##### 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 1934For the fiscal year ended December 31, 2007Oro

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(State or other jurisdiction
    of
    incorporation or organization)

20-0432760(I.R.S. Employer
    Identification Number)222 South Riverside Plaza, Chicago, Illinois(Address of principal
    executive offices)

60606(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
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large accelerated filer
    o

Accelerated filer
    þ

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

Smaller reporting
    company o   Rule 12b-2 o þ
    DOCUMENTS
    INCORPORATED BY REFERENCE




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##### Table of Contents





SPECIALTY
    UNDERWRITERS ALLIANCE, INC.
  TABLE OF CONTENTS
  
  PagePART IItem
    1.


Business


3Item
    1A.


Risk
    Factors


16Item
    1B.


Unresolved
    Staff Comments


24Item
    2.


Properties


24Item
    3.


Legal
    Proceedings


24Item
    4.


Submission
    of Matters to a Vote of Security Holders


24PART IIItem
    5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


24Item
    6.


Selected
    Financial Data


26Item
    7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


29Item
    7A.


Quantitative
    and Qualitative Disclosures About Market Risk


44Item
    8.


Financial
    Statements and Supplementary Data


45Item
    9.


Changes in
    and Disagreements with Accountants on Accounting and Financial
    Disclosure


45Item
    9A.


Controls
    and Procedures


45Item
    9B.


Other
    Information


46PART IIIItem
    10.


Directors,
    Executive Officers and Corporate Governance


46Item
    11.


Executive
    Compensation


46Item
    12.


Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters


46Item
    13.


Certain
    Relationships and Related Transactions, and Director
    Independence


46Item
    14.


Principal
    Accounting Fees and Services


46PART IVItem
    15.


Exhibits
    and Financial Statement Schedules


46Exhibit Index


46Index to
    Financial Statements and Schedules


F-1   2
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



FORWARD-LOOKING
    STATEMENTS
  Form 10-K
       PART I  Item 1.
    Business  Overview
      3
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Form 10-K, Form 10-Q, Form 8-K,
  (888) 782-4672.
  Capital
    Structure and Business Acquisitions
      4
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Industry
    Historical
    Industry Model
      Our
    Model
    5
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Equity Ownership.
  Commission.
  Long-Term Contractual Commitment.
  Our
    Insurance Product Lines
    
    AEON Insurance Group, Inc.  Towing and Collateral Recovery Program.
  
    American Team Managers, Inc.  General Contractors Program. and/or
  Artisan Contractors Program. and/or
  Trucking Program.
  6
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Workers Compensation Program.
  
    Appalachian Underwriters, Inc.  Artisan Contractors Program. and/or
  General Contractors Program. and/or
  Workers Compensation Program.
  
    First Light Program Managers, Inc.  Trucking Program.
  
    Flying Eagle Insurance Services, Inc.  Artisan Contractors Program. and/or
  General Contractors Program. and/or
  Roofing Contractors Program.
  
    Insential, Inc.  Roofing Contractors Program.
  
    Risk Transfer Holdings, Inc.  PEO Program.
  Temporary Staffing Agencies Program.
  
    Specialty Risk Solutions, LLC  Not-for-Profit Organizations Program.
  7
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Public Entities Program.
  Reinsurance
      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.
  8
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



We have audit and operational review processes.
  Monitoring
    Rate Adequacy
    Program
    Performance Management
    Claims
    Control
    Information
    Technology
      Investment
    Philosophy
    Competition
  non-U.S. insurers,
  9
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Employees
    Ratings
    Insurance
    Regulation
    General.
    and/or
      10
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Insurance Regulation Concerning Change or Acquisition of
    Control.
  Regulation of Dividends and Other Payments from Our Operating
    Subsidiary.
    30-day 12-month
    11
   2007
    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 risks.    
    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.  Accreditation
    NAIC IRIS
    Ratios
    Investment
    Regulation
    12
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



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
        13
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Federal
    Regulation
            Legislative
    and Regulatory Proposals
    14
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Executive
    Officers of the Registrant
    Name

Age

PositionCourtney C. Smith


60


Chief Executive Officer, President and Chairman of the Board of
    DirectorsPeter E. Jokiel


60


Executive Vice President, Chief Financial Officer, Treasurer and
    DirectorBarry G. Cordeiro


61


Senior Vice President and Chief Information OfficerGary J. Ferguson


64


Senior Vice President and Chief Claims OfficerScott W. Goodreau


40


Senior Vice President, General Counsel, Administration and
    Corporate Relations, and SecretaryDaniel A. Cacchione


59


Vice President and Chief Underwriting OfficerScott K. Charbonneau


48


Vice President and Chief ActuaryDaniel J. Rohan


51


Vice President and Controller   Courtney C. Smith.
  Peter E. Jokiel.
  Barry G. Cordeiro.
  Gary J. Ferguson.
  Scott W. Goodreau.
  Daniel A. Cacchione.
  15
   2007
    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
    have a limited operating history. If we are unable to implement
    our business strategy or operate our business as we currently
    expect our results may be adversely affected.
    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.
    16
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



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 rating and stronger
    financial performance than us, which may impair our ability to
    retain existing customers and maintain our profitability and
    financial strength.
  non-U.S. insurers,
    and/or
  We
    have received a secure category rating of B+ (Good)
    from A.M. Best. 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.
    17
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Our
    rating may place us at a competitive disadvantage or cause us to
    incur additional expenses.
    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;  18
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents




    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.
    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.
    19
   2007
    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.
    Recent
    federal legislation may negatively affect the business
    opportunities we perceive are available to us in the
    market.
      We may
    be subject to losses if OneBeacon fails to honor its reinsurance
    obligations to us.
    20
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



A
    significant amount of our invested assets is subject to market
    volatility, and we may be adversely affected by interest rate
    changes.
        Our
    holding company structure and certain regulatory and other
    constraints affect our ability to pay dividends and make other
    payments.
      21
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



30-day 12-month
  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;
    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.    22
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



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.
        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.
    23
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Common Stock.
  2007Period

High


Low2007First Quarter

$
8.50


$
7.12Second Quarter

$
8.32


$
7.62Third Quarter

$
8.05


$
6.78Fourth Quarter

$
7.17


$
5.152006First Quarter

$
6.80


$
5.90Second Quarter

$
6.87


$
6.18Third Quarter

$
8.95


$
6.39Fourth Quarter

$
10.38


$
8.32     Performance Graph.
  24
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Payment of Dividends. Item 1. Business
  Repurchases of Common Stock.
    25
   2007
    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 to


Year EndedYear Ended December 31,


Dec. 31


Nov. 22


Dec. 312007


2006


2005


2004


2004


2003(in thousands, except for per share data)Results of operationsEarned premiums

$
152,469


$
110,891


$
26,611


$
-


$
-


$
9,961Net investment income


9,553



6,087



3,558



278



1,329



2,128Net realized gain/(loss)


(27
)


275



(4
)


2Total revenues


161,995



117,253



30,165



280



1,719



11,941Net income (loss)


12,589



8,408



(17,996
)


(8,155
)


650



1,359Net income (loss) per shareBasic

$
0.82


$
0.55


$
(1.22
)

$
(4.59
)Diluted

$
0.82


$
0.55


$
(1.22
)

$
(4.59
)   Specialty Underwriters Alliance, Inc.


PredecessorAs of December 31,2007


2006


2005


2004


2003(in thousands, except for per share data)Financial conditionInvestments

$
229,387


$
164,058


$
102,991


$
97,835


$
49,113Total assets


422,534



363,297



277,163



217,231



204,355Total liabilities


291,397



249,315



176,348



98,301



161,850Shareholders equity


131,137



113,982



100,815



118,930



42,505Book value dataBook value per share

$
8.42


$
7.42


$
6.76


$
8.09Tangible book value per share

$
7.73


$
6.72


$
6.04


$
7.36   26
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Specialty Underwriters Alliance Inc. (Successor)Year Ended December 31,1997

1998

1999

2000

2001

2002

2003

2004

2005


2006


2007(in thousands)LIABILITY FOR UNPAID CLAIMS & CLAIM ADJUSTMENT
    EXPENSE:Gross Liability


-


-


-


-


-


-


-


-


18,134



69,608



121,207Reinsurance Recoverable


-


-


-


-


-


-


-


-


2,261



9,384



13,635Net Liability


-


-


-


-


-


-


-


-


15,873



60,224



107,572Discount (In Net Liability)


-


-


-


-


-


-


-


-


192



1,016



1,505Net Liability (Undiscounted)


-


-


-


-


-


-


-


-


16,065



61,240



109,077CUMULATIVE PAID AS OF:One Year Later


-


-


-


-


-


-


-


-


5,334



17,870Two Years Later


-


-


-


-


-


-


-


-


7,465Three Years Later


-


-


-


-


-


-


-


-Four 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



109,077One Year Later


-


-


-


-


-


-


-


-


15,176



58,898Two Years Later


-


-


-


-


-


-


-


-


14,441Three Years Later


-


-


-


-


-


-


-


-Four Years Later


-


-


-


-


-


-


-Five Years Later


-


-


-


-


-


-Six Years Later


-


-


-


-


-Seven Years Later


-


-


-


-Eight Years Later


-


-


-Nine Years Later


-


-Ten Years Later


-Redundancy (Def.)


-


-


-


-


-


-


-


-


1,624



2,342Percentage Redundancy (Def.) Reported As Of:One Year Later


-


-


-


-


-


-


-


-


6
%


4%Two Years Later


-


-


-


-


-


-


-


-


10
%Three Years Later


-


-


-


-


-


-


-


-Four Years Later


-


-


-


-


-


-


-Five Years Later


-


-


-


-


-


-Six Years Later


-


-


-


-


-Seven Years Later


-


-


-


-Eight Years Later


-


-


-Nine Years Later


-


-Ten Years Later


-   27
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Predecessor (Potomac)Year Ended December 31,1997


1998


1999


2000


2001


2002


2003


2004


2005


2006


2007Direct Basis (in thousands)Liability for Unpaid Cliams & Claim Adjustment
    Expense


131,700



160,244



235,376



297,408



255,128



176,069



140,542



96,196



86,736



71,592



63,529CUMULATIVE PAID AS OF:One Year Later


62,659



81,545



98,963



86,980



76,958



58,815



40,169



26,653



14,943



14,442Two Years Later


108,284



128,261



163,656



170,546



134,008



98,730



66,724



41,596



29,385Three Years Later


131,940



163,498



220,344



227,597



172,991



125,152



81,654



56,038Four Years Later


151,753



191,357



261,115



266,579



199,328



140,077



96,096Five Years Later


166,365



212,314



291,524



292,916



214,222



154,489Six Years Later


176,712



224,957



311,462



307,810



228,553Seven Years Later


183,164



236,584



323,427



322,141Eight Years Later


188,880



243,202



335,085Nine Years Later


192,902



249,492Ten Years Later


195,844RE-ESTIMATED LIABILITY AS OF:End of Year


131,700



160,244



235,376



297,408



255,128



176,069



140,542



96,196



86,736



71,592



63,529One Year Later


145,067



211,516



326,426



326,203



247,629



198,858



136,237



113,389



86,535



77,971Two Years Later


184,404



272,353



359,245



320,706



270,997



194,561



153,388



113,189



92,914Three Years Later


222,057



279,420



350,765



344,771



267,512



211,738



153,173



119,567Four Years Later


221,608



266,482



366,736



342,982



284,706



211,459



156,561Five Years Later


209,018



273,463



371,520



358,428



284,433



217,832Six Years Later


212,266



273,308



384,034



358,264



290,856Seven Years Later


211,532



282,360



382,001



363,621Eight Years Later


217,864



276,265



387,062Nine Years Later


207,965



278,832Ten Years Later


209,210Redundancy (Def.)


(77,511
)


(118,588
)


(151,686
)


(66,213
)


(35,728
)


(41,763
)


(19,018
)


(23,372
)


(6,178
)


(6,378
)Percentage Redundancy (Def.) Reported As Of:One Year Later


-10
%


-32
%


-39
%


-10
%


3
%


-13
%


3
%


-18
%


0
%


-9%Two Years Later


-40
%


-70
%


-53
%


-8
%


-6
%


-11
%


-9
%


-18
%


-7
%Three Years Later


-69
%


-74
%


-49
%


-16
%


-5
%


-20
%


-9
%


-24
%Four Years Later


-68
%


-66
%


-56
%


-15
%


-12
%


-20
%


-14
%Five Years Later


-59
%


-71
%


-58
%


-21
%


-11
%


-24
%Six Years Later


-61
%


-71
%


-63
%


-20
%


-14
%Seven Years Later


-61
%


-76
%


-62
%


-22
%Eight Years Later


-65
%


-72
%


-64
%Nine Years Later


-58
%


-74
%Ten Years Later


-59
%   28
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Specialty
    Underwriters Alliance, Inc.
  The following discussion and analysis of financial condition
    and results of operations should be read together with
    Selected Financial Data and our financial statements
    and accompanying notes appearing elsewhere in this Annual
    Report. Certain reclassifications have been made to prior period
    financial statement line items to enhance the comparability with
    prior years. This discussion contains forward-looking
    statements, based on current expectations and related to future
    events and our future financial performance, that involve risks
    and uncertainties. Our actual results may differ materially from
    those anticipated in these forward-looking statements as a
    result of many important factors, including those set forth
    under Risk Factors, Forward-Looking
    Statements and elsewhere in this Annual Report.
  Overview
            29
   2007
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    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Key
    Operating Measures
    
    the net loss and loss adjustment expense ratio,
    the acquisition expense ratio, and
    the other operating expense ratio.    Results
    of Operations
    Year Ended December 31,


% Change


% Change2007


2006


2005


06 to 07


05 to 06(dollars in millions, except for per share data)Gross written premiums

$
160.4


$
153.2


$
90.6



4.7
%


69.1
%Net written premiums


149.4



142.1



85.2



5.1
%


66.8
%Earned premiums


152.5



110.9



26.6



37.5
%


316.9
%Net investment income


9.5



6.1



3.6



55.7
%


69.4
%Net realized gain (loss)


-



0.3



-



*



*Total revenues


162.0



117.3



30.2



38.1
%


288.4
%Net loss and loss adjustment expense


90.0



62.7



19.1



43.5
%


228.3
%Acquisition expenses


36.6



26.0



6.2



40.8
%


319.4
%Service company fees


-



-



8.8



*



*Other operating expenses


22.6



19.9



14.1



13.6
%


41.1
%Total expenses


149.2



108.6



48.2



37.4
%


125.3
%Pre-tax income


12.8



8.7



(18.0
)


47.1
%


*Federal income tax (expense)


(0.2
)


(0.3
)


-



33.3
%


*Net income (loss)

$
12.6


$
8.4


$
(18.0
)


50.0
%


*Net income(loss) per shareBasic and diluted

$
0.82


$
0.55


$
(1.22
)


49.1
%


*Average number of common shares outstanding (basic and diluted)


15.4



15.2



14.8



1.3
%


2.7
%Key operating ratiosNet loss and loss adjustment expense ratio


59.0
%


56.5
%


71.8
%


4.4
%


-21.3
%Ratio of acquisition expense to earned premiums


24.0
%


23.4
%


23.3
%


2.6
%


0.4
%Ratio of all other expenses to gross written premiums


14.1
%


13.0
%


25.3
%


8.5
%


-48.6
%   *
    
    Not meaningful  30
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### 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(dollars 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%



-



n/aInsential, Inc


1.7



1.1%



1.5



1.0%First Light Program Manager, Inc.


-



0.0%



-



n/aOther


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(dollars in millions)Florida

$
53.9



33.6%


$
58.5



38.2%California


44.1



27.5%



47.4



30.9%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
   2007
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    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



2007


2006Gross Written


% of Total Gross


Gross Written


% of Total GrossPremium


Written Premium


Premium


Written Premium(dollars 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%             32
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    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



For the Year EndedDecember 31,2007


2006General liability


43.8%



46.1%Workers compensation


54.5%



54.6%Commercial automobile


90.9%



78.0%All other


45.3%



78.2%Total


59.0%



56.5%         Year
    Ended December 31, 2006 Compared to the Year Ended
    December 31, 2005
            33
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    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



2006


2005Gross Written


% of Total Gross


Gross Written


% of Total GrossPremium


Written Premium


Premium


Written Premium(dollars in millions)Risk Transfer Holdings, Inc.

$
81.4



53.1%


$
50.1



55.3%American Team Managers


31.7



20.7%



22.1



24.4%AEON Insurance Group, Inc.


21.8



14.2%



11.0



12.1%Appalachian Underwriters, Inc.


14.5



9.5%



0.4



0.5%Specialty Risk Solutions, LLC


2.0



1.3%



7.0



7.7%Insential, Inc.


1.5



1.0%



n/a



n/aOther


0.3



0.2%



-



0.0%Total

$
153.2



100.0%


$
90.6



100.0%   34
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



2006


2005Gross Written


% of Total Gross


Gross Written


% of Total GrossPremium


Written Premium


Premium


Written Premium(dollars in millions)Florida

$
58.5



38.2%


$
38.6



42.6%California


47.4



30.9%



35.7



39.4%Texas


12.4



8.1%



7.1



7.8%Other States


34.9



22.8%



9.2



10.2%Total

$
153.2



100.0%


$
90.6



100.0%     2006


2005Gross Written


% of Total Gross


Gross Written


% of Total GrossPremium


Written Premium


Premium


Written Premium(dollars in millions)Workers compensation

$
89.3



58.3%


$
62.3



68.8%General liability


35.8



23.4%



10.7



11.8%Commercial automobile


25.5



16.6%



9.4



10.4%All Other


2.6



1.7%



8.2



9.0%Total

$
153.2



100.0%


$
90.6



100.0%       35
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



For the Year Ended December 31,2006

2005General liability


46.1%


60.4%Workers compensation


54.6%


73.5%Commercial automobile


78.0%


79.0%All other


78.2%


95.8%Total


56.5%


71.8%   Cash
    Flows
    Year Ended December 31,2007


2006


2005(dollars in millions)Cash provided by (used in)Operating activities

$
69.6


$
60.3


$
8.4Investing activities


(72.3)



(66.4)



(13.6)Financing activities


1.3



3.1



1.5Change in cash

$
(1.4)


$
(3.0)


$
(3.7)         Fixed
    Maturity Investments
    36
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    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Liquidity
    and Capital Resources
  Liquidity Requirements of Specialty Underwriters
    Alliance, Inc.
  Liquidity.
    Capital Requirements of SUA Insurance Company.
  37
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    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(dollars in thousands)Long-Term Debt Obligations

$
-


$
-


$
-


$
-


$
-Capital Lease Obligations


-



-



-



-



-Operating Lease Obligations


8,405



555



1,217



1,288



5,345Purchase Obligations


-



-



-



-



-Other Long-Term Liabilities Reflected on the
    Registrants Balance Sheet under GAAP


-



-



-



-



-Sub Total

$
8,405


$
555


$
1,217


$
1,288


$
5,345Loss & Loss Adjustment Expense Reserves 
    SUA Insurance Company


121,207



32,795



36,156



16,454



32,801Loss & Loss Adjustment Expense Reserves 
    Potomac Insurance Company of
    Illinois(1)


63,529



17,085



24,609



13,502



8,334Total Loss & Loss Adjustment Expense Reserves

$
184,736


$
49,880


$
60,765


$
29,956


$
41,135Total Contractual Obligations

$
193,141


$
50,435


$
61,982


$
31,244


$
46,480       Long-Term Debt Obligation
  Capital Lease Obligation
  Operating Lease Obligation
  Purchase Obligation
  Loss & Loss Adjustment Expense
    Reserves
  38
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    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Critical
    Accounting Policies and Estimates
      Premium
    Income
    Investments
        Acquisition
    Expenses
    39
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Intangible
    Assets
    Losses,
    Claims and Settlement Expenses
      40
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    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



December 31, 2007


December 31, 2006


December 31, 2005Case


IBNR


Total


Case


IBNR


Total


Case


IBNR


Total(dollars in thousands)Gross ReservesWorkers compensation

$
25,049


$
44,797


$
69,546


$
13,026


$
30,922


$
43,948


$
5,349


$
7,596


$
12,945General liability


6,054



20,318



26,372



1,173



8,513



9,686



29



3,151



3,180Auto liability


11,459



12,233



23,692



4,750



3,998



8,748



894



730



1,624Other


676



621



1,297



2,613



4,613



7,226



206



179



385SUA Insurance Company (SUA)


43,238



77,969



121,207



21,562



48,046



69,608



6,478



11,656



18,134Potomac Insurance Company of
    Illinois(1)


48,187



15,342



63,529



59,132



12,460



71,592



70,409



16,327



86,736Total gross reported loss and loss adjustment expense reserves


91,425



93,311



184,736



80,694



60,506



141,200



76,887



27,983



104,870Ceded ReservesSUA ceded reinsurance recoverables


417



13,218



13,635



2,221



7,163



9,384



774



1,487



2,261Potomac Insurance Company of
    Illinois(1)


48,187



15,342



63,529



59,132



12,460



71,592



70,409



16,327



86,736Total ceded loss and loss adjustment expense reserves


48,604



28,560



77,164



61,353



19,623



80,976



71,183



17,814



88,997Total net loss and loss adjustment expense reserves

$
42,821


$
64,751


$
107,572


$
19,341


$
40,883


$
60,224


$
5,704


$
10,169


$
15,873   (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.
  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.  41
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    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



General
    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.  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
    
    Paid loss development methods use historical loss payments over
    discrete periods of time to estimate losses. Historical paid
    loss development methods assume that the ratio of losses paid to
    ultimate loss in one period to the ratio of losses paid to
    ultimate loss in earlier periods will remain reasonably
    consistent.
    Incurred loss development methods assume that the ratio of
    losses in one period to losses in earlier periods will remain
    reasonably consistent in the future.
    Expected loss ratio methods are based on the assumption that
    ultimate losses vary proportionately to premiums. Expected loss
    ratios are typically developed based upon the information used
    in pricing, such  42
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



as certain industry information and bureau analysis, and are
    multiplied by the total amount of premiums earned to calculate
    ultimate losses.  
    Bornhuetter-Ferguson paid and incurred loss development methods
    combine the expected loss ratio method with the traditional
    historical paid and incurred loss development methods.          Net ReservesLow

Carried

High(dollars in thousands)Range of Estimates


97,229







122,591Reserves






107,572     Deferred
    Income Taxes
    Recent
    Accounting Pronouncements
      43
   2007
    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 Fair


After TaxAssumed Change in


Value After


IncreaseFair Value at


Relevant


Change in


(Decrease) in12/31/07


Interest Rate


Interest Rate


Carrying Value(dollars in thousands)Total Investments

$
229,387



100 bp decrease


$
235,287


$
5,90050 bp decrease


$
232,412


$
3,02550 bp increase


$
226,233


$
(3,154)100 bp increase


$
222,993


$
(6,394)     Credit
    Risk
      As of December 31, 2007Percent ofBond Ratings

Amount


Portfolio(dollars in thousands)AAA rated and U.S. Government and affiliated agency securities

$
114,683



64.6%AA rated


21,188



11.9%A rated


39,671



22.3%BBB Rated


2,193



1.2%Total

$
177,735



100.0%   44
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  page F-1 Form 10-K.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    And Procedures  Conclusion Regarding the Effectiveness of Disclosure Controls
    and Procedures.
  Rules 13a-15(b) 15d-15(b),
  Changes in Internal Control Over Financial
    Reporting.
  Managements Report on Internal Control Over Financial
    Reporting. Rules 13a-15(f) 15d-15(f).
    Inherent Limitations on Effectiveness of Controls.
  45
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Item 11.
    Executive
    Compensation    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
  page F-1
 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))  46
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



3
.2

Amended and Restated Bylaws dated October 29, 2007
    (Incorporated by reference to Exhibit 3.1, 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, 200710
.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+

Amended and Restated Employment Agreement, dated
    November 11, 2004, between the Registrant and Courtney C.
    Smith (Incorporated by reference to Exhibit 10.1.8, 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
.3+

Amended and Restated Employment Agreement, dated
    November 11, 2004, between the Registrant and Peter E.
    Jokiel (Incorporated by reference to Exhibit 10.1.9, 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
.4+

Amended and Restated Employment Agreement, dated
    November 11, 2004, between the Registrant and William S.
    Loder (Incorporated by reference to Exhibit 10.1.10, 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
.5+

Amended and Restated Employment Agreement, dated
    November 11, 2004, between the Registrant and Gary J.
    Ferguson (Incorporated by reference to Exhibit 10.1.11,
    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
.6

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
.7

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
.8

Software License Maintenance and Support Agreement, dated
    May 20, 2004, between the Registrant and ISO Strategic
    Solutions, Inc. (Incorporated by reference to
    Exhibit 10.1.21, filed with Specialty Underwriters
    Alliance, Inc.s Registration Statement on
    Form S-1
    (File
    No. 333-117722))10
.9

Master Software Sales and Services, Agreement (Americas), dated
    May 19, 2004, between the Registrant and SunGard Sherwood
    Systems (US), Inc. (Incorporated by reference to
    Exhibit 10.1.22, filed with Specialty Underwriters
    Alliance, Inc.s Amendment No. 1 to the Registration
    Statement on
    Form S-1/A
    filed on September 17, 2004 (File
    No. 333-117722))10
.10

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
.11

Promissory Note, dated September 30, 2004, in favor of the
    Registrant by 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
.12

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))10
.13

Promissory Note, dated August 16, 2004, in favor of the
    Registrant by 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
.14

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
.15

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
.16

Promissory Note, dated November 3, 2004, in favor of the
    Registrant by 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
.17

First Amendment to Software License Maintenance and Support
    Agreement, dated October 13, 2004, between the Registrant
    and ISO Strategic Solutions, Inc. (Incorporated by reference to
    Exhibit 10.1.36, 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
.18

Second Amendment to Software License Maintenance and Support
    Agreement, dated November 9, 2004, between the Registrant
    and ISO Strategic Solutions, Inc. (Incorporated by reference to
    Exhibit 10.1.37, 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
.19

Form of Voting Agreement, by and between the Registrant and
    Friedman, Billings, Ramsey Group, Inc. (Incorporated by
    reference to Exhibit 10.1.40, filed with Specialty
    Underwriters Alliance, Inc.s Amendment No. 6 to
    the Registration Statement on
    Form S-1/A
    filled on November 12, 2004 (File
    No. 333-117722))  47
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



10
.20

Form of Stock Purchase Agreement, by and between the Registrant
    and Friedman, Billings, Ramsey Group, Inc. (Incorporated by
    reference to Exhibit 10.1.42, filed with Specialty
    Underwriters Alliance, Inc.s Amendment No. 6 to
    the Registration Statement on
    Form S-1/A
    filled on November 12, 2004 (File
    No. 333-117722))10
.21

Third Amendment to the Software License and Maintenance and
    Support Agreement by and between ISO Strategic Solutions, Inc.
    and the Registrant (Incorporated by reference to
    Exhibit 10.1.43, 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
.22

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
.23

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
.24*

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, LLC10
.25

Securities Purchase Agreement, dated May 11, 2005, between
    the Registrant and Specialty Risk Solutions, LLC. (Incorporated
    by reference to Exhibit 10.1.43 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
.26*

Amended and Restated Securities Purchase Agreement, dated
    June 10, 2005, between the Registrant and Risk Transfer
    Holdings, Inc.10
.27*

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.10
.28*

Amended and Restated Securities Purchase Agreement, dated
    September 8, 2005, between the Registrant and American Team
    Managers10
.29*

Amended and Restated Securities Purchase Agreement, dated
    September 28, 2005, between the Registrant and AEON
    Insurance Group, Inc.10
.30

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 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)10
.31*

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, LLC10
.32

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 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
.33

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
    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
.34

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 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
.35

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 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
.36

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 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
.37

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 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
.38+

2007 Stock Incentive Plan of Specialty Underwriters
    Alliance, Inc., dated March 31, 2007(Incorporated by
    reference to Appendix A 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
.39+

Description of 2007 Officer Bonus Program for the Registrant
    (Incorporated by reference to Exhibit 99.1 with Specialty
    Underwriters Alliance, Inc.s Current Report on
    Form 8-K
    filed on May 18, 2007)10
.40+

Transition Agreement, dated October 26, 2007, between the
    Registrant and William Loder (Incorporated by reference to
    Exhibit 10.1 with Specialty Underwriters Alliance,
    Inc.s Current Report on
    Form 8-K
    filed on October 31, 2007)10
.41

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 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)  48
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



10
.42+

Form of Restricted Stock Agreement for Directors under the 2007
    Stock Incentive Plan of the Registrant (Incorporated by
    reference to Exhibit 10.4 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
.43+

Form of Restricted Stock Agreement for Employees under the 2007
    Stock Incentive Plan of the Registrant (Incorporated by
    reference to Exhibit 10.4 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
.44+

Form of Option Agreement-Non - Qualified Stock Option
    under the 2007 Stock Incentive Plan of the Registrant
    (Incorporated by reference to Exhibit 10.4 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
.45+

Form of Option Agreement - Incentive Stock Option
    under the 2007 Stock Incentive Plan of the Registrant
    (Incorporated by reference to Exhibit 10.4 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
.46+*

Form of Deferred Stock Award Agreement for Employees under the
    2007 Stock Incentive Plan of the Registrant14
.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 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.  49
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### 



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, 2007
    and December 31, 2006


F-3Consolidated Statements of Operations and
    Comprehensive Income (Loss) of Specialty Underwriters
    Alliance, Inc. for the years ended December 31, 2007,
    December 31, 2006 and December 31, 2005


F-4Consolidated Statement of Stockholders
    Equity of Specialty Underwriters Alliance, Inc. as of
    December 31, 2007 and December 31, 2006


F-5Consolidated Statements of Cash Flows for
    Specialty Underwriters Alliance, Inc. for the years ended
    December 31, 2007, December 31, 2006, and
    December 31, 2005


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, 2007


F-21Schedule II  Specialty
    Underwriters Alliance, Inc.  Condensed
    Financial Information of Registrant as of December 31, 2007
    and December 31, 2006 or for the years ended
    December 31, 2007, December 31, 2006 and
    December 31, 2005, as appropriate


F-22Schedule III  Specialty
    Underwriters Alliance, Inc.  Supplementary
    Insurance Information for the years ended December 31,
    2007, December 31, 2006 and December 31, 2005


F-25Schedule IV  Specialty
    Underwriters Alliance, Inc.  Reinsurance for
    the years ended December 31, 2007, December 31, 2006,
    and December 31, 2005


F-26Schedule V  Specialty
    Underwriters Alliance, Inc.  Valuation and
    Qualifying Accounts of Registrant for the years ended
    December 31, 2006, December 31, 2006 and
    December 31, 2005


F-27Schedule VI  SUA Insurance
    Company  Supplemental Information Concerning Property
    and Casualty Insurance Operations for the years ended
    December 31, 2007, December 31, 2006 and
    December 31, 2005


F-28Amendment to LeaseAmended and Restated Securities Purchase AgreementAmendment to the partner Agent Program AgreementAmended and Restated Securities Purchase AgreementAmended and Restated Securities Purchase AgreementSecond Amendment to LeaseForm of Deferred Stock Award AgreementConsentCertificationCertificationCertificationCertification    F-1
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm



To the Board of Directors and Shareholders of

Specialty Underwriters Alliance, Inc.:



In our opinion, the consolidated financial statements listed in
    the accompanying index present fairly, in all material respects,
    the financial position of Specialty Underwriters Alliance,
    Inc. and its subsidiary at December 31, 2007 and
    December 31, 2006, and the results of their operations and
    their cash flows for each of the three years in the period ended
    December 31, 2007 in conformity with accounting principles
    generally accepted in the United States of America. In addition,
    in our opinion, the financial statement schedules listed in the
    accompanying index present fairly, in all material respects, the
    information set forth therein when read in conjunction with the
    related consolidated financial statements. Also in our opinion,
    the Company maintained, in all material respects, effective
    internal control over financial reporting as of
    December 31, 2007, based on criteria established in
    Internal  Control - Integrated Framework issued by the
    Committee of Sponsoring Organizations of the Treadway Commission
    (COSO). The Companys management is responsible for these
    financial statements and financial statement schedules, for
    maintaining effective internal control over financial reporting
    and for its assessment of the effectiveness of internal control
    over financial reporting, included in Managements Report
    on Internal Control over Financial Reporting appearing under
    Item 9A. Our responsibility is to express opinions on these
    financial statements, on the financial statement schedules, and
    on the Companys internal control over financial reporting
    based on our integrated audits. We conducted our audits in
    accordance with the standards of the Public Company Accounting
    Oversight Board (United States). Those standards require that we
    plan and perform the audits to obtain reasonable assurance about
    whether the financial statements are free of material
    misstatement and whether effective internal control over
    financial reporting was maintained in all material respects. Our
    audits of the financial statements included examining, on a test
    basis, evidence supporting the amounts and disclosures in the
    financial statements, assessing the accounting principles used
    and significant estimates made by management, and evaluating the
    overall financial statement presentation. Our audit of internal
    control over financial reporting included obtaining an
    understanding of internal control over financial reporting,
    assessing the risk that a material weakness exists, and testing
    and evaluating the design and operating effectiveness of
    internal control based on the assessed risk. Our audits also
    included performing such other procedures as we considered
    necessary in the circumstances. We believe that our audits
    provide a reasonable basis for our opinions.



As discussed in Note 2 to the consolidated financial
    statements, the Company changed the manner in which it accounts
    for share-based compensation in 2006.



A companys internal control over financial reporting is a
    process designed to provide reasonable assurance regarding the
    reliability of financial reporting and the preparation of
    financial statements for external purposes in accordance with
    generally accepted accounting principles. A companys
    internal control over financial reporting includes those
    policies and procedures that (i) pertain to the maintenance
    of records that, in reasonable detail, accurately and fairly
    reflect the transactions and dispositions of the assets of the
    company; (ii) provide reasonable assurance that
    transactions are recorded as necessary to permit preparation of
    financial statements in accordance with generally accepted
    accounting principles, and that receipts and expenditures of the
    company are being made only in accordance with authorizations of
    management and directors of the company; and (iii) provide
    reasonable assurance regarding prevention or timely detection of
    unauthorized acquisition, use, or disposition of the
    companys assets that could have a material effect on the
    financial statements.



Because of its inherent limitations, internal control over
    financial reporting may not prevent or detect misstatements.
    Also, projections of any evaluation of effectiveness to future
    periods are subject to the risk that controls may become
    inadequate because of changes in conditions, or that the degree
    of compliance with the policies or procedures may deteriorate.



/s/ PRICEWATERHOUSECOOPERS LLP



Chicago, Illinois

March 7, 2008
F-2


2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Consolidated
    Balance Sheets of
    Specialty Underwriters Alliance, Inc.
    As of December 31, 2007 and 2006  2007


2006(dollars in thousands)ASSETSFixed maturity investments, at fair value (amortized cost:
    $176,592 and $145,581)

$
177,735


$
144,520Short-term investments, at amortized cost (which approximates
    fair value)


51,652



19,538Total investments

$
229,387


$
164,058Cash


968



2,375Insurance premiums receivable


68,887



68,310Reinsurance recoverable on unpaid loss and loss adjustment
    expenses


77,204



80,976Prepaid reinsurance premiums


631



3,577Investment income accrued


1,909



1,566Equipment and capitalized software at cost (less accumulated
    depreciation of $8,927 and $3,915)


12,796



8,643Intangible assets


10,745



10,745Deferred acquisition costs


17,495



19,876Other assets


2,512



3,171Total assets

$
422,534


$
363,297LIABILITIES & STOCKHOLDERS EQUITYLIABILITIESLoss and loss adjustment expense reserves

$
184,736


$
141,200Unearned insurance premiums


86,741



89,804Insured deposit funds


12,515



10,366Accounts payable and other liabilities


7,405



7,945Total liabilities

$
291,397


$
249,315Commitments (Note 8)STOCKHOLDERS EQUITYCommon Stock at $.01 par value per share 
    authorized 30,000,000 shares; issued and outstanding
    14,697,355 and 14,682,355 shares

$
147


$
147Class B Common Stock at $.01 par value per
    share  authorized 2,000,000 shares; issued and
    outstanding 869,738 and 679,152 shares


9



7Paid-in capital  Common Stock


129,431



128,372Paid-in capital  Class B Common Stock


6,139



4,838Accumulated deficit


(5,732
)


(18,321
)Accumulated other comprehensive income (loss)


1,143



(1,061
)Total stockholders equity

$
131,137


$
113,982Total liabilities and stockholders equity

$
422,534


$
363,297     F-3
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Consolidated
    Statements of Operations and Comprehensive Income (Loss) of
    Specialty Underwriters Alliance, Inc.
    For the Years Ended December 31, 2007, 2006 and
    2005  2007


2006


2005(dollars in thousands, except earnings per share)REVENUEEarned insurance premiums

$
152,469


$
110,891


$
26,611Net investment income


9,553



6,087



3,558Net realized gain (losses)


(27
)


275



(4
)Total revenue

$
161,995


$
117,253


$
30,165EXPENSESLoss and loss adjustment expenses

$
89,990


$
62,682


$
19,099Acquisition expenses


36,601



26,032



6,207Service company fees


-



-



8,798Other operating expenses


22,568



19,884



14,057Total expenses

$
149,159


$
108,598


$
48,161Pretax income (loss)


12,836



8,655



(17,996
)Federal income tax expense


(247
)


(247
)


-Net income (loss)

$
12,589


$
8,408


$
(17,996
)Net change in unrealized gains and losses for investments held,
    after tax


2,204



570



(1,641
)Comprehensive income (loss)

$
14,793


$
8,978


$
(19,637
)Earnings (loss) per share available to common stockholders
    (in dollars)Basic

$
0.82


$
0.55


$
(1.22
)Diluted

$
0.82


$
0.55


$
(1.22
)Average shares outstandingBasic


15,431



15,211



14,774Diluted


15,431



15,211



14,774     F-4
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Consolidated
    Statement of Stockholders Equity of
    Specialty Underwriters Alliance, Inc.
    As of December 31, 2007 and 2006  Common


Paid-in


Common


Paid-in


Retained


Acumulated


TotalStock Class


Capital Class


Stock Class


Capital Class


Earnings


Other Comp.


StockholdersA


A


B


B


(Deficit)


Income


Equity(dollars in thousands)Balance at December 31, 2005

$
147


$
127,256


$
2


$
1,770


$
(26,729
)

$
(1,631
)

$
100,815Net income


-



-



-



-



8,408



-



8,408Net change in unrealized investment gains, net of tax


-



-



-



-



-



570



570Stock issuance


-



15



5



3,068



-



-



3,088Stock based compensation


-



1,101



-



-



-



-



1,101Balance at December 31, 2006

$
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 December 31, 2007

$
147


$
129,431


$
9


$
6,139


$
(5,732
)

$
1,143


$
131,137     F-5
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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##### Table of Contents



Consolidated
    Statements of Cash Flows of
    Specialty Underwriters Alliance, Inc.
    For the Years Ended 2007, 2006 and 2005  2007


2006


2005(dollars in thousands)Cash Flows From OperationsNet income (loss)

$
12,589


$
8,408


$
(17,996
)Charges (credits) to reconcile net income to cash flows
    from operations:Change in deferred taxes


(77
)


90



-Net realized (gains) losses


27



(275
)


4Amortization of bond premium (discount)


(5
)


342



495Depreciation


5,012



2,577



1,760Net change in:Reinsurance recoverable on unpaid loss and loss adjustment
    expense reserves


3,772



8,021



6,962Loss and loss adjustment expense reserves


43,536



36,330



8,911Insurance premiums receivable


(577
)


(23,442
)


(44,868
)Unearned insurance premiums


(3,063
)


31,209



58,592Deferred acquisition costs


2,381



(8,597
)


(11,279
)Prepaid reinsurance premiums


2,946



(85
)


(3,489
)Insured deposit funds


2,149



3,207



7,159Other, net


912



2,526



2,188Total adjustments


57,013



51,903



26,435Net cash flows provided by (used for) operations


69,602



60,311



8,439Cash flows from investing activitiesNet decrease (increase) in short-term investments


(32,114
)


(10,676
)


38,508Sales of fixed maturity investments


9,938



7,174



-Redemptions, calls and maturities of fixed maturity investments


10,003



9,502



6,387Purchases of fixed maturity investments


(50,974
)


(66,575
)


(52,192
)Unsettled net investment purchases






-



(1,000
)Purchase of equipment and capitalized software


(9,165
)


(5,778
)


(5,321
)Net cash flows provided by (used for) investing activities


(72,312
)


(66,353
)


(13,618
)Cash flows from financing activitiesIssuance of common stock


1,303



3,088



1,522Net cash provided by (used for) financing activities


1,303



3,088



1,522Net (decrease) increase in cash during the period


(1,407
)


(2,954
)


(3,657
)Cash at beginning of the period


2,375



5,329



8,986Cash at end of the period

$
968


$
2,375


$
5,329     F-6
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




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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
        F-7
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### 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
      F-8
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Specialty
    Underwriters Alliance, Inc.
    Notes to Consolidated Financial Statements (continued)(dollars in thousands, except per
    share amounts)
  Reinsurance
      Unpaid
    Loss and LAE
        Stock
    Options
    Earnings
    Per Share
        F-9
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Specialty
    Underwriters Alliance, Inc.
    Notes to Consolidated Financial Statements (continued)(dollars in thousands, except per
    share amounts)
  Recent
    Accounting Pronouncements
        Note 3 
    Concentration
    of Premium    Percentage of Gross Written Premium2007


2006


2005Risk Transfer Holdings, Inc.


49.0%



53.1%



55.3%American Team Managers


20.9%



20.7%



24.4%AEON Insurance Group, Inc.


16.0%



14.2%



12.1%Appalachian Underwriters, Inc.


8.7%



9.5%



0.5%Specialty Risk Solutions, LLC


1.9%



1.3%



7.7%Flying Eagle Insurance Service, Inc


1.7%



n/a



n/aInsential, Inc


1.1%



1.0%



n/aFirst Light Program Manager, Inc.


0.0%



n/a



n/aOther


0.7%



0.2%



0.0%Total


100.0%



100.0%



100.0%   F-10
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Specialty
    Underwriters Alliance, Inc.
    Notes to Consolidated Financial Statements (continued)(dollars in thousands, except per
    share amounts)
    Percentage of Gross Written Premium2007


2006


2005Florida


33.6%



38.2%



42.6%California


27.5%



30.9%



39.4%Texas


10.4%



8.1%



7.8%Other states


28.5%



22.8%



10.2%Total


100.0%



100.0%



100.0%     Percentage of Gross Written Premium2007


2006


2005Workers compensation


57.4%



58.3%



68.8%Commercial automobile


20.2%



16.6%



10.4%General liability


19.9%



23.4%



11.8%All other


2.5%



1.7%



9.0%Total


100.0%



100.0%



100.0%   Note 4 
    Investments    Cost or


Gross


Gross


FairAmortized


Unrealized


Unrealized


Estimated2007

Cost


Gains


Losses


ValueU.S. Treasury Securities

$
9,801


$
366


$
-


$
10,167U.S. Government Agencies Securities


37,023



1,172



(5
)


38,190Municipals


5,264



90



-



5,354Corporate Securities


58,672



429



(395
)


58,706Mortgage Backed Securities


65,832



728



(1,242
)


65,318Total Fixed Maturities

$
176,592


$
2,785


$
(1,642
)

$
177,735     Cost or


Gross


Gross


FairAmortized


Unrealized


Unrealized


Estimated2006

Cost


Gains


Losses


ValueU.S. Treasury Securities

$
10,805


$
12


$
(154
)

$
10,663U.S. Government Agencies Securities


34,678



241



(216
)


34,703Corporate Securities


49,033



58



(958
)


48,133Mortgage Backed Securities


51,065



326



(370
)


51,021Total Fixed Maturities

$
145,581


$
637


$
(1,698
)

$
144,520     F-11
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Specialty
    Underwriters Alliance, Inc.
    Notes to Consolidated Financial Statements (continued)(dollars in thousands, except per
    share amounts)
        Cost orAmortized Cost


Fair ValueDue in one year or less

$
12,704


$
12,678Due after one year through five years


64,443



65,238Due after five years through ten years


45,263



46,090Due after ten years


54,182



53,729Total

$
176,592


$
177,735     Unrealized LossesLess than


Greater thanFair Value


12 Months


12 Months


TotalUS Treasury Securities

$
-


$
-


$
-


$
-US 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
)       Year Ended December 31,2007


2006


2005Proceeds from voluntary sales and redemptions

$
9,938


$
7,174


$
-Gross realized gains


62



333



4Gross realized losses


(81
)


(58
)


(8)   F-12
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Specialty
    Underwriters Alliance, Inc.
    Notes to Consolidated Financial Statements (continued)(dollars in thousands, except per
    share amounts)
    Year Ended December 31,2007


2006


2005Fixed maturities

$
8,098


$
5,516


$
3,421Short-term investments


1,751



759



310Gross investment income


9,849



6,275



3,731Investment Expenses


(296
)


(188
)


(173
)Net investment income

$
9,553


$
6,087


$
3,558   Note 5 
    Federal
    Income Taxes  start-up
      Year Ended December 31,2007


2006


2005(dollars in thousands)Income tax (expense) benefit at statutory rates

$
(4,364
)

$
(2,943
)

$
6,119Tax expense from permanent difference


(106
)


(132
)


(7
)Valuation allowance


4,228



2,839



(6,112
)Other


(5
)


(11
)Actual income tax benefit (expense)

$
(247
)

$
(247
)

$
-     Year Ended December 31,2007


2006


2005(dollars in thousands)Current tax benefit (expense)

$
(324
)

$
(157
)

$
-Deferred tax benefit (expense)


77



(90
)


-Total income tax benefit (expense)

$
(247
)

$
(247
)

$
-   F-13
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Specialty
    Underwriters Alliance, Inc.
    Notes to Consolidated Financial Statements (continued)(dollars in thousands, except per
    share amounts)
    Year Ended December 31,2007


2006Deferred Tax Assets Arising
    From

(dollars in thousands)Loss & LAE reserves

$
4,002


$
2,256Unearned premium reserves


5,898



6,107Net operating loss carryforwards


703



6,207Stock Option Expense


504



265Unrealized loss on investments


-



361Start up costs


297



457AMT Tax Credit


481



158Other


670



220Total deferred tax assets


12,555



16,031Deferred Tax Liabilities Arising FromDeferred acquisition costs


5,948



6,758Equipment and capitalized software


3,395



1,849Unrealized gain on investment


389



-Prepaid assets


255



298Intangible asset


727



480Other


228



138Total deferred tax liabilities


10,942



9,523Net deferred tax asset (liability)


1,613



6,508Valuation allowance


(1,626
)


(6,598
)Net deferred tax asset (liability) after valuation
    allowance

$
(13
)

$
(90
)   Note 6 
    Stock
    Options    F-14
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Specialty
    Underwriters Alliance, Inc.
    Notes to Consolidated Financial Statements (continued)(dollars in thousands, except per
    share amounts)
        Year EndedDecember 31, 2005Net loss as reported

$
(17,996
)Deduct: compensation expense


(1,035
)Pro forma net loss

$
(19,031
)Basic and diluted net earnings (loss) per share:As reported

$
(1.22
)Pro forma

$
(1.29
)     F-15
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Specialty
    Underwriters Alliance, Inc.
    Notes to Consolidated Financial Statements (continued)(dollars in thousands, except per
    share amounts)
      Weighted





WeightedAverage





AverageExercise


Aggregate


ContractualNumber of


Price Per


Intrinsic


RemainingOption Plan Activity

Shares


Share


Value


Life(actual dollar and share amounts)


(years)Balance at January 1, 2007


742,466


$
9.32


$
60,100



8
.00Options granted


-







-



n/aOptions exercised


-







-



n/aOption expired


(6,667
)


9.50



-



n/aOptions forfeited


(3,333
)


9.50



-



n/aBalance at December 31, 2007


732,466


$
9.32


$
-



7
.00Total options vested at December 31, 2007


673,581


$
9.41







6
.95     WeightedNumber of


Average GrantShares


Date Fair Value(actual dollar and share amounts)Non-vested balance at January 1, 2007


304,702


$
4.37Options granted


-Options vested


(242,484
)


4.53Options forfeited


(3,333
)


4.64Total non-vested options at December 31, 2007


58,885


$
3.70     Note 7 
    Employee
    Benefit Plans    F-16
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Specialty
    Underwriters Alliance, Inc.
    Notes to Consolidated Financial Statements (continued)(dollars in thousands, except per
    share amounts)
  Note 8 
    Commitments      Note 9 
    Reinsurance      Year Ended December 31,2007


2006


2005Premiums written:Direct

$
159,290


$
152,841


$
90,639Assumed


1,100



335



-Ceded


(10,984
)


(11,076
)


(5,433
)Net

$
149,406


$
142,100


$
85,206Premiums earned:Direct

$
162,501


$
121,698


$
32,047Assumed


952



269



-Ceded


(10,984
)


(11,076
)


(5,436
)Net

$
152,469


$
110,891


$
26,611Losses and loss adjustment expenses:Direct

$
97,052


$
69,545


$
21,362Assumed


756



238



-Ceded


(7,818
)


(7,101
)


(2,263
)Net

$
89,990


$
62,682


$
19,099   F-17
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Specialty
    Underwriters Alliance, Inc.
    Notes to Consolidated Financial Statements (continued)(dollars in thousands, except per
    share amounts)
  Note 10 
    Unpaid
    Loss And Loss Adjustment Expenses            Year Ended December 31, 2007


Year Ended December 31, 2006


Year Ended December 31, 2005Potomac of





SUA


Potomac of





SUA


Potomac of





SUAIllinois


SUA


Consolidated


Illinois


SUA


Consolidated


Illinois


SUA


ConsolidatedBeginning of period:Gross

$
71,592


$
69,608


$
141,200


$
86,736


$
18,134


$
104,870


$
95,959


$
-


$
95,959Less reinsurance recoverables


(71,592
)


(9,384
)


(80,976
)


(86,736
)


(2,261
)


(88,997
)


(95,959
)


-



(95,959
)Net


-



60,224



60,224



-



15,873



15,873



-



-



-Incurred losses and LAE relating to:Current year


-



92,167



92,167



-



63,546



63,546



-



19,099



19,099Prior years


-



(2,177
)


(2,177
)


-



(864
)


(864
)


-



-



-Total incurred losses and LAE


-



89,990



89,990



-



62,682



62,682



-



19,099



19,099Paid losses and LAE related to:Current year


-



24,772



24,772



-



12,997



12,997



-



3,226



3,226Prior years


-



17,870



17,870



-



5,334



5,334



-



-



-Total paid losses and LAE


-



42,642



42,642



-



18,331



18,331



-



3,226



3,226End of period:Net


-



107,572



107,572



-



60,224



60,224



-



15,873



15,873Plus reinsurance recoverables


63,529



13,635



77,164



71,592



9,384



80,976



86,736



2,261



88,997Gross

$
63,529


$
121,207


$
184,736


$
71,592


$
69,608


$
141,200


$
86,736


$
18,134


$
104,870   F-18
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Specialty
    Underwriters Alliance, Inc.
    Notes to Consolidated Financial Statements (continued)(dollars in thousands, except per
    share amounts)
  Note 11 
    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.      Year Ended December 31,2007


2006


2005Ending capital and surplus

$
89,845


$
77,308


$
79,757Net income/(loss)


16,312



1,052



(30,505
)Company action level risk-based capital


43,408



42,265



32,630   F-19
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Specialty
    Underwriters Alliance, Inc.
    Notes to Consolidated Financial Statements (continued)(dollars in thousands, except per
    share amounts)
  Note 12 
    Quarterly
    Financial Data (Unaudited)    2007Quarterly Financial Data

First


Second


Third


FourthRevenues

$
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

$
0.20


$
0.20


$
0.22


$
0.20   2006Quarterly Financial Data

First


Second


Third


FourthRevenues

$
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

$
(0.01
)

$
0.14


$
0.24


$
0.18   2005Quarterly Financial Data

First


Second


Third


FourthRevenues

$
1,265


$
4,072


$
9,145


$
15,683Expenses including taxes


5,757



8,082



13,969



20,353Net income (loss)

$
(4,492
)

$
(4,010
)

$
(4,824
)

$
(4,670
)Net income (loss) per share

$
(0.31
)

$
(0.27
)

$
(0.32
)

$
(0.32
)   F-20
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



SCHEDULE I
    SPECIALTY UNDERWRITERS ALLIANCE, INC.



SUMMARY
    OF INVESTMENTS  OTHER THAN
    INVESTMENTS IN RELATED PARTIES
    As of December 31, 2007  Amortized Cost


Fair Value(dollars in thousands)Fixed maturities:U.S. treasury securities

$
9,801


$
10,167U.S. government agencies securities


37,023



38,190Municipals


5,264



5,354Corporate securities


58,672



58,706Mortgage backed securities


65,832



65,318Total fixed maturities


176,592



177,735Short-term investments


51,652



51,652Total investments

$
228,244


$
229,387   F-21
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



SCHEDULE II
    SPECIALTY UNDERWRITERS ALLIANCE, INC.



CONDENSED
    FINANCIAL INFORMATION OF REGISTRANT
    As of December 31, 2007 and 2006  As of December 31,Balance Sheet

2007


2006(dollars in thousands)ASSETSInvestments in subsidiary

$
124,270


$
108,469Short-term investments, at amortized cost (which approximates
    fair value)


6,514



5,203Total investments


130,784



113,672Cash


390



204Other assets


4



134Total assets

$
131,178


$
114,010LIABILITIES & STOCKHOLDERS EQUITYLiabilitiesAccounts payable and other liabilities

$
41


$
28Total liabilities


41



28Stockholders equityCommon Stock at $.01 par value per share 
    authorized 30,000,000 shares; issued and outstanding
    14,697,355 and 14,682,355 shares


147



147Class B Common Stock at $.01 par value per
    share  authorized 2,000,000 shares; issued and
    outstanding 869,738 and 679,152 shares


9



7Paid-in capital  Common Stock


129,431



128,372Paid-in capital  Class B Common Stock


6,139



4,838Retained earnings


(5,732
)


(18,321)Accumulated other comprehensive income, net of tax


1,143



(1,061)Total stockholders equity


131,137



113,982Total liabilities and stockholders equity

$
131,178


$
114,010      F-22
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



SCHEDULE II 
    (Continued)
    SPECIALTY UNDERWRITERS ALLIANCE, INC.
  CONDENSED
    FINANCIAL INFORMATION OF REGISTRANT
    For the Years Ended December 31, 2007, 2006 and
    2005
  Year Ended December 31,Statement of
    Operations

2007


2006


2005(dollars in thousands, except per share data)Revenues:Total revenues

$
279


$
184


$
23Expenses:General and administrative expenses


1,287



1,344



328(Gain) loss of subsidiary


(13,597
)


(9,568
)


17,691Total expenses


(12,310
)


(8,224
)


18,019Pretax income (loss)


12,589



8,408



(17,996)Federal income tax expense


-



-



-Net income (loss)


12,589



8,408



(17,996)Net change in unrealized investment gains, net of tax


2,204



570



(1,641)Comprehensive net income (loss)

$
14,793


$
8,978


$
(19,637)Earnings (loss) per share available to common stockholdersBasic

$
0.82


$
0.55


$
(1.22)Diluted

$
0.82


$
0.55


$
(1.22)      F-23
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



SCHEDULE II 
    (Continued)
    SPECIALTY UNDERWRITERS ALLIANCE, INC.
  CONDENSED
    FINANCIAL INFORMATION OF REGISTRANT
    For the Years Ended December 31, 2007, 2006 and
    2005
  Year Ended December 31,Statement of Cash
    Flows

2007


2006


2005(dollars in thousands)Cash flows from operations:Net income (loss)

$
12,589


$
8,408


$
(17,996)Charges (credits) to reconcile net income to cash flows from
    operations:Loss (income) of subsidiary


(13,597
)


(9,568
)


17,691Depreciation expense


132



144



171Write off of capitalized software






12



19Other, net


1,070



953



(148)Total adjustments


(12,395
)


(8,459
)


17,733Net cash flows provided by (used for) operations


194



(51
)


(263)Cash flows from investing activities:Net (increase) decrease in short-term investments


(1,311
)


(4,179
)


(1,023)Capital contributions to subsidiary






-



(3,850)Net cash flows provided by (used for) investing activities


(1,311
)


(4,179
)


(4,873)Cash flows from financing activitiesIssuance of common stock


1,303



3,088



1,522Net cash flows provided by (used for) financing activities


1,303



3,088



1,522Net increase from cash during the period


186



(1,142
)


(3,614)Cash at beginning of the period


204



1,346



4,960Cash at end of the period

$
390


$
204


$
1,346      F-24
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



SCHEDULE III
    SPECIALTY UNDERWRITERS ALLIANCE, INC.



SUPPLEMENTARY
    INSURANCE INFORMATION
    For the Years Ended December 31, 2007, 2006 and
    2005  Benefits,Future Policy





Other Policy








Claims,Deferred


Benefits, Losses,





Claims and





Net


Losses





OtherAcquisition


Claims and Loss


Unearned


Benefits


Premium


Investment


and Settlement


Acquisition


Operating


PremiumCosts


Expenses


Premiums


Payable


Revenue


Income


Expenses


Expenses


Expenses


Written(dollars in thousands)Year 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



142,100Year ended 
    December 31, 2005


11,279



104,870



58,595



-



26,611



3,558



19,099



6,207



22,855



85,206   F-25
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



SCHEDULE IV
    SPECIALTY UNDERWRITERS ALLIANCE, INC.



REINSURANCE
    For the Years Ended December 31, 2007, 2006 and
    2005  ColumnColumn


Column





FC


D





Percentage ofColumn


Ceded to


Assumed from


Column


AmountColumn

B


Other


Other


E


Assumed toA

Direct Amount


Companies


Companies


Net Amount


Net(dollars in thousands)Year ended December 31, 2007

$
162,501


$
10,984


$
952


$
152,469



-Year ended December 31, 2006


121,698



11,076



269



110,891



-Year ended December 31, 2005


32,047



5,436



-



26,611



-   F-26
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



SCHEDULE V
    SPECIALTY UNDERWRITERS ALLIANCE, INC.



VALUATION
    AND QUALIFYING ACCOUNTS
    For the Years Ended December 31, 2007, 2006 and
    2005  ColumnColumn


CB


Additions





Column


ColumnBalance at


Charged to


(Subtractions)


D


EColumn

Beginning of


Cost and


Charged to Other


Deductions


Balance at EndA

Period


Expenses


Accounts


Described(1)(2)


of Period(dollars in thousands)Year ended December 31, 2007Deferred tax valuation allowance

$
6,598


$
(77
)

$
(4,895
)

$
-


$
1,626Allowance for Doubtful Accounts, Insurance Premium Receivables


-



600



-



-



600Year ended December 31, 2006Deferred tax valuation allowance


9,631



90



(3,123
)


-



6,598Year ended December 31, 2005
    Deferred tax valuation allowance


2,961



-



6,670



-



9,631   F-27
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



SCHEDULE VI
    SUA INSURANCE COMPANY



SUPPLEMENTAL
    INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE
    OPERATIONS
    For the Years Ended December 31, 2007, 2006 and
    2005  Column

Column


Column


Column


Column


Column


Column


Column


Column


Column


ColumnA

B


C


D


E


F


G


H


I


J


KReserves for


Dicount, if











Claims and ClaimUnpaid


Any,











Adjustment





Paid ClaimsDeferred


Claims and


Deducted in











Expenses Incurred





andAcquisition


Claims Policy


Claims


Unearned


Earned


Net Investment


Current


Prior


Acquisition


Adjustment


PremiumsCosts


Expenses


Column C


Premiums


Premiums


Income


Year


Year


Expenses


Paid Expenses


Written(dollars in thousands)Year 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



142,100Year ended
    December 31, 2005


11,279



104,870



192



58,595



26,611



3,558



19,099



-



6,207



3,226



85,206   F-28
   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.




---



##### Table of Contents



Signatures
    
  By:
    /s/  Courtney
    C. Smith   Title:
    President and Chief Executive Officer       Signature

Title

Date/s/  Courtney C. SmithBy:
    Courtney C. Smith

President, Chief Executive Officer and Chairman of the Board of
    Director (Principal Executive Officer)

March 4, 2008/s/  Peter E. JokielBy:
    Peter E. Jokiel

Executive Vice President, Chief Financial Officer and Director
    (Principal Financial and Accounting Officer)

March 4, 2008/s/  Robert E. DeanBy:
    Robert E. Dean

Director

March 4, 2008/s/  Raymond C. GrothBy:
    Raymond C. Groth

Director

March 4, 2008/s/  Paul A. PhilpBy:
    Paul A. Philp

Director

March 4, 2008/s/  Robert H. WhiteheadBy:
    Robert H. Whitehead

Director

March 4, 2008/s/  Russell E. ZimmermannBy:
    Russell E. Zimmermann

Director

March 4, 2008   2007
    Form 10-K
    Specialty Underwriters Alliance, Inc.