##### 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 September 30, 2007
 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.
  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
  o þ 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
    
    
    17Item 4: Controls and Procedures
    
    
    18PART II  OTHER INFORMATION
    
    
    19Item 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
    
    
    19Item 6: Exhibits
    
    
    20Signatures
    
    
    21Exhibit 3.1Exhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 10.5Exhibit 10.6Exhibit 10.7Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1: Financial Statements
 Specialty Underwriters Alliance, Inc.
Consolidated Balance Sheets
(dollars in thousands)
 As ofSeptember 30,
    
    
    December 31,2007
    
    
    2006(unaudited)AssetsFixed maturity investments, at fair value (amortized cost: $164,831 and $145,581)
    
    $
    164,106
    
    
    $
    144,520Short-term investments, at amortized cost (which approximates fair value)
    
    
    50,917
    
    
    
    19,538Total investments
    
    
    215,023
    
    
    
    164,058Cash
    
    
    878
    
    
    
    2,375Insurance premiums receivable
    
    
    63,657
    
    
    
    68,310Reinsurance recoverable on paid and unpaid loss and loss adjustment expenses
    
    
    76,164
    
    
    
    80,976Prepaid reinsurance premiums
    
    
    177
    
    
    
    3,577Investment income accrued
    
    
    1,413
    
    
    
    1,566Equipment and capitalized software at cost (less accumulated depreciation of 
$7,331 and $3,915)
    
    
    12,045
    
    
    
    8,643Intangible assets
    
    
    10,745
    
    
    
    10,745Deferred acquisition costs
    
    
    17,541
    
    
    
    19,876Other assets
    
    
    2,186
    
    
    
    3,171Total assets
    
    $
    399,829
    
    
    $
    363,297LiabilitiesLoss and loss adjustment expense reserves
    
    $
    168,976
    
    
    $
    141,200Unearned insurance premiums
    
    
    85,614
    
    
    
    89,804Insured deposit funds
    
    
    11,495
    
    
    
    10,366Accounts payable and other liabilities
    
    
    8,595
    
    
    
    7,945Total liabilities
    
    
    274,680
    
    
    
    249,315Stockholders equityCommon stock at $.01 par value per share 
authorized 30,000,000 shares; issued and outstanding 14,697,355 shares and 14,682,355 shares
    
    
    147
    
    
    
    147Class B common stock at $.01 par value per share 
authorized 2,000,000 shares; issued and outstanding 742,088 shares and 679,152 shares
    
    
    7
    
    
    
    7Paid-in capital  common stock
    
    
    129,320
    
    
    
    128,372Paid-in capital  class B common stock
    
    
    5,326
    
    
    
    4,838Accumulated deficit
    
    
    (8,926
    )
    
    
    (18,321
    )Accumulated other comprehensive loss
    
    
    (725
    )
    
    
    (1,061
    )Total stockholders equity
    
    
    125,149
    
    
    
    113,982Total liabilities and stockholders equity
    
    $
    399,829
    
    
    $
    363,297
   3




---



##### Table of Contents



Specialty Underwriters Alliance, Inc.
Consolidated Statements of Operations and Comprehensive Income
(dollars in thousands, except for earnings per share)
(unaudited)
 Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesEarned insurance premiums
    
    $
    40,377
    
    
    $
    31,712
    
    
    $
    112,933
    
    
    $
    80,198Net investment income
    
    
    2,517
    
    
    
    1,628
    
    
    
    6,935
    
    
    
    4,204Net realized gains (losses)
    
    
    1
    
    
    
    273
    
    
    
    28
    
    
    
    271Total revenue
    
    
    42,895
    
    
    
    33,613
    
    
    
    119,896
    
    
    
    84,673ExpensesLoss and loss adjustment expenses
    
    
    24,047
    
    
    
    18,250
    
    
    
    66,077
    
    
    
    46,722Acquisition expenses
    
    
    9,609
    
    
    
    6,701
    
    
    
    27,340
    
    
    
    17,432Other operating expenses
    
    
    5,815
    
    
    
    5,019
    
    
    
    16,899
    
    
    
    14,785Total expenses
    
    
    39,471
    
    
    
    29,970
    
    
    
    110,316
    
    
    
    78,939Pretax income
    
    
    3,424
    
    
    
    3,643
    
    
    
    9,580
    
    
    
    5,734Federal income tax expense
    
    
    (61
    )
    
    
    (61
    )
    
    
    (185
    )
    
    
    (185
    )Net income
    
    
    3,363
    
    
    
    3,582
    
    
    
    9,395
    
    
    
    5,549Net change in unrealized gains and losses for
investments held, after tax
    
    
    2,121
    
    
    
    2,273
    
    
    
    336
    
    
    
    637Comprehensive income
    
    $
    5,484
    
    
    $
    5,855
    
    
    $
    9,731
    
    
    $
    6,186Earnings per share available
to common stockholders (in dollars)Basic
    
    $
    0.22
    
    
    $
    0.24
    
    
    $
    0.61
    
    
    $
    0.37Diluted
    
    $
    0.22
    
    
    $
    0.24
    
    
    $
    0.61
    
    
    $
    0.37Weighted Average Shares OutstandingBasic
    
    
    15,431
    
    
    
    15,293
    
    
    
    15,404
    
    
    
    15,162Diluted
    
    
    15,431
    
    
    
    15,293
    
    
    
    15,404
    
    
    
    15,162
   4




---



##### Table of Contents



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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,395
    
    
    
    
    
    
    
    9,395Net change in unrealized investment
gains and (losses), net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    336
    
    
    
    336Stock issuance
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    488
    
    
    
    
    
    
    
    
    
    
    
    611Stock based compensation
    
    
    
    
    
    
    825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    825Balance at September 30, 2007
    
    $
    147
    
    
    $
    129,320
    
    
    $
    7
    
    
    $
    5,326
    
    
    $
    (8,926
    )
    
    $
    (725
    )
    
    $
    125,149
   5




---



##### Table of Contents



Specialty Underwriters Alliance, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
 Nine MonthsEndedSeptember 30,2007
    
    
    2006(unaudited)Cash flows from operationsNet income
    
    $
    9,395
    
    
    $
    5,549Charges (credits) to reconcile net income to cash flows from operations:Change in deferred income tax
    
    
    185
    
    
    
    185Net realized (gains) losses
    
    
    (28
    )
    
    
    (271
    )Amortization of bond premium (discount)
    
    
    (6
    )
    
    
    296Depreciation
    
    
    3,416
    
    
    
    1,768Net change in:Reinsurance recoverable on unpaid loss and loss adjustment expense reserves
    
    
    4,812
    
    
    
    6,730Loss and loss adjustment expense reserves
    
    
    27,776
    
    
    
    29,341Insurance premiums receivable
    
    
    4,653
    
    
    
    (17,839
    )Unearned insurance premiums
    
    
    (4,190
    )
    
    
    18,503Deferred acquisition costs
    
    
    2,335
    
    
    
    (4,869
    )Prepaid reinsurance premiums
    
    
    3,400
    
    
    
    1,126Insured deposit funds
    
    
    1,129
    
    
    
    3,522Other, net
    
    
    2,551
    
    
    
    2,124Total adjustments
    
    
    46,033
    
    
    
    40,616Net cash flows provided by operations
    
    
    55,428
    
    
    
    46,165Cash flows from investing activitiesNet increase in short-term investments
    
    
    (31,379
    )
    
    
    (9,882
    )Redemptions, calls and maturities of fixed maturity investments
    
    
    14,233
    
    
    
    13,590Purchases of fixed maturity investments
    
    
    (33,449
    )
    
    
    (51,493
    )Purchase of equipment and capitalized software
    
    
    (6,818
    )
    
    
    (3,805
    )Net cash flows used for investing activities
    
    
    (57,413
    )
    
    
    (51,590
    )Cash flows from financing activitiesIssuance of common stock
    
    
    488
    
    
    
    2,822Net cash provided by financing activities
    
    
    488
    
    
    
    2,822Net (decrease) in cash during the period
    
    
    (1,497
    )
    
    
    (2,603
    )Cash at beginning of the period
    
    
    2,375
    
    
    
    5,329Cash at the end of the period
    
    $
    878
    
    
    $
    2,726
   6




---



##### Table of Contents



NOTES TO FINANCIAL STATEMENTS  SPECIALTY UNDERWRITERS ALLIANCE, INC.
(dollars in thousands)
 Note 1. Basis of Presentation
     Note 2. Earnings Per Share
  Three Months Ended
    
    
    Three Months EndedSept. 30, 2007
    
    
    Sept. 30, 2006(in thousands, except per share data)Net income
    
    $
    3,363
    
    
    $
    3,582Weighted average common shares
outstanding (basic and diluted)
    
    
    15,431
    
    
    
    15,293Earnings per share (basic and diluted)
    
    $
    0.22
    
    
    $
    0.24
  Nine Months Ended
    
    
    Nine Months EndedSept. 30, 2007
    
    
    Sept. 30, 2006(in thousands, except per share data)Net income
    
    $
    9,395
    
    
    $
    5,549Weighted average common shares outstanding (basic and diluted)
    
    
    15,404
    
    
    
    15,162Earnings per share (basic and diluted)
    
    $
    0.61
    
    
    $
    0.37
  7




---



##### Table of Contents



NOTES TO FINANCIAL STATEMENTS  SPECIALTY UNDERWRITERS ALLIANCE, INC.
(dollars in thousands)
 Note 3. Income Taxes
   Note 4. Unpaid Loss and Loss Adjustment Expense Reserves
    Note 5. Recent Accounting Pronouncements
    8




---



##### Table of Contents



NOTES TO FINANCIAL STATEMENTS  SPECIALTY UNDERWRITERS ALLIANCE, INC.
(dollars in thousands)
 Note 6. Equity Based Compensation
    9




---



##### 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




---



##### Table of Contents



Three Months Ended September 30, 2007 as compared to the Three Months Ended September 30, 2006
 Percentage
ChangeThree Months Ended Sept. 30,
    
    
    2007 vs.2007
    
    
    2006
    
    
    2006(unaudited)(dollars in millions, except percentages and per share data)Results of operations:Gross written premiums
    
    $
    33.5
    
    
    $
    38.9
    
    
    
    (13.9
    )%Net written premiums
    
    
    30.9
    
    
    
    36.4
    
    
    
    (15.1
    )%Earned premiums
    
    
    40.4
    
    
    
    31.7
    
    
    
    27.4
    %Net investment income
    
    
    2.5
    
    
    
    1.6
    
    
    
    56.3
    %Net realized gains (losses)
    
    
    
    
    
    
    0.3
    
    
    
    *Total revenues
    
    $
    42.9
    
    
    $
    33.6
    
    
    
    27.7
    %Loss and loss adjustment expense
    
    $
    24.1
    
    
    $
    18.3
    
    
    
    31.7
    %Acquisition expenses
    
    
    9.6
    
    
    
    6.7
    
    
    
    43.3
    %Other operating expenses
    
    
    5.8
    
    
    
    5.0
    
    
    
    16.0
    %Total expenses
    
    $
    39.5
    
    
    $
    30.0
    
    
    
    31.7
    %Pre-tax income
    
    $
    3.4
    
    
    $
    3.6
    
    
    
    (5.6
    )%Federal income tax (expense)
    
    
    
    
    
    
    
    
    
    
    *Net income (loss)
    
    $
    3.4
    
    
    $
    3.6
    
    
    
    (5.6
    )%Earnings (loss) per shareBasic and diluted
    
    $
    0.22
    
    
    $
    0.24
    
    
    
    (8.3
    )%Weighted average common shares outstanding (basic and diluted)
    
    
    15.4
    
    
    
    15.3
    
    
    
    0.7
    %Key ratiosNet loss and loss adjustment expense ratio
    
    
    59.6
    %
    
    
    57.6
    %
    
    
    2.0
    %Ratio of acquisition expenses to earned premiums
    
    
    23.8
    %
    
    
    21.1
    %
    
    
    2.7
    %Ratio of all other expenses to gross written premiums
    
    
    17.4
    %
    
    
    12.9
    %
    
    
    4.5
    %
 *
    
    Not meaningful      11




---



##### Table of Contents



Three Months Ended
    
    
    Three Months EndedSept. 30, 2007
    
    
    Sept. 30, 2006Percentage of
    
    
    
    
    
    
    Percentage ofGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)AEON Insurance Group, Inc.
    
    $
    7.9
    
    
    
    23.6
    %
    
    $
    8.1
    
    
    
    20.8
    %American Team Managers
    
    
    7.1
    
    
    
    21.2
    %
    
    
    8.9
    
    
    
    22.9
    %Appalachian Underwriters, Inc.
    
    
    2.7
    
    
    
    8.0
    %
    
    
    3.5
    
    
    
    9.0
    %Flying Eagle Insurance Services, Inc.
    
    
    1.2
    
    
    
    3.6
    %
    
    
    
    
    
    
    0.0
    %Insential, Inc.
    
    
    0.5
    
    
    
    1.5
    %
    
    
    0.6
    
    
    
    1.6
    %Risk Transfer Holdings, Inc.
    
    
    12.1
    
    
    
    36.1
    %
    
    
    15.6
    
    
    
    40.1
    %Specialty Risk Solutions, LLC
    
    
    1.8
    
    
    
    5.4
    %
    
    
    2.0
    
    
    
    5.1
    %Involuntary risk
    
    
    0.2
    
    
    
    0.6
    %
    
    
    0.2
    
    
    
    0.5
    %Total
    
    $
    33.5
    
    
    
    100.0
    %
    
    $
    38.9
    
    
    
    100.0
    %
   Three Months Ended
    
    
    Three Months EndedSept. 30, 2007
    
    
    Sept. 30, 2006Percentage of
    
    
    
    
    
    
    Percentage ofGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)California
    
    $
    14.1
    
    
    
    42.1
    %
    
    $
    13.7
    
    
    
    35.2
    %Florida
    
    
    2.8
    
    
    
    8.4
    %
    
    
    11.2
    
    
    
    28.8
    %Other States
    
    
    16.6
    
    
    
    49.5
    %
    
    
    14.0
    
    
    
    36.0
    %Total
    
    $
    33.5
    
    
    
    100.0
    %
    
    $
    38.9
    
    
    
    100.0
    %
   12




---



##### Table of Contents



Three Months Ended
    
    
    Three Months EndedSept. 30, 2007
    
    
    Sept. 30, 2006Percentage of
    
    
    
    
    
    
    Percentage ofGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)Workers compensation
    
    $
    14.3
    
    
    
    42.7
    %
    
    $
    17.5
    
    
    
    45.0
    %General liability
    
    
    9.5
    
    
    
    28.3
    %
    
    
    11.7
    
    
    
    30.0
    %Commercial automobile
    
    
    8.5
    
    
    
    25.4
    %
    
    
    8.8
    
    
    
    22.6
    %All other
    
    
    1.2
    
    
    
    3.6
    %
    
    
    0.9
    
    
    
    2.4
    %Total
    
    $
    33.5
    
    
    
    100.0
    %
    
    $
    38.9
    
    
    
    100.0
    %
   13




---



##### Table of Contents



Nine Months Ended September 30, 2007 as compared to the Nine Months Ended September 30, 2006
 Percentage
ChangeNine Months Ended Sept. 30,
    
    
    2007 vs.2007
    
    
    2006
    
    
    2006(unaudited)(dollars in millions, except percentages and per share data)Results of operations:Gross written premiums
    
    $
    117.1
    
    
    $
    107.2
    
    
    
    9.2
    %Net written premiums
    
    
    108.7
    
    
    
    98.7
    
    
    
    10.1
    %Earned premiums
    
    
    112.9
    
    
    
    80.2
    
    
    
    40.8
    %Net investment income
    
    
    7.0
    
    
    
    4.2
    
    
    
    66.7
    %Net realized gains (losses)
    
    
    
    
    
    
    0.3
    
    
    
    *Total revenues
    
    $
    119.9
    
    
    $
    84.7
    
    
    
    41.6
    %Loss and loss adjustment expense
    
    $
    66.1
    
    
    $
    46.7
    
    
    
    41.5
    %Acquisition expenses
    
    
    27.3
    
    
    
    17.4
    
    
    
    56.9
    %Other operating expenses
    
    
    16.9
    
    
    
    14.8
    
    
    
    14.2
    %Total expenses
    
    $
    110.3
    
    
    $
    78.9
    
    
    
    39.8
    %Pre-tax income
    
    $
    9.6
    
    
    $
    5.7
    
    
    
    68.4
    %Federal income tax (expense)
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    *Net income (loss)
    
    $
    9.4
    
    
    $
    5.5
    
    
    
    70.9
    %Earnings (loss) per shareBasic and diluted
    
    $
    0.61
    
    
    $
    0.37
    
    
    
    64.9
    %Weighted average common shares outstanding (basic and diluted)
    
    
    15.4
    
    
    
    15.2
    
    
    
    1.3
    %Key ratiosNet loss and loss adjustment expense ratio
    
    
    58.5
    %
    
    
    58.3
    %
    
    
    0.2
    %Ratio of acquisition expenses to earned premiums
    
    
    24.2
    %
    
    
    21.7
    %
    
    
    2.5
    %Ratio of all other expenses to gross written premiums
    
    
    14.4
    %
    
    
    13.8
    %
    
    
    0.6
    %
 *
    
    Not meaningful      14




---



##### Table of Contents



Nine Months Ended
    
    
    Nine Months EndedSept. 30, 2007
    
    
    Sept. 30, 2006Percentage of
    
    
    
    
    
    
    Percentage ofGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)AEON Insurance Group, Inc.
    
    $
    19.7
    
    
    
    16.8
    %
    
    $
    15.7
    
    
    
    14.7
    %American Team Managers
    
    
    27.3
    
    
    
    23.3
    %
    
    
    23.6
    
    
    
    22.0
    %Appalachian Underwriters, Inc.
    
    
    12.9
    
    
    
    11.0
    %
    
    
    8.5
    
    
    
    7.9
    %Flying Eagle Insurance Services, Inc.
    
    
    2.3
    
    
    
    2.0
    %
    
    
    
    
    
    
    0.0
    %Insential, Inc.
    
    
    1.3
    
    
    
    1.1
    %
    
    
    1.0
    
    
    
    0.9
    %Risk Transfer Holdings, Inc.
    
    
    49.6
    
    
    
    42.3
    %
    
    
    56.1
    
    
    
    52.3
    %Specialty Risk Solutions, LLC
    
    
    3.0
    
    
    
    2.6
    %
    
    
    2.0
    
    
    
    1.9
    %Involuntary risk
    
    
    1.0
    
    
    
    0.9
    %
    
    
    0.3
    
    
    
    0.3
    %Total
    
    $
    117.1
    
    
    
    100.0
    %
    
    $
    107.2
    
    
    
    100.0
    %
   Nine Months Ended
    
    
    Nine Months EndedSept. 30, 2007
    
    
    Sept. 30, 2006Percentage of
    
    
    
    
    
    
    Percentage ofGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)California
    
    $
    42.8
    
    
    
    36.6
    %
    
    $
    35.7
    
    
    
    33.3
    %Florida
    
    
    25.3
    
    
    
    21.6
    %
    
    
    39.4
    
    
    
    36.8
    %Other States
    
    
    49.0
    
    
    
    41.8
    %
    
    
    32.1
    
    
    
    29.9
    %Total
    
    $
    117.1
    
    
    
    100.0
    %
    
    $
    107.2
    
    
    
    100.0
    %
  15




---



##### Table of Contents



Nine Months Ended
    
    
    Nine Months EndedSept. 30, 2007
    
    
    Sept. 30, 2006Percentage of
    
    
    
    
    
    
    Percentage ofGross Written
    
    
    Gross Written
    
    
    Gross Written
    
    
    Gross WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium(dollars in millions)Workers compensation
    
    $
    60.2
    
    
    
    51.4
    %
    
    $
    62.0
    
    
    
    57.8
    %General liability
    
    
    28.1
    
    
    
    24.0
    %
    
    
    25.4
    
    
    
    23.7
    %Commercial automobile
    
    
    25.8
    
    
    
    22.0
    %
    
    
    17.9
    
    
    
    16.7
    %All other
    
    
    3.0
    
    
    
    2.6
    %
    
    
    1.9
    
    
    
    1.8
    %Total
    
    $
    117.1
    
    
    
    100.0
    %
    
    $
    107.2
    
    
    
    100.0
    %
  Liquidity and Capital Resources
   Cash Flows
  Nine Months Ended Sept. 30,2007
    
    
    2006(dollars in millions)Cash provided by (used for)Operating activities
    
    $
    55.4
    
    
    $
    46.2Investing activities
    
    
    (57.4
    )
    
    
    (51.6
    )Financing activities
    
    
    0.5
    
    
    
    2.8Change in cash
    
    $
    (1.5
    )
    
    $
    (2.6
    )
    16




---



##### Table of Contents



Fixed Maturity Investments
     
 Item 3: Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk
   AssumedChange
    
    
    EstimatedFair Value
    
    
    IncreaseFair Value at
    
    
    in Relevant
    
    
    After Change in
    
    
    (Decrease) inSept. 30, 2007
    
    
    Interest Rate
    
    
    Interest Rate
    
    
    Carrying Value(dollars in thousands)Total investments
    
    $
    215,023
    
    
    100 bp decrease
    
    $
    220,444
    
    
    $
    5,42150 bp decrease
    
    $
    217,807
    
    
    $
    2,78450 bp increase
    
    $
    212,121
    
    
    $
    (2,902
    )100 bp increase
    
    $
    209,151
    
    
    $
    (5,872
    )
  Credit Risk
   17




---



##### Table of Contents



As of Sept. 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
    
    $
    106,529
    
    
    
    64.9
    %
    
    $
    88,843
    
    
    
    61.5
    %AA Rated
    
    
    20,819
    
    
    
    12.7
    %
    
    
    15,959
    
    
    
    11.0
    %A Rated
    
    
    34,573
    
    
    
    21.1
    %
    
    
    39,718
    
    
    
    27.5
    %BBB Rated
    
    
    2,185
    
    
    
    1.3
    %
    
    
    
    
    
    
    
    %Total
    
    $
    164,106
    
    
    
    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.
  18




---



##### 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
  
 Item 5: Other Information
  Consent of Stockholders in Lieu of a Meeting
  Election of Directors
    Electronic Transmission
   19




---



##### Table of Contents



Emergency By-Laws Provisions
   
 Item 6: Exhibits
  ExhibitNumber
    
    Description3.1
    
    Amended and Restated Bylaws of the Registrant dated as of October 29, 200710.1
    
    Amendment No. 4 to the Partner Agent Program Agreement between the Registrant and American Team
Managers10.2
    
    SUA Insurance Company Partner Agent Program Agreement between the Registrant and First Light
Program Managers, Inc.10.3
    
    Securities Purchase Agreement between the Registrant and First Lights Program Managers, Inc.10.4
    
    Form of Restricted Stock Agreement for Directors under the 2007 Stock Incentive Plan of the
Registrant10.5
    
    Form of Restricted Stock Agreement for Employees under the 2007 Stock Incentive Plan of the
Registrant10.6
    
    Form of Nonqualified Stock Option Agreement under the 2007 Stock Incentive Plan of the Registrant10.7
    
    Form of Incentive Stock Option Agreement under the 2007 Stock Incentive Plan of the Registrant31.1
    
    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
  20




---



##### Table of Contents



SPECIALTY UNDERWRITERS ALLIANCE, INC.(Registrant)Dated: November 2, 2007
    
    By:
    
    /s/ Courtney C. SmithName: Courtney C. SmithTitle: President and Chief Executive Officer (Principal Executive Officer)Dated: November 2, 2007
    
    By:
    
    /s/ Peter E. JokielName: Peter E. JokielTitle: Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
  21




---



##### Table of Contents



ExhibitNumber
    
    Description3.1
    
    Amended and Restated Bylaws of the Registrant dated as of October 29, 200710.1
    
    Amendment No. 4 to the Partner Agent Program Agreement between the Registrant and American Team
Managers10.2
    
    SUA Insurance Company Partner Agent Program Agreement between the Registrant and First Light
Program Managers, Inc.10.3
    
    Securities Purchase Agreement between the Registrant and First Lights Program Managers, Inc.10.4
    
    Form of Restricted Stock Agreement for Directors under the 2007 Stock Incentive Plan of the
Registrant10.5
    
    Form of Restricted Stock Agreement for Employees under the 2007 Stock Incentive Plan of the
Registrant10.6
    
    Form of Nonqualified Stock Option Agreement under the 2007 Stock Incentive Plan of the Registrant10.7
    
    Form of Incentive Stock Option Agreement under the 2007 Stock Incentive Plan of the Registrant31.1
    
    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
  22