Exhibit 10.3.1


 


PROSPECTOR
PARTNERS, LLC


 


INVESTMENT
MANAGEMENT AGREEMENT


 


PROSPECTOR PARTNERS, LLC, a Delaware limited liability company (the “Adviser”),
having an address at 370 Church Street, Guilford, Connecticut 06437, and OneBeacon
Insurance Group, Ltd., a Bermuda Corporation (“OneBeacon”), having an address
at Bank of Butterfield Building, 42 Reid Street, Hamilton HM 12, Bermuda,
hereby enter into this Investment Management Agreement, dated as of                   ,
2006 (this “Agreement”), and hereby agree that the Adviser shall act as
discretionary adviser with respect to the specified assets of each subsidiary
of OneBeacon identified on Schedule A (each, a “Client”) to this Agreement as
such schedule may be amended from time to time to add new subsidiaries as
Clients on the following terms and conditions:


 


1.     Investment
Accounts The investment account of each of the entities identified in
Schedule A to this Agreement (each an “Investment Account”) shall consist of
cash and securities in an amount equal to at least $30,000,000 (the “Minimum
Account Amount”), or such other amount as may be agreed to by the Adviser,
initially furnished by the Client for investment pursuant to this Agreement, as
well as all other assets which become part of each Investment Account as a
result of trading therein or additions thereto, except for amounts withdrawn
there from and paid to the Client. Each Client may make additions to the
Investment Account in amounts exceeding $100,000, or in such other amount as
may be agreed to by the Adviser, provided that the Adviser shall have received
prompt written notice of such additions. Each Client may make withdrawals from its’
Investment Account in such amounts as it shall determine upon not less than 30
days prior written notice thereof to the Adviser and provided that the
withdrawal shall not cause the assets in the Investment Account to fall below
the Minimum Account Amount, unless otherwise agreed to by the Adviser.


 


2.     Services of
Adviser By execution of this Agreement the Adviser accepts appointment
as adviser for each Investment Account with full discretion and agrees to
supervise and direct the investments of each Investment Account in accordance
with the investment objective, policies and restrictions described in the
investment guidelines attached hereto as Schedule B (the “Investment Guidelines”).
In the performance of its services, the Adviser will not be liable for any
error in judgment or any acts or omissions to act except those resulting from
the Adviser’s gross negligence, willful misconduct or malfeasance. Nothing
herein shall in any way constitute a waiver or limitation of any right of any
person under the federal securities laws. The Adviser shall have no
responsibility whatsoever for the management of any assets of the entities
identified in Schedule A to this Agreement other than such entities’ Investment
Account.


 


3.     Discretionary
Authority Subject to the Investment Guidelines, the Adviser shall have
full discretion and authority, without obtaining any prior approval, as the
Client’s agent and attorney-in-fact: (a) to make all investment decisions
in respect of each Investment Account on the Client’s behalf and at the sole
risk of the Client; (b) to buy, sell, exchange, convert, liquidate or
otherwise trade in any stock, bond and other securities or financial
instruments in respect of each Investment Account; (c) to place orders
with respect to, and to arrange for, any of the foregoing; and (d) in
furtherance of the foregoing, to do anything which the Adviser shall deem
requisite, appropriate or advisable in connection therewith, including, without
limitation, the selection of such brokers, dealers, and others as the Adviser
shall determine in its absolute discretion.


 


4.     Custody The
assets of each Investment Account shall be held in one or more separately
identified accounts in the custody of one or more banks, trust companies,
brokerage firms or other entities designated by the Client and acceptable to
the Adviser. The Adviser will communicate its investment purchase, sale and
delivery instructions directly with the party identified by the Client or other
qualified depositories. The Client shall be responsible for all custodial
arrangements and the payment of all custodial charges and fees, and the Adviser
shall have no responsibility or liability with respect to custody arrangements
or the acts, omissions or other conduct of the custodians.


 


5.     Brokerage
When placing orders for the execution of transactions for an Investment 


 

















 


Account, the
Adviser may allocate all transactions to such brokers or dealers, for execution
on such markets, at such prices and commission rates, as are selected by the
Adviser in its sole discretion. In selecting brokers or dealers to execute
transactions, the Adviser need not solicit competitive bids and does not have
an obligation to seek the lowest available commission cost. It is not the
Adviser’s practice to negotiate “execution only” commission rates, and, in
negotiating commission rates, the Adviser shall take into account the financial
stability and reputation of brokerage firms and brokerage and research services
provided by such brokers. An Investment Account may be deemed to be paying for
research provided or paid for by the broker which is included in the commission
rate although the Investment Account may not, in any particular instance, be
the direct or indirect beneficiary of the research services provided. Research
furnished by brokers may include, but is not limited to, written information
and analyses concerning specific securities, companies or sectors; market,
finance and economic studies and forecasts; financial publications; statistics
and pricing services; discussions with research personnel; and software and
data bases utilized in the investment management process. OneBeacon
acknowledges on behalf of each Client that since commission rates are generally
negotiable, selecting brokers on the basis of considerations which are not
limited to applicable commission rates may at times result in higher
transaction costs than would otherwise be obtainable. The Adviser is hereby
authorized to, and OneBeacon acknowledges on behalf of each Client that the
Adviser may aggregate orders on behalf of each Investment Account with orders
on behalf of other clients of the Adviser. In such event, allocation of the
securities purchased or sold, as well as expenses incurred in the transaction,
shall be made in a manner which the Adviser considers to be the most fair and
equitable to all of its clients, including the Clients.


 


6.     Representations
and Warranties


 


(a)   OneBeacon
represents, warrants and agrees that:


 


(i)            it has full legal
power and authority to enter into this Agreement; and


 


(ii)           the appointment of the Adviser hereunder is
permitted by each Client’s governing documents and any investment management
agreement between OneBeacon and the Clients to this Agreement and has been duly
authorized by all necessary corporate or other action;


 


(iii)          it will indemnify the
Adviser and hold it harmless against any and all losses, costs, claims and liabilities
which the Adviser may suffer or incur arising out of any material breach of
these representations and warranties of OneBeacon.


 


(b)   The
Adviser represents, warrants and agrees that:


 


(i)            it has full legal
power and authority to enter into this Agreement;


 


(ii)           it is registered as an
investment adviser with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940, as amended (the “Advisers Act”); and


 


(iii)          entering into this
Agreement has been duly authorized by all necessary action.


 


(iv)          it will indemnify OneBeacon
and hold it harmless against any and all losses, costs, claims and liabilities
which OneBeacon may suffer or the Client may suffer or incur arising out of any
material breach of any representations and warranties of the Adviser.


 


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7.     Reports The
Adviser shall provide OneBeacon with reports containing the status of the
Investment Account at least monthly (i.e. “Flash Report”), and will provide
written advisory report letters on a quarterly basis. All records maintained
pursuant to this Agreement shall be subject to examination by OneBeacon and by
persons authorized by it, or by appropriate governmental authorities, at all
times upon reasonable notice. The Adviser shall provide copies of trade
tickets, custodial reports and other records OneBeacon reasonably requires for
accounting or tax purposes.


 


8.     Management
Fee and Expenses The Adviser will be paid a quarterly management fee (the “Management
Fee”) for its investment advisory services provided hereunder, determined in
accordance with Schedule C to this Agreement. During the term of this
Agreement, the Management Fee shall be billed and payable in arrears on a
quarterly basis within 10 days after the last day of each calendar quarter
based upon the value of the Investment Accounts as of the last day of the
immediately preceding calendar quarter. The Management Fee shall be pro-rated
for any partial quarter. It is understood that, in the event that the Management
Fee is to be paid by the custodian out of the Investment Accounts, OneBeacon or
the Clients will provide written authorization to the custodian to pay the
Management Fee directly from the Investment Accounts.


 


(a)   Each Investment Account shall
be responsible for all expenses incurred directly in connection with
transactions effected on behalf of the Investment Account pursuant to this
Agreement and shall include: custodial fees; PAM accounting service fees,
investment expenses such as commissions; and other expenses reasonably related
to the purchase, sale or transmittal of Investment Account assets (other than
research fees and expenses with respect to the Investment Account).


 


9.     Confidential
Relationship All information and advice furnished by either party to the
other party pursuant to this Agreement shall be treated by the receiving party
as confidential and shall not be disclosed to third parties except as required
by law; provided, however, that the OneBeacon consents to the disclosure by the
Adviser that OneBeacon (and each of the Clients) is a client of the Adviser and
to the inclusion of OneBeacon on a list of representative clients of the
Adviser or in other marketing materials. OneBeacon acknowledges that the
Adviser shall own and be permitted to use its investment track record with
respect to the Investment Accounts, and shall be permitted to retain copies of
all documentation necessary under the Advisers Act to support the track record
or otherwise required to be retained under the Advisers Act and related rules.
The Adviser acknowledges that OneBeacon shall be permitted to report the
investment track record (on a stand-alone basis, as part of its total portfolio
return or otherwise) with respect to the Investment Accounts in any internal or
external reports of it or its affiliates.


 


10.   Non-Assignability
No “assignment”, as that term is defined in the Advisers Act, of this Agreement
shall be made by the Adviser or OneBeacon without the written consent of the
other party.


 


11.   Directions to the
Adviser All directions by OneBeacon by or on behalf of the Clients to the
Adviser shall be in writing signed by or on behalf of OneBeacon. The Adviser
shall be fully protected in relying upon any such writing which the Adviser
believes to be genuine and signed or presented by the proper person or persons,
shall be under no duty to make any investigation or inquiry as to any statement
contained therein and may accept the same as conclusive evidence of the truth
and accuracy of the statements therein contained.


 


12.   Consultation
with Counsel The Adviser may consult with legal counsel (who may be counsel
to OneBeacon) concerning any question that may arise with reference to its
duties under this Agreement, and the opinion of such counsel shall be full and
complete protection in respect of any action taken or omitted by the Adviser
hereunder in good faith and in accordance with such opinion.


 


13.   Services to
Other Clients It is understood that the Adviser acts as investment adviser
to other clients and may give advice and take action with respect to such
clients that differs from the 


 


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advice given or
the action taken with respect to the Investment Accounts. Nothing in this
Agreement shall restrict the right of the Adviser, its members, managers,
officers, employees or affiliates to perform investment management or advisory
services for any other person or entity, and the performance of such service
for others shall not be deemed to violate or give rise to any duty or
obligation to the Client.


 


14.   Investment by the
Adviser for Its Own Account Nothing in this Agreement shall limit or
restrict the Adviser or any of its members, managers, officers, employees or
affiliates from buying, selling or trading any securities for its or their own
account or accounts. OneBeacon on behalf of each Client acknowledges that the
Adviser and its members, managers, officers, employees, affiliates and other
clients may at any time have, acquire, increase, decrease or dispose of securities
which are at or about the same time acquired or disposed of for the account of a
Client. The Adviser shall have no obligation to purchase or sell for the
Investment Accounts or to recommend for purchase or sale by the Investment
Accounts any security that the Adviser or its members, managers, officers,
employees or affiliates may purchase or sell for itself or themselves or for
any other client.


 


15.   Proxies Subject
to any other written instructions of OneBeacon, the Adviser is hereby appointed
OneBeacon’s agent and attorney-in-fact in its discretion to vote, convert or
tender in an exchange or tender offer any securities in the Investment Accounts,
to execute proxies, waivers, consents and other instruments with respect to
such securities, to endorse, transfer or deliver such securities and to
participate in or consent to any plan of reorganization, merger, combination,
consolidation, liquidation or similar plan with reference to such securities.


 


16.   Notices All
notices and instructions with respect to securities transactions or any other
matters contemplated by this Agreement shall be deemed duly given when
delivered in writing or deposited by first-class mail to the following
addresses: (a) if to the Adviser, at its address set forth above, Attention:
Peter N Perugini, CFO, or (b) if to OneBeacon, at its address set forth above,
Attention Paul McDonough, CFO. The Adviser or the Client may change its address
or specify a different manner of addressing itself by giving notice of such
change in writing to the other party.


 


17.   Entire
Agreement; Amendment This Agreement sets forth the entire agreement of the
parties with respect to management of the Investment Account and shall not be
amended except by an instrument in writing signed by the parties hereto.


 


18.   Termination
This Agreement shall continue in force from the date hereof for an initial
term until the third anniversary of the date hereof and then may be renewed by OneBeacon
for up to two additional one-year terms, in each case by providing written
notice of its intention to renew the Agreement not less than 30 days prior
to the relevant anniversary date.    Notwithstanding the
foregoing, this Agreement shall be terminable by OneBeacon upon written notice
to the Adviser at least thirty (30) days prior to the date upon which such
termination is to become effective (i) for cause (including material
non-performance by the Adviser), (ii) if either John Gillespie or Richard
Howard are no-longer affiliated with the Adviser, (iii) if there is a change in
control of the Adviser (change in control in this case shall mean a more than
50% change in the voting interest of the Adviser), or (iv) if White Mountains’
voting interest in OneBeacon falls below 50%.  Each Client shall
honor any trades executed but not settled before the date of any termination
under this Agreement. The fee for the calendar quarter during which any
termination of this Agreement shall occur shall be paid as of the date of
termination and prorated if the effective date does not coincide with the end
of the quarter. 


 


19.   Governing Law
To the extent that the interpretation or effect of this Agreement shall depend
on state law, this Agreement shall be governed by and construed in accordance
with the laws of the State of New York.


 


20.   Effective Date
This Agreement shall become effective on the date first written above.


 


21.   Receipt of
Disclosure Statement OneBeacon acknowledges receipt of a copy of Part II of
the Adviser’s Form ADV in compliance with Rule 204-3(b) under the Advisers Act
more than 48 hours prior to the date of execution of this Agreement. The
Adviser shall annually and without charge, 


 


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upon request by OneBeacon,
deliver to OneBeacon the current version of such form or a written document
containing at least the information then required to be contained in such form.


 


22.   Counterparts
This Agreement may be executed in two counterparts, each one of which shall be
deemed to be an original.


 


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized representatives as of the date
first written above.


 


	
  ADVISER:

  	
  ONEBEACON:

  
	
   

  	
   

  
	
  PROSPECTOR PARTNERS, LLC

  	
  ONEBEACON INSURANCE GROUP, LTD.

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
								



 


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SCHEDULE A


 


SUBSIDIARIES OF ONEBEACON INSURANCE GROUP, LTD.
SUBJECT TO THIS INVESTMENT MANAGEMENT AGREEMENT


 


Fund American
Companies, Inc.


 


The Employers’
Fire Insurance Company


 


Homeland Insurance
Company of New York


 


The Northern
Assurance Company of America


 


OneBeacon America
Insurance Company


 


OneBeacon
Insurance Company


 


Pennsylvania
General Insurance Company


 


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SCHEDULE B


 


INVESTMENT GUIDELINES


 


Investment
Objective


 


The Adviser’s
objective is to achieve consistent positive returns and to maximize long-term
total returns within prudent levels of risk through capital appreciation on a
diversified portfolio of equity investments.


 


Performance
Objectives


 


The Adviser will
report to OneBeacon Insurance Group, Ltd. on a quarterly basis to review the Adviser’s
total investment performance. It is understood that there are likely to be
short-term periods during which performance deviates from market indices. During
such times, greater emphasis shall be placed on performance comparisons with
investment managers employing similar styles. The overall performance of the Adviser’s
Investment Accounts will be measured by referencing broad equity market indices
over a 3-year rolling period.


 


Guidelines


 


The Adviser must
remain a registered adviser under the Investment Advisors Act of 1940. Wherever
these guidelines contain a limitation expressed as a percentage of the
portfolio assets, that percentage shall be measured solely with reference to
the assets that are under the Adviser’s control. Subject to these guidelines,
the Adviser shall have full discretion to manage the Investment Account’s
assets.


 


•      The
Adviser may not purchase securities on margin, sell short, or enter into
derivative transactions in the Investment Account without the written consent
of OneBeacon Insurance Group, Ltd.


 


•      The
Adviser may purchase Rule 144A securities provided such securities are judged
by the Adviser to be liquid and do not in the aggregate exceed 20% of the
market value of the Account. The Adviser shall also be able to purchase
securities if such securities are convertible into publicly traded securities.


 


•      At
least 95% of the Investment Account will consist of securities of companies
having a market capitalization of $100 million or greater.


 


•      The
Investment Account may include domestic and non-domestic securities (common
stocks, securities that are convertible into common stocks, preferred stocks,
warrants and rights to subscribe to common stocks) that are listed on
registered exchanges or actively traded in the over-the-counter market.


 


•      Issuers
of securities located in countries other than the United States, including
emerging market countries, shall not exceed 40% of the market value of the Investment
Account.


 


•      In
terms of diversification, investments shall be allocated with the intent to
minimize the risk of large losses to the Investment Account. The maximum total
investment of any one equity shall be limited to 10% of the Investment Account
at the time of purchase, and 25% of the market value of the Investment Account.


 


•      If
the aggregate investment in the equity securities in the Investment Account of
any one company exceeds 5% of that company’s outstanding shares of all classes
of stock of that issuer, the Adviser will notify OneBeacon Insurance Group,
Ltd.


 


•      Notwithstanding
the foregoing, in no event shall the Adviser acquire securities of White
Mountains Insurance Group, Ltd. or any of its affiliated companies.


 


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Exceptions


 


Any exceptions
taken to this Investment Guideline Statement must be submitted in writing to OneBeacon
Insurance Group, Ltd.


 


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SCHEDULE C


 


FEE SCHEDULE TO THE INVESTMENT MANAGEMENT
AGREEMENT, DATED [November 11, 2006] , BETWEEN PROSPECTOR PARTNERS, L.L.C. AND ONEBEACON
INSURANCE GROUP, LTD.


 


Each term used in this Schedule C but not defined herein shall have the
meaning assigned to that term in the Investment Management Agreement, dated [November
11, 2006] (the “Agreement”), between OneBeacon Insurance Group, Ltd. and
Prospector Partners, L.L.C., the adviser (the “Adviser”).


 


1.     The
Adviser shall be paid a Management Fee (pro rated for periods less than a full
calendar quarter) computed in accordance with the table below based on the
value of the aggregate net assets (including cash and cash equivalents) of each
Investment Account and the net assets of each other client of the Adviser
identified on Schedule D to this Agreement (such collective aggregate net
assets shall be referred to as the “Aggregate Net Assets”), determined in
accordance with paragraph Section 2 below. Each entity identified in
Schedule A and each other client of the Adviser identified in Schedule D will
bear its proportionate share of the Management Fee.


 


	
  Aggregate Net Assets

  	
   

  	
  Annual Fee

  	
   

  	
  Quarterly Fee

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Up to $200 million

  	
   

  	
  100 basis points

  (1.00% or 0.0100)

  	
   

  	
  25 basis points

  (0.25% or 0.00250)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Next $200 million

  (From $200 million to $400 million)

  	
   

  	
  

  50 basis points

  	
   

  	
  

  12.50 basis points

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amounts over $400 million

  	
   

  	
  25 basis points

  	
   

  	
  6.25 basis points

  



 


2.     For
all purposes under the Agreement, including the determination of the Management
Fee, the market value of securities shall be as follows: securities that are
listed on a national securities exchange shall be valued at their last sales
price on the date of determination and securities that are not so listed shall
be valued at their last sales price on the date of determination, or if no
sales of such securities occurred on the date of determination, such securities
shall be valued at the last “bid” price at the close of business on such day
(or if sold short at the last “asked” price at the close of business on such
day) quoted by the National Association of Securities Dealers, Inc.’s Automatic
Quotation System or, if not quoted on such system, by one of the principal
market makers in such securities selected by the Adviser. Notwithstanding the
foregoing, if the securities to be valued constitute a block which, in the
judgment of the Adviser, could not be liquidated in a reasonable time without
depressing the market, such block shall then be valued by the Adviser but not
at a unit value in excess of the quoted market price for such security. All
other assets of the Investment Accounts shall be assigned such value as the
Adviser may reasonably determine.


 


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SCHEDULE
D


 


CLIENTS
OF PROSPECTOR PARTNERS, LLC SUBJECT TO FEE SCHEDULE SET FORTH IN SCHEDULE C


 


Fund American
Companies, Inc.


 


The Employers’
Fire Insurance Company


 


Homeland Insurance
Company of New York


 


The Northern
Assurance Company of America


 


OneBeacon America
Insurance Company


 


OneBeacon
Insurance Company


 


Pennsylvania
General Insurance Company


 


OneBeacon
Insurance Pension Plan


 


OneBeacon
Insurance Savings Plan- Equity 401k


 


OneBeacon
Insurance Savings Plan- Fully Managed


 


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