10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended December 31, 2008

or

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

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	(I.R.S. Employer
incorporation or organization)	Identification Number)
222 South Riverside Plaza, Chicago, Illinois	60606
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (888) 782-4672

Securities registered pursuant to Section 12(b) of the Act:

	Name of each exchange
Title of each class	on which registered
Common Stock, par value $0.01 per share	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

     Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 the definitions 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
(Do not check if a smaller reporting company) 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

     The aggregate market value of the voting and non-voting common stock held by non-affiliates as of June 30, 2008 was approximately $82 million (assuming all of the outstanding shares of the Company’s Class B non-voting common stock, par value $0.01 per share, or the Class B Shares, are exchanged into an equal numbers of shares of the Company’s voting common stock, par value $0.01 per share, or the Common Stock). As of February 26, 2009, 14,437,355 shares of Common Stock and 1,371,934 Class B Shares were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     The information required by Part III of this report, to the extent not set forth herein, is incorporated herein by reference from Specialty Underwriters’ Alliance, Inc.’s definitive proxy statement for its annual meeting of stockholders scheduled for Tuesday May 5, 2009.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business		3
Item 1A.	Risk Factors		15
Item 1B.	Unresolved Staff Comments		22
Item 2.	Properties		22
Item 3.	Legal Proceedings		22
Item 4.	Submission of Matters to a Vote of Security Holders		22
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		22
Item 6.	Selected Financial Data		24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		40
Item 8.	Financial Statements and Supplementary Data		40
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		40
Item 9A.	Controls and Procedures		41
Item 9B.	Other Information		41
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		42
Item 11.	Executive Compensation		42
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		43
Item 13.	Certain Relationships and Related Transactions, and Director Independence		43
Item 14.	Principal Accounting Fees and Services		43
PART IV
Item 15.	Exhibits and Financial Statement Schedules		43
	Exhibit Index		43
	Index to Financial Statements and Schedules		F-1
EX-10.19
EX-10.21
EX-10.48
EX-10.49
EX-10.50
EX-10.51
EX-10.52
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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FORWARD-LOOKING STATEMENTS

     Certain statements in this Annual Report on Form 10-K are based on the Company’s assumptions and expectations concerning future events and financial performance and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are subject to the safe harbor provisions of this legislation. Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “could,” “would,” “project,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “plan” or other words that convey uncertainty of future events or outcomes.

     Even though we believe our expectations regarding future events and financial performance are based on reasonable assumptions, forward-looking statements are not guarantees of future performance. Such statements are subject to significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statement.

     There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements such as the ineffectiveness or obsolescence of our business strategy due to changes in current or future market conditions; increased competition on the basis of pricing, capacity, coverage terms or other factors; the effects of acts of terrorism or war; developments in the world’s financial and capital markets that adversely affect the performance of our investments; changes in regulations or laws applicable to us, our subsidiaries, brokers or customers; acceptance of our products and services, including new products and services; decreased demand for our insurance products; loss of the services of any of our executive officers or other key personnel; the effects of mergers, acquisitions and divestitures; changes in legal theories of liability under our insurance policies; changes in accounting policies or practices; and changes in general economic conditions. Additional information on factors that could cause actual results to differ materially from those presented are discussed under the caption “RISK FACTORS.” You should read these cautionary statements as being applicable to all forward-looking statements wherever they appear. In light of the significant uncertainties inherent in forward-looking statements, readers are cautioned not to place undue reliance on the forward-looking statements contained within, which speak only as of the date on which they are made.

     We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

PART I

Item 1. Business

Overview

     Specialty Underwriters’ Alliance, Inc. was incorporated in April 2003, and through its wholly-owned subsidiary, SUA Insurance Company, or SUA, offers specialty commercial property and casualty insurance products through independent general agents, or partner agents, that serve niche groups of insureds. These targeted customer groups require specialized knowledge due to their unique risk characteristics. We believe that this segment of the industry has historically been underserved by most standard property and casualty insurance companies because they lack this specialized knowledge and are not willing to make the necessary investment to gain the knowledge required to achieve underwriting profits.

     Additionally, in the specialty property and casualty program business, insurance agents often have underwriting authority, are responsible for handling claims and are paid by up-front commissions on the amount of premiums written. We believe that this system does not serve the carriers, the agents or the insureds well. Poor underwriting results have led to underwriting losses for the carriers, which results in carrier turnover in the specialty program business, thereby creating instability in the niche insurance markets being served. In turn, agents incur additional costs in searching for, and converting to, new carriers and policyholders experience uncertainty regarding the placement of their coverage and quality of service from year to year.

     Our business model is designed to better serve the specialty property and casualty marketplace by recognizing the void that exists in these underserved niche markets and the problems that undisciplined underwriting creates. Our business model emphasizes our relationship with a select number of partner agents, who have specialized business knowledge in the types of business classes we underwrite. We rely on these partner agents for industry

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insights and their understanding of the specific risks in the niche markets we serve. We bring together that knowledge with our disciplined underwriting practices and leading-edge technology and systems capabilities to provide insurance programs and products that are customized to the needs of the specialty markets that we serve.

     Our business model is also designed to realign the interests of carriers, agents and insureds. Each of our partner agents are required to enter into agreements with us that provide that in exchange for marketing and pre-qualifying business for us, they receive an up-front commission designed to cover their costs and an underwriting profit-based commission paid over several years. In addition, each partner agent is required to purchase Class B Shares, which further aligns their interests with us and that of our shareholders. In return, we provide our partner agents with a five-year exclusive arrangement (generally allowing partner agents to offer other companies’ products if we decline to offer coverage to a prospective insured) covering a specific class of business and territory. Further, we have implemented a centralized information system designed to reduce processing and administrative time. Lastly, we are a stable, dedicated source of specialty program commercial property and casualty insurance capacity.

     SUA currently has a secure category rating of “B+” (Good) from A.M. Best Company, Inc., or A.M. Best, which is the sixth highest of 15 rating levels.

     Our website address is www.suainsurance.com. We make available on this website under “Investor Relations,” free of charge, our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, Forms 3, 4 and 5 filed via Edgar by our directors and executive officers and various other filings, including amendments thereto, with the Securities and Exchange Commission, or SEC, as soon as reasonably practicable after we electronically file or furnish such reports to the SEC. We also make available on our website our Corporate Governance Guidelines and Principles, our Code of Business Conduct and Ethics and the charters of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. This information also is available by written request to Investor Relations at our executive office address listed below. The information on our website is not incorporated by reference into this report.

     Our principal executive offices are located at 222 South Riverside Plaza, Suite 1600, Chicago, Illinois 60606 and our telephone number is (888) 782-4672.

Capital Structure and Business Acquisitions

     In the fourth quarter of 2004 we completed our initial public offering, or IPO, of 13,122,000 shares of Common Stock at a price of $9.50 per share. Concurrent with the closing of the IPO, we (a) sold 1,000,000 shares of our Common Stock at a price of $8.835 per share in a private placement and (b) sold 90,549 shares of our Common Stock to certain of our executive officers at a price of $8.835 per share. Additionally, at the closing of our IPO, we sold 26,316 shares of our Class B Shares to our initial partner agents for an aggregate purchase price of $250,000. The net proceeds to us from all these transactions after deducting expenses were approximately $123.5 million. In addition to the initial sales of Class B Shares, as of December 31, 2008, our partner agents have purchased, pursuant to their agreements, additional Class B Shares for an aggregate purchase price of $8.06 million and are contractually obligated to purchase an additional $0.94 million worth of Class B Shares in the future.

     Simultaneously with the closing of the IPO, we acquired all of the outstanding common stock of Potomac Insurance Company of Illinois, or Potomac, from OneBeacon Insurance Company, or OneBeacon, for $22.0 million. We refer to this transaction as the “Acquisition.” At the time of the Acquisition, Potomac was licensed in 41 states and the District of Columbia. Prior to the closing of the Acquisition, Potomac entered into a transfer and assumption agreement with OneBeacon whereby all of its liabilities, including all direct liabilities under insurance policies predating the Acquisition, were transferred to and assumed by OneBeacon. In the event OneBeacon fails to pay its assumed liabilities, SUA would be liable and could experience losses which could be materially adverse to our business and results of operations. OneBeacon currently has a rating of “A” (Excellent) from A.M. Best, which is the third highest of 15 rating levels. Upon completion of the Acquisition, we changed the name of Potomac to SUA Insurance Company, or SUA.

     SUA is currently licensed to conduct insurance business in 45 states and the District of Columbia, most recently having received a Certificate of Authority to write all property and casualty lines in Hawaii effective September 17, 2008 and Minnesota effective January 20, 2009. SUA is not licensed in Maine, Montana, New Hampshire, North Carolina, or Wyoming. However, in the future we may apply for licenses in these states.

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Industry

     The property and casualty insurance industry has historically been cyclical. When excess underwriting capacity exists, increased competition generally results in lower pricing and less favorable policy terms and conditions for insurers. As underwriting capacity contracts, pricing and policy terms and conditions generally become more favorable for insurers. In the past, underwriting capacity has been impacted by several factors, including catastrophes, industry losses, recognition of reserve deficiencies, changes in the law and regulatory requirements, investment returns and the ratings and financial strength of competitors.

Historical Industry Model

     Specialty commercial property and casualty insurance underwriting requires in-depth knowledge of a particular business class and often personal knowledge of the participants in a business class. As a result, insurers rely on skilled wholesale agents to procure business. An agent generally is an outsourced underwriting department for the insurer that markets to independent agents, processes submissions, selects risks, binds and issues policies on behalf of the insurer, and in some cases, handles claims on the underwritten businesses. Such agents and insurers commonly work with a reinsurer, which participates in the pool of risks selected by such agents. Without an insurer providing licensed policy paper and a reinsurer providing capacity, such agents are unable to service their independent agent clients, which ultimately affects the policyholders.

     Historically, insurance carriers have engaged key agents under contracts to produce and underwrite businesses, often processed through each such agent’s proprietary policy issuance and management information systems, with claims adjustment assigned to third parties. Agents and such third parties were generously compensated through these arrangements, but the compensation was not linked to the underlying profitability of the business. We believe that this strategy has led to a lack of alignment of interests between carriers, agents and the insureds. In addition, we believe that this system has resulted in weak underwriting and pricing controls, poor claims management and high costs due to the duplication of activities.

Our Model

     We believe that our strategy of developing relationships with partner agents is a fundamental shift in the way insurance companies do business. We enter into contractual relationships with our partner agents in order to encourage them to work with us in building our portfolio of specialty program commercial property and casualty insurance business. A portion of the compensation paid to our partner agents is directly tied to the underwriting profitability of their specific programs. In addition, our partner agents purchase an equity interest in our company, in the form of non-voting Class B Shares. We believe that requiring an ownership interest by our partner agents encourages them to direct business to us, regardless of future market cycles. We expect our partner agents to provide prequalified leads through their retail agents. We retain control over underwriting and claims activities. In addition, all transaction processing is done through our proprietary technology system in order to ensure data integrity and efficiency. As of February 1, 2009, we have entered into definitive agreements with the following nine partner agents — AEON Insurance Group, Inc., American Team Managers, Inc., Appalachian Underwriters, Inc., First Light Program Managers, Inc., Flying Eagle Insurance Services, Inc., Insential, Inc., Northern Star Management, Inc., Risk Transfer Holdings, Inc, and Specialty Risk Solutions, LLC.

     The key features of our relationship with our partner agents are as follows:

     Equity Ownership. Each partner agent must purchase shares of our non-voting Class B Shares. The Class B Shares will become exchangeable, one-for-one with our Common Stock, five years after the effective date of the applicable partner agent agreement, unless such agreement has been terminated. The Class B Shares are subject to substantial restrictions on transferability during this period. If prior to the fifth anniversary the effective date of the applicable partner agent agreement such partner agent’s contract is terminated, we may repurchase such partner agent’s Class B Shares at the lower of cost or the current market value (as defined in the applicable partner agent agreement). If after five years following the effective date of the applicable partner agent agreement such partner agent’s contract is terminated, we may repurchase the partner agent’s Class B Shares at the current market value. After the five-year period, and for so long as the partner agent agreement has not been terminated, such partner agent is required to hold Class B Shares worth at least 50% of its aggregate initial investment commitment in our Class B Shares.

     Commission. We pay each partner agent a commission designed to cover the costs associated with binding each policy. In addition, each partner agent may receive a meaningful share of the underwriting profits for each of its

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programs, subject to a cap. No further profit sharing calculation will be performed if the Partner Agent Agreement is terminated prior to five years. If, after five years, the partner agent agreement is terminated, for any reason, the profit sharing calculations will be performed annually until all payout periods and earned profit sharing are satisfied.

     Long-Term Contractual Commitment. Each partner agent has an exclusive five-year contractual arrangement (generally allowing partner agents to offer other companies’ products only if we decline to offer coverage to a prospective insured). We have no obligation to accept business that does not meet our guidelines. We agree to write only that class of business and lines of business by program in a defined territory with the specific partner agent, or under certain circumstances, Partner Agents may agree to share a similar program in a defined territory. Our partner agents may have one or a number of their programs with us. We expect that we will be a significant percentage of our partner agents’ program business. Each partner agent has the right to terminate its relationship with us on 180 days’ notice. We have the right to terminate our relationship with our partner agents if they materially breach our agreements with them, they become insolvent, or they fail to maintain appropriate licenses. In addition, we can terminate our relationship if a partner agent does not meet certain profitability and production guidelines that are established under each agreement or if a third party should acquire them. Upon termination, at our discretion, the partner agent must service the existing policies until such policies expire or are terminated, at which time the partner agent is allowed to place such business with other insurers.

Our Insurance Product Lines

     Our insurance operations, through our nine partner agents, are focused on the following programs:

• AEON Insurance Group, Inc.

Auto Transporters Program. This program offers commercial automobile coverage to companies that transport cars between two geographical points. The program is currently available in 41 states and the District of Columbia.

Towing and Collateral Recovery Program. This program offers commercial automobile, property, inland marine and general liability coverages. Eligible accounts include towing operators, garage operations with towing and recovery, as well as towing operations for auto auctions. The program is currently available in 41 states and the District of Columbia.

• American Team Managers, Inc.

Artisan Contractors Program. This program offers insurance and risk management services for certain artisan and specialty trade contractors engaged in residential and/or commercial construction. The program is open to contractors that are involved in new construction, remodeling and tenant improvements, including new residential home building. The program offers general liability coverage in Arizona and California.

General Contractors Program. This program offers insurance and risk management services for general contractors engaged in residential and/or commercial construction. The program is open to general contractors that are involved in new construction, remodeling and tenant improvements, including new residential home building. The program offers general liability coverage in Arizona and California

Trucking Program. This program offers commercial insurance for truckers of all sizes including owner/operators offering commercial automobile liability, physical damage and general liability coverages in seven states.

Workers’ Compensation Program. This program uses technology to fully automate a disciplined underwriting approach to writing small premium workers’ compensation business in California. The online product is available to small and medium sized businesses.

• Appalachian Underwriters, Inc.

Artisan Contractors Program. This program provides insurance and risk management services for certain artisan and specialty trade contractors engaged in residential and/or commercial construction. The program is open to contractors that are involved in new construction, remodeling and tenant improvements, including new residential home building. The program currently offers general liability and automobile coverage in 16 states.

General Contractors Program. This program provides insurance and risk management services for general contractors engaged in residential and/or commercial construction. The program is open to general contractors that are involved in new construction, remodeling and tenant improvements, including new residential home building. The program currently offers general liability and automobile coverage in 16 states.

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Workers’ Compensation Program. This program uses technology to fully automate a disciplined underwriting approach to writing small premium workers compensation business in 20 states, 11 of which are shared territories with Northern Star Management, Inc. The online product is available to small and medium sized businesses.

• First Light Program Managers, Inc.

Trucking Program. This program services selected classes within the trucking industry offering commercial automobile liability, physical damage and general liability. The program is currently available in nine states.

• Flying Eagle Insurance Services, Inc.

Artisan Contractors Program. This program offers insurance and risk management services for certain artisan and specialty trade contractors engaged in residential and/or commercial construction. Program is open to contractors that are involved in new construction, remodeling and tenant improvements, including new residential home building. The program currently offers general liability coverage in nine states.

General Contractors Program. This program offers insurance and risk management services for general contractors engaged in residential and/or commercial construction. The program is open to general contractors that are involved in new construction, remodeling and tenant improvements, including new residential home building. The program currently offers general liability coverage in nine states.

Roofing Contractors Program. This program offers insurance and risk management services for small to medium sized roofing contractors engaged in commercial and residential work. The program currently offers general liability coverage in 11 states.

• Insential, Inc.

Roofing Contractors Program. This program provides insurance and risk management services for small to medium sized roofing contractors engaged in commercial and residential work. The program currently offers general liability and automobile coverage in 17 states.

• Risk Transfer Holdings, Inc.

PEO Program. This program services staffing entities that are responsible for insurance procurement, human resources management and payroll and tax remittance. The program provides workers’ compensation solutions to professional employer organizations clients in 25 states.

Temporary Staffing Agencies Program. This program services the temporary staffing industry. The program provides workers’ compensation solutions to temporary staffing entities in 25 states.

• Northern Star Management, Inc.

Trucking Program. This program services truckers of all sizes including owner/operators in the Middle Atlantic states. This program provides commercial general liability, commercial auto liability and physical damage in six states.

Workers’ Compensation Program. This program uses technology to fully automate a disciplined underwriting approach to writing small premium workers’ compensation business in 12 states, 11 of which are shared territories with Appalachian Underwriters, Inc. The online product is available to small and medium sized businesses.

• Specialty Risk Solutions, LLC

Not-for-Profit Organizations Program. This program is for qualifying not-for-profit organizations in Florida. Excess coverage is available for workers’ compensation and commercial automobile.

Public Entities Program. This program specializes in providing workers compensation, general liability and commercial automobile insurance (all on an excess basis) to public entity clients, including schools, other educational institutions and municipalities in 20 states.

Reinsurance

     We have entered into reinsurance agreements to cover our casualty lines of business. Coverage of our casualty lines of business includes general liability, auto liability and workers’ compensation. We purchased reinsurance from reinsurers that are rated at least “A–” (Excellent) or better by A.M. Best and our reinsurers are compensated by sharing specified percentages of premiums.

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     For our workers’ compensation business, our reinsurers are responsible for losses between $1 million and $10 million due to any single occurrence under a policy and for losses in excess of $10 million up to $35 million for a multiple loss occurrence. For our non-workers’ compensation casualty business, we do not write policies above $1 million and therefore do not need reinsurance protection for single loss occurrences; our reinsurers are responsible for losses between $1 million and $5 million for a multiple loss occurrence.

Underwriting

     We produce all of our business through our partner agents, and select our partner agents based on a shared underwriting philosophy. Our underwriting strategy focuses on strict control of underwriting, pricing, coverage, partner agent relationships and customer segmentation. Our primary underwriting goal is to achieve an underwriting profit.

     Our underwriting philosophy has five components:

     We carefully scrutinize prospective partner agents. We contract only with agents that we believe have strong reputations and significant specialized knowledge of the market they serve. Our partner agents possess extensive knowledge in their specialties. We grant partner agents territorial program exclusivity so that partner agents do not market against each other. Partner agents are required to have the ability to expand their operations, have resources dedicated to selected programs and maintain minimum premium production levels.

     We maintain strict control of our underwriting process. Our underwriters work with each partner agent to develop specific underwriting strategies, pricing structures, and acceptable coverage and initial customer requirements. Senior underwriting personnel experienced in specialty classes, pricing, coverage and multiple lines of business along with actuarial and claims personnel form a program team to work with each partner agent. In addition, we develop a specific underwriting strategy for each customer segment. Each customer segment includes a demographic study of the number of prospective customers available, as well as the number of customers each partner agent expects to provide to us. We also create eligibility guidelines, which include size requirements for each account within the customer segment, acceptability for loss history, and adherence to loss prevention and safety practices. Ineligible operations are identified and eliminated from the customer segment. With the cooperation of the partner agents, each program team conducts the market research and analysis to develop specific customer segments, line of business coverage guidelines and pricing requirements. Each customer segment or business opportunity has minimum standards and business performance measures. We do not allow our partner agents to set rates on any program. We use actuaries to validate the rating and pricing plans.

     We have established a partner agent advisory process. Our partner agents have input on new programs and territorial assignments. This interaction with our partner agents enables us to avoid channel conflicts and promote the growth of profitable programs.

     We utilize a centralized policy processing system to control data. As part of our infrastructure strategy, we utilize a centralized policy administration system, which allows us to more efficiently quote, issue and manage insurance polices while controlling data from the first entry into the system. We customize the system for each partner agent and customer segment. The system allows our underwriters to provide approval of submissions at the point of entry using predetermined underwriting, pricing and coverage guidelines. Our underwriters oversee the underwriting process by having access to the system as the agents enter information and approve quotes. In selected circumstances, the system receives and approves online quotes with minimal underwriter intervention, based on predetermined underwriting criteria. Data used to underwrite risk and to handle claims is controlled by us rather than controlled by agents, third party administrators or other intermediaries.

     We monitor rate adequacy and review program performance. We develop estimated rate minimums, which are designed to help achieve profitable results and are based on our audits which focus on rate adequacy, line of business analysis and authority and compliance guidelines. Quarterly program reviews are conducted where variance to both profit and production of each partner agent is analyzed. We generate a series of reports that evaluate data associated with essential variables, and measures production, rate adequacy, loss analysis, adherence to guidelines, claims activity and trends. Actions are developed and implemented to address any negative variances.

Claims Control

     Claims control is a critical factor in driving company performance. We view claims control as one of our core areas of expertise. We believe that assigning integrated teams in the claims, underwriting and actuarial areas to specific customer groups produces the best results. By doing this, our claim handlers become familiar with the

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uniqueness of customers and their businesses. This approach encourages more insightful investigations, enhanced legal defenses and more efficient claims resolution. Also, we believe that improved communications between claims, underwriting and actuarial teams enhance risk selection, timely revision of underwriting criteria and program stability.

     To improve our customer service, better manage our claims and control our costs, we have opened two claims offices, one in the Midwest operating out of Chicago, Illinois and the other in the South operating out of Irving, Texas. A third claim office is scheduled to open in the second quarter of 2009 in Florida. We expect to open additional claims offices in other regions as business volume warrants.

Information Technology

     We utilize an Internet-based technology system that allows our program teams and partner agents to control underwriting, policy issuance and claims administration. We believe that this centralized system helps us to reduce high processing costs, eliminate duplication of data and more effectively analyze data.

     Historically, various parties to an insurance contract have stored data relating to the same transaction in their proprietary systems. As a result, we believe they have been unable to effectively integrate this information. Our objective is to use a system that provides a communication link with our partner agents and improves data communication throughout our company.

Investment Philosophy

     Our investment philosophy is based on managing underwriting risk, not investment risk. As a result, our investments are concentrated in highly liquid and highly rated fixed income securities with, on average, reasonably short durations. We do not invest in equity or preferred securities. Our portfolio of fixed maturities consists solely of investment grade bonds. We have no significant concentrations in a particular industry or issuer. Our strategy considers liability durations and provides for unforeseen cash outflow needs. During the second quarter of 2007 we stopped purchasing mortgage backed securities that were not guaranteed by the United States Government. In addition, during 2008, we significantly increased our investment in tax exempt municipal securities as a result of the fact that we are no longer in a net operating loss position.

     We use an external investment manager with significant assets under management and experience in insurance company portfolio requirements.

Competition

     We compete with a large number of U.S. and non-U.S. insurers, insurance agencies and intermediaries, and diversified financial services companies, such as Lincoln General Insurance Company, American International Group, Inc., CNA Financial Corporation, Travelers Companies, Inc., Zenith National Insurance Corp., National Interstate Corporation, RLI Corp., Zurich Financial Services, Liberty Mutual Holding Company, Inc, Navigators Insurance Co., and Swiss Re. Finally, for our California workers’ compensation business, we face competition from the State Compensation Insurance Fund.

     Our competitive position is based on many factors, including our perceived financial strength, ratings assigned by independent rating agencies, geographic scope of business, client relationships, premiums charged, contract terms and conditions, products and services offered (including the ability to design customized programs), speed of claims payment, reputation, experience and qualifications of employees, and local presence.

Employees

     As of February 23, 2009, we had 131 fulltime employees and four part-time employees. Our future performance depends significantly on the continued service of our key personnel. Our employees are not covered by collective bargaining arrangements, and we believe our relationship with our employees is good.

Ratings

     Our financial strength is regularly reviewed by independent rating agencies, who assign a rating based upon items such as results of operations, capital resources and minimum policyholders’ surplus requirements. We currently have a secure category rating of “B+” from A.M. Best. We have entered into a fronting arrangement under which policies may be nominally written by a higher rated insurer to allow our partner agents to produce business in the public entity and non-profit organization programs. Each policy written using the fronting arrangement will increase our acquisition costs relating to that policy.

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Insurance Regulation

     We develop our business through SUA Insurance Company, our wholly owned subsidiary. SUA Insurance Company is licensed to conduct insurance business in 45 states and the District of Columbia.

     General. Our operating subsidiary is subject to extensive regulation throughout the United States. Although there is limited federal regulation of the insurance business, each state has a comprehensive system for regulating insurers operating in that state. The laws of the various states establish supervisory agencies with broad authority to regulate, among other things, licenses to transact business, premium rates for certain coverages, trade practices, market conduct, agent licensing, policy forms, underwriting and claims practices, reserve adequacy, transactions with affiliates and insurer solvency. Many states also regulate investment activities on the basis of quality, distribution and other quantitative criteria. Further, most states compel participation in and regulate composition of various shared market mechanisms. States also have enacted legislation that regulates insurance holding company practices, including acquisitions, dividends, terms of affiliate transactions and other related matters. Our operating subsidiary is domiciled in Illinois.

     Insurance companies also are affected by a variety of state and federal legislative and regulatory measures and judicial decisions that define and qualify the risks and benefits for which insurance is sought and provided. These include redefinitions of risk exposure. In addition, individual state insurance departments may prevent premium rates for some classes of insureds from reflecting the level of risk assumed by the insurer for those classes. Such developments may result in adverse effects on the profitability of various lines of insurance. In some cases, these adverse effects on profitability can be minimized, when possible, through the re-pricing of coverages if permitted by applicable regulations, or the limitation or cessation of the affected business, which may be restricted by state law.

     Most states have insurance laws requiring property and casualty rate schedules, policy or coverage forms and other information to be filed with the state’s regulatory authority. In many cases, such rates and/or policy forms must be approved prior to use.

     Insurance companies are required to file detailed annual reports with the state insurance regulators in each state in which they do business, and their business and accounts are subject to examination by such regulators at any time. In addition, these insurance regulators periodically examine each insurer’s market conduct, financial condition, adherence to statutory accounting practices, and compliance with applicable laws and insurance department rules and regulations.

     Applicable state insurance laws, rather than federal bankruptcy laws, apply to the liquidation or reorganization of insurance companies.

     Insurance Regulation Concerning Change or Acquisition of Control. The insurance regulatory codes in our operating subsidiary’s state of domicile contain provisions (subject to certain variations) to the effect that the acquisition of “control” of a domestic insurer or of any person that directly or indirectly controls a domestic insurer cannot be consummated without the prior approval of the insurance commissioner. In general, a presumption of “control” arises from the direct or indirect ownership, control, possession with the power to vote or possession of proxies with respect to 10% or more of the voting securities of a domestic insurer or of a person that controls a domestic insurer. A person seeking to acquire control, directly or indirectly, of a domestic insurance company or of any person controlling a domestic insurance company generally must file with the relevant insurance regulatory authority a statement relating to the acquisition of control containing information required by statute and regulation. A copy of such statement must be provided to the insurer. In addition, certain state insurance laws contain provisions that require pre-acquisition notification to state agencies of a change in control of a non-domestic insurance company admitted in that state. While such pre-acquisition notification statutes do not authorize the state agency to disapprove the change of control, such statutes do authorize certain remedies, including the issuance of a cease and desist order with respect to the non-domestic admitted insurer doing business in the state if certain conditions exist, such as market disruption or undue market concentration.

     Regulation of Dividends and Other Payments from Our Operating Subsidiary. We are a legal entity separate and distinct from our subsidiary. As a holding company with no other business operations, our primary sources of cash to meet our obligations, including principal and interest payments with respect to indebtedness, come from available dividends and other statutorily permitted payments, such as tax allocation payments, from our operating subsidiary. Our operating subsidiary is subject to various state statutory and regulatory restrictions, including regulatory restrictions imposed as a matter of administrative policy, applicable generally to any insurance company in its state of domicile, which limit the amount of dividends or distributions an insurance company may pay to its

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stockholders without prior regulatory approval. The restrictions are generally based on certain levels or percentages of surplus, investment income and operating income as determined in accordance with statutory accounting principals, or SAP, which differ from generally accepted accounting principles in the United States of America, or GAAP. Generally, dividends may be paid only out of earned surplus. In every case, surplus subsequent to the payment of any dividends must be reasonable in relation to an insurance company’s outstanding liabilities and must be adequate to meet its financial needs.

     Illinois law states that no dividend or other distribution may be declared or paid at any time except out of earned surplus, rather than contributed surplus. A dividend or other distribution may not be paid if the surplus of the domestic insurer is at an amount less than that required by Illinois law for the kind or kinds of business such insurer is licensed to transact, nor when payment of a dividend or other distribution by such insurer would reduce its surplus to less than such amount. A domestic insurer, which is a member of a holding company system, must report to the insurance director, or the Director, all ordinary dividends or other distributions to stockholders within five business days following the declaration and no less than 10 business days prior to the payment thereof.

     Illinois law further provides that no domestic insurer, which is a member of a holding company system, may pay any extraordinary dividend or make any other extraordinary distribution to its security holders until: (1) 30 days after the Director has received notice of the declaration thereof and has not within such period disapproved the payment; or (2) the Director approves such payment within the 30-day period. Illinois law defines an extraordinary dividend or distribution as “any dividend or distribution of cash or other property whose fair market value, together with that of other dividends or distributions, made within the period of 12 consecutive months ending on the date on which the proposed dividend is scheduled for payment or distribution exceeds the greater of: (a) 10% of the company’s surplus as regards policyholders as of the 31st day of December next preceding, or (b) the net income of the company for the 12-month period ending the 31st day of December next preceding, but does not include pro rata distributions of any class of the company’s own securities.”

     If insurance regulators determine payment of a dividend or any other payment to an affiliate (such as a payment under a tax-sharing agreement or a payment for employees or other services) would, because of the financial condition of the paying insurance company or otherwise, be hazardous to such insurance company’s policyholders, the regulators may prohibit such payments.

     Statutory Surplus and Capital. In connection with the licensing of insurance companies, an insurance regulator may limit or prohibit the writing of new business by an insurance company within its jurisdiction when, in the regulator’s judgment, the insurance company is not maintaining adequate statutory surplus or capital. We do not currently anticipate any regulator would limit the amount of new business our operating subsidiary may write.

     Risk-Based Capital. In order to enhance the regulation of insurer solvency, in December 1993 the National Association of Insurance Commissioners, or NAIC, adopted a formula and model law to implement risk-based capital requirements for property and casualty insurance companies. These risk-based capital requirements are designed to assess capital adequacy and to raise the level of protection that statutory surplus provides for policyholder obligations. The risk-based capital model for property and casualty insurance companies measures three major areas of risk facing property and casualty insurers:

• underwriting, which encompasses the risk of adverse loss developments and inadequate pricing;

• declines in asset values arising from credit risk; and

• declines in asset values arising from investment risk.

     Under the approved formula, an insurer’s statutory surplus is compared to its risk-based capital requirement. If this ratio is above a minimum threshold, no company or regulatory action is necessary. Below this threshold are four distinct action levels at which a regulator may intervene with increasing degrees of authority over an insurer as the ratio of surplus to risk-based capital requirement decreases. The four action levels are:

• insurer is required to submit a plan for corrective action;

• insurer is subject to examination, analysis and specific corrective action;

• regulators may place insurer under regulatory control; and

• regulators are required to place insurer under regulatory control.

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     Accreditation. The NAIC has instituted its Financial Regulatory Accreditation Standards Program, or FRASP, in response to federal initiatives to regulate the business of insurance. FRASP provides a set of standards designed to establish effective state regulation of the financial condition of insurance companies. Under FRASP, a state must adopt certain laws and regulations, institute required regulatory practices and procedures, and have adequate personnel and other resources to enforce these laws and regulations in order to become an “accredited” state. Accredited states are not able to accept certain financial examination reports of insurers prepared solely by the regulatory agency in an unaccredited state.

     NAIC IRIS Ratios. In the 1970s, the NAIC developed a set of financial relationships or “tests” called the Insurance Regulatory Information System, or IRIS, that were designed to facilitate early identification of companies that may require special attention by insurance regulatory authorities. Insurance companies submit data on an annual basis to the NAIC, which in turn analyzes the data utilizing ratios covering 12 categories of financial data with defined “usual ranges” for each category. An insurance company may fall out of the usual range for one or more ratios because of specific transactions that are in themselves immaterial or eliminated at the consolidated level. Generally, an insurance company may become subject to increased scrutiny if it falls outside the usual ranges on four or more of the ratios.

     Investment Regulation. Our operating subsidiary is subject to state laws and regulations that require diversification of investment portfolios and that limit the amount of investments in certain investment categories. Failure to comply with these laws and regulations may cause non-conforming investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in some instances, would require divestiture. As of December 31, 2008, we believe our investments complied with such laws and regulations.

     Guaranty Funds and Assigned Risk Plans. Most states require all admitted insurance companies to participate in their respective guaranty funds that cover various claims against insolvent insurers. Solvent insurers licensed in these states are required to fund the losses paid on behalf of insolvent insurers by the guaranty funds and generally are subject to annual assessments in the state by its guaranty fund to fund these losses. Some states also require licensed insurance companies to participate in assigned risk plans that provide coverage for automobile insurance and other lines of business for insureds that, for various reasons, cannot otherwise obtain insurance in the open market. This participation may take the form of reinsuring a portion of a pool of policies or the direct issuance of policies to insureds. The calculation of an insurer’s participation in these plans is usually based on the amount of premium for that type of coverage that was written by the insurer on a voluntary basis in a prior year. Participation in assigned risk pools tends to produce losses that result in assessments to insurers writing the same lines on a voluntary basis.

     Credit for Reinsurance. A primary insurer ordinarily will enter into a reinsurance agreement only if it can obtain credit for the reinsurance ceded on its statutory financial statements. In general, credit for reinsurance is currently allowed in the following circumstances:

• if the reinsurer is licensed in the state in which the primary insurer is domiciled or, in some instances, in certain states in which the primary insurer is licensed;

• if the reinsurer is an “accredited” or otherwise approved reinsurer in the state in which the primary insurer is domiciled or, in some instances, in certain states in which the primary insurer is licensed;

• in some instances, if the reinsurer (1) is domiciled in a state that is deemed to have substantially similar credit for reinsurance standards as the state in which the primary insurer is domiciled and (2) meets financial requirements; or

• if none of the above applies, to the extent that the reinsurance obligations of the reinsurer are secured appropriately, typically through the posting of a letter of credit for the benefit of the primary insurer or the deposit of assets into a trust fund established for the benefit of the primary insurer.

     Statutory Accounting Principles. Statutory Accounting Principles, or SAP, is a basis of accounting developed to assist insurance regulators in monitoring and regulating the financial condition of insurance companies. It is primarily concerned with measuring an insurer’s surplus to policyholders. Accordingly, statutory accounting focuses on valuing assets and liabilities of insurers at financial reporting dates in accordance with appropriate insurance law and regulatory provisions applicable in each insurer’s domiciliary state.

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     GAAP is concerned with a company’s net worth, as well as other financial measurements, such as income and cash flows. Accordingly, GAAP gives more consideration to appropriate matching of revenue and expenses and accounting for management’s stewardship of assets than does SAP. As a direct result, different assets and liabilities and different amounts of assets and liabilities will be reflected in financial statements prepared in accordance with GAAP as opposed to SAP.

     Statutory accounting practices established by the NAIC and substantially adopted by state insurance departments will determine, among other things, the amount of our statutory surplus and statutory net income, which will affect, in part, the amount of funds our operating subsidiary has available to pay dividends to us.

     Federal Regulation. Although state regulation is the dominant form of regulation for insurance and reinsurance business, the federal government has shown increasing concern over the adequacy of state regulation. It is not possible to predict the future impact of any potential federal regulations or other possible laws or regulations on our capital and operations, and the enactment of such laws or the adoption of such regulations could materially adversely affect our business.

     The Gramm Leach Bliley Act, or GLBA, which made fundamental changes in the regulation of the financial services industry in the United States, was enacted on November 12, 1999. The GLBA permits the transformation of the already converging banking, insurance and securities industries by permitting mergers that combine commercial banks, insurers and securities firms under one holding company, a “financial holding company.” Bank holding companies and other entities that qualify and elect to be treated as financial holding companies may engage in activities, and acquire companies engaged in activities, that are “financial” in nature or “incidental” or “complementary” to such financial activities. Such financial activities include acting as principal, agent or broker in the underwriting and sale of life, property, casualty and other forms of insurance and annuities.

     Until the passage of the GLBA, the Glass-Steagall Act of 1933 had limited the ability of banks to engage in securities-related businesses, and the Bank Holding Company Act of 1956, as amended, had restricted banks from being affiliated with insurers. With the passage of the GLBA, among other things, bank holding companies may acquire insurers and insurance holding companies may acquire banks. The ability of banks to affiliate with insurers may affect our product lines by substantially increasing the number, size and financial strength of potential competitors.

     In response to the tightening of supply in some insurance markets resulting from, among other things, the terrorist attacks of September 11, 2001, The Terrorism Risk Insurance Act of 2002, or TRIA, was enacted to ensure the availability of insurance coverage for terrorist acts in the United States. Although TRIA originally contained a sunset provision expiring December 31, 2005, the Terrorism Risk Insurance Extension Act of 2005, or Extension Act, was enacted extending TRIA for two additional years. In 2007, President Bush signed the Terrorism Risk Insurance Program Reauthorization Act of 2007, or TRIPRA, which extends the federal terrorism insurance program for an additional seven years. These laws establish a federal assistance program to help the commercial property and casualty insurance industry cover claims related to certified acts of terrorism, regulate the terms of insurance relating to terrorism coverage and require some commercial property and casualty insurers to make available to their policyholders terrorism insurance coverage for certified acts of terrorism at the same limits and terms as is available for other coverages. Exclusions or sub-limit coverage for certified acts of terrorism may be established, but solely at the discretion of the insured.

     A certified act of terrorism is defined by TRIPRA as an act of terrorism resulting in aggregate losses greater than $100 million. An act of terrorism is a loss that is violent or dangerous to human life, property or infrastructure, resulting in damage within the United State or its territories and possessions, or outside the United States in the case of a United States flagged vessel, air carrier or mission, committed by an individual or individuals in an effort to coerce the United States civilian population or influence the policy of or affect the United States government’s conduct by coercion. We are currently unable to predict the extent to which TRIPRA may affect the demand for our products or the risks that may be available for us to consider underwriting.

     Legislative and Regulatory Proposals. From time to time, various regulatory and legislative changes have been proposed in the insurance and reinsurance industry. These proposals have included the possible introduction of federal regulation in addition to, or in lieu of, the current system of state regulation of insurers. We are unable to predict whether any of these or other proposed laws and regulations will be adopted, the form in which any such laws and regulations would be adopted, or the effect, if any, these developments would have on our operations and financial condition.

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Executive Officers of the Registrant

     Our executive officers are as follows:

Name	Age	Position
Courtney C. Smith	61	President, Chief Executive Officer and Chairman of the Board of Directors
Peter E. Jokiel	61	Executive Vice President, Chief Financial Officer, Treasurer and Director
Daniel A. Cacchione	60	Senior Vice President and Chief Underwriting Officer
Barry G. Cordeiro	62	Senior Vice President and Chief Information Officer
Gary J. Ferguson	65	Senior Vice President and Chief Claims Officer
Scott W. Goodreau	41	Senior Vice President, General Counsel, Administration and Corporate Relations and Secretary
Scott K. Charbonneau	49	Vice President and Chief Actuary
Daniel J. Rohan	52	Vice President and Controller

     Courtney C. Smith. Chief Executive Officer, President and Chairman of the Board of Directors. Mr. Smith has served as President, Chief Executive Officer and a Director since the company’s inception. He was appointed as the Chairman of our board in May 2004. Mr. Smith has over 30 years of experience in the property and casualty insurance industry. Prior to joining us, from April 1999 to April 2002, Mr. Smith served as Chief Executive Officer and President of TIG Specialty Insurance, or TIG, a leading specialty insurance underwriter.

     Peter E. Jokiel. Executive Vice President, Chief Financial Officer, Treasurer and Director. Mr. Jokiel has served as Chief Financial Officer, Treasurer and a Director since the company’s inception. He was appointed as an Executive Vice President in June 2004. Mr. Jokiel has over 30 years experience in the insurance industry. From April 1997 to January 2001, Mr. Jokiel was President and Chief Executive Officer of CNA Financial Corporation’s life operations.

     Daniel A. Cacchione. Senior Vice President and Chief Underwriting Officer. Mr. Cacchione has served as a Vice President and our Chief Underwriting Officer since December 2007 and was appointed as a Senior Vice President in January of 2009. Mr. Cacchione has been a program director with SUA since the company’s inception and has been responsible for managing the underwriting relationship with Risk Transfer Holdings, Inc. and Specialty Risk Solutions, LLC. He has over 20 years of experience in the property and casualty insurance industry with particular expertise in the specialty area. From 2001 to 2003, Mr. Cacchione served as Vice President of Marketing for Kemper Insurance, Middle Markets Group and prior to that, he has also held several leadership positions at CNA Financial Corporation, most recently as a Senior Vice President in charge of its Commercial Affiliation Marketing (CAM) programs which focus on specialty business.

     Barry G. Cordeiro. Senior Vice President and Chief Information Officer. Mr. Cordeiro has served as a Vice President and Chief Information Officer since July 2005 and was appointed as a Senior Vice President in February 2007. Mr. Cordeiro has over 20 years of experience in programming, developing and managing software and hardware for various businesses, including significant experience in the insurance industry. From 2003 to 2005, Mr. Cordeiro served as President of Chicago Financial Technology, a global technology consulting and integration company. From 1999 to 2001, Mr. Cordeiro served as Chief Information Officer and EVP of the eBusiness group of CNA Insurance.

     Gary J. Ferguson. Senior Vice President and Chief Claims Officer. Mr. Ferguson has served as a Senior Vice President and Chief Claims Officer since the company’s inception. Mr. Ferguson has over 30 years of experience in the insurance industry. From February 2002 to July 2003, Mr. Ferguson was managing director responsible for claims functions at TIG. From December 1997 to October 2001, Mr. Ferguson served as Senior Vice President for Zenith Insurance Company.

     Scott W. Goodreau. Senior Vice President, General Counsel, Administration & Corporate Relations and Secretary. Mr. Goodreau has served as a Vice President and General Counsel and has led the company’s Administration & Corporate Relations functions since the company’s inception. He was appointed as a Senior Vice

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Specialty Underwriters’ Alliance, Inc.

President in February 2007. Prior to joining the company, Mr. Goodreau worked as Vice President & General Counsel for AscendantOne, Inc., a business unit of Insurance Services Office, Inc. in the insurance technology field. Mr. Goodreau also worked as Executive Vice President and General Counsel of a real estate development company and as an associate at Cahill Gordon & Reindel in its corporate department. Mr. Goodreau received his JD from Harvard Law School and his MBA from the Kellogg School of Management of Northwestern University.

     Scott K. Charbonneau. Vice President and Chief Actuary. Mr. Charbonneau has served as a Vice President and Chief Actuary since January 2005. Mr. Charbonneau has over 20 years of experience in the insurance industry, most recently serving as Vice President and Chief Reserving Officer for Kemper Insurance Companies from 2001 to 2004. Mr. Charbonneau also served as Chief Actuary and held other various offices at Interstate Insurance Company from 1993 to 2001.

     Daniel J. Rohan. Vice President and Controller. Mr. Rohan has served as a Vice President and Controller since the company’s inception and became an executive officer in November 2006. Mr. Rohan has over 25 years of experience in accounting. Prior to joining the company, Mr. Rohan served as Controller for Statewide Insurance Company. From 1994 to 2002, Mr. Rohan served as Assistant Vice President of Insurance Reporting of CNA Financial Corporation.

Item 1A. Risk Factors

     We believe the following risk factors, as well as the other information contained in this Annual Report on Form 10-K, are material to an understanding of our company. Any of the following risks as well as other risks and uncertainties discussed in this Annual Report on Form 10-K 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. Additional risks and uncertainties that we are unaware of, or that are currently deemed immaterial, also may become important factors that affect us.

We rely on a limited number of partner agents, one of which accounts for a substantial portion of business. Our failure to recruit and retain partner agents could materially adversely affect our results. Our transition of our partner agents’ business may significantly delay our ability to generate revenue.

     We have only nine partner agents. We hope to enter into additional partner agent relationships in the future. Our ability to recruit and retain partner agents may be negatively impacted by certain aspects of our business model, including our requirement that partner agents defer and make contingent a portion of their agency commissions and purchase, or commit to purchase, shares of our Class B Shares. Our ability to add new partner agents may be limited by our level of capital. In addition, several partner agents make up a significant portion of our written premiums. A lack of premium production from any one these partner agent may adversely affect our business. Similarly, a reliance on any one partner agent to produce premium may adversely affect our business. For the year ended December 31, 2008, our partner agent Risk Transfer Holdings, Inc., or RTH, produced approximately 44.7% of our total gross written premiums. Any deterioration of our relationship with RTH or decrease in RTH’s premium production could materially adversely affect our results in future periods.

Our business is heavily concentrated in California and Florida. If our premiums are reduced in these states in the future, it could have a material adverse effect on our business.

     We currently write approximately 63.2% of our business in California and Florida. We may be unable to write in these states in the future due to regulatory prohibitions such as disapproval of policy forms and premium rates, inability to meet solvency standards or revocation of our licenses. We may also face competition that reduces our premiums in these states. A reduction in our premium volume in these states could have a material adverse effect on our business.

We face competition from companies with greater financial resources, broader product lines, higher ratings and stronger financial performance than us, which may impair our ability to retain existing customers and maintain our profitability and financial strength.

     We compete with a large number of U.S. and non-U.S. insurers, insurance agencies and intermediaries, and diversified financial services companies such as Lincoln General Insurance Company, American International Group, Inc., CNA Financial Corporation, Travelers Companies, Inc., Zenith National Insurance Corp., National Interstate Corporation, RLI Corp., Zurich Financial Services, Liberty Mutual Holding Company, Inc, Navigators Insurance Co., and Swiss Re. Other newly formed and existing insurance companies also may be preparing to enter

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the same market segments in which we compete or raise new capital. Since we have limited operating history, our competitors have greater name and brand recognition than we have. Many of them also have greater financial strength and ratings assigned by independent ratings agencies and more (in some cases substantially more) capital and greater marketing and management resources than we have and may offer a broader range of products and more competitive pricing than we offer.

     Our competitive position is based on many factors, including our perceived financial strength, market conditions overall and in the property and casualty insurance business, ratings assigned by independent rating agencies, geographic scope of business, client relationships, premiums charged, contract terms and conditions, products and services offered (including the ability to design customized programs), speed of claims payment, reputation, experience and qualifications of employees and local presence. We choose types and lines of businesses (such as tow trucks and workers’ compensation) that do not require “A” level A.M. Best ratings or that can utilize the fronting relationships that we have established (such as public entities). As insurance capacity grows either as a result of limited loss events or new competitors entering the market, insurance companies may either begin or increase writing premiums in the specialty insurance markets thereby increasing competition for, and downward pricing pressure on, our products. We work with a limited number of partner agents, which enable us to provide them with customized approaches to their business and give them long-term (five years) exclusive arrangements. Our systems capability is designed for this type of business, which enables us to change and adapt quicker to changes in the marketplace. Since we are a relatively new company, we may not be able to compete successfully on many, or any, of these bases. If competition limits our ability to write new business at adequate rates, our return on capital may be adversely affected.

     In addition, a number of new, proposed or potential legislative or industry developments could further increase competition in our industry. In certain states, state-sponsored entities provide property insurance in catastrophe-prone areas or other “alternative markets” types of coverage. Furthermore, the growth of services offered over the Internet may lead to greater competition in the insurance business. New competition from these developments could cause the supply and/or demand for insurance to change, which could adversely affect our underwriting results.

Our secure category rating of “B+” (Good) from A.M. Best may place us at a competitive disadvantage or cause us to incur additional expenses. A future downgrade in our ratings could affect our competitive position with customers, and our rating may put us at a disadvantage with higher-rated carriers.

     Competition in the types of insurance business that we underwrite is based on many factors, including the perceived financial strength of the insurer and ratings assigned by independent rating agencies. A.M. Best is generally considered to be a significant rating agency with respect to the evaluation of insurance companies. A.M. Best’s ratings are based on a quantitative evaluation of a company’s performance with respect to profitability, leverage and liquidity and a qualitative evaluation of spread of risk, investments, reinsurance programs, reserves and management. Insurance ratings are used by customers, reinsurers and reinsurance intermediaries as an important means of assessing the financial strength and quality of insurers.

     Our secure category rating of “B+” (Good) from A.M. Best is the sixth highest of 15 rating levels and indicates A.M. Best’s opinion of our financial strength and ability to meet ongoing obligations to our policyholders. The rating is not a recommendation to buy, sell or hold our securities. We cannot assure you that we will be able to maintain this rating. If we experience a ratings downgrade, we may experience a substantial loss of business as policyholders might purchase insurance from companies with higher claims-paying and financial strength ratings instead of from us.

     Certain financial institutions and banks require property owners with loans to be insured by insurers with at least an “A–” rating by A.M. Best. Certain other insureds choose to insure their own property and casualty risks only with such higher-rated insurers. Also, due to financial responsibility laws, some states and the federal government require certain regulated entities to purchase mandatory insurance from insurers holding a minimum of “A–” rating by A.M. Best. Some agents may be unwilling or unable to write certain lines of business such as property, long-tail liability lines and automobile liability with insurers that are not rated at least “A–” by A.M. Best. Although we have entered into a fronting arrangement under which policies may be nominally written by a higher rated insurer to allow our partner agents to produce business in the public entity and non-profit organization programs, there can be no assurances that this arrangement will continue to be available at a reasonable price or acceptable to independent agents, and each policy written using the fronting arrangement will increase our acquisition costs relating to that policy. If we are not able to continue this fronting arrangement, we may lose access to certain types of customers.

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We may misevaluate the risks we seek to insure. If we misevaluate these risks, our business, reputation, financial condition and results of operations could be materially and adversely affected.

     We were formed to provide commercial lines insurance to specialty program markets through our operating subsidiary. The market for commercial lines insurance to specialty programs differs significantly from the standard market. In the standard market, insurance rates and forms are highly regulated, products and coverages are largely uniform and have relatively predictable exposures and companies tend to compete for customers on the basis of price. In contrast, the specialty market provides coverage for risks that do not fit the underwriting criteria of most standard carriers. Our success depends on the ability of our underwriters to accurately assess the risks associated with the businesses that we insure. Underwriting for specialty program lines requires us to make assumptions about matters that are inherently unpredictable and beyond our control, and for which historical experience and probability analysis may not provide sufficient guidance. Such matters include, but are not limited to the effects of future inflation on our claim trends, future law changes in jurisdictions where we do business, judicial interpretations regarding policy coverage, the predictability and frequency of catastrophic events, and medical protocol changes. If we fail to adequately evaluate the risks to be insured, our business, financial condition and results of operations could be materially and adversely affected, since our claims experience could be significantly different than what we assumed in our pricing, resulting in reduced underwriting profits or underwriting losses.

Our actual insured losses may be greater than our loss reserves, which would negatively impact our financial condition and results of operation.

     Our success depends upon our ability to assess accurately the risks associated with the businesses that we insure. Significant periods of time often elapse between the occurrence of an insured loss, the reporting of the loss to an insurer and payment by the insurer of that loss. As we write insurance business and recognize liabilities for unpaid losses, we establish reserves as balance sheet liabilities. These reserves represent estimates of amounts needed to pay reported losses and unreported losses and the related loss adjustment expense. Loss reserves are only an estimate of what an insurer anticipates the ultimate costs of claims to be and do not represent an exact calculation of liability. Estimating loss reserves is a difficult and complex process involving many variables and subjective judgments, particularly for new companies, such as ours, that have limited loss development experience. As part of our reserving process, we review historical data as well as actuarial and statistical projections and consider the impact of various factors such as:

• trends in claim frequency and severity;

• changes in operations;

• emerging economic and social trends;

• inflation; and

• changes in the regulatory and litigation environments.

     This process assumes that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting future events. There is no precise method, however, for evaluating the impact of any specific factor on the adequacy of reserves, and actual results are likely to differ from original estimates. In addition, unforeseen losses, the type or magnitude of which we cannot predict, may emerge in the future. To the extent our loss reserves are insufficient to cover actual losses or loss adjustment expenses, we will have to add to these loss reserves and incur a charge to our earnings, which could have a material adverse effect on our financial condition, results of underwriting and cash flows.

We may require additional capital in the future, which may not be available on favorable terms or at all.

     We expect that our future capital requirements will depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover our losses. Maintaining adequate capital consistent with business objectives and regulatory requirements is critical to any insurer’s future. We believe that our current level of capital is sufficient, but may need to be augmented to further expand our business strategy, enter new business lines, and manage our expected growth or to deal with higher than expected expenses or poorer than expected results. Any equity or debt financing, if available at all, may be on terms that are not favorable to us. If we are able to raise capital through equity financings, our common stockholder’s interest in our company could be diluted, and the securities we issue may have rights, preferences and

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privileges that are senior to those of our current common stockholders. If we cannot obtain additional adequate capital, our business, financial condition and results of operations could be adversely affected.

Current difficult conditions in the global financial markets and the economy generally may materially adversely affect our business and results of operations.

     Our results of operations are materially affected by conditions in the global financial markets and the economy generally. The stress experienced by global financial markets that began in the second half of 2007 continued and substantially increased during 2008. The volatility and disruption in the global financial markets have reached unprecedented levels. The availability and cost of credit has been materially affected. These factors, combined with volatile oil prices, depressed home prices and increasing foreclosures, falling equity market values, declining business and consumer confidence and the risks of increased inflation and unemployment, have precipitated an economic slowdown and fears of a severe recession.

     The global fixed-income markets are experiencing a period of both extreme volatility and limited market liquidity conditions, which has affected a broad range of asset classes and sectors. As a result, the market for fixed income instruments has experienced decreased liquidity, increased price volatility, credit downgrade events and increased probability of default. These events and the continuing market upheavals have had, and may continue to have, an adverse effect on us. Our revenues could decline in such circumstances, the cost of meeting our obligations to our customers may increase, and our profit margins could erode. In addition, in the event of a prolonged economic downturn, we could incur significant losses in our investment portfolio.

     The demand for our insurance products could be adversely affected in an economic downturn. Our policyholders may choose to defer or stop paying insurance premiums. We cannot predict whether or when such actions may occur, or what impact, if any, such actions could have on our business, results of operations, cash flows and financial condition.

If we are unable to obtain regulatory approval in a timely manner, our ability to generate revenue could be delayed.

     We must successfully receive approval of our rates and forms in order to issue policies in certain jurisdictions. A delay in our ability to receive timely approval could lead to a significant delay in our ability to generate revenues.

The availability of reinsurance that we use to limit our exposure to risks may be limited, and counterparty credit and other risks associated with our reinsurance arrangements may result in losses that could adversely affect our financial condition and results of operations.

     To limit our risk of loss, we purchase reinsurance. The availability and cost of reinsurance protection is subject to market conditions, which are beyond our control. We cannot assure you that we will be able to obtain, or in the future renew, adequate protection at cost-effective levels. For our workers’ compensation business, our reinsurers are responsible for losses between $1 million and $10 million due to any single occurrence under a policy and for losses in excess of $10 million up to $35 million for a multiple loss occurrence. For our non-workers’ compensation casualty business, we do not write policies above $1 million and therefore do not need reinsurance protection for single loss occurrences. For this business, our reinsurers are responsible between $1 million and $5 million of losses for a multiple loss occurrence.

     As a result of market conditions and other factors, we may not be able to successfully mitigate our exposure to loss by purchasing reinsurance to the extent we would desire. Further, we are subject to credit risk with respect to our reinsurance arrangements because the ceding of risk to reinsurers does not relieve us of our liability to the clients or companies we insure. Our failure to establish adequate reinsurance arrangements or the failure of our reinsurance arrangements to protect us from overly concentrated risk exposure could adversely affect our business, financial condition and results of operations.

The occurrence of severe catastrophic events may have a material adverse effect on us.

     We underwrite property and casualty insurance which covers catastrophic events. Therefore, we have large aggregate exposures to natural and man-made disasters, such as hurricane, typhoon, windstorm, flood, earthquake, acts of war, acts of terrorism and political instability. We expect that our loss experience generally will include infrequent events of great severity. Although we may attempt to exclude losses from terrorism and other similar risks from some coverages we write, we may not be successful in doing so. The risks associated with natural and man-made disasters are inherently unpredictable, and it is difficult to predict the timing of such events with

18

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

statistical certainty or estimate the amount of loss any given occurrence will generate. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. While we attempt to limit our net exposure in any area and to any one catastrophe, we may not be able to do so. Therefore, the occurrence of losses from catastrophic events could have a material adverse effect on our results of operations and financial condition. These losses could adversely affect our net worth and reduce our stockholders’ equity and statutory surplus of our operating subsidiary (which is the amount remaining after all liabilities, including loss reserves, are subtracted from all admitted assets, as determined under statutory accounting principles, or SAP). A decrease in statutory surplus would adversely affect our operating subsidiary’s ability to write new business. Increases in the values and geographic concentrations of insured property and the effects of inflation have resulted in increased severity of industry losses in recent years and we expect that those factors will increase the severity of catastrophe losses in the future.

The effects of emerging claim and coverage issues on our business are uncertain.

     As industry practices and legal, judicial, social and other environmental conditions change, unexpected issues related to claims and coverage may emerge with respect to various segments of our business. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, the effects of these changes may not become apparent until some time after we have issued insurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued. An example of this is a growing trend of plaintiffs targeting property and casualty insurers in purported class action litigation relating to claims-handling, insurance sales practices and other practices related to the conduct of business in our industry. The effects of these and other unforeseen emerging claim and coverage issues are extremely hard to predict and could harm our business, financial condition and results of operations.

We may be subject to losses if OneBeacon fails to honor its reinsurance obligations to us.

     Specialty Underwriters’ Alliance, Inc. acquired Potomac and subsequently renamed the company SUA Insurance Company. Prior to the acquisition, Potomac entered into a transfer and assumption agreement with OneBeacon, whereby all of its liabilities, including all direct liabilities under existing insurance policies, were ceded to and assumed by OneBeacon. The legal requirements to transfer insurance obligations from one insurer to another, sometimes referred to as a novation, vary from state to state, generally based on the state in which the policy was issued. In some states, if certain notifications are made to policyholders and they do not object to the transfer within certain periods of time, they are deemed to have agreed to the transfer. In other states, policyholders must consent to the transfer in writing. Additionally, in some states insurance regulatory approval is required in addition to policyholder consents.

     To the extent that the legal requirements for novation have been met with regards to specific policies, OneBeacon is directly liable to those policyholders for any claims arising from insured events under those policies, and SUA no longer has any obligation to those policyholders. Accordingly, SUA has extinguished any recorded liabilities to such policyholders and the related reinsurance recoverables, so no gain or loss has occurred.

     Where a novation has not been achieved, SUA continues to be directly liable to legacy policyholders for claims arising under their policies, but has reinsurance coverage from OneBeacon to reimburse SUA for any such claims. Thus, SUA should not experience any gains or losses with respect to such legacy policies unless OneBeacon fails to honor its reinsurance obligation. In the event of OneBeacon’s failure to pay, SUA might experience losses that could materially adversely affect our business and results of operations.

A significant amount of our invested assets may be adversely affected by market volatility and interest rate changes.

     We invest the premiums we receive from customers. Our investment portfolio consists of highly rated, liquid fixed income securities. The fair market value of these assets and the investment income from these assets will fluctuate depending on general economic and market conditions. Because we classify all of our invested assets as available for sale, changes in the market value of our securities will be reflected in our consolidated balance sheet. In addition, market fluctuations will affect the value of our investment portfolio and could adversely affect our liquidity. Our investment results and, therefore, our financial condition may be impacted by changes in the financial condition of the entities in which we invest, as well as changes in interest rates, government monetary policies, general economic conditions and overall market conditions.

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2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

     Our investment portfolio contains interest rate-sensitive instruments, such as bonds, which may be adversely affected by changes in interest rates. Because of the unpredictable nature of losses that may arise under insurance policies, our liquidity needs are substantial and may increase at any time. Increases in interest rates during periods when we sell investments to satisfy liquidity needs may result in losses. Changes in interest rates also could have an adverse effect on our investment income and results of operations and may expose us to prepayment risks on certain fixed income investments.

     Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Although we attempt to take measures to manage the risks of investing in a changing interest rate environment, we may not be able to mitigate interest rate sensitivity effectively. Our mitigation efforts include maintaining a high quality portfolio with a relatively short duration to reduce the effect of interest rate changes on book value. Despite our mitigation efforts, a significant increase in interest rates could have a material adverse effect on our book value.

Our holding company structure and certain regulatory and other constraints affect our ability to pay dividends and make other payments.

     We are a holding company. As a result, we do not have, and do not expect to have, any significant operations or assets other than our ownership of the shares of our subsidiary. Dividends and other permitted distributions from our operating subsidiary are our primary source of funds to pay dividends, if any, to stockholders and to meet ongoing cash requirements, including debt service payments, if any, and other expenses. The inability of our operating subsidiary to pay dividends in an amount sufficient to enable us to meet our cash requirements at the holding company level could have a material adverse effect on our operations.

     The ability of our operating subsidiary to pay dividends or make other distributions to stockholders is subject to statutory and regulatory restrictions under Illinois law, including restrictions imposed as a matter of administrative policy, which are applicable generally to any insurance company in its state of domicile that limit such payments or distributions without prior approval by regulatory authorities.

     Illinois law provides that no dividend or other distribution may be declared or paid at any time except out of earned surplus, rather than contributed surplus. A dividend or other distribution may not be paid if the surplus of the domestic insurer is at an amount less than that required by Illinois law for the kind or kinds of business to be transacted by such insurer, or when payment of a dividend or other distribution by such insurer would reduce its surplus to less than such amount. Additionally, if insurance regulators determine that payment of a dividend or any other payments to an affiliate would, because of the financial condition of the paying insurance company or otherwise, be hazardous to such insurance company’s policyholders, the regulators may prohibit such payments that would otherwise be permitted without prior approval.

     Illinois law provides that a domestic insurer which is a member of a holding company system may not pay any extraordinary dividend nor make any other extraordinary distribution to its security holders until 30 days after the director of the Illinois Division of Insurance, or the Director, has received notice of the declaration thereof and has not within such period disapproved the payment unless the Director approves such payment within the 30-day period. Illinois law defines an extraordinary dividend or distribution as “any dividend or distribution of cash or other property whose fair market value, together with that of other dividends or distributions, made within the period of 12 consecutive months, ending on the date on which the proposed dividend is scheduled for payment or distribution, exceeds the greater of: (a) 10% of the company’s surplus as regards policyholders as of the 31st day of December next preceding, or (b) the net income of the company for the 12-month period ending the 31st day of December next preceding, but does not include pro rata distributions of any class of the company’s own securities.”

We are subject to extensive regulation, which may adversely affect our ability to achieve our business objectives. If we do not comply with these regulations, we may be subject to penalties, including fines, suspensions and withdrawals of licenses, which may adversely affect our financial condition and results of operations.

     We are subject to extensive governmental regulation and supervision. Most insurance regulations are designed to protect the interests of policyholders rather than stockholders and other investors. These regulations, generally administered by a department of insurance in each jurisdiction in which we do business or expect to do business, relate to, among other things:

• approval of policy forms and premium rates;

• standards of solvency, including risk-based capital measurements;

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2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

• licensing of insurers and their agents;

• restrictions on the nature, quality and concentration of investments;

• restrictions on the ability of our insurance company subsidiary to pay dividends to us;

• restrictions on transactions between insurance company subsidiaries and their affiliates;

• restrictions on the size of risks insurable under a single policy;

• requiring certain methods of accounting;

• periodic examinations of our operations and finances;

• prescribing the form and content of records of financial condition required to be filed; and

• requiring reserves for unearned premium, losses and other purposes.

     For example, our operating subsidiary is subject to minimum capital and surplus requirements imposed by the laws of the jurisdictions in which it is licensed to transact an insurance business. As of December 31, 2008, the capital and surplus of our operating subsidiary was approximately $93.9 million. If our operating subsidiary does not maintain the required minimum capital and surplus of any jurisdiction in which it is licensed, it could be subject to regulatory action in such jurisdiction, including, but not limited to, the suspension or revocation of its license to transact insurance business in such jurisdiction. No jurisdiction in which our operating subsidiary is licensed has minimum capital and surplus requirements in excess of $35 million for the lines of insurance for which our operating subsidiary is licensed. Additionally, if our operating subsidiary does not maintain the required minimum capital and surplus for Illinois, its state of domicile, (which currently is $2.5 million) it could be placed into receivership in Illinois. Also, any new minimum capital and surplus requirements adopted in the future may require us to increase the capital and surplus of our operating subsidiary, which we may not be able to do.

     In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. We base some of our practices on our interpretations of regulations or practices that we believe are generally followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us. These actions could adversely affect our ability to operate our business. Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could adversely affect our ability to operate our business.

     In recent years, the state insurance regulatory framework in the United States has come under increased federal scrutiny, and some state legislators have considered or enacted laws that may alter or increase state authority to regulate insurance companies and insurance holding companies. Moreover, the National Association of Insurance Commissioners, or NAIC, which is an association of the senior insurance regulatory officials of all 50 states and the District of Columbia, and state insurance regulators regularly reexamine existing laws and regulations, interpretations of existing laws and the development of new laws, which may be more restrictive or may result in higher costs to us than current statutory requirements.

Provisions in our certificate of incorporation and bylaws and regulations under Delaware law could prevent or delay transactions that stockholders may favor and entrench current management.

     We are incorporated in Delaware. Our certificate of incorporation and bylaws, as well as Delaware corporate law, contain provisions that could delay or prevent a change of control or changes in our management that a stockholder might consider favorable, including a provision that authorizes our board of directors to issue preferred stock with such voting rights, dividend rates, liquidation, redemption, conversion and other rights as our board of directors may fix and without further stockholder action. The issuance of preferred stock with voting rights could make it more difficult for a third party to acquire a majority of our outstanding voting stock. This can frustrate a change in the composition of our board of directors, which could result in entrenchment of current management. Takeover attempts generally include offering stockholders a premium for their stock. Therefore, preventing a takeover attempt may cause our stockholders to lose an opportunity to sell your shares at a premium. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.

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2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

     Delaware law also prohibits a corporation from engaging in a business combination with any holder of 15% or more of its capital stock until the holder has held the stock for three years unless, among other possibilities, the board of directors approves the transaction. This provision may prevent changes in our management or corporate structure. Also, under applicable Delaware law, our board of directors is permitted to and may adopt additional anti-takeover measures in the future.

We completed our initial public offering in November 2004, and we do not have a significant presence in the Market. You may have difficulty selling your Common Stock because of the limited trading volume for such shares.

     Our Common Stock began trading on the Nasdaq Global Market in November 2004. As a relatively new public company, there may be less coverage of our Common Stock by securities analysts. In addition our Common Stock has limited trading volumes. One or both of these factors could result in price volatility and serve to depress the liquidity and market price of our Common Stock.

Item 1B. Unresolved Staff Comments

     None.

Item 2. Properties

     We lease our headquarters in Chicago, Illinois. Our headquarters have approximately 34,000 square feet and our lease expires in 2020. We believe that our facility will support our future business requirements or that we will be able to lease additional space, if needed, on reasonable terms.

Item 3. Legal Proceedings

     We are not currently involved in any litigation other than routine litigation arising in the ordinary course of business and that is either expected to be covered by liability insurance or to have no material impact on our financial position and results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

     None.

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2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     Common Stock. Our shares of Common Stock trade on the Nasdaq Global Market under the symbol “SUAI.” The following table sets forth the high and low sales price of our shares of Common Stock on the Nasdaq Global Market for the periods presented. Our shares of Common Stock began trading on the Nasdaq Global Market on November 23, 2004.

	Sales Price
Period	High		Low
2008
First Quarter	$	5.64	$	4.11
Second Quarter	$	5.61	$	4.43
Third Quarter	$	5.60	$	4.65
Fourth Quarter	$	4.75	$	2.26
2007
First Quarter	$	8.50	$	7.12
Second Quarter	$	8.32	$	7.62
Third Quarter	$	8.05	$	6.78
Fourth Quarter	$	7.17	$	5.15

     As of February 26, 2009, there were approximately 1,005 beneficial owners and nine shareholders of record of our Common Stock and ten shareholders of record of our Class B Shares.

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

     Performance Graph. The following line graph sets forth for the period of November 23, 2004 through December 31, 2008, a comparison of the percentage change in the cumulative total stockholder return on the Company’s Common Stock compared to the cumulative total return of the Standard & Poor’s (“S&P”) 500 Stock Index and the S&P 500 Property & Casualty Insurance Index.

     The graph assumes that the shares of the Company’s Common Stock were bought at the price of $100 per share and that the value of the investment in each of the Company’s Common Stock and the indices was $100 at the beginning of the period. The graph further assumes the reinvestment of dividends when paid.

     Payment of Dividends. We never have paid or declared any cash dividends on our Common Stock and have no plans to do so in the foreseeable future. We currently intend to retain future earnings to finance the growth and development of our business. Future dividends, if any, will depend on, among other things, our results of operations, capital requirements, contractual, regulatory and other restrictions on the payment of dividends by our subsidiary to us, and such other factors as our board of directors may, in its discretion, consider relevant. For information regarding restrictions on the payment of dividends by SUA, see the discussion under the heading “Item 1. Business — Insurance Regulation” in PART I of this annual report.

     Repurchases of Common Stock. The company did not repurchase any of its Common Stock during the fourth quarter of 2008.

     Our equity compensation plan information is included in Item 12, which is incorporated by reference to the definitive proxy statement to be filed pursuant to Regulation 14A.

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2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Item 6. Selected Financial Data

     The following table sets forth our selected historical financial information and that of our predecessor for the periods ended and as of the dates indicated. This information comes from our consolidated financial statements and those of our predecessor. You should read the following selected financial information along with the information contained in our financial statements and related notes and the reports of the independent registered public accounting firm included under the heading “Item 8. Financial Statements And Supplementary Data” in PART II of this annual report. These historical results are not indicative of results to be expected for any future period.

	Specialty Underwriters’ Alliance, Inc.														Predecessor
												Nov. 23 to			Jan.1 to
	Year Ended December 31,											Dec. 31			Nov. 22
	2008			2007			2006		2005			2004			2004
	(in thousands, except for per share data)
Results of operations
Earned premiums	$	143,465		$	152,469		$	110,891	$	26,611		$	-		$	-
Net investment income		10,837			9,553			6,087		3,558			278			1,329
Net realized gain/(loss)		(811	)		(27	)		275		(4	)		2
Total revenues		153,491			161,995			117,253		30,165			280			1,719
Net income (loss)		7,425			12,589			8,408		(17,996	)		(8,155	)		650
Net income (loss) per share
Basic	$	0.48		$	0.82		$	0.55	$	(1.22	)	$	(4.59	)
Diluted	$	0.47		$	0.82		$	0.55	$	(1.22	)	$	(4.59	)

	Specialty Underwriters’ Alliance, Inc.
	As of December 31,
	2008		2007		2006		2005		2004
	(in thousands, except for per share data)
Financial condition
Investments	$	263,405	$	229,387	$	164,058	$	102,991	$	97,835
Total assets		454,737		422,534		363,297		277,163		217,231
Total liabilities		318,448		291,397		249,315		176,348		98,301
Shareholders’ equity		136,289		131,137		113,982		100,815		118,930
Book value data
Book value per share	$	8.62	$	8.42	$	7.42	$	6.76	$	8.09
Tangible book value per share	$	7.94	$	7.73	$	6.72	$	6.04	$	7.36

24

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

     The following tables include our loss development history of loss and loss adjustment expense reserves for business generated subsequent to our acquisition of Potomac Insurance Company of Illinois on November 23, 2004. We commenced our operations in 2005.

	Specialty Underwriters' Alliance Inc. (Successor)
	Year Ended December 31,
	1998		1999		2000		2001		2002		2003		2004		2005			2006			2007			2008
	(in thousands)
LIABILITY FOR UNPAID CLAIMS & CLAIM ADJUSTMENT EXPENSE:
Gross Liability		-		-		-		-		-		-		-		18,134			69,608			121,207			161,691
Reinsurance Recoverable		-		-		-		-		-		-		-		2,261			9,383			13,635			26,336
Net Liability		-		-		-		-		-		-		-		15,873			60,224			107,572			135,355
Discount (In Net Liability)		-		-		-		-		-		-		-		192			1,016			1,505			2,612
Net Liability (Undiscounted)		-		-		-		-		-		-		-		16,065			61,240			109,077			137,967
CUMULATIVE PAID AS OF:
One Year Later		-		-		-		-		-		-		-		5,334			17,870			35,918
Two Years Later		-		-		-		-		-		-		-		7,465			27,713
Three Years Later		-		-		-		-		-		-		-		8,688
Four Years Later		-		-		-		-		-		-		-
Five Years Later		-		-		-		-		-		-
Six Years Later		-		-		-		-		-
Seven Years Later		-		-		-		-
Eight Years Later		-		-		-
Nine Years Later		-		-
Ten Years Later		-
RE-ESTIMATED LIABILITY AS OF:
End of Year		-		-		-		-		-		-		-		16,065			61,240			109,076			137,967
One Year Later		-		-		-		-		-		-		-		15,176			58,898			107,245
Two Years Later		-		-		-		-		-		-		-		14,441			54,145
Three Years Later		-		-		-		-		-		-		-		13,727
Four Years Later		-		-		-		-		-		-		-
Five Years Later		-		-		-		-		-		-
Six Years Later		-		-		-		-		-
Seven Years Later		-		-		-		-
Eight Years Later		-		-		-
Nine Years Later		-		-
Ten Years Later		-
Redundancy (Def.)		-		-		-		-		-		-		-		2,338			7,095			1,831
Percentage Redundancy (Def.) Reported As Of:
One Year Later		-		-		-		-		-		-		-		6	%		4	%		2	%
Two Years Later		-		-		-		-		-		-		-		10	%		12	%
Three Years Later		-		-		-		-		-		-		-		15	%
Four Years Later		-		-		-		-		-		-		-
Five Years Later		-		-		-		-		-		-
Six Years Later		-		-		-		-		-
Seven Years Later		-		-		-		-
Eight Years Later		-		-		-
Nine Years Later		-		-
Ten Years Later		-

25

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

     The following tables include the complete loss development history of the direct gross loss and loss adjustment expense or LAE reserves of Potomac Insurance Company of Illinois, or Potomac. Effective January 1, 2004, Potomac entered into a transfer and assumption agreement with its parent company, OneBeacon, which reinsured all its direct liabilities to OneBeacon. Therefore, effective January 1, 2004, Potomac had no net liabilities for unpaid Losses and LAE. On November 23, 2004, we purchased Potomac and subsequently received approval from the Illinois Department of Insurance to rename the company SUA Insurance Company. SUA Insurance Company remains liable for the Loss and LAE reserves generated from its predecessor’s (Potomac’s) direct business should OneBeacon be unable to honor its reinsurance obligation in the future.

	Predecessor (Potomac)
	Year Ended December 31,
	1998			1999			2000			2001			2002			2003			2004			2005			2006			2007			2008
	Direct Basis (in thousands)
Liability for Unpaid Claims & Claim Adjustment Expense		160,244			235,376			297,408			255,128			176,069			140,542			96,196			86,736			71,592			63,529			53,262
CUMULATIVE PAID AS OF:
One Year Later		81,545			98,963			86,980			76,958			58,815			40,169			26,653			14,943			14,442			11,427
Two Years Later		128,261			163,656			170,546			134,008			98,730			66,724			41,596			29,385			25,868
Three Years Later		163,498			220,344			227,597			172,991			125,152			81,654			56,038			40,811
Four Years Later		191,357			261,115			266,579			199,328			140,077			96,096			67,465
Five Years Later		212,314			291,524			292,916			214,222			154,489			107,520
Six Years Later		224,957			311,462			307,810			228,553			165,959
Seven Years Later		236,584			323,427			322,141			239,743
Eight Years Later		243,202			335,085			314,134
Nine Years Later		249,492			345,622
Ten Years Later		256,286
RE-ESTIMATED LIABILITY AS OF:
End of Year		160,244			235,376			297,408			255,128			176,069			140,542			96,196			86,736			71,592			63,529			53,262
One Year Later		211,516			326,426			326,203			247,629			198,858			136,237			113,389			86,535			77,971			64,689
Two Years Later		272,353			359,245			320,706			270,997			194,561			153,388			113,189			92,914			79,131
Three Years Later		279,420			350,765			344,771			267,512			211,738			153,173			119,567			94,073
Four Years Later		266,482			366,736			342,982			284,706			211,459			156,561			120,727
Five Years Later		273,463			371,520			358,428			284,433			217,832			160,782
Six Years Later		273,308			384,034			358,264			290,856			219,221
Seven Years Later		282,360			382,001			363,621			292,475
Eight Years Later		276,265			387,062			366,806
Nine Years Later		278,832			394,007
Ten Years Later		291,336
Redundancy (Def.)		(131,092	)		(158,631	)		(69,398	)		(37,347	)		(43,152	)		(20,240	)		(24,531	)		(7,337	)		(7,539	)		(1,160	)
Percentage Redundancy (Def.) Reported As Of:
One Year Later		-32	%		-39	%		-10	%		3	%		-13	%		3	%		-18	%		0	%		-9	%		-2	%
Two Years Later		-70	%		-53	%		-8	%		-6	%		-11	%		-9	%		-18	%		-7	%		-11	%
Three Years Later		-74	%		-49	%		-16	%		-5	%		-20	%		-9	%		-24	%		-8	%
Four Years Later		-66	%		-56	%		-15	%		-12	%		-20	%		-14	%		-26	%
Five Years Later		-71	%		-58	%		-21	%		-11	%		-24	%		-14	%
Six Years Later		-71	%		-63	%		-20	%		-14	%		-25	%
Seven Years Later		-76	%		-62	%		-22	%		-15	%
Eight Years Later		-72	%		-64	%		-23	%
Nine Years Later		-74	%		-67	%
Ten Years Later		-82	%

26

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Specialty Underwriters’ Alliance, Inc.

     The following discussion and analysis of financial condition and results of operations should be read together with “Selected Financial Data” and our financial statements and accompanying notes appearing elsewhere in this Annual Report. Certain reclassifications have been made to prior period financial statement line items to enhance the comparability with prior years. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under “Risk Factors,” “Forward-Looking Statements” and elsewhere in this Annual Report.

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 market 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.

     Additionally, in the specialty property and casualty program business, insurance agents often have underwriting authority, are responsible for handling claims and are paid by up-front commissions on the amount of premiums written. We believe that this system does not serve the carriers, the agents or the insureds well. Poor underwriting results have led to underwriting losses for the carriers, which results in carrier turnover in the specialty program business thereby creating instability in the niche insurance markets being served. In turn, agents incur additional costs in searching for, and converting to, new carriers and policyholders experience uncertainty regarding the placement of their coverage and quality of service from year to year.

     Our business model is designed to better serve the specialty property and casualty marketplace by recognizing the void that exists in these underserved niche markets and the problems that undisciplined underwriting has created. Our business model emphasizes our relationship with a select number of partner agents, who have specialized business knowledge in the types of business classes we underwrite. We rely on these partner agents for industry insights and their understanding of the specific risks in the niche markets we serve. We bring together that knowledge with our disciplined underwriting practices and leading-edge technology and systems capabilities to provide insurance programs and products that are customized to the needs of the specialty markets that we serve.

     Our business model is also designed to realign the interests of carriers, agents and insureds. Our partner agents are required to enter into agreements with us which provide that in exchange for marketing and pre-qualifying business for us, our partner agents receive an up-front commission designed to cover their costs and an underwriting profit-based commission paid over several years. In addition, each partner agent is required to purchase Class B Shares, which further aligns their interests with us and that of our shareholders. In return, we provide our partner agents with a five-year exclusive arrangement (generally allowing partner agents to offer other companies’ products if we decline to offer coverage to a prospective insured) covering a specific class of business and territory. Further, we have implemented a centralized information system designed to reduce processing and administrative time. Lastly, we are a stable, dedicated source of specialty program commercial property and casualty insurance capacity.

Key Operating Measures

     In evaluating our business, we focus on the following ratios:

 • the net loss and loss adjustment expense ratio,

 • the acquisition expense ratio, and

 • the other operating expense ratio.

27

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

     The net loss and loss adjustment expense ratio and the acquisition expense ratio are calculated by dividing the respective expense amounts by net premiums earned. The other operating expense ratio is calculated by dividing other operating expenses by gross premiums written. Gross premiums written represents all premiums written by an insurance company during a specified period. Net premiums written is the difference between gross premiums written and premiums ceded to reinsurers. Premiums are earned over the terms of the related policies. At the end of each accounting period, the portions of premiums that are not yet earned are included in unearned premiums and are realized as revenue in subsequent periods over the remaining terms of the policies. Our policies have terms of 12 months. Thus, for example, for a policy that is written on July 1, 2008, one-half of the premiums would be earned in 2008 and the other half would be earned in 2009. Premiums earned represents the earned portion of our net premiums written.

Results of Operations

     The following table summarizes our results of operations for the years ended December 31, 2008, 2007 and 2006, respectively:

	Year Ended December 31,									% Change			% Change
	2008			2007			2006			’07 to ’08			’06 to ’07
	(in millions, except for per share data)
Gross written premiums	$	146.2		$	160.4		$	153.2			-8.9	%		4.7	%
Net written premiums		137.3			149.4			142.1			-8.1	%		5.1	%
Earned premiums		143.5			152.5			110.9			-5.9	%		37.5	%
Net investment income		10.8			9.5			6.1			13.7	%		55.7	%
Net realized gain (loss)		(0.8	)		-			0.3			*			*
Total revenues		153.5			162.0			117.3			-5.2	%		38.1	%
Net loss and loss adjustment expense		89.4			90.0			62.7			-0.7	%		43.5	%
Acquisition expenses		33.0			36.6			26.0			-9.8	%		40.8	%
Other operating expenses		23.1			22.6			19.9			2.2	%		13.6	%
Total expenses		145.5			149.2			108.6			-2.5	%		37.4	%
Pre-tax income		8.0			12.8			8.7			-37.5	%		47.1	%
Income tax expense		(0.6	)		(0.2	)		(0.3	)		200.0	%		-33.3	%
Net income (loss)	$	7.4		$	12.6		$	8.4			-41.3	%		50.0	%
Net income per share
Basic	$	0.48		$	0.82		$	0.55			-41.5	%		49.1	%
Diluted		0.47			0.82			0.55			-42.7	%		49.1	%
Weighted average shares outstanding
Basic		15.6			15.4			15.2			1.3	%		1.3	%
Diluted		15.8			15.4			15.2			2.6	%		1.3	%
Key operating ratios
Net loss and loss adjustment expense ratio		62.3	%		59.0	%		56.5	%		5.6	%		4.4	%
Ratio of acquisition expense to earned premiums		23.0	%		24.0	%		23.4	%		-4.2	%		2.6	%
Ratio of all other expenses to gross written premiums		15.8	%		14.1	%		13.0	%		12.1	%		8.5	%

               *  Not meaningful

Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

     Net income for 2008 was $7.4 million, compared to net income of $12.6 million for 2007. Earnings per share on an undiluted basis for 2008 was $0.48 versus earnings per share of $0.82 for 2007. The decrease in our net income was due to a decrease in our pre-tax income and an increase in our taxes resulting from the full utilization of tax loss carry forwards which occurred in the second quarter of 2008. The decrease in our pre-tax income was due to several factors, most significantly, a decrease in our earned premiums, an other-than-temporary impairment

28

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

on certain of our investment securities resulting in a $0.8 realized loss, and an increase in our net loss and loss adjustment expense ratio, which amounts were partially offset by an increase in our investment income and decrease in our acquisition expense ratio. The decrease in earned premiums was due to several factors, most significantly, reductions in our workers’ compensation rates in Florida, increased competition and overall weak economic conditions.

     Gross written premiums were $146.2 million for the year ended December 31, 2008 compared to $160.4 million for the comparable period ended December 31, 2007. The decrease in gross written premiums is attributable to decreasing premiums in our workers’ compensation and general liability lines of business. The decrease in gross written premiums was partially offset by the addition of our eighth and ninth partner agents, First Light Program Managers, Inc. and Northern Star Management, Inc., during the third quarter of 2007 and first quarter of 2008, respectively, which both principally produce commercial automobile.

     Our written premiums are still concentrated in four of our nine partner agents, though there was continued diversification in the percentage of premiums written with the top four partner agents writing 85.8% of our business in 2008 as compared to 94.6% in 2007. We expect to see additional diversification as our relationship with these new partner agents mature. The breakdown of gross written premiums by partner agent for the years ended December 31, 2008 and 2007 was as follows:

	2008				2007
	Gross Written		% of Total Gross		Gross Written		% of Total Gross
	Premium		Written Premium		Premium		Written Premium
	(in millions)
Risk Transfer Holdings, Inc.	$	65.4		44.7%	$	78.6		49.0%
American Team Managers		23.4		16.0%		33.5		20.9%
AEON Insurance Group, Inc.		19.5		13.4%		25.7		16.0%
Specialty Risk Solutions, LLC		17.1		11.7%		3.1		1.9%
Appalachian Underwriters, Inc.		8.2		5.6%		13.9		8.7%
Northern Star Mnagement		5.6		3.8%		-		-
First Light Program Manager, Inc.		3.2		2.2%		-		-
Insential, Inc		1.2		0.8%		1.7		1.1%
Flying Eagle Insurance Service, Inc		0.7		0.5%		2.8		1.7%
Other		1.9		1.3%		1.1		0.7%
Total	$	146.2		100.0%	$	160.4		100.0%

     Our gross written premiums for the years ended December 31, 2008 and 2007 by state were as follows:

	2008				2007
	Gross Written		% of Total Gross		Gross Written		% of Total Gross
	Premium		Written Premium		Premium		Written Premium
	(in millions)
California	$	61.9		42.3%	$	53.9		33.6%
Florida		30.5		20.9%		44.1		27.5%
Texas		14.7		10.1%		16.7		10.4%
Other States		39.1		26.7%		45.7		28.5%
Total	$	146.2		100.0%	$	160.4		100.0%

     Our premiums in 2008 remained concentrated in California, Florida and Texas. The increase in California premium resulted from an increase in commercial automobile writings, the addition of our temporary staffing program, and a significant public entity account which increase was offset by a significant reduction in our contractors program due to the economic downturn affecting the housing and construction markets. The decrease in Florida premium resulted from a rate decrease in workers’ compensation of 18.4% in 2008. An additional rate decrease of 18.6% went into effect on January 1, 2009 which should be partially offset by a 6.4% increase due to go into effect on April 1, 2009 and an expected further increase in January of 2010.

29

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

     While more diversified, our business written for the year ended December 31, 2008 was heavily weighted in workers’ compensation. Our gross written premiums by line of business for the years ended December 31, 2008 and 2007 were as follows:

	2008				2007
	Gross Written		% of Total Gross		Gross Written		% of Total Gross
	Premium		Written Premium		Premium		Written Premium
	(in millions)
Workers’ compensation	$	80.1		54.8%	$	92.0		57.4%
Commercial automobile		34.5		23.6%		31.9		19.9%
General liability		28.8		19.7%		32.5		20.2%
All Other		2.8		1.9%		4.0		2.5%
Total	$	146.2		100.0%	$	160.4		100.0%

     Our mix of business by agent, state and line of business was influenced by a large general liability account we wrote in the third quarter of 2008 in our public entity customer class which partially offset a continued reduction in our contractors program as a result of fewer construction projects being started, the rate reduction in workers’ compensation in Florida and changes in the makeup of our insured’s payrolls resulting in lower exposure bases and therefore less premium.

     Earned premiums were $143.5 million for the twelve months ended December 31, 2008 compared to $152.5 million for the comparable period in 2007.

     Net investment income was $10.8 million for 2008 versus $9.5 million for 2007. The increase in net investment income is due to an increase in our invested assets. Our investment assets increased from $229.4 million at December 31, 2007 to $263.4 million at December 31, 2008 resulting from positive operating cash flow.

     Acquisition expenses were $33.0 million for the year ended December 31, 2008, compared to acquisition expenses of $36.6 million for the year ended December 31, 2007. The decrease in our acquisition expense is the result of a decrease in premiums.

     For the year ended December 31, 2008, our net loss and loss adjustment expense ratio was 62.3%, compared to 59.0% for the comparable twelve months in 2007. This increase was driven by higher loss ratios in our workers’ compensation book of business due primarily to lower rates and certain large losses in our commercial automobile and workers’ compensation lines, partially offset by favorable prior year loss development of $1.8 million principally in our general liability lines. For the year ended December 31, 2007 we experienced favorable prior year loss development of $2.2 million.

     Our net loss and loss adjustment expense ratio by line of business for the years ended December 31, 2008 and December 31, 2007 was as follows:

	For the Year Ended
	December 31,
	2008		2007
Workers’ compensation		66.4%		54.5%
Commercial automobile		80.5%		90.9%
General liability		34.6%		43.8%
All other		37.9%		45.3%
Total		62.3%		59.0%

     For the year ended December 31, 2008, other operating expenses were $23.1 million, which consisted of salaries and benefit costs of $8.5 million, $2.5 million of professional and consulting fees, $6.6 million of depreciation and amortization, $0.5 million of stock based compensation expense and $5.0 million of other expenses. Other operating expenses were $22.6 million for the year ended December 31, 2007, which consisted of salaries and benefit costs of $7.0 million, $3.2 million of professional and consulting fees, $5.0 million of depreciation and amortization expense, $1.1 million of stock based compensation expense and $6.3 million of other expenses. We remain committed to operating efficiently and increasing staff only as our business volume requires.

30

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

The increase in salaries and benefit costs in 2008 was offset by a decrease in professional and consulting services as we continued to bring previously outsourced services in-house.

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

     In 2007 as compared to 2006, insurance revenues and investment income continued to increase and, after payment of operating expenses, were sufficient to generate increased operating profits. In addition, we continued to utilize the benefits of tax losses generated in earlier years. However, in our lines of business, we faced greater competition, lower rates and reduced exposure bases which led to lower premium growth.

     Net income for the year ended December 31, 2007 was $12.6 million, compared to a net income for the year ended December 31, 2006 of $8.4 million. Earnings per share for 2007 were $0.82 versus $0.55 for 2006.

     Gross written premiums increased 4.7% from $153.2 million for 2006 to $160.4 million for 2007. The increase in premiums was primarily driven by growth within our existing programs, along with the addition of one of our new partner agents, Flying Eagle Insurance Service, Inc. and a new program writing small workers’ compensation with Appalachian Underwriters, Inc.

     We continued to increase our number of partner agents. On October 1, 2007 we signed First Light Program Managers, Inc. as a partner agent, writing commercial general liability, commercial automobile and physical damage for selected customer classes in the trucking industry in the southeastern region. We continued to add new programs during 2007, such as temporary staffing with Risk Transfer Holdings, Inc.

     Our written premium was concentrated in four of our eight partner agents, though there was continued diversification in the percentage of premium written. Premium breakdown by partner agent was as follows:

	2007				2006
	Gross Written		% of Total Gross		Gross Written		% of Total Gross
	Premium		Written Premium		Premium		Written Premium
	(in millions)
Risk Transfer Holdings, Inc.	$	78.6		49.0%	$	81.4		53.1%
American Team Managers		33.5		20.9%		31.7		20.7%
AEON Insurance Group, Inc.		25.7		16.0%		21.8		14.2%
Appalachian Underwriters, Inc.		13.9		8.7%		14.5		9.5%
Specialty Risk Solutions, LLC		3.1		1.9%		2.0		1.3%
Flying Eagle Insurance Service, Inc		2.8		1.7%		-		0.0%
Insential, Inc		1.7		1.1%		1.5		1.0%
First Light Program Manager, Inc.		-		0.0%		-		0.0%
Other		1.1		0.7%		0.3		0.2%
Total	$	160.4		100.0%	$	153.2		100.0%

     Although more diversified in 2007 than in 2006, our premiums in 2007 remained concentrated in California, Florida and, to a lesser extent, Texas. Our gross written premiums for 2007 and 2006 by state were as follows:

	2007				2006
	Gross Written		% of Total Gross		Gross Written		% of Total Gross
	Premium		Written Premium		Premium		Written Premium
	(in millions)
California	$	53.9		33.6%	$	47.4		30.9%
Florida		44.1		27.5%		58.5		38.2%
Texas		16.7		10.4%		12.4		8.1%
Other States		45.7		28.5%		34.9		22.8%
Total	$	160.4		100.0%	$	153.2		100.0%

31

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

     While more diversified, our business written for the year ended December 31, 2007 was heavily weighted in workers’ compensation. Our gross written premiums by line of business as a percentage of total gross written premiums for the years ended December 31, 2007 and 2006 were as follows:

	2007				2006
	Gross Written		% of Total Gross		Gross Written		% of Total Gross
	Premium		Written Premium		Premium		Written Premium
	(in millions)
Workers’ compensation	$	92.0		57.4%	$	89.3		58.3%
General liability		32.5		20.2%		35.8		23.4%
Commercial automobile		31.9		19.9%		25.5		16.6%
All Other		4.0		2.5%		2.6		1.7%
Total	$	160.4		100.0%	$	153.2		100.0%

     Our workers’ compensation business was impacted by rate decreases in Florida and California. Florida approved a rate decrease recommended by the National Council for Compensation Insurance, or the NCCI, of 15.7% effective January 1, 2007. We matched the recommended rate decrease in Florida. The California Insurance Commissioner recommended a 9.5% decrease in advisory pure premium rates on new and renewal policies effective on or after January 1, 2007. On May 29, 2007, the California Insurance Commissioner recommended a 14.2% decrease in rates effective July 1, 2007.

     Earned premiums grew 37.5% to $152.5 million for 2007 compared to $110.9 million for 2006. The increase in earned premium was primarily attributable to increased premium writings in 2006, continuing into the first half of 2007.

     Net investment income was $9.5 million for 2007 versus $6.1 million for 2006. The increase in net investment income reflected a significant growth in our cash and invested assets from $164.1 million at December 31, 2006 to $229.4 million at December 31, 2007. The net investment yield for average invested assets for 2007 and 2006 was 4.6%. There were no realized gains in 2007 and $0.3 million in 2006. The increases in average invested assets primarily related to the cash flow from operations, including premium growth and favorable underwriting results.

     Acquisition expenses were $36.6 million for the year ended December 31, 2007, compared to acquisition expenses of $26.0 million for the year ended December 31, 2006. The increase in acquisition expenses was driven primarily by the increase in earned premium as well as partner agent profit sharing from 2006 to 2007.

     Loss and loss adjustment expenses were $90.0 million for the year ended December 31, 2007, compared to $62.7 million for the year ended December 31, 2006. The increase in loss and loss adjustment expenses was driven by the increase in earned premium. Our net loss and loss adjustment expense ratio increased in 2007 compared to 2006 primarily due to an increase in large losses in our commercial automobile line of business partially offset by improvements in workers’ compensation and general liability in prior years.

     Our net loss and loss adjustment expense ratio by line of business for the years ended December 31, 2007 and December 31, 2006 was as follows:

	For the Year Ended
	December 31,
	2007		2006
Workers’ compensation		54.5%		54.6%
General liability		43.8%		46.1%
Commercial automobile		90.9%		78.0%
All other		45.3%		78.2%
Total		59.0%		56.5%

     Other operating expenses were $22.6 million for the year ended December 31, 2007, which consisted of salaries and benefit costs of $7.0 million, $3.2 million of professional and consulting fees, $5.0 million of depreciation and amortization expense, $1.1 million of stock based compensation expense and $6.3 million of other expenses. For

32

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

the year ended December 31, 2006, other operating expenses were $19.9 million, which consisted of salaries and benefit costs of $6.1 million, $4.2 million of professional and consulting fees, $2.6 million of depreciation and amortization, $1.1 million of stock based compensation expense and $5.9 million of other expenses. We remain committed to operating efficiently and increasing staff only as our business volume requires. The increase in salaries and benefit costs in 2007 was offset by a decrease in professional and consulting services as we continued to bring previously outsourced services in-house.

     Our ratio of all other operating expenses to gross written premiums increased in 2007 as compared to 2006 primarily as a result of slowed growth in written premiums and increased depreciation expense resulting from information systems being fully deployed. The increase in depreciation expense was partially offset by a decrease in audit and tax services and stock option expenses. We have built an infrastructure that should allow for scalability for future premium growth.

     Tax expense of $0.2 million and $0.3 million for the year ended December 31, 2007 and December 31, 2006, respectively, resulted from deferred tax liabilities associated with our acquisition of Potomac, which have an indefinite life and therefore cannot be offset with deferred tax assets, which consist primarily of tax loss carryforwards.

Cash Flows

     A summary of our cash flows is as follows:

	Year Ended December 31,
	2008		2007		2006
	(in millions)
Cash provided by (used in)
Operating activities	$	46.1	$	69.6	$	60.3
Investing activities		(47.5)		(72.3)		(66.4)
Financing activities		0.6		1.3		3.1
Change in cash		(0.8)		(1.4)		(3.0)

     For the year ended December 31, 2008 net cash from operating activities was $46.1 million, principally consisting of premium and deposit collections exceeding losses and expenses paid out. This amount compares to net cash from operating activities of $69.6 million for the year ended December 31, 2007, which also consisted principally of premium and deposit collections exceeding losses and expenses paid out. For the year ended December 31, 2006, net cash from operating activities was $60.3 million, which also consisted principally of premium and deposit collections exceeding losses and expenses paid out. The decrease in net cash from operating activities from 2007 to 2008 is a result of the maturation of our business combined with a decrease in premium in 2008.

     Cash used for investment activities was $47.5, $72.3 and $66.4 million for the years ended December 31, 2008, 2007 and 2006, respectively, principally representing new purchases of investments of $40.2, $63.1 and $60.6 million and additions to equipment and capitalized software of $7.3, $9.2 and $5.8 million, respectively.

     We had cash flows from financing activities of $0.6 million resulting from sales of Class B Shares to our partner agents during the year ended December 31, 2008 partially offset by our repurchase of 275,000 shares of Common Stock during the second quarter of 2008. We had cash flows from financing activities of $1.3 million from sales of Class B Shares to our partner agents during the year ended December 31, 2007. For the year ended December 31, 2006, cash flows from financing activities from sales of Class B Shares to our partner agents was $3.1 million. The decrease from 2006 to 2007 to 2008 resulted from a substantial number of our partner agents having fulfilled their contractual obligation to purchase Class B Shares during 2006 and 2007 which was partially offset by our signing a new partner agent in 2008.

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

33

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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 December 31, 2008 was $216.7 million, compared to amortized cost of $220.7 million. The aggregate fair market value of our fixed maturity investments at December 31, 2007 was $177.7 million compared to amortized cost of $176.6 million. During 2008 we increased our investment in municipal bonds to $54.9 million from $4.3 million, at fair value, due to their favorable tax treatment. The average duration of our fixed maturity investments at December 31, 2008 was approximately 3.66 years.

     During the third quarter of 2008, certain of our available-for-sale securities with a fair value of $0.9 million and a book value of $1.7 million experienced an other-than-temporary impairment of $0.8 million. For information about our methodology for determining whether a security has experienced impairment see the discussion under the heading “Item 8. Financial Statements - Note 2 — Summary of significant Accounting Policies” in PART II of this annual report.

Liquidity and Capital Resources

     Liquidity Requirements of Specialty Underwriters’ Alliance, Inc. We are organized as a holding company and, as such, have no direct operations of our own. Our assets consist primarily of investments in our subsidiary, through which we conduct all of our insurance operations. As a holding company, we have continuing funding needs for general corporate expenses, taxes, the payment of principal and interest on future borrowings, if any, and the payment of other obligations as they come due. 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 which limit and restrict the payment of dividends to us by our insurance subsidiary.

     Liquidity. SUA generates liquidity primarily by collecting and investing earned premiums in advance of paying claims. We believe that SUA maintains sufficient liquidity to pay claims and operating expenses, as well as meet commitments in the event of unforeseen events such as reserve deficiencies, inadequate premium rates or reinsurer insolvencies. The principal sources of liquidity are existing cash and short-term investments. Cash and short-term investments were $46.9 million at December 31, 2008, compared to $52.6 million at December 31, 2007.

     The liquidity requirements of SUA relate primarily to the liabilities associated with its products and its operating costs. Historically, cash flows from earned premiums and investment income have provided sufficient funds to meet these requirements without requiring the sale of investments. If our cash flows change from our historical patterns, for example, as a result of a decrease in earned premiums or an increase in claims paid or operating expenses, we may be required to sell securities before their maturity, possibly at a loss. SUA generally holds a significant amount of highly liquid, short-term investments to meet its liquidity needs. Funds received in excess of SUA’s liquidity requirements are generally invested in additional marketable securities. The ability of our operating subsidiary to pay dividends or make other distributions to stockholders is subject to statutory and regulatory restrictions under Illinois law, including restrictions imposed as a matter of administrative policy, which are applicable generally to any insurance company in its state of domicile that limit such payments or distributions without prior approval by regulatory authorities. For information regarding restrictions on the payment of dividends by SUA, see the discussion under the heading "Item 1. Business - Insurance Regulation” in PART I of this annual report.

     Capital Requirements of SUA Insurance Company. While insurance regulation differs by location, each jurisdiction requires that minimum levels of capital be maintained in order to write insurance business. Factors that affect capital requirements generally include premium volume, the extent and nature of loss and loss adjustment expense reserves, the type and form of insurance business underwritten and the availability of reinsurance protection from adequately rated reinsurers on acceptable terms. SUA is required to maintain certain minimum levels of capital and risk-based capital, the calculation of which includes numerous factors as specified by the respective insurance regulatory authorities and the related insurance regulations. We have capitalized our insurance operations in excess of the minimum regulatory requirements so that we may maintain adequate financial ratings. Our current level of capital is sufficient, but may need to be augmented to further expand our business strategy or to deal with significantly poorer than expected results.

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Specialty Underwriters’ Alliance, Inc.

Off Balance Sheet Arrangements

     None.

Contractual Obligations

     The following table of contractual obligations includes information with respect to our known contractual obligations as of December 31, 2008:

	Payments Due by Period
			Less Than		1 to 3		3 to 5		More Than
	Total		1 Year		Years		Years		5 Years
	(in thousands)
Operating Lease Obligations	$	8,039	$	632	$	1,324	$	1,404	$	4,679
Sub Total	$	8,039	$	632	$	1,324	$	1,404	$	4,679
Loss & Loss Adjustment Expense Reserves — SUA Insurance Company		161,691		44,312		51,630		21,569		44,180
Loss & Loss Adjustment Expense Reserves — Potomac Insurance Company of Illinois(1)		53,262		14,324		20,632		11,319		6,987
Total Loss & Loss Adjustment Expense Reserves	$	214,953	$	58,636	$	72,262	$	32,888	$	51,167
Total Contractual Obligations	$	222,992	$	59,268	$	73,586	$	34,292	$	55,846

(1)  On November 23, 2004, Specialty Underwriters’ Alliance, Inc. acquired Potomac and subsequently renamed the company SUA Insurance Company. Prior to the acquisition, Potomac entered into a transfer and assumption agreement with OneBeacon, whereby all of its liabilities, including all direct liabilities under existing insurance policies, were ceded to and assumed by OneBeacon. We will not experience any gains or losses with respect to such legacy policies unless OneBeacon fails to honor its reinsurance obligation. To date, OneBeacon continues to handle, adjudicate and pay all claims that have arisen from such legacy policies.

     For purposes of this table:

     “Long-Term Debt Obligation” means: (i) a payment obligation (included in the Company’s consolidated financial statements) under long-term borrowings referenced in FASB Statement of Financial Accounting Standards No. 47, “Disclosure of Long-Term Obligations,” (March 1981), as may be modified or supplemented, and (ii) interest payment obligations related to such long-term borrowings.

     “Capital Lease Obligation” means a payment obligation under a lease classified as a capital lease pursuant to FASB Statement of Financial Accounting Standards No. 13, “Accounting for Leases,” (November 1976), as may be modified or supplemented.

     “Operating Lease Obligation” means a payment obligation under a lease classified as an operating lease and disclosed pursuant to FASB Statement of Financial Accounting Standards No. 13, “Accounting for Leases,” (November 1976), as may be modified or supplemented. All operating lease obligations are for facilities.

     “Purchase Obligation” means an agreement to purchase goods or services that is enforceable and legally binding on the registrant that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. This table does not include our accounts payable reflected in our audited consolidated balance sheet data that are included in our consolidated financial statements contained elsewhere in this report.

     “Loss & Loss Adjustment Expense Reserves” do not have a contractual maturity date and as discussed herein are subject to change due to a wide variety of factors and cannot be predicted with certainty. Actual future loss payments may differ materially from the current estimates shown in the table above.

Critical Accounting Policies and Estimates

     Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our financial statements, which have been prepared in accordance with generally accepted accounting principals in the United States of America, or GAAP. The financial statements presented herein include all adjustments considered necessary by management to fairly present the financial position, results of operations and cash flows of the Company. The preparation of financial statements in conformity with GAAP requires management to make

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Specialty Underwriters’ Alliance, Inc.

estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

     Management believes that the following critical accounting policies affect our more significant estimates used in the preparation of our financial statements.

     Earned and Unearned Insurance Premiums. Premiums are recognized as revenue over the coverage period of policies written on a daily pro rata basis. Certain policies are subject to adjustment based on changes in exposure units over the period of coverage, such as payroll increases/decreases and changes in risk classifications and therefore the direct written premiums are estimated during the policies term until final audit of the policy occurs. Unearned insurance premiums represent the portion of premiums written relating to the remaining term of each policy.

     Acquisition Expenses. We establish an asset for certain acquisition expenses such as up-front commissions, premium taxes and other variable costs incurred in connection with writing our lines of business. These acquisition expenses are deferred and amortized over the period of coverage of the policies written which is 12 months. Acquisition expenses that do not vary with premium production are expensed immediately. We assess the recoverability of deferred acquisition expenses which are limited to the estimated amounts recoverable from future income after providing for losses and expenses included in future income that are expected to be incurred, based upon historical and current experience. If such costs are estimated to be unrecoverable, they will be expensed. Judgments as to ultimate recoverability of such deferred acquisition expenses is highly dependent on future estimates of loss costs associated with unearned premium. The process of establishing loss reserves is complex and judgmental, as it must take into consideration many variables that are subject to the outcome of future events. There have been no historical changes in the recoverability of our deferred acquisition expenses. We do not believe that any reasonably likely change in our loss development will affect the recoverability of acquisition expenses. See the subheading “Losses, Claims and Settlement Expenses” below.

     At December 31, 2008, acquisition expenses were fully recoverable.

     Losses, Claims and Settlement Expenses. Our most significant estimates relate to our reserves for property and casualty losses and loss adjustment expenses. We establish reserves for the estimated total unpaid cost of losses and loss adjustment expenses for events that have already occurred. These reserves reflect our best estimates of the total cost of claims that were reported to us, but not yet paid, referred to as case reserves, and the cost of claims “incurred but not yet reported” to us, referred to as IBNR Reserves.

     The estimate of these reserves is subjective and complex and requires us to make estimates about the future payout of claims, which is inherently uncertain. We establish and adjust reserves based on our knowledge of the circumstances and facts of claims. Upon notice of a claim, we establish a case reserve for losses based on the claims information reported to us at that time. Subsequently, we conduct an investigation of each reported claim, which allows us to more fully understand the factors contributing to the loss and our potential exposure. This investigation may extend over a long period of time. As our investigations of claims develop and as our claims personnel identify trends in claims activity, we refine and adjust our estimates of case reserves. When we establish reserves, we do so based on our knowledge of the circumstances and claim facts. We continually review our reserves, and as experience develops and additional information becomes known, we adjust the reserves. Such adjustments are recorded through operations in the period identified. To evaluate and refine our overall reserving process, we track and monitor all claims until they are settled and paid in full and all salvage and subrogation claims are resolved.

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2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

     Loss and LAE reserves, by line of business at December 31, 2008 and 2007 for our insurance operations were as follows:

	December 31, 2008						December 31, 2007
	Case		IBNR		Total		Case		IBNR		Total
	(in thousands)
Gross Reserves
Workers’ compensation	$	46,148	$	50,065	$	96,213	$	25,049	$	44,797	$	69,846
General liability		8,369		25,950		34,319		6,054		20,318		26,372
Commercial automobile liability		16,259		11,983		28,242		11,459		12,233		23,692
Other		1,521		1,396		2,917		676		621		1,297
SUA Insurance Company (SUA)		72,297		89,394		161,691		43,238		77,969		121,207
Potomac Insurance Company of Illinois(1)		37,164		16,098		53,262		48,187		15,342		63,529
Total gross loss and loss adjustment expense reserves		109,461		105,492		214,953		91,425		93,311		184,736
Ceded Reserves
SUA ceded reinsurance recoverables		12,163		14,173		26,336		417		13,218		13,635
Potomac Insurance Company of Illinois(1)		37,164		16,098		53,262		48,187		15,342		63,529
Total ceded loss and loss adjustment expense reserves		49,327		30,271		79,598		48,604		28,560		77,164
Total net loss and loss adjustment expense reserves	$	60,134	$	75,221	$	135,355	$	42,821	$	64,751	$	107,572

(1) On November 23, 2004, Specialty Underwriters’ Alliance, Inc. acquired Potomac, and subsequently renamed the company SUA Insurance Company. Prior to the acquisition, Potomac entered into a transfer and assumption agreement with OneBeacon, whereby all of its liabilities, including all direct liabilities under existing insurance policies, were ceded to and assumed by OneBeacon. We will not experience any gains or losses with respect to such legacy policies unless OneBeacon fails to honor its reinsurance obligation. To date, OneBeacon continues to handle, adjudicate and pay all claims that have arisen from such legacy policies.

Workers’ compensation

     Workers’ compensation is generally considered a long-tail coverage, as it takes a relatively long period of time to finalize claims from a given accident year even though most claims are reported early. While certain characteristics, such as initial medical treatment or temporary wage replacement for the injured worker are known early on, some others are discovered over the course of several years, such as permanent partial injuries. In addition, some characteristics can run as long as the injured worker’s life, such as permanent disability benefits and ongoing medical care.

     Examples of reserving factors for workers’ compensation include:

 • mortality trends of injured workers with lifetime benefits and medical treatment or dependents entitled to survivor benefits;

 • claim handling philosophies;

 • state workers’ compensation benefit laws and reform initiatives;

 • mix between indemnity and medical-type claims;

 • future wage and/or medical inflation; and

 • costs of medical treatments, including prescription drugs and underlying fee schedules, and use of preferred provider networks and other medical cost containment practices.

General liability

     Our general liability product line is considered a long-tail coverage, as it takes a relatively long period of time to finalize claims from a given accident year. General liability reserves are comprised primarily of bodily injury and, to a lesser extent, property damage. Bodily injury claims arise from physical injury as a result of the policyholder’s legal obligation arising from non-intentional acts such as negligence, subject to the insurance policy provisions. In some cases the damages can include future wage loss (which is a function of future earnings power and wage

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Specialty Underwriters’ Alliance, Inc.

inflation) and future medical treatment. Property damage claims arise from damages to the claimant’s private property arising from the policyholder’s legal obligation for non-intentional acts. In most cases, property damage losses are a function of costs as of the loss date, or soon thereafter.

     Examples of reserving factors for general liability include:

 • claim handling philosophies;

 • policy provisions or court interpretations of such provisions;

 • legal environment, such as theories of liability, amount of jury awards, propensity to sue, statutes of limitations, tort law, and settlement patterns;

 • large losses resulting from individual accounts or unique occurrences;

 • subrogation potential; and

 • cost and type of medical treatments.

Commercial automobile liability

     The commercial automobile product line is mostly liability coverage which is primarily long-tail coverage. Claims relating to physical damage to the automobile (property) and property damage (liability) are easier to estimate and are resolved more quickly. Claims relating to bodily injury take longer to formalize and are more difficult to estimate.

     Examples of reserving factors for commercial automobile liability include:

 • claim handling philosophies;

 • policy provisions or court interpretations of such provisions;

 • legal environment, such as theories of liability, amount of jury awards, propensity to sue, statutes of limitations, tort law, and settlement patterns;

 • large losses resulting from individual accounts or unique occurrences;

 • subrogation potential; and

 • cost and type of medical treatments.

     Reserving Methodologies. Instead of any single method, we use a combination of various actuarial and analytical methods to estimate the amount of reserves for each line of business on the basis of historical, statistical and industry information. The primary methods that we utilize to determine our ultimate losses and loss adjustment expenses include:

     Paid loss development methods use historical loss payments over discrete periods of time to estimate losses. Historical paid loss development methods assume that the ratio of losses paid to ultimate loss in one period to the ratio of losses paid to ultimate loss in earlier periods will remain reasonably consistent.

     Incurred loss development methods assume that the ratio of losses in one period to losses in earlier periods will remain reasonably consistent in the future.

     Expected loss ratio methods are based on the assumption that ultimate losses vary proportionately to premiums. Expected loss ratios are typically developed based upon the information used in pricing, such as certain industry information and bureau analysis, and are multiplied by the total amount of premiums earned to calculate ultimate losses.

     Bornhuetter-Ferguson paid and incurred loss development methods combine the expected loss ratio method with the traditional historical paid and incurred loss development methods.

     Because we have a limited operating history, and thus have limited historical loss development data, we rely on methodologies that focus on utilizing industry information and pricing expectations, such as the Bornhuetter-Ferguson methods and the expected loss ratio methods. Methods that utilize historical data to project ultimate losses, such as the loss development methods, are calculated and reviewed but are less relied upon. IBNR reserves represent our best estimate of ultimate losses after subtracting case incurred loss and loss adjustment expenses.

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2008 Form 10-K
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     Management meets with its actuaries and evaluates the methods and factors previously discussed affecting each line of business in determining its reserves. Management uses its discretion in considering these methods and factors without discretely measuring the impact of any factor. We do not believe that it is reasonably likely that any change or changes in any factor or combination of factors would result in a material adjustment to our reserves.

     The estimation of ceded reinsurance loss and loss adjustment expense reserves will be subject to the same factors as the estimation of insurance loss and loss adjustment expense reserves.

     The following table shows for SUA the recorded reserves and the high and low ends of the range of reasonable loss and LAE reserve estimates at December 31, 2008.

	Net Reserves
	Low		Carried		High
	(in thousands)
Range of Estimates		124,326				150,214
Reserves				135,355

     We determined the range of reserve estimates by reviewing various actuarial methods as well as testing the possible ultimate losses by applying simulated expected future loss development patterns. The probability that ultimate losses will fall outside of the ranges of estimates by line of business is higher for each line of business individually than it is for the sum of the estimates for all lines taken together. Although we believe our reserves are reasonably stated, ultimate losses may deviate, perhaps materially, from the recorded reserve amounts and could be above the high end of the range of actuarial projections. This is because ranges are developed based on known events as of the valuation date, whereas the ultimate disposition of losses is subject to the outcome of events and circumstances that may be unknown as of the valuation date.

     For additional information about our accounting practices and policies see the discussion under the heading “Item 8. Financial Statements - Note 2 — Summary of significant Accounting Policies” in PART II of this annual report.

Recent Accounting Pronouncements

     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.

     In October 2008, the FASB issued FASB Staff Position No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of SFAS 157, Fair Value Measurements, in a market that is not active. The Company adopted FSP FAS 157-3 on issuance, applicable to the third quarter 2008 financial statements. The adoption of this standard did not have any material impact on the Company’s financial statements.

     In January 2009, the FASB issued FASB Staff Position No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF 99-20-1”), which is effective for interim and annual ending after December 15, 2008. FSP EITF 99-20-1 amends EITF 99-2“Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets” (“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 that there is an adverse change in the estimated cash flows. The adoption of FSP EITF 99-20-1 in the fourth quarter did not have a material effect on the Company’s results of operations, financial position or liquidity.

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2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Item 7A. 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 expect that changes in investment values attributable to interest rate changes are mitigated by corresponding and partially offsetting changes in the economic value of our insurance reserves to the extent we have established such loss reserves. We monitor this exposure through periodic reviews of our consolidated asset and liability positions.

     The table below summarizes the estimated effects of hypothetical increases and decreases in market interest rates on our fixed maturity portfolio as of December 31, 2008:

				Estimated Fair
			Assumed Change in	Value After		Increase
	Fair Value at		Relevant	Change in		(Decrease) in
	12/31/08		Interest Rate	Interest Rate		Carrying Value
	(in thousands)
Total Investments	$	263,405	100 bp decrease	$	272,910	$	9,505
			50 bp decrease		268,158		4,753
			50 bp increase		258,701		(4,704)
			100 bp increase		254,078		(9,327)

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 seek to earn competitive relative returns while investing in a diversified portfolio of securities of high credit quality issuers and to limit the amount of credit exposure to any one issuer.

     The portfolio of fixed maturities consisted solely of high quality bonds at December 31, 2008. The following table summarizes bond ratings at market or fair value:

	As of December 31, 2008
	Fair Value		Percent of
Bond Ratings	Amount		Portfolio
	(in thousands)
AAA rated and U.S. Government and affiliated agency securities	$	156,817		59.5%
AA rated		47,163		17.9%
A rated		54,808		20.8%
BBB Rated		4,617		1.8%
Total	$	263,405		100.0%

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

Item 8. Financial Statements and Supplementary Data

     The information required by this item is set forth beginning on page F-1 of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

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2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Item 9A. Controls And Procedures

     Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. Disclosure controls and procedures are the 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 annual 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 controls over financial reporting that occurred during the quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, these internal controls.

     Management’s Report on Internal Control Over Financial Reporting. Our management, under the supervision of our principal executive officer and principal financial officer, is also responsible for establishing and maintaining adequate internal control over financial reporting as defined in SEC Rules 13a-15(f) and 15d-15(f). Management evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management, including our principal executive officer and principal financial officer, has concluded that the design and operation of our internal controls over financial reporting are effective as of December 31, 2008.

     The effectiveness of our internal control over financial reporting as of December 31, 2008, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in Item 8.

     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 controls over financial reporting are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control and internal control over financial reporting systems are met.

Item 9b. Other Information

Item 1.01 Entry into a Material Definitive Agreement.

DIRECTOR INDEMNIFICATION AGREEMENTS

     On March 3, 2009, the Company entered in individual indemnification agreements (the “Indemnification Agreements”) with each person currently serving as a director of the Company (each an “Indemnitee”). The purpose of the Indemnification Agreements is to provide each Indemnitee with a contractual right to indemnification in addition to the indemnification rights included in the Company’s amended and restated certificate of incorporation and amended and restated by-laws.

     Each Indemnification Agreement provides, among other things, that the Indemnitee is indemnified against expenses, judgments and other losses resulting from being a party to, or otherwise participating in, any proceeding by virtue of having served as a director, officer, employee, agent or fiduciary of the Company or of any affiliate of the Company. For proceedings brought by or on behalf of the Company, indemnification is limited to expenses incurred by the Indemnitee. The Company will advance expenses incurred by an Indemnitee in defending against such proceedings.

     The foregoing description is qualified in its entirety by reference to the form of Indemnification Agreement, which is filed as Exhibit 10.52 to this Annual Report on Form 10-K.

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2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

2009 OFFICER BONUS PROGRAM

     On March 3, 2008, the Company adopted its 2009 officer bonus program (the “Bonus Program”). All of our named executive officers, including our principal executive officer and our principal financial officer, are eligible to receive cash bonuses under the Bonus Program.

     The Bonus Program is intended to reward a covered employee for his contribution to the overall success of the Company. The Bonus Program has two components:

     (1) Individual performance goals are established for each of the officers as follows: (A) for the Chief Executive Officer (the “CEO”), by the Compensation Committee of the Board of Directors (the “Compensation Committee”); and (B) for the Executive Vice President (the “EVP”), the Senior Vice Presidents (each an “SVP”) and the Vice Presidents (each a “VP”), by the Compensation Committee with input from the Chief Executive Officer.

     Each officer is eligible for a discretionary cash bonus related to individual performance of up to a specific percentage of his base salary. The CEO, EVP and each SVP is eligible for a discretionary cash bonus of up to 25% of his base salary relating to individual performance and each VP is eligible for a discretionary cash bonus of up to 20% of his base salary relating to individual performance. Each discretionary cash bonus relates to individual performance and is based on an evaluation of the achievement or lack of achievement of such individual’s performance goals and of such officer’s overall contribution to the success of the Company during 2009. The Company’s financial results for 2009 will be considered by the Compensation Committee when bonus determinations are made under the Bonus Program.

     (2) The Compensation Committee has determined that the most significant portion of the Bonus Program should be dependent upon the results of operations of the Company during 2009, as measured by the Company’s after-tax return on equity (“ROE”) for that year. ROE is one of the most common and accepted measurements used by investors in assessing the efficacy of their investments and the effectiveness of deployed capital. For 2009, the Company’s ROE will be calculated by dividing the after-tax net income earned by the Company in 2009 by its beginning equity of approximately $136 million at January 1, 2009.

     Each officer is eligible for a discretionary cash bonus related to Company performance of up to a specific percentage of his base salary that is tied to specified levels of ROE for the Company for fiscal year 2009. The CEO, EVP and the SVP is eligible for a discretionary cash bonus of up to 75% of his base salary relating to Company performance and each VP is eligible for a discretionary cash bonus of up to 55% of his base salary relating to Company performance.

     Although the Bonus Program has set parameters, the determination to pay any person a bonus under the Bonus Program, the size of any bonus and the criteria, including individual performance goals, used in making such determination is entirely at the discretion of the Compensation Committee.

     A description of the 2009 Officer Bonus Program is filed as Exhibit 10.50 to this Annual Report on Form 10-K and is incorporated herein by reference.

AMENDMENT TO CHANGE OF CONTROL AGREEMENT

     Daniel A. Cacchione (the “Employee”) received a promotion from Vice President to Senior Vice President January 1, 2009. Since the Company has different terms for its change in control agreements with its Senior Vice Presidents than it does with its Vice Presidents, on March 3, 2009, the Company entered into the First Amendment to the Change in Control Agreement (the “Amendment”) to amend the Change in Control Agreement (“Agreement”) entered into by the parties on April 7, 2008. The material terms of the Amendment are as follows:

     The Amendment replaces Section (A)(i) of the Agreement with the following text: “The Company shall pay to the Employee an amount equal to the sum of (a) two times the Employee’s annual base salary and (b) any unreimbursed business expenses or other amounts due to the Employee from the Company as of the Employee’s date of termination”.

     A copy of the Amendment is filed as Exhibit 10.51 to this Annual Report on Form 10-K and is incorporated herein by reference.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

     The information required by Item 10 as to our executive officers and our code of business conduct and ethics is disclosed in Part I, Item I under the headings “Executive Officers of the Registrant” and “Overview,” respectively. The information required by Item 10 as to our directors, compliance with section 16 of the Exchange Act, and corporate governance is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A. We are not aware of any family relationships between any of our directors or executive officers.

Item 11. Executive Compensation

     The information required by Item 11 is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A.

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2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     The information required by Item 12 regarding security ownership of certain beneficial owners and executive officers and directors is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A.

Item 13 Certain Relationships and Related Transactions, and Director Independence

     The information required by Item 13 is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A.

Item 14. Principal Accounting Fees and Services

     The information required by Item 14 is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A.

PART IV

Item 15.   Exhibits and Financial Statement Schedules

     Financial Statements and Financial Statement Schedules

     The consolidated financial statements and financial statement schedules of Specialty Underwriters’ Alliance, Inc. required by Part II, Item 8, are included in Part IV of this report. See Index to Consolidated Financial Statements and Financial Statement Schedules beginning on page F-1 below.

     Exhibits

Exhibit
Number			Description
	3.1		Amended and Restated Certificate of Incorporation dated May 19, 2005 (Incorporated by reference to Exhibit 3.1, filed with Specialty Underwriters’ Alliance. Inc.’s Amendment No. 1 to the Registration Statement on Form S-1/A filed on May 31, 2005 (File No. 333-124263))
	3.2		Amended and Restated Bylaws dated August 5, 2008 (Incorporated by reference to Exhibit 3.1, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2008, filed on August 8, 2008
	10.1	+	2004 Stock Option Plan of Specialty Underwrites’ Alliance, Inc. (as Amended and Restated as of November 11, 2004) (Incorporated by reference to Exhibit 10.1.5, filed with Specialty Underwriters’ Alliance, Inc.’s Amendment No. 6 to the Registration Statement on Form S-1/A filed on November 12, 2004 (File No. 333-117722))
	10.2		Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated May 18, 2004, between the Registrant and AEON Insurance Group, Inc. (Incorporated by reference to Exhibit 10.1.15, filed with Specialty Underwriters’ Alliance, Inc.’s Amendment No. 2 to the Registration Statement on Form S-1/A filed on October 20, 2004 (File No. 333-117722))
	10.3		Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated May 1, 2004, between the Registrant and American Team Managers (Incorporated by reference to Exhibit 10.1.17, filed with Specialty Underwriters’ Alliance, Inc.’s Amendment No. 2 to the Registration Statement on Form S-1/A filed on October 20, 2004 (File No. 333-117722))
	10.4		Side letter, dated September 30, 2004, between the Registrant and AEON Insurance Group, Inc. (Incorporated by reference to Exhibit 10.1.25, filed with Specialty Underwriters’ Alliance, Inc.’s Amendment No. 2 to the Registration Statement on Form S-1/A filed on October 20, 2004 (File No. 333-117722))
	10.5		Securities Purchase Agreement, dated September 30, 2004, between the Registrant and AEON Insurance Group, Inc. (Incorporated by reference to Exhibit 10.1.26, filed with Specialty Underwriters’ Alliance, Inc.’s Amendment No. 2 to the Registration Statement on Form S-1/A filed on October 20, 2004 (File No. 333-117722))
	10.6		Side letter, dated August 16, 2004, between the Registrant and American Team Managers (Incorporated by reference to Exhibit 10.1.27, filed with Specialty Underwriters’ Alliance, Inc.’s Amendment No. 2 to the Registration Statement on Form S-1/A filed on October 20, 2004 (File No. 333-117722))

43

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Exhibit
Number			Description
	10.7		Securities Purchase Agreement, dated August 16, 2004, between the Registrant and American Team Managers (Incorporated by reference to Exhibit 10.1.28, filed with Specialty Underwriters’ Alliance, Inc.’s Amendment No. 2 to the Registration Statement on Form S-1/A filed on October 20, 2004 (File No. 333-117722))
	10.8		Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated November 3, 2004, between the Registrant and Risk Transfer Holdings, Inc. (Incorporated by reference to Exhibit 10.1.32, filed with Specialty Underwriters’ Alliance, Inc.’s Amendment No. 5 to the Registration Statement on Form S-1/A filed on November 10, 2004 (File No. 333-117722))
	10.9		Side Letter, dated November 3, 2004, between the Registrant and Risk Transfer Holdings, Inc. Amendment No. 5 to the (Incorporated by reference to Exhibit 10.1.34, filed with Specialty Underwriters’ Alliance, Inc.’s Registration Statement on Form S-1/A filed on November 10, 2004 (File No. 333-117722))
	10.10		Securities Purchase Agreement, dated November 3, 2004, between the Registrant and Risk Transfer Holdings, Inc. (Incorporated by reference to Exhibit 10.1.35, filed with Specialty Underwriters’ Alliance, Inc.’s Amendment No. 5 to the Registration Statement on Form S-1/A filed on November 10, 2004 (File No. 333-117722))
	10.11		Lease Agreement, dated February 7, 2005, between SUA Insurance Company, the wholly owned operating subsidiary of the Registrant, and 222 South Riverside Property LLC (Incorporated by reference to Exhibit 10.1.40, filed with Specialty Underwriters’ Alliance, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 31, 2005)
	10.12		Amendment No. 1 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated January 17, 2005, between the Registrant and American Team Managers (Incorporated by reference to Exhibit 10.1.41, filed with Specialty Underwriters’ Alliance, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 31, 2005)
	10.13		First Amendment to Lease, dated May 5, 2005, between SUA Insurance Company, the wholly owned operating subsidiary of the Registrant, and 222 South Riverside Property, LLC (Incorporated by reference to Exhibit 10.24, filed with Specialty Underwriters’ Alliance, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 7, 2008)
	10.14		Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated May 11, 2004, between the Registrant and Specialty Risk Solutions, LLC (Incorporated by reference to Exhibit 10.1.42, filed with Specialty Underwriters’ Alliance. Inc.’s Amendment No. 1 to the Registration Statement on Form S-1/A filed on May 31, 2005 (File No. 333-124263))
	10.15		Securities Purchase Agreement, dated May 11, 2005, between the Registrant and Specialty Risk Solutions, LLC (Incorporated by reference to Exhibit 10.1.43, filed with Specialty Underwriters’ Alliance. Inc.’s Amendment No. 1 to the Registration Statement on Form S-1/A filed on May 31, 2005 (File No. 333-124263))
	10.16		Amended and Restated Securities Purchase Agreement, dated June 10, 2005, between the Registrant and Risk Transfer Holdings, Inc. (Incorporated by reference to Exhibit 10.26, filed with Specialty Underwriters’ Alliance, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 7, 2008)
	10.17		Amendment No. 1 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 30, 2005, between the Registrant and Risk Transfer Holdings, Inc. (Incorporated by reference to Exhibit 10.27, filed with Specialty Underwriters’ Alliance, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 7, 2008)
	10.18		Amended and Restated Securities Purchase Agreement, dated September 8, 2005, between the Registrant and American Team Managers (Incorporated by reference to Exhibit 10.28, filed with Specialty Underwriters’ Alliance, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 7, 2008)
	10.19	*	First Amendment to the Securities Purchase Agreement, dated September 13, 2005, between Registrant and Specialty Risk Solutions, LLC
	10.20		Amended and Restated Securities Purchase Agreement, dated September 28, 2005, between the Registrant and AEON Insurance Group, Inc. (Incorporated by reference to Exhibit 10.29, filed with Specialty Underwriters’ Alliance, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 7, 2008)
	10.21	*	Second Amendment to the Securities Purchase Agreement, dated September 30, 2005, between Registrant and Specialty Risk Solutions, LLC
	10.22		Third Amendment to the Securities Purchase Agreement, dated October 21, 2005, between Registrant and Specialty Risk Solutions, LLC (Incorporated by reference to Exhibit 10.1.47, filed with Post-Effective Amendment No. 2 to Registration Statement on Form S-3 filed on December 15, 2005 (File No. 333-124263))
	10.23		Amendment No. 2 to Specialty Underwrites’ Alliance, Inc. Partner Agent Program Agreement, dated March 20, 2006, between Registrant and American Team Managers (Incorporated by reference to Exhibit 10.1.1, filed with Specialty Underwriters’ Alliance. Inc.’s Quarterly Report on Form 10-Q for the 1st Quarter ended March 31, 2006 filed on May 9, 2006)

44

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Exhibit
Number			Description
	10.24		Second Amendment to Lease, dated April 24, 2006, between SUA Insurance Company, the wholly owned operating subsidiary of the Registrant, and 222 South Riverside Property, LLC (Incorporated by reference to Exhibit 10.31, filed with Specialty Underwriters’ Alliance, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 7, 2008)
	10.25		Amendment No. 1 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 10, 2006, between the Registrant and AEON Insurance Group, Inc (Incorporated by reference to Exhibit 99.2, filed with Specialty Underwriters’ Alliance. Inc.’s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2006 filed on August 4, 2006)
	10.26		Amendment No. 2 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 12, 2006, between the Registrant and Risk Transfer Holdings, Inc. (Incorporated by reference to Exhibit 99.3, filed with Specialty Underwriters’ Alliance. Inc.’s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2006 filed on August 4, 2006)
	10.27		Amendment No. 1 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement – Specialty Risk Solutions, LLC (Incorporated by reference to Exhibit 99.2 with Specialty Underwriters’ Alliance. Inc.’s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30, 2006 filed on November 6, 2006)
	10.28		First Amendment to the Amended and Restated Securities Purchase Agreement, dated July 16, 2006, between Registrant and AEON Insurance Group, Inc. (Incorporated by reference to Exhibit 99.3, filed with Specialty Underwriters’ Alliance. Inc.’s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30, 2006 filed on November 6, 2006)
	10.29		Amendment No. 3 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated July 18, 2006, between the Registrant and American Team Managers (Incorporated by reference to Exhibit 99.4, filed with Specialty Underwriters’ Alliance. Inc.’s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30, 2006 filed on November 6, 2006)
	10.30		First Amendment to the Amended and Restated Securities Purchase Agreement, dated September 21, 2006, between the Registrant and Risk Transfer Holdings, Inc. (Incorporated by reference to Exhibit 99.7, filed with Specialty Underwriters’ Alliance. Inc.’s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30, 2006 filed on November 6, 2006)
	10.31		First Amendment to the Amended and Restated Securities Purchase Agreement, dated September 25, 2006, between the Registrant and American Team Managers (Incorporated by reference to Exhibit 99.8, filed with Specialty Underwriters’ Alliance. Inc.’s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30, 2006 filed on November 6, 2006)
	10.32	+	2007 Stock Incentive Plan of Specialty Underwriters’ Alliance, Inc., dated March 31, 2007 (Incorporated by reference to Appendix A, filed with Specialty Underwriters’ Alliance, Inc.’s Definitive Proxy Statement on Form DEF 14A for the year ended December 31, 2006 filed on April 2, 2007)
	10.33		Fourth Amendment to the Securities Purchase Agreement, dated June 18, 2007, between Registrant and Specialty Risk Solutions, LLC (Incorporated by reference to Exhibit 10.1, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2007 filed on August 6, 2007)
	10.34		Amendment No. 4 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated October 29, 2007, between the Registrant and American Team Managers (Incorporated by reference to Exhibit 10.1, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30, 2007 filed on November 2, 2007)
	10.35	+	Form of Restricted Stock Agreement for Directors under the 2007 Stock Incentive Plan of the Registrant (Incorporated by reference to Exhibit 10.4, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30, 2007 filed on November 2, 2007)
	10.36	+	Form of Restricted Stock Agreement for Employees under the 2007 Stock Incentive Plan of the Registrant (Incorporated by reference to Exhibit 10.4, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30, 2007 filed on November 2, 2007)
	10.37	+	Form of Option Agreement — Non-Qualified Stock Option under the 2007 Stock Incentive Plan of the Registrant (Incorporated by reference to Exhibit 10.4, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30, 2007 filed on November 2, 2007)
	10.38	+	Form of Option Agreement — Incentive Stock Option under the 2007 Stock Incentive Plan of the Registrant (Incorporated by reference to Exhibit 10.4, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 3rd Quarter ended September 30, 2007 filed on November 2, 2007)
	10.39	+	Form of Deferred Stock Award Agreement for Employees under the 2007 Stock Incentive Plan of the Registrant (Incorporated by reference to Exhibit 10.1, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 1ST Quarter ended March 31, 2008 filed on May 9, 2008)
	10.40	+	Employment Agreement, dated April 7, 2008 between the Registrant and Courtney C. Smith (Incorporated by reference to Exhibit 10.1, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)

45

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Exhibit
Number			Description
	10.41	+	Employment Agreement, dated April 7, 2008 between the Registrant and Peter E. Jokiel (Incorporated by reference to Exhibit 10.2, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)
	10.42	+	Employment Agreement, dated April 7, 2008 between the Registrant and Gary J. Ferguson (Incorporated by reference to Exhibit 10.3, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)
	10.43	+	Change of Control Agreement, dated April 7, 2008 between the Registrant and Barry G. Cordeiro (Incorporated by reference to Exhibit 10.4, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)
	10.44	+	Change of Control Agreement, dated April 7, 2008 between the Registrant and Scott W. Goodreau (Incorporated by reference to Exhibit 10.5, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)
	10.45	+	Change of Control Agreement, dated April 7, 2008 between the Registrant and Scott K. Charbonneau (Incorporated by reference to Exhibit 10.6, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)
	10.46	+	Change of Control Agreement, dated April 7, 2008 between the Registrant and Daniel A. Cacchione (Incorporated by reference to Exhibit 10.7, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)
	10.47	+	Change of Control Agreement, dated April 7, 2008 between the Registrant and Daniel J. Rohan (Incorporated by reference to Exhibit 10.8, filed with Specialty Underwriters’ Alliance, Inc.’s Quarterly Report on Form 10-Q for the 2nd Quarter ended June 30, 2008 filed on August 8, 2008)
	10.48	*	Amendment No. 5 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated April 10, 2008, between the Registrant and American Team Managers
	10.49	*	Amendment No. 6 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated October 15, 2008, between the Registrant and American Team Managers
	10.50	*+	Description of 2009 Officer Bonus Program for the Registrant
	10.51	*+	First Amendment to the Change in Control Agreement dated March 3, 2009 between the Registrant and Daniel A. Cacchione
	10.52	*	Form of Indemnification Agreement between the Registrant and each of its Directors
	14.1		Code of Ethics of Specialty Underwriters’ Alliance, Inc. (Incorporated by reference to Exhibit 14.1 with Specialty Underwriters’ Alliance, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 31, 2005)
	21.1		Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21.1, filed with Specialty Underwriters’ Alliance, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 31, 2005)
	23.1	*	Consent of PricewaterhouseCoopers LLP with respect to Registrant.
	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.
+	Indicates a management contract or compensatory plan or arrangement.

46

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Index To Audited Consolidated Financial Statements And Schedules

	Page No.
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets of Specialty Underwriters’ Alliance, Inc. as of December 31, 2008 and December 31, 2007		F-3
Consolidated Statements of Operations and Comprehensive Income (Loss) of Specialty Underwriters’ Alliance, Inc. for the years ended December 31, 2008, December 31, 2007 and December 31, 2006		F-4
Consolidated Statement of Stockholders’ Equity of Specialty Underwriters’ Alliance, Inc. as of December 31, 2008 and December 31, 2007		F-5
Consolidated Statements of Cash Flows for Specialty Underwriters’ Alliance, Inc. for the years ended December 31, 2008, December 31, 2007, and December 31, 2006		F-6
Notes to Consolidated Financial Statements		F-7
Financial Statement Schedules
Schedule I — Specialty Underwriters’ Alliance, Inc. — Summary of Investments Other Than Investments in Related Parties as of December 31, 2008		F-21
Schedule II — Specialty Underwriters’ Alliance, Inc. — Condensed Financial Information of Registrant as of December 31, 2008 and December 31, 2007 or for the years ended December 31, 2008, December 31, 2007 and December 31, 2006, as appropriate		F-22
Schedule III — Specialty Underwriters’ Alliance, Inc. — Supplementary Insurance Information for the years ended December 31, 2008, December 31, 2007 and December 31, 2006		F-25
Schedule IV — Specialty Underwriters’ Alliance, Inc. — Reinsurance for the years ended December 31, 2008, December 31, 2007, and December 31, 2006		F-26
Schedule V — Specialty Underwriters’ Alliance, Inc. — Valuation and Qualifying Accounts of Registrant for the years ended December 31, 2008, December 31, 2007 and December 31, 2006		F-27
Schedule VI — SUA Insurance Company — Supplemental Information Concerning Property and Casualty Insurance Operations for the years ended December 31, 2008, December 31, 2007 and December 31, 2006		F-28

F-1

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
Specialty Underwriters’ Alliance, Inc.:

     In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Specialty Underwriters’ Alliance, Inc. and its subsidiary at December 31, 2008 and December 31, 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

     A company’s internal control over financial reporting is a process designed 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 principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
March 6, 2009

F-2

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Consolidated Balance Sheets of

Specialty Underwriters’ Alliance, Inc.

As of December 31, 2008 and 2007

	2008			2007
	(in thousands)
ASSETS
Fixed maturity investments, at fair value (amortized cost: $220,744 and $176,592)	$	216,708		$	177,735
Short-term investments, at amortized cost (which approximates fair value)		46,697			51,652
Total investments	$	263,405		$	229,387
Cash		208			968
Insurance premiums receivable		60,715			68,887
Reinsurance recoverable on unpaid loss and loss adjustment expenses		79,598			77,204
Prepaid reinsurance premiums		309			631
Investment income accrued		2,467			1,909
Equipment and capitalized software at cost (less accumulated depreciation of $15,486 and $8,927)		13,562			12,796
Intangible assets		10,745			10,745
Deferred acquisition costs		18,156			17,495
Deferred tax asset		3,146			-
Other assets		2,426			2,512
Total assets	$	454,737		$	422,534
LIABILITIES & STOCKHOLDERS’ EQUITY
LIABILITIES
Loss and loss adjustment expense reserves	$	214,953		$	184,736
Unearned insurance premiums		80,600			86,741
Insured deposit funds		15,806			12,515
Accounts payable and other liabilities		7,089			7,405
Total liabilities	$	318,448		$	291,397
Commitments (Note 9)
STOCKHOLDERS’ EQUITY
Common Stock at $.01 par value per share — authorized 30,000,000 shares; issued 14,712,355 and 14,697,355 and outstanding 14,437,355 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 1,368,562 and 869,738 shares		14			9
Paid-in capital — Common Stock		129,926			129,431
Paid-in capital — Class B Common Stock		8,077			6,139
Accumulated earnings (deficit)		1,693			(5,732	)
Treasury stock		(1,347	)		-
Accumulated other comprehensive income (loss)		(2,221	)		1,143
Total stockholders’ equity	$	136,289		$	131,137
Total liabilities and stockholders’ equity	$	454,737		$	422,534

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

F-3

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Consolidated Statements of Operations and Comprehensive Income of

Specialty Underwriters’ Alliance, Inc.

For the Years Ended December 31, 2008, 2007 and 2006

	2008			2007			2006
	(in thousands, except earnings per share)
REVENUE
Earned insurance premiums	$	143,465		$	152,469		$	110,891
Net investment income		10,837			9,553			6,087
Net realized gain (losses)		(811	)		(27	)		275
Total revenue	$	153,491		$	161,995		$	117,253
EXPENSES
Loss and loss adjustment expenses	$	89,385		$	89,990		$	62,682
Acquisition expenses		32,990			36,601			26,032
Other operating expenses		23,132			22,568			19,884
Total expenses	$	145,507		$	149,159		$	108,598
Pretax income		7,984			12,836			8,655
Federal income tax expense		(559	)		(247	)		(247	)
Net income	$	7,425		$	12,589		$	8,408
Net change in unrealized gains and losses for investments held, after tax		(3,364	)		2,204			570
Comprehensive income	$	4,061		$	14,793		$	8,978
Earnings per share available to common stockholders (in dollars)
Basic	$	0.48		$	0.82		$	0.55
Diluted	$	0.47		$	0.82		$	0.55
Weighted Average shares outstanding
Basic		15,608			15,431			15,211
Diluted		15,776			15,431			15,211

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

F-4

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Consolidated Statement of Stockholders’ Equity of
Specialty Underwriters’ Alliance, Inc.
As of December 31, 2008 and 2007

															Acum.
	Common		Paid-in		Common		Paid-in		Retained						Other			Total
	Stock Class		Capital Class		Stock Class		Capital		Earnings			Treasury			Comp.			Stockholders’
	A		A		B		Class B		(Deficit)			Stock			Income			Equity
	(in thousands)
Balance at 12/31/06	$	147	$	128,372	$	7	$	4,838	$	(18,321	)	$	-		$	(1,061	)	$	113,982
Net income		-		-		-		-		12,589			-			-			12,589
Net change in unrealized investment gains, net of tax		-		-		-		-		-			-			2,204			2,204
Stock issuance		-		123		2		1,301		-			-			-			1,426
Stock based compensation		-		936		-		-		-			-			-			936
Balance at 12/31/07	$	147	$	129,431	$	9	$	6,139	$	(5,732	)	$	-		$	1,143		$	131,137
Net Income		-		-		-		-		7,425			-			-			7,425
Net change in unrealized investment gains, net of tax		-		-		-		-		-			-			(3,364	)		(3,364	)
Stock issuance		-		67		5		1,938		-			-			-			2,010
Treasury stock purchases		-		-		-		-		-			(1,347	)		-			(1,347	)
Stock based compensation		-		428		-		-		-			-			-			428
Balance at 12/31/08	$	147	$	129,926	$	14	$	8,077	$	1,693		$	(1,347	)	$	(2,221	)	$	136,289

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

F-5

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Consolidated Statements of Cash Flows of
Specialty Underwriters’ Alliance, Inc.
For the Years Ended 2008, 2007 and 2006

	2008			2007			2006
	(in thousands)
Cash Flows From Operations
Net income	$	7,425		$	12,589		$	8,408
Change in deferred taxes		(1,344	)		(77	)		90
Net realized (gains) losses		811			27			(275	)
Amortization of bond premium (discount)		116			(5	)		342
Depreciation		6,559			5,012			2,577
Net change in:
Reinsurance recoverable on unpaid loss and loss adjustment expense reserves		(2,394	)		3,772			8,021
Loss and loss adjustment expense reserves		30,217			43,536			36,330
Insurance premiums receivable		8,172			(577	)		(23,442	)
Unearned insurance premiums		(6,141	)		(3,063	)		31,209
Deferred acquisition costs		(661	)		2,381			(8,597	)
Prepaid reinsurance premiums		322			2,946			(85	)
Insured deposit funds		3,291			2,149			3,207
Other, net		(277	)		912			2,526
Total adjustments		38,671			57,013			51,903
Net cash flows provided by (used for) operations		46,096			69,602			60,311
Cash flows from investing activities
Net decrease (increase) in short-term investments		4,955			(32,114	)		(10,676	)
Sales of fixed maturity investments		6,108			9,938			7,174
Redemptions, calls and maturities of fixed maturity investments		19,990			10,003			9,502
Purchases of fixed maturity investments		(71,180	)		(50,974	)		(66,575	)
Purchase of equipment and capitalized software		(7,325	)		(9,165	)		(5,778	)
Net cash flows used for investing activities		(47,452	)		(72,312	)		(66,353	)
Cash flows from financing activities
Issuance of common stock		1,943			1,303			3,088
Treasury stock purchases		(1,347	)		-			-
Net cash provided by financing activities		596			1,303			3,088
Net decrease in cash during the period		(760	)		(1,407	)		(2,954	)
Cash at beginning of the period		968			2,375			5,329
Cash at end of the period	$	208		$	968		$	2,375

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

F-6

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

Specialty Underwriters’ Alliance, Inc.

Notes to Consolidated Financial Statements

(dollars in thousands, except per share amounts)

Note 1 — Nature of Operations

     UAI Holdings, Inc., a Delaware holding company, was organized on April 3, 2003. There was no financial activity between the organizational date and the initial funding date of December 12, 2003. On November 5, 2003, UAI Holdings, Inc. changed its name to Specialty Underwriters’ Alliance, Inc.

     On November 23, 2004, Specialty Underwriters’ Alliance, Inc., or the Company, successfully completed an initial public offering, or the IPO, which generated net proceeds of $119,789. On December 22, 2004 the Company received proceeds of $3,728 from the underwriter’s exercise of the over allotment option. Concurrent with the initial public offering the Company purchased Potomac for $21,997 which was equivalent to Potomac’s statutory basis capital and surplus as of the closing date plus $10,745. On the same date, the Illinois Department of Insurance approved an amendment to Potomac’s charter to change its name to SUA Insurance Company.

     The Company began its insurance operations in 2005. It is organized to provide specialty program commercial property and casualty insurance through exclusive partner agents.

Note 2 — Summary of Significant Accounting Policies

     The accompanying consolidated financial statements, which include the accounts of Specialty Underwriters’ Alliance, Inc. and its consolidated subsidiary, SUA Insurance Company, have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP. All intercompany amounts have been eliminated.

     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Certain reclassifications have been made to prior period financial statement line items to enhance the comparability with prior years.

Cash and Investments

     Cash consists of demand deposits. Short-term investments consist of investments with original maturities of less than one year, as determined on the date of purchase.

     All fixed maturity investment securities are classified upon acquisition as available-for-sale. As such, they are reported at estimated fair value. The Company uses an independent pricing service to determine the fair value of substantially all of the investment assets. For more information about the pricing of the investment securities please see “Note 5 – Investments” in Notes to the Consolidated Financial Statements. Short term securities are valued at amortized cost.

     The Company monitors the difference between its cost basis and the fair value of its investments to determine, when the fair value is below cost, if this difference is other than a temporary impairment. Factors considered in evaluating whether a decline in value is other than temporary include: the length of time and the extent to which the fair value has been less than cost; the financial conditions and near-term prospects of the issuer; and the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery. In addition, 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” (“EITF 99-20”) and are monitored for significant adverse changes in cash flow projections. If there are material adverse changes in cash flows, the amount of accretive yield is prospectively adjusted and an other-than-temporary impairment loss is recognized.

     Other than temporary impairment charges on investments are recorded based on the fair value of the investments at the balance sheet date, and are included in net realized gains and losses. The unrealized appreciation or depreciation of available-for-sale investments carried at fair value are excluded from net income and credited or charged directly to accumulated other comprehensive income, a separate component of stockholders’ equity. The change in unrealized appreciation or depreciation is reported as a component of other comprehensive income.

     Investment income is recorded when earned. Realized investment gains and losses are recognized using specific identification of the security sold.

F-7

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

Equipment and Capitalized Software

     Equipment consists of office furniture and equipment and is depreciated over three to five years. Capitalized software costs are purchased computer software or external consulting development costs and are depreciated over three to five years.

Intangible Assets

     The cost of insurance licenses is an indefinite life intangible asset because the licenses will remain in effect indefinitely as long as the Company complies with relevant state insurance regulations. This intangible asset will not be amortized, but will be evaluated for impairment at least annually or upon the occurrence of certain triggering events.

Earned and Unearned Insurance Premiums

     Premiums are recognized as revenue over the coverage period of policies written on a daily pro rata basis. Certain policies are subject to adjustment based on changes in exposure units over the period of coverage, such as payroll increases/decreases and changes in risk classifications and therefore the direct written premiums are estimated during the policies term until final audit of the policy occurs. Unearned insurance premiums represent the portion of premiums written relating to the remaining term of each policy.

Acquisition Expenses

     Acquisition expenses related to the writing of insurance policies such as up-front commissions, premium taxes and other costs associated with premium writings are deferred and subsequently amortized to income over the period of coverage. Deferred acquisition expenses are assessed for recoverability using loss and loss adjustment expense ratios which are based primarily on the assumption that the future loss and loss adjustment expense ratio will include consideration of the recent experience. Adjustments to the asset for future recoverability are recorded through operations in the period identified. Acquisition expenses related to earned premiums are expensed immediately.

Income Taxes

     Income taxes are accounted for in accordance with the provisions of Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” or SFAS 109. Deferred tax assets and liabilities are recognized consistent with the asset and liability method required by SFAS 109. Our deferred tax assets and liabilities primarily result from temporary differences between the amounts recorded in our consolidated financial statements and the tax basis of our assets and liabilities.

     At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred tax assets when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized.

Reinsurance

     Reinsurance premiums, commissions, expense reimbursements and reserves related to reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums ceded to other companies are reported as a reduction of premiums earned.

     Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. The collectability of reinsurance recoverables is subject to the solvency of the reinsurers.

Unpaid Loss and LAE

     Liabilities for loss and loss adjustment expenses, or LAE, are comprised of case basis estimates for claims and claim expenses reported prior to year-end and estimates of incurred but not reported, or IBNR, losses and loss expenses, net of estimated salvage and subrogation recoverable. These estimates are recorded gross of reinsurance and are continually reviewed and updated with any resulting adjustments reflected in current operating results.

     Case reserves are estimated based on the experience and knowledge of claims staff regarding the nature and potential cost of each claim and are adjusted as additional information becomes known or payments are made. IBNR reserves are regarded as the most uncertain reserve segment and are derived by subtracting paid loss and LAE

F-8

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

and case reserves from estimates of ultimate loss and LAE. Actuaries estimate ultimate loss and LAE using various generally accepted actuarial methods applied to known losses, earned premium and other relevant information. Like case reserves, IBNR reserves are adjusted as additional information becomes known or payments are made.

     For IBNR losses, the amount of reserves is estimated on the basis of historical and statistical information. The Company considers historical patterns of paid and reported claims, industry data and the probable number and nature of losses arising from claims that have occurred but have not yet been reported for a given year.

Equity Compensation

     Stock options granted subsequent to the adoption of FAS No. 123 (revised 2004), “Share-Based Payment,” or FAS 123R, are valued using the fair value method and expensed over the vesting period. Under FAS 123R, the Company has opted to use the binomial lattice option pricing model to determine fair value. Restricted stock awards granted subsequent to the adoption of 123R are valued using the measurement and recognition provisions of FAS 123R. Accordingly, the fair value of the restricted stock award is measured on the date of grant and recognized in earnings over the requisite service period for each separately vesting portion of the award.

Earnings Per Share

     Basic earnings per share is computed using the weighted average number of shares of Common Stock and Class B Shares outstanding during the period.

     In calculating diluted earnings per share, the weighted average of shares of Common Stock and Class B Shares outstanding for the period is increased to include all potentially dilutive securities using the treasury stock method. Any common stock equivalent shares are excluded from the computation if their effect is anti-dilutive.

     Basic and diluted earnings per share are calculated by dividing income available to ordinary shareholders by the applicable weighted average number of shares outstanding during the year.

Recent Accounting Pronouncements

     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.

     In October 2008, the FASB issued FASB Staff Position No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of SFAS 157, Fair Value Measurements, in a market that is not active. The Company adopted FSP FAS 157-3 on issuance, applicable to the third quarter 2008 financial statements. The adoption of this standard did not have any material impact on the Company’s financial statements.

     In January 2009, the FASB issued FASB Staff Position No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“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 that there is an adverse change in the estimated cash flows. The adoption of FSP EITF 99-20-1 in the fourth quarter 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 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.

F-9

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

     The following table shows the computation of the Company’s earnings per share:

	Year Ended December 31,
	2008		2007		2006
Numerator for earnings per share
Net income	$	7,425	$	12,589	$	8,408
Denominator for earnings per share
Weighted average shares outstanding used in computation of earnings per share
Common stock (class A and B) issued		15,751		15,431		15,211
Common stock in treasury		143		-		-
Weighted average shares outstanding — basic		15,608		15,431		15,211
Effect of dilutive securities1 Stock awards		168		-		-
Weighted average shares outstanding — diluted		15,776		15,431		15,211
Earnings per share
Basic	$	0.48	$	0.82	$	0.55
Diluted	$	0.47	$	0.82	$	0.55

¹ Outstanding options of 718, 732 and 742 as of December 31, 2008, 2007 and 2006, respectively, have been excluded from the diluted earnings per share calculation for the year ended December 31, 2008, 2007 and 2006, as they were anti-dilutive.

Note 4 — Concentration of Premium

     Concentration of premium by partner agent for 2008, 2007 and 2006 was as follows:

	Percentage of Gross Written Premium
	Year Ended December 31,
	2008			2007			2006
Risk Transfer Holdings, Inc.		44.7	%		49.0	%		53.1	%
American Team Managers		16.0	%		20.9	%		20.7	%
AEON Insurance Group, Inc.		13.4	%		16.0	%		14.2	%
Specialty Risk Solutions, LLC		11.7	%		1.9	%		1.3	%
Appalachian Underwriters, Inc.		5.6	%		8.7	%		9.5	%
Northern Star Management, Inc.		3.8	%		n/a			n/a
Flying Eagle Insurance Service, Inc		2.2	%		1.7	%		n/a
Insential, Inc		0.8	%		1.1	%		1.0	%
First Light Program Manager, Inc.		0.5	%		n/a			n/a
Other		1.3	%		0.7	%		0.2	%
Total		100.0	%		100.0	%		100.0	%

     Concentration of premium by state for 2008, 2007 and 2006 was as follows:

	Percentage of Gross Written Premium
	Year Ended December 31,
	2008			2007			2006
California		42.3	%		33.6	%		30.9	%
Florida		20.9	%		27.5	%		38.2	%
Texas		10.1	%		10.4	%		8.1	%
Other states		26.7	%		28.5	%		22.8	%
Total		100.0	%		100.0	%		100.0	%

F-10

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

     Concentration of premium by line of business for 2008, 2007 and 2006 was as follows:

	Percentage of Gross Written Premium
	Year Ended December 31,
	2008			2007			2006
Workers’ compensation		54.8	%		57.4	%		58.3	%
Commercial automobile		23.6	%		19.9	%		16.6	%
General liability		19.7	%		20.2	%		23.4	%
All other		1.9	%		2.5	%		1.7	%
Total		100.0	%		100.0	%		100.0	%

Note 5 — Investments

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

			Fair Value Measurement Using:
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Fair Value at		Identical 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 following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value using Level 3 inputs during the year ended December 31, 2008:

	Year Ended
	12/31/2008
Level 3 investments as of beginning of period	$	-
Transfers into (out of) level 3 (at beginning period value)		16,224
Purchases, sales, issuances, and settlements (net)		(1,386	)
Total gains or losses (realized/unrealized):
Included in earnings		(849	)
Included in comprehensive income		(5,200	)
Level 3 investments as of December 31, 2008	$	8,789

     The Company uses an independent pricing service to determine the fair value of substantially all of its investment assets. As of December 31, 2008, a total of seven securities with a total fair market value of $2,780 were not priced by the independent pricing service, of which all were 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 its independent pricing service.

F-11

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

• 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. During the fourth quarter of 2008, the Company deemed the pricing of one security unreasonable and adjusted the fair value to $668 from $141 based on estimated cash flows and available yield spreads.

     The transfer into Level 3 during the year 2008 of securities with a fair value, as of January 1, 2008, of $16,224 was primarily the result of reduced liquidity, and therefore reduced price transparency, related to mortgage backed and asset backed securities.

     In order to determine the proper SFAS 157 classification for each instrument, the Company, on an investment category basis, examines the pricing procedures and inputs available to price the instruments in that investment category. 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.

     The cost or amortized cost and estimated fair values of fixed maturities at December 31, 2008 were as follows:

	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
2008	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

     The cost or amortized cost and estimated fair values of fixed maturities at December 31, 2007 were as follows:

	Cost or		Gross		Gross			Fair
	Amortized		Unrealized		Unrealized			Estimated
2007	Cost		Gains		Losses			Value
U.S. Treasury	$	9,801	$	366	$	-		$	10,167
U.S. Government Agencies		37,023		1,172		(5	)		38,190
Municipals		5,264		90		-			5,354
Corporate Fixed Maturity		58,672		429		(395	)		58,706
Mortgage Backed		65,832		728		(1,242	)		65,318
Total Fixed Maturities	$	176,592	$	2,785	$	(1,642	)	$	177,735

     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’s methodology for assessing other-than-temporary impairments (“OTTI”) is based on security-specific facts and circumstances as of the balance sheet date. Factors considered in evaluating whether a decline in

F-12

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

value is other than temporary included: the length of time and the extent to which the fair value has been less than cost; the financial conditions and near-term prospects of the issuer; and the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery. The Company’s structured securities are subject to 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, in which case, the amount of accretive yield is prospectively adjusted and an OTTI loss is recognized. The Company did not record any OTTI charges on investment securities during the three months ended December 31, 2008. During the third quarter of 2008, based on the market participant analysis of EITF 99-20, certain of our available-for-sale securities with a fair value of $0.9 million and a book value of $1.7 million experienced an other-than-temporary impairment of $0.8 million.

     The cost or amortized cost and fair values of fixed maturities by contractual maturity at December 31, 2008 are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The maturities for mortgage backed securities with an amortized cost of $64,818 and a fair value of $58,108 were allocated in the following table by averaging various expected prepayment assumptions that are developed through a model which takes into account recent prepayment patterns and future estimates on different agency coupons and structures.

	Cost or Amortized
	Cost		Fair Value
Due in one year or less	$	56,957	$	56,826
Due after one year through five years		92,563		89,887
Due after five years through ten years		84,918		83,447
Due after ten years		33,003		33,245
Total	$	267,441	$	263,405

     As of December 31, 2008, there were 90 out of 196 securities in an unrealized loss position. Of these, 38 securities have been in an unrealized loss position for twelve months or greater. Those fixed maturity investments with unrealized losses as of December 31, 2008 are summarized as follows:

			Unrealized Losses
			Less than			Greater than 12
2008	Fair Value		12 Months			Months			Total
Municipal	$	21,713	$	(679	)	$	-		$	(679	)
Corporate Fixed Maturity		35,201		(560	)		(1,130	)		(1,690	)
Agency Mortgage Backed		-		-			-			-
Non-Agency Mortgage Backed		5,164		(279	)		(2,339	)		(2,618	)
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	)

     Those fixed maturity investments with unrealized losses as of December 31, 2007 are summarized as follows:

			Unrealized Losses
			Less than			Greater than 12
2007	Fair Value		12 Months			Months			Total
US Government Agency Securities	$	2,177	$	-		$	(5	)	$	(5	)
Corporate Securities		32,220		(101	)		(294	)		(395	)
Mortgage Backed Securities		21,974		(400	)		(842	)		(1,242	)
Total Fixed Maturities	$	56,371	$	(501	)	$	(1,141	)	$	(1,642	)

     Fixed maturities with carrying values of $32,419 and fair value of $34,928 were on deposit with insurance regulatory authorities as required by law at December 31, 2008.

     Information relating to the Company’s investments is shown below:

F-13

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

	Year Ended December 31,
	2008			2007			2006
Proceeds from voluntary sales and redemptions	$	6,108		$	9,938		$	7,174
Gross realized gains		29			62			333
Gross realized losses		(884	)		(81	)		(58	)

     The components of the Company’s net investment income were as follows:

	Year Ended December 31,
	2008			2007			2006
Fixed maturities	$	10,154		$	8,098		$	5,516
Short-term investments		1,161			1,751			759
Gross investment income		11,315			9,849			6,275
Investment Expenses		(478	)		(296	)		(188	)
Net investment income	$	10,837		$	9,553		$	6,087

Note 6 — Federal Income Taxes

     As of December 31, 2008, December 31, 2007 and December 31, 2006 the Company had tax basis net operating loss carryforwards of $0, $2,135 and $18,751, 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 portion of these costs was $402, $873 and $1,344 at December 31, 2008, December 31, 2007 and December 31, 2006, respectively.

     In 2007 and 2006 the Company had tax basis net operating loss carryforwards, but incurred current income taxes in the amount of $324 and $157 arising from alternative minimum tax obligations in 2007 and 2006, respectively. The Company also recorded in 2007 and 2006 a tax provision for the year equal to the current year increase in deferred tax liabilities associated with indefinite lived intangible assets. Due to the indefinite nature of these intangible assets for financial reporting purposes, these deferred tax liabilities do not represent a source of income to realize the Company’s deferred tax assets. Based on these facts the Company recorded valuation allowances of $1,626 and $6,598 in 2007 and 2006, respectively, against all remaining net deferred tax assets, until such time as its operating results and future outlook produce sufficient taxable income to realize these tax assets.

     Beginning in 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, with the exception of certain State tax net operating loss carryforwards that may not be realized in the future totaling $168, for which a valuation allowance was maintained.

     A reconciliation of the Company’s expected to actual federal income taxes are shown below.

	Year Ended December 31,
	2008			2007			2006
	(dollars in thousands)
Income tax expense at statutory rates	$	(2,715	)	$	(4,364	)	$	(2,943	)
Tax benefit from tax exempt interest income		451			-			-
Tax expense from other permanent differences		(51	)		(106	)		(132	)
State tax expense		328			-			-
Valuation allowance		1,458			4,228			2,839
Other		(30	)		(5	)		(11	)
Actual income tax expense	$	(559	)	$	(247	)	$	(247	)

F-14

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

     The components of current and deferred income taxes for the years ended December 31, 2008, 2007 and 2006 are as follows:

	Year Ended December 31,
	2008			2007			2006
	(dollars in thousands)
Current tax expense	$	(1,903	)	$	(324	)	$	(157	)
Deferred tax benefit (expense)		1,344			77			(90	)
Total income tax expense	$	(559	)	$	(247	)	$	(247	)

      The Company paid federal income taxes of $1,885, $468 and $0 in 2008, 2007 and 2006, respectively.

     The components of the Company’s deferred tax assets and liabilities at December 31, 2008 and December 31, 2007, respectively, are noted in the table below.

	Year Ended December 31,
	2008			2007
Deferred Tax Assets Arising From	(dollars in thousands)
Loss & LAE reserves	$	6,079		$	4,002
Unearned premium reserves		5,645			5,898
Net operating loss carryforwards		-			703
Stock Option and Grant Expense		646			504
Unrealized loss on investments		1,414			-
Start up costs		141			297
Other than temporary Impairments		298			-
State Tax Net Operating Loss Carryforwards		337			-
AMT Tax Credit		-			481
Other		455			670
Total deferred tax assets		15,015			12,555
Deferred Tax Liabilities Arising From
Deferred acquisition costs		6,362			5,948
Equipment and capitalized software		3,803			3,395
Unrealized gain on investment		-			389
Prepaid assets		202			255
Intangible asset		1,004			727
Other		330			228
Total deferred tax liabilities		11,701			10,942
Net deferred tax asset		3,314			1,613
Valuation allowance		(168	)		(1,626	)
Net deferred tax asset (liability) after valuation allowance	$	3,146		$	(13	)

Note 7 — Equity 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, and no more grants or awards may be made under the 2004 Plan. Options previously granted under the 2004 Plan will continue for the life of such options, unless earlier terminated, cancelled, expired or exercised. 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 (as well as dividend equivalents in connection with deferred stock awards). In addition, should any of the 718,066 options currently outstanding under the 2004 Plan be terminated, those shares will also be available under the 2007 Plan. All grants of options or awards of stock under the 2007 Plan must be approved by the Compensation Committee of the Board of Directors, which consists entirely of independent directors. All options granted under the 2004 Plan have ten-year terms and vest in equal annual installments over either a three or four year period following the date of grant with an exercise price equal to the fair market value of the Company’s common stock on the date of grant.

F-15

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

     Compensation expense recognized for all stock-based compensation for the years ended December 31, 2008, 2007 and 2006 were $495, $1,059 and $1,101, respectively.

Stock Options

     There were no options granted in 2008 or 2007. The fair value of each option grant is estimated at the date of grant using the binomial lattice option pricing model with the following assumptions used for grants issued in 2006 and earlier: risk free interest rate range of 4.56% – 4.60%; expected life range of 3.1 – 7.5 years; expected volatility of 45%; and expected dividend yield of 2% beginning after five years.

     The following table presents stock option activity under the 2004 Plan for 2008:

								Weighted
				Weighted				Average
	Number of			Average Exercise		Aggregate		Contractual
Stock Option Activity	Shares			Price Per Share		Intrinsic Value		Remaining Life
	(actual dollar and share amounts)							(years)
Balance at January 1, 2008		732,466		$	9.32	$	-		7.00
Options granted		-					-		n/a
Options exercised		-					-		n/a
Option expired							-		n/a
Options forfeited		(14,400	)		9.50		-		n/a
Balance at December 31, 2008		718,066		$	9.32		-		6.00
Total options vested at December 31, 2008		708,066		$	9.36		-		5.98
Total options un-vested at December 31, 2008		10,000		$	6.22		-		7.15

     The weighted average grant-date fair value of options granted during the year ended December 31, 2006 was $2.89. The grant-date fair value of options vested during the years ended December 31, 2008, 2007, and 2006 were $187, $1,098 and $1,078, respectively. There were no options exercised during the years ended December 31, 2008 or 2007 and cash received for options exercised during the year ended December 31, 2006 was $15. The remaining unrecognized compensation expense related to unvested stock options at December 31, 2008 is approximately $16 and the weighted-average period of time over which this cost will be recognized is 1.2 years

Restricted Stock Awards

     The 2007 Plan provides for an automatic grant of 3,000 shares of common stock to each independent director upon the first business day following re-election to the Board of Directors at the annual meeting of stockholders. On both May 7, 2008, and May 2, 2007, 15,000 shares were issued to the independent directors who were re-elected to the Board at the 2008 and 2007 annual meeting, respectively. The compensation expense associated with these automatic grants was $67 and $123 for 2008 and 2007, respectively, and is based on the fair market value of the shares on the date of grant.

     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. No restricted stock awards were made in 2006.

F-16

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

     A summary of the status of the Company’s non-vested restricted stock awards as of December 31, 2008 and changes during the year ended December 31, 2008 is presented below:

			Weighted
			Average Grant
	Number of		Date Fair
	Shares		Value
	(actual dollar and share amounts)
Non-vested award balance at January 1, 2008		-	$	-
Awards granted		273,750		4.70
Awards vested		15,000		4.49
Awards forfeited		-		-
Total non-vested awards at December 31, 2008		258,750	$	4.71

     The weighted average grant-date fair value of restricted stock awards granted during the year ended December 31, 2008 and 2007 was $4.70 and 8.21, respectively. The grant-date fair value of restricted stock awards that vested during the years ended December 31, 2008 and 2007 were $67 and $123 respectively. The remaining unrecognized compensation expense related to unvested stock options at December 31, 2008 is approximately $850 and the weighted-average period of time over which this cost will be recognized is 2.1 years

     FAS 123R requires the Company to reflect the tax savings resulting from tax deductions in excess of expense reflected in its financial statements as a financing cash flow, rather than as an operating cash flow. The amount of financing cash flows recognized for such excess tax deductions was $0 for the year ended December 31, 2008.

Note 8 — Employee Benefit Plans

     Company employees who have completed three months of consecutive service are eligible for participation in the Company’s 401(k) Plan. The 401(k) Plan provides for matching contributions by the Company up to four percent of eligible compensation contributed by the employee. During 2008, 2007 and 2006, the matching contributions made by the Company were $364, $301 and $228, respectively.

Note 9 — Commitments

     On February 3, 2005, the Company entered into a lease agreement, or Lease, for its home office space that commenced on May 1, 2005 and terminates on April 30, 2020. On April 24, 2006, the Company amended the Lease to include additional premises effective September 1, 2006. The Company’s net Lease obligations are $1,871 for years 1 through 5, $3,294 for years 6 through 10 and $3,753 for years 11 through 15. Included in the Lease terms are scheduled rent escalations, improvement incentives and rent abatements all of which are recognized on a straight line basis over the Lease term in relation to square footage occupied by the Company. To secure the Lease, the Company is required to hold an irrevocable standby letter of credit in the amount of $1,500.

     The Company has the option to terminate the Lease at August 31, 2011. Upon notice of termination, the Company is obligated to pay six months of the then current rent plus certain costs. If the Company opted to terminate as of August 31, 2011, the Company would be obligated to pay approximately $2,437 plus operating expenses, taxes, and brokerage commissions.

Note 10 — 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 expired 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.

F-17

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

Note 11 — Reinsurance

     For workers’ compensation business, the Company’s reinsurers are responsible for losses between $1,000 and $10,000 due to any single occurrence under a policy and for losses in excess of $10,000 up to $35,000 for a multiple loss occurrence. For non-workers’ compensation casualty business, the Company does not write policies above $1,000  and therefore does not need reinsurance protection for single loss occurrences; its reinsurers are responsible between $1,000 and $5,000 of losses for a multiple loss occurrence. Reinsurance does not extinguish the Company’s primary liability under the policies written.

     The effects of reinsurance are as follows:

	Year Ended December 31,
	2008			2007			2006
Premiums written:
Direct	$	130,204		$	159,290		$	152,841
Assumed1		15,987			1,100			335
Ceded		(8,916	)		(10,984	)		(11,076	)
Net	$	137,275		$	149,406		$	142,100
Premiums earned:
Direct	$	143,539		$	162,501		$	121,698
Assumed		8,792			952			269
Ceded		(8,866	)		(10,984	)		(11,076	)
Net	$	143,465		$	152,469		$	110,891
Losses and loss adjustment expenses:
Direct	$	96,652		$	97,052		$	69,545
Assumed		5,381			756			238
Ceded		(12,648	)		(7,818	)		(7,101	)
Net	$	89,385		$	89,990		$	62,682

¹  The majority of the assumed business in 2008 results from the Company’s fronting arrangement for public entity business.

Note 12 — Unpaid Loss And Loss Adjustment Expenses

     Loss and 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 represents management’s best estimate of reserves based on a composite of the results of the various actuarial methods, as well as consideration of known facts and trends.

     At December 31, 2008 the Company reported gross loss and loss adjustment expense reserves of $214,953 of which $53,262 represented the gross direct loss and loss adjustment expense reserves of Potomac, which is fully reinsured by OneBeacon. The Company experienced favorable prior year loss development of $1,844 primarily attributable to improved loss development in our general liability line of business. At December 31, 2007 the Company reported gross loss and loss adjustment expense reserves of $184,736 of which $63,529 represented the gross direct loss and loss adjustment expenses reserves of Potomac, which is fully reinsured by OneBeacon.

     Potomac was a participant in a OneBeacon inter-company pooling arrangement under which Potomac ceded all of its insurance business into the Pool and assumed 0.5% of the Pool’s insurance business. Potomac ceased its participation in the Pool effective January 1, 2004 and entered into reinsurance agreements whereby it ceded all of its business to OneBeacon. 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 obligations.

     Included in the reserves for the Company is tabular reserve discount for workers’ compensation and excess workers’ compensation pension claims of $2,612 as of December 31, 2008 and $1,505 as of December 31, 2007. The reserves are discounted on a tabular basis at four percent using the 2004 United States Actuarial Life Tables for Female and Male population.

F-18

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

     Changes in the liability for loss and loss adjustment expense reserves were as follows:

	Year Ended December 31, 2008									Year Ended December 31, 2007									Year Ended December 31, 2006
	Potomac of						SUA			Potomac of						SUA			Potomac of						SUA
	Illinois			SUA			Consolidated			Illinois			SUA			Consolidated			Illinois			SUA			Consolidated
Beginning of period:
Gross	$	63,529		$	121,207		$	184,736		$	71,592		$	69,608		$	141,200		$	86,736		$	18,134		$	104,870
Less reinsurance recoverables		(63,529	)		(13,635	)		(77,164	)		(71,592	)		(9,384	)		(80,976	)		(86,736	)		(2,261	)		(88,997	)
Net		-			107,572			107,572			-			60,224			60,224			-			15,873			15,873
Incurred losses and LAE relating to:
Current year		-			91,229			91,229			-			92,167			92,167			-			63,546			63,546
Prior years		-			(1,844	)		(1,844	)		-			(2,177	)		(2,177	)		-			(864	)		(864	)
Total incurred losses and LAE		-			89,385			89,385			-			89,990			89,990			-			62,682			62,682
Paid losses and LAE related to:
Current year		-			25,684			25,684			-			24,772			24,772			-			12,997			12,997
Prior years		-			35,918			35,918			-			17,870			17,870			-			5,334			5,334
Total paid losses and LAE		-			61,602			61,602			-			42,642			42,642			-			18,331			18,331
End of period:
Net		-			135,355			135,355			-			107,572			107,572			-			60,224			60,224
Plus reinsurance recoverables		53,262			26,336			79,598			63,529			13,635			77,164			71,592			9,384			80,976
Gross	$	53,262		$	161,691		$	214,953		$	63,529		$	121,207		$	184,736		$	71,592		$	69,608		$	141,200

Note 13 — Statutory Information

     Statutory accounting is a basis of accounting developed to assist insurance regulators in monitoring and regulating the solvency of insurance companies. It is primarily concerned with measuring an insurer’s surplus to policyholders. Accordingly, statutory accounting focuses on valuing assets and liabilities of insurers at financial reporting dates in accordance with appropriate insurance law and regulatory provisions applicable to each insurer’s domiciliary state.

     Statutory accounting practices established by the National Association of Insurance Commissioners, or NAIC, and adopted, in part, by state insurance departments will determine, among other things, the amount of statutory surplus and statutory net income, which will affect, in part, the amount of funds available to pay dividends.

     As an Illinois property and casualty insurer the maximum amount of dividends which can be paid by SUA Insurance Company to shareholders without prior approval of the Illinois Director of Insurance is the greater of net income or 10% of statutory surplus, further limited to earned surplus. At December 31, 2008, SUA Insurance Company has no earned surplus and therefore no dividend capacity without the prior approval of the Illinois Director of Insurance.

     In order to enhance the regulation of insurer solvency, in December 1993, the NAIC adopted a formula and model law to implement risk-based capital requirements for property and casualty insurance companies. These risk-based capital requirements are designed to assess capital adequacy and to raise the level of protection that statutory surplus provides for policyholder obligations. The risk-based capital model for property and casualty insurance companies measures three major areas of risk facing property and casualty insurers:

• underwriting, which encompasses the risk of adverse loss development and inadequate pricing;

• declines in asset values arising from credit risk; and

• declines in asset values arising from investment risk.

     An insurer’s statutory surplus is compared to its risk-based capital requirement. If adjusted statutory surplus falls below company action level risk based capital, the company would be subject to regulatory action including submission of a report to insurance regulators outlining the corrective action the company intends to take.

F-19

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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

     SUA Insurance Company’s statutory information is as follows:

	Year Ended December 31,
	2008		2007		2006
Ending capital and surplus	$	93,884	$	89,845	$	77,308
Net income		4,485		16,312		1,052
Company action level risk-based capital		37,850		43,408		42,265

Note 14 — Quarterly Financial Data (Unaudited)

     The following table sets forth the unaudited financial data for the years ended December 31, 2008, December 31, 2007 and December 31, 2006.

	2008
Quarterly Financial Data	1st		2nd		3rd		4th
Revenues	$	38,434	$	36,872	$	39,025	$	39,160
Expenses including taxes		34,969		34,622		37,724		38,751
Net income	$	3,465	$	2,250	$	1,301	$	409
Net income per share (basic)	$	0.22	$	0.14	$	0.08	$	0.03
Net income per share (diluted)	$	0.22	$	0.14	$	0.08	$	0.02

	2007
Quarterly Financial Data	1st		2nd		3rd		4th
Revenues	$	37,445	$	39,556	$	42,895	$	42,099
Expenses including taxes		34,423		36,546		39,532		38,905
Net income	$	3,022	$	3,010	$	3,363	$	3,194
Net income per share (basic/diluted)	$	0.20	$	0.20	$	0.22	$	0.20

	2006
Quarterly Financial Data	1st			2nd		3rd		4th
Revenues	$	24,401		$	26,659	$	33,613	$	32,580
Expenses including taxes		24,601			24,492		30,031		29,721
Net income (loss)	$	(200	)	$	2,167	$	3,582	$	2,859
Net income (loss) per share (basic/diluted)	$	(0.01	)	$	0.14	$	0.24	$	0.18

F-20

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

SCHEDULE I
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

SUMMARY OF INVESTMENTS — OTHER THAN
INVESTMENTS IN RELATED PARTIES
As of December 31, 2008

	Amortized Cost		Fair Value
	(dollars in thousands)
Fixed maturities:
U.S. Treasury	$	9,794	$	10,903
U.S. Government Agencies		35,109		37,227
Municipals		54,655		54,934
Corporate Fixed Maturity		56,368		55,536
Agency Mortgage Backed		39,066		40,439
Non-Agency Mortgage Backed		7,781		5,164
Commercial Mortgage Backed		13,301		9,889
Asset Backed		4,670		2,616
Total fixed maturities		220,744		216,708
Short-term investments		46,697		46,697
Total investments	$	267,441	$	263,405

F-21

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

SCHEDULE II
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
As of December 31, 2008 and 2007

	As of December 31,
Balance Sheet	2008			2007
	(dollars in thousands)
ASSETS
Investments in subsidiary	$	126,103		$	124,270
Short-term investments, at amortized cost (which approximates fair value)		7,410			6,514
Total investments		133,513			130,784
Cash		245			390
Deferred tax asset		787			(294	)
Current tax asset		1,817			294
Other assets		1			4
Total assets	$	136,363		$	131,178
LIABILITIES & STOCKHOLDERS’ EQUITY
Liability
Accounts payable and other liabilities	$	74		$	41
Total liabilities		74			41
Stockholders’ equity
Common Stock at $.01 par value per share — authorized 30,000,000 shares; issued 14,712,355 and 14,697,355 and outstanding 14,437,355 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 1,368,562 and 869,738 shares		14			9
Paid-in capital — Common Stock		129,926			129,431
Paid-in capital — Class B Common Stock		8,077			6,139
Retained earnings		1,693			(5,732	)
Treasury stock		(1,347	)
Accumulated other comprehensive income (loss), net of tax		(2,221	)		1,143
Total stockholders’ equity		136,289			131,137
Total liabilities and stockholders’ equity	$	136,363		$	131,178

The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto.

F-22

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

SCHEDULE II — (Continued)
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
For the Years Ended December 31, 2008, 2007 and 2006

	Year Ended December 31,
Statement of Operations	2008			2007		2006
	(dollars in thousands except per share data)
Revenues:
Gain of subsidiary	$	5,491		$	13,597	$	9,568
Other Revenues		163			279		184
Total revenues		5,654			13,876		9,752
Expenses:
General and administrative expenses		539			1,287		1,344
Total expenses		539			1,287		1,344
Pretax income		5,115			12,589		8,408
Federal income tax benefit		2,310			-		-
Net income		7,425			12,589		8,408
Net change in unrealized investment gains, net of tax		(3,364	)		2,204		570
Comprehensive net income	$	4,061		$	14,793	$	8,978
Earnings per share available to common stockholders
Basic	$	0.48		$	0.82	$	0.55
Diluted	$	0.47		$	0.82	$	0.55

The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto.

F-23

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

SCHEDULE II — (Continued)
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
For the Years Ended December 31, 2008, 2007 and 2006

	Year Ended December 31,
Statement of Cash Flows	2008			2007			2006
	(dollars in thousands)
Cash flows from operations:
Net income	$	7,425		$	12,589		$	8,408
Charges (credits) to reconcile net income to cash flows from operations:
Income of subsidiary		(5,491	)		(13,597	)		(9,568	)
Change in deferred taxes		(1,081	)		-			-
Change in current tax receivable		(1,523	)		-			-
Depreciation expense		2			132			144
Write off of capitalized software		-			-			12
Other, net		823			1,070			953
Total adjustments		(7,270	)		(12,395	)		(8,459	)
Net cash flows provided by operations		155			194			(51	)
Cash flows from investing activities:
Net increase in short-term investments		(896	)		(1,311	)		(4,179	)
Net cash flows used for investing activities		(896	)		(1,311	)		(4,179	)
Cash flows from financing activities
Issuance of common stock		1,943			1,303			3,088
Treasury Stock		(1,347	)		-			-
Net cash flows provided by financing activities		596			1,303			3,088
Net increase (decrease) from cash during the period		(145	)		186			(1,142	)
Cash at beginning of the period		390			204			1,346
Cash at end of the period	$	245		$	390		$	204

The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto.

F-24

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

SCHEDULE III
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

SUPPLEMENTARY INSURANCE INFORMATION
For the Years Ended December 31, 2008, 2007 and 2006

			Column
			C
			Future				Column						Column
			Policy				E						H
	Column		Benefits,				Other				Column		Benefits,				Column
	B		Losses,		Column		Policy		Column		G		Claims,		Column		J		Column
	Deferred		Claims and		D		Claims and		F		Net		Losses and		I		Other		K
Column	Acquisition		Loss		Unearned		Benefits		Premium		Investment		Settlement		Acquisition		Operating		Premium
A	Costs		Expenses		Premiums		Payable		Revenue		Income		Expenses		Expenses		Expenses		Written
	(dollars in thousands)
Year ended December 31, 2008	$	18,156	$	214,953	$	80,600	$	-	$	143,465	$	10,837	$	89,385	$	32,990	$	23,132	$	137,275
Year ended December 31, 2007		17,495		184,736		86,741		-		152,469		9,553		89,990		36,601		22,568		149,406
Year ended December 31, 2006		19,876		141,200		89,804		-		110,891		6,087		62,682		26,032		19,884		142,100

F-25

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

SCHEDULE IV
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

REINSURANCE
For the Years Ended December 31, 2008, 2007 and 2006

									Column
					Column				F
			Column		D				Percentage of
	Column		C		Assumed from		Column		Amount
Column	B		Ceded to Other		Other		E		Assumed to
A	Direct Amount		Companies		Companies		Net Amount		Net
	(dollars in thousands)
Year ended December 31, 2008	$	143,539	$	8,866	$	8,792	$	143,465		-
Year ended December 31, 2007		162,501		10,984		952		152,469		-
Year ended December 31, 2006		121,698		11,076		269		110,891		-

F-26

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

SCHEDULE V
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2008, 2007 and 2006

			Column
	Column		C						Column
	B		Additions						D		Column
	Balance at		Charged to			(Subtractions)			Deductions		E
Column	Beginning of		Cost and			Charged to Other			Described		Balance at
A	Period		Expenses			Accounts			(1)(2)		End of Period
	(dollars in thousands)
Year ended December 31, 2008 deferred tax valuation allowance	$	1,626	$	(1,344	)	$	(114	)			$	168
Allowance for doubtful accounts, insurance premium receivables		600		670			(500	)				770
Year ended December 31, 2007 deferred tax valuation allowance		6,598		(77	)		(4,895	)		-		1,626
Allowance for doubtful accounts, insurance premium receivables		-		600			-			-		600
Year ended December 31, 2006 deferred tax valuation allowance		9,631		90			(3,123	)		-		6,598

F-27

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

SCHEDULE VI
SUA INSURANCE COMPANY

SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS
For the Years Ended December 31, 2008, 2007 and 2006

Column	Column		Column		Column		Column		Column		Column		Column					Column		Column		Column
A	B		C		D		E		F		G		H					I		J		K
			Reserves for		Dicount,								Claims and Claim							Paid Claims
			Unpaid		if Any,								Adjustment Expenses							and
	Deferred		Claims and		Deducted						Net		Incurred Related to							Adjustment
	Acquisition		Claims Policy		in Claims		Unearned		Earned		Investment		Current		Prior			Acquisition		Paid		Premiums
	Costs		Expenses		Column C		Premiums		Premiums		Income		Year		Year			Expenses		Expenses		Written
	(dollars in thousands)
Year ended December 31, 2008	$	18,156	$	214,953	$	2,612	$	80,600	$	143,465	$	10,837	$	91,229	$	(1,844	)	$	32,990	$	61,602	$	137,275
Year ended December 31, 2007		17,495		184,736		1,505		86,741		152,469		9,553		92,167		(2,177	)		36,601		42,642		149,406
Year ended December 31, 2006		19,876		141,200		1,016		89,804		110,891		6,087		63,546		(864	)		26,032		18,331		142,100

F-28

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

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: March 3, 2009

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.

Signature	Title	Date
/s/   Courtney C. Smith By: Courtney C. Smith	President, Chief Executive Officer and Chairman of the Board of Director (Principal Executive Officer)	March 3, 2009
/s/   Peter E. Jokiel By: Peter E. Jokiel	Executive Vice President, Chief Financial Officer and Director (Principal Financial and Accounting Officer)	March 3, 2009
/s/   Robert E. Dean
By: Robert E. Dean	Director	March 3, 2009
/s/   Raymond C. Groth
By: Raymond C. Groth	Director	March 3, 2009
/s/   Paul A. Philp
By: Paul A. Philp	Director	March 3, 2009
/s/   Robert H. Whitehead
By: Robert H. Whitehead	Director	March 3, 2009
/s/   Russell E. Zimmermann
By: Russell E. Zimmermann	Director	March 3, 2009

2008 Form 10-K
Specialty Underwriters’ Alliance, Inc.

EX-10.19

Exhibit 10.19

FIRST AMENDMENT
TO THE SECURITIES PURCHASE AGREEMENT

This amendment (“Amendment”) is made and entered into as of the 13^th day of September, 2005 (“Effective Date”) by and between Specialty Risk Solutions, LLC (“SRS”) and Specialty Underwriters’ Alliance, Inc., and amends the SECURITIES PURCHASE AGREEMENT (“Agreement”) entered into by the parties on May 11, 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.

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

Subsection (ii) of (c) of Section 1: Sale and Purchase of Securities; Closing, shall be deleted in its entirety and replaced with the following:

(ii) thereafter, on a monthly basis, 3% of the Commissions owed to Purchaser by the Company on the last day of each month, as defined in the Partner Agent Agreement dated May 11, 2005.

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 C. Smith
Title:	President and CEO
SPECIALTY RISK SOLUTIONS, LLC
By:	/s/ Scott H. Keller
Name:	Scott H. Keller
Title:	Managing Director

EX-10.21

Exhibit 10.21

SECOND AMENDMENT
TO THE SECURITIES PURCHASE AGREEMENT

This amendment (“Amendment”) is made and entered into as of the 30^th day of September, 2005 (“Effective Date”) by and between Specialty Risk Solutions, LLC (“SRS”) 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.

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

Subsection (ii) of (c) of Section 1: Sale and Purchase of Securities; Closing, shall be deleted in its entirety and replaced with the following:

(ii) thereafter, on a quarterly basis beginning October 1, 2005, 3% of the Commissions owed to Purchaser by the Company on the last day of each quarter, as defined in the Partner Agent Agreement dated May 11, 2005.

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 C. Smith
Title:	President and CEO
SPECIALTY RISK SOLUTIONS, LLC
By:	/s/ Scott H. Keller
Name:	Scott H. Keller
Title:	Managing Director

EX-10.48

Exhibit 10.48

AMENDMENT NO. 5
TO THE
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
PARTNER AGENT PROGRAM AGREEMENT

This amendment (“Amendment”) is made and entered into as of April 10, 2008 by and between American Team Managers (“ATM”) and Specialty Underwriters’ Alliance, Inc. and its wholly owned subsidiary SUA Insurance 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. Effective March 1, 2008 the Maximum Rate of Commission, as listed in Exhibit A, Section A shall be deleted in its entirety and replaced with the following:

		Maximum Rate of
		Commission effective	Maximum Rate of
		January 1, 2008 through	Commission effective
Program Description	Line of Business	February 29, 2008	March 1, 2008
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	20%	20%
E-Comp. in the states specifically described in the underwriting guidelines of the Company	Workers’ Compensation	15%	18%
Transportation operations in the territories specifically defined in the underwriting guidelines	Commercial General Liability Commercial Automobile Liability and Physical Damage	15%	18%

2.	Effective January 1, 2008 through February 29, 2008, within a reasonable time following the end of each of Company’s fiscal quarter, Company shall pay Partner Agent two percent (2%) of Eligible Earned Premium.
3.	Effective March 1, 2008, within a reasonable time following the end of each of Company’s fiscal quarter, Company shall pay Partner Agent a percentage of Eligible Earned Premium in accordance with the following schedule:

Program	Profit Sharing Factor
Contractor General Liability		2	%
E-Comp		1	%
Trucking		0	%

1

4.	No future amounts shall be owed in accordance with any exhibits that existed under the Agreement prior to the execution of this Amendment.
5.	Exhibit B attached hereto shall be added to the Agreement and shall be used for all profit sharing calculations for Profit Sharing Periods beginning after January 1, 2008 (“Effective Date”). All profit sharing calculations for Profit Sharing Years prior to 2008 shall be zero (0) and no profit sharing shall hereafter be owed.

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:	Vice President and Chief Underwriting Officer
AMERICAN TEAM MANAGERS
By:	/s/ Chris Michaels
Name:	Chris Michaels
Title:	CEO

2

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

3

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 2% of Eligible Earned Premium per Profit Sharing Year.

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.

*    Profit Sharing Factor shall be equal to the following:

Combined Ratio	Profit Sharing Factor
Less than or equal to 86%		2	%
87% to 90%		1	%
91% or greater		0	%

4

Defined Terms Used in Table I

A.	“Claims Charge” shall be a designated amount determined by Company based on unallocated loss adjustment expense for the current Profit Sharing Year.
B.	“Combined Ratio” shall mean the ratio of Expense Total to Eligible Earned Premium.
C.	“Commissions Incurred” 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 Earned Premium. Additionally, Company shall add to such total any amounts or expenses of Partner Agent which Company agrees to reimburse, assume, or share.
D.	“Dividends Incurred” shall include all dividends incurred (paid plus an estimate of accrued but not paid) for the Profit Sharing Year by Company.
E.	“Eligible Earned Premium” shall mean direct premium earned for Profit Sharing Year less earned premium ceded (less ceding commission earned) for reinsurance.
F.	“Eligible Written Premium” shall mean direct premium written for Profit Sharing Year.
G.	“Expense Total” shall mean the sum of the following: Losses and ALAE Incurred for Profit Sharing Year; TPA Claims Fee for Profit Sharing Year; Claims Charge for Profit Sharing Year; IBNR Charge for Profit Sharing Year; Commissions Incurred for Profit Sharing Year; Taxes, Licenses and Fees for Profit Sharing Year; Operating Charge; and Dividends Incurred for Profit Sharing Year.
H.	“Final Profit Sharing Year” shall mean the Profit Sharing Year in which this Agreement is terminated.
I.	“IBNR Charge” shall be determined solely by 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 less losses for IBNR ceded.
J.	“Losses and ALAE Incurred” shall be direct losses and expenses incurred (paid plus case reserves) less Losses and ALAE Incurred ceded for reinsurance by Company on claims reported for the Profit Sharing Year relating to Eligible Earned Premium, excluding unallocated loss adjustment expense, plus any extra contractual or bad faith payments or reserves.
K.	“Operating Charge” shall be a designated amount for the current Profit Sharing Year. 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.
L.	“Payout Factor” shall be calculated according to the following chart for Table I:

PROFIT SHARING AGREEMENT

PAYOUT FACTORS

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

5

M.	“Premium Written Off” shall include any premium due Company which Company has charged off as uncollectible for the Profit Sharing Year.
N.	“Profit Sharing Year” shall mean January 1 to December 31, except for the initial Profit Sharing Year which shall be from the Effective Date to December 31.
O.	“Taxes, Licenses and Fees” 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 Earned Premium.
P.	“TPA Claims Fee” shall be third party claims fees incurred by Company on behalf of the Partner Agent for the current Profit Sharing Year.
Q.	“Valuation Date” shall mean June 30 of each year for each Profit Sharing Year and sixty (60) days following each Profit Sharing Year. Except as otherwise set forth below, Company shall continue providing calculations for each Profit Sharing Year through the June 30 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.

Timing of Calculation of Profit Sharing Due

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

Term and Termination

These profit sharing schedules will terminate upon the effective date of termination of this Agreement. The Final Profit Sharing Year under this Agreement will be the Profit Sharing Periods 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.

6

EX-10.49

Exhibit 10.49

AMENDMENT NO. 6
TO THE
SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
PARTNER AGENT PROGRAM AGREEMENT

This amendment (“Amendment”) is made and entered into as of October 15, 2008 by and between American Team Managers (“ATM”) 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.     Upon the complete execution of this Amendment, 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 upon execution
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		20	%
E-Comp. in the states specifically described in the underwriting guidelines of the Company	Workers’ Compensation		18	%
Transportation operations in the territories specifically defined in the underwriting guidelines	Commercial General Liability Commercial Automobile Liability and Physical Damage		20	%

2.     Upon the complete execution of this Amendment, in exchange for consideration of one hundred thousand dollars ($100,000), Partner Agent hereby forfeits its rights to annual profit share for all Profit Sharing Years preceding and including Profit Sharing Year 2008.

3.     Beginning with Profit Sharing Year 2009, Partner Agent shall forfeit to Company its right to 25% of all annual profit sharing, with such forfeiture terminating only when the annual profit sharing forfeited amounts to one hundred thousand dollars ($100,000).

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:	Vice President and Chief Underwriting Officer

AMERICAN TEAM MANAGERS
By:	/s/ Chris Michaels
Name:	Chris Michaels
Title:	CEO

EX-10.50

Exhibit 10.50

DESCRIPTION OF
2009 OFFICER BONUS PROGRAM

The following is a description of the 2009 cash bonus program (the “Bonus Program”) for the officers of Specialty Underwriters’ Alliance, Inc., including its subsidiary SUA Insurance Company (the “Company”).

The Bonus Program is designed to reward officers for their contribution to the overall success of the Company. The Bonus Program includes two components:

1. Individual Performance

Individual performance goals are established for each of the officers as follows: (1) for the Chief Executive Officer (the “CEO”), by the Compensation Committee; and (2) for the Executive Vice President (the “EVP”), the Senior Vice Presidents (each an “SVP”) and the Vice Presidents (each a “VP”), by the Compensation Committee with input from the Chief Executive Officer.

Each officer is eligible for a discretionary cash bonus related to individual performance of up to a specific percentage of his base salary. The CEO, EVP and each SVP is eligible for a discretionary cash bonus of up to 25% of his base salary relating to individual performance and each VP is eligible for a discretionary cash bonus of up to 20% of his base salary relating to individual performance. Each discretionary cash bonus relates to individual performance and is based on an evaluation of the achievement or lack of achievement of such individual’s performance goals and of such officer’s overall contribution to the success of the Company during 2009. The Company’s financial results for 2009 will be considered by the Compensation Committee when bonus determinations are made under the Bonus Program.

2. Company Performance

The Compensation Committee has determined that the most significant portion of the Bonus Program should be dependent upon the results of operations of the Company during 2009, as measured by the Company’s after-tax return on equity (“ROE”) for that year. ROE is one of the most common and accepted measurements used by investors in assessing the efficacy of their investments and the effectiveness of deployed capital. For 2009, the Company’s ROE will be calculated by dividing the after-tax net income earned by the Company in 2009 by its beginning equity of approximately $136 million at January 1, 2009.

Each officer is eligible for a discretionary cash bonus related to Company performance of up to a specific percentage of his base salary that is tied to specified levels of ROE for the Company for fiscal year 2009. The CEO, EVP and each the SVP is eligible for a discretionary cash bonus of up to 75% of his base salary relating to Company performance and each VP is eligible for a discretionary cash bonus of up to 55% of his base salary relating to Company performance.

In considering whether or not any of the ROE targets have been met, the Compensation Committee shall have the discretion to consider whether such ROE targets should be adjusted to take into consideration any unplanned or unforeseen events, including, without limitation:

• the effects of implementing new accounting pronouncements and changes in accounting policies or methods;

• the effects of extraordinary items or other significant, unforeseen special items on the Company’s income statement or balance sheet;

• the effects of any gains or losses from asset sales; and

• changes in the Company’s capitalization, such as the effects of a spin-off or special dividend distribution.

Discretionary Nature of the Bonus Program

All bonuses under the Bonus Program, whether based upon individual or Company performance, shall be entirely discretionary and may or may not be paid, based on whether or not any or all of the applicable individual performance goals or Company performance targets are met.

Administration of the Bonus Program

Performance achievement and bonus determinations, if any, for 2009 will be reviewed and approved by the Compensation Committee, with input from the Chief Executive Officer, as soon as practicable after the financial results for 2009 are available. Any bonus payments will be made no later than April 15, 2010.

Other Items

If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company which is the result of an Officers misconduct with any financial reporting requirement under the securities laws, such Officer shall reimburse the Company for any bonus received by such Officer under this 2009 Officer Bonus Program.

EX-10.51

Exhibit 10.51

FIRST AMENDMENT
TO THE
CHANGE IN CONTROL AGREEMENT

     This First Amendment to the Change in Control Agreement (“Amendment”) is made and entered into as of March 3, 2009 by and between Specialty Underwriters’ Alliance, Inc., a Delaware corporation, and its subsidiaries and affiliates (the “Company”) and Daniel A. Cacchione (the “Employee”), and amends the Change in Control Agreement (“Agreement”) entered into by the parties on April 7, 2008. 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.

RECITALS

     WHEREAS, the Employee received a promotion from Vice President to Senior Vice President January 1, 2009; and

     WHEREAS, the Company has different terms for its change in control agreements with its Senior Vice Presidents than it does with its Vice Presidents; and

     WHEREAS, the Company desires to conform the Employee’s Agreement to its other change in control agreements entered into with other Senior Vice Presidents;

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

1.	Section (A)(i) shall be deleted in its entirety and replaced with the following:
	“The Company shall pay to the Employee an amount equal to the sum of (a) two times the Employee’s annual base salary and (b) any unreimbursed business expenses or other amounts due to the Employee from the Company as of the Employee’s date of termination.”

2. No Right to Employment. No provision of this Amendment shall give Employee any right to continue in the employ of the Company or any of its Affiliates, create any inference as to the length of employment of Employee, affect the right of the Company or its Affiliates to terminate the employment of Employee, with or without cause, or give Employee any right to participate in any employee welfare or benefit plan or other program of the Company or any of its Affiliates.

3. Governing Law. This Amendment will be governed by, and construed and enforced in accordance with, the laws of the State of Illinois without giving effect to any principles of conflict of laws. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the State of Illinois, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the

	address for such notices to it under this Amendment and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.
4.	Binding Effect. This Amendment will be binding upon and inure to the benefit of Employee, the Company, and their respective successors and permitted assigns. The Company will be entitled to assign its rights and duties under this Amendment provided that the Company will remain liable to Employee should such assignee fail to perform its obligations under this Amendment.
5.	No Strict Construction. The language used in this Amendment will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any person.
	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:
Name:	Courtney C. Smith
Title:	President & Chief Executive Officer
EMPLOYEE
By:
Name:	Daniel Cacchione
Title:	Senior Vice President & Chief Underwriting Officer

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EX-10.52

Exhibit 10.52

DIRECTOR INDEMNIFICATION AGREEMENT

          THIS INDEMNIFICATION AGREEMENT (the “Agreement”) is made and entered into as of March 3, 2009 between Specialty Underwriters’ Alliance, Inc., a Delaware corporation (the “Company”), and [          ] (“Indemnitee”).

     WITNESSETH THAT:

     WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The By-laws of the Company require indemnification of the directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (“DGCL”). The By-laws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;

     WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

     WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

     WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

     WHEREAS, this Agreement is a supplement to and in furtherance of the By-laws of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;

     WHEREAS, Indemnitee does not regard the protection available under the Company’s By-laws and insurance as adequate in the present circumstances, and may not be willing to serve as a director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; and

     NOW, THEREFORE, in consideration of Indemnitee’s agreement to serve as a director after the date hereof, the parties hereto agree as follows:

          1. Definitions. For purposes of this Agreement:

               (a) “Corporate Status” describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the express written request of the Company.

               (b) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

               (c) “Enterprise” shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the express written request of the Company as a director, officer, employee, agent or fiduciary.

               (d) “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

               (e) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses,

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claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

               (f) “Proceeding” includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was an officer or director of the Company, by reason of any action taken by him or of any inaction on his part while acting as an officer or director of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other Enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 8 of this Agreement to enforce his rights under this Agreement.

          2. Indemnity of Indemnitee. The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:

               (a) Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 2(a) if, by reason of his Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding other than a Proceeding by or in the right of the Company. Pursuant to this Section 2(a), Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful.

               (b) Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 2(b) if, by reason of his Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 2(b), Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee, or on the Indemnitee’s behalf, in connection with such Proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware (the “Delaware Court”) shall determine that such indemnification may be made.

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               (c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

          3. Additional Indemnity. In addition to, and without regard to any limitations on, the indemnification provided for in Section 2 of this Agreement, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Company’s obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 7 and 8 hereof) to be unlawful.

          4. Contribution.

               (a) Whether or not the indemnification provided in Sections 2 and 3 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

               (b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or

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proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.

               (c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.

               (d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

          5. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

          6. Advancement of Expenses. Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee’s Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 6 shall be unsecured and interest free.

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          7. Procedures and Presumptions for Determination of Entitlement to Indemnification. It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the DGCL and public policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:

               (a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification.

               (b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 7(a) hereof, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the board: (1) by a majority vote of the Disinterested Directors, even though less than a quorum, by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum, (2) if there are no Disinterested Directors or if the Disinterested Directors so direct, by independent legal counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee, or (3) if so directed by the Board, by the stockholders of the Company.

               (c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 7(b) hereof, the Independent Counsel shall be selected as provided in this Section 7(c). The Independent Counsel shall be selected by the Board. Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 1 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 7(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Delaware Court or other court of competent jurisdiction for resolution of any objection which shall have been made by the Indemnitee to the Company’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 7(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 7(b) hereof, and the Company shall pay all reasonable fees and

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expenses incident to the procedures of this Section 7(c), regardless of the manner in which such Independent Counsel was selected or appointed.

               (d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

               (e) Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 7(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

               (f) If the person, persons or entity empowered or selected under Section 7 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 7(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 7(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination, the Board or the Disinterested Directors, if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen

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(15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat.

               (g) Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitee’s entitlement to indemnification under this Agreement. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

               (h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

               (i) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

          8. Remedies of Indemnitee.

               (a) In the event that (i) a determination is made pursuant to Section 7 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 6 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 7(b) of this Agreement within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 7 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of

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Delaware, or in any other court of competent jurisdiction, of Indemnitee’s entitlement to such indemnification. Indemnitee shall commence such proceeding seeking an adjudication within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 8(a). The Company shall not oppose Indemnitee’s right to seek any such adjudication.

               (b) In the event that a determination shall have been made pursuant to Section 7(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 8 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 7(b).

               (c) If a determination shall have been made pursuant to Section 7(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 8, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.

               (d) In the event that Indemnitee, pursuant to this Section 8, seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors’ and officers’ liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 1 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery.

               (e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 8 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.

               (f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

          9. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.

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               (a) The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the certificate of incorporation of the Company, the Bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the DGCL, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

               (b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

               (c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

               (d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

               (e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.

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          10. Exception to Right of Indemnification. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

               (a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or

               (b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law; or

               (c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.

          11. Duration of Agreement. All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an officer or director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Indemnitee shall be subject to any Proceeding (or any proceeding commenced under Section 8 hereof) by reason of his Corporate Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.

          12. Security. To the extent requested by Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.

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          13. Enforcement.

               (a) The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company.

               (b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

          14. Severability. The invalidity of unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.

          15. Modification and Waiver. No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

          16. Notice By Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.

          17. Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:

               (a) To Indemnitee at the address set forth below Indemnitee signature hereto.

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               (b) To the Company at:

SUA Insurance Company
222 South Riverside Plaza
Suite 1600
Chicago, IL 60606
Attention: Scott Goodreau

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

          18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

          19. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

          20. Governing Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

SIGNATURE PAGE TO FOLLOW

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          IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
By:
Name:	Scott Goodreau
Title:	Senior Vice President, General Counsel
INDEMNITEE
Name:
Address:

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-142531) of Specialty Underwriters’ Alliance, Inc. of our report dated March 6, 2008 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
March 6, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Courtney C. Smith, certify that:

     I have reviewed this annual report on Form 10-K of Specialty Underwriters’ Alliance, Inc.;

     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;

     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;

     The registrant’s other certifying officer(s) 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:

     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;

     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 principles;

     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

     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

     The registrant’s other certifying officer(s) 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):

     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

     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: March 6, 2009	By:	/s/ Courtney C. Smith
		Name:	Courtney C. Smith
		Title:	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Peter E. Jokiel, certify that:

     I have reviewed this annual report on Form 10-K of Specialty Underwriters’ Alliance, Inc.;

     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;

     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;

     The registrant’s other certifying officer(s) 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:

     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;

     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 principles;

     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

     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

     The registrant’s other certifying officer(s) 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):

     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

     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: March 6, 2009	By:	/s/ Peter E. Jokiel
		Name:	Peter E. Jokiel
		Title:	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

     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:

     The annual report on Form 10-K of the Company for the period ended December 31, 2008 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     The information contained in such Form 10-K 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 6th day of March 2009.

By:	/s/ Courtney C. Smith
	Name:	Courtney C. Smith
	Title:	President and 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

     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:

     The annual report on Form 10-K of the Company for the year ended December 31, 2008 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     The information contained in such Form 10-K 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 6th day of March 2009.

By:	/s/ Peter E. Jokiel
	Name:	Peter E. Jokiel
	Title:	Executive Vice President and 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.