##### 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, 2009
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-50891
 SPECIALTY UNDERWRITERS ALLIANCE, INC.
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    20-0432760(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification Number)222 South Riverside Plaza, 
Chicago, Illinois
    
    60606(Address of Principal Executive Offices)
    
    (Zip Code)
 (888) 782-4672  (Registrants
Telephone Number, Including Area Code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ




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##### 



SPECIALTY UNDERWRITERS ALLIANCE, INC.
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    22PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26EX-10.1EX-10.2EX-10.3EX-10.4EX-10.5EX-10.6EX-10.7EX-10.8EX-10.9EX-10.10EX-10.11EX-10.12EX-10.13EX-10.14EX-31.1EX-31.2EX-32.1EX-32.2
  
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Specialty Underwriters Alliance, Inc.

Consolidated Balance Sheets

As of June 30, 2009 and December 31, 2008
(in thousands, except share data)
 6/30/2009
    
    
    12/31/2008(unaudited)ASSETSFixed maturity investments, at fair value (amortized cost: $231,131 and $220,744)
    
    $
    231,891
    
    
    $
    216,708Short-term investments, at amortized cost (which approximates fair value)
    
    
    33,153
    
    
    
    46,697Total Investments
    
    
    265,044
    
    
    
    263,405Cash
    
    
    1,383
    
    
    
    208Insurance premiums receivable
    
    
    68,484
    
    
    
    60,715Reinsurance recoverable on paid and unpaid loss and loss adjustment expenses
    
    
    79,725
    
    
    
    79,598Prepaid reinsurance premiums
    
    
    245
    
    
    
    309Investment income accrued
    
    
    2,554
    
    
    
    2,467Equipment and capitalized software at cost (less accumulated depreciation
of $18,823 and $15,486)
    
    
    12,901
    
    
    
    13,562Intangible assets
    
    
    10,745
    
    
    
    10,745Deferred acquisition costs
    
    
    16,982
    
    
    
    18,156Deferred tax asset
    
    
    1,602
    
    
    
    3,146Other assets
    
    
    2,867
    
    
    
    2,426Total Assets
    
    $
    462,532
    
    
    $
    454,737LIABILITIES & STOCKHOLDERS EQUITYLiabilitiesLoss and loss adjustment expense reserves
    
    $
    218,400
    
    
    $
    214,953Unearned insurance premiums
    
    
    79,247
    
    
    
    80,600Insured deposit funds
    
    
    13,737
    
    
    
    15,806Accounts payable and other liabilities
    
    
    10,435
    
    
    
    7,089Total Liabilities
    
    
    321,819
    
    
    
    318,448Commitments (Note 8)Stockholders equityCommon stock at $0.01 par value per share  authorized: 30,000,000 shares;
issued: 14,779,417 and 14,712,355 shares; and outstanding: 14,571,596
and 14,437,355 shares
    
    
    148
    
    
    
    147Class B common stock at $0.01 par value per share  authorized: 2,000,000
shares; issued and outstanding: 1,333,884 shares and 1,368,562 shares
    
    
    13
    
    
    
    14Paid-in capital  Common Stock
    
    
    130,394
    
    
    
    129,926Paid-in capital  Class B Common Stock
    
    
    7,694
    
    
    
    8,077Accumulated earnings
    
    
    2,573
    
    
    
    1,693Treasury stock (207,821 and 275,000 shares of common stock)
    
    
    (1,003
    )
    
    
    (1,347
    )Accumulated other comprehensive income (loss)
    
    
    894
    
    
    
    (2,221
    )Total Stockholders Equity
    
    
    140,713
    
    
    
    136,289Total Liabilities & Stockholders Equity
    
    $
    462,532
    
    
    $
    454,737
  
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##### Table of Contents



Specialty Underwriters Alliance, Inc.

Consolidated Statements of Operations and Comprehensive Income

For the Three and Six Months Ended June 30, 2009 and 2008
(Unaudited  in thousands, except for earnings per share)
 Three Months Ended
    
    
    Six Months Ended6/30/2009
    
    
    6/30/2008
    
    
    6/30/2009
    
    
    6/30/2008RevenuesEarned insurance premiums
    
    $
    35,365
    
    
    $
    34,195
    
    
    $
    70,140
    
    
    $
    69,945Net investment income
    
    
    2,775
    
    
    
    2,670
    
    
    
    5,549
    
    
    
    5,323Net realized gains, other than impairments
    
    
    24
    
    
    
    7
    
    
    
    168
    
    
    
    38Subtotal: Revenue before impairments
    
    
    38,164
    
    
    
    36,872
    
    
    
    75,857
    
    
    
    75,306Other than temporary impairment losses
    
    
    (1,624
    )
    
    
    -
    
    
    
    (1,835
    )
    
    
    -Portion of loss recognized in other
comprehensive income
    
    
    1,259
    
    
    
    -
    
    
    
    1,259
    
    
    
    -Subtotal: Net impairment recognized in
earnings
    
    
    (365
    )
    
    
    -
    
    
    
    (576
    )
    
    
    -Total revenue
    
    
    37,799
    
    
    
    36,872
    
    
    
    75,281
    
    
    
    75,306ExpensesLoss and loss adjustment expenses
    
    
    23,045
    
    
    
    20,941
    
    
    
    43,979
    
    
    
    41,999Acquisition expenses
    
    
    8,359
    
    
    
    7,267
    
    
    
    16,884
    
    
    
    15,970Other operating expenses
    
    
    7,141
    
    
    
    5,412
    
    
    
    13,726
    
    
    
    11,339Total expenses
    
    
    38,545
    
    
    
    33,620
    
    
    
    74,589
    
    
    
    69,308Pretax income (loss)
    
    
    (746
    )
    
    
    3,252
    
    
    
    692
    
    
    
    5,998Income tax (expense) benefit
    
    
    270
    
    
    
    (1,002
    )
    
    
    (175
    )
    
    
    (283
    )Net income (loss)
    
    
    (476
    )
    
    
    2,250
    
    
    
    517
    
    
    
    5,715Net change in unrealized gains and losses for
investments held, after tax
    
    
    2,066
    
    
    
    (2,685
    )
    
    
    2,660
    
    
    
    (2,233
    )Impairments included in other comprehensive
income (loss), after tax
    
    
    818
    
    
    
    -
    
    
    
    818
    
    
    
    -Comprehensive income (loss)
    
    $
    2,408
    
    
    $
    (435
    )
    
    $
    3,995
    
    
    $
    3,482Earnings (loss) per share available to
common stockholders (in dollars)Basic
    
    $
    (0.03
    )
    
    $
    0.14
    
    
    $
    0.03
    
    
    $
    0.37Diluted
    
    $
    (0.03
    )
    
    $
    0.14
    
    
    $
    0.03
    
    
    $
    0.36Weighted average shares outstandingBasic
    
    
    15,877
    
    
    
    15,666
    
    
    
    15,843
    
    
    
    15,623Diluted
    
    
    15,917
    
    
    
    15,809
    
    
    
    15,941
    
    
    
    15,766
  
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##### Table of Contents



Specialty Underwriters Alliance, Inc.  Consolidated Statement of Stockholders Equity

As of June 30, 2009
(Unaudited  in thousands)
 Accum.Other
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Common
    
    
    Paid-in
    
    
    
    
    
    
    
    
    
    
    Comp.
    
    
    Stock-Stock
    
    
    Capital
    
    
    Stock
    
    
    Capital
    
    
    Retained
    
    
    Treasury
    
    
    Income
    
    
    holders'Class A
    
    
    Class A
    
    
    Class B
    
    
    Class B
    
    
    Earnings
    
    
    Stock
    
    
    (Loss)
    
    
    EquityBalance at Dec. 31, 2008
    
    $
    147
    
    
    $
    129,926
    
    
    $
    14
    
    
    $
    8,077
    
    
    $
    1,693
    
    
    $
    (1,347
    )
    
    $
    (2,221
    )
    
    $
    136,289Net income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    517
    
    
    
    -
    
    
    
    -
    
    
    
    517Net change in unrealized
investment gains, net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    2,660
    
    
    
    2,660Impairments included in
other comprehensive income, net
of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    818
    
    
    
    818Stock issuance
    
    
    1
    
    
    
    111
    
    
    
    (1
    )
    
    
    (383
    )
    
    
    -
    
    
    
    344
    
    
    
    -
    
    
    
    72Stock based compensation
    
    
    -
    
    
    
    357
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    357Cumulative effect of adopting
FSP FAS 115-2
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    363
    
    
    
    -
    
    
    
    (363
    )
    
    
    -Balance at June 30, 2009
    
    $
    148
    
    
    $
    130,394
    
    
    $
    13
    
    
    $
    7,694
    
    
    $
    2,573
    
    
    $
    (1,003
    )
    
    $
    894
    
    
    $
    140,713
  
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##### Table of Contents



Specialty Underwriters Alliance, Inc.

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2009 and 2008
(Unaudited  in thousands)
 Six Months Ended6/30/2009
    
    
    6/30/2008Cash flows from operationsNet income
    
    $
    517
    
    
    $
    5,715Charges (credits) to reconcile net income to cash flows from operations:Change in deferred income tax
    
    
    (332
    )
    
    
    (307
    )Net realized losses (gains)
    
    
    408
    
    
    
    (38
    )Amortization of bond premium (discount)
    
    
    97
    
    
    
    (10
    )Depreciation
    
    
    3,337
    
    
    
    3,171Net change in:Reinsurance recoverable (payable) on unpaid loss and loss adjustment
expense reserves
    
    
    (127
    )
    
    
    3,806Loss and loss adjustment expense reserves
    
    
    3,447
    
    
    
    10,134Insurance premiums receivable
    
    
    (7,769
    )
    
    
    491Unearned insurance premiums
    
    
    (1,353
    )
    
    
    (8,253
    )Deferred acquisition costs
    
    
    1,174
    
    
    
    1,705Prepaid reinsurance premiums
    
    
    64
    
    
    
    214Insured deposit funds
    
    
    (2,069
    )
    
    
    1,277Other, net
    
    
    3,129
    
    
    
    (312
    )Total adjustments
    
    
    6
    
    
    
    11,878Net cash flows provided by operations
    
    
    523
    
    
    
    17,593Cash flows from investing activitiesNet decrease in short-term investments
    
    
    13,545
    
    
    
    12,710Redemptions, calls and maturities of fixed maturity investments
    
    
    19,051
    
    
    
    18,042Purchases of fixed maturity investments
    
    
    (29,384
    )
    
    
    (44,938
    )Purchases of equipment and capitalized software
    
    
    (2,676
    )
    
    
    (3,643
    )Net cash flows provided by (used for) investing activities
    
    
    536
    
    
    
    (17,829
    )Cash flows from financing activitiesIssuance of common stock
    
    
    116
    
    
    
    762Treasury Stock Purchases
    
    
    -
    
    
    
    (1,347
    )Net cash provided by (used for) financing activities
    
    
    116
    
    
    
    (585
    )Net increase (decrease) in cash during the period
    
    
    1,175
    
    
    
    (821
    )Cash at beginning of the period
    
    
    208
    
    
    
    968Cash at the end of the period
    
    $
    1,383
    
    
    $
    147
  
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Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited  in thousands, except earnings per share)
 Note
1. Basis of Presentation
    Note
2. Recent Accounting Pronouncements
 Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
 Recognition and Presentation of
Other-Than-Temporary Impairments
 Interim
Disclosures about Fair Value of Financial Instruments Disclosures about Fair Value of Financial
Instruments
 Amendments to the Impairment Guidance of EITF Issue No. 99-20 Accounting for Certain Investments in Debt and Equity Securities
 
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Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited  in thousands, except earnings per share)
  Note
3. Earnings Per Share
  Three Months Ended
    
    
    Six Months Ended6/30/2009
    
    
    6/30/2008
    
    
    6/30/2009
    
    
    6/30/2008Numerator for earnings per shareNet income (loss)
    
    $
    (476
    )
    
    $
    2,250
    
    
    $
    517
    
    
    $
    5,715Denominator for earnings per shareWeighted-average shares outstanding used in
computation of earnings per shareCommon stock (class A and B) issued
    
    
    16,097
    
    
    
    15,684
    
    
    
    16,090
    
    
    
    15,632Common stock in treasury
    
    
    220
    
    
    
    18
    
    
    
    247
    
    
    
    9Weighted
average shares outstanding - basic
    
    
    15,877
    
    
    
    15,666
    
    
    
    15,843
    
    
    
    15,623Effect of dilutive securities1
Stock awards
    
    
    40
    
    
    
    143
    
    
    
    98
    
    
    
    143Weighted
average shares outstanding - diluted
    
    
    15,917
    
    
    
    15,809
    
    
    
    15,941
    
    
    
    15,766Earnings per shareBasic
    
    $
    (0.03
    )
    
    $
    0.14
    
    
    $
    0.03
    
    
    $
    0.37Diluted
    
    $
    (0.03
    )
    
    $
    0.14
    
    
    $
    0.03
    
    
    $
    0.36
 
 1
    
    Outstanding options of 718,066 as of June 30, 2009 and June 30, 2008,
respectively, have been excluded from the diluted earnings per share calculation for the three and
six months ended June 30, 2009 and June 30, 2008, as they were anti-dilutive. Note
4. Income Taxes
  Three Months Ended
    
    
    Six Months Ended6/30/09
    
    
    6/30/08
    
    
    6/30/09
    
    
    6/30/08Current tax expense
    
    $
    (85
    )
    
    $
    553
    
    
    $
    507
    
    
    $
    590Deferred tax (benefit) expense
    
    
    (185
    )
    
    
    449
    
    
    
    (332
    )
    
    
    (307
    )Total income tax (benefit) expense
    
    $
    (270
    )
    
    $
    1,002
    
    
    $
    175
    
    
    $
    283
   
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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited  in thousands, except earnings per share)
 Note
5. Unpaid Loss and Loss Adjustment Expense Reserves
    Note 6. Investments
  Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCategory
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury
    
    $
    9,791
    
    
    $
    656
    
    
    $
    -
    
    
    $
    10,447U.S. Government Agencies
    
    
    30,239
    
    
    
    1,562
    
    
    
    (117
    )
    
    
    31,684Municipals
    
    
    64,495
    
    
    
    2,115
    
    
    
    (214
    )
    
    
    66,396Corporate Fixed Maturity
    
    
    62,233
    
    
    
    2,413
    
    
    
    (666
    )
    
    
    63,980Agency Mortgage Backed
    
    
    39,338
    
    
    
    1,852
    
    
    
    -
    
    
    
    41,190Non-Agency Mortgage Backed
    
    
    7,341
    
    
    
    -
    
    
    
    (1,939
    )
    
    
    5,402Commercial Mortgage Backed
    
    
    13,394
    
    
    
    -
    
    
    
    (2,805
    )
    
    
    10,589Asset Backed
    
    
    4,300
    
    
    
    -
    
    
    
    (2,097
    )
    
    
    2,203Total Fixed Maturities
    
    $
    231,131
    
    
    $
    8,598
    
    
    $
    (7,838
    )
    
    $
    231,891
 
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Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited  in thousands, except earnings per share)
  Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCategory
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury
    
    $
    9,794
    
    
    $
    1,109
    
    
    $
    -
    
    
    $
    10,903U.S. Government Agencies
    
    
    35,109
    
    
    
    2,118
    
    
    
    -
    
    
    
    37,227Municipals
    
    
    54,655
    
    
    
    959
    
    
    
    (679
    )
    
    
    54,935Corporate Fixed Maturity
    
    
    56,368
    
    
    
    858
    
    
    
    (1,691
    )
    
    
    55,535Agency Mortgage Backed
    
    
    39,066
    
    
    
    1,373
    
    
    
    -
    
    
    
    40,439Non-Agency Mortgage Backed
    
    
    7,781
    
    
    
    -
    
    
    
    (2,617
    )
    
    
    5,164Commercial Mortgage Backed
    
    
    13,301
    
    
    
    -
    
    
    
    (3,412
    )
    
    
    9,889Asset Backed
    
    
    4,670
    
    
    
    -
    
    
    
    (2,054
    )
    
    
    2,616Total Fixed Maturities
    
    $
    220,744
    
    
    $
    6,417
    
    
    $
    (10,453
    )
    
    $
    216,708
  Measuring Fair Value
   Fair Value Measurement Using:Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantFair Value
    
    
    Identical
    
    
    Observable
    
    
    Unobservableas of
    
    
    Assets
    
    
    Inputs
    
    
    InputsCategory
    
    6/30/2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Treasury
    
    $
    10,447
    
    
    $
    -
    
    
    $
    10,447
    
    
    $
    -U.S. Government Agency
    
    
    31,684
    
    
    
    -
    
    
    
    31,684
    
    
    
    -Municipal
    
    
    66,396
    
    
    
    -
    
    
    
    66,396
    
    
    
    -Corporate Fixed Maturity
    
    
    63,980
    
    
    
    -
    
    
    
    63,033
    
    
    
    947Agency Mortgage Backed
    
    
    41,190
    
    
    
    -
    
    
    
    41,190
    
    
    
    -Non-Agency Mortgage Backed
    
    
    5,402
    
    
    
    -
    
    
    
    -
    
    
    
    5,402Commercial Mortgage Backed
    
    
    10,589
    
    
    
    -
    
    
    
    -
    
    
    
    10,589Asset Backed
    
    
    2,203
    
    
    
    -
    
    
    
    -
    
    
    
    2,203Total Fixed Maturity Investments
    
    $
    231,891
    
    
    $
    -
    
    
    $
    212,750
    
    
    $
    19,141
 
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Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited  in thousands, except earnings per share)
  Fair Value Measurement Using:Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantFair Value
    
    
    Identical
    
    
    Observable
    
    
    Unobservableas of
    
    
    Assets
    
    
    Inputs
    
    
    InputsCategory
    
    12/31/08
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Treasury
    
    $
    10,903
    
    
    $
    -
    
    
    $
    10,903
    
    
    $
    -U.S. Government Agency
    
    
    37,227
    
    
    
    
    
    
    
    37,227Municipal
    
    
    54,934
    
    
    
    
    
    
    
    54,934Corporate Fixed Maturity
    
    
    55,536
    
    
    
    
    
    
    
    55,536Agency Mortgage Backed
    
    
    40,439
    
    
    
    
    
    
    
    40,439Non-Agency Mortgage Backed
    
    
    5,164
    
    
    
    
    
    
    

    
    
    
    
    5,164Commercial Mortgage Backed
    
    
    9,889
    
    
    
    
    
    
    
    8,676
    
    
    
    1,213Asset Backed
    
    
    2,616
    
    
    
    
    
    
    
    204
    
    
    
    2,412Total Fixed Maturity Investments
    
    $
    216,708
    
    
    $
    -
    
    
    $
    207,919
    
    
    $
    8,789
  
    
    First, the Company requests a single non-binding price from our independent pricing service.
    
    Second, if no price is available from the pricing service for the instrument, the Company
requests one or more non-binding broker-dealer quotes. A single quote is sought from a
broker-dealer who has significant knowledge of the instrument being priced. If such broker-dealer
is not available to quote, then an average is used from quotes solicited from multiple
broker-dealers.
    
    Third, if a broker-dealer quote is unavailable for the instrument, the Company uses a matrix
pricing formula based on various factors provided from multiple broker-dealers including yield
spreads, reported trades, sector or grouping information and for certain securities, other factors
such as timeliness of payment, default experience and prepayment speed assumptions.
   
 11




---



##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited  in thousands, except earnings per share)
  Three Months
    
    
    Six MonthsEnded
    
    
    Ended6/30/2009
    
    
    6/30/2009Level 3 investments as of beginning of period
    
    $
    16,586
    
    
    $
    8,789Transfers into level 3 (at beginning period value)
    
    
    911
    
    
    
    9,618Purchases, sales, issuances, and settlements, net
    
    
    (348
    )
    
    
    (507
    )Total gains or losses (realized/unrealized):Included in earnings
    
    
    (365
    )
    
    
    (576
    )Included in comprehensive income
    
    
    2,357
    
    
    
    1,817Level 3 investments as of June 30, 2009
    
    $
    19,141
    
    
    $
    19,141
  Impairment Review
 Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets Recognition and Presentation of
Other-Than-Temporary Impairments
  
 12




---



##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited  in thousands, except earnings per share)
  Recognized InOtherCompre-hensiveEarnings
    
    
    Net Loss
    
    
    TotalBeginning Balance, April 1, 2009
    
    $
    1,060
    
    
    $
    -
    
    
    $
    1,060Cumulative
effect of adjustment resulting from adoption
of FSP115-2, before income taxes
    
    
    (559
    )
    
    
    559
    
    
    
    -Subtotal
    
    
    501
    
    
    
    559
    
    
    
    1,060Other-than-temporary impairment loss
    
    
    365
    
    
    
    1,259
    
    
    
    1,624Ending balance, June 30, 2009
    
    $
    866
    
    
    $
    1,818
    
    
    $
    2,684
 Unrealized Losses
  Unrealized LossesLess than
    
    
    Greater thanFair Value
    
    
    12 Months
    
    

12
Months
    
    
    TotalU.S. Government Agency
    
    $
    3,063
    
    
    $
    (37
    )
    
    $
    (80
    )
    
    $
    (117
    )Municipal
    
    
    15,043
    
    
    
    (87
    )
    
    
    (127
    )
    
    
    (214
    )Corporate Fixed Maturity
    
    
    10,709
    
    
    
    (25
    )
    
    
    (641
    )
    
    
    (666
    )Non-Agency Mortgage Backed
    
    
    4,790
    
    
    
    -
    
    
    
    (1,939
    )
    
    
    (1,939
    )Commercial Mortgage Backed
    
    
    10,589
    
    
    
    (52
    )
    
    
    (2,753
    )
    
    
    (2,805
    )Asset Backed
    
    
    1,555
    
    
    
    -
    
    
    
    (2,097
    )
    
    
    (2,097
    )Total Fixed Maturities
    
    $
    45,749
    
    
    $
    (201
    )
    
    $
    (7,637
    )
    
    $
    (7,838
    )
  Unrealized LossesLess than
    
    
    Greater thanFair Value
    
    
    12 Months
    
    

12
Months
    
    
    TotalMunicipal
    
    $
    21,713
    
    
    $
    (679
    )
    
    $
    -
    
    
    $
    (679
    )Corporate Fixed Maturity
    
    
    35,201
    
    
    
    (560
    )
    
    
    (1,131
    )
    
    
    (1,691
    )Non-Agency Mortgage Backed
    
    
    5,164
    
    
    
    (279
    )
    
    
    (2,338
    )
    
    
    (2,617
    )Commercial Mortgage Backed
    
    
    9,889
    
    
    
    (1,811
    )
    
    
    (1,601
    )
    
    
    (3,412
    )Asset Backed
    
    
    2,616
    
    
    
    -
    
    
    
    (2,054
    )
    
    
    (2,054
    )Total Fixed Maturities
    
    $
    74,583
    
    
    $
    (3,329
    )
    
    $
    (7,124
    )
    
    $
    (10,453
    )
  
 13




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##### Table of Contents



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited  in thousands, except earnings per share)
 Note
7. Equity-Based Compensation
      Note 8. Commitments and Contingencies
  
 14




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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
Item 1A of Part II of this Quarterly Report on Form 10-Q and in the Business section of our Annual
Report on Form 10-K for the year ended December 31, 2008. 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
    
 15




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##### Table of Contents



Three Months Ended June 30, 2009 as compared to the Three Months Ended June 30, 2008
 RESULTS OF OPERATIONS
 Three Months Ended6/30/2009
    
    
    6/30/2008
    
    

% Change(in millions, except forearnings per share)Gross written premiums
    
    $
    43.9
    
    
    $
    41.8
    
    
    
    5.0%Net written premiums
    
    
    41.8
    
    
    
    39.9
    
    
    
    4.8%Earned premiums
    
    $
    35.4
    
    
    $
    34.2
    
    
    
    3.5%Net investment income
    
    
    2.8
    
    
    
    2.7
    
    
    
    3.7%Net realized gains (losses)
    
    
    (0.3
    )
    
    
    -
    
    
    
   *Total revenues
    
    
    37.9
    
    
    
    36.9
    
    
    
    2.7%Net loss and loss adjustment expense
    
    
    23.0
    
    
    
    20.9
    
    
    
    10.0%Acquisition expenses
    
    
    8.4
    
    
    
    7.3
    
    
    
    15.1%Other operating expenses
    
    
    7.2
    
    
    
    5.4
    
    
    
    33.3%Total expenses
    
    
    38.6
    
    
    
    33.6
    
    
    
    14.9%Pre-tax income (loss)
    
    
    (0.7
    )
    
    
    3.3
    
    
    
   *Federal income (tax) benefit
    
    
    0.2
    
    
    
    (1.0
    )
    
    
   *Net income (loss)
    
    $
    (0.5
    )
    
    $
    2.3
    
    
    
   *Basic
    
    $
    (0.03
    )
    
    $
    0.14
    
    
    
   *Diluted
    
    $
    (0.03
    )
    
    $
    0.14
    
    
    
   *Basic
    
    
    15.9
    
    
    
    15.7
    
    
    
    1.3%Diluted
    
    
    15.9
    
    
    
    15.8
    
    
    
    0.6%Key operating ratiosNet loss and loss adjustment expense ratio
    
    
    65.0%
    
    
    
    61.2%
    
    
    
    6.2%Ratio of acquisition expense to earned premiums
    
    
    23.7%
    
    
    
    21.3%
    
    
    
    11.2%Ratio of all other expenses to gross written premiums
    
    
    16.4%
    
    
    
    13.0%
    
    
    
    26.2%
 
 *
    
    Not meaningful   
 16




---



##### Table of Contents



6/30/2009
    
    
    6/30/2008Gross Written
    
    
    % of Total Gross
    
    
    Gross Written
    
    
    % of Total GrossPremium
    
    
    Written Premium
    
    
    Premium
    
    
    Written Premium(in millions)Risk Transfer Programs, LLC
    
    $
    17.6
    
    
    
    40.1%
    
    
    $
    22.3
    
    
    
    53.3%American Team Managers
    
    
    6.4
    
    
    
    14.6%
    
    
    
    6.5
    
    
    
    15.6%Appalachian Underwriters, Inc.
    
    
    5.9
    
    
    
    13.4%
    
    
    
    2.1
    
    
    
    5.0%Specialty Risk Solutions, LLC
    
    
    4.1
    
    
    
    9.3%
    
    
    
    0.9
    
    
    
    2.2%Northern Star Management, Inc.
    
    
    3.5
    
    
    
    8.0%
    
    
    
    2.0
    
    
    
    4.8%AEON Insurance Group, Inc.
    
    
    3.4
    
    
    
    7.7%
    
    
    
    5.2
    
    
    
    12.4%First Light Program Manager, Inc.
    
    
    2.9
    
    
    
    6.6%
    
    
    
    1.0
    
    
    
    2.4%Insential, Inc.
    
    
    0.2
    
    
    
    0.5%
    
    
    
    0.4
    
    
    
    1.0%Flying Eagle Insurance Service,
Inc.
    
    
    -
    
    
    
    0.0%
    
    
    
    0.3
    
    
    
    0.7%Other
    
    
    (0.1)
    
    
    
    -0.2%
    
    
    
    1.1
    
    
    
    2.6%Total
    
    $
    43.9
    
    
    
    100.0%
    
    
    $
    41.8
    
    
    
    100.0%
  6/30/2009
    
    
    6/30/2008Gross
    
    
    % of Total
    
    
    Gross
    
    
    % of TotalWritten
    
    
    Gross Written
    
    
    Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(in millions)Florida
    
    $
    12.2
    
    
    
    27.8%
    
    
    $
    10.7
    
    
    
    25.6%California
    
    
    11.0
    
    
    
    25.1%
    
    
    
    14.2
    
    
    
    34.0%Texas
    
    
    4.5
    
    
    
    10.3%
    
    
    
    1.3
    
    
    
    3.1%Other states
    
    
    16.2
    
    
    
    36.8%
    
    
    
    15.6
    
    
    
    37.3%Total
    
    $
    43.9
    
    
    
    100.0%
    
    
    $
    41.8
    
    
    
    100.0%
  6/30/2009
    
    
    6/30/2008Gross
    
    
    % of Total
    
    
    Gross
    
    
    % of TotalWritten
    
    
    Gross Written
    
    
    Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(in millions)Workers compensation
    
    $
    25.7
    
    
    
    58.6%
    
    
    $
    26.4
    
    
    
    63.2%Commercial automobile
    
    
    13.0
    
    
    
    29.6%
    
    
    
    10.4
    
    
    
    24.9%General liability
    
    
    4.7
    
    
    
    10.7%
    
    
    
    4.2
    
    
    
    10.0%All other
    
    
    0.5
    
    
    
    1.1%
    
    
    
    0.8
    
    
    
    1.9%Total
    
    $
    43.9
    
    
    
    100.0%
    
    
    $
    41.8
    
    
    
    100.0%
   
 17




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##### Table of Contents



Six Months Ended June 30, 2009 as compared to the Six Months Ended June 30, 2008
 RESULTS OF OPERATIONS
 Six Months Ended6/30/2009
    
    
    6/30/2008
    
    

%
Change(in millions, except forearnings per share)Gross written premiums
    
    $
    72.9
    
    
    $
    65.9
    
    
    
    10.6
    %Net written premiums
    
    
    68.8
    
    
    
    61.6
    
    
    
    11.7
    %Earned premiums
    
    $
    70.1
    
    
    $
    69.9
    
    
    
    0.3
    %Net investment income
    
    
    5.6
    
    
    
    5.3
    
    
    
    5.7
    %Net realized gains (losses)
    
    
    (0.4
    )
    
    
    0.1
    
    
    
    *Total revenues
    
    
    75.3
    
    
    
    75.3
    
    
    
    0.0
    %Net loss and loss adjustment expense
    
    
    44.0
    
    
    
    42.0
    
    
    
    4.8
    %Acquisition expenses
    
    
    16.9
    
    
    
    16.0
    
    
    
    5.6
    %Other operating expenses
    
    
    13.7
    
    
    
    11.3
    
    
    
    21.2
    %Total expenses
    
    
    74.6
    
    
    
    69.3
    
    
    
    7.6
    %Pre-tax income
    
    
    0.7
    
    
    
    6.0
    
    
    
    -88.3
    %Federal income tax
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    *Net income
    
    $
    0.5
    
    
    $
    5.7
    
    
    
    -91.2
    %Basic
    
    $
    0.03
    
    
    $
    0.37
    
    
    
    -91.4
    %Diluted
    
    $
    0.03
    
    
    $
    0.36
    
    
    
    -91.3
    %Basic
    
    
    15.8
    
    
    
    15.6
    
    
    
    1.3
    %Diluted
    
    
    15.9
    
    
    
    15.8
    
    
    
    0.6
    %Key operating ratiosNet loss and loss adjustment expense ratio
    
    
    62.8
    %
    
    
    60.0
    %
    
    
    4.6
    %Ratio of acquisition expense to earned premiums
    
    
    24.1
    %
    
    
    22.8
    %
    
    
    5.7
    %Ratio of all other expenses to gross written premiums
    
    
    18.8
    %
    
    
    17.2
    %
    
    
    9.3
    %
 
 *
    
    Not meaningful  
 18




---



##### Table of Contents



6/30/2009
    
    6/30/2008Gross Written
    
    
    % of Total Gross
    
    
    Gross Written
    
    
    % of Total GrossPremium
    
    
    Written Premium
    
    Premium
    
    
    Written Premium(in millions)Risk Transfer Programs, LLC
    
    $
    28.6
    
    
    
    39.3
    %
    
    $
    31.5
    
    
    
    47.7
    %American Team Managers
    
    
    11.9
    
    
    
    16.3
    %
    
    
    12.7
    
    
    
    19.3
    %Appalachian Underwriters, Inc.
    
    
    11.4
    
    
    
    15.6
    %
    
    
    3.9
    
    
    
    5.9
    %AEON Insurance Group, Inc.
    
    
    7.4
    
    
    
    10.2
    %
    
    
    10.8
    
    
    
    16.4
    %Northern Star Management, Inc.
    
    
    4.6
    
    
    
    6.3
    %
    
    
    2.0
    
    
    
    3.0
    %First Light Program Manager, Inc.
    
    
    4.2
    
    
    
    5.8
    %
    
    
    1.4
    
    
    
    2.1
    %Specialty Risk Solutions, LLC
    
    
    4.1
    
    
    
    5.6
    %
    
    
    0.9
    
    
    
    1.4
    %Insential, Inc.
    
    
    0.4
    
    
    
    0.5
    %
    
    
    0.7
    
    
    
    1.1
    %Flying Eagle Insurance Service, Inc.
    
    
    0.1
    
    
    
    0.1
    %
    
    
    0.5
    
    
    
    0.8
    %Other
    
    
    0.2
    
    
    
    0.3
    %
    
    
    1.5
    
    
    
    2.3
    %Total
    
    $
    72.9
    
    
    
    100.0
    %
    
    $
    65.9
    
    
    
    100.0
    %
  6/30/2009
    
    6/30/2008% of Total
    
    
    
    
    
    % of TotalGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    Premium
    
    
    Premium(in millions)California
    
    $
    19.9
    
    
    
    27.3
    %
    
    $
    25.7
    
    
    
    39.0
    %Florida
    
    
    13.6
    
    
    
    18.7
    %
    
    
    12.4
    
    
    
    18.8
    %Texas
    
    
    7.1
    
    
    
    9.7
    %
    
    
    6.2
    
    
    
    9.4
    %Other states
    
    
    32.3
    
    
    
    44.3
    %
    
    
    21.6
    
    
    
    32.8
    %Total
    
    $
    72.9
    
    
    
    100.0
    %
    
    $
    65.9
    
    
    
    100.0
    %
 
 19




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##### Table of Contents



6/30/2009
    
    6/30/2008% of Total
    
    
    
    
    
    
    % of TotalGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    Premium
    
    
    Premium(in millions)Workers compensation
    
    $
    44.1
    
    
    
    60.5
    %
    
    $
    38.3
    
    
    
    58.1
    %Commercial automobile
    
    
    21.4
    
    
    
    29.4
    %
    
    
    18.0
    
    
    
    27.3
    %General liability
    
    
    6.3
    
    
    
    8.6
    %
    
    
    8.1
    
    
    
    12.3
    %All other
    
    
    1.1
    
    
    
    1.5
    %
    
    
    1.5
    
    
    
    2.3
    %Total
    
    $
    72.9
    
    
    
    100.0
    %
    
    $
    65.9
    
    
    
    100.0
    %
       Liquidity and Capital Resources
   
 20




---



##### Table of Contents



Cash Flows
  Six Months Ended6/30/2009
    
    
    6/30/2008(in millions)Cash provided by (used in)Operating activities
    
    $
    0.5
    
    
    $
    17.6Investing activities
    
    
    0.6
    
    
    
    (17.8
    )Financing activities
    
    
    0.1
    
    
    
    (0.6
    )Change in cash
    
    $
    1.2
    
    
    $
    (0.8
    )
    Fixed Maturity Investments
     
 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 21




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##### Table of Contents



Interest Rate Risk
   EstimatedFair ValueAssumed Change
    
    After Change
    
    IncreaseFair Value as
    
    in Relevant
    
    in Interest
    
    (Decrease) inof 6/30/2009
    
    Interest Rate
    
    Rate
    
    Fair Value(in thousands)Total Investments
    
    $
    265,044
    
    
    100 bp decrease
    
    $
    275,352
    
    
    $
    10,30850 bp decrease
    
    
    270,144
    
    
    
    5,10050 bp increase
    
    
    260,112
    
    
    
    (4,932
    )100 bp increase
    
    
    255,293
    
    
    
    (9,751
    )
  Credit Risk
   As of 6/30/2009Percent ofBond Ratings
    
    Amount
    
    
    Portfolio(in thousands)AAA rated and U.S. Government and affiliated agency securities
    
    $
    133,077
    
    
    
    50.2
    %AA rated
    
    
    59,949
    
    
    
    22.6
    %A rated
    
    
    62,058
    
    
    
    23.4
    %BBB rated
    
    
    6,848
    
    
    
    2.6
    %BB rated
    
    
    2,638
    
    
    
    1.0
    %B Rated
    
    
    50
    
    
    
    0.0
    %C Rated
    
    
    424
    
    
    
    0.2
    %Total
    
    $
    265,044
    
    
    
    100.0
    %
  
 Item 4: Controls and Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.
 
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Changes in Internal Control Over Financial Reporting
 Inherent Limitations on Effectiveness of Controls.
 
 23




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1: LEGAL PROCEEDINGS
  
 ITEM 1A: RISK FACTORS
  Failure to complete the merger may negatively impact our business, financial condition, results of
operations, prospects and stock price.
  
    
    adoption by holders of our Common Stock of the merger agreement;
    
    receipt of required regulatory approvals, including approvals by the California and Illinois departments of insurance;
    
    the absence of any injunctions or other legal restraints, having the effect of making the merger illegal or preventing the completion of the merger;
    
    the absence of any event or development that has had or would reasonably be expected to have, individually or in
the aggregate, a material adverse effect (as defined in the merger agreement) on us;
    
    receipt of a legal opinion by each of Tower and us from our respective counsel to the effect that the merger
will be treated as a reorganization within the meaning of Section 368(a) of the Code;
    
    effectiveness of a proxy statement/prospectus and the absence of a stop order or proceedings threatened or initiated by the SEC for that purpose;
    
    other customary closing conditions.
  
    
    the current market price of our common stock may reflect a market assumption that the merger
will occur and a failure to complete the merger could result in a negative perception of us by
equity investors and a resulting decline in the market price of the common stock;
    
    we may be required to pay a termination fee of $3,000,000, if the merger agreement is terminated under
certain circumstances, as well as the reimbursement of certain reasonable, out-of-pocket
transaction expenses up to $1,000,000;
    
    we expect to incur substantial transaction costs in connection with the merger; and
    
    we would not realize any of the anticipated benefits of having completed the merger.
  
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##### Table of Contents



The announcement and pendency of the merger could have an adverse effect on our stock price,
business, financial conditions, results of operations or business prospects.
  
    
    employees may experience uncertainty regarding their future roles with the combined company,
which might adversely affect our ability to retain, recruit and motivate key personnel;
    
    the attention of our management may be directed toward the completion of the merger and
transaction-related considerations and may be diverted from the day-to-day business operations of
our company, and matters related to the merger may require commitments of time and resources that
could otherwise have been devoted to other opportunities that might have been beneficial to us; and
    
    third parties with business relationships with us may seek to terminate and/or renegotiate their
relationships with us as a result of the merger, whether pursuant to the terms of their existing
agreements or otherwise.
  
 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
    
    
    6,607,622
    
    
    
    85,615Robert E. Dean
    
    
    6,607,622
    
    
    
    85,615Raymond C. Groth
    
    
    6,607,622
    
    
    
    85,615Paul A. Philp
    
    
    6,607,622
    
    
    
    85,615Robert H. Whitehead
    
    
    6,607,622
    
    
    
    85,615Russell E. Zimmermann
    
    
    6,607,622
    
    
    
    85,615
   
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##### Table of Contents



For
    
    Against
    
    Abstentions12,697,447

    
  
    27,072
    
    
    
    260,881
 
 ITEM 5: OTHER INFORMATION
  
 ITEM 6: EXHIBITS
 Exhibits:
 ExhibitNumber
    
    Description2.1
    
    
    Amended and Restated Agreement and Plan of Merger, executed on July 22, 2009 and dated as of June 21, 2009, between
the Registrant, Tower Group, Inc. and Tower S.F. Merger Corporation (Incorporated by reference to Exhibit 2.1, filed
with the Registrants Current Report on Form 8-K filed on July 24, 2009)10.1*
    
        Stock Purchase Agreement, dated March 22, 2004, between the Registrant and OneBeacon Insurance Company, including
Exhibit A, Instrument of Transfer and Assumption, dated February 10, 2004, between OneBeacon Insurance Company and Potomac
Insurance Company of Illinois10.2*
        
    Amendment No. 7 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated April 30, 2009,
between the Registrant and American Team Managers Insurance Services, Inc.10.3*
    
   Amendment No. 2 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated May 18, 2009,
between the Registrant and AEON Insurance Group, Inc.10.4*
    
   Second Amendment to the Amended and Restated Securities Purchase Agreement, dated June 4, 2009, between the
Registrant and American Team Managers Insurance Services, Inc.10.5*
    
   Amended and Restated SUA Insurance Company Partner Agent Program Agreement, dated June 10, 2009, between the
Registrant and Risk Transfer Holdings, Inc.10.6*
    
   Second Amendment to the Amended and Restated Securities Purchase Agreement, dated June 10, 2009, between the
Registrant and Risk Transfer Holdings, Inc.10.7*
    
   Partner Agent Assignment and Assumption Agreement, dated June 10, 2009, between the Registrant, Risk Transfer
Holdings, Inc. and Risk Transfer Programs, LLC10.8*
    
   Securities Purchase Assignment and Assumption Agreement, dated June 10, 2009, between the Registrant, Risk Transfer
Holdings, Inc. and Risk Transfer Programs, LLC10.9*
    
   Amendment No. 2 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated June 11, 2009,
between the Registrant and Specialty Risk Solutions, LLC10.10*
    
   Fifth Amendment to the Securities Purchase Agreement, dated June 11, 2009, between the Registrant and Specialty Risk
Solutions, LLC10.11*
    
   Amendment No. 3 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated June 18, 2009,
between the Registrant and AEON Insurance Group, Inc.10.12*
    
   Amendment No. 8 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated June 18, 2009,
between the Registrant and American Team Managers Insurance Services, Inc.10.13*
    
   Amendment No. 3 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated June 18, 2009,
between the Registrant and Specialty Risk Solutions, LLC10.14*
    
   Amendment No. 1 to the SUA Insurance Company Amended and Restated Partner Agent Program Agreement, dated June
19, 2009, between the Registrant and Risk Transfer Programs, LLC31.1*
    
   Certification of Courtney C. Smith, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2*
    
   Certification of Peter E. Jokiel, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
   Certification of Courtney C. Smith, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2*
    
   Certification of Peter E. Jokiel, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith 
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##### Table of Contents



SIGNATURES
  SPECIALTY UNDERWRITERS ALLIANCE, INC.(Registrant)By:
    
    /s/ Courtney C. SmithName: Courtney C. SmithTitle: President and Chief Executive OfficerDate: August 7, 2009By:
    
    /s/ Peter E. JokielName: Peter E. JokielTitle: Executive Vice President and ChiefFinancial OfficerDate: August 7, 2009
 
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##### Table of Contents



Exhibits Index:
 ExhibitNumber
    
    Description2.1
    
   Amended and Restated Agreement and Plan of Merger, executed on July 22, 2009 and dated as of June 21, 2009, between
the Registrant, Tower Group, Inc. and Tower S.F. Merger Corporation (Incorporated by reference to Exhibit 2.1, filed
with the Registrants Current Report on Form 8-K filed on July 24, 2009)10.1*
    
   Stock Purchase Agreement, dated March 22, 2004, between the Registrant and OneBeacon Insurance Company, including
Exhibit A, Instrument of Transfer and Assumption, dated February 10, 2004, between OneBeacon Insurance Company and Potomac
Insurance Company of Illinois10.2*
    
   Amendment No. 7 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated April 30, 2009,
between the Registrant and American Team Managers Insurance Services, Inc.10.3*
    
   Amendment No. 2 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated May 18, 2009,
between the Registrant and AEON Insurance Group, Inc.10.4*
    
   Second Amendment to the Amended and Restated Securities Purchase Agreement, dated June 4, 2009, between the
Registrant and American Team Managers Insurance Services, Inc.10.5*
    
   Amended and Restated SUA Insurance Company Partner Agent Program Agreement, dated June 10, 2009, between the
Registrant and Risk Transfer Holdings, Inc.10.6*
    
   Second Amendment to the Amended and Restated Securities Purchase Agreement, dated June 10, 2009, between the
Registrant and Risk Transfer Holdings, Inc.10.7*
    
   Partner Agent Assignment and Assumption Agreement, dated June 10, 2009, between the Registrant, Risk Transfer
Holdings, Inc. and Risk Transfer Programs, LLC10.8*
    
   Securities Purchase Assignment and Assumption Agreement, dated June 10, 2009, between the Registrant, Risk Transfer
Holdings, Inc. and Risk Transfer Programs, LLC10.9*
    
   Amendment No. 2 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated June 11, 2009,
between the Registrant and Specialty Risk Solutions, LLC10.10*
    
   Fifth Amendment to the Securities Purchase Agreement, dated June 11, 2009, between the Registrant and Specialty Risk
Solutions, LLC10.11*
    
   Amendment No. 3 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated June 18, 2009,
between the Registrant and AEON Insurance Group, Inc.10.12*
    
   Amendment No. 8 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated June 18, 2009,
between the Registrant and American Team Managers Insurance Services, Inc.10.13*
    
   Amendment No. 3 to the Specialty Underwriters Alliance, Inc. Partner Agent Program Agreement, dated June 18, 2009,
between the registrant and Specialty Risk Solutions, LLC10.14*
    
   Amendment No. 1 to the SUA Insurance Company Amended and Restated Partner Agent Program Agreement, dated June
19, 2009, between the registrant and Risk Transfer Programs, LLC31.1*
    
   Certification of Courtney C. Smith, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2*
    
   Certification of Peter E. Jokiel, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
   Certification of Courtney C. Smith, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2*
    
   Certification of Peter E. Jokiel, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith 
 28