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, 2008
 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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller
reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



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
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market
Risk
    
    
    16Item 4. Controls and Procedures
    
    
    17PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 5. Other Information
    
    
    20Item 6. Exhibits
    
    
    21
 
  2




---



##### 



PART I  FINANCIAL INFORMATION
 
 Item 1. Business
 Specialty Underwriters Alliance, Inc.
Consolidated Balance Sheets
As of June 30, 2008 and December 31, 2007
(dollars in thousands)
 6/30/2008
    
    
    12/31/2007(unaudited)ASSETSFixed maturity investments, at fair value (amortized
cost: $203,535 and $176,592)
    
    $
    201,294
    
    
    $
    177,735Short-term investments, at amortized cost (which approximates fair
value)
    
    
    38,942
    
    
    
    51,652Total Investments
    
    
    240,236
    
    
    
    229,387Cash
    
    
    147
    
    
    
    968Insurance premiums receivable
    
    
    68,396
    
    
    
    68,887Reinsurance recoverable on paid and unpaid loss and loss adjustment
expenses
    
    
    73,398
    
    
    
    77,204Prepaid reinsurance premiums
    
    
    417
    
    
    
    631Investment income accrued
    
    
    2,159
    
    
    
    1,909Equipment and capitalized software at cost (less accumulated
depreciation of $12,098 and $8,927)
    
    
    13,268
    
    
    
    12,796Intangible assets
    
    
    10,745
    
    
    
    10,745Deferred acquisition costs
    
    
    15,790
    
    
    
    17,495Deferred tax asset
    
    
    1,445
    
    
    
    Other assets
    
    
    2,595
    
    
    
    2,512Total Assets
    
    $
    428,596
    
    
    $
    422,534LIABILITIES & STOCKHOLDERS EQUITYLiabilitiesLoss and loss adjustment expense reserves
    
    $
    194,870
    
    
    $
    184,736Unearned insurance premiums
    
    
    78,488
    
    
    
    86,741Insured deposit funds
    
    
    13,792
    
    
    
    12,515Accounts payable and other liabilities
    
    
    7,231
    
    
    
    7,405Total Liabilities
    
    
    294,381
    
    
    
    291,397Stockholders equityCommon stock at $.01 par value per share - authorized: 30,000,000
shares; issued: 14,712,355 and 14,697,355 shares; and
outstanding: 14,437,355 shares and 14,697,355 shares
    
    
    147
    
    
    
    147Class B common stock at $.01 par value per share -
authorized: 2,000,000 shares; issued and outstanding: 1,029,037
shares and 869,738 shares
    
    
    10
    
    
    
    9Paid-in capital - common stock
    
    
    129,612
    
    
    
    129,431Paid-in capital - class B common stock
    
    
    6,900
    
    
    
    6,139Accumulated deficit
    
    
    (17
    )
    
    
    (5,732
    )Treasury stock
    
    
    (1,347
    )
    
    
    Accumulated other comprehensive income
    
    
    (1,090
    )
    
    
    1,143Total Stockholders Equity
    
    
    134,215
    
    
    
    131,137Total Liabilities & Stockholders Equity
    
    $
    428,596
    
    
    $
    422,534
  
 3




---



##### 



Specialty Underwriters Alliance, Inc.
Consolidated Statements of Operations and Comprehensive Income
For the Three and Six Months Ended June 30, 2008 and 2007
(Unaudited  dollars in thousands, except for earnings per share)
 Three Months Ended
    
    
    Six Months Ended6/30/2008
    
    
    6/30/2007
    
    
    6/30/2008
    
    
    6/30/2007RevenuesEarned insurance premiums
    
    $
    34,195
    
    
    $
    37,194
    
    
    $
    69,945
    
    
    $
    72,556Net investment income
    
    
    2,670
    
    
    
    2,338
    
    
    
    5,323
    
    
    
    4,418Net realized gains
    
    
    7
    
    
    
    24
    
    
    
    38
    
    
    
    27Total revenue
    
    
    36,872
    
    
    
    39,556
    
    
    
    75,306
    
    
    
    77,001ExpensesLoss and loss adjustment expenses
    
    
    20,941
    
    
    
    21,894
    
    
    
    41,999
    
    
    
    42,030Acquisition expenses
    
    
    7,267
    
    
    
    9,172
    
    
    
    15,970
    
    
    
    17,900Other operating expenses
    
    
    5,412
    
    
    
    5,418
    
    
    
    11,339
    
    
    
    10,915Total expenses
    
    
    33,620
    
    
    
    36,484
    
    
    
    69,308
    
    
    
    70,845Pretax income
    
    
    3,252
    
    
    
    3,072
    
    
    
    5,998
    
    
    
    6,156Federal income tax expense
    
    
    (1,002
    )
    
    
    (62
    )
    
    
    (283
    )
    
    
    (124
    )Net income
    
    
    2,250
    
    
    
    3,010
    
    
    
    5,715
    
    
    
    6,032Net change in unrealized gains
and losses for
investments held, after tax
    
    
    (2,685
    )
    
    
    (2,418
    )
    
    
    (2,233
    )
    
    
    (1,785
    )Comprehensive income (loss)
    
    $
    (435
    )
    
    $
    592
    
    
    $
    3,482
    
    
    $
    4,247Earnings per share available to
common
stockholders (in dollars)Basic
    
    $
    0.14
    
    
    $
    0.20
    
    
    $
    0.37
    
    
    $
    0.39Diluted
    
    $
    0.14
    
    
    $
    0.20
    
    
    $
    0.36
    
    
    $
    0.39Weighted average shares
outstandingBasic
    
    
    15,666
    
    
    
    15,406
    
    
    
    15,623
    
    
    
    15,390Diluted
    
    
    15,809
    
    
    
    15,406
    
    
    
    15,766
    
    
    
    15,390
  
 4




---



##### 



Specialty Underwriters Alliance, Inc.
Consolidated Statement of Stockholders Equity
As of June 30, 2008
(Unaudited  dollars in thousands)
 AccumulatedOther Comp-
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    
    
    
    
    rehensive
    
    
    Stock-Stock
    
    
    Capital
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Treasury
    
    
    Income
    
    
    holdersClass A
    
    
    Class A
    
    
    Class B
    
    
    Class B
    
    
    (Deficit)
    
    
    Stock
    
    
    (Loss)
    
    
    EquityBalance at December 31, 2007
    
    $
    147
    
    
    $
    129,431
    
    
    $
    9
    
    
    $
    6,139
    
    
    $
    (5,732
    )
    
    $
    
    
    
    $
    1,143
    
    
    $
    131,137Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,715
    
    
    
    
    
    
    
    
    
    
    
    5,715Net change in unrealized investment gains, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,233
    )
    
    
    (2,233
    )Stock issuance
    
    
    
    
    
    
    74
    
    
    
    1
    
    
    
    761
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    836Treasury stock purchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,347
    )
    
    
    
    
    
    
    (1,347
    )Stock based compensation
    
    
    
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107Balance at June 30, 2008
    
    $
    147
    
    
    $
    129,612
    
    
    $
    10
    
    
    $
    6,900
    
    
    $
    (17
    )
    
    $
    (1,347
    )
    
    $
    (1,090
    )
    
    $
    134,215
  
 5




---



##### 



Specialty Underwriters Alliance, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2008 and 2007
(Unaudited  dollars in thousands)
 Six Months Ended6/30/2008
    
    
    6/30/2007Cash flows from operationsNet income
    
    $
    5,715
    
    
    $
    6,032Charges (credits) to reconcile net income to cash flows from
operations:Change in deferred income tax
    
    
    (307
    )
    
    
    (26
    )Net realized (gains) losses
    
    
    (38
    )
    
    
    (27
    )Amortization of bond premium (discount)
    
    
    (10
    )
    
    
    (23
    )Depreciation
    
    
    3,171
    
    
    
    2,148Net change in:Reinsurance recoverable on unpaid loss and loss adjustment expense
reserves
    
    
    3,806
    
    
    
    3,121Loss and loss adjustment expense reserves
    
    
    10,134
    
    
    
    19,375Insurance premiums receivable
    
    
    491
    
    
    
    (7,391
    )Unearned insurance premiums
    
    
    (8,253
    )
    
    
    5,215Deferred acquisition costs
    
    
    1,705
    
    
    
    647Prepaid reinsurance premiums
    
    
    214
    
    
    
    2,892Insured deposit funds
    
    
    1,277
    
    
    
    318Other, net
    
    
    (312
    )
    
    
    2,120Total adjustments
    
    
    11,878
    
    
    
    28,369Net cash flows provided by operations
    
    
    17,593
    
    
    
    34,401Cash flows from investing activitiesNet (increase) decrease in short-term investments
    
    
    12,710
    
    
    
    (11,008
    )Redemptions, calls and maturities of fixed maturity investments
    
    
    18,042
    
    
    
    9,803Purchases of fixed maturity investments
    
    
    (44,938
    )
    
    
    (30,540
    )Purchase of equipment and capitalized software
    
    
    (3,643
    )
    
    
    (4,798
    )Net cash flows used for investing activities
    
    
    (17,829
    )
    
    
    (36,543
    )Cash flows from financing activitiesIssuance of common stock
    
    
    762
    
    
    
    325Treasury stock purchases
    
    
    (1,347
    )
    
    
    Net cash provided by (used for) financing activities
    
    
    (585
    )
    
    
    325Net increase (decrease) in cash during the period
    
    
    (821
    )
    
    
    (1,817
    )Cash at beginning of the period
    
    
    968
    
    
    
    2,375Cash at the end of the period
    
    $
    147
    
    
    $
    558
  
 6




---



##### 



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited  dollars in thousands, except per share and stock amounts)
 Note 1. Basis of Presentation
    Note 2. Earnings Per Share
  Three Months Ended
    
    
    Six Months Ended6/30/08
    
    
    6/30/07
    
    
    6/30/08
    
    
    6/30/07Numerator for earnings per shareNet income
    
    $
    2,250
    
    
    $
    3,010
    
    
    $
    5,715
    
    
    $
    6,032Denominator for earnings per shareWeighted average shares outstanding used in
computation ofearnings per shareCommon stock (class A and B) issued
    
    
    15,684
    
    
    
    15,406
    
    
    
    15,632
    
    
    
    15,390Common stock in treasury
    
    
    18
    
    
    
    
    
    
    
    9
    
    
    
    Weighted average shares outstanding - basic
    
    
    15,666
    
    
    
    15,406
    
    
    
    15,623
    
    
    
    15,390Effect of
dilutive
securities1
Unvested deferred stock awards
    
    
    143
    
    
    
    
    
    
    
    143
    
    
    
    Weighted average shares outstanding - diluted
    
    
    15,809
    
    
    
    15,406
    
    
    
    15,766
    
    
    
    15,390Earnings per shareBasic
    
    $
    0.14
    
    
    $
    0.20
    
    
    $
    0.37
    
    
    $
    0.39Diluted
    
    $
    0.14
    
    
    $
    0.20
    
    
    $
    0.36
    
    
    $
    0.39
 
 1
    
    Outstanding options of 718,066 and 742,466 as of June 30, 2008 and June
30, 2007, respectively, have been excluded from the diluted earnings per share calculation
for the three and six months ended June 30, 2008 and June 30, 2007, as they were
anti-dilutive. Note 3. Income Taxes
  
 7




---



##### 



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited  dollars in thousands, except per share and stock amounts)
   Three Months Ended
    
    
    Six Months Ended6/30/08
    
    
    6/30/07
    
    
    6/30/08
    
    
    6/30/07Current tax expense
    
    $
    553
    
    
    $
    99
    
    
    $
    590
    
    
    $
    150Deferred tax (benefit)/expense
    
    
    449
    
    
    
    (37
    )
    
    
    (307
    )
    
    
    (26
    )Total income tax expense
    
    $
    1,002
    
    
    $
    62
    
    
    $
    283
    
    
    $
    124
 Note 4. Unpaid Loss and Loss Adjustment Expense Reserves
    Note 5. Recent Accounting Pronouncements
    
 8




---



##### 



Specialty Underwriters Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited  dollars in thousands, except per share and stock amounts)
   Note 6. Equity Based Compensation
      Note 7. Stock Repurchase
  
 9




---



##### 



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, 2007.
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




---



##### 



Three Months Ended June 30, 2008 as compared to the Three Months Ended June 30, 2007
 RESULTS OF OPERATION
 Three Months Ended6/30/2008
    
    
    6/30/2007
    
    
    % Change(dollars in millions,except for per share data)Gross written premiums
    
    $
    41.8
    
    
    $
    48.6
    
    
    
    -14.0
    %Net written premiums
    
    
    39.9
    
    
    
    46.2
    
    
    
    -13.6
    %Earned premiums
    
    $
    34.2
    
    
    $
    37.2
    
    
    
    -8.1
    %Net investment income
    
    
    2.7
    
    
    
    2.3
    
    
    
    17.4
    %Net realized gains
    
    
    
    
    
    
    0.1Total revenues
    
    
    36.9
    
    
    
    39.6
    
    
    
    -6.8
    %Net loss and loss adjustment expense
    
    
    20.9
    
    
    
    21.9
    
    
    
    -4.6
    %Acquisition expenses
    
    
    7.3
    
    
    
    9.2
    
    
    
    -20.7
    %Other operating expenses
    
    
    5.4
    
    
    
    5.4
    
    
    
    0.0
    %Total expenses
    
    
    33.6
    
    
    
    36.5
    
    
    
    -7.9
    %Pre-tax income
    
    
    3.3
    
    
    
    3.1
    
    
    
    6.5
    %Federal income tax
    
    
    (1.0
    )
    
    
    (0.1
    )
    
    
    *Net income
    
    $
    2.3
    
    
    $
    3.0
    
    
    
    -23.3
    %Earnings per share available to common stockholdersBasic
    
    $
    0.14
    
    
    $
    0.20
    
    
    
    -30.0
    %Diluted
    
    $
    0.14
    
    
    $
    0.20
    
    
    
    -30.0
    %Weighted average shares outstandingBasic
    
    
    15.7
    
    
    
    15.4
    
    
    
    1.9
    %Diluted
    
    
    15.8
    
    
    
    15.4
    
    
    
    2.6
    %Key operating ratiosNet loss and loss adjustment expense ratio
    
    
    61.2
    %
    
    
    58.9
    %
    
    
    3.9
    %Ratio of acquisition expense to earned premiums
    
    
    21.3
    %
    
    
    24.7
    %
    
    
    -13.8
    %Ratio of all other expenses to gross written premiums
    
    
    13.0
    %
    
    
    11.1
    %
    
    
    17.1
    %
 
 *
    
    Not meaningful     
 11




---



##### 



6/30/2008
    
    
    6/30/2007% of Total
    
    
    
    
    
    
    % of TotalGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)Risk Transfer Holdings, Inc.
    
    $
    22.3
    
    
    
    53.3
    %
    
    $
    23.4
    
    
    
    48.2
    %American Team Managers
    
    
    6.5
    
    
    
    15.6
    %
    
    
    9.0
    
    
    
    18.5
    %AEON Insurance Group, Inc.
    
    
    5.2
    
    
    
    12.4
    %
    
    
    6.9
    
    
    
    14.2
    %Appalachian Underwriters, Inc.
    
    
    2.1
    
    
    
    5.0
    %
    
    
    5.7
    
    
    
    11.7
    %Northern Star Management, Inc.
    
    
    2.0
    
    
    
    4.8
    %
    
    
    
    
    
    
    0.0
    %First Light Program Manager, Inc.
    
    
    1.0
    
    
    
    2.4
    %
    
    
    
    
    
    
    0.0
    %Specialty Risk Solutions, LLC
    
    
    0.9
    
    
    
    2.2
    %
    
    
    1.2
    
    
    
    2.5
    %Insential, Inc
    
    
    0.4
    
    
    
    1.0
    %
    
    
    0.5
    
    
    
    1.0
    %Flying Eagle Insurance Service, Inc
    
    
    0.3
    
    
    
    0.7
    %
    
    
    1.1
    
    
    
    2.3
    %Other
    
    
    1.1
    
    
    
    2.6
    %
    
    
    0.8
    
    
    
    1.6
    %Total
    
    $
    41.8
    
    
    
    100.0
    %
    
    $
    48.6
    
    
    
    100.0
    %
  6/30/2008
    
    
    6/30/2007% of Total
    
    
    
    
    
    
    % of TotalGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)California
    
    $
    14.2
    
    
    
    34.0
    %
    
    $
    14.9
    
    
    
    30.6
    %Florida
    
    
    10.7
    
    
    
    25.6
    %
    
    
    15.2
    
    
    
    31.3
    %Texas
    
    
    1.3
    
    
    
    3.1
    %
    
    
    3.3
    
    
    
    6.8
    %Other States
    
    
    15.6
    
    
    
    37.3
    %
    
    
    15.2
    
    
    
    31.3
    %Total
    
    $
    41.8
    
    
    
    100.0
    %
    
    $
    48.6
    
    
    
    100.0
    %
  
 12




---



##### 



6/30/2008
    
    
    6/30/2007% of Total
    
    
    
    
    
    
    % of TotalGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)Workers compensation
    
    $
    26.4
    
    
    
    63.2
    %
    
    $
    27.2
    
    
    
    56.0
    %Commercial automobile
    
    
    10.4
    
    
    
    24.9
    %
    
    
    10.3
    
    
    
    21.1
    %General liability
    
    
    4.2
    
    
    
    10.0
    %
    
    
    10.0
    
    
    
    20.6
    %All Other
    
    
    0.8
    
    
    
    1.9
    %
    
    
    1.1
    
    
    
    2.3
    %Total
    
    $
    41.8
    
    
    
    100.0
    %
    
    $
    48.6
    
    
    
    100.0
    %
  Six Months Ended June 30, 2008 as compared to the Six Months Ended June 30, 2007
 RESULTS OF OPERATION
 Six Months Ended6/30/2008
    
    
    6/30/2007
    
    
    % Change(dollars in millions,except for per share data)Gross written premiums
    
    $
    65.9
    
    
    $
    83.6
    
    
    
    -21.2
    %Net written premiums
    
    
    61.6
    
    
    
    77.8
    
    
    
    -20.8
    %Earned premiums
    
    $
    69.9
    
    
    $
    72.6
    
    
    
    -3.7
    %Net investment income
    
    
    5.3
    
    
    
    4.4
    
    
    
    20.5
    %Net realized gains
    
    
    0.1
    
    
    
    Total revenues
    
    
    75.3
    
    
    
    77.0
    
    
    
    -2.2
    %Net loss and loss adjustment expense
    
    
    42.0
    
    
    
    42.0
    
    
    
    0.0
    %Acquisition expenses
    
    
    16.0
    
    
    
    17.9
    
    
    
    -10.6
    %Other operating expenses
    
    
    11.3
    
    
    
    10.9
    
    
    
    3.7
    %Total expenses
    
    
    69.3
    
    
    
    70.8
    
    
    
    -2.1
    %Pre-tax income
    
    
    6.0
    
    
    
    6.1
    
    
    
    -1.6
    %Federal income tax
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    *Net income
    
    $
    5.7
    
    
    $
    6.0
    
    
    
    -5.0
    %Earnings per share available to common stockholdersBasic
    
    $
    0.37
    
    
    $
    0.39
    
    
    
    -5.1
    %Diluted
    
    $
    0.36
    
    
    $
    0.39
    
    
    
    -7.7
    %Weighted average shares outstandingBasic
    
    
    15.6
    
    
    
    15.4
    
    
    
    1.3
    %Diluted
    
    
    15.8
    
    
    
    15.4
    
    
    
    2.6
    %Key operating ratiosNet loss and loss adjustment expense ratio
    
    
    60.0
    %
    
    
    57.9
    %
    
    
    3.6
    %Ratio of acquisition expense to earned premiums
    
    
    22.8
    %
    
    
    24.7
    %
    
    
    -7.7
    %Ratio of all other expenses to gross written premiums
    
    
    17.2
    %
    
    
    13.1
    %
    
    
    31.3
    %
 
 *
    
    Not meaningful  
 13




---



##### 



6/30/2008
    
    
    6/30/2007% of Total
    
    
    
    
    
    
    % of TotalGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)Risk Transfer Holdings, Inc.
    
    $
    31.5
    
    
    
    47.8
    %
    
    $
    37.5
    
    
    
    44.8
    %American Team Managers
    
    
    12.7
    
    
    
    19.2
    %
    
    
    20.2
    
    
    
    24.2
    %AEON Insurance Group, Inc.
    
    
    10.8
    
    
    
    16.4
    %
    
    
    11.9
    
    
    
    14.2
    %Appalachian Underwriters, Inc.
    
    
    3.9
    
    
    
    5.9
    %
    
    
    10.1
    
    
    
    12.1
    %Northern Star Management, Inc.
    
    
    2.0
    
    
    
    3.0
    %
    
    
    
    
    
    
    0.0
    %First Light Program Manager, Inc.
    
    
    1.4
    
    
    
    2.1
    %
    
    
    
    
    
    
    0.0
    %Specialty Risk Solutions, LLC
    
    
    0.9
    
    
    
    1.4
    %
    
    
    1.2
    
    
    
    1.4
    %Insential, Inc
    
    
    0.7
    
    
    
    1.1
    %
    
    
    0.8
    
    
    
    1.0
    %Flying Eagle Insurance Service, Inc
    
    
    0.5
    
    
    
    0.8
    %
    
    
    1.1
    
    
    
    1.3
    %Other
    
    
    1.5
    
    
    
    2.3
    %
    
    
    0.8
    
    
    
    1.0
    %Total
    
    $
    65.9
    
    
    
    100.0
    %
    
    $
    83.6
    
    
    
    100.0
    %
  
 14




---



##### 



6/30/2008
    
    
    6/30/2007% of Total
    
    
    
    
    
    
    % of TotalGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)California
    
    $
    25.7
    
    
    
    39.0
    %
    
    $
    28.7
    
    
    
    34.3
    %Florida
    
    
    12.4
    
    
    
    18.8
    %
    
    
    22.5
    
    
    
    26.9
    %Texas
    
    
    6.2
    
    
    
    9.4
    %
    
    
    8.3
    
    
    
    9.9
    %Other States
    
    
    21.6
    
    
    
    32.8
    %
    
    
    24.1
    
    
    
    28.9
    %Total
    
    $
    65.9
    
    
    
    100.0
    %
    
    $
    83.6
    
    
    
    100.0
    %
   6/30/2008
    
    
    6/30/2007% of Total
    
    
    
    
    
    
    % of TotalGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)Workers compensation
    
    $
    38.3
    
    
    
    58.1
    %
    
    $
    45.9
    
    
    
    54.9
    %Commercial automobile
    
    
    18.0
    
    
    
    27.3
    %
    
    
    17.3
    
    
    
    20.7
    %General liability
    
    
    8.1
    
    
    
    12.3
    %
    
    
    18.6
    
    
    
    22.2
    %All Other
    
    
    1.5
    
    
    
    2.3
    %
    
    
    1.8
    
    
    
    2.2
    %Total
    
    $
    65.9
    
    
    
    100.0
    %
    
    $
    83.6
    
    
    
    100.0
    %
  Liquidity and Capital Resources
   Cash Flows
  Six Months Ended6/30/2008
    
    
    6/30/2007(dollars in millions)Cash provided by (used in)Operating activities
    
    $
    17.6
    
    
    $
    34.4Investing activities
    
    
    (17.8
    )
    
    
    (36.5
    )Financing activities
    
    
    (0.6
    )
    
    
    0.3Change in cash
    
    
    (0.8
    )
    
    
    (1.8
    )
 
 15




---



##### 



Fixed Maturity Investments
     
 Item 3: Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk
  
 16




---



##### 



After TaxEstimated Fair
    
    IncreaseAssumed Change
    
    Value After
    
    (Decrease) inFair Value at
    
    in Relevant
    
    Change
    
    Carrying6/30/2008
    
    Interest Rate
    
    in Interest Rate
    
    Value(dollars in thousands)Total Investments
    
    $
    240,236
    
    
    100 bp decrease
    
    $
    248,834
    
    
    $
    8,59850 bp decrease
    
    
    244,580
    
    
    
    4,34450 bp increase
    
    
    234,827
    
    
    
    (5,409
    )100 bp increase
    
    
    231,482
    
    
    
    (8,754
    )
  Credit Risk
   As of 6/30/2008Percent ofAmount
    
    
    PortfolioBond Ratings
    
    (dollars in thousands)AAA rated and U.S. Government and affiliated agency securities
    
    $
    113,739
    
    
    
    56.5
    %AA rated
    
    
    49,420
    
    
    
    24.6
    %A rated
    
    
    35,519
    
    
    
    17.6
    %BBB Rated
    
    
    2,616
    
    
    
    1.3
    %Total
    
    $
    201,294
    
    
    
    100.0
    %
  
 Item 4: Controls and Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.
  
 17




---



##### 



Changes in Internal Control Over Financial Reporting
 Inherent Limitations on Effectiveness of Controls.
 
 18




---



##### 



PART II 
OTHER INFORMATION
 
 Item 1: Legal Proceedings
  
 Item 1A: Risk Factors
  
 Item 2: Recent Sales of Unregistered Securities
  Total Number of
    
    
    Maximum Number ofTotal
    
    
    Average
    
    
    Shares Purchased
    
    
    Shares that May YetNumber of
    
    
    Price
    
    
    as Part of Publically
    
    
    be Purchased UnderShares
    
    
    Paid per
    
    
    Announced Plans or
    
    
    the Plans or ProgramsPurchased1
    
    
    Share2
    
    
    Programs
    
    
    at End of MonthApril 1 to April 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275,000May 1 to May 31
    
    
    97,300
    
    
    $
    4.7340
    
    
    
    97,300
    
    
    
    177,700June 1 to June 30
    
    
    177,700
    
    
    
    4.9258
    
    
    
    177,700
    
    
    
    Total
    
    
    275,000
    
    
    $
    4.8580
    
    
    
    275,000
    
    
    
    
 
 1
    
    The Company announced the repurchase program on April 8, 2008 for the
purchase of up to 275,000 shares of Common Stock for up to an aggregate purchase price
of $1.65 million. All shares available to be purchased under the program have been
acquired.2
    
    Price per share data does not include the $0.04 per share commission  
 Item 3: Defaults Upon Senior Securities
  
 Item 4: Submission of Matters to a Vote of Security Holders
  For
    
    WithheldCourtney C. Smith
    
    
    12,053,993
    
    
    
    872,352Peter E. Jokiel
    
    
    10,896,120
    
    
    
    2,029,255Robert E. Dean
    
    
    12,071,379
    
    
    
    853,966Raymond C. Groth
    
    
    10,899,875
    
    
    
    2,025,470Paul A. Philp
    
    
    12,072,879
    
    
    
    852,466Robert H. Whitehead
    
    
    12,072,879
    
    
    
    852,466Russell E. Zimmermann
    
    
    12,072,879
    
    
    
    852,466
  For
    
    Against
    
    Abstentions12,842,989
    
    82,466
    
    0
  
 19




---



##### 



Item 5: Other Information
   Section 1.02  Special Meetings
 Section 1.04  Quorum
 Section 1.07  Adjournment
 Section 1.09  Organization; Procedure
 Section 1.11  Conduct of Meetings
 Section 1.12  Notice of Stockholder Business and Nominations
 Section 2.02  Number and Term of Office
 Section 2.12  Removal of Directors
 Section 2.13  Vacancies and Newly Created Directorships
 Section 5.05  Record Dates
 
 20




---



##### 



Section 9.01  Amendment
 
 Item 6: Exhibits
 Exhibits:
 ExhibitNumber
    
    Description3.1
    
    
    Amended and Restated By-laws of the Company effective August 5, 200810.1+
    
    
    Employment Agreement dated April 7, 2008 between the Company and Courtney C. Smith10.2+
    
    
    Employment Agreement dated April 7, 2008 between the Company and Peter E. Jokiel10.3+
    
    
    Employment Agreement dated April 7, 2008 between the Company and Gary J. Ferguson10.4+
    
    
    Change of Control Agreement dated April 7, 2008 between the Company and Barry G. Cordeiro10.5+
    
    
    Change of Control Agreement dated April 7, 2008 between the Company and Scott W. Goodreau10.6+
    
    
    Change of Control Agreement dated April 7, 2008 between the Company and Scott K. Charbonneau10.7+
    
    
    Change of Control Agreement dated April 7, 2008 between the Company and Daniel A. Cacchione10.8+
    
    
    Change of Control Agreement dated April 7, 2008 between the Company and Daniel J. Rohan31.1
    
    
    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
 
 +
    
    Indicates a management contract or compensatory plan or arrangement. 
 21




---



##### 



Signatures
  SPECIALTY UNDERWRITERS ALLIANCE, INC.
(Registrant)By:
    
    /s/ Courtney C. SmithName: Courtney C. SmithTitle: President and Chief Executive OfficerDate: August 8, 2008By:
    
    /s/ Peter E. JokielName: Peter E. JokielTitle: Executive Vice President and
Chief Financial OfficerDate: August 8, 2008
 
 22




---



##### 



Exhibits Index:
 ExhibitNumber
    
    Description3.1
    
    
    Amended and Restated By-laws of the Company effective August 5, 200810.1+
    
    
    Employment Agreement dated April 7, 2008 between the Company and Courtney C. Smith10.2+
    
    
    Employment Agreement dated April 7, 2008 between the Company and Peter E. Jokiel10.3+
    
    
    Employment Agreement dated April 7, 2008 between the Company and Gary J. Ferguson10.4+
    
    
    Change of Control Agreement dated April 7, 2008 between the Company and Barry G. Cordeiro10.5+
    
    
    Change of Control Agreement dated April 7, 2008 between the Company and Scott W. Goodreau10.6+
    
    
    Change of Control Agreement dated April 7, 2008 between the Company and Scott K. Charbonneau10.7+
    
    
    Change of Control Agreement dated April 7, 2008 between the Company and Daniel A. Cacchione10.8+
    
    
    Change of Control Agreement dated April 7, 2008 between the Company and Daniel J. Rohan31.1
    
    
    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
 
 +
    
    Indicates a management contract or compensatory plan or arrangement. 
 23