PLATINUM UNDERWRITERS HOLDINGS LTD - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 001-31341

PLATINUM UNDERWRITERS HOLDINGS, LTD.
(Exact name of Registrant as specified in its charter)

BERMUDA NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

THE BELVEDERE BUILDING
PITTS BAY ROAD
PEMBROKE HM-02 BERMUDA
(441) 295-7195
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

COMMON SHARES, PAR VALUE $0.01 PER SHARE NEW YORK STOCK EXCHANGE
(Title of Class) (Name of each exchange on which registered)

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 [X] No [ ]

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. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ]
No [X]

As of March 14, 2003, there were outstanding 43,004,000 Common Shares, par
value $0.01 per share, of the Registrant. The aggregate market value of the
Common Shares held by non-affiliates of the Registrant was $753,403,200, based
on the closing price of $22.80 per share of the Common Shares on the New York
Stock Exchange on March 14, 2003.
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TABLE OF CONTENTS

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PART I

The "Company," "Platinum," "we," "us," and "our" refer to Platinum
Underwriters Holdings, Ltd.'s consolidated operations unless the context
otherwise indicates. "Platinum Holdings" refers solely to Platinum Underwriters
Holdings, Ltd. "Platinum US" refers to Platinum Underwriters Reinsurance, Inc.
"Platinum UK" refers to Platinum Re (UK) Limited. "Platinum Bermuda" refers to
Platinum Underwriters Bermuda, Ltd. "Platinum Ireland" refers to Platinum
Regency Holdings. "Platinum Finance" refers to Platinum Underwriters Finance,
Inc. "Common Shares" refers to the common shares of the Company, par value $0.01
per share. The "Public Offering" refers to our initial public offering of the
Common Shares of Platinum Holdings which was completed on November 1, 2002. The
"ESU Offering" refers to our offering of 7.00 percent equity security units,
consisting of a contract to purchase Common Shares in 2005, and an ownership
interest in a senior note due 2007 of Platinum Finance, which was completed
concurrently with the Public Offering. "St. Paul" refers to The St. Paul
Companies, Inc., and "St. Paul Re" refers to the reinsurance underwriting
segment of St. Paul prior to the Public Offering. "St. Paul Investment" refers
to our issuance to St. Paul of Common Shares and an option to purchase
additional Common Shares. "RenaissanceRe" refers to RenaissanceRe Holdings Ltd.,
and "RenaissanceRe Investment" refers to our issuance to RenaissanceRe of Common
Shares and an option to purchase additional Common Shares. The St. Paul
Investment and the RenaissanceRe Investment each occurred concurrently with the
Public Offering.

NOTE ON FORWARD-LOOKING STATEMENTS

This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements are necessarily based on
estimates and assumptions that are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which, with
respect to future business decisions, are subject to change. These uncertainties
and contingencies can affect actual results and could cause actual results to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, us.

In particular, statements using words such as "may," "should," "estimate,"
"expect," "anticipate," "intend," "believe," "predict," "potential," or words of
similar import generally involve forward-looking statements. For example, we
have included certain forward-looking statements in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" with regard to trends
in results, prices, volumes, operations, investment results, margins, risk
management and exchange rates. This Form 10-K also contains forward-looking
statements with respect to our business and industry, such as those relating to
our strategy and management objectives and trends in market conditions, market
standing, product volumes, investment results and pricing conditions.

In light of the risks and uncertainties inherent in all future projections,
the inclusion of forward-looking statements in this Form 10-K should not be
considered as a representation by us or any other person that our objectives or
plans will be achieved. Numerous factors could cause our actual results to
differ materially from those in the forward-looking statements, including the
following:

(1) our ability to successfully implement the Company's business
strategy and continue the business acquired in connection with the Public
Offering;

(2) conducting operations in a competitive environment;

(3) our ability to maintain our A.M. Best Company rating;

(4) significant weather-related or other natural or man-made disasters
over which the Company has no control;

(5) the effectiveness of our loss limitation methods;

(6) the adequacy of the Company's liability for unpaid losses and loss
adjustment expenses ("LAE");

(7) the availability of retrocessional reinsurance on acceptable
terms;

(8) our ability to maintain our business relationships with
reinsurance brokers;

(9) general political and economic conditions, including the effects
of civil interest, war or a prolonged U.S. or global economic downturn or
recession;

(10) the cyclicality of the property and casualty reinsurance
business;

(11) factors such as market volatility and interest rate and currency
exchange rate fluctuation;

(12) tax, regulatory or legal restrictions or limitations applicable
to the Company or the property and casualty reinsurance business generally;
and

(13) changes in the Company's plans, strategies, objectives,
expectations or intentions which may happen at any time at the Company's
discretion;

As a consequence, current plans, anticipated actions and future financial
condition and results may differ from those expressed in any forward-looking
statements made by or on behalf of the Company.

The forgoing factors, which are discussed in more detail in
"Business -- Risk Factors," should not be construed as exhaustive. Additionally,
forward-looking statements speak only as of the date they are made, and we
undertake no obligation to release publicly the results of any future revisions
or updates we may make to forward-looking statements to reflect new information
or circumstances after the date hereof or to reflect the occurrence of future
events.

AVAILABLE INFORMATION

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and any amendments to those reports, are available free of
charge on our Internet website at www.platinumre.com as soon as reasonably
practicable after such reports are electronically filed with the Securities and
Exchange Commission. Information contained on Platinum Holdings's website is not
part of this report.

ITEM 1. BUSINESS.

INDUSTRY OVERVIEW

GENERAL

Reinsurance is an arrangement in which an insurance company, referred to as
the reinsurer, agrees to assume from another insurance company, referred to as
the ceding company, all or a portion of the insurance risks that the ceding
company has underwritten under one or more insurance contracts. In return, the
reinsurer receives a premium for the insured risks that it assumes from the
ceding company. Reinsurance, however, does not discharge the ceding company from
its liabilities to policyholders. Reinsurance provides ceding insurers with
three principal benefits: a reduction in net liability on individual risks,
catastrophe protection from large or multiple losses and 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 than would be possible without an accompanying
increase in capital.

During the period between the time premiums are received by the reinsurer
and the time that the reinsurer must pay losses and LAE, the reinsurer has an
opportunity to invest the funds received as premiums, less expenses. This
investment activity can make a significant contribution to a reinsurer's
financial results.

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TYPES OF REINSURANCE

PROPERTY AND CASUALTY REINSURANCE

Reinsurance is typically classified into two categories based on the
underlying insurance coverage: property and casualty reinsurance and life
reinsurance. We write property and casualty reinsurance. We do not currently
intend to write any life reinsurance although we may do so in the future.

Property insurance protects an insured against financial loss arising out
of the loss of property or its use caused by an insured peril. Examples of
property insurance are property catastrophe and property per-risk coverages.
Property catastrophe insurance protects an insured against losses arising out of
multiple claims for a single event while property per-risk insurance protects an
insured against loss arising out of a single claim for a single event.

Casualty insurance protects an insured against financial loss arising out
of the insured's obligation to others for loss or damage to persons or property.
Examples of casualty insurance are general and automobile liability,
professional liability, workers' compensation, and accident and health.

Although property reinsurance involves a high degree of volatility,
property reinsurance claims are generally reported soon after the event giving
rise to the claim and tend to be assessed and paid relatively expeditiously. In
comparison, there tends to be a greater time lag between the occurrence,
reporting and payment of casualty reinsurance claims.

EXCESS-OF-LOSS AND PROPORTIONAL REINSURANCE

Reinsurance can be written on either an excess-of-loss basis or a pro rata,
or proportional, basis. A substantial majority of the reinsurance we underwrite
is excess-of-loss reinsurance.

In the case of excess-of-loss reinsurance, the reinsurer assumes all or a
specified portion of the ceding company's risks in excess of a specified amount,
which amount is referred to as the ceding company's retention or the reinsurer's
attachment point, subject to a negotiated reinsurance contract limit. For
example, property catastrophe excess-of-loss reinsurance provides coverage to a
ceding company when its aggregate claims, arising from a single occurrence
during a covered period, such as a hurricane or an earthquake, exceed the
attachment point specified in the reinsurance contract. Other forms of
excess-of-loss respond when each single claim exceeds the ceding company's
retention. In many of our excess-of-loss reinsurance contracts, we have the
ability to set the reinsurance rate, which we believe gives us greater control
over pricing adequacy.

In the case of proportional reinsurance, the reinsurer assumes a
predetermined portion of the ceding company's risks under the covered primary
insurance contract or contracts. The frequency of claims under a proportional
reinsurance contract is usually greater than under an excess-of-loss contract,
since there is no retention that the claim must exceed before proportional
reinsurance responds; reinsurers respond to claims immediately to the ceding
company on a proportional basis. Premiums that the ceding company pays to a
reinsurer for proportional reinsurance are a predetermined portion of the
premiums that the ceding company receives from its insured, consistent with the
proportional sharing of risk. The reinsurer is more exposed to claims and has
less control over the pricing adequacy under proportional reinsurance.

TREATY AND FACULTATIVE REINSURANCE

Reinsurance can be written either through treaty or facultative reinsurance
arrangements. In treaty reinsurance, the ceding company cedes, and the reinsurer
assumes, a specified portion of a type or category of risks insured by the
ceding company. In facultative reinsurance, the ceding company cedes, and the
reinsurer assumes, all or part of a specific risk or risks. Substantially all of
the reinsurance that we underwrite is on a treaty basis, and we generally do not
underwrite facultative reinsurance except in very limited and opportunistic
circumstances.

Generally in the industry, treaty reinsurers do not separately evaluate
each of the individual risks assumed under their treaties and are largely
dependent on the original risk underwriting decisions made by

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the ceding company's underwriters. Accordingly, reinsurers will carefully
evaluate the ceding company's risk management and underwriting practices, as
well as claims settlement practices and procedures, in deciding whether to
provide treaty reinsurance and in appropriately pricing the treaty.

Generally, reinsurers who provide facultative reinsurance do so separately
from their treaty operations. Facultative reinsurance normally is purchased by
ceding companies for risks not covered by their reinsurance treaties, for
amounts in excess of the monetary limits of their reinsurance treaties and for
unusual and complex risks. In addition, facultative risks often provide
coverages for relatively severe exposures, which results in greater volatility.
Facultative reinsurance has relatively high underwriting expenses and, in
particular, personnel costs, because each risk is individually underwritten and
administered.

NON-TRADITIONAL/FINITE REINSURANCE

Non-traditional/finite reinsurance involves structured reinsurance
solutions tailored to meet an individual ceding company's strategic and
financial objectives. Property and casualty risks can be reinsured on a
non-traditional/finite basis. Often these reinsurance solutions provide
reinsurance protection across a ceding company's entire insurance portfolio. For
instance, a whole account aggregate stop loss, whether single year or multi-year
in design, provides protection for a ceding company from deterioration in its
results. With increasing frequency, non-traditional/finite reinsurance has been
utilized in various ways to assist ceding companies in managing property
catastrophe exposures and other loss exposures from single or multiple events
which, in the aggregate, could be significant.

Because of the constantly changing industry and regulatory framework, as
well as the changing market demands facing insurance companies, the approaches
utilized in non-traditional/finite programs are constantly evolving and will
continue to do so. We are active participants in the non-traditional/finite
reinsurance business.

BROKER AND DIRECT REINSURANCE

Reinsurance can be written through reinsurance brokers or directly with
ceding companies. We believe that a ceding company's decision to select either
the broker market or the direct market is influenced by various factors
including, among others, market capacity, market competition, the value of the
broker's advocacy on the ceding company's behalf, the spread of risk,
flexibility in the terms and conditions, an ability to efficiently compare the
analysis and quotes of several reinsurers, the speed of a reinsurance placement,
the historical relationship with the reinsurer and the efficiency of claims
settlement with respect to a coverage. Through the use of reinsurance brokers, a
reinsurer may be able to avoid the need to develop a large staff dedicated to
particular reinsurance markets and to maintain the flexibility to enter other
reinsurance lines when it perceives opportunities. We believe that brokers are
particularly useful in assisting in arranging excess-of-loss reinsurance
programs. We underwrite substantially all of our reinsurance through brokers.

RETROCESSION

Reinsurers typically purchase reinsurance to reduce their own risk
exposure. Reinsurance of a reinsurer's business is called retrocession.
Reinsurance companies cede risks under retrocessional agreements to other
reinsurers, known as retrocessionaires, for reasons similar to those that cause
primary insurers to purchase reinsurance. These reasons include reducing
liability on individual risks, protecting against catastrophic losses,
stabilizing financial ratios and obtaining additional underwriting capacity. We
purchase and issue retrocessional contracts.

REINSURANCE INDUSTRY CONDITIONS AND TRENDS

The reinsurance industry historically has been cyclical, characterized by
periods of price competition due to excessive underwriting capacity as well as
periods when shortages of underwriting capacity have permitted favorable
pricing.

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Cyclical trends in the industry and the industry's profitability can also
be affected significantly by volatile developments, including natural and other
disasters, such as hurricanes, windstorms, earthquakes, floods, fires,
explosions and other catastrophic events, including terrorist attacks, the
frequency and severity of which are inherently difficult to predict. We believe
that property and casualty reinsurance rates often rise in the aftermath of
significant catastrophe losses. As liabilities are established to cover expected
claims, the industry's capacity to write new business diminishes. The industry
is also affected by changes in the propensity of courts to expand insurance
coverage and grant large damage awards, as well as fluctuations in interest
rates and other changes in the economic environment that affect market prices of
investments.

As a result of favorable loss levels and strong investment returns
beginning in the mid-1990's, the reinsurance industry entered a cycle of
increased competition and industry capacity, which pushed property and casualty
premium rates down. However, in 1999, there were several significant worldwide
catastrophic events, which resulted in insured losses of approximately $31
billion. These losses, and the subsequent contraction of capacity in the market,
resulted in improvements in rates, terms and conditions beginning with January
2000 renewals. These improvements continued in 2001 with a number of
catastrophic events in the first half of the year, and were accelerated by the
terrorist attack of September 11, 2001. With insured losses estimated to be in
excess of $30 billion, the terrorist attack resulted in the largest single
insured loss ever experienced by the industry. By comparison, the largest
insured catastrophic event prior to the attack was Hurricane Andrew in 1992 with
$16 billion in estimated losses.

We believe that the insured losses of 1999 and 2001 have reduced the
industry's capacity to write new business. As a result, with respect to January,
April and July 2002 renewals, St. Paul Re experienced substantial rate
increases, generally ranging from 20 percent to 50 percent depending on the line
of business.

OUR BUSINESS

GENERAL

Platinum Holdings is a Bermuda reinsurance holding company organized in
2002. Our objective is to provide on a worldwide basis, through our licensed
operating subsidiaries Platinum Bermuda, Platinum US and Platinum UK, property,
casualty and finite reinsurance coverages to a diverse clientele of insurers and
select reinsurers. Platinum UK and Platinum Bermuda are newly formed companies
and, as such, had no prior operating history or loss reserves subject to
development prior to January 1, 2002. Platinum US was formed in 1995 and is a
licensed insurance company incorporated and domiciled in the state of Maryland.
Platinum US had been an inactive company with no prior operating history and no
exposure to adverse loss development prior to January 1, 2002. We own Platinum
US and Platinum UK through Platinum Ireland, our newly formed and wholly owned
intermediate Irish holding subsidiary. Platinum Ireland conducts no business
operations of its own other than owning Platinum US (through Platinum Finance,
which currently conducts no business operations of its own and has not conducted
business operations of its own in the past, as its activities have generally
been limited to raising funds for Platinum US through

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the issuance of senior notes as part of the ESU Offering) and Platinum UK. The
following chart summarizes our corporate structure:

[CORPORATE STRUCTURE CHART]

We have organized our worldwide reinsurance business around the following
three operating segments: Global Property and Marine, Global Casualty and Finite
Risk. In each of our operating segments, we offer our reinsurance solutions to
providers of commercial and personal lines of insurance. We underwrite
substantially all of our reinsurance through brokers. Although we will, on
occasion, write business directly with ceding companies, our preference is to
support the broker channels. We underwrite substantially all of our reinsurance
business through treaties rather than on a facultative basis.

COMPETITIVE STRENGTHS

We commenced operations with the benefit of a portfolio of business that we
assumed from St. Paul Re and believe that we have the benefits of being both an
established business and a new market entrant. Our initial reinsurance portfolio
contains a variety of businesses which we believe would normally take a
significant time to develop. We are diversified across several types of
coverage, with approximately two-thirds of our premiums expected to come from
traditional property and casualty reinsurance and one-third from finite
reinsurance. We believe that the portfolio of business that we assumed from St.
Paul Re represents a valuable asset given the renewal nature of the reinsurance
industry and the importance of continuity of relationships. In addition, we have
an unencumbered capital base not exposed to claims development prior to January
1, 2002. As a well-capitalized company with reinsurance as our single focus, we
believe that, with our experience and contacts in the reinsurance market, we
will be able to expand our relationships with existing clients and establish
relationships with new clients.

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We believe that we have an experienced underwriting and actuarial staff
that allows us to act as a lead or quoting reinsurer. We operate principally as
a lead or quoting reinsurer on the treaties in which we participate. Generally,
the lead or quoting reinsurers negotiate the proposed terms of coverage,
including the premium rate and retention level. We believe that consistent with
our underwriting strategy, operating as a lead or quoting reinsurer allows us to
establish more accurate pricing and focus on profitability rather than market
share. In addition to the benefit of leading negotiations of contract terms and
prices, we believe that operating as a lead or quoting reinsurer aids us in the
development of close and continuing relationships with brokers and ceding
companies. We also believe that operating as a lead or quoting reinsurer results
in our receiving solicitations from brokers for a broader range of business and
provides us with greater access to preferred risks. Furthermore, we believe that
access to new opportunities on new treaties for existing clients or new clients
are facilitated by using the broker distribution channel, due to the syndicated
placement of the business.

PLATINUM'S STRATEGY

Our goal is to achieve attractive long-term returns for our shareholders,
while establishing Platinum as a conservative risk manager and market leader in
certain classes of property and casualty reinsurance.

- Build our future on a strong foundation. We commenced operations with
the benefit of a portfolio of business that we assumed from St. Paul Re.
Our initial portfolio contained a diversity of business that would
normally take many years to develop. We acquired St. Paul Re's existing
customer lists and the right to seek to renew its continuing in-force
reinsurance contracts. We also have the benefit of experienced employees
from the skilled St. Paul Re employee base. These employees have broker
and ceding company relationships and underwriting pricing and claims
experience that allow us to be fully staffed and operational in key
underwriting and support functions. This strong foundation allows us to
offer clients and brokers a full range of products, support and service.

- Focus on profitability, not market share. Our management team pursues a
strategy that emphasizes underwriting discipline and profitability over
market share. Key elements of this strategy are prudent risk selection,
appropriate pricing through strict underwriting discipline and adjustment
of our business mix to respond to changing market conditions.

- Exercise disciplined underwriting and risk management. We exercise risk
management discipline by (i) maintaining a diverse spread of risk in our
book of business across product lines and geographic zones, (ii)
emphasizing excess-of-loss contracts over proportional contracts, and
(iii) reducing our aggregate catastrophe exposure relative to historical
levels through more sophisticated management of property catastrophe
aggregate exposures.

- Grow our business by leveraging our global platform. We currently
operate in all three of the world's leading reinsurance markets with
offices in New York, London and Bermuda.

- Operate from a position of financial strength. As a newly formed
company, our capital position is unencumbered by any development of
unpaid losses for business written prior to January 1, 2002. As of
December 31, 2002, we had a total capitalization of $1,059 million (total
shareholders' equity of $921 million and debt obligations of $138
million). Our investment strategy focuses on security and stability in
our investment portfolio by maintaining a diversified portfolio that
consists primarily of investment grade fixed-income securities. We
believe these factors, combined with our strict underwriting discipline,
allows us to maintain our strong financial position and to be
opportunistic when market conditions are most attractive.

OPERATING SEGMENTS

We have organized our worldwide reinsurance business around the following
three operating segments: Global Property and Marine, Global Casualty and Finite
Risk. The following table sets forth the net

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premiums written by the Company for the two month period ended December 31, 2002
by operating segment and by type of reinsurance ($ in thousands):

The following table sets forth the net premiums written by the Company for
the two month period ended December 31, 2002 by operating segment and by
geographic location of the ceding company ($ in thousands):

GLOBAL PROPERTY AND MARINE

The Global Property and Marine operating segment includes principally
property and marine reinsurance coverages that are written both in the United
States and international markets. This business consists of catastrophe
excess-of-loss reinsurance treaties. This operating segment also includes
property per risk excess-of-loss treaties and property proportional treaties.
Marine reinsurance includes coverage for hull, cargo and off-shore energy, as
well as third party marine coverages for "protection and indemnity" and excess
liabilities, primarily under excess-of-loss treaties. We write a limited amount
of other types of reinsurance on an opportunistic basis.

- Property. Our property reinsurance activities emphasize catastrophe
excess-of-loss reinsurance. These contracts provide a defined limit of
liability, permitting us to quantify our aggregate

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maximum loss exposure. Quantification of loss exposure is fundamental to
our ability to manage our loss exposure through geographical zone limits
and program limits. In addition, when our pricing standards are met, we
may, to a limited extent, write other property coverages, including per
risk excess-of-loss or proportional treaties. We have entered into a
Services and Capacity Reservation Agreement with RenaissanceRe which
provides for a periodic review and assistance in measuring risk and
managing aggregate catastrophe exposures.

Excess-of-loss contracts also help us to control our underwriting results
by increasing our flexibility to determine premiums for reinsurance at
specific retention levels, independent of the premiums charged by primary
insurers, and based upon our own underwriting assumptions. Also, because
primary insurers typically retain a larger loss exposure under
excess-of-loss contracts, we believe that they have a greater incentive
to underwrite risks and adjust losses in a prudent manner.

- Marine. We provide reinsurance coverage of marine and offshore energy
insurance programs. Coverages reinsured include hull damage, protection
and indemnity, cargo damage and general marine liability. Marine
reinsurance treaties include excess-of-loss as well as proportional
treaties. We emphasize excess-of-loss treaties that provide for an
evaluation using experience and exposure pricing models.

GLOBAL CASUALTY

The Global Casualty operating segment includes principally reinsurance
treaties that cover umbrella liability, general liability, professional
liability, workers' compensation and automobile liability. This segment also
includes accident and health reinsurance treaties, which are predominantly
reinsurance of health insurance products. We generally write casualty
reinsurance on an excess-of-loss basis in that we pay claims after the claim
becomes larger than our attachment point (whether there is a ceding company
retention or an underlying insurance policy). Most frequently, we respond to
claims on an individual risk basis, which is when the claim for a single,
original insured exceeds our attachment point. We write some excess-of-loss
treaties on an occurrence basis, which respond when all claims from multiple
original insureds from a single event for a particular ceding company exceed our
attachment point. This is the case with our casualty clash and workers'
compensation products. On an opportunistic basis, we may write proportional
treaties.

We seek reinsurance treaties covering established books of insurance
products where we believe that past experience permits a reasonable estimation
of the reinsurance premium adequacy. We underwrite new exposures selectively and
only after a comprehensive evaluation of the capability of the ceding company.
We employ underwriters and pricing actuaries with expertise in each of the
following areas:

- Umbrella Liability. Umbrella policies are excess insurance policies that
provide coverage when claims, individually or in the aggregate, exceed
the original general liability and automobile liability policies. By
definition, a claim must exceed the limit of some underlying policy for
the claim to be considered under an umbrella policy.

- General Liability and Product Liability. We provide reinsurance of third
party liability coverages for commercial and personal insureds. We
provide, predominantly on an excess-of-loss basis, various coverages of
both small and large companies, including commercial, farmowners and
homeowners policies as well as third party liability coverages such as
product liability.

- Professional Liability. We write reinsurance treaties for professional
liability programs, including directors and officers liability insurance
and errors and omissions liability insurance, for professionals such as
lawyers, architects and other professionals. In most circumstances, the
underlying insurance products for these lines of business are written on
a claims made basis, which requires claims related to the liabilities
insured under the policy to be submitted to the insurer while the policy
is in force.

- Accident and Health. We provide accident and health reinsurance, often
in the form of quota share reinsurance of a ceding company writing
aggregate and per person stop loss coverage of self-
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insured employer medical plans. We also write reinsurance of first dollar
health insurance, student health insurance, critical illness insurance,
medicare and medicare supplement, and other forms of health insurance.

- Workers' Compensation. We reinsure workers' compensation on a
catastrophic basis as well as on a per-claimant basis. We provide
coverage on a full statutory coverage basis or subject to specific
carve-out coverages. Our predominant exposure to workers' compensation
would generally be due to a single occurrence, such as a factory
explosion, involving more than one claimant.

- Casualty Clash. Our casualty clash product responds to claims arising
from a single set of circumstances (an event or occurrence) covered by
more than one insurance policy or multiple claimants on one policy. This
product is analogous to the property catastrophe product, but written for
casualty lines of business. All reinsurance treaties that we refer to as
casualty clash are excess-of-loss with both an occurrence limit and an
aggregate limit.

- Automobile Liability. Automobile liability policies provide for first
party damage coverage, which covers damage to the insured's vehicle, and
third party damage coverage, which covers the insured's liability to
other people and their property due to the use of the insured vehicle.
There are also other coverages, such as uninsured motorists and medical
payments. Since we generally write automobile liability on an
excess-of-loss basis, generally for claims greater than $100,000, our
predominant exposure arises from third party liability claims and the
related legal defense costs.

FINITE RISK

The Finite Risk operating segment includes principally finite reinsurance
solutions to ceding companies whose needs may not be met efficiently through
traditional reinsurance products. We focus on providing such clients with
customized solutions for their risk management and other financial management
needs. We seek to develop client-specific solutions after spending time with the
client to understand its business needs. The classes of risks underwritten
through finite products are generally consistent with the classes covered using
traditional products. The three main categories of finite products that we
underwrite are described below:

- Multi-year excess-of-loss. These reinsurance contracts often complement
ceding companies' traditional excess-of-loss reinsurance programs. In
general, these contracts are designed so that the ceding company funds
the normal level of loss activity over a multi-year period. The reinsurer
incorporates a profit margin to cover its costs and the risk that losses
are worse than normal. This type of product often carries an up-front
premium plus additional premiums which are dependent on the magnitude of
losses claimed by the ceding company under the contract. The ceding
company generally participates in a profit sharing arrangement under this
type of reinsurance contract if the business covered does not generate
excessive losses.

- Whole account aggregate stop loss. Aggregate stop loss reinsurance
contracts provide broad protection against a wide range of contingencies
that are difficult to address with traditional reinsurance. They can be
offered on a single or multi-year basis, and provide either catastrophic
or attritional loss protection.

- Finite quota share. Finite quota share reinsurance contracts limit the
reinsurer's underwriting exposure while allowing the ceding company
surplus and expense ratio relief.

MARKETING

We market our reinsurance products worldwide through our underwriting
offices and non-exclusive relationships with the leading reinsurance brokers
active in the U.S. and non-U.S. markets.

Based on net premiums written by the Company for the two month period ended
December 31, 2002 (including all of the business ceded to us by St. Paul), the
five brokers from which we derived the largest portions of our business (with
the approximate percentage of business derived from such brokers and their

10

affiliates) are Aon Corporation (23.9 percent), Marsh & McLennan Companies (21.5
percent), Benfield Blanch Inc. (13.3 percent), Willis Group Holdings (12.0
percent) and Towers Perrin (7.8 percent). The loss of business relationships
with any of these top five brokers could have a material adverse effect on our
business.

Brokers perform data collection, contract preparation and other
administrative tasks. We believe that by relying largely on reinsurance brokers,
we are able to avoid the expense and regulatory complications of worldwide
offices, thereby minimizing fixed costs associated with marketing activities. We
believe that by maintaining close relationships with brokers, we are able to
obtain access to a broad range of potential ceding companies.

The following table sets forth the net premiums written by the Company for
the two month period ended December 31, 2002 by geographic location of the
ceding company ($ in thousands):

UNDERWRITING AND RISK MANAGEMENT

We have a disciplined approach to underwriting and risk management that
emphasizes profitability rather than premium volume or market share.

We seek to limit our overall exposure to risk by limiting the amount of
reinsurance we write by geographic area, by peril and by type of program or
contract. Our risk management uses a variety of means, including the use of
contract terms, diversification criteria, probability analysis and analysis of
comparable historical loss experience. We estimate the impact of certain
catastrophic events using catastrophe modeling software and contract information
to evaluate our exposure to losses from individual contracts and in the
aggregate. For example, the majority of the natural catastrophe reinsurance we
write relates to exposures within the United States, Europe and Japan.
Accordingly, we monitor our exposure to events that affect these regions, such
as hurricanes and earthquakes in the United States, windstorms in Europe and
typhoons and earthquakes in Japan.

We seek to limit our potential loss (pretax, but after reinstatement and
other premiums received due to the loss) from a single one-in-250-year
catastrophe on a probable maximum loss basis, after giving effect to our
retrocessional programs, to approximately 30 percent of our total
capitalization. There can be no assurance that our underwriting risk management
procedures and our retrocessional programs will successfully limit actual losses
to this amount and losses from a single catastrophe may materially exceed this
amount.

Many of our reinsurance contracts do not contain an aggregate loss limit or
a loss ratio limit, which means that there is no contractual limit to the losses
that we may be required to pay pursuant to such reinsurance contracts.
Substantially all of our property reinsurance contracts with natural catastrophe
exposure have occurrence limits. Substantially all of our high layer property,
casualty and marine excess-of-loss contracts also contain aggregate limits, with
limited reinstatements of an occurrence limit, which restore the original limit
under the contract after the limit has been depleted by losses incurred on that

11

treaty. Our actuaries and underwriters work together to establish appropriate
pricing models for these purposes.

In connection with the review of any program proposal, we consider the
appropriateness of the ceding company, including the quality of its management,
its capital and its risk management strategy. In addition, we seek to obtain
information on the nature of the perils to be included and, in the case of
property catastrophe exposures, detailed aggregate information as to the
location or locations of the risks covered under the reinsurance contract. We
request information on the ceding company's loss history for the perils proposed
to be reinsured, together with relevant underwriting considerations, which would
impact exposures to reinsurers. If the program meets all these initial
underwriting criteria, we then evaluate the proposal in terms of its risk/reward
profile to assess the adequacy of the proposed pricing and its potential impact
on our overall return on capital.

We have available for our use the historical loss experience of St. Paul Re
to assist us in pricing individual treaties and overall lines of business. We
also use sophisticated modeling techniques to measure and estimate loss exposure
under both simulated and actual loss scenarios and in comparing exposure
portfolios to both single and multiple events. We take an active role in the
evaluation of commercial catastrophe pricing models, providing feedback to the
modeling companies to improve the effectiveness of these models. These
computer-based loss modeling systems utilize data compiled by A.M. Best Company
("Best's") and direct exposure information obtained from our clients to assess
each client's catastrophe management approach and the adequacy of their
program's protection. We believe that modeling is a very important part of the
underwriting process for catastrophe exposure pricing. The majority of our
client base also uses one or more of the various modeling consulting firms in
their exposure management analysis. The combination of reinsurance system
information, together with the various commercial models we employ, enables us
to monitor and control our acceptance of exposure on a global basis.

We have entered into a five year Services and Capacity Reservation
Agreement with RenaissanceRe, pursuant to which RenaissanceRe provides services
to us in connection with our property catastrophe book of business. No more than
twice per year, at our request, RenaissanceRe will analyze our property
catastrophe treaties and contracts and will assist us in measuring risk and
managing our aggregate catastrophe exposures.

Generally, about 50 percent of premiums we underwrite each year are
expected to be for contracts which have effective dates in January, about 20
percent in April, about 20 percent in July and the remainder at other times
throughout the year. Premiums are generally due in installments over the
contract term, with each installment generally received within 30 days after the
due date.

GEOGRAPHIC DIVERSIFICATION

We seek to diversify our property catastrophe exposure across geographic
zones around the world in order to obtain a favorable spread of risk. We attempt
to limit the coverage we provide for risks located in a particular zone to a
predetermined level. Currently, our greatest exposures are in states on the West
and Gulf Coasts and in the southeastern part of the United States, as well as in
the Caribbean, Japan and northern Europe.

We maintain a database of our exposures in each geographic zone and
conservatively estimate our probable maximum loss for each zone and for each
peril (e.g., earthquakes, hurricanes and floods) to which that zone is subject
based on catastrophe models and underwriting assessments. We also use
catastrophe modeling to review exposures on events that cross country borders
such as wind events that may affect the Caribbean and Florida or the United
Kingdom and continental Europe. The largest exposures are in the United States
for earthquake and hurricane, in the United Kingdom for flood and wind, and in
Japan for earthquake and wind.

12

RETROCESSIONAL REINSURANCE

We may obtain retrocessional reinsurance to reduce liability on individual
risks, protect against catastrophic losses, stabilize financial ratios and
obtain additional underwriting capacity.

The major types of retrocessional coverage we may purchase include the
following:

- specific coverage for certain property, marine and casualty exposures,

- catastrophe coverage for property business, and

- corporate level coverage for the potential accumulation or aggregation of
exposures across some or all of our operations.

We may purchase other retrocessional coverage on an opportunistic basis.

Our decisions with respect to purchasing retrocessional coverage consider
both the potential coverage and market conditions with respect to the pricing,
terms, conditions and availability of such coverage, with the aim of securing
cost-effective protection. We expect that the level of retrocessional coverage
will vary over time, reflecting our view of the changing dynamics of both the
underlying exposure and the reinsurance markets. There can be no assurance that
retrocessional coverage will be available on terms acceptable to us.

We have established business and financial standards for retrocessionaires
from which we will consider purchasing retrocessional coverage. Prior to
entering into a retrocessional agreement, we analyze the financial strength and
rating of each retrocessionaire. Retrocessional coverage is generally derived
from companies rated "A" or better by Best's. For exposures where losses become
known and are paid in a relatively short period of time, we may derive
retrocessional coverage from companies rated "A-" or better by Best's. The
financial performance and rating status of all material retrocessionaires is
monitored. Retrocessional agreements do not relieve us from our obligations to
the insurers and reinsurers from whom we assume business. The failure of
retrocessionaires to honor their obligations could result in losses to us.

For 2002, St. Paul Re purchased an accident year aggregate excess-of-loss
retrocessional agreement which provides up to $200 million of coverage if the
accident year loss ratio exceeds a specified loss ratio attachment point for the
2002 accident year. This retrocessional agreement covers risks retained by St.
Paul Re and risks underwritten by us with respect to the 2002 accident year. The
attachment point is net of inuring retrocessions and includes adjustable premium
provisions that effectively cause us to pay to the retrocessionaire, on a
pre-tax basis, up to 50 percent of such ceded losses, through additional
premiums.

Platinum Bermuda reinsures up to approximately 55 percent of Platinum UK's
reinsurance business written on or after January 1, 2003, and expects to
reinsure up to approximately 70 percent of Platinum US's reinsurance business,
which is not written through St. Paul. A trust has been established and funded
to secure Platinum Bermuda's reinsurance obligations to Platinum UK and it is
expected that a trust arrangement will be established and funded to secure
Platinum Bermuda's reinsurance obligations to Platinum US.

Pursuant to the five year Services and Capacity Reservation Agreement with
Renaissance Re described above, RenaissanceRe will provide us with quotations
for non marine property catastrophe retrocessional coverage with aggregate
limits up to $100 million annually, either on an excess-of-loss or proportional
basis. These quotations, which will be in RenaissanceRe's sole discretion, are
expected to reflect, among other things, an analysis of exposure, limit,
retention, exclusions and other treaty terms. The annual fee for the coverage
commitment and the consulting services that we will pay to RenaissanceRe will be
the greater of (i) $4 million and (ii) 3.5 percent of our aggregate gross
written non marine non finite property catastrophe premium (including
reinstatements), adjusted annually 30 days after each anniversary. This annual
fee is in addition to any retrocessional premium otherwise payable to
RenaissanceRe for retrocessional coverage purchased by us from RenaissanceRe.

13

CLAIMS ADMINISTRATION

With respect to the reinsurance contracts that we assumed from St. Paul Re,
claims are managed by St. Paul's claims department, with our supervision and
management, pursuant to the quota share retrocession agreements that we entered
into with St. Paul. Under those agreements, St. Paul's subsidiaries transferred
the liabilities, related assets and rights and risks under substantially all of
the reinsurance contracts entered into by St. Paul's subsidiaries on or after
January 1, 2002 (except for certain liabilities relating to the flooding in
Europe in August 2002, named storms in existence at the time of the completion
of the Public Offering, and reinsurance underwritten in London covering
exposures arising from financial institutions). We reimburse St. Paul for its
costs of managing these claims. We may, at our discretion and expense, take over
administration of any specific claims. Our own claims department administers
claims arising under all of our other reinsurance contracts.

The responsibilities of the claims department include reviewing initial
loss reports, monitoring claims handling activities of clients, requesting
additional information where appropriate, posting initial case reserves and
approving payment of individual claims. Authority for payment and establishing
reserves is based upon the level and experience of claims personnel.

In addition to managing reported claims and conferring with ceding
companies on claims matters, the claims department conducts periodic audits of
specific claims and the overall claims procedures of our clients at the offices
of ceding companies. We rely on our ability to monitor effectively the claims
handling and claims reserving practices of ceding companies in order to
establish the proper reinsurance premium for reinsurance agreements and to
establish proper loss reserves. Moreover, prior to accepting certain risks, our
underwriters will often request that the claims department conduct
pre-underwriting claims audits of prospective ceding companies. Through these
audits, we attempt to evaluate the ceding company's claims-handling practices,
including the organization of their claims department, their fact-finding and
investigation techniques, their loss notifications, the adequacy of their
reserves, their negotiation and settlement practices and their adherence to
claims-handling guidelines. Following these audits, the claims department
provides feedback to the ceding company, including an assessment of the claims
operation and, if appropriate, recommendations regarding procedures, processing
and personnel.

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

We are required by applicable insurance laws and regulations and accounting
principles generally accepted in the United States of America ("U.S. GAAP") to
establish liabilities for payment of losses and LAE that will arise from our
reinsurance products. These liabilities are balance sheet estimates of future
amounts required to pay losses and LAE for reinsured claims which have occurred
at or before the balance sheet date, whether already known to us or not yet
reported. Unpaid losses and LAE fall into two categories: case basis estimates
for reported losses and LAE, and estimates of liabilities for incurred but not
reported ("IBNR") losses and LAE. IBNR liabilities are established upon the
occurrence of an event which may give rise to a loss, but before any claims are
reported. Significant periods of time can elapse between the occurrence of a
reinsured claim, its reporting by the insured to the primary insurer and from
the primary insurer to the reinsurer. Under U.S. GAAP, we are not permitted to
establish liabilities until the occurrence of an event which may give rise to a
loss.

Upon receipt of a notice of claim from a ceding company, we establish an
estimate of the case basis liability for our portion of the ultimate settlement.
Case basis liabilities are usually based upon the liability estimate reported by
the ceding company and may be increased or reduced as deemed necessary by our
claims department. We establish liabilities for loss and LAE in light of past
experience (including the historical loss experience of the reinsurance business
of St. Paul Re, current developments and likely trends). Preliminary actuarial
results are shared with appropriate underwriters, pricing actuaries, claims and
finance professionals and senior management. Because estimation of unpaid losses
and LAE is an inherently uncertain process, we believe that quantitative
techniques are enhanced by professional and managerial judgment. Upon the
occurrence of an event which may give rise to a loss but before any claims are
reported, we establish liabilities for IBNR losses and LAE based on actuarial

14

techniques and a review of contracts that may be impacted by the event. The
establishment of liabilities for losses and LAE, and adjustments to liabilities
resulting from changes in our estimates, are reflected in current income.

Unpaid losses and LAE represent our best estimates, at a given point in
time, of the ultimate settlement and administration costs of claims incurred,
and it is possible that the ultimate liability may exceed or be less than such
estimates. Such estimates are not precise because, among other things, they are
based on predictions of future developments and estimates of future trends in
claim severity and frequency and other factors. During the claim settlement
period, it often becomes necessary to refine and adjust the case basis estimates
of liability, and thus the estimates may be adjusted either upward or downward,
based on periodic reviews and updates for developments. Even after such
adjustments, ultimate liability may materially exceed or be less than the
revised estimates.

The uncertainty inherent in loss estimation is particularly pronounced for
casualty coverages, such as umbrella, general and professional liability and
automobile liability, where information, such as required medical treatment and
costs for bodily injury claims, only emerges over time. In the overall reserve
setting process, provisions for economic inflation and changes in the social and
legal environment are considered. The uncertainty inherent in the reserving
process for primary insurers is even greater for the reinsurer. This is because
of, but not limited to, the time lag inherent in reporting information from the
primary insurer to the reinsurer and differing reserving practices among ceding
companies. As a result, actual losses and loss adjustment expenses may deviate,
perhaps materially, from expected ultimate costs reflected in our current
reserves.

Activity in liability for unpaid losses and LAE is summarized as follows ($
in thousands):

Net unpaid losses and LAE as of April 19, 2002.............. $ --
Net incurred related to current year........................ 60,356
Unpaid losses and LAE assumed from St. Paul................. 221,303
Net paid losses and LAE..................................... --
--------
Net unpaid losses and LAE as of December 31, 2002........... $281,659
========

INVESTMENTS

Reinsurance company investments must comply with applicable laws and
regulations, which prescribe the kind, quality and concentration of investments.
In general, these laws and regulations permit investments, within specified
limits and subject to some qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common equity securities, mortgage
loans, real estate and some other investments.

GENERAL GUIDELINES

We have developed investment guidelines for the management of our
investment portfolio by a third party investment manager. Although these
guidelines stress diversification of risk, preservation of capital and market
liquidity, investments are subject to market risks and fluctuations, as well as
risks inherent in particular securities. Levels of inflation also affect
investment returns. The primary objective of the portfolio, set forth in the
guidelines, is to maximize investment returns consistent with appropriate
safety, diversification, tax and regulatory considerations and to provide
sufficient liquidity to enable us to meet our obligations on a timely basis.

Our investment strategy takes into consideration the risks inherent in our
business. For this reason our investment policy is conservative with a strong
emphasis on high quality, fixed maturity investments. The duration of the
portfolio varies according to the outlook for interest rate movements and the
estimated duration of our reinsurance liabilities, subject to limitations set
forth in the guidelines.

15

Currently, we invest only in investment grade securities and do not
currently intend to invest in non-investment grade securities or common equity
securities, although we may do so in the future. We do not intend to invest in
real estate or other classes of alternative investments. Our investment
guidelines contain restrictions on the portion of the portfolio that may be
invested in the securities of any single issue or issuer, with the exception of
governments or agencies, including sovereign and supernational agencies, with
prescribed minimum ratings. Our investment managers may be instructed to invest
some of the investment portfolio in currencies other than U.S. dollars based
upon the business we anticipate underwriting, the exposures and unpaid losses
and LAE on our books, or regulatory requirements. Our investment guidelines
provide that financial futures and options and foreign exchange contracts may
not be used in a speculative manner but may be used only as part of a defensive
strategy to protect the market value of investments.

From time to time, we expect to reevaluate our investment guidelines to
reflect any changes in our assumptions about liability duration, market
conditions, prevailing interest rates and other factors discussed above. Any
change in our guidelines will be subject to the ongoing oversight and approval
of the Board of Directors.

INVESTMENT MANAGEMENT AGREEMENT

We have entered into an investment management agreement with Alliance
Capital Management L.P. ("Alliance"), which provides investment advisory
services to us. The agreement may be terminated by either party by giving 30
days' notice of termination. We pay Alliance a fee based on the amount of our
assets managed by Alliance.

VALUATION

We classify our entire investment portfolio as available-for-sale. All of
our fixed income securities are carried at their estimated fair value, with the
difference between amortized cost and the fair value, net of any deferred taxes,
to be charged or credited directly to our shareholders' equity. We calculate the
fair value based on quoted market prices, as reported by reputable market data
providers. If quoted market prices are not available, fair values are estimated
either based on values obtained from independent pricing services or based on a
cash flow estimate. Cash equivalents and short-term investments are carried at
cost, which approximate fair value. Realized gains and losses on disposal of
investments are determined based upon specific identification of the cost of
investments sold and are recorded in our statements of income. We regularly
monitor the unrealized difference between the cost and the estimated fair value
of the securities in our portfolio and if the value of any of our investments
declines in a manner that we believe is other than temporary, we write down that
investment and record a realized loss on our statement of income.

The following table shows, in the aggregate, the fair value of our
portfolio of invested assets, as of December 31, 2002 ($ in thousands):

U.S. government and U.S. government agencies................ $ 3,793
Corporate bonds............................................. 691,479
Mortgage and asset-backed securities........................ 283,878
Foreign governments and states.............................. 39,107
----------
Total bonds............................................ 1,018,257
Redeemable preferred stocks................................. 46,959
----------
Total fixed maturities................................. $1,065,216
==========

QUALITY

Our current investment guidelines call for our invested asset portfolio to
have at least an average A2 rating as measured by Moody's Investors Service
("Moody's"). At December 31, 2002, our fixed maturity

16

portfolio had a dollar weighted average rating of Aa3. The average yield of our
portfolio for the period from November 1, 2002 to December 31, 2002 was 3.8
percent.

The following table summarizes the composition of the fair value of the
fixed maturity portfolio as of December 31, 2002 by rating as assigned by
Moody's:

Aaa......................................................... 31.0%
Aa-Aa3...................................................... 16.0
A-A3........................................................ 53.0
-----
100.0%
=====

DURATION

We currently target a duration of approximately 3.5 years on a weighted
average basis, reflecting our belief that it is important to maintain a liquid,
shorter-duration portfolio to facilitate the payment of claims on a timely basis
without an adverse impact on our investment returns. At December 31, 2002, our
fixed maturity portfolio had an average duration of 3.8 years. The following
table summarizes the fair value of our fixed maturity portfolio by contractual
maturities as of December 31, 2002 ($ in thousands); actual maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties:

Due in one year or less..................................... $ 28,063
Due from one to five years.................................. 581,548
Due from five to ten years.................................. 166,089
Due in ten or more years.................................... 5,638
Mortgage and asset-backed securities........................ 283,878
----------
Total.................................................. $1,065,216
==========

COMPETITION

The property and casualty reinsurance industry is highly competitive. We
compete with reinsurers worldwide, many of which have greater financial,
marketing and management resources than ours. Some of our competitors are large
financial institutions who have reinsurance segments, while others are specialty
reinsurance companies. Financial institutions have also created alternative
capital market products that compete with reinsurance products, such as
reinsurance securitization. Our principal competitors vary by type of business.
Bermuda-based reinsurers are significant competitors on property catastrophe
business. Lloyd's of London syndicates are significant competitors on marine
business. On international business, the large European reinsurers are
significant competitors. Large U.S. direct reinsurers, as well as lead U.S.-
based broker market reinsurers, are significant competitors on U.S. casualty
business. On an overall basis, we expect that our most significant competitors
include General Re, Munich Re, Swiss Re, Employers Re, Lloyd's of London, XL
Capital, ACE, Converium Holding, Everest Re, and PartnerRe.

Recently, a number of individuals and companies in the reinsurance industry
have established new, well-capitalized, Bermuda-based reinsurers to benefit from
improved market conditions following the September 11, 2001 terrorist attack,
and a number of existing competitors have raised additional capital or have
announced plans to do so. Many of the reinsurers that have entered the
reinsurance markets have or could have more capital than we have. In addition,
there may be established companies or new companies of which we are not aware
that may be planning to commit capital to this market. Competition in the types
of reinsurance business that we underwrite is based on many factors, including
premium charges and other terms and conditions offered, services provided,
ratings assigned by independent rating agencies, speed of claims payment, claims
experience, perceived financial strength and experience and reputation of the
reinsurer in the line of reinsurance to be underwritten. The full effect of this
additional capital on the

17

reinsurance market and on the terms and conditions of the reinsurance contracts
of the types we expect to underwrite may not be known for some time.

The reinsurance industry is highly concentrated. Reinsurance companies have
sought in recent years to expand their existing markets, obtain critical mass in
new markets and further diversify risk. At the same time, consolidation in the
worldwide insurance industry has created a smaller group of large ceding
companies that are retaining an increasing proportion of their business.

We are aware of a number of initiatives by traditional as well as new
capital market participants to produce alternative products (such as reinsurance
securitizations, catastrophe bonds and various derivatives such as swaps) that
may compete with certain types of reinsurance, such as property catastrophe.
Over time, these numerous initiatives could significantly affect supply, pricing
and competition in our industry.

RATINGS

Best's is generally considered to be a significant rating agency with
respect to the evaluation of insurance and reinsurance companies. Best's ratings
are based on a quantitative evaluation of performance with respect to
profitability, leverage and liquidity and a qualitative evaluation of spread of
risk, reinsurance programs, investments, unpaid losses and management. Insurance
ratings are used by insurers and reinsurance intermediaries as an important
means of assessing the financial strength and quality of reinsurers. In
addition, a ceding company's own rating may be adversely affected by a downgrade
in the rating of its reinsurer. Therefore, a downgrade of our rating may
dissuade a ceding company from reinsuring with us and may influence a ceding
company to reinsure with a competitor of ours that has a higher insurance
rating.

It is increasingly common for our reinsurance contracts to contain terms
that would allow the ceding companies to cancel the contract if we are
downgraded below our current rating level. Whether a client would exercise this
cancellation right would depend, among other things, on the reason for such
downgrade, the extent of the downgrade, the prevailing market conditions and the
pricing and availability of replacement reinsurance coverage. It is impossible
to predict in advance whether and how many of our clients would actually
exercise this right or what effect such cancellations would have on our
financial condition or future operations, but such effect could potentially be
adverse.

Best's has assigned a financial strength rating of "A" (Excellent) to our
operating subsidiaries. This is the third highest of sixteen rating levels.
According to Best's, a rating of "A" indicates Best's opinion that a company has
an excellent ability to meet its ongoing obligations to policyholders.

EMPLOYEES

At December 31, 2002, we employed 157 people. None of our employees is
subject to collective bargaining agreements. We are not aware of any current
efforts to implement such agreements at any of our subsidiaries.

Certain of the Bermuda-based employees of Platinum Holdings, including our
Chief Executive Officer, Chief Financial Offer and General Counsel, are employed
pursuant to work permits granted by the Bermuda authorities. These permits
expire at various times during the next few years. We have no reason to believe
that these permits would not be extended at expiration upon request, although no
assurance can be given in this regard.

REGULATION

GENERAL

The business of reinsurance is regulated in most countries, although the
degree and type of regulation varies significantly from one jurisdiction to
another. Reinsurers are generally subject to less direct regulation than primary
insurers. In Bermuda, we operate under relatively less intensive regulatory
requirements. However, in the United States and in the United Kingdom licensed
reinsurers must comply

18

with financial supervision standards comparable to those governing primary
insurers. Accordingly, Platinum US and Platinum UK are subject to extensive
regulation under applicable statutes. In the United States, those statutes
delegate regulatory, supervisory and administrative powers to state insurance
commissioners.

BERMUDA REGULATION

Platinum Holdings and Platinum Bermuda are organized and domiciled in
Bermuda. As a holding company, Platinum Holdings is not subject to Bermuda
insurance regulations.

The Insurance Act, which regulates the insurance business of Platinum
Bermuda, provides that no person may carry on any insurance business in or from
within Bermuda unless registered as an insurer under the Insurance Act by the
Bermuda Monetary Authority (the "Authority"), which is responsible for the
day-to-day supervision of insurers. Under the Insurance Act, insurance business
includes reinsurance business. The Authority, in deciding whether to grant
registration, has broad discretion to act as the Authority thinks fit in the
public interest. The Authority is required by the Insurance Act to determine
whether the applicant is a fit and proper body to be engaged in the insurance
business and, in particular, whether it has, or has available to it, adequate
knowledge and expertise. The registration of an applicant as an insurer is
subject to its complying with the terms of its registration and such other
conditions as the Authority may impose from time to time. Platinum Bermuda has
been registered with the Authority.

An Insurance Advisory Committee appointed by the Bermuda Minister of
Finance advises the Authority on matters connected with the discharge of the
Authority's functions and sub-committees thereof supervise and review the law
and practice of insurance in Bermuda, including reviews of accounting and
administrative procedures. The day-to-day supervision of insurers is the
responsibility of the Bermuda Registrar of Companies.

The Insurance Act imposes solvency and liquidity standards and auditing and
reporting requirements on Bermuda insurance companies and grants to the
Authority powers to supervise, investigate and intervene in the affairs of
insurance companies. Certain significant aspects of the Bermuda insurance
regulatory framework are set forth below.

Classification of Insurers. The Insurance Act distinguishes between
insurers carrying on long-term business and insurers carrying on general
business. There are four classifications of insurers carrying on general
business with Class 4 insurers subject to the strictest regulation. Platinum
Bermuda is registered as a Class 4 insurer and is regulated as such under the
Insurance Act.

Cancellation of Insurer's Registration. An insurer's registration may be
canceled by the Authority on certain grounds specified in the Insurance Act,
including failure of the insurer to comply with its obligations under the
Insurance Act or if, in the opinion of the Authority, the insurer has not been
carrying on business in accordance with sound insurance principles.

Principal Representative. An insurer is required to maintain a principal
office in Bermuda and to appoint and maintain a principal representative in
Bermuda. For the purpose of the Insurance Act, the principal office of Platinum
Bermuda is at our principal executive offices in Bermuda, and Platinum Bermuda's
principal representative is International Advisory Services Ltd. Without a
reason acceptable to the Authority, an insurer may not terminate the appointment
of its principal representative, and the principal representative may not cease
to act as such, unless 30 days' notice in writing to the Authority is given of
the intention to do so. It is the duty of the principal representative, within
30 days of reaching the view that there is a likelihood of the insurer for which
the principal representative acts becoming insolvent or that a reportable
"event" has, to the principal representative's knowledge, occurred or is
believed to have occurred, to make a report in writing to the Authority setting
out all the particulars of the case that are available to the principal
representative. Examples of such a reportable "event" include failure by the
insurer to comply substantially with a condition imposed upon the insurer by the
Authority relating to a solvency margin or liquidity or other ratio.

Independent Approved Auditor. Every registered insurer must appoint an
independent auditor who will annually audit and report on the statutory
financial statements and the statutory financial return of the
19

insurer, both of which, in the case of Platinum Bermuda, are required to be
filed annually with the Authority. The independent auditor of Platinum Bermuda
must be approved by the Authority and may be the same person or firm which
audits Platinum Bermuda's financial statements and reports for presentation to
its shareholders. Platinum Bermuda's independent auditor is KPMG.

Loss Reserve Specialist. As a registered Class 4 insurer, Platinum Bermuda
is required to submit an opinion of its approved loss reserve specialist with
its statutory financial return in respect of its loss and LAE provisions. The
loss reserve specialist, who will normally be a qualified casualty actuary, must
be approved by the Authority.

Statutory Financial Statements. An insurer must prepare annual statutory
financial statements. The Insurance Act prescribes rules for the preparation and
substance of such statutory financial statements (which include, in statutory
form, a balance sheet, an income statement, a statement of capital and surplus
and notes thereto). The insurer is required to give detailed information and
analyses regarding premiums, claims, reinsurance and investments. The statutory
financial statements are not prepared in accordance with U.S. GAAP and are
distinct from the financial statements prepared for presentation to the
insurer's shareholders under the Bermuda Companies Act 1981 (the "Companies
Act"), which financial statements will be prepared in accordance with U.S. GAAP.
Platinum Bermuda, as a general business insurer, will be required to submit the
annual statutory financial statements as part of the annual statutory financial
return. The statutory financial statements and the statutory financial return do
not form part of the public records maintained by the Authority.

Annual Statutory Financial Return. Platinum Bermuda is required to file
with the Authority a statutory financial return no later than four months after
its financial year end (unless specifically extended). The statutory financial
return for an insurer includes, among other matters, a report of the approved
independent auditor on the statutory financial statements of such insurer,
solvency certificates, the statutory financial statements themselves, the
opinion of the loss reserve specialist and a schedule of reinsurance ceded. The
solvency certificates must be signed by the principal representative and at
least two directors of the insurer who are required to certify, among other
matters, whether the minimum solvency margin has been met and whether the
insurer complied with the conditions attached to its certificate of
registration. The independent approved auditor is required to state whether in
its opinion it was reasonable for the directors to so certify. Where an
insurer's accounts have been audited for any purpose other than compliance with
the Insurance Act, a statement to that effect must be filed with the statutory
financial return.

Minimum Solvency Margin and Restrictions on Dividends and
Distributions. Under the Insurance Act, the value of the general business
assets of a Class 4 insurer, such as Platinum Bermuda, must exceed the amount of
its general business liabilities by an amount greater than the prescribed
minimum solvency margin. Platinum Bermuda:

(1) is required, with respect to its general business, to maintain a
minimum solvency margin equal to the greatest of:

(A) $100,000,000;

(B) 50 percent of net premiums written (being gross premiums
written less any premiums ceded by Platinum Bermuda, but Platinum
Bermuda may not deduct more than 25 percent of gross premiums when
computing net premiums written); and

(C) 15 percent of loss and other insurance reserves;

(2) is prohibited from declaring or paying any dividends during any
financial year if it is in breach of its minimum solvency margin or minimum
liquidity ratio or if the declaration or payment of such dividends would
cause it to fail to meet such margin or ratio (and if it has failed to meet
its minimum solvency margin or minimum liquidity ratio on the last day of
any financial year, Platinum Bermuda is prohibited, without the approval of
the Authority, from declaring or paying any dividends during the next
financial year);

20

(3) is prohibited from declaring or paying in any financial year
dividends of more than 25 percent of its total statutory capital and
surplus (as shown on its previous financial year's statutory balance sheet)
unless it files with the Authority (at least seven days before payment of
such dividends) an affidavit stating that it will continue to meet the
required margins;

(4) is prohibited, without the approval of the Authority, from
reducing by 15 percent or more its total statutory capital as set out in
its previous year's financial statements, and any application for such
approval must include an affidavit stating that it will continue to meet
the required margins; and

(5) is required, at any time it fails to meet its solvency margin,
within 30 days (45 days where total statutory capital and surplus falls to
$75 million or less) after becoming aware of that failure or having reason
to believe that such failure has occurred, to file with the Authority a
written report containing certain information.

Additionally, under the Companies Act, Platinum Holdings and Platinum
Bermuda may declare or pay a dividend only if Platinum Holdings or Platinum
Bermuda, as the case may be, has no reasonable grounds for believing that it is,
or after the payment would be, unable to pay its liabilities as they become due,
or that the realizable value of its assets would thereby be less than the
aggregate of its liabilities and its issued share capital and share premium
accounts.

Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity
ratio for general business insurers. An insurer engaged in general business is
required to maintain the value of its relevant assets at not less than 75
percent of the amount of its relevant liabilities. Relevant assets include cash
and time deposits, quoted investments, unquoted bonds and debentures, first
liens on real estate, investment income due and accrued, accounts and premiums
receivable and reinsurance balances receivable. There are certain categories of
assets which, unless specifically permitted by the Authority, do not
automatically qualify as relevant assets, such as unquoted equity securities,
investments in and advances to affiliates and real estate and collateral loans.
The relevant liabilities are total general business insurance reserves and total
other liabilities less deferred income tax and sundry liabilities (by
interpretation, those not specifically defined).

Supervision, Investigation and Intervention. The Authority may appoint an
inspector with extensive powers to investigate the affairs of an insurer if the
Authority believes that an investigation is required in the interest of the
insurer's policyholders or persons who may become policyholders. In order to
verify or supplement information otherwise provided to the Authority, the
Authority may direct an insurer to produce documents or information relating to
matters connected with the insurer's business.

If it appears to the Authority that there is a risk of the insurer becoming
insolvent, or that it is in breach of the Insurance Act or any conditions
imposed upon its registration, the Authority may, among other things, direct the
insurer (1) not to take on any new insurance business, (2) not to vary any
insurance contract if the effect would be to increase the insurer's liabilities,
(3) not to make certain investments, (4) to realize certain investments, (5) to
maintain in, or transfer to the custody of, a specified bank, certain assets,
(6) not to declare or pay any dividends or other distributions or to restrict
the making of such payments, and/or (7) to limit its premium income.

Disclosure of Information. In addition to powers under the Insurance Act
to investigate the affairs of an insurer, the Authority may require certain
information from an insurer (or certain other persons) to be produced to it.
Further, the Authority has been given powers to assist other regulatory
authorities, including foreign insurance regulatory authorities, with their
investigations involving insurance and reinsurance companies in Bermuda but
subject to restrictions. For example, the Authority must be satisfied that the
assistance being requested is in connection with the discharge of regulatory
responsibilities of the foreign regulatory authority. Further, the Supervisor
must consider whether to cooperate is in the public interest. The grounds for
disclosure are limited and the Insurance Act provides sanctions for breach of
the statutory duty of confidentiality.

Although Platinum Bermuda is organized in Bermuda, it is classified as a
non-resident of Bermuda for exchange control purposes by the Authority. Pursuant
to its non-resident status, Platinum Bermuda
21

may hold any currency other than Bermuda dollars and convert that currency into
any other currency (other than Bermuda dollars) without restriction.

As "exempted" companies, Platinum Holdings and Platinum Bermuda may not,
without the express authorization of the Bermuda legislature or under a license
granted by the Minister of Finance, participate in certain business
transactions, including: (1) the acquisition or holding of land in Bermuda
(except that held by way of lease or tenancy agreement which is required for its
business and held for a term not exceeding 50 years, or which is used to provide
accommodation or recreational facilities for its officers and employees and held
with the consent of the Bermuda Minister of Finance, for a term not exceeding 21
years); (2) the taking of mortgages on land in Bermuda in excess of $50,000; or
(3) the carrying on of business of any kind for which it is not licensed in
Bermuda, except in certain limited circumstances such as doing business with
another exempted undertaking in furtherance of our business or Platinum
Bermuda's business (as the case may be) carried on outside Bermuda. Platinum
Bermuda is a licensed reinsurer in Bermuda and so may carry on activities in
Bermuda that are related to and in support of its reinsurance business.

The Bermuda government actively encourages foreign investment in "exempted"
entities like Platinum Holdings that are based in Bermuda, but do not operate in
competition with local businesses. As well as having no restrictions on the
degree of foreign ownership, Platinum Holdings and Platinum Bermuda are not
currently subject to taxes on income or dividends or to any foreign exchange
controls in Bermuda. In addition, there currently is no capital gains tax in
Bermuda.

Under Bermuda law, non-Bermudians (other than spouses of Bermudians) may
not engage in any gainful occupation in Bermuda without the specific permission
of the appropriate governmental authority. Such permission may be granted or
extended upon showing that, after proper public advertisement, no Bermudian (or
spouse of a Bermudian) is available who meets the minimum standards for the
advertised position. None of our executive officers is a Bermudian, and all such
officers will be working in Bermuda under work permits. The Bermuda government
recently announced a new policy that places a six-year term limit on individuals
with work permits, subject to certain exceptions for key employees.

U.S. REGULATION

Platinum US is organized and domiciled in the State of Maryland and
licensed, authorized or accredited to write reinsurance in 25 states of the
United States and the District of Columbia and is seeking licenses or
accreditation in three additional states. State insurance laws regulate many
aspects of its reinsurance business and state insurance departments in the
licensure states will supervise its insurance operations. Its principal
insurance regulatory authority is the Maryland Insurance Administration. In
connection with the acquisition of Platinum US by Platinum Holdings, the
Maryland Insurance Administration issued a consent order relating to Platinum US
pursuant to which, among other things, we have agreed to comply with the notice
and approval requirements with respect to certain transactions with
RenaissanceRe and its affiliates.

U.S. Insurance Holding Company Regulation of Platinum Holdings, Platinum
Ireland and Platinum Finance

Platinum Holdings and Platinum Ireland as the indirect parents of Platinum
US, and Platinum Finance as the direct parent of Platinum US, are subject to the
insurance holding company laws of Maryland, where Platinum US is organized and
domiciled. These laws generally require an authorized insurer that is a member
of a holding company system to register with the insurance department of the
state of Maryland and to furnish annually financial and other information about
the operations of companies within the holding company system. Generally, all
transactions among companies in the holding company system affecting Platinum
US, including sales, loans, reinsurance agreements, service agreements and
dividend payments, must be fair and, if material or of a specified category,
require prior notice and approval or non-disapproval by the Maryland Insurance
Commissioner.

22

The insurance laws of Maryland prohibit any person from acquiring control
of Platinum Holdings, Platinum Ireland, Platinum Finance or Platinum US unless
that person has filed a notification with specified information with the
Maryland Insurance Commissioner and has obtained his prior approval. Under the
Maryland statutes, acquiring ten percent or more of the voting stock of an
insurance company or its parent company is presumptively considered a change of
control, although such presumption may be rebutted. Accordingly, any person who
acquires, directly or indirectly, ten percent or more of the voting securities
of Platinum Holdings without the prior approval of the Maryland Insurance
Commissioner will be in violation of these laws and may be subject to injunctive
action requiring the disposition or seizure of those securities by the Maryland
Insurance Commissioner or prohibiting the voting of those securities and to
other actions determined by the Maryland Insurance Commissioner. In addition,
many U.S. state insurance laws require prior notification of state insurance
departments of a change in control of a non-domiciliary insurance company doing
business in that state. While these pre-notification statutes do not authorize
the state insurance departments to disapprove the change in control, they
authorize regulatory action in the affected state if particular conditions exist
such as undue market concentration. Any future transactions that would
constitute a change in control of Platinum Holdings, Platinum Ireland or
Platinum Finance may require prior notification in those states that have
adopted pre-acquisition notification laws.

These laws may discourage potential acquisition proposals and may delay,
deter or prevent a change of control of Platinum Holdings, including through
transactions, and in particular unsolicited transactions, that some or all of
the shareholders of Platinum Holdings might consider to be desirable.

U.S. Insurance Regulation of Platinum US

The terms and conditions of reinsurance agreements generally are not
subject to regulation by any U.S. state insurance department with respect to
rates or policy terms. This contrasts with primary insurance agreements, the
rates and policy terms of which are generally closely regulated by state
insurance departments. As a practical matter, however, the rates charged by
primary insurers do have an effect on the rates that can be charged by
reinsurers.

State insurance authorities have broad administrative powers with respect
to various aspects of the reinsurance business, including: licensing to transact
business, admittance of assets to statutory surplus, regulating unfair trade and
claims practices, establishing reserve requirements and solvency standards, and
regulating investments and dividends. State insurance laws and regulations
require Platinum US to file financial statements with insurance departments
everywhere it is licensed or authorized to do or accredited to do business, and
the operations of Platinum US are subject to examination by those departments at
any time. Platinum US prepares statutory financial statements in accordance with
accounting practices and procedures prescribed or permitted by these
departments. State insurance departments conduct periodic examinations of the
books and records, financial reporting, policy filings and market conduct of
insurance companies domiciled in their states, generally once every three to
five years. Examinations are generally carried out in cooperation with the
insurance departments of other states under guidelines promulgated by the
National Association of Insurance Commissioners ("NAIC").

Under Maryland insurance law, Platinum US may pay dividends out of surplus,
provided it must give the Maryland Insurance Commissioner at least 30 days'
prior notice before paying an "extraordinary dividend" or making an
"extraordinary distribution." Extraordinary dividends and extraordinary
distributions are dividends or distributions which, together with any other
dividends and distributions paid during the immediately preceding twelve-month
period, would exceed the lesser of

(1) ten percent of Platinum US's statutory policyholders' surplus (as
determined under statutory accounting principles) as of December 31 of the
prior year; or

(2) Platinum US's net investment income excluding realized capital
gains (as determined under statutory accounting principles) for the
twelve-month period ending on December 31 of the prior year, plus any
amounts of net investment income (excluding realized capital gains) in the
three preceding years which have not been distributed.

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These statutory limitations are subject to change. Platinum US may not pay
extraordinary dividends or make extraordinary distributions until either the
thirty-day notice period has expired (without the Maryland Insurance
Commissioner disapproving such payment) or the Maryland Insurance Commissioner
has approved the payment within that period. Extraordinary dividends and
extraordinary distributions may only be paid out of earned surplus.

In addition, Platinum US must give ten days' prior notice to the Maryland
Insurance Commissioner of its intention to pay any dividend or make any
distribution other than an extraordinary dividend or extraordinary distribution.
The Maryland Insurance Commissioner has the right to prevent payment of such a
dividend or such a distribution if he determines, in his discretion, that after
the payment thereof, Platinum US's policyholders' surplus would be inadequate or
could cause Platinum US to be in a hazardous financial condition.

In order to enhance the regulation of insurers' solvency, the NAIC adopted
a model law to implement risk-based capital ("RBC") requirements for life,
health, and property and casualty insurance companies. Maryland has adopted the
NAIC's model law. The RBC calculation, which regulators use to assess the
sufficiency of an insurer's capital, measures the risk characteristics of a
company's assets, liabilities and certain off-balance sheet items. RBC is
calculated by applying factors to various asset, premium and liability items.
Within a given risk category, these factors are higher for those items with
greater underlying risk and lower for items with lower underlying risk. Insurers
that have less statutory capital than the RBC calculation requires are
considered to have inadequate capital and are subject to varying degrees of
regulatory action depending upon the level of capital inadequacy. The RBC ratios
of Platinum US are above the ranges that would require any regulatory or
corrective action.

The NAIC 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 insurance department
personnel to enforce such items in order to become an "accredited" state. The
NAIC determines whether individual states should be accredited, and each state's
accreditation is determined by the NAIC periodically. If a state is not
accredited or loses its accreditation, accredited states are not able to accept
certain financial examination reports of insurers prepared solely by the
regulatory agency in such unaccredited state. The state of Maryland is currently
accredited under FRASP.

Platinum Holdings has entered into a capital support agreement with
Platinum US pursuant to which Platinum Holdings may be required from time to
time to make capital contributions to Platinum US in such amounts as shall be
necessary to assure that Platinum US will have adequate capital and surplus.

The ability of a primary insurer to take credit for the reinsurance
purchased from reinsurance companies is a significant component of reinsurance
regulation. Typically, a primary insurer will only enter into a reinsurance
agreement if it can obtain credit to statutory surplus on its statutory
financial statements for the reinsurance ceded to the reinsurer. With respect to
U.S. domiciled reinsurers that reinsure U.S. insurers, credit is usually granted
when the reinsurer is licensed or accredited in a state where the primary
insurer is domiciled. In addition, many states allow credit for reinsurance
ceded to a reinsurer that is domiciled in a state which meets certain financial
requirements, provided in some instances that the domiciliary state has
substantially similar reinsurance credit law requirements or the primary insurer
is provided with collateral to secure the reinsurer's obligations.

U.S. Insurance Regulation of Platinum UK and Platinum Bermuda

Platinum UK and Platinum Bermuda are not admitted to do business in any
state in the United States. In general, the insurance laws of each state of the
United States and of many other countries
24

prohibit the sale of insurance and reinsurance within their jurisdictions by
non-admitted insurers and reinsurers such as Platinum UK and Platinum Bermuda.
Neither Platinum UK nor Platinum Bermuda maintains an office or solicits,
advertises, settles claims or conducts other insurance activities in any
jurisdiction other than the United Kingdom (in the case of Platinum UK) or
Bermuda (in the case of Platinum Bermuda).

Platinum UK and Platinum Bermuda are not licensed, accredited or approved
in any state in the U.S. The great majority of states, however, permit a credit
to statutory surplus resulting from reinsurance obtained from a non-licensed or
non-accredited reinsurer to the extent that the reinsurer provides a letter of
credit, trust fund or other acceptable security arrangement. A few states do not
allow credit for reinsurance ceded to non-licensed reinsurers except in certain
limited circumstances and others impose additional requirements that make it
difficult to become accredited. Platinum UK or Platinum Bermuda may be subject
to reinsurance premium excise taxes in the United States (one percent) and
certain other jurisdictions.

We do not believe that Platinum UK and Platinum Bermuda are in violation of
insurance laws of any jurisdiction in the United States. There can be no
assurance, however, that inquiries or challenges to Platinum UK's or Platinum
Bermuda's reinsurance activities will not be raised in the future.

U.K. REGULATION

The framework for supervision of insurance companies in the United Kingdom
is largely formed by European Union Directives which are required to be
implemented in member states through national legislation. Directives aim to
harmonize insurance regulation and supervision throughout the European Union by
laying down minimum standards in key areas, and requiring member states to give
mutual recognition to each other's standards of prudential supervision.

On December 1, 2001, the Financial Services Authority (the "FSA") assumed
its full powers and responsibilities under the Financial Services and Markets
Act 2000 ("FSMA"). The FSA is now the single statutory regulator responsible for
regulating deposit-taking, insurance, investment and most other financial
services business. It is a criminal offense for any person to carry on a
regulated activity in the United Kingdom unless that person is authorized by the
FSA or falls under an exemption.

Insurance business (which includes reinsurance business) is authorized and
supervised by the FSA. Under FSMA, effecting or carrying out any contract of
insurance is a regulated activity requiring authorization.

On December 4, 2002, Platinum UK received approval from the FSA to write
the business formerly conducted by St. Paul Re in the United Kingdom.

Supervision. In its role as supervisor of insurance companies, the primary
objective of the FSA is to fulfill its responsibilities under the FSMA regime
relating to the safety and soundness of insurance companies with the aim of
strengthening, but not guaranteeing, the protection of insureds. The FSA carries
out this prudential supervision of insurance companies through the collection of
information from statistical returns, through review of accountants' reports, by
visits to insurance companies and through regular formal interviews.

The FSA has adopted a risk-based approach to the supervision of insurance
companies. Under this approach the FSA performs a formal risk assessment of
every insurance company or group carrying on business in the United Kingdom
during each supervisory period, which varies in length according to the risk
profile of the insurer. The FSA performs the risk assessment by analyzing
information which it receives during the normal course of its supervision, such
as regular prudential returns on the financial position of the insurance
company, or which it acquires through a series of meetings with senior
management of the insurance company. After each risk assessment, the FSA will
inform the insurer of its views on the insurer's risk profile. This will include
details of any remedial action which the FSA requires and the likely
consequences if this action is not taken.

25

Solvency Requirements. The Interim Prudential Sourcebook for Insurers
requires that insurance companies maintain a margin of solvency at all times in
respect of any general insurance undertaken by the insurance company, the
calculation of which in any particular case depends on the type and amount of
insurance business a company writes. The method of calculation of the solvency
margin is set out in the Interim Prudential Sourcebook for Insurers, and for
these purposes, an insurer's assets and its liabilities are subject to specific
valuation rules set out in the Interim Prudential Sourcebook for Insurers.
Failure to maintain the required solvency margin is one of the grounds on which
wide powers of intervention conferred upon the FSA may be exercised.

Platinum Holdings has entered into a capital support agreement with
Platinum UK pursuant to which Platinum Holdings may be required from time to
time to make capital contributions to Platinum UK (in the form of non-interest
bearing loans) in such amounts as shall be necessary to assure that Platinum UK
will have adequate capital and surplus.

Restrictions on Dividend Payments. English law prohibits Platinum UK from
declaring a dividend to its shareholders unless it has "profits available for
distribution." The determination of whether a company has profits available for
distribution is based on its accumulated realized profits less its accumulated
realized losses. While the United Kingdom insurance regulatory laws impose no
statutory restrictions on a general insurer's ability to declare a dividend, the
FSA strictly controls the maintenance of each insurance company's solvency
margin within its jurisdiction and may restrict Platinum UK from declaring a
dividend at a level which the FSA determines would adversely affect Platinum
UK's solvency requirements. It is common practice in the United Kingdom to
notify the FSA in advance of any significant dividend payment.

Reporting Requirements. U.K. insurance companies must prepare their
financial statements under the Companies Act 1985 (as amended), which requires
the filing with Companies House of audited financial statements and related
reports. Under the Interim Prudential Sourcebook for Insurers, audited accounts
must be filed with the FSA within two months and 15 days of the relevant period
(or three months where the delivery of accounts is made electronically).

Equalization Reserves. Each insurance company writing property, aviation,
marine, business interruption or nuclear insurance or reinsurance business is
required by the Interim Prudential Sourcebook for Insurers to maintain an
equalization reserve in respect of business written in the financial years
ending on or after December 23, 1996 calculated in accordance with the
provisions of the Interim Prudential Sourcebook for Insurers.

Insurance companies writing credit insurance business must maintain
equalization reserves calculated in accordance with certain provisions of the
Interim Prudential Sourcebook for Insurers as related specifically to credit
insurance business.

Supervision of Management. The FSA closely supervises the management of
insurance companies through the approved persons regime, by which any
appointment of persons to a position of significant influence within an
authorized person must be approved by the FSA. The FSA also has the authority to
require there to be one or more independent directors on the board of directors
of an insurance company.

Change of Control. FSMA regulates the acquisition of "control" of any U.K.
insurance company authorized under FSMA. Any company or individual that
(together with its or his associates) directly or indirectly acquires ten
percent or more of the shares in the parent company of a U.K. authorized
insurance company, or is entitled to exercise or control the exercise of ten
percent or more of the voting power in such a parent company, would be
considered to have acquired "control" for the purposes of the relevant
legislation, as would a person who had significant influence over the management
of such parent company by virtue of his shareholding in it. A purchaser of more
than ten percent of the Common Shares would therefore be considered to have
acquired "control" of Platinum UK.

Under FSMA, any person proposing to acquire "control" over a U.K.
authorized insurance company must give prior notification to the FSA of his
intention to do so. The FSA would then have three months to consider that
person's application to acquire "control." In considering whether to approve
such
26

application, the FSA must be satisfied that both the acquirer is a fit and
proper person to have such "control" and that the interests of consumers would
not be threatened by such acquisition of "control." Failure to make the relevant
prior application would constitute a criminal offense.

Intervention and Enforcement. The FSA has extensive powers to intervene in
the affairs of an authorized person. FSMA imposes on the FSA statutory
obligations to monitor compliance with the requirements imposed by FSMA, and to
enforce the provisions of FSMA and its related secondary legislation. The FSA
has power, among other things, to enforce -- and take disciplinary measures in
respect of -- breaches of both the Interim Prudential Sourcebook for Insurers
and breaches of the conduct of business rules generally applicable to authorized
persons.

FSMA permits the FSA to refer matters directly to its enforcement division
in order to implement disciplinary or regulatory action, but more commonly
enforcement action is preceded by the exercise of the FSA's interventionist
supervisory powers.

The FSA has a general power on giving notice to require information and
documents from authorized persons that the FSA reasonably requires in connection
with the exercise of its functions under the regulatory regime. The FSA also has
two distinct statutory powers to appoint investigators.

Under section 167 of FSMA, the FSA or the Secretary of State may appoint
suitably competent persons to conduct an investigation on its behalf into the
nature, conduct or state of the business of an authorized person, a particular
aspect of that business or the ownership or control of an authorized person
where there is general concern about an authorized person but the circumstances
of the case do not suggest a specific breach or contravention of the regulatory
regime.

By contrast, under section 168 of FSMA, the FSA or the Secretary of State
may order an investigation if there appear to be circumstances suggesting that
certain specified breaches or offenses under the regulatory regime have occurred
(for example, breach of the general prohibition on performing regulated
activities without suitable permission or misconduct by an approved person).
Investigators appointed under section 168 have significantly wider powers than
investigators appointed under section 167.

The FSA may also require an authorized person to provide a report prepared
by certain skilled professionals to be approved by the FSA on any matter about
which the FSA has required or could require the provision of documents.

The FSA has many enforcement powers available to use against an authorized
or approved person. These include public censure, unlimited fines and, in
serious cases, the power to revoke or vary permission to carry on regulated
activities or an individual's approval. A serious case is one involving, among
other things, the failure of an authorized person to satisfy the threshold
conditions or the FSA considering that an approved person is no longer fit and
proper to perform the function in question. In addition, the FSA may revoke an
authorized person's permission if it is necessary to protect the interests of
consumers or potential consumers.

The FSA has further powers to obtain injunctions against authorized persons
and to impose or seek restitution orders where persons have suffered loss. Once
the FSA has made a decision to take enforcement action (other than in the case
of an application to the court for an injunction or restitution order) against
an authorized or approved person, the person affected may refer the matter to
the Financial Services and Markets Tribunal, a quasi-judicial entity staffed and
operated independently of the FSA and administered by the Lord Chancellor's
Department. Appeal from the Tribunal on a matter of law lies to the Court of
Appeal provided that either the Tribunal or the Court of Appeal grants
permission.

Finally, the FSA is granted the power to prosecute criminal offenses
arising under FSMA, and to prosecute insider dealing under Part V of the
Criminal Justice Act 1993, and breaches of money laundering regulations. The
FSA's stated policy is to pursue criminal prosecution in all appropriate cases.

Proposed Limits on Concentration of Reinsurance Exposures. In July 2002,
the FSA issued a consultation paper ("CP143") which sets forth proposed reforms
to strengthen both the capital regime and systems and controls requirements for
insurers and reinsurers subject to the FSA's jurisdiction. CP143
27

includes proposals aimed at ensuring adequate diversification of an insurer's or
reinsurer's exposures to reinsurers (whether intra- or extra-group). In
particular, it proposes a rebuttable presumption that an insurer or reinsurer
must limit the gross earned premiums paid to a single reinsurer (or group of
related reinsurers) to a maximum of 20 percent of the insurer's or reinsurer's
projected gross earned premiums in any financial year in order to meet
prudential requirements. If an insurer or reinsurer wishes to exceed this limit,
it must first satisfy the FSA that this is appropriate. In addition, the
relevant guidance indicates that an insurer or reinsurer would be permitted to
take into account certain acceptable loss mitigation techniques, such as
effective security arrangements, in assessing the overall adequacy of the
diversification of its reinsurance exposure.

CP143 also proposes to limit an insurer's or reinsurer's exposure to a
single reinsurer (or group of related reinsurers) to 100 percent of its capital
by requiring it to alert its FSA supervisor if it approaches or has exceeded
this limit and to explain why it considers that prudent provision is or is not
required for the excess exposure.

CP143 is currently in draft form. The final rules and guidance, the
ultimate form of which may or may not differ from the contents of CP143, are
expected to take effect in 2004 and will apply to Platinum UK.

IRELAND REGULATION

Platinum Ireland is organized and domiciled in Ireland. As a holding
company, Platinum Ireland is not subject to Irish insurance regulation. In the
future, Platinum Ireland may be used to carry out reinsurance activities in
Ireland or the European Union outside of the United Kingdom, provided that the
necessary regulatory approvals are first obtained.

RISK FACTORS

Numerous factors could cause our actual results to differ materially from
those in the forward-looking statements set forth in this Form 10-K and in other
documents that we file with the Securities and Exchange Commission. Those
factors include the following:

IF WE ARE UNABLE TO IMPLEMENT OUR BUSINESS STRATEGY OR OPERATE OUR BUSINESS
AS WE CURRENTLY EXPECT, OUR RESULTS COULD BE ADVERSELY AFFECTED.

The Company is in the initial stages of its operations, having no operating
history prior to the Public Offering. Businesses such as ours, which are
starting up or in their initial stages of development, present substantial
business and financial risks and may suffer significant losses. We are in the
process of developing business relationships, establishing operating procedures,
hiring staff, obtaining facilities, obtaining licenses and completing other
tasks appropriate for the conduct of our business activities. If we are unable
to implement these actions, our results may be adversely affected. As a result
of industry factors or factors specific to the Company, we may have to alter our
anticipated methods of conducting our business, such as the nature, amount and
types of risks we assume.

INCREASED COMPETITION COULD ADVERSELY AFFECT OUR PROFITABILITY.

The property and casualty reinsurance industry is highly competitive. We
compete with major U.S. and non-U.S. reinsurers, including several Bermuda-based
reinsurers that write property and casualty reinsurance and that target the same
market as we do and utilize similar business strategies. Following the terrorist
attack of September 11, 2001, a number of new reinsurers and other entities have
been formed and a number of existing market participants have raised new capital
in an effort to participate in an improving marketplace. These new companies
could increase the level of competition in the industry, which may affect our
competitive position.

In addition to reinsurance company competitors, other financial
institutions are now able to offer services similar to those that we offer.
Financial institutions have also created alternative capital market

28

products that compete with reinsurance products, such as reinsurance
securitization. Such alternative products may be perceived to be more beneficial
for ceding companies than reinsurance offered by reinsurance companies and may
result in lower demand for certain of our products.

Since we have only been in operation since November 1, 2002, many of our
competitors have greater name and brand recognition than we currently do. Many
of them also have more capital and greater marketing and management resources
than we have, and may offer a broader range of products and more competitive
pricing than we offer or expect to offer.

Our competitive position is based on many factors, including our perceived
overall financial strength, ratings assigned by independent rating agencies,
geographic scope of business, client relationships, premiums charged, contract
terms and conditions, products and services offered (including the ability to
design customized programs), speed of claims payment, reputation, experience and
qualifications of employees and local presence. Since we have only been in
operation since November 1, 2002, we may not be able to compete successfully on
any of these bases. If competition limits our ability to write new business at
adequate rates, our return on capital may be adversely affected.

A DOWNGRADE IN THE RATING ASSIGNED BY BEST'S TO OUR OPERATING SUBSIDIARIES
COULD ADVERSELY AFFECT OUR ABILITY TO WRITE NEW BUSINESS.

Best's has assigned a financial strength rating of "A" (Excellent) to our
operating subsidiaries. According to Best's, a rating of "A" indicates Best's
opinion that a company has an excellent ability to meet its ongoing obligations
to policyholders.

Best's is generally considered to be a significant rating agency with
respect to the evaluation of insurance and reinsurance companies. Insurance
ratings are used by ceding companies as an important means of assessing the
financial strength and quality of reinsurers. In addition, a ceding company's
own rating may be adversely affected by a downgrade in the rating of its
reinsurer. Therefore, a downgrade of our rating may dissuade a ceding company
from reinsuring with us and may influence a ceding company to reinsure with a
competitor of ours that has a higher insurance rating.

It is increasingly common for our reinsurance contracts to contain terms
that would allow the ceding companies to cancel the contract if we are
downgraded below our current rating level. Whether a client would exercise this
cancellation right would depend, among other things, on the reason for such
downgrade, the extent of the downgrade, the prevailing market conditions and the
pricing and availability of replacement reinsurance coverage. It is impossible
to predict in advance whether and how many of our clients would actually
exercise this right or what effect such cancellations would have on our
financial condition or future operations, but such effect could potentially be
adverse.

THE OCCURRENCE OF SEVERE CATASTROPHIC EVENTS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL CONDITION OR RESULTS OF OPERATIONS.

Because we underwrite property and casualty reinsurance and have large
aggregate exposures to natural and man-made disasters, we expect that our loss
experience generally will include infrequent events of great severity. The
frequency and severity of catastrophe losses are inherently unpredictable.
Consequently, the occurrence of losses from catastrophic events is likely to
cause a material adverse effect on our results of operations and financial
condition. In addition, catastrophes are an inherent risk of our business and a
catastrophe or series of catastrophes can be expected to have a material adverse
effect on our ability to write new business, and our financial condition and
results of operations, possibly to the extent of eliminating our shareholders'
equity and statutory surplus (which is the amount remaining after all
liabilities, including liabilities for losses and LAE, are subtracted from all
admitted assets, as determined under statutory accounting principles, which are
the principles prescribed or permitted by U.S. insurance regulatory
authorities). Increases in the values and geographic concentrations of insured
property and the effects of inflation have historically resulted in increased
severity of industry losses in recent years and we expect that those factors
will increase the severity of catastrophe losses in the future.

29

THE FAILURE TO BE EFFECTIVE OF ANY OF THE LOSS LIMITATION METHODS WE EMPLOY
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION OR RESULTS
OF OPERATIONS.

Our property and casualty reinsurance contracts cover unpredictable events
such as hurricanes, windstorms, hailstorms, earthquakes, volcanic eruptions,
fires, industrial explosions, freezes, riots, floods and other natural or
man-made disasters. We seek to limit our overall exposure to risk by limiting
the amount of reinsurance we write by geographic area, by peril and by type of
program or contract. Our risk management uses a variety of means, including the
use of contract terms, diversification criteria, probability analysis and
analysis of comparable historical loss experience. We estimate the impact of
certain catastrophic events using catastrophe modeling software and contract
information to evaluate our exposure to losses from individual contracts and in
the aggregate. For example, the majority of the natural catastrophe reinsurance
we write relates to exposures within the United States, Europe and Japan.
Accordingly, we monitor our exposure to events that affect these regions, such
as hurricanes and earthquakes in the United States, windstorms in Europe and
typhoons and earthquakes in Japan.

We seek to limit our potential loss (pretax, but after reinstatement and
other premiums received due to the loss) from a single one-in-250-year
catastrophe on a probable maximum loss basis, after giving effect to our
retrocessional programs, to approximately 30 percent of our total
capitalization. There can be no assurance that our underwriting risk management
procedures and our retrocessional programs will successfully limit actual losses
to this amount and losses from a single catastrophe may materially exceed this
amount.

Many of our reinsurance contracts do not contain an aggregate loss limit or
a loss ratio limit, which means that there is no contractual limit to the losses
that we may be required to pay pursuant to such reinsurance contracts.
Substantially all of our property reinsurance contracts with natural catastrophe
exposure have occurrence limits. Substantially all of our high layer property,
casualty and marine excess-of-loss contracts also contain aggregate limits, with
limited reinstatements of an occurrence limit, which restore the original limit
under the contract after the limit has been depleted by losses incurred on that
treaty.

Various provisions of our contracts, such as limitations or exclusions from
coverage or choice of forum, may not be enforceable in the manner we intend, due
to, among other things, disputes relating to coverage and choice of legal forum.
Underwriting is a matter of judgment, involving important assumptions about
matters that are inherently unpredictable and beyond our control, and for which
historical experience and probability analysis may not provide sufficient
guidance. One or more catastrophic or other events could result in claims that
substantially exceed our expectations, which could have a material adverse
effect on our financial condition or our results of operations, possibly to the
extent of eliminating our shareholders' equity and statutory surplus.

IF WE ARE REQUIRED TO INCREASE OUR LIABILITIES FOR LOSSES AND LAE, OUR
OPERATING RESULTS WILL BE ADVERSELY AFFECTED.

We are required by applicable insurance laws and regulations and U.S. GAAP
to establish liabilities on our consolidated balance sheet for payment of losses
and LAE that will arise from our reinsurance products. At any time, these
liabilities may prove to be inadequate to cover our actual losses and LAE. To
the extent these liabilities may be insufficient to cover actual losses or LAE,
we will have to add to these liabilities and incur a charge to our earnings,
which could have a material adverse effect on our financial condition, results
of operations and cash flows.

The liabilities established on our consolidated balance sheet do not
represent an exact calculation of liability, but rather are estimates of the
expected cost of the ultimate settlement of losses. All of our liability
estimates are based on actuarial and statistical projections at a given time, of
facts and circumstances known at that time and estimates of trends in loss
severity and other variable factors, including new concepts of liability and
general economic conditions. Changes in these trends or other variable factors
could result in claims in excess of the liabilities that we have established.

30

Unforeseen losses, the type or magnitude of which we cannot predict, may
emerge in the future. These additional losses could arise from changes in the
legal environment, catastrophic events, extraordinary events affecting our
clients such as reorganizations and liquidations or changes in general economic
conditions.

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 our ceding companies may not have adequately
evaluated the risks to be reinsured and that the premiums ceded to us may not
adequately compensate us for the risks we assume.

Under U.S. GAAP, Platinum US, Platinum UK and Platinum Bermuda are not
permitted to establish liabilities until an event occurs which may give rise to
a loss. Once such an event occurs, liabilities are established based upon
estimates of the total losses incurred by the ceding companies and an estimate
of the portion of such loss our three operating subsidiaries have reinsured. As
a result, only liabilities applicable to losses incurred up to the reporting
date may be established, with no allowance for the provision of a contingency
reserve to account for expected future losses. Losses arising from future events
will be estimated and recognized at the time the loss is incurred and could be
substantial.

WE PURCHASE RETROCESSIONAL REINSURANCE, WHICH MAY BECOME UNAVAILABLE ON
ACCEPTABLE TERMS AND WHICH SUBJECTS US TO CREDIT RISK.

In order to limit the effect on our financial condition of large and
multiple losses, we buy retrocessional reinsurance, which is reinsurance for our
own account. From time to time, market conditions have limited, and in some
cases have prevented, insurers and reinsurers from obtaining the types and
amounts of reinsurance which they consider adequate for their business needs. As
a result of the September 11, 2001 terrorist attack, both pricing and terms have
become more severe in the retrocessional reinsurance market, which may limit our
ability to obtain desired amounts of retrocessional reinsurance at acceptable
pricing. If we are unable to obtain retrocessional reinsurance, our financial
position and results of operations may be materially adversely affected. Loss of
all or portions of our retrocessional coverage could subject us to increased
exposure, which could be material.

A retrocessionaire's insolvency or its inability or unwillingness to make
payments under the terms of its reinsurance treaty with us could have a material
adverse effect on us. Therefore, our retrocessions subject us to credit risk
because the ceding of risk to retrocessionaires does not relieve a reinsurer of
its liability to the ceding companies.

WE ARE DEPENDENT ON THE BUSINESS PROVIDED TO US BY REINSURANCE BROKERS AND
WE MAY BE EXPOSED TO LIABILITY FOR BROKERS' FAILURE TO MAKE PAYMENTS TO
CLIENTS FOR THEIR CLAIMS.

We market most of our reinsurance products through reinsurance brokers. The
reinsurance brokerage industry generally, and our sources of business
specifically, are concentrated. Based on net premiums written by the Company for
the two month period ended December 31, 2002 (including all of the business
ceded to us by St. Paul), the five brokers from which we derived the largest
portions of our business (with the approximate percentage of business derived
form such brokers and their affiliates) are Aon Corporation (23.9 percent),
Marsh & McLennan Companies (21.5 percent), Benfield Blanch Inc. (13.3 percent),
Willis Group Holdings (12.0 percent) and Towers Perrin (7.8 percent). The loss
of business relationships with any of these top five brokers could have a
material adverse effect on our business. In addition, some of these brokers have
invested in new Bermuda reinsurance companies that may compete with us, and
these brokers may favor their own reinsurers over other companies, including us.

In accordance with industry practice, we expect to frequently pay amounts
owing in respect of claims under our policies to reinsurance brokers, for
payment over to the ceding companies. In the event that a broker fails to make
such a payment, depending on the jurisdiction, we may remain liable to the
ceding company for the deficiency. Conversely, in certain jurisdictions, when
premiums for such policies are paid to reinsurance brokers for payment over to
us, such premiums will be deemed to have been paid and the
31

ceding company will no longer be liable to us for those amounts whether or not
actually received by us. Consequently, we will assume a degree of credit risk
associated with our brokers during the payment process.

POLITICAL AND ECONOMIC CONDITIONS MAY HAVE AN IMPACT ON OUR BUSINESS.

The September 11, 2001 terrorist attack, threats of further terrorist
attacks and the military initiatives and political unrest in Afghanistan, Iraq,
the Middle East and the surrounding regions have adversely affected general
economic conditions, increasing many of the risks of our business. This may have
an enduring or increasingly adverse effect on our financial condition and
results of operations. Significant inflationary or recessionary periods can
impact the Company's underwriting operations and investment portfolio.

THE PROPERTY AND CASUALTY REINSURANCE BUSINESS IS HISTORICALLY CYCLICAL,
AND WE EXPECT TO EXPERIENCE PERIODS WITH EXCESS UNDERWRITING CAPACITY AND
UNFAVORABLE PRICING.

Historically, property and casualty reinsurers have experienced significant
fluctuations in operating results. Demand for reinsurance is influenced
significantly by underwriting results of primary insurers and prevailing general
economic and market conditions, all of which affect ceding companies' decisions
as to the amount or portion of risk that they retain for their own accounts and
consequently reinsurance premium rates. The supply of reinsurance is related to
prevailing prices, the levels of insured losses and levels of industry surplus
which, in turn, may fluctuate in response to changes in rates of return on
investments being earned in the reinsurance industry. As a result, the property
and casualty reinsurance business historically has been a cyclical industry
characterized by periods of intense price competition due to excessive
underwriting capacity as well as periods when shortages of capacity permitted
favorable premium levels. We can expect to experience the effects of such
cyclicality.

The cyclical trends in the industry and the industry's profitability can
also be affected significantly by volatile and unpredictable developments,
including what management believes to be a trend of courts to grant increasingly
larger awards for certain damages, natural disasters (such as catastrophic
hurricanes, windstorms, tornadoes, earthquakes and floods), fluctuations in
interest rates, changes in the investment environment that affect market prices
of and income and returns on investments and inflationary pressures that may
tend to affect the size of losses experienced by primary insurers. Although
market conditions have improved recently with respect to some lines of property
and casualty reinsurance, we cannot predict whether market conditions will
continue to improve, remain constant or deteriorate. A return to negative market
conditions may affect our ability to write reinsurance at rates that we consider
appropriate relative to the risk assumed. If we cannot write property and
casualty reinsurance at appropriate rates, our ability to transact reinsurance
business would be significantly and adversely affected.

WE DO NOT YET HAVE IN PLACE A LETTER OF CREDIT FACILITY, AND FAILURE TO
ARRANGE FOR SUCH A FACILITY COULD AFFECT OUR ABILITY TO COMPETE FOR CERTAIN
BUSINESS.

We do not yet have in place a letter of credit facility. Many U.S.
jurisdictions do not permit insurance companies to take credit for reinsurance
obtained from unlicensed or non-admitted insurers on their U.S. statutory
financial statements without appropriate security, which can include a letter of
credit. Platinum UK and Platinum Bermuda are not licensed in any U.S.
jurisdiction, and Platinum US is not licensed in certain U.S. jurisdictions. If
we fail to obtain a letter of credit, and are unable to otherwise provide the
necessary security, ceding companies may be less willing to purchase our
reinsurance products than if we had a letter of credit. If this is the case,
there may be a material adverse effect on our results of operations. If and when
we seek to obtain a letter of credit, we may not be able to obtain one upon
terms acceptable to us.

32

OUR INVESTED ASSETS ARE SUBJECT TO MARKET VOLATILITY AND INTEREST RATE AND
CURRENCY EXCHANGE RATE FLUCTUATION.

Fixed income and equity markets have become increasingly volatile since the
events of September 11, 2001. The Company's principal invested assets are fixed
maturities, which are subject to the market risk of potential losses from
adverse changes in interest rates and prices. Because our entire investment
portfolio is classified as available-for-sale, changes in the market value of
our securities will be reflected in our consolidated balance sheet. The
Company's investment portfolio is also subject to credit risk resulting from
adverse changes in the issuer's ability to repay the debt.

The Company's principal exposure to foreign currency risk is its obligation
to settle claims in foreign currencies. The possibility exists that the Company
may incur foreign currency exchange gains or losses as it ultimately settles
claims required to be paid in foreign currencies.

PLATINUM HOLDINGS IS A HOLDING COMPANY AND, CONSEQUENTLY, ITS CASH FLOW IS
DEPENDENT ON DIVIDENDS, INTEREST AND OTHER PERMISSIBLE PAYMENTS FROM ITS
SUBSIDIARIES.

Platinum Holdings is a holding company that conducts no reinsurance
operations of its own. All operations are conducted by its wholly owned
operating subsidiaries, Platinum US, Platinum UK and Platinum Bermuda. As a
holding company, Platinum Holdings's cash flow consists primarily of dividends,
interest and other permissible payments from its subsidiaries. Platinum Holdings
depends on such payments for general corporate purposes and to meet its
obligations, including the payment of any dividends to its shareholders.
Additionally, under the Bermuda Companies Act 1981, Platinum Holdings may
declare or pay a dividend only if, among other things, it has reasonable grounds
for believing that it is, or would after the payment be, able to pay its
liabilities as they become due. For a discussion of the legal limitations on our
subsidiaries' ability to pay dividends to Platinum Holdings, see "Business --
Regulation."

THE IMPOSITION OF U.S. CORPORATE INCOME TAX ON PLATINUM HOLDINGS AND ITS
NON-U.S. SUBSIDIARIES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

We believe that Platinum Holdings, Platinum UK, Platinum Bermuda and
Platinum Ireland each operate in such a manner that none of these companies is
subject to U.S. corporate income tax because they are not engaged in a trade or
business in the U.S. Nevertheless, because definitive identification of
activities which constitute being engaged in a trade or business in the U.S. is
not provided by the tax authorities, the U.S. Internal Revenue Service might
contend that any of these companies is engaged in a trade or business in the
U.S., which would subject such company to U.S. tax at regular corporate rates on
the income that is effectively connected with the U.S. trade or business, plus
an additional 30 percent "branch profits" tax on such income remaining after the
regular tax in certain circumstances. Any such tax could materially adversely
affect our results of operations.

Recently proposed U.S. legislation targeting so-called "inversion
transactions" would under certain circumstances treat a foreign corporation as a
U.S. corporation for U.S. federal income tax purposes. The Company would appear
generally not to be subject to the proposed legislation directed at inversion
transactions as currently drafted. We cannot predict whether the proposed
legislation (or any similar legislation) will be enacted or, if enacted, what
the specific provisions or the effective date of any such legislation would be,
or whether it would have any effect on the Company. If the inversion legislation
were enacted and made applicable to the Company, we could be treated as a U.S.
corporation, which would subject us to taxation in the U.S. at regular corporate
rates. Any such tax could materially adversely affect our results of operations.

In addition, a bill has been introduced in the House of Representatives
that would effectively deny -- by deferring for an extended period -- a
U.S.-based insurer or reinsurer that reinsures or retrocedes a portion of its
risk with or to a related foreign-based reinsurer or retrocedent in a low tax
rate jurisdiction (such as Bermuda) a deduction for the portion of the insurance
or reinsurance premium ceded to the related foreign-based party, thereby
effectively subjecting all of the premium income to U.S. tax.
33

Moreover, a senior official of the U.S. Treasury Department has also identified
related party reinsurance arrangements as an area that requires study because it
may result in an inappropriate shift of income from a U.S. corporate group to
its foreign affiliates, implying that, were that to be the conclusion of such a
study, legislation, possibly in the form of legislation imposing a premium-based
tax, might be needed. Enactment of legislation of either type could materially
adversely affect our results of operations.

THE REGULATORY SYSTEM UNDER WHICH WE OPERATE, AND POTENTIAL CHANGES
THERETO, COULD SIGNIFICANTLY AND ADVERSELY AFFECT OUR BUSINESS.

The business of reinsurance is regulated in most countries, although the
degree and type of regulation varies significantly from one jurisdiction to
another. Reinsurers are generally subject to less direct regulation than primary
insurers. In Bermuda, we operate under relatively less intensive regulatory
requirements. However in the United States and in the United Kingdom licensed
reinsurers are highly regulated and must comply with financial supervision
standards comparable to those governing primary insurers. For a detailed
discussion of the regulatory requirements to which Platinum Holdings and its
subsidiaries are subject, see "Business -- Regulation." Any failure to comply
with applicable laws could result in the imposition of significant restrictions
on our ability to do business, and could also result in fines and other
sanctions, any or all of which could adversely affect our financial results and
operations. In addition, these statutes and regulations may, in effect, restrict
the ability of our subsidiaries to write new business or, as indicated above,
distribute funds to Platinum Holdings. In recent years, some state legislatures
have considered or enacted laws that may alter or increase state authority to
regulate insurance companies and insurance holding companies. Moreover, the NAIC
and state insurance regulators regularly reexamine existing laws and
regulations, interpretations of existing laws and the development of new laws,
which may be more restrictive or may result in higher costs to us than current
statutory requirements.

Platinum Bermuda is not registered or licensed as an insurance company in
any jurisdiction outside Bermuda. Platinum Bermuda conducts its business through
its offices in Bermuda and does not maintain an office, and its personnel do not
conduct any insurance activities, in the U.S. or elsewhere. Although Platinum
Bermuda does not believe it is in violation of insurance laws of any
jurisdiction outside Bermuda, inquiries or challenges to Platinum Bermuda's
insurance activities may still be raised in the future.

The offshore insurance and reinsurance regulatory framework recently has
become subject to increased scrutiny in many jurisdictions, including in the
United States and in various states within the United States. In the past, there
have been congressional and other proposals in the United States regarding
increased supervision and regulation of the insurance industry, including
proposals to supervise and regulate reinsurers domiciled outside the United
States. If Platinum Bermuda were to become subject to any insurance laws and
regulations of the United States or any U.S. state, which are generally more
restrictive than those applicable to it in Bermuda, at any time in the future,
it might be required to post deposits or maintain minimum surplus levels and
might be prohibited from engaging in lines of business or from writing specified
types of policies or contracts. Complying with those laws could have a material
adverse effect on the ability of Platinum Bermuda to conduct its business.

NEITHER OUR PRO FORMA FINANCIAL INFORMATION NOR THE HISTORICAL COMBINED
FINANCIAL INFORMATION OF ST. PAUL RE IN THIS FORM 10-K IS AN INDICATOR OF
OUR FUTURE ACTUAL RESULTS.

We started operations on November 1, 2002, and thus have only a limited
period of actual results of operations. We are, therefore, presenting in this
Form 10-K pro forma financial statements as if the Public Offering, the ESU
Offering, the St. Paul Investment and the RenaissanceRe Investment had been
completed and we had commenced our operations as of January 1, 2001. We are also
presenting combined financial statements of St. Paul Re.

We caution that our pro forma financial statements and the combined
financial statements of St. Paul Re presented in this Form 10-K are not
necessarily comparable with or indicative of the actual results that we expect
to achieve as an operating entity for the reasons set forth in the introductory
paragraphs to those financial statements beginning on pages PF-1 and P-1 of this
Form 10-K.

34

ITEM 2. PROPERTIES

Platinum Holdings's principal executive offices are located in
approximately 7,600 square feet of office space leased by Platinum Bermuda at
The Belvedere Building, Pitts Bay Road, Pembroke, Bermuda. A portion of this
office space is used by Platinum Bermuda as its principal offices.

The principal offices of Platinum US are located at 195 Broadway, New York,
New York, where Platinum US subleases from St. Paul approximately 74,000 square
feet of office space. The term of the lease ends August 31, 2003. We are
currently considering other possible locations for principal offices of Platinum
US. Platinum US has also entered into assignments of leases with St. Paul with
respect to approximately 4,000 square feet of office space in Chicago, 6,300
square feet of office space in Miami and 540 square feet of office space in
Tokyo. The terms of these leases will end in 2005, 2006 and 2004, respectively.

The principal offices of Platinum UK are located at 52 Lime Street, London,
where Platinum UK subleases from St. Paul approximately 7,600 square feet of
office space. The term of this sublease ends in 2004.

ITEM 3. LEGAL PROCEEDINGS

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

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

No matters were submitted to a vote of Platinum Holdings shareholders
during the fourth quarter of 2002 following the Public Offering.

35

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

PRICE RANGE OF COMMON SHARES

Our Common Shares began publicly trading on the New York Stock Exchange on
October 29, 2002. Our New York Stock Exchange symbol is "PTP." The following
table sets forth, for the period indicated, the high and low prices per share of
our Common Shares as reported in composite New York Stock Exchange trading.

On March 14, 2003, the last reported sale price for our Common Shares was
$22.80 per share. At March 14, 2003, there were six holders of record of our
Common Shares and approximately 2,500 beneficial holders.

DIVIDEND POLICY

The Board has declared a dividend for the first quarter of 2003 of $0.08
per Common Share, payable on March 31, 2003 to shareholders of record at the
close of business on March 3, 2003. We intend to recommend that the Board of
Directors of Platinum Holdings authorize the payment of a quarterly dividend of
$0.08 per Common Share for each of the remaining quarters of 2003. The
declaration and payment of dividends will be at the discretion of the Board of
Directors but will be prohibited if certain contract adjustment payments in
respect of the Company's equity security units are deferred, and will depend
upon our results of operations and cash flows, the financial positions and
capital requirements of Platinum US, Platinum UK and Platinum Bermuda, general
business conditions, legal, tax and regulatory restrictions on the payment of
dividends and other factors the Board of Directors deems relevant. Accordingly,
there is no assurance that dividends will be declared or paid in the future.
Currently, there is no Bermuda withholding tax on dividends paid by Platinum
Holdings.

While Platinum Holdings is not itself subject to any significant legal
prohibitions on the payment of dividends, Platinum US is subject to regulatory
constraints imposed by Maryland insurance law, Platinum UK is subject to
regulatory constraints imposed by U.K. insurance law, Platinum Ireland is
subject to constraints imposed by Irish law, and Platinum Bermuda is subject to
regulatory constraints imposed by Bermuda insurance law, which constraints
affect each of their ability to pay dividends to Platinum Holdings. See
"Business -- Regulation."

We have agreed to adjust the exercise price of the options granted to St.
Paul and RenaissanceRe as part of the St. Paul Investment and RenaissanceRe
Investment, respectively, to the extent dividend increases exceed ten percent
per year; however, we do not expect that dividend increases, if any, will exceed
such rate.

36

EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes information as of December 31, 2002 relating
to equity compensation plans of the Company pursuant to which grants of options,
restricted shares, share appreciation rights, share units or other rights to
acquire shares may be granted from time to time.

- ---------------

(1) These plans consist of the 2002 Share Incentive Plan, the Capital
Accumulation Plan and the Share Unit Plan for Nonemployee Directors, each of
which was approved by the sole shareholder of the Company prior to the
Public Offering.

(2) Includes 1,000,000 Common Shares which are available for future grants of
restricted Common Shares under the 2002 Share Incentive Plan.

(3) Does not include 150,000 Common Shares approved by the Board of Directors of
Platinum Holdings in February 2003 for issuance under the Share Unit Plan
for Nonemployee Directors.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected financial data of the
Company as of and for the period ended December 31, 2002 and of St. Paul Re for
the years ended December 31, 1998, 1999, 2000 and 2001, and for the period ended
November 1, 2002. The data for the Company as of and for the period ended
December 31, 2002 were derived from the Company's consolidated financial
statements beginning on page 47 of this Form 10-K, which have been audited by
KPMG LLP. The data for St. Paul Re for the years ended December 31, 2000 and
2001 and for the period ended November 1, 2002 were derived from the selected
historical combined financial statements of the reinsurance underwriting segment
of St. Paul prior to the Public Offering (the Predecessor Business) beginning on
page P-1 of this Form 10-K, which have been audited by KPMG LLP. The data for
the years ended December 31, 1998 and 1999 were derived from the unaudited
selected historical combined financial statements of the reinsurance
underwriting segment of St. Paul not included in this Form 10-K. You should read
the selected financial data in conjunction with such financial statements
beginning on page P-1 of this Form 10-K, and the related "Management's
Discussion and Analysis of Financial Condition and Underwriting Results of the
Predecessor Business" beginning on page P-18 of this Form 10-K. You should also
read the selected financial data in conjunction with the Company's consolidated
financial statements as of and for the period ended December 31, 2002 beginning
on page 47 of this Form 10-K, and the related "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page 38
of this Form 10-K.

THE UNDERWRITING RESULTS AND THE AUDITED HISTORICAL COMBINED FINANCIAL
STATEMENTS OF THE REINSURANCE UNDERWRITING SEGMENT OF ST. PAUL PRIOR TO THE
PUBLIC OFFERING (THE PREDECESSOR BUSINESS) ARE NOT INDICATIVE OF THE ACTUAL
RESULTS OF THE COMPANY SUBSEQUENT TO THE PUBLIC OFFERING. FOR A DETAILED
DISCUSSION OF THE COMPANY'S PRO FORMA COMBINED STATEMENTS OF UNDERWRITING
RESULTS, SEE "PRO FORMA FINANCIAL STATEMENTS" BEGINNING ON PAGE PF-1 OF THIS
FORM 10-K AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA FINANCIAL
CONDITION AND UNDERWRITING RESULTS" BEGINNING ON PAGE PF-4 OF THIS FORM 10-K.

37

IN ADDITION TO THE EFFECT OF THE NON-TRANSFER OF CERTAIN PORTIONS OF ST.
PAUL RE'S BUSINESS TO THE COMPANY AND THE EXCLUSION OF THE ST. PAUL CORPORATE
AGGREGATE EXCESS-OF-LOSS REINSURANCE PROGRAM, OTHER FACTORS MAY CAUSE THE
COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM ST. PAUL RE'S RESULTS. FOR
EXAMPLE, ALTHOUGH THE COMPANY CONTINUES TO BE AFFORDED THE BENEFITS OF ST. PAUL
RE'S RETROCESSIONAL PROGRAM FOR THE REMAINDER OF 2002, THE COMPANY MAY ENTER
INTO REINSURANCE CONTRACTS WITH SIGNIFICANTLY DIFFERENT TERMS AND CONDITIONS
FROM THOSE THAT HAVE BEEN MADE AVAILABLE TO ST. PAUL RE FROM ST. PAUL AND WHICH
FORM THE BASIS OF ST. PAUL RE'S RESULTS. FURTHERMORE, THE ADDITIONAL PREMIUMS
RECORDED IN 2001 BY ST. PAUL RE'S FINITE RISK BUSINESS PRIMARILY ASSOCIATED WITH
THE SEPTEMBER 11, 2001 TERRORIST ATTACK WERE EXCEEDINGLY HIGH AND NOT
NECESSARILY INDICATIVE OF THE RECURRING PREMIUM VOLUME THE COMPANY EXPECTS TO
WRITE IN THAT BUSINESS SEGMENT.

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the related notes included
on pages 47 through 65 of this Form 10-K. The Company's consolidated financial
statements have been prepared in accordance with U.S. GAAP. See page PF-4 for
"Management's Discussion and Analysis of Pro Forma Financial Condition and
Underwriting Results" and page P-18 for "Management's Discussion and Analysis of
Financial Condition and Underwriting Results of the Predecessor Business."

38

OVERVIEW

Platinum Holdings is a Bermuda reinsurance holding company organized on
April 19, 2002. The Company provides property and marine, casualty and finite
reinsurance coverages to a diverse clientele of insurers and select reinsurers
on a worldwide basis. The Company operates through three licensed reinsurance
subsidiaries: Platinum US, Platinum UK and Platinum Bermuda.

The Company has organized its worldwide reinsurance business around three
operating segments:

GLOBAL PROPERTY AND MARINE

The Global Property and Marine operating segment includes principally
property and marine reinsurance coverages that are written both in the United
States and international markets. This business consists of catastrophe
excess-of-loss reinsurance treaties. This operating segment also includes
property per risk excess-of-loss treaties and property proportional treaties.
Marine reinsurance includes coverage for hull, cargo and off-shore energy, as
well as third party marine coverages for "protection and indemnity" and excess
liabilities, primarily under excess-of-loss treaties. The Company writes a
limited amount of other types of reinsurance on an opportunistic basis. This
operating segment generated $89,341,000, or 30.0 percent, of Platinum's 2002 net
premiums written.

GLOBAL CASUALTY

The Global Casualty operating segment includes principally reinsurance
treaties that cover umbrella liability, general liability, professional
liability, workers' compensation and automobile liability. This segment also
includes accident and health reinsurance treaties, which are predominantly
reinsurance of health insurance products. We generally write casualty
reinsurance on an excess-of-loss basis, in that we pay claims after the claim
becomes larger than our attachment point (whether there be a ceding company
retention or an underlying insurance policy). Most frequently, we respond to
claims on an individual risk basis, which is when the claim for a single,
original insured exceeds our attachment point. We write some excess-of-loss
treaties on an occurrence basis, which respond when all claims from multiple
original insureds from a single event for a particular ceding company exceed our
attachment point. This is the case with our casualty clash and workers'
compensation products. On an opportunistic basis, we may write proportional
treaties. This operating segment generated $164,929,000 or 55.3 percent, of
Platinum's 2002 net premiums written.

FINITE RISK

The Finite Risk operating segment includes principally finite reinsurance
solutions to ceding companies whose needs may not be met efficiently through
traditional reinsurance products. We focus on providing such clients with
customized solutions for their risk management and other financial management
needs. We seek to develop client-specific solutions after spending time with the
client to understand its business needs. The classes of risks underwritten
through finite products are generally consistent with the classes covered using
traditional products. This operating segment generated $43,844,000 or 14.7
percent, of Platinum's 2002 net premiums written.

CRITICAL ACCOUNTING POLICIES

It is important to understand the Company's accounting policies in order to
understand its financial statements. Management considers certain of these
policies to be critical to the presentation of the financial results since they
require management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets, liabilities, revenues,
expenses, and related disclosures at the financial reporting date and throughout
the period being reported upon. Certain of the estimates result from judgments
that can be subjective and complex, and consequently actual results may differ
from these estimates. The Company's most critical accounting policies involve
written and unearned premium, unpaid losses and LAE, reinsurance, investments,
income taxes and stock-based compensation.

39

Premiums

Assumed reinsurance premiums are recognized as revenues proportionately
over the coverage period. Net premiums earned are recorded in the statement of
income, net of our cost to purchase reinsurance. Premium not yet recognized as
revenue are recorded in the balance sheet as unearned premiums, gross of any
ceded unearned premiums. Written and earned premiums, and the related costs,
which have not yet been reported are estimated and accrued. Due to the time lag
inherent in reporting of premiums by ceding companies, such estimated premiums
written and earned, as well as related costs, may be significant. Differences
between such estimates and actual amounts are recorded in the period in which
the actual amounts are determined. Due to the nature of reinsurance, premiums
are not always reported to the Company in a timely manner; therefore, we account
for such premiums using the initial estimates and then adjust as additional
information becomes available.

Along with the estimated premiums, the Company records the expenses
associated with these premiums in the form of losses, LAE and commissions.

We also accrue for reinstatement and additional premiums resulting from
losses. Such accruals are based upon actual contractual terms, and the only
element of management judgment involved is with respect to the amount of loss
reserves, as described below. Reinstatement and additional premiums are written
at the time a loss event occurs where coverage limits for the remaining life of
the contract are reinstated under pre-defined contract terms. Reinstatement
premiums are the premiums charged for the restoration of the reinsurance limit
of a catastrophe contract to its full amount after payment by the reinsurer of
losses as a result of an occurrence. These premiums, though triggered by past
events, relate to the future coverage for the remainder of the initial contract
term, and are earned over the remaining contract term. Additional premiums are
premiums that may be charged to a ceding company after coverage has expired, and
result from various items such as loss experience during the contract term.
Because additional premiums relate to expired coverage periods, they are
recognized as earned immediately.

Changes in estimates of any written and earned premiums are recorded in the
period in which they are determined.

A liability is established for unearned premiums representing the portion
of premiums written that relate to the unexpired terms of contracts and policies
in force. Such liabilities are computed by pro-rata methods based on the type of
coverage provided and the underlying subject insurance exposures.

Unpaid Losses and LAE

Unpaid losses and LAE are estimated based upon historical company and
industry experience for unreported claims and historical company experience of
losses reported by reinsured companies for insurance assumed from such insurers,
the total of which is reduced for portions ceded to other reinsurers. Unpaid
losses and LAE are subject to the effects of trends in loss severity and
frequency. These estimates are reviewed regularly and adjusted as experience
develops or new information becomes known. Any such adjustments are reflected in
results of operations in the period in which they become known and are accounted
for as changes in estimates.

Under U.S. GAAP, we are not permitted to establish a liability for a loss
until the occurrence of an event which may give rise to a loss. Once such an
event occurs, we establish liabilities based upon estimates of total losses
incurred by the ceding insurers as a result of the event and our estimate of the
portion of such loss we have reinsured. As a result, only liabilities applicable
to losses incurred up to the reporting date may be established.

Setting appropriate liability for unpaid losses and LAE is an inherently
uncertain process. Unpaid losses and LAE represent our estimates, at a given
point in time, of ultimate settlement and adjustment costs of losses incurred
(including incurred but not reported, or IBNR, losses, which are losses that
have been sustained but not yet reported to the Company). We regularly review
and update these estimates,

40

using the most current information available to us. Unpaid losses and LAE are
based upon reports, individual case estimates received from ceding companies and
management's estimates. Management's estimates are used mostly to estimate IBNR
loss amounts. For certain catastrophic events, there is considerable uncertainty
underlying the assumptions and associated estimated unpaid losses and LAE. While
the Company commenced operations in 2002, the business written is sufficiently
similar to the historical business of St. Paul that the Company plans to use the
historical loss experience of the reinsurance business of St. Paul to assist in
the estimation of its ultimate losses and LAE.

Consequently, the ultimate liability for a loss is likely to differ from
the original estimate. Whenever we determine that any existing estimate of
liability for loss is inadequate, we are required to record such change in
estimate, increasing the loss reserves with a corresponding reduction, which
could be material, in our operating results in the period in which the
deficiency is identified. Changes in previously recorded estimates for reported
claims could result in significant upward or downward changes to our financial
condition or results of operations in any particular period.

Reinsurance

Written premiums, earned premiums, incurred losses and LAE reflect the net
effects of assumed and ceded reinsurance transactions. Reinsurance accounting is
followed for assumed and ceded transactions when risk transfer requirements have
been met. These requirements involve significant assumptions being made relating
to the amount and timing of expected cash flows, as well as the interpretation
of underlying contract terms. Reinsurance contracts that do not transfer
significant insurance risk are accounted for as deposits with interest expense
credited to the contract deposit. Premiums received on retroactive reinsurance
contracts are not reflected in the statement of operations, but rather are
recorded in the consolidated balance sheet as an increase to unpaid losses and
LAE for the liabilities assumed and as assets based on the consideration
received. A deferred charge or credit is recorded for any difference between
liabilities assumed and consideration received.

Investments

In accordance with our investment guidelines, our investments consist
largely of high-grade marketable fixed income securities. Investments are
carried at estimated fair value as determined by quoted market prices at the
reporting date for those or similar investments. Unrealized gains and losses on
our investments, net of any deferred tax effect, are included as an element of
accumulated other comprehensive income, which is classified as a separate
component of shareholders' equity. Realized gains and losses on sales of
investments are determined on a specific identification basis. In addition,
unrealized depreciation in the value of individual securities considered by
management to be other than temporary is charged to income in the period it is
determined. Investment income is recorded when earned and includes the
amortization of premiums and discounts on investments.

Income Taxes

Platinum Holdings and Platinum Bermuda are domiciled in Bermuda. The
Company also has subsidiaries in the United States, United Kingdom and Ireland
that are subject to the tax laws thereof. The Company applies the asset and
liability method of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is established
for deferred tax assets where it is more likely than not that future tax
benefits will not be realized.

41

Stock-Based Compensation

Pursuant to the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has
elected to use the intrinsic value method of accounting for stock-based awards
granted to employees established by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, if the
exercise price of the Company's employee stock options is equal to or greater
than the fair market value of the underlying stock on the date of the grant, no
compensation expense is recorded.

RESULTS OF OPERATIONS

Platinum Holdings was organized on April 19, 2002 and was capitalized on
April 24, 2002 under the laws of Bermuda to hold subsidiaries that provide
property, casualty, and other reinsurance to insurers and reinsurers on a
worldwide basis. There were no significant operations of the Company until
November 1, 2002 when the Company completed the Public Offering. In connection
with the Public Offering, the Company entered into several quota share
retrocession agreements with St. Paul pursuant to which St. Paul transferred the
liabilities, related assets and rights and risks under substantially all of the
reinsurance contracts entered into by St. Paul on or after January 1, 2002.

Net premiums written for the period from November 1, 2002 through December
31, 2002 were $298,114,000. Net premiums written includes $292,302,000 of
premiums related to reinsurance contracts becoming effective in 2002 and assumed
from St. Paul as described above. The following table summarizes net premiums
written by the three operating segments for the period from November 1, 2002
through December 31, 2002 ($ in thousands):

Net premiums earned for the period from November 1, 2002 through December
31, 2002 were $107,098,000 of which $106,195,000 is related to reinsurance
contracts becoming effective in 2002 and assumed from St. Paul. Net premiums
earned for Global Property, Global Casualty and Finite Risk were $43,047,000,
$39,320,000, and $24,731,000, respectively.

Net investment income was $5,211,000 for the period from November 1, 2002
through December 31, 2002 resulting in a yield of 3.8 percent. The yield
reflects the fact that the investment of short-term investments and cash into
fixed maturities was delayed during the period from November 1, 2002 through
December 31, 2002 pending receipt of certain required regulatory approvals from
the United Kingdom and the State of Maryland. Other income includes $2,017,000
of foreign exchange gains resulting from the conversion of the investments of
Platinum UK into U.S. dollar denominated investments.

Losses and LAE were $60,356,000 for the period from November 1, 2002
through December 31, 2002. The loss and LAE ratio, also referred to as loss
ratio (which is the ratio of losses and LAE, including estimates for claims
incurred but not reported, to premiums earned) was 56.4 percent for the two
months ended December 31, 2002 and is reflective of the low level of reported
losses during the period.

Policy acquisition costs were $25,474,000 for the period from November 1,
2002 through December 31, 2002 representing 23.8 percent of net premiums earned.
Operating expenses, including corporate expenses associated with Platinum
Holdings, were $16,334,000 and include one-time expenses of $5,353,000 incurred
in connection with the Public Offering, the formation of the Company and the
assumption of business from St. Paul.

42

The following table summarizes underwriting activity and ratios for the
three operating segments for the period ended December 31, 2002 ($ in
thousands):

- ---------------

(1) Ratio of indicated item to premiums earned.

GLOBAL PROPERTY AND MARINE

This operating segment generated $89,341,000 of net premiums written and
$43,047,000 of net earned premium. Losses and LAE incurred for the property
reinsurance business was $21,558,000 resulting in a loss ratio of 50.1 percent.
The loss ratio reflects the fact that there were no catastrophe or other
significant losses in the period. Acquisition costs were $7,798,000 and
represent 18.1 percent of net premiums earned. Operating expenses were
$5,960,000 and include one-time expenses of $1,267,000 incurred in connection
with completion of the Public Offering, formation of the Company and the
assumption of business from St. Paul.

GLOBAL CASUALTY

This operating segment generated $164,929,000 of net premiums written and
$39,320,000 of net earned premiums. Losses and LAE incurred for the casualty
reinsurance business was $29,498,000 resulting in a loss ratio of 75.0 percent.
Acquisition expenses were $9,269,000 and represent 23.6 percent of net earned
premiums. This ratio reflects our increased writings of proportional business
which generally has a higher commission rate than excess-of-loss business.
Operating expenses were $4,136,000 and include $879,000 of one-time expenses
related to the transactions discussed above.

FINITE RISK

This operating segment generated $43,844,000 of net premiums written and
$24,731,000 of net earned premium. Losses and LAE incurred for the Finite Risk
operating segment was $9,300,000 resulting in a loss ratio of 37.6 percent. This
ratio reflects a low level of reported losses. Policy acquisition expenses were
$8,407,000 and represent 34 percent of net earned premiums and include $5,227 of
profit commission and accruals. Operating expenses were $2,068,000 and include
one-time transaction costs of $440,000.

LIQUIDITY AND CAPITAL RESOURCES

SOURCES OF CASH

The consolidated sources of funds of the Company consist primarily of
premiums written, losses recovered from retrocedents, investment income and
proceeds from sales and redemption of investments. The 2002 operating cash flow
was impacted materially by the quota share reinsurance agreement with St. Paul
under which the Company assumed the liabilities of St. Paul Re reinsurance
contracts on

43

November 2, 2002 and received approximately $288,648,000 in cash. After the
deduction of operating expenses, net cash flow provided by operations was
$281,393,000. Operating cash flow was used primarily to acquire additional
investments.

Invested assets were $1,065,216,000 as of December 31, 2002. The Company's
fixed maturity investment portfolio primarily consists of investment grade
bonds. The portfolio has an average duration of 3.8 years. Management
continually monitors the composition and cash flow of the investment portfolio
in order to maintain the appropriate levels of liquidity in order to ensure the
Company's ability to satisfy claims.

Platinum Holdings is a holding company that conducts no reinsurance
operations of its own. All of its reinsurance operations are conducted through
its wholly owned operating subsidiaries Platinum US (which it owns through
Platinum Ireland and Platinum Finance), Platinum UK (which it owns through
Platinum Ireland) and Platinum Bermuda. As a holding company, the cash flow of
Platinum Holdings consists primarily of dividends, interest and other
permissible payments from its subsidiaries. Platinum Holdings depends on such
payments to receive funds for general corporate purposes and to meet its
obligations, including the payment of any dividends to its shareholders. The
payment of such dividends is subject to the regulatory requirements described in
"Business - Regulation" above.

Platinum Holdings has entered into a 364-day committed credit facility with
a group of banks which provides $100,000,000 of aggregate borrowing capacity.
The credit facility contains various covenants and agreements, including the
requirement to maintain a specified tangible net worth and leverage ratios, and
terminates on June 20, 2003 unless extended with the consent of the banks. As of
December 31, 2002, there were no amounts outstanding pursuant to the credit
facility.

LIQUIDITY REQUIREMENTS

The principal consolidated cash requirements of the Company are the payment
of losses and LAE, commissions, brokerages, operating expenses, dividends to its
shareholders, the servicing of debt (including interest payments on the senior
notes and contract adjustment payments on the purchase contracts included in the
Company's equity security units), the acquisition of and investment in
businesses, capital expenditures, premiums retroceded and excise taxes.

Platinum UK and Platinum Bermuda are not licensed, approved or accredited
as reinsurers anywhere in the United States and therefore, under the terms of
most of their contracts in the United States, they have to provide security to
reinsureds to cover unpaid liabilities in a form acceptable to state insurance
commissioners. Typically, this type of security takes the form of a letter of
credit issued by an acceptable bank, the establishment of a trust, or a cash
advance. Platinum UK and Platinum Bermuda expect to obtain letters of credit
through commercial banks. In turn, Platinum UK and Platinum Bermuda may be
required to provide the banks security by giving the banks liens over certain of
Platinum UK's and Platinum Bermuda's investments.

Platinum Holdings operates a treasury function responsible for managing
banking relationships, capital raising activities including equity and debt
issues, Platinum Holdings's overall cash, cash pooling and liquidity positions
and the payment of internal and external dividends.

The Company believes that the cash flow generated by the operating
activities of the Company's subsidiaries will provide sufficient funds for the
Company to meet its liquidity needs over the next twelve months. Beyond the next
twelve months, cash flow available to the Company may be influenced by a variety
of factors, including general economic conditions and conditions in the
insurance and reinsurance markets, as well as fluctuations from year to year in
claims experience.

ECONOMIC CONDITIONS

Periods of moderate economic recession or inflation tend not to have a
significant direct effect on the Company's underwriting operations. Management
also considers the potential impact of economic trends in estimating its unpaid
losses and LAE. Management believes that the underwriting controls it maintains
44

assist in estimating ultimate claim costs and lessen the potential adverse
impact of the economy on the Company. Significant inflationary or recessionary
periods can, however, impact the Company's underwriting operations and
investment portfolio. A decrease in interest rates will tend to decrease the
Company's yield and have a positive effect on the fair value of its invested
assets. An increase in interest rates will tend to increase the Company's yield
and have a negative effect on the fair value of its invested assets.

CAPITAL EXPENDITURES

None of Platinum Holdings, Platinum US, Platinum UK or Platinum Bermuda
have any material commitments for capital expenditures.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

MARKET AND CREDIT RISK

The Company's principal invested assets are fixed maturities, which are
subject to the market risk of potential losses from adverse changes in market
rates and prices and credit risk resulting from adverse changes in the
borrower's ability to repay the debt. The Company's strategy to limit this risk
is to place its investments in high quality credit issues and to limit the
amount of credit exposure with respect to particular rating categories and any
one issuer. The Company also selects investments with characteristics such as
duration, yield, currency and liquidity to reflect the underlying
characteristics of related estimated claim liabilities. The Company attempts to
minimize the credit risk by actively monitoring the portfolio and maintaining
average credit rating of A2 as defined by Moody's Investor Service.

The Company will have other receivable amounts subject to credit risk. The
most significant of these will be reinsurance recoverables. To mitigate credit
risk related to these counterparties, we establish business and financial
standards for reinsurer approval, incorporate ratings by major rating agencies
and consider current market information, and obtain letters of credit where
deemed necessary.

SENSITIVITY ANALYSIS

The Company's investment portfolio consists of fixed maturities which are
subject to changes in market values with changes in interest rates. The
aggregate hypothetical loss generated from an immediate adverse parallel shift
in the treasury yield curve of 100 basis points would cause a decrease in total
return of approximately 3.7 percent, which equates to a decrease in market value
of approximately $39 million at December 31, 2002. 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.

FOREIGN CURRENCY RISK

The Company's principal exposure to foreign currency risk is its obligation
to settle claims in foreign currencies. The possibility exists that the Company
may incur foreign currency exchange gains or losses as it ultimately settles
claims required to be paid in foreign currencies. The Company's strategy to
minimize its exposure is to enter into forward contracts for foreign currency
claims in the event of a large or catastrophic loss.

45

SOURCES OF FAIR VALUE

The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments as of December 31, 2002 ($ in thousands):

The fair value of fixed maturities are based on quoted market prices at the
reporting date for those or similar investments. The fair values of debt
obligations are based on quoted market prices.

46

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements of the Company as of December 31,
2002 and for the period then ended, together with the report thereon by KPMG
LLP, independent certified public accountants, are set forth below in this Item
8. The combined statements of the reinsurance underwriting segment of St. Paul
prior to the Public Offering (the Predecessor Business), together with the
report thereon by KPMG LLP, independent certified public accountants, are set
forth on pages P-1 through P-17 hereto. The unaudited pro forma combined
statements of underwriting results of the Company for the years ended December
31, 2002 and 2001 are set forth on pages PF-1 through PF-4 hereto.

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

47

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Platinum Underwriters Holdings, Ltd.:

We have audited the accompanying consolidated balance sheet of Platinum
Underwriters Holdings, Ltd. and subsidiaries as of December 31, 2002, and the
related consolidated statement of income and comprehensive income, shareholders'
equity, and cash flows for the period April 19, 2002 (date of inception) to
December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Platinum
Underwriters Holdings, Ltd. and subsidiaries as of December 31, 2002, and the
results of their operations and their cash flows for the period April 19, 2002
(date of inception) to December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.

/s/ KPMG LLP

New York, New York
March 21, 2003

48

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002

See accompanying notes to consolidated financial statements.

49

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE PERIOD FROM APRIL 19, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2002

See accompanying notes to consolidated financial statements.

50

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 19, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2002

See accompanying notes to consolidated financial statements.

51

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 19, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2002

See accompanying notes to consolidated financial statements.

52

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND CONSOLIDATION

Platinum Underwriters Holdings, Ltd. ("Platinum Holdings" or the "Company")
was incorporated on April 19, 2002 and was capitalized on April 24, 2002 under
the laws of Bermuda to hold subsidiaries that provide property, casualty, and
other reinsurance to insurers and reinsurers on a worldwide basis. As discussed
more fully in Note 8, Platinum Holdings completed its initial public offering in
November 2002. Concurrent with the initial public offering and as discussed more
fully in Note 2, the Company assumed certain rights and obligations of the
reinsurance business from The St. Paul Companies, Inc. ("St. Paul").
Consequently, the operations of the Company commenced in November 2002.

In 2001, St. Paul's management decided that its reinsurance business and
its primary insurance business should ideally operate as separate entities
because of their different risk profiles and business characteristics. As part
of this effort, St. Paul also began exiting unprofitable lines of business and
reducing the number of reinsurance branch offices outside the United States. As
a result, St. Paul became a participant and sponsor in the formation of Platinum
Holdings and its subsidiaries.

The consolidated balance sheet has been prepared in conformity with
accounting principles generally accepted in the United States of America ("U.S.
GAAP"). This balance sheet reflects the consolidated position of Platinum
Holdings and its subsidiaries (the "Company"), including Platinum Re (UK)
Limited, Platinum Underwriters Bermuda, Ltd., Platinum Underwriters Finance,
Inc. ("Platinum Finance"), Platinum Regency Holdings and, Platinum Underwriters
Reinsurance, Inc. ("Platinum US"). All material intercompany transactions have
been eliminated in preparing these consolidated financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments

Fixed maturities held by the Company are classified as available-for-sale
and are reported at fair value, with unrealized gains and losses excluded from
earnings and reported in other comprehensive income as a separate component of
shareholders' equity. Premiums and discounts on fixed maturity securities are
amortized into interest income over the life of the security under the effective
yield method. The fair values of fixed maturities are based on quoted market
prices at the reporting date for those or similar investments.

Prepayment assumptions for mortgage and asset backed securities were
obtained from outside investment managers. These assumptions are consistent with
the current interest rate and economic environment. The retrospective adjustment
method is used to value all securities.

Realized gains and losses on sales of investments are determined on the
basis of the specific identification method. When a decline in fair value of
investments is considered to be "other than temporary," the investments are
written down to fair value. The write down is considered a realized investment
loss in the consolidated statement of income.

Unrealized investment gains and losses, net of any deferred tax effect, are
included as an element of accumulated other comprehensive income, which is
classified as a separate component of shareholders' equity.

Short-Term Investments and Cash Equivalents

Short-term investments are carried at cost, which approximates fair value.
Short-term investments mature within one year from the purchase date. Cash
equivalents are carried at amortized cost,

53

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

approximate fair value, and include all securities that, at their purchase date,
have a maturity of less than 90 days.

Premium Revenues

Assumed reinsurance premiums are recognized as revenues proportionately
over the coverage period. Net premiums earned are recorded in the statement of
underwriting results, net of our cost to purchase reinsurance. Net premiums not
yet recognized as revenue are recorded in the balance sheet as unearned
premiums, gross of any ceded unearned premiums. Written and earned premiums, and
the related costs, which have not yet been reported are estimated and accrued.
Due to the time lag inherent in reporting of premiums by ceding companies, such
estimated premiums written and earned, as well as related costs, may be
significant. Differences between such estimates and actual amounts are recorded
in the period in which the actual amounts are determined. Due to the nature of
reinsurance, premiums are not always reported to the Company in a timely manner;
therefore we account for such premium using the initial estimates, and then
adjust as additional information becomes available.

Due to the nature of reinsurance, premiums are not always reported to the
Company in a timely manner. Additionally, premiums on proportional treaty type
contracts are generally not reported to the reinsurers until after the
reinsurance coverage is in force and the reinsurer is at risk. Consequently, an
estimate of premiums earned but not reported ("EBNR") is recorded.

The Company estimates EBNR based on estimates of ultimate premium,
calculated unearned premium and premiums reported from ceding companies. Along
with estimating EBNR the Company records the expenses associated with these
premiums in the form of losses, loss adjustment expenses ("LAE") and
commissions.

Reinstatement premiums and additional premiums are accrued as provided for
in the provisions of assumed reinsurance contracts, based on experience under
such contracts. Reinstatement premiums are the premiums charged for the
restoration of the reinsurance limit of a catastrophe contract to its full
amount after payment by the reinsurer of losses as a result of an occurrence.
These premiums relate to the future coverage obtained during the remainder of
the initial policy term and are earned over the remaining policy term.
Additional premiums are premiums charged after coverage has expired, related to
experience during the policy term, which are earned immediately. An allowance
for uncollectible premiums are established for possible non-payment of such
amounts due, as deemed necessary.

Deferred Acquisition Costs

Costs of acquiring business, primarily commissions and other direct
underwriting expenses, which vary with and are directly related to the
production of business, are deferred and amortized over the same period as the
corresponding premiums are recorded as revenues. On a regular basis, an analysis
of the recoverability of deferred acquisition costs, in relation to the expected
recognition of revenues, including anticipated investment income, is performed.
Any adjustments are reflected as period costs. Should the analysis indicate that
the acquisition costs are unrecoverable, further analyses are performed to
determine if a liability is required to provide for losses which may exceed the
related unearned premiums. Deferred acquisition costs amortized in 2002 were
$14,449,000.

Debt Obligations and Deferred Debt Issuance Costs

The net proceeds from the sale of the Company's equity security units were
allocated between the purchase contracts and the senior notes based on the
underlying fair value of each instrument. The present value of the purchase
contract adjustment payments were initially charged to shareholders' equity,
with an offsetting credit to liabilities. Subsequent contract adjustment
payments will be allocated between this

54

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

liability account and interest expense based on a constant rate calculation over
the life of the transaction. Costs incurred in issuing debt are capitalized and
amortized over the life of the debt. Before the issuance of Common Shares upon
settlement of the purchase contracts and if dilutive, the purchase contracts are
reflected in diluted earnings per share calculations using the "if converted"
method, which assumes that the Common Shares were issued and the proceeds
received were used to pay down the senior notes that are part of the Company's
equity security units.

Unpaid Losses and LAE

Unpaid losses and LAE are estimated based upon reports received from ceding
companies, supplemented by the Company's estimates of losses for which ceding
company reports have not been received, historical company and industry
experience for unreported claims and historical company experience of losses
reported by reinsured companies. Unpaid losses and LAE include estimates of the
cost of claims that were reported, but not yet paid, and the cost of claims
incurred but not yet reported ("IBNR"). Estimated amounts recoverable from
reinsurers on unpaid losses and LAE are reflected as assets. While the Company
commenced operations in 2002, the business written is sufficiently similar to
the historical business of St. Paul that the Company plans to use the historical
loss experience of the reinsurance business of St. Paul to estimate its ultimate
losses and LAE.

Unpaid losses and LAE are subject to the effects of trends in loss severity
and frequency. These estimates are reviewed regularly and adjusted as experience
develops or new information becomes known. Any such adjustments are reflected in
results of operations in the period in which they become known and are accounted
for as changes in estimates.

Reinsurance Deposit Liabilities

Reinsurance contracts entered into by the Company which are not deemed to
transfer significant insurance risk are accounted for as deposits, whereby
liabilities are initially recorded at the same amount as assets received.
Interest expense related to the deposit is recognized as incurred.

Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted
average number of shares outstanding for the period. Diluted earnings per share
reflects the basic earnings per share adjusted for the potential dilution that
would occur if the issued options were exercised and considers the outstanding
purchase contracts relating to the equity security units. Securities that are
convertible into Common Shares that are anti-dilutive are not included in the
calculation of diluted earnings per share.

Reinsurance Ceded

Reinsurance ceded, which transfers risk and the related premiums,
commissions and losses incurred to the reinsurer, is reflected as reductions of
the respective income and expense accounts. Unearned premiums ceded and
estimates of amounts recoverable from reinsurers on paid and unpaid losses are
reflected as assets.

Income Taxes

Platinum Holdings and Platinum Bermuda are domiciled in Bermuda. Platinum
Holdings also has subsidiaries in the United States, United Kingdom and Ireland
that are subject to the tax laws thereof. The Company applies the asset and
liability method of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities

55

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance is established for deferred tax assets where it is more likely than
not that future tax benefits will not be realized.

Stock-Based Compensation

Pursuant to the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has
elected to continue using the intrinsic value method of accounting for
stock-based awards granted to employees established by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Under APB 25, if the exercise price of the Company's employee stock options is
equal to or greater than the fair market value of the underlying stock on the
date of the grant, no compensation expense is recorded.

Had the Company calculated and recorded compensation expense for stock
option grants based on the "fair value" method described in SFAS 123, net income
and earnings per share, net of tax, would have been the pro forma amounts as
indicated below:

Stock based compensation expense:
As reported............................................... $ --
Pro forma................................................. 1,070,000
Net income:
As reported............................................... $6,438,000
Pro forma................................................. 5,368,000
Basic earnings per share:
As reported............................................... $ 0.15
Pro forma................................................. 0.12
Diluted earnings per share:
As reported............................................... $ 0.15
Pro forma................................................. 0.12

Foreign Currency Exchange

The Company's functional currency is the United States dollar. Transactions
conducted in foreign currencies are remeasured to the Company's functional
currency, and the resulting foreign exchange gains or losses are included in
other income. The remeasurement is calculated using current exchange rates for
the balance sheet amounts and average exchange rates for revenues and expenses.
Translation adjustments for foreign operations are recorded as a cumulative
translation adjustment in a separate component of shareholders' equity, net of
applicable deferred income taxes.

Organizational Cost

Costs incurred by the Company relating to its organization are expensed as
incurred.

Use of Estimates

The Company's financial statements include estimates and assumptions that
have an effect on the amounts reported. The most significant estimates are those
relating to unpaid losses and LAE. These estimates are continually reviewed and
adjustments made as necessary, but actual results could be

56

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

significantly different than expected at the time such estimates are made.
Results of changes in estimates are reflected in results of operations in the
period in which the change is made.

2. SEPARATION FROM AND CONTINUING RELATIONSHIP WITH ST. PAUL

As discussed more fully in Note 8, on November 1, 2002, Platinum Holdings
completed an initial public offering of 33,044,000 Common Shares (the "Public
Offering") as well as an offering of equity security units. Concurrently with
the Public Offering, Platinum Holdings sold 6,000,000 Common Shares to St. Paul
in a private placement. Concurrent with these transactions, the Company and St.
Paul entered into several agreements for transfer of continuing reinsurance
business and certain related assets of St. Paul.

Among these agreements were quota share retrocession agreements effective
November 2, 2002 under which the Company assumed from St. Paul unpaid losses and
LAE, unearned premiums and certain other liabilities on reinsurance contracts
becoming effective in 2002. A summary of the liabilities assumed and assets
received are as follows ($ in thousands):

Liabilities assumed:
Net unpaid losses and LAE................................. $221,303
Net unearned premiums..................................... 244,000
Reinsurance deposit liabilities........................... 23,828
Profit commission liabilities............................. 16,145
--------
505,276
Ceding commission to St. Paul............................... (53,390)
--------
451,886
--------
Assets received:
Cash...................................................... 288,648
Funds held by ceding companies............................ 54,902
--------
343,550
--------
Amounts receivable from St. Paul............................ $108,336
--------

In the case of business written in the United States and the United
Kingdom, for a period of one year the Company has the right to underwrite
specified reinsurance business on behalf of St. Paul in cases where the Company
is unable to underwrite that business because it has not obtained a necessary
regulatory license or approval to do so or we have not yet been approved as a
reinsurer by the ceding company. The Company will assume such business under
various quota share retrocession agreements.

Included in assumed premiums written is $292,302,000 assumed from St. Paul.
Premiums assumed from St. Paul includes $244,000,000 of unearned premiums as of
November 2, 2002 on reinsurance contracts becoming effective in 2002 and
additional assumed premiums written of approximately $48,302,000 for the period
from November 2, 2002 through December 31, 2002. While the Company did not cede
any premiums in 2002, it assumed business from St. Paul net of retrocessional
reinsurance and may be subject to the credit risk related to such retrocessional
reinsurance.

The Company entered into an Employee Benefits and Compensation Matters
Agreement with St. Paul that provides for the transfer of employees from St.
Paul and provides for the allocation of assets and liabilities and certain other
agreements with respect to employee compensation and benefit plans. In addition,
St. Paul will reimburse the Company for the annual bonuses of the Company's
employees prorated for the period from January 1, 2002 through the date of
completion of the Public Offering. The

57

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

agreement also provides for reimbursement of severance and retention payments to
the Company's employees. The Company has amounts receivable from St. Paul of
$6,270,000 under this agreement for bonus and retention amounts paid or accrued
as of December 31, 2002.

As of December 31, 2002 amounts due from St. Paul were as follows ($ in
thousands):

Balance due related to the November 2, 2002 assumption of
liabilities on reinsurance contracts becoming effective in
2002...................................................... $108,336
Premiums assumed from November 2, 2002 through December 31,
2002...................................................... 48,302
Other expense reimbursement items due....................... 6,270
--------
Amounts receivable from St. Paul............................ 162,908
Commissions due to St. Paul................................. (14,822)
--------
Total.................................................. $148,086
========

Commissions due to St. Paul are included in commissions payable.

3. INVESTMENTS

The Company's fixed maturities at December 31, 2002 were as follows ($ in
thousands):

Amortized cost and fair value of fixed maturities by contractual maturity
at December 31, 2002 are shown below; actual maturities could differ from
contractual maturities due to call or prepayment provisions ($ in thousands):

58

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Investment income for the period ended December 31, 2002 is summarized as
follows ($ in thousands):

Fixed maturities............................................ $4,389
Cash and cash equivalents................................... 1,183
------
5,572
Less investment expense................................... 361
------
Net investment income....................................... $5,211
======

Net realized gains from investments for the period ended December 31, 2002
were all derived from fixed maturities. Gross gains and losses realized on those
sales were $423,000 and $398,000, respectively. Proceeds from sales, maturities
and calls of fixed maturities were $120,421,000 in the 2002 period.

Net change in unrealized investment gains (losses) for the period ended
December 31, 2002 were as follows ($ in thousands):

Fixed maturities available-for-sale......................... $12,293
Less: Applicable tax expense.............................. (1,712)
-------
Net change in unrealized gains......................... $10,581
=======

Investments with a carrying value of $3,795,000 were on deposit with
regulatory authorities as of December 31, 2002.

The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments as of December 31, 2002 ($ in thousands):

The fair values of financial instruments are based on quoted market prices
at the reporting date for those or similar instruments.

4. UNPAID LOSSES AND LAE

Activity in the liability for unpaid losses and LAE for the period ended
December 31, 2002 is summarized as follows ($ in thousands):

Net unpaid losses and LAE as of beginning of period......... $ --
Net incurred related to current year........................ 60,356
Unpaid losses and LAE assumed from St. Paul................. 221,303
Net paid losses and LAE..................................... --
--------
Net unpaid losses and LAE as of December 31, 2002........... $281,659
========

Because many of the reinsurance coverages offered by the Company will
likely involve claims that may not ultimately be settled for many years after
they are incurred, subjective judgments as to ultimate exposure to losses are an
integral and necessary component of the process of estimating unpaid losses and
LAE. The inherent uncertainties of estimating unpaid losses and LAE are further
exacerbated for

59

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reinsurers by the significant amount of time that often elapses between the
occurrence of an insured loss, the reporting of that loss to the primary
reinsurer and then to the reinsurer, and the primary insurer's payment of that
loss to the insured and subsequent payment by the reinsurer to the primary
insurer. Losses and LAE are recorded considering a range of estimates bounded by
high and low points. Within that range, management's best estimates are
recorded. Unpaid losses and LAE are reviewed continually using a variety of
statistical and actuarial techniques to analyze current claim costs, frequency
and severity data and prevailing economic, social and legal factors. Unpaid
losses and LAE established in prior years are adjusted as loss experience
develops and new information becomes available. Adjustments to previously
estimated unpaid losses and LAE are reflected in financial results in the
periods in which they are made. It should be noted that the process of
estimating losses and LAE, by its very nature, involves uncertainty. The level
of uncertainty can be influenced by factors such as the existence of long-tail
coverage (when loss payments may not occur for several years) and changes in
claims handling practices, as well as the factors noted above, and actual claim
payments and LAE could be significantly different from the estimates.

5. RETROCESSIONAL REINSURANCE

Reinsurance is the transfer of risk, by contract, from one insurance
company to another for consideration of premium. Retrocessional reinsurance is
reinsurance ceded by a reinsurer to insure against all or a portion of its
reinsurance written. Retrocessional reinsurance agreements provide the Company
with increased capacity to write larger risks, limit its maximum loss arising
from any one occurrence and maintain its exposure to loss within its capital
resources. Retrocessional reinsurance contracts do not relieve the Company from
its obligations under its contracts. Failure of reinsurers to honor their
obligations could result in losses to the Company. Consequently, the Company has
a contingent liability to the extent of any unpaid losses and LAE ceded to
another company. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities, or economic characteristics of the reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies. The Company
monitors all reinsurers by reviewing A.M. Best Company reports and ratings and
information from reinsurance intermediaries, and by analyzing financial
statements.

The effects of reinsurance on premiums, losses and LAE for the period from
November 1, 2002 through December 31, 2002 are as follows ($ in thousands):

6. EQUITY SECURITY UNITS AND CREDIT AGREEMENTS

EQUITY SECURITY UNITS

Concurrently with the completion of the Public Offering, Platinum Holdings
completed the initial public offering of 5,500,000 equity security units at a
price of $25 per unit (the "ESU Offering"). Each equity security unit consists
of a contract to purchase common shares of the Company ("Common Shares") in
2005, and an ownership interest in a senior note, due 2007, of Platinum Finance.
Platinum Holdings will make quarterly contract adjustment payments under the
purchase contracts of 1.75 percent per year of the stated amount of $25 per
unit. In addition, Platinum Finance will make quarterly interest payments on the
senior notes at an annual rate of 5.25 percent. The senior notes are guaranteed
by Platinum Holdings on a senior, unsecured basis and are pledged as collateral
to secure the holders' obligations to acquire Common Shares in 2005. As of
December 31, 2002, the fair value of the equity

60

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

security units was $155,925,000 and was based on quoted market prices. There
were no cash payments of interest in 2002.

CREDIT AGREEMENT

Platinum Holdings has entered into a 364-day committed credit facility with
a group of banks which provides $100 million of aggregate borrowing capacity.
The credit facility contains various covenants and agreements, including the
requirement to maintain a specified tangible net worth and leverage ratios, and
terminates on June 20, 2003 unless extended with the consent of the banks. As of
and for the period ended December 31, 2002, there were no amounts outstanding
pursuant to the credit facility.

The credit agreement contains covenants common to transactions of this
type, including maintaining a required level of tangible net worth and minimum a
financial leverage ratio. At December 31, 2002, the Company was in compliance
with all covenants.

7. INCOME TAXES

The Company provides income taxes based upon amounts reported in the
financial statements and the provisions of currently enacted tax laws. Platinum
Holdings and Platinum Bermuda are incorporated under the laws of Bermuda and are
subject to Bermuda law with respect to taxation. Under current Bermuda law, they
are not taxed on any Bermuda income or capital gains taxes and they have
received an undertaking from the Bermuda Minister of Finance that, in the event
of any Bermuda income or capital gains taxes being imposed, they will be exempt
from those taxes until 2016. Platinum Holdings has subsidiaries based in the
United States, the United Kingdom and Ireland that are subject to the tax laws
thereof.

Under current United States law, Platinum US will be subject to the 35
percent corporate tax rate. Under current United Kingdom law, Platinum UK is
taxed at the U.K. corporate tax rate (generally 30 percent). There is no
withholding tax on dividends distributed from Platinum UK to Platinum Ireland.
Under current Irish law, Platinum Ireland is taxed at a 25 percent corporate tax
rate on non-trading income and a 16 percent corporate tax rate on trading income
(the latter to be reduced to 12.5 percent as of January 1, 2003). There is no
withholding tax on dividends distributed from Platinum Ireland to the Company.

Income tax expense for the period ended December 31, 2002 is comprised of
current and deferred as follows ($ in thousands):

Current..................................................... $ (129)
Deferred.................................................... 4,784
------
Total.................................................. $4,655
======

A reconciliation of expected income tax expense, computed by applying a 35
percent income tax rate to income before income taxes, to income tax expense for
the period ended December 31, 2002 is as follows ($ in thousands):

Expected income tax expense at 35%.......................... $3,883
Effect of foreign income or loss subject to tax at rates
other than 35%............................................ 712
Non-deductible expenses..................................... 60
------
Income tax expense..................................... $4,655
======

61

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income tax liabilities and assets attributable to temporary
differences as of December 31, 2002 are as follows ($ in thousands):

Deferred income tax liabilities:
Deferred acquisition costs.................................. $17,266
Difference in tax basis carrying value of assets............ 18,347
Net unrealized gains on investments......................... 1,712
-------
Total deferred income tax liabilities.................. 37,325
-------
Deferred income tax assets:
Unpaid losses and LAE....................................... 16,883
Unearned premiums........................................... 13,371
Net operating loss carryforward............................. 575
-------
Total deferred income tax assets....................... 30,829
-------
Net deferred income tax liabilities....................... $ 6,496
=======

There were no cash payments of income taxes in 2002.

8. SHAREHOLDERS' EQUITY AND REGULATION

The Company's initial capitalization of $120,000 was provided by an
organizing trust. On May 29, 2002, Platinum Holdings completed a 100-for-1 split
of its Common Shares, resulting in 135,000,000 Common Shares authorized and
1,200,000 Common Shares issued and outstanding, all with a par value of $0.01
per share. On October 28, 2002, the shareholder of Platinum Holdings increased
the number of Common Shares authorized to 200,000,000 Common Shares and 25
million preferred shares. Concurrent with the Public Offering, the 1,200,000
Common Shares were redeemed and canceled.

On November 1, 2002, Platinum Holdings completed the Public Offering of
33,044,000 Common Shares at a price to the public of $22.50 per share.
Concurrently with the completion of the Public Offering, Platinum Holdings sold
6,000,000 Common Shares (or 14 percent of the outstanding Common Shares) to St.
Paul at a price of $22.50 per share less the underwriting discount (the "St.
Paul Investment") in a private placement pursuant to a Formation and Separation
Agreement dated as of October 28, 2002 between Platinum Holdings and St. Paul
(the "Formation Agreement"). The Bye-laws of Platinum Holdings provide that the
voting power of St. Paul's Common Shares is limited to 9.9 percent of the voting
power of the outstanding Common Shares. Pursuant to the Formation Agreement, St.
Paul received an option to purchase up to 6,000,000 additional Common Shares at
any time during the ten years following the Public Offering at a price of $27.00
per share (the "St. Paul Option"). In return for the Common Shares and the St.
Paul Option, St. Paul contributed to the Company cash in the amount of $122
million and substantially all of the continuing reinsurance business and related
assets of the reinsurance segment of St. Paul, including all of the outstanding
capital stock of Platinum US. Among the fixed assets transferred were furniture,
equipment, systems and software, and intangible assets including broker lists,
contract renewal rights and licenses. These assets were recorded at the values
reflected on St. Paul's books at the time of transfer.

Concurrently with the completion of the Public Offering, Platinum Holdings
also sold 3,960,000 Common Shares (or nine percent of the outstanding Common
Shares) to RenaissanceRe Holdings Ltd. ("RenaissanceRe") at a price of $22.50
per share less the underwriting discount in a private placement pursuant to an
Investment Agreement dated as of September 20, 2002 by and among Platinum
Holdings, St. Paul and RenaissanceRe (the "Investment Agreement"). Pursuant to
the Investment Agreement,

62

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RenaissanceRe received an option to purchase up to 2,500,000 additional Common
Shares at any time during the ten years following the Public Offering at a
purchase price of $27.00 per share.

The Company's ability to pay dividends is subject to certain regulatory
restrictions on the payment of dividends by its subsidiaries. The payment of
dividends from the Company's regulated reinsurance subsidiaries is limited by
applicable laws and statutory requirements of the jurisdictions in which the
subsidiaries operate, including Bermuda, the United States and the United
Kingdom. Based on the regulatory restrictions of the applicable jurisdictions,
the maximum amount available for payment of dividends by the reinsurance
subsidiaries of the Company in 2003 without prior regulatory approval is
estimated to be $127,313,000. The combined statutory capital and surplus and net
loss as reported to relevant regulatory authorities for the reinsurance
subsidiaries of the Company was $965,956,000 and $32,093,000, respectively.

9. EARNINGS PER SHARE

Following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the period ended December
31, 2002 ($ in thousands, except share and per share data):

10. STOCK INCENTIVE COMPENSATION AND EMPLOYEE BENEFIT PLANS

STOCK INCENTIVE COMPENSATION

The Company has a share incentive plan under which key employees of the
Company and its subsidiaries may be granted options and restricted share awards.
An option award under the Company's share incentive plan allows for the purchase
of Common Shares at a price equal to the closing price of Common Shares on the
date of grant. Options to purchase Common Shares are granted periodically by the
Compensation Committee of the Board of Directors, generally vest over three or
four years, and expire 10 years from the date of grant. There were no restricted
share awards in 2002. The following summary sets forth option activity during
the period ended December 31, 2002:

63

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Of the 4,347,000 outstanding options at December 31, 2002, none were
exercisable. The average remaining life of the options is 9.8 years.

The Company has elected to continue using the intrinsic value method of
accounting for stock-based awards granted to employees established by APB 25.
The fair value of each option grant used for pro forma disclosure in Note 1 is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions:

Dividend yield.............................................. 1.4%
Risk free interest rate..................................... 3.0%
Expected volatility......................................... 30.0%
Expected option life........................................ 7 years

These assumptions would have resulted in a stock-based compensation
expense, net of tax, of $1,070,000 in 2002.

DEFINED CONTRIBUTION PLAN

In 2003, the Company adopted an employee savings plan as a defined
contribution plan intended to qualify under Section 401(a) of the Internal
Revenue Code and covering substantially all U.S. employees. The savings plan
allows eligible employees to contribute up to 50 percent of their annual
compensation on a tax-deferred basis up to limits under the Code and the Company
will match up to the first four percent. In addition, the Company may, at its
discretion, make additional contribution.

11. RELATED PARTY TRANSACTIONS AND AGREEMENTS

In connection with the Public Offering and the transfer of business,
Platinum Holdings and its subsidiaries entered into various agreements with St.
Paul and its affiliates and RenaissanceRe and its affiliates. These agreements
include several quota share retrocession agreements pursuant to which St. Paul's
subsidiaries transferred the liabilities, related assets and rights and risks
under substantially all of the reinsurance contracts entered into by St. Paul's
subsidiaries on or after January 1, 2002 (except for certain liabilities
relating to the flooding in Europe in August 2002, named storms in existence at
the time of the completion of the Public Offering, and business underwritten in
London for certain financial services companies) (the "Quota Share Retrocession
Agreements"). These agreements provided for the transfer to subsidiaries of the
Company of cash and other assets in an amount equal to substantially all of the
existing loss reserves (excluding reserves relating to liabilities retained by
St. Paul), allocated LAE reserves, other reserves related to non-traditional
reinsurance treaties, unearned premium reserves (subject to agreed upon
adjustments) and other related reserves, which relate to contracts entered into
on and after January 1, 2002, as of the date of the transfer (as determined 90
days after such date) and 100 percent of future premiums (less any ceding
commission under the Quota Share Retrocession Agreements) associated with the
reinsurance contracts relating to periods after the date of the transfer.

Platinum Holdings also entered into a five-year Services and Capacity
Reservation Agreement with RenaissanceRe, effective October 1, 2002, pursuant to
which RenaissanceRe will provide services to subsidiaries of the Company in
connection with their property catastrophe book of business. At the Company's
request, RenaissanceRe will analyze the Company's property catastrophe treaties
and contracts and will assist the Company in measuring risk and managing the
Company's property catastrophe treaties and contacts. Based upon such analysis,
will provide the Company with quotations for rates for non-marine non-finite
property catastrophe retrocessional coverage with aggregate limits up to $100
million annually, either on an excess-of-loss or proportional basis. The Company
and RenaissanceRe may then enter into retrocessional agreements on the basis of
the quotations. The fee for the coverage commitment and the services provided by
RenaissanceRe under this agreement is $4 million at inception and at each

64

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

anniversary, adjusted to 3.5 percent of the Company's gross written non-marine
non-finite property catastrophe premium for the previous annual period, if such
amount is greater than $4 million. Either party may terminate this agreement if
the other is deemed impaired or insolvent by applicable regulatory or judicial
authorities or is the subject of conservation, rehabilitation, liquidation,
bankruptcy or similar insolvency proceedings. Included in operating expenses for
the period ended December 31, 2002 is $46,000 of accrued fees.

12. OPERATING SEGMENT INFORMATION

The Company has organized its worldwide reinsurance business around three
operating segments: Global Property and Marine, Global Casualty and Finite Risk.
The Global Property and Marine operating segment includes principally property
and marine reinsurance coverages that are written both in the United States and
international markets. This business consists of catastrophe excess-of-loss
reinsurance treaties. The Global Casualty operating segment includes principally
reinsurance treaties that cover umbrella liability, general liability,
professional liability, workers' compensation and automobile liability. This
segment also includes accident and health reinsurance treaties, which are
predominantly reinsurance of health insurance products. The Finite Risk
operating segment includes principally finite reinsurance solutions to ceding
companies whose needs may not be met efficiently through traditional reinsurance
products.

The following table summarizes underwriting activity and ratios for the
three operating segments together with a reconciliation of underwriting profit
or loss to income before income tax expense for the period ended December 31,
2002 ($ in thousands):

Corporate expenses, interest expenses, net investment income, net realized
investment gains and other income or expense items that are not specifically
attributable to operating segments are not allocated.

65

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Board of Directors of the Company currently consists of seven members.
Jerome T. Fadden was elected a director in April 2002 upon the formation of the
Company, and Steven H. Newman, H. Furlong Baldwin, Jonathan F. Bank, Dan R.
Carmichael, Jay S. Fishman and Peter T. Pruitt were elected directors in June
2002. The terms of office of each of the directors will expire at the 2003
Annual General Meeting. Each of the current directors has been nominated by the
Board of Directors for election as a director at the 2003 Annual General Meeting
to serve until the 2004 Annual General Meeting.

Pursuant to the Investment Agreement among the Company, St. Paul and
RenaissanceRe dated as of September 20, 2002 (the "Investment Agreement"), which
provides that the Company will nominate one person designated by RenaissanceRe
to the Company's Board of Directors, the Board has nominated Neill A. Currie for
election as a director to serve until the 2004 Annual General Meeting. If
elected, Mr. Currie will be appointed to the Executive Committee and, subject to
applicable laws, rules or regulations, the Nominating and Corporate Governance
Committee pursuant to the terms of the Investment Agreement.

DIRECTORS

Steven H. Newman
Age: 59
Director since 2002
Chairman of the Executive
Committee Mr. Newman has been Chairman of the Board of
Directors of the Company since June 2002 and a
consultant to Platinum US since March 2002. Mr.
Newman was Chairman of the Board of Directors
of St. Paul Re from March 2002 until he became
Chairman of the Company. Mr. Newman was
Chairman of the Board of Directors of Swiss Re
America Holding Corporation, a reinsurance
holding company, from May 2000 to October 2000.
Prior thereto, Mr. Newman served as Chairman of
the Board and Chief Executive Officer of
Underwriters Re Group, Inc., a reinsurance
holding company.

Jerome T. Fadden
Age: 46
Director since 2002
Member of the Executive
Committee Mr. Fadden has been President and Chief
Executive Officer of the Company since April
2002. Mr. Fadden was President and Chief
Executive Officer of St. Paul Re from March
2002 until November 2002. Mr. Fadden served as
Director of Strategic Development in the Office
of the Chairman of UBS PaineWebber, a financial
services company, from March 2001 through March
2002, and as Chief Financial Officer of UBS
PaineWebber from November 1999 through March
2001. From November 1998 to August 1999, Mr.
Fadden was Executive Vice President and Chief
Financial Officer of Equus Re, a startup
reinsurance operation. Prior thereto, Mr.
Fadden served as Senior Vice President and
Chief Financial Officer of NAC Re Corporation,
a reinsurance holding company.

H. Furlong Baldwin
Age: 71
Director since 2002
Chairman of the Audit
Committee and member of the
Nominating and Corporate
Governance Committee Mr. Baldwin was Chairman of Mercantile
Bankshares Corporation, a bank holding
corporation, from March 2001 until his
retirement in March 2003. Prior thereto, Mr.
Baldwin was President and Chief Executive
Officer of Mercantile Bankshares Corporation.
Mr. Baldwin is a director of W.R. Grace &

66

Company and the Nasdaq Stock Market, Inc. Mr.
Baldwin is also a Governor of the National
Association of Securities Dealers and a trustee
of the Marine Corps Heritage Foundation, the
Marine Corps University and the Virginia
Historical Society, and a member of the Council
on Foreign Relations.

Jonathan F. Bank
Age: 59
Director since 2002
Member of the Compensation
and Audit Committees Mr. Bank has been Senior Vice President of Tawa
Associates, Ltd., which is engaged in the
acquisition, restructuring and management of
property and casualty companies in run off,
since May 2001. From September 1999 until May
2001, Mr. Bank was the Insurance Practice
Leader of PricewaterhouseCoopers' U.S.
insurance/ reinsurance regulatory and
restructuring practice group. Prior thereto,
Mr. Bank was a partner at Chadbourne & Parke
LLP, a law firm.

Dan R. Carmichael
Age: 58
Director since 2002
Chairman of the Nominating and
Corporate Governance Committee
and
member of the Compensation and
Audit Committees Mr. Carmichael has been President, Chief
Executive Officer and a director of Ohio
Casualty Corporation, a property and casualty
insurance company, since December 2000. Prior
thereto, Mr. Carmichael served as President and
Chief Executive Officer of IVANS, Inc., an
industry-owned organization that provides
electronic communications services to
insurance, healthcare and related
organizations. Mr. Carmichael is a director of
Alleghany Corporation.

Neill A. Currie
Age: 50 Mr. Currie has been a private investor for the
last five years. Since June 2000, Mr. Currie
has been the managing member and Chief
Executive Officer of Currie Company, LLC, a
manager of equity investments and provider of
reinsurance consulting services. From 1993 to
1997, Mr. Currie was Senior Vice President of
RenaissanceRe.

Jay S. Fishman
Age: 50
Director since 2002
Member of the Executive,
Compensation and Nominating
and Corporate Governance
Committees Mr. Fishman has been Chairman, Chief Executive
Officer and President of St. Paul since October
2001. Prior thereto, Mr. Fishman was Chairman,
President and Chief Executive Officer of The
Travelers Insurance Group and Chief Operating
Officer -- Finance and Risk of Citigroup, Inc.
Mr. Fishman is a director of Nuveen
Investments, Inc.

Peter T. Pruitt
Age: 70
Director since 2002
Chairman of the Compensation
Committee Mr. Pruitt was Chairman of Willis Re Inc., a
reinsurance intermediary, from June 1995 until
his retirement in December 2001. He also served
as Chief Executive Officer of Willis Re Inc.
from June 1995 through September 1999. Prior
thereto, Mr. Pruitt was President and a
director of Frank B. Hall & Co. Inc., a global
insurance broker. Mr. Pruitt is a director of
Poe Financial Group Inc.

EXECUTIVE OFFICERS

Jerome T. Fadden
Age: 46
President and Chief Executive
Officer of the Company Mr. Fadden has been President, Chief Executive
Officer and a director of the Company since
April 2002. Mr. Fadden is a member of the
Executive Committee of the Board of Directors.
Mr. Fadden was President and Chief Executive
Officer of St. Paul Re from March 2002 until
November 2002. Mr. Fadden served as Director of
Strategic Development in the Office of the
67

Chairman of UBS PaineWebber, a financial
services company, from March 2001 through March
2002, and as Chief Financial Officer of UBS
PaineWebber from November 1999 through March
2001. From November 1998 to August 1999, Mr.
Fadden was Executive Vice President and Chief
Financial Officer of Equus Re, a startup
reinsurance operation. Prior thereto, Mr.
Fadden served as Senior Vice President and
Chief Financial Officer of NAC Re Corporation,
a reinsurance holding company.

Michael D. Price
Age: 36
President and Chief
Underwriting
Officer of Platinum US Mr. Price has been President and Chief
Underwriting Officer of Platinum US since
November 2002. Mr. Price was Chief Underwriting
Officer of St. Paul Re from June 2002 until
November 2002. Mr. Price served as Chief
Operating Officer of Associated Aviation
Underwriters Incorporated, a subsidiary of
Global Aerospace Underwriting Managers Ltd.
specializing in aerospace insurance, from March
2001 through May 2002. From May 2000 to
September 2000, Mr. Price was Chief
Underwriting Officer at Swiss Re America
Holding Corporation, a reinsurance holding
company. He was Senior Vice President and Chief
Underwriting Officer of Underwriters Re Group,
Inc., a reinsurance holding company, from May
1998 until May 2000.

William A. Robbie
Age: 52
Executive Vice President and
Chief Financial Officer of
the Company Mr. Robbie has been Executive Vice President
and Chief Financial Officer of the Company
since September 2002. Mr. Robbie was Executive
Vice President and Chief Financial Officer of
St. Paul Re from August 2002 until November
2002. Prior thereto, Mr. Robbie held various
positions with XL Capital Ltd. and its
subsidiaries since 1997, including Executive
Vice President -- Financial Services, Senior
Vice President -- Treasurer, and Executive Vice
President, Chief Financial Officer and Chief
Administrative Officer of XL Mid Ocean
Reinsurance.

Michael E. Lombardozzi
Age: 41
Executive Vice President,
General
Counsel and Secretary of the
Company Mr. Lombardozzi has been Executive Vice
President and General Counsel of the Company
since September 2002 and has been Secretary of
the Company since November 2002. Mr.
Lombardozzi was Executive Vice President and
General Counsel of St. Paul Re from August 2002
until November 2002. Mr. Lombardozzi was Senior
Vice President -- Planning and Operations of
W.R. Berkley Corporation, an insurance holding
company, from December 2001 to July 2002, and
Senior Vice President, Secretary and General
Counsel of Orius Corp., a telecommunications
infrastructure company, from January 2001 to
June 2001. From January 1994 to January 2001,
Mr. Lombardozzi was Senior Vice President,
Secretary and General Counsel of Berkley
Insurance Company.

Neal J. Schmidt
Age: 46
Executive Vice President and
Chief Actuary of
Platinum US Mr. Schmidt has been Executive Vice President
and Chief Actuary of Platinum US since November
2002. Prior thereto, he was Executive Vice
President and Chief Actuary of St. Paul Re.

68

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The Company has determined that no person who at any time during 2002 was a
director, officer or beneficial owner of more than ten percent of the Common
Shares failed to file on a timely basis reports required by Section 16(a) of the
Securities Exchange Act of 1934, as amended, during 2002. This determination was
based solely upon the review by the Company of Forms 3, 4 and 5, and written
representations that no Forms 5 were required, submitted to the Company during
or with respect to 2002.

ITEM 11. EXECUTIVE COMPENSATION

The information under this heading relates to the chief executive officer
and the four other most highly compensated executive officers of the Company
serving as executive officers at the end of 2002. Compensation appearing in the
Summary Compensation Table for 2002 was paid by St. Paul Re prior to the date of
the Public Offering (November 1, 2002) and by the Company thereafter.

SUMMARY COMPENSATION TABLE

- ---------------

(1) These amounts include one-time sign on bonuses for Messrs. Fadden, Price,
Robbie and Lombardozzi of $250,000, $100,000, $275,000 and $275,000,
respectively; a portion of the total bonus amounts earned in 2002 was paid
in 2003.

(2) Other Annual Compensation for the year ended December 31, 2002 consists of
housing expense reimbursement.

(3) These amounts consist of (i) for Messrs. Fadden and Schmidt, premiums paid
on life insurance maintained by St. Paul in the amounts of $2,260 and
$2,340, respectively, and employer contributions made by St. Paul pursuant
to St. Paul's 401(k) plan in the amount of $8,000 each, and pursuant to St.
Paul's Non-Qualified Executive Savings Plan in the amounts of $3,000 and
$2,426, respectively;
69

and (ii) for Mr. Lombardozzi, premiums paid on life insurance maintained by St.
Paul in the amount of $975 and an employer contribution made by St. Paul
pursuant to St. Paul's 401(k) plan in the amount of $3,500.

(4) These amounts consist of premiums paid on life insurance maintained by St.
Paul.

OPTION GRANTS IN LAST FISCAL YEAR

- ---------------

(1) These options are exercisable in three equal annual installments beginning
November 1, 2003, or immediately in the event of a change in control (as
defined in the Share Incentive Plan), "disability," termination of Mr.
Fadden's employment by the Company without "cause" or by Mr. Fadden for
"good reason" (each as defined in Mr. Fadden's employment agreement with the
Company), or death. Additional information regarding Mr. Fadden's options is
set forth below under "Employment Arrangements".

(2) These options are exercisable in three equal annual installments on November
1, 2003, November 1, 2004 and June 3, 2005, or immediately in the event of a
change in control, total disability (as each term is defined in the Share
Incentive Plan), or death.

(3) These options are exercisable in four equal annual installments beginning
November 1, 2003, or immediately in the event of a change in control, total
disability (as each term is defined in the Share Incentive Plan), or death.

(4) The Company uses the intrinsic value method of accounting for stock-based
awards granted to employees established by APB 25. The fair value of each
option grant was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:

Dividend yield.............................................. 1.4%
Risk free interest rate..................................... 3.0%
Expected volatility......................................... 30.0%
Expected option life........................................ 7 years

70

AGGREGATED OPTION EXERCISES IN 2002 AND YEAR-END 2002 OPTION VALUES

- ---------------

(1) The value of unexercised in-the-money options at December 31, 2002 was
calculated by subtracting the exercise price of in-the-money options from
$25.95 per Common Share, which was the fair market value of one Common Share
on December 31, 2002 based upon the average of the high and low prices on
the New York Stock Exchange on such date.

EMPLOYMENT ARRANGEMENTS

Mr. Fadden entered into an employment agreement with St. Paul, which was
assigned to and assumed by the Company upon completion of the Public Offering,
for a five-year term that began March 4, 2002, subject to automatic one-year
extensions thereafter unless either party elects not to extend it, pursuant to
which he has agreed to serve as the Company's President and Chief Executive
Officer. Pursuant to the employment agreement, Mr. Fadden is entitled to receive
a base annual salary of at least $650,000 and is eligible to receive for each
year of his term an annual bonus with a target of 125 percent of base salary and
a maximum of 200 percent of the target bonus. Mr. Fadden received a one-time
cash sign-on bonus of $250,000 from St. Paul Re. The agreement provides for the
purchase and maintenance by the Company of a term life insurance policy in the
amount of $4 million payable to a beneficiary designated by Mr. Fadden. Mr.
Fadden is entitled to the reimbursement of reasonable Bermuda housing expenses
(which reimbursement totaled $40,000 in 2002), among other employee benefits and
perquisites specified in the agreement. Pursuant to the employment agreement,
Mr. Fadden received an option to purchase 975,000 Common Shares at $22.50 per
Common Share, as more fully described in Note 1 to the table relating to option
grants in the last fiscal year. The employment agreement provides that these
options will provide for customary reload features. The employment agreement
provides that if Mr. Fadden's employment is terminated by the Company without
"cause" or by Mr. Fadden for "good reason" (each as defined in the employment
agreement), he will receive a payment equal to (i) three times the sum of his
base salary and the greater of his target bonus and his bonus for the preceding
year, and (ii) any base salary or other amounts accrued or owing through the
date of termination, provided that Mr. Fadden executes a release of claims, and
up to three years of medical and dental coverage and immediate vesting of all
outstanding options which will remain exercisable for the lesser of five years
and the remainder of their term. The employment agreement also provides that if
Mr. Fadden's employment is terminated by the Company for cause or by Mr. Fadden
other than for good reason, he will receive no further payments, compensation or
benefits under the employment agreement (other than amounts accrued prior to
termination), and all vested options will remain exercisable for thirty days
after termination. In the event his employment is terminated due to death or
"disability" (as defined in the employment agreement), he will receive his base
salary through the date of termination and an annual bonus (at target level)
prorated through the date of termination; all outstanding options will
immediately vest and remain exercisable (but not beyond their term) for three
years in the case of disability, and one year in the case of death. In the event
Mr. Fadden is subject to excise tax on any severance payments made to him under
the employment agreement, the Company will make a gross-up payment to compensate
him for such tax liability. Pursuant to the employment agreement, during Mr.
Fadden's employment and for fifteen months thereafter, Mr. Fadden is not
permitted to be employed by, or to own, manage, operate or control, any entity
which is primarily engaged in the reinsurance business, except that Mr. Fadden
is not prohibited from owning less than five

71

percent of any publicly traded corporation. Mr. Fadden is also subject to
certain confidentiality and non-solicitation provisions under the employment
agreement.

Mr. Price entered into an employment agreement with St. Paul Re, which was
assigned to and assumed by Platinum US upon completion of the Public Offering,
for a three-year term that began June 3, 2002, pursuant to which he has agreed
to serve as the President and Chief Underwriting Officer of Platinum US. Mr.
Price is entitled to receive a minimum base annual salary of at least $400,000
for the first year of his term, $420,000 for his second year and $440,000 for
the third year, and he is eligible to receive for each year of his term a
minimum annual bonus of fifty percent of his base salary. Pursuant to the
employment agreement, Mr. Price received a one-time cash sign-on bonus of
$100,000 from St. Paul Re and an option to purchase 300,000 Common Shares at
$22.50 per Common Share, as more fully described in Note 2 to the table relating
to option grants in the last fiscal year. Pursuant to the employment agreement,
Mr. Price also received reimbursement of reasonable moving and temporary housing
expenses totaling $30,000. The employment agreement provides that if Mr. Price's
employment is terminated by Platinum US without "cause" or by Mr. Price for
"good reason" (each as defined in the employment agreement), he will receive a
payment equal to any bonus payments to which he would have been entitled during
the term of the employment agreement which have not been previously paid, fifty
percent of his then current base salary and any base salary or other amounts
accrued and owing through the date of termination, provided that Mr. Price
executes a release of claims. The employment agreement also provides that if Mr.
Price's employment is terminated by Platinum US for cause or by Mr. Price other
than for good reason, he will receive no further payments, compensation or
benefits under the employment agreement (other than amounts accrued prior to
termination). Mr. Price is subject to certain confidentiality and
non-solicitation provisions under the employment agreement.

Mr. Robbie entered into an employment agreement with St. Paul Re, which was
assigned to and assumed by the Company upon completion of the Public Offering,
for a three-year term that began August 5, 2002, subject to automatic one-year
renewal terms thereafter, pursuant to which he has agreed to serve as the
Executive Vice President and Chief Financial Officer of the Company. Mr. Robbie
is entitled to receive a base annual salary of at least $350,000, and he is
eligible to receive for each year of his term a target annual bonus of 75
percent of his base salary, including a minimum annual bonus for 2002 of fifty
percent of his base salary prorated for the period of his employment with St.
Paul Re and the Company. Pursuant to the employment agreement, Mr. Robbie
received a one-time cash sign-on bonus of $275,000 from St. Paul Re and an
option to purchase 150,000 Common Shares at $22.50 per Common Share, as more
fully described in Note 3 to the table relating to option grants in the last
fiscal year. Mr. Robbie is also entitled to the reimbursement of reasonable
housing and living expenses (not exceeding $15,000 per month) to the extent that
he establishes a residence in Bermuda; Mr. Robbie received reimbursement of
$30,000 in respect of such expenses in 2002. The employment agreement provides
that if Mr. Robbie's employment is terminated by the Company without "cause" or
by Mr. Robbie for "good reason" (each as defined in the employment agreement),
he will receive a payment equal to the sum of one year's base salary and target
bonus and any base salary or other amounts accrued or owing through the date of
termination, provided that Mr. Robbie executes a release of claims. The
employment agreement also provides that if Mr. Robbie's employment is terminated
by the Company for cause or by Mr. Robbie other than for good reason, he will
receive no further payments, compensation or benefits under the agreement (other
than amounts accrued prior to termination). Mr. Robbie is subject to certain
confidentiality and non-solicitation provisions under the employment agreement.

Mr. Lombardozzi entered into an employment agreement with St. Paul Re,
which was assigned to and assumed by the Company upon completion of the Public
Offering, for a three-year term that began August 5, 2002, subject to automatic
one-year renewal terms thereafter, pursuant to which he has agreed to serve as
the Executive Vice President, General Counsel and Secretary of the Company. Mr.
Lombardozzi is entitled to receive a base annual salary of at least $350,000,
and he is eligible to receive for each year of his term a target annual bonus of
75 percent of his base salary and a minimum annual bonus of fifty percent of
base salary for the 2003 and 2004 calendar years. Pursuant to the employment
agreement, Mr. Lombardozzi received a one-time cash sign-on bonus of $275,000
from St. Paul Re and an option to purchase 150,000 Common Shares at $22.50 per
Common Share, as more
72

fully described in Note 3 to the table relating to option grants in the last
fiscal year. Mr. Lombardozzi is also entitled to the reimbursement of reasonable
housing and living expenses (not exceeding $15,000 per month) to the extent that
he establishes a residence in Bermuda; Mr. Lombardozzi received reimbursement of
$30,000 in respect of such expenses in 2002. The employment agreement provides
that if Mr. Lombardozzi's employment is terminated by the Company without
"cause" or by Mr. Lombardozzi for "good reason" (each as defined in the
employment agreement), he will receive a payment equal to the sum of one year's
base salary and target bonus and any base salary or other amounts accrued or
owing through the date of termination, provided that Mr. Lombardozzi executes a
release of claims. The employment agreement also provides that if Mr.
Lombardozzi's employment is terminated by the Company for cause or by Mr.
Lombardozzi other than for good reason, he will receive no further payments,
compensation or benefits under the agreement (other than amounts accrued prior
to termination). Mr. Lombardozzi is subject to certain confidentiality and
non-solicitation provisions under the employment agreement.

Mr. Schmidt entered into a letter agreement with St. Paul Re, which was
assigned to and assumed by Platinum US upon completion of the Public Offering.
The letter agreement provides that Mr. Schmidt's base salary effective July 1,
2002 is $350,000 per year, and that, for 2002, he was eligible to receive an
annual performance bonus in the target amount of 75 percent of base salary, with
a minimum of $175,000. The letter agreement also provides that if Mr. Schmidt's
employment is terminated other than for cause prior to March 31, 2003, Mr.
Schmidt is entitled to receive the minimum bonus. In addition, Mr. Schmidt is
eligible to receive no later than July 1, 2004 a retention bonus of $175,000 if
he is "continuously employed" (as defined in the letter agreement) with St. Paul
Re or a successor through such date. If Mr. Schmidt's employment is terminated
other than for cause prior to such date, he is entitled to receive the retention
bonus.

DIRECTOR COMPENSATION

Each director who is not an employee of the Company (other than Mr. Newman,
whose compensation as Chairman of the Board is described below) will receive an
annual retainer of $25,000 and an additional $2,500 per meeting of the Board of
Directors if the director attends in person, or an additional $1,000 per meeting
if the director attends by telephone. Each Committee chairman who is not an
employee of the Company (other than Mr. Newman) receives an additional $5,000
per year, and each Committee member who is not an employee of the Company
receives $1,500 per meeting of any Committee attended by such member.

In light of the increase in duties and responsibilities of the directors
occasioned by recent legislative initiatives related to corporate governance,
commencing with the year after the 2003 Annual General Meeting of Shareholders
of the Company, each director who is not an employee of the Company will receive
an annual retainer of $35,000. The Chairman of the Audit Committee will also
receive $20,000 per year, and each member of that Committee who is not an
employee of the Company will also receive $10,000 per year. The Chairman of each
other Committee of the Board of Directors who is not an employee of the Company
(other than Mr. Newman) will also receive $15,000 per year, and each member of
those Committees who is not an employee of the Company will also receive $7,500
per year. Each Director who is not an employee of the Company will also receive
an additional $2,500 for attendance at each meeting of the Board and of any
Committee on which he sits.

Pursuant to the Share Unit Plan for Nonemployee Directors (the "Share Unit
Plan"), fifty percent of all fees earned by a director who is not an employee of
the Company or any of its affiliates (including retainer fees, meeting fees and
committee fees) during each calendar quarter are automatically converted into
that number of share units equal to the number of Common Shares which could have
been purchased with such fees, based upon the closing price of the Common Shares
on the last day of the calendar quarter. In addition to the fifty percent
mandatory conversion, each nonemployee director may elect to have up to a total
of 100 percent of his fees converted into share units, provided the election is
made before the start of the calendar year in which the fees are earned. No
Common Shares are actually purchased, but the value of the share units is
dependent upon the market value of the Common Shares. A

73

nonemployee director will receive distributions under the Share Unit Plan in
respect of his share units, each such share unit valued at the then closing
price of one Common Share, following the expiration of five calendar years
following the year in which his fees were originally converted into share units,
or following termination of his service on the Board of Directors, if earlier.
Each distribution under the Share Unit Plan will be made, at the discretion of
the Board, either in cash or in Common Shares or some combination thereof. The
Share Unit Plan provides that a total of 150,000 shares may be issued
thereunder. On January 1, 2003, Mr. Newman was credited with 403 share units,
Messrs. Bank and Carmichael were each credited with 223 share units, and Messrs.
Baldwin and Pruitt were each credited with 218 share units, in respect of
service during the fourth quarter of 2002.

Under the Share Incentive Plan, a non-qualified option to purchase 25,000
Common Shares at $22.50 per Common Share (the offering price of the Common
Shares in the Public Offering) was granted to each of the nonemployee directors
(other than Mr. Newman) effective upon completion of the Public Offering. Each
option has a ten-year term and is exercisable in three equal annual installments
beginning November 1, 2003. A non-qualified option to purchase 25,000 Common
Shares at $22.50 per Common Share was also granted to the person who was to be
identified as the nominee designated by RenaissanceRe to the Company's Board of
Directors, effective upon his election as director, on the same terms as for the
other nonemployee directors, except that the option is exercisable in three
equal annual installments beginning on the first anniversary of such nominee's
election as a director. This option will be issued to Mr. Currie upon his
election to the Board of Directors of the Company. In light of the increase in
duties and responsibilities of the directors occasioned by recent legislative
initiatives related to corporate governance, under the Share Incentive Plan,
each nonemployee director (other than Mr. Newman) will receive annually, on the
date of the Annual General Meeting of Shareholders of the Company (beginning
with the 2003 Annual General Meeting), an option to purchase 5,000 Common Shares
with an exercise price equal to the fair market value of the Common Shares on
such date. This option will have a five-year term and will become exercisable on
the first anniversary of the date of grant.

Mr. Newman entered into a letter agreement with St. Paul, dated March 1,
2002 and amended June 14, 2002, pursuant to which he agreed to serve as Chairman
of the Board of Directors of the Company. This agreement was assigned to and
assumed by the Company upon completion of the Public Offering. As Chairman, Mr.
Newman is entitled to receive an annual fee of $60,000, and a fee of $5,000 for
each meeting of the Board of Directors that he attends (not to exceed $20,000
per year). Pursuant to the agreement, Mr. Newman received an option to purchase
975,000 Common Shares at $22.50 per Common Share (the offering price of the
Common Shares in the Public Offering) effective upon completion of the Public
Offering. This option has a term of ten years and is exercisable in three equal
annual installments beginning November 1, 2003. Mr. Newman also entered into a
letter agreement dated March 1, 2002 with St. Paul, which was assigned to and
assumed by Platinum US upon completion of the Public Offering, pursuant to which
he agreed to provide consulting services to Platinum US through February 28,
2005 (which date is automatically extended from year to year unless either party
elects not to extend it). During the consulting term, Mr. Newman performs
services as reasonably requested, including assisting with the establishment and
development of Platinum US's reinsurance business, for which he receives an
annual consulting fee of $270,000. Pursuant to this agreement, Mr. Newman
received a one-time cash incentive of $100,000 from St. Paul and is eligible to
receive for each year of the term of this consulting arrangement an annual
incentive payment with a target of $440,000 and a maximum of 200 percent of the
target incentive payment, with a minimum incentive payment for the 2002 calendar
year of $366,670. The objectives for this incentive are determined by the
Compensation Committee in consultation with Mr. Newman and are based on the
value of Mr. Newman's contributions as a consultant to Platinum US. Mr. Newman
assigned all of his right, title and interest in the consulting agreement to SHN
Enterprises, Inc., which Mr. Newman established for estate planning purposes and
of which he is the sole shareholder. For 2002, SHN Enterprises Inc. received
from the Company, St. Paul Re or St. Paul $45,000 in consulting fees and
$650,000 in respect of incentive payments. If Mr. Newman's consulting agreement
is terminated by Platinum US for "cause" (as defined in the agreement), he will
receive no further payments or benefits under the consulting agreement other
than amounts accrued prior to termination. Pursuant to the consulting agreement,
during the time Mr. Newman serves as a consultant
74

and for fifteen months thereafter, Mr. Newman is not permitted to be employed
by, or to own, manage, operate or control, any entity which is primarily engaged
in the reinsurance business, except that Mr. Newman is not prohibited from
owning less than five percent of any publicly traded corporation. In addition,
Mr. Newman has agreed, during the time he serves as a consultant and for two
years thereafter, not to solicit any senior executive of the Company or Platinum
US who served as such at the time of the termination of his consulting
agreement. Mr. Newman would not be bound by either of these provisions if he is
terminated without cause unless he receives a payment of $350,000 from Platinum
US. Mr. Newman is also subject to certain confidentiality provisions under the
consulting agreement.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. Pruitt, Bank, Carmichael and Fishman currently serve on the
Compensation Committee of the Board of Directors of the Company. Mr. Fishman is
Chairman, Chief Executive Officer and President of St. Paul, which has entered
into various agreements with the Company, as described below under Item 13.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

BENEFICIAL OWNERSHIP OF COMMON SHARES

The following table sets forth the beneficial ownership of the Common
Shares as of March 14, 2003 of each of the directors, nominees for election as a
director and executive officers. Except as otherwise indicated, each of these
persons had sole voting power and sole dispositive power with respect to the
Common Shares beneficially owned by him.

- ---------------

* Represents less than one percent of the outstanding Common Shares.

(1) These amounts do not include share units credited under the Share Unit Plan.
Under the Share Unit Plan, fifty percent of all fees earned by a director
who is not an employee of the Company or any of its affiliates (including
retainer fees, meeting fees and committee fees) during each calendar quarter
are automatically converted into that number of share units equal to the
number of Common Shares which could have been purchased with such fees,
based upon the closing price of the Common Share on the last day of the
calendar quarter, as more fully described under "Director Compensation." As
of March 14, 2003, Mr. Newman was credited with 403 share units, Messrs.
Bank and Carmichael were each credited with 223 share units, and Messrs.
Baldwin and Pruitt were each credited with 218 share units.

75

(2) This amount does not include 6,000,000 Common Shares and 6,000,000 Common
Shares issuable upon exercise of a currently exercisable option, all of
which Common Shares are beneficially owned by St. Paul, as more fully
described below under Item 13. Mr. Fishman, Chairman, Chief Executive
Officer and President of St. Paul, disclaims beneficial ownership of these
Common Shares.

The following table sets forth information with respect to the beneficial
ownership of Common Shares as of March 14, 2003 of those persons known by the
Company to be the beneficial owners of more than five percent of the outstanding
Common Shares:

- ---------------

(1) According to a Schedule 13D statement filed by St. Paul on November 7, 2002,
these Common Shares consist of 6,000,000 Common Shares owned by wholly owned
subsidiaries of St. Paul and options to acquire 6,000,000 Common Shares held
by St. Paul and one of its wholly owned subsidiaries. St. Paul reported
having sole voting power over the 6,000,000 owned Common Shares and sole
dispositive power over the 6,000,000 owned Common Shares and the 6,000,000
Common Shares issuable upon exercise of options. St. Paul reported that its
voting power with respect to the 6,000,000 owned Common Shares, which
represent approximately 14.0 percent of the outstanding Common Shares, is
limited to 9.9 percent of the voting power of the outstanding Common Shares
pursuant to a limitation on voting rights in the Company's Bye-laws.

(2) In a Schedule 13G statement filed by RenaissanceRe on November 4, 2002,
RenaissanceRe reported having sole voting power and sole dispositive power
over 6,460,000 Common Shares, which includes 2,500,000 Common Shares
issuable to RenaissanceRe upon exercise of options. RenaissanceRe also
reported that its voting power with respect to the Common Shares owned by it
is limited to 9.9 percent of the voting power of the outstanding Common
Shares pursuant to a limitation on voting rights in the Company's Bye-laws.

(3) In a Schedule 13G statement filed on January 31, 2003, Artisan Partners
Limited Partnership ("Artisan Partners"), Artisan Investment Corporation
(the general partner of Artisan Partners) and Andrew A. Ziegler and Carlene
Murphy Ziegler (the principal shareholders of Artisan Investment
Corporation) reported having shared voting power and shared dispositive
power over 2,257,500 Common Shares of the Company, which were acquired on
behalf of discretionary clients of Artisan Partners, and indicated that
persons other than Artisan Partners are entitled to receive all dividends
from, and proceeds from the sale of, those Common Shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH ST. PAUL AND ITS SUBSIDIARIES

Concurrently with the completion of the Public Offering on November 1,
2002, the Company issued 6,000,000 Common Shares (or 14 percent of the
outstanding Common Shares) to St. Paul in a private placement pursuant to a
Formation and Separation Agreement dated as of October 28, 2002 between the
Company and St. Paul (the "Formation Agreement"). The voting power of these
Common Shares is limited to 9.9 percent of the voting power of the outstanding
Common Shares, pursuant to the Bye-laws of

76

the Company. St. Paul also received an option to purchase up to 6,000,000
additional Common Shares at any time during the ten years following the Public
Offering at a price of $27.00 per share (the "St. Paul Option"). In return for
the Common Shares and the St. Paul Option, St. Paul contributed to the Company
cash in the amount of $122 million and substantially all of the 2002 reinsurance
business and related assets of St. Paul Re, including all of the outstanding
capital stock of Platinum US. Among the fixed assets transferred were furniture,
equipment, systems and software, and the intangible assets included broker
lists, contract renewal rights and licenses. The Formation Agreement contains
provisions regarding indemnification of each of St. Paul and the Company by the
other, restrictions on St. Paul regarding competition with the Company and the
transfer or acquisition of Common Shares in certain circumstances, and
requirements relating to pre-emptive rights and participation in Common Share
buy-back programs. The Formation Agreement provided that the Company and its
subsidiaries enter into several agreements with St. Paul and its subsidiaries,
as described below.

The Company entered into a registration rights agreement with St. Paul as
of November 1, 2002, pursuant to which St. Paul has the right to require the
Company, subject to certain specified exceptions, on four occasions to register
under the Securities Act of 1933, as amended (the "1933 Act") any Common Shares
owned by St. Paul or its affiliates for sale in a public offering beginning as
of November 1, 2003 unless the Company consents to an earlier date, although St.
Paul is not permitted to make a demand during the 180-day period after the
Public Offering without the consent of the underwriters who participated in the
Public Offering. Pursuant to this agreement, the Company has also agreed to use
its reasonable best efforts to enable St. Paul from and after the third
anniversary of the completion of the Public Offering to distribute the Common
Shares it beneficially owns in an offering on a continuous or delayed basis
pursuant to a registration statement under the 1933 Act. After November 1, 2006,
St. Paul will have the right to an additional two demand registrations if St.
Paul beneficially owns more than 9.9 percent of the Common Shares then
outstanding. Each demand must include a number of Common Shares with a market
value equal to at least $50 million, except that this limitation will not apply
to St. Paul's last demand registration.

Certain subsidiaries of the Company entered into several quota share
retrocession agreements with subsidiaries of St. Paul, pursuant to which St.
Paul's subsidiaries transferred the liabilities, related assets and rights and
risks under substantially all of the reinsurance contracts entered into by St.
Paul's subsidiaries on or after January 1, 2002 (except for certain liabilities
relating to the flooding in Europe in August 2002, named storms in existence at
the time of the completion of the Public Offering, and reinsurance underwritten
in London covering exposures arising from financial institutions) (the "Quota
Share Retrocession Agreements"). These agreements provided for the transfer to
subsidiaries of the Company of cash and other assets aggregating approximately
$488,657,000, which represents substantially all of the existing loss reserves
(excluding reserves relating to liabilities retained by St. Paul), allocated LAE
reserves, other reserves related to non-traditional reinsurance treaties,
unearned premium reserves (subject to agreed upon adjustments) and other related
reserves, which relate to contracts entered into on and after January 1, 2002,
as of the date of the transfer and 100 percent of future premiums (less any
ceding commission under the Quota Share Retrocession Agreements) associated with
the transferred reinsurance contracts relating to periods after the date of the
transfer. Trusts have been established and funded to secure Platinum US's
reinsurance obligations to St. Paul's subsidiaries.

Platinum US and St. Paul Fire and Marine Insurance Company ("St. Paul Fire
and Marine") entered into a US Underwriting Management Agreement dated as of
November 1, 2002, pursuant to which Platinum US has the right for a period of
one year following completion of the Public Offering to underwrite specified
reinsurance business on behalf of St. Paul Fire and Marine in cases where
Platinum US has been unable to underwrite that business because it has not
obtained a necessary regulatory license or approval to do so, or Platinum US has
not yet been approved as a reinsurer by the cedent. Such business will be
reinsured pursuant to the Quota Share Retrocession Agreements. Platinum US bears
all the expenses incurred in underwriting and administering traditional and
non-traditional business which it reinsures. St. Paul Fire and Marine is
required to pay the direct and reasonable indirect costs of non-traditional
business not reinsured by Platinum US. Platinum UK and St. Paul Reinsurance
Company

77

Limited ("St. Paul Re UK") entered into a similar agreement dated as of November
1, 2002 providing Platinum UK with substantially the same rights to underwrite
business on behalf of St. Paul Re UK.

In addition, St. Paul Re UK, St. Paul Management Limited and Platinum UK
entered into a UK Business Transfer Agreement under which Platinum UK has
acquired the reinsurance business of St. Paul Re UK, together with the
associated customer lists and goodwill (other than the assumption of liability
for, or the management of, existing reinsurance contracts entered into by St.
Paul Re UK). Platinum UK is entitled to write reinsurance business for its own
account and benefit in succession to St. Paul Re UK. In consideration for the
transfer, a portion of the St. Paul Option, covering 894,260 Common Shares with
an aggregate exercise price of $8,119,881, was allocated to St. Paul Re UK. The
agreement also provides that St. Paul Re UK is required to reimburse Platinum UK
in the amount of $701,425, representing a prorated portion of the 2002 annual
bonuses of eligible employees of Platinum UK who would have been eligible to
receive bonuses from St. Paul Re UK.

The Company and Platinum UK entered into Master Services Agreements with
St. Paul and St. Paul Re UK pursuant to which St. Paul and its subsidiaries
provide certain services, including accounting, payroll administration, human
resources management and systems support, at cost until the Company and Platinum
UK deem it no longer necessary, but no later than June 30, 2003. The Company and
Platinum UK are required to pay St. Paul and St. Paul Re UK a total of $116,600
for services provided in 2002 under the Master Services Agreements. The Company
and Platinum UK also entered into Run-off Services Agreements with St. Paul and
St. Paul Re UK, pursuant to which the Company and Platinum UK, for a period of
up to two years following completion of the Public Offering, provide St. Paul
and St. Paul Re UK with specified services at cost in administering the run-off
of certain reinsurance contracts. St. Paul and St. Paul Re UK are required to
pay the Company and Platinum UK a total of $391,833 for services provided in
2002 under the Run-off Services Agreements.

Pursuant to the Employee Benefits and Compensation Matters Agreement, St.
Paul transferred certain of its employees to the Company. The agreement provides
for the allocation of assets and liabilities and certain other agreements with
respect to employee compensation and benefit plans. In addition, St. Paul is
required to reimburse the Company in the amount of $4,328,676, representing a
prorated portion of the 2002 annual bonuses of eligible employees of Platinum US
and Platinum Bermuda who would have been eligible to receive bonuses from St.
Paul. The agreement also provides that St. Paul shall reimburse the Company for
severance payments made pursuant to the terms of the St. Paul Enhanced Severance
Program to employees transferred from St. Paul who were terminated within 90
days following completion of the Public Offering. St. Paul is required to pay
the Company $898,880 in respect of those severance payments. In addition, the
agreement provides that St. Paul is required to reimburse the Company for any
retention bonuses that are paid to certain employees of the Company.

The Company was granted a royalty-free, limited, non-sublicensable (except
to the Company's operating subsidiaries), non-transferable, exclusive license to
use certain St. Paul trademarks and service marks in connection with the
Company's reinsurance business until November 1, 2003 pursuant to the
Transitional Trademark License Agreement.

The Company entered into various sublease agreements or assignments of
lease with St. Paul or one of its subsidiaries under which subsidiaries of the
Company sublease office space in New York, Chicago, Miami, Tokyo and London at a
rate equivalent to St. Paul's cost. A total of $468,848 is required to be paid
under those agreements for 2002.

TRANSACTIONS WITH RENAISSANCERE

Concurrently with the completion of the Public Offering, the Company sold
3,960,000 Common Shares (or nine percent of the outstanding Common Shares) to
RenaissanceRe at a price of $22.50 per share less the underwriting discount in a
private placement pursuant to the Investment Agreement. In addition,
RenaissanceRe received an option to purchase up to 2,500,000 additional Common
Shares at any time during the ten years following the Public Offering at a
purchase price of $27.00 per share (the "RenaissanceRe Option"). The Investment
Agreement provides that, for so long as RenaissanceRe
78

beneficially owns Common Shares representing at least 62.5 percent of the Common
Shares purchased pursuant to the Investment Agreement, one qualified person
designated by RenaissanceRe, who is reasonably acceptable to the Company, but
not an officer, director or employee of Renaissance Re or any of its
subsidiaries, will be nominated by the Company for election as a director of the
Company at each shareholder meeting at which directors are elected and the
Company shall use commercially reasonable efforts to cause this director's
appointment to the Executive Committee and, subject to applicable law, rules or
regulations, the Nominating and Corporate Governance Committee of the Board of
Directors of the Company. The Investment Agreement also provides that, for so
long as RenaissanceRe beneficially owns Common Shares representing at least 62.5
percent of the Common Shares purchased pursuant to the Investment Agreement,
RenaissanceRe will have the right to designate a representative to attend (but
not to vote at) meetings of the Board of Directors and to receive notices,
agendas, minutes and all other materials distributed to participants at such
meetings.

The Company and RenaissanceRe entered into a Transfer Restrictions,
Registration Rights and Standstill Agreement as of November 1, 2002, pursuant to
which, prior to November 1, 2003, RenaissanceRe may not transfer any interest in
the Common Shares it purchased pursuant to the Investment Agreement except under
certain conditions. Under this agreement, RenaissanceRe will have the right to
require the Company, subject to certain specified exceptions, on four occasions
to register under the 1933 Act any Common Shares owned by RenaissanceRe or its
affiliates for sale in a public offering beginning as of November 1, 2003 unless
the Company consents to an earlier date, although RenaissanceRe is not permitted
to make a demand during the 180-day period after the Public Offering without the
consent of the underwriters who participated in the Public Offering. The Company
has also agreed to use its reasonable best efforts to enable RenaissanceRe, from
and after the third anniversary of the completion of the Public Offering, to
distribute the Common Shares it beneficially owns in an offering on a continuous
or delayed basis pursuant to a registration statement under the 1933 Act. After
November 1, 2006, RenaissanceRe will have the right to an additional two demand
registrations if RenaissanceRe beneficially owns more than 9.9 percent of the
Common Shares then outstanding. Each demand must include a number of Common
Shares with a market value equal to at least $50 million, except that this
limitation will not apply to RenaissanceRe's last demand registration. This
agreement also contains provisions regarding indemnification of each of
RenaissanceRe and the Company by the other, restrictions on RenaissanceRe
regarding the acquisition of Common Shares in certain circumstances, and
requirements relating to pre-emptive rights and participation in Common Share
buy-back programs.

The Company entered into a five-year Services and Capacity Reservation
Agreement with RenaissanceRe, effective October 1, 2002, pursuant to which
RenaissanceRe provides services to the subsidiaries of the Company in connection
with their property catastrophe books of business. At the Company's request,
RenaissanceRe will analyze the Company's property catastrophe treaties and
contracts and will assist the Company in measuring risk and managing the
Company's aggregate catastrophe exposures. Based upon such analysis,
RenaissanceRe will furnish quotations at the Company's request for rates for
non-marine non-finite property catastrophe retrocessional coverage with
aggregate limits up to $100 million annually, either on an excess-of-loss or
proportional basis. The Company and RenaissanceRe may then enter into
retrocessional agreements on the basis of the quotations. The fee for the
coverage commitment and the services provided by RenaissanceRe under this
agreement is $4 million at inception and at each anniversary, adjusted to 3.5
percent of the Company's gross written non-marine non-finite property
catastrophe premium for the previous annual period, if such amount is greater
than $4 million. Either party may terminate this agreement if the other is
deemed impaired or insolvent by applicable regulatory or judicial authorities or
is the subject of conservation, rehabilitation, liquidation, bankruptcy or
similar insolvency proceedings. The Company was required to pay a total of $4
million to RenaissanceRe pursuant to this agreement for the year commencing
October 1, 2002.

We expect that we and RenaissanceRe may refer business to each other, to be
accepted in the discretion of the party receiving the referral, and that
compensation will be paid for referral business at negotiated rates.

79

ITEM 14. CONTROLS AND PROCEDURES

Within the 90 days prior to the filing date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
our management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13a-15 promulgated under the Securities
and Exchange Act of 1934. Based on that evaluation, our management, including
the Chief Executive Officer and Chief Financial Officer, concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our periodic reports to be filed
with the Securities and Exchange Commission. In addition, there have been no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies or
material weaknesses. It should be noted that the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

(A) 1. FINANCIAL STATEMENTS

The consolidated financial statements of the Company as of December 31,
2002 and for the period then ended, together with the report thereon by KPMG
LLP, independent certified public accountants, are set forth in Item 8 above.
The unaudited pro forma combined statements of underwriting results of the
Company for the year ended December 31, 2002 and 2001 are set forth on pages
PF-1 through PF-4 hereto. The combined statements of the reinsurance
underwriting segment of St. Paul prior to the Public Offering, together with the
report thereon by KPMG LLP, independent certified public accountants, are set
forth on pages P-1 through P-17 hereto.

2. SCHEDULES SUPPORTING FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER
31, 2002

The schedules relating to the consolidated financial statements of the
Company as of December 31, 2002 and for the period then ended, together with the
report thereon by KPMG LLP, independent certified public accountants, are set
forth on pages S-1 through S-6 hereto.

Schedules not referred to have been omitted as inapplicable or not required
by Regulation S-X.

3. EXHIBITS

- ---------------

(1) Incorporated by reference from the Registration Statement on Form S-1
(Registration No. 333-86906) of Platinum Holdings.

(2) Incorporated by reference from the Registration Statement on Form S-1
(Registration Nos. 333-99019 and 333-99019-01) of Platinum Holdings and
Platinum Finance.

(3) Management contract or compensatory plan or arrangement.

(B) REPORTS ON FORM 8-K.

No reports on Form 8-K were filed during the fourth quarter of 2002.

83

SIGNATURES

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

PLATINUM UNDERWRITERS HOLDINGS, LTD.

/s/ JEROME T. FADDEN
----------------------------------------
Jerome T. Fadden
President and Chief Executive Officer

Date: March 26, 2003

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Jerome T. Fadden, certify that:

1. I have reviewed this annual report on Form 10-K of Platinum
Underwriters Holdings, Ltd. (the "Registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have identified
for the Registrant's auditors any material weaknesses in internal controls;
and

b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's internal
controls; and

6. The Registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ JEROME T. FADDEN
--------------------------------------
Jerome T. Fadden
President and Chief Executive Officer

Date: March 26, 2003

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, William A. Robbie, certify that:

1. I have reviewed this annual report on Form 10-K of Platinum
Underwriters Holdings, Ltd. (the "Registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have identified
for the Registrant's auditors any material weaknesses in internal controls;
and

b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's internal
controls; and

6. The Registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ WILLIAM A. ROBBIE
--------------------------------------
William A. Robbie
Executive Vice President,
Chief Financial Officer and Treasurer

Date: March 26, 2003

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

FINANCIAL STATEMENT SCHEDULES

Schedules not referred to have been omitted as inapplicable or not required
by Regulation S-X.

S-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Platinum Underwriters Holdings, Ltd.:

Under date of March 21, 2003, we reported on the consolidated balance sheet
of Platinum Underwriters Holdings, Ltd. and subsidiaries as of December 31,
2002, and the related consolidated statements of income and comprehensive
income, shareholders' equity and cash flows for the period April 19, 2002 (date
of inception) to December 31, 2002, which are included in the Form 10-K. In
connection with our audit of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules appearing on pages S-3 through S-6 of the Form 10-K. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audit.

In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

New York, New York
March 21, 2003

S-2

SCHEDULE II

PLATINUM UNDERWRITERS HOLDINGS, LTD.
PARENT COMPANY

CONDENSED BALANCE SHEET
DECEMBER 31, 2002

S-3

SCHEDULE II

PLATINUM UNDERWRITERS HOLDINGS, LTD.
PARENT COMPANY

CONDENSED STATEMENTS OF INCOME
FOR THE PERIOD FROM APRIL 19, 2002 (DATE OF INCEPTION)THROUGH DECEMBER 31, 2002

S-4

SCHEDULE II

PLATINUM UNDERWRITERS HOLDINGS, LTD.
PARENT COMPANY

CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 19, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2002

S-5

SCHEDULE III

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION

S-6

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

PRO FORMA FINANCIAL STATEMENTS

INTRODUCTION

The Company's pro forma consolidated balance sheet and pro forma combined
underwriting results presented herein are not indicative of the actual results
that the Company expects to achieve as an operating entity. Many factors may
cause the Company's actual results to differ materially from the pro forma
consolidated balance sheet and underwriting results including, but not limited
to, the following:

- The Company's pro forma combined statement of underwriting results
includes premium and loss development on business entered into prior to
January 1, 2002. Under the Quota Share Retrocession Agreements, the
Company is assuming no premium or loss development on business entered
into prior to January 1, 2002. Therefore, the Company's reported premiums
written and earned and reported losses and LAE in the Company's initial
years of operation could be substantially lower than as presented in
Platinum's pro forma combined statement of underwriting results. As such,
the Company's reported results in the Company's initial years of
operation will not be subject to prior year development for periods prior
to January 1, 2002.

- The Company reports underwriting results under the Quota Share
Retrocession Agreements for the period through the date of completion of
the Public Offering based on the application of retroactive reinsurance
accounting, resulting in the premiums earned and losses incurred by St.
Paul during such period being excluded from the Company's statement of
underwriting results. Due to this exclusion, the Company's reported 2002
premiums written and earned and the Company's net underwriting results in
2002 could be substantially different than as presented in the Company's
pro forma combined statement of underwriting results.

- Although the Company was afforded the benefits of most of St. Paul Re's
retrocessional reinsurance program through their expiration during 2002,
the Company has entered into retrocessional reinsurance contracts with
significantly different terms and conditions from those that were made
available to the Company from St. Paul Re.

- The additional and reinstatement premiums recorded in 2001 by St. Paul
Re's Finite Risk operating segment were primarily caused by losses
relating to the September 11, 2001 terrorist attack. These additional and
reinstatement premiums were unusually high and not necessarily indicative
of the recurring premium volume the Company expects to write in that
business segment.

- The Company's pro forma financial statements continue to reflect the
discounting of the liability for certain assumed reinsurance contracts
based on arrangements made by St. Paul to permit such discounting. If the
Company does not put such arrangements in place, reinsurance contracts of
a similar type entered into in the future would be reported on an
undiscounted basis.

PRO FORMA COMBINED STATEMENTS OF UNDERWRITING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 2002 AND 2001 (UNAUDITED)

The Company has prepared its unaudited pro forma combined statements of
underwriting results to represent the Company's reinsurance business as if the
Company had commenced its operations and the

PF-1

Public Offering, the ESU Offering, the St. Paul Investment and the RenaissanceRe
Investment had been completed as of January 1, 2001. The Company's presentation
of its pro forma underwriting results assumes that all of the agreements between
Platinum and St. Paul effecting the transfer of substantially all of St. Paul's
continuing reinsurance business and related assets (the "Inception Agreements")
were entered into as of January 1, 2001. The Company has based its presentation
on St. Paul Re's actual underwriting results for the periods presented except
for the period from November 1, 2002 through December 31, 2002 for which the
presentation is based on the Company's actual results. The Company has then
adjusted these historical results to remove any of St. Paul Re's reinsurance
businesses that are not part of Platinum, including:

- amounts related to St. Paul Re's reinsurance business representing lines
of business that will not be transferred to the Company, including
aviation and bond and credit reinsurance, certain financial risk and
capital markets reinsurance products, and certain North American business
previously underwritten in London. Platinum did not obtain the renewal
rights to these lines of business and did not assume liabilities related
to these lines of business, and

- amounts related to St. Paul Re's allocations from the St. Paul corporate
aggregate excess-of-loss reinsurance program that will not be available
to the Company.

Except as noted above, the pro forma combined underwriting results assume
that all other retrocessional reinsurance with respect to the assumed
reinsurance contracts entered into in 2002 will remain available to the Company.

Also, as noted above, the Company has based its pro forma underwriting
results on the assumption that all of the Inception Agreements were entered into
on January 1, 2001, including the Services and Capacity Reservation Agreement.

The Company's future results will depend in part on the amount of the
Company's investment income, which cannot be predicted and which will fluctuate
depending upon the types of investments the Company selects, the Company's
underwriting results and market factors. Actual tax expense in future periods
will be based on underwriting results plus investment income and other income
and expense items not reflected in the pro forma combined statements of
underwriting results. The Company's effective tax rate will reflect the
proportion of income recognized by the Company's operating subsidiaries, with
Platinum US taxed at the U.S. corporate income tax rate (35 percent), Platinum
UK taxed at the U.K. corporate tax rate (generally 30 percent), Platinum Ireland
taxed at a 25 percent corporate tax rate on non-trading income and a 16 percent
corporate tax rate on trading income (which was reduced to 12.5 percent as of
January 1, 2003), and Platinum Bermuda taxed at a zero corporate tax rate. In
2002, the Company had a greater portion of the Company's income subject to U.S.
taxation and U.K. taxation than the Company expects to have in the future
because the Company's Bermuda operations are entirely new but can be expected to
grow as a proportion of the Company's business. As a result of changes in the
Company's geographic distribution of taxable income as well as changes in the
amount of the Company's non-taxable income and expense, the relationship between
the Company's reported income before tax and the Company's income tax expense
may change significantly from one period to the next.

PF-2

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

PRO FORMA COMBINED STATEMENTS OF UNDERWRITING RESULTS
YEARS ENDED DECEMBER 31, 2002 AND 2001

YEAR ENDED DECEMBER 31, 2002

YEAR ENDED DECEMBER 31, 2002

See accompanying notes to pro forma combined statements of underwriting results.

PF-3

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO PRO FORMA COMBINED STATEMENTS OF UNDERWRITING RESULTS (UNAUDITED)

The following describe amounts deducted in the "Adjustments" columns above:

1. Amounts related to the reinsurance segment of The St. Paul
Companies Inc. ("St. Paul") prior to the initial public offering of the
Common Shares of Platinum Underwriters Holdings, Ltd. (the "Company") ("St.
Paul Re") representing lines of business for the period from January 1,
2002 through November 1, 2002 that were not transferred to the Company,
including aviation and bond and credit reinsurance, certain financial risk
and capital markets reinsurance products, and certain North American
business previously underwritten in London. The Company did not obtain the
renewal rights to these lines of business and did not assume liabilities
related to these lines of business.

2. Amounts related to St. Paul Re's allocations from St. Paul's
corporate aggregate excess-of-loss reinsurance program, and

3. Amounts related to the Services and Capacity Reservation Agreement
dated November 1, 2002 between the Company and RenaissanceRe Holdings Ltd.
("RenaissanceRe").

4. Amounts relating to the Company for the period from November 2,
2002 through December 31, 2002.

Included in the 2001 pro forma combined underwriting results are pre-tax
losses related to the September 11, 2001 terrorist attack totaling $468 million.
This amount includes gross losses and loss adjustment expenses of $819 million,
$123 million of ceded reinsurance, $137 million of additional and reinstatement
premiums and $91 million of reduced contingent commission expenses.

St. Paul's option to purchase up to 6,000,000 Common Shares at any time
during the ten years following the Public Offering at a price of $27.00 per
share (the "St. Paul Option") was granted as part of the aggregate consideration
for St. Paul's cash contribution and its contribution of the reinsurance
business being transferred by it to the Company and its sponsorship of the
Company, and was not granted in compensation for services. Similarly,
RenaissanceRe's option to purchase up to 2,500,000 Common Shares at any time
during the ten years following the Public Offering at a purchase price of $27.00
per share (the "RenaissanceRe Option") was granted to RenaissanceRe in its role
as a strategic investor in the Company, and was not granted in compensation for
services. Accordingly, no compensation expense related to these options is
recognized in the Company's pro forma combined statements of underwriting
results, nor will compensation expense related to these options be recognized in
the Company's consolidated financial statements.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA FINANCIAL CONDITION
AND UNDERWRITING RESULTS

The following pro forma discussion and analysis should be read in
conjunction with the Company's unaudited pro forma financial statements and the
related notes set forth under "Pro Forma Financial Statements" on pages PF-1
through PF-4 of this report. The Company's unaudited pro forma financial
statements have been prepared in accordance with U.S. GAAP.

OVERVIEW

Our worldwide reinsurance business is organized around three operating
segments:

- GLOBAL PROPERTY AND MARINE. This segment generated $412 million, or 34.0
percent, of Platinum's 2002 pro forma net premiums written (and $315
million, or 22.8 percent, for 2001).

PF-4

- GLOBAL CASUALTY. This segment generated $546 million, or 45.1 percent,
of Platinum's 2002 pro forma net premiums written (and $592 million, or
42.8 percent, for 2001).

- FINITE RISK. This segment generated $252 million, or 20.9 percent, of
Platinum's 2002 pro forma net premiums written (and $475 million, or 34.4
percent, for 2001).

For a discussion of the basis on which pro forma net premiums written were
determined, see "Pro Forma Financial Statements -- Introduction" above.

PRO FORMA COMBINED UNDERWRITING RESULTS

The following table summarizes our pro forma combined underwriting results
for the years ended December 31, 2002 and 2001, as if the Public Offering, the
ESU Offering, the St. Paul Investment and the RenaissanceRe Investment had been
completed on January 1, 2001 ($ in millions). For a discussion of the historical
results of underwriting of St. Paul Re, see "The Predecessor Business."

- ---------------

(1) Excludes ceded losses under St. Paul Re's aggregate excess-of-loss treaties,
because such treaties extend to non-catastrophic as well as catastrophic
losses as described below.

Included in the 2001 pro forma combined underwriting results are pre-tax
losses related to the September 11, 2001 terrorist attack totaling $468 million.
This amount includes gross losses and loss adjustment expenses ("LAE") of $819
million, $123 million of ceded reinsurance, $137 million of additional and
reinstatement premiums and $91 million of reduced contingent commission
expenses. The determination of the impact of catastrophes on the combined ratio
excludes the ceded losses under St. Paul Re's aggregate excess-of-loss treaties;
these treaties provide coverage for excess losses arising from

PF-5

catastrophic and non-catastrophic events. The benefits of St. Paul Re's
aggregate excess-of-loss treaty for all of 2002 were available to Platinum.

RETROCESSIONAL REINSURANCE

Our pro forma combined underwriting results for the years ended December
31, 2002 and 2001, reflect the benefits of most of St. Paul Re's retrocessional
reinsurance program as it relates to Platinum. The pro forma results do not
reflect the effects of the St. Paul corporate aggregate excess-of-loss
reinsurance program, which was not available to Platinum in 2002 or thereafter.
St. Paul Re has utilized retrocession agreements principally to increase
aggregate premium capacity and to reduce the risk of loss on reinsurance
underwritten. In addition, through St. Paul Re's aggregate excess-of-loss
treaties, St. Paul Re has maintained catastrophe reinsurance programs for the
purpose of limiting its exposure with respect to multiple claims arising from a
single occurrence or event. St. Paul Re's retrocession agreements provide for
recovery of a portion of claims and claims expense from retrocessionnaires.
Under these programs, on a pro forma basis, St. Paul Re ceded the following
amounts to retrocessionaires ($ in millions):

The amounts in the pro forma underwriting results on page PF-3 include the
retrocession amounts reflected above.

The amounts included in the pro forma underwriting results on page PF-3 as
well as the individual segment discussions on pages PF-10 to PF-13, include the
retrocession amounts reflected above, less the following impacts of St. Paul
Re's aggregate excess-of-loss treaties as they relate to Platinum ($ in
millions):

Under the terms of St. Paul Re's aggregate excess-of-loss treaties, St.
Paul Re remits an initial margin premium in quarterly installments to its
counterparty, regardless of whether losses are ceded under the treaty. If losses
are ceded under these treaties, St. Paul Re remits additional premiums ceded,
plus accrued interest, to its counterparty when the related losses and LAE are
settled. For the year ended December 31, 2002, no losses were ceded under the
2002 treaty. Net underwriting detriment in 2002 is driven by commutations in
such period requested by one retrocessionnaire of its ten percent portion of the
1999 and 2001 St. Paul Re aggregate excess-of-loss treaties. In the year ended
December 31, 2002 these commutations resulted in a reduction in ceded written
and earned premiums of $16 million and a reduction in ceded losses and LAE
incurred of $36 million, resulting in a net underwriting detriment of $20
million. These commutations were done in conjunction with the commutation of a
reinsurance treaty underwritten by St. Paul Re for the same party which resulted
in a net underwriting benefit of $14 million. The combined effect of these
commutations resulted in a net underwriting detriment of $6 million. The impact
of these commutations is not expected to be material to future operations or
financial position. The

PF-6

additional net underwriting detriment is due to $15 million of ceded premium
pursuant to the St. Paul Re aggregate excess-of-loss treaty with respect to the
2002 accident year.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

Net premiums

Net premiums written for the year ended December 31, 2002 decreased 12.4
percent to $1,210 million from $1,382 million for the year ended December 31,
2001, including $546 million, or 45.1 percent, from the Global Casualty segment,
$412 million, or 34.0 percent, from the Global Property and Marine segment and
$252 million, or 20.9 percent, from the Finite Risk segment. The decrease in
premium is due to the non-renewal of certain contracts that did not meet our
underwriting standards. In addition, a large quota share contract was rescinded,
adversely affecting net premiums written. The large quota share contract was a
three year quota share reinsurance contract incepting in 1999. The coverage for
2001 was rescinded by mutual agreement with the ceding company. Rate increases
averaging 30 percent offset some of the decrease in premium.

Net premiums earned for the year ended December 31, 2002 decreased 20.6
percent to $1,034 million from $1,302 million for the year ended December 31,
2001, reflecting the decrease in exposure offset by the impact of price
increases.

Losses and LAE

Losses and LAE incurred were $685 million for the year ended December 31,
2002 compared to $1,440 million for the year ended December 31, 2001. The large
decrease is due to the significant losses incurred in 2001 as a result of the
September 11th terrorist attacks. The loss and LAE ratio, also referred to as
loss ratio (which is the ratio of losses and LAE incurred, including estimates
for claims incurred but not reported, to premiums earned) was 66.3 percent and
110.6 percent for the years ended December 31, 2002 and 2001, respectively.
Catastrophe loss development had an unfavorable impact on loss ratios for the
year ended December 31, 2002 of 3.8 percent and catastrophe losses had an
unfavorable impact of 46.7 percent for the year ended December 31, 2001.

Acquisition expenses

Acquisition expenses were $233 million for the year ended December 31, 2002
compared to $237 million for the year ended December 31, 2001. The resulting
acquisition expense ratio was 22.5 percent for the year ended December 31, 2002
compared to 18.2 percent for the year ended December 31, 2001. The acquisition
expense for the year ended December 31, 2001 includes a large decrease in profit
commissions related to the September 11th terrorist attacks.

Other underwriting expenses

Other underwriting expenses consisted of the cost of operations associated
with underwriting activities. These expenses include compensation, rent and all
other general expenses associated with our underwriting activity and exclude any
investment or claim related expense. Other underwriting expenses were $68
million for the year ended December 31, 2002 and $69 million for the year ended
December 31, 2001. The other underwriting expense ratio for the year ended
December 31, 2002 was 6.6 percent compared to 5.3 percent in 2001. The expense
ratio increased due to a decrease in premiums earned.

PF-7

PRO FORMA UNDERWRITING RESULTS BY OPERATING SEGMENT

The following table summarizes pro forma underwriting results and combined
ratios for each of our three operating segments for the years ended December 31,
2002 and 2001 ($ in millions):

The following table summarizes pro forma underwriting results and combined
ratios, excluding the impact of St. Paul Re's aggregate excess-of-loss treaties
and the impact of the September 11, 2001

PF-8

terrorist attack, for each of our three operating segments for the years ended
December 31, 2002 and 2001 ($ in millions):

The following provides a more detailed discussion of the pro forma
underwriting results for our three operating segments. To provide a more
meaningful analysis of the underlying performance of our business segments, the
discussion of segment results excludes the impact of St. Paul Re's aggregate
excess-of-loss treaties and the impact of the September 11, 2001 terrorist
attack.

PF-9

GLOBAL PROPERTY AND MARINE

The following table summarizes the pro forma underwriting results of
Platinum's Global Property and Marine segment for the years ended December 31,
2002 and 2001 ($ in millions). The underwriting results exclude the impact of
St. Paul Re's aggregate excess-of-loss treaties and the impact of the September
11, 2001 terrorist attack:

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

Net premiums

Net premiums written in the Global Property and Marine segment for the year
ended December 31, 2002 increased 14.6 percent to $408 million from $356 million
for the year ended December 31, 2001. This increase was the result of
significant price increases averaging 36 percent, offset by decreased exposures
through re-underwriting efforts across all lines of business.

Net premiums written in the Global Property and Marine segment included
$321 million in excess-of-loss reinsurance contracts and $87 million in
proportional contracts.

Net premiums written in the Global Property and Marine segment grew 10.2
percent in the U.S. to $216 million for the year ended December 31, 2002
compared to $196 million in the U.S. for the year ended December 31, 2002. Net
premiums written in the Global Property and Marine segment increased 20.0
percent outside the U.S. to $192 million for the year ended December 31, 2002
compared to $160 million outside the U.S. for the year ended December 31, 2001.
These increases reflected the impact of price increases.

Net premiums earned for the year ended December 31, 2002 were impacted by
the same factors as written premiums and decreased by 0.1 percent to $350
million from $352 million for the year ended December 31, 2001.

Losses and LAE

Losses and LAE incurred by the Global Property and Marine segment were $135
million for the year ended December 31, 2002 compared to $194 million for the
year ended December 31, 2001. The decrease for the year ended December 31, 2002
was principally attributable to the absence of catastrophe losses. The Global
Property and Marine segment's loss ratio was 38.5 percent and 55.1 percent for
the years ending December 31, 2002 and 2001, respectively.

Underwriting expenses

Acquisition costs associated with the Global Property and Marine segment
were $65 million for the year ended December 31, 2002 compared to $66 million
for the year ended December 31, 2001. After deferring those costs related to the
unearned portions of net premiums written, the resulting acquisition

PF-10

expense ratio was 18.6 percent for the year ended December 31, 2002 and 18.7
percent for the year ended December 31, 2001. Other underwriting expenses of the
Global Property and Marine segment, including direct and allocated underwriting
expenses were $30 million for the year ended December 31, 2002 and $30 million
for the year ended December 31, 2001. The other underwriting expense ratio for
the Global Property and Marine segment for the years ended December 31, 2001 and
2002 was 8.6 percent.

GLOBAL CASUALTY

The following table summarizes the pro forma underwriting results of
Platinum's Global Casualty segment for the periods covered by this discussion.
As with the discussion of the Global Property and Marine segment, the
underwriting results below for the years ended December 31, 2002 and 2001
exclude the impact of St. Paul Re's aggregate excess-of-loss treaties and the
impact of the September 11, 2001 terrorist attack ($ in millions):

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

Net premiums

Net premiums written in the Global Casualty segment for the year ended
December 31, 2002 decreased 10.0 percent to $550 million from $611 million for
the year ended December 31, 2001. The decrease in net premiums written was
primarily due to the re-underwriting of the portfolio including the rescission
of a large quota share contract and a decrease in proportional reinsurance. The
large quota share contract was a three year quota share reinsurance contract
incepting in 1999. As a result of the strategic initiative to improve
profitability and focus on core lines of business, the coverage for 2001 was
rescinded by mutual agreement with the ceding company. These decreases to the
portfolio were offset by significant rate increases on renewal business
averaging 31 percent across the portfolio.

Net premiums written in the Global Casualty segment included $460 million
in excess-of-loss reinsurance contracts and $90 million in proportional
contracts.

Net premiums written in the Global Casualty segment declined 8.8 percent in
the U.S. to $457 million for the year ended December 31, 2002 compared to $501
million in the U.S. for the year ended December 31, 2001. Net premiums written
in the Global Casualty segment declined 15.5 percent outside the U.S. to $93
million for the year ended December 31, 2002 compared to $110 million outside
the U.S. for the year ended December 31, 2001. The decreases reflect the
rescission of the large quota share contract offset by rate increases achieved
on renewal business.

Net premiums earned for the year ended December 31, 2002 were impacted by
the same factors as net premiums written and decreased by 16.3 percent to $452
million from $540 million for the year ended December 31, 2001.

PF-11

Losses and LAE

Losses and LAE incurred in the Global Casualty segment were $365 million
for the year ended December 31, 2002 compared to $468 million for the year ended
December 31, 2001. The decrease is attributable to favorable development in
prior underwriting years as well as increased rates impacting the current
underwriting year. The Global Casualty segment's loss ratio was 80.8 percent and
86.7 percent for the years ended December 31, 2002 and 2001, respectively.

Underwriting expenses

Acquisition costs associated with the Global Casualty segment were $114
million for the year ended December 31, 2002 compared to $163 million for the
year ended December 31, 2001, after deferring those costs related to the
unearned portion of premiums written. The resulting acquisition expense ratio
was 25.2 percent for the year ended December 31, 2002 compared to 30.2 percent
for the year ended December 31, 2001. The reduction in the acquisition expense
ratio of 5.0 percentage points was attributable to better terms and conditions
negotiated with our ceding companies. Other underwriting expenses of the Global
Casualty segment, including direct and allocated underwriting expenses, were $26
million for the year ended December 31, 2002 and $28 million for the year ended
December 31, 2001. The other underwriting expense ratio for the year ended
December 31, 2002 was 5.7 percent compared to 5.2 percent for the year ended
December 31, 2001. The increase in the other underwriting expense ratio was
attributable to the decrease in premium written offset by a decrease in
expenses, principally compensation related due to a reduction of employees.

FINITE RISK

The following table summarizes results for the Finite Risk segment for the
periods covered by this discussion. As with the discussion of our other
operating segments, the pro forma underwriting results below for the years ended
December 31, 2002 and 2001 exclude the impact of St. Paul Re's aggregate
excess-of-loss treaties and the impact of the September 11, 2001 terrorist
attack ($ in millions):

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

Net premiums

Net premiums written in the Finite Risk segment for the year ended December
31, 2002 decreased 29.3 percent to $258 million from $365 million for the year
ended December 31, 2001. The decrease in premiums written for the year ended
December 31, 2002 was due to a decrease in reinstatement premiums as a result of
the decreased catastrophe activity, offset by significant rate increases.

Net premiums written in the Finite Risk segment declined 20.1 percent in
the U.S. to $163 million for the year ended December 31, 2002 compared to $204
million in the U.S. for the year ended

PF-12

December 31, 2001. Net premiums written in the Finite Risk segment decreased
41.0 percent outside the U.S. to $95 million for the year ended December 31,
2002 compared to $161 million outside the U.S. for the year ended December 31,
2001.

Net premiums earned for the year ended December 31, 2002 were impacted by
the same factors as net premiums written and decreased by 34.4 percent to $236
million from $360 million for the year ended December 31, 2001.

Losses and LAE

Losses and LAE incurred in the Finite Risk segment were $133 million for
the year ended December 31, 2002 compared to $276 million for the year ended
December 31, 2001. The decrease from the year ended December 31, 2001 was
principally attributable to the commutation of an assumed aggregate stop loss
treaty, an assumed catastrophe loss treaty and the absence of large losses. The
commutation of these treaties resulted in a decrease in losses of $25 million.
In the year ended December 31, 2001, the Petrobras oil platform collapse
impacted losses by $11 million. The Finite Risk segment's loss ratio was 56.6
percent and 76.6 percent for the years ended December 31, 2002 and 2001,
respectively.

Underwriting expenses

Acquisition costs associated with the Finite Risk segment were $54 million
for the year ended December 31, 2002 compared to $99 million for the year ended
December 31, 2001. After deferring those costs related to the unearned portion
of net premiums written, the resulting acquisition expense ratio was 22.6
percent for the year ended December 31, 2002 compared to 27.6 percent for the
year ended December 31, 2001. The reduction in the expense ratio of 5.0
percentage points was attributable to lower commission and brokerage costs
across the segment. Other underwriting expenses of the Finite Risk segment,
including direct and allocated underwriting expenses, were $12 million for the
year ended December 31, 2002 and $11 million for the year ended December 31,
2001. The other underwriting expense ratio for the year ended December 31, 2002
was 4.9 percent compared to 2.9 percent for the year ended December 31, 2001.
The increase in the other underwriting expense ratio was attributable to the
decrease in net premiums earned.

PF-13

THE PREDECESSOR BUSINESS

COMBINED FINANCIAL STATEMENTS

INTRODUCTION

Following is selected historical combined financial data of the reinsurance
segment of St. Paul prior to the Public Offering, which includes the continuing
business and related assets transferred to Platinum upon completion of the
Public Offering as well as the reinsurance business that remained with St. Paul
after the Public Offering ("St. Paul Re"). St. Paul Re's underwriting results
and St. Paul Re's combined statements presented in this report are not
indicative of the actual results of the Company subsequent to the Public
Offering. For a detailed discussion of the Company's pro forma combined
statements of underwriting results, see "Pro Forma Financial Statements" and
"Management's Discussion and Analysis of Pro Forma Financial Condition and
Underwriting Results."

In addition to the effect of the non-transfer of certain portions of St.
Paul Re's business to the Company and the exclusion of the St. Paul corporate
aggregate excess-of-loss reinsurance program, other factors may cause the
Company's actual results to differ materially from St. Paul Re's results. For
example, although the Company continued to be afforded the benefits of St. Paul
Re's retrocessional program for the remainder of 2002, the Company may enter
into reinsurance contracts with significantly different terms and conditions
from those that have been made available to St. Paul Re from St. Paul and which
form the basis of St. Paul Re's results. Furthermore, the additional premiums
recorded in 2001 by St. Paul Re's finite risk business primarily associated with
the September 11, 2001 terrorist attack were exceedingly high and not
necessarily indicative of the recurring premium volume the Company expects to
write in that business segment. In addition, St. Paul Re's combined statements
reflect the discounting of the liability for certain assumed reinsurance
contracts using rates up to 7.5 percent, based on its return on invested assets
or, in many cases, on yields contractually guaranteed to it on funds held by the
ceding company, as permitted by applicable law. If arrangements permitting the
Company to discount reserves to the same extent as St. Paul Re are not made,
reinsurance contracts of a similar type entered into in the future would be
reported on an undiscounted basis.

P-1

INDEPENDENT AUDITORS' REPORT

The Board Of Directors and Shareholders
The St. Paul Companies, Inc.:

We have audited the accompanying combined statement of identifiable
underwriting assets and liabilities of The St. Paul Companies, Inc. Reinsurance
Underwriting Segment (Predecessor) as of December 31, 2001, and the related
combined statements of underwriting results and identifiable underwriting cash
flows for the period from January 1, 2002 through November 1, 2002 and for the
years ended December 31, 2001 and 2000. The combined statements are the
responsibility of the Predecessor's management. Our responsibility is to express
an opinion on these combined statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the combined
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the combined
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

The accompanying combined statements were prepared to present the
historical underwriting results and identifiable cash flows of the Predecessor
and the asset and liability balances specifically attributable to reinsurance
underwriting operations of The St. Paul Companies, Inc. (St. Paul) as described
in Note 1. The combined statements do not contain an allocation of St. Paul's
equity structure, investment portfolio assets, investment income, or cash flows
from investing and financing activities. Accordingly, the combined statements
are not intended to be a complete presentation of Predecessor's or St. Paul's
financial position, results of operations, or cash flows.

In our opinion, the combined statements referred to above present fairly,
in all material respects, the identifiable underwriting assets and liabilities
of The St. Paul Companies, Inc. Reinsurance Underwriting Segment (Predecessor)
as of December 31, 2001, and its underwriting results and its identifiable
underwriting cash flows for the period from January 1, 2002 through November 1,
2002 and for the years ended December 31, 2001 and 2000 in conformity with
accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Minneapolis, Minnesota
March 21, 2003

P-2

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

COMBINED STATEMENT OF IDENTIFIABLE UNDERWRITING ASSETS AND LIABILITIES

See accompanying notes to combined statements.

P-3

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

COMBINED STATEMENTS OF UNDERWRITING

See accompanying notes to combined statements.

P-4

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

COMBINED STATEMENTS OF IDENTIFIABLE CASH FLOWS

See accompanying notes to combined statements.

P-5

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

NOTES TO COMBINED STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying combined statements pertain to the reinsurance
underwriting segment of The St. Paul Companies, Inc. ("St. Paul"), for the
period from January 1, 2002 through November 1, 2002 and the years ended
December 31, 2001 and 2000. The reinsurance underwriting segment of St. Paul is
the predecessor to Platinum Underwriters Holdings, Ltd. and is hereinafter
referred to as "Predecessor." Predecessor statements are presented on a combined
basis, including certain insurance and reinsurance subsidiaries within the St.
Paul group, as well as the underwriting results of the reinsurance departments
of St. Paul Fire and Marine Insurance Company ("Fire and Marine") and United
States Fidelity and Guarantee Company ("USF&G"), St. Paul's two largest U.S.
insurance subsidiaries.

The statements of underwriting results reconcile to the reinsurance
underwriting segment results as reported in St. Paul's audited consolidated
financial statements for the periods ended December 31, 2001 and 2000, which are
included in St. Paul's Annual Report to Shareholders. It is the practice of St.
Paul to evaluate the performance of its property-liability insurance
underwriting segments on the basis of underwriting results.

The statement of identifiable underwriting assets and liabilities
represents those balances that are specifically attributable to the reinsurance
underwriting operations of St. Paul. St. Paul manages its property-liability
investment portfolio in the aggregate, as part of a separate segment and does
not allocate assets, or investment income, to its respective underwriting
segments. There is also no equity structure allocated to Predecessor. For these
reasons, a complete Predecessor balance sheet is not maintained.

Similarly, the statement of identifiable underwriting cash flows includes
only cash flow activity that is specifically attributable to the underwriting
operations of Predecessor, and does not include any cash flows from investing
and financing activities.

ACCOUNTING PRINCIPLES

The accompanying combined statements are prepared in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP").

Predecessor's business is written by several of St. Paul's underwriting
subsidiaries, which are required to file financial statements with state and
foreign regulatory authorities. The accounting principles used to prepare these
statutory financial statements follow prescribed or permitted accounting
principles, which differ from U.S. GAAP. Prescribed statutory accounting
practices include state laws, regulations and general administrative rules
issued by the state of domicile as well as a variety of publications and manuals
of the National Association of Insurance Commissioners ("NAIC"). Permitted
statutory accounting practices encompass all accounting practices not so
prescribed, but allowed by the state of domicile.

ELIMINATION OF ONE-QUARTER REPORTING LAG

In the first quarter of 2000, Predecessor eliminated the one-quarter
reporting lag for its reinsurance operations based in the United Kingdom ("St.
Paul Re UK") in order to report the results of those operations on a current
basis. As a result, Predecessor's results for 2000 include St. Paul Re UK's
results for the fourth quarter of 1999 and all quarters of 2000. The incremental
impact of eliminating the

P-6

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

reporting lag, which consists of St. Paul Re UK's results for the three months
ended December 31, 2000, was as follows ($ in millions):

USE OF ESTIMATES

These combined statements include estimates and assumptions that have an
effect on the amounts reported. The most significant estimates are those
relating to reserves for losses and loss adjustment expenses. These estimates
are continually reviewed and adjustments are made as necessary, but actual
results could be significantly different than expected when estimates were made.

NET PREMIUMS EARNED

Assumed reinsurance premiums are recognized as revenues proportionately
over the coverage period. Net premiums earned are recorded in the statement of
underwriting results, net of Predecessor's cost to purchase reinsurance. Net
premiums not yet recognized as revenue are recorded in the balance sheet as
unearned premiums, gross of any ceded unearned premiums. Written and earned
premiums, and the related costs, which have not yet been reported to Predecessor
are estimated and accrued. Due to the time lag inherent in reporting of premiums
by ceding companies, such estimated premiums written and earned, as well as
related costs, may be significant. Differences between such estimates and actual
amounts are recorded in the period in which the actual amounts are determined.

Reinstatement and additional premiums are accrued as provided for in the
provisions of assumed reinsurance contracts and based on experience under such
contracts. Reinstatement premiums are the premiums charged for the restoration
of the reinsurance limit of a catastrophe contract to its full amount after
payment by the reinsurer of losses as a result of an occurrence. These premiums
relate to the future coverage obtained during the remainder of the initial
policy term, and are earned over the remaining policy term. Additional premiums
are premiums charged after coverage has expired, related to experience during
the policy term, which are earned immediately. An allowance for uncollectible
premiums is established for possible non-payment of such amounts due, as deemed
necessary.

INSURANCE LOSSES AND LOSS ADJUSTMENT EXPENSES

Losses represent the amounts paid, or expected to be paid, to ceding
companies for events that have occurred. The costs of investigating, resolving
and processing these claims are known as loss adjustment expenses ("LAE"). These
items are recorded on the statement of underwriting results net of ceded
reinsurance, meaning that gross losses and LAE incurred are reduced by the
amounts recovered or expected to be recovered under retrocessional contracts.

REINSURANCE

Written premiums, earned premiums, and incurred losses and LAE reflect the
net effects of assumed and ceded reinsurance transactions. Reinsurance
accounting is followed for assumed and ceded transactions when risk transfer
requirements have been met. These requirements involve significant assumptions
being made related to the amount and timing of expected cash flows, as well as
the interpretation of underlying contract terms. Assumed reinsurance contracts
that do not transfer significant insurance risk are required

P-7

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

to be accounted for as deposits. These contract deposits are accounted for as
financing transactions, with interest expense credited to the contract deposit.

INSURANCE RESERVES

The reserves for losses and LAE are estimated based on reports received
from ceding companies, supplemented with analysis by the claims department and
actuaries of Predecessor. These reserves include estimates of the total cost of
claims that were reported, but not yet paid, and the cost of claims incurred but
not yet reported ("IBNR"). Loss reserves are reduced for estimated amounts of
salvage and subrogation recoveries. Estimated amounts recoverable from
reinsurers on unpaid losses and LAE are reflected as assets.

For reported losses, reserves are established on a "case" basis within the
parameters of coverage provided in the underlying insurance policy or
reinsurance agreement. For IBNR losses, reserves are estimated using established
actuarial methods. Case and IBNR reserve estimates consider such variables as
past loss experience, changes in legislative conditions, changes in judicial
interpretation of legal liability and policy coverages, and inflation.

Because many of the reinsurance coverages offered by Predecessor involve
claims that ultimately may not be settled for many years after they are
incurred, subjective judgments as to ultimate exposure to losses are an integral
and necessary component of the loss reserving process. The inherent
uncertainties of estimating loss reserves are further exacerbated for reinsurers
by the significant amount of time that often elapses between the occurrence of
an insured loss, the reporting of that loss to the primary insurer and,
ultimately, to the reinsurer, and the primary insurer's payment of that loss and
subsequent indemnification by the reinsurer. Reserves are recorded by
considering a range of estimates bounded by a high and low point. Within that
range, management's best estimate is recorded. Reserves are continually
reviewed, using a variety of statistical and actuarial techniques to analyze
current claim costs, frequency and severity data, and prevailing economic,
social and legal factors. Reserves established in prior years are adjusted as
loss experience develops and new information becomes available. Adjustments to
previously estimated reserves are reflected in financial results in the periods
in which they are made.

While we believe the carried reserves make a reasonable provision for
unpaid loss and LAE obligations, it should be noted that the process of
estimating required reserves does, by its very nature, involve uncertainty. The
level of uncertainty can be influenced by factors such as the existence of
long-tail coverage (when loss payments may not occur for several years) and
changes in claim handling practices, as well as the factors noted above, and
actual claim payments and LAE could be significantly different from the
estimates.

Liabilities for unpaid losses and LAE related to certain assumed
reinsurance contracts are discounted to the present value of estimated future
payments. Prior to discounting, these liabilities totaled $306.4 million and
$198.7 million at December 31, 2001 and 2000, respectively. The total discounted
liability reflected on our combined statements of identifiable underwriting
assets and liabilities was $264.9 million and $146.7 million at December 31,
2001 and 2000, respectively. The liabilities related to these reinsurance
contracts were discounted using rates up to 7.5 percent, based on our return on
invested assets or, in many cases, on yields contractually guaranteed to us on
funds held by the ceding company, as permitted by the Vermont Department of
Banking, Insurance, Securities and Healthcare Administration.

POLICY ACQUISITION EXPENSES

The costs directly related to the acquisition of reinsurance contracts are
referred to as policy acquisition expenses and consist of commissions and other
direct underwriting expenses. Although these

P-8

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

expenses are incurred when a reinsurance contract is written, such expenses are
deferred and amortized over the same period as the corresponding premiums are
recorded as earned revenues.

On a regular basis, an analysis of the recoverability of the deferred
policy acquisition expenses, in relation to the expected recognition of
revenues, including anticipated investment income is performed. Any adjustments
are reflected as period costs. Should the analysis indicate that the acquisition
costs are unrecoverable, further analyses are completed to determine if a
reserve is required to provide for losses that may exceed the related unearned
premiums.

FOREIGN CURRENCY TRANSLATION

Functional currencies are assigned to foreign operations, which are
generally the currencies of the local operating environment. Foreign currency
amounts are remeasured to the functional currency, and the resulting foreign
exchange gains or losses are reflected in income, outside of underwriting
results. Functional currency amounts are then translated into U.S. dollars. The
unrealized gain or loss from this translation is recorded in St. Paul's equity.
Both the remeasurement and translation are calculated using current exchange
rates for the balance sheet amounts and average exchange rates for revenues and
expenses.

2. RELATED PARTY TRANSACTIONS

The following summarizes Predecessor's related party transactions:

REINSURANCE TRANSACTIONS WITH AFFILIATES

Predecessor cedes certain business to two affiliated special purpose
entities ("SPE") which were established by St. Paul for the purpose of
increasing Predecessor's capacity to write certain excess-of-loss reinsurance,
principally property, marine, and aviation. The most significant of these
agreements is with George Town Re. George Town Re was established by St. Paul in
1996 for the purpose of entering into a single reinsurance treaty with
Predecessor, providing an additional $45.1 million of underwriting capacity over
a 10-year period. Premiums ceded under these agreements were $4.6 million in
2002, $5.2 million in 2001 and $4.3 million in 2000. Losses ceded under these
agreements totaled ($0.1) million in 2002, $9.8 million in 2001 and $5.4 million
in 2000.

The agreement with George Town Re was terminated on July 8, 2002, and
George Town Re was liquidated. There was no material impact on Predecessor's
underwriting results from this transaction.

Predecessor assumes certain primary business from other business segments
of St. Paul. Premiums assumed under these agreements were $12.0 million in 2002,
$25.8 million in 2001 and $6.2 million in 2000. Losses assumed under these
agreements were $22.8 million in 2002, $18.6 million in 2001 and $7.7 million in
2000. Predecessor paid commissions of $3.9 million in 2002, $9.5 million in 2001
and $2.3 million in 2000, related to business assumed under these agreements.

MANAGEMENT AGREEMENTS WITH AFFILIATES

St. Paul management has entered into various agreements with affiliated
parties, under arm's length terms. Under these agreements, the affiliated
parties have agreed to perform investment management services for St. Paul Re
UK, guarantee the performance of St. Paul's obligations, make funds available
under a revolving loan agreement, and provide certain reinsurance coverage.
Included in underwriting expenses are certain expenses allocated to Predecessor
from St. Paul, including costs such as corporate communications and marketing,
corporate finance, corporate actuarial, corporate tax, corporate audit, legal

P-9

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

services, corporate executives, corporate human resources, and employee benefit
costs. These allocated costs totaled $7.8 million, $3.2 million and $6.3 million
in 2002, 2001, and 2000, respectively.

OTHER TRANSACTIONS WITH AFFILIATES

Mountain Ridge Insurance Company ("Mountain Ridge"), one of the insurance
legal entities included in Predecessor, holds notes receivable from St. Paul.
Amounts due under these notes receivable totaled $59 million as of December 31,
2001. Principal and all accrued interest on these notes are payable on demand.
These demand notes are reflected as an asset and as additional paid-in capital,
as permitted by the State of Vermont Department of Banking, Insurance,
Securities and Healthcare Administration.

3. SEPTEMBER 11, 2001 TERRORIST ATTACK

On September 11, 2001, terrorists hijacked four commercial passenger jets
in the United States. Two of the jets were flown into the World Trade Center
towers in New York, NY, causing their collapse. The third jet was flown into the
Pentagon building in Washington, DC, causing severe damage, and the fourth jet
crashed in rural Pennsylvania. This terrorist attack caused significant loss of
life and resulted in unprecedented losses for the property-casualty insurance
industry.

Estimated gross losses and LAE incurred as a result of the terrorist attack
totaled $967 million. The estimated net underwriting loss of $580 million from
that event included an estimated benefit of $160 million from cessions made
under various reinsurance agreements, a net $136 million benefit from additional
and reinstatement premiums, and a $91 million reduction in contingent commission
expenses.

The estimated losses were based on a variety of actuarial techniques,
coverage interpretation and claims estimation methodologies, and included an
estimate of losses incurred but not reported, as well as estimated costs related
to the settlement of claims. The estimate of losses was also based on the belief
that property and casualty insurance losses from the terrorist attack will total
between $30 billion and $35 billion for the insurance industry.

In 2002, Predecessor's estimate of industry losses was supplemented by its
ongoing analysis of both paid and reported claims related to the attack.
Predecessor's estimate of industry losses remains subject to significant
uncertainties and is vulnerable to change over time as additional information
becomes available.

Predecessor and other insurers have obtained a summary judgment ruling that
the World Trade Center property loss is a single occurrence. Certain insureds
have appealed that ruling, asking the court to determine that the property loss
constituted two separate occurrences rather than one. In addition, through
separate litigation, the aviation losses could be deemed four separate events
rather than three, for purposes of insurance and reinsurance coverage. Even if
the courts ultimately rule against Predecessor regarding the number of
occurrences or events, it believes the additional amount of estimated after-tax
losses, net of reinsurance, that it would record would not be material to
Predecessor's results of operations.

The estimated underwriting loss of $580 million is recorded in the
accompanying 2002 and 2001 combined statements of underwriting in the following
line items ($ in millions):

P-10

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

The estimated underwriting loss of $24 million in 2002 and $556 million in
2001 was distributed among Predecessor's segments as follows ($ in millions):

4. RESERVES FOR LOSSES AND LAE

RECONCILIATION OF LOSS RESERVES

The following table represents a reconciliation of beginning and ending
loss and LAE reserves for the period from January 1, 2002 through November 1,
2002 and the years ended December 31, 2001 and 2000 ($ in millions):

Prior year development in 2002 was attributable mainly to the bond and
credit, surplus lines and international liability lines of business. Both North
American Property and North American Casualty experienced better than expected
loss emergence which served to mitigate the worse than expected emergence from
the lines mentioned above.

In 2001, prior year development was attributable to several lines of
business. The North American Property segment continued to have worse than
expected loss emergence, largely driven by certain property

P-11

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

business underwritten through Predecessor's London office. Also included in this
emergence was an increase in the reserve position of the surplus lines business
which exhibited poor loss development in the 1999 and 2000 accident years.

A reduction in prior year losses was recorded for 2000. In 2000, favorable
prior year loss development was primarily attributable to better than expected
loss emergence on the Casualty Excess book of business. As older underwriting
years are maturing, they continue to display favorable emergence and current
indications are significantly better than the initial ultimate loss estimates.

ENVIRONMENTAL AND ASBESTOS RESERVES

Predecessor continues to have exposure, through its reinsurance of primary
insurance contracts written many years ago, to claims alleging injury or damage
from environmental pollution or seeking payment for the cost to clean up
polluted sites. In addition, Predecessor has received asbestos injury claims
tendered under general casualty policies that it reinsures.

The following table summarizes Predecessor's combined environmental and
asbestos reserves balance at December 31, 2001. Amounts in the "net" column are
reduced by retrocessions ($ in millions):

5. EMPLOYEE BENEFIT PLANS

Employees of Predecessor participate in various employee benefit, stock
incentive, and retirement plans administered by St. Paul. Predecessor reimburses
St. Paul for costs associated with these plans. The following summarizes
underwriting expenses recorded by Predecessor in connection with each of these
plans ($ in millions):

In addition, St. Paul sponsors a stock based incentive program, the
Long-Term Incentive Plan ("LTIP"), which is exclusive to certain employees of
Predecessor. Underwriting expenses (benefits) recorded by Predecessor in
connection with the LTIP totaled $1.3 million in 2002, ($2.3) million in 2001
and ($4.0) million in 2000.

P-12

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

6. COMMITMENTS AND CONTINGENCIES

FINANCIAL GUARANTEES

We were contingently liable for a financial guarantee in the form of a
credit enhancement, with total exposure of approximately $15 million as of
December 31, 2001. As of July 31, 2002, this contract has expired and
Predecessor is no longer contingently liable for this item.

LEASE COMMITMENTS

A portion of Predecessor's business activities is conducted in rented
premises. Predecessor also enters into leases for equipment, such as office
machines and computers. Total rental expense was $6.8 million in 2002, $5.8
million in 2001 and $9.3 million in 2000.

Certain leases are non-cancelable, and Predecessor would remain responsible
for payment even if the space or equipment was no longer utilized. On November
1, 2002, the minimum rents for which Predecessor would be liable under these
types of leases are as follows: $5.3 million in 2003, $1.5 million in 2004, $0.6
million in 2005, $0.6 million in 2006, and $2.8 million thereafter.

LEGAL MATTERS

In the ordinary course of conducting business, Predecessor has been named
as a defendant in various lawsuits. Some of these lawsuits attempt to establish
liability under reinsurance contracts issued by Predecessor underwriting
operations. Plaintiffs in these lawsuits are asking for money damages or to have
the court direct the activities of Predecessor's operations in certain ways. It
is possible that the settlement of these lawsuits may be material to
Predecessor's results of operations and liquidity in the period in which they
occur. However, St. Paul believes the total amounts that Predecessor, and its
affiliates, will ultimately have to pay in these matters will have no material
effect on Predecessor's overall financial position.

7. FOURTH QUARTER 2001 STRATEGIC REVIEW

In December 2001, St. Paul announced the results of a strategic review of
all of its operations, which included a decision to exit a number of businesses
and countries. These decisions included the narrowing of product offerings and
geographic presence relative to Predecessor's businesses. As part of that
review, it was determined that Predecessor would no longer underwrite aviation
or bond and credit reinsurance, or offer certain financial risk and capital
markets reinsurance products. Predecessor would also substantially reduce the
North American business underwritten in London. Predecessor would focus on
several areas, including property catastrophe reinsurance, excess-of-loss
casualty reinsurance, marine and traditional finite reinsurance.

The following table presents the net premiums earned and underwriting
results for 2002, 2001 and 2000 for the businesses to be exited under these
actions, including the allocation of St. Paul's corporate excess-of-loss
reinsurance programs ($ in millions):

P-13

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

8. REINSURANCE

The primary purpose of Predecessor's ceded reinsurance program, including
the aggregate excess-of-loss coverages discussed below, is to protect its
operations from potential losses in excess of acceptable levels. Reinsurers are
expected to honor their obligations under ceded reinsurance contracts. In the
event these companies are unable to honor their obligations, Predecessor will
pay these amounts. Allowances have been established for possible nonpayment of
such amounts due.

The largest concentrations of total reinsurance recoverables and ceded
unearned premiums at December 31, 2001 were with Underwriters Re-Barbados
("Underwriters Re") and with General Reinsurance Corporation ("Gen Re"). Gen Re,
accounting for approximately 11.6 percent of Predecessor's recoverables, is
rated "A++" by A.M. Best, "Aaa" by Moody's and "AAA" by Standard and Poor's for
its financial strength. Although Underwriters Re (accounting for approximately
20.4 percent of Predecessor's recoverables) is not rated by the major rating
agencies, these recoverables are fully collateralized with funds held and
letters of credit.

Predecessor's underwriting results in 2001 and 2000 were impacted by the
St. Paul corporate aggregate excess-of-loss reinsurance program that were
entered into effective January 1 of each year (hereinafter referred to as the
"St. Paul corporate program"). Coverage under the St. Paul corporate program
treaties was triggered when St. Paul's incurred insurance losses and LAE across
all lines of business exceeded accident year attachment loss ratios specified in
the treaty. Predecessor results also benefited from a separate aggregate
excess-of-loss reinsurance treaty, exclusive to Predecessor in each year that
were unrelated to the St. Paul corporate program. The combined impact of these
treaties (together the "reinsurance treaties") is included in the following
table ($ in millions):

P-14

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

The impact of the 2000 St. Paul corporate aggregate excess-of-loss
reinsurance program treaties was allocated to Predecessor, based on its incurred
losses and LAE, relative to both the incurred losses and LAE of St. Paul's other
underwriting segments, and the loss ratio attachment point as prescribed in the
contracts. The 2002 and 2001 amounts shown above include the impact of a
reallocation of premiums and losses ceded in 2000 and 1999. This reallocation
was necessary to reflect the impact of differences between St. Paul's actual
2002 and 2001 experience on losses ceded to the corporate program in 2000 and
1999, by segment, and the anticipated experience on those losses in 2000 and
1999 when the initial segment allocation was made.

During 2001, St. Paul did not cede losses to its corporate aggregate
excess-of-loss reinsurance program. Ceded written and earned premiums in 2001
included $2 million representing the allocation to Predecessor of the initial
deposit premiums under the 2001 corporate aggregate excess-of-loss reinsurance
program treaty. St. Paul was not party to a corporate all-lines aggregate
excess-of-loss treaty in 2002.

Predecessor was party to a separate aggregate excess-of-loss reinsurance
treaty, unrelated to the corporate treaty, in 2002, 2001 and 2000. Coverage has
not been triggered under that treaty in 2002; however, in 2002, Predecessor
recorded ceded written premiums of $(1) million, ceded earned premiums of $(2)
million, and ceded loss and loss adjustment expenses of $(35) million, for a net
detriment of $33 million as a result of this treaty. Included in the net
detriment for 2002 was a $20 million detriment due to the partial commutation of
the 1999 and 2001 aggregate excess-of-loss reinsurance treaties.

The effect of assumed and ceded reinsurance on premiums written, premiums
earned and insurance losses and LAE is as follows (including the impact of the
reinsurance treaties) ($ in millions):

9. SEGMENT INFORMATION

Predecessor has four reportable segments, which consist of North American
Property, North American Casualty, International, and Finite Risk. These
segments are consistent with the manner in which Predecessor's business has been
managed.

P-15

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

The North American Property segment consists of property reinsurance
business underwritten for customers domiciled in the United States and Canada.
Coverages offered include proportional, per-risk, excess-of-loss and surplus
lines reinsurance, and catastrophe treaties. This segment also includes
retrocessional reinsurance business and crop and agricultural reinsurance. The
North American surplus lines business center has been aggregated with the North
American Property segment as the aggregation is consistent with Predecessor's
management structure and the business center meets the aggregation criteria
required for external segment reporting.

The North American Casualty segment consists of casualty reinsurance
underwritten for customers domiciled in the United States and Canada. Casualty
coverages offered include general workers' compensation, medical professional,
non-medical professional, directors and officers, employment practices, umbrella
and environmental impairment. The Accident and Health business center, which
consists predominantly of North American Risks, is aggregated with the North
American Casualty segment as the aggregation is consistent with Predecessor's
management structure and the business center meets the aggregation criteria
required for external reporting. In addition, Predecessor has one significant
account which includes both property and casualty business, but is managed as a
business center within the North American Casualty segment. For this reason,
this business center, which meets the aggregation criteria for external segment
reporting, has been aggregated with the North American Casualty segment.

The International segment underwrites property and casualty reinsurance for
customers domiciled outside of North America. This segment also includes the
results from marine and aerospace business due to the global nature of those
exposures.

The Finite Risk segment underwrites non-traditional reinsurance treaties
for leading insurance companies worldwide. Non-traditional reinsurance combines
limited traditional underwriting risk with financial risk protection and is
generally utilized by large commercial customers who are willing to share in a
portion of their insurance losses. Due to Predecessor's management structure,
the Bond and Credit business center has been aggregated with the Finite Risk
segment. This business center meets the aggregation criteria required for
external segment reporting.

Predecessor monitors and evaluates the performance of its segments based
principally on their underwriting results. Assets are not specifically
identifiable for these segments. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies.

GEOGRAPHIC AREAS

The following summary presents financial data of Predecessor's operations
based on their location ($ in millions):

P-16

THE ST. PAUL COMPANIES, INC.
REINSURANCE UNDERWRITING SEGMENT (PREDECESSOR)

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

SEGMENT INFORMATION

The summary below presents net premiums earned and underwriting results for
Predecessor's reportable segments ($ in millions):

Each of Predecessor's segments generates a significant volume of
reinsurance premiums through two reinsurance brokers. Total premiums written
through these two brokers totaled $548 million, $587 million, and $518 million
for the period from January 1, 2002 through November 1, 2002 and the years ended
December 31, 2001 and 2000, respectively.

10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is an unaudited summary of Predecessor's quarterly results ($
in millions):

- ---------------

* Fourth quarter of 2002 represents the period from October 1, 2002 through
November 1, 2002.

P-17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
UNDERWRITING RESULTS OF THE PREDECESSOR BUSINESS

The following discussion and analysis pertains to the operating results of
the reinsurance underwriting segment of St. Paul for the period from January 1,
2002 through November 1, 2002 and for the years ended December 31, 2001 and
2000. This discussion and analysis should be read in conjunction with St. Paul
Re's combined statements and related notes found on pages P-1 to P-17 of this
report, because they contain important information that is helpful in evaluating
St. Paul Re's operating results and financial condition.

St. Paul Re's operations include the underwriting results of certain
insurance and reinsurance subsidiaries in St. Paul's group of companies, as well
as the underwriting results of the reinsurance departments of Fire and Marine,
and USF&G, St. Paul's two largest U.S. insurance subsidiaries.

It is the practice of St. Paul to evaluate the performance of its
property-casualty insurance underwriting lines of business on the basis of
underwriting results. Therefore, this discussion focuses on the performance of
each line of business based on underwriting results. St. Paul does not allocate
assets or investment income to its respective underwriting lines, and therefore,
neither assets nor surplus are specifically identifiable for St. Paul Re. As a
result, the following discussion and analysis focuses almost exclusively on
those factors influencing underwriting performance for each of St. Paul Re's
four lines of business. Those lines, whose results are analyzed in more detail
later in this discussion, are as follows: North American Casualty, North
American Property, International, and Finite Risk.

In the years prior to 2002, St. Paul Re generally underwrote traditional
treaty and facultative reinsurance for property, casualty, ocean marine, surety,
accident and health and certain specialty classes of coverage for leading
property and casualty insurance companies worldwide. St. Paul Re also underwrote
certain types of "non-traditional" reinsurance, which provides limited
traditional underwriting risk combined with financial risk protection. In late
2001, St. Paul announced a series of actions designed to improve its
profitability, including plans to narrow the product offering and geographic
presence of its reinsurance operations. As a result, in January 2002, St. Paul
Re began focusing almost exclusively on the following types of reinsurance
coverages: property catastrophe, excess-of-loss casualty, marine and traditional
finite.

OVERVIEW

The following table summarizes St. Paul Re's results for the periods
presented ($ in millions):

P-18

COMBINED UNDERWRITING RESULTS

PERIOD FROM JANUARY 1, 2002 THROUGH NOVEMBER 1, 2002 COMPARED TO YEAR ENDED
DECEMBER 31, 2001

The decrease in net premiums written for the period ended November 1, 2002
of approximately 40 percent compared to the twelve months ended December 31,
2001 was primarily due to the reduced volume from the lines of business targeted
for exit as part of St. Paul's strategic initiative to improve profitability and
the rescission of a large quota share contract in the second quarter of 2002.
These declines were partly offset by significant rate increases achieved on 2002
renewals. Additionally, net premiums earned in the twelve months ended December
31, 2001 includes $141 million in reinstatement premium as a result of the
September 11, 2001 terrorist attack.

The $718 million improvement in underwriting results principally reflects a
significant decline in catastrophe losses (the prior period reflected $788
million of losses relating to the September 11, 2001 terrorist attack and $50
million relating to a chemical plant explosion in Toulouse, France) as well as
the impact of substantial rate increases on 2002 renewals, favorable prior year
development and benefits derived from exiting unprofitable lines of business.
Catastrophe losses for the period ended November 1, 2002 were $39 million as
compared to $880 million for the period ended December 31, 2001. Catastrophe
losses incurred for the period ended November 1, 2002 include $30 million from
the flooding in Europe in August 2002 and an additional $19 million of adverse
development for the September 11, 2001 terrorist attack, partly offset by
favorable development on prior year catastrophes of $12 million.

The loss ratio measures insurance losses and LAE incurred as a percentage
of earned premiums. St. Paul Re's reported loss ratio for the period ended
November 1, 2002 was 71.8 percent, compared with 120.6 percent for the year
ended December 31, 2001. The 48.8 percentage point improvement in the loss ratio
was primarily due to a reduction in catastrophe losses. The loss ratio for the
twelve months ended December 31, 2001 includes losses suffered as a result of
the September 11th terrorist attack. Also contributing to the improvement are
rate increases across all lines and the exit of unprofitable lines of business,
tempered by deteriorating results in discontinued lines of business (surplus
lines, bond and credit).

St. Paul Re's reported expense ratio for the period ended November 1, 2002
was 27.8 percent, compared with 25.1 percent for the year ended December 31,
2001. The expense ratio for the year ended December 31, 2001 included a benefit
resulting from a $91 million reduction in contingent commissions that had been
accrued prior to September 11, 2001 based on the magnitude of losses from the
terrorist attack.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

The 56 percent increase in net premiums written in 2001 was principally
driven by new business growth in the North American Casualty and North American
Property lines, additional premiums recorded for prior underwriting years in the
North American Casualty lines, and strong price increases in all lines. Price
increases continued throughout 2001 in response to the growing demand for
reinsurance coverages, and those increases accelerated during the fourth quarter
in the aftermath of the September 11, 2001 terrorist attack. In 2000, net
premium growth was driven by new business opportunities in the non-traditional
reinsurance market and price increases across virtually all lines of traditional
reinsurance coverage.

Underwriting results in 2001 were dominated by losses resulting from the
terrorist attack, which totaled $556 million. Excluding those losses,
underwriting results in 2001 were still significantly worse than in 2000, with
deterioration centered in the North American Casualty and Finite Risk Lines.
Catastrophe losses (excluding the September 11, 2001 terrorist attack) totaled
$92 million in 2001, driven by losses from the explosion of a chemical plant in
Toulouse, France and Tropical Storm Allison in the United States. Catastrophe
losses in 2000 totaled $135 million and were primarily the result of additional
loss development from European storms occurring near the end of 1999.

P-19

The deterioration in 2000 underwriting results compared with 1999 was due
to significant adverse loss development from years prior to 2000, including
development from the European storms at the end of 1999. Adverse prior-year loss
development on retrocessional business written in St. Paul Re's London
operations also played a significant role in 2000's underwriting loss. In
addition, the North American treaty casualty business accounted for $131 million
of underwriting losses in 2000.

Loss Ratio

St. Paul Re's reported loss ratio in 2001 included a 42.6 percentage point
detriment from losses incurred in the terrorist attack. The reported loss ratios
in 2001 and 2000 also included benefits from the reinsurance treaties.

Catastrophe losses totaled $880 million in 2001, of which $788 million was
due to the September 11, 2001 terrorist attack. Most of the other $92 million of
catastrophe losses were the result of a variety of storms throughout the year in
the U.S. and the explosion of a chemical manufacturing plant in Toulouse,
France. In 2000 catastrophe losses totaled $135 million. Additional loss
development arising from severe windstorms that struck portions of Europe in
late 1999 and severe flooding in the United Kingdom drove the 2000 total.

Expense Ratio

St. Paul Re's reported expense ratio in 2001 included an 8.2 percentage
point benefit resulting from a $91 million reduction in contingent commissions
that had been accrued prior to September 11, 2001. The magnitude of losses from
the terrorist attack resulted in the reversal of that accrual. The reported
expense ratios in 2001 and 2000 included detriments from the reinsurance
treaties. No underwriting expenses were ceded under the treaties; however, the
expense ratios in all three years included the effects of written premiums ceded
under the treaties.

During 2000, St. Paul Re reduced its estimate of ultimate losses on certain
non-traditional reinsurance business by $56 million, and made a corresponding
increase in its estimate of reserves for contingent commissions by $66 million.
Although these changes in estimate did not have a significant impact on
underwriting results for the year, they did distort the components of the
combined ratio in 2000. Excluding these changes, the loss ratio would have been
89.8 percent, and the expense ratio would have been 29.8 percent (both excluding
the benefits of the reinsurance treaties).

RETROCESSIONAL REINSURANCE

St. Paul Re's underwriting results for 2002 and 2001 reflect the benefits
of its retrocessional reinsurance program. Under this program, St. Paul Re
purchases reinsurance for its own benefit, to limit the effect on its financial
condition and operating results of large and multiple losses. Under this
program, St. Paul Re ceded the following amounts to reinsurers ($ in millions):

Included in the above totals were the impacts of the St. Paul corporate
aggregate excess-of-loss reinsurance programs that were entered into effective
on January 1 of 1999, 2000 and 2001 and St. Paul

P-20

Re's aggregate excess-of-loss-treaty, a separate aggregate excess-of-loss treaty
exclusive to St. Paul Re. St. Paul chose not to have a corporate aggregate
excess-of-loss reinsurance program in place in 2002.

Coverage under the St. Paul corporate aggregate excess-of-loss reinsurance
programs was triggered when incurred insurance losses and LAE spanning all lines
of St. Paul's business exceeded accident year attachment loss ratios specified
in the treaty. In addition, St. Paul Re's results benefited from St. Paul Re's
aggregate excess-of-loss-treaty in each year. These treaties are collectively
referred to hereafter as the "reinsurance treaties."

The following table describes the combined impact of these cessions under
the reinsurance treaties on St. Paul Re's results ($ in millions):

St. Paul was not party to a corporate all-lines aggregate excess-of-loss
treaty in 2002.

Net underwriting detriment in the 2002 period was driven by a commutation
of a certain portion of the St. Paul Re aggregate excess-of-loss treaty. The
commutation of this treaty resulted in a net underwriting loss of $20 million.
This was done in conjunction with the commutation of similar assumed reinsurance
treaties which resulted in a net underwriting gain of $14 million. The combined
effect of these commutations resulted in a net underwriting loss of $6 million.

P-21

The combined net pretax benefit (detriment) of the reinsurance treaties was
allocated to St. Paul Re's business lines as follows ($ in millions):

SEPTEMBER 11, 2001 TERRORIST ATTACK

On September 11, 2001, terrorists hijacked four commercial passenger jets
in the United States. Two of the jets were flown into the World Trade Center
towers in New York, N.Y., causing their collapse. The third jet was flown into
the Pentagon building in Washington, D.C., causing severe damage, and the fourth
jet crashed in rural Pennsylvania. This terrorist attack caused significant loss
of life and resulted in unprecedented losses for the property and casualty
insurance industry. St. Paul Re's estimated net pretax loss incurred as a result
of the terrorist attack totaled $556 million for the twelve months ended
December 31, 2001.

St. Paul Re continually evaluated the adequacy of the net loss provision
recorded, based on claim experience, collections from its reinsurers, and other
factors. In 2002, St. Paul Re recorded an additional $24 million to its
estimated loss provision recorded in 2001 for the terrorist attack, distributed
among business lines as follows ($ in millions):

Through November 1, 2002, St. Paul Re had made net loss payments totaling
$180 million related to the attack since it occurred, of which $178 million were
made in the period ended November 1, 2002.

COMBINED UNDERWRITING RESULTS BY SEGMENT

The following table summarizes written premiums, underwriting results,
statutory combined ratios and adjusted combined ratios (as described in the
footnote to the table) for each of St. Paul Re's business lines for the period
from January 1, 2002 through November 1, 2002 and the years ended December 31,
2001 and 2000 ($ in millions). These lines are managed in a carefully
coordinated fashion with strong elements of centralized control. As a result,
management monitors and evaluates the financial performance

P-22

of these lines principally based on their underwriting results. Following the
table are detailed analyses of each segment's results:

P-23

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* For purposes of meaningful comparison, adjusted combined ratios in all periods
presented exclude the impact of the reinsurance treaties described before the
table and the September 11, 2001 terrorist attack.

The following provides a more detailed discussion of results for the period
from January 1, 2002 through November 1, 2002 and years ended December 31, 2001
and 2000 produced by St. Paul Re's four business lines. To provide a more
meaningful analysis of the underlying performance of St. Paul Re's business
lines, the discussion of line of business results excludes the impact of the
September 11, 2001 terrorist attack and the reinsurance treaties. The impact of
the terrorist attack on individual line of business results and the impact of
the reinsurance treaties were discussed earlier.

NORTH AMERICAN CASUALTY

The North American Casualty segment consisted of casualty reinsurance
underwritten for customers with exposures in the United States and Canada. In
2001, the following types of casualty coverages were offered: general, workers'
compensation, auto, medical professional, non-medical professional, directors
and officers, employment practices, surplus lines, umbrella and environmental
impairment. This segment also included accident and health reinsurance
coverages. As discussed earlier, in 2002, St. Paul narrowed its reinsurance
product focus in an effort to improve profitability. As a result, the North
American Casualty department restricted its product offering for the period
ended November 1, 2002; surplus lines insurance and first-dollar business
underwritten by Managing General Agents ("MGAs") were no longer written.

P-24

The following table summarizes results for this segment for the periods
presented, and excludes the impact of the reinsurance treaties and the September
11, 2001 terrorist attack ($ in millions):

PERIOD FROM JANUARY 1, 2002 THROUGH NOVEMBER 1, 2002 COMPARED TO YEAR ENDED
DECEMBER 31, 2001

The $301 million decrease in net premiums written was primarily due to the
rescission of a large quota share contract in the second quarter of 2002. The
premium volume was also impacted by a decline in premiums resulting from lines
of business being exited. Rate increases averaged 32 percent in the first period
of 2002, and new business written in the accident and health reinsurance market
served to partially offset the decline in premiums.

The $124 million reduction in underwriting losses compared with the year
ended December 31, 2001 is attributable to improved rates and risk selection, as
well as less unfavorable development in casualty business written in prior
years.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2002

A significant portion of the 70 percent increase in net written premium
volume over 2000 was due to additional premiums recorded on business from the
underwriting years 2000 and 1999. St. Paul Re had been conservative in recording
estimated premiums from ceding companies in a soft market environment, but as
rate increases began to accelerate faster than anticipated, it was determined
that estimated premiums to be received from ceding companies for the
underwriting years 2000 and 1999 were under accrued. St. Paul Re recorded the
increase in premium from those years in 2001 as the revenue materialized. In
addition, new business from large quota share contracts accounted for
approximately $65 million of premium growth in 2001, and accident and health new
business contributed approximately $51 million to premium volume for the year.

The reported underwriting result in 2001 included losses from underwriting
years prior to 2001. These losses were centered in surplus lines insurance
written in St. Paul Re's London office and first-dollar automobile programs
written in St. Paul Re's U.S. offices. The surplus lines losses primarily
resulted from higher than expected losses, particularly in liability insurance
written for contractors. In addition, competitive market conditions in the
earlier underwriting years contributed to a soft pricing environment and hence
poor underwriting results for surplus lines insurance in those years. The
first-dollar automobile losses in 2001 were primarily the result of unfavorable
emergence stemming from several MGA programs, including a large tow truck
program, as well as generally poor market conditions.

NORTH AMERICAN PROPERTY

The North American Property segment consisted of property reinsurance
business underwritten for customers with exposures in the United States and
Canada. In 2001, coverages offered included proportional, per-risk,
excess-of-loss reinsurance and excess and surplus lines insurance, and
catastrophe treaties. This segment also included the results of retrocessional
reinsurance business, and crop and

P-25

agricultural reinsurance. The following table summarizes results for this
segment for the periods presented, and excludes the impact of the reinsurance
treaties and the September 11, 2001 terrorist attack ($ in millions):

PERIOD FROM JANUARY 1, 2002 THROUGH NOVEMBER 1, 2002 COMPARED TO YEAR ENDED
DECEMBER 31, 2001

The $50 million decrease in net premiums written was due to a decline in
business volume resulting from St. Paul Re's withdrawal from or reduction in
several lines of business in this segment, offset by rate increases that
averaged 32 percent in 2002.

The improvement in underwriting results in 2002 reflected the impact of
exiting unprofitable lines of business, rate increases, a lack of significant
catastrophe losses and favorable development on prior year catastrophe losses.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2002

The six percent increase in premium volume in 2001 over 2000 was primarily
due to rate increases throughout this segment, the impact of which was
substantially offset by a deliberate reduction in business volume for crop
reinsurance and retrocessional reinsurance due to unfavorable treaty terms and
conditions. Price increases for risk excess-of-loss reinsurance grew
substantially as the year progressed, reflecting the impact of poor results on
prior treaties. Proportional premium volume grew nearly 40 percent over 2000,
primarily due to price increases.

The improvement in underwriting results compared with 2000 was primarily
due to a reduction in retrocessional reinsurance losses. St. Paul Re began
exiting unprofitable lines of the retrocessional market in 2000, and by the end
of 2001, underwrote a minimal amount of that business. Proportional reinsurance
coverages produced improved results over 2000, largely due to favorable loss
development on 1999 and prior underwriting years. These improvements were
partially offset by deterioration in North American reinsurance results from
business underwritten in London. In addition, excess-of-loss reinsurance results
in 2001 suffered from the effects of tropical storm Allison, which struck the
southeastern United States in the spring. Crop reinsurance losses were
significant in 2001, due to adverse loss development on both 2001 and 2000
underwriting year business. Several hailstorms in the U.S. played a major factor
in the 2001 underwriting year losses. In addition, crop reinsurance results in
2001 reflected the negative impact of competitive market conditions in prior
years that resulted in a soft pricing environment for this business.

INTERNATIONAL

In 2001, St. Paul Re's International segment underwrote property and
casualty reinsurance for customers domiciled outside of North America. This
segment also included results from marine and aerospace business for customers
located throughout the world, because of the global nature of those exposures.
As discussed earlier, in 2002, St. Paul narrowed its geographic presence and
product focus in an effort to improve profitability. As a result, five
international reinsurance underwriting offices were closed. In addition, St.
Paul ceased writing new aviation business. The following table summarizes
results for this

P-26

segment for the periods presented, and excludes the impact of the reinsurance
treaties and the September 11, 2001 terrorist attack ($ in millions):

PERIOD FROM JANUARY 1, 2002 THROUGH NOVEMBER 1, 2002 COMPARED TO YEAR ENDED
DECEMBER 31,2001

The $35 million decrease in net premiums written in 2002 was due to St.
Paul Re's decision to exit the aviation market and close certain international
offices. Rate increases averaging 39 percent in the International segment
partially offset these declines.

The $49 million increase in underwriting gain was mainly attributable to
favorable development on prior year reserves across all lines. Also contributing
to the increase in underwriting gain is the absence of catastrophe losses in the
period and significant rate increases achieved in 2002.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

The 45 percent increase in net premiums over 2000 reflected improving
market conditions in 2001, characterized by significant rate increases and
increasingly favorable terms and conditions on new and renewal business during
the year. The magnitude of year-over-year premium growth in 2001 was partially
aided by St. Paul Re's deliberate actions in 2000 to reduce premium volume in
certain underperforming lines of business, including proportional treaty
business and low-level per risk excess-of-loss business. Net premium growth in
2001 was centered in property coverages, where rate increases averaged 33
percent for the year. For marine coverages, rate increases averaged 20 percent
in 2001.

During 2001, St. Paul Re sought to take advantage of market conditions and
realign its portfolio by further reducing underperforming business volume, and
expanding new business in virtually all of its remaining operations.

The significant improvement in the loss ratio compared with 2000 reflected
the success of those efforts, and also reflected a significant decline in
catastrophe losses. In 2001, the only major catastrophe affecting the
International segment (excluding the September 11, 2001 terrorist attack) was
the explosion of a chemical plant in Toulouse, France, which resulted in $13
million of incurred losses. By contrast, 2000 results included a cumulative
total of $34 million of catastrophe losses, the majority of which resulted from
additional loss development from severe windstorms that struck portions of
Europe in late 1999.

FINITE RISK

In 2001, St. Paul Re's Finite Risk segment underwrote non-traditional
reinsurance treaties for leading insurance and reinsurance companies worldwide.
Non-traditional reinsurance combines limited traditional underwriting risk with
financial risk protection and is generally utilized by sophisticated insurers
who are willing to share in a portion of their insurance losses. Products
include multi-year excess-of-loss treaties, aggregate stop loss treaties, finite
quota share treaties, loss portfolio transfers, and adverse loss development
covers. This segment also included bond and credit reinsurance coverages. As
discussed earlier, in 2002, St. Paul narrowed its reinsurance product focus in
an effort to improve profitability. As a result, the Finite

P-27

Risk segment offered the following coverages in the first period of 2002:
multi-year excess-of-loss, aggregate stop loss, finite quota share, loss
portfolio transfer and adverse loss development contracts. The following table
summarizes results for this segment for the periods presented, and excludes the
impact of the reinsurance treaties and the September 11, 2001 terrorist attack
($ in millions):

PERIOD FROM JANUARY 1, 2002 THROUGH NOVEMBER 1, 2002 COMPARED TO YEAR ENDED
DECEMBER 31, 2001

The $195 million decrease in net premiums written in 2002 was due to St.
Paul Re's decision to exit the bond and credit market; however, that decline was
offset by a $25 million positive premium adjustment related to one finite quota
share contract.

The $11 million underwriting loss in 2002 included a $14 million favorable
impact due to the commutation of a reinsurance treaty, offset by adverse
prior-year marine and aviation loss development, as well as adverse loss
experience on the bond and credit business in runoff.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000.

Net premiums written grew slightly in 2001 over an abnormally large premium
base in 2000 that had resulted from three large new contracts and additional
premiums related to a specific contract. Bond and credit reinsurance coverages
accounted for $63 million of net written premium volume in 2001, compared with
$62 million in 2000.

The deterioration in underwriting results in 2001 was primarily due to $31
million of losses generated by bond and credit reinsurance, of which $15 million
resulted from surety bond losses related to Enron Corporation's bankruptcy
filing in late 2001. Bond and credit losses in 2000 totaled $2 million. In
addition, the Finite Risk segment incurred $39 million of losses from three
major marine and aviation events: the collapse of the Petrobras oil platform; a
terrorist group's ground attack on commercial airliners in Sri Lanka; and the
chemical plant explosion in Toulouse, France.

P-28

EXHIBIT INDEX

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(1) Management contract or compensatory plan or arrangement.