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<div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>7. DEBT AND FINANCING ARRANGEMENTS</b></div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> On July 21, 2006, the Company issued $500,000 aggregate principal amount of 7.50% Senior Notes due August 1, 2016 ("Senior Notes"), with interest on the notes payable on August 1 and February 1 of each year, commencing on February 1, 2007. The Senior Notes were offered by the underwriters at a price of 99.71% of their principal amount, providing an effective yield to investors of 7.54%. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> The Senior Notes can be redeemed by the Company prior to maturity subject to payment of a "make-whole" premium. The Company has no current expectations of calling the notes prior to maturity. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> The Company has a collateralized amended letter of credit facility (the "Credit Facility") with Citibank Europe plc. that has been and will continue to be used to issue standby letters of credit. The Credit Facility was amended in December 2008 to provide the Company with greater flexibility in the types of securities that are eligible to be posted as collateral and to increase the maximum aggregate amount available under the Credit Facility from $750,000 to $900,000 on an uncommitted basis. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> In November 2007, the Company entered into an $800,000 five-year senior credit facility (the "Facility") with a syndication of lenders. The Facility consists of a $400,000 secured letter of credit facility for the issuance of standby letters of credit (the "Secured Facility") and a $400,000 unsecured facility for the making of revolving loans and for the issuance of standby letters of credit (the "Unsecured Facility"). Both the Secured Facility and the Unsecured Facility have options to increase the aggregate commitments by up to $200,000, subject to approval of the lenders. The Facility will be used for general corporate purposes and to issue standby letters of credit. The Facility contains representations, warranties and covenants customary for similar bank loan facilities, including a covenant to maintain a ratio of consolidated indebtedness to total capitalization as of the last day of each fiscal quarter or fiscal year of not greater than 0.35 to 1.0 and a covenant under the Unsecured Facility to maintain a certain consolidated net worth. In addition, each material insurance subsidiary must maintain a financial strength rating from A.M Best Company of at least A- under the Unsecured Facility and of at least B++ under the Secured Facility. Concurrent with this new Facility, the Company terminated the Letter of Credit Facility with Barclays Bank Plc and all outstanding letters of credit issued thereunder were transferred to the Secured Facility. The Company is in compliance with all covenants under the Facility as of June 30, 2010 and December 31, 2009. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> There are a total of 13 lenders that make up the Facility syndication and that have varying commitments ranging from $20,000 to $87,500. Of the 13 lenders, four have commitments of $87,500 each, four have commitments of $62,500 each, four have commitments of $45,000 each and one has a commitment of $20,000. The one lender in the Facility with a $20,000 commitment has declared bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. This lender did not meet its commitment under the Facility. In July 2010, the Company replaced this bankrupt lender with another lender for the full $20,000 commitment under the Facility. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> In November 2008, Holdings requested a $250,000 borrowing under its Unsecured Facility. The borrowing was requested to ensure the preservation of the Company's financial flexibility in light of the uncertainty in the credit markets at that time. On November 21, 2008, the Company received $243,750 of loan proceeds from the borrowing, as $6,250 was not received from the lender in bankruptcy. On February 23, 2009, the Company repaid in full the $243,750 borrowing under its Unsecured Facility.</div></div> </div>7. DEBT AND FINANCING ARRANGEMENTS
On July 21, 2006, the Company issued $500,000 aggregate principal amount of 7.50% Seniorfalsefalsefalseus-types:textBlockItemTypetextblockInformation about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.Reference 1: http://www.xbrl.org/2003/role/presentationRef
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-Name Regulation S-X (SX)
-Number 210
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-Paragraph 19, 20, 22
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-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
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-Paragraph 2, 4
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