HARLEYSVILLEGROUP INC. SENIOREXECUTIVE INCENTIVE COMPENSATION PLAN EFFECTIVEJANUARY 1, 2009 ADOPTEDBY STOCKHOLDERS: APRIL 22, 2009 HARLEYSVILLEGROUP INC. SENIOREXECUTIVE INCENTIVE COMPENSATION PLAN EFFECTIVEJANUARY 1, 2009 TABLE OFCONTENTS

(A)  

“Base Salary” - A Participant’s base salary payable by one of the Companies, as in effect at the beginning of an Incentive Award Year; provided, that if, within the first 90 days of an Incentive Award Year, the Committee, or, with respect to CEO base salary, the independent members of the Board of Directors, determines a Participant’s base salary for that year retroactive to the beginning of such Incentive Award Year, that different base salary shall be used.

(B)  

"Board of Directors" - The Board of Directors of HGI.

(C)  

“CEO” - The chief executive officer of HGI.

(D)  

“Code” - The Internal Revenue Code of 1986, as amended.

(E)  

"Committee" - The Compensation and Personnel Development Committee of the Board of Directors, which Committee members shall meet the requirements of section 162(m) of the Code.

(F)  

“Companies” - HGI, HMIC and their respective subsidiaries.  Any of them may be individually referred to as a “Company” in this Plan.

(G)  

“EIP” – The Harleysville Group Inc. Amended and Restated Equity Incentive Plan or its successor.

(H)  

"Incentive Award Year" - A calendar year for which incentive awards may be paid.

(I)  

"Maximum Award" - The maximum incentive award amount for each Participant which may be paid only if the minimum incentive award threshold, as described in Article VI of this Plan, for such Incentive Award Year is satisfied.

(J)  

"Participant" - An officer of one of the Companies who is designated as a participant by the Committee.

(K)  

“Return on Equity (ROE)” - The operating return on the average common stockholders equity of HGI.  To determine the average equity, the common equity at the beginning of the year and end of the year will be averaged.  Operating return is based on net income (after taxes) but excluding realized investment gains or losses, after taxes.  ROE will be calculated without the stockholders’ equity impact of SFAS Nos.  115.

(A)  

The responsibility for the implementation and administration of this Plan is delegated to the Committee.  In addition to its duties as elsewhere set forth in this Plan, the Committee's functions shall include the following:

(1)  

interpretation of the Plan and establishment of the rules and regulations governing Plan administration,

(2)  

determination of who is a Participant,

(3)  

selection of appropriate incentive award criteria (from among those criteria specified in Article VI(B)) and thresholds, and

(4)  

determination of the incentive awards under this Plan; provided that the Committee shall only have authority to reduce Maximum Awards from the maximums set forth in Article VII.

(B)  

Any decision or action made or taken by the Committee, arising out of or in connection with the construction, administration, interpretation and effect of the Plan and of its rules and regulations, shall be conclusive and binding upon all Participants and any person claiming through or under any Participant.

(C)  

This Plan is intended to satisfy the applicable requirements of section 162(m) of the Code and the regulations thereunder so that the applicable Company’s tax deduction for incentive awards granted to “covered employees” (as defined in section 162(m)) is not disallowed in whole or in part by the operation of section 162(m).  The Committee shall interpret the terms of this Plan and any incentive award granted hereunder so as not to frustrate such intent.

(A)  

No later than ninety (90) days after the beginning of each Incentive Award Year, the Committee shall designate the officers of Companies who shall participate in the Plan, retroactive back to January 1 for such Incentive Award Year.  If an officer otherwise becomes a Participant during an Incentive Award Year, he or she shall be eligible to participate on the same basis as other similarly situated officers; provided that he or she will be entitled to receive no more than that portion of his or her Maximum Award that he or she otherwise would have received under the Plan for the full Incentive Award Year which the number of complete calendar months of his or her participation in the Plan during such Incentive Award Year bears to twelve (12).  If prior to end of any Incentive Award Year, a Participant’s employment shall have been terminated for a reason other than retirement (as defined in the EIP), change in control (as defined in EIP), death or disability, such Participant shall not be entitled to any incentive award for that Incentive Award Year.  In addition, if prior to the end of an Incentive Award Year, an officer’s employment is not terminated, but such Participant’s eligibility is terminated because of change of duties or position, such officer shall not be entitled to any incentive award for that Incentive Award Year.

(B)  

If, prior to the end of an Incentive Award Year, a Participant's employment with all Companies ceases because of disability (as defined in HGI’s long-term disability insurance plan), retirement (as defined in the EIP), change in control (as defined in the EIP) or death, he or she shall be entitled to receive an incentive award not in excess of that proportion of his or her Maximum Award that he or she otherwise would have received under the Plan for the full Incentive Award Year which the number of complete calendar months of his or her participation in the Plan during such Incentive Award Year bears to twelve (12); provided, that such Maximum Award shall be subject to reduction by the Committee in the exercise of its negative discretion prior to such pro-ration.

(A)  

Except as provided in Article VI (B), below, the minimum incentive award threshold required for incentive awards to be paid under this Plan with respect to an Incentive Award Year shall be at least a five percent (5%) return on equity for HGI.  If such minimum threshold performance has not been attained by HGI for an Incentive Award Year, then no incentive award shall be paid under this Plan for such Incentive Award Year.

(B)  

In lieu of the 5% return on equity minimum incentive award threshold described in Article VI (A), above, the Committee may, no later than ninety (90) days after the beginning of the Incentive Award Year (or, if earlier, no later than the date by which twenty five percent (25%) of the Incentive Award Year has elapsed), establish the minimum incentive award threshold from among the following performance criteria (which may be determined for these purposes either by reference to the Companies as

 

a whole or by reference to any one or more of the Companies, operating divisions or other operating units), or relative to achievement of similar performance measures at identified peer companies: combined ratio (the ratio which is the sum of: (1) the ratio of losses, loss adjustment expenses, and policy holder dividends to net earned premiums, plus (2) the ratio of underwriting expenses to net written premium, with the resulting fraction expressed as a percentage), net premium growth, change in surplus, total shareholder return, stock price, market share, gross sales, gross revenues, net revenues, pretax income, operating income, cash flows, cash flows from operations, earnings per share, diluted or basic, return on equity (at a different percentage), return on invested capital or assets, cost reductions and savings, return on revenues or productivity, operating margin or profit margin, working capital, cost of capital, capital expenditures, completion of acquisitions, business expansion, product diversification, or any variation or combination of the preceding business criteria.  In addition, the Committee may utilize as an additional performance measure (to the extent consistent with provisions of section 162(m) of the Code that provide the rules pursuant to which compensation that is paid to executives on the basis of performance is exempt from the limitations on deductibility) the attainment by a Participant of one or more personal objectives and/or goals that the Committee deems appropriate, including, but not limited to, implementation of Company policies, negotiation of significant corporate transactions, development of long- term business goals or strategic plans for the Company, customer satisfaction, agent satisfaction, or the exercise of specific areas of managerial responsibility; provided, however, that the measurement of the Company’s or a Participant’s achievement of any of such goals must be objectively determinable and shall be determined, to the extent applicable, according to generally accepted accounting principles; and provided further that the outcome of such threshold is substantially uncertain at the time the Committee actually establishes such threshold for the Incentive Award Year.  To the extent consistent with Section 162(m) of the Code, the Committee may determine that certain adjustments apply, in whole or in part, in such manner as determined by the Committee, to exclude the effect of any of the following events that occur during an Incentive Award Year: the impairment of tangible or intangible assets; litigation or claim judgments or settlements; the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; accruals for reorganization and restructuring programs, including, but not limited to, reductions in force and early retirement incentives; currency fluctuations; and any extraordinary, unusual, infrequent or non-recurring items described in management’s discussion and analysis of financial condition and results of operations or the financial statements and notes thereto appearing in HGI’s annual report to shareholders for the applicable year.

(A)  

With respect to any deferred amounts or amounts not yet paid, if a Participant at any time engages in any activity that the Committee determines, in its discretion, was or is harmful to the interests of one of the Companies, the Committee may determine whether or not, and if so, the extent to which any deferred amount of the Participant or any amount not yet paid shall be forfeited.  This provision shall apply to:

(1)  

activities that may occur prior to termination of service but did not result in termination of service, but which become known to the Committee after termination of service;

(2)  

activities that occur prior to and resulted in termination of service; or

(3)  

activities that occur following termination of service and prior to or during the period when the Participant would otherwise be entitled to receive payment of the deferred amounts or amounts not yet paid, credited to his account.

(B)  

All deferred amounts credited to a Participant's account in the Non-Qualified Deferred Compensation Plan shall be contingent and to the extent any such amount shall not have actually been paid to a Participant, it shall not be so paid and shall be forfeited in the following circumstances (unless the Committee, in its discretion, otherwise determines in view of extenuating circumstances in a particular case):

(1)  

if a Participant's employment is terminated by a Company for willful misconduct; or

(2)  

if, after termination of employment for any reason, a Participant shall engage in activities which are harmful to the interests of a Company.

(C)  

All account balances that are forfeited under this Article shall be cancelled and removed from the applicable Company’s books and records and none of the Companies shall have further liability in connection therewith.

 

 BY:  

/s/  Michael L. Browne

President and

Chief Executive Officer