##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  to
 000-50511
Commission File Number
 UNITED AMERICA INDEMNITY, LTD.
  Cayman Islands(State or other jurisdiction
    
    98-0417107of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 WALKER HOUSE, 87 MARY STREET
GEORGE TOWN, GRAND CAYMAN KY1-9002
CAYMAN ISLANDS
 (345) 949-0100
 þ o
  o þ o
 o þ




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##### 



TABLE OF CONTENTS
 Page
 PART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Consolidated Balance Sheets
As of June 30, 2007 (Unaudited) and December 31, 2006
    
    
    1Consolidated Statements of Operations
Quarters and Six Months Ended June 30, 2007 and 2006 (Unaudited)
    
    
    2Consolidated Statements of Comprehensive Income
Quarters and Six Months Ended June 30, 2007 and 2006 (Unaudited)
    
    
    3Consolidated Statements of Changes in Shareholders Equity
As of June 30, 2007 (Unaudited) and December 31, 2006
    
    
    4Consolidated Statements of Cash Flows
Six Months Ended June 30, 2007 and 2006 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4.
    
    Controls and Procedures
    
    
    40PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    41Item 1A.
    
    Risk Factors
    
    
    41Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    42Item 6.
    
    Exhibits
    
    
    43Signatures
    
    
    
    
    45Certification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive Officer, pursuant to Section 906Certification of Chief Financial Officer, pursuant to Section 906
   1)
    
    United America Indemnity, we, us, and our refer to United America Indemnity, Ltd., an
exempted company incorporated with limited liability under the laws of the Cayman Islands, and
its U.S. and Non-U.S. Subsidiaries;2)
    
    our U.S. Subsidiaries refers to United America Indemnity Group, Inc., U.N. Holdings Inc.,
which was dissolved on May 31, 2006, Wind River Investment Corporation, which was dissolved on
May 31, 2006, AIS, Emerald Insurance Company, Penn-America Group, Inc., our U.S. Insurance
Operations and our Agency Operations;3)
    
    United America Insurance Group refers to our U.S. Insurance Operations;4)
    
    our U.S. Insurance Operations refers to the insurance and related operations conducted by
AIS subsidiaries, including American Insurance Adjustment Agency, Inc., International
Underwriters, LLC, J.H. Ferguson & Associates, LLC, the United National Insurance Companies
and the Penn-America Insurance Companies;5)
    
    our Predecessor Insurance Operations refers to Wind River Investment Corporation, which was
dissolved on May 31, 2006, AIS, American Insurance Adjustment Agency, Inc., Emerald Insurance
Company, the United National Insurance Companies, International Underwriters, LLC, and J.H.
Ferguson & Associates, LLC;6)
    
    the United National Insurance Companies refers to the insurance and related operations
conducted by United National Insurance Company and its subsidiaries, including Diamond State
Insurance Company, United National Casualty Insurance Company, and United National Specialty
Insurance Company;7)
    
    the Penn-America Insurance Companies refers to the insurance and related operations of
Penn-America Insurance Company, Penn-Star Insurance Company, and Penn-Patriot Insurance
Company;




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##### Table of Contents



8)
    
    our Insurance Operations refers to the U.S. Insurance Operations;9)
    
    our Non-U.S. Insurance Operations refers to the insurance related operations of Wind River
Barbados and Wind River Bermuda prior to the amalgamation, which occurred on September 30,
2006;10)
    
    Wind River Barbados refers to Wind River Insurance Company (Barbados), Ltd.;11)
    
    Wind River Bermuda refers to Wind River Insurance Company, Ltd.;12)
    
    Wind River Reinsurance refers to Wind River Reinsurance Company, Ltd. In September 2006,
Wind River Barbados was redomesticated to Bermuda and renamed Wind River Reinsurance Company,
Ltd., at which time it was amalgamated with Wind River Bermuda;13)
    
    our Agency Operations refers to the operations of Penn Independent Corporation and its
subsidiaries, which were classified as discontinued operations as of September 30, 2006;14)
    
    our Non-U.S. Subsidiaries refers to Wind River Reinsurance, U.A.I. (Gibraltar) Limited,
which was liquidated on May 30, 2006, U.A.I. (Gibraltar) II Limited, which was liquidated on
May 30, 2006, the Luxembourg Companies, U.A.I. (Ireland) Limited, and Wind River Services,
Ltd.;15)
    
    our Reinsurance Operations refers to the reinsurance and related operations of Wind River
Reinsurance;16)
    
    the Luxembourg Companies refers to U.A.I. (Luxembourg) I S.à r.l., U.A.I. (Luxembourg) II
S.à r.l., U.A.I. (Luxembourg) III S.à r.l., U.A.I. (Luxembourg) IV S.à r.l., U.A.I.
(Luxembourg) Investment S.à r.l., and Wind River (Luxembourg) S.à r.l.;17)
    
    AIS refers to American Insurance Service, Inc.;18)
    
    United National Group refers to the United National Insurance Companies and Emerald
Insurance Company;19)
    
    Penn-America Group refers to Penn-America Group, Inc. and the Penn-America Insurance
Companies;20)
    
    the Statutory Trusts refers to United National Group Capital Trust I, United National Group
Capital Statutory Trust II, Penn-America Statutory Trust I and Penn-America Statutory Trust
II;21)
    
    Fox Paine & Company refers to Fox Paine & Company, LLC and affiliated investment funds;22)
    
    GAAP refers to accounting principles generally accepted in the United States of America;
and23)
    
    $ or dollars refers to U.S. dollars.




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Balance Sheets
  (Unaudited)June 30, 2007
    
    
    December 31, 2006ASSETSBonds:Available for sale securities, at fair value
(amortized cost: $1,345,501 and $1,253,016)
    
    $
    1,323,619
    
    
    $
    1,246,684Preferred shares:Available for sale securities, at fair value
(cost: $3,565 and $3,991)
    
    
    3,565
    
    
    
    4,369Common shares:Available for sale securities, at fair value
(cost: $59,825 and $57,351)
    
    
    74,815
    
    
    
    71,003Other invested assetsAvailable for sale securities, at fair value
(cost: $24,712 and $24,712)
    
    
    64,906
    
    
    
    60,863Total investments
    
    
    1,466,905
    
    
    
    1,382,919Cash and cash equivalents
    
    
    276,440
    
    
    
    273,745Accounts receivable
    
    
    5,794
    
    
    
    8,579Agents balances
    
    
    79,512
    
    
    
    86,409Reinsurance receivables
    
    
    818,954
    
    
    
    982,502Accrued investment income
    
    
    13,769
    
    
    
    13,150Federal income taxes receivable
    
    
    20
    
    
    
    Deferred federal income taxes
    
    
    12,158
    
    
    
    12,661Deferred acquisition costs
    
    
    59,949
    
    
    
    60,086Goodwill
    
    
    84,246
    
    
    
    84,246Intangible assets
    
    
    23,024
    
    
    
    23,528Prepaid reinsurance premiums
    
    
    32,893
    
    
    
    38,335Other assets
    
    
    15,323
    
    
    
    18,456Total assets
    
    $
    2,888,987
    
    
    $
    2,984,616LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Unpaid losses and loss adjustment expenses
    
    $
    1,598,805
    
    
    $
    1,702,010Unearned premiums
    
    
    267,373
    
    
    
    283,265Federal income taxes payable
    
    
    
    
    
    
    379Amounts held for the account of others
    
    
    8,314
    
    
    
    15,491Ceded balances payable
    
    
    14,166
    
    
    
    16,235Insurance premiums payable
    
    
    1,333
    
    
    
    1,797Contingent commissions
    
    
    5,235
    
    
    
    8,629Payable for securities
    
    
    2,297
    
    
    
    Senior notes payable
    
    
    90,000
    
    
    
    90,000Junior subordinated debentures
    
    
    61,857
    
    
    
    61,857Notes and loans payable
    
    
    1,352
    
    
    
    4,382Other liabilities
    
    
    33,739
    
    
    
    37,301Total liabilities
    
    
    2,084,471
    
    
    
    2,221,346Commitments and contingencies (Note 8)
    
    
    
    
    
    
    Shareholders equity:Common shares, $0.0001 par value, 900,000,000
common shares authorized, 24,689,949 and
24,507,919 Class A common shares issued and
outstanding, respectively, and 12,687,500 Class
B common shares issued and outstanding
    
    
    4
    
    
    
    4Preferred shares, $0.0001 par value, 100,000,000
shares authorized, none issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    517,063
    
    
    
    515,357Accumulated other comprehensive income
    
    
    13,283
    
    
    
    22,580Retained earnings
    
    
    274,166
    
    
    
    225,329Total shareholders equity
    
    
    804,516
    
    
    
    763,270Total
    
    $
    2,888,987
    
    
    $
    2,984,616
  1




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UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Operations
  (Unaudited)
    
    
    (Unaudited)Quarter Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Gross premiums written
    
    $
    148,683
    
    
    $
    167,295
    
    
    $
    301,219
    
    
    $
    326,853Net premiums written
    
    $
    130,514
    
    
    $
    142,688
    
    
    $
    264,569
    
    
    $
    278,025Net premiums earned
    
    $
    136,585
    
    
    $
    133,751
    
    
    $
    275,022
    
    
    $
    269,181Net investment income
    
    
    19,317
    
    
    
    17,936
    
    
    
    38,185
    
    
    
    31,615Net realized investment gains (losses)
    
    
    1,542
    
    
    
    (4
    )
    
    
    1,767
    
    
    
    39Total revenues
    
    
    157,444
    
    
    
    151,683
    
    
    
    314,974
    
    
    
    300,835Losses and Expenses:Net losses and loss adjustment expenses
    
    
    75,244
    
    
    
    80,464
    
    
    
    157,085
    
    
    
    159,428Acquisition costs and other underwriting expenses
    
    
    44,662
    
    
    
    41,175
    
    
    
    87,544
    
    
    
    86,163Corporate and other operating expenses
    
    
    2,893
    
    
    
    3,868
    
    
    
    6,457
    
    
    
    8,126Interest expense
    
    
    2,899
    
    
    
    2,958
    
    
    
    5,804
    
    
    
    5,678Income before income taxes
    
    
    31,746
    
    
    
    23,218
    
    
    
    58,084
    
    
    
    41,440Income tax expense
    
    
    5,950
    
    
    
    2,558
    
    
    
    10,024
    
    
    
    3,733Income before minority interest and equity in net income of partnership
    
    
    25,796
    
    
    
    20,660
    
    
    
    48,060
    
    
    
    37,707Minority interest, net of tax
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    Equity in net income of partnership, net of tax
    
    
    191
    
    
    
    40
    
    
    
    361
    
    
    
    572Income before discontinued operations
    
    
    25,987
    
    
    
    20,704
    
    
    
    48,421
    
    
    
    38,279Discontinued operations, net of tax
    
    
    (39
    )
    
    
    (450
    )
    
    
    120
    
    
    
    (247
    )Net income
    
    $
    25,948
    
    
    $
    20,254
    
    
    $
    48,541
    
    
    $
    38,032Per share data:Income from continuing operations:Basic
    
    $
    0.70
    
    
    $
    0.56
    
    
    $
    1.31
    
    
    $
    1.05Diluted
    
    $
    0.69
    
    
    $
    0.56
    
    
    $
    1.30
    
    
    $
    1.04Discontinued operations:Basic
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    0.00
    
    
    $
    (0.01
    )Diluted
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    0.00
    
    
    $
    (0.01
    )Net income:Basic
    
    $
    0.70
    
    
    $
    0.55
    
    
    $
    1.31
    
    
    $
    1.04Diluted
    
    $
    0.69
    
    
    $
    0.55
    
    
    $
    1.30
    
    
    $
    1.03Weighted-average number of shares outstanding:Basic
    
    
    37,199,146
    
    
    
    36,664,626
    
    
    
    37,156,203
    
    
    
    36,615,325Diluted
    
    
    37,495,087
    
    
    
    37,115,922
    
    
    
    37,483,083
    
    
    
    37,047,091
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UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Comprehensive Income
  (Unaudited)
    
    
    (Unaudited)Quarter Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    25,948
    
    
    $
    20,254
    
    
    $
    48,541
    
    
    $
    38,032Other comprehensive loss, net of tax:Unrealized losses on securities:Unrealized holding losses arising during period
    
    
    (10,671
    )
    
    
    (11,400
    )
    
    
    (7,861
    )
    
    
    (17,527
    )Less: Reclassification adjustment for gains (losses) included in net income
    
    
    994
    
    
    
    (73
    )
    
    
    1,140
    
    
    
    (14
    )Other comprehensive loss, net of tax
    
    
    (11,665
    )
    
    
    (11,327
    )
    
    
    (9,001
    )
    
    
    (17,513
    )Comprehensive income, net of tax
    
    $
    14,283
    
    
    $
    8,927
    
    
    $
    39,540
    
    
    $
    20,519
  3




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UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Changes in Shareholders Equity
  (Unaudited)Six Months Ended
    
    
    Year EndedJune 30, 2007
    
    
    December 31, 2006Number of Class A common shares:Number at beginning of period
    
    
    24,507,919
    
    
    
    23,868,402Class A common shares issued under share incentive plans
    
    
    175,132
    
    
    
    618,797Class A common shares issued to directors
    
    
    6,898
    
    
    
    20,720Number at end of period
    
    
    24,689,949
    
    
    
    24,507,919Number of Class B common shares:Number at beginning of period
    
    
    12,687,500
    
    
    
    12,687,500Number at end of period
    
    
    12,687,500
    
    
    
    12,687,500Par value of Class A common shares:Balance at beginning of period
    
    $
    3
    
    
    $
    3Class A common shares issued
    
    
    
    
    
    
    Balance at end of period
    
    $
    3
    
    
    $
    3Par value of Class B common shares:Balance at beginning of period
    
    $
    1
    
    
    $
    1Balance at end of period
    
    $
    1
    
    
    $
    1Additional paid-in capital:Balance at beginning of period
    
    $
    515,357
    
    
    $
    504,541Contributed capital from Class A common shares
    
    
    
    
    
    
    1,000Share compensation plans
    
    
    1,706
    
    
    
    9,816Balance at end of period
    
    $
    517,063
    
    
    $
    515,357Accumulated other comprehensive income, net of deferred income tax:Balance at beginning of period
    
    $
    22,580
    
    
    $
    9,471Other comprehensive (loss) income
    
    
    (9,001
    )
    
    
    13,109Adoption of SFAS 155
    
    
    (296
    )
    
    
    Balance at end of period
    
    $
    13,283
    
    
    $
    22,580Retained earnings:Balance at beginning of period
    
    $
    225,329
    
    
    $
    125,911Net income
    
    
    48,541
    
    
    
    99,418Adoption of SFAS 155
    
    
    296
    
    
    
    Balance at end of period
    
    $
    274,166
    
    
    $
    225,329Total shareholders equity
    
    $
    804,516
    
    
    $
    763,270
  4




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UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Cash Flows
  (Unaudited)Six Months Ended June 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    48,541
    
    
    $
    38,032Adjustments to reconcile net income to net cash provided by operating activities:Amortization of trust preferred securities issuance costs
    
    
    131
    
    
    
    131Amortization and depreciation
    
    
    506
    
    
    
    1,009Restricted stock expense
    
    
    1,237
    
    
    
    3,864Gain on extinguishment of note payable
    
    
    (277
    )
    
    
    Deferred federal income taxes
    
    
    2,152
    
    
    
    (783
    )Amortization of bond premium and discount, net
    
    
    534
    
    
    
    2,714Net realized investment gains
    
    
    (1,767
    )
    
    
    (39
    )Equity in net income of partnerships
    
    
    (361
    )
    
    
    (572
    )Changes in:Agents balances
    
    
    6,897
    
    
    
    (8,577
    )Accounts receivable
    
    
    1,959
    
    
    
    423Reinsurance receivables
    
    
    163,548
    
    
    
    110,581Unpaid losses and loss adjustment expenses
    
    
    (103,205
    )
    
    
    (58,334
    )Unearned premiums
    
    
    (15,892
    )
    
    
    7,284Ceded balances payable
    
    
    (2,069
    )
    
    
    (6,892
    )Insurance premiums payable
    
    
    (464
    )
    
    
    2,969Other assets and liabilities, net
    
    
    (2,001
    )
    
    
    7,207Amounts held for the account of others
    
    
    (7,177
    )
    
    
    (912
    )Contingent commissions
    
    
    (3,394
    )
    
    
    (3,817
    )Prepaid reinsurance premiums
    
    
    5,442
    
    
    
    1,559Federal income taxes receivable
    
    
    (399
    )
    
    
    46Deferred acquisition costs
    
    
    137
    
    
    
    (1,486
    )Other  net
    
    
    (821
    )
    
    
    (2,393
    )Net cash provided by operating activities
    
    
    93,257
    
    
    
    92,014Cash flows from investing activities:Proceeds from sale of bonds
    
    
    99,349
    
    
    
    41,256Proceeds from sale of stocks
    
    
    17,157
    
    
    
    22,153Proceeds from maturity of bonds
    
    
    37,511
    
    
    
    85,773Proceeds from sale of other invested assets
    
    
    
    
    
    
    1,293Purchase of bonds
    
    
    (227,391
    )
    
    
    (302,876
    )Purchase of stocks
    
    
    (17,171
    )
    
    
    (21,085
    )Purchase of other invested assets
    
    
    
    
    
    
    (12
    )Net cash used for investing activities
    
    
    (90,545
    )
    
    
    (173,498
    )Cash flows from financing activities:Borrowing under credit facility
    
    
    6
    
    
    
    1,865Repayments of credit facility
    
    
    (1,541
    )
    
    
    (2,322
    )Proceeds from exercises of stock options
    
    
    1,518
    
    
    
    Tax benefits associated with SFAS 123R
    
    
    336
    
    
    
    199Principal payments of term debt
    
    
    (336
    )
    
    
    (486
    )Net cash provided by (used for) financing activities
    
    
    (17
    )
    
    
    (744
    )Net change in cash and cash equivalents
    
    
    2,695
    
    
    
    (82,228
    )Cash and cash equivalents at beginning of period
    
    
    273,745
    
    
    
    220,122Cash and cash equivalents at end of period
    
    $
    276,440
    
    
    $
    137,894
  5




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UNITED AMERICA INDEMNITY, LTD.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Principles of Consolidation and Basis of Presentation
       2. Investments
   6




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
    Gross Unrealized LossesCost or
    
    
    
    
    
    
    Six
    
    
    Between
    
    
    Greater(Dollars in
    
    Number of
    
    
    Estimated
    
    
    Amortized
    
    
    
    
    
    
    Months or
    
    
    Seven Months
    
    
    than Onethousands)
    
    Securities
    
    
    Fair Value
    
    
    Cost
    
    
    Total
    
    
    Less
    
    
    and One Year
    
    
    Year (1)Bonds
    
    
    494
    
    
    $
    1,107,409
    
    
    $
    1,131,512
    
    
    $
    24,103
    
    
    $
    5,961
    
    
    $
    3,382
    
    
    $
    14,760Common stock
    
    
    14
    
    
    
    5,603
    
    
    
    5,786
    
    
    
    183
    
    
    
    181
    
    
    
    2
    
    
    
    $
    24,286
    
    
    $
    6,142
    
    
    $
    3,384
    
    
    $
    14,760
 
 (1)
    
    At June 30, 2007, the Company had 293 bonds that were in an unrealized loss position for
greater than one year. The estimated fair value and amortized cost of these securities was
$442.8 million and $457.6 million, respectively. The Company has analyzed these securities
and has determined that they are not impaired. The Company has the ability to hold these
investments until maturity or until recovery. All of these securities are investment grade.  Gross Unrealized LossesCost or
    
    
    
    
    
    
    Six
    
    
    Between
    
    
    Greater(Dollars in
    
    Number of
    
    
    Estimated
    
    
    Amortized
    
    
    
    
    
    
    Months or
    
    
    Seven Months
    
    
    than Onethousands)
    
    Securities
    
    
    Fair Value
    
    
    Cost
    
    
    Total
    
    
    Less
    
    
    and One Year
    
    
    Year (1)Bonds
    
    
    414
    
    
    $
    725,155
    
    
    $
    738,781
    
    
    $
    13,626
    
    
    $
    1,945
    
    
    $
    585
    
    
    $
    11,096Common stock
    
    
    7
    
    
    
    2,362
    
    
    
    2,410
    
    
    
    48
    
    
    
    48
    
    
    
    
    
    
    
    $
    13,674
    
    
    $
    1,993
    
    
    $
    585
    
    
    $
    11,096
 
 (1)
    
    At December 31, 2006, the Company had 299 bonds that were in an unrealized loss position for
greater than one year. The estimated fair value and amortized cost of these securities was
$436.7 million and $447.8 million, respectively. The Company has analyzed these securities
and has determined that they are not impaired. The Company has the ability to hold these
investments until maturity or until recovery. 99.8% of the value of these securities is
investment grade.    7




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
     Quarter Ended June 30,
    
    
    Six Months Ended June 30,(Dollars in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Bonds
    
    $
    
    
    
    $
    
    
    
    $
    21
    
    
    $
    Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    167Common stock
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    37Total
    
    $
    
    
    
    $
    37
    
    
    $
    21
    
    
    $
    204
  3. Reinsurance
    8




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
   Quarter Ended June 30,
    
    Six Months Ended June 30,(Dollars in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Earned premium
    
    $
    21,515
    
    
    $
    24,831
    
    
    $
    42,092
    
    
    $
    50,389Commissions
    
    
    3,363
    
    
    
    6,099
    
    
    
    7,892
    
    
    
    11,870Incurred losses (1)
    
    
    (91,284
    )
    
    
    13,094
    
    
    
    (79,929
    )
    
    
    27,802
 
 (1)
    
    The Company reduced gross and ceded loss and loss adjustment expenses related to prior
periods by $113.5 million and $102.5 million, respectively, during the second quarter of
2007.     4. Income Taxes
  9




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 Quarter Ended June 30, 2007:
    
    Non-U.S.
    
    
    U.S.(Dollars in thousands)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    69,852
    
    
    $
    143,452
    
    
    $
    (64,621
    )
    
    $
    148,683Net premiums written
    
    $
    65,893
    
    
    $
    64,621
    
    
    $
    
    
    
    $
    130,514Net premiums earned
    
    $
    68,487
    
    
    $
    68,098
    
    
    $
    
    
    
    $
    136,585Net investment income
    
    
    10,912
    
    
    
    13,003
    
    
    
    (4,598
    )
    
    
    19,317Net realized investment (losses) gains
    
    
    (25
    )
    
    
    1,523
    
    
    
    44
    
    
    
    1,542Total revenues
    
    
    79,374
    
    
    
    82,624
    
    
    
    (4,554
    )
    
    
    157,444Losses and Expenses:Net losses and loss adjustment expenses
    
    
    37,640
    
    
    
    37,604
    
    
    
    
    
    
    
    75,244Acquisition costs and other
underwriting expenses
    
    
    26,730
    
    
    
    18,083
    
    
    
    (151
    )
    
    
    44,662Corporate and other operating expenses
(income)
    
    
    3,795
    
    
    
    (902
    )
    
    
    
    
    
    
    2,893Interest expense
    
    
    
    
    
    
    7,497
    
    
    
    (4,598
    )
    
    
    2,899Income before income taxes
    
    $
    11,209
    
    
    $
    20,342
    
    
    $
    195
    
    
    $
    31,746
 Quarter Ended June 30, 2006:
    
    Non-U.S.
    
    
    U.S.(Dollars in thousands)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    68,794
    
    
    $
    167,303
    
    
    $
    (68,802
    )
    
    $
    167,295Net premiums written
    
    $
    68,793
    
    
    $
    73,895
    
    
    $
    
    
    
    $
    142,688Net premiums earned
    
    $
    63,317
    
    
    $
    70,434
    
    
    $
    
    
    
    $
    133,751Net investment income
    
    
    9,131
    
    
    
    13,403
    
    
    
    (4,598
    )
    
    
    17,936Net realized investment losses
    
    
    (200
    )
    
    
    (30
    )
    
    
    226
    
    
    
    (4
    )Total revenues
    
    
    72,248
    
    
    
    83,807
    
    
    
    (4,372
    )
    
    
    151,683Losses and Expenses:Net losses and loss adjustment expenses
    
    
    35,598
    
    
    
    44,866
    
    
    
    
    
    
    
    80,464Acquisition costs and other
underwriting expenses
    
    
    23,452
    
    
    
    19,188
    
    
    
    (1,465
    )
    
    
    41,175Corporate and other operating expenses
    
    
    963
    
    
    
    2,711
    
    
    
    194
    
    
    
    3,868Interest expense
    
    
    
    
    
    
    7,556
    
    
    
    (4,598
    )
    
    
    2,958Income before income taxes
    
    $
    12,235
    
    
    $
    9,486
    
    
    $
    1,497
    
    
    $
    23,218
 Six Months Ended June 30, 2007:
    
    Non-U.S.
    
    
    U.S.(Dollars in thousands)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    147,771
    
    
    $
    289,054
    
    
    $
    (135,606
    )
    
    $
    301,219Net premiums written
    
    $
    140,375
    
    
    $
    124,194
    
    
    $
    
    
    
    $
    264,569Net premiums earned
    
    $
    138,067
    
    
    $
    136,955
    
    
    $
    
    
    
    $
    275,022Net investment income
    
    
    21,315
    
    
    
    26,014
    
    
    
    (9,144
    )
    
    
    38,185Net realized investment (losses) gains
    
    
    (25
    )
    
    
    1,769
    
    
    
    23
    
    
    
    1,767Total revenues
    
    
    159,357
    
    
    
    164,738
    
    
    
    (9,121
    )
    
    
    314,974Losses and Expenses:Net losses and loss adjustment expenses
    
    
    80,366
    
    
    
    76,719
    
    
    
    
    
    
    
    157,085Acquisition costs and other underwriting expenses
    
    
    51,529
    
    
    
    36,497
    
    
    
    (482
    )
    
    
    87,544Corporate and other operating expenses
    
    
    5,342
    
    
    
    939
    
    
    
    176
    
    
    
    6,457Interest expense
    
    
    
    
    
    
    14,948
    
    
    
    (9,144
    )
    
    
    5,804Income before income taxes
    
    $
    22,120
    
    
    $
    35,635
    
    
    $
    329
    
    
    $
    58,084
 10




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 Six Months Ended June 30, 2006:
    
    Non-U.S.
    
    
    U.S.(Dollars in thousands)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    132,993
    
    
    $
    326,806
    
    
    $
    (132,946
    )
    
    $
    326,853Net premiums written
    
    $
    132,986
    
    
    $
    145,039
    
    
    $
    
    
    
    $
    278,025Net premiums earned
    
    $
    127,198
    
    
    $
    141,983
    
    
    $
    
    
    
    $
    269,181Net investment income
    
    
    18,029
    
    
    
    22,730
    
    
    
    (9,144
    )
    
    
    31,615Net realized investment (losses) gains
    
    
    (112
    )
    
    
    (112
    )
    
    
    263
    
    
    
    39Total revenues
    
    
    145,115
    
    
    
    164,601
    
    
    
    (8,881
    )
    
    
    300,835Losses and Expenses:Net losses and loss adjustment expenses
    
    
    72,439
    
    
    
    86,989
    
    
    
    
    
    
    
    159,428Acquisition costs and other
underwriting expenses
    
    
    46,483
    
    
    
    40,829
    
    
    
    (1,149
    )
    
    
    86,163Corporate and other operating expenses
    
    
    2,963
    
    
    
    4,776
    
    
    
    387
    
    
    
    8,126Interest expense
    
    
    
    
    
    
    14,822
    
    
    
    (9,144
    )
    
    
    5,678Income before income taxes
    
    $
    23,230
    
    
    $
    17,185
    
    
    $
    1,025
    
    
    $
    41,440
  Quarter Ended June 30,2007
    
    
    2006% of Pre-
    
    
    
    
    
    
    % of Pre-Amount
    
    
    Tax Income
    
    
    Amount
    
    
    Tax IncomeExpected tax
provision at
weighted average
rate
    
    $
    7,206
    
    
    
    22.7
    %
    
    $
    3,841
    
    
    
    16.5
    %Adjustments:Tax exempt interest
    
    
    (597
    )
    
    
    (1.9
    )
    
    
    (1,349
    )
    
    
    (5.8
    )Dividend exclusion
    
    
    (110
    )
    
    
    (0.3
    )
    
    
    (111
    )
    
    
    (0.5
    )Other
    
    
    (549
    )
    
    
    (1.8
    )
    
    
    177
    
    
    
    0.8Income tax expense
    
    $
    5,950
    
    
    
    18.7
    %
    
    $
    2,558
    
    
    
    11.0
    %
 Six Months Ended June 30,2007
    
    
    2006% of Pre-
    
    
    
    
    
    
    % of Pre-Amount
    
    
    Tax Income
    
    
    Amount
    
    
    Tax IncomeExpected tax
provision at
weighted average
rate
    
    $
    12,626
    
    
    
    21.7
    %
    
    $
    6,390
    
    
    
    15.4
    %Adjustments:Tax exempt interest
    
    
    (1,197
    )
    
    
    (2.1
    )
    
    
    (2,601
    )
    
    
    (6.3
    )Dividend exclusion
    
    
    (226
    )
    
    
    (0.4
    )
    
    
    (236
    )
    
    
    (0.6
    )Other
    
    
    (1,179
    )
    
    
    (1.9
    )
    
    
    180
    
    
    
    0.5Income tax expense
    
    $
    10,024
    
    
    
    17.3
    %
    
    $
    3,733
    
    
    
    9.0
    %
   11




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
      5. Liability for Unpaid Losses and Loss Adjustment Expenses
   6. Notes and Loans Payable
 Notes Payable
  12




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
  Loans Payable
  7. Related Party Transactions
      8. Commitments and Contingencies
 Legal Proceedings
  13




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
   9. Shareholders Equity
  10. Share-Based Compensation Plans
  11. Earnings Per Share
  14




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
  Quarter Ended June 30,
    
    
    Six Months Ended June 30,(Dollars in thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Income from continuing operations
    
    $
    25,987
    
    
    $
    20,704
    
    
    $
    48,421
    
    
    $
    38,279Discontinued operations
    
    
    (39
    )
    
    
    (450
    )
    
    
    120
    
    
    
    (247
    )Net income
    
    $
    25,948
    
    
    $
    20,254
    
    
    $
    48,541
    
    
    $
    38,032Basic earnings per share:Weighted average shares for basic earnings per share
    
    
    37,199,146
    
    
    
    36,664,626
    
    
    
    37,156,203
    
    
    
    36,615,325Income from continuing operations
    
    $
    0.70
    
    
    $
    0.56
    
    
    $
    1.31
    
    
    $
    1.05Discontinued operations
    
    
    0.00
    
    
    
    (0.01
    )
    
    
    0.00
    
    
    
    (0.01
    )Net income
    
    $
    0.70
    
    
    $
    0.55
    
    
    $
    1.31
    
    
    $
    1.04Diluted earnings per share:Weighted average shares for diluted earnings per
share
    
    
    37,495,087
    
    
    
    37,115,922
    
    
    
    37,483,083
    
    
    
    37,047,091Income from continuing operations
    
    $
    0.69
    
    
    $
    0.56
    
    
    $
    1.30
    
    
    $
    1.04Discontinued operations
    
    
    0.00
    
    
    
    (0.01
    )
    
    
    0.00
    
    
    
    (0.01
    )Net income
    
    $
    0.69
    
    
    $
    0.55
    
    
    $
    1.30
    
    
    $
    1.03
  Quarter Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Weighted average shares for basic earnings per share
    
    
    37,199,146
    
    
    
    36,664,626
    
    
    
    37,156,203
    
    
    
    36,615,325Non-vested restricted stock
    
    
    38,657
    
    
    
    23,219
    
    
    
    33,808
    
    
    
    19,311Options and warrants
    
    
    257,284
    
    
    
    428,077
    
    
    
    293,072
    
    
    
    412,455Weighted average shares for diluted earnings per
share
    
    
    37,495,087
    
    
    
    37,115,922
    
    
    
    37,483,083
    
    
    
    37,047,091
 12. Segment Information
     15




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
  Quarter Ended June 30, 2007:
    
    Insurance(Dollars in thousands)
    
    Operations
    
    
    Reinsurance (1)
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    143,452
    
    
    $
    5,231
    
    
    $
    
    
    
    $
    
    
    
    $
    148,683Net premiums written
    
    $
    129,242
    
    
    $
    1,272
    
    
    $
    
    
    
    $
    
    
    
    $
    130,514Net premiums earned
    
    $
    136,196
    
    
    $
    389
    
    
    $
    
    
    
    $
    
    
    
    $
    136,585Net investment income
    
    
    
    
    
    
    
    
    
    
    19,317
    
    
    
    
    
    
    
    19,317Net realized investment gains
    
    
    
    
    
    
    
    
    
    
    1,542
    
    
    
    
    
    
    
    1,542Total revenues
    
    
    136,196
    
    
    
    389
    
    
    
    20,859
    
    
    
    
    
    
    
    157,444Losses and Expenses:Net losses and loss adjustment expenses
    
    
    75,133
    
    
    
    111
    
    
    
    
    
    
    
    
    
    
    
    75,244Acquisition costs and other underwriting
expenses
    
    
    43,447
    
    
    
    1,366
    (2)
    
    
    
    
    
    
    (151
    )
    
    
    44,662Corporate and other operating expenses
    
    
    
    
    
    
    
    
    
    
    2,893
    
    
    
    
    
    
    
    2,893Interest expense
    
    
    
    
    
    
    
    
    
    
    2,899
    
    
    
    
    
    
    
    2,899Income (loss) before income taxes
    
    $
    17,616
    
    
    $
    (1,088
    )
    
    $
    15,067
    
    
    $
    151
    
    
    
    31,746Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,950Income before equity in net income of
partnership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,796Equity in net income of partnership, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191Income before discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,987Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,948
 
 (1)
    
    Direct business only, excluding business assumed from affiliates.(2)
    
    Includes excise tax of $656. Quarter Ended June 30, 2006:
    
    Insurance(Dollars in thousands)
    
    Operations
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    167,295
    
    
    $
    
    
    
    $
    
    
    
    $
    167,295Net premiums written
    
    $
    142,688
    
    
    $
    
    
    
    $
    
    
    
    $
    142,688Net premiums earned
    
    $
    133,751
    
    
    $
    
    
    
    $
    
    
    
    $
    133,751Net investment income
    
    
    
    
    
    
    17,936
    
    
    
    
    
    
    
    17,936Net realized investment losses
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Total revenues
    
    
    133,751
    
    
    
    17,932
    
    
    
    
    
    
    
    151,683Losses and Expenses:Net losses and loss adjustment expenses
    
    
    80,464
    
    
    
    
    
    
    
    
    
    
    
    80,464Acquisition costs and other underwriting expenses
    
    
    42,640
    (1)
    
    
    
    
    
    
    (1,465
    )
    
    
    41,175Corporate and other operating expenses
    
    
    
    
    
    
    3,481
    
    
    
    387
    
    
    
    3,868Interest expense
    
    
    
    
    
    
    2,958
    
    
    
    
    
    
    
    2,958Income before income taxes
    
    $
    10,647
    
    
    $
    11,493
    
    
    $
    1,078
    
    
    
    23,218Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,558Income before minority interest and equity in
net income of partnership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,660Minority interest, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Equity in net income of partnership, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Income before discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,704Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (450
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    20,254
 
 (1)
    
    Includes $1,262 from the predecessor of Wind River Reinsurance. $686 of this amount is excise tax. 16




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 Six Months Ended June 30, 2007:
    
    Insurance(Dollars in thousands)
    
    Operations
    
    
    Reinsurance (1)
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    289,054
    
    
    $
    12,165
    
    
    $
    
    
    
    $
    
    
    
    $
    301,219Net premiums written
    
    $
    259,800
    
    
    $
    4,769
    
    
    $
    
    
    
    $
    
    
    
    $
    264,569Net premiums earned
    
    $
    273,910
    
    
    $
    1,112
    
    
    $
    
    
    
    $
    
    
    
    $
    275,022Net investment income
    
    
    
    
    
    
    
    
    
    
    38,185
    
    
    
    
    
    
    
    38,185Net realized investment gains
    
    
    
    
    
    
    
    
    
    
    1,767
    
    
    
    
    
    
    
    1,767Total revenues
    
    
    273,910
    
    
    
    1,112
    
    
    
    39,952
    
    
    
    
    
    
    
    314,974Losses and Expenses:Net losses and loss adjustment expenses
    
    
    156,510
    
    
    
    575
    
    
    
    
    
    
    
    
    
    
    
    157,085Acquisition costs and other underwriting
expenses
    
    
    85,529
    
    
    
    2,497
    (2)
    
    
    
    
    
    
    (482
    )
    
    
    87,544Corporate and other operating expenses
    
    
    
    
    
    
    
    
    
    
    6,281
    
    
    
    176
    
    
    
    6,457Interest expense
    
    
    
    
    
    
    
    
    
    
    5,804
    
    
    
    
    
    
    
    5,804Income (loss) before income taxes
    
    $
    31,871
    
    
    $
    (1,960
    )
    
    $
    27,867
    
    
    $
    306
    
    
    
    58,084Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,024Income before equity in net income of
partnership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,060Equity in net income of partnership, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    361Income before discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,421Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    48,541Total Assets
    
    $
    
    
    
    $
    
    
    
    $
    2,888,987
    
    
    $
    
    
    
    $
    2,888,987
 
 (1)
    
    Direct business only, excluding business assumed from affiliates.(2)
    
    Includes excise tax of $1,399. Six Months Ended June 30, 2006:
    
    Insurance(Dollars in thousands)
    
    Operations
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    326,853
    
    
    $
    
    
    
    $
    
    
    
    $
    326,853Net premiums written
    
    $
    278,025
    
    
    $
    
    
    
    $
    
    
    
    $
    278,025Net premiums earned
    
    $
    269,181
    
    
    $
    
    
    
    $
    
    
    
    $
    269,181Net investment income
    
    
    
    
    
    
    31,615
    
    
    
    
    
    
    
    31,615Net realized investment gains
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    39Total revenues
    
    
    269,181
    
    
    
    31,654
    
    
    
    
    
    
    
    300,835Losses and Expenses:Net losses and loss adjustment expenses
    
    
    159,428
    
    
    
    
    
    
    
    
    
    
    
    159,428Acquisition costs and other underwriting
expenses
    
    
    87,312
    (1)
    
    
    
    
    
    
    (1,149
    )
    
    
    86,163Corporate and other operating expenses
    
    
    
    
    
    
    7,739
    
    
    
    387
    
    
    
    8,126Interest expense
    
    
    
    
    
    
    5,678
    
    
    
    
    
    
    
    5,678Income before income taxes
    
    $
    22,441
    
    
    $
    18,237
    
    
    $
    762
    
    
    
    41,440Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,733Income before equity in net income of
partnership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,707Equity in net income of partnership, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    572Income before discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,279Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (247
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    38,032Total Assets
    
    $
    
    
    
    $
    3,075,593
    
    
    $
    
    
    
    $
    3,075,593
 
 (1)
    
    Includes $2,655 from the predecessor of Wind River Reinsurance. $1,330 of this amount is excise tax. 17




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 13. Supplemental Cash Flow Information
 Taxes and Interest Paid
 Quarter Ended June 30,
    
    Six Months Ended June 30,(Dollars in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Net federal income taxes paid
    
    $
    8,000
    
    
    $
    4,000
    
    
    $
    8,000
    
    
    $
    4,000Interest paid
    
    
    1,418
    
    
    
    1,470
    
    
    
    5,654
    
    
    
    5,456
 18




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UNITED AMERICA INDEMNITY, LTD.
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Recent Developments
  Overview
      19




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UNITED AMERICA INDEMNITY, LTD.
   Critical Accounting Estimates and Policies
  Liability For Unpaid Losses And Loss Adjustment Expenses
    
    
    Paid Development method;
    
    Incurred Development method;
    
    Expected Loss Ratio method;
    
    Bornhuetter-Ferguson method using premiums and paid loss;
    
    Bornhuetter-Ferguson method using premiums and incurred loss; and
    
    Average Loss method.
 20




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UNITED AMERICA INDEMNITY, LTD.
        21




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UNITED AMERICA INDEMNITY, LTD.
  
      22




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UNITED AMERICA INDEMNITY, LTD.
   Gross Reserves(Dollars in thousands)
    
    Case
    
    
    IBNR (1)
    
    
    TotalInsurance Operations:Penn-America
    
    $
    167,917
    
    
    $
    399,106
    
    
    $
    567,023United National:Program
    
    
    316,711
    
    
    
    684,423
    
    
    
    1,001,134Specialty Brokerage
    
    
    15,269
    
    
    
    14,124
    
    
    
    29,393Total United National
    
    
    331,980
    
    
    
    698,547
    
    
    
    1,030,527Total Insurance Operations
    
    
    499,897
    
    
    
    1,097,653
    
    
    
    1,597,550Reinsurance Operations:Wind River Reinsurance
    
    
    
    
    
    
    1,255
    
    
    
    1,255Total
    
    $
    499,897
    
    
    $
    1,098,908
    
    
    $
    1,598,805
 Net Reserves (2)(Dollars in thousands)
    
    Case
    
    
    IBNR (1)
    
    
    TotalInsurance Operations:Penn-America
    
    $
    152,246
    
    
    $
    342,453
    
    
    $
    494,699United National:Program
    
    
    80,126
    
    
    
    193,586
    
    
    
    273,712Specialty Brokerage
    
    
    7,168
    
    
    
    11,573
    
    
    
    18,741Total United National
    
    
    87,294
    
    
    
    205,159
    
    
    
    292,453Total Insurance Operations
    
    
    239,540
    
    
    
    547,612
    
    
    
    787,152Reinsurance Operations:Wind River Reinsurance
    
    
    
    
    
    
    703
    
    
    
    703Total
    
    $
    239,540
    
    
    $
    548,315
    
    
    $
    787,855
 
 (1)
    
    Losses incurred but not reported.(2)
    
    Does not include reinsurance receivable on paid losses or reserve
for uncollectible reinsurance.  23




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UNITED AMERICA INDEMNITY, LTD.
       24




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Severity Change(Dollars in thousands)
    
    
    
    
    
    -10%
    
    -5%
    
    0%
    
    5%
    
    10%Frequency Change
    
    
    -5
    %
    
    $
    (24,787
    )
    
    $
    (16,667
    )
    
    $
    (8,547
    )
    
    $
    (427
    )
    
    $
    7,693-3
    %
    
    
    (21,710
    )
    
    
    (13,419
    )
    
    
    (5,128
    )
    
    
    3,162
    
    
    
    11,453-2
    %
    
    
    (20,172
    )
    
    
    (11,795
    )
    
    
    (3,419
    )
    
    
    4,957
    
    
    
    13,334-1
    %
    
    
    (18,633
    )
    
    
    (10,171
    )
    
    
    (1,709
    )
    
    
    6,752
    
    
    
    15,2140
    %
    
    
    (17,095
    )
    
    
    (8,547
    )
    
    
    
    
    
    
    8,547
    
    
    
    17,0951
    %
    
    
    (15,556
    )
    
    
    (6,923
    )
    
    
    1,709
    
    
    
    10,342
    
    
    
    18,9752
    %
    
    
    (14,017
    )
    
    
    (5,299
    )
    
    
    3,419
    
    
    
    12,137
    
    
    
    20,8553
    %
    
    
    (12,479
    )
    
    
    (3,675
    )
    
    
    5,128
    
    
    
    13,932
    
    
    
    22,7365
    %
    
    
    (9,402
    )
    
    
    (427
    )
    
    
    8,547
    
    
    
    17,522
    
    
    
    26,496
  Recoverability of Reinsurance Receivables
   Investments
     Goodwill and Intangible Assets
  25




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UNITED AMERICA INDEMNITY, LTD.
    Taxation
     Our Business Segments
  26




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UNITED AMERICA INDEMNITY, LTD.
    Quarter Ended June 30,
    
    
    Six Months Ended June 30,(Dollars in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Insurance Operations premiums written:Gross premiums written
    
    $
    143,452
    
    
    $
    167,295
    
    
    $
    289,054
    
    
    $
    326,853Ceded premiums written
    
    
    14,210
    
    
    
    24,607
    
    
    
    29,254
    
    
    
    48,828Net premiums written
    
    $
    129,242
    
    
    $
    142,688
    
    
    $
    259,800
    
    
    $
    278,025Reinsurance Operations premiums written:Gross premiums written
    
    $
    5,231
    
    
    $
    
    
    
    $
    12,165
    
    
    $
    Ceded premiums written
    
    
    3,959
    
    
    
    
    
    
    
    7,396
    
    
    
    Net premiums written
    
    $
    1,272
    
    
    $
    
    
    
    $
    4,769
    
    
    $
    Revenues: (1)Insurance Operations
    
    $
    136,196
    
    
    $
    133,751
    
    
    $
    273,910
    
    
    $
    269,181Reinsurance Operations
    
    
    389
    
    
    
    
    
    
    
    1,112
    
    
    
    Corporate
    
    
    20,859
    
    
    
    17,932
    
    
    
    39,952
    
    
    
    31,654Total revenues
    
    $
    157,444
    
    
    $
    151,683
    
    
    $
    314,974
    
    
    $
    300,835Expenses: (1)Insurance Operations
    
    $
    118,580
    
    
    $
    123,104
    (2)
    
    $
    242,039
    
    
    $
    246,740
    (3)Reinsurance Operations
    
    
    1,477
    (4)
    
    
    
    
    
    
    3,072
    (5)
    
    
    Corporate
    
    
    5,792
    
    
    
    6,439
    
    
    
    12,085
    
    
    
    13,417Subtotal
    
    
    125,849
    
    
    
    129,543
    
    
    
    257,196
    
    
    
    260,157Intercompany eliminations
    
    
    (151
    )
    
    
    (1,078
    )
    
    
    (306
    )
    
    
    (762
    )Net expenses
    
    $
    125,698
    
    
    $
    128,465
    
    
    $
    256,890
    
    
    $
    259,395Income (loss) before income taxes: (1)Insurance Operations
    
    $
    17,616
    
    
    $
    10,647
    
    
    $
    31,871
    
    
    $
    22,441Reinsurance Operations
    
    
    (1,088
    )
    
    
    
    
    
    
    (1,960
    )
    
    
    Corporate
    
    
    15,067
    
    
    
    11,493
    
    
    
    27,867
    
    
    
    18,237Subtotal
    
    
    31,595
    
    
    
    22,140
    
    
    
    57,778
    
    
    
    40,678Intercompany eliminations
    
    
    151
    
    
    
    1,078
    
    
    
    306
    
    
    
    762Total income before income taxes
    
    $
    31,746
    
    
    $
    23,218
    
    
    $
    58,084
    
    
    $
    41,440Insurance
combined ratio analysis: (6)Net losses and loss adjustment expense ratio
    
    
    55.1
    
    
    
    60.2
    
    
    
    57.1
    
    
    
    59.2Other underwriting expense ratio
    
    
    32.7
    
    
    
    30.8
    
    
    
    31.8
    
    
    
    32.0Combined ratio
    
    
    87.8
    
    
    
    91.0
    
    
    
    88.9
    
    
    
    91.2
 
 (1)
    
    Excludes the results of our Agency Operations, which have been classified as discontinued
operations for 2007 and 2006.(2)
    
    Includes $1,262 from the predecessor of Wind River
Reinsurance. $686 of this amount is excise tax.(3)
    
    Includes $2,655 from the predecessor of Wind River
Reinsurance. $1,330 of this amount is excise tax.(4)
    
    Includes excise tax of $656.(5)
    
    Includes excise tax of $1,399.(6)
    
    Our insurance combined ratios are non-GAAP financial measures that are generally viewed
as indicators of underwriting profitability. The net losses and loss adjustment expense
ratio is the ratio of net losses and loss adjustment expenses to net premiums earned. The
underwriting expense ratio is the ratio of acquisition costs and other underwriting
expenses to net premiums earned. The combined ratio is the ratio of the sum of net losses,
loss adjustment expenses, acquisition costs, and other underwriting expenses to net
premiums earned. 27




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UNITED AMERICA INDEMNITY, LTD.
 Results of Operations
 Quarter Ended June 30, 2007 Compared with the Quarter Ended June 30, 2006
 Premiums
   Quarter Ended
    
    
    Quarter Ended
    
    
    Increase /(Dollars in thousands)
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    (Decrease)Insurance Operations:Penn-America
    
    $
    79,369
    
    
    $
    99,639
    
    
    $
    (20,270
    )United National:Program
    
    
    52,252
    
    
    
    59,622
    
    
    
    (7,370
    )Specialty Brokerage
    
    
    11,831
    
    
    
    8,042
    
    
    
    3,789Total United National
    
    
    64,083
    
    
    
    67,664
    
    
    
    (3,581
    )Total Insurance Operations
    
    
    143,452
    
    
    
    167,303
    
    
    
    (23,851
    )Reinsurance Operations:Wind River Reinsurance
    
    
    5,231
    
    
    
    (8
    )
    
    
    5,239Total
    
    $
    148,683
    
    
    $
    167,295
    
    
    $
    (18,612
    )
 
    
    Insurance Operations:
 
    
    Penn-America gross premiums written decreased $20.3 million due to: (a) increased
competition from both surplus lines and standard carriers; and (b) cancellation of
business that did not meet our profitability standards. Premium rates on renewal
business on average were flat during the quarter ended June 30, 2007.
    
    United National Program gross premiums written decreased $7.4 million primarily due
to a: (a) decrease in premiums in a program of 1st Party business in our
property product line; and (b) decrease in premiums in our umbrella product line as a
result of competition in the marketplace. Premium rates on renewal business on average
were down approximately 5% during the quarter ended June 30, 2007.
    
    United National Specialty Brokerage gross premiums written increased $3.8 million
primarily due to continued growth in our property and allied health product lines.
Premium rates on renewal business on average were down approximately 10% during the
quarter ended June 30, 2007.
 
    
    Reinsurance Operations:
 
    
    Wind River Reinsurance gross premiums written increased $5.2 million. Wind River
Reinsurance began offering third party reinsurance in the third quarter of 2006 and
entered into its initial third party reinsurance contracts during the first quarter of
2007. Wind River Reinsurance did not offer any third party reinsurance products during
the quarter ended June 30, 2006.
  28




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UNITED AMERICA INDEMNITY, LTD.
  Quarter Ended
    
    
    Quarter Ended
    
    
    Increase /(Dollars in thousands)
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    (Decrease)Insurance Operations:Penn-America
    
    $
    74,895
    
    
    $
    90,507
    
    
    $
    (15,612
    )United National:Program
    
    
    45,036
    
    
    
    46,275
    
    
    
    (1,239
    )Specialty Brokerage
    
    
    9,311
    
    
    
    5,913
    
    
    
    3,398Total United National
    
    
    54,347
    
    
    
    52,188
    
    
    
    2,159Total Insurance Operations
    
    
    129,242
    
    
    
    142,695
    
    
    
    (13,453
    )Reinsurance Operations:Wind River Reinsurance
    
    
    1,272
    
    
    
    (7
    )
    
    
    1,279Total
    
    $
    130,514
    
    
    $
    142,688
    
    
    $
    (12,174
    )
 
    
    Insurance Operations:
 
    
    Penn-America net premiums written decreased $15.6 million primarily due to a
decrease in casualty and general liability premiums caused by increased competition
from both surplus lines and standard carriers and the recent cancellation of business
that did not meet our profitability standards.
    
    United National Program net premiums written decreased $1.2 million primarily as a
result of decreases in product writings in our umbrella line.
    
    United National Specialty Brokerage net premiums written increased $3.4 million due
to continued growth in our property and allied health product writings.
 
    
    Reinsurance Operations:
 
    
    Wind River Reinsurance net premiums written increased $1.3 million. Wind River
Reinsurance began offering third party reinsurance in the third quarter of 2006 and
entered into its initial third party reinsurance contracts during the first quarter of
2007. Wind River Reinsurance did not offer any third party reinsurance products during
the six months ended June 30, 2006.
  
    
    The increase in net premiums earned from our Insurance Operations segment is due to
higher net premiums written in the second half of 2006, which are now being earned in 2007,
compared to net premiums written in the second half of 2005, which were earned in 2006.
    
    Net premiums earned from our Reinsurance Operations segment were $0.4 million for the
quarter ended June 30, 2007. Our Reinsurance Operations segment began offering third party
reinsurance in the third quarter of 2006 and entered into its initial third party
reinsurance contracts during the first quarter of 2007; therefore there were no net
premiums earned for our Reinsurance Operations segment in 2006.
 Net Investment Income
  
    
    Gross investment income, excluding realized gains and losses, was $20.6 million for the
quarter ended June 30, 2007, compared with $19.3 million for the quarter ended June 30,
2006, an increase of $1.3 million or 7.0%. The increase was primarily due to growth in the
average market value of our cash and invested
 29




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UNITED AMERICA INDEMNITY, LTD.
 assets and an increase in the investment yields on both our bond and short term investment
portfolios, offset by a decrease in limited partnership distributions. Cash and invested
assets grew to $1,743.3 million as of June 30, 2007, from $1,656.7 million as of December
31, 2006, an increase of $86.6 million or 5.2%. Our limited partnership investments
generated gross investment income of $0.1 million and $2.0 million for the quarters ended
June 30, 2007 and 2006, respectively. Excluding limited partnership distributions, gross
investment income for the quarter ended June 30, 2007 increased 18.8% compared to the
quarter ended June 30, 2006.
    Investment expenses were $1.3 million and $1.4 million for the quarters ended June 30,
2007 and 2006, respectively.
  Net Realized Investment Gains (Losses)
  Net Losses and Loss Adjustment Expenses
   Acquisition Costs and Other Underwriting Expenses
  30




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UNITED AMERICA INDEMNITY, LTD.
 
    
    The increase in our Insurance Operations segment is due to a $2.0 million increase in
acquisition costs, which is primarily due to an increase in commissions, and a $0.8 million
increase in other underwriting expenses, which is primarily due to stock options and an
increase in consulting expenses.
    
    The increase in our Reinsurance Operations segment is primarily due to a $0.7 million
increase in other underwriting expenses. Our Reinsurance Operations segment began offering
third party reinsurance in the third quarter of 2006 and entered into its initial third
party reinsurance contracts during the first quarter of 2007.
 Corporate and Other Operating Expenses
  Expense and Combined Ratios
   Interest Expense
  Income Tax Expense (Benefit)
   Equity in Net Income of Partnership
  31




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UNITED AMERICA INDEMNITY, LTD.
 Discontinued Operations
  Net Income and Operating Income
   Quarter Ended June 30,(Dollars in thousands)
    
    2007
    
    
    2006Operating income
    
    $
    24,954
    
    
    $
    20,327Adjustments:Net realized investment gains (losses), net of tax
    
    
    994
    
    
    
    (73
    )Net income
    
    $
    25,948
    
    
    $
    20,254
 Six Months Ended June 30, 2007 Compared with the Six Months Ended June 30, 2006
 Premiums
   Six Months Ended
    
    
    Six Months Ended
    
    
    Increase /(Dollars in thousands)
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    (Decrease)Insurance Operations:Penn-America
    
    $
    159,857
    
    
    $
    194,694
    
    
    $
    (34,837
    )United National:Program
    
    
    105,939
    
    
    
    118,013
    
    
    
    (12,074
    )Specialty Brokerage
    
    
    23,258
    
    
    
    14,099
    
    
    
    9,159Total United National
    
    
    129,197
    
    
    
    132,112
    
    
    
    (2,915
    )Total Insurance Operations
    
    
    289,054
    
    
    
    326,806
    
    
    
    (37,752
    )Reinsurance Operations:Wind River Reinsurance
    
    
    12,165
    
    
    
    47
    
    
    
    12,118Total
    
    $
    301,219
    
    
    $
    326,853
    
    
    $
    (25,634
    )
 32




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
    
    Insurance Operations:
 
    
    Penn-America gross premiums written decreased $34.8 million due to a: (a) increased
competition from both surplus lines and standard carriers; and (b) cancellation of
business that did not meet our profitability standards. Premium rates on renewal
business on average were flat during the six months ended June 30, 2007.
    
    United National Program gross premiums written decreased $12.1 million primarily due
to: (a) decrease in premiums in a program of 1st Party business in our
property product line; and (b) decrease in premiums in our umbrella product line as a
result of competition in the marketplace. Premium rates on renewal business on average
were down approximately 4% during the six months ended June 30, 2007.
    
    United National Specialty Brokerage gross premiums written increased $9.2 million
primarily due to continued growth in our property and allied health product lines.
Premium rates on renewal business on average were down approximately 5% during the six
months ended June 30, 2007.
 
    
    Reinsurance Operations:
 
    
    Wind River Reinsurance gross premiums written increased $12.1 million. Wind River
Reinsurance began offering third party reinsurance in the third quarter of 2006 and
entered into its initial third party reinsurance contracts during the first quarter of
2007. Wind River Reinsurance did not offer any third party reinsurance products during
the six months ended June 30, 2006.
   Six Months Ended
    
    
    Six Months Ended
    
    
    Increase /(Dollars in thousands)
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    (Decrease)Insurance Operations:Penn-America
    
    $
    150,575
    
    
    $
    176,891
    
    
    $
    (26,316
    )United National:Program
    
    
    89,717
    
    
    
    90,657
    
    
    
    (940
    )Specialty Brokerage
    
    
    19,508
    
    
    
    10,437
    
    
    
    9,071Total United National
    
    
    109,225
    
    
    
    101,094
    
    
    
    8,131Total Insurance Operations
    
    
    259,800
    
    
    
    277,985
    
    
    
    (18,185
    )Reinsurance Operations:Wind River Reinsurance
    
    
    4,769
    
    
    
    40
    
    
    
    4,729Total
    
    $
    264,569
    
    
    $
    278,025
    
    
    $
    (13,456
    )
 
    
    Insurance Operations:
 
    
    Penn-America net premiums written decreased $26.3 million primarily due to a
decrease in property, casualty, and general liability premiums caused by increased
competition from both surplus lines and standard carriers and the recent cancellation
of business that did not meet our profitability standards.
    
    United National Program net premiums written decreased $0.9 million primarily as a
result of decreases in product writings in our umbrella line partially offset by an
increase in habitational general liability premium.
    
    United National Specialty Brokerage net premiums written increased $9.1 million due
to continued growth in our property and allied health product writings.
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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
    
    Reinsurance Operations:
 
    
    Wind River Reinsurance net premiums written increased $4.7 million. Wind River
Reinsurance began offering third party reinsurance in the third quarter of 2006 and
entered into its initial third party reinsurance contracts during the first quarter of
2007. Wind River Reinsurance did not offer any third party reinsurance products during
the six months ended June 30, 2006.
  
    
    The increase in net premiums earned from our Insurance Operations segment is due to
higher net premiums written in the second half of 2006, which are now being earned in 2007,
compared to net premiums written in the second half of 2005, which were earned in 2006.
    
    Net premiums earned from our Reinsurance Operations segment were $1.1 million for the
six months ended June 30, 2007. Our Reinsurance Operations segment began offering third
party reinsurance in the third quarter of 2006 and entered into its initial third party
reinsurance contracts during the first quarter of 2007; therefore there were no net
premiums earned for our Reinsurance Operations segment for the prior year.
 Net Investment Income
  
    
    Gross investment income, excluding realized gains and losses, was $41.0 million for the
six months ended June 30, 2007, compared with $34.5 million for the six months ended June
30, 2006, an increase of $6.5 million or 18.9%. The increase was primarily due to growth
in the average market value of our cash and invested assets and an increase in the
investment yields on both our bond and short term investment portfolios, offset by a
decrease in limited partnership distributions. Cash and invested assets grew to $1,743.3
million as of June 30, 2007, from $1,656.7 million as of December 31, 2006, an increase of
$86.6 million or 5.2%. Our limited partnership investments generated gross investment
income of $0.4 million and $2.4 million for the six months ended June 30, 2007 and 2006,
respectively. Excluding limited partnership distributions, gross investment income for the
six months ended June 30, 2007 increased 26.4% compared to the six months ended June 30,
2006.
    
    Investment expenses were $2.8 million and $2.9 million for the six months ended June 30,
2007 and 2006, respectively.
  Net Realized Investment Gains (Losses)
  34




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Net Losses and Loss Adjustment Expenses
   Acquisition Costs and Other Underwriting Expenses
  
    
    The increase in our Insurance Operations segment is due to a $0.1 million increase in
acquisition costs, which is primarily due to an increase in commissions, and a $0.1 million
increase in other underwriting expenses, which is primarily due to an increase in
consulting expenses. Other underwriting expenses for the six months ended June 30, 2006
included $0.3 million of severance costs resulting from our restructuring in 2006.
    
    The increase in our Reinsurance Operations segment is primarily due to a $1.1 million
increase in other underwriting expenses. Our Reinsurance Operations segment began offering
third party reinsurance in the third quarter of 2006 and entered into its initial third
party reinsurance contracts during the first quarter of 2007; therefore there were no other
underwriting expenses for our Reinsurance Operations segment for the prior year.
 Corporate and Other Operating Expenses
  Expense and Combined Ratios
  35




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Interest Expense
  Income Tax Expense (Benefit)
   Equity in Net Income of Partnership
  Discontinued Operations
  Net Income and Operating Income
  36




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Six Months Ended June 30,(Dollars in thousands)
    
    2007
    
    
    2006Operating income
    
    $
    47,401
    
    
    $
    38,046Adjustments:Net realized investment gains (losses), net of tax
    
    
    1,140
    
    
    
    (14
    )Net income
    
    $
    48,541
    
    
    $
    38,032
 Liquidity and Capital Resources
 Sources and Uses of Funds
     Surplus Levels
  37




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Cash Flows
   
    
    the fact that we collect premiums in advance of losses paid;
    
    the timing of our settlements with our reinsurers; and
    
    the timing of our loss payments.
  
    
    an increase in net premiums collected of $1.4 million and a decrease in net losses paid
of $10.4 million, offset by an increase in acquisition costs and other underwriting
expenses of $10.3 million;
    
    an increase in net investment income collected of $5.6 million;
    
    an increase in net federal income taxes paid of $4.0 million; and
    
    a decrease in agency commissions and fee revenues of $20.2 million offset by a decrease
in agency commissions and operating expenses of $18.6 million.
  Liquidity
  Capital Resources
   38




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
   Issuer
    
    Amount
    
    Maturity
    
    Interest Rate
    
    Call ProvisionsAIS through its
wholly owned
subsidiary UNG
Trust I
    
    $10.0 million
issued September
30, 2003
    
    September 30, 2033
    
    Payable quarterly
at the three month
London Interbank
Offered Rate
(LIBOR) plus 4.05%
    
    At par after September 30,
2008AIS through its
wholly owned
subsidiary UNG
Trust II
    
    $20.0 million
issued October 29,
2003
    
    October 29, 2033
    
    Payable quarterly
at the three month
LIBOR plus 3.85%
    
    At par after October 29, 2008PAGI through its
wholly owned
subsidiary Penn
Trust I
    
    $15.0 million
issued December 4,
2002
    
    December 4, 2032
    
    Payable quarterly
at the three month
LIBOR plus 4.0%
(1)
    
    At par after December 4, 2007PAGI through its
wholly owned
subsidiary Penn
Trust II
    
    $15.0 million
issued May 15, 2003
    
    May 15, 2033
    
    Payable quarterly
at the three month
LIBOR plus 4.1%
    
    At par after May 15, 2008
 
 (1)
    
    To protect against increases in interest rates, we have a fixed rate interest rate swap on
these securities that locks the interest at an annual rate of 7.4%. The swap agreement
expires on December 4, 2007.     Off Balance Sheet Arrangements
  Cautionary Note Regarding Forward-Looking Statements
  39




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
   
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  40




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 PART II-OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  We Are Dependent on Our Senior Executives and the Loss of Any of These Executives or Our Inability
to Attract and Retain Other Key Personnel Could Adversely Affect Our Business.
   41




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
   Since We Depend On Professional General Agencies For a Significant Portion of Our Revenue, the Loss
of Any One of Them Could Adversely Affect Us.
   
 Item 4. Submission of Matters to a Vote of Security Holders
  (1)
 Nominee
    
    Votes For
    
    Votes Against
    
    Votes AbstainedSaul A. Fox
    
    
    139,602,312
    
    
    
    8,485,252
    
    
    
    209,647Troy W. Thacker
    
    
    139,583,252
    
    
    
    8,504,312
    
    
    
    209,647John J. Hendrickson
    
    
    140,487,353
    
    
    
    7,240,211
    
    
    
    209,647Edward J. Noonan
    
    
    139,962,938
    
    
    
    7,859,029
    
    
    
    475,244Stephen A. Cozen
    
    
    139,521,011
    
    
    
    8,566,553
    
    
    
    209,647Richard L. Duszak
    
    
    147,428,036
    
    
    
    657,950
    
    
    
    209,647Larry A. Frakes
    
    
    147,234,607
    
    
    
    851,379
    
    
    
    209,647Justin R. Reyna
    
    
    128,497,726
    
    
    
    0
    
    
    
    0
  Votes For
    
    Votes Against
    
    Votes Abstained
    
    Broker Non Votes144,405,919
    
    943,369
    
    1,300
    
    2,946,627
  Votes For
    
    Votes Against
    
    Votes Abstained
    
    Broker Non Votes144,373,355
    
    953,894
    
    23,339
    
    2,946,627
  Votes For
    
    Votes Against
    
    Votes Abstained
    
    Broker Non Votes148,287,579
    
    5,337
    
    4,298
    
    1
 42




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Nominee
    
    Votes For
    
    Votes WithheldAlan Bossin
    
    
    147,432,547
    
    
    
    864,667Larry A. Frakes
    
    
    147,432,547
    
    
    
    864,667David R. Whiting
    
    
    147,432,547
    
    
    
    864,667Janita Burke Waldron
(Alternate Director)
    
    
    147,432,447
    
    
    
    864,767Richard H. Black
(Alternate Director)
    
    
    147,432,547
    
    
    
    864,667
  Votes For
    
    Votes Against
    
    Votes Abstained
    
    Broker Non Votes147,861,309
    
    26,741
    
    409,164
    
    1
  Votes For
    
    Votes Against
    
    Votes Abstained110,015,996
    
    0
    
    0
  Nominee
    
    Votes For
    
    Votes WithheldAlan Bossin
    
    
    147,432,547
    
    
    
    864,667David R. Whiting
    
    
    147,432,547
    
    
    
    864,667Janita Burke Waldron
(Alternate Director)
    
    
    147,432,447
    
    
    
    864,767Richard H. Black
(Alternate Director)
    
    
    147,489,080
    
    
    
    808,134
  Votes For
    
    Votes Against
    
    Votes Abstained
    
    Broker Non Votes147,861,309
    
    26,741
    
    409,164
    
    1
  Votes For
    
    Votes Against
    
    Votes Abstained
    
    Broker Non Votes148,036,009
    
    238,812
    
    22,390
    
    4
 
 (1)
    
    As previously announced on June 7, 2007, Messrs. Thacker and Noonan resigned from our Board
of Directors effective June 1, 2007. Additionally, Mr. Hendrickson announced his resignation
to be effective on or before September 30, 2007. 
 Item 6. Exhibits
 10.1*
    
    Amendment No. 4 to the United America Indemnity, Ltd. Share Incentive Plan
(incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed
on May 31, 2007).10.2*
    
    Amendment No. 2 to the Amended and Restated United America Indemnity, Ltd. Annual
Incentive Awards Program (incorporated herein by reference to Exhibit 10.2 of our Current
Report on Form 8-K filed on May 31, 2007).31.1+
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14 (a) 15d-14 (a) of the
Securities Exchange of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
 43




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 31.2+
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14 (a) 15d-14 (a) of the
Securities Exchange of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1+
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2+
    
    Certification of 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.*
    
    Management contract or compensatory plan or arrangement. 44




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UNITED AMERICA INDEMNITY, LTD.
 
 SIGNATURE
  UNITED AMERICA INDEMNITY, LTD.
RegistrantAugust 9, 2007
    
    By:
    
    /s/ Kevin L. TateDate: August 9, 2007
    
    Kevin L. TateChief Financial Officer
(Authorized Signatory and
Principal Financial and Accounting
Officer)
 45