SPECIALTY UNDERWRITERS ALLIANCE, INC. - Securities Registration Statement (S-1/A) Program Performance Management

We believe that we need to focus on basic fundamentals in order for our business to be successful. This means that we must establish adequate rate levels and sound underwriting guidelines, as well as efficiently execute claims execution, to control our exposures and constantly analyze and manage our operations.

Our program performance management process will consist of a series of reports that will evaluate data associated with essential variables, and will measure production, rate adequacy, loss analysis, adherence to guidelines, claims activity and trends. Our program performance management process should allow us to analyze information for programs, lines of business, market segments, specific causes of loss, production source and classes of business. This program performance management process will be the primary tool used by our program managers, underwriters, actuaries, claims, Partner Agents and senior management to determine the changes and action plans we believe will be needed to maintain profitable results.

We expect to produce monthly, quarterly and cumulative reports on-line, which can be reviewed by our program teams and the Partner Agents to keep track of program results, spot trends and take action where it is needed. Our program teams, Partner Agents and senior management will determine corrective actions needed to maintain profitability and achieve desired targets. This formal review process should enable us to take action quickly by program and determine if a program needs to be terminated according to the exit strategy agreement with each of our Partner Agents.

Claims control is a critical factor in driving company performance. We view our claims control as one of our core areas of expertise, and we do not expect to outsource our claims handling responsibility or control to an outside entity. We believe that assigning integrated teams in the claims, underwriting and actuarial areas to specific customer groups will produce the best results. By doing this, our claim handlers will become familiar with the uniqueness of customers and their businesses. This approach should encourage more insightful investigations, enhanced legal defenses and more efficient claims resolution. Also, we believe that improved communications between claims, underwriting and actuarial teams will enhance risk selection, timely revision of underwriting criteria and program stability.

Each program will have its own unique severity screen that will require certain claims to be centrally managed. This will allow us to identify potential severity and put our most experienced staff in control of these cases. Also, this identification of potential severity should encourage involvement by reinsurers, who can provide us with added technical input in strategy development and case resolution. Finally, a corporate quarterly review of severity claims can be shared with our program teams, senior management and Partner Agents.

We expect to be able to attract a highly experienced staff of claims professionals in Chicago due to our senior management’s experience and knowledge of the Chicago marketplace. Based on our on-going actuarial analysis of the Partner Agent programs that we have signed, we should be able to determine claims frequency and provide sufficient staffing accordingly.

We believe that strong corporate controls make case reserving, claims handling quality and administrative compliance more predictable. We plan to prepare technical manuals to detail what is expected in claims handling and processing. This should provide a clear understanding of expectations and allow for a direct link with the audit processes.

We are implementing an Internet-based technology system to allow our program teams and Partner Agents to control underwriting, policy issuance and claims administration. We believe that this centralized system, simultaneously accessible to us and our Partner Agents, will help us to reduce high processing costs and eliminate duplication of data.

Historically, various parties to an insurance contract have stored data relating to the same transaction in their proprietary systems. As a result, we believe they have been unable to effectively integrate this information, which has resulted in difficulties with resolving disputes. We believe that processing insurance transactions should be user friendly and fully automated. Our objective is to use a system that would provide a real-time communication link with our Partner Agents and improve data communication throughout our company.

We believe our system will enable retail agents to access our Partner Agents’ websites for program guidelines, quotes, binding, policy issuance and maintenance, renewals, claims inquiry, loss control requirements and marketing information. The system would allow for electronic transfer from the retail agent, through a secure site, of all necessary information to qualify, underwrite, rate, quote, bind and process our business. A Partner Agent would then have control of the initial policy writing processes, allowing it to decline, accept or submit business from the retail agent based on our program guidelines. Concurrently, we would have the ability to access and report on the data created by each Partner Agent, as well as gauge each Partner Agent’s performance. In addition, we expect to be able to use our system for marketing, loss control information, regulatory compliance, policy issuance requests, cancellation status reports, billing and accounting processes, loss runs, online claims management, automated renewal processing, internal actuarial information and financial reporting.

Our development of a technology-based policy administration system will be the largest technology investment that we expect to make and will be critical to the successful implementation of our business plan. We expect the system to be substantially implemented during the remainder of 2004. We have licensed software from SunGard for our policy processing on May 19, 2004 and AscendantOne for our rating technology on May 20, 2004. Our contract with SunGard is a perpetual, non-exclusive license. Through September 30, 2004, we have paid SunGard approximately $393,000 and expect to pay them an additional approximate amount of $825,000 for licensing and maintenance. Our agreement with AscendantOne is a five year non-exclusive license with automatic one-year renewals. Through September 30, 2004, we have paid AscendantOne approximately $32,500 and expect to pay approximately $930,000 over five years with the option to renew annually for approximately $190,000 for licensing and maintenance. Both contracts can be terminated if we fail to pay fees, to materially comply with our contract or we enter into bankruptcy proceedings. We have also contracted with SunGard and AscendantOne to provide us professional services on an hourly basis as part of our implementation.

A major strategy for us will be to employ only professionals in core functions that we believe are key to our success, such as program managers, underwriters, actuarial staff, claims professionals, financial/accounting professionals and systems managers. All other non-core functions will be outsourced for day-to-day handling, with the accountability for critical decisions maintained by us.

Currently, we have entered into an arrangement with SSC for administrative and operational support. We believe that SSC is uniquely situated to provide us with the resources and experience necessary in order to develop and implement our Partner Agent program strategy.

SSC will provide us with expertise, support and service in the following key areas:

The integration of SSC into our innovative business strategy will give us immediate assistance in our outsourcing needs and, on a long-term basis, will help us to build a comprehensive system of management capabilities and controls.

Our agreement with SSC, dated November 1, 2003, is for a term of 26 months. As of the date of this prospectus, we have paid SSC an initial fee of $0.5 million. We will pay SSC approximately $4.3 million for the remainder of the 2004 calendar year. For the 2005 calendar year, we will pay SSC a fee of approximately $8.7 million in equal monthly installments, commencing January 1, 2005. We and SSC will review SSC’s costs as of December 31, 2004 to determine if the 2005 calendar year payment should be increased. Either we or SSC can terminate the agreement at any time after October 1, 2005 upon 90 days’ written notice.

We also are in negotiations with other vendors for investment management assistance, benefits, payroll and human resources support, and other needs as we deem appropriate.

We expect to concentrate on highly liquid and highly rated investments, primarily in fixed income securities, with reasonably short durations. Initially, we expect our portfolio to consist of taxable bonds to average in the three- to five-year duration range. We expect that we will have no significant investment or industry concentrations. Our strategy will consider liability durations and provide for unseen cash outflow needs. We anticipate that we will use primarily external investment managers with significant assets under management and experience in insurance company portfolio requirements.

We expect to compete with a large number of major U.S. and non-U.S. insurers such as AIG, Travelers, CNA and ACE in our selected lines of business such as workers’ compensation, automobile liability, general liability and limited property coverages. We expect to face competition both from specialty insurance companies, underwriting agencies and intermediaries, as well as diversified financial services companies such as W.R. Berkley Corporation, Markel, Philadelphia Consolidated Holding and RLI. In addition, other newly formed and already-existing insurance companies such as Arch, Meadowbrook and Argonant, may be preparing to enter the same market segments in which we expect to compete. Since we have no operating history, we expect that our competitors will have greater name and brand recognition than we expect to have. Many of them also have higher financial strength and ratings assigned by independent ratings agencies and more (in some cases substantially more) capital and greater marketing and management resources than we expect to have and may offer a broader range of products and more competitive pricing than we expect to, or will be able to, offer.

We expect that our competitive position will be based on many factors, including our perceived financial strength, ratings assigned by independent rating agencies, geographic scope of business, client relationships, premiums charged, contract terms and conditions, products and services offered (including the ability to design customized programs), speed of claims payment, reputation, experience and qualifications of employees, and local presence. We expect to be able to choose types and lines of businesses (tow trucks, workers’ compensation) that do not require “A” level A.M. Best ratings. We will work with a limited number of Partner Agents which will enable us to provide them with customized

approaches to their business and give them long term (five years) exclusive arrangements. Our systems capability is designed for this business which enables us to change and adapt quicker to changes in the marketplace. Since we have not yet commenced operations, we may not be able to compete successfully on many, or any, of these bases.

Conversely, we believe that as a result of the previous decline in the insurance market, and to take advantage of current market improvements, some companies have eliminated program business or have significantly reduced the size of their program business in order to concentrate on their core businesses. Some of the companies that had been a significant presence in the program business have ceased operations. We believe that our emphasis on specialty program commercial property and casualty insurance business, and in particular the way we plan to structure our operations through relationships with our Partner Agents, will help fill this void in the marketplace for program business.

Shortly after the completion of this offering, we expect to hire 10 to 20 full-time employees in the areas of program management, underwriting, claims adjusting, actuarial, financial and accounting services, systems management and administration. We have hired, effective upon the completion of this offering, a chief information officer who has 20 years of experience in programming, developing and managing software and hardware for various businesses. In addition, we have hired, effective upon the completion of this offering, a general counsel who has 10 years of experience in transactional corporate, real estate and securities law practice areas, who recently served as general counsel of a technology company specializing in the insurance industry. We also have hired, effective upon the completion of this offering, three program directors and expect to hire a fourth program director upon completion of this offering, each of whom has more than 20 years of property and casualty insurance industry experience.

Michael J. Nejman has over 25 years of experience in the property/casualty insurance industry. Mr. Nejman was the Senior Financial Officer for CNA’s commercial middle market business unit. His responsibilities included providing direction to CNA’s Commercial Affiliation Marketing, or CAM, programs. Subsequently, Mr. Nejman had executive profit and loss responsibility for five niche market specialty business units.

Daniel A. Cacchione has over 20 years of experience in the property/casualty insurance industry. Mr. Cacchione has considerable experience in developing and managing affinity group insurance business, primarily through CNA’s CAM Division, where he served as Senior Vice President.

Diane Melton has 24 years of experience in the property/casualty insurance industry. Ms. Melton has considerable underwriting experience, including at Texas Mutual Insurance Company, where she served as director of underwriting. At Texas Mutual, Ms. Melton restructured underwriting discipline and was responsible for expense, premium and strategic planning and reinsurance for $680 million of workers’ compensation business.

In addition, we expect to have approximately 40 employees of SSC involved in varying degrees in our business operations. As our business grows, we would add appropriate additional staff.

Currently we are working out of temporary office space in Dallas. We expect to locate to Chicago after the completion of this offering and we currently are identifying office space. We have chosen Chicago due to its central location, good transportation and readily available source of insurance professionals. Further, members of our senior management have worked or live in Chicago and, as a result, are familiar with the business environment of that city.

Our financial strength will be regularly reviewed by independent rating agencies, who assign a rating based upon items such as results of operations, capital resources and minimum policyholders’ surplus requirements. We have received a secure category indicative rating of “B+” from A.M. Best. See “Risk Factors— We have received a secure category indicative rating of “B+” (Very Good) from A.M. Best. A poor final rating or a future downgrade in our rating could affect our competitive position with customers and our indicative rating may put us at a disadvantage with higher-rated carriers.”

Some agents may be unwilling or unable to write certain lines of business with us because of our indicative rating. We may seek to enter into fronting arrangements under which policies may be nominally written by a higher-rated insurer to allow our Partner Agents to produce business in these lines, but there can be no assurances that these arrangements will be available at a reasonable price or acceptable to agents. In addition, the cost of these arrangements will reduce our operating profit.

We intend to develop our business through our subsidiary. As of the closing of this offering, Potomac is licensed to conduct insurance business in 41 states and the District of Columbia. All of the issued and outstanding stock of Potomac will be owned by us.

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

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

Most states have insurance laws requiring that property and casualty rate schedules, policy or coverage forms, and other information be filed with the state’s regulatory authority. In many cases, such rates and/or policy forms must be approved prior to use. A few states have recently considered or enacted limitations on the ability of insurers to share data used to compile rates.

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

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

The insurance regulatory codes in our operating subsidiary’s domiciliary state contain provisions (subject to certain variations) to the effect that the acquisition of “control” of a domestic insurer or of any person that directly or indirectly controls a domestic insurer cannot be consummated without the prior approval of the domiciliary insurance regulator. In general, a presumption of “control” arises from the direct or indirect ownership, control, possession with the power to vote or possession of proxies with respect to 10% or more of the voting securities of a domestic insurer or of a person that controls a domestic insurer. A person seeking to acquire control, directly or indirectly, of a domestic insurance company or of any person controlling a domestic insurance company generally must file with the relevant insurance regulatory authority a statement relating to the acquisition of control containing certain information required by statute and published regulations and provide a copy of such statement to the

domestic insurer and obtain the prior approval of such regulatory agency for the acquisition. In addition, certain state insurance laws contain provisions that require pre-acquisition notification to state agencies of a change in control of a non-domestic insurance company admitted in that state. While such pre-acquisition notification statutes do not authorize the state agency to disapprove the change of control, such statutes do authorize certain remedies, including the issuance of a cease and desist order with respect to the non-domestic admitted insurer doing business in the state if certain conditions exist, such as undue market concentration.

We are a legal entity separate and distinct from our subsidiary. As a holding company with no other business operations, our primary sources of cash to meet our obligations, including principal and interest payments with respect to indebtedness, will be available dividends and other statutorily permitted payments, such as tax allocation payments and management and other fees, from our operating subsidiary. Our operating subsidiary will be subject to various state statutory and regulatory restrictions, including regulatory restrictions that are imposed as a matter of administrative policy, applicable generally to any insurance company in its state of domicile, which limit the amount of dividends or distributions an insurance company may pay to its stockholders without prior regulatory approval. The restrictions are generally based on certain levels or percentages of surplus, investment income and operating income, as determined in accordance with SAP, which differ from GAAP. Generally, dividends may be paid only out of earned surplus. In every case, surplus subsequent to the payment of any dividends must be reasonable in relation to an insurance company’s outstanding liabilities and must be adequate to meet its financial needs.

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

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

If insurance regulators determine that payment of a dividend or any other payments to an affiliate (such as payments under a tax-sharing agreement or payments for employee or other services) would, because of the financial condition of the paying insurance company or otherwise, be hazardous to such insurance company’s policyholders, the regulators may prohibit such payments that would otherwise be permitted without prior approval.

In connection with the licensing of insurance companies, an insurance regulator may limit or prohibit the writing of new business by an insurance company within its jurisdiction when, in the regulator’s judgment, the insurance company is not maintaining adequate statutory surplus or capital. We do not

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

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

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

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

Our operating subsidiary is subject to state laws and regulations that require diversification of investment portfolios and that limit the amount of investments in certain investment categories. Failure to comply with these laws and regulations may cause non-conforming investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in some instances, would require

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

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

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

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

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

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

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

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

In response to the tightening of supply in some insurance markets resulting from, among other things, the terrorist attacks of September 11, 2001, the Terrorism Risk Insurance Act of 2002, or TRIA, was enacted to ensure the availability of insurance coverage for terrorist acts in the United States. This law establishes a $100 billion federal assistance program through the end of 2005 to help the commercial property and casualty insurance industry cover claims related to certified acts of terrorism, regulates the terms of insurance relating to terrorism coverage and requires some U.S. commercial property and casualty insurers to make available to their policyholders terrorism insurance coverage for certified acts of terrorism at the same limits and terms as is available for other coverages. Exclusions or sub-limit coverage for certified acts of terrorism may be established, but solely at the discretion of the insured.

A certified act of terrorism is defined by TRIA as an act of terrorism, resulting in aggregate losses greater than $5 million, that is violent or dangerous to human life, property or infrastructure, resulting in damage within the United States or its territories and possessions, or outside the United States in the case of a U.S. flagged vessel, air carrier or mission, committed by an individual or individuals acting on behalf of any foreign person or foreign interest in an effort to coerce the U.S. civilian population or influence the policy of or affect the U.S. government’s conduct by coercion. We currently are unable to predict the extent to which TRIA may affect the demand for our products or the risks that may be available for us to consider underwriting. The extent to which coverage for acts of terrorism will be offered by the insurance and reinsurance markets in the future is uncertain and we may or may not offer such coverage in the future.

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

Courtney C. Smith – Chief Executive Officer, President and Director. Mr. Smith was appointed as the Chairman of our board in May 2004, as our President and a director in April 2003 and as our Chief Executive Officer in December 2003. Mr. Smith has 32 years of experience in the property and casualty insurance industry. From April 1999 to April 2002, Mr. Smith was Chief Executive Officer and President of TIG Specialty Insurance, or TIG, a leading specialty insurance underwriter. While at TIG, Mr. Smith was instrumental in restructuring the company and changed TIG from an outsourced company to a controlled program specialty company. From November 1992 to March 1999, Mr. Smith was Chairman, Chief Executive Officer and President of Coregis Group, Inc., an insurer specializing in program business consolidated from the various Crum & Forster companies. Prior thereto, he served in various executive positions at Industrial Indemnity, AIG and Hartford Insurance Group. Mr. Smith is a member of the Society of Chartered Property and Casualty Underwriters, served on the advisory board of Illinois State University’s Katie Insurance School, was a member of the board of directors of the Alliance of American Insurers and was a trustee of American Institute of CPCU/ Insurance Institute of America.

Peter E. Jokiel – Executive Vice President, Chief Financial Officer, Treasurer and Director. Mr. Jokiel was appointed as our Chief Financial Officer, Treasurer and a director in December 2003 and was appointed as our Executive Vice President in June 2004. Mr. Jokiel has over 30 years experience in the insurance industry. From April 1997 to January 2001, Mr. Jokiel was President and Chief Executive Officer of CNA Financial Corporation’s life operations. From November 1990 to April 1997, he was Chief Financial Officer of CNA Financial Corporation, or CNA. Prior to that time, Mr. Jokiel served in various senior management positions at CNA and was an accountant at Touche Ross & Co. in Chicago. He is a certified public accountant and is a member of the American Institute of Certified Public Accountants and the Illinois Society of CPAs. Mr. Jokiel is a past member of the FASB Emerging Issues Task Force and the AICPA Insurance Companies Committee.

William S. Loder – Senior Vice President, Chief Underwriting Officer and Secretary. Mr. Loder was appointed as our Secretary in April 2003 and as our Senior Vice President and Chief Underwriting Officer in December 2003. Mr. Loder has over 30 years of experience in the insurance industry. From July 2000 to July 2002, Mr. Loder worked for TIG Specialty Insurance, where he was responsible for corporate strategies, planning and company underwriting. From May 1977 to July 2000, he was President of the CNA office in Atlanta, where he had management responsibility for all insurance lines for production, profit, claims and policy services. Prior to that time, Mr. Loder held executive positions at CNA and Aetna Life & Casualty.

Gary J. Ferguson – Senior Vice President and Chief Claims Officer. Mr. Ferguson was appointed our Senior Vice President and Chief Claims Officer in December 2003. From February 2002 to July 2003,

Mr. Ferguson was managing director responsible for claims functions at TIG Specialty Insurance. From December 1997 to October 2001, Mr. Ferguson served as Senior Vice President for Zenith Insurance Company. Mr. Ferguson served as Chief Claims Officer of Coregis Group, Inc. from July 1992 to December 1997. From July 1966 to July 1992, he held senior claims positions at Crum & Forster and Industrial Indemnity. Mr. Ferguson has 38 years of experience in the insurance industry.

Robert E. Dean – Director. Mr. Dean was named a director of Specialty Underwriters’ Alliance, Inc. in May 2004. Mr. Dean is a private investor. From October 2000 to December 2003, Mr. Dean was a Managing Director of Ernst & Young Corporate Finance LLC, a wholly owned broker-dealer subsidiary of Ernst & Young LLP, serving as member of the Board of Managers from December 2001 to December 2003. From June 1976 to September 2000, Mr. Dean was employed by Gibson, Dunn & Crutcher LLP, where he practiced corporate and securities law and represented numerous public and private companies and investment banks. Mr. Dean was Partner-in-Charge of the Orange County, California, office from 1993 to 1996, was a member of the law firm’s Executive Committee from 1996 to 1999 and co-chaired its financial institutions practice related to banks, thrifts, mortgage and insurance companies. He currently serves as a director, chairman of the compensation committee and member of the audit committee of ResMAE Financial Corporation.

Raymond C. Groth – Director. Mr. Groth was named a director of Specialty Underwriters’ Alliance, Inc. in May 2004. Since March 2001, he has been an Adjunct Professor of Business Administration at The Fuqua School of Business, Duke University. From June 1994 to March 2001, Mr. Groth was Managing Director for First Union Securities, Inc. Mr. Groth held several positions in The Investment Banking Department of The First Boston Corporation from September 1979 to March 1992. From June 1972 to August 1979, Mr. Groth was an associate with Cravath, Swaine & Moore LLP. He currently serves as a director and is a member of the audit committee and the corporate governance and nominating committee of CT Communications, Inc. and serves as a director of The Charlotte Symphony Orchestra.

Robert H. Whitehead – Director. Mr. Whitehead was named a director of Specialty Underwriters’ Alliance, Inc. in August 2004. Mr. Whitehead has over 40 years of experience in insurance business. From 1994 to 1997, he was a director of FHP Financial Corporation, a large California HMO. From June 1993 to June 1995, Mr. Whitehead worked on the rehabilitation of the Hawaiian Insurance Guaranty Company, Ltd. From December 1963 to June 1993, Mr. Whitehead worked at Industrial Indemnity Company of San Francisco, California where he held a number of positions, including President and Chief Operating Officer. In addition, from 1955 to 1963 he held numerous insurance and reinsurance positions in London, New York, Montreal and Toronto. In the past he has been heavily involved in insurance hearings and other legislative activities at the state level in California. Mr. Whitehead has been an independent consultant since 1995.

Russell E. Zimmermann – Director. Mr. Zimmermann was named a director of Specialty Underwriters’ Alliance, Inc. in May 2004. He is a retired partner of Deloitte & Touche LLP. Mr. Zimmermann was employed by Deloitte from March 1965 to May 2000. Mr. Zimmermann has 35 years of experience serving public and privately held companies in the insurance, manufacturing, banking, mutual fund and retail industries, including nearly 28 years serving as lead client services partner. He is a past member of the American Institute of Certified Public Accountants and the Illinois Society of Certified Public Accountants. Mr. Zimmermann currently serves as a director and chairman of the audit committee of ShoreBank Corporation.

Pursuant to our bylaws, the number of directors on our board is currently fixed at seven. Six directors are presently serving on our board, four of whom are independent as that term is defined by the National Association of Securities Dealers Inc., and there is one vacancy. All directors hold office until the next annual meeting of stockholders or until their successors have been duly elected and qualified.

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, all of which are comprised entirely of independent directors. Our board of directors has also established an executive committee.

The audit committee also has direct responsibility for the appointment, compensation, retention and oversight of the work of our independent auditors, PricewaterhouseCoopers LLP. In addition, approval of the audit committee is required prior to our entering into any related-party transaction.

The members of our audit committee are Mr. Zimmermann, who is also the chairman of the committee, Mr. Whitehead and Mr. Dean.

The compensation committee reviews and determines, together with the other independent directors if directed by the board of directors, the compensation of our executive officers and reviews and approves employment and severance agreements with our executive officers. The compensation committee also administers the issuance of stock options and other awards under our stock plans and establishes and reviews policies relating to the compensation and benefits of our employees and consultants.

The members of the compensation committee are Mr. Dean, who is also the chairman of the committee, and Mr. Groth.

The members of our executive committee are Mr. Whitehead, who is also the chairman of the committee, Mr. Smith and Mr. Jokiel.

Procedures for the consideration of director nominees recommended by stockholders will be set forth in our amended and restated bylaws, which will be effective upon completion of this offering.

The members of our nominating and corporate governance committee are Mr. Groth, who is also the chairman of the committee, and Mr. Zimmerman.