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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 September 30, 2005
 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
  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
 þ o
 o þ




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TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATION(1)Item 1. Financial Statements:Consolidated Balance Sheets
    
    
    1Consolidated Statements of Operations for the
Quarter and Nine Months Ended September 30, 2005
    
    
    2Consolidated Statements of Comprehensive Income for the
Quarter and Nine Months Ended September 30, 2005
    
    
    3Consolidated Statements of Changes in Shareholders Equity
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    32Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    55Item 4. Controls and Procedures
    
    
    57PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    58Item 5.
Other Information
    
    
    58Item 6. Exhibits
    
    
    58Signature
    
    
    59CERTIFICATION 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)
    
    On January 24, 2005, we completed our merger with Penn-America Group, Inc.,
as well as our acquisition of Penn Independent Corporation. In connection with the
transactions, our shareholders approved a change in our name from United National
Group, Ltd. to United America Indemnity, Ltd. Under purchase accounting rules, our
results for the nine months ended September 30, 2005 reflect the addition of
Penn-America Group, Inc. and Penn Independent Corporation from January 25, 2005
through September 30, 2005. All prior period results reflect only the results of
operations of United America Indemnity.









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PART
I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Balance Sheets
  (Unaudited)September 30, 2005
    
    
    December 31, 2004ASSETSBonds:Available for sale securities, at fair value
(amortized cost: $1,093,700 and $575,298)
    
    $
    1,089,361
    
    
    $
    585,385Preferred shares:Available
for sale securities, at fair value(cost: $7,110 and $4,804)
    
    
    6,968
    
    
    
    5,112Common shares:Available
for sale securities, at fair value(cost: $52,909 and $34,004)
    
    
    58,905
    
    
    
    37,894Other invested assets
    
    
    51,366
    
    
    
    53,756Total investments
    
    
    1,206,600
    
    
    
    682,147Cash and cash equivalents
    
    
    184,777
    
    
    
    242,123Accounts receivable
    
    
    22,429
    
    
    
    Agents balances, net
    
    
    76,703
    
    
    
    47,132Reinsurance receivables, net
    
    
    1,365,244
    
    
    
    1,531,863Accrued investment income
    
    
    13,013
    
    
    
    7,141Federal income taxes receivable
    
    
    81
    
    
    
    Deferred federal income taxes, net
    
    
    17,540
    
    
    
    28,372Deferred acquisition costs, net
    
    
    55,301
    
    
    
    29,735Goodwill
    
    
    97,808
    
    
    
    Prepaid reinsurance premiums
    
    
    46,802
    
    
    
    42,623Other assets
    
    
    55,277
    
    
    
    14,801Total assets
    
    $
    3,141,575
    
    
    $
    2,625,937LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Unpaid losses and loss adjustment expenses
    
    $
    1,977,128
    
    
    $
    1,876,510Unearned premiums
    
    
    270,143
    
    
    
    152,166Federal income taxes payable
    
    
    
    
    
    
    1,943Amounts held for the account of others
    
    
    12,261
    
    
    
    10,234Ceded balances payable
    
    
    31,510
    
    
    
    22,698Insurance premium payable
    
    
    31,442
    
    
    
    Payable for securities
    
    
    1,424
    
    
    
    Senior notes payable
    
    
    90,000
    
    
    
    Senior notes payable to related party
    
    
    
    
    
    
    72,848Junior subordinated debentures
    
    
    61,857
    
    
    
    30,929Notes and loans payable
    
    
    7,023
    
    
    
    Other liabilities
    
    
    41,133
    
    
    
    26,056Total liabilities
    
    
    2,523,921
    
    
    
    2,193,384Commitments and contingencies (Note 11)
    
    
    
    
    
    
    Minority interest
    
    
    139
    
    
    
    Shareholders equity:Common shares, $0.0001 par value, 900,000,000 common
shares authorized, 23,765,254 and 15,585,653 Class A
common shares issued and outstanding, respectively,
and 12,687,500 Class B common shares issued and
outstanding
    
    
    4
    
    
    
    3Preferred shares, $0.0001 par value, 100,000,000
shares authorized, none issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    502,085
    
    
    
    356,725Accumulated other comprehensive income
    
    
    10,814
    
    
    
    15,507Retained earnings
    
    
    104,612
    
    
    
    60,318Total shareholders equity
    
    
    617,515
    
    
    
    432,553Total liabilities and shareholders equity
    
    $
    3,141,575
    
    
    $
    2,625,937
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UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Operations
  (Unaudited)
    
    
    (Unaudited)Quarter Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Gross premiums written
    
    $
    163,593
    
    
    $
    108,657
    
    
    $
    462,955
    
    
    $
    314,733Net premiums written
    
    $
    134,863
    
    
    $
    78,243
    
    
    $
    380,678
    
    
    $
    205,043Net premiums earned
    
    $
    121,987
    
    
    $
    60,933
    
    
    $
    343,901
    
    
    $
    165,751Agency commission and fee revenues
    
    
    12,432
    
    
    
    
    
    
    
    28,799
    
    
    
    Net investment income
    
    
    11,041
    
    
    
    5,010
    
    
    
    34,023
    
    
    
    13,637Net realized investment gains (losses)
    
    
    572
    
    
    
    (1,080
    )
    
    
    350
    
    
    
    (687
    )Total revenues
    
    
    146,032
    
    
    
    64,863
    
    
    
    407,073
    
    
    
    178,701Losses and Expenses:Net losses and loss adjustment expenses
    
    
    80,693
    
    
    
    34,616
    
    
    
    215,511
    
    
    
    98,395Acquisition costs and other underwriting expenses
    
    
    39,359
    
    
    
    22,645
    
    
    
    107,507
    
    
    
    53,255Agency commission and operating expenses
    
    
    11,082
    
    
    
    
    
    
    
    28,175
    
    
    
    Corporate and other operating expenses
    
    
    743
    
    
    
    1,452
    
    
    
    5,216
    
    
    
    4,410Interest expense
    
    
    2,664
    
    
    
    1,378
    
    
    
    6,760
    
    
    
    4,087Income before income taxes
    
    
    11,491
    
    
    
    4,772
    
    
    
    43,904
    
    
    
    18,554Income tax expense (benefit)
    
    
    1,868
    
    
    
    (1,425
    )
    
    
    2,094
    
    
    
    (2,551
    )Net income before minority interest and
equity in net income of partnerships
    
    
    9,623
    
    
    
    6,197
    
    
    
    41,810
    
    
    
    21,105Minority interest, net of taxes
    
    
    (7
    )
    
    
    
    
    
    
    2
    
    
    
    Equity in net income of partnerships
    
    
    631
    
    
    
    309
    
    
    
    1,056
    
    
    
    926Net income before extraordinary gain
    
    
    10,247
    
    
    
    6,506
    
    
    
    42,868
    
    
    
    22,031Extraordinary gain
    
    
    
    
    
    
    1,195
    
    
    
    1,426
    
    
    
    1,195Net income
    
    $
    10,247
    
    
    $
    7,701
    
    
    $
    44,294
    
    
    $
    23,226Per share data:Net income before extraordinary gain:Basic
    
    $
    0.28
    
    
    $
    0.23
    
    
    $
    1.20
    
    
    $
    0.78Diluted
    
    $
    0.28
    
    
    $
    0.23
    
    
    $
    1.18
    
    
    $
    0.77Extraordinary gain:Basic
    
    $
    
    
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.04Diluted
    
    $
    
    
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.04Net income:Basic
    
    $
    0.28
    
    
    $
    0.27
    
    
    $
    1.24
    
    
    $
    0.82Diluted
    
    $
    0.28
    
    
    $
    0.27
    
    
    $
    1.22
    
    
    $
    0.81Weighted-average number of shares outstanding:Basic
    
    
    36,437,908
    
    
    
    28,268,716
    
    
    
    35,704,208
    
    
    
    28,254,998Diluted
    
    
    37,118,156
    
    
    
    28,771,120
    
    
    
    36,388,955
    
    
    
    28,829,597
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UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Comprehensive Income
  (Unaudited)
    
    
    (Unaudited)Quarter Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    10,247
    
    
    $
    7,701
    
    
    $
    44,294
    
    
    $
    23,226Other comprehensive income (loss) before tax:Unrealized gains (losses) on securities:Unrealized holding gains (losses)
arising during period
    
    
    (8,935
    )
    
    
    9,646
    
    
    
    (6,603
    )
    
    
    3,878Less: Reclassification adjustment
for gains (losses) included in net
income
    
    
    186
    
    
    
    (727
    )
    
    
    (844
    )
    
    
    (554
    )Other comprehensive income (loss), before tax
    
    
    (9,121
    )
    
    
    10,373
    
    
    
    (5,759
    )
    
    
    4,432Income tax expense (benefit) related to
items of other comprehensive income
    
    
    (1,159
    )
    
    
    3,305
    
    
    
    (1,066
    )
    
    
    946Other comprehensive income (loss), net of tax
    
    
    (7,962
    )
    
    
    7,068
    
    
    
    (4,693
    )
    
    
    3,486Comprehensive income, net of tax
    
    $
    2,285
    
    
    $
    14,769
    
    
    $
    39,601
    
    
    $
    26,712
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UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Changes in Shareholders Equity
  (Unaudited)Nine Months Ended
    
    
    Year EndedSeptember 30, 2005
    
    
    December 31, 2004Class A common shares:Number at beginning of period
    
    
    15,585,653
    
    
    
    15,115,003Common shares issued in merger
    
    
    7,930,536
    
    
    
    Common shares issued (retired) under share incentive
plans
    
    
    219,331
    
    
    
    (200
    )Common shares issued in IPO
    
    
    
    
    
    
    462,500Common shares issued to directors
    
    
    29,734
    
    
    
    8,350Number at end of period
    
    
    23,765,254
    
    
    
    15,585,653Class B common shares:Number at beginning of period
    
    
    12,687,500
    
    
    
    12,687,500Number at end of period
    
    
    12,687,500
    
    
    
    12,687,500Class A common shares:Balance at beginning of period
    
    $
    2
    
    
    $
    2Common shares issued
    
    
    1
    
    
    
    Balance at end of period
    
    $
    3
    
    
    $
    2Class B common shares:Balance at beginning of period
    
    $
    1
    
    
    $
    1Balance at end of period
    
    $
    1
    
    
    $
    1Additional paid-in capital:Balance at beginning of period
    
    $
    356,725
    
    
    $
    347,487Contributed capital from Class A common shares issued
    
    
    142,605
    
    
    
    7,312Other
    
    
    2,755
    
    
    
    1,926Balance at end of period
    
    $
    502,085
    
    
    $
    356,725Accumulated other comprehensive income net of deferred
income tax:Balance at beginning of period
    
    $
    15,507
    
    
    $
    10,031Other comprehensive income
    
    
    (4,693
    )
    
    
    5,476Balance at end of period
    
    $
    10,814
    
    
    $
    15,507Retained earnings:Balance at beginning of period
    
    $
    60,318
    
    
    $
    23,271Net income
    
    
    44,294
    
    
    
    37,047Balance at end of period
    
    $
    104,612
    
    
    $
    60,318Total shareholders equity
    
    $
    617,515
    
    
    $
    432,553
  4




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UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Cash Flows
  (Unaudited)Nine Months Ended September 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    44,294
    
    
    $
    23,226Adjustments to reconcile net income to net cash
provided by operating activities:Amortization of debt issuance costs
    
    
    135
    
    
    
    135Amortization and depreciation
    
    
    1,419
    
    
    
    Restricted stock expense
    
    
    2,840
    
    
    
    415Extraordinary gain
    
    
    (1,426
    )
    
    
    (1,195
    )Deferred federal income taxes
    
    
    (2,187
    )
    
    
    2,572Amortization of bond premium and discount, net
    
    
    5,046
    
    
    
    2,282Net realized investment (gains) losses
    
    
    (350
    )
    
    
    687Equity in net earnings of partnerships
    
    
    (1,326
    )
    
    
    (926
    )Changes in:Agents balances
    
    
    (7,461
    )
    
    
    11,189Account receivables
    
    
    15,024
    
    
    
    Reinsurance receivables
    
    
    210,527
    
    
    
    112,031Unpaid losses and loss adjustment expenses
    
    
    (134,574
    )
    
    
    (94,745
    )Unearned premiums
    
    
    33,699
    
    
    
    (19,097
    )Ceded balances payable
    
    
    1,483
    
    
    
    (30,084
    )Insurance premiums payable
    
    
    (14,927
    )
    
    
    Other liabilities
    
    
    (3,162
    )
    
    
    (12,004
    )Amounts held for the account of others
    
    
    1,904
    
    
    
    (4,851
    )Contingent commissions
    
    
    (1,131
    )
    
    
    58Federal income tax receivable
    
    
    (451
    )
    
    
    (6,676
    )Prepaid reinsurance premiums
    
    
    3,080
    
    
    
    58,390Deferred acquisition costs, net
    
    
    (26,159
    )
    
    
    (17,493
    )Other  net
    
    
    2,812
    
    
    
    (1,659
    )Net cash provided by operating activities
    
    
    129,109
    
    
    
    22,255Cash flows from investing activities:Proceeds from sale of bonds and stocks
    
    
    223,389
    
    
    
    187,958Proceeds from maturity of bonds
    
    
    38,046
    
    
    
    Proceeds from sale of other invested assets
    
    
    10,201
    
    
    
    1,795Purchase of bonds and stocks
    
    
    (414,570
    )
    
    
    (242,613
    )Purchase of other invested assets
    
    
    (913
    )
    
    
    (2,434
    )Acquisition of business, net of cash acquired
    
    
    (58,529
    )
    
    
    Net cash used for investing activities
    
    
    (202,376
    )
    
    
    (55,294
    )Cash flows from financing activities:Net proceeds from IPO of common shares
    
    
    
    
    
    
    7,312Borrowing under credit facility
    
    
    3,490
    
    
    
    Repayments of credit facility
    
    
    (3,869
    )
    
    
    Dividends paid to minority shareholders
    
    
    (22
    )
    
    
    Capital lease obligations
    
    
    (238
    )
    
    
    Issuance of senior notes payable
    
    
    90,000
    
    
    
    Retirement of senior notes payable to related party
    
    
    (72,848
    )
    
    
    Change in other debt
    
    
    (592
    )
    
    
    Net cash provided by financing activities
    
    
    15,921
    
    
    
    7,312Net change in cash and cash equivalents
    
    
    (57,346
    )
    
    
    (25,727
    )Cash and cash equivalents at beginning of period
    
    
    242,123
    
    
    
    214,796Cash and cash equivalents at end of period
    
    $
    184,777
    
    
    $
    189,069
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UNITED AMERICA INDEMNITY, LTD.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Principles of Consolidation and Basis of Presentation
       6




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
  Description of Business
  2. Acquisition of Penn Independent Corporation and Merger with Penn-America Group, Inc.
  Acquisition of Penn Independent Corporation
  7




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UNITED
AMERICA INDEMNITY, LTD.
 NOTES
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  PennIndependentGroupAssets:Investment in 30.5% of Penn-America Group, Inc.
Class A common stock
    
    $
    65,440Other investments and cash
    
    
    23,697Premium receivable
    
    
    37,453Accrued investment income
    
    
    21Federal income taxes receivable
    
    
    1,181Intangible assets
    
    
    2,695Capital lease
    
    
    1,222Other assets
    
    
    1,903Total
    
    
    133,612Liabilities:Insurance premiums payable
    
    
    47,162Deferred federal income taxes, net
    
    
    7,050Federal income taxes payable
    
    
    224Other liabilities
    
    
    8,571Notes and loans payable
    
    
    5,703Total
    
    
    68,710Minority interest
    
    
    431Estimated fair value of net assets acquired
    
    
    64,471Purchase price
    
    
    98,540Goodwill
    
    $
    34,069
   January 24, 2005Estimated(Dollars in thousands)
    
    Amount
    
    
    Useful LifeTradenames
    
    $
    430
    
    
    IndefiniteAgency relationships
    
    
    1,830
    
    
    12 yearsCustomer contracts
    
    
    435
    
    
    3 years$
    2,695
 Purchases of Penn-America Group, Inc. Common Shares from Individual Shareholders
  8




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 Merger with Penn-America Group, Inc.
    Assets:Investments and cash
    
    $
    431,850Agents balances
    
    
    22,881Reinsurance receivables
    
    
    43,908Accrued investment income
    
    
    3,527Prepaid reinsurance premiums
    
    
    7,259Intangible assets
    
    
    37,430Capital lease
    
    
    1,398Other assets
    
    
    1,695Total
    
    
    549,948Liabilities:Unpaid losses and loss adjustment expenses
    
    
    235,192Unearned premiums
    
    
    84,278Income tax payable
    
    
    810Deferred federal income taxes
    
    
    6,896Ceded balances payable
    
    
    7,329Contingent commissions
    
    
    6,787Junior subordinated debentures
    
    
    30,928Capitalized lease obligation
    
    
    1,089Other liabilities
    
    
    4,562Total
    
    
    377,871Estimated fair value of net assets acquired
    
    
    172,077Purchase
price of Penn-America Group, Inc. common shares
acquired through the merger
    
    
    165,538Purchase
price of Penn-America Group, Inc. common shares
acquired through Penn Independent Corporation acquisition
    
    
    65,440Purchase price of Penn-America Group, Inc. common shares
acquired from private individuals
    
    
    4,838Total purchase price
    
    
    235,816Goodwill
    
    $
    63,739
  9




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
   January 24, 2005Estimated(Dollars in thousands)
    
    Amount
    
    
    Useful LifeTradenames
    
    $
    16,140
    
    
    IndefiniteAgency relationships
    
    
    14,790
    
    
    12 yearsState insurance licenses
    
    
    6,000
    
    
    IndefiniteSoftware technology
    
    
    500
    
    
    3 years$
    37,430
  3. Summary of Significant Accounting Policies
 Investments
       10




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
  Derivative Instruments
      Valuation of Agents Balances and Accounts Receivable
  11




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
  Goodwill and Intangible Assets
     (Dollars in thousands)
    
    
    
    
    
    
    
    
    
    AccumulatedDescription
    
    Life
    
    
    Cost
    
    
    Amortization
    
    
    NetTradenames
    
    Indefinite
    
    $
    16,570
    
    
    $
    
    
    
    $
    16,570Agency relationships
    
    12 years
    
    
    16,620
    
    
    
    950
    
    
    
    15,670State insurance licenses
    
    Indefinite
    
    
    6,000
    
    
    
    
    
    
    
    6,000Software technology
    
    3 years
    
    
    500
    
    
    
    114
    
    
    
    386Customer contracts
    
    3 years
    
    
    435
    
    
    
    11
    
    
    
    424$
    40,125
    
    
    $
    1,075
    
    
    $
    39,050
 Capitalized Leases
  Notes and Loans Payable
  Insurance Premium Payables
  12




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 Junior Subordinated Debentures
   Revenue Recognition
    Agency Commissions and Operating Expenses
  Extraordinary Gain
  Earnings Per Share
  New Accounting Pronouncements
  13




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
      4. Investments
  14




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
  (Dollars in thousands)
    
    Estimated Fair ValueSeptember 30, 2005
    
    
    December 31, 2004On deposit with governmental authorities
    
    $
    47.2
    
    
    $
    30.1Intercompany
trust held for the benefit of U.S. policyholders
    
    
    521.1
    
    
    
    405.6Held in trust pursuant to U.S. regulatory requirements for
the benefit of U.S. policyholders
    
    
    5.6
    
    
    
    5.5Total
    
    $
    573.9
    
    
    $
    441.2
  Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated(Dollars in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueSeptember 30, 2005Bonds:Obligations of states and political subdivisions
    
    $
    404,249
    
    
    $
    5,590
    
    
    $
    (1,852
    )
    
    $
    407,987Mortgage-backed securities
    
    
    273,623
    
    
    
    202
    
    
    
    (3,234
    )
    
    
    270,591U.S. treasury and agency obligations
    
    
    168,931
    
    
    
    233
    
    
    
    (2,676
    )
    
    
    166,488Corporate notes
    
    
    246,897
    
    
    
    465
    
    
    
    (3,067
    )
    
    
    244,295Total bonds
    
    
    1,093,700
    
    
    
    6,490
    
    
    
    (10,829
    )
    
    
    1,089,361Common stock
    
    
    52,909
    
    
    
    6,763
    
    
    
    (767
    )
    
    
    58,905Preferred stock
    
    
    7,110
    
    
    
    130
    
    
    
    (272
    )
    
    
    6,968Total
    
    $
    1,153,719
    
    
    $
    13,383
    
    
    $
    (11,868
    )
    
    $
    1,155,234
 Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated(Dollars in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueDecember 31, 2004Bonds:Obligations of states and political subdivisions
    
    $
    299,525
    
    
    $
    8,700
    
    
    $
    (315
    )
    
    $
    307,910Mortgage-backed securities
    
    
    52,690
    
    
    
    456
    
    
    
    (3
    )
    
    
    53,143U.S. treasury and agency obligations
    
    
    163,108
    
    
    
    285
    
    
    
    (979
    )
    
    
    162,414Corporate notes
    
    
    59,975
    
    
    
    2,215
    
    
    
    (272
    )
    
    
    61,918Total bonds
    
    
    575,298
    
    
    
    11,656
    
    
    
    (1,569
    )
    
    
    585,385Common stock
    
    
    34,004
    
    
    
    4,338
    
    
    
    (448
    )
    
    
    37,894Preferred stock
    
    
    4,804
    
    
    
    418
    
    
    
    (110
    )
    
    
    5,112Total
    
    $
    614,106
    
    
    $
    16,412
    
    
    $
    (2,127
    )
    
    $
    628,391
   Gross Unrealized LossesNumber
    
    
    
    
    
    
    Cost or
    
    
    
    
    
    
    Six
    
    
    Betweenof
    
    
    Fair
    
    
    Amortized
    
    
    
    
    
    
    Months or
    
    
    Seven Months and
    
    
    Greater than(Dollars in thousands)
    
    Securities
    
    
    Value
    
    
    Cost
    
    
    Total
    
    
    Less
    
    
    One Year
    
    
    One YearBonds
    
    
    459
    
    
    $
    790,271
    
    
    $
    801,100
    
    
    $
    10,829
    
    
    
    3,461
    
    
    $
    5,911
    
    
    $
    1,457Preferred Stock
    
    
    8
    
    
    
    3,987
    
    
    
    4,259
    
    
    
    272
    
    
    
    71
    
    
    
    201
    
    
    
    Common Stock
    
    
    185
    
    
    
    14,109
    
    
    
    14,876
    
    
    
    767
    
    
    
    644
    
    
    
    123
    
    
    
    $
    11,868
    
    
    $
    4,176
    
    
    $
    6,235
    
    
    $
    1,457
  15




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
   Amortized
    
    
    Estimated(Dollars in thousands)
    
    Cost
    
    
    Fair ValueDue in one year or less
    
    $
    38,194
    
    
    $
    37,947Due after one year through five years
    
    
    283,431
    
    
    
    279,086Due after five years through ten years
    
    
    259,906
    
    
    
    259,070Due after ten years
    
    
    238,546
    
    
    
    242,666Mortgage-backed securities
    
    
    273,623
    
    
    
    270,592$
    1,093,700
    
    
    $
    1,089,361
  5. Reinsurance
     16




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
    6. Income Taxes
       17




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##### Table of Contents



UNITED
AMERICA INDEMNITY, LTD.
 NOTES
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Quarter Ended
    
    
    Quarter EndedSeptember 30, 2005
    
    
    September 30, 2004% of Pre-
    
    
    
    
    
    
    % of Pre-Amount
    
    
    Tax Income
    
    
    Amount
    
    
    Tax IncomeExpected tax provision at
weighted average rate
    
    
    3,495
    
    
    
    30.4
    %
    
    $
    (991
    )
    
    
    (20.8
    )%Adjustments:Tax exempt interest
    
    
    (1,284
    )
    
    
    (11.2
    )
    
    
    (1,127
    )
    
    
    (23.6
    )Dividend exclusion
    
    
    (86
    )
    
    
    (0.7
    )
    
    
    (35
    )
    
    
    (0.7
    )Non-resident withholding
    
    
    
    
    
    
    
    
    
    
    148
    
    
    
    3.1Other
    
    
    (257
    )
    
    
    (2.2
    )
    
    
    580
    
    
    
    12.1Actual Taxes
    
    $
    1,868
    
    
    
    16.3
    %
    
    $
    (1,425
    )
    
    
    (29.9
    )%
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2004% of Pre-
    
    
    
    
    
    
    % of Pre-Amount
    
    
    Tax Income
    
    
    Amount
    
    
    Tax IncomeExpected tax provision at
weighted average rate
    
    $
    5,574
    
    
    
    12.7
    %
    
    $
    (233
    )
    
    
    (1.3
    )%Adjustments:Tax exempt interest
    
    
    (3,845
    )
    
    
    (8.7
    )
    
    
    (3,465
    )
    
    
    (18.7
    )Dividend exclusion
    
    
    (242
    )
    
    
    (0.6
    )
    
    
    (103
    )
    
    
    (0.6
    )Non-resident withholding
    
    
    
    
    
    
    
    
    
    
    437
    
    
    
    2.4Other
    
    
    607
    
    
    
    1.4
    
    
    
    813
    
    
    
    4.4Actual Taxes
    
    $
    2,094
    
    
    
    4.8
    %
    
    $
    (2,551
    )
    
    
    (13.8
    )%
  18




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 7. Liability for Unpaid Losses and Loss Adjustment Expenses
  Quarter Ended September 30,
    
    

Nine Months Ended September 30,(Dollars in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Unpaid losses and loss adjustment expenses at
beginning of period
    
    $
    1,998,390
    
    
    $
    1,995,936
    
    
    $
    1,876,510
    
    
    $
    2,059,760Less gross reinsurance receivables on unpaid losses
and loss adjustment expenses
    
    
    1,414,003
    
    
    
    1,669,693
    
    
    
    1,531,896
    
    
    
    1,745,737Net balance at beginning of period
    
    
    584,387
    
    
    
    326,243
    
    
    
    344,614
    
    
    
    314,023Plus unpaid losses and loss adjustment expenses
acquired as a result of the merger (1)
    
    
    
    
    
    
    
    
    
    
    235,192
    
    
    
    Less gross reinsurance receivables on unpaid losses
and loss adjustment expenses acquired as a result of
the merger (1)
    
    
    
    
    
    
    
    
    
    
    43,908
    
    
    
    Unpaid losses and loss adjustment expense
subtotal
    
    
    584,387
    
    
    
    326,243
    
    
    
    535,898
    
    
    
    314,023Incurred losses and loss adjustment expenses related
to:Current year
    
    
    80,693
    
    
    
    34,617
    
    
    
    215,511
    
    
    
    98,396Prior years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total incurred losses and loss adjustment
expenses
    
    
    80,693
    
    
    
    34,617
    
    
    
    215,511
    
    
    
    98,396Paid losses and loss adjustment expenses related to:Current year
    
    
    20,617
    
    
    
    8,409
    
    
    
    34,910
    
    
    
    15,837Prior years
    
    
    27,420
    
    
    
    15,957
    
    
    
    99,456
    
    
    
    60,088Total paid losses and loss adjustment expenses
    
    
    48,037
    
    
    
    24,366
    
    
    
    134,366
    
    
    
    75,925Net balance at end of period
    
    
    617,043
    
    
    
    336,494
    
    
    
    617,043
    
    
    
    336,494Plus gross reinsurance receivables on unpaid losses
and loss adjustment expenses
    
    
    1,360,085
    
    
    
    1,628,521
    
    
    
    1,360,085
    
    
    
    1,628,521Unpaid losses and loss adjustment expenses at end of
period
    
    $
    1,977,128
    
    
    $
    1,965,015
    
    
    $
    1,977,128
    
    
    $
    1,965,015
 
 (1)
    
    Unpaid loss and loss adjustment expenses and gross reinsurance receivable
on unpaid losses acquired on January 24, 2005, as a result of the merger with
Penn-America Insurance Group.    19




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
      8. Debt
 Junior Subordinated Debentures
    20




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
   Guaranteed Senior Notes
   9. Notes and Loans Payable
 Notes Payable
  Loans Payable
  21




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 10. Related Party Transactions
      11. Commitments and Contingencies
 Lease Commitments
  (Dollars in thousands)2005
    
    $
    9242006
    
    
    3,2632007
    
    
    2,7982008
    
    
    2,8062009 and thereafter
    
    
    11,114Total
    
    $
    20,905
 22




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 Legal Proceedings
   12. Shareholders Equity
  13. Compensation Plans
  Share Incentive Plan
  23




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
   WeightedAverageNumber of
    
    
    Exercise PriceShares
    
    
    Per ShareOptions outstanding at December 31, 2004
    
    
    1,720,164
    
    
    $
    11.35Options issued
    
    
    524,907
    
    
    $
    15.10Options forfeited
    
    
    (175,980
    )
    
    $
    17.00Options cancelled
    
    
    (12,033
    )
    
    $
    17.00Options exercised
    
    
    (146,875
    )
    
    $
    9.54Options outstanding at September 30, 2005
    
    
    1,910,183
    
    
    $
    11.96Options exercisable at September 30, 2005
    
    
    388,433
    
    
    $
    8.01
  Number of optionsOption Price
    
    
    
    
    
    exercisable$5.62
    
    
    
    
    
    
    1,933$6.02
    
    
    
    
    
    
    486$6.50
    
    
    
    
    
    
    256,074$8.49
    
    
    
    
    
    
    25,713$10.00
    
    
    
    
    
    
    78,875$14.62
    
    
    
    
    
    
    2,000$17.00
    
    
    
    
    
    
    22,352$18.40
    
    
    
    
    
    
    1,000Options exercisable at
September 30, 2005
    
    
    
    
    
    
    388,433
  Annual Incentive Plans
  24




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
   401(k) Plans
    25




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##### Table of Contents



UNITED
AMERICA INDEMNITY, LTD.
 NOTES
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 14. Earnings Per Share
   Quarter Ended September 30,
    
    
    Nine Months Ended September 30,(Dollars in thousands, except per share data)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net income before extraordinary gain
    
    $
    10,247
    
    
    $
    6,506
    
    
    $
    42,868
    
    
    $
    22,031Extraordinary gain
    
    
    
    
    
    
    1,195
    
    
    
    1,426
    
    
    
    1,195Net income
    
    $
    10,247
    
    
    $
    7,701
    
    
    $
    44,294
    
    
    $
    23,226Basic earnings per share:Weighted average shares for basic earnings per share
    
    
    36,437,908
    
    
    
    28,268,716
    
    
    
    35,704,208
    
    
    
    28,254,998Net income available to common shareholders before
extraordinary gain
    
    $
    0.28
    
    
    $
    0.23
    
    
    $
    1.20
    
    
    $
    0.78Extraordinary gain
    
    
    
    
    
    
    0.04
    
    
    
    0.04
    
    
    
    0.04Net income
    
    $
    0.28
    
    
    $
    0.27
    
    
    $
    1.24
    
    
    $
    0.82Diluted earnings per share:Weighted average shares for diluted earnings per
share
    
    
    37,118,156
    
    
    
    28,771,120
    
    
    
    36,388,955
    
    
    
    28,829,597Net income available to common shareholders before
extraordinary gain
    
    $
    0.28
    
    
    $
    0.23
    
    
    $
    1.18
    
    
    $
    0.77Extraordinary gain
    
    
    
    
    
    
    0.04
    
    
    
    0.04
    
    
    
    0.04Net income
    
    $
    0.28
    
    
    $
    0.27
    
    
    $
    1.22
    
    
    $
    0.81
 15. Statutory Financial Information
  
    
    Under SAP, investments in debt securities are carried at amortized cost, while under
GAAP the Company records its debt securities at estimated fair value.
    
    Under SAP, policy acquisition costs, such as commissions, premium taxes, fees and other
costs of underwriting policies are charged to current operations as incurred, while under
GAAP such costs are deferred and amortized on a pro rata basis over the period covered by
the policy.
    
    Under SAP, certain assets designated as Non-admitted Assets (such as prepaid expenses)
are charged against surplus.
    
    Under SAP, net deferred income tax assets are admitted following the application of
specified criteria, with the resulting admitted deferred tax amount being credited directly
to surplus.
    
    Under SAP, certain premium receivables are non-admitted and are charged against surplus
based upon aging criteria.
    
    Under SAP, the costs and related receivables for guaranty funds and other assessments
are recorded based on managements estimate of the ultimate liability and related
receivable settlement, while under GAAP such costs are accrued when the liability is
probable and reasonably estimable and the related receivable amount is based on future
premium collections or policy surcharges from in-force policies.
    
    Under SAP, unpaid losses and loss adjustment expenses and unearned premiums are reported
net of the effects of reinsurance transactions, whereas under GAAP, unpaid losses and loss
adjustment expenses and unearned premiums are reported gross of reinsurance.
    
    Under SAP, a provision for reinsurance is charged to surplus based on the authorized
status of reinsurers,
 26




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 available collateral, and certain aging criteria, whereas under GAAP, an allowance for
uncollectible reinsurance is established based on managements best estimate of the
collectibility of reinsurance receivables.
     Statutory Capital and Surplus
    
    
    Statutory Net IncomeAs of
    
    
    As of
    
    
    Year to Date
    
    
    Year Ended December(Dollars in thousands)
    
    September 30, 2005
    
    
    December 31, 2004
    
    
    September 30, 2005
    
    
    31, 2004United National Insurance Companies
    
    $
    358,944
    
    
    $
    373,669
    
    
    $
    8,707
    
    
    $
    32,701Penn-America Insurance Companies
    
    
    162,998
    
    
    
    140,336
    
    
    
    26,499
    
    
    
    16,227
 16. Segment Information
  27




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
   Nine Months Ended September 30,(Dollars in thousands)
    
    2005
    
    
    2004Property and general liability
    
    $
    407,678
    
    
    $
    241,645Professional liability
    
    
    55,277
    
    
    
    73,088Total
    
    $
    462,955
    
    
    $
    314,733
  Quarter Ended September 30, 2005:
    
    Insurance
    
    
    Agency(Dollars in thousands)
    
    Operations
    
    
    Operations
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    163,593
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    163,593Net premiums written
    
    $
    134,863
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    134,863Net premiums earned
    
    $
    121,987
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    121,987Agency commission and fee revenues
    
    
    
    
    
    
    13,086
    
    
    
    
    
    
    
    (654
    )
    
    
    12,432Net investment income
    
    
    
    
    
    
    
    
    
    
    11,041
    
    
    
    
    
    
    
    11,041Net realized investment losses
    
    
    
    
    
    
    
    
    
    
    572
    
    
    
    
    
    
    
    572Total revenues
    
    
    121,987
    
    
    
    13,086
    
    
    
    11,613
    
    
    
    (654
    )
    
    
    146,032Losses and Expenses:Net losses and loss adjustment expenses
    
    
    80,693
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,693Acquisition costs and other
underwriting expenses
    
    
    39,674
    
    
    
    
    
    
    
    
    
    
    
    (315
    )
    
    
    39,359Agency commission and operating expenses
    
    
    
    
    
    
    11,399
    
    
    
    
    
    
    
    (317
    )
    
    
    11,082Corporate and other operating expenses
    
    
    
    
    
    
    
    
    
    
    743
    
    
    
    
    
    
    
    743Interest expense
    
    
    
    
    
    
    
    
    
    
    2,664
    
    
    
    
    
    
    
    2,664Income before income taxes
    
    $
    1,620
    
    
    $
    1,687
    
    
    $
    8,206
    
    
    $
    (22
    )
    
    
    11,491Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,868Net income before minority interest
and equity in net income of
partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,623Minority interest and equity in net
income of partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    624Net income before extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,247Extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,247
 28




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 Quarter Ended September 30, 2004:
    
    Insurance
    
    
    Agency(Dollars in thousands)
    
    Operations
    
    
    Operations
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    108,657
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    108,657Net premiums written
    
    $
    78,243
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    78,243Net premiums earned
    
    $
    60,933
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    60,933Agency commission and fee revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net investment income
    
    
    
    
    
    
    
    
    
    
    5,010
    
    
    
    
    
    
    
    5,010Net realized investment losses
    
    
    
    
    
    
    
    
    
    
    (1,080
    )
    
    
    
    
    
    
    (1,080
    )Total revenues
    
    
    60,933
    
    
    
    
    
    
    
    3,930
    
    
    
    
    
    
    
    64,863Losses and Expenses:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net losses and loss adjustment expenses
    
    
    34,616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,616Acquisition costs and other
underwriting expenses
    
    
    22,645
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,645Agency commission and operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate and other operating expenses
    
    
    
    
    
    
    
    
    
    
    1,452
    
    
    
    
    
    
    
    1,452Interest expense
    
    
    
    
    
    
    
    
    
    
    1,378
    
    
    
    
    
    
    
    1,378Income before income taxes
    
    $
    3,672
    
    
    $
    
    
    
    $
    1,100
    
    
    $
    
    
    
    
    4,772Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,425
    )Net income before minority interest
and equity in net income of
partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,197Equity in net income of partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    309Net income before extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,506Extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,195Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,701
 Nine Months Ended September 30, 2005:
    
    Insurance
    
    
    Agency(Dollars in thousands)
    
    Operations
    
    
    Operations
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    462,955
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    462,955Net premiums written
    
    $
    380,678
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    380,678Net premiums earned
    
    $
    343,901
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    343,901Agency commission and fee revenues
    
    
    
    
    
    
    30,809
    
    
    
    
    
    
    
    (2,010
    )
    
    
    28,799Net investment income
    
    
    
    
    
    
    
    
    
    
    34,023
    
    
    
    
    
    
    
    34,023Net realized investment gains
    
    
    
    
    
    
    
    
    
    
    350
    
    
    
    
    
    
    
    350Total revenues
    
    
    343,901
    
    
    
    30,809
    
    
    
    34,373
    
    
    
    (2,010
    )
    
    
    407,073Losses and Expenses:Net losses and loss adjustment expenses
    
    
    215,511
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215,511Acquisition costs and other
underwriting expenses
    
    
    108,131
    
    
    
    
    
    
    
    
    
    
    
    (624
    )
    
    
    107,507Agency commission and operating expenses
    
    
    
    
    
    
    29,149
    
    
    
    
    
    
    
    (974
    )
    
    
    28,175Corporate and other operating expenses
    
    
    
    
    
    
    
    
    
    
    5,216
    
    
    
    
    
    
    
    5,216Interest expense
    
    
    
    
    
    
    
    
    
    
    6,760
    
    
    
    
    
    
    
    6,760Income before income taxes
    
    $
    20,259
    
    
    $
    1,660
    
    
    $
    22,397
    
    
    $
    (412
    )
    
    
    43,904Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,094Net income before minority interest
and equity in net income of
partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,810Minority interest and equity in net
income of partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,058Net income before extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,868Extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,426Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    44,294Total Assets
    
    $
    3,062,110
    
    
    $
    79,465
    
    
    $
    
    
    
    $
    
    
    
    $
    3,141,575
 29




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 Nine Months Ended September 30, 2004:
    
    Insurance
    
    
    Agency(Dollars in thousands)
    
    Operations
    
    
    Operations
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    314,733
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    314,733Net premiums written
    
    $
    205,043
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    205,043Net premiums earned
    
    $
    165,751
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    165,751Agency commission and fee revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net investment income
    
    
    
    
    
    
    
    
    
    
    13,637
    
    
    
    
    
    
    
    13,637Net realized investment losses
    
    
    
    
    
    
    
    
    
    
    (687
    )
    
    
    
    
    
    
    (687
    )Total revenues
    
    
    165,751
    
    
    
    
    
    
    
    12,950
    
    
    
    
    
    
    
    178,701Losses and Expenses:Net losses and loss adjustment expenses
    
    
    98,395
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,395Acquisition costs and other
underwriting expenses
    
    
    53,255
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,255Agency commission and operating expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate and other operating expenses
    
    
    
    
    
    
    
    
    
    
    4,410
    
    
    
    
    
    
    
    4,410Interest expense
    
    
    
    
    
    
    
    
    
    
    4,087
    
    
    
    
    
    
    
    4,087Income before income taxes
    
    $
    14,101
    
    
    $
    
    
    
    $
    4,453
    
    
    $
    
    
    
    
    18,554Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,551
    )Net income before equity in net
income of partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,105Equity in net income of partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    926Net income before extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,031Extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,195Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    23,226Total Assets
    
    $
    2,742,537
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,742,537
 17. Supplemental Cash Flow Information
 Taxes and Interest Paid
 Quarter Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(Dollars in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net federal income
taxes paid (refunded)
    
    $
    1,750
    
    
    $
    (3
    )
    
    $
    4,733
    
    
    $
    1,113Interest paid
    
    
    4,234
    
    
    
    410
    
    
    
    6,482
    
    
    
    1,203
 Non-Cash Investing Activities
  (Dollars in thousands)Fair value of assets acquired (including goodwill)
    
    $
    715,928Cash portion of purchase price
    
    
    (125,985
    )Non-cash portion of purchase price
    
    
    (142,931
    )Liabilities assumed (including minority interest)
    
    $
    447,012
 18. Subsequent Events
  30




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
     31




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Recent Developments
         32




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
      Overview
     33




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
    Critical Accounting Policies and Estimates
 Investments
 Fair Values
  Classification of Investments
  Other Than Temporary Impairment
  34




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
      Gross Unrealized LossesNumber
    
    
    
    
    
    
    Cost or
    
    
    
    
    
    
    Six
    
    
    Between
    
    
    Greaterof
    
    
    Fair
    
    
    Amortized
    
    
    
    
    
    
    Months or
    
    
    Seven Months
    
    
    than(Dollars in thousands)
    
    Securities
    
    
    Value
    
    
    Cost
    
    
    Total
    
    
    Less
    
    
    and One Year
    
    
    One YearBonds
    
    
    459
    
    
    $
    790,271
    
    
    $
    801,100
    
    
    $
    10,829
    
    
    $
    3,461
    
    
    $
    5,911
    
    
    $
    1,457Preferred Stock
    
    
    8
    
    
    
    3,988
    
    
    
    4,259
    
    
    
    272
    
    
    
    71
    
    
    
    201
    
    
    
    Common Stock
    
    
    185
    
    
    
    14,108
    
    
    
    14,876
    
    
    
    767
    
    
    
    644
    
    
    
    123
    
    
    
    $
    11,868
    
    
    $
    4,176
    
    
    $
    6,235
    
    
    $
    1,457
  Goodwill and Intangible Assets
    35




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Liability For Unpaid Losses And Loss Adjustment Expenses
       Recoverability of Reinsurance Receivables
   36




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
   A.M.
    
    
    Gross
    
    
    Prepaid
    
    
    Total
    
    
    Percent
    
    
    Ceded
    
    
    PercentBest
    
    
    Reinsurance
    
    
    Reinsurance
    
    
    Reinsurance
    
    
    of
    
    
    Premiums
    
    
    of(Dollars in millions)
    
    Rating
    
    
    Receivables
    
    
    Premium
    
    
    Assets
    
    
    Total
    
    
    Written
    
    
    TotalAmerican Re-Insurance Co.
    
    
    A
    
    
    $
    568.3
    
    
    $
    25.1
    
    
    $
    593.4
    
    
    
    40.6
    %
    
    $
    41.3
    
    
    
    50.2
    %Employers Reinsurance Corp.
    
    
    A
    
    
    
    313.5
    
    
    
    8.1
    
    
    
    321.6
    
    
    
    22.0
    
    
    
    14.4
    
    
    
    17.5General Reinsurance Corp.
    
    
    A++
    
    
    
    80.5
    
    
    
    6.1
    
    
    
    86.6
    
    
    
    5.9
    
    
    
    9.1
    
    
    
    11.1Hartford Fire Insurance Co.
    
    
    A+
    
    
    
    75.0
    
    
    
    0.0
    
    
    
    75.0
    
    
    
    5.1
    
    
    
    0.2
    
    
    
    0.2GE Reinsurance Corporation
    
    
    A
    
    
    
    57.6
    
    
    
    0.1
    
    
    
    57.7
    
    
    
    4.0
    
    
    
    0.3
    
    
    
    0.4Generali  Assicurazioni
    
    
    A+
    
    
    
    39.9
    
    
    
    0.0
    
    
    
    39.9
    
    
    
    2.7
    
    
    
    0.0
    
    
    
    0.0Converium AG
    
    
    B++
    
    
    
    37.0
    
    
    
    0.0
    
    
    
    37.0
    
    
    
    2.5
    
    
    
    (0.2
    )
    
    
    (0.2
    )Converium Re (North America)
    
    
    B-
    
    
    
    34.0
    
    
    
    0.0
    
    
    
    34.0
    
    
    
    2.3
    
    
    
    0.0
    
    
    
    0.0Swiss Reinsurance America Corp
    
    
    A+
    
    
    
    24.7
    
    
    
    0.0
    
    
    
    24.7
    
    
    
    1.7
    
    
    
    0.0
    
    
    
    0.0Clearwater Insurance (Odyssey
Reinsurance Corp.)
    
    
    A
    
    
    
    20.6
    
    
    
    0.0
    
    
    
    20.6
    
    
    
    1.4
    
    
    
    0.0
    
    
    
    0.0Subtotal
    
    
    
    
    
    
    1,251.1
    
    
    
    39.4
    
    
    
    1,290.5
    
    
    
    88.2
    
    
    
    65.1
    
    
    
    79.2All other reinsurers
    
    
    
    
    
    
    164.7
    
    
    
    8.5
    
    
    
    173.2
    
    
    
    11.8
    
    
    
    17.1
    
    
    
    20.8Total reinsurance
receivables before purchase
accounting adjustments
    
    
    
    
    
    
    1,415.8
    
    
    
    47.9
    
    
    
    1,463.7
    
    
    
    100.0
    %
    
    $
    82.2
    
    
    
    100.0
    %Purchase accounting adjustments
    
    
    
    
    
    
    (50.6
    )
    
    
    (1.1
    )
    
    
    (51.7
    )Total receivables
    
    
    
    
    
    
    1,365.2
    
    
    $
    46.8
    
    
    
    1,412.0Collateral from reinsurers
    
    
    
    
    
    
    675.1
    
    
    
    
    
    
    
    675.1Net receivables
    
    
    
    
    
    $
    690.1
    
    
    
    
    
    
    $
    736.9
   Deferred Acquisition Costs
  37




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Taxation
   Stock Based Compensation
  Revenue Recognition
    New Accounting Pronouncements
   38




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UNITED AMERICA INDEMNITY, LTD.
     39




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UNITED AMERICA INDEMNITY, LTD.
 Our Business Segments
  Quarter Ended September 30,(Dollars in thousands)
    
    2005
    
    
    2004Insurance Operations premiums written:Gross premiums written
    
    $
    163,593
    
    
    $
    108,657Ceded premiums written
    
    
    28,730
    
    
    
    30,414Net premiums written
    
    $
    134,863
    
    
    $
    78,243Revenues:Insurance Operations
    
    $
    121,987
    
    
    $
    60,933Agency Operations
    
    
    13,086
    
    
    
    Corporate
    
    
    11,613
    
    
    
    3,930Subtotal
    
    
    146,686
    
    
    
    64,863Eliminations
    
    
    (654
    )
    
    
    Net revenues
    
    $
    146,032
    
    
    $
    64,863Expenses (including losses and loss
adjustment expenses):Insurance Operations
    
    $
    120,367
    
    
    $
    57,261Agency Operations
    
    
    11,399
    
    
    
    Corporate
    
    
    3,407
    
    
    
    2,830Subtotal
    
    
    135,173
    
    
    
    60,091Eliminations
    
    
    (632
    )
    
    
    Net expenses
    
    $
    134,541
    
    
    $
    60,091Insurance Operations ratios:Net losses and loss adjustment expense ratio
    
    
    66.1
    %
    
    
    56.8
    %Other underwriting expense ratio
    
    
    32.3
    %
    
    
    37.2
    %Combined ratio
    
    
    98.4
    %
    
    
    94.0
    %
 Nine Months Ended September 30,(Dollars in thousands)
    
    2005
    
    
    2004Insurance Operations premiums written:Gross premiums written
    
    $
    462,955
    
    
    $
    314,733Ceded premiums written
    
    
    82,277
    
    
    
    109,690Net premiums written
    
    $
    380,678
    
    
    $
    205,043Revenues:Insurance Operations
    
    $
    343,901
    
    
    $
    165,751Agency Operations
    
    
    30,809
    
    
    
    Corporate
    
    
    34,373
    
    
    
    12,950Subtotal
    
    
    409,083
    
    
    
    178,701Eliminations
    
    
    (2,010
    )
    
    
    Net revenues
    
    $
    407,073
    
    
    $
    178,701Expenses (including losses and loss
adjustment expenses):Insurance Operations
    
    $
    323,642
    
    
    $
    151,650Agency Operations
    
    
    29,149
    
    
    
    Corporate
    
    
    11,976
    
    
    
    8,497Subtotal
    
    
    364,767
    
    
    
    160,147Eliminations
    
    
    (1,598
    )
    
    
    Net expenses
    
    $
    363,169
    
    
    $
    160,147Insurance Operations ratios:Net losses and loss adjustment expense ratio
    
    
    62.7
    %
    
    
    59.4
    %Other underwriting expense ratio
    
    
    31.2
    %
    
    
    32.1
    %Combined ratio
    
    
    93.9
    %
    
    
    91.5
    %
 40




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##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Results of Operations
 Nine Months Ended September 30, 2005 Compared with the Nine Months Ended September 30, 2004
 Premiums
  
    
    Property and general liability gross premiums written were $407.7 million for the nine
months ended September 30, 2005, compared with $241.6 million for the nine months ended
September 30, 2004, an increase of $166.0 million or 68.7%. This increase primarily
resulted from the merger with Penn-America partially offset by the termination of several
heavily reinsured products.
    
    Professional liability gross premiums written were $55.3 million for the nine months
ended September 30, 2005, compared with $73.1 million for the nine months ended September
30, 2004, a decrease of $17.8 million or 24.4%. This decrease primarily resulted from more
conservative underwriting practices and pricing actions in response to market conditions.
  
    
    Property and general liability net premiums written were $333.9 million for the nine
months ended September 30, 2005, compared with $155.6 million for the nine months ended
September 30, 2004, an increase of $178.3 million or
114.5%. The increase in property and general liability net premiums written primarily resulted from the merger with Penn-America and reduced reinsurance
cessions. Net premiums written for the
nine months ended September 30, 2005 include $1.8 million of ceded premium to purchase
second event catastrophe coverage as a result of Hurricane Katrina (Katrina).
    
    Professional liability net premiums written were $46.8 million for the nine months ended
September 30, 2005, compared with $49.4 million for the nine months ended September 30,
2004, a decrease of $2.6 million or 5.3%. This decrease primarily resulted from
 more conservative underwriting practices and pricing actions in response to market conditions.
  Agency Commission and Fee Revenues
  41




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UNITED AMERICA INDEMNITY, LTD.
 Net Investment Income
    Net Realized Investment Gains (Losses)
  Net Losses and Loss Adjustment Expenses
     42




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UNITED AMERICA INDEMNITY, LTD.
  Acquisition Costs and Other Underwriting Expenses
   Agency Commissions and Operating Expenses
  Corporate and Other Operating Expenses
  Expense and Combined Ratios
   43




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UNITED AMERICA INDEMNITY, LTD.
 Interest Expense
  Income Tax Expense (Benefit)
  Equity in Net Earnings of Partnerships
  Extraordinary Gain
  Net Income and Net Operating Income
  44




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UNITED AMERICA INDEMNITY, LTD.
 Quarter Ended September 30, 2005 Compared with the Quarter Ended September 30, 2004
 Premiums
  
    
    Property and general liability gross premiums written were $143.7 million for the
quarter ended September 30, 2005, compared with $78.4 million for the quarter ended
September 30, 2004, an increase of $65.3 million or 83.2%. This increase primarily
resulted from the merger with Penn-America combined with a 1.4% growth in United
National Insurance Companies gross written premiums.
    
    Professional liability gross premiums written were $19.9 million for the quarter ended
September 30, 2005, compared with $30.2 million for the quarter ended September 30, 2004, a
decrease of $10.3 million or 34.2%. This decrease primarily resulted from more
conservative underwriting practices and pricing actions in response to market conditions.
  
    
    Property and general liability net premiums written were $118.2 million for the quarter
ended September 30, 2005, compared with $56.7 million for the quarter ended September 30,
2004, an increase of $61.5 million or 108.3%. The increase in
property and general liability net premiums written primarily resulted from the
merger with Penn-America and reduced reinsurance cessions. Net premiums written for the quarter ended
September 30, 2005 include $1.8 million of ceded premium to purchase second event
catastrophe coverage as a result of Katrina.
    
    Professional liability net premiums written were $16.7 million for the quarter ended
September 30, 2005, compared with $21.5 million for the quarter ended September 30, 2004, a
decrease of $4.8 million or 22.6%. This decrease primarily
resulted from more conservative underwriting practices and
pricing actions in response to market conditions.
  Agency Commission and Fee Revenues
  Net Investment Income
   45




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UNITED AMERICA INDEMNITY, LTD.
   Net Realized Investment Gains (Losses)
  Net Losses and Loss Adjustment Expenses
     Acquisition Costs and Other Underwriting Expenses
  46




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UNITED AMERICA INDEMNITY, LTD.
   Agency Commission and Operating Expenses
  Corporate and Other Operating Expenses
 
 Expense and Combined Ratios
   Interest Expense
  Income Tax Expense (Benefit)
  47




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UNITED AMERICA INDEMNITY, LTD.
  Equity in Net Earnings of Partnerships
  Net Income and Net Operating Income
 .
 Liquidity and Capital Resources
 Sources and Uses of Funds
    48




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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.
    49




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UNITED AMERICA INDEMNITY, LTD.
 Liquidity
        50




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UNITED AMERICA INDEMNITY, LTD.
       Capital Resources
     51




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UNITED AMERICA INDEMNITY, LTD.
         52




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UNITED AMERICA INDEMNITY, LTD.
     Commitments
  Payment Due by Period1 Year
    
    
    2 to 3 Years
    
    
    4 to 5 Years10/1/05 
    
    
    10/1/06 
    
    
    10/1/08 
    
    
    6 Years(Dollars in thousands)
    
    Total
    
    
    9/30/06
    
    
    9/30/08
    
    
    9/30/010
    
    
    and LaterOperating leases (1)
    
    $
    20,905
    
    
    $
    3,395
    
    
    $
    5,713
    
    
    $
    4,618
    
    
    $
    7,179Discretionary demand line of
credit (2)
    
    
    155
    
    
    
    31
    
    
    
    62
    
    
    
    62
    
    
    
    Senior notes (3)
    
    
    134,784
    
    
    
    5,598
    
    
    
    11,196
    
    
    
    11,196
    
    
    
    106,794Junior subordinated debentures (4)
    
    
    195,978
    
    
    
    4,762
    
    
    
    9,591
    
    
    
    9,659
    
    
    
    171,966Revolving line of credit
    
    
    3,275
    
    
    
    3,275
    
    
    
    
    
    
    
    
    
    
    
    Term Loans
    
    
    4,300
    
    
    
    694
    
    
    
    1,319
    
    
    
    1,172
    
    
    
    1,115Unpaid losses and loss adjustment
expenses obligations (5)
    
    
    1,977,128
    
    
    
    521,377
    
    
    
    665,574
    
    
    
    337,747
    
    
    
    452,430Total
    
    $
    2,336,525
    
    
    $
    539,132
    
    
    $
    693,455
    
    
    $
    364,454
    
    
    $
    739,484
 
 (1)
    
    We lease office space and equipment as part of our normal operations. The amounts shown
above represent future commitments under such operating leases.(2)
    
    There were no outstanding borrowings against the discretionary demand line of credit as of
September 30, 2005. The amounts shown above represent fees due on the amount available for
borrowing.(3)
    
    On July 20, 2005, United America Indemnity Group sold $90.0 million of guaranteed senior
notes, due July 20, 2015. These notes have an interest rate of 6.22%, payable semi-annually.
On July 20, 2011 and on each anniversary thereafter to and including July 20, 2014, United
America Indemnity Group is required to prepay $18.0 million of the principal amount. On July
20, 2015, U.N. Holdings II, Inc is required to pay any remaining outstanding principal amount
on the notes. The notes are guaranteed by United America Indemnity, Ltd. Proceeds from the
notes were used to prepay $72.8 million in principal and related interest due as of July 20,
2005 under senior notes issued by Wind River to the Ball family trusts in September 2003. The
terms of the prepayment agreement required the Ball family trusts to reimburse Wind River for
$0.3 million of the issuance costs of the new senior notes plus $1.0 million of the
incremental interest costs that United America Indemnity Group is estimated to incur under the
new senior notes. The total amount of these reimbursements of $1.3 million was
recorded as a gain on the early extinguishment of debt.(4)
    
    See discussion in Capital Resources. 53




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UNITED AMERICA INDEMNITY, LTD.
 
 (5)
    
    See discussion in Liability for Unpaid Losses and Loss Adjustment Expenses. Off Balance Sheet Arrangements
  Inflation
   Cautionary Note Regarding Forward-Looking Statements
    54




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UNITED AMERICA INDEMNITY, LTD.
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Risk
  Interest Rate Risk
   (Dollars in thousands)
    
    
    
    
    
    Change in Market ValueBasis Point Change
    
    Market Value
    
    
    $
    
    
    %(200)
    
    $
    1,169,268
    
    
    $
    77,622
    
    
    
    7.1
    %(100)
    
    
    1,130,391
    
    
    
    38,745
    
    
    
    3.5
    %No change *
    
    
    1,091,646
    
    
    
    
    
    
    
    0.0
    %100
    
    
    1,047,351
    
    
    
    (44,295
    )
    
    
    (4.1
    %)200
    
    
    1,003,442
    
    
    
    (88,204
    )
    
    
    (8.1
    %)
 
 *
    
    The no change value represents fixed income securities
with a market value of $1,089.4 million and $2.3 million of preferred stock
securities whose prices change inversely with interest rate movements. Credit Risk
    Equity Price Risk
  55




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UNITED AMERICA INDEMNITY, LTD.
     (Dollars in thousands)HypotheticalEstimated Fair Value
    
    
    Percentage Increaseafter Hypothetical
    
    
    (Decrease) inHypothetical Price Change
    
    Change in Prices
    
    
    Shareholders Equity(20%)
    
    $
    50,870
    
    
    
    (2.0
    %)(10%)
    
    
    57,229
    
    
    
    (1.0
    %)No change
    
    
    63,588
    
    
    
    10%
    
    
    69,947
    
    
    
    1.0
    %20%
    
    
    76,306
    
    
    
    2.0
    %
 
 The table does not include $2.3 million of preferred stock securities whose price
changes inversely with interest rate movements. These securities are included in
the Interest Rate Risk table. 56




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UNITED AMERICA INDEMNITY, LTD.
 
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  57




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UNITED AMERICA INDEMNITY, LTD.
 
 PART II-OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 5.
Other Information
  
 Item 6. Exhibits
 10.1
    
    Separation Agreement, dated as of October 6, 2005, by and among Wind River Insurance
Company, Ltd. and Seth D. Freudberg (incorporated herein by reference to Exhibit 10.1 of
our Current Report on Form 8-K filed on October 18, 2005).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 2002.31.4+
    
    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.
 58




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UNITED AMERICA INDEMNITY, LTD.
 
 SIGNATURE
  UNITED AMERICA INDEMNITY, LTD.RegistrantNovember 9, 2005
    
    By:
    
    /s/ Kevin L. TateDate: November 9, 2005
    
    Kevin L. TateChief Financial Officer(Authorized Signatory
and Principal Financialand Accounting Officer)
 59