e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008


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 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
		(Do not check if a smaller reporting company)

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 1, 2008, there were 14,437,355 shares of our common stock, $0.01 par value, or the Common Stock, outstanding and 1,069,844 shares of our Class B common stock, $0.01 par value, or the Class B Shares, outstanding.

PART I — FINANCIAL INFORMATION

Item 1. Business

Specialty Underwriters’ Alliance, Inc.
Consolidated Balance Sheets
As of June 30, 2008 and December 31, 2007
(dollars in thousands)


	6/30/2008			12/31/2007
	(unaudited)
ASSETS
Fixed maturity investments, at fair value (amortized cost: $203,535 and $176,592)	$	201,294		$	177,735
Short-term investments, at amortized cost (which approximates fair value)		38,942			51,652

Total Investments		240,236			229,387
Cash		147			968
Insurance premiums receivable		68,396			68,887
Reinsurance recoverable on paid and unpaid loss and loss adjustment expenses		73,398			77,204
Prepaid reinsurance premiums		417			631
Investment income accrued		2,159			1,909
Equipment and capitalized software at cost (less accumulated depreciation of $12,098 and $8,927)		13,268			12,796
Intangible assets		10,745			10,745
Deferred acquisition costs		15,790			17,495
Deferred tax asset		1,445			—
Other assets		2,595			2,512

Total Assets	$	428,596		$	422,534

LIABILITIES & STOCKHOLDERS’ EQUITY

Liabilities
Loss and loss adjustment expense reserves	$	194,870		$	184,736
Unearned insurance premiums		78,488			86,741
Insured deposit funds		13,792			12,515
Accounts payable and other liabilities		7,231			7,405

Total Liabilities		294,381			291,397


Stockholders’ equity
Common stock at $.01 par value per share - authorized: 30,000,000 shares; issued: 14,712,355 and 14,697,355 shares; and outstanding: 14,437,355 shares and 14,697,355 shares		147			147
Class B common stock at $.01 par value per share - authorized: 2,000,000 shares; issued and outstanding: 1,029,037 shares and 869,738 shares		10			9
Paid-in capital - common stock		129,612			129,431
Paid-in capital - class B common stock		6,900			6,139
Accumulated deficit		(17	)		(5,732	)
Treasury stock		(1,347	)		—
Accumulated other comprehensive income		(1,090	)		1,143

Total Stockholders’ Equity		134,215			131,137

Total Liabilities & Stockholders’ Equity	$	428,596		$	422,534

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

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

Specialty Underwriters’ Alliance, Inc.
Consolidated Statements of Operations and Comprehensive Income
For the Three and Six Months Ended June 30, 2008 and 2007
(Unaudited — dollars in thousands, except for earnings per share)


	Three Months Ended						Six Months Ended
	6/30/2008			6/30/2007			6/30/2008			6/30/2007
Revenues
Earned insurance premiums	$	34,195		$	37,194		$	69,945		$	72,556
Net investment income		2,670			2,338			5,323			4,418
Net realized gains		7			24			38			27

Total revenue		36,872			39,556			75,306			77,001

Expenses
Loss and loss adjustment expenses		20,941			21,894			41,999			42,030
Acquisition expenses		7,267			9,172			15,970			17,900
Other operating expenses		5,412			5,418			11,339			10,915

Total expenses		33,620			36,484			69,308			70,845

Pretax income		3,252			3,072			5,998			6,156
Federal income tax expense		(1,002	)		(62	)		(283	)		(124	)

Net income		2,250			3,010			5,715			6,032
Net change in unrealized gains and losses for investments held, after tax		(2,685	)		(2,418	)		(2,233	)		(1,785	)

Comprehensive income (loss)	$	(435	)	$	592		$	3,482		$	4,247


Earnings per share available to common stockholders (in dollars)
Basic	$	0.14		$	0.20		$	0.37		$	0.39
Diluted	$	0.14		$	0.20		$	0.36		$	0.39

Weighted average shares outstanding
Basic		15,666			15,406			15,623			15,390
Diluted		15,809			15,406			15,766			15,390

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

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

Specialty Underwriters’ Alliance, Inc.
Consolidated Statement of Stockholders’ Equity
As of June 30, 2008
(Unaudited — dollars in thousands)


															Accumulated
															Other Comp-			Total
	Common		Paid-in		Common		Paid-in		Retained						rehensive			Stock-
	Stock		Capital		Stock		Capital		Earnings			Treasury			Income			holders’
	Class A		Class A		Class B		Class B		(Deficit)			Stock			(Loss)			Equity
Balance at December 31, 2007	$	147	$	129,431	$	9	$	6,139	$	(5,732	)	$	—		$	1,143		$	131,137

Net income										5,715									5,715
Net change in unrealized investment gains, net of tax																(2,233	)		(2,233	)
Stock issuance				74		1		761											836
Treasury stock purchases													(1,347	)					(1,347	)
Stock based compensation				107															107

Balance at June 30, 2008	$	147	$	129,612	$	10	$	6,900	$	(17	)	$	(1,347	)	$	(1,090	)	$	134,215

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

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

Specialty Underwriters’ Alliance, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2008 and 2007
(Unaudited — dollars in thousands)


	Six Months Ended
	6/30/2008			6/30/2007
Cash flows from operations
Net income	$	5,715		$	6,032

Charges (credits) to reconcile net income to cash flows from operations:
Change in deferred income tax		(307	)		(26	)
Net realized (gains) losses		(38	)		(27	)
Amortization of bond premium (discount)		(10	)		(23	)
Depreciation		3,171			2,148
Net change in:
Reinsurance recoverable on unpaid loss and loss adjustment expense reserves		3,806			3,121
Loss and loss adjustment expense reserves		10,134			19,375
Insurance premiums receivable		491			(7,391	)
Unearned insurance premiums		(8,253	)		5,215
Deferred acquisition costs		1,705			647
Prepaid reinsurance premiums		214			2,892
Insured deposit funds		1,277			318
Other, net		(312	)		2,120

Total adjustments		11,878			28,369

Net cash flows provided by operations		17,593			34,401

Cash flows from investing activities
Net (increase) decrease in short-term investments		12,710			(11,008	)
Redemptions, calls and maturities of fixed maturity investments		18,042			9,803
Purchases of fixed maturity investments		(44,938	)		(30,540	)
Purchase of equipment and capitalized software		(3,643	)		(4,798	)

Net cash flows used for investing activities		(17,829	)		(36,543	)

Cash flows from financing activities
Issuance of common stock		762			325
Treasury stock purchases		(1,347	)		—

Net cash provided by (used for) financing activities		(585	)		325

Net increase (decrease) in cash during the period		(821	)		(1,817	)
Cash at beginning of the period		968			2,375

Cash at the end of the period	$	147		$	558

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

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

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

Note 1. Basis of Presentation

The Consolidated Financial Statements (unaudited) include the accounts of Specialty Underwriters’ Alliance, Inc., or SUA or the Company, and its consolidated subsidiary, SUA Insurance 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, 2007 filed with the Securities and Exchange Commission, or SEC.

The interim financial data as of June 30, 2008, and for the three and six month periods ended June 30, 2008 and June 30, 2007 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. Earnings Per Share

Basic earnings per share are 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
	6/30/08		6/30/07		6/30/08		6/30/07
Numerator for earnings per share
Net income	$	2,250	$	3,010	$	5,715	$	6,032


Denominator for earnings per share
Weighted average shares outstanding used in computation of earnings per share
Common stock (class A and B) issued		15,684		15,406		15,632		15,390
Common stock in treasury		18		—		9		—

Weighted average shares outstanding - basic		15,666		15,406		15,623		15,390
Effect of dilutive securities¹ Unvested deferred stock awards		143		—		143		—

Weighted average shares outstanding - diluted		15,809		15,406		15,766		15,390


Earnings per share
Basic	$	0.14	$	0.20	$	0.37	$	0.39
Diluted	$	0.14	$	0.20	$	0.36	$	0.39


¹		Outstanding options of 718,066 and 742,466 as of June 30, 2008 and June 30, 2007, respectively, have been excluded from the diluted earnings per share calculation for the three and six months ended June 30, 2008 and June 30, 2007, as they were anti-dilutive.

Note 3. Income Taxes

As of June 30, 2008 and December 31, 2007 the Company had tax basis net operating loss carryforwards of $0 and $2,068, respectively. The Company also 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 $637 and $873 at June 30, 2008 and December 31, 2007, respectively.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

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

Beginning in first quarter of 2008, based on continuing profitability trends, the Company believes that it is more likely than not that the deferred income tax assets will be realized. As such, the Company elected to eliminate its valuation allowance and establish the full net deferred tax asset.

The components of current and deferred income taxes for the three months and six months ended June 30, 2008 and 2007 are as follows:


	Three Months Ended					Six Months Ended
	6/30/08		6/30/07			6/30/08			6/30/07
Current tax expense	$	553	$	99		$	590		$	150
Deferred tax (benefit)/expense		449		(37	)		(307	)		(26	)

Total income tax expense	$	1,002	$	62		$	283		$	124

Note 4. Unpaid Loss and Loss Adjustment Expense Reserves

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.

At June 30, 2008, the Company reported gross loss and LAE reserves of $194,870, of which $57,555 represented the gross direct loss and LAE reserves of Potomac, which is fully reinsured by OneBeacon Insurance Company, or OneBeacon. The Company experienced favorable prior year loss development of $1,272 due to favorable claims experience primarily within our commercial automobile business. At December 31, 2007, the Company reported gross loss and LAE reserves of $184,736, of which $63,529 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 $1,831 as of June 30, 2008 and $1,505 as of December 31, 2007. 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 5. Recent Accounting Pronouncements

In February 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose to measure and report many financial instruments and certain other assets and liabilities at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities the opportunity to reduce the complexity in accounting for financial instruments and to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We have elected not to report any financial assets or liabilities at fair value under SFAS No. 159.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurement. Where applicable, SFAS No. 157 simplifies and codifies previously issued guidance on fair value. The Company’s adoption of FAS 157, effective January 1, 2008, results in additional financial statement disclosures and has no effect on the conduct of the Company’s business, its financial condition and results of operations.

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. $194,122 of our financial instruments, all of which are fixed maturity investments, are Level 2, as their fair value is determined using significant observable

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

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

inputs such as recent sales, the credit rating of the issuer, duration of the security, yields on comparably rated publicly traded securities and risk-free yield curves. The remaining $7,171 of our financial instruments, also all fixed maturity investments, which were previously categorized as Level 2 are now categorized as Level 3, as their fair value is determined by a combination of matrix, dealer quotation and pricing services.

During the three month period ended June 30, 2008, the change in unrealized gains and losses for those instruments categorized as Level 3 was negative $720.

Note 6. 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.

On April 4, 2008 the Compensation Committee of the Board of Directors granted deferred stock awards for 258,750 shares of common stock to all employees of the Company, including the executive officers. The awards granted to the non executive employees vest on the first anniversary of the grant date and the awards for the executive officers vest equally on either the first four or the first five anniversaries of the grant date.

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 7, 2008, 15,000 shares were issued to independent directors who were re-elected to the Board at the 2008 Annual Meeting of the Stockholders held on May 6, 2008.

The compensation expense associated with the grants made during the second quarter of 2008 was $135, based on the fair market value of the shares on the date of grant pursuant to SFAS 123R and amortized over the vesting period of the award. No other awards were made under the 2007 Plan or the 2004 Plan and 10,000 shares were terminated under the 2004 Plan in the second quarter of 2008.

In addition there was equity based compensation expenses of $46, relating to stock options previously granted

Note 7. Stock Repurchase

In April 2008, the board of directors authorized the repurchase of up to 275,000 shares of the Company’s Common Stock at an aggregate purchase price of up to $1,650. Under the authorization, repurchases may be made from time to time in the open market, pursuant to trading plans meeting the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, in private transactions or otherwise. The authorization expires on October 15, 2008. During the three months ended June 30, 2008, the Company repurchased all 275,000 shares of Common Stock under its stock repurchase authorization for a total cost of approximately $1,347. The average cost per share repurchased was $4.90 including commission. At June 30, 2008, the Company had fully utilized its authority to repurchase shares of Common Stock.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, the discussions of our operating and growth strategy. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, those set forth under the caption “Risk Factors” in the Business section of our Annual Report on Form 10-K for the year ended December 31, 2007. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could prove to be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

Overview

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.

Prior to our IPO, all activities consisted of start-up activities related to our IPO and costs to establish the infrastructure required to commence insurance operations.

On January 1, 2005 we commenced our insurance operations.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

Three Months Ended June 30, 2008 as compared to the Three Months Ended June 30, 2007

RESULTS OF OPERATION


	Three Months Ended
	6/30/2008			6/30/2007			% Change
	(dollars in millions,
	except for per share data)
Gross written premiums	$	41.8		$	48.6			-14.0	%
Net written premiums		39.9			46.2			-13.6	%

Earned premiums	$	34.2		$	37.2			-8.1	%
Net investment income		2.7			2.3			17.4	%
Net realized gains		—			0.1

Total revenues		36.9			39.6			-6.8	%

Net loss and loss adjustment expense		20.9			21.9			-4.6	%
Acquisition expenses		7.3			9.2			-20.7	%
Other operating expenses		5.4			5.4			0.0	%

Total expenses		33.6			36.5			-7.9	%

Pre-tax income		3.3			3.1			6.5	%
Federal income tax		(1.0	)		(0.1	)		*

Net income	$	2.3		$	3.0			-23.3	%


Earnings per share available to common stockholders
Basic	$	0.14		$	0.20			-30.0	%
Diluted	$	0.14		$	0.20			-30.0	%

Weighted average shares outstanding
Basic		15.7			15.4			1.9	%
Diluted		15.8			15.4			2.6	%

Key operating ratios
Net loss and loss adjustment expense ratio		61.2	%		58.9	%		3.9	%
Ratio of acquisition expense to earned premiums		21.3	%		24.7	%		-13.8	%
Ratio of all other expenses to gross written premiums		13.0	%		11.1	%		17.1	%


*		Not meaningful

Net income for the quarter ended June 30, 2008 was $2.3 million, compared to net income of $3.0 million for the quarter ended June 30, 2007. Earnings per share for the quarter ended June 30, 2008 was $0.14, versus earnings per share of $0.20 for the quarter ended June 30, 2007. The primary reason for the decrease in net income was due to a change in our tax position. In the second quarter of 2008 we became a full taxpayer due to the utilization of prior period remaining tax loss carry forwards.

Gross written premiums were $41.8 million for the three months ended June 30, 2008 compared to $48.6 million for the three months ended June 30, 2007. The decrease in gross written premiums is attributable to several factors. We continue to experience a soft insurance market which has led to downward pressure on premiums in all lines which the Company writes. The weakening economy has resulted in (1) lower payrolls which have lowered our workers’ compensation exposure and therefore premiums and (2) a reduction in our contractors program as a result of fewer construction projects being started.

Earned premiums were $34.2 million for the quarter ended June 30, 2008 compared to $37.2 million for the quarter ended June 30, 2007. Premiums are earned ratably over the terms of our insurance policies, which are 12 months. The decrease in earned premiums is a result of reduced premium writing in prior quarters.

Net investment income was $2.7 million for the quarter ended June 30, 2008 versus $2.3 million for the quarter ended June 30, 2007. The increase in net investment income reflects growth in our total investments from $194.1 million at June 30, 2007 to $240.2 million at June 30, 2008 resulting from positive operating cash flows.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

Other operating expenses were $5.4 million for the quarter ended June 30, 2008, which consisted of salaries and benefit costs of $2.0 million, $0.2 million of professional and consulting fees, $1.7 million of depreciation and amortization, $0.1 million of stock based compensation expense and $1.4 million of other expenses. For the quarter ended June 30, 2007, other operating expenses were $5.4 million, comprised of salaries and benefit costs of $1.7 million, $0.5 million of professional and consulting fees, $1.1 million of depreciation and amortization, $0.4 million of stock based compensation expense and $1.7 million of other expenses.

Acquisition expenses were $7.3 million for the three months ended June 30, 2008 compared to $9.2 for the quarter ended June 30, 2007. The decrease in our acquisition expense is the result of a decrease in premiums.

For the second quarter of 2008, our net loss and loss adjustment expense ratio was 61.2%, compared to 58.9% for the comparable quarter in 2007. This increase was primarily driven by higher loss ratios in our workers’ compensation book of business due to lower rates. This was partially offset by improvements of approximately $0.6 million across all lines for prior accident years.

Our gross written premiums by partner agent for the three months ended June 30, 2008 and 2007 was as follows:


	6/30/2008					6/30/2007
			% of Total					% of Total
	Gross Written		Gross Written			Gross Written		Gross Written
	Premium		Premium			Premium		Premium
	(dollars in millions)
Risk Transfer Holdings, Inc.	$	22.3		53.3	%	$	23.4		48.2	%
American Team Managers		6.5		15.6	%		9.0		18.5	%
AEON Insurance Group, Inc.		5.2		12.4	%		6.9		14.2	%
Appalachian Underwriters, Inc.		2.1		5.0	%		5.7		11.7	%
Northern Star Management, Inc.		2.0		4.8	%		—		0.0	%
First Light Program Manager, Inc.		1.0		2.4	%		—		0.0	%
Specialty Risk Solutions, LLC		0.9		2.2	%		1.2		2.5	%
Insential, Inc		0.4		1.0	%		0.5		1.0	%
Flying Eagle Insurance Service, Inc		0.3		0.7	%		1.1		2.3	%
Other		1.1		2.6	%		0.8		1.6	%

Total	$	41.8		100.0	%	$	48.6		100.0	%

Our gross written premiums for the three months ended June 30, 2008 and 2007 by state was as follows:


	6/30/2008					6/30/2007
			% of Total					% of Total
	Gross Written		Gross Written			Gross Written		Gross Written
	Premium		Premium			Premium		Premium
	(dollars in millions)
California	$	14.2		34.0	%	$	14.9		30.6	%
Florida		10.7		25.6	%		15.2		31.3	%
Texas		1.3		3.1	%		3.3		6.8	%
Other States		15.6		37.3	%		15.2		31.3	%

Total	$	41.8		100.0	%	$	48.6		100.0	%

The reduction in gross written premiums in Florida was primarily driven by reduced exposure in our workers’ compensation business.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

Our gross written premiums by line of business for the three months ended June 30, 2008 and 2007 was as follows:


	6/30/2008					6/30/2007
			% of Total					% of Total
	Gross Written		Gross Written			Gross Written		Gross Written
	Premium		Premium			Premium		Premium
	(dollars in millions)
Workers’ compensation	$	26.4		63.2	%	$	27.2		56.0	%
Commercial automobile		10.4		24.9	%		10.3		21.1	%
General liability		4.2		10.0	%		10.0		20.6	%
All Other		0.8		1.9	%		1.1		2.3	%

Total	$	41.8		100.0	%	$	48.6		100.0	%

The decrease in our general liability business is due to a reduction in our contractors programs as a result of fewer construction projects being started.

Six Months Ended June 30, 2008 as compared to the Six Months Ended June 30, 2007

RESULTS OF OPERATION


	Six Months Ended
	6/30/2008			6/30/2007			% Change
	(dollars in millions,
	except for per share data)
Gross written premiums	$	65.9		$	83.6			-21.2	%
Net written premiums		61.6			77.8			-20.8	%

Earned premiums	$	69.9		$	72.6			-3.7	%
Net investment income		5.3			4.4			20.5	%
Net realized gains		0.1			—

Total revenues		75.3			77.0			-2.2	%

Net loss and loss adjustment expense		42.0			42.0			0.0	%
Acquisition expenses		16.0			17.9			-10.6	%
Other operating expenses		11.3			10.9			3.7	%

Total expenses		69.3			70.8			-2.1	%

Pre-tax income		6.0			6.1			-1.6	%
Federal income tax		(0.3	)		(0.1	)		*

Net income	$	5.7		$	6.0			-5.0	%


Earnings per share available to common stockholders
Basic	$	0.37		$	0.39			-5.1	%
Diluted	$	0.36		$	0.39			-7.7	%

Weighted average shares outstanding
Basic		15.6			15.4			1.3	%
Diluted		15.8			15.4			2.6	%

Key operating ratios
Net loss and loss adjustment expense ratio		60.0	%		57.9	%		3.6	%
Ratio of acquisition expense to earned premiums		22.8	%		24.7	%		-7.7	%
Ratio of all other expenses to gross written premiums		17.2	%		13.1	%		31.3	%


*		Not meaningful

Net income for the six months ended June 30, 2008 was $5.7 million, compared to net income of $6.0 million for the six months ended June 30, 2007. Earnings per share for the six months ended June 30, 2008 was $0.37, basic or $0.36 diluted, versus earnings per share of $0.39, basic and diluted, for the six months ended June 30, 2007.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

Gross written premiums were $65.9 million for the six months ended June 30, 2008 compared to $83.6 million for the comparable period ended June 30, 2007. The decrease in gross written premiums is attributable to several factors. We continue to experience a soft insurance market which has led to downward pressure on premiums in all lines which the Company writes. The weakening economy has resulted in (1) lower payrolls which have lowered our workers’ compensation exposure and therefore premiums and (2) a reduction in our contractors program as a result of fewer construction projects being started.

Earned premiums were $69.9 million for the six months ended June 30, 2008 compared to $72.6 million for the six months ended June 30, 2007. Premiums are earned ratably over the terms of our insurance policies, which are 12 months. The decrease in earned premiums is primarily a result of decreased earned premiums during the second quarter of 2008 which resulted from reduced premium writing in prior quarters.

Net investment income was $5.3 million for the six months ended June 30, 2008 versus $4.4 million for the six months ended June 30, 2007. The increase in net investment income reflects growth in our total investments from $194.1 million at June 30, 2007 to 240.2 million at June 30, 2008 resulting from positive operating cash flows.

Other operating expenses were $11.3 million for the six months ended June 30, 2008, which consisted of salaries and benefit costs of $4.2 million, $0.9 million of professional and consulting fees, $3.2 million of depreciation and amortization, $0.2 million of stock based compensation expense and $ 2.8 million of other expenses. For the six months ended June 30, 2007, other operating expenses were $10.9 million, comprised of salaries and benefit costs of $3.3 million, $1.7 million of professional and consulting fees, $2.1 million of depreciation and amortization, $0.7 million of stock based compensation expense and $3.1 million of other expenses.

Acquisition expenses were $16.0 million for the six months ended June 30, 2008 compared to $17.9 for the six months ended June 30, 2007. The decrease in our acquisition expense is the result of a decrease in premiums.

For the first six months of 2008, our net loss and loss adjustment expense ratio was 60.0%, compared to 57.9% for the comparable six months in 2007. This increase was primarily driven by higher loss ratios in our workers’ compensation book of business due to lower rates. This was partially offset by improvements of approximately $1.3 million primarily in our commercial automobile business for prior accident years.

Our gross written premiums by partner agent for the six months ended June 30, 2008 and 2007 was as follows:


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

Total	$	65.9		100.0	%	$	83.6		100.0	%

Our gross written premiums for the six months ended June 30, 2008 and 2007 by state was as follows:

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.


	6/30/2008					6/30/2007
			% of Total					% of Total
	Gross Written		Gross Written			Gross Written		Gross Written
	Premium		Premium			Premium		Premium
	(dollars in millions)
California	$	25.7		39.0	%	$	28.7		34.3	%
Florida		12.4		18.8	%		22.5		26.9	%
Texas		6.2		9.4	%		8.3		9.9	%
Other States		21.6		32.8	%		24.1		28.9	%

Total	$	65.9		100.0	%	$	83.6		100.0	%

The reduction in gross written premiums in Florida was primarily driven by reduced exposure in our workers’ compensation business.

Our gross written premiums by line of business for the six months ended June 30, 2008 and 2007 was as follows:


	6/30/2008					6/30/2007
			% of Total					% of Total
	Gross Written		Gross Written			Gross Written		Gross Written
	Premium		Premium			Premium		Premium
	(dollars in millions)
Workers’ compensation	$	38.3		58.1	%	$	45.9		54.9	%
Commercial automobile		18.0		27.3	%		17.3		20.7	%
General liability		8.1		12.3	%		18.6		22.2	%
All Other		1.5		2.3	%		1.8		2.2	%

Total	$	65.9		100.0	%	$	83.6		100.0	%

The decrease in our general liability business is due to a reduction in our contractors programs as a result of fewer construction projects being started. Our workers’ compensation business has been impacted by rate decreases in Florida and California during 2007 and the first quarter of 2008 as well as decreases in payrolls.

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.

Cash Flows

A summary of our cash flows is as follows:


	Six Months Ended
	6/30/2008			6/30/2007
	(dollars in millions)
Cash provided by (used in)
Operating activities	$	17.6		$	34.4
Investing activities		(17.8	)		(36.5	)
Financing activities		(0.6	)		0.3

Change in cash		(0.8	)		(1.8	)

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

For the six months ended June 30, 2008, net cash from operating activities was $17.6 million, principally consisting of premium and deposit collections exceeding losses and expenses paid out. This amount compares to net cash from operating activities of $34.4 million for the six months ended June 30, 2007. The decrease in net cash provided by operating activities was primarily driven by the reduction in written premiums.

Cash used for investment activities was $17.8 million for the six months ended June 30, 2008, principally representing purchases of investments and additions to equipment and capitalized software. For the six months ended June 30, 2007, cash used in investment activities was $36.5 million, also principally representing increases in investments and additions to equipment and capitalized software.

For the six months ended June 30, 2008, we had net cash flows from financing activities of negative $0.6 million as a result of the repurchase of shares of our Common Stock for $1.3 million and the sales of Class B Shares to partner agents for $0.7 million. For the six months ended June 30, 2007, cash flows from financing activities from sales of Class B Shares to partner agents was $0.3 million.

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 based on quoted market prices. 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 at June 30, 2008 was $240.2 million compared to amortized cost of $242.5 million. The aggregate fair market value of our fixed maturity investments at December 31, 2007 was $229.4 million compared to amortized cost of $228.2 million. During the first six months of 2008 we increased our investment in municipal bonds to $45.3 million from $4.3 million, at fair value, due to their favorable tax treatment.

We have concluded that none of the available-for-sale securities with unrealized losses at June 30, 2008 has experienced an other-than-temporary impairment. We considered our intent and ability to hold the securities for a sufficient time to allow for a recovery in value in this determination.

At June 30, 2008, we held $3.4 million in fair value, $4.7 million in book value, of investments with sub-prime exposure, all of which were rated “A” or better by established rating agencies.

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.

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.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

The table below summarizes the estimated effects of hypothetical increases and decreases in market interest rates on our investment portfolio:


						After Tax
				Estimated Fair		Increase
			Assumed Change	Value After		(Decrease) in
	Fair Value at		in Relevant	Change		Carrying
	6/30/2008		Interest Rate	in Interest Rate		Value
	(dollars in thousands)
Total Investments	$	240,236	100 bp decrease	$	248,834	$	8,598
			50 bp decrease		244,580		4,344
			50 bp increase		234,827		(5,409	)
			100 bp increase		231,482		(8,754	)

The average duration of our fixed maturity investments at June 30, 2008 was approximately 3.7 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 consists solely of high quality bonds at June 30, 2008. The following table summarizes bond ratings at market or fair value:


	As of 6/30/2008
			Percent of
	Amount		Portfolio
Bond Ratings	(dollars in thousands)
AAA rated and U.S. Government and affiliated agency securities	$	113,739		56.5	%
AA rated		49,420		24.6	%
A rated		35,519		17.6	%
BBB Rated		2,616		1.3	%

Total	$	201,294		100.0	%

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 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.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

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.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

PART II — OTHER INFORMATION

Item 1: Legal Proceedings

None.

Item 1A: Risk Factors

There have been no material changes to the Risk Factors previously disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Item 2: Recent Sales of Unregistered Securities

Information with respect to purchases of our Common Stock during the three months ended June 30, 2008 was as follows:


					Total Number of		Maximum Number of
	Total		Average		Shares Purchased		Shares that May Yet
	Number of		Price		as Part of Publically		be Purchased Under
	Shares		Paid per		Announced Plans or		the Plans or Programs
	Purchased¹		Share²		Programs		at End of Month
April 1 to April 31		—		—		—		275,000
May 1 to May 31		97,300	$	4.7340		97,300		177,700
June 1 to June 30		177,700		4.9258		177,700		—

Total		275,000	$	4.8580		275,000		—


¹		The Company announced the repurchase program on April 8, 2008 for the purchase of up to 275,000 shares of Common Stock for up to an aggregate purchase price of $1.65 million. All shares available to be purchased under the program have been acquired.

²		Price per share data does not include the $0.04 per share commission

There were no sales of unregistered securities that have not been previously reported on a Current Report on Form 8-K.

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 6, 2008, 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		12,053,993		872,352
Peter E. Jokiel		10,896,120		2,029,255
Robert E. Dean		12,071,379		853,966
Raymond C. Groth		10,899,875		2,025,470
Paul A. Philp		12,072,879		852,466
Robert H. Whitehead		12,072,879		852,466
Russell E. Zimmermann		12,072,879		852,466

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


For	Against	Abstentions
12,842,989	82,466	0

No other matters were voted on at the meeting.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

Item 5: Other Information

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On August 5, 2008, the Board of the Company adopted amended and restated bylaws, effective on August 5, 2008. Many of the amendments to the bylaws were made to update the bylaws to conform with changes to applicable Delaware corporate laws and to clarify existing provisions of the bylaws in accordance with modern corporate practice. The below description of certain of the amendments to the Company’s bylaws is qualified in its entirety by reference to the Amended and Restated Bylaws of the Company, a copy of which is filed as Exhibit 3.1 to this Report on Form 10-Q and incorporated by reference herein. The specific language of the Company’s bylaws as they existed prior to this amendment and restatement can be found in Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed by the Company on November 2, 2007, which is incorporated by reference herein. The following is a summary of the amended sections of the Company’s bylaws.

Section 1.02 – Special Meetings. The by-law regarding special meetings was amended to give only the President (or, in the event of his or her absence or disability, any Vice President), a majority of the Board of Directors or a majority of a committee thereof the authority to call special meetings of the stockholders and to limit the purpose of a special meeting to only those purposes stated in the notice for the meeting.

Section 1.04 – Quorum. The by-law regarding quorum was amended to clarify that a quorum for a stockholder meeting consists of a majority of the aggregate voting power of the stock issued and outstanding and entitled to vote at such meeting of the stockholders.

Section 1.07 – Adjournment. This by-law was amended to give the presiding officer at any stockholder meeting the power to adjourn any stockholder meeting, whether or not a quorum is present.

Section 1.09 – Organization; Procedure. This by-law was modified to give the Board of Directors the authority to select the presiding officer of any stockholder meeting in the event of the President’s absence or disability.

Section 1.11 – Conduct of Meetings. This by-law was added to grant the presiding officer at any stockholder meeting and the Board of Directors the ability to adopt rules and regulations regarding meeting procedure, as well as grant the presiding officer the right and authority to convene, to adjourn and to conclude any stockholder meeting and to establish rules, regulations and procedures for the conduct of the meetings to maintain order and safety.

Section 1.12 – Notice of Stockholder Business and Nominations. This by-law was added to provide that if a stockholder wishes to nominate a person or persons for election to the Board of Directors or bring other business before a stockholders meeting, such stockholder may only do so by delivering prior written notice to the Company’s corporate secretary, within the time period specified in the by-law, and by complying with certain other requirements specified therein. The stockholder’s notice must include, among other things, certain information as to each person whom the stockholder proposes to nominate for election as a director or as to each matter of business that the stockholder proposes to bring before a stockholders meeting. The stockholder’s notice must also include certain information as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made.

Section 2.02 – Number and Term of Office. This provision was amended to clarify that only the Board of Directors may modify the number of Directors constituting the entire Board of Directors.

Section 2.12 – Removal of Directors. This by-law was amended to clarify that the affirmative vote of the holders of not less than a majority of the voting power of all the shares of capital stock of the Company issued and outstanding and entitled to vote for the election of such director would be required to remove a director and provides that any vacancies resulting from removal of a director may only be filled in accordance with Section 2.13 of the by-laws.

Section 2.13 – Vacancies and Newly Created Directorships. This by-law was amended to allow only the Board of Directors to fill vacancies created by removal of a director or a newly created directorship position, provided, however, if there are no Directors in office, or less than a majority of the whole Board of Directors, then the vacancies may be filled in the manner provided by statute.

Section 5.05 — Record Dates. This by-law was amended to require that any stockholder seeking to take action by written consent shall give notice to the Board of Directors, such that the Board of Directors may fix a record date for taking action by written consent.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

Section 9.01 – Amendment. This by-law was amended to change the voting threshold for amendments, alterations or repeals of the by-laws by stockholders to the affirmative vote of six-six and two-thirds percent of the voting power of all the shares of capital stock of the Company issued and outstanding and entitled to vote thereon.

Item 6: Exhibits

Exhibits:


Exhibit
Number		Description

	3.1	Amended and Restated By-laws of the Company effective August 5, 2008

	10.1+	Employment Agreement dated April 7, 2008 between the Company and Courtney C. Smith

	10.2+	Employment Agreement dated April 7, 2008 between the Company and Peter E. Jokiel

	10.3+	Employment Agreement dated April 7, 2008 between the Company and Gary J. Ferguson

	10.4+	Change of Control Agreement dated April 7, 2008 between the Company and Barry G. Cordeiro

	10.5+	Change of Control Agreement dated April 7, 2008 between the Company and Scott W. Goodreau

	10.6+	Change of Control Agreement dated April 7, 2008 between the Company and Scott K. Charbonneau

	10.7+	Change of Control Agreement dated April 7, 2008 between the Company and Daniel A. Cacchione

	10.8+	Change of Control Agreement dated April 7, 2008 between the Company and Daniel J. Rohan

	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


+		Indicates a management contract or compensatory plan or arrangement.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.

Exhibits Index:


Exhibit
Number		Description

	3.1	Amended and Restated By-laws of the Company effective August 5, 2008

	10.1+	Employment Agreement dated April 7, 2008 between the Company and Courtney C. Smith

	10.2+	Employment Agreement dated April 7, 2008 between the Company and Peter E. Jokiel

	10.3+	Employment Agreement dated April 7, 2008 between the Company and Gary J. Ferguson

	10.4+	Change of Control Agreement dated April 7, 2008 between the Company and Barry G. Cordeiro

	10.5+	Change of Control Agreement dated April 7, 2008 between the Company and Scott W. Goodreau

	10.6+	Change of Control Agreement dated April 7, 2008 between the Company and Scott K. Charbonneau

	10.7+	Change of Control Agreement dated April 7, 2008 between the Company and Daniel A. Cacchione

	10.8+	Change of Control Agreement dated April 7, 2008 between the Company and Daniel J. Rohan

	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


+		Indicates a management contract or compensatory plan or arrangement.

2008 Second Quarter Form 10-Q
Specialty Underwriters’ Alliance, Inc.



		SPECIALTY UNDERWRITERS’ ALLIANCE, INC. (Registrant)

		By:		/s/ Courtney C. Smith

				Name: Courtney C. Smith
				Title: President and Chief Executive Officer

		Date: August 8, 2008

		By:		/s/ Peter E. Jokiel

				Name: Peter E. Jokiel
				Title: Executive Vice President and Chief Financial Officer

		Date: August 8, 2008


	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		16
Item 4. Controls and Procedures		17

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		19
Item 1A. Risk Factors		19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		19
Item 3. Defaults Upon Senior Securities		19
Item 4. Submission of Matters to a Vote of Security Holders		19
Item 5. Other Information		20
Item 6. Exhibits		21