##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 000-50891
 SPECIALTY UNDERWRITERS ALLIANCE, INC.
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    20-0432760(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)222 South Riverside Plaza, Chicago, Illinois
    
    60606(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code (888) 782-4672
   Securities registered pursuant to Section 12(b) of the Act:
 Name of each exchangeTitle of each class

on which registeredCommon Stock, par value $0.01 per share

The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act:
 None
 o þ
 o þ
 þ o
 o
  Large accelerated filer
    o

Accelerated filer
    þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



SPECIALTY UNDERWRITERS ALLIANCE, INC.
 TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    15Item 1B.
    
    Unresolved Staff Comments
    
    
    22Item 2.
    
    Properties
    
    
    22Item 3.
    
    Legal Proceedings
    
    
    22Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    22PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
    
    
    22Item 6.
    
    Selected Financial Data
    
    
    24Item 7.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    27Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 8.
    
    Financial Statements and Supplementary Data
    
    
    40Item 9.
    
    Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    40Item 9A.
    
    Controls and Procedures
    
    
    41Item 9B.
    
    Other Information
    
    
    41PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    42Item 11.
    
    Executive Compensation
    
    
    42Item 12.
    
    Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    
    43Item 13.
    
    Certain Relationships and Related Transactions, and Director
Independence
    
    
    43Item 14.
    
    Principal Accounting Fees and Services
    
    
    43PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    43Exhibit Index
    
    
    43Index to Financial Statements and Schedules
    
    
    F-1EX-10.19EX-10.21EX-10.48EX-10.49EX-10.50EX-10.51EX-10.52EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
   2
   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
     
 PART I
 
 Item 1. Business
 Overview
    3   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Capital Structure and Business Acquisitions
    4   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Industry
  Historical Industry Model
   Our Model
   Equity Ownership.
 Commission.
 5   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Long-Term Contractual Commitment.
 Our Insurance Product Lines
  
    
    AEON Insurance Group, Inc.
 Auto Transporters Program.
 Towing and Collateral Recovery Program.
 
    
    American Team Managers, Inc.
 Artisan Contractors Program.
 General Contractors Program.
 Trucking Program.
 Workers Compensation Program.
 
    
    Appalachian Underwriters, Inc.
 Artisan Contractors Program.
 General Contractors Program.
 6   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Workers Compensation Program.
 
    
    First Light Program Managers, Inc.
 Trucking Program.
 
    
    Flying Eagle Insurance Services, Inc.
 Artisan Contractors Program.
 General Contractors Program.
 Roofing Contractors Program.
 
    
    Insential, Inc.
 Roofing Contractors Program.
 
    
    Risk Transfer Holdings, Inc.
 PEO Program.
 Temporary Staffing Agencies Program.
 
    
    Northern Star Management, Inc.
 Trucking Program.
 Workers Compensation Program.
 
    
    Specialty Risk Solutions, LLC
 Not-for-Profit Organizations Program.
 Public Entities Program.
 Reinsurance
  7   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Underwriting
   We carefully scrutinize prospective partner agents.
 We maintain strict control of our underwriting process.
 We have established a partner agent advisory process.
 We utilize a centralized policy processing system to control data.
 We monitor rate adequacy and review program performance.
 Claims Control
  8   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Information Technology
   Investment Philosophy
   Competition
   Employees
  Ratings
  9   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Insurance Regulation
  General.
     Insurance Regulation Concerning Change or Acquisition of Control.
 Regulation of Dividends and Other Payments from Our Operating Subsidiary.
 10   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Statutory Surplus and Capital.
 Risk-Based Capital.
 
    
    underwriting, which encompasses the risk of adverse loss developments and inadequate
pricing;
    
    declines in asset values arising from credit risk; and
    
    declines in asset values arising from investment risk.
  
    
    insurer is required to submit a plan for corrective action;
    
    insurer is subject to examination, analysis and specific corrective action;
    
    regulators may place insurer under regulatory control; and
    
    regulators are required to place insurer under regulatory control.
 
 11   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Accreditation
 NAIC IRIS Ratios
 Investment Regulation
 Guaranty Funds and Assigned Risk Plans
 Credit for Reinsurance
 
    
    if the reinsurer is licensed in the state in which the primary insurer is domiciled or,
in some instances, in certain states in which the primary insurer is licensed;
    
    if the reinsurer is an accredited or otherwise approved reinsurer in the state in
which the primary insurer is domiciled or, in some instances, in certain states in which
the primary insurer is licensed;
    
    in some instances, if the reinsurer (1) is domiciled in a state that is deemed to have
substantially similar credit for reinsurance standards as the state in which the primary
insurer is domiciled and (2) meets financial requirements; or
    
    if none of the above applies, to the extent that the reinsurance obligations of the
reinsurer are secured appropriately, typically through the posting of a letter of credit
for the benefit of the primary insurer or the deposit of assets into a trust fund
established for the benefit of the primary insurer.
 Statutory Accounting Principles
 12   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Federal Regulation
     Legislative and Regulatory Proposals
 13   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Executive Officers of the Registrant
  Name
    
    

    Age
    
    PositionCourtney C. Smith
    
    
    61
    
    
    President, Chief Executive Officer and Chairman of the Board of DirectorsPeter E. Jokiel
    
    
    61
    
    
    Executive Vice President, Chief Financial Officer, Treasurer and DirectorDaniel A. Cacchione
    
    
    60
    
    
    Senior Vice President and Chief Underwriting OfficerBarry G. Cordeiro
    
    
    62
    
    
    Senior Vice President and Chief Information OfficerGary J. Ferguson
    
    
    65
    
    
    Senior Vice President and Chief Claims OfficerScott W. Goodreau
    
    
    41
    
    
    Senior Vice President, General Counsel, Administration and Corporate
Relations and SecretaryScott K. Charbonneau
    
    
    49
    
    
    Vice President and Chief ActuaryDaniel J. Rohan
    
    
    52
    
    
    Vice President and Controller
 Courtney C. Smith.
 Peter E. Jokiel.
 Daniel A. Cacchione.
 Barry G. Cordeiro.
 Gary J. Ferguson.
 Scott W. Goodreau.
 14   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Scott K. Charbonneau.
 Daniel J. Rohan
 
 Item 1A. Risk Factors
 We believe the following risk factors, as well as the other information contained in this
Annual Report on Form 10-K , are material to an understanding of our company. Any of the following
risks as well as other risks and uncertainties discussed in this Annual Report on Form 10-K could
have a material adverse effect on our business, financial condition, results of operations or
prospects and cause the value of our stock to decline. Additional risks and uncertainties that we
are unaware of, or that are currently deemed immaterial, also may become important factors that
affect us.
 We rely on a limited number of partner agents, one of which accounts for a substantial portion of
business. Our failure to recruit and retain partner agents could materially adversely affect our
results. Our transition of our partner agents business may significantly delay our ability to
generate revenue.
  Our business is heavily concentrated in California and Florida. If our premiums are reduced in
these states in the future, it could have a material adverse effect on our business.
  We face competition from companies with greater financial resources, broader product lines, higher
ratings and stronger financial performance than us, which may impair our ability to retain existing
customers and maintain our profitability and financial strength.
  15   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Our secure category rating of B+ (Good) from A.M. Best may place us at a competitive disadvantage
or cause us to incur additional expenses. A future downgrade in our ratings could affect our
competitive position with customers, and our rating may put us at a disadvantage with higher-rated
carriers.
    16   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



We may misevaluate the risks we seek to insure. If we misevaluate these risks, our business,
reputation, financial condition and results of operations could be materially and adversely
affected.
  Our actual insured losses may be greater than our loss reserves, which would negatively impact our
financial condition and results of operation.
  
    
    trends in claim frequency and severity;
    
    changes in operations;
    
    emerging economic and social trends;
    
    inflation; and
    
    changes in the regulatory and litigation environments.
  We may require additional capital in the future, which may not be available on favorable terms or
at all.
  17   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Current difficult conditions in the global financial markets and the economy generally may
materially adversely affect our business and results of operations.
    If we are unable to obtain regulatory approval in a timely manner, our ability to generate revenue
could be delayed.
  The availability of reinsurance that we use to limit our exposure to risks may be limited, and
counterparty credit and other risks associated with our reinsurance arrangements may result in
losses that could adversely affect our financial condition and results of operations.
   The occurrence of severe catastrophic events may have a material adverse effect on us.
  18   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



The effects of emerging claim and coverage issues on our business are uncertain.
  We may be subject to losses if OneBeacon fails to honor its reinsurance obligations to us.
    A significant amount of our invested assets may be adversely affected by market volatility and
interest rate changes.
  19   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Our holding company structure and certain regulatory and other constraints affect our ability to
pay dividends and make other payments.
     We are subject to extensive regulation, which may adversely affect our ability to achieve our
business objectives. If we do not comply with these regulations, we may be subject to penalties,
including fines, suspensions and withdrawals of licenses, which may adversely affect our financial
condition and results of operations.
  
    
    approval of policy forms and premium rates;
    
    standards of solvency, including risk-based capital measurements;
 20   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents




    
    licensing of insurers and their agents;
    
    restrictions on the nature, quality and concentration of investments;
    
    restrictions on the ability of our insurance company subsidiary to pay dividends to us;
    
    restrictions on transactions between insurance company subsidiaries and their
affiliates;
    
    restrictions on the size of risks insurable under a single policy;
    
    requiring certain methods of accounting;
    
    periodic examinations of our operations and finances;
    
    prescribing the form and content of records of financial condition required to be
filed; and
    
    requiring reserves for unearned premium, losses and other purposes.
    Provisions in our certificate of incorporation and bylaws and regulations under Delaware law could
prevent or delay transactions that stockholders may favor and entrench current management.
  21   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



We completed our initial public offering in November 2004, and we do not have a significant
presence in the Market. You may have difficulty selling your Common Stock because of the limited
trading volume for such shares.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  22   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
 Common Stock.
 Sales PricePeriod
    
    High
    
    
    Low2008First Quarter
    
    $
    5.64
    
    
    $
    4.11Second Quarter
    
    $
    5.61
    
    
    $
    4.43Third Quarter
    
    $
    5.60
    
    
    $
    4.65Fourth Quarter
    
    $
    4.75
    
    
    $
    2.262007First Quarter
    
    $
    8.50
    
    
    $
    7.12Second Quarter
    
    $
    8.32
    
    
    $
    7.62Third Quarter
    
    $
    8.05
    
    
    $
    6.78Fourth Quarter
    
    $
    7.17
    
    
    $
    5.15
   Performance Graph.
  
 Payment of Dividends. Item 1. Business
 Repurchases of Common Stock.
  23   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Item 6. Selected Financial Data
 Item 8. Financial Statements And Supplementary Data
 Specialty Underwriters Alliance, Inc.
    
    
    PredecessorNov. 23 to
    
    
    Jan.1 toYear Ended December 31,
    
    
    Dec. 31
    
    
    Nov. 222008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2004(in thousands, except for per share data)Results of operationsEarned premiums
    
    $
    143,465
    
    
    $
    152,469
    
    
    $
    110,891
    
    
    $
    26,611
    
    
    $
    -
    
    
    $
    -Net investment income
    
    
    10,837
    
    
    
    9,553
    
    
    
    6,087
    
    
    
    3,558
    
    
    
    278
    
    
    
    1,329Net realized gain/(loss)
    
    
    (811
    )
    
    
    (27
    )
    
    
    275
    
    
    
    (4
    )
    
    
    2Total revenues
    
    
    153,491
    
    
    
    161,995
    
    
    
    117,253
    
    
    
    30,165
    
    
    
    280
    
    
    
    1,719Net income (loss)
    
    
    7,425
    
    
    
    12,589
    
    
    
    8,408
    
    
    
    (17,996
    )
    
    
    (8,155
    )
    
    
    650Net income (loss) per shareBasic
    
    $
    0.48
    
    
    $
    0.82
    
    
    $
    0.55
    
    
    $
    (1.22
    )
    
    $
    (4.59
    )Diluted
    
    $
    0.47
    
    
    $
    0.82
    
    
    $
    0.55
    
    
    $
    (1.22
    )
    
    $
    (4.59
    )
 Specialty Underwriters Alliance, Inc.As of December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(in thousands, except for per share data)Financial conditionInvestments
    
    $
    263,405
    
    
    $
    229,387
    
    
    $
    164,058
    
    
    $
    102,991
    
    
    $
    97,835Total assets
    
    
    454,737
    
    
    
    422,534
    
    
    
    363,297
    
    
    
    277,163
    
    
    
    217,231Total liabilities
    
    
    318,448
    
    
    
    291,397
    
    
    
    249,315
    
    
    
    176,348
    
    
    
    98,301Shareholders equity
    
    
    136,289
    
    
    
    131,137
    
    
    
    113,982
    
    
    
    100,815
    
    
    
    118,930Book value dataBook value per share
    
    $
    8.62
    
    
    $
    8.42
    
    
    $
    7.42
    
    
    $
    6.76
    
    
    $
    8.09Tangible book value per share
    
    $
    7.94
    
    
    $
    7.73
    
    
    $
    6.72
    
    
    $
    6.04
    
    
    $
    7.36
 24   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Specialty Underwriters' Alliance Inc. (Successor)Year Ended December 31,1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008(in thousands)LIABILITY FOR UNPAID CLAIMS &
CLAIM ADJUSTMENT EXPENSE:Gross Liability
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    18,134
    
    
    
    69,608
    
    
    
    121,207
    
    
    
    161,691Reinsurance Recoverable
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    2,261
    
    
    
    9,383
    
    
    
    13,635
    
    
    
    26,336Net Liability
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    15,873
    
    
    
    60,224
    
    
    
    107,572
    
    
    
    135,355Discount (In Net Liability)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    192
    
    
    
    1,016
    
    
    
    1,505
    
    
    
    2,612Net Liability (Undiscounted)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    16,065
    
    
    
    61,240
    
    
    
    109,077
    
    
    
    137,967CUMULATIVE PAID AS OF:One Year Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    5,334
    
    
    
    17,870
    
    
    
    35,918Two Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    7,465
    
    
    
    27,713Three Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    8,688Four Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Five Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Six Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Seven Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Eight Years Later
    
    
    -
    
    
    
    -
    
    
    
    -Nine Years Later
    
    
    -
    
    
    
    -Ten Years Later
    
    
    -RE-ESTIMATED LIABILITY AS OF:End of Year
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    16,065
    
    
    
    61,240
    
    
    
    109,076
    
    
    
    137,967One Year Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    15,176
    
    
    
    58,898
    
    
    
    107,245Two Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    14,441
    
    
    
    54,145Three Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    13,727Four Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Five Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Six Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Seven Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Eight Years Later
    
    
    -
    
    
    
    -
    
    
    
    -Nine Years Later
    
    
    -
    
    
    
    -Ten Years Later
    
    
    -Redundancy (Def.)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    2,338
    
    
    
    7,095
    
    
    
    1,831Percentage
Redundancy (Def.)
Reported As Of:One Year Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    6
    %
    
    
    4
    %
    
    
    2
    %Two Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    10
    %
    
    
    12
    %Three Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    15
    %Four Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Five Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Six Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Seven Years Later
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Eight Years Later
    
    
    -
    
    
    
    -
    
    
    
    -Nine Years Later
    
    
    -
    
    
    
    -Ten Years Later
    
    
    -
 25   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Predecessor (Potomac)Year Ended December 31,1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008Direct Basis (in thousands)Liability
for Unpaid
Claims & Claim
AdjustmentExpense
    
    
    160,244
    
    
    
    235,376
    
    
    
    297,408
    
    
    
    255,128
    
    
    
    176,069
    
    
    
    140,542
    
    
    
    96,196
    
    
    
    86,736
    
    
    
    71,592
    
    
    
    63,529
    
    
    
    53,262CUMULATIVE PAID AS
OF:One Year Later
    
    
    81,545
    
    
    
    98,963
    
    
    
    86,980
    
    
    
    76,958
    
    
    
    58,815
    
    
    
    40,169
    
    
    
    26,653
    
    
    
    14,943
    
    
    
    14,442
    
    
    
    11,427Two Years Later
    
    
    128,261
    
    
    
    163,656
    
    
    
    170,546
    
    
    
    134,008
    
    
    
    98,730
    
    
    
    66,724
    
    
    
    41,596
    
    
    
    29,385
    
    
    
    25,868Three Years Later
    
    
    163,498
    
    
    
    220,344
    
    
    
    227,597
    
    
    
    172,991
    
    
    
    125,152
    
    
    
    81,654
    
    
    
    56,038
    
    
    
    40,811Four Years Later
    
    
    191,357
    
    
    
    261,115
    
    
    
    266,579
    
    
    
    199,328
    
    
    
    140,077
    
    
    
    96,096
    
    
    
    67,465Five Years Later
    
    
    212,314
    
    
    
    291,524
    
    
    
    292,916
    
    
    
    214,222
    
    
    
    154,489
    
    
    
    107,520Six Years Later
    
    
    224,957
    
    
    
    311,462
    
    
    
    307,810
    
    
    
    228,553
    
    
    
    165,959Seven Years Later
    
    
    236,584
    
    
    
    323,427
    
    
    
    322,141
    
    
    
    239,743Eight Years Later
    
    
    243,202
    
    
    
    335,085
    
    
    
    314,134Nine Years Later
    
    
    249,492
    
    
    
    345,622Ten Years Later
    
    
    256,286RE-ESTIMATED
LIABILITY AS OF:End of Year
    
    
    160,244
    
    
    
    235,376
    
    
    
    297,408
    
    
    
    255,128
    
    
    
    176,069
    
    
    
    140,542
    
    
    
    96,196
    
    
    
    86,736
    
    
    
    71,592
    
    
    
    63,529
    
    
    
    53,262One Year Later
    
    
    211,516
    
    
    
    326,426
    
    
    
    326,203
    
    
    
    247,629
    
    
    
    198,858
    
    
    
    136,237
    
    
    
    113,389
    
    
    
    86,535
    
    
    
    77,971
    
    
    
    64,689Two Years Later
    
    
    272,353
    
    
    
    359,245
    
    
    
    320,706
    
    
    
    270,997
    
    
    
    194,561
    
    
    
    153,388
    
    
    
    113,189
    
    
    
    92,914
    
    
    
    79,131Three Years Later
    
    
    279,420
    
    
    
    350,765
    
    
    
    344,771
    
    
    
    267,512
    
    
    
    211,738
    
    
    
    153,173
    
    
    
    119,567
    
    
    
    94,073Four Years Later
    
    
    266,482
    
    
    
    366,736
    
    
    
    342,982
    
    
    
    284,706
    
    
    
    211,459
    
    
    
    156,561
    
    
    
    120,727Five Years Later
    
    
    273,463
    
    
    
    371,520
    
    
    
    358,428
    
    
    
    284,433
    
    
    
    217,832
    
    
    
    160,782Six Years Later
    
    
    273,308
    
    
    
    384,034
    
    
    
    358,264
    
    
    
    290,856
    
    
    
    219,221Seven Years Later
    
    
    282,360
    
    
    
    382,001
    
    
    
    363,621
    
    
    
    292,475Eight Years Later
    
    
    276,265
    
    
    
    387,062
    
    
    
    366,806Nine Years Later
    
    
    278,832
    
    
    
    394,007Ten Years Later
    
    
    291,336Redundancy (Def.)
    
    
    (131,092
    )
    
    
    (158,631
    )
    
    
    (69,398
    )
    
    
    (37,347
    )
    
    
    (43,152
    )
    
    
    (20,240
    )
    
    
    (24,531
    )
    
    
    (7,337
    )
    
    
    (7,539
    )
    
    
    (1,160
    )Percentage
Redundancy (Def.)
Reported As Of:One Year Later
    
    
    -32
    %
    
    
    -39
    %
    
    
    -10
    %
    
    
    3
    %
    
    
    -13
    %
    
    
    3
    %
    
    
    -18
    %
    
    
    0
    %
    
    
    -9
    %
    
    
    -2
    %Two Years Later
    
    
    -70
    %
    
    
    -53
    %
    
    
    -8
    %
    
    
    -6
    %
    
    
    -11
    %
    
    
    -9
    %
    
    
    -18
    %
    
    
    -7
    %
    
    
    -11
    %Three Years Later
    
    
    -74
    %
    
    
    -49
    %
    
    
    -16
    %
    
    
    -5
    %
    
    
    -20
    %
    
    
    -9
    %
    
    
    -24
    %
    
    
    -8
    %Four Years Later
    
    
    -66
    %
    
    
    -56
    %
    
    
    -15
    %
    
    
    -12
    %
    
    
    -20
    %
    
    
    -14
    %
    
    
    -26
    %Five Years Later
    
    
    -71
    %
    
    
    -58
    %
    
    
    -21
    %
    
    
    -11
    %
    
    
    -24
    %
    
    
    -14
    %Six Years Later
    
    
    -71
    %
    
    
    -63
    %
    
    
    -20
    %
    
    
    -14
    %
    
    
    -25
    %Seven Years Later
    
    
    -76
    %
    
    
    -62
    %
    
    
    -22
    %
    
    
    -15
    %Eight Years Later
    
    
    -72
    %
    
    
    -64
    %
    
    
    -23
    %Nine Years Later
    
    
    -74
    %
    
    
    -67
    %Ten Years Later
    
    
    -82
    %
 26   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Specialty Underwriters Alliance, Inc.
  Overview
     Key Operating Measures
  
    
    the net loss and loss adjustment expense ratio,
    
    the acquisition expense ratio, and
    
    the other operating expense ratio.
 
 27   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Results of Operations
  Year Ended December 31,
    
    
    % Change
    
    
    % Change2008
    
    
    2007
    
    
    2006
    
    
    07 to 08
    
    
    06 to 07(in millions, except for per share data)Gross written premiums
    
    $
    146.2
    
    
    $
    160.4
    
    
    $
    153.2
    
    
    
    -8.9
    %
    
    
    4.7
    %Net written premiums
    
    
    137.3
    
    
    
    149.4
    
    
    
    142.1
    
    
    
    -8.1
    %
    
    
    5.1
    %Earned premiums
    
    
    143.5
    
    
    
    152.5
    
    
    
    110.9
    
    
    
    -5.9
    %
    
    
    37.5
    %Net investment income
    
    
    10.8
    
    
    
    9.5
    
    
    
    6.1
    
    
    
    13.7
    %
    
    
    55.7
    %Net realized gain (loss)
    
    
    (0.8
    )
    
    
    -
    
    
    
    0.3
    
    
    
    *
    
    
    
    *Total revenues
    
    
    153.5
    
    
    
    162.0
    
    
    
    117.3
    
    
    
    -5.2
    %
    
    
    38.1
    %Net loss and loss adjustment expense
    
    
    89.4
    
    
    
    90.0
    
    
    
    62.7
    
    
    
    -0.7
    %
    
    
    43.5
    %Acquisition expenses
    
    
    33.0
    
    
    
    36.6
    
    
    
    26.0
    
    
    
    -9.8
    %
    
    
    40.8
    %Other operating expenses
    
    
    23.1
    
    
    
    22.6
    
    
    
    19.9
    
    
    
    2.2
    %
    
    
    13.6
    %Total expenses
    
    
    145.5
    
    
    
    149.2
    
    
    
    108.6
    
    
    
    -2.5
    %
    
    
    37.4
    %Pre-tax income
    
    
    8.0
    
    
    
    12.8
    
    
    
    8.7
    
    
    
    -37.5
    %
    
    
    47.1
    %Income tax expense
    
    
    (0.6
    )
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    200.0
    %
    
    
    -33.3
    %Net income (loss)
    
    $
    7.4
    
    
    $
    12.6
    
    
    $
    8.4
    
    
    
    -41.3
    %
    
    
    50.0
    %Net income per shareBasic
    
    $
    0.48
    
    
    $
    0.82
    
    
    $
    0.55
    
    
    
    -41.5
    %
    
    
    49.1
    %Diluted
    
    
    0.47
    
    
    
    0.82
    
    
    
    0.55
    
    
    
    -42.7
    %
    
    
    49.1
    %Weighted average shares outstandingBasic
    
    
    15.6
    
    
    
    15.4
    
    
    
    15.2
    
    
    
    1.3
    %
    
    
    1.3
    %Diluted
    
    
    15.8
    
    
    
    15.4
    
    
    
    15.2
    
    
    
    2.6
    %
    
    
    1.3
    %Key operating ratiosNet loss and loss adjustment expense ratio
    
    
    62.3
    %
    
    
    59.0
    %
    
    
    56.5
    %
    
    
    5.6
    %
    
    
    4.4
    %Ratio of acquisition expense to earned premiums
    
    
    23.0
    %
    
    
    24.0
    %
    
    
    23.4
    %
    
    
    -4.2
    %
    
    
    2.6
    %Ratio of all other expenses to gross written
premiums
    
    
    15.8
    %
    
    
    14.1
    %
    
    
    13.0
    %
    
    
    12.1
    %
    
    
    8.5
    %
  Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
  28   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



2008
    
    
    2007Gross Written
    
    
    % of Total Gross
    
    
    Gross Written
    
    
    % of Total GrossPremium
    
    
    Written Premium
    
    
    Premium
    
    
    Written Premium(in millions)Risk Transfer Holdings, Inc.
    
    $
    65.4
    
    
    
    44.7%
    
    
    $
    78.6
    
    
    
    49.0%American Team Managers
    
    
    23.4
    
    
    
    16.0%
    
    
    
    33.5
    
    
    
    20.9%AEON Insurance Group, Inc.
    
    
    19.5
    
    
    
    13.4%
    
    
    
    25.7
    
    
    
    16.0%Specialty Risk Solutions, LLC
    
    
    17.1
    
    
    
    11.7%
    
    
    
    3.1
    
    
    
    1.9%Appalachian Underwriters, Inc.
    
    
    8.2
    
    
    
    5.6%
    
    
    
    13.9
    
    
    
    8.7%Northern Star Mnagement
    
    
    5.6
    
    
    
    3.8%
    
    
    
    -
    
    
    
    -First Light Program Manager, Inc.
    
    
    3.2
    
    
    
    2.2%
    
    
    
    -
    
    
    
    -Insential, Inc
    
    
    1.2
    
    
    
    0.8%
    
    
    
    1.7
    
    
    
    1.1%Flying Eagle Insurance Service, Inc
    
    
    0.7
    
    
    
    0.5%
    
    
    
    2.8
    
    
    
    1.7%Other
    
    
    1.9
    
    
    
    1.3%
    
    
    
    1.1
    
    
    
    0.7%Total
    
    $
    146.2
    
    
    
    100.0%
    
    
    $
    160.4
    
    
    
    100.0%
  2008
    
    
    2007Gross Written
    
    
    % of Total Gross
    
    
    Gross Written
    
    
    % of Total GrossPremium
    
    
    Written Premium
    
    
    Premium
    
    
    Written Premium(in millions)California
    
    $
    61.9
    
    
    
    42.3%
    
    
    $
    53.9
    
    
    
    33.6%Florida
    
    
    30.5
    
    
    
    20.9%
    
    
    
    44.1
    
    
    
    27.5%Texas
    
    
    14.7
    
    
    
    10.1%
    
    
    
    16.7
    
    
    
    10.4%Other States
    
    
    39.1
    
    
    
    26.7%
    
    
    
    45.7
    
    
    
    28.5%Total
    
    $
    146.2
    
    
    
    100.0%
    
    
    $
    160.4
    
    
    
    100.0%
  29   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



2008
    
    
    2007Gross Written
    
    
    % of Total Gross
    
    
    Gross Written
    
    
    % of Total GrossPremium
    
    
    Written Premium
    
    
    Premium
    
    
    Written Premium(in millions)Workers compensation
    
    $
    80.1
    
    
    
    54.8%
    
    
    $
    92.0
    
    
    
    57.4%Commercial automobile
    
    
    34.5
    
    
    
    23.6%
    
    
    
    31.9
    
    
    
    19.9%General liability
    
    
    28.8
    
    
    
    19.7%
    
    
    
    32.5
    
    
    
    20.2%All Other
    
    
    2.8
    
    
    
    1.9%
    
    
    
    4.0
    
    
    
    2.5%Total
    
    $
    146.2
    
    
    
    100.0%
    
    
    $
    160.4
    
    
    
    100.0%
       For the Year EndedDecember 31,2008
    
    
    2007Workers compensation
    
    
    66.4%
    
    
    
    54.5%Commercial automobile
    
    
    80.5%
    
    
    
    90.9%General liability
    
    
    34.6%
    
    
    
    43.8%All other
    
    
    37.9%
    
    
    
    45.3%Total
    
    
    62.3%
    
    
    
    59.0%
  30   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
      2007
    
    
    2006Gross Written
    
    
    % of Total Gross
    
    
    Gross Written
    
    
    % of Total GrossPremium
    
    
    Written Premium
    
    
    Premium
    
    
    Written Premium(in millions)Risk Transfer Holdings, Inc.
    
    $
    78.6
    
    
    
    49.0%
    
    
    $
    81.4
    
    
    
    53.1%American Team Managers
    
    
    33.5
    
    
    
    20.9%
    
    
    
    31.7
    
    
    
    20.7%AEON Insurance Group, Inc.
    
    
    25.7
    
    
    
    16.0%
    
    
    
    21.8
    
    
    
    14.2%Appalachian Underwriters, Inc.
    
    
    13.9
    
    
    
    8.7%
    
    
    
    14.5
    
    
    
    9.5%Specialty Risk Solutions, LLC
    
    
    3.1
    
    
    
    1.9%
    
    
    
    2.0
    
    
    
    1.3%Flying Eagle Insurance Service, Inc
    
    
    2.8
    
    
    
    1.7%
    
    
    
    -
    
    
    
    0.0%Insential, Inc
    
    
    1.7
    
    
    
    1.1%
    
    
    
    1.5
    
    
    
    1.0%First Light Program Manager, Inc.
    
    
    -
    
    
    
    0.0%
    
    
    
    -
    
    
    
    0.0%Other
    
    
    1.1
    
    
    
    0.7%
    
    
    
    0.3
    
    
    
    0.2%Total
    
    $
    160.4
    
    
    
    100.0%
    
    
    $
    153.2
    
    
    
    100.0%
  2007
    
    
    2006Gross Written
    
    
    % of Total Gross
    
    
    Gross Written
    
    
    % of Total GrossPremium
    
    
    Written Premium
    
    
    Premium
    
    
    Written Premium(in millions)California
    
    $
    53.9
    
    
    
    33.6%
    
    
    $
    47.4
    
    
    
    30.9%Florida
    
    
    44.1
    
    
    
    27.5%
    
    
    
    58.5
    
    
    
    38.2%Texas
    
    
    16.7
    
    
    
    10.4%
    
    
    
    12.4
    
    
    
    8.1%Other States
    
    
    45.7
    
    
    
    28.5%
    
    
    
    34.9
    
    
    
    22.8%Total
    
    $
    160.4
    
    
    
    100.0%
    
    
    $
    153.2
    
    
    
    100.0%
 31   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



2007
    
    
    2006Gross Written
    
    
    % of Total Gross
    
    
    Gross Written
    
    
    % of Total GrossPremium
    
    
    Written Premium
    
    
    Premium
    
    
    Written Premium(in millions)Workers compensation
    
    $
    92.0
    
    
    
    57.4%
    
    
    $
    89.3
    
    
    
    58.3%General liability
    
    
    32.5
    
    
    
    20.2%
    
    
    
    35.8
    
    
    
    23.4%Commercial automobile
    
    
    31.9
    
    
    
    19.9%
    
    
    
    25.5
    
    
    
    16.6%All Other
    
    
    4.0
    
    
    
    2.5%
    
    
    
    2.6
    
    
    
    1.7%Total
    
    $
    160.4
    
    
    
    100.0%
    
    
    $
    153.2
    
    
    
    100.0%
       For the Year EndedDecember 31,2007
    
    
    2006Workers compensation
    
    
    54.5%
    
    
    
    54.6%General liability
    
    
    43.8%
    
    
    
    46.1%Commercial automobile
    
    
    90.9%
    
    
    
    78.0%All other
    
    
    45.3%
    
    
    
    78.2%Total
    
    
    59.0%
    
    
    
    56.5%
  32   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Cash Flows
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(in millions)Cash provided by
(used in)Operating activities
    
    $
    46.1
    
    
    $
    69.6
    
    
    $
    60.3Investing activities
    
    
    (47.5)
    
    
    
    (72.3)
    
    
    
    (66.4)Financing activities
    
    
    0.6
    
    
    
    1.3
    
    
    
    3.1Change in cash
    
    
    (0.8)
    
    
    
    (1.4)
    
    
    
    (3.0)
    Fixed Maturity Investments
  33   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Item 8. Financial
Statements
 Liquidity and Capital Resources
 Liquidity Requirements of Specialty Underwriters Alliance, Inc.
 Liquidity.
 Item 1. Business
 Capital Requirements of SUA Insurance Company.
 34   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Off Balance Sheet Arrangements
  Contractual Obligations
  Payments Due by PeriodLess Than
    
    
    1 to 3
    
    
    3 to 5
    
    
    More ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years(in thousands)Operating Lease Obligations
    
    $
    8,039
    
    
    $
    632
    
    
    $
    1,324
    
    
    $
    1,404
    
    
    $
    4,679Sub Total
    
    $
    8,039
    
    
    $
    632
    
    
    $
    1,324
    
    
    $
    1,404
    
    
    $
    4,679Loss & Loss Adjustment Expense Reserves  
SUA
Insurance Company
    
    
    161,691
    
    
    
    44,312
    
    
    
    51,630
    
    
    
    21,569
    
    
    
    44,180Loss & Loss Adjustment Expense Reserves  
Potomac
Insurance Company of Illinois(1)
    
    
    53,262
    
    
    
    14,324
    
    
    
    20,632
    
    
    
    11,319
    
    
    
    6,987Total Loss & Loss Adjustment Expense Reserves
    
    $
    214,953
    
    
    $
    58,636
    
    
    $
    72,262
    
    
    $
    32,888
    
    
    $
    51,167Total Contractual Obligations
    
    $
    222,992
    
    
    $
    59,268
    
    
    $
    73,586
    
    
    $
    34,292
    
    
    $
    55,846
 (1)  On November 23, 2004, Specialty Underwriters Alliance, Inc. acquired Potomac and
subsequently renamed the company SUA Insurance Company. Prior to the acquisition, Potomac
entered into a transfer and assumption agreement with OneBeacon, whereby all of its liabilities,
including all direct liabilities under existing insurance policies, were ceded to and assumed by
OneBeacon. We will not experience any gains or losses with respect to such legacy policies
unless OneBeacon fails to honor its reinsurance obligation. To date, OneBeacon continues to
handle, adjudicate and pay all claims that have arisen from such legacy policies.  Long-Term Debt Obligation
 Capital Lease Obligation
 Operating Lease Obligation
 Purchase Obligation
 Loss & Loss Adjustment Expense Reserves
 Critical Accounting Policies and Estimates
  35   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Earned and Unearned Insurance Premiums.
 Acquisition Expenses Losses, Claims and Settlement Expenses
  Losses, Claims and Settlement Expenses
  36   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



December 31, 2008
    
    
    December 31, 2007Case
    
    
    IBNR
    
    
    Total
    
    
    Case
    
    
    IBNR
    
    
    Total(in thousands)Gross ReservesWorkers compensation
    
    $
    46,148
    
    
    $
    50,065
    
    
    $
    96,213
    
    
    $
    25,049
    
    
    $
    44,797
    
    
    $
    69,846General liability
    
    
    8,369
    
    
    
    25,950
    
    
    
    34,319
    
    
    
    6,054
    
    
    
    20,318
    
    
    
    26,372Commercial automobile liability
    
    
    16,259
    
    
    
    11,983
    
    
    
    28,242
    
    
    
    11,459
    
    
    
    12,233
    
    
    
    23,692Other
    
    
    1,521
    
    
    
    1,396
    
    
    
    2,917
    
    
    
    676
    
    
    
    621
    
    
    
    1,297SUA Insurance Company (SUA)
    
    
    72,297
    
    
    
    89,394
    
    
    
    161,691
    
    
    
    43,238
    
    
    
    77,969
    
    
    
    121,207Potomac Insurance Company of Illinois(1)
    
    
    37,164
    
    
    
    16,098
    
    
    
    53,262
    
    
    
    48,187
    
    
    
    15,342
    
    
    
    63,529Total gross loss and loss adjustment expense
reserves
    
    
    109,461
    
    
    
    105,492
    
    
    
    214,953
    
    
    
    91,425
    
    
    
    93,311
    
    
    
    184,736Ceded ReservesSUA ceded reinsurance recoverables
    
    
    12,163
    
    
    
    14,173
    
    
    
    26,336
    
    
    
    417
    
    
    
    13,218
    
    
    
    13,635Potomac Insurance Company of Illinois(1)
    
    
    37,164
    
    
    
    16,098
    
    
    
    53,262
    
    
    
    48,187
    
    
    
    15,342
    
    
    
    63,529Total ceded loss and loss adjustment expense
reserves
    
    
    49,327
    
    
    
    30,271
    
    
    
    79,598
    
    
    
    48,604
    
    
    
    28,560
    
    
    
    77,164Total net loss and loss adjustment expense reserves
    
    $
    60,134
    
    
    $
    75,221
    
    
    $
    135,355
    
    
    $
    42,821
    
    
    $
    64,751
    
    
    $
    107,572
  Workers compensation
   
    
    mortality trends of injured workers with lifetime benefits and medical treatment or
dependents entitled to survivor benefits;
    
    claim handling philosophies;
    
    state workers compensation benefit laws and reform initiatives;
    
    mix between indemnity and medical-type claims;
    
    future wage and/or medical inflation; and
    
    costs of medical treatments, including prescription drugs and underlying fee schedules,
and use of preferred provider networks and other medical cost containment practices.
 General liability
  37   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents




    
    claim handling philosophies;
    
    policy provisions or court interpretations of such provisions;
    
    legal environment, such as theories of liability, amount of jury awards, propensity to
sue, statutes of limitations, tort law, and settlement patterns;
    
    large losses resulting from individual accounts or unique occurrences;
    
    subrogation potential; and
    
    cost and type of medical treatments.
 Commercial automobile liability
   
    
    claim handling philosophies;
    
    policy provisions or court interpretations of such provisions;
    
    legal environment, such as theories of liability, amount of jury awards, propensity to
sue, statutes of limitations, tort law, and settlement patterns;
    
    large losses resulting from individual accounts or unique occurrences;
    
    subrogation potential; and
    
    cost and type of medical treatments.
 Reserving Methodologies
      38   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Net ReservesLow
    
    
    Carried
    
    
    High(in thousands)Range of Estimates
    
    
    124,326
    
    
    
    
    
    
    
    150,214Reserves
    
    
    
    
    
    
    135,355
  Item 8. Financial Statements
 Recent Accounting Pronouncements
    39   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  Interest Rate Risk
   Estimated FairAssumed Change in
    
    Value After
    
    IncreaseFair Value at
    
    Relevant
    
    Change in
    
    (Decrease) in12/31/08
    
    Interest Rate
    
    Interest Rate
    
    Carrying Value(in thousands)Total Investments
    
    $
    263,405
    
    
    100 bp decrease
    
    $
    272,910
    
    
    $
    9,50550 bp decrease
    
    
    268,158
    
    
    
    4,75350 bp increase
    
    
    258,701
    
    
    
    (4,704)100 bp increase
    
    
    254,078
    
    
    
    (9,327)
 Credit Risk
   As of December 31, 2008Fair Value
    
    
    Percent ofBond Ratings
    
    Amount
    
    
    Portfolio(in thousands)AAA rated and U.S. Government and affiliated agency securities
    
    $
    156,817
    
    
    
    59.5%AA rated
    
    
    47,163
    
    
    
    17.9%A rated
    
    
    54,808
    
    
    
    20.8%BBB Rated
    
    
    4,617
    
    
    
    1.8%Total
    
    $
    263,405
    
    
    
    100.0%
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  40   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Item 9A. Controls And Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.
  Changes in Internal Control Over Financial Reporting.
 Managements Report on Internal Control Over Financial Reporting.
  Inherent Limitations on Effectiveness of Controls.
 
 Item 9b. Other Information
 Item 1.01 Entry into a Material Definitive Agreement.
     41   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
              
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  42   2008
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  
 Item 13
    
    Certain Relationships and Related Transactions, and Director Independence
  
 Item 14.
    
    Principal Accounting Fees and Services
  
 PART IV
 
 Item 15.
    
    Exhibits and Financial Statement Schedules
 Financial Statements and Financial Statement Schedules
  Exhibits
 ExhibitNumber
    
    Description3.1
    
    
    Amended and Restated Certificate of Incorporation dated May 19, 2005 (Incorporated by reference to Exhibit 3.1,
filed with Specialty Underwriters Alliance. Inc.s Amendment No. 1 to the Registration Statement on Form S-1/A
filed on May 31, 2005 (File No. 333-124263))3.2
    
    
    Amended and Restated Bylaws dated August 5, 2008 (Incorporated by reference to Exhibit 3.1, filed with Specialty
Underwriters Alliance, Inc.s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2008,
filed on August 8, 200810.1
    +
    
    2004 Stock Option Plan of Specialty Underwrites Alliance, Inc. (as Amended and Restated as of November 11, 2004)
(Incorporated by reference to Exhibit 10.1.5, filed with Specialty Underwriters Alliance, Inc.s Amendment No. 6
to the Registration Statement on Form S-1/A filed on November 12, 2004 (File No. 333-117722))10.2
    
    
    Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated May 18, 2004, between the Registrant
and AEON Insurance Group, Inc. (Incorporated by reference to Exhibit 10.1.15, filed with Specialty Underwriters
Alliance, Inc.s Amendment No. 2 to the Registration Statement on Form S-1/A filed on October 20, 2004 (File
No. 333-117722))10.3
    
    
    Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated May 1, 2004, between the Registrant
and American Team Managers (Incorporated by reference to Exhibit 10.1.17, filed with Specialty Underwriters
Alliance, Inc.s Amendment No. 2 to the Registration Statement on Form S-1/A filed on October 20, 2004 (File
No. 333-117722))10.4
    
    
    Side letter, dated September 30, 2004, between the Registrant and AEON Insurance Group, Inc. (Incorporated by
reference to Exhibit 10.1.25, filed with Specialty Underwriters Alliance, Inc.s Amendment No. 2 to the
Registration Statement on Form S-1/A filed on October 20, 2004 (File No. 333-117722))10.5
    
    
    Securities Purchase Agreement, dated September 30, 2004, between the Registrant and AEON Insurance Group, Inc.
(Incorporated by reference to Exhibit 10.1.26, filed with Specialty Underwriters Alliance, Inc.s Amendment No. 2
to the Registration Statement on Form S-1/A filed on October 20, 2004 (File No. 333-117722))10.6
    
    
    Side letter, dated August 16, 2004, between the Registrant and American Team Managers (Incorporated by reference to
Exhibit 10.1.27, filed with Specialty Underwriters Alliance, Inc.s Amendment No. 2 to the Registration Statement
on Form S-1/A filed on October 20, 2004 (File No. 333-117722))
 43







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##### Table of Contents



ExhibitNumber
    
    Description10.7
    
    
    Securities Purchase Agreement, dated August 16, 2004, between the Registrant and American Team Managers
(Incorporated by reference to Exhibit 10.1.28, filed with Specialty Underwriters Alliance, Inc.s Amendment No. 2
to the Registration Statement on Form S-1/A filed on October 20, 2004 (File No. 333-117722))10.8
    
    
    Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated November 3, 2004, between the
Registrant and Risk Transfer Holdings, Inc. (Incorporated by reference to Exhibit 10.1.32, filed with Specialty
Underwriters Alliance, Inc.s Amendment No. 5 to the Registration Statement on Form S-1/A filed on November 10,
2004 (File No. 333-117722))10.9
    
    
    Side Letter, dated November 3, 2004, between the Registrant and Risk Transfer Holdings, Inc. Amendment No. 5 to the
(Incorporated by reference to Exhibit 10.1.34, filed with Specialty Underwriters Alliance, Inc.s Registration
Statement on Form S-1/A filed on November 10, 2004 (File No. 333-117722))10.10
    
    
    Securities Purchase Agreement, dated November 3, 2004, between the Registrant and Risk Transfer Holdings, Inc.
(Incorporated by reference to Exhibit 10.1.35, filed with Specialty Underwriters Alliance, Inc.s Amendment No. 5
to the Registration Statement on Form S-1/A filed on November 10, 2004 (File No. 333-117722))10.11
    
    
    Lease Agreement, dated February 7, 2005, between SUA Insurance Company, the wholly owned operating subsidiary of
the Registrant, and 222 South Riverside Property LLC (Incorporated by reference to Exhibit 10.1.40, filed with
Specialty Underwriters Alliance, Inc.s Annual Report on Form 10-K for the year ended December 31, 2004 filed on
March 31, 2005)10.12
    
    
    Amendment No. 1 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated January 17,
2005, between the Registrant and American Team Managers (Incorporated by reference to Exhibit 10.1.41, filed with
Specialty Underwriters Alliance, Inc.s Annual Report on Form 10-K for the year ended December 31, 2004 filed on
March 31, 2005)10.13
    
    
    First Amendment to Lease, dated May 5, 2005, between SUA Insurance Company, the wholly owned operating subsidiary
of the Registrant, and 222 South Riverside Property, LLC (Incorporated by reference to Exhibit 10.24, filed with
Specialty Underwriters Alliance, Inc.s Annual Report on Form 10-K for the year ended December 31, 2007 filed on
March 7, 2008)10.14
    
    
    Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated May 11, 2004, between the Registrant
and Specialty Risk Solutions, LLC (Incorporated by reference to Exhibit 10.1.42, filed with Specialty Underwriters
Alliance. Inc.s Amendment No. 1 to the Registration Statement on Form S-1/A filed on May 31, 2005 (File
No. 333-124263))10.15
    
    
    Securities Purchase Agreement, dated May 11, 2005, between the Registrant and Specialty Risk Solutions, LLC
(Incorporated by reference to Exhibit 10.1.43, filed with Specialty Underwriters Alliance. Inc.s Amendment No. 1
to the Registration Statement on Form S-1/A filed on May 31, 2005 (File No. 333-124263))10.16
    
    
    Amended and Restated Securities Purchase Agreement, dated June 10, 2005, between the Registrant and Risk Transfer
Holdings, Inc. (Incorporated by reference to Exhibit 10.26, filed with Specialty Underwriters Alliance, Inc.s
Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 7, 2008)10.17
    
    
    Amendment No. 1 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated June 30, 2005,
between the Registrant and Risk Transfer Holdings, Inc. (Incorporated by reference to Exhibit 10.27, filed with
Specialty Underwriters Alliance, Inc.s Annual Report on Form 10-K for the year ended December 31, 2007 filed on
March 7, 2008)10.18
    
    
    Amended and Restated Securities Purchase Agreement, dated September 8, 2005, between the Registrant and American
Team Managers (Incorporated by reference to Exhibit 10.28, filed with Specialty Underwriters Alliance, Inc.s
Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 7, 2008)10.19
    *
    
    First Amendment to the Securities Purchase Agreement, dated September 13, 2005, between Registrant and Specialty
Risk Solutions, LLC10.20
    
    
    Amended and Restated Securities Purchase Agreement, dated September 28, 2005, between the Registrant and AEON
Insurance Group, Inc. (Incorporated by reference to Exhibit 10.29, filed with Specialty Underwriters Alliance,
Inc.s Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 7, 2008)10.21
    *
    
    Second Amendment to the Securities Purchase Agreement, dated September 30, 2005, between Registrant and Specialty
Risk Solutions, LLC10.22
    
    
    Third Amendment to the Securities Purchase Agreement, dated October 21, 2005, between Registrant and Specialty Risk
Solutions, LLC (Incorporated by reference to Exhibit 10.1.47, filed with Post-Effective Amendment No. 2 to
Registration Statement on Form S-3 filed on December 15, 2005 (File No. 333-124263))10.23
    
    
    Amendment No. 2 to Specialty Underwrites Alliance, Inc. Partner Agent Program Agreement, dated March 20, 2006,
between Registrant and American Team Managers (Incorporated by reference to Exhibit 10.1.1, filed with Specialty
Underwriters Alliance. Inc.s Quarterly Report on Form 10-Q for the 1st Quarter ended March 31, 2006
filed on May 9, 2006)
 44







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##### Table of Contents



ExhibitNumber
    
    Description10.24
    
    
    Second Amendment to Lease, dated April 24, 2006, between SUA Insurance Company, the wholly owned operating
subsidiary of the Registrant, and 222 South Riverside Property, LLC (Incorporated by reference to Exhibit 10.31,
filed with Specialty Underwriters Alliance, Inc.s Annual Report on Form 10-K for the year ended December 31, 2007
filed on March 7, 2008)10.25
    
    
    Amendment No. 1 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated June 10, 2006,
between the Registrant and AEON Insurance Group, Inc (Incorporated by reference to Exhibit 99.2, filed with
Specialty Underwriters Alliance. Inc.s Quarterly Report on Form 10-Q for the 2nd Quarter ended June
30, 2006 filed on August 4, 2006)10.26
    
    
    Amendment No. 2 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated June 12, 2006,
between the Registrant and Risk Transfer Holdings, Inc. (Incorporated by reference to Exhibit 99.3, filed with
Specialty Underwriters Alliance. Inc.s Quarterly Report on Form 10-Q for the 2nd Quarter ended June
30, 2006 filed on August 4, 2006)10.27
    
    
    Amendment No. 1 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement  Specialty Risk
Solutions, LLC (Incorporated by reference to Exhibit 99.2 with Specialty Underwriters Alliance. Inc.s Quarterly
Report on Form 10-Q for the 3rd Quarter ended September 30, 2006 filed on November 6, 2006)10.28
    
    
    First Amendment to the Amended and Restated Securities Purchase Agreement, dated July 16, 2006, between Registrant
and AEON Insurance Group, Inc. (Incorporated by reference to Exhibit 99.3, filed with Specialty Underwriters
Alliance. Inc.s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30, 2006 filed on
November 6, 2006)10.29
    
    
    Amendment No. 3 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated July 18, 2006,
between the Registrant and American Team Managers (Incorporated by reference to Exhibit 99.4, filed with Specialty
Underwriters Alliance. Inc.s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30,
2006 filed on November 6, 2006)10.30
    
    
    First Amendment to the Amended and Restated Securities Purchase Agreement, dated September 21, 2006, between the
Registrant and Risk Transfer Holdings, Inc. (Incorporated by reference to Exhibit 99.7, filed with Specialty
Underwriters Alliance. Inc.s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30,
2006 filed on November 6, 2006)10.31
    
    
    First Amendment to the Amended and Restated Securities Purchase Agreement, dated September 25, 2006, between the
Registrant and American Team Managers (Incorporated by reference to Exhibit 99.8, filed with Specialty
Underwriters Alliance. Inc.s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30,
2006 filed on November 6, 2006)10.32
    +
    
    2007 Stock Incentive Plan of Specialty Underwriters Alliance, Inc., dated March 31, 2007 (Incorporated by
reference to Appendix A, filed with Specialty Underwriters Alliance, Inc.s Definitive Proxy Statement on Form DEF
14A for the year ended December 31, 2006 filed on April 2, 2007)10.33
    
    
    Fourth Amendment to the Securities Purchase Agreement, dated June 18, 2007, between Registrant and Specialty Risk
Solutions, LLC (Incorporated by reference to Exhibit 10.1, filed with Specialty Underwriters Alliance, Inc.s
Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2007 filed on August 6, 2007)10.34
    
    
    Amendment No. 4 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated October 29,
2007, between the Registrant and American Team Managers (Incorporated by reference to Exhibit 10.1, filed with
Specialty Underwriters Alliance, Inc.s Quarterly Report on Form 10-Q for the 3rd Quarter ended
September 30, 2007 filed on November 2, 2007)10.35
    +
    
    Form of Restricted Stock Agreement for Directors under the 2007 Stock Incentive Plan of the Registrant
(Incorporated by reference to Exhibit 10.4, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on
Form 10-Q for the 3rd Quarter ended September 30, 2007 filed on November 2, 2007)10.36
    +
    
    Form of Restricted Stock Agreement for Employees under the 2007 Stock Incentive Plan of the Registrant
(Incorporated by reference to Exhibit 10.4, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on
Form 10-Q for the 3rd Quarter ended September 30, 2007 filed on November 2, 2007)10.37
    +
    
    Form of Option Agreement  Non-Qualified Stock Option under the 2007 Stock Incentive Plan of the Registrant
(Incorporated by reference to Exhibit 10.4, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on
Form 10-Q for the 3rd Quarter ended September 30, 2007 filed on November 2, 2007)10.38
    +
    
    Form of Option Agreement  Incentive Stock Option under the 2007 Stock Incentive Plan of the Registrant
(Incorporated by reference to Exhibit 10.4, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on
Form 10-Q for the 3rd Quarter ended September 30, 2007 filed on November 2, 2007)10.39
    +
    
    Form of Deferred Stock Award Agreement for Employees under the 2007 Stock Incentive Plan of the Registrant
(Incorporated by reference to Exhibit 10.1, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on
Form 10-Q for the 1ST Quarter ended March 31, 2008 filed on May 9, 2008)10.40
    +
    
    Employment Agreement, dated April 7, 2008 between the Registrant and Courtney C. Smith (Incorporated by reference
to Exhibit 10.1, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on Form 10-Q for the
2nd Quarter ended June 30, 2008 filed on August 8, 2008)
 45







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##### Table of Contents



ExhibitNumber
    
    Description10.41
    +

    
    Employment Agreement, dated April 7, 2008 between the Registrant and Peter E. Jokiel (Incorporated by reference to
Exhibit 10.2, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on Form 10-Q for the
2nd Quarter ended June 30, 2008 filed on August 8, 2008)10.42
    +
    
    Employment Agreement, dated April 7, 2008 between the Registrant and Gary J. Ferguson (Incorporated by reference to
Exhibit 10.3, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on Form 10-Q for the
2nd Quarter ended June 30, 2008 filed on August 8, 2008)10.43
    +
    
    Change of Control Agreement, dated April 7, 2008 between the Registrant and Barry G. Cordeiro (Incorporated by
reference to Exhibit 10.4, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on Form 10-Q for
the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)10.44
    +
    
    Change of Control Agreement, dated April 7, 2008 between the Registrant and Scott W. Goodreau (Incorporated by
reference to Exhibit 10.5, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on Form 10-Q for
the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)10.45
    +
    
    Change of Control Agreement, dated April 7, 2008 between the Registrant and Scott K. Charbonneau (Incorporated by
reference to Exhibit 10.6, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on Form 10-Q for
the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)10.46
    +
    
    Change of Control Agreement, dated April 7, 2008 between the Registrant and Daniel A. Cacchione (Incorporated by
reference to Exhibit 10.7, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on Form 10-Q for
the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)10.47
    +
    
    Change of Control Agreement, dated April 7, 2008 between the Registrant and Daniel J. Rohan (Incorporated by
reference to Exhibit 10.8, filed with Specialty Underwriters Alliance, Inc.s Quarterly Report on Form 10-Q for
the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)10.48
    *
    
    Amendment No. 5 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated April 10,
2008, between the Registrant and American Team Managers10.49
    *
    
    Amendment No. 6 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated October 15,
2008, between the Registrant and American Team Managers10.50
    *+
    

Description of 2009 Officer Bonus Program for the Registrant10.51
    *+
    

First Amendment to the Change in Control Agreement dated March 3, 2009 between the Registrant and Daniel A. Cacchione10.52
    *
    

Form of Indemnification Agreement between the Registrant and each of its Directors14.1
    
    
    Code of Ethics of Specialty Underwriters Alliance, Inc. (Incorporated by reference to Exhibit 14.1 with Specialty
Underwriters Alliance, Inc.s Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 31,
2005)21.1
    
    
    Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21.1, filed with Specialty Underwriters
Alliance, Inc.s Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 31, 2005)23.1
    *
    
    Consent of PricewaterhouseCoopers LLP with respect to Registrant.31.1
    *
    
    Certification of Courtney C. Smith, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    *
    
    Certification of Peter E. Jokiel, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    *
    
    Certification of Courtney C. Smith , Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    *
    
    Certification of Peter E. Jokiel, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith.+
    
    Indicates a management contract or compensatory plan or arrangement. 46







---



##### Table of Contents



Index To Audited Consolidated Financial Statements And Schedules
 Page No.Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets of Specialty Underwriters Alliance, Inc. as of December 31, 2008
and December 31, 2007
    
    
    F-3Consolidated Statements of Operations and Comprehensive Income (Loss) of Specialty Underwriters
Alliance,
Inc. for the years ended December 31, 2008, December 31, 2007 and December 31, 2006
    
    
    F-4Consolidated Statement of Stockholders Equity of Specialty Underwriters Alliance, Inc. as of
December 31, 2008 and December 31, 2007
    
    
    F-5Consolidated Statements of Cash Flows for Specialty Underwriters Alliance, Inc. for the years
ended December 31, 2008, December 31, 2007, and December 31, 2006
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7Financial Statement SchedulesSchedule I  Specialty Underwriters
Alliance, Inc.  Summary of Investments Other Than Investments in Related Parties as of December 31, 2008
    
    
    F-21Schedule II  Specialty Underwriters Alliance, Inc.  Condensed Financial Information of
Registrant as of
December 31, 2008 and December 31, 2007 or for the years ended December 31, 2008, December 31, 2007
and December 31, 2006, as appropriate
    
    
    F-22Schedule III  Specialty Underwriters Alliance, Inc.  Supplementary Insurance Information for the
years
ended December 31, 2008, December 31, 2007 and December 31, 2006
    
    
    F-25Schedule IV  Specialty Underwriters Alliance, Inc.  Reinsurance for the years ended December 31,
2008,
December 31, 2007, and December 31, 2006
    
    
    F-26Schedule V  Specialty Underwriters Alliance, Inc.  Valuation and Qualifying Accounts of
Registrant for
the years ended December 31, 2008, December 31, 2007 and December 31, 2006
    
    
    F-27Schedule VI  SUA Insurance Company  Supplemental Information Concerning Property and Casualty
Insurance Operations for the years ended December 31, 2008, December 31, 2007 and December 31, 2006
    
    
    F-28
 F-1







---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     
 F-2







---



##### Table of Contents



Consolidated Balance Sheets of
 Specialty Underwriters Alliance, Inc.
 As of December 31, 2008 and 2007
 2008
    
    
    2007(in thousands)ASSETSFixed maturity investments, at fair value (amortized cost: $220,744 and $176,592)
    
    $
    216,708
    
    
    $
    177,735Short-term investments, at amortized cost (which approximates fair value)
    
    
    46,697
    
    
    
    51,652Total investments
    
    $
    263,405
    
    
    $
    229,387Cash
    
    
    208
    
    
    
    968Insurance premiums receivable
    
    
    60,715
    
    
    
    68,887Reinsurance recoverable on unpaid loss and loss adjustment expenses
    
    
    79,598
    
    
    
    77,204Prepaid reinsurance premiums
    
    
    309
    
    
    
    631Investment income accrued
    
    
    2,467
    
    
    
    1,909Equipment
and capitalized software at cost (less accumulated depreciation of $15,486 and $8,927)
    
    
    13,562
    
    
    
    12,796Intangible assets
    
    
    10,745
    
    
    
    10,745Deferred acquisition costs
    
    
    18,156
    
    
    
    17,495Deferred tax asset
    
    
    3,146
    
    
    
    -Other assets
    
    
    2,426
    
    
    
    2,512Total assets
    
    $
    454,737
    
    
    $
    422,534LIABILITIES & STOCKHOLDERS EQUITYLIABILITIESLoss and loss adjustment expense reserves
    
    $
    214,953
    
    
    $
    184,736Unearned insurance premiums
    
    
    80,600
    
    
    
    86,741Insured deposit funds
    
    
    15,806
    
    
    
    12,515Accounts payable and other liabilities
    
    
    7,089
    
    
    
    7,405Total liabilities
    
    $
    318,448
    
    
    $
    291,397Commitments (Note 9)STOCKHOLDERS EQUITYCommon Stock
at $.01 par value per share  authorized 30,000,000 shares; issued 14,712,355 and 14,697,355 and outstanding 14,437,355 and 14,697,355 shares
    
    $
    147
    
    
    $
    147Class B Common Stock at $.01 par value per
share  authorized 2,000,000 shares; issued and outstanding 1,368,562 and 869,738 shares
    
    
    14
    
    
    
    9Paid-in capital  Common Stock
    
    
    129,926
    
    
    
    129,431Paid-in capital  Class B Common Stock
    
    
    8,077
    
    
    
    6,139Accumulated earnings (deficit)
    
    
    1,693
    
    
    
    (5,732
    )Treasury stock
    
    
    (1,347
    )
    
    
    -Accumulated other comprehensive income (loss)
    
    
    (2,221
    )
    
    
    1,143Total stockholders equity
    
    $
    136,289
    
    
    $
    131,137Total liabilities and stockholders equity
    
    $
    454,737
    
    
    $
    422,534
  F-3







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##### Table of Contents



Consolidated Statements of Operations and Comprehensive Income of
 Specialty Underwriters Alliance, Inc.
 For the Years Ended December 31, 2008, 2007 and 2006
 2008
    
    
    2007
    
    
    2006(in thousands, except earnings per share)REVENUEEarned insurance premiums
    
    $
    143,465
    
    
    $
    152,469
    
    
    $
    110,891Net investment income
    
    
    10,837
    
    
    
    9,553
    
    
    
    6,087Net realized gain (losses)
    
    
    (811
    )
    
    
    (27
    )
    
    
    275Total revenue
    
    $
    153,491
    
    
    $
    161,995
    
    
    $
    117,253EXPENSESLoss and loss adjustment expenses
    
    $
    89,385
    
    
    $
    89,990
    
    
    $
    62,682Acquisition expenses
    
    
    32,990
    
    
    
    36,601
    
    
    
    26,032Other operating expenses
    
    
    23,132
    
    
    
    22,568
    
    
    
    19,884Total expenses
    
    $
    145,507
    
    
    $
    149,159
    
    
    $
    108,598Pretax income
    
    
    7,984
    
    
    
    12,836
    
    
    
    8,655Federal income tax expense
    
    
    (559
    )
    
    
    (247
    )
    
    
    (247
    )Net income
    
    $
    7,425
    
    
    $
    12,589
    
    
    $
    8,408Net change in unrealized gains and losses for investments held,
after tax
    
    
    (3,364
    )
    
    
    2,204
    
    
    
    570Comprehensive income
    
    $
    4,061
    
    
    $
    14,793
    
    
    $
    8,978Earnings per share available to common stockholders (in dollars)Basic
    
    $
    0.48
    
    
    $
    0.82
    
    
    $
    0.55Diluted
    
    $
    0.47
    
    
    $
    0.82
    
    
    $
    0.55Weighted Average shares outstandingBasic
    
    
    15,608
    
    
    
    15,431
    
    
    
    15,211Diluted
    
    
    15,776
    
    
    
    15,431
    
    
    
    15,211
  F-4







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##### Table of Contents



Consolidated Statement of Stockholders Equity of  Specialty Underwriters Alliance, Inc.  As of December 31, 2008 and 2007
 Acum.Common
    
    
    Paid-in
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    
    
    
    
    Other
    
    
    TotalStock Class
    
    
    Capital Class
    
    
    Stock Class
    
    
    Capital
    
    
    Earnings
    
    
    Treasury
    
    
    Comp.
    
    
    StockholdersA
    
    
    A
    
    
    B
    
    
    Class B
    
    
    (Deficit)
    
    
    Stock
    
    
    Income
    
    
    Equity(in thousands)Balance at 12/31/06
    
    $
    147
    
    
    $
    128,372
    
    
    $
    7
    
    
    $
    4,838
    
    
    $
    (18,321
    )
    
    $
    -
    
    
    $
    (1,061
    )
    
    $
    113,982Net income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    12,589
    
    
    
    -
    
    
    
    -
    
    
    
    12,589Net change
in unrealized investment
gains, net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    2,204
    
    
    
    2,204Stock issuance
    
    
    -
    
    
    
    123
    
    
    
    2
    
    
    
    1,301
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    1,426Stock based compensation
    
    
    -
    
    
    
    936
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    936Balance at 12/31/07
    
    $
    147
    
    
    $
    129,431
    
    
    $
    9
    
    
    $
    6,139
    
    
    $
    (5,732
    )
    
    $
    -
    
    
    $
    1,143
    
    
    $
    131,137Net Income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    7,425
    
    
    
    -
    
    
    
    -
    
    
    
    7,425Net change in
unrealized investment
gains, net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,364
    )
    
    
    (3,364
    )Stock issuance
    
    
    -
    
    
    
    67
    
    
    
    5
    
    
    
    1,938
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    2,010Treasury stock purchases
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (1,347
    )
    
    
    -
    
    
    
    (1,347
    )Stock based compensation
    
    
    -
    
    
    
    428
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    428Balance at 12/31/08
    
    $
    147
    
    
    $
    129,926
    
    
    $
    14
    
    
    $
    8,077
    
    
    $
    1,693
    
    
    $
    (1,347
    )
    
    $
    (2,221
    )
    
    $
    136,289
  F-5







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##### Table of Contents



Consolidated Statements of Cash Flows of  Specialty Underwriters Alliance, Inc.  For the Years Ended 2008, 2007 and 2006
 2008
    
    
    2007
    
    
    2006(in thousands)Cash Flows From OperationsNet income
    
    $
    7,425
    
    
    $
    12,589
    
    
    $
    8,408Change in deferred taxes
    
    
    (1,344
    )
    
    
    (77
    )
    
    
    90Net realized (gains) losses
    
    
    811
    
    
    
    27
    
    
    
    (275
    )Amortization of bond premium (discount)
    
    
    116
    
    
    
    (5
    )
    
    
    342Depreciation
    
    
    6,559
    
    
    
    5,012
    
    
    
    2,577Net change in:Reinsurance
recoverable on unpaid loss and loss adjustment expense reserves
    
    
    (2,394
    )
    
    
    3,772
    
    
    
    8,021Loss and loss adjustment expense reserves
    
    
    30,217
    
    
    
    43,536
    
    
    
    36,330Insurance premiums receivable
    
    
    8,172
    
    
    
    (577
    )
    
    
    (23,442
    )Unearned insurance premiums
    
    
    (6,141
    )
    
    
    (3,063
    )
    
    
    31,209Deferred acquisition costs
    
    
    (661
    )
    
    
    2,381
    
    
    
    (8,597
    )Prepaid reinsurance premiums
    
    
    322
    
    
    
    2,946
    
    
    
    (85
    )Insured deposit funds
    
    
    3,291
    
    
    
    2,149
    
    
    
    3,207Other, net
    
    
    (277
    )
    
    
    912
    
    
    
    2,526Total adjustments
    
    
    38,671
    
    
    
    57,013
    
    
    
    51,903Net cash flows provided by (used for) operations
    
    
    46,096
    
    
    
    69,602
    
    
    
    60,311Cash flows from investing activitiesNet decrease (increase) in short-term investments
    
    
    4,955
    
    
    
    (32,114
    )
    
    
    (10,676
    )Sales of fixed maturity investments
    
    
    6,108
    
    
    
    9,938
    
    
    
    7,174Redemptions, calls and maturities of fixed maturity investments
    
    
    19,990
    
    
    
    10,003
    
    
    
    9,502Purchases of fixed maturity investments
    
    
    (71,180
    )
    
    
    (50,974
    )
    
    
    (66,575
    )Purchase of equipment and capitalized software
    
    
    (7,325
    )
    
    
    (9,165
    )
    
    
    (5,778
    )Net cash flows used for investing activities
    
    
    (47,452
    )
    
    
    (72,312
    )
    
    
    (66,353
    )Cash flows from financing activitiesIssuance of common stock
    
    
    1,943
    
    
    
    1,303
    
    
    
    3,088Treasury stock purchases
    
    
    (1,347
    )
    
    
    -
    
    
    
    -Net cash provided by financing activities
    
    
    596
    
    
    
    1,303
    
    
    
    3,088Net decrease in cash during the period
    
    
    (760
    )
    
    
    (1,407
    )
    
    
    (2,954
    )Cash at beginning of the period
    
    
    968
    
    
    
    2,375
    
    
    
    5,329Cash at end of the period
    
    $
    208
    
    
    $
    968
    
    
    $
    2,375
  F-6







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
 
 Notes to Consolidated Financial Statements
 (dollars in thousands, except per share amounts)
 Note 1  Nature of Operations
    Note 2  Summary of Significant Accounting Policies
    Cash and Investments
   Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets
   F-7







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
 Equipment and Capitalized Software
  Intangible Assets
  Earned and Unearned Insurance Premiums
  Acquisition Expenses
  Income Taxes
   Reinsurance
   Unpaid Loss and LAE
   F-8







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
   Equity Compensation
  Earnings Per Share
    Recent Accounting Pronouncements
   Accounting for Certain
Investments in Debt and Equity Securities.
 Note 3  Earnings Per Share
  F-9







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Numerator for earnings per shareNet income
    
    $
    7,425
    
    
    $
    12,589
    
    
    $
    8,408Denominator for earnings per shareWeighted average shares outstanding used in
computation of earnings per shareCommon stock (class A and B) issued
    
    
    15,751
    
    
    
    15,431
    
    
    
    15,211Common stock in treasury
    
    
    143
    
    
    
    -
    
    
    
    -Weighted average shares outstanding  basic
    
    
    15,608
    
    
    
    15,431
    
    
    
    15,211Effect of dilutive securities1
Stock awards
    
    
    168
    
    
    
    -
    
    
    
    -Weighted average shares outstanding  diluted
    
    
    15,776
    
    
    
    15,431
    
    
    
    15,211Earnings per shareBasic
    
    $
    0.48
    
    
    $
    0.82
    
    
    $
    0.55Diluted
    
    $
    0.47
    
    
    $
    0.82
    
    
    $
    0.55
 
 1
    
    Outstanding options of 718, 732 and 742 as of December 31, 2008, 2007 and 2006,
respectively, have been excluded from the diluted earnings per share calculation for
the year ended December 31, 2008, 2007 and 2006, as they were anti-dilutive. Note
4  Concentration of Premium
  Percentage of Gross Written PremiumYear Ended December 31,2008
    
    
    2007
    
    
    2006Risk Transfer Holdings, Inc.
    
    
    44.7
    %
    
    
    49.0
    %
    
    
    53.1
    %American Team Managers
    
    
    16.0
    %
    
    
    20.9
    %
    
    
    20.7
    %AEON Insurance Group, Inc.
    
    
    13.4
    %
    
    
    16.0
    %
    
    
    14.2
    %Specialty Risk Solutions, LLC
    
    
    11.7
    %
    
    
    1.9
    %
    
    
    1.3
    %Appalachian Underwriters, Inc.
    
    
    5.6
    %
    
    
    8.7
    %
    
    
    9.5
    %Northern Star Management, Inc.
    
    
    3.8
    %
    
    
    n/a

    
    
    n/aFlying Eagle Insurance Service, Inc
    
    
    2.2
    %
    
    
    1.7
    %
    
    
    n/aInsential, Inc
    
    
    0.8
    %
    
    
    1.1
    %
    
    
    1.0
    %First Light Program Manager, Inc.
    
    
    0.5
    %
    
    
    n/a
    
    n/aOther
    
    
    1.3
    %
    
    
    0.7
    %
    
    
    0.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Percentage of Gross Written PremiumYear Ended December 31,2008
    
    
    2007
    
    
    2006California
    
    
    42.3
    %
    
    
    33.6
    %
    
    
    30.9
    %Florida
    
    
    20.9
    %
    
    
    27.5
    %
    
    
    38.2
    %Texas
    
    
    10.1
    %
    
    
    10.4
    %
    
    
    8.1
    %Other states
    
    
    26.7
    %
    
    
    28.5
    %
    
    
    22.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 F-10







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
  Percentage of Gross Written PremiumYear Ended December 31,2008

    
    2007

    
    2006Workers compensation
    
    
    54.8
    %
    
    
    57.4
    %
    
    
    58.3
    %Commercial automobile
    
    
    23.6
    %
    
    
    19.9
    %
    
    
    16.6
    %General liability
    
    
    19.7
    %
    
    
    20.2
    %
    
    
    23.4
    %All other
    
    
    1.9
    %
    
    
    2.5
    %
    
    
    1.7
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Note 5  Investments
   Fair Value Measurement Using:SignificantQuoted Prices in
    
    
    Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableFair Value at
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsCategory
    
    12/31/08
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Treasury
    
    $
    10,903
    
    
    $
    -
    
    
    $
    10,903
    
    
    $
    -U.S. Government Agency
    
    
    37,227
    
    
    
    
    
    
    
    37,227Municipal
    
    
    54,934
    
    
    
    
    
    
    
    54,934Corporate Fixed Maturity
    
    
    55,536
    
    
    
    
    
    
    
    55,536Agency Mortgage Backed
    
    
    40,439
    
    
    
    
    
    
    
    40,439Non-Agency Mortgage Backed
    
    
    5,164
    
    
    
    
    
    
    
    
    
    
    
    5,164Commercial Mortgage Backed
    
    
    9,889
    
    
    
    
    
    
    
    8,676
    
    
    
    1,213Asset Backed
    
    
    2,616
    
    
    
    
    
    
    
    204
    
    
    
    2,412Total Fixed Maturity Investments
    
    $
    216,708
    
    
    $
    -
    
    
    $
    207,919
    
    
    $
    8,789
  Year Ended12/31/2008Level 3 investments as of beginning of period
    
    $
    -Transfers into (out of) level 3 (at beginning period value)
    
    
    16,224Purchases, sales, issuances, and settlements (net)
    
    
    (1,386
    )Total gains or losses (realized/unrealized):Included in earnings
    
    
    (849
    )Included in comprehensive income
    
    
    (5,200
    )Level 3 investments as of December 31, 2008
    
    $
    8,789
  
    
    First, the Company requests a single non-binding price from its independent pricing
service.
 F-11







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
 
    
    Second, if no price is available from the pricing service for the instrument, the
Company requests one or more non-binding brokerdealer quotes. A single quote is
sought from a brokerdealer who has significant knowledge of the instrument being
priced. If such broker-dealer is not available to quote, then an average is used from
quotes solicited from multiple brokerdealers.
    
    Third, if a brokerdealer quote is unavailable for the instrument, the Company uses
a matrix pricing formula based on various factors provided from multiple brokerdealers
including yield spreads, reported trades, sector or grouping information and for
certain securities, other factors such as timeliness of payment, default experience and
prepayment speed assumptions.
     Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair2008
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury
    
    $
    9,794
    
    
    $
    1,109
    
    
    
    
    
    
    $
    10,903U.S. Government Agencies
    
    
    35,109
    
    
    
    2,118
    
    
    
    
    
    
    
    37,227Municipals
    
    
    54,655
    
    
    
    959
    
    
    
    (679
    )
    
    
    54,935Corporate Fixed Maturity
    
    
    56,368
    
    
    
    858
    
    
    
    (1,691
    )
    
    
    55,535Agency Mortgage Backed
    
    
    39,066
    
    
    
    1,373
    
    
    
    -
    
    
    
    40,439Non-Agency Mortgage Backed
    
    
    7,781
    
    
    
    -
    
    
    
    (2,617
    )
    
    
    5,164Commercial Mortgage Backed
    
    
    13,301
    
    
    
    -
    
    
    
    (3,412
    )
    
    
    9,889Asset Backed
    
    
    4,670
    
    
    
    -
    
    
    
    (2,054
    )
    
    
    2,616Total Fixed Maturities
    
    $
    220,744
    
    
    $
    6,417
    
    
    $
    (10,453
    )
    
    $
    216,708
  Cost or
    
    
    Gross
    
    
    Gross
    
    
    FairAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated2007
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury
    
    $
    9,801
    
    
    $
    366
    
    
    $
    -
    
    
    $
    10,167U.S. Government Agencies
    
    
    37,023
    
    
    
    1,172
    
    
    
    (5
    )
    
    
    38,190Municipals
    
    
    5,264
    
    
    
    90
    
    
    
    -
    
    
    
    5,354Corporate Fixed Maturity
    
    
    58,672
    
    
    
    429
    
    
    
    (395
    )
    
    
    58,706Mortgage Backed
    
    
    65,832
    
    
    
    728
    
    
    
    (1,242
    )
    
    
    65,318Total Fixed Maturities
    
    $
    176,592
    
    
    $
    2,785
    
    
    $
    (1,642
    )
    
    $
    177,735
   F-12







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
   Cost or
 AmortizedCost
    
    
    Fair ValueDue in one year or less
    
    $
    56,957
    
    
    $
    56,826Due after one year through five years
    
    
    92,563
    
    
    
    89,887Due after five years through ten years
    
    
    84,918
    
    
    
    83,447Due after ten years
    
    
    33,003
    
    
    
    33,245Total
    
    $
    267,441
    
    
    $
    263,405
  Unrealized LossesLess than
    
    
    Greater than 122008
    
    Fair Value
    
    
    12 Months
    
    
    Months
    
    
    TotalMunicipal
    
    $
    21,713
    
    
    $
    (679
    )
    
    $
    -
    
    
    $
    (679
    )Corporate Fixed Maturity
    
    
    35,201
    
    
    
    (560
    )
    
    
    (1,130
    )
    
    
    (1,690
    )Agency Mortgage Backed
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Non-Agency Mortgage Backed
    
    
    5,164
    
    
    
    (279
    )
    
    
    (2,339
    )
    
    
    (2,618
    )Commercial Mortgage Backed
    
    
    9,889
    
    
    
    (1,811
    )
    
    
    (1,601
    )
    
    
    (3,412
    )Asset Backed
    
    
    2,616
    
    
    
    -
    
    
    
    (2,054
    )
    
    
    (2,054
    )Total Fixed Maturities
    
    $
    74,583
    
    
    $
    (3,329
    )
    
    $
    (7,124
    )
    
    $
    (10,453
    )
  Unrealized LossesLess than
    
    
    Greater than 122007
    
    Fair Value
    
    
    12 Months
    
    
    Months
    
    
    TotalUS Government Agency Securities
    
    $
    2,177
    
    
    $
    -
    
    
    $
    (5
    )
    
    $
    (5
    )Corporate Securities
    
    
    32,220
    
    
    
    (101
    )
    
    
    (294
    )
    
    
    (395
    )Mortgage Backed Securities
    
    
    21,974
    
    
    
    (400
    )
    
    
    (842
    )
    
    
    (1,242
    )Total Fixed Maturities
    
    $
    56,371
    
    
    $
    (501
    )
    
    $
    (1,141
    )
    
    $
    (1,642
    )
   F-13







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Proceeds from voluntary sales and redemptions
    
      $
    6,108
    
    
      $
    9,938
    
    
      $
    7,174Gross realized gains
    
    
    29
    
    
    
    62
    
    
    
    333Gross realized losses
    
    
    (884
    )
    
    
    (81
    )
    
    
    (58
    )
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Fixed maturities
    
      $
    10,154
    
    
      $
    8,098
    
    
      $
    5,516Short-term investments
    
    
    1,161
    
    
    
    1,751
    
    
    
    759Gross investment income
    
    
    11,315
    
    
    
    9,849
    
    
    
    6,275Investment Expenses
    
    
    (478
    )
    
    
    (296
    )
    
    
    (188
    )Net investment income
    
      $
    10,837
    
    
      $
    9,553
    
    
      $
    6,087
 Note 6  Federal Income Taxes
     Year Ended December 31,2008
    
    
    2007
    
    
    2006(dollars in thousands)Income tax expense at statutory rates
    
    $
    (2,715
    )
    
    $
    (4,364
    )
    
    $
    (2,943
    )Tax benefit from tax exempt interest income
    
    
    451
    
    
    
    -
    
    
    
    -Tax expense from other permanent differences
    
    
    (51
    )
    
    
    (106
    )
    
    
    (132
    )State tax expense
    
    
    328
    
    
    
    -
    
    
    
    -Valuation allowance
    
    
    1,458
    
    
    
    4,228
    
    
    
    2,839Other
    
    
    (30
    )
    
    
    (5
    )
    
    
    (11
    )Actual income tax expense
    
    $
    (559
    )
    
    $
    (247
    )
    
    $
    (247
    )
 F-14







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(dollars in thousands)Current tax expense
    
    $
    (1,903
    )
    
    $
    (324
    )
    
    $
    (157
    )Deferred tax benefit (expense)
    
    
    1,344
    
    
    
    77
    
    
    
    (90
    )Total income tax expense
    
    $
    (559
    )
    
    $
    (247
    )
    
    $
    (247
    )
   Year Ended December 31,2008
    
    
    2007Deferred Tax Assets Arising From
    
    (dollars in thousands)Loss & LAE reserves
    
    $
    6,079
    
    
    $
    4,002Unearned premium reserves
    
    
    5,645
    
    
    
    5,898Net operating loss carryforwards
    
    
    -
    
    
    
    703Stock Option and Grant Expense
    
    
    646
    
    
    
    504Unrealized loss on investments
    
    
    1,414
    
    
    
    -Start up costs
    
    
    141
    
    
    
    297Other than temporary Impairments
    
    
    298
    
    
    
    -State Tax Net Operating Loss Carryforwards
    
    
    337
    
    
    
    -AMT Tax Credit
    
    
    -
    
    
    
    481Other
    
    
    455
    
    
    
    670Total deferred tax assets
    
    
    15,015
    
    
    
    12,555Deferred Tax Liabilities Arising FromDeferred acquisition costs
    
    
    6,362
    
    
    
    5,948Equipment and capitalized software
    
    
    3,803
    
    
    
    3,395Unrealized gain on investment
    
    
    -
    
    
    
    389Prepaid assets
    
    
    202
    
    
    
    255Intangible asset
    
    
    1,004
    
    
    
    727Other
    
    
    330
    
    
    
    228Total deferred tax liabilities
    
    
    11,701
    
    
    
    10,942Net deferred tax asset
    
    
    3,314
    
    
    
    1,613Valuation allowance
    
    
    (168
    )
    
    
    (1,626
    )Net deferred tax asset (liability) after valuation allowance
    
    $
    3,146
    
    
    $
    (13
    )
 Note 7  Equity Compensation
  F-15







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
  Stock Options
   WeightedWeighted
    
    
    
    
    
    
    AverageNumber of
    
    
    Average Exercise
    
    
    Aggregate
    
    
    ContractualStock Option Activity
    

Shares
    
    
    Price Per Share
    
    
    Intrinsic Value
    
    
    Remaining Life(actual dollar and share amounts)
    
    
    (years)Balance at January 1, 2008
    
    
    732,466
    
    
    $
    9.32
    
    
    $
    -
    
    
    
    7.00Options granted
    
    
    -
    
    
    
    
    
    
    
    -
    
    
    
    n/aOptions exercised
    
    
    -
    
    
    
    
    
    
    
    -
    
    
    
    n/aOption expired
    
    
    
    
    
    
    
    
    
    
    -
    
    
    
    n/aOptions forfeited
    
    
    (14,400
    )
    
    
    9.50
    
    
    
    -
    
    
    
    n/aBalance at December 31, 2008
    
    
    718,066
    
    
    $
    9.32
    
    
    
    -
    
    
    
    6.00Total options vested at December 31, 2008
    
    
    708,066
    
    
    $
    9.36
    
    
    
    -
    
    
    
    5.98Total options un-vested at December 31, 2008
    
    
    10,000
    
    
    $
    6.22
    
    
    
    -
    
    
    
    7.15
  Restricted Stock Awards
   F-16







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
  WeightedAverage GrantNumber of
    
    
    Date FairShares
    
    
    Value(actual dollar and share amounts)Non-vested award balance at January 1, 2008
    
    
    -
    
    
    $
    -Awards granted
    
    
    273,750
    
    
    
    4.70Awards vested
    
    
    15,000
    
    
    
    4.49Awards forfeited
    
    
    -
    
    
    
    -Total non-vested awards at December 31, 2008
    
    
    258,750
    
    
    $
    4.71
   Note 8  Employee Benefit Plans
  Note 9  Commitments
   Note 10  Stock Repurchase
  F-17







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
 Note 11  Reinsurance
   Year Ended December 31,2008
    
    
    2007
    
    
    2006Premiums written:Direct
    
    $
    130,204
    
    
    $
    159,290
    
    
    $
    152,841Assumed1
    
    
    15,987
    
    
    
    1,100
    
    
    
    335Ceded
    
    
    (8,916
    )
    
    
    (10,984
    )
    
    
    (11,076
    )Net
    
    $
    137,275
    
    
    $
    149,406
    
    
    $
    142,100Premiums earned:Direct
    
    $
    143,539
    
    
    $
    162,501
    
    
    $
    121,698Assumed
    
    
    8,792
    
    
    
    952
    
    
    
    269Ceded
    
    
    (8,866
    )
    
    
    (10,984
    )
    
    
    (11,076
    )Net
    
    $
    143,465
    
    
    $
    152,469
    
    
    $
    110,891Losses and loss adjustment expenses:Direct
    
    $
    96,652
    
    
    $
    97,052
    
    
    $
    69,545Assumed
    
    
    5,381
    
    
    
    756
    
    
    
    238Ceded
    
    
    (12,648
    )
    
    
    (7,818
    )
    
    
    (7,101
    )Net
    
    $
    89,385
    
    
    $
    89,990
    
    
    $
    62,682
 
 1
    
    The majority of the assumed business in 2008 results from the Companys fronting arrangement for public entity business. Note 12  Unpaid Loss And Loss Adjustment Expenses
     F-18







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
  Year Ended December 31, 2008
    
    
    Year Ended December 31, 2007
    
    
    Year Ended December 31, 2006Potomac of
    
    
    
    
    
    
    SUA
    
    
    Potomac of
    
    
    
    
    
    
    SUA
    
    
    Potomac of
    
    
    
    
    
    
    SUAIllinois
    
    
    SUA
    
    
    Consolidated
    
    
    Illinois
    
    
    SUA
    
    
    Consolidated
    
    
    Illinois
    
    
    SUA
    
    
    ConsolidatedBeginning of period:Gross
    
    $
    63,529
    
    
    $
    121,207
    
    
    $
    184,736
    
    
    $
    71,592
    
    
    $
    69,608
    
    
    $
    141,200
    
    
    $
    86,736
    
    
    $
    18,134
    
    
    $
    104,870Less reinsurance recoverables
    
    
    (63,529
    )
    
    
    (13,635
    )
    
    
    (77,164
    )
    
    
    (71,592
    )
    
    
    (9,384
    )
    
    
    (80,976
    )
    
    
    (86,736
    )
    
    
    (2,261
    )
    
    
    (88,997
    )Net
    
    
    -
    
    
    
    107,572
    
    
    
    107,572
    
    
    
    -
    
    
    
    60,224
    
    
    
    60,224
    
    
    
    -
    
    
    
    15,873
    
    
    
    15,873Incurred losses and LAE relating to:Current year
    
    
    -
    
    
    
    91,229
    
    
    
    91,229
    
    
    
    -
    
    
    
    92,167
    
    
    
    92,167
    
    
    
    -
    
    
    
    63,546
    
    
    
    63,546Prior years
    
    
    -
    
    
    
    (1,844
    )
    
    
    (1,844
    )
    
    
    -
    
    
    
    (2,177
    )
    
    
    (2,177
    )
    
    
    -
    
    
    
    (864
    )
    
    
    (864
    )Total incurred losses and LAE
    
    
    -
    
    
    
    89,385
    
    
    
    89,385
    
    
    
    -
    
    
    
    89,990
    
    
    
    89,990
    
    
    
    -
    
    
    
    62,682
    
    
    
    62,682Paid losses and LAE related to:Current year
    
    
    -
    
    
    
    25,684
    
    
    
    25,684
    
    
    
    -
    
    
    
    24,772
    
    
    
    24,772
    
    
    
    -
    
    
    
    12,997
    
    
    
    12,997Prior years
    
    
    -
    
    
    
    35,918
    
    
    
    35,918
    
    
    
    -
    
    
    
    17,870
    
    
    
    17,870
    
    
    
    -
    
    
    
    5,334
    
    
    
    5,334Total paid losses and LAE
    
    
    -
    
    
    
    61,602
    
    
    
    61,602
    
    
    
    -
    
    
    
    42,642
    
    
    
    42,642
    
    
    
    -
    
    
    
    18,331
    
    
    
    18,331End of period:Net
    
    
    -
    
    
    
    135,355
    
    
    
    135,355
    
    
    
    -
    
    
    
    107,572
    
    
    
    107,572
    
    
    
    -
    
    
    
    60,224
    
    
    
    60,224Plus reinsurance recoverables
    
    
    53,262
    
    
    
    26,336
    
    
    
    79,598
    
    
    
    63,529
    
    
    
    13,635
    
    
    
    77,164
    
    
    
    71,592
    
    
    
    9,384
    
    
    
    80,976Gross
    
    $
    53,262
    
    
    $
    161,691
    
    
    $
    214,953
    
    
    $
    63,529
    
    
    $
    121,207
    
    
    $
    184,736
    
    
    $
    71,592
    
    
    $
    69,608
    
    
    $
    141,200
 Note 13  Statutory Information
     
    
    underwriting, which encompasses the risk of adverse loss development and inadequate
pricing;
    
    declines in asset values arising from credit risk; and
    
    declines in asset values arising from investment risk.
  F-19







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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share amounts)
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Ending capital and surplus
    
    $
    93,884
    
    
    $
    89,845
    
    
    $
    77,308Net income
    
    
    4,485
    
    
    
    16,312
    
    
    
    1,052Company action level risk-based capital
    
    
    37,850
    
    
    
    43,408
    
    
    
    42,265
 Note 14  Quarterly Financial Data (Unaudited)
  2008Quarterly Financial Data
    
    1st
    
    
    2nd
    
    
    3rd
    
    
    4thRevenues
    
    $
    38,434
    
    
    $
    36,872
    
    
    $
    39,025
    
    
    $
    39,160Expenses including taxes
    
    
    34,969
    
    
    
    34,622
    
    
    
    37,724
    
    
    
    38,751Net income
    
    $
    3,465
    
    
    $
    2,250
    
    
    $
    1,301
    
    
    $
    409Net income per share (basic)
    
    $
    0.22
    
    
    $
    0.14
    
    
    $
    0.08
    
    
    $
    0.03Net income per share (diluted)
    
    $
    0.22
    
    
    $
    0.14
    
    
    $
    0.08
    
    
    $
    0.02
 2007Quarterly Financial Data
    
    1st
    
    
    2nd
    
    
    3rd
    
    
    4thRevenues
    
    $
    37,445
    
    
    $
    39,556
    
    
    $
    42,895
    
    
    $
    42,099Expenses including taxes
    
    
    34,423
    
    
    
    36,546
    
    
    
    39,532
    
    
    
    38,905Net income
    
    $
    3,022
    
    
    $
    3,010
    
    
    $
    3,363
    
    
    $
    3,194Net income per share (basic/diluted)
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.22
    
    
    $
    0.20
 2006Quarterly Financial Data
    
    1st
    
    
    2nd
    
    
    3rd
    
    
    4thRevenues
    
    $
    24,401
    
    
    $
    26,659
    
    
    $
    33,613
    
    
    $
    32,580Expenses including taxes
    
    
    24,601
    
    
    
    24,492
    
    
    
    30,031
    
    
    
    29,721Net income (loss)
    
    $
    (200
    )
    
    $
    2,167
    
    
    $
    3,582
    
    
    $
    2,859Net income (loss) per share (basic/diluted)
    
    $
    (0.01
    )
    
    $
    0.14
    
    
    $
    0.24
    
    
    $
    0.18
 F-20







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##### Table of Contents



SCHEDULE I
SPECIALTY UNDERWRITERS ALLIANCE, INC.
 SUMMARY OF INVESTMENTS  OTHER THAN
INVESTMENTS IN RELATED PARTIES As of December 31, 2008
 Amortized Cost
    
    
    Fair Value(dollars in thousands)Fixed maturities:U.S. Treasury
    
    $
    9,794
    
    
    $
    10,903U.S. Government Agencies
    
    
    35,109
    
    
    
    37,227Municipals
    
    
    54,655
    
    
    
    54,934Corporate Fixed Maturity
    
    
    56,368
    
    
    
    55,536Agency Mortgage Backed
    
    
    39,066
    
    
    
    40,439Non-Agency Mortgage Backed
    
    
    7,781
    
    
    
    5,164Commercial Mortgage Backed
    
    
    13,301
    
    
    
    9,889Asset Backed
    
    
    4,670
    
    
    
    2,616Total fixed maturities
    
    
    220,744
    
    
    
    216,708Short-term investments
    
    
    46,697
    
    
    
    46,697Total investments
    
    $
    267,441
    
    
    $
    263,405
 F-21







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##### Table of Contents



SCHEDULE II
SPECIALTY UNDERWRITERS ALLIANCE, INC.
 CONDENSED FINANCIAL INFORMATION OF REGISTRANT  As of December 31, 2008 and 2007
 As of December 31,Balance Sheet
    
    2008
    
    
    2007(dollars in thousands)ASSETSInvestments in subsidiary
    
    $
    126,103
    
    
    $
    124,270Short-term investments, at amortized cost (which approximates fair value)
    
    
    7,410
    
    
    
    6,514Total investments
    
    
    133,513
    
    
    
    130,784Cash
    
    
    245
    
    
    
    390Deferred tax asset
    
    
    787
    
    
    
    (294
    )Current tax asset
    
    
    1,817
    
    
    
    294Other assets
    
    
    1
    
    
    
    4Total assets
    
    $
    136,363
    
    
    $
    131,178LIABILITIES & STOCKHOLDERS EQUITYLiabilityAccounts payable and other liabilities
    
    $
    74
    
    
    $
    41Total liabilities
    
    
    74
    
    
    
    41Stockholders equityCommon Stock at $.01 par value per share  authorized 30,000,000 shares; issued
14,712,355 and 14,697,355 and outstanding 14,437,355 and 14,697,355 shares
    
    
    147
    
    
    
    147Class B Common Stock at $.01 par value per share  authorized 2,000,000 shares;
issued and outstanding 1,368,562 and 869,738 shares
    
    
    14
    
    
    
    9Paid-in capital  Common Stock
    
    
    129,926
    
    
    
    129,431Paid-in capital  Class B Common Stock
    
    
    8,077
    
    
    
    6,139Retained earnings
    
    
    1,693
    
    
    
    (5,732
    )Treasury stock
    
    
    (1,347
    )Accumulated other comprehensive income (loss), net of tax
    
    
    (2,221
    )
    
    
    1,143Total stockholders equity
    
    
    136,289
    
    
    
    131,137Total liabilities and stockholders equity
    
    $
    136,363
    
    
    $
    131,178
  F-22







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##### Table of Contents



SCHEDULE II  (Continued)
SPECIALTY UNDERWRITERS ALLIANCE, INC.
 CONDENSED FINANCIAL INFORMATION OF REGISTRANT For the Years Ended December 31, 2008, 2007 and 2006
 Year Ended December 31,Statement of Operations
    
    2008
    
    
    2007
    
    
    2006(dollars in thousands except per share data)Revenues:Gain of subsidiary
    
    $
    5,491
    
    
    $
    13,597
    
    
    $
    9,568Other Revenues
    
    
    163
    
    
    
    279
    
    
    
    184Total revenues
    
    
    5,654
    
    
    
    13,876
    
    
    
    9,752Expenses:General and administrative expenses
    
    
    539
    
    
    
    1,287
    
    
    
    1,344Total expenses
    
    
    539
    
    
    
    1,287
    
    
    
    1,344Pretax income
    
    
    5,115
    
    
    
    12,589
    
    
    
    8,408Federal income tax benefit
    
    
    2,310
    
    
    
    -
    
    
    
    -Net income
    
    
    7,425
    
    
    
    12,589
    
    
    
    8,408Net change in unrealized investment gains, net of tax
    
    
    (3,364
    )
    
    
    2,204
    
    
    
    570Comprehensive net income
    
    $
    4,061
    
    
    $
    14,793
    
    
    $
    8,978Earnings per share available to common stockholdersBasic
    
    $
    0.48
    
    
    $
    0.82
    
    
    $
    0.55Diluted
    
    $
    0.47
    
    
    $
    0.82
    
    
    $
    0.55
  F-23







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##### Table of Contents



SCHEDULE II  (Continued)
SPECIALTY UNDERWRITERS ALLIANCE, INC.
 CONDENSED FINANCIAL INFORMATION OF REGISTRANT For the Years Ended December 31, 2008, 2007 and 2006
 Year Ended December 31,Statement of Cash Flows
    
    2008
    
    
    2007
    
    
    2006(dollars in thousands)Cash flows from operations:Net income
    
    $
    7,425
    
    
    $
    12,589
    
    
    $
    8,408Charges (credits) to reconcile net income to
cash flows from operations:Income of subsidiary
    
    
    (5,491
    )
    
    
    (13,597
    )
    
    
    (9,568
    )Change in deferred taxes
    
    
    (1,081
    )
    
    
    -
    
    
    
    -Change in current tax receivable
    
    
    (1,523
    )
    
    
    -
    
    
    
    -Depreciation expense
    
    
    2
    
    
    
    132
    
    
    
    144Write off of capitalized software
    
    
    -
    
    
    
    -
    
    
    
    12Other, net
    
    
    823
    
    
    
    1,070
    
    
    
    953Total adjustments
    
    
    (7,270
    )
    
    
    (12,395
    )
    
    
    (8,459
    )Net cash flows provided by operations
    
    
    155
    
    
    
    194
    
    
    
    (51
    )Cash flows from investing activities:Net increase in short-term investments
    
    
    (896
    )
    
    
    (1,311
    )
    
    
    (4,179
    )Net cash flows used for investing activities
    
    
    (896
    )
    
    
    (1,311
    )
    
    
    (4,179
    )Cash flows from financing activitiesIssuance of common stock
    
    
    1,943
    
    
    
    1,303
    
    
    
    3,088Treasury Stock
    
    
    (1,347
    )
    
    
    -
    
    
    
    -Net cash flows provided by financing activities
    
    
    596
    
    
    
    1,303
    
    
    
    3,088Net increase (decrease) from cash during the period
    
    
    (145
    )
    
    
    186
    
    
    
    (1,142
    )Cash at beginning of the period
    
    
    390
    
    
    
    204
    
    
    
    1,346Cash at end of the period
    
    $
    245
    
    
    $
    390
    
    
    $
    204
  F-24







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##### Table of Contents



SCHEDULE III
SPECIALTY UNDERWRITERS ALLIANCE, INC.
 SUPPLEMENTARY INSURANCE INFORMATION For the Years Ended December 31, 2008, 2007 and 2006
 ColumnCFuture
    
    
    
    
    
    
    Column
    
    
    
    
    
    
    
    
    
    
    ColumnPolicy
    
    
    
    
    
    
    E
    
    
    
    
    
    
    
    
    
    
    HColumn
    
    
    Benefits,
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Column
    
    
    Benefits,
    
    
    
    
    
    
    ColumnB
    
    
    Losses,
    
    
    Column
    
    
    Policy
    
    
    Column
    
    
    G
    
    
    Claims,
    
    
    Column
    
    
    J
    
    
    ColumnDeferred
    
    
    Claims and
    
    
    D
    
    
    Claims and
    
    
    F
    
    
    Net
    
    
    Losses and
    
    
    I
    
    
    Other
    
    
    KColumn
    
    Acquisition
    
    
    Loss
    
    
    Unearned
    
    
    Benefits
    
    
    Premium
    
    
    Investment
    
    
    Settlement
    
    
    Acquisition
    
    
    Operating
    
    
    PremiumA
    
    Costs
    
    
    Expenses
    
    
    Premiums
    
    
    Payable
    
    
    Revenue
    
    
    Income
    
    
    Expenses
    
    
    Expenses
    
    
    Expenses
    
    
    Written(dollars in thousands)Year ended
December 31, 2008
    
    $
    18,156
    
    
    $
    214,953
    
    
    $
    80,600
    
    
    $
    -
    
    
    $
    143,465
    
    
    $
    10,837
    
    
    $
    89,385
    
    
    $
    32,990
    
    
    $
    23,132
    
    
    $
    137,275Year ended
December 31, 2007
    
    
    17,495
    
    
    
    184,736
    
    
    
    86,741
    
    
    
    -
    
    
    
    152,469
    
    
    
    9,553
    
    
    
    89,990
    
    
    
    36,601
    
    
    
    22,568
    
    
    
    149,406Year ended
December 31, 2006
    
    
    19,876
    
    
    
    141,200
    
    
    
    89,804
    
    
    
    -
    
    
    
    110,891
    
    
    
    6,087
    
    
    
    62,682
    
    
    
    26,032
    
    
    
    19,884
    
    
    
    142,100
 F-25







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##### Table of Contents



SCHEDULE IV
SPECIALTY UNDERWRITERS ALLIANCE, INC.
 REINSURANCE
For the Years Ended December 31, 2008, 2007 and 2006
 ColumnColumn
    
    
    
    
    
    
    FColumn
    
    
    D
    
    
    
    
    
    
    Percentage ofColumn
    
    
    C
    
    
    Assumed from
    
    
    Column
    
    
    AmountColumn
    
    B
    
    
    Ceded to Other
    
    
    Other
    
    
    E
    
    
    Assumed toA
    
    Direct Amount
    
    
    Companies
    
    
    Companies
    
    
    Net Amount
    
    
    Net(dollars in thousands)Year ended December 31, 2008
    
    $
    143,539
    
    
    $
    8,866
    
    
    $
    8,792
    
    
    $
    143,465
    
    
    
    -Year ended December 31, 2007
    
    
    162,501
    
    
    
    10,984
    
    
    
    952
    
    
    
    152,469
    
    
    
    -Year ended December 31, 2006
    
    
    121,698
    
    
    
    11,076
    
    
    
    269
    
    
    
    110,891
    
    
    
    -
 F-26







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##### Table of Contents



SCHEDULE V
SPECIALTY UNDERWRITERS ALLIANCE, INC.
 VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2008, 2007 and 2006
 ColumnColumn
    
    
    C
    
    
    ColumnB
    
    
    Additions
    
    
    
    
    
    
    D
    
    
    ColumnBalance at
    
    
    Charged to
    
    
    (Subtractions)
    
    
    Deductions
    
    
    EColumn
    
    Beginning of
    
    
    Cost and
    
    
    Charged to Other
    
    
    Described
    
    
    Balance atA
    
    Period
    
    
    Expenses
    
    
    Accounts
    
    
    (1)(2)
    
    
    End of Period(dollars in thousands)Year ended December
31, 2008 deferred
tax valuation
allowance
    
    $
    1,626
    
    
    $
    (1,344
    )
    
    $
    (114
    )
    
    
    
    
    
    $
    168Allowance for
doubtful accounts,
insurance premium
receivables
    
    
    600
    
    
    
    670
    
    
    
    (500
    )
    
    
    
    
    
    
    770Year ended December
31, 2007 deferred
tax valuation
allowance
    
    
    6,598
    
    
    
    (77
    )
    
    
    (4,895
    )
    
    
    -
    
    
    
    1,626Allowance for
doubtful accounts,
insurance premium
receivables
    
    
    -
    
    
    
    600
    
    
    
    -
    
    
    
    -
    
    
    
    600Year ended December
31, 2006 deferred
tax valuation
allowance
    
    
    9,631
    
    
    
    90
    
    
    
    (3,123
    )
    
    
    -
    
    
    
    6,598
 F-27







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##### Table of Contents



SCHEDULE VI
SUA INSURANCE COMPANY
 SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS For the Years Ended December 31, 2008, 2007 and 2006
 Column
    
    Column
    
    
    Column
    
    
    Column
    
    
    Column
    
    
    Column
    
    
    Column
    
    
    Column
    
    
    Column
    
    
    Column
    
    
    ColumnA
    
    B
    
    
    C
    
    
    D
    
    
    E
    
    
    F
    
    
    G
    
    
    H
    
    
    I
    
    
    J
    
    
    KReserves for
    
    
    Dicount,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Claims and Claim
    
    
    
    
    
    
    Paid ClaimsUnpaid
    
    
    if Any,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjustment Expenses
    
    
    
    
    
    
    andDeferred
    
    
    Claims and
    
    
    Deducted
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    Incurred Related to
    
    
    
    
    
    
    AdjustmentAcquisition
    
    
    Claims Policy
    
    
    in Claims
    
    
    Unearned
    
    
    Earned
    
    
    Investment
    
    
    Current
    
    
    Prior
    
    
    Acquisition
    
    
    Paid
    
    
    PremiumsCosts
    
    
    Expenses
    
    
    Column C
    
    
    Premiums
    
    
    Premiums
    
    
    Income
    
    
    Year
    
    
    Year
    
    
    Expenses
    
    
    Expenses
    
    
    Written(dollars in thousands)Year ended
December 31, 2008
    
    $
    18,156
    
    
    $
    214,953
    
    
    $
    2,612
    
    
    $
    80,600
    
    
    $
    143,465
    
    
    $
    10,837
    
    
    $
    91,229
    
    
    $
    (1,844
    )
    
    $
    32,990
    
    
    $
    61,602
    
    
    $
    137,275Year ended
December 31, 2007
    
    
    17,495
    
    
    
    184,736
    
    
    
    1,505
    
    
    
    86,741
    
    
    
    152,469
    
    
    
    9,553
    
    
    
    92,167
    
    
    
    (2,177
    )
    
    
    36,601
    
    
    
    42,642
    
    
    
    149,406Year ended
December 31, 2006
    
    
    19,876
    
    
    
    141,200
    
    
    
    1,016
    
    
    
    89,804
    
    
    
    110,891
    
    
    
    6,087
    
    
    
    63,546
    
    
    
    (864
    )
    
    
    26,032
    
    
    
    18,331
    
    
    
    142,100
 F-28







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##### Table of Contents



Signatures
  SPECIALTY UNDERWRITERS ALLIANCE, INC.
(Registrant)By:
    /s/ Courtney C. SmithName:
    Courtney C. SmithTitle:
    President and Chief Executive OfficerDate: March 3, 2009  Signature
    
    Title
    
    Date/s/   Courtney C. Smith

By: Courtney C. Smith
    
    President, Chief
Executive Officer
and Chairman of the
Board of Director
(Principal
Executive Officer)
    
    March 3, 2009/s/   Peter E. Jokiel

By: Peter E. Jokiel
    
    Executive Vice
President, Chief
Financial Officer
and Director
(Principal
Financial and
Accounting Officer)
    
    March 3, 2009/s/   Robert E. DeanBy: Robert E. Dean
    
    Director
    
    March 3, 2009/s/   Raymond C. GrothBy: Raymond C. Groth
    
    Director
    
    March 3, 2009/s/   Paul A. PhilpBy: Paul A. Philp
    
    Director
    
    March 3, 2009/s/   Robert H. WhiteheadBy: Robert H. Whitehead
    
    Director
    
    March 3, 2009/s/   Russell E. ZimmermannBy: Russell E. Zimmermann
    
    Director
    
    March 3, 2009