- Additional Proxy Soliciting Materials (definitive) (DEFA14A)
April 17 2009 - 4:38PM
Edgar (US Regulatory)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14A-101)
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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Specialty
Underwriters Alliance, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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SPECIALTY UNDERWRITERS' ALLIANCE, INC.
2009 Annual Shareholders Meeting
Investor Presentation
April 17, 2009
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Overview
Specialty Underwriters' Alliance, Inc. (NASDAQ: SUAI) is an
insurance holding company whose sole subsidiary is a
specialty property and casualty insurance company
Unique business model that closely aligns our interests with
those of our Partner Agents
Primary focus is on underwriting discipline and profits
Conservative investment philosophy
Formed by insurance industry professionals, each with over
30 years of experience in the specialty markets
Deep knowledge of customer segments
A team approach with experienced underwriting, claims and actuarial
Experienced Partner Agents who work closely with our team members
A robust data warehouse with significant analytical capabilities
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Investment Philosophy
Managed through Hyperion Asset Management
Conservative approach based on Company's
philosophy of managing underwriting risk, not
investment risk
Portfolio of fixed maturity investments, no equity or
preferred shares
Investment guidelines stipulate no investment in
securities below "A" rating
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Partner Agent Model
Lower up-front commission paid to Partner Agents
Underwriting profit-based commission
Significant equity ownership (Partner Agents invest $1 million in
our non voting, convertible Series B Common Stock)
As of 12/31/08, own approximately 9% (on a fully converted basis) of
the outstanding shares of SUA
SUA controls underwriting and claims authority
Partner Agents focus on marketing
5 year exclusivity with each Partner Agent
Centralized, common technology platform to lower costs for
Partner Agent
Currently have nine Partner Agents
Partner Agents have publicly expressed their support of the current
Board and its strategic plan
Model based on limited number of exclusive agents without
channel conflicts
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What We Have Accomplished
and Plan for the Future
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A Track Record of Growth
Generated profits three years in a row
Added (on average) two new Partner Agents
every year
Increased dramatically the number of states in
which our programs are available
Created economies of scale sufficient to support
two claims offices
Will internalize a significant portion of our claims handling
Will manage associated costs more effectively when
compared to TPA adjustment expenses
Will produce better results
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Other Accomplishments
Solid loss ratio and loss reserves
In spite of recent rate decreases in Florida and California, managed
to maintain solid loss ratio
Conservative loss reserves leading to favorable loss development
in most quarterly periods
Loss ratio, on average, ten percentage points better than the P&C
Industry* average for the last three years
* Data from SNL Financials P&C Industry data
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Other Accomplishments (cont)
Expense management
Lean and scalable infrastructure
Majority of additional hiring only in the areas that are more
volume sensitive, such as underwriting and claims
Switching to internal claims handling for more efficient cost
management
Information management
Data warehouse enhanced with robust analytical tools
Investment discipline
Sound investment strategy based on conservative philosophy
minimized investment exposure to recent market volatility
Ended 2008 with overall unrealized loss representing just 1.5%
of portfolio's cost basis
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Well-Positioned for Continued
Growth
Increase premium via "A" paper fronting facility
Add additional Partner Agents, states and customer classes
As premium increases, operating expenses are highly
leverageable
Maintain solid loss ratios based on understanding our book
through experienced management and robust data
warehouse that allows us to understand our customer
classes
Continue sound investment philosophy
While organic opportunity exists, we have been and always
will proactively pursue a merger or sale if it is the best
alternative to optimize stockholder value
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Experienced Leadership
that is Looking Out for
Stockholder Value
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SUA's Board and Management
Team: Independent, Accountable
and Qualified
Board composition:
5 independent directors
2 executives
Declassified Board structure
Highly qualified directors/nominees with well established
and relevant track records of success:
Insurance / Reinsurance
Law - Corporate Governance / Corporate Finance / Securities
Accounting
Investment Banking
RiskMetrics Corporate Governance Quotient (CGQ) as of
April 1, 2009:
Better than 99.2% of CGQ universe
Better than 83.1% of rated insurance companies
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SUA's Board Nominees:
Experienced & Qualified
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SUA's Management Team
*Scott Goodreau has over 15 years of legal experience
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SUA's Board: Active and Engaged
Committed to Corporate Governance
Nominating and Corporate Governance, Compensation, Audit and
Strategic Review Committees comprised entirely of independent Board
members
Board and Committees have an executive session at each meeting
All Board members have attended 100% of the Board meetings and
100% of the Committee meetings for those Committees for which they
are members since January 2006
One year Board term
Executive and Director Stock Ownership Guidelines
No poison pill
Reviewed strategic alternatives for maximizing shareholder value with
financial advisors in early 2008
Evaluated a range of alternatives including sale of the Company and
acquisitions
Determined that the best course of action at the time was to focus on
increasing predictable and sustainable cash flow from core business
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SUA's Board (cont)
Established Strategic Review Committee
Committee currently meets weekly
Involved in development and ongoing review of all strategic
alternatives
Proactively evaluate mergers or sales opportunities
Will review all opportunities that may arise for strategic transactions or
other transactions outside the ordinary course of the Company's
business
Board and Management maintain open communication with
stockholders
Contact our largest stockholders after each quarterly earnings release
conference call
Met with our largest stockholders during the third quarter 2008
Received unanimous support for decision not to accept the Hallmark offer
Board considers all reasonable stockholders' requests to meet
For example, Board recently met with Mark Schwarz (CEO of Hallmark)
pursuant to his request
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Hallmark Claims to be
Interested in Corporate
Governance
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What Does Hallmark Bring to the
Table
Hallmark corporate governance quotient speaks for itself
Hallmark's CGQ 31.4 (as compared to all Insurance Companies) vs
SUA's CGQ of 83.1 (as compared to all Insurance Companies).
Hallmark's nominees interests are not aligned with our
Stockholders
None of the Hallmark nominees own shares of SUA
Current Board has beneficial ownership of 4.1% of the outstanding
shares common stock* and has actual ownership of 1.3% of the
outstanding shares common stock**
Resumes of Hallmark nominees show no qualification not
already present on the current board
Hallmark has not communicated a business plan for SUA or
any alternative strategic plan other than the acquisition of
SUA by Hallmark
* Calculated in accordance with Section 13(d) of the Securities and Exchange Act of 1934 and the
rules and regulations promulgated there under as of 4/13/09.
** As of 4/13/09
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Hallmark Offer and Why
We Rejected It
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Timeline
2/29/08 Senior management has first SUA/Hallmark general meeting (no
discussion of a merger or acquisition)
3/31/08 Senior management has telephone conversation with Mark
Morrison, Hallmark's CEO, where benefits of an acquisition were
communicated by Mr. Morrison
4/4/08 Following year-long negotiations, employment agreements
restructured and change of control agreements put in place for
executive officers without employment agreements: severance
terms are less than original agreements
5/30/08 Mr. Morrison sent email to Courtney Smith, SUA's CEO, urging a
deal
6/2/08 Mr. Smith responded that SUA did not see strategic fit
6/13/08 Mr. Smith agrees to a dinner with Mr. Schwarz
6/16/08 Mark Schwarz, Chairman of the Board of Directors of Hallmark,
makes unsolicited all stock offer (with no firm terms) at $6.50 per
share and files Schedule 13D with the SEC
6/17/08 Board meets via teleconference to discuss the offer, discussion
continues to next day
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6/20/08 In response to contacts from Mr. Schwarz, Mr. Smith urges Mr.
Schwarz to share any additional information he may have with
him in writing regarding the offer prior to next Board meeting
6/25/08 Board reconvenes in person with legal and financial advisors
and, after due deliberation, Board rejects offer
7/1/08 Hallmark sends letter to SUA reaffirming its 6/18/08 offer, with
no change of terms
7/2/08 SUA reiterates rejection of the offer based on prior deliberation
1/13/09 Hallmark delivers letter setting forth its intention to nominate
three individuals to SUA's Board
2/2/09 SUA agrees to dinner meeting with Mr. Schwarz on variety of
topics including Mr. Schwarz' desire to acquire SUA
3/17/09 SUA makes settlement offer for one Hallmark nominee to be
included in management's slate which includes a limited time
restriction to no acquire control of SUA without Board approval
which Hallmark rejects
3/26/09 SUA receives letter from Mr. Schwarz requesting a meeting
with the Board
4/7/09 Independent members of SUA's Board meet with Mr. Schwarz
and Mr. Morrison
Timeline (cont)
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Hallmark's Unsolicited Offer
After the June 16 unsolicited offer, the SUA Board
meets immediately via teleconference on both June 17
and 18, 2008. The Board reconvenes on June 25,
2008 with consultation from financial and legal
advisors present
Board considers the following issues
All stock offer
$6.50 per share (a 24.9% discount to 3/31/08 book value)
Lack of strategic fit (distribution model, business
concentrations)
Concern about Partner Agent's view of transaction
Board's fiduciary obligations and regulatory issues
After careful review, Board determines Hallmark's offer
is inadequate and rejects it
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Comparison of Hallmark and SUA
Stock
Had SUA accepted Hallmark's offer, at June 16 stock price, stockholder
value would be worse today
Comparison of percentage change in closing price of Hallmark and SUA
common stock from June 16, 2008 (date of initial Hallmark offer) to present,
(April 13, 2009 - last date of available data on Quote.com)
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Hallmark is Only
Interested in One Thing:
Capturing SUA's Inherent
Value for Itself
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A Question of Value
Unprecedented turmoil in capital markets and general
business activities have been severely impacted by the
economic environment and credit crisis, to a degree
unprecedented in recent history.
These events have adversely impacted SUA's business and
current stock valuation
Current stock valuation does not reflect intrinsic value of SUA's
business platform built over past four years
Hallmark is aware of discounted value and wants to capture
value for itself
Stockholders are best served by continuing to build our
business and to insist that any proposed sale or merger
transaction recognize the long-term potential of the SUA
business platform
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A Question of Value (cont)
* Peer Group of 20 P&C insurance companies based on asset size automatically generated by
SNL Financial Inc.
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Over the last year, Hallmark has repeatedly expressed its
intent to acquire and exert control over SUA
March 31, 2008: Mark Morrison, Hallmark's CEO, expressed benefits and
possible structure of a potential Hallmark-SUA business combination
July 1, 2008: Hallmark reiterates its offer (unchanged) after the offer has been
rejected by SUA's Board
March 2, 2009: Hallmark expressed continuing interest in entering into
discussions with SUA's Board to pursue negotiations of a definitive merger
Hallmark flatly rejects offer of representation on the Board
SUA Board offered to increase its size by one Board member and fill it with one
of Hallmark's nominees
Hallmark owns only 9.9% of SUA, yet seeks 40% representation on Board and
50% of the Independent Director seats
Offer required Hallmark not seek control of SUA for a reasonable period of time
without approval of Board (which would include Hallmark's nominee)
We believe rejection of offer to seat one Hallmark nominee shows true motivation
for Hallmark's alternative slate is to push for effective control of SUA
Hallmark's Continued Efforts to
Acquire SUA
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Current Board has demonstrated its ability and commitment to
corporate governance and to maximize value for all stockholders
Current Board will consider a merger or sale that captures the long
term value of SUA's business platform
All Partner Agents publicly expressed full support for current Board
and its strategic plan
Hallmark owns 9.9% of SUAI, yet seeks 40% Board representation
and 50% of Independent Director seats
Rejected reasonable offer to settle proxy contest indicating their
desire to have more than a voice on the Board
Hallmark has repeatedly stated its desire to acquire control of SUA
Hallmark's nominees do not own any shares of SUA
Hallmark claims that it is looking to improve governance
SUA's CGQ is 83.1 vs. Hallmark's CGQ 31.4 (Insurance Companies)
Hallmark has not provided any business or strategic plan for SUA
other than the acquisition of SUA by Hallmark
Hallmark's short slate brings nothing new to the table
Summary
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