As filed with the Securities and Exchange Commission on March 7, 2005

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2004

Commission File Number: 1-16535

Odyssey Re Holdings Corp.

(Exact Name of Registrant as Specified in its Charter)

Odyssey Re Holdings Corp.

300 First Stamford Place, Stamford, Connecticut 06902

(203) 977-8000

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Donald L. Smith, Esq.

Senior Vice President, General Counsel and Corporate Secretary

Odyssey Re Holdings Corp.

300 First Stamford Place, Stamford, Connecticut 06902

(203) 977-8000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

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

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

None

          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 shares of all classes of voting stock of the Registrant held by non-affiliates of the Registrant on June 30, 2004 was approximately $298.1 million, computed upon the basis of the closing sale price of the Common Stock on that date. For purposes of this computation, shares held by directors (and shares held by entities in which they serve as officers) and officers of the Registrant have been excluded. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the Registrant.

          As of January 31, 2005, there were 64,759,021 outstanding shares of Common Stock, par value $0.01 per share, of the Registrant.

Documents Incorporated by Reference

          Portions of the Registrant’s definitive proxy statement filed or to be filed with the Securities and Exchange Commission pursuant to Regulation 14A involving the election of directors at the annual meeting of the stockholders of the Registrant scheduled to be held on or about April 20, 2005 are incorporated by reference in Part III of this Form 10-K.

ODYSSEY RE HOLDINGS CORP.

TABLE OF CONTENTS

      References in this Annual Report on Form 10-K to “OdysseyRe,” the “Company,” “we,” “us” and “our” refer to Odyssey Re Holdings Corp. and, unless the context otherwise requires or otherwise as expressly stated, its subsidiaries, including Odyssey America, Clearwater, Newline, Hudson, Hudson Specialty and Clearwater Select.

SAFE HARBOR DISCLOSURE

      In connection with, and because it desires to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions readers regarding certain forward-looking statements contained in this Annual Report on Form 10-K. This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

      We have included in this Annual Report on Form 10-K, and from time to time our management may make, written or oral statements that may include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements relate to, among other things, our plans and objectives for future operations. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other factors, which we describe in more detail elsewhere in this Annual Report on Form 10-K, include, but are not limited to:

      The words “believe,” “anticipate,” “project,” “expect,” “intend,” “will likely result,” “will seek to” or “will continue” and similar expressions identify forward-looking statements. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates. We have described some important factors that could cause our actual results to differ materially from our expectations in this Annual Report on Form 10-K, including factors discussed below in the section titled “Risk Factors.” Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The Company

      Odyssey Re Holdings Corp. was incorporated on March 21, 2001 in the state of Delaware to serve as the holding company for the reinsurance related subsidiaries of Fairfax Financial Holdings Limited (“Fairfax”), a publicly traded Canadian financial services company. Our business was formed through the combination of Odyssey Reinsurance Corporation, now known as Clearwater Insurance Company (“Clearwater”), which was acquired by Fairfax in May 1996, and Odyssey America Reinsurance Corporation (“Odyssey America”), which was acquired by Fairfax in April 1999. Clearwater became a wholly-owned subsidiary of Odyssey America in 1999 and as a result of this corporate reorganization, substantially ceased writing new business but continued to maintain active licenses in 50 states. Clearwater is an integral part of our U.S. insurance business, supplementing the activities of Hudson Insurance Company (“Hudson”) and Hudson Specialty Insurance Company. Odyssey UK Holdings Corp. (“UK Holdings”), a subsidiary of Odyssey America that was formed in 1997, is a holding company with several wholly-owned operating subsidiaries, including Newline Underwriting Management Ltd., through which it owns and manages a syndicate at Lloyd’s, Newline Syndicate 1218 (collectively, “Newline”). Hudson, which was acquired by Fairfax in May 1996 as part of the acquisition of Clearwater, is a wholly-owned subsidiary of Clearwater and is principally engaged in the business of primary property and casualty insurance.

      On June 19, 2001, we issued 17,142,857 shares of our common stock (approximately 26% of our issued and outstanding common stock), in an initial public offering. After the offering, subsidiaries of Fairfax held 48 million shares of our common stock (approximately 74% of our issued and outstanding common stock). On March 4, 2003, Fairfax announced it had purchased, through a subsidiary, 4.3 million outstanding shares of our common stock in a private transaction, increasing its interest in us to approximately 81%.

      Subsequent to the incorporation of OdysseyRe in 2001, we have acquired several insurance related entities which complement our existing subsidiaries and enhance our opportunities for strategic growth, globally as well as by lines of business. On October 28, 2003, Odyssey America purchased General Security Indemnity Company (“General Security”), a shell company domiciled in New York. General Security’s name subsequently was changed to Hudson Specialty Insurance Company (“Hudson Specialty”). Odyssey America contributed Hudson Specialty to Clearwater in December 2003. Hudson Specialty is an eligible surplus lines insurer in 43 states and serves as the main platform for our Healthcare business. On October 1, 2004, Odyssey America sold its 97.7% ownership interest in First Capital Insurance Ltd., which we had acquired during 2002 and 2003, to Fairfax Asia Limited (“Fairfax Asia”) in exchange for Class B non-voting shares representing an approximate 45% ownership interest in Fairfax Asia. Fairfax owns the controlling interest in Fairfax Asia. On November 15, 2004, the Company acquired Overseas Partners US Reinsurance Company (“Opus Re”), a reinsurance company domiciled in the state of Delaware. Opus Re’s name subsequently was changed to Clearwater Select Insurance Company.

      Through our operating subsidiaries, principally Odyssey America, we are a leading United States based underwriter of reinsurance, providing a full range of property and casualty products on a worldwide basis. Our global presence is established through 15 offices, with principal locations in the United States, London, Paris, Singapore, and Latin America. We offer a broad range of both treaty and facultative reinsurance to property and casualty insurers and reinsurers. We also write specialty and non-traditional lines of reinsurance, including professional liability, marine and aerospace. Effective January 1, 2003, we commenced, on a new and renewal basis, underwriting physicians medical malpractice and hospital professional liability insurance, which is now underwritten through Hudson Specialty. OdysseyRe also underwrites specialty insurance business through Newline and Hudson.

      Our operations are managed through four distinct divisions, Americas, EuroAsia, London Market and U.S. Insurance, which are principally based on geographic regions. The Americas division is comprised of our United States reinsurance operations and our Canadian and Latin America branch offices. The United States operations write treaty property, general casualty, specialty casualty, surety, and facultative casualty reinsurance business, primarily through professional reinsurance brokers. Treaty business is written through our Canadian branch, while the Latin America branches write both treaty and facultative business. The EuroAsia division is comprised of offices in Paris, Stockholm, Singapore and Tokyo. The EuroAsia division writes primarily treaty

and facultative property business. Our London Market division operates through two distribution channels, Newline at Lloyd’s, where the business focus is casualty insurance, and our London branch, where the business focus is worldwide property and casualty reinsurance. The specialty program insurance business, principally underwritten by Hudson, and the physicians medical malpractice and hospital professional liability business, principally underwritten by Hudson Specialty, comprise the U.S. Insurance division.

      Our operating subsidiaries presently hold an “A” (Excellent) rating from A.M. Best Company, Inc. (“A.M. Best”), an “A–” (Strong) counterparty credit and financial strength rating from Standard & Poor’s Insurance Rating Services (“Standard & Poor’s”) and an “A3” (Good Financial Security) financial strength rating from Moody’s Investors Service (“Moody’s”). Ratings are used by insurers, reinsurers, and reinsurance and insurance intermediaries as an important means of assessing the financial strength and quality of insurers and reinsurers. These ratings represent independent opinions of financial strength and ability to meet policyholder obligations. “A” rated reinsurance or insurance companies are considered by A.M. Best to have a strong ability to meet their obligations to policyholders. “A” is the third highest designation of A.M. Best’s fifteen rating levels. A reinsurer or insurer rated “A–” by Standard & Poor’s is believed to have “strong” financial security characteristics, but is more likely to be affected by adverse business conditions than are insurers with higher ratings. “A–” is the third highest rating category of Standard & Poor’s ten categories. A reinsurer or insurer rated “A3” is considered by Moody’s to offer good financial security, however, elements may be present that suggest to Moody’s a susceptibility to impairment sometime in the future. “A3” is the third highest rating category of Moody’s nine rating categories.

      We had gross premiums written in 2004 of $2.7 billion and stockholders’ equity as of December 31, 2004 of $1.6 billion.

The Reinsurance Business

      Reinsurance is an arrangement in which the reinsurer agrees to indemnify an insurance or reinsurance company, the ceding company, against all or a portion of the risks underwritten by the ceding company under one or more insurance or reinsurance contracts. Reinsurance can provide a ceding company with several benefits, including a reduction in net liability on individual risks, catastrophe protection from large or multiple losses and/or assistance in maintaining acceptable financial ratios. Reinsurance also provides a ceding company with additional underwriting capacity by permitting it to accept larger risks and write more business without a concurrent increase in capital and surplus. Reinsurance, however, does not discharge the ceding company from its liability to policyholders. Rather, reinsurance serves to indemnify a ceding company for losses payable by the ceding company to its policyholders.

      There are two basic types of reinsurance arrangements: treaty and facultative reinsurance. In treaty reinsurance, the ceding company is obligated to cede and the reinsurer is obligated to assume a specified portion of a type or category of risks insured by the ceding company. Treaty reinsurers do not separately evaluate each of the individual risks assumed under their treaties and are largely dependent on the individual underwriting decisions made by the ceding company. Accordingly, reinsurers will carefully evaluate the ceding company’s risk management and underwriting practices in deciding whether to provide treaty reinsurance and in appropriately pricing the treaty.

      In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risk under a single insurance contract. Facultative reinsurance is negotiated separately for each insurance or reinsurance contract that is reinsured. Facultative reinsurance normally is purchased by ceding companies for individual risks not covered by their reinsurance treaties, for amounts in excess of the dollar limits of their reinsurance treaties or for unusual risks. Underwriting expenses and, in particular, personnel costs, are higher on facultative business because each risk is individually underwritten and administered. The ability to separately evaluate each risk reinsured, however, increases the probability that the reinsurer can price the contract to more accurately reflect the risks involved.

      An additional form of facultative reinsurance is known as “automatic facultative” reinsurance, or “program facultative” reinsurance, which has elements of both treaty reinsurance and facultative reinsurance. In these automatic facilities, risks within a class of business are stratified into groups based on similar risk characteristics.

Risks falling within these defined categories are automatically ceded with pricing and terms commensurate with their pre-defined risk characteristics. In this way, a reinsurer can more accurately price the levels of risk within a class of business than with treaty reinsurance, although with less precision than facultative reinsurance which evaluates each individual risk.

      Both treaty and facultative reinsurance can be written on either a proportional, also known as pro rata, basis or on an excess of loss basis. With respect to proportional reinsurance, the ceding company and the reinsurer share the premiums as well as the losses and expenses in an agreed proportion. In the case of reinsurance written on an excess of loss basis, the reinsurer indemnifies the ceding company against all or a specified portion of losses and expenses in excess of a specified dollar amount, known as the ceding company’s retention or reinsurer’s attachment point.

      Excess of loss reinsurance is often written in layers. A reinsurer accepts the risk just above the ceding company’s retention up to a specified amount, at which point that reinsurer or another reinsurer accepts the excess liability up to an additional specified amount or such liability reverts to the ceding company. The reinsurer taking on the risk just above the ceding company’s retention layer is said to write working layer or low layer excess of loss reinsurance. A loss that reaches just beyond the ceding company’s retention will create a loss for the lower layer reinsurer, but not for the reinsurers on the higher layers. Loss activity in lower layer reinsurance tends to be more predictable than in higher layers.

      Premiums payable by the ceding company to a reinsurer for excess of loss reinsurance are not directly proportional to the premiums that the ceding company receives because the reinsurer does not assume a proportionate risk. In contrast, premiums that the ceding company pays to the reinsurer for proportional reinsurance are proportional to the premiums that the ceding company receives, consistent with the proportional sharing of risk. In addition, in proportional reinsurance, the reinsurer generally pays the ceding company a ceding commission. The ceding commission generally is based on the ceding company’s cost of acquiring the business being reinsured (commissions, premium taxes, assessments and miscellaneous administrative expense) and also may include a profit factor for producing the business.

      Reinsurance may be written for insurance or reinsurance contracts covering casualty risks or property risks. In general, casualty insurance protects against financial loss arising out of an insured’s obligation for loss or damage to a third party’s property or person. Property insurance protects an insured against a financial loss arising out of the loss of property or its use caused by an insured peril or event. Property catastrophe coverage is generally “all risk” in nature and written on an excess of loss basis, with exposure to losses from earthquake, hurricanes and other natural or man made catastrophes such as storms, floods, fire or tornados. There tends to be a greater delay in the reporting and settlement of casualty reinsurance claims as compared to property claims due to the nature of the underlying coverage and the greater potential for litigation involving casualty risks.

      Reinsurers may purchase reinsurance to cover their own risk exposure. Reinsurance of a reinsurer’s business is called a retrocession. Reinsurance companies cede risks under retrocessional agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause insurers to purchase reinsurance: to reduce net liability on individual or classes of risks, protect against catastrophic losses, stabilize financial ratios and obtain additional underwriting capacity.

      Reinsurance can be written through professional reinsurance brokers or directly with ceding companies.

Lines of Business

      The following table sets forth our gross premiums written by type of business for each of the three years in the period ended December 31, 2004.

      We write property catastrophe excess of loss reinsurance, covering loss or damage from unpredictable events such as hurricanes, windstorms, hailstorms, freezes or floods, which provides aggregate exposure limits and requires cedants to incur losses in specified amounts before our obligation to pay is triggered. Approximately $212.2 million, or 7.9%, of gross premiums written for the year ended December 31, 2004 was derived from property catastrophe excess of loss reinsurance. We also write property business, which has exposure to catastrophes on a proportional basis, in North America and Latin America. In addition, the EuroAsia division writes largely property business, with exposure to catastrophes, primarily in Europe, Japan, the Pacific Rim and the Middle East.

      Treaty casualty business accounted for $850.8 million, or 31.8%, of gross premiums written for the year ended December 31, 2004, of which 65.5% was written on a proportional basis and 34.5% was written on an excess of loss basis. Our treaty casualty portfolio principally consists of specialty casualty products, including professional liability, directors’ and officers’ liability, excess and surplus lines, workers’ compensation and accident and health, as well as general casualty products, including general liability and auto liability. Treaty property business represented $700.8 million, or 26.1%, of gross premiums written for the year ended December 31, 2004, primarily consisting of commercial property and homeowners’ coverage, of which 57.0% was written on a proportional basis and 43.0% was written on an excess of loss basis. Treaty marine and aerospace business accounted for $138.3 million, or 5.2%, of gross premiums written for the year ended

December 31, 2004, of which 24.1% was written on an excess of loss basis and 75.9% on a proportional basis. Surety, credit and other miscellaneous reinsurance lines accounted for 4.5% of gross premiums written in 2004.

      Facultative reinsurance accounted for $166.0 million, or 6.2%, of gross premiums written for the year ended December 31, 2004, with 97.3% derived from the Americas division and 2.7% from the EuroAsia division. With respect to facultative business in the United States, we write only casualty reinsurance, including general liability, umbrella liability, directors’ and officers’ liability, professional liability and commercial auto lines; with respect to facultative business in Latin America and EuroAsia, we write primarily property reinsurance.

      We operate at Lloyd’s of London through our wholly owned syndicate, Newline Syndicate 1218. The business focus of Newline is casualty insurance. Our Lloyd’s membership provides strong brand recognition, extensive broker and distribution channels and worldwide licensing, including the ability to write insurance business on an excess and surplus lines basis in the United States.

      In addition to reinsurance, we provide insurance products through our U.S. Insurance division. This business is comprised of specialty program insurance business underwritten on both an admitted and non-admitted basis by Hudson, and physicians medical malpractice and hospital professional liability business underwritten by Hudson Specialty. Some of the policies that comprise the Hudson portfolio are generated through national and regional agencies and brokerages, as well as through program administrators. Each program administrator has strictly defined limitations on lines of business, premium capacity and policy limits. Many program administrators have limited geographic scope and all are limited regarding the type of business they may accept. Our Healthcare unit underwrites physicians medical malpractice and hospital professional liability insurance primarily on a non-admitted basis. Coverage is written on a claims-made basis, providing a wide range of limits and retentions.

      As a general matter, we target specific classes of business depending on the market conditions prevailing at any given point in time. We actively seek to grow our participation in classes experiencing improvements, and lessen participation in those classes suffering from intense competition or poor fundamentals. Consequently, the classes of business for which we provide reinsurance are diverse in nature and the product mix within the reinsurance and insurance portfolio may change over time. From time to time, we may consider opportunistic expansion or entry into new classes of business or ventures, either through organic growth or the acquisition of other companies or books of business.

      We are not materially dependent on any single customer, line of business or geographical area. We do not believe that the reduction of business assumed from any one customer or small group of customers would have a meaningful impact on future financial results, due to our competitive position in the marketplace and the availability of other sources of business.

Divisions

      Our business is organized across four operating divisions: the Americas, EuroAsia, London Market, and U.S. Insurance divisions. The table below illustrates gross premiums written by division for each of the three years in the period ended December 31, 2004.

     

      The Americas is our largest division, accounting for $1.3 billion, or 47.2%, of gross premiums written for the year ended December 31, 2004. The Americas division writes treaty, both casualty and property, and facultative casualty reinsurance in the United States and Canada, and treaty property, and other short-tail lines, and facultative property reinsurance in Latin America. The Americas division operates through six offices: Stamford; New York City; Mexico City; Miami; Santiago; and Toronto, and currently has 305 employees. The reinsurance operations of the Americas division seek to target small to medium sized regional and specialty ceding companies, as well as various specialized departments of major insurance companies.

      The Americas division is organized into three major units: the United States, Latin America and Canada. The London branch is also included in the Americas for business incepting prior to 2001.

      The following table displays gross premiums written by each of the units within the Americas division for each of the three years in the period ended December 31, 2004.

      The United States unit provides treaty business of virtually all classes of non-life insurance. In addition to the specialty casualty and general casualty reinsurance lines, the unit also writes commercial and personal property as well as marine and aerospace, accident and health, and surety lines. Facultative casualty is also written in the United States unit, mainly for general liability, umbrella liability, directors’ and officers’ liability, professional liability and commercial auto. The United States unit operates out of offices in Stamford and New York City. The Latin America unit writes primarily treaty and facultative business throughout the region, predominantly commercial property in nature, and also writes auto and marine lines. The Latin America unit has its principal office in Mexico City, with satellite offices in Miami and Santiago, Chile. Canada writes primarily property, crop hail and auto liability coverage, operating out of an office in Toronto.

      Gross premiums written by type of business for the Americas division are displayed in the following table for each of the three years in the period ended December 31, 2004.

      EuroAsia operates out of four offices, with principal offices in Paris and Singapore and satellite offices in Stockholm and Tokyo. The EuroAsia division currently has 84 employees. On October 1, 2004, Odyssey America sold its 97.7% ownership interest in First Capital to Fairfax Asia in exchange for Class B non-voting shares representing an approximate 45% ownership in Fairfax Asia. First Capital’s gross premiums written are included in the table below from September 10, 2002 through September 30, 2004.

      The EuroAsia division continued to expand its presence in 2004 in Europe, Asia, the Middle East and Africa, taking advantage of the rapidly changing international market place. The Paris branch office is the headquarters of the EuroAsia division and the underwriting center in charge of Europe, the Middle East, and Africa, with an office in Stockholm, Sweden, covering the Nordic countries. The Asia Pacific Rim unit is headquartered in Singapore, with an office in Tokyo, Japan, and writes property and casualty reinsurance on both a treaty and facultative basis.

      The EuroAsia division wrote $533.6 million, $408.1 million and $258.6 million, or 20.7%, 15.7% and 13.4%, of our gross premiums written for the years ended December 31, 2004, 2003 and 2002, respectively.

      The following table illustrates gross premiums written by type of business for the EuroAsia division for each of the three years in the period ended December 31, 2004.

      The London Market division operates through two platforms, with offices in London and Bristol: Odyssey America’s Syndicate 1218 at Lloyd’s (“Newline”) and the London branch. Newline’s business focus is liability insurance, while the London branch writes treaty reinsurance. These two underwriting platforms are run by an integrated management team with a common business approach. The London Market division currently has 73 employees and generated $447.7 million, or 16.7%, of our gross premiums written for the year ended December 31, 2004, compared to $437.9 million, or 16.8%, for the year ended December 31, 2003.

      The following table displays gross premiums written by business unit for the London Market division for each of the three years in the period ended December 31, 2004.

      The London branch writes worldwide treaty reinsurance through three units: property, marine and aerospace, and international casualty. For the year ended December 31, 2004, the London branch had gross premiums written of $182.5 million, or 40.8% of the total London Market division, compared to $154.4 million, or 35.3%, for the year ended December 31, 2003.

      Newline’s core business is liability insurance, which represented $254.3 million, or 56.8%, of the 2004 gross premiums written by the London Market, compared to $264.1 million, or 60.3%, in 2003. The liability insurance account is written in four business units: financial institutions, directors’ and officers’ liability, professional indemnity, and liability.

      The U.S. Insurance division operates through two units, with offices in New York, Chicago and Napa. Hudson Insurance Company provides specialty program insurance products through national and regional agencies and brokerages, as well as through program administrators. Effective January 1, 2003, we commenced, on a new and renewal basis, underwriting physicians medical malpractice and hospital professional liability insurance through a Healthcare unit headquartered in Napa, California. On October 28, 2003 we acquired an excess and surplus lines insurance company, Hudson Specialty, which serves as the main platform for the Healthcare business in 2004. The U.S. Insurance division currently has 96 employees and generated $412.1 million, or 15.4%, of our gross premiums written for the year ended December 31, 2004, compared to $333.8 million, or 12.8%, for the year ended December 31, 2003.

      The following table displays gross premiums written by the U.S. Insurance division for each of the three years in the period ended December 31, 2004.

Retention Levels and Retrocession Arrangements

      Under our current underwriting guidelines for treaties, we impose maximum retentions on a per risk basis. We believe that the levels of gross capacity per property risk that are in place are sufficient to achieve our objective of attracting business in the international markets. The following table illustrates the current gross capacity, maximum retrocession and maximum net retention generally applicable under our underwriting

guidelines. Larger limits, including aggregate deductibles, for treaty property, treaty casualty and insurance business may occasionally be written subject to the approval of senior management.

      We are subject to accumulation risk with respect to catastrophic events involving multiple treaties, facultative certificates and insurance policies. To protect against this we buy catastrophe excess of loss reinsurance protection. The retention, the level of capacity purchased, geographical scope of cover and the cost vary from year to year. The maximum recovery from a major United States catastrophic event in 2004 would be $70 million. Specific reinsurance protections are placed also to protect selected portions of our portfolio. In 2004, we purchased a Whole Account Aggregate Excess of Loss cover, of which a portion was available for additional catastrophe reinsurance protection.

Marketing

      We provide reinsurance capacity in the United States market primarily through brokers, and in international markets through brokers and directly to insurers and reinsurers.

      We believe the willingness of a primary insurer or reinsurer to use a specific reinsurer is not based solely on pricing. Other factors include: perception of the financial security of the reinsurer, claims paying ability rating, ability to design customized products, the quality of a reinsurer’s service and its commitment to provide reinsurance capacity. We believe we have developed a reputation with our clients for prompt responses on underwriting submissions and timely claims payments. Additionally, we believe our level of capital and surplus demonstrates our strong financial position and intent to continue providing reinsurance capacity.

      The reinsurance broker market consists of several significant national and international brokers and a number of smaller specialized brokers. Brokers do not have the authority to bind us with respect to reinsurance agreements, nor do we commit in advance to accept any portion of the business that brokers submit. Brokerage fees generally are paid by reinsurers and are included as an underwriting expense in the financial statements. Our five largest reinsurance brokers accounted for an aggregate of 56% of reinsurance gross premiums written in 2004.

      Direct distribution is an important channel for us in the overseas markets served by the Latin America unit of the Americas division and the EuroAsia division. Direct placement of reinsurance enables us to access clients who prefer to place their reinsurance directly with their reinsurers based upon the reinsurer’s in-depth understanding of the ceding company’s needs.

      Our primary insurance business generated through the U.S. Insurance division is written principally through national and regional agencies and brokerages, as well as through general agency relationships. Newline’s primary market business is written through agency and direct distribution channels.

Claims

      Claims are managed by our professional claims staff, whose responsibilities include the review of initial loss reports, creation of claim files, determination of whether further investigation is required, establishment and adjustment of case reserves, and payment of claims. Claims staff recognize that fair interpretation of our reinsurance agreements and timely payment of covered claims is a valuable service to clients and enhances our reputation. In addition to claims assessment, processing and payment, our claims staff conducts comprehensive claims audits of both specific claims and overall claims procedures at the offices of selected ceding companies, which we believe benefits all parties to the reinsurance arrangement. Claims audits are conducted in the ordinary course of business. In certain instances, a claims audit may be performed prior to assuming reinsurance business. Insurance claims for our Hudson specialty program business are generally handled by third party administrators, who have limited authority and are subject to review by our internal professional claims staff. For the physicians medical malpractice and hospital liability business, we employ a professional claims staff to review and establish claims reserves.

Reserves for Unpaid Losses and Loss Adjustment Expenses

      Significant periods of time may elapse between the occurrence of an insured loss, the reporting of the loss by the insured to the ceding company, the reporting of the loss by the ceding company to the reinsurer, the ceding company’s payment of that loss and subsequent payments to the ceding company by the reinsurer. To recognize liabilities for unpaid losses and loss adjustment expenses, insurers and reinsurers establish reserves, which are balance sheet liabilities representing estimates of future amounts needed to pay claims and related expenses with respect to insured events that have occurred on or before the balance sheet date, including events which have not been reported to the ceding company.

      Upon receipt of a notice of claim from the ceding company, we establish our own case reserve for the estimated amount of the ultimate settlement, if any. Case reserves usually are based upon the amount of reserves recommended by the ceding company and may be supplemented by additional amounts as deemed necessary by our claims staff. In certain instances, we establish case reserves even when the ceding company does not report any liability to the reinsurer.

      We also establish reserves to provide for incurred but unreported claims and the estimated expenses of settling claims, including legal and other fees, and the general expenses of administering the claims adjustment process, known as loss adjustment expenses. We calculate incurred but not reported loss and loss adjustment expense reserves by using generally accepted actuarial reserving techniques to project the ultimate liability for losses and loss adjustment expenses. We periodically revise such reserves to adjust for changes in the expected loss development pattern over time.

      Losses and loss adjustment expenses, net of related reinsurance recoverables, are charged to income as incurred. Unpaid losses and loss adjustment expenses comprise the accumulation of case reserves and incurred but not reported reserves. Provisions for inflation and “social inflation” (e.g., awards by judges and juries which progressively increase in size at a rate exceeding that of general inflation) are implicitly considered in the overall reserve setting process as an element of the numerous judgments that are made as to expected trends in average claim severity. Legislative changes may also affect our liabilities, and evaluation of the impact of such changes is made in the reserve setting process.

      The methods of determining estimates for reported and unreported losses and establishing resulting reserves and related reinsurance recoverables are continually reviewed and updated, and adjustments resulting from this review are reflected in income currently. The process relies upon the basic assumption that past experience, adjusted for the effect of current developments and likely trends, is an appropriate basis for predicting future events. However, estimation of loss reserves is a complex process, especially in view of changes in the legal environment which impact the development of loss reserves, therefore quantitative techniques frequently have to be supplemented by subjective considerations and managerial judgment. In addition, trends that have affected development of liabilities in the past may not necessarily occur or affect liability development to the same degree in the future.

      While the reserving process is complex and subjective for the ceding companies, the inherent uncertainties of estimating such reserves are even greater for the reinsurer, due primarily to the longer-term nature of most reinsurance business, the diversity of development patterns among different types of reinsurance treaties or facultative contracts, the necessary reliance on the ceding companies for information regarding reported claims and differing reserving practices among ceding companies. As a result, actual losses and loss adjustment expenses may deviate, perhaps substantially, from estimates of reserves reflected in our consolidated financial statements.

      During the loss settlement period, which can be many years in duration, additional facts regarding individual claims and trends usually become known. As these become apparent, it usually becomes necessary to refine and adjust the reserves upward or downward and even then the ultimate net liability may be less than or greater than the revised estimates. We use tabular reserving for workers’ compensation liabilities that are considered fixed and determinable and discount such reserves using an interest rate of 3.5% and standard mortality assumptions. The amount of loss reserve discount as of December 31, 2004 is $76.7 million.

      Included in our reserves are amounts related to environmental impairment and asbestos-related illnesses, which, net of related reinsurance recoverable, totaled approximately $62 million and $62 million as of December 31, 2004 and 2003, respectively. The majority of our environmental and asbestos-related liabilities arise from contracts entered into before 1985 and underwritten as standard general liability coverages where the environmental or asbestos-related liabilities were neither clearly defined nor specifically excluded. Significant uncertainty exists as to the ultimate settlement of these liabilities since, among other things, there are inconsistent court resolutions with respect to underlying policy intent and coverage, and uncertainties as to the allocation of responsibility for resultant damages.

      A dedicated claims unit manages the environmental impairment and asbestos related illness liabilities, due to the significantly greater uncertainty involving this exposure. This unit performs audits of policyholders with significant asbestos and environmental exposure to assess our potential liabilities. This unit also monitors developments within the insurance industry having a potential impact on our reserves. Through these processes, we believe that we have established an adequate provision for environmental impairment and asbestos related illness liabilities. Recent developments, which may have an impact on our liabilities, include (a) the significance of increased bankruptcy filings as a result of asbestos claims, (b) growth in the filing of claims against peripheral defendants and (c) recent claim settlement activity by companies with significant asbestos exposure.

      Our survival ratio for environmental and asbestos related liabilities as of December 31, 2004 is ten years, reflecting full utilization of remaining indemnifications. Our underlying survival ratio for environmental related liabilities is four years and for asbestos related liabilities is fourteen years. The survival ratio represents the environmental impairment and asbestos related illness reserves, net of reinsurance, on December 31, 2004 plus indemnifications, divided by the average paid environmental and asbestos claims, net of reinsurance, for the last three years. Our survival ratio is nine years, prior to the reflection of indemnifications. Refer to note 16 of our consolidated financial statements included in this Form 10-K. Our survival ratio compares favorably with the United States Property and Casualty Industry average survival ratio of nine years as published by A.M. Best in its special report on Asbestos and Environmental claims, dated December 6, 2004.

      The “Ten Year Analysis of Consolidated Net Losses and Loss Adjustment Expense Reserve Development” that follows presents the development of balance sheet loss and loss adjustment expense reserves for calendar years 1994 through 2004. The upper half of the table shows the cumulative amounts paid during successive years related to the opening reserve. For example, with respect to the net loss and loss adjustment expense reserve of $1,906 million as of December 31, 1994, by the end of 2004, $1,560 million had actually been paid in settlement of those reserves. In addition, as reflected in the lower section of the table, the original reserve of $1,906 million was re-estimated to be $1,834 million as of December 31, 2004. This change from the original estimate would normally result from a combination of a number of factors, including losses being settled for different amounts than originally estimated. The original estimates will also be increased or decreased, as more information becomes known about the individual claims and overall claim frequency and severity patterns. The net deficiency or redundancy depicted in the table, for any particular calendar year, shows the aggregate change in estimates over the period of years subsequent to the calendar year reflected at the top of the respective columns. For

example, the net redundancy of $37 million as of December 31, 2004 related to December 31, 1995 net loss and loss adjustment expense reserves of $1,987 million, represents the cumulative amount by which net reserves for 1995 have developed favorably from 1995 through 2004.

      Each amount other than the original reserves in the table below includes the effects of all changes in amounts for prior periods. For example, if a loss settled in 1997 for $150,000 was first reserved in 1994 at $100,000 and remained unchanged until settlement, the $50,000 deficiency (actual loss minus original estimate) would be included in the cumulative net deficiency in each of the years in the period 1994 through 1996 shown in the following table. Conditions and trends that have affected development of liability in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future development based on this table.

      The cumulative redundancy/(deficiency) values for 1996 through 2003 are impacted by significant loss reserve adjustments for Odyssey America and Clearwater. A reserve adjustment in calendar year 1997 on 1996 and prior outstanding losses, recognizing reserve inadequacies in Odyssey America prior to its purchase by Fairfax, accounts for approximately $69 million of the approximate $102 million cumulative deficiency reported for 1996. A reserve adjustment in calendar year 2002 on 2001 and prior outstanding losses, principally recognizing reserve inadequacies in Odyssey America’s United States casualty business written in the 1997-2000 period, accounts for approximately $41 million, $69 million, $78 million and $66 million of the approximate $317 million, $461 million, $574 million and $481 million cumulative deficiencies reported for years 1998 through 2001, respectively. A reserve adjustment in calendar year 2003 on 2002 and prior outstanding losses, principally recognizing reserve inadequacies in Odyssey America’s and Clearwater’s United States casualty business written in the 1997-2000 period, accounts for approximately $135 million, $216 million, $230 million, $136 million and $117 million of the approximate $317 million, $461 million, $574 million, $481 million and $356 million cumulative deficiencies reported for years 1998 through 2002, respectively. A reserve adjustment in calendar year 2004 on 2003 and prior outstanding losses, principally recognizing reserve inadequacies in Odyssey America’s and Clearwater’s United States casualty business written in the 1997-2000 period, accounts for approximately $90 million, $179 million, $242 million, $228 million, $210 million and $176 million of the approximate $317 million, $461 million, $574 million, $481 million, $356 million and $181 million cumulative deficiencies reported for years 1998 through 2003, respectively.

      As discussed in note 5 to our consolidated financial statements included in this Form 10-K, the cumulative redundancy/(deficiency) values for 1995 through 2003 are also impacted by a stop loss agreement involving Clearwater’s loss reserves as of December 31, 1995. Without this stop loss agreement, the cumulative deficiency amounts for 1995 through 2003 would have been $121 million, $244 million, $237 million, $423 million, $549 million, $646 million, $534 million, $391 million and $199 million, respectively. Under the stop loss agreement, Clearwater retroceded, and nSpire Re Limited, a Fairfax subsidiary, agreed to reinsure, 100 percent of Clearwater’s net incurred losses plus cumulative net incurred uncollectable reinsurance recoverables, for accident years 1995 and prior, in excess of approximately $929 million, subject to a cumulative aggregate limit of $175 million.

      The gross cumulative deficiency for 1996 through 2003 was impacted by significant loss reserve adjustments for Odyssey America and Clearwater. A reserve adjustment in calendar year 1997 on 1996 and prior gross outstanding losses, recognizing reserve inadequacies in Odyssey America prior to its purchase by Fairfax, accounts for approximately $140 million of the approximate $408 million gross cumulative deficiency reported for 1996. A reserve adjustment in calendar year 2002 on 2001 and prior gross outstanding losses, principally recognizing reserve inadequacies in Odyssey America’s United States casualty business written in the 1997-2000 period, accounts for approximately $47 million, $60 million, $128 million and $146 million of the approximate $712 million, $948 million, $999 million and $878 million gross cumulative deficiencies reported for years 1998 through 2001, respectively. A reserve adjustment in calendar year 2003 on 2002 and prior gross outstanding losses, principally recognizing reserve inadequacies in Odyssey America’s and Clearwater’s United States casualty business written in the 1997-2000 period, accounts for approximately $133 million, $233 million, $303 million, $278 million and $261 million of the approximate $712 million, $948 million, $999 million, $878 million and $679 million gross cumulative deficiencies reported for years 1998 through 2002, respectively. A reserve adjustment in calendar year 2004 on 2003 and prior gross outstanding losses, principally recognizing

reserve inadequacies in Odyssey America’s and Clearwater’s United States casualty business written in the 1997-2000 period, accounts for approximately $183 million, $275 million, $305 million, $296 million, $283 million and $250 million of the approximate $712 million, $948 million, $999 million, $878 million, $679 million and $284 million gross cumulative deficiencies reported for years 1998 through 2003, respectively. Most of this gross loss emergence has been ceded to retrocessional protections. Additionally, environmental and asbestos loss emergence accounts for a substantial portion of the remaining gross cumulative deficiencies for the years 1996 through 2003. All of this environmental and asbestos emergence has been ceded to retrocessional and indemnification protections.

      In summary, the cumulative deficiencies recognized in calendar years 2004, 2003 and 2002 are $181 million, $117 million and $66 million, respectively. Higher loss estimates on United States casualty business for accident years 1997 through 2000 are principally causing the increase on prior years’ loss estimates in these calendar years. The classes of business contributing most to the changes in loss estimates include general casualty, directors and officers, errors and omissions and medical malpractice liability. The casualty insurance loss development patterns for these accident years were not consistent with prior periods due to the extremely competitive environment impacting coverage terms and conditions. This led to the cumulative deficiencies noted.

      A table presenting a reconciliation of beginning and ending reserve balances for calendar years 2004, 2003 and 2002 is provided in note 15 to our consolidated financial statements included in this Form 10-K.

Ten Year Analysis of Consolidated Losses and Loss Adjustment Expense Reserve Development Table

Presented Net of Reinsurance With Supplemental Gross Data

Investments

      As of December 31, 2004, we held cash and investments totaling $5.2 billion, with a net unrealized gain of $129.8 million. Our overall strategy is to maximize the total return of the investment portfolio, while prudently preserving invested capital for protection of policyholders and providing sufficient liquidity for the payment of claims and other policy obligations. Our investment policy provides the flexibility to implement this strategy.

      Our investment guidelines, which are approved by our Board of Directors, stress preservation of capital, market liquidity, diversification of risk and a long-term, value-oriented strategy. All investments are to be made using the value approach, by investing in securities that we believe are selling below their intrinsic value, in order to protect capital from loss and generate above-average, long term total returns.

      With regard to equities, no attempt is made to forecast the economy or the stock market. Equities are selected on the basis of selling prices which are at a substantial discount to conservatively estimated intrinsic values. Downside protection is obtained by seeking a margin of safety in terms of a sound financial position.

      With regard to fixed income securities, no attempt is made to forecast the economy or interest rates. Rather, fixed income securities are selected on the basis of yield spreads over Treasury bonds, subject to stringent credit analysis. Securities meeting these criteria may not be readily available, in which case Treasury bonds are emphasized. The fixed income portfolio currently has an average credit quality of “AA” as measured by Standard & Poor’s. Notwithstanding the foregoing, our investments are subject to market risks and fluctuations, as well as to risks inherent in particular securities.

      On the whole, the availability of equity securities meeting value-based criteria will dictate the portfolio’s exposure to equities. Similarly, the availability of attractive yield spreads and strong credit will determine the level of exposure to corporate bonds.

      As part of our review and monitoring process, we regularly test the impact of a simultaneous substantial reduction in common stock, preferred stock, and bond prices on insurance regulatory capital to ensure that capital adequacy will be maintained at all times.

      Primarily because of the potential for large claims payments, the investment portfolio is structured to provide a high level of liquidity. The table below shows the aggregate amounts of investments in fixed income securities, equity securities, cash and cash equivalents and other invested assets comprising our portfolio of invested assets.

      As of December 31, 2004, the fixed income portion of our invested asset portfolio had a dollar weighted average rating of “AA,” an average duration of 9.7 years and an average yield to maturity of 5.2% before investment expenses.

      Market Sensitive Instruments. Our investment portfolio includes investments that are subject to changes in market values as interest rates change. The aggregate hypothetical loss generated from an immediate adverse parallel shift in the treasury yield curve of 100 or 200 basis points would cause a decrease in total return of approximately 9.3% and 17.2%, respectively, which equates to a decrease in market value of approximately $234.1 million or $431.9 million, respectively, on a portfolio valued at $2.5 billion as of December 31, 2004. The foregoing reflects the use of an immediate time horizon, since this presents the worst-case scenario. Credit spreads are assumed to remain constant in these hypothetical examples.

      The following table summarizes the fair value of our investments (other than affiliated equity investments and other invested assets) at the dates indicated.

      The following table summarizes the fair value by contractual maturities of our fixed income securities portfolio at the dates indicated.

      The contractual maturities reflected above may differ from the actual maturities due to the existence of call or put features. As of December 31, 2004 and 2003, approximately 4% and 3%, respectively, of the fixed income securities shown above had a call feature which, at the issuer’s option, allowed the issuer to repurchase the securities on one or more dates prior to their maturity. As of December 31, 2004 and 2003, approximately 4% and 5%, respectively, of the fixed income securities shown above had a put feature, which, at our option, required the issuer to repurchase the investments on one or more dates prior to their maturity. For the investments shown above, if the call feature or put feature is exercised, the actual maturities will be shorter than the contractual maturities shown above. In the case of securities that are subject to early call by the issuer, the actual maturities will be the same as the contractual maturities shown above if the issuer does not exercise its call feature. In the case of securities containing put features, the actual maturities will be the same as the contractual maturities shown above if the investor elects not to exercise its put feature, but to hold the securities to their final maturity dates.

      Quality of Debt Securities in Portfolio. The following table summarizes the composition of the fair value of our fixed income securities portfolio at the dates indicated by rating as assigned by Standard & Poor’s or Moody’s, using the higher of these ratings for any security where there is a split rating.

      As of December 31, 2004, 13.3% of our fixed income securities were rated BB/ Ba2 or lower compared to 16.5% as of December 31, 2003. During 2004, the ratings of certain investments declined. In addition, we acquired certain securities in this category, during 2004, as we believe these securities will provide a favorable investment return.

Competition

      The worldwide property and casualty reinsurance business is highly competitive. Globally, the competitive marketplace of the 1990s resulted in decreasing prices and broadening contract terms. Poor financial results associated with those years, compounded by the September 11th terrorist attack and stock market reversals, have resulted in changes in management and ownership of several reinsurers, with some competitors withdrawing from key markets. Improving trends, apparent in 2001, continued in 2002 and 2003 and for certain classes of business in 2004; however, during 2004, the improving trends of recent years moderated considerably and we cannot predict how long these improvements will maintain the current level of pricing, terms and conditions. The improvement in pricing levels and contract terms attracted new capital to the industry, with most of the new competitors choosing Bermuda as their domicile. In addition, a number of existing market participants raised new capital, thereby strengthening their ability to compete. Our competitors include independent reinsurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain primary insurance companies, and domestic and European underwriting syndicates. Some of these competitors have longer operating histories, larger customer bases and substantially greater underwriting, marketing, and administrative resources than OdysseyRe.

      United States insurance companies that are licensed to underwrite insurance are also licensed to underwrite reinsurance, making the commercial access into the reinsurance business relatively uncomplicated. In addition, Bermuda reinsurers that initially specialized in catastrophe reinsurance are now broadening their product offerings. The potential for securitization of reinsurance and insurance risks through capital markets provides an additional source of potential competition.

      In our primary insurance business, we face competition from independent insurance companies, subsidiaries or affiliates of major worldwide companies and others, some of which have greater financial and other resources than we do. Primary insurers compete on the basis of various factors including distribution channels, product, price, service, financial strength and reputation. Hudson and our Healthcare units compete with other providers of specialty program business and physicians medical malpractice business, Lloyd’s syndicates, larger multi-national insurance groups, and alternative risk management programs. Pricing is a primary means of competition in the specialty program and physicians medical malpractice business. We are committed to maintaining our underwriting standards and as a result, our premium volume may vary based on existing market conditions.

      Competition in the types of business that OdysseyRe underwrites is based on price, speed of service (including claims payment), security and agency ratings (including A.M. Best Company, Moody’s and

Standard & Poor’s). Underwriting expertise and technical ability in lines written, along with the jurisdictions where the reinsurer or insurer is licensed or authorized to do business, is also a factor.

Employees

      As of December 31, 2004, we had 558 employees. We believe our relationship with our employees is satisfactory.

Regulatory Matters

      We are subject to regulation under the insurance statutes, including insurance holding company statutes, of various jurisdictions, including Connecticut, the domiciliary state of Odyssey America, Delaware, the domiciliary state of Clearwater, Hudson and Clearwater Select, New York, the domiciliary state of Hudson Specialty, and the United Kingdom, the domiciliary jurisdiction of Newline. Newline is also subject to regulation by the Council of Lloyd’s. In addition, we are subject to regulation by the insurance regulators of other states and foreign jurisdictions in which we or our operating subsidiaries do business.

      The terms and conditions of reinsurance agreements with respect to rates or policy terms generally are not subject to regulation by any governmental authority. This contrasts with primary insurance policies and agreements issued by primary insurers such as Hudson, the rates and policy terms of which are generally regulated closely by state insurance departments. As a practical matter, however, the rates charged by primary insurers influence the rates that can be charged by reinsurers.

      We are subject primarily to regulation and supervision that relates to licensing requirements of reinsurers, the standards of solvency that reinsurers must meet and maintain, the nature of and limitations on investments, restrictions on the size of risks that may be reinsured, the amount of security deposits necessary to secure the faithful performance of a reinsurer’s insurance obligations, methods of accounting, periodic examinations of the financial condition and affairs of reinsurers, the form and content of any financial statements that reinsurers must file with state insurance regulators and the level of minimal reserves necessary to cover unearned premiums, losses and other purposes. In general, these regulations are designed to protect ceding insurers and, ultimately, their policyholders, rather than stockholders. We believe that we and our subsidiaries are in material compliance with all applicable laws and regulations pertaining to our business and operations.

      State insurance holding company statutes provide a regulatory apparatus which is designed to protect the financial condition of domestic insurers operating within a holding company system. All holding company statutes require disclosure and, in some instances, prior approval of significant transactions between the domestic insurer and an affiliate. Such transactions typically include service arrangements, sales, purchases, exchanges, loans and extensions of credit, reinsurance agreements, and investments between an insurance company and its affiliates, in some cases involving certain aggregate percentages of a company’s admitted assets or policyholders’ surplus, or dividends that exceed certain percentages. State regulators also require prior notice or regulatory approval of acquisitions of control of an insurer or its holding company.

      Under the Connecticut, Delaware and New York Insurance Codes and regulations, no person, corporation or other entity may acquire control of us or our operating subsidiaries unless such person, corporation or entity has obtained the prior approval of the Connecticut, Delaware and New York Insurance Commissioners for the acquisition. For the purposes of the Connecticut, Delaware and New York Insurance Codes, any person acquiring, directly or indirectly, 10% or more of the voting securities of an insurance company is presumed to have acquired “control” of that company. To obtain the approval of any acquisition of control, any prospective acquiror must file an application with the relevant Insurance Commissioners. This application requires the acquiror to disclose its background, financial condition, the financial condition of its affiliates, the source and amount of funds by

which it will effect the acquisition, the criteria used in determining the nature and amount of consideration to be paid for the acquisition, proposed changes in the management and operations of the insurance company and any other related matters.

      The United Kingdom Insurance Companies Act of 1982 also requires prior approval by the Financial Services Authority of anyone proposing to become a controller of an insurance company or reinsurance company that carries on business in the United Kingdom but which is incorporated outside the United Kingdom. In this case, any company or individual who is entitled to exercise or control the exercise of 15% or more of the voting power at any general meeting of the insurance company or reinsurance company or of a body corporate of which it is a subsidiary, is considered a “controller.” A purchaser of 15% or more of the outstanding shares of our common stock will be a “controller” of Odyssey America, which is authorized to carry on reinsurance business in the United Kingdom through the London branch. Other than our subsidiaries in the London Market division, none of our other insurance or reinsurance subsidiaries is authorized to carry on business in the United Kingdom.

      Under the bylaws made by Lloyd’s pursuant to the Lloyd’s Act of 1982, the prior written approval of the Council of Lloyd’s is required of anyone proposing to become a “controller” of any Lloyd’s Managing Agency. Any company or individual that holds 10% or more of the shares in the managing agency company, or is entitled to exercise or control the exercise of 10% or more of the voting power at any general meeting of the Lloyd’s Managing Agency or, in both cases, of another company of which the Lloyd’s Managing Agency is a subsidiary, is considered a “controller.” A purchaser of more than 10% of the outstanding shares in our common stock will be a “controller” of the United Kingdom Lloyd’s Managing Agency subsidiary, Newline.

      The requirements under the Connecticut, Delaware and New York Insurance Codes and the United Kingdom Insurance Companies Act of 1982 (and other applicable states and foreign jurisdictions), and the rules of the Council of Lloyd’s, may deter, delay or prevent certain transactions affecting the control or ownership of our common stock, including transactions that could be advantageous to our stockholders.

      Because our operations are conducted primarily at the subsidiary level, we are dependent upon dividends from our subsidiaries to meet our debt and other obligations and to declare and pay dividends on our common stock in the future should our Board of Directors decide to do so. The payment of dividends to us by our operating subsidiaries is subject to limitations imposed by law in Connecticut, Delaware, New York and the United Kingdom.

      Under the Connecticut and Delaware Insurance Codes, before a Connecticut or Delaware domiciled insurer, as the case may be, may pay any dividend it must have given notice within five days following the declaration thereof and 10 days prior to the payment thereof to the Connecticut or Delaware Insurance Commissioners, as the case may be. During this 10-day period, the Connecticut or Delaware Insurance Commissioner, as the case may be, may, by order, limit or disallow the payment of ordinary dividends if he finds the insurer to be presently or potentially in financial distress. Under Connecticut and Delaware Insurance Regulations, the Insurance Commissioner may issue an order suspending or limiting the declaration or payment of dividends by an insurer if he or she determines that the continued operation of the insurer may be hazardous to its policyholders. A Connecticut domiciled insurer may only pay dividends out of “earned surplus,” defined as the insurer’s “unassigned funds surplus” reduced by 25% of unrealized appreciation in value or revaluation of assets or unrealized profits on investments, as defined in such insurer’s annual statutory financial statement. A Delaware domiciled insurer may only pay cash dividends from the portion of its available and accumulated surplus funds derived from realized net operating profits and realized capital gains. Additionally, a Connecticut or Delaware domiciled insurer may not pay any “extraordinary” dividend or distribution until (i) 30 days after the Insurance Commissioner has received notice of a declaration of the dividend or distribution and has not within that period disapproved the payment or (ii) the Insurance Commissioner has approved the payment within the 30-day period. Under the Connecticut Insurance Code, an “extraordinary” dividend of a property and casualty insurer is a dividend, the amount of which, together with all other dividends and distributions made in the preceding 12 months, exceeds the greater of (i) 10% of the insurer’s surplus with respect to policyholders as of the end of the prior calendar year or (ii) the insurer’s net income for the prior calendar year (not including pro rata distributions of any class of the insurer’s

own securities). The Connecticut Insurance Department has stated that the preceding 12 month period ends the month prior to the month in which the insurer seeks to pay the dividend. Under the Delaware Insurance Code, an “extraordinary” dividend of a property and casualty insurer is a dividend the amount of which, together with all other dividends and distributions made in the preceding 12 months, exceeds the greater of (i) 10% of an insurer’s surplus with respect to policyholders, as of the end of the prior calendar year or (ii) the insurer’s statutory net income, not including realized capital gains, for the prior calendar year. Under these definitions, the maximum amount that will be available for the payment of dividends by Odyssey America for the year ending December 31, 2005 without requiring prior approval of regulatory authorities is approximately $167.6 million.

      New York law provides that an insurer domiciled in New York must obtain the prior approval of the state insurance commissioner for the declaration or payment of any dividend that, together with dividends declared or paid in the preceding 12 months, exceeds the lesser of (i) 10% of policyholders’ surplus as shown by its last statement on file with the New York Insurance Department and (ii) adjusted net investment income (which does not include realized gains or losses) for the preceding 12-month period. Adjusted net investment income includes a carry forward of undistributed net investment income for two years. Such declaration or payment is further limited by earned surplus, as determined in accordance with statutory accounting practices prescribed or permitted in New York. Under New York law, an insurer domiciled in New York may not pay dividends to shareholders except out of “earned surplus,” which in this case is defined as “the portion of the surplus that represents the net earnings, gains or profits, after the deduction of all losses, that have not been distributed to the shareholders as dividends or transferred to stated capital or capital surplus or applied to other purposes permitted by law but does not include unrealized appreciation of assets.”

      United Kingdom law prohibits any U.K. company, including Newline, from declaring a dividend to its stockholders unless such company has “profits available for distribution.” The determination of whether a company has profits available for distribution is based on a company’s accumulated realized profits less its accumulated realized losses. While there are no statutory restrictions imposed by the United Kingdom insurance regulatory laws upon an insurer’s ability to declare dividends, insurance regulators in the United Kingdom strictly control the maintenance of each insurance company’s solvency margin within their jurisdiction and may restrict an insurer from declaring a dividend beyond a level which the regulators determine would adversely affect an insurer’s solvency requirements. It is common practice in the United Kingdom to notify regulators in advance of any significant dividend payment.

      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: (1) if the reinsurer is licensed in the state in which the primary insurer is domiciled or, in some instances, in certain states in which the primary insurer is licensed; (2) if the reinsurer is an “accredited” or otherwise approved reinsurer in the state in which the primary insurer is domiciled or, in some instances, in certain states in which the primary insurer is licensed; (3) in some instances, if the reinsurer (a) is domiciled in a state that is deemed to have substantially similar credit for reinsurance standards as the state in which the primary insurer is domiciled and (b) meets certain financial requirements; or (4) if none of the above apply, to the extent that the reinsurance obligations of the reinsurer are collateralized appropriately, typically through the posting of a letter of credit for the benefit of the primary insurer or the deposit of assets into a trust fund established for the benefit of the primary insurer. Therefore, as a result of the requirements relating to the provision of credit for reinsurance, we are indirectly subject to certain regulatory requirements imposed by jurisdictions in which ceding companies are licensed.

      State insurance laws contain rules governing the types and amounts of investments that are permissible for domiciled insurers. These rules are designed to ensure the safety and liquidity of an insurer’s investment portfolio. Investments in excess of statutory guidelines do not constitute “admitted assets” (i.e., assets permitted by insurance laws to be included in a domestic insurer’s statutory financial statements) unless special approval is obtained from the regulatory authority. Non-admitted assets are not considered for the purposes of various

financial ratios and tests, including those governing solvency and the ability to write premiums. An insurer may hold an investment authorized under more than one provision of the insurance laws under the provision of its choice (except as otherwise expressly provided by law).

      The liquidation of insurance companies, including reinsurers, is generally conducted pursuant to state insurance law. In the event of the liquidation of one of our operating insurance subsidiaries, liquidation proceedings would be conducted by the insurance regulator of the state in which the subsidiary is domiciled, as the domestic receiver of its properties, assets and business. Liquidators located in other states (known as ancillary liquidators) in which we conduct business may have jurisdiction over assets or properties located in such states under certain circumstances. Under Connecticut, Delaware and New York law, all creditors of our operating insurance subsidiaries, including but not limited to reinsureds under their reinsurance agreements, would be entitled to payment of their allowed claims in full from the assets of the operating subsidiaries before we, as a stockholder of our operating subsidiaries, would be entitled to receive any distribution.

      Some states have adopted and others are considering legislative proposals that would authorize the establishment of an interstate compact concerning various aspects of insurer insolvency proceedings, including interstate governance of receiverships and guaranty funds.

      The NAIC is an organization that assists state insurance supervisory officials in achieving insurance regulatory objectives, including the maintenance and improvement of state regulation. From time to time various regulatory and legislative changes have been proposed in the insurance industry, some of which could have an effect on reinsurers. The NAIC has instituted its Financial Regulatory Accreditation Standards Program (“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 such items in order to become an “accredited” state. If a state is not accredited, accredited states are not able to accept certain financial examination reports of insurers prepared solely by the regulatory agency in such unaccredited state. The States of Connecticut and Delaware are accredited under FRASP. The State of New York, Hudson Specialty’s state of domicile, is not accredited under FRASP. There can be no assurance that, should the State of New York remain unaccredited, other states that are accredited will continue to accept financial examination reports prepared solely by New York. We do not believe that the refusal by an accredited state to accept financial examination reports prepared by New York, should that occur, would have a material adverse impact on our insurance businesses.

      In order to enhance the regulation of insurer solvency, the NAIC has adopted a formula and model law to implement risk-based capital requirements for property and casualty insurance companies. Connecticut, Delaware and New York have each adopted risk-based capital legislation for property and casualty insurance and reinsurance companies that is similar to the NAIC risk-based capital requirement. 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: (1) underwriting, which encompasses the risk of adverse loss development and inadequate pricing; (2) declines in asset values arising from credit risk; and (3) declines in asset values arising from investment risks. Insurers having less statutory surplus than required by the risk-based capital calculation will be subject to varying degrees of company or regulatory action, depending on the level of capital inadequacy. The surplus levels (as calculated for statutory annual statement purposes) of our operating insurance companies are above the risk-based capital thresholds that would require either company or regulatory action.

      The NAIC adopted the Codification of Statutory Accounting Principles (“Codification”) which is intended to standardize regulatory accounting and reporting for the insurance industry. The Codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in some areas. However, statutory accounting principles will continue to be established by individual state laws and permitted practices. The states of Connecticut and Delaware have adopted the Codification. New York has adopted the Codification, with certain modifications to reflect provisions required by New York law or policy.

      Our operating subsidiaries that write primary insurance are required to be members of guaranty associations in each state in which they write business. These associations are organized to pay covered claims (as defined and limited by various guaranty association statutes) under insurance policies issued by primary insurance companies that have become insolvent. These state guaranty funds make assessments against member insurers to obtain the funds necessary to pay association covered claims. New York has a pre-assessment guaranty fund, which makes assessments prior to the occurrence of an insolvency, in contrast with other states, which make assessments after an insolvency takes place. In addition, primary insurers are required to participate in mandatory property and casualty shared market mechanisms or pooling arrangements that provide various coverages to individuals or other entities that are otherwise unable to purchase such coverage in the commercial insurance marketplace. Our operating subsidiaries’ participation in such shared markets or pooling mechanisms is generally proportionate to the amount of direct premiums written in respect of primary insurance for the type of coverage written by the applicable pooling mechanism.

      From time to time various regulatory and legislative changes have been proposed in the insurance and reinsurance industry that could have an effect on reinsurers. Among the proposals that in the past have been or are at present being considered is the possible introduction of federal regulation in addition to, or in lieu of, the current system of state regulation of insurers. In addition, there are a variety of proposals being considered by various state legislatures. We are unable to predict whether any of these 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.

      Government intervention in the insurance and reinsurance markets, both in the U.S. and worldwide, continues to evolve. Federal and state legislators and regulators have considered numerous statutory and regulatory initiatives. While we cannot predict the exact nature, timing, or scope of other such proposals, if adopted they could adversely affect our business by:

      The Terrorism Risk Insurance Act of 2002 (TRIA) established a program under which the U.S. federal government will share with the insurance industry the risk of loss from certain acts of international terrorism. The program is applicable to substantially all commercial property and casualty lines of business (with the notable exception of reinsurance), and participation by insurers writing such lines is mandatory. Under TRIA, all applicable terrorism exclusions contained in policies in force on November 26, 2002 were voided. For policies in force on or after November 26, 2002, insurers are required to provide coverage for losses arising from acts of terrorism as defined by TRIA on terms and in amounts which may not differ materially from other policy

coverages. To be covered under TRIA, aggregate losses from the act must exceed $5.0 million, the act must be perpetrated within the U.S. on behalf of a foreign person or interest and the U.S. Secretary of the Treasury must certify that the act is covered under the program.

      Under TRIA, the federal government will reimburse insurers for 90% of losses above a defined insurer deductible. The deductible for each participating insurer is based on a percentage of the combined direct earned premiums in the preceding calendar year of the insurer, defined to include its subsidiaries and affiliates. In 2005, the deductible is equal to 15% of the insurer’s combined direct earned premiums for 2004. Federal reimbursement of the insurance industry pursuant to TRIA is limited to $100.0 billion in 2005. Under certain circumstances, the federal government may require insurers to levy premium surcharges on policyholders to recoup for the federal government its reimbursements paid.

      While the provisions of TRIA and the purchase of certain terrorism reinsurance coverage mitigate our exposure in the event of a large-scale terrorist attack, our effective deductible is significant. Further, our exposure to losses from terrorist acts is not limited to TRIA events since domestic terrorism is generally not excluded from our policies and, regardless of TRIA, some state insurance regulators do not permit terrorism exclusions for various coverages or causes of loss. Accordingly, we continue to monitor carefully our concentrations of risk.

      Primary insurance companies providing commercial property and casualty insurance in the U.S., such as Hudson and Hudson Specialty, are required to participate in the TRIA program. TRIA generally does not purport to govern the obligations of reinsurers, such as Odyssey America. The TRIA program is scheduled to expire at the end of 2005, although bills have been introduced in Congress to extend the program. There is substantial uncertainty as to whether Congress will extend the program, and it is possible that the non-renewal of TRIA could adversely affect the industry, including us.

      The New York Attorney General’s office and other governmental and regulatory bodies are investigating allegations relating to a wide range of practices in the insurance and reinsurance industry, including contingent commissions payments and allegations of price fixing, market allocation, or bid rigging. As of the date hereof, we have not been contacted by any of these parties, although we have received and responded to demands to produce information from several state insurance departments as part of the industry-wide review being conducted by these states. We intend to cooperate with these requests and others we may receive from governmental and regulatory bodies.

      We have undertaken to review our practices in light of the matters being reviewed by the New York Attorney General and other governmental authorities. This review is ongoing. We are actively monitoring these ongoing, industry-wide investigations. It is possible that these investigations or related regulatory developments will mandate changes in industry practices in a fashion which increases our costs or requires us to alter aspects of the way we do business.

Risk Factors

      Factors that could cause our actual results to differ materially from those described in the forward-looking statements contained in this Form 10-K and other documents we file with the Securities and Exchange Commission include the risks described below. You should also refer to the other information in this Annual Report on Form 10-K, including the financial statements and accompanying notes thereto.

      The reinsurance industry is highly competitive. We compete, and will continue to compete, with major United States and non-United States reinsurers and certain underwriting syndicates and insurers, some of which have greater financial, marketing and management resources than we do. In addition, we may not be aware of other companies that may be planning to enter the reinsurance market or existing reinsurers that may be planning

to raise additional capital. Moreover, Lloyd’s of London, in contrast with prior practice, now allows its syndicates to accept capital from corporate investors, which may result in such syndicates becoming more competitive in our markets. Competition in the types of reinsurance business that we underwrite is based on many factors, including premiums charged and other terms and conditions offered, services provided, financial ratings assigned by independent rating agencies, speed of claims payment, reputation, perceived financial strength and the experience of the reinsurer in the line of reinsurance to be written. Increased competition could cause us and other reinsurance providers to charge lower premium rates and obtain less favorable policy terms, which could adversely affect our ability to generate revenue and grow our business.

      We also are aware that other financial institutions, such as banks, are now able to offer services similar to our own. In addition, we have recently seen the creation of alternative products from capital market participants that are intended to compete with reinsurance products. We are unable to predict the extent to which these new, proposed or potential initiatives may affect the demand for our products or the risks that may be available for us to consider underwriting.

      Our primary insurance is a business segment that is growing, and the primary insurance business is also highly competitive. Primary insurers compete on the basis of factors including selling effort, product, price, service and financial strength. We seek primary insurance pricing that will result in adequate returns on the capital allocated to our primary insurance business. Our business plans for these business units could be adversely impacted by the loss of primary insurance business to competitors offering competitive insurance products at lower prices.

      This competition could affect our ability to attract and retain business.

      Our success is dependent upon our ability to assess accurately the risks associated with the businesses that we reinsure or insure. If we fail to accurately assess the risks we assume, we may fail to establish appropriate premium rates and our reserves may be inadequate to cover our losses, which could have a material adverse effect on our financial condition or reduce our net income.

      As of December 31, 2004, we had net unpaid losses and loss adjustment expenses of approximately $3,135.9 million. We incurred losses and loss adjustment expenses of $1,629.6 million, $1,325.8 million and $987.2 million for the years ended December 31, 2004, 2003 and 2002, respectively.

      Reinsurance claim reserves represent estimates involving actuarial and statistical projections at a given point in time of our expectations of the ultimate settlement and administration costs of claims incurred. We utilize both proprietary and commercially available actuarial models as well as historical reinsurance industry loss development patterns to assist in the establishment of appropriate claim reserves. In contrast to casualty losses, which frequently can be determined only through lengthy and unpredictable litigation, non-casualty property losses tend to be reported promptly and usually are settled within a shorter period of time. Nevertheless, for both casualty and property losses, actual claims and claim expenses paid may deviate, perhaps substantially, from the reserve estimates reflected in our financial statements. In addition, because we, like other reinsurers, do not separately evaluate each of the individual risks assumed under reinsurance treaties, we are largely dependent on the original underwriting decisions made by ceding companies. We are subject to the risk that the ceding companies may not have adequately evaluated the risks to be reinsured and that the premiums ceded may not adequately compensate us for the risks we assume. If our claim reserves are determined to be inadequate, we will be required to increase claim reserves with a corresponding reduction in our net income in the period in which the deficiency is rectified. It is possible that claims in respect of events that have occurred could exceed our claim reserves and have a material adverse effect on our results of operations in a particular period or our financial condition.

      Even though most insurance contracts have policy limits, the nature of property and casualty insurance and reinsurance is that losses can exceed policy limits for a variety of reasons and could significantly exceed the premiums received on the underlying policies.

      Unanticipated developments in the law as well as changes in social and environmental conditions could result in unexpected claims for coverage under our insurance and reinsurance contracts. These developments and changes may adversely affect us, perhaps materially. For example, we could be subject to developments that impose additional coverage obligations on us beyond our underwriting intent, or to increases in the number or size of claims to which we are subject. With respect to our casualty businesses, these legal, social and environmental changes may not become apparent until some time after their occurrence. Our exposure to these uncertainties could be exacerbated by the increased willingness of some market participants to dispute insurance and reinsurance contract and policy wordings.

      The full effects of these and other unforeseen emerging claim and coverage issues are extremely hard to predict. As a result, the full extent of our liability under our coverages, and in particular our casualty insurance policies and reinsurance contracts, may not be known for many years after a policy or contract is issued. Our exposure to this uncertainty will grow as our “long-tail” casualty businesses grow, because in these lines of business claims can typically be made for many years, making them more susceptible to these trends than in the property insurance business, which is more typically “short-tail.” In addition, we could be adversely affected by the growing trend of plaintiffs targeting participants in the property-liability insurance industry in purported class action litigation relating to claim handling and other practices.

      Catastrophes can be caused by various events, including natural events such as hurricanes, windstorms, earthquakes, hailstorms, severe winter weather and fires, and unnatural events such as acts of war, terrorist attacks, explosions and riots. The incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most catastrophes are restricted to small geographic areas; however, hurricanes, windstorms and earthquakes may produce significant damage in large, heavily populated areas, and most of our past catastrophe-related claims have resulted from severe storms. Catastrophes can cause losses in a variety of property and casualty lines for which we provide reinsurance. Insurance companies are not permitted to reserve for a catastrophe until it has occurred. It is therefore possible that a catastrophic event or multiple catastrophic events could have a material adverse effect upon our results of operations and financial condition. It is possible that our models have not adequately captured some catastrophe risks or other risks. We believe it is impossible to completely eliminate our exposure to unforeseen or unpredictable events.

      Many insurance industry participants are consolidating to enhance their market power. These entities may try to use their market power to negotiate price reductions for our products and services. If competitive pressures compel us to reduce our prices, our operating margins would decrease. As the insurance industry consolidates, competition for customers will become more intense and the importance of acquiring and properly servicing each customer will become greater. We could incur greater expenses relating to customer acquisition and retention, further reducing our operating margins. In addition, insurance companies that merge may be able to spread their risks across a consolidated, larger capital base so that they require less reinsurance.

      Historically, we have experienced fluctuations in operating results due to competition, frequency of occurrence or severity of catastrophic events, levels of capacity, general economic conditions and other factors. Demand for reinsurance is influenced significantly by underwriting results of primary insurers and prevailing general economic conditions. In addition, the larger insurers created by the consolidation discussed above may require less reinsurance. The supply of reinsurance is related to prevailing prices and levels of surplus capacity

that, in turn, may fluctuate in response to changes in rates of return being realized in the reinsurance industry. It is possible that premium rates or other terms and conditions of trade could vary in the future, that the present level of demand will not continue or that the present level of supply of reinsurance could increase as a result of capital provided by recent or future market entrants or by existing reinsurers.

      All of these factors fluctuate and may contribute to price declines generally in the reinsurance and insurance industries. Our recent growth in the past several years related in part to overall industry pricing, as relatively more business met our underwriting criteria. However, we expect premium rates and other terms and conditions of insurance and reinsurance contracts to vary in the future, and currently believe that overall industry pricing for many of our products may not improve in 2005, and could decline in some areas. If demand for our products falls or the supply of competing capacity rises, our growth and our profitability may be adversely affected. In particular, we might lose existing customers or decline new business, which we might not regain when industry conditions improve.

      Third party rating agencies assess and rate the claims-paying ability of reinsurers and insurers based upon criteria established by the rating agencies. Periodically the rating agencies evaluate us to confirm that we continue to meet the criteria of the ratings previously assigned to us. The claims-paying ability ratings assigned by rating agencies to reinsurance or insurance companies represent independent opinions of financial strength and ability to meet policyholder obligations, and are not directed toward the protection of investors. Ratings by rating agencies are not ratings of securities or recommendations to buy, hold or sell any security. In the event our companies were to be downgraded by any or all of the rating agencies, some of our business would be subject to provisions which could cause, among other things, early termination of contracts, or a requirement to post collateral at the direction of our counterparty. We cannot precisely estimate the amount of premium that would be at risk to such a development, or the amount of additional collateral that might be required to maintain existing business, as these amounts would depend on the particular facts and circumstances at the time, including the degree of the downgrade, the time elapsed on the impacted in-force policies, and the effects of any related catastrophic event on the industry generally. We cannot assure you that our premiums would not decline, or that our profitability would not be affected, perhaps materially, following a ratings downgrade.

      Our insurance and reinsurance subsidiaries maintain a rating of “A” (Excellent) from A.M. Best, an “A–” (Strong) counterparty credit and financial strength rating from Standard & Poor’s and an “A3” (Good Financial Security) financial strength rating from Moody’s. Financial strength ratings are used by insurers and reinsurance and insurance intermediaries as an important means of assessing the financial strength and quality of reinsurers.

      Insureds, insurers and insurance and reinsurance intermediaries use financial ratings as an important means of assessing the financial strength and quality of insurers and reinsurers. In addition, the rating of a company purchasing reinsurance may be affected by the rating of its reinsurer. For these reasons, credit committees of insurance and reinsurance companies regularly review and in some cases revise their requirements with respect to the insurers and reinsurers from whom they purchase insurance and reinsurance. If one or more of our current or potential customers were to raise their minimum required financial strength or claims paying ratings above the ratings held by us or our insurance and reinsurance subsidiaries, or if they were to materially increase their collateral requirements, the demand for our products could be reduced, our premiums could decline, and our profitability could be adversely affected.

      Our operating results depend in part on the performance of our investment portfolio. The ability to achieve our investment objectives is affected by general economic conditions that are beyond our control. General

economic conditions can adversely affect the markets for interest-rate-sensitive securities, including the extent and timing of investor participation in such markets, the level and volatility of interest rates and, consequently, the value of fixed income securities. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. General economic conditions, stock market conditions and many other factors can also adversely affect the equities markets and, consequently, the value of the equity securities we own. We may not be able to realize our investment objectives, which could reduce our net income significantly.

      Our functional currency is the United States dollar. A portion of our premiums are written in currencies other than the United States dollar and a portion of our loss reserves are also in foreign currencies. Moreover, we maintain a portion of our investments in currencies other than the United States dollar. We may, from time to time, experience losses resulting from fluctuations in the values of foreign currencies, which could adversely affect our operating results.

      The current agreements governing our bank credit facility and our 7.49% senior notes due 2006 contain numerous covenants that limit our ability to, among other things, borrow money, make particular types of investments or other restricted payments, sell assets, merge or consolidate. These agreements also require us to maintain specific financial ratios. If we fail to comply with these covenants or meet these financial ratios, the lenders under our credit facility or our noteholders could declare a default and demand immediate repayment of all amounts owed to them.

      We are a holding company whose principal source of funds is cash dividends and other permitted payments from our operating subsidiaries, principally Odyssey America. If our subsidiaries are unable to make payments to us, or are able to pay only limited amounts, we may be unable to pay dividends or make payments on our indebtedness. The payment of dividends by our operating subsidiaries is subject to restrictions set forth in the insurance laws and regulations of Connecticut, Delaware, New York and the United Kingdom. See “Regulatory Matters — Regulation of Insurers and Reinsurers — Dividends.”

      We are substantially dependent on a small number of key employees, in particular Andrew Barnard, Michael Wacek and Charles Troiano. We believe that the experience and reputations in the reinsurance industry of Messrs. Barnard, Wacek and Troiano are important factors in our ability to attract new business. We have entered into employment agreements with Messrs. Barnard, Wacek and Troiano. Our success has been, and will continue to be, dependent on our ability to retain the services of our existing key employees and to attract and retain additional qualified personnel in the future. The loss of the services of Mr. Barnard, Mr. Wacek or Mr. Troiano or any other key employee, or the inability to identify, hire and retain other highly qualified personnel in the future, could adversely affect the quality and profitability of our business operations. We do not currently maintain key employee insurance with respect to any of our employees.

      We market our reinsurance products worldwide primarily through reinsurance brokers, as well as directly to our customers. Five reinsurance brokerage firms accounted for 56% of our reinsurance gross premiums written for the year ended December 31, 2004. Loss of all or a substantial portion of the business provided by these brokers could have a material adverse effect on us.

      In accordance with industry practice, we frequently pay amounts owing in respect of claims under our policies to reinsurance brokers, for payment over to the ceding insurers. In the event that a broker fails to make such a payment, depending on the jurisdiction, we might remain liable to the ceding insurer for the deficiency. Conversely, in certain jurisdictions, when the ceding insurer pays premiums for such policies to reinsurance brokers for payment over to us, such premiums will be deemed to have been paid and the ceding insurer will no longer be liable to us for those amounts, whether or not we have actually received such premiums. Consequently, in connection with the settlement of reinsurance balances, we assume a degree of credit risk associated with brokers around the world.

      Our business is highly dependent upon the successful and uninterrupted functioning of our computer and data processing systems. We rely on these systems to perform actuarial and other modeling functions necessary for writing business, as well as to process and make claims payments. We have a highly trained staff that is committed to the continual development and maintenance of these systems. However, the failure of these systems could interrupt our operations or materially impact our ability to rapidly evaluate and commit to new business opportunities. If sustained or repeated, a system failure could result in the loss of existing or potential business relationships, or compromise our ability to pay claims in a timely manner. This could result in a material adverse effect on our business results.

      Our insurance may not adequately compensate us for material losses that may occur due to disruptions in our service as a result of computer and data processing systems failure. We do not maintain redundant systems or facilities for all of our services.

      In addition, a security breach of our computer systems could damage our reputation or result in liability. We retain confidential information regarding our business dealings in our computer systems. We may be required to spend significant capital and other resources to protect against security breaches or to alleviate problems caused by such breaches. Any well-publicized compromise of security could deter people from conducting transactions that involve transmitting confidential information to our systems. Therefore, it is critical that these facilities and infrastructure remain secure and are perceived by the marketplace to be secure. Despite the implementation of security measures, this infrastructure may be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. In addition, we could be subject to liability if hackers were able to penetrate our network security or otherwise misappropriate confidential information.

      We attempt to limit our risk of loss through retrocessional arrangements, including reinsurance agreements with other reinsurers, referred to as retrocessionaires. The availability and cost of retrocessional protection is subject to market conditions, which are beyond our control. As a result, we may not be able to successfully alleviate risk through retrocessional arrangements. In addition, we are subject to credit risk with respect to our retrocessions because the ceding of risk to retrocessionaires does not relieve us of our liability to the companies we reinsured.

      We purchase reinsurance coverage to insure against a portion of our risk on policies we write directly. We expect that limiting our insurance risks through reinsurance will continue to be important to us. Reinsurance does not affect our direct liability to our policyholders on the business we write. Although our current reinsurance program is primarily maintained with reinsurers rated “A” (Excellent) or better by A.M. Best, a reinsurer’s insolvency or inability to make payments under the terms of its reinsurance agreements with us could have a material adverse effect on us. In addition, we cannot assure you that reinsurance will remain available to us to the same extent and on the same terms as are currently available.

      The insurance industry is highly regulated and is subject to changing political, economic and regulatory influences. These factors affect the practices and operation of insurance and reinsurance organizations. Federal and state legislatures have periodically considered programs to reform or amend the United States insurance system at both the federal and state level. Recently, the insurance and reinsurance regulatory framework has been subject to increased scrutiny in many jurisdictions, including the United States and various states in the United States.

      Changes in current insurance regulation may include increased governmental involvement in the insurance industry or may otherwise change the business and economic environment in which insurance industry participants operate. In the United States, for example, the states of Hawaii and Florida have implemented arrangements whereby property insurance in catastrophe prone areas is provided through state-sponsored entities. The California Earthquake Authority, the first privately financed, publicly operated residential earthquake insurance pool, provides earthquake insurance to California homeowners.

      Such changes could cause us to make unplanned modifications of products or services, or may result in delays or cancellations of sales of products and services by insurers or reinsurers. Insurance industry participants may respond to changes by reducing their investments or postponing investment decisions, including investments in our products and services. We cannot predict the future impact of changing law or regulation on our operations; any changes could have a material adverse effect on us or the insurance industry in general.

      Increasingly, governmental authorities in both the U.S. and worldwide appear to be interested in the potential risks posed by the reinsurance industry as a whole, and to commercial and financial systems in general. While we cannot predict the exact nature, timing or scope of possible governmental initiatives, we believe it is likely there will be increased regulatory intervention in our industry in the future.

      For example, we could be adversely affected by governmental or regulatory proposals that:

      In October 2004, New York State’s Attorney General filed a civil lawsuit accusing one of the United States’ largest insurance brokers of fraudulent behavior, including alleged participation in bid-rigging schemes and acceptance of improper payments from insurance carriers in exchange for agreeing not to shop quotes for their customers. In addition, a number of property and casualty insurance companies are also being investigated by the New York State Attorney General’s office for their alleged participation in these schemes or agreements. Neither OdysseyRe nor our insurance or reinsurance subsidiaries are defendants in the civil lawsuit that the New York State Attorney General filed against the insurance broker. However, the investigation concerns an evolving area of the law, and we can give no assurance regarding its consequences for the industry or us.

      Subsequent to the announcement of these actions, numerous other state attorneys general, the National Association of Insurance Commissioners, and individual state insurance departments have commenced investigations of insurance industry business practices, and a U.S. Congressional committee has conducted hearings on several of these issues. Also, the Securities and Exchange Commission has indicated that it is investigating the use of insurance products allegedly used to “smooth” earnings or otherwise to bolster reported financial results. In addition to these government investigations, class action lawsuits relating to these business practices have been filed against various members of the insurance industry. Because these governmental investigations and lawsuits continue to grow in number and spread in scope, it is not possible at this time to determine the ultimate impact upon the insurance industry and us.

      Activities being investigated include participation in contingent commission structures and other agreements under which brokers receive additional commissions based upon the volume and/or profitability of business placed with an insurer. Industry operating policies and practices may be impacted by the outcome of these investigations. In addition, the negative publicity associated with these lawsuits and investigations have precipitated increased volatility in the prices of securities issued by companies throughout the insurance industry. Negative publicity may also result in increased regulation and legislative scrutiny of industry practices as well as increased litigation, which may further increase our costs of doing business and adversely affect our profitability by impeding our ability to market our products and services, requiring us to change our marketing practices, products or services and increasing the regulatory burdens under which we operate. However, we believe that our commission programs and payments to brokers and agents comply with applicable laws and regulations.

      In addition, Hudson, which writes insurance in 44 states and the District of Columbia on an admitted basis, is subject to extensive regulation under state statutes which delegate regulatory, supervisory and administrative powers to state insurance commissioners. Such regulation generally is designed to protect policyholders rather than investors, and relates to such matters as: rate setting; limitations on dividends and transactions with affiliates; solvency standards which must be met and maintained; the licensing of insurers and their agents; the examination of the affairs of insurance companies, which includes periodic market conduct examinations by the regulatory authorities; annual and other reports, prepared on a statutory accounting basis; establishment and maintenance of reserves for unearned premiums and losses; and requirements regarding numerous other matters. We could be required to allocate considerable time and resources to comply with these requirements, and could be adversely affected if a regulatory authority believed we had failed to comply with applicable law or regulation. We plan to grow Hudson’s business and, accordingly, expect our regulatory burden to increase.

      Our primary insurance operations rely on program managers, and other agents and brokers participating in our programs, to produce and service a substantial portion of our business in this segment. In these arrangements, we typically grant the program manager the right to bind us to newly issued insurance policies, subject to underwriting guidelines we provide and other contractual restrictions and obligations. Should our managers issue policies that contravene these guidelines, restrictions or obligations, we could nonetheless be deemed liable for such policies. Although we would intend to resist claims that exceed or expand on our underwriting intention, it is possible that we would not prevail in such an action, or that our program managers would be unable to substantially indemnify us for their contractual breach. We also rely on our managers, or other third parties we retain, to collect premiums and to pay valid claims. This exposes us to their credit and operational risk, without necessarily relieving us of our obligations to potential insureds. We could also be exposed to potential liabilities relating to the claims practices of the third party administrators we have retained to manage claims activity that we expect to arise in our program operations. Although we have implemented monitoring and other oversight protocols, we can not assure you that these measures will be sufficient to alleviate all of these exposures.

      We are also subject to the risk that our successful program managers will not renew their programs with us. Our contracts are generally for defined terms of as little as one year, and either party can cancel the contract in a relatively short period of time. We cannot assure you that we will retain the programs that produce profitable business or that our insureds will renew with us. Failure to retain or replace these producers would impair our ability to execute our growth strategy, and our financial results could be adversely affected.

      In response to the tightening of supply in certain insurance and reinsurance markets resulting from, among other things, the September 11, 2001 terrorist attack, TRIA was enacted to ensure the availability of commercial insurance coverage for terrorist acts in the United States. This law established a federal assistance program through the end of 2005 to help the commercial property and casualty insurance industry cover claims related to

future terrorism-related losses and required that coverage for terrorist acts be offered by insurers. It is possible that TRIA will not be renewed following 2005, or could be adversely amended, which could adversely affect the insurance industry if a material subsequent event occurred. Given these uncertainties, we are currently unable to determine with certainty the impact that TRIA’s non-renewal could have on us.

      Fairfax, through its subsidiaries, TIG Insurance Group, TIG Insurance Company, ORH Holdings Inc., United States Fire Insurance Company, Fairfax Financial (US) LLC and Fairfax Inc., owns approximately 81% of our outstanding common stock. Consequently, Fairfax is in a position to determine the outcome of corporate actions requiring stockholder approval, including:

      In addition, Fairfax has provided us, and continues to provide us, with certain services. All of our directors, except for Mr. Barnard, also are directors or officers of Fairfax or certain of its subsidiaries. Conflicts of interest could arise between us and Fairfax or one of its subsidiaries, and any conflict of interest may be resolved in a manner that does not favor us.

      Fairfax intends to retain control of us and cannot foresee any circumstances under which it would sell a sufficient number of shares of our common stock to cause it not to retain such control. In order to retain control, Fairfax may decide not to enter into a transaction in which our stockholders would receive consideration for their shares that is much higher than the cost of their investment in our common stock or the then current market price of our common stock. Any decision regarding the ownership of us that Fairfax may make at some future time will be in its absolute discretion.

      Significant price and value fluctuations have occurred with respect to the securities of insurance and insurance-related companies. Our common stock price is likely to be volatile in the future. In the past, following periods of downward volatility in the market price of a company’s securities, class action litigation has often been pursued against such companies. If similar litigation were pursued against us, it could result in substantial costs and a diversion of our management’s attention and resources.

      Our certificate of incorporation and bylaws, as well as Delaware corporate law, contain provisions that could delay or prevent changes in our management or a change of control that a stockholder might consider favorable and may prevent you from receiving a takeover premium for your shares. These provisions include, for example,

      These provisions apply even if the offer may be considered beneficial by some of our stockholders. If a change in management or a change of control is delayed or prevented, the market price of our common stock could decline.

Company Website

      The Company’s Internet address is www.odysseyre.com. The Company makes available free of charge, through its website, its Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports.

      Our corporate offices are located in approximately 98,360 total square feet of leased space in Stamford, Connecticut. Our other locations occupy a total of approximately 118,653 square feet, all of which are leased. The Americas division operates out of offices in New York, Stamford, Mexico City, Miami, Santiago and Toronto, the EuroAsia division operates out of offices in Paris, Singapore, Stockholm and Tokyo, the London Market division operates out of offices in London and Bristol, and the U.S. Insurance division operates out of offices in New York, Stamford, Chicago and Napa.

      In January 2004, two retrocessionaires of Odyssey America under the common control of London Reinsurance Group Inc. (together, “London Life”) filed for arbitration under a series of aggregate stop loss agreements covering the years 1994 and 1996-2001 (the “Treaties”). London Life has alleged that Odyssey America has improperly administered the Treaties. The arbitration hearing is scheduled for November 2005. Odyssey America finds London Life’s claims to be without merit and is vigorously defending the arbitration. At this stage of the proceedings it is not possible to make a determination regarding the outcome of this matter; however, Odyssey America expects the arbitration panel to enforce the Treaties in its favor.

      Odyssey America provided quota share reinsurance to Gulf Insurance Company (“Gulf”) from January 1, 1996 to December 31, 2002, on a book of automobile residual value business. In March 2003, Gulf requested a payment of approximately $30 million, including a “special payment” of $26 million, due on April 28, 2003, representing Odyssey America’s purported share of a settlement (“Settlement”) between Gulf and one of the insureds whose policies, Gulf contends, were reinsured under the Residual Value Quota Share Reinsurance Agreements (the “Treaties”). In May 2003, Gulf initiated litigation against two other reinsurers that participated with Odyssey America on the Treaties, demanding payment relating to the Settlement. In late July 2003, Gulf added Odyssey America to its complaint against the other reinsurers. Odyssey America and the other reinsurers have answered the complaint and discovery has commenced. Among other things, Odyssey America contends that, (i) Gulf breached its duty to Odyssey America of utmost good faith when it placed the Treaties by failing to disclose material information concerning the policy it issued to the insured; and (ii) alternatively, the Settlement is not covered under the terms of the Treaties. Among the remedies Odyssey America seeks is rescission of the Treaties. Odyssey America intends to vigorously assert its claims and defend itself against any claims asserted by Gulf. At this early stage, it is not possible to make any determination regarding the likely outcome of this matter.

      In October 2002, a dispute arose between Odyssey America and a retrocessionaire arising from an excess of loss retrocessional contract pursuant to which the retrocessionaire reinsured Odyssey America for certain exposures assumed by Odyssey America from a third party insurer. At December 30, 2004, Odyssey America entered into commutation and release agreements that provide for the settlement of all claims relating to this matter. The settlement was confirmed by the court on February 8, 2005. We anticipate final resolution of this matter early in the second quarter of 2005, and that such resolution will not be material to us.

      In the normal course of our business, we may become involved in various other claims and legal proceedings. We are not currently aware of any pending or threatened material litigation.

      No matters were submitted to a vote of security holders during the fourth quarter of 2004.

PART II

Market Information and Holders of Common Stock

      The principal United States market on which the shares of our common stock are traded is the New York Stock Exchange (“NYSE”). As of January 31, 2005, the approximate number of holders of our common stock, including those whose common stock is held in nominee name, was 6,798. Quarterly high and low sales prices per share of the Company’s common stock, as reported by the New York Stock Exchange composite for each quarter in the years ended December 31, 2004 and 2003 are as follows:

      Fairfax owns approximately 81% of the outstanding shares of our common stock through its subsidiaries, TIG Insurance Group (43.7%), TIG Insurance Company (19.5%), ORH Holdings Inc. (9.5%), Fairfax Financial (U.S.) LLC (6.6%), United States Fire Insurance Company (1.2%) and Fairfax Inc. (0.1%).

Dividends

      In each of the four quarters of 2004, we declared a dividend of $0.03125 per share on our common stock, resulting in an aggregate annual dividend of $0.125 per share, totaling $8.1 million. The dividends were paid on March 31, 2004, June 30, 2004, September 30, 2004 and December 31, 2004. In each of the first three quarters of 2003, we declared a dividend of $0.025 per share on our common stock. In the fourth quarter of 2003, we declared a dividend of $0.03125 per share of our common stock, resulting in an aggregate annual dividend of $0.10625 per share, totaling $6.9 million. The dividends were paid on March 31, 2003, June 30, 2003, September 30, 2003 and December 31, 2003.

      While it is the intention of our Board of Directors to declare quarterly cash dividends, the declaration and payment of future dividends, if any, by us will be at the discretion of our Board of Directors and will depend on, among other things, our financial condition, general business conditions and legal restrictions regarding the payment of dividends by us, and other factors. The payment of dividends by us is subject to limitations imposed by laws in Connecticut, Delaware, New York and the United Kingdom. For a detailed description of these limitations, see Part I, Item 1 — “Business — Regulatory Markets — Regulation of Insurers and Reinsurers — Dividends.”

Issuer Purchases of Equity Securities

      The following table sets forth purchases made by the Company of its shares of common stock under the stock purchase program during the three months ended December 31, 2004:

      The following selected financial data should be read in connection with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes that are included in this Form 10-K. Financial information in the table reflects the results of operations and financial position of OdysseyRe.

      The following GAAP statement of operations and balance sheet data relating to each of the years 2000 through 2004 has been derived from our annual consolidated financial statements, audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm. Consolidated balance sheets as of December 31, 2004 and 2003, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2004, and related notes, are included in this Form 10-K.

      We encourage you to read the consolidated financial statements included in this Form 10-K because they contain our complete financial statements for the years ended December 31, 2004, 2003 and 2002. The results of operations for the year ended December 31, 2004 are not necessarily indicative of future results.