UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

000-50511

Commission File Number

United America Indemnity, Ltd.

(Exact name of registrant as specified in its charter)

WALKER HOUSE, 87 MARY STREET

P.O. BOX 908GT

GEORGE TOWN, GRAND CAYMAN

CAYMAN ISLANDS

(Address of principal executive office including zip code)

Registrant’s telephone number, including area code: (345) 949-0100

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

Class A Common Shares, $0.0001 par value

(Title of Class)

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     YES þ          NO o

      The aggregate market value of the common equity held by non-affiliates of the registrant, computed by reference to the price of the registrant’s Class A Common shares as of the last business day of the registrant’s most recently completed second fiscal quarter (based on the last reported sale price on the Nasdaq National Market as of such date), was $170,225,104.

      As of March 14, 2005, the registrant had outstanding 23,632,201 Class A Common Shares and 12,687,500 Class B Common Shares.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s definitive proxy statement for its 2005 Annual General Meeting of Shareholders to be held May 4, 2005 are incorporated by reference in Part III of this Annual Report on Form 10-K.

TABLE OF CONTENTS

      As used in this annual report, unless the context requires otherwise, (1) “United America Indemnity,” “we,” “us,” and “our” refer to United America Indemnity, Ltd., an exempted company incorporated with limited liability under the laws of the Cayman Islands, and its U.S. and Non-U.S. Subsidiaries; (2) our “U.S. Subsidiaries” refers to U.N. Holdings II, Inc., U.N. Holdings Inc., Wind River Investment Corporation, Emerald Insurance Company, and our U.S. Insurance Operations; (3) our “U.S. Insurance Operations” refers to the insurance and related operations conducted by American Insurance Service, Inc. and its subsidiaries, including American Insurance Adjustment Agency, Inc., International Underwriters, LLC, J.H. Ferguson & Associates, LLC, and the United National Insurance Companies; (4) the “United National Insurance Companies” refers to the insurance and related operations conducted by United National Insurance Company and its subsidiaries, including Diamond State Insurance Company, United National Casualty

Insurance Company, and United National Specialty Insurance Company; (5) our “Non-U.S. Subsidiaries” refers to our Non-U.S. Insurance Operations, U.A.I. (Gibraltar) Limited, the Luxembourg Companies, Wind River Services, Ltd., and Loyalty Insurance Company, Inc.; (6) our “Non-U.S. Insurance Operations” refers to the insurance and reinsurance and related operations of Wind River Barbados and Wind River Bermuda; (7) “Wind River Barbados” refers to Wind River Insurance Company (Barbados), Ltd.; (8) “Wind River Bermuda” refers to Wind River Insurance Company, Ltd.; (9) the “Luxembourg Companies” refers to U.A.I. (Luxembourg) I S.ar.l., U.A.I. (Luxembourg) II S.ar.l., U.A.I. (Luxembourg) III S.ar.l., U.A.I. (Luxembourg) IV S.ar.l., U.A.I. (Luxembourg) Investment S.ar.l., and Wind River (Luxembourg) S.ar.l.; (10) “United National Group” refers to our U.S. Insurance Operations, Emerald Insurance Company, and Loyalty Insurance Company; (11) the “United National Statutory Trusts” refers to United National Group Capital Trust I and United National Group Capital Statutory Trust II; (12) “Fox Paine & Company” refers to Fox Paine & Company, LLC and affiliated investment funds; and (13) “$” or “dollars” refers to U.S. dollars.

      As a result of our merger on January 24, 2005 with Penn-America Group, Inc. and Penn Independent Corporation, (1) “United America Indemnity Combined “refers to United America Indemnity, Penn-America Group, and Penn Independent Group; (2) “Penn-America Group” refers to Penn-America Group, Inc., the Penn-America Insurance Companies, and the Penn-America Statutory Trusts; (3) the “Penn-America Insurance Companies” refers to the insurance and related operations of Penn-America Insurance Company, Penn-Star Insurance Company, and Penn-Patriot Insurance Company; (4) the “Penn-America Statutory Trusts” refers to Penn-America Statutory Trust I and Penn-America Statutory Trust II; (5) “Penn Independent Group” refers to Penn Independent Corporation, PIC Holdings, Inc., Penn Independent Financial Services, Inc., and Penn Independent Agency Operations; (6) “Penn Independent Agency Operations” refers to Stratus Insurance Services, Inc., Apex Insurance Agency, Inc., APEX Insurance Services of Illinois, Inc., Summit Risk Services, Inc., Delaware Valley Underwriting Agency, Inc. (“DVUA”), DVUA Pittsburgh, Inc., DVUA of New York, Inc., DVUA of New Jersey, Inc., DVUA West Virginia, Inc., DVUA North Carolina, Inc., DVUA of Ohio, Inc., DVUA South Carolina, Inc., and DVUA Virginia, Inc.; (7) our “Combined U.S. Subsidiaries” refers to our U.S. Subsidiaries, Penn-America Group, and Penn Independent Group; (8) our “Combined Non-U.S. Subsidiaries” refers to our Non-U.S. Subsidiaries and Penn Oceanic Co., Ltd.; (9) our “Combined U.S. Insurance Operations” refers to our U.S. Insurance Operations, Penn-America Insurance Companies, Penn Independent Financial Services, Inc., and Penn Independent Agency Operations; (10) our “Combined U.S. Insurance Subsidiaries” refers to the United National Insurance Companies and the Penn-America Insurance Companies; and (11) “Statutory Trusts” refers to the United National Statutory Trusts and the Penn-America Statutory Trusts.

PART I

Recent Developments

      On January 24, 2005 we completed our previously announced merger with Penn-America Group, Inc. (NYSE: PNG) as well as the previously announced acquisition of Penn Independent Corporation. In connection with the transactions, our shareholders’ approved our change in name from United National Group, Ltd. to United America Indemnity, Ltd.

      As a result of the transactions, we are one of the leading specialty property and casualty insurers in the industry as well as a significant originator of and placement agent for specialty property and casualty insurance coverage. Under our ownership structure, each company will retain its existing corporate identity and the businesses of United America Indemnity, Penn-America Group and Penn Independent Group will continue to be operated by essentially the existing management teams.

      Under the terms of the merger agreement, Penn-America Group, Inc.’s shareholders received $15.375 of value for each share of Penn-America Group, Inc. common stock as follows: (1) 0.7756 of a Class A common share of United America Indemnity, based on $13.875 divided by the volume weighted average sales price of United America Indemnity’s Class A common shares for the 20 consecutive trading days ending January 21, 2005, which was $17.89, and (2) $1.50 in cash.

      At the Penn-America Group, Inc. special meeting held on January 24, 2005, Penn-America Group, Inc.’s shareholders of record as of December 15, 2004 voted to approve, among other things, the merger transaction, and at the United America Indemnity extraordinary general meeting held on January 24, 2005, United America Indemnity shareholders of record as of December 15, 2004 voted to approve, among other things, the issuance of United America Indemnity Class A common shares to Penn-America Group, Inc.’s shareholders in the merger and to change the name of United National Group, Ltd. to United America Indemnity, Ltd.

      Where considered appropriate, references to the business and operations of Penn-America Group and Penn Independent Group have been included in Item 1 — Business, Item 2 — Properties, and Item 3 — Legal Proceedings of Part I of this annual report on Form 10-K. Item 4 of Part I and Parts II, III, and IV of this annual report on Form 10-K pertain exclusively to the business and operations of United America Indemnity, unless specifically noted otherwise.

      On February 7, 2005, Edward J. Noonan, a current board member and former chairman of the audit committee of United America Indemnity, was appointed as the Acting Chief Executive Officer of United America Indemnity, following the departure of David R. Bradley.

      Trading of United America Indemnity Class A common shares will continue on the Nasdaq Stock Market. On March 14, 2005, we changed our trading symbol from “UNGL” to “INDM”.

General

      United America Indemnity is a holding company formed on August 26, 2003 under the laws of the Cayman Islands to acquire our U.S. Insurance Operations.

      Through our U.S. Insurance Operations we are a leading specialty property and casualty insurer with a 45-year operating history in the specialty insurance markets. Our Combined U.S. Insurance Subsidiaries are led by United National Insurance Company and Penn-America Insurance Company, which was acquired on January 24, 2005. The United National Insurance Companies are either licensed or eligible to write on a surplus lines (non-admitted) basis in all 50 U.S. States, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. The Penn-America Insurance Companies write business on both an admitted and non-admitted basis in 37 states, on only an admitted basis in one state, and on only a non-admitted basis in 12 states and the District of Columbia. In March 2005, Penn-America Insurance Company capitalized its wholly owned subsidiary, Penn-Patriot Insurance Company, which is in the process of finalizing its application for a certificate of authority to write business on an admitted basis in the state of Virginia.

      Our Non-U.S. Insurance Operations, which consist of Barbados-based and Bermuda-based insurance companies, began offering insurance products to third parties in May 2004 and reinsurance to our U.S. Insurance Operations in January 2004.

      We write specialty insurance products that are designed to meet the specific needs of targeted niche insurance markets. These niche markets are typically well-defined, homogeneous groups of insureds to which, due to some particular risk exposure, standard market insurers do not offer insurance coverage. Examples of products that we write for these markets include property and casualty insurance for social service agencies, insurance for equine mortality risks and insurance for vacant property risks. We believe that our specialty insurance product focus and niche market strategy has enabled us to outperform the property and casualty industry as a whole.

      For 2004, our GAAP combined ratio was 92.8%. We have reported an underwriting profit, based on our GAAP financial statements, in 19 of the past 20 years. The combined ratio of an insurance company is generally viewed as an indication of underwriting profitability and is calculated by adding the underwriting expense ratio and the net losses and loss adjustment expense ratio.

      We compete in the specialty insurance market principally through our two primary business segments, our excess and surplus lines (“E&S”) segment and our specialty admitted segment. We offer four general classes of insurance products across both of these primary business segments: specific specialty insurance products, umbrella and excess insurance products, property and general liability insurance products and professional liability insurance products.

      We distribute the insurance products of our Combined U.S. Insurance Subsidiaries through our wholly owned subsidiary, J.H. Ferguson and Associates, LLC (“J.H. Ferguson”), and a group of professional general agencies that have limited quoting and binding authority and that in turn sell our insurance products to insureds through retail insurance brokers. At January 24, 2005, United America Indemnity Combined had approximately 135 professional general agencies in our marketing and distribution network.

      Through Penn Independent Group, which we acquired on January 24, 2005, we have become a leading U.S. wholesale broker of commercial insurance for small and middle-market businesses, public entities and associations. Penn Independent Group is comprised of five major businesses, including: DVUA, a wholesale agency primarily providing insurance polices on an excess and surplus lines basis; Apex Insurance Agency, Inc., a specialty and reinsurance broker for municipalities and government agencies; Stratus Insurance Services, Inc., a niche association-based broker; Summit Risk Services, Inc., a third party claims administrator; and Penn Independent Financial Services, Inc., a premium finance company.

      Our United National Insurance Companies are rated “A” (Excellent) by A.M. Best, which assigns ratings to insurance companies transacting business in the United States. “A” (Excellent) is the third highest rating of sixteen rating categories. These ratings are based upon factors of concern to policyholders, such as capital adequacy, loss reserve adequacy, and overall operating performance, and are not directed to the protection of investors. Penn-America Insurance Company and Penn-Star Insurance Company are rated “A-” (Excellent) by A.M. Best.  “A-” (Excellent) is the fourth highest rating of sixteen rating categories. Penn-Patriot Insurance Company, which is in the process of finalizing its application for a certificate of authority to write business on an admitted basis in Virginia, is not yet operational and, therefore, has not received a rating from A.M. Best.

      In December 2004, our Non-U.S. Insurance Operations were assigned financial strength ratings by A.M. Best. Wind River Bermuda was assigned a rating of “A-” (Excellent) and Wind River Barbados was assigned a rating of “A” (Excellent).

      We maintain a website at www.uai.ky, although the information contained on our website is not part of this report. We will make available, free of charge on our website, our most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission.

Recent Trends in Our Industry

      The property and casualty insurance industry has historically been a cyclical industry. During periods of reduced underwriting capacity, as defined by availability of capital, lower competition generally results in more favorable policy terms and conditions for insurers. During periods of excess underwriting capacity, pricing and policy terms and conditions are generally less favorable to insurers due to competition. In the past, several factors have affected underwriting capacity, including industry losses, catastrophes, changes in legal and regulatory guidelines, investment results and the ratings and financial strength of competitors.

      We believe that during the 1990s, the insurance industry maintained excess underwriting capacity. As a result, the industry suffered from lower pricing, less favorable policy terms and conditions, less stringent underwriting standards and reduced profitability. Significant catastrophic losses in 1999 and a subsequent contraction of underwriting capacity led to price increases and policy terms and conditions more favorable to insurers in 2000.

      We believe that these favorable conditions continued and improved in 2001 when the property and casualty insurance industry experienced a severe dislocation as a result of an unprecedented impairment of capital, causing a substantial contraction in industry underwriting capacity. We believe that this reduction in capacity is a result of, among other things:

      These factors have resulted in a general environment of rate increases and conservative risk selection, more restrictive coverage terms and a significant movement of premium from the standard market to the specialty insurance market. During 2003, demand for insurance products to manage risks continued to accelerate while underwriting capacity decreased. This environment began to moderate during 2004. There is no assurance that this trend will continue.

      Consistent with the trends witnessed in the broader property and casualty market, during 2003 and 2002, our rate increases on renewal business across all active segments approximated 30% and 23%, respectively. During 2004, our rate increases on renewal business approximated 9%, which rates we will earn over the period of time for which the policies are in force, generally 12 months.

Specialty Insurance Market

      The specialty insurance market differs significantly from the standard property and casualty insurance market. In the standard property and casualty insurance market, insurance rates and forms are highly regulated, products and coverages are largely uniform and have relatively predictable exposures. In the standard market, policies must be written by insurance companies that are admitted to transact business in the

state in which the policy is issued. As a result, in the standard property and casualty insurance market, insurance companies tend to compete for customers primarily on the basis of price and financial strength.

      In contrast, the specialty insurance market provides coverage for hard-to-place risks that do not fit the underwriting criteria of insurance companies operating in the standard market. We segregate the specialty insurance market into two components: the E&S market and the specialty admitted market. In the E&S market, insurance rates and forms are not regulated and can be tailored to meet specific risks. However, U.S. insurance regulations generally require a risk to be declined by three admitted carriers before an E&S lines insurance company may write the risk. The specialty admitted market includes policies written to cover hard-to-place risks, including risks associated with insureds engaged in similar but highly specialized types of activities. These insureds are generally forced to rely on specialty admitted insurance companies for one of two reasons: such insureds require a total insurance product not otherwise available from standard market insurers, or such insureds require insurance products that are not written by large admitted carriers. For regulatory or marketing reasons, these insureds require products that are written by an admitted insurance company.

      Competition in the specialty insurance market tends to focus less on price and more on availability, service and other considerations. While specialty insurance market exposures may have higher perceived insurance risk than their standard market counterparts, specialty insurance market underwriters historically have been able to generate underwriting profitability superior to standard market underwriters. According to A.M. Best, in 2003, the average combined ratio for insurers operating in the E&S market was 7.8 percentage points lower than that of insurers operating in the property and casualty industry as a whole.

      According to A.M. Best, from 1983 through 2003, the surplus lines market grew from an estimated $2.1 billion in direct premiums written to $32.8 billion. In contrast, the U.S. property and casualty industry grew more moderately during this period from $114.4 billion in direct premiums written to $456.7 billion. During this period, the surplus lines market as a percentage of the total property and casualty industry grew from approximately 1.8% to 8.3%. Additionally, the growth in terms of commercial lines market share, which comprises the majority of surplus lines premiums, increased from 3.5% to 13.1% over this period.

      The specialty insurance market is significantly affected by the conditions of the insurance market in general. Hard market conditions (i.e., those favorable to insurers), like those experienced in recent years, tend to generate a proportion of business moving from the admitted market back to the surplus lines market, and vice versa when soft market conditions are prevalent. During hard markets, standard market underwriters generally rely on traditional underwriting methods and make adjustments in policy terms, conditions and limits. The firming of the current property and casualty market, which we believe commenced in 2000, caused standard market carriers to refocus on their core books of business.

      Initially, the market shift into the E&S market occurred at a gradual pace. According to A.M. Best data, direct premiums written by the domestic E&S market increased by 8.5% in 2000. Once admitted carriers began to stress underwriting criteria and risk selection techniques in an effort to bolster their operating profits by eliminating non-core lines of business, rather than re-pricing them, the movement of premiums to surplus lines accelerated. As a result, direct premiums written in the domestic E&S market grew 36.6% in 2001, 81.7% in 2002, and 31.1% in 2003. Growth of direct premiums written in the total E&S market, which includes domestic professional E&S underwriters, Lloyds of London, other regulated non-domestic insurers and domestic specialty underwriters was 9.8% in 2000, 35.7% in 2001, 61.7% in 2002, and 28.3% for 2003.

Acquisition of Our U.S. Insurance Operations

      On September 5, 2003, Fox Paine & Company made a capital contribution of $240.0 million to us, in exchange for 10.0 million Class B common shares and 14.0 million Series A preferred shares, and we acquired Wind River Investment Corporation, the holding company for our U.S. Insurance Operations, from a group of family trusts affiliated with the Ball family of Philadelphia, Pennsylvania.

      To effect this acquisition, we used $100.0 million of this $240.0 million capital contribution to purchase a portion of the common stock of Wind River Investment Corporation held by the Ball family trusts. We then purchased the remainder of the common stock of Wind River Investment Corporation that was also held by

the Ball family trusts, paying consideration consisting of 2.5 million Class A common shares, 3.5 million Series A preferred shares and senior notes issued by Wind River Investment Corporation having an aggregate principal amount of approximately $72.8 million, which remain fully outstanding and which we have fully and unconditionally guaranteed.

      Of the remaining $140.0 million contributed to us, we then contributed $80.0 million to our U.S. Insurance Operations, used $42.4 million to capitalize our Non-U.S. Insurance Operations and used $17.6 million to fund fees and expenses incurred in connection with the acquisition.

Initial Public Offering of Class A Common Shares (“IPO”)

      In December 2003, we consummated our IPO of 10,750,000 Class A common shares, including 1,000,000 Class A common shares issued in connection with the exercise of a portion of the underwriters’ overallotment option, at a price of $17.00 per share. Proceeds of the offering less underwriting discounts of $12.8 million were $170.0 million. Expenses for the IPO totaled $4.4 million, resulting in net proceeds to us of $165.6 million (the “IPO Proceeds”). We used $150.0 million of the IPO Proceeds to fund the redemption of all our Series A preferred shares. We contributed the remaining proceeds of $15.6 million to our Non-U.S. Insurance Operations. In January 2004, we issued 462,500 Class A common shares in connection with the exercise of the underwriters’ remaining overallotment option at a price of $17.00 per share. Proceeds to us, net of underwriting discounts of $0.5 million, were $7.3 million, which we contributed to our Non-U.S. Insurance Operations.

Business Segments

      We currently operate our business principally through two business segments: E&S and specialty admitted. We de-emphasized our reinsurance segment in 2002 and have not written any business in that segment in 2002, 2003, or 2004.

      Our E&S segment focuses on writing insurance for hard-to-place risks and risks that standard admitted insurers specifically choose not to write. Our eligibility as an E&S lines insurer allows us to underwrite unique risks with more flexible policy forms and unregulated premium rates. This flexibility typically results in coverages that are more restrictive and more expensive than those offered in the standard admitted market. In 2003, the United States E&S market as a whole represented approximately $32.8 billion in direct premiums written according to A.M. Best, or approximately 7.2% of the $456.7 billion United States property and casualty industry direct premiums written. According to A.M. Best, the E&S market as a whole grew 28.1% from 2002 to 2003 on the basis of direct premiums written. In 2004, we had $260.8 million of gross premiums written in the E&S market.

      Our specialty admitted segment focuses on writing insurance for risks that are unique and hard to place in the standard admitted market for insureds that are required, for marketing and regulatory reasons, to purchase insurance from an admitted insurance company. We estimate that the specialty admitted market as a whole is comparable in size to the E&S market. The specialty admitted market is subject to more state regulation than the E&S market, particularly with regard to rate and form filing requirements, restrictions on the ability to exit lines of business, premium tax payments and membership in various state associations, such as state guaranty funds and assigned risk plans. In 2004, we had $148.3 million of gross premiums written in the specialty admitted market.

      Our reinsurance segment includes assumed business written in support of a select group of direct writing reinsurers. All underwriting exposure under this segment has been commuted. We de-emphasized our reinsurance segment in 2002 and have not written any business in that segment in 2002, 2003, or 2004.

      The following table sets forth an analysis of United America Indemnity’s gross premiums written, which is the sum of direct and assumed reinsurance premiums written, by segment during the periods indicated:

Products and Product Development

      The following chart provides representative examples of certain products we offer by product class within the E&S and specialty admitted segments for specific types of customers:

      We develop products that expand solutions for our current customer base, as well as provide new products where a market demand for a specialty solution exists. We utilize a thorough due diligence process to determine the market dynamics, distribution, and profitability potential for products we review. In house actuarial review, loss analysis, and profit calculations are employed as well as claims reviews by our staff. Our direct contacts with our field offices, agents, and customers enable us to identify high quality opportunities. We leverage to our advantage our flexibility to utilize the distribution approach providing the best and most efficient market access. Retail, wholesale brokerage, and general agency models are utilized where appropriate. Where outsourced underwriting models such as general agents are chosen, strict controls are in place to

assure compliance with our processes and underwriting guidelines including, daily monitoring, monthly product reviews by senior management and, with respect to the majority of our general agent appointments, regular on-site audits.

      The following table sets forth an analysis of United America Indemnity’s gross premiums written, which is the sum of direct and assumed reinsurance premiums written, by product class within our E&S and specialty admitted segments during the periods indicated:

      The following table sets forth an analysis of United America Indemnity’s net premiums written, which is gross premiums written less ceded premiums written, by product class within our E&S and specialty admitted segments during the periods indicated:

      Recently acquired Penn-America Group primarily offers products that fall within two out of four of our product categories: (1) property and general liability and (2) umbrella and excess.

      Under the property and general liability product class, Penn-America Group provides general liability, property and multi-peril policies to small commercial businesses with average annual premiums of approximately $2,000.

      Under the property and general liability product class, Penn-America Group wrote gross premiums written of $254.0 million and net premiums written of $224.6 million in 2004.

      Under the umbrella and excess product class, Penn-America Group provides:

      Under the umbrella and excess product class, Penn-America Group wrote gross premiums written of $5.4 million and net premiums written of $0.4 million in 2004. Penn-America Group reinsures a significant portion of the risk on its umbrella and excess product. See “Business — Reinsurance.”

Geographic Concentration

      The following table sets forth the geographic distribution of United America Indemnity’s gross premiums written for the periods indicated:

      Recently acquired Penn-America Group writes business in all 50 states and the District of Columbia. In 2004, only one state accounted for over 10% of the $259.4 million of gross premiums written by the Penn-America Group — California with 10.3%.

Marketing and Distribution

      We primarily market the insurance products of our U.S. Insurance Operations through a group of 79 professional general agencies, including our wholly owned subsidiary J.H. Ferguson, that have limited quoting and binding authority and that in turn sell our insurance products to insureds through retail insurance brokers. We primarily market the insurance products of our Non-U.S. Insurance Operat