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, 2003

[ ] 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
69 PITTS BAY ROAD
PEMBROKE HM 08, BERMUDA
(441) 295-7195
(Address, including zip code, and telephone, including area code,
of 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 each 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 information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

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

The aggregate market value of Common Shares held by non-affiliates of the
registrant as of June 30, 2003, the last business day of our most recently
completed second fiscal quarter, was $893,326,670 based on the closing sale
price of $27.14 per Common Shares on the New York Stock Exchange on that date.
For purposes of this computation only, all officers, directors, and 10%
beneficial owners of the registrant are deemed to be affiliates.

As of March 1, 2004, there were outstanding 43,250,375 Common Shares, par
value $0.01 per share, of the registrant.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for the 2004 Annual
General Meeting of Shareholders are incorporated by reference into Part III of
this report.

TABLE OF CONTENTS

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PART I

The "Company," "Platinum," "we," "us," and "our" refer to Platinum
Underwriters Holdings, Ltd. and its consolidated subsidiaries, unless the
context otherwise indicates. "Platinum Holdings" refers solely to Platinum
Underwriters Holdings, Ltd., a Bermuda holding company. "Platinum Bermuda"
refers to Platinum Underwriters Bermuda, Ltd., a Bermuda reinsurance company and
wholly owned subsidiary of Platinum Holdings. "Platinum Ireland" refers to
Platinum Regency Holdings, an intermediate holding company domiciled in Ireland
and a wholly owned subsidiary of Platinum Holdings. "Platinum UK" refers to
Platinum Re (UK) Limited, a reinsurance company domiciled in the U.K. and a
wholly owned subsidiary of Platinum Ireland. "Platinum Finance" refers to
Platinum Underwriters Finance, Inc., a finance company in the U.S. and a wholly
owned subsidiary of Platinum Ireland. "Platinum US" refers to Platinum
Underwriters Reinsurance, Inc., a reinsurance company based in the U.S. and a
wholly owned subsidiary of Platinum Finance. "Platinum Services" refers to
Platinum Administrative Services, Inc., a U.S. company that provides
administrative services to the Company and a wholly owned subsidiary of Platinum
Finance. "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 equity security units, consisting
of a contract to purchase Common Shares in 2005, and an ownership interest in a
senior note of Platinum Finance due 2007, 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 (the "Exchange Act"). 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 execute our business strategy;

(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 unrest, war or a prolonged U.S. or global economic downturn or
recession;

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

(11) 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 foregoing factors, which are
discussed in more detail in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- 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.

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 policies. In return, the
reinsurer receives a premium for the risks that it assumes from the ceding
company. Reinsurance, however, does not discharge the ceding company from its
liabilities to policyholders. Reinsurance can provide ceding companies 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 or write more business than would be possible without an accompanying
increase in capital.

TYPES OF REINSURANCE

Reinsurance is typically classified into two categories based on the
underlying insurance coverage: property and casualty reinsurance, and life and
annuity reinsurance.

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PROPERTY AND CASUALTY REINSURANCE

We write property and casualty reinsurance. Property reinsurance protects a
ceding company against financial loss arising out of damage to property or loss
of its use caused by an insured peril. Examples of property reinsurance are
property catastrophe and property per-risk coverages. Property catastrophe
reinsurance protects a ceding company against losses arising out of multiple
claims for a single event while property per-risk reinsurance protects a ceding
company against loss arising out of a single claim for a single event.

Casualty reinsurance protects a ceding company against financial loss
arising out of the obligation to others for loss or damage to persons or
property. Examples of casualty reinsurance are general and automobile liability,
professional liability, workers' compensation, and accident and health
coverages.

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.

LIFE AND ANNUITY REINSURANCE

We do not currently write any life or annuity reinsurance although we may
do so in the future. Life reinsurance provides coverage with respect to
individual and group life and health risks to primary life insurers. Annuity
reinsurance provides coverage to insurers who issue annuity contracts to
consumers who seek to accumulate personal wealth or as protection against
outliving their financial resources. We may write this business through treaty
arrangements.

EXCESS-OF-LOSS AND PROPORTIONAL REINSURANCE

Reinsurance can be written on either an excess-of-loss basis or a pro rata,
or proportional, basis. Approximately 76% of the reinsurance that we wrote in
2003 was 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 claim
amount, 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 reinsurance respond when each single claim exceeds the ceding
company's retention. Premiums for excess-of-loss reinsurance may be either a
specified dollar amount or a percentage of the premium charged by the ceding
company.

Excess-of-loss contracts can help reinsurers control their underwriting
results by increasing their ability to determine reinsurance premiums at
specific retention levels, independent of the premiums charged by primary
insurers, and based upon their 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.

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 the reinsurer shares proportionally in all losses. Premiums for
proportional reinsurance are typically a predetermined portion of the premiums
that the ceding company receives from its insureds.

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

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reinsurer assumes, all or part of a specific risk or risks. Substantially all of
the reinsurance that we underwrite is on a treaty basis. We may consider
underwriting facultative reinsurance in limited and opportunistic circumstances.

Generally, 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 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 is normally purchased by
ceding companies for risks not covered by their reinsurance treaties, for
amounts in excess of the claims limits of their reinsurance treaties and for
unusual and complex risks. In addition, facultative reinsurance often provides
coverages for relatively large exposures, which results in greater potential
claims volatility. Facultative reinsurance has relatively high underwriting
expenses and, in particular, personnel costs, because each risk is individually
underwritten and administered.

FINITE REINSURANCE

Finite reinsurance, often referred to as non-traditional 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 finite basis. 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 that, in the aggregate,
could be significant. Typically, the amount of claims a reinsurer might pay is
finite or capped. In return for this limit on claims, the reinsurer often
accepts a fixed profit margin specified in the treaty and returns profits above
this margin to the ceding company.

The constantly changing industry and regulatory framework, as well as the
changing market demands facing insurance companies, has resulted in a
continually evolving finite marketplace. We are active participants in the
finite reinsurance market.

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.

We underwrite substantially all of our reinsurance through brokers, as we
believe that the use of reinsurance brokers enables us to operate on a more
cost-effective basis and to maintain the flexibility to enter and exit
reinsurance lines in a quick and efficient manner. We believe that brokers are
particularly useful in assisting with placements of excess-of-loss reinsurance
programs.

RETROCESSION

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

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OUR BUSINESS

GENERAL

Platinum Holdings is a Bermuda holding company organized in 2002. We
provide property and marine, casualty and finite risk reinsurance coverages,
through reinsurance intermediaries, to a diverse clientele of insurers and
select reinsurers on a worldwide basis. We operate through three licensed
reinsurance subsidiaries: Platinum US, Platinum Bermuda and Platinum UK.

Platinum UK and Platinum Bermuda were formed in 2002 and have no prior
operating history or loss reserves subject to development prior to January 1,
2002. Platinum US had been an inactive licensed insurance company with no
underwriting activity and no exposure to losses prior to January 1, 2002.
Platinum Ireland has no business operations other than activity necessary to
maintain its corporate existence and its ownership of Platinum Finance and
Platinum UK. Platinum Finance's activities have generally been limited to
raising funds for Platinum US through the issuance of the senior note component
of the ESU Offering. Platinum Services' activities are limited to providing
administrative services to the Company, including legal, finance, and human
resources services. The following chart summarizes our corporate structure:

[CORPORATE STRUCTURE CHART]

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.

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- Operate as a Multi-Class Reinsurer. We seek to offer a broad range of
reinsurance coverage to our ceding companies. We believe that this
approach enables us to more effectively serve our clients, diversify our
risk and leverage our capital.

- Focus on profitability, not market share. Our management team pursues a
strategy that emphasizes profitability rather than market share. Key
elements of this strategy are prudent risk selection, appropriate pricing
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, (iii)
managing our aggregate catastrophe exposure through the application of
sophisticated property catastrophe modeling tools and (iv) monitoring our
accumulating exposures on our non-property catastrophe exposed coverages.

- Leverage 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. Our capital position is
unencumbered by any development of unpaid losses for business written
prior to January 1, 2002. As of December 31, 2003, we had a total
capitalization of $1,204,703,000. 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, allow 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: Property and Marine, Casualty and Finite Risk. In each
of our operating segments, we offer our reinsurance solutions to providers of
commercial and personal lines of insurance. The following table sets forth the
net premiums written by the Company for the year ended December 31, 2003 and the
two-

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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 year ended December 31, 2003 and the two-month period ended December 31,
2002 by operating segment and by geographic location of the ceding company ($ in
thousands):

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PROPERTY AND MARINE

The Property and Marine operating segment includes principally property and
marine reinsurance coverages that are written both in the United States and
international markets. This operating segment includes property per-risk
excess-of-loss treaties, property proportional treaties and catastrophe
excess-of-loss reinsurance treaties. We write a limited amount of other types of
reinsurance on an opportunistic basis. We employ underwriters and actuaries with
expertise in each of the following areas:

- Property. We provide reinsurance coverage of damage to property and
crops. Our property reinsurance activities emphasize catastrophe
excess-of-loss reinsurance. These contracts provide a defined limit of
liability, permitting us to quantify our aggregate maximum loss exposure
for various catastrophe events. 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 write other property coverages,
including per-risk excess-of-loss or proportional treaties.

- 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. Within Marine,
we also write commercial and general aviation reinsurance. 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.

CASUALTY

The Casualty operating segment includes principally reinsurance treaties
that cover umbrella liability, general and product liability, professional
liability, workers' compensation, casualty clash 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. Most frequently, we respond to
claims on an individual risk basis, when a claim for a single, original insured
reaches our attachment point. We write some excess-of-loss treaties on an
occurrence basis that respond when all of a ceding company's claims from
multiple original insureds for a single claims event exceed our attachment
point. 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 risk being reinsured and the
capabilities 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. A claim
must exceed the limit of some underlying policy for the claim to be
considered under an umbrella policy.

- General 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 and employment practices
liability. 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 during a specified coverage period.

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- 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-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 may 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 claims 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 of our casualty clash treaties are
excess-of-loss contracts with both an occurrence limit and an aggregate
limit.

- Automobile Liability. Automobile liability reinsurance policies provide
first party damage coverage that covers damage to the insured's vehicle
and third party damage coverage that 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. We generally reinsure 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 evaluating a client's
business needs. The classes of risks underwritten through finite products are
generally consistent with the classes covered by 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 expected 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 expected. 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 to
improve various surplus and leverage ratios.

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.

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Based on in-force premiums written by the Company at December 31, 2003, 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
affiliates) are Aon Corporation (26%), Marsh & McLennan Companies (21%),
Benfield Blanch Inc. (15%), Willis Group Holdings (13%) and Towers Perrin (6%).
The loss of business relationships with any of these top five brokers could have
a material adverse effect on our business.

In addition to their role as intermediaries in placing risk, 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 a worldwide network of 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.

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 property catastrophe exposed coverages, we measure our exposure to
aggregate catastrophe claims using a catastrophe computer model that analyzes
the effect of wind speed and earthquakes on the property values within our
portfolio. We seek to limit the amount of capital that we can potentially lose
from a severe catastrophe event, however there can be no assurance that we will
successfully limit actual losses from such a catastrophe event. We also monitor
our exposures from non-property catastrophe exposed accumulating risks,
including surety, umbrella liability, directors and officers liability, credit
and terrorism reinsurance.

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 number
of claims that we may be required to pay pursuant to such reinsurance contracts.
However, substantially all of our property reinsurance contracts with natural
catastrophe exposure have occurrence limits. In addition, substantially all of
our high layer property, casualty and marine excess-of-loss contracts contain
aggregate limits. 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
quality of the ceding company, including the experience and reputation 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, 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 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

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adequacy of their program's protection. We believe that modeling is a very
important part of the underwriting process for catastrophe exposure pricing. Our
client base may also use one or more of the various modeling consulting firms in
their exposure management analysis. We believe that the combination of
reinsurance system information, together with the various commercial models we
employ, enables us to monitor and control our exposure on a global basis. We
also have access to the historical loss experience of St. Paul Re to assist us
in pricing individual treaties and overall lines of business.

In 2002, we entered into a five-year Services and Capacity Reservation
Agreement with RenaissanceRe, pursuant to which RenaissanceRe provides
consulting services to us in connection with our property catastrophe book of
business. 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 twice per year.

RISK DIVERSIFICATION

In addition to the strategies described above to manage our risks, 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 our
coverage for risks located in a particular zone to a predetermined level.
Currently, our greatest property 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
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 typhoons.

We seek to diversify our casualty exposure by writing casualty business
throughout the United States and internationally. In addition, we seek to
diversify our casualty exposure by writing casualty reinsurance across a broad
range of product lines.

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 that we purchase or 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 take into
account 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 type and 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 only purchase retrocessional coverage from retrocessionaires that
satisfy strict business and financial standards. 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 obtain retrocessional coverage from companies rated "A-" or better by
Best's. The financial performance and rating status of all material
retrocessionaires is routinely monitored. Retrocessional agreements do not
11

relieve us from our obligations to the insurers and reinsurers from whom we
assume business. Consequently, the failure of retrocessionaires to honor their
obligations would result in losses to us.

Platinum Bermuda reinsured 55% of Platinum UK's underwriting year 2003
reinsurance business. In addition, Platinum Bermuda reinsured approximately 70%
of Platinum US' underwriting year 2003 reinsurance business. Trusts were
established and funded to secure Platinum Bermuda's reinsurance obligations to
Platinum UK and Platinum US. In addition, Platinum US externally ceded a 33%
quota share and Platinum UK externally ceded a 25% quota share of certain
property catastrophe business. Platinum US and Platinum UK also obtained $20
million in excess-of-loss per occurrence coverage with respect to marine
business and $25 million with respect to international property business from
various retrocessionaires. Finally, Platinum US provided to Platinum UK $40
million in coverage excess of $50 million with respect to property losses in
Europe and Japan.

Effective January 1, 2004, Platinum US and Platinum UK entered into an
excess-of-loss retrocessional contract with a highly rated reinsurer providing
$100 million of coverage. Premiums ceded under this contract will vary depending
on the amount of loss. In addition, Platinum US and Platinum UK have expanded
their external marine excess-of-loss coverage. Platinum US and Platinum UK have
renewed their quota share agreements with Platinum Bermuda but have chosen not
to renew their external property catastrophe quota share retrocessional
contracts.

Pursuant to the Services and Capacity Reservation Agreement with
RenaissanceRe described above, RenaissanceRe provides 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 are in RenaissanceRe's sole discretion, reflect, among
other things, an analysis of exposure, limit, retention, exclusions and other
treaty terms. The annual fee that we pay to RenaissanceRe for this coverage
commitment and the consulting services is the greater of (i) $4 million or (ii)
3.5% 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.

CLAIMS ADMINISTRATION

With respect to the reinsurance contracts that we assumed from St. Paul Re,
claims are managed by St. Paul Re's claims department, subject to 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 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
personnel administer claims arising under all of our other reinsurance
contracts.

The responsibilities of our claims personnel include reviewing loss
reports, monitoring claims handling activities of clients, requesting additional
information where appropriate, posting 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, our claims personnel conduct periodic audits of
specific claims and the overall claims procedures of our ceding companies at
their offices. We rely on our ability to effectively monitor 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 our claims personnel 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
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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, our claims personnel provide
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

Under applicable insurance laws and regulations and accounting principles
generally accepted in the United States of America ("U.S. GAAP"), we establish
liabilities for payment of losses and loss adjustment expenses ("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
that have occurred at or before the balance sheet date. Unpaid losses and LAE
fall into two categories: estimates of liabilities for losses and LAE incurred
but not reported ("IBNR") and case basis estimates for reported losses and LAE.
Estimates of IBNR are balance sheet liabilities established to provide for
occurrences or events that have given rise to a loss 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 that 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 and other
information reported by the ceding company and may be increased or reduced as
deemed necessary by our claims personnel. We establish liabilities for losses
and LAE based on past experience (including the historical loss experience of
St. Paul Re, current developments and likely trends). Because estimation of
unpaid losses and LAE is an inherently uncertain process, we believe that
quantitative techniques are enhanced by professional and managerial judgment.
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 materially differ from 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 for developments. Even after such adjustments,
ultimate liability may materially differ from the revised estimates.

The uncertainty inherent in loss estimation is particularly pronounced for
casualty coverages, such as umbrella, general and product liability,
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.

13

Activity in the liability for unpaid losses and LAE for the year ended
December 31, 2003 and the two-month period ended December 31, 2002 is summarized
as follows ($ in thousands):

The following table shows the development of liability for net unpaid
losses and LAE. The table begins by showing the year-end liability for unpaid
losses and LAE. The next portion of the table shows the re-estimated amount of
the previously recorded losses and LAE for each year based on experience through
each succeeding year. The re-estimated liabilities reflect additional
information regarding claims incurred prior to the end of the preceding
financial year. A redundancy or deficiency will result from changes in estimates
of liabilities recorded at the end of the prior year. The cumulative redundancy
reflects the cumulative differences between the original estimate and the
currently re-estimated liability. Annual changes in the estimates are reflected
in the statement of income for each year as the liabilities are revalued. Unpaid
losses and LAE denominated in foreign currencies are restated at the foreign
exchange rates in effect at the current year-end and the resulting cumulative
foreign exchange effect is shown as an adjustment to the cumulative redundancy.
Each amount in the tables includes the effects of all changes in amounts for the
prior year. The table does not present accident year or underwriting year
development data. Conditions and trends that have affected the development of
liabilities in the past may not necessarily occur in the future. Therefore, it
would not be appropriate to extrapolate future deficiencies or redundancies
based on the table ($ in thousands):

14

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.

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 assets
managed.

GENERAL GUIDELINES

We have developed investment guidelines for the management of our
investment portfolio by Alliance. 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. Interest rates and 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. Consistent with this
policy, the duration of our portfolio is established according to the estimated
duration of our reinsurance liabilities and the current interest rate
environment.

Within our fixed maturity portfolio we invest only in investment grade
securities. We currently do not intend to invest in real estate, common equity
securities or other classes of alternative investments, although from time to
time we will make equity investments of a strategic nature. 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 government 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
writing, 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.

CLASSIFICATION

We classify our investments as available-for-sale, trading or other
invested assets. Our available-for-sale and trading portfolios are comprised
entirely of investment grade fixed maturity investments. Other invested assets
currently represent a strategic equity investment in a privately held
reinsurance company.

VALUATION

All of our fixed maturity securities are carried at their estimated fair
value. For our available-for-sale securities, the difference between amortized
cost and the fair value, net of any deferred taxes, (commonly referred to as
unrealized gain or loss) is charged or credited directly to our shareholders'
equity. For our
15

trading securities, the difference is charged as credited to our statement of
income. 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. Realized gains and losses on
disposal of our fixed maturity investments are determined based upon specific
identification of the cost of investments sold and are recorded in our statement
of income. For our fixed maturity investments 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.

Other invested assets, which do not have a quoted market price, are
accounted for using the equity method, which approximates fair value. Under the
equity method, the change in fair value is charged or credited to our statement
of income.

Cash equivalents and short-term investments are carried at cost, which
approximates fair value.

The following table shows, in the aggregate, the fair value of our
portfolio of invested assets (except for other invested assets) at December 31,
2003 and December 31, 2002 ($ in thousands):

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, 2003, our fixed maturity portfolio had a dollar
weighted average rating of Aa3. The average yield of our portfolio for the year
ended December 31, 2003 was 3.6%.

The following table summarizes the composition of the fair value of the
fixed maturity portfolio at December 31, 2003 and December 31, 2002 by rating as
assigned by Moody's:

DURATION

At December 31, 2003, our fixed maturity portfolio had an average weighted
duration of 3.7 years. The following table summarizes the fair value of our
fixed maturity portfolio by contractual maturities at

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December 31, 2003; 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 ($ in thousands):

Due in one year or less..................................... $ --
Due from one to five years.................................. 927,686
Due from five to ten years.................................. 301,178
Due in ten or more years.................................... 186,738
Mortgage and asset-backed securities........................ 258,854
----------
Total bonds............................................... 1,674,456
----------
Redeemable preferred stocks................................. 3,682
----------
Total fixed maturities.................................... $1,678,138
==========

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 that 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 ACE Limited, Arch Capital Group Ltd., Axis Capital Holdings,
Chubb Corporation, Converium Holding AG, White Mountains Insurance Group, Ltd.,
Endurance Specialty Holdings, Everest Re Group, General Re Corporation, IPC
Holdings Ltd., Lloyd's of London, Montpelier Re Holdings Ltd., Munich Re Group,
Odyssey Re Holdings Corp., Partner Re Limited, RenaissanceRe, Swiss Reinsurance
Company, Transatlantic Holdings and XL Capital Limited.

Following the September 11, 2001 terrorist attack, a number of individuals
and companies in the reinsurance industry established new, well-capitalized,
Bermuda-based reinsurers to benefit from improved market conditions, and a
number of existing competitors raised additional capital or have announced plans
to do so. Many of the reinsurers that 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. The full effect of this additional capital on the
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. 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.

Traditional as well as new capital market participants from time to time
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 AND SECURITY

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,

17

reinsurance programs, investments, unpaid losses and management. 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 rating.

Furthermore, 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 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 material.

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.

We may from time to time secure our obligations under our various
reinsurance treaties using trusts and/or letters of credit.

EMPLOYEES

At December 31, 2003, we employed 155 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 Officer and General Counsel, are
employed pursuant to work permits granted by 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 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 1978 (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.

18

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. The Insurance Act also 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.

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
being the largest and, consequently, subject to the strictest regulation.
Platinum Bermuda is registered as a Class 4 insurer and is regulated as such
under the Insurance Act.

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 Barton W. Hedges, the Chief Operating Officer of
Platinum Bermuda. 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 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 that audits Platinum Bermuda's
financial statements and reports for presentation to its shareholders. Platinum
Bermuda's independent auditor is KPMG Bermuda.

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. Platinum Bermuda, as a general business
insurer, will be required to submit its annual statutory financial statements as
part of its annual statutory financial return. 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 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.

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
19

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.

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

(C) 15% 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);

(3) is prohibited from declaring or paying in any financial year
dividends of more than 25% 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% 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 not declare or pay a dividend if Platinum Holdings or Platinum
Bermuda, as the case may be, has 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% 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 and Intervention. 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
20

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.

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 may hold any currency other than
Bermuda dollars and convert that currency into any other currency (other than
Bermuda dollars) without restriction. Platinum Bermuda is permitted to hold
Bermuda dollars to the extent necessary to pay its expenses in Bermuda.

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. 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, currently there 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. 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 49 states of the
United States and the District of Columbia and is seeking accreditation in
Nevada, the one remaining state. Platinum US' principal insurance regulatory
authority is the Maryland Insurance Administration, although Platinum US is
regulated by state insurance departments and applicable state insurance laws in
each state where it is licensed, authorized or accredited. 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 parent companies of Platinum US, and Platinum Finance as the direct
parent company 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.

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 10% or more of the voting stock of an insurance
company or its

21

parent company is presumptively considered a change of control, although such
presumption may be rebutted. Accordingly, any person or entity who acquires,
directly or indirectly, 10% 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 to state insurance departments of a
change in control of a nondomiciliary 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 state
insurance department in the U.S. 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 in
each state where it is licensed, authorized 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 and financial reporting of insurance companies domiciled in
their states and of policy filing and market conduct of insurance companies
doing business 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) 10% of Platinum US' statutory policyholders' surplus (as
determined under statutory accounting principles) as of December 31 of the
prior year; or

(2) Platinum US' 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 and pro rata
distribution of any class of Platinum US' own securities, plus any amounts
of net investment income (excluding realized capital gains) in the three
calendar years prior to the preceding year which have not been distributed.

These statutory limitations are subject to change. Platinum US may not pay
extraordinary dividends or make extraordinary distributions until either the
30-day notice period has expired (without the Maryland Insurance Commissioner
disapproving such payment) or the Maryland Insurance Commissioner

22

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' 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 and Platinum US have entered into a guaranty pursuant to
which Platinum Holdings has agreed to guarantee Platinum US' payment obligations
under reinsurance contracts written by Platinum US after December 31, 2003 to
the extent such payment obligations are not disputed or contested by Platinum
US. In addition, 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 contribute capital to Platinum US in such amounts as shall be
necessary to ensure 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 prohibit the sale of insurance and
23

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 reinsurance 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 be offset 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 (1%) and certain other jurisdictions.

U.K. REGULATION

The framework for supervision of insurance companies in the United Kingdom
is largely formed by European Union Directives ("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. 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 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. 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.

Solvency Requirements. Insurance companies are required to 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 regulations, and
for these purposes, an insurer's assets and its liabilities are subject to
specific valuation rules. 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 and Platinum UK have entered into a guaranty pursuant to
which Platinum Holdings has agreed to guarantee Platinum UK's undisputed payment
obligations under reinsurance contracts written by Platinum UK after December
31, 2003. In addition, 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 contribute capital to Platinum UK by way of interest-free,
subordinated debt in such amounts as shall be necessary to ensure that Platinum
UK will have adequate capital and surplus.

24

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 that 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.

Equalization Reserves. Each insurance company writing property, aviation,
marine, business interruption or nuclear insurance or reinsurance business is
required to maintain an equalization reserve in respect of business written in
the financial years ending on or after December 23, 1996. Insurance companies
writing credit insurance business must maintain equalization reserves calculated
in accordance with certain provisions 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 a person to a position of significant influence within an
insurance company 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 changes in "control" of any insurance
company authorized under FSMA. Any company or individual that (together with its
or his associates) directly or indirectly holds 10% 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 10% or more of the voting power in such a
parent company, would be considered to be a "controller" 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 10% of the Common Shares of Platinum Holdings would
therefore be considered to have acquired "control" of Platinum UK.

Under FSMA, any person proposing to acquire "control" over an authorized
insurance company must give prior notification to the FSA of his intention to do
so. In addition, if an existing controller proposed to increase its control in
excess of certain thresholds set out in FSMA, that person must also notify the
FSA in advance. The FSA then has three months to consider that person's
application to acquire or increase "control." In considering whether to approve
such application, the FSA must be satisfied both that the person is a fit and
proper person to have such "control" and that the interests of consumers would
not be threatened by such acquisition of or increase in "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 and take
disciplinary measures.

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
distinct statutory powers to appoint investigators under the FSMA.

Proposed Regulatory Developments in the United Kingdom and at the European
Union Level. The legal and regulatory framework under which financial
institutions (including insurance and reinsurance companies) conduct regulated
business in the United Kingdom has been subject to significant reform over the
past few years and further reforms are imminent or contemplated. Imminent
changes of particular significance include the establishment of a single
prudential regulatory framework for all financial
25

institutions in the United Kingdom, which will confirm and develop the FSA's
risk-based approach to assessing capital and other requirements.

Significant current regulatory developments at the European Union level
include a Directive ("Solvency 1"), which amends the existing solvency margin
rules for non-life insurance undertakings by increasing the minimum European
Union regulatory capital requirements. The Solvency 1 requirements have taken
effect in the United Kingdom for financial years beginning on or after January
1, 2004. We believe that the changes effected by Solvency 1 are viewed by the
FSA as a temporary measure, ahead of a more comprehensive review of insurers'
and reinsurers' capital requirements (the "Solvency 2" and "Reinsurance"
Directives, currently in draft form).

Pending the more detailed review at the European Union level, the FSA
issued a Consultation Paper in July 2003 ("CP190") setting out its proposals for
an enhanced risk-based minimum regulatory capital requirement ("ECR") for
non-life insurers, supplemented by a regime under which the FSA will review a
company's assessment of its individual capital needs. Under CP190, each company
will be required to maintain capital resources equal to the higher of a minimum
capital requirement ("MCR") -- being the capital requirement set out in the
relevant Directives -- and the ECR. CP190 also contemplates that, in addition to
the minimum amount of capital (i.e. the higher of MCR and ECR), individual
capital assessments will be made to take into account the particular
circumstances of a company, which may result in a company being required to hold
an amount higher than the minimum amount of capital or to provide confirmation
that the minimum amount is adequate. Guidance by the FSA is expected to be
published during 2004 taking into account individual capital assessments made by
companies.

CP190 also summarizes and responds to industry feedback received by the FSA
on its proposals addressing credit risk for insurers and, in particular,
reinsurance concentration, as set out in Consultation Paper 143 ("CP143") issued
in July 2002. The proposals contained in CP143 aimed at ensuring adequate
diversification of an insurer's or reinsurer's exposures to reinsurers (whether
intra- or extra-group). In particular, CP143 proposed 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% 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 wished to
exceed this limit, it would first have to satisfy the FSA that this was
appropriate. CP143 also proposed to limit an insurer's or reinsurer's exposure
to a single reinsurer (or group of related reinsurers) to 100% of its capital by
requiring it to alert its FSA supervisor if it was approaching or had exceeded
this limit and to explain why it considered that prudent provision was or was
not required for the excess exposure.

In CP190, the FSA accepts that there are instances where imposing hard
limits on reinsurance levels will be inappropriate, even though credit risk
arises in those instances and thus needs to be controlled. In light of this, the
FSA's stated intention is to maintain the rules requiring companies to inform
the FSA of large reinsurance arrangements. The burden will be on the company to
demonstrate that credit risk is being effectively managed.

In response to industry concerns about the application of the CP143 limits
to benign intra-group arrangements, the FSA states in CP190 that it does not
intend to outlaw arrangements where an intra-group exposure is to a reinsurer
that is part of a group subject to consolidated supervision by the FSA (although
the burden in such cases will remain on the company's management to satisfy the
FSA that credit risk is managed to a suitable level). No explicit indication is
given of the FSA's view of intra-group arrangements with a reinsurer in a group
that is not subject to consolidated FSA supervision, such as the Company. Future
developments in this area may therefore be relevant to the Company.

In addition, H.M. Treasury has recently implemented, by means of Treasury
Regulations, the Winding-up Directive, which, among other things, gives priority
in the winding-up of an insurance undertaking to claims under direct insurance
over all other claims, including reinsurance. In certain circumstances, this
could affect the ability of Platinum UK to collect reinsurance or retrocession
premiums or other amounts from entities subject to these regulations.

26

IRELAND REGULATION

Platinum Ireland is organized and domiciled in Ireland. As a holding
company, Platinum Ireland is not subject to Irish insurance regulation. Irish
law prohibits Platinum Ireland 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.

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 (the "SEC"). We also post on our website the charters of our
Audit, Compensation, and Governance Committees, our Corporate Governance
Guidelines, our Code of Business Conduct and Ethics and Compliance Procedures,
and any amendments or waivers thereto, and any other corporate governance
materials required to be posted by SEC or New York Stock Exchange ("NYSE")
regulations. These documents are also available in print to any shareholder
requesting a copy from our corporate secretary at our principal executive
offices. Information contained on Platinum Holdings' website is not part of this
report.

ITEM 2. PROPERTIES

Platinum Holdings' principal executive offices are located in approximately
4,000 square feet of office space subleased from Platinum Bermuda at The
Belvedere Building, 69 Pitts Bay Road, Pembroke, Bermuda. Platinum Bermuda
leases a total of 7,600 square feet of office space for its principal offices.
The term of this lease ends on December 31, 2006.

The principal offices of Platinum US are located at Two World Financial
Center, New York, New York, where Platinum US leases approximately 49,599 square
feet of office space. The term of this lease ends September 29, 2013. 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 8,462 square feet of
office space. The term of this sublease ends on June 24, 2004. We are currently
considering other possible locations for the principal offices of Platinum UK.

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 2003.

27

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 NYSE on October 29, 2002.
Our NYSE symbol is "PTP." The following table sets forth, for the periods
indicated, the high and low sales prices per share of our Common Shares as
reported on the NYSE.

On March 1, 2004, the last reported sale price for our Common Shares was
$33.44 per share. At March 1, 2004, there were approximately 16 holders of
record and 3,000 beneficial holders of our Common Shares.

DIVIDEND POLICY

The Board has declared a dividend for the first quarter of 2004 of $0.08
per Common Share, payable on March 31, 2004 to shareholders of record at the
close of business on March 22, 2004. 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 10% per year;
however, we do not expect that dividend increases, if any, will exceed such
rate.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected financial data of the
Company as of and for the year ended December 31, 2003 and the period ended
December 31, 2002 and of St. Paul Re for the period from January 1, 2002 through
November 1, 2002 and for the years ended December 31, 2001, 2000 and
28

1999. The data for the Company as of and for the year ended December 31, 2003
and the period ended December 31, 2002 were derived from the Company's
consolidated financial statements beginning on page F-1 of this Form 10-K. The
data for St. Paul Re for the period ended November 1, 2002 and for the year
ended December 31, 2001 were derived from the audited 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. The data for the year ended December 31, 2000 were derived from the
selected historical combined financial statements of the reinsurance
underwriting segment of St. Paul and data for the year ended December 31, 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. You should
also read the selected financial data in conjunction with the Company's
consolidated financial statements as of and for the year ended December 31, 2003
and the period ended December 31, 2002 beginning on page F-1 of this Form 10-K,
and the related "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 32 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.

29

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 F-1 through F-27 of this Form 10-K. The Company's consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP").

OVERVIEW

Platinum Holdings is a Bermuda 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.

In November 2002, Platinum Holdings completed an initial public offering of
33,044,000 common shares. Concurrent with the public offering, Platinum Holdings
sold 6,000,000 common shares to The St. Paul Companies, Inc. ("St. Paul") and
3,960,000 common shares to RenaissanceRe Holdings Ltd. ("RenaissanceRe") in
private placements. In addition to the common shares issued, the Company issued
equity security units, consisting of a contract to purchase common shares in
2005 and an ownership interest in a senior note due 2007. Also, concurrent with
these transactions, the Company and St. Paul

30

entered into several agreements for the transfer of continuing reinsurance
business and certain related assets of St. Paul. Among these agreements were
quota share retrocession agreements effective November 2, 2002 (the "Quota Share
Retrocession Agreements") under which the Company assumed from St. Paul unpaid
losses and loss adjustment expenses ("LAE"), unearned premiums and certain other
liabilities on reinsurance contracts becoming effective in 2002 and underwritten
by the reinsurance segment of St. Paul ("St. Paul Re").

CRITICAL ACCOUNTING POLICIES

It is important to understand the Company's accounting policies in order to
understand its financial position and results of operations. 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 relevant periods. Certain of the
estimates and assumptions 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.

Premiums

Assumed reinsurance premiums are recognized as revenues when premiums
become earned proportionately over the coverage period. Net premiums earned are
recorded in the statement of income, net of the cost of retrocession. Net
premiums written not yet recognized as revenue are recorded in the balance sheet
as unearned premiums, gross of any ceded unearned premiums.

Due to the nature of reinsurance, ceding companies routinely report and
remit premiums subsequent to the contract coverage period. Consequently,
reinsurance premiums written include amounts reported by the ceding companies,
supplemented by estimates of premiums which are earned but not reported
("EBNR"). Along with estimating EBNR the Company records the expenses associated
with these premiums in the form of losses, LAE and commissions. As actual
premiums are reported by the ceding companies, management evaluates the
appropriateness of the premium estimates and any adjustment to these estimates
is recorded in the period in which it becomes known. Adjustments to original
premium estimates could be material and could significantly impact earnings in
the period they are recorded. Due to the time lag inherent in the reporting of
premiums by ceding companies, a significant portion of amounts included as
premiums written and receivable represents estimated premiums, net of
commissions, and is not currently due based on the terms of the underlying
contracts.

Certain of our reinsurance contracts include provisions that adjust
premiums or acquisition expenses based upon the experience under the contracts.
Premiums written and earned, as well as related acquisition expenses under these
contracts, are recognized based upon the losses recorded under those contracts.

Reinstatement premiums and additional premiums are recognized in accordance
with the provisions of assumed reinsurance contracts, based on losses recorded
under such contracts. Reinstatement premiums are the premiums charged for the
restoration of the reinsurance limit of a reinsurance contract to its full
amount, generally coinciding with the payment by the reinsurer of losses. 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 those premiums triggered by losses and not related to reinstatement
of limits and are earned immediately. An allowance for uncollectible premiums is
established for possible non-payment of such amounts due, as deemed necessary.

Unpaid Losses and LAE

The most significant judgment made by management in the preparation of
financial statements is the estimation of unpaid losses and LAE liabilities also
referred to as "loss reserves." These liabilities are balance sheet estimates of
future amounts required to pay losses and LAE for reinsured claims which have
31

occurred at or before the balance sheet date. Every quarter, the Company's
actuaries prepare estimates of the loss reserves based on established actuarial
techniques. Because the ultimate amount of unpaid losses and LAE is uncertain,
we believe that quantitative techniques to estimate these amounts are enhanced
by professional and managerial judgment. Company management reviews these
estimates and determines its best estimate of the liabilities to record in the
Company's financial statements.

Loss reserves include estimates of the cost of claims that were reported
but not yet paid ("case reserves") and the cost of claims that were incurred but
not reported ("IBNR"). Case reserves are usually based upon claim reports
received from ceding companies, and may be increased or reduced by the Company's
claims personnel. IBNR is based on actuarial methods including the loss ratio
method, the Bornhuetter-Ferguson method and the chain ladder method. IBNR
related to a specific event may be based on the Company's estimated exposure to
an industry loss. This estimation process may include the use of catastrophe
modeling software.

Generally, initial actuarial estimates of IBNR not related to a specific
event are based on the loss ratio method applied to each underwriting year for
each class of business. Actual paid losses and case reserves ("reported losses")
are subtracted from expected ultimate losses to determine IBNR. The initial
expected ultimate losses involve management judgment and are based on: (i)
contract by contract expected loss ratios derived from the Company's pricing
process, and (ii) historical loss ratios of the Company and St. Paul Re adjusted
for rate changes and trends. These judgments will take into account management's
view of past, current and future: (i) market conditions, (ii) changes in the
business underwritten, (iii) changes in timing of the emergence of claims and
(iv) other factors that may influence expected ultimate losses.

Over time, as a greater number of claims are reported, actuarial estimates
of IBNR are based on the Bornhuetter-Ferguson and the chain ladder techniques.
The Bornhuetter-Ferguson technique utilizes actual reported losses and expected
patterns of reported losses, taking the initial expected ultimate losses into
account to determine a new estimate of expected ultimate losses. This technique
is most appropriate when there are few reported claims and a relatively less
stable pattern of reported losses. The chain ladder technique utilizes actual
reported losses and expected patterns of reported losses to determine a new
estimate of expected ultimate losses that is independent of the initial expected
ultimate losses. This technique is most appropriate when there are a large
number of reported losses with significant statistical credibility and a
relatively stable pattern of reported losses. The pattern of reported losses is
determined utilizing actuarial analysis including judgment and is based on
historical patterns of the recording of paid losses and case reserves to the
Company, as well as industry patterns. Information that may cause historical
patterns to differ from future patterns is considered and reflected in expected
patterns as appropriate. For property and health coverages these patterns
indicate that a substantial portion of the ultimate losses are reported within 2
to 3 years after the contract is effective. Casualty patterns can vary from 3
years to well over 20 years depending on the type of business.

While the Company commenced operations in 2002, the business written is
sufficiently similar to the historical business of St. Paul Re that the Company
uses the historical loss experience of this business to estimate its initial
expected ultimate losses and its expected patterns of reported losses. These
patterns can span more than a decade and, given its own limited history, the
availability of the St. Paul Re data is a valuable asset to the Company.

Under U.S. GAAP, we are not permitted to establish liabilities until the
occurrence of an event that may give rise to a loss. When an event occurs of
sufficient magnitude we may establish a specific IBNR reserve. Generally, this
involves a catastrophe occurrence which affects many ceding company clients.
Ultimate losses and LAE are based on management's judgment that reflects
estimates gathered from ceding company clients, estimates of insurance industry
losses gathered from public sources and estimates from catastrophe modeling
software.

Estimated amounts recoverable from retrocessionaires on unpaid losses and
LAE are determined based on the Company's estimate of ultimate losses and LAE
and the terms and conditions of its retrocessional contracts. These amounts are
reflected as assets.
32

Unpaid losses and LAE represent management's 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 materially differ
from 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.

The uncertainty inherent in loss estimation is particularly pronounced for
casualty coverages, such as umbrella liability, general and product liability,
professional liability, directors and officers liability and automobile
liability, where information, such as required medical treatment and costs for
bodily injury claims, only emerges over time. In the overall loss reserving
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.

Loss reserves are refined and adjusted as new information becomes
available. Any such adjustments are accounted for as changes in estimates and
are reflected in results of operations in the period in which they are made.

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. Evaluating risk transfer involves significant assumptions 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 generally accounted for as reinsurance deposit
liabilities with interest expense charged to other income and credited to the
liability.

Investments

In accordance with our investment guidelines, our investments consist
largely of high-grade marketable fixed income securities. Fixed maturities owned
that the Company may not have the positive intent to hold until maturity are
classified as available-for-sale and reported at fair value, with unrealized
gains and losses excluded from net income and reported in other comprehensive
income as a separate component of shareholders' equity, net of deferred taxes.
Fixed maturities owned that the Company has the intent to sell prior to maturity
are classified as trading securities and reported at fair value, with unrealized
gains and losses included in other income. Securities classified as trading
securities are generally foreign currency denominated securities intended to
match foreign currency denominated assets and liabilities in order to minimize
net exposures arising from fluctuations in foreign currency exchange rates.
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 applicable 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
33

in income in the period the change is enacted. 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

During 2003, the Company adopted Statement of Financial Accounting
Standards No. 123 "Accounting for Awards of Stock Based Compensation to
Employees" ("SFAS 123") and Statement of Financial Accounting Standards No. 148
"Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS
148"). SFAS 123 requires that the fair value of shares granted under the
Company's share option plan subsequent to adoption of SFAS 148 be amortized in
earnings over the vesting periods. The fair value of the share options granted
are determined through the use of an option-pricing model. SFAS 148 amends SFAS
123 and provides transitioning guidance for a voluntary adoption of FAS 123 as
well as amends the disclosure requirements of SFAS 123. For the period from
November 1, 2002 through December 31, 2002, 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 share options is equal to or greater than the fair market
value of the underlying shares on the date of the grant, no compensation expense
is recorded.

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 of favorable pricing due to shortages of underwriting capacity.

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. 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 liability awards, as well as fluctuations in interest rates,
inflation 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 that pushed property and casualty
premium rates down. In 1999, there were several significant worldwide
catastrophic events that resulted in industry insured losses of approximately
$31 billion. These losses, and the subsequent contraction of reinsurance
capacity in the market, resulted in improvements in rates, terms and conditions
beginning with January 2000 renewals. These improvements continued in 2001 as
capacity continued to contract due to a number of catastrophe events,
particularly the terrorist attack of September 11, 2001. With insured losses
currently 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 industry insured catastrophic event prior to the attack
was Hurricane Andrew in 1992 with $16 billion in estimated losses. Shortly after
the property catastrophe events of 1999 and 2001, many reinsurance companies
began to recognize poor results in their casualty business stemming from
business underwritten from 1997 to 2000. The result was substantial loss reserve
charges summing to tens of billions of dollars and a further decrease in
industry capacity. In addition the capital of a number of large companies was
further reduced by poor investment results. In late 2001 and through 2002
several new companies were started. Some existing companies raised new capital
and others exited the business. The new capital invested in the industry was
substantially less than the capital reduction from losses, exited companies, and
poor investment results. As a result, rate increases in 2002 were significantly
higher than 2001. Rates still rose in 2003 though at a lower rate. We believe
that the shortage in property reinsurance capacity subsequent to the events of
1999

34

and 2001 has substantially abated. Effective rate changes for our property
business averaged 5-10% through 2003.

We believe that there will be more adverse casualty development from
reinsurers who underwrote casualty business in the late 1990s. We believe there
will be sustained upward pressure on casualty rates as these reserve shortfalls
are recognized. During 2003 our effective rate change for our casualty business
was between 25-30%.

RESULTS OF OPERATIONS

Platinum Holdings was incorporated on April 19, 2002 under the laws of
Bermuda to hold subsidiaries that provide property, casualty, and other
reinsurance to insurers and reinsurers on a worldwide basis and, in November
2002, completed a Public Offering and assumed certain rights and obligations of
the reinsurance business from St. Paul Re. Consequently, the 2002 consolidated
statements of income and comprehensive income, shareholders' equity and cash
flows include all activity from incorporation on April 19, 2002 through December
31, 2002. The underwriting operations, as well as substantially all other
operations of the Company commenced in November 2002. Generally, the results of
operations reflect the period from November 1, 2002 through December 31, 2002
(the "2002 Period") and are not comparable to the results of operations for the
year ended December 31, 2003.

Net income was $144,823,000 and $6,438,000 for the year ended December 31,
2003 and the 2002 Period, respectively. The increase is primarily because 2003
was the Company's first complete year of operations and the 2002 Period
represents a two-month period, during which the Company had minimal underwriting
activity. Additional factors affecting the comparison include the growth in the
business underwritten in 2003 over 2002, favorable development in 2003 of unpaid
losses and LAE as of December 31, 2002 of approximately $50,866,000, as well as
improved profitability relating to net premiums earned in 2003, and increased
investment income resulting from growth in invested assets in 2003. The United
States insurance industry incurred some significant catastrophe losses in 2003.
However, catastrophe losses in the Company's portfolio were relatively low as
most catastrophe claims remained at the primary or ceding company level.
Operating expenses for the year ended December 31, 2003 include a charge of
$9,289,000 for expenses related to the separation and consulting agreement with
the Company's former chief executive officer. Income tax expenses of $48,875,000
resulted in an effective tax rate of 25.2% for the year.

Net premiums written for the year ended December 31, 2003 and the 2002
Period were $1,172,142,000 and $298,114,000, respectively. The increase is
primarily because 2003 includes a full year of underwriting activity and the
2002 Period includes two months. Generally, the last two months of a year have a
relatively small amount of net premiums written. However, net premiums written
in the 2002 Period include $244,000,000 of unearned premiums assumed from St.
Paul under the Quota Share Retrocession Agreements representing the remaining
unearned premiums related to contracts written by St. Paul Re during the first
ten months of 2002. Premiums written are based partially on estimates of
ultimate premiums from reinsurance contracts and the estimates are updated
quarterly. Reductions in premiums estimated for the 2002 underwriting year in
the Casualty segment, a portion of which was written and earned by St. Paul Re,
reduced the Company's net premiums written in 2003 by approximately $35,300,000.

Net premiums earned for the year ended December 31, 2003 and the 2002
Period were $1,067,527,000 and $107,098,000, respectively. Similar to net
premiums written, net premiums earned in 2003 represents twelve months of
underwriting activity whereas the 2002 Period represents two months. Net
premiums earned are recognized subsequent to net premiums written. Net premiums
earned in the 2002 Period are relatively low due to the commencement of
operations during 2002. Net premiums earned for 2003 reflect business
underwritten in 2003 and 2002 while net premiums earned in the 2002 Period
reflect only business underwritten in 2002. The reduction in 2003 of net
premiums written in the Casualty segment resulted in a reduction of net premiums
earned of approximately $16,100,000. Net premiums earned as a percentage of net
premiums written for 2003 and the 2002 Period were 91.1% and 35.9%,

35

respectively. The 2003 ratio is consistent with the growth of the business
underwritten in 2003 over 2002. The ratio in the 2002 Period is low due to the
commencement of operations in 2002 and the unearned premium assumed from St.
Paul Re recorded as net premiums written in the 2002 Period.

Net investment income was $57,645,000 and $5,211,000 for the year ended
December 31, 2003 and the 2002 Period, respectively. The increase is primarily
because 2003 includes a full year of investment income and the 2002 Period
includes two months. The annualized investment yield for 2003 and the 2002
Period was 3.6% and 2.3%, respectively. The investment yield in 2003 reflects
prevailing interest rates during 2003. Net investment income increased during
2003 as the Company's invested assets increased as a result of positive cash
flow from operations. The yield in the 2002 Period reflects a delay in the
investment of short-term investments and cash into fixed maturities during the
2002 Period pending receipt of certain required regulatory approvals from the
United Kingdom and the State of Maryland. Net realized gains on investments were
$2,781,000 and $25,300 in 2003 and the 2002 Period, respectively, and are the
result of investment sale activity to manage the credit quality and duration of
the investment portfolio.

Other income was $3,343,000 and $167,000 for the year ended December 31,
2003 and the 2002 Period, respectively, and represents earnings on a small
number of reinsurance contracts in the Finite Risk segment accounted for as
deposits. Other income in 2003 also includes $1,282,000 of net unrealized losses
relating to changes in fair value of fixed maturities classified as trading.

Net foreign currency exchange gains (losses) for the year ended December
31, 2003 and the 2002 Period, were ($114,000) and $2,017,000, respectively.
Foreign currency exchange gains and losses arise from the valuation in U.S.
dollars of assets and liabilities denominated in foreign currencies. The Company
matches foreign currency denominated assets and liabilities to manage exposures
to foreign currency exchange rates.

Losses and LAE were $584,171,000 and $60,356,000 for the year ended
December 31, 2003 and the 2002 Period, respectively. The increase in losses and
LAE is due to the increase in net premiums earned in 2003 over the 2002 Period.
The ratios of losses and LAE to premiums earned, also referred to as loss
ratios, were 54.7% and 56.4% for the year ended December 31, 2003 and the 2002
Period, respectively. While losses and LAE in 2003 include provisions for
various catastrophe losses, the 2002 Period had no catastrophe losses. The
United States insurance industry incurred some significant catastrophe losses in
2003. However, catastrophe losses in the Company's portfolio were relatively low
as most catastrophe claims remained at the primary or ceding company level.
Losses and LAE in 2003 included a reduction is the estimated liability as of
December 31, 2002 of $63,966,000 of which $13,100,000 relates to the reduction
in 2003 of premiums originally estimated and accrued in 2002 in the Casualty
segment. The remaining $50,866,000 relates to favorable development. Unpaid
losses and LAE at December 31, 2002 were based largely on initial expected
ultimate loss ratios. Throughout 2003 actual reported losses were monitored
against expected patterns of reported loss. As actual reported losses continued
to be less than expected reported losses, estimates of expected ultimate losses
were reduced. This principally affected property coverages in the Property and
Marine and Finite Risk segments where a substantial portion of the ultimate
losses is expected to be reported to the Company within two years. Additionally,
losses and LAE in 2003 were favorably impacted by improved profitability
relating to net earned premium in 2003 on business underwritten in 2002.

Acquisition expenses, including brokerage, commissions and other direct
underwriting expenses associated with underwriting activities, were $251,226,000
and $25,474,000 for the year ended December 31, 2003 and the 2002 Period,
respectively. The increase in acquisition expenses is due to the increase in net
premiums earned in 2003 over the 2002 Period. Although acquisition ratios in
2003 varied by operating segment and by type of business, the resulting ratios
of acquisition expenses to net premiums earned for 2003 and the 2002 Period were
comparable at 23.5% and 23.8%, respectively.

Operating expenses include other underwriting expenses related to the
reinsurance operations as well as costs associated with the holding company
operations of Platinum Holdings and were $92,595,000 and $16,334,000 for the
year ended December 31, 2003 and the 2002 Period, respectively. The increase in
operating expenses results from 2003 representing twelve months of operations
whereas the 2002 Period
36

represents two months, modest growth in staff, fees relating to an agreement
with RenaissanceRe and office relocation expenses in 2003. Operating expenses in
2003 include a charge for $9,289,000 for the expenses related to the separation
and consulting agreement with the Company's former chief executive officer.
Operating expenses in the 2002 Period include one-time expenses of $5,353,000
incurred in connection with the completion of the Public Offering, the formation
of the Company and the assumption of business from St. Paul.

Interest expense for the year ended December 31, 2003 and the 2002 Period
was $9,492,000, and $1,261,000, respectively, and relates to amounts payable
under the Company's equity security units which are classified as debt
obligations on the Company's balance sheet. The increase is because 2003
includes a full year of interest expense and the 2002 Period includes two
months.

Income tax expense for the year ended December 31, 2003 and the 2002 Period
was $48,875,000 and $4,655,000, respectively. The increase in net income tax
expense is due to the increase in income before taxes in 2003 over the 2002
Period. The resulting effective tax rates were 25.2% and 42.0% for the 2003 and
the 2002 Period, respectively. The effective tax rate for 2003 was increased by
a significant amount of income derived from business underwritten in 2002,
assumed and retained by Platinum US and subject to U.S. corporate tax. The
effective tax rate for 2003 was also affected by expenses related to the
separation and consulting agreement with the Company's former chief executive
officer that were incurred by Platinum Holdings that, when combined with the
income before income tax expense from subsidiaries in taxable jurisdictions,
increased the effective tax rate. The effective tax rate in the 2002 Period was
higher than any tax rate of the taxable jurisdictions in which the Company
operates because of significant start-up expenses incurred by Platinum Holdings
for which no tax benefit was available.

SEGMENT INFORMATION

The Company conducts its worldwide reinsurance business through three
operating segments: Property and Marine, Casualty and Finite Risk. In managing
the Company's operating segments, management uses measures such as underwriting
income and underwriting ratios to evaluate segment performance. Management does
not allocate by segment its assets or certain income and expenses such as
investment income, interest expense and certain corporate expenses. Segment
underwriting income is reconciled to income before income taxes. The measures
used by management in evaluating the Company's operating segments should not be
used as a substitute for measures determined under U.S. GAAP. The following
table summarizes underwriting activity and ratios for the three operating
segments for the year ended December 31, 2003 and the 2002 Period ($ in
thousands):

PROPERTY AND MARINE

The Property and Marine operating segment includes principally property and
marine reinsurance coverages that are written in the United States and
international markets. This business includes property per-risk excess-of-loss
treaties, property proportional treaties and catastrophe excess-of-loss
reinsurance treaties. This operating segment generated 30% of the Company's net
premiums written in both 2003 and the 2002 Period.

Net premiums written for the year ended December 31, 2003 and the 2002
Period were $352,908,000 and $89,341,000, respectively. The increase is
primarily because 2003 includes a full year of underwriting activity and the
2002 Period includes two months. Generally, the last two months of a year have a
relatively small amount of net premiums written. However, net premiums written
in the 2002 Period include $77,049,000 of premiums assumed from St. Paul under
the Quota Share Retrocession Agreements representing unearned premiums related
to contracts written by St. Paul during the first ten months of 2002. Net
premiums written in 2003 reflect a growth in business underwritten in 2003 over
2002.

Net premiums earned for the year ended December 31, 2003 and the 2002
Period were $355,556,000 and $43,047,000, respectively. Similar to net premiums
written, net premiums earned in 2003 represent twelve months of underwriting
activity whereas the 2002 Period represents two months. Net premiums earned are
recognized subsequent to net premiums written. Net premiums earned in the 2002
Period are relatively low due to the commencement of operations during 2002. Net
premiums earned for 2003 reflect

38

business underwritten in 2003 and 2002 while net premiums earned in 2002 reflect
only business underwritten in 2002. Net premiums earned as a percentage of net
premiums written for 2003 and the 2002 Period were 101% and 48%, respectively.
Generally a growing book of business will produce a ratio of net premiums earned
as a percentage of net premiums written of less than 100%. Despite an increase
in business underwritten in 2003 over 2002, changes in the mix of business
increased the 2003 ratio over 100%. The ratio for the 2002 Period is low due to
the commencement of operations in 2002 and the unearned premium assumed from St.
Paul recorded as net premiums written in the period.

Losses and LAE for the year ended December 31, 2003 and the 2002 Period
were $169,944,000 and $21,558,000, respectively. The increase in losses and LAE
is related to the increase in net premiums earned in 2003 over the 2002 Period.
The loss ratios for 2003 and the 2002 Period were 47.8% and 50.1%, respectively.
Losses and LAE in 2003 were favorably affected by a relatively low level of
catastrophe losses, while the 2002 Period had no catastrophe losses. Losses and
LAE in 2003 also included favorable development in 2003 of losses and LAE as of
December 31, 2002 of approximately $31,600,000. Additionally, the losses and LAE
in 2003 were favorably impacted by improved profitability relating to net earned
premium in 2003 on business underwritten in 2002.

Acquisition expenses for the year ended December 31, 2003 and the 2002
Period were $52,154,000 and $7,798,000, respectively. The increase is due to the
increase in net premiums earned in 2003 over the 2002 Period. The ratios of
acquisition expenses to net premiums earned for 2003 and the 2002 Period,
respectively were 14.7% and 18.1%, respectively. The ratios fluctuate as a
result of the changes in mix of business and the differences in terms and
conditions of various contracts.

Other underwriting expenses for the year ended December 31, 2003 and the
2002 Period were $35,598,000 and $5,960,000, respectively, and represent costs
such as salaries, rent and like items. The increase is primarily because 2003
includes a full year of operations and the 2002 Period includes two months.
Other underwriting expenses includes fees of $5,350,000 in 2003 and $46,000 in
the 2002 Period relating to an agreement with RenaissanceRe that provides for a
periodic review of aggregate property catastrophe exposures. Operating expenses
for the 2002 Period include one-time expenses of $1,267,000 incurred in
connection with the completion of the Public Offering, the formation of the
Company and the assumption of business from St. Paul.

CASUALTY

The Casualty operating segment includes principally reinsurance treaties
that cover umbrella liability, general and product liability, professional
liability, directors and officers liability, workers' compensation, casualty
clash and automobile liability. This segment also includes accident and health
reinsurance treaties, which are predominantly reinsurance of health insurance
products. Most of our casualty reinsurance business is written on an
excess-of-loss basis. This operating segment generated 40.4% and 55.3% of the
Company's net premiums written for the year ended December 31, 2003 and the 2002
Period, respectively. The percentage in the 2002 Period was impacted by the
unearned premiums assumed under the Quota Share Retrocession Agreements being
recorded as net premiums written. We believe the 2003 percentage is more
reflective of the casualty component of our business. Throughout 2003 the
percentage of total net premiums written generated from our Casualty segment has
been increasing as a result of increased underwriting activity in an improving
marketplace.

Net premiums written for the year ended December 31, 2003 and the 2002
Period were $474,000,000 and $164,929,000, respectively. The increase is
primarily because 2003 includes a full year of underwriting activity and the
2002 Period includes two months. Generally, the last two months of a year have a
relatively small amount of net premiums written. However, net premiums written
in the 2002 Period include $140,386,000 of premiums assumed from St. Paul under
the Quota Share Retrocession Agreements representing unearned premiums related
to contracts written by St. Paul during the first ten months of 2002. Net
premiums written in 2003 reflect a growth in business underwritten in 2003 over
2002. Premiums written are based partially on estimates of ultimate premiums
from reinsurance contracts and the estimates are updated quarterly. Net premiums
written in 2003 include a reduction in premiums

39

estimated in the 2002 underwriting year, a portion of which were written and
earned by St. Paul Re, that reduced net premiums written in the Company's
Casualty segment in 2003 by approximately $35,300,000.

Net premiums earned for the year ended December 31, 2003 and the 2002
Period were $391,170,000 and $39,320,000, respectively. Similar to net premiums
written, net premiums earned in 2003 represents twelve months of underwriting
activity whereas the 2002 Period represents two months. Net premiums earned are
recognized subsequent to net premiums written. Net premiums earned in the 2002
Period are relatively low due to the commencement of operations during 2002. Net
premiums earned for 2003 reflect business underwritten in 2003 and 2002 while
net premiums earned in the 2002 Period reflect only business underwritten in
2002. The reduction, in 2003, of premiums estimated and accrued in the 2002
Period resulted in a reduction of net premiums earned in 2003 of approximately
$16,100,000. Net premiums earned as a percentage of net premiums written in 2003
and the 2002 Period were 83% and 24%, respectively. The 2003 ratio is consistent
with the growth of the business underwritten in 2003 over 2002. The ratio for
the 2002 Period is low due to the commencement of operations in increase in 2002
and the unearned premium assumed from St. Paul recorded as net premiums written.

Losses and LAE were $266,836,000 and $29,498,000 for the year ended
December 31, 2003 and the 2002 Period, respectively. The increase in losses and
LAE is related to the increase in net premiums earned in 2003 over the 2002
Period. The loss ratios incurred for the Casualty segment in 2003 and the 2002
Period were 68.2% and 75.0%, respectively. The loss ratio on business
underwritten in 2003 is lower than the loss ratio for business underwritten in
2002 due to rate increases achieved during 2003. The losses and LAE in 2003
includes amounts from business underwritten in 2003 and business underwritten in
2002 while the 2002 Period includes amounts only from business underwritten in
2002. Losses and LAE in 2003 included a reduction is the estimated liability as
of December 31, 2002 of $14,500,000 of which $13,100,000 relates to the
reduction in 2003 of premiums originally estimated and accrued in the 2002
Period. The remaining $1,400,000 relates to favorable development. The decline
in the loss ratio is further influenced by a shift in the mix of business toward
contracts that have lower loss ratios and higher expense ratios.

Acquisition costs for the year ended December 31, 2003 and the 2002 Period
were $101,005,000 and $9,269,000, respectively. The resulting acquisition
expense ratios for 2003 and the 2002 Period were 25.8% and 23.6%, respectively.
The ratios reflect the mix of business and effects of differences in terms and
conditions of various contracts as well as the shift in the mix of business
discussed in the preceding paragraph.

Other underwriting expenses for the year ended December 31, 2003 and the
2002 Period were $21,060,000 and $4,136,000, respectively, and represent costs
such as salaries, rent and like items. Other underwriting expenses in the 2002
Period include $879,000 of one-time expenses incurred in connection with the
completion of the Public Offering, the formation of the Company and the
assumption of business from St. Paul.

FINITE RISK

The Finite Risk operating segment includes principally structured
reinsurance contracts with ceding companies whose needs may not be met
efficiently through traditional reinsurance products. The Company focuses on
providing such clients with customized solutions for their financial management
needs. The classes of risks underwritten in the Finite Risk segment are
generally consistent with the classes covered using traditional products. At the
time the Company was formed in 2002, management had the opportunity to select an
initial portfolio of finite risk contracts to be assumed from St. Paul under the
Quota Share Retrocession Agreements that management believed would generate
significant underwriting gains. Profitability in this segment was favorably
influenced by contractual terms and conditions that provided for greater profit
opportunity as a result of losses incurred by St. Paul Re. This operating
segment generated 29.5% and 14.7% of the Company's net premiums written in 2003
and the 2002 Period, respectively.

40

Net premiums written for the year ended December 31, 2003 and the 2002
Period were $345,234,000 and $43,844,000, respectively. The increase is
primarily because 2003 includes a full year of underwriting activity and the
2002 Period includes two months. The Finite Risk portfolio consists of a small
number of contracts which can be large in premium size and are written on an
intermittent basis. Consequently net premiums written are expected to vary
significantly from year to year. A few significant finite quota share treaties
were underwritten in the latter part of 2002 and early 2003 that together
produced net premiums written of $220,000,000 in 2003.

Net premiums earned for the year ended December 31, 2003 and the 2002
Period were $320,801,000 and $24,731,000, respectively. Similar to net premiums
written, net premiums earned in 2003 includes a full year of underwriting
activity whereas the net premiums earned in the 2002 Period includes two months.
In addition, net premiums earned are recognized subsequent to net premiums
written. The net premiums earned in 2003 reflects premiums from contracts
underwritten in 2003 and 2002 whereas the net premiums earned in the 2002 Period
only reflects premiums from contracts underwritten in 2002 since there was no
business underwritten prior to 2002. Net premiums earned as a percentage of net
premiums written in 2003 and the 2002 Period increased from 93% and 56%,
respectively. The 2003 ratio is consistent with the growth of the business
underwritten in the latter part of 2002 and through 2003. The ratio for the 2002
Period is low due to the commencement of operations in 2002 and the unearned
premium assumed from St. Paul recorded as net premiums written in the period.

Losses and LAE for the year ended December 31, 2003 and the 2002 Period
were $147,391,000 and $9,300,000, respectively. The increase in losses and LAE
is related to the increase in net premiums earned in 2003 over the 2002 Period.
The loss ratios incurred for the Finite Risk segment in 2003 and the 2002 Period
were 45.9% and 37.6%, respectively. Both 2003 and the 2002 Period benefited from
the absence of any catastrophe losses. In 2003 there was a significantly greater
amount of finite quota share contracts that had higher loss ratios. This affect
was partially mitigated by favorable development in 2003 of losses and LAE as of
December 31, 2002 of approximately $17,900,000, which includes the effect of
commutations.

Acquisition costs for the year ended December 31, 2003 and the 2002 Period
were $98,067,000 and $8,407,000, respectively. The increase in acquisition
expenses is related to the increase in net premiums earned in 2003 over the 2002
Period. The resulting acquisition expense ratios in 2003 and the 2002 Period
were 30.6% and 34.0%, respectively. The ratios reflect the mix of business and
effects of differences in terms and conditions of various contracts.

Other underwriting expenses for the year ended December 31, 2003 and the
2002 Period were $12,870,000 and $2,068,000, respectively, and represent costs
such as salaries, rent and like items. The increase is primarily because 2003
includes a full year of operations and the 2002 Period includes two months.
Other underwriting expenses in 2002 include $440,000 of one-time expenses
incurred in connection with the completion of the Public Offering, the formation
of the Company and the assumption of business from St. Paul.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

FINANCIAL CONDITION

Fixed maturities were $1,678,138,000 as of December 31, 2003. The Company's
fixed maturity investment portfolio is comprised entirely of publicly traded
investment grade bonds. The portfolio had an average duration of 3.7 years as of
December 31, 2003. Management monitors the composition of the investment
portfolio and cash flows from the portfolio to maintain the appropriate levels
of liquidity in an effort to ensure the Company's ability to satisfy claims.
Investments with a carrying value of $473,289,000 and cash and cash equivalents
of $11,868,000 at December 31, 2003 were held in trust to secure St. Paul for an
equivalent amount of liabilities ceded by St. Paul to the Company under the
Quota Share Retrocession Agreements. The Company believes it has sufficient cash
on hand to meet its short-term obligations and to maintain the liquidity
necessary for portfolio management. All cash flow in excess of these
requirements is invested in a timely manner.

41

As the Company's book of business develops, certain assets and liabilities
associated with underwriting have increased significantly, some of which include
significant estimates. Premiums receivable, deferred acquisition costs, unpaid
losses and LAE, unearned premiums and commissions payable have all increased
significantly from December 31, 2002. Premiums receivable increased by
approximately $481,843,000 from December 31, 2002 to December 31, 2003, of which
$395,717,000 represents EBNR. Unpaid losses and LAE, net of reinsurance
recoverable on ceded losses and LAE, increased by approximately $450,259,000
from December 31, 2002 to December 31, 2003, of which $357,557,000 represents
IBNR.

SOURCES OF LIQUIDITY

The consolidated sources of funds of the Company consist primarily of
premiums received, losses recovered from retrocessionaires, investment income
and proceeds from sales and redemption of investments and actual cash and cash
equivalents held by the Company. Net cash flow provided by operations for the
year ended December 31, 2003 and the 2002 Period were $383,307,000 and
$281,393,000, respectively, and was used primarily to acquire additional
investments. Cash flows are derived from our premium volume and the relatively
low level of claim payments made to date due, in part, to the start-up nature of
our business and the relatively low level of catastrophe losses incurred during
the current year. Included in the cash flow from operations is $108,336,000
received from St. Paul relating to the liabilities assumed on November 2, 2002
under the Quota Share Retrocession Agreements. The Company continues to receive
cash from St. Paul relating to the ongoing administration of reinsurance
contracts assumed. The net cash flows from operating activities in the 2002
Period was impacted materially by the Quota Share Retrocession Agreements, under
which the Company assumed reinsurance contract liabilities of St. Paul Re on
November 2, 2002 and received approximately $288,648,000 in cash.

The Company actively manages the cash and cash equivalent component of its
overall investment portfolio in order to manage the overall duration of its
investment portfolio and to ensure there is adequate cash on hand to meet
ongoing operational requirements, along with other potential liquidity
requirements. As of December 31, 2003 the Company had $105,461,000 of cash and
cash equivalents.

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, Platinum UK and Platinum
Bermuda. As a holding company, the cash flow of Platinum Holdings consists
primarily of dividends, interest and other permissible payments from its
operating subsidiaries. Platinum Holdings depends on such payments to receive
funds for general corporate purposes and to meet its obligations, including the
contract adjustment payments related to the equity security units and the
payment of any dividends to its shareholders.

Platinum Holdings had a 364-day committed credit facility with a group of
banks which provided $100,000,000 of aggregate borrowing capacity. The credit
facility expired on August 19, 2003. Platinum Holdings did not renew its credit
facility because the Company believes its financial position and operations are
able to provide adequate liquidity. As part of the Company's ongoing business
strategy, we may, from time to time, seek to secure external financing and may
also access the public capital markets.

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 with United States ceding companies, they are required
to provide security to their ceding companies for unpaid ceded 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
42

Platinum Bermuda expect to obtain letters of credit through commercial banks and
may be required to provide the banks with a security interest in certain of
Platinum UK's and Platinum Bermuda's investments.

The payment of dividends and other distributions 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 or other distributions by the reinsurance subsidiaries of
the Company in 2004 without prior regulatory approval is estimated to be
$139,190,000.

Platinum Holdings operates a treasury department that is responsible for
the following functions: (1) managing banking relationships, (2) capital raising
activities, including equity and debt issues, (3) managing Platinum Holdings'
overall cash and liquidity positions, and (4) overseeing the payment of internal
and external dividends and the settlement of interest obligations.

Management 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 foreseeable future. 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 and the
presence or absence of large catastrophic events.

ECONOMIC CONDITIONS

Periods of moderate economic recession or inflation tend not to have a
significant direct effect on the Company's underwriting operations. Significant
inflationary or recessionary periods can, however, impact the Company's
underwriting operations and investment portfolio. Management considers the
potential impact of economic trends in estimating its unpaid losses and LAE.
Management believes that the underwriting controls it maintains assist in
estimating ultimate claim costs and lessen the potential adverse impact of the
economy on the Company.

CAPITAL EXPENDITURES

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

CONTRACTUAL OBLIGATIONS

OFF BALANCE SHEET ARRANGEMENTS

The Company does not have any arrangements that are not accounted for or
disclosed in the consolidated financial statements.

CURRENT OUTLOOK

We believe that our markets continue to provide strong opportunities.
Currently, we believe that premium rates in certain casualty reinsurance markets
have strengthened to attractive levels. We believe that premiums in our Casualty
segment will grow. Because there are areas of the casualty market where pricing
remains inadequate, we are being selective and write business only when we
believe it will be profitable. We believe we have necessary expertise in our
U.S. operations to support our strategies. We believe that our reputation for
prompt service as well as our financial strength will help achieve our goal.

43

We believe that the additional capacity provided to the reinsurance market
subsequent to September 11, 2001, as well as light catastrophe losses in 2002
and 2003 have begun to cause pricing in the property catastrophe market to
decrease. Decreases to date have been modest and we believe that rates remain at
attractive levels. Significant time and effort has been invested in developing
sophisticated catastrophe modeling tools that assist us in identifying
profitable business opportunities. We believe we can improve the risk/reward
relationship in our portfolio and grow the Property and Marine segment while
managing our catastrophe exposure risk within acceptable levels.

We believe that the Finite Risk segment has performed exceptionally well in
2003. Profitability was favorably influenced by a relatively low level of
current losses and contractual terms and conditions that provided for greater
profit opportunity as a result of significant losses incurred in prior periods
by St. Paul Re. We believe opportunities to write finite contracts will remain
though the terms and conditions of the contracts will not allow the same profit
opportunity as we move farther away from the adverse loss experience of St. Paul
Re.

We are routinely reviewing various opportunities for investments or
transactions that would provide an attractive return on equity or an opportunity
to write new classes of business or access additional markets.

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:

OUR RESULTS COULD BE ADVERSELY AFFECTED BY OUR STATUS AS A RELATIVELY NEW
COMPANY.

The Company has no operating history prior to the Public Offering.
Businesses such as ours, which are in their early stages of development, present
substantial business and financial risks. We are still in the process of
developing business relationships, establishing certain operating procedures,
obtaining certain licenses and completing other tasks appropriate for the
conduct of our business activities. Certain potential clients may not wish to do
business with us because of our limited operating history.

INCREASED COMPETITION COULD ADVERSELY AFFECT OUR PROFITABILITY.

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 that 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.

Following the September 11, 2001 terrorist attack, a number of individuals
and companies in the reinsurance industry established new, well-capitalized,
Bermuda-based reinsurers to benefit from improved market conditions, and a
number of existing competitors raised additional capital or have announced plans
to do so. Many of the reinsurers that 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. The full effect of this additional capital on the
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. 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.

Traditional as well as new capital market participants from time to time
produce alternative products (such as reinsurance securitizations, catastrophe
bonds and various derivatives such as swaps) that may

44

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.

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. 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.

Best's is generally considered to be a significant rating agency with
respect to the evaluation of insurance and reinsurance companies. 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
material.

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 severe catastrophic events could
have a material adverse effect on our results of operations and financial
condition. In addition, catastrophes are an inherent risk of our business and a
severe catastrophe or series of catastrophes could 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.

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.

45

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.

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.

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.

46

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. The loss of business relationships with any of
our 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 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
47

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. We cannot
predict whether market conditions will improve, remain constant or deteriorate.
A return to unfavorable 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.

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

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. Depending on the classification of our investments as
available-for-sale, trading or other assets, changes in the market value of our
securities will be reflected in either our consolidated balance sheet or
statement of income. The Company's investment portfolio is also subject to
credit risk resulting from adverse changes in the issuer's ability to repay the
debt. These risks could materially adversely affect our results of operations.

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. To the extent the Company does
not seek to hedge its foreign currency risk or hedges prove ineffective, the
resulting impact of a movement in foreign currency exchange rate could
materially adversely affect our results of operations.

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' 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% "branch

48

profits" tax on such income remaining after the regular tax in certain
circumstances. Any such tax 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 materially 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.

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 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 meet its debt service obligations. 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 any one issuer or industry. 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 requiring a minimum average credit rating
of A2 as defined by Moody's Investor Service. As of December 31, 2003, the
portfolio has a dollar weighted average rating of Aa3.

The Company has other receivable amounts subject to credit risk. The most
significant of these are reinsurance premiums receivable from ceding companies
and losses recoverable from retrocessionaires. To
49

mitigate credit risk related to losses recoverable from retrocessionaires, we
establish business and financial standards for retrocessionaire approval,
incorporate ratings by major rating agencies, consider current market
information, and obtain letters of credit or other forms of security where
deemed necessary. To mitigate credit risk related to premium receivables, we
have established standards for ceding companies and, in most cases, have a
contractual right of offset thereby allowing the Company to settle claims net of
any premium receivable.

In accordance with industry practice, the Company frequently pays amounts
in respect of claims under contracts 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, the Company may remain liable to the ceding
company for the payment. Conversely, in certain jurisdictions, when premiums for
such contracts are paid to reinsurance brokers for payment over to the Company,
such premiums will be deemed to have been paid and the ceding company will no
longer be liable to the Company for those amounts whether or not actually
received by the Company. Consequently, the Company assumes a degree of credit
risk associated with its brokers during the payment process. To mitigate credit
risk related to reinsurance brokers, the Company has established standards for
brokers and intermediaries similar to those standards for ceding companies and
reinsurers.

INTEREST RATE RISK

The Company is exposed to fluctuations in interest rates. Movements in
rates can result in changes in the market value of our fixed income portfolio
and can cause changes in the actual timing of when we expect to receive certain
principal payments. Rising interest rates result in a decline in the market
value of our fixed income portfolio and can expose our portfolio, in particular
our mortgage backed securities, to extension risk. Conversely a decline in
interest rates will result in a rise in the market value of our fixed income
portfolio and can expose our portfolio, in particular our mortgage backed
securities, to prepayment risk. The aggregate hypothetical impact on our fixed
income portfolio, generated from an immediate parallel shift in the treasury
yield curve, as of December 31, 2003 is approximately as follows ($ in
thousands):

FOREIGN CURRENCY RISK

The Company writes business on a worldwide basis. Consequently, the
Company's principal exposure to foreign currency risk is its obligation to
settle claims in foreign currencies. Changes in foreign currency exchange rates
can impact revenues, costs, receivables and liabilities, as measured in the U.S.
dollar, our financial reporting currency. The Company seeks to minimize its
exposure to its largest foreign currency risks by holding invested assets
denominated in foreign currencies to offset liabilities denominated in foreign
currencies.

50

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, 2003 ($ 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. Other invested asset represents a
strategic investment in a non-public reinsurance company and is carried at
estimated fair value.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company as of December 31,
2003 and 2002 and for the year ended December 31, 2003 and the period from April
19, 2002 (date of inception) through December 31, 2002, together with the
independent auditors' report thereon, are set forth on pages F-1 through F-27.
The combined statements of the reinsurance underwriting segment of St. Paul
prior to the Public Offering (the Predecessor Business), together with the
independent auditors' report thereon, are set forth on pages P-1 through P-11
hereto.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

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 (as such term is defined in Rule 13a-15(e)
under the Exchange Act) as of the end of the period covered by this report.
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 SEC. There
have been no significant changes in internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting subsequent to the date
of such evaluation, including any corrective actions with regard to significant
deficiencies or material weaknesses.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item relating to our directors and
executive officers is incorporated herein by reference to "Proposal
1 -- Election of Directors" under the headings "Information Concerning
Nominees," "Information Concerning Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" of our definitive proxy statement to
be filed pursuant to Regulation 14A of the Exchange Act for our 2004 Annual
General Meeting of Shareholders (our "Proxy Statement"). The Company intends to
file the Proxy Statement prior to April 29, 2004.

51

CODE OF ETHICS

We have adopted a Code of Ethics within the meaning of Item 406 of
Regulation S-K of the Exchange Act. Our Code of Ethics applies to all of our
directors and employees including, without limitation, our principal executive
officer, our principal financial officer, our principal accounting officer and
all of our employees performing financial or accounting functions. A copy of our
Code of Ethics is posted on our website at www.platinumre.com and is included as
Exhibit 14 to this Form 10-K. In the event that we make any amendment to, or
grant any waiver from, a provision of our Code of Ethics that requires
disclosure under Item 10 of Form 8-K, we will post such information on our
website.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item relating to executive compensation is
incorporated herein by reference to "Proposal 1 -- Election of Directors" under
the heading "Executive Compensation" of our Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS

The information required by this Item relating to security ownership of
certain beneficial owners and management and related shareholder matters is
incorporated herein by reference to "Proposal 1 -- Election of Directors" under
the headings "Equity Based Compensation Information," "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" of our Proxy
Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item relating to certain relationships and
related transactions is incorporated herein by reference to "Proposal
1 -- Election of Directors" under the heading "Related Party Transactions" of
our Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item relating to principal accountant fees
and services is incorporated herein by reference to "Proposal 6 -- Ratification
of Selection of Independent Auditors" of our Proxy Statement.

PART IV

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

(A) FINANCIAL STATEMENTS AND EXHIBITS

1. FINANCIAL STATEMENTS

The consolidated financial statements of the Company as of December 31,
2003 and 2002 and for the periods then ended, together with the Independent
Auditors' report thereon, are set forth on pages F-1 through F-23 hereto. The
combined statements of the reinsurance underwriting segment of St. Paul prior to
the Public Offering for the period from January 1, 2002 through November 1, 2002
and the year ended December 31, 2001, together with the report thereon by KPMG
LLP, independent certified public accountants, are set forth on pages P-1
through P-16 hereto.

2. SCHEDULES SUPPORTING FINANCIAL STATEMENTS

The schedules relating to the consolidated financial statements of the
Company as of December 31, 2003 and 2002 and for the periods then ended,
together with the Independent Auditors' report thereon, are set forth on pages
S-1 through S-8 hereto. Schedules not referred to have been omitted as
inapplicable or not required by Regulation S-X.
52

3. EXHIBITS

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

* Items denoted with an asterisk represent management contracts or compensatory
plans or arrangements.

(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 Statements on Form S-1
(Registration Nos. 333-99019 and 333-99019-01) of Platinum Holdings and
Platinum Finance.

(3) Incorporated by reference from Platinum Holdings' Annual Report on Form 10-K
for the year ended December 31, 2002, filed with the Commission on March 31,
2003.

(4) Incorporated by reference from Platinum Holdings' Quarterly Report on Form
10-Q for the quarter ended June 30, 2003, filed with the Commission on
August 14, 2003.

(5) Incorporated by reference from Platinum Holdings' Quarterly Report on Form
10-Q for the quarter ended September 30, 2003, filed with the Commission on
November 14, 2003.

57

(B) REPORTS ON FORM 8-K

On November 13, 2003, Platinum Holdings filed with the SEC a report on Form
8-K containing a press release, issued on November 12, 2003, reporting its
financial results as of and for the quarter ended September 30, 2003.

On December 2, 2003, Platinum Holdings filed with the SEC a report on Form
8-K containing (1) slides utilized in a presentation by Gregory Morrison, Chief
Executive Officer, Michael Price, Chief Underwriting Officer, and William
Robbie, Chief Financial Officer, at the 12th Annual Bermuda Angle on December 2,
2003 and (2) a press release, issued on December 2, 2003, providing guidance for
fiscal year 2004.

58

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/ GREGORY E.A. MORRISON
----------------------------------------
Gregory E.A. Morrison
President and Chief Executive Officer

Date: March 12, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

F-1

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of Platinum
Underwriters Holdings, Ltd. and subsidiaries as of December 31, 2003 and 2002,
and the related consolidated statements of income and comprehensive income,
shareholders' equity, and cash flows for the year ended December 31, 2003 and
the period from 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 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 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 audits provide 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, 2003 and 2002,
and the results of their operations and their cash flows for the year ended
December 31, 2003 and the period from 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 5, 2004

F-2

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

See accompanying notes to consolidated financial statements.

F-3

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2003 AND
THE PERIOD FROM APRIL 19, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2002
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

See accompanying notes to consolidated financial statements.

F-4

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2003 AND
THE PERIOD FROM APRIL 19, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2002

See accompanying notes to consolidated financial statements.

F-5

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2003 AND
THE PERIOD FROM APRIL 19, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2002

See accompanying notes to consolidated financial statements.

F-6

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") 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 2002 consolidated statements of income and comprehensive
income, shareholders' equity and cash flows include all activity from
incorporation on April 19, 2002 through December 31, 2002. The underwriting
operations, as well as substantially all other operations of the Company
commenced in November 2002. The results of operations reflect the period from
November 1, 2002 through December 31, 2002 (the "2002 Period").

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 financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America ("U.S.
GAAP"). These financial statements reflect 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, Platinum Administrative
Services, Inc. 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 owned that the Company may not have the positive intent to
hold until maturity are classified as available-for-sale and reported at fair
value, with unrealized gains and losses excluded from net income and reported in
other comprehensive income as a separate component of shareholders' equity, net
of deferred taxes. Fixed maturities owned that the Company has the intent to
sell prior to maturity are classified as trading securities and reported at fair
value, with unrealized gains and losses included in other income. Securities
classified as trading securities are generally foreign currency denominated
securities intended to match foreign currency denominated assets and liabilities
in order to minimize net exposures arising from fluctuations in foreign currency
exchange rates. 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

F-7

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

temporary," the investments are written down to fair value. The write down is
recorded as a realized investment loss in the consolidated statements of income.

Other invested asset represents a strategic investment in a non-public
reinsurance company and is carried at estimated fair value.

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, 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 when premiums
become earned proportionately over the coverage period. Net premiums earned are
recorded in the statement of income, net of the cost of retrocession. Net
premiums written not yet recognized as revenue are recorded in the balance sheet
as unearned premiums, gross of any ceded unearned premiums.

Due to the nature of reinsurance, ceding companies routinely report and
remit premiums subsequent to the contract coverage period. Consequently,
reinsurance premiums written include amounts reported by the ceding companies,
supplemented by estimates of premiums which are earned but not reported
("EBNR"). Along with estimating EBNR the Company records the expenses associated
with these premiums in the form of losses, loss adjustment expenses ("LAE") and
commissions. As actual premiums are reported by the ceding companies, management
evaluates the appropriateness of the premium estimates and any adjustment to
these estimates is recorded in the period in which it becomes known. Adjustments
to original premium estimates could be material and could significantly impact
earnings in the period they are recorded. Due to the time lag inherent in the
reporting of premiums by ceding companies, a significant portion of amounts
included as premiums written and receivable represent estimated premiums, net of
commissions, and is not currently due based on the terms of the underlying
contracts.

Certain of our reinsurance contracts include provisions that adjust
premiums or acquisition expenses based upon the experience under the contracts.
Premiums written and earned, as well as related acquisition expenses under these
contracts, are recognized based upon the losses recorded under those contracts.

Reinstatement premiums and additional premiums are recognized in accordance
with the provisions of assumed reinsurance contracts, based on losses recorded
under such contracts. Reinstatement premiums are the premiums charged for the
restoration of the reinsurance limit of a reinsurance contract to its full
amount, generally coinciding with the payment by the reinsurer of losses. 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 triggered by losses and are earned immediately. An
allowance for uncollectible premiums is 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

F-8

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 2003 and the 2002 Period were $227,240,000 and $14,449,000,
respectively.

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 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

F-9

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates applicable 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 the change is enacted. 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

During 2003, the Company adopted Statement of Financial Accounting
Standards No. 123 "Accounting for Awards of Stock Based Compensation to
Employees" ("SFAS 123") and Statement of Financial Accounting Standards No. 148
"Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS
148"). SFAS 123 requires that the fair value of shares granted under the
Company's share option plan subsequent to the adoption of SFAS 148 be amortized
in earnings over the vesting periods. The fair value of the share options
granted are determined through the use of an option-pricing model. SFAS 148
amends SFAS 123 and provides transitioning guidance for a voluntary adoption of
FAS 123 as well as amends the disclosure requirements of FAS 123. For the 2002
Period, 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 share options is
equal to or greater than the fair market value of the underlying shares on the
date of the grant, no compensation expense is recorded. The adoption of SFAS 148
did not have a material effect on the Company financial.

Had the Company calculated and recorded compensation expense for share
option grants based on the "fair value" method described in SFAS 123 for options
granted prior to 2003, net income and earnings per

F-10

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

share, net of tax, for the year ended December 31, 2003 and the 2002 Period
would have been the pro forma amounts as indicated below ($ in thousands, except
per share data):

Foreign Currency Exchange

The Company's functional currency is generally the currencies of the local
operating environment. Transactions conducted in other than functional
currencies are remeasured to the Company's functional currency, and the
resulting foreign exchange gains or losses are included in net foreign currency
exchange gains losses. Functional currency based assets and liabilities are
translated into U.S. dollars using current rates of exchange prevailing at the
balance sheet date and the related translation adjustments are recorded as a
separate component of accumulated other comprehensive income, 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 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.

Reclassifications

Certain reclassifications have been made to the 2002 financial statements
in order to conform to the 2003 presentation.

New Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150").
SFAS 150 requires that an entity classify as liabilities or assets financial
instruments issued in the form of shares that are mandatorily redeemable;
certain financial instrument

F-11

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

obligations to repurchase the entity's shares by transferring assets; and
financial instruments representing certain obligations to issue variable number
of shares. The Company adopted the accounting treatment in accordance with SFAS
150. SFAS 150, as adopted, has had no effect upon the financial condition of the
Company or its results of operations.

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 on November 2, 2002 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................................................ 54,902
--------
343,550
--------
Amount due from St. Paul.................................... $108,336
--------

Amounts due from St. Paul at December 31, 2002 were settled during 2003.

Included in assumed premiums written in the 2002 Period 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 2002 Period. While the Company did not cede any premiums in
the 2002 Period, 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 provided for the transfer of employees from St.
Paul and provided for the allocation of assets and liabilities and certain other
agreements with respect to employee compensation and benefit plans. In addition,
St. Paul reimbursed 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 agreement also provided for reimbursement
of severance and retention payments to the Company's employees. The

F-12

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company had 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 1, 2002 assumption of
liabilities on reinsurance contracts becoming effective in
2002...................................................... $108,336
Premiums assumed in the 2002 Period......................... 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
--------

3. INVESTMENTS

The Company's available-for-sale fixed maturities at December 31, 2003 and
2002 were as follows ($ in thousands):

Amortized cost and fair value of available-for-sale fixed maturities by
contractual maturity at December 31, 2003 are shown below; actual maturities
could differ from contractual maturities due to call or prepayment provisions ($
in thousands):

F-13

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Investment income for the year ended December 31, 2003 and the 2002 Period
is summarized as follows ($ in thousands):

Net realized gains from investments for the year ended December 31, 2003
and the 2002 Period were all derived from fixed maturities. Gross gains and
losses realized for the year ended December 31, 2003 were $4,639,000 and
$1,858,000 respectively. Gross gains and losses realized for the 2002 Period
were $423,000 and $398,000, respectively.

Proceeds from sales, maturities and calls of available-for-sale fixed
maturities were $526,224,000 in 2003 and $120,421,000 in the 2002 Period. There
were no sales in the trading securities portfolio.

Net change in unrealized investment gains (losses) for the year ended
December 31, 2003 and the 2002 Period were as follows ($ in thousands):

Investments with a carrying value of $4,561,000 were on deposit with
regulatory authorities as of December 31, 2003. Investments with a carrying
value of $473,289,000 and cash and cash equivalents of $11,868,000 at December
31, 2003 were held in trust to secure St. Paul for liabilities ceded by St. Paul
to the Company under the Quota Share Retrocession Agreements.

F-14

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments as of December 31, 2003 and 2002 ($ in
thousands):

The fair values of financial instruments are based on quoted market prices
at the reporting date for those or similar instruments. The fair values of debt
obligations are based on quoted market prices. Other invested asset represents a
strategic investment in a non-public reinsurance company and is carried at
estimated fair value.

The Company reviews its investment portfolio for potential permanent
impairment on a regular basis. Securities are reviewed for impairment if the
fair value is lower than the carrying value. An impairment is considered to be
other than temporary when there is evidence indicating that the carrying amount
is not recoverable within a reasonable period or that the issuer of the security
may not be able to meet its obligations. Write-downs to reflect
other-than-temporary impairments in value are recognized in the net realized
investment gains losses in the income statement. As of December 31, 2003 the
Company's investment portfolio does not contain any securities that have
other-than-temporary-impairments.

4. UNPAID LOSSES AND LAE

Activity in the liability for unpaid losses and LAE for the year ended
December 31, 2003 and the 2002 Period is summarized as follows ($ in thousands):

F-15

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The negative incurred related to the prior year of $63,966,000 includes
approximately $50,866,000 of favorable development on property and certain other
lines of business with relatively short patterns of reported losses. These lines
are principally property coverages provided in both the Property and Marine and
Finite Risk segments. During 2003, actual reported losses were significantly
less than expected for these short-tailed property lines resulting in reductions
in estimated ultimate losses. The negative incurred losses relating to the prior
year include approximately $13,100,000 represents reductions in unpaid losses
and LAE associated with the reduction in 2003 of casualty premiums originally
estimated for the 2002 underwriting year.

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 with respect to 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. 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.

F-16

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The effects of reinsurance on premiums, losses and LAE for the year ended
December 31, 2003 and the 2002 Period are as follows ($ in thousands):

6. EQUITY SECURITY UNITS AND CREDIT AGREEMENTS

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, 2003, the fair value of the equity security units was $170,445,000
and was based on quoted market prices. The Company made cash payments of
$10,026,000 for the year ended December 31, 2003. There were no cash payments of
interest in the 2002 Period.

Based on the fair value of the Company's Common Shares, the Company would
issue 5,008,850 Common Shares of the Company in exchange for the senior notes if
the contract holders were able to purchase Common Shares at December 31, 2003. A
decrease in the fair value of the Company's Common Shares from the fair value at
December 31, 2003 would increase the number of Common Shares that would be
issued by as much as 1,102,200 additional shares. An increase in the fair value
of the Company's Common Shares from the fair value at December 31, 2003 would
not alter the number of Common Shares that would be issued. The maximum number
of Common Shares that the Company is obligated to issue in exchange for the
senior notes is 6,111,050 should the fair value of the Common Shares be $22.50
per share or less.

CREDIT AGREEMENT

Platinum Holdings had a 364-day committed credit facility with a group of
banks which provided $100,000,000 of aggregate borrowing capacity. The credit
facility contained various covenants and agreements, including the requirement
to maintain a specified tangible net worth and leverage ratios. The credit
facility expired on August 19, 2003. Platinum Holdings did not renew its credit
facility because the Company believes its financial position and operations are
able to provide adequate liquidity. As part of the Company's ongoing business
strategy it may, from time to time, seek to secure external financing and may

F-17

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

also access the public capital markets. As of and for the year ended December
31, 2003 and the 2002 Period, there were no amounts outstanding pursuant to the
credit facility.

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 12.5 percent corporate tax rate on trading
income. There is no withholding tax on dividends distributed from Platinum
Ireland to Platinum Holdings.

Income tax expense for the year ended December 31, 2003 and the 2002 Period
is comprised of current and deferred as follows ($ in thousands):

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 year ended December 31, 2003 and the 2002 Period is as follows ($ in
thousands):

F-18

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, 2003 and 2002 are as follows ($ in thousands):

To evaluate the realization of the deferred tax assets, management
considers the timing of the reversal of deferred income and expense items as
well as the likelihood that the Company will generate sufficient taxable income
to realize the future tax benefits. Management believes that the Company will
generate sufficient taxable income to realize the deferred assets and,
consequently, did not consider a valuation allowance necessary. The Company has
a net operating loss carryforward arising from its operation in the U.K. The net
operating loss carryforward does not have an expiration date.

Income taxes paid in 2003 were $65,912,000. There were no cash payments of
income taxes in the 2002 Period.

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
25,000,000 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 then 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

F-19

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

Concurrent 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, 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 or other distributions by
the reinsurance subsidiaries of the Company in 2004 without prior regulatory
approval is estimated to be $139,190,000.

The combined statutory capital and surplus and net income as reported to
relevant regulatory authorities for the reinsurance subsidiaries of the Company
were as follows: ($ in thousands)

The company's insurance subsidiaries file financial statements prepared in
accordance with statutory accounting practices prescribed or permitted by
domestic or foreign insurance regulatory authorities. The differences between
statutory financial statements and financial statements prepared in accordance
with GAAP vary between domestic and foreign jurisdictions. The principal
differences are that statutory financial statements do not reflect deferred
policy acquisition costs, deferred income taxes are charged or credited directly
to equity, subject to limits, and reinsurance assets and liabilities are
presented net of reinsurance. The Company has not used any statutory accounting
practices that are not prescribed.

F-20

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. EARNINGS PER SHARE

Following is a reconciliation of the basic and diluted earnings per share
computations for the year ended December 31, 2003 and the 2002 Period ($ in
thousands, except per share data):

10. SHARE INCENTIVE COMPENSATION AND EMPLOYEE BENEFIT PLANS

SHARE INCENTIVE COMPENSATION

The Company has a share incentive plan under which key employees and
directors 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 2003 and 2002.

F-21

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following summary sets forth option activity for the year ended December 31,
2003 and the 2002 Period (in thousands, except per share exercise price):

The following table summarizes information about share options outstanding
at December 31, 2003 (in thousands, except per share exercise price):

The fair value of each option grant 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 $14,511,000 for the year ended December 31, 2003, of
which $836,000 is included in the financial statements. These assumptions would
have resulted in a stock-based compensation expense, net of tax, of $1,070,000
in the 2002 Period.

On May 13, 2003 the Company entered into a Separation and Consulting
Agreement with its former President and Chief Executive Officer pursuant to
which the Company paid him $4,950,000 and on June 1, 2003 fully vested his
option to purchase 975,000 of the Company's common shares with an exercise
period of five years. The differential between the option price and the market
value of 975,000 common shares on May 13, 2003 of $4,339,000 was recognized as
compensation expense with a corresponding credit to additional paid in capital.

F-22

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 of 1986, as amended (the "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 contributions.

11. LEASE COMMITMENTS

Future minimum annual lease commitments under various non-cancelable
operating leases for the Company's office facilities are as follows: ($ in
thousands):

Rent expense was $3,636,000 and $743,000 for the year ended December 31,
2003 and the 2002 Period, respectively.

12. RELATED PARTY TRANSACTIONS AND AGREEMENTS

In connection with the Public Offering and the transfer of business, the
Company 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,
RenaissanceRe will provide the Company with quotations for rates

F-23

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. Included in operating expenses for the period
ended December 31, 2003 and 2002 were $5,350,000 and $46,000 of fees relating to
this RenaissanceRe transaction.

Renaissance Underwriting Managers Ltd. ("RUM"), a subsidiary of
RenaissanceRe, and Platinum Bermuda entered into an agreement whereby RUM will,
from time to time, provide referrals of treaty and facultative reinsurance
contracts to Platinum Bermuda for a fee. The fee is 1.0% of gross premiums
written for all pro-rata business, 2.5% of gross premiums written on all excess
of loss business, and 7.5% of the margin on all finite business. The Company
paid $400,000 in fees for such referrals for the year ended December 31, 2003.
The business referred is also subject to a profit commission.

Pursuant to the employment agreement between Gregory E.A. Morrison, the
Company's chief executive officer, and the Company, dated as of June 20, 2003,
Mr. Morrison purchased 20,000 common shares from the Company on July 30, 2003
for an aggregate purchase price of $520,000. These common shares were sold to
Mr. Morrison at a price of $26.00 per common share, which was the closing price
of the common shares on the date prior to the date that the Company's Board of
Directors approved his employment agreement.

The Company is a party to an investment management agreement with Alliance
Capital Management L.P. ("Alliance"), pursuant to which Alliance provides
investment advisory services to the Company. The Company pays a fee to Alliance
for these services based on the amount of the Company's assets managed by
Alliance. The Company paid $1,629,000 and $0 in investment advisory fees to
Alliance for the years ended December 31, 2003 and the 2002 Period,
respectively. A Senior Vice President at AllianceBernstein Institutional
Investment Management, a unit of Alliance, is the wife of a senior officer of
Platinum US.

13. OPERATING SEGMENT INFORMATION

The Company has organized its worldwide reinsurance business around three
operating segments: Property and Marine, Casualty and Finite Risk. The Property
and Marine operating segment includes principally property per-risk
excess-of-loss treaties, property proportional treaties and catastrophe
excess-of-loss reinsurance treaties that are written both in the United States
and international markets. This business consists of catastrophe excess-of-loss
reinsurance treaties.

The Casualty operating segment includes principally reinsurance treaties
that cover umbrella liability, general and products liability, professional
liability, directors and officers liability, workers' compensation, casualty
clash 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 structured
reinsurance contracts with ceding companies whose needs may not be met
efficiently through traditional reinsurance products.

F-24

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 year ended December 31, 2003
and the 2002 Period ($ in thousands):

F-25

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

The following table sets forth the net premiums written by the Company for
the year ended December 31, 2003 and the 2002 Period by geographic location of
the ceding company ($ in thousands):

14. COMPREHENSIVE INCOME

The components of comprehensive income for the year ended December 31, 2003
and the 2002 Period are as follows ($ in thousands, except per share data):

15. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following quarterly financial information for each of the three months
ended March 31, June 30, September 30 and December 31, 2003 is unaudited.
However, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the results of
F-26

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

operations for such periods, have been made for a fair presentation of the
results shown ($ in thousands, except per share data):

F-27

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

INDEX TO SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS

Schedules other than those listed above are omitted for the reason that
they are not applicable or the information is provided elsewhere in the
consolidated financial statements.

S-1

INDEPENDENT AUDITORS' REPORT

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

Under date of March 5, 2004, we reported on the consolidated balance sheets
of Platinum Underwriters Holdings, Ltd. and subsidiaries as of December 31, 2003
and 2002, and the related consolidated statements of income and comprehensive
income, shareholders' equity and cash flows for the year ended December 31, 2003
and the period from April 19, 2002 (date of inception) to December 31, 2002,
which are included in the Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedules appearing on pages S-3 through S-8 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 audits.

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 5, 2004

S-2

SCHEDULE I

PLATINUM UNDERWRITERS HOLDINGS, LTD. AND SUBSIDIARIES

SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 2003

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

* Original cost of fixed maturities reduced by repayments and adjusted for
amortization of premiums and discounts.

S-3

SCHEDULE II

PLATINUM UNDERWRITERS HOLDINGS, LTD.
(PARENT COMPANY)

CONDENSED BALANCE SHEET
DECEMBER 31, 2003 AND 2002

S-4

SCHEDULE II

PLATINUM UNDERWRITERS HOLDINGS, LTD.
(PARENT COMPANY)

CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2003 AND
THE PERIOD FROM APRIL 19, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2002

S-5

SCHEDULE II

PLATINUM UNDERWRITERS HOLDINGS, LTD.
(PARENT COMPANY)

CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2003 AND FOR THE PERIOD FROM APRIL 19, 2002
THROUGH DECEMBER 31, 2002

S-6

SCHEDULE III

PLATINUM UNDERWRITERS HOLDINGS, LTD.

SUPPLEMENTARY INSURANCE INFORMATION

S-7

SCHEDULE IV

PLATINUM UNDERWRITERS HOLDINGS, LTD.

REINSURANCE

S-8

THE PREDECESSOR BUSINESS
THE ST. PAUL COMPANIES, INC.

REINSURANCE UNDERWRITING SEGMENT

Following is selected historical combined financial data for the period
from January 1, 2002 through November 1, 2002 and the year ended December 31,
2001 of the reinsurance underwriting segment of The St. Paul Companies, Inc.
(the "Predecessor") prior to the initial public offering of Platinum
Underwriters Holdings, Ltd. ("Platinum"). The Predecessor operations include the
continuing business and related assets transferred to Platinum upon completion
of its initial public offering as well as the reinsurance business that remained
with The St. Paul Companies, Inc. ("St. Paul") after the public offering.
Accordingly, underwriting results and combined statements of the Predecessor
presented in this report are not indicative of the actual results of Platinum
subsequent to the public offering.

In addition to the effect of the retention of certain portions of the
Predecessor business by St. Paul and the exclusion of the corporate aggregate
excess-of-loss reinsurance program of St. Paul, other factors may cause the
actual results of Platinum to differ materially from the results of the
Predecessor.

P-1

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying combined statements of underwriting
results and identifiable underwriting cash flows of The St. Paul Companies, Inc.
Reinsurance Underwriting Segment (Predecessor) for the period from January 1,
2002 through November 1, 2002 and for the year ended December 31, 2001. 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
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 the Predecessor's or St. Paul's results of operations or cash
flows.

In our opinion, the combined statements referred to above present fairly,
in all material respects, the underwriting results and identifiable underwriting
cash flows of the Predecessor for the period from January 1, 2002 through
November 1, 2002 and for the year ended December 31, 2001 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 STATEMENTS OF UNDERWRITING RESULTS
FOR THE PERIOD FROM JANUARY 1, 2002 THROUGH NOVEMBER 1, 2002 AND
THE YEAR ENDED DECEMBER 31, 2001

See accompanying notes to combined statements.

P-3

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

COMBINED STATEMENTS OF IDENTIFIABLE UNDERWRITING CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 2002 THROUGH NOVEMBER 1, 2002 AND
THE YEAR ENDED DECEMBER 31, 2001

See accompanying notes to combined statements

P-4

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 year ended December
31, 2001. 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 statement of underwriting results for the year ended December 31, 2001
reconciles to the reinsurance underwriting segment results as reported in St.
Paul's audited consolidated financial statements for the year ended December 31,
2001, 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.

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. Similarly, the
statements of identifiable underwriting cash flows include 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.

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 premium, gross or 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.

P-5

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

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

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.

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.

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 at
December 31, 2001. The total discounted liabilities reflected on our combined
statement of identifiable underwriting assets and liabilities was $264.9 million
at December 31, 2001. 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

P-6

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

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

held by the ceding company, as permitted by the Vermont Department of Banking,
Insurance, Securities and Healthcare Administration.

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

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 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 and $5.2 million in 2001. Losses ceded under these agreements totaled
($0.1) million in 2002 and $9.8 million in 2001.

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 assumed certain primary business from other business segments
of St. Paul. Premiums assumed under these agreements were $12.0 million in 2002
and $25.8 million in 2001. Losses assumed under these agreements were $22.8
million in 2002 and $18.6 million in 2001. Predecessor paid

P-7

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

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

commissions of $3.9 million in 2002 and $9.5 million in 2001, 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
services, corporate executives, corporate human resources, and employee benefit
costs. These allocated costs totaled $7.8 million and $3.2 million in 2002 and
2001, 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.

P-8

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

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

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

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 year ended December 31, 2001 ($ in millions):

P-9

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

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

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 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.

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.

5. EMPLOYEE BENEFIT PLANS

Employees of Predecessor participated in various employee benefit, stock
incentive, and retirement plans administered by St. Paul. Predecessor reimbursed
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 sponsored a stock-based incentive program, the
Long-Term Incentive Plan ("LTIP"), which was exclusive to certain employees of
Predecessor. Underwriting expenses (benefits) recorded by Predecessor in
connection with the LTIP totaled $1.3 million in 2002 and ($2.3) million in
2001.

6. COMMITMENTS AND CONTINGENCIES

FINANCIAL GUARANTEES

Predecessor was 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 was conducted in rented
premises. Predecessor also entered into leases for equipment, such as office
machines and computers. Total rental expense was $6.8 million in 2002 and $5.8
million in 2001.

Certain leases are non-cancelable, and Predecessor would remain responsible
for payment even if the space or equipment were 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.

P-10

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

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

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 and 2001 for the businesses to be exited under these actions,
including the allocation of St. Paul's corporate excess-of-loss reinsurance
programs ($ in millions):

8. REINSURANCE

The primary purpose of the 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.

Predecessor's underwriting results in 2001 were impacted by the St. Paul
corporate aggregate excess-of-loss reinsurance program that was entered into
each year effective January 1, 2001, 2000 and 1999 (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 each year effective
2001, 2000 and 1999 that were unrelated to the St. Paul corporate program. The
combined

P-11

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

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

impact of these treaties (together the "reinsurance treaties") is included in
the following table ($ in millions):

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 and 2001. Coverage has not
been triggered under that treaty in 2002; however, in 2002, Predecessor recorded
ceded premiums written 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.

P-12

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

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

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.

The North American Property segment consists of property reinsurance
business underwritten for customers domiciled in the United States and Canada.
Coverages offered included 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 included 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 wrote 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

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

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

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):

SEGMENT INFORMATION

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

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

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

NOTES TO COMBINED STATEMENTS -- (CONTINUED)

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.

11. SEPTEMBER 11, 2001 TERRORIST ATTACK -- LEGAL MATTERS (UNAUDITED)

As noted in Note 3, Predecessor and other insurers obtained a summary
judgement ruling that the World Trade Center property loss is a single
occurrence. Certain insureds, including the World Trade Center leaseholder,
appealed that ruling, asking the court to determine that the property loss
constituted two separate occurrences rather than one. In September 2003, the
U.S. Circuit Court of Appeals for the Second Circuit ruled that under the terms
of the policy form Predecessor used to underwrite property coverage for the
World Trade Center, the terrorist attack constituted one occurrence.

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