THE CORPORATE LIBRARY

Related Party Transactions and Outside Related Director Information

Darwin Professional Underwriters, Inc. (DR)

5/22/2006 424B4 Information

Prior to this offering, Alleghany owns approximately 90% of our issued and outstanding voting securities. After giving effect to (i) this offering; (ii) the expected issuance, immediately prior to the completion of this offering, of the 144,375 shares of restricted stock remaining available for issuance under our restricted stock plan; (iii) the use of the net proceeds of this offering to reduce Alleghany’s ownership interest in us; and (iv) the automatic conversion of the remaining outstanding shares of our Series B Convertible Preferred Stock, Alleghany will own approximately 59.6% of our issued and outstanding voting securities, or approximately 55.0% of our issued and outstanding voting securities if the underwriters’ over-allotment option is exercised in full. The above calculation excludes (i) shares of common stock underlying options to purchase approximately 1.0% of our shares of common stock outstanding on a fully diluted basis that we intend to grant to certain key employees at the time this offering is completed, (ii) 9,000 restricted shares of common stock that we intend to grant, at the time this offering is completed, to employees who are not executive officers and (iii) shares of restricted stock having an aggregate fair market value of $200,000 (based upon the public offering price) that we intend to grant to our five non-employee directors at the time this offering is completed. Consequently, following the completion of this offering, Alleghany will continue to be our controlling stockholder.

Following the completion of this offering, Alleghany and Darwin will continue to be party to certain ongoing contractual and business arrangements, including certain arrangements with the Capitol Companies. In addition, we have entered into certain agreements with Alleghany that will govern our relationship with Alleghany following the completion of this offering. The existing agreements between us and the Capitol Companies and the forms of agreement entered into between us and Alleghany have been filed as exhibits to the registration statement of which this prospectus forms a part. The summaries of these agreements set forth below are qualified in their entirety by reference to the full text of the agreements.

Arrangements with the Capitol Companies

DPUI was initially formed in March 2003 as an underwriting manager for the Capitol Companies, pending the establishment or acquisition of a separate insurance carrier for Darwin business. Effective as of June 1, 2003, DPUI entered into an underwriting management agreement with each of the Capitol Companies pursuant to which DPUI was appointed by each of the Capitol Companies to underwrite and administer specialty liability insurance business.

DNA and the Capitol Companies entered into agreements effective as of October 1, 2005 pursuant to which DNA assumed all of the risk and exposure on the specialty liability business produced by DPUI and written by the Capitol Companies since the formation of DPUI in March 2003. In connection with DNA’s assumption of these liabilities, the Capitol Companies transferred to DNA net cash of approximately $84.1 million, representing the sum of the GAAP book value of the loss and LAE reserves plus unearned premium in respect of such policies less any deferred acquisition cost associated with such unearned premium. Upon the completion of this offering, DNA will be required to fully collateralize its obligations to the Capitol Companies in connection with these reinsurance arrangements in a manner reasonably satisfactory to the Capitol Companies. We estimate that the cost of providing this collateral will be approximately $0.3 million in 2006.

Since each of our insurance companies obtained its own A.M. Best rating of “A-” (Excellent) in November 2005, whenever possible, DPUI has written coverage on policies issued by DNA or Darwin Select. However, our insurance company subsidiaries are not currently licensed (in the case of our admitted carrier DNA) or eligible to write business on a surplus lines basis (in the case of Darwin Select) in all U.S. jurisdictions, and DNA does not yet have in place all rate and form filings required to write insurance business in every jurisdiction where it is licensed. In addition, the Capitol Companies have A.M. Best ratings of “A” (Excellent), and we believe that insureds in certain classes of our business (primarily public D&O) require policies issued by an insurer with an A.M. Best rating of “A” (Excellent).Consequently, although we expect to write the majority of our business on policies issued by DNA or Darwin Select, we continue to depend upon the Capitol Companies to write policies for a portion of the business produced by DPUI. These policies are written by the Capitol Companies pursuant to the underwriting management agreements currently in effect and are fully reinsured by DNA.

For the year ended December 31, 2005, we wrote $142.5 million of gross premiums through our arrangement with the Capitol Companies, representing 85.9% of the total gross premiums produced by DPUI. Of this amount, $58.5 million, or 35.3% of the total gross premiums produced by DPUI, relate to business written by the Capitol Companies either because the business is in a jurisdiction where our insurance company subsidiaries are not currently licensed or eligible to write business (approximately $26.4 million) or because certain of our insureds require policies issued by an insurer with an A.M. Best rating of “A” (Excellent) (approximately $32.1 million). By comparison, during the period from January 1, 2006 through March 31, 2006, $41.1 million, or 68.6% of the total gross premiums that we produced, was written on policies of our insurance company subsidiaries, and $18.8 million, or 31.4% of such total gross premiums was written on policies of the Capitol Companies. Of this amount, approximately $9.9 million was written in jurisdictions where our insurance company subsidiaries are not currently licensed or eligible to write business and approximately $8.9 million was due to certain of our insureds requiring policies issued by an insurer with an A.M. Best rating of “A” (Excellent).

Darwin and the Capitol Companies have received regulatory approval from the insurance departments of the relevant states of certain changes to the fee arrangements between Darwin and the Capitol Companies that were agreed to by Darwin and the Capitol Companies in connection with the Reorganization. The fee charged to Darwin will be 0.5% of gross premiums written on policies of the Capitol Companies in 2006, 1.0% in 2007, 2.0% in 2008 and 3.0% thereafter. However, assuming completion of this offering in 2006, the fee will increase to 3.0% effective as of January 1, 2007. Darwin is also required to reimburse the Capitol Companies for direct expenses that they incur in connection with the issuance of such policies, such as premium taxes and guarantee funds.

The initial term of the underwriting management agreements between DPUI and the Capitol Companies extends until May 31, 2007 and thereafter renews on an annual basis. However, either party may terminate upon 60 days’ notice prior to an expiration date (whether May 31, 2007 or a subsequent May 31). In addition, a Capitol Company may terminate at any time, by written notice, when Alleghany does not own at least 51% of the outstanding equity interests in DPUI or upon a sale of all or substantially all of the assets of DPUI to a person other than Alleghany or an affiliate of Alleghany. DPUI may terminate its underwriting management agreement with a Capitol Company at any time, by written notice, when Alleghany does not own at least 51% of the outstanding equity interests in the subject Capitol Company or upon a sale of all or substantially all of the assets of the subject Capitol Company to any person other than Alleghany or an affiliate of Alleghany.

If the underwriting management agreements between DPUI and the Capitol Companies were terminated at a time when we depend on the Capitol Companies to write a material portion of the business produced by DPUI, or if the Capitol Companies were downgraded from their current A.M. Best ratings of “A” (Excellent) at a time when a material portion of the business produced by DPUI is in a class where there is rating sensitivity, then, unless we were able to locate other entities to write such business and to negotiate new agreements with such other entities (which new agreements might involve additional expense to us), we could be materially adversely affected. In addition, the employment agreement between DPUI and Stephen Sills provides that termination by any of the Capitol Companies of the underwriting management agreement with DPUI currently in effect will permit Mr. Sills to terminate his employment with DPUI and that such termination will be deemed to be a termination by Mr. Sills “for good reason,” which will entitle him to receive certain payments and benefits. See “Management — Employment Agreements.” We could be materially adversely affected by the termination of Mr. Sills’ employment as President and Chief Executive Officer of DPUI.

Registration Rights Agreement

In connection with the contribution by Alleghany of Darwin Group to DPUI in exchange for shares of Series B Convertible Preferred Stock of DPUI, Alleghany and we entered into a registration rights agreement. For a description of the terms of the registration rights agreement, see “Description of Capital Stock — Registration Rights.”

Tax Sharing Agreement

We are party to a tax sharing agreement with Alleghany that, among other things, requires us to make payments to Alleghany for each year that we are included on the Alleghany consolidated federal income tax return. That tax sharing agreement requires us to pay Alleghany the federal income tax imposed on our taxable income as if we filed a separate federal income tax return (although applying certain limitations on deductions, credits and losses that are applied to the Alleghany consolidated group as a whole). We will no longer be included on the Alleghany consolidated federal income tax return following the completion of this offering, but the tax sharing agreement will continue in effect. As a result, we will be obligated to pay to Alleghany the difference between the amount of the tax payments previously made by Darwin to Alleghany in respect of each of 2005 and 2006 and our stand-alone tax liability as reflected on the Alleghany consolidated federal income tax return as filed. Further, in the event the Alleghany’s consolidated federal income tax return is audited, Alleghany controls the conduct of the audit and any subsequent judicial contest, and at the conclusion of any such audit or contest, we may be required to make an additional payment based upon the outcome of such audit or contest.

Following the completion of the offering, we anticipate filing our own consolidated federal income tax return. To the extent that we had net operating losses or credits during the period that we were included on the Alleghany consolidated federal income tax return, the tax law will not allow us to carry forward such net operating losses or credits after the completion of the offering, and Alleghany is not required by the tax sharing agreement to pay us any amount in respect of the benefit Alleghany may have derived from its use of such losses or credits. In addition, the tax sharing agreement will not permit us to claim in, or carry back to, any Alleghany consolidated federal income tax return any loss, deduction or credit arising after the completion of the offering. Further, the tax sharing agreement will require us to retain tax records, to cooperate with Alleghany in tax matters, and to bear our share of the costs of tax return preparation, tax audits and contests, and interest and penalties. Finally, provided we have performed every obligation under the tax sharing agreement, Alleghany has agreed to indemnify us for any federal income taxes imposed on the Alleghany consolidated group.

Master Agreement

In connection with this offering, we entered into an agreement with Alleghany, which we refer to as the Master Agreement, which will govern certain aspects of our relationship with Alleghany following the completion of this offering. This agreement provides for our continuing to provide to Alleghany on a timely basis financial information and other information required to be included by Alleghany in its earnings releases and in its periodic reports to the Securities and Exchange Commission. The Master Agreement also provides that, until Alleghany beneficially owns less than 10% of our voting stock, we will not adopt or implement any stockholder rights plan or similar takeover defense measure without Alleghany’s prior written consent. Additionally, the Master Agreement provides that, for so long as Alleghany beneficially owns a majority of our voting stock, we will not issue any shares of our voting stock or any securities convertible into or exercisable or exchangeable for shares of our voting stock (including, without limitation, options and warrants) or any other rights to acquire shares of our voting stock or any such securities, or take any other action, the effect of which would be to reduce Alleghany’s beneficial ownership of our voting stock to less than a majority interest.