		260.8			201.9

D EFINED B ENEFIT P ENSION AND P OSTRETIREMENT P LANS :
Balance at beginning of period		(81.6	)		(78.9	)
Amount recognized as net periodic benefit cost during the period		5.1			4.9
Provision for deferred federal income taxes		(1.8	)		(1.7	)

		3.3			3.2

Balance at end of period		(78.3	)		(75.7	)

Total accumulated other comprehensive income		182.5			126.2

R ETAINED E ARNINGS
Balance at beginning of period		1,246.8			1,141.1
Net (loss) income		(2.5	)		44.1
Dividends to shareholders		(25.0	)		(24.3	)
Treasury stock issued for less than cost		(5.9	)		(4.6	)
Recognition of share-based compensation		9.5			6.7

Balance at end of period		1,222.9			1,163.0

T REASURY S TOCK
Balance at beginning of period		(720.1	)		(620.4	)
Shares purchased at cost		—			(126.0	)
Net shares reissued at cost under employee stock-based compensation plans		16.6			11.5

Balance at end of period		(703.5	)		(734.9	)

Total shareholders’ equity	$	2,485.0		$	2,351.6

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

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Quarter Ended June 30,						Six Months Ended June 30,
(In millions)	2011			2010			2011			2010
Net (loss) income	$	(31.8	)	$	2.3		$	(2.5	)	$	44.1

Other comprehensive income:
Available-for-sale securities:
Net appreciation during the period		37.3			66.3			37.5			121.4
Portion of other-than-temporary impairment losses transferred from other comprehensive income		2.1			1.7			5.4			4.3
(Provision) benefit for deferred federal income taxes		(2.3	)		(11.2	)		0.8			(31.5	)

Total available-for-sale securities		37.1			56.8			43.7			94.2

Derivative instruments:
Net depreciation during the period		(1.9	)		—			(1.9	)		—
Benefit for deferred federal income taxes		0.7			—			0.7			—

Total derivative instruments		(1.2	)		—			(1.2	)		—

Pension and postretirement benefits:
Amortization recognized as net periodic benefit costs:
Net actuarial loss		3.8			4.3			7.7			8.6
Prior service cost		(1.3	)		(1.5	)		(2.6	)		(2.9	)
Transition asset		—			(0.4	)		—			(0.8	)

Total amortization recognized as net periodic benefit costs		2.5			2.4			5.1			4.9
Provision for deferred federal income taxes		(0.9	)		(0.8	)		(1.8	)		(1.7	)

Total pension and postretirement benefits		1.6			1.6			3.3			3.2

Other comprehensive income		37.5			58.4			45.8			97.4

Comprehensive income	$	5.7		$	60.7		$	43.3		$	141.5

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

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six Months Ended June 30,
(In millions)	2011			2010
C ASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	(2.5	)	$	44.1
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net loss from retirement of debt		2.2			—
Net realized investment gains		(16.4	)		(10.4	)
Net amortization and depreciation		7.6			7.8
Stock-based compensation expense		7.3			5.9
Amortization of deferred benefit plan costs		5.1			4.9
Deferred federal income taxes		4.9			47.6
Change in deferred acquisition costs		(3.5	)		(42.1	)
Change in premiums receivable, net of reinsurance premiums payable		9.8			(168.5	)
Change in loss, loss adjustment expense and unearned premium reserves		157.4			189.9
Change in reinsurance recoverable		(24.2	)		(3.7	)
Change in expenses and taxes payable		(11.5	)		(147.2	)
Other, net		(33.5	)		(20.8	)

Net cash provided by (used in) operating activities		102.7			(92.5	)

C ASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities of fixed maturities		715.6			560.6
Proceeds from disposals of equity securities and other investments		2.9			29.9
Purchases of fixed maturities		(546.9	)		(519.6	)
Purchases of equity securities and other investments		(34.5	)		(17.4	)
Net cash used for business acquisitions		—			(12.6	)
Capital expenditures		(4.5	)		(4.3	)
Net payments related to swap agreements		(1.9	)		—

Net cash provided by investing activities		130.7			36.6

C ASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of employee stock options		3.9			2.9
Proceeds from debt borrowings		304.9			198.0
Change in collateral related to securities lending program		(30.5	)		(45.4	)
Dividends paid to shareholders		(25.0	)		(24.3	)
Repurchases of debt		(57.2	)		(0.4	)
Repurchases of common stock		—			(130.6	)
Other financing activities		(0.6	)		(0.3	)

Net cash provided by financing activities		195.5			0.5

Net change in cash and cash equivalents		428.9			(55.4	)
Net change in cash related to discontinued operations		2.3			(0.2	)
Cash and cash equivalents, beginning of period		290.4			316.5

Cash and cash equivalents, end of period	$	721.6		$	260.9

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

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 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 (“Citizens”), THG’s principal property and casualty companies; and certain other insurance and non-insurance subsidiaries. These legal entities conduct their operations through several business segments discussed in Note 10 – “Segment Information”. Additionally, the interim consolidated financial statements include the Company’s discontinued operations, consisting of the Company’s former life insurance businesses and its accident and health business. All intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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 six months ended June 30, 2011 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 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2011.

2. New Accounting Pronouncements

Recently Implemented Standards

In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Update No. 2010-29 (Topic 805) Disclosure of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force). This update provides clarity on the presentation of comparable proforma financial statements for business combinations. Revenues and earnings of the combined entity should be disclosed as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. Additionally, this update requires the disclosure to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported proforma revenue and earnings. The disclosure guidance provided in this ASC update is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company has implemented this guidance as of January 1, 2011. Implementing this guidance did not have an effect on the Company’s financial position or results of operations upon adoption; however, it will likely have an impact on the Company’s future business combinations, but the effect is dependent upon the specific acquisitions made in future periods.

In December 2010, the FASB issued ASC Update No. 2010-28 (Topic 350) When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force) . This update modifies Step 1 of the goodwill impairment test for companies with zero or negative carrying amounts to require Step 2 of the goodwill impairment test to be performed if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. This ASC update is effective for annual and interim periods beginning after December 15, 2010. The Company has implemented this guidance as of January 1, 2011. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

In July 2010, the FASB issued ASC Update No. 2010-20 (Topic 310) Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses . This ASC update is applicable for financing receivables recognized on a company’s balance sheet that have a contractual right to receive payment either on demand or on fixed or determinable dates. This update enhances the disclosure requirements about the credit quality of financing receivables and the allowance for credit losses, at disaggregated levels. The disclosure guidance provided in the update relating to those required as of the end of the reporting period was effective for interim and annual reporting periods ending on or after December 15, 2010. The effect of implementing the guidance was not significant to the Company’s financial statement disclosures. The disclosure guidance related to activity that occurs during the reporting period is effective for interim and annual reporting periods beginning on or after December 15, 2010. The implementation of the disclosure guidance related to activity was not significant to the Company’s financial statement disclosures.

Recently Issued Standards

In June 2011, the FASB issued ASC Update 2011-05 (Topic 220) Presentation of Comprehensive Income . 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. This ASC update should be applied retrospectively and is effective for interim and annual periods beginning after December 15, 2011. The Company expects that the implementation of this guidance will not have a significant impact to its financial statement presentation.

In May 2011, the FASB issued ASC Update 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 between U.S. GAAP and 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 is currently evaluating its fair value measurements to determine which, if any, of the measurement techniques that the Company uses will have to change as a result of the new guidance, and what additional disclosures will be required.

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

3. Acquisitions

On July 1, 2011, the Company completed the previously announced acquisition of Chaucer Holdings PLC (“Chaucer”). Shareholders of Chaucer received 53.3 pence for each Chaucer share, which was paid in either cash or loan notes to those shareholders who elected to receive such notes in lieu of cash. The closing of the acquisition followed approval of the transaction by Chaucer shareholders on June 7, 2011, subsequent court approval in the UK and regulatory approvals in various jurisdictions. The following table summarizes the transaction in both UK Pounds Sterling (“GBP”) and US Dollars:


Aggregate purchase price announced on April 20, 2011
based on 53.3p contract price	£	297.7	$	485.3
Actual consideration on July 14, 2011:
Cash	£	287.4	$	455.0
Loan notes		8.3		13.2
Foreign exchange forward settlement		—		11.3

Total	£	295.7	$	479.5

The difference between the aggregate purchase price at signing and closing is attributable to the effect of currency fluctuations between the GBP and the US dollar, as well as a change in outstanding shares.

In connection with the transaction, the Company entered into a foreign exchange forward contract, which provided for an economic hedge between the agreed upon purchase price of Chaucer in GBP and currency fluctuations between the GBP and US dollar prior to close. This contract effectively locked in the US dollar equivalent of the purchase price to be delivered in GBP and was settled at a loss of $11.3 million, of which $4.7 million was recognized as of June 30, 2011 and the remaining $6.6 million will be recognized in the third quarter of 2011. The loss on the contract was due to a decrease in the exchange rate between the GBP and US dollar and was more than offset by the lower US dollars required to meet the GBP based purchase price.

This payment was funded from the THG holding company, which included approximately $300 million of proceeds from the senior unsecured notes issued on June 17, 2011. See Note 4 – “Debt” for additional information.

On March 31, 2010, the Company acquired Campania Holding Company, Inc. (“Campania”) for a cash purchase price of approximately $24 million, subject to various terms and conditions. In the second quarter of 2011, the Company recognized an additional $2.8 million of consideration based upon the terms of the agreement. Campania specializes in insurance solutions for portions of the healthcare industry.

On December 3, 2009, the Company entered into a renewal rights agreement with OneBeacon Insurance Group, LTD. (“OneBeacon”). Through this agreement, the Company acquired access to a portion of OneBeacon’s small and middle market commercial business at renewal, including industry programs and middle market niches. This transaction included consideration of $23 million, plus additional contingent consideration which totaled $11 million, primarily representing purchased renewal rights intangible assets which are included as Other Assets in the Consolidated Balance Sheets. The agreement was effective for renewals beginning January 1, 2010.

4. Debt

Debt consists of the following:


(In millions)	June 30, 2011			December 31, 2010
Senior debentures (unsecured) maturing March 1, 2020	$	200.0		$	200.0
Senior debentures (unsecured) maturing June 15, 2021		300.0			—
Senior debentures (unsecured) maturing October 15, 2025		121.6			121.6
Junior debentures		74.2			129.2
FHLBB borrowings		143.4			134.5
Capital securities		18.0			18.0
Surplus notes		4.0			4.0

Total principal debt	$	861.2		$	607.3
Unamortized fair value adjustment		(0.4	)		(0.5	)
Unamortized debt issuance costs		(2.9	)		(0.9	)

Total	$	857.9		$	605.9

On June 17, 2011, the Company issued $300 million aggregate principal amount of 6.375% senior unsecured notes due June 15, 2021. The senior debentures are subject to certain restrictive covenants, including limitations on the issuance or disposition of capital stock of restricted subsidiaries. These debentures pay interest semi-annually. The Company is in compliance with the covenants associated with this indenture.

In December 2010, the Company repurchased $36.5 million of Series B 8.207% Subordinated Deferrable Interest Debentures (“Junior Debentures”) at a cost of $38.5 million, resulting in a $2.0 million loss on the repurchase. On February 15, 2011, the Company repurchased $48.0 million of Junior Debentures at a cost of $50.5 million, resulting in a loss of $2.5 million on the repurchase. On June 28, 2011, the Company repurchased an additional $7.0 million of Junior Debentures at a cost of $6.7 million, resulting in a gain of $0.3 million on the repurchase. Total aggregate repurchases in 2011 were $55.0 million at a cost of $57.2 million, resulting in a net loss of $2.2 million.

The Company borrowed $125.0 million in 2009 from Federal Home Loan Bank of Boston (“FHLBB”). In July 2010, the Company committed to borrow an additional $46.3 million from FHLBB to finance the development of the City Square Project. These borrowings will be drawn in several increments from July 2010 to January 2012. These additional amounts mature on July 20, 2020 and carry fixed interest rates with a weighted average of 3.88%. Through June 30, 2011, the Company has borrowed $18.4 million under this arrangement. All interest associated with the $46.3 million will be capitalized through the construction phase of the City Square Project.

As collateral to FHLBB, Hanover Insurance pledged government agency securities with a fair value of $176.0 million and $162.7 million, for the aggregate borrowings of $143.4 million and $134.5 million as of June 30, 2011 and December 31, 2010, respectively. The fair value of the collateral pledged must be maintained at certain specified levels of the borrowed amount, which can vary depending on the type of assets pledged. The Company is in compliance with the covenants associated with these borrowings. If the fair value of this collateral declines below these specified levels, Hanover Insurance would be required to pledge additional collateral or repay outstanding borrowings. Hanover Insurance is permitted to voluntarily repay the outstanding borrowings at any time, subject to a repayment fee. As a requirement of membership in the FHLBB, Hanover Insurance maintains a certain level of investment in FHLBB stock. Total purchases of FHLBB stock were $8.7 million and $8.6 million at June 30, 2011 and December 31, 2010, respectively.

In April 2011, the Company entered into a bridge credit agreement for borrowings in an aggregate principal amount of up to $180 million to be used solely in connection with the acquisition of Chaucer. This bridge agreement terminated upon the issuance, on June 17, 2011, of the aforementioned $300 million aggregate principal amount of 6.375% senior unsecured notes. See Note 3 – “Acquisitions” for additional information.

5. Federal Income Taxes

Federal income tax expense for the six months ended June 30, 2011 and 2010 has been computed using estimated effective tax rates. These rates are revised, if necessary, at the end of each successive interim period to reflect current estimates of the annual effective tax rates.

The Company and its subsidiaries file a consolidated income tax return in the U.S. federal jurisdiction. They are no longer subject to U.S. federal income tax examinations for years prior to 2005. Certain issues remain open for the 2005 and 2006 tax years and the Company remains under audit for 2007 and 2008. In addition, the Company and its subsidiaries file income tax returns in various state jurisdictions and are generally not subject to state income tax examinations for years prior to 2002.

6. 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:


	Quarter Ended June 30,
(In millions)	2011			2010			2011			2010
	Pension Benefits						Postretirement Benefits
Service cost – benefits earned during the period	$	—		$	—		$	—		$	0.1
Interest cost		7.9			8.1			0.6			0.6
Expected return on plan assets		(8.6	)		(8.7	)		—			—
Recognized net actuarial loss		3.7			4.2			0.1			0.1
Amortization of transition asset		—			(0.4	)		—			—
Amortization of prior service cost		—			—			(1.3	)		(1.5	)

Net periodic cost (benefit)	$	3.0		$	3.2		$	(0.6	)	$	(0.7	)


	Six Months Ended June 30,
(In millions)	2011			2010			2011			2010
	Pension Benefits						Postretirement Benefits
Service cost – benefits earned during the period	$	—		$	—		$	—		$	0.1
Interest cost		15.8			16.3			1.2			1.3
Expected return on plan assets		(17.1	)		(17.5	)		—			—
Recognized net actuarial loss		7.5			8.4			0.2			0.2
Amortization of transition asset		—			(0.8	)		—			—
Amortization of prior service cost		—			—			(2.6	)		(2.9	)

Net periodic cost (benefit)	$	6.2		$	6.4		$	(1.2	)	$	(1.3	)

7. 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, 2011

(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

212.2

4.3

2.1

214.4

—

Municipal

944.2

34.1

9.2

969.1

—

Corporate

2,260.3

179.5

22.7

2,417.1

16.1

Residential mortgage-backed

669.5

39.3

9.2

699.6

6.7

Commercial mortgage-backed

339.9

14.7

0.5

354.1

—

Asset-backed

40.2

3.4

—

43.6

—

Total fixed maturities

4,466.3

275.3

43.7

4,697.9

22.8

Equity securities

147.8

17.0

0.6

164.2

—


	December 31, 2010
	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI Unrealized Losses
Fixed maturities:
U.S. Treasury and government agencies	$	259.4	$	5.0	$	3.2	$	261.2	$	—
Municipal		952.7		21.3		19.3		954.7		—
Corporate		2,276.0		174.6		30.2		2,420.4		19.5
Residential mortgage-backed		704.2		41.8		11.9		734.1		8.3
Commercial mortgage-backed		349.3		18.3		1.0		366.6		—
Asset-backed		57.2		3.7		—		60.9		—

Total fixed maturities	$	4,598.8	$	264.7	$	65.6	$	4,797.9	$	27.8

Equity securities	$	120.7	$	9.8	$	1.9	$	128.6	$	—

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 $32.3 million and $36.1 million as of June 30, 2011 and December 31, 2010, 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, 2011
(In millions)	Amortized Cost		Fair Value
Due in one year or less	$	164.8	$	167.3
Due after one year through five years		1,100.8		1,182.8
Due after five years through ten years		1,458.8		1,544.3
Due after ten years		692.3		706.2

		3,416.7		3,600.6
Mortgage-backed and asset-backed securities		1,049.6		1,097.3

Total fixed maturities	$	4,466.3	$	4,697.9

B. Derivative Instruments

The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to manage significant unplanned fluctuations in earnings that may be caused by foreign currency exchange and interest rate volatility.

In April 2011, the Company entered into a foreign currency forward contract as an economic hedge of the foreign currency exchange risk embedded in the purchase price of Chaucer, which was denominated in UK Pounds Sterling (“GBP”). For the quarter and six months ended June 30, 2011, the Company recorded a loss of $4.7 million, reflected in other operating expenses in the Consolidated Statements of Income. At June 30, 2011, the fair value of the derivative liability of $4.7 million was included in Expenses and taxes payable in the Consolidated Balance Sheets. This contract had a notional amount of £297.9 million and was settled on July 14, 2011. An additional loss of $6.6 million from this contract will be recognized during the third quarter of 2011. Since a foreign currency hedge in which the hedged item is a forecasted transaction relating to a business combination does not qualify for hedge accounting under ASC 815, Derivatives and Hedging (“ASC 815”), the Company did not apply hedge accounting to this transaction. The foreign currency forward was in a loss position at June 30, 2011, therefore, the Company paid collateral, in the form of cash and cash equivalents, with a fair value of $5.1 million to its counterparty. See Note 3 – “Acquisitions” for additional information.

In May 2011, the Company entered into a treasury lock forward agreement to hedge the interest rate risk associated with the planned issuance of senior debt, which was completed on June 17, 2011. This hedge qualified as a cash flow hedge under ASC 815. It matured in June 2011 and resulted in a loss of $1.9 million, which was recorded in accumulated other comprehensive income and will be recognized as an expense over the term of the senior notes. All components of the derivative’s loss were included in the assessment of hedge effectiveness. There was no ineffectiveness on this hedge. The Company expects $0.2 million to be reclassified into expense over the next 12 months.

C. 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, 2011 and December 31, 2010.

June 30, 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

1.8

70.0

0.3

15.7

2.1

85.7

Municipal

3.0

147.9

6.2

79.9

9.2

227.8

Corporate

3.5

167.5

8.3

58.6

11.8

226.1

Residential mortgage-backed

2.1

81.0

7.1

25.1

9.2

106.1

Commercial mortgage-backed

0.2

18.6

0.3

4.7

0.5

23.3

Total investment grade

10.6

485.0

22.2

184.0

32.8

669.0

Below investment grade:

Corporate

1.1

53.6

9.8

89.2

10.9

142.8

Total fixed maturities

11.7

538.6

32.0

273.2

43.7

811.8

Equity securities

0.6

14.9

—

0.6

14.9

Total

12.3

553.5

32.0

273.2

44.3

826.7


	December 31, 2010
	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	$	2.7	$	84.9	$	0.5	$	16.4	$	3.2	$	101.3
Municipal		10.3		289.1		9.0		86.7		19.3		375.8
Corporate		6.7		256.1		10.5		66.8		17.2		322.9
Residential mortgage-backed		3.1		89.1		8.8		31.0		11.9		120.1
Commercial mortgage-backed		0.1		13.1		0.9		7.3		1.0		20.4

Total investment grade		22.9		732.3		29.7		208.2		52.6		940.5

Below investment grade:
Corporate		1.0		51.1		12.0		90.0		13.0		141.1

Total fixed maturities		23.9		783.4		41.7		298.2		65.6		1,081.6


Equity securities		1.9		45.8		—		—		1.9		45.8

Total	$	25.8	$	829.2	$	41.7	$	298.2	$	67.5	$	1,127.4

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.

D. Other-than-temporary impairments

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.

For the three months ended June 30, 2010, total OTTI of fixed maturities and equity securities was $2.8 million. Of this amount, $3.4 million was recognized in earnings, including $0.6 million that was transferred from unrealized losses in accumulated other comprehensive income. For the first six months of 2010, total OTTI of fixed maturities and equity securities was $3.3 million. Of this amount, $6.1 million was recognized in earnings, including $2.8 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 2011 and 2010 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)	Quarter Ended June 30						Six Months Ended June 30,
(In millions)	2011			2010			2011			2010
Credit losses, beginning of period	$	16.3		$	21.4		$	16.7		$	20.0
Credit losses for which an OTTI was not previously recognized		—			0.1			—			0.3
Additional credit losses on securities for which an OTTI was previously recognized		—			0.6			0.2			2.2
Reductions for securities sold or matured during the period		(0.7	)		(2.6	)		(1.3	)		(3.0	)
Reduction for securities reclassified as intend to sell		(0.8	)		—			(0.8	)		—

Credit losses, end of period	$	14.8		$	19.5		$	14.8		$	19.5

E. Proceeds from sales

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


	Quarter Ended June 30,
	2011						2010
(In millions)	Proceeds from Sales		Gross Gains		Gross Losses		Proceeds from Sales		Gross Gains		Gross Losses
Fixed maturities	$	297.3	$	11.7	$	0.2	$	80.9	$	3.5	$	1.3
Equity securities		1.8		0.4		—		0.7		—		—

	Six Months Ended June 30,
	2011						2010
(In millions)	Proceeds from Sales		Gross Gains		Gross Losses		Proceeds from Sales		Gross Gains		Gross Losses
Fixed maturities	$	403.8	$	15.9	$	1.0	$	176.1	$	9.5	$	1.3
Equity securities		1.8		0.4		—		25.8		6.2		—

8. Fair Value

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

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

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

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

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

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

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

Cash and Cash Equivalents

The carrying amount approximates fair value.

Fixed Maturities

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

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

•

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; indenture 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; and 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 3 consists of common stock of private companies for which observable inputs are not available.

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

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.

Derivative Instruments

The Company’s derivatives are traded in the over-the-counter (“OTC”) derivative market and are classified as Level 2 in the fair value hierarchy. The Company’s counterparty in the derivative agreements is a highly rated major financial institution. OTC derivatives classified as Level 2 are valued using discounted cash flow models widely accepted in the financial services industry that use actively quoted or observable market input values from external market data providers, third party pricing vendors and/or recent trading activity. Key assumptions include the contractual terms of the contracts along with significant observable inputs including currency rates, interest rates and non-performance risk. The Company uses mid-market pricing in determining its best estimate of fair value.

Legal Indemnities

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

Debt

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

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


(In millions)	June 30, 2011				December 31, 2010
(In millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets
Cash and cash equivalents	$	721.6	$	721.6	$	290.4	$	290.4
Fixed maturities		4,697.9		4,697.9		4,797.9		4,797.9
Equity securities		164.2		164.2		128.6		128.6
Mortgage loans		5.1		5.4		5.5		5.8

Total financial assets	$	5,588.8	$	5,589.1	$	5,222.4	$	5,222.7

Financial Liabilities
Derivative instruments	$	4.7	$	4.7	$	—	$	—
Legal indemnities		5.6		5.6		5.4		5.4
Debt		857.9		872.7		605.9		603.9

Total financial liabilities	$	868.2	$	883.0	$	611.3	$	609.3

The Company performs a review of the fair value hierarchy classifications and of prices received from its third party pricing service on a quarterly basis. The Company reviews the pricing services’ policy describing its processes, practices and inputs, including various financial models used to value securities. Also, the Company reviews the portfolio pricing. Securities with changes in prices that exceed a defined threshold are verified to independent sources. 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 2011 and 2010, the Company did not adjust any prices received from brokers or its pricing service.

Changes in the observability of valuation inputs may result in a reclassification of certain financial assets or liabilities within the fair value hierarchy. Reclassifications between levels of the fair value hierarchy are reported as of the beginning of the period in which the reclassification occurs. As previously discussed, the Company utilizes a third party pricing service for the valuation of the majority of its fixed maturities and equity securities. The pricing service has indicated that it will only produce an estimate of fair value if there is objectively verifiable information to produce a valuation. If the pricing service discontinues pricing an investment, the Company will use observable market data to the extent it is available, but may also be required to make assumptions for market based inputs that are unavailable due to market conditions.

The Company currently holds fixed maturity securities, equity securities and a derivative instrument for which fair value is determined on a recurring basis. The following tables provide, for each hierarchy level, the Company’s assets and liabilities that were measured at fair value at June 30, 2011 and December 31, 2010. Equity securities exclude FHLBB common stock of $8.7 million at June 30, 2011 and $8.6 million at December 31, 2010, which is carried at cost.

June 30, 2011

(In millions)

Total

Level 1

Level 2

Level 3

Fixed maturities:

U.S. Treasury and government agencies

214.4

94.6

119.8

—

Municipal

969.1

—

953.0

16.1

Corporate

2,417.1

—

2,380.3

36.8

Residential mortgage-backed, U.S. agency backed

598.6

—

598.6

—

Residential mortgage-backed, non-agency

101.0

—

100.5

0.5

Commercial mortgage-backed

354.1

—

349.0

5.1

Asset-backed

43.6

—

30.1

13.5

Total fixed maturities

4,697.9

94.6

4,531.3

72.0

Equity securities

155.5

127.7

24.9

2.9

Total investment assets at fair value

4,853.4

222.3

4,556.2

74.9

Liabilities:

Derivative instruments

4.7

—

4.7

—


	December 31, 2010
	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	261.2	$	124.0	$	137.2	$	—
Municipal		954.7		—		938.1		16.6
Corporate		2,420.4		—		2,392.2		28.2
Residential mortgage-backed, U.S. agency backed		600.4		—		600.4		—
Residential mortgage-backed, non-agency		133.7		—		132.9		0.8
Commercial mortgage-backed		366.6		—		361.1		5.5
Asset-backed		60.9		—		47.4		13.5

Total fixed maturities		4,797.9		124.0		4,609.3		64.6
Equity securities		120.0		106.6		10.5		2.9

Total investment assets at fair value	$	4,917.9	$	230.6	$	4,619.8	$	67.5

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																		Equities			Total Assets
(In millions)	Municipal			Corporate			Residential mortgage- backed, non- agency			Commercial mortgage- backed			Asset- backed			Total			Equities			Total Assets
Quarter 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		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

Quarter Ended June 30, 2010
Balance April 1, 2010	$	15.2		$	35.8		$	1.4		$	5.9		$	17.6		$	75.9		$	2.8		$	78.7
Transfers out of Level 3		—			—			—			—			(2.0	)		(2.0	)		—			(2.0	)
Total gains:
Included in other comprehensive income		0.1			0.7			—			0.1			0.4			1.3			—			1.3
Purchases and sales:
Purchases		—			—			—			—			—			—			—			—
Sales		(0.4	)		(5.3	)		(0.3	)		(0.1	)		(0.3	)		(6.4	)		—			(6.4	)

Balance June 30, 2010	$	14.9		$	31.2		$	1.1		$	5.9		$	15.7		$	68.8		$	2.8		$	71.6

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
Transfers 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		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

Six Months Ended June 30, 2010
Balance January 1, 2010	$	15.5		$	28.9		$	—		$	6.2		$	9.2		$	59.8		$	2.8		$	62.6
Transfers into Level 3		—			6.6			—			—			6.9			13.5			—			13.5
Transfer out of Level 3		—			—			—			—			(2.0	)		(2.0	)		—			(2.0	)
Total gains (losses):
Included in earnings		—			0.1			—			—			—			0.1			(0.3	)		(0.2	)
Included in other comprehensive income		0.2			1.0			—			—			0.2			1.4			0.3			1.7
Purchases and sales:
Purchases		—			0.3			1.4			—			2.0			3.7			—			3.7
Sales		(0.8	)		(5.7	)		(0.3	)		(0.3	)		(0.6	)		(7.7	)		—			(7.7	)

Balance June 30, 2010	$	14.9		$	31.2		$	1.1		$	5.9		$	15.7		$	68.8		$	2.8		$	71.6

During the six months ended June 30, 2011 and 2010, 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, 2011 or 2010.

For the quarters ended June 30, 2011 or 2010, there was no impact on income relating to Level 3 securities. 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 six months ended June 30, 2011 and 2010.


	2011			2010
(In millions)	Other-than- temporary impairments			Other-than- temporary impairments			Net realized investment gains		Total
Level 3 Assets:
Fixed maturities:
Corporate	$	—		$	—		$	0.1	$	0.1
Equity securities		(0.5	)		(0.3	)		—		(0.3	)

Total assets	$	(0.5	)	$	(0.3	)	$	0.1	$	(0.2	)

There were no Level 3 liabilities held by the Company for the six months ended June 30, 2011 and 2010.

9. 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:


	Quarter Ended June 30,					Six Months Ended June 30,
(In millions)	2011			2010		2011			2010
Unrealized appreciation on available-for-sale securities:
Unrealized gains arising during period, net of income tax (expense) benefit of $(0.1) and $(11.0) for the quarter ended June 30, 2011 and 2010 and $5.1 and $(31.7) for the six months ended June 30, 2011 and 2010	$	52.7		$	57.2	$	64.3		$	103.3
Less: reclassification adjustment for gains included in net income, net of income tax benefit (expense) of $2.2 and $0.2 for the quarter ended June 30, 2011 and 2010 and $4.3 and $(0.2) for the six months ended June 30, 2011 and 2010		15.6			0.4		20.6			9.1

Total available-for-sale securities		37.1			56.8		43.7			94.2

Unrealized depreciation on derivative instruments:
Unrealized losses arising during period, net of income tax benefit of $0.7 for the quarter and six months ended June 30, 2011		(1.2	)		—		(1.2	)		—

Other comprehensive income	$	35.9		$	56.8	$	42.5		$	94.2

10. Segment Information

The Company’s primary business operations include insurance products and services provided through three property and casualty operating segments. These segments are Commercial Lines, Personal Lines, 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, bond, professional liability and management liability. Personal Lines includes personal automobile, homeowners and other personal coverages. The Other Property and Casualty segment consists of: Opus Investment Management, Inc., which markets investment management services to institutions, pension funds and other organizations; earnings on holding company assets; as well as voluntary pools business which is in run-off. The segment 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’s consolidated net (loss) income includes the results of its three operating segments (segment (loss) income), which we evaluate on a pre-tax basis, and our interest expense on debt. Segment (loss) income excludes certain items which are included in net (loss) income, such as federal income taxes and net realized investment gains and losses, because fluctuations in these gains and losses are determined by interest rates, financial markets and timing of sales. Also, segment (loss) income excludes net gains and losses on

disposals of businesses, discontinued operations, net gains and losses on derivative transactions, costs to acquire businesses, restructuring costs, extraordinary items, the cumulative effect of accounting changes and certain other items. Although the items excluded from segment (loss) income may be significant components in understanding and assessing the Company’s financial performance, management believes that the presentation of segment income enhances an investor’s understanding of the Company’s results of operations by highlighting net income attributable to the core operations of the business. However, segment (loss) income should not be construed as a substitute for net (loss) income determined in accordance with generally accepted accounting principles.

Summarized below is financial information with respect to business segments:


	Quarter Ended June 30,						Six Months Ended June 30,
(In millions)	2011			2010			2011			2010
Segment revenues:
Commercial Lines	$	447.9		$	365.9		$	887.2		$	702.1
Personal Lines		388.2			397.9			774.9			793.2
Other Property and Casualty		5.6			5.5			11.4			10.8

Total		841.7			769.3			1,673.5			1,506.1
Intersegment revenues		(1.2	)		(1.2	)		(2.5	)		(2.3	)

Total segment revenues		840.5			768.1			1,671.0			1,503.8
Net realized investment gains		13.4			0.2			16.7			11.1

Total revenues	$	853.9		$	768.3		$	1,687.7		$	1,514.9

Segment (loss) income before federal income taxes:
Commercial Lines:
GAAP underwriting loss	$	(59.5	)	$	(16.0	)	$	(75.3	)	$	(24.8	)
Net investment income		34.0			32.3			67.6			64.3
Other income		0.8			0.6			1.4			0.2

Commercial Lines segment (loss) income		(24.7	)		16.9			(6.3	)		39.7
Personal Lines:
GAAP underwriting loss		(47.1	)		(30.6	)		(40.9	)		(23.9	)
Net investment income		23.1			25.6			45.8			51.2
Other income		1.1			1.5			2.3			3.7

Personal Lines segment (loss) income		(22.9	)		(3.5	)		7.2			31.0
Other Property and Casualty:
GAAP underwriting income		—			—			0.1			0.3
Net investment income		3.9			3.9			8.0			7.4
Other net expenses		(3.1	)		(2.7	)		(6.0	)		(6.1	)

Other Property and Casualty segment income		0.8			1.2			2.1			1.6
Total		(46.8	)		14.6			3.0			72.3
Interest expense on debt		(10.8	)		(11.7	)		(21.2	)		(21.0	)

Segment (loss) income before federal income taxes		(57.6	)		2.9			(18.2	)		51.3
Adjustments to segment income:
Net realized investment gains		13.4			0.2			16.7			11.1
Costs related to acquired businesses		(11.1	)		—			(13.8	)		—
Loss on derivative instruments		(4.7	)		—			(4.7	)		—
Gain (loss) from retirement of debt		0.3			—			(2.2	)		—

(Loss) income before federal income taxes	$	(59.7	)	$	3.1		$	(22.2	)	$	62.4

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


(In millions)	June 30, 2011		December 31, 2010
Property and Casualty	$	8,852.9	$	8,436.3
Discontinued operations		128.4		133.6

Total	$	8,981.3	$	8,569.9

The Company does not allocate assets between the Commercial Lines, Personal Lines and Other Property and Casualty segments.

11. Stock-based Compensation

Compensation cost and the related tax benefits were as follows:


	Quarter Ended June 30,						Six Months Ended June 30,
(In millions)	2011			2010			2011			2010
Stock-based compensation expense	$	2.6		$	2.7		$	6.0		$	5.5
Tax benefit		(0.9	)		(0.9	)		(2.1	)		(1.9	)

Stock-based compensation expense, net of taxes	$	1.7		$	1.8		$	3.9		$	3.6

Stock Options

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


	Six Months Ended June 30,
	2011					2010
(In whole shares and dollars)	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of period		2,843,909		$	39.22		3,131,142		$	39.16
Granted		297,000			46.47		389,750			42.45
Exercised		(118,014	)		33.13		(83,420	)		34.98
Forfeited or cancelled		(18,250	)		37.39		(88,930	)		44.10
Expired		(256,250	)		57.00		(125,400	)		44.91

Outstanding, end of period		2,748,395			38.62		3,223,142			39.31

Restricted Stock Units

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


	Six Months Ended June 30,
	2011					2010
(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		838,129		$	40.93		700,904		$	41.12
Granted		111,496			46.10		341,104			42.55
Vested		(187,123	)		45.14		(109,057	)		48.28
Forfeited		(21,944	)		41.54		(56,894	)		40.46

Outstanding, end of period		740,558			40.63		876,057			40.83

Performance-based restricted stock units:
Outstanding, beginning of period		101,680		$	39.62		145,635		$	42.79
Granted		42,500			46.47		41,250			42.15
Vested		(25,055	)		45.21		(31,558	)		48.46
Forfeited		—			—		(15,352	)		47.64

Outstanding, end of period		119,125			40.89		139,975			40.79

Time-based restricted stock units granted in the first six months of 2011 were significantly lower compared to the first six months of 2010 due to a shift in awards granted in 2011 from time-based restricted stock units to time-based cash awards.

Performance based restricted stock units are based upon the achievement of the performance metric at 100%. These units have the potential to range from 0% to 150% of the shares disclosed, which varies based on grant year and individual participation level. Increases to the 100% target level are reflected as granted in the period in which performance-based stock unit goals are achieved. Decreases to the 100% target level are reflected as forfeited. In the first six months of 2010, performance-based stock units of 11,472 were included as forfeited due to completion levels less than 100% for units granted in 2007.

12. 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:


	Quarter Ended June 30,				Six Months Ended June 30,
(In millions, except per share data)	2011		2010		2011		2010
Basic shares used in the calculation of earnings per share		45.4		44.9		45.4		46.2
Dilutive effect of securities:
Employee stock options		—		0.3		—		0.3
Non-vested stock grants		—		0.3		—		0.3

Diluted shares used in the calculation of earnings per share		45.4		45.5		45.4		46.8

Per share effect of dilutive securities on (loss) income from continuing operations	$	—	$	—	$	—	$	(0.01	)

Per share effect of dilutive securities on net (loss) income	$	—	$	—	$	—	$	(0.02	)

Diluted earnings per share for the quarter ended June 30, 2011 and 2010 excludes 1.9 million and 1.4 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, 2011 and 2010 excludes 2.2 million and 1.6 million, respectively, of common shares issuable under the Company’s stock compensation plans, because their effect would be antidilutive.

During the first six months of 2011, the Company paid two quarterly dividends of 27.5 cents ($0.275) per share each to its shareholders totaling $25.0 million.

Since October 2007 and through June 2011, the Company’s Board of Directors has authorized aggregate repurchases of the Company’s common stock of up to $500 million. As of June 30, 2011, the Company has $157 million available for repurchases under these repurchase authorizations. The Company may repurchase its common stock from time to time, in amounts and prices and at such times as deemed appropriate, subject to market conditions and other considerations. The Company’s repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. The Company is not required to purchase any specific number of shares or to make purchases by any certain date under this program. On March 30, 2010, the Company entered into an accelerated share repurchase agreement for the immediate repurchase of 2.3 million shares of the Company’s common stock at a cost of $105.0 million. During the first six months of 2011 the Company did not repurchase any additional shares of common stock.

13. 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 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 have filed a Motion for Reconsideration of the District Court’s decision to dismiss the additional claims.

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.

At this time, the Company is unable to provide a reasonable estimate of the potential range of ultimate liability. The Company is unable to determine how many policyholders have assigned claims under the Road Home program and, in any case, has no basis to estimate the amount of any differences between what the Company paid with respect to any such claim and the amount that the State of Louisiana may claim should properly have been paid under the policy.

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 will not have a material effect on its financial position, although they could have a material effect on the results of operations for a particular quarter or annual period.

14. Subsequent Events

There were no subsequent events requiring adjustment to the financial statements, and, other than the acquisition of Chaucer described in Note 3 – “Acquisitions”, no additional disclosures required in the notes to the interim consolidated financial statements.

PART I

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TABLE OF CONTENTS


Introduction			27

Executive Overview			27

Description of Operating Segments			28

Results of Operations – Net Income			29

Segment Results			31

Investments			38

Other Items			42

Income Taxes			43

Critical Accounting Estimates			44

Statutory Surplus of Insurance Subsidiaries			44

Liquidity and Capital Resources			44

Off-Balance Sheet Arrangements			46

Contingencies and Regulatory Matters			46

Recent Developments			46

Risks and Forward-Looking Statements			46

Introduction

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist readers in understanding the interim consolidated results of operations and financial condition of The Hanover Insurance Group, Inc. and subsidiaries (“THG”) and should be read in conjunction with the interim Consolidated Financial Statements and related footnotes included elsewhere in this Quarterly Report on Form 10-Q and the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2011.

Our results of operations include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America (“Citizens”), our principal property and casualty companies; and certain other insurance and non-insurance subsidiaries.

Executive Overview

Our business operations include insurance products and services provided through three operating segments: Commercial Lines, Personal Lines and Other Property and Casualty.

During the first six months of 2011, there was an unprecedented level of weather–related events that affected the property and casualty industry. We incurred pre-tax catastrophe losses of $206.4 million during the first half of 2011, including $156.7 million in the second quarter. During the first half of 2010, pre-tax catastrophe losses were $119.4 million, with $85.0 million in the second quarter. These losses were principally the result of winter storms in the first quarter of 2011 and tornado, hail and windstorm activity in both the Midwest and the Northeast during the second quarter.

During the first six months of 2011, our pre-tax segment loss of $18.2 million reflects the aforementioned catastrophe losses. In addition, a decrease in favorable development on prior years’ loss and loss adjustment expense (“LAE”) reserves contributed to the overall decline in segment results from the prior year. Segment income, excluding catastrophes and development, was $165.6 million in the first six months of 2011, compared to $130.2 million in the same period of 2010, reflecting an improvement in current accident year results. This improvement was driven by a higher level of earned premium and the resulting positive effect on our expense ratios, an improved mix of business and lower loss ratios in Personal Lines.

Commercial Lines

We believe our small commercial capabilities, distinctiveness in the middle market, and continued development of specialty business provides us with a diversified portfolio of products and enables our delivery of significant value to agents and policyholders. Growth in our specialty lines continues to be a significant part of our strategy. The expansion of product offerings in our specialized businesses has been supported by several acquisitions over the past several years and our recent acquisition of Chaucer Holdings PLC (“Chaucer”). During the first half of 2011, our Commercial Lines segment net written premium grew by approximately 6%, driven by our specialty businesses. Our net earned premium increased by more than 25% during the first half of 2011, as a result of our renewal rights from the OneBeacon transaction in 2010.

We believe these efforts have and will continue to drive improvement in our overall mix of business and ultimately our underwriting profitability. Our losses and loss adjustment expenses were higher in the first half of 2011 as compared to the prior year, primarily due to the high level of catastrophe losses and, to a lesser extent, non-catastrophe weather-related losses. Notwithstanding the increase in losses and LAE, current accident year income increased, primarily due to the growth in earned premium and an improved mix of business.

In the Commercial Lines market, continued price competition, while moderating slightly in certain lines of business, requires us to be highly disciplined in our underwriting process to ensure that we write business only at acceptable margins. In certain lines of business where a weak economy may be a particularly important factor, such as surety and workers’ compensation, we endeavor to adjust pricing and/or take a more conservative approach to risk selection in order to more appropriately reflect the higher risk of loss. Additionally, we are evaluating price adequacy in our property lines due to the catastrophe and non-catastrophe weather-related losses that we experienced in the first six months of 2011.

Personal Lines

In our Personal Lines business, we maintain our 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/or additional coverages). Account business represents 67% of total policies in force compared to 64% in the same period in 2010. We are focused on making investments that help maintain profitability, build a distinctive position in the market, and provide us with profitable growth opportunities. We continue to diversify our premium outside of our core states by growing in targeted states. In the first six months of 2011, our targeted states increased to 28% of Personal Lines net written premium compared to 26% in the same period in 2010.

Written premiums in Personal Lines in the first six months of 2011 were comparable to the same period in 2010. Current year underwriting results, excluding catastrophes, were slightly improved in the first half of 2011, as compared to the same period in 2010. Underlying current accident year loss results show an improvement in the personal automobile line that were somewhat offset by the homeowners line due to a higher level of non-catastrophe weather related losses. Similar to our Commercial Lines, we are evaluating price adequacy in our property lines due to the recent catastrophe and non-catastrophe weather-related losses that we experienced.

Acquisition of Chaucer Holdings PLC

On July 1, 2011, we acquired Chaucer, a United Kingdom (“UK”) insurance business. Chaucer is a leading specialist managing underwriter with the Society of Lloyd’s (“Lloyd’s”). Chaucer underwrites business in several major lines of business, including global marine, energy, non-marine and aviation, as well as UK motor business. Chaucer is headquartered in London, but has regional operations in Whitstable, England and international operations in Houston, Singapore, Buenos Aires and Copenhagen.

In 2010, Chaucer, which has approximately 700 employees, reported gross written premiums of $1.33 billion, net earned premium of $925 million and total assets of $3.7 billion. Dollar amounts referenced above are converted from UK Pound Sterling (“GBP”) to US Dollars at the December 31, 2010 exchange rate of 1.57.

This transaction is expected to significantly advance our specialty lines strategy and result in broader product and underwriting capabilities, as well as greater geographic and product diversification. In addition, we believe that our acquisition of Chaucer will allow us, over time, to enhance our distribution strategy of providing distinctive insurance products to agents and brokers for our customers by enabling us to offer a broader and more specialized set of products. The acquisition adds a presence in the Lloyd’s market, which includes access to international licenses, a sophisticated excess and surplus insurance business and the ability to syndicate certain risks. We anticipate that Chaucer’s specialty expertise in energy, aviation and political and trade risks will be of particular interest to certain agents and brokers.

The total cost of the Chaucer transaction was $490.5 million, including $11.0 million of investment advisory, legal, accounting and other expenses, and net of the effect of a hedging transaction that we entered into in connection with the acquisition.

Further information on the acquisition of Chaucer is set forth under Note 3 – “Acquisitions” in this Form 10-Q and in our Form 8-K filed with the SEC on April 21, 2011.

Description of Operating Segments

Our primary business operations include insurance products and services in three property and casualty operating segments. These segments are Commercial Lines, Personal Lines 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, bonds, professional liability and management liability, while Personal Lines includes personal automobile, homeowners and other personal coverages. 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. Since the acquisition of Chaucer was not concluded until after the end of the second quarter, its financial results and financial position are not included in our reported results for the periods covered by this report.

Results of Operations – Net Income

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

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

Our consolidated net loss for the second quarter of 2011 was $31.8 million, compared to net income of $2.3 million for the same period in 2010. The $34.1 million decrease is primarily due to a $39.9 million decline in after-tax segment income, principally driven by an increase in catastrophe losses. Additionally, in the second quarter of 2011 we incurred $11.1 million in expense related to our recent acquisitions, primarily consisting of advisory, legal, and accounting costs associated with the acquisition of Chaucer. In addition, we recorded a $4.7 million loss as a result of a foreign exchange contract entered into in connection with the Chaucer acquisition. See Note 3 – “Acquisitions” in this Form 10-Q for additional information. Partially offsetting these decreases were higher net realized investment gains of $13.2 million.

Our consolidated net loss for the first six months of 2011 was $2.5 million, compared to net income of $44.1 million for the same period in 2010. The $46.6 million decrease is primarily due to a $45.9 million decline in after-tax segment income, principally driven by an increase in catastrophe losses and, to a lesser extent, non-catastrophe weather-related activity. Additionally, in the first six months of 2011, advisory, legal, and accounting costs associated with the acquisition of Chaucer and other acquisition expenses totaled $13.8 million, and we recorded a $4.7 million loss for the first six months in connection with the aforementioned foreign exchange forward contract. Partially offsetting these decreases were higher net realized investment gains of $5.6 million.

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


	Quarter Ended June 30,						Six Months Ended June 30,
(In millions)	2011			2010			2011			2010
Segment (loss) income before federal income taxes:
Commercial Lines	$	(24.7	)	$	16.9		$	(6.3	)	$	39.7
Personal Lines		(22.9	)		(3.5	)		7.2			31.0
Other Property and Casualty		0.8			1.2			2.1			1.6

Total		(46.8	)		14.6			3.0			72.3
Interest expense on debt		(10.8	)		(11.7	)		(21.2	)		(21.0	)

Total segment (loss) income before federal income taxes		(57.6	)		2.9			(18.2	)		51.3

Federal income tax benefit (expense) on segment income		19.5			(1.1	)		6.1			(17.5	)
Net realized investment gains		13.4			0.2			16.7			11.1
Gain (loss) from retirement of debt		0.3			—			(2.2	)		—
Costs related to acquired businesses		(11.1	)		—			(13.8	)		—
Loss on derivative instruments		(4.7	)		—			(4.7	)		—
Federal income tax benefit (expense) on non-segment income		7.8			0.2			11.6			(0.5	)

(Loss) income from continuing operations		(32.4	)		2.2			(4.5	)		44.4
Gain (loss) from discontinued operations, net of taxes		0.6			0.1			2.0			(0.3	)

Net (loss) income	$	(31.8	)	$	2.3		$	(2.5	)	$	44.1

Segment Results

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

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


	Quarter Ended June 30,					Six Months Ended June 30,
(In millions)	2011			2010		2011		2010
Segment revenues
Net premiums written	$	815.4		$	802.0	$	1,565.3	$	1,527.2

Net premiums earned	$	770.5		$	697.8	$	1,532.2	$	1,364.3
Net investment income		61.0			61.8		121.4		122.9
Fees and other income		10.2			9.7		19.9		18.9

Total segment revenues		841.7			769.3		1,673.5		1,506.1

Losses and operating expenses
Losses and LAE		617.5			498.4		1,128.5		930.0
Policy acquisition expenses		181.3			163.0		362.1		317.4
Other operating expenses		89.7			93.3		179.9		186.4

Total losses and operating expenses		888.5			754.7		1,670.5		1,433.8

Segment (loss) income before federal income taxes	$	(46.8	)	$	14.6	$	3.0	$	72.3

Quarter Ended June 30, 2011 Compared to Quarter Ended June 30, 2010

Segment losses were $46.8 million in the second quarter of 2011, compared to income of $14.6 million in the second quarter of 2010, a decrease in earnings of $61.4 million. Catastrophe related losses in the quarter were $156.7 million, compared to $85.0 million in the same period of 2010, an increase of $71.7 million. Excluding the impact of catastrophe related activity, earnings would have increased by $10.3 million. This increase was primarily due to more favorable current accident year results, partially offset by lower favorable development on prior years’ loss and LAE reserves, and to higher LAE. The favorable current accident year results are due to our growth in earned premium and resulting positive effect on our expense ratio, an improved mix of business, and lower loss ratios in Personal Lines. Favorable development on prior years’ loss and LAE reserves decreased $9.1 million in the quarter to $15.3 million, from $24.4 million in the same period in 2010.

Net premiums written grew by 1.7% in the second quarter of 2011 compared to the second quarter of 2010, and net premiums earned grew by 10.4%. In each case, the growth is entirely attributable to Commercial Lines. The more significant increase in net premiums earned is a result of the significant growth in net premiums written in 2010, which resulted from the OneBeacon renewal rights transaction, growth in our AIX program business, as well as growth in various niche and segmented businesses. We anticipate that quarter over quarter growth in net earned premium will continue to exceed the increase in written premium through the remainder of 2011, as we continue to recognize this prior year growth.

Production and Underwriting Results

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

Quarter Ended June 30,

2011

2010

(Dollars in millions)

GAAP Net
Premiums
Written

GAAP
Loss
Ratios

Cata-
strophe
Loss
Ratios

GAAP Net
Premiums
Written

GAAP
Loss
Ratios

Cata-
strophe
Loss
Ratios

Commercial Lines:

Commercial multiple peril

144.7

85.9

41.6

152.8

55.8

17.7

Commercial automobile

64.7

51.0

1.1

68.1

44.6

—

Workers’ compensation

44.2

53.9

—

40.9

44.5

—

Other commercial

186.9

52.9

11.2

163.3

50.9

4.7

Total Commercial Lines

440.5

64.0

18.9

425.1

51.0

7.8

Personal Lines:

Personal automobile

229.6

58.4

2.7

237.2

60.4

2.8

Homeowners

133.2

105.6

58.8

128.2

88.5

43.2

Other personal

11.8

55.7

14.2

11.5

41.7

7.4

Total Personal Lines

374.6

74.3

22.0

376.9

69.0

16.1

Total

815.1

68.8

20.3

802.0

60.4

12.2

2011

2010

GAAP
LAE Ratio

GAAP
Expense
Ratio

GAAP
Combined
Ratio

GAAP
LAE Ratio

GAAP
Expense
Ratio

GAAP
Combined
Ratio

Commercial Lines

11.5

38.8

114.3

11.1

42.6

104.7

Personal Lines

11.1

26.8

112.2

10.8

27.7

107.5

Total

11.3

33.2

113.3

11.0

34.7

106.1

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


	Quarter Ended June 30,
	2011												2010
	Commercial Lines			Personal Lines			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	$	8.3		$	26.6		$	(0.1	)	$	34.8		$	(1.9	)	$	16.1		$	(0.2	)	$	14.0
Prior year favorable loss and LAE reserve development		9.3			5.9			0.1			15.3			11.6			12.6			0.2			24.4
Pre-tax catastrophe effect		(77.1	)		(79.6	)		—			(156.7	)		(25.7	)		(59.3	)		—			(85.0	)

GAAP underwriting (loss) profit		(59.5	)		(47.1	)		—			(106.6	)		(16.0	)		(30.6	)		—			(46.6	)
Net investment income		34.0			23.1			3.9			61.0			32.3			25.6			3.9			61.8
Fees and other income		5.4			3.2			1.6			10.2			4.9			3.2			1.6			9.7
Other operating expenses		(4.6	)		(2.1	)		(4.7	)		(11.4	)		(4.3	)		(1.7	)		(4.3	)		(10.3	)

Segment (loss) income before federal income taxes	$	(24.7	)	$	(22.9	)	$	0.8		$	(46.8	)	$	16.9		$	(3.5	)	$	1.2		$	14.6

Commercial Lines

Commercial Lines net premiums written increased $15.4 million, or 3.6%, to $440.5 million for the second quarter of 2011. This increase was primarily driven by growth in our specialty business, particularly in our AIX program business, which accounted for $15.3 million. Also benefiting the overall growth comparison in net premiums written were modest rate increases.

Commercial Lines underwriting loss in the second quarter of 2011 was $59.5 million, compared to $16.0 million in the prior year, an increase of $43.5 million. This was due to increased catastrophe losses and decreased favorable development on prior years’ loss and LAE reserves. Catastrophe losses increased $51.4 million in the second quarter of 2011, to $77.1 million, from $25.7 million in 2010, due primarily to significant tornado, hail and windstorm activity. Favorable development on prior years’ loss and LAE reserves decreased $2.3 million, to $9.3 million in the second quarter 2011, from $11.6 million for the second quarter of 2010.

Commercial Lines underwriting profit, excluding prior year loss and LAE reserve development and catastrophes, improved $10.2 million, to a profit of $8.3 million in the second quarter of 2011, compared to a loss of $1.9 million in the second quarter of 2010. This improvement resulted from growth in earned premium and the resulting positive effect on our expense ratio and from an improved mix of business, partially offset by large losses in our commercial multi-peril line. The higher level of earned premiums primarily resulted from our 2010 OneBeacon transaction and other growth initiatives.

We continue to experience price competition in certain lines of business in our Commercial Lines segment, particularly in our middle market accounts, although this trend is moderating slightly in certain lines of business, such as workers’ compensation. 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.

Personal Lines

Personal Lines net premiums written decreased $2.3 million, or 0.6%, to $374.6 million for the second quarter of 2011. The most significant factors contributing to this decrease were actions we have taken to reduce our market concentration in Louisiana, and our continued focus on driving profit improvement in our core states through both rate increases and more selective portfolio management, resulting in lower new business activity. These decreases were partially offset by higher rates in both our personal automobile and homeowners lines and a net premiums written increase of 8.5% in our target growth states. Continued increases in premium are expected in these target growth states based on our strategy to diversify from our existing core states.

Net premiums written in the personal automobile line of business declined 3.2%, primarily as a result of fewer policies in force in Michigan, Massachusetts, New York and Florida, which we attribute to more selective portfolio management and increased rates in a competitive pricing environment. Net premiums written in the homeowners line of business increased 3.9%, resulting primarily from rate increases.

Personal Lines underwriting loss in the second quarter of 2011 was $47.1 million, compared to $30.6 million in the prior year, an increase of $16.5 million. This was due to increased catastrophe losses and decreased favorable development on prior years loss and LAE reserves. Catastrophe losses increased $20.3 million in the second quarter of 2011, to $79.6 million, from $59.3 million in 2010, due primarily to significant tornado, hail and windstorm activity. Favorable development on prior years’ loss and LAE reserves decreased $6.7 million, to $5.9 million in the second quarter 2011, from $12.6 million for the second quarter of 2010.

Personal Lines underwriting profit, excluding prior year loss and LAE reserve development and catastrophes, increased $10.5 million, to $26.6 million, in the second quarter of 2011, from $16.1 million in the second quarter of 2010. This increase was primarily due to more favorable ex-catastrophe current accident year loss results, as well as lower operating expenses. Current accident year loss results improved primarily due to better loss ratios in our personal automobile liability coverages, partially offset by non catastrophe weather – related losses in our homeowners line.

Although we have been able to obtain rate increases in our Personal Lines markets, our ability to maintain and increase Personal Lines net written premium and to maintain and improve underwriting results has been and may continue to be affected by price competition and regulatory and legal developments. Our rate actions have adversely affected our ability to increase our policies in force and new business, particularly in our core states and in Florida. There is no assurance that we will be able to maintain our current level of production or maintain or increase rates in light of the highly competitive environment.

Other Property and Casualty

Other Property and Casualty segment income decreased $0.4 million, to $0.8 million for the second quarter of 2011, from $1.2 million in the same period of 2010. The decrease is primarily due to higher holding company expenses.

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

Segment income was $3.0 million in the six months ended June 30, 2011, compared to $72.3 million in the six months ended June 30, 2010, a decrease of $69.3 million. Catastrophe related activity in the six months ended June 30, 2011 was $206.4 million, compared to $119.4 million in the same period of 2010, an increase of $87.0 million. Excluding the impact of catastrophe related activity, earnings would have increased by $17.7 million. This increase was primarily due to more favorable current accident year results, partially offset by lower favorable development on prior years’ loss and LAE reserves. The favorable current accident year results are due to our growth in earned premium and resulting positive effect on our expense ratio, an improved mix of business, and lower loss ratios in Personal Lines. Favorable development on prior years’ loss and LAE reserves decreased $17.7 million in the six months ended June 30, 2011 to $43.8 million, from $61.5 million in the same period in 2010.

Net premiums written grew by 2.5% in the first six months of 2011 compared to the first six months of 2010, and net premiums earned grew by 12.3%. In each case, the growth is entirely attributable to Commercial Lines. The more significant increase in net premiums earned is a result of the significant growth in net premiums written in 2010, which resulted from the OneBeacon renewal rights transaction, growth in our AIX program business, as well as growth in various niche and segmented businesses.

Production and Underwriting Results

Six Months Ended June 30,

2011

2010

(Dollars in millions)

GAAP Net
Premiums
Written

GAAP
Loss
Ratios

Cata-
strophe
Loss
Ratios

GAAP Net
Premiums
Written

GAAP
Loss
Ratios

Cata-
strophe
Loss
Ratios

Commercial Lines:

Commercial multiple peril

281.9

75.0

28.5

288.2

57.5

16.0

Commercial automobile

126.7

52.9

0.7

131.1

47.8

0.5

Workers’ compensation

90.0

54.4

—

80.8

47.8

—

Other commercial

350.4

47.6

7.5

300.3

48.0

4.1

Total Commercial Lines

849.0

58.6

12.9

800.4

51.1

7.0

Personal Lines:

Personal automobile

460.7

57.4

1.4

478.3

60.3

1.6

Homeowners

234.4

86.3

38.4

227.4

74.0

28.1

Other personal

20.9

44.1

8.5

20.8

36.7

4.3

Total Personal Lines

716.0

66.9

14.1

726.5

64.1

10.2

Total

1,565.0

62.5

13.5

1,526.9

58.1

8.8

2011

2010

GAAP
LAE Ratio

GAAP
Expense
Ratio

GAAP
Combined
Ratio

GAAP
LAE Ratio

GAAP
Expense
Ratio

GAAP
Combined
Ratio

Commercial Lines

11.3

39.2

109.1

9.6

43.0

103.7

Personal Lines

11.0

27.0

104.9

10.5

27.8

102.4

Total

11.2

33.4

107.1

10.1

34.8

103.0

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


	Six Months Ended June 30,
	2011												2010
	Commercial Lines			Personal Lines			Other Property and Casualty			Total			Commercial Lines			Personal Lines			Other Property and Casualty			Total
GAAP underwriting (loss) profit, excluding prior year reserve development and catastrophes	$	5.7		$	40.9		$	(0.1	)	$	46.5		$	(14.2	)	$	23.9		$	(0.2	)	$	9.5
Prior year favorable loss and LAE reserve development		23.6			20.0			0.2			43.8			33.7			27.3			0.5			61.5
Pre-tax catastrophe effect		(104.6	)		(101.8	)		—			(206.4	)		(44.3	)		(75.1	)		—			(119.4	)

GAAP underwriting (loss) profit		(75.3	)		(40.9	)		0.1			(116.1	)		(24.8	)		(23.9	)		0.3			(48.4	)
Net investment income		67.6			45.8			8.0			121.4			64.3			51.2			7.4			122.9
Fees and other income		10.3			6.3			3.3			19.9			9.3			6.5			3.1			18.9
Other operating expenses		(8.9	)		(4.0	)		(9.3	)		(22.2	)		(9.1	)		(2.8	)		(9.2	)		(21.1	)

Segment (loss) income before federal income taxes	$	(6.3	)	$	7.2		$	2.1		$	3.0		$	39.7		$	31.0		$	1.6		$	72.3

Commercial Lines

Commercial Lines net premiums written increased $48.6 million, or 6.1%, to $849.0 million for the six months ended June 30, 2011. This increase was primarily driven by growth in our specialty business, particularly in our AIX program business, which accounted for $28.8 million. Also benefiting the overall growth comparison in net premiums written were modest rate increases.

Commercial Lines underwriting loss in the six months ended June 30, 2011 was $75.3 million, compared to $24.8 million in the prior year, an increase of $50.5 million. This is due to increased catastrophe losses and decreased favorable development on prior years loss and LAE reserves. Catastrophe losses increased $60.3 million in the six months ended June 30, 2011, to $104.6 million, from $44.3 million in 2010, due primarily to winter storms in the first quarter and significant tornado, hail and windstorm activity in the second quarter. Favorable development on prior years’ loss and LAE reserves decreased $10.1 million, to $23.6 million in the first six months of 2011, from $33.7 million for the first six months of 2010. Included in 2010 results was $7.5 million of favorable LAE development, principally related to a change in the cost factors used for establishing unallocated LAE reserves.

Commercial Lines underwriting profit, excluding prior year loss and LAE reserve development and catastrophes, improved $19.9 million, to a profit of $5.7 million, in the six months ended June 30, 2011, compared to a loss of $14.2 million in the six months ended June 30, 2010. This improvement resulted from growth in earned premium and the resulting positive effect on our expense ratio, and from an improved mix of business. Partially offsetting the effect of this growth were higher non-catastrophe losses resulting from the severe winter storms and several large fire losses. The higher level of earned premiums primarily resulted from our 2010 OneBeacon transaction and other growth initiatives.

Personal Lines

Personal Lines net premiums written decreased $10.5 million, or 1.4%, to $716.0 million for the six months ended June 30, 2011. The most significant factors contributing to this decrease were actions we have taken to reduce our market concentration in Louisiana, and our continued focus on driving profit improvement in our core states through both rate increases and more selective portfolio management, resulting in lower new business activity. These decreases were partially offset by higher rates in both our personal automobile and homeowners lines and a net premiums written increase of 7.4% in our target growth states. Continued increases in premium are expected in these target growth states based on our strategy to diversify from our core states.

Net premiums written in the personal automobile line of business declined 3.7%, primarily as a result of fewer policies in force in Michigan, Massachusetts, New York and Florida, which we attribute more selective portfolio management and increased rates in a competitive pricing environment. Net premiums written in the homeowners line of business increased 3.1%, resulting primarily from rate increases.

Personal Lines underwriting loss in the six months ended June 30, 2011 was $40.9 million, compared to $23.9 million in the prior year, an increase of $17.0 million. This is due to increased catastrophe losses and decreased favorable development on prior years loss and LAE reserves. Catastrophe losses increased $26.7 million in the six months ended June 30, 2011, to $101.8 million, from $75.1 million in 2010, due primarily to winter storms in the first quarter and significant tornado, hail and windstorm activity in the second quarter.

Favorable development on prior years’ loss and LAE reserves decreased $7.3 million, to $20.0 million in the first six months of 2011, from $27.3 million for the first six months of 2010. Included in 2010 results was $2.3 million of favorable LAE development, principally related to a change in the cost factors used for establishing unallocated LAE reserves.

Personal Lines underwriting profit, excluding prior year loss and LAE reserve development and catastrophes, increased $17.0 million, to $40.9 million, in the six months ended June 30, 2011, from $23.9 million in the six months ended June 30, 2010. This increase was primarily due to more favorable current accident year loss results, as well as lower operating expenses. Current accident year loss results improved primarily due to better loss ratios in our personal automobile liability coverages, partially offset by non catastrophe weather – related losses in our homeowners line.

Other Property and Casualty

Other Property and Casualty segment income increased $0.5 million, to $2.1 million for the six months ended June 30, 2011, from $1.6 million in the same period of 2010. The increase is primarily due to higher holding company net investment income.

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 (LAE) as follows:


	Six Months Ended June 30,
(In millions)	2011			2010
Gross loss and LAE reserves, beginning of period	$	3,277.7		$	3,153.9
Reinsurance recoverable on unpaid losses		1,115.5			1,060.2

Net loss and LAE reserves, beginning of period		2,162.2			2,093.7
Net incurred losses and LAE in respect of losses occurring in:
Current year		1,172.3			991.5
Prior years		(43.8	)		(61.5	)

Total incurred losses and LAE		1,128.5			930.0

Net payments of losses and LAE in respect of losses occurring in:
Current year		507.5			416.9
Prior years		513.2			485.9

Total payments		1,020.7			902.8

Purchase of Campania		—			30.2

Net reserve for losses and LAE, end of period		2,270.0			2,151.1
Reinsurance recoverable on unpaid losses		1,136.4			1,073.6

Gross reserve for losses and LAE, end of period	$	3,406.4		$	3,224.7

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


(In millions)	June 30, 2011		December 31, 2010
Workers’ Compensation	$	530.7	$	529.0
Commercial Automobile		227.2		224.5
Commercial Multiple Peril		556.1		470.4
AIX		219.0		211.9
Other Commercial		353.3		347.2

Total Commercial		1,886.3		1,783.0

Personal Automobile		1,346.6		1,358.4
Homeowners and Other		173.5		136.3

Total Personal		1,520.1		1,494.7

Total loss and LAE reserves	$	3,406.4	$	3,277.7

Total loss and LAE reserves increased by $128.7 million for the six months ended June 30, 2011. Other Commercial lines are primarily comprised of our professional liability, general liability, umbrella, and marine lines. Included in the above table, primarily in Other Commercial lines, are $65.4 million and $68.4 million of asbestos and environmental reserves as of June 30, 2011 and December 31, 2010, respectively. In determining carried reserves as set forth above, management considers actuarial point estimates, which are primarily based on historical and current information, and other qualitative information. Such qualitative information may include legal and regulatory developments, changes in claim handling, claim cost inflation, recent entry into new markets or products, changes in underwriting practices, concerns that we do not have sufficient or quality historical reported and paid loss and LAE information with respect to a particular line or segment of our business, effects of the economy, perceived anomalies in the historical results, evolving trends or other factors. At June 30, 2011 and December 31, 2010, total recorded net reserves were $48.5 million, or 2.2%, and $65.4 million, or 3.1%, greater than actuarially indicated reserves, respectively.

Prior Year Development

Loss and LAE reserves for claims occurring in prior years developed favorably by $43.8 million and $61.5 million during the first six months of 2011 and 2010, respectively. The favorable loss and LAE reserve development during the first six months of 2011 was primarily the result of lower than expected losses in the personal automobile line across all coverages, primarily related to the 2008 through 2010 accident years, the commercial multiple peril line related to the 2008 through 2010 accident years and lower than expected losses in the 2006 through 2009 accident years in the workers’ compensation line. In addition, within other commercial lines, commercial umbrella contributed to the favorable development, partially offset by unfavorable development in our professional liability line, primarily related to the 2009 and 2010 accident years.

The favorable loss and LAE reserve development during the first six months of 2010 was primarily the result of lower than expected losses in the personal automobile line across all coverages, primarily in the 2007 through 2009 accident years and lower than expected losses in the commercial multiple peril line related to the 2007 through 2009 accident years. In addition, the workers’ compensation line related to the 2005, 2008 and 2009 accident years contributed to favorable development. The 2010 amount includes $9.8 million of favorable development resulting from a change in the cost factors used for establishing unallocated LAE reserves.

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

Investments

Investment Results

Net investment income decreased $0.8 million, or 1.3%, to $61.0 million for the quarter ended June 30, 2011, and $1.5 million, or 1.2%, to $121.4 million for the six months ended June 30, 2011. The decrease is primarily due to the impact of lower new money yields on fixed maturities and the sale of bonds to fund the Chaucer acquisition, partially offset by higher dividend income from equity securities and by lower investment expenses. The average pre-tax earned yield on fixed maturities was 5.35% and 5.51% for the second quarters of 2011 and 2010, respectively, and 5.32% and 5.50% for the first six months of 2011 and 2010, respectively. We expect declines in average investment yields in future periods to continue if new money rates remain at their current lower levels.

Investment Portfolio

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


	June 30, 2011					December 31, 2010
(Dollars in millions)	Carrying Value		% of Total Carrying Value			Carrying Value		% of Total Carrying Value
Fixed maturities, at fair value	$	4,697.9		83.5	%	$	4,797.9		91.3	%
Equity securities, at fair value		164.2		2.9			128.6		2.4
Cash and cash equivalents		721.6		12.8			290.4		5.5
Other investments		44.0		0.8			39.4		0.8

Total cash and investments	$	5,627.7		100.0	%	$	5,256.3		100.0	%

Cash and Investments

Total cash and investments increased $371.4 million, or 7.1%, for the six months ended June 30, 2011, of which cash and cash equivalents increased $431.2 million, equity securities increased $35.6 million and fixed maturities decreased $100.0 million. The net increase in cash and cash equivalents is primarily attributable to proceeds from the issuance of senior debt in June 2011 and from the sale of fixed maturities to fund the Chaucer acquisition. See Note 4 – “Debt” for additional information. The decline in fixed maturities resulted from the aforementioned sales and was partially offset by net unrealized gains during the year.

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

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

June 30, 2011

(In millions)

Investment Type

Amortized
Cost

Fair Value

Net
Unrealized
Gain

Change in Net
Unrealized
During 2011

U.S. Treasury and government agencies

212.2

214.4

2.2

0.4

Municipals:

Taxable

787.7

808.9

21.2

22.2

Tax exempt

156.5

160.2

3.7

0.7

Corporate

2,260.3

2,417.1

156.8

12.4

Asset-backed:

Residential mortgage-backed

669.5

699.6

30.1

0.2

Commercial mortgage-backed

339.9

354.1

14.2

(3.1

)

Asset-backed

40.2

43.6

3.4

(0.3

)

Total fixed maturities

4,466.3

4,697.9

231.6

32.5

During the first six months of 2011, our net unrealized gains on fixed maturities increased $32.5 million, or 16.3%, to a net unrealized gain of $231.6 million at June 30, 2011 from $199.1 million at December 31, 2010.

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


	June 30, 2011								December 31, 2010
(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	$	3,010.7	$	3,148.1		67.0	%	$	3,175.0	$	3,290.5		68.6	%
2	Baa		1,131.8		1,207.8		25.7			1,115.0		1,180.4		24.6
3	Ba		160.8		171.2		3.7			141.1		149.3		3.1
4	B		115.2		119.2		2.5			119.7		123.5		2.6
5	Caa and lower		39.4		40.8		0.9			36.3		39.1		0.8
6	In or near default		8.4		10.8		0.2			11.7		15.1		0.3

Total fixed maturities		$	4,466.3	$	4,697.9		100.0	%	$	4,598.8	$	4,797.9		100.0	%

Based on ratings by the National Association of Insurance Commissioners (“NAIC”), approximately 93% of our fixed maturity portfolio consisted of investment grade securities at June 30, 2011 and December 31, 2010.

The quality of our fixed maturity portfolio remains strong based on ratings, capital structure position, support through guarantees, underlying security and parent ownership and yield curve position. We do not hold any securities in the following sectors: subprime mortgages, either directly or through our mortgage-backed securities; collateralized debt obligations; collateralized loan obligations; or credit derivatives.

Commercial mortgage-backed securities (“CMBS”) constitute $354.1 million of our invested assets, of which approximately 18% is fully defeased with U.S. government securities. The portfolio is seasoned, with approximately 67% of our CMBS holdings from pre-2005 vintages, 14% from the 2005 vintage, 10% from the 2007 vintage, 5% from the 2006 vintage and 4% from 2010 and later vintages. The CMBS portfolio is of high quality, with approximately 72% being AAA rated, 26% rated AA or A, and 2% rated BBB. The CMBS portfolio has a weighted average loan-to-value ratio of 74% and credit enhancement of approximately 26% as of June 30, 2011.

Our municipal bond portfolio constitutes approximately 17% of invested assets at June 30, 2011 and is 99% investment grade, without regard to any insurance enhancement. Currently, approximately 31% of the municipal bond portfolio has an insurance enhancement. The portfolio is well diversified by geography, sector and source of payment, and holds primarily taxable securities. Approximately 60% of the portfolio is invested in revenue bonds and 40% 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.

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 8 – “Fair Value”).

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.

Other-than-Temporary Impairments

For the quarter ended June 30, 2011, we recognized $0.8 million of other-than-temporary impairments (“OTTI”) in earnings on below investment grade fixed maturity securities which we intend to sell. This included $0.6 million related to corporate bonds, primarily in the utilities sector, and $0.2 million related to municipal bonds. For the quarter ended June 30, 2010, we recognized $3.4 million of OTTI on fixed maturities and equity securities in earnings, of which $1.6 million related to common stocks, $1.2 million related to investment grade corporate bonds in the industrial sector that we intended to sell and $0.6 million was estimated credit losses on investment grade residential mortgage-backed securities.

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 intend to sell, of which $0.9 million was related to a municipal bond, $0.6 million related to corporate bonds, principally in the utilities sector, 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. For the first six months of 2010, we recognized $6.1 million of OTTI on fixed maturities and equity securities in earnings, of which $2.4 million was estimated credit losses, primarily on investment grade residential mortgage backed securities, $1.9 million related to common stocks, and $1.8 million was on bonds that we intended to sell, of which $1.2 million related to investment grade corporate bonds in the industrial sector and $0.6 million related to a below investment grade municipal bond.

Unrealized Losses

The following table provides information about our fixed maturities and equity securities that are in an unrealized loss position. (See also Note 7 – “Investments” of the Notes to Interim Consolidated Financial Statements.)


	June 30, 2011				December 31, 2010
(In millions)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Fixed maturities:
Investment grade:
12 months or less	$	10.6	$	485.0	$	22.9	$	732.3
Greater than 12 months		22.2		184.0		29.7		208.2

Total investment grade fixed maturities		32.8		669.0		52.6		940.5

Below investment grade:
12 months or less		1.1		53.6		1.0		51.1
Greater than 12 months		9.8		89.2		12.0		90.0

Total below investment grade fixed maturities		10.9		142.8		13.0		141.1

Equity securities:
12 months or less		0.6		14.9		1.9		45.8

Total	$	44.3	$	826.7	$	67.5	$	1,127.4

Gross unrealized losses on fixed maturities and equity securities decreased $23.2 million, or 34.4%, to $44.3 million at June 30, 2011, compared to $67.5 million at December 31, 2010. The decrease in unrealized losses was primarily due to lower interest rates and tightening of credit spreads of taxable municipal bonds, corporate bonds and residential mortgage-backed securities during the first six months of 2011. At June 30, 2011, gross unrealized losses primarily consist of $22.7 million of corporate fixed maturities, $9.7 million of mortgage-backed securities and $7.3 million in taxable municipal bonds.

Gross unrealized losses associated with municipal and U.S. Treasury and government agency securities were $11.3 million and $22.5 million at June 30, 2011 and December 31, 2010, respectively.

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 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; 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.

The following table sets forth gross unrealized losses for fixed maturities by maturity period and for equity securities at June 30, 2011 and December 31, 2010. 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, 2011		December 31, 2010
Due in one year or less	$	0.6	$	2.6
Due after one year through five years		9.0		11.4
Due after five years through ten years		10.5		17.1
Due after ten years		13.9		21.6

		34.0		52.7
Mortgage-backed securities		9.7		12.9

Total fixed maturities		43.7		65.6
Equity securities		0.6		1.9

Total fixed maturities and equity securities	$	44.3	$	67.5

The carrying values of defaulted fixed maturity securities on non-accrual status at June 30, 2011 and December 31, 2010 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 and $1.1 million for the six months ended June 30, 2011 and 2010, respectively. 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, while continuing to recover, 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. Depending on market conditions, we could incur additional realized and unrealized losses in future periods.

Derivative Instruments

We maintain an overall risk management strategy that incorporates the use of derivative instruments to manage significant unplanned fluctuations in earnings caused by foreign currency and interest rate volatility. As such, we entered into a foreign currency forward contract to hedge foreign currency risk related to our acquisition of Chaucer and an interest rate forward contract to hedge the interest rate risk associated with our issuance of senior debt.

In April 2011, we entered into a foreign currency forward contract to hedge the foreign currency exchange risk embedded in the purchase price of Chaucer, which was denominated in GBP. This contract had a notional amount of £297.9 million and was settled on July 14, 2011. For the quarter and six months ended June 30, 2011, we recognized in income from continuing operations a loss of $4.7 million related to this agreement. An additional loss of $6.6 million from this contract will be recognized in earnings during the third quarter of 2011. The loss on the contract was due to a decrease in the exchange rate between the GBP and the US Dollar, and was more than offset by the lower US Dollars required to meet the GBP based purchase price. Since a foreign currency hedge in which the hedged item is a forecasted transaction relating to a business combination does not qualify for hedge accounting under ASC 815, Derivatives and Hedging (“ASC 815”), we did not apply hedge accounting to this transaction. See Note 3 – “Acquisitions” in this Form 10-Q for additional information.

In May 2011, we entered into a treasury lock forward agreement to hedge the interest rate risk associated with our planned issuance of senior debt, which was completed on June 17, 2011. This hedge qualified as a cash flow hedge under ASC 815. It matured in June 2011 and resulted in a loss of $1.9 million, which was recorded in accumulated other comprehensive income and will be recognized in earnings over the term of the senior notes.

Other Items

Net income also includes the following items:


	Quarter Ended June 30,
(In millions)	Commercial Lines			Personal Lines		Other Property and Casualty			Discontinued Operations		Total
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

2010
Net realized investment (losses) gains	$	(0.8	)	$	1.2	$	(0.2	)	$	—	$	0.2
Discontinued operations, net of taxes		—			—		—			0.1		0.1


	Six Months Ended June 30,
(In millions)	Commercial Lines		Personal Lines		Other Property and Casualty			Discontinued Operations			Total
2011
Net realized investment gains	$	2.8	$	2.1	$	11.8		$	—		$	16.7
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

2010
Net realized investment gains	$	3.8	$	7.1	$	0.2		$	—		$	11.1
Discontinued operations, net of taxes		—		—		—			(0.3	)		(0.3	)

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

Net realized gains on investments were $13.4 million and $0.2 million in the second quarters of 2011 and 2010, respectively. Net realized gains in 2011 are primarily due to $14.1 million of gains recognized primarily from the sale of fixed maturities, partially offset by $0.8 million of other-than-temporary impairments from fixed maturities. Net realized gains in 2010 are due to $3.5 million of gains recognized primarily from the sale of fixed maturities, partially offset by $3.4 million of impairments from both fixed maturities and equity securities.

Net realized gains on investments were $16.7 million and $11.1 million for the first six months of 2011 and 2010, respectively. Net realized gains in the first half of 2011 are primarily due to $18.5 million of gains recognized primarily 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. Net realized gains in the first half of 2010 are due to $16.0 million of gains recognized primarily from the sale of fixed maturities and equity securities, partially offset by $6.1 million of impairments from both fixed maturities and equity securities.

Acquisition costs were $11.1 million and $13.8 million for the quarter and six months ended June 30, 2011, respectively, and primarily consist of advisory, legal, and accounting costs associated with the acquisition of Chaucer. See Note 3 – “Acquisitions” in this Form 10-Q for additional information.

In April 2011, we entered into a foreign exchange forward contract which provided for an economic hedge between the agreed upon purchase price of Chaucer in GBP and currency fluctuations between the US dollar and GBP. This contract effectively locked in the value, in US dollars, of the agreed upon purchase price of the Chaucer acquisition. We recognized a $4.7 million loss as a result of the foreign exchange forward contract for the three and six months ended June 30, 2011. See “Investments” for additional information.

Income Taxes

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

Quarter Ended June 30, 2011 Compared to Quarter Ended June 30, 2010

The provision for federal income taxes from continuing operations was a benefit of $27.3 million during the second quarter of 2011, resulting in an effective tax rate of 45.7% of pre-tax loss, compared to an expense of $0.9 million during the same period in 2010, resulting in an effective tax rate of 29.0% of pre-tax income. These provisions reflect the significant fluctuations in pre-tax GAAP results from 2010 to 2011, i.e. pre-tax income in 2010 versus a pre-tax loss in 2011, and decreases in our valuation allowance related to realized gains of $4.7 million and $0.3 million in the second quarter of 2011 and 2010, respectively. In addition, the 2011 provision reflects a $2.1 million benefit related to tax planning strategies in prior years that had been reflected in Accumulated Other Comprehensive Income. Absent these benefits, the provision for federal income taxes from continuing operations would have been a benefit of $20.5 million or 34.3% and an expense of $1.2 million or 38.7% for the quarters ended June 30, 2011 and 2010, respectively. The higher than expected tax rate in 2010 is due to the fluctuation in our underwriting results and its disproportionate impact on our change to the estimated effective tax rate.

Our federal income tax provision on segment income was a benefit of $19.5 million during the second quarter of 2011, compared to expense of $1.1 million during the same period in 2010. These provisions resulted in effective tax rates for segment income of 33.9% and 37.9% in 2011 and 2010, respectively. The higher than expected tax rate in 2010 is due to the fluctuation in our underwriting results and its disproportionate impact on our change to the estimated effective tax rate.

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

The provision for federal income taxes from continuing operations was a benefit of $17.7 million during the first six months of 2011, resulting in an effective tax rate of 79.7% of pre-tax loss compared to an expense of $18.0 million during the same period in 2010, resulting in an effective tax rate of 28.8% of pre-tax income. These provisions reflect the significant fluctuations in pre-tax GAAP results from 2010 to 2011, i.e. pre-tax income in 2010 versus a pre-tax loss in 2011, and decreases in our valuation allowance related to realized gains of $5.9 million and $3.3 million in the first six months of 2011 and 2010, respectively. In addition, the 2011 provision reflects a $4.1 million benefit related to tax planning strategies in prior years that had been reflected in Accumulated Other Comprehensive Income. Absent these benefits, the provision for federal income taxes from continuing operations would have been a benefit of $7.7 million or 34.7% and an expense of $21.3 million or 34.1% for the six months ended June 30, 2011 and 2010, respectively.

Our federal income tax provision on segment income was a benefit of $6.1 million for the first six months of 2011, compared to an expense of $17.5 million during the same period in 2010. These provisions resulted in effective tax rates for segment income of 33.5% and 34.1% in 2011 and 2010, respectively. The slight decrease in 2011 is primarily due to lower underwriting income.

In the first six months of 2011, we decreased our valuation allowance related to our deferred tax asset by $25.6 million, from $91.5 million to $65.9 million. The decrease in this valuation allowance primarily resulted from unrealized appreciation in our investment portfolio and net realized capital gains in our Consolidated Statements of Income. Accordingly, we recorded decreases in our valuation allowance of $19.9 million and $5.9 million as adjustments to Accumulated Other Comprehensive Income and Federal Income Tax Expense, respectively. These were partially offset by an increase in our valuation allowance of $0.2 million reflected in Discontinued Operations.

In April 2011, we received notification that an interest refund claim filed with the Internal Revenue Service in 2009 had been accepted. The interest refund related to tax liabilities of our former life operations; therefore the benefit of $0.6 million was recorded in Discontinued Operations in the first quarter of 2011.

Critical Accounting Estimates

Our 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 out best judgment, the use of different assumptions could produce materially different accounting estimates. As disclosed in our 2010 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”)

For a more detailed discussion of these critical accounting estimates, see our Annual Report on Form 10-K for the year ended December 31, 2010.

Statutory Surplus of Insurance Subsidiaries

The following table reflects our consolidated statutory surplus:


(In millions)	June 30, 2011		December 31, 2010
Total Statutory Surplus – Combined P&C Companies	$	1,658.6	$	1,747.3

The consolidated statutory surplus decreased $88.7 million during the first six months of 2011, primarily due to a $99 million ordinary dividend paid to the holding company by Hanover Insurance in April 2011.

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, as of June 30, 2011, expressed both on the Industry Scale (Total Adjusted Capital divided by the Company Action Level) and Regulatory Scale (Total Adjusted Capital divided by Authorized Control Level):

(In millions, except ratios)

Company
Action
Level

Authorized
Control
Level

RBC Ratio
Industry
Scale

RBC Ratio
Regulatory
Scale

The Hanover Insurance Company

578.6

289.3

284

569

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 insurance subsidiaries are subject to limitations imposed by state 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”). On April 15, 2011, a $99 million ordinary dividend was paid to the holding company by Hanover Insurance.

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

Net cash provided by operating activities was $102.7 million during the first six months of 2011, as compared to net cash used in operations of $92.5 million during the first six months of 2010. The $194.9 million change primarily resulted from the absence in 2011 of a $100.0 million contribution made to our qualified defined benefit pension plan in 2010, and increased premium collections in the first half of 2011, primarily associated with OneBeacon business written in 2010.

Net cash provided by investing activities was $130.7 and $36.6 million during the first six months of 2011 and 2010, respectively. During 2011, cash provided was primarily related to net sales of fixed maturities used to fund the Chaucer acquisition. During 2010, cash was primarily provided from our net sales and calls of fixed maturities, proceeds of which were not reinvested during the first six months of 2010 due to market conditions.

Net cash provided by financing activities was $195.5 million during the first six months of 2011, as compared to net cash provided by financing activities of $0.5 million during the first six months of 2010. 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. During 2010, cash provided by financing activities was primarily due to proceeds from the issuance, on February 23, 2010, of unsecured senior debentures. This was largely offset by repurchases of common stock, repayments of collateral related to our securities lending program, and payments of dividends to our shareholders.

The Company held cash and cash equivalents of $721.6 million at June 30, 2011. The increased cash level reflects additional liquidity requirements related to the settlement of the Chaucer acquisition which occurred on July 14, 2011. As described in the Note 3 – “Acquisitions” in this Form 10Q , on July 1, 2011, the Company completed the previously announced acquisition of Chaucer. On July 14, 2011, the Company paid $455.0 million (based on GBP converted to USD exchange rate of 1.5833 and excluding the portion of the purchase price in the form of loan notes) with funds on hand at the holding company, which included $300 million of proceeds from the senior unsecured notes issued on June 17, 2011.

On June 17, 2011, the Company issued $300 million aggregate principal amount of 6.375% senior unsecured notes due June 15, 2021. The senior debentures are subject to certain restrictive covenants, including limitations on the issuance or disposition of capital stock of restricted subsidiaries. These debentures pay interest semi – annually. The Company is in compliance with the covenants associated with this indenture.

At June 30, 2011, THG, as a holding company, held $759.4 million of fixed maturities and cash. Funds of $455.0 million were used on July 14, 2011 to complete the acquisition of Chaucer and approximately $13 million of additional funds will be paid over the next several years for notes provided in lieu of cash to certain Chaucer shareholders. See Note 3 – “Acquisitions” in this Form 10Q for additional information on the Chaucer acquisition. We believe the remaining holding company assets are sufficient to meet additional obligations of the holding company during the second half of 2011, which consists primarily of the interest on our senior and junior debentures, our dividends to shareholders (as and to the extent declared), 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 2011 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 2011, we paid two quarterly dividends, as declared by the Board, each of $0.275 per share to our shareholders, totaling $25 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. 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, 2011. As a result, we currently expect that significant cash contributions will not be required for this plan for several years. However, the ultimate payment amount is based on several assumptions, including but not limited to, the rate of return on plan assets, the discount rate for benefit obligations, mortality experience, interest crediting rates and the ultimate valuation and determination of benefit obligations. Since differences between actual plan experience and our assumptions are likely, changes to our funding obligations in future periods are possible.

Our insurance subsidiaries maintain a high degree of liquidity within their respective investment portfolios in fixed maturity and short-term investments. We believe that the quality of the assets we hold will allow us to realize the long-term economic value of our portfolio, including securities that are currently in an unrealized loss position. We do not anticipate the need to sell these securities to meet our insurance subsidiaries’ cash requirements. We expect our insurance 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 December 2010, our Board of Directors has authorized aggregate repurchases of our common stock of up to $500 million. Our repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. We are not required to purchase any specific number of shares or to make purchases by any certain date under this program. On March 30, 2010, we entered into an accelerated share repurchase agreement and utilized a portion of our existing share repurchase authorization for the immediate repurchase of 2.3 million of our common stock at a cost of $105.0 million. During the first six months of 2011, we did not repurchase any additional shares of our common stock.

Additionally, from time to time, we may also repurchase debt. In February 2011, we repurchased $48.0 million of our Junior Debentures at a cost of $50.5 million, resulting in a $2.5 million loss on the repurchase. In June 2011, the Company repurchased an additional $7.0 million of Junior Debentures at a cost of $6.7 million, resulting in a gain of $0.3 million on the repurchase. Our Junior Debentures have a face value of $74.2 million as of June 30, 2011 and pay cumulative dividends semi-annually at 8.207% and mature February 3, 2027. We may decide to repurchase additional Junior Debentures or Senior Debentures on an opportunistic basis.

On August 2, 2011, we entered into a $200.0 million committed syndicated credit agreement which expires in August 2015. 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 Euro dollar rate plus applicable margin. The agreement provides covenants, including but not limited to, maintaining a certain level of consolidated equity, consolidated leverage ratios, and an RBC ratio in our primary US domiciled property and casualty companies of 175%.

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 13 “Commitments and Contingencies” of the Notes to Interim Consolidated Financial Statements.

Recent Developments

On July 1, 2011, we completed the previously announced acquisition of Chaucer. See Note 3 – “Acquisitions” in this Form 10-Q for additional information.

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, 2010. This Management’s Discussion and Analysis should be read and interpreted in light of such factors.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Our market risks, the ways we manage them, and sensitivity to changes in interest rates are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2010, included in our Annual Report on Form 10-K for the year ended December 31, 2010. There have been no material changes in the first six months of 2011 to these risks or our management of them except for our exposure to changes in foreign currency rates.

In the second quarter of 2011, we were exposed to foreign currency exchange rate fluctuation as the Chaucer purchase price was denominated in UK Pounds Sterling (“GBP”). To mitigate the short-term effect of changes in the exchange rate of the GBP to the US dollar, we entered into a foreign currency forward contract with a notional amount of 297.9 million GBP. The fair value of the derivative liability at June 30, 2011 and the associated loss recorded through June 30, 2011 was $4.7 million. A hypothetical increase or decrease in the exchange rate of 1% would result in a gain or loss on the derivative of $4.8 million. This contract was settled on July 14, 2011 contemporaneously with the completion of the Chaucer acquisition, resulting in an additional loss of $6.6 million from this contract that will be recognized in earnings during the third quarter of 2011. See Note 3 – “Acquisitions” in this Form 10-Q for additional information.

Additionally, we are in the process of evaluating the impact of ongoing operations resulting from the acquisition of Chaucer on our foreign exchange rate and interest rate exposure, including a review of hedging strategies to manage these risks.

ITEM 4

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures Evaluation

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

Limitations on the Effectiveness of Controls

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

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

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

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the internal control over financial reporting, as required by Rule 13a-15(d) of the Exchange Act, to determine whether any changes occurred during the period covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that there was no such change during the quarter ended June 30, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

On July 1, 2011, the Company closed on the acquisition of Chaucer Holdings PLC (“Chaucer”). Chaucer will be excluded for the purposes of management’s evaluation of our internal control over financial reporting as of December 31, 2011.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

Reference is made to “Commitments and Contingencies – Legal Proceedings” in Note 13 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 2011 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;

•

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;

•

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;

•

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;

•

unfavorable judicial or legislative developments; and

•

other factors described in such forward-looking statements.

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, 2010. The factors listed below represent risks that have changed since our Annual Report on Form 10-K for the year ended December 31, 2010.

Our Acquisition of Chaucer involves a number of integration risks. These risks could cause a material adverse effect on our business, financial position and results of operations and could cause the market value of our stock to decline.

On July 1, 2011, we completed the acquisition of Chaucer Holdings PLC (“Chaucer” and such acquisition, the “Acquisition”). If we are unable to successfully integrate Chaucer into our business, we could be impeded from realizing all of the benefits of the Acquisition. The integration process could disrupt our business and a failure to successfully integrate the two businesses could have a material adverse effect on our business, financial condition and results of operations. In addition, the integration of two formally unaffiliated companies could result in unanticipated problems, expenses, liabilities, competitive responses, loss of agent relationships, and diversion of management’s attention and may cause our stock price to decline. The difficulties of integrating an acquisition include, among others:

•

unanticipated issues in integrating information, communications and other systems;

•

unanticipated incompatibility of logistics, marketing and administration methods;

•

maintaining employee morale and retaining key employees;

•

integrating the business cultures of both companies;

•

preserving important strategic, reinsurance and other relationships;

•

integrating legal and financial controls in multiple jurisdictions;

•

consolidating corporate and administrative infrastructures and eliminating duplicative operations;

•

the diversion of management’s attention from ongoing business concerns;

•

integrating geographically separate organizations;

•

significant transaction and integration costs, including the effect of exchange rate fluctuations;

•

risks and uncertainties in our ability to increase the investment yield on the Chaucer investment portfolio;

•

risks uncertainties in our ability to decrease leverage as a result of adding future earnings to our capital base;

•

risks and uncertainties regarding the volatility of underwriting results in a combined entity;

•

an ability to more efficiently manage capital;

•

tax issues, such as tax law changes and variations in tax laws as compared to the United States;

•

an ability to improve renewal rates and increase new property and casualty policy counts;

•

an ability to increase or maintain certain property and casualty insurance rates (including with respect to UK motor business);

•

heightened competition (including rate pressure);

•

complying with laws, rules and regulations in multiple jurisdictions, including new and multiple employment regulations; and

•

the impact of new product introductions.

In addition, even if our businesses are integrated successfully, we may not realize the full benefits of the Acquisition, including the synergies, cost savings or underwriting or growth opportunities that we expect. It is possible that these benefits may not be achieved within the anticipated time frame, or at all.

We could face new and additional risks in connection with the acquired business of Chaucer which could cause a material adverse effect on our business, financial position and results of operations.

We could be exposed to new and additional risks associated with the business and operations of Chaucer which could cause a material adverse effect on our business, financial position and results of operations; and such risks effectively have been allocated to us as of April 20, 2011, the date of the offer to acquire the shares of Chaucer. The additional risks to which we may be exposed include, but are not limited to, the following:

•

an expansion of risks to which we are already subject as an insurance company, such as risk of adverse loss development, litigation, investment risks and the possibility of significant catastrophe losses (as a result of natural disasters, nuclear accidents, severe weather and terrorism) occurring in the countries in which Chaucer operates, and others;

•

the uncertainties in estimating man-made and natural catastrophe losses (including with respect to recent catastrophe losses in Australia, Chile, New Zealand and Japan which have affected Chaucer, and winter storm-related losses which have affected us);

•

risks relating to the application and interpretation of insurance and reinsurance contracts, particularly with respect to a complex international event such as the unfolding problems at the Fukushima Dai-ichi nuclear power complex in Japan and its impact on Lloyd’s Syndicate 1176, in which Chaucer has a 55% interest;

•

adverse and evolving state, federal and, with respect to Chaucer or the combined companies, foreign legislation or regulation;

•

Chaucer’s exposure to currency risks and fluctuations, as a significant proportion of Chaucer’s business, is conducted in various currencies and in several countries outside the United States;

•

unexpected or overlapping concentrations of risk where one event or series of events can affect many insured parties;

•

uncertainties in estimating of Chaucer’s current single occupational pension scheme deficit; and

•

risks and uncertainties relating to changes to European and UK law and regulation, which include: (a) a new composite European Union directive (known as Solvency II) covering the prudential supervision of all insurance and reinsurance companies that is being developed to replace the existing life, non-life insurance and reinsurance directives that govern the insurance business in the U.K. (among various other obligations, Solvency II will impose new capital requirements on Chaucer); and (b) changes to the regulatory framework in the UK with the introduction of two new regulatory authorities to replace the Financial Services Authority.

Additionally, as a specialist in Lloyd’s insurance group, Chaucer is subject to a number of specific risk factors and uncertainties, including without limitation: its reliance on insurance and reinsurance brokers and distribution channels to distribute and market its products; its obligations to maintain funds at Lloyd’s to support its underwriting activities; its risk-based capital requirement being assessed periodically by Lloyd’s and being subject to variation; its reliance on ongoing approvals from Lloyd’s, the Financial Services Authority and other regulators to conduct its business; the limitations and approval requirements that certain of Chaucer’s regulated subsidiaries face from the Financial Services Authority with respect to payment of dividends, return of capital to any shareholder and becoming a borrower, guarantor or provider of security interest on any financial obligations; its obligations to contribute to the Lloyd’s New Central Fund and pay levies to Lloyd’s; its ongoing ability to benefit from the overall Lloyd’s credit rating; its ongoing ability to utilize Lloyd’s trading licenses in order to underwrite business outside the United Kingdom; its ongoing exposure to levies and charges in order to underwrite at Lloyd’s; and the requirement for it to maintain deposits in the United States for U.S. site risks it underwrites.

We cannot assure you that we will be able to adequately address these additional risks. If we are unable to do so, our operations might suffer.

As one of our consolidated companies, Chaucer and its subsidiaries will be subject to Sarbanes-Oxley and rules and regulations of the SEC and PCAOB.

Chaucer and its subsidiaries have become subsidiaries of our consolidated company, and will need to comply with the Sarbanes-Oxley Act of 2002 and the rules and regulations subsequently implemented by the Securities and Exchange Commission and the Public Company Accounting Oversight Board. We will need to ensure that Chaucer establishes and maintains effective disclosure controls, as well as internal controls and procedures for financial reporting.

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

Issuer Purchases of Equity Securities

Shares purchased in the second quarter of 2011 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, 2011		—	$	—		—	$	157,000,000
May 1– 31, 2011		640		41.98		—		157,000,000
June 1– 30, 2011		—		—		—		157,000,000

Total		640	$	41.98		—	$	157,000,000

The number of shares purchased reflect shares withheld to satisfy tax withholding amounts due from employees related to the receipt of stock which resulted from the vesting of restricted stock units.

ITEM 6 – EXHIBITS



EX – 4.1		Second Supplemental Indenture dated as of June 17, 2011, between U.S. Bank National Association, as trustee, including the form of Global Note attached as Annex A thereto, supplementing the Indenture dated as of January 21, 2010 previously filed as Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed on June 17, 2011 and incorporated herein by reference.

EX – 4.2		Trust Deed Constituting $50,000,000 Floating Rate Subordinated Notes due 2036 dated September 21, 2006 between Chaucer Holdings PLC and Wilmington Trust (Channel Islands), Ltd

		Management agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any other agreements or instruments of the Company and its subsidiaries defining the rights of holders of any non-registered debt whose authorized principal amount does not exceed 10% of The Hanover Insurance Group, Inc.’s total consolidated assets.

EX – 10.1		Description of 2011 – 2012 Non-Employee Director Compensation.

EX – 10.2		Service Agreement dated January 20, 2010 by and between Robert Stuchbery and Chaucer Holdings PLC.

EX – 10.3		Chaucer Pension Scheme, as amended.

EX – 10.4		£90,000,000 Letter of Credit Facility Agreement dated November 29, 2010 between, among others, Chaucer Holdings PLC as the account party, Barclays Bank PLC, Lloyds TSB Bank PLC and The Royal Bank of Scotland PLC as mandated lead arrangers and Lloyds TSB Bank PLC as bookrunner, facility agent and security agent, as amended by Amendment Letter dated February 28, 2011.

EX – 10.5		Credit Agreement, dated August 2, 2011, among The Hanover Insurance Group, Inc., as Borrower, Wells Fargo Bank, National Association, as administrative agent, and various other lender parties, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 3, 2011 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, 2011 formatted in eXtensible Business Reporting Language (“XBRL”): (i) Consolidated Statements of Income for the quarter and six months ended June 30, 2011 and 2010; (ii) Consolidated Balance Sheets at June 30, 2011 and December 31, 2010; (iii) Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2011 and 2010; (iv) Consolidated Statements of Comprehensive Income for the quarter and six months ended June 30, 2011 and 2010; (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010, and (vi) related notes to these consolidated financial statements.

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 9, 2011		/s/ Frederick H. Eppinger, Jr.
Date		Frederick H. Eppinger, Jr.
		President, Chief Executive Officer
		and Director

August 9, 2011		/s/ David B. Greenfield
Date		David B. Greenfield
		Executive Vice President,
		Chief Financial Officer and
		Principal Accounting Officer

Exhibit 4.2

Execution Copy

DATED 21 September 2006

TRUST DEED

Constituting

US$50,000,000 Floating Rate Subordinated Notes

due 2036

between

Chaucer Holdings PLC

and

Wilmington Trust (Channel Islands), Ltd

LeBoeuf, Lamb, Greene & MacRae

No.1 Minster Court

Mincing Lane

London EC3R 7YL

United Kingdom

TABLE OF CONTENTS


1.	DEFINITIONS & INTERPRETATION	1
2.	COVENANT TO REPAY AND TO PAY INTEREST ON NOTES	7
3.	NOTES	8
4.	SUBORDINATION	17
5.	FEES, DUTIES AND TAXES	17
6.	AUDITORS’ CERTIFICATES AND REPORTS	18
7.	ENFORCEMENT	18
8.	PROCEEDINGS, ACTION AND INDEMNIFICATION	19
9.	APPLICATION OF MONEYS	19
10.	TRUSTEE ACCOUNT	20
11.	COVENANTS BY THE ISSUER	20
12.	SUBSTITUTION OF ISSUER	22
13.	REMUNERATION AND INDEMNIFICATION OF TRUSTEE	24
14.	SUPPLEMENT TO TRUSTEE ACT 1925	25
15.	TRUSTEE’S LIABILITY	29
16.	TRUSTEE CONTRACTING WITH ISSUER	29
17.	WAIVER, AUTHORISATION, DETERMINATION AND MODIFICATION	30
18.	NOTES REGISTER	31
19.	NEW TRUSTEES AND CO-TRUSTEES	31
20.	TRUSTEE’S RETIREMENT AND REMOVAL	32
21.	TRUSTEE’S POWERS TO BE ADDITIONAL	32
22.	APPOINTMENT OF AGENTS	32
23.	CURRENCY INDEMNITY	33
24.	NOTICES	34
25.	GOVERNING LAW	34
26.	JURISDICTION OF ENGLISH COURTS	34
27.	COUNTERPARTS	35
28.	CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999	35
	THE FIRST SCHEDULE	36
	EXHIBIT A – FORM OF DEFINITIVE NOTE	36
	(Face of Note)	36
	(Reverse of Note)	40
	EXHIBIT B – FORM OF RULE 144A GLOBAL NOTE	60
	(Face of Note)	60
	(Reverse of Note)	65
	EXHIBIT C – FORM OF TEMPORARY REGULATION S GLOBAL NOTE	86
	(Face of Note)	86
	(Reverse of Note)	90
	EXHIBIT D – FORM OF PERMANENT REGULATION S GLOBAL NOTE	113
	(Face of Note)	113
	(Reverse of Note)	117
	EXHIBIT E – FORM OF CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTE	138
	THE SECOND SCHEDULE	143
	PROVISIONS RELATING TO REGISTRATION, TRANSFER AND PAYMENT	143

THIS TRUST DEED is made AS A DEED on 21 September 2006.

BETWEEN:

(i)	C HAUCER H OLDINGS P LC , a public limited company incorporated under the laws of England and Wales (registered number 2847982) and its registered address at 9 Devonshire Square, Cutlers Gardens, London EC2M 4WL (the “ Issuer ”);

(ii)

W ILMINGTON T RUST (C HANNEL I SLANDS ), L TD , a company with limited liability incorporated under the laws of the Island of Jersey (the “ Trustee ”, which expression shall, wherever the context so admits, include such company and all other persons or companies for the time being the trustee or trustees of these presents) as trustee for the Noteholders (as defined below).

WHEREAS:

(i)	By resolutions of the Board of Directors of the Issuer (being duly empowered in that behalf by its Memorandum and Articles of Association) passed on 7 September 2006, the Issuer has resolved to issue US$50,000,000 Floating Rate Subordinated Notes due 2036 to be constituted by these presents.

(ii)	The Trustee has agreed to act as trustee of these presents for the benefit of the Noteholders upon and subject to the terms and conditions of these presents.

NOW THIS TRUST DEED WITNESSES AND IT IS AGREED AND DECLARED as follows:

1.	DEFINITIONS & INTERPRETATION

(A)	In these presents unless there is anything in the subject or context inconsistent therewith the following expressions shall have the following meanings:

“ Agent ” means any Registrar, Co-Registrar or Custodian;

“ Appointee ” means any attorney, manager, agent, delegate or other person appointed by the Trustee under these presents;

“ Auditors ” means the auditors for the time being of the Issuer or, in the event of their being unable or unwilling promptly to carry out any action requested of them pursuant to the provisions of these presents, such other firm of accountants as may be selected by the Issuer;

“ Business Day ” means any day other than a Saturday, Sunday or any other day on which banking institutions in London or New York City are permitted or required by any applicable law to close;

“ Calculation Agent ” shall have the meaning set forth in Clause 22(A);

“ Clearing Systems” means Clearstream, DTC and Euroclear, collectively;

“ Clearstream ” means Clearstream Banking, S.A.;

“ Conditions ” means the Conditions of the Notes in the form or substantially in the form set out in the First Schedule as the same may from time to time be modified in accordance with these presents and any reference in these presents to a particular specified Condition or paragraph or sub-paragraph of such a Condition shall in relation to the Notes be construed accordingly;

“ Contractual Currency ” has the meaning set out in Clause 23(A);

“ Co-Registrar ” means a co-Registrar that the Issuer may appoint from time-to-time;

“ Custodian ” has the meaning set forth in Clause 3(A)(2);

“ Definitive Notes ” means Notes that are in certificated form registered in the name of the individual purchasers or their nominees in substantially the same form as Exhibit A to The First Schedule attached hereto;

“ Depository ” means with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Clause 3(B)(2) as the Depository with respect to the Global Notes, until a successor shall have been appointed and becomes such pursuant to the applicable provisions of these presents, and, thereafter, “Depository” shall mean such successor;

“ Directors ” means the directors of the Issuer;

“ DTC ” means the Depository Trust Company;

“ Euroclear ” means Euroclear Bank S.A./N.V., as operator of the Euroclear system;

“ Event of Default ” means any of the conditions, events or acts provided in Condition 10.1 to be events upon the happening of which the Notes would, subject only to notice by the Trustee as therein provided, become immediately due and repayable;

“ Exchange Act ” means the U.S. Securities Exchange Act of 1934, as amended;

“ Extraordinary Resolution ” has the meaning set out in paragraph 21 of the Third Schedule;

“ Existing Territory ” has the meaning set out in Clause 12(B);

“ FSA ” means the Financial Services Authority or any successor regulatory body or other governmental authority in the U.K. exercising prudential supervision of insurance companies.

“ Global Notes ” means the Notes that are represented by registered notes in global form in substantially the same form as Exhibits B, C or D to The First Schedule attached hereto;

“ Indebtedness ” of any person means the principal premium, if any, and interest due on indebtedness of such person, whether outstanding on the date of these presents or thereafter created, incurred or assumed, which is (a) indebtedness for money borrowed, and (b) any amendments, renewals, extensions, modifications and refundings of any such indebtedness. For the purposes of this definition, “indebtedness for money borrowed” means (i) any obligation of, or any obligation guaranteed by, such person for the repayment of borrowed money, whether or not evidenced by bonds, debentures, notes or other written instruments, (ii) any obligation of, or any such obligation guaranteed by, such person evidenced by bonds, debentures, notes or similar written instruments, including obligations assumed or incurred in connection with the acquisition of property, assets or businesses, (iii) any obligations of such person as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles in the United Kingdom and leases of property or assets made as part of any sale and lease-back transaction to which such person is a party, and (iv) any obligation of, or any such obligation guaranteed by, any person for the payment of amounts due under a swap agreement or other similar instrument or agreement or foreign currency hedge exchange or similar instrument or agreement;

“ Liability ” means any loss, damage, cost, charge, claim, demand, expense, judgment, action, proceeding or other liability whatsoever (including, without limitation, in respect of taxes, duties, levies, imposts and other charges) and including any value added tax or similar tax charged or chargeable in respect thereof and legal and professional fees and expenses on a full indemnity basis;

“ Maturity Date ” means September 21, 2036;

“ Noteholders ” means the several persons for the time being entered in the Register as the holders of the Notes and the words “holder” and “holders” shall, unless the context otherwise requires, be construed accordingly;

“ Noteholder Redemption Event ” shall have the meaning set forth in Condition 7.7;

“ Notes ” means the US$50,000,000 Floating Rate Subordinated Notes due 2036 of the Issuer hereby constituted or the principal amount thereof for the time being outstanding or, as the context may require, a specific portion thereof;

“ Notes Register ” means the register of the Notes and of their transfer and exchange that shall be kept by the Registrar;

“ outstanding ” means in relation to the Notes all the Notes issued and in respect of which there is for the time being an entry in the Register other than:

(a)

Notes which have been redeemed and cancelled pursuant to these presents;

(b)

Notes which have been purchased and cancelled pursuant to these presents;

(c)

those mutilated or defaced Notes which have been surrendered and cancelled and in respect of which replacements have been issued pursuant to Condition 11; and

(d)

for the purpose only of ascertaining the principal amount of the Notes outstanding and without prejudice to the status for any other purpose of the relevant Notes those Notes which are alleged to have been lost, stolen or destroyed and in respect of which replacements have been issued pursuant to Condition 11.

provided, that, for each of the following purposes, namely:

(i)

the right to attend and vote at any meeting of the Noteholders or any of them;

(ii)

the determination of how much, and which, of the Notes are for the time being outstanding for the purposes of Clauses 8 and 9 and paragraphs 1, 3, 4 and 7 of the Third Schedule;

(iii)

any discretion, power or authority (whether contained in these presents or vested by operation of law) which the Trustee is required, expressly or impliedly, to exercise in or by reference to the interests of the Noteholders or any of them; and

(iv)

the determination by the Trustee whether any event, circumstance, matter or thing is, in its opinion, materially prejudicial to the interests of the Noteholders or any of them,

Notes (if any) which are for the time being held by, for the benefit of, or on behalf of, the Issuer or any Subsidiary shall (unless and until ceasing to be so held) be deemed not to remain outstanding and accordingly the holders of such Notes shall be deemed not to be Noteholders;

“ Paying Agent ” has the meaning set forth in Clause 22(B);

“ Permanent Regulation S Global Note ” has the meaning set forth in Clause 3(A)(3);

“ Person ” means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof;

“ Potential Event of Default ” means any condition, event or act which, with the lapse of time and/or the issue, making or giving of any notice, certification, declaration, demand, determination or request and/or the taking of any similar action and/or the fulfilment of any similar condition, would constitute an Event of Default;

“ Potential Noteholder Redemption Event ” means any condition, event or act which, with the lapse of time and/or the issue, making or giving of any notice, certification, declaration, demand, determination or request and/or the taking of any similar action and/or the fulfilment of any similar condition, would constitute a Noteholder Redemption Event;

“ Proceedings ” shall have the meaning set forth in Clause 26;

“ QIB ” means a “qualified institutional buyer”, as defined in Rule 144A under the Securities Act;

“ Register ” means the register in respect of the Notes referred to in Clause 18;

“ Registrar ” has the meaning set forth in Clause 3(B);

“ Regulation S ” means Regulation S as promulgated under the Securities Act;

“ Regulation S Global Notes ” has the meaning set forth in Clause 3(A)(3);

“ Regulation S Restriction Date ” means the first day immediately succeeding the Regulation S Restriction Period;

“ Regulation S Restriction Period ” means the “40-day distribution compliance period” within the meaning of Regulation S;

“ repay ”, “ redeem ” and “ pay ” shall each include both the others and cognate expressions shall be construed accordingly;

“ Restricted Note ” means any Note that bears or is required to bear the legend set forth in Clause 3(C);

“ Rule 144A ” means Rule 144A as promulgated under the Securities Act;

“ Rule 144A Global Note ” has the meaning set forth in Clause 3(A)(2);

“ Securities Act ” means the U.S. Securities Act of 1933, as amended;

“ Senior Creditor ” means any creditor of the Issuer whose claims have been accepted by the liquidator in the winding-up of the Issuer, not being a creditor:

(a)

whose right to repayment ranks or is expressed to rank postponed to or subordinate to that of unsubordinated creditors of the Issuer;

(b)

whose right to repayment is made subject to a condition or is restricted (whether by operation of law or otherwise) or is expressed to be restricted in each case such that the amount which may be claimed for his own retention by such creditor in the event that the Issuer is not solvent is less than in the event that the Issuer is solvent; or

(c)

whose debt is irrecoverable or expressed to be irrecoverable unless the persons entitled to payment of principal and interest in respect of the Notes recover the amount of such principal and interest which such persons would be entitled to recover if payment of such principal and interest to such persons were not subject to any condition.

“ Subsidiary ” means with respect to any person, (i) any corporation, limited liability company, body corporate or other similar entity at least a majority of the outstanding voting stock of which is owned, directly or indirectly, by such person or by one or more of its Subsidiaries, or by such person and one or more of its Subsidiaries, (ii) any general partnership, joint venture or similar entity, at least a majority of the outstanding partnership or similar interests of which shall at the time be owned by such person, or by one or more of its Subsidiaries, or by such person and one or more of its Subsidiaries and (iii) any limited partnership of which such person or any of its Subsidiaries is a general partner; for the purposes of this definition, “voting stock” means shares, interests, participations or other equivalents in the equity interest (however designated) in such person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency;

“ Substituted Obligor ” has the meaning set out in Clause 12(B);

“ Substituted Territory ” has the meaning set out in Clause 12(B);

“ Temporary Regulation S Global Note ” has the meaning set forth in Clause 3(A)(3);

“ these presents ” means this Trust Deed and the Schedules and any trust deed supplemental hereto and the Schedules (if any) thereto and the Conditions, all as from time to time modified in accordance with the provisions herein or therein contained;

“ Trust Corporation ” means a corporation entitled by rules made under the Public Trustee Act 1906 of Great Britain or entitled pursuant to any other comparable legislation applicable to a trustee in any other jurisdiction to carry out the functions of a custodian trustee;

“ U.S. ” and “ United States ” means the United States of America, the 50 States, its possessions and territories, including the District of Columbia’

“ U.S. Dollars ” or “ US$ ” shall mean the lawful currency of the United States; and

“ U.S. Person ” has the meaning set forth in Regulation S.

Words denoting the singular shall include the plural and vice versa;

words denoting one gender only shall include the other genders; and

words denoting persons only shall include firms and corporations and vice versa.


(B)		(1) All references in these presents to any statute or any provision of any statute shall be deemed also to refer to any statutory modification or re- enactment thereof or any statutory instrument, order or regulation made thereunder or under any such modification or re-enactment.

		(2) All references in these presents to guarantees or to an obligation being guaranteed shall be deemed to include respectively references to indemnities or to an indemnity being given in respect thereof.

		(3) All references in these presents to any action, remedy or method of proceeding for the enforcement of the rights of creditors shall be deemed to include, in respect of any jurisdiction other than England, references to such action, remedy or method of proceeding for the enforcement of the rights of creditors available or appropriate in such jurisdiction as shall most nearly approximate to such action, remedy or method of proceeding described or referred to in these presents.

		(4) All references in these presents to taking proceedings against the Issuer shall be deemed to include references to proving in the winding up of the Issuer.

		(5) In these presents references to Schedules, Clauses, sub-clauses, paragraphs and sub-paragraphs shall be construed as references to the Schedules to these presents and to the Clauses, sub-clauses, paragraphs and sub- paragraphs of these presents respectively.

		(6) In these presents tables of contents and Clause headings are included for ease of reference only and shall not affect the construction of these presents.

		(7) All references in these presents involving compliance by the Trustee with a test of reasonableness shall be deemed to include a reference to a requirement that such reasonableness shall be determined by reference primarily to the interests of the holders of the Notes and in the event of any conflict between such interests and the interests of any other person, the former shall prevail as being paramount.

		(8) If at any time any provision of these presents is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions of these presents nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby.

2.	COVENANT TO REPAY AND TO PAY INTEREST ON NOTES

(A)

The aggregate principal amount of the Notes is limited to US$50,000,000.00 and the Notes shall be known as “Floating Rate Subordinated Notes due 2036.” The Notes are direct, unsecured and subordinated obligations of the Issuer, conditional as described in Condition 3, and rank pari passu without any preference among themselves.

(B)

(1) The Issuer covenants with the Trustee that it will, in accordance with these presents, on the due date for the final maturity of the Notes provided for in the Conditions, or on such earlier date as the same or any part thereof is due to be repaid or shall become immediately due and repayable under these presents, pay or procure to be paid unconditionally to or to the order of the Trustee in U.S. Dollars in immediately available funds the principal amount of the Notes repayable on that date together with any applicable interest and premium (if any) and shall in the meantime and until the whole of the Notes shall have been repaid or purchased and in either case cancelled pursuant to these presents (both before and after any judgment or other order of a court of competent jurisdiction) pay or procure to be paid unconditionally to or to the order of the Trustee as aforesaid interest (which shall accrue from day to day) on the principal amount of the Notes at the rates calculated from time to time in accordance with Condition 5 (Interest) and on the dates provided for in the Conditions; provided, that:

(i)

every payment to the holders of the Notes in respect of principal, premium (if any) or interest in respect of the Notes held by them respectively shall be in satisfaction pro tanto of the covenant by the Issuer in this Clause contained; and

(ii)

in any case where payment of principal or premium (if any) is not duly made on or before the due date, interest shall continue to accrue on the principal amount of the Notes and shall accrue on such premium (if any) (both before and after any judgment or other order of a court of competent jurisdiction) at the rates aforesaid as set forth in the Conditions.

(2) The Trustee shall pay or cause to be paid all amounts due in respect of the Notes on behalf of the Issuer in the manner provided in the Conditions and these presents. However, unless and until the full amount of any such payment has been made to the Trustee it shall not be bound to make such payment in whole or in part.

NOTES

(A)	Form of No tes.

(1)

The Notes may be held by Noteholders that are: (i) QIBs or (ii) Persons other than U.S. Persons in “offshore transactions” in reliance on Regulation S. The Notes may be Global Notes or Definitive Notes. The Definitive Notes shall be substantially in the form attached as Exhibit A to The First Schedule hereto. The Global Notes shall be substantially in the form attached as Exhibit B, Exhibit C and Exhibit D to The First Schedule hereto, as applicable. Any applicable legends for the Notes shall be provided for in Exhibit A, Exhibit B, Exhibit C and Exhibit D to The First Schedule hereto, as applicable.

(2)

Each Noteholder that is a QIB and holds Notes in reliance on Rule 144A shall hold Notes that will initially be represented by one or more permanent Rule 144A Global Notes (each, a “ Rule 144A Global Note ”), substantially in the form of Exhibit B to The First Schedule, with such legends applicable to such form of Note as are applicable to Rule 144A Global Notes included thereon. Each such Rule 144A Global Note shall be deposited with the Trustee to act as custodian for the Depository (the “ Custodian ”) and registered in the name of the Depository or nominee thereof.

(3)

Each Note sold in “offshore transactions” to Persons other than U.S. Persons in reliance on Regulation S shall initially be represented by one or more temporary global securities, substantially in the form of Exhibit C to The First Schedule attached hereto (each, a “ Temporary Regulation S Global Note ”), which shall be deposited with a Person (which may be the Trustee) appointed by the Issuer to act as Custodian and registered in the name of the Depository or nominee thereof. Each Temporary Regulation S Global Note may be held only through Euroclear or Clearstream, (it being understood that such position may be reflected directly by Euroclear or Clearstream, or through a custodian, who is a participant in DTC). The Temporary Regulation S Global Notes will be exchanged for one or more permanent Regulation S global Notes, substantially in the form of Exhibit D to The First Schedule attached hereto (each, a “ Permanent Regulation S Global Note ” and, together with the Temporary Regulation S Global Notes, the “ Regulation S Global Notes ”) following (i) the Regulation S Restriction Period and (ii) upon receipt by the Trustee of certification of non-U.S. beneficial ownership as required by United States Treasury Regulations and Regulation S in substantially the form attached to the Temporary Regulation S Global Note. Each of the Permanent Regulation S Global Notes shall be deposited with a Person (which may be the Trustee) appointed by the Issuer to act as Custodian and registered in the name of the Depository or nominee thereof. Euroclear and/or Clearstream will hold beneficial interests in the Permanent Regulation S Global Notes on behalf of their participants through their respective depositaries, which in turn will hold such beneficial interests in the Permanent Regulation S Global Notes in participants’ securities accounts in the depositaries’ names on the books of DTC.

(4)

Each Global Note shall represent such of the outstanding Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be increased or reduced to reflect transfers-or exchanges. Any endorsement of a Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in such manner and upon instructions given by the Noteholder thereof. Payment of the principal of and any interest on any Global Note shall be made to the Noteholder thereof as of the close of business on the relevant record date.

(5)

The Notes may have notations, legends or endorsements required by law, securities exchange rule or usage. Each Note shall be dated the date of its authentication.

(6)

The Notes shall be issuable in minimum denominations of US$100,000 and any amount in excess thereof that is an integral multiple of US$1,000.

(B)	Registrar, Depository and Custod ian.

(1)

The Issuer may appoint from time to time a registrar in respect of the Notes who will maintain an office or agency where Notes may be presented for registration of transfer or exchange, and the Issuer hereby appoints the Trustee as the registrar in respect of the Notes (in such capacity, the “ Registrar ”) at its specified office, and the Registrar hereby accepts such appointment and agrees to comply with the provisions of these presents, provided, however, that the Registrar may sub- delegate its registrar function at any time and at its reasonable discretion. The Registrar shall keep the Notes Register. The Issuer may appoint one or more Co-Registrars. Subject to such reasonable regulations as it may prescribe, the Issuer shall provide for the registration and transfer of all Notes as provided in these presents. The Notes Register shall be in written form or in any other form capable of being converted into written form within a reasonable time.

(2)

The Issuer shall appoint one or more other Persons to act as Depository with respect to any Global Notes. The Issuer initially appoints DTC to act as Depository with respect to the Global Notes. As set forth in Clause 3(C), the Issuer may, in certain circumstances, appoint a successor Depository or determine that the Notes issued in the form of Global Notes shall no longer be represented by such Global Notes.

(3)

The Issuer shall appoint itself or one or more other Persons to act as Custodian with respect to any Global Note. The Issuer initially appoints the Trustee to act as Custodian with respect to the Global Notes.

(4)

The Issuer shall notify the Trustee of the name and address of the Depository and of any Agent not a party to these presents, and shall give the Trustee at least 30 days’ notice prior to changing the Depository or any such Agent.

(C)	Exchange and Registration of Transfer of N otes

(1)

When Definitive Notes are presented to the Registrar with a request to register the transfer of such Definitive Notes or to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided , however , that the Definitive Notes surrendered for registration of transfer or exchange (i) shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Registrar, duly executed by the Noteholder thereof or its attorney, duly authorized in writing and (ii) in the case of definitive Restricted Notes only, shall be accompanied by the following additional information and documents, as applicable:

(i)

if such definitive Restricted Note is being exchanged, without transfer, a certification from such Noteholder to that effect (in substantially the form shown on Exhibit E to The First Schedule hereto);

(ii)

if such definitive Restricted Note is being transferred to a QIB in accordance with Rule 144A or pursuant to an exemption from registration in accordance with Rule 144(k) under the Securities Act, certifications from the transferor and the transferee to that effect (in substantially the form shown on Exhibit E to The First Schedule hereto); or

(iii)

if such definitive Restricted Note is being transferred to persons other than U.S. Persons in offshore transactions in reliance on Regulation S, certifications from the transferor and the transferee to that effect (in substantially the form shown on Exhibit E to The First Schedule hereto).

To permit registrations of transfers and exchanges, the Issuer shall execute and the Registrar shall authenticate and make available for delivery Definitive Notes, upon written direction of the Issuer. Each new Definitive Note to be issued upon transfer of any Notes will, within five Business Days of receipt by the Issuer, or the Registrar, of the duly completed form of transfer endorsed on the relevant Note, be mailed by uninsured mail at the risk of the holder entitled to the Note to the address specified in the form of transfer.

Where some but not all of the Notes in respect of which a Definitive Note is issued are to be transferred a new Definitive Note in respect of the Definitive Notes not so transferred will, within five business days of receipt by the Issuer (or the Registrar) of the original Definitive Note, be mailed by uninsured mail at the risk of the holder of the Notes not so transferred to the address of such holder appearing on the register of Noteholders or as specified in the form of transfer. No service charge shall be made for any registration of transfer or exchange, but the Issuer may require payment of a sum sufficient to cover any transfer tax or other governmental charge payable in connection with any registration of transfer or exchange.

All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under these presents, as the Notes surrendered upon such registration of transfer or exchange.

(2)

Except as permitted by this Clause 3(C)(3), each certificate evidencing the Global Notes and each of the Definitive Notes (and all securities issued in exchange therefor or substitution thereof) shall bear a legend in substantially the following form and shall not be transferred except in compliance therewith:

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT ANY STATE SECURITIES LAWS AND ANY OTHER APPLICABLE SECURITIES LAWS. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF WILL BE DEEMED TO HAVE AGREED TO OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A, (D) TO PERSONS OTHER THAN “U.S. PERSONS” IN AN “OFFSHORE TRANSACTION” IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT IN ACCORDANCE WITH THE TRUST DEED (DEFINED HEREIN), A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.

UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS NOTE IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THIS NOTE OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

THIS NOTE WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN US$100,000 AND MULTIPLES OF US$1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS NOTE IN A BLOCK HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN US$100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE TRUST DEED TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.

THE HOLDER OF THIS NOTE AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.

In addition, each Temporary Regulation S Global Note shall bear a legend in substantially the following form:

THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF SHALL BE DEEMED TO HAVE AGREED FOR THE BENEFIT OF THE ISSUER THAT UNLESS THE REQUIRED CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE TRUST DEED, NO BENEFICIAL OWNERS OF THIS NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL AND PREMIUM, IF ANY, OF AND INTEREST ON THIS NOTE.

Upon any request for registration of transfer of a Restricted Note (including any Restricted Notes represented by a Global Note) made subsequent to the date which is two years (or such period as may be required by Rule 144(k) under the Securities Act) after the later of (i) the date of original issuance of the Notes and (ii) the last date on which the Issuer or an affiliate of the Issuer within the meaning of Rule 144 under the Securities Act was the Noteholder of such Restricted Note and with respect to which a certification substantially in the form of Exhibit E to The First Schedule hereto is furnished by the transferor, (a) in the case of any Definitive Restricted Note, the Registrar shall permit the Noteholder thereof to exchange such Restricted Note for Definitive Notes that do not bear the legend set forth above and such request shall be effective to rescind any restriction on the further transfer of such Note, and (b) any such Restricted Notes represented by a Global Note shall not be subject to any restriction on transfer set forth above; and in each such case, such Notes (whether in definitive or global form) shall no longer constitute Restricted Notes for purposes of these presents. The Registrar (at the direction of the Issuer) and the Issuer shall be entitled (but not obligated) to require such additional certificates, opinions of counsel and information as any of them may reasonably deem necessary to demonstrate that any exchange of a Restricted Note for a Definitive Note that does not bear the legend set forth above or sale or other transfer of a Restricted Note is made in compliance with the applicable restrictions set forth above and with applicable securities laws. The Issuer shall give the Registrar written direction as to the additional information which is necessary to evidence such compliance.

(3)

Notwithstanding any other provisions of these presents or the Notes, a Global Note shall not be exchanged in whole or in part for a Note registered in the name of any Person other than the Depository or a nominee thereof, provided that a Global Note may be exchanged for Definitive Notes registered in the names of any Person or Persons designated by the Depository in the event that (i) the Depository has notified the Issuer that it is unwilling or unable to continue as Depository for such Global Note and the Issuer has not appointed a successor Depository within 60 days of receiving such notice, or such Depository has ceased to be a “clearing agency” registered under the Exchange Act, (ii) an Event of Default has occurred and is continuing and the Notes have been accelerated in accordance with their terms, or (iii) the Issuer, at its sole discretion, determines that the applicable Notes shall no longer be represented by such Global Notes. Any Global Note exchanged pursuant to clause (i), (ii) or (iii) above shall be so exchanged in whole and not in part. Any Note issued in exchange for a Global Note or any portion thereof shall be a Global Note, provided that any such Note so issued that is registered in the name of a Person other than the Depository or a nominee thereof shall be a Definitive Note.

(4)

If at any time the Depository for the Notes notifies the Issuer that it is unwilling or unable to continue as Depository for the Notes, the Issuer may within 60 days of receiving such notice appoint a successor Depository with respect to the Notes.

(5)

If in accordance with Clause 3(C)(3), Notes will no longer be represented by Global Notes, the Issuer will execute, and, the Registrar, upon the receipt by the Registrar of an order from the Issuer directing the Registrar to authenticate the Notes, will authenticate and make available for delivery, Notes in definitive form in an aggregate principal amount equal to the principal amount of the Notes in global form, in exchange for such Notes in global form.

If a Definitive Note is issued in exchange for any portion of a Global Note after the close of business at the office or agency where such exchange occurs on any record date and before the opening of business at such office or agency on the next succeeding Scheduled Interest Payment Date, interest will not be payable on such Interest Payment Date in respect of such Definitive Note, but will be payable on such Interest Payment Date only to the Noteholder to whom interest in respect of such portion of such Global Note is payable in accordance with the provisions of these presents.

Definitive Notes issued in exchange for a Global Note pursuant to this Clause shall be registered in such names and in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered.

(6)

Upon the occurrence of any event specified in Clause 3(C)(3) above, any Person having a beneficial interest in Global Notes may upon request exchange its interest in the Global Notes for a Definitive Note at any time by giving at least 60 days’ prior written notice to the Trustee in accordance with the Depository’s customary procedures; provided that such notice requirement will not apply in the case of a transfer of a beneficial interest in any Global Note to a transferee required to hold its interest in definitive form, and upon receipt by the Registrar and the Trustee of (i) written or electronic instructions from the Depository or its nominee on behalf of any Person having a beneficial interest in Global Notes, identifying such Person as a beneficial holder and specifying the amount of such Person’s interest, (ii) a written order of such Person requesting issuance of a Definitive Note and containing registration instructions, and (iii) in the case of Restricted Notes only, a certification from such Person in substantially the form of Exhibit E to The First Schedule hereto, the Trustee or the Custodian, at the direction of the Trustee, will cause, in accordance with the standing instructions and procedures existing between the Depository and the Custodian, the aggregate principal amount of the Global Notes to be reduced and, following such reduction, the Issuer will execute and, upon receipt of an authentication order from the Issuer, the Registrar will authenticate and make available for delivery to such Person, as the case may be, a Definitive Note.

Subject to the prior consent of the Issuer, a Definitive Note may be exchanged by the Noteholder at any time for a beneficial interest in Global Notes or transferred by the Noteholder at any time in accordance with Rule 144A to a QIB or in accordance with Regulation S to Persons other than U.S. persons in offshore transactions or to another Person permitted and wishing to hold a beneficial interest in a Global Note upon satisfaction of the requirements set forth below. Upon receipt by the Registrar and the Trustee of a Definitive Note, duly endorsed or accompanied by appropriate instruments of exchange or transfer, as the case may be, in form satisfactory to the Registrar, together with (a) the applicable certification(s), substantially in the form of Exhibit E to The First Schedule hereto, that such Definitive Note is either being exchanged for a beneficial interest in a Global Note or being transferred to a QIB in accordance with Rule 144A or to Persons other than U.S. Persons in offshore transactions in accordance with Regulation S and (b) written instructions from the Noteholder surrendering such Definitive Note for a beneficial interest in a Global Note or so transferring Notes, directing the Trustee to make, or to direct the Custodian to make, an endorsement on the Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Global Note, the Trustee shall cancel such Definitive Note and cause, or direct the Custodian to cause, in accordance with the standing instructions and procedures existing between the Depository and the Custodian, the aggregate principal amount of the Global Note to be increased accordingly.

(7)

At such time as all interests in a Global Note have either been exchanged for Definitive Notes or cancelled, such Global Note shall be cancelled by the Trustee in accordance with the standing procedures and instructions existing between the Depository and the Custodian. At any time prior to such cancellation, if any interest in a Global Note is exchanged for Definitive Notes or cancelled, the principal amount of Notes represented by such Global Note shall, in accordance with the standing procedures and instructions existing between the Depository and the Custodian, be reduced and an endorsement shall be made on such Global Note, by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction.

(8)

Notwithstanding anything in these presents to the contrary, (i) all transfers and exchanges of the Notes may be made only in accordance with the procedures set forth in these presents (including the restrictions on transfer); (ii) all Notes, whether issued in definitive or global form, shall be registered as to principal and interest with the Registrar; (iii) the registration of transfer of a Note may be effected only by the surrender of the old Note and either the reissuance by the Issuer of the old Note to the new Noteholder or the issuance by the Issuer of a new Note to the new Noteholder; and (iv) the transfer and exchange of a beneficial interest in a Global Note may only be effected through the Depository in accordance with the procedures promulgated by the Depository.

(D)	Signature .

The Notes will be signed manually or in facsimile by a duly authorized signatory of the Issuer and will be authenticated by or on behalf of the Registrar upon the receipt by the Registrar of an order from the Issuer directing the Registrar to authenticate the Notes. The Issuer may use the facsimile signature of a person who at the date of these presents is such a duly authorized signatory even if at the time of issue of any Notes he no longer holds that office. Notes so executed and authenticated will be binding and valid obligations of the Issuer. Any new Notes being created as the result of a transfer, shall be dated the date of authentication.

(E)	Compliance by the Issuer .

The Issuer covenants with the Trustee that it shall comply with the terms and provisions of the Definitive Notes and the Global Notes and the Conditions set forth therein and the Notes shall be held subject to and with the benefit of the Conditions and the Schedules all of which shall be deemed to be incorporated in these presents and shall be binding on the Issuer and the holders of the Notes and all persons claiming through or under them respectively.

4.	SUBORDINATION

(A)

The rights and claims of the Noteholders are subordinated to the claims of all Senior Creditors and, accordingly, no amount shall be payable to the Noteholders in respect of the Notes until the claims of all Senior Creditors have been satisfied in full or full provision thereof has been made and any amounts in respect of the Notes paid to the Trustee pari passu with the amount payable to other creditors in the winding-up of the Issuer shall be held by the Trustee upon trust:

(i)

first in payment or satisfaction of all amounts then due and unpaid under clause 13 to the Trustee and/or any Appointee;

(ii)

secondly in payment of the claims of Senior Creditors in the winding-up to the extent that such claims are admitted to proof in the winding-up (not having been satisfied out of the other resources of the Issuer); and

(iii)

thirdly as to the balance (if any) in payment pari passu and rateably of the amounts owing on or in respect of the Notes.

(B)	Without limiting the generality of Clause 4(A) above, the Trustee may pay any amounts in respect of the Notes which it holds upon trust under paragraph (ii) of Clause 4(A) to the liquidator of the Issuer.

5.	FEES, DUTIES AND TAXES

(A)	Stamp Duties .

The Issuer will pay, or reimburse the person making payment of, any capital stamp, issue, registration, documentary and other fees, duties and taxes, including interest and penalties, payable in any jurisdiction on or in connection with (i) the execution and delivery of these presents, (ii) the constitution and original issue of the Notes and (iii) any action taken by or on behalf of the Trustee or (where permitted under these presents so to do) any Noteholder to enforce, or to resolve any doubt concerning, or for any other purpose in relation to, these presents.

(B)	Change of taxing jurisdiction .

If the Issuer becomes subject generally to the taxing jurisdiction of any territory or any political sub-division or authority of or in that territory having power to tax other than or in addition to the United Kingdom or any political sub-division or authority of or in such territory, then the Issuer will (unless the Trustee otherwise agrees in writing) give the Trustee an undertaking satisfactory to the Trustee in terms corresponding to the terms of Condition 8 with the substitution for, or (as the case may require) the addition to, the references in that Condition to the United Kingdom of references to that other or additional territory or political sub-division or authority to whose taxing jurisdiction the Issuer has become so subject. In such event these presents and the Notes will be read accordingly.

6.	AUDITORS’ CERTIFICATES AND REPORTS

The Trustee may call for and may rely on certificates or reports from the Auditors or any other expert in accordance with the provisions of these presents whether or not addressed to the Trustee and whether or not any such certificate or report or engagement letter or other document entered into by the Issuer and/or the Auditors and/or such other expert in connection therewith contains any limit (whether monetary or otherwise) on the liability of the Auditors or such other expert in respect thereof.

7.	ENFORCEMENT

(A)

If the Notes become due and repayable pursuant to the terms of the Notes and are not paid when so due and repayable, the Trustee at its discretion may institute proceedings for the winding-up of the Issuer and/or prove for any amounts due and repayable pursuant to the terms of the Notes and claim in the liquidation of the Issuer but may take no further action to enforce the obligations of the Issuer for payment of any principal or interest in respect of the Notes. No payment in respect of the Notes may be made by the Issuer pursuant to Condition 10.1, nor will any Noteholder and/or the Trustee accept the same, otherwise than during or after a winding-up of the Issuer, save with the prior consent of the FSA.

(B)

Without prejudice to clause 7(A) above, the Trustee at its discretion may without notice institute proceedings to enforce any obligation, condition or provision binding on the Issuer under the Notes (other than any obligation for the payment of any amount due under the Notes), save that such proceedings are limited to the winding-up of the Issuer; provided that the Issuer shall not by virtue of the institution of any such proceedings be obliged to pay any sum or sums sooner than the same would otherwise have been payable by it.

(C)

Proof that as regards any specified Note that the Issuer has made default in paying any amount due in respect of such Note shall (unless the contrary be proved) be sufficient evidence that the same default has been made as regards all other Notes in respect of which the relevant amount is due and payable.

8.	PROCEEDINGS, ACTION AND INDEMNIFICATION

The Trustee is hereby authorised and it is declared that the Trustee shall be entitled to assume without enquiry (in the absence of express written notice to the Trustee from the Issuer to the contrary) that the Issuer is duly performing and observing all covenants and provisions contained in these presents which are expressed on its part to be performed and observed. Notwithstanding knowledge by or notice to the Trustee of any breach of any such covenant or provision it shall be in the discretion of the Trustee whether or not to take any action or proceedings to enforce the performance thereof and the Trustee shall not be bound to enforce the same or any of the covenants or provisions of these presents unless and until in any of such cases the Trustee is required to do so by an Extraordinary Resolution or in writing by the holders of not less than one-fifth part in principal amount of the Notes for the time being outstanding, and then only if the Trustee shall be indemnified to its satisfaction against all actions, proceedings, costs, claims and demands to which it may render itself liable and all costs, charges, damages and expenses which it may incur by so doing. Only the Trustee may enforce the provisions of these presents. No Noteholder shall be entitled to proceed directly against the Issuer to enforce the performance of any of the provisions of these presents unless the Trustee having become bound as aforesaid to take proceedings fails so to do within a reasonable period and such failure shall be continuing.

9.	APPLICATION OF MONEYS

All moneys received by the Trustee in respect of the Notes or amounts payable under these presents will, despite any appropriation of all or part of them by the Issuer, be held by the Trustee on trust to apply them (subject to Clause 4) (Subordination):

(i)

first, in payment or satisfaction of all costs, charges, expenses and liabilities incurred in or about the exercise of powers conferred on the Trustee by these presents or otherwise in relation to these presents and payments made by the Trustee under any of the provisions contained in these presents and of all remuneration payable to the Trustee under these presents with interest thereon (as provided in Clause 10) and in payment or satisfaction of all amounts payable pursuant to these presents to any Appointee;

(ii)

secondly, in payment of any principal and interest and all other sums owing in respect of the Notes pari passu and rateably; and

(iii)

thirdly, in payment of the balance (if any) to the Issuer for itself.

Without prejudice to this Clause, if the Trustee holds any moneys in respect of Notes which have become void or in respect of Notes in respect of which claims have become prescribed, the Trustee will hold such monies on these trusts.

10.

TRUSTEE ACCOUNT

(A)	To the extent the Trustee is from time to time in possession of moneys to be paid to Noteholders it shall hold such moneys under the trusts of these presents in a segregated non-interest bearing account.

(B)	Any moneys which under the trusts of these presents ought to or may be placed on deposit by the Trustee may be deposited in the name or under the control of the Trustee.

11.

COVENANTS BY THE ISSUER

(A)	The Issuer hereby covenants with the Trustee that it will comply with and perform and observe all the provisions of these presents which are expressed to be binding on it. The Trustee shall be entitled to enforce the obligations of the Issuer under these presents.

(B)	The Issuer further covenants with the Trustee that so long as any of the Notes remain outstanding the Issuer shall:

(1)

do or cause to be done all things necessary to preserve and keep in full force and effect its existence;

(2)

pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Issuer or any Subsidiary or upon the income, profits or property of the Issuer or any Subsidiary, and (b) all lawful claims for labour, materials and supplies which, if unpaid, might by law become a lien upon the property of the Issuer or any Subsidiary; provided, however, that the Issuer shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings;

(3)

notify the Trustee in writing immediately upon becoming aware of the occurrence of any Event of Default, Potential Event of Default, Noteholder Redemption Event or Potential Noteholder Redemption Event;

(4)

so far as permitted by applicable law, give (or procure the giving of) to the Trustee such information, opinions, certificate, evidence and assistance as it may reasonably require to carry out the trusts of these presents or by operation of law;


(5)		(a)		for so long as any of the Notes remains outstanding, within 75 days of the end of each of the first three calendar year quarters and within 100 days of the end of each calendar year during which the Notes are issued and outstanding, furnish to each holder of the Notes, a completed quarterly report in the form of the Fourth Schedule to the Trust Deed; notwithstanding the foregoing, (i) so long as “Cede & Co.” is the registered holder of any of the Notes, the information required to be provided to such holder hereunder shall be furnished to Keefe, Bruyette & Woods, Inc; and

(b)

upon the request of any holder of the Notes or, in connection with any proposed transfer of such Notes, any prospective purchaser (as designated by such holder of the Notes), furnish such holder or such prospective purchaser with a copy of (i) its latest audited consolidated financial statements, (ii) its interim financial statements for the first half-year of each of its financial years, (iii) any information required to be provided by Rule 144A(d)(4) under the Securities Act, if applicable, and (iv) any other periodic reports that the Issuer may furnish generally to holders of its debt securities;

(6)

deliver to the Trustee on or before 120 days after the end of each fiscal year, so long as Notes are outstanding hereunder, a certificate signed by any two Directors of the Issuer stating (i) that in the course of the performance by the signers of their duties as officers of the Issuer they would normally have knowledge of any Event of Default or Noteholder Redemption Event during such fiscal year, and (ii) whether or not they have knowledge of any such Event of Default or Noteholder Redemption Event and, if so, specifying each such Event of Default, Potential Event of Default, Noteholder Redemption Event or Potential Noteholder Redemption Event of which the signers have knowledge and the nature and status thereof;

(7)

not, while any of the Notes remain outstanding, consolidate with, or merge into, or merge into itself, or sell or convey all or substantially all of its property to any other person unless the provisions of Clause 12 hereof are complied with;

(8)

treat the Notes as indebtedness of the Issuer that is in registered form within the meaning of U.S. Treasury Regulations Section 1.871-14(c)(1)(i);

(9)

give or procure to be given to the Trustee such opinions, certificates, reports, information and evidence as it shall require and in such form as it shall require (including without limitation the procurement by the Issuer of all such certificates called for by the Trustee pursuant to Clause 14(C) and (U)) for the purpose of the discharge or exercise of the duties, trusts, powers, authorities and discretions vested in it under these presents or by operation of law;

(10)

cause to be prepared and audited by the Auditors in respect of each financial accounting period accounts in such form as will comply with all applicable legal and accounting requirements;

(11)

notify the Trustee in writing upon the Notes being listed on a stock exchange or other securities market;

(12)

at all times execute and do all such further documents, acts and things as may be necessary at any time or times in the reasonable opinion of the Trustee to give effect to these presents;

(13)

in order to enable the Trustee to ascertain the principal amount of Notes for the time being outstanding deliver to the Trustee forthwith upon being so requested in writing by the Trustee a certificate of the Issuer signed by two Directors of the Issuer (without incurring any personal liability except in the case of fraud or deceit) setting out the aggregate principal amount of Notes which:

(a)

up to and including the date of such certificate has been purchased by the Issuer or any Subsidiary and cancelled; and

(b)

is at the date of such certificate held by, for the benefit of, or on behalf of, the Issuer or any Subsidiary; and

(14)

furnish or cause to be furnished to the Trustee:

(a)

on each regular record date for the Notes, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Noteholders of the Notes as of such record date; and

(b)

at such other date as the Trustee may request in writing, within 30 days after the receipt by the Issuer of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; except that no such lists need be furnished under this Clause 11(B)(15) so long as the Trustee is in possession thereof by reason of its acting as Registrar.

12.

SUBSTITUTION OF ISSUER

(A)	Issuer May Sell, Transfer, etc. on Certain Terms .

Nothing contained in these presents or in the Notes shall prevent any sale, conveyance, transfer or other disposition of the property, assets or capital stock of the Issuer or its successor or successors as an entirety, or substantially as an entirety, to any other person (whether or not affiliated with the Issuer, or its successor or successors) authorized to acquire and operate the same; provided , however , that the Issuer hereby covenants and agrees that, upon any such sale, conveyance, transfer or other disposition, the entity which shall have acquired such property, assets or capital stock shall become a Substituted Obligor and that the other provisions of Clause 12(B) shall have been complied with.

(B)	Substitution .

(1)

The Trustee may, without the consent of the Noteholders, but so as to bind the Noteholders, agree with the Issuer (or any previous substitute under this Condition) to a substitution of the Issuer (or such previous substitute) as the principal debtor under this these presents subject to the satisfaction of the following conditions:

(a)

a trust deed (in form and manner satisfactory to the Trustee) which ensures to the satisfaction of the Trustee that the Noteholders have the same rights and obligations as are available to, or held by, such holders and parties (or, as the case may be, their predecessors) immediately prior to such event are executed by the person to be substituted as the principal debtor under these presents (the “ Substituted Obligor ”) and by the other parties to these presents or some other form of undertaking is given by the Substituted Obligor and the Issuer to the Trustee, in form and manner satisfactory to the Trustee, agreeing to be bound by the provisions of these presents and all other relevant documents with any consequential amendments which the Trustee may deem appropriate as fully as if the Substituted Obligor had been named in these presents and all other relevant documents as the principal debtor in place of the Issuer;

(b)

if the Substituted Obligor is subject generally to the taxing jurisdiction of a territory or any authority of or in that territory having power to tax (the “ Substituted Territory ”) other than or in addition to the territory of the taxing jurisdiction to which (or to any such political sub-division or authority of or in which) the Issuer (or any previous substitute) is subject generally (the “ Existing Territory ”), the Substituted Obligor will (unless the Trustee otherwise agrees in writing) give to the Trustee an undertaking satisfactory to the Trustee in terms corresponding to Condition 8 (Taxation) with the substitution for or, where applicable, the addition to, the references in that Condition to the Existing Territory of references to the Substituted Territory whereupon these presents and the Notes will be read accordingly;

(c)

without prejudice to the rights of reliance of the Trustee under the immediately following paragraph (d), the Trustee is satisfied that the relevant transaction is not materially prejudicial to the interests of the Noteholders;

(d)

if any two Directors of the Substituted Obligor certify that the Substituted Obligor will be solvent immediately after such substitution, the Trustee may rely absolutely on such certificate and need not have regard to the Substituted Obligor’s financial condition, profits or prospects or compare them with those of the Issuer (or any previous substitute), as the case may be;

(e)

the Trustee shall be entitled to receive an opinion of the Issuer’s counsel to the effect that the trust deed pursuant to which the Substituted Obligor has assumed the obligations of the Issuer in respect of these presents is valid, binding and enforceable against the Substituted Obligor and that all other provisions of this Clause 12 have been complied with; and

(f)

the Issuer and the Substituted Obligor and any previous substitute of any of them shall comply with such other requirements (including, if appropriate, the giving of a guarantee in form and substance satisfactory to the Trustee by the Issuer and any previous substitute of the performance by the Substituted Obligor of its obligations under these presents and the making of appropriate arrangements to safeguard any rights of the Noteholders) as the Trustee may reasonably direct in the interests of the Noteholders.

(2)

An agreement by the Trustee pursuant to this Clause 12(B) will, if so expressed, release the Issuer (or any such previous substitute) from any or all of its obligations under these presents. Notice of the substitution will be given to the Noteholders by the Trustee within 14 days of the execution of such documents and compliance with such requirements.

(3)

On completion of the formalities set out in this Clause 12(B), the Substituted Obligor will be deemed to be named in these presents and the Notes as the principal debtor in place of the Issuer (or any previous substitute) and these presents and the Notes will be deemed to be amended as necessary to give effect to the substitution.

13.

REMUNERATION AND INDEMNIFICATION OF TRUSTEE

(A)

The Issuer shall pay to the Trustee remuneration for its services as trustee of these presents as from the date of these presents, such remuneration to be at such rate as may from time to time be agreed between the Issuer and the Trustee without prejudice to Clause 14(R). Such remuneration shall be payable annually in advance on 21 September in each year.

(B)

In the event of the occurrence of an Event of Default, Potential Event of Default, Noteholder Redemption Event or Potential Noteholder Redemption Event or the Trustee considering it expedient or necessary or being requested by the Issuer to undertake duties which the Trustee and the Issuer agree to be of an exceptional nature or otherwise outside the scope of the normal duties of the Trustee under these presents the Issuer shall pay to the Trustee such additional remuneration as shall be agreed between them.

(C)	The Issuer shall in addition pay to the Trustee an amount equal to the amount of any value added tax or similar tax chargeable in respect of its remuneration under these presents.

(D)	In the event of the Trustee and the Issuer failing to agree:

(1)

(in a case to which sub-clause (A) above applies) upon the amount of the remuneration; or

(2)

(in a case to which sub-clause (B) above applies) upon whether such duties shall be of an exceptional nature or otherwise outside the scope of the normal duties of the Trustee under these presents, or upon such additional remuneration,

such matters shall be determined by an independent person (acting as an expert and not as an arbitrator) selected by the Trustee and approved by the Issuer or, failing such approval, nominated (on the application of the Trustee) by the President for the time being of The Law Society of England and Wales (the expenses involved in such nomination and the fees of such independent person being payable by the Issuer) and the determination of any such independent person shall be final and binding upon the Trustee and the Issuer.

(E)

The Issuer shall also pay or discharge all Liabilities incurred by the Trustee in relation to the preparation and execution of, the exercise of its powers and the performance of its duties under, and in any other manner in relation to, these presents, including but not limited to travelling expenses, the fees of any agent employed by the Trustee pursuant to Clause 14(T), and any stamp, issue, registration, documentary and other taxes or duties paid or payable by the Trustee in connection with any action taken or contemplated by or on behalf of the Trustee for enforcing, or resolving any doubt concerning, or for any other purpose in relation to, these presents.

(F)

All amounts payable pursuant to sub-clause (E) above and/or Clause 14(K) shall be payable by the Issuer on the date specified in a demand by the Trustee and, if not paid by the Issuer within 14 days of such date, shall carry interest at the rate of two per cent. per annum above the prime rate as published by The Wall Street Journal, or a recognized successor benchmark of similar repute, (on the date that such amount is payable) from such date.

(G)	Unless otherwise specifically stated in any discharge of these presents the provisions of this Clause and Clause 14(K) shall continue in full force and effect notwithstanding such discharge.

14.

SUPPLEMENT TO TRUSTEE ACT 1925

The Trustee shall have all the powers conferred upon trustees by the Trustee Act 1925 of England and Wales and by way of supplement thereto it is expressly declared as follows:

(A)

The Trustee may in relation to these presents act on the advice or opinion of or any information obtained from any lawyer, valuer, accountant, surveyor, banker, broker, auctioneer or other expert whether obtained by the Issuer, the Trustee or otherwise and shall not be responsible for any Liability occasioned by so acting.

(B)

Any such advice, opinion or information may be sent or obtained by letter, electronic mail, telex or facsimile transmission and the Trustee shall not be liable for acting on any advice, opinion or information purporting to be conveyed by any such letter, electronic mail, telex or facsimile transmission although the same shall contain some error or shall not be authentic.

(C)

The Trustee may call for and shall be at liberty to accept as sufficient evidence of any fact or matter or the expediency of any transaction or thing a certificate signed by two Directors of the Issuer and the Trustee shall not be bound in any such case to call for further evidence or be responsible for any Liability that may be occasioned by it or any other person acting on such certificate.

(D)

The Trustee shall be at liberty to hold or to place these presents and any other documents relating thereto in any part of the world with any banker or banking company or company whose business includes undertaking the safe custody of documents or lawyer or firm of lawyers considered by the Trustee to be of good repute and the Trustee shall not be responsible for or required to insure against any Liability incurred in connection with any such deposit and may pay all sums required to be paid on account of or in respect of any such deposit.

(E)

The Trustee shall not be responsible for the receipt or application of the proceeds of the issue of any of the Notes by the Issuer.

(F)

The Trustee shall not be bound to give notice to any person of the execution of any documents comprised or referred to in these presents or to take any steps to ascertain whether any Event of Default, Potential Event of Default, Noteholder Redemption Event or Potential Noteholder Redemption Event has occurred and, until it shall have actual knowledge or express notice to the contrary, the Trustee shall be entitled to assume without enquiry, and it is hereby declared to be the intention of the Trustee that it shall assume without enquiry, that no Event of Default, Potential Event of Default, Noteholder Redemption Event or Potential Noteholder Redemption Event has occurred and that the Issuer is observing and performing all its obligations under these presents.

(G)

The Trustee shall, no later than 60 days of having actual knowledge that an Event of Default, Potential Event of Default, Noteholder Redemption Event or Potential Noteholder Redemption Event has occurred and is continuing, give notice of such fact to the Noteholders.

(H)

Save as expressly otherwise provided in these presents, the Trustee shall have absolute and uncontrolled discretion as to the exercise of its trusts, powers, authorities and discretions under these presents (the exercise of which as between the Trustee and the Noteholders shall be conclusive and binding on the Noteholders) and shall not be responsible for any Liability which may result from their exercise or non-exercise.

(I)

The Trustee shall not be liable to any person by reason of having acted upon any resolution purporting to have been passed at any meeting of the Noteholders in respect whereof minutes have been made and signed or any direction or request of the Noteholders even though subsequent to its acting it may be found that there was some defect in the constitution of the meeting or the passing of the resolution or (in the case of a direction or request) it was not signed by the requisite number of Noteholders or that for any reason the resolution, direction or request, as the case may be, was not valid or binding upon such Noteholders.

(J)

The Trustee shall not be liable to any person by reason of having accepted as valid or not having rejected any certificate representing the Notes purporting to be such and subsequently found to be forged or not authentic.

(K)

Without prejudice to the right of indemnity by law given to trustees, the Issuer shall indemnify the Trustee and every Appointee and keep it or him indemnified against all Liabilities to which it or he may be or become subject or which may be incurred by it or him in the execution or purported execution of any of its trusts, powers, authorities and discretions under these presents or its or his functions under any such appointment or in respect of any other matter or thing done or omitted in any way relating to these presents or any such appointment.

(L)

Any consent or approval given by the Trustee for the purposes of these presents may be given on such terms and subject to such conditions (if any) as the Trustee thinks fit and notwithstanding anything to the contrary in these presents may be given retrospectively.

(M)

Except as expressly provided in these presents, the Trustee shall not (unless and to the extent ordered so to do by a court of competent jurisdiction) be required to disclose to any Noteholder or any other person any information (including, without limitation, information of a confidential, financial or price sensitive nature) made available to the Trustee by the Issuer or any other person in connection with these presents and no Noteholder or any other person shall be entitled to take any action to obtain from the Trustee any such information.

(N)

Where it is necessary or desirable for any purpose in connection with these presents to convert any sum from one currency to another it shall (unless otherwise provided by these presents or required by law) be converted at such rate or rates, in accordance with such method and as at such date for the determination of such rate of exchange, as may be agreed by the Trustee in consultation with the Issuer and any rate, method and date so agreed shall be binding on the Issuer and the Noteholders.

(O)

The Trustee may certify whether or not any of the conditions, events and acts set out in Conditions 7.7(iii) to (viii) (both inclusive) (each of which conditions, events and acts shall, unless in any case the Trustee in its absolute discretion shall otherwise determine, for all the purposes of these presents be deemed to include the circumstances resulting therein and the consequences resulting therefrom) is in its opinion materially prejudicial to the interests of the Noteholders and any such certificate shall be conclusive and binding upon the Issuer and the Noteholders.

(P)

The Trustee as between itself and the Noteholders may determine all questions and doubts arising in relation to any of the provisions of these presents. Every such determination, whether or not relating in whole or in part to the acts or proceedings of the Trustee, shall be conclusive and shall bind the Trustee and the Noteholders.

(Q)

In connection with the exercise by it of any of its trusts, powers, authorities and discretions under these presents (including, without limitation, any modification, waiver, authorisation or determination), the Trustee shall have regard to the general interests of the Noteholders as a class but shall not have regard to any interests arising from circumstances particular to individual Noteholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of such exercise for individual Noteholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof and the Trustee shall not be entitled to require, nor shall any Noteholder be entitled to claim, from the Issuer, the Trustee or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders.

(R)

Any trustee of these presents being a lawyer, accountant, broker or other person engaged in any profession or business shall be entitled to charge and be paid all usual professional and other charges for business transacted and acts done by him or his firm in connection with these presents and also his reasonable charges in addition to disbursements for all other work and business done and all time spent by him or his firm in connection with matters arising in connection with these presents.

(S)

The Trustee may whenever it thinks fit delegate by power of attorney or otherwise to any person or persons or fluctuating body of persons (whether being a joint trustee of these presents or not) all or any of its trusts, powers, authorities and discretions under these presents. Such delegation may be made upon such terms (including power to sub-delegate) and subject to such conditions and regulations as the Trustee may in the interests of the Noteholders think fit. If the Trustee exercises reasonable care in selecting any such delegate or sub-delegate, the Trustee shall not be under any obligation to supervise the proceedings or acts of any such delegate or sub-delegate or be in any way responsible for any Liability incurred by reason of any misconduct or default on the part of any such delegate or sub-delegate. The Trustee shall within a reasonable time after any such delegation or any renewal, extension or termination thereof give notice thereof to the Issuer.

(T)

The Trustee may in the conduct of the trusts of these presents instead of acting personally employ and pay an agent (whether being a lawyer or other professional person) to transact or conduct, or concur in transacting or conducting, any business and to do, or concur in doing, all acts required to be done in connection with these presents (including the receipt and payment of money). If the Trustee exercises reasonable care in selecting any such agent, the Trustee shall not be in any way responsible for any Liability incurred by reason of any misconduct or default on the part of any such agent or be bound to supervise the proceedings or acts of any such agent.

(U)

The Trustee shall not be responsible for the execution, delivery, legality, effectiveness, adequacy, genuineness, validity, enforceability or admissibility in evidence of these presents or any other document relating thereto and shall not be liable for any failure to obtain any licence, consent or other authority for the execution, delivery, legality, effectiveness, adequacy, genuineness, validity, performance, enforceability or admissibility in evidence of these presents or any other document relating thereto.

(V)

The Trustee shall be entitled to provide and disclose, and shall be fully protected in providing and disclosing, to its affiliates, including, without limitation, its parent company, Wilmington Trust Company and any of its successors, and its and their respective regulatory authorities, as may be required from time to time by such regulatory authorities, information regarding these presents, including without limitation, the Trustee’s files and records pertaining to these presents and the actions taken hereunder.

15.

TRUSTEE’S LIABILITY

The duty of care contained in Section 1 of the Trustee Act 2000 shall not apply to these presents. However, nothing in these presents shall in any case in which the Trustee has failed to show the degree of care and diligence required of it as trustee having regard to the provisions of these presents conferring on it any trusts, powers, authorities or discretions exempt the Trustee from or indemnify it against any liability for breach of trust, breach of duty, gross negligence or wilful default of which it may be guilty.

16.

TRUSTEE CONTRACTING WITH ISSUER

Neither the Trustee nor any director or officer of a corporation acting as a trustee under these presents shall by reason of its or his fiduciary position be in any way precluded from:

(A)

entering into or being interested in any contract or financial or other transaction or arrangement with the Issuer or any Subsidiary or any person or body corporate associated with the Issuer or any Subsidiary (including, without limitation, any contract, transaction or arrangement of a banking or insurance nature or any contract, transaction or arrangement in relation to the making of loans or the provision of financial facilities to, or the purchase, placing or underwriting of or the subscribing or procuring subscriptions for or otherwise acquiring, holding or dealing with the Notes or any other unsecured loan notes, notes, shares, debenture notes, debentures, bonds or other securities of, the Issuer or any Subsidiary or any person or body corporate associated as aforesaid); or

(B)

accepting or holding the trusteeship of any other trust deed constituting or securing any other securities issued by or relating to the Issuer or any Subsidiary or any such person or body corporate so associated or any other office of profit under the Issuer or any Subsidiary or any such person or body corporate so associated and shall be entitled to retain and shall not be in any way liable to account for any profit made or share of brokerage or commission or remuneration or other benefit received thereby or in connection therewith.

17.

WAIVER, AUTHORISATION, DETERMINATION AND MODIFICATION

(A)

The Trustee may, without prejudice to its rights in respect of any subsequent breach, Event of Default, Potential Event of Default, Noteholder Redemption Event or Potential Noteholder Redemption Event from time to time and at any time, but only if and in so far as, in its opinion, the interests of the Noteholders shall not be materially prejudiced thereby, waive or authorise any breach or proposed breach by the Issuer of any of the covenants or provisions contained in these presents or determine that any Event of Default, Potential Event of Default, Noteholder Redemption Event or Potential Noteholder Redemption Event shall not be treated as such for the purposes of these presents; provided, that the Trustee shall not exercise any powers conferred on it by this Clause in contravention of any express direction given by Extraordinary Resolution or by a request under Clause 8 but so that no such direction or request shall affect any waiver, authorisation or determination previously given or made. Any such waiver, authorisation or determination may be given or made on such terms and subject to such conditions (if any) as the Trustee may determine, shall be binding on the Noteholders and, if, but only if, the Trustee, shall so require, shall be notified by the Issuer to the Noteholders as soon as practicable thereafter.

(B)

The Trustee may, without the consent of the Noteholders, at any time and from time to time concur with the Issuer in making any modification (i) to these presents which in the opinion of the Trustee it may be proper to make; provided, that, the Trustee is of the opinion that such modification will not be materially prejudicial to the interests of the Noteholders or (ii) to these presents if, in the opinion of the Trustee, such modification is of a formal, minor or technical nature or to correct a manifest or proven error. Any such modification may be made on such terms and subject to such conditions (if any) as the Trustee may determine, shall be binding upon the Noteholders and, unless the Trustee agrees otherwise, shall be notified by the Issuer to the Noteholders as soon as practicable thereafter.

(C)

Where under these presents provision is made for the giving of any consent or approval or the exercise of any discretion by the Trustee, any such consent or approval may be given and any such discretion may be exercised on such terms and conditions (if any) as the Trustee may think fit and may be given or exercised with retrospective effect. The Issuer shall observe and perform any such terms and conditions and the Trustee may at any time waive or agree a variation of such terms and conditions.

(D)

The Trustee may at any time apply to a court for an order that its rights, trusts, powers, authorities and discretions or any of them and the carrying out of the trusts of these presents be exercised or carried into execution under the direction of the court and for any other order in relation to the execution and administration of its rights, trusts, powers, authorities and discretions or any of them and the carrying out of the trusts of these presents as the Trustee shall deem expedient and it may assent to or approve any application to such court made at the instance of any of the Noteholders and shall be indemnified by the Issuer against all the costs, charges and expenses properly incurred by the Trustee in relation to any such application or proceedings together with interest as provided in Clause 13(F).

18.

NOTES REGISTER

The Issuer shall at all times keep at its registered office or at such other place as the Trustee may agree the Notes Register showing the principal amount of the Notes and the date of issue and all subsequent transfers and changes of ownership thereof and the names and addresses of the Noteholders and the persons deriving title under them; provided, that, if a Registrar shall have been appointed under these presents, the Registrar shall maintain such register on behalf of the Issuer. The Trustee and the Noteholders or any of them and any person authorised by any such person shall be at liberty at all reasonable times during office hours to inspect the register and to take (free of charge) copies of or extracts from the same or any part thereof. In the event of the Trustee requiring to convene a meeting of or to give any notice to the Noteholders the Issuer (or the Registrar on its behalf) shall furnish the Trustee (free of charge) with such copies of or extracts from the register as it shall require.

19.

NEW TRUSTEES AND CO-TRUSTEES

(A)

The power to appoint a new trustee of these presents shall be vested in the Issuer but no person shall be appointed who shall not previously have been approved by an Extraordinary Resolution. One or more persons may hold office as trustee or trustees of these presents but such trustee or trustees shall be or include a Trust Corporation. Whenever there shall be more than two trustees of these presents the majority of such trustees shall be competent to execute and exercise all the duties, powers, trusts, authorities and discretions vested in the Trustee by these presents provided that a Trust Corporation shall be included in such majority. Any appointment of a new trustee of these presents shall be notified by the Issuer to the Noteholders and the Registrar as soon as practicable thereafter.

(B)

Notwithstanding the provisions of sub-clause (A) of this Clause, the Trustee may, upon giving prior notice to the Issuer (but without the consent of the Issuer or the Noteholders), appoint any person established or resident in any jurisdiction (whether a Trust Corporation or not) to act either as a separate trustee or as a co-trustee jointly with the Trustee:

(i)

if the Trustee considers such appointment to be in the interests of the Noteholders;

(ii)

for the purposes of conforming to any legal requirements, restrictions or conditions in any jurisdiction in which any particular act or acts is or are to be performed; or

(iii)

for the purposes of obtaining a judgment in any jurisdiction or the enforcement in any jurisdiction of either a judgment already obtained or any of the provisions of these presents against the Issuer.

The Issuer irrevocably appoints the Trustee to be its attorney in its name and on its behalf to execute any such instrument of appointment. Such a person shall (subject always to the provisions of these presents) have such trusts, powers, authorities and discretions (not exceeding those conferred on the Trustee by these presents) and such duties and obligations as shall be conferred or imposed by the instrument of appointment. The Trustee shall have power in like manner to remove any such person. Such reasonable remuneration as the Trustee may pay to any such person, together with any attributable Liabilities incurred by it in performing its function as such separate trustee or co-trustee, shall for the purposes of these presents be treated as Liabilities incurred by the Trustee.

20.

TRUSTEE’S RETIREMENT AND REMOVAL

A trustee of these presents may retire at any time on giving not less than 30 days’ prior written notice to the Issuer without giving any reason and without being responsible for any Liabilities incurred by reason of such retirement. The Noteholders may by Extraordinary Resolution remove any trustee or trustees for the time being of these presents. The Issuer undertakes that in the event of the only trustee of these presents which is a Trust Corporation giving notice under this Clause or being removed by Extraordinary Resolution it will use all reasonable endeavours to procure that a new trustee of these presents (being a Trust Corporation) is appointed as soon as reasonably practicable thereafter. The retirement or removal of any such trustee shall not become effective until a successor trustee (being a Trust Corporation) is appointed. If, in such circumstances, no appointment of such a new trustee has become effective within 30 days of the date of such notice or Extraordinary Resolution, the Trustee shall be entitled to appoint a Trust Corporation as trustee of these presents, but no such appointment shall take effect unless previously approved by Extraordinary Resolution as aforesaid.

21.

TRUSTEE’S POWERS TO BE ADDITIONAL

The powers conferred upon the Trustee by these presents shall be in addition to any powers which may from time to time be vested in the Trustee by the general law or as a holder of any of the Notes.

22.

APPOINTMENT OF AGENTS

(A)

The Issuer appoints the Trustee as calculation agent (in such capacity, the “ Calculation Agent ”) in respect of the Notes at its specified office and the Calculation Agent hereby accepts such appointment and agrees to comply with the provisions of these presents, provided, however, that the Calculation Agent may sub-delegate its calculation agent function at any time and at its reasonable discretion.

(B)

The Issuer appoints the Trustee as paying agent (in such capacity, the “ Paying Agent ”) in respect of the Notes at its specified office and the Paying Agent hereby accepts such appointment and agrees to comply with the provisions of these presents, provided, however, that the Paying Agent may sub-delegate its paying agent function at any time and at its reasonable discretion.

(C)

The Trustee in its capacities as Registrar, Calculation Agent, and Paying Agent and any successor registrar, calculation agent, and paying agent shall have no responsibility under these presents other than to render the services called for in good faith and without gross negligence or wilful default and:

(1)

does not assume any fiduciary duty or responsibility with regard to the Issuer;

(2)

shall not have any obligation towards, or relationship of agency or trust with, any Noteholder;

(3)

does not guarantee or otherwise assume any responsibility for the performance of the Notes;

(4)

shall not be responsible for any action it takes on behalf of the Issuer in compliance with these presents;

and each of clauses 13 and 16 shall, subject to this clause, apply in respect of any Registrar, Calculation Agent or Paying Agent provided that references therein to “Trustee” are deemed to be references to such Registrar, Calculation Agent or Paying Agent as applicable.

23.

CURRENCY INDEMNITY

(A)	U.S. Dollars (the “ Contractual Currency ”) is the sole currency of account and payment for all sums payable by the Issuer under or in connection with these presents and the Notes, including damages.

(B)

An amount received or recovered in a currency other than the Contractual Currency (whether as a result of, or on the enforcement of, a judgment or order of a court of any jurisdiction, in the winding-up or dissolution of the Issuer or otherwise) by the Trustee or any Noteholder in respect of any sum expressed to be due to it from the Issuer will only discharge the Issuer to the extent of the Contractual Currency amount which the recipient is able to purchase with the amount so received or recovered in that other currency on the date of that receipt or recovery (or, if it is not practicable to make that purchase on that date, on the first date on which it is practicable to do so).

24.

NOTICES

Any notice or demand to the Issuer or the Trustee to be given, made or served for any purposes under these presents shall be given, made or served by sending the same by pre-paid post (first class if inland, first class airmail if overseas), telex or facsimile transmission or by delivering it by hand as follows:

to the Issuer:

Chaucer Holdings PLC

9 Devonshire Square

Cutlers Gardens

London

EC2M 4WL

Facsimile: +44 207 397 9710

Telephone: +44 207 397 9700

Attention: Company Secretary

to the Trustee:

Wilmington Trust (Channel Islands), Ltd

Seaton House

17 Seaton Place St Helier

Jersey, Channel Islands, JE2 3QL

Facsimile: + 44 1534 495 601

With a copy to:

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware 19890-1600

United States of America

Attention: Corporate Trust Administration

Facsimile: +1 302-636-4140

or to such other address, telex or facsimile number as shall have been notified (in accordance with this Clause) to the other party hereto and any notice or demand sent by post as aforesaid shall be deemed to have been given, made or served three days in the case of inland post or seven days in the case of overseas post after despatch and any notice or demand sent by telex or facsimile transmission as aforesaid shall be deemed to have been given, made or served 24 hours after the time of despatch; provided, that, in the case of a notice or demand given by telex or facsimile transmission such notice or demand shall forthwith be confirmed by post. The failure of the addressee to receive such confirmation shall not invalidate the relevant notice or demand given by telex or facsimile transmission.

25.

GOVERNING LAW

These presents are governed by, and shall be construed in accordance with, English law.

26.

JURISDICTION OF ENGLISH COURTS

The Issuer irrevocably agrees for the benefit of the Noteholders and the Trustee that the courts of England are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with these presents and accordingly submits to the exclusive jurisdiction of the English courts. The Issuer waives any objection to the courts of England on the grounds that they are an inconvenient or inappropriate forum.

Subject to the provisions of these presents, the Trustee and the Noteholders may take any suit, action or proceeding arising out of or in connection with these presents (together referred to as “ proceedings ”) against the Issuer in any other court of competent jurisdiction and concurrent proceedings in any number of jurisdictions.

27.

COUNTERPARTS

These presents and any trust deed supplemental hereto may be executed and delivered in any number of counterparts, all of which, taken together, shall constitute one and the same deed and any party to these presents or any trust deed supplemental hereto may enter into the same by executing and delivering a counterpart.

28.

CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

A person who is not a party to these presents has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of these presents, but this does not affect any right or remedy of a third party which exists or is available apart from that Act.

THE FIRST SCHEDULE

EXHIBIT A – FORM OF DEFINITIVE NOTE

(Face of Note)

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT ANY STATE SECURITIES LAWS AND ANY OTHER APPLICABLE SECURITIES LAWS. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF WILL BE DEEMED TO HAVE AGREED TO OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE ONLY (A) TO CHAUCER HOLDINGS PLC (THE “ISSUER”), (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A, (D) TO PERSONS OTHER THAN “U.S. PERSONS” IN AN “OFFSHORE TRANSACTION” IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT IN ACCORDANCE WITH THE TRUST DEED (DEFINED HEREIN), A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.

THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THIS NOTE OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS NOTE IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF

THIS NOTE OR ANY INTEREST HEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

THE HOLDER OF THIS NOTE AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.

No.

CHAUCER HOLDINGS PLC

(a public limited company incorporated under the

laws of England and Wales)

US$50, 000, 000 Floating Rate Subordinated Notes due 2036

This Certificate is issued in respect of the notes which are in fully registered form and form part of a duly authorised issue of notes of Chaucer Holdings PLC (the “ Issuer ”), designated as specified in the title hereof (the “ Notes ”), constituted by a Trust Deed dated September 21, 2006 (the “ Trust Deed ”) between the Issuer and Wilmington Trust (Channel Islands), Ltd, as trustee (the “ Trustee ”, which expression, where the context so admits, includes all persons for the time being trustee or trustees under the Trust Deed). References herein to the Conditions (or to any particular numbered Condition) shall be to the Conditions (or that particular one of them) set out on the reverse hereof.

This is to certify that [ — ] or registered assigns, is the person registered in the register maintained by the Registrar in relation to the Notes (the “ Register ”) as the duly registered holder of the Notes represented by this Certificate or, if more than one person is so registered, the first-named of such persons (the “ Noteholder ”). The Issuer promises to pay to the Noteholder, and the Noteholder is entitled to receive, the principal sum of US$50,000,000 (fifty million U.S. Dollars) on the Maturity Date or on such earlier date or dates as the same may become repayable in accordance with the Conditions, together with interest on such principal sum at the times and the rates determined in accordance with the Conditions and to pay interest from the issue date of the Notes in arrear at the rates, in the amounts and on the dates for payment provided for in the Conditions together with any additional amounts payable in accordance with the Conditions, all subject to and in accordance with the Conditions.

This Certificate is evidence of entitlement only. Title to the Notes passes only on due registration in the Register of Noteholders and only the registered holders are entitled to payment in respect of the Notes in respect of which this Certificate is issued.

This Certificate shall not be valid or become obligatory for any purpose until signed on behalf of the Issuer and authenticated by or on behalf of the Registrar.

Capitalized terms not otherwise defined in this Certificate shall have the meanings ascribed to them in the Trust Deed.

This Certificate is governed by, and construed in accordance with, English law.

In witness whereof the Issuer has caused this Certificate to be signed AS A DEED on its behalf.

Original Issue Date:


EXECUTED as a DEED by		)
CHAUCER HOLDINGS PLC		)
acting by		)
And		)
		)

Certificate of authentication

Certified that the above named holder(s) is/are, at the date hereof, entered in the Register of Noteholders as the holder(s) of Notes in the above mentioned principal amount. This Certificate is authenticated by or on behalf of the Registrar.

Wilmington Trust (Channel Islands), Ltd,

as Registrar


By:
		Name:
		Title:

Dated:

(Reverse of Note)

THE CONDITIONS OF THE NOTES

The US$50,000,000 Floating Rate Subordinated Notes due 2036 (the “ Notes” ) are issued by Chaucer Holdings PLC (the “ Issuer” ) are constituted by a Trust Deed dated 21 September 2006 (the “ Trust Deed ”) between the Issuer and Wilmington Trust (Channel Islands), Ltd (the “ Trustee ”, which expression shall include its successors) as trustee for the holders of the Notes (the “ Noteholders ”).

The statements in these Conditions include summaries of, and are subject to, the detailed provisions of and definitions in the Trust Deed. Copies of the Trust Deed are available for inspection during normal business hours by the Noteholders at the principal office for the time being of the Trustee, being at the Issue Date (as defined below), at Seaton House, 17 Seaton Place, St. Helier, Jersey, Channel Islands JE2 3QL. The Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed.

1.	FORM, DENOMINATION AND TITLE

1.1

Form and Denomination

The Notes are issued in registered form in amounts of US$100,000 and in integral multiples of US$1,000 in excess thereof (referred to as the “ principal amount ” of a Note). A note certificate (each a “ Certificate” ) will be issued to each Noteholder in respect of its registered holding of Notes. Each Certificate will be numbered serially with an identifying number which will be recorded on the relevant Certificate and in the register of Noteholders which the Issuer (or the Registrar on behalf of the Issuer) will maintain at its specified office. All Notes shall be dated the date of their authentication by the Registrar.

1.2

Title

Title to the Notes passes only by registration in the register of Noteholders. The holder of any Note will (except as otherwise required by law) be treated as its absolute owner for all purposes in accordance with these presents. In these Conditions “ Noteholder” and (in relation to a Note) “ holder” means the person in whose name a Note is registered in the register of Noteholders.

2.	TRANSFERS OF NOTES

2.1

Transfers

Any transfers of the Notes shall be in accordance with the terms of the Trust Deed.

2.2

Closed Periods

No Noteholder may require the transfer of a Note to be registered during the period of 15 days ending on the due date for any payment of principal, premium or interest on that Note.

3.	STATUS

3.1

Status

The Notes are direct, unsecured and subordinated obligations of the Issuer, conditional as described below, and rank pari passu without any preference among themselves, with all other obligations of the Issuer which constitute, or would but for any applicable limitation on the amount of such capital, constitute Lower Tier 2 Capital (as defined below) and rank in priority to those whose claims constitute, or would but for any applicable limitation on the amount of such capital constitute, Upper Tier 2 Capital (as defined below) or Tier 1 Capital (as defined below) and to the claims of holders of all classes of share capital of the Issuer.

3.2

Subordination

The obligations of the Issuer in respect of the Notes are, in the event of a winding up of the Issuer, subordinated in right of payment to the claims of all Senior Creditors and accordingly payments of principal and interest by the Issuer in respect of such Notes are conditional in such winding up upon the Issuer being considered solvent at the time of such payment and no principal or interest shall be payable by the Issuer in respect of such Notes in such winding up except to the extent that the Issuer could make such payment and still be considered solvent immediately thereafter. For this purpose, the Issuer shall be considered solvent if both (i) it is able to pay its debts as they fall due and (ii) its Assets exceed its Liabilities (other than its Liabilities to persons who are not Senior Creditors). A report as to the solvency of the Issuer by the Directors of the Issuer or the Auditors or its liquidator shall, in the absence of proven error, be treated and accepted by the Issuer and the Noteholders as correct and sufficient evidence thereof.

For the purposes of this Condition 3:

“ Assets ” means the non-consolidated gross assets of the Issuer as shown by the then latest published balance sheet of the Issuer but adjusted for contingencies and for subsequent events and to such extent as the Directors of the Issuer, the Auditors or the liquidator of the Issuer (as the case may be) may determine to be appropriate;

“ Auditors ” means the auditors for the time being of the Issuer or, in the event of their being unable or unwilling promptly to carry out any action requested of them pursuant to this Condition 3, such other firm of accountants as may be nominated or approved by the Noteholders after consultation with the Issuer;

“ FSA ” means the Financial Services Authority or any successor regulatory body or other governmental authority in the U.K. exercising prudential supervision of insurance companies;

“ Liabilities ” means the non-consolidated gross liabilities of the Issuer as shown and adjusted in like manner as for Assets;

“ Lower Tier 2 Capital ” has the meaning given to it from time to time by the FSA;

“ Tier 1 Capital ” has the meaning given to it from time to time by the FSA;

“ Senior Creditor ” means any creditor of the Issuer whose claims have been accepted by the liquidator in the winding-up of the Issuer, not being a creditor:

(i)

whose right to repayment ranks or is expressed to rank postponed to or subordinate to that of unsubordinated creditors of the Issuer; or

(ii)

(iii)

The obligations of the Issuer in respect of the Notes in the event of a winding up of the Issuer are conditional on the Issuer being solvent, within the meaning described in Condition 3, at the time of, and immediately after, payment by the Issuer. If the Issuer would not be so solvent, any amounts which might otherwise have been allocated in or towards payment of principal and interest in respect of the Notes in such winding up may be used to absorb losses.

“ Upper Tier 2 Capital ” has the meaning given to it from time to time by the FSA.

3.3

No Set-off

Subject to applicable law, no Noteholder may exercise, claim or plead any right of set-off, counter-claim or retention in respect of any amount owed to it by the Issuer arising under or in connection with the Notes and each Noteholder shall, by virtue of being the holder of any Notes, be deemed to have waived all such rights of such set-off, counter-claim or retention.

3.4

Turnover

If any amounts are received by a Noteholder under or in respect of the Notes which were not payable to such Noteholder as a result of Conditions 3.2 or 3.3 above, such amounts shall be returned to the Issuer, liquidator or other person making the payment for application in accordance with the respective amounts due to all the Senior Creditors until all have been repaid in full and until such time such payment shall be held by that Noteholder in trust for the Senior Creditors. Any amount so returned shall then be treated for the purposes of the Issuer’s obligations under the Notes as if it had not been paid by the Issuer and the original payment shall not be deemed to have discharged any of the obligations of the Issuer under the Notes.

4.	NEGATIVE PLEDGE

4.1

Negative Pledge

So long as any of the Notes remains outstanding, the Issuer will not, and it shall not cause or permit any Subsidiary of the Issuer to, incur, issue or be obligated on any Additional Subordinated Indebtedness, either directly or indirectly, by way of guarantee, suretyship or otherwise, other than Additional Subordinated Indebtedness that, by its terms, is expressly stated to be either junior and subordinate or pari passu in all respects to the Notes.

4.2

Interpretation

For the purposes of this Condition 4:

“ Additional Subordinated Indebtedness ” means any present or future indebtedness (whether being principal, premium, interest or other amounts) which is, by its terms, in the event of a winding up of the Issuer, subordinated in right of payment to the claims of creditors in respect of the unsecured or secured obligations of the Issuer.

5.	INTEREST

5.1

Interest Rate and Interest Payment Dates

5.2

Interest at the Interest Rate (as defined below) and any Additional Interest (as defined below) on any Note that is payable, and is punctually paid or duly provided for in accordance with the remainder of this Condition 5 on any Interest Payment Date (as defined below) for Notes shall be paid to the person or entity that is the registered Noteholder at the close of business on the regular record date for such interest instalment except that interest and any Additional Interest payable on the Maturity Date shall be paid to the person to whom principal is paid.

5.3

(the “Interest Rate” ), applied to the principal amount thereof, until the principal thereof becomes due and payable, and on any overdue principal and to the extent that payment of such interest is enforceable under applicable law (without duplication) on any overdue instalment of interest (including Additional Interest) at the Interest Rate in effect for each applicable period compounded quarterly. Interest shall be payable quarterly in arrears on each Interest Payment Date with the first instalment of interest to be paid on the Interest Payment Date in December 2006.

5.4

Any interest on any Note, including Additional Interest, that is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called “ Defaulted Interest ”) shall forthwith cease to be payable to the registered holder on the relevant regular record date by virtue of having been such holder; and such Defaulted Interest shall be paid by the Issuer to the registered Noteholder at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner: the Issuer shall notify the Trustee in writing at least 25 days prior to the date of the proposed payment of the amount of Defaulted Interest proposed to be paid on each such Note and the date of the proposed payment, and at the same time the Issuer shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall not be more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Issuer of such special record date and, in the name and at the expense of the Issuer, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first class postage prepaid, to each Noteholder at its address as it appears in the register of the notes, not less than 10 days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the registered Noteholder on such special record date and shall be no longer payable.

5.5

The Issuer may make payment of any Defaulted Interest on any Notes in any other lawful manner after notice given by the Issuer to the Trustee of the proposed payment method; provided, however, the Trustee in its sole discretion deems such payment method to be practical.

5.6

The term “ regular record date ” as used in this Condition shall mean the close of business on the 15 ^th calendar day next preceding the applicable Interest Payment Date.

5.7

Subject to the foregoing provisions of this Condition, each Note delivered under the Trust Deed upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, that were carried by such other Note.

(a)

In these Conditions (except where otherwise defined), the expression:

(i)

“ Additional Interest ” means interest, if any, that shall accrue on any interest on the Notes the payment of which has not been made on the applicable Interest Payment Date and which shall accrue at the Interest Rate, compounded quarterly (to the extent permitted by law);

(ii)

(iii)

“ Interest Rate ” has the meaning set forth in Condition 5.3;

(iv)

“ Interest Payment Date ” means each March 15, June 15, September 15 and December 15 of each year during the term of the Trust Deed, or if any such day is not a Business Day, then the next succeeding Business Day, commencing in December 2006;

(v)

“ Interest Period ” means the period beginning on (and including) the Closing Date and ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date; and

(vi)

“ Margin ” means three decimal one per cent (3.1%) per annum.

5.8

Computation of Interest

The agent or successor duly appointed by the Issuer under the Trust Deed and reasonably acceptable to the Noteholders (the “ Calculation Agent ”) shall calculate the amount of interest payable in any Interest Period. The amount of interest payable for the Interest Period commencing on the Interest Payment Date in December 2006 and each succeeding Interest Period will be calculated by applying the Interest Rate to the principal amount outstanding at the commencement of the Interest Period and multiplying each such amount by the actual number of days in the Interest Period concerned divided by 360 (it being understood that interest will continue to accrue on non-Business Days during each such Interest Period). All percentages resulting from any calculations on the Notes will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all U.S. dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward)).

(a)

“ 3 Month LIBOR ” means the London interbank offered interest rate for three- month, U.S. dollar deposits determined by the Trustee in the following order of priority:

(1) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date (as defined below). “Telerate Page 3750” means the display designated as “Page 3750” on the Moneyline Telerate Service or such other page as may replace Page 3750 on that service or such other service or services as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits;

(2) if such rate cannot be identified on the related Determination Date, the Trustee will request the principal London offices of four leading banks in the London interbank market to provide such banks’ offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date. If at least two quotations are provided, 3 Month LIBOR will be the arithmetic mean of such quotations;

(3) if fewer than two such quotations are provided as requested in clause (2) above, the Trustee will request four major New York City banks to provide such banks’ offered quotations (expressed as percentages per annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date. If at least two such quotations are provided, 3 Month LIBOR will be the arithmetic mean of such quotations; and

(4) if fewer than two such quotations are provided as requested in clause (3) above, 3 Month LIBOR will be a 3 Month LIBOR determined with respect to the Interest Period immediately preceding such current Interest Period.

If the rate for U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected rate as so substituted on the applicable page will be the applicable 3 Month LIBOR for such Determination Date.

(b)

“ Determination Date ” means the date that is two London banking days (i.e., a Business Day in which dealings in deposits in U.S. dollars are transacted in the London interbank market) preceding the particular Interest Period for which a Floating Rate is being determined.

(c)

The Calculation Agent shall notify the Issuer of the Interest Rate and the Determination Date for each Interest Period, in each case as soon as practicable after the determination thereof but in no event later than the thirtieth (30th) day of the relevant Interest Period. Failure to notify the Issuer or any defect in said notice, shall not affect the obligation of the Issuer to make payment on the Notes at the applicable Interest Rate. Any error in the calculation of the Interest Rate by the Calculation Agent may be corrected at any time by notice delivered as above provided. Upon the request of a Noteholder, the Calculation Agent shall provide the Floating Rate then in effect and, if determined, the Interest Rate for the next Interest Period.

(d)

Subject to the corrective rights set forth above, all certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions relating to the payment and calculation of interest on the Notes by the Trustee will (in the absence of willful default, bad faith and manifest error) be final, conclusive and binding on the Issuer and all of the holders of the Notes, and no liability shall (in the absence of wilful default, bad faith or manifest error) attach to the Trustee in connection with the exercise or non exercise of its powers, duties and discretion.

6.	PAYMENTS

6.1

Payments in respect of Notes

The Issuer covenants with the Trustee that it will, in accordance with these presents, on the due date for the final maturity of the Notes provided for in these presents, or on such earlier date as the same or any part thereof is due to be repaid or shall become immediately due and repayable under these presents, pay or procure to be paid unconditionally to or to the order of the Trustee in U.S. Dollars for immediate value the principal amount of the Notes repayable on that date together with any applicable interest and premium (if any) and shall in the meantime and until the whole of the Notes shall have been repaid or purchased and in either case cancelled pursuant to these presents (both before and after any judgment or other order of a court of competent jurisdiction) pay or procure to be paid unconditionally to or to the order of the Trustee as aforesaid interest (which shall accrue from day to day) on the principal amount of the Notes outstanding from time to time (as set forth in these presents).

All moneys received by the Trustee in respect of the Notes or amounts payable under these presents will be held by the Trustee on trust and will be applied in accordance with these presents. Each instalment of interest on the Notes may be paid to the Noteholders (i) by mailing cheques for such interest payable to the order of the Noteholders if a request for a wire transfer has not been received by the Trustee or the Issuer or (ii) by wire transfer to any account with a banking institution located in the United Kingdom or the United States designated in writing by such person to the Issuer no later than the related record date.

6.2

Agreed Treatment of the Notes

The Issuer will treat the Notes as indebtedness of the Issuer that is in registered form within the meaning of U.S. Treasury Regulations Section 1.871-14(c)(1)(i).

6.3

Payments subject to Applicable Laws

Payments in respect of principal and interest on Notes are subject in all cases to any fiscal or other laws and regulations applicable in the place of payment, but without prejudice to the provisions of Condition 8.

6.4

No commissions

No commissions or expenses shall be charged to the Noteholders in respect of any payments made in accordance with this Condition.

6.5

Payment on Payment Days

Where payment to the Noteholders is to be made by wire transfer to a registered account, payment instructions (for value the due date or, if that is not a Business Day (as defined below), for value the first following day which is a Business Day) will be initiated and, where payment is to be made by cheque, the cheque will be mailed, on the Business Day of the payment or, in the case of a payment of principal, premium (if any) or interest due otherwise than on an Interest Payment Date, if later, on the Business Day on which the relevant Certificate is surrendered at the specified office of the Registrar.

Noteholders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due if the due date is not a Business Day, if the Noteholder is late in surrendering its Certificate (if required to do so) or if a cheque mailed in accordance with this Condition arrives after the due date for payment.

In this Condition, “ Business Day ” means a day other than a Saturday, Sunday or any other day on which banking institutions in London or New York City are permitted or required by any applicable law to close.

6.6

Partial Payments

If the amount of principal, premium (if any) or interest which is due on the Notes is not paid in full, the Registrar will annotate the register of Noteholders with a record of the amount of principal, premium (if any) or interest in fact paid.

6.7

Registrar and Paying Agent

Wilmington Trust (Channel Islands), Ltd shall act as registrar and paying agent for the Notes (Wilmington Trust (Channel Islands), Ltd, in its capacity as registrar, the “ Registrar ” and in its capacity as paying agent, the “ Paying Agent ”). The Issuer may appoint a successor Registrar or Paying Agent as it sees fit from time to time.

The initial specified offices of the Paying Agent and the Registrar are set out at the end of these Conditions.

7.	REDEMPTION AND PURCHASE

7.1

Redemption at Maturity

Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Notes at their principal amount on the Maturity Date .

7.2

Tax Event Redemption

If a Tax Event shall occur and be continuing, the Issuer shall have the right to redeem the Notes in whole, but not in part, at any Interest Payment Date, within 120 days following the occurrence of such Tax Event (the “ Special Redemption Date ”) at the Special Redemption Price; provided that, prior to the provision of notice to the holders of the Notes of a Tax Event Redemption pursuant to Condition 7.4, the Issuer shall have delivered the Tax Event Documents to the Trustee.

For the purposes of these Conditions:

(a)

“ Special Redemption Price ” means (a) if the Special Redemption Date occurs before the Interest Payment Date in December 2011, 107.5% of the principal amount of the Notes, plus accrued and unpaid interest on the Notes to the occurrence of the Special Redemption Date, or (b) if the Special Redemption Date occurs on or after the Interest Payment Date in December 2011, 100% of the principal amount of the Notes being redeemed, plus accrued and unpaid interest on such Notes to the Special Redemption Date;

(b)

“ Tax Event ” means that (i) on the next Interest Payment Date the Issuer would be required to pay Additional Sums as provided or referred to in Condition 8; and (ii) the requirement cannot be avoided by the Issuer taking reasonable measures available to it; and

(c)

“ Tax Event Documents ” means (i) a certificate of the Issuer which states that the requirement referred to in clause (i) of the definition of Tax Event will apply on the next Interest Payment Date and cannot be avoided by the Issuer taking reasonable measures available to it and (ii) an opinion of independent legal counsel of recognized standing to the effect that the Issuer has or will become obliged to pay Additional Sums as provided in Condition 8.

7.3

Optional Redemption by the Issuer

The Issuer shall have the right to redeem the Notes, in whole or in part, but in all cases in a principal amount with integral multiples of US$1,000.00, on any Interest Payment Date on or after the Interest Payment Date falling in December 2011 (the “ Optional Redemption Date ”), at the Optional Redemption Price.

For the purposes of these Conditions, “ Optional Redemption Price ” means 100% of the principal amount of the Notes being redeemed, plus accrued and unpaid interest on such Notes to the Optional Redemption Date.

7.4

Notice of Redemption; Selection of Notes

In case the Issuer shall desire to exercise the right to redeem all, or, as the case may be, any part of the Notes, it shall cause to be mailed a notice of such redemption at least 30 and not more than 60 days prior to the Optional Redemption Date or the Special Redemption Date to the Noteholders so to be redeemed as a whole or in part at their last addresses as the same appear on the Register of Noteholders. Such mailing shall be by first class mail. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Note designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Note.

Each such notice of redemption shall specify the Optional Redemption Date or the Special Redemption Date, as applicable, the Optional Redemption Price or the Special Redemption Price, as applicable, at which Notes are to be redeemed, the place or places of payment, that payment will be made upon presentation and surrender of such Notes, that interest accrued to the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon or on the portions thereof to be redeemed will cease to accrue. If less than all the Notes are to be redeemed the notice of redemption shall specify the numbers of the Notes to be redeemed. In case the Notes are to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof will be issued.

Prior to 10:00 a.m. (New York City time) on the Optional Redemption Date or the Special Redemption Date, as applicable, the Issuer will deposit with the Paying Agent an amount of money sufficient to redeem on the Optional Redemption Date, or the Special Redemption Date, as applicable, all the Notes so called for redemption at the appropriate Optional Redemption Price or Special Redemption Price.

If all, or less than all, the Notes are to be redeemed, the Issuer will give the Trustee notice not less than 45 nor more than 60 days, respectively, prior to the Optional Redemption Date, or the Special Redemption Price, as applicable, as to the aggregate principal amount of Notes to be redeemed and the Trustee shall select, in such manner as in its sole discretion it shall deem appropriate and fair, the Notes or portions thereof (in integral multiples of US$1,000.00) to be redeemed.

7.5

Payment of Notes Called for Redemption

If notice of redemption has been given as provided in Condition 7.4, the Notes or portions of Notes with respect to which such notice has been given shall become due and payable on the Optional Redemption Date, or Special Redemption Price and at the place or places stated in such notice at the applicable Optional Redemption Price or Special Redemption Price, and on and after said date (unless the Issuer shall default in the payment of such Notes at the Optional Redemption Price or Special Redemption Price, as

applicable, interest on the Notes or portions of Notes so called for redemption shall cease to accrue. On presentation and surrender of such Notes at a place of payment specified in said notice, such Notes or the specified portions thereof shall be paid and redeemed by the Issuer at the applicable Optional Redemption Price, or Special Redemption Price as applicable.

Upon presentation of any Note redeemed in part only, the Issuer shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of the Issuer, a new Note or Notes of authorized denominations, in principal amount equal to the unredeemed portion of the Note so presented.

7.6

Purchases

The Issuer may at any time after the Interest Payment Date in December 2011 purchase Notes in any manner and at any price. If purchases are made by tender, tenders must be available to all Noteholders alike.

7.7

Noteholder Redemption

The Trustee at its absolute discretion may, and the holder of any Note may on the occurrence of any of the events set out in paragraphs (i) to (viii) of this Condition 7.7 (each a “Noteholder Redemption Event”) give written notice to the Issuer (the “ Noteholder Notice ”) that, upon the expiry of the period of 5 years after the date on which the Issuer received the Noteholder Notice (the date of such expiry being the “ Noteholder Redemption Date ”), the Notes shall be due and repayable at their principal amount, together with any interest accrued to the Noteholder Redemption Date as provided in these Conditions. A Noteholder Redemption Event will arise if any of the following events shall have occurred and be continuing:

(i)

if default is made in the payment of any principal due in respect of the Notes or any of them;

(ii)

if default is made in the payment of any interest due in respect of the Notes or any of them and the default continues for a period of seven days; or

(iii)

if the Issuer fails to perform or observe any of its other obligations under the Trust Deed or if any event occurs or any action is taken or fails to be taken which is (or, but for the provisions of any applicable law, would be) a breach by the Issuer of any of the covenants contained in the Trust Deed and (except in any case where the failure is incapable of remedy, when no continuation or notice as is hereinafter mentioned will be required) the failure continues or the period of 30 days following the service by the Trustee or any Noteholder on the Issuer of notice requiring the same to be remedied; or

(iv)

if (i) any Indebtedness for Borrowed Money of the Issuer or any of its Principal Subsidiaries becomes due and repayable prematurely by reason of an event of default (however described) and such event of default is not being contested in good faith (in the Trustee’s opinion) by the Issuer or the relevant Principal

Subsidiary; (ii) the Issuer or any of its Principal Subsidiaries fails to make any payment in respect of any Indebtedness for Borrowed Money on the due date for payment as extended by any applicable grace period; (iii) any security given by the Issuer or any of its Principal Subsidiaries for any Indebtedness for Borrowed Money becomes enforceable except where the event giving rise to enforcement is being contested in good faith (in the Trustee’s opinion) by the Issuer or the relevant Principal Subsidiary; or (iv) default is made by the Issuer or any of its Principal Subsidiaries in making any payment due under any guarantee and/or indemnity given by it in relation to any Indebtedness for Borrowed Money of any other and such default is not being contested in good faith (in the Trustee’s opinion) by the Issuer; or

(v)

if any order is made by any competent court or resolution passed for the winding up or dissolution of any Principal Subsidiary save for the purpose of reorganisation on terms approved in writing by Trustee or by an Extraordinary Resolution (as defined in the Trust Deed); or

(vi)

if (a) the Issuer or any of its Principal Subsidiaries ceases or threatens to cease to carry on the whole or a substantial part of its business, save for the purposes of (i) a reorganisation on terms approved by the Noteholders or (ii) a reorganisation whereby all or substantially all of the undertaking and assets of a Subsidiary are transferred to or otherwise vested in the Issuer or one or more Principal Subsidiaries of the Issuer or one or more subsidiary(ies) of the Issuer which is designated as Principal Subsidiary(ies) for the purpose of these Conditions, or (b) the Issuer or any of its Principal Subsidiaries stops or threatens to stop payment of, or is unable to or admits inability to pay, its debts (or any class of its debts) as they fall due or is deemed unable to pay its debts pursuant to or for the purposes of any applicable law or is adjudicated or found bankrupt or insolvent; or

(vii)

if (i) proceedings are initiated against the Issuer or any of its Principal Subsidiaries under any applicable liquidation, insolvency, composition, reorganisation or other similar laws or an application is made (or documents filed with a court) for the appointment of an administrative or other receiver, manager, administrator or other similar official, or an administrative or other receiver, manager, administrator or other similar official is appointed, in relation to the Issuer or any of its Principal Subsidiaries or, as the case may be, or in relation to the whole or any part of the undertaking or assets of any of them or an encumbrancer takes possession of the whole or any part of the undertaking or assets of any of them, or a distress, execution, attachment, sequestration or other process is levied, enforced upon, sued out or put in force against the whole or any part of the undertaking or assets of any of them, or an application is made for the property of the Issuer and (ii) in any such case (other than the appointment of an administrator) unless initiated by the relevant company, is not discharged within 14 days; or

(viii)

if the Issuer or any Principal Subsidiary initiates or consents to judicial proceedings relating to itself under any applicable liquidation, insolvency, composition, reorganisation or other similar laws or makes a conveyance or assignment for the benefit of, or enters into any composition or other arrangement with, its creditors generally (or any class of its creditors) or any meeting is convened to consider a proposal for an arrangement or composition with its creditors generally (or any class of its creditors); save for the purposes of proceedings relating to the Issuer or any Principal Subsidiary where the Issuer and each Principal Subsidiary is solvent and able to pay its debts as they fall due both immediately prior to and immediately after such judicial proceedings and the Trustee is satisfied that such judicial proceedings are not prejudicial to the interests of the Noteholders; provided; further that, if any two Directors of the Issuer certify that the Issuer and each Principal Subsidiary will be solvent immediately after such judicial proceedings, the Trustee may rely absolutely on such certificate and need not have regard to the financial condition, profits or prospects of the Issuer or any Principal Subsidiary after such judicial proceedings.

7.8

Interpretation

In these Conditions (except where otherwise defined), the expression:

(a)

“ Indebtedness for Borrowed Money ” means any Indebtedness exceeding a value of US$5,000,000, either alone or when aggregated; and

(b)

“ Principal Subsidiaries ” means ALIT (No. 1) Limited, Chaucer Corporate Capital Limited, Chaucer Corporate Capital (No. 2) Limited, Chaucer Dedicated Limited and Chaucer Syndicates Limited.

7.9

Cancellation

All Notes which are redeemed or purchased by the Issuer will forthwith be cancelled.

7.10

Consent of the Financial Services Authority

The terms of Conditions 7.2 to 7.6 shall, if required by law or the FSA, be subject to: (a) the prior written consent of the FSA; and (b) the Issuer giving the FSA at least 6 months’ (or such shorter period as may be required) notice of its intention to redeem or purchase the Notes in accordance with Conditions 7.2 to 7.6.

7.11

Interpretation

In these Conditions, “ FSA ” means the Financial Services Authority or any successor regulatory body or other governmental authority in the U.K. exercising prudential supervision of insurance companies.

8.	TAXATION

8.1

Payment without Withholding

(a)

All payments in respect of the Notes by or on behalf of the Issuer shall be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature (“ Withholding Taxes ”) imposed or levied by or on behalf of any Relevant Jurisdiction, unless the withholding or deduction of the Withholding Taxes is required by law. If the Issuer believes that withholding or deduction for, or on account of any Withholding Taxes is, or may be, required by law, it may list the Notes on a recognised stock exchange (as such term is defined in section 841 of the Income and Corporation Taxes Act 1988 of the United Kingdom) in order to qualify for an exemption from withholding or deduction of such Withholding Taxes provided however that the Issuer’s right to list is not conditional on such withholding or deduction. In addition, the Issuer acknowledges that listing shall be the sole responsibility of the Issuer and agrees that any listing document will not include references to the holders of Notes, unless the reference is required by any applicable law or regulation or the rules of the relevant recognised stock exchange. In the event that such withholding or deduction is required by law, the Issuer will pay such additional amounts (“ Additional Sums ”) as may be necessary in order that the net amounts received by the holders of the Notes after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Notes in the absence of the withholding or deduction; except that no additional amounts shall be payable in relation to any payment in respect of any Note:

(i)

to, or to a third party on behalf of, a holder who would reasonably be able to avoid such withholding or deduction by satisfying any statutory requirements or by making a declaration of non-residence or by claiming relief under any relevant double taxation treaty or similar claim for exemption but fails or has failed to do so;

(ii)

where a Noteholder is liable to the Withholding Taxes in respect of the Note by reason of his having some connection with any Relevant Jurisdiction other than the mere holding of the Note;

(iii)

where a claim for payment is made more than 30 days after Relevant Date; and except to the extent that a Noteholder would have been entitled to additional amounts on claiming for payment on the last day of the period of 30 days assuming that day to have been a Business Day;

(iv)

where a payment on a Note is reduced as a result of any Withholding Taxes that are required to be paid pursuant to the European Union Council Directive 2003/48/EC on the taxation of savings income or any law implementing or complying with, or introduced to conform to, such Directive.

8.2

Interpretation

In these Conditions:

(a)

“ Relevant Date ” means the date on which the payment first becomes due; and

(b)

“ Relevant Jurisdiction ” means the United Kingdom or any political subdivision or any authority thereof or therein having power to tax.

8.3

Tax Credit

(a)

If the Issuer makes a payment in respect of Withholding Taxes and the relevant Noteholder or the Trustee determines that:

(i)

a credit against any Withholding Taxes or any relief or remission for Withholding Taxes (a “ Tax Credit ”) is attributable to an increased payment made in accordance with Condition 8.1; and

(ii)

that Noteholder has obtained, utilised and retained that Tax Credit,

(b)

the Noteholder shall pay to the Issuer an amount which that Noteholder reasonably determines will leave it (after that payment) in the same after-tax position as it would have been in had the increased payment not been required to be made by the Issuer.

8.4

Additional Amounts

Any reference in these Conditions to any amounts in respect of the Notes shall be deemed also to refer to any additional amounts which may be payable under this Condition.

9.	PRESCRIPTION

Claims in respect of principal and interest will become prescribed unless made within 10 years (in the case of principal) and five years (in the case of interest) from the Relevant Date, as defined in Condition 8.

10.

EVENTS OF DEFAULT AND ENFORCEMENT

10.1

Events of Default

The Trustee at its discretion may, and the holder of any Note may give notice to the Issuer that the Note is, and shall accordingly forthwith become, immediately due and repayable at its principal amount, together with interest accrued to the date of repayment as provided for in the Trust Deed, if any of the following events (each, an “ Event of Default ”) shall have occurred and be continuing:

(i)

if default is made in the payment of any principal due under the terms of the Notes or any of them; or

(ii)

if default is made in the payment of any interest due under the terms of the Notes or any of them and such default continues for a period of seven days; or

(iii)

if default is made in the payment of any other amount falling due under the terms of the Notes or any of them and such default continues for a period of thirty days; or

(iv)

if any order is made by any competent court or resolution passed for the winding up or dissolution of the Issuer.

10.2

Proceedings for Winding Up

If the Notes become due and repayable pursuant to the Conditions of the Notes and are not paid when so due and repayable, the Trustee at its discretion may institute proceedings for the winding-up of the Issuer and/or prove for any amounts due and repayable pursuant to the terms of the Notes and claim in the liquidation of the Issuer but may take no further action to enforce the obligations of the Issuer for payment of any principal or interest in respect of the Notes. No payment in respect of the Notes may be made by the Issuer pursuant to Condition 10.1, nor will any Noteholder and/or the Trustee accept the same otherwise than during or after a winding-up of the Issuer, save with the prior consent of the FSA. The Issuer undertakes to use best efforts to obtain such consent as soon as possible upon receipt of the notice from the Trustee and or the holder of any Note as referred to in Condition 10.1.

10.3

Enforcement

Without prejudice to Conditions 10.1 and 10.2, the Trustee at its discretion may without notice institute proceedings to enforce any obligation, condition or provision binding on the Issuer under the Notes (other than any obligation for the payment of any amount due under the Notes), save that such proceedings are limited to the winding-up of the Issuer; provided that the Issuer shall not by virtue of the institution of any such proceedings be obliged to pay any sum or sums sooner than the same would otherwise have been payable by it.

10.4

Extent of Noteholders’ remedy

No remedy against the Issuer, other than as referred to in Condition 7.7 and this Condition 10, shall be available to the Noteholders or the Trustee whether for the recovery of amounts owing in respect of the Notes or under the Trust Deed or in respect of any breach by the Issuer of any of its other obligations under or in respect of the Notes or under the Trust Deed.

11.

REPLACEMENT OF CERTIFICATES

If any Certificate is lost, stolen, mutilated, defaced or destroyed it may be replaced at the specified office of the Registrar upon payment by the claimant of the expenses incurred in connection with the replacement and on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced Certificates must be surrendered before replacements will be issued.

12.

NOTICES

12.1

Notices to the Noteholders

All notices to the Noteholders will be valid if mailed to them at their respective addresses in the register of Noteholders maintained by the Registrar. The Issuer shall also ensure that notices are duly given or published in a manner which complies with the rules and regulations of any stock exchange or other relevant authority on which the Notes are for the time being listed. Any notice shall be deemed to have been given on the second day after being so mailed or on the date of publication or, if so published more than once or on different dates, on the date of the first publication.

13.

GOVERNING LAW

The Notes are governed by, and will be construed in accordance with, English law.

13.1

Jurisdiction of English courts

The Issuer has irrevocably agreed for the benefit of the Noteholders that the courts of England are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with the Notes and accordingly submits to the exclusive jurisdiction of the English courts. The Issuer has waived any objection to the courts of England on the grounds that they are an inconvenient or inappropriate forum.

Subject to the provisions of the Trust Deed, the Trustee and the Noteholders may take any suit, action or proceeding arising out of or in connection with the Notes (together referred to as “ Proceedings ”) against the Issuer in any other court of competent jurisdiction and concurrent Proceedings in any number of jurisdictions.

14.

ISSUER, REGISTRAR AND PAYING AGENT ADDRESSES

The addresses of the Issuer and the Registrar are set forth below:

Issuer:

Chaucer Holdings PLC

9 Devonshire Square

Cutlers Gardens

London

EC2M 4WL

Facsimile: +44 207 397 9710

Attention: Company Secretary

Registrar:

Wilmington Trust (Channel Islands), Ltd

Seaton House

17 Seaton Place St Helier

Jersey, Channel Islands, JE2 3QL

Facsimile: + 44 1534 495 601

Paying Agent:

Wilmington Trust (Channel Islands), Ltd

Seaton House

17 Seaton Place St Helier

Jersey, Channel Islands, JE2 3QL

Facsimile: + 44 1534 495 601

With a copy to:

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware 19890-1600

United States of America

Attention: Corporate Trust Administration

Facsimile: +1 302-636-4140

15.

RIGHTS OF THIRD PARTIES

No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Note, but this does not affect any right or remedy of any person which exists or is available apart from that Act.

FORM OF TRANSFER

FOR VALUE RECEIVED the undersigned sell(s), assign(s) and transfer(s) to:

(Please print or type name and address (including postal code) of transferee)

US$ principal amount of the Note registered in my/our name as constituted under the Trust Deed dated as of 21 September 2006 between Chaucer Holdings PLC and Wilmington Trust (Channel Islands), Ltd (the “ Trustee ”) and all rights relating to such principal amount of this Note, irrevocably constituting and appointing [ Issuer/Registrar ] as attorney to transfer such principal amount of this Note in the register maintained by the Registrar with full power of substitution.

Account details of transferee:


Signature(s)



Date:

NOTE:

This form of transfer must be accompanied by such documents, evidence and information as may be required pursuant to the Trust Deed to which this form of transfer relates and must be executed under the hand of the transferor or his attorney or, if the transferor is a corporation, this form of transfer must be executed either under its common seal or under the hand of two of its officers duly authorised in writing and, in the latter case, the document so authorizing the officers must be delivered with this form of transfer.

2.	The signature(s) on this form of transfer must correspond with the name(s) as it/they appear(s) on the face of this Note in every particular, without alteration or enlargement or any change whatever.

EXHIBIT B – FORM OF RULE 144A GLOBAL NOTE

(Face of Note)

NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

THE HOLDER OF THIS NOTE AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.

CUSIP No.: 162-470-AA6

No.: R-1

CHAUCER HOLDINGS PLC

(a public company limited by shares incorporated under the

laws of England and Wales)

US$50,000,000 Floating Rate Senior Notes due 2036

This Certificate is issued in respect of the notes which are Rule 144A Global Notes and form part of a duly authorised issue of notes of Chaucer Holdings PLC (the “ Issuer ”), designated as specified in the title hereof (the “ Notes ”), constituted by a Trust Deed dated September 21, 2006 (the “ Trust Deed ”) between the Issuer and Wilmington Trust (Channel Islands), Ltd, as trustee (the “ Trustee ”, which expression, where the context so admits, includes all persons for the time being trustee or trustees under the Trust Deed). References herein to the Conditions (or to any particular numbered Condition) shall be to the Conditions (or that particular one of them) set out on the reverse hereof.

The Issuer promises to pay to Cede & Co. (the “ Noteholder ”), as nominee of The Depository Trust Company (“ DTC ”), or registered assigns, and the Noteholder is entitled to receive, the principal sum of US$50,000,000 (fifty million U.S. Dollars), or other such amounts as set forth on the Schedule of Increases or Decreases in the Global Note that is attached hereto, on the Maturity Date or on such earlier date or dates as the same may become repayable in accordance with the Conditions, together with interest on such principal sum at the times and the rate specified in the Conditions and to pay interest from the Issue Date in arrear at the rates, in the amounts and on the dates for payment provided for in the Conditions together with any additional amounts payable in accordance with the Conditions, all subject to and in accordance with the Conditions.

Unless and until it is exchanged in whole or in part for Notes in definitive form, this Note may not be transferred except as a whole (i) by DTC to a nominee of DTC, (ii) by a nominee of DTC to DTC or another nominee of DTC or (iii) by DTC or any such nominee to a successor Depository or a nominee of such successor Depository. Unless this certificate is presented by an authorized representative of Depository to the Issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of Depository (and any payment is made to Cede & Co. or such other entity as is requested by an authorized representative of Depository), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

This Certificate shall not be valid or become obligatory for any purpose until signed on behalf of the Issuer and authenticated by or on behalf of the Registrar.

Capitalized terms not otherwise defined in this Certificate shall have the meanings ascribed to them in the Trust Deed.

This Certificate shall be governed by and construed in accordance with English law.

In witness whereof the Issuer has caused this Certificate to be signed AS A DEED on its behalf.

Original Issue Date:


EXECUTED as a DEED by		)
CHAUCER HOLDINGS PLC		)
acting by		)
And		)
		)

Certificate of authentication

Certified that the above named holder(s) is/are, at the date hereof, entered in the Register of Noteholders as the holder(s) of Notes in the above mentioned principal amount.

This Certificate is authenticated by or on behalf of the Registrar.


Wilmington Trust (Channel Islands), Ltd,
as Registrar

By:
		Name:
		Title:

(Reverse of Note)

THE CONDITIONS OF THE NOTES

The US$50,000,000 Floating Rate Subordinated Notes due 2036 (the “ Notes” ) are issued by Chaucer Holdings PLC (the “ Issuer” ) are constituted by a Trust Deed dated 21 September 2006 (the “ Trust Deed ”) between the Issuer and Wilmington Trust (Channel Islands), Ltd. (the “ Trustee ”, which expression shall include its successors) as trustee for the holders of the Notes (the “ Noteholders ”).

1.	FORM, DENOMINATION AND TITLE

1.1

Form and Denomination

1.2

Title

2.	TRANSFERS OF NOTES

2.1

Transfers

Any transfers of the Notes shall be in accordance with the terms of the Trust Deed.

2.2

Closed Periods

No Noteholder may require the transfer of a Note to be registered during the period of 15 days ending on the due date for any payment of principal, premium or interest on that Note.

3.	STATUS

3.1

Status

3.2

Subordination

For the purposes of this Condition 3:

“ Auditors ” means the auditors for the time being of the Issuer or, in the event of their being unable or unwilling promptly to carry out any action requested of them pursuant to this Condition 3, such other firm of accountants as may be nominated or approved by the Noteholders after consultation with the Issuer;

“ FSA ” means the Financial Services Authority or any successor regulatory body or other governmental authority in the U.K. exercising prudential supervision of insurance companies;

“ Liabilities ” means the non-consolidated gross liabilities of the Issuer as shown and adjusted in like manner as for Assets;

“ Lower Tier 2 Capital ” has the meaning given to it from time to time by the FSA;

“ Tier 1 Capital ” has the meaning given to it from time to time by the FSA;

“ Senior Creditor ” means any creditor of the Issuer whose claims have been accepted by the liquidator in the winding-up of the Issuer, not being a creditor:

(i)

whose right to repayment ranks or is expressed to rank postponed to or subordinate to that of unsubordinated creditors of the Issuer; or

(ii)

(iii)

“ Upper Tier 2 Capital ” has the meaning given to it from time to time by the FSA.

3.3

No Set-off

3.4

Turnover

4.	NEGATIVE PLEDGE

4.1

Negative Pledge

4.2

Interpretation

For the purposes of this Condition 4:

5.	INTEREST

5.1

Interest Rate and Interest Payment Dates

5.2

5.3

5.4

5.5

5.6

The term “ regular record date ” as used in this Condition shall mean the close of business on the 15 ^th calendar day next preceding the applicable Interest Payment Date.

5.7

(a)

In these Conditions (except where otherwise defined), the expression:

(i)

(ii)

(iii)

“ Interest Rate ” has the meaning set forth in Condition 5.3;

(iv)

(v)

(vi)

“ Margin ” means three decimal one per cent (3.1%) per annum.

5.8

Computation of Interest

(a)

“ 3 Month LIBOR ” means the London interbank offered interest rate for three-month, U.S. dollar deposits determined by the Trustee in the following order of priority:

(b)

(c)

(d)

6.	PAYMENTS

6.1

Payments in respect of Notes

6.2

Agreed Treatment of the Notes

The Issuer will treat the Notes as indebtedness of the Issuer that is in registered form within the meaning of U.S. Treasury Regulations Section 1.871-14(c)(1)(i).

6.3

Payments subject to Applicable Laws

6.4

No commissions

No commissions or expenses shall be charged to the Noteholders in respect of any payments made in accordance with this Condition.

6.5

Payment on Payment Days

6.6

Partial Payments

6.7

Registrar and Paying Agent

The initial specified offices of the Paying Agent and the Registrar are set out at the end of these Conditions.

7.	REDEMPTION AND PURCHASE

7.1

Redemption at Maturity

Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Notes at their principal amount on the Maturity Date .

7.2

Tax Event Redemption

For the purposes of these Conditions:

(a)

(b)

(c)

7.3

Optional Redemption by the Issuer

7.4

Notice of Redemption; Selection of Notes

7.5

Payment of Notes Called for Redemption

7.6

Purchases

7.7

Noteholder Redemption

(i)

if default is made in the payment of any principal due in respect of the Notes or any of them;

(ii)

if default is made in the payment of any interest due in respect of the Notes or any of them and the default continues for a period of seven days; or

(iii)

(iv)

(v)

(vii)

(viii)

7.8

Interpretation

In these Conditions (except where otherwise defined), the expression:

(a)

“ Indebtedness for Borrowed Money ” means any Indebtedness exceeding a value of US$5,000,000, either alone or when aggregated; and

(b)

“ Principal Subsidiaries ” means ALIT (No. 1) Limited, Chaucer Corporate Capital Limited, Chaucer Corporate Capital (No. 2) Limited, Chaucer Dedicated Limited and Chaucer Syndicates Limited.

7.9

Cancellation

All Notes which are redeemed or purchased by the Issuer will forthwith be cancelled.

7.10

Consent of the Financial Services Authority

7.11

Interpretation

8.	TAXATION

8.1

Payment without Withholding

(a)

(i)

(ii)

where a Noteholder is liable to the Withholding Taxes in respect of the Note by reason of his having some connection with any Relevant Jurisdiction other than the mere holding of the Note;

(iii)

(iv)

8.2

Interpretation

In these Conditions:

(a)

“ Relevant Date ” means the date on which the payment first becomes due; and

(b)

“ Relevant Jurisdiction ” means the United Kingdom or any political subdivision or any authority thereof or therein having power to tax.

8.3

Tax Credit

(a)

If the Issuer makes a payment in respect of Withholding Taxes and the relevant Noteholder or the Trustee determines that:

(i)

a credit against any Withholding Taxes or any relief or remission for Withholding Taxes (a “ Tax Credit ”) is attributable to an increased payment made in accordance with Condition 8.1; and

(ii)

that Noteholder has obtained, utilised and retained that Tax Credit,

(b)

8.4

Additional Amounts

Any reference in these Conditions to any amounts in respect of the Notes shall be deemed also to refer to any additional amounts which may be payable under this Condition.

9.	PRESCRIPTION

10.

EVENTS OF DEFAULT AND ENFORCEMENT

10.1

Events of Default

(i)

if default is made in the payment of any principal due under the terms of the Notes or any of them; or

(ii)

if default is made in the payment of any interest due under the terms of the Notes or any of them and such default continues for a period of seven days; or

(iii)

if default is made in the payment of any other amount falling due under the terms of the Notes or any of them and such default continues for a period of thirty days; or

(iv)

if any order is made by any competent court or resolution passed for the winding up or dissolution of the Issuer.

10.2

Proceedings for Winding Up

10.3

Enforcement

10.4

Extent of Noteholders’ remedy

11.

REPLACEMENT OF CERTIFICATES

12.

NOTICES

12.1

Notices to the Noteholders

13.

GOVERNING LAW

The Notes are governed by, and will be construed in accordance with, English law.

13.1

Jurisdiction of English courts

14.

ISSUER, REGISTRAR AND PAYING AGENT ADDRESSES

The addresses of the Issuer and the Registrar are set forth below:

Issuer:

Chaucer Holdings PLC

9 Devonshire Square

Cutlers Gardens

London

EC2M 4WL

Facsimile: +44 207 397 9710

Attention: Company Secretary

Registrar:

Wilmington Trust (Channel Islands), Ltd

Seaton House

17 Seaton Place St Helier

Jersey, Channel Islands, JE2 3QL

Facsimile: + 44 1534 495 601

Paying Agent:

Wilmington Trust (Channel Islands), Ltd

Seaton House

17 Seaton Place St Helier

Jersey, Channel Islands, JE2 3QL

Facsimile: + 44 1534 495 601

With a copy to:

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware 19890-1600

United States of America

Attention: Corporate Trust Administration

Facsimile: +1 302-636-4140

15.

RIGHTS OF THIRD PARTIES

SCHEDULE OF INCREASES OR DECREASES IN THE GLOBAL NOTE

The initial principal amount of this Global Note is US$ . The following increases or decreases in this Global Note have been made:

Date of Exchange

Amount of decrease

in Principal Amount

of this Global Note

Amount of increase
in Principal Amount
of this Global Note

Principal amount of
this Global Note
following such
decrease or increase

Signature of
authorized officer or
signatory of Trustee

FORM OF TRANSFER

FOR VALUE RECEIVED the undersigned sell(s), assign(s) and transfer(s) to:

(Please print or type name and address (including postal code) of transferee)

US$ principal amount of the Note registered in my/our name as constituted under the Trust Deed dated as of September 21, 2006 between Chaucer Holdings PLC and Wilmington Trust (Channel Islands), Ltd (the “ Trustee ”) and all rights relating to such principal amount of this Note, irrevocably constituting and appointing [ Issuer/Registrar ] as attorney to transfer such principal amount of this Note in the register maintained by the Registrar with full power of substitution.

Account details of transferee:


Signature(s)


Date:

NOTE:

2.	The signature(s) on this form of transfer must correspond with the name(s) as it/they appear(s) on the face of the Note to be transferred in every particular, without alteration or enlargement or any change whatever.

EXHIBIT C – FORM OF TEMPORARY REGULATION S GLOBAL NOTE

(Face of Note)

EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF ALSO AGREES FOR THE BENEFIT OF THE ISSUER THAT UNLESS THE REQUIRED CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE TRUST DEED, NO BENEFICIAL OWNERS OF THIS NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL AND PREMIUM, IF ANY, OF AND INTEREST ON THIS NOTE.

THE HOLDER OF THIS NOTE AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.

CUSIP NO.:

No.: R-2

CHAUCER HOLDINGS PLC

(a public company limited by shares incorporated under the

laws of England and Wales)

US$50,000,000 Floating Rate Subordinated Notes due 2036

The Notes are subject to, and have the benefit of, the Trust Deed and the Conditions referred to in the Trust Deed. Expressions defined in the Trust Deed shall, unless the context otherwise requires, have the same meanings when used in this Certificate. The Issuer promises to pay to Cede & Co. (the “ Noteholder ”), as nominee of The Depository Trust Company (“ DTC ”), or registered assigns, and the Noteholder is entitled to receive, the principal sum of US$0.00 (zero U.S. Dollars), or other such amounts as set forth on the Schedule of Increases or Decreases in the Global Note that is attached hereto, on the Maturity Date or on such earlier date or dates as the same may become repayable in accordance with the Conditions, together with interest on such principal sum at the times and the rate specified in the Conditions and to pay interest from the Issue Date in arrear at the rates, in the amounts and on the dates for payment provided for in the Conditions together with any additional amounts payable in accordance with the Conditions, all subject to and in accordance with the Conditions.

This Certificate shall not be valid or become obligatory for any purpose until signed on behalf of the Issuer and authenticated by or on behalf of the Registrar.

Capitalized terms not otherwise defined in this Certificate shall have the meanings ascribed to them in the Trust Deed.

This Certificate shall be governed by and construed in accordance with English law.

In witness whereof the Issuer has caused this Certificate to be signed AS A DEED on its behalf.

Original Issue Date:


EXECUTED as a DEED by		)
CHAUCER HOLDINGS PLC		)
acting by		)
And		)
		)

Certificate of authentication

Certified that the above named holder(s) is/are, at the date hereof, entered in the Register of Noteholders as the holder(s) of Notes in the above mentioned principal amount.

This Certificate is authenticated by or on behalf of the Registrar.


Wilmington Trust (Channel Islands), Ltd, as Registrar

By:
		Name:
		Title:

(Reverse of Note)

THE CONDITIONS OF THE NOTES

The US$50,000,000 Floating Rate Subordinated Notes due 2036 (the “ Notes” ) are issued by Chaucer Holdings PLC (the “ Issuer” ) are constituted by a Trust Deed dated 21 September 2006 (the “ Trust Deed ”) between the Issuer and Wilmington Trust (Channel Islands), Ltd. (the “ Trustee ”, which expression shall include its successors) as trustee for the holders of the Notes (the “ Noteholders ”).

1.	FORM, DENOMINATION AND TITLE

1.1

Form and Denomination

1.2

Title

2.	TRANSFERS OF NOTES

2.1

Transfers

Any transfers of the Notes shall be in accordance with the terms of the Trust Deed.

2.2

Closed Periods

No Noteholder may require the transfer of a Note to be registered during the period of 15 days ending on the due date for any payment of principal, premium or interest on that Note.

3.	STATUS

3.1

Status

3.2

Subordination

For the purposes of this Condition 3:

“ Auditors ” means the auditors for the time being of the Issuer or, in the event of their being unable or unwilling promptly to carry out any action requested of them pursuant to this Condition 3, such other firm of accountants as may be nominated or approved by the Noteholders after consultation with the Issuer;

“ FSA ” means the Financial Services Authority or any successor regulatory body or other governmental authority in the U.K. exercising prudential supervision of insurance companies;

“ Liabilities ” means the non-consolidated gross liabilities of the Issuer as shown and adjusted in like manner as for Assets;

“ Lower Tier 2 Capital ” has the meaning given to it from time to time by the FSA;

“ Tier 1 Capital ” has the meaning given to it from time to time by the FSA;

“ Senior Creditor ” means any creditor of the Issuer whose claims have been accepted by the liquidator in the winding-up of the Issuer, not being a creditor:

(i)

whose right to repayment ranks or is expressed to rank postponed to or subordinate to that of unsubordinated creditors of the Issuer; or

(ii)

(iii)

“ Upper Tier 2 Capital ” has the meaning given to it from time to time by the FSA.

3.3

No Set-off

3.4

Turnover

4.	NEGATIVE PLEDGE

4.1

Negative Pledge

4.2

Interpretation

For the purposes of this Condition 4:

5.	INTEREST

5.1

Interest Rate and Interest Payment Dates

5.2

5.3

Each Note shall bear interest from and including the Issue Date to but excluding 21 September 2036 (the “Maturity Date” ) at a floating rate of interest based on 3-Month LIBOR, determined as described in Condition 5.8, plus the Margin (as defined below) (the “Interest Rate” ), applied to the principal amount thereof, until the principal thereof becomes due and payable, and on any overdue principal and to the extent that payment of such interest is enforceable under applicable law (without duplication) on any overdue instalment of interest (including Additional Interest) at the Interest Rate in effect for each applicable period compounded quarterly. Interest shall be payable quarterly in arrears on each Interest Payment Date with the first instalment of interest to be paid on the Interest Payment Date in December 2006.

5.4

5.5

5.6

The term “ regular record date ” as used in this Condition shall mean the close of business on the 15 ^th calendar day next preceding the applicable Interest Payment Date.

5.7

(a)

In these Conditions (except where otherwise defined), the expression:

(i)

(ii)

(iii)

“ Interest Rate ” has the meaning set forth in Condition 5.3;

(iv)

(v)

(vi)

“ Margin ” means three decimal one per cent (3.1%) per annum.

5.8

Computation of Interest

(a)

“ 3 Month LIBOR ” means the London interbank offered interest rate for three- month, U.S. dollar deposits determined by the Trustee in the following order of priority:

(b)

(c)

(d)

6.	PAYMENTS

6.1

Payments in respect of Notes

6.2

Agreed Treatment of the Notes

The Issuer will treat the Notes as indebtedness of the Issuer that is in registered form within the meaning of U.S. Treasury Regulations Section 1.871-14(c)(1)(i).

6.3

Payments subject to Applicable Laws

6.4

No commissions

No commissions or expenses shall be charged to the Noteholders in respect of any payments made in accordance with this Condition.

6.5

Payment on Payment Days

6.6

Partial Payments

6.7

Registrar and Paying Agent

The initial specified offices of the Paying Agent and the Registrar are set out at the end of these Conditions.

7.	REDEMPTION AND PURCHASE

7.1

Redemption at Maturity

Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Notes at their principal amount on the Maturity Date .

7.2

Tax Event Redemption

For the purposes of these Conditions:

(a)

(b)

(c)

7.3

Optional Redemption by the Issuer

7.4

Notice of Redemption; Selection of Notes

7.5

Payment of Notes Called for Redemption

100

7.6

Purchases

7.7

Noteholder Redemption

(i)

if default is made in the payment of any principal due in respect of the Notes or any of them;

(ii)

if default is made in the payment of any interest due in respect of the Notes or any of them and the default continues for a period of seven days; or

(iii)

(iv)

101

(v)

(vi)

(vii)

102

(viii)

7.8

Interpretation

In these Conditions (except where otherwise defined), the expression:

(a)

“ Indebtedness for Borrowed Money ” means any Indebtedness exceeding a value of US$5,000,000, either alone or when aggregated; and

(b)

“ Principal Subsidiaries ” means ALIT (No. 1) Limited, Chaucer Corporate Capital Limited, Chaucer Corporate Capital (No. 2) Limited, Chaucer Dedicated Limited and Chaucer Syndicates Limited.

7.9

Cancellation

All Notes which are redeemed or purchased by the Issuer will forthwith be cancelled.

7.10

Consent of the Financial Services Authority

7.11

Interpretation

103

8.	TAXATION

8.1

Payment without Withholding

(a)

(i)

(ii)

where a Noteholder is liable to the Withholding Taxes in respect of the Note by reason of his having some connection with any Relevant Jurisdiction other than the mere holding of the Note;

(iii)

(iv)

104

8.2

Interpretation

In these Conditions:

(a)

“ Relevant Date ” means the date on which the payment first becomes due; and

(b)

“ Relevant Jurisdiction ” means the United Kingdom or any political subdivision or any authority thereof or therein having power to tax.

8.3

Tax Credit

(a)

If the Issuer makes a payment in respect of Withholding Taxes and the relevant Noteholder or the Trustee determines that:

(i)

a credit against any Withholding Taxes or any relief or remission for Withholding Taxes (a “ Tax Credit ”) is attributable to an increased payment made in accordance with Condition 8.1; and

(ii)

that Noteholder has obtained, utilised and retained that Tax Credit,

(b)

8.4

Additional Amounts

Any reference in these Conditions to any amounts in respect of the Notes shall be deemed also to refer to any additional amounts which may be payable under this Condition.

9.	PRESCRIPTION

10.

EVENTS OF DEFAULT AND ENFORCEMENT

10.1

Events of Default

(i)

if default is made in the payment of any principal due under the terms of the Notes or any of them; or

105

(ii)

if default is made in the payment of any interest due under the terms of the Notes or any of them and such default continues for a period of seven days; or

(iii)

if default is made in the payment of any other amount falling due under the terms of the Notes or any of them and such default continues for a period of thirty days; or

(iv)

if any order is made by any competent court or resolution passed for the winding up or dissolution of the Issuer.

10.2

Proceedings for Winding Up

10.3

Enforcement

10.4

Extent of Noteholders’ remedy

11.

REPLACEMENT OF CERTIFICATES

106

12.

NOTICES

12.1

Notices to the Noteholders

13.

GOVERNING LAW

The Notes are governed by, and will be construed in accordance with, English law.

13.1

Jurisdiction of English courts

14.

ISSUER, REGISTRAR AND PAYING AGENT ADDRESSES

The addresses of the Issuer and the Registrar are set forth below:

Issuer:

Chaucer Holdings PLC

9 Devonshire Square

Cutlers Gardens

London

EC2M 4WL

Facsimile: +44 207 397 9710

Attention: Company Secretary

107

Registrar:

Wilmington Trust (Channel Islands), Ltd

Seaton House

17 Seaton Place St Helier

Jersey, Channel Islands, JE2 3QL

Facsimile: + 44 1534 495 601

Paying Agent:

Wilmington Trust (Channel Islands), Ltd

Seaton House

17 Seaton Place St Helier

Jersey, Channel Islands, JE2 3QL

Facsimile: + 44 1534 495 601

With a copy to:

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware 19890-1600

United States of America

Attention: Corporate Trust Administration

Facsimile: +1 302-636-4140

15.

RIGHTS OF THIRD PARTIES

108

SCHEDULE OF INCREASES OR DECREASES IN THE GLOBAL NOTE

The initial principal amount of this Global Note is US$ . The following increases or decreases in this Global Note have been made:

Date of Exchange

Amount of decrease

in Principal Amount

of this Global Note

Amount of increase

in Principal Amount

of this Global Note

Principal amount of

this Global Note

following such

decrease or increase

Signature of

authorized officer or
signatory of Trustee

109

FORM OF TRANSFER

FOR VALUE RECEIVED the undersigned sell(s), assign(s) and transfer(s) to:

(Please print or type name and address (including postal code) of transferee)

US$ principal amount of the Note registered in my/our name as constituted under the Trust Deed dated as of 21 September 2006, 2006 between Chaucer Holdings PLC and Wilmington Trust (Channel Islands), Ltd (the “ Trustee ”) and all rights relating to such principal amount of this Note, irrevocably constituting and appointing [ Issuer/Registrar ] as attorney to transfer such principal amount of this Note in the register maintained by the Registrar with full power of substitution.

Account details of transferee:



Signature(s)


Date:

NOTE:

2.	The signature(s) on this form of transfer must correspond with the name(s) as it/they appear(s) on the face of the Note to be transferred in every particular, without alteration or enlargement or any change whatever.

110

ANNEX A - FORM OF CERTIFICATE TO BE GIVEN IN RELATION TO

EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTES FOR

REGULATION S PERMANENT NOTES OR DEFINITIVE NOTES

CHAUCER HOLDINGS PLC

(a public company limited by shares incorporated under the laws of England and Wales)

US$50,000,000 Floating Rate Subordinated Notes due 2036

This is to certify that, based solely on certifications we have received in writing from , appearing in our records as persons being entitled to principal amount of the above-captioned Notes (the “ Specified Note ”) (i) as of the date of such certifications that the Specified Securities are beneficially owned by non-U.S. Persons and are not held for the purposes of resale directly or indirectly to a U.S Person or to a person within the United States or its possessions, (ii) we are not making available herewith for exchange any portion of the Regulation S Temporary Global Notes excepted in such certifications and (iii) as of the date hereof we have not received any notification from any of our Member Organizations to the effect that the statements made by such Member Organizations with respect to any portion of the part submitted herewith for exchange are no longer true and cannot be relied upon as at the date hereof.

We understand that this certification is required in connection with certain securities laws of the United States, if applicable. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorize you to produce this certification to any interest party in such proceedings.


Date:		[ ]*

		[ ]

By: [ ]

111

ANNEX B - FORM OF CERTIFICATE TO BE GIVEN IN RELATION TO PAYMENTS

OF INTEREST FALLING DUE BEFORE THE REGULATION S RESTRICTION DATE

[ — ]

CHAUCER HOLDINGS PLC

(a public company limited by shares incorporated under the laws of England and Wales)

US$50,000,000 Floating Rate Subordinated Notes due 2036

This is to certify that, based solely on certifications we have received in writing from appearing in our records as persons being entitled to principal amount of the above-captioned Notes (the “ Specified Note ”) (i) as of the date of such certifications that the Specified Securities are beneficially owned by non-U.S. Persons and are not held for the purposes of resale directly or indirectly to a U.S Person or to a person within the United States or its possessions, (ii) we are not making available herewith for exercise of any rights or collection of any interest on any portion of the Regulation S Temporary Global Notes excepted in such certifications and (iii) as of the date hereof we have not received any notification from any of our Member Organizations to the effect that the statements made by such Member Organizations with respect to any exercise of any rights or collection of any interest are no longer true and cannot be relied upon as at the date hereof.

We understand that his certification is required in connection with certain securities laws of the United States, if applicable. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorize you to produce this certification to any interested party in such proceedings.



Date:		[ ]*

		[ ]

		By: [ ]

*	To be dated not earlier than the Interest Payment Date.

112

EXHIBIT D - FORM OF PERMANENT REGULATION S GLOBAL NOTE

(Face of Note)

113

THE HOLDER OF THIS NOTE AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.

114

CUSIP NO.:

No.: R-3

CHAUCER HOLDINGS PLC

(a public company limited by shares incorporated under

the laws of England and Wales)

US$50,000,000 Floating Rate Subordinated Notes due 2036

The Issuer promises to pay to Cede & Co. (the “ Noteholder ”), as nominee of The Depository Trust Company (“ DTC ”), or registered assigns, and the Noteholder is entitled to receive, the principal sum of US$0.00 (zero U.S. Dollars), or other such amounts as set forth on the Schedule of Increases or Decreases in the Global Note that is attached hereto, on the Maturity Date or on such earlier date or dates as the same may become repayable in accordance with the Conditions, together with interest on such principal sum at the times and the rate specified in the Conditions and to pay interest from the Issue Date in arrear at the rates, in the amounts and on the dates for payment provided for in the Conditions together with any additional amounts payable in accordance with the Conditions, all subject to and in accordance with the Conditions.

Unless and until it is exchanged in whole or in part for Notes in definitive form, this Note may not be transferred except as a whole (i) by DTC to a nominee of DTC, (ii) by a nominee of DTC to DTC or another nominee of DTC or (iii) by DTC or any such nominee to a successor Depository or a nominee of such successor Depository. Unless this Certificate is presented by an authorized representative of Depository to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of Depository (and any payment is made to Cede & Co. or such other entity as is requested by an authorized representative of Depository), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

115

This Certificate shall not be valid or become obligatory for any purpose until signed on behalf of the Issuer and authenticated by or on behalf of the Registrar.

Capitalized terms not otherwise defined in this Certificate shall have the meanings ascribed to them in the Trust Deed.

This Certificate shall be governed by and construed in accordance with English law.

In witness whereof the Issuer has caused this Certificate to be signed AS A DEED on its behalf.

Original Issue Date:


EXECUTED as a DEED by		)
CHAUCER HOLDINGS PLC		)
acting by		)
And		)
		)

Certificate of authentication

Certified that the above named holder(s) is/are, at the date hereof, entered in the Register of Noteholders as the holder(s) of Notes in the above mentioned principal amount.

This Certificate is authenticated by or on behalf of the Registrar.


Wilmington Trust (Channel Islands), Ltd, as Registrar

By:
		Name:
		Title:

116

(Reverse of Note)

THE CONDITIONS OF THE NOTES

The US$50,000,000 Floating Rate Subordinated Notes due 2036 (the “ Notes” ) are issued by Chaucer Holdings PLC (the “ Issuer” ) are constituted by a Trust Deed dated 21 September 2006 (the “ Trust Deed ”) between the Issuer and Wilmington Trust (Channel Islands), Ltd. (the “ Trustee ”, which expression shall include its successors) as trustee for the holders of the Notes (the “ Noteholders ”).

1.	FORM, DENOMINATION AND TITLE

1.1

Form and Denomination

1.2

Title

2.	TRANSFERS OF NOTES

2.1

Transfers

Any transfers of the Notes shall be in accordance with the terms of the Trust Deed.

117

2.2

Closed Periods

No Noteholder may require the transfer of a Note to be registered during the period of 15 days ending on the due date for any payment of principal, premium or interest on that Note.

3.	STATUS

3.1

Status

3.2

Subordination

For the purposes of this Condition 3:

“ Auditors ” means the auditors for the time being of the Issuer or, in the event of their being unable or unwilling promptly to carry out any action requested of them pursuant to this Condition 3, such other firm of accountants as may be nominated or approved by the Noteholders after consultation with the Issuer;

118

“ FSA ” means the Financial Services Authority or any successor regulatory body or other governmental authority in the U.K. exercising prudential supervision of insurance companies;

“ Liabilities ” means the non-consolidated gross liabilities of the Issuer as shown and adjusted in like manner as for Assets;

“ Lower Tier 2 Capital ” has the meaning given to it from time to time by the FSA;

“ Tier 1 Capital ” has the meaning given to it from time to time by the FSA;

“ Senior Creditor ” means any creditor of the Issuer whose claims have been accepted by the liquidator in the winding-up of the Issuer, not being a creditor:

(i)

whose right to repayment ranks or is expressed to rank postponed to or subordinate to that of unsubordinated creditors of the Issuer; or

(ii)

(iii)

“ Upper Tier 2 Capital ” has the meaning given to it from time to time by the FSA.

3.3

No Set-off

119

3.4

Turnover

4.	NEGATIVE PLEDGE

4.1

Negative Pledge

4.2

Interpretation

For the purposes of this Condition 4:

5.	INTEREST

5.1

Interest Rate and Interest Payment Dates

5.2

120

5.3

5.4

5.5

5.6

The term “ regular record date ” as used in this Condition shall mean the close of business on the 15 ^th calendar day next preceding the applicable Interest Payment Date.

5.7

121

(a)

In these Conditions (except where otherwise defined), the expression:

(i)

(ii)

(iii)

“ Interest Rate ” has the meaning set forth in Condition 5.3;

(iv)

(v)

(vi)

“ Margin ” means three decimal one per cent (3.1%) per annum.

5.8

Computation of Interest

122

(a)

“ 3 Month LIBOR ” means the London interbank offered interest rate for three- month, U.S. dollar deposits determined by the Trustee in the following order of priority:

(b)

(c)

123

(d)

6.	PAYMENTS

6.1

Payments in respect of Notes

6.2

Agreed Treatment of the Notes

The Issuer will treat the Notes as indebtedness of the Issuer that is in registered form within the meaning of U.S. Treasury Regulations Section 1.871-14(c)(1)(i).

124

6.3

Payments subject to Applicable Laws

6.4

No commissions

No commissions or expenses shall be charged to the Noteholders in respect of any payments made in accordance with this Condition.

6.5

Payment on Payment Days

6.6

Partial Payments

6.7

Registrar and Paying Agent

The initial specified offices of the Paying Agent and the Registrar are set out at the end of these Conditions.

125

7.	REDEMPTION AND PURCHASE

7.1

Redemption at Maturity

Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Notes at their principal amount on the Maturity Date .

7.2

Tax Event Redemption

For the purposes of these Conditions:

(a)

(b)

(c)

7.3

Optional Redemption by the Issuer

126

7.4

Notice of Redemption; Selection of Notes

7.5

Payment of Notes Called for Redemption

127

7.6

Purchases

7.7

Noteholder Redemption

(i)

if default is made in the payment of any principal due in respect of the Notes or any of them;

(ii)

if default is made in the payment of any interest due in respect of the Notes or any of them and the default continues for a period of seven days; or

(iii)

(iv)

128

(v)

(vi)

(vii)

129

(viii)

7.8

Interpretation

In these Conditions (except where otherwise defined), the expression:

(a)

“ Indebtedness for Borrowed Money ” means any Indebtedness exceeding a value of US$5,000,000, either alone or when aggregated; and

(b)

“ Principal Subsidiaries ” means ALIT (No. 1) Limited, Chaucer Corporate Capital Limited, Chaucer Corporate Capital (No. 2) Limited, Chaucer Dedicated Limited and Chaucer Syndicates Limited.

7.9

Cancellation

All Notes which are redeemed or purchased by the Issuer will forthwith be cancelled.

7.10

Consent of the Financial Services Authority

7.11

Interpretation

130

8.	TAXATION

8.1

Payment without Withholding

(a)

(i)

(ii)

where a Noteholder is liable to the Withholding Taxes in respect of the Note by reason of his having some connection with any Relevant Jurisdiction other than the mere holding of the Note;

(iii)

(iv)

131

8.2

Interpretation

In these Conditions:

(a)

“ Relevant Date ” means the date on which the payment first becomes due; and

(b)

“ Relevant Jurisdiction ” means the United Kingdom or any political subdivision or any authority thereof or therein having power to tax.

8.3

Tax Credit

(a)

If the Issuer makes a payment in respect of Withholding Taxes and the relevant Noteholder or the Trustee determines that:

(i)

a credit against any Withholding Taxes or any relief or remission for Withholding Taxes (a “ Tax Credit ”) is attributable to an increased payment made in accordance with Condition 8.1; and

(ii)

that Noteholder has obtained, utilised and retained that Tax Credit,

(b)

8.4

Additional Amounts

Any reference in these Conditions to any amounts in respect of the Notes shall be deemed also to refer to any additional amounts which may be payable under this Condition.

9.	PRESCRIPTION

10.

EVENTS OF DEFAULT AND ENFORCEMENT

10.1

Events of Default

(i)

if default is made in the payment of any principal due under the terms of the Notes or any of them; or

132

(ii)

if default is made in the payment of any interest due under the terms of the Notes or any of them and such default continues for a period of seven days; or

(iii)

if default is made in the payment of any other amount falling due under the terms of the Notes or any of them and such default continues for a period of thirty days; or

(iv)

if any order is made by any competent court or resolution passed for the winding up or dissolution of the Issuer.

10.2

Proceedings for Winding Up

10.3

Enforcement

10.4

Extent of Noteholders’ remedy

11.

REPLACEMENT OF CERTIFICATES

133

12.

NOTICES

12.1

Notices to the Noteholders

13.

GOVERNING LAW

The Notes are governed by, and will be construed in accordance with, English law.

13.1

Jurisdiction of English courts

14.

ISSUER, REGISTRAR AND PAYING AGENT ADDRESSES

The addresses of the Issuer and the Registrar are set forth below:

Issuer:

Chaucer Holdings PLC

9 Devonshire Square

Cutlers Gardens

London

EC2M 4WL

Facsimile: +44 207 397 9710

Attention: Company Secretary

134

Registrar:

Wilmington Trust (Channel Islands), Ltd 17 Seaton Place St Helier

Seaton House

Jersey, Channel Islands, JE2 3QL

Facsimile: + 44 1534 495 601

Paying Agent:

Wilmington Trust (Channel Islands), Ltd

Seaton House

17 Seaton Place St Helier

Jersey, Channel Islands, JE2 3QL

Facsimile: + 44 1534 495 601

With a copy to:

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware 19890-1600

United States of America

Attention: Corporate Trust Administration

Facsimile: +1 302-636-4140

15.

RIGHTS OF THIRD PARTIES

135

SCHEDULE OF INCREASES OR DECREASES IN THE GLOBAL NOTE

The initial principal amount of this Global Note is US$ . The following increases or decreases in this Global Note have been made:


Date of Exchange	Amount of decrease in Principal Amount of this Global Note	Amount of increase in Principal Amount of this Global Note	Principal amount of this Global Note following such decrease or increase	Signature of authorized officer or signatory of Trustee

136

FORM OF TRANSFER

FOR VALUE RECEIVED the undersigned sell(s), assign(s) and transfer(s) to:

(Please print or type name and address (including postal code) of transferee)

Account details of transferee:


Signature(s)



Date:

NOTE:

2.	The signature(s) on this form of transfer must correspond with the name(s) as it/they appear(s) on the face of the Note to be transferred in every particular, without alteration or enlargement or any change whatever.

137

EXHIBIT E – FORM OF CERTIFICATE TO BE DELIVERED UPON

EXCHANGE OR REGISTRATION OF TRANSFER OF NOTE

Re:

US$50,000,000 Floating Rate Subordinated Notes due 2036 of Chaucer Holdings Plc

This Certificate relates to US$[•] principal amount of Notes held in * book-entry or * definitive form by (the “ Transferor ”).

The Transferor*:

[ ] has requested the Registrar and the Trustee by written order to deliver in exchange for its beneficial interest in Global Notes held by DTC a Note or Notes in definitive, registered form of authorized denominations and in an aggregate principal amount equal to its beneficial interest in such Global Notes (or the portion thereof indicated above); or

[ ] has requested the Registrar and the Trustee by written order to cause it, in exchange for its surrendering a Note or Notes in definitive registered form for cancellation, to be recorded as the owner of a beneficial interest in Global Notes of an authorized denomination and an aggregate principal amount equal to its aggregate interest in such definitive Note or Notes (or the portion thereof indicated above); or

[ ] has requested the Registrar and the Trustee by written order to exchange or register the transfer of a Note or Notes.

In connection with such request and in respect of each such Note, the Transferor does hereby certify to Chaucer Holdings Plc (the “ Issuer ”) and the Registrar either:*

[ ] Such Note is owned by the Transferor and is being exchanged without transfer; or

As follows:

In connection with the resale or other transfer of such Note occurring prior to the time the legend originally set forth on such Note (or one or more predecessor Notes) restricting resales and other transfers thereof has been removed with the consent of the Issuer in accordance with the procedures set forth in the Trust Deed referred to therein (other than a resale or other transfer made to the Issuer), the undersigned confirms that without utilizing any general solicitation or general advertising:

138

[CHECK ONE]

[ ] (a) Such Note is being transferred by the undersigned to a “qualified institutional buyer”, as defined in Rule 144A under the Securities Act of 1933, as amended, to whom notice has been given that such transfer is being made in reliance on Rule 144A, pursuant to the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder and in compliance with all applicable state and other securities laws.

[ ] (b) Such note is being transferred in compliance with all applicable securities laws and (1)

the offer of the Notes was not made to a person in the United States;

(2)

either:

(A)

at the time the buy order was originated, the transferee was outside the United States or the Transferor and any person acting on its behalf reasonably believed that the transferee was outside the United States, or

(B)

the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States;

(3)

no directed selling efforts have been made in contravention of the requirements of Rule 903 or 904 of Regulation S, as applicable; and

(4)

the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act.

If none of the foregoing boxes is checked, then, so long as such Note shall bear a legend restricting resales and other transfers thereof (except in the case of a resale or other transfer made to the Issuer), the Registrar shall not be obligated to register such Note in the name of any person other than the holder thereof unless and until the conditions to any such transfer of registration set forth in such Note and in the Trust Deed shall have been satisfied.

139


Dated:
	[Type or print name of holder]

	By.
		The signature of the holder must correspond with the name as written upon the face of such Note in every particular, without alteration or enlargement or any change whatsoever. [INSERT NAME OF TRANSFEROR]


By:

Date:

* Check applicable box.

140

TO BE COMPLETED BY TRANSFEREE IF (a) ABOVE IS CHECKED:

The undersigned represents and warrants that (i) it is a “qualified institutional buyer”, as defined in Rule 144A under the Securities Act of 1933, as amended, and acknowledges that the undersigned either has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A or has determined not to request such information, (ii) this instrument has been executed on behalf of the undersigned by one of its executive officers and (iii) it is aware that the Holder of such Note is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A. The undersigned acknowledges and agrees that such Note has not been registered under the Securities Act of 1933, as amended, and may not be transferred except in accordance with the resale and other transfer restrictions set forth in the legend thereon. The undersigned agrees, on its own behalf and on behalf of any accounts for which it is acting, that it will transfer such Note only in accordance with the transfer restrictions set forth in such legend. The Issuer, the Trustee and the Registrar are entitled to rely upon this certification and are irrevocably authorized to produce this certification or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.


Dated:
	[Type or print name of holder]

	By.
		Executive Officer

141

TO BE COMPLETED BY TRANSFEREE IF (b) ABOVE IS CHECKED:

The undersigned represents and warrants that (i) it is a person other than a “U.S. person”, as defined in Regulation S under the Securities Act of 1933, as amended, and acknowledges that the undersigned either has received such information regarding the Issuer as the undersigned has requested pursuant to Regulation S or has determined not to request such information, (ii) this instrument has been executed on behalf of the undersigned by one of its executive officers and (iii) it is aware that the Holder of such Note is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Regulation S. The undersigned acknowledges and agrees that such Note has not been registered under the Securities Act of 1933, as amended, and may not be transferred except in accordance with the resale and other transfer restrictions set forth in the legend thereon. The undersigned agrees, on its own behalf and on behalf of any accounts for which it is acting, that it will transfer such Note only in accordance with the transfer restrictions set forth in such legend. The Issuer, the Trustee and the Registrar are entitled to rely upon this certification and are irrevocably authorized to produce this certification or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.


Dated:
	[Type or print name of holder]

	By.
		Executive Officer

142

THE SECOND SCHEDULE

PROVISIONS RELATING TO REGISTRATION, TRANSFER AND PAYMENT

1.	REGISTRATION

(A)

Each of the Issuer, the Trustee and the Registrar will recognise the registered holder of any Notes as the absolute owner thereof (except as otherwise required by law) and shall not be bound to take notice or see to the execution of any trust whether express, implied or constructive to which any Notes may be subject and the receipt of the registered holder for the time being of any Notes or, in the case of joint registered holders, the receipt of any of them for the interest from time to time accruing due in respect thereof or for any other moneys payable in respect thereof shall be a good discharge to the Issuer notwithstanding any notice it may have whether express, constructive or otherwise of the right, title, interest or claim of any other person to or in such Notes, interest or moneys. No notice of any trust express, implied or constructive shall be entered on the Register in respect of any Notes.

(B)

Every registered Noteholder will be recognised by the Issuer as entitled to his Notes free from any equity, set-off or cross-claim on the part of the Issuer against the original or any intermediate holder of the Notes.

(C)

If any Certificate issued pursuant to the Trust Deed be worn out or defaced then, upon production thereof to the Directors of the Issuer, they may cancel the same and may issue a new Certificate in lieu thereof and if any such Certificate be lost or destroyed, then, upon proof thereof to the reasonable satisfaction of the Directors of the Issuer, and, in the case of a lost Certificate or in default of proof of destruction of a Certificate, on such indemnity as the Directors of the Issuer may reasonably deem adequate having been given, a new Certificate in lieu thereof shall be issued to the person entitled to such lost or destroyed Certificate. An entry as to the issue of the new Certificate and indemnity (if any) shall be made by the Issuer in the Register.

TRANSFER

(D)

The Notes are transferable in integral multiples of US$100,000 nominal and integral multiples of US$1,000.00 in excess thereof. Any attempted transfer of the Notes in a block having a nominal amount of less than US$100,000.00 shall be deemed to be void and of no legal effect whatsoever. Any transfer shall be accomplished by instrument in writing in the prescribed form or such other form as the Trustee may approve.

143

(E)

Every instrument of transfer must be signed by the transferor or, where the transferor is a corporation, given under its common seal and the transferor shall be deemed to remain the owner of the Notes to be transferred until the name of the transferee is entered in the Register in respect thereof; provided, that, in the case of partly paid Notes, the instrument of transfer must also be signed by or on behalf of the transferee.

(F)

Every instrument of transfer must be left for registration at the place where the Register shall for the time being be kept accompanied by the Certificate for the Notes to be transferred and such other evidence as the Directors or other officers of the Issuer authorised to deal with transfers may reasonably require to prove the title of the transferor or his right to transfer the Notes and if the instrument is executed by some other person on his behalf the authority of that person to do so.

(G)

All instruments of transfer which shall be registered will be retained by the Registrar and copies of such instruments shall be provided to the Issuer.

(H)

The executors or administrators of a deceased registered holder of Notes (not being one of several joint holders) and, in the case of the death of one or more of several joint holders, the survivor or survivors of such joint holders shall be the only person or persons recognised by the Issuer as having any title to such Notes.

(I)

Any person becoming entitled to Notes in consequence of the death or bankruptcy of the holder of such Notes may upon producing such evidence that he holds the position in respect of which he proposes to act under this paragraph or of his title as the Issuer shall reasonably think sufficient be registered himself as the holder of such Notes or, subject to the preceding paragraphs as to transfer, may transfer such Notes. The Issuer shall be at liberty to retain the principal, premium (if any) and interest in respect of any Notes to which any person has become entitled under this paragraph until such person shall be registered as aforesaid or shall duly transfer such Notes.

2.	PAYMENT

(A)

Payment of the interest in respect of any Notes may be made by (i) wire transfer to any registered account with a banking institution located in the United Kingdom or the United States designated in writing by such person to the Issuer no later than the related record date or (ii) if a request for a wire transfer has not been received by the Trustee or the Issuer, by cheque made payable to and sent to the relevant holder at his registered address or, in the case of joint holders, made payable to and sent to that one of the relevant joint holders who is first named on the Register in respect of such Notes at his registered address or made payable to such person or persons and sent to such address as the relevant holder or all the relevant joint holders may in writing direct. Every such cheque may be sent through the post at the risk of the relevant holder or relevant joint holders and due payment of the cheque shall be a satisfaction of the interest represented thereby.

144

(B)

Payment of the principal and premium (if any) in respect of the Notes may be made by (i) wire transfer to any registered account with a banking institution located in the United Kingdom or the United States designated in writing by such person to the Issuer no later than the related record date or (ii) if a request for a wire transfer has not been received by the Trustee or the Issuer, by cheque made payable to the relevant holder or, in the case of joint holders, to all such relevant joint holders or to such person or persons as the relevant holder or all the relevant joint holders may in writing direct and sent to the holder at his registered address, or in the case of joint holders, to that one of the relevant joint holders who is first named on the Register in respect of such Notes at his registered address or to such address as the relevant holder or all the relevant joint holders may in writing direct. Every such cheque may be sent through the post at the risk of the holder or relevant joint holders and due payment of the cheque shall be a satisfaction of the principal and premium (if any) represented thereby.

(C)

Where payment is to be made by wire transfer to a registered account, payment instructions (for value the due date or, if that is not a Business Day (as defined below), for value the first following day which is a Business Day) will be initiated and, where payment is to be made by cheque, the cheque will be mailed, on the Business Day preceding the due date for payment or, in the case of a payment of principal or a payment of interest due otherwise than on an Interest Payment Date, if later, on the Business Day on which the relevant Certificate is surrendered at the registered office of the Trustee.

(D)

3.	NOTICES

(A)

Any notice may be given to any Noteholder by sending the same by post in a prepaid letter addressed to such Noteholder at his registered address. In the case of joint holders of any Notes a notice given to the Noteholder whose name stands first on the register in respect of such Notes shall be sufficient notice to all the joint holders.

(B)

Any such notice as is referred to in paragraph 3(A) above given by post shall be deemed to have been served on the day following the day on which the same was posted or, in the case of any notice posted by second-class post, on the second day following that on which it was posted and in proving such service it shall be sufficient to prove that the envelope containing the notice was properly addressed, stamped and posted.

145

THE THIRD SCHEDULE

PROVISIONS FOR MEETINGS OF NOTEHOLDERS

The Issuer and the Trustee may respectively and the Trustee shall, at the request in writing of registered holders of not less than one-tenth in principal amount of the Notes for the time being outstanding and upon receiving such indemnity as the Trustee may require against the cost of convening and holding the meeting, convene a meeting of the Noteholders. Any such meeting shall be held at such place in England and at such time as the Trustee shall determine or approve.

At least fourteen days’ notice or, when the meeting is being convened for the purpose of passing an Extraordinary Resolution, at least twenty-one days’ notice (exclusive in each case of the day on which the notice is served or deemed to be served and of the day for which the notice is given) of every meeting shall be given to the Noteholders in the manner provided in this Schedule. Such notice shall specify the place, day and hour of the meeting and the general nature of the business to be transacted at the meeting but it shall not be necessary, except in the case of an Extraordinary Resolution, to specify in such notice the terms of any resolution to be proposed. A copy of such notice shall be sent by post to the Trustee unless the meeting shall be convened by the Trustee and to the Issuer unless the meeting shall be convened by the Issuer. The accidental omission to give notice to, or the non-receipt of notice by, any of the Noteholders shall not invalidate the proceedings at any meeting.

At any meeting one or more persons being Noteholders present in person or by proxy or (in the case of a Noteholder which is a corporation) by its duly authorised representative and holding or representing in the aggregate one-twentieth in principal amount of the Notes for the time being outstanding shall form a quorum for the transaction of business except for the purpose of passing an Extraordinary Resolution. The quorum for passing an Extraordinary Resolution shall be one or more persons being Noteholders present in person or by proxy or (in the case a Noteholder which is a corporation) by its duly authorised representative and holding or representing in the aggregate a clear majority in principal amount of the Notes for the time being outstanding. No business (other than the choosing of a chairman) shall be transacted at any meeting unless the requisite quorum is present at the commencement of business.

If within 15 minutes (or such longer period not exceeding 30 minutes as the chairman may decide) from the time appointed for holding the meeting a quorum is not present the meeting, if convened upon the requisition of Noteholders, shall be dissolved. In any other case, it shall stand adjourned to such day and time being not less than thirteen days nor more than forty-two days thereafter and to such place as may be appointed by the chairman and at such adjourned meeting one or more persons being Noteholders present in person or by proxy or (in the case of a Noteholder which is a corporation) by its duly authorised representative whatever the principal amount of the Notes for the time being outstanding held or represented by them shall from a quorum for the transaction of business including the passing of Extraordinary Resolutions. At least seven days’ notice (exclusive as aforesaid) of any adjourned meeting of Noteholders at which an

146

Extraordinary Resolution is to be proposed shall be given in the same manner as for an original meeting and such notice shall state that one or more persons being Noteholders present in person or by proxy or (in the case of a Noteholder which is a corporation) by its duly authorised representative at the adjourned meeting whatever the principal amount of the Notes for the time being outstanding held or represented by them will form a quorum.

A person nominated in writing by the Trustee shall preside as chairman at every meeting and if no such person is nominated or if at any meeting no person nominated shall be present within five minutes after the time appointed for holding the meeting the Noteholders present shall choose one of their number to be chairman. The chairman of an adjourned meeting need not be the same person as was the chairman of the meeting from which the adjournment took place. The Trustee and the Trustee’s legal and financial advisers and any director, officer or employee of a corporation being a trustee of these presents and any director and the secretary and the legal and financial advisers of the Issuer and any other person authorised in that behalf by the Trustee may attend and be heard at any meeting.

6.	The chairman may and shall if so directed by the meeting adjourn the meeting from time to time and from place to place but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting from which the adjournment took place.

At any meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands) a poll is demanded by the chairman or by one or more Noteholders present in person or by proxy or (in the case of a Noteholder which is a corporation) by its duly authorised representative and holding or representing not less than one-twentieth in principal amount of the Notes for the time being outstanding. Unless a poll is so demanded a declaration by the chairman that a resolution has been carried or carried unanimously or by a particular majority or not carried by a particular majority or lost shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against such resolution.

8.	If a poll is duly demanded it shall be taken in such manner as the chairman may direct and the result of a poll shall be deemed to be the resolution of the meeting at which the poll was demanded.

9.	In the case of an equality of votes whether on a show of hands or on a poll the chairman of the meeting at which the show of hands takes place or at which the poll is demanded shall be entitled to a casting vote in addition to the vote or votes (if any) to which he may be entitled as a Noteholder.

10.	A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time and place as the chairman directs.

147

11.	The demand for a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which the poll has been demanded. The demand for a poll may be withdrawn.

12.

On a show of hands every Noteholder who is present in person or by proxy or (in the case of a Noteholder which is a corporation) by its duly authorised representative shall have one vote. On a poll every Noteholder who is so present shall have one vote in respect of each US$1 in principal amount of Notes of which he is the holder or in respect of which he is the proxy or duly authorised representative.

13.

In the case of joint registered holders of Notes the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register in respect of the joint holding.

14.	On a poll votes may be given either personally or by proxy or (in the case of a Noteholder which is a corporation) by its duly authorised representative and a Noteholder entitled to more than one vote need not (if he votes) use all his votes or cast all the votes he uses in the same way.

15.

The instrument appointing a proxy shall be in such form as the Trustee may approve and shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its common seal or under the hand of an officer or attorney duly authorised and such instrument shall be deemed to confer authority to demand or join in demanding a poll.

16.	A person appointed to act as a proxy need not be a Noteholder.

17.

The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power or authority shall be deposited at the registered office of the Issuer or such other place as the Trustee shall approve not less than 48 hours before the time appointed for holding the meeting or adjourned meeting or for the taking of the poll at which the person named in the instrument proposes to vote and in default the instrument of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiry of 12 months from the date named in it as the date of its execution.

18.

A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed; provided, that, no intimation in writing of such death, insanity or revocation shall have been received by the Issuer before the commencement of the meeting or adjourned meeting or the taking of the poll at which the proxy is to be used.

19.	A meeting of the Noteholders shall in addition to all other powers have the following powers exercisable by Extraordinary Resolution only, that is to say:

(A)

Power to sanction any scheme for the reconstruction of the Issuer or for the amalgamation of the Issuer with any other company.

148

(B)

Power to sanction any scheme or proposal for the sale or exchange of the Notes for, or the conversion of the Notes into, shares, stock, debentures, debenture stock or other obligations or securities of the Issuer or any other company formed or to be formed or cash or partly for, or into, such shares, Notes, debentures, debenture Notes or other obligations or securities as aforesaid and partly for, or into, cash and for the appointment of some person with power on behalf of the Noteholders to execute an instrument of transfer of the Notes held by them in favour of the person to, or with whom, the Notes are to be sold or exchanged, respectively.

(C)

Power to sanction the release of the Issuer from the payment of all or any part of the principal, premium (if any) and interest in respect of the Notes and all other moneys payable pursuant to these presents.

(D)

Power to sanction any modification, abrogation or compromise of, or arrangement in respect of, the rights of the Noteholders against the Issuer whether such rights shall arise under these presents, the Certificates for the Notes or otherwise.

(E)

Power to assent to any modification or abrogation of the covenants or provisions contained in these presents proposed or agreed to by the Issuer and to authorise the Trustee to concur in and execute any supplemental trust deed embodying any such modification.

(F)

Power to agree to the release of any trustee of these presents from any liability in respect of anything done or omitted to be done by such trustee before the giving of such release.

20.

An Extraordinary Resolution passed at a meeting of the Noteholders duly convened and held in accordance with the provisions of these presents shall be binding upon all the Noteholders whether present or not present at the meeting and the Issuer, each of the Noteholders and (subject to the provisions for its indemnity contained in these presents) the Trustee shall be bound to give effect thereto accordingly.

21.

The expression “ Extraordinary Resolution ” means a resolution passed at a meeting of the Noteholders duly convened and held in accordance with the provisions herein contained and carried by a majority consisting of not less than three-fourths of the persons voting thereat upon a show of hands or, if a poll is duly demanded, by a majority consisting of not less than three-fourths of the votes given on such poll.

22.

Minutes of all resolutions and proceedings at every meeting shall be made and duly entered in books to be from time to time provided for that purpose by the Issuer and any such minutes as aforesaid if purporting to be signed by the chairman of the meeting shall be conclusive evidence of the matters therein stated and until the contrary is proved every such meeting in respect of the proceedings of which minutes have been made and signed shall be deemed to have been duly held and convened and all resolutions passed thereat

149

to have been duly passed. Notice of the result of the voting on any resolution duly considered by the Noteholders shall be given by the Issuer not more than 14 days after such result is known; provided, that, the non-receipt of such notice by any Noteholder shall not invalidate such result.

23.

A resolution in writing signed by or on behalf of the registered holders of not less than 95% per cent. in principal amount of the Notes or by or on behalf of the registered holders of not less than 95% per cent. in principal amount of the Notes shall for all purposes of these presents be as valid and effectual as and be deemed to be an Extraordinary Resolution passed at a meeting of the Noteholders or of the holders of the Notes duly convened and held in accordance with the provisions herein contained. Such resolution in writing may be contained in one document or in several documents in or substantially in like form each signed by or behalf of one or more of the relevant Noteholders.

24.

Subject to all other provisions of these presents, the Trustee may, without the consent of the Issuer or the Noteholders, prescribe such further regulations regarding the requisitioning and/or the holding of meetings of Noteholders and attendance and voting thereat as the Trustee may in its sole discretion think fit.

150

THE FOURTH SCHEDULE

FORM OF QUARTERLY REPORT

[Date]


As of [March 31, June 30, September 30, or December 31,] 20

Total Shareholders’ Equity	US$

Consolidated Debt to Total Shareholders’ Equity		%

Total Assets	US$

Return on Average Equity		%

For Property & Casualty Companies

Expense Ratio		%

Loss and LAE Ratio		%

Combined Ratio		%

Net Premiums Written (annualized) to Shareholders’ Equity		%

151

IN WITNESS WHEREOF, the parties hereto have caused these presents to be duly executed AS A DEED by their respective officers thereunto duly authorized, as of the day and year first above written.


EXECUTED as a DEED by	)
CHAUCER HOLDINGS PLC	)
	)
acting by Ewen Glmour, Director	)	/s/ Ewen Glmour, Director
	)
and David Turner, Secretary	)	/s/ David Turner, Secretary


EXECUTED as a DEED by	)
WILMINGTON TRUST (CHANNEL	)
ISLANDS), LTD.	)
	)
acting by Simon Vivian	)	/s/ Simon Vivian
	)
and Laurence Armstrong	)	/s/ Laurence Armstrong

152

Exhibit 10.1

The Hanover Insurance Group, Inc.

2011-2012 Compensation of Non-Employee Directors

— For the annual service period beginning on May 17, 2011, the date of the 2011 Annual Meeting of Shareholders—


Standard Fees	Description
Annual Director Retainer
- Stock Component	-	$60,000 valuation
	-	Granted on May 17, 2011. Issued pursuant to Company’s 2006 Long-Term Incentive Plan (the “2006 Plan”)
- Cash Component	-	$50,000
	-	Payable on or after May 17, 2011

Board Meeting Fee	-	$2,200 per meeting attended in person
	-	$1,100 per meeting attended telephonically
Committee Meeting Fee	-	$1,500 per Committee meeting attended in person
	-	$750 per Committee meeting attended telephonically
	-	Meetings of the independent directors designated as meetings of the Committee of Independent Directors (the “ CID ”) are to be compensated as a meeting of the Board, provided, however, meetings of the CID that are held in conjunction with Board meetings are not to be separately compensated.

Committee Chairperson Annual Retainer	-	$9,000 for the chairperson of the Nominating and Corporate Governance Committee, payable on or after May 17, 2011
	-	$12,500 for the chairperson of the Compensation Committee, payable on or after May 17, 2011
	-	$20,000 for the chairperson of the Audit Committee, payable on or after May 17, 2011

Chairman of the Board Retainer	-	$85,000
	-	Payable on or after May 17, 2011


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 (4.19% in 2011). At the election of each director, cash deferrals of meeting fees and 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 meeting fees and 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

Exhibit 10.2

LOGO

CHAUCER HOLDINGS PLC

and

ROBERT STUCHBERY

Service Agreement

LOGO

Service Agreement


Dated		20 January 2010

Between:

(1)	CHAUCER HOLDINGS PLC a company registered in England and Wales under number 00184915 whose registered office is at Plantation Place, 30 Fenchurch Street, London, EC3M 3AD (the Company) ; and

(2 )	ROBERT STUCHBERY of (address) (the Employee ) (and referred to as you in the course of this Agreement).

1	Commencement of employment

1.1

Your employment with the Company commenced on 1 October 1987 and shall continue until either party gives notice to the other in accordance with Clause 14.1.

1.2

You warrant that by entering into this Agreement or any other arrangements with the Company you are or will not be in breach of or subject to any express or implied terms of any contract with, or other obligation to, any third party binding on you, including, without limitation, any notice period or the provisions of any restrictive covenants or confidentiality obligations arising out of any employment with any other employer or former employer. You hereby indemnify and hold harmless the Company against all claims, costs, damages and expenses which the Company incurs in connection with any claim in relation to such contract or covenant by which you are so bound or subject.

1.3

You warrant that at the time of entering into this Agreement you have the right to work in the United Kingdom and you agree to provide to the Company copies of all relevant documents in this respect at the request of the Company, and in any event prior to the commencement of your employment. If at any time during the course of this Agreement you cease to have the right to work in the United Kingdom the Company may immediately terminate your employment without payment of compensation.

1.4

Your employment under this Agreement shall terminate on the last day of the month in which you shall attain the Company’s retirement age from time to time. This is currently 65 years. However, you may retire, without requiring consent of the Company, on attaining the Normal Retirement Age of the Pension Scheme which is currently 60 years or otherwise as is determined by the rules of the Pension Scheme from time to time in force,

1.5

In accordance with Lloyd’s requirements and where it is applicable to your role you will be required to take the Lloyd’s Introductory Test (the “ Test ”) within fifteen months of the date of issue of a Lloyd’s Substitute Ticket if you have not already done so. It is a condition of your employment that you pass the Test within a fifteen month period from the commencement of your employment and failure to do so may result in your employment being terminated with notice on the grounds that you would no longer be able to work at Lloyd’s and attendance at Lloyd’s forms an essential part of your duties.

2	Job title and duties

2.1

You shall serve as Chief Executive Officer or in any other capacity as you and the Company may agree with effect from 1 January 2010. The nature of the Company’s business may result in changes occurring to the content of your role from time to time. You may also be required to carry out such additional or alternative tasks as may from time to time be reasonably required of you.

2.2

The Company reserves the right to appoint any other person to act jointly or in conjunction with (or in place of you if you are suspended or placed on Garden Leave (as defined in Clause 13.1) in accordance with the provisions of this Agreement) you in any position which you may be assigned from time to time.

2.3

You shall:

2.3.1

faithfully and diligently perform such duties as you are required to undertake from time to time;

2.3.2

obey the reasonable and lawful directions of the Company;

2.3.3

exclusively devote the whole of your time, skills, ability and attention to the business of the Company;

2.3.4

at all times act in the way you consider in good faith, most likely to promote the success of the Company for the benefit of the members as a whole in accordance with section 172 of the Companies Act 2006;

2.3.5

perform your services in a professional and competent manner and in co-operation with others;

2.3.6

keep the Company at all times promptly and fully informed (in writing if so requested) of your conduct of and activities in relation to the business of the Company and any Group Company and provide such explanations in connection therewith as the Company may require from time to time including for the avoidance of doubt, any misconduct of other employees or directors or your own; and

2.3.7

comply with the duties set out in Companies Act 2006

2.4

You shall at all times comply with and shall not cause the Company or any Group Company to breach or contravene any and all rules, regulations and requirements of any regulatory body, stock exchange, code of conduct or statutory provision to which you, the Company and/or any Group Company is from time to time subject, including, without limitation, the UK Listing Authority (including the Model Code), the Financial Services and Markets Act 2000, any rules and guidelines of the Financial Services Authority and/or the London Stock Exchange and/or Lloyd’s of London binding on the Company or any Group Company as introduced from time, and any rules, regulations or procedures made by the Company and/or any Group Company from time to time.

2.5

You shall if and so long as the Company requires and without further remuneration therefore (except as otherwise agreed) carry out duties on behalf of any Group Company and act as a director of any Group Company.

2.6

The Company may at its sole discretion transfer your employment and assign the provisions of this Agreement to any Group Company at any time, including on a secondment basis.

3	Place of work

Your place of work will be at the offices of the Company in the City of London or such other place of business as the Company may reasonably require. You may be required to work outside the United Kingdom from time to time but, unless otherwise agreed with the Company, you will not be required to work outside the United Kingdom for a consecutive period of more than one month.

4	Remuneration

4.1

Your basic salary will be £350,000 per annum less any deductions required by law and shall be paid in equal instalments monthly in arrears on or around the 27 ^th of each month. Your basic salary shall accrue from business day to business day on the basis of 1/260 annual salary.

4.2

You agree that the Company may deduct from the basic salary or any other sum due to you (including any pay in lieu of notice) any amounts due to the Company including, without limitation, any overpayment of salary, loan or advance made to you, the cost of repairing any damage or loss to the Company’s property caused by you (and of recovering such costs) and any sums in respect of Clause 12.7 of this Agreement.

4.3

Your basic salary shall be reviewed annually at the end of the calendar year and any resulting changes will be effective from the following January. There is no obligation on the Company to increase your basic annual salary pursuant to any such review or otherwise.

4.4

The remuneration specified in Clauses 4 and 5 shall be inclusive of any fees to which you may be entitled as a director of the Company or any Group Company or of any other Company or any unincorporated body in which you hold the office as nominee or representative of the Company.

4.5

Payment of basic salary and bonus (if any) to you shall be made either by the Company or by a Group Company and, if by more than one company, in such proportions as the Company may from time to time think fit.

5	Discretionary bonuses

5.1

The Company may operate from time to time a non-contractual discretionary bonus scheme (the Chaucer Annual Bonus Scheme). The Company reserves the right to amend, suspend or withdraw the Chaucer Annual Bonus Scheme at any time.

5.2

Subject to the rules of the Chaucer Annual Bonus Scheme, the Company at its sole and absolute discretion and determination may determine whether or not to declare and pay a discretionary bonus payment to you. Please see the Chaucer Annual Bonus Scheme rules for further details.

5.3

The final decision as to whether any targets have been achieved and the decision as to whether to award a bonus in any given year, the amount of such bonus and when it is paid will be at the discretion of the Company. You acknowledge that you have no contractual right to receive a bonus until it is declared in writing in respect of the financial year to which it relates and that you will not acquire such a right on the basis that during your employment you have received one or more bonus payments.

5.4

You shall not be entitled to receive a bonus if on the date that the bonus for the relevant bonus period is declared you are no longer employed by the Company (for whatever reason and howsoever caused and whether the termination of your employment was in breach of contract or otherwise) or any Group Company or you are under notice of termination of employment (whether such notice was given by you or the Company) or you are on Garden Leave (as defined below in Clause 13.1) or you are suspended pursuant to the terms of this Agreement.

5.5

You shall also be eligible to be selected to participate in the Chaucer Deferred Share Bonus Plan or its confirmed equivalent. Please see the rules of the Chaucer Annual Bonus Scheme and the Chaucer Deferred Share Bonus Plan for further details.

6	Pension scheme

6.1

The Executive shall be entitled to be a member of the Company’s defined benefit Pension Scheme (“the Scheme”) subject to and upon the rules of the Scheme from time to time in effect or if the Executive elects not to join the Scheme to require the Company to pay such amount (calculated as a percentage of the Executive’s basic salary payable pursuant to Clause 4.1) as shall be agreed with the Board to a personal pension scheme of the Executive’s choice. A copy of the rules of the Scheme can be obtained from the Human Resources Department. For the avoidance of doubt, the Company shall not be liable to compensate the Executive in relation to any tax he may be obliged to pay on any such payments in so far as they may not be paid into an approved pension scheme.

6.2

The Company shall be entitled at any time to terminate the Company’s Pension Scheme or any Employee’s membership of it subject to providing Employees with the benefit of an equivalent Pension Scheme (“the New Scheme”) each and every benefit of which shall be not less favourable than the benefits provided to Employees under the company’s existing Pension Scheme, ensuring that the Employees are fully credited in the New Scheme for their pensionable service in the Company’s existing Pension Scheme for their pensionable service in the Company’s existing Pension Scheme as if those years had been under the New Scheme.

7	Permanent health insurance scheme

7.1

You will be automatically enrolled in the Company’s permanent health insurance scheme (the Scheme ) at the Company’s expense, subject to:

(a)

the terms of the Scheme, as amended from time to time;

(b)

the rules or insurance policy of the relevant insurance provider, as amended from time to time; and

(c)

you satisfying the normal underwriting requirements of the relevant insurance provider of the Scheme and the premium being at a rate which the Company in its sole and absolute discretion considers reasonable.

Full details of the Scheme are available from Human Resources.

7.2

The Company shall only be obliged to make payments to you under the Scheme if it has received payment from the insurance provider for that purpose.

7.3

If the insurance provider refuses for any reason to provide permanent health insurance benefit to you, the Company shall not be liable to provide to you any replacement benefit of the same or similar kind or to pay any compensation in lieu of such benefit or to make any representations to the insurer on your behalf and you shall have no claim against the Company in respect of that benefit.

7.4

If you are receiving benefits under the Company’s permanent health insurance scheme the Company shall be entitled to appoint a successor to you to perform all or any of the duties required of you under the terms hereunder and your duties shall be amended accordingly.

8	Other benefits

You are entitled to the following benefits provided at the Company’s expense:

(a)

Death in service of 4 x basic salary;

(b)

Private medical cover;

(c)

Season ticket loan

(d)

Cycle scheme;

(e)

Childcare vouchers;

(f)

Eye care vouchers;

(g)

GP Medical scheme;

(h)

All Employee Share Ownership Scheme; and

(i)

Sharesave Scheme (SAYE).

Please

see the Staff Handbook for further details.

8.2

The Company reserves the right to terminate any or all of the schemes referred to in Clauses 5, 7and 8.1 or to amend them at any time.

8.3

All insured benefits are subject to the policy terms and conditions upon which they are incepted or renewed and to you and, if appropriate, your spouse and/or long term partner (which, for the purposes of this Clause, means an unmarried person of either sex who, whilst not related to you by birth or marriage, has been in a committed relationship of mutual caring with you for at least a year and who shares your principal place of residence and intends to do so indefinitely) and/or dependant children meeting the underwriting criteria acceptable to the Company. In the event that an insurer of any insured benefit under this Agreement does not meet a claim made by you or on your behalf, then you shall have no claim against the Company in respect of that insured benefit.

9	Expenses

The Company shall reimburse all reasonable out of pocket expenses properly incurred by you in the performance of the duties under this Agreement including travelling, subsistence and entertainment expenses provided you follow the Company’s guidelines/allowances In force at the relevant time and provided that you shall, where reasonably practicable, provide the Company with vouchers, invoices or such other evidence of such expenses as the Company may reasonably require.

10	Hours of work

10.1

Your normal working hours are Monday to Friday from 9.30am to 5.30pm on each working day with one hour for lunch. If you work less than normal full time hours your holiday entitlement (including public and / or bank holidays) will be calculated in direct proportion to the hours you have worked. From time to time you may be required to work such other hours as the Company considers reasonably necessary for you to perform your duties. No further remuneration is payable in respect of such other hours.

10.2

By entering into this Agreement you confirm that, for the purposes of the Working Time Regulations 1998, you agree to work in excess of 48 hours per week if and when required. You may vary these additional hours by giving three months’ notice in writing to Human Resources.

10.3

You must devote the whole of your time, attention and abilities during your hours of work for the Company to your duties for the Company and its Group Companies. During your employment, you may not outside the hours you work for us, without prior written consent, be directly or indirectly involved in any other business or employment. We will not, however, unreasonably withhold permission and will take account of the number of hours that you work for us and the nature of the work with us.

11	Holidays

11.1

In addition to the usual public holidays you will be entitled to 35 working days’ paid holiday in each calendar year.

11.2

Holidays may only be taken at such time or times as are approved beforehand by the Company. You must give reasonable notice of proposed holiday dates by completing the Company’s standard holiday form which must be signed off in advance by the Company.

11.3

The holiday year runs from 1 January to 31 December. With the agreement of the Company, you may carry forward up to 5 days untaken holiday into the next holiday year, which all must be taken by the end of the following calendar year or will be forfeited and no payment will be made in respect of any days so forfeited. You will not generally be permitted to take more than 10 consecutive working days’ holiday at any one time.

11.4

Upon termination of your employment you will receive pay in lieu of accrued but untaken holiday and the Company may deduct an appropriate sum in respect of days taken in excess of your pro rata entitlement from your final remuneration on the basis that one day’s holiday will be calculated as 1/260ths of your basic annual salary.

11.5

In the event that notice of termination of this Agreement is served by either party, the Company may require you to take any accrued but untaken holiday during this notice period (whether or not you are on Garden Leave (as defined below in Clause 13.1)).

11.6

Further provisions in relation to holiday, in particular as to unpaid holiday and cash exchange for holiday, are set out in the Staff Handbook.

12	Sickness and other absence

12.1

If you are unable to attend at work by reason of sickness or injury or any unauthorised reason you must inform the Company as soon as possible on the first day of absence (and in any event not later than 10.00 am on the first day of absence) and, in the case of absence of uncertain duration, you must keep the Company regularly informed of the reason for your continued absence and your likely date of return. You are expected to observe this rule very strictly since failure to do so entitles the Company to stop payment in respect of each day you fail to notify the Company.

12.2

If your absence, due to sickness or injury, is for less than seven days (whether or not working days), on your return to work you are required to immediately complete a self-certification form available from the Company. If your absence continues for more than seven consecutive days (whether or not working days) you must provide the Company with a doctor’s certificate from the seventh consecutive day of sickness or injury. This doctor’s certificate must be provided to the Company promptly following the seventh consecutive day of absence. If illness continues after the expiry of the first certificate, further certificates must be provided promptly to cover the whole period of absence.

12.3

For the purposes of the Statutory Sick Pay scheme the agreed ‘qualifying days’ are Monday to Friday.

12.4

Subject to your compliance with the Company’s sickness absence procedures (as amended from time to time), the Company will pay full salary and contractual benefits during any period of absence due to sickness or injury for up to an aggregate of 3 months in any 52 week period (whether such absence is continuous or intermittent in any calendar year). Such payment shall be inclusive of any Statutory Sick Pay due in accordance with applicable legislation in force at the time of absence (less any other statutory benefits applicable to you). Thereafter, the Company shall pay Statutory Sick Pay or equivalent benefit up to 28 weeks to which you may be entitled subject to your compliance with the appropriate rules. Thereafter, you will be required to claim incapacity benefit.

12.5

Whether absent from work or not, you may be required to undergo a medical examination by a Company doctor. You authorise the medical practitioner to disclose and discuss with the Company any report prepared as a result of any such examination pursuant to the Access to Medical Reports Act 1988. The Company has the right to postpone your return to work (and the continuance and reinstatement of your normal pay, if appropriate) until the medical practitioner has confirmed that you are fit to perform your duties.

12.6

The payment of sick pay in accordance with this Clause 12 is without prejudice to the Company’s right to terminate this Agreement prior to the expiry of your right to payments irrespective of the provisions of any outstanding or prospective entitlement to pay in accordance with Clause 12.4, private medical insurance, permanent health insurance or long term disability benefits. The Company will not be liable for any loss arising from such termination.

12.7

If your absence shall be occasioned by the actionable negligence of a third party in respect of which damages are recoverable, you shall:

12.7.1

forthwith notify the Company of all the relevant circumstances and of any claim, compromise, settlement or judgment made or awarded in connection therewith;

12.7.2

if the Company so requires, refund to the Company such sum as the Company may determine, not exceeding the lesser of:

(a)

the amount of damages recovered by you under such compromise, settlement or judgment; and

(b)

the sums advanced to you in respect of the period of incapacity.

12.8

Further provisions in relation to sickness are set out in the Staff Handbook.

13	Garden leave

13.1

The Company reserves the right to require that you do not attend the Company premises or have contact with other staff, clients, agents, ceding companies, brokers, representatives and suppliers of the Company or any Group Company for such period as the Company feels is reasonable. This includes any period or part of any period during which you are serving notice as set out in Clause 14 below (referred to in this Agreement as Garden Leave ).

13.2

You will continue to owe all other duties and obligations (whether express or implied including fidelity and good faith) during such period of Garden Leave. During any period of Garden Leave you shall continue to receive full pay and benefits excluding any bonus.

13.3

In the event that you are placed on Garden Leave the Company is entitled to provide you with no duties or such duties as the Company shall in its absolute discretion determine. Further the Company may announce to employees, clients, other third parties, and within Lloyd’s of London that you have been given notice of termination or that you have resigned as appropriate. By placing you on Garden Leave, the Company will not be in breach of this Agreement or any implied duty of any kind whatsoever nor will you have any claim against the Company in respect of any such action.

13.4

During any period of Garden Leave you will keep the Company informed of your whereabouts and remain readily contactable and available for work. in the event that you are not available for work having been requested and having been given reasonable notice (in the Company’s opinion) by the Company to do so, you will, notwithstanding any other provision of this Agreement, forfeit any right to salary and contractual benefits.

13.5

During any period of Garden Leave the Company may require you to deliver up any Confidential Information or property of the Company and upon instruction, delete any emails, spreadsheets or other Confidential Information and refrain from accessing the computer or other similar data system of the Company and you will confirm your compliance with this Clause 13.5 in writing if requested to do so by the Company.

13.6

During any period of Garden Leave the Company may require you to take any accrued but untaken holiday entitlement. For the avoidance of doubt, the normal policy applicable to the approval of holiday by you prior to you taking holiday continues to apply during any period of Garden Leave.

13.7

During any period of Garden Leave the Company may request that you resign from any office of the Company and the resignation shall not constitute grounds for a claim for constructive dismissal.

14	Notice

14.1

If either party wishes to terminate your employment, it should give to the other 12 months notice in writing. This does not preclude the Company from terminating your employment without notice in certain circumstances e.g. gross misconduct.

14.2

The Company reserves the right in its sole and absolute discretion to give a payment to you in lieu of all or any part of the notice of termination (whether such notice was given by you or the Company). Pay in lieu will consist of basic salary and benefits set out in Clause 8 which shall be valued at the cost to the Company of providing such benefits for all or any unexpired part of the notice period. For the avoidance of doubt, any payment in lieu made pursuant to this Clause 14.2 will not include any element in relation to:

(a)

any bonus or commission payments that might otherwise have been due to you during the period for which the payment in lieu is made; and

(b)

any payment in respect of any holiday entitlement that would have accrued during the period for which the payment in lieu is made.

14.3

Your employment may be terminated immediately without notice where you:

(a)

commit gross misconduct which includes, but is not limited to, dishonesty, fraud, theft, being under the influence of alcohol or drugs at work, causing actual or threatening physical harm and causing damage to Company property;

(b)

are made bankrupt;

(c)

commit a material or repeated breach or non-observance of your duties or any of the provisions of this Agreement or fail to observe the lawful directions of the Company;

(d)

are convicted of a criminal offence (other than an offence under the road traffic legislation in the United Kingdom or elsewhere for which a non-custodial sentence is imposed);

(e)

become of unsound mind or a patient for the purpose of any statute relating to mental health;

(f)

fail to reach performance requirements set by the Company after receiving a written warning regarding your performance from the Company;

(g)

are guilty, in the reasonable opinion of the Company, of any material breach of any Lloyd’s Byelaw or any provision of the Lloyd’s Act 1982, or any rules or guidelines applicable to the Company issued by the Financial Services Authority from time to time not capable of being remedied within a reasonable time or, if capable of remedy within a reasonable time, not being remedied within such time;

(h)

are prevented or suspended from working in financial and/or insurance services or have any restriction placed upon your activities by the Financial Services Authority, Lloyd’s of London or similar regulatory body;

(i)

act in a manner which in the opinion of the Company, brings the Company into disrepute or otherwise prejudices or is considered likely to prejudice the reputation of the Company;

(j)

have been disqualified from being a director by reason of any order made under the Company Directors Disqualification Act 1996 or any other enactment;

(k)

resign of your own choice as a director of the Company, not being at the request of the Company or the board of directors of the Company;

(I)

in the reasonable opinion of the Company, are guilty of any serious negligence in connection with or affecting the business or affairs of the Company; and/or

(m)

are unfit to carry out the duties hereunder because of sickness, injury or otherwise for an aggregate period of 26 weeks in any 52 week period even if, as a result of such termination, you would or might forfeit any entitlement to benefit from sick pay under Clause 12.4 above or permanent health insurance under Clause 7 above.

14.4

Any delay or forbearance by the Company in exercising any right of termination in accordance with Clause 14.3 above will not constitute a waiver of such right.

14.5

If (a) the Company in general meeting shall remove you from the office of director of the Company or (b) under the Articles of Association for the time being of the Company you shall be obliged to retire by rotation or otherwise and the Company in general meeting shall fail to re-elect you as a director of the Company (either such case being referred to in this Clause 14.5 as an “ Event ”), then your employment shall automatically terminate with effect from the date of the Event, but if such termination shall be caused by any act or omission of either party (and, for the avoidance of doubt, an act or omission of the Company’s shareholders shall be an act or omission of the Company for these purposes) without the consent, concurrence or complicity of the other party, then such act or omission shall be deemed a breach of this Agreement, and such termination shall be without prejudice to any claim for damages of either party in respect of such breach.

14.6

The termination by the Company of your employment will be without prejudice to any claim which the Company may have for damages arising from your breach of this Agreement.

14.7

On termination of your employment (howsoever arising and whether terminated in breach or otherwise) or on either the Company or you having served notice of such termination, you shall:

14.7.1

at the request of the Company resign from office as a director of the Company and all offices held by you in any Group Company;

14.7.2

forthwith deliver to the Company all Confidential Information and all materials in the scope of Clause 16 including copies of any materials and all credit cards and other property relating to the business of the Company or any Group Company which may be in your possession or under your power or control and provide a signed statement that you have fully complied with the obligations under this Clause 14.7.2; and

14.7.3

co-operate with the Company by providing such assistance as may reasonably be required in connection with any handover arrangements or any claim made by or against any the Company or any Group Company. For the avoidance of doubt such assistance may include attending meetings, reviewing documents, giving and signing statements/affidavits and attending hearings and giving evidence

15	Disciplinary, dismissal and grievance procedures

15.1

A copy of the Company’s disciplinary, dismissal and grievance procedures are set out in the Staff Handbook (a copy of which is on the Company’s intranet). These procedures do not form part of your contract of employment.

15.2

Any grievance concerning your employment should be taken up orally in the first instance with Human Resources. If the grievance is not resolved to your satisfaction, you should then refer to the grievance procedure.

15.3

The Company reserves the right to suspend you on full pay and benefits at any time for a reasonable period to investigate any matter that it reasonably believes you may be or may have been involved in.

16	Outside employment, confidential information, conflicting interests and return of company property

16.1

For the purposes of this Clause and Clause 13 above and Clause 17 below the expression Confidential Information shall include, but not be limited to, information which relates to any and all information (whether or not recorded in documentary form or on computer disk or tape), which may be imparted in confidence or which is of a confidential nature or which you may reasonably regard as being confidential or a trade secret, concerning the business, business performance or prospective business, financial information or arrangements, plans or internal affairs of the Company, any Group Company or any of their respective customers including, without prejudice to the generality of the foregoing, all client or customer lists, price sensitive information, technical information and specifications, drawings, designs, prototypes, models, reports, interpretations, forecasts, records, corporate and business plans and accounts, business methods, financial details, projections and targets, remuneration and personnel details, planned products, product specifications, planned services, marketing surveys, research reports, claims, claims statistics, renewal dates, premiums, discounts, in respect of risks accepted by the syndicates managed by the Company or any Group Company all placing information, rates, claims records, and disputes, in respect of the reinsurance programmes and structures arranged for the syndicates managed by the Company, all placing information, rates and claims records, markets used and their respective shares and pricing statistics,

aggregation of liability, distribution channels, budgets, fee levels, computer passwords, the contents of any databases, tables, know how documents or materials, commissions, commission charges, pricing policies and all information about research and development, the Company’s or any Group Company’s suppliers’, customers’ and clients’ names, addresses (including email), telephone, facsimile or other contact numbers and contact names, the nature of their business operations, their requirements for services supplied by the Company or any Group Company and all confidential aspects of their relationship with the Company or any Group Company and all information material to any dispute or litigation involving the Company, and any Group Company, or the Syndicates managed by the Company, or any Group Company.

16.2

During your employment by the Company you shall not, without the prior written consent of the Company, either solely or jointly, directly or indirectly, carry on or be engaged, concerned or interested in any other trade or business, including, but not limited to, carrying on business with the Company’s suppliers or dealers or introducing business, with which the Company is able to deal, to a third party, save that nothing in this Clause 16.2 shall prevent you from holding an investment by way of shares or other securities of up to 3% of the total issued equity share capital of any company where those equity shares are listed on a recognised investment exchange (as defined in section 285 of the Financial Services and Markets Act 2000) or traded on the Alternative Investment Market of the London Stock Exchange. Failure to secure advance permission in accordance with this Clause 16.2 may result in summary dismissal.

16.3

During your employment, you agree that you will not in competition with the Company or any Group Company:

16.3.1

deal with, canvass, solicit or endeavour to take away from the Company, whether directly or indirectly and whether on your own behalf or on behalf of any other person, firm, company or other entity any customers or prospective customers; or

16.3.2

directly or indirectly solicit or entice away from or endeavour to entice away from the Company any individual employed or engaged by the Company; or

16.3.3

directly or indirectly make preparations to compete with any business carried on by the Company or any Group Company. For the avoidance of doubt, such preparations shall include, but not be limited to, preparing a business plan, seeking finance for any competing business, interviewing potential employees and informing any client, customer, employee, officer, supplier, agent, worker or consultant of the Company or any Group Company that you may resign, has resigned or accepted employment with or is to join or be associated with any competitor of the Company or any Group Company.

16.4

During your employment you shall inform the Company without delay (notwithstanding that this may disclose your own wrongdoing) if you become aware that any director, officer, or senior employee of the Company or any Group Company is planning to terminate their employment or office with the Company or such Group Company or materially breach any of the provisions of their contract of employment or implied duties of loyalty, good faith and fidelity.

16.5

You shall not, other than with the prior written approval of the Company make or issue any press, radio or television statement or publish or submit for publication any letter or article relating directly or indirectly to the business or affairs of the Company or any Group Company its or their officers, directors or employees or your employment or its termination.

16.6

You will not (except with the prior written consent of the Company) except in the proper course of your duties during the continuance of this Agreement, or at any time after the termination of your employment (howsoever caused and whether in breach of contract or otherwise) directly or indirectly:

(a)

disclose or use for your own or for another’s purpose or benefit or through any failure to exercise due care and diligence cause any unauthorised disclosure of any Confidential Information which you may learn while in the employment of the Company except as required by a court of law or any regulatory body or that which may be in or become part of the public domain other than through any act or default on your part;

(b)

copy or reproduce in any form or by or on any media or device or allow others access to copy or reproduce any documents (including without limitation letters, facsimiles and memoranda), disks, memory devices, notebooks, tapes or other medium whether or not eye-readable and copies thereof on which Confidential Information may from time to time be recorded or referred to (Documents) ; or

(c)

remove or transmit from the Company or any Group Company’s premises any Documents.

16.7

Nothing in this Agreement shall prevent you from making a protected disclosure in accordance with section 43A of the Employment Rights Act 1996 and the Public Interest Disclosure Act 1996.

16.8

On demand and in any event upon termination of your employment for any reason by either party, you must immediately return to the Company all company property including but not limited to all Confidential Information, Documents (as defined above), papers, records, keys, credit cards, mobile telephones, computer and related equipment, PDA or similar device, security passes, accounts, specifications, drawings, lists, correspondence, catalogues or the like relating to the Company’s business which is in your possession or under your control and you must not take copies of the same without the Company’s express written authority.

17	Restrictive covenants

17.1

For the purpose of this Clause the following expressions shall have the following meanings:

Insurance means insurance and/or reinsurance and/or retrocession;

Insured means a person, company or group for which an Insurance policy is issued;

Insurer is an insurer or reinsurer of Insurance;

Lead Insurer means either the slip leader, the Lloyd’s lead Insurer or the global lead Insurer as appropriate;

Person means any person, firm, company, partnership, trust or any other legal entity;

Relevant Period means the period of 12 months ending on the Termination Date or, in the event of you being placed on Garden Leave (as defined in clause 13.1) the 12 months immediately preceding the first day of Garden Leave;

Restricted Period means the period of 12 months from the Termination Date (howsoever the termination was caused and whether in breach of contract or otherwise); and

Termination Date means the date on which your employment under this Agreement terminates either due to you or the Company terminating in accordance with the terms and conditions of this Agreement or in breach of the terms and conditions of this Agreement.

17.2

During the course of your employment hereunder you are likely to obtain Confidential Information relating to the business of the Company or any Group Company and personal knowledge and influence over clients, intermediaries and employees of the Company or any Group Company. You hereby agree with the Company that to protect the Company’s and any and all Group Company’s business interests, intermediary and customer connections and goodwill and the stability of its or their workforce, that you will not during the Restricted Period (and in respect of Clauses 17.2((f)) and 17.2((g)), at any time) without the prior written consent of the board of directors of the Company (such consent not to be unreasonably withheld):

(a)

either on your own account or jointly with or on behalf of any Person directly or indirectly canvass, solicit or entice, or endeavour to canvass, solicit or entice, the custom of or deal, or endeavour to deal, with any Insured with whom or which you, or any person reporting immediately to you, had regularly dealt with either directly, or indirectly through an Insurance broker or other intermediary, during the Relevant Period in respect of business of a type which was carried out by the Company or any Group Company during the Relevant Period and with which you were directly and materially concerned during the Relevant Period;

(b)

either on your own account or jointly with or on behalf of any Person directly or indirectly canvass, solicit or entice, or endeavour to canvass, solicit or entice, Insurance business from or deal, or endeavour to deal, with any Insurance broker or other intermediary with whom or which during the Relevant Period the Company or any Group Company had to your knowledge negotiations or discussions regarding the possible introduction of material business to the Company or any Group Company and with whom you, or any person reporting immediately to you, had regularly dealt during the Relevant Period save that this shall not place any restriction upon you canvassing, soliciting or enticing Insurance business from or dealing with such Insurance broker or other intermediary in respect of Insureds for whom such Insurance broker or other intermediary did not place business with the Company or any Group Company during the Relevant Period;

(c)

either on your own account or jointly with or on behalf of any Person directly or indirectly assist, or endeavour to assist, any Insurer, other than a Group Company, to participate in the underwriting of any Insurance risk which is, or has at any time during the Relevant Period been, insured by the Company or any Group Company as the only or Lead Insurer and in respect of which you, or any person reporting immediately to you, had material dealings during the Relevant Period provided that this shall not preclude:-

(i)

the underwriting of a risk which has been shown to have been declined by or written as part of the following market by the Company or Group Company in the Relevant Period or during the Restricted Period;

(ii)

you from subscribing to a risk if the Company or any Group Company remains the Lead Insurer and the Company or Group Company’s share of that risk is not diluted as a result.

(d)

except as required by law at any time, do or say anything likely to and/ or calculated to lead any Person to cease to do business or reduce the amount of business it transacts with the Company or any Group Company on terms substantially equivalent to those previously applying or at all;

(e)

either on your own account or jointly with or on behalf of any Person directly or indirectly canvass, solicit or entice away, or endeavour to canvass, solicit or entice away, or offer to employ or engage any director or employee of the Company or any Group Company with whom you, or any person reporting immediately to you, have had material personal dealings in the Relevant Period. An “employee” for the purposes of this Clause 17.2((e)) means any senior employee or employee with access to Confidential Information other than employees with purely clerical or secretarial roles;

(f)

from the Termination Date for the purpose of carrying on any trade or business represent or allow yourself to be represented or held out as having any present association with the Company or any Group Company; and

(g)

from the Termination Date carry on any trade or business whose name incorporates the word “Chaucer” or any deviation or extension thereof which is likely or which may be confused with the name of the Company or any Group Company.

17.3

In the event of the transfer (within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (the “ Transfer Regulations ”) of the undertaking or the part of the undertaking in which you shall at the time be employed as the result of which (by virtue of the Transfer Regulations) your employment is automatically transferred to another (the “ Transferee ”), the provisions of this Clause 17 shall have effect as though references in it (and in all associated terms defined in this Agreement) to “the Group” are construed as references to “any other company within the Transferee’s Group” which for these purposes shall comprise the Transferee and any holding company of the Transferee and the subsidiaries of the Transferee and of any such holding companies for the time being).

17.4

The parties agree that:

17.4.1

in the event that you are made redundant Clauses 17.2 (a), (b) and (c) shall not apply; and

17.4.2

the Restricted Period will be reduced by one day for every day during which you are placed on Garden Leave (as defined in Clause 13.1).

17.5

While the restrictions set out in Clause 17.2 above are considered by the parties to be reasonable in all the circumstances, it is agreed that if any one or more of such restrictions shall either taken by itself or themselves together be adjudged to go beyond what is reasonable in all the circumstances for the protection of the legitimate interests of the Company but would be adjudged reasonable if any particular restriction or restrictions were deleted or if any part or parts of the wording thereof were deleted, restricted or limited in a particular manner, then the restrictions set out in Clause 17.2 shall apply with such deletions or restrictions or limitations as the case may be. You further acknowledge that damages may not be an adequate remedy to the Company (or the relevant Group Company) for breach of these undertakings.

17.6

The restrictions contained in Clause 17.2 are held by the Company for itself and on trust for any other Group Company and shall be enforceable by the Company on their behalf or by any Group Company (at their request). If you are requested to do so by the Company you shall during the employment hereunder enter into direct agreements with any Group Company whereby you will accept restrictions in the same or substantially the same form as those contained in Clause 17.2.

17.7

During your employment and thereafter during the Restricted Period you shall provide a copy Clause 2 and a copy of the restrictions contained at Clause 16 above and this Clause 17 to any employer or prospective employer or any other party with whom you become or will become engaged or provide service or services to immediately upon receiving any offer of employment or engagement. In addition, you shall tell the Company the identity of any such person making the offer and details of any such offer as soon as possible after accepting any offer.

18	Intellectual property

18.1

For the purpose of this Clause 18, Intellectual Property shall mean patents, utility models, trade marks, design rights, copyright, database rights, topography rights, rights protecting confidentiality, and all other rights and forms of protection having a similar nature or effect anywhere in the world.

18.2

Subject to the Patents Act 1977 and any other applicable law, the Company will own all Intellectual Property created by you in the course of your employment. This will include the Intellectual Property in any ideas, concepts, inventions, designs, models, databases, documents, computer programs, website content, customer lists, supplier lists or product names.

18.3

You acknowledge that, due to the seniority of your position within the Company, you have a special obligation to further the interests of the Company for the purposes of Section 39 of the Patents Act 1977.

18.4

Whenever required to do so by the Company (whether during your employment or after its termination (howsoever caused and whether in breach of contract or otherwise), at the request and expense of the Company, you shall promptly do all things and execute all documents which are reasonably necessary to assist the Company to confirm, perfect or register its ownership of Intellectual Property in accordance with Clause 18.2 or to assist the Company with any proceedings which concern the validity or infringement of Intellectual Property. The obligation under this Clause 18.4 shall survive termination of this Agreement.

18.5

You hereby irrevocably and unconditionally waive all rights under Chapter IV Copyright, Designs and Patents Act 1988 in connection with your authorship of any existing or future copyright work in the course of your employment, in whatever part of the world such rights may be enforceable, including, without limitation:

18.5.1

the right conferred by section 77 of that Act to be identified as the author of any such work; and

18.5.2

the right conferred by section 80 of that Act not to have any such work subjected to derogatory treatment.

18.6

Nothing in this clause shall be construed as restricting the rights of you or the Company under sections 39 to 43 Patents Act 1977.

19	Collective agreements

There are no collective agreements which directly affect your terms and conditions of employment.

20	Data protection

20.1

For the purposes of this Clause the following expressions shall have the following meanings:

Personal Data means data which relate to a living individual who can be identified from those data or from those data and other information which is in the possession of, or is likely to come into the possession of, the data controller and Includes any expression of opinion about the individual and any indication of the intentions of the data controller or any other person in respect of the individual.

Sensitive Personal Data means personal data consisting of information as to racial or ethnic origin, political opinions, religious beliefs or other beliefs of a similar nature, membership of a trade union (within the meaning of the Trade Union & Labour Relations (Consolidation) Act 1992), physical or mental health or condition, sexual life, the commission or alleged commission of any offence or any proceedings for any offence committed or alleged to have been committed, including the disposal of such proceedings or the sentence of any Court in such proceedings.

20.2

For the purposes of the Data Protection Act 1998 by signing this Agreement you give your consent to the holding and processing of Personal Data and Sensitive Personal Data relating to you by the Company for all purposes relating to the performance of this Agreement including but not limited to:

(a)

administering and maintaining personnel records;

(b)

paying and reviewing salary and other remuneration and benefits;

(c)

undertaking performance appraisals and reviews;

(d)

maintaining sickness and other absence records;

(e)

taking decisions as to your fitness for work;

(f)

providing references and information to future employers, and if necessary, to governmental and quasi governmental bodies for social security and other purposes and to HM Revenue and Customs and National Contributions Office;

(g)

providing the names of employees to the Central Arbitration Committee if requested to do so;

(h)

providing information to the future buyers and potential future buyers of the Company or any other Group Companies or of the business(es) in which you work;

(i)

transferring information about you to a country or territory outside the EEA;

(j)

providing and administering benefits (including if relevant, pension, permanent health insurance and medical insurance); and

(k)

the monitoring of communications via the Company’s systems.

21	Dealing in Securities

You must adhere to the Company policy on dealing in securities and with regard to unpublished price sensitive information. Failure to adhere to these policies may, subject to the Disciplinary and Dismissal Procedures, result in summary dismissal.

22	Gratuities

During the continuance of the employment hereunder you:

(a)

shall not directly or indirectly procure accept or obtain for your own benefit (or for the benefit of any other person) any payment, rebate, discount, commission, vouchers, gift, entertainment or other benefit outside the normal course of business in excess of the amount as set out from time to time in the Company’s Financial Crime, Inducement and Whistleblowing policy (Gratuities) from any third party in respect of any business transacted (whether or not by you) by or on behalf of the Company or any Group Company;

(b)

shall observe the terms of any policy issued by the Company or any Group Company in relation to Gratuities; and

(c)

shall, as soon as reasonably practicable, disclose or account to the Company or any Group Company for any Gratuities received by you (or any other person on your behalf or at your instruction).

Provided that nothing in this Clause shall prevent you from giving or participating in entertainment or business practices which are customary in the business in which the Company or any Group Company is involved from time to time.

23	Litigation assistance

During the term of this Agreement and at all times thereafter, you shall furnish such information and proper assistance to the Company or any Group Companies as it or they may reasonably require in connection with litigation in which it is or they are or may become a party. This obligation on your behalf shall include, without limitation, meeting with the Company or any Group Company’s legal advisors, providing witness evidence, both in written and oral form, and providing such other assistance in the litigation that the Company or any Group Company’s legal advisors in their reasonable opinion determine. The Company shall reimburse you for all reasonable out of pocket expenses incurred by you in furnishing such information and assistance. Such assistance shall not require you to provide assistance for more than five (5) days in any calendar month. For the avoidance of doubt the obligations under this Clause 23 shall continue notwithstanding the termination of this Agreement.

24	Sale or reconstruction

If at any time during the continuance of this Agreement the Company sells all, or a substantial part of, its undertaking and assets to any person, firm or company and the Company is able to procure your employment by such other person, firm or company on terms not substantially less favourable than the terms of this Agreement remaining unexpired at the date of the Agreement for such sale, then the Company shall be entitled to determine this Agreement forthwith on giving notice in writing to you and in the event that you do not accept the employment by such other person, firm or company, you shall not be entitled to any compensation from the Company for loss of office or damages for breach of this Agreement.

You will have no claim against the Company if your employment is terminated by reason of liquidation in order to reconstruct or amalgamate the Company or by reason of any reorganisation of the Company; and

(a)

you are offered employment with the company succeeding to the Company upon such liquidation or reorganisation; and

(b)

the new terms of employment offered to you are materially no less favourable to you than the terms of this Agreement.

25	Power of attorney

You hereby irrevocably appoint any other director of the Company from time to time, jointly and severally, to be your attorney in your name and on your benefit to sign any documents and do things necessary or requisite to give effect to those matters which you are obliged to do pursuant to this Agreement (including, but not limited to, Clauses 13, 14, 17 and 18), In favour of any third party a certificate in writing signed by any director or by the secretary of the Company that any instrument or act falls within the authority hereby conferred shall be conclusive evidence that such is the case. This clause remains in force following termination of your employment howsoever caused and whether terminated in breach or otherwise.

26	Third party rights

Save in respect of any rights conferred by this Agreement on any Group Company (which such Group Company shall be entitled to enforce), a person who is not a party to this Agreement may not under the Contracts (Rights of Third Parties) Act 1999 enforce any of the terms contained within this Agreement.

27	Group companies

In this Agreement Group Company means a subsidiary or affiliate and any other company which is for the time being a holding company of the Company or another subsidiary or affiliate of any such holding company as defined by Part 38 of the Companies Act 2006 and Group Companies and Group will be interpreted accordingly.

28	Entire agreement

These terms and conditions constitute the entire agreement between the parties and supersede any other agreement whether written or oral previously entered into.

29	Jurisdiction and choice of law

This Agreement shall be governed by and interpreted in accordance with the laws of England and Wales and the parties to this Agreement submit to the exclusive jurisdiction of the English Courts in relation to any claim, dispute or matter arising out of or relating to this Agreement.

30	Notices

Any notices with respect to this Agreement shall be in writing and shall be deemed given if delivered personally (upon receipt), sent by facsimile (which is confirmed) or sent by first class post addressed, in the case of the Company, to its registered office and in your case, addressed to your address last known to the Company.

IN WITNESS whereof this DEED has been executed by each of the parties on the date first above written


EXECUTED AS A DEED by )
the Chaucer Holdings plc )

acting by ROBERT DEUTSCH, Director				/s/ Robert Deutsch
				Director

				20/1/10
				Date


and DAVID TURNER, Secretary

				/s/ David Turner
				Secretary

				20/1/10
				Date


SIGNED as a DEED by ROBERT STUCHBERY in the				/s/ Robert Stuchbery
presence of:
				28/1/10
Witness signature: /s/ Diane Mackey				Date

Witness Name: Diane Mackey

Witness Address: ____________________________

Witness occupation: PA

Exhibit 10.3

LOGO

Dated 10 NOVEMBER 2008

Rules of the Chaucer Pension Scheme

Constitutional Rules

CONTENTS


C Rule		Page

1	MEANING OF DEFINED TERMS		3
2	REGISTERED AND CONTRACTED-OUT PENSION SCHEME		4
3	TRUSTEE		5
	3.1 Appointment and removal		5
	3.2 Pay		5
	3.3 Liability		5
	3.4 Indemnity		6
	3.5 Insurance		7
	3.6 Administration of the Scheme		8
	3.7 Quorum		9
	3.8 Delegation		9
	3.9 Disputes		9
	3.10 Advisers		9
	3.11 Arrangements for receipts and payments		10
	3.12 Litigation		10
	3.13 Conflicts of Interest		10
4	FUNDING AND ACCOUNTS		12
	4.1 Valuations and surplus		12
	4.2 Fund deficiency		13
	4.3 Audit accounts		13
5	SCHEME EXPENSES		14
	5.1 Fund to pay expenses of the Scheme		14
	5.2 Principal Employer paying expenses of the Scheme		14
	5.3 Members’ AVC Accounts		14
6	SCHEME ASSETS		15
	6.1 Assets held on trust		15
	6.2 Investment of Scheme assets		15
	6.3 Fund manager		16
7	PARTICIPATING EMPLOYERS		17
	7.1 Process for starting to participate		17
	7.2 Ceasing to participate		17
	7.3 Consequences of leaving the Scheme		17
8	CHANGE OF PRINCIPAL EMPLOYER		19
9	TRUSTEES’ DISCRETION TO MAKE UNAUTHORISED PAYMENTS		20
10	DISCRETIONARY BENEFITS AND FLEXIBLE RETIREMENT		21
	10.1 Discretionary benefits		21
	10.2 Flexible retirement		21
11	PENSION SHARING		23
	11.1 Effect of pension sharing orders		23
	11.2 Benefits for a former Spouse under the Scheme		23
12	ASSIGNMENT AND REDUCTION OF BENEFITS		24
	12.1 General prohibition		24


	12.2 Power to withhold a benefit	24
	12.4 Debts owed to a Employer	25
	12.5 Unclaimed benefits	25
13	TERMINATION OF THE SCHEME	26
	13.1 Partial termination of the Scheme	26
	13.2 Power to terminate the Scheme	29
14	WINDING-UP	31
	14.1 Power to wind-up the Scheme	31
	14.2 Effect of winding up on the provisions of the Scheme	31
	14.3 Notice of winding-up to Members	31
	14.4 Use of Scheme assets	31
	14.5 Expenses	31
	14.6 Securing benefits with an Insurance Company	32
	14.7 Transfers to other schemes	32
	14.8 Winding-up lump sums	32
	14.9 Surplus assets	33
	14.10 Funding deficit	33
	14.11 Trustees Indemnity	33
	14.12 Alternative to winding-up	33
15	AMENDMENT	36
16	LAWS	37

THESE RULES are made as a deed on 10 NOVEMBER 2008

(1)	CHAUCER SYNDICATES LIMITED (registered number 184915) whose registered office is at Plantation Place, 30 Fenchurch Street, London, EC3M 3AD (the “ Principal Employer ”); and

(2)	EWEN HAMILTON GILMOUR of , EDWARD NELSON NOBLE of , STEPHEN ANDREW SMITH of and BRIDGE TRUSTEES LIMITED (registered number 02600168) whose registered office is at 115 Colmore Row, Birmingham, West Midlands B3 3AL (the “ Trustees ”).

BACKGROUND

(A)

The Principal Employer is the principal employer in relation to the Chaucer Pension Scheme (the “Scheme”). The Trustees are the current trustees of the Scheme, and are the scheme administrators for the purposes of the Finance Act 2004. The Scheme is governed by a Supplemental Trust Deed and Rules dated 25th October 2002 (as amended), and is divided into two sections, the final salary section and the money purchase section.

(B)	By Rule 44 of the Supplemental Trust Deed and Rules the Principal Employer may with the consent of the Trustees at any time, by supplemental deed, amend, replace or add to all or any of the provisions of the Trust Deed and Rules, subject to the other provisions of Rule 44.

ADOPTION OF RULES

(A)	The Principal Employer and the Trustees amend the Supplemental Trust Deed and Rules with effect from the date of this Deed in accordance with Rule 44 by replacing it with these rules (the “ Rules ”). The Rules are divided into three sections:

•

the Constitutional Rules (the “ C Rules ”), which apply to all Members;

•

the Final Salary Section Rules (the “ FS Rules ”), which set out the benefits payable in respect of Final Salary Section Members; and

•

the Money Purchase Section Rules (the “ MP Rules ”), which set out the benefits payable in respect of Money Purchase Section Members.

(B)	These Rules include a box at the start of each Rule which outlines its key provisions. These are included for information only.

THE CONSTITUTIONAL RULES

These C Rules set out the Rules common to all sections of the Scheme. They should be read together with the Rules for each section of the Scheme.

1.	Meaning of defined terms

Words with a capital first letter are defined in the first Rule of each of the FS Rules and MP Rules.

2.	Registered and contracted-out pension scheme

This C Rule confirms that the Scheme is a contracted-out, registered pension scheme, and so is subject to various statutory requirements which override the provisions of these Rules.

The Scheme is a registered pension scheme for the purposes of section 150(2) of the Finance Act 2004.

The Scheme is contracted-out on a Reference Scheme basis and in relation to the Money Purchase Section is contracted-in. The Trustees must operate the Scheme in compliance with the Contracting-out Laws. These Rules are deemed to incorporate any provision that must be incorporated for the Scheme to be treated as contracted-out in relation to a Member’s Service.

3.	Trustees

This Rule sets out the powers relating to the appointment and liability of the Trustees, and certain administrative matters relating to them.

3.1	Appointment and removal

3.1.1

The Principal Employer may at any time by deed appoint and remove trustees. Any such appointment or removal must comply with the requirements of sections 241 to 243 of the Pensions Act 2004 (member-nominated trustees and directors). The number of trustees shall not be less than three unless a body corporate is appointed to act as sole trustee.

3.1.2

A trustee may by deed validly retire provided that one trustee remains.

3.1.3

A trustee may resign by giving not less than one month’s notice in writing to the Principal Employer.

3.2

Pay

3.2.1

Any trustee (or officer of a corporate Trustee) may be paid any fees and expenses for his or her services which the trustee agrees with the Principal Employer. These fees and expenses will be treated as a Scheme expense under C Rule 5 (Scheme expenses).

3.2.2

Any Trustee who is a solicitor, accountant or other person engaged in any profession or business may charge and be paid all usual professional and other reasonable charges for work done by him or his firm in connection with the Scheme, whether or not in the ordinary course of his profession or business and including acts which a Trustee, who is not in any profession or business, could have done personally.

3.2.3

With the consent of the Principal Employer, any Trustee, any firm of which a Trustee is a partner and any subsidiary or associated company of a Trustee or on which he is interested as an officer or shareholder) may retain beneficially any brokerage, commission, fee, interest or other advantage derived from monies forming part of the Fund held in his, her or its name with bankers, or remuneration payable directly or directly to him, her or it.

3.3	Liability

3.3.1

Subject to section 33 of the Pensions Act 1995 (investment powers: duty of care), a trustee (or officer of a corporate trustee) will only be liable for the consequences of any act or omission of the Trustees or their delegates or advisers if the liability is incurred as a result of his or her own willful wrongdoing (and his or her negligence if so agreed between the trustee and the Principal Employer).

3.3.2

No Trustee shall be responsible, chargeable or liable in any manner whatsoever for or in respect of:

3.3.2.1

any loss of, or any depreciation in or default upon, any of the investments, securities, stocks or policies in which the Fund (or any part of it) may at any time be invested in accordance with the provisions of the Rules;

3.3.2.2

any delay which may occur (from whatever cause) in the investment of any monies belonging to the Fund;

3.3.2.3

the safety of any securities or documents of title deposited by the Trustees for safe custody; or

3.3.2.4

the exercise of any discretionary power conferred on the Trustees by this Trust Deed and Rules (including any act or omission by any agent, staff or delegate appointed by the Trustees).

3.3.3

In the case of a Professional Trustee, liability for such acts of negligence as breach the special duty of care of a Professional Trustee up to the extent of the loss in the assets of the Fund caused by the breach on the part of that Professional Trustee.

3.3.4

No Professional Trustee shall incur liability:

3.3.4.1

for the acts, defaults and omissions of other Trustees whose acts, defaults or omissions have been contrary to oral or written advice given by or on behalf of that Professional Trustee; and

3.3.4.2

in respect of action taken by the other Trustees when that Professional Trustee was not a party to the decision, unless proper notice under the terms of the Scheme of either the meeting at which those decision were taken or of the resolutions which effected those decisions had been given to the Professional Trustee.

3.4	Indemnity

3.4.1

The Principal Employer will indemnify and keep indemnified each trustee and former trustee (or officer or former officer of a corporate trustee) against any liability and expense incurred by him or her as a

trustee at all times against any actions, proceedings, claims and demands, and all costs, damages and expenses arising therefrom incurred by or claimed from the Trustees in relation to the Scheme except in the circumstances referred to in C Rule sub-rule 3.4.3 and in the case of willful wrongdoing on the part of a trustee. This indemnity shall also apply to any liability of the Trustees arising from any act or default of any employee, manager, custodian, agent or adviser under the Rules of the Scheme.

3.4.2

If the Principal Employer fails to indemnify any such person within a reasonable period set from time to time by the Trustees, they will be indemnified from the Scheme’s assets instead.

3.4.3

This indemnity does not apply to:

3.4.3.1

any liability incurred as a result of willful wrongdoing on the part of a trustee, or covered and met by insurance either under C Rule 3.5 (Insurance) or a separate insurance arrangement;

3.4.3.2

in the case of a Professional Trustee, any liability for such acts of negligence as breach the special duty of care of a Professional Trustee up to the extent of the loss in the assets of the Fund caused by the breach on the part of that Professional Trustee;

3.4.3.3

any liability to pay a fine imposed in criminal proceedings, or a sum payable to a regulatory authority by way of a penalty in respect of non-compliance with any requirement of a regulatory nature; or

3.4.3.4

any liability incurred in defending criminal proceedings in which a trustee is convicted.

3.5	Insurance

The Trustees (and officers of a corporate Trustee) may take out indemnity insurance to cover any liability which they may incur under the Scheme (unless incurred as a result of willful wrongdoing). The Trustees may, with the consent of the Principal Employer, pay for this from the Scheme’s assets except if the insurance covers fines or penalties of a kind mentioned in section 256 of the Pensions Act 2004. Such payments will be paid in accordance with C Rule 5 (Scheme expenses).

3.6	Administration of the Scheme

3.6.1

The Trustees are granted all the powers, rights and privileges that are necessary in order to administer the Scheme. The Trustees will administer the Scheme on terms which they decide are appropriate, subject to the Rules of the Scheme and any legislation which applies to them.

3.6.2

Except where otherwise specified, the Trustees shall determine all questions and matters of doubt arising in connection with the Scheme, and, if deemed necessary in a particular case, shall do so after consulting the Principal Employer.

3.6.3

The Trustees shall have power to give any undertakings as may be necessary to HMRC or to the Pensions Regulator.

3.6.4

The Trustees shall not be under any obligation to any person transacting business with them in relation to the Scheme to disclose how any funds in their hands are applied. The receipt of the Trustees shall be a complete and sufficient discharge to any person paying money to the Trustees.

3.6.5

The Trustees, with the consent of the Principal Employer, shall have power to borrow money from time to time from any lender on any terms and conditions and to secure repayment and the payment of interest upon the whole or any part of the Fund. The Trustees shall apply the moneys borrowed in any manner for the purposes of the Scheme which, in their absolute discretion, they may think fit.

3.6.6

The Trustees shall have power to accept any donations or bequests and any cash or other assets and apply them for any purposes of the Scheme as the Trustees think fit and subject to the Scheme’s status as a registered scheme not being prejudiced.

3.6.7

The Trustees shall have power to insure any assets of the Fund against any risks and for any amounts as they think fit.

3.6.8

The Trustees shall keep proper accounts relating to the Fund and a record of Members and all other persons receiving benefits or prospectively entitled to benefits and of all other matters which should be properly recorded for the purposes of the Scheme. These records shall be sufficient to explain all transactions and identify all assets and liabilities relating to the Scheme and to disclose the financial position of it. Accounts shall be made up to the day before the Renewal Date each year (or such other date as the Trustees may prescribe in writing from time to time) and the twelve months ending on that date shall be the Scheme year.

3.6.9

The Trustees may make any arrangements generally for the administration of their duties as they think fit. In particular the Trustees may by majority decision employ any staff (including a secretary) as they may think fit to transact any business of the Scheme.

3.7	Quorum

The quorum for any meeting of the Trustees will be three of the Trustees or such other number as the Trustees may from time to time decide will form a quorum.

3.8	Delegation

The Trustees may delegate by unanimous decision, or authorise the sub-delegation of, any of their powers (other than their powers of investment), duties and discretions to any one or more of the Trustees or, with the consent of the Principal Employer, to any person or corporation appointed or employed by the Trustees in connection with the Scheme. The Trustees may impose any conditions on, and may at any time by majority decision (other than the delegate) revoke, any delegation made under this C Rule 3.8 (Delegation) person and on any terms which they decide are appropriate. The Trustees may not delegate their powers of investment except in the circumstances detailed in C Rule 6.3 (Fund manager).

3.9	Disputes

The Trustees will make arrangements for the resolution of disagreements in relation to the Scheme.

3.10	Advisers

3.10.1

The Trustees may seek advice from professional advisers on terms which the Trustees agree with those advisers, subject to C Rule 3.8 (Delegation) and section 47 of the Pensions Act 1995 (professional advisers).

3.10.2

The fees of any adviser will be treated as a Scheme expense under C Rule 5 (Scheme expenses).

3.10.3

The Trustees shall not be chargeable or accountable in respect of any calculation, determination, payment or other matter or anything made, done or omitted by the Trustees in the administration of the Scheme upon the advice of the person so appointed or consulted.

3.11	Arrangements for receipts and payments

3.11.1

The Trustees may make all necessary arrangements for dealing with receipts and payments under the Scheme.

3.11.2

The Trustees may, from time to time by unanimous decision, delegate in writing their powers to draw cheques on any bank account, or endorse any cheques, to any one or more of their number or to any staff agents, custodian, brokers or other nominees as they shall decide.

3.11.3

The Trustees may give, vary and revoke instructions relating to the custody and disposal of any part of the Fund, to the signing of proposal forms and certificates of membership and to the giving of receipts and discharges in connection with the Scheme on the Trustees’ behalf. Every such receipt and discharge shall be as valid as if it were given by all the Trustees.

3.11.4

The production of a written authority of the Trustees shall be sufficient protection to any person taking receipts and discharges or otherwise acting under that authority. Unless a person has received written notice of the revocation of that authority, he shall be entitled to act on the assumption that it remains in force and to be indemnified out of the Fund in respect of any claim arising out of any act committed in good faith and in respect of all costs, charges and expenses incurred in connection with it, despite any intervening change in the Trustees.

3.11.5

Any valid receipt given to an agent, custodian, broker or nominee shall be a good and sufficient discharge to the Trustees.

3.12	Litigation

The Trustees may conduct legal proceedings without the need for a Beddoe order from a Court. The Trustees may only conduct such legal proceedings upon the advice received from a duly appointed advisor. The Trustees will be reimbursed from the Scheme for costs which they incur as a result of legal proceedings undertaken in connection with the Scheme and this will extend to both costs they incur and any costs ordered against them.

3.13	Conflicts of Interest

A Trustee who is an employee or an officer of the Company or of any associated company of the Company who:

3.13.1 possesses confidential or sensitive information as a result of his or her position as an employee or officer, and

3.13.2

would, but for this C Rule 3.13 (Conflicts of interest), be required to disclose that information to the Trustees as a result of his or her trustee duties,

is not required to disclose that information at any Trustee meeting at which that information is or may be relevant. The Trustee with this information will declare that he or she has confidential information and play no part in any discussions of the matters to which it relates.

4.	Funding and accounts

This Rule sets out the Trustees’ key duties in relation to funding valuations and reports and audited accounts.

4.1	Valuations and surplus

4.1.1

The Trustees will appoint an actuary to the Scheme and will ensure that an actuarial valuation of the Scheme is carried out at least once every three years, and (to the extent required by the Pensions Act 2004) that an actuarial report of the Scheme is carried out for any year in which a valuation is not carried out. The Trustees will ensure that any such valuations and reports comply with the requirements of section 224 of the Pensions Act 2004 (actuarial valuations and reports).

4.1.2

If a valuation discloses that the value of the Final Salary Section of the Scheme’s assets exceeds the value of its liabilities, the Principal Employer may reduce or eliminate that surplus in one or more of the following ways:

4.1.2.1

by agreeing with the Trustees to:

(a)

suspend the obligations of Employers or Members to pay contributions to either the Final Salary Section or the Money Purchase Section of the Scheme or both; or

(b)

reduce the amount of contributions to the Final Salary Section or the Money Purchase Section of the Scheme or both by Employers or by Members, other than contributions payable under FS Rule 3.3 (Members’ additional voluntary contributions) or MP Rule 3.3 (Members’ additional voluntary contributions); or

(c)

improve existing benefits under the Final Salary Section of the Scheme; or

(d)

provide new benefits under the Final Salary Section of the Scheme; or

4.1.2.2

by directing the Trustees, subject to section 37 of the Pensions Act 1995 (payment of surplus to employer), to pay all or part of the surplus to the Employers in such proportions as the Principal Employer shall decide (less any tax for which the Trustees may be liable or accountable to HMRC); or

4.1.2.3

in any other way as may be permitted by HMRC.

4.1.3

The Principal Employer may direct the Trustees not to do anything to reduce or eliminate a surplus and the Scheme will be subject to any tax on the amount of the surplus as HMRC shall determine.

4.1.4

The powers and obligations under this C Rule 4.1 (Valuations and surplus) may be exercised in favour of such Employers and Members as the Principal Employer may direct.

4.2	Fund deficiency

If at any time the Scheme Actuary certifies that there would be insufficient assets to meet the Scheme’s liabilities, the Trustees, after obtaining the advice of the Scheme Actuary, shall specify the action required to be taken by the Principal Employer to restore and secure the solvency of the Fund. If the Principal Employer does not agree to take such action, then the Trustees may give notice to the Principal Employer that the Scheme shall be wound up in accordance with C Rule 14 (Winding-up).

4.3	Auditing accounts

4.3.1

The Trustees will appoint an auditor to the Scheme and ensure that Scheme accounts are prepared and audited once a year.

4.3.2

The following are ineligible for appointment as an auditor to the Scheme:

4.3.2.1

a Member;

4.3.2.2

a Trustee or any person connected with a Trustee;

4.3.2.3

a person who is employed by the Trustees;

4.3.2.4

an Employer of any Member or any company in the same group of companies as an Employer; and

4.3.2.5

a director, officer, or employee of any Employer or company within the same group of companies as the Employer.

4.3.3

The Trustees shall obtain audited accounts of the Scheme as soon as is reasonably practicable after the end of each Scheme year, but not more than seven months after the end of that period.

5.	Scheme expenses

This Rule sets out the terms on which expenses of the Scheme will be paid.

5.1	Fund to pay expenses of the Scheme

Unless C Rule 3.5 (Insurance) or C Rule 5.2 (Principal Employer paying expenses of the Scheme) applies, all costs, charges and expenses incurred in connection with or in relation to the Scheme (whether disbursed by the Principal Employer, and Employer or the Trustees) and any remuneration of the Trustees shall be borne by the Fund.

5.2	Principal Employer paying expenses of the Scheme

The Principal Employer may from time to time elect to pay, and bear itself, the whole or any part of the costs, charges, expenses and remuneration referred to in C Rule 5.1 (Fund to pay expenses of the Scheme). The Principal Employer shall be reimbursed by each of the other Employers to such extent and in such proportions as the Principal Employer may decide (together with any VAT).

5.3	Members’ AVC Accounts

All administration expenses relating to Members’ AVC Accounts will be paid out of the assets, unless the Principal Employer, with the agreement of the Trustees, decides otherwise.

6.	Scheme assets

This Rule sets out the basis on which the Trustees can invest the Scheme’s assets.

6.1	Assets held on trust

6.1.1

The Trustees will hold the assets and income of the Scheme on trust for the purposes of the Scheme.

6.1.2

Any assets of the Scheme that relate to the provision of money purchase benefits under the Scheme (including additional voluntary contributions under the Money Purchase Section) will only be used to provide those benefits.

6.2	Investment of Scheme assets

6.2.1

The Trustees will invest or apply all or any part of the assets of the Scheme as they decide is appropriate and as if they were absolutely and beneficially entitled to the assets. In exercising this power, the Trustees must ensure that the restrictions on employer-related investment set out in section 40 of the Pensions Act 1995 are not exceeded,

6.2.2

The Trustees may (without limitation to the general power above):

6.2.2.1

place trust moneys on current or deposit account with any relevant institution (as defined in Section 49(1A) of the Pensions Act 1995 except where provided for in the Occupational Pension Schemes (Scheme Administration) Regulations (S.I. 1996/1715) at a rate of interest (if any) and upon any terms as the Trustees think fit;

6.2.2.2

invest or otherwise place trust moneys in or upon the security of stocks, shares, debentures, debenture stocks, British Government stock, loans or any interest in land or property or in unit trusts, exempt funds or mutual funds or in any other investment whatsoever and wherever situate;

6.2.2.3

effect or maintain with an Insurance Company any deferred or immediate annuity, assurance, sinking fund, deposit administration or managed fund policies or contracts, including policies or contracts conferring rights to participation in the profits of an insurance company, and to deal in or agree to any variation in the terms of those policies or contracts;

6.2.2.4

make secured or unsecured loans to any persons or bodies corporate and upon any terms as the Trustees may in their absolute discretion think fit;

6.2.2.5

underwrite or guarantee the issue of any shares, securities or obligations of any kind in their opinion suitable for the investment of the Fund;

6.2.2.6

to enter into any contract or agreement binding the Scheme or the Fund; and

6.2.2.7

to deal in financial futures and traded options (as an investment) within the scope, of Section 659A of the Income and Corporation Taxes Act 1988.

6.3	Fund manager

6.3.1

The Trustees may, with the consent of the Principal Employer, appoint one or more fund managers for the purposes of section 47(2) of the Pensions Act 1995. Separate fund managers may be appointed in respect of separate parts of the Fund.

6.3.2

The Trustees may delegate any or all of their powers and discretions regarding the investment and application of the Fund assets to a fund manager upon any terms and conditions, including sub-delegations, as they think fit.

7.	Participating Employers

This Rule sets out the terms on which an employer can participate and cease to participate in the Scheme.

7.1	Process for starting to participate

The Principal Employer may allow any employer to participate in the Scheme subject to Contracting-out Laws.

7.2	Ceasing to participate

An employer may cease to participate in the Scheme at any time by written notice to the Trustees subject to the payment of any contributions as required by the Rules, and shall cease to participate if required to do so by the Principal Employer.

When an employer ceases to participate in the Scheme, any members who are then in employment with that employer shall become entitled to benefits as if they had then left service.

7.3	Consequences of leaving the Scheme

As from the effective date of a Participating Employer leaving the Scheme:

7.3.1

its liability, and any liability of its Employees who are Members, to contribute to the Scheme shall cease, except in respect of:

(a)

any contributions (including suspended contributions) and administration expenses which became due before the effective date;

(b)

any administration expenses incurred in connection with its leaving the Scheme; and

(c)

any contributions which may be required from the Participating Employer if continued provision of death benefits are to be provided in accordance with C Rule sub-rule 7.3.5 ;

7.3.2

No further pension or other retirement benefits shall accrue under the Scheme for or in respect of any former or present Employees of the Participating Employer;

7.3.3

Subject to C Rule sub-rule 7.3.5 , any benefits provided under the Scheme which are payable on the death of any Employee of the Participating Employer who is a Member (other than any benefit relating to a return of a Member’s contributions or AVC Account or the payment of a GMP, and the pension (if any) that must be paid to him or her in accordance with the Contracting-out Laws) shall cease to be provided; and

7.3.4

A partial termination of the Scheme shall then occur in accordance with C Rule 13.1 (Partial termination of the Scheme).

7.3.5

The Participating Employer may decide, with the agreement of the Trustees, to make continued provision of death benefits for any of its Employees who are Members. The Participating Employer shall agree with the Trustees the amount and type of any continued death benefit and the period during which it may be provided, subject to the Scheme’s status as a registered scheme not being prejudiced.

8.	Change of Principal Employer

This Rule sets out the terms on which the Principal Employer of the Scheme can change.

8.1	Any Participating Employer may take over the role of Principal Employer under the Scheme if:

8.1.1

the departing Principal Employer appoints a Participating Employer which agrees to assume the position of Principal Employer under the Scheme; or

8.1.2

the Principal Employer is in receivership or liquidation (other than for the purpose of amalgamation or reconstruction) and the Trustees appoint a Participating Employer which agrees to assume the position of Principal Employer under the Scheme.

8.2	Any company, firm or person which succeeds to the business of the Principal Employer may agree with the Principal Employer to assume the position of Principal Employer under the Scheme.

8.3	For the purposes of C Rule sub-Rule 8.1 and C Rule sub-Rule 8.2 any new Principal Employer must agree by deed between the Trustee, the departing Principal Employer and the new Principal Employer to comply with the Rules of the Scheme.

9.	Trustees’ discretion to make unauthorised payments

If a benefit paid under these Rules is an unauthorised payment under the Finance Act 2004, the benefit will be reduced by a tax charge of 40%, and might prejudice the registered tax status of the Scheme, This Rule gives the Trustees the discretion to decide not to pay this benefit.

Where any provision in the Rules requires the Trustees to make a payment which by virtue of section 160 of the Finance Act 2004 (payments by registered pension schemes) would be an unauthorised payment, the Trustees will have the discretion whether or not to make that payment. The Trustees will exercise this discretion subject to the other requirements of the Rules, including obtaining the consent of any other person to the relevant payment.

10.	Discretionary benefits and flexible retirement

This Rule sets out the terms on which (i) an Employer can ask the Trustees to pay someone benefits from the Scheme that are different to those described in the other provisions of the Rules, and (ii) an Employee can take his or her pension while remaining in employment.

10.1	Discretionary benefits

If the Principal Employer agrees and the Principal Employer or the Employer pays any additional contributions which the Trustees decide are appropriate (after consulting the Scheme Actuary), the Trustees may:

10.1.1

provide increased benefits payable under the Scheme or pay any benefit in a different form or on different terms than otherwise provided under the Scheme;

10.1.2

provide new or additional benefits in respect of a Member;

10.1.3

provide benefits in respect of any other person for whom benefits can be provided under the Scheme (including any Employee or former Employee); or

10.1.4

add interest to the repayment of any Member’s contributions.

Benefits provided under this Rule shall be consistent with the Preservation, Revaluation, Contracting-out and Transfer Value Laws, Sections 67 to 67I of the Pensions Act 1995 and the Scheme’s tax status as a registered pension scheme under the Finance Act 2004.

10.2	Flexible retirement

10.2.1

Member’s option

10.2.1.1

Any Member who has reached age 50 (age 55 from 6 April 2010) may, with the consent of the Trustees, prior to, on or after his or her Normal Retirement Date commence payment of his or her pension whilst continuing in employment.

10.2.1.2

Any Member taking advantage of this option shall do so on such terms and conditions as determined by the Trustees.

10.2.2

Membership status

10.2.2.1

When any of a Member’s retirement benefits commence to be paid, the Member shall immediately cease to be a Pension Member of the Scheme. However, for so long as he or she continues to be eligible, he or she shall be treated as a Death Benefit Member for the purposes of the Rules.

10.2.2.2

If the Member subsequently wishes to accrue further benefits under the Scheme, he or she shall be required to apply for admission as a new member of the Money Purchase Section of the Scheme subject to the consent of his or her Employer and the Trustees, or otherwise in accordance with the Rules in force at the time. Upon admission as a new member of the Money Purchase Section of the Scheme the Member shall immediately cease to be a Death Benefit Member.

11.	Pension sharing

This Rule sets out the basic legal framework that applies when a Member is a party to a pension sharing order.

11.1	Effect of pension sharing orders

11.1.1

If a Member’s benefits must be transferred to his or her former Spouse as a result of an order made under the Welfare Reform and Pensions Act 1999 (“ WRPA ”), the Trustees must comply with the requirements of the WRPA when discharging their liability to the former Spouse.

11.1.2

The Trustees may recover charges in respect of their costs in this regard in accordance with The Pensions on Divorce etc (Charging) Regulations 2000.

11.1.3

The Trustees must treat only the “safeguarded percentage” of a former Spouse’s rights as his or her “safeguarded rights” (as defined in Part IIIA of the Pension Schemes Act 1993) when discharging their liability to that former Spouse.

11.1.4

The provisions of this C Rule 11.1 (Effect of pension sharing orders) will apply with the necessary changes in respect of equivalent Northern Ireland laws.

11.2	Benefits for a former Spouse under the Scheme

11.2.1

The Trustees may decide that a former Spouse should be provided with benefits from the Scheme on the following conditions:

11.2.1.1

the benefits must comply with the laws on safeguarded rights in Part IIIA of the Pension Schemes Act 1993;

11.2.1.2

the benefits must be provided separately from any other benefits to which the former Spouse may be entitled under the Scheme;

11.2.1.3

the Trustees must provide the former Spouse with written details of the benefits that will be provided in respect of him or her; and

11.2.1.4

if a former Spouse dies before a Transfer Payment to another pension arrangement can be made in respect of him or her, the Trustees may instead provide benefits in respect of the former Spouse under the Scheme from any or all of the intended Transfer Payment. These benefits must comply with the WRPA, and any unpaid amount will form part of the Scheme assets.

12.	Assignment and reduction of benefits

This Rule sets out the terms on which a Member’s benefits may be reduced or cease to be payable,

12.1	General prohibition

Benefits under the Scheme cannot be assigned, charged, surrendered, forfeited or paid for the benefit of anyone except the person entitled under these Rules, subject to the remainder of this C Rule 12 (Assignment and reduction of benefits), FS Rule 6.2 (Exchanging for a dependant’s pension) and MP Rule 5.5 (Exchanging for a dependant’s pension) and C Rule 11 (Pension sharing).

This C Rule 12 (Assignment and reduction of benefits)is subject to the Contracting-out Laws.

12.2	Power to withhold a benefit

12.2.1

Subject to sections 91 to 94 of the Pensions Act 1995 (assignment, forfeiture, bankruptcy etc), the Trustees shall withhold payment of a benefit if either the person entitled to the benefit tries to assign or charge it, or anything else happens as a result of which the benefit or any part of it would become vested in or payable for the benefit of another person. The Trustees shall hold any benefits forfeited by a Member in this way for the general purposes of the Scheme.

12.2.2

The Trustees may pay all or part of any benefit withheld under this C Rule 12 (Assignment and reduction of benefits) to or for the benefit of the Member or person entitled to the benefit, his Spouse or any of his Dependants in the proportions and manner decided by the Trustees so long as no payment is made to the purported assignee, mortgagee or chargee.

12.3	Reduction of benefits for offences and other acts or omissions

12.3.1

The Trustees may decide that any part of a benefit payable or prospectively payable shall be forfeited or cease to be payable if the person entitled to the benefit has been convicted of an offence listed in section 92 of the Pensions Act 1995 (forfeiture, etc).

12.3.2

If a Member owes money to the Scheme as a result of his or her criminal, negligent or fraudulent act or omission, the Trustees may reduce the Member’s benefits, subject to the requirements of sections 91 to 94 of the Pensions Act 1995 (assignment, forfeiture, bankruptcy etc).

12.4	Debts owed to an Employer

12.4.1

If a Member owes money to an Employer as a result of his or her criminal, negligent or fraudulent act or omission, the Member’s benefits under the Scheme shall stand charged with the payment of that sum.

12.4.2

The Trustees shall, unless the Employer decides otherwise, pay out of the Scheme to the Employer the amount of the liability under this C Rule 12.4 (Debts owed to an Employer). The payment made to the Employer shall be limited to the lesser of the amount of the liability and the value, determined by the Trustees on the advice of the Scheme Actuary, of the accrued benefits payable to and in respect of the Member on the date on which the liability arose.

12.4.3

The Employer must produce evidence to the satisfaction of the Trustees of the amount of the liability. The Trustees shall then give the Member a certificate showing the amount to be paid to the Employer and its effect on the Member’s benefits under the Scheme.

12.4.4

If the Member disputes the liability, the Trustees shall not make a payment to the Employer unless the liability has become enforceable under a court order or the award of an arbitrator.

12.4.5

The production of a certificate signed by or on behalf of the Employer that any amount is owed to it shall be sufficient evidence of the fact to the Trustees.

12.4.6

This C Rule 12.4 (Debts owed to an Employer) does not apply to:

12.4.6.1

any benefit derived from a Transfer Amount paid to the Scheme unless the Pensions Regulator agrees otherwise; or

12.4.6.2

any GMP or any accrued rights to GMP, and the pension (if any) that must be paid to him or her in accordance with the Contracting-out Laws.

12.5	Unclaimed benefits

The entitlement to any benefit which the Trustees have been unable to pay and which remains unclaimed for 6 years from the date it became payable will cease. The Trustees will keep the unpaid amount in the Scheme assets.

13.	Termination of the Scheme

This Rule sets out the terms that apply in relation to the termination of the Scheme. In particular, it requires that active members must then be treated as having left Pensionable Service.

13.1 Partial termination of the Scheme

13.1.1

Appropriate proportion of the Fund

On the effective date on which a Participating Employer leaves the Scheme the Trustees, after obtaining the advice of the Scheme Actuary shall decide what portion of the Fund applies to the Participating Employer in respect of:

13.1.1.1

all Members who on the effective date are both in the Service of the Participating Employer and in Pensionable Service;

13.1.1.2

such Members, as the Trustees after consulting the Principal Employer shall decide, who on the effective date are no longer in Pensionable Service, whether or not they are in the Service of the Participating Employer;

except any Member in the Service of the Participating Employer who transfers to the Service of another Employer immediately after the effective date;

13.1.1.3

as the Trustees after consulting the Principal Employer shall decide, any person in receipt of pension from the Scheme which derives from a Member formerly in the Service of the Participating Employer.

13.1.2

For the purpose of this Rule, the appropriate portion of the Fund described in C Rule sub-rule 13.1.1 is, in relation to the Final Salary Section of the Scheme only, the amount which the Scheme Actuary certifies in writing to be the lesser of:

13.1.2.1

a share of the Fund appropriate to the Members concerned; and

13.1.2.2

the value of the liabilities under the Scheme of the benefits which have accrued, or are payable, to and in respect of the Members concerned as at the effective date;

but excluding, any liabilities relating to the AVC Accounts in respect of those Members. The appropriate parties of the fund described in C Rule sub-rule

13.1.1, in relation to the Money Purchase Section only, shall be the aggregate value of the Members’ Pension Accounts of the Members concerned.

13.1.3

For the purpose of C Rule sub-rule 13.1.2.1 , in calculating a share of the Fund, the value of assets and liabilities of the Fund will be taken as at the effective date or, if the Scheme Actuary decides, as at the date on which the Fund was last valued for the purpose of C Rule 4.1 (Valuations and surplus) and C Rule 4.2 (Fund deficiency). Without limiting the Scheme Actuary’s discretion under this C Rule sub-rule 13.1.3 , the Scheme Actuary may notionally reserve assets of the Fund which relate to liabilities or estimated liabilities in respect of one or more categories of beneficiaries outside the group of Members concerned or which relate to any special contribution paid by the Participating Employer concerned and designated for a particular purpose and, accordingly, apportion only the remaining assets of the Fund.

13.1.4

The value of the liabilities described in C Rule sub-rule 13.1.2.2 shall be calculated by reference to:

13.1.4.1

in relation to those Members described in C Rule sub-rule 13.1.1.1 , the deferred benefits (taking into account the preservation, contracting-out and revaluation requirements of the Pension Schemes Act 1993) to which they would have been entitled had they left Pensionable Service as Qualified Members on the effective date (whether or not they would otherwise be treated as Qualified Members) and ignoring any refunds of Members’ Contributions which might otherwise apply;

13.1.4.2

in relation to those Members described in C Rule sub-rule 13.1.1.2 , the benefits accrued or payable to and in respect of them at the effective date;

13.1.4.3

in relation to those persons described in C Rule sub-rule 13.1.1.3 , the benefits payable to them at the effective date.

13.1.5

The Scheme Actuary shall certify to the Trustees whether the appropriate portion of the Fund is sufficient to provide the benefits payable to and in respect of the Members of the Final Salary Section and other persons concerned.

13.1.6

The Trustees with the consent of the Principal Employer may in respect of the Final Salary Section only, increase the appropriate portion of the Fund up to:

13.1.6.1

the full share of the Fund which the Scheme Actuary certifies in writing to be appropriate to the Members and persons concerned; or

13.1.6.2

the value of the liabilities under the Scheme (excluding those relating to AVC Accounts) at the effective date for and in respect of the Members and persons concerned, making an allowance for future increases in Final Pensionable Salary and in pensions (whether or not in payment). The Scheme Actuary shall certify the basis of valuing these liabilities and the allowances which he considers appropriate.

13.1.7

Application of the appropriate portion of the Fund

On the partial termination of the Scheme, the Trustees shall to the extent necessary realise the assets of the Fund relating to the appropriate portion of the Fund and apply the amount in relation to the Members and persons to which it applies, in accordance with and subject to the appropriate provisions of C Rule 13.2 (Power to terminate the Scheme) and C Rule 14 (Winding up).

The Trustees shall realise any AVC Accounts relating to the Members concerned and apply the amount separately to provide benefits for and in respect of those Members.

In applying the provisions of C Rule 13.2 (Power to terminate the Scheme) and C Rule 14 (Winding up) to a partial termination of the Scheme, references in those Rules to “winding up” shall be interpreted as references to “partial termination” and references to “the effective date of termination” shall be interpreted as “the effective date of the Participating Employer leaving the Scheme”.

13.1.8

The provisions of C Rule 14.12 (Alternative to winding-up) do not apply in respect of a partial termination of the Scheme.

13.1.9

If a transfer to another occupational pension scheme or personal pension scheme is to be made in respect of any Employees or former Employees of the Participating Employer who are Members, the Transfer Payment shall be calculated in accordance with the provisions of FS Rule 12 (Transfers to and from the Final Salary Section) and MP Rule 12 (Transfers to and from the Money Purchase Section) in relation to any group of Members in respect of whom a bulk transfer is to be made to another occupational pension scheme.

13.1.10

If C Rule sub-rule 13.1.9 applies and the Principal Employer so directs, benefits may be retained under the Scheme for certain Members.

13.2	Power to terminate the Scheme

The Scheme will terminate for any of the following reasons:

13.2.1

the Principal Employer terminates the Scheme at any time by giving three months’ notice in writing to the Trustees (or such shorter period as is agreed with the Trustees);

13.2.2

the Scheme Actuary certifies that the Fund is insolvent and the Employers fail, in the Trustees’ opinion and within a period specified by the Trustees in a written notice to the Employers, to comply with the action required to remedy the position as decided by the Trustees after consulting the Scheme Actuary;

13.2.3

the Trustees decide, after taking actuarial advice, that the contributions the Employers are paying, and are expected to pay in the future, are so low that the financial position of the Fund is prejudiced;

13.2.4

the Trustees decided that the intentions and objects of the Scheme have become significantly different to those which were relevant at the start of the Scheme;

13.2.5

the Trustees determine that the Principal Employer has failed to comply with any provisions of the Scheme which apply to it as Principal Employer and fails, within a period specified by the Trustees in a written notice to the Principal Employer, to comply with the action required to remedy the position as decided by the Trustees after consulting the Scheme Actuary; or

13.2.6

if an ‘insolvency event’ (as defined in section 121 (insolvency event, insolvency date and insolvency practitioner) of the Pensions Act 2004) occurs in relation to the Principal Employer, or it ceases to participate and no person subsequently agrees to take over the role of Principal Employer in relation to the Scheme under C Rule 8 (Change of Principal Employer).

13.3	On the termination of the Scheme the Trustees shall resolve either to wind-up the Scheme in accordance with the provisions of C Rule 14 (Winding-up) or to continue the Scheme as a Frozen Scheme in accordance with the provisions of C Rule 14.12 (Alternative to winding-up).

13.4	Effective date of termination

13.4.1

In relation to the events described in C Rule 13.1 (Partial termination of the Scheme), the effective date of the termination of the Scheme is;

13.4.1.1

if the event described in C Rule sub-rule 13.1.1 applies, the effective date of the written notice given by the Principal Employer to the Trustees; or

13.4.1.2

if either of the events described in C Rule sub-rule 13.1.2 or C Rule sub-rule 13.1.3 applies, the effective date of the written notice given by the Trustees to the Employers; or

13.4.1.3

if either of the events described in C Rule sub-rule 13.1.4 or C Rule sub-rule 13.1.5 applies, the effective date of the written notice given by the Trustees to the Principal Employer; or

13.4.1.4

if the event described in C Rule sub-rule 13.1.6 applies, the date on which an ‘insolvency event’ occurs in relation to the Principal Employer or on which the Principal Employer otherwise ceases to carry on business or ceases to exist.

13.5	Dispute as to effective date of termination

In the event of a dispute as to the effective date of termination, the Trustees shall determine the effective date of termination.

13.6	Effect on Members’ benefits and contributions

The Trustees will treat any Members who are in Pensionable Service when the Scheme terminates as having left Pensionable Service at this time. Those provisions of the Rules that are consistent with this C Rule 13 (Termination of the Scheme) will then continue to apply to the Scheme.

14.	Winding-up

This Rule sets out the terms that apply in relation to winding up the Scheme.

14.1	Power to wind-up the Scheme

The Trustees may wind-up the Scheme if the Scheme is terminated under C Rule 13 (Termination of the Scheme). However, they may instead defer winding up the Scheme and continue it in accordance with C Rule 13.3 by continuing the Scheme as a Frozen Scheme.

14.2	Effect of winding up on the provisions of the Scheme

During winding-up, all the provisions of the Rules will continue to apply (including the amendment power), so far as they are consistent with this C Rule 14 (Winding-up). If the Principal Employer is dissolved before the winding- up is completed, the Trustees may exercise any powers given to the Principal Employer, unless another person has taken over the role of the Principal Employer in relation to the Scheme under C Rule 8 (Change of Principal Employer).

14.3	Notice of winding-up to Members

Within one month of starting to wind-up the Scheme, the Trustees shall notify in writing each Member and other person to whom information is required to be given that the Trustees have started to wind-up the Scheme.

14.4	Use of Scheme assets

As soon as practicable after the effective date of termination, the Trustees will apply the Scheme’s assets as described in C Rule 14.5 (Expenses) to C Rule 14.10 (Funding deficit) below.

14.5	Expenses

The Trustees must first set aside such assets as they estimate will be sufficient to pay the expenses of the Scheme until the winding-up has been completed.

14.6	Securing benefits with an Insurance Company

Once an amount in respect of expenses has been put aside under C Rule 14.5 (Expenses), the Trustees will apply the remaining assets to buy an insurance policy or annuity contract from an Insurance Company in the name of each person entitled to benefits under the Scheme, except where those assets are used to provide benefits under FS Rule 12 (Transfers to and from the Final Salary Section) or MP Rule 12 (Transfers to and from the Money Purchase Section) or C Rule 14.8 (Winding-up lump sums).

Any such policies or contracts must:

14.6.1

comply with the Preservation, Contracting-Out and Revaluation Laws;

14.6.2

be consistent with the treatment of the Scheme as a registered pension scheme for the purposes of the Finance Act 2004; and

14.6.3

provide benefits which are the same (or as similar as practicable) as those benefits which would otherwise have been provided in respect of the people for whom they are bought under the Scheme.

Any policies or contracts which the Trustees bought before the winding-up began and which the Trustees consider to be appropriate may also be transferred by the Trustees into the names of the people entitled to benefits under them.

14.7	Transfers to other schemes

Instead of buying insurance policies or annuity contracts under C Rule 14.6 (Securing benefits with an Insurance Company) in respect of any person entitled to benefits under the Scheme when the Scheme begins to wind up, the Trustees have a discretion to make Transfer Payments in respect of that person in accordance with FS Rule 12 (Transfers to and from the Final Salary Section) and MP Rule 12 (Transfers to and from the Money Purchase Section) with the Principal Employer’s agreement. Any such transfer in respect of a person in contracted-out employment must comply with the requirements of section 50 of the Pension Schemes Act 1993 (powers of Inland Revenue to approve arrangements for scheme ceasing to be certified).

14.8	Winding-up lump sums

It may be that the value of a Member’s benefit under the Scheme is such that it can be paid as a ‘winding up lump sum’ in accordance with paragraph 10 of Schedule 29 to the Finance Act 2004. If so, the Trustees may extinguish the Member’s entitlement under the Scheme by paying him or her an immediate lump sum instead of providing other benefits.

14.9	Surplus assets

14.9.1

If the Trustees apply such of the Scheme’s assets as are needed to provide the Members’ benefits in full and they are then left with surplus assets in the Scheme, they may, if the Principal Employer agrees, apply these surplus assets to increase any of the Members’ benefits or provide additional benefits to such extent as they decide is reasonable. Any surplus assets still remaining will be paid to the Employers (less tax at the applicable rate), in such shares as the Principal Employer directs.

14.9.2

The requirements of section 76 of the Pensions Act 1995 (excess assets on winding up) must be satisfied before any payment is made to the Employers.

14.10

Funding deficit

14.10.1

If there is a deficit in the Scheme’s assets (such that they are insufficient to provide all benefits in full), the Scheme’s assets will be first used to pay all expenses. Once these have been paid, the remaining assets will (except for assets that relate to any money purchase benefits under the Scheme) be applied in accordance with section 73 of the Pensions Act 1995 (preferential liabilities on winding up). Any assets that relate to any money purchase benefits under the Scheme (including under the MP Section or additional voluntary contributions) will be used to provide those benefits.

14.10.2

Any assets then remaining will be used to satisfy any remaining liabilities of the Scheme to any extent, and in any order of priority, as the Trustees consider appropriate.

14.11

Trustees indemnity

After the winding up of the Scheme, the Employers shall jointly and severally keep the Trustees indemnified against any actions, proceedings, claims and demands and all costs, damages and expenses arising therefrom incurred by or claimed from the Trustees or any of them in relation to the Scheme, except any resulting from willful wrongdoing, on the part of the Trustee.

14.12

Alternative to winding-up

14.12.1

If, under C Rule 13.3 , the Trustees resolve to continue the Scheme as a Frozen Scheme, they shall make appropriate arrangements as they think fit for the continued administration and management of the Scheme. These arrangements shall include the execution by the Principal Employer and themselves of any necessary supplemental

trust deed to give effect to the arrangements and to any consequential amendments required to be made to the provisions of the Scheme. The arrangements shall not be of a kind as may prejudice the Scheme’s status as a registered scheme with HMRC.

14.12.2

If the Principal Employer is insolvent or if for any other reason it ceases to exist or carry on business, the Trustees may, by themselves alone, execute any necessary supplemental trust deed to give effect to the arrangements made for the continued administration and management of the Scheme and to any consequential amendments required to the provisions of the Scheme.

14.12.3

The Trustees may decide at any time to cancel the operation of the Scheme as a Frozen Scheme. As from the effective date of their decision, the Trustees shall either:

14.12.3.1

wind up the Scheme in accordance with the provisions of this C Rule 14 (Winding-up); or

14.12.3.2

agree with the Principal Employer (including any new Principal Employer under the provisions of C Rule 8 (Change of Principal Employer)) to re-open the Scheme and re-commence:

(a)

the payment of contributions by the Employers and, if appropriate, by the Members; and

(b)

the accrual of benefits for and in respect of Members;

whether or not any Employees who are not Members are admitted into membership of the Scheme.

14.12.4

If the Scheme is re-opened, the Trustees shall make appropriate arrangements as they think fit for the administration and management of the Scheme, including the execution by the Principal Employer and themselves of any necessary supplemental trust deed to give effect to the arrangements, and to any consequential amendments, required to be made to the provisions of the Scheme. The arrangements shall not be of a kind as may prejudice the Scheme’s status as a registered scheme with HMRC.

14.12.5

Unless arrangements are made to re-open the Scheme, the operation of the Scheme as a Frozen Scheme shall end on the date on which the Trustees cease to have any further liabilities to or in respect of any person under the Scheme.

The Trustees shall then wind up the Scheme in accordance with the provisions of this C Rule 14 (Winding-up).

15.	Amendment

This Rule sets out the terms that apply in relation to amending the Rules.

15.1	The Principal Employer may with the consent of the Trustees at any time together by deed amend, replace or add to the Rules and may do so retrospectively, subject to sections 67 to 67I of the Pensions Act 1995.

15.2	No amendment, replacement or addition may be made which would prejudice the Scheme’s status as a registered scheme.

15.3	The Principal Employer’s power under this C Rule 15 (Amendment) shall continue if the Scheme begins to wind up and shall continue to apply until the winding-up has been completed.

16.

Laws

This Rule sets out the legal framework which governs the Rules and the administration of the Scheme.

16.1	The Rules and the administration of the Scheme will be governed by and interpreted in accordance with the laws of England and Wales.

16.2	Any rights that a third party may have under the Contracts (Rights of Third Parties) Act 1999 are excluded.

LOGO


Dated				2008

Rules of the Chaucer Pension Scheme

Final Salary Section

CONTENTS


FS Rule			Page

1	MEANING OF DEFINED TERMS			1
2	MEMBERSHIP OF THE SCHEME			10
	2.1	Joining the Scheme		10
	2.2	Opting-out		10
	2.3	Statutory family leave		11
	2.4	Additional family leave		12
	2.5	Absence for any other reason		12
3	CONTRIBUTIONS			13
	3.1	Employer contributions		13
	3.2	Members’ basic contributions		14
	3.3	Members’ additional voluntary contributions		15
4	ACTIVE MEMBERS’ IMMEDIATE PENSIONS			16
	4.1	Pension on retirement at Normal Retirement Date		16
	4.2	Pension on early retirement		16
	4.3	Early retirement not due to Incapacity		17
	4.4	Pension on Incapacity retirement		17
	4.5	Pension on late retirement		18
5	BENEFITS FOR DEFERRED MEMBERS			20
	5.1	Leaving the Scheme		20
	5.2	Cash transfer sums and contribution refunds		20
	5.3	Preserved Pension at Normal Retirement Date		21
	5.4	Other options for the Payment of preserved pension		21
6	EXCHANGING PENSION FOR OTHER BENEFITS			23
	6.1	Exchanging for a retirement lump sum		23
	6.2	Exchanging for a Dependant’s Pension		23
	6.3	Payment of a lump sum on grounds of serious ill health		23
7	BENEFITS PAYABLE ON THE DEATH OF A MEMBER			24
	7.1	Benefits on death in Pensionable Service before Normal Retirement Date		24
	7.2	Benefits on death on or after Normal Retirement Date before pension is in payment		24
	7.3	Benefits on death after pension commences		25
	7.4	Benefits on death of a Deferred Member after leaving Pensionable Service		26
	7.5	Payment of lump sums on death		26
	7.6	Payment of Spouse’s pension on death		29
	7.7	Dependant’s pension		30
	7.8	Children’s pension		31
	7.9	Young Spouse		31
8	TERMS FOR THE PAYMENT OF BENEFITS			33
	8.1	Frequency of pension payment		33
	8.2	Manner of Payment of benefits		33
	8.3	Incapable beneficiary		33


	8.4	Reduction of benefits for the payment of tax	34
	8.5	Information from Members and others	34
	8.6	Enhanced protection	34
	8.7	Modification Regulations	34
9	PENSION INCREASES		35
	9.1	Periods of review	35
	9.2	The rates of increase	35
	9.3	General Provisions	36
10	SPECIAL BENEFITS		38
	10.1	Civil Partners	38
	10.2	Pre-6 April 2006 members	38
11	OTHER WAYS OF CONVERTING PENSION INTO A LUMP SUM		39
	11.1	Trivial pension	39
	11.2	Payment of a lump sum on grounds of serious ill health	39
	11.3	Benefits in excess of the lifetime allowance	39
12	TRANSFERS TO AND FROM THE FINAL SALARY SECTION		40
	12.1	Transfers to the Final Salary Section	40
	12.2	Transfers out of the Final Salary Section	41
	12.3	Statutory transfers	41
	12.4	Discretionary transfers	41
	12.5	Bulk transfers	41
	12.8	General	42
13	BUY-OUT POLICIES		44
	13.1	Statutory buy-out	44
	13.2	Discretionary buy-out	44
	13.3	General	44
	13.4	Conditions of buying-out	44

THE FINAL SALARY SECTION RULES

These are the Rules that govern the benefits and contributions payable under the Final Salary Section and should be read together with the C Rules.

1.	Meaning of defined terms



		“ AVC Account ”		means, in relation to a Member, that part of the Fund which the Trustees establish and maintain as the Member’s AVC Account in respect of the additional voluntary contributions paid or treated as paid by the Member to the Scheme under FS Rule 3.3 (Members’ additional voluntary contributions);

		“ Basic Salary ”		means the basic annual salary or wages of a Member (excluding bonuses, commission, overtime and any other fluctuating emoluments) at the date in question;

		“ Beneficiaries ”		has the meaning given in FS Rule 7.5.2.2 ;

		“ Buy-out Policy ”		means an insurance policy or annuity contract which satisfies the requirements of Section 95 of the Pension Schemes Act 1993 or is otherwise permitted under regulations relating to the Pension Schemes Act 1993;

		“ Cash Equivalent ”		means: (1) in relation to a Relevant Person who has a right to the cash equivalent of the benefits accrued to or in respect of him or her under Section 94 of the Pension Schemes Act 1993, the cash equivalent calculated in accordance with Section 97 of the Pension Schemes Act 1993; and

				(2) in relation to a Relevant Person who does not have a right to the cash equivalent in accordance with Section 94 of the Pension Schemes Act 1993, the value of the benefits accrued to or in respect of him or her under the Scheme calculated in such manner as the Trustees, after obtaining the advice of the Scheme Actuary, shall agree with the Principal Employer;

		“ C Rules ”		means the Constitutional Rules which are common to all sections of the Scheme;


“ Child ”		means a child of the Member; the Member’s stepchild; a child who has been legally adopted by the Member; and any other child who, in the Trustees’ opinion, was dependent on the Member at the time of the Member’s death and whom the Trustees agree to treat as a Child;

		A child shall remain a Child for so long as he or she is under age 23 and in full-time education or training approved by the Trustees. If any child was dependent on the Member because of physical or mental impairment, the Trustees may continue to treat the child as a Child for so long as they are satisfied that the child is suffering from the impairment;

“ Civil Partner ”		has the same meaning as in the Civil Partnership Act 2004;

“ Civil Partnership ”		has the same meaning as in the Civil Partnership Act 2004;

“ Contracting-out Laws ”		means the laws on contracting-out set out in Part III of the Pension Schemes Act 1993;

“ Death Benefit Member ”		means: (a) a Member who has ended his or her Pensionable Service under FS Rule 2.2 (Opting-out); or (b) a person admitted into the Scheme in accordance with the Supplemental Trust Deed and Rules dated 25th October 2002 (as amended) up until the date when these Rules take effect either as a Death Benefit Member or a Member (but who has ended his Pensionable Service in accordance with the provisions of the Supplemental Trust Deed and Rules dated 25th October 2002 (as amended)),

		and whose benefits under the Scheme will be restricted to the lump sum death benefits payable in accordance with FS Rule 7 (Benefits payable on the death of a Member);

“ Deferred Member ”		means a Member whose Pensionable Service ends before Normal Retirement Date and who has an entitlement to deferred benefits from the Scheme payable from Normal Retirement Date, payment of which has not started;


“ Dependant ”		means a dependant as defined in paragraph 15 of Schedule 28 to the Finance Act 2004. A dependant shall include the member’s spouse or civil partner, a child under the age of 23, or persons whom the Trustees consider financially dependent or mutually financially dependent on the Member or dependent due to physical or mental impairment;

“ Employee ”		means an employee of an Employer who is normally resident in the United Kingdom or such other countries as may be agreed by the Trustees, and includes a director of an Employer provided that the Scheme’s status as a registered pension scheme under the Finance Act 2004 is not prejudiced. For the purposes of the Scheme, any such director shall be deemed to be in Service. The Principal Employer shall decide whether or not a person is in Service and its decision shall be final;

“ Employer ”		means the Principal Employer and any Participating Employers. In relation to any Employee, former Employee or Member, “Employer” means that one of the Employers by which he or she is, or was, last employed;

“ Final Pensionable Salary ”		means in relation to a Member of the Final Salary Section the greater of:

		(1) his or her Basic Salary on his or her Normal Retirement Date (or on the earlier date of his or her death or termination of Pensionable Service); and

		(2) the highest average of his Pensionable Salary on any three consecutive Renewal Dates during the ten years (or such shorter period as he or she is a Member) ending on the day coincident with or, if not coincident with, immediately preceding his or her Normal Retirement Date ) or the earlier date of his or her death or termination of Pensionable Service);

“ Final Salary Section ”		means the final salary section of the Scheme to which these Rules apply;


“Former Scheme”		means the Lloyd’s Superannuation Fund established by a trust deed dated 10 October 1929, the MFK Underwriting Agencies Limited section of the Legal and General Pension Trust established by a declaration of trust dated 19 November 1987 and any registered scheme under the Finance Act 2004 for the purpose of paying a Transfer Amount to the Scheme, and includes (unless inconsistent with the context) the trustees or administrator of the Former Scheme;

“Frozen Scheme”		means a scheme under which all contributions have ceased and no further benefits accrue to scheme members but the assets of the scheme continue to be held by the scheme trustees to be applied in accordance with the rules of the scheme;

“FS Rules”		means, together with the C Rules, the Rules that govern the benefits payable under the Final Salary Section of the Scheme;

“Fund”		means the investments, cash and other assets for the time being held by or on behalf of the Trustees for the purposes of the Scheme;

“GMP”		means a guaranteed minimum pension (or accrued rights to one) under the Contracting-out Laws;

“HMRC”		means Her Majesty’s Revenue and Customs;

“Incapacity”		means physical or mental incapacity which prevents a Member from following his or her normal occupation and seriously impairs the Member’s earning capacity. It does not mean simply a decline in energy or ability. The Trustees’ decision as to whether a Member is suffering from an Incapacity shall be final;

“Index”		means the Government’s Index of Retail Prices or such other index as may be agreed for the purposes of the Scheme between the Trustees and HMRC;

“Insurance Company”		means an “insurance company” as defined in section 275 of the Finance Act 2004;


“Lifetime Allowance Excess Lump Sum”		has the same meaning as in the Finance Act 2004;

“Member”		means a person who has joined the Final Salary Section of the Scheme and in respect of whom the Trustees have a liability to pay or provide benefits;

“Minimum Pension Age”		means age 50 (or age 55 on or after 6 April 2010);

“NewScheme”		means a scheme registered under the Finance Act 2004 as a registered pension scheme for the purpose of accepting a Transfer Payment from the Scheme, and includes (unless inconsistent with the context) the trustees or administrator of the New Scheme;

“Normal Retirement Date”		means a Member’s 60th birthday;

“Participating Employer”		means any employer for the time being participating in the Scheme in accordance with C Rule 7.1 (Process for starting to participate), other than the Principal Employer;

“Pension Member”		means an Employee in Pensionable Service under the Scheme;

“Pensionable Salary”		in relation to a Member is calculated on the day he or she becomes a Pension Member and on any day thereafter and means the Member’s Basic Salary;


“Pensionable Service”		means the number of complete years and months of continuous Service which a Member completes as a Pension Member before his or her Normal Retirement Date and which, if a Member of the Final Salary Section, qualifies him for accrual of pension benefits; Pensionable Service for Members of the Final Salary Section is restricted to a maximum of 40 years; Service after Normal Retirement Date shall be counted as Pensionable Service if so determined by the Principal Employer in accordance with FS Rule 4.5 (Pension on late retirement);

“Preservation Laws”		means the laws on preservation of benefit set out in Chapter I of Part IV of the Pension Schemes Act 1993;

“Principal Employer”		means Chaucer Syndicates Limited or any company, firm, or individual which, in accordance with C Rule 8 (Change of Principal Employer), assumes the obligations of the Principal Employer under the Scheme;

“Professional Trustee”		means a Trustee who is in the business of providing a trustee service for payment;

“Qualified Member”		means a person: (1) who has completed at least two years’ Qualifying Service in respect of a Member of the Final Salary Section; (2) in respect of whom the Trustees have accepted a transfer relating to his rights under a personal pension scheme; or (3) who does not satisfy the criteria in (1) or (2) above but who, with the consent of the Principal Employer, the Trustees determine shall be treated as a Qualified Member;

“Qualifying Service”		means the aggregate of: (1) the last period of continuous Pensionable Service other than Service which fails within paragraphs (2) and (3) below;



		(2) any prior period of at least 2 years’ Pensionable Service in respect of which a Member remains entitled to benefits under the Scheme; Provided that if the prior period of membership is, with the Member’s consent, treated under the Scheme as continuous with the subsequent period, the Pensionable Service granted in respect of the prior Service is the Qualifying Service in respect of that prior period;

		(3) periods of service which counted as pensionable service in any previous employment during which the Member was a member of any Former Scheme and in respect of which the Trustees have received a Transfer Amount; and

		(4) provided that in paragraphs (1) and (2) above any breaks in Pensionable Service will be disregarded in assessing if Pensionable Service is continuous and the two (or more) separate periods will be aggregated if one or more of the following conditions are satisfied: (a) the break does not exceed one month; (b) the break corresponds to the Member’s absence from work wholly or partly because of pregnancy, confinement or childbirth and the Member returns to work after the break in exercise of a right under the Employment Rights Act 1996 and the Member returns to Pensionable Service no later than one month after returning to work; (c) the break corresponds to the Member’s absence from work further to a trade dispute as defined in Section 35 of the Jobseekers Act 1995;


		(d) there is a break in Service of any length and, before the break, the Member has already completed two years’ Qualifying Service.
“Reference Scheme”		means the reference scheme (as defined for the purposes of section 12B of the Pension Schemes Act 1993);

“Reference Scheme Pension”		means a pension provided under a Reference Scheme;

“Relevant Person”		means any Member or any person whose benefit is in payment from the Scheme;

“Renewal Date”		means 1 May in each year (or another date as the Trustees may from time to time decide);

“Revaluation Laws”		means the laws on revaluation of accrued benefits set out in Chapter II of Part IV of the Pension Schemes Act 1993;

“Rules”		means the rules which govern the Scheme;

“Scheme”		means the Chaucer Pension Scheme;

“Scheme Actuary”		means the Scheme actuary appointed by the Trustees under Section 47 of the Pensions Act 1995 or another actuary appointed by the Trustees;

“Scheme Earnings Cap”		means £117,600 for the tax year 2008/9. It shall subsequently be increased annually by reference to either the basis set out in section 590C(5) and section 590C(5A) of the Income and Corporation Taxes Act 1988 (notwithstanding the repeal of these sections), or another basis agreed by the Principal Employer and the Trustees in writing from time to time;

“Service”		means employment with an Employer and shall be deemed continuous although broken by periods of one month or less or performed partly with one Employer and partly with another Employer;


“ Spouse ”		means a husband, wife, widower and a widow and also includes a Civil Partner, references to a “widow” or “widower” shall include a surviving Civil Partner, and all references to “marriage” shall include Civil Partnership and references to “married” shall be interpreted accordingly;

“ Standard Lifetime Allowance ”		means an amount calculated in accordance with section 218 of the Finance Act 2004;

“ State Pension Age ”		means a man’s 65th birthday and a woman’s 60th birthday (increasing gradually to 65 between 2010 and 2020 such that it will be 65 for both men and women from 6 April 2020);

“ Transfer Amount ”		means any cash sum or other assets which a Former Scheme may be authorised to transfer to the Scheme in respect of a Member or other person who is entitled to benefits under the Former Scheme;

“ Transfer Payment ”		means, in relation to a Relevant Person, the cash equivalent in respect of that Relevant Person, or such greater amount as the Trustees, after consulting the Scheme Actuary, shall agree with the Principal Employer;

“ Transfer Value Laws ”		means the laws on transfer values set out in Chapter IV of Part IV of the Pension Schemes Act 1993;

“ Trivial Pension Limit ”		means an amount which is no higher than 1% of the Standard Lifetime Allowance; and

“ Trustees ”		means the trustees from time to time of the Scheme.

2.	Membership of the Scheme

This Rule sets out the terms on which an Employee may join the Final Salary Section of the Scheme and sets out the terms governing members’ benefits while they are away from work, including while on family leave and on secondment,

2.1	Joining the Scheme

2.1.1

The Final Salary Section is closed to new Members, with the exception of any person whom the Principal Employer with the agreement of the Trustees decides from time to time to admit to membership of it.

2.2	Opting-out

2.2.1

A Pension Member may at any time before Normal Retirement Date elect to end his or her membership of the Scheme whilst remaining in Service. To do this, the Member must give the Trustees at least one month’s written notice and complete any appropriate forms the Trustees require for this purpose. The Trustees shall inform the Member as soon as practicable of the date on which his or her Pensionable Service is treated as ending.

2.2.2

If a Member has ended his or her Pensionable Service under this FS Rule 2.2 (Opting-out), he or she will be treated as a Death Benefit Member. His or her benefits under the Scheme will be restricted to the lump sum death benefits payable in accordance with FS Rule 7 (Benefits payable on the death of a Member).

2.2.3

If a Pension Member has ended his or her Pensionable Service under this FS Rule 2.2 (Opting-out) and remains in Service, the Trustees may allow him or her to rejoin the Scheme as a Pension Member at a later date if:

2.2.3.1

at that date he or she is under age 55; and

2.2.3.2

he or she accepts any special conditions in respect of his or her membership which the Trustees consider appropriate including any restrictions on benefits payable under the Scheme on his or her death which may be subject to medical evidence of his or her good health.

2.3	Statutory family leave

2.3.1

A Member shall be treated as still a member of the Scheme in Pensionable Service while away from work during a period of statutory family leave, being:

2.3.1.1

ordinary maternity leave, ordinary adoption leave, or paternity leave in accordance with the Employment Rights Act 1996; and

2.3.1.2

any longer period in which the Member receives pay from the Member’s Employer and which is a period of maternity leave, adoption leave, paternity leave or absence from work for other family reasons (as defined in the Social Security Act 1989).

2.3.2

During any such period of statutory leave the benefits applicable to and in respect of the member under the Scheme will continue to accrue (or, if otherwise appropriate, will continue to be provided) on the same basis and subject to the same terms and conditions which otherwise would have applied under the Scheme had he or she been working normally subject to the other provisions of this FS Rule 2.3 (Statutory family leave).

2.3.3

If a Member receives pay from his or her Employer during any period of statutory family leave (as described above), he or she shall be required to pay contributions on the amount received. However, if a Member receives no pay for any period of statutory family leave, he or she shall not be required to pay contributions for that period and membership, Pensionable Service and benefits will continue under the Scheme.

2.3.4

During any period of statutory family leave (as described above), a Member may continue, start to pay or increase, reduce or stop any additional voluntary contributions to the Scheme.

2.3.5

The Member’s benefits for any period of statutory family leave shall be calculated as if the Member had worked normally and received the normal pay for doing so.

2.4	Additional family leave

2.4.1

If a Member is absent from work due to any other period of paid family leave, the Member’s benefits shall be based on the pay received unless the Principal Employer and the Trustees decide to apply other terms to the Member.

2.4.2

If a Member is absent from work due to a period of unpaid additional maternity leave, additional adoption leave or parental leave:

2.4.2.1

the Principal Employer and the Trustees may agree to treat the Member as still in Pensionable Service for some or all purposes of the Scheme during this time. The Principal Employer and the Trustees shall agree terms (consistent with the Contracting-out Laws) to apply to the Member’s contributions and benefits for this further period; or

2.4.2.2

the Member shall otherwise be treated as if he or she had left Pensionable Service. However, if a Member returns to work at the end of such a period of unpaid leave, his or her Pensionable Service before being treated as having left Pensionable Service and after returning to work shall be treated as continuous (but excluding the break).

2.5	Absence for any other reason

2.5.1

Where a Member is away from work for any reason other than those described above or on secondment, the Principal Employer and Trustees may agree to treat the Member as still in Pensionable Service during this period, subject to any terms which the Principal Employer and Trustees agree (consistent with the Contracting-out Laws). In particular, a Member who is away from work shall be treated as still in Pensionable Service for so long as the Member receives contractual pay or statutory sick pay. If a Member is not treated as still in Pensionable Service, the Member shall be treated as if he or she had left Pensionable Service. No Employee will be prevented from joining or re-joining the Scheme solely because of his or her temporary absence.

3.	Contributions

This Rule sets out the terms for the payment of contributions to the Scheme.

3.1	Employer contributions

3.1.1

Each Employer shall contribute to the Scheme in respect of Employees who are Members. An Employer’s contributions shall be paid at a rate which from time to time, the Trustees, after obtaining the advice of the Scheme Actuary, shall agree with the Principal Employer to be necessary to provide benefits under the Scheme for and in respect of the Members, taking into account any contributions payable by Members under FS Rule 3.2 (Members’ basic contributions) and any additional liability falling on an Employer under FS Rule 2.3 (Statutory family leave). Such Employer contributions shall not prejudice the Scheme’s status as a registered pension scheme under the Finance Act 2004.

3.1.2

An Employer with the consent of the Principal Employer and the Trustees may at any time pay a special contribution to the Scheme for any purpose consistent with the purposes of the Scheme. The Trustees shall apply the contribution solely for the purpose stated by the Employer, provided that this does not prejudice the Scheme’s status as a registered pension scheme under the Finance Act 2004.

3.1.3

Each Employer’s contributions must be paid to the Trustees, or as otherwise directed by the Trustees, at such intervals as the Trustees decide.

3.1.4

An Employer may at any time reduce, suspend or terminate its contributions to the Scheme by giving three months’ written notice to the Principal Employer, the Trustees and to all its Employees who are Members. Any notice of reduction, suspension or termination of contributions is without prejudice to the Employer’s obligation to pay contributions to the Scheme in respect of the period before the effective date of the notice. Any notice of termination extends to any liability of the Members who are Employees of the Employer to contribute to the Scheme.

3.1.5

If an Employer terminates its contributions under this FS Rule 3.1 (Employer contributions), the provisions of C Rule 7.2 (Ceasing to participate) will then apply. If the Principal Employer terminates its contributions under this FS Rule 3.1 (Employer contributions), the provisions of C Rule 14 (Winding-up) will then apply.

3.2	Members’ basic contributions

3.2.1

Each Member in Pensionable Service shall contribute to the Scheme at a rate of 4% of his or her Basic Salary or at such other rate as the Trustees may determine with the agreement of the Principal Employer and notify to the Members. These contributions will be deducted from the Member’s earnings on each pay date. The Employer will pay these contributions to the Trustees as soon as is reasonably practicable (or as otherwise directed by the Trustees) and at such intervals as the Trustees decide being no later than the 19th day of the month following that in which the deduction is made.

3.2.2

A Member will pay ordinary contributions from the date of becoming a Member until, subject to the provisions below regarding paying basic contributions beyond Normal Retirement Date, the earliest of:

3.2.2.1

his or her Normal Retirement Date;

3.2.2.2

his or her date of death; or

3.2.2.3

the date on which he or she leaves Pensionable Service

except that a Member is not required to contribute to the Scheme for more than 40 years.

3.2.3

A Member may not make contributions to the Scheme in excess of the annual limit on relief described in Section 190 of the Finance Act 2004.

3.2.4

If a Member remains in Service after Normal Retirement Date, his or her basic contributions may, at his request, but subject to the agreement of the Trustees and the Principal Employer, continue for the period for which he or she accrues additional Pensionable Service under FS Rule 4.5 (Pension on late retirement). If the ordinary contributions of the Member had ceased before his or her Normal Retirement Date because he or she had then completed 40 years’ Pensionable Service although he or she remained in Service, he or she will pay ordinary contributions from his or her Normal Retirement Date for the period for which he or she accrues additional Pensionable Service under FS Rule 4.5 (Pension on late retirement).

3.2.5

A Member will continue to pay such basic contributions to the Scheme in respect of Pensionable Service after his or her Normal Retirement Date which require to be paid. These contributions will cease on the earlier of his or her actual retirement and his or her 75th birthday.

3.3	Members’ additional voluntary contributions

3.3.1

A Member in Pensionable Service may pay additional voluntary contributions to the Scheme to provide additional or increased benefits for or in respect of him or her on a money purchase basis. Additional voluntary contributions may be made to the Scheme so long as the Member does not start to make additional voluntary contributions on a date less than twelve months before his or her Normal Retirement Date, on terms agreed between the Member and the Trustees subject to a minimum rate decided by the Trustees from time to time. If a Member wishes to commence paying additional voluntary contributions or change the amount that he or she pays or cease contributing, he or she must give the Trustees one month’s written notice of this intention.

3.3.2

A Member may continue to pay additional voluntary contributions to the Scheme in respect of Service after his or her Normal Retirement Date. These contributions shall cease on the earlier of his or her actual retirement and his or her 75th birthday.

3.3.3

3.3.4

The funds attributable to a Member’s additional voluntary contributions shall be used to provide additional money purchase benefits in respect of the Member.

3.3.5

The amount of additional voluntary contributions that can be paid by a Member of the Scheme is not subject to an upper limit. The Trustees have an absolute discretion regarding the application of a Member’s additional voluntary contributions under the Rules. Any additional benefits secured by a Member’s voluntary contributions may be taken as cash.

3.3.6

The Trustees shall invest the voluntary contributions of a Member so that the Trustees can at all times identify the contributions and any investment additions to them and any deductions from them. C Rule 6.2 (Investment of Scheme assets) shall apply to the investment of a Member’s voluntary contributions in the same way as it applies to the investment of the remainder of the Fund. The assets of the Fund which represent voluntary contributions and the income arising from them shall be treated as a separate fund should the Scheme wind up in accordance with C Rule 14 (Winding-up) and shall not be available for the general purposes of the Scheme.

4.	Active Members’ immediate pensions

This Rule sets out the terms governing the calculation of pensions for active members who retire from service with an immediate pension.

4.1	Pension on retirement at Normal Retirement Date

4.1.1

A Member who retires from Service at Normal Retirement Date and who was in Pensionable Service on the day before that date is entitled to an immediate annual pension at a yearly rate of l/60th of Final Pensionable Salary for each complete year of Pensionable Service, subject to a maximum of 40 years, plus an additional proportion for each additional complete month of Pensionable Service.

4.1.2

The Pensionable Service of a Member who for any period has been in part-time employment shall be treated as reduced during this period in the same proportion which the number of hours he or she works each week under his contract of employment bears to the number of hours a comparable Employee (in the opinion of the Employer) would work under a full-time contract of employment.

4.1.3

If a Member has been in part-time employment during any period by reference to which his or her Final Pensionable Salary is calculated, his Final Pensionable Salary shall be increased either in the same proportion which the number of hours a comparable Employee would work under a full-time contract of employment bears to the number of hours the Member works under his contract of employment or on another basis which the Trustees decide is fair.

4.2	Pension on early retirement

4.2.1

A Member may retire from Service before his or her Normal Retirement Date if he or she is aged 50 (or age 55 from 6 April 2010) or more or at any time if he or she is suffering from an Incapacity. Subject to the Contracting-out Laws and with the consent of the Employer and the Trustees the Member shall be entitled to receive an immediate annual pension as an alternative to any benefit payable.

4.2.2

Any Member wishing to retire early under the provisions of this FS Rule 4.2 (Pension on early retirement) shall, before he or she retires, inform the Trustees in writing that he wishes his retirement benefits to become payable on his retirement.

4.2.3

A pension payable under this FS Rule 4.2 (Pension on early retirement) shall, to the reasonable satisfaction of the Trustees after obtaining the advice of the Scheme Actuary, be at least equal in value on the date it starts to be paid to the deferred pension which would be payable at the Member’s Normal Retirement Date, taking into account the Preservation, Contracting-out and Revaluation Laws. The pension may, if necessary, be restricted to ensure that a pension of not less than the Member’s GMP, or the pension (if any) that must be paid in accordance with the Contracting-out Laws, is payable from State Pension Age. The Trustees may pay a smaller pension before State Pension Age if they are satisfied after obtaining the advice of the Scheme Actuary that the benefits payable are at least equal in value to the benefits which would have been payable if the above condition did not apply. If payment of an immediate pension is not possible because of this condition, the Member shall be entitled to a deferred pension under FS Rule 5 (Benefits for Deferred Members).

4.3	Early retirement not due to Incapacity

4.3.1

Subject to FS Rule 4.2 (Pension on early retirement), a Member who retires from Service on or after his or her 50th birthday (or 55 age from 6 April 2010) and before his or her Normal Retirement Date other than as a result of Incapacity is entitled to an immediate annual pension. The pension will be equal to that which he or she would otherwise have been entitled to under FS Rule 4.1 (Pension on retirement at Normal Retirement Date), calculated on his or her Final Pensionable Salary and his or her Pensionable Service completed at the date of his or her actual retirement, but reduced by an amount determined by the Trustees, and certified by the Scheme Actuary as reasonable, in respect of the period between the date of his or her actual retirement and his or her Normal Retirement Date.

4.4	Pension on Incapacity retirement

4.4.1

Subject to FS Rule 4.2 (Pension on early retirement) and this FS Rule 4.4 (Pension on Incapacity retirement), a Member who leaves Service at any time before Normal Retirement Date because of Incapacity is entitled to an immediate annual pension. Before they can agree to the pension being paid, the Trustees must have received evidence from a registered medical practitioner that the Member is (and shall continue to be) incapable of carrying on his or her occupation because of physical or mental impairment.

4.4.2

A pension payable under this FS Rule 4.4 (Pension on Incapacity retirement) will be equal to the pension to which he or she would otherwise have been entitled to under FS Rule 4.1 (Pension on retirement at Normal Retirement Date) had the date of his or her

actual retirement been his or her Normal Retirement Date, calculated on his or her Final Pensionable Salary at the date of his or her actual retirement and his or her prospective Pensionable Service up to his or her Normal Retirement Date, but reduced by an amount determined by the Trustees, and certified by the Scheme Actuary as reasonable, in respect of the period between the date of his or her actual retirement and his or her Normal Retirement Date.

4.4.3

Early retirement on pension on grounds of Incapacity, and the continuing payment of the early retirement pension, shall be subject to the production of such medical evidence as the Trustees reasonably consider to be satisfactory proof that the Member is Incapacitated.

4.4.4

If the health of an Incapacitated Member improves before Normal Retirement Date, the Trustees may decide that, in their opinion and after taking advice from qualified medical examiners, the Member is no longer Incapacitated. In this event and subject to the Contracting-out Laws, the Trustees may, after obtaining the advice of the Scheme Actuary, reduce the pension in payment to the Member or stop further pension payments to him or her until his Normal Retirement Date.

4.4.5

In this event, the pension payable to the Member from his or her Normal Retirement Date will not be less than the deferred pension to which he or she otherwise would have been entitled had he or she been a Qualified Member at the date he or she retired from Service but reduced by an amount determined by the Trustees, and certified by the Scheme Actuary as reasonable, in relation to the pension payments and other benefits paid to him or her from the Scheme before his or her Normal Retirement Date.

4.5	Pension on late retirement

4.5.1

Subject to the Contracting-out Laws, a Member who stays in Service after Normal Retirement Date will be entitled to an immediate annual pension when he or she leaves Pensionable Service. If the Member’s retirement is after he or she reaches age 75, his or her pension must start to be paid from his or her 75th birthday. The pension shall be equal to the pension to which he or she would otherwise have been entitled to under FS Rule 4.1 (Pension on retirement at Normal Retirement Date) had the date of his or her actual retirement been his or her Normal Retirement Date, increased by an amount determined by the Trustees on the advice of the Scheme Actuary in respect of the period between the Member’s Normal Retirement Date and his or her actual date of retirement.

4.5.2

During any period of Service after a Member’s Normal Retirement Date which is treated as Pensionable Service, the Member shall pay any contributions required to be paid to the Scheme under FS Rule 3.2 (Members’ basic contributions). A Member may continue to pay any voluntary contributions under FS Rule 3.3 (Members’ additional voluntary contributions) during any period of Service after Normal Retirement Date. Contributions will cease on the earlier of his or her date of actual retirement and his or her 75th birthday.

4.5.3

If payment of a Member’s pension is deferred beyond State Pension Age, the Member shall for the purposes of the Scheme be treated as retiring on the 5th anniversary of his or her attainment of State Pension Age, unless by that date he or she has retired or unless he or she consents to the payment of his or her pension being further deferred.

4.5.4

If a Member dies during Service after Normal Retirement Date, he or she is treated as having retired on the day before his or her death. The appropriate provisions of FS Rule 7.1 (Benefits on death in Pensionable Service before Normal Retirement Date) and FS Rule 7.7 (Dependant’s pension) relating to death in retirement then apply.

4.5.5

This FS Rule 4.5 (Pension on late retirement) does not apply to a Member who has treated his or her Pensionable Service in accordance with FS Rule 2.2 (Opting-out), except to the extent which applies under this FS Rule 4 (Active Members’ immediate pensions).

5.	Benefits for Deferred Members

This Rule sets out the terms on which Members become deferred members, and for the payment of benefits to members who become deferred members on or after the effective date of these Rules.

5.1	Leaving the Scheme

5.1.1

A Member shall be treated as having left Pensionable Service for the purposes of these Rules when he or she, before his or her Normal Retirement Date:

5.1.1.1

leaves Service and is not entitled to, or does not receive, an immediate pension;

5.1.1.2

ceases to satisfy the Scheme’s eligibility conditions;

5.1.1.3

opts out of Pensionable Service by giving not less than one month’s notice in writing to the Trustees; or

5.1.1.4

is otherwise treated as if he or she had left Pensionable Service under any other provision in the Rules.

5.1.2

If a Member is treated as having left Pensionable Service and later rejoins the Scheme, each period of Pensionable Service shall be treated separately, unless the Principal Employer and Trustees agree otherwise,

5.2	Cash transfer sums and contribution refunds

5.2.1

If a Member leaves Pensionable Service before Normal Retirement Date without satisfying the ‘ three month condition ’ (as defined in section 101AA(2) of the Pension Schemes Act 1993), the Trustees shall pay the Member a contribution refund excluding investment return and interest (less tax at the appropriate rate).

5.2.2

If a Member who satisfies the ‘three month condition’ leaves Service before Normal Retirement Date with less than ‘2 years’ Qualifying Service’ (as defined in section 71(7) of the Pension Schemes Act 1993), the Trustees must notify him or her on the terms described in Chapter 5 of Part IV of the Pension Schemes Act 1993 about his or her options to take a cash transfer sum or contribution refund within a reasonable period after the Member leaves Service. If the Member does not choose a cash transfer sum within the period notified by the Trustees to the Member, the Trustees shall pay the Member a contribution refund (less tax at the appropriate rate).

5.2.3

Any cash transfer sum or contribution refund paid in respect of a Member under this FS Rule 5.2 (Cash transfer sums and contribution refunds) must comply with the requirements of Chapter 5 of Part IV of the Pension Schemes Act 1993 and with the requirements of the Finance Act 2004.

5.3	Preserved pension at Normal Retirement Date

5.3.1

A Member who leaves Pensionable Service before Normal Retirement Date with at least 2 years’ Qualifying Service (as defined in section 71(7) of the Pension Schemes Act 1993) shall receive a pension from Normal Retirement Date. The pension shall be calculated in accordance with FS Rule 4.1 (Pension on retirement at Normal Retirement Date), based on the Member’s Pensionable Service to the date of leaving Pensionable Service and the Member’s Final Pensionable Salary at the date of leaving Pensionable Service.

5.3.2

The pension (in excess of the GMP) shall then be increased before payment in accordance with the Revaluation Laws and the GMP shall be increased in accordance with the Contracting-out Laws.

5.4	Other options for the payment of preserved pension

5.4.1

A Member who becomes entitled to a pension under FS Rule 5.3 (Preserved pension at Normal Retirement Date) on leaving Pensionable Service may choose:

5.4.1.1

to apply the Cash Equivalent of his or her benefits to buy one or more annuities, or to acquire rights under another pension scheme or arrangement, in accordance with the Transfer Value Laws;

5.4.1.2

by informing the Trustees in writing, to commence receiving it before Normal Retirement Date (but not before reaching Minimum Pension Age, unless the Member is suffering from Incapacity). The pension shall be reduced for early payment by an amount determined by the Trustees on a basis certified by the Scheme Actuary;

5.4.1.3

to commence receiving it after Normal Retirement Date, if the Trustees and Principal Employer agree. The pension shall be increased for late payment by an amount determined by the Trustees on a basis certified by the Scheme Actuary; or

5.4.1.4

to exchange pension for a lump sum or Dependant’s pension as described in FS Rule 6.1 (Exchanging for a retirement lump sum) and FS Rule 6.2 (Exchanging for a Dependant’s pension).

5.4.2

The Trustees must receive advice from the Scheme Actuary that the benefits for a Member who chooses any of the options under this FS Rule 5.4 (Other options for the payment of preserved pension) are at least equal in value to the benefits that would otherwise have been provided for the Member under the Scheme.

6.	Exchanging pension for other benefits

This Rule sets out the terms on which active and deferred members may exchange pension for either a cash lump sum or a Dependant’s pension.

6.1	Exchanging for a retirement lump sum

6.1.1

A Member may exchange part of his or her pension for a lump sum, which shall be payable when the pension is due to commence. The Trustees may convert the Member’s pension to lump sum on a basis agreed by the Trustees after considering advice from the Scheme Actuary.

6.1.2

The Member may choose the amount of his or her lump sum under this FS Rule 6.1 (Exchanging for a retirement lump sum), on the condition that it may not exceed the maximum allowable as a pension commencement lump sum under Part 4 of the Finance Act 2004.

6.2	Exchanging for a Dependant’s pension

6.2.1

Subject to the consent of the Principal Employer and the Trustees, a Member may choose, by giving written notice to the Trustees, to reduce the pension that would be payable to his Spouse or Dependant if he dies in Service by up to 50 per cent and, in exchange, to increase the amount of the lump sum that would be payable to the Spouse or Dependant on his death in Service. The Trustees will convert pension to lump sum on such basis as they may determine after considering the advice of the Scheme Actuary and which is consistent with the Contracting-out Laws.

6.3	Payment of a lump sum on grounds of serious ill health

6.3.1

Provided that the requirements of paragraph 4 of Schedule 29 to the Finance Act 2004 are met, the Trustees may pay a Member the whole of his or her benefits as a lump sum. This shall extinguish the Member’s entitlement under the Scheme except that the Trustees shall retain the required amount of any contracted-out rights to purchase a pension for any widow, widower or surviving Civil Partner as required under the Contracting-out Laws.

7.	Benefits payable on the death of a Member

This Rule sets out the terms on which lump sums for beneficiaries and pensions for Spouses and Children are paid in respect of Members when they die.

7.1	Benefits on death in Pensionable Service before Normal Retirement Date

7.1.1

If a Member dies in Pensionable Service before his or her Normal Retirement Date, a lump sum and a pension shall be payable immediately to his or her Spouse.

7.1.2

For a Death Benefit Member the lump sum shall be equal to the sum of 2 times the Member’s Final Pensionable Salary.

7.1.3

For a Pension Member the lump sum shall be equal to the sum of 4 times the Member’s Pensionable Salary plus his or her Member Contributions (excluding interest) paid up to the date of his or her death plus the value of his or her additional voluntary contributions.

7.1.4

For a Pension Member a pension is immediately payable to his or her Spouse equal to two thirds of the pension to which the Pension Member would have been entitled under FS Rule 4.1 (Pension on retirement at Normal Retirement Date) at his or her Normal Retirement Date had he or she continued in Pensionable Service until that date and had his or her Final Pensionable Salary remained as it was at his or her date of death.

7.1.5

A pension payable under this FS Rule 7.1 (Benefits on death in Pensionable Service before Normal Retirement Date) to a Pension Member’s widow or widower shall not be less than the widows or widower’s GMP, or the pension (if any) that must be paid in accordance with the Contracting-out Laws.

7.1.6

Any lump sum or pension payable under this FS Rule 7.1 (Benefits on death in Pensionable Service before Normal Retirement Date) is subject to FS sub-rules 7.5.2 to 7.5.6 of FS Rule 7.5 (Payment of lump sums on death) or FS Rule 7.6 (Payment of Spouse’s pension on death) respectively.

7.2	Benefits on death on or after Normal Retirement Date before pension is in payment

7.2.1

If a Pension Member or a Deferred Member dies on or after his or her Normal Retirement Date and before the start of his or her pension under the Scheme, a pension is payable immediately to his or her Spouse and a lump sum is payable equal to five times the annual pension that would have been paid to him or her had he or she retired on the day immediately before the date of his or her death excluding any increases which would have applied to his or her pension under FS Rule 9 (Pension increases).

7.2.2

The pension is equal to two thirds of the annual pension to which the Member would have been entitled had he or she retired on the day before his or her death.

7.2.3

A pension payable under this FS Rule 7.2 (Benefits on death on or after Normal Retirement Date before pension is in payment) to a Pension Member’s widow or widower shall not be less than the widows or widower’s GMP, or the pension (if any) that must be paid in accordance with the Contracting-out Laws.

7.2.4

Any lump sum or pension payable under this FS Rule 7.2 (Benefits on death on or after Normal Retirement Date before pension is in payment) is subject to FS sub-rules 7.5.2 to 7.5.6 of FS Rule 7.5 (Payment of lump sums on death) or FS Rule 7.6 (Payment of Spouse’s pension on death) respectively.

7.3	Benefits on death after pension commences

7.3.1

If a Member dies while receiving a pension, a pension is payable immediately to his or her Spouse, and a lump sum is payable if the Member dies within 5 years of the date his or her pension commences.

7.3.2

If the lump sum is payable under this FS Rule 7.3 (Benefits on death after pension commences), it shall be equal to the total of the pension payments which would have been made to the Member during the remainder of the 5 year period if the Member had not died (but disregarding any future increases).

7.3.3

A Member may, by notice in writing to the Trustees, choose for a lump sum payable under this FS Rule 7.3 (Benefits on death after pension commences) to be treated as a pension protection lump sum, in accordance with paragraph 14 of Schedule 29 to the Finance Act 2004.

7.3.4

A pension payable under this FS Rule 7.3 (Benefits on death after pension commences) shall be equal to two thirds of the pension to which the Member would have been entitled at the date of his or her retirement before:

7.3.4.1

any exchange for a lump sum; or

7.3.4.2

any exchange for a Dependant’s pension;

as increased (if at all) in respect of the period between the date the first installment of the Member’s pensions feel due and the date of his or her death.

7.3.5

Any lump sum or pension payable under this FS Rule 7.3 (Benefits on death after pension commences) is subject to FS sub-rules 7.5.2 to 7.5.6 of FS Rule 7.5 (Payment of lump sums on death) or FS Rule 7.6 (Payment of Spouse’s pension on death) respectively.

7.3.6

If a lump sum becomes payable under this FS Rule 7.3 (Benefits on death after pension commences) in respect of a Member aged 75 or more, the Trustees may decide not to pay the lump sum and to increase the value of the pension payable in respect of that Member by an amount equal to the lump sum instead.

7.4	Benefits on death of a Deferred Member after leaving Pensionable Service

7.4.1

If a Deferred Member dies before his or her Normal Retirement Date (whether or not still in Service) and before the start of his or her deferred pension to which he or she is entitled under FS Rule 5 (Benefits for Deferred Members), his widow or widower is entitled to an immediate pension equal to two thirds of the deferred pension to which the Member would have been entitled had the Member retired on the day before his or her date of death.

7.4.2

If a Deferred Member dies before his or her Normal Retirement Date (whether or not still in Service) and before the start of his or her deferred pension to which he or she is entitled under FS Rule 5 (Benefits for Deferred Members), a lump sum is payable equal to the sum of the Member’s contributions to the Scheme (excluding interest) and the value of any additional voluntary contributions.

7.4.3

Any lump sum or pension payable under this FS Rule 7.4 (Benefits on death of a Deferred Member after leaving Pensionable Service) is subject to FS sub-rules 7.5.2 to 7.5.6 of FS Rule 7.5 (Payment of lump sums on death) or FS Rule 7.6 (Payment of Spouse’s pension on death) respectively.

7.5	Payment of lump sums on death

7.5.1

On the death of a Deferred Member who has left Service but has not retired on pension, the Trustees shall pay any lump sum death benefit payable under the Scheme to the Member’s legal personal representatives, subject to FS sub-rule 7.5.5 .

7.5.2

Subject to FS sub-rule 7.5.1 , the Trustees shall pay or apply any lump sum death benefit which becomes payable under the Scheme on the death of a Member on the following trusts and subject to the following powers:

7.5.2.1

during the period of 2 years from the death of a Member the Trustees shall have power to pay or apply the whole or any part of the lump sum death benefit to or for the benefit of all or any one or more of the Member’s Beneficiaries and his or her legal personal representatives in such shares and proportions as the Trustees may in their absolute discretion decide;

7.5.2.2

in exercising the power in FS sub-rule 7.5.2.1 the Trustees shall, during the 2 year period, have power to transfer the whole or any part of the lump sum death benefit to the trustees of a separate trust for the benefit of all or any one or more of the Member’s Beneficiaries (a Member’s “ Beneficiaries ” for these purposes are the Member’s widow or widower; the Member’s grandparents and their descendants and the Spouses of those descendants; the Member’s Dependants; any person with an interest in the Member’s estate (but not including the Crown, the Duchy of Lancaster or the Duke of Cornwall); and any person nominated by the Member in writing to the Trustees), and with and subject to (without infringing the rule against perpetuities) such powers of appointment and such other discretionary trusts and powers (exercisable by the trustees of the separate trust or by any other person), and such provisions for maintenance, education, advancement and accumulation of income during a minority, as the Trustees may in their absolute discretion think fit. The Trustees shall have power themselves to declare any such separate trust and to appoint as trustees or trustee of that trust any two persons or a corporate body, whether or not it is a Trust Corporation as defined in Section 68 of the Trustee Act 1925, as the Trustees may decide and to provide for the remuneration of such trustees or trustee;

7.5.2.3

in exercising any of the powers in FS sub-rule 7.5.2.1 and FS sub-rule 7.5.2.2 the Trustees may (but shall not be bound to) have regard to any wishes that the Member may have expressed in writing to the Trustees regarding

the application of any benefit to which this FS sub-rule 7.5.2.3 applies on his or her death;

7.5.2.4

subject to FS sub-rule 7.5.2.1 , at the expiry of the 2 year period any part of the lump sum death benefit which has not been paid, applied or transferred under this FS sub-rule 7.5.2 shall be held by the Trustees separately from the Fund upon trust for the legal personal representatives of the Member or, if there are no such legal personal representatives, for the Member’s statutory next of kin (on the basis that the Member died domiciled in England), subject to FS sub-rule 7.5.5 .

7.5.3

In exercising their discretion or in making any payment, application or transfer under this FS Rule 7 (Benefits payable on the death of a Member), the Trustees may consult the Employer who last employed the Member before his or her death or with the Principal Employer. The Trustees may rely upon the Employer’s certificate that any person to whom or for whose benefit any amount is to be paid, applied or transferred is a Beneficiary. In settling any benefits on a separate trust the Trustees may rely upon a solicitor’s certificate stating that the trusts upon which the benefits will be held are such that those benefits must be paid to, or applied for the benefit of, one or more of the Beneficiaries.

7.5.4

All or any expenses, fees, stamp duty or other costs incurred for the purpose of, or in connection with, any payment, application or transfer under this FS Rule 7 (Benefits payable on the death of a Member) (irrespective of how that payment, application or transfer is made) may, if the Trustees so decide, be deducted from or paid out of the benefits payable under this FS Rule 7 (Benefits payable on the death of a Member).

7.5.5

If any payment under this FS Rule 7 (Benefits payable on the death of a Member) would result in any part of the lump sum death benefit vesting in the Crown the Duchy of Lancaster or the Duke of Cornwall as bona vacantia or in a creditor, the Trustees may instead hold the benefit in the Scheme for the general purposes of the Scheme,

7.5.6

Any lump sum payable under this FS Rule 7 (Benefits payable on the death of a Member) on the death of a Member who is receiving a pension from the Scheme is payable in accordance with the provisions of this FS sub-rule 7.5.6 , In the case of a Member receiving his or her pension who had retired before his or her Normal Retirement Date, or who had left Service before that date and was entitled to a deferred pension under FS Rule 5 (Benefits for Deferred Members), the Trustees are not required to hold the lump sum separately from the Fund at the expiry of the 2 year period if they have not paid or applied the lump sum at that date.

7.6	Payment of Spouse’s pension on death

7.6.1

If a Member is survived by a Spouse, the Trustees shall pay the pension to the Spouse for life on the terms of this FS Rule 7 (Benefits payable on the death of a Member).

7.6.2

The amount of the Spouse’s pension shall be as set out in FS Rule 7.1 (Benefits on death in Pensionable Service before Normal Retirement Date) to FS Rule 7.4 (Benefits on death of a Deferred Member after leaving Pensionable Service) (as applicable) unless the Spouse was neither living with nor dependent on the Member at the date of the Member’s death. If this happens, the Trustees may instead decide not to pay some or all of the pension to the Spouse (other than any pension payable to the Spouse under the Contracting-out Laws).

7.6.3

If the marriage took place after the Member left Pensionable Service or after retiring any pension payable on the Member’s death may be reduced at the discretion of the Trustees except to the extent that it relates to any GMP or Reference Scheme Pension payable to the Spouse under the Contracting-out Laws.

7.6.4

If a Member dies within six months of his or her marriage, his or her widow or widower shall not be treated as the Member’s Spouse unless the Trustees, with the consent of the Principal Employer, decide otherwise.

7.6.5

If the Trustees decide in accordance with this FS Rule 7.6 (Payment of Spouse’s pension on death) to pay a Spouse no (or a reduced) pension, the Trustees may instead pay a pension to any of the Member’s Dependants equal in aggregate to the balance of the Spouse’s normal pension (or less).

7.6.6

Where a Member dies leaving more than one surviving Spouse, the Spouse’s pension shall be paid to one or more of them in such shares as the Trustees decide (subject to the Contracting-out Laws).

7.6.7

The Trustees may, subject to the following conditions, allow a Spouse or Dependant to exchange pension for a lump sum. The conditions are that:

7.6.7.1

the Trustees may impose such terms for the exchange as they consider appropriate;

7.6.7.2

the Trustees shall convert pension into a lump sum on an actuarial basis which they decide (after consulting the Scheme Actuary);

7.6.7.3

the Spouse’s pension must comply with the requirements of the Contracting-out Laws.

7.7	Dependant’s pension

7.7.1

Subject to the Contracting-out Laws a Member may, with the consent of the Trustees, elect to surrender part of his or her pension to provide an annual pension payable on his or her death to one or more of his or her Dependants as he or she nominates. The Trustees, after obtaining the advice of the Scheme Actuary, shall determine the amount of each Dependant’s pension and the amount of pension remaining payable to the Member.

7.7.2

A Dependant’s pension provided under this FS Rule 7 (Benefits payable on the death of a Member) is subject to the further provisions of this FS Rule 7 (Benefits payable on the death of a Member) and is payable in accordance with FS Rule 7.6 (Payment of Spouse’s Pension on death).

7.7.3

A Dependant’s pension shall not:

7.7.3.1

be less than the Trivial Pension Limit; or

7.7.3.2

when aggregated with any other Dependant’s pension payable under this FS Rule 7 (Benefits payable on the death of a Member), be more than the Member’s pension remaining after the Member exercises this option but before he or she exercises any option to exchange part of his or her pension for a cash sum under FS Rule 6.1 (Exchanging for a retirement lump sum); or

7.7.3.3

be so large as to cause the Member’s remaining pension to be less than the Member’s GMP, or the pension (if any) that must be paid to him or her in accordance with the Contracting-out Laws.

7.7.4

If the Member dies before his or her pension becomes payable under the Rules, any election made by him or her under FS sub-rule 7.7.1 is cancelled and treated as not having been made.

7.7.5

If a Member makes an election under FS sub-rule 7.7.1 , he or she may at any time cancel that election and make another election provided that, in either case, his or her retirement benefits have not become payable under the Rules.

7.7.6

If a nominated Dependant dies or ceases to qualify as a Dependant before the Member’s pension becomes payable under the Rules, the election made by the Member under FS sub-rule 7.7.1 is cancelled and is treated as not having been made. The Member may then make another election under FS sub-rule 7.7.1 before his retirement.

7.7.7

If a nominated Dependant dies or ceases to qualify as a Dependant after the Member’s pension becomes payable under the Rules but before the Member’s death, no benefit is payable in respect of that Dependant. The Member will remain entitled only to that part of his or her pension which he or she did not surrender under FS sub-rule 7.7.1.

7.7.8

An election under this FS Rule 7.7 (Dependant’s Pension) must be made by the Member in writing to the Trustees in the form they require at least 1 month (or such other period as the Trustees decide) before the date on which the first installment of the Member’s pension is payable.

7.8	Children’s pension

7.8.1

If the Member is survived by a Child, and either no pension is payable under FS Rule 7.1 (Benefits on death in Pensionable Service before Normal Retirement Date) or FS Rule 7.3 (Benefits on death after pension commences) or any Spouse’s or Dependant’s pension stops while there is still a Child, the Trustees shall pay the pension to (or for the benefit of) the Child (or Children as applicable). The Trustees shall decide from time to time how to divide the pension between more than one Child.

7.8.2

Any pensions paid under this FS Rule 7.8 (Children’s pension) are only payable for so long as the person satisfies the requirements of the definition of ‘Child’ (see FS Rule 1 (Meaning of defined terms)).

7.9	Young Spouse

7.9.1

If the Spouse was more than 10 years younger than the Member, the Spouse’s pension shall be reduced for each complete year (and in proportion for each complete month) by which the Spouse is more than 10 years younger than the Member. The reduction shall be determined by the Trustees on a basis which is certified by the Scheme Actuary as

reasonable but shall not be greater than a fixed rate of 2.5% for each year of age disparity in excess of 10 years. Any pension payable to a Member’s widow or widower shall not be reduced to an amount less than the widow or widower’s GMP and the pension (if any) must be paid to him or her in accordance with the Contracting-out Laws.

8.	Terms for the payment of benefits

This Rule sets out how often benefits are paid, and the terms for reducing or stopping the payment of benefits in certain circumstances (such as where benefits are insured or where a Member provides inaccurate information).

8.1	Frequency of pension payment

8.1.1

Pensions are payable monthly in arrears or on any other basis which the Trustees decide.

8.1.2

If any amount of pension paid to a Member or other beneficiary exceeds his or her entitlement the Trustees may, subject to the Contracting-out Laws:

8.1.2.1

deduct the amount overpaid from any future payment due to the Member or beneficiary or due to any other person who derives his entitlement to benefit through the Member or beneficiary; or

8.1.2.2

recover the amount overpaid at any time from the Member or beneficiary to whom it was paid.

8.2	Manner of payment of benefits

8.2.1

The Trustees may pay benefits to any person entitled to them by any method the Trustees consider appropriate.

8.2.2

All payments will be in Pounds Sterling unless the Trustees decide otherwise in any particular case.

8.3	Incapable beneficiary

8.3.1

If a person entitled to a benefit is a minor, or is suffering (in the opinion of the Trustees) from any incapacity making the person unable to manage his or her affairs or to give a proper receipt, the Trustees may, subject to the Contracting-out Laws, pay the whole or part of the benefit to anyone whom they consider a proper person to receive it on his or her behalf or the Trustees may apply the whole or part of the benefit upon trust subject to such terms as the Trustees decide from time to time and at any later date pay the amount due to the person concerned or to any other person selected by the Trustees for his or her benefit.

8.3.2

The Trustees may also, for the relevant person, make any choice that he or she has under the Scheme.

8.4	Reduction of benefits for the payment of tax

8.4.1

Where a payment under the Rules of the Scheme gives rise to a tax charge, the Trustees may make the payment less any amount required to meet the tax charge.

8.4.2

The Trustees may recover from a Member’s present or future benefits or entitlements under the Scheme, any amount for which the Trustees are liable in respect of the lifetime allowance charge under section 215 of the Finance Act 2004.

8.4.3

The Trustees may reduce the Member’s present or future benefits or entitlement under the Scheme in respect of which the lifetime allowance charge arises so as to reflect the amount of tax paid by the Trustees.

8.5	Information from Members and others

8.5.1

If a Member, or the recipient of death benefits, has provided a declaration that is incorrect, the Trustees may with the consent of the Employer modify or restrict the benefits provided for or in respect of the Member as the Trustees shall decide or vary the terms of the Member’s membership of the Scheme in any way they consider appropriate, including discontinuing the Member’s membership of the Scheme as if he or she were leaving Service.

8.5.2

The Trustees shall notify the Member of writing of any decision taken under this FS Rule 8.5 (Information from Members and others).

8.5.3

The Trustees may charge a Member such amount as they shall determine for the provision of information (including information regarding a Member’s benefits) to the Member.

8.6	Enhanced protection

8.6.1

No further ‘relevant benefit accrual’ as defined in paragraph 13 of Schedule 36 to the Finance Act 2004 shall accrue to a Member to whom the enhanced protection conditions described in paragraph 12 of that Schedule apply.

8.7	Modification Regulations

8.7.1

The FS Rules incorporate all of the modifications in regulations 3 - 8 of the Registered Pension Schemes (Modification of the Rules of Existing Schemes) Regulations 2006 (the “Modification Regulations”), but without limitation to the “transitional period” as defined in the Modification Regulations.

9.	Pension increases

This Rule sets out the terms for increasing pensions in payment in respect of Members whose pensions commence to be paid on or after the effective date of these Rules.

9.1	Periods of review

9.1.1

The Trustees will each year review the pensions in payment under the Final Salary Section and will increase such part of each pension which exceeds the GMP, and the pension (if any) that must be paid to a Member in accordance with the Contracting-out Laws, each year by a percentage (which may be nil) as the Trustees, with the agreement of the Principal Employer shall determine, the rate of increase being such as will not prejudice the Scheme’s status as a registered scheme under the Finance Act 2004.

9.2	The rates of increase

9.2.1

Pensions payable under the Final Salary Section which are attributable to Pensionable Service on or after 5 April 1997 (and not provided by a Member’s additional voluntary contributions) shall be increased in accordance with the Contracting-out Laws and at least at the intervals and-by the percentage required by Section 51 to 54 of the Pensions Act 1995.

9.2.2

Pensions payable under the Final Salary Section which are attributable to Pensionable Service before 5 April 1997 will be increased in accordance with the Contracting-out Laws and the subsequent provisions of this FS Rule 9.2 (The rates of increase).

9.2.3

A Member’s GMP, and the pension (if any) that must be paid to him or her in accordance with the Contracting-out Laws, will increase in each year by the increase specified in any order made by the Secretary of State under Section 109 of the Pension Schemes Act 1993.

9.2.4

Such part of any pension which exceeds the GMP, and the pension (if any) that must be paid to a Member in accordance with the Contracting-out Laws, will increase In payment each year by:

(i) 5% per annum compound or the rate of increase in the Index if less to the extent that the pension relates to Pensionable Service before 6 April 2006; and

(ii) 2.5% per annum compound or the rate of increase in the Index if less to the extent that the pension relates to Pensionable Service on or after 6 April 2006.

Any GMP, and the pension (if any) that must be paid to a Member in accordance with the Contracting-out Laws, which is in payment, shall be increased each year in accordance with the Contracting-out Laws.

9.3	General Provisions

9.3.1

A pension shall be increased under this FS Rule 9 (Pension increases) on the Renewal Date next following the date when the pension starts to be paid and on each subsequent Renewal Date.

9.3.2

Any pension payable under the Scheme which derives from:

9.3.2.1

the application of a Member’s AVC Account;

9.3.2.2

the provision of a pension under C Rule 10 (Discretionary benefits and flexible retirement);

9.3.2.3

the surrender of part of a Member’s pension under FS Rule 6.2 (Exchanging for a Dependant’s pension); and

9.3.2.4

a Transfer Amount accepted from a Former Scheme under FS Rule 12 (Transfers to and from the Final Salary Section);

shall not be increased in accordance with this FS Rule 9 (Pension increases), unless the Member or Employer had agreed with the Trustees (or the Trustees had otherwise decided) that the pension (or part of it) is to be subject to the increases under this FS Rule 9 (Pension increases).

9.3.3

If, at any Renewal Date, a pension has been in payment for less than a year, it will be increased at a rate calculated on a proportionate basis by reference to the number of complete months for which payment of the pension has been made.

9.3.4

Any pension increases payable under this FS Rule 9 (Pension increases) shall be paid with the normal installments of pension and will end when the normal installments cease to be paid.

9.4	If the Principal Employer agrees and the Employer pays any additional contributions which the Trustees decide are appropriate (after consulting the Scheme Actuary), the Trustees may provide:

9.4.1

increased or additional benefits in respect of any Member;

9.4.2

different benefits in respect of a Member, or on different terms, from those set out in the other provisions of the Rules; or

9.4.3

benefits in respect of any other person for whom benefits can be provided under the Scheme (including any Employee or former Employee).

9.4.4

Benefits provided under this FS sub-rule 9.4 shall be consistent with the Preservation, Revaluation, Contracting-out and Transfer Value Laws and the Scheme’s tax status as a registered pension scheme under the Finance Act 2004.

10.	Special benefits

This Rule sets out the terms that apply to Members who have benefits and/or contributions provided for them under the Scheme on a different basis to that set out elsewhere in the Rules.

10.1	Civil Partners

10.1.1

With effect on and from 5 December 2005, references in this Scheme to a “Spouse” or an “ex-spouse” shall include a Civil Partner or a former Civil Partner, references to a widow or widower shall include a surviving Civil Partner, and references to marriage shall include Civil Partnership (as defined in the Civil Partnership Act 2004) and references to married shall be interpreted accordingly.

10.1.2

In relation to contracted-out rights this modification shall only apply to Pensionable Service post 6 April 1988, In relation to all other benefits it applies to the entirety of a Member’s Pensionable Service.

10.2	Pre-6 April 2006 members

10.2.1

The benefits payable to or in respect of Members who were still in Pensionable Service on 6 April 2006 and whose Final Pensionable Salary was uncapped on 5 April 2006, shall be subject to the following limits with effect on and from 6 April 2006:

10.2.1.1

the Member’s Final Pensionable Salary for the purpose of determining the benefits payable in respect of the Member’s Pensionable Service before 6 April 2006 shall be limited to the greater of:

(i)

the Scheme Earnings Cap; and

(ii)

the Member’s Pensionable Salary on 5 April 2006 (increased annually on every 5 April by the percentage increase in the retail prices index during a reference period determined by the Trustees).

10.2.1.2

the Member’s Final Pensionable Salary for the purpose of determining the benefits payable to or in respect of the Member in respect of the Member’s Pensionable Service on and after 6 April 2006 shall not exceed the Scheme Earnings Cap.

10.2.2

The Basic Salary of Members of the Final Salary Section whose Basic Salary was uncapped on 5 April 2006 shall be limited, with effect from 6 April 2006, to the Scheme Earnings Cap for the purpose of determining the contributions payable to the Scheme by the Member on and after 6 April 2006.

11.	Other ways of converting pension into a lump sum

This Rule sets out the terms on which a Member’s pension may be paid as a lump sum other than a tax-free cash sum on retirement.

11.1	Trivial pension

11.1.1

The Trustees may pay a Member the whole of his or her benefits as a lump sum in accordance with paragraph 7 of Schedule 29 to the Finance Act 2004 where the Member’s benefits, together with all benefits due to the Member from all other registered pension schemes, is no more than 1% of the Standard Lifetime Allowance.

11.2	Payment of a lump sum on grounds of serious ill health

11.2.1

11.3	Benefits in excess of the lifetime allowance

11.3.1

If a Member’s benefits exceed the lifetime allowance applicable to the Member under the Finance Act 2004, the Trustees may pay the excess to the Member as a pension or as a Lifetime Allowance Excess Lump Sum. The lump sum will be calculated on such basis as the Trustees may determine after considering the advice of the Scheme Actuary, and which is consistent with the Contracting-out Laws.

12.	Transfers to and from the Final Salary Section

12.1	Transfers to the Final Salary Section

12.1.1

Subject to FS Rule 12.1.3 and to the Contracting-out Laws, the Trustees may accept from a Former Scheme a Transfer Amount in respect of any Member or other person.

12.1.2

The Trustees may give any relevant undertakings in respect of the Transfer Amount and shall provide such benefits under the Scheme for and in respect of the Member or other person to whom the Transfer Amount relates as the Trustees shall determine on actuarial advice and with the consent of the Principal Employer. The benefits shall comply with the preservation and contracting-out requirements of the Pension Schemes Act 1993 and be consistent with the Scheme’s status as a registered pension scheme under the Finance Act 2004.

12.1.3

The Trustees may only accept a Transfer Amount under this FS Rule 12 (Transfers to and from the Final Salary Section) if:

12.1.3.1

the Trustees are satisfied that the transfer is consistent with the Scheme’s status as a registered pension scheme under the Finance Act 2004;

12.1.3.2

HMRC has approved the first transfer to the Scheme if, at the time when it is to be accepted, the Scheme has not been approved as a registered pension scheme;

12.1.3.3

the transfer satisfies the requirements of the Pension Schemes Act 1993 and any regulations made under that Act relating to transfers and contracting-out; and

12.1.3.4

the Trustees comply with any undertaking given by them to HMRC.

12.1.4

The Trustees may accept a Transfer Amount in respect of a member of a Former Scheme without his or her consent to the transfer. If that member had acquired a right to the Cash Equivalent of the benefits which had accrued to him under the Former Scheme but had not exercised his options under that scheme, he acquires a right to the Cash Equivalent of that benefit. He may exercise his right to that Cash Equivalent irrespective of whether or not his Pensionable Service under the Scheme has ended.

12.2	Transfers out of the Final Salary Section

The Trustees may, with the consent of the Principal Employer and subject to the Contracting-out Laws and the restrictions in this FS Rule 12 (Transfers to and from the Final Salary Section), pay a Transfer Payment in respect of a Relevant Person to a New Scheme. The Transfer Payment may be a cash sum or other assets as the Trustees decide.

12.3	Statutory transfers

If a Deferred Member has validly exercised a right to a Cash Equivalent under by requiring the Trustees to apply the Cash Equivalent to acquire transfer credits under a New Scheme, the Trustees shall make a Transfer Payment to the New Scheme if that scheme agrees to accept it. If the Member is dividing his Cash Equivalent between different schemes, the Trustees shall transfer the parts of his Cash Equivalent as he directs. If the New Scheme cannot accept the Member’s GMP, or the pension (if any) that must be paid in accordance with the Contracting-out Laws, the Trustees shall transfer that part of his Cash Equivalent which relates to benefits in excess of his GMP, or the pension (if any) that must be paid in accordance with the Contracting-out Laws.

12.4	Discretionary transfers

If a Deferred Member or other Relevant Person does not have a right to a Cash Equivalent (or if he has a right, but has not exercised it) the Trustees may, with the consent of the Principal Employer, make a Transfer Payment in respect of him to a New Scheme if that scheme agrees to accept it.

12.5	Bulk transfers

12.5.1

If the Pensionable Service of a group of Members ends and those Members become entitled to rights under a New Scheme, the Trustees may make a Transfer Payment (subject to FS Rule 12.6 ) in respect of the group of Members to the New Scheme if that scheme agrees to accept it. The transfer may be made without the consent of the Members concerned if the New Scheme is a registered pension scheme under the Finance Act 2004 and the conditions set out in Regulation 12 of the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (S.I. 1991/167) are satisfied.

12.5.2

The Trustees may also make a Transfer Payment to scheme registered as a registered pension scheme under the Finance Act 2004 without the consent of the Members concerned if the Scheme is being wound up and the New Scheme applies to employment with the same employer.

12.6

The Transfer Payment referred to in FS Rule 12.5 (Bulk transfers) is the total of the Members’ Cash Equivalents or such other amount which the Trustees after obtaining actuarial advice shall agree with the Principal Employer is relevant to the group of Members concerned, having regard to the provisions of C Rule 13.1 (Partial Termination of the Scheme) and C Rule 14 (Winding-up) and to the portion of the Fund available for transfer.

In calculating the Transfer Payment, the Trustees, after consulting the Scheme Actuary, may make an allowance for the costs and expenses which have been incurred in the administration and management of the Scheme in connection with the transfer.

12.7	Before making a Transfer Payment under FS Rule 12.5 (Bulk transfers), the Scheme Actuary shall certify to the Trustees that the transfer credits acquired for the Members concerned under the New Scheme are at least equal in value to the rights being transferred.

12.8	General

The Trustees shall comply, in relation to each transfer, with:

12.8.1

HMRC requirements so that the Scheme’s status as a registered pension scheme is not prejudiced and with any undertakings given by the Trustees to HMRC;

12.8.2

the preservation requirements specified in or under Sections 69 to 82 of the Pension Schemes Act 1993 to the extent applicable; and

12.8.3

the applicable requirements of the Pension Schemes Act 1993, relating to the transfer of accrued rights to a GMP, or a pension (if any) payable in accordance with the Contracting-out Laws, or of any GMP, or Reference Scheme Pension, in payment and any other applicable requirements imposed by HMRC.

12.9	The Transfer Payment shall be subject to the following conditions:

12.9.1

the Trustees shall, if appropriate, find out from the New Scheme the Act and Section under which the New Scheme is registered;

12.9.2

the Trustees shall certify to the New Scheme the amount of the Transfer Payment which represents the Member’s contributions and the Member’s AVC Account and shall notify the New Scheme of any restriction placed on the refund of these amounts;

12.9.3

the Trustees shall certify to the New Scheme the period of Qualifying Service to which the transfer relates and the maximum permitted cash sum commutation in respect of the Transfer Payment; and

12.9.4

unless the Transfer Payment is made under FS Rule 12.3 (Statutory transfers), the Trustees shall ensure that the Transfer Payment shall not be less than the value of the benefits (or the relevant part of such benefits) accrued in respect of the Member under the Scheme.

12.10

The Trustees may make a Transfer Payment in respect of a Member without his or her written consent only:

12.10.1

in accordance with the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (SI 1991/167) and the Contracting-out Laws; and

12.10.2

if they are reasonably satisfied that, at the date on which the Transfer Payment is made, it is at least equal to the value (as certified by the Scheme Actuary) of the benefits which have accrued to or in respect of the Member under the Scheme, taking into account the Preservation, Contracting-out and Revaluation Laws.

12.11

The receipt of the New Scheme in respect of the Transfer Payment shall, except as otherwise provided by statute, discharge the Trustees of all liability under the Scheme to and in respect of the Relevant Person in respect of those benefits represented by the Transfer Payment. This discharge is in addition to and without prejudice to any other discharge given to the Trustees. The Trustees shall be under no liability to the application of the Transfer Payment by the New Scheme.

12.12

If a transfer under this FS Rule 12 (Transfers to and from the Final Salary Section) relates to a Member’s contracted-out employment under the Scheme, the New Scheme is not contracted-out and the Member has not directed the Trustees to transfer his GMP, or a pension (if any) payable in accordance with the Contracting-out Laws, to another New Scheme, the Trustees may pay a transfer premium in accordance with the Contracting-out Laws.

13.	Buy-out Policies

13.1	Statutory buy-out

If a Deferred Member has validly exercised a right to a Cash Equivalent by requiring the Trustees to apply the Cash Equivalent to purchase a Buy-out Policy, the Trustees shall, subject to the Contracting-out Laws and the restrictions in this FS Rule 13.1 (Statutory buy-out), pay the Member’s Cash Equivalent to the Insurance Company selected by the Member and from whom the Buy-out Policy is to be purchased. If the Member is dividing his or her Cash Equivalent between different Buy-out Policies, the Trustees shall apply the parts of his or her Cash Equivalent as he or she directs.

13.2	Discretionary buy-out

Subject to the Contracting-out Laws, the Trustees may, with the consent of the Principal Employer, exercise their discretion and apply this FS Rule 13.2 (Discretionary buy-out) in respect of a Member or other beneficiary of the Scheme if that person makes a written request to the Trustees or gives his or her written consent in the form required or acceptable to the Trustees.

13.3	General

A Buy-out Policy may be purchased in the name of, or assigned to, the Member or other beneficiary concerned or a trustee for the benefit of the Member or beneficiary.

The Member or other beneficiary shall have an absolute right to the benefits derived from the Buy-out Policy. Upon the election of the Member and subject to the Scheme’s status as a registered pension scheme under the Finance Act 2004 not being prejudiced, the Buy-out Policy may confer benefits or options which are alternative to the benefits otherwise payable under the Scheme. Provision may also be made either under the Buy-out Policy or otherwise for any lump sum payable on the death of the Member to be held upon discretionary trusts for the benefit of any one or more of the Member’s Beneficiaries.

13.4	Conditions of buying-out

The Trustees shall secure the issue of the Buy-out Policy only on terms which shall:

13.4.1

satisfy the requirements of HMRC; and

13.4.2

satisfy the requirements of the Pension Schemes Act 1993 and comply with the provisions of the Contracting-out Laws.

13.5	The Trustees may impose the following additional conditions and shall do so if the Buy-out Policy is purchased for a Member who leaves Pensionable Service with at least 1 year before his or her Normal Retirement Date:

13.5.1

the benefits secured by the Buy-out Policy may be commuted only if:

13.5.1.1

the conditions in FS Rule 6.1 (Exchanging for a retirement lump sum) are satisfied; or

13.5.1.2

the Member has attained the age of 50 (or age 55 on or after 6 April 2010), or is suffering from Incapacity, or the conditions in FS Rule 6.1 (Exchanging for a retirement lump sum) are satisfied and, in any case, the Member has requested or consented to the commutation and the commutation does not extend to the Member’s or his widow’s or her widower’s GMP, or a pension (if any) that must be paid in accordance with the Contracting-out Laws;

13.5.2

the Insurance Company must promise the Member, or the trustees of a trust established for the benefit of him or her and, if appropriate, his or her Dependants to pay the benefits secured by the Buy-out Policy to him or her or, as the case may be, to his or her Dependants or to the trustees of such a trust;

13.5.3

if the benefits secured by the Buy-out Policy include the Member’s or his widow’s or her widower’s GMPs, or a pension (if any) that must be paid in accordance with the Contracting-out Laws, the Buy-out Policy must contain or be endorsed with terms which ensure that:

13.5.3.1

the Member’s annuity will be at least equal to his or her revalued GMP, or pension (if any) provided in accordance with the Reference Scheme, and payable at State Pension Age; and

13.5.3.2

the widow’s or widower’s annuity will be at least equal to his or her’s GMP, or the pension (if any) that must be paid in accordance with the Contracting-out Laws; and

13.5.3.3

any increase of GMPs, under Sections 109 and 110 of the Pension Schemes Act 1993, shall result in a similar increase in the annuity;

13.5.4

the Policy must be endorsed with the length of the Member’s Qualifying Service or, if his or her Qualifying Service exceeds 2 years, a statement to that effect.

13.6

At the date on which a Buy-out Policy is to be purchased under this FS Rule 13 (Buy-out Policies), the Trustees must be reasonably satisfied (on obtaining the advice of the Scheme Actuary) that the amount to be applied is at least equal to the value of the benefits which have accrued to or in respect of the Member under the Scheme (or, if only part of a Cash Equivalent is required to be applied, of the benefits to which the amount to be applied relates), taking into account the preservation, contracting-out and revaluation requirements of the Pension Schemes Act 1993.

13.7

Subject to the Contracting-out Laws, in purchasing one or more Buy-out Policies the Trustees must obtain the consent of the Member or, if the benefits being secured are in respect of the Member and payable to another beneficiary, that other person, unless the Scheme is being wound-up or the following conditions apply:

13.7.1

the Buy-out Policy is taken out or entered into at least 12 months after the Member left Pensionable Service; and

13.7.2

the Member has less than 5 years’ Qualifying Service; and

13.7.3

at least 30 days before the Buy-out Policy is taken out or entered into, the Trustees give a written notice to the Member or other beneficiary of the Scheme of their intention to take out or enter into one or more Policies; and

13.7.4

when the Trustees agree with the Insurance Company to take out or enter into the Buy-out Policy, there is no outstanding application by the Member for a Cash Equivalent.

13.8

If a Transfer Payment has been made under FS Rule 12 (Transfers to and from the Final Salary Section) to a registered pension scheme which is not a contracted-out scheme, or to a personal pension scheme which is not an appropriate scheme, relating to a Member’s accrued rights (except to a GMP, or a pension (if any) that must be paid in accordance with the Contracting-out Laws) following the exercise by the Member of his or her right to a Cash Equivalent, the Trustees may purchase a Buy-out Policy for the Member (or, as the case may be, the Member’s widow or widower) which secures the payment of the GMPs, or a pension (if any) that must be paid in accordance with the Contracting-out Laws, as an alternative to paying them out of the Scheme.

13.9	The Buy-out Policy may (and shall in relation to a Member who leaves Pensionable Service at least 1 year before his or her Normal Retirement Date) include provisions which:

13.9.1

subject to the Member’s written consent, enable a transfer payment to be made from the Buy-out Policy to a New Scheme of which the Member becomes a member, except that the transfer payment shall not include any GMPs, or a pension (if any) that must be paid in accordance with the Contracting-out Laws, other than in the circumstances set out in Regulations 13 and 14 of the Contracting-out (Transfer and Transfer Payments) Regulations 1996 (S.I. 1996/1462); and

13.9.2

enable benefits to be provided by the purchase of another annuity, assurance contract or policy from another Insurance Company which satisfies the requirements of this Rule.

13.10

In respect of those benefits in respect of which the Trustees have purchased a Buy-out Policy, the receipt of the Insurance Company shall, except as otherwise provided by statute, discharge the Trustees of all liability under the Scheme in respect of the Member or other beneficiary concerned.

LOGO

Dated 2008

Rules of the Chaucer Pension Scheme

Money Purchase Section

CONTENTS


MP Rule			Page

1	MEANING OF DEFINED TERMS			1
2	MEMBERSHIP OF THE SCHEME			8
	2.1	Joining the Scheme		8
	2.2	Eligibility		8
	2.3	Discretionary Membership		8
	2.4	Application for membership		9
	2.5	Opting-out		9
	2.6	Re-admission to membership		10
	2.7	Membership subject to special terms and conditions		11
	2.8	Life assurance only membership		12
	2.9	Members away from work		13
	2.10	Additional family leave		14
	2.11	Absence for any other reason		14
3	CONTRIBUTIONS			15
	3.1	Employer contributions		15
	3.2	Members’ basic contributions		16
	3.3	Members’ additional voluntary contributions		16
4	PENSION ACCOUNTS			18
	4.1	Monies payable to and benefits payable from each Member’s Pension Account		18
	4.2	Investments		19
	4.3	Protected Rights Account		19
5	BENEFITS FROM PENSION ACCOUNTS			21
	5.1	Normal retirement pensions		21
	5.2	Early retirement pensions		21
	5.4	Benefits that can be provided		23
	5.5	Exchanging for a Dependant’s pension		24
	5.6	Cash sum		25
	5.7	Pension increases		26
6	BENEFITS FOR DEFERRED MEMBERS			27
	6.1	Leaving the Scheme		27
	6.3	Entitlement to benefit		27
	6.5	Cash transfer sums and contribution refunds		28
	6.6	The Preservation Limit		29
7	BENEFITS PAYABLE ON THE DEATH OF A MEMBER			30
	7.2	Benefits on death before Normal Retirement Date after leaving Pensionable Service		30
	7.4	Disposal of lump sum death benefits		32
	7.5	Children’s pension		33
8	SECURING PENSIONS UNDER THE SCHEME			33
	8.1	Annuity contract		34
	8.2	Other pension options		34


	8.3	Payment of pensions	34
9	POWER TO VARY THE SCHEME’S BENEFITS		35
10	OTHER WAYS OF CONVERTING PENSION INTO A LUMP SUM		36
	10.1	Trivial pension	36
	10.2	Serious ill health	36
	10.3	Benefits in excess of the lifetime allowance	36
11	SPECIAL BENEFITS		37
	11.1	Civil Partners	37
12	TRANSFERS TO AND FROM THE MONEY PURCHASE SECTION		38
	12.1	Transfers into the Money Purchase Section	38
	12.2	Transfers out of the Money Purchase Section	39
	12.3	Statutory transfers	39
	12.4	Discretionary transfers	39
	12.5	Bulk transfers	40
	12.8	General	40
13	BUY-OUT POLICIES		42
	13.1	Statutory buy-out	42
	13.2	Discretionary buy-out	42
	13.3	General	42
	13.4	Conditions of buying-out	42

THE MONEY PURCHASE SECTION RULES

These are the Rules that govern the benefits and contributions payable under the Money Purchase Section and should be read together with the C Rules.

1.	Meaning of defined terms


“ AVC Account ”		means, in relation to a Member, that part of the Fund which the Trustees establish and maintain as the Member’s AVC Account in respect of the additional voluntary contributions paid or treated as paid by the Member to the Scheme under MP Rule 3.3 (Members’ additional voluntary contributions);

“ Basic Salary ”		means the basic annual salary or wages of a Member (excluding bonuses, commission, overtime and any other fluctuating emoluments) at the date in question;

“ Beneficiaries ”		has the meaning given in MP Rule 7.4.2;

“ Buy-out Policy ”		means an insurance policy or annuity contract which satisfies the requirements of Section 95 of the Pension Schemes Act 1993 or is otherwise permitted under regulations relating to the Pension Schemes Act 1993;

“ Cash Equivalent ”		means; (1) in relation to a Relevant Person who has a right to the cash equivalent of the benefits accrued to or in respect of him or her under Section 94 of the Pension Schemes Act 1993, the cash equivalent calculated in accordance with Section 97 of the Pension Schemes Act 1993; and

		(2) in relation to a Relevant Person who does not have a right to the cash equivalent in accordance with Section 94 of the Pension Schemes Act 1993, the value of the benefits accrued to or in respect of him or her under the Scheme calculated in such manner as the Trustees, after obtaining the advice of the Scheme Actuary, shall agree with the Principal Employer;

“ C Rules ”		means the Constitutional Rules that are common to all sections of the Scheme;



“ Child ”		means a child of the Member; the Member’s stepchild; a child who has been legally adopted by the Member; and any other child who, in the Trustees’ opinion, was dependent on the Member at the time of the Member’s death and whom the Trustees agree to treat as a Child;

		A child shall remain a Child for so long as he or she is under age 23 and in full-time education or training approved by the Trustees. If any child was dependent on the Member because of physical or mental impairment, the Trustees may continue to treat the child as a Child for so long as they are satisfied that the child is suffering from the impairment;

“ Civil Partner ”		has the same meaning as in the Civil Partnership Act 2004;

“ Civil		has the same meaning as in the Civil Partnership Act 2004; Partnership”

“ Contracting- out Laws ”		means the contracting-out laws set out in Part III of the Pension Schemes Act 1993;

“ Death Benefit Member ”		means an Employee admitted into membership of the Scheme solely for the purposes of a money purchase lump sum death benefit under MP Rule 2.8 (Life assurance only membership);

“ Deferred Member ”		means a Member whose Pensionable Service ends before Normal Retirement Date and who has an entitlement to deferred benefits from the Scheme payable from Normal Retirement Date, payment of which has not started;

“ Dependant ”		means a dependant as defined in paragraph 15 of Schedule 28 to the Finance Act 2004. A dependant shall include the Member’s Spouse or Civil Partner, a child under the age of 23, or persons whom the Trustees consider financially dependent or mutually financially dependent on the Member or dependent due to physical or mental impairment;

“ Employee ”‘		means an employee of an Employer who is normally resident in the United Kingdom or such other countries as may be agreed by the Trustees, and includes a director of an Employer provided that the Scheme’s status as a registered pension scheme under the Finance Act 2004 is not prejudiced. For the purposes of the Scheme, any such director shall be deemed to be in Service. The Principal Employer shall decide whether or not a person is in Service and its decision shall be final;



“ Employer ”		means the Principal Employer and any Participating Employers, In relation to any Employee, former Employee or Member, “Employer” means that one of the Employers by which he or she is, or was, last employed;

“ Final Salary Section ”		means the Final Salary Section of the Scheme;

“ Former Scheme ”		means the Lloyd’s Superannuation Fund established by a trust deed dated 10 October 1929, the MFK Underwriting Agencies Limited section of the Legal and General Pension Trust established by a declaration of trust dated 19 November 1987 and any registered scheme under the Finance Act 2004 for the purpose of paying a Transfer Amount to the Scheme, and includes (unless inconsistent with the context) the trustees or administrator of the Former Scheme;

“ Frozen Scheme ”		means a scheme under which all contributions have ceased and no further benefits accrue to scheme members but the assets of the scheme continue to be held by the scheme trustees to be applied in accordance with the rules of the scheme;

“ Fund ”		means the investments, cash and other assets for the time being held by or on behalf of the Trustees for the purposes of the Scheme;

“ HMRC ”		means Her Majesty’s Revenue and Customs

“ Incapacity ”		means physical or mental incapacity which prevents a Member from following his or her normal occupation and seriously impairs the Member’s earning capacity. It does not mean simply a decline in energy or ability. The Trustees’ decision as to whether a Member is suffering from Incapacity shall be final;

“ Lifetime Allowance Excess Lump Sum ”		has the same meaning as in the Finance Act 2004;

“ Insurance Company ”		means an “insurance company” as defined in section 275 of the Finance Act 2004;

“ Member ”		means a person who has joined the Money Purchase Section of the Scheme and in respect of whom the Trustees have a liability to pay or provide benefits;


“Minimum Pension Age”		means age 50 (or age 55 on or after 6 April 2010);

“Money Purchase Section”		means the money purchase section of the Scheme to which these Rules apply;

“MP Rules”		means, together with the C Rules, the Rules that govern the benefits payable under the Money Purchase Section of the Scheme;

“New Scheme”		means a scheme registered under the Finance Act 2004 as a registered pension scheme for the purpose of accepting a Transfer Payment from the Scheme, and includes (unless inconsistent with the context) the trustees or administrator of the New Scheme;

“Normal Retirement Date”		means a Member’s 60th birthday;

“Participating Employer”		means any employer for the time being participating in the Scheme in accordance with C Rule 7.1 (Process for starting to participate), other than the Principal Employer;

“Pension Account”		means the account or policy that determines the value of a Member’s benefits under the Scheme, as set out in MP Rule 4.1 (Monies payable to and benefits payable from each Member’s Pension Account);

“Pensionable Salary”		in relation to a Member is calculated on the day he or she becomes a Pension Member and on any day thereafter and means the Member’s Basic Salary;

“Pensionable Service”		means the number of complete years and months of continuous Service which a Member completes as a Pension Member before his or her Normal Retirement Date; Service after Normal Retirement Date shall be counted as Pensionable Service if so determined by the Principal Employer in accordance with MP Rule 5.1 (Normal retirement pensions);

“Pension Member”		means an Employee in Pensionable Service under the Scheme;



“Preservation Laws”		means the laws on preservation of benefits in Chapter I of Part IV of the Pensions Schemes Act 1993;

“Principal Employer”		means Chaucer Syndicates Limited or any company, firm, or individual which, in accordance with C Rule 8 (Change of Principal Employer), assumes the obligations of the Principal Employer under the Scheme;

“Professional Trustee”		means a Trustee who is in the business of providing a trustee service for payment;

“Qualifying Service”		means the aggregate of:
		(1) the last period of continuous Pensionable Service other than Service which falls within paragraphs (2) and (3) below; (2) any prior period of at least 2 years’ Pensionable Service in respect of which a Member remains entitled to benefits under the Scheme; Provided that if the prior period of membership is, with the Member’s consent, treated under the Scheme as continuous with the subsequent period, the Pensionable Service granted in respect of the prior Service is the Qualifying Service in respect of that prior period; (3) periods of service which counted as pensionable service in any previous employment during which the Member was a member of any Former Scheme and in respect of which the Trustees have received a Transfer Amount; and (4) provided that in paragraphs (1) and (2) above any breaks in Pensionable Service will be disregarded in assessing if Pensionable Service is continuous and the two (or more) separate periods will be aggregated if one or more of the following conditions are satisfied: (a) the break does not exceed one month;


		(b) the break corresponds to the Member’s absence from work wholly or partly because of pregnancy, confinement or childbirth and the Member returns to work after the break in exercise of a right under the Employment Rights Act 1996 and the Member returns to Pensionable Service no later than one month after returning to work; (c) the break corresponds to the Member’s absence from work further to a trade dispute as defined in Section 35 of the Jobseekers Act 1995; (d) there is a break in Service of any length and, before the break, the Member has already completed two years’ Qualifying Service;

“Relevant Person”		means any Member or any person whose benefit is in payment from the Scheme;

“Revaluation Laws”		means the laws as to revaluation of accrued benefits set out in Chapter II of Part IV of the Pension Schemes Act 1993;

“Rules”		means the rules which govern the Scheme;

“Scheme”		means the Chaucer Pension Scheme;

“Scheme Actuary”		means the Scheme actuary appointed by the Trustees under Section 47 of the Pensions Act 1995 or another actuary appointed by the Trustees;

“Service”		means employment with an Employer and shall be deemed continuous although broken by periods of one month or less or performed partly with one Employer and partly with another Employer;

“Spouse”		means a husband, wife, widower and a widow and also includes a civil partner (as defined In the Civil Partnership Act 2004), references to a “widow” or “widower” shall include a surviving civil partner, and all references to “marriage” shall include civil partnership (as defined in the Civil Partnership Act 2004) and references to “married” shall be interpreted accordingly;


“State Pension Age”		means a man’s 65th birthday and a woman’s 60th birthday (increasing gradually to 65 between 2010 and 2020 such that it will be 65 for both men and women from 6 April 2020);

“Transfer Amount”		means any cash sum or other assets which a Former Scheme may be authorised to transfer to the Scheme in respect of a Member or other person who is entitled to benefits under the Former Scheme;

“Transfer Payment”		means, in relation to a Relevant Person, the cash equivalent in respect of that Relevant Person, or such greater amount as the Trustees, after consulting the Scheme Actuary, shall agree with the Principal Employer;

“Transfer Value Laws”		means the laws on transfer values in Chapter IV of Part IV of the Pension Schemes Act 1993;

“Trivial Pension Limit”		means an amount which is no higher than 1% of the Standard Lifetime Allowance; and

“Trustees”		means the trustees from time to time of the Scheme.

2.	Membership of the Scheme

This Rule sets out the terms on which an Employee may join the Money Purchase Section of the Scheme.

2.1	Joining the Scheme

2.1.1

An Employee shall automatically join the Money Purchase Section of the Scheme as a Pension Member and enter Pensionable Service on the day on which he or she first satisfies the eligibility conditions for a Pension Member as set out in this MP Rule 2.1 (Joining the Scheme).

2.1.2

An Employee may decide not to join the Scheme or to end his or her membership within one month after becoming a Member. He or she shall make his or her decision known to the Trustees by completing any appropriate forms they require and, unless the provisions of MP sub-rule 2.3 (Discretionary Membership) apply to him or her, he or she shall be treated as having never been a Member,

2.1.3

The Trustees may, at the request of an Employer, treat any Employee who is not a Member as ineligible for membership of the Scheme. This applies whether or not the Employee fulfils the eligibility conditions set out in MP Rule 2.2 (Eligibility). The Employer shall notify the Employee concerned.

2.2	Eligibility

2.2.1

The eligibility conditions for an Employee to become a Member of the Money Purchase Section of the Scheme are that:

2.2.1.1

he or she is in Service; and

2.2.1.2

he or she is aged 18 years or more but is under age 59.

2.3	Discretionary Membership

2.3.1

The Trustees, at the request of an Employer, shall treat any Employee who does not satisfy all the eligibility conditions set out in MP Rule 2.2 (Eligibility) as eligible for membership of the Scheme. The Employee will be a treated as a Pension Member or a Death Benefit Member on a date and on terms and conditions as the Employer agrees with the Trustees and notifies to the Employee. The Employee shall complete any forms and supply any information and evidence to the Trustees as they require in accordance with MP Rule 2.4 (Application for membership).

2.3.2

If an Employee or a Death Benefit Member does not become a Pension Member at his or her first opportunity, he or she shall become or remain a Death Benefit Member. His or her benefits under the Scheme will be restricted to the lump sum death benefit payable under MP Rule 2.8 (Life assurance only membership). The Trustees may allow him or her, with the Employer’s consent, to become a Pension Member at a later date, subject to any special conditions relating to his or her membership and benefits under the Scheme which the Trustees consider appropriate.

2.3.3

If a Member has been notified by the Employer that he or she is no longer eligible for membership of the Scheme, the Trustees, with the Employer’s consent, may allow him or her to remain a Member for a period not longer than 12 months, subject to any special conditions in respect of his or her membership which the Trustees consider appropriate.

2.4	Application for membership

2.4.1

An Employee who is eligible for membership of the Money Purchase Section of the Scheme in accordance with MP Rule 2.2 (Eligibility) or MP Rule 2.3 (Discretionary Membership) will be notified in writing. If an Employee wishes to join the Money Purchase Section of the Scheme he or she must complete an application form and any other forms required by the Trustees and supply any information the Trustees require either before or at any time after the Employee becomes a Member. This may include evidence of the Employee’s health and the Trustees may decide that no, or only limited, death benefits will be payable in respect of an Employee who becomes a Member if the Trustees or the Insurance Company are not satisfied that the Member is in good health. The Trustees will notify the Member in writing accordingly,

2.5	Opting-out

2.5.1

2.5.2

If a Member has ended his or her Pensionable Service under this MP Rule 2.5 (Opting-out), he or she will be treated as a Death Benefit Member. His or her benefits under the Scheme will be restricted to the lump sum death benefits payable in accordance with MP Rule 2.8 (Life assurance only membership).

2.5.3

If a Pension Member has ended his or her Pensionable Service under this MP Rule 2.5 (Opting-out) and remains in Service, the Trustees may allow him or her to rejoin the Scheme as a Pension Member at a later date if:

2.5.3.1

at that date he or she is under age 59;

2.5.3.2

he or she otherwise satisfies the eligibility conditions in MP Rule 2.2 (Eligibility); and

2.5.3.3

2.6	Re-admission to membership

2.6.1

If an Employee who has previously been a Member applies to re-join the Scheme:

2.6.1.1

after re-entering Service;

2.6.1.2

because he or she is again regarded by the Employer as an Employee; or

2.6.1.3

after returning to work after absence during which (or at the end of which) he or she ceased to be a Member;

2.6.1.4

he or she will at the Employer’s request, but subject to the Trustees’ consent, be re-admitted into membership of the Scheme as from the appropriate date which applies under MP Rule 2.1 (Joining the Scheme).

2.6.2

Re-admission is subject to the Employee satisfying the eligibility conditions for membership set out in MP Rule 2.2 (Eligibility) and the other relevant provisions of MP Rule 2.4 (Application for membership). Re-admission is also subject to any terms and conditions (consistent with the preservation and contracting-out requirements of the Pension Schemes Act 1993) which the Trustees, with the consent of the Employer and with the advice of the Scheme Actuary, decide are appropriate and notify the Employee concerned.

2.6.3

Any period of Service between the date of termination of the earlier period of membership and the date of re-admission does not count as Pensionable Service except to the extent determined by the Trustees under sub-rule 7.2.

2.6.4

The Trustees may, subject to the Contracting-out Laws (in respect of Members of the Final Salary Section only), MP sub-rule 2.6.2 and with the Member’s written consent, cancel all or part of any benefits (whether deferred or in payment) payable to or in respect of the Member under the Scheme which relate to an earlier period of membership of the Scheme.

2.6.5

If action is taken under MP sub-rule 2.6.4 , the Trustees must credit the Member with additional benefits equivalent in value (as determined by the Trustees after the advice of the Scheme Actuary) to the cancelled benefits. For this purpose, account is taken of:

2.6.5.1

the benefits payable or paid in respect of the earlier period of membership; and

2.6.5.2

the applicable rates of contributions and accrual of benefits under the Scheme in respect of the period to which the cancelled benefits relate.

2.6.6

The Trustees may, but need not, express the additional benefits as a period of additional Pensionable Service.

2.7	Membership subject to special terms and conditions

2.7.1

The admission or re-admission of any Employee into membership of the Scheme is subject to:

2.7.1.1

any variation in the benefits to be provided for or in respect of him or her under the Scheme;

2.7.1.2

any variation in the rate of contributions he or she may be required to pay to the Scheme; or

2.7.1.3

any other special terms and conditions;

which the Employer, with the agreement of the Trustees after obtaining the advice of the Scheme Actuary, decides is appropriate.

2.7.2

At the request of the Employer, the Trustees may agree to admit or readmit an Employee into membership as a Death Benefit Member without requiring him or her to complete an application form. If the Trustees agree to this, the Employee is admitted or re-admitted into membership as from a date decided by the Trustees.

2.7.3

At a later date, the Employer may, if the Trustees agree after obtaining the advice of the Scheme Actuary, alter any variation in the benefits or contributions that was imposed on or in respect of a Member.

2.7.4

The Trustees must inform the Member in writing of any variation in the benefits or contributions or any other special terms and conditions that are to apply to or in respect of him or her on or before the date he or she is admitted or re-admitted into membership of the Scheme or on or before the effective date of the variation.

2.8	Life assurance only membership

This Rule sets out the terms on which Employees who do not join the Money Purchase Section of the Scheme may be included in the Scheme for lump sum death in service benefits only.

2.8.1

Subject to MP sub-rule 2.1.2 and MP Rule 2.4 (Application for membership) an Employee shall automatically join the Scheme as a Death Benefit Member on the day on which he or she begins Service.

2.8.2

If a Death Benefit Member who is included in the Scheme for benefits under this MP Rule 2.8 (Life assurance only membership) dies while in Service before his or her Normal Retirement Date, a lump sum equal to:

2.8.2.1

four times the Death Benefit Member’s Pensionable Salary at the date of death; and

2.8.2.2

the value of his or her Pension Account at the date of death; and

2.8.2.3

the value of his or her additional voluntary contributions

shall be payable in accordance with MP Rule 7.4 (Disposal of lump sum death benefits) (except that if the Trustees have taken out an insurance policy with in an Insurance company to meet some or all of their obligations under this MP Rule 2.8 (Life assurance only membership) any such insured benefits will be payable only if and to the extent that the Trustees are able to recover payment under the terms of the insurance policy).

2.9

Members away from work

This Rule sets out the terms governing Members’ benefits while they are away from work, including while on family leave and on secondment.

2.9.1

Statutory family leave

2.9.2

A Member shall be treated as still a member of the Scheme in Pensionable Service while away from work during a period of statutory family leave, being:

2.9.2.1

ordinary maternity leave, ordinary adoption leave, or paternity leave in accordance with the Employment Rights Act 1996; and

2.9.2.2

2.9.3

2.9.4

2.9.5

During any period of statutory family leave (as described above), a Member may continue, start to pay or increase, reduce or stop any additional voluntary contributions to the Scheme.

2.9.6

The Member’s benefits for any period of statutory family leave shall be calculated as if the Member had worked normally and received the normal pay for doing so.

2.10	Additional family leave

2.10.1

2.10.2

If a Member is absent from work due to a period of unpaid additional maternity leave, additional adoption leave or parental leave:

2.10.2.1

2.10.2.2

2.11	Absence for any other reason

2.11.1

3.	Contributions

This

Rule sets out the terms for the payment of contributions to the Scheme.

3.1	Employer contributions

3.1.1

Each Employer shall pay such contributions each year to the Member’s Pension Account of each of its Employees who are Members of the Money Purchase Section as the Trustees, after obtaining the advice of the Scheme Actuary, shall agree with the Principal Employer and which will not prejudice the Scheme’s status as a registered pension scheme under the Finance Act 2004.

3.1.2

3.1.3

Each Employer’s contributions must be paid to the Trustees, or as otherwise directed by the Trustees, at such intervals as the Trustees decide.

3.1.4

3.1.5

If an Employer terminates its contributions under MP sub-rule 3.1.4 , the provisions of C Rule 7.2 (Ceasing to participate) will then apply. If the Principal Employer terminates its contributions under MP sub-rule 3.1.4 , the provisions of C Rule 14 (Winding-up) will then apply.

3.1.6

If an actuarial valuation of the Scheme reveals the value of the assets which are attributed to the Final Salary Section exceed the value of liabilities attributed to the Final Salary Section on an ongoing basis, any obligation by an Employer to contribute under this MP Rule 3.1 (Employer contributions) may be met by an allocation from the assets notionally attributed to the Final Salary Section, provided that the Scheme Actuary advises that such allocation is not greater than the amount of such excess.

3.2	Members’ basic contributions

3.2.1

Each Pension Member shall contribute to the Scheme at the rate of 3% of his or her Basic Salary or at such other rate as the Trustees may determine with the agreement of the Principal Employer and notify to the Pension Members. A Pension Member’s contributions shall be paid into his or her Member’s Pension Account.

3.2.2

A Member shall pay ordinary contributions from the date of becoming a Pension Member until, subject to MP sub-rule 3.2.3 , the earliest of:

3.2.2.1

his or her Normal Retirement Date;

3.2.2.2

his or her date of death; or

3.2.2.3

the date on which he or she leaves Pensionable Service.

3.2.3

If a Member remains in Service after Normal Retirement Date, his or her ordinary contributions may, at his or her request, but subject to the agreement of the Trustees and Principal Employer, continue for the period for which he or she accrues additional Pensionable Service under MP Rule 5.3 (Late retirement pensions).

3.2.4

A Member’s contributions are deducted from his or her earnings by his or her Employer on each pay date. The Employer shall pay these contributions to the Trustees as soon as is reasonably practicable (or as otherwise directed by the Trustees) and at such intervals as the Trustees decide being no later than the 19th day of the month following that in which the deduction is made.

3.3	Members’ additional voluntary contributions

3.3.1

A Member in Pensionable Service may pay additional voluntary contributions to the Scheme, so long as the Member does not start to make additional voluntary contributions on a date less than twelve months before his or her Normal Retirement Date, on terms agreed between the Member and the Trustees subject to a minimum rate decided by the Trustees from time to time. If a Member wishes to commence paying additional voluntary contributions or change the amount that he or she pays or cease contributing, he or she must give the Trustees one month’s written notice of this intention.

3.3.2

3.3.3

A Member’s additional voluntary contributions will be deducted from his or her earnings on each pay date. The Employer will pay these contributions to the Trustees at such intervals as the Trustees decide being no later than the 19th day of the month following that in which the deduction is made.

3.3.4

3.3.5

Each Member’s additional voluntary contributions shall be allocated to each Member’s Pension Account, and the proceeds shall then be used to provide additional money purchase benefits (including as a lump sum) in respect of the Member. The Member may with the consent of the Employer choose the extent to which these benefits shall be paid in the form of a lump sum or a pension.

3.3.6

If these funds are to be used to provide a pension in respect of the Member, this pension must (unless the Principal Employer decides otherwise) be provided through the purchase of an annuity contract in respect of the Member. The Member may choose the Insurance Company from which this annuity contract shall be bought.

4.	Pension Accounts

Each Member shall have a Pension Account, the value of which shall determine the value of their benefits from the Money Purchase Section. This Rule sets out the matters that affect that value (for example, contributions and investment returns).

4.1	Monies payable to and benefits payable from each Member’s Pension Account

4.1.1

Benefits will be provided under the Scheme in respect of each Member of the Money Purchase Section as provided by the Rules of the Money Purchase Section and according to the value of his or her Member’s Pension Account at the relevant date. Each Member’s Pension Account will comprise the assets notionally representing the total of:

4.1.1.1

the Employer’s contributions paid to the Money Purchase Section under MP Rule 3.1 (Employer contributions);

4.1.1.2

the Member’s contributions paid to the Money Purchase Section under MP Rule 3.2 (Members’ basic contributions);

4.1.1.3

where the Member has directed the Trustees to pay them into his Member’s Pension Account, any voluntary contributions paid by the Member to the Money Purchase Section under MP Rule 3.3 (Members’ additional voluntary contributions);

4.1.1.4

any transfer payment received by the Money Purchase Section in respect of the Member;

4.1.1.5

any augmentation credited in respect of the Members; and

together with the accumulated investment return on these assets but net of any expenses payable under the Rules out of the Member’s Pension Account.

4.2	Investments

The Trustees must notify Members that the Scheme’s assets are held as one fund under a trust from which all benefits are provided. Accordingly, although the value of Pension Accounts is linked to the value of particular assets, no potential beneficiary under the Scheme is entitled to any given Scheme asset.

4.2.1

The Trustees shall delegate their powers of investment in relation to the Member’s Pension Accounts to an investment manager in accordance with C Rule 6.2 (Investment of Scheme assets).

4.2.2

Members may link the value of their Pension Accounts to any of the investment options that the Trustees offer, or if the Member does not do so, the Trustees may do so for the Member. The Trustees shall adjust the value of each Member’s Pension Account by reference to the changes in the value of each linked investment option. The Trustees shall not be liable for any loss arising from the choice of any investment option.

4.2.3

No Member or any other person claiming through or in respect of the Member shall have any right, title or interest to any particular asset in the Fund.

4.3	Protected Rights Account

The Member’s “protected rights” are the Member’s rights to contracted-out money purchase benefits in respect of the Member’s protected rights account.

If a Member is in contracted-out employment under the Scheme, he or she shall have a protected rights account included in his or her Pension Account. This protected rights account shall be maintained by the Trustees.

The following payments shall be credited to a Member’s protected rights account:

4.3.1

minimum payments under MP Rule 3 (Contributions), and under regulation 12(5) of the Personal Pension Schemes (Appropriate Schemes) Regulations 1997, which together must be invested on behalf of a Member within one month after the end of the income tax month to which they relate;

4.3.2

age-related payments made to the Scheme by the Secretary of State under Section 42A(3), Pension Schemes Act 1993, which must be invested on behalf of the Member within one month of the date of payment by the Secretary of State; and

4.3.3

other contracted-out rights transferred into the Scheme from other pension arrangements under the Contracting-out Laws.

5.	Benefits from Pension Accounts

This Rule sets out the benefits that can be provided from Members’ Pension Accounts and the terms relating to those benefits.

5.1	Normal retirement pensions

5.1.1

Each Member’s Pension Account shall be used to provide benefits for the Member (and accordingly the value of the Member’s Pension Account at the date on which the benefits are to be provided shall determine the value of those retirement benefits) as provided by the rules of the Money Purchase Section of the Scheme. These benefits will take the form of whichever one or more of the following the Member chooses:

5.1.1.1

a pension payable to the Member from Normal Retirement Date;

5.1.1.2

a lump sum payable to the Member from Normal Retirement Date;

5.1.1.3

one or more pensions payable on the Member’s death after his or her pension has started to any one or more of his or her Spouse or Dependants;

5.1.1.4

annual increases in the pension payable under MP sub-rule 5.1.1.1 and MP sub-rule 5.1.1.3.

5.1.2

The Trustees shall pay a Member his or her benefits from the Scheme from Normal Retirement Date or from such later date as the Member leaves Service or (if earlier) reaches age 75.

5.2	Early retirement pensions

5.2.1

It may be that a Member leaves Service before Normal Retirement Date. If so, the Member’s benefits can commence to be paid before Normal Retirement Date, on the condition that the Member is either at or after Minimum Pension Age, or suffering from an Incapacity. If a Member is suffering from an Incapacity, his or her retirement benefits may commence to be paid before Minimum Pension Age. The Trustees will use the Member’s Pension Account to provide benefits for or in respect of him in accordance with MP Rule 5.1 (Normal retirement pensions) but as if reference to Normal Retirement Date were instead to the date from which the benefits are payable.

5.2.2

Before paying any benefit before Minimum Pension Age on account of a Member’s Incapacity, the Trustees must obtain advice from a registered medical practitioner that the Member is (and shall continue to be) incapable of carrying on his or her occupation because of a physical or mental impairment and that the requirements of paragraph 1 of Schedule 28 to the Finance Act 2004 have been met.

5.2.3

If a Member wishes to retire early under the provisions of this MP Rule 5.2 (Early retirement pensions) he or she must, before he or she retires, inform the Trustees in writing that he or she wishes his or her retirement benefits to become payable on his or her retirement.

5.3	Late retirement pensions

5.3.1

If a Member remains in Service after his or her Normal Retirement Date, he or she shall be entitled to benefits from the Scheme on his or her actual retirement. If the Member retires after he or she reaches age 75, his or her pension must start to be paid from his or her 75th birthday. The Trustees will use the Member’s Pension Account to provide benefits for and in respect of him and her in accordance with MP Rule 5.1 (Normal retirement pensions) but as if reference to Normal Retirement Date were instead to the date from which the benefits are payable.

5.3.2

During any period of Service after a Member’s Normal Retirement Date which is treated as Pensionable Service, the Member shall pay any contributions required to be paid by the Scheme under MP Rule 3.2 (Members’ basic contributions). A Member may continue to pay any voluntary contributions under MP Rule 3.3 (Members’ additional voluntary contributions) during any period of Service after Normal Retirement Date. Contributions will cease on the earlier of his or her date of actual retirement and his 75th birthday.

5.3.3

5.3.4

If a Member dies during Service after Normal Retirement Date, he or she is treated as having retired on the day before his or her death, The appropriate provisions of MP Rule 7 (Benefits payable on the death of a Member) relating to death in retirement then apply.

5.3.5

This MP Rule 5.3 (Late retirement pensions) does not apply to a Member who has ended his or her Pensionable Service in accordance with MP Rule 2.5 (Opting-out), except to the extent which applies under this MP Rule 5 (Benefits from Pension Accounts).

5.4	Benefits that can be provided

The Member must choose for his or her Pension Account to be used to provide one or more of the benefits described in this Rule, and then notify the Trustees of that choice on such terms regarding notification as the Trustees may decide from time to time. The Trustees shall then, subject to C Rule 9 (Trustees’ discretion to make unauthorised payments), use the Member’s Pension Account to provide the benefits chosen.

The benefits that a Member can choose from are:

5.4.1

a pension payable to the Member for life (or with the Trustees’ agreement, a different period), and which may at the election of the Member be guaranteed for a specified minimum period of up to 10 years;

5.4.2

death benefits payable in respect of the Member under MP Rule 7 (Benefits payable on the death of a Member) to any one or more of his or her Spouse or Dependants;

5.4.3

a cash sum payable to the Member under MP Rule 5.6 (Cash sum) when the Member’s pension commences to be paid; and/or

5.4.4

annual increases in the pension payable under MP Rule sub-rule 5.4.1 and MP Rule sub-rule 5.4.3 .

If a Member who chooses a guaranteed pension under MP Rule sub-rule 5.4.1 above for a period of five years or less dies during the period of the guarantee, the Trustees must pay a lump sum on the Member’s death equal to the pension payments that would have been made during the remainder of the period (disregarding any further increases). This benefit must comply with the requirements of MP Rule 7.3 (Benefits on death after retirement), and the lump sum must not exceed the maximum permitted as a ‘pension commencement lump sum’ under Part 4 of the Finance Act 2004.

A pension payable to a Spouse or adult Dependant will be payable for life under MP Rule sub-rule 5.4.2 above will be payable for life. A pension payable to a Child will cease when he or she ceases to be Dependant.

No benefit payable under this MP Rule 5.2 will be of a form or amount which could prejudice the Scheme’s status as a registered pension scheme as described in C Rule 2 (Registered and contracted-out pension scheme)

Any benefits payable under the Scheme including from Member’s protected rights accounts must comply with the relevant Contracting-out Laws.

5.5	Exchanging for a Dependant’s pension

5.5.1

A Member may, with the Trustees’ agreement, exchange part of his or her pension before it commences for a pension payable on the Member’s death to one or more of his or her Dependants as he nominates. The Trustees, after obtaining the advice of the Scheme Actuary, shall determine the amount of each Dependant’s pension and the amount of pension remaining payable to the Member.

5.5.2

A Dependant’s pension provided under this MP Rule 5.5 (Exchanging for a Dependant’s pension) is subject to the further provisions of this MP Rule 5.5 (Exchanging for a Dependant’s pension).

5.5.3

A Dependant’s pension shall not:

5.5.3.1

be less than the Trivial Pension Limit; or

5.5.3.2

when aggregated with any other Dependant’s pension payable under this MP Rule 5.5 (Exchanging for a Dependant’s pension), be more than the Member’s pension remaining after the Member exercises this option but before he or she exercises any option to exchange part of his or her pension for a cash sum under MP Rule 5.6 (Cash sum).

5.5.4

If the Member dies before his or her pension becomes payable under the Rules, any election made by him or her under MP Rule 5 (Benefits from Pension Accounts) is cancelled and treated as not having been made.

5.5.5

If a Member makes an election under MP sub-rule 5.1.1.3 , he or she may at any time cancel that election and make another election provided that, in either case, his or her retirement benefits have not become payable under the Rules.

5.5.6

If a nominated Dependant dies or ceases to qualify as a Dependant before the Member’s pension becomes payable under the Rules, the election made by the Member under MP sub-rule 5.1.1.3 is cancelled and is treated as not having been made. The Member may then make another election under MP sub-rule 5.1.1.3 before his or her retirement.

5.5.7

5.5.8

If a Dependant’s pension is payable under this MP Rule 5.5 (Exchanging for a Dependant’s pension), it shall be paid in addition to any Dependant’s pension payable under MP Rule 7.1 (Benefits on death in Pensionable Service).

5.5.9

An election made under this MP Rule 5.5 (Exchanging for a Dependant’s pension) must be made by the Member in writing to the Trustees in a form prescribed by the Trustees at least 1 month (or such other period as the Trustees decide) before the date on which the first installment of the Member’s pension is payable.

5.6	Cash sum

5.6.1

A Member may elect for part or all of his or her pension to be commuted for a cash sum payable on the date of his retirement. Subject to any restrictions determined by the Trustees, the Member can choose a lump sum of any amount up to the maximum permitted as a ‘pension commencement lump sum’ under Part 4 of the Finance Act 2004.

5.6.2

The basis for calculating the cash sum described in MP sub-rule 5.6.1 applies where Pensionable Service consists wholly of full-time Service. Where Pensionable Service consists wholly or partly of part-time Service, each period of part-time Service is separately converted to a period of equivalent full-time Service. The conversion basis for this is the same as applies for calculating the Member’s pension.

5.6.3

Any pension provided for a Member by his or her AVC Account may not be exchanged for a cash sum, unless the Trustees have accepted a Transfer Amount in respect of the Member which relates to voluntary contributions which he or she first paid, or entered into an agreement to pay them, to a Former Scheme before 8th April 1987 (or unless HMRC agrees otherwise).

5.6.4

An election under this MP Rule 5.6 (Cash sum) must be made by the Member in writing to the Trustees in the form they require at least 1 month (or such other period as the Trustees decide) before the date on which the first installment of the Member’s pension is payable.

5.6.5

The rate at which an amount of pension is to be exchanged for a cash sum shall be determined by the Scheme Actuary. Any calculations made by the Scheme Actuary for this purpose shall be consistent with any other calculations made for the Member and for other purposes of the Scheme. The pension payable to the Member shall be reduced accordingly.

5.6.6

The lump sum payable under this MP Rule 5.6 (Cash sum) shall be determined by the Trustees on a basis which is certified by the Scheme Actuary as reasonable and which does not prejudice the Scheme’s status as a registered pension scheme as described in C Rule 2 (Registered and contracted-out pension scheme).

5.7	Pension increases

Each Member shall determine, before any pension comes into payment, the rate at which it shall increase from time to time once it is in payment. However, if the Member dies before receiving his or her benefits under the Scheme, the Trustees shall choose the rate at which it may increase (including none) instead.

6.	Benefits for deferred members

This Rule sets out the terms on which Members become deferred members and for the payment of benefits to members who become deferred members on or after the effective date of these Rules.

6.1	Leaving the Scheme

A Member shall be treated as having left Pensionable Service for the purposes of these Rules when he or she, before his or her Normal Retirement Date:

6.1.1

leaves Service and is not entitled to, or does not receive, an immediate pension;

6.1.2

ceases to satisfy the Scheme’s eligibility conditions;

6.1.3

opts out of Pensionable Service under MP Rule 2.5 (Opting-out) by giving not less than 1 month’s notice in writing to the Trustees; or

6.1.4

is otherwise treated as if he or she had left Pensionable Service under any other provision in the Rules.

6.2	If a Member is treated as having left Pensionable Service and later rejoins the Scheme, each period of Pensionable Service shall be treated separately, unless the Principal Employer and Trustees agree otherwise.

6.3	Entitlement to benefit

6.3.1

This MP Rule 6.3 (Entitlement to benefit) applies to Members who meet the Preservation Limit, as set out in MP Rule 6.6 (the Preservation Limit).

6.3.2

A Member who is treated as having left Pensionable Service without becoming entitled to immediate benefits in accordance with MP Rule 5.1 (Normal retirement pensions) shall remain entitled to benefits under the Scheme. The Trustees shall then provide retirement benefits for the relevant Member as set out in MP Rule 4 (Pension accounts) on the Member’s Normal Retirement Date.

6.3.3

However, the Member may instead choose to receive retirement benefits from:

6.3.3.1

a later date (but not later than the Member’s 75th birthday); or

6.3.3.2

an earlier date (but not before the Member’s Minimum Pension Age, unless the Member is suffering from an Incapacity).

6.3.4

If the Member dies before commencing to receive benefits under the Scheme, death benefits shall be provided as set out in MP Rule 7.1 (Benefits on death in Pensionable Service).

6.4	Right to transfer

6.4.1

This MP Rule applies to Members who meet the Preservation Limit, as set out in MP Rule 6.6 (The Preservation Limit) below.

6.4.2

Subject to C Rule 9 (Trustees’ discretion to make unauthorised payments), a Member who leaves Service at least one year before Normal Retirement Date (or, with the Trustees’ consent, at any other time) may require the Trustees to use his or her Pension Account to acquire rights under another pension arrangement (including to any person permitted under the Financial Services and Markets Act 2000 to effect or carry out contracts of long-term insurance), so that benefits in respect of that person are provided under the other arrangement instead.

6.4.3

The transfer must comply with the Transfer Value Laws and it must be paid in accordance with the Finance Act 2004.

6.5	Cash transfer sums and contribution refunds

6.5.1

6.5.2

If a Member who satisfies the ‘ three month condition ’ leaves Pensionable Service before Normal Retirement Date with less than ‘1 year’s Qualifying Service ’, the Trustees must notify such a Member on the terms described in Chapter 5 of Part IV of the Pension Schemes Act 1993 about his or her options to take a cash transfer sum or contribution refund within a reasonable period after the Member leaves Pensionable Service. If the Member does not choose a cash transfer sum within the period notified by the Trustees to the Member, the Trustees shall pay the Member a contribution refund excluding investment return and interest (less tax at the appropriate rate).

6.5.3

If a Member is to receive a contribution refund from the Scheme, the Principal Employer may require the Trustees to use any remaining monies in the Member’s Pension Account after it has been paid to meet the Employers’ obligations to make contributions to the Scheme.

6.5.4

Any cash transfer sum or contribution refund paid in respect of a Member under this MP Rule 6.5 (Cash transfer sums and contribution refunds) must comply with the requirements of Chapter 5 of Part IV of the Pension Schemes Act 1993.

6.6	The Preservation Limit

For the purposes of this MP Rule 6 (Benefits for deferred members), a Member shall meet the Preservation Limit if:

6.6.1

the Member has at least 1 year’s Qualifying Service; or

6.6.2

a transfer has been received by the Scheme of a payment in respect of the Member’s rights under a personal pension scheme; or

6.6.3

the Member is already either a deferred or pensioner member of the Scheme (and thereby remains entitled to benefits under it from a previous period of Pensionable Service).

7.	Benefits payable on the death of a Member

This Rule sets out the death benefits that Members can choose to be paid in respect of them when they die, together with the insured lump sum death in service payment.

7.1	Benefits on death in Pensionable Service

7.1.1

If a Member dies in Pensionable Service before his or her Normal Retirement Date, a lump sum and a pension shall be payable. The lump sum shall be equal to the sum of four times the Member’s Pensionable Salary plus the value of his or her Pension Account at the date of his or her death plus the value of his or her additional voluntary contributions.

7.1.2

If a Member dies in Pensionable Service before his or her Normal Retirement Date, the Trustees shall pay an immediate pension from a sum equal to four times the Member’s Pensionable Salary to his Dependants in such proportions as they see fit (except that if the Trustees have taken out an insurance policy with an Insurance Company to meet some or all of their obligations under this MP Rule 7.1 any such insured benefits will be payable only if and to the extent that the Trustees are able to recover payment under the terms of the insurance policy). The form of the pension shall be as agreed between the Trustees and the Member’s Dependants.

7.2	Benefits on death before Normal Retirement Date after leaving Pensionable Service

7.2.1

If a Deferred Member dies before his or her Normal Retirement Date (whether or not he or she is still in Service) and before the start of his or her deferred pension, a lump sum is payable equal to the value of his or her Pension Account at the date of his or her death plus the value of his or her additional voluntary contributions.

7.2.2

If a Deferred Member dies before his or her Normal Retirement Date (whether or not he or she is still in Service) and before the start of his or her deferred pension, the Trustees shall pay the value of the Member’s Pension Account to his estate, Spouse, relatives or Dependants in such proportions as the Trustees see fit.

7.3	Benefits on death after retirement

7.3.1

If a Member elects to have his or her pension guaranteed for a period of five years or less and dies within that period, a lump sum is payable equal to the total installments of pension remaining unpaid that would have been paid to him or her had he or she survived until the end of the guarantee period but excluding any future increases which would have applied to his or her pension.

7.3.2

On the death of a Member after retirement there shall also be paid:

7.3.2.1

any pension payable to a Dependant under MP Rule 5 (Benefits from Pension Accounts); and

7.3.2.2

if the Member elected to have his or her pension guaranteed for a period of between five and ten years and dies within the period, the pension remaining unpaid that would have been paid to the Member had he or she survived until the end of that period shall be paid to his or her estate, Spouse, relatives or Dependants in such proportions as the Trustees see fit.

7.3.3

The Trustees shall provide all or any of the benefits set out below on a Member’s death after his or her benefits from the Scheme commence. These benefits shall be chosen by each Member before his or her benefits from the Scheme commence to be paid, and the Trustees must accordingly seek to ensure that the Member makes this choice.

7.3.4

The benefits payable from the Scheme are one or more of:

7.3.4.1

if the Member’s pension under MP Rule 5.1 (Normal retirement pensions) is guaranteed and the Member dies before the end of the guarantee period, a pension or lump sum under the terms of the guarantee and payable as set out in this MP Rule 7 (Benefits payable on the death of a Member);

7.3.4.2

a lump sum on the terms set out in this MP Rule 7 (Benefits payable on the death of a Member) if this would comply with the requirements of sections 15 to 19 of Part 2 of Schedule 29 of the Finance Act 2004;

7.3.4.3

an immediate non-assignable and non-commutable pension for his or her Spouse or a Dependant. The Trustees may treat an individual as a Member’s Spouse for these purposes if that individual was the Member’s Spouse at the time the Member’s pension commenced, but who has subsequently ceased to be the Member’s Spouse.

7.4	Disposal of lump sum death benefits

7.4.1

The Trustees shall pay any lump sum death benefit to (or for the benefit of) one or more of the Beneficiaries in such shares as the Trustees decide.

7.4.2

A Member’s “ Beneficiaries ” for these purposes are the Member’s widow or widower; the Member’s grandparents and their descendants and the Spouses of those descendants; the Member’s Dependants; any person with an interest in the Member’s estate (but not including the Crown, the Duchy of Lancaster or the Duke of Cornwall); and any person nominated by the Member in writing to the Trustees.

7.4.3

If any part of the lump sum has not been paid or applied within 2 years of the Member’s death, the Trustees shall keep that part in a separate account outside the Scheme and pay it to a Beneficiary in accordance with this MP Rule 7.4 (Disposal of lump sum death benefits) as soon as possible afterwards. No lump sum shall be paid if there are no surviving Beneficiaries when the Member dies,

7.4.4

The Trustees may:

7.4.4.1

pay all or part of any lump sum payable under this MP Rule 7 (Benefits payable on the death of a Member) to the trustees of a different trust (providing that only Beneficiaries may be entitled to any pension from this trust); or

7.4.4.2

hold, or require other trustees to hold, all or part of any lump sum payable under this MP Rule 7 (Benefits payable on the death of a Member) on trust for the benefit of one or more of the Beneficiaries from time to time. This trust shall include any powers and provisions (including as to selection and variation) as the Trustees consider appropriate.

7.4.5

In exercising any of the powers the Trustees may have under this MP Rule 7.4 (Disposal of lump sum death benefits), the Trustees may (but shall not be bound to) have regard to any wishes that the Member may have expressed in writing to the Trustees regarding the application of any benefit to which this MP Rule 7.4 (Disposal of lump sum death benefits) applies.

7.4.6

On the death of a Deferred Member who has left Service but has not retired on pension, the Trustees shall pay any lump sum benefit payable under the Scheme to the Member’s legal personal representatives (but not including the Crown, the Duchy of Lancaster or the Duke of Cornwall).

7.4.7

In the case of a Member who had retired before his or her Normal Retirement Date, or who had left Service before that date and was entitled to a deferred pension, the Trustees are not required to hold the lump sum in a separate account outside the Scheme at the expiry of the two year period if they have not paid or applied the lump sum at that date.

7.5	Children’s pensions

7.5.1

A pension shall be payable in respect of the Member’s Children if:

7.5.1.1

a pension is being paid to a Spouse under MP Rule 7.1 (Benefits on death in Pensionable Service) , MP Rule 7.2 (Benefits on death before Normal Retirement Date after leaving Pensionable Service) or MP Rule 7.3 (Benefits on death after retirement) and on the date of the Spouse’s death there are Children; or

7.5.1.2

a Spouse’s pension would have been in payment but for the fact that the Spouse had predeceased the Member and on the date of the Member’s death there are Children.

7.5.2

The pension shall be equal to the annual pension the Spouse was receiving at the date of his or her death, as increased from time to time, or which he or she would have received at the date of the Member’s death.

7.5.3

The pension payable in respect of a Member’s Children under this MP Rule 7.5 (Children’s pension) shall be divided in such proportions as the Trustees shall decide between the children who qualify as Children at the date of payment. The pension shall cease when the last Child dies or ceases to be a Child, whichever occurs first.

8.	Securing pensions under the Scheme

This Rule sets out the ways in which pensions which be secured for members, including to give members the flexibility under the Finance Act 2004 to request a short term annuity or income withdrawal.

8.1	Annuity contract

8.1.1

Subject to MP Rule 8.2 (Other pension options), the Trustees shall use the Member’s Pension Account to buy an annuity contract from an Insurance Company. The amount of the pension shall depend on the rates quoted by the Insurance Company. If the Member asks the Trustees to buy an annuity from a particular Insurance Company, the Trustees shall comply with the Member’s request.

8.1.2

An annuity may be bought in the Member’s name, the Trustees’ name, or in the name of the person for whom the benefit is to be provided. If the contract is bought in the Trustees’ name, the Trustees may transfer it to the Member or another person at any time.

8.2	Other pension options

8.2.1

The Trustees may, at the request of a Member and with the consent of the Principal Employer, allow the Member at any time before age 75 to choose to use some or all of the Member’s Pension Account to buy an annuity contract from an Insurance Company or to take a pension payable from the Scheme in accordance with the requirements for a short term annuity or income withdrawal (as applicable) under the Finance Act 2004.

8.2.2

The Trustees shall tell the Member the terms on which a short term annuity or income withdrawal are available under the Scheme. In particular, a Member in receipt of payments under income withdrawal from the Scheme must give the Trustees at least one month’s notice in writing if he or she wishes the payments under income withdrawal no longer to be paid.

8.3	Payment of pensions

8.3.1

Pensions are payable monthly, except that the Trustees may pay pensions less often.

8.3.2

Any pensions secured with an annuity contract shall be paid in accordance with the terms of the contract. This shall be the case for most pensions under the Scheme.

9.	Power to vary the Scheme’s benefits

This Rule sets out the terms on which an Employer can ask the Trustees to pay someone benefits from the Scheme that are different to those described in the other provisions of the Rules.

9.1	If the Principal Employer agrees and the Employer pays any additional contributions which the Trustees decide are appropriate (after consulting the Scheme Actuary), the Trustees may provide:

9.1.1

increased or additional benefits in respect of any Member;

9.1.2

different benefits in respect of a Member, or on different terms, from those set out in the other provisions of the Rules; or

9.1.3

benefits in respect of any other person for whom benefits can be provided under the Scheme (including any Employee or former Employee).

9.2	Benefits provided under this MP Rule 9 (Power to vary the Scheme’s benefits) shall be consistent with the Preservation, Revaluation, Contracting-out and Transfer Value Laws and the Scheme’s tax status as a registered pension scheme under the Finance Act 2004.

10.	Other ways of converting pension into a lump sum

This Rule sets out the terms on which a Member’s pension may be paid instead as a lump sum other than when taking a tax-free cash sum on retirement.

10.1	Trivial pension

10.1.1

The Trustees may pay a Member the whole of his benefits as a lump sum in accordance with paragraph 7 of Schedule 29 to the Finance Act 2004 where the Member’s benefits, together with all benefits due to the Member from all other registered pension schemes, is no more than 1% of the Standard Lifetime Allowance.

10.2	Serious ill health

10.2.1

Provided that the requirements of paragraph 4 of Schedule 29 to the Finance Act 2004 are met, the Trustees may pay a Member the whole of his benefits as a lump sum. This shall extinguish the Member’s entitlement under the Scheme except that the Trustees shall retain the required amount of any contracted-out rights to purchase a pension for any widow, widower or surviving Civil Partner as required under the Contracting-out Laws.

10.3	Benefits in excess of the lifetime allowance

10.3.1

11.	Special benefits

This Rule sets out the terms that apply to Members who have benefits and/or contributions provided for them under the Scheme on a different basis to that set out elsewhere in the Rules.

11.1	Civil Partners

With effect on and from 5 December 2005, all references in the Rules to a “ spouse ” or an “ ex-spouse ” shall include a Civil Partner or a former Civil Partner, all references to a widow or widower shall include a surviving Civil Partner, and all references to marriage shall include Civil Partnership and references to married shall be interpreted accordingly.

In relation to Contracted-Out Rights this modification shall only apply to pensionable service post 6 April 1988. In relation to all other benefits it applies to the entirety of a Member’s pensionable service.

12.	Transfers to and from the Money Purchase Section

12.1	Transfers into the Money Purchase Section

12.1.1

Subject to MP Rule 12.1.3 , the Trustees may accept from a Former Scheme a Transfer Amount in respect of any Member or other person.

12.1.2

The Trustees may give any relevant undertakings in respect of the Transfer Amount and shall provide such benefits under the Scheme for and in respect of the Member or other person to whom the Transfer Amount relates as the Trustees shall determine on actuarial advice and with the consent of the Principal Employer. The benefits shall comply with the preservation requirements of the Pension Schemes Act 1993 and be consistent with the Scheme’s status as a registered pension scheme under the Finance Act 2004.

12.1.3

The Trustees may only accept a Transfer Amount under this MP Rule 12 (Transfers to and from the Money Purchase Section) if:

12.1.3.1

the Trustees are satisfied that the transfer is consistent with the Scheme’s status as a registered pension scheme under the Finance Act 2004;

12.1.3.2

HMRC has approved the first transfer to the Scheme if, at the time when it is to be accepted, the Scheme has not been approved as a registered pension scheme;

12.1.3.3

the transfer satisfies the requirements of the Pension Schemes Act 1993 and any regulations made under that Act relating to transfers; and

12.1.3.4

the Trustees comply with any undertaking given by them to HMRC.

12.1.4

The Trustees shall obtain from the Former Scheme a statement certifying:

12.1.4.1

the amount of the Transfer Amount which represents the contributions which the Member was obliged to make under the Former Scheme, and the Trustees shall treat that amount as if it were derived from contributions made by the Member under MP Rule 3 (Contributions);

12.1.4.2

the amount of the Transfer Amount which represents the voluntary contributions made by the Member under the Former Scheme, and the Trustees shall treat that amount as if it were derived from voluntary contributions made by the Member under MP Rule 3 (Contributions);

12.1.4.3

what conditions, if any, apply to the refund of those contributions to the Member;

12.1.4.4

the period of service of the Member or other person in the Former Scheme which ranks as qualifying service for the purposes of the Pension Schemes Act 1993; and

12.1.4.5

the maximum amount (if any) which could be taken by the Member or other person as a cash sum under the rules of the Former Scheme.

12.1.5

The Trustees may accept a Transfer Amount in respect of a member of a Former Scheme without his or her consent to the transfer. If that member had acquired a right to the cash equivalent of the benefits which had accrued to him under the Former Scheme but had not exercised his options under that scheme, he acquires a right to the Cash Equivalent of that benefit. He may exercise his right to that Cash Equivalent irrespective of whether or not his Pensionable Service under the Scheme has ended.

12.2	Transfers out of the Money Purchase Section

The Trustees may, in accordance with the restrictions in this MP Rule 12 (Transfers to and from the Money Purchase Section), pay a Transfer Payment in respect of a Relevant Person to a New Scheme. The Transfer Payment may be a cash sum or other assets as the Trustees decide.

12.3	Statutory transfers

12.4	Discretionary transfers

If a Deferred Member or other Relevant Person does not have a right to a Cash Equivalent (or if he has a right, but has not exercised it) the Trustees may make a Transfer Payment in respect of him to a New Scheme if that scheme agrees to accept it.

12.5	Bulk transfers

12.5.1

If the Pensionable Service of a group of Members ends and those Members become entitled to rights under a New Scheme, the Trustees may make a Transfer Payment (subject to MP Rule 12.6 ) in respect of the group of Members to the New Scheme if that scheme agrees to accept it. The transfer may be made without the consent of the Members concerned if the New Scheme is a registered pension scheme under the Finance Act 2004 and the conditions set out in Regulation 12 of the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (S.I. 1991/167) are satisfied.

12.5.2

The Trustees may also make a Transfer Payment to a scheme registered as a registered pension scheme under the Finance Act 2004 without the consent of the Members concerned if the Scheme is being wound up and the New Scheme applies to employment with the same Employer.

12.6

The Transfer Payment referred to in MP Rule 12.5 (Bulk transfers) is the total of the Members’ Cash Equivalents or such other amount which the Trustees after obtaining actuarial advice shall agree with the Principal Employer is relevant to the group of Members concerned, having regard to the provisions of C Rule 13.1 (Partial termination of the Scheme) and C Rule 14 (Winding-up) and to the portion of the Fund available for transfer.

12.7	In calculating the Transfer Payment, the Trustees, after obtaining actuarial advice, may make an allowance for the reasonable costs and expenses which have been incurred in the administration and management of the Scheme in connection with the transfer.

12.8	General

12.8.1

The Trustees shall comply, in relation to each transfer, with:

12.8.1.1

HMRC requirements so that the Scheme’s status as a registered pension scheme is not prejudiced and with any undertakings given by the Trustees to HMRC; and

12.8.1.2

the preservation requirements specified in or under Sections 69 to 83 of the Pension Schemes Act 1993 to the extent applicable.

12.8.2

The Transfer Payment shall be subject to the following conditions:

12.8.2.1

the Trustees shall, if appropriate, find out from the New Scheme the Act and Section under which the New Scheme is registered;

12.8.2.2

12.8.2.3

the Trustees shall certify to the New Scheme the period of Qualifying Service to which the transfer relates and the maximum permitted cash sum commutation in respect of the Transfer Payment; and

12.8.2.4

unless the Transfer Payment is made under MP Rule 12.3 (Statutory transfers), the Trustees shall ensure that the Transfer Payment shall not be less than the value of the Member’s Pension Account and AVC Account.

12.8.3

The Trustees may make a Transfer Payment in respect of a Member without his or her written consent only:

12.8.3.1

in accordance with the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (SI 1991/167); and

12.8.3.2

if they are reasonably satisfied that, at the date on which the Transfer Payment is made, it is at least equal to the value (as certified by the Scheme Actuary) of the benefits which have accrued to or in respect of the Member under the Scheme, taking into account the preservation requirements of the Pension Schemes Act 1993.

12.8.4

13.	Buy-out Policies

13.1	Statutory buy-out

If a Deferred Member has validly exercised a right to a Cash Equivalent by requiring the Trustees to apply the Cash Equivalent to purchase a Buy-out Policy, the Trustees shall, subject to the Contracting-out Laws and the restrictions in this MP Rule 13 (Buy-out Policies), pay the Member’s Cash Equivalent to the Insurance Company selected by the Member and from whom the Buy-out Policy is to be purchased. If the Member is dividing his or her Cash Equivalent between different Buy-out Policies, the Trustees shall apply the parts of his or her Cash Equivalent as he directs.

13.2	Discretionary buy-out

The Trustees may, with the consent of the Principal Employer, exercise their discretion and apply this MP Rule 13 (Buy-out Policies) in respect of a Member or other beneficiary of the Scheme if that person makes a written request to the Trustees or gives his or her written consent in the form required or acceptable to the Trustees.

13.3	General

A Buy-out Policy may be purchased in the name of, or assigned to, the Member or other beneficiary concerned or a trustee for the benefit of the Member or beneficiary.

The Member or other beneficiary shall have an absolute right to the benefits derived from the Buy-out Policy. Upon the election of the Member and subject to the Scheme’s status as a registered pension scheme under the Finance Act 2004 not being prejudiced, the But-out Policy may confer benefits or options which are alternative to the benefits otherwise payable under the Scheme. Provision may also be made either under the Buy-out Policy or otherwise for any lump sum payable on the death of the Member to be held upon discretionary trusts for the benefit of any one or more of the Member’s Beneficiaries.

13.4	Conditions of buying-out

The Trustees shall secure the issue of the Buy-out Policy only on terms which shall:

13.4.1

satisfy the requirements of HMRC; and

13.4.2

satisfy the requirements of the Pension Schemes Act 1993.

13.5	The Trustees may impose the following additional conditions and shall do so if the Buy-out Policy is purchased for a Member who leaves Pensionable Service at least one year before his or her Normal Retirement Date:

13.5.1

the benefits secured by the Buy-out Policy may be commuted only if:

13.5.1.1

the conditions in MP Rule 5 (Benefits from Pension Accounts) are satisfied; or

13.5.1.2

the Member has attained the age of 50 (or age 55 on or after 6 April 2010), or his or her earning capacity is destroyed or seriously impaired by physical or mental deterioration, or the conditions in MP Rule 5 (Benefits from Pension Accounts) are satisfied and, in any case, the Member has requested or consented to the commutation.

13.5.2

13.5.3

the Policy must be endorsed with the length of the Member’s Qualifying Service or, if his or her Qualifying Service exceeds one year, a statement to that effect.

13.6

At the date on which a Buy-out Policy is to be purchased under this MP Rule 13 (Buy-out Policies), the Trustees must be reasonably satisfied (on obtaining the advice of the Scheme Actuary) that the amount to be applied is at least equal to the value of the Member’s Pension Account and AVC Account (or, if only part of a Cash Equivalent is required to be applied, of the benefits to which the amount to be applied relates), taking into account the preservation requirements of the Pension Schemes Act 1993.

13.7	In purchasing one or more Buy-out Policies the Trustees must obtain the consent of the Member or, if the benefits being secured are in respect of the Member and payable to another beneficiary, that other person, unless the Scheme is being wound-up or the following conditions apply:

13.7.1

the Buy-out Policy is taken out or entered into at least 12 months after the Member left Pensionable Service;

13.7.2

the Member has less than 5 years’ Qualifying Service;

13.7.3

13.7.4

when the Trustees agree with the Insurance Company to take out or enter into the Buy-out Policy, there is no outstanding application by the Member for a Cash Equivalent.

13.8	The Buy-out Policy may (and shall in relation to a Member who leaves Pensionable Service at least one year before his or her Normal Retirement Date) include provisions which:

13.8.1

subject to the Member’s written consent, enable a transfer payment to be made from the Buy-out Policy to a New Scheme of which the Member becomes a member; and

13.8.2

enable benefits to be provided by the purchase of another annuity, assurance contract or policy from another Insurance Company which satisfies the requirements of this MP Rule 13 (Buy-out Policies).

13.9	In respect of those benefits in respect of which the Trustees have purchased a Buy-out Policy, the receipt of the Insurance Company shall, except as otherwise provided by statute, discharge the Trustees of all liability under the Scheme in respect of the Member or other beneficiary concerned.

LOGO

Dated 28 May 2010

(1)	CHAUCER SYNDICATES LIMITED

(2)	E H GILMOUR, E N NOBLE, S A SMITH, BRIDGE TRUSTEES LIMITED. M I SMITH and D C TURNER

Deed of amendment

Chaucer Pension Scheme


Eversheds LLP		T +44 (0) 845 497 9797
115 Colmore Row		F +44 (0) 845 497 1900
Birmingham		Int +44 121 232 1000
B3 3AL		DX 13004 Birmingham
		www.eversheds.com

THIS DEED OF AMENDMENT is made on 28 May 2010

(1)	CHAUCER SYNDICATES LIMITED (registered number 184915) whose registered office is at Plantation Place, 30 Fenchurch Street, London EC3M 3AD (the “ Principal Employer ”); and

(2)	EWEN HAMILTON GILMOUR of EDWARD NELSON NOBLE of STEPHEN ANDREW SMITH of BRIDGE TRUSTEES LIMITED (registered number 02600168) whose registered office is at 115 Colmore Row, Birmingham, West Midlands B3 3AL MICHAEL IAN SMITH and DAVID CHARLES TURNER of (the “ Trustees ”).

BACKGROUND

(A)	The Principal Employer is the current principal employer in relation to the Chaucer Pension Scheme (the “ Scheme ”). The Trustees are the current trustees of the Scheme. The Scheme is governed by Rules dated 10 November 2008 (the “ Rules ”).

(B)

C Rule 15 (Amendment) of the Rules provides that the Principal Employer may with the consent of the Trustees at any time together by deed amend, replace or add to the Rules and may do so retrospectively, subject to sections 67 to 67I of the Pensions Act 1995, and provided that no amendment, replacement or addition may be made which would prejudice the Scheme’s status as a registered scheme. The Principal Employer with the consent of the Trustees wishes to amend the Rules with effect on and from 1 June 2010 (the “Effective Date” ) to make miscellaneous changes to the final salary and money purchase sections of the Scheme, to increase the normal retirement date to age 65 in the money purchase section and to make changes to the final salary section of the Scheme in accordance with the announcements to members dated 28 May 2010 so that

(i)

from 1 June 2010 increases in Pensionable Salary are limited to the lower of the actual monetary increase in Basic Pay over the previous year and 5% of Pensionable Salary twelve months earlier;

(ii)

from the Effective Date benefit accrues at the rate of 1/75th of Final Pensionable Salary for each year of Pensionable Service;

(iii)

from the Effective Date Normal Retirement Date is increased to age 65;

(iv)

the contributions of a member to the Scheme are increased to 5% of the Member’s Pensionable Salary from 1 May 2011 and to 6% of the Member’s Pensionable Salary from 1 May 2014;

(v)

benefit accrued after the Effective Date will be subject to actuarial reduction if payment commences before certain specified ages;

(vi)

from the Effective Date the lump sum payable on death in service will be based upon Basic Salary and not Pensionable Salary;

(vii)

a late retirement factor will be applied to benefit accrued before 1 June 2010 where the Member retires after the age of 60, and this advantages the Member, and

(viii)

the benefits applicable to Executive Members are amended and documented.

(C)

The Trustees have received legal advice confirming that a certificate made under section 67 (the subsisting rights provisions) of the Pensions Act 1995 is not needed for the changes set out in this deed and a certificate of confirmation under Regulation 42 (alteration of rules of contracted-out schemes) of The Occupational Pension Schemes (Contracting-out) Regulations 1996 is attached.

OPERATIVE PROVISIONS

The Principal Employer with the consent of the Trustees makes the amendments set out in this deed to the Rules of the Final Salary Section with effect from the Effective Date in accordance with C Rule15 (Amendment) :

1.	Limits on increases in Pensionable Salary

1.1	FS Rule 1 (Meaning of defined terms) is amended by deleting paragraph (1) of the definition of Final Pensionable Salary and replacing it with the following:

“(1) his or her Pensionable Salary on his or her Normal Retirement Date (or on the earlier date of his or her death or termination of Pensionable Service); and”

1.2	FS Rule 1 (Meaning of defined terms) is amended by deleting the definition of Pensionable Salary and replacing it with the following:


“ “Pensionable Salary”		in relation to a Member is calculated on the day he or she becomes a Pension Member and on any day thereafter and means the Member’s Basic Salary. However with effect on and from 1 June 2010 annual increases in Pensionable Salary will be capped at 5% in the following manner:

		(a) If the Member’s Basic Salary increases in the period from 1 June 2010 to 1 January 2011 his or her Pensionable Salary will increase by the lower of the actual monetary increase in the Member’s Basic Salary in that period and 5% of the Member’s Pensionable Salary at 1 June 2010;



		(b) If the Member’s Basic Salary increases in any 12 month period ending on 1 January of 2012 or of any subsequent year his Pensionable Salary will increase by the lower of the actual monetary increase in the Member’s Basic Salary in that period and 5% of the Member’s Pensionable Salary at the start of the period;”

2.	Contribution rate

2.1	FS Rule 3.2.1 (Members’ basic contributions) is amended by deleting the first sentence and replacing it with the following:

“Each Member in Pensionable Service (who is not an Executive Member) shall contribute to the Scheme at a rate of 4% of his or her Pensionable Salary until 30 April 2011, and at a rate of 5% of his or her Pensionable Salary from 1 May 2011 until 30 April 2014, and at a rate of 6% of his or her Pensionable Salary from 1 May 2014. An Executive Member in Pensionable Service shall contribute to the Scheme at a rate of 6% of his or her Pensionable Salary from 1 June 2010. A Member’s contributions may at any time be at such other rate as the Trustees may determine with the agreement of the Principal Employer and notify to the Members. “

3.	Normal Retirement Date

3.1	FS Rule 1 (Meaning of defined terms) is amended by deleting the definition of Normal Retirement Date and replacing it with the following:

“ “Normal Retirement Date” means a Member’s 65th birthday;”

3.2	FS Rule 4.2.1 (Pension on early retirement) is amended by deleting the second sentence and replacing it with the following:

“Subject to the Contracting-out Laws, and with the consent of the Employer and the Trustees (unless the Member is aged over 60 or suffering from an Incapacity), the Member shall be entitled to receive an immediate annual pension as an alternative to any benefit payable.”

3.3	FS Rule 4.3.1 (Early retirement not due to Incapacity) is amended by deleting it and replacing it with the following:

“Subject to FS Rule 4.2 (Pension on early retirement), a Member who is not an Executive Member and who retires from Service on or after his or her 55th birthday and before his or her Normal retirement Date other than as a result of Incapacity is entitled to an immediate annual pension The pension will be equal to that to which he or she would otherwise have been entitled under FS Rule 4.1 (Pension on retirement at Normal Retirement Date) , calculated on his or her Final Pensionable Salary and his or her Pensionable Service completed at the date of his or her actual retirement. The pension accrued before 1 June 2010 shall be reduced in respect of any period between the date of the Member’s actual retirement and his or her 60th birthday. The pension accrued on and after 1 June 2010 shall be reduced in respect of the period between the date of the Member’s actual retirement and his or her:

4.3.1.1 60th birthday if the Member was born on or before 1 June 1955;

4.3.1.2 61st birthday if the Member was born between 2 June 1955 and 1 June 1956;

4.3.1.3 62nd birthday if the Member was born between 2 June 1956 and 1 June 1957;

4.3.1.4 63rd birthday if the Member was born between 2 June 1957 and 1 June 1958;

4.3.1.5 64th birthday if the Member was born between 2 June 1958 and 1 June 1959, and

4.3.1.6 65th birthday if the Member was born on or after 2 June 1959.

Any reduction shall be of an amount determined by the Trustees, and certified by the Scheme Actuary as reasonable.”

3.4	FS Rule 4.4.2 (Pension on Incapacity retirement) is amended by deleting it and replacing it with the following:

“ A pension payable under this FS Rule 4.4 (Pension on incapacity retirement) to a Member who is not an Executive Member will be equal to the pension to which he or she would otherwise have been entitled under FS Rule 4.1 (Pension on retirement at Normal Retirement Date) had the date of his or her actual retirement been his or her Normal Retirement Date, calculated on his or her Final Pensionable Salary at the date of his or her actual retirement and his

or her prospective Pensionable Service up to age 60. The pension shall be reduced in respect of any period between the date of the Member’s actual retirement and his or her 60th birthday. Any reduction shall be of an amount determined by the Trustees, and certified by the Scheme Actuary as reasonable.”

3.5	MP Rule 1 (Meaning of defined terms) is amended by deleting the definition of “Normal Retirement Date” and replacing it with the following:

“ “Normal Retirement Date” means a Member’s 65th birthday;”

4.	Accrual rate

4.1	FS Rule 4.1.1 (Pension on retirement at Normal Retirement Date) is amended by deleting it and replacing it with the following:

“A Member (who is not an Executive Member) who retires from Service at Normal Retirement Date and who was in Pensionable Service on the day before that date is entitled to an immediate annual pension equal to the sum of:

A /60 x Final Pensionable Salary,

and

( B-A )/75 x Final Pensionable Salary

where

A is the Member’s years of Pensionable Service completed before 1 June 2010, plus an additional proportion for each additional complete month of Pensionable Service before 1 June 2010;

B is the Member’s total years of Pensionable Service, subject to a maximum of 40 years, plus an additional proportion for each additional complete month of Pensionable Service

PROVIDED ALWAYS THAT for so long as the Scheme remains subject to the Contracting-out Laws the pension so calculated shall not be less than would be provided for the Member under a reference scheme as described in section 12B of the Pension Schemes Act 1993.”

5.	Benefits on death in Pensionable Service before Normal Retirement Date

5.1	FS Rule 7.1.3 (Benefits on death in Pensionable Service before Normal Retirement Date) is amended by deleting it and replacing it with the following:

“For a Pension Member the lump sum shall be equal to the sum of 4 times the Member’s Basic Salary plus his or her Member Contributions (excluding interest) paid up to the date of his or her death plus the value of his or her additional voluntary contributions.”

5.2	FS Rule 7.1.4 (Benefits on death in Pensionable Service before Normal Retirement Date) is amended by deleting it and replacing it with the following:

“For a Pension Member a pension is immediately payable to his or her Spouse equal to two thirds of the pension to which the Pension Member would have been entitled under FS Rule 4.1 (Pension on retirement at Normal Retirement Date) at his or her Normal Retirement Date had he or she continued in Pensionable Service until his or her

7.1.4.1

60th birthday if the Member was born on or before 1 June 1955;

7.1.4.2

61st birthday if the Member was born between 2 June 1955 and 1 June 1956;

7.1.4.3

62nd birthday if the Member was born between 2 June 1956 and 1 June 1957;

7.1.4.4

63rd birthday if the Member was born between 2 June 1957 and 1 June 1958;

7.1.4.5

64th birthday if the Member was born between 2 June 1958 and 1 June 1959, and

7.1.4.6

65th birthday if the Member was born on or after 2 June 1959.

6.	Retirement on or after the age of 60

FS Rule 4 (Active Members’ immediate pensions) is amended by the addition of the following Rule which shall be numbered FS Rule 4.6 :

“ Pension on retirement over the age of 60

If a Member retires under any of the preceding provisions of this FS Rule 4 (Active Members’ immediate pensions) on or after his or her 60th birthday any pension accrued before 1 June 2010 shall be calculated as if the Member had left Service at age 60 and increased by an amount determined by the Trustees on the advice of the Scheme Actuary in respect of the period between the Member’s 60th birthday and his or her actual date of retirement.”

7.	Retirement after leaving Service

7.1	FS Rule 5.3.1 (Preserved pension at Normal Retirement Date) is amended by deleting the second sentence and replacing it with the following:

“The pension shall be calculated in accordance with FS Rule 4.1 and FS Rule 4.6 (Pension on retirement at Normal Retirement Date) based on the Member’s Pensionable Service to the date of leaving Pensionable Service and the Member’s Final Pensionable Salary at the date of leaving Pensionable Service.”

7.2	FS Rule 5.4.1.2 (Other options for the payment of preserved pension) is amended by deleting the second sentence and replacing it with the following:

“The pension shall be adjusted by an amount determined on a basis certified by the Scheme Actuary to reflect early or late retirement relative to the Member’s 60th birthday in respect of the pension accrued (or deemed to be accrued) before 1 June 2010. It shall be further adjusted relative to the following dates in respect of the pension accrued (or deemed to be accrued) on or after 1 June 2010 by Members who are not Executive Members:

5.4.1.2.1

60th birthday if the Member was born on or before 1 June 1955;

5.4.1.2.2

61st birthday if the Member was born between 2 June 1955 and 1 June 1956;

5.4.1.2.3

62nd birthday if the Member was born between 2 June 1956 and 1 June 1957;

5.4.1.2.4

63rd birthday if the Member was born between 2 June 1957 and 1 June 1958;

5.4.1.2.6

64th birthday if the Member was born between 2 June 1958 and 1 June 1959, and

5.4.1.2.7

65th birthday if the Member was born on or after 2 June 1959.

8.	Executive Members

8.1	FS Rule 1 (Meaning of defined terms) is amended by the addition of the following definition in its correct alphabetical position:

“ “Executive Member”

means a Member who has been notified in writing by his Employer that he is to be treated for the purposes of the FS Rules as an Executive Member;”

8.2	FS Rule 4.1.1 (Pension on retirement at Normal Retirement Date) is amended by the addition of the following sub-Rule which shall be numbered FS Rule 4.1.2 and all subsequent sub-Rules shall be renumbered accordingly:

“An Executive Member who retires from Service at Normal Retirement Date and who was in Pensionable Service on the day before that date is entitled to an immediate annual pension equal to the sum of:

A /45 x Final Pensionable Salary,

and

( B-A )/60x Final Pensionable Salary

where

A is the Member’s years of Pensionable Service completed before 1 June 2010, plus an additional proportion for each additional complete month of Pensionable Service before 1 June 2010;

B is the Member’s total years of Pensionable Service, subject to a maximum of 40 years, plus an additional proportion for each additional complete month of Pensionable Service.

8.3	FS Rule 4.3 (Early retirement not due to Incapacity) is amended by the addition of the following sub-Rule which shall be numbered FS Rule 4.3.2 :

“Subject to FS Rule 4.2 (Pension on early retirement), an Executive Member who retires from Service on or after his or her 55th birthday and before his or her Normal Retirement Date other than as a result of Incapacity is entitled to an immediate annual pension. The pension will be equal to that to which he or she would otherwise have been entitled under FS Rule 4.1 (Pension on retirement at Normal Retirement Date), calculated on his or her Final Pensionable Salary and his or her Pensionable Service completed at the date of his or her actual retirement. The pension accrued before 1 June 2010 shall be reduced in respect of any period between the date of the Executive Member’s actual retirement and his or her 60th birthday. The pension accrued on and after 1 June 2010 shall be reduced in respect of the period between the date of the Executive Member’s actual retirement and his or her 65th birthday. Any reduction shall be of an amount determined by the Trustees, and certified by the Scheme Actuary as reasonable.”

8.4	FS Rule 4.4 (Pension on Incapacity retirement) is amended by the addition of the following sub-Rule which shall be numbered FS Rule 4.4.3 and all subsequent sub-Rules shall be renumbered accordingly:

“A pension payable under this FS Rule 4.4 (Pension on incapacity retirement) to an Executive Member will be equal to the pension to which he or she would otherwise have been entitled under FS Rule 4.1 (Pension on retirement at Normal Retirement Date) had the date of his or her actual retirement been his or her Normal Retirement Date, calculated on his or her Final Pensionable Salary at the date of his or her actual retirement and his or her prospective Pensionable Service up to age 60. The pension accrued before 1 June 2010 shall be reduced in respect of any period between the date of the Executive Member’s actual retirement and his or her 60th birthday. The pension accrued on and after 1 June 2010 shall be reduced in respect of the period between the date of the Executive Member’s actual retirement and his or her 65th birthday. Any reduction shall be of an amount determined by the Trustees, and certified by the Scheme actuary as reasonable.”

8.5	FS Rule 5.4.1.2 (Other options for the payment of preserved pension) is further amended by the addition of the following sentence at its end:

“For an Executive Member it shall be adjusted relative to his or her 65th birthday in respect of the pension accrued (or deemed to be accrued) on or after 1 June 2010.”

9.	Miscellaneous amendments

9.1	FS Rule 1 (Meaning of defined terms) is amended by deleting the first paragraph of the definition of “ Child ” and replacing it with the following:

“ “Child ”

means a legitimate child of the Member; a child who has been legally adopted by the Member; and any stepchild, illegitimate child or other child who, in the Trustees’ opinion, was dependent on the Member at the time of the Member’s death and whom the Trustees agree to treat as a Child (including in any case a child conceived but unborn);”

9.2	FS Rule 1 (Meaning of defined terms) is amended by adding the following sentence at the end of the definition of “ Spouse ”:

“For the purposes of FS Rules 7.1, 7.2 and 7.3 a Spouse may include with the consent of the Principal Employer another person who at the death of the Member and in the opinion of the Trustees was living with the Member as his or her spouse and was financially dependent upon the Member;”

9.3	FS Rule 7.5.2.2 (Payment of lump sums on death) is amended by deleting it and replacing it with the following:

“in exercising the power in FS sub-rule 7.5.2.1 the Trustees shall during the 2 year period, have power to transfer the whole or any part of the lump sum death benefit to the trustees of a separate trust for the benefit of all or any one or more of the Member’s Beneficiaries. A Member’s “Beneficiaries” for these purposes and for the purposes of FS sub-rule 7.5.2.1 are the Member’s widow or widower; the grandparents of the Member or his or her widow or widower and their descendants (whether legitimate or illegitimate) and the Spouses of those descendants (including those of the half-blood and those conceived but not yet born) and the Spouses of those descendants; any step-parents, step-brothers, step-sisters and step-children (whether legitimate or illegitimate) of the Member and of the Member’s Spouse, and any individual related by adoption to the Member or the Member’s Spouse and the spouses of those step-relatives or adopted relatives; the Member’s Dependants; any person or body with an interest in the Member’s estate (but not including the Crown, the Duchy of Lancaster or the Duke of Cornwall); and any person nominated in writing by the Member to the Trustees, and with and subject to (without infringing the rule against perpetuities) such powers of appointment and such other discretionary trusts and powers (exercisable by the trustees of the separate trust or any other person), and such provisions for maintenance, education, advancement and accumulation of income during a minority, as the Trustees may in their absolute discretion think fit. The Trustees shall have power themselves to declare any such separate trust and to appoint as trustees or trustee of that trust any two persons or a corporate body, whether or not it is a trust corporation as defined in Section 68 of the Trustee Act 1925, as the Trustees may decide and to provide for the remuneration of such trustees or trustee.”

9.4	FS Rule 7.6.2 (Payment of Spouse’s pension on death) is amended by deleting the following words:

“… unless the Spouse was neither living with nor dependent on the Member at the date of the Member’s death. If this happens, the Trustees may instead decide not to pay some or all of the pension to the Spouse (other than any pension payable to the Spouse under the Contracting-out Laws).”

9.5	FS Rule 7.6.5 (Payment of Spouse’s pension on death) is amended by deleting it and replacing it with the following:

“If the Member is survived by a Child, and either no pension is payable to a Spouse or a Spouse’s pension stops while there is still a Child, the Trustees shall pay the pension to (or for the benefit of) the Child (or Children as applicable). The Trustees shall decide from time to time how to divide the pension between more than one Child.”

9.6	FS Rule 11.1.1 (Trivial pension) is amended by deleting it and replacing it with the following:

“Subject to the following conditions, the Trustees may allow a Member who has a trivial pension under the Scheme to exchange all his or her benefits (including those payable on death) for a lump sum in either of the following ways:

11.1.1.2

If the value of the aggregate of all benefits payable in respect of a Member from the Scheme and from all other registered pension schemes does not exceed one per cent of the standard lifetime allowance under section 218 of the Finance Act 2004, the Trustees may pay the Member the whole of his or her benefits as a lump sum in accordance with paragraphs 7 to 9 of Schedule 29 to the Finance Act 2004 (and less tax).

11.1.1.3

If the value of all benefits payable in respect of a Member from the Scheme does not exceed £2000, the Trustees may pay the Member an amount equal to the value of the Member’s benefits in accordance with part 2 of The Registered Pension Schemes (Authorised Payments) Regulations 2009.

Each of these shall extinguish the Member’s entitlement under the Scheme.

The Trustees shall determine the value of the Member’s benefits on a basis which is consistent with the Contracting-out and Preservation Laws.”

9.7	FS Rule 10.2.1.2 (Pre-April 2006 members) is amended by deleting it and replacing it with the following:

“the Member’s Final Pensionable Salary for the purpose of determining the benefits payable to or in respect of the Member (excluding for the avoidance of doubt lump sum benefits payable under FS Rule 7.1 (Benefits on death in Pensionable Service before Normal Retirement Date) ) in respect of the Member’s Pensionable Service on and after 6 April 2006 shall not exceed the Scheme Earnings Cap.”

9.8	MP Rule 1 (Meaning of defined terms) is amended by deleting the second paragraph of the definition of Pensionable Service and replacing it with the following:

“ Service after Normal Retirement Date shall be counted as Pensionable Service if so determined by the Principal Employer.”

9.9	MP Rule 7.4.2 (Disposal of lump sum death benefits) is amended by deleting it and replacing it with the following;

“A Member’s “Beneficiaries” for these purposes are the Member’s widow or widower; the grandparents of the Member or his or her widow or widower and their descendants (whether legitimate or illegitimate) and the Spouses of those descendants (including those of the half-blood and those conceived but not yet born) and the Spouses of those descendants; any step-parents, step-brothers, step-sisters and step-children (whether legitimate or illegitimate) of the Member and of the Member’s Spouse, and any individual related by adoption to the Member or the Member’s Spouse and the spouses of those step-relatives or adopted relatives; the Member’s Dependants; any person or body with an interest in the Member’s estate (but not including the Crown, the Duchy of Lancaster or the Duke of Cornwall); and any person nominated in writing by the Member to the Trustees, and with and subject to (without infringing the rule against perpetuities) such powers of appointment and such other discretionary trusts and powers (exercisable by the trustees of the separate trust or any other person), and such provisions for maintenance, education, advancement and accumulation of income during a minority, as the Trustees may in their absolute discretion think fit. The Trustees shall have power themselves to declare any such separate trust and to appoint as as trustees or trustee of that trust any two persons or a corporate body, whether or not it is a trust corporation as defined in Section 68 of the Trustee Act 1925, as the Trustees may decide and to provide for the remuneration of such trustees or trustee.”

9.10	MP Rule 10.1 (Trivial pension) is amended by deleting it and replacing it with the following:

10.1.1

10.1.2

Each of these shall extinguish the Member’s entitlement under the Scheme.

The Trustees shall determine the value of the Member’s benefits on a basis which is consistent with the Contracting-out and Preservation Laws.”

10.	Successors

This deed will bind the respective successors of the Trustees and the Principal Employer, and any references in this deed to the Trustees or to the Principal Employer shall be treated as including a reference to their respective successors and not just to the specific signatories to this deed.

11.	Counterparts

This deed may be executed and delivered in any number of counterparts, each of which when executed will be an original, but together will constitute one and the same deed.

Exhibit 10.4


			CONFORMED COPY

Standby Letter of Credit Facility

Chaucer Holdings plc

As Account Party

Barclays Bank PLC, Lloyds TSB Bank plc and The Royal Bank of Scotland plc

As Mandated Lead Arrangers

Lloyds TSB Bank plc

As Bookrunner

Lloyds TSB Bank plc

As Facility Agent

Lloyds TSB Bank plc

As Security Agent

29 November 2010

CONTENTS


CLAUSE		PAGE
1.	DEFINITIONS AND INTERPRETATION		1
2.	THE FACILITY		16
3.	PURPOSE		17
4.	RANKING AND APPLICATION OF FUNDS AT LLOYD’S		17
5.	CONDITIONS OF UTILISATION		17
6.	UTILISATION		18
7.	EXTENSION OF THE FACILITY		19
8.	TERMINATION OF LETTERS OF CREDIT		20
9.	NOTIFICATION		21
10.	ACCOUNT PARTY’S LIABILITIES IN RELATION TO LETTERS OF CREDIT		21
11.	COLLATERALISATION AND CANCELLATION		22
12.	COMMISSION AND FEES		25
13.	TAX GROSS-UP AND INDEMNITIES		26
14.	INCREASED COSTS		30
15.	OTHER INDEMNITIES		31
16.	ILLEGALITY		32
17.	MITIGATION BY THE LENDERS		32
18.	COSTS AND EXPENSES		33
19.	DEFAULT INTEREST AND BREAKAGE COSTS		34
20.	CHANGES TO THE CALCULATION OF INTEREST		35
21.	GUARANTEE AND INDEMNITY		36
22.	REPRESENTATIONS		38
23.	INFORMATION UNDERTAKINGS		42
24.	FINANCIAL CONDITION		46
25.	GENERAL UNDERTAKINGS		48
26.	EVENTS OF DEFAULT		52
27.	CHANGES TO THE LENDERS		56
28.	CHANGES TO THE OBLIGORS		60
29.	ROLE OF THE FACILITY AGENT AND THE ARRANGERS		61
30.	ROLE OF THE SECURITY AGENT		67
31.	CONDUCT OF BUSINESS BY THE FINANCE PARTIES		74
32.	SHARING AMONG THE FINANCE PARTIES		74
33.	PAYMENT MECHANICS		75
34.	SET-OFF		78
35.	APPLICATION OF PROCEEDS		78
36.	NOTICES		80
37.	CALCULATIONS AND CERTIFICATES		82
38.	PARTIAL INVALIDITY		82
39.	REMEDIES AND WAIVERS		82
40.	AMENDMENTS AND WAIVERS		82
41.	CONFIDENTIALITY		84
42.	COUNTERPARTS		87
43.	GOVERNING LAW		87
44.	ENFORCEMENT		87
SCHEDULE 1			88
The Original Parties			88
Part 1 - The Original Guarantors			88
Part 2 - The Original Lenders			88
SCHEDULE 2			89
Conditions Precedent			89
Part 1 - Conditions Precedent to Initial Utilisation			89
Part 2 - Conditions Precedent Required to be Delivered by an Additional Guarantor			92
SCHEDULE 3			93
Utilisation Request			93


SCHEDULE 4					94
Form of Letter of Credit					94
SCHEDULE 5					99
Letter of Comfort					99
SCHEDULE 6					101
Form of Transfer Certificate					101
SCHEDULE 7					103
Form of Assignment Agreement					103
THE SCHEDULE					104
SCHEDULE 8					106
Form of Accession Letter					106
Part 1 - Form of Guarantor Accession Letter					106
Part 2 – Form of New Lender Accession Letter					107
SCHEDULE 9					108
Form of Resignation Letter					108
SCHEDULE 10					109
Form of Compliance Certificate					109
SCHEDULE 11					111
LMA Form of Confidentiality Undertaking					111
SCHEDULE 12					116
Form of Facility Extension Notice					116

THIS AGREEMENT is made on 29 November 2010

BETWEEN:

(1)	CHAUCER HOLDINGS PLC (the “Account Party” );

(2)	THE COMPANIES listed in part 1 of schedule 1 (The Original Parties) as original guarantors (the “Original Guarantors” );

(3)	BARCLAYS BANK PLC, LLOYDS TSB BANK PLC AND THE ROYAL BANK OF SCOTLAND PLC as mandated lead arrangers (the “Arrangers” );

(4)	LLOYDS TSB BANK PLC as bookrunner (the “Bookrunner” );

(5)	THE FINANCIAL INSTITUTIONS listed in part 2 of schedule 1 (The Original Parties) as lenders (the “Original Lenders” );

(6)	LLOYDS TSB BANK PLC as provider of the Overdraft Facility (the “Overdraft Provider” );

(7)	LLOYDS TSB BANK PLC as agent of the other Finance Parties (the “Facility Agent” ); and

(8)	LLOYDS TSB BANK PLC as security agent of the other Secured Parties (the “Security Agent” ).

THE PARTIES AGREE AS FOLLOWS:

1.	DEFINITIONS AND INTERPRETATION

1.1	Definitions

In this agreement:

“Accession Date” means, in relation to an accession by a New Lender pursuant to clauses 7 (Extension of the Facility) and 27 (Changes to the Lenders), the later of:

(a)

the proposed Accession Date specified in the relevant Accession Letter; and

(b)

the date on which the Facility Agent executes the relevant Accession Letter;

“Accession Letter” means:

(a)

in respect of a proposed Additional Guarantor, a document substantially in the form set out in part 1 of schedule 8 (Form of Guarantor Accession Letter); or

(b)

in respect of any proposed New Lender pursuant to clause 7 (Extension of the Facility) a document substantially in the form set out in part 2 of schedule 8 (Form of New Lender Accession Letter);

“Accounting Principles” means generally accepted accounting principles in the United Kingdom including IFRS;

“Additional Guarantor” means a company which becomes an Additional Guarantor in accordance with clause 28 (Changes to the Obligors);

“Affiliate” means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company;

“Approved Credit Institution” means a credit institution within the meaning of the Council Directive on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions (No. 2006/48/EC) which has been approved by the Council of Lloyd’s for the purpose of providing guarantees and issuing or confirming letters of credit comprising a Member’s Funds at Lloyd’s;

“Assignment Agreement” means an agreement substantially in the form set out in schedule 7 (Form of Assignment Agreement) or any other form agreed between the relevant assignor and assignee;

“Authorisation” means an authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration;

“Authorised Signatory” means, in relation to any Obligor, any person who is duly authorised (in such manner as may be reasonably acceptable to the Facility Agent) and in respect of whom the Facility Agent has received a certificate signed by a director of that Obligor setting out the name and signature of that person and confirming that person’s authority to act;

“Availability Period” means the period from and including the date of this agreement to and including 31 December 2012;

“Available Commitment” means, in relation to a Lender at any time and save as otherwise provided in this agreement, its Commitment minus:

(a)

the amount of its participation in the Outstandings at that time; and

(b)

in relation to any proposed Utilisation, the amount of its participation in any other Utilisations that are due to be made on or before the proposed Utilisation Date.

For the purposes of calculating a Lender’s Available Commitment in relation to any proposed Utilisation, the amount of that Lender’s participation in any Letter of Credit that is due to expire or be returned as cancelled on or before the proposed Utilisation Date shall not be deducted from a Lender’s Commitments;

“Available Facility” means, at any time, the aggregate of the Available Commitments of the Lenders;

“ Base Reference Bank Rate ” means the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Facility Agent at its request by the Base Reference Banks, in relation to LIBOR, as the rate at which the relevant Base Reference Bank could borrow funds in the London interbank market in the relevant currency and for the relevant period, were it to do so by asking for and then accepting interbank offers for deposits in reasonable market size in that currency and for that period;

“Base Reference Banks” means, in relation to LIBOR, the principal London offices of Barclays Bank PLC, Lloyds TSB Bank plc and The Royal Bank of Scotland plc or such other banks as may be appointed by the Facility Agent in consultation with the Account Party;

“Business Day” means a day (other than a Saturday or Sunday) on which banks are open for general business in London;

“Cash Collateral” means, in relation to a Letter of Credit or (as applicable) any Lender’s Proportion of a Letter of Credit, a cash deposit in the Specified Account and “Cash Collateralised” shall be construed accordingly;

“Charged Property” means all of the assets which from time to time are, or are expressed to be, the subject of the Security;

“Chaucer Names” means Chaucer Corporate Capital (No. 2) Limited and Chaucer Corporate Capital (No. 3) Limited and “Chaucer Name” means either one of them;

“Chaucer No. 2” means Chaucer Corporate Capital (No. 2) Limited;

“Collateralised Outstandings” means the Outstandings in respect of which the Account Party has provided funds by way of Cash Collateral to the Security Agent in accordance with the terms of this agreement;

“ Commencement Date ” means, in relation to any Letter of Credit, the date as and from which the Lenders’ liabilities (whether actual or contingent) under that Letter of Credit start to accrue;

“Commitment” means:

(a)

in relation to an Original Lender, the amount set opposite its name under the heading “Commitment” in part 2 of schedule 1 (The Original Parties) and the amount of any other Commitment transferred to it under this agreement or assumed by it pursuant to clause 7 (Extension of the Facility); and

(b)

in relation to any other Lender, the amount of any Commitment transferred to it under this agreement or assumed by it pursuant to clause 7 (Extension of the Facility),

to the extent not cancelled, reduced or transferred by it under this agreement;

“Compliance Certificate” means a certificate substantially in the form set out in schedule 10 (Form of Compliance Certificate);

“Confidential Information” means all information relating to the Account Party, any Guarantor, the Group, the Finance Documents or the Facility of which a Finance Party becomes aware in its capacity as, or for the purpose of becoming, a Finance Party or which is received by a Finance Party in relation to, or for the purpose of becoming a Finance Party under, the Finance Documents or the Facility from either:

(a)

any member of the Group or any of its advisers; or

(b)

another Finance Party, if the information was obtained by that Finance Party directly or indirectly from any member of the Group or any of its advisers,

in whatever form, and includes information given orally and any document, electronic file or any other way of representing or recording information which contains or is derived or copied from such information but excludes information that:

(i)

is or becomes public information other than as a direct or indirect result of any breach by that Finance Party of clause 41 (Confidentiality); or

(ii)

is identified in writing at the time of delivery as non-confidential by any member of the Group or any of its advisers; or

(iii)

is known by that Finance Party before the date the information is disclosed to it in accordance with paragraphs (a) or (b) above or is lawfully obtained by that Finance Party after that date, from a source which is, as far as that Finance Party is aware, unconnected with the Group and which, in either case, as far as that Finance Party is aware, has not been obtained in breach of, and is not otherwise subject to, any obligation of confidentiality;

“Confidentiality Undertaking” means a confidentiality undertaking substantially in a recommended form of the LMA as set out in schedule 11 (LMA Form of Confidentiality Undertaking) or in any other form agreed between the Account Party and the Facility Agent;

“Corporate Member” means a corporate member of Lloyd’s;

“Corporate Member’s Deed” means Lloyd’s Security and Trust Deed or such other deed or document as Lloyd’s may from time to time require each Chaucer Name (being or having applied to become a Member) to execute and deliver for the purposes of providing a Lloyd’s Deposit;

“CTA” means the Corporation Tax Act 2009;

“Default” means an Event of Default or any event or circumstance specified in clause 26 (Events of Default) which would (with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing) be an Event of Default;

“Defaulting Lender” means any Lender:

(a)

which has rescinded or repudiated a Finance Document; or

(b)

with respect to which an Insolvency Event has occurred and is continuing;

“Delegate” means any delegate, agent, attorney or co-trustee appointed by the Security Agent;

“Deposit Agreement” means the deposit agreement dated on or about the date of this agreement and executed by the Account Party and the Security Agent pursuant to which a charge is granted by the Account Party to the Security Agent in respect of the Specified Account;

“Disruption Event” means either or both of:

(a)

a material disruption to those payment or communications systems or to those financial markets which are, in each case, required to operate in order for payments to be made in connection with the Facility (or otherwise in order for the transactions contemplated by the Finance Documents to be carried out) which disruption is not caused by, and is beyond the control of, any of the Parties; or

(b)

the occurrence of any other event which results in a disruption (of a technical or systems-related nature) to the treasury or payments operations of a Party preventing that, or any other Party:

(i)

from performing its payment obligations under the Finance Documents; or

(ii)

from communicating with other Parties in accordance with the terms of the Finance Documents,

and which (in either such case) is not caused by, and is beyond the control of, the Party whose operations are disrupted;

“Encumbrance” means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect;

“Event of Default” means any event or circumstance specified as such in clause 26 (Events of Default);

“ Existing Facility Agreement ” means the £51,000,000 standby letter of credit facility agreement dated 22 November 2002 as amended and restated from time to time, between, amongst others, the Account Party and Lloyds TSB Bank plc;

“Expiry Date” means, in relation to any Letter of Credit, the date on which the maximum aggregate liability thereunder is reduced to zero;

“Extreme Stress Scenario” means an extreme event which is not a Realistic Disaster Scenario and which falls outside the guidelines issued by Lloyd’s’ Franchise Performance Directorate department;

“Facility Extension” means the exercising by the Account Party of the option to increase the Total Commitments of the Facility by up to £10,000,000 in accordance with clause 7 (Extension of the Facility);

“Facility Extension Amount” has the meaning given to it in clause 7(a) (Extension of the Facility”);

“Facility Extension Notice” means a notice in the form set out in schedule 14 (Form of Facility Extension Notice);

“Facility” means the sterling letter of credit facility granted to the Account Party in this agreement;

“Facility Office” means the office or offices notified by a Lender to the Facility Agent in writing on or before the date it becomes a Lender (or, following that date, by not less than five Business Days’ written notice) as the office or offices through which it will perform its obligations under this agreement;

“FAL Providers Deed” means the FAL providers deed dated on or around the date of this agreement between the Facility Agent, the Account Party, the Chaucer Names and Flagstone Reassurance Suisse SA – Bermuda Branch;

“Fee Letter” means any letter or letters dated on or about the date of this agreement between the Arrangers and the Account Party (or the Facility Agent and the Account Party or the Security Agent and the Account Party) setting out any of the fees referred to in clause 12 (Commission and Fees);

“Finance Document” means this agreement, any Fee Letter, any Accession Letter, any Resignation Letter, the Security Documents and any other document designated as such by the Facility Agent and the Account Party;

“Finance Party” means the Facility Agent, the Security Agent, an Arranger or a Lender;

“Financial Indebtedness” means any indebtedness for or in respect of:

(a)

Indebtedness for Borrowed Money;

(b)

any documentary or standby letter of credit facility or performance bond facility;

(c)

any interest rate swap, currency swap, forward foreign exchange transaction, cap, floor, collar or option transaction or any other treasury transaction or any combination thereof or any other transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and the amount of the Financial Indebtedness in relation to any such transaction shall be calculated by reference to the mark-to-market valuation of such transaction at the relevant time); and

(d)

any guarantee or indemnity for any of the items referred to in paragraphs (a) to (c) above;

“FSA Handbook” means the UK Financial Services Authority Handbook of Rules and Guidance (as amended from to time);

“Funds at Lloyd’s” or “FAL” has the meaning given in paragraph 16 of the Membership Byelaw (No. 5 of 2005);

“GAAP” means generally accepted accounting principles in the United Kingdom, including IFRS;

“General Prudential Sourcebook” means the General Prudential Sourcebook for Banks, Building Societies, Insurers and Investment Firms which forms part of the FSA Handbook;

“Group” means the Account Party and its Subsidiaries for the time being;

“Guaranteed Documents” means the Finance Documents and the Overdraft Letter;

“Guaranteed Finance Parties” means the Finance Parties and the Overdraft Provider;

“Guarantor” means an Original Guarantor or an Additional Guarantor, unless it has ceased to be a Guarantor in accordance with clause 28 (Changes to the Obligors);

“Holding Company” means, in relation to a company or corporation, any other company or corporation in respect of which it is a Subsidiary;

“IFRS” means international accounting standards within the meaning of the IAS Regulation 1606/2002 to the extent applicable to the relevant financial statements;

“Impaired Agent” means the Agent at any time when:

(a)

it has failed to make (or has notified a Party that it will not make) a payment required to be made by it under the Finance Documents by the due date for that payment;

(b)

the Agent otherwise rescinds or repudiates a Finance Document;

(c)

(if the Agent is also a Lender) it is a Defaulting Lender under paragraph (a) of the definition of Defaulting Lender; or

(d)

an Insolvency Event has occurred and is continuing with respect to the Agent;

“Indebtedness for Borrowed Money” means any indebtedness (other than such indebtedness incurred by a Managed Syndicate as a result of a Syndicate Arrangement) for or in respect of:

(a)

moneys borrowed;

(b)

any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent;

(c)

any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

(d)

the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP, be treated as a finance or capital lease;

(e)

receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);

(f)

any agreement or option to re-acquire on asset if one of primary reasons for entering into such agreement or option is to raise finance;

(g)

any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution;

(h)

any redeemable preference share;

(i)

any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing; and

(j)

the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (i) (inclusive) above;

“Insolvency Event” means, in relation to a Finance Party:

(a)

any receiver, administrative receiver, administrator, liquidator, bank liquidator, bank administrator, compulsory manager or other similar officer is appointed in respect of that Finance Party or all or substantially all of its assets;

(b)

that Finance Party is subject to any event which has an analogous effect to any of the events specified in paragraph (a) above under the applicable laws of any jurisdiction; or

(c)

that Finance Party suspends making payments on all or substantially all of its debts or publicly announces an intention to do so;

“Interest Period” means, save as otherwise provided herein, in relation to an Unpaid Sum, any of those periods mentioned in clause 19.1 (Default Interest Periods);

“ITA” means the Income Tax Act 2007;

“L/C Commission Rate” means:

(a)

in relation to the portion of any Letter of Credit that is not Cash Collateralised, 2.85 per cent. per annum; and

(b)

in relation to any portion of any Letter of Credit that is Cash Collateralised, 0.30 per cent. per annum;

“Legal Reservations” means:

(a)

the principle that equitable remedies may be granted or refused at the discretion of a court and the limitation of enforcement by laws relating to insolvency, reorganisation and other laws generally affecting the rights of creditors;

(b)

the time barring of claims under applicable statutes of limitation, the possibility that an undertaking to assume liability for or indemnify a person against non-payment of stamp duty may be void and defences of set-off or counterclaim;

(c)

similar principles, rights and defences under the laws of any jurisdiction of incorporation of any Obligor; and

(d)

any other matters which are set out as qualifications or reservations as to matters of law of general application in any legal opinion delivered pursuant to clause 5 (Conditions of Utilisation) or clause 28 (Changes to the Obligors);

“Lender” means:

(a)

any Original Lender; and

(b)

any bank, financial institution, trust, fund or other entity which has become a Party in accordance with clause 27 (Changes to the Lenders),

which in each case has not ceased to be a Party in accordance with the terms of this agreement;

“Letter of Comfort” means a letter of comfort from Lloyd’s to the Account Party in substantially the form set out in schedule 5 (Letter of Comfort) or in such other form as may be agreed between the Facility Agent and the Account Party in order to procure the execution of that letter by Lloyd’s;

“Letter of Credit” means a letter of credit issued or to be issued pursuant to clause 6 (Utilisation) substantially in the form set out in schedule 4 (Form of Letter of Credit);

“LIBOR” means, in relation to any Unpaid Sum:

(a)

the applicable Screen Rate; or

(b)

(if no Screen Rate is available for the currency or Interest Period) the Base Reference Bank Rate,

as at 11.00 a.m. on the Quotation Day for the currency of that Unpaid Sum and for a period comparable to the Interest Period for that Unpaid Sum;

“Lloyd’s” means the Society incorporated by Lloyd’s Act 1871 by the name of Lloyd’s;

“Lloyd’s Deposit” has the meaning given in the Definitions Byelaw (No. 7 of 2005);

“Lloyd’s Syndicate Accounting Rules” means the Lloyd’s syndicate accounting rules within the meaning of the Definitions Byelaw (No. 7 of 2005);

“LMA” means the Loan Market Association;

“Majority Lenders” means a Lender or Lenders whose Commitments aggregate more than 66 ² / 3 per cent. of the Total Commitments (or, if the Commitments have been reduced to zero, aggregated more than 66 ² / 3 per cent. of the Commitments immediately prior to the reduction);

“Managed Syndicate” means:

(a)

any one of Syndicate 1084, Syndicate 1176, Syndicate 4000; and

(b)

any other Syndicate at Lloyd’s managed by the Managing Agent and through which a Chaucer Name underwrites business at Lloyd’s of more than ten per cent. of the aggregate underwriting risk in respect of all such Syndicates;

“Managing Agent” means Chaucer Syndicates Limited;

“Material Adverse Effect” means a material adverse effect on:

(a)

the business, operations, property, condition (financial or otherwise) or prospects of the Group (taken as a whole);

(b)

the ability of an Obligor to perform its material or payment obligations under the Finance Documents; or

(c)

the validity or enforceability of any Finance Document or the rights or remedies of the Finance Parties under the Finance Documents;

“Material Company” means, at any time:

(a)

an Obligor;

(b)

a member of the Group that holds shares in an Obligor; or

(c)

a Subsidiary of the Account Party which has profit before tax representing five per cent. or more of consolidated profit before tax of the Group or has gross assets representing five per cent. or more of the gross assets of the Group, calculated on a consolidated basis.

Compliance with the conditions set out in paragraph (c) above shall be determined by reference to the latest annual or semi-annual financial statements of that Subsidiary (consolidated in the case of a Subsidiary which itself has Subsidiaries) and the latest annual or semi-annual consolidated financial statements of the Group delivered pursuant to clause 23.1(a) (Financial Statements) or clause 23.1(b) (Financial Statements). However, if a Subsidiary has been acquired since the date as at which the latest audited consolidated financial statements of the Group were prepared, the financial statements shall be deemed to be adjusted in order to take into account the acquisition of that Subsidiary;

A report by the auditors of the Account Party that a Subsidiary is or is not a Material Company shall, in the absence of manifest error, be conclusive and binding on all Parties;

“Member” means a Corporate Member or a Name;

“Member’s Syndicate Premium Limit” means a Member’s syndicate premium limit within the meaning of paragraph 26 of the Membership Byelaw (No. 5 of 2005);

“Month” means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that:

(a)

if the numerically corresponding day is not a Business Day, that period shall end on the next Business Day in that calendar month in which that period is to end if there is one, or if there is not, on the immediately preceding Business Day; and

(b)

if there is no numerically corresponding day in the calendar month in which that period is to end, that period shall end on the last Business Day in that calendar month.

The above exceptions will only apply to the last Month of any period; “Monthly” shall be construed accordingly;

“Name” means an individual member of Lloyd’s;

“New Lender” has the meaning given to it in clause 7(c) (Extension of the Facility);

“Notice of Termination” means a notice of the kind defined in clause 8.1 (Availability and Termination Provisions);

“Obligor” means the Account Party or a Guarantor;

“Obligors’ Agent” means the Account Party, appointed to act on behalf of each Obligor in relation to the Finance Documents pursuant to clause 2.3 (Obligors’ Agent);

“Original Financial Statements” means:

(a)

in relation to the Account Party, the audited consolidated financial statements of the Group for the financial year ended 31 December 2009; and

(b)

in relation to each Original Guarantor, its audited financial statements for its financial year ended 31 December 2009;

“Original Obligor” means the Account Party or an Original Guarantor;

“Other FAL” means, in relation to Chaucer No. 2, its Funds at Lloyd’s other than Own FAL, Reinsurance FAL and FAL provided under this agreement;

“Outstandings” means, at any time, the aggregate of the maximum actual and contingent liabilities of the Lenders in respect of any outstanding Letter of Credit;

“Overdraft” means the £2,000,000 overdraft facility made available to the Account Party by Lloyds TSB Bank plc and which is documented by the Overdraft Letter;

“Overdraft Letter” means the overdraft facility letter between Lloyds TSB Bank plc and the Account Party dated on or about the date of this agreement, as amended, supplemented or extended from time to time, which documents the terms and conditions of a £2,000,000 overdraft facility made available to the Account Party;

“Own FAL” means, in relation to Chaucer No. 2, such part of its Funds at Lloyd’s as is provided by the Account Party or by Chaucer No. 2 by way of cash and/or investments and/or covenant and charge or otherwise as permitted by Lloyd’s from time, to time excluding the Reinsurance FAL;

“Party” means a party to this agreement;

“Permitted Encumbrance” means:

(a)

any Encumbrance entered into pursuant to the Finance Documents;

(b)

any Encumbrance granted with the prior consent of the Majority Lenders, provided the amount secured thereby is not increased;

(c)

any Encumbrance granted or subsisting under any deed or agreement required by Lloyd’s or by the Financial Services Authority to be executed or entered into by or on behalf of a Chaucer Name in connection with its insurance business at Lloyd’s;

(d)

any Encumbrance over or affecting any asset forming part of a trust fund (or, in the case of reinsurance recoveries or other things in action, whose proceeds will form part of a trust fund) which is held subject to the provisions of any deed or agreement of the kind referred to in paragraph (c) above, where that Encumbrance is created to secure obligations arising under a Syndicate Arrangement;

(e)

any Encumbrance over or affecting any asset acquired by a member of the Group after the date of this agreement and subject to which that asset is acquired, provided:

(i)

that Encumbrance was not created in contemplation of the acquisition of that asset by a member of the Group;

(ii)

the amount secured by that Encumbrance has not been increased in contemplation of, or since the date of, the acquisition of that asset by a member of the Group; and

(iii)

that Encumbrance is released or discharged within six months of the date of acquisition of that asset;

(f)

any Encumbrance over or affecting any asset of any company which becomes a member of the Group after the date of this agreement, where that Encumbrance is created prior to the date on which that company becomes a member of the Group, provided:

(i)

that Encumbrance was not created in contemplation of the acquisition of that company;

(ii)

the amount secured by that Encumbrance has not been increased in contemplation of, or since the date of, the acquisition of that company; and

(iii)

such Encumbrance is released or discharged within six months of that company becoming a member of the Group;

(g)

any netting or set-off arrangement entered into by any member of the Group in the normal course of its banking arrangements for the purpose of netting debit and credit balances;

(h)

any title transfer or retention of title arrangement entered into by any member of the Group in the normal course of its trading activities on the counterparty’s standard or usual terms;

(i)

any lien arising by operation of law and in the normal course of business, provided that lien is discharged within ten days of the date on which it arises;

(j)

any Encumbrance securing amounts outstanding under the Existing Facility Agreement, provided such Encumbrance is irrevocably released on or before the first Utilisation Date;

(k)

any Encumbrance that is registered at Companies House at the date of this agreement in respect of any Obligor; and

(l)

any other Encumbrance securing Financial Indebtedness, provided the amount secured by the aggregate of any such Encumbrances does not at any time exceed £500,000;

“Permitted

Financial Indebtedness” means Financial Indebtedness:

(a)

arising under the Existing Facility Agreement, provided such Financial Indebtedness is discharged in full on or before the first Utilisation Date;

(b)

arising under the Finance Documents;

(c)

arising under the Overdraft Letter provided that the principal amount borrowed under the Overdraft Letter does not exceed £2,000,000 (or its equivalent);

(d)

arising under any Syndicate Arrangement;

(e)

arising under the Subordinated Loan Notes;

(f)

approved in writing by the Majority Lenders; and

(g)

other Indebtedness for Borrowed Money of members of the Group not exceeding in aggregate £500,000;

“Proportion” means, in relation to a Lender:

(a) the proportion borne by its Commitment to the Total Commitments (or, if the Total Commitments are then zero, by its Commitment to the Total Commitments immediately prior to their reduction to zero); and

(b) in respect of any Letter of Credit and save as otherwise provided in this agreement, the proportion (expressed as a percentage) borne by that Lender’s Available Commitment to the Available Facility immediately prior to the issue of that Letter of Credit;

“Qualifying Lender” has the meaning given to it in clause 13 (Tax Gross-Up and Indemnities);

“Quotation Day” means, in relation to any period for which an interest rate is to be determined, the first day of that period;

“Realistic Disaster Scenario” means any realistic disaster scenario presented in a business plan prepared in relation to a Managed Syndicate under paragraph 35 of the Underwriting Byelaw (No. 2 of 2003) which shows the potential impact upon a Managed Syndicate of a catastrophic event, which for the avoidance of doubt, shall not be taken to include any Extreme Stress Scenario which may be requested to be covered by Lloyd’s from time to time;

“Receiver” means a receiver or receiver and manager, or administrative receiver, administrator or trustee (as the context requires) or other similar officer of the whole or any part of the Charged Property;

“Reinsurance FAL” means, in relation to Chaucer No. 2, any letter or letters of credit to be provided to Lloyd’s on behalf of the Account Party and/or Chaucer No. 2 and which are supported by a reinsurance contract;

“Related Fund” in relation to a fund (the “First Fund” ), means a fund which is managed or advised by the same investment manager or adviser as the First Fund or, if it is managed by a different investment manager or adviser, a fund whose investment manager or adviser is an Affiliate of the investment manager or adviser of the First Fund;

“Relevant Interbank Market” means the London interbank market;

“Repeating Representations” means each of the representations set out in clauses 22.1 (Status) to 22.6 (Legality, Validity and Enforceability) (inclusive), clauses 22.10 (No Filing or Stamp Taxes) to 22.13 (Audited Financial Statements) (inclusive), clauses 22.15 (No Proceedings Pending or Threatened) to 22.18 (Shares) (inclusive) and clause 22.21 (No Breach of Borrowing Restrictions);

“Representative” means any delegate, agent, manager, administrator, nominee, attorney, trustee or custodian;

“Resignation Letter” means a letter substantially in the form set out in schedule 9 (Form of Resignation Letter);

“Screen Rate” means, in relation to LIBOR, the British Bankers’ Association Interest Settlement Rate for the relevant currency and period displayed on the appropriate page of the Reuters screen. If the agreed page is replaced or service ceases to be available, the Facility Agent may specify another page or service displaying the appropriate rate after consultation with the Account Party and the Lenders;

“Secured Obligations” means all present and future obligations at any time due, owing or incurred by any Obligor to any Secured Party under the Guaranteed Documents, both actual and contingent and whether incurred solely or jointly and as principal or surety or in any other capacity;

“Secured Party” means the Security Agent, any Receiver or Delegate, or any other Guaranteed Finance Party;

“Security” means the security granted under or pursuant to the Security Documents;

“Security Documents” means each of the documents listed as being a Security Document in part 1 of schedule 2 (Conditions Precedent to Initial Utilisation) together with any other document entered into by any Obligor creating or expressed to create any Encumbrance over all or any part of its assets in respect of the obligations of any of the Obligors under any of the Guaranteed Documents;

“Specified Account” means the interest-bearing account in the name of the Account Party held with the Security Agent, at the Security Agent’s branch at 39 Threadneedle Street, London EC2R 8AU, with account number 2677355, sort code 30-00-09 and designated LTSB re Chaucer Holdings plc;

“ Sterling ” and “ £ ” means the lawful currency of the United Kingdom;

“Subordinated Funds at Lloyd’s ” has the meaning given to it in clause 4.1 (Ranking of Funds at Lloyd’s);

“Subordinated Loan Notes” means:

(a)

the 30 year subordinated loan notes issued by the Account Party on 16 November 2004 in a principal amount of €12,000,000 (or its equivalent in another currency); and

(b)

the $50,000,000 subordinated loan notes issued by the Account Party on 21 September 2006 due 2036;

“Subsidiary” means a subsidiary undertaking within the meaning of section 1162 of the Companies Act 2006;

“Substitution Letter” a letter dated on or about the date of this agreement from Lloyd’s to the Account Party in the form agreed between the Facility Agent and the Account Party;

“Syndicate” means a group of Members or a single Corporate Member underwriting insurance business at Lloyd’s through the agency of a managing agent to which a particular syndicate number is assigned by the Council of Lloyd’s;

“Syndicate Allocated Capacity” means, in relation to any Syndicate, a reference to the aggregate of the Member’s Syndicate Premium Limits of all the members for the time being that Syndicate;

“Syndicate Arrangement” means any arrangement (whether pursuant to guarantees, letters of credit or otherwise) entered into by a managing agent at Lloyd’s on behalf of the Chaucer Names, together with the other members of a Syndicate with respect to financing or reinsurance for the purposes of or in connection with the underwriting business carried on by all such members of that Syndicate;

“Tax” means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same);

“Term” means, save as otherwise provided in this agreement:

(a)

in relation to any Letter of Credit, the period from its Commencement Date until its Expiry Date; and

(b)

in relation to an Unpaid Sum, any Interest Period;

“Third Party Syndicate” means a syndicate at Lloyd’s:

(a)

which is managed by the Third Party Syndicate Managing Agent; or

(b)

through which the Chaucer Name underwrites business at Lloyd’s,

and which, in each case, is not a Managed Syndicate;

“Third Party Syndicate Managing Agent” means the Managing Agent or a limited liability company which is controlled by the Account Party;

“Total Commitments” means, at any time, the aggregate of the Lenders’ Commitments, being £90,000,000 at the date of this agreement;

“Transfer Certificate” means a certificate substantially in the form set out in schedule 6 (Form of Transfer Certificate) or any other form agreed between the Facility Agent and the Account Party;

“Transfer Date” means, in relation to an assignment or a transfer, the later of:

(a)

the proposed Transfer Date specified in the relevant Assignment Agreement or Transfer Certificate; and

(b)

the date on which the Facility Agent executes the relevant Assignment Agreement or Transfer Certificate;

“Uncollateralised Outstandings” means the Outstandings in respect of which the Account Party has not provided funds by way of Cash Collateral to the Security Agent;

“Unpaid Sum” means any sum due and payable but unpaid by an Obligor under the Finance Documents;

“ US Dollars ” and “ $ ” means the lawful currency of the USA;

“Utilisation” means a utilisation of the Facility;

“Utilisation Date” means the date of a Utilisation, being the date on which the relevant Letter of Credit is to be issued (or, as applicable, amended);

“Utilisation Request” means a notice substantially in the form set out in schedule 3 (Requests);

“VAT” means value added tax as provided for in the Value Added Tax Act 1994 and any other tax of a similar nature; and

“Voluntary Collateralisation Date” means, in any year, any of 1 January, 31 March, 30 June and 30 September or, if such date is not a Business Day, the next Business Day.

1.2	Construction

(a)

Unless a contrary indication appears, any reference in this agreement to:

(i)

the “Facility Agent” , the “Arrangers” , the “Security Agent” , any “ Secured Party ”, any “Finance Party” , any “Lender” , the “Overdraft Provider” , any “Obligor” or any “Party” or any other person shall be construed so as to include its successors in title, permitted assigns and permitted transferees;

(i)

“amendment” includes any amendment, supplement, variation, novation, modification, replacement or restatement and “amend” , “amending” and “amended” shall be construed accordingly;

(ii)

“assets” includes present and future properties, revenues and rights of every description;

(iii)

a “Finance Document” or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended, novated, supplemented, extended or restated (however fundamentally) (excluding any amendment, novation, supplement, extension or restatement made contrary to any provision of the Finance Documents);

(iv)

“including” means including without limitation and “includes” and “included” shall be construed accordingly;

(v)

“indebtedness” includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;

(vi)

a “person” includes any individual, firm, company, corporation, government, state or agency of a state or any association, trust, joint venture, consortium or partnership (whether or not having separate legal personality) of two or more of the foregoing;

(vii)

a “regulation” includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or of any regulatory, self-regulatory or other authority or organisation;

(viii)

“controlled” for the purposes of the defined term “Third Party Syndicate Managing Agent” means that the Account Party:

(A)

has the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to cast, or control the casting of, more than 50 per cent. of the maximum number of votes that might be cast at a general meeting of the relevant company; or

(B)

holds beneficially 50 per cent. or more of the issued share capital of such a company (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital);

(ix)

a provision of law (including any by-law) is a reference to that provision as amended or re-enacted; and

(x)

a time of day is a reference to London time.

(b)

Clause and schedule headings are for ease of reference only.

(c)

Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this agreement.

(d)

A Default is “continuing” if it has not been remedied or waived.

1.3	Third Party Rights

(a)

Unless expressly provided to the contrary in a Finance Document a person who is not a Party has no right under the Contracts (Rights of Third Parties) Act 1999 (the “Third Parties Act” ) to enforce or to enjoy the benefit of any term of this agreement.

(b)

Notwithstanding any term of any Finance Document, the consent of any person who is not a Party is not required to rescind or vary this agreement at any time.

2.	THE FACILITY

2.1	The Facility

Subject to the terms of this agreement, the Lenders make available to the Account Party a sterling letter of credit facility in an aggregate principal amount equal to the Total Commitments.

2.2	Finance Parties’ Rights and Obligations

(a)

The obligations of each Finance Party under the Finance Documents are several. Failure by a Finance Party to perform its obligations under the Finance Documents does not affect the obligations of any other Party under the Finance Documents. No Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents.

(b)

The rights of each Finance Party under or in connection with the Finance Documents are separate and independent rights and any debt arising under the Finance Documents to a Finance Party from an Obligor shall be a separate and independent debt.

(c)

A Finance Party may, except as otherwise stated in the Finance Documents, separately enforce its rights under the Finance Documents.

2.3	Obligors’ Agent

(a)

Each Guarantor by its execution of this agreement or an Accession Letter irrevocably appoints the Account Party to act on its behalf as its agent in relation to the Finance Documents and irrevocably authorises:

(i)

the Account Party on its behalf to supply all information concerning itself contemplated by this agreement to the Finance Parties and to give all notices and instructions, to execute on its behalf any Accession Letter, to make such agreements and to effect the relevant amendments, supplements and variations (in each case, however fundamental) capable of being given, made or effected by any Guarantor (notwithstanding that they may increase the Guarantor’s obligations or otherwise affect the Guarantor) and to give confirmation as to continuation of surety obligations, without further reference to or the consent of that Guarantor; and

(ii)

each Finance Party to give any notice, demand or other communication to that Guarantor pursuant to the Finance Documents to the Account Party,

and in each case the Guarantor shall be bound as though the Obligor itself had given the notices and instructions (including, without limitation, any Utilisation Requests) or executed or made the agreements or effected the amendments, supplements or variations, or received the relevant notice, demand or other communication.

(b)

Every act, omission, agreement, undertaking, settlement, waiver, amendment, supplement, variation, notice or other communication given or made by the Obligors’ Agent or given to the Obligors’ Agent under any Finance Document on behalf of a Guarantor or in connection with any Finance Document (whether or not known to any Guarantor and whether occurring before or after such Guarantor became a Guarantor under any Finance Document) shall be binding for all purposes on that Guarantor as if that Guarantor had expressly made, given or concurred with it. In the event of any conflict between any notices or other communications of the Obligors’ Agent and any Guarantor, those of the Obligors’ Agent shall prevail.

3.	PURPOSE

3.1	Purpose and Application

The Facility is made available to the Account Party for the purpose of providing one or more Letters of Credit to be used as Funds at Lloyd’s to support and stand security for the general business at Lloyd’s of Chaucer No. 2 for the 2010, 2011 and 2012 years of account and each prior open year of account and, accordingly, the Account Party shall ensure that Chaucer No. 2 will apply all amounts raised by it under this agreement towards the satisfaction of that purpose.

3.2	Monitoring

No Finance Party is bound to monitor or verify the application of any amount raised pursuant to this agreement.

4.	RANKING AND APPLICATION OF FUNDS AT LLOYD’S

4.1	Ranking of Funds at Lloyd’s

It is acknowledged by the Parties that, subject to the duties of Lloyd’s as trustee of all Funds at Lloyd’s and to any conditions and requirements prescribed under the Membership Byelaw (No. 5 of 2005) which are for the time being applicable, the Facility will provide Funds at Lloyd’s for Chaucer No. 2 for the 2010, 2011 and 2012 years of account and each prior open year of account which, to the extent that the Account Party is able to procure the same upon and subject to the terms of this agreement, shall rank senior to all Funds at Lloyd’s of Chaucer No. 2 constituted from time to time by Own FAL, Reinsurance FAL and Other FAL (together the “Subordinated Funds at Lloyd’s” ).

4.2	Application of Funds at Lloyd’s

The Account Party shall use all reasonable endeavours to ensure that the Subordinated Funds at Lloyd’s of Chaucer No. 2 are applied or otherwise utilised to the fullest extent possible before any payment is requested under a Letter of Credit.

5.	CONDITIONS OF UTILISATION

5.1	Initial Conditions Precedent

The Account Party may only deliver a Utilisation Request if the Facility Agent has received all of the documents and other evidence listed in part 1 of schedule 2 (Conditions Precedent) in form and substance satisfactory to the Facility Agent. The Facility Agent shall notify the Account Party and the Lenders promptly upon being so satisfied.

5.2	Further Conditions Precedent

Subject to clause 5.1 (Initial Conditions Precedent), the Lenders will only be obliged to comply with clause 6.4 (Each Lender’s Participation in Letters of Credit) if, on the date of the Utilisation Request and on the proposed Utilisation Date:

(a)

no Default is continuing or would result from the issue of the proposed Letter of Credit; and

(b)

the Repeating Representations to be made by each Obligor are true in all material respects.

6.	UTILISATION

6.1	Delivery of a Utilisation Request

The Account Party may utilise the Facility by delivery to the Facility Agent of a duly completed Utilisation Request no later than five Business Days before the proposed Utilisation Date (or such shorter period as the Facility Agent may agree).

6.2	Completion of a Utilisation Request

Each Utilisation Request is irrevocable and will not be regarded as having been duly completed unless:

(a)

the proposed Utilisation Date is a Business Day falling on or before 31 December 2011;

(b)

the proposed Term of the Letter of Credit is not less than four years and the Expiry Date of the Letter of Credit is no later than 31 December 2015;

(c)

the proposed Commencement Date of the Letter of Credit is a Business Day falling within the Availability Period;

(d)

the Letter of Credit is substantially in the form set out in schedule 4 (Form of Letter of Credit);

(e)

the beneficiary of the Letter of Credit is Lloyd’s;

(f)

the currency and amount of the Letter of Credit comply with clause 6.3 (Currency and Amount); and

(g)

as a result of the proposed Utilisation, no more than three Letters of Credit would be outstanding.

6.3	Currency and Amount

(a)

The currency specified in a Utilisation Request must be sterling.

(b)

The amount of the proposed Letter of Credit is:

(i)

a minimum of £250,000 or, if less, the Available Facility; and

(ii)

less than or equal to the Available Facility.

6.4	Each Lender’s Participation in Letters of Credit

(a)

If the conditions set out in this agreement have been met, each Lender shall participate in each Letter of Credit through its Facility Office.

(b)

Save as otherwise provided in this agreement, the amount of each Lender’s participation in each Letter of Credit issued in accordance with this clause 6 will be equal to the proportion borne by its Available Commitment to the Available Facility immediately prior to the issue of that Letter of Credit.

6.5	Applied Letters of Credit

If, notwithstanding the provisions of clause 4.2 (Application of Funds at Lloyd’s), any sum is paid under a Letter of Credit (an “Applied Letter of Credit” ) which is greater than any sum which would have been paid had Subordinated Funds at Lloyd’s been applied prior to the Funds at Lloyd’s provided pursuant to this Facility in accordance with clause 4.2 (Application of Funds at Lloyd’s) (the difference between the sum paid under the Applied Letter of Credit and the sum which should have been paid being the “Overpayment” ), the Account Party shall, to any extent necessary to facilitate the indemnification of the Lenders under clause 10.1 (Account Party’s Indemnity to the Lenders), use all reasonable endeavours to procure the release by Lloyd’s of the Subordinated Funds at Lloyd’s and, upon the Lenders being indemnified in full thereunder (but subject to the Lenders receiving confirmation in writing from the Account Party that no Default is continuing):

(a)

a supplementary Letter of Credit will be issued by the Facility Agent on behalf of the Lenders in an amount equal to the Overpayment having an Expiry Date which is the same as that of the Applied Letter of Credit; or

(b)

the Applied Letter of Credit will be amended by increasing the amount thereof by an amount equal to the Overpayment.

6.6	Completion of Letters of Credit

The Facility Agent is authorised to arrange for the issue or amendment of any Letter of Credit pursuant to clause 6.2 (Completion of a Utilisation Request) or clause 6.5 (Applied Letters of Credit) by:

(a)

completing the Commencement Date and the Expiry Date of that Letter of Credit;

(b)

(in the case of an amendment increasing or decreasing the amount thereof) amending that Letter of Credit in such manner as Lloyd’s may agree;

(c)

completing schedule 1 to that Letter of Credit with the percentage participation of each Lender as allocated pursuant to the terms of this agreement;

(d)

executing that Letter of Credit and following such execution delivering that Letter of Credit to Lloyd’s on the Utilisation Date; and

(e)

issuing such formal notification as Lloyd’s may require confirming that the Letter of Credit has been issued or amended.

7.	EXTENSION OF THE FACILITY

(a)

The Account Party may, on one occasion only during the life of the Facility, request that the Total Commitments are increased by up to an additional £10,000,000 (the “Facility Extension Amount” ) if the remaining provisions of this clause 7 are complied with.

(b)

The Account Party may confirm that one or more Lenders or any other entity referred to in paragraph (c) below (each a “Facility Extension Lender” ) have agreed to participate in the Facility Extension by delivering to the Facility Agent, within the Availability Period, a Facility Extension Notice duly signed by those parties that have agreed to participate in the Facility Extension. Upon receipt of Facility Extension Notice, the Facility Agent shall notify the Lenders of the name of any Facility Extension Lender who is a New Lender.

(c)

The Account Party shall offer the existing Lenders at the relevant time the opportunity to provide a proportion of the Facility Extension Amount. If no, or insufficient, Lenders give a notice of an intention to provide that Facility Extension Amount (an “Existing Lender Notice” ) on terms satisfactory to the Account Party within any time limit specified by the Account Party in that offer to the Lenders (being not less than ten Business Days) then, subject to compliance with the terms of this clause 7 (Extension of the Facility), any other bank, financial institution, trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets (a “New Lender” ) may provide or participate in that Facility Extension provided that such New Lender is an Approved Credit Institution.

(d)

A New Lender shall accede as a Lender in accordance with clause 27.5 (Procedure for Transfer or Accession).

8.	TERMINATION OF LETTERS OF CREDIT

8.1	Availability and Termination Provisions

The Finance Parties agree that each Letter of Credit will continue in effect until such time as a notice is given in accordance with the terms of clause 8.2 (Notice of Termination) and that accordingly such Letter of Credit will expire on the later of the date specified in the notice and:

(a)

in relation to any Letter of Credit that the parties intend to cover the 2011 year of account (and each prior open year of account but no subsequent year of account), 31 December 2014; and

(b)

in relation to any Letter of Credit that the parties intend to cover the 2012 year of account (and each prior open year of account but no subsequent year of account), 31 December 2015.

8.2	Notice of Termination

The parties hereto agree that, in respect of every Letter of Credit issued in accordance with this Agreement, the Facility Agent shall, in respect of:

(a)

the 2010 year of account and 2011 year of account (and each prior open year of account but no subsequent year of account) no earlier than 1 October 2010 and no later than 31 December 2010, give a Notice of Termination to Lloyd’s so that each such Letter of Credit expires on 31 December 2014; and

(b)

the 2012 year of account (and each prior open year of account but no subsequent year of account) no earlier than 1 October 2011 and no later than 31 December 2011, give a Notice of Termination to Lloyd’s so that each such Letter of Credit expires on 31 December 2015,

and upon such expiry, the maximum actual and contingent liabilities of the Finance Parties thereunder are reduced to zero).

9.	NOTIFICATION

9.1	Letters of Credit

Not less than one Business Day before the first day of a Letter of Credit, the Facility Agent shall notify each Lender of:

(a)

the proposed length of the relevant Term; and

(b)

the aggregate principal amount,

of that Letter of Credit allocated to that Lender pursuant to this agreement.

9.2	Demands under a Letter of Credit

If a demand is made under a Letter of Credit, the Facility Agent shall promptly make demand upon the Account Party in accordance with this agreement and notify the Lenders.

10.	ACCOUNT PARTY’S LIABILITIES IN RELATION TO LETTERS OF CREDIT

10.1	Account Party’s Indemnity to the Lenders

The Account Party shall irrevocably and unconditionally as a primary obligation indemnify each Finance Party, within 3 Business Days of a written demand by the Facility Agent, against:

(a)

any sum paid or due and payable by that Finance Party under or in connection with any Letter of Credit; and

(b)

all liabilities, costs (including, without limitation, any costs incurred in funding any amount which falls due from that Finance Party under or in connection with any Letter of Credit), claims, losses and expenses which that Finance Party may at any time incur or sustain in connection with any Letter of Credit (other than as a result of its gross negligence or wilful misconduct).

10.2	Preservation of Rights

The obligations of the Account Party under this clause 10 will not be affected by any act, omission, matter or thing which, but for this clause, would reduce, release or prejudice any of its obligations under this clause including (without limitation and whether or not known to it or any other person):

(a)

any time, waiver or consent granted to, or composition with, any Obligor, any beneficiary under a Letter of Credit or any other person;

(b)

the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor or any member of the Group;

(c)

the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Obligor, any beneficiary under a Letter of Credit or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security;

(d)

any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor, any beneficiary under a Letter of Credit or any other person;

(e)

any amendment (however fundamental) or replacement of a Finance Document, any Letter of Credit or any other document or security;

(f)

any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document, any Letter of Credit or any other document or security; or

(g)

any insolvency or similar proceedings.

10.3	Settlement Conditional

Any settlement or discharge between the Account Party and the Facility Agent or any Lender shall be conditional upon no security or payment to the Facility Agent or any Lender by the Account Party, or any other person on behalf of the Account Party, being avoided or reduced by virtue of any laws relating to bankruptcy, insolvency, liquidation or similar laws of general application and, if any such security or payment is so avoided or reduced, the Facility Agent shall be entitled to recover the value or amount of such security or payment from the Account Party subsequently as if such settlement or discharge had not occurred.

10.4	Right to make Payments under Letters of Credit

(a)

Each Lender shall be entitled to make any payment in accordance with the terms of a Letter of Credit without any reference to or further authority from the Account Party, the other Finance Parties or any other investigation or enquiry. The Account Party irrevocably authorises the Lenders to comply with any demand under a Letter of Credit which appears on its face to be in order (a “demand” ).

(b)

The obligations of the Account Party under this clause 10 will not be affected by:

(i)

the sufficiency, accuracy or genuineness of any demand or other document; or

(ii)

any incapacity of, or limitation on the powers of, any person signing a demand or other document.

11.	COLLATERALISATION AND CANCELLATION

11.1	Cancellation of the Facility

The Account Party may, by giving to the Facility Agent not less than five Business Days’ prior notice to that effect, cancel the whole or any part (being a minimum amount of £2,500,000 and an integral multiple of £500,000) of the Available Facility. Any such cancellation shall reduce the Available Commitment and Commitment of each Lender rateably.

11.2	Mandatory Cash Collateralisation of Letters of Credit

(a)

On or prior to the first Utilisation Date, the Account Party shall procure, in accordance with the condition precedent at paragraph 5.1, Part 1 of Schedule 2 (Conditions Precedent), that the liability of the Lenders under any Letter of Credit is Cash Collateralised so that the aggregate Collateralised Outstandings in respect of all Letters of Credit are (and shall remain) no less than £10,000,000.

(b)

On or prior to 24 November 2011, the Account Party shall procure that either:

(i)

the aggregate Outstandings are reduced; or

(ii)

the liability of the Lenders under any Letter of Credit is Cash Collateralised in minimum amounts of £1,000,000 (and in integral multiples of £1,000,000 thereafter),

so that the aggregate Uncollateralised Outstandings in respect of all Letters of Credit are (and shall remain) no greater than £50,000,000.

11.3	Voluntary Cash Collateralisation of Letters of Credit

(a)

The Account Party may, by giving to the Facility Agent not less than five Business Days’ prior notice to that effect, procure that, on any Voluntary Collateralisation Date, the liability of the Lenders under any Letter of Credit is Cash Collateralised in minimum amounts of £1,000,000 (and in integral multiples of £1,000,000 thereafter) up to a maximum aggregate amount of 50 per cent. of the Outstandings at any time. On receipt by the Facility Agent of such notice, the Facility Agent shall promptly notify the Lenders of the Account Party’s intention to provide Cash Collateral.

(b)

On receipt by the Facility Agent of Cash Collateral in accordance with paragraph (a) above or at any time where the Account Party has provided Cash Collateral to the Facility Agent in respect of any Letter of Credit pursuant to the terms of this agreement, the Letter of Credit Commission Rate on the maximum actual and contingent liabilities of the Lenders under the relevant Letter of Credit in respect of which Cash Collateral has been provided by the Account Party shall fall to 0.30 per cent. per annum at that time.

(c)

For so long as no Event of Default has occurred which is continuing, the Account Party may give the Facility Agent not less than five Business Days’ notice of its intention to procure that on any Voluntary Collateralisation Date the Account Party shall have the right to withdraw any Cash Collateral provided in accordance with paragraph (a) above (whereupon it shall do so). At any time when the Account Party has withdrawn Cash Collateral in respect of any Letter of Credit pursuant to the terms of this agreement, the Letter of Credit Commission Rate on the maximum actual and contingent liabilities of the Lenders under all Letters of Credit in respect of the Uncollateralised Outstandings shall immediately be increased to 2.85 per cent. per annum at that time.

11.4	Change of control

(a)

If any person or group of persons acting in concert gains control of the Account Party:

(i)

the Account Party shall promptly notify the Facility Agent upon becoming aware of that event;

(ii)

the Lenders shall not thereafter be obliged to participate in or issue any further Letter of Credit;

(iii)

the Facility Agent shall, if so instructed by all the Lenders, by not less than five Business Days’ notice to the Account Party, cancel the Total Commitments and declare all amounts (together with any accrued interest, commission and fees) accrued under the Finance Documents immediately due and payable;

(iv)

the Account Party shall procure that on such date as the Facility Agent shall have specified (acting on the instructions of all the Lenders) the liabilities of the Lenders under or in respect of each Letter of Credit is reduced to zero or otherwise secured by providing Cash Collateral in an amount equal to the aggregate Outstandings; and

(v)

the Facility Agent shall give a Notice of Termination to Lloyd’s in respect of each Letter of Credit for which the Outstandings are reduced to zero in accordance with this clause 11.4.

(b)

For the purpose of this clause 11.4, “control” means:

(i)

the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to:

(A)

cast, or control the casting of, more than one half of the maximum number of votes that might be cast at a general meeting of the Account Party; or

(B)

appoint or remove all, or the majority, of the directors or other equivalent officers of the Account Party; or

(C)

give directions with respect to the operating and financial policies of the Account Party which the directors or other equivalent officers of the Account Party are obliged to comply with; or

(ii)

the holding beneficially of more than one half of the issued share capital of the Account Party (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital).

(c)

For the purpose of this clause 11.4, “acting in concert” means, a group of persons who, pursuant to an agreement or understanding (whether formal or informal), actively co-operate, through the acquisition by any of them, either directly or indirectly, of shares in the Account Party, to obtain or consolidate control of the Account Party.

11.5	Notice of Removal of a Lender

If:

(a)

any sum payable to any Lender by an Obligor is required to be increased pursuant to clause 13.2 (Tax Gross-up); or

(b)

any Lender claims indemnification from the Account Party under clause 13.3 (Tax Indemnity) or clause 14 (Increased Costs); or

(c)

any Lender is a Defaulting Lender

the Account Party may, whilst such circumstance giving rise to the requirement or indemnification continues or (as the context requires) whilst the relevant Lender is a Defaulting Lender, give the Facility Agent at least five Business Days’ notice (which notice shall be irrevocable) of its intention to procure that the liabilities of that Lender under each Letter of Credit are reduced to zero and/or provide Cash Collateral in an amount equal to such Lender’s Proportion of each Letters of Credit.

Upon receipt by the Facility Agent of such notice, the Commitment of the relevant Lender shall immediately be reduced to zero and, on the last day of each Term which ends after the Account Party has given any such notice (or, if earlier, the date specified by the Account Party in that notice) the Account Party shall procure either that that Lender’s Proportion of each Letter of Credit be reduced to zero (by reduction of the amount of that Letter of Credit in an amount equal to that Lender’s Proportion) or that it is otherwise secured by providing Cash Collateral to the Facility Agent in an amount equal to that Lender’s Outstandings.

11.6	No Further Availability

A Lender whose total aggregate liabilities under each Letter of Credit have been reduced to zero or Cash Collateralised pursuant to clause 11.5 (Notice of Removal of a Lender) or have been Cash Collateralised pursuant to clause 11.3 (Voluntary Cash Collateralisation of Letters of Credit) shall not be obliged to participate in any Letter of Credit issued on or after the date upon which the Facility Agent receives the Account Party’s notice of its intention to procure the repayment of or provide Cash Collateral in respect of such Lender’s share of the Outstandings, and such Lender’s Available Commitment shall be reduced to zero.

11.7	No Other Cancellation

The Available Facility may be cancelled, and the liabilities of each Lender under any Letter of Credit may be reduced to zero, only at the times and in the manner expressly provided for herein.

11.8	Reduction of Liabilities to Zero

For the purposes of this Clause 11 and all other purposes of this agreement, each Lender’s liability under any Letter of Credit shall be deemed to be reduced to zero upon the determination by Lloyd’s (or other trustee for the time being) of the trusts created by the Corporate Member’s Deed in respect of that Letter of Credit and the return to each Lender of that Letter of Credit for cancellation.

12.	COMMISSION AND FEES

12.1	Letter of Credit Commission

The Account Party shall, in respect of each Letter of Credit requested by it, pay to the Facility Agent for the account of each Lender (for distribution in proportion to each Lender’s Proportion of such Letter of Credit) a letter of credit commission in Sterling at the relevant L/C Commission Rate on the Outstandings under the relevant Letter of Credit. Such letter of credit commission shall be paid in arrears in respect of each successive period of three months (or such shorter period as shall end on the relevant Expiry Date) which begins during the Term of the relevant Letter of Credit, the first such payment to be made on the date falling three months after the Utilisation Date for such Letter of Credit and thereafter on the last day of each successive three month period.

12.2	Commitment Fee

(a)

The Account Party shall pay to the Facility Agent (for the account of each Lender) a commitment fee in Sterling computed at the rate of 1.14 per cent. per annum on that Lender’s Available Commitment under the Facility for the Availability Period.

(b)

The accrued commitment fee is payable quarterly in arrears on the last day of each successive period of three Months which ends during the relevant Availability Period, on the last day of a Availability Period and on any cancelled amount of the Lender’s Commitment at the time the cancellation is effective.

12.3	Participation Fee

The Account Party shall pay to the Facility Agent (for the account of each Original Lender) a participation fee in the amount and at the time agreed in a Fee Letter.

12.4	Agency Fee

The Account Party shall pay to the Facility Agent and the Security Agent an agency fee in the amount and at the times agreed in a Fee Letter.

13.	TAX GROSS-UP AND INDEMNITIES

13.1	Definitions

(a)

In this agreement:

“Protected Party” means a Finance Party which is or will be subject to any liability, or required to make any payment, for or on account of Tax in relation to a sum received or receivable (or any sum deemed for the purposes of Tax to be received or receivable) under a Finance Document;

“Qualifying Lender” means:

(i)

a Lender (other than a Lender within paragraph (ii) below) which is beneficially entitled to interest payable to that Lender in respect of an advance under a Finance Document and is:

(A)

a Lender:

(aa)

which is a bank (as defined for the purpose of section 879 of the ITA) making an advance under a Finance Document; or

(bb)

in respect of an advance made under a Finance Document by a person that was a bank (as defined for the purpose of section 879 of the ITA) at the time that that advance was made,

and which is within the charge to United Kingdom corporation tax as respects any payments of interest made in respect of that advance; or

(B)

a Treaty Lender; or

(ii)

a building society (as defined for the purpose of section 880 of the ITA) making an advance under a Finance Document;

“Tax Credit” means a credit against, relief or remission for, or repayment of any Tax;

“Tax Deduction” means a deduction or withholding for or on account of Tax from a payment under a Finance Document;

“Tax Payment” means an increased payment made by an Obligor to a Finance Party under clause 13.2 (Tax Gross-Up) or a payment under clause 13.3 (Tax Indemnity);

“Treaty Lender” means a Lender which:

(i)

is treated as a resident of a Treaty State for the purposes of the Treaty; and

(ii)

does not carry on a business in the United Kingdom through a permanent establishment with which that Lender’s participation in the Loan is effectively connected; and

“Treaty State” means a jurisdiction having a double taxation agreement (a “Treaty” ) with the United Kingdom which makes provision for full exemption from tax imposed by the United Kingdom on interest.

(b)

Unless a contrary indication appears, in this clause 13 a reference to “determines” or “determined” means a determination made in the absolute discretion of the person making the determination.

13.2	Tax Gross-Up

(a)

Each Obligor shall make all payments to be made by it without any Tax Deduction, unless a Tax Deduction is required by law.

(b)

The Account Party shall promptly upon becoming aware that an Obligor must make a Tax Deduction (or that there is any change in the rate or the basis of a Tax Deduction) notify the Facility Agent accordingly. Similarly, a Lender shall notify the Facility Agent on becoming so aware in respect of a payment payable to that Lender. If the Facility Agent receives such notification from a Lender it shall notify the Account Party and that Obligor.

(c)

If a Tax Deduction is required by law to be made by an Obligor, the amount of the payment due from that Obligor shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required.

(d)

A payment shall not be increased under paragraph (c) above by reason of a Tax Deduction on account of Tax imposed by the United Kingdom if on the date on which the payment falls due:

(i)

the payment could have been made to the relevant Lender without a Tax Deduction if the Lender had been a Qualifying Lender, but on that date that Lender is not or has ceased to be a Qualifying Lender other than as a result of any change after the date it became a Lender under this agreement in (or in the interpretation, administration, or application of) any law or Treaty, or any published practice or published concession of any relevant taxing authority; or

(ii)

the relevant Lender is a Treaty Lender and the Obligor making the payment is able to demonstrate that the payment could have been made to the Lender without the Tax Deduction had that Lender complied with its obligations under paragraph (g) below.

(e)

If an Obligor is required to make a Tax Deduction, that Obligor shall make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed and in the minimum amount required by law.

(f)

Within 30 days of making either a Tax Deduction or any payment required in connection with that Tax Deduction, the Obligor making that Tax Deduction shall deliver to the Facility Agent for the Finance Party entitled to the payment a statement under section 975 of the ITA or other evidence reasonably satisfactory to that Finance Party that the Tax Deduction has been made or (as applicable) any appropriate payment paid to the relevant taxing authority.

(g)

A Treaty Lender and each Obligor which makes a payment to which that Treaty Lender is entitled shall co-operate in completing any procedural formalities necessary for that Obligor to obtain authorisation to make that payment without a Tax Deduction.

13.3	Tax Indemnity

(a)

The Account Party shall (within three Business Days of demand by the Facility Agent) pay to a Protected Party an amount equal to the loss, liability or cost which that Protected Party determines will be or has been (directly or indirectly) suffered for or on account of Tax by that Protected Party in respect of a Finance Document.

(b)

Paragraph (a) above shall not apply:

(i)

with respect to any Tax assessed on a Finance Party:

(A)

under the law of the jurisdiction in which that Finance Party is incorporated or, if different, the jurisdiction (or jurisdictions) in which that Finance Party is treated as resident for tax purposes; or

(B)

under the law of the jurisdiction in which that Finance Party’s Facility Office is located in respect of amounts received or receivable in that jurisdiction,

if that Tax is imposed on or calculated by reference to the net income received or receivable (but not any sum deemed to be received or receivable) by that Finance Party; or

(ii)

to the extent a loss, liability or cost:

(A)

is compensated for by an increased payment under clause 13.2 (Tax Gross-Up); or

(B)

would have been compensated for by an increased payment under clause 13.2 (Tax Gross-Up) but was not so compensated solely because one of the exclusions in clause 13.2(d) (Tax Gross-Up) applied.

(c)

A Protected Party making, or intending to make a claim under paragraph (a) above shall promptly notify the Facility Agent of the event which will give, or has given, rise to the claim, following which the Facility Agent shall notify the Account Party.

(d)

A Protected Party shall, on receiving a payment from an Obligor under this clause 13.3, notify the Facility Agent.

13.4	Tax Credit

If an Obligor makes a Tax Payment and the relevant Finance Party determines that:

(a)

a Tax Credit is attributable to all or part of that Tax Payment; and

(b)

that Finance Party has obtained, utilised and retained that Tax Credit,

the Finance Party shall pay an amount to the Obligor which that Finance Party determines will leave it (after that payment) in the same after-Tax position as it would have been in had the Tax Payment not been made by the Obligor.

13.5	Lender Status Confirmation

Each Lender which becomes a Party to this agreement after the date of this agreement shall indicate, in the Transfer Certificate, Assignment Agreement or Accession Letter which it executes on becoming a Party, and for the benefit of the Facility Agent and without liability to any Obligor, which of the following categories it falls in:

(a)

not a Qualifying Lender;

(b)

a Qualifying Lender (other than a Treaty Lender); or

(c)

a Treaty Lender.

If a new Lender fails to indicate its status in accordance with this clause 13.5 then such new Lender shall be treated for the purposes of this agreement (including by each Obligor) as if it is not a Qualifying Lender until such time as it notifies the Facility Agent which category applies (and the Facility Agent, upon receipt of such notification, shall inform the Account Party). For the avoidance of doubt, a Transfer Certificate or Assignment Agreement shall not be invalidated by any failure of a Lender to comply with this clause 13.5.

13.6	Stamp Taxes

The Account Party shall pay and, within three Business Days of demand, indemnify each Secured Party against any cost, loss or liability that Finance Party incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document.

13.7

VAT

(a)

All amounts set out or expressed in a Finance Document to be payable by any Party to a Finance Party which (in whole or in part) constitute the consideration for a supply or supplies for VAT purposes shall be deemed to be exclusive of any VAT which is chargeable on such supply or supplies, and accordingly, subject to paragraph (b) below, if VAT is chargeable on any supply made by any Finance Party to any Party under a Finance Document, that Party shall pay to the Finance Party (in addition to and at the same time as paying any other consideration for such supply) an amount equal to the amount of such VAT (and such Finance Party shall promptly provide an appropriate VAT invoice to such Party).

(b)

If VAT is or becomes chargeable on any supply made by any Finance Party (the “Supplier” ) to any other Finance Party (the “Recipient” ) under a Finance Document, and any Party other than the Recipient (the “Subject Party” ) is required by the terms of any Finance Document to pay an amount equal to the consideration for such supply to the Supplier (rather than being required to reimburse the Recipient in respect of that consideration), such Party shall also pay to the Supplier (in addition to and at the same time as paying such amount) an amount equal to the amount of such VAT. The Recipient will promptly pay to the Subject Party an amount equal to any credit or repayment obtained by the Recipient from the relevant tax authority which it reasonably determines is in respect of such VAT.

(c)

Where a Finance Document requires any Party to reimburse or indemnify a Finance Party for any cost or expense, that Party shall reimburse or indemnify (as the case may be) such Finance Party for the full amount of such cost or expense, including such part thereof as represents VAT, save to the extent that such Finance Party reasonably determines that it is entitled to credit or repayment in respect of such VAT from the relevant tax authority.

(d)

Any reference in this clause 13.7 to any Party shall, at any time when such Party is treated as a member of a group for VAT purposes, include (where appropriate and unless the context otherwise requires) a reference to the representative member of such group at such time (the term “representative member” to have the same meaning as in the Value Added Tax Act 1994).

14.	INCREASED COSTS

14.1	Increased Costs

(a)

Subject to clause 14.3 (Exceptions) the Account Party shall, within three Business Days of a demand by the Facility Agent, pay for the account of a Finance Party the amount of any Increased Costs incurred by that Finance Party or any of its Affiliates as a result of:

(i)

the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation; or

(ii)

compliance with any law or regulation,

made after the date of this agreement.

(b)

In this agreement “Increased Costs” means:

(i)

a reduction in the rate of return from the Facility or on a Finance Party’s (or its Affiliate’s) overall capital;

(ii)

an additional or increased cost; or

(iii)

a reduction of any amount due and payable under any Finance Document,

which is incurred or suffered by a Finance Party or any of its Affiliates to the extent that it is attributable to that Finance Party having entered into its Commitment or funding or performing its obligations under any Finance Document.

14.2	Increased Cost Claims

(a)

A Finance Party intending to make a claim pursuant to clause 14.1 (Increased Costs) shall notify the Facility Agent of the event giving rise to the claim, following which the Facility Agent shall promptly notify the Account Party.

(b)

Each Finance Party shall, as soon as practicable after a demand by the Facility Agent, provide a certificate confirming the amount of its Increased Costs.

14.3	Exceptions

(a)

Clause 14.1 (Increased Costs) does not apply to the extent that any Increased Cost is:

(i)

attributable to a Tax Deduction required by law to be made by an Obligor;

(ii)

compensated for by clause 13.3 (Tax Indemnity) (or would have been compensated for under clause 13.3 (Tax Indemnity) but was not so compensated solely because any of the exclusions in clause 13.3(b) (Tax Indemnity) applied); or

(iii)

attributable to the wilful breach by the relevant Finance Party or its Affiliates of any law or regulation.

(b)

In this clause 14.3, a reference to a “Tax Deduction” has the same meaning given to the term in clause 13.1 (Definitions).

15.	OTHER INDEMNITIES

15.1	Currency Indemnity

(a)

If any sum due from an Obligor under the Finance Documents (a “Sum” ), or any order, judgment or award given or made in relation to a Sum, has to be converted from the currency (the “First Currency” ) in which that Sum is payable into another currency (the “Second Currency” ) for the purpose of:

(i)

making or filing a claim or proof against that Obligor;

(ii)

obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings,

that Obligor shall as an independent obligation, within three Business Days of demand, indemnify each Finance Party to whom that Sum is due against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between (A) the rate of exchange used to convert that Sum from the First Currency into the Second Currency and (B) the rate or rates of exchange available to that person at the time of its receipt of that Sum.

(b)

Each Obligor waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency or currency unit other than that in which it is expressed to be payable.

15.2	Other Indemnities

The Account Party shall (or shall procure that an Obligor will), within three Business Days of demand, indemnify each Finance Party against any cost, loss or liability incurred by that Finance Party as a result of:

(a)

the occurrence of any Event of Default;

(b)

a failure by an Obligor to pay any amount due under a Finance Document on its due date, including without limitation, any cost, loss or liability arising as a result of clause 32 (Sharing among the Finance Parties);

(c)

issuing or making arrangements to issue a Letter of Credit requested by the Account Party in a Utilisation Request but not issued by reason of the operation of any one or more of the provisions of this agreement (other than by reason of default or negligence by that Finance Party alone).

15.3	Indemnity to the Facility Agent

The Account Party shall promptly indemnify the Facility Agent against any cost, loss or liability incurred by the Facility Agent (acting reasonably) as a result of:

(a)

investigating any event which it reasonably believes is a Default; or

(b)

acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorised.

15.4	Indemnity to the Security Agent

(a)

Each Obligor shall promptly indemnify the Security Agent and every Receiver and Delegate against any cost, loss or liability incurred by any of them:

(i)

(acting reasonably) as a result of the taking, holding or protection of the Security;

(ii)

as a result of enforcement of the Security;

(iii)

(acting reasonably at any time other than when a Default is continuing) as a result of the exercise of any of the rights, powers, discretions and remedies vested in the Security Agent and each Receiver and Delegate by the Finance Documents or by law; or

(iv)

any default by any Obligor in the performance of any of the obligations expressed to be assumed by it in the Finance Documents.

(b)

The Security Agent may, in priority to any payment to the Secured Parties, indemnify itself out of the Charged Property in respect of, and pay and retain, all sums necessary to give effect to the indemnity in this clause 15.4 and shall have a lien on the Security and the proceeds of the enforcement of the Security for all monies payable to it.

16.	ILLEGALITY

The provisions of this clause 16 shall take effect subject to clause 17.1 (Mitigation). If, at any time, it is or becomes unlawful in any applicable jurisdiction or prohibited pursuant to any request from or requirement of any central bank or other fiscal, monetary or other authority (being a request or requirement with which banks are accustomed to comply) for a Lender to make, fund, issue, participate in or allow to remain outstanding all or part of the Letters of Credit, or to perform any of its obligations as contemplated by this agreement, then:

(a)

that Lender shall, promptly after becoming aware of the same, deliver to the Account Party through the Facility Agent a notice to that effect;

(b)

that Lender shall not, following delivery of a notice in accordance with paragraph (a) above, be obliged to participate in or issue any Letter of Credit and its Commitment shall be immediately reduced to zero; and

(c)

if that Lender so requires, the Account Party shall, on such date as the Facility Agent shall have specified:

(i)

repay all amounts owing to that Lender under this agreement; and

(ii)

ensure that the liabilities of that Lender under or in respect of each affected Letter of Credit are reduced to zero or otherwise secured by providing Cash Collateral in an amount equal to that Lender’s Proportion of the Outstandings under that Letter of Credit.

17.	MITIGATION BY THE LENDERS

17.1	Mitigation

(a)

Each Finance Party shall, in consultation with the Account Party, take all reasonable steps to mitigate any circumstances which arise and which would result in any amount becoming payable under or pursuant to, or cancelled pursuant to, any of clause 13 (Tax Gross-Up and Indemnities), clause 14 (Increased Costs) or clause 16 (Illegality) or including (but not limited to) transferring its rights and obligations under the Finance Documents to another Affiliate or Facility Office.

(b)

Paragraph (a) above does not in any way limit the obligations of any Obligor under the Finance Documents.

17.2	Limitation of Liability

(a)

The Account Party shall promptly indemnify each Finance Party for all costs and expenses reasonably incurred by that Finance Party as a result of steps taken by it under clause 17.1 (Mitigation).

(b)

A Finance Party is not obliged to take any steps under clause 17.1 (Mitigation) if, in the opinion of that Finance Party (acting reasonably), to do so might be prejudicial to it.

18.	COSTS AND EXPENSES

18.1	Transaction Expenses

The Account Party shall, promptly on demand pay the Facility Agent, the Arrangers and the Security Agent the amount of all costs and expenses (including legal fees) reasonably incurred by any of them in connection with the negotiation, preparation, printing, execution, syndication and perfection of:

(a)

this agreement and any other documents referred to in this agreement and the Security; and

(b)

any other Finance Documents executed after the date of this agreement.

18.2	Amendment Costs

If (a) an Obligor requests an amendment, waiver or consent or (b) an amendment is required pursuant to clause 33.9 (Change of Currency), the Account Party shall, within three Business Days of demand, reimburse the Facility Agent, the Security Agent and any Receiver for the amount of all costs and expenses (including legal fees) reasonably incurred by any of them in responding to, evaluating, negotiating or complying with that request or requirement.

18.3	Security Agent’s Ongoing Costs

(a)

In the event of:

(i)

a Default; or

(ii)

the Security Agent considering it necessary or expedient; or

(iii)

the Security Agent being requested by an Obligor or the Majority Lenders to undertake duties which the Security Agent and the Account Party agree to be of an exceptional nature and/or outside the scope of the normal duties of the Security Agent under the Finance Documents,

the Account Party shall pay to the Security Agent any additional remuneration that may be agreed between them.

(b)

If the Security Agent and the Account Party fail to agree upon the nature of the duties or upon any additional remuneration, that dispute shall be determined by an investment bank (acting as an expert and not as an arbitrator) selected by the Security Agent and approved by the Account Party or, failing approval, nominated (on the application of the Security Agent) by the President for the time being of the Law Society of England and Wales (the costs of the nomination and of the investment bank being payable by the Account Party) and the determination of any investment bank shall be final and binding upon the Parties.

18.4	Enforcement and Preservation Costs

The Account Party shall, within three Business Days of demand, pay to the Arrangers and each other Secured Party the amount of all costs and expenses (including legal fees) incurred by it in connection with the enforcement of or the preservation of any rights under any Finance Document and the Security and any proceedings instituted by or against the Security Agent as a consequence of taking or holding the Security or enforcing these rights.

19.	DEFAULT INTEREST AND BREAKAGE COSTS

19.1	Default Interest Periods

If any sum due and payable by an Obligor under a Finance Document is not paid on its due date or if any sum due and payable by the Obligor under any judgement of any court in connection with any Finance Document is not paid on the date of such judgement, the period beginning on such due date or, as the case may be, the date of such judgement and ending on the date upon which the obligation of such Obligor to pay such sum is discharged shall be divided into successive periods, each of which (other than the first) shall start on the last day of the preceding such period and the duration of each of which shall (except as otherwise provided in this clause 19) be selected by the Facility Agent.

19.2	Default Interest

An Unpaid Sum shall bear interest during each Term in respect thereof at the rate per annum which is the sum from time to time of 2.0 per cent. per annum above LIBOR (on the Quotation Day therefor) plus:

(a)

in respect of any portion of an Unpaid Sum under clause 10.1 (Account Party’s Indemnity to the Lenders) which is Cash Collateralised, 0.30 per cent. per annum; and

(b)

in respect of the balance of an Unpaid Sum or any other Unpaid Sum, 2.85 per cent. per annum.

19.3	Payment of Default Interest

Any interest which has accrued under clause 19.2 (Default Interest) in respect of an Unpaid Sum shall be due and payable and shall be paid by the Obligor owing such Unpaid Sum on the last day of each Interest Period in respect thereof or on such other dates as the Facility Agent may specify by notice to such Obligor.

19.4	Break Costs

If any Lender or the Facility Agent on its behalf receives or recovers all or any part of an Unpaid Sum otherwise than on the last day of a Term in respect thereof, the Account Party shall pay to the Facility Agent on demand for the account of that Lender an amount equal to the amount (if any) by which (a) the additional interest which would have been payable on the amount so received or recovered had it been received or recovered on the last day of such Term exceeds (b) the amount of interest which in the opinion of the Facility Agent would have been payable to the Facility Agent on the last day of that Term in respect of a sterling deposit equal to the amount so received or recovered placed by it with a prime bank in the London Interbank Market for a period starting on the first Business Day following the date of such receipt or recovery and ending on the last day of that Term.

20.	CHANGES TO THE CALCULATION OF INTEREST

20.1	Absence of Quotations

Subject to clause 20.2 (Market Disruption), if LIBOR is to be determined by reference to the Reference Banks but a Reference Bank does not supply a quotation by 11.00 a.m. on the Quotation Day, the applicable LIBOR shall be determined on the basis of the quotations of the remaining Reference Banks.

20.2	Market Disruption

(a)

If a Market Disruption Event occurs in relation to an Unpaid Sum for any Interest Period, then the rate of interest on each Lender’s share of that Unpaid Sum for the Interest Period shall be the percentage rate per annum which is the sum of:

(i)

two per cent. per annum; plus

(ii)

the rate notified to the Facility Agent by that Lender as soon as practicable and in any event before interest is due to be paid in respect of that Interest Period, to be that which expresses as a percentage rate per annum the cost to that Lender of funding its participation in that Unpaid Sum from whatever source it may reasonably select; and


(iii)		(A)		in respect of any portion of an Unpaid Sum under clause 10.1 (Account Party’s Indemnity to the Lenders) which is Cash Collateralised, 0.30 per cent. per annum; and

(B)

in respect of the balance of an Unpaid Sum or any other Unpaid Sum, 2.85 per cent. per annum.

(b)

In this agreement “Market Disruption Event” means:

(i)

at or about noon on the Quotation Day for the relevant Interest Period the Screen Rate is not available and none or only one of the Reference Banks supplies a rate to the Facility Agent to determine LIBOR for the relevant currency and Interest Period; or

(ii)

before close of business in London on the Quotation Day for the relevant Interest Period, the Facility Agent receives notifications from a Lender or Lenders (whose participations in a Loan exceed 35 per cent. of that Unpaid Sum) that the cost to it of obtaining matching deposits in the Relevant Interbank Market would be in excess of LIBOR.

20.3	Alternative Basis of Interest or Funding

(a)

If a Market Disruption Event occurs and the Facility Agent or the Account Party so requires, the Facility Agent and the Account Party shall enter into negotiations (for a period of not more than 30 days) with a view to agreeing a substitute basis for determining the rate of interest.

(b)

Any alternative basis agreed pursuant to paragraph (a) above shall, with the prior consent of all the Lenders and the Account Party, be binding on all Parties.

21.	GUARANTEE AND INDEMNITY

21.1	Guarantee and Indemnity

Each Guarantor irrevocably and unconditionally jointly and severally:

(a)

guarantees to each Guaranteed Finance Party punctual performance by each other Obligor of all that Obligor’s obligations under the Guaranteed Documents;

(b)

undertakes with each Guaranteed Finance Party that whenever another Obligor does not pay any amount when due under or in connection with any Guaranteed Document, that Guarantor shall immediately on demand pay that amount as if it was the principal obligor; and

(c)

agrees with each Guaranteed Finance Party that if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal, it will, as an independent and primary obligation, indemnify that Guaranteed Finance Party immediately on demand against any cost, loss or liability it incurs as a result of the Account Party not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by it under any Guaranteed Document on the date when it would have been due. The amount payable by a Guarantor under this indemnity will not exceed the amount it would have had to pay under this clause 21 if the amount claimed had been recoverable on the basis of a guarantee.

21.2	Continuing Guarantee

This guarantee is a continuing guarantee and will extend to the ultimate balance of sums payable by any Obligor under the Guaranteed Documents, regardless of any intermediate payment or discharge in whole or in part.

21.3	Reinstatement

If any discharge, release or arrangement (whether in respect of the obligations of any Obligor or any security for those obligations or otherwise) is made by a Guaranteed Finance Party in whole or in part on the basis of any payment, security or other disposition which is avoided or must be restored in insolvency, liquidation, administration or otherwise, without limitation, then the liability of each Guarantor under this clause 21 will continue or be reinstated as if the discharge, release or arrangement had not occurred.

21.4	Waiver of Defences

The obligations of each Guarantor under this clause 21 will not be affected by an act, omission, matter or thing which, but for this clause, would reduce, release or prejudice any of its obligations under this clause 21 (without limitation and whether or not known to it or any Guaranteed Finance Party) including:

(a)

any time, waiver or consent granted to, or composition with, any Obligor or other person;

(b)

the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any member of the Group;

(c)

the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Obligor or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security;

(d)

any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor or any other person;

(e)

any amendment, novation, supplement, extension, restatement (however fundamental and whether or not more onerous) or replacement of any Guaranteed Document or any other document or security including without limitation any change in the purpose of, any extension of or any increase in any facility or the addition of any new facility under any Guaranteed Document or other document or security;

(f)

any unenforceability, illegality or invalidity of any obligation of any person under any Guaranteed Document or any other document or security; or

(g)

any insolvency or similar proceedings.

21.5	Guarantor Intent

Without prejudice to the generality of clause 21.4 (Waiver of Defences), each Guarantor expressly confirms that it intends that this guarantee shall extend from time to time to any (however fundamental) variation, increase, extension or addition of or to any of the Guaranteed Documents and/or any facility or amount made available under any of the Guaranteed Documents for the purposes of or in connection with any of the following: acquisitions of any nature; increasing working capital; enabling investor distributions to be made; carrying out restructurings; refinancing existing facilities; refinancing any other indebtedness; making facilities available to new borrowers; any other variation or extension of the purposes for which any such facility or amount might be made available from time to time; and any fees, costs and/or expenses associated with any of the foregoing.

21.6	Immediate Recourse

Each Guarantor waives any right it may have of first requiring any Guaranteed Finance Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person before claiming from that Guarantor under this clause 21. This waiver applies irrespective of any law or any provision of a Guaranteed Document to the contrary.

21.7	Appropriations

Until all amounts which may be or become payable by the Obligors under or in connection with the Guaranteed Documents have been irrevocably paid in full, each Guaranteed Finance Party (or any trustee or agent on its behalf) may:

(a)

refrain from applying or enforcing any other moneys, security or rights held or received by that Guaranteed Finance Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and no Guarantor shall be entitled to the benefit of the same; and

(b)

hold in an interest-bearing suspense account any moneys received from any Guarantor or on account of any Guarantor’s liability under this clause 21.

21.8	Deferral of Guarantors’ Rights

Until all amounts which may be or become payable by the Obligors under or in connection with the Guaranteed Documents have been irrevocably paid in full and unless the Facility Agent otherwise directs, no Guarantor will exercise any rights which it may have by reason of performance by it of its obligations under the Guaranteed Documents or by reason of any amount being payable, or liability arising under this clause 21:

(a)

to be indemnified by an Obligor;

(b)

to claim any contribution from any other guarantor of any Obligor’s obligations under the Guaranteed Documents;

(c)

to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Guaranteed Finance Parties under the Guaranteed Documents or of any other guarantee or security taken pursuant to, or in connection with, the Guaranteed Documents by any Finance Party;

(d)

to bring legal or other proceedings for an order requiring any Obligor to make any payment, or perform any obligation, in respect of which any Guarantor has given a guarantee, undertaking or indemnity under clause 21.1 (Guarantee and Indemnity);

(e)

to exercise any right of set-off against any Obligor; and/or

(f)

to claim or prove as a creditor of any Obligor in competition with any Guaranteed Finance Party.

If a Guarantor receives any benefit, payment or distribution in relation to such rights it shall hold that benefit, payment or distribution to the extent necessary to enable all amounts which may be or become payable to the Guaranteed Finance Parties by the Obligors under or in connection with the Guaranteed Documents to be repaid in full on trust for the Guaranteed Finance Parties and shall promptly pay or transfer the same to the Facility Agent or as the Facility Agent may direct for application in accordance with clause 33 (Payment Mechanics).

21.9	Release of Guarantors’ Right of Contribution

If any Guarantor (a “Retiring Guarantor” ) ceases to be a Guarantor in accordance with the terms of the Guaranteed Documents for the purpose of any sale or other disposal of that Retiring Guarantor then on the date such Retiring Guarantor ceases to be a Guarantor:

(a)

that Retiring Guarantor is released by each other Guarantor from any liability (whether past, present or future and whether actual or contingent) to make a contribution to any other Guarantor arising by reason of the performance by any other Guarantor of its obligations under the Guaranteed Documents; and

(b)

each other Guarantor waives any rights it may have by reason of the performance of its obligations under the Guaranteed Documents to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under any Guaranteed Document or of any other security taken pursuant to, or in connection with, any Guaranteed Document where such rights or security are granted by or in relation to the assets of the Retiring Guarantor.

21.10

Additional Security

This guarantee is in addition to and is not in any way prejudiced by any other guarantee or security now or subsequently held by any Guaranteed Finance Party.

22.	REPRESENTATIONS

Each Obligor makes the representations and warranties set out in this clause 22 to each Finance Party on the date of this agreement.

22.1	Status

(a)

It is a corporation, duly incorporated and validly existing under the law of its jurisdiction of incorporation.

(b)

It and each of its Subsidiaries has the power to own its assets and carry on its business as it is being conducted.

22.2	Binding Obligations

Subject to the Legal Reservations, the obligations expressed to be assumed by it in each Finance Document are legal, valid, binding and enforceable obligations.

22.3	Non-Conflict with other Obligations

The entry into and performance by it of, and the transactions contemplated by, the Finance Documents do not and will not conflict with:

(a)

any law or regulation applicable to it;

(b)

its constitutional documents; or

(c)

any agreement or instrument binding upon it or any of its assets in such a way which is likely to have a material adverse effect on the interest of the Lenders under the Finance Documents.

22.4	Power and Authority

It has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents.

22.5	Validity and Admissibility in Evidence

All Authorisations required:

(a)

to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party; and

(b)

to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation,

have been obtained or effected and are in full force and effect.

22.6	Legality, Validity and Enforceability

All acts, conditions and things required to be done, fulfilled and performed (other than compliance with section 860 of the Companies Act 2006) in order (a) to enable it lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in the Finance Documents and (b) to ensure that (subject to the Legal Reservations) the obligations expressed to be assumed by it in the Finance Documents are legal, valid, binding and enforceable have been done, fulfilled and performed.

22.7	No Material Adverse Change

Since the date as at which the most recent audited financial statements of the Group were stated to be prepared and save as disclosed in writing to the Facility Agent on or prior to the date of this agreement, there has been no material adverse change in its business or financial condition or, as the case may be, that of the Group as a whole.

22.8	Insolvency

No:

(a)

corporate action, legal proceeding or other procedure or step described in clause 26.8(a) (Insolvency Proceedings); or

(b)

creditors’ process described in clause 26.9 (Creditors’ Process),

has been taken or, to the knowledge of the Account Party, threatened in relation to a member of the Group; and none of the circumstances described in clause 26.7 (Insolvency) applies to a member of the Group.

22.9	Deduction of Tax

It is not required under the law of its jurisdiction of incorporation to make any deduction for or on account of Tax from any payment it may make under any Finance Document.

22.10

No Filing or Stamp Taxes

Under the law of its jurisdiction of incorporation, it is not necessary that the Finance Documents be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents or the transactions contemplated by the Finance Documents, save for the registration of any registrable charges created under the Security Documents and the payment of a fee in connection therewith.

22.11

No Default

(a)

No Event of Default and, on the date of this agreement, no Default is continuing or might reasonably be expected to result from the making of any Utilisation.

(b)

No other event or circumstance is outstanding which constitutes a default under any other agreement or instrument which is binding on it or any of its Subsidiaries or to which its (or any of its Subsidiaries’) assets are subject which would have a Material Adverse Effect.

22.12

No Misleading Information

All written information provided to a Finance Party by any member of the Group was true, complete and accurate in all material respects as at the date it was provided and is not misleading in any material respect. No information has been given or withheld that results in the information supplied to the Finance Parties by any member of the Group being untrue or misleading in any material respect.

22.13

Audited Financial Statements

Its most recent audited financial statements, which at the date of this agreement are the Original Financial Statements, (consolidated, if appropriate):

(a)

were prepared in accordance with accounting principles generally accepted in its jurisdiction of incorporation and consistently applied;

(b)

disclose all liabilities (contingent or otherwise) of which its directors were or might reasonably be expected to have been aware and all unrealised or anticipated losses of such Obligor (or, as the case may be, any member of the Group); and

(c)

save as disclosed therein, give a true and fair view of the financial condition and operations of such Obligor (or, as the case may be, the Group) during the relevant financial year.

22.14

Pari Passu Ranking

Its payment obligations under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.

22.15

No Proceedings Pending or Threatened

No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency which, if adversely determined, might reasonably be expected to have a material adverse effect on its business or financial condition have (to the best of its knowledge and belief) been started or threatened against it or any of its Subsidiaries or involves a Managed Syndicate in the ordinary course of its insurance business.

22.16

Ranking

The Security has or (when duly registered) will have first ranking priority and is not subject to any prior ranking or pari passu ranking Encumbrances other than any Permitted Encumbrances which have prior ranking or pari passu ranking.

22.17

Security

Subject to the Legal Reservations, each Security Document to which it is a party validly creates each of the Encumbrances which is expressed by that Security Document and evidences each of the Encumbrances it is expressed to evidence.

22.18

Shares

(a)

The shares of any member of the Group which are subject to the Security are fully paid and not subject to any option to purchase or similar rights.

(b)

The constitutional documents of companies whose shares are subject to the Security do not and could not restrict or inhibit any transfer of those shares on creation or enforcement of the Security.

(c)

There are no agreements in force which provide for the issue or allotment of, or grant any person the right to call for the issue or allotment of, any share or loan capital of any member of the Group (including any option or right of pre-emption or conversion).

22.19

Encumbrances

Save for Permitted Encumbrances, no Encumbrance exists over all or any of the present or future revenues or assets of any member of the Group.

22.20

Ownership of the Chaucer Name

Each Chaucer Name is a wholly owned subsidiary of the Account Party and is duly authorised to underwrite business at Lloyd’s.

22.21

No Breach of Borrowing Restrictions

The utilisation of the Facility in full by the Account Party will not result in or cause a breach of any borrowing restriction which applies to any Obligor.

22.22

Repetition

The Repeating Representations are deemed to be made by each Obligor by reference to the facts and circumstances then existing on:

(a)

the date of each Utilisation Request; and

(b)

the Commencement Date of each Letter of Credit; and every six months after that date until the Expiry Date of that Letter of Credit.

23.	INFORMATION UNDERTAKINGS

The undertakings in this clause 23 remain in force from the date of this agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.

23.1	Financial Statements

The Account Party shall supply to the Facility Agent in sufficient copies for all the Lenders:

(a)

as soon as the same become available, but in any event within 150 days after the end of each of its financial years:

(i)

its audited consolidated financial statements for that financial year; and

(ii)

the audited financial statements of each Obligor for that financial year,

in each case audited by an internationally recognised firm of independent auditors licensed to practice in its jurisdiction of incorporation;

(b)

as soon as the same become available, but in any event within 90 days after the end of each first half of each of its financial years, its unaudited consolidated financial statements for that financial half year; and

(c)

as soon as the same become available, but in any event within 60 days after the end of each quarter of its financial years, its consolidated management accounts for that quarter.

23.2	Budget

(a)

The Account Party shall supply to the Facility Agent in sufficient copies for all the Lenders, as soon as the same have been approved by its board of directors but in any event no later than 30 days prior to the start of each of its financial years, an annual budget and/or annual consolidated Budget for that financial year.

(b)

The Account Party shall ensure that each budget:

(i)

is in a form reasonably acceptable to the Facility Agent and includes a projected consolidated profit and loss account (or equivalent income statement), balance sheet and cashflow statement for the Group and projected financial covenant calculations;

(ii)

is prepared in accordance with the Accounting Principles and the accounting practices and financial reference periods applied to financial statements under clause 23.1 (Financial Statements),

and has been approved by the board of directors of the Account Party

23.3	Compliance Certificate

(a)

The Account Party shall supply to the Facility Agent, with each set of financial statements delivered pursuant to clauses 23.1(a), 23.1(b) or 23.1(c) (Financial Statements), a Compliance Certificate:

(i)

setting out (in reasonable detail) computations as to compliance with clause 24 (Financial Conditions) as at the date as at which those financial statements were drawn up; and

(ii)

listing all Material Companies and setting out (in reasonable detail) computations which determine those companies’ classification as Material Companies.

(b)

Each Compliance Certificate shall be signed by two directors of the Account Party.

23.4	Annual Report for each Managed Syndicate

The Account Party shall, as soon as the same become available, but in any event within 90 days after the end of each year of account of each Managed Syndicate, deliver to the Facility Agent in sufficient copies for all the Lenders, the annual report for that Managed Syndicate, audited by an internationally recognised firm of auditors licensed to practice in the jurisdiction of incorporation of the Managing Agent and on the list of auditors approved by the Council of Lloyd’s from time to time.

23.5	Quarterly Information Pack

The Account Party shall, as soon as the same become available, but in any event within 60 days after the end of each quarter of each year of account of each Managed Syndicate, deliver to the Facility Agent an information pack which will include (but is not limited to) a profit and loss statement, balance sheet, cashflow statement, quarterly returns or its equivalent, settlement statistics, a statement of current Forecast Losses, forecast underwriting results and a statement on the solvency deficit position (including calculations in reasonable detail) for each Managed Syndicate.

23.6	Business Plan and Realistic Disaster Scenario for each Managed Syndicate

The Account Party shall, as soon as the same becomes available, but in any event within five days of the date prescribed by the Council of Lloyd’s with respect to the preparation and despatch thereof, deliver to the Facility Agent the annual business plan then prepared in respect of a Managed Syndicate (including details of the capital stack and reinsurance layers) and (if separate) the Realistic Disaster Scenario relating thereto.

23.7	Reinsurance Resume for each Managed Syndicate

The Account Party shall, as soon as the same becomes available but in any event within 90 days of 1 January each year, deliver to the Facility Agent a copy of the reinsurance resume of each Managed Syndicate as delivered by the Account Party to Lloyd’s from time to time in accordance with the Lloyd’s Syndicate Accounting Rules.

23.8	Information in respect of Third Party Syndicates

The Account Party shall, as soon as the same become available but in any event within 90 days after the end of each year of account of each Third Party Syndicate, deliver to the Facility Agent the annual report of that Third Party Syndicate audited by an internationally recognised firm of auditors licensed to practise in the jurisdiction of incorporation of the Managing Agent and on the list of auditors approved by the Council of Lloyd’s from time to time.

23.9	Requirements as to Financial Statements

(a)

Each set of financial statements delivered by the Account Party pursuant to clause 23.1 (Financial Statements) shall be certified by a director of the relevant company as fairly representing its financial condition as at the date as at which those financial statements were drawn up.

(b)

The Account Party shall procure that each set of financial statements of an Obligor delivered pursuant to clauses 23.1(a) and 23.1(b) (Financial Statements) is prepared using accounting policies, practices, procedures and reference periods

consistent with those applied in the preparation of the Original Financial Statements for that Obligor unless, in relation to any set of financial statements, it notifies the Facility Agent that there has been a change in such accounting policies, practices, procedures or reference periods and its auditors (or, if appropriate, the auditors of the Obligor) deliver to the Facility Agent:

(i)

a description of any change necessary for those financial statements to reflect the accounting policies, practices, procedures and reference periods upon which that Obligor’s Original Financial Statements were prepared; and

(ii)

sufficient information, in form and substance as may be reasonably required by the Facility Agent, to enable the Lenders to determine whether clause 24 (Financial Conditions) has been complied with and make an accurate comparison between the financial position indicated in those financial statements and that Obligor’s Original Financial Statements.

Any reference in this agreement to those financial statements shall be construed as a reference to those financial statements as adjusted to reflect the basis upon which the Original Financial Statements were prepared.

23.10

Lloyd’s Syndicate Accounting Rules

The Account Party shall ensure that each annual report in respect of each Managed Syndicate delivered pursuant to clause 23.4 (Annual Report for each Managed Syndicate) is prepared in accordance with Lloyd’s Syndicate Accounting Rules under accounting policies consistently applied.

23.11

Litigation and Regulatory Intervention

The Account Party shall notify the Facility Agent of any actual or (upon it becoming aware of the same) any threatened litigation or arbitration (whether as plaintiff or defendant and whether civil, criminal or administrative) and/or any actual or threatened regulatory intervention by Lloyd’s and/or the Financial Services Authority in respect of the Group and/or a Managed Syndicate which are likely to be adversely determined and/or made and which, if adversely determined and/or made, would have a material adverse effect on the business or financial condition of the Group and/or a Managed Syndicate (but excluding any litigation or arbitration involving a Managed Syndicate in the ordinary course of its insurance business).

23.12

Inspection of Books and Records

If there are reasonable grounds to believe that an Event of Default has occurred and is continuing, each Obligor shall, on request of the Facility Agent and upon reasonable notice, provide the Facility Agent and/or its advisers with access, during the normal business hours to and permit inspection of its books and records.

23.13

Information on FAL

The Account Party shall provide the Facility Agent with a description and valuation of its FAL in the Compliance Certificate to be accompanied with the quarterly financial statements delivered in accordance with clause 23.1(c) (Financial Statements).

23.14

Information: Miscellaneous

The Account Party shall supply to the Facility Agent (in sufficient copies for all the Lenders, if the Facility Agent so requests):

(a)

all documents dispatched by the Account Party to its shareholders (or any class of them) or its creditors generally at the same time as they are dispatched;

(b)

all regulatory returns dispatched by the Account Party to Lloyd’s;

(c)

promptly, such information as the Security Agent may reasonably require about the Charged Property and compliance of the Obligors with the terms of any Security Documents; and

(d)

promptly, such further information regarding the financial condition and business of any member of the Group, the Managed Syndicates and the Third Party Syndicates as any Finance Party (through the Facility Agent) may reasonably request except (i) where the furnishing of such information is restricted or prohibited by applicable law or regulation or (ii) the furnishing of such information does not comply with any requirement as to confidentiality which applies to such Obligor.

23.15

Notification of Default

(a)

Each Obligor shall notify the Facility Agent of any Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence.

(b)

Promptly upon a request by the Facility Agent, the Account Party shall supply to the Facility Agent a certificate signed by two of its directors or senior officers on its behalf certifying that no Default is continuing (or if a Default is continuing, specifying the Default and the steps, if any, being taken to remedy it).

23.16

“Know Your Customer” Checks

(a)

If:

(i)

the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this agreement;

(ii)

any change in the status of an Obligor or the composition of the shareholders of an Obligor after the date of this agreement; or

(iii)

a proposed assignment or transfer by a Lender of any of its rights and obligations under this agreement to a party that is not a Lender prior to such assignment or transfer,

obliges the Facility Agent or any Lender (or, in the case of paragraph (iii) above, any prospective new Lender) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, each Obligor shall promptly upon the request of the Facility Agent or any Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Facility Agent (for itself or on behalf of any Lender) or any Lender (for itself or, in the case of the event described in paragraph (iii) above, on behalf of any prospective new Lender) in order for the Facility Agent, such Lender or, in the case of the event described in paragraph (iii) above, any prospective new Lender to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.

(b)

Each Lender shall promptly upon the request of the Facility Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Facility Agent (for itself) in order for the Facility Agent to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.

(c)

The Account Party shall, by giving not less than ten Business Days’ prior written notice to the Facility Agent, notify the Facility Agent (which shall promptly notify the Lenders) of its intention to request that one of its Subsidiaries becomes an Additional Guarantor pursuant to clause 28 (Changes to the Obligors).

(d)

Following the giving of any notice pursuant to paragraph (c) above, if the accession of such Additional Guarantor obliges the Facility Agent or any Lender to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, the Account Party shall promptly upon the request of the Facility Agent or any Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Facility Agent (for itself or on behalf of any Lender) or any Lender (for itself or on behalf of any prospective new Lender) in order for the Facility Agent or such Lender or any prospective new Lender to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the accession of such Subsidiary to this agreement as an Additional Guarantor.

24.	FINANCIAL CONDITION

24.1	Financial Condition

The Account Party shall ensure that:

(a)

the Financial Condition of the Group is such that:

(i)

Consolidated Tangible Net Worth shall not at any time be less than the aggregate of:

(A)

£220,000,000;

(B)

50 per cent. of the net proceeds of any share capital issued or raised by the Account Party after 30 September 2010; and

(C)

50 per cent. of the cumulative consolidated profit after tax of the Group since 30 September 2010 (for the avoidance of doubt, ignoring any financial years in which such consolidated profit is a negative amount) (as detailed in the relevant audited consolidated financial statements of the Account Party and related Compliance Certificate most recently delivered pursuant to clause 23.3 (Compliance Certificate));

(ii)

Consolidated Net Borrowings shall not at any time exceed 35 per cent. of Consolidated Tangible Net Worth; and

(iii)

the Uncollateralised Outstandings shall not at any time exceed 25 per cent. of the total Funds at Lloyd’s of the Account Party (including Subordinated Funds at Lloyd’s and FAL provided in accordance with this agreement); and

(b)

the Financial Condition of the Account Party is such that:

(i)

Forecast Losses for any one year of account for any Managed Syndicate, in respect of any year of account, shall not exceed 10 per cent. of the aggregate Syndicate Allocated Capacities for those Managed Syndicates in respect of that single year of account; and

(ii)

the aggregate of the Member’s Share of the estimated net losses in respect of any of the scenarios contained in the Realistic Disaster Scenarios prepared in relation to Syndicate 1084 of each Underwriting Member shall not exceed 20 per cent. of the aggregate Member’s Syndicate Premium Limit of such Underwriting Members in any one year of account.

24.2	Financial Definitions

In clause 24.1 (Financial Condition) the following terms shall have the following meanings:

“Consolidated Net Borrowings” means at any time the aggregate amount of all Financial Indebtedness of the Group (excluding any subordinated Financial Indebtedness to the extent considered Lower Tier 2 Capital and the Outstandings in respect of which the Account Party has provided funds by way of cash collateral in accordance with and pursuant to clauses 11.2 (Mandatory Cash Collateralisation of Letters of Credit) and clause 11.3 (Voluntary Cash Collateralisation of Letters of Credit)) adjusted to take account of the aggregate amount of unencumbered, freely available and transferable cash and cash equivalents held by any member of the Group (and so that no amount shall be included or excluded more than once).

“Consolidated Tangible Net Worth” means, at any time the aggregate of the amounts paid up or credited as paid up on the issued share capital of the Account Party (other than any redeemable shares) and the aggregate amount of the reserves of the Group including:

(a)

any amount credited to the share premium account;

(b)

any capital redemption reserve fund;

(c)

any balance standing to the credit of the consolidated profit and loss account of the Group;

(d)

any subordinated loan notes issued by a member of the Group to the extent they are considered Lower Tier 2 Capital, including the Subordinated Loan Notes; and

(e)

any other subordinated Financial Indebtedness to the extent considered Lower Tier 2 Capital.

but deducting:

(i)

any debit balance on the consolidated profit and loss account of the Group;

(ii)

(to the extent included) any amount shown in respect of goodwill (including goodwill arising only on consolidation) or other intangible assets of the Group and interests of non Group members in Group subsidiaries;

(iii)

(to the extent included) any amount set aside for taxation, deferred taxation or bad debts; and

(iv)

(to the extent included) any amounts arising from an upward revaluation of assets (excluding Investments) made at any time after 31 December 2009,

and so that no amount shall be included or excluded more than once.

“Forecast Losses” means the mid-point projection of losses that it is projected will be incurred by the Managed Syndicates in respect of a particular year of account in the Syndicate quarterly returns and other information of the Managed Syndicates to be delivered pursuant to clauses 23.4 (Annual Report for each Managed Syndicate) and 23.5 (Quarterly Information Pack), from time to time.

“FSA” means the Financial Services Authority or any successor regulatory body or other governmental authority in the United Kingdom exercising prudential supervision of insurance companies.

“Investments” means all investments which are permitted syndicate investments as prescribed by Lloyd’s from time to time.

“Lower Tier 2 Capital” has the meaning given to it from time to time by the FSA.

“Member’s Share” means the Member’s Syndicate Premium Limit of an Underwriting Member divided by the Syndicate Allocated Capacity of the Managed Syndicate on which the Lloyd’s Member writes business.

“Underwriting Member” means any one of the Chaucer Names.

24.3	Breach of Consolidated Tangible Net Worth Covenant

If, at any time, any of the requirements in clause 24.1 (Financial Condition) are not satisfied, the Facility Agent may provide written notice to the Account Party requiring that the Account Party makes no further dividends until such point at which the Facility Agent may provide written consent to the Account Party for any further issue of dividends (such consent not to be unreasonably withheld). On receipt of such written notice, the Account Party shall agree to withhold making any further dividends until such point at which the Facility Agent may provide consent to the Account Party for any further issue of dividends (such consent not to be unreasonably withheld).

24.4	Financial Testing

The financial covenants set out in clause 24.1 (Financial Condition) shall be complied with at all times but compliance with such financial covenants shall be verified by reference to each of the relevant financial statements and each relevant Compliance Certificate delivered pursuant to clause 23.3 (Compliance Certificate).

24.5	Accounting Terms

All accounting expressions which are not otherwise defined in this agreement shall be construed in accordance with generally accepted accounting principles in the Account Party’s jurisdiction of incorporation.

25.	GENERAL UNDERTAKINGS

The undertakings in this clause 25 remain in force from the date of this agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.

25.1	Authorisations

Each Obligor shall promptly:

(a)

obtain, comply with and do all that is necessary to maintain in full force and effect; and

(b)

supply certified copies to the Facility Agent of,

any Authorisation required under any law or regulation of its jurisdiction of incorporation to enable it to perform its obligations under the Finance Documents and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of any Finance Document.

25.2	Compliance with Laws

Each Obligor shall comply in all respects with all laws, by-laws and regulations (including, without limitation, under the Financial Services and Markets Act 2000, the Lloyds’ Acts 1871 to 1982 and any conditions or requirements prescribed thereunder) to which it may be subject, if failure so to comply would reasonably be expected to have a Material Adverse Effect.

25.3	Negative Pledge

(a)

No Obligor shall (and the Account Party shall ensure that no other member of the Group will) create or permit to subsist any Security over any of its assets other than a Permitted Encumbrance.

(b)

No Obligor shall (and the Account Party shall ensure that no other member of the Group will):

(i)

sell, transfer or otherwise dispose of any of its assets on terms whereby they are or may be leased to or re-acquired by an Obligor or any other Group Company;

(ii)

sell, transfer or otherwise dispose of any of its receivables on recourse terms;

(iii)

enter into any arrangement under which money or the benefit of a bank or other account may be applied, set-off or made subject to a combination of accounts; or

(iv)

enter into any other preferential arrangement having a similar effect,

in circumstances where the arrangement or transaction is entered into primarily as a method of raising Financial Indebtedness or of financing the acquisition of an asset, other than a Permitted Encumbrance.

25.4	Disposals

(a)

No Obligor shall (and the Account Party shall ensure that no other member of the Group will), enter into a single transaction or a series of transactions (whether related or not) and whether voluntary or involuntary to sell, lease, transfer or otherwise dispose of any asset.

(b)

Paragraph (a) does not apply to any sale, lease, transfer or other disposal:

(i)

of any investments made in the ordinary course of business of the disposing entity;

(ii)

of obsolete assets for cash;

(iii)

made with the prior consent of the Majority Lenders; or

(iv)

of tangible assets where the book value (when aggregated with the book value of all other tangible assets sold, leased, transferred or otherwise disused of in the same financial year) does not exceed £500,000 (or its equivalent in another currency or currencies).

25.5	Merger

No Obligor shall (and the Account Party shall ensure that no other member of the Group will) enter into any amalgamation, demerger, merger or corporate reconstruction without the prior consent of the Majority Lenders (which consent, in the case of a merger or amalgamation between two members of the Group which are not Obligors, shall not be unreasonably withheld or delayed).

25.6	Change of Business

The Account Party shall procure that no substantial change is made to the general nature of the business of the Account Party or the Group from that carried on at the date of this agreement.

25.7	Financial Indebtedness

No Obligor shall (and the Account Party shall ensure that no other member of the Group will) incur or allow to remain outstanding any Financial Indebtedness other than Permitted Financial Indebtedness.

25.8	Pari Passu Ranking

Each Obligor shall ensure that at all times the claims of a Finance Party against it under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors except those creditors whose claims are mandatorily preferred by laws of general application to companies.

25.9	Insurance

Each Obligor shall (and the Account Party shall ensure that each other member of the Group will) maintain insurance (other than and in addition to any reinsurance in respect of such members’ underwriting business) on and in relation to its business and assets against those risks and to such extent as is usual for companies carrying on the same or substantially similar business with any reputable underwriters or reputable insurance company.

25.10

Further Assurance

Each Obligor shall take all steps reasonably requested by the Facility Agent to ensure the creation, perfection and maintenance at all times of the Security intended to be constituted by the Security Documents.

25.11

Ownership of the Chaucer Names

The Account Party shall ensure that each Chaucer Name remains its wholly owned Subsidiary.

25.12

Application of Funds at Lloyd’s and Cash Calls

(a)

The Account Party shall use all reasonable endeavours to ensure that the Subordinated Funds at Lloyd’s of the Account Party are applied to the fullest extent possible before any payment is requested under a Letter of Credit.

(b)

The Account Party shall ensure that the Managing Agent will make a request for funds of a Chaucer Name in its capacity as a member of each Managed Syndicate before applying the Funds at Lloyd’s of that Chaucer Name in the payment of any claims, expenses or outgoings made or incurred in connection with its underwriting business.

25.13

Demands for Payment of FAL

The Account Party shall upon service on it by Lloyd’s (or the trustee for the time being of such Funds at Lloyd’s) of a written demand for the payment of a sum on account of its Funds at Lloyd’s immediately inform the Facility Agent of such demand.

25.14

Investment Strategy

The Account Party shall ensure that there is no material change to the investment strategy pursued by the Group as at the date of this agreement without the prior written consent of the Majority Lenders.

25.15

Business plan

The Account Party shall ensure that there is no material change to the business plan submitted in accordance with clause 23.6 (Business Plan and Realistic Disaster Scenario for each Managed Syndicate) without the prior written consent of the Majority Lenders.

25.16

Prohibition on underwriting by Obligors

The Account Party will procure that the only members of the Group to underwrite business at Lloyd’s will be the Chaucer Names.

25.17

Reinsurance FAL

(a)

The Account Party will not amend its FAL arrangements, including the addition of any Reinsurance FAL, without first obtaining the written consent of the Majority Lenders, such consent not to be unreasonably withheld or delayed.

(b)

If the Account Party obtains any Reinsurance FAL for the 2012 year of account ( “2012 Reinsurance FAL” ), the Account Party shall use its best endeavours to:

(i)

obtain and deliver to the Facility Agent, a replacement Letter of Comfort executed by Lloyd’s incorporating the 2012 Reinsurance FAL as additional Subordinated Funds at Lloyd’s for the 2012 year of account; and

(ii)

procure an amendment to the FAL Providers Deed to provide for the accession of the provider or providers of the 2012 Reinsurance FAL and to amend clause 2.5 of the FAL Providers Deed so that the order of priority includes the application of 2012 Reinsurance FAL prior to the FAL provided under this agreement.

25.18

Ownership of Obligors

The Account Party shall ensure that each other Obligor is and remains a direct or indirect Subsidiary of the Account Party.

25.19

No redemption of the Subordinated Loan Notes

The Account Party shall not redeem the Subordinated Loan Notes (in full or in part) during the term of the Facility.

25.20

Centre of Main Interests

No Obligor shall, and each Obligor will procure that none of its Subsidiaries will, do anything to change the location of its centre of main interests, for the purposes of Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings, where that change would be reasonably likely to be materially adverse to the interests of the Finance Parties.

25.21

Condition Subsequent

The Account Party shall procure that a list of the Encumbrances granted by the Account Party in favour of Lloyd’s which have not been discharged are delivered to the Facility Agent within 30 days of the date of this agreement.

26.	EVENTS OF DEFAULT

Each of the events or circumstances set out in clause 26 is an Event of Default (save for clause 26.23 (Acceleration and Cancellation)).

26.1	Non-Payment

An Obligor does not pay on the due date any amount payable pursuant to a Finance Document at the place at and in the currency in which it is expressed to be payable unless:

(a)

its failure to pay is caused by:

(i)

administrative or technical error; or

(ii)

a Disruption Event; and

(b)

payment is made within five Business Days of its due date.

26.2	Financial Condition and Other Specific Covenants

(a)

At any time any requirement of clause 24.1 (Financial Condition) is not satisfied.

(b)

An Obligor fails duly to perform or comply with any of the obligations expressed to be assumed by it in clause 23 (Information Undertakings), clause 24.3 (Breach of Consolidated Tangible Net Worth Covenant), clause 25.3 (Negative Pledge), clause 25.4 (Disposals), clause 25.5 (Mergers), clause 25.7 (Financial Indebtedness), clause 25.11 (Ownership of the Chaucer Names), clause 25.12(a) (Application of Funds at Lloyd’s and Cash Calls) and clause 25.13 (Demands for Payment of FAL).

26.3	Other Obligations

(a)

An Obligor does not comply with any provision of the Finance Documents (other than those referred to in clause 26.1 (Non-Payment) and clause 26.2 (Financial Condition and Other Specific Covenants)).

(b)

No Event of Default under paragraph (a) will occur if the failure to comply is capable of remedy and is remedied within 15 Business Days of the earlier of:

(i)

the Facility Agent giving notice to the Account Party; and

(ii)

an Obligor becoming aware of the failure to comply.

26.4	Misrepresentation

Any representation or statement made or deemed to be made by an Obligor in the Finance Documents or any notice or other document, certificate or statement delivered by or on behalf of any Obligor under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.

26.5	Cross Default

(a)

Any Financial Indebtedness of any member of the Group is not paid when due nor within any originally applicable grace period.

(b)

Any Financial Indebtedness of any member of the Group is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default (however described).

(c)

Any commitment for any Financial Indebtedness of any member of the Group is cancelled or suspended by a creditor of any member of the Group as a result of an event of default (however described).

(d)

Any creditor of any member of the Group becomes entitled to declare any Financial Indebtedness of any member of the Group due and payable prior to its specified maturity as a result of an event of default (however described).

(e)

No Event of Default will occur under this clause 26.5 if the aggregate amount of Financial Indebtedness or commitment for Financial Indebtedness falling within paragraphs (a) to (d) (inclusive) above is less than £1,000,000 (or its equivalent in any other currency or currencies).

26.6	Failure to Comply with Final Judgment

Any Obligor fails to comply with or pay any sum due from it under any final judgement or any final order made or given by any court of competent jurisdiction within ten Business Days of any such judgement or order being made or given.

26.7	Insolvency

(a)

An Obligor is unable or admits inability to pay its debts as they fall due, suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors with a view to rescheduling any of its indebtedness.

(b)

The value of the assets of any Obligor is less than its liabilities (taking into account contingent and prospective liabilities).

(c)

A moratorium is declared in respect of any indebtedness of any Obligor.

26.8	Insolvency Proceedings

(a)

Any corporate action, legal proceedings or other procedure or step is taken in relation to:

(i)

the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of any Obligor;

(ii)

a composition, compromise, assignment or arrangement with any creditor of any Obligor;

(iii)

the appointment of a liquidator, receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of any Obligor or any of its assets; or

(iv)

enforcement of any Security over any assets of any Obligor provided such enforcement is not stayed within 15 Business Days or any event occurs which under the laws of any jurisdiction has a similar or analogous effect.

(b)

Paragraph (a)(i) to (iii) shall not apply to any winding-up petition which is frivolous or vexatious and is discharged, stayed or dismissed within 30 days of commencement or, if earlier, the date on which it is advertised.

26.9	Creditors’ Process

Any expropriation, attachment, sequestration, distress or execution affects any asset or assets of an Obligor and is not discharged within 15 Business Days.

26.10

Similar Events Elsewhere

There occurs in relation to any Obligor or any of its assets in any country or territory in which it is incorporated or carries on business or to the jurisdiction of whose courts it or any of its assets is subject any event which appears to the Facility Agent to correspond in that country or territory with any of those mentioned in clauses 26.7 (Insolvency) to 26.9 (Creditors’ Process) (inclusive).

26.11

Unlawfulness

(a)

It is or becomes unlawful for an Obligor to perform any of its obligations under the Finance Documents.

(b)

Any Finance Document or any obligation of an Obligor thereunder are not or ceases to be in full force and effect or is alleged by an Obligor to be ineffective for any reason.

26.12

Repudiation

An Obligor repudiates a Finance Document or evidences an intention to repudiate a Finance Document.

26.13

Cessation of Business

Any member of the Group suspends or ceases to carry on (or threatens to suspend or cease to carry on) all or a material part of the business which it carries on at the date of this agreement or enters into any unrelated business.

26.14

Litigation

Any litigation, arbitration, administrative, governmental, regulatory or other investigations, proceedings or disputes are commenced against any member of the Group or its assets which, in the opinion of the Majority Lenders (acting reasonably), has, or is reasonably likely to have, a Material Adverse Effect.

26.15

Solvency Test

A Chaucer Name fails as a Member to maintain the members’ capital resources requirement calculated by Lloyd’s and notified to it in accordance with the General Prudential Sourcebook and INSPRU.

26.16

Ownership of the Chaucer Names

Any Chaucer Name ceases to be a wholly owned subsidiary of the Account Party.

26.17

Financial Services and Markets Act 2000 and Lloyd’s Acts 1871-1982

(a)

A failure by Lloyd’s (or, where appropriate, the members of Lloyd’s taken together) to satisfy the solvency requirements to which it is or they are subject by virtue of Part XIX of the Financial Services and Markets Act 2000, the Lloyd’s Acts 1871 - 1982

(and any subordinated legislation made thereto), the FSA Handbook or any statutory provision enacted after the date of this agreement and a failure to comply with any binding requirement to rectify the position within the time period permitted for such rectification; or

(b)

the authorisation or permission granted to Lloyd’s to carry on a regulated activity pursuant to the Financial Markets and Services Act 2000 is withdrawn, removed, revoked or cancelled by the Financial Services Authority,

which, in either such case, in the reasonable opinion of the Majority Lenders, is reasonably likely materially and adversely to affect the ability of the Account Party to perform or comply with its material obligations under the Finance Documents.

26.18

Modification of Lloyd’s Acts, Byelaws or Trusts

Any modification, repeal, amendment, replacement or revocation of Lloyd’s Acts 1871 to 1982, any byelaw or any deed or agreement required by Lloyd’s to be executed or entered into by any person in connection with insurance business at Lloyd’s (whether carried on by such person or otherwise) or any trust created thereby is made or proposed which, in the reasonable opinion of the Majority Lenders, is reasonably likely materially and adversely to affect the ability of the Account Party to perform or comply with its material obligations under the Finance Documents.

26.19

Lloyd’s Market Reorganisation Order

The making of a Lloyd’s Market Reorganisation Order provided that:

(a)

the Account Party is an affected market participant as defined in the Insurers (Reorganisation and Winding Up) (Lloyd’s) Regulations 2005; and

(b)

the making of the order in the reasonable opinion of the Facility Agent (acting on the instructions of the Majority Lenders) is reasonably likely materially and adversely to affect the ability of the Account Party to perform or comply with its material obligations under the Finance Documents.

26.20

FAL Providers Deed

(a)

Any party to the FAL Providers Deed (other than the Facility Agent) does not comply with any provision of the FAL Providers Deed.

(b)

No Event of Default under paragraph (a) above will occur if the failure to comply is capable of remedy and is remedied within 15 Business Days of the earlier of:

(i)

the Facility Agent giving notice to the Account Party; and

(ii)

an Obligor becoming aware of the failure to comply.

(c)

Any representation or statement made or deemed to be made by a party in the FAL Providers Deed (other than the Facility Agent) or any notice or other document, certificate or statement delivered by or on behalf of any such party under or in connection with the FAL Providers Deed is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.

(d)

The FAL Providers Deed or any obligation of a party (other than the Facility Agent) thereunder is not or ceases to be in full force and effect or is alleged by any such party to be ineffective for any reason.

26.21

Cash Collateral

The Account Party fails duly to perform or comply with its obligations to pay Cash Collateral into the Specified Account in the amounts and at the times required under clause 11.2 (Mandatory Cash Collateralisation of Letters of Credit).

26.22

Material Adverse Change

Any event or circumstance occurs which the Majority Lenders reasonably believe has or is reasonably likely to have a Material Adverse Effect.

26.23

Acceleration and Cancellation

On and at any time after the occurrence of an Event of Default which is continuing, the Facility Agent may, and shall if so directed by all the Lenders:

(a)

by notice to the Account Party:

(i)

require the Account Party to use best endeavours to procure that the liabilities of the Lenders under each Letter of Credit are promptly reduced to zero; and/or

(ii)

require the Account Party to procure that Cash Collateral is provided for each Letter of Credit in an amount specified by the Facility Agent (acting on the instructions of the Majority Lenders) (whereupon the Account Party shall do so); and/or

(iii)

declare that the whole of the Available Facility shall be cancelled, whereupon the same shall be cancelled and the Available Commitment of each Lender shall be reduced to zero;

(b)

require the Account Party to use best endeavours to procure that:

(i)

all Letters of Credit are cancelled and returned by Lloyd’s to the Facility Agent; and

(ii)

in relation to any Letters of Credit which are cancelled, Lloyd’s deliver written confirmation to the Facility Agent (on behalf of the Lenders) that:

(A)

Lloyd’s has not retained any copies of any Letter of Credit; and

(B)

Lloyd’s no longer places any reliance on any Letter of Credit,

in form and substance reasonably satisfactory to the Facility Agent;

(c)

exercise (or direct the Security Agent to exercise) any or all of its rights, remedies, powers or discretions under any of the Finance Documents; and/or

(d)

give a Notice of Termination to Lloyd’s in respect of any Letter of Credit.

27.	CHANGES TO THE LENDERS

27.1	Assignments and Transfers by the Lenders

Subject to this clause 27, a Lender (the “Existing Lender” ) may:

(a)

assign any of its rights; or

(b)

transfer by novation any of its rights and obligations, to another bank or financial institution or to a trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets (the “ New Lender ”) provided that such bank, financial institution, trust, fund or other entity is an Approved Credit Institution.

27.2	Conditions of Assignment, Transfer or Accession

(a)

An assignment will only be effective on:

(i)

receipt by the Facility Agent (whether in the Assignment Agreement or otherwise) of written confirmation from the New Lender (in form and substance satisfactory to the Facility Agent) that the New Lender will assume the same obligations to the other Finance Parties as it would have been under if it was an Original Lender; and

(ii)

performance by the Facility Agent (to the extent it thinks fit) of all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to such assignment to a New Lender, the completion of which the Facility Agent shall promptly notify to the Existing Lender and the New Lender.

(b)

A transfer or accession will only be effective if the procedure set out in clause 27.5 (Procedure for Transfer or Accession) is complied with.

(c)

If:

(i)

a Lender assigns or transfers any of its rights or obligations under the Finance Documents or changes its Facility Office; and

(ii)

as a result of circumstances existing at the date the assignment, transfer or change occurs, an Obligor would be obliged to make a payment to the New Lender or Lender acting through its new Facility Office under clause 13 (Tax Gross-Up and Indemnities) or clause 14 (Increased Costs),

then the New Lender or Lender acting through its new Facility Office is only entitled to receive payment under those clauses to the same extent as the Existing Lender or Lender acting through its previous Facility Office would have been if the assignment, transfer or change had not occurred.

(d)

Each New Lender, by executing the relevant Transfer Certificate, Assignment Agreement or Accession Letter, confirms, for the avoidance of doubt, that the Facility Agent has authority to execute on its behalf any amendment or waiver that has been approved by or on behalf of the requisite Lender or Lenders in accordance with this agreement on or prior to the date on which the transfer or assignment or accession becomes effective in accordance with this agreement and that it is bound by that decision to the same extent as the Existing Lender would have been had it remained a Lender.

27.3	Assignment, Transfer or Accession Fee

The New Lender shall, on the date upon which an assignment, transfer or accession takes effect, pay to the Facility Agent (for its own account) a fee of £3,000.

27.4	Limitation of Responsibility of Existing Lenders

(a)

Unless expressly agreed to the contrary, an Existing Lender makes no representation or warranty and assumes no responsibility to a New Lender for:

(i)

the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any other documents;

(ii)

the financial condition of any Obligor;

(iii)

the performance and observance by any Obligor of its obligations under the Finance Documents or any other documents; or

(iv)

the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document or any other document,

and any representations or warranties implied by law are excluded.

(b)

Each New Lender confirms to the Existing Lender and the other Finance Parties that it:

(i)

has made (and shall continue to make) its own independent investigation and assessment of the financial condition and affairs of each Obligor and its related entities in connection with its participation in this agreement and has not relied exclusively on any information provided to it by the Existing Lender in connection with any Finance Document; and

(ii)

will continue to make its own independent appraisal of the creditworthiness of each Obligor and its related entities whilst any amount is or may be outstanding under the Finance Documents or any Commitment is in force.

(c)

Nothing in any Finance Document obliges an Existing Lender to:

(i)

accept a re-transfer or re-assignment from a New Lender of any of the rights and obligations assigned or transferred under this clause 27; or

(ii)

support any losses directly or indirectly incurred by the New Lender by reason of the non-performance by any Obligor of its obligations under the Finance Documents or otherwise.

27.5	Procedure for Transfer or Accession

(a)

Subject to the conditions set out in clause 27.2 (Conditions of Assignment, Transfer or Accession) a transfer or accession is effected in accordance with paragraph (c) below when the Facility Agent executes an otherwise duly completed (i) Transfer Certificate delivered to it by the Existing Lender and the New Lender or (ii) Accession Letter duly completed by the New Lender. The Facility Agent shall, subject to paragraph (b) below, as soon as reasonably practicable after receipt by it of a duly completed Transfer Certificate or Accession Letter appearing on its face to comply with the terms of this agreement and delivered in accordance with the terms of this agreement, execute that Transfer Certificate or Accession Letter.

(b)

The Facility Agent shall only be obliged to execute a Transfer Certificate delivered to it by the Existing Lender and the New Lender or an Accession Letter delivered to it by a New Lender once it is satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to the transfer to such New Lender.

(c)

On the Transfer Date:

(i)

to the extent that in the Transfer Certificate the Existing Lender seeks to transfer by novation its rights and obligations under the Finance Documents each of the Obligors and the Existing Lender shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another under the Finance Documents shall be cancelled (being the “Discharged Rights and Obligations” );

(ii)

each of the Obligors and the New Lender shall assume obligations towards one another and/or acquire rights against one another which differ from the Discharged Rights and Obligations only insofar as that Obligor and the New Lender have assumed and/or acquired the same in place of that Obligor and the Existing Lender;

(iii)

the Facility Agent, the Arrangers, the New Lender and other Lenders shall acquire the same rights and assume the same obligations between themselves as they would have acquired and assumed had the New Lender been an Original Lender with the rights and/or obligations acquired or assumed by it as a result of the transfer and to that extent the Facility Agent, the Arrangers and the Existing Lender shall each be released from further obligations to each other under the Finance Documents; and

(iv)

the New Lender shall become a Party as a “Lender”.

(d)

On the Accession Date:

(i)

each of the New Lender and the other Parties shall assume the same obligations between themselves as they would have acquired and assumed had the New Lender been an Original Lender with the rights and obligations acquired as a result of the Accession Letter; and

(ii)

the New Lender shall become a Party to this agreement as a “Lender”.

27.6	Procedure for Assignment

(a)

Subject to the conditions set out in clause 27.2 (Conditions of Assignment, Transfer or Accession) an assignment may be effected in accordance with paragraph (c) below when the Facility Agent executes an otherwise duly completed Assignment Agreement delivered to it by the Existing Lender and the New Lender. The Facility Agent shall, subject to paragraph (b) below, as soon as reasonably practicable after receipt by it of a duly completed Assignment Agreement appearing on its face to comply with the terms of this agreement and delivered in accordance with the terms of this agreement, execute that Assignment Agreement.

(b)

The Facility Agent shall only be obliged to execute an Assignment Agreement delivered to it by the Existing Lender and the New Lender once it is satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to the assignment to such New Lender.

(c)

On the Transfer Date:

(i)

the Existing Lender will assign absolutely to the New Lender the rights under the Finance Documents expressed to be the subject of the assignment in the Assignment Agreement;

(ii)

the Existing Lender will be released by each Obligor and the other Finance Parties from the obligations owed by it (the “Relevant Obligations” ) and expressed to be the subject of the release in the Assignment Agreement; and

(iii)

the New Lender shall become a Party as a “Lender” and will be bound by obligations equivalent to the Relevant Obligations.

(d)

Lenders may utilise procedures other than those set out in this clause 27.6 to assign their rights under the Finance Documents (but not, without the consent of the relevant Obligor or unless in accordance with clause 27.5 (Procedure for Transfer), to obtain a release by that Obligor from the obligations owed to that Obligor by the Lenders nor the assumption of equivalent obligations by a New Lender) provided that they comply with the conditions set out in clause 27.2 (Conditions of Assignment, Transfer or Accession).

27.7	Copy of Transfer Certificate or Assignment Agreement to Account Party

The Facility Agent shall, as soon as reasonably practicable after it has executed a Transfer Certificate or an Assignment Agreement, send to the Account Party a copy of that Transfer Certificate or Assignment Agreement.

27.8	Security over Lenders’ rights

In addition to the other rights provided to Lenders under this clause 27, each Lender may without consulting with or obtaining consent from any Obligor, at any time charge, assign or otherwise create Security in or over (whether by way of collateral or otherwise) all or any of its rights under any Finance Document to secure obligations of that Lender including, without limitation:

(a)

any charge, assignment or other Security to secure obligations to a federal reserve or central bank or to a government authority, department or agency (including, without limitation, HM Treasury); and

(b)

in the case of any Lender which is a fund, any charge, assignment or other Security granted to any holders (or trustee or representatives of holders) of obligations owed, or securities issued, by that Lender as security for those obligations or securities,

except that no such charge, assignment or Security shall:

(i)

release a Lender from any of its obligations under the Finance Documents or substitute the beneficiary of the relevant charge, assignment or Security for the Lender as a party to any of the Finance Documents; or

(ii)

require any payments to be made by an Obligor other than or in excess of, or grant to any person any more extensive rights than, those required to be made or granted to the relevant Lender under the Finance Documents.

28.	CHANGES TO THE OBLIGORS

28.1	Assignments and Transfer by Obligors

No Obligor may assign any of its rights or transfer any of its rights or obligations under the Finance Documents.

28.2	Additional Guarantors

(a)

Subject to compliance with the provisions of clauses 23.16(c) and (d) (“Know Your Customer” Checks), the Account Party may request that any of its wholly owned Subsidiaries become an Additional Guarantor.

(b)

The Account Party shall procure that any other member of the Group which is a Material Company shall, as soon as possible after becoming a Material Company, become an Additional Guarantor.

(c)

A Subsidiary shall become an Additional Guarantor if:

(i)

all the Lenders and the Overdraft Provider approve the addition of that Subsidiary (and each Lender hereby approves each Material Company);

(ii)

the Account Party delivers to the Security Agent a duly completed and executed Accession Letter; and

(iii)

the Security Agent has received all of the documents and other evidence listed in part 2 of schedule 2 (Conditions Precedent) in relation to that Additional Guarantor, each in form and substance satisfactory to the Security Agent.

(d)

The Security Agent shall notify the Account Party and all the Guaranteed Finance Parties promptly upon being satisfied that it has received (in form and substance satisfactory to it) all the documents and other evidence listed in part 2 of schedule 2 (Conditions Precedent).

28.3	Repetition of Representations

Delivery of an Accession Letter constitutes confirmation by the relevant Subsidiary that the Repeating Representations are true and correct in relation to it as at the date of delivery as if made by reference to the facts and circumstances then existing.

28.4	Resignation of a Guarantor

(a)

The Account Party may request that a Guarantor (other than the Account Party) ceases to be a Guarantor by delivering to the Security Agent a Resignation Letter.

(b)

The Security Agent shall accept a Resignation Letter and notify the Account Party and the Facility Agent, the Lenders and the Overdraft Provider of its acceptance if:

(i)

no Default is continuing or would result from the acceptance of the Resignation Letter (and the Account Party has confirmed this is the case); AND

(ii)

all the Lenders and the Overdraft Provider have consented to the Account Party’s request.

29.	ROLE OF THE FACILITY AGENT AND THE ARRANGERS

29.1	Appointment of the Facility Agent

(a)

Each of the Finance Parties appoints the Facility Agent to act as its facility agent under and in connection with the Finance Documents.

(b)

Each of the Finance Parties authorises the Facility Agent to exercise the rights, powers, authorities and discretions specifically given to the Facility Agent under or in connection with the Finance Documents together with any other incidental rights, powers, authorities and discretions.

29.2	Duties of the Facility Agent

(a)

Subject to paragraph (b) below, the Facility Agent shall promptly forward to a Party the original or a copy of any document which is delivered to the Facility Agent for that Party by any other Party.

(b)

Without prejudice to clause 27.7 (Copy of Transfer Certificate or Assignment Agreement to Account Party), paragraph (a) above shall not apply to any Transfer Certificate or to any Assignment Agreement.

(c)

Except where a Finance Document specifically provides otherwise, the Facility Agent is not obliged to review or check the adequacy, accuracy or completeness of any document it forwards to another Party.

(d)

If the Facility Agent receives notice from a Party referring to this agreement, describing a Default and stating that the circumstance described is a Default, it shall promptly notify the Finance Parties.

(e)

If the Facility Agent is aware of the non-payment of any principal, interest, commitment fee or other fee payable to a Finance Party (other than the Facility Agent or the Arrangers or the Security Agent) under this agreement it shall promptly notify the other Finance Parties.

(f)

The Facility Agent’s duties under the Finance Documents are solely mechanical and administrative in nature.

29.3	Role of the Arrangers

Except as specifically provided in the Finance Documents, the Arrangers has no obligations of any kind to any other Party under or in connection with any Finance Document.

29.4	No Fiduciary Duties

(a)

Nothing in this agreement constitutes the Facility Agent or the Arrangers as a trustee or fiduciary of any other person.

(b)

None of the Facility Agent nor the Arrangers or the Security Agent shall be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account.

29.5	Business with the Group

The Facility Agent and the Arrangers may accept deposits from, lend money to and generally engage in any kind of banking or other business with any member of the Group.

29.6	Rights and Discretions of the Facility Agent

(a)

The Facility Agent may rely on:

(i)

any representation, notice or document believed by it to be genuine, correct and appropriately authorised; and

(ii)

any statement made by a director, authorised signatory or employee of any person regarding any matters which may reasonably be assumed to be within his knowledge or within his power to verify.

(b)

The Facility Agent may assume (unless it has received notice to the contrary in its capacity as agent for the Lenders) that:

(i)

no Default has occurred (unless it has actual knowledge of a Default arising under clause 26.1 (Non-Payment));

(ii)

any right, power, authority or discretion vested in any Party or the Majority Lenders has not been exercised; and

(iii)

any notice or request made by the Account Party (other than a Utilisation Request) is made on behalf of and with the consent and knowledge of all the Obligors.

(c)

The Facility Agent may engage, pay for and rely on the advice or services of any lawyers, accountants, surveyors or other experts.

(d)

The Facility Agent may act in relation to the Finance Documents through its personnel and agents.

(e)

The Facility Agent may disclose to any other Party any information it reasonably believes it has received as agent under this agreement.

(f)

Notwithstanding any other provision of any Finance Document to the contrary, neither the Facility Agent nor the Arrangers is obliged to do or omit to do anything if it would or might in its reasonable opinion constitute a breach of any law or regulation or a breach of a fiduciary duty or duty of confidentiality.

29.7	Majority Lenders’ Instructions

(a)

Unless a contrary indication appears in a Finance Document, the Facility Agent shall:

(i)

exercise any right, power, authority or discretion vested in it as Facility Agent in accordance with any instructions given to it by the Majority Lenders (or, if so instructed by the Majority Lenders, refrain from exercising any right, power, authority or discretion vested in it as Facility Agent); and

(ii)

not be liable for any act (or omission) if it acts (or refrains from taking any action) in accordance with an instruction of the Majority Lenders.

(b)

Unless a contrary indication appears in a Finance Document, any instructions given by the Majority Lenders will be binding on all the Finance Parties other than the Security Agent.

(c)

The Facility Agent may refrain from acting in accordance with the instructions of the Majority Lenders (or, if appropriate, the Lenders) until it has received such security as it may require for any cost, loss or liability (together with any associated VAT) which it may incur in complying with the instructions.

(d)

In the absence of instructions from the Majority Lenders, (or, if appropriate, the Lenders) the Facility Agent may act (or refrain from taking action) as it considers to be in the best interest of the Lenders.

(e)

The Facility Agent is not authorised to act on behalf of a Lender (without first obtaining that Lender’s consent) in any legal or arbitration proceedings relating to any Finance Document.

29.8	Responsibility for Documentation

Neither the Facility Agent nor the Arrangers:

(a)

is responsible for the adequacy, accuracy and/or completeness of any information (whether oral or written) supplied by the Facility Agent, the Arrangers, an Obligor or any other person given in or in connection with any Finance Document or the transactions contemplated by the Finance Documents; or

(b)

is responsible for the legality, validity, effectiveness, adequacy or enforceability of any Finance Document or Security or any other agreement, arrangement or document entered into, made or executed in anticipation of or in connection with any Finance Document or the Security; or

(c)

is responsible for any determination as to whether any information provided or to be provided to any Finance Party is non-public information the use of which may be regulated or prohibited by applicable law or regulation relating to insider dealing or otherwise.

29.9	Exclusion of Liability

(a)

Without limiting paragraph (b) below, and without prejudice to the provisions of clause 33.10(e) (Disruption to Payment Systems etc.) the Facility Agent will not be liable (including, without limitation, for negligence or any other category of liability whatsoever) for any action taken by it under or in connection with any Finance Document or the Security, unless directly caused by its gross negligence or wilful misconduct.

(b)

No Party (other than the Facility Agent) may take any proceedings against any officer, employee or agent of the Facility Agent in respect of any claim it might have against the Facility Agent or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Finance Document and any officer, employee or agent of the Facility Agent may rely on this clause subject to clause 1.3 (Third Party Rights) and the provisions of the Third Parties Act.

(c)

The Facility Agent will not be liable for any delay (or any related consequences) in crediting an account with an amount required under the Finance Documents to be paid by the Facility Agent if the Facility Agent has taken all necessary steps as soon as reasonably practicable to comply with the regulations or operating procedures of any recognised clearing or settlement system used by the Facility Agent for that purpose.

(d)

Nothing in this agreement shall oblige the Facility Agent or the Arrangers to carry out any “know your customer” or other checks in relation to any person on behalf of any Lender and each Lender confirms to the Facility Agent and the Arrangers that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Facility Agent or the Arrangers.

29.10

Lenders’ Indemnity to the Facility Agent

Each Lender shall (in proportion to its share of the Total Commitments or, if the Total Commitments are then zero, to its share of the Total Commitments immediately prior to their reduction to zero) indemnify the Facility Agent, within three Business Days of demand, against any cost, loss or liability (including, without limitation, for negligence or any other category of liability whatsoever) incurred by the Facility Agent (otherwise than by reason of the Facility Agent’s gross negligence or wilful misconduct) (or, in the case of any cost, loss or liability pursuant to clause 33.10 (Disruption to Payment Systems etc.) notwithstanding the Facility Agent’s negligence, gross negligence or any other category of liability whatsoever but not including any claim based on the fraud of the Facility Agent) in acting as Facility Agent under the Finance Documents (unless the Facility Agent has been reimbursed by an Obligor pursuant to a Finance Document).

29.11

Resignation of the Facility Agent

(a)

The Facility Agent may resign and appoint one of its Affiliates acting through an office in the United Kingdom as successor by giving notice to the other Finance Parties and the Account Party.

(b)

Alternatively the Facility Agent may resign by giving 30 days’ notice to the other Finance Parties and the Account Party, in which case the Majority Lenders (after consultation with the Account Party) may appoint a successor Facility Agent. In addition, the Majority Lenders (after consultation with the Account Party) may require an Impaired Agent to resign after any notice period and (after consultation with the Account Party) may appoint a successor Facility Agent.

(c)

If the Majority Lenders have not appointed a successor Facility Agent in accordance with paragraph (b) above within 30 days after notice of resignation was given, the retiring Facility Agent (after consultation with the Account Party) may appoint a successor Facility Agent (acting through an office in the United Kingdom).

(d)

The retiring Facility Agent shall, at its own cost, make available to the successor Facility Agent such documents and records and provide such assistance as the successor Facility Agent may reasonably request for the purposes of performing its functions as Facility Agent under the Finance Documents.

(e)

The Facility Agent’s resignation notice shall only take effect upon the appointment of a successor.

(f)

Upon the appointment of a successor, the retiring Facility Agent shall be discharged from any further obligation in respect of the Finance Documents but shall remain entitled to the benefit of this clause 29. Any successor and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party.

(g)

After consultation with the Account Party, the Majority Lenders may, by notice to the Facility Agent, require it to resign in accordance with paragraph (b) above. In this event, the Facility Agent shall resign in accordance with paragraph (b) above.

29.12

Confidentiality

(a)

In acting as agent for the Finance Parties, the Facility Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments.

(b)

If information is received by another division or department of the Facility Agent, it may be treated as confidential to that division or department and the Facility Agent shall not be deemed to have notice of it.

(c)

Notwithstanding any other provision of any Finance Document to the contrary, neither the Facility Agent nor the Arrangers are obliged to disclose to any other person:

(i)

any confidential information; or

(ii)

any other information

if the disclosure would or might in its reasonable opinion constitute a breach of any law or a breach of a fiduciary duty.

29.13

Relationship with the Lenders

(a)

The Facility Agent may treat the person shown in its records as Lender at the opening of business (in the place of the Facility Agent’s principal office as notified to the Finance Parties from time to time) as the Lender acting through its Facility Office:

(i)

entitled to or liable for any payment due under any Finance Document on that day; and

(ii)

entitled to receive and act upon any notice, request, document or communication or make any decision or determination under any Finance Document made or delivered on that day,

unless it has received not less than five Business Days’ prior notice from that Lender to the contrary in accordance with the terms of this agreement.

(b)

Each Lender shall supply the Facility Agent with any information that the Security Agent may reasonably specify (through the Facility Agent) as being necessary or desirable to enable the Security Agent to perform its functions as Security Agent. Each Lender shall deal with the Security Agent exclusively through the Facility Agent and shall not deal directly with the Security Agent.

(c)

Any Lender may by notice to the Facility Agent appoint a person to receive on its behalf all notices, communications, information and documents to be made or despatched to that Lender under the Finance Documents. Such notice shall contain the address, fax number and (where communication by electronic mail or other electronic means is permitted under clause 36.6 (Electronic communication)) electronic mail address and/or any other information required to enable the sending and receipt of information by that means (and, in each case, the department or officer, if any, for whose attention communication is to be made) and be treated as a notification of a substitute address, fax number, electronic mail address, department and officer by that Lender for the purposes of clause 36.2 (Addresses) and clause 36.6(a)(iii) (Electronic communication) and the Facility Agent shall be entitled to treat such person as the person entitled to receive all such notices, communications, information and documents as though that person were that Lender.

29.14

Credit Appraisal by the Lenders

Without affecting the responsibility of any Obligor for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms to the Facility Agent and the Arrangers that it has been, and will continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Finance Document including but not limited to:

(a)

the financial condition, status and nature of each member of the Group;

(b)

the legality, validity, effectiveness, adequacy or enforceability of any Finance Document and the Security and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document or the Security;

(c)

whether that Lender has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any Finance Document, the Security, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document;

(d)

the adequacy, accuracy and/or completeness of any other information provided by the Facility Agent, any Party or by any other person under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; and

(e)

the right or title of any person in or to, or the value or sufficiency of any part of the Charged Property, the priority of any of the Security or the existence of any Encumbrance affecting the Charged Property.

29.15

Deduction from Amounts Payable by the Facility Agent

If any Party owes an amount to the Facility Agent under the Finance Documents the Facility Agent may, after giving notice to that Party, deduct an amount not exceeding that amount from any payment to that Party which the Facility Agent would otherwise be obliged to make under the Finance Documents and apply the amount deducted in or towards satisfaction of the amount owed. For the purposes of the Finance Documents that Party shall be regarded as having received any amount so deducted.

30.	ROLE OF THE SECURITY AGENT

30.1	Appointment of the Security Agent

(a)

Each of the Guaranteed Finance Parties appoints the Security Agent to act as its security agent under and in connection with the Guaranteed Documents.

(b)

Each of the Guaranteed Finance Parties authorises the Security Agent to exercise the rights, powers, authorities and discretions specifically given to the Security Agent under or in connection with the Guaranteed Documents together with any other incidental rights, powers, authorities and discretions.

30.2

Trust

(a)

The Security Agent declares that it shall hold the Security on trust for the Secured Parties on the terms contained in this agreement.

(b)

Each of the Parties agrees that the Security Agent shall have only those duties, obligations and responsibilities expressly specified in this agreement or in the Security Documents to which the Security Agent is expressed to be a party (and no others shall be implied).

30.3	No Independent Power

The Secured Parties shall not have any independent power to enforce, or have recourse to, any of the Security or to exercise any rights or powers arising under the Security Documents (other than the Facilities Agreement) except through the Security Agent.

30.4	Instructions to Security Agent and Exercise of Discretion

(a)

Subject to paragraphs (d) and (e) below, the Security Agent shall act in accordance with any instructions given to it by the Majority Lenders or, if so instructed by the Majority Lenders, refrain from exercising any right, power, authority or discretion vested in it as Security Agent and shall be entitled to assume that (i) any instructions received by it from the Facility Agent, the Lenders or a group of Lenders are duly given in accordance with the terms of the relevant Finance Documents and (ii) unless it has received actual notice of revocation, that those instructions or directions have not been revoked.

(b)

The Security Agent shall be entitled to request instructions, or clarification of any direction, from the Majority Lenders as to whether, and in what manner, it should exercise or refrain from exercising any rights, powers, authorities and discretions and the Security Agent may refrain from acting unless and until those instructions or clarification are received by it.

(c)

Any instructions given to the Security Agent by the Majority Lenders shall override any conflicting instructions given by any other Parties.

(d)

Paragraph (a) above shall not apply:

(i)

where a contrary indication appears in this agreement;

(ii)

where this agreement requires the Security Agent to act in a specified manner or to take a specified action;

(iii)

in respect of any provision which protects the Security Agent’s own position in its personal capacity as opposed to its role of Security Agent for the Secured Parties including, without limitation, the provisions set out in clauses 30.6 (Security Agent’s Discretions) to clause 30.21 (Disapplication) (inclusive).

(e)

In exercising any discretion to exercise a right, power or authority under this agreement where it has not received any instructions from the Majority Lenders as to the exercise of that discretion, the Security Agent shall do so having regard to the interests of all the Secured Parties.

30.5	Security Agent’s Actions

The Security Agent may (but shall not be obliged to), in the absence of any instructions to the contrary, take such action in the exercise of any of its powers and duties under the Finance Documents as it considers in its discretion to be appropriate.

30.6	Security Agent’s Discretions

The Security Agent may:

(a)

assume (unless it has received actual notice to the contrary from the Facility Agent) that (i) no Default has occurred and no Obligor is in breach of or default under its obligations under any of the Guaranteed Documents and (ii) any right, power, authority or discretion vested by any Guaranteed Document in any person has not been exercised;

(b)

if it receives any instructions or directions from the Agent to take any action in relation to the Security, assume that all applicable conditions under the Guaranteed Documents for taking that action have been satisfied

(c)

engage, pay for and rely on the advice or services of any legal advisers, accountants, tax advisers, surveyors or other experts (whether obtained by the Security Agent or by any other Secured Party) whose advice or services may at any time seem necessary, expedient or desirable;

(d)

rely upon any communication or document believed by it to be genuine and, as to any matters of fact which might reasonably be expected to be within the knowledge of a Secured Party or an Obligor, upon a certificate signed by or on behalf of that person; and

(e)

refrain from acting in accordance with the instructions of any Party (including bringing any legal action or proceeding arising out of or in connection with the Guaranteed Documents) until it has received any indemnification and/or security that it may in its discretion require (whether by way of payment in advance or otherwise) for all costs, losses and liabilities which it may incur in so acting.

30.7	Security Agent’s Obligations

The Security Agent shall promptly:

(a)

copy to the Facility Agent the contents of any notice or document received by it from any Obligor under any Finance Document;

(b)

forward to a Party the original or a copy of any document which is delivered to the Security Agent for that Party by any other Party provided that, except where a Finance Document expressly provides otherwise, the Security Agent is not obliged to review or check the adequacy, accuracy or completeness of any document it forwards to another Party; and

(c)

inform the Facility Agent of the occurrence of any Default or any default by an Obligor in the due performance of or compliance with its obligations under any Guaranteed Document of which the Security Agent has received notice from any other party to this agreement.

30.8	Excluded Obligations

Notwithstanding anything to the contrary expressed or implied in the Guaranteed Documents, the Security Agent shall not:

(a)

be bound to enquire as to (i) whether or not any Default has occurred or (ii) the performance, default or any breach by an Obligor of its obligations under any of the Guaranteed Documents;

(b)

be bound to account to any other Party for any sum or the profit element of any sum received by it for its own account;

(c)

be bound to disclose to any other person (including but not limited to any Secured Party) (i) any confidential information or (ii) any other information if disclosure would, or might in its reasonable opinion, constitute a breach of any law or be a breach of fiduciary duty; or

(d)

have or be deemed to have any relationship of trust or agency with any Obligor.

30.9	Exclusion of Liability

None of the Security Agent, any Receiver nor any Delegate shall accept responsibility or be liable for:

(a)

the adequacy, accuracy or completeness of any information (whether oral or written) supplied by the Security Agent or any other person in or in connection with any Guaranteed Document or the transactions contemplated in the Guaranteed Documents, or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Guaranteed Document;

(b)

the legality, validity, effectiveness, adequacy or enforceability of any Guaranteed Document, the Charged Property or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Guaranteed Document or the Charged Property;

(c)

any losses to any person or any liability arising as a result of taking or refraining from taking any action in relation to any of the Guaranteed Documents, the Charged Property or otherwise, whether in accordance with an instruction from the Facility Agent or otherwise unless directly caused by its gross negligence or wilful misconduct;

(d)

the exercise of, or the failure to exercise, any judgment, discretion or power given to it by or in connection with any of the Guaranteed Documents, the Charged Property or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with, the Guaranteed Documents or the Charged Property; or

(e)

any shortfall which arises on the enforcement or realisation of the Charged Property.

30.10

No Proceedings

No Party (other than the Security Agent, that Receiver or that Delegate) may take any proceedings against any officer, employee or agent of the Security Agent, a Receiver or a Delegate in respect of any claim it might have against the Security Agent, a Receiver or a Delegate or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Guaranteed Document or any Charged Property and any officer, employee or agent of the Security Agent, a Receiver or a Delegate may rely on this clause subject to clause 1.3 (Third Party Rights) and the provisions of the Third Parties Rights Act.

30.11

Own Responsibility

Without affecting the responsibility of any Obligor for information supplied by it or on its behalf in connection with any Guaranteed Document, each Secured Party confirms to the Security Agent that it has been, and will continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Guaranteed Document including but not limited to:

(a)

the financial condition, status and nature of each member of the Group;

(b)

the legality, validity, effectiveness, adequacy and enforceability of any Guaranteed Document, the Charged Property and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Guaranteed Document or the Charged Property;

(c)

whether that Secured Party has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any Guaranteed Document, the Charged Property, the transactions contemplated by the Guaranteed Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Guaranteed Document or the Charged Property;

(d)

the adequacy, accuracy and/or completeness of any information provided by the Security Agent or by any other person under or in connection with any Guaranteed Document, the transactions contemplated by any Guaranteed Document or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Guaranteed Document; and

(e)

the right or title of any person in or to, or the value or sufficiency of any part of the Charged Property, the priority of any of the Security or the existence of any Security affecting the Charged Property,

and each Secured Party warrants to the Security Agent that it has not relied on and will not at any time rely on the Security Agent in respect of any of these matters.

30.12

No Responsibility to Perfect Security

The Security Agent shall not be liable for any failure to:

(a)

require the deposit with it of any deed or document certifying, representing or constituting the title of any Obligor to any of the Charged Property;

(b)

obtain any licence, consent or other authority for the execution, delivery, legality, validity, enforceability or admissibility in evidence of any of the Guaranteed Documents or the Security;

(c)

register, file or record or otherwise protect any of the Security (or the priority of any of the Security) under any applicable laws in any jurisdiction or to give notice to any person of the execution of any of the Guaranteed Documents or of the Security;

(d)

take, or to require any of the Obligors to take, any steps to perfect its title to any of the Charged Property or to render the Security effective or to secure the creation of any ancillary Encumbrance under the laws of any jurisdiction; or

(e)

require any further assurances in relation to any of the Security Documents.

30.13

Insurance by Security Agent

(a)

The Security Agent shall not be under any obligation to insure any of the Charged Property, to require any other person to maintain any insurance or to verify any obligation to arrange or maintain insurance contained in the Guaranteed Documents. The Security Agent shall not be responsible for any loss which may be suffered by any person as a result of the lack of or inadequacy of any such insurance.

(b)

Where the Security Agent is named on any insurance policy as an insured party, it shall not be responsible for any loss which may be suffered by reason of, directly or indirectly, its failure to notify the insurers of any material fact relating to the risk assumed by such insurers or any other information of any kind, unless the Facility Agent shall have requested it to do so in writing and the Security Agent shall have failed to do so within fourteen days after receipt of that request.

30.14

Custodians and Nominees

The Security Agent may appoint and pay any person to act as a custodian or nominee on any terms in relation to any assets of the trust as the Security Agent may determine, including for the purpose of depositing with a custodian this agreement or any document relating to the trust created under this agreement and the Security Agent shall not be responsible for any loss, liability, expense, demand, cost, claim or proceedings incurred by reason of the misconduct, omission or default on the part of any person appointed by it under this agreement or be bound to supervise the proceedings or acts of any person.

30.15

Acceptance of Title

The Security Agent shall be entitled to accept without enquiry, and shall not be obliged to investigate, any right and title that any of the Obligors may have to any of the Charged Property and shall not be liable for or bound to require any Obligor to remedy any defect in its right or title.

30.16

Refrain from Illegality

Notwithstanding anything to the contrary expressed or implied in the Guaranteed Documents, the Security Agent may refrain from doing anything which in its opinion will or may be contrary to any relevant law, directive or regulation of any jurisdiction and the Security Agent may do anything which is, in its opinion, necessary to comply with any such law, directive or regulation.

30.17

Business with the Obligors

The Security Agent may accept deposits from, lend money to, and generally engage in any kind of banking or other business with any of the Obligors.

30.18

Winding up of Trust

If the Security Agent, with the approval of the Majority Lenders, determines that (a) all of the Secured Obligations and all other obligations secured by the Security Documents have been fully and finally discharged and (b) none of the Secured Parties is under any commitment, obligation or liability (actual or contingent) to make advances or provide other financial accommodation to any Obligor pursuant to the Guaranteed Documents:

(a)

the trusts set out in this agreement shall be wound up and the Security Agent shall release, without recourse or warranty, all of the Security and the rights of the Security Agent under each of the Security Documents; and

(b)

any Retiring Security Agent shall release, without recourse or warranty, all of its rights under each of the Security Documents.

30.19

Powers Supplemental

The rights, powers and discretions conferred upon the Security Agent by this agreement shall be supplemental to the Trustee Act 1925 and the Trustee Act 2000 and in addition to any which may be vested in the Security Agent by general law or otherwise.

30.20

Trustee Division Separate

(a)

In acting as trustee for the Secured Parties, the Security Agent shall be regarded as acting through its trustee division which shall be treated as a separate entity from any of its other divisions or departments.

(b)

If information is received by another division or department of the Security Agent, it may be treated as confidential to that division or department and the Security Agent shall not be deemed to have notice of it.

30.21

Disapplication

Section 1 of the Trustee Act 2000 shall not apply to the duties of the Security Agent in relation to the trusts constituted by this agreement. Where there are any inconsistencies between the Trustee Act 1925 or the Trustee Act 2000 and the provisions of this agreement, the provisions of this agreement shall, to the extent allowed by law, prevail and, in the case of any inconsistency with the Trustee Act 2000, the provisions of this agreement shall constitute a restriction or exclusion for the purposes of that Act.

30.22

Resignation of the Security Agent

(a)

The Security Agent may resign and appoint one of its affiliates as successor by giving notice to the Account Party and the Secured Parties.

(b)

Alternatively the Security Agent may resign by giving notice to the other Parties in which case the Majority Lenders may appoint a successor Security Agent.

(c)

After consultation with the Account Party, the Majority Lenders may, by notice to the Security Agent, terminate the appointment of the Security Agent and appoint a successor Security Agent. That termination and new appointment may be made in respect of all or any part of the Security Agent’s duties, obligations and responsibilities.

(d)

If the Majority Lenders have not appointed a successor Security Agent in accordance with paragraph (b) or (c) above within 30 days after the notice of resignation or termination was given, the Security Agent (after consultation with the Facility Agent) may appoint a successor Security Agent.

(e)

The resigning or terminated Security Agent (the “Retiring Security Agent” ) shall, at its own cost (in the case of resignation) and at the Account Party’s cost (in the case of termination), make available to the successor Security Agent such documents and records and provide such assistance as the successor Security Agent may reasonably request for the purposes of performing its functions as Security Agent under the Guaranteed Documents.

(f)

The Security Agent’s resignation or termination shall only take effect upon the transfer of all of the Charged Property to a duly appointed successor (unless the Security Agent, the intended successor and the Majority Lenders agree otherwise).

(g)

Upon the appointment of a successor, the Retiring Security Agent shall be discharged from any further obligation in respect of the Guaranteed Documents (other than its obligations under clause 30.18 (Winding up of Trust) and under paragraph (d) above) but shall, in respect of any act or omission by it whilst it was the Security Agent, remain entitled to the benefit of clauses 30 (Role of the Security Agent) and clause 10.1 (Account Party’s Indemnity to the Secured Parties). Its successor and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if that successor had been an original Party.

30.23

Delegation

(a)

Each of the Security Agent, any Receiver and any Delegate may, at any time, delegate by power of attorney or otherwise to any person for any period, all or any of the rights, powers and discretions vested in it by any of the Guaranteed Documents.

(b)

That delegation may be made upon any terms and conditions (including the power to sub-delegate) and subject to any restrictions that the Security Agent, that Receiver or that Delegate (as the case may be) may, in its discretion, think fit in the interests of the Secured Parties and it shall not be bound to supervise, or be in any way responsible for any loss incurred by reason of any misconduct or default on the part of any such delegate or sub-delegate.

30.24

Additional Security Agents

(a)

The Security Agent may at any time appoint (and subsequently remove) any person to act as a separate trustee or as a co-trustee jointly with it (i) if it considers that appointment to be in the interests of the Secured Parties or (ii) for the purposes of conforming to any legal requirements, restrictions or conditions which the Security Agent deems to be relevant or (iii) for obtaining or enforcing any judgment in any jurisdiction, and the Security Agent shall give prior notice to the Account Party and to the Facility Agent of that appointment.

(b)

Any person so appointed shall have the rights, powers and discretions (not exceeding those conferred on the Security Agent by this agreement) and the duties and obligations that are conferred or imposed by the instrument of appointment.

(c)

The remuneration that the Security Agent may pay to that person, and any costs and expenses (together with any applicable VAT) incurred by that person in performing its functions pursuant to that appointment shall, for the purposes of this agreement, be treated as costs and expenses incurred by the Security Agent.

31.	CONDUCT OF BUSINESS BY THE FINANCE PARTIES

No provision of this agreement will:

(a)

interfere with the right of any Finance Party to arrange its affairs (tax or otherwise) in whatever manner it thinks fit;

(b)

oblige any Finance Party to investigate or claim any credit, relief, remission or repayment available to it or the extent, order and manner of any claim; or

(c)

oblige any Finance Party to disclose any information relating to its affairs (tax or otherwise) or any computations in respect of Tax.

32.	SHARING AMONG THE FINANCE PARTIES

32.1	Payments to Finance Parties

If a Finance Party (a “Recovering Finance Party” ) receives or recovers any amount from an Obligor other than in accordance with clause 33 (Payment Mechanics) (a “Recovered Amount” ) and applies that amount to a payment due under the Finance Documents then:

(a)

the Recovering Finance Party shall, within three Business Days, notify details of the receipt or recovery to the Facility Agent;

(b)

the Facility Agent shall determine whether the receipt or recovery is in excess of the amount the Recovering Finance Party would have been paid had the receipt or recovery been received or made by the Facility Agent and distributed in accordance with clause 33 (Payment Mechanics), without taking account of any Tax which would be imposed on the Facility Agent in relation to the receipt, recovery or distribution; and

(c)

the Recovering Finance Party shall, within three Business Days of demand by the Facility Agent, pay to the Facility Agent an amount (the “Sharing Payment” ) equal to such receipt or recovery less any amount which the Facility Agent determines may be retained by the Recovering Finance Party as its share of any payment to be made, in accordance with clause 33.5 (Partial Payments).

32.2	Redistribution of Payments

The Facility Agent shall treat the Sharing Payment as if it had been paid by the relevant Obligor and distribute it between the Finance Parties (other than the Recovering Finance Party) (the “Sharing Finance Parties” ) in accordance with clause 33.5 (Partial Payments) towards the obligations of that Obligor to the Sharing Finance Parties.

32.3	Recovering Finance Party’s Rights

On a distribution by the Facility Agent under clause 32.2 (Redistribution of payments) of a payment received by a Recovering Finance Party from an Obligor, as between the relevant Obligor and the Recovering Finance Party, an amount of the Recovered Amount equal to the Sharing Payment will be treated as not having been paid by that Obligor.

32.4	Reversal of Redistribution

If any part of the Sharing Payment received or recovered by a Recovering Finance Party becomes repayable and is repaid by that Recovering Finance Party, then:

(a)

each Sharing Finance Party shall, upon request of the Facility Agent, pay to the Facility Agent for the account of that Recovering Finance Party an amount equal to the appropriate part of its share of the Sharing Payment (together with an amount as is necessary to reimburse that Recovering Finance Party for its proportion of any interest on the Sharing Payment which that Recovering Finance Party is required to pay) (the “Redistributed Amount” ); and

(b)

as between the relevant Obligor and each relevant Sharing Finance Party, an amount equal to the relevant Redistributed Amount will be treated as not having been paid by that Obligor.

32.5	Exceptions

(a)

This clause 32 shall not apply to the extent that the Recovering Finance Party would not, after making any payment pursuant to this clause, have a valid and enforceable claim against the relevant Obligor.

(b)

A Recovering Finance Party is not obliged to share with any other Finance Party any amount which the Recovering Finance Party has received or recovered as a result of taking legal or arbitration proceedings, if:

(i)

it notified that other Finance Party of the legal or arbitration proceedings; and

(ii)

that other Finance Party had an opportunity to participate in those legal or arbitration proceedings but did not do so as soon as reasonably practicable having received notice and did not take separate legal or arbitration proceedings.

33.	PAYMENT MECHANICS

33.1	Payments to the Facility Agent

(a)

On each date on which an Obligor or a Lender is required to make a payment under a Finance Document, that Obligor or Lender shall make the same available to the Facility Agent (unless a contrary indication appears in a Finance Document) for value on the due date at the time and in such funds specified by the Facility Agent as being customary at the time for settlement of transactions in the relevant currency in the place of payment.

(b)

Payment shall be made to such account in the principal financial centre of the country of that currency with such bank as the Facility Agent specifies.

33.2	Distributions by the Facility Agent

Each payment received by the Facility Agent under the Finance Documents for another Party shall, subject to clause 33.3 (Distributions to an Obligor) and clause 33.4 (Clawback), be made available by the Facility Agent as soon as practicable after receipt to the Party entitled to receive payment in accordance with this agreement (in the case of a Lender, for the account of its Facility Office), to such account as that Party may notify to the Facility Agent by not less than five Business Days’ notice with a bank in the principal financial centre of the country of that currency (or, in relation to euro, in the principal financial centre of a Participating Member State or London).

33.3	Distributions to an Obligor

The Facility Agent may (with the consent of the Obligor or in accordance with clause 34 (Set-Off)) apply any amount received by it for that Obligor in or towards payment (on the date and in the currency and funds of receipt) of any amount due from that Obligor under the Finance Documents or in or towards purchase of any amount of any currency to be so applied.

33.4	Clawback

(a)

Where a sum is to be paid to the Facility Agent under the Finance Documents for another Party, the Facility Agent is not obliged to pay that sum to that other Party (or to enter into or perform any related exchange contract) until it has been able to establish to its satisfaction that it has actually received that sum.

(b)

If the Facility Agent pays an amount to another Party and it proves to be the case that the Facility Agent had not actually received that amount, then the Party to whom that amount (or the proceeds of any related exchange contract) was paid by the Facility Agent shall on demand refund the same to the Facility Agent together with interest on that amount from the date of payment to the date of receipt by the Facility Agent, calculated by the Facility Agent to reflect its cost of funds.

33.5	Partial Payments

(a)

If the Facility Agent receives a payment that is insufficient to discharge all the amounts then due and payable by an Obligor under the Finance Documents, the Facility Agent shall (to the extent permitted by applicable law) apply that payment towards the obligations of that Obligor under the Finance Documents in the following order:

(i)

first , in or towards payment pro rata of any unpaid fees, costs and expenses of the Facility Agent and the Security Agent under the Finance Documents;

(ii)

secondly , in or towards payment pro rata of any accrued interest, fee or commission due but unpaid under this agreement;

(iii)

thirdly , in or towards payment pro rata of any principal due but unpaid under this agreement; and

(iv)

fourthly , in or towards payment pro rata of any other sum due but unpaid under the Finance Documents.

(b)

The Facility Agent shall, if so directed by Majority Lenders, vary the order set out in paragraphs (a)(ii) to (iv) (inclusive) above.

(c)

Paragraphs (a) and (b) above will override any appropriation made by an Obligor.

33.6	No Set-Off by Obligors

All payments to be made by an Obligor under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim.

33.7	Business Days

(a)

Any payment which is due to be made on a day that is not a Business Day shall be made on the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not).

(b)

During any extension of the due date for payment of any principal or Unpaid Sum under this agreement interest is payable on the principal or Unpaid Sum at the rate payable on the original due date.

33.8	Currency of Account

(a)

Subject to paragraphs (b) to (e) (inclusive) below, Sterling is the currency of account and payment for any sum due from an Obligor under any Finance Document.

(b)

A repayment or prepayment of an Unpaid Sum or a part of a Loan or Unpaid Sum shall be made in the currency in which that Unpaid Sum is denominated on its due date.

(c)

Each payment of interest shall be made in the currency in which the sum in respect of which the interest is payable was denominated when that interest accrued.

(d)

Each payment in respect of costs, expenses or Taxes shall be made in the currency in which the costs, expenses or Taxes are incurred.

(e)

Any amount expressed to be payable in a currency other than Sterling shall be paid in that other currency.

33.9	Change of Currency

(a)

Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognised by the central bank of any country as the lawful currency of that country, then:

(i)

any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be translated into, or paid in, the currency or currency unit of that country designated by the Facility Agent (after consultation with the Account Party); and

(ii)

any translation from one currency or currency unit to another shall be at the official rate of exchange recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Facility Agent (acting reasonably).

(b)

If a change in any currency of a country occurs, this agreement will, to the extent the Facility Agent (acting reasonably and after consultation with the Account Party) specifies to be necessary, be amended to comply with any generally accepted conventions and market practice in the Relevant Interbank Market and otherwise to reflect the change in currency.

33.10

Disruption to Payment Systems etc.

If either the Facility Agent determines (in its discretion) that a Disruption Event has occurred or the Facility Agent is notified by the Account Party that a Disruption Event has occurred:

(a)

the Facility Agent may, and shall if requested to do so by the Account Party, consult with the Account Party with a view to agreeing with the Account Party such changes to the operation or administration of the Facilities as the Facility Agent may deem necessary in the circumstances;

(b)

the Facility Agent shall not be obliged to consult with the Account Party in relation to any changes mentioned in paragraph (a) above if, in its opinion, it is not practicable to do so in the circumstances and, in any event, shall have no obligation to agree to such changes;

(c)

the Facility Agent may consult with the Finance Parties in relation to any changes mentioned in paragraph (a) above but shall not be obliged to do so if, in its opinion, it is not practicable to do so in the circumstances;

(d)

any such changes agreed upon by the Facility Agent and the Account Party shall (whether or not it is finally determined that a Disruption Event has occurred) be binding upon the Parties as an amendment to (or, as the case may be, waiver of) the terms of the Finance Documents notwithstanding the provisions of clause 40 (Amendments and Waivers);

(e)

the Facility Agent shall not be liable for any damages, costs or losses whatsoever (including, without limitation for negligence, gross negligence or any other category of liability whatsoever but not including any claim based on the fraud of the Facility Agent) arising as a result of its taking, or failing to take, any actions pursuant to or in connection with this clause 33.10; and

(f)

the Facility Agent shall notify the Finance Parties of all changes agreed pursuant to paragraph (d) above.

33.11

Impaired Agent

(a)

If, at any time, the Facility Agent becomes an Impaired Agent, an Obligor or a Lender which is required to make a payment under the Finance Documents to the Facility Agent in accordance with this clause 33 may instead either pay that amount direct to the required recipient or pay that amount to an interest-bearing account held with a Lender nominated by the Majority Lenders and in relation to which no Insolvency Event has occurred and is continuing, in the name of the Obligor or the Lender making the payment and designated as a trust account for the benefit of the Party or Parties beneficially entitled to that payment under the Finance Documents. In each case such payments must be made on the due date for payment under the Finance Documents.

(b)

All interest accrued on the amount standing to the credit of the trust account shall be for the benefit of the beneficiaries of that trust account pro rata to their respective entitlements.

(c)

A Party which has made a payment in accordance with this clause 33.11 shall be discharged of the relevant payment obligation under the Finance Documents and shall not take any credit risk with respect to the amounts standing to the credit of the trust account.

(d)

Promptly upon the appointment of a successor Facility Agent in accordance with this agreement, each Party which has made a payment to a trust account in accordance with this clause 33.11 shall give all requisite instructions to the bank with whom the trust account is held to transfer the amount (together with any accrued interest) to the successor Facility Agent for distribution in accordance with clause 33.2 (Distributions by the Facilities Agent).

34.	SET-OFF

Following an Event of Default which is continuing, a Finance Party may set off any matured obligation due from an Obligor under the Finance Documents (to the extent beneficially owned by that Finance Party) against any matured obligation owed by that Finance Party to that Obligor, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.

35.	APPLICATION OF PROCEEDS

35.1	Order of Application

All amounts from time to time received or recovered by the Security Agent in connection with the realisation or enforcement of all or any part of the Security shall be held by the Security Agent on trust to apply them at any time as the Security Agent (in its discretion) sees fit, to the extent permitted by applicable law (and subject to the provisions of this clause 35), in the following order of priority:

(a)

in discharging any sums owing to the Security Agent, any Receiver or any Delegate;

(b)

in payment to the Agent, on behalf of the Secured Parties (or, in the case of the Overdraft Facility, directly to the Overdraft Provider), for application on a pro rata basis towards the discharge of all sums due and payable by any Obligor under any of the Finance Documents (to be applied) in accordance with clause 33.5 (Partial Payments) and the Overdraft Facility Letter to the extent that it constitutes Permitted Financial Indebtedness;

(c)

if none of the Obligors is under any further actual or contingent liability under any Guaranteed Document, in payment to any person to whom the Security Agent is obliged to pay in priority to any Obligor; and

(d)

the balance, if any, in payment to the relevant Obligor.

35.2	Investment of Proceeds

Prior to the application of the proceeds of the Security Property in accordance with clause 35.1 (Order of Application), the Security Agent may, in its discretion, hold all or part of those proceeds in an interest-bearing suspense or impersonal account(s) in the name of the Security Agent with such financial institution (including itself) and for so long as the Security Agent shall think fit (the interest being credited to the relevant account) pending the application from time to time of those monies in the Security Agent’s discretion in accordance with the provisions of this clause 35.

35.3	Currency Conversion

(a)

For the purpose of, or pending the discharge of, any of the Secured Obligations, the Security Agent may convert any moneys received or recovered by the Security Agent from one currency to another, at the Security Agent’s spot rate of exchange.

(b)

The obligations of any Obligor to pay in the due currency shall only be satisfied to the extent of the amount of the due currency purchased after deducting the costs of conversion.

35.4	Permitted Deductions

The Security Agent shall be entitled, in its discretion, (a) to set aside by way of reserve amounts required to meet and (b) to make and pay, any deductions and withholdings (on account of taxes or otherwise) which it is or may be required by any applicable law to make from any distribution or payment made by it under this agreement, and to pay all Taxes which may be assessed against it in respect of any of the Charged Property, or as a consequence of performing its duties, or by virtue of its capacity as Security Agent under any of the Finance Documents or otherwise (other than in connection with its remuneration for performing its duties under this agreement).

35.5	Good Discharge

(a)

Any payment to be made in respect of the Secured Obligations by the Security Agent may be made to the Facility Agent on behalf of the Lenders or (as applicable) the Overdraft Provider and any payment made in that way shall be a good discharge, to the extent of that payment, by the Security Agent.

(b)

The Security Agent is under no obligation to make the payments to the Facility Agent or (as applicable) the Overdraft Provider under paragraph (a) above in the same currency as that in which the Secured Obligations owing to the relevant Lender or (as applicable) the Overdraft Provider are denominated.

35.6	Sums received by Obligors

If any of the Obligors receives any sum which, pursuant to any of the Guaranteed Documents, should have been paid to the Security Agent, that sum shall promptly be paid to the Security Agent for application in accordance with this clause 35.

36.	NOTICES

36.1	Communications in Writing

Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax or letter.

36.2	Addresses

The address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with the Finance Documents is:

(a)

in the case of the Account Party, that identified with its name below;

(b)

in the case of each Lender or any other Original Obligor, that notified in writing to the Facility Agent on or prior to the date on which it becomes a Party; and

(c)

in the case of the Facility Agent or the Security Agent, that identified with its name below,

or any substitute address or fax number or department or officer as the Party may notify to the Facility Agent (or the Facility Agent may notify to the other Parties, if a change is made by the Facility Agent) by not less than five Business Days’ notice.

36.3	Delivery

(a)

Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective:

(i)

if by way of fax, when received in legible form; or

(ii)

if by way of letter, when it has been left at the relevant address or five Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address,

and, if a particular department or officer is specified as part of its address details provided under clause 36.2 (Addresses), if addressed to that department or officer.

(b)

Any communication or document to be made or delivered to the Facility Agent or the Security Agent will be effective only when actually received by the Facility Agent and then only if it is expressly marked for the attention of the department or officer identified with the Facility Agent’s signature below (or any substitute department or officer as the Facility Agent shall specify for this purpose).

(c)

All notices from or to an Obligor shall be sent through the Facility Agent.

(d)

Any communication or document made or delivered to the Account Party in accordance with this clause will be deemed to have been made or delivered to each of the Obligors.

36.4	Notification of Address and Fax Number

Promptly upon receipt of notification of an address or fax number or change of address or fax number pursuant to clause 36.2 (Addresses) or changing its own address or fax number, the Facility Agent shall notify the other Parties.

36.5	Communication when Facility Agent is Impaired Agent

If the Facility Agent is an Impaired Agent, the Parties may, instead of communicating with each other through the Facility Agent, communicate with each other directly and (while the Facility Agent is an Impaired Agent) all the provisions of the Finance Documents which require communications to be made or notices to be given to or by the Facility Agent shall be varied so that communications may be made and notices given to or by the relevant Parties directly. This provision shall not operate after a replacement Facility Agent has been appointed.

36.6	Electronic Communication

(a)

Any communication to be made between the Facility Agent and a Lender or the Security Agent under or in connection with the Finance Documents may be made by electronic mail or other electronic means, if the Facility Agent, the Security Agent and the relevant Lender:

(i)

agree that, unless and until notified to the contrary, this is to be an accepted form of communication;

(ii)

notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receipt of information by that means; and

(iii)

notify each other of any change to their address or any other such information supplied by them.

(b)

Any electronic communication made between the Facility Agent and a Lender or the Security Agent will be effective only when actually received in readable form and in the case of any electronic communication made by a Lender to the Facility Agent or the Security Agent only if it is addressed in such a manner as the Facility Agent or the Security Agent shall specify for this purpose.

36.7	English Language

(a)

Any notice given under or in connection with any Finance Document must be in English.

(b)

All other documents provided under or in connection with any Finance Document must be:

(i)

in English; or

(ii)

if not in English, and if so required by the Facility Agent, accompanied by a certified English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other official document.

37.	CALCULATIONS AND CERTIFICATES

37.1	Accounts

In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by a Finance Party are prima facie evidence of the matters to which they relate.

37.2	Certificates and Determinations

Any certification or determination by a Finance Party of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates.

37.3	Day Count Convention

Any interest, commission or fee accruing under a Finance Document will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 365 days or, in any case where the practice in the London interbank market differs, in accordance with that market practice.

38.	PARTIAL INVALIDITY

If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.

39.	REMEDIES AND WAIVERS

No failure to exercise, nor any delay in exercising, on the part of any Finance Party, any right or remedy under the Finance Documents shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this agreement are cumulative and not exclusive of any rights or remedies provided by law.

40.	AMENDMENTS AND WAIVERS

40.1	Required Consents

(a)

Subject to clause 40.2 (Exceptions) any term of the Finance Documents may be amended or waived only with the consent of the Majority Lenders and the Account Party and any such amendment or waiver will be binding on all Parties.

(b)

The Facility Agent or in respect of the Security Documents, the Security Agent may effect, on behalf of any Finance Party, any amendment or waiver permitted by this clause.

(c)

Each Obligor agrees to any such amendment or waiver permitted by this clause 40. which is agreed to by the Account Party. This includes any amendment or waiver which would, but for this paragraph (c), require the consent of all of the Guarantors.

40.2	Exceptions

(a)

An amendment or waiver that has the effect of changing or which relates to:

(i)

the definition of “Majority Lenders” in clause 1.1 (Definitions);

(ii)

an extension to the date of payment of any amount under the Finance Documents;

(iii)

a reduction in the amount of any payment of principal, interest, fees or commission payable;

(iv)

an increase in or an extension of any Commitment;

(v)

a change to the Guarantors other than in accordance with clause 28 (Changes to the Obligors);

(vi)

any provision which expressly requires the consent of all the Lenders;

(vii)

clause 2.2 (Finance Parties’ Rights and Obligations), clause 27 (Changes to the Lenders), clause 32 (Sharing among the Finance Parties) or this clause 40;

(viii)

clause 11.4 (Change of Control);

(ix)

the definition of “Availability Period” in clause 1.1 (Definitions);

(x)

clause 24.1 (Financial Condition);

(xi)

a waiver of an Event of Default;

(xii)

the nature or scope of the guarantee and indemnity granted under clause 20 (Guarantee and Indemnity);

(xiii)

the nature and scope of the Charged Property or the manner in which the proceeds of enforcement of the Security are distributed; or

(xiv)

the release of any Security,

shall not be made without the prior consent of all the Lenders.

(b)

An amendment or waiver which relates to the rights or obligations of the Facility Agent, an Arranger or the Security Agent (each in their capacity as such) may not be effected without the consent of the Facility Agent, that Arranger or, as the case may be, the Security Agent.

(c)

An amendment or waiver which relates to the rights or obligations of the Overdraft Provider (including any such amendment or waiver referred to in paragraphs (a)(v), (viii), (ix) or (x) above) may not be effected without the consent of the Overdraft Provider.

40.3	Replacement of a Defaulting Lender

(a)

The Account Party may, at any time a Lender has become and continues to be a Defaulting Lender, by giving ten Business Days’ prior written notice to the Facility Agent and that Lender:

(i)

replace that Lender by requiring that Lender to (and that Lender shall) transfer pursuant to clause 27 (Changes to the Lenders) all (and not part only) of its rights and obligations under this agreement;

(ii)

require that Lender to (and that Lender shall) transfer pursuant to clause 27 (Changes to the Lenders) all (and not part only) of the undrawn Commitment of that Lender; or

(iii)

require that Lender to (and that Lender shall) transfer pursuant to clause 27 (Changes to the Lenders) all (and not part only) of its rights and obligations in respect of the Facility,

to a Lender or other Approved Credit Institution selected by the Account Party, and which (unless the Facility Agent is an Impaired Agent) is acceptable to the Facility Agent (acting reasonably), which confirms its willingness to assume and does assume all the obligations or all the relevant obligations of the transferring Lender (including the assumption of the transferring Lender’s participations on the same basis as the transferring Lender).

(b)

Any transfer of rights and obligations of a Defaulting Lender pursuant to this clause shall be subject to the following conditions:

(i)

the Account Party shall have no right to replace the Facility Agent or Security Agent;

(ii)

the Default Lender must receive the purchase price in cash payable at the time of transfer equal to any amount paid by that Defaulting Lender under or in connection with any Letter of Credit and all accrued interest, fees, break costs and any other amount payable to such Defaulting Lender under the Finance Documents;

(iii)

neither the Facility Agent nor the Defaulting Lender shall have any obligation to the Account Party to find a replacement Lender; and

(iv)

in no event shall the Defaulting Lender be required to pay or surrender to the replacement Lender any of the fees received by the Defaulting Lender pursuant to the Finance Documents.

41.	CONFIDENTIALITY

41.1	Confidential Information

Each Finance Party agrees to keep all Confidential Information confidential and not to disclose it to anyone, save to the extent permitted by clause 41.2 (Disclosure of Confidential Information), and to ensure that all Confidential Information is protected with security measures and a degree of care that would apply to its own confidential information.

41.2	Disclosure of Confidential Information

Any Finance Party may disclose:

(a)

to any of its Affiliates and Related Funds and any of its or their officers, directors, employees, professional advisers, auditors, partners and Representatives such Confidential Information as that Finance Party shall consider appropriate if any person to whom the Confidential Information is to be given pursuant to this paragraph (a) is informed in writing of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no such requirement to so inform if the recipient is subject to professional obligations to maintain the confidentiality of the information or is otherwise bound by requirements of confidentiality in relation to the Confidential Information;

(b)

to any person:

(i)

to (or through) whom it assigns or transfers (or may potentially assign or transfer) all or any of its rights and/or obligations under one or more Finance Documents and to any of that person’s Affiliates, Related Funds, Representatives and professional advisers;

(ii)

with (or through) whom it enters into (or may potentially enter into), whether directly or indirectly, any sub-participation in relation to, or any other transaction under which payments are to be made or may be made by reference to, one or more Finance Documents and/or one or more Obligors and to any of that person’s Affiliates, Related Funds, Representatives and professional advisers;

(iii)

appointed by any Finance Party or by a person to whom paragraph (b)(i) or (ii) above applies to receive communications, notices, information or documents delivered pursuant to the Finance Documents on its behalf (including, without limitation, any person appointed of clause 29.13(c) (Relationship with the Lenders));

(iv)

who invests in or otherwise finances (or may potentially invest in or otherwise finance), directly or indirectly, any transaction referred to in paragraph (b)(i) or (b)(ii) above;

(v)

to whom information is required or requested to be disclosed by any court of competent jurisdiction or any governmental, banking, taxation or other regulatory authority or similar body, the rules of any relevant stock exchange or pursuant to any applicable law or regulation;

(vi)

to whom information is required to be disclosed in connection with, and for the purposes of, any litigation, arbitration, administrative or other investigations, proceedings or disputes;

(vii)

who is a Party; or

(viii)

with the consent of the Account Party;

in each case, such Confidential Information as that Finance Party shall consider appropriate if:

(A)

in relation to paragraphs (b)(i), (b)(ii) and b(iii) above, the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking except that there shall be no requirement for a Confidentiality Undertaking if the recipient is a professional adviser and is subject to professional obligations to maintain the confidentiality of the Confidential Information;

(B)

in relation to paragraph (b)(iv) above, the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking or is otherwise bound by requirements of confidentiality in relation to the Confidential Information they receive and is informed that some or all of such Confidential Information may be price-sensitive information;

(C)

in relation to paragraphs (b)(v), (b)(vi) and (b)(vii) above, the person to whom the Confidential Information is to be given is informed of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no requirement to so inform if, in the opinion of that Finance Party, it is not practicable so to do in the circumstances;

(c)

to any person appointed by that Finance Party or by a person to whom paragraph (b)(i) or (b)(ii) above applies to provide administration or settlement services in respect of one or more of the Finance Documents including without limitation, in relation to the trading of participations in respect of the Finance Documents, such Confidential Information as may be required to be disclosed to enable such service provider to provide any of the services referred to in this paragraph (c) if the service provider to whom the Confidential Information is to be given has entered into a confidentiality agreement substantially in the form of the LMA Master Confidentiality Undertaking for Use With Administration/Settlement Service Providers or such other form of confidentiality undertaking agreed between the Account Party and the relevant Finance Party;

(d)

to any rating agency (including its professional advisers) such Confidential Information as may be required to be disclosed to enable such rating agency to carry out its normal rating activities in relation to the Finance Documents and/or the Obligors if the rating agency to whom the Confidential Information is to be given is informed of its confidential nature and that some or all of such Confidential Information may be price-sensitive information;

(e)

the size and term of the Facilities and the name of each of the Obligors to any investor or a potential investor in a securitisation (or similar transaction of broadly equivalent economic effect) of that Lender’s rights or obligations under the Finance Documents.

41.3	Entire agreement

This clause 41 (Confidentiality) constitutes the entire agreement between the Parties in relation to the obligations of the Finance Parties under the Finance Documents regarding Confidential Information and supersedes any previous agreement, whether express or implied, regarding Confidential Information.

41.4	Inside information

Each of the Finance Parties acknowledges that some or all of the Confidential Information is or may be price-sensitive information and that the use of such information may be regulated or prohibited by applicable legislation including securities law relating to insider dealing and market abuse and each of the Finance Parties undertakes not to use any Confidential Information for any unlawful purpose.

41.5	Notification of disclosure

Each of the Finance Parties agrees (to the extent permitted by law and regulation) to inform the Account Party:

(a)

of the circumstances of any disclosure of Confidential Information made pursuant to clause 41.2(b)(v) (Disclosure of Confidential Information) except where such disclosure is made to any of the persons referred to in that paragraph during the ordinary course of its supervisory or regulatory function; and

(b)

upon becoming aware that Confidential Information has been disclosed in breach of this clause 41 (Confidentiality).

41.6	Continuing obligations

The obligations in this clause 41 (Confidentiality) are continuing and, in particular, shall survive and remain binding on each Finance Party for a period of twelve months from the earlier of:

(a)

the date on which all amounts payable by the Obligors under or in connection with this agreement have been paid in full and all Commitments have been cancelled or otherwise cease to be available; and

(b)

the date on which such Finance Party otherwise ceases to be a Finance Party.

42.	COUNTERPARTS

Each Finance Document may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document.

43.	GOVERNING LAW

This agreement and any non-contractual obligations arising out of or in connection with it are governed by the laws of England.

44.	ENFORCEMENT

(a)

The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this agreement (including a dispute relating to the existence, validity or termination of this agreement or any non-contractual obligation arising out of or in connection with this agreement) (a “Dispute” ).

(b)

The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.

(c)

This clause 44 is for the benefit of the Finance Parties only. As a result, no Finance Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Finance Parties may take concurrent proceedings in any number of jurisdictions.

44.2	Service of Process

(a)

Without prejudice to any other mode of service allowed under any relevant law, each Guarantor (other than a Guarantor incorporated in England and Wales):

(i)

irrevocably appoints the Account Party as its agent for service of process in relation to any proceedings before the English courts in connection with any Finance Document the Account Party by its execution of this agreement, accepts that appointment); and

(ii)

agrees that failure by an agent for service of process to notify the relevant Guarantor of the process will not invalidate the proceedings concerned.

(b)

If any person appointed as an agent for service of process is unable for any reason to act as agent for service of process, the Account Party (on behalf of all the Obligors) must immediately (and in any event within five days of such event taking place) appoint another agent on terms acceptable to the Facility Agent. Failing this, the Facility Agent may appoint another agent for this purpose.

(c)

The Account Party expressly agrees and consents to the provisions of this clause 44 and clause 43 (Governing Law).

IN WITNESS whereof this agreement has been executed on the date first above written

SCHEDULE 1

The Original Parties

Part 1 - The Original Guarantors



Name of Original Guarantor		Registration number (or equivalent, if any)

Chaucer Holdings plc		2847982

Chaucer Corporate Capital (No. 2) Limited		03099078

Chaucer Corporate Capital (No. 3) Limited		05203226

Part 2 - The Original Lenders



Name of Original Lender		Commitment

Lloyds TSB Bank plc		£40,000,000

Barclays Bank PLC		£25,000,000

The Royal Bank of Scotland plc		£25,000,000

		£90,000,000

SCHEDULE 2

Conditions Precedent

Part 1 - Conditions Precedent to Initial Utilisation

1.	ORIGINAL OBLIGORS

In this section 1 of Part 1 of Schedule 2, Original Obligor and Original Guarantor shall include Chaucer Freeholds Limited

1.1	A copy of the constitutional documents of each Original Obligor.

1.2	A copy of a resolution of the board of directors of each Original Obligor:

(a)

approving the terms of, and the transactions contemplated by, the Finance Documents to which it is a party and resolving that it execute the Finance Documents to which it is a party;

(b)

authorising a specified person or persons to execute the Finance Documents to which it is a party on its behalf; and

(c)

authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices (including, if relevant, any Utilisation Request) to be signed and/or despatched by it under or in connection with the Finance Documents to which it is a party.

1.3	A specimen of the signature of each person authorised by the resolution referred to in paragraph 1.2 above.

1.4	A copy of a resolution signed by all the holders of the issued shares in each Original Guarantor, approving the terms of, and the transactions contemplated by, the Finance Documents to which the Original Guarantor is a party.

1.5	A certificate of the Account Party (signed by a director) confirming that borrowing or guaranteeing, as appropriate, the Total Commitments would not cause any borrowing, guaranteeing or similar limit binding on any Original Obligor to be exceeded.

1.6	A certificate of an authorised signatory of the relevant Original Obligor certifying that each copy document relating to it specified in this part 1 of schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of this agreement.

2.	FINANCE DOCUMENTS

2.1	This agreement executed by the members of the Group party to it.

2.2	The Fee Letters executed by the parties to it.

2.3	The following Security Documents, executed and delivered by the parties to it:


Name of Obligor/third party security provider		Description of Security Document
The Account Party		English law debenture
The Account Party		Deposit Agreement
Chaucer Freeholds Limited		A legal mortgage over the land on the south side of Thanet Way, Whitstable, Canterbury, Kent and which is registered at HM Land Registry with Title Number K803147

3.	PERFECTION OF SECURITY

3.1	Notices of assignment or charge to be sent under the Security Documents executed on behalf of each relevant Obligor.

3.2	A copy of all share certificates, transfers and stock transfer forms or equivalent and executed by the relevant Obligor in relation to the assets subject to or expressed to be subject to the Security.

3.3	A certified extract of the register of members of each relevant member of the Group, the shares of which are subject to or expressed to be subject to the Security.

3.4	The following in relation to Security over Properties in England and Wales granted under the Security Documents:

(a)

satisfactory priority searches of HM Land Registry and Land Charges Searches;

(b)

an effective discharge of all Security affecting the Properties (if any) together with all requisite Land Registry forms (including (where relevant) information relating to the identity of any releasing chargee); and

(c)

a letter of undertaking from counsel to the Account Party, concerning the registration of the charge over Properties and, if a relevant registration fee is required, a cheque for such amount.

4.	LEGAL OPINIONS

4.1	A legal opinion of Ashurst LLP, legal advisers to the Arrangers and the Facility Agent in England, substantially in the form distributed to the Original Lenders prior to signing this agreement.

4.2	If an Original Obligor is incorporated in a jurisdiction other than England and Wales, a legal opinion of the legal advisers to the Arrangers and the Facility Agent in the relevant jurisdiction, substantially in the form distributed to the Original Lenders prior to signing this agreement.

5.	OTHER DOCUMENTS AND EVIDENCE

5.1	Evidence, satisfactory to the Facility Agent, that on or before the first Utilisation Date, £10,000,000 is deposited by the Account Party into the Specified Account, as Cash Collateral.

5.2	A Substitution Letter in respect of the substitution of a Letter of Credit for the letter of credit issued under the Existing Facility, executed by Lloyd’s.

5.3	The Letter of Comfort, executed by Lloyd’s.

5.4	The FAL Providers Deed, executed by the parties to it.

5.5

A certified copy of the whole account aggregate excess of loss reinsurance slip between the Account Party or Chaucer No. 2 and Flagstone Reassurance Suisse SA – Bermuda Branch (“ Flagstone ”) dated on or around the date of this agreement evidencing, to the satisfaction of the Facility Agent, a minimum of £46,500,000 of Subordinated Funds at Lloyd’s provided by Flagstone.

5.6

Evidence, satisfactory to the Facility Agent, that on or before the first Utilisation Date, all amounts outstanding under the Existing Facility Agreement, have been or will be refinanced and the facility made available under the Existing Facility Agreement has been cancelled in full and all Encumbrances granted under the Existing Facility Agreement have been irrevocably released.

5.7	The Original Financial Statements of each Original Obligor.

5.8	Evidence that the fees, costs and expenses then due from the Account Party pursuant to clause 12 (Commission and Fees) and clause 18 (Costs and Expenses) have been paid or will be paid within three Business Days of the signing of this agreement.

5.9

A certificate of the Account Party (signed by a director) addressed to the Finance Parties confirming which companies within the Group are Material Companies and which has earnings before interest, tax, depreciation and amortisation representing five per cent. or more of consolidated earnings before interest, tax, depreciation and amortisation of the Group or has gross assets representing five per cent., or more of the gross assets of the Group, calculated on a consolidated basis.

5.10	Evidence satisfactory to the Facility Agent that all Encumbrances (if any) other than Permitted Encumbrances over the revenues or assets of the Account Party and its subsidiaries have been released or discharged.

5.11	In respect of any floating charge (which has not been discharged) granted by any of the Obligors in favour of Lloyd’s, confirmation (from Lloyd’s and addressed to the Finance Parties):

(a)

of non-crystallisation of such floating charge; and

(b)

that no consent, pursuant to the terms of such floating charge, is required from Lloyd’s to such Obligor’s entry into any of the Security Documents.

5.12	Customary and required “know your customer” information for each Lender in respect of the Original Obligors.

5.13	The Overdraft Letter, executed by the parties to it.

Part 2 - Conditions Precedent Required to be Delivered by an Additional Guarantor

1.	An Accession Letter, duly executed by the Additional Guarantor and the Account Party.

2.	A copy of the constitutional documents of the Additional Guarantor.

3.	A copy of a resolution of the board of directors of the Additional Guarantor:

3.1	approving the terms of, and the transactions contemplated by, the Accession Letter and the Finance Documents and resolving that it execute the Accession Letter;

3.2	authorising a specified person or persons to execute the Accession Letter on its behalf; and

3.3	authorising a specified person or persons, on its behalf, to sign and/or despatch all other documents and notices to be signed and/or despatched by it under or in connection with the Finance Documents.

4.	A specimen of the signature of each person authorised by the resolution referred to in paragraph 3 above.

5.	A copy of a resolution signed by all the holders of the issued shares of the Additional Guarantor, approving the terms of, and the transactions contemplated by, the Finance Documents to which the Additional Guarantor is a party.

6.	A certificate of the Additional Guarantor (signed by a director) confirming that borrowing or guaranteeing, as appropriate, the Total Commitments would not cause any borrowing, guaranteeing or similar limit binding on it to be exceeded.

7.	A certificate of an authorised signatory of the Additional Guarantor certifying that each copy document listed in this part 2 of schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of the Accession Letter.

A copy of any other Authorisation or other document, opinion or assurance which the Facility Agent considers to be necessary or desirable in connection with the entry into and performance of the transactions contemplated by the Accession Letter or for the validity and enforceability of any Finance Document.

9.	If available, the latest audited financial statements of the Additional Guarantor.

10.	A legal opinion of Ashurst LLP, legal advisers to the Arrangers and the Facility Agent in England and Wales.

11.	If the Additional Guarantor is incorporated in a jurisdiction other than England and Wales, a legal opinion of the legal advisers to the Arrangers and the Facility Agent in the jurisdiction in which the Additional Guarantor is incorporated.

12.	If the proposed Additional Guarantor is incorporated in a jurisdiction other than England and Wales, evidence that the process agent specified in clause 44.2 (Service of Process), if not an Obligor, has accepted its appointment in relation to the proposed Additional Guarantor.

13.	Customary and required “know your customer” information for each Lender in respect of each Additional Guarantor.

SCHEDULE 3

Utilisation Request

From:

Chaucer Holdings plc (the “ Account Party ”)

To:	Lloyds TSB Bank plc (the “ Facility Agent ”)

Dated:

Dear Sirs

Chaucer Holdings plc – standby letter of credit facility agreement dated [•] (the “Agreement”)

1.	We refer to the Agreement. This is a Utilisation Request. Terms defined in the Agreement have the same meaning in this Utilisation Request unless given a different meaning in this Utilisation Request.

2.	We wish to arrange for a Letter of Credit to be issued by the Lenders on the following terms:


Applicant:		Chaucer Corporate Capital (No. 2) Limited

Proposed Utilisation Date:		[•] (or, if that is not a Business Day, the next Business Day)

Commencement Date of Letter of Credit:		[•]

Face amount:		[•] or, if less, the Available Facility

Term:		[•]

Expiry Date:		[•]

3.	We confirm that each condition specified in clause 5.2 (Further Conditions Precedent) is satisfied on the date of this Utilisation Request.

4.	This Utilisation Request is irrevocable.

5.	The Letter of Credit should be issued in favour of Lloyd’s in the form attached and delivered to the recipient at The Society and the Council of Lloyd’s, C/o The Manager, Market Services, Fidentia House, Walter Burke Way, Chatham Maritime, Chatham, Kent ME4 4RN.

Yours faithfully

authorised signatory for

Chaucer Holdings plc

SCHEDULE 4

Form of Letter of Credit

Letter of Credit to be issued by the Facility Agent on behalf of the Banks

To:	The Society and the Council of Lloyd’s

c/o The Manager, Market Services

Fidentia House

Walter Burke Way

Chatham Maritime

Chatham, Kent ME4 4RN

[ Commencement Date ]

Dear Sirs

Irrevocable Standby Letter of Credit No. [ ]

Re:

Chaucer Corporate Capital (No. 2) Limited (the “Applicant”)

This Clean Irrevocable Standby Letter of Credit (the “Credit”) is issued by the banks whose names are set out in schedule 1 to this Credit (the “Issuing Banks” , and each an “Issuing Bank” ) in favour of the Society of Lloyd’s ( “Lloyd’s” ) on the following terms:

1.	Subject to the terms hereof, the Issuing Banks shall make payments within two business days of demand on Lloyds TSB Bank plc (the “Facility Agent” ) in accordance with paragraph 4 below.

Upon a demand being made by Lloyd’s pursuant to paragraph 4 below, each Issuing Bank shall pay that proportion of the amount demanded which is equal to the proportion which its Commitment set out in schedule 1 to this Credit bears to the aggregate Commitments of all the Issuing Banks set out in schedule 1 to this Credit, provided that the obligations of the Issuing Banks under this Credit shall be several and no Issuing Bank shall be required to pay an amount exceeding its Commitments set out in schedule 1 (Issuing Banks’ Commitments) to this Credit and the Issuing Banks shall not be obliged to make payments hereunder in aggregate exceeding a maximum amount of [ amount in sterling ]. Any payment by an Issuing Bank under this Credit shall be made in sterling to the Lloyd’s account specified in the demand made by Lloyd’s pursuant to paragraph 4 below.

This Credit is effective from [•] (the “Commencement Date” ) and will expire on the Final Expiration Date. This Credit shall remain in force until we give you not less than four years’ notice in writing terminating the same on the fourth anniversary of the Commencement Date or on any date subsequent thereto as specified in such notice (the “Final Expiration Date” ), our notice to be sent by registered mail for the attention of the Manager, Members’ Services at the above address.

Subject to paragraph 3 above, the Issuing Banks shall pay to Lloyd’s under this Credit upon presentation of a demand by Lloyd’s on the Facility Agent at Lloyds TSB Bank plc., Trade Operations London, 4th Floor, 48 Chiswell Street, London. EC1Y 4XX. Attention Guarantees Department substantially in the form set out in schedule 2 (Form of Demand (Pounds Sterling)) to this Credit the amount specified therein (which amount shall not, when aggregated with all other amounts paid by the Issuing Banks to Lloyd’s under this Credit, exceed the maximum amount referred to in paragraph 2 above).

5.	The Facility Agent has signed this Credit as agent for disclosed principals and accordingly shall be under no obligation to Lloyd’s hereunder other than in its capacity as an Issuing Bank.

6.	All charges are for the Applicant’s account.

7.	Subject to any contrary indication herein, this Credit is subject to the International Standby Practices - ISP98 (1998 publication - International Chamber of Commerce Publication No. 590).

8.	This Credit and all non-contractual obligations arising from or in connection with it shall be governed by and interpreted in accordance with English law and the Issuing Banks hereby irrevocably submit to the jurisdiction of the High Court of Justice in England.

9.	Each Issuing Bank engages with Lloyd’s that demands made under and in compliance with the terms and conditions of this Credit will be duly honoured on presentation.

Yours faithfully

for and on behalf of

Lloyds TSB Bank plc

For and on behalf of

[ Names of all Issuing Banks including the Facility Agent ]

Schedule 1 to the Letter of Credit

Issuing Banks’ Commitments


Name and Address of Issuing Bank		Commitment (Pounds Sterling)

Total Value:

Schedule 2 to the Letter of Credit

Form of Demand (Pounds Sterling)

[On Lloyd’s letterhead]

Dear Sir/Madam

THE SOCIETY OF LLOYD’S

TRUSTEE OF

LETTER OF CREDIT NO.

With reference to the above, we enclose for your attention a Bill of Exchange, together with the respective Letter of Credit. Payment should be made by way of CHAPS. The account details are as follows:

Lloyd’s of London

NatWest

City of London Office

P.O. Box 12258

1 Princes Street

London

EC2R 8AP

Please quote Member Code:

Yours faithfully


for Manager Market Services

By:
Name:
Title:

Your ref:

Our ref: MEM/ / / /

Extn:

BILL OF EXCHANGE

The Society of Lloyd’s

Trustee of

Letter of Credit No.

Please pay in accordance with the terms of the Letter of Credit to our order the amount of £ .

For and on behalf of

Authorised Signatory

Market Services

To:	Lloyds TSB Bank plc

as Bank

SCHEDULE 5

Letter of Comfort

[ on Lloyd’s letterhead ]

To:

Chaucer Holdings plc

Plantation Place

30 Fenchurch Street

London, EC3M 3AD

[date]

Dear Sir / Madam

CHAUCER HOLDINGS PLC

We acknowledge that Chaucer Holdings plc (Holdings) has procured or may procure the provision to Lloyd’s of: (i) a letter of credit provided to Lloyd’s in respect of Chaucer Corporate Capital (No.2) Limited (the Member) by Lloyds TSB Bank plc, Barclays Bank plc and The Royal Bank of Scotland plc pursuant to a facility agreement dated on or about the date of this letter, such letter of credit having an aggregate amount of £90,000,000 (the Bank LOC); and (ii) a letter of credit backed by a reinsurance agreement with Flagstone Reassurance Suisse S.A. - Bermuda Branch (the Reinsurer LOC). The Bank LOC and the Reinsurer LOC form part of the Funds at Lloyd’s of the Member.

2.	You have asked whether, in the event of monies having to be drawn down or applied out of the Member’s Funds at Lloyd’s, the letters of credit and other Funds at Lloyd’s of the Member may be drawn down in a pre-determined order namely:

(a)

in respect of Syndicates 1084 and 1176 for the 2010 and 2011 and prior open years of account, Syndicate 4242 for the 2010 and prior open years of account and Syndicate 4000 for the 2008 year of account:

(i)

first, from all the Member’s Funds at Lloyd’s (other than the Member’s Funds at Lloyd’s comprising the Bank LOC and the Reinsurer LOC) until such funds are exhausted;

(ii)

secondly, from the Reinsurer LOC until such funds are exhausted; and

(iii)

thirdly, from the Bank LOC until such funds are exhausted,

(b)

in respect of Syndicates 1084 and 1176 for the 2012 year of account:

(i)

first, from all the Member’s Funds at Lloyd’s (other than the Member’s Funds at Lloyd’s comprising the Bank LOC and the Reinsurer LOC) until such funds are exhausted; and

(ii)

secondly, from the Bank LOC until such funds are exhausted.

3.	In addition to the order set out in paragraph 2, it is intended that the Reinsurer LOC shall not form part of the Funds at Lloyd’s of the Member in respect of Syndicates 1084 and 1176 for the 2012 year of account.

As you are aware, the letters of credit and other Funds at Lloyd’s of the Member are held by Lloyd’s in its capacity as trustee. Any decision to draw down or apply any such letter of credit involves an exercise of discretion in light of the circumstances prevailing at the time of such decision and thus no binding undertaking can be given now by Lloyd’s as to the order of drawdown or application.

5.	However, we confirm that at the time of considering the drawdown or application of the Member’s Funds at Lloyd’s, Lloyd’s will take into account:

(a)

the requested order of drawdown set out in the second paragraph of this letter; and

(b)

the intention in relation to the Reinsurer LOC for the 2012 year of account set out in the third paragraph of this letter.

6.	For the avoidance of doubt, Lloyd’s shall not be responsible to you or any other person for any losses incurred by you or such other person as a consequence of acting in reliance upon this letter.

Yours faithfully

for and on behalf of

Lloyd’s of London

100

SCHEDULE 6

Form of Transfer Certificate

To:	[•] as Facility Agent

From:

[ The Existing Lender ] (the “Existing Lender” ) and [ The New Lender ] (the “New Lender” )

Dated:

Chaucer Holdings plc- £90,000,000 Facility Agreement

dated [•] (the “Agreement”)

1.	We refer to the Agreement. This is a Transfer Certificate. Terms defined in the Agreement have the same meaning in this Transfer Certificate unless given a different meaning in this Transfer Certificate.

2.	We refer to clause 27.5 (Procedure for Transfer):

2.1	the Existing Lender and the New Lender agree to the Existing Lender transferring to the New Lender by novation all or part of the Existing Lender’s Commitment, rights and obligations referred to in the schedule in accordance with clause 27.5 (Procedure for Transfer);

2.2	the proposed Transfer Date is [•];

2.3	the Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of clause 36.2 (Addresses) are set out in the schedule.

3.	The New Lender expressly acknowledges the limitations on the Existing Lender’s obligations set out in clause 27.4(c) (Limitation of Responsibility of Existing Lenders).

4.	The New Lender confirms, for the benefit of the Facility Agent and without liability to any Obligor, that it is:

(c)

[a Qualifying Lender falling within paragraph (i)(A) [or paragraph (ii)] of the definition of Qualifying Lender;]

(d)

[a Treaty Lender;]

(e)

[not a Qualifying Lender].

5.	This Transfer Certificate may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Transfer Certificate.

6.	This Transfer Certificate and any non-contractual obligations arising out of or in connection with it are governed by English law.

7.	This Transfer Certificate has been entered into on the date stated at the beginning of this Transfer Certificate.

THE SCHEDULE

Commitment/Rights and Obligations to be Transferred

[ insert relevant details ]

101

[ Facility Office address, fax number and attention details

for notices and account details for payments ]


[ *Existing Lender* ]						[ *New Lender* ]

By:						By:

This Transfer Certificate is accepted by the Facility Agent and the Transfer Date is confirmed as [•].


[ *Facility Agent* ]

By:

102

SCHEDULE 7

Form of Assignment Agreement

To:	[ ] as Facility Agent and [ ] as Account Party, for and on behalf of each Obligor

From:

[the Existing Lender] (the “Existing Lender” ) and [the New Lender] (the “New Lender” )

Dated:

Chaucer Holdings plc- £90,000,000 Facility Agreement

dated [ ] (the “Agreement”)

1.	We refer to the Agreement. This is an Assignment Agreement. Terms defined in the Agreement have the same meaning in this Assignment Agreement unless given a different meaning in this Assignment Agreement.

2.	We refer to clause 27.6 (Procedure for Assignment):

(a)

The Existing Lender assigns absolutely to the New Lender all the rights of the Existing Lender under the Agreement and the other Finance Documents which relate to that portion of the Existing Lender’s Commitments and participations in Loans under the Agreement as specified in the Schedule.

(b)

The Existing Lender is released from all the obligations of the Existing Lender which correspond to that portion of the Existing Lender’s Commitments and participations in Loans under the Agreement specified in the Schedule.

(c)

The New Lender becomes a Party as a Lender and is bound by obligations equivalent to those from which the Existing Lender is released under paragraph (b) above. ¹

3.	The proposed Transfer Date is [ ].

4.	On the Transfer Date the New Lender becomes Party to the Finance Documents as a Lender.

5.	The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of clause 36.2 (Addresses) are set out in the Schedule.

6.	The New Lender expressly acknowledges the limitations on the Existing Lender’s obligations set out in clause 27.4(c) (Limitation of Responsibility of Existing Lenders).

7.	The New Lender confirms, for the benefit of the Facility Agent and without liability to any Obligor, that it is:

(i)

[a Qualifying Lender falling within paragraph (i)(A) [or paragraph (ii)] of the definition of Qualifying Lender;]

(ii)

[a Treaty Lender;]

(iii)

[not a Qualifying Lender]. ²

If the Assignment Agreement is used in place of a Transfer Certificate in order to avoid a novation of rights/obligations for reasons relevant to a civil jurisdiction, local law advice should be sought to check the suitability of the Assignment Agreement due to the assumption of obligations contained in paragraph 2(c). This issue should be addressed at primary documentation stage.

103

8.	[The New Lender confirms that the person beneficially entitled to interest payable to that Lender in respect of an advance under a Finance Document is either:

(a)

a company resident in the United Kingdom for United Kingdom tax purposes; or

(b)

a partnership each member of which is:

(i)

a company so resident in the United Kingdom; or

(ii)

a company not so resident in the United Kingdom which carries on a trade in the United Kingdom through a permanent establishment and which brings into account in computing its chargeable profits (within the meaning of section 19 of the CTA) the whole of any share of interest payable in respect of that advance that falls to it by reason of Part 17 of the CTA; or

(c)

a company not so resident in the United Kingdom which carries on a trade in the United Kingdom through a permanent establishment and which brings into account interest payable in respect of that advance in computing the chargeable profits (within the meaning of section 19 of the CTA) of that company.] ³

[8/9].

This Assignment Agreement acts as notice to the Facility Agent (on behalf of each Finance Party) and, upon delivery in accordance with clause 27.7 (Copy of Transfer Certificate or Assignment Agreement to Account Party), to the Account Party (on behalf of each Obligor) of the assignment referred to in this Assignment Agreement.

[9/10].

This Assignment Agreement may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Assignment Agreement.

[10/11].

This Assignment Agreement and any non-contractual obligations arising out of or in connection with it are governed by English law.

[11/12].

This Assignment Agreement has been entered into on the date stated at the beginning of this Assignment Agreement.

THE SCHEDULE

Rights to be assigned and obligations to be released and undertaken

[ insert relevant details ]

[ Facility office address, fax number and attention details for notices and account details for payments ]


[ *Existing Lender* ]						[ *New Lender* ]

By:						By:

²	Delete as applicable - each New Lender is required to confirm which of these three categories it falls within.

³	Include only if New Lender is a UK Non-Bank Lender - i.e. falls within paragraph (i)(B) of the definition of Qualifying Lender in clause 13.1 (Definitions).

104

This Assignment Agreement is accepted by the Facility Agent and the Transfer Date is confirmed as [ ].

Signature of this Assignment Agreement by the Facility Agent constitutes confirmation by the Facility Agent of receipt of notice of the assignment referred to herein, which notice the Facility Agent receives on behalf of each Finance Party.


[Facility Agent]

By:

105

SCHEDULE 8

Form of Accession Letter

Part 1 - Form of Guarantor Accession Letter

To:	[•] as Facility Agent

From:

[ Subsidiary ] and [ Account Party ]

Dated:

Dear Sirs

Chaucer Holdings plc-£90,000,000 Facility Agreement

dated [•] (the “Agreement”)

9.	We refer to the Agreement. This is an Accession Letter. Terms defined in the Agreement have the same meaning in this Accession Letter unless given a different meaning in this Accession Letter.

10.

[ Subsidiary ] agrees to become an Additional Guarantor and to be bound by the terms of the Agreement as an Additional Guarantor pursuant to clause 28.2 (Additional Guarantors) of the Agreement. [Subsidiary] is a company duly incorporated under the laws of [ name of relevant jurisdiction ].

11.	[ *Subsidiary’s* ] administrative details are as follows:

Address:

Fax No:

Attention:

12.	This Accession Letter and any non-contractual obligations arising out of or in connection with it are governed by English law.

This Guarantor Accession Letter is entered into by deed.


[ *Account Party* ]		[ *Subsidiary* ]

106

Part 2 - Form of New Lender Accession Letter

To:	[•] as Facility Agent

From:

[The New Lender] (the “ New Lender ”)

Dated:

Chaucer Holdings plc-£90,000,000 Facility Agreement

dated [•] (the “Agreement”)

1.	We refer to the Agreement. This is an Accession Letter. Terms defined in the Agreement have the same meaning in this Accession Letter unless given a different meaning in this Accession Letter;

2.	We refer to clause 27.5 (Procedure for Transfer or Accession);

2.1	the New Lender agrees to be bound by the terms of the Agreement and the other Finance Documents as a Lender;

2.2	the proposed Accession Date is [•];

2.3	the Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of clause 36.2 (Addresses) are set out in the schedule;

3.	The New Lender expressly acknowledges the limitations on the Existing Lender’s obligations set out in clause 27.4(c) (Limitation of Responsibility of Existing Lenders).

4.	The New Lender confirms, for the benefit of the Facility Agent and without liability to any Obligor, that it is:

(f)

[a Qualifying Lender falling within paragraph (i)(A) [or paragraph (ii)] of the definition of Qualifying Lender;]

(g)

[a Treaty Lender;]

(h)

[not a Qualifying Lender].

5.	This Accession Letter may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Transfer Certificate.

6.	This Accession Letter and any non-contractual obligations arising out of or in connection with it are governed by English law.

7.	This Accession Letter has been entered into on the date stated at the beginning of this Accession Letter.

107

SCHEDULE 9

Form of Resignation Letter

To:	[•] as Facility Agent

From:

[ resigning Obligor ] and [ Account Party ]

Dated:

Dear Sirs

Chaucer Holdings plc - £90,000,000 Facility Agreement

dated [•] (the “Agreement”)

1.	We refer to the Agreement. This is a Resignation Letter. Terms defined in the Agreement have the same meaning in this Resignation Letter unless given a different meaning in this Resignation Letter.

2.	Pursuant to clause 28.4 (Resignation of a Guarantor), we request that [ *resigning Obligor* ] be released from its obligations as a Guarantor under the Agreement.

3.	We confirm that no Default is continuing or would result from the acceptance of this request.

4.	This Resignation Letter and any non-contractual obligations arising out of or in connection with it are governed by English law.


[ *Account Party* ]		[ *Subsidiary* ]

By:		By:

108

SCHEDULE 10

Form of Compliance Certificate

To:	Lloyds TSB Bank plc as Facility Agent

From:

Chaucer Holdings plc

Dated:

Dear Sirs

Chaucer Holdings plc - £90,000,000 Facility Agreement

dated [•] (the “Agreement”)

1.	We refer to the Agreement. This is a Compliance Certificate. Terms defined in the Agreement have the same meaning when used in this Compliance Certificate unless given a different meaning in this Compliance Certificate.

2.	We confirm that as at [ *Insert Date* ]:

(a)

Consolidated Tangible Net Worth was £[ ];

(b)

50 per cent. of the net proceeds of any share capital issue or raised by the Account Party after 30 September 2010 until [ Insert Date ] is £[•]; and

(c)

(d)

Consolidated Net Borrowings were £[ • ];

3.	Therefore, Consolidated Tangible Net Worth is not less than £[220,000,000] plus [ *Insert aggregate figure from 2(c) and (d)* ] and as at [ *Insert Date* ] Consolidated Net Borrowings (excluding the Subordinated Loan Notes) did not exceed 35% of Consolidated Tangible Net Worth.

4.	The Uncollateralised Outstandings as at 31 December [year] were [•].

5.	The total Funds at Lloyd’s of Chaucer Holdings plc (including Subordinated Funds at Lloyd’s and FAL provided in accordance with this agreement) were [•] as at 31 December [year].

6.	Therefore, we confirm that as at [ *Insert Date* ] the Uncollateralised Outstandings do not exceed 25% of the total Funds at Lloyd’s of Chaucer Holdings plc (including Subordinated Funds at Lloyd’s).

7.	The Forecast Losses for the years of account for a Managed Syndicate were as follows:

(a)

[Managed Syndicate] [year of account] - [Losses]

(b)

109

(c)

the aggregate Member’s Syndicate Premium Limit of such Underwriting Member for [•] year of account was £[•];

8.	Therefore:

(a)

Forecast Losses in respect of [•] year of account for any Managed Syndicate, do not exceed 10 per cent. of the aggregate Syndicate Allocated Capacities for those Managed Syndicates in respect of that year of account; and

(b)

the aggregate of the Member’s Share of the estimated net losses in respect of any of the scenarios contained in the Realistic Disaster Scenarios prepared in relation to Syndicate 1084 shall not exceed 20 per cent. of the aggregate Member’s Syndicate Premium Limit of such Underwriting Members in any one year of account.

9.	[We confirm that the following companies constitute Material Companies for the purposes of the Facilities Agreement: [X].]

[ Computations which determine those companies classification as Material Companies (in reasonable detail) to be included ]

10.	We confirm that, as at the date hereof no Event of Default or Default has occurred which is continuing.



Signed:
	Director of Chaucer Holdings plc	Director of Chaucer Holdings plc

110

SCHEDULE 11

LMA Form of Confidentiality Undertaking

[Letterhead of Transferring Lender]

To:	[ *insert name of Potential Lender* ]

Re:	Chaucer Holdings Plc - £90,000,000 facility agreement dated [•] (the “Facility” )

Company:

(the “Company” )

Date:

Facility Agent:

Dear Sirs

We understand that you are considering participating in the Facility. In consideration of us agreeing to make available to you certain information, by your signature of a copy of this letter you agree as follows:

1.	CONFIDENTIALITY UNDERTAKING

You undertake:

1.1	to keep all Confidential Information confidential and not to disclose it to anyone, save to the extent permitted by paragraph 2 below and to ensure that all Confidential Information is protected with security measures and a degree of care that would apply to your own confidential information;

1.2	to keep confidential and not disclose to anyone except as provided for by paragraph 2 below the fact that the Confidential Information has been made available or that discussions or negotiations are taking place or have taken place between us in connection with the Facility;

1.3	to use the Confidential Information only for the Permitted Purpose; and

1.4	to use all reasonable endeavours to ensure that any person to whom you pass any Confidential Information (unless disclosed under paragraph 2.2 below) acknowledges and complies with the provisions of this letter as if that person were also a party to it; [and

1.5	not to make enquiries of any member of the Group or any of their officers, directors, employees or professional advisers relating directly or indirectly to the Facility.

2.	PERMITTED DISCLOSURE

We agree that you may disclose such Confidential Information and those matters referred to in paragraph 1.2 above:

2.1	to members of the Participant Group and their officers, directors, employees and professional advisers to the extent necessary for the Permitted Purpose and to any auditors of members of the Participant Group;

111

2.2

where:

(a)

requested or required by any court of competent jurisdiction or any competent judicial, governmental, supervisory or regulatory body;

(b)

required by the rules of any stock exchange on which the shares or other securities of any member of the Participant Group are listed; or

(c)

required by the laws or regulations of any country with jurisdiction over the affairs of any member of the Participant Group; or

2.3	with the prior written consent of us and the Company.

3.	NOTIFICATION OF REQUIRED OR UNAUTHORISED DISCLOSURE

You agree (to the extent permitted by law and except where disclosure is to be made to any competent supervisory or regulatory body during the ordinary course of its supervisory or regulatory function over you) to inform us of the full circumstances of any disclosure under paragraph 2.2 above or upon becoming aware that Confidential Information has been disclosed in breach of this letter.

4.	RETURN OF COPIES

If we so request in writing, you shall return all Confidential Information supplied to you by us and destroy or permanently erase (to the extent technically practicable) all copies of Confidential Information made by you and use all reasonable endeavours to ensure that anyone to whom you have supplied any Confidential Information destroys or permanently erases (to the extent technically practicable) such Confidential Information and any copies made by them, in each case save to the extent that you or the recipients are required to retain any such Confidential Information by any applicable law, rule or regulation or by any competent judicial, governmental, supervisory or regulatory body or in accordance with internal policy, or where the Confidential Information has been disclosed under paragraph 2.2 above.

5.	CONTINUING OBLIGATIONS

The obligations in this letter are continuing and, in particular, shall survive the termination of any discussions or negotiations between you and us. Notwithstanding the previous sentence, the obligations in this letter shall cease on the earlier of:

(a)

the date you become a party to or otherwise acquire (by assignment, sub participation or otherwise) an interest, direct or indirect in the Facility; and

(b)

12 months after you have returned all Confidential Information supplied to you by us and destroyed or permanently erased [to the extent technically practicable] all copies of Confidential Information made by you (other than such Confidential Information or copies which have been disclosed under paragraph 2 above (other than paragraph 2.1) or which, pursuant to paragraph 4 above, are not required to be returned or destroyed); and

(c)

36 months from the date of this letter.

6.	NO REPRESENTATION; CONSEQUENCES OF BREACH, ETC.

You acknowledge and agree that:

6.1	neither we nor any of our officers, employees or advisers (each a “Relevant Person” ):

(a)

make any representation or warranty, express or implied, as to, or assume any responsibility for, the accuracy, reliability or completeness of any of the Confidential Information or any other information supplied by us or any member of the Group or the assumptions on which it is based; or

112

(b)

shall be under any obligation to update or correct any inaccuracy in the Confidential Information or any other information supplied by us or any member of the Group or be otherwise liable to you or any other person in respect of the Confidential Information or any such information; and

6.2

we or members of the Group may be irreparably harmed by the breach of the terms of this letter and damages may not be an adequate remedy; each Relevant Person or member of the Group may be granted an injunction or specific performance for any threatened or actual breach of the provisions of this letter by you.

7.	NO WAIVER; AMENDMENTS, ETC.

This letter sets out the full extent of your obligations of confidentiality owed to us in relation to the information the subject of this letter. No failure or delay in exercising any right, power or privilege under this letter will operate as a waiver thereof nor will any single or partial exercise of any right, power or privilege preclude any further exercise thereof or the exercise of any other right. power or privileges under this letter. The terms of this letter and your obligations under this letter may only be amended or modified by written agreement between us.

8.	I NSIDE INFORMATION

You acknowledge that some or all of the Confidential Information is or may be price-sensitive information and that the use of such information may be regulated or prohibited by applicable legislation [including securities law] ⁴ relating to insider dealing and market abuse and you undertake not to use any Confidential Information for any unlawful purpose.

9.	NATURE OF UNDERTAKINGS

The undertakings given by you under this letter are given to us and (without implying any fiduciary obligations on our part) are also given for the benefit of the Company and each other member of the Group.

10.	THIRD PARTY RIGHTS

10.1	Subject to paragraphs 6 and 9, the terms of this letter may be enforced and relied upon only by you and us and the operation of the Contracts (Rights of Third Parties) Act 1999 is excluded.

10.2	Notwithstanding any provisions of this letter, the parties to this letter do not require the consent of any Relevant Person or any member of the Group to rescind or vary this letter at any time.

11.	GOVERNING LAW AND JURISDICTION

This letter (including the agreement constituted by your acknowledgement of its terms) and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with the laws of England and the parties submit to the non-exclusive jurisdiction of the English courts.

⁴	Insert if relevant.

113

12.	DEFINITIONS

In this letter (including the acknowledgement set out below):

“Confidential Information” means any information relating to the Company, the Group and/or the Facility [including, without limitation, the information memorandum)] ⁵ provided to you by us or any of our affiliates or advisers, in whatever form, and includes information given orally and any document, electronic file or any other way of representing or recording information which contains or is derived or copied from such information but excludes information that:

(a)

is or becomes public information other than as a direct or indirect result of any breach of this letter; or

(b)

is known by you before the date the information is disclosed to you by us or any of our affiliates or advisers or is lawfully obtained by you after that date, other than from a source which is connected with the Group and which, in either case, as far as you are aware, has not been obtained in violation of, and is not otherwise subject to, any obligation of confidentiality.

“Group” means the Company and each of its holding companies and subsidiaries and each subsidiary of each of its holding companies (as each such term is defined in the Companies Act 2006).

“Participant Group” means you, each of your holding companies and subsidiaries and each subsidiary of each of your holding companies (as each such term is defined in the Companies Act 2006).

“Permitted Purpose” means considering and evaluating whether to enter into the Facility.

Please acknowledge your agreement to the above by signing and returning the enclosed copy.

Yours faithfully

For and on behalf of

[ Transferring Lender ]

⁵	Insert if relevant.

114

To:	[ Transferring Lender ]

The Company and each other member of the Group

We acknowledge and agree to the above:

For and on behalf of

[ Potential Lender ]

115

SCHEDULE 12

Form of Facility Extension Notice

Facility Extension Notice (number: […])

To:	Lloyds TSB Bank plc (the “ Facility Agent ”)

From:

Chaucer Holdings plc (the “ Account Party ”)

Dated:

[•]

Dear Sirs

Chaucer Holdings plc –£90,000,000 Facility Agreement

dated [•] 2010 (as amended from time to time, the “Facility Agreement”)

1.	We refer to the Facility Agreement and in particular clause 7 (Extension of the Facility) of the Facility Agreement. Terms defined in the Facility Agreement have the same meaning when used in this Facility Extension Notice.

2.	We have agreed with the following institutions (the “Facility Extension Lenders” ) that they commit a Facility Extension Amount as follows:


Name of Facility Extension Lender	Existing Lender (yes/no)	Facility Extension Amount (£)



TOTAL:

3.	The date on which the Facility Extension Amounts referred to above are to become effective (the “Facility Extension Amount Date” ) is [•].

4.	[ insert any other relevant matters referred to in clause 7 (Extension of the Facility)].

Yours faithfully

[Authorised Signatory]

For and on behalf of Chaucer Holdings plc

116

SIGNATURES

THE ACCOUNT PARTY

CHAUCER HOLDINGS PLC


By:		K.D. Curtis
Address:		Plantation Place
		30 Fenchurch Street
		London
		EC3M 3AD
Fax:		+44 (0)207 397 9710
Attention:		Company Secretary

THE ORIGINAL GUARANTORS

CHAUCER CORPORATE CAPITAL (NO. 2) LIMITED


By:		K.D. Curtis
Address:		Plantation Place
		30 Fenchurch Street
		London
		EC3M 3AD
Fax:		+44 (0)207 397 9710
Attention:		Company Secretary

CHAUCER CORPORATE CAPITAL (NO. 3) LIMITED


By:		K.D. Curtis
Address:		Plantation Place
		30 Fenchurch Street
		London
		EC3M 3AD
Fax:		+44 (0)207 397 9710
Attention:		Company Secretary

THE ARRANGERS

BARCLAYS BANK PLC


By:		John French
Address:		1 Churchill Place
		London
		E14 5HP
Fax:		+44 (0)207 116 6919
Attention:		John French

LLOYDS TSB BANK PLC


By:		Ian Baggott
Address:		25 Gresham Street
		London
		EC2V 7HN
Fax:		+44 (0)207 661 4790
Attention:		Mark Jackson

THE ROYAL BANK OF SCOTLAND PLC


By:		Jamie Mehmood
Address:		280 Bishopsgate
		London
		EC2M 4RB
Fax:		+44 (0)207 672 1073
Attention:		David Weaver

117

THE BOOKRUNNER

LLOYDS TSB BANK PLC


By:		Ian Baggott
Address:		Lloyds TSB Bank plc
		CityMark
		150 Fountainbridge
		Edinburgh EH3 9PE
Fax number:		+44 (0)207 1583204
Attention:		Wholesale Loans Servicing Agency Operations

For Non Operational Matters (such as documentation; covenant compliance; amendments and waivers etc):


Address:		Lloyds TSB Bank plc
		10 Gresham Street
		London EC2V 7AE
Fax Number:		+44 (0)207 1583198
Attention:		Wholesale Loans Agency

118

THE OVERDRAFT PROVIDER

LLOYDS TSB BANK PLC


By:		Ian Baggott
Address:		Lloyds TSB Bank plc
		CityMark
		150 Fountainbridge
		Edinburgh EH3 9PE
Fax number:		+44 (0)207 1583204
Attention:		Wholesale Loans Servicing Agency Operations

For Non Operational Matters (such as documentation; covenant compliance; amendments and waivers etc):


Address:		Lloyds TSB Bank plc
		10 Gresham Street
		London EC2V 7AE
Fax Number:		+44 (0)207 1583198
Attention:		Wholesale Loans Agency

THE FACILITY AGENT

LLOYDS TSB BANK PLC


By:		Ian Baggott
Address:		Lloyds TSB Bank plc
		CityMark
		150 Fountainbridge
		Edinburgh EH3 9PE
Fax number:		+44 (0)207 1583204
Attention:		Wholesale Loans Servicing Agency Operations

For Non Operational Matters (such as documentation; covenant compliance; amendments and waivers etc):


Address:		Lloyds TSB Bank plc
		10 Gresham Street
		London EC2V 7AE
Fax Number:		+44 (0)207 1583198
Attention:		Wholesale Loans Agency

THE SECURITY AGENT

LLOYDS TSB BANK PLC


By:		Ian Baggott

For Operational Duties (such as Utilisation Requests, Interest Rate Fixing, Interest/fee calculations and payments):


Address:		Lloyds TSB Bank plc
		CityMark
		150 Fountainbridge
		Edinburgh EH3 9PE
Fax number:		+44 (0)207 1583204
Attention:		Wholesale Loans Servicing Agency Operations

For Non Operational Matters (such as documentation; covenant compliance; amendments and waivers etc):


Address:		Lloyds TSB Bank plc
		10 Gresham Street
		London EC2V 7AE
Fax Number:		+44 (0)207 1583198
Attention:		Wholesale Loans Agency

119

THE ORIGINAL LENDERS

BARCLAYS BANK PLC


By:		John French
Address:		1 Churchill Place
		London
		E14 5HP
Fax:		+44 (0)207 116 6919
Attention:		John French

LLOYDS TSB BANK PLC


By:		Ian Baggott
Address:		25 Gresham Street
		London
		EC2V 7HN
Fax:		+44 (0)207 661 4790
Attention:		Mark Jackson

THE ROYAL BANK OF SCOTLAND PLC


By:		Jamie Mehmood
Address:		3 ^rd Floor
		280 Bishopsgate
		London
		EC2M 4RB
Fax:		+44 (0)20 7672 1067
Attention:		David Weaver

120

CONFORMED COPY

AMENDMENT LETTER

To:	Chaucer Holdings plc

Plantation Place

30 Fenchurch Street

London

EC3M 3AD

Attn:

The Company Secretary

Dated:

28 February 2011

Dear Sirs

£90,000,000 letter of credit facility agreement dated 29 November 2010 between, among others, Chaucer Holdings plc as the account party, Barclays Bank PLC, Lloyds TSB Bank plc and The Royal Bank of Scotland plc as mandated lead arrangers and Lloyds TSB Bank plc as bookrunner, facility agent and security agent (the “Facility Agreement”)

1.	INTRODUCTION

1.1

We refer to the Facility Agreement. Unless a contrary indication appears, a term defined in the Facility Agreement (as the context requires) has the same meaning when used in this letter and in this letter “Effective Date” means the date on which the Facility Agent notifies the Account Party that it has received this letter duly signed by the Account Party as Obligors’ Agent on behalf of itself and each other Obligor.

1.2	The Facility Agent acting on the instructions of the Majority Lenders, has agreed to make certain amendments to the Facility Agreement in the terms set out in this letter.

1.3	Except as varied by the terms of this letter, the Facility Agreement will remain in full force and effect and any reference in any Finance Document to the Facility Agreement or to any provision therein will be construed as a reference to the Facility Agreement as amended by this letter.

2.	AMENDMENTS TO THE FACILITY AGREEMENT

2.1	With effect from the Effective Date the Facility Agreement shall be amended as set out in this paragraph 2.1.

(a)

The following shall be inserted as a new definition into clause 1.1 (Definitions):

“ “Deed of Priority” means the deed of priority dated February 2011 between the Security Agent, the Account Party and Lloyd’s;”

(b)

The definition of Finance Document in clause 1.1 (Definitions) shall be deleted and replaced with the following:

“ “Finance Document” means this agreement, any Fee Letter, any Accession Letter, any Resignation Letter, the Security Documents, the Deed of Priority and any other document designated as such by the Facility Agent and the Account Party;”

(c)

The following clause shall be inserted into clause 26 (Events of Default) as sub-clause 26.23:

“ Deed of Priority

(a) Any party to the Deed of Priority (other than the Security Agent) does not comply with any provision of the Deed of Priority.

(b) No Event of Default under paragraph (a) above will occur if the failure to comply is capable of remedy and is remedied within 15 Business Days of the earlier of:

(i)

the Facility Agent giving notice to the Account Party; and

(ii)

an Obligor becoming aware of the failure to comply.

(c) The Deed of Priority or any obligation of a party (other than the Security Agent) thereunder is not or ceases to be in full force and effect or is alleged by any such party to be ineffective for any reason.”

and Clause 26.23 (Acceleration and Cancellation) shall be renumbered to 26.24 and all consequential changes in respect of such amendment, including any amendments to cross-references, to any Finance Document shall be made.

3.	EFFECTIVE DATE

3.1	The Facility Agent will notify the other Parties to the Facility Agreement promptly when the Effective Date occurs.

3.2

If the Effective Date has not occurred by 28 February 2011 (or any later date which the Facility Agent and the Account Party may agree), then paragraph 2 (Amendments to the Facility Agreement) will lapse and none of the amendments recorded in paragraph 2 (Amendments to the Facility Agreement) will take effect.

4.	CONFIRMATIONS

4.1	Each Guarantor confirms, that with effect from (and including) the Effective Date, the guarantees and indemnities set out in clause 21 (Guarantee and Indemnity) of the amended Facility Agreement shall apply and extend to the obligations of each Obligor under the Finance Documents.

4.2	Each Obligor confirms that all of its liabilities and obligations arising under the Facility Agreement (as amended) form part of (but do not limit) the “Indebtedness” or “Secured Obligations” (as each term is defined in the Security Documents to which that Obligor is a party).

5.	MISCELLANEOUS

5.1	This letter is designated as a Finance Document.

5.2	This letter may be executed in counterparts all of which will, when read together, constitute one and the same document.

5.3

This letter (and any dispute, controversy, proceedings or claim of whatever nature arising out of or in any way relating to this letter) shall be governed by English law and the Account Party submits to the jurisdiction of the English courts in the terms set out in clause 44 (Enforcement) of the Facility Agreement.

Signed by Ian Baggott

for and on behalf of

the Facility Agent on behalf of the Majority Lenders

Signed by Ian Baggott

for and on behalf of

the Security Agent

We agree to the terms of this letter

Signed by K.D. Curtis

for and on behalf of

Chaucer Holdings plc

for itself and as Obligors’ Agent on behalf of each Obligor

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;

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 9, 2011

/s/ Frederick H. Eppinger, Jr.

Frederick H. Eppinger, Jr.

President, Chief Executive Officer and Director

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;

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):

(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 9, 2011

/s/ David B. Greenfield

David B. Greenfield

Executive Vice President,

Chief Financial Officer and

Principal Accounting Officer

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:

the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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 9, 2011

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:

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 9, 2011