~~Table~~UNITED ofSTATES ~~Contents~~SECURITIES AND EXCHANGE COMMISSION

~~UNITED~~Washington, ~~STATES~~D.C. ~~SECURITIES AND EXCHANGE COMMISSION~~20549

~~Washington, D.C. 20549~~Form 10-Q

~~Form 10-Q~~ þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

þFor ~~QUARTERLY~~the ~~REPORT~~quarterly ~~PURSUANT~~period TOended ~~SECTION~~September 30, ~~13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~2009

~~For the quarterly period ended June 30, 2009~~Or

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

oFor ~~TRANSITION~~the ~~REPORT~~transition ~~PURSUANT~~period ~~TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~from to

~~For~~ Commission ~~the~~File ~~transition~~Number: ~~period from to~~ 000-50891

~~Commission~~SPECIALTY ~~File~~UNDERWRITERS’ ~~Number:~~ALLIANCE, ~~000-50891~~INC.

~~SPECIALTY~~ (Exact ~~UNDERWRITERS’~~name ~~ALLIANCE,~~of ~~INC.~~ registrant as specified in its charter)

(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)

DELAWARE		20-0432760
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)
222 South Riverside Plaza, Chicago, Illinois		60606
(Address of Principal Executive Offices)		(Zip Code)

(888) 782-4672

(Registrant’s Telephone Number, Including Area Code)

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

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

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


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

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

As of ~~August~~November 36, 2009, there were 14,574,596 shares of our common stock, $0.01 par value, or the Common Stock, outstanding and 1,354,328 shares of our Class B common stock, $0.01 par value, or the Class B Shares, outstanding.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1516
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2123
Item 4. Controls and Procedures		2223
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		2425
Item 1A. Risk Factors		2425
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 3. Defaults Upon Senior Securities		25
Item 4. Submission of Matters to a Vote of Security Holders		25
Item 5. Other Information		2625
Item 6. Exhibits		2625
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-10.6
EX-10.7
EX-10.8
EX-10.9
EX-10.10
EX-10.11
EX-10.12
EX-10.13
EX-10.14
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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

~~Table~~PART ofI ~~Contents~~— FINANCIAL INFORMATION

~~PART~~Item 1. IFinancial ~~— FINANCIAL INFORMATION~~Statements

~~Item~~Specialty 1Underwriters’ Alliance, Inc. Consolidated ~~Financial~~Balance ~~Statements~~Sheets As of September 30, 2009 and December 31, 2008 (in thousands, except share data)

Specialty Underwriters’ Alliance, Inc. Consolidated Balance Sheets As of June 30, 2009 and December 31, 2008 (in thousands, except share data)


	9/30/2009			12/31/2008
	(unaudited)
ASSETS
Fixed maturity investments, at fair value (amortized cost: $236,290 and $220,744)	$	244,135		$	216,708
Short-term investments, at amortized cost (which approximates fair value)		60,454			46,697


Total Investments		304,589			263,405
Cash		1,520			208
Insurance premiums receivable		59,222			60,715

Reinsurance recoverable on paid and unpaid loss and loss adjustment expenses		73,883			79,598
Prepaid reinsurance premiums		337			309
Investment income accrued		2,476			2,467
Equipment and capitalized software at cost (less accumulated depreciation of $20,465 and $15,486)		12,323			13,562
Intangible assets		10,745			10,745
Deferred acquisition costs		21,408			18,156
Federal income tax recoverable		1,173			115
Deferred tax asset		-			3,146
Other assets		4,201			2,426


Total Assets	$	491,877		$	454,852

LIABILITIES & STOCKHOLDERS’ EQUITY
Liabilities
Loss and loss adjustment expense reserves	$	222,232		$	214,953
Unearned insurance premiums		103,275			80,600
Insured deposit funds		13,261			15,806
Deferred tax liability		691			-
Accounts payable and other liabilities		8,103			7,204


Total Liabilities		347,562			318,563


Commitments (Note 8)
Stockholders’ equity
Common stock at $0.01 par value per share — authorized: 30,000,000 shares; issued: 14,779,417 shares and 14,712,355 shares; and outstanding: 14,574,596 shares and 14,437,355 shares		148			147
Class B common stock at $0.01 par value per share — authorized: 2,000,000 shares; issued and outstanding: 1,354,328 shares and 1,368,562 shares		13			14
Paid-in capital — common stock		130,553			129,926
Paid-in capital — class B common stock		7,832			8,077
Accumulated earnings		1,276			1,693
Treasury stock (204,821 and 275,000 shares of common stock)		(1,003	)		(1,347	)
Accumulated other comprehensive income (loss)		5,496			(2,221	)


Total Stockholders’ Equity		144,315			136,289


Total Liabilities & Stockholders’ Equity	$	491,877		$	454,852

	6/30/2009			12/31/2008
	(unaudited)
ASSETS
Fixed maturity investments, at fair value (amortized cost: $231,131 and $220,744)	$	231,891		$	216,708
Short-term investments, at amortized cost (which approximates fair value)		33,153			46,697
Total Investments		265,044			263,405
Cash		1,383			208
Insurance premiums receivable		68,484			60,715
Reinsurance recoverable on paid and unpaid loss and loss adjustment expenses		79,725			79,598
Prepaid reinsurance premiums		245			309
Investment income accrued		2,554			2,467
Equipment and capitalized software at cost (less accumulated depreciation of $18,823 and $15,486)		12,901			13,562
Intangible assets		10,745			10,745
Deferred acquisition costs		16,982			18,156
Deferred tax asset		1,602			3,146
Other assets		2,867			2,426
Total Assets	$	462,532		$	454,737
LIABILITIES & STOCKHOLDERS’ EQUITY
Liabilities
Loss and loss adjustment expense reserves	$	218,400		$	214,953
Unearned insurance premiums		79,247			80,600
Insured deposit funds		13,737			15,806
Accounts payable and other liabilities		10,435			7,089
Total Liabilities		321,819			318,448
Commitments (Note 8)
Stockholders’ equity
Common stock at $0.01 par value per share — authorized: 30,000,000 shares; issued: 14,779,417 and 14,712,355 shares; and outstanding: 14,571,596 and 14,437,355 shares		148			147
Class B common stock at $0.01 par value per share — authorized: 2,000,000 shares; issued and outstanding: 1,333,884 shares and 1,368,562 shares		13			14
Paid-in capital — Common Stock		130,394			129,926
Paid-in capital — Class B Common Stock		7,694			8,077
Accumulated earnings		2,573			1,693
Treasury stock (207,821 and 275,000 shares of common stock)		(1,003	)		(1,347	)
Accumulated other comprehensive income (loss)		894			(2,221	)
Total Stockholders’ Equity		140,713			136,289
Total Liabilities & Stockholders’ Equity	$	462,532		$	454,737

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

~~The~~2009 ~~accompanying~~Third Quarter ~~notes~~Form 10-QSpecialty ~~are~~Underwriters’ anAlliance, ~~integral part of these consolidated financial statements~~Inc.

~~2009 Second Quarter Form 10-Q~~3 ~~Specialty Underwriters’ Alliance, Inc.~~

3Specialty Underwriters’ Alliance, Inc. Consolidated Statements of Operations and Comprehensive Income For the Three and Nine Months Ended September 30, 2009 and 2008 (Unaudited — in thousands, except for earnings per share)


	Three Months Ended						Nine Months Ended
	9/30/2009			9/30/2008			9/30/2009			9/30/2008
Revenues
Earned insurance premiums	$	44,280		$	37,208		$	114,420		$	107,153
Net investment income		2,722			2,662			8,271			7,985
Net realized gains (losses)		(381	)		4			(213	)		42

Subtotal: Revenue before impairments		46,621			39,874			122,478			115,180

Other than temporary impairment losses		(363	)		(849	)		(2,198	)		(849	)
Loss (gain) recognized in other comprehensive income		(253	)		-			1,006			-

Subtotal: Net impairment recognized in earnings		(616	)		(849	)		(1,192	)		(849	)

Total revenue		46,005			39,025			121,286			114,331

Expenses
Loss and loss adjustment expenses		31,812			22,444			75,791			64,443
Acquisition expenses		10,470			8,531			27,354			24,501
Other operating expenses		5,795			6,234			19,521			17,573

Total expenses		48,077			37,209			122,666			106,517

Pretax income (loss)		(2,072	)		1,816			(1,380	)		7,814
Income tax (expense) benefit		775			(515	)		600			(798	)

Net income (loss)		(1,297	)		1,301			(780	)		7,016
Net change in unrealized gains and losses for investments held, after tax		4,438			(3,785	)		8,734			(6,018	)
Impairments included in other comprehensive income (loss), after tax		164			-			(654	)		-

Comprehensive income (loss)	$	3,305		$	(2,484	)	$	7,300		$	998


Earnings (losses) per share available to common stockholders (in dollars)
Basic and diluted	$	(0.08	)	$	0.08		$	(0.05	)	$	0.45

Weighted average shares outstanding
Basic		15,924			15,516			15,870			15,587
Diluted		15,924			15,567			15,870			15,743

~~Specialty~~The ~~Underwriters’~~accompanying ~~Alliance,~~notes ~~Inc. Consolidated~~are ~~Statements~~an ofintegral ~~Operations~~part ~~and~~of ~~Comprehensive~~these ~~Income For~~consolidated ~~the~~financial ~~Three and Six Months Ended June 30, 2009 and 2008~~statements. ~~(Unaudited — in thousands, except for earnings per share)~~

	Three Months Ended						Six Months Ended
	6/30/2009			6/30/2008			6/30/2009			6/30/2008
Revenues
Earned insurance premiums	$	35,365		$	34,195		$	70,140		$	69,945
Net investment income		2,775			2,670			5,549			5,323
Net realized gains, other than impairments		24			7			168			38
Subtotal: Revenue before impairments		38,164			36,872			75,857			75,306
Other than temporary impairment losses		(1,624	)		-			(1,835	)		-
Portion of loss recognized in other comprehensive income		1,259			-			1,259			-
Subtotal: Net impairment recognized in earnings		(365	)		-			(576	)		-
Total revenue		37,799			36,872			75,281			75,306
Expenses
Loss and loss adjustment expenses		23,045			20,941			43,979			41,999
Acquisition expenses		8,359			7,267			16,884			15,970
Other operating expenses		7,141			5,412			13,726			11,339
Total expenses		38,545			33,620			74,589			69,308
Pretax income (loss)		(746	)		3,252			692			5,998
Income tax (expense) benefit		270			(1,002	)		(175	)		(283	)
Net income (loss)		(476	)		2,250			517			5,715
Net change in unrealized gains and losses for investments held, after tax		2,066			(2,685	)		2,660			(2,233	)
Impairments included in other comprehensive income (loss), after tax		818			-			818			-
Comprehensive income (loss)	$	2,408		$	(435	)	$	3,995		$	3,482
Earnings (loss) per share available to common stockholders (in dollars)
Basic	$	(0.03	)	$	0.14		$	0.03		$	0.37
Diluted	$	(0.03	)	$	0.14		$	0.03		$	0.36
Weighted average shares outstanding
Basic		15,877			15,666			15,843			15,623
Diluted		15,917			15,809			15,941			15,766

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

~~The accompanying notes are an integral part of these consolidated financial statements.~~4

~~2009 Second Quarter Form 10-Q~~ Specialty Underwriters’ Alliance, Inc. Consolidated Statement of Stockholders’ Equity As of September 30, 2009 (Unaudited — in thousands)


																	Accum.
																	Other			Total
	Common		Paid-in		Common			Paid-in									Comp.			Stock-
	Stock		Capital		Stock			Capital			Retained			Treasury			Income			holders’
	Class A		Class A		Class B			Class B			Earnings			Stock			(Loss)			Equity
Balance at Dec. 31, 2008	$	147	$	129,926	$	14		$	8,077		$	1,693		$	(1,347	)	$	(2,221	)	$	136,289


Net income		-		-		-			-			(780	)		-			-			(780	)

Net change in unrealized investment gains, net of tax		-		-		-			-			-			-			8,734			8,734

Impairments included in other comprehensive income, net of tax		-		-		-			-			-			-			(654	)		(654	)

Stock issuance		1		110		(1	)		(245	)		-			344			-			209

Treasury stock purchases		-		-		-			-			-			-			-			-

Stock based compensation		-		517		-			-			-			-			-			517

Cumulative effect of adopting FSP FAS 115-2		-		-		-			-			363			-			(363	)		-


Balance at Sept. 30, 2009	$	148	$	130,553	$	13		$	7,832		$	1,276		$	(1,003	)	$	5,496		$	144,315

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

~~Specialty~~2009 Third Quarter Form 10-QSpecialty Underwriters’ Alliance, Inc. ~~Consolidated Statement of Stockholders’ Equity As of June 30, 2009 (Unaudited — in thousands)~~

																Accum.
																Other			Total
	Common		Paid-in		Common			Paid-in								Comp.			Stock-
	Stock		Capital		Stock			Capital			Retained		Treasury			Income			holders'
	Class A		Class A		Class B			Class B			Earnings		Stock			(Loss)			Equity
Balance at Dec. 31, 2008	$	147	$	129,926	$	14		$	8,077		$	1,693	$	(1,347	)	$	(2,221	)	$	136,289
Net income		-		-		-			-			517		-			-			517
Net change in unrealized investment gains, net of tax		-		-		-			-			-		-			2,660			2,660
Impairments included in other comprehensive income, net of tax		-		-		-			-			-		-			818			818
Stock issuance		1		111		(1	)		(383	)		-		344			-			72
Stock based compensation		-		357		-			-			-		-			-			357
Cumulative effect of adopting FSP FAS 115-2		-		-		-			-			363		-			(363	)		-
Balance at June 30, 2009	$	148	$	130,394	$	13		$	7,694		$	2,573	$	(1,003	)	$	894		$	140,713

~~The~~Specialty ~~accompanying~~Underwriters’ ~~notes~~Alliance, ~~are~~Inc. Consolidated anStatements ~~integral~~of ~~part~~Cash ofFlows For ~~these~~the ~~consolidated~~Nine ~~financial~~Months ~~statements.~~Ended September 30, 2009 and 2008 (Unaudited — in thousands)

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


	Nine Months Ended
	9/30/2009			9/30/2008
Cash flows from operations
Net income	$	(780	)	$	7,016

Charges (credits) to reconcile net income to cash flows from operations:
Change in deferred income tax		(522	)		(309	)
Net realized losses		1,405			807
Amortization of bond premium		214			71
Depreciation		4,979			4,931
Net change in:
Reinsurance recoverable on unpaid loss and loss adjustment expense reserves		5,715			3,056
Loss and loss adjustment expense reserves		7,279			17,574
Insurance premiums receivable		1,493			8,809
Unearned insurance premiums		22,675			(3,294	)
Deferred acquisition costs		(3,252	)		173
Prepaid reinsurance premiums		(28	)		(59	)
Insured deposit funds		(2,545	)		995
Other, net		(1,469	)		4

Total adjustments		35,944			32,758

Net cash flows provided by operations		35,164			39,774


Cash flows from investing activities
Net (increase) decrease in short-term investments		(13,757	)		5,724
Sales, redemptions, calls and maturities of fixed maturity investments		26,096			21,416
Purchases of fixed maturity investments		(42,706	)		(61,832	)
Purchase of equipment and capitalized software		(3,740	)		(5,302	)

Net cash flows used for investing activities		(34,107	)		(39,994	)


Cash flows from financing activities
Issuance of common stock		255			1,118
Treasury stock purchases		-			(1,347	)


Net cash provided by (used for) financing activities		255			(229	)


Net increase (decrease) in cash during the period		1,312			(449	)

Cash at beginning of the period		208			968


Cash at the end of the period	$	1,520		$	519

5The accompanying notes are an integral part of these consolidated financial statements.

~~Table~~2009 ofThird Quarter ~~Contents~~Form 10-QSpecialty Underwriters’ Alliance, Inc.

~~Specialty Underwriters’ Alliance, Inc.~~6 ~~Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2009 and 2008 (Unaudited — in thousands)~~

	Six Months Ended
	6/30/2009			6/30/2008
Cash flows from operations
Net income	$	517		$	5,715
Charges (credits) to reconcile net income to cash flows from operations:
Change in deferred income tax		(332	)		(307	)
Net realized losses (gains)		408			(38	)
Amortization of bond premium (discount)		97			(10	)
Depreciation		3,337			3,171
Net change in:
Reinsurance recoverable (payable) on unpaid loss and loss adjustment expense reserves		(127	)		3,806
Loss and loss adjustment expense reserves		3,447			10,134
Insurance premiums receivable		(7,769	)		491
Unearned insurance premiums		(1,353	)		(8,253	)
Deferred acquisition costs		1,174			1,705
Prepaid reinsurance premiums		64			214
Insured deposit funds		(2,069	)		1,277
Other, net		3,129			(312	)
Total adjustments		6			11,878
Net cash flows provided by operations		523			17,593
Cash flows from investing activities
Net decrease in short-term investments		13,545			12,710
Redemptions, calls and maturities of fixed maturity investments		19,051			18,042
Purchases of fixed maturity investments		(29,384	)		(44,938	)
Purchases of equipment and capitalized software		(2,676	)		(3,643	)
Net cash flows provided by (used for) investing activities		536			(17,829	)
Cash flows from financing activities
Issuance of common stock		116			762
Treasury Stock Purchases		-			(1,347	)
Net cash provided by (used for) financing activities		116			(585	)
Net increase (decrease) in cash during the period		1,175			(821	)
Cash at beginning of the period		208			968
Cash at the end of the period	$	1,383		$	147

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

~~The~~Note ~~accompanying~~1. ~~notes~~Basis ~~are an integral part~~ of ~~these consolidated financial statements.~~Presentation

~~2009~~ The ~~Second~~Consolidated ~~Quarter~~Financial ~~Form~~Statements (unaudited) ~~10-Q Specialty~~include the accounts of Specialty Underwriters’ Alliance, Inc., and its consolidated subsidiary, SUA Insurance Company, together referred to as SUA or the Company. SUA completed an initial public offering, or IPO, of its common stock on November 23, 2004. Concurrent with the IPO, SUA completed the acquisition of Potomac Insurance Company of Illinois, or Potomac. Potomac has subsequently been renamed SUA Insurance Company.

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

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

~~Specialty~~Note ~~Underwriters’ Alliance, Inc~~2. ~~Notes~~ toRecent ~~Consolidated~~Accounting ~~Financial Statements~~Pronouncements ~~(unaudited — in thousands, except earnings per share)~~

~~Note~~ In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards 1Codification (ASC) 105, Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 ~~Basis~~(the Codification). The Codification reorganized existing U.S. accounting and reporting standards issued by the FASB and other related private sector standard setters into a single source of ~~Presentation~~authoritative accounting principles arranged by topic. The Codification supersedes all existing U.S. accounting standards; all other accounting literature not included in the Codification (other than Securities and Exchange Commission guidance for publicly-traded companies) is considered non-authoritative. The Codification was effective on a prospective basis for interim and annual reporting periods ending after September 15, 2009. The adoption of the Codification changed the Company’s references to U.S. GAAP accounting standards but did not impact the Company’s results of operations, financial position or liquidity.

~~The~~In ~~Consolidated~~May 2009, ~~Financial~~the ~~Statements~~FASB ~~(unaudited) include~~issued ~~the~~ASC ~~accounts~~855, ofSubsequent ~~Specialty~~Events, which provides guidance on ~~Underwriters~~management’s ~~Alliance,~~general ~~Inc.,~~standards for and ~~its~~disclosure ~~consolidated~~of ~~subsidiary,~~events ~~SUA~~that ~~Insurance~~occur ~~Company,~~after ~~together~~the balance sheet ~~referred~~date, tobut asbefore ~~SUA~~financial statements are issued or ~~the~~are ~~Company~~available to be issued. ~~SUA~~The ~~completed~~standard anis effective ~~initial~~for ~~public~~interim ~~offering~~or annual financial periods ending after June 15, 2009. The standard does not apply to subsequent events or ~~IPO,~~transactions that are within the scope of ~~its~~other ~~common~~applicable GAAP ~~stock~~standards that provide different guidance on ~~November 23,~~the ~~2004~~accounting treatment for subsequent events or transactions. ~~Concurrent~~The ~~with~~initial applications of the ~~IPO,~~standard ~~SUA~~have ~~completed~~had no impact on the ~~acquisition~~Company’s financial position or results of ~~Potomac Insurance~~operations. The Company evaluates subsequent events through the date and time of ~~Illinois,~~the orfiling ~~Potomac.~~of ~~Potomac~~the ~~has~~applicable ~~subsequently~~periodic ~~been~~report ~~renamed~~with ~~SUA~~the ~~Insurance Company~~SEC.

~~The~~In ~~accompanying~~April 2009, ~~financial~~the ~~statements~~FASB ~~have~~issued ~~been~~new ~~prepared~~guidance, inwhich ~~conformity~~is ~~with~~now ~~accounting principles~~part ~~generally~~of ~~accepted~~ASC in820, ~~the~~Fair ~~United~~Value Measurements ~~States~~and ofDisclosures ~~America,~~on orhow ~~GAAP.~~to ~~Certain~~determine ~~financial information~~the ~~that~~fair isvalue ~~normally~~of ~~included~~assets inand ~~annual~~liabilities ~~financial~~in ~~statements,~~an environment ~~including~~where ~~certain~~the ~~financial statements~~volume ~~footnotes,~~and ~~prepared~~level inof ~~accordance~~activity ~~with~~for ~~GAAP,~~the isasset ~~not~~or ~~required~~liability ~~for~~has ~~interim reporting~~significantly ~~purposes~~decreased and ~~has~~re-emphasizes ~~been~~that ~~condensed~~the orobjective ~~omitted.~~of ~~These~~a ~~statements~~fair ~~should~~value bemeasurement ~~read~~remains inan ~~conjunction~~exit ~~with the~~price. ~~consolidated~~The ~~financial~~provisions ~~statements~~of ~~and~~the ~~notes~~new ~~thereto~~guidance ~~included~~were ineffective ~~SUA’s~~for ~~Annual~~interim ~~Report~~periods onending ~~Form~~after ~~10-K~~June 15, 2009. ~~for~~The adoption of the ~~year~~new ~~ended~~guidance ~~December 31,~~has ~~2008~~not ~~filed~~had ~~with~~a ~~the~~material ~~Securities~~effect ~~and~~on ~~Exchange~~the ~~Commission,~~Company’s financial position or ~~SEC~~results of operations.

~~The~~In ~~interim~~April 2009, ~~financial~~the ~~data~~FASB asissued new guidance for the accounting of ~~June 30,~~other-than-temporary impairments. ~~2009~~The new guidance, ~~and~~which ~~for~~is ~~the~~now ~~periods~~part ~~ended~~of ~~June 30~~ASC 320, ~~2009~~Investments — Debt and Equity ~~June 30~~Securities, ~~2008~~applies isto ~~unaudited.~~investments ~~However,~~ in ~~the~~debt ~~opinion~~securities offor which other-than-temporary impairments may be recorded. If an entity’s management, asserts that it does not have the ~~interim~~intent ~~data~~to ~~includes~~sell ~~all~~a debt ~~adjustments,~~security ~~consisting~~and ofit ~~normal~~is ~~recurring~~more ~~accruals,~~likely ~~necessary~~than ~~for~~not athat ~~fair~~it ~~statement~~will ofnot ~~the Company’s~~have ~~results~~to ~~for~~sell the ~~interim~~security ~~periods.~~before ~~The~~recovery of ~~results~~its ofcost ~~operations~~basis, ~~for~~then ~~the~~an ~~interim~~entity ~~periods~~may ~~are not~~separate ~~necessarily~~other-than-temporary ~~indicative~~impairments ofinto two components: (1) the ~~results~~amount related to becredit ~~expected~~losses ~~for~~(recorded ~~the~~in ~~full~~earnings), ~~year.~~and ~~Certain~~(2) all other ~~reclassifications~~amounts ~~have~~(recorded ~~been~~in ~~made~~other tocomprehensive ~~prior~~income). ~~period~~This ~~financial~~new ~~statement~~guidance ~~line~~is ~~items~~ to ~~enhance~~be ~~the~~applied prospectively ~~comparability~~and ofis ~~the~~effective ~~results~~for ~~presented.~~interim and

~~Note 2.~~2009 ~~Recent~~Third Quarter ~~Accounting~~Form 10-QSpecialty ~~Pronouncements~~ Underwriters’ Alliance, Inc.

~~In April 2009, the FASB issued FASB Staff Position, or FSP Financial Accounting Standard,~~7 or FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” or FSP FAS 157-4, which provides guidance on how to determine the fair value of assets and liabilities in an environment where the volume and level of activity for the asset or liability has significantly decreased and re-emphasizes that the objective of a fair value measurement remains an exit price. FSP FAS 157-4 is effective for periods ending after June 15, 2009, with earlier adoption permitted. The adoption of FSP FAS 157-4 in the period ending June 30, 2009 did not have a material effect on the Company’s financial position or results of operations.

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

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

In ~~January~~April 2009, the FASB issued ~~FSP~~new ~~Emerging~~guidance ~~Issues~~related ~~Task~~to ~~Force,~~the ordisclosure ~~EITF~~of ~~No. 99-20-1, “Amendments to~~ the ~~Impairment~~fair ~~Guidance~~value of financial ~~EITF Issue No~~instruments. ~~99-20,”~~ orThe ~~FSP~~new ~~EITF 99-20-1~~guidance, which is ~~effective~~ ~~for~~now ~~interim~~part ~~and~~of ~~annual~~ASC ~~periods~~825, ~~ending~~Financial ~~after December 15~~Instruments, requires ~~2008.~~an ~~FSP~~entity ~~EITF~~to ~~99-20-1~~provide ~~amends EITF~~disclosures ~~99-20~~about tofair ~~align~~value ~~the~~of ~~impairment~~financial ~~guidance~~instruments in ~~EITF~~interim financial ~~99-20~~information. ~~with~~The provisions of the ~~impairment~~new guidance inare ~~FAS~~to ~~115, “Accounting~~be ~~for~~applied ~~Certain~~prospectively ~~Investments~~and inare effective ~~Debt~~for interim and ~~Equity~~annual ~~Securities”.~~periods ~~FSP~~ending ~~EITF~~after ~~99-20-1~~June 15, ~~amends~~2009. ~~the cash~~The ~~flows~~adoption ~~model~~of ~~used~~the tonew guidance ~~analyze~~has annot ~~other-than-temporary~~had ~~impairment~~a ~~under~~material ~~EITF~~effect ~~99-20~~on ~~by replacing~~ the ~~market participant view with management~~Company’s ~~assumption~~financial ofposition ~~whether~~or itresults ~~is probable~~of operations.

In January 2009, ~~Second~~the ~~Quarter~~FASB ~~Form~~issued new guidance for the accounting of other-than-temporary impairments for beneficial interests in securitized financial assets. The new guidance, which is now part of ASC 325, Investments — Other, and is effective for interim and annual periods ending after December 1015, 2008, amends the cash flows model used to analyze an other-Qthan-temporary ~~Specialty~~impairment ~~Underwriters~~by replacing the market participant view with management’s ~~Alliance,~~assumption ~~Inc~~of whether it is probable that there is an adverse change in the estimated cash flows. The adoption of the new guidance has not had a material effect on the Company’s financial position or results of operations.

7 Note 3. Earnings Per Share

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

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


	Three Months Ended					Nine Months Ended
	9/30/09			9/30/08		9/30/09			9/30/08
Numerator for earnings per share
Net income (loss)	$	(1,297	)	$	1,301	$	(780	)	$	7,016


Denominator for earnings per share
Weighted average shares outstanding used in computation of earnings per share
Common stock (class A and B) issued		16,129			15,791		16,103			15,685
Common stock in treasury		205			275		233			98

Weighted average shares outstanding - basic		15,924			15,516		15,870			15,587
Effect of dilutive securities^1,2
Stock awards		—			51		—			156

Weighted average shares outstanding - diluted		15,924			15,567		15,870			15,743


Earnings (losses) per share
Basic and diluted	$	(0.08	)	$	0.08	$	(0.05	)	$	0.45

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


¹		Outstanding stock options for 718 shares at September 30, 2009 and 2008 have been excluded from the diluted earnings per share calculation for the three and nine months ended September 30, 2009 and 2008, as they were anti-dilutive.

²		Potential common shares have been excluded in the computation of diluted earnings per share for the three and nine months ended September 30, 2009 since for each of these periods the Company experienced a net loss and inclusion of potential common shares would therefore be anti-dilutive.

Note 3 4. ~~Earnings~~Income ~~Per Share~~Taxes

~~Basic~~The ~~earnings~~components ~~per share is based on the weighted-average number~~ of ~~common~~current ~~shares outstanding~~and ~~during~~deferred ~~the~~income ~~period,~~taxes ~~while~~for ~~diluted earnings per share includes~~ the ~~weighted-average number~~three ofmonths ~~common shares~~ and ~~potential~~nine ~~dilution from shares issuable pursuant to equity incentive~~months ~~compensation~~ended ~~using~~September 30, ~~the~~2009 ~~treasury~~and ~~stock~~2008 ~~method.~~are ~~The~~as ~~following table shows the computation of the Company’s earnings per share~~follows:

	Three Months Ended						~~Six~~Nine Months Ended
	6/30/2009			6/30/2008			6/30/2009			6/30/2008
	9/30/09			9/30/08			9/30/09			9/30/08
Numerator for earnings per share
Current tax (benefit) expense	$	(585	)	$	517		$	(78	)	$	1,107
Net income (loss)	$	(476	)	$	2,250		$	517		$	5,715
Deferred tax (benefit) expense		(190	)		(2	)		(522	)		(309	)
Denominator for earnings per share
Total income tax (benefit) expense	$	(775	)	$	515		$	(600	)	$	798
Weighted-average shares outstanding used in computation of earnings per share
Common stock (class A and B) issued		16,097			15,684			16,090			15,632
Common stock in treasury		220			18			247			9
Weighted average shares outstanding - basic		15,877			15,666			15,843			15,623
Effect of dilutive securities1 Stock awards		40			143			98			143
Weighted average shares outstanding - diluted		15,917			15,809			15,941			15,766
Earnings per share
Basic	$	(0.03	)	$	0.14		$	0.03		$	0.37
Diluted	$	(0.03	)	$	0.14		$	0.03		$	0.36

~~1 Outstanding options of 718,066 as of June 30,~~ 2009 ~~and~~Third Quarter ~~June~~Form 10-QSpecialty ~~30,~~Underwriters’ ~~2008~~Alliance, ~~respectively, have been excluded from the diluted earnings per share calculation for the three and six months ended June 30, 2009 and June 30, 2008, as they were anti-dilutive~~Inc.

~~Note~~8 ~~4. Income Taxes~~

~~The~~Specialty ~~components~~Underwriters’ ofAlliance, ~~current~~Inc. Notes ~~and~~to ~~deferred~~Consolidated ~~income~~Financial ~~taxes~~Statements (unaudited ~~for~~— ~~the~~in ~~three and six months ended June 30~~thousands, ~~2009~~except ~~and~~earnings ~~2008~~per ~~are as follows:~~share)

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

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

~~During~~As ~~the first quarter~~ of ~~2008~~September 30, ~~based~~2009 onand ~~profitability~~December 31, ~~trends at the time~~2008, the Company ~~believed~~ ~~that~~had itno ~~was~~tax ~~more~~basis ~~likely~~net ~~than~~operating loss ~~not~~carry ~~that~~forwards. ~~the~~The ~~deferred~~Company ~~income~~accumulated ~~tax~~start-up ~~assets~~and ~~would~~organization beexpenditures ~~realized. As~~through ~~such~~December 31, ~~the~~2004 ~~Company elected to eliminate its valuation allowance~~ of $12,~~458.~~364 ~~During~~that ~~the~~are ~~fourth~~deductible ~~quarter of~~over ~~2008,~~a ~~the~~60-month ~~Company~~period ~~believed~~commencing ~~and~~on ~~continues to believe that certain state tax net operating loss~~November 23, ~~carryforwards~~2004. ~~may~~The ~~not~~unamortized beportions ~~realized~~of inthese ~~the~~costs ~~future~~were ~~totaling~~ $~~168~~48 ~~for~~and ~~which~~$402 aat ~~valuation~~September 30, ~~allowance~~2009 ~~has been~~and ~~maintained since~~ December 31, 2008, respectively.

AsThe Company ofutilized ~~June 30,~~its ~~2009~~tax ~~and~~loss ~~December 31,~~carryforwards in early 2008, ~~the~~and subsequently ~~Company~~began ~~had~~investing noin tax ~~basis~~exempt ~~net~~securities. ~~operating loss~~Further, ~~carry~~during ~~forwards.~~the ~~The~~third ~~Company~~quarter ~~accumulated~~of ~~start-up~~2009 ~~and~~the ~~organization~~company ~~expenditures~~experienced deterioration ~~through~~in ~~December 31, 2004~~its ofunderwriting ~~$2,364~~profitability that ~~are~~led ~~deductible~~to ~~over~~ a 60pre-~~month~~tax loss. ~~period~~This ~~commencing~~combined onwith ~~November 23,~~tax ~~2004.~~exempt ~~The unamortized~~investment ~~portions~~income ofled ~~these~~the Company’s ~~costs~~effective ~~were~~tax ~~$166~~rate ~~and~~to ~~$402~~be atabove ~~June 30,~~the ~~2009~~federal ~~and~~income ~~December 31,~~tax ~~2008, respectively~~rate.

~~2009~~Note ~~Second~~5. ~~Quarter~~Unpaid ~~Form 10-Q Specialty~~Loss ~~Underwriters’~~and ~~Alliance,~~Loss ~~Inc.~~Adjustment Expense Reserves

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

~~Table~~ At September 30, 2009, the Company reported gross loss and LAE reserves of ~~Contents~~$222,232, of which $43,704 represented the gross direct loss and LAE reserves of Potomac, which is fully reinsured by OneBeacon Insurance Company, or OneBeacon. At December 31, 2008, the Company reported gross loss and LAE reserves of $214,953, of which $53,262 represented the gross direct loss and LAE reserves of Potomac, which are fully reinsured by OneBeacon. Included in the reserves for the Company are tabular reserve discounts for workers’ compensation and excess workers’ compensation pension claims of $4,134 as of September 30, 2009 and $2,612 as of December 31, 2008. The reserves are discounted on a tabular basis at four percent using the 2001 United States Actuarial Life Tables for Female and Male population.

~~Specialty~~ Potomac ~~Underwriters’~~was ~~Alliance,~~a ~~Inc~~participant in the OneBeacon Amended and Restated Reinsurance Agreement. Under ~~Notes~~that toagreement, ~~Consolidated~~Potomac ~~Financial~~ceded ~~Statements~~all of its insurance assets and liabilities into a pool, or Pool, and ~~(unaudited~~assumed —a 0.5% share of the Pool’s assets and liabilities. On April 1, 2004, Potomac ceased its participation in ~~thousands~~the Pool and entered into reinsurance agreements whereby Potomac reinsured all of its business written with OneBeacon effective as of January 1, ~~except~~2004. ~~earnings~~As ~~per~~a result, Potomac will not share) in any favorable or unfavorable development of prior losses recorded by it or the Pool after January 1, 2004, unless OneBeacon fails to perform on its reinsurance obligation.

Note 5 6. ~~Unpaid Loss and Loss Adjustment Expense Reserves~~ Investments

~~Loss~~The ~~and~~cost ~~loss adjustment expense,~~ or ~~LAE~~amortized ~~reserves~~cost ~~are estimates of amounts needed to pay claims~~ and ~~related~~estimated ~~expenses~~fair invalues ~~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~~fixed ~~and LAE reserves represent management’s best estimate of~~maturity ~~reserves~~investments ~~based~~at ~~on a composite of the results of various actuarial methods~~September 30, as2009 ~~well~~were as ~~consideration~~follows: ~~of known facts and trends.~~

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


	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
Category	Cost		Gains		Losses			Value
U.S. Treasury	$	9,790	$	702	$	-		$	10,492
U.S. Government Agencies		28,729		1,652		-			30,381
Municipals		71,942		4,996		(5	)		76,933
Corporate Fixed Maturity		63,413		4,008		(148	)		67,273
Agency Mortgage Backed		38,407		2,341		-			40,748
Non-Agency Mortgage Backed		6,625		1		(2,031	)		4,595
Commercial Mortgage Backed		13,386		51		(1,678	)		11,759
Asset Backed		3,998		-		(2,044	)		1,954


Total Fixed Maturities	$	236,290	$	13,751	$	(5,906	)	$	244,135

~~Potomac~~2009 ~~was~~Third Quarter aForm 10-QSpecialty participant in the OneBeacon Amended and Restated Reinsurance Agreement. Under that agreement, Potomac ceded all of its insurance assets and liabilities into a pool, or Pool, and assumed a 0.5% share of the PoolUnderwriters’s ~~assets and liabilities. On April 1~~Alliance, ~~2004, Potomac ceased its participation in the Pool and entered into reinsurance agreements whereby Potomac reinsured all of its business written with OneBeacon effective as of January 1, 2004~~Inc. As a result, Potomac will not share in any favorable or unfavorable development of prior losses recorded by it or the Pool after January 1, 2004, unless OneBeacon fails to perform on its reinsurance obligation.

~~Note 6. Investments~~9

~~The~~Specialty ~~cost~~Underwriters’ orAlliance, ~~amortized~~Inc. Notes ~~cost~~to ~~and~~Consolidated ~~estimated~~Financial ~~fair values of the Company’s fixed maturity~~Statements ~~investments~~(unaudited at— ~~June 30~~in thousands, ~~2009~~except ~~were~~earnings asper ~~follows:~~share)

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

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

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


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


Total Fixed Maturities	$	220,744	$	6,417	$	(10,453	)	$	216,708

9 In addition to the above investments, the Company also held, at amortized cost, $60,454 and $46,697 in short term investments as of September 30, 2009 and December 31, 2008, respectively. The Company’s short-term investments primarily consist of money market funds, but may also include agency discount notes, treasury notes and other short term investments with original maturities of less than one year. These securities are highly liquid investments that present negligible risk of changes in value due to changes in interest rates. The money market investments are recorded at amortized cost on the Company’s balance sheet, which approximates fair value based on quoted market prices and observable market inputs. The Company monitors quoted market prices on all its short term investments to confirm that carrying amounts approximate fair values.

~~Table~~ The ofCompany ~~Contents~~did not have any other investments.

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

~~The~~ASC ~~cost~~820 orestablishes ~~amortized~~a ~~cost~~fair ~~and~~value ~~estimated~~hierarchy ~~fair~~which ~~values~~requires ofmaximizing ~~Company’s~~the ~~fixed~~use ~~maturity~~of observable ~~investments~~inputs atand ~~December 31,~~minimizing ~~2008~~the ~~were~~use asof ~~follows:~~unobservable inputs when measuring fair value.

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

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

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


			Fair Value Measurement Using:

			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Fair Value		Identical		Observable		Unobservable
	at		Assets		Inputs		Inputs
Category	9/30/09		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury	$	10,492	$	-	$	10,492	$	-
U.S. Government Agency		30,381		-		30,381		-
Municipal		76,933		-		76,933		-
Corporate Fixed Maturity		67,273		-		67,273		-
Agency Mortgage Backed		40,748		-		40,748		-
Non-Agency Mortgage Backed		4,595		-		-		4,595
Commercial Mortgage Backed		11,759		-		-		11,759
Asset-Backed		1,954		-		-		1,954


Total Fixed Maturity Investments	$	244,135	$	-	$	225,827	$	18,308

~~Measuring~~2009 ~~Fair~~Third Quarter ~~Value~~ Form 10-QSpecialty Underwriters’ Alliance, Inc.

~~SFAS No. 157 establishes a fair value hierarchy which requires maximizing the use of~~10 ~~observable inputs and minimizing the use of unobservable inputs when measuring fair value.~~

AsSpecialty ofUnderwriters’ ~~June 30~~Alliance, ~~2009,~~Inc. Notes ~~assets~~to ~~measured~~Consolidated atFinancial ~~fair~~Statements (unaudited ~~value~~— onin athousands, ~~recurring~~except ~~basis~~earnings ~~are~~per ~~summarized below:~~share)

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Fair Value		Identical		Observable		Unobservable
	as of		Assets		Inputs		Inputs
Category	6/30/2009		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury	$	10,447	$	-	$	10,447	$	-
U.S. Government Agency		31,684		-		31,684		-
Municipal		66,396		-		66,396		-
Corporate Fixed Maturity		63,980		-		63,033		947
Agency Mortgage Backed		41,190		-		41,190		-
Non-Agency Mortgage Backed		5,402		-		-		5,402
Commercial Mortgage Backed		10,589		-		-		10,589
Asset Backed		2,203		-		-		2,203
Total Fixed Maturity Investments	$	231,891	$	-	$	212,750	$	19,141

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

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


			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Fair Value		Identical		Observable		Unobservable
	at		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		54,935		-		54,935		-
Corporate Fixed Maturity		55,535		-		55,535		-
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

10 The Company uses an independent pricing service to determine the fair value of substantially all of its investment assets. As of September 30, 2009, a total of four securities with a total fair value of $1,914 were not priced by the Company’s independent pricing service, all of which were categorized Level 3 securities. The Company uses the following pricing methodology for each instrument in its portfolio.

~~Table~~• ofFirst, ~~Contents~~the Company requests a single non-binding price from our independent pricing service.

~~Specialty~~• ~~Underwriters’~~Second, ~~Alliance~~if no price is available from the pricing service for the instrument, ~~Inc~~the Company requests one or more non-binding broker-dealer quotes. ~~Notes~~ toA ~~Consolidated~~single ~~Financial~~quote ~~Statements (unaudited~~is —sought infrom ~~thousands~~a broker-dealer who has significant knowledge of the instrument being priced. If such broker-dealer is not available to quote, ~~except~~then ~~earnings~~an ~~per~~average ~~share)~~ is used from quotes solicited from multiple broker-dealers.

As• ~~of December 31~~Third, ~~2008~~if a broker-dealer quote is unavailable for the instrument, ~~assets~~the ~~measured~~Company atuses ~~fair~~a ~~value~~matrix pricing formula based on avarious ~~recurring~~factors ~~basis~~provided ~~are~~from ~~summarized below:~~ 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.

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

The Company 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 third quarter of 2009, the Company deemed the pricing of four securities unreasonable since they were deemed to be derived from distressed sales in an illiquid market and adjusted the total fair value of these four securities to $1,365 from $612 based on estimated cash flows and available yield spreads.

~~The~~In order to determine the proper ASC 820 classification for each instrument, the Company obtains ~~uses~~from anits ~~independent~~outside pricing ~~service~~sources the pricing procedures and inputs used to ~~determine~~price the instrument. ~~fair~~The ~~value~~Company ofanalyzes ~~substantially~~this information taking into account asset type, rating and ~~all~~liquidity ofto ~~its~~determine ~~investment~~what ~~assets~~inputs are observable and unobservable and thereby determines the suggested ASC 820 Level. AsCertain ofsecurities, ~~June 30~~primarily commercial and non-agency mortgage-backed and asset-backed securities, ~~2009~~may not trade, abe ~~total~~very ofthinly ~~nine~~traded or ~~securities~~trade ~~with~~at a ~~total~~distressed ~~fair value~~price ofdue ~~$4,828~~to ~~were~~economic ~~not~~conditions ~~priced~~and byconcerns in the ~~Company’s~~securities market. As a result, prices from independent third party pricing ~~service~~services, ~~all~~broker ofquotes ~~which~~or ~~were~~other ~~categorized~~observable ~~Level~~inputs 3are ~~securities~~not always available or represent a price from a distressed sale. ~~The~~A ~~Company~~model using ~~uses~~either ~~the~~a ~~following~~matrix pricing ~~methodology~~formula or future cash flow expectations is used to develop a fair value for ~~each~~these securities. Due to the low level of transparency around inputs to this valuation ~~instrument~~process inthese ~~its~~securities ~~portfolio~~are classified within Level 3.

•2009 First, the Company requests a single non-binding price from our independent pricing service. • Second, if no price is available from the pricing service for the instrument, the Company requests one or more non-binding broker-dealer quotes. A single quote is sought from a broker-dealer who has significant knowledge of the instrument being priced. If such broker-dealer is not available to quote, then an average is used from quotes solicited from multiple broker-dealers. • Third, Quarter ~~if a broker~~Form 10-~~dealer~~QSpecialty ~~quote~~Underwriters’ ~~is unavailable for the instrument~~Alliance, 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 assumptionsInc.

~~The Company then validates the price or quote received by examining its reasonableness. The~~11 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.

InSpecialty ~~order~~Underwriters’ ~~to determine the proper SFAS 157 classification for each instrument~~Alliance, ~~the Company~~Inc. ~~obtains~~Notes ~~from its outside pricing sources the pricing procedures and inputs used~~ to ~~price~~Consolidated ~~the~~Financial Statements ~~instrument.~~(unaudited ~~The~~— ~~Company~~in ~~analyzes this information taking into account asset type~~thousands, ~~rating~~except ~~and liquidity~~earnings toper ~~determine what inputs are observable and unobservable and thereby determines the~~share) ~~suggested SFAS 157 Level.~~

~~2009~~ The ~~Second~~following ~~Quarter~~table ~~Form 10-Q~~presents a reconciliation of the beginning and ending balances for all ~~Specialty~~investments ~~Underwriters’~~measured ~~Alliance~~at fair value using Level 3 inputs during the three and nine months ended September 30, ~~Inc.~~2009:


	Three Months			Nine Months
	Ended			Ended
	9/30/2009			9/30/2009
Level 3 investments as of beginning of period	$	19,141		$	8,789
Transfers into level 3 (at beginning period value)		-			9,618
Purchases, sales, issuances, and settlements, net		(943	)		(1,450	)
Total gains or losses (realized/unrealized):					-
Included in earnings		(1,086	)		(1,661	)
Included in comprehensive income		1,196			3,012


Level 3 investments as of September 30, 2009	$	18,308		$	18,308

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

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

~~The~~Significant ~~following~~factors ~~table~~influencing ~~presents~~the aCompany’s ~~reconciliation~~determination that unrealized losses were temporary included (i) the magnitude of the ~~beginning~~unrealized losses in relation to each security’s cost, (ii) the nature of the investment and ~~ending~~(iii) that ~~balances~~management ~~for~~does not intend to sell these ~~all~~securities and it is not more likely than not that the Company will be required to sell these investments ~~measured~~before ata period of time sufficient to allow for anticipated recovery of fair value ~~using~~to the ~~Level~~Company’s 3cost ~~inputs~~basis. ~~during~~The following table presents information regarding the ~~three~~Company’s invested ~~months~~assets ~~ended~~that ~~June~~were in an unrealized loss position at September 30, 2009 by amount of time in a continuous unrealized loss position:

	Three Months			Six Months
				Unrealized Losses
	Ended			Ended
				Less than			Greater than
	6/30/2009			6/30/2009
	Fair Value			12 Months			12 Months			Total
Level 3 investments as of beginning of period	$	16,586		$	8,789
Municipal	$	1,050		$	(5	)	$	-		$	(5	)
Transfers into level 3 (at beginning period value)		911			9,618
Corporate Fixed Maturity		2,863			-			(148	)		(148	)
Purchases, sales, issuances, and settlements, net		(348	)		(507	)
Non-Agency Mortgage Backed		4,395			-			(2,031	)		(2,031	)
Total gains or losses (realized/unrealized):
Commercial Mortgage Backed		6,819			-			(1,678	)		(1,678	)
Included in earnings		(365	)		(576	)
Asset Backed		1,954			(272	)		(1,772	)		(2,044	)
Included in comprehensive income		2,357			1,817
Total Fixed Maturities	$	17,081		$	(277	)	$	(5,629	)	$	(5,906	)
Level 3 investments as of June 30, 2009	$	19,141		$	19,141

The ~~transfer~~following ~~into~~table ~~Level~~presents 3information ~~during~~regarding the ~~first~~Company’s ~~quarter~~invested ofassets ~~2009~~that ofwere ~~securities~~in an ~~with~~unrealized aloss ~~fair~~position ~~value,~~at ~~as of~~ December 31, 2008, ofby ~~$8,677~~amount ~~was the result~~ of ~~reduced~~time ~~liquidity,~~in ~~and~~a ~~therefore~~continuous ~~reduced~~unrealized ~~price~~loss ~~transparency, related to commercial mortgage backed securities.~~position:

Impairment Review


			Unrealized Losses
			Less than			Greater than
	Fair Value		12 Months			12 Months			Total
Municipal	$	21,713	$	(679	)	$	-		$	(679	)
Corporate Fixed Maturity		35,201		(560	)		(1,131	)		(1,691	)
Non-Agency Mortgage Backed		5,164		(279	)		(2,338	)		(2,617	)
Commercial Mortgage Backed		9,889		(1,811	)		(1,601	)		(3,412	)
Asset Backed		2,616		-			(2,054	)		(2,054	)

Total Fixed Maturities	$	74,583	$	(3,329	)	$	(7,124	)	$	(10,453	)

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

~~The Company recorded an OTTI charge of $1,624 on investment securities during the three months ended June 30,~~ 2009 ofThird Quarter which $365 was recognized as a loss in earnings and $1,259 was recognized, net of taxes, as a loss in comprehensive income. The Company recorded an OTTI charge of $1,835 on investment securities during the six months ended JuneForm ~~30,~~10-QSpecialty ~~2009~~Underwriters’ ~~of which $576 was recognized as a loss in earnings and $1~~Alliance,~~259~~ ~~was recognized, net of taxes, as a loss in comprehensive income~~Inc.

~~2009 Second Quarter Form 10-Q~~12 ~~Specialty Underwriters’ Alliance, Inc.~~

12Specialty Underwriters’ Alliance, Inc. Notes to Consolidated Financial Statements (unaudited — in thousands, except earnings per share)

~~Table~~The Company does not intend to sell its fixed maturity securities, and it is not more likely than not that the Company will be required to sell these investments, until there is a recovery of ~~Contents~~fair value to the Company’s original cost basis, which may be at maturity. Other than investments for which the Company has recognized other-than-temporary impairments, the Company has received all of its scheduled principle and interest payments in a timely fashion and has experienced no defaults on any of its investments.

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

The ~~following~~Company’s ~~table~~methodology ~~provides~~for assessing other-than-temporary impairments, or OTTI, is based on security-specific facts and circumstances as of the balance sheet date. Factors considered in evaluating whether a ~~roll~~decline in value is other than temporary included: (i) the length of time and the extent to which the fair value has been less than cost; (ii) the financial conditions and near-~~forward~~term prospects of the ~~OTTI~~issuer; ~~showing~~and (iii) the ~~amounts~~Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery. The majority of the Company’s structured securities are subject to ASC 325 which allows management to analyze whether it is probable that there is an adverse change in the estimated cash flows. Accordingly, on a quarterly basis, when significant changes in estimated cash flows from the cash flows previously estimated occur due to actual prepayment and credit loss experience, and the present value of the revised cash flow is less than the present value previously estimated, OTTI is deemed to have occurred. Based on recent guidance in ASC 320 a company that does not intend to sell the ~~been~~debt ~~included~~security and it is not more likely than not that the entity will be required to sell the debt security before recovery of its amortized cost basis, is required to separate the decline in ~~earnings~~fair value into (a) the amount representing the credit loss and (b) the amount related to all other factors. The amount of the total decline in fair value related to the credit loss is recognized in earnings as OTTI, with the amount related to other factors recognized in accumulated other comprehensive net loss, net of applicable income taxes. OTTI credit losses result in a permanent reduction of the cost basis of the underlying investment. The determination of OTTI is a subjective process, and different judgments and assumptions could affect the timing of loss realization.

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

During the third quarter of 2009, four of the Company’s securities experienced a decrease in fair value of $363. Associated with this decline in fair value, the Company recognized a credit loss of $616 in earnings and a credit of $253 was recognized in other comprehensive net income for previously recorded impairments. The Company recorded an OTTI charge of $2,198 on investment securities during the nine months ended September 30, 2009 of which $1,192 was recognized as a loss in earnings and $1,006 was recognized as a loss in comprehensive income.

~~Unrealized~~ The ~~Losses~~following table provides a roll-forward of the OTTI showing the amounts that have been included in earnings and other comprehensive income during the third quarter of 2009:

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


	Recognized In
				Other
				Compre-
				hensive
				Income
	Earnings			(Loss)			Total
Beginning Balance, July 1, 2009	$	(866	)	$	(1,818	)	$	(2,684	)
Cumulative effect of adjustment resulting from adoption of FSP 115-2, before income taxes		-			-			-

Subtotal		(866	)		(1,818	)		(2,684	)
Other-than-temporary impairment loss		(616	)		253			(363	)

Ending balance, September 30, 2009	$	(1,482	)	$	(1,565	)	$	(3,047	)

			Unrealized Losses
			Less than			Greater than
	Fair Value		12 Months			12 Months			Total
U.S. Government Agency	$	3,063	$	(37	)	$	(80	)	$	(117	)
Municipal		15,043		(87	)		(127	)		(214	)
Corporate Fixed Maturity		10,709		(25	)		(641	)		(666	)
Non-Agency Mortgage Backed		4,790		-			(1,939	)		(1,939	)
Commercial Mortgage Backed		10,589		(52	)		(2,753	)		(2,805	)
Asset Backed		1,555		-			(2,097	)		(2,097	)
Total Fixed Maturities	$	45,749	$	(201	)	$	(7,637	)	$	(7,838	)

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

~~The following table presents information regarding the Company’s invested assets that were in~~13 ~~an unrealized loss position at December 31, 2008 by amount of time in a continuous unrealized loss position:~~

			Unrealized Losses
			Less than			Greater than
	Fair Value		12 Months			12 Months			Total
Municipal	$	21,713	$	(679	)	$	-		$	(679	)
Corporate Fixed Maturity		35,201		(560	)		(1,131	)		(1,691	)
Non-Agency Mortgage Backed		5,164		(279	)		(2,338	)		(2,617	)
Commercial Mortgage Backed		9,889		(1,811	)		(1,601	)		(3,412	)
Asset Backed		2,616		-			(2,054	)		(2,054	)
Total Fixed Maturities	$	74,583	$	(3,329	)	$	(7,124	)	$	(10,453	)

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

~~Temporary~~The ~~losses~~following ontable ~~investment~~provides ~~securities are primarily~~ a ~~result~~roll-forward of ~~market~~the ~~illiquidity~~OTTI ~~and certain~~showing ~~asset~~the ~~classes~~amounts ~~being~~that ~~out~~have ~~of favor with investors and are recorded as unrealized losses. The~~been ~~Company~~included ~~considered all relevant factors, including expected recoverability of cashflows,~~ in ~~assessing~~ ~~whether~~earnings ~~the~~and ~~loss was~~ other~~-than-temporary.~~ ~~The~~comprehensive ~~Company~~income ~~does~~from ~~not intend to sell its fixed maturity securities~~April 1, ~~and~~2009 itthrough ~~is not more likely than not that the Company will be required to sell these investments~~September 30, ~~until there is a recovery of fair value to the Company’s original cost basis,~~2009: ~~which may be at maturity.~~

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


	Recognized In
				Other
				Compre-
				hensive
				Income
	Earnings			(Loss)			Total
Beginning Balance, April 1, 2009	$	(1,060	)	$	-		$	(1,060	)
Cumulative effect of adjustment resulting from adoption of FSP 115-2, before income taxes		559			(559	)		-

Subtotal		(501	)		(559	)		(1,060	)
Other-than-temporary impairment loss		(981	)		(1,006	)		(1,987	)

Ending balance, September 30, 2009	$	(1,482	)	$	(1,565	)	$	(3,047	)

13Realized Gains and Losses

~~Table~~ The following table sets forth the gross realized gains and losses of ~~Contents~~the Company, excluding losses resulting from other-than-temporary impairments, for the three and nine months ended September 30, 2009 as well as the number of transactions during such periods resulting in such realized gains or losses.

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


	Three Months			Nine Months
	Ended			Ended
	9/30/09			9/30/09
Gross gain on sales	$	80		$	203
Gross loss on sales		(470	)		(483	)
Net gain (loss) on calls, redemptions, maturity and sinking fund		9			67

Net gain (loss)	$	(381	)	$	(213	)


Number of sales transactions resulting in gain or loss		2			9

~~Note~~ In the normal course of operations, the Company from time to time trades securities to 7reinvest the proceeds into a more opportune investment. ~~Equity-Based~~Such ~~Compensation~~transactions are made at the directive of the Company’s management, and can generate realized gains or losses. Such trades have been both infrequent and immaterial. The Company has never sold a security to meet capital or liquidity needs.

OnNote ~~May 1, 2007, the stockholders of the Company approved the 2007 Stock Incentive Plan, or 2007 Plan~~7. ~~The~~Equity-Based ~~2007 Plan replaces the 2004 Stock Option Plan, or 2004 Plan. Options previously~~Compensation granted under the 2004 Plan will continue for the life of such options. The 2007 Plan provides for the issuance of up to 800,000 shares of the Company’s common stock in the form of stock options, stock appreciation rights, restricted stock awards and deferred stock awards. In addition, should any of the options outstanding under the 2004 Plan be terminated, those shares will become available under the 2007 Plan.

~~The~~On May 1, 2007, ~~Plan~~the ~~provides~~stockholders ~~for~~of anthe ~~automatic~~Company ~~grant~~approved ofthe ~~3,000~~2007 ~~unrestricted~~Stock ~~shares~~Incentive ofPlan, or ~~common~~2007 ~~stock~~Plan. ~~to each~~The ~~independent~~2007 ~~director~~Plan onreplaces the ~~first~~2004 ~~business~~Stock ~~day~~Option ~~following~~Plan, ~~such~~or ~~director’s~~2004 ~~re-election~~Plan. toOptions ~~the~~previously ~~Board~~granted ofunder ~~Directors~~the at2004 ~~the~~Plan ~~Annual~~will ~~Meeting~~continue for the life of such options and no further awards may be made under the ~~Stockholders~~2004 Plan. OnThe ~~May 6,~~2007 ~~2009,~~Plan 15provides for the issuance of up to 800,000 shares ~~were~~of the ~~granted~~Company’s tocommon ~~independent~~stock ~~directors~~in ~~who~~the ~~were~~form ~~re-elected~~of tostock ~~the~~options, ~~Board~~stock atappreciation ~~the~~rights, ~~2009~~restricted ~~Annual~~stock awards ~~Meeting~~and deferred stock awards. In addition, should any of the options outstanding under the ~~Stockholders~~2004 ~~held~~Plan onbe ~~May 5~~terminated, ~~2009~~those shares will become available under the 2007 Plan.

~~The~~During ~~compensation~~the ~~cost~~nine ~~associated~~months ~~with~~ended September 30, 2009, the ~~grants~~Company granted 155,600 deferred stock awards and 15,000 shares of ~~common~~restricted stock, onnone ~~May~~of which were granted in the third quarter of 2009. During the nine months ended September 630, 2009, is1,450 ~~$51~~shares ~~based~~subject to grants were onforfeited under the ~~fair~~2007 ~~market~~Plan ~~value~~ of ~~the~~which 450 shares onwere forfeited in the ~~date~~third quarter of ~~grant~~2009. ~~pursuant~~No awards towere ~~SFAS~~forfeited ~~123R~~under ~~which~~the ~~was completely~~2004 ~~recognized~~Plan during the ~~second~~nine ~~quarter~~months ofended September 30, 2009.

No2009 ~~other~~Third Quarter ~~awards~~Form 10-QSpecialty ~~were~~Underwriters’ ~~made~~Alliance, ~~under the 2007 Plan or the 2004 Plan and 50 shares subject to grant were forfeited under the 2007 Plan in the second quarter of 2009~~Inc.

~~In addition there was equity based compensation expenses of $3, relating to stock options~~14 ~~previously granted.~~

~~Note~~Specialty 8Underwriters’ Alliance, Inc. Notes ~~Commitments~~to ~~and~~Consolidated ~~Contingencies~~Financial Statements (unaudited — in thousands, except earnings per share)

~~FBR~~In ~~Capital~~addition ~~Markets~~there &was ~~Co.,~~equity orbased ~~FBR,~~compensation ~~acted~~expenses ~~as financial advisor to the Company in connection with the entry into the Amended and Restated Agreement and Plan~~ of ~~Merger~~$10 byfor ~~and among~~ the ~~Company,~~nine ~~Tower~~months ~~Group, Inc., or Tower, and Tower S.F. Merger Corporation, a wholly owned~~ended ~~subsidiary of Tower, effective as of June~~September 2130, 2009 asrelating ~~well~~to asstock ~~other~~options ~~merger~~previously ~~proposals~~granted ~~received by the Company in 2008 and 2009 and received an aggregate~~ of which $~~100~~3 inwas ~~retainers~~incurred ~~for its services. FBR also received a fee of $500~~ in ~~connection with~~ the ~~delivery of its fairness opinion and will~~ ~~receive~~third aquarter ~~fee equal to 1.25%~~ of ~~the aggregate consideration of the merger as of the consummation thereof, less any retainer and fairness opinion fees~~2009. ~~Assuming an average Tower stock price of~~ ~~$25.00, the total fee to FBR (including the retainer fees and opinion fee previously paid) would be approximately $1,392.~~

~~2009~~Note ~~Second~~8. ~~Quarter~~Commitments ~~Form 10-Q Specialty~~and ~~Underwriters’ Alliance, Inc.~~Contingencies

14 FBR Capital Markets & Co., or FBR, acted as financial advisor to the Company in connection with the proposed merger with Tower S.F. Merger Corporation, a wholly owned subsidiary of Tower Group, Inc., or Tower, as well as other proposals received by the Company in 2008 and 2009, and FBR received an aggregate of $125 in retainers for its services. FBR also received a fee of $500 in connection with the delivery of its fairness opinion relating to the proposed merger and will receive a fee equal to 1.25% of the aggregate consideration of the merger as of the consummation thereof, less any retainer and fairness opinion fees. Assuming the average price of Tower’s common stock used to determine the value of the merger consideration payable to the Company’s stockholders is $25.00, the total amount of the contingency fee that would be owed to FBR would be approximately $767.

~~Table~~2009 ofThird Quarter ~~Contents~~Form 10-QSpecialty Underwriters’ Alliance, Inc.

~~Item 2: Management’s Discussion and Analysis of Financial Condition~~15 ~~and Results of Operations~~

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, the discussions of our operating and growth strategy. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, those set forth under the caption “Risk Factors” in Item 1A2: ofManagement’s ~~Part II~~Discussion ~~of this Quarterly Report on Form 10-Q~~ and inAnalysis ~~the Business section~~ of ~~our~~Financial ~~Annual~~Condition Report on Form 10-K for the year ended December 31, 2008. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could prove to be inaccurate, and ~~therefore,~~Results ~~there can be no assurance that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light~~ of ~~the~~ ~~significant uncertainties inherent in the forward-looking statements included herein, the~~Operations inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

~~Overview~~ This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, the discussions of our operating and growth strategy. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, those set forth under the caption “Risk Factors” in Item 1A of Part II of the Quarterly Report on Form 10-Q for the period ended June 30, 2009 and in the Business section of our Annual Report on Form 10-K for the year ended December 31, 2008. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could prove to be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

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

OnWe ~~November~~were formed on April 233, ~~2004~~2003 wefor ~~completed~~the ~~our~~purpose ~~IPO~~of ~~and~~offering ~~concurrent~~products ~~private~~in ~~placements~~the specialty commercial property and ~~completed~~casualty ~~the~~insurance market by using an innovative business model. Specialty ~~acquisition~~insurance typically serves niche groups of ~~Potomac.~~insureds ~~After~~that ~~giving~~require ~~effect~~highly specialized knowledge of a business class to ~~the~~achieve ~~acquisition~~underwriting profits. This segment has traditionally been underserved by most standard commercial property and casualty insurers, wedue ~~changed~~to the ~~name~~complex ofbusiness ~~Potomac~~knowledge toand ~~SUA~~the ~~Insurance~~investment ~~Company~~required to achieve attractive underwriting profits. OnCompetition ~~January 1,~~in ~~2005~~this wesegment ~~commenced~~is based ~~our~~primarily on client service, availability of insurance ~~operations~~capacity, specialized policy forms, efficient claims handling and other value-based considerations, rather than just price.

On ~~June~~November 2123, ~~2009,~~2004 ~~the~~we ~~Company,~~completed ~~Tower~~our ~~Group,~~IPO ~~Inc., or Tower,~~ and ~~Tower~~concurrent ~~S.F.~~private ~~Merger~~placements ~~Corporation, a wholly-owned subsidiary of Tower, or Merger Sub, entered into an Agreement~~ and ~~Plan~~completed ~~of Merger, pursuant to which, subject to~~ the ~~terms and conditions set forth therein, Merger Sub will merge~~ ~~into~~acquisition ~~the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary~~ of ~~Tower~~Potomac. ~~Upon~~After ~~the~~giving ~~consummation~~effect ofto the ~~merger~~acquisition, ~~the~~we ~~Company’s~~changed ~~common stock will be delisted. On July 22, 2009,~~ the ~~Company,~~name ~~Tower and Merger Sub executed an Amended and Restated Agreement and Plan~~ of ~~Merger,~~Potomac ~~or the merger agreement, effective as of June 21, 2009,~~ to ~~make~~ ~~certain~~SUA ~~corrections~~Insurance ~~to the original merger agreement~~Company. ~~For~~On ~~further~~January 1, ~~information~~2005 ~~about~~we ~~the~~commenced ~~merger or to view the merger agreement, see~~ our ~~current~~insurance ~~reports on Forms 8-K and 8-K/A filed with the Securities and Exchange Commission on June 22, 2009 and July 24, 2009~~operations.

On June 21, 2009, ~~Second~~the ~~Quarter~~Company, ~~Form 10~~Tower Group, Inc., or Tower, and Tower S.F. Merger Corporation, a wholly-Qowned subsidiary of Tower, or Merger Sub, entered into an Agreement and Plan of Merger, ~~Specialty~~pursuant ~~Underwriters~~to which, subject to the terms and conditions set forth therein, Merger Sub will merge into the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of Tower. Upon the consummation of the merger, the Company’s ~~Alliance~~common stock will be delisted. On July 22, ~~Inc~~2009, the Company, Tower and Merger Sub executed an Amended and Restated Agreement and Plan of Merger, or the merger agreement, effective as of June 21, 2009, to make certain corrections to the original merger agreement. For further information about the merger or to view the merger agreement, see our current reports on Forms 8-K and 8-K/A filed with the Securities and Exchange Commission on June 22, 2009 and July 24, 2009.

15 2009 Third Quarter Form 10-QSpecialty Underwriters’ Alliance, Inc.

~~Table of Contents~~16

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

RESULTS OF ~~OPERATIONS~~OPERATION

	Three Months Ended
	6/30/2009			6/30/2008			% Change
	9/30/2009			9/30/2008			% Change
	(in millions, except for
	earnings per share)
Gross written premiums	$	4370.95		$	4144.82			559.05%
Net written premiums		4168.83			3942.91			462.82%
Earned premiums	$	3544.43		$	3437.2			319.51%
Net investment income		2.87			2.76			3.78%
Net realized gains (losses)		(0.3	)		-			*
Net realized losses		(1.0	)		(0.8	)		*
Total revenues		3746.90			3639.90			217.79%
Net loss and loss adjustment expense		2331.08			2022.94			1042.0%
Acquisition expenses		810.45			78.35			1523.15%
Other operating expenses		75.28			56.43			33-7.39%
Total expenses		3848.61			3337.62			1429.93%
Pre-tax income (loss)		(02.71	)		31.38			*
Federal income (tax) benefit		0.2			(1.0	)		*
Federal income tax benefit (expense)		0.8			(0.5	)		*
Net income (loss)	$	(01.53	)	$	21.3			*
Basic	$	(0.03	)	$	0.14			*
Earnings (losses) per share available to common stockholders
Diluted	$	(0.03	)	$	0.14			*
Basic and diluted	$	(0.08	)	$	0.08			*
Basic		15.9			15.7			1.3%
Weighted average shares outstanding
Diluted		15.9			15.8			0.6%
Basic		15.9			15.5			2.6%
Diluted		15.9			15.6			1.9%
Key operating ratios
Net loss and loss adjustment expense ratio		6571.08%			6160.2%			619.2%
Ratio of acquisition expense to earned premiums		23.7%			2122.38%			113.27%
Ratio of all other expenses to gross written premiums		168.42%			1314.03%			26-42.23%


*		Not meaningful

Net loss for the quarter ended ~~June~~September 30, 2009 was $01.53 million, compared to net income of $21.3 million for the quarter ended ~~June~~September 30, 2008. ~~Loss~~Losses per share for the quarter ended ~~June~~September 30, 2009 was $0.0308, versus earnings per share of $0.1408 for the quarter ended ~~June~~ September 30, 2008. The decrease in our net income was due to ~~several factors, including (i)~~ the operating expenses incurred as a result of both the proxy contest waged at the annual meeting of stockholders held on May 5, 2009 and the negotiation of the merger agreement we entered into with Tower on June 21, 2009, (ii) the increase to our net loss and loss adjustment ratio resulting from several large losses in our commercial automobile line of business and ~~(iii)~~ lower rates in our workers’ compensation line of business and the increase in our acquisition expense ratio resulting from higher commission rates paid to our partner agents.

Gross written premiums were $4370.95 million for the three months ended ~~June~~September 30, 2009 compared to $4144.82 million for the three months ended ~~June~~September 30, 2008. The increase in gross written premiums was attributable to increased premiums in our ~~commercial~~general ~~automobile~~liability line of business ~~offset by rate~~ ~~reductions~~primarily ~~affecting~~due ~~the~~to ~~renewal~~two ~~business~~large ~~in our workers’ compensation line~~accounts.

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

1617

~~Table~~ Our ofgross ~~Contents~~written premiums by partner agent for the three months ended September 30, 2009 and 2008 were as follows:

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


	9/30/2009				9/30/2008
			% of Total				% of Total
	Gross Written		Gross Written		Gross Written		Gross Written
	Premium		Premium		Premium		Premium
	(in millions)
Specialty Risk Solutions, LLC	$	42.6		60.4%	$	16.1		36.5%
Risk Transfer Programs, LLC		6.7		9.5%		12.5		28.3%
American Team Managers		6.1		8.7%		6.2		14.0%
Appalachian Underwriters, Inc.		5.7		8.1%		1.6		3.6%
AEON Insurance Group, Inc.		3.8		5.4%		5.1		11.5%
Northern Star Management, Inc.		3.7		5.2%		1.6		3.6%
First Light Program Manager, Inc.		1.6		2.3%		0.6		1.4%
Insential, Inc		0.2		0.3%		0.3		0.7%
Flying Eagle Insurance Service, Inc		-		0.0%		0.1		0.2%
Other		0.1		0.1%		0.1		0.2%

Total	$	70.5		100.0%	$	44.2		100.0%

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

	9/30/2009				9/30/2008
			% of Total				% of Total
	Gross Written		Gross Written		Gross Written		Gross Written
	Premium		Premium		Premium		Premium
	(in millions)
California	$	51.0		72.4%	$	26.0		58.8%
Florida		5.1		7.2%		3.3		7.5%
Texas		2.5		3.5%		6.9		15.6%
Other States		11.9		16.9%		8.0		18.1%

Total	$	70.5		100.0%	$	44.2		100.0%

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

	9/30/2009				9/30/2008
			% of Total				% of Total
	Gross Written		Gross Written		Gross Written		Gross Written
	Premium		Premium		Premium		Premium
			(in millions)
General liability	$	43.5		61.7%	$	18.8		42.5%
Workers’ compensation		15.5		22.0%		15.7		35.5%
Commercial automobile		10.9		15.4%		9.0		20.4%
All Other		0.6		0.9%		0.7		1.6%

Total	$	70.5		100.0%	$	44.2		100.0%

	6/30/2009				6/30/2008
	Gross Written		% of Total Gross		Gross Written		% of Total Gross
	Premium		Written Premium		Premium		Written Premium
	(in millions)
Risk Transfer Programs, LLC	$	17.6		40.1%	$	22.3		53.3%
American Team Managers		6.4		14.6%		6.5		15.6%
Appalachian Underwriters, Inc.		5.9		13.4%		2.1		5.0%
Specialty Risk Solutions, LLC		4.1		9.3%		0.9		2.2%
Northern Star Management, Inc.		3.5		8.0%		2.0		4.8%
AEON Insurance Group, Inc.		3.4		7.7%		5.2		12.4%
First Light Program Manager, Inc.		2.9		6.6%		1.0		2.4%
Insential, Inc.		0.2		0.5%		0.4		1.0%
Flying Eagle Insurance Service, Inc.		-		0.0%		0.3		0.7%
Other		(0.1)		-0.2%		1.1		2.6%
Total	$	43.9		100.0%	$	41.8		100.0%

The change in our mix of business by agent, state and line of business was influenced by an increase of premiums in our general liability line of business due to two large accounts written in the third quarter of 2009.

~~Our~~Earned ~~gross~~premiums ~~written~~were ~~premiums~~$44.3 million for the ~~three~~quarter ~~months~~ ended ~~June~~September 30, 2009 ~~and~~compared ~~2008~~to by$37.2 million ~~state~~for ~~were~~the asquarter ended September 30, 2008. ~~follows:~~

	6/30/2009				6/30/2008
	Gross		% of Total		Gross		% of Total
	Written		Gross Written		Written		Gross Written
	Premium		Premium		Premium		Premium
	(in millions)
Florida	$	12.2		27.8%	$	10.7		25.6%
California		11.0		25.1%		14.2		34.0%
Texas		4.5		10.3%		1.3		3.1%
Other states		16.2		36.8%		15.6		37.3%
Total	$	43.9		100.0%	$	41.8		100.0%

Net investment income was $2.7 million for the three months ended September 30, 2009 versus $2.6 million for the three months ended September 30, 2008.

~~Our~~2009 ~~gross~~Third Quarter ~~written~~Form 10-QSpecialty ~~premiums~~Underwriters’ ~~by line of business for the three months ended June 30~~Alliance, ~~2009 and 2008 were as follows:~~ Inc.

	6/30/2009				6/30/2008
	Gross		% of Total		Gross		% of Total
	Written		Gross Written		Written		Gross Written
	Premium		Premium		Premium		Premium
	(in millions)
Workers’ compensation	$	25.7		58.6%	$	26.4		63.2%
Commercial automobile		13.0		29.6%		10.4		24.9%
General liability		4.7		10.7%		4.2		10.0%
All other		0.5		1.1%		0.8		1.9%
Total	$	43.9		100.0%	$	41.8		100.0%

~~The~~Acquisition ~~change~~expenses inwere ~~our~~$10.5 million ~~mix~~for ofthe ~~business~~three bymonths ~~agent~~ended September 30, ~~state~~2009 ~~and~~compared to ~~line~~$8.5 million offor ~~business~~the ~~was~~quarter ~~influenced~~ended ~~by an~~September 30, ~~increase~~2008. ofThe ~~premium~~increase in ~~our~~acquisition ~~commercial~~expenses ~~automobile~~was primarily ~~line~~the result of ~~business~~higher ~~which~~commission ~~was~~rates ~~partially~~paid ~~offset~~to ~~by rate~~our ~~reductions~~partner ~~affecting~~agents ~~the~~resulting ~~renewal~~from ~~business~~the continuation inof ~~our~~a ~~workers’~~soft ~~compensation~~insurance ~~line~~market.

~~Earned~~Other ~~premiums~~operating expenses were $355.48 million for the quarter ended ~~June~~September 30, 2009 compared to $346.2 3 million for the quarter ended ~~June~~September 30, 2008.

For the third quarter of 2009, ~~Second~~our ~~Quarter~~net ~~Form~~loss and loss adjustment expense ratio was 71.8%, compared to 60.2% for the comparable quarter in 2008. This increase was driven by several factors including (i) ~~10-Q~~higher current accident year loss ratios in our commercial automobile line of ~~Specialty~~business ~~Underwriters’~~resulting ~~Alliance~~from several large losses, ~~Inc~~(ii) higher current accident year loss ratios in our workers compensation line of business resulting from lower rates and (iii) unfavorable prior year loss development for the third quarter of 2009 of $0.5 million contrasted with a $0.4 million favorable development for the third quarter of 2008.

17 The unfavorable development during 2009 from prior accident years was primarily due to change in ceded losses resulting from favorable case development primarily in the large deductible segment of our workers’ compensation line of business for accident years 2006 and 2007.

~~Table~~Nine ofMonths ~~Contents~~Ended September 30, 2009 as compared to the Nine Months Ended September 30, 2008

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

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


	Nine Months Ended
	9/30/2009			9/30/2008			% Change
	(in millions, except for
	earnings per share)
Gross written premiums	$	143.4		$	110.0			30.4%
Net written premiums		137.1			103.8			32.1%

Earned premiums	$	114.4		$	107.2			6.7%
Net investment income		8.3			7.9			5.1%
Net realized losses		(1.4	)		(0.8	)		*

Total revenues		121.3			114.3			6.1%

Net loss and loss adjustment expense		75.8			64.4			17.7%
Acquisition expenses		27.4			24.5			11.8%
Other operating expenses		19.5			17.6			10.8%

Total expenses		122.7			106.5			15.2%

Pre-tax income (loss)		(1.4	)		7.8			*
Federal income tax benefit (expense)		0.6			(0.8	)		*

Net income (loss)	$	(0.8	)	$	7.0			*


Earnings (losses) per share available to common stockholders
Basic and diluted	$	(0.05	)	$	0.45			*

Weighted average shares outstanding
Basic		15.9			15.6			1.9%
Diluted		15.9			15.7			1.3%

Key operating ratios
Net loss and loss adjustment expense ratio		66.3%			60.1%			10.3%
Ratio of acquisition expense to earned premiums		24.0%			22.9%			4.8%
Ratio of all other expenses to gross written premiums		13.6%			16.0%			-15.0%

~~Other~~* ~~operating~~Not expenses were $7.2 million for the quarter ended June 30, 2009 compared to $5.4 million for the quarter ended June 30, 2008. The increase in other operating expenses was primarily attributable to the one-time expenses of approximately $1.6 million incurred as a result of both the proxy contest waged at the annual meeting of stockholders held on May 5, 2009 and the negotiation of the merger agreement entered into with Tower Group, Inc. on June 21, 2009. meaningful

~~For~~Net loss for the ~~second~~nine ~~quarter~~months ofended ~~2009~~September 30, ~~our~~2009 ~~net loss and loss adjustment expense ratio~~ was ~~65.~~$0%.8 million, compared to 61net income of $7.2%0 million for the comparable ~~quarter~~period inended September 30, 2008. ~~This~~Losses ~~increase~~per ~~was~~share ~~primarily driven by higher~~for ~~loss~~the ~~ratios~~nine inmonths ~~our~~ended ~~commercial~~September 30, ~~automobile~~2009 ~~line~~was of$0.05, ~~business~~versus ~~resulting~~earnings ~~from~~per ~~several~~share ~~large~~of ~~losses in that line~~$0.45 ~~This was partially offset by favorable prior year loss development~~ for the ~~second~~same ~~quarter~~period ofended ~~2009~~September 30, ~~of $1~~2008.~~0 million~~ ~~primarily~~The ~~attributable~~decrease ~~to favorable loss development~~ in our ~~general~~net ~~liability~~income ~~line~~was ofdue ~~business.~~to ~~For~~ (i) the ~~three~~ ~~months~~increase ~~ended~~to ~~June 30,~~our net ~~2008~~loss weand ~~experienced favorable prior year~~ loss ~~development~~adjustment ofratio ~~$0.6 million~~resulting ~~across all lines of business.~~from

~~Six~~2009 ~~Months~~Third Quarter ~~Ended June~~Form ~~30,~~10-QSpecialty ~~2009~~Underwriters’ ~~as compared to the Six Months Ended June 30~~Alliance, ~~2008~~ Inc.

~~RESULTS OF OPERATIONS~~19

	Six Months Ended
	6/30/2009			6/30/2008			% Change
	(in millions, except for
	earnings per share)
Gross written premiums	$	72.9		$	65.9			10.6	%
Net written premiums		68.8			61.6			11.7	%
Earned premiums	$	70.1		$	69.9			0.3	%
Net investment income		5.6			5.3			5.7	%
Net realized gains (losses)		(0.4	)		0.1			*
Total revenues		75.3			75.3			0.0	%
Net loss and loss adjustment expense		44.0			42.0			4.8	%
Acquisition expenses		16.9			16.0			5.6	%
Other operating expenses		13.7			11.3			21.2	%
Total expenses		74.6			69.3			7.6	%
Pre-tax income		0.7			6.0			-88.3	%
Federal income tax		(0.2	)		(0.3	)		*
Net income	$	0.5		$	5.7			-91.2	%
Basic	$	0.03		$	0.37			-91.4	%
Diluted	$	0.03		$	0.36			-91.3	%
Basic		15.8			15.6			1.3	%
Diluted		15.9			15.8			0.6	%
Key operating ratios
Net loss and loss adjustment expense ratio		62.8	%		60.0	%		4.6	%
Ratio of acquisition expense to earned premiums		24.1	%		22.8	%		5.7	%
Ratio of all other expenses to gross written premiums		18.8	%		17.2	%		9.3	%

several large losses in our commercial automobile line of business and lower rates in our workers’ compensation line of business, (ii) the increase in our acquisition expense ratio resulting from higher commission rates paid to our partner agents and (iii) the increase to our operating expenses incurred as a result of the proxy contest waged at the annual meeting of stockholders held on May 5, 2009, the negotiation of the merger agreement and the preparation of soliciting materials for the special meeting of stockholders to approve the proposed merger.

* Gross ~~Not~~written ~~meaningful~~premiums were $143.4 million for the nine months ended September 30, 2009 compared to $110.0 million for the nine months ended September 30, 2008. The increase in gross written premiums was primarily attributable to increased premiums in our general liability line of business and to a lesser extent by increased premiums in our commercial automobile and our workers’ compensation lines of business

~~Net~~Our ~~income~~gross ~~for~~written ~~the~~premiums ~~six~~by ~~months~~partner ~~ended~~agent ~~June 30, 2009 was $0.5 million, compared to net income of $5.7 million~~ for the ~~comparable~~nine ~~period ended June 30, 2008. Earnings per share for the six~~ months ended ~~June~~September 30, 2009 ~~was $0.03, versus earnings per share of $0.37~~ and ~~$0.36 on a basic~~ ~~and~~2008 ~~diluted~~were ~~basis,~~as ~~respectively, for the same period~~follows:

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


	9/30/2009				9/30/2008
			of Total				% of Total
	Gross Written		Gross Written		Gross Written		Gross Written
	Premium		Premium		Premium		Premium
			(in millions)
Specialty Risk Solutions, LLC	$	46.7		32.6%	$	17.0		15.4%
Risk Transfer Programs, LLC		35.3		24.6%		44.0		40.0%
American Team Managers		18.0		12.6%		18.9		17.2%
Appalachian Underwriters, Inc.		17.1		11.9%		5.5		5.0%
AEON Insurance Group, Inc.		11.2		7.8%		15.8		14.4%
Northern Star Management, Inc.		8.3		5.8%		3.6		3.3%
First Light Program Manager, Inc.		5.8		4.0%		2.0		1.8%
Insential, Inc		0.6		0.4%		1.0		0.9%
Flying Eagle Insurance Service, Inc		0.1		0.1%		0.6		0.5%
Other		0.3		0.2%		1.6		1.5%

Total	$	143.4		100.0%	$	110.0		100.0%

18 Our gross written premiums for the nine months ended September 30, 2009 and 2008 by state were as follows:


	9/30/2009				9/30/2008
			% of Total				% of Total
	Gross Written		Gross Written		Gross Written		Gross Written
	Premium		Premium		Premium		Premium
			(in millions)
California	$	70.9		49.5%	$	51.7		47.0%
Florida		18.7		13.0%		15.7		14.3%
Texas		9.6		6.7%		13.1		11.9%
Other States		44.2		30.8%		29.5		26.8%

Total	$	143.4		100.0%	$	110.0		100.0%

~~ended~~2009 ~~June 30,~~Third Quarter ~~2008. The decrease in our net income was due to several factors, including (i)~~Form ~~the operating~~10-QSpecialty ~~expenses~~Underwriters’ ~~incurred as a result of both the proxy contest waged at the annual meeting of stockholders held on May 5~~Alliance, 2009 and the negotiation of the merger agreement entered into with Tower on June 21, 2009, (ii) the increase to our net loss and loss adjustment ratio resulting from several large losses in our commercial automobile line and (iii) the increase in our acquisition expense ratio resulting from higher commission rates paid to our partner agentsInc.

~~Gross written premiums were $72.9 million for the six months ended June 30, 2009 compared to~~20 $65.9 million for the six months ended June 30, 2008. The increase in gross written premiums was attributable to increased premiums in our workers’ compensation and commercial automobile lines of business which increase was partially offset by rate reductions affecting the renewal business in our workers’ compensation line of business and by decreasing premiums in the first quarter of 2009 in our general liability line of business resulting from continuing deteriorating economic conditions.

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

	6/30/2009					6/30/2008
	9/30/2009					9/30/2008
	Gross Written		% of Total Gross			Gross Written		% of Total Gross
			% of Total					% of Total
	Premium		Written Premium			Premium		Written Premium
	Gross Written		Gross Written			Gross Written		Gross Written
	(in millions)
	Premium		Premium			Premium		Premium
Risk Transfer Programs, LLC	$	28.6		39.3	%	$	31.5		47.7	%
			(in millions)
American Team Managers		11.9		16.3	%		12.7		19.3	%
Workers’ compensation	$	59.6		41.6%		$	53.9		49.0%
Appalachian Underwriters, Inc.		11.4		15.6	%		3.9		5.9	%
General liability		49.8		34.7%			26.9		24.5%
AEON Insurance Group, Inc.		7.4		10.2	%		10.8		16.4	%
Commercial automobile		32.3		22.5%			27.0		24.5%
Northern Star Management, Inc.		4.6		6.3	%		2.0		3.0	%
All Other		1.7		1.2%			2.2		2.0%
First Light Program Manager, Inc.		4.2		5.8	%		1.4		2.1	%
Total	$	143.4		100.0%		$	110.0		100.0%
Specialty Risk Solutions, LLC		4.1		5.6	%		0.9		1.4	%
Insential, Inc.		0.4		0.5	%		0.7		1.1	%
Flying Eagle Insurance Service, Inc.		0.1		0.1	%		0.5		0.8	%
Other		0.2		0.3	%		1.5		2.3	%
Total	$	72.9		100.0	%	$	65.9		100.0	%

~~Our~~The ~~gross~~change ~~written~~in ~~premiums~~our ~~for~~mix ~~the~~of ~~six~~business ~~months~~by ~~ended June 30~~agent, ~~2009~~state and ~~2008~~line of business was influenced by ~~state~~an increase ~~were~~of aspremiums ~~follows:~~in our general liability line of business due to two large accounts written in the third quarter of 2009.

	6/30/2009					6/30/2008
			% of Total					% of Total
	Gross Written		Gross Written			Gross Written		Gross Written
	Premium		Premium			Premium		Premium
	(in millions)
California	$	19.9		27.3	%	$	25.7		39.0	%
Florida		13.6		18.7	%		12.4		18.8	%
Texas		7.1		9.7	%		6.2		9.4	%
Other states		32.3		44.3	%		21.6		32.8	%
Total	$	72.9		100.0	%	$	65.9		100.0	%

Earned premiums were $114.4 million for the nine months ended September 30, 2009 compared to $107.2 million for the comparable period ended September 30, 2008.

~~2009~~ Net ~~Second~~investment ~~Quarter~~income ~~Form~~was $8.3 ~~10-Q~~million for the nine months ended September 30, 2009 versus ~~Specialty~~$7.9 million ~~Underwriters’~~for ~~Alliance~~the three same period ended September 30, ~~Inc~~2008.

19 Acquisition expenses were $27.4 million for the nine months ended September 30, 2009 compared to $24.5 million for the nine months ended September 30, 2008. The increase in acquisition expenses was primarily the result of higher commission rates paid to our partner agents resulting from the continuation of a soft insurance market.

~~Table~~ Other operating expenses were $19.5 million for the nine months ended September 30, 2009 compared to $17.6 million for the nine months ended September 30, 2008. The increase in other operating expenses was primarily attributable to the one-time expenses of ~~Contents~~approximately $2.1 million incurred as a result of both the proxy contest waged at the annual meeting of stockholders held on May 5, 2009, the negotiation of the merger agreement, and the preparation of the soliciting material for the special meeting of stockholders to approve the proposed merger.

~~Our~~For ~~gross~~the ~~written~~nine ~~premiums~~months ended September 30, 2009, our net loss and loss adjustment expense ratio was 66.3%, compared to 60.1% for the comparable period in 2008. This increase was primarily driven by higher current accident year loss ratios in our commercial automobile line of business resulting from several large losses and higher current accident year loss ratios in our workers’ compensation line of business resulting from lower rates. We also had prior year favorable development for the nine ~~six~~ months ended ~~June~~September 30, 2009 ~~and~~of ~~2008~~$1.4 million which was similar to the prior year favorable ~~were~~development asfor ~~follows:~~the nine months ended September 30, 2008 of $1.7 million.

	6/30/2009					6/30/2008
			% of Total					% of Total
	Gross Written		Gross Written			Gross Written		Gross Written
	Premium		Premium			Premium		Premium
	(in millions)
Workers’ compensation	$	44.1		60.5	%	$	38.3		58.1	%
Commercial automobile		21.4		29.4	%		18.0		27.3	%
General liability		6.3		8.6	%		8.1		12.3	%
All other		1.1		1.5	%		1.5		2.3	%
Total	$	72.9		100.0	%	$	65.9		100.0	%

The favorable development was primarily due to better than expected claim emergence in our general liability line of business for accident years 2008 and prior. The average expected loss methods decreased due to lack of claims emergence. As a result, the ultimate incurred loss for our general liability line of business was reduced by $3.4 million. This favorable development in our general liability line of business was partially offset by adverse development in our workers’ compensation line of business of $2.0 million due to increased case severity in accident year 2008.

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

~~Earned~~Specialty ~~premiums~~Underwriters’ ~~were~~Alliance, ~~$70~~Inc.~~1 million~~ ~~for~~is ~~the~~organized ~~six~~as ~~months~~a ~~ended~~holding ~~June 30~~company and, ~~2009~~as ~~compared~~such, tohas ~~$69.9~~no ~~million~~direct ~~for~~operations ~~the~~of ~~comparable~~its ~~period~~own. ~~ended~~Its ~~June 30~~assets consist primarily of investments in its subsidiary, through ~~2008~~which it conducts substantially all of its insurance operations.

~~Net~~As ~~investment~~a ~~income~~holding ~~was~~company, $5Specialty Underwriters’ Alliance, Inc.~~6 million~~ has continuing funding needs for general corporate expenses, the ~~six~~payment ~~months~~of ~~ended~~principal ~~June 30~~and interest on future borrowings, ~~2009~~if ~~versus~~any, taxes $5and the payment of other obligations.3 Funds to meet these obligations come primarily from ~~million~~dividends ~~for~~and other statutorily permissible payments from our operating subsidiary. The ability of our operating subsidiary to make payments to us is limited by the ~~three~~applicable ~~same~~laws ~~period~~and ~~ended~~regulations of ~~June 30,~~Illinois. ~~2008~~There are restrictions on the payment of dividends to us by our insurance subsidiary.

~~Acquisition expenses were $16.9 million for the six months ended June 30,~~ 2009 ~~compared~~Third Quarter ~~to $16.0~~Form ~~million~~10-QSpecialty ~~for~~Underwriters’ ~~the six months ended June 30~~Alliance, ~~2008~~Inc. ~~The increase in acquisition expenses was primarily the result of higher commission rates paid to our partner agents resulting from the continuation of a soft insurance market.~~

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

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

~~Liquidity~~ A ~~and~~summary ~~Capital~~of ~~Resources~~our cash flows is as follows:

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


	Nine Months Ended
	9/30/2009			9/30/2008
	(in millions)
Cash provided by (used in)
Operating activities	$	35.2		$	39.8
Investing activities		(34.1	)		(40.0	)
Financing activities		0.2			(0.2	)

Change in cash		1.3			(0.4	)

AsFor athe ~~holding~~nine ~~company,~~months ~~Specialty~~ended ~~Underwriters’~~September 30, ~~Alliance~~2009, ~~Inc.~~net ~~has~~cash ~~continuing~~provided ~~funding~~by ~~needs~~operating ~~for general~~activities ~~corporate expenses~~was $35.2 million, ~~the~~principally ~~payment~~consisting of ~~principal~~premium and ~~interest~~deposit oncollections ~~future~~exceeding ~~borrowings,~~losses ~~if any, taxes~~ and expenses ~~the~~paid ~~payment~~out. ofThis ~~other~~amount ~~obligations.~~compares ~~Funds~~ to ~~meet~~net ~~these~~cash ~~obligations~~provided ~~come~~by ~~primarily~~operating ~~from~~activities ~~dividends~~of ~~and~~$39.8 million ~~other~~for ~~statutorily~~the ~~permissible~~nine ~~payments~~months ~~from~~ended ~~our~~September 30, ~~operating subsidiary~~2008. The ~~ability~~decrease ofin ~~our operating~~net ~~subsidiary~~cash toprovided ~~make~~by operating ~~payments~~activities towas usprimarily isdriven ~~limited~~ by the ~~applicable~~increase ~~laws~~in loss and LAE ~~regulations~~payments ~~of Illinois.~~resulting ~~There~~from ~~are~~the ~~restrictions~~maturation onof ~~the~~our ~~payment~~book of ~~dividends~~business towhich uswas partially offset by ~~our~~an ~~insurance~~increase ~~subsidiary~~in written premiums during 2009.

~~2009~~ Cash ~~Second~~used ~~Quarter~~by ~~Form~~investment activities was $34.1 ~~10-Q~~million for the nine months ended September 30, ~~Specialty~~2009, ~~Underwriters’~~resulting ~~Alliance~~from purchases of new fixed maturity investments and purchases of equipment and capitalized software, ~~Inc~~exceeding sales, redemptions, calls and maturities of investments. For the nine months ended September 30, 2008, cash used in investment activities was $40.0 million, principally representing increases in investments and purchases of equipment and capitalized software.

20 For the nine months ended September 30, 2009, cash flows from financing activities from sales of Class B Shares to partner agents were $0.2 million. For the nine months ended September 30, 2008, cash flows used for financing activities were $0.2 million primarily relating to the repurchase of treasury shares partially offset from sales of Class B Shares to partner agents.

~~Table~~Fixed ofMaturity ~~Contents~~Investments

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

AThe ~~summary~~aggregate fair market value of our ~~cash~~fixed ~~flows~~maturity isinvestments as ~~follows:~~of September 30, 2009 was $244.1 million compared to amortized cost of $236.3 million. The aggregate fair market value of our fixed maturity investments as of December 31, 2008 was $216.7 million compared to amortized cost of $220.7 million.

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

During the third quarter of 2009, a total of four of our available-for-sale securities that were previously written down with a fair market value of $0.7 million, as of September 30, 2009, have experienced a decrease in fair value of $0.4 million during the third quarter of 2009. Associated with this decline in fair value we recognized a credit loss of $0.6 million which was recognized in earnings and a credit of $0.2 million was recognized in other comprehensive income for impairments previously recognized. During the nine months ended September 30, 2009, six of our available-for-sale securities with a fair market value of $1.5 million, as of September 30, 2009, have experienced an other-than-temporary impairment of $2.2 million, of which $1.2 million was recognized as a loss in earnings and $1.0 million was recognized as a loss in comprehensive income.

For ~~the~~information ~~six~~about ~~months~~our ~~ended~~methodology ~~June 30,~~for ~~2009,~~determining ~~net~~whether ~~cash~~a ~~used~~security byhas ~~operating activities was $0.5~~experienced ~~million,~~impairment ~~principally~~see ~~consisting~~the ofdiscussion ~~premium~~under ~~and deposit collections exceeding losses and expenses paid out. This amount compares to net cash from operating activities of $17.6 million for~~ the ~~three~~heading ~~months ended June~~“Item ~~30, 2008~~1. ~~The~~Financial Statements — ~~decrease~~Note in2 ~~net cash provided by operating activities was primarily~~— ~~driven~~Recent byAccounting ~~the~~Pronouncements” ~~increase in loss~~ and ~~LAE~~“Note ~~payments~~6 ~~resulting~~— ~~from~~Investments” ~~the maturation~~ of ~~our~~this ~~book~~quarterly ~~of business and a decrease in written premiums during 2008~~report.

~~Cash provided by investment activities was $0.6 million for the six months ended June 30,~~ 2009, ~~resulting~~Third Quarter ~~from sales, redemptions, calls and maturities of investments exceeding purchases of new fixed maturity investments and purchases of equipment and capitalized software. For the three months ended June~~Form ~~30,~~10-QSpecialty ~~2008,~~Underwriters’ ~~cash used in investment activities was $17.8 million~~Alliance, ~~principally representing increases in investments and purchases of equipment and capitalized software~~Inc.

~~For the six months ended June 30, 2009, cash flows from financing activities from sales of~~22 Class B Shares to partner agents were $0.1 million. For the six months ended June 30, 2008, cash flows used for financing activities were $0.6 million primarily relating to the repurchase of treasury shares partially offset from sales of Class B Shares to partner agents.

~~Fixed~~Item 3: ~~Maturity~~Quantitative ~~Investments~~and Qualitative Disclosures About Market Risk

~~Our~~Market ~~investment~~risk ~~portfolio~~can ~~consists~~be ofdescribed ~~marketable fixed maturity and short-term investments. All fixed maturity investments are classified~~ as ~~available~~the ~~for~~risk ~~sale~~of ~~and~~change ~~are~~in ~~reported at their estimated~~ fair value. ~~Realized~~of ~~gains~~a ~~and~~financial instrument ~~losses~~due ~~are~~to ~~credited~~changes orin ~~charged~~interest torates, ~~income~~creditworthiness, inforeign ~~the~~exchange ~~period~~rates inor ~~which they~~other ~~are realized~~factors. ~~Changes~~We inseek ~~unrealized~~to ~~gains~~mitigate orthat ~~losses~~risk ~~are~~by ~~reported as~~ a ~~separate~~number ~~component~~ of ~~comprehensive~~ ~~income~~actions, ~~and accumulated unrealized gains or losses are reported~~ as adescribed ~~separate component of accumulated other comprehensive income in stockholders’ equity~~below.

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

~~During~~Our ~~the~~exposure ~~second~~to ~~quarter~~market ofrisk ~~2009,~~for achanges ~~total~~in ofinterest ~~six~~rates ofis ~~our~~concentrated ~~available-for-sale~~in ~~securities~~our ~~with a~~investment ~~fair market value of $2~~portfolio.~~3 million,~~ asWe ofmonitor ~~June 30,~~this ~~2009,~~exposure ~~have~~through ~~experienced~~periodic anreviews ~~other-than-temporary impairment~~ of ~~$1.6 million~~our ofconsolidated ~~which~~asset ~~$0.4 million was recognized in earnings~~ and ~~$1.2 million was~~ ~~recognized~~liability ~~in other comprehensive net earnings~~positions. ~~During~~We ~~the~~model ~~six~~and ~~months~~periodically ~~ended~~review ~~June 30,~~estimates ~~2009, six~~ of ~~our~~ ~~available-for-sale~~cash ~~securities with a fair market value of $2.3 million~~flows, as ofwell ~~June 30,~~as ~~2009,~~the ~~have~~impact ~~experienced an other-than-temporary impairment~~ of ~~$1.8 million,~~interest ofrate ~~which~~fluctuations ~~$0.6 million~~relating ~~was recognized~~to inthe ~~earnings~~investment portfolio and ~~$1.2 million~~insurance ~~was recognized in comprehensive income~~reserves.

~~For~~The ~~information~~table ~~about~~below ~~our~~summarizes ~~methodology for determining whether a security has experienced impairment see~~ the ~~discussion~~estimated ~~under~~effects ~~the~~of ~~heading~~hypothetical “increases ~~ITEM~~and 1.decreases ~~FINANCIAL~~in ~~STATEMENTS~~market —interest ~~Note~~rates 2on —the ~~Recent~~fair ~~Accounting~~value ~~Pronouncements”~~of ~~and~~our ~~“Note~~fixed 6maturity —investments ~~Investments”~~ as of ~~this~~September 30, ~~quarterly report.~~2009:

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Estimated

Fair Value

Assumed Change

After Change

Increase

Fair Value at

in Relevant

in Interest

(Decrease) in

9/30/2009

Interest Rate

Fair Value

(in thousands)

Fixed Maturity Investments

$244,135

100 bp decrease

$254,733

$ 10,598

50 bp decrease

249,377

5,242

50 bp increase

239,030

(5,105

)

100 bp increase

234,067

(10,068

)

~~Market~~The ~~risk~~average ~~can~~duration ~~be described as the risk~~ of ~~change~~our infixed ~~fair~~maturity ~~value~~investments ofat ~~a financial instrument due to changes in interest rates~~September 30, ~~creditworthiness,~~2009 ~~foreign~~was ~~exchange rates or other~~approximately ~~factors~~3. ~~We seek to mitigate that risk by a number of actions, as described below~~44 years.

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

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

~~Table~~ The portfolio of ~~Contents~~fixed maturities investments consists primarily of high quality bonds as of September 30, 2009. The following table summarizes bond ratings at fair value:

Interest Rate Risk


	As of 9/30/2009
			Percent of
Bond Ratings	Amount		Portfolio
	(in thousands)
AAA rated and U.S. Government and affiliated agency securities	$	98,234		40.3	%
AA rated		65,618		26.9	%
A rated		70,063		28.7	%
BBB rated		7,180		2.9	%
BB rated or below		3,040		1.2	%


Total	$	244,135		100.0	%

~~Our~~We ~~exposure~~also tohave ~~market~~other ~~risk~~receivable ~~for~~amounts ~~changes~~subject into ~~interest~~credit ~~rates~~risk, isincluding ~~concentrated in our investment~~reinsurance ~~portfolio.~~recoverables Wefrom ~~monitor~~OneBeacon ~~this~~Insurance ~~exposure~~Company. ~~through~~To ~~periodic~~mitigate ~~reviews~~the risk of ~~our~~counterparties’ ~~consolidated asset and~~nonpayment ~~liability~~of ~~positions.~~amounts Wedue ~~model~~under ~~and~~these ~~periodically~~arrangements, ~~review~~we ~~estimates~~established ofbusiness ~~cash~~and ~~flows,~~financial asstandards ~~well as the~~for ~~impact~~reinsurer ofapproval, ~~interest~~incorporating ~~rate~~ratings ~~fluctuations~~by ~~relating~~major torating ~~the~~agencies ~~investment portfolio~~ and ~~insurance~~considering ~~reserves~~then-current market information.

~~The~~Item ~~table~~4: ~~below~~Controls ~~summarizes the estimated effects of hypothetical increases~~ and ~~decreases in market interest rates on the fair value of our fixed maturity investments, including our short-term investments, as of June 30, 2009:~~ Procedures

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

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. Disclosure controls and procedures are our controls and procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934, or the Exchange Act, is recorded,

~~The~~2009 ~~average~~Third Quarter ~~duration~~Form 10-QSpecialty ofUnderwriters’ ~~our fixed maturity investments at June 30~~Alliance, ~~2009 was approximately 3~~Inc.~~88 years.~~

~~Credit Risk~~23

~~Our~~processed, ~~portfolio~~summarized ~~includes~~and reported, ~~primarily~~within ~~fixed~~the ~~income~~time ~~securities~~periods ~~and~~specified ~~short-term~~in ~~investments,~~the ~~which~~SEC’s ~~are subject~~rules toand ~~credit risk~~forms. ~~This~~Disclosure ~~risk~~controls isand procedures ~~defined~~include, aswithout ~~default~~limitation, orcontrols ~~the~~and ~~potential~~procedures ~~loss~~designed into ~~market~~ensure ~~value~~that information ~~resulting~~required ~~from~~to ~~adverse~~be ~~changes~~disclosed by us in the ~~borrower’s~~reports ~~ability~~that towe ~~repay~~file under the ~~debt.~~Exchange InAct ~~our~~is ~~risk management~~accumulated ~~strategy~~ and ~~investment~~communicated ~~policy,~~to weour ~~earn~~management, ~~competitive~~including ~~relative~~our ~~returns~~principal ~~while~~executive ~~investing~~officer inand aprincipal ~~diversified~~financial ~~portfolio~~officer, ofas ~~securities~~appropriate, ~~of high credit quality issuers~~ to ~~limit~~allow ~~the~~timely ~~amount~~decisions ofregarding ~~credit~~required ~~exposure to any one issuer~~disclosure.

~~The~~As ~~portfolio~~required ofby ~~fixed~~SEC ~~maturities~~Rules 13a-15(b) ~~investments~~and ~~consists~~15d-15(b), ~~solely~~we have evaluated the effectiveness of ~~high~~the design ~~quality~~and ~~bonds~~operation of our disclosure controls and ~~short-term~~ ~~investments~~procedures as of ~~June 30~~the end of the period covered by this quarterly report. This evaluation was carried out under the supervision and with the participation of our management, ~~2009~~including our principal executive officer and principal financial officer. ~~The~~Based ~~following~~on ~~table~~this ~~summarizes~~evaluation, ~~bond~~these ~~ratings~~officers athave ~~fair~~concluded that the design and operation of ~~value:~~our disclosure controls and procedures are effective.

	As of 6/30/2009
			Percent of
Bond Ratings	Amount		Portfolio
	(in thousands)
AAA rated and U.S. Government and affiliated agency securities	$	133,077		50.2	%
AA rated		59,949		22.6	%
A rated		62,058		23.4	%
BBB rated		6,848		2.6	%
BB rated		2,638		1.0	%
B Rated		50		0.0	%
C Rated		424		0.2	%
Total	$	265,044		100.0	%

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

WeInherent ~~also~~Limitations ~~have~~on ~~other~~Effectiveness ~~receivable~~of ~~amounts~~Controls. ~~subject~~A tocontrol ~~credit risk~~system, ~~including~~no ~~reinsurance~~matter how well ~~recoverables~~conceived ~~from~~and ~~OneBeacon~~operated, ~~Insurance~~can ~~Company.~~provide Toonly ~~mitigate~~reasonable, not absolute, assurance that the ~~risk~~objectives of the ~~counterparties’~~control ~~nonpayment~~system are met. Because of ~~amounts~~inherent ~~due~~limitations ~~under~~in ~~these~~all ~~arrangements~~control systems, weno ~~established~~evaluation ~~business~~of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and ~~financial~~procedures ~~standards~~and ~~for~~internal control over financial reporting ~~reinsurer~~are ~~approval~~designed to provide reasonable, ~~incorporating~~not ~~ratings~~absolute, byassurance ~~major~~that ~~rating~~the ~~agencies~~objectives ~~and~~of ~~considering~~our ~~then-current~~disclosure ~~market~~controls ~~information~~and procedures and internal control over financial reporting systems are met.

~~Item~~2009 4:Third Quarter ~~Controls~~Form 10-QSpecialty ~~and~~Underwriters’ ~~Procedures~~ Alliance, Inc.

~~Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. Disclosure~~24 controls and procedures are our controls and procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934, or the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information

~~2009~~PART ~~Second~~II ~~Quarter~~— ~~Form 10-Q Specialty~~OTHER ~~Underwriters’ Alliance, Inc.~~INFORMATION

22Item 1: Legal Proceedings

~~Table of Contents~~ None.

~~required~~Item 1A: toRisk ~~be disclosed by us in the reports that we file under the Exchange Act is accumulated~~Factors ~~and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.~~

AsThere ~~required~~are byno ~~SEC~~material ~~Rules 13a-15(b)~~changes ~~and~~to ~~15d-15(b),~~the werisk ~~have~~factors ~~evaluated~~previously ~~the~~reported ~~effectiveness~~in ofour ~~the~~Annual ~~design~~Report ~~and~~on ~~operation~~Form of10-K ~~our~~for ~~disclosure~~the ~~controls~~year ~~and~~ended ~~procedures~~December 31, as2008 ofand ~~the~~Quarterly ~~end~~Report ofon ~~the~~Form ~~period~~10-Q ~~covered~~for the byquarter ~~this~~ended ~~quarterly~~June 30, ~~report~~2009. ~~This~~For ~~evaluation~~more ~~was~~information ~~carried~~regarding ~~out~~such ~~under~~risk ~~the~~factors, ~~supervision~~please ~~and~~refer ~~with the~~to ~~participation~~Items 1A of our ~~management,~~Annual ~~including~~Report ~~our~~on ~~principal~~Form ~~executive~~10-K ~~officer~~for ~~and~~the ~~principal~~year ~~financial officer.~~ended ~~Based~~December 31, on2008 ~~this~~and ~~evaluation,~~Quarterly Report ~~these~~on ~~officers~~Form ~~have~~10-Q ~~concluded~~for ~~that~~ the ~~design~~quarter ~~and~~ended ~~operation~~June 30, ~~of our disclosure controls and procedures are effective~~2009.

~~Changes~~Item 2: inRecent ~~Internal~~Sales ~~Control~~of ~~Over~~Unregistered ~~Financial Reporting. There were no changes to our internal~~Securities ~~control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, these internal controls.~~

~~Inherent~~There ~~Limitations~~were ~~on Effectiveness of Controls. A control system,~~ no ~~matter~~sales ~~how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives~~ of ~~the control~~unregistered ~~system~~securities ~~are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance~~ that ~~all control issues, if any, within a company~~ have ~~been detected. Accordingly, our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable,~~ not ~~absolute,~~been ~~assurance~~previously ~~that~~reported ~~the objectives of our~~on ~~disclosure~~a ~~controls~~Current ~~and~~Report ~~procedures~~on ~~and~~Form ~~internal control over financial reporting systems are met~~8-K.

~~2009 Second Quarter Form~~Item ~~10-Q Specialty~~3: ~~Underwriters’~~Defaults ~~Alliance,~~Upon ~~Inc.~~Senior Securities

23 None.

~~Table~~Item 4: Submission of ~~Contents~~Matters to a Vote of Security Holders

~~PART II — OTHER INFORMATION~~ None.

~~ITEM 1~~Item 5: ~~LEGAL~~Other ~~PROCEEDINGS~~Information

None.

~~ITEM~~Item 1A6: ~~RISK FACTORS~~ Exhibits

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

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


Exhibit
Number		Description
	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

~~The~~2009 ~~merger~~Third Quarter isForm 10-QSpecialty ~~subject~~Underwriters’ toAlliance, ~~the satisfaction or waiver of a number of closing conditions and there can be no assurance that the conditions to the completion of the merger will be satisfied or waived~~Inc. ~~These conditions include:~~

• adoption by holders of our Common Stock of the merger agreement; • receipt of required regulatory approvals, including approvals by the California and Illinois departments of insurance; • the absence of any injunctions or other legal restraints, having the effect of making the merger illegal or preventing the completion of the merger; • the absence of any event or development that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect (as defined in the merger agreement) on us; • receipt of a legal opinion by each of Tower and us from our respective counsel to the effect that the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Code; • effectiveness of a proxy statement/prospectus and the absence of a stop order or proceedings threatened or initiated by the SEC for that purpose; • other customary closing conditions.25

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

• Pursuant ~~the current market price of our common stock may reflect a market assumption that the merger will occur and a failure~~ to ~~complete~~ the ~~merger~~requirements ~~could result in a negative perception~~ of usSection 13 byor ~~equity~~15(d) ~~investors and a resulting decline in the market price~~ of the ~~common~~Securities ~~stock;~~Exchange •Act ~~we may be required to pay a termination fee~~ of $3 1934,~~000,000,~~ if the ~~merger~~registrant ~~agreement~~has isduly ~~terminated~~caused ~~under~~this ~~certain~~report ~~circumstances, as well as the reimbursement of certain reasonable, out-of-pocket transaction expenses up~~ to ~~$1,000,000;~~be •signed weon ~~expect~~its tobehalf ~~incur~~by ~~substantial transaction costs in connection with~~ the ~~merger;~~undersigned, thereunto ~~and~~duly ~~• we would not realize any of the anticipated benefits of having completed the merger~~authorized.

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


SPECIALTY UNDERWRITERS’ ALLIANCE, INC. (Registrant)

By:		/s/ Courtney C. Smith

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

Date: November 9, 2009

By:		/s/ Peter E. Jokiel

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

Date: November 9, 2009

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

2426

~~Table~~Exhibits ~~of Contents~~Index:

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


Exhibit
Number		Description
	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

~~The~~2009 ~~announcement~~Third Quarter ~~and~~Form 10-QSpecialty ~~pendency~~Underwriters’ ~~of the merger could have an adverse effect on our stock price~~Alliance, ~~business,~~ ~~financial conditions, results of operations or business prospects~~Inc.

~~The announcement and pendency of the merger could disrupt our business in the following ways,~~27 ~~among others:~~

• employees may experience uncertainty regarding their future roles with the combined company, which might adversely affect our ability to retain, recruit and motivate key personnel; • the attention of our management may be directed toward the completion of the merger and transaction-related considerations and may be diverted from the day-to-day business operations of our company, and matters related to the merger may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to us; and • third parties with business relationships with us may seek to terminate and/or renegotiate their relationships with us as a result of the merger, whether pursuant to the terms of their existing agreements or otherwise.

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

ITEM 2: RECENT SALES OF UNREGISTERED SECURITIES

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

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

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

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

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

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

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

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

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

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

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

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

ITEM 5: OTHER INFORMATION

None.

ITEM 6: EXHIBITS

Exhibits:

Exhibit
Number		Description
	2.1	Amended and Restated Agreement and Plan of Merger, executed on July 22, 2009 and dated as of June 21, 2009, between the Registrant, Tower Group, Inc. and Tower S.F. Merger Corporation (Incorporated by reference to Exhibit 2.1, filed with the Registrant’s Current Report on Form 8-K filed on July 24, 2009)
	10.1*	Stock Purchase Agreement, dated March 22, 2004, between the Registrant and OneBeacon Insurance Company, including Exhibit A, Instrument of Transfer and Assumption, dated February 10, 2004, between OneBeacon Insurance Company and Potomac Insurance Company of Illinois
	10.2*	Amendment No. 7 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated April 30, 2009, between the Registrant and American Team Managers Insurance Services, Inc.
	10.3*	Amendment No. 2 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated May 18, 2009, between the Registrant and AEON Insurance Group, Inc.
	10.4*	Second Amendment to the Amended and Restated Securities Purchase Agreement, dated June 4, 2009, between the Registrant and American Team Managers Insurance Services, Inc.
	10.5*	Amended and Restated SUA Insurance Company Partner Agent Program Agreement, dated June 10, 2009, between the Registrant and Risk Transfer Holdings, Inc.
	10.6*	Second Amendment to the Amended and Restated Securities Purchase Agreement, dated June 10, 2009, between the Registrant and Risk Transfer Holdings, Inc.
	10.7*	Partner Agent Assignment and Assumption Agreement, dated June 10, 2009, between the Registrant, Risk Transfer Holdings, Inc. and Risk Transfer Programs, LLC
	10.8*	Securities Purchase Assignment and Assumption Agreement, dated June 10, 2009, between the Registrant, Risk Transfer Holdings, Inc. and Risk Transfer Programs, LLC
	10.9*	Amendment No. 2 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 11, 2009, between the Registrant and Specialty Risk Solutions, LLC
	10.10*	Fifth Amendment to the Securities Purchase Agreement, dated June 11, 2009, between the Registrant and Specialty Risk Solutions, LLC
	10.11*	Amendment No. 3 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 18, 2009, between the Registrant and AEON Insurance Group, Inc.
	10.12*	Amendment No. 8 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 18, 2009, between the Registrant and American Team Managers Insurance Services, Inc.
	10.13*	Amendment No. 3 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 18, 2009, between the Registrant and Specialty Risk Solutions, LLC
	10.14*	Amendment No. 1 to the SUA Insurance Company Amended and Restated Partner Agent Program Agreement, dated June 19, 2009, between the Registrant and Risk Transfer Programs, LLC
	31.1*	Certification of Courtney C. Smith, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2*	Certification of Peter E. Jokiel, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1*	Certification of Courtney C. Smith, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2*	Certification of Peter E. Jokiel, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith

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

SIGNATURES

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

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

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

Exhibits Index:

Exhibit
Number		Description
	2.1	Amended and Restated Agreement and Plan of Merger, executed on July 22, 2009 and dated as of June 21, 2009, between the Registrant, Tower Group, Inc. and Tower S.F. Merger Corporation (Incorporated by reference to Exhibit 2.1, filed with the Registrant’s Current Report on Form 8-K filed on July 24, 2009)
	10.1*	Stock Purchase Agreement, dated March 22, 2004, between the Registrant and OneBeacon Insurance Company, including Exhibit A, Instrument of Transfer and Assumption, dated February 10, 2004, between OneBeacon Insurance Company and Potomac Insurance Company of Illinois
	10.2*	Amendment No. 7 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated April 30, 2009, between the Registrant and American Team Managers Insurance Services, Inc.
	10.3*	Amendment No. 2 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated May 18, 2009, between the Registrant and AEON Insurance Group, Inc.
	10.4*	Second Amendment to the Amended and Restated Securities Purchase Agreement, dated June 4, 2009, between the Registrant and American Team Managers Insurance Services, Inc.
	10.5*	Amended and Restated SUA Insurance Company Partner Agent Program Agreement, dated June 10, 2009, between the Registrant and Risk Transfer Holdings, Inc.
	10.6*	Second Amendment to the Amended and Restated Securities Purchase Agreement, dated June 10, 2009, between the Registrant and Risk Transfer Holdings, Inc.
	10.7*	Partner Agent Assignment and Assumption Agreement, dated June 10, 2009, between the Registrant, Risk Transfer Holdings, Inc. and Risk Transfer Programs, LLC
	10.8*	Securities Purchase Assignment and Assumption Agreement, dated June 10, 2009, between the Registrant, Risk Transfer Holdings, Inc. and Risk Transfer Programs, LLC
	10.9*	Amendment No. 2 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 11, 2009, between the Registrant and Specialty Risk Solutions, LLC
	10.10*	Fifth Amendment to the Securities Purchase Agreement, dated June 11, 2009, between the Registrant and Specialty Risk Solutions, LLC
	10.11*	Amendment No. 3 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 18, 2009, between the Registrant and AEON Insurance Group, Inc.
	10.12*	Amendment No. 8 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 18, 2009, between the Registrant and American Team Managers Insurance Services, Inc.
	10.13*	Amendment No. 3 to the Specialty Underwriters’ Alliance, Inc. Partner Agent Program Agreement, dated June 18, 2009, between the registrant and Specialty Risk Solutions, LLC
	10.14*	Amendment No. 1 to the SUA Insurance Company Amended and Restated Partner Agent Program Agreement, dated June 19, 2009, between the registrant and Risk Transfer Programs, LLC
	31.1*	Certification of Courtney C. Smith, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2*	Certification of Peter E. Jokiel, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1*	Certification of Courtney C. Smith, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2*	Certification of Peter E. Jokiel, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith

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

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