##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended June 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXHANGE ACT OF 1934
 For the Transition Period from  to
 Commission file number 000-50891
 SPECIALTY UNDERWRITERS ALLIANCE, INC.
  Delaware
(State or other jurisdiction of incorporation or 
organization)
    
    20-0432760
(I.R.S. Employer Identification
Number)
 222 South Riverside Plaza 
Chicago, Illinois
(Address of principal executive office)
    
    60606
(Zip Code)
 (888) 782-4672
 þ o
   Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ




---



##### 



SPECIALTY UNDERWRITERS ALLIANCE, INC.
 INDEX
 Page No.PART I  FINANCIAL INFORMATION
    
    
    3Item 1: Financial Statements
    
    
    3Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4: Controls and Procedures
    
    
    17PART II  OTHER INFORMATION
    
    
    18Item 1: Legal Proceedings
    
    
    18Item 1A: Risk Factors
    
    
    18Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3: Defaults Upon Senior Securities
    
    
    18Item 4: Submission of Matters to a Vote of Security Holders
    
    
    18Item 5: Other Information
    
    
    19Item 6: Exhibits
    
    
    19Signatures
    
    
    20Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1: Financial Statements
 Specialty Underwriters Alliance, Inc.
Consolidated Balance Sheets
(dollars in thousands)
 As ofJune 30,
    
    
    December 31,2007
    
    
    2006(unaudited)AssetsFixed maturity investments, at fair value (amortized cost: $166,368 and $145,581)
    
    $
    163,522
    
    
    $
    144,520Short-term investments, at amortized cost (which approximates fair value)
    
    
    30,546
    
    
    
    19,538Total investments
    
    
    194,068
    
    
    
    164,058Cash
    
    
    558
    
    
    
    2,375Insurance premiums receivable
    
    
    75,701
    
    
    
    68,310Reinsurance recoverable on unpaid loss and loss adjustment expenses
    
    
    77,855
    
    
    
    80,976Prepaid reinsurance premiums
    
    
    685
    
    
    
    3,577Investment income accrued
    
    
    1,734
    
    
    
    1,566Equipment and capitalized software at cost (less accumulated depreciation of $6,063 and $3,915)
    
    
    11,293
    
    
    
    8,643Intangible assets
    
    
    10,745
    
    
    
    10,745Deferred acquisition costs
    
    
    19,229
    
    
    
    19,876Other assets
    
    
    2,498
    
    
    
    3,171Total assets
    
    $
    394,366
    
    
    $
    363,297LiabilitiesLoss and loss adjustment expense reserves
    
    $
    160,575
    
    
    $
    141,200Unearned insurance premiums
    
    
    95,019
    
    
    
    89,804Insured deposit funds
    
    
    10,684
    
    
    
    10,366Accounts payable and other liabilities
    
    
    8,864
    
    
    
    7,945Total liabilities
    
    
    275,142
    
    
    
    249,315Stockholders equityCommon stock at $.01 par value per share -
authorized 30,000,000 shares; issued and outstanding 14,697,355 and 14,682,355
shares
    
    
    147
    
    
    
    147Class B common stock at $.01 par value per share -
authorized 2,000,000 shares; issued and outstanding 720,032 and 679,152 shares
    
    
    7
    
    
    
    7Paid-in capital  common stock
    
    
    129,042
    
    
    
    128,372Paid-in capital  class B common stock
    
    
    5,163
    
    
    
    4,838Accumulated deficit
    
    
    (12,289
    )
    
    
    (18,321
    )Accumulated other comprehensive loss
    
    
    (2,846
    )
    
    
    (1,061
    )Total stockholders equity
    
    
    119,224
    
    
    
    113,982Total liabilities and stockholders equity
    
    $
    394,366
    
    
    $
    363,297
   3




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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Consolidated Statements of Operations and Comprehensive Income
(dollars in thousands)
(unaudited)
 Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesEarned insurance premiums
    
    $
    37,194
    
    
    $
    25,230
    
    
    $
    72,556
    
    
    $
    48,486Net investment income
    
    
    2,338
    
    
    
    1,432
    
    
    
    4,418
    
    
    
    2,576Net realized gains (losses)
    
    
    24
    
    
    
    (3
    )
    
    
    27
    
    
    
    (2
    )Total revenue
    
    
    39,556
    
    
    
    26,659
    
    
    
    77,001
    
    
    
    51,060ExpensesLoss and loss adjustment expenses
    
    
    21,894
    
    
    
    14,475
    
    
    
    42,030
    
    
    
    28,472Acquisition expenses
    
    
    9,103
    
    
    
    5,188
    
    
    
    17,731
    
    
    
    10,731Other operating expenses
    
    
    5,487
    
    
    
    4,767
    
    
    
    11,084
    
    
    
    9,766Total expenses
    
    
    36,484
    
    
    
    24,430
    
    
    
    70,845
    
    
    
    48,969Pretax income
    
    
    3,072
    
    
    
    2,229
    
    
    
    6,156
    
    
    
    2,091Federal income tax expense
    
    
    (62
    )
    
    
    (62
    )
    
    
    (124
    )
    
    
    (124
    )Net income
    
    
    3,010
    
    
    
    2,167
    
    
    
    6,032
    
    
    
    1,967Net change in unrealized gains and losses for
investments held, after tax
    
    
    (2,418
    )
    
    
    (798
    )
    
    
    (1,785
    )
    
    
    (1,636
    )Comprehensive income
    
    $
    592
    
    
    $
    1,369
    
    
    $
    4,247
    
    
    $
    331Earnings per share available
to common stockholders (in dollars)Basic
    
    $
    0.20
    
    
    $
    0.14
    
    
    $
    0.39
    
    
    $
    0.13Diluted
    
    $
    0.20
    
    
    $
    0.14
    
    
    $
    0.39
    
    
    $
    0.13Weighted Average Shares OutstandingBasic
    
    
    15,406
    
    
    
    15,176
    
    
    
    15,390
    
    
    
    15,096Diluted
    
    
    15,406
    
    
    
    15,176
    
    
    
    15,390
    
    
    
    15,096
   4




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Specialty Underwriters Alliance, Inc.
Consolidated Statement of Stockholders Equity
(dollars in thousands)
(unaudited)
 AccumulatedCommon
    
    
    Paid-in
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Other
    
    
    TotalStock
    
    
    Capital
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Comprehensive
    
    
    Stockholders'Class A
    
    
    Class A
    
    
    Class B
    
    
    Class B
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    EquityBalance at December 31, 2006
    
    $
    147
    
    
    $
    128,372
    
    
    $
    7
    
    
    $
    4,838
    
    
    $
    (18,321
    )
    
    $
    (1,061
    )
    
    $
    113,982Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,032
    
    
    
    
    
    
    
    6,032Net change in unrealized
investment
losses, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,785
    )
    
    
    (1,785
    )Stock issuance
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    448Stock based compensation
    
    
    
    
    
    
    547
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    547Balance at June 30, 2007
    
    $
    147
    
    
    $
    129,042
    
    
    $
    7
    
    
    $
    5,163
    
    
    $
    (12,289
    )
    
    $
    (2,846
    )
    
    $
    119,224
   5




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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
 Six MonthsEndedJune 30,2007
    
    
    2006(unaudited)Cash flows from operationsNet income
    
    $
    6,032
    
    
    $
    1,967Charges (credits) to reconcile net income to cash flows from operations:Change in deferred income tax
    
    
    124
    
    
    
    124Net realized (gains) losses
    
    
    (27
    )
    
    
    2Amortization of bond premium (discount)
    
    
    (23
    )
    
    
    214Depreciation
    
    
    2,148
    
    
    
    1,051Net change in:Reinsurance recoverable on unpaid loss and loss adjustment expense
reserves
    
    
    3,121
    
    
    
    3,867Loss and loss adjustment expense reserves
    
    
    19,375
    
    
    
    19,078Insurance premiums receivable
    
    
    (7,391
    )
    
    
    (10,890
    )Unearned insurance premiums
    
    
    5,215
    
    
    
    13,796Deferred acquisition costs
    
    
    647
    
    
    
    (3,977
    )Prepaid reinsurance premiums
    
    
    2,892
    
    
    
    2,433Insured deposit funds
    
    
    318
    
    
    
    4,775Other, net
    
    
    1,970
    
    
    
    497Total adjustments
    
    
    28,369
    
    
    
    30,970Net cash flows provided by operations
    
    
    34,401
    
    
    
    32,937Cash flows from investing activitiesNet increase in short-term investments
    
    
    (11,008
    )
    
    
    (1,252
    )Redemptions, calls and maturities of fixed maturity investments
    
    
    9,803
    
    
    
    3,876Purchases of fixed maturity investments
    
    
    (30,540
    )
    
    
    (33,350
    )Purchase of equipment and capitalized software
    
    
    (4,798
    )
    
    
    (2,410
    )Net cash flows used for investing activities
    
    
    (36,543
    )
    
    
    (33,136
    )Cash flows from financing activitiesIssuance of common stock
    
    
    325
    
    
    
    2,181Net cash provided by (used for) financing activities
    
    
    325
    
    
    
    2,181Net (decrease) increase in cash during the period
    
    
    (1,817
    )
    
    
    1,982Cash at beginning of the period
    
    
    2,375
    
    
    
    5,329Cash at the end of the period
    
    $
    558
    
    
    $
    7,311
   6




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##### Table of Contents



Note 1. Basis of Presentation
     Note 2. Net Income Per Share
  Three Months Ended
    
    
    Three Months EndedJune 30, 2007
    
    
    June 30, 2006(dollars in thousands, except per share data)Net income
    
    $
    3,010
    
    
    $
    2,167Weighted average common shares outstanding (basic and diluted)
    
    
    15,406
    
    
    
    15,176Net income per share (basic and diluted)
    
    $
    0.20
    
    
    $
    0.14
  Six Months Ended
    
    
    Six Months EndedJune 30, 2007
    
    
    June 30, 2006(dollars in thousands, except per share data)Net income
    
    $
    6,032
    
    
    $
    1,967Weighted average common shares outstanding (basic and diluted)
    
    
    15,390
    
    
    
    15,096Net income per share (basic and diluted)
    
    $
    0.39
    
    
    $
    0.13
  7




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##### Table of Contents



Note 3. Income Taxes
   Note 4. Unpaid Loss and Loss Adjustment Expense Reserves
    Note 5. Recent Accounting Pronouncements
    8




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##### Table of Contents



Note 6. Equity Based Compensation
    9




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##### Table of Contents



Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of
the federal securities laws, which are intended to be covered by the safe harbors created thereby.
Those statements include, but may not be limited to, the discussions of our operating and growth
strategy. Investors are cautioned that all forward-looking statements involve risks and
uncertainties including, without limitation, those set forth under the caption Risk Factors in
the Business section of our Annual Report on Form 10-K for the year ended December 31, 2006.
Although we believe that the assumptions underlying the forward-looking statements contained herein
are reasonable, any of the assumptions could prove to be inaccurate, and therefore, there can be no
assurance that the forward-looking statements included in this Quarterly Report on Form 10-Q will
prove to be accurate. In light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be regarded as a
representation by us or any other person that our objectives and plans will be achieved. We
undertake no obligation to publicly release any revisions to any forward-looking statements
contained herein to reflect events and circumstances occurring after the date hereof or to reflect
the occurrence of unanticipated events.
 Overview
      10




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Three Months Ended June 30, 2007 as compared to the Three Months Ended June 30, 2006
 PercentageChangeThree Months Ended June 30,
    
    
    2007 vs.2007
    
    
    2006
    
    
    2006(unaudited)(dollars in millions, except percentages and per share data)Results of operations:Gross written premiums
    
    $
    48.6
    
    
    $
    37.4
    
    
    
    30.0
    %Net written premiums
    
    
    46.2
    
    
    
    34.9
    
    
    
    32.4
    %Earned premiums
    
    
    37.2
    
    
    
    25.2
    
    
    
    47.6
    %Net investment income
    
    
    2.3
    
    
    
    1.5
    
    
    
    53.3
    %Net realized gains (losses)
    
    
    0.1
    
    
    
    0.0
    
    
    
    *Total revenues
    
    $
    39.6
    
    
    $
    26.7
    
    
    
    48.3
    %Loss and loss adjustment expense
    
    $
    21.9
    
    
    $
    14.5
    
    
    
    51.0
    %Acquisition expenses
    
    
    9.1
    
    
    
    5.2
    
    
    
    75.0
    %Other operating expenses
    
    
    5.5
    
    
    
    4.7
    
    
    
    17.0
    %Total expenses
    
    $
    36.5
    
    
    $
    24.4
    
    
    
    49.6
    %Pre-tax income
    
    $
    3.1
    
    
    $
    2.3
    
    
    
    34.8
    %Federal income tax (expense)
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    *Net income (loss)
    
    $
    3.0
    
    
    $
    2.2
    
    
    
    36.4
    %Net income(loss) per shareBasic and diluted
    
    $
    0.20
    
    
    $
    0.14
    
    
    
    42.9
    %Weighted average common shares outstanding (basic and diluted)
    
    
    15.4
    
    
    
    15.2
    
    
    
    1.3
    %
       11




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Three Months Ended
    
    
    Three Months EndedJune 30, 2007
    
    
    June 30, 2006Percentage of
    
    
    
    
    
    
    Percentage ofGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)AEON Insurance Group, Inc.
    
    $
    6.9
    
    
    
    14.2
    %
    
    $
    4.1
    
    
    
    11.0
    %American Team Managers
    
    
    9.0
    
    
    
    18.5
    %
    
    
    7.6
    
    
    
    20.3
    %Appalachian Underwriters, Inc.
    
    
    5.7
    
    
    
    11.7
    %
    
    
    3.2
    
    
    
    8.5
    %Flying Eagle Insurance Services, Inc.
    
    
    1.1
    
    
    
    2.3
    %
    
    
    
    
    
    
    0.0
    %Insential, Inc.
    
    
    0.5
    
    
    
    1.0
    %
    
    
    0.4
    
    
    
    1.1
    %Risk Transfer Holdings, Inc.
    
    
    23.4
    
    
    
    48.2
    %
    
    
    22.1
    
    
    
    59.1
    %Specialty Risk Solutions, LLC
    
    
    1.2
    
    
    
    2.5
    %
    
    
    
    
    
    
    0.0
    %Involuntary risk
    
    
    0.8
    
    
    
    1.6
    %
    
    
    
    
    
    
    0.0
    %Total
    
    $
    48.6
    
    
    
    100.0
    %
    
    $
    37.4
    
    
    
    100.0
    %
  Three Months Ended
    
    
    Three Months EndedJune 30, 2007
    
    
    June 30, 2006Percentage of
    
    
    
    
    
    
    Percentage ofGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)California
    
    $
    14.9
    
    
    
    30.6
    %
    
    $
    11.6
    
    
    
    31.0
    %Florida
    
    
    15.2
    
    
    
    31.3
    %
    
    
    18.4
    
    
    
    49.2
    %Other States
    
    
    18.5
    
    
    
    38.1
    %
    
    
    7.4
    
    
    
    19.8
    %Total
    
    $
    48.6
    
    
    
    100.0
    %
    
    $
    37.4
    
    
    
    100.0
    %
  Three Months Ended
    
    
    Three Months EndedJune 30, 2007
    
    
    June 30, 2006Percentage of
    
    
    
    
    
    
    Percentage ofGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)Workers compensation
    
    $
    27.2
    
    
    
    56.0
    %
    
    $
    23.5
    
    
    
    62.8
    %General liability
    
    
    10.0
    
    
    
    20.6
    %
    
    
    7.6
    
    
    
    20.3
    %Commercial automobile
    
    
    10.3
    
    
    
    21.2
    %
    
    
    5.7
    
    
    
    15.3
    %All other
    
    
    1.1
    
    
    
    2.2
    %
    
    
    0.6
    
    
    
    1.6
    %Total
    
    $
    48.6
    
    
    
    100.0
    %
    
    $
    37.4
    
    
    
    100.0
    %
  12




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##### Table of Contents



For the Three MonthsEnded June 30,2007
    
    
    2006(dollars in millions,except percentages)Gross premiums written
    
    $
    48.6
    
    
    $
    37.4Net premiums earned
    
    $
    37.2
    
    
    $
    25.2Net loss and loss adjustment expense ratio
    
    
    58.9
    %
    
    
    57.4
    %Ratio of acquisition expenses to earned premiums
    
    
    24.5
    %
    
    
    20.6
    %Ratio of all other expenses to gross written premiums
    
    
    11.3
    %
    
    
    12.7
    %
 Six Months Ended June 30, 2007 as compared to the Six Months Ended June 30, 2006
 PercentageChangeSix Months Ended June 30,
    
    
    2007 vs.2007
    
    
    2006
    
    
    2006(unaudited)(dollars in millions, except for percentages and per share data)Results of operations:Gross written premiums
    
    $
    83.6
    
    
    $
    68.2
    
    
    
    22.6
    %Net written premiums
    
    
    77.8
    
    
    
    62.3
    
    
    
    24.9
    %Earned premiums
    
    
    72.6
    
    
    
    48.5
    
    
    
    49.7
    %Net investment income
    
    
    4.4
    
    
    
    2.6
    
    
    
    69.2
    %Total revenues
    
    $
    77.0
    
    
    $
    51.1
    
    
    
    50.7
    %Loss and loss adjustment expense
    
    $
    42.0
    
    
    $
    28.5
    
    
    
    47.4
    %Acquisition expenses
    
    
    17.7
    
    
    
    10.7
    
    
    
    65.4
    %Other operating expenses
    
    
    11.1
    
    
    
    9.8
    
    
    
    13.3
    %Total expenses
    
    $
    70.8
    
    
    $
    49.0
    
    
    
    44.5
    %Pre-tax income
    
    $
    6.1
    
    
    $
    2.1
    
    
    
    190.5
    %Federal income tax (expense)
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    *Net income (loss)
    
    $
    6.0
    
    
    $
    2.0
    
    
    
    200.0
    %Net income(loss) per shareBasic and diluted
    
    $
    0.39
    
    
    $
    0.13
    
    
    
    200.0
    %Weighted average common shares outstanding (basic and diluted)
    
    
    15.4
    
    
    
    15.1
    
    
    
    2.0
    %
      13




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##### Table of Contents



Six Months Ended
    
    
    Six Months EndedJune 30, 2007
    
    
    June 30, 2006Percentage of
    
    
    
    
    
    
    Percentage ofGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)AEON Insurance Group, Inc.
    
    $
    11.9
    
    
    
    14.2
    %
    
    $
    7.6
    
    
    
    11.2
    %American Team Managers
    
    
    20.2
    
    
    
    24.2
    %
    
    
    14.8
    
    
    
    21.7
    %Appalachian Underwriters, Inc.
    
    
    10.1
    
    
    
    12.1
    %
    
    
    5.0
    
    
    
    7.3
    %Flying Eagle Insurance Services, Inc.
    
    
    1.1
    
    
    
    1.3
    %
    
    
    
    
    
    
    0.0
    %Insential, Inc.
    
    
    0.8
    
    
    
    0.9
    %
    
    
    0.4
    
    
    
    0.6
    %Risk Transfer Holdings, Inc.
    
    
    37.5
    
    
    
    44.9
    %
    
    
    40.4
    
    
    
    59.2
    %Specialty Risk Solutions, LLC
    
    
    1.2
    
    
    
    1.4
    %
    
    
    
    
    
    
    0.0
    %Involuntary risk
    
    
    0.8
    
    
    
    1.0
    %
    
    
    
    
    
    
    0.0
    %Total
    
    $
    83.6
    
    
    
    100.0
    %
    
    $
    68.2
    
    
    
    100.0
    %
  Six Months Ended
    
    
    Six Months EndedJune 30, 2007
    
    
    June 30, 2006Percentage of
    
    
    
    
    
    
    Percentage ofGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)California
    
    $
    28.7
    
    
    
    34.3
    %
    
    $
    22.0
    
    
    
    32.3
    %Florida
    
    
    22.5
    
    
    
    26.9
    %
    
    
    28.2
    
    
    
    41.3
    %Other States
    
    
    32.4
    
    
    
    38.8
    %
    
    
    18.0
    
    
    
    26.4
    %Total
    
    $
    83.6
    
    
    
    100.0
    %
    
    $
    68.2
    
    
    
    100.0
    %
  14




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##### Table of Contents



Six Months Ended
    
    
    Six Months EndedJune 30, 2007
    
    
    June 30, 2006Percentage of
    
    
    
    
    
    
    Percentage ofGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)Workers compensation
    
    $
    45.9
    
    
    
    54.9
    %
    
    $
    44.5
    
    
    
    65.2
    %General liability
    
    
    18.6
    
    
    
    22.2
    %
    
    
    13.7
    
    
    
    20.1
    %Commercial automobile
    
    
    17.3
    
    
    
    20.7
    %
    
    
    9.0
    
    
    
    13.2
    %All other
    
    
    1.8
    
    
    
    2.2
    %
    
    
    1.0
    
    
    
    1.5
    %Total
    
    $
    83.6
    
    
    
    100.0
    %
    
    $
    68.2
    
    
    
    100.0
    %
  For the Six MonthsEnded June 30,2007
    
    
    2006(dollars in millions,except percentages)Gross premiums written
    
    $
    83.6
    
    
    $
    68.2Net premiums earned
    
    $
    72.6
    
    
    $
    48.5Net loss and loss adjustment expense ratio
    
    
    57.9
    %
    
    
    58.7
    %Ratio of acquisition expenses to earned premiums
    
    
    24.4
    %
    
    
    22.1
    %Ratio of all other expenses to gross written premiums
    
    
    13.3
    %
    
    
    14.3
    %
 Liquidity and Capital Resources
   Cash Flows
  Six Months Ended June 30,2007
    
    
    2006(dollars in millions)Cash provided by (used for)Operating activities
    
    $
    34.4
    
    
    $
    32.9Investing activities
    
    
    (36.5
    )
    
    
    (33.1
    )Financing activities
    
    
    0.3
    
    
    
    2.2Change in cash
    
    $
    (1.8
    )
    
    $
    2.0
  15




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##### Table of Contents



Fixed Maturity Investments
   
 Item 3: Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk
   Estimated Fair Value
    
    
    IncreaseFair Value at
    
    
    Assumed Change in
    
    After Change in
    
    
    (Decrease) inJune 30, 2007
    
    
    Relevant Interest Rate
    
    Interest Rate
    
    
    Carrying Value(dollars in thousands)Total investments
    
    $
    194,068
    
    
    100 bp decrease
    
    $
    199,885
    
    
    $
    5,81750 bp decrease
    
    $
    197,050
    
    
    $
    2,98250 bp increase
    
    $
    191,002
    
    
    $
    (3,066
    )100 bp increase
    
    $
    187,918
    
    
    $
    (6,150
    )
 Credit Risk
   16




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##### Table of Contents



As of June 30, 2007
    
    
    As of December 31, 2006Market Value
    
    
    Percent of
    
    
    Market Value
    
    
    Percent of(dollars in thousands)
    
    
    Portfolio
    
    
    (dollars in thousands)
    
    
    PortfolioUS Govt & AAA Bonds
    
    $
    104,577
    
    
    
    64.0
    %
    
    $
    88,843
    
    
    
    61.5
    %AA Rated
    
    
    20,424
    
    
    
    12.5
    %
    
    
    15,959
    
    
    
    11.0
    %A Rated
    
    
    37,320
    
    
    
    22.8
    %
    
    
    39,718
    
    
    
    27.5
    %BBB Rated
    
    
    1,201
    
    
    
    0.7
    %
    
    
    
    
    
    
    0.0
    %Total
    
    $
    163,522
    
    
    
    100.0
    %
    
    $
    144,520
    
    
    
    100.0
    %
  
 Item 4: Controls and Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.
  Changes in Internal Control Over Financial Reporting.
 Inherent Limitations on Effectiveness of Controls.
  17




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1: Legal Proceedings
  
 Item 1A: Risk Factors
  
 Item 2: Recent Sales of Unregistered Securities
  
 Item 3: Defaults Upon Senior Securities
  
 Item 4: Submission of Matters to a Vote of Security Holders
  For
    
    
    WithheldCourtney C. Smith
    
    
    11,780,094
    
    
    
    737,994Peter E. Jokiel
    
    
    11,666,286
    
    
    
    849,802Robert E. Dean
    
    
    11,807,694
    
    
    
    710,394Raymond C. Groth
    
    
    11,807,694
    
    
    
    710,394Paul A. Philp
    
    
    11,808,694
    
    
    
    709,394Robert H. Whitehead
    
    
    11,807,694
    
    
    
    710,394Russell E. Zimmermann
    
    
    11,808,694
    
    
    
    709,394
  For
    
    Against
    
    Abstentions12,317,938
    
    184,600
    
    15,550
  For
    
    Against
    
    Abstentions7,210,266
    
    932,327
    
    3,250
    18




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##### Table of Contents



Item 5: Other Information
  
 Item 6: Exhibits
  ExhibitNumber
    
    Description10.1
    
    Fourth Amendment to the Securities Purchase Agreement between the Registrant and Specialty Risk Solutions, LLC31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  19




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##### Table of Contents



SPECIALTY UNDERWRITERS ALLIANCE, INC. 
(Registrant)Dated: August 6, 2007
    By:
    /s/  Courtney C. SmithName:
    Courtney C. SmithTitle:
    President and Chief Executive Officer
(Principal Executive Officer)Dated: August 6, 2007
    By:
    /s/ Peter E. JokielName:
    Peter E. JokielTitle:
    Executive Vice President, Chief Financial
Officer and
Treasurer (Principal Financial Officer)  20




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##### Table of Contents



ExhibitNumber
    
    Description10.1
    
    Fourth Amendment to the Securities Purchase Agreement between the Registrant and Specialty Risk Solutions, LLC31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  21