Exhibit 10.3

MANAGEMENT AND OPERATIONS AGREEMENT

among

STATE AUTO PROPERTY & CASUALTY INSURANCE COMPANY

STATE AUTOMOBILE MUTUAL INSURANCE COMPANY

and

THE ROCKHILL COMPANIES

This Management and Operations Agreement effective as of 12:01 a.m., Eastern
Standard Time, January 1, 2010 (the “Agreement”) is entered into as of
February 10, 2010 by and among State Auto Property & Casualty Insurance Company
(“State Auto P&C”), State Automobile Mutual Insurance Company (“Mutual”),
Rockhill Insurance Company (“RIC”), Plaza Insurance Company (“Plaza”), American
Compensation Insurance Company (“ACIC”), Bloomington Compensation Insurance
Company (“BCIC”), Rockhill Holding Company (“Rockhill Holding”), National
Environmental Coverage Corporation of the South, LLC (“NECCS”), National
Environmental Coverage Corporation (“NECC”), RTW, Inc. (“RTW”), Rockhill
Insurance Services, LLC (“RIS”), Rockhill Underwriting Management, LLC (“RUM”)
and Risk Evaluation and Design, LLC (“RED”). RIC, Plaza, ACIC, and BCIC are
collectively referred to as the “Rockhill Insurers”; Rockhill Holding, NECCS,
NECC, RTW, RIS, RUM and RED are collectively referred to as the “Service
Companies”; and the Rockhill Insurers and the Service Companies are collectively
referred to as the “Rockhill Companies” and individually as a “Rockhill
Company.”

WHEREAS, State Auto P&C desires to make available to the Rockhill Companies and
the Rockhill Companies desire to obtain from State Auto P&C the services of
State Auto P&C through certain of its executive, managerial, administrative and
other employees and human resources (collectively referred to hereafter as
“Management and Operations Services”), provided that the arrangements between
State Auto P&C and the Rockhill Companies under this Agreement recognize that
the Rockhill Companies have their own employee force performing services for the
Rockhill Companies; and

WHEREAS, Mutual desires to make available to the Rockhill Companies its data
processing and other equipment and facilities, all of which may be used jointly
by the Rockhill Companies and Mutual and its other affiliates, and recognizing
that the Rockhill Companies also have certain facilities and equipment of their
own; and

WHEREAS, the Rockhill Companies desire to make available to Mutual and State
Auto P&C (together, the “State Auto Companies”) certain unique services that the
Rockhill Companies have to offer, which services may be used jointly by the
Rockhill Companies, the State Auto Companies, and third parties with whom the
Rockhill Company may contract; and

WHEREAS, in response to a recommendation from the Independent Committee of the
Board of Directors of each of Mutual and State Auto Financial Corporation, the
Boards of Directors of the parties hereto have approved this Agreement;

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NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, AND INTENDING TO BE LEGALLY BOUND HEREBY, the parties hereto
agree as follows:

Statement of Agreement

1. Engagement and Term - On the terms and subject to the conditions described in
this Agreement, the Rockhill Companies hereby engage State Auto P&C, and State
Auto P&C hereby accepts such engagement, to provide Management and Operations
Services to the Rockhill Companies as any of such Rockhill Companies requires to
operate its business.

Any of State Auto P&C’s employees may also serve as directors or officers of any
of the Rockhill Companies notwithstanding that such persons may also be officers
or directors of State Auto P&C, Mutual or other affiliates. State Auto P&C shall
also be entitled to continue using its employees to conduct all of its business
operations, notwithstanding that such persons will be performing services for
the Rockhill Companies and other affiliates as well.

To the extent reasonably possible, the parties shall jointly utilize State Auto
P&C’s employees in a cooperative manner and consistent with the business
interests and needs of State Auto P&C and its affiliates. State Auto P&C shall
direct its employees performing such services for each of the Rockhill Companies
to use their best efforts to promote the general interests and economic welfare
of each of the Rockhill Companies to the same extent as such employees provide
to State Auto P&C.

The term of State Auto P&C’s engagement under this Agreement shall begin on the
date of this Agreement and shall end, unless sooner terminated in accordance
with the provisions of Section 9 below, on the tenth anniversary of this
Agreement. This Agreement shall be automatically renewed for successive ten-year
periods upon the same terms and conditions contained in this Agreement, unless
and until terminated as described in Section 9 below.

2. Authority and Duties of State Auto P&C - In providing Management and
Operations Services, State Auto P&C, acting through its employees, shall be
responsible for performing certain organizational, operational, and management
functions of each of the Rockhill Companies. State Auto P&C shall use its
reasonable efforts to operate each Rockhill Company’s business efficiently and
in accordance with the reasonable guidelines and policies which may be
established from time to time by the board of directors of each of the Rockhill
Companies. State Auto P&C shall have all authority necessary to carry out its
duties under this Agreement and shall act as an agent of each of the Rockhill
Companies. Without limiting the generality of the foregoing as well as
recognizing that the Rockhill Companies have their own employee force performing
services for the Rockhill Companies, State Auto P&C’s duties under this
Agreement may include the following:

(a) Management and Administration of Insurance Operations - State Auto P&C shall
provide services for the operation, administration, and management of the
insurance business operations of each of the Rockhill Companies engaged in the
insurance business, in accordance with the underwriting, claims and any other
reasonable guidelines of such companies which may be in effect

 

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or established from time to time by the board of directors of such companies.
The management and administration of each such insurer’s business operations by
State Auto P&C may include, without limitation, appointment and termination of
agencies, underwriting of insurance risks, investigation and settlement of
claims and arrangement of reinsurance. State Auto P&C shall use the same degree
of care in acting on behalf of such insurers as the degree of care it uses in
connection with the conduct of its insurance business operations.

(b) Management and Administration of Non-Insurance Operations of the Service
Companies - State Auto P&C through its employees, shall perform Management and
Operations Services for each of the other Rockhill Companies which are Service
Companies in accordance with the policies and guidelines which each of such
companies’ board of directors may establish from time to time. State Auto P&C
will use the same degree of care in acting on behalf of these companies as it
uses in connection with the conduct of its own business operations.

(c) Employees – State Auto P&C shall provide each Rockhill Company with such
executive, managerial, supervisory, administrative, technical, clerical,
professional, and other personnel as may be necessary or desirable for the
operation and administration of each Rockhill Company’s business as a supplement
to the services performed by the Rockhill Companies’ own employees. State Auto
P&C shall direct its employees, in performing such services for each Rockhill
Company, to use their best efforts to promote the general interests and economic
welfare of each Rockhill Company, in the same manner as such employees utilize
when providing service to State Auto P&C.

(d) Employees and Payroll - The employees that may be provided by State Auto P&C
to each Rockhill Company under this Agreement shall be employed as employees of
State Auto P&C and not of any of the Rockhill Companies. Notwithstanding the
foregoing, Mutual shall continue to act as the common paymaster of all such
State Auto P&C employees providing services to any Rockhill Companies. As common
paymaster, Mutual shall be responsible for filing information and tax returns
and issuing tax and other payroll forms and reports with respect to wages paid
to the employees employed by State Auto P&C and provided to each Rockhill
Company.

3. Provision of Facilities and Expense Payments - During the term of this
Agreement, Mutual shall provide each of the Rockhill Companies with such data
processing equipment, office supplies and equipment, furniture and fixtures,
automobiles and such other items of tangible personal property as each of such
Rockhill Companies may require or desire for the operation of its business,
recognizing that the Rockhill Companies have certain facilities and equipment of
their own. Utilizing the employees of State Auto P&C, Mutual may act as agent
for each of the Rockhill Companies and, to the extent agreed upon by the
parties, in collecting and disbursing funds due to any Rockhill Company, and in
paying expenses and other operating costs of the facilities used by such parties
except for those expenses paid directly by any such Rockhill Company from its
own accounts.

4. Services Provided by Rockhill Companies – From time to time as agreed upon by
the parties either orally or under separate written agreement(s), the Rockhill
Companies shall provide the State Auto Companies with certain unique services
offered by the Rockhill Companies.

 

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5. Board of Directors’ Control - The officers of State Auto P&C, Mutual and each
of the Rockhill Companies shall be subject to the authority of their respective
boards of directors, provided, however, it is understood that such officers have
contractual obligations under this Agreement. State Auto P&C, Mutual and each
Rockhill Company may appoint or elect as its officers those persons who hold
offices in any other State Auto Company or any other affiliate, subject at all
times to the power of each company’s respective board of directors to appoint,
elect, or remove its officers in accordance with its respective articles or
certificate of incorporation, code of regulations or by-laws, and other
governing documents, statutes, or rules of law applicable to each respective
company.

6. Allocation of Costs and Expenses - All out-of-pocket expenses incurred for
goods or services from third-party vendors or other unrelated parties which are
identifiable to a particular Rockhill Company, including without limitation,
director’s fees, legal fees, audit fees, stock transfer expenses, travel
expenses, stationery, supplies and items of a similar nature, shall be charged
to the Rockhill Company for whose benefit such costs or expenses were incurred.
Likewise, all out-of-pocket expenses incurred by the Rockhill Companies for
goods or services from third-party vendors or other unrelated parties which are
identifiable to a particular State Auto Company shall be charged to the State
Auto Company for whose benefit such costs or expenses were incurred. Expenses of
the insurers shall be apportioned in accordance with SSAP No. 70 “Allocation of
Expenses.” The books, accounts, and records shall be so maintained as to clearly
and accurately disclose the nature and details of the transactions including
such accounting information as is necessary to support the expenses apportioned
to the respective parties.

All costs and expenses incurred by State Auto P&C for the employees, and by
Mutual for the equipment, facilities and other items shared by the parties
pursuant to this Agreement shall be allocated among the parties to this
Agreement as follows:

(a) Insurance Losses, Loss Adjustment Expenses and Underwriting Expenses of the
Rockhill Insurers - All insurance losses, loss adjustment expenses and
underwriting expenses of the Rockhill Insurers, as computed under the statutory
accounting principles used by the Rockhill Insurers from time to time shall be
paid by the Rockhill Insurers. Underwriting and loss adjustment expenses
include, without limitation, expenses for State Auto P&C employees providing
services on behalf of the Rockhill Insurers for only part of their time, which
expenses shall be allocated to the Rockhill Insurers in proportion to the amount
of time those employees spend on the Rockhill Insurers’ behalf in accordance
with statutory accounting principles used by the Rockhill Insurers from time to
time.

(b) Expenses of the Service Companies - The salary expenses attributable to
State Auto P&C employees performing services for the Service Companies, in the
course of such Service Company providing services to any Rockhill Company under
this Agreement, shall be reimbursed to State Auto P&C by each of these companies
based on an allocation of the time these individuals spend on behalf of each of
the Service Companies. In addition, each of the Service Companies shall
reimburse State Auto P&C for the expense

 

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of services provided to it by State Auto P&C including, without limitation,
payroll taxes, benefits, overhead, and rent based on a percentage of the
aforesaid salary expenses to be determined annually by State Auto P&C in an
amount that reasonably reflects the actual costs of the aforesaid items.

(c) Pension and Benefit Expenses - The Rockhill Companies’ share of pension and
benefit expenses under the State Auto Insurance Companies Employees’ Retirement
Plan and any other applicable benefit plans provided by any State Auto Company
for the employees of State Auto P&C (the “Plans”) shall be allocated to each of
the Rockhill Companies based on the percentage of State Auto P&C payroll
expenses attributable to each such Rockhill Company.

(d) Real Estate Expenses - The Rockhill Companies own or rent office space at
their principal offices or other locations, and all such rental or ownership
expense shall be the responsibility and direct expense of the Rockhill
Companies. If Mutual provides the Rockhill Companies with any office space, the
amount of rent Mutual charges the Rockhill Companies shall be based upon the
percentage that the total salaries (including a benefits factor) paid to
individuals performing services for any of the Rockhill Companies bears to the
aggregate of all salaries for State Auto P&C times the total rent expenses for
the State Auto Companies for the locations where the Rockhill Companies are
provided facilities, in accordance with statutory accounting principles.

All costs and expenses incurred by the Rockhill Companies for the services
provided to the State Auto Companies pursuant to this Agreement shall be
allocated among the parties to this Agreement as follows. The salary expenses
attributable to Rockhill Companies’ employees performing services for the State
Auto Companies shall be reimbursed to the Rockhill Companies by each of the
State Auto Companies based on an allocation of the time these individuals spend
on behalf of each of the State Auto Companies. In addition, each of the State
Auto Companies shall reimburse the Rockhill Companies for the expense of
services provided to it by the Rockhill Companies including, without limitation,
payroll taxes, pension and employee benefits, overhead, and rent based on a
percentage of the aforesaid salary expenses to be determined annually by the
Rockhill Companies in an amount that reasonably reflects the actual costs of the
aforesaid items.

7. Payments for Services - All amounts due under this Agreement shall be due and
payable by the respective company within sixty (60) days after the end of each
calendar quarter.

8. Conflicts of Interest - The parties hereby acknowledge that, due to the
common management of Mutual and its wholly owned subsidiaries (the “Mutual
Group”) and State Auto Financial Corporation and its subsidiaries (the “State
Auto Financial Group”), conflicts of interest may arise with respect to business
opportunities available to such companies. In order to deal with such conflicts
of interest on an equitable basis, the guidelines incorporated in the Charter of
the Mutual Independent Committee (as defined below) and the Financial
Independent Committee (as defined below), which respective Charters are hereby
incorporated by this reference, shall be used to determine which company may
avail itself of a business opportunity.

 

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(a) As used herein, Mutual Independent Committee shall mean a committee
established by the Board of Directors of Mutual and comprised solely of persons
who are not, and during the past three years have not been, directors, officers
or employees of companies in the State Auto Financial Group or employees of
Mutual or any wholly owned subsidiary of Mutual. The Mutual Independent
Committee members shall also represent the interests of all wholly owned
subsidiaries of Mutual (together with Mutual, each “a Mutual Company” and,
collectively, the “Mutual Companies”).

(b) As used herein, Financial Independent Committee shall mean a committee
established by the Board of Directors of State Auto Financial Corporation and
comprised solely of persons who are not, and during the past three years have
not been, directors, officers or employees of Mutual or any wholly owned
subsidiary of Mutual or employees of any company in the State Auto Financial
Group. The Financial Independent Committee members shall also represent the
interests of all subsidiaries of State Auto Financial Corporation (together with
State Auto Financial Corporation, each “a Financial Company” and, collectively,
the “Financial Companies”).

9. Termination – This Agreement may be terminated prior to the end of the
initial term, or any renewal thereof, as follows:

(a) By any party upon giving the other parties at least sixty (60) days’ advance
written notice of such termination (provided that such termination shall only
relate to the Company giving notice and shall not terminate the Agreement with
respect to any of the other parties unless they also give at least sixty
(60) days’ advance written notice of termination).

(b) Automatically, with respect to a party, if that party files a voluntary
petition in bankruptcy, applies for or consents to the appointment of a
receiver, makes a general assignment for the benefit of creditors, admits in
writing its inability to pay debts as they mature, files a petition or answer
seeking a reorganization or arrangement with creditors under any insolvency law,
files an answer admitting the material allegations of a petition filed in any
bankruptcy or reorganization proceeding, or if a decree of any court is entered
adjudging the party to be bankrupt or approving a reorganization or arrangement
under any insolvency law (which decree is not set aside within ninety days after
it is entered), (provided that such termination shall only relate to the company
subject to the foregoing event or action and shall not terminate the Agreement
with respect to any of the other parties unless they also give notice of
termination within thirty days of the event that causes the automatic
termination for another party).

10. Arbitration - Any and all disagreements or controversies arising with
respect to this Agreement, whether during or after the term of State Auto P&C’s
engagement under this Agreement, shall be settled by binding arbitration by a
panel of three arbitrators, one selected by Mutual on behalf of any member of
the Mutual Group, one selected by State Auto Financial Corporation on behalf of
any member of the State Auto Financial Group, and the third to be selected by
the mutual agreement of the first two arbitrators. The arbitration shall be
held, and the award made, in Franklin County, Ohio, pursuant to the Ohio
Arbitration Law (Ohio Revised Code Chapter 2711 or any law of similar tenor or
effect that hereafter is enacted). All fees of the arbitrators shall be borne
equally by the parties to the arbitration.

 

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11. Complete Agreement – This document contains the entire agreement between the
parties and supersedes all prior or contemporaneous discussions, negotiations,
representations, or agreements relating to the subject matter. No changes to
this Agreement shall be made or be binding on any party unless made in writing
and signed by each party to this Agreement.

12. No Third Party Benefit - This Agreement is intended for the exclusive
benefit of the parties to this Agreement and their respective successors and
assigns, and nothing contained in this Agreement shall be construed as creating
any rights or benefits in or to any third party.

13. Captions - The captions of the various sections of this Agreement are not
part of the content or context of this Agreement, but are only labels to assist
in locating those sections, and shall be ignored in construing this Agreement.

14. Force Majeure - Notwithstanding any provision of this Agreement to the
contrary, any party’s obligations under this Agreement shall be excused if and
to the extent that any delay or failure to perform such obligations is due to
fire or other casualty, material shortages, strikes or labor disputes, acts of
God, or other causes beyond the reasonable control of such party.

15. Amendments - This Agreement may be amended by the parties, upon authority of
their officers without specific director approval, if such amendment is solely
for the purpose of clarification and does not change the substance of this
Agreement and the parties have obtained an opinion of legal counsel to that
effect. Additionally, any present or future subsidiary or affiliate of the
Rockhill Companies may be added as a party to this Agreement by an amendment
entered into by Mutual, State Auto P&C and the new party, after approval of the
Independent Committee of the Board of Directors of each of Mutual and State Auto
Financial Corporation and the directors of each and of the new party. Except as
otherwise specifically provided in this section of the Agreement, all other
amendments to this Agreement must be presented to the Independent Committee of
Mutual and of State Auto Financial Corporation and be approved by the directors
of each company. Any amendment to this Agreement is subject to the prior
approval of the insurance commissioners for the domiciliary states of the
insurers which are parties to this Agreement.

16. Successors - No party may assign any of its rights or obligations under this
Agreement without the written consent of all other parties to this Agreement,
which consent may be arbitrarily withheld by any such party. This Agreement
shall be binding upon, inure to the benefit of, and be enforceable by and
against the respective successors and assigns of each party to this Agreement.

17. Access to Records - The parties hereto understand and agree that each shall
have such access to the records of the other as is necessary to confirm that
this Agreement is being properly administered and applied, provided that such
access is achieved in compliance with laws protecting the privacy of insureds
and claimants. It is further understood and agreed that the parties will permit
regulators with jurisdiction to have such access to such records, as and to the
extent required by law.

 

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18. Indemnification - Subject to the limitations contained herein, the parties
mutually agree to defend, indemnify and hold the other party and its directors,
officers, and employees harmless against all liability including but not limited
to damages, losses, fines, penalties and reasonable costs and expenses of
whatsoever kind including but not limited to fees and disbursements of counsel,
which the indemnified party is or may be held liable to pay arising out of any
breach of the indemnifying party’s obligations under this Agreement. This
provision shall survive the termination of this Agreement.

The parties hereto have caused this Agreement to be executed as of February 10,
2010.

 

STATE AUTOMOBILE MUTUAL INSURANCE COMPANY
STATE AUTO PROPERTY & CASUALTY INSURANCE COMPANY ROCKHILL INSURANCE COMPANY
PLAZA INSURANCE COMPANY AMERICAN COMPENSATION INSURANCE COMPANY
BLOOMINGTON COMPENSATION INSURANCE COMPANY ROCKHILL HOLDING COMPANY
NATIONAL ENVIRONMENTAL COVERAGE CORPORATION OF

THE SOUTH, LLC

NATIONAL ENVIRONMENTAL COVERAGE CORPORATION RTW, INC. ROCKHILL INSURANCE
SERVICES, LLC ROCKHILL UNDERWRITING MANAGEMENT, LLC RISK EVALUATION AND DESIGN,
LLC By:   /s/ Robert P. Restrepo, Jr.   Robert P. Restrepo, Jr., President

 

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