##### 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 March 31, 2006
 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
of incorporation or organization)
    
    98-0417107
(I.R.S. Employer Identification No.)
 WALKER HOUSE, 87 MARY STREET
P.O. BOX 908GT
GEORGE TOWN, GRAND CAYMAN
CAYMAN ISLANDS
 (345) 949-0100
 þ o
  Large accelerated filer o;
    
    Accelerated filer þ;
    
    non-accelerated filer o
 o þ




---



##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Consolidated Balance Sheets           As of March 31, 2006 (Unaudited) and December 31, 2005 (Audited)
    
    
    1Consolidated Statements of Operations           Quarters Ended March 31, 2006 and 2005 (Unaudited)
    
    
    2Consolidated Statements of Comprehensive Income           Quarters Ended March 31, 2006 and 2005 (Unaudited)
    
    
    3Consolidated Statements of Changes in Shareholders Equity           As of March 31, 2006 (Unaudited) and December 31, 2005 (Audited)
    
    
    4Consolidated Statements of Cash Flows           Quarters Ended March 31, 2006 and 2005 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    32Item 4.
    
    Controls and Procedures
    
    
    34PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    35Item 1A.
    
    Risk Factors
    
    
    35Item 5.
    
    Other Information
    
    
    35Item 6.
    
    Exhibits
    
    
    35Signatures
    
    
    
    
    37Amendment to Executive Employment AgreementCertification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   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. (corporate name
changed from U.N. Holdings II, Inc. on September 15, 2005), U.N. Holdings Inc., Wind River
Investment Corporation, American Insurance Service, Inc., Emerald Insurance Company,
Penn-America Group, Inc., our U.S. Insurance Operations and our Agency Operations;3)
    
    UAI Group refers to our U.S. Insurance Operations;4)
    
    our U.S. Insurance Operations refers to the insurance and related operations conducted by
American Insurance Service, Inc.s 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)
    
    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;6)
    
    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;7)
    
    Penn-America refers to Penn-America Group, Inc. and its subsidiaries;8)
    
    the Insurance Operations refers to the U.S. Insurance Operations and the Non-U.S. Insurance
Operations;




---



##### Table of Contents



9)
    
    the Agency Operations refers to Penn Independent Corporation, PIC Holdings, Inc., Penn
Independent Financial Services, Inc., Penn Oceanic Insurance Co., Ltd. (Barbados), Residential Underwriting Agency, Inc., Stratus
Insurance Services, Inc. (sold effective December 31, 2005), Stratus Web Builder, Inc. (sold
effective December 31, 2005), Apex Insurance Agency, Inc., Apex Insurance Services of Illinois,
Inc., Summit Risk Services, Inc., Delaware Valley Underwriting Agency, Inc. (DVUA), DVUA
Pittsburgh, Inc., DVUA Massachusetts, Inc., DVUA of New York, Inc., DVUA of New Jersey, Inc.,
DVUA West Virginia, Inc., DVUA North Carolina, Inc., DVUA of Ohio, Inc., DVUA South Carolina,
Inc., and DVUA Virginia, Inc.;10)
    
    Penn Independent refers to Penn Independent Corporation and its subsidiaries;11)
    
    our Non-U.S. Insurance Operations refers to the insurance and reinsurance and related
operations of Wind River Barbados and Wind River Bermuda;12)
    
    our Non-U.S. Subsidiaries refers to our Non-U.S. Insurance Operations, U.A.I. (Gibraltar)
Limited, U.A.I. (Gibraltar) II Limited, the Luxembourg Companies, U.A.I. (Ireland) Limited,
and Wind River Services, Ltd.;13)
    
    Wind River Barbados refers to Wind River Insurance Company (Barbados) Ltd.;14)
    
    Wind River Bermuda refers to Wind River Insurance Company, Ltd.;15)
    
    the Luxembourg Companies refers to U.A.I. (Luxembourg) I S.ar.l., U.A.I. (Luxembourg) II
S.ar.l., U.A.I. (Luxembourg) III S.ar.l., U.A.I. (Luxembourg) IV S.ar.l., U.A.I. (Luxembourg)
Investment S.ar.l., and Wind River (Luxembourg) S.ar.l.;16)
    
    AIS refers to America Insurance Service, Inc.;17)
    
    United National refers to the United National Insurance Companies, and Emerald
Insurance Company;18)
    
    Fox Paine & Company refers to Fox Paine & Company, LLC and affiliated investment funds;19)
    
    GAAP refers to accounting principles generally accepted in the United States of America;
and20)
    
    $ or dollars refers to U.S. dollars.




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Balance Sheets
  (Unaudited)March 31, 2006
    
    
    December 31, 2005ASSETSBonds:Available for sale securities, at fair value
(amortized cost: $1,222,724 and $1,092,137)
    
    $
    1,202,215
    
    
    $
    1,085,624Preferred shares:Available for sale securities, at fair value
(cost: $4,855 and $6,563)
    
    
    4,593
    
    
    
    6,400Common shares:Available for sale securities, at fair value
(cost: $56,691 and $56,654)
    
    
    62,718
    
    
    
    59,602Other invested assets
(cost: $25,215 and $25,442)
    
    
    57,369
    
    
    
    52,427Total investments
    
    
    1,326,895
    
    
    
    1,204,053Cash and cash equivalents
    
    
    145,481
    
    
    
    220,122Accounts receivable
    
    
    20,339
    
    
    
    24,235Agents balances, net
    
    
    77,075
    
    
    
    78,669Reinsurance receivables, net
    
    
    1,212,449
    
    
    
    1,278,156Accrued investment income
    
    
    13,071
    
    
    
    12,260Federal income taxes receivable
    
    
    
    
    
    
    415Deferred federal income taxes, net
    
    
    21,153
    
    
    
    21,646Deferred acquisition costs, net
    
    
    58,087
    
    
    
    59,339Goodwill
    
    
    101,854
    
    
    
    101,854Intangible assets, net
    
    
    30,429
    
    
    
    30,852Prepaid reinsurance premiums
    
    
    40,350
    
    
    
    41,688Other assets
    
    
    20,979
    
    
    
    33,324Total assets
    
    $
    3,068,162
    
    
    $
    3,106,613LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Unpaid losses and loss adjustment expenses
    
    $
    1,862,292
    
    
    $
    1,914,224Unearned premiums
    
    
    271,121
    
    
    
    272,552Federal income taxes payable
    
    
    150
    
    
    
    Amounts held for the account of others
    
    
    19,476
    
    
    
    22,781Ceded balances payable
    
    
    19,830
    
    
    
    22,895Insurance premium payable
    
    
    23,113
    
    
    
    25,252Payable for securities
    
    
    15,684
    
    
    
    Contingent commissions
    
    
    6,861
    
    
    
    11,061Senior notes payable
    
    
    90,000
    
    
    
    90,000Junior subordinated debentures
    
    
    61,857
    
    
    
    61,857Notes and loans payable
    
    
    6,003
    
    
    
    6,455Other liabilities
    
    
    36,925
    
    
    
    39,547Total liabilities
    
    
    2,413,312
    
    
    
    2,466,624Commitments and contingencies (Note 8)
    
    
    
    
    
    
    Minority interest
    
    
    66
    
    
    
    62Shareholders equity:Common shares, $0.0001 par value, 900,000,000 common
shares authorized, 24,154,430 and 23,868,402 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
    
    
    507,806
    
    
    
    504,541Accumulated other comprehensive income
    
    
    3,285
    
    
    
    9,471Retained earnings
    
    
    143,689
    
    
    
    125,911Total shareholders equity
    
    
    654,784
    
    
    
    639,927Total liabilities and shareholders equity
    
    $
    3,068,162
    
    
    $
    3,106,613
  1




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Operations
  (Unaudited)
    
    
    (Unaudited)Quarter Ended
    
    
    Quarter EndedMarch 31, 2006
    
    
    March 31, 2005Revenues:Gross premiums written
    
    $
    159,558
    
    
    $
    135,460Net premiums written
    
    $
    135,337
    
    
    $
    109,521Net premiums earned
    
    $
    135,430
    
    
    $
    102,112Agency commission and fee revenues
    
    
    9,547
    
    
    
    6,252Net investment income
    
    
    13,679
    
    
    
    11,868Net realized investment gains (losses)
    
    
    43
    
    
    
    (616
    )Total revenues
    
    
    158,699
    
    
    
    119,616Losses and Expenses:Net losses and loss adjustment expenses
    
    
    78,964
    
    
    
    63,597Acquisition costs and other underwriting expenses
    
    
    45,564
    
    
    
    29,539Agency commission and operating expenses
    
    
    9,234
    
    
    
    6,919Corporate and other operating expenses
    
    
    3,682
    
    
    
    3,542Interest expense
    
    
    2,720
    
    
    
    1,916Income before income taxes
    
    
    18,535
    
    
    
    14,103Income tax expense
    
    
    1,285
    
    
    
    81Net income before minority interest and
equity in net income of partnerships
    
    
    17,250
    
    
    
    14,022Minority interest, net of taxes
    
    
    (4
    )
    
    
    32Equity in net income of partnerships
    
    
    532
    
    
    
    111Net income before extraordinary gain
    
    
    17,778
    
    
    
    14,165Extraordinary gain
    
    
    
    
    
    
    1,426Net income
    
    $
    17,778
    
    
    $
    15,591Per share data:Net income before extraordinary gain:Basic
    
    $
    0.49
    
    
    $
    0.42Diluted
    
    $
    0.48
    
    
    $
    0.41Extraordinary gain:Basic
    
    $
    
    
    
    $
    0.04Diluted
    
    $
    
    
    
    $
    0.04Net income:Basic
    
    $
    0.49
    
    
    $
    0.46Diluted
    
    $
    0.48
    
    
    $
    0.45Weighted-average number of shares outstanding:Basic
    
    
    36,565,476
    
    
    
    34,258,223Diluted
    
    
    36,949,146
    
    
    
    34,982,205
  2




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Comprehensive Income
  (Unaudited)
    
    
    (Unaudited)Quarter Ended
    
    
    Quarter EndedMarch 31, 2006
    
    
    March 31, 2005Net income
    
    $
    17,778
    
    
    $
    15,591Other comprehensive loss before tax:Unrealized losses on securities:Unrealized holding losses arising during period
    
    
    (6,379
    )
    
    
    (11,595
    )Less: Reclassification adjustment for losses included
in net income
    
    
    137
    
    
    
    (532
    )Other comprehensive loss, before tax
    
    
    (6,516
    )
    
    
    (11,063
    )Income tax benefit related to items of other comprehensive loss
    
    
    (330
    )
    
    
    (3,491
    )Other comprehensive loss, net of tax
    
    
    (6,186
    )
    
    
    (7,572
    )Comprehensive income, net of tax
    
    $
    11,592
    
    
    $
    8,019
  3




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Changes in Shareholders Equity
  (Unaudited)Quarter Ended
    
    
    Year EndedMarch 31, 2006
    
    
    December 31, 2005Number of Class A common shares:Number at beginning of period
    
    
    23,868,402
    
    
    
    15,585,653Class A common shares issued in merger
    
    
    
    
    
    
    7,930,536Class A common shares issued under share
incentive plans
    
    
    278,840
    
    
    
    322,479Class A common shares issued to directors
    
    
    7,184
    
    
    
    29,734Number at end of period
    
    
    24,154,426
    
    
    
    23,868,402Number 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
    
    
    $
    2Class A common shares issued
    
    
    
    
    
    
    1Balance 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
    
    $
    504,541
    
    
    $
    356,725Contributed capital from common shares
    
    
    
    
    
    
    142,925Share compensation plans
    
    
    3,265
    
    
    
    5,865Other
    
    
    
    
    
    
    (974
    )Balance at end of period
    
    $
    507,806
    
    
    $
    504,541Accumulated other comprehensive income net
of deferred income tax:Balance at beginning of period
    
    $
    9,471
    
    
    $
    15,507Other comprehensive loss
    
    
    (6,186
    )
    
    
    (6,036
    )Balance at end of period
    
    $
    3,285
    
    
    $
    9,471Retained earnings:Balance at beginning of period
    
    $
    125,911
    
    
    $
    60,318Net income
    
    
    17,778
    
    
    
    65,593Balance at end of period
    
    $
    143,689
    
    
    $
    125,911Total shareholders equity
    
    $
    654,784
    
    
    $
    639,927
  4




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Cash Flows
  (Unaudited)
    
    
    (Unaudited)Quarter Ended
    
    
    Quarter EndedMarch 31, 2006
    
    
    March 31, 2005Cash flows from operating activities:Net income
    
    $
    17,778
    
    
    $
    15,591Adjustments to reconcile net income to net cash provided by
operating activities:Amortization of trust preferred securities issuance costs
    
    
    65
    
    
    
    Amortization of debt issuance costs
    
    
    
    
    
    
    45Amortization and depreciation
    
    
    509
    
    
    
    310Restricted stock expense
    
    
    2,769
    
    
    
    980Extraordinary gain
    
    
    
    
    
    
    (1,426
    )Deferred federal income taxes
    
    
    505
    
    
    
    (703
    )Amortization of bond premium and discount, net
    
    
    1,495
    
    
    
    661Net realized investment (gains) losses
    
    
    (43
    )
    
    
    616Equity in net earnings of minority interest and partnerships
    
    
    (528
    )
    
    
    (143
    )Changes in:Account receivables
    
    
    3,896
    
    
    
    16,580Reinsurance receivables
    
    
    65,707
    
    
    
    45,221Unpaid losses and loss adjustment expenses
    
    
    (51,932
    )
    
    
    (26,503
    )Unearned premiums
    
    
    (1,431
    )
    
    
    4,527Ceded balances payable
    
    
    (3,000
    )
    
    
    (5,549
    )Insurance premiums payable
    
    
    (473
    )
    
    
    (19,598
    )Other assets and liabilities, net
    
    
    9,722
    
    
    
    (4,367
    )Amounts held for the account of others
    
    
    (3,305
    )
    
    
    5,709Contingent commissions
    
    
    (4,770
    )
    
    
    (4,303
    )Prepaid reinsurance premiums
    
    
    1,338
    
    
    
    2,882Deferred acquisition costs, net
    
    
    496
    
    
    
    (8,827
    )Other  net
    
    
    1,198
    
    
    
    (51
    )Net cash provided by operating activities
    
    
    39,996
    
    
    
    21,652Cash flows from investing activities:Proceeds from sale of bonds
    
    
    35,414
    
    
    
    87,592Proceeds from sale of stocks
    
    
    12,339
    
    
    
    6,330Proceeds from maturity of bonds
    
    
    5,020
    
    
    
    7,319Proceeds from sale of other invested assets
    
    
    861
    
    
    
    4,875Purchase of bonds
    
    
    (157,339
    )
    
    
    (185,436
    )Purchase of stocks
    
    
    (10,673
    )
    
    
    (5,941
    )Purchase of other invested assets
    
    
    (6
    )
    
    
    (13
    )Acquisition of business, net of cash acquired
    
    
    
    
    
    
    (58,529
    )Net cash used for investing activities
    
    
    (114,384
    )
    
    
    (143,803
    )Cash flows from financing activities:Borrowing under credit facility
    
    
    907
    
    
    
    504Repayments of credit facility
    
    
    (1,222
    )
    
    
    (1,148
    )Tax benefits associated with SFAS 123R
    
    
    199
    
    
    
    Capital lease obligations
    
    
    
    
    
    
    (138
    )Increase in term debt
    
    
    
    
    
    
    29Principal payments of term debt
    
    
    (137
    )
    
    
    Net cash used for financing activities
    
    
    (253
    )
    
    
    (753
    )Net change in cash and cash equivalents
    
    
    (74,641
    )
    
    
    (122,904
    )Cash and cash equivalents at beginning of period
    
    
    220,122
    
    
    
    242,123Cash and cash equivalents at end of period
    
    $
    145,481
    
    
    $
    119,219
  5




---



##### Table of Contents



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




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
   Gross Unrealized LossesCost or
    
    
    
    
    
    
    
    
    
    
    Between(Dollars in
    
    Number of
    
    
    
    
    
    
    Amortized
    
    
    
    
    
    
    Six Months
    
    
    Seven Months
    
    
    Greater thanthousands)
    
    Securities
    
    
    Fair Value
    
    
    Cost
    
    
    Total
    
    
    or Less
    
    
    and One Year
    
    

One Year (1)Bonds
    
    
    718
    
    
    $
    990,679
    
    
    $
    1,015,384
    
    
    $
    24,705
    
    
    $
    17,243
    
    
    $
    4,526
    
    
    $
    2,936Preferred Stock
    
    
    2
    
    
    
    1,144
    
    
    
    1,292
    
    
    
    148
    
    
    
    148
    
    
    
    
    
    
    
    Common Stock
    
    
    24
    
    
    
    13,740
    
    
    
    14,112
    
    
    
    372
    
    
    
    372
    
    
    
    
    
    
    
    $
    25,225
    
    
    $
    17,763
    
    
    $
    4,526
    
    
    $
    2,936
 
   Gross Unrealized LossesCost or
    
    
    
    
    
    
    
    
    
    
    Between(Dollars in
    
    Number of
    
    
    
    
    
    
    Amortized
    
    
    
    
    
    
    Six Months
    
    
    Seven Months
    
    
    Greater thanthousands)
    
    Securities
    
    
    Fair Value
    
    
    Cost
    
    
    Total
    
    
    or Less
    
    
    and One Year
    
    
    One YearBonds
    
    
    815
    
    
    $
    725,048
    
    
    $
    737,510
    
    
    $
    12,462
    
    
    $
    5,554
    
    
    $
    6,877
    
    
    $
    31Preferred Stock
    
    
    5
    
    
    
    3,039
    
    
    
    3,423
    
    
    
    384
    
    
    
    36
    
    
    
    348
    
    
    
    Common Stock
    
    
    138
    
    
    
    29,673
    
    
    
    30,483
    
    
    
    810
    
    
    
    746
    
    
    
    64
    
    
    
    $
    13,656
    
    
    $
    6,336
    
    
    $
    7,289
    
    
    $
    31
    3. Reinsurance
   7




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
      4. Income Taxes
  Quarter Ended
    
    
    Quarter EndedMarch 31, 2006
    
    
    March 31, 2005% of Pre-
    
    
    
    
    
    
    % of Pre-Amount
    
    
    Tax Income
    
    
    Amount
    
    
    Tax IncomeExpected tax
provision at
weighted average
rate
    
    $
    2,659
    
    
    
    14.4
    %
    
    $
    631
    
    
    
    4.5
    %Adjustments:Tax exempt interest
    
    
    (1,252
    )
    
    
    (6.9
    )
    
    
    (1,253
    )
    
    
    (8.9
    )Dividend exclusion
    
    
    (125
    )
    
    
    (0.7
    )
    
    
    (81
    )
    
    
    (0.6
    )Other
    
    
    3
    
    
    
    
    
    
    
    784
    
    
    
    5.6Actual Taxes
    
    $
    1,285
    
    
    
    7.0
    %
    
    $
    81
    
    
    
    0.6
    %
 8




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 5. Liability for Unpaid Losses and Loss Adjustment Expenses
   (Dollars in thousands)
    
    March 31, 2006
    
    
    December 31, 2005
    
    
    Increase/ (Decrease)Katrina first landfall
    
    $
    650
    
    
    $
    1,250
    
    
    $
    (600
    )Katrina second landfall
    
    
    36,927
    
    
    
    30,600
    
    
    
    6,327Rita
    
    
    4,508
    
    
    
    3,400
    
    
    
    1,108Wilma
    
    
    8,897
    
    
    
    7,700
    
    
    
    1,197Total
    
    $
    50,981
    
    
    $
    42,950
    
    
    $
    8,031
  (Dollars in thousands)
    
    March 31, 2006
    
    
    December 31, 2005
    
    
    Increase/ (Decrease)Katrina first landfall
    
    $
    194
    
    
    $
    560
    
    
    $
    (366
    )Katrina second landfall
    
    
    5,837
    
    
    
    2,400
    
    
    
    3,437Rita
    
    
    4,108
    
    
    
    3,000
    
    
    
    1,108Wilma
    
    
    1,997
    
    
    
    2,000
    
    
    
    (3
    )Total
    
    $
    12,135
    
    
    $
    7,960
    
    
    $
    4,175
  6. Notes and Loans Payable
 Notes Payable
  9




---



##### 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
   10




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 9. Share-Based Compensation
        11




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 WeightedAverageNumber of
    
    Exercise PriceShares
    
    Per ShareOptions outstanding at December 31, 2005
    
    
    1,545,055
    
    
    $
    11.35Options issued
    
    
    
    
    
    
    Options forfeited
    
    
    (125,162
    )
    
    $
    14.99Options cancelled (reversed)
    
    
    (162
    )
    
    $
    6.02Options exercised
    
    
    (105,784
    )
    
    $
    9.78Options outstanding at March 31, 2006
    
    
    1,313,947
    
    
    $
    12.95Options exercisable at March 31, 2006
    
    
    549,031
    
    
    $
    11.75
  Number of options
    
    Weighted AverageOption Price
    
    exercisable
    
    Remaining Life$
    6.50
    
    
    
    56,074$
    8.49
    
    
    
    23,746$
    10.00
    
    
    
    305,500$
    14.62
    
    
    
    2,000$
    17.00
    
    
    
    109,894$
    17.81
    
    
    
    25,817$
    18.27
    
    
    
    25,000$
    18.40
    
    
    
    1,000Options exercisable at March 31, 2006
    
    
    549,031
    
    
    7.5 years
  Quarter
    
    Quarterended
    
    endedMarch 31,
    
    March 31,2006
    
    2005Dividend yield
    
    
    N/A
    
    
    
    0.0
    %Expected volatility
    
    
    N/A
    
    
    
    23.0
    %Risk-free interest rate
    
    
    N/A
    
    
    
    3.6
    %Expected option life
    
    
    N/A
    
    
    5 yearsForfeiture rate
    
    
    10.2%
    
    
    
    N/A
 12




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
  Ranges of
    
    Outstanding at
    
    Weighted Average Per
    
    Weighted AverageExercise Prices
    
    March 31, 2006
    
    Share Exercise Price
    
    Remaining Life$
    5.50
    
    
    
    
    
    
    $
    9.99
    
    
    
    79,820
    
    
    $
    7.09
    
    
    5.5 years$
    10.00
    
    
    
    
    
    
    $
    16.00
    
    
    
    704,875
    
    
    $
    10.07
    
    
    7.5 years$
    17.00
    
    
    
    
    
    
    $
    20.00
    
    
    
    529,252
    
    
    $
    17.68
    
    
    8.5 yearsTotal
    
    
    1,313,947
    WeightedAverageNumber of
    
    Exercise PriceShares
    
    Per ShareNon-vested restricted stock at December 31, 2005
    
    
    83,571
    
    
    $
    17.96Stock issued
    
    
    180,885
    
    
    $
    21.65Stock vested
    
    
    (75,416
    )
    
    $
    21.13Stock forfeited
    
    
    (750
    )
    
    $
    17.00Stock returned
    
    
    750
    
    
    $
    17.00Non-vested restricted stock at March 31, 2006
    
    
    189,040
    
    
    $
    20.74
 13




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 10. Earnings Per Share
   Quarter Ended
    
    
    Quarter Ended(Dollars in thousands, except per share data)
    
    March 31, 2006
    
    
    March 31, 2005Income available to common shareholders before
extraordinary gain
    
    $
    17,778
    
    
    $
    14,165Extraordinary gain
    
    
    
    
    
    
    1,426Net income
    
    $
    17,778
    
    
    $
    15,591Basic earnings per share:Weighted average shares for basic earnings per share
    
    
    36,565,476
    
    
    
    34,258,223Net income available to common shareholders before
extraordinary gain
    
    $
    0.49
    
    
    $
    0.42Extraordinary gain
    
    
    
    
    
    
    0.04Net income
    
    $
    0.49
    
    
    $
    0.46Diluted earnings per share:Weighted average shares for diluted earnings per
share
    
    
    36,949,146
    
    
    
    34,982,205Net income available to common shareholders before
extraordinary gain
    
    $
    0.48
    
    
    $
    0.41Extraordinary gain
    
    
    
    
    
    
    0.04Net income
    
    $
    0.48
    
    
    $
    0.45
  Quarter Ended
    
    Quarter EndedMarch 31, 2006
    
    March 31, 2005Weighted average shares for basic earnings per share
    
    
    36,565,476
    
    
    
    34,258,223Non-vested restricted stock
    
    
    13,313
    
    
    
    Options and warrants
    
    
    370,357
    
    
    
    723,982Weighted average shares for diluted earnings per
share
    
    
    36,949,146
    
    
    
    34,982,205
 11. Segment Information
  14




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 Quarter Ended March 31, 2006:
    
    Insurance
    
    
    Agency(Dollars in thousands)
    
    Operations
    
    
    Operations
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    159,558
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    159,558Net premiums written
    
    $
    135,337
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    135,337Net premiums earned
    
    $
    135,430
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    135,430Agency commission and fee revenues
    
    
    
    
    
    
    10,561
    
    
    
    
    
    
    
    (1,014
    )
    
    
    9,547Net investment income
    
    
    
    
    
    
    
    
    
    
    13,679
    
    
    
    
    
    
    
    13,679Net realized investment losses
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    43Total revenues
    
    
    135,430
    
    
    
    10,561
    
    
    
    13,722
    
    
    
    (1,014
    )
    
    
    158,699Losses and Expenses:Net losses and loss adjustment expenses
    
    
    78,964
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,964Acquisition costs and other
underwriting expenses
    
    
    45,248
    
    
    
    
    
    
    
    
    
    
    
    316
    
    
    
    45,564Agency commission and operating expenses
    
    
    
    
    
    
    10,095
    
    
    
    
    
    
    
    (861
    )
    
    
    9,234Corporate and other operating expenses
    
    
    
    
    
    
    
    
    
    
    3,682
    
    
    
    
    
    
    
    3,682Interest expense
    
    
    
    
    
    
    
    
    
    
    2,720
    
    
    
    
    
    
    
    2,720Income (loss) before income taxes
    
    $
    11,218
    
    
    $
    466
    
    
    $
    7,320
    
    
    $
    (469
    )
    
    
    18,535Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,285Net income before minority interest
and equity in net income of
partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,250Minority interest and equity in net
income of partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    528Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    17,778Total Assets
    
    $
    3,013,328
    
    
    $
    54,834
    
    
    $
    
    
    
    $
    
    
    
    $
    3,068,162
 Quarter Ended March 31, 2005:
    
    Insurance
    
    
    Agency(Dollars in thousands)
    
    Operations
    
    
    Operations
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    135,460
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    135,460Net premiums written
    
    $
    109,521
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    109,521Net premiums earned
    
    $
    102,112
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    102,112Agency commission and fee revenues
    
    
    
    
    
    
    6,783
    
    
    
    
    
    
    
    (531
    )
    
    
    6,252Net investment income
    
    
    
    
    
    
    
    
    
    
    11,868
    
    
    
    
    
    
    
    11,868Net realized investment (losses) gains
    
    
    
    
    
    
    
    
    
    
    (616
    )
    
    
    
    
    
    
    (616
    )Total revenues
    
    
    102,112
    
    
    
    6,783
    
    
    
    11,252
    
    
    
    (531
    )
    
    
    119,616Losses and Expenses:Net losses and loss adjustment expenses
    
    
    63,597
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,597Acquisition costs and other
underwriting expenses
    
    
    29,676
    
    
    
    
    
    
    
    
    
    
    
    (137
    )
    
    
    29,539Agency commission and operating expense
    
    
    
    
    
    
    7,177
    
    
    
    
    
    
    
    (258
    )
    
    
    6,919Corporate and other operating expenses
    
    
    
    
    
    
    
    
    
    
    3,542
    
    
    
    
    
    
    
    3,542Interest expense
    
    
    
    
    
    
    
    
    
    
    1,916
    
    
    
    
    
    
    
    1,916Income before income taxes
    
    $
    8,839
    
    
    $
    (394
    )
    
    $
    7,370
    
    
    $
    (136
    )
    
    
    14,103Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81Net income before equity in net
income of partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,022Equity in net income of partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143Net income before extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,165Extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,426Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,591Total Assets
    
    $
    3,095,958
    
    
    $
    74,544
    
    
    $
    
    
    
    $
    
    
    
    $
    3,170,502
 15




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 12. Supplemental Cash Flow Information
 Taxes and Interest Paid
 Quarter Ended
    
    Quarter Ended(Dollars in thousands)
    
    March 31, 2006
    
    March 31, 2005Net federal income taxes paid
    
    $
    
    
    
    $
    1,380Interest paid
    
    
    1,249
    
    
    
    1,081
 13. Restructuring
  14. Subsequent Events
  
 16




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Recent Developments
        Overview
   17




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
     Critical Accounting Estimates and Policies
  Liability For Unpaid Losses And Loss Adjustment Expenses
  18




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
      Percentage(Dollars in thousands)
    
    Balance of Net
    
    Change In Net
    
    IncreaseLoss and Net
    
    Loss and Net
    
    (Decrease) inHypothetical Change in Net Loss and
    
    Loss Adjustment
    
    Loss Adjustment
    
    ShareholdersLoss Adjustment Expense Reserves
    
    Expense Reserves
    
    Expense Reserves
    
    Equity (1)7.5% increase
    
    $
    701,410
    
    
    $
    48,936
    
    
    
    (5.9
    )%5.0% increase
    
    
    685,098
    
    
    
    32,624
    
    
    
    (4.0
    )%2.5% increase
    
    
    668,786
    
    
    
    16,312
    
    
    
    (2.0
    )%As recorded on March 31, 2006
    
    
    652,474
    
    
    
    
    
    
    
    2.5% decrease
    
    
    636,162
    
    
    
    (16,312
    )
    
    
    2.0
    %5.0% decrease
    
    
    619,850
    
    
    
    (32,624
    )
    
    
    4.0
    %7.5% decrease
    
    
    603,538
    
    
    
    (48,936
    )
    
    
    5.9
    %
 
 (1)
    
    This presumes that the change in reserves is pro-rata across the entire
portfolio of loss reserves for the purpose of determining the net effect on
shareholders equity. Recoverability of Reinsurance Receivables
  19




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Investments
    Gross Unrealized LossesNumber
    
    
    
    
    
    
    Cost or
    
    
    
    
    
    
    Six
    
    
    Between
    
    
    Greater(Dollars in
    
    of
    
    
    Fair
    
    
    Amortized
    
    
    
    
    
    
    Months or
    
    
    Seven Months
    
    
    thanthousands)
    
    Securities
    
    
    Value
    
    
    Cost
    
    
    Total
    
    
    Less
    
    
    and One Year
    
    
    One YearBonds
    
    
    718
    
    
    $
    990,679
    
    
    $
    1,015,384
    
    
    $
    24,705
    
    
    $
    17,243
    
    
    $
    4,526
    
    
    $
    2,936Preferred Stock
    
    
    2
    
    
    
    1,144
    
    
    
    1,292
    
    
    
    148
    
    
    
    148
    
    
    
    
    
    
    
    Common Stock
    
    
    24
    
    
    
    13,740
    
    
    
    14,112
    
    
    
    372
    
    
    
    372
    
    
    
    
    
    
    
    $
    25,225
    
    
    $
    17,763
    
    
    $
    4,526
    
    
    $
    2,936
   Goodwill and Intangible Assets
   20




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Taxation
    Our Business Segments
   21




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Quarter Ended March 31,(Dollars in thousands)
    
    2006
    
    
    2005Insurance Operations premiums written:Gross premiums written
    
    $
    159,558
    
    
    $
    135,460Ceded premiums written
    
    
    24,221
    
    
    
    25,939Net premiums written
    
    $
    135,337
    
    
    $
    109,521Revenues:Insurance Operations
    
    $
    135,430
    
    
    $
    102,112Agency Operations
    
    
    10,561
    
    
    
    6,783Corporate
    
    
    13,722
    
    
    
    11,252Subtotal
    
    
    159,713
    
    
    
    120,147Intercompany eliminations
    
    
    (1,014
    )
    
    
    (531
    )Total revenues
    
    $
    158,699
    
    
    $
    119,616Expenses:Insurance Operations
    
    $
    124,212
    
    
    $
    93,273Agency Operations
    
    
    10,095
    
    
    
    7,177Corporate
    
    
    6,402
    
    
    
    5,458Subtotal
    
    
    140,709
    
    
    
    105,908Intercompany eliminations
    
    
    (545
    )
    
    
    (395
    )Net expenses
    
    $
    140,164
    
    
    $
    105,513Income before income taxes:Insurance Operations
    
    $
    11,218
    
    
    $
    7,263Agency Operations
    
    
    466
    
    
    
    (394
    )Corporate
    
    
    7,320
    
    
    
    7,370Subtotal
    
    
    19,004
    
    
    
    14,239Intercompany eliminations
    
    
    (469
    )
    
    
    (136
    )Total income before income taxes
    
    $
    18,535
    
    
    $
    14,103Insurance combined ratio analysis: (1)Before purchase accounting adjustments:Net losses and loss adjustment expense ratio
    
    
    58.3
    
    
    
    58.4Other underwriting expense ratio
    
    
    33.6
    
    
    
    33.1Combined ratio
    
    
    91.9
    
    
    
    91.5Impact of purchase accounting adjustmentsNet losses and loss adjustment expense ratio
    
    
    
    
    
    
    3.9Other underwriting expense ratio
    
    
    
    
    
    
    (4.2
    )Combined ratio
    
    
    
    
    
    
    (0.3
    )As reported, after purchase accounting adjustments:Net losses and loss adjustment expense ratio
    
    
    58.3
    
    
    
    62.3Other underwriting expense ratio
    
    
    33.6
    
    
    
    28.9Combined ratio
    
    
    91.9
    
    
    
    91.2
 
 (1)
    
    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. Results of Operations
 Quarter Ended March 31, 2006 Compared with the Quarter Ended March 31, 2005
 Premiums
  22




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Quarter Ended
    
    
    Quarter Ended
    
    
    Increase/(Dollars in thousands)
    
    March 31, 2006
    
    
    March 31, 2005
    
    
     (Decrease)Penn-America product
    
    $
    99,671
    
    
    $
    78,322
    
    
    $
    21,349United
National Class Specific (1)
    
    
    31,971
    
    
    
    29,707
    
    
    
    2,264United National Professional
    
    
    16,180
    
    
    
    17,122
    
    
    
    (942
    )United National Brokerage
    
    
    5,727
    
    
    
    2,970
    
    
    
    2,757United National Umbrella / Excess
    
    
    6,009
    
    
    
    7,339
    
    
    
    (1,330
    )Total United National products
    
    
    59,887
    
    
    
    57,138
    
    
    
    2,749Total
    
    $
    159,558
    
    
    $
    135,460
    
    
    $
    24,098
  
    
    Penn-America gross premiums written were $99.7 million for the quarter ended March 31,
2006, compared with $78.3 million for the first quarter of 2005, an increase of $21.3
million or 27.3%. This increase primarily resulted from the inclusion
of premium written by the Penn-America Insurance Companies for
a full quarter in 2006 whereas our 2005 results only included
premium written by the Penn-America Insurance Companies from the date of
their merger with us.
    
    United National gross premiums written were $59.9 million for the quarter ended March
31, 2006, compared with $57.1 million for the first quarter of 2005, an increase of $2.7
million or 4.8%. Exclusive of umbrella and excess business, gross premiums written
increased $4.1 million or 8.2%%. The increase is primarily due to growth in the class
specific and brokerage product lines product segments, partially offset by slight declines
in the professional and umbrella lines.
  Quarter Ended
    
    
    Quarter Ended
    
    
    Increase/(Dollars in thousands)
    
    March 31, 2006
    
    
    March 31, 2005
    
    
     (Decrease)Penn-America product
    
    $
    90,285
    
    
    $
    69,740
    
    
    $
    20,545United
National Class Specific (1)
    
    
    25,654
    
    
    
    21,308
    
    
    
    4,346United National Professional
    
    
    13,957
    
    
    
    14,517
    
    
    
    (560
    )United National Brokerage
    
    
    4,299
    
    
    
    2,556
    
    
    
    1,743United National Umbrella / Excess
    
    
    1,142
    
    
    
    1,400
    
    
    
    (258
    )Total United National products
    
    
    45,052
    
    
    
    39,781
    
    
    
    5,268Total
    
    $
    135,337
    
    
    $
    109,521
    
    
    $
    25,816
  
    
    Penn-America net premiums written were $90.3 million for the quarter ended March 31,
2006, compared with $69.7 million for the quarter ended March 31, 2005, an increase of
$20.5 million or 29.5%. This increase primarily resulted from
the inclusion of premium written by the Penn-America Insurance Companies for a full quarter in 2006 whereas our 2005 results
only included premium written by the Penn-America Insurance Companies
 from the date of their merger with us.
    
    United National net premiums written were $45.0 million for the quarter ended March 31,
2006, compared with $39.8 million for the quarter ended March 31, 2005, an increase of $5.3
million or 13.2%. The
 23




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
   Agency Commission and Fee Revenues
  Net Investment Income
    Net Realized Investment Gains (Losses)
  Net Losses and Loss Adjustment Expenses
  24




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  (Dollars in thousands)
    
    March 31, 2006
    
    
    December 31, 2005
    
    
    Increase/ (Decrease)Katrina first landfall
    
    $
    650
    
    
    $
    1,250
    
    
    $
    (600
    )Katrina second landfall
    
    
    36,927
    
    
    
    30,600
    
    
    
    6,327Rita
    
    
    4,508
    
    
    
    3,400
    
    
    
    1,108Wilma
    
    
    8,897
    
    
    
    7,700
    
    
    
    1,197Total
    
    $
    50,981
    
    
    $
    42,950
    
    
    $
    8,031
  (Dollars in thousands)
    
    March 31, 2006
    
    
    December 31, 2005
    
    
    Increase/ (Decrease)Katrina first landfall
    
    $
    194
    
    
    $
    560
    
    
    $
    (366
    )Katrina second landfall
    
    
    5,837
    
    
    
    2,400
    
    
    
    3,437Rita
    
    
    4,108
    
    
    
    3,000
    
    
    
    1,108Wilma
    
    
    1,997
    
    
    
    2,000
    
    
    
    (3
    )Total
    
    $
    12,135
    
    
    $
    7,960
    
    
    $
    4,175
   Acquisition Costs and Other Underwriting Expenses
  Agency Commission and Operating Expenses
  Corporate and Other Operating Expenses
  25




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Expense and Combined Ratios
   Interest Expense
  Income Tax Expense (Benefit)
   Equity in Net Earnings of Partnerships
  Extraordinary Gain
  Net Income and Operating Income
  26




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
   Quarter Ended
    
    
    Quarter Ended(Dollars in thousands)
    
    March 31, 2006
    
    
    March 31, 2005Operating income
    
    $
    17,719
    
    
    $
    14,541Adjustments:Net realized investment gains (losses), net of tax
    
    
    59
    
    
    
    (376
    )Extraordinary gain
    
    
    
    
    
    
    1,426Total after-tax adjustments
    
    
    59
    
    
    
    1,050Net income
    
    $
    17,778
    
    
    $
    15,591
 Liquidity and Capital Resources
 Sources and Uses of Funds
     27




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Surplus Levels
  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.
    Liquidity
   28




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
         29




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
        Capital Resources
    30




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Issuer
    
    Amount
    
    Maturity
    
    Interest Rate
    
    Call ProvisionsAIS through its
wholly owned
subsidiary UNG
Trust 1
    
    $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 2
    
    $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 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, 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, 2009
 
 (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
  Inflation
   Cautionary Note Regarding Forward-Looking Statements
  31




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
    
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
   Change in(Dollars in thousands)
    
    
    
    Market ValueBasis Point Change
    
    Market Value
    
    $
    
    %200
    
    $1,114,458
    
    $(87,757)
    
    (7.9)%100
    
    1,158,287
    
    (43,928)
    
    (4.0)No change
    
    1,202,215
    
    
    
    (100)
    
    1,245,042
    
    42,827
    
    3.9(200)
    
    1,285,858
    
    83,643
    
    7.6
 32




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Credit Risk
    Equity Price Risk
     (Dollars in thousands)HypotheticalEstimated Fair Value
    
    Percentage IncreaseHypothetical Price
    
    
    after Hypothetical
    
    (Decrease) inChange
    
    
    Change in Prices
    
    Shareholders Equity(20%)
    
    
    $53,849
    
    (1.3%)(10%)
    
    
    60,580
    
    (0.7%)No change
    
    
    67,311
    
    10%
    
    
    74,042
    
    0.7%20%
    
    
    80,773
    
    1.3%
 33




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  34




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 PART
IIOTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 5. Other Information
   
 Item 6. Exhibits
 10.1
    
    Amendment No. 1 to Amended and Restated Shareholders Agreement, dated as of April 10,
2006, by and among United America Indemnity, Ltd., U.N. Holdings (Cayman) Ltd., those
co-investment funds signatory thereto and those trust signatory thereto (incorporated
herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on April 20,
2005).10.2+*
    
    Amendment to Executive Employment Agreement, dated as of February 15, 2006 between
United America Indemnity Group, Inc. and Joseph F. Morris.31.1+
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2+
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.3+
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 35




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 31.4+
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1+
    
    Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2+
    
    Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.3+
    
    Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.4+
    
    Certification 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 36




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 SIGNATURE
  UNITED AMERICA INDEMNITY, LTD.RegistrantMay 10, 2006
    
    By:
    
    /s/ Kevin L. TateDate: May 10, 2006
    
    Kevin L. TateChief Financial Officer(Authorized Signatory and Principal Financial and Accounting Officer)
 37