10-Q

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)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

     As of August 3, 2009, there were 14,574,596 shares of our common stock, $0.01 par value, or the Common Stock, outstanding and 1,354,328 shares of our Class B common stock, $0.01 par value, or the Class B Shares, outstanding.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

TABLE OF CONTENTS

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

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

2

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)
ASSETS
Fixed maturity investments, at fair value (amortized cost: $231,131 and $220,744)	$	231,891		$	216,708
Short-term investments, at amortized cost (which approximates fair value)		33,153			46,697
Total Investments		265,044			263,405
Cash		1,383			208
Insurance premiums receivable		68,484			60,715
Reinsurance recoverable on paid and unpaid loss and loss adjustment expenses		79,725			79,598
Prepaid reinsurance premiums		245			309
Investment income accrued		2,554			2,467
Equipment and capitalized software at cost (less accumulated depreciation of $18,823 and $15,486)		12,901			13,562
Intangible assets		10,745			10,745
Deferred acquisition costs		16,982			18,156
Deferred tax asset		1,602			3,146
Other assets		2,867			2,426
Total Assets	$	462,532		$	454,737
LIABILITIES & STOCKHOLDERS’ EQUITY
Liabilities
Loss and loss adjustment expense reserves	$	218,400		$	214,953
Unearned insurance premiums		79,247			80,600
Insured deposit funds		13,737			15,806
Accounts payable and other liabilities		10,435			7,089
Total Liabilities		321,819			318,448
Commitments (Note 8)
Stockholders’ equity
Common 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			147
Class 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			14
Paid-in capital — Common Stock		130,394			129,926
Paid-in capital — Class B Common Stock		7,694			8,077
Accumulated earnings		2,573			1,693
Treasury 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			136,289
Total Liabilities & Stockholders’ Equity	$	462,532		$	454,737

The accompanying notes are an integral part of these consolidated financial statements.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

3

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 Ended
	6/30/2009			6/30/2008			6/30/2009			6/30/2008
Revenues
Earned insurance premiums	$	35,365		$	34,195		$	70,140		$	69,945
Net investment income		2,775			2,670			5,549			5,323
Net realized gains, other than impairments		24			7			168			38
Subtotal: Revenue before impairments		38,164			36,872			75,857			75,306
Other 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			75,306
Expenses
Loss and loss adjustment expenses		23,045			20,941			43,979			41,999
Acquisition expenses		8,359			7,267			16,884			15,970
Other operating expenses		7,141			5,412			13,726			11,339
Total expenses		38,545			33,620			74,589			69,308
Pretax income (loss)		(746	)		3,252			692			5,998
Income tax (expense) benefit		270			(1,002	)		(175	)		(283	)
Net income (loss)		(476	)		2,250			517			5,715
Net 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		$	3,482
Earnings (loss) per share available to common stockholders (in dollars)
Basic	$	(0.03	)	$	0.14		$	0.03		$	0.37
Diluted	$	(0.03	)	$	0.14		$	0.03		$	0.36
Weighted average shares outstanding
Basic		15,877			15,666			15,843			15,623
Diluted		15,917			15,809			15,941			15,766

The accompanying notes are an integral part of these consolidated financial statements.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

4

Specialty Underwriters’ Alliance, Inc.
Consolidated Statement of Stockholders’ Equity
As of June 30, 2009
(Unaudited — in thousands)

																Accum.
																Other			Total
	Common		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)			Equity
Balance at Dec. 31, 2008	$	147	$	129,926	$	14		$	8,077		$	1,693	$	(1,347	)	$	(2,221	)	$	136,289
Net income		-		-		-			-			517		-			-			517
Net change in unrealized investment gains, net of tax		-		-		-			-			-		-			2,660			2,660
Impairments included in other comprehensive income, net of tax		-		-		-			-			-		-			818			818
Stock issuance		1		111		(1	)		(383	)		-		344			-			72
Stock based compensation		-		357		-			-			-		-			-			357
Cumulative 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

The accompanying notes are an integral part of these consolidated financial statements.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

5

Specialty Underwriters’ Alliance, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2009 and 2008
(Unaudited — in thousands)

	Six Months Ended
	6/30/2009			6/30/2008
Cash flows from operations
Net income	$	517		$	5,715
Charges (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			3,171
Net change in:
Reinsurance recoverable (payable) on unpaid loss and loss adjustment expense reserves		(127	)		3,806
Loss and loss adjustment expense reserves		3,447			10,134
Insurance premiums receivable		(7,769	)		491
Unearned insurance premiums		(1,353	)		(8,253	)
Deferred acquisition costs		1,174			1,705
Prepaid reinsurance premiums		64			214
Insured deposit funds		(2,069	)		1,277
Other, net		3,129			(312	)
Total adjustments		6			11,878
Net cash flows provided by operations		523			17,593
Cash flows from investing activities
Net decrease in short-term investments		13,545			12,710
Redemptions, calls and maturities of fixed maturity investments		19,051			18,042
Purchases 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 activities
Issuance of common stock		116			762
Treasury 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			968
Cash at the end of the period	$	1,383		$	147

The accompanying notes are an integral part of these consolidated financial statements.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

6

Specialty Underwriters’ Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited — in thousands, except earnings per share)

Note 1. Basis of Presentation

     The Consolidated Financial Statements (unaudited) include the accounts of Specialty Underwriters’ Alliance, Inc., and its consolidated subsidiary, SUA Insurance Company, together referred to as SUA or the Company. SUA completed an initial public offering, or IPO, of its common stock on November 23, 2004. Concurrent with the IPO, SUA completed the acquisition of Potomac Insurance Company of Illinois, or Potomac. Potomac has subsequently been renamed SUA Insurance Company.

     The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP. Certain financial information that is normally included in annual financial statements, including certain financial statements footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in SUA’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission, or SEC.

     The interim financial data as of June 30, 2009, and for the periods ended June 30, 2009 and June 30, 2008 is unaudited. However, in the opinion of management, the interim data includes all adjustments, consisting of normal recurring accruals, necessary for a fair statement of the Company’s results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to prior period financial statement line items to enhance the comparability of the results presented.

Note 2. Recent Accounting Pronouncements

     In April 2009, the FASB issued FASB Staff Position, or FSP Financial Accounting Standard, or FAS 157-4, “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,” or FSP FAS 157-4, which provides guidance on how to determine the fair value of assets and liabilities in an environment where the volume and level of activity for the asset or liability has significantly decreased and re-emphasizes that the objective of a fair value measurement remains an exit price. FSP FAS 157-4 is effective for periods ending after June 15, 2009, with earlier adoption permitted. The adoption of FSP FAS 157-4 in the period ending June 30, 2009 did not have a material effect on the Company’s financial position or results of operations.

     In April 2009, the FASB issued FSP FAS 115-2 “Recognition and Presentation of Other-Than-Temporary Impairments,” or FSP FAS 115-2. The guidance applies to investments in debt securities for which other-than-temporary impairments may be recorded. If an entity’s management asserts that it does not have the intent to sell a debt security and it is more likely than not that it will not have to sell the security before recovery of its cost basis, then an entity may separate other-than-temporary impairments into two components: (1) the amount related to credit losses (recorded in earnings), and (2) all other amounts (recorded in other comprehensive income). This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP FAS 115-2 in the period ending June 30, 2009 did not have a material effect on the Company’s financial position or results of operations.

     In April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board 28-1 “Interim Disclosures about Fair Value of Financial Instruments,” or FSP FAS 107-1. FSP FAS 107-1 amends Statement of Financial Accounting Standards No. 107 “Disclosures about Fair Value of Financial Instruments” to require an entity to provide disclosures about fair value of financial instruments in interim financial information. FSP FAS 107-1 is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP FAS 107-1 in the period ending June 30, 2009 did not have a material effect on the Company’s financial position or results of operations.

     In January 2009, the FASB issued FSP Emerging Issues Task Force, or EITF No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20,” or FSP EITF 99-20-1, which is effective for interim and annual periods ending after December 15, 2008. FSP EITF 99-20-1 amends EITF 99-20 to align the impairment guidance in EITF 99-20 with the impairment guidance in FAS 115, “Accounting for Certain Investments in Debt and Equity Securities”. FSP EITF 99-20-1 amends the cash flows model used to analyze an other-than-temporary impairment under EITF 99-20 by replacing the market participant view with management’s assumption of whether it is probable

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

7

Specialty Underwriters’ Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited — in thousands, except earnings per share)

that there is an adverse change in the estimated cash flows. The adoption of FSP EITF 99-20-1 in 2009 did not have a material effect on the Company’s results of operations, financial position or liquidity.

Note 3. Earnings Per Share

     Basic earnings per share is based on the weighted-average number of common shares outstanding during the period, while diluted earnings per share includes the weighted-average number of common shares and potential dilution from shares issuable pursuant to equity incentive compensation using the treasury stock method. The following table shows the computation of the Company’s earnings per share:

	Three Months Ended					Six Months Ended
	6/30/2009			6/30/2008		6/30/2009		6/30/2008
Numerator for earnings per share
Net income (loss)	$	(476	)	$	2,250	$	517	$	5,715
Denominator for earnings per share
Weighted-average shares outstanding used in computation of earnings per share
Common stock (class A and B) issued		16,097			15,684		16,090		15,632
Common stock in treasury		220			18		247		9
Weighted average shares outstanding - basic		15,877			15,666		15,843		15,623
Effect of dilutive securities1 Stock awards		40			143		98		143
Weighted average shares outstanding - diluted		15,917			15,809		15,941		15,766
Earnings per share
Basic	$	(0.03	)	$	0.14	$	0.03	$	0.37
Diluted	$	(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

     The components of current and deferred income taxes for the three and six months ended June 30, 2009 and 2008 are as follows:

	Three Months Ended					Six Months Ended
	6/30/09			6/30/08		6/30/09			6/30/08
Current tax expense	$	(85	)	$	553	$	507		$	590
Deferred tax (benefit) expense		(185	)		449		(332	)		(307	)
Total income tax (benefit) expense	$	(270	)	$	1,002	$	175		$	283

     During the first quarter of 2008, based on profitability trends at the time, the Company believed that it was more likely than not that the deferred income tax assets would be realized. As such, the Company elected to eliminate its valuation allowance of $1,458. During the fourth quarter of 2008, the Company believed and continues to believe that certain state tax net operating loss carryforwards may not be realized in the future totaling $168 for which a valuation allowance has been maintained since December 31, 2008.

     As of June 30, 2009 and December 31, 2008, the Company had no tax basis net operating loss carry forwards. The Company accumulated start-up and organization expenditures through December 31, 2004 of $2,364 that are deductible over a 60-month period commencing on November 23, 2004. The unamortized portions of these costs were $166 and $402 at June 30, 2009 and December 31, 2008, respectively.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

8

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

     Loss and loss adjustment expense, or LAE reserves are estimates of amounts needed to pay claims and related expenses in the future for insured events that have already occurred. The Company establishes estimates of amounts recoverable from its reinsurers in a manner consistent with the claims liability covered by the reinsurance contracts, net of an allowance for uncollectible amounts. The Company’s loss and LAE reserves represent management’s best estimate of reserves based on a composite of the results of various actuarial methods, as well as consideration of known facts and trends.

     As of June 30, 2009, the Company reported gross loss and LAE reserves of $218,400, of which $49,522 represented the gross direct loss and LAE reserves of Potomac, which is fully reinsured by OneBeacon Insurance Company, or OneBeacon. As of December 31, 2008, the Company reported gross loss and LAE reserves of $214,953, of which $53,262 represented the gross direct loss and LAE reserves of Potomac, which are fully reinsured by OneBeacon. Included in the reserves for the Company are tabular reserve discounts for workers’ compensation and excess workers’ compensation pension claims of $3,218 as of June 30, 2009 and $2,612 as of December 31, 2008. The reserves are discounted on a tabular basis at four percent using the 2001 United States Actuarial Life Tables for Female and Male population.

     Potomac was a participant in the OneBeacon Amended and Restated Reinsurance Agreement. Under that agreement, Potomac ceded all of its insurance assets and liabilities into a pool, or Pool, and assumed a 0.5% share of the Pool’s assets and liabilities. On April 1, 2004, Potomac ceased its participation in the Pool and entered into reinsurance agreements whereby Potomac reinsured all of its business written with OneBeacon effective as of January 1, 2004. As a result, Potomac will not share in any favorable or unfavorable development of prior losses recorded by it or the Pool after January 1, 2004, unless OneBeacon fails to perform on its reinsurance obligation.

Note 6. Investments

     The cost or amortized cost and estimated fair values of the Company’s fixed maturity investments at June 30, 2009 were as follows:

	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
Category	Cost		Gains		Losses			Value
U.S. Treasury	$	9,791	$	656	$	-		$	10,447
U.S. Government Agencies		30,239		1,562		(117	)		31,684
Municipals		64,495		2,115		(214	)		66,396
Corporate Fixed Maturity		62,233		2,413		(666	)		63,980
Agency Mortgage Backed		39,338		1,852		-			41,190
Non-Agency Mortgage Backed		7,341		-		(1,939	)		5,402
Commercial Mortgage Backed		13,394		-		(2,805	)		10,589
Asset Backed		4,300		-		(2,097	)		2,203
Total Fixed Maturities	$	231,131	$	8,598	$	(7,838	)	$	231,891

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

9

Specialty Underwriters’ Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited — in thousands, except earnings per share)

     The cost or amortized cost and estimated fair values of Company’s fixed maturity investments at December 31, 2008 were as follows:

	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
Category	Cost		Gains		Losses			Value
U.S. Treasury	$	9,794	$	1,109	$	-		$	10,903
U.S. Government Agencies		35,109		2,118		-			37,227
Municipals		54,655		959		(679	)		54,935
Corporate Fixed Maturity		56,368		858		(1,691	)		55,535
Agency Mortgage Backed		39,066		1,373		-			40,439
Non-Agency Mortgage Backed		7,781		-		(2,617	)		5,164
Commercial Mortgage Backed		13,301		-		(3,412	)		9,889
Asset Backed		4,670		-		(2,054	)		2,616
Total Fixed Maturities	$	220,744	$	6,417	$	(10,453	)	$	216,708

     In addition to the above investments, the Company also held, at amortized cost, $33,153 and $46,697 in short term investments as of June 30, 2009 and December 31, 2008, respectively. The Company did not have any other investments.

Measuring Fair Value

     SFAS No. 157 establishes a fair value hierarchy which requires maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring fair value.

     As of June 30, 2009, assets measured at fair value on a recurring basis are summarized below:

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Fair Value		Identical		Observable		Unobservable
	as of		Assets		Inputs		Inputs
Category	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		947
Agency Mortgage Backed		41,190		-		41,190		-
Non-Agency Mortgage Backed		5,402		-		-		5,402
Commercial Mortgage Backed		10,589		-		-		10,589
Asset Backed		2,203		-		-		2,203
Total Fixed Maturity Investments	$	231,891	$	-	$	212,750	$	19,141

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

10

Specialty Underwriters’ Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited — in thousands, except earnings per share)

     As of December 31, 2008, assets measured at fair value on a recurring basis are summarized below:

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Fair Value		Identical		Observable		Unobservable
	as of		Assets		Inputs		Inputs
Category	12/31/08		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury	$	10,903	$	-	$	10,903	$	-
U.S. Government Agency		37,227				37,227
Municipal		54,934				54,934
Corporate Fixed Maturity		55,536				55,536
Agency Mortgage Backed		40,439				40,439
Non-Agency Mortgage Backed		5,164						5,164
Commercial Mortgage Backed		9,889				8,676		1,213
Asset Backed		2,616				204		2,412
Total Fixed Maturity Investments	$	216,708	$	-	$	207,919	$	8,789

     The Company uses an independent pricing service to determine the fair value of substantially all of its investment assets. As of June 30, 2009, a total of nine securities with a total fair value of $4,828 were not priced by the Company’s independent pricing service, all of which were categorized Level 3 securities. The Company uses the following pricing methodology for each instrument in its portfolio.

• 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.

     The Company then validates the price or quote received by examining its reasonableness. The Company’s review process includes: (i) quantitative analysis (including yield spread and interest rate and price fluctuations on a monthly basis); (ii) initial and ongoing evaluation of methodologies used by outside parties to calculate fair value; and (iii) comparing the fair value estimates to its knowledge of the current market. If a price or a quote as provided is deemed unreasonable, the Company will use the second or the third pricing methodology to determine the fair value of the instrument.

     In order to determine the proper SFAS 157 classification for each instrument, the Company obtains from its outside pricing sources the pricing procedures and inputs used to price the instrument. The Company analyzes this information taking into account asset type, rating and liquidity to determine what inputs are observable and unobservable and thereby determines the suggested SFAS 157 Level.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

11

Specialty Underwriters’ Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited — in thousands, except earnings per share)

     The following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value using Level 3 inputs during the three months ended June 30, 2009:

	Three Months			Six Months
	Ended			Ended
	6/30/2009			6/30/2009
Level 3 investments as of beginning of period	$	16,586		$	8,789
Transfers into level 3 (at beginning period value)		911			9,618
Purchases, sales, issuances, and settlements, net		(348	)		(507	)
Total gains or losses (realized/unrealized):
Included in earnings		(365	)		(576	)
Included in comprehensive income		2,357			1,817
Level 3 investments as of June 30, 2009	$	19,141		$	19,141

     The transfer into Level 3 during the first quarter of 2009 of securities with a fair value, as of December 31, 2008, of $8,677 was the result of reduced liquidity, and therefore reduced price transparency, related to commercial mortgage backed securities.

Impairment Review

     The Company’s methodology for assessing other-than-temporary impairments, or OTTI, is based on security-specific facts and circumstances as of the balance sheet date. Factors considered in evaluating whether a decline in value is other than temporary included: (i) the length of time and the extent to which the fair value has been less than cost; (ii) the financial conditions and near-term prospects of the issuer; and (iii) the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery. The majority of the Company’s structured securities are subject to Emerging Issues Task Force Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets,” or EITF 99-20, and FSP EITF 99-20-1 which allows management to analyze whether it is probable that there is an adverse change in the estimated cash flows. Accordingly, on a quarterly basis, when significant changes in estimated cash flows from the cash flows previously estimated occur due to actual prepayment and credit loss experience, and the present value of the revised cash flow is less than the present value previously estimated, OTTI is deemed to have occurred. Based on recent guidance in FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments,” a company that does not intend to sell the debt security and it is not more likely than not that the entity will be required to sell the debt security before recovery of its amortized cost basis, is required to separate the decline in fair value into (a) the amount representing the credit loss and (b) the amount related to all other factors. The amount of the total decline in fair value related to the credit loss is recognized in earnings as OTTI, with the amount related to other factors recognized in accumulated other comprehensive net loss, net of applicable income taxes. OTTI credit losses result in a permanent reduction of the cost basis of the underlying investment. The determination of OTTI is a subjective process, and different judgments and assumptions could affect the timing of loss realization.

     The Company recorded an OTTI charge of $1,624 on investment securities during the three months ended June 30, 2009 of which $365 was recognized as a loss in earnings and $1,259 was recognized, net of taxes, as a loss in comprehensive income. The Company recorded an OTTI charge of $1,835 on investment securities during the six months ended June 30, 2009 of which $576 was recognized as a loss in earnings and $1,259 was recognized, net of taxes, as a loss in comprehensive income.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

12

Specialty Underwriters’ Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited — in thousands, except earnings per share)

     The following table provides a roll-forward of the OTTI showing the amounts that have been included in earnings and other comprehensive net loss.

	Recognized In
				Other
				Compre-
				hensive
	Earnings			Net Loss		Total
Beginning Balance, April 1, 2009	$	1,060		$	-	$	1,060
Cumulative effect of adjustment resulting from adoption of FSP115-2, before income taxes		(559	)		559		-
Subtotal		501			559		1,060
Other-than-temporary impairment loss		365			1,259		1,624
Ending balance, June 30, 2009	$	866		$	1,818	$	2,684

Unrealized Losses

     Significant factors influencing the Company’s determination that unrealized losses were temporary included (i) the magnitude of the unrealized losses in relation to each security’s cost, (ii) the nature of the investment and (iii) that management does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these investments for a period of time sufficient to allow for anticipated recovery of fair value to the Company’s cost basis. The following table presents information regarding the Company’s invested assets that were in an unrealized loss position at June 30, 2009 by amount of time in a continuous unrealized loss position:

			Unrealized Losses
			Less than			Greater than
	Fair Value		12 Months			12 Months			Total
U.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	)

     The following table presents information regarding the Company’s invested assets that were in an unrealized loss position at December 31, 2008 by amount of time in a continuous unrealized loss position:

			Unrealized Losses
			Less than			Greater than
	Fair Value		12 Months			12 Months			Total
Municipal	$	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	)

     Temporary losses on investment securities are primarily a result of market illiquidity and certain asset classes being out of favor with investors and are recorded as unrealized losses. The Company considered all relevant factors, including expected recoverability of cashflows, in assessing whether the loss was other-than-temporary. The Company does not intend to sell its fixed maturity securities, and it is not more likely than not that the Company will be required to sell these investments, until there is a recovery of fair value to the Company’s original cost basis, which may be at maturity.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

13

Specialty Underwriters’ Alliance, Inc.
Notes to Consolidated Financial Statements
(unaudited — in thousands, except earnings per share)

Note 7. Equity-Based Compensation

     On May 1, 2007, the stockholders of the Company approved the 2007 Stock Incentive Plan, or 2007 Plan. The 2007 Plan replaces the 2004 Stock Option Plan, or 2004 Plan. Options previously granted under the 2004 Plan will continue for the life of such options. The 2007 Plan provides for the issuance of up to 800,000 shares of the Company’s common stock in the form of stock options, stock appreciation rights, restricted stock awards and deferred stock awards. In addition, should any of the options outstanding under the 2004 Plan be terminated, those shares will become available under the 2007 Plan.

     The 2007 Plan provides for an automatic grant of 3,000 unrestricted shares of common stock to each independent director on the first business day following such director’s re-election to the Board of Directors at the Annual Meeting of the Stockholders. On May 6, 2009, 15,000 shares were granted to independent directors who were re-elected to the Board at the 2009 Annual Meeting of the Stockholders held on May 5, 2009.

     The compensation cost associated with the grants of common stock on May 6, 2009 is $51 based on the fair market value of the shares on the date of grant pursuant to SFAS 123R which was completely recognized during the second quarter of 2009.

     No other awards were made under the 2007 Plan or the 2004 Plan and 50 shares subject to grant were forfeited under the 2007 Plan in the second quarter of 2009.

     In addition there was equity based compensation expenses of $3, relating to stock options previously granted.

Note 8. Commitments and Contingencies

     FBR Capital Markets & Co., or FBR, acted as financial advisor to the Company in connection with the entry into the Amended and Restated Agreement and Plan of Merger by and among the Company, Tower Group, Inc., or Tower, and Tower S.F. Merger Corporation, a wholly owned subsidiary of Tower, effective as of June 21, 2009 as well as other merger proposals received by the Company in 2008 and 2009 and received an aggregate of $100 in retainers for its services. FBR also received a fee of $500 in connection with the delivery of its fairness opinion and will receive a fee equal to 1.25% of the aggregate consideration of the merger as of the consummation thereof, less any retainer and fairness opinion fees. Assuming an average Tower stock price of $25.00, the total fee to FBR (including the retainer fees and opinion fee previously paid) would be approximately $1,392.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

14

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

     We were formed on April 3, 2003 for the purpose of offering products in the specialty commercial property and casualty insurance market by using an innovative business model. Specialty insurance typically serves niche groups of insureds that require highly specialized knowledge of a business class to achieve underwriting profits. This segment has traditionally been underserved by most standard commercial property and casualty insurers, due to the complex business knowledge and the investment required to achieve attractive underwriting profits. Competition in this segment is based primarily on client service, availability of insurance capacity, specialized policy forms, efficient claims handling and other value-based considerations, rather than just price.

     On November 23, 2004 we completed our IPO and concurrent private placements and completed the acquisition of Potomac. After giving effect to the acquisition, we changed the name of Potomac to SUA Insurance Company. On January 1, 2005 we commenced our insurance operations.

     On June 21, 2009, the Company, Tower Group, Inc., or Tower, and Tower S.F. Merger Corporation, a wholly-owned subsidiary of Tower, or Merger Sub, entered into an Agreement and Plan of Merger, pursuant to which, subject to the terms and conditions set forth therein, Merger Sub will merge into the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of Tower. Upon the consummation of the merger, the Company’s common stock will be delisted. On July 22, 2009, the Company, Tower and Merger Sub executed an Amended and Restated Agreement and Plan of Merger, or the merger agreement, effective as of June 21, 2009, to make certain corrections to the original merger agreement. For further information about the merger or to view the merger agreement, see our current reports on Forms 8-K and 8-K/A filed with the Securities and Exchange Commission on June 22, 2009 and July 24, 2009.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

15

Three Months Ended June 30, 2009 as compared to the Three Months Ended June 30, 2008

RESULTS OF OPERATIONS

	Three Months Ended
	6/30/2009			6/30/2008			% Change
	(in millions, except for
	earnings 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 ratios
Net 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

     Net loss for the quarter ended June 30, 2009 was $0.5 million, compared to net income of $2.3 million for the quarter ended June 30, 2008. Loss per share for the quarter ended June 30, 2009 was $0.03, versus earnings per share of $0.14 for the quarter ended June 30, 2008. The decrease in our net income was due to several factors, including (i) the operating expenses incurred as a result of both the proxy contest waged at the annual meeting of stockholders held on May 5, 2009 and the negotiation of the merger agreement we entered into with Tower on June 21, 2009, (ii) the increase to our net loss and loss adjustment ratio resulting from several large losses in our commercial automobile line and (iii) the increase in our acquisition expense ratio resulting from higher commission rates paid to our partner agents.

     Gross written premiums were $43.9 million for the three months ended June 30, 2009 compared to $41.8 million for the three months ended June 30, 2008. The increase in gross written premiums was attributable to increased premiums in our commercial automobile line of business offset by rate reductions affecting the renewal business in our workers’ compensation line.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

16

     Our gross written premiums by partner agent for the three months ended June 30, 2009 and 2008 were as follows:

	6/30/2009				6/30/2008
	Gross Written		% of Total Gross		Gross Written		% of Total Gross
	Premium		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%

     Our gross written premiums for the three months ended June 30, 2009 and 2008 by state were as follows:

	6/30/2009				6/30/2008
	Gross		% of Total		Gross		% of Total
	Written		Gross Written		Written		Gross Written
	Premium		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%

     Our gross written premiums by line of business for the three months ended June 30, 2009 and 2008 were as follows:

	6/30/2009				6/30/2008
	Gross		% of Total		Gross		% of Total
	Written		Gross Written		Written		Gross Written
	Premium		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%

     The change in our mix of business by agent, state and line of business was influenced by an increase of premium in our commercial automobile line of business which was partially offset by rate reductions affecting the renewal business in our workers’ compensation line.

     Earned premiums were $35.4 million for the quarter ended June 30, 2009 compared to $34.2 million for the quarter ended June 30, 2008.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

17

     Net investment income was $2.8 million for the three months ended June 30, 2009 versus $2.7 million for the three months ended June 30, 2008.

     Acquisition expenses were $8.4 million for the three months ended June 30, 2009 compared to $7.3 million for the quarter ended June 30, 2008. The increase in acquisition expenses was primarily the result of higher commission rates paid to our partner agents resulting from the continuation of a soft insurance market.

     Other operating expenses were $7.2 million for the quarter ended June 30, 2009 compared to $5.4 million for the quarter ended June 30, 2008. The increase in other operating expenses was primarily attributable to the one-time expenses of approximately $1.6 million incurred as a result of both the proxy contest waged at the annual meeting of stockholders held on May 5, 2009 and the negotiation of the merger agreement entered into with Tower Group, Inc. on June 21, 2009.

     For the second quarter of 2009, our net loss and loss adjustment expense ratio was 65.0%, compared to 61.2% for the comparable quarter in 2008. This increase was primarily driven by higher loss ratios in our commercial automobile line of business resulting from several large losses in that line. This was partially offset by favorable prior year loss development for the second quarter of 2009 of $1.0 million primarily attributable to favorable loss development in our general liability line of business. For the three months ended June 30, 2008 we experienced favorable prior year loss development of $0.6 million across all lines of business.

Six Months Ended June 30, 2009 as compared to the Six Months Ended June 30, 2008

RESULTS OF OPERATIONS

	Six Months Ended
	6/30/2009			6/30/2008			% Change
	(in millions, except for
	earnings 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 ratios
Net 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

     Net income for the six months ended June 30, 2009 was $0.5 million, compared to net income of $5.7 million for the comparable period ended June 30, 2008. Earnings per share for the six months ended June 30, 2009 was $0.03, versus earnings per share of $0.37 and $0.36 on a basic and diluted basis, respectively, for the same period

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

18

ended June 30, 2008. The decrease in our net income was due to several factors, including (i) the operating expenses incurred as a result of both the proxy contest waged at the annual meeting of stockholders held on May 5, 2009 and the negotiation of the merger agreement entered into with Tower on June 21, 2009, (ii) the increase to our net loss and loss adjustment ratio resulting from several large losses in our commercial automobile line and (iii) the increase in our acquisition expense ratio resulting from higher commission rates paid to our partner agents.

     Gross written premiums were $72.9 million for the six months ended June 30, 2009 compared to $65.9 million for the six months ended June 30, 2008. The increase in gross written premiums was attributable to increased premiums in our workers’ compensation and commercial automobile lines of business which increase was partially offset by rate reductions affecting the renewal business in our workers’ compensation line of business and by decreasing premiums in the first quarter of 2009 in our general liability line of business resulting from continuing deteriorating economic conditions.

     Our gross written premiums by partner agent for the six months ended June 30, 2009 and 2008 were as follows:

	6/30/2009					6/30/2008
	Gross Written		% of Total Gross			Gross Written		% of Total Gross
	Premium		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	%

     Our gross written premiums for the six months ended June 30, 2009 and 2008 by state were as follows:

	6/30/2009					6/30/2008
			% of Total					% of Total
	Gross Written		Gross Written			Gross Written		Gross Written
	Premium		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	%

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

19

     Our gross written premiums by line of business for the six months ended June 30, 2009 and 2008 were as follows:

	6/30/2009					6/30/2008
			% of Total					% of Total
	Gross Written		Gross Written			Gross Written		Gross Written
	Premium		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	%

     The change in our mix of business by agent, state and line of business was influenced by increased premiums in our commercial automobile and our workers’ compensation lines of business which were partially offset by rate reductions affecting the renewal business in our workers’ compensation line of business and continued reduction in our contractors business due to the downturn in the construction industry.

     Earned premiums were $70.1 million for the six months ended June 30, 2009 compared to $69.9 million for the comparable period ended June 30, 2008.

     Net investment income was $5.6 million for the six months ended June 30, 2009 versus $5.3 million for the three same period ended June 30, 2008.

     Acquisition expenses were $16.9 million for the six months ended June 30, 2009 compared to $16.0 million for the six months ended June 30, 2008. The increase in acquisition expenses was primarily the result of higher commission rates paid to our partner agents resulting from the continuation of a soft insurance market.

     Other operating expenses were $13.7 million for the six months ended June 30, 2009 compared to $11.3 million for the six months ended June 30, 2008. The increase in other operating expenses was primarily attributable to the one-time expenses of approximately $1.7 million incurred as a result of both the proxy contest waged at the annual meeting of stockholders held on May 5, 2009 and the negotiation of the merger agreement entered into with Tower Group, Inc. on June 21, 2009.

     For the first half of 2009, our net loss and loss adjustment expense ratio was 62.8%, compared to 60.0% for the comparable period in 2008. This increase was primarily driven by higher loss ratios in our commercial automobile line of business resulting from several large losses in that line. The increase in our loss ratio was partially offset by favorable prior year loss development for the six months ended June 30, 2009 of $1.8 million primarily attributable to favorable loss development in our contractors and workers’ compensation lines of business. For the six months ended June 30, 2008, we experienced favorable prior year loss development of $1.3 million primarily within our commercial automobile line of business.

Liquidity and Capital Resources

     Specialty Underwriters’ Alliance, Inc. is organized as a holding company and, as such, has no direct operations of its own. Its assets consist primarily of investments in its subsidiary, through which it conducts substantially all of its insurance operations.

     As a holding company, Specialty Underwriters’ Alliance, Inc. has continuing funding needs for general corporate expenses, the payment of principal and interest on future borrowings, if any, taxes and the payment of other obligations. Funds to meet these obligations come primarily from dividends and other statutorily permissible payments from our operating subsidiary. The ability of our operating subsidiary to make payments to us is limited by the applicable laws and regulations of Illinois. There are restrictions on the payment of dividends to us by our insurance subsidiary.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

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Cash Flows

     A summary of our cash flows is as follows:

	Six Months Ended
	6/30/2009		6/30/2008
	(in millions)
Cash provided by (used in)
Operating activities	$	0.5	$	17.6
Investing activities		0.6		(17.8	)
Financing activities		0.1		(0.6	)
Change in cash	$	1.2	$	(0.8	)

     For the six months ended June 30, 2009, net cash used by operating activities was $0.5 million, principally consisting of premium and deposit collections exceeding losses and expenses paid out. This amount compares to net cash from operating activities of $17.6 million for the three months ended June 30, 2008. The decrease in net cash provided by operating activities was primarily driven by the increase in loss and LAE payments resulting from the maturation of our book of business and a decrease in written premiums during 2008.

     Cash provided by investment activities was $0.6 million for the six months ended June 30, 2009, resulting from sales, redemptions, calls and maturities of investments exceeding purchases of new fixed maturity investments and purchases of equipment and capitalized software. For the three months ended June 30, 2008, cash used in investment activities was $17.8 million, principally representing increases in investments and purchases of equipment and capitalized software.

     For the six months ended June 30, 2009, cash flows from financing activities from sales of Class B Shares to partner agents were $0.1 million. For the six months ended June 30, 2008, cash flows used for financing activities were $0.6 million primarily relating to the repurchase of treasury shares partially offset from sales of Class B Shares to partner agents.

Fixed Maturity Investments

     Our investment portfolio consists of marketable fixed maturity and short-term investments. All fixed maturity investments are classified as available for sale and are reported at their estimated fair value. Realized gains and losses are credited or charged to income in the period in which they are realized. Changes in unrealized gains or losses are reported as a separate component of comprehensive income, and accumulated unrealized gains or losses are reported as a separate component of accumulated other comprehensive income in stockholders’ equity.

     The aggregate fair market value of our fixed maturity investments as of June 30, 2009 was $231.9 million compared to amortized cost of $231.1 million. The aggregate fair market value of our fixed maturity investments as of December 31, 2008 was $216.7 million compared to amortized cost of $220.7 million.

     During the second quarter of 2009, a total of six of our available-for-sale securities with a fair market value of $2.3 million, as of June 30, 2009, have experienced an other-than-temporary impairment of $1.6 million of which $0.4 million was recognized in earnings and $1.2 million was recognized in other comprehensive net earnings. During the six months ended June 30, 2009, six of our available-for-sale securities with a fair market value of $2.3 million, as of June 30, 2009, have experienced an other-than-temporary impairment of $1.8 million, of which $0.6 million was recognized in earnings and $1.2 million was recognized in comprehensive income.

     For information about our methodology for determining whether a security has experienced impairment see the discussion under the heading “ ITEM 1. FINANCIAL STATEMENTS — Note 2 — Recent Accounting Pronouncements” and “Note 6 — Investments” of this quarterly report.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk can be described as the risk of change in fair value of a financial instrument due to changes in interest rates, creditworthiness, foreign exchange rates or other factors. We seek to mitigate that risk by a number of actions, as described below.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

21

Interest Rate Risk

     Our exposure to market risk for changes in interest rates is concentrated in our investment portfolio. We monitor this exposure through periodic reviews of our consolidated asset and liability positions. We model and periodically review estimates of cash flows, as well as the impact of interest rate fluctuations relating to the investment portfolio and insurance reserves.

     The table below summarizes the estimated effects of hypothetical increases and decreases in market interest rates on the fair value of our fixed maturity investments, including our short-term investments, as of June 30, 2009:

				Estimated
				Fair Value
			Assumed Change	After Change		Increase
	Fair Value as		in Relevant	in Interest		(Decrease) in
	of 6/30/2009		Interest Rate	Rate		Fair Value
	(in thousands)
Total Investments	$	265,044	100 bp decrease	$	275,352	$	10,308
			50 bp decrease		270,144		5,100
			50 bp increase		260,112		(4,932	)
			100 bp increase		255,293		(9,751	)

     The average duration of our fixed maturity investments at June 30, 2009 was approximately 3.88 years.

Credit Risk

     Our portfolio includes primarily fixed income securities and short-term investments, which are subject to credit risk. This risk is defined as default or the potential loss in market value resulting from adverse changes in the borrower’s ability to repay the debt. In our risk management strategy and investment policy, we earn competitive relative returns while investing in a diversified portfolio of securities of high credit quality issuers to limit the amount of credit exposure to any one issuer.

     The portfolio of fixed maturities investments consists solely of high quality bonds and short-term investments as of June 30, 2009. The following table summarizes bond ratings at fair value:

	As of 6/30/2009
			Percent of
Bond 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	%

     We also have other receivable amounts subject to credit risk, including reinsurance recoverables from OneBeacon Insurance Company. To mitigate the risk of counterparties’ nonpayment of amounts due under these arrangements, we established business and financial standards for reinsurer approval, incorporating ratings by major rating agencies and considering then-current market information.

Item 4: Controls and Procedures

     Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. Disclosure controls and procedures are our controls and procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934, or the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information

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Specialty Underwriters’ Alliance, Inc.

22

required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

     As required by SEC Rules 13a-15(b) and 15d-15(b), we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of our disclosure controls and procedures are effective.

     Changes in Internal Control Over Financial Reporting. There were no changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, these internal controls.

     Inherent Limitations on Effectiveness of Controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure controls and procedures and internal control over financial reporting systems are met.

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

23

PART II — OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

     None.

ITEM 1A: RISK FACTORS

     You should carefully consider the following risks. These risks, which are related to our proposed merger, which we refer to as the merger, with Tower Group, Inc., or Tower and Tower S.F. Merger Corporation, or Merger Sub, a wholly-owned subsidiary of Tower, could have a material adverse effect on our business, financial condition, results of operations or prospects and cause the value of our stock to decline. The merger is pursuant to an Amended and Restated Agreement and Plan of Merger entered into on July 22, 2009 and dated as of June 21, 2009, by and between us, Tower and Merger Sub, or the merger agreement. These risks are not exclusive and additional risks to which we are subject include, but are not limited to, the risks of our businesses in our Annual Report on Form 10-K for the year ended December 31, 2008 and the factors mentioned in any forward-looking statements contained herein or therein.

Failure to complete the merger may negatively impact our business, financial condition, results of operations, prospects and stock price.

     The merger is subject to the satisfaction or waiver of a number of closing conditions and there can be no assurance that the conditions to the completion of the merger will be satisfied or waived. These conditions include:

• 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.

     If the merger is not completed, we will be subject to several risks, including:

• 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.

The merger agreement also restricts us from engaging in certain actions and taking certain action without Tower’s approval, which could prevent us from pursuing opportunities that may arise prior to the closing of the merger or termination of the merger agreement.

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Specialty Underwriters’ Alliance, Inc.

24

If the merger is not completed, these risks may materialize and materially adversely affect our business, financial condition, results of operations, prospects and stock price.

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.

     The announcement and pendency of the merger could disrupt our business in the following ways, among others:

• 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.

     Any of these matters could adversely affect our business, financial condition, results of operations, prospects and stock price.

ITEM 2: RECENT SALES OF UNREGISTERED SECURITIES

     On June 4, 2009 and June 8, 2009, American Team Managers Insurance Services, Inc., or ATM, exchanged 62,062 and 5,000 Class B Shares, respectively, into an equal number of shares of our Common Stock, pursuant to the terms of the Amended and Restated Securities Purchase Agreement between the Company and ATM dated September 8, 2005, as amended, or the Purchase Agreement.

     The issuance of the Common Stock as a result of the conversion of the Class B Shares pursuant to the Purchase Agreement was made in reliance on the exemption from the registration requirements under Section 4(2) of the Securities Act of 1933.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     At our Annual Meeting of stockholders held on May 5, 2009, the stockholders elected each of the following director nominees to hold office until the next annual meeting of stockholders or until their successors are duly elected and qualified, with the following votes:

	For		Withheld
Courtney C. Smith		6,607,622		85,615
Robert E. Dean		6,607,622		85,615
Raymond C. Groth		6,607,622		85,615
Paul A. Philp		6,607,622		85,615
Robert H. Whitehead		6,607,622		85,615
Russell E. Zimmermann		6,607,622		85,615

     With respect to the Board seat held prior to the May 5, 2009 meeting by Peter E. Jokiel, none of the remaining four nominees — Robert M. Fishman, C. Gregory Peters, Mark E. Pape and Mr. Jokiel - - received a plurality of the votes of the shares present in person or represented by proxy at the Annual Meeting. Mr. Fishman, Mr. Peters and Mr. Pape, nominated by Hallmark Financial Services, Inc. and certain related parties, or Hallmark, each received 6,225,738 votes. Mr. Jokiel, nominated by the Company, received 4,881,184 votes.

     On July 1, 2009, Mr. Jokiel resigned as a member of the board of directors of the Company. Concurrently with Mr. Jokiel’s resignation, upon the recommendation of the nominating and corporate governance committee of the Company, or the committee, the board appointed Mr. Pape to fill the vacancy created by Mr. Jokiel’s resignation. Mr. Pape was appointed as a director pursuant to an agreement entered into by and among the Company and Hallmark on June 5, 2009. Under the terms of the agreement, the Company agreed that the committee would meet with two individuals nominated by Hallmark and, to the extent the committee found any such persons qualified to

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Specialty Underwriters’ Alliance, Inc.

25

serve as a director of the Company, recommend one such person to the Board to be appointed as a director simultaneously with Mr. Jokiel’s resignation. Mr. Pape was appointed to the Board pursuant to this procedure.

     At the same meeting, the selection of PricewaterhouseCoopers LLP as independent registered accounting firm for the current year was ratified, with the following votes:

For	Against		Abstentions
12,697,447		27,072		260,881

ITEM 5: OTHER INFORMATION

     None.

ITEM 6: EXHIBITS

     Exhibits:

Exhibit
Number		Description
	2.1	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 Illinois
	10.2*	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, LLC
	10.8*	Securities Purchase Assignment and Assumption Agreement, dated June 10, 2009, between the Registrant, Risk Transfer Holdings, Inc. and Risk Transfer Programs, LLC
	10.9*	Amendment No. 2 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 11, 2009, between the Registrant and Specialty Risk Solutions, LLC
	10.10*	Fifth Amendment to the Securities Purchase Agreement, dated June 11, 2009, between the Registrant and Specialty Risk Solutions, LLC
	10.11*	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, LLC
	10.14*	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, LLC
	31.1*	Certification of Courtney C. Smith, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2*	Certification of Peter E. Jokiel, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1*	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 2002
	32.2*	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

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

26

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC. (Registrant)
By:	/s/ Courtney C. Smith
	Name: Courtney C. Smith
	Title: President and Chief Executive Officer
Date: August 7, 2009
By:	/s/ Peter E. Jokiel
	Name: Peter E. Jokiel
	Title: Executive Vice President and Chief
	Financial Officer
Date: August 7, 2009

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Specialty Underwriters’ Alliance, Inc.

27

Exhibits Index:

Exhibit
Number		Description
	2.1	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 Illinois
	10.2*	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, LLC
	10.8*	Securities Purchase Assignment and Assumption Agreement, dated June 10, 2009, between the Registrant, Risk Transfer Holdings, Inc. and Risk Transfer Programs, LLC
	10.9*	Amendment No. 2 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 11, 2009, between the Registrant and Specialty Risk Solutions, LLC
	10.10*	Fifth Amendment to the Securities Purchase Agreement, dated June 11, 2009, between the Registrant and Specialty Risk Solutions, LLC
	10.11*	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, LLC
	10.14*	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, LLC
	31.1*	Certification of Courtney C. Smith, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2*	Certification of Peter E. Jokiel, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1*	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 2002
	32.2*	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

2009 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

28

EX-10.1

Exhibit 10.1

     THIS STOCK PURCHASE AGREEMENT (together with the Exhibit and the Schedules attached hereto and incorporated herein by reference, being hereinafter referred to as this “Agreement”) is made and entered into as of the 22^nd day of March, 2004, by and between OneBeacon Insurance Company, a stock insurance company duly organized and existing under the laws of the Commonwealth of Pennsylvania (hereinafter referred to as the “Seller” unless otherwise stated expressly) and Specialty Underwriters’ Alliance, Inc., a Delaware corporation (the “Purchaser”).

W I T N E S E T H:

     WHEREAS, the Seller owns of record and beneficially 300,000 shares of the voting common stock, $14.00 par value per share, of Potomac Insurance Company of Illinois, a stock insurance company duly organized and existing under the laws of the State of Illinois (the “Company”), representing 100% of the issued and outstanding capital stock of the Company (such shares being hereinafter referred to as the “Shares”);

     WHEREAS, the Company was and is engaged in the business of insurance and variants thereof and in other activities customarily engaged in by insurance companies, including but not limited to the conduct of investment and administrative activities; and

     WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser desires to purchase from the Seller, all of the Shares, all on the terms and conditions hereinafter set forth;

     NOW THEREFORE, in consideration of the premises set forth above, and subject to the terms and conditions stated herein, the parties hereto agree as follows:

1

ARTICLE I.

The Purchase and Sale Transaction

     Section 1.1. Purchase and Sale of the Shares. Subject to the fulfillment of the terms and conditions of this Agreement, the Purchaser agrees to purchase from the Seller, and the Seller agrees to sell, assign, transfer and deliver to the Purchaser, on the Closing Date (as defined in Section 1.4), the Shares for the consideration specified in Section 1.2.

     Section 1.2. Purchase Price.

     (a) the Purchaser agrees to pay to the Seller, and the Seller agrees to accept from the Purchaser, as consideration for the Shares an amount (the “Purchase Price”), payable in immediately available funds at the Closing (as defined in Section 1.4), determined as follows:

     (i) the amount of the Company’s capital and surplus as of the close of the business day prior to the Closing Date determined upon a Statutory Accounting Basis (as defined below); plus

     (ii) the amount of ten million five hundred thousand dollars ($10,500,000); minus

     (iii) the amount of two hundred and fifty thousand dollars ($250,000) for each License (as defined in Section 2.3) which shall have been suspended or revoked and which suspension or revocation shall not have been lifted or reversed on or before the Closing Date (any such License, a “Pre-Closing Impaired License”); plus (or minus)

     (iv) the amount by which the Fair Market Value (as defined below) of the securities listed on Schedule 1.2(a) hereto and incorporated by reference herein (and

2

which shall be updated at the Closing as of the business day prior to the Closing Date) held by the Company as of the business day prior to the Closing Date exceeds (or is less than) the book value of such securities as of such date, determined upon a Statutory Accounting Basis.

     (b) The term “Fair Market Value” shall mean, in the case of securities listed on a national securities exchange, the closing price on such exchange, and in the case of other securities, the average of the bid and asked prices, for such securities, in each case on the last business day preceding the Closing Date on which such securities were traded. The term “Fair Market Value” shall also include interest accrued on such securities through the business day next preceding the Closing Date.

     (c) The term “Statutory Accounting Basis” shall mean the accounting treatment prescribed or permitted by the Illinois Department of Insurance (the “Illinois Department”) and employed by the Company.

     (d) The Purchase Price, less an advance payment in the amount of two hundred and fifty thousand dollars ($250,000) to be paid by the Purchaser to the Seller upon the execution of this Agreement (and any advance payment made pursuant to Section 10.4(c)), shall be paid by direct wire transfer payable on the Closing Date in immediately available funds to:

ONEBEACON INSURANCE COMPANY
STATE STREET BANK
BOSTON, MASSACHUSETTS
ACCOUNT # 14579981
ABA # 011-000-028

          The parties agree that the full amount of the advance payment referenced

3

above shall be fully-earned and non-refundable at the time the Purchaser pays such advance payment to the Seller, regardless of whether the Closing shall fail to occur for any reason whatsoever other than a termination of this Agreement by the Purchaser pursuant to Section 10.4(a) (but not for any actual or alleged failure of the Seller to perform its obligations pursuant to Section 4.5(b)).

     Section 1.3. Post-Closing Adjustments to Purchase Price.

     (a) The parties agree that with respect to any adjustment to the Purchase Price pursuant to Section 1.2(a)(iii), the Seller and the Purchaser shall, for a period of one hundred and eighty (180) days after the Closing Date (the “License Cure Period”), work together and use their commercially reasonable best efforts to have any suspension lifted from or any revocation reversed with respect to any Pre-Closing Impaired License; provided, that all such efforts shall be at the sole cost and expense of the Seller. The parties further agree that the Purchaser shall pay to the Seller (by wire transfer of immediately available funds to an account designated in writing by the Seller to the Purchaser) two hundred and fifty thousand dollars ($250,000) for each Pre-Closing Impaired License which shall have any suspension lifted therefrom or revocation reversed thereon within the License Cure Period, which payment shall be made within five (5) business days following the Purchaser’s receipt of evidence reasonably satisfactory to it of the lifting of the relevant suspension or reversal of the relevant revocation regarding any such Pre-Closing Impaired License.

     (b) In the event that the adjustment to the Purchase Price provided for in Section 1.2(a)(iv) is not available at the Closing, the Purchase Price shall be adjusted not later

4

than fifteen (15) days after the Closing. The adjustment shall be paid by the party from whom the adjustment is due (by wire transfer of immediately available funds to an account designated in writing by the party to whom such payment is due) within five (5) business days following the date the Purchaser and the Seller shall have agreed to the amount of any such adjustment.

     Section 1.4. Closing. The Closing of the purchase and sale of the Shares (the “Closing”) shall take place at the offices of Stroock & Stroock & Lavan LLP (“Purchaser’s Counsel”), 180 Maiden Lane, New York, NY, at 10:00 a.m., New York time, on the fifth business day after the Seller and the Purchaser receive the last of the approvals referred to in Sections 6.6 and 7.5 (the “Closing Date”), subject to satisfaction or waiver of the terms and conditions provided for herein. The Closing Date and location may be changed by mutual agreement between the Purchaser and the Seller. Neither party shall have the obligation to consummate the Closing unless all regulatory approvals required by the Illinois Department and the California Department of Insurance (the “California Department”) shall have been obtained by August 15, 2004.

     At the Closing, subject to the Purchaser’s payment of the Purchase Price to the Seller, the Seller shall deliver to the Purchaser all of the Shares duly assigned to the Purchaser duly endorsed in blank or accompanied by stock powers duly executed. The obligations of the parties to make such transfers are conditioned upon the satisfaction, as of the Closing Date, of all of the terms and conditions set forth in this Agreement.

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ARTICLE II.

Warranties and Representations by the Seller

     To induce the Purchaser to enter into this Agreement and (i) to proceed as required herein in anticipation of the Closing on the Closing Date and (ii) to cause the transactions provided for in this Agreement to be consummated on the Closing Date, the Seller represents and warrants to the Purchaser as follows:

     Section 2.1. Organization and Qualification of the Seller. The Seller is a corporation, duly organized, validly existing and in good standing under the laws of the state of its incorporation. The Seller is duly licensed as a domestic property and casualty insurance company in the Commonwealth of Pennsylvania and is duly licensed as a foreign property and casualty insurance company in the State of Illinois.

     Section 2.2. Authority Relating to this Agreement. The Seller has full corporate power and authority to execute and deliver this Agreement and to take the actions and carry out the transactions contemplated by this Agreement. The execution, delivery and performance by the Seller of this Agreement, and the consummation of the transactions contemplated hereby, have been duly authorized and approved by all required corporate action. The execution and delivery of this Agreement by the Seller does not, and the consummation of the transactions contemplated herein will not, result in a breach of any term, condition or provision of, or constitute a default under (i) its charter documents or by-laws; (ii) any other material agreement or other instrument to which it or the Company is a party; or (iii) any law, rule, regulation, or judicial, administration or arbitration order, award, judgment, writ, injunction

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or decree applicable to it.

     Section 2.3. Organization and Qualification of the Company. The Company is a stock insurer, duly organized, validly existing and in good standing under the laws of the State of Illinois. Except as set forth in Schedule 2.3(a), the Company (i) is duly licensed as a domestic property and casualty insurance company in the State of Illinois; (ii) is duly licensed as a foreign property and casualty insurance company in each jurisdiction listed on Schedule 2.3 attached hereto, which are the only jurisdictions in which the conduct of its business has required that it be so licensed (individually a “License” and collectively the “Licenses”) and (iii) has the required minimum capital, the required minimum surplus and any Securities on Deposit (as defined in Section 2.16(d)) required in each such jurisdiction. The Company is in good standing in each such jurisdiction with no restrictions on such Licenses unless otherwise noted on Schedule 2.3 and is qualified to write those lines of business in each such state as are indicated on the relevant License. The Company is not required to be qualified to do business as a foreign corporation in any other jurisdiction as a result of its ownership or leasing of assets or the conduct of any business. The Seller has previously provided or will make available to the Purchaser true and complete copies of each of the Licenses, reflecting all amendments thereto, in each of the jurisdictions listed in Schedule 2.3 where the Company is licensed and authorized to conduct business. Except as set forth in Schedule 2.3(b), there are no proceedings pending, or to the best of the Seller’s knowledge threatened, in any jurisdiction to suspend and/or revoke any License or any basis for any such suspension or revocation or other penalties. No such proceedings have been pending nor to the best of the Seller’s knowledge threatened at any time

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during the past three (3) years. The Company has not been found in any administrative hearing to have violated any License and has conducted its business so as to comply in all material respects with each License and all applicable Federal, state, local and foreign statutes and regulations.

     Section 2.4. Authority Relating to the Reinsurance Agreement.

     As of the date of execution and delivery of the Instrument of Transfer and Assumption between the Seller and the Company attached hereto as Exhibit A (the “Reinsurance Agreement”), each of the Seller and the Company had full corporate power and authority to execute and deliver the Reinsurance Agreement and to take the actions required to be taken by the Seller or the Company, as the case may be, pursuant to the Reinsurance Agreement and the transactions provided for therein. The execution, delivery and performance of the Reinsurance Agreement by each of the Seller and the Company, and the consummation of the transactions contemplated therein, have been duly authorized and approved by all required corporate action on the part of the Seller and the Company, respectively, including the approval of the Boards of Directors of the Seller and the Company, and such corporate actions have not been rescinded and remain in full force and effect. Upon approval of the Reinsurance Agreement by the Illinois Department and the California Department, the Reinsurance Agreement will constitute a legal and valid agreement of both the Seller and the Company, enforceable in accordance with its terms.

     Section 2.5. No Subsidiaries of the Company. The Company does not own, either directly or indirectly, any voting securities or other equity of any corporation, partnership or other business entity and is not a participant in any joint venture with any other person.

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     Section 2.6. Capitalization of the Company. The Company has only one (1) class of authorized capital stock, consisting of 800,000 shares of common stock, $14.00 par value per share. There are 300,000 shares of such common stock issued and outstanding, which constitute the Shares. All of the Shares have been and are now duly authorized, validly issued and outstanding, fully paid and nonassessable. The Shares constitute all of the issued and outstanding capital stock of the Company. The Seller is the lawful record and beneficial owner of the Shares, free and clear of all security interests, liens, charges, encumbrances, claims and equities of every kind. Except as disclosed in Schedule 2.6 hereto, there are no outstanding options, warrants, preemptive or similar rights or, except for this Agreement, other agreements or rights to purchase or otherwise acquire, or securities convertible into, any of the Shares or any other shares of common stock or other equity of the Company. Neither the Seller nor the Company has made any commitment to issue or to sell any of the Shares or any other shares of common stock or other equity of the Company, or any options, warrants, rights or convertible securities or evidences of indebtedness of the Company. Upon the transfer of the Shares to the Purchaser in accordance with this Agreement, good and marketable title in and to the Shares will have been transferred to the Purchaser, free and clear of all liens, claims, charges, pledges, security interests, equities, encumbrances and assessments whatsoever (other than any restrictions applicable under the Securities Act of 1933, the Insurance Holding Company Systems Act of the State of Illinois, 215 ILCS 5/131.1, et seq., and any liens, charges, claims, encumbrances and restrictions created by or under agreements to which the Purchaser is a party or by which its property is bound).

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     Section 2.7. Articles of Incorporation and By-laws. The Seller has delivered or will make available to the Purchaser a true, correct and complete copy of the Articles of Incorporation and the By-laws of the Company, reflecting all amendments thereto. Such Articles of Incorporation and By-laws shall not be amended prior to the Closing, and the Board of Directors and the shareholder of the Company will not take any action for the purpose of effecting any amendment or modification of such Articles of Incorporation or By-laws.

     Section 2.8. Validity.

     (a) This Agreement constitutes the legal, valid and binding obligation of the Seller, enforceable against the Seller, in accordance with its terms, except only as limited by applicable bankruptcy, reorganization, insolvency, moratorium and other similar laws presently or hereafter in force affecting the enforcement of creditors’ rights generally and subject to general equitable principles limiting the right to obtain specific performance or other equitable relief.

     (b) The Reinsurance Agreement will, at Closing, constitute a legal, valid and binding obligation of each of the Seller and the Company, enforceable against each of the Seller and the Company, respectively in accordance with its terms.

     Section 2.9. Governmental Approvals. Except for (x) the approval of the Illinois Director of Insurance pursuant to the Illinois Insurance Laws and the regulations thereunder (as interpreted and applied by the Illinois Director of Insurance) with respect to this Agreement and the Reinsurance Agreement and (y) the approval of the California Insurance Commissioner pursuant to the California Insurance Laws and the regulations thereunder (as

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interpreted and applied by the California Insurance Commissioner) with respect to the Reinsurance Agreement, no authorization, consent or approval or other order of a governmental or regulatory body or authority is required for (i) the execution and delivery of this Agreement by the Seller, (ii) the consummation by the Seller of the transactions provided for herein, and (iii) the transfer by the Seller of the Shares to the Purchaser on the Closing Date.

     Section 2.10. Financial Statements.

     (a) The statutory financial statement of the Company for the fiscal year ended December 31, 2003 (the “2003 Annual Statement”), as filed by the Company with the Illinois Department and delivered to the Purchaser prior to the execution and delivery of this Agreement, has been prepared in accordance with accounting practices prescribed or permitted by the Illinois Department, applied on a consistent basis. The 2003 Annual Statement fairly presents the financial condition, the results of operations, surplus as regards policyholders and changes in financial position of the Company as of and for the respective dates and periods indicated therein, in accordance with accounting practices prescribed or permitted by the Illinois Department applied on a consistent basis.

     (b) The financial statements of the Company for the year ended December 31, 2003, accompanied by the balance sheet, statements of operations, shareholder’s equity and changes in financial position and footnotes thereto, and the unaudited results of operations and shareholders’ equity of the Company for the fiscal quarters ended June 30, 2003 and September 30, 2003, have been prepared in accordance with statutory accounting principles applied on a

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consistent basis and a copy of all such financial statements and information have been delivered or made available to the Purchaser prior to the execution and delivery of this Agreement.

     (c) All books of account of the Company fully and fairly disclose all of the transactions, properties, assets, liabilities and obligations of the Company and all of such books of account are in the possession of the Company and are true, correct and complete in all respects.

     (d) The investments of the Company held on December 31, 2003 are reflected in the 2003 Annual Statement and those investments, as well as all other investments acquired by the Company since December 31, 2003, comply with the requirements of the Illinois Insurance Code as well as that of any other applicable jurisdiction.

     (e) Marketable securities and short term investments reflected in the 2003 Annual Statement are valued at cost, amortized cost or market value, as required by applicable law.

     Section 2.11. No Adverse Change. Except for the Reinsurance Agreement, the Company has not engaged in any activity or entered into or carried out any transaction, or experienced any occurrence or circumstance since September 30, 2003, which has had or might reasonably be expected to have a materially adverse effect on its financial condition, properties or assets.

     Section 2.12. Tax Representations and Warranties.

     (a) The Company timely and properly prepared and filed, or was included in timely and properly prepared and filed, returns for all Taxes (as defined in Section 9.1(i)), for all

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periods that are now due; if any tax returns are now not due, such tax returns will be properly prepared and timely filed by the Company or the Seller.

     (b) All Taxes, in respect of periods beginning before the date hereof, have been paid, or an adequate reserve has been established therefor on the books and records of the Company and/or Fund American Enterprises Holdings, Inc., the common parent of the consolidated tax group which includes the Company. All Taxes, in respect of periods ending on the Closing Date, will have been paid, or an adequate reserve will have been established on the Closing Balance Sheet, and the Company does not and will not have on the Closing Date any liability for Taxes in excess of the amounts so paid or reserves so established.

     (c) There are no liens for Taxes (other than for current Taxes not yet due and payable) on the assets of the Company.

     (d) The tax-sharing agreements or similar arrangements to which the Company is a party have been approved by the Illinois Department. The Company shall terminate its participation in all tax-sharing agreements or similar arrangements to which the Company is a party on or prior to the Closing Date.

     (e) No new elections with respect to Taxes, or any changes in current elections with respect to Taxes, affecting the Company shall be made after the date of this Agreement without the prior written consent of the Purchaser, with the exception of the Code (as defined in Section 9.1 (e)) §338(h)(10) election referenced in Section 9.6 (“Code §338(h)(10) Election”).

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     Section 2.13. Litigation. Except as disclosed on Schedule 2.13, there are no actions, suits, proceedings, claims or investigations or legal, administrative or arbitration proceedings pending or, to the knowledge of the Seller, threatened in any court or before or by any governmental body against or affecting the Company. Except as disclosed on Schedule 2.13, there are no outstanding orders, writs, injunctions or decrees of any court, governmental agency or arbitration tribunal, against or affecting the Company or which would restrain, enjoin, prohibit or in any way impair any of the transactions contemplated by this Agreement or which have a material adverse effect on the financial condition of the Company or the conduct of its business or the status of the Licenses. No circumstance, occurrence or event or series of events has occurred, to the knowledge of the Seller, which will or might give rise to the assertion of any suit, proceeding or other of the foregoing types of procedures against the Company.

     Section 2.14. Collective Bargaining Agreements; Employees.

     (a) The Company does not have any employees or independent contractors and has not had any employees or independent contractors for more than the last five (5) years and has no obligation to pay any compensation or benefits to, and has no other existing or contingent liability to, any of its former officers, directors, employees or independent contractors or to others for the use of their officers, directors or employees, including, without limitation, for any leased or temporary employees.

     (b) As of the Effective Date (as such term is defined in the Reinsurance Agreement) there will be no written or oral employment or consulting agreements, severance pay

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plans, pension, retirement, profit sharing, employee relations policies, practices and arrangements, agreements with respect to leased or temporary employees, executive compensation plans, incentive compensation plans or arrangements, vacation pay plans or arrangements, sick pay plans, deferred compensation and bonus plans, incentive stock option, stock ownership and stock purchase plans, or any other employee benefit programs, arrangements, agreements or understandings, including medical, vision, dental or other health plans, insurance and disability plans, including, without limitation, “any employee benefit plan” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), to which the Company contributes or is a party or is bound or under which it may have liability and under which former employees of the Company (or their dependents or beneficiaries) are eligible to participate or derive a benefit (the “Employee Benefit Plans”) which are not fully assumed by the Seller pursuant to the Reinsurance Agreement. Also, as of the Effective Date (as such term is defined in the Reinsurance Agreement) the Company will have no obligation of any nature whatsoever to any leased or temporary employees.

     (c) With respect to each Employee Benefit Plan (or similar plan of the Seller, if applicable) in which former employees of the Company participated or to which contributions were made by such former employees or by the Company on their behalf, (i) each Employee Benefit Plan is in compliance and has been administered in accordance with the requirements prescribed by statutes, orders and governmental rules or regulations applicable to such Employee Benefit Plans, including, but not limited to, ERISA and the Code, in all material respects, (ii) no “employee pension benefit plan” (as defined in Section 3(2) of ERISA) of the Company or any

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affiliate which is subject to Section 412 of the Code has incurred any “accumulated funding deficiency” (as defined in Section 412 of the Code), whether or not waived, (iii) there has been no “reportable event” within the meaning of Section 403(b) of ERISA and (iv) none of the Seller, the Company or any affiliate thereof has any unpaid liability to the Pension Benefit Guarantee Corporation or to any other person under Title IV of ERISA.

     (d) None of the former employees of the Company has been covered by a “multi-employer plan”, subject to ERISA within the meaning of Section 3(37) of ERISA to which the Seller, the Company or any affiliate thereof has been a party.

     (e) The Company is not a party to or bound by any collective bargaining agreement or other labor agreement with any bargaining agent (exclusive or otherwise) or any of its employees.

     Section 2.15. Powers of Attorney and Agents. No person holds a power of attorney from the Company except in the ordinary course of business as a statutory agent for service of process (such persons, “Statutory Agents”). The Company does not have any agents with binding authority. Any agents or persons with powers of attorney may be terminated at will without compensation or cost to the Company.

     Section 2.16. Assets and Property; No Liabilities.

     (a) The Company has good and marketable title to all of its assets and properties, free of any lien, encumbrance, restriction, claim, charge or defect of title, except for statutory deposits made in the ordinary course of business. As of the Closing Date, the Company will have no assets, except (i) the reinsurance referred to in the Reinsurance Agreement, (ii) its

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corporate Charter, books and records (including those referred to in Section 2.17) and the Licenses referred to in Section 2.3, (iii) Securities on Deposit, (iv) cash or cash equivalents, as specified below, and (v) its other assets constituting its capital and surplus. Such assets shall be the minimum necessary to meet the requirements of the Illinois Department to maintain the Company’s Charter in Illinois and its Licenses in all of the states referenced in Schedule 2.3, and except for Securities on Deposit shall consist only of cash or investments in debt obligations of the United States government or any agency or instrumentality thereof that have maturities of six (6) months or less.

     (b) All liabilities of the Company that have arisen or could arise under any insurance contract or any reinsurance treaty have been, or prior to the Closing Date will have been, assumed by the Seller pursuant to the Reinsurance Agreement. Except as provided in the Reinsurance Agreement, the Company will, at Closing, have no liabilities of any nature whatsoever, whether absolute, accrued, contingent or otherwise or whether due or to become due or whether or not under any insurance or reinsurance policy, which have not been fully and completely assumed by the Seller under this Agreement or under the Reinsurance Agreement.

     (c) Schedule 2.16(c) contains a list of all deposits which have been made with the Insurance Departments of jurisdictions where the Company currently holds Licenses and the location of such deposits (“Securities on Deposit”). The Securities on Deposit are the only deposits which are required by any insurance regulatory authorities having jurisdiction over the Company.

     (d) Schedule 2.16(d) contains a complete and correct listing of each bank account

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or safe deposit box maintained by the Company. Schedule 2.16(d) also sets forth a complete and correct list of all credit cards issued or caused to be issued by the Company to any person or under which the Company may be liable for charges or payments, all of which shall be cancelled prior to the Closing Date.

     Section 2.17. Corporate Records.

     (a) The Seller has made or will make available to the Purchaser originals or copies of the stock record books of the Company, which are current and true, correct and complete in all material respects and contain all original issuances, subsequent transfers and any repurchases of the Company’s capital stock through the date hereof.

     (b) The Seller has made or will make available to the Purchaser originals or copies of the corporate minute books of the Company. Such minute books contain a true, complete and correct record of all proceedings and actions taken at all meetings of, and all actions taken by written consent of, the holders of its capital stock and its board of directors and all committees thereof.

     Section 2.18. Business of the Company. The Seller has delivered or will deliver to the Purchaser following the execution and delivery of this Agreement complete, correct and legible copies of the Annual Statement of the Company for each of the years ended December 31, 2001 through 2003.

     The Company will not on or after the Effective Date (as such term is defined in the Reinsurance Agreement), issue or renew any policies of insurance or reinsurance or otherwise engage in the insurance or reinsurance business, other than as provided in the Reinsurance Agreement.

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     Section 2.19. Compliance. The Company is not, to the best of the Seller’s knowledge, in violation of any applicable law, rule, regulation, ordinance, order, judgment, injunction or decree, or any other requirement of any court or Federal, state, municipal or other governmental department, commission, board or instrumentality material to its property or the Company’s business. The Company is not a party to or subject to any agreement, judgment, order, writ, injunction or decree of any court or governmental body that could reasonably be expected to prevent in any material manner the rendering of, or the right to render, the services of the Company as a property and casualty insurance company after the Closing or the Company’s full use of the Licenses to conduct the business permitted under such Licenses as listed on Schedule 2.3 hereof. During the past five (5) fiscal years the Company has not been the subject of any governmental proceedings or investigations, including without limitation any Insurance Department proceedings or investigations, which were adversely determined, and resulted in the Company being bound or held to be in violation or contravention of any material law relating to its business, business practices or employment practices.

     Section 2.20. Brokers or Finders. (i) No broker, advisor or finder has acted directly or indirectly for the Seller or the Company in connection with this Agreement, or the transactions contemplated hereby; (ii) no person is entitled to any brokerage, advisory or finder’s fee or other commission based in any way on agreements, arrangements or understandings with the Seller or the Company relating to the sale of the Company to the Purchaser (“Seller Fees”); (iii) if any Seller Fees are due, they will be the sole obligation of the Seller and neither the

19

Company nor the Purchaser shall have any liability therefor; and (iv) the Seller will hold the Purchaser and the Company harmless from and against any claim or demand for any Seller Fees.

     Section 2.21. Contracts. Except as set forth in Schedule 2.21 and except as will be fully assumed by the Seller pursuant to the Reinsurance Agreement, the Company is not a party to any contract, mortgage, indenture, note guaranty, lease or agreement of any kind.

     Section 2.22. Absence of Certain Changes or Events. Since September 30, 2003 there has not been:

     (a) any material adverse change in the condition (financial or otherwise) of the Company;

     (b) any redemption, purchase or other acquisition of any of its capital stock or other securities by the Company;

     (c) any granting of any option to purchase or other right to acquire any of the Shares or any capital stock of the Company, any granting of any stock appreciation rights, or any issuance of shares of capital stock (whether treasury shares or otherwise) by the Company;

     (d) any indebtedness incurred for borrowed money or commitment to borrow money by the Company; or

     (e) any amount due and payable, now or in the future, by the Company in respect of any guaranties or similar instruments, issued by the Company guaranteeing loans advanced to its agents by any financial institution under any agent loan program or similar type program.

     Section 2.23. Status as of the Closing Date. All of the warranties and representations made by the Seller in this Agreement will be true and correct on the Closing

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Date, with the same force and effect, as if made on and as of the Closing Date.

ARTICLE III.

Warranties and Representations by the Purchaser

     To induce the Seller to enter into this Agreement and (i) to proceed as required herein in anticipation of the Closing on the Closing Date and (ii) to cause the transactions provided for in this Agreement to be consummated on the Closing Date, the Purchaser warrants and represents to the Seller as follows:

     Section 3.1. Corporate Existence, Power and Authority. The Purchaser is a company duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation.

     Section 3.2. Authority Relating to this Agreement. The Purchaser has full corporate power and authority to execute and deliver this Agreement and to take the actions and carry out the transactions contemplated by this Agreement. The execution, delivery and performance by the Purchaser of this Agreement, and the consummation of the transactions contemplated hereby, have been duly authorized and approved by all required corporate action. The execution and delivery of this Agreement by the Purchaser does not, and the consummation of the transactions contemplated herein will not, result in a breach of any term, condition or provision of, or constitute a default under (i) its charter documents or by-laws; (ii) any other material agreement or other instrument to which it is a party; or (iii) any law, rule, regulation, or judicial, administration or arbitration order, award, judgment, writ, injunction or decree applicable to it.

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     Section 3.3. Validity. This Agreement when executed and delivered by the Purchaser as provided for herein will constitute the valid and binding obligation of the Purchaser enforceable in accordance with its terms, except as may be limited by applicable bankruptcy, reorganization, insolvency, moratorium and other similar laws now or hereafter in force affecting the enforcement of creditors’ rights generally and subject to general equitable principles limiting the right to obtain specific performance or other equitable relief.

     Section 3.4. Brokers or Finders. (i) Except for John Durkin (the “Purchaser Broker”), no broker, advisor or finder has acted directly or indirectly for the Purchaser in connection with this Agreement, or the transactions contemplated hereby; (ii) except for the Purchaser Broker, no person is entitled to any brokerage, advisory or finder’s fee or other commission based in any way on agreements, arrangements or understandings with the Purchaser relating to the sale of the Company to the Purchaser (“Purchaser Fees”); (iii) if any Purchaser Fees are due, they will be the sole obligations of the Purchaser and neither the Company nor the Seller shall have any liability therefor; and (iv) the Purchaser will hold the Seller and the Company harmless from and against any claim or demand by the Purchaser Broker for any fees, commissions, expenses or other remuneration claimed to be due in connection with this Agreement or for any Purchaser Fees claimed to be due in connection with this Agreement.

     Section 3.5. Governmental Approvals. Except for (x) the approval of the Illinois Director of Insurance pursuant to the Illinois Insurance Laws and the regulations

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thereunder (as interpreted and applied by the Illinois Director of Insurance) with respect to the Purchaser’s acquisition of the Shares and of the Reinsurance Agreement and (y) the approval of the California Insurance Commissioner pursuant to the California Insurance Laws and the regulations thereunder (as interpreted and applied by the California Insurance Commissioner) with respect to the Reinsurance Agreement, no authorization, consent or approval or other order or action of or filing with any court, administrative agency or other governmental or regulatory body or authority is required for the execution and delivery by the Purchaser of this Agreement or the Purchaser’s consummation of the transactions contemplated herein.

     Section 3.6. Litigation. There is no action, suit, proceeding or investigation of the Purchaser which is pending, or, to the knowledge of the Purchaser, threatened, which questions the validity or propriety of this Agreement or any action taken by the Purchaser in connection herewith.

     Section 3.7. Name. Within thirty (30) days after the Closing Date, the Purchaser will take all corporate action necessary to cause the Company’s Articles of Incorporation to be amended so as to change the Company’s name to a name which does not include any reference to “Potomac Insurance Company of Illinois”, “Potomac” or any similar reference (each a “Retained Name” and collectively, the “Retained Names”) and will file all required documentation with the Illinois Director of Insurance and other regulatory officials (including, without limitation, all filings and amendments thereto necessary for the Company to qualify to do business as a foreign corporation and all filings and amendments thereto made with insurance regulatory authorities necessary for the Company to be licensed or authorized to write

23

insurance or reinsurance) to effectuate such name change and will cease using any name which includes any reference to any Retained Name. Notwithstanding the foregoing, following such thirty (30) day period, the Company may use any Retained Name in those jurisdictions where proceedings to change the name of the Company pursuant to this Section 3.7 have commenced but have not been concluded until, with respect to any particular jurisdiction, such time as the Company has been notified that the name change is effective in such jurisdiction; provided, that any such use shall be accompanied by a clear and prominent statement to the effect that the Company is not a member company of White Mountains Insurance Group, Ltd. (“White Mountains”) and is not an affiliate of Potomac Insurance Company, a member company of White Mountains.

     Section 3.8. No Securities Acts Violation. The Purchaser acknowledges that the Shares to be delivered to the Purchaser have not been registered under the Securities Act of 1933 or any state securities law (the “Acts”). On the Closing Date, the Purchaser will acquire the Shares for its own account for investment, with no present intention of reselling or otherwise disposing of all or any portion of the Shares in a manner which would constitute a violation of the Acts, subject nevertheless to the requirement of applicable law that the disposition of its assets be at all times within its control.

     Section 3.9. Status as of the Closing Date. All of the warranties and representations made by the Purchaser in this Agreement will be true and correct on the Closing Date, with the same force and effect, as if made on and as of the Closing Date.

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ARTICLE IV.

Covenants of the Seller

     Section 4.1. Preservation of Licenses. The Seller covenants and agrees that from and after the date of the execution and delivery of this Agreement through and including the Closing Date, except only as otherwise specifically required by or provided in this Agreement, the Seller will cause the Company to use commercially reasonable efforts to preserve the Licenses.

     Section 4.2. Dividends and Other Distributions. The Seller covenants and agrees that between the date of execution of this Agreement and the Closing Date, other than as contemplated by the Reinsurance Agreement, the Seller will not cause to be made, or permit the Company to make or agree to, any distribution of cash or of properties or other assets by way of dividends, distributions, redemptions or otherwise, and whether or not in respect of the Shares.

     Section 4.3. Access to Records. The Seller agrees that (i) between the date of execution of this Agreement and the Closing Date, the Seller will cause the Company to make available to the Purchaser and its authorized representatives (with the right to copy) at reasonable times and under reasonable circumstances all of the Company records, minute books, stock books, seals, examination reports, annual statements, financial statements, income tax returns, contracts and any other documents of the Company reasonably requested by the Purchaser (including, without limitation, a true and correct list of all Statutory Agents of the Company) and (ii) after the Closing Date, the Seller will provide the Purchaser with any information which the Purchaser reasonably may request to respond to litigation, to comply with regulatory

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requirements and requests. In addition, both before and after the Closing Date, the Seller shall instruct its officers, employees, counsel and accountants to be available for a reasonable period of time during normal business hours for, and to respond to, any questions of the Purchaser and its authorized representatives. The Purchaser recognizes the proprietary nature of all of these documents and agrees not to reveal their contents to any third party, other than to the Purchaser’s authorized representatives who have a need to know such information for the purpose of evaluating or consummating the transactions contemplated hereby, A.M. Best Company, Inc. or to such other individuals or entities as may be required by applicable law.

     Section 4.4. Notification of Changes and Default. The Seller covenants and agrees that between the date of execution of this Agreement and the Closing Date, inclusive, the Seller will promptly give notice, or will cause the Company to give notice, to the Purchaser of (i) the occurrence of any event or circumstance or the discovery of any inaccuracy, omission or mistake, which, in any way, would cause any warranty and representation made by the Seller in ARTICLE II, or any of the information or documents heretofore provided to the Purchaser to be changed, modified, inaccurate or otherwise not true and correct in any material respect, whether as of the date of execution of this Agreement or any time subsequent thereto and prior to the Closing Date; or (ii) the occurrence of any events or circumstances that would result in a violation or breach by the Seller of any of the terms and provisions of this Agreement obligatory upon the Seller. No such notice shall avoid compliance by the Seller with the requirements of Section 4.6. The Seller shall report promptly to the Purchaser any fact, circumstance or occurrence which in the reasonable business judgment of management of the Seller or the

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Company may result in an adverse change in the status of any License.

     Section 4.5. State Regulatory Approvals; Rate and Form Filings.

     (a) The Seller shall cooperate with the Purchaser in connection with the Purchaser’s preparation and filing of the Acquisition Statement (as defined in Section 5.1) and shall use its reasonable best efforts to facilitate approval of the transactions contemplated by this Agreement. The Seller will use its reasonable best efforts to obtain all required regulatory approvals for the Reinsurance Agreement from the Illinois Department and the California Department on or prior to Closing.

     (b) Prior to the Closing, the Seller shall use its commercially reasonable efforts to effect the approval of premium rate and policy form filings (“Rate and Form Filings”) in those States where, and for the lines of insurance that, the Purchaser intends to cause the Company to write business following the Closing; provided, that (i) that the Purchaser shall pay any and all costs of the Seller and its affiliates incurred in connection with such endeavors (including, without limitation, filing fees, and reasonable costs and expenses and staff-time at an hourly rate of $150/hour) on demand and upon receipt of an invoice from the Seller, (ii) the Purchaser and/or its authorized representatives shall prepare or provide the Seller and/or its authorized representatives with all information and documentation (including, without limitation, actuarial computations and policy forms) necessary to prepare the relevant Rate and Form Filings, which shall be reviewed by Purchaser’s Counsel, (iii) the Purchaser agrees that the Seller shall be entitled to rely on the truth and accuracy of all information and documentation (including, without limitation, actuarial computations and policy forms) provided to the Seller and/or the

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Seller’s authorized representatives by the Purchaser and/or the Purchaser’s authorized representatives, and that the Seller and the Seller’s authorized representatives shall have no independent duty to investigate or verify the truth or accuracy of any such information and documentation, and (iv) the Seller shall not be obligated to render any assistance to the Purchaser under this Section 4.5(b) or permit the Purchaser, prior to the Closing, to make any such Rate and Form Filings if such assistance or permission would, in the Seller’s reasonable judgment, result in the Seller compromising the commercial or legal interests of one or more of its affiliates.

     Section 4.6. Prohibited Conduct. Except as permitted or required by this Agreement, between the date hereof and the Closing Date, unless the Purchaser has given its prior written consent, the Seller shall not cause or permit the Company to:

     (a) authorize the issuance of, nor issue or acquire any stock, security or other equity of the Company of whatsoever kind, nor grant any option to purchase, or other right to acquire, any stock, security or other equity of the Company;

     (b) introduce any new method of accounting for financial reporting or tax purposes unless required by applicable law;

     (c) reclassify or change the rights of any stock, security or other equity of the Company;

     (d) make any offer or commitment or incur any obligation to enter into any contract, arrangement or transaction of a type described in any of subsections (b) through (c) or (e) through (k) of this Section 4.6;

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     (e) incur, suffer or permit any lien, claim, charge, option or encumbrance upon the Shares, nor shall the Seller transfer or dispose of any of such Shares nor grant any rights or options with respect thereto except in accordance with this Agreement;

     (f) fail to operate the Company other than as contemplated by the Reinsurance Agreement;

     (g) mortgage, pledge or subject to lien, encumbrance, charge or equity any of its properties, assets or rights, other than in the ordinary course of business or as contemplated by this Agreement;

     (h) make any loan commitment;

     (i) make any business merger or acquisition in any form or transaction;

     (j) transact any business which will have an adverse effect on the property, assets or condition of the Company; or

     (k) make any amendment to the Charter or By-laws of the Company.

     Section 4.7. Deposits. The Securities on Deposit listed on Schedule 2.16(c) shall be maintained through the Closing Date and will constitute a portion of the assets to be retained in the Company to constitute its capital and surplus.

     Section 4.8. Intercompany Contracts and Indebtedness. Except for the Reinsurance Agreement, on the Closing Date, there shall be no outstanding indebtedness or other liability of the Seller or any of its affiliates to the Company, or of the Company to the Seller or any of its affiliates and the Seller shall have assumed any and all liabilities of the Company.

     Section 4.9. Payment of Broker or Finder Fees. The Seller will hold the

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Purchaser and the Company harmless from and against any claim or demand for any Seller Fees.

     Section 4.10. Provision and Use of Financial Information. The Purchaser will be registering its shares with the Securities and Exchange Commission (“SEC”) and, in connection therewith, may be required to include audited financial statements of the Company in its filings with the SEC. The Seller hereby agrees to provide the Purchaser and its designees, including its independent auditors, with reasonable access to the books and records and other financial information concerning the Company and with the reasonable cooperation of the management of the Seller and its affiliates, sufficient for the preparation and the audit of the financials of the Company for periods prior to its acquisition by the Purchaser, as are required by the SEC; provided, that the Purchaser shall pay any and all costs of the Seller and its affiliates incurred in connection with such endeavors (including, without limitation, reasonable costs and expenses and staff-time at an hourly rate of $150/hour) and the fees and expenses of the Seller and its affiliates’ independent auditors, PricewaterhouseCoopers LLP, in each case, on demand and upon receipt of an invoice from the Seller or PricewaterhouseCoopers LLP, as the case may be. Notwithstanding Section 11.6, the Purchaser shall be entitled to use the above information and any other required information concerning the Company in its filings with the SEC and in other necessary or appropriate disclosure in connection therewith, including the filing of this Agreement and the Exhibit and Schedules hereto. Subject to the Seller agreeing to abide by a commercially reasonable obligation of confidentiality (which shall include, without limitation, disclosure rights to the Seller’s authorized representatives), the Purchaser agrees to provide drafts of any such filings and disclosure, and any amendments or supplements thereto, to the

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Seller for the Seller’s review and approval with respect to the representation of the above information contained therein prior to the submission of such filings and disclosure, or any amendments or supplements thereto, to the SEC, which approval by the Seller shall not be unreasonably withheld or delayed. The Purchaser shall indemnify the Seller and its affiliates and each of their respective officers, directors, employees, stockholders (or security or rights holders), agents, representatives, heirs, successors and assigns against and hold them harmless from (whether in connection with a third party claim or a direct claim) any loss, claim, damage, liability (whether asserted or unasserted, absolute or contingent), cost, expense, obligations, judgments, liens, injunctions, charges, orders, decrees, rulings, dues, assessments, taxes, fines, penalties, fees and amounts paid in settlement (including reasonable fees and expenses of counsel) as incurred (payable promptly upon written request) by any such person or entity arising from, in connection with or otherwise with respect to the audited financial statements of the Company included in any SEC filings made by the Purchaser after the date hereof; but not if arising from any intentionally or recklessly false or misleading financial information provided by the Seller or its authorized representatives and, in such a situation, the Seller shall similarly indemnify the Purchaser and its affiliates, and each of their respective officers, directors, employees, stockholders (or security right holders), agents, representatives, heirs and assigns.

ARTICLE V.

Covenants of the Purchaser

     Section 5.1. Acquisition Statement and Compliance with Illinois Insurance Law. Promptly after, and in any case within fifteen (15) business days following, the date of

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execution of this Agreement, the Purchaser shall file the required Form A statement, and all related materials, in connection with the Purchaser’s acquisition of the Shares pursuant to the requirements of the Illinois Insurance Law (the “Acquisition Statement”); provided, that such Acquisition Statement shall provide that Purchaser agrees to commit to increase the capital of the Company by at least an additional twenty-five million dollars ($25,000,000) post-Closing and prior to writing any new business in the Company post- Closing. The Purchaser shall use its reasonable best efforts to obtain the approval required by the Illinois Insurance Law to permit the Purchaser (subject to the terms and conditions of this Agreement) to consummate the transactions contemplated by this Agreement, including without limitation, the filing of any amendment to the Acquisition Statement required by the Illinois Insurance Law.

     The Purchaser and the Seller agree to jointly use their reasonable best efforts to obtain any and all regulatory approvals of any state other than those required by the Illinois Insurance Law with the respect to the purchase of the Shares and the Reinsurance Agreement. The Purchaser acknowledges that it will, if necessary, file a requalification application in the State of Michigan and that the Purchaser will, if necessary, make such filings to maintain the Michigan License; provided, that the Purchaser’s failure to make any such filing shall not (x) permit the Purchaser to refuse to consummate the Closing; (y) entitle the Purchaser to claim a reduction in the Purchase Price pursuant to Section 1.2(a)(iii) or (z) permit the Purchaser to claim any right for indemnification hereunder with respect to any such License.

     Section 5.2. Post-Closing Access. After the Closing, the Purchaser will cause the Company to afford to the Seller, its authorized representatives reasonable access to the

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properties, books, records and employees of the Company to the extent reasonably necessary or desirable to permit the Seller to determine or investigate any matter relating to its rights and obligations with respect to any period ending on or before the Closing Date, or its rights and obligations hereunder or under the Reinsurance Agreement.

     Section 5.3. Payment of Broker or Finder Fees. The Purchaser will hold the Seller and the Company harmless from and against any claim or demand for any Purchaser Fees.

ARTICLE VI.

Conditions Precedent to Obligation of the Purchaser to Close

     The obligation of the Purchaser under this Agreement to purchase the Shares on the Closing Date shall be subject to delivery by the Seller of the Shares to the Purchaser and to the satisfaction of the following conditions precedent.

     Section 6.1. Proceedings Satisfactory. The Seller shall have delivered to the Purchaser on the Closing Date such documents and other evidence as the Purchaser may reasonably request in order to establish the consummation of the transactions provided for in this Agreement, the taking of all corporate and other proceedings in connection herewith and the compliance by the Seller with the conditions set forth in this ARTICLE VI.

     Section 6.2 Warranties and Representations of the Seller. Each of the warranties, representations and disclosures of and made by the Seller in this Agreement (without regard to any notice of any change given by the Seller pursuant to the requirement of Section 4.4) shall be true and correct in all respects on and as of the Closing Date as though each of such warranties, representations and disclosures had been made at and as of the time of the Closing on

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the Closing Date.

     Section 6.3. Compliance with Covenants. The Seller and the Company shall have complied with and performed to the reasonable satisfaction of the Purchaser, all covenants and agreements required to be performed by the Seller and the Company herein on or before the Closing Date.

     Section 6.4. No Proceedings Pending. No injunction or restraining order shall prohibit or limit the right of the Purchaser to consummate the transactions provided for in this Agreement, and no action, suit, proceeding or investigation by or before any court, administrative agency or other governmental authority of any kind shall have been instituted or threatened which may materially and adversely affect the ability of the Company to conduct its business or which may result in restraining, prohibiting or invalidating, or seeking monetary damages by reason of, the consummation of the transactions provided for in this Agreement. No request of or investigation by any governmental, administrative agency or other authority of any kind for deferral of the Closing Date shall be pending or threatened or which would subject the Purchaser, the Company (after Closing) or the directors or officers of any of them (including any directors or officers of the Company after the Closing) to any material liability, fine, forfeiture or penalty on the ground that the transactions contemplated herein, or any of them, are unlawful in any respect, or that any of the foregoing have been breached or violated, or will breach or violate by the consummation hereof, any applicable law, rule or regulation, or otherwise have acted improperly or in breach of any duty in connection with this Agreement or the transactions contemplated herein.

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     Section 6.5. Directors and Officers. The Seller shall have obtained, and delivered to the Purchaser, the resignations of all of the officers and directors of the Company effective as of the Closing Date.

     Section 6.6. Regulatory Approvals. The approval for the acquisition of the Shares and of control of the Company by the Purchaser shall have been obtained from the Illinois Department subject only to conditions (i) customarily imposed by insurance regulatory authorities in transactions of the type contemplated by this Agreement, (ii) imposing restrictions on or prohibiting the payment of dividends by the Company, or (iii) requiring the contribution of additional capital to the Company by the Purchaser. The Purchaser and the Seller shall have obtained all reasonably necessary and appropriate approvals of all insurance regulatory agencies, if any, required to permit lawfully, the Purchaser to purchase the Shares and acquire control of the Company and the Seller to sell the Shares to the Purchaser. The Seller shall have obtained all required regulatory approvals for (x) the Reinsurance Agreement from the Illinois Department and the California Department and (y) the Company’s termination from participation in any pooling agreement with the Seller from the Illinois Department, in each case, on or prior to the Closing Date.

     Section 6.7. Delivery of Certificates for the Shares. The Seller shall have delivered to the Purchaser, against receipt of the Purchase Price, the certificates evidencing ownership of the Shares, endorsed in blank or accompanied by separate stock powers duly executed in blank.

     Section 6.8. Intercompany Balances; Assumed Reinsurance. Except for the

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Reinsurance Agreement, all intercompany balances between the Company and the Seller or any affiliate of the Seller shall have been repaid in full notwithstanding the expressed terms of payment thereof.

     Section 6.9. Delivery of Closing Documents. The Seller shall have delivered, or caused to be delivered, to the Purchaser the following documents, all in form and substance reasonably satisfactory to the Purchaser and its counsel:

     (a) Certificates of the President or the Senior Vice President and the Secretary or Assistant Secretary of the Seller, dated as of the Closing Date, to the effect that the representations and warranties made by the Seller are true and correct in all respects and the conditions set forth in this Agreement have been satisfied; provided, however, that such certificates delivered as of the Closing need not relate to conditions not required to be satisfied as of the Closing.

     (b) Copies of the resolutions of the Boards of Directors of the Seller and the Company, certified by their respective Secretary or Assistant Secretary, authorizing and approving this Agreement and the taking of all other action required by applicable law for the lawful consummation of this Agreement and any and all transactions prescribed herein, including but not limited to the Reinsurance Agreement, and such other incumbency certificates and other certificates of the Seller and the Company as the Purchaser shall reasonably request.

     (c) The minute books and stock books of the Company and other corporate records of the Company in the possession of the Seller, including the Certificates of Authority currently in effect for each License and a true and correct copy of the current Articles of

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Incorporation, certified as being true, correct and complete by the Illinois Director of Insurance as of a date no more than fifteen (15) business days prior to the Closing.

     (d) A balance sheet of the Company as of the close of business on the business day five (5) business days prior to the Closing Date, prepared on a Statutory Accounting Basis.

     (e) All additional documents as may reasonably be necessary to assure the Purchaser and its counsel that the provisions of and conditions specified in this Agreement to be performed or satisfied by the Seller and the Company have been performed or satisfied.

     Section 6.10. Capital and Surplus. The capital and surplus of the Company, as provided in Section 1.2, shall consist only of Securities on Deposit and cash or investments in debt obligations of the United States government or any agency or instrumentality thereof that have maturities of six (6) months or less.

     Section 6.11. Financing. The Purchaser shall have received Firm Capital Commitments from its investors totaling at least two hundred million dollars ($200,000,000) in the aggregate. As used in this Agreement, the term “Firm Capital Commitment” means a non-cancelable commitment from an investor to purchase a specific amount of the Purchaser’s securities for such investor’s own account.

     Section 6.12. Preparation of Quarterly Statement. The Seller shall prepare the Quarterly Statutory Statement for the Company for the quarter ended June 30, 2004 (the “June 2004 Quarterly Statement”); provided, (i) that the Purchaser shall pay any and all costs of the Seller and its affiliates incurred in connection with such endeavors (including, without limitation, reasonable costs and expenses and staff-time at an hourly rate of $150/hour) on

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demand and upon receipt of an invoice from the Seller, (ii) the Purchaser and/or its authorized representatives shall prepare or provide the Seller and/or its authorized representatives (and following the Closing, the Purchaser shall cause the Company and its authorized representatives to prepare or provide the Seller) with all information and documentation necessary to prepare the June 2004 Quarterly Statement, (iii) five (5) business days prior to the filing deadline for the June 2004 Quarterly Statement, the Seller will make the completed filing available to the Purchaser and the Company for their respective review, (iv) the timely making of the actual filing of the June 2004 Quarterly Statement, along with the payment of any required filing fees, will be the sole obligation and responsibility of the Purchaser and the Company, and (v) the Purchaser agrees (on behalf of itself and, following the Closing, the Company) that the Seller shall be entitled to rely on the truth and accuracy of all information and documentation provided to the Seller and/or the Seller’s authorized representatives by the Purchaser or the Company (following the Closing) and/or their respective authorized representatives, and that the Seller and the Seller’s authorized representatives shall have no independent duty to investigate or verify the truth or accuracy of any such information and documentation.

ARTICLE VII.

Conditions Precedent to Obligation of the Seller to Close

     The obligation of the Seller under this Agreement to sell the Shares on the Closing Date is, at the option of the Seller, subject to the satisfaction of the following conditions precedent.

     Section 7.1 Proceedings Satisfactory. The Purchaser shall have delivered to

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the Seller on the Closing Date such documents and other evidence as the Seller may reasonably request in order to establish the consummation of the transactions provided for in this Agreement, the taking of all corporate and other proceedings in connection herewith and the compliance by the Purchaser with the conditions set forth in this ARTICLE VII.

     Section 7.2. Warranties and Representations. Each of the warranties, representations and disclosures of and made by the Purchaser in ARTICLE III shall be true and correct in all material respects on and as of the Closing Date as though each of such warranties and representations had been made at and as of the time of Closing on the Closing Date.

     Section 7.3. Compliance with Covenants. The Purchaser shall have complied with and performed to the reasonable satisfaction of the Seller all covenants and agreements required to be performed by the Purchaser herein, on or before the Closing Date.

     Section 7.4. No Proceedings Pending. No injunction or restraining order shall prohibit or limit the right of the Seller to consummate the transactions provided for in this Agreement, and no action, suit, proceeding or investigation by or before any court, administrative agency or other governmental authority of any kind shall have been instituted or threatened which may result in restraining, prohibiting or invalidating, or seeking monetary damages by reason of, the consummation of the transactions provided for in this Agreement. No request of any governmental, administrative agency or other authority of any kind for deferral of the Closing Date shall be pending or threatened.

     Section 7.5. Regulatory Approvals. The approval of the acquisition of the Shares and of the control of the Company by the Purchaser shall have been obtained from the

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Illinois Department. The Seller shall have obtained all required regulatory approvals for (x) the Reinsurance Agreement from the Illinois Department and the California Department and (y) the Company’s termination of participation in any pooling agreement with the Seller, in each case, on or prior to the Closing Date.

     Section 7.6. Payment of Purchase Price. The Purchase Price shall have been paid to the Seller in accordance with Section 1.2.

ARTICLE VIII.

Indemnification

     Section 8.1. Indemnity by the Seller. The Seller agrees to indemnify and hold the Purchaser and its affiliates, subsidiaries, parents, officers, directors and employees harmless from and against any and all loss, cost, expense, claim, interest, penalty, deficiency, obligation, liability or damage, including reasonable attorneys’ fees, accountants’ fees and other investigatory fees and out-of-pocket expenses, resulting from or arising out of (i) any breach of representation or warranty (including any misrepresentations in, or omission from, any certificate or other document furnished or to be furnished by it to the Purchaser hereunder), or non-fulfillment, in whole or in part, of any covenant or agreement on the part of the Seller under this Agreement; (ii) the failure by the Seller to perform any of its obligations under the Reinsurance Agreement; (iii) any claim or liabilities arising out of or resulting from, and/or associated with, the conduct or operation of the Company prior to the Closing Date, including any liabilities whatsoever of the Company incurred or relating to the period prior to the Closing; (iv) all Federal, state and local taxes, filing fees and administrative assessments for insurance guaranty

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funds and/or insurance department expenses and all other assessments, levies or liabilities of any kind arising out of and/or associated with the conduct of the business of the Company prior to or on the Closing Date, (v) any matter relating to any employee benefit plan or arrangement in effect prior to the Closing Date; (vi) any claim or liabilities arising out of or resulting from, and/or associated with, the Company’s former employees and/or former leased or temporary employees prior to the Closing Date, including any claims or liabilities relating to wages, hours, working conditions, compensation, benefits, occupational safety and health, discrimination or workers’ compensation; and (vii) all actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to any of the foregoing (any and all of which are hereafter referred to as a “Claim”). All of the representations, warranties and covenants of the Seller and the indemnification obligations of the Seller hereunder shall survive the Closing for a period of three (3) years from the Closing Date, except in respect of (A) any Claim made prior to the end of such three (3) year period, (B) any Claim or matter referred to in clause (ii), (iii), (iv) or (v) or in Section 2.6 or 2.8, (C) any covenant set out in Section 4.8 or Article IX hereof or (D) any action, suit, proceeding, demand, assessment, judgment, cost or expenses incident to any of the foregoing, the term of the continuance of the obligation for indemnification shall continue without limitation.

     The Purchaser shall give the Seller written notice by certified or registered mail of any Claim with respect to which the Purchaser seeks indemnification. If it is a third-party Claim, the Seller shall have twenty (20) business days from the date of receipt of such notice in which to assume the entire control of the defense, compromise or settlement (any and all of which are

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hereinafter referred to as “Defense”) of such Claim through its own attorneys and at its own expense. If the Seller shall assume such Defense, it shall notify the Purchaser in writing of such assumption within twenty (20) business days of receipt of such notice and thereafter promptly advise the Purchaser of its activities and efforts in connection therewith and of the ultimate resolution of such Claim. The Seller shall have the right to settle, compromise or adjust any such third-party Claim, provided that the Purchaser’s rights in and to any of the assets of the Company or the Shares are not infringed thereby. In connection with any Defense, the Purchaser shall be entitled, at its own cost and expense, to have its counsel monitor the progress and status thereof and, in such event, the Seller and its counsel agree to afford all reasonable cooperation to the Purchaser and its counsel in order to permit counsel to the Purchaser effectively to monitor the progress and status from time to time of any such Claim. If the Seller fails to notify the Purchaser that it has assumed the Defense or does not in fact assume the Defense, the Purchaser may, but shall not be required to, pay, compromise or settle such Claim, or take such action to settle such Claim, provided that the Purchaser shall notify the Seller of such action. In such event, the Purchaser shall be fully entitled to indemnification hereunder.

     Section 8.2. Valuation of Claim. After the Purchaser has determined the dollar amount of any Claim, the Purchaser shall provide written notice to the Seller of the amount of such Claim, which notice shall include in reasonable detail information explaining calculation of the amount of such Claim. Unless, within thirty (30) business days after the receipt of such notice by the Seller, the Purchaser receives written notice that the Seller does not concur with the Purchaser’s determination of the amount of the Claim, the amount of such Claim

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provided in such written notice shall conclusively be deemed to have been accepted by the Seller and to be the agreed amount which the Purchaser and the Company are entitled to receive by way of indemnification from the Seller (the “Indemnification Loss”). If the Purchaser within such thirty (30) business day period receives written notice that the Seller disagrees with the amount of the Claim, the parties shall endeavor forthwith, and within thirty (30) business days after receipt of such notice of disagreement by the Purchaser, to negotiate in good faith to resolve the issue or issues which form the basis of their disagreement. If no resolution with respect to such disagreement has been reached by the parties within such thirty (30) business day period, either the Purchaser (on behalf of itself or the Company) or the Seller may commence litigation with respect to such disagreement pursuant to Section 11.10.

     Section 8.3. Payment of Indemnification Loss. Any Indemnification Loss payable by the Seller hereunder shall be promptly remitted by the Seller to a bank account of the Purchaser (or the Company), as designated in writing by the Purchaser, within thirty (30) business days after the determination of the amount of the Indemnification Loss.

     Section 8.4 Indemnity by the Purchaser. The Purchaser agrees to indemnify and hold harmless the Seller of and from any loss, cost, expense, claim, interest, penalty, deficiency, obligation, liability or damage, including reasonable attorneys’ fees, accountants’ fees and other investigatory fees and out-of-pocket expenses, actually expended or incurred by the Seller, arising out of or resulting from (i) any breach of representation or warranty (including any misrepresentation in, or omission from, any certificate or other document furnished or to be furnished by it to the Seller hereunder), or non-fulfillment, in whole or in part, of any covenant

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or agreement on the part of the Purchaser under this Agreement; (ii) any claim or liabilities arising out of or resulting from, and/or associated with, any action taken by the Seller and/or its authorized representatives in reliance on information provided to the Seller and/or its authorized representatives pursuant to Section 4.5(b); (iii) any claim or liabilities arising out of or resulting from, and/or associated with, any action taken by the Seller and/or its authorized representatives in reliance on information provided to the Seller and/or its authorized representatives pursuant to Section 6.12; (iv) any claim or liabilities arising out of or resulting from, and/or associated with, the Purchaser’s or the Company’s use of any Retained Name; (v) any claim or liabilities arising out of or resulting from, and/or associated with, the conduct or operation of the Company after the Closing Date except for matters covered by the Reinsurance Agreement and (vi) all actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to any of the foregoing. The same notice, valuation and payment provisions contained in Sections 8.1, 8.2 and 8.3 of this Agreement with regard to indemnification claims by the Purchaser against the Seller shall apply with regard to indemnification claims by the Seller against the Purchaser pursuant to this Section 8.4, except that the Seller shall be substituted for the Purchaser and the Purchaser for the Seller.

ARTICLE IX

Tax Matters

     Section 9.1 Definitions.

     (a) “Adjustment” means, with respect to Taxes, a change in the amount or character of any item of income, gain, loss, deduction or credit of the Company, including but

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not limited to (i) changes attributable to amended returns; (ii) deficiencies asserted by any taxing authority; (iii) overpayments; or (iv) claims for refund irrespective of whether such change arises out of a voluntary act, or any audit, examination, proceeding or litigation resulting from any of the foregoing events.

     (b) “Affiliated Group” means the affiliated group of corporations (within the meaning of Section 1504(a) of the Code) which includes the Seller.

     (c) “Affiliation Year” means each taxable year or period applicable to the Company ending on or before the Closing Date.

     (d) “Consolidated Return(s)” means the consolidated United States Federal income tax return(s) of the Affiliated Group.

     (e) “Code” means the Internal Revenue Code of 1986, as amended, or any successor thereto.

     (f) “IRS” means the Internal Revenue Service.

     (g) “Post-Affiliation Year” means any taxable year or period of the Company beginning on or after the Closing Date.

     (h) “Regulations” means the U.S. Treasury Department Income Tax Regulations in effect under the Code, as amended from time to time.

     (i) “Tax(es)” means (i) all taxes, charges, fees, levies, duties or other assessments whether federal, state, local or foreign, based upon or measured by income, capital or gain and all other taxes including, without limitation, recapture, gross receipts, premiums (including retaliatory premiums), profits, sales, use, occupancy, value added, ad valorem,

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customs, transfer, franchise, withholding, social security, unemployment, disability, payroll, employment, excise, or real or personal property taxes, alternative or add-on minimum or environmental taxes and State guaranty fund assessments, together with any interest, fines, penalties and additions to such tax as may be imposed with respect thereto and (ii) all transferee, successor, joint and several or contractual liability (including, without limitation, liability pursuant to § 1.1502-6 of the Regulations (or any similar state, local or foreign provision)) in respect of any item described in clause (i) of this definition.

     Section 9.2 Tax Returns and Payments.

     (a) The Seller has prepared or caused to be prepared the federal income tax return of the Company for its taxable period ending on December 31, 2002, and has timely filed such return, or caused same to be timely filed or included in the appropriate, timely filed consolidated U.S. federal income tax return.

     (b) The Seller shall prepare the federal income tax return of the Company for its short taxable period ending on the Closing Date and shall include it in the Consolidated Return and shall pay all Taxes due with respect to such period. Such return shall be true and complete in all material respects and shall be prepared in accordance with §1.1502-76(b)(4) of the Regulations.

     (c) The Seller has prepared or caused to be prepared all state and local tax returns of the Company that are required to be filed for the taxable period ending December 31, 2002. Such returns have been signed and timely filed by or caused to be timely filed by the Seller and all Taxes due with respect to such returns have been paid by the Seller.

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     (d) The Purchaser shall prepare all full year state and local tax returns of the Company that are required to be filed after the Closing. The Seller shall assist in the preparation of such returns, and provide all necessary information, in so far as they relate to items for period prior to the Closing Date. The Seller shall be responsible for the tax liability on any income attributable to the period up to, and including, the Closing Date. The Purchaser shall be responsible for the tax liability on any income attributable to the period after the Closing Date.

     (e) The Purchaser shall prepare, sign and file all tax returns, for any type of Tax, which returns are required to be filed for all periods ending after the Closing Date.

     (f) Each tax return that the Seller and the Purchaser shall prepare pursuant to Section 9.2 (a)-(d) shall be prepared on a basis consistent with the returns filed for the prior periods, except as required by law.

     Section 9.3 Adjustments.

     (a) If (i) there is an Adjustment to any item reported on a return filed with respect to the Company for a Post-Affiliation Year that results in an increase in Taxes payable by the Purchaser or the Company; (ii) such Adjustment results in a corresponding Adjustment to items reported on a return filed with respect to the Seller or any affiliate of the Seller (including the Company) for an Affiliation Year; and (iii) the Taxes payable by or on behalf of the Seller (or such affiliate) with respect to such period are reduced by such Adjustment (the “Seller Decrease”), then the Seller shall pay to the Purchaser or the Company, an amount equal to such increase in Taxes of the Purchaser or the Company. The amount payable by the Seller under this paragraph shall be limited to the Seller Decrease, plus interest received by the Seller pursuant to

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Code § 6621, or comparable interest received from state and local authorities, with respect to such Seller Decrease. Payment under this paragraph shall be made no later than five (5) business days after the Seller Decrease is refunded to the Seller or such affiliate or is otherwise actually realized.

     (b) If (i) there is an Adjustment to any item reported on a return filed with respect to the Seller or any affiliate of the Seller (including the Company) for an Affiliation Year that results in an increase in the Taxes payable by the Seller or an affiliate of the Seller; (ii) such Adjustment results in a corresponding Adjustment to items reported on a tax return filed with respect to the Purchaser or any affiliate of the Purchaser (including the Company) for a Post-Affiliation Year; and (iii) the Taxes payable by or on behalf of the Purchaser (or such affiliate) with respect to such period are reduced by such Adjustment (the “Purchaser Decrease”), then the Purchaser shall pay to the Seller an amount equal to such increase in Taxes of the Seller or such affiliate. The amount payable by the Purchaser under this paragraph shall be limited to the Purchaser Decrease, plus interest received by the Purchaser or such affiliate pursuant to Code § 6621, or comparable interest received from state or local authorities, with respect to such the Purchaser Decrease. Payment under this paragraph shall be made no later than five (5) business days after the Purchaser Decrease is refunded to the Purchaser or such affiliate, or is otherwise actually realized.

     (c) The Seller shall promptly notify the Purchaser of any IRS notice or revenue agent’s report or equivalent state or local tax authority notice received by the Seller which could reasonably result in an Adjustment giving rise to a liability of the Purchaser or the Company

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under this Agreement. However, the failure to promptly give such notice shall not relieve the Purchaser or the Company from any liability that they may have hereunder, except to the extent that such failure results in increased liability to the Purchaser or the Company arising out of their obligations to indemnify the Seller. The Seller shall keep the Purchaser informed of developments regarding such notice or report to the extent such developments (i) relate to any liability of the Purchaser or the Company to the Seller under this Agreement, or (ii) could affect the liability of the Purchaser or the Company for Taxes in a Post-Affiliation Year.

     (d) The Purchaser shall promptly notify the Seller of any IRS notice or revenue agent’s report or equivalent state or local tax authority notice received by the Purchaser or the Company which could result in an Adjustment giving rise to a liability of the Seller under this Agreement. However, the failure to give such notice shall not relieve the Seller from any liability that it may have hereunder, except to the extent that such failure results in increased liability to the Seller arising out of its obligations to indemnify the Purchaser. The Purchaser shall keep the Seller informed of developments regarding such report or notice to the extent such developments (i) relate to any liability of the Seller to the Purchaser or the Company under this Agreement or (ii) could affect the liability of the Seller or the Company for Taxes in an Affiliation Year.

     Section 9.4 Cooperation; Furnishing of Information. The parties agree to provide each other with such cooperation and information as may be reasonably requested in connection with (i) the preparation or filing of any tax return, report, amended return or claim for refund with respect to Taxes; (ii) conducting any audit; or (iii) making any other computation or

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determination required hereunder.

     Section 9.5 Record Retention. The Seller and the Company shall retain all relevant tax returns, schedules and work papers, and all related material records or documents until the expiration of the statute of limitations (including extensions) of the taxable years to which such returns and other documents relate, but in any event for a period of not less than seven (7) years; provided, however, the Seller shall not be required to retain any documents which have been furnished to the Company or the Purchaser.

     Section 9.6 Code §338(h)(10) Election. Both the Purchaser and the Seller agree to join in a Code §338(h)(10) Election with respect to the acquisition by the Purchaser of the Shares. At the Closing, the Purchaser and the Seller agree to execute Form 8023 (or any replacement form), to comply with all the requirements of Code §338(h)(10), and Regulations promulgated thereunder, and to take any other action reasonably requested in order to make and effectuate this election.

     Section 9.7 Tax Indemnification.

     (a) The Seller shall indemnify and hold harmless the Purchaser, and its affiliates, subsidiaries (including the Company), parents, officers, directors and employees from and against any and all claims, actions, causes of action, liabilities, losses, damages, and reasonable out-of-pocket expenses and costs including, without limitation, attorneys’ and accountants’ fees, including those associated with the enforcement of their rights hereunder, resulting from, arising out of, or relating to any Taxes claimed or assessed for all taxable years or periods ending on or prior to the Closing Date in accordance with the procedures set forth in

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Article VIII of this Agreement, in excess of the amount accrued in the balance sheet of the Company as of the Closing Date.

     (b) The Seller and the Purchaser agree that any payments pursuant to Section 9.7(a) will constitute an adjustment to the Purchase Price.

ARTICLE X.

Actions to be Taken at Closing;

Modification; Waivers and Termination

     Section 10.1. Closing. At the Closing, the Seller shall deliver to the Purchaser the certificates representing all of the Shares in proper negotiable form; the Purchaser shall deliver to the Seller cash or certified or bank cashier’s check or wire transfer of federal funds in the full amount payable as the Purchase Price for the Shares and a copy of the document evidencing the Illinois Insurance Director’s approval of the Purchaser’s acquisition of the Company pursuant to the terms of this Agreement.

     Section 10.2. Modification. The Seller and the Purchaser may, by mutual consent of their duly and properly authorized representatives, amend, modify or supplement this Agreement in such manner as may be agreed upon by them in writing at any time.

     Section 10.3. Waivers. Each of the Purchaser and the Seller may, pursuant to action by its duly and properly authorized representative and by an instrument in writing, extend the time for or waive the performance of any of the obligations of the other or waive compliance by the other with any of the covenants or conditions contained herein.

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     Section 10.4. Termination. This Agreement may be terminated, and the transactions contemplated hereby abandoned, prior to Closing:

     (a) by the Purchaser if there has been a material misrepresentation on the part of the Seller in any material representation or warranty contained herein or in any certificate or other instrument delivered or furnished to the Purchaser, or pursuant hereto, or if there has been any failure on the part of the Seller to comply with or perform any of its agreements, covenants or obligations hereunder in any material respect, and such misrepresentation, noncompliance or nonperformance shall not have been (i) cured or eliminated by the Seller within fifteen (15) business days following receipt of written notice thereof from the Purchaser or (ii) waived by the Purchaser on or before the Closing Date;

     (b) by the Seller if there has been a material misrepresentation on the part of the Purchaser in any material representation or warranty of the Purchaser contained herein or in any certificate or other instrument delivered or furnished to the Seller pursuant hereto, or if there has been any failure on the part of the Purchaser to comply with or perform any of its agreements, covenants or obligations hereunder in any material respect and such misrepresentation, non-compliance or nonperformance shall not have been (i) cured or eliminated by the Purchaser within fifteen (15) business days from receipt by the Purchaser of written notice thereof from the Seller or (ii) waived by the Seller on or before the Closing Date;

     (c) by the Seller if on or before May 15, 2004 the Seller shall not have received an opinion, in form and substance reasonably acceptable to the Seller, from Friedman, Billings, Ramsey & Co., Inc. and Purchaser’s Counsel to the effect that the Purchaser shall have

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received Firm Capital Commitments from its investors totaling at least two hundred million dollars ($200,000,000) in the aggregate (such opinion, a “Commitment Opinion”); provided, that in lieu of exercising its right to terminate this Agreement pursuant to this Section 10.4(c) the Seller shall allow the Purchaser to elect, in the Purchaser’s sole discretion but without any affirmative obligation to do so, to extend the time by which the Purchaser must deliver a Commitment Opinion to the Seller to June 15, 2004 by, on or before May 15, 2004, (x) delivering written notice to the Seller stating such election and (y) paying the Seller an additional two hundred and fifty thousand dollar ($250,000) advance payment on the Purchase Price (by wire transfer of immediately available funds to an account designated in writing by the Seller to the Purchaser), which additional advance payment shall be fully-earned and non-refundable at the time the Purchaser pays such advance payment to the Seller, regardless of whether the Closing shall fail to occur for any reason whatsoever (other than a termination of this Agreement by the Purchaser pursuant to Section 10.4(a), but not for any actual or alleged failure of the Seller to perform its obligations pursuant to Section 4.5 (b)); provided, that, if such extension is granted and if the Purchaser shall not have delivered a Commitment Opinion on or before June 15, 2004, the Seller may immediately terminate this Agreement and the transactions contemplated hereby shall be deemed abandoned; or

     (d) by the Seller or the Purchaser if the Illinois Department shall have disapproved the Purchaser’s acquisition of the Shares.

ARTICLE XI.

Miscellaneous Provisions

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     Section 11.1. Expenses. Each party shall pay its own expenses, including but not limited to all legal and accounting fees, incurred by it in connection with this Agreement.

     Section 11.2. Schedules: this Agreement. The Schedules attached hereto are incorporated herein and made a part hereof for all purposes. As used herein, the expression “this Agreement” means the body of this Agreement and such Schedules, and the expression “herein,” “hereof,” and “hereunder” and other words of similar import refer to this Agreement and such Schedules as a whole and not to any particular part or subdivision thereof.

     Section 11.3. Survival of Obligations. The respective warranties, representations, covenants and agreements of the parties to this Agreement shall survive consummation of the transactions contemplated by this Agreement and shall continue in full force and effect after the Closing Date.

     Section 11.4. Amendments and Waivers. Except as otherwise specifically stated herein, no provision of this Agreement may be amended except by, and only by, a written instrument executed by parties hereto or their respective successors in interest.

     Section 11.5. Other Instruments to be Executed. From and after the Closing Date, assuming consummation of the transactions provided for in this Agreement on such date, the Seller shall, from time to time, at the request of the Purchaser and without further consideration (but at the expense of the Purchaser) do, execute, acknowledge and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably required by the Purchaser more effectively to transfer, assign and set over, or to confirm the sale of, the Shares on the Closing Date to the Purchaser.

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     Section 11.6. Public Statements; Confidentiality. Neither the Seller nor the Purchaser shall issue (nor shall the Seller, prior to the Closing Date, permit the Company to issue) any press release or other public statement concerning the transactions contemplated by this Agreement without first providing the other with a written copy of the text of such release or statement and obtaining the consent of the other respecting such release or statement (which consent shall not be unreasonably withheld or delayed). The Seller and the Purchaser shall keep this Agreement, the terms hereof, and all documents and information relating hereto, or furnished pursuant to or in connection with, this Agreement or the transactions contemplated hereby confidential, except for (x) disclosures to their respective authorized representatives who have a need to know such information for the purpose of evaluating the transactions contemplated hereby and (y) to such other individuals or entities as may be required by applicable law, or, in the case of the Purchaser, as may be necessary in the ordinary conduct of the business by the Company after the Closing Date or, in the case of the Seller or the Purchaser, as may be required in connection with the approvals and the filings contemplated by this Agreement.

     Section 11.7. Parties Bound. This Agreement shall apply to, inure to the benefit of and be binding upon and enforceable against the parties hereto and their respective successors and permitted assigns.

     Section 11.8. Governing Law. This Agreement, and the rights and obligations of the parties hereto, shall be governed by and construed in accordance with the laws of the State of New York other than the insurance laws of such State. To the extent that any insurance laws or regulations are applicable to matters under this Agreement, such matters shall be governed by

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the insurance laws or regulations of the applicable jurisdiction involved.

     Section 11.9. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF, RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     Section 11.10. Exclusive Jurisdiction and Consent to Service of Process. The parties agree that any legal action, suit or proceeding arising out of, relating to or in connection with this Agreement or the transactions contemplated hereby, shall be instituted in a federal or state court sitting in New York County, New York, which shall be the exclusive jurisdiction and venue of said legal proceedings and each party hereto waives any objection which such party may now or hereafter have to the laying of venue of any such action, suit or proceeding and irrevocably submits to the jurisdiction of any such court in any such action, suit or proceeding. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against such party when transmitted in accordance with Section 11.11 hereof. Nothing contained herein shall be deemed to affect the right of either party to serve process in any manner permitted by law.

     Section 11.11. Notices. Any notice, demand, approval, consent, request, waiver or other communication which may be or is required to be given pursuant to this Agreement shall be in writing and shall be deemed given on the day actually received and shall be addressed to a party at the address set forth after its respective name below, or at such different address as such party shall have theretofore advised the other party in writing, with

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copies sent to the persons indicated:

If to the Seller:
Attention:	John Paul Cavoores
	President and CEO
	OneBeacon Insurance Company
	One Beacon Street
	Boston, Massachusetts 02108-3100
	Telecopier: 877-659-4054
Copy to:	Donald A. Emeigh, Jr., Executive
	Vice President, General Counsel and Secretary
	Folksamerica Holding Company, Inc.
	One Liberty Plaza, 19th Floor
	New York, NY 10006
	Telecopier: 212-732-5614
If to the Purchaser:
Attention:	Courtney C. Smith
	President and Chief Executive Officer
	Specialty Underwriters’ Alliance, Inc.
	8585 Stemmons Freeway
	Suite 200, South Tower
	Dallas, Texas 10038
	Telecopier: 214-889-8800
Copy to:	William W. Rosenblatt
	Stroock & Stroock & Lavan LLP
	180 Maiden Lane
	New York, New York 10038
	Telecopier: 212-806-1340

Section 11.12. Number and Gender of Words. Whenever herein the

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singular is used, the same shall include the plural, where appropriate, and whenever herein the plural is used, the same shall include the singular, where appropriate, and words of any gender shall include each other gender, where appropriate.

     Section 11.13. Invalid Provisions. In the event any provision of this Agreement is deemed to be in violation of law, such provision shall not be deemed to impair the validity of any other provision hereof.

     Section 11.14. Accounting Terms. Unless otherwise specified, all accounting terms used in this Agreement shall be interpreted in accordance with generally accepted accounting principles, in effect on the Closing Date, applied on a consistent basis.

     Section 11.15. Entirety of Agreement. This Agreement contains the entire agreement between the parties and supersedes any and all prior agreements, arrangements or understandings between the parties relating to the subject matter hereto. No representation, inducement, promise or agreement, oral or otherwise, which is not embodied or referred to herein is or shall be of any force or effect.

     Section 11.16. Multiple Counterparts; Effectiveness. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original for all purposes and all of which shall be deemed, collectively, one and the same Agreement. Each counterpart may be delivered by facsimile transmission, which transmission shall be deemed delivery of an originally executed counterpart. This Agreement shall become effective when executed and delivered by the parties hereto.

     Section 11.17. Assignment. This Agreement shall not be assignable by either

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party without the prior written consent of the other party and any attempt to assign this Agreement without such consent shall be void; provided, however, that the Purchaser may assign all or any portion of this Agreement to any affiliate of the Purchaser if such affiliate assumes the obligations hereunder. Any permitted assignment by the Purchaser shall not release the Purchaser from its obligations and responsibilities hereunder. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of the permitted transferees, successors and assigns of either party.

     Section 11.18. Headings. The headings contained in this Agreement are for convenience of reference only and shall not affect the interpretation or meaning of this Agreement.

     Section 11.19. Third Party Beneficiaries. Except as otherwise provided herein, nothing herein, express or implied, is intended, or shall be construed, to confer upon or give to any Person other than the signatories hereto and their successors, any rights or remedies under or by reason of this Agreement.

     Section 11.20. Negotiated Agreement. The parties acknowledge, represent and warrant that, in executing this Agreement they have: (a) read and understood this Agreement, (b) had a reasonable opportunity to consider this Agreement and (c) relied solely on their own judgment, belief and knowledge, and such advice as they may have received from their counsel, and, except for representations expressly set forth herein, they have not been influenced by any other representation or statement.

     Section 11.21 Other Remedies. Regardless of whether either party hereto

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shall otherwise have pursued or be pursuing any other rights or remedies, such party may proceed to protect and enforce its rights under this Agreement by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement.

[REMAINDER OF PAGE INTENTIONALLY BLANK, SIGNATURE PAGE FOLLOWS]

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

SELLER: ONEBEACON INSURANCE COMPANY
By:	/s/ Gregory P. Winn
	Name:	Gregory P. Winn
	Title:	Vice President and Treasurer
PURCHASER: SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
By:	/s/ Courtney C. Smith
	Name:	Courtney C. Smith
	Title:	President

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Exhibit A

Reinsurance Agreement

(Attached)

          This INSTRUMENT OF TRANSFER AND ASSUMPTION (this “Instrument”), made this 10th day of February, 2004, by and between OneBeacon Insurance Company, a stock insurance company duly organized and existing under the laws of the Commonwealth of Pennsylvania (“OneBeacon”), and Potomac Insurance Company of Illinois, a stock insurance company duly organized and existing under the laws of the State of Illinois (“Potomac”, together with OneBeacon, the “Parties” and each, individually, a “Party”).

WITNESSETH:

          WHEREAS, OneBeacon is the record holder of 100% of the issued and outstanding stock of Potomac;

          WHEREAS, OneBeacon has decided to offer for sale (the “Sale”) 100% of the issued and outstanding shares of Potomac to an unrelated party (the “Purchaser”); and

          WHEREAS, to facilitate the Sale, it is deemed desirable to transfer any and all of Potomac’s liabilities to, and have them assumed by, OneBeacon (the “Transfer and Assumption”).

          NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants hereinafter set forth, the Parties hereby agree as follows:

          1. This Instrument shall become binding and non-cancelable upon the approval hereof by the Department of Insurance of the State of Illinois (the “Illinois Department”); provided, that the Transfer and Assumption shall be effective April 1, 2004 at 12:00:01 A.M. Boston, Massachusetts Time (such latter date and time, the “Effective Date”).

          2. By this Instrument the liabilities and assets of Potomac shall be transferred to OneBeacon and OneBeacon shall thereby succeed to the liabilities and assets of Potomac.

          3. Immediately as of the Effective Date, all the rights, franchises, and interest of Potomac in and to every species of property (whether real, personal, or mixed) and choses in action thereunto belonging, shall be deemed as transferred to and vested in OneBeacon and simultaneously therewith OneBeacon shall be deemed to have assumed any and all of the liabilities and assets (via an extraordinary dividend or return of capital, as approved by the Illinois Department) of Potomac; provided, that not less than ten million dollars ($10,000,000) in assets, which shall include or consist of any and all statutory deposits (“Policyholders’ Surplus”), shall remain in Potomac, together with the corporate charter, minute books and the licenses and regulatory records and filings concerning Potomac (together with the Policyholders’ Surplus, the “Retained Assets”).

          4. With the exception of the Retained Assets, the assets of Potomac as of the Effective Date shall include any and all of Potomac’s assets of every nature and description of whatever kind and wheresoever situated including, without limitation, the following:

          a. any and all business, including, without limitation, any and all underwriting contracts, including direct insurance policies and endorsements in respect thereto, reinsurance contracts, facultative contracts, retrocession agreements and any and all other underwriting contracts of every kind and description;

          b. any and all cash, securities, choses in action and other property of every nature and description, including real property, leaseholds and other interests therein;

          c. any and all securities or other property on deposit with supervisory insurance officials, other insurance officials and any and all other governmental officials;

          d. any and all monies owing by others to Potomac, including agents, brokers and other underwriting representatives and reinsurers;

          e. any and all loans; and

          f. any and all rights, title and interest in any and all contracts, lease and agreements, including employment obligations or contracts and agency contracts, whether or not in writing.

          5. With the exception of the Retained Assets, the liabilities of Potomac as of the Effective Date shall include any and all of Potomac’s liabilities or contractual commitments of every nature and description, whether absolute, accrued, contingent or otherwise or whether due now or in the future, including, without limitation, the following:

          a. any and all unpaid losses and loss adjustment expenses and any and all liabilities existing or arising in the future under Section 4.a. or 4.b.;

          b. any and all unpaid expenses, including contingent commissions, underwriting and investment expenses, taxes, (including, without limitation, United States Federal and State and foreign taxes, license fees and other fees and any and all other similar obligations);

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          c. any and all unearned premiums;

          d. any and all monies withheld or retained for the account of others and any and all monies owing by Potomac to others, including agents, brokers and other underwriting representatives and reinsurers;

          e. any and all monies or other obligations due under reinsurance contracts;

          f. any and all liabilities under leaseholds and other contracts covering real estate or interests therein;

          g. any and all liabilities under any and all contracts, leases and agreements, including employment obligations or contracts and agency contracts, whether or not in writing; and

          h. any and all subsequent actions, proceedings or liabilities arising from any of the foregoing liabilities or the assets of Potomac.

          6. OneBeacon shall assume as 100% reinsurance, as opposed to this complete Transfer and Assumption, certain insurance business of Potomac written in the states of West Virginia and New York (“Retained Business”) which is in force as of the Effective Date until such time as Potomac receives regulatory approval for a complete Transfer and Assumption into OneBeacon or one of its affiliates. Potomac represents that such Retained Business shall not exceed $1 million dollars of annual written premium as of the Effective Date. OneBeacon shall, at its sole expense, perform any and all administrative functions for such Retained Business including without limitation claims handling, underwriting and regulatory functions and shall reimburse Potomac for any and all out of pocket expenses related thereto. OneBeacon shall 100% reinsure Potomac, and Potomac shall cede, all premium, losses and expenses relating to such Retained Business as of the Effective date and as renewed by Potomac thereafter pending regulatory approvals. OneBeacon shall diligently seek to obtain regulatory approval to undertake a complete Transfer and Assumption of such Retained Business within 12 months following the Effective Date and shall, if so required by any regulatory authority, renew such Retained Business in OneBeacon or its affiliates. In the event that OneBeacon shall not obtain such approval to transfer such Retained Business to OneBeacon or its affiliates within one year of the Effective Date, OneBeacon shall pay Potomac a quarterly fee of 5% of premium written by Potomac during such quarter. OneBeacon

3

shall provide all accounting data related to the Retained Business within 20 business days of the end of each quarter as may be necessary for Potomac to account in its Statutory Statements for the Retained Business so reinsured. Such Retained Business shall not include any business which is underwritten by a new management team following the sale of Potomac to any third party before or after the Effective Date but shall only relate to the Retained Business in force as of the Effective Date. In the event of the insolvency of Potomac, the reinsurance provided by OneBeacon with respect to the Retained Business pursuant to this Section 6 shall be payable directly to Potomac or to Potomac’s liquidator, receiver, conservator, or statutory successor on the basis of the liability of Potomac without diminution because of the insolvency of Potomac or because the liquidator, receiver, conservator or statutory successor of Potomac has failed to pay all or a portion of any applicable claim.

          7. Potomac shall provide notice, substantially in the form of Exhibit A, attached hereto and made part hereof, to all policyholders of in-force premium.

          8. No actions or proceedings pending on the Effective Date or any subsequent actions or proceedings arising from the liabilities and assets of Potomac prior to the Effective Date to which Potomac may be a party, shall be abated or discontinued by reason of the Transfer and Assumption, but the same may be prosecuted to final judgment in the same manner as if the Transfer and Assumption had not taken place, or OneBeacon may be substituted in place of Potomac by order of the court in which the action or proceeding may be pending. Including as provided in Section 6, all liabilities of every nature and description of Potomac at the time of the Transfer and Assumption shall attach to and be assumed by OneBeacon and may be enforced against OneBeacon to the same extent as if such liabilities had been originally incurred or contracted by OneBeacon.

          9. OneBeacon agrees that the failure of Potomac to exercise any right hereunder shall not be deemed a waiver of any right inferred hereunder.

          10. The Parties hereto covenant and agree to take such additional steps, to perform such additional acts, and to furnish such additional documents and other agreements and instruments, as may at any time be necessary or appropriate to carry out the transactions contemplated by this Instrument. To this end, Potomac does hereby irrevocably authorize and empower all of its duly authorized officers, or any one of them, to take such additional steps, to perform such additional acts and to execute such additional documents and other agreements and instruments on behalf of Potomac in furtherance hereof, and such acts when taken, such acts when performed and such documents and other agreements and instruments when executed shall have full effect and be as if taken, performed or executed by Potomac under its corporate seal.

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          11. The terms and conditions contained in this Instrument shall inure to the benefit of, and be binding upon, the Parties and their respective successors and permitted assigns.

          12. This Instrument constitutes the entire agreement between the Parties relating to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the Parties, and there are no general or specific warranties, representations or other agreements by or between the Parties in connection with the entering into of this Agreement or the subject matter hereof except as specifically set forth herein.

          13. This Instrument may be executed by the Parties in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may be delivered by facsimile transmission, which transmission shall be deemed delivery of an originally executed document.

          IN WITNESS WHEREOF, OneBeacon and Potomac have caused this Instrument to be duly executed as of the date first written above.

ONEBEACON INSURANCE COMPANY		POTOMAC INSURANCE COMPANY OF ILLINOIS
By:	/s/ Gregory P. Winn	By:	/s/ Gregory P. Winn
	Vice President & Treasurer		Vice President & Treasurer
[SEAL]		[SEAL]

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Exhibit A to Instrument of Transfer and Assumption

NOTICE AND CERTIFICATION OF ASSUMPTION
BY
ONEBEACON INSURANCE COMPANY

          Pursuant to the terms of an Instrument of Transfer and Assumption, all liabilities and obligations of Potomac Insurance Company of Illinois, a stock insurance company duly organized and existing under the laws of the State of Illinois (“Potomac”) under all policies of insurance and any amendment or modifications thereto (each a “Policy”, and collectively, the “Policies”) heretofore written by Potomac will be assumed by OneBeacon Insurance Company, a stock insurance company duly organized and existing under the laws of the Commonwealth of Pennsylvania and parent company of Potomac (“OneBeacon”).

          This change is effective as of [Date].

          All terms and conditions of your policy with us, referenced in the attached policy declarations page, remain unchanged, except that OneBeacon shall be substituted as your insurer. All payments, notices, claims and suits or actions on your Policy shall hereafter be made to OneBeacon as though it were your original insurer.

          UNLESS YOU OBJECT IN WRITING WITHIN THIRTY (30) DAYS OF YOUR RECEIPT OF THIS NOTICE, YOU WILL BE PRESUMED TO HAVE CONSENTED TO A CHANGE IN YOUR INSURER UNDER THE POLICY REFERENCED IN THE ATTACHED POLICY DECLARATIONS PAGE BY THE SUBSTITUTION OF ONEBEACON FOR POTOMAC. OBJECTIONS MUST BE MAILED TO:

Potomac Insurance Company of Illinois
One Beacon Street
Boston, Massachusetts 02108-3100
Attn.: [Name]

Telephone: [            ]
Telecopier: [            ]

          IN WITNESS WHEREOF, Potomac has caused its corporate seal to be affixed hereto and this Notice of Certification of Assumption to be executed by its duly authorized officers.

By:
	John Paul Cavoores
	President and CEO
By:		[SEAL]
	Dennis Robert Smith
	Secretary
Copy to [Insert Agent of Record]

40134-001 (Ver, 3/2004)

EX-10.2

Exhibit 10.2

AMENDMENT NO. 7
TO THE
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
PARTNER AGENT PROGRAM AGREEMENT

     This amendment (“Amendment”) is made and entered into as of April 30, 2009 by and between American Team Managers Insurance Services, Inc. (“Partner Agent”) and Specialty Underwriters’ Alliance, Inc. and its wholly owned subsidiary SUA Insurance Company (collectively, the “Company”), and amends the Partner Agent Program Agreement (“Agreement”) entered into by the parties on May 1, 2004, as amended. Any terms defined in the Agreement and used herein shall have the same meaning in this Amendment as in the Agreement. In the event that any provision of this Amendment and any provision of the Agreement are inconsistent or conflicting, the inconsistent or conflicting provision of this Amendment shall be and constitute an amendment of the Agreement and shall control, but only to the extent that such provision is inconsistent or conflicting with the Agreement. Any capitalized terms not defined herein shall be defined as in the Agreement.

     Now, therefore, in accordance with Section IX.D. of the Agreement and in consideration of the mutual agreements and covenants hereinafter set forth, the parties wish to amend the Agreement as follows:

1. Section I. A. shall be deleted in its entirety, leaving Section I.A.1 through I.A.6 unaltered, and replaced with the following:

Partner Agent’s authority is subject to the terms of this Agreement and Company’s Program description, underwriting guidelines, system templates, service standards, form and rate and other filings, and authority limits provided by Company to Partner Agent (“Company Guidelines”). Company appoints Partner Agent as exclusive Partner Agent for ten (10) years for the Program from the Effective Date within the territory specified in the Company Guidelines solely for the following purposes:

2. The following provision shall be added under Section IX. General Provisions as Section IX.L.:

Partner Agent shall not undergo a Change in Control, unless Partner Agent provides Company ninety (90) days notice of such Change in Control. “Change in Control” shall mean (i) any sale, lease, exchange or other transfer of all or substantially all of the property and assets of the Partner Agent to a non-affiliated third party; (ii) any merger or consolidation with a non-affiliated third party to which the Partner Agent is a party and as a result of which the holders of the voting securities of the Partner Agent immediately prior thereto own less than a majority of the outstanding voting securities of the surviving entity immediately following such transaction; or (iii) any instance when any person, other than the current owner of 50% or more of the voting securities, shall beneficially own securities of the Partner Agent representing 50% or more of the combined voting power of the voting securities of the Partner Agent then outstanding. For purposes of this section, “voting securities” shall mean securities, the holders of which are ordinarily, in the absence of contingencies, entitled to elect the corporate directors (or persons performing similar functions).

3. Effective February 1, 2009, the Maximum Rate of Commission, as listed in Exhibit A, Section A, shall be deleted in its entirety and replaced with the following:

Program Description	Line of Business	Maximum Rate of Commission effective February 1, 2009
Artisan and General Contractor in the states specifically described in the underwriting guidelines of the Company	General Liability and Commercial Automobile Liability and Physical Damage		22	%
E-Comp. in the states specifically described in the underwriting guidelines of the Company	Workers’ Compensation		20	%

Transportation operations in the territories specifically defined in the underwriting guidelines of the Company Commercial General Liability Commercial Automobile Liability and Physical Damage 20 %

4. Effective March 1, 2009, the Maximum Rate of Commission, as listed in Exhibit A, Section A, shall be deleted in its entirety and replaced with the following:

Program Description	Line of Business	Maximum Rate of Commission effective March 1, 2009
Artisan and General Contractor in the states specifically described in the underwriting guidelines of the Company	General Liability and Commercial Automobile Liability and Physical Damage		22	%
E-Comp. in the states specifically described in the underwriting guidelines of the Company	Workers’ Compensation		20	%
Transportation operations in the territories specifically defined in the underwriting guidelines of the Company	Commercial General Liability Commercial Automobile Liability and Physical Damage		22	%

5. Effective June 1, 2009, the Maximum Rate of Commission, as listed in Exhibit A, Section A, shall be deleted in its entirety and replaced with the following:

Program Description	Line of Business	Maximum Rate of Commission effective June 1, 2009
Artisan and General Contractor in the states specifically described in the underwriting guidelines of the Company	General Liability and Commercial Automobile Liability and Physical Damage		22	%
E-Comp. in the states specifically described in the underwriting guidelines of the Company	Workers’ Compensation		20	%
Transportation operations in the territories specifically defined in the underwriting guidelines of the Company	Commercial General Liability Commercial Automobile Liability and Physical Damage		23	%

6. Exhibit B shall be deleted in its entirety and replaced with Exhibit B-2, as attached. Exhibit B-2 shall be used for all profit sharing calculations beginning May 1, 2009.

     In witness whereof, the parties hereto have caused this Amendment to be executed on their behalf by their duly authorized officers as of the day, month and year above written.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
SUA INSURANCE COMPANY

By:	/s/ Daniel A. Cacchione
Name:		Daniel A. Cacchione
Title:		Senior Vice President and Chief Underwriting Officer

AMERICAN TEAM MANAGERS INSURANCE SERVICES, INC.

By:	/s/ Chris Michaels
Name:		Chris Michaels
Title:		CEO

EXHIBIT B-2
PROFIT SHARING SCHEDULE

The Profit Sharing Due to Partner Agent will be calculated using the following Tables:

Table I
Annual Profit Share
Profit Sharing Year

Premium
1.	Eligible Earned Premium before write off for Profit Sharing Year	$
2.	Premium Written Off	$
3.	Eligible Earned Premium (Line 1 minus Line 2)	$
Expenses
4.	Losses and ALAE Incurred for Profit Sharing Year	$
5.	TPA Claims Fee for Profit Sharing Year	$
6.	Claims Charge for Profit Sharing Year	$
7.	IBNR Charge for Profit Sharing Year	$
8.	Commissions Incurred for Profit Sharing Year	$
9.	Taxes, Licenses and Fees for Profit Sharing Year	$
10.	Operating Charge	$
11.	Dividends Incurred for Profit Sharing Year	$
12.	Expense Total (Sum of Lines 4, 5, 6, 7, 8, 9, 10 and 11)	$
Profit Sharing Year Result
13.	Profit Sharing Year Result (Line 3 minus line 12) (Can be negative)	$
14.	Profit Sharing Factor		*
15.	Profit to be Shared (Line 13 times Line 14)	$
16.	Payout Factor			%
17.	Result (Line 15 times Line 16) (Can be Negative)	$

Based on this Table, the Partner Agent’s Combined Ratio is     % (line 12 divided by line 3). The maximum Profit Sharing due the Partner Agent will be limited to 5% of Eligible Earned Premium per Profit Sharing Year.

*Profit Sharing Factor shall be equal to 1/7 multiplied by 50% for Combined Ratios below 100% so long as eligible written premium exceeds twenty million dollars ($20,000,000).

A minimum total Eligible Written Premium of twenty million dollars ($20,000,000) and minimum Eligible Written Premium of five million dollars ($5,000,000) for each program must be achieved during the Profit Sharing Year to be paid out under the profit sharing calculation. The profit sharing calculation will be completed regardless of whether Partner Agent meets its minimum requirements.

The sum of Commission and Profit Share due shall not exceed twenty-two percent (22%) for any Profit Sharing Year.

LEGEND

Table I

Line 1.	Eligible Earned Premium shall mean direct premium earned for Profit Sharing Year which relates to Eligible Business less premium ceded (less ceding commission received) for reinsurance.
Line 2.	Premium Written Off shall include any premium due Company which Company has charged off as uncollectible for the Profit Sharing Year.
Line 4.	Losses and ALAE Incurred shall be direct losses and expenses incurred (paid plus case reserves) by Company on claims reported for the Profit Sharing Year relating to Eligible Business, excluding unallocated loss adjustment expense, plus any extra contractual or bad faith payments relating to Eligible Business less recoveries from Ceded Treaty and Facultative Reinsurance specifically related to eligible business.
Line 5.	TPA Claims Fee shall be actual fees incurred by the Company on behalf of the Partner Agent for the current Profit Sharing Year.
Line 6.	Claims Charge shall be a designated percentage determined by Company based on unallocated loss adjustment expense for the current Profit Sharing Year times Net Eligible Earned Premium.
Line 7.	IBNR Charge shall be determined solely by the Company and shall include a provision for the reserve for Losses and ALAE Incurred but not reported during the Profit Sharing Year, which reserve shall include development on losses and ALAE already reported to Company. The IBNR calculation will take into consideration the specific lines and classes of business written by the Program Agent.
Line 8.	Commissions shall include the direct commissions and policy fees (if included in Eligible Earned Premium) incurred by Company for the Profit Sharing Year, relating to Eligible Business. Additionally, Company shall add to such total any amounts or expenses of Partner Agent which Company agrees to reimburse, assume, or share.
Line 9.	Taxes and Assessments shall include any loss based or premium based assessments and any expenses relating thereto, and premium taxes, boards, bureaus, and any miscellaneous taxes including insurance department licenses and fees, relating to Eligible Business allocated by Company to Eligible Earned Premium including but not limited to residual market, fair plan or guaranty association assessments.
Line 10.	Operating Charge shall be a designated percentage for the current Profit Sharing Year times Net Eligible Earned Premium. Operating Charge shall be determined solely at Company’s discretion and shall be based on the operating expenses of Company not included in any of the line items described herein.
Line 11.	Dividends Incurred shall include all dividends incurred (paid plus an estimate of accrued but not paid) for the Profit Sharing Year by Company under Eligible Business.

Line 16. Payout Factor shall be calculated according to the following chart:

PROFIT SHARING AGREEMENT

PAYOUT FACTORS

	5 Years
1st Valuation		20	%
2nd Valuation		40	%
3rd Valuation		60	%
4th Valuation		80	%
5th Valuation		100	%

Timing of Calculation of Profit Sharing Due

A. If Partner Agent meets the Minimum Eligible Written Premium requirements for a Profit Sharing Year, Company shall calculate Profit Sharing Due to Partner Agent for the Profit Sharing Period based on Company’s records. Such calculation shall be provided to Partner Agent sixty (60) days after each Valuation Date.

B.	Each Profit Sharing Year’s calculation will include a separate re-calculation of each prior Profit Sharing Year. Re-calculations for each prior Profit Sharing Year will be as of the current Valuation Date, and will be made utilizing the formula set forth in Table I. A summary of calculations made for each Profit Sharing Year will be entered on current Profit Sharing section of Table II.
C.	Provided that all premium or other amounts due Company shall have been received by Company, within sixty (60) days after completion of the calculation of Profit Sharing Due, Company shall pay the amount of Profit Sharing Due to Partner Agent for the Profit Sharing Period as shown in Table II.
D.	In the event of a deficit in a Profit Sharing Year, the deficit will offset past or future surplus until fully absorbed up to and including the fifth Valuation Date of such deficit. In order of how deficits will be applied and how payout will be determined, deficits offset the earliest surpluses first including subsequent development of those surpluses.

LEGEND

Other Defined Terms used in this Agreement

A.	The Initial Profit Sharing Year of this Agreement shall be from January 1, 2005 to December 31, 2005.
B.	The Initial Profit Sharing Year of this Agreement shall be from the Effective Date to December 31st following the Effective Date (“Initial December Date”). Notwithstanding the foregoing, the Initial Profit Sharing Year of this Agreement shall be from the Effective Date to December 31st following the Initial December Date if the Effective Date is between April 1 and December 31st. Subsequent Profit Sharing Years, if any, shall be January 1st to December 31st.
C.	Valuation Date shall mean June 30th of each year. Except as otherwise set forth below, Company shall continue providing calculations for each Profit Sharing Year through the June 30th of each successive year following termination of this Agreement, the Final Profit Sharing Year, or until the parties mutually agree in writing to close the calculations for a particular Profit Sharing Year or Profit Sharing Years.

Term and Termination

This profit sharing schedule will terminate upon the effective date of termination of this Agreement. The Final Profit Sharing Year under this Agreement will be the Profit Sharing Period ending as of the effective date of termination.

In the event this Agreement is terminated prior to the fifth anniversary of the Effective Date by the Partner Agent, Company shall provide no further Profit Sharing calculations. In the event that this Agreement is terminated prior to the fifth anniversary of the Effective Date by Company in accordance with Section VIII (D), Company shall provide no further Profit Sharing calculations.

General

No charge, offset, credit, or deduction for any Profit Sharing which is or may be due Partner Agent shall be made or claimed by Partner Agent in accounts submitted to Company under this Agreement or any other agreement. Profit Sharing Due shall be payable only by Company’s check. Company may combine or offset any amount owed to Partner Agent by Company hereunder against any amount owed to Company by Partner Agent under any other agreement between the parties.

EX-10.3

Exhibit 10.3

AMENDMENT NO. 2
TO THE
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
PARTNER AGENT PROGRAM AGREEMENT

     This amendment (“Amendment”) is made and entered into as of May 18, 2009 by and between AEON Insurance Group, Inc. (“Partner Agent”) and Specialty Underwriters’ Alliance, Inc. and its wholly owned subsidiary SUA Insurance Company (collectively, the “Company”), and amends the Partner Agent Program Agreement (“Agreement”) entered into by the parties on May 18, 2004, as amended. Any terms defined in the Agreement and used herein shall have the same meaning in this Amendment as in the Agreement. In the event that any provision of this Amendment and any provision of the Agreement are inconsistent or conflicting, the inconsistent or conflicting provision of this Amendment shall be and constitute an amendment of the Agreement and shall control, but only to the extent that such provision is inconsistent or conflicting with the Agreement. Any capitalized terms not defined herein shall be defined as in the Agreement.

     Now, therefore, in accordance with Section IX.D. of the Agreement and in consideration of the mutual agreements and covenants hereinafter set forth, the parties wish to amend the Agreement as follows:

1.	Section I. A. shall be deleted in its entirety, leaving Section I.A.1 through I.A.6 unaltered, and replaced with the following:
	Partner Agent’s authority is subject to the terms of this Agreement and Company’s Program description, underwriting guidelines, system templates, service standards, form and rate and other filings, and authority limits provided by Company to Partner Agent (“Company Guidelines”). Company appoints Partner Agent as exclusive Partner Agent for ten (10) years for the Program from the Effective Date within the territory specified in the Company Guidelines solely for the following purposes:
2.	The following provision shall be added under Section IX. General Provisions as Section IX.L.:
	Partner Agent shall not undergo a Change in Control, unless Partner Agent provides Company ninety (90) days notice of such Change in Control. “Change in Control” shall mean (i) any sale, lease, exchange or other transfer of all or substantially all of the property and assets of the Partner Agent to a non-affiliated third party; (ii) any merger or consolidation with a non-affiliated third party to which the Partner Agent is a party and as a result of which the holders of the voting securities of the Partner Agent immediately prior thereto own less than a majority of the outstanding voting securities of the surviving entity immediately following such transaction; or (iii) any instance when any person, other than the current owner of 50% or more of the voting securities, shall beneficially own securities of the Partner Agent representing 50% or more of the combined voting power of the voting securities of the Partner Agent then outstanding. For purposes of this section, “voting securities” shall mean securities, the holders of which are ordinarily, in the absence of contingencies, entitled to elect the corporate directors (or persons performing similar functions).
3.	Effective December 1, 2007, Exhibit A, Section A shall be deleted in its entirety and replaced with the following:

A. Except as otherwise provided in this Commission Schedule, Partner Agent’s Commission shall be as follows:

Program Description	Line of Business	Maximum Rate of Commission
Towing, Recovery and Repossession in the states specifically described in the underwriting guidelines of the Company	All Commercial Property & Casualty Lines of Business Excluding Workers’ Compensation		17	%

4. Effective May 1, 2008, Exhibit A, Section A shall be deleted in its entirety and replaced with the following:

B. Except as otherwise provided in this Commission Schedule, Partner Agent’s Commission shall be as follows:

Program Description	Line of Business	Maximum Rate of Commission
Towing, Recovery and Repossession in the states specifically described in the underwriting guidelines of the Company	All Commercial Property & Casualty Lines of Business Excluding Workers’ Compensation		17	%
Towing, Recovery and Repossession in the states specifically described in the underwriting guidelines of the Company	All Commercial Property & Casualty Lines of Business Excluding Workers’ Compensation		17	%
Auto Transporters in the states specifically described in the underwriting guidelines of the Company	Commercial Auto, Property, General Liability		17	%

5. Effective upon the execution of this Amendment by both parties hereto, Exhibit A, Section A shall be deleted in its entirety and replaced with the following:

A. Except as otherwise provided in this Commission Schedule, Partner Agent’s Commission shall be as follows:

Program Description	Line of Business	Maximum Rate of Commission
Towing, Recovery and Repossession in the states specifically described in the underwriting guidelines of the Company	All Commercial Property & Casualty Lines of Business Excluding Workers’ Compensation		17	%
Petroleum Marketers in the states specifically described in the underwriting guidelines of the Company	Commercial Auto, Property, General Liability, Crime/Fidelity		17	%
Auto Transporters in the states specifically described in the underwriting guidelines of the Company	Commercial Auto, Property, General Liability		17	%

6. Exhibit B shall be deleted in its entirety and replaced with Exhibit B-2, as attached. Exhibit B-2 shall be used for all profit sharing calculations beginning May 18, 2009.

[Remainder of page left intentionally blank]

     In witness whereof, the parties hereto have caused this Amendment to be executed on their behalf by their duly authorized officers as of the day, month and year above written.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
SUA INSURANCE COMPANY

By:	/s/ Daniel A. Cacchione
Name:		Daniel A. Cacchione
Title:		Senior Vice President and Chief Underwriting Officer

AEON INSURANCE GROUP, INC.

By:	/s/ Gerald Bushey
Name:		Gerald Bushey
Title:		Chief Executive Officer and Chief Underwriting Officer

EXHIBIT B-2
PROFIT SHARING SCHEDULE

     The Profit Sharing Due to Partner Agent will be calculated using the following Tables:

Table I
Annual Profit Share
Profit Sharing Year [    ]

Premium
1.	Eligible Earned Premium before write off for Profit Sharing Year	$
2.	Premium Written Off	$
3.	Eligible Earned Premium (Line 1 minus Line 2)	$
Expenses
4.	Losses and ALAE Incurred for Profit Sharing Year	$
5.	TPA Claims Fee for Profit Sharing Year	$
6.	Claims Charge for Profit Sharing Year	$
7.	IBNR Charge for Profit Sharing Year	$
8.	Commissions Incurred for Profit Sharing Year	$
9.	Taxes, Licenses and Fees for Profit Sharing Year	$
10.	Operating Charge	$
11.	Dividends Incurred for Profit Sharing Year	$
12.	Expense Total (Sum of Lines 4, 5, 6, 7, 8, 9, 10 and 11)	$
Profit Sharing Year Result
13.	Profit Sharing Year Result (Line 3 minus line 12) (Can be negative)	$
14.	Profit Sharing Factor		*
15.	Profit to be Shared (Line 13 times Line 14)	$
16.	Payout Factor			%
17.	Result (Line 15 times Line 16) (Can be Negative)	$

Based on this Table, the Partner Agent’s Combined Ratio is     % (line 12 divided by line 3). The maximum Profit Sharing due the Partner Agent will be limited to 5% of Eligible Earned Premium per Profit Sharing Year.

*Profit Sharing Factor shall be equal to 5/7 multiplied by 50% for Combined Ratios below 100% so long as eligible written premium exceeds twenty million dollars ($20,000,000).

A minimum total Eligible Written Premium of twenty million dollars ($20,000,000) and minimum Eligible Written Premium of five million dollars ($5,000,000) for each program must be achieved during the Profit Sharing Year to be paid out under the profit sharing calculation. The profit sharing calculation will be completed regardless of whether Partner Agent meets its minimum requirements.

The sum of Commission and Profit Share due shall not exceed twenty-two percent (22%) for any Profit Sharing Year.

LEGEND

Table I

Line 1.	Eligible Earned Premium shall mean direct premium earned for Profit Sharing Year which relates to Eligible Business less premium ceded (less ceding commission received) for reinsurance.
Line 2.	Premium Written Off shall include any premium due Company which Company has charged off as uncollectible for the Profit Sharing Year.
Line 4.	Losses and ALAE Incurred shall be direct losses and expenses incurred (paid plus case reserves) by Company on claims reported for the Profit Sharing Year relating to Eligible Business, excluding unallocated loss adjustment expense, plus any extra contractual or bad faith payments relating to Eligible Business less recoveries from Ceded Treaty and Facultative Reinsurance specifically related to eligible business.
Line 5.	TPA Claims Fee shall be actual fees incurred by the Company on behalf of the Partner Agent for the current Profit Sharing Year.
Line 6.	Claims Charge shall be a designated percentage determined by Company based on unallocated loss adjustment expense for the current Profit Sharing Year times Net Eligible Earned Premium.
Line 7.	IBNR Charge shall be determined solely by the Company and shall include a provision for the reserve for Losses and ALAE Incurred but not reported during the Profit Sharing Year, which reserve shall include development on losses and ALAE already reported to Company. The IBNR calculation will take into consideration the specific lines and classes of business written by the Program Agent.
Line 8.	Commissions shall include the direct commissions and policy fees (if included in Eligible Earned Premium) incurred by Company for the Profit Sharing Year, relating to Eligible Business. Additionally, Company shall add to such total any amounts or expenses of Partner Agent which Company agrees to reimburse, assume, or share.
Line 9.	Taxes and Assessments shall include any loss based or premium based assessments and any expenses relating thereto, and premium taxes, boards, bureaus, and any miscellaneous taxes including insurance department licenses and fees, relating to Eligible Business allocated by Company to Eligible Earned Premium including but not limited to residual market, fair plan or guaranty association assessments.
Line 10.	Operating Charge shall be a designated percentage for the current Profit Sharing Year times Net Eligible Earned Premium. Operating Charge shall be determined solely at Company’s discretion and shall be based on the operating expenses of Company not included in any of the line items described herein.
Line 11.	Dividends Incurred shall include all dividends incurred (paid plus an estimate of accrued but not paid) for the Profit Sharing Year by Company under Eligible Business.

Line 16. Payout Factor shall be calculated according to the following chart:

PROFIT SHARING AGREEMENT

PAYOUT FACTORS

	5 Years
1st Valuation		30	%
2nd Valuation		55	%
3rd Valuation		75	%
4th Valuation		90	%
5th Valuation		100	%

Timing of Calculation of Profit Sharing Due

A.	If Partner Agent meets the Minimum Eligible Written Premium requirements for a Profit Sharing Year, Company shall calculate Profit Sharing Due to Partner Agent for the Profit Sharing Period based on Company’s records. Such calculation shall be provided to Partner Agent sixty (60) days after each Valuation Date.
B.	Each Profit Sharing Year’s calculation will include a separate re-calculation of each prior Profit Sharing Year. Re-calculations for each prior Profit Sharing Year will be as of the current Valuation Date, and will be made utilizing the formula set forth in Table I. A summary of calculations made for each Profit Sharing Year will be entered on current Profit Sharing section of Table II.
C.	Provided that all premium or other amounts due Company shall have been received by Company, within sixty (60) days after completion of the calculation of Profit Sharing Due, Company shall pay the amount of Profit Sharing Due to Partner Agent for the Profit Sharing Period as shown in Table II.
D.	In the event of a deficit in a Profit Sharing Year, the deficit will offset past or future surplus until fully absorbed up to and including the fifth Valuation Date of such deficit. In order of how deficits will be applied and how payout will be determined, deficits offset the earliest surpluses first including subsequent development of those surpluses.

LEGEND

Other Defined Terms used in this Agreement

A.	The Initial Profit Sharing Year of this Agreement shall be from January 1, 2005 to December 31, 2005.
B.	The Initial Profit Sharing Year of this Agreement shall be from the Effective Date to December 31st following the Effective Date (“Initial December Date”). Notwithstanding the foregoing, the Initial Profit Sharing Year of this Agreement shall be from the Effective Date to December 31st following the Initial December Date if the Effective Date is between April 1 and December 31st. Subsequent Profit Sharing Years, if any, shall be January 1st to December 31st.
C.	Valuation Date shall mean June 30th of each year. Except as otherwise set forth below, Company shall continue providing calculations for each Profit Sharing Year through the June 30th of each successive year following termination of this Agreement, the Final Profit Sharing Year, or until the parties mutually agree in writing to close the calculations for a particular Profit Sharing Year or Profit Sharing Years.

Term and Termination

This profit sharing schedule will terminate upon the effective date of termination of this Agreement. The Final Profit Sharing Year under this Agreement will be the Profit Sharing Period ending as of the effective date of termination.

In the event this Agreement is terminated prior to the fifth anniversary of the Effective Date by the Partner Agent, Company shall provide no further Profit Sharing calculations. In the event that this Agreement is terminated prior to the fifth anniversary of the Effective Date by Company in accordance with Section VIII (D), Company shall provide no further Profit Sharing calculations.

General

No charge, offset, credit, or deduction for any Profit Sharing which is or may be due Partner Agent shall be made or claimed by Partner Agent in accounts submitted to Company under this Agreement or any other agreement. Profit Sharing Due shall be payable only by Company’s check. Company may combine or offset any amount owed to Partner Agent by Company hereunder against any amount owed to Company by Partner Agent under any other agreement between the parties.

EX-10.4

Exhibit 10.4

SECOND AMENDMENT
TO THE
AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT

     This amendment (“Amendment”) is made and entered into as of the 4^th day of June, 2009 by and between American Team Managers Insurance Services, Inc. (“ATM”) and Specialty Underwriters’ Alliance, Inc., and amends the AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT (“Agreement”) entered into by the parties on September 8, 2005. Any terms defined in the Agreement and used herein shall have the same meaning in this Amendment as in the Agreement. In the event that any provision of this Amendment and any provision of the Agreement are inconsistent or conflicting, the provision of this Amendment shall control, but only to the extent that such provision is inconsistent or conflicting with the Agreement. Any capitalized terms not defined herein shall be defined as in the Agreement.

     NOW, THEREFORE, and in consideration of the mutual agreements and covenants set forth, the parties wish to amend the Agreement as follows:

1. Subsection (c)(i) of Section 4: Exchange Right shall be deleted in its entirety and replaced with the following:

Exchange Right. (i) At any time and from time to time after the fifth anniversary of the date of that certain Partner Agent Program Agreement between the Company and the Purchaser (the “Partner Agent Agreement”), provided that the Partner Agent Agreement is still in effect and has not been terminated by either party thereto, the Purchaser shall have the right, but not the obligation, to exchange its shares of Class B Stock for an equal number of shares of Common Stock (subject to equitable adjustment in the event of any stock dividend, stock split, combination, reorganization, recapitalization, reclassification or other similar event involving a change in such security); provided, further, that after the fifth anniversary of the date of the Partner Agent Agreement and for so long as the Partner Agent Agreement is in effect, including any day or days on which the Purchaser exercises such exchange right, the Purchaser must retain legal and beneficial ownership for its own benefit of such number of shares of Class B Stock as could be exchanged for the same number of shares of Common Stock, whichever is less, (1) with a value on such date of $500,000, as determined pursuant to Section 4(g) or (2) which equals half of the number of shares of Class B Stock purchased by the Purchaser pursuant to this Agreement.

2. The following provision of Subsection (g) of Section 4: Purchase obligation shall be deleted in its entirety:

“If the aggregate value of the Class B Stock held by the Purchaser is determined to be less than $500,000, then the Purchaser shall purchase from the Company such number of shares of Class B Stock as would equal the difference between the value of the Class B Stock as determined herein and $500,000.”

The deleted provision shall be replaced with the following:

“If the aggregate value of the Class B Stock held by the Purchaser is determined to be less than $500,000, then the Purchaser shall purchase from the Company such number of shares of Class B Stock, if any, as would equal, whichever is less, (1) the difference between the value of the Class B Stock as determined herein and $500,000 or (2) half of the number of shares of Class B Stock purchased by the Purchaser pursuant to this Agreement.”

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by their duly authorized officers as of the day, month and year above written.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

By:	/s/ Daniel A. Cacchione
Name:		Daniel A. Cacchione
Title:		Senior Vice President, Chief Underwriting Officer

AMERICAN TEAM MANAGERS INSURANCE SERVICES, INC.

By:	/s/ Chris Michaels
Name:		Chris Michaels
Title:		Chief Executive Officer

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EX-10.5

Exhibit 10.5

AMENDED AND RESTATED SUA INSURANCE COMPANY
PARTNER AGENT PROGRAM AGREEMENT

This Amended and Restated Partner Agent Program Agreement (the “Amendment”) is entered into as of the 10^th day of June, 2009 by and between SUA Insurance Company and its property and casualty insurance subsidiaries and affiliates (collectively the “Company”) and Risk Transfer Holdings, Inc. and its affiliates and subsidiaries (collectively, “Partner Agent”), and amends and restates the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement entered into by and between the Company and Partner Agent on November 3, 2004, as amended (the “Agreement”). Any terms defined in the Agreement and used herein shall have the same meaning in this Amendment as in the Agreement. In the event that any provision of this Amendment and any provision of the Agreement are inconsistent or conflicting, the inconsistent or conflicting provision of this Amendment shall be and constitute an amendment of the Agreement and shall control, but only to the extent that such provision is inconsistent or conflicting with the Agreement. Any capitalized terms not defined herein shall be defined as in the Agreement.

The parties hereto agree to develop and administer insurance program(s) as described in Exhibit A attached hereto. This Agreement pertains only to that Program business, with the Company and the Partner Agent agreeing as follows:

I. AUTHORITY

A. Partner Agent’s authority is subject to the terms of this Agreement and Company’s Program description, underwriting guidelines, system templates, service standards, form and rate and other filings, and authority limits provided by Company to Partner Agent (“Company Guidelines”). Company appoints Partner Agent as its exclusive Partner Agent for ten (10) years for the Program from the Effective Date within the territories specified in the Company Guidelines solely for the following purposes:

1.	To solicit, receive, and bind proposals for commercial lines insurance in accordance with the Company Guidelines.
2.	To pre-screen applications and estimate rates and/or premiums in accordance with the Company Guidelines.
3.	To endorse in-force policies in accordance with Company Guidelines.
4.	To collect, receive, account for, and pay to Company, premiums on policies written by Company, and to refund to the policyholder or insured, as appropriate (or to Company if requested by Company), return premiums as provided in the applicable policy.
5.	To issue, countersign (where necessary), and deliver policies executed by authorized officers of Company.
6.	To effect conditional renewals, cancellation and non-renewal of policies in accordance with Company Guidelines and applicable law.

B.	Partner Agent may delegate its authority in writing to designated employees.
C.	Partner Agent’s authority is subject to compliance with (and Partner Agent shall not alter, modify, or change and shall not waive any provision in) the applicable forms, rules, or rates of Company, according to their exact terms and to all applicable laws and regulations.

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D.	Company shall have the right to reject any application or business submitted by Partner Agent or to modify, cancel, or refuse to renew any policies written by Company hereunder by giving Partner Agent written notice of effective date of changes that would affect this business.
E.	Partner Agent shall, within twenty (20) calendar days of the inception of coverage, provide to Company all data and statistical information relating to the underwriting of accounts. Partner Agent is authorized to issue binders, certificates or other evidence of insurance.
F.	With 30 days notice, the Company Guidelines may be amended or new Company Guidelines may be adopted at the Company’s discretion without the need to amend this Agreement, provided, however, that amendments to the (i) Collateral Management and Accounting or (ii) Premiums and Accounting Process Guidelines of the Company Guidelines may be adopted by the Company in its discretion only with 90 days notice. Such amendments or new Company Guidelines will be provided to the Partner Agent in writing and must be implemented by Partner Agent in accordance with Company’s instructions. Partner Agent will be provided the opportunity to discuss any changes to Company Guidelines. Company will give Partner Agent reasonable notice in which to enact such changes.
G.	Company retains the right to modify, cancel, conditionally renew or non-renew any and all policies solely in Company’s discretion.
H.	Partner Agent has no authority to solicit, negotiate or place any reinsurance on behalf of Company.

II. OBLIGATIONS OF AGENT

A.

Partner Agent represents and warrants that (i) Partner Agent has any and all ownership or other rights in the business contemplated herein necessary to place such business with Company under this Agreement; (ii) Partner Agent placing business under this Agreement is not in violation of any duty or obligation owed to any other entity or person; and (iii) Partner Agent is, and will continue to be, authorized and licensed to perform all acts set out in this Agreement while providing services under this Agreement.

B.

The Programs that are the subject of this agreement, more specifically described in Exhibit A, shall be exclusive for both the Company and the Partner Agent. In the event that a conflict exists as to whether Partner Agent is authorized to represent an existing or prospective policyholder, when required by law the Company will honor the policyholder’s written producer of record designation signed by the policyholder. Notwithstanding the foregoing, Company shall be under no obligation to honor a written producer of record designation from a policyholder before accepting business from a designated Partner Agent, and Company’s determination of which agent of Company represents Company with regard to a particular policyholder shall be final and binding. Furthermore, if the Company cannot come to terms on the specific risk (potential or existing customer) due to price, location, or other underwriting reason, the Partner Agent may place the business with another carrier; the underwriting file for that specific risk must be documented as to why it was not placed with the Company. An email delivered to the Company Program Director and stored in a physical file shall be considered sufficient documentation for the purposes of this subsection. The Partner Agent and Company further agree that the Company will have first right of refusal on any account meeting the specific program’s underwriting guidelines.

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C.	Partner Agent shall be responsible for compliance with all applicable state and federal laws, regulations, rules, and requirements relating to the performance of Partner Agent’s obligations and the general standards, rules, and regulations of the insurance industry and all Company Guidelines as provided by Company in writing.
D.	Partner Agent shall keep true, separate, accurate, and complete records of all transactions related to the policies and all correspondence.
E.	All records and documents applicable to the business relationship between Company and Partner Agent shall be maintained in a form and manner prescribed by the Company’s Records Retention Policy (“Policy”), which has been provided to the Partner Agent. Records must be maintained for the time period outlined in the Policy.
F.	All records and documents of Partner Agent relating to the business described in Exhibit A may be audited, examined, and/or copied by representatives of Company at any time during normal business hours and shall be made available for examination to reinsurers, or to any state insurance department or regulatory body which so requires. Additionally, Partner Agent shall permit authorized employees and representatives of Company to review the operations of Partner Agent, both at its place of business and at other locations during business hours upon ten (10) days written notice by Company.
G.	Partner Agent shall notify Company within forty-eight (48) hours of notice or receipt of any complaint filed with any state insurance department or other regulatory authority relating to the policies, whether against Company or Partner Agent. The parties will work together to promptly and adequately respond to any such complaint. If requested by Company, Partner Agent shall prepare a response to any such complaint or, at Company’s discretion, provide a complete written account to Company such that Company can respond; however, no response shall be sent by Partner Agent prior to consulting with Company regarding such response. Company retains the final authority on all responses relating to complaints against Company. Company may establish formal complaint handling procedures for Partner Agent to follow which are consistent with the requirements set forth herein.
H.	Partner Agent shall not contact any state insurance department or other regulatory authority, directly or indirectly, with regard to Company’s business without the prior written consent of Company. Partner Agent shall notify Company immediately in the event that Partner Agent receives any contact from any such department or authority with regard to Company’s business.
I.	Partner Agent shall utilize automated business processing through Company’s centralized technology system (“Company System”).
J.	If Company provides access to Company information or networks through computer access, Partner Agent shall be responsible for maintaining the security and integrity of such information and of Company’s systems over those elements that the Partner Agent can control. Partner Agent shall not introduce into Company’s systems any virus or other harmful agent. Partner Agent shall be responsible for assuring the quality of policy, premium, accounting and statistical data submitted to Company consistent with Company standards. Partner Agent agrees to adhere to the terms and conditions governing Partner Agent’s use of any existing Company website or any website Company may own, make available, operate, acquire, use from time to time, create or sponsor in the future, and related services available under any such website. These terms and conditions regarding use of any website or the content of any website may change with prior notice provided to the Partner Agent. Partner Agent’s use of these

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	websites constitutes agreement to the terms and conditions that exist at each point in time Partner Agent uses any such website. Partner Agent may not use the name, logo, or service mark of Company or any of its affiliates in any advertising, promotional material, internet site, or in any material disseminated by Partner Agent without the prior written consent of Company. Partner Agent shall maintain copies and provide an original to Company of any advertisement or other materials approved by Company along with full details concerning where, when, and how it was used. Use of any authorized item shall be limited to the scope of the current request and approval, unless specifically authorized for broader use by Company. Partner Agent must obtain re-authorization of all items should Partner Agent change such advertisements or other materials in appearance and/or content.
K.	All expenses associated with Partner Agent’s performance hereunder shall be the responsibility of Partner Agent, including but not limited to general office expenses, automation expenses, systems integration expenses, marketing expenses, broker, producer, or countersigning commissions, fees, and taxes.
L.	Partner Agent agrees to protect Company’s ‘Confidential Information’ from disclosure to third parties. ‘Confidential Information’ shall mean Company originated information that is not readily available to the general public to include, but not limited to, rating manuals that have been prepared or generated by the Company, forms that have been prepared or generated by the Company, Company Guidelines, underwriting records that have been prepared or generated by the Company, and management reports that have been prepared or generated by the Company. All Confidential Information, that has not previously been destroyed, shall be returned to the party that originated that Confidential Information immediately upon written request that specifically describes the information or documentation to be returned. ‘Company Guidelines’ shall mean any Program description, underwriting guidelines, system templates, service standards, system forms, rates and authority limits provided by Company to Partner Agent. Company Confidential Information does not include any information that: (a) is in the public domain or hereafter becomes known to the public through no fault of either party; (b) is subsequently obtained from an independent, third-party source having no obligation of confidentiality, directly or indirectly, to Company; or (c) the disclosure of which is required by law. If a possibility exists that disclosure may be ordered by a court of law, Partner Agent shall give the Company at least thirty (30) days prior written notice of such possibility so that Company may have the opportunity to contest such disclosure.
M.	Partner Agent agrees that Partner Agent and its employees, agents, and representatives are (i) aware of the sensitive and proprietary nature of any and all information each may receive with regard to applicants, policyholders, beneficiaries of policies, and claimants (the “3rd Party Confidential Information”); and (ii) aware of and will comply with: (a) any and all applicable laws, regulations, rules, and requirements relating to the 3rd Party Confidential Information; (b) the general standards, rules, and regulations of the insurance industry relating to the 3rd Party Confidential Information; and (c) all written instructions provided to Partner Agent from time to time by Company relating to the 3rd Party Confidential Information. Partner Agent shall comply with Company’s privacy policies and shall hold all 3rd Party Confidential Information in trust and confidence in compliance with Company’s privacy policy, and shall use the 3rd Party Confidential Information only for the purpose contemplated in this Agreement. Partner Agent agrees that it shall immediately refer any question concerning any aspect of Company’s privacy policy to Company for resolution.

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N.	If requested by Company, Partner Agent agrees to become a member of Company’s Partner Agent committee (“Partner Agent Advisory Committee”). Partner Agent or appropriate designee shall attend all meetings of the Partner Agent Advisory Committee, provide input at such meetings, and cooperate fully with the Partner Agent Advisory Committee in all aspects.
O.	Partner Agent agreed to purchase a certain amount of Class B exchangeable common stock (“Partner Agent Stock”) as more specifically outlined in the Securities Purchase Agreement dated as of the date hereof by and between the Company and the Partner Agent (“Securities Purchase Agreement”) which is hereby incorporated by reference as an integral part of this Agreement. Company warrants that, as of October 2006, Partner Agent has satisfied such purchase obligation as provided for in the Securities Purchase Agreement.
P.	Partner Agent shall cooperate with Company’s implementation and execution of loss control and premium audit functions which includes billing, collection and remittance or return of any and all premium due.

III. OBLIGATIONS OF COMPANY

A.	Company shall act in accordance with the terms of this Agreement and will pay Partner Agent a commission in accordance with Exhibit A (“Commission”) and a share of profits in accordance with Exhibit B (“Profit Sharing” which, together with “Commission”, is the “Compensation”) attached hereto and referenced herein. Partner Agent shall be responsible for paying any compensation due to its sub producers.
B.	Company shall provide for the payment of all excise taxes, premium taxes (except surplus lines taxes) and assessments.
C.	Company shall appoint Partner Agent as required by various state laws and regulations.
D.	Company will develop and maintain Company System.
E.	Company agrees to protect Partner Agent’s ‘Confidential Information’ from disclosure to third parties. ‘Confidential Information’ shall mean Partner Agent originated information that is not readily available to the general public to include, but not limited to, rating manuals that have been prepared or generated by the Partner Agent, forms that have been prepared or generated by the Partner Agent, underwriting records that have been prepared or generated by the Partner Agent, and management reports that have been prepared or generated by the Partner Agent. All Confidential Information, that has not previously been destroyed, shall be returned to the party that originated that Confidential Information immediately upon written request that specifically describes the information or documentation to be returned.
F.	Company agrees that Company and its employees, agents, and representatives are (i) aware of the sensitive and proprietary nature of any and all information each may receive with regard to applicants, policyholders, beneficiaries of policies, and claimants (the “3rd Party Confidential Information”); and (ii) aware of and will comply with: (a) any and all applicable laws, regulations, rules, and requirements relating to the 3rd Party Confidential Information; (b) the general standards, rules, and regulations of the insurance industry relating to the 3rd Party Confidential Information; and (c) all written instructions provided to Company from time to time by Partner Agent relating to the 3rd

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Party Confidential Information. Company shall comply with Partner Agent’s privacy policies and shall hold all 3^rd Party Confidential Information in trust and confidence in compliance with Company’s privacy policy, and shall use the 3^rd Party Confidential Information only for the purpose contemplated in this Agreement. Company agrees that it shall immediately refer any question concerning any aspect of Partner Agent’s privacy policy to Partner Agent for resolution.

IV. CLAIMS AND COVERAGE

A.	Partner Agent shall immediately notify and cooperate with Company if Partner Agent receives notice of any claim or potential claim which could involve Company, any of its affiliates or subsidiaries, or the business written hereunder.
B.	Partner Agent has no authority to adjust or settle any claims arising out of or in connection with policies, shall not make any statements regarding the application of coverage to specific situations, whether actual or hypothetical, and shall not commit Company to any liability in connection with any actual or potential claim or loss.
C.	Partner Agent shall immediately report all claims, or potential claims, suits, or losses relating to the policies to Company or to an assigned adjuster or claim representative who has been designated by Company. Partner Agent shall cooperate fully with Company or the assigned adjuster or claim representative in the investigation, adjustment, settlement, and payment of claims and coverage matters. All records, files, correspondence, or other materials pertaining to claims shall be the sole property of Company.
D.	Company will consult with Partner Agent on the selection of vendors and claims handling procedures (“Vendor Selection and Claims Procedures”) unique to the Programs; however, Company retains sole discretion for Vendor Selection and Claims Procedures.

V. COMPENSATION OF AGENT

A.	Company shall pay Partner Agent the Commission and Profit Sharing as respectively described in Exhibit A and Exhibit B.
B.	With one hundred eighty (180) days advance written notice, for reasons related to regulatory constraints or industry issues including but not limited to Program coverage resulting in an insurance industry or market downturn, the Company reserves the right to adjust Partner Agent’s Commission as described in Exhibit A, but only for business that is new or renewal after the one hundred eighty 180 days notice.
C.	Effective at any time after a minimum of one hundred eighty (180) days advance written notice to Partner Agent, Company may adjust the current payout period of Profit Sharing as described in Exhibit B.
D.	It is understood and agreed that the Compensation paid hereunder shall be full compensation for all services rendered by Partner Agent pursuant to this Agreement.
E.	Partner Agent shall refund Commission, or other fees or amounts retained by Partner Agent, to the policyholder or insured, as appropriate, or to Company if requested by Company, from Partner Agent’s own funds on a pro-rata basis on return premiums at the same rate as paid to Partner Agent.
F.	The Commission applicable to multiple year policies (if Company has bound such policies through Partner Agent) shall be the Commission that is in effect for such policy

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	during the year in which the policy is initially written, and such Commission shall apply throughout the term of any such policy.
G.	Partner Agent shall have no authority to, and shall not collect any fee(s) on, the policies unless specifically authorized by Company and permitted by law.
H.	Partner Agent shall calculate Commission based on premiums collected by Partner Agent for policies reported to Company.

VI. PREMIUMS AND ACCOUNTING

A.	Partner Agent shall be responsible for collecting premiums, whether advance, deposit, developed, installment, audit, renewal, additional, or otherwise, on all policies other than direct-bill policies. Despite the foregoing, however, Company reserves the right, in its sole discretion, to communicate with, to directly collect premium from, and/or to cancel or non-renew policies of, its insureds. Except as otherwise provided in this Agreement and in the Collateral Management and Accounting Guideline of the Company Guidelines, Partner Agent shall be liable for and pay all earned premium to Company, with the exception that for premiums owed that have premium collateral held by the Company, Company shall exhaust the premium collateral held by the Company on any specific account prior to billing the Partner Agent for any owed premiums (“Applied Collateral”). Furthermore, if Partner Agent follows the collection procedures agreed to by the parties (see Section VI. I.), Company will assume direct collection of the owed premiums from the client.
B.	For each Program, except Pest Control, Partner Agent shall be responsible for collecting, on a weekly basis (or less frequently if approved in writing by the Company Program Director), client reports and corresponding estimated premium from insureds. Company Program Director shall respond to such Partner Agent request in no longer than two (2) business days following such request. In the event an insured fails to report or remit such premium to Partner Agent, Partner Agent shall notify the Company Program Director within eight (8) business days from the end of the business week during which such insured failed to timely report or remit such premiums, as more fully described in the Premiums and Accounting Process Guideline of the Company Guidelines. Notwithstanding such Partner Agent premium collection responsibilities and liability as described in Section VI. A., Partner Agent shall not be liable for any uncollected earned premium in each instance Partner Agent complies with the Premiums and Accounting Process Guideline of the Company Guidelines.
C.	Partner Agent will submit on the first day of the current month premiums (estimated from the prior month) for all policies in force and will submit on the fifth day of the current month any additional prior premiums owed based on reconciliation of actual to estimate.
D.	It is the responsibility of Company to perform audits of paid premium following the termination of each policy for the purposes of determining the appropriate amount of premium owed by each insured for each policy period (“Premium Audit”). It is the policy of Company to complete all Premium Audits and to resolve any disputes arising during the Premium Audit in a timely manner. Company will consider any and all outstanding or disputed amounts associated with any particular Premium Audit to be closed no later than six (6) months, or longer period if approved in writing by the Chief Underwriting Officer of Company, following the issuance and receipt by the Partner Agent of the original Premium Audit statement (“Audit Dispute Period”), as outlined in the Premium Audit Guideline of the Company Guidelines.

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E.	All premiums collected by Partner Agent are the property of Company, shall not be commingled with any other funds, shall be held in trust on behalf of Company in a fiduciary capacity, and shall be deposited and maintained in an account separate and segregated from Partner Agent’s own funds or funds held by Partner Agent on behalf of any other company or person (the “Premium Trust Fund”). The Premium Trust Fund shall be placed in an interest bearing account in a bank and account approved by Company in advance. Unless Partner Agent has breached this Agreement, Partner Agent shall be authorized to retain the interest on the Premium Trust Fund. Company may request at any time, and Partner Agent shall provide, a reconciliation of the funds deposited in, and balance due to Company from, the Premium Trust Fund.
F.	The omission of any item(s) by the Company from the Premium Audit statement does not affect Partner Agent’s responsibility to properly account for policies and pay all amounts due, nor does it prejudice the rights of Company to collect such amounts.
G.	Only in excess of Applied Collateral and in accordance with the Collateral Management and Accounting Guideline of the Company Guidelines, Partner Agent shall be liable for earned premiums on policies written through submissions to Partner Agent by other brokers or producers.
H.	No premium advances may be made by Partner Agent from the Premium Trust Fund, and premium advanced on behalf of any insured by the Partner Agent shall not be reversed.
I.	After making a diligent effort to collect earned premiums and submitting documentation of that diligent effort to Company which Company reasonably determines to be sufficient, Partner Agent may request in writing that premiums due as a result of audit of a particular insured be collected directly by Company. Company agrees to assume responsibility for collecting such additional earned premiums. Company will have no obligation to collect amounts hereunder unless Partner Agent’s written request is made within forty-five (45) days of the billing date shown on the Premium Audit statement or, where applicable, the expiration of the Audit Dispute Period, whichever comes first; provided, that when a Premium Audit statement is disputed, any and all undisputed amounts outstanding relating to said Premium Audit statement, Partner Agent shall make all reasonable efforts to collect within forty-five (45) days of the notice of dispute. Premium audit collections and dispute issues shall be handled in accordance with Company Guidelines. Partner Agent shall not be entitled to Compensation on premiums Partner Agent requests Company to collect or Company undertakes to collect, regardless of the amounts collected by the Company.
J.	Partner Agent agrees to be responsible for the payment of any applicable surplus lines taxes and the filing of all affidavits as required by the applicable entities, and shall provide Company with written evidence of such payment and compliance on a quarterly basis.
K.	Partner Agent shall not be entitled to any Compensation on any premium which Company determines (i) to collect, (ii) in its sole discretion to write-off, or (iii) is overdue and is collected by Company, regardless of the amounts collected.

VII. INSURANCE AND INDEMNITY

A. Partner Agent shall maintain the following insurance amounts with an insurer having a rating with A.M. Best of at least “A-”: (i) errors and omissions insurance covering Partner Agent and its employees in the minimum amount of $1,000,000 per claim, $2,000,000

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aggregate, with a deductible not exceeding an amount agreed by Company, (ii) fidelity insurance covering Partner Agent and its employees in the minimum amount of $1,000,000 and (iii) general liability insurance covering Partner Agent and its employees in the minimum amount of $1,000,000. Partner Agent agrees to immediately notify Company when it receives notice of lapse, increased deductibles, decreased coverage, non-renewal, or termination of any such coverage. Partner Agent agrees to notify Company of any claim brought under any errors and omissions or fidelity insurance which arises out of or is connected with a policy or policies. At the inception of this Agreement and on or before January 31 of each year thereafter, Partner Agent shall furnish Company proof of this insurance.

B.	Company agrees to fully indemnify, defend, and hold harmless Partner Agent from any and all liability, claims, demands, suits, fines and penalties, expenses, costs and attorney fees, made or assessed against or incurred by Partner Agent or the officers, directors, or affiliates of Partner Agent, that may arise by reason of any act, error, or omission of or any misrepresentation by Company or its officers or employees.
C.	Partner Agent agrees to fully indemnify, defend, and hold harmless Company from any and all liability, claims, demands, suits, fines and penalties, expenses, costs and attorney fees, made or assessed against or incurred by Company or the officers, directors, or affiliates of Company, that may arise by reason of any act, error, or omission of or any misrepresentation by Partner Agent, its officers or employees, or brokers or producers submitting business to the Partner Agent pursuant to this Agreement.
D.	The indemnifying party or its liability insurance carrier shall have the right to direct the investigation, settlement, and defense of any such claim, complaint or action. If the indemnifying party assumes the defense of any such action, such party shall not be liable to the indemnified party for any expenses incurred by such indemnified party in connection with such action.

VIII. TERM AND TERMINATION

A.	This Agreement shall commence on the Effective Date and shall be continuous until terminated (the “Term”).
B.	At any time during the Term hereof, Partner Agent may terminate this Agreement without cause on ninety (90) days written notice of termination to Company. Partner Agent’s authority to place new business with Company shall cease immediately upon receipt of such notice of termination. Partner Agent’s authority to renew business with Company shall cease as of the effective date of termination.
C.	At any time during the Term, Company may terminate this Agreement on one hundred eighty (180) days (or such longer period as mandated by regulation) written notice of termination to Partner Agent if Partner Agent has not met the Company Guidelines pertaining to profitability and/or production. Partner Agent’s authority to submit new business with Company will cease on ninety (90) days after receipt of such notice of termination. Partner Agent’s authority to submit renewals with Company shall cease as of the effective date of termination. Any disputes regarding Company Guidelines shall be determined in Company’s sole discretion.
D.	Upon written notice, either party to this Agreement may immediately terminate this Agreement in whole or in part for cause, which shall include, but not be limited to, the following:

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1.	The other party to this Agreement becomes insolvent, institutes or acquiesces in the institution of any bankruptcy, financial reorganization, or liquidation proceeding or any such proceeding is instituted against such party; or
2.	Partner Agent, or the owner of a controlling interest in Partner Agent, sells, exchanges, transfers, assigns, consolidates, pledges or causes to be sold, exchanged, transferred, assigned, consolidated, or pledged: (i) all or substantially all of the assets of Partner Agent, or any entity controlling Partner Agent, to a third party, or (ii) a controlling interest in Partner Agent, or any entity controlling Partner Agent, to a third party (Partner Agent shall immediately notify Company of same); or
3.	Partner Agent fails to correct material deficiencies as noted in any agency audit or program review within the time frame set out in the audit; or
4.	Partner Agent fails to render timely and proper reports or premium accounting as required, or remit premiums when due; or
5.	Partner Agent fails to maintain premium funds in the Premium Trust Account as defined in Section VI. G. of this Agreement; or
6.	The other party to this Agreement engages in acts or omissions constituting abandonment, fraud, insolvency, misappropriation of funds, material misrepresentation, or gross and willful misconduct; or
7.	Partner Agent’s license or certificate of authority is cancelled, suspended, or is declined renewal by any regulatory body within the Territory where Partner Agent transacts or services policies (Partner Agent shall immediately notify Company of same); for fraud or if for more than thirty (30) days for any other reason; or
8.	The other party to this Agreement otherwise materially breaches this Agreement

E.	In the event this Agreement is terminated or any authority of Partner Agent is suspended, limited, or terminated (whether by Company, Partner Agent, or agreement of the parties), Partner Agent shall, subject to all terms, conditions, and restrictions contained in this Agreement, service all business until all such business has been completely cancelled, non-renewed, or otherwise terminated and all claims hereunder have been closed and shall be entitled to its continuing compensation for such continuing service. Company may, in its sole discretion, immediately suspend or terminate Partner Agent’s continuing service obligation as outlined in Program Guidelines. Notwithstanding the foregoing, Partner Agent shall not, without the prior written approval of Company, increase or extend the Company’s liability under, extend the term(s) or condition(s) of, or cancel and re-write, any policies.
	If Partner Agent fails to fulfill any service obligation under this Agreement or comply with this Agreement, then Partner Agent shall reimburse Company any expense incurred by Company as a result of non-compliance, or in servicing or arranging for the servicing of business, or such amounts may be offset by Company. If Company fails to fulfill any obligation under this Agreement or comply with this Agreement, then Company shall reimburse Partner Agent for expense incurred by Partner Agent as a result of such non-compliance.
F.	Any notice of termination shall be in writing and sent by certified mail or personally delivered. Such notice shall be deemed received three (3) days from the date of mailing or, if personally delivered, the date delivered. Unless changed by giving written notice to the other party, the addresses of the respective parties are:

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Partner Agent:

Risk Transfer Holdings, Inc.
301 East Pine Street, Suite 350
Orlando, FL 32801
Attention: Paul R. Hughes, CEO

Company:

SUA Insurance Company
222 S. Riverside Plaza
Suite 1600
Chicago, IL 60606
Attention: Courtney Smith, President & CEO
cc: Scott Goodreau, General Counsel

IX. GENERAL PROVISIONS

A.	If Partner Agent breaches this Agreement for any reason whatsoever, Company may, in lieu of terminating the Agreement, suspend some or all of the authority of Partner Agent under this Agreement. Additionally, Company may suspend the authority of Partner Agent during the pendency of any dispute regarding termination or suspension.
B.	The expirations and renewals shall be the property of Partner Agent; provided, however, the Company shall have the right to write or renew such business if required by law, and to take any and all actions with regard to the business as may be required in order to service the business or as may be required by law or pursuant to the policy’s terms.
C.	Partner Agent will advise Company promptly upon becoming aware that an employee of Partner Agent or any of Partner Agent’s brokers or producers have been convicted of a felony.
D.	This Agreement and the Securities Purchase Agreement constitute the entire Agreement between Company and Partner Agent and supersedes any and all other agreements, either oral or written, between Company and Partner Agent with respect to the business. No waiver by either party to enforce any provisions of this Agreement will be effective unless made in writing and signed by an authorized officer of Company and Partner Agent and shall be effective as to the specifically stated waiver date. No amendment to this Agreement will be effective unless made in writing and signed by the parties hereto, and specifying the effective date of such amendment.
E.	Company may combine or offset any balances or funds owed by Partner Agent to Company against any balances or funds owed to Partner Agent by Company under this Agreement or any other agreement between the parties. Because the funds held by Partner Agent are held in trust for Company, Partner Agent may not offset any balance due from Company to Partner Agent under this Agreement or under any other agreement with Company or any other party against the Premium Trust Fund.
F.	This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to its rules regarding conflict of laws. Notwithstanding the foregoing, matters relating to agency termination and Partner Agent’s right or Company’s obligations on termination shall be governed solely by the applicable insurance laws, if any, of the state in which Partner Agent is domiciled. The parties hereto consent to the jurisdiction of the State courts of the State of Florida, specifically,

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the jurisdiction of the Circuit Court for the Ninth Judicial Circuit, in and for the venue of Orange County, Florida, to litigate and resolve any matters or disputes pertaining to this Agreement which are not otherwise resolved in accordance with subsection G below. The reasonable cost and expense of the prevailing party of any such action shall be borne by the losing party.

G.	Except as provided herein, before resorting to litigation, as described in subsection F above, the parties agree that all unresolved differences of opinion or disputes between Company and Partner Agent, arising out of or in connection with this Agreement or any transaction hereunder, at law or in equity, shall first be attempted to be settled by a good faith meeting of a member of senior management of each of Company and Partner Agent (“Good Faith Meeting”). This Good Faith Meeting shall be requested in writing, pursuant to the notice provisions of this Agreement, and conducted within 60 days from the date of receipt of that notice. Failure to conduct the Good Faith Meeting within that time period and in the absence of an agreed extension of that time period, either party is permitted to initiate litigation in the agreed jurisdiction and venue set forth within subsection F, above. If the Good Faith Meeting is conducted but it fails to resolve all or some of the differences of opinion or disputes between Company and Partner Agent, the parties agree they next shall attempt to resolve any and all remaining differences of opinion or disputes between Company and Partner Agent by mediation in Orange County, Florida, with a Supreme Court of Florida Certified Mediator. The mediation shall be conducted within 60 days of the date of the adjournment of the Good Faith Meeting. Failure to conduct the mediation within that time period and in the absence of an agreed extension of that time period, either party is permitted to initiate litigation in the agreed jurisdiction and venue set forth within subsection F, above. If the mediation fails to resolve all or some of the differences of opinion or disputes between Company and Partner Agent the parties agree either party is permitted to initiate litigation in the agreed jurisdiction and venue set forth within subsection F, above. The parties do not consent to submit any of the matters pertaining to this Agreement to arbitration. Undisputed commissions owed to Partner Agent by Company shall be paid to Partner Agent in accordance with the other terms and conditions of this Agreement.
H.	Partner Agent may not assign this Agreement, delegate its duties, or assign its rights under this Agreement, unless otherwise agreed upon and authorized in writing in advance by Company.
I.	This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument.
J.	The parties hereby agree that all provisions of this Agreement shall survive termination, except that Paragraph I (A) hereof shall only survive as modified by Article VIII.
K.	Unless otherwise agreed to in writing by both parties, each party agrees that during this Agreement and for a period of one (1) year after the termination or expiration of this Agreement, it shall not directly or indirectly recruit, solicit or hire any employee of the other party, or induce or attempt to induce any employee of the other party to discontinue his or her employment relationship with the other party.

12

     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the date first above written.

SUA INSURANCE COMPANY
By:	/s/ Daniel A. Cacchione
Name Printed:	Daniel A. Cacchione
Title:	SVP & Chief Underwriting Officer

RISK TRANSFER HOLDINGS, INC.
By:	/s/ Paul R. Hughes
Name Printed:	Paul R. Hughes
Title:	Chief Executive Officer

13

EXHIBIT A

COMMISSION SCHEDULE

A. Except as otherwise provided in this Commission Schedule, Partner Agent’s Commission shall be as follows:

Program Description	Line of Business	Rate of Commission
PEO business in Florida and any other master policy states as agreed to by Company and Partner Agent based on specific agreed upon strategies.	Workers’ Compensation	12% or per agreement by the parties and documented on the NOIC form
PEO business in MCP (multi- coordinated policy) states	Workers’ Compensation	15% or per written agreement by the parties
Temporary Staffing	Workers’ Compensation	12% or per agreement by the parties and documented on the NOIC form
Pest Control	Workers’ Compensation	12% or per written agreement by the parties

B. The rates of Commission provided in this Schedule do not relate to the following types of business:

1.	Business which Company determines is specially rated, specially classified, or specially reinsured;
2.	Business written subject to a participating plan;
3.	Business written subject to a retrospective plan, SIR, or large deductible; or
4.	Business placed through assigned risks, fair plans, pools, or other risk-sharing associations.

     Commission rates for all such business shall be negotiated on an individual policy basis and agreed by Company in writing.

C. Commissions different than provided herein may be agreed to in writing between Partner Agent and Company, and such agreement shall supersede this Commission Schedule.

14

EXHIBIT B

PROFIT SHARING SCHEDULE

A separate profit sharing calculation will be completed for each individual program managed by the Partner Agent.

The Profit Sharing Due to Partner Agent will be calculated using the following Tables:

Table I
Profit Sharing Year [    ]

Premium
	1.	Eligible Earned Premium for Profit Sharing Year	$
	2.	Premium Written Off	$
	3.	Ceded Facultative Reinsurance	$
	4.	Net Eligible Earned Premium	$
		(Line 1 minus Line 2 minus Line 3)
Expenses
	5.	Commissions incurred for Profit Sharing Year	$
	6.	Losses and ALAE Incurred for Profit Sharing Year	$
	7.	TPA Claims Fee for Profit Sharing Year	$
	8.	Claims Charge for Profit Sharing Year (% times line 4)	$
	9.	IBNR Charge for Profit Sharing Year	$
	10.	Taxes, Licenses and Fees for Profit Sharing Year	$
	11.	Operating Charge (% times line 4)	$
	12.	Dividends Incurred for Profit Sharing Year	$
	13.	Expense Total (Sum of Lines 5, 6, 7, 8, 9, 10, 11 and 12)	$
Profit Sharing Year Result
	14.	Profit Sharing Year Result	$
		(Line 4 minus line 13) (Can be negative)
	15.	Profit Sharing Factor		50	%
	16.	Profit to be Shared (Line 14 times Line 15)	$
		(Can be negative)

15

17.	Payout Factor		%
18.	Result (Line 16 times Line 17) (Can be Negative)	$

Based on this Table, the Partner Agent’s Combined Ratio is ___% (line 13 divided by line 4 times 100). The maximum Profit Sharing due the Partner Agent will be limited to 7% of Net Eligible Premium per Profit Sharing Year.

LEGEND

Table I

Line 1.	Eligible Earned Premium shall mean direct premium earned for Profit Sharing Year which relates to Eligible Business less premium ceded (less ceding commission received) for reinsurance.
Line 2.	Premium Written Off shall include any premium due Company which Company has charged off as uncollectible for the Profit Sharing Year.
Line 3.	Ceded Facultative Reinsurance shall include earned premium ceded (less ceding commissions received) for facultative reinsurance specifically related to Eligible Business purchased by Company for Profit Sharing Year.
Line 5.	Commissions shall include the direct commissions and policy fees (if included in Eligible Earned Premium) incurred by Company for the Profit Sharing Year, relating to Eligible Business. Additionally, Company shall add to such total any amounts or expenses of Partner Agent which Company agrees to reimburse, assume, or share.
Line 6.	Losses and ALAE Incurred shall be direct losses and expenses incurred (paid plus case reserves) by Company on claims reported for the Profit Sharing Year relating to Eligible Business, excluding unallocated loss adjustment expense, plus any extra contractual or bad faith payments relating to Eligible Business less recoveries from Ceded Treaty and Facultative Reinsurance specifically related to eligible business.
Line 7.	TPA Claims Fee shall be actual fees incurred by the Company on behalf of the Partner Agent for the current Profit Sharing Year.
Line 8.	Claims Charge shall be a designated percentage determined by Company based on unallocated loss adjustment expense for the current Profit Sharing Year times Net Eligible Earned Premium.
Line 9.	IBNR Charge shall be determined solely by the Company and shall include a provision for the reserve for Losses and ALAE Incurred but not reported during the Profit Sharing Year, which reserve shall include development on losses and ALAE already reported to Company. The IBNR calculation will take into consideration the specific lines and classes of business written by the Program Agent.
Line 10.	Taxes and Assessments shall include any loss based or premium based assessments and any expenses relating thereto, and premium taxes, boards, bureaus, and any miscellaneous taxes including insurance department licenses and fees, relating to Eligible Business allocated by Company to Eligible Earned Premium including but not limited to residual market, fair plan or guaranty association assessments.

16

Line 11.	Operating Charge shall be a designated percentage for the current Profit Sharing Year times Net Eligible Earned Premium. Operating Charge shall be determined solely at Company’s discretion and shall be based on the operating expenses of Company not included in any of the line items described herein.
Line 12.	Dividends Incurred shall include all dividends incurred (paid plus an estimate of accrued but not paid) for the Profit Sharing Year by Company under Eligible Business.
Line 15.	Profit Sharing Factor shall be 50%. A minimum total Eligible Written Premium of twenty million dollars ($20,000,000), minimum program Eligible Written Premium of twenty million dollars ($20,000,000) for PEOs, and minimum program Eligible Written Premium of five million dollars ($5,000,000) for each other program must be achieved during the Profit Sharing Year to be paid out under the profit sharing calculation. The profit sharing calculation will be completed regardless of whether Partner Agent meets its minimum requirements.
Line 17.	Payout Factor shall be calculated according to the following chart:

PROFIT SHARING AGREEMENT

PAYOUT FACTORS

	5 Years
1st Valuation		10	%
2nd Valuation		25	%
3rd Valuation		45	%
4th Valuation		70	%
5th Valuation		100	%

17

Timing of Calculation of Profit Sharing Due

A.	If Partner Agent meets the Minimum Eligible Written Premium requirements for a Profit Sharing Year, Company shall calculate Profit Sharing Due to Partner Agent for the Profit Sharing Period based on Company’s records. Such calculation shall be provided to Partner Agent sixty (60) days after each Valuation Date.
B.	Each Profit Sharing Year’s calculation will include a separate re-calculation of each prior Profit Sharing Year. Re-calculations for each prior Profit Sharing Year will be as of the current Valuation Date, and will be made utilizing the formula set forth in Table I. A summary of calculations made for each Profit Sharing Year will be entered on current Profit Sharing section of Table II.
C.	Provided that all premium or other amounts due Company shall have been received by Company, within sixty (60) days after completion of the calculation of Profit Sharing Due, Company shall pay the amount of Profit Sharing Due to Partner Agent for the Profit Sharing Period as shown in Table II.
D.	In the event of a deficit in a Profit Sharing Year, the deficit will offset past or future surplus until fully absorbed up to and including the fifth Valuation Date of such deficit. In order of how deficits will be applied and how payout will be determined, deficits offset the earliest surpluses first including subsequent development of those surpluses.

LEGEND

Other Defined Terms used in this Agreement

A.	The Initial Profit Sharing Year of this Agreement shall be from January 1, 2005 to December 31, 2005.
B.	The Initial Profit Sharing Year of this Agreement shall be from the Effective Date to December 31st following the Effective Date (“Initial December Date”). Notwithstanding the foregoing, the Initial Profit Sharing Year of this Agreement shall be from the Effective Date to December 31st following the Initial December Date if the Effective Date is between April 1 and December 31st. Subsequent Profit Sharing Years, if any, shall be January 1st to December 31st.
C.	Valuation Date shall mean June 30th of each year. Except as otherwise set forth below, Company shall continue providing calculations for each Profit Sharing Year through the June 30th of each successive year following termination of this Agreement, the Final Profit Sharing Year, or until the parties mutually agree in writing to close the calculations for a particular Profit Sharing Year or Profit Sharing Years.

Term and Termination

This profit sharing schedule will terminate upon the effective date of termination of this Agreement. The Final Profit Sharing Year under this Agreement will be the Profit Sharing Period ending as of the effective date of termination.

18

In the event this Agreement is terminated prior to the fifth anniversary of the Effective Date by the Partner Agent, Company shall provide no further Profit Sharing calculations. In the event that this Agreement is terminated prior to the fifth anniversary of the Effective Date by Company in accordance with Section VIII. D., Company shall provide no further Profit Sharing calculations.

General

No charge, offset, credit, or deduction for any Profit Sharing which is or may be due Partner Agent shall be made or claimed by Partner Agent in accounts submitted to Company under this Agreement or any other agreement. Profit Sharing Due shall be payable only by Company’s check. Company may combine or offset any amount owed to Partner Agent by Company hereunder against any amount owed to Company by Partner Agent under any other agreement between the parties.

19

EX-10.6

Exhibit 10.6

SECOND AMENDMENT
TO THE
AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT

     This amendment (“Amendment”) is made and entered into as of June 10, 2009 by and between Risk Transfer Holdings, Inc. (“RTH”) and Specialty Underwriters’ Alliance, Inc. and its wholly owned property and casualty insurance subsidiary, SUA Insurance Company (collectively, the “Company”), and amends the AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT (“Agreement”) entered into by the parties on JUNE 10, 2005. Any terms defined in the Agreement and used herein shall have the same meaning in this Amendment as in the Agreement. In the event that any provision of this Amendment and any provision of the Agreement are inconsistent or conflicting, the inconsistent or conflicting provision of this Amendment shall be and constitute an amendment of the Agreement and shall control, but only to the extent that such provision is inconsistent or conflicting with the Agreement. Any capitalized terms not defined herein shall be defined as in the Agreement.

     NOW, THEREFORE, and in consideration of the mutual agreements and covenants set forth, the parties wish to amend the Agreement as follows:

Section 7 shall be deleted in its entirety and replaced with the following:

“Unless otherwise agreed to by the parties in writing, the Purchaser shall not sell, assign, transfer, pledge, hypothecate, mortgage or dispose of, by gift or otherwise, or in any way encumber, any shares of Class B Stock owned by the Purchaser, except for exchanges and repurchases in compliance with Section 4.”

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by their duly authorized officers as of the day, month and year above written.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

By:	/s/ Daniel A. Cacchione
Name:	Daniel A. Cacchione
Title:	Senior Vice President, Chief Underwriting Officer

RISK TRANSFER HOLDINGS, INC.

By:	/s/ Paul R. Hughes
Name:	Paul R. Hughes
Title:	Chief Executive Officer

EX-10.7

Exhibit 10.7

Partner Agent
Assignment and Assumption Agreement

     This Partner Agent Assignment and Assumption Agreement (the “Agreement”) is made and entered into as of June 10, 2009 by and between Risk Transfer Holdings, Inc., to include all related entities, affiliates and subsidiaries contemplated within the Amended and Restated SUA Insurance Company Partner Agent Program Agreement (collectively, “RTH”), Risk Transfer Programs, LLC (“RTP”) and SUA Insurance Company (the “Company”).

     WHEREAS, RTH wishes to transfer to RTP the rights, authority and obligations as Partner Agent, as defined by the Amended and Restated SUA Insurance Company Partner Agent Program Agreement (the “Partner Agent Agreement”) dated June 10, 2009 and entered into by the Company and RTH;

     NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth herein and in accordance with Section IX.D. of the Partner Agent Agreement, the parties hereto, intending to be legally bound hereby, agree as follows:

1.   RTH hereby transfers and assigns all the rights, authority, duties and obligations set forth and contained within the Partner Agent Agreement to RTP.

2.   RTP hereby assumes all the rights, authority, duties and obligations as Partner Agent under the Partner Agent Agreement, and also agrees to be fully bound by the terms and conditions set forth within the Partner Agent Agreement.

3.   The Company hereby agrees to the terms of this Agreement, recognizes and approves this assignment, pursuant to the terms and conditions of the Partner Agent Agreement, and hereby relieves and fully releases and discharges RTH of and from any and all duties or obligations contemplated within or arising from the Partner Agent Agreement.

[Remainder of page left intentionally blank]

     IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized representatives of the parties hereto as of the date written above.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

By:	/s/ Daniel A. Cacchione
Name:	Daniel A. Cacchione
Title:	Senior Vice President, Chief Underwriting Officer

RISK TRANSFER HOLDINGS, INC.

By:	/s/ Paul R. Hughes
Name:	Paul R. Hughes
Title:	Chief Executive Officer

Risk Transfer Programs, LLC

By:	/s/ Paul R. Hughes
Name:	Paul R. Hughes
Title:	Chief Executive Officer

EX-10.8

Exhibit 10.8

Securities Purchase
Assignment and Assumption Agreement

     This Securities Purchase Assignment and Assumption Agreement (the “Agreement”) is made and entered into as of June 10, 2009 by and between Risk Transfer Holdings, Inc. (“RTH”), Risk Transfer Programs, LLC (“RTP”) and Specialty Underwriters’ Alliance, Inc. (the “Company”).

     WHEREAS, RTH wishes to transfer to RTP the rights, authority and obligations as Partner Agent, as defined by the Amended and Restated SUA Insurance Company Partner Agent Program Agreement (the “Partner Agent Agreement”) dated June 10, 2009 and entered into by the Company and RTH;

     WHEREAS, in connection with the Partner Agent Agreement, RTH entered into an Amended and Restated Securities Purchase Agreement with SUA Insurance Company dated June 10, 2005, as amended (the “Securities Purchase Agreement”), pursuant to which RTH purchased 131,014 shares of Class B common stock, par value $0.01 per share (the “Class B Shares”), for $1 million;

     WHEREAS, it is the policy of the Company to require each of its Partner Agents to have an equity investment in the Company;

     NOW, THEREFORE, RTH intends to transfer to RTP 131,014 Class B Shares, and in consideration of the mutual agreements and covenants set forth herein and in accordance with Section 9(b) of the Securities Purchase Agreement, the parties hereto, intending to be legally bound hereby, agree as follows:

1.   RTH hereby transfers and assigns all its rights, authority and obligations as
Purchaser as set forth and contained in the Securities Purchase Agreement.

2.   RTP hereby assumes all the rights, authority and obligations of RTH under the Securities Purchase Agreement as if RTP was the Purchaser as such term is defined in the Securities Purchase Agreement, and also agrees to be fully bound by the terms and conditions set forth in the Securities Purchase Agreement.

3.   The Company hereby acknowledges and agrees pursuant to Section 7 of the Securities Purchase Agreement to the transfer of 131,014 Class B Shares from RTH to RTP.

[Remainder of page left intentionally blank]

     IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized representatives of the parties hereto as of the date written above.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

By:	/s/ Daniel A. Cacchione
Name:	Daniel A. Cacchione
Title:	Senior Vice President, Chief Underwriting Officer

RISK TRANSFER HOLDINGS, INC.

By:	/s/ Paul R. Hughes
Name:	Paul R. Hughes
Title:	Chief Executive Officer

RISK TRANSFER PROGRAMS, LLC

By:	/s/ Paul R. Hughes
Name:	Paul R. Hughes
Title:	Chief Executive Officer

EX-10.9

Exhibit 10.9

AMENDMENT NO. 2
TO THE
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
PARTNER AGENT PROGRAM AGREEMENT

     This amendment (“Amendment”) is made and entered into as of June 11, 2009 by and between Specialty Risk Solutions, LLC (“Partner Agent”) and Specialty Underwriters’ Alliance, Inc. and its wholly owned subsidiary SUA Insurance Company (collectively, the “Company”), and amends the Partner Agent Program Agreement (“Agreement”) entered into by the parties on May 11, 2005, as amended. Any terms defined in the Agreement and used herein shall have the same meaning in this Amendment as in the Agreement. In the event that any provision of this Amendment and any provision of the Agreement are inconsistent or conflicting, the inconsistent or conflicting provision of this Amendment shall be and constitute an amendment of the Agreement and shall control, but only to the extent that such provision is inconsistent or conflicting with the Agreement. Any capitalized terms not defined herein shall be defined as in the Agreement.

     Now, therefore, in accordance with Section IX.D. of the Agreement and in consideration of the mutual agreements and covenants hereinafter set forth, the parties wish to amend the Agreement as follows:

1. Lines five through seven, beginning with “The parties” and ending with “as follows:,” shall be deleted in their entirety and replaced with the following:

The parties hereto agree to develop and administer an insurance program (the “Program”) as described in Exhibit A attached hereto, as well as the Company Guidelines (as defined below). This Agreement pertains only to that Program business, with the Company and the Partner Agent agreeing as follows:

2. Section I. A. shall be deleted in its entirety, leaving Section I.A.1 through I.A.6 unaltered, and replaced with the following:

Partner Agent’s authority is subject to the terms of this Agreement and Company’s Program description, underwriting guidelines, system templates, service standards, form and rate and other filings, and authority limits provided by Company to Partner Agent (“Company Guidelines”). Company appoints Partner Agent as exclusive Partner Agent for ten (10) years for the Program from the Effective Date within the territory specified in the Company Guidelines solely for the following purposes:

3. Section II. B. shall be deleted in its entirety and replaced with the following:

The Program will be mutually exclusive unless otherwise stated in this Agreement. Partner Agent will be allowed to complete existing obligations under insurance policies with other insurance carriers for the Program. Unless otherwise specifically stated in this Agreement, Company will not accept business encompassed within the Program from any entity other than Partner Agent during the term of this Agreement. Partner Agent shall exclusively represent Company and shall not represent any other insurance company or similar entity in relation to the Program; provided, however, that Partner Agent may write business for other insurance carriers if Partner Agent notifies Company of a particular insured’s unwillingness to bind a policy with Company, requests permission from Company to place the insurance with another carrier and Company provides approval, which shall not be unreasonably withheld, to Partner Agent to write such insurance. In the event that a conflict exists as to whether Partner Agent is authorized to represent an existing or prospective policyholder, Company may honor the policyholder’s written producer of record designation signed by the policyholder. Notwithstanding the foregoing, Company shall be under no obligation to honor a written producer of record designation from a policyholder before accepting business from a designated Partner Agent, and Company’s determination of which agent of Company represents Company with regard to a particular policyholder shall be final and binding.

4. Partner Agent’s mailing address for notice pursuant to Section VIII.F. shall be deleted and replaced with the following:

Specialty Risk Solutions, LLC
20 North Wacker Drive, Suite 3000
Chicago, IL 60606
Attention: Scott H. Keller, Managing Member

1

5. The following provision shall be added under Section IX. General Provisions as Section IX.L.:

Partner Agent shall not undergo a Change in Control, unless Partner Agent provides Company sixty (60) days notice of such Change in Control. “Change in Control” shall mean (i) any sale, lease, exchange or other transfer of all or substantially all of the property and assets of the Partner Agent to a non-affiliated third party; (ii) any merger or consolidation with a non-affiliated third party to which the Partner Agent is a party and as a result of which the holders of the voting securities of the Partner Agent immediately prior thereto own less than a majority of the outstanding voting securities of the surviving entity immediately following such transaction; or (iii) any instance when any person, other than the current owner of 50% or more of the voting securities, shall beneficially own securities of the Partner Agent representing 50% or more of the combined voting power of the voting securities of the Partner Agent then outstanding. For purposes of this section, “voting securities” shall mean securities, the holders of which are ordinarily, in the absence of contingencies, entitled to elect the corporate directors (or persons performing similar functions).

6. Exhibit A shall be deleted in its entirety and replaced with Exhibit A-2, as attached.

7. Exhibit B shall be deleted in its entirety and replaced with Exhibit B-2, as attached. Exhibit B-2 shall be used for all profit sharing calculations beginning May 11, 2010.

     In witness whereof, the parties hereto have caused this Amendment to be executed on their behalf by their duly authorized officers as of the day, month and year above written.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC. SUA INSURANCE COMPANY
By:	/s/ Daniel A. Cacchione
	Name:	Daniel A. Cacchione
	Title:	Senior Vice President and Chief Underwriting Officer

SPECIALTY RISK SOLUTIONS, LLC
By:	/s/ Scott Keller
	Name:	Scott Keller
	Title:	Managing Member

2

EXHIBIT A-2

COMMISSION SCHEDULE

A. Except as otherwise provided in this Commission Schedule, Partner Agent’s Commission shall be as follows:

Program Description	Line of Business	Target Rate of Commission
Public Entity for Educational Institutions and Municipalities including Non-Profit and Pooled Entities	All Casualty lines of business including Liability, Auto, Workers’ Compensation, Wrongful Acts		15	%

B. The rates of Commission provided in this Schedule do not relate to the following types of business:

1. Business which Company determines is specially rated, specially classified, or specially reinsured;

2. Business written subject to a participating plan;

3. Business placed through assigned risks, fair plans, pools, or other risk-sharing associations.

Commission rates for all such business shall be negotiated on an individual policy basis and agreed by Company in writing.

C. Commissions different than provided herein may be agreed to in writing between Partner Agent and Company, and such agreement shall supercede this Commission Schedule.

3

EXHIBIT B-2
PROFIT SHARING SCHEDULE

     The Profit Sharing Due to Partner Agent will be calculated using the following Tables:

Table I
Annual Profit Share
Profit Sharing Year [ ]

Premium
1.	Eligible Earned Premium before write off for Profit Sharing Year	$
2.	Premium Written Off	$
3.	Eligible Earned Premium (Line 1 minus Line 2)	$
Expenses
4.	Losses and ALAE Incurred for Profit Sharing Year	$
5.	TPA Claims Fee for Profit Sharing Year	$
6.	Claims Charge for Profit Sharing Year	$
7.	IBNR Charge for Profit Sharing Year	$
8.	Commissions Incurred for Profit Sharing Year	$
9.	Taxes, Licenses and Fees for Profit Sharing Year	$
10.	Operating Charge	$
11.	Dividends Incurred for Profit Sharing Year	$
12.	Expense Total (Sum of Lines 4, 5, 6, 7, 8, 9, 10 and 11)	$
Profit Sharing Year Result
13.	Profit Sharing Year Result (Line 3 minus line 12) (Can be negative)	$
14.	Profit Sharing Factor		%
15.	Profit to be Shared (Line 13 times Line 14)	$
16.	Payout Factor		%
17.	Result (Line 15 times Line 16) (Can be Negative)	$

Based on this Table, the Partner Agent’s Combined Ratio is     % (line 12 divided by line 3). The maximum Profit Sharing due the Partner Agent will be limited to 5% of Eligible Earned Premium per Profit Sharing Year.

     The sum of Commission and Profit Share due shall not exceed twenty-two percent (22%) for any Profit Sharing Year.

4

LEGEND

Table I

Line 1.	Eligible Earned Premium shall mean direct premium earned for Profit Sharing Year which relates to Eligible Business less premium ceded (less ceding commission received) for reinsurance.
Line 2.	Premium Written Off shall include any premium due Company which Company has charged off as uncollectible for the Profit Sharing Year.
Line 4.	Losses and ALAE Incurred shall be direct losses and expenses incurred (paid plus case reserves) by Company on claims reported for the Profit Sharing Year relating to Eligible Business, excluding unallocated loss adjustment expense, plus any extra contractual or bad faith payments relating to Eligible Business less recoveries from Ceded Treaty and Facultative Reinsurance specifically related to eligible business.
Line 5.	TPA Claims Fee shall be actual fees incurred by the Company on behalf of the Partner Agent for the current Profit Sharing Year.
Line 6.	Claims Charge shall be a designated percentage determined by Company based on unallocated loss adjustment expense for the current Profit Sharing Year times Net Eligible Earned Premium.
Line 7.	IBNR Charge shall be determined solely by the Company and shall include a provision for the reserve for Losses and ALAE Incurred but not reported during the Profit Sharing Year, which reserve shall include development on losses and ALAE already reported to Company. The IBNR calculation will take into consideration the specific lines and classes of business written by the Program Agent.
Line 8.	Commissions shall include the direct commissions and policy fees (if included in Eligible Earned Premium) incurred by Company for the Profit Sharing Year, relating to Eligible Business. Additionally, Company shall add to such total any amounts or expenses of Partner Agent which Company agrees to reimburse, assume, or share.
Line 9.	Taxes and Assessments shall include any loss based or premium based assessments and any expenses relating thereto, and premium taxes, boards, bureaus, and any miscellaneous taxes including insurance department licenses and fees, relating to Eligible Business allocated by Company to Eligible Earned Premium including but not limited to residual market, fair plan or guaranty association assessments.
Line 10.	Operating Charge shall be a designated percentage for the current Profit Sharing Year times Net Eligible Earned Premium. Operating Charge shall be determined solely at Company’s discretion and shall be based on the operating expenses of Company not included in any of the line items described herein.
Line 11.	Dividends Incurred shall include all dividends incurred (paid plus an estimate of accrued but not paid) for the Profit Sharing Year by Company under Eligible Business.
Line 15.	Profit Sharing Factor shall be 50%. A minimum total Eligible Written Premium of twenty million dollars ($20,000,000) and minimum program Eligible Written Premium of five million dollars ($5,000,000) for each program must be achieved during the Profit Sharing Year to be paid out under the profit sharing calculation. The profit sharing calculation will be completed regardless of whether Partner Agent meets its minimum requirements.

5

Line 16. Payout Factor shall be calculated according to the following chart:

PROFIT SHARING AGREEMENT

PAYOUT FACTORS

	5 Years
1st Valuation		10	%
2nd Valuation		25	%
3rd Valuation		45	%
4th Valuation		70	%
5th Valuation		100	%

6

Timing of Calculation of Profit Sharing Due

A.	If Partner Agent meets the Minimum Eligible Written Premium requirements for a Profit Sharing Year, Company shall calculate Profit Sharing Due to Partner Agent for the Profit Sharing Period based on Company’s records. Such calculation shall be provided to Partner Agent sixty (60) days after each Valuation Date.
B.	Each Profit Sharing Year’s calculation will include a separate re-calculation of each prior Profit Sharing Year. Re-calculations for each prior Profit Sharing Year will be as of the current Valuation Date, and will be made utilizing the formula set forth in Table I. A summary of calculations made for each Profit Sharing Year will be entered on current Profit Sharing section of Table II.
C.	Provided that all premium or other amounts due Company shall have been received by Company, within sixty (60) days after completion of the calculation of Profit Sharing Due, Company shall pay the amount of Profit Sharing Due to Partner Agent for the Profit Sharing Period as shown in Table II.
D.	In the event of a deficit in a Profit Sharing Year, the deficit will offset past or future surplus until fully absorbed up to and including the fifth Valuation Date of such deficit. In order of how deficits will be applied and how payout will be determined, deficits offset the earliest surpluses first including subsequent development of those surpluses.

LEGEND

Other Defined Terms used in this Agreement

A.	The Initial Profit Sharing Year of this Agreement shall be from January 1, 2005 to December 31, 2005.
B.	The Initial Profit Sharing Year of this Agreement shall be from the Effective Date to December 31st following the Effective Date (“Initial December Date”). Notwithstanding the foregoing, the Initial Profit Sharing Year of this Agreement shall be from the Effective Date to December 31st following the Initial December Date if the Effective Date is between April 1 and December 31st. Subsequent Profit Sharing Years, if any, shall be January 1st to December 31st.
C.	Valuation Date shall mean June 30th of each year. Except as otherwise set forth below, Company shall continue providing calculations for each Profit Sharing Year through the June 30th of each successive year following termination of this Agreement, the Final Profit Sharing Year, or until the parties mutually agree in writing to close the calculations for a particular Profit Sharing Year or Profit Sharing Years.

Term and Termination

This profit sharing schedule will terminate upon the effective date of termination of this Agreement. The Final Profit Sharing Year under this Agreement will be the Profit Sharing Period ending as of the effective date of termination.

In the event this Agreement is terminated prior to the fifth anniversary of the Effective Date by the Partner Agent, Company shall provide no further Profit Sharing calculations. In the event that this Agreement is terminated prior to the fifth anniversary of the Effective Date by Company in accordance with Section VIII (D), Company shall provide no further Profit Sharing calculations.

7

General

No charge, offset, credit, or deduction for any Profit Sharing which is or may be due Partner Agent shall be made or claimed by Partner Agent in accounts submitted to Company under this Agreement or any other agreement. Profit Sharing Due shall be payable only by Company’s check. Company may combine or offset any amount owed to Partner Agent by Company hereunder against any amount owed to Company by Partner Agent under any other agreement between the parties.

8

EX-10.10

Exhibit 10.10

FIFTH AMENDMENT
TO THE SECURITIES PURCHASE AGREEMENT

This amendment (“Amendment”) is made and entered into as of June 11, 2009 (“Effective Date”) by and between Specialty Risk Solutions, LLC (“Purchaser”) and Specialty Underwriters’ Alliance, Inc., and amends the SECURITIES PURCHASE AGREEMENT (“Agreement”) entered into by the parties on May 11, 2005, as amended. Any terms defined in the Agreement and used herein shall have the same meaning in this Amendment as in the Agreement. In the event that any provision of this Amendment and any provision of the Agreement are inconsistent or conflicting, the inconsistent or conflicting provision of this Amendment shall be and constitute an amendment of the Agreement and shall control, but only to the extent that such provision is inconsistent or conflicting with the Agreement. Any capitalized terms not defined herein shall be defined as in the Agreement.

NOW, THEREFORE, and in consideration of the mutual agreements and covenants set forth, the parties wish to amend the Agreement as follows:

1. The following provision of Subsection (iii) of (c) of Section 1: Sale and Purchase of Securities; Closing shall be deleted in its entirety:

“on December 31, 2008, a balloon payment for the remaining unpaid balance of the $1,000,000.”

The deleted provision shall be replaced with the following:

“on or before December 31, 2009, a balloon payment for the remaining unpaid balance of the $1,000,000.”

2. The following provision of Subsection (g) of Section 4: Purchase obligation shall be deleted in its entirety:

“If the aggregate value of the Class B Stock held by the Purchaser is determined to be less than $500,000, then the Purchaser shall purchase from the Company such number of shares of Class B Stock as would equal the difference between the value of the Class B Stock as determined herein and $500,000.”

The deleted provision shall be replaced with the following:

“If the aggregate value of the Class B Stock held by the Purchaser is determined to be less than $500,000, then the Purchaser shall purchase from the Company such number of shares of Class B Stock, if any, as would equal, whichever is less, (1) the difference between the value of the Class B Stock as determined herein and $500,000 or (2) half of the number of shares of Class B Stock purchased by the Purchaser pursuant to this Agreement.”

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by their duly authorized officers as of the day, month and year above written.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
By:	/s/ Daniel A. Cacchione
Name:	Daniel A. Cacchione
Title:	Senior Vice President and Chief Underwriting Officer

SPECIALTY RISK SOLUTIONS, LLC
By:	Scott Keller
Name:	Scott H. Keller
Title:	Managing Director

EX-10.11

Exhibit 10.11

AMENDMENT NO. 3
TO THE
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
PARTNER AGENT PROGRAM AGREEMENT

     This amendment (“Amendment”) is made and entered into as of June 18, 2009 by and between AEON Insurance Group, Inc. and Specialty Underwriters’ Alliance, Inc. and its property and casualty insurance subsidiaries and affiliates, including SUA Insurance Company, and amends the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement (“Agreement”) entered into by the parties on May 18, 2004, as amended. Any capitalized terms used but not defined in this Amendment shall have the same meaning set forth in the Agreement. In the event that any provision of this Amendment and any provision of the Agreement are inconsistent or conflicting, the inconsistent or conflicting provision of this Amendment shall be and constitute an amendment of the Agreement and shall control, but only to the extent that such provision is inconsistent or conflicting with the Agreement.

     Now, therefore, in accordance with Section IX, D of the Agreement and in consideration of the mutual agreements and covenants hereinafter set forth, the parties agree to amend the Agreement, effective as of the date hereof, as follows:

1. The reference in the preamble to “Specialty Underwriters’ Alliance, Inc. and its property and casualty insurance subsidiaries and affiliates (collectively the “Company”)” shall be deleted and replaced in its entirety with the following: “Specialty Underwriters’ Alliance, Inc. and its property and casualty insurance subsidiaries, including SUA Insurance Company (collectively the “Company”)”.

2. “SUA Insurance Company” means Specialty Underwriters’ Alliance, Inc.’s wholly owned subsidiary SUA Insurance Company, an Illinois domiciled insurance company.

3. Except as modified hereby, the Agreement shall remain in full force and effect.

4. This Amendment may be executed in any number of counterparts and by the parties on different counterparts each in the like form. Each counterpart shall, when executed, be an original but all the counterparts taken together shall constitute one and the same instrument. The execution by a party of one or more such counterparts shall constitute execution by that party of this Amendment. This Amendment shall not be effective until each of the parties has executed at least one counterpart. Any facsimile copies hereof or signature hereon shall, for all purposes, be deemed originals.

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1

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by their duly authorized officers as of the day, month and year above written.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
By:	/s/ Daniel A. Cacchione
	Name:	Daniel A. Cacchione
	Title:	SVP, Chief Underwriting Officer

SUA INSURANCE COMPANY
By:	/s/ Daniel A. Cacchione
	Name:	Daniel A. Cacchione
	Title:	SVP, Chief Underwriting Officer

AEON INSURANCE GROUP, INC.
By:	/s/ Gerald B. Bushey
	Name:	Gerald B. Bushey
	Title:	CEO/CUO

2

EX-10.12

Exhibit 10.12

AMENDMENT NO. 8
TO THE
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
PARTNER AGENT PROGRAM AGREEMENT

     This amendment (“Amendment”) is made and entered into as of June 18, 2009 by and between American Team Managers Insurance Services, Inc. and Specialty Underwriters’ Alliance, Inc. and its property and casualty insurance subsidiaries and affiliates, including SUA Insurance Company, and amends the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement (“Agreement”) entered into by the parties on May 1, 2004, as amended. Any capitalized terms used but not defined in this Amendment shall have the same meaning set forth in the Agreement. In the event that any provision of this Amendment and any provision of the Agreement are inconsistent or conflicting, the inconsistent or conflicting provision of this Amendment shall be and constitute an amendment of the Agreement and shall control, but only to the extent that such provision is inconsistent or conflicting with the Agreement.

     Now, therefore, in accordance with Section IX, D of the Agreement and in consideration of the mutual agreements and covenants hereinafter set forth, the parties agree to amend the Agreement, effective as of the date hereof, as follows:

1. The reference in the preamble to “Specialty Underwriters’ Alliance, Inc. and its property and casualty insurance subsidiaries and affiliates (collectively the “Company”)” shall be deleted and replaced in its entirety with the following: “Specialty Underwriters’ Alliance, Inc. and its property and casualty insurance subsidiaries, including SUA Insurance Company (collectively the “Company”)”.

2. “SUA Insurance Company” means Specialty Underwriters’ Alliance, Inc.’s wholly owned subsidiary SUA Insurance Company, an Illinois domiciled insurance company.

3. Except as modified hereby, the Agreement shall remain in full force and effect.

4. This Amendment may be executed in any number of counterparts and by the parties on different counterparts each in the like form. Each counterpart shall, when executed, be an original but all the counterparts taken together shall constitute one and the same instrument. The execution by a party of one or more such counterparts shall constitute execution by that party of this Amendment. This Amendment shall not be effective until each of the parties has executed at least one counterpart. Any facsimile copies hereof or signature hereon shall, for all purposes, be deemed originals.

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1

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by their duly authorized officers as of the day, month and year above written.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
By:	/s/ Daniel A. Cacchione
	Name:	Daniel A. Cacchione
	Title:	Sr. VP & Chief Underwriting Officer

SUA INSURANCE COMPANY
By:	/s/ Daniel A. Cacchione
	Name:	Daniel A. Cacchione
	Title:	Sr. VP & Chief Underwriting Officer

AMERICAN TEAM MANAGERS INSURANCE SERVICES, INC.
By:	/s/ Chris Michaels
	Name:	Chris Michaels
	Title:	CUO

2

EX-10.13

Exhibit 10.13

AMENDMENT NO. 3
TO THE
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
PARTNER AGENT PROGRAM AGREEMENT

     This amendment (“Amendment”) is made and entered into as of June 18, 2009 by and between Specialty Risk Solutions, LLC and Specialty Underwriters’ Alliance, Inc. and its property and casualty insurance subsidiaries and affiliates, including SUA Insurance Company, and amends the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement (“Agreement”) entered into by the parties on May 11, 2005, as amended. Any capitalized terms used but not defined in this Amendment shall have the same meaning set forth in the Agreement. In the event that any provision of this Amendment and any provision of the Agreement are inconsistent or conflicting, the inconsistent or conflicting provision of this Amendment shall be and constitute an amendment of the Agreement and shall control, but only to the extent that such provision is inconsistent or conflicting with the Agreement.

     Now, therefore, in accordance with Section IX, D of the Agreement and in consideration of the mutual agreements and covenants hereinafter set forth, the parties agree to amend the Agreement, effective as of the date hereof, as follows:

1. The reference in the preamble to “Specialty Underwriters’ Alliance, Inc. and its property and casualty insurance subsidiaries and affiliates (collectively the “Company”)” shall be deleted and replaced in its entirety with the following: “Specialty Underwriters’ Alliance, Inc. and its property and casualty insurance subsidiaries, including SUA Insurance Company (collectively the “Company”)”.

2. “SUA Insurance Company” means Specialty Underwriters’ Alliance, Inc.’s wholly owned subsidiary SUA Insurance Company, an Illinois domiciled insurance company.

3. Except as modified hereby, the Agreement shall remain in full force and effect.

4. This Amendment may be executed in any number of counterparts and by the parties on different counterparts each in the like form. Each counterpart shall, when executed, be an original but all the counterparts taken together shall constitute one and the same instrument. The execution by a party of one or more such counterparts shall constitute execution by that party of this Amendment. This Amendment shall not be effective until each of the parties has executed at least one counterpart. Any facsimile copies hereof or signature hereon shall, for all purposes, be deemed originals.

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1

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by their duly authorized officers as of the day, month and year above written.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
By:	/s/ Courtney C. Smith
	Name:	Courtney Smith
	Title:	CEO/President

SUA INSURANCE COMPANY
By:	/s/ Courtney C. Smith
	Name:	Courtney Smith
	Title:	CEO/President

SPECIALTY RISK SOLUTIONS, LLC
By:	/s/ Scott Keller
	Name:	Scott Keller
	Title:	Managing Member

2

EX-10.14

Exhibit 10.14

AMENDMENT NO. 1
TO THE
SUA INSURANCE COMPANY
AMENDED AND RESTATED PARTNER AGENT PROGRAM AGREEMENT

     This amendment (“Amendment”) is made and entered into as of June 19, 2009 by and between Risk Transfer Programs, LLC and SUA Insurance Company, and amends the Amended and Restated SUA Insurance Company Partner Agent Program Agreement (“Agreement”) entered into by the parties on June 10, 2009, as amended. Any capitalized terms used but not defined in this Amendment shall have the same meaning set forth in the Agreement. In the event that any provision of this Amendment and any provision of the Agreement are inconsistent or conflicting, the inconsistent or conflicting provision of this Amendment shall be and constitute an amendment of the Agreement and shall control, but only to the extent that such provision is inconsistent or conflicting with the Agreement.

     Now, therefore, in accordance with Section IX, D of the Agreement and in consideration of the mutual agreements and covenants hereinafter set forth, the parties agree to amend the Agreement, effective as of the date hereof, as follows:

1. The reference in the preamble to “SUA Insurance Company and its property and casualty insurance subsidiaries and affiliates (collectively the “Company”)” shall be deleted and replaced in its entirety with the following: “SUA Insurance Company and (i) prior to June 19, 2011, its property and casualty insurance subsidiaries and affiliates and (ii) on or after June 19, 2011, its property and casualty insurance subsidiaries (collectively the “Company”)”.

2. Except as modified hereby, the Agreement shall remain in full force and effect.

3. This Amendment may be executed in any number of counterparts and by the parties on different counterparts each in the like form. Each counterpart shall, when executed, be an original but all the counterparts taken together shall constitute one and the same instrument. The execution by a party of one or more such counterparts shall constitute execution by that party of this Amendment. This Amendment shall not be effective until each of the parties has executed at least one counterpart. Any facsimile copies hereof or signature hereon shall, for all purposes, be deemed originals.

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1

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by their duly authorized officers as of the day, month and year above written.

SUA INSURANCE COMPANY
By:	/s/ Daniel A. Cacchione
	Name:	Daniel A. Cacchione
	Title:	Sr. VP & Chief Underwriting Officer

RISK TRANSFER PROGRAMS, LLC
By:	/s/ Paul R. Hughes
	Name:	Paul R. Hughes
	Title:	C.E.O.

2

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Courtney C. Smith, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Specialty Underwriters’ Alliance, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2009

/s/ Courtney C. Smith  

Courtney C. Smith 

President and Chief Executive Officer 

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Peter E. Jokiel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Specialty Underwriters’ Alliance, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(c) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(d) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

(e) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(f) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(g) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(h) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2009

/s/ Peter E. Jokiel  

Peter E. Jokiel 

Executive Vice President and Chief Financial Officer 

EX-32.1

Exhibit 32.1

Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

     I, Courtney C. Smith, Chief Executive Officer of Specialty Underwriters’ Alliance, Inc. (the “Company”), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, do hereby certify as follows:

     (i) The quarterly report on Form 10-Q of the Company for the period ended June 30, 2009 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (ii) The information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

     IN WITNESS WHEREOF, I have executed this Certification this 7th day of August, 2009.

/s/ Courtney C. Smith  

Courtney C. Smith 

Chief Executive Officer 

A signed original of this written statement required by Section 906 has been provided to Specialty Underwriters’ Alliance, Inc. and will be retained by Specialty Underwriters’ Alliance, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

     I, Peter E. Jokiel, Chief Financial Officer of Specialty Underwriters’ Alliance, Inc. (the “Company”), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, do hereby certify as follows:

     (i) The quarterly report on Form 10-Q of the Company for the period ended June 30, 2009 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (ii) The information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

     IN WITNESS WHEREOF, I have executed this Certification this 7th day of August, 2009.

/s/ Peter E. Jokiel  

Peter E. Jokiel 

Chief Financial Officer 

A signed original of this written statement required by Section 906 has been provided to Specialty Underwriters’ Alliance, Inc. and will be retained by Specialty Underwriters’ Alliance, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.