UNITED STATES

Form 10-K

Montpelier Re Holdings Ltd.

Mintflower Place
8 Par-La-Ville Road
Hamilton HM 08
Bermuda
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code:
(441) 296-5550

Securities registered pursuant to Section 12(b) of the Act:
Common Shares, par value 1/6 cent per share
Name of exchange on which registered:
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None

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

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

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ      No o

     As of March 1, 2005, the Registrant had 62,231,232 common voting shares outstanding, with a par value of 1/6 cent per share.

     The aggregate market value of the voting and non-voting common shares held by non-affiliates of the Registrant on June 30, 2004 was $1,528,041,925 based on the closing sale price of the common shares on the New York Stock Exchange on that date.

Documents Incorporated by Reference

     Portions of the Registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), relating to the Registrant’s Annual General Meeting of Shareholders scheduled to be held May 20, 2005 are incorporated by reference into Part III of this Form 10-K. With the exception of the portions of the Proxy Statement specifically incorporated herein by reference, the Proxy Statement is not deemed to be filed as part of this Form 10-K.

MONTPELIER RE HOLDINGS LTD.
INDEX TO FORM 10-K

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PART I

Cautionary Statement under “Safe Harbor” Provision of the Private Securities Litigation Reform Act of 1995.

     This Form 10-K contains, and Montpelier Re Holdings Ltd. (the “Company”) may from time to time make, written or oral “forward-looking statements” within the meaning of the U.S. federal securities laws. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and other factors, many of which are outside the Company’s control that could cause actual results to differ materially from such statements. 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.

     Important events and uncertainties that could cause the actual results, future dividends or future repurchases to differ include, but are not necessarily limited to: market conditions affecting our common share price; our short operating and trading history; our dependence on principal employees; the cyclical nature of the reinsurance business; the levels of new and renewal business achieved; opportunities to increase writings in our core property and specialty reinsurance and insurance lines of business and in specific areas of the casualty reinsurance market; the estimates reported by syndicates under existing QQS contracts; the inherent uncertainties of establishing reserves for loss and loss adjustment expenses, particularly on longer-tail classes of business such as casualty; unanticipated adjustments to premium estimates; the possibility of severe or unanticipated losses from natural or man-made catastrophes; the impact of terrorist activities on the economy; competition resulting from: growing capital levels in the reinsurance industry, in some cases, declining demand due to, among other things, increased retentions by cedants, and other factors; and rating agency policies and practices. The Company’s forward-looking statements concerning market fundamentals could be affected by changes in demand, pricing and policy term trends and competition. These and other events that could cause actual results to differ are discussed in detail in “Risk Factors” contained in Item 1 of this filing.

     The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.

Item 1. Business

General

     The Company was incorporated under the laws of Bermuda on November 14, 2001. The Company, through its principal operating subsidiary Montpelier Reinsurance Ltd. (“Montpelier Re”), is a provider of global property and casualty reinsurance and insurance products. On July 23, 2004, the Company incorporated Montpelier Agency Ltd. (“MAL”), another wholly-owned subsidiary, to provide insurance management services. MAL has not yet commenced operations. Montpelier Re has two subsidiaries: Montpelier Marketing Services (UK) Limited (“MMSL”) and Montpelier Holdings (Barbados) SRL (“MHB”). MMSL was incorporated on November 19, 2001 to provide business introduction and other support services to Montpelier Re. MHB, a Barbados registered society with Restricted Liability incorporated on July 25, 2002, is the registered holder of certain types of securities, including United States equity securities.

     Montpelier Re has assembled a senior management team with significant industry expertise and longstanding industry relationships. We seek to identify attractive reinsurance and insurance opportunities by capitalizing on our management’s significant underwriting experience, using catastrophe modeling software and our proprietary risk pricing and capital allocation models. For the year ended December 31, 2004, we underwrote $837.0 million in gross premiums, which was spread between various classes of business and geographic areas. We have well-established market relationships with insurance and reinsurance affiliates of the world’s top insurance brokers including Marsh & McLennan Companies Inc. (“Marsh”), Aon Corporation (“Aon”), Benfield plc (“Benfield”) and Willis Group Holdings Ltd. (“Willis”), among others.

     We write the following three lines of business: property specialty, property catastrophe and other specialty. We also previously wrote qualifying quota share (“QQS”) business in 2002 and 2003 which was not renewed in 2004. These categories are described below:

•

The property specialty category includes risk excess of loss, property pro-rata and direct insurance and facultative reinsurance business.

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	•	Property catastrophe reinsurance contracts are typically “all risk” in nature and provide protection against losses from earthquakes and hurricanes, as well as other natural or man-made catastrophes such as floods, tornadoes, fires and storms. The property catastrophe category also includes retrocessional contracts, which are reinsurance protections of other reinsurers, also called retrocedants. Coverage generally provides catastrophe protection for the property portfolios of other reinsurers.
	•	Our other specialty category includes aviation, marine, personal accident catastrophe, workers compensation catastrophe, terrorism, other casualty and other reinsurance business.
	•	We also participated in three QQS arrangements for the 2002 and 2003 underwriting years that were whole account quota share reinsurance contracts of certain Lloyd’s syndicates. We did not write this business in 2004.

     We will pursue other opportunities in the upcoming year as they arise.

Corporate Strategy

     We aim to maximize sustainable long-term growth in shareholder value by pursuing the following strategies:

     Manage Capital Prudently and Maintain a Disciplined Balance Sheet. We focus on generating underwriting profits while maintaining a disciplined balance sheet. We aim to manage our capital prudently relative to our risk exposure in an effort to maximize sustainable long-term growth in shareholder value. Our capital management strategy emphasizes the appropriate use of leverage (borrowings) to augment capital when it can be fully and profitably used to support our underwriting. Also as part of our capital management strategy, if we have idle or excess capital, we may reduce leverage and consider additional dividends and share repurchases to return capital to our owners. On February 25, 2005 we declared a special dividend in the amount of $5.50 per common voting share or approximately $390.0 million in aggregate, payable on March 31, 2005 to shareholders of record on March 15, 2005. In addition, we may consider other capital initiatives during 2005.

     Enhance Our Lead Position With Brokers and Cedants. We often take a lead position in underwriting treaties. Doing so enhances our access to superior business. Through the use of sophisticated underwriting tools, our underwriters seek to identify those exposures which meet our objectives in terms of return on capital and underwriting criteria. By leading reinsurance programs, we believe our underwriters attract, and can selectively write, exposures from a broad range of business in the marketplace which has allowed us to build a substantial book of reinsurance business exhibiting superior performance.

     Combine Subjective Underwriting Methods With Objective Modeling Tools. We intend to exploit pricing inefficiencies that may exist in the market from time to time. To achieve this, we disseminate market information to our entire underwriting team and facilitate personal contact among all underwriters. Generally, our underwriters use sophisticated property risk modeling tools, both proprietary and third party, together with their market knowledge and judgment, to achieve the highest available price per unit of risk assumed by our portfolio.

     Develop and Maintain a Balanced Portfolio of Reinsurance Risks. We aim to maintain a balanced portfolio of primarily property related risks, diversified by class, product, geography and marketing source. We actively seek to grow income in classes experiencing attractive conditions and avoid classes suffering from intense price competition or poor fundamentals. Our approach to new business is flexible and dynamic because we have a centralized underwriting team in Bermuda, as opposed to a large decentralized structure that might encourage writings in particular geographic areas or product classes in order to justify previous commitments. We underwrite a variety of different products, and seek to avoid a focus on any particular region or class of business. We employ risk management techniques to monitor correlation risk and seek to enhance underwriting returns through careful risk selection using advanced capital allocation methodologies. We utilize industry modeling tools to stress test the portfolio by simulating large loss events. We believe a more balanced portfolio of risks reduces the volatility of returns and optimizes the growth of shareholder value.

     Deliver Customized, Innovative and Timely Insurance and Reinsurance Solutions for Our Clients. We have established ourselves as a premier provider of global property and casualty reinsurance and insurance products and seek to provide superior customer service. Our objective is to solidify long-term relationships with brokers and clients while developing an industry reputation for innovative and timely quotes for difficult technical risks.

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Reinsurance and Insurance Products

     General. The majority of the reinsurance products we seek to write are in the form of treaty reinsurance contracts, which are contractual arrangements that provide for automatic reinsuring of a type or category of risk underwritten by our clients. When we write treaty reinsurance contracts, we do not evaluate separately each of the individual risks assumed under the contracts and are largely dependent on the individual underwriting decisions made by the cedant. Accordingly, we review and analyze the cedant’s risk management and underwriting practices in deciding whether to provide treaty reinsurance and in appropriately pricing the treaty. We also write direct insurance and facultative reinsurance contracts where we reinsure individual risks on a case-by-case basis.

     Our contracts can be written on either a quota share, also known as proportional or pro-rata basis, or on an excess of loss basis. With respect to quota share reinsurance, we share the premiums as well as the losses and expenses in an agreed proportion with the cedant. In the case of reinsurance written on an excess of loss basis, we generally receive the premium for the risk assumed and indemnify the cedant against all or a specified portion of losses and expenses in excess of a specified dollar or percentage amount. In both types of contracts, we may provide a ceding commission to the cedant.

     We seek to manage our risk by seeking profitable pricing, using contract terms, diversification criteria, prudent underwriting, our proprietary modeling system, CATM, and special conditions based on the nature and scope of coverage. Underwriting is primarily 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.

     Premiums are a function of the number and type of contracts we write, as well as prevailing market prices. Renewal dates for reinsurance business tend to be concentrated at the beginning of quarters, and the timing of premium written varies by line of business. Most property catastrophe business is written in the January 1, April 1, June 1 and July 1 renewal periods, while the property specialty and other specialty lines are written throughout the year. Written premiums are generally lower during the fourth quarter of the year than other quarters. Gross premiums written for pro-rata programs are initially booked as estimates and are adjusted as actual results are reported by the cedants during the period. Earned premiums do not necessarily follow the written premium pattern as certain premiums written are earned ratably over the contract term, which is ordinarily twelve months, although many pro-rata contracts are written on a risks attaching basis and are generally earned over a 24 month period which is the risk period of the underlying (12 month) policies. Premiums are generally due in installments.

     We believe our most significant opportunities are in the short-tail property exposed business with higher levels of attachment, and in our specialty lines, particularly in the casualty area. Details of gross premiums written by line of business are presented in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

     Property Specialty. Contracts in this category include risk excess of loss, property pro-rata and direct insurance and facultative reinsurance. Risk excess of loss reinsurance protects insurance companies on their primary insurance risks and facultative reinsurance transactions on a “single risk” basis. A “risk” in this context might mean the insurance coverage on one building or a group of buildings or the insurance coverage under a single policy which the reinsured treats as a single risk. Coverage is usually triggered by a large loss sustained by an individual risk rather than by smaller losses which fall below the specified retention of the reinsurance contract. Such property risk coverages are written on an excess of loss basis, which provides the reinsured protection beyond a specified amount up to the limit set within the reinsurance contract.

     We also write direct insurance and facultative reinsurance coverage on commercial property risks where we assume all or part of a risk under a single insurance contract. We generally write such coverage on an excess of loss basis. Facultative reinsurance is normally purchased by clients where individual risks are not covered by their reinsurance treaties, for amounts in excess of the dollar limits of their reinsurance treaties, or for unusual risks.

     We also write property pro-rata reinsurance contracts which are reinsurances of individual property risks written on a proportional basis rather than on an excess of loss basis.

     Property Catastrophe. Property catastrophe reinsurance contracts are typically “all risk” in nature, providing protection against losses from earthquakes and hurricanes, as well as other natural and man-made catastrophes such as floods, tornadoes, fires and storms. The predominant exposures covered are losses stemming

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from property damage and business interruption coverage resulting from a covered peril. Certain risks, such as war, nuclear contamination and terrorism, are almost always excluded, partially or wholly, from our contracts.

     Property catastrophe reinsurance is generally written on an excess of loss basis, which provides coverage to primary insurance companies when aggregate claims and claim expenses from a single occurrence from a covered peril exceed a certain amount specified in a particular contract. Under these contracts, we provide protection to an insurer for a portion of the total losses in excess of a specified loss amount, up to a maximum amount per loss specified in the contract. In the event of a loss, most contracts provide for coverage of a second occurrence following the payment of a premium to reinstate the coverage under the contract, which is referred to as a reinstatement premium. The coverage provided under excess of loss reinsurance contracts may be on a worldwide basis or limited in scope to specific regions or geographical areas, while the underlying risks covered might be located throughout the world. Coverage can also vary from “all property” perils, which is the most expansive form of coverage, to more limited coverage of specified perils such as windstorm only coverage.

     To a lesser extent we also write retrocessional coverage contracts, which provide reinsurance protection to other reinsurers, also called retrocedants. Coverage generally provides catastrophe protection for the property portfolios of other reinsurers. Retrocessional contracts typically carry a higher degree of volatility than reinsurance contracts as they protect against concentrations of exposures written by retrocedants, which in turn may experience an aggregation of losses from a single catastrophic event. In addition, the information available to retrocessional underwriters concerning the original primary risk can be less precise than the information received directly from primary companies. Furthermore, exposures from retrocessional business can change within a contract term as the underwriters of a retrocedant may alter their book of business after retrocessional coverage has been bound.

     Other Specialty. We also write specialty risks such as aviation liability, aviation war, marine, personal accident catastrophe, worker’s compensation catastrophe, terrorism, other casualty and other reinsurance business. We have entered into agreements with the Overseas Private Investment Corporation (“OPIC”) to form an insurance facility to underwrite stand-alone terrorism insurance products. We aim to control our risk by writing predominantly short-tail lines of business. Aviation contracts are primarily written on a retrocessional excess of loss basis. As respects terrorism, a limited number of direct risks, reinsurance treaties and national pools are written as well.

     Our casualty portfolio of risks focuses on selected classes, with an initial emphasis on casualty clash excess of loss reinsurance business. Under a casualty clash reinsurance agreement, the ceding insurer retains an amount which is generally higher than the limit on any one reinsured policy. Thus, two or more coverages or policies issued by the ceding insurer generally must be involved in a loss for coverage to apply under the reinsurance agreement. In addition, we also write UK employers liability coverage and excess auto liability coverage in the U.S. In 2004, we also wrote professional indemnity casualty reinsurance, predominantly medical malpractice and errors and omissions business, on an excess of loss basis.

     Coverage for worker’s compensation and personal accident catastrophe contracts are generally written to restrict recoveries by the cedant unless normally at least a minimum of ten insured persons are involved in the same event. This business is generally written to provide coverage worldwide. There has been more competition in these areas but less so on the upper layers which we write as price levels remain favorable.

     A very high percentage of the reinsurance and insurance contracts that we write do not provide coverage for losses arising from acts of terrorism caused by nuclear, biological or chemical attack. With respect to personal lines risks, losses arising from acts of terrorism occasioned by causes other than nuclear, biological or chemical attack are usually covered by our reinsurance contracts. Such losses relating to commercial lines risks are generally covered on a limited basis, for example, where the covered risks fall below a stated insured value or into classes or categories we deem less likely to be targets of terrorism than others or where an act of terrorism does not meet the definition of “act of terrorism” set forth in the Terrorism Risk Insurance Act of 2002. The Terrorism Risk Insurance Act of 2002 was enacted to ensure the availability of insurance coverage for certain types of terrorist acts in the U.S. This law establishes a federal assistance program that will continue through the end of 2005 to help the commercial insurers and reinsurers in the property and casualty insurance industry cover claims related to future terrorism related losses and regulates the terms of insurance relating to terrorism coverage. Although there has been limited take-up from commercial policyholders to date there remains an uncertainty of the future of terrorism coverage should the U.S. government not renew the program after December 31, 2005. We have written a number of insurance and reinsurance contracts providing coverage solely for losses arising from acts of terrorism. We have done so only in instances where we believe we are able to

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obtain pricing that adequately covers our exposure. These contracts nearly always exclude coverage protecting against nuclear, biological or chemical attack.

     We pursue specialty reinsurance on a disciplined and opportunistic basis. We target short-tail lines of business, often with low frequency, high severity profiles similar to catastrophe business. We also seek to manage the correlations of this business with property catastrophe through the use of CATM, our proprietary modeling system.

     Qualifying Quota Share. We provided whole account quota share reinsurance, or QQS reinsurance, to three Lloyd’s syndicates for the 2002 and 2003 underwriting years. We have not written any QQS contracts in 2004 and we do not anticipate doing so in 2005. We do not have exposure to underwriting in years prior to inception of the QQS contracts and such contracts are expected to be commuted after 36 months, the point at which the underwriting year is closed. We expect to commute the 2002 contracts during the first or second quarter of 2005.

     Under QQS contracts, we assume a specified portion of the risk on a specified coverage in exchange for an equal proportion of the premiums. The ceding syndicate receives a commission, based on the amount of the premiums ceded, which is intended to reimburse the insurer for costs of writing and administering the business. The reinsurer is dependent on the ceding syndicate’s ability in underwriting, pricing and claims administration. Business assumed under QQS contracts usually benefits from all reinsurance purchased by the syndicate, including individual risk and excess of loss portfolio contracts.

Ratings

     Ratings have become an increasingly important factor in establishing the competitive position of reinsurance companies. A.M. Best has assigned Montpelier Re a financial strength rating of “A” (Excellent), which is the third highest of fifteen rating levels. The objective of A.M. Best’s rating system is to provide an opinion of an insurer’s financial strength and ability to meet ongoing obligations to its policyholders. Our rating reflects A.M. Best’s opinion of our results of operations, capitalization and management.

     Montpelier Re has been assigned an “A3” (Good) rating by Moody’s Investor Service, the seventh highest rating of twenty-one rating levels. This rating reflects Moody’s opinion of the ability of Montpelier Re to punctually repay senior policyholder claims and obligations.

     Montpelier Re has been assigned an “A-” (Strong) financial strength rating by Standard & Poors, which is the seventh highest of twenty-one rating levels. The rating reflects Standard & Poor’s opinion of Montpelier Re’s ability to pay under its insurance policies and contracts in accordance with their terms.

     These ratings are not evaluations directed to investors in our securities or a recommendation to buy, sell or hold our securities. Our ratings are subject to periodic review by, and may be revised upward or downward or revoked at the sole discretion of the rating agencies and we cannot assure you that we will be able to retain these ratings.

Geographic Breakdown

     Since inception we have sought to diversify our exposure across geographic zones around the world in order to obtain the optimum spread of risk. The spread of these exposures is also a function of market conditions and opportunities. The following table sets forth a breakdown of our gross premiums written by geographic area of risks insured ($ in millions):

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Gross Premiums Written by Geographic Area of Risks Insured

     The Qualifying Quota Share contracts are worldwide in nature, with the majority of business related to North America and Europe. No such contracts were written in 2004.

Retrocessions

     For the years ended December 31, 2004 and 2003, we purchased retrocessional excess of loss protection against large risk losses on the direct insurance and facultative book and against small to medium-size catastrophes on the Company’s overall property writings. In addition, in 2004 we purchased retrocessional stop-loss protection against losses on our casualty writings. For certain pro-rata contracts, including some quota share contracts, the subject direct insurance contracts carry underlying reinsurance protection from third party reinsurers. We record our pro-rata share of gross premiums from the direct insurance contracts as gross written premiums and record our proportionate share of amounts incurred by the ceding company for the underlying third party reinsurance coverage as reinsurance premiums ceded. For the year ended December 31, 2002, we recorded reinsurance premiums on qualifying quota share contracts only.

Underwriting and Risk Management

     Since our inception in 2001 we believe we have created a balanced portfolio of risks, diversified by class, product, geography and marketing source. We attempt to limit the amount of potential loss that may arise from a single catastrophic event. We also attempt to manage our exposure against clash and correlation among risks.

     Our underwriting team is led by our President and Chief Executive Officer, Anthony Taylor and Montpelier Re’s Chief Underwriting Officer, C. Russell Fletcher III. We underwrite to specific disciplines as set out by the Chief Underwriting Officer and approved by the Underwriting Committee of the Board of Directors, with the aim of maintaining the following principles:

	•	Only accept risks with an acceptable return on allocated capital;
	•	Generally assume excess of loss business with an attachment point above the expected level of attritional losses, thereby covering infrequent large losses;
	•	Limit the scope of coverage on regular property classes to “traditional perils” and generally exclude perils or causes of loss that are difficult to measure such as cyber risks, pollution and nuclear, biological and chemical acts of terrorism;
	•	Entertain difficult risks such as terrorism but only on a specific basis whereby exposures are carefully controlled through limits, terms and conditions and are appropriately priced;
	•	Generally exclude “single risk” exposure from catastrophe and retrocessional business; and
	•	Use risk assessment models from providers such as AIR Worldwide Corporation (“AIR”), EQECAT,

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Inc. (“EQE”) and Risk Management Solutions, Inc. (“RMS”) as well as our proprietary technology, CATM, to assist in the underwriting process and the quantification of our catastrophe aggregate exposures.

     We have implemented underwriting guidelines that are designed to limit our exposure to loss from any one contract. As part of our pricing and underwriting process, we also assess a variety of other factors, including, but not limited to:

	•	The reputation of the proposed cedant and the likelihood of establishing a long-term relationship with the cedant;
	•	The geographical location of the cedant’s original risks;
	•	Historical loss data of the cedant and, where available, of the industry as a whole in the relevant regions, in order to compare the cedant’s historical catastrophe loss experience to industry averages; and
	•	The perceived financial strength of the cedant.

     Our principal underwriting objective is to create a balanced portfolio of risks, diversified by class, product, geography and marketing source. To help us achieve this objective we have developed a sophisticated modeling tool to analyze and manage the reinsurance exposures we assume from cedants, called CATM. This proprietary computer-based underwriting system, the technical components of which incorporate the fundamentals of modern portfolio theory, is designed to measure the amount of capital required to support individual contracts based on the degree of correlation between contracts that we underwrite as well as other factors. CATM comprises risk assessment tools, exposure databases and intelligent systems, and assists us to price contracts according to actual exposures and estimate the amount of loss and volatility associated with the contracts we assume.

     CATM is designed to use output from models developed by our actuarial team as well as from those of commercial vendors such as AIR, EQE and RMS. In addition, CATM serves as an important component of our dynamic financial analysis model which we use as a guide in managing our exposure to liability, asset and business risk.

     Historically, one reinsurer acted as the “lead” underwriter in negotiating principal policy terms and pricing of reinsurance contracts with a reinsurance broker. In the current environment, a consensus of price and terms is produced from a limited group of reinsurers, of which we are very frequently a part. We believe that our financial strength and the experience and reputation of our underwriters permits us to be a part of this limited group of reinsurers in underwriting many of our reinsurance contracts. We believe that being a part of this group will be an important factor in achieving longer-term success because we believe that this limited group of underwriters generally has greater influence in negotiation of policy terms, attachment points and premium rates than following reinsurers. In addition, we believe that reinsurers that are a part of this limited group are generally solicited for a broader range of business than other reinsurers and have greater access to preferred risks.

Marketing

     Business is produced through brokers and reinsurance intermediaries and, to a lesser extent, directly with cedants. We seek to establish an identity with brokers and ceding companies by providing: (1) prompt and responsive service on underwriting submissions; (2) innovative and customized insurance and reinsurance solutions to clients; and (3) timely payment of claims. Our objective is to build long-term relationships with brokers and ceding companies and provide financial strength and security. We expect to support the existing market as we build our reputation and brand. All brokerage transactions are entered into on an arm’s length basis. We target prospects that are capable of supplying detailed and accurate underwriting data and that potentially add further diversification to our book of business.

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     The following table sets forth a breakdown of the Company’s gross premiums written by broker for the periods indicated ($ in millions):

Gross Premiums Written by Broker

     Montpelier Marketing Services (UK) Limited (“MMSL”), our marketing subsidiary in London, meets with brokers who are seeking new markets into which to channel their business or who desire a personal dialogue prior to rating and acceptance by our Bermuda underwriters. MMSL regularly conducts meetings with major London brokers, smaller brokers, UK cedants and international cedants visiting London. In addition, MMSL conducts trips to various countries around the world to visit with clients, prospects and markets.

Claims Management

     Claims management includes the receipt of loss notifications, the establishment of case loss reserves and approval of loss payments. Additionally, if considered necessary, claims audits may be conducted for specific claims and claims procedures at the offices of certain ceding companies. We recognize that fair interpretation of our reinsurance agreements with our customers and timely payment of covered claims is a valuable service to our clients and enhances our reputation.

Reserves

     We maintain loss and loss adjustment expense reserves to cover our estimated liability for both reported and unreported claims. We utilize a reserving methodology that calculates a point estimate for our ultimate losses, and we then develop a range around our point estimate. The point estimate represents management’s best estimate of ultimate loss and loss adjustment expenses. Our internal actuaries review our reserving assumptions and our methodologies on a quarterly basis and our loss estimates are subject to an annual corroborative review by independent actuaries using generally accepted actuarial principles.

     The extent of reliance on management judgment in the reserving process differs as to whether the business is insurance or reinsurance and as to whether the business is written on an excess of loss or on a pro-rata basis.

     Loss reserve calculations for insurance business are not precise in that they deal with the inherent uncertainty of future contingent events. Estimating loss reserves requires us to make assumptions regarding future reporting and development patterns, frequency and severity trends, claims settlement practices, potential changes in the legal environment and other factors such as inflation.

     Reserving for reinsurance business introduces further uncertainties. As predominantly a broker market reinsurer for both excess of loss and proportional contracts, we must rely on loss information reported to brokers by primary insurers who must estimate their own losses at the policy level, often based on incomplete and changing information. The information we receive varies by cedant and may include paid losses, estimated case reserves, and an estimated provision for incurred but not reported losses (“IBNR reserves”). Additionally, reserving practices and the quality of data reporting may vary among ceding companies which adds further uncertainty to the estimation of our ultimate losses.

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     The uncertainties inherent in the reserving process, together with the potential for unforeseen developments, may result in loss and loss adjustment expenses significantly greater or less than the reserves provided. Changes to our prior year loss reserves will impact our current underwriting results by improving our results if the prior year reserves prove to be redundant or reducing our results if the prior year reserves prove to be insufficient. We expect volatility in our results in periods that significant loss events occur because U.S. GAAP does not permit insurers or reinsurers to reserve for loss events until they have occurred and are expected to give rise to a claim. As a result, we are not allowed to record contingency reserves to account for expected future losses. We anticipate that claims arising from future events will require the establishment of substantial reserves from time to time.

     Management believes that the reserves for loss and loss adjustment expenses are sufficient to cover losses that fall within assumed coverages on the basis of the methodologies used to estimate those reserves. However, there can be no assurance that actual losses will not exceed our total reserves. Loss and loss adjustment expense reserve estimates and the methodology of estimating such reserves are regularly reviewed and updated as new information becomes known to us. Any resulting adjustments are reflected in income in the period in which they become known. For additional information on loss and loss adjustment reserves see Item Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Investments

     We follow an investment strategy designed to emphasize the preservation of invested assets and provide sufficient liquidity for the prompt payment of claims. At December 31, 2004, our portfolio of fixed maturity investments comprised U.S. government securities (17.7%), U.S. government-sponsored enterprises securities (41.0%), Non U.S. government securities (0.9%), corporate debt securities (31.0%) and mortgage-backed and asset-backed securities (9.4%). All of our fixed maturity investments were publicly traded at December 31, 2004 and 99.8% were investment grade. The average duration of the portfolio was 2.2 years and the average rating of the portfolio was AA+ at December 31, 2004. The Company did not have an aggregate investment in a single entity other than the U.S. government securities and U.S. government-sponsored enterprises securities, in excess of 10% of the Company’s shareholders’ equity at December 31, 2004 or 2003. U.S. government-sponsored enterprises do not have the full and complete support of the U.S. government and therefore the Company does face credit risk in respect of these holdings. We also hold a modest portfolio of publicly traded equity securities.

     In determining our investment portfolio allocation among different classes of securities, we consider the potential impact of various catastrophic events on our insurance and reinsurance portfolio and the corresponding liquidity needs. We take into account the need to service our liquidity needs in extreme circumstances by deploying the majority of our portfolio in fixed income securities. However, over longer time horizons, we believe some investment in common equity securities or alternative asset classes will enhance returns without significantly raising the risk profile of the portfolio. Our portfolio has been particularly weighted towards short-term fixed income securities to date. We expect that over time we will increase our exposure modestly to equities and, perhaps, to alternative asset classes such as hedge funds and private equity funds.

     Our Finance Committee and its investment sub-committee establish investment guidelines and supervise our investment activity. These objectives and guidelines stress diversification of risk, capital preservation, market liquidity, and stability of portfolio income. The Finance Committee regularly monitors the overall investment results, reviews compliance with our investment objectives and guidelines, and ultimately reports the overall investment results to the Board of Directors. These guidelines specify minimum criteria on the overall credit quality and liquidity characteristics of the portfolio. They also include limitations on the size of certain holdings as well as restrictions on purchasing certain types of securities or investing in certain industries.

     We have engaged White Mountains Advisors LLC, a wholly owned indirect subsidiary of White Mountains Insurance Group, one of our major shareholders, to provide investment advisory and management services. We pay investment management fees based on the month-end market values held under management. The fees, which vary depending on the amount of assets under management, are included in net investment income. We incurred an average fee of 0.11%, 0.17% and 0.19% for the years ended December 31, 2004, 2003 and 2002, respectively. We expensed investment management fees of approximately $2.4 million, $3.2 million and $2.1 million for the years ended December 31, 2004, 2003 and 2002, respectively, and have recorded an amount payable for these services of approximately $0.7 million, $0.9 million and $0.6 million for the years ended December 31, 2004, 2003 and 2002, respectively.

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     The table below shows the aggregate amounts of investments available for sale, other investments and cash and cash equivalents comprising our portfolio of invested assets ($ in thousands):

          Our net investment returns for the years ended December 31, 2004, 2003 and 2002 were as follows ($ in millions):

     We have an investment in the common shares of Aspen Insurance Holdings Limited (“Aspen”), a Bermuda –based holding company of Aspen Insurance UK Limited (“Aspen Re”). At December 31, 2004, we owned 4.0 million shares of Aspen, which represented approximately 5.8% of Aspen on an undiluted basis. Aspen completed their initial public offering on December 4, 2003. Our investment in Aspen is carried at quoted market value at December 31, 2004. At December 31, 2003 the shareholders agreement and other restrictions presented significant obstacles and uncertainties in the determination of the number of shares that could be reasonably expected to qualify for sale within one year. As a result of this illiquidity, at December 31, 2003 a portion of the total investment was considered restricted and was discounted. The aggregate unrealized gain is included in accumulated other comprehensive income. On February 3, 2005, the Company sold 1.5 million of its Aspen shares at $24.80 per common share for total proceeds of $37.2 million, realizing a gain of $14.4 million. The Company currently owns 2.5 million shares, or approximately 3.6% of Aspen.

     On August 2, 2004, we invested an aggregate of $20.0 million as part of an investor group acquiring the life and investments business of Safeco Corporation (since renamed Symetra Financial Corporation), pursuant to a Stock Purchase Agreement. Symetra is an unquoted investment and is carried at estimated fair value based on reported net asset values and other information available to management, with any unrealized gain or loss included in accumulated other comprehensive income.

     For additional information concerning the Company’s investments and reserves, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data”.

Competition

     The insurance and reinsurance industries are highly competitive. We compete with major U.S., Bermuda and other international insurers and reinsurers and certain underwriting syndicates and insurers, some of which have greater financial, marketing and management resources than we do. In particular, we compete with insurers that provide property-based lines of insurance and reinsurance, such as Aspen, ACE Tempest Re, Everest Reinsurance Company, IPC Re Limited, Lloyd’s of London syndicates, Munich Re, PartnerRe Ltd., PXRE

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Reinsurance Company, Renaissance Reinsurance Ltd., Swiss Re and XL Re. In addition, there are other Bermuda reinsurers, such as Allied World Assurance Company, Ltd., Arch Reinsurance Ltd., AXIS Specialty Limited, Endurance Specialty Insurance Ltd. and Platinum Underwriters Holdings Ltd. with whom we also compete. Competition varies depending on the type of business being insured or reinsured and whether we are in a leading position or acting on a following basis.

     Competition in the types of business that we underwrite is based on many factors, including:

	•	Premiums charged and other terms and conditions offered;
	•	Services provided;
	•	Financial ratings assigned by independent rating agencies;
	•	Speed of claims payment;
	•	Reputation;
	•	Perceived financial strength; and
	•	The experience of the underwriter in the line of insurance or reinsurance to be written.

     Increased competition could result in fewer submissions, lower premium rates, and less favorable policy terms, which could adversely impact our growth and profitability. In addition, capital market participants have created alternative products such as catastrophe bonds that are intended to compete with reinsurance products. Additionally, we do see growing competition from hedge funds. We are unable to predict the extent to which these new, proposed or potential initiatives may affect the demand for our products or the risks that may be available for us to consider underwriting.

     We believe that we are well positioned in terms of client services and underwriting expertise. We also believe that our capitalization and strong financial ratios provide us with a competitive advantage in the marketplace.

Bermuda Insurance Regulation

     The following summary of Bermuda insurance regulation is based upon current law and is for general information only.

     The Insurance Act. As a holding company, Montpelier Re Holdings Ltd. is not subject to Bermuda insurance law and regulations; however, Montpelier Re is subject to the Insurance Act and related regulations. No person shall carry on any insurance business in or from within Bermuda unless registered as an insurer under the Insurance Act by the Bermuda Monetary Authority, which we refer to as the BMA, which has responsibility for the day-to-day supervision of insurers. Under the Insurance Act, insurance business includes reinsurance business. The continued registration of a company as an insurer under the Insurance Act is subject to its complying with the terms of its registration and such other conditions as the BMA may impose from time to time.

     An Insurance Advisory Committee appointed by the Bermuda Minister of Finance advises the BMA on matters connected with the discharge of the BMA’s functions, and sub-committees thereof supervise and review the law and practice of insurance in Bermuda, including reviews of accounting and administrative procedures.

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

     Classification of Insurers. The Insurance Act distinguishes between insurers carrying on long-term business and insurers carrying on general business. There are four classifications of insurers carrying on general business, with Class 4 insurers subject to the strictest regulation. Montpelier Re is registered to carry on general business as a Class 4 insurer in Bermuda and is regulated as such under the Insurance Act. As so registered, Montpelier Re may not carry on long-term business. In general, long-term business includes effecting and carrying out contracts of insurance on human life or contracts to pay annuities on human life, and contracts of insurance against risks of the persons insured sustaining injury as the result of an accident, or dying as the result of an accident or becoming incapacitated or dying in consequence of disease. These are contracts that are expressed to be in effect for a period of not less than five years or unlimited and to be terminable by the insurer before the expiration of five years or are so terminable before the expiration of that period only in special circumstances.

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     Cancellation of Insurer’s Registration . An insurer’s registration may be canceled by the BMA 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 BMA, the insurer has not been carrying on business in accordance with sound insurance principles.

     Principal Representative. An insurer is required to maintain a principal office in Bermuda and to appoint and maintain a principal representative in Bermuda. For the purpose of the Insurance Act, the principal office of Montpelier Re is at the Company’s principal executive offices in Hamilton, Bermuda, and Montpelier Re’s principal representative is Mr. Anthony Taylor. Without a reason acceptable to the BMA, 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 BMA is given of the intention to do so. It is the duty of the principal representative, upon 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 verbally notify the BMA immediately and, within 14 days of such notification, to make a report in writing to the BMA 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 BMA relating to a solvency margin or a 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 Montpelier Re, are required to be filed annually with the BMA. The independent auditor of Montpelier Re must be approved by the BMA and may be the same person or firm who audits Montpelier Re’s financial statements and reports for presentation to its shareholders. The auditor must notify the BMA in the event of its resignation or removal, or if there is material modification to a report on Montpelier Re’s statutory financial statements. Montpelier Re’s independent auditor is PricewaterhouseCoopers (Bermuda).

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

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

     Annual Statutory Financial Return. Montpelier Re is required to file with the BMA a statutory financial return no later than four months after its financial year end (unless specifically extended). The statutory financial return for a Class 4 insurer includes, among other matters, a report of the approved independent auditor on the statutory financial statements of such insurer, solvency certificates, the statutory financial statements themselves, the opinion of the loss reserve specialist and a schedule of reinsurance ceded. The solvency certificates must be signed by the principal representative and at least two directors of the insurer who are required to certify, among other matters, whether the minimum solvency margin has been met and whether the insurer complied with the conditions attached to its certificate of registration. The independent approved auditor is required to state whether in its opinion it was reasonable for the directors to so certify. Where an insurer’s accounts have been audited for any purpose other than compliance with the Insurance Act, a statement to that effect must be filed with the statutory financial return.

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

     (1) is required, with respect to its general business, to maintain a minimum solvency margin (the prescribed

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amount by which the value of its general business assets must exceed its general business liabilities) equal to the greatest of:

          (A) $100 million;

          (B) 50% of net premiums written (being gross premiums written less any premiums ceded by Montpelier Re but Montpelier Re may not deduct more than 25% of gross premiums when computing net premiums written); and

          (C) 15% of net loss, loss expense 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 (if it has failed to meet its minimum solvency margin or minimum liquidity ratio on the last day of any financial year, Montpelier Re will be prohibited, without the approval of the BMA, 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 (at least 7 days before payment of such dividends) with the BMA an affidavit stating that it will continue to meet the required margins;

     (4) is prohibited, without the prior approval of the BMA, 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 BMA a written report containing certain information and is precluded from declaring and/or paying dividends until the failure is rectified.

     Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity ratio for general business insurers, such as Montpelier Re. 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, account and premiums receivable and reinsurance balances receivable. There are certain categories of assets which, unless specifically permitted by the BMA, do not automatically qualify as relevant assets, such as unquoted equity securities, investments in and advances to affiliates and real estate and collateral loans. The relevant liabilities are total general business insurance reserves and total other liabilities less deferred income tax and sundry liabilities (by interpretation, those not specifically defined).

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

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

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

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Employees

     As of March 1, 2005, we had 65 employees. Our employees are employed by Montpelier Re or by Montpelier Marketing Services (UK) Limited. None of our employees are subject to collective bargaining agreements, and we know of no current efforts to implement such agreements.

     Many of our Montpelier Re employees, including all of our executive officers, are employed pursuant to work permits granted by the Bermuda authorities. These permits expire at various times over the next several years. We have no reason to believe that these permits would not be extended at expiration upon request, although no assurances can be given in this regard. The Bermuda government has a policy that limits the duration of work permits to six years, subject to certain exemptions for key employees.

Segment Information

     Management has determined that the Company operates in one segment only. The Company focuses on writing global property and casualty reinsurance and insurance business as described earlier.

Additional Information

     The Registrant’s website address is www.montpelierre.bm. The Registrant makes available on its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports free of charge as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.

Risk Factors

     Factors that could cause our actual results to differ materially from those in the forward looking statements contained in this Form 10-K and other documents we file with the Securities and Exchange Commission are outlined below. Additional risks not presently known to us or that we currently deem immaterial may also impair our business or results of operations. Any of the risks described below could result in a significant or material adverse effect on our results of operations or financial condition.

Risks Related to Our Company

Our future performance is difficult to predict because we have a limited operating history.

     We were formed in November 2001, and we only have three full fiscal years of operating and financial history. As a result, there is limited historical financial and operating information available to help you evaluate our performance. Companies in their initial stages of development present substantial business and financial risks and may suffer significant losses. Our historical financial results may not accurately indicate our future performance.

We could be adversely affected by the loss of one or more principal employees or by an inability to attract and retain staff.

     Our success will depend in substantial part upon our ability to attract and retain our principal employees. As of March 1, 2005 we have 65 full-time employees and depend upon them for the generation and servicing of our business. We rely substantially upon the services of Anthony Taylor, our Chairman, Chief Executive Officer and President of Montpelier Re and Russell Fletcher, our Chief Underwriting Officer of Montpelier Re. Although to date we have generally been successful in recruiting employees, our location in Bermuda may be an impediment to attracting and retaining experienced personnel, particularly if they are unable to secure work permits, as described below. Furthermore, although we are not aware of any planned departures, if we were to lose the services of members of our management team, our business could be adversely affected. We do not currently maintain key man life insurance policies with respect to our employees except for Anthony Taylor. We also may experience difficulty in attracting and retaining qualified independent directors in the increasingly regulated corporate governance environment.

Our ability to conduct our business may be adversely affected by Bermuda employment restrictions.

     Under Bermuda law, non-Bermudians, other than spouses of Bermudians and individuals holding permanent resident certificates, are not permitted to engage in any gainful occupation in Bermuda without a work permit issued by the Bermuda government. A work permit is only granted or extended if the employer can show that, after a proper public advertisement, no Bermudian, spouse of a Bermudian or individual holding a permanent resident certificate is available who meets the minimum standards for the position. The Bermuda

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government has announced a policy that places a six-year term limit on individuals with work permits, subject to specified exemptions for persons deemed to be key employees and persons holding positions recognised as key occupations where the particular business has a significant physical presence in Bermuda. A list of categories recognised as key occupations has recently been issued. Businesses may request that holders of posts in such categories be exempted from the term limits on work permits.

     Many of our Montpelier Re employees, including all of our executive officers, are employed pursuant to work permits granted by the Bermuda authorities. These permits expire at various times over the next several years. We have no reason to believe that these permits would not be extended at expiration upon request, although no assurances can be given in this regard.

     None of our executive officers based in Bermuda are Bermudian. Of our employees in Bermuda, 37 are Bermudian. Anthony Taylor, our Chief Executive Officer, Russell Fletcher, our Chief Underwriting Officer, and Thomas Busher, our Chief Operating Officer, are working under work permits that will expire in 2010 and Kernan Oberting, our Chief Financial Officer, is working under a work permit which expires in 2009. If work permits are not obtained or renewed for our principal employees, we could lose their services, which could materially affect our business.

We could face unanticipated losses from war, terrorism and political unrest, and these or other unanticipated losses could have a material adverse effect on our financial condition and results of operations.

     We may have substantial exposure to large, unexpected losses resulting from future man-made catastrophic events, such as acts of war, acts of terrorism and political instability. Although we may attempt to exclude losses from terrorism and certain other similar risks from some coverages we write, we may not be successful in doing so. In addition, we have written and will continue to write some policies explicitly covering acts of terrorism. We have entered into agreements with the Overseas Private Investment Corporation (“OPIC”) to form an insurance facility to underwrite stand-alone terrorism insurance products. These risks are inherently unpredictable and recent events may lead to increased frequency and severity of losses. It is difficult to predict the timing of such events with statistical certainty or to estimate the amount of loss that any given occurrence will generate. To the extent that losses from such risks occur, our financial condition and results of operation could be materially adversely affected.

Our financial condition could be adversely affected by the occurrence of disasters.

     We have substantial exposure to losses resulting from natural and man-made disasters and other catastrophic events. Catastrophes can be caused by various events, including hurricanes, earthquakes, hailstorms, explosions, severe winter weather and fires. The incidence and severity of such catastrophes are inherently unpredictable and our losses from catastrophes could be substantial. The occurrence of claims from catastrophic events is likely to result in substantial volatility in our financial condition or results of operations for any fiscal quarter or year and could have a material adverse effect on our financial condition or results and our ability to write new business. This volatility is compounded by accounting regulations that do not permit reinsurers to reserve for such catastrophic events until they occur. We expect that increases in the values and concentrations of insured property will increase the severity of such occurrences in the future. Although we will attempt to manage our exposure to such events, a single catastrophic event could affect multiple geographic zones or the frequency or severity of catastrophic events could exceed our estimates, either of which could have a material adverse effect on our financial condition or results of operations.

Emerging claim and coverage issues could adversely affect our casualty business.

     As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. Because of the “long-tail” nature of our casualty business in which claims can typically be made for many years, it is more susceptible to these issues than the majority of our business, which is predominantly “short-tail.” In some instances, these changes may not become apparent until some time after we have issued reinsurance contracts that are affected by the changes. In addition, we are unable to predict the extent to which the courts may expand the theory of liability under a casualty insurance contract, such as the range of the occupational hazards causing losses under employers’ liability insurance, thereby increasing our reinsurance exposure. As a result, the full extent of liability under our reinsurance contracts, and in particular our casualty reinsurance contracts, may not

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be known for many years after a contract is issued.

If actual claims exceed our loss reserves, our financial results could be significantly adversely affected.

     Our success depends upon our ability to accurately assess the risks associated with the businesses that we reinsure. To the extent actual claims exceed our expectations we will be required to immediately recognize the less favorable experience as we become aware of it. This could cause a material increase in our liabilities and a reduction in our profitability, including an operating loss and reduction of capital. It is early in our history and the number and size of reported claims may increase, and their size could exceed our expectations.

     A significant portion of the Company’s business is property catastrophe and other classes with high attachment points of coverage. Reserving for losses in the property catastrophe market is inherently complicated in that losses in excess of the attachment level of the Company’s policies are characterized by high severity and low frequency, and other factors which could vary significantly as claims are settled. This limits the volume of relevant industry claims experience available from which to reliably predict ultimate losses following a loss event.

     In addition, there always exists a reporting lag between a loss event taking place and the reporting of the loss to the Company. These incurred but not reported losses are inherently difficult to predict. Because of the variability and uncertainty associated with loss estimation, it is possible that our individual case reserves for each catastrophic event and other case reserves are incorrect, possibly materially.

     These factors require us to make significant assumptions when establishing loss reserves. Since the Company has insufficient past loss experience, management supplements this information with industry data. This industry data may not match the risk profile of the Company, which introduces a further degree of uncertainty into the process. Accordingly, actual claims and claim expenses paid may deviate, perhaps substantially, from the reserve estimates reflected in our financial statements.

     Like other reinsurers, we do not separately evaluate each of the individual risks assumed under reinsurance treaties. Therefore, we are largely dependent on the original underwriting decisions made by ceding companies. We are subject to the risk that the ceding companies may not have adequately evaluated the risks to be reinsured and that the premiums ceded may not adequately compensate us for the risks we assume.

     If our loss reserves are determined to be inadequate, we will be required to increase loss reserves at the time of such determination with a corresponding reduction in our net income in the period in which the deficiency is rectified. It is possible that claims in respect of events that have occurred could exceed our loss reserves and have a material adverse effect on our results of operations or our financial condition in general. In addition, unlike the loss reserves of U.S. reinsurers, our loss reserves are not regularly examined by U.S. or other insurance regulators.

The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial condition or our results of operations.

     We seek to limit our loss exposure by writing a number of our reinsurance contracts on an excess of loss basis, adhering to maximum limitations on reinsurance written in defined geographical zones, limiting program size for each client and prudent underwriting of each program written. In the case of proportional treaties, we seek per occurrence limitations or loss ratio caps to limit the impact of losses from any one event. We cannot be sure that any of these loss limitation methods will be effective. We also seek to limit our loss exposure by geographic diversification. Geographic zone limitations involve significant underwriting judgments, including the determination of the area of the zones and the inclusion of a particular policy within a particular zone’s limits. There can be no assurance that various provisions of our policies, such as limitations or exclusions from coverage or choice of forum, will be enforceable in the manner we intend. Disputes relating to coverage and choice of legal forum may also arise. Underwriting is inherently 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.

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Our ability to pay dividends may be constrained by our holding company structure and the limitations on payment of dividends Bermuda law and regulations impose on us.

     We are a holding company and, as such, have no substantial operations of our own. We do not expect to have any significant operations or assets other than our ownership of the shares of Montpelier Re. Dividends and other permitted distributions from Montpelier Re are expected to be our sole source of funds to meet ongoing cash requirements, including debt service payments and other expenses, and to pay dividends to our shareholders. Bermuda law and regulations, including, but not limited to Bermuda insurance regulation, limit the declaration and payment of dividends and the making of distributions by Montpelier Re to us. The inability of Montpelier Re to pay dividends in an amount sufficient to enable us to meet our cash requirements at the holding company level could have a material adverse effect on our operations.

We may encounter difficulties in maintaining the information technology systems necessary to run our business.

     The performance of our information technology systems is critical to our business and reputation and our ability to process transactions and provide high quality customer service. Such technology is and will continue to be a very important part of our underwriting process. We currently purchase risk modeling services from AIR, EQE and RMS. In addition, we purchase insurance consulting services from Black Diamond Group and Complexus Ltd. for the enhancement of our proprietary modeling technologies.

     We cannot be certain that we would be able to replace these service providers or consultants without slowing our underwriting response time, or that our proprietary technology will operate as intended. Any defect or error in our information technology systems could result in a loss or delay of revenues, higher than expected loss levels, diversion of management resources, harm to our reputation or an increase in costs.

One of our founders and certain of our directors and officers may have conflicts of interest with us.

     One of our founders, White Mountains, beneficially owns 19.4% (assuming the exercise of warrants) of our common shares. In addition, two of our directors are affiliated with White Mountains.

     Affiliates of White Mountains engage in certain commercial activities and transactions or agreements with us, which may give rise to conflicts of interest. We may also enter into commercial arrangements with related parties in the ordinary course of business. In addition, White Mountains conducts a reinsurance business through some of its subsidiaries, and we may compete with such subsidiaries for the same prospective clients. Our founders and their affiliates have also entered into agreements with and made investments in numerous companies that may compete with us. In particular:

	•	Raymond Barrette, the lead director of our Board of Directors and a member of the Underwriting Policy Committee of our Board of Directors, is President and Chief Executive Officer of White Mountains Insurance Group.
	•	John Gillespie, a member of our Board of Directors and Chairman of the Finance Committee of our Board, is Deputy Chairman of the Board of Directors of White Mountains Insurance Group. Mr. Gillespie is Chairman and President of White Mountains Advisors LLC, a wholly owned indirect subsidiary of White Mountains Insurance Group, which we have engaged to provide investment advisory and management services. In addition, Mr. Gillespie is either general manager or investment manager of various funds, which own less than 5% of our common shares.
	•	Kip Oberting, our Chief Financial Officer, was previously employed by and is permitted to provide limited services to White Mountains Capital, Inc. or its affiliates, provided that such services do not interfere with his performance for the Company. Such services must be fully disclosed to the Company, and the Company may require Mr. Oberting to cease such services at any time. Long-term incentive awards granted by White Mountains Capital, Inc. to Mr. Oberting prior to his employment by the Company continue to vest.

     In addition, our founders and entities affiliated with some of our directors have sponsored or invested in, and may in the future sponsor or invest in, other entities engaged in or intending to engage in insurance and reinsurance underwriting, some of which may compete with us. They have also entered into, or may in the future enter into, agreements with companies that may compete with us.

     We have a policy in place applicable to each of our directors and officers which provides for the resolution of potential conflicts of interest. However, we may not be in a position to influence any party’s decision to engage in activities that would give risk to a conflict of interest, and they may take actions that are not in our shareholders’ best interests.

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If we choose to purchase reinsurance, we may be unable to do so.

     We purchased reinsurance for our own account in 2004 in order to limit the effect of large and multiple losses upon our financial condition, and we may seek to buy reinsurance in the future. This type of insurance is known as “retrocessional reinsurance.” A reinsurer’s insolvency or inability to make payments under the terms of its reinsurance treaty with us could have a material adverse effect on us.

     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. Accordingly, we may not be able to obtain our desired amounts of retrocessional reinsurance. In addition, even if we are able to obtain such retrocessional reinsurance, we may not be able to negotiate terms that we deem appropriate or acceptable or from entities with satisfactory creditworthiness.

We will be subject to the credit risk of our reinsurers.

     If we purchase retrocessional reinsurance for our own account, the insolvency, inability or reluctance of any of our reinsurers to make timely payments to us under the terms of our reinsurance agreements could have a material adverse effect on us. The same risk also exists with respect to certain contracts that carry underlying reinsurance protection.

Since we depend on a few reinsurance brokers for a large portion of our revenues, loss of business provided by them could adversely affect us.

     We market our reinsurance worldwide primarily through reinsurance brokers. For the year ended December 31, 2004, 90.9% of our gross premiums written were sourced through brokers. Subsidiaries and affiliates of Marsh, Aon, Benfield (one of our founders and a shareholder) and Willis provided 22.5%, 19.9%, 16.0% and 12.4% (for a total of 70.8%), respectively, of our gross premiums written sourced through brokers for the year ended December 31, 2004. Affiliates of two of these brokers, Aon and Marsh, have also co-sponsored the formation of Bermuda reinsurance companies that may compete with us, and these brokers may favor their own reinsurers over other companies. Loss of all or a substantial portion of the business provided by one or more of these brokers could have a material adverse effect on our business.

Our reliance on reinsurance brokers subjects us to their credit risk.

     In accordance with industry practice, we frequently pay amounts owed on claims under our policies to reinsurance brokers, and these brokers, in turn, pay these amounts over to the ceding insurers that have reinsured a portion of their liabilities with us. In some jurisdictions, if a broker fails to make such a payment, we might remain liable to the ceding insurer for the deficiency. Conversely, in certain jurisdictions, when the ceding insurer pays premiums for these policies to reinsurance brokers for payment over to us, these premiums are considered to have been paid and the ceding insurer will no longer be liable to us for those amounts, whether or not we have actually received the premiums. Consequently, consistent with the industry, we assume a degree of credit risk associated with brokers around the world.

Our investment performance may affect our financial results and ability to conduct business.

     Our funds are invested on a discretionary basis by a professional investment advisory management firm, White Mountains Advisors LLC, a wholly-owned subsidiary of White Mountains Insurance Group, subject to policy guidelines, which are periodically reviewed by the Finance Committee of our Board of Directors.

     Although our investment policies stress diversification of risks, conservation of principal and liquidity, our investments are subject to market-wide risks and fluctuations, as well as to risks inherent in particular securities.

     In particular, the volatility of our claims submissions may force us to liquidate securities which may cause us to incur capital losses. If we structure our investments improperly relative to our reinsurance liabilities, we may be forced to liquidate investments prior to maturity at a significant loss to cover such liabilities. Realized and unrealized investment losses resulting from an other than temporary decline in value could significantly decrease our assets, thereby affecting our ability to conduct business.

Our operating results may be adversely affected by currency fluctuations.

     Our functional currency is the U.S. dollar. We write a portion of our business, receive premiums and pay losses in foreign currencies and may maintain a small portion of our investment portfolio in investments

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denominated in currencies other than U.S. dollars. A portion of our loss reserves are also in non-U.S. currencies. We may experience foreign exchange losses to the extent our foreign currency exposure is not properly managed or otherwise hedged, which in turn would adversely affect our statement of operations and financial condition.

     At present we have no currency hedges in place, nor are we aware of any significant exposures to loss payments that will be paid in non-U.S. currencies. We intend to consider using hedges when we are advised of known or probable significant losses that will be paid in non-U.S. currencies. We can, therefore, choose to manage currency fluctuation exposure during the period between advice and ultimate payment. However, we would not normally hedge against this possible exposure for IBNR. Reserves for IBNR are a substantial part of our total loss reserves.

We are rated by rating agencies and a decline in our ratings could affect our standing among brokers and customers and cause our revenue and earnings to decrease.

     Ratings have become an increasingly important factor in establishing the competitive position of reinsurance companies. A.M. Best assigned Montpelier Re a financial strength rating of “A” (Excellent), which is the third highest of fifteen rating levels. The objective of A.M. Best’s rating system is to provide an opinion of an insurer’s financial strength and ability to meet ongoing obligations to its policyholders. Our rating reflects A.M. Best’s opinion of the results of our operations capitalization and management. Montpelier Re has been assigned an “A3” (Good) rating by Moody’s Investors Service, the seventh highest rating of twenty-one rating levels. This rating reflects Moody’s opinion of the ability of Montpelier Re to punctually repay senior policyholder claims and obligations. Montpelier Re has been assigned an “A -” (Strong) financial strength rating by Standard & Poor’s, which is the seventh highest of twenty-one rating levels. The rating reflects Standard & Poor’s opinion of Montpelier Re’s ability to pay under its insurance policies and contracts in accordance with their terms. These ratings are not evaluations directed to investors in our securities or a recommendation to buy, sell or hold our securities. Our ratings are subject to periodic review by, and may be revised or revoked at the sole discretion of the rating agencies and we cannot assure you that we will be able to retain these ratings.

     If our ratings are reduced from their current levels by A.M. Best, Moody’s or Standard & Poor’s, our competitive position in the insurance industry would suffer and it would be more difficult for us to market our products. A significant downgrade could result in a substantial loss of business as ceding companies, and brokers that place such business, move to other reinsurers with higher ratings.

We may require additional capital in the future.

     Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. To the extent that the funds generated by our ongoing operations, initial capitalization and initial public offering are insufficient to fund future operating requirements and cover claim payments, we may need to raise additional funds through financings or curtail our growth and reduce our assets. Any equity or debt financing, if available at all, may be on terms that are not favorable to us. If we cannot obtain adequate capital, our business, operating results and financial condition could be adversely affected.

If our subsidiary is unable to obtain the necessary credit, we may not be able to offer reinsurance in certain markets.

     Montpelier Re is not licensed or admitted as an insurer in any jurisdiction other than Bermuda. Because many jurisdictions do not permit insurance companies to take credit for reinsurance obtained from unlicensed or non-admitted insurers on their statutory financial statements unless appropriate security mechanisms are in place, our reinsurance clients will typically require us to post a letter of credit or other collateral. In order for Montpelier Re to write Lloyd’s QQS business, it must provide a letter of credit in favor of The Society and Council of Lloyd’s (“Lloyd’s”) in accordance with Lloyd’s rules. Effective May 27, 2004 the Company entered into a three-year Amended and Restated Letter of Credit Reimbursement and Pledge Agreement with Banc of America Securities LLC and a syndicate of lending institutions for the provision of a letter of credit facility for the account of Montpelier Re in favor of Lloyd’s or certain U.S. ceding companies (“Tranche A”) in an amount of up to $250.0 million, and in favor of certain U.S. ceding companies only (Tranche “B”) in an amount of up to $200.0 million of which up to $50.0 million may be used by us as a revolving line of credit for general corporate purposes. On October 28, 2004, we exercised an option to increase the aggregate amount of Tranche B by $50.0 million to $250.0 million. In addition, effective December 23, 2004, Montpelier Re entered into a $50 million Letter of Credit Reimbursement and Pledge Agreement with HSBC Bank USA, National Association. The agreement is a one year secured facility that allows Montpelier Re to issue up to $50 million in letters of credit.

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     If Montpelier Re were to become unable to obtain necessary credit, Montpelier Re could be limited in its ability to write business for certain of our clients.

Risks Related to Our Industry

Substantial new capital inflows into the reinsurance industry will increase competition.

     The reinsurance industry is highly competitive. We compete, and will continue to compete, with major U.S. and non-U.S. reinsurers, many of which have greater financial, marketing and management resources than we have. We also compete with several other Bermuda-based reinsurers that write reinsurance and that target the same market as we do and utilize similar business strategies, and some of these companies currently have more capital than we have. We also compete with financial products, such as risk securitization, the usage of which has grown in volume. Established competitors may be planning additional capital raising transactions. Ultimately, this competition could affect our ability to attract or retain business or to write business at premium rates sufficient to cover losses. If competition limits our ability to write new business at adequate rates, our return on capital may be adversely affected.

Events may result in political, regulatory and industry initiatives, which could adversely affect our business.

     The supply of property catastrophe reinsurance coverage decreased due to the withdrawal of capacity and substantial reductions in capital resulting from, among other things, the September 11th terrorist attacks. This tightening of supply resulted in government intervention in the insurance and reinsurance markets in relation to terrorism coverage both in the U.S. and through industry initiatives in other countries. The Terrorism Risk Insurance Act of 2002 was enacted to ensure the availability of insurance coverage for certain types of terrorist acts in the U.S. This law establishes a federal assistance program that will continue through the end of 2005 to help the commercial insurers and reinsurers in the property and casualty insurance industry cover claims related to future terrorism related losses and regulates the terms of insurance relating to terrorism coverage. Although there has been limited take-up from commercial policyholders to date there remains an uncertainty of the future of terrorism coverage should the U.S. government discontinue the program after December 31, 2005.

     This government intervention and the possibility of future interventions have created uncertainty in the insurance and reinsurance markets about the definition of terrorist acts and the extent to which future coverages will extend to terrorist acts. Government regulators are generally concerned with the protection of policyholders to the exclusion of other constituencies, including shareholders of insurers and reinsurers. While we cannot predict the exact nature, timing or scope of possible governmental initiatives, such proposals could adversely affect our business by:

	•	Providing insurance and reinsurance capacity in markets and to consumers that we target;
	•	Requiring our participation in industry pools and guaranty associations;
	•	Regulating the terms of insurance and reinsurance policies; or
	•	Disproportionately benefiting the companies of one country over those of another.

     The insurance industry is also affected by political, judicial and legal developments that may create new and expanded theories of liability. Such changes may result in delays or cancellations of products and services by insurers and reinsurers, which could adversely affect our business.

Current legal and regulatory activities relating to insurance brokers and agents, contingent commissions and certain finite-risk insurance products could affect our business, results of operations and financial condition.

     Contingent commission arrangements and finite-risk reinsurance have become the focus of investigations by the Securities and Exchange Commission and numerous state Attorneys General. Finite-risk reinsurance has been defined as a form of reinsurance in which, among other things, the time value of money is considered in the product’s design and pricing, in addition to the expected amount of the loss payments.

     At this time, we are unable to predict the potential effects, if any, that these investigations may have upon the insurance and reinsurance markets and industry business practices or what, if any, changes may be made to

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laws and regulations regarding the industry and financial reporting. Any of the foregoing could adversely affect our business, results of operations and financial condition.

Competition in the insurance industry could reduce our operating margins.

     Competition in the insurance industry has increased as industry participants seek to enhance their product and geographic reach, client base, operating efficiency and general market share through organic growth, mergers and acquisitions, and reorganization activities. As the insurance industry evolves, competition for customers may become more intense and the importance of acquiring and properly servicing each customer will grow. We could incur greater expenses relating to customer acquisition and retention, which could reduce our operating margins. There are also many potential initiatives by capital market participants to produce alternative products that may compete with the existing catastrophe reinsurance markets. In addition, hedge funds are increasingly participating in our markets through various structures. Over time, these numerous initiatives could significantly affect supply, pricing and competition in our industry.

The reinsurance business is historically cyclical and we expect to experience periods with excess underwriting capacity and unfavorable premiums.

     Historically, reinsurers have experienced significant fluctuations in operating results due to competition, frequency of occurrence or severity of catastrophic events, levels of capacity, general economic conditions and other factors. Demand for reinsurance is influenced significantly by underwriting results of primary property insurers and prevailing general economic conditions. The supply of reinsurance is related to prevailing prices, the levels of insured losses and the 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 reinsurance business historically has been a cyclical industry characterized by periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity permitted favorable premium levels. The supply of reinsurance may increase, either by capital provided by new entrants or by the commitment of additional capital by existing reinsurers, which may cause prices to decrease. Any of these factors could lead to a significant reduction in premium rates, less favorable policy terms and fewer submissions for our underwriting services. In addition to these considerations, changes in the frequency and severity of losses suffered by insurers may affect the cycles of the reinsurance business significantly, and we expect to experience the effects of such cyclicality.

We may be adversely affected by interest rate changes.

     Our operating results depend, in part, on the performance of our investment portfolio. Our investment portfolio contains interest rate sensitive instruments, such as bonds, which may be adversely affected by changes in interest rates. Changes in interest rates could also have an adverse effect on our investment income and results of operations.

     Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Any measures we take that are intended to manage the risks of operating in a changing interest rate environment may not effectively mitigate such interest rate sensitivity.

Risks Related to Our Common Shares

Future sales of common shares may affect their market price.

     We cannot predict what effect, if any, future sales of our common shares, or the availability of common shares for future sale, will have on the market price of our common shares. Sales of substantial amounts of our common shares in the public market, or the perception that such sales could occur, could adversely affect the market price of our common shares.

There are provisions in our charter documents which restrict the voting rights of our common shares.

     Our bye-laws generally provide that any shareholder owning, directly or by attribution, more than 9.5% of our common shares will have the voting rights attached to such common shares reduced so that it may not exercise more than 9.5% of the total voting rights.

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U.S. persons who own our common shares may have more difficulty in protecting their interests than U.S. persons who are shareholders of a U.S. corporation.

     The Companies Act 1981 of Bermuda, which applies to us, differs in certain material respects from laws generally applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant provisions of the Companies Act which includes, where relevant, information on modifications thereto adopted pursuant to our bye-laws, applicable to us, which differ in certain respects from provisions of Delaware corporate law. Because the following statements are summaries, they do not discuss all aspects of Bermuda law that may be relevant to us and our shareholders.

     Interested Directors. Bermuda law and our bye-laws provide that we cannot void any transaction we enter into in which a director has an interest, nor can such director be liable to us for any profit realized pursuant to such transaction, provided the nature of the interest is disclosed at the first opportunity at a meeting of directors, or in writing, to the directors. Under Delaware law such transaction would not be voidable if:

	•	the material facts as to such interested director’s relationship or interests were disclosed or were known to the board of directors and the board had in good faith authorized the transaction by the affirmative vote of a majority of the disinterested directors;
	•	such material facts were disclosed or were known to the stockholders entitled to vote on such transaction and the transaction were specifically approved in good faith by vote of the majority of shares entitled to vote thereon; or
	•	the transaction were fair as to the corporation as of the time it was authorized, approved or ratified.

Under Delaware law, the interested director could be held liable for a transaction in which the director derived an improper personal benefit.

     Business Combinations with Large Shareholders or Affiliates. As a Bermuda company, we may enter into business combinations with our large shareholders or affiliates, including mergers, asset sales and other transactions in which a large shareholder or affiliate receives, or could receive, a financial benefit that is greater than that received, or to be received, by other shareholders, without obtaining prior approval from our Board of Directors or from our shareholders. If we were a Delaware company, we would need prior approval from our Board of Directors or a supermajority of our shareholders to enter into a business combination with an interested shareholder for a period of three years from the time the person became an interested shareholder, unless we opted out of the relevant Delaware statute.

     Shareholders’ Suits. The rights of shareholders under Bermuda law are not as extensive as the rights of shareholders in many United States jurisdictions. Class actions and derivative actions are generally not available to shareholders under the laws of Bermuda. However, the Bermuda courts ordinarily would be expected to follow English case law precedent, which would permit a shareholder to commence an action in the name of the company to remedy a wrong done to the company where an act is alleged to be beyond the corporate power of the company, is illegal or would result in the violation of our memorandum of association or bye-laws. Furthermore, consideration would be given by the court to acts that are alleged to constitute a fraud against the minority shareholders or where an act requires the approval of a greater percentage of our shareholders than actually approved it. The winning party in such an action generally would be able to recover a portion of attorneys’ fees incurred in connection with such action. Our bye-laws provide that shareholders waive all claims or rights of action that they might have, individually or in the right of the company, against any director or officer for any act or failure to act in the performance of such director’s or officer’s duties, except with respect to any fraud or dishonesty of such director or officer. Class actions and derivative actions generally are available to stockholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys’ fees incurred in connection with such action.

     Indemnification of Directors. We may indemnify our directors or officers or any person appointed to any committee by the Board acting in their capacity as such in relation to any of our affairs for any loss arising or liability attaching to them by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which such person may be guilty in relation to the company other than in respect of his own fraud or dishonesty. Under Delaware law, a corporation may indemnify a director or officer of the corporation against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of such position if such director or officer acted in good faith and in a manner he or she reasonably believed to be in or not be opposed to the best

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interests of the corporation and, with respect to any criminal action or proceeding, such director or officer had no reasonable cause to believe his or her conduct was unlawful.

Anti-takeover provisions in our bye-laws could impede an attempt to replace or remove our directors, which could diminish the value of our common shares.

     Our bye-laws contain provisions that may entrench directors and make it more difficult for shareholders to replace directors even if the shareholders consider it beneficial to do so. In addition, these provisions could delay or prevent a change of control that a shareholder might consider favorable. For example, these provisions may prevent a shareholder from receiving the benefit from any premium over the market price of our common shares offered by a bidder in a potential takeover. The Board of Directors has the power to appoint a managing director or chief executive officer, a president and a vice president and such additional officers as the Board may determine to perform such duties in the management, business and affairs of the Company as may be delegated to them by the Board. Even in the absence of an attempt to effect a change in management or a takeover attempt, these provisions may adversely affect the prevailing market price of our common shares if they are viewed as discouraging changes in management and takeover attempts in the future.

For example, our bye-laws contain the following provisions that could have such an effect:

	•	election of our directors is staggered, meaning that the members of only one of three classes of our directors are elected each year;
	•	shareholders have limited ability to remove directors;
	•	the total voting power of any shareholder owning more than 9.5% of our common shares will be reduced to 9.5% of the total voting power of our common shares; and
	•	our directors may decline to record the transfer of any common shares on our share register if they believe that registration of the transfer is required under any federal or state securities law or under the laws of any other jurisdiction and the registration has not yet been effected.

You may have difficulty effecting service of process on us or enforcing judgments against us in the United States.

     We are incorporated pursuant to the laws of Bermuda and our business is based in Bermuda. In addition, certain of our directors and officers reside outside the United States, and all or a substantial portion of our assets and the assets of such persons are located in jurisdictions outside the United States. As such, we have been advised that there is doubt as to whether:

	•	a holder of our common shares would be able to enforce, in the courts of Bermuda, judgments of United States courts against persons who reside in Bermuda based upon the civil liability provisions of the United States federal securities laws;
	•	a holder of our common shares would be able to enforce, in the courts of Bermuda, judgments of United States courts based upon the civil liability provisions of the United States federal securities laws;
	•	a holder of our common shares would be able to bring an original action in the Bermuda courts to enforce liabilities against us or our directors and officers, as well as the experts named in this prospectus, who reside outside the United States based solely upon United States federal securities laws.

     Further, we have been advised that there is no treaty in effect between the United States and Bermuda providing for the enforcement of judgments of United States courts, and there are grounds upon which Bermuda courts may not enforce judgments of United States courts. Because judgments of United States courts are not automatically enforceable in Bermuda, it may be difficult for you to recover against us based upon such judgments.

We may require our shareholders to sell us their common shares.

     Under our bye-laws and subject to Bermuda law, we have the option, but not the obligation, to require a shareholder to sell some or all of its common shares to us at fair market value (which would be based upon the average closing price of the common shares as defined under our bye-laws) if the Board reasonably determines, in good faith based on an opinion of counsel, that share ownership, directly, indirectly or constructively by any shareholder is likely to result in adverse tax, regulatory or legal consequences to us, certain of our other

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shareholders or our subsidiaries.

Risks Related to Taxation

We and our subsidiaries may be subject to U.S. tax.

     We and Montpelier Re are organized under the laws of Bermuda and believe, based on the advice of counsel, that we operate in a manner such that we are not subject to U.S. taxation on our income (other than excise taxes on insurance and reinsurance premium income attributable to insuring or reinsuring U.S. risks and U.S. withholding taxes on certain U.S. source investment income). However, because there is considerable uncertainty as to the activities which constitute being engaged in a trade or business within the United States, there can be no assurances that the U.S. Internal Revenue Service will not contend successfully that we or Montpelier Re are engaged in a trade or business in the United States. If we or Montpelier Re were considered to be engaged in a business in the United States, we could be subject to U.S. corporate income and branch profits taxes on the portion of our earnings effectively connected to such U.S. business.

U.S. persons who hold common shares may be subject to U.S. income taxation at ordinary income rates on their proportionate share of our “related party insurance income” (“RPII”).

     RPII is the income of Montpelier Re, if any, attributable to insurance or reinsurance policies where the direct or indirect insureds are U.S. shareholders or are related to U.S. shareholders. RPII may be included in a U.S. shareholder’s gross income whether or not such shareholder is a policyholder. We do not expect our gross RPII to equal or exceed 20% of our gross insurance income in any taxable year for the foreseeable future and do not expect our direct or indirect insureds (and related persons) to directly or indirectly own 20% or more of either the voting power or value of our common shares, but we cannot assure you that this will be the case. If our expectation is incorrect, a U.S. person owning any common shares directly or indirectly on the last day of our taxable year will be required to include in gross income for U.S. federal income tax purposes such holder’s share of the RPII for up to the entire taxable year, determined as if all such RPII were distributed proportionately only to such U.S. shareholders at that date, but limited by such holder’s share of our current-year earnings and profits as reduced by the holder’s share, if any, of certain prior-year deficits in earnings and profits attributable to our insurance business. Upon the sale or other disposition of any common shares, such person may also be required to recognize ordinary income rather than capital gain to the extent of the shareholder’s pro rata share of our undistributed earnings and profits and to file IRS Form 5471, although this should not be the case because we should not be treated as deriving RPII income directly. The RPII provisions have never been interpreted by the courts or the U.S. Treasury Department in final regulations, and regulations interpreting the RPII provisions of the Code exist only in proposed form. It is not certain whether these regulations will be adopted in their proposed form or what changes or clarifications might ultimately be made thereto or whether any such changes, as well as any interpretation or application of RPII by the IRS, the courts, or otherwise, might have retroactive effect. The Treasury Department has authority to impose, among other things, additional reporting requirements with respect to RPII. Accordingly, the meaning of the RPII provisions and the application thereof to us and our subsidiaries is uncertain.

U.S. persons who hold common shares will be subject to adverse tax consequences if we are considered a PFIC for U.S. federal income tax purposes.

     Based on the advice of counsel, we believe that we are not, and we currently do not expect to become, a passive foreign investment company (a “PFIC”) for U.S. federal income purposes. We can not assure you, however, that we will not be considered a PFIC. If we were considered a PFIC it could have material adverse tax consequences for an investor that is subject to U.S. federal income taxation, including subjecting the investor to a greater tax liability than might otherwise apply and subjecting the investor to tax on amounts in advance of when tax would otherwise be imposed. There are currently no regulations regarding the application of the passive foreign investment company provisions to an insurance company. New regulations or pronouncements interpreting or clarifying these rules may be forthcoming. We cannot predict what impact, if any, such guidance would have on a shareholder that is subject to United States federal income taxation.

We may become subject to U.S. tax legislation concerning Bermuda companies.

     Congress has been discussing legislation intended to eliminate certain perceived tax advantages of Bermuda insurance companies and U.S. companies having Bermuda affiliates. While currently there is no specific legislative proposal which, if enacted, would adversely affect us, Montpelier Re or our shareholders, legislative proposals could emerge that could conceivably have an adverse impact on us, Montpelier Re or our

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shareholders.

We may become subject to taxes in Bermuda after 2016, which may have a material adverse effect on our financial condition.

     The Bermuda Minister of Finance, under the Exempted Undertaking Tax Protection Act 1966, as amended, of Bermuda, has given us an assurance that if any legislation is enacted in Bermuda that would impose tax on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to us or any of our operations or our shares, debentures or other obligations until March 28, 2016. We cannot assure you that we will not be subject to any Bermuda tax after that date.

The impact of Bermuda’s letter of commitment to the Organization for Economic Cooperation and Development to eliminate harmful tax practices is uncertain and could adversely affect our tax status in Bermuda.

     The Organization for Economic Cooperation and Development, which is commonly referred to as the OECD, has published reports and launched a global dialogue among member and non-member countries on measures to limit harmful tax competition. These measures are largely directed at counteracting the effects of tax havens and preferential tax regimes in countries around the world. In the OECD’s report dated June 26, 2000, Bermuda was not listed as a tax haven jurisdiction because it had previously signed a letter committing itself to eliminate harmful tax practices by the end of 2005 and to embrace international tax standards for transparency, exchange of information and the elimination of any aspects of the regimes for financial and other services that attract business with no substantial domestic activity. We are not able to predict what changes will arise from the commitment or whether such changes will subject us to additional taxes.

Risks Related to Regulation

If we become subject to insurance statutes and regulations in jurisdictions other than Bermuda or there is a change to Bermuda law or regulations or application of Bermuda law or regulations, there could be a significant and negative impact on our business.

     Montpelier Re, our wholly owned operating subsidiary, is a registered Bermuda Class 4 insurer. As such, it is subject to regulation and supervision in Bermuda. Bermuda insurance statutes, regulations and policies of the Bermuda Monetary Authority require Montpelier Re to, among other things:

	•	maintain a minimum level of capital, surplus and liquidity;
	•	satisfy solvency standards;
	•	restrict dividends and distributions;
	•	obtain prior approval of ownership and transfer of shares;
	•	maintain a principal office and appoint and maintain a principal representative in Bermuda; and
	•	provide for the performance of certain periodic examinations of Montpelier Re and its financial condition.

These statutes and regulations may, in effect, restrict our ability to write reinsurance policies, to distribute funds and to pursue our investment strategy.

     We do not presently intend that Montpelier Re will be admitted to do business in any jurisdiction in the United States, the United Kingdom or elsewhere (other than Bermuda). However, we cannot assure you that insurance regulators in the United States, the United Kingdom or elsewhere will not review the activities of Montpelier Re or related companies or its agents and claim that Montpelier Re is subject to such jurisdiction’s licensing requirements. If any such claim is successful and Montpelier Re must obtain a license, we may be subject to taxation in such jurisdiction. In addition, Montpelier Re is subject to indirect regulatory requirements imposed by jurisdictions that may limit its ability to provide insurance or reinsurance. For example, Montpelier Re’s ability to write insurance or reinsurance may be subject, in certain cases, to arrangements satisfactory to applicable regulatory bodies. Proposed legislation and regulations may have the effect of imposing additional requirements upon, or restricting the market for, alien insurers or reinsurers with whom domestic companies place business.

     Generally, Bermuda insurance statutes and regulations applicable to Montpelier Re are less restrictive than those that would be applicable if it were governed by the laws of any state in the United States. In the past, there have been congressional and other initiatives in the United States regarding proposals to supervise and regulate insurers domiciled outside the United States. If in the future we become subject to any insurance laws of the

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United States or any state thereof or of any other jurisdiction, we cannot assure you that we would be in compliance with those laws or that coming into compliance with those laws would not have a significant and negative effect on our business.

     The process of obtaining licenses is very time consuming and costly, and we may not be able to become licensed in a jurisdiction other than Bermuda, should we choose to do so. The modification of the conduct of our business resulting from our becoming licensed in certain jurisdictions could significantly and negatively affect our business. In addition, our inability to comply with insurance statutes and regulations could significantly and adversely affect our business by limiting our ability to conduct business as well as subjecting us to penalties and fines.

     Because we are incorporated in Bermuda, we are subject to changes of Bermuda law and regulation that may have an adverse impact on our operations, including imposition of tax liability or increased regulatory supervision. In addition, we will be exposed to changes in the political environment in Bermuda. The Bermuda 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. We cannot predict the future impact on our operations of changes in the laws and regulation to which we are or may become subject.

Item 2. Properties

     The Company leases office spaces in Hamilton, Bermuda, where the Company’s principal executive offices are located. The Company also leases office space in London, United Kingdom, where the Company’s subsidiary, Montpelier Marketing Services (UK) Limited is located. We believe our facilities are adequate for our current needs.

Item 3. Legal Proceedings

     The Company, in common with the insurance and reinsurance industry in general, is subject to litigation and arbitration in the normal course of its business. We are not currently involved in any material pending litigation or arbitration proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

     Our common shares began publicly trading on October 10, 2002 on the New York Stock Exchange under the symbol “MRH”. The following table sets forth, for the periods indicated, the high and low sales prices per share of our common shares as reported in composite New York Stock Exchange trading.

     The approximate number of record holders of ordinary shares as of March 1, 2005 was 74, not including beneficial owners of shares registered in nominee or street name.

Dividend Policy

     We initiated a regular dividend program of $0.34 per common voting share and warrant per quarter and declared our first dividend to shareholders and warrant holders of record at December 31, 2003 which was paid on January 15, 2004. The Board of Directors declared regular quarterly dividends of $0.34 per common voting share and warrant on March 2, 2004, June 16, 2004, September 17, 2004 and December 14, 2004. In addition, on February 25, 2005 we declared a special dividend in the amount of $5.50 per common voting share and warrant payable on March 31, 2005 to shareholders and warrant holders of record on March 15, 2005. We expect to continue the payment of dividends in the future but we cannot assure you that such payments will continue. Any determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our results of operations and cash flows, our financial position and capital requirements, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends and any other factors our Board of Directors deems relevant.

     Our ability to pay dividends depends, in part, on the ability of our subsidiaries to pay dividends to us. Montpelier Re is subject to Bermuda laws and regulatory constraints which affect its ability to pay dividends to us. For additional information concerning Bermuda regulatory restrictions, see Part 1, Item 1, Bermuda Insurance Regulation. In addition, under the Companies Act, the Company and Montpelier Re may only declare or pay a dividend if, among other matters, there are reasonable grounds for believing that each of them is, or would after the payment be, able to pay their respective liabilities as they become due. Accordingly, we cannot assure you that we will declare or pay dividends in the future.

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Unregistered Sales of Equity Securities and Use of Proceeds

     There were no stock repurchases for the quarter ended December 31, 2004.

Equity Compensation Plan Information

     The following table provides information as of December 31, 2004 with respect to the Company’s Share Option Plan and Performance Unit Plan. The table does not include information with respect to the Montpelier Long-Term Incentive Plan, which is described below.

     The following is a description of the Company’s equity compensation plans:

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     Performance Unit Plan. Pursuant to the terms of the Performance Unit Plan, at the discretion of the Compensation and Nominating Committee, performance units may be granted to executive officers and certain other key employees. Performance units are conditional grants that entitle the recipient to receive, without payment to the Company, all, double, or a part of the target value of the units granted, depending on the achievement of specific financial or operating goals. Performance units vest at the end of a three-year performance cycle, and can be denominated in Common Shares at market value and are payable in cash, Common Shares or a combination of both at the discretion of the Compensation and Nominating Committee. The performance target for full payment of performance units issued in the 2002-2004 performance cycle is the achievement of an average combined ratio of 70% as measured over the applicable performance periods. The performance target for full payment of performance units issued in the 2003-2005 performance period and the 2004-2006 performance period is a combination of the achievement of an average combined ratio of 72% as measured over the period, and the achievement of an annual increase in fully converted book value per share of 18% as measured over the period. The payment on performance units can double if the performance is significantly above target and conversely, the payment on performance units declines to zero with a performance significantly below target. The Compensation and Nominating Committee has sole discretion regarding the payout level of the performance units.

     Share Option Plan. Pursuant to the terms of the Share Option Plan, the Compensation and Nominating Committee has discretion to grant share options to certain principal employees. The options expire ten years after the award date, are subject to various vesting periods, and require full payment in cash prior to exercise. A total of 1,922,500 options are outstanding pursuant to the Share Option Plan at December 31, 2004, 627,500 options were exercised by optionholders during Fiscal Year 2004 as described above.

     Available grants under the Performance Unit Plan and the Share Option Plan, which together constitute the Company’s current long-term incentive plans, were exhausted at December 31, 2004. In order to provide a means of granting long-term equity-based incentive compensation in future years, the Board has adopted the Montpelier Long-Term Incentive Plan, which was approved at the 2004 Annual General Meeting. A description of the Montpelier Long-Term Incentive Plan is contained below.

     Montpelier Long-Term Incentive Plan (“LTIP”)

     The purpose of the LTIP, which came into effect on January 1, 2005, is to advance the Company’s interests by providing to certain key employees, non-employee directors and consultants of the Company and its subsidiaries long-term incentive awards, the value of which is based on the Company’s Common Shares. The Board’s Compensation and Nominating Committee will administer the LTIP. The Compensation and Nominating Committee, subject to the provisions of the LTIP, has the exclusive authority to: (1) select employees, directors and consultants to whom awards will be granted; (2) determine the type, size, and terms of awards and prescribe the form of award agreement evidencing awards; (3) determine whether awards will be settled in cash, Common Shares, or a combination of cash and Common Shares, (4) interpret and administer the LTIP and awards granted under the LTIP; (5) establish, amend and rescind any rules and regulations relating to the LTIP; and (6) make any other determinations necessary or advisable for the administration of the LTIP. Any decision of the committee with respect to the administration of the LTIP will be final and conclusive with respect to all parties.

     Awards that may be granted under the LTIP consist of share appreciation rights (“SARs”), restricted share units (“RSUs”) and performance shares (“Performance Shares”).

     SARs give a participant the right to receive a payment in cash or Common Shares (or a combination of cash and Common Shares) based on the post-grant appreciation of a number of Common Shares subject to the award if vesting conditions are satisfied. The vesting conditions are determined by the Compensation and Nominating Committee and may relate to a period of continued employment or service, attainment of performance goals, or a combination of the two. Once vested, a participant may settle the SAR at any time prior to the SAR’s expiration. The amount distributed to a participant upon exercise is determined by multiplying the excess of the fair market value of a Company common share on the date of exercise over the fair market value on the date of grant, by the number of shares with respect to which the SAR is being exercised. The fair market value of a Company common share for this purpose will be the 5-day average of the daily closing prices of the shares on the New York Stock Exchange or other principal securities exchange on which the shares are traded, as reported in the Wall Street Journal, for the 5 consecutive trading days previous to and including as the last day the date of valuation or, if there is no trading on the date of valuation, the last previous day on which the shares were traded.

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     RSUs give a participant the right to receive a payment in cash or Common Shares (or a combination of cash and Common Shares) equal to the number of RSUs subject to the award if vesting conditions are satisfied. The vesting conditions are determined by the Compensation and Nominating Committee and may relate to a period of continued employment or service, attainment of performance goals, or a combination of the two. If all applicable terms and conditions of the award are met, the participant will be entitled to receive a number of Common Shares equal to the number of RSUs earned, a cash payment in an amount determined by multiplying the fair market value of Common Shares by the number of restricted share units earned, or a combination of Common Shares and cash. The fair market value of Common Shares for this purpose will be the 5-day average of the daily closing prices of the shares on the New York Stock Exchange or other principal securities exchange on which the shares are traded, as reported in the Wall Street Journal, for the 5 consecutive trading days previous to and including as the last day the date of valuation or, if there is no trading on the date of valuation, the last previous day on which the shares were traded.

     Performance Shares give a participant the right to receive a payment in cash or Common Shares (or a combination of cash and Common Shares) equal to the number of Performance Shares subject to the award if performance goals are satisfied. The performance goals are determined by the Compensation and Nominating Committee and may relate to the Company, one or more of its subsidiaries, or one or more of its divisions, units, partnerships, joint ventures, minority investments, product lines or products, or any combination of the foregoing. If all applicable terms and conditions of the award are satisfied, the participant will be entitled to receive a number of Common Shares equal to the number of Performance Shares earned, a cash payment in an amount determined by multiplying the fair market value of Common Shares by the number of Performance Shares earned, or a combination of Common Shares and cash. The fair market value of Common Shares for this purpose will be the 5-day average of the daily closing prices of the shares on the New York Stock Exchange or other principal securities exchange on which the shares are traded, as reported in the Wall Street Journal, for the 5 consecutive trading days previous to and including as the last day the date of valuation or, if there is no trading on the date of valuation, the last previous day on which the shares were traded.

Shareholders Agreement.

     In December 2001, the Company entered into a shareholders agreement with all of the shareholders who purchased their shares in the private placement. Many provisions of this agreement terminated when the Company became a publicly traded company in October 2002. As described below, the shareholders who are a party to the shareholders agreement have retained rights relating to participation in large sales of the Company’s common shares and registration of their restricted shares.

     Shareholders who are party to the shareholders agreement who hold 15% of the registrable securities then held by such holders (or 20% after the first such request), will have the right to request registration for a public offering of common shares. The Company will use their best efforts to cause the prompt registration of common shares, but will not be required to file a registration statement if the proposed offering is not an appropriate size, if the managing underwriter determines that a registration would be adverse to another proposed offering for a period of time, if the Company holds material non-public information that the board determines should not be disclosed (for a period of time) or if the Company has filed a registration statement within a period of time before the proposed registration. If the number of common shares to be sold in the offering is limited by the managing underwriter, then the number of shares requested to be registered will be allocated, pro rata, among the requesting shareholders.

     In addition, until December 12, 2011, if the Company proposes to register any common shares or any options, warrants or other rights to acquire, or securities convertible into or exchangeable for, the Company’s common shares under the Securities Act (other than shares to be issued pursuant to an employee benefits plan or in connection with a merger, acquisition or similar transaction), the Company will offer shareholders who are party to the shareholders agreement and who are not currently entitled to sell their shares pursuant to Rule 144(k) under the Securities Act, the opportunity, subject to certain conditions, to include their common shares in such registration statement. Certain of the Company’s shareholders exercised this right in connection with the Company’s filing of a Registration Statement on Form S-3 dated February 12, 2004. See Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition and Liquidity – Capital Resources.”

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Item 6. Selected Financial Data

     The following table sets forth our selected financial data and other financial information as at December 31, 2004, 2003, 2002 and 2001 and for the years ended December 31, 2004, 2003 and 2002 and for the period from November 14, 2001 to December 31, 2001. The historical financial information was prepared in accordance with U.S. GAAP. The statement of income data for the periods ended December 31, 2004, 2003, 2002 and 2001, and the balance sheet data at December 31, 2004, 2003, 2002 and 2001 were derived from our audited consolidated financial statements, which have been audited by PricewaterhouseCoopers, our independent registered public accounting firm. You should read the selected financial data in conjunction with our consolidated financial statements and related notes thereto contained in Item 8 — “Financial Statements and Supplementary Data” and Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in this filing and all other information appearing elsewhere or incorporated into this filing by reference.

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     The Company commenced operations on December 16, 2001 and, as a result, underwrote only one reinsurance policy during the period ended December 31, 2001.

N/M — Not meaningful.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

     The following is a discussion and analysis of our results of operations for the years ended December 31, 2004, 2003 and 2002 and financial condition as at December 31, 2004. This discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes thereto included in this filing.

     This discussion contains forward-looking statements that are not historical facts, including statements about the Company’s beliefs and expectations. These statements are based upon current plans, estimates and projections. Our actual results may differ materially from those projected in these forward-looking statements as a result of various factors. See “Cautionary Statement under “Safe Harbor” Provision of the Private Securities Litigation Reform Act of 1995.” and “Risk Factors” contained in Item 1 “Business” of this filing.

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Executive Overview

     Our principal operating subsidiary, Montpelier Re, operates as a Bermuda-based provider of global property and casualty reinsurance and insurance products. We operate in markets where we believe our underwriting expertise and financial strength represent a relative advantage. Our profitability in any given period is based upon our premium and investment revenues less net loss and loss adjustment expenses.

     Premiums are a function of the number and type of reinsurance and insurance contracts we write, as well as prevailing market prices. Renewal dates for reinsurance business tends to be concentrated at the beginning of quarters, and the timing of premium written varies by line of business. Most property catastrophe business is written in the January 1, April 1, June 1 and July 1 renewal periods, while the property specialty and other specialty lines are written throughout the year. Written premiums are generally lower during the fourth quarter of the year as compared to prior quarters.

     The following are the main categories of gross premium written:

     Property Specialty — Contracts in this category include risk excess of loss, property pro-rata and direct insurance and facultative reinsurance business. Risk excess of loss reinsurance protects insurance companies on their primary insurance risks and facultative reinsurance transactions on a “single risk” basis. Coverage is usually triggered by a large loss sustained by an individual risk rather than by smaller losses which fall below the specified retention of the reinsurance contract.

     We also write direct insurance and facultative reinsurance coverage on commercial property risks where we assume all or part of a risk under a single insurance contract. We generally write such coverage on an excess of loss basis.

     We also write property pro-rata reinsurance contracts which are reinsurances of individual property risks written on a proportional basis rather than on an excess of loss basis.

     Property Catastrophe — These contracts are typically “all risk” in nature, providing protection against losses from earthquakes and hurricanes, as well as other natural and man-made catastrophes such as floods, tornadoes, fires and storms. The predominant exposures covered are losses stemming from property damage and business interruption coverage resulting from a covered peril. Certain risks, such as war, nuclear contamination and terrorism, are almost always excluded, partially or wholly, from our contracts. Property catastrophe reinsurance is written on an excess of loss basis, which provides coverage to primary insurance companies when aggregate claims and claims expenses from a single occurrence from a covered peril exceed a certain amount specified in a particular contract.

     To a lesser extent, we also write retrocessional coverage contracts, which provide reinsurance protection to other reinsurers, also called retrocedants. Coverage generally provides catastrophe protection for the property portfolios of other reinsurers. Retrocessional contracts typically carry a higher degree of volatility than reinsurance contracts as they protect against concentrations of exposures written by retrocedants, which in turn may experience an aggregation of losses from a single catastrophic event.

     Other Specialty — Reinsurance contracts of aviation liability, aviation war, marine, personal accident catastrophe, workers’ compensation, terrorism, other casualty and other reinsurance business are included in this category. Marine and aviation contracts are primarily written on a retrocessional excess of loss basis.

     Qualifying Quota Share (“QQS”) — This category represents whole account quota share reinsurance to three Lloyd’s syndicates. Under QQS contracts, we assume a specified portion of the risk on a specified coverage in exchange for an equal proportion of the premiums. Gross premiums written related to QQS arrangements have been recorded gross of original commissions to the syndicates. We did not write any QQS contracts in 2004.

     Income from our investment portfolio is primarily comprised of interest on fixed maturity investments net of investment expenses, dividends received on our equity investments, and to a lesser extent from net realized gains on the sale of investments. A significant portion of our contracts provide short-tail reinsurance coverage for damages resulting mainly from natural and man-made catastrophes, which means that we could become liable for a significant amount of losses on short notice. Accordingly, we have structured our investment portfolio to preserve capital and provide us with a high level of liquidity, which means that the large majority of our investment portfolio contains shorter term fixed maturity investments with a modest portfolio of equity investments.

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     Our expenses consist primarily of loss and loss adjustment expenses, acquisition costs, general and administrative expenses and interest costs related to our debt.

     Loss and loss adjustment expenses are a function of the amount and type of reinsurance and insurance contracts we write and of the loss experience of the underlying risks. Loss and loss adjustment expense reserves include a component for outstanding case reserves for claims which have been reported and a component for losses incurred but not reported. The uncertainties inherent in the reserving process, together with the potential for unforeseen developments, may result in loss and loss adjustment expenses significantly greater or less than the reserve provided. Changes to our prior year loss reserves will impact our current underwriting results by improving our results if the prior year reserves prove to be redundant or reducing our results if the prior year reserves prove to be insufficient. As new information becomes known to us, any resulting adjustments will be reflected in income in the period in which they become known. Our ability to estimate loss and loss adjustment expenses accurately at the time of pricing our contracts is a critical factor in determining our profitability.

     Since the classes of business we underwrite have large aggregate exposures to natural and man-made catastrophes, we expect that our claims experience will predominantly be the result of relatively few events of significant severity. The occurrence of claims from catastrophic events is likely to result in substantial volatility in, and could have a material adverse effect on, our financial condition and results of operations and our ability to write new business.

     Acquisition costs consist principally of brokerage expenses and commissions which are driven by contract terms on the reinsurance and insurance contracts we write, and are normally a set percentage of premiums. Under certain contracts we may also pay profit commission to cedants which will vary depending on the loss experience on the contract.

     General and administrative expenses are comprised of fixed expenses which include salaries and benefits, professional fees, office and risk management expenses, and variable expenses which include costs related to our performance unit plan, bonuses and stock option plan. Other than bonuses and performance units, expenses are primarily fixed in nature and do not vary with the amount of premiums written or losses incurred.

Summary of Critical Accounting Estimates

     The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect reported and disclosed amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities as at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. We believe the following accounting policies are critical to our operations as their application requires management to make the most significant judgments.

     Other significant accounting policies that we use to prepare our consolidated financial statements are included in Note 2 to the December 31, 2004 Consolidated Financial Statements included in this filing.

     Loss and Loss Adjustment Expense Reserves. For most insurance and reinsurance companies, the most significant judgment made by management is the estimation of loss and loss adjustment expense reserves.

     We maintain loss and loss adjustment expense reserves to cover our estimated liability for both reported and unreported claims. We utilize a reserving methodology that calculates a point estimate for our ultimate losses, and we then develop a range around our point estimate. The point estimate represents management’s best estimate of ultimate loss and loss adjustment expenses. Our internal actuaries review our reserving assumptions and our methodologies on a quarterly basis and our loss estimates are subject to an annual corroborative review by independent actuaries using generally accepted actuarial principles.

     The extent of reliance on management judgment in the reserving process differs as to whether the business is insurance or reinsurance and as to whether the business is written on an excess of loss or on a pro-rata basis.

     Loss reserve calculations for insurance business are not precise in that they deal with the inherent uncertainty of future contingent events. Estimating loss reserves requires us to make assumptions regarding future reporting and development patterns, frequency and severity trends, claims settlement practices, potential changes in the legal environment and other factors such as inflation.

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     Reserving for reinsurance business introduces further uncertainties. As predominantly a broker market reinsurer for both excess of loss and proportional contracts, we must rely on loss information reported to brokers by primary insurers who must estimate their own losses at the policy level, often based on incomplete and changing information. The information we receive varies by cedant and may include paid losses, estimated case reserves, and an estimated provision for incurred but not reported losses (“IBNR reserves”). Additionally, reserving practices and the quality of data reporting may vary among ceding companies which adds further uncertainty to the estimation of our ultimate losses.

     There is a time lag inherent in reporting from the original claimant to the primary insurer to the reinsurer especially in the case of excess of loss reinsurance contracts. Also, the combination of low claim frequency and high severity make the available data more volatile and less useful for predicting ultimate losses. In the case of proportional contracts, we rely on an analysis of a contract’s historical experience, industry information, and the professional judgment of underwriters in estimating reserves for these contracts. In addition, if available, we also rely partially on ultimate loss ratio forecasts as reported by cedants, which are normally subject to a quarterly or six month lag.

     As a result of the time lag described above, we must estimate IBNR reserves, which consist of a provision for additional development in excess of the case reserves reported by ceding companies, as well as a provision for claims which have occurred but which have not yet been reported to us by ceding companies. Because of the degree of reliance that we necessarily place on ceding companies for claims reporting, the associated time lag, the low frequency/high severity nature of much of the business that we underwrite, and the varying reserving practices among ceding companies, our reserve estimates are highly dependent on management judgment and therefore uncertain.

     Estimating loss reserves for our small book of longer tail casualty reinsurance business, which can be either on an excess of loss or proportional basis, involves further uncertainties. In addition to the uncertainties inherent in the reserving process described above, casualty business can be subject to much longer reporting lags than property business, and claims often take many years to settle. During this period, additional factors and trends will be revealed and as these factors become apparent, reserves will be adjusted. There is also the potential for the emergence of new classes of losses or types of losses within the casualty book. Any factors that extend the time until claims are settled add uncertainty to the reserving process. At December 31, 2004, management has estimated gross loss and loss adjustment expense reserves related to our casualty business of $65.6 million.

     Since we rely on estimates of paid losses, case reserves, and IBNR provided by ceding companies in order to assist us in estimating our own loss and loss adjustment expense reserves, we maintain certain procedures in order to mitigate the risk that such information is incomplete or inaccurate. At least monthly management assesses the reporting activities of these companies on the basis of qualitative and quantitative criteria. On a timely basis management takes appropriate follow-up action as required, which may include requests for supplemental information or analysis and, in certain cases, ceding company audits conducted by our own staff or by third parties as appropriate. In our short history, disputes with ceding companies have been extremely rare and those which have not been resolved in negotiation have been resolved through arbitration in accordance with contractual provisions.

     Our loss and loss adjustment expense reserves include both a component for outstanding case reserves for claims which have been reported and a component for IBNR reserves.

     Our case reserve estimates are initially set on the basis of loss reports received from third parties. The majority of both our reinsurance and insurance business is sourced through brokers but a small proportion is sourced directly from the insured party or ceding company. The reinsurance and insurance business which is sourced through brokers is subject to a potential time lag in the receipt of information which we factor into our reserving process as discussed above.

     We are predominantly a reinsurance company specializing in short tail property reinsurance business, but we write a small proportion of longer tail casualty reinsurance business. We also write a small book of direct insurance business, all of which is comprised of short tail property risks.

     In general, claims relating to short tail property risks are reported more promptly by third parties than those relating to long tail risks, including the majority of casualty risks. However, the timeliness of reporting can be affected by such factors as the nature of the event causing the loss, the location of the loss, and whether the losses

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are from policies in force with primary insurers or with reinsurers.

     The claim count on the types of insurance and reinsurance that we write, which are low frequency and high severity in nature, is generally low. The reporting delay for longer tail casualty business, which comprises a small proportion of our business, is traditionally longer than for our short tail lines. Because our casualty premiums written have been small relative to our property premiums written and because losses associated with such casualty premiums are substantially slower to develop than those associated with our property premiums, our volume of casualty claims has been significantly smaller than our volume of property claims to date.

     Due to these factors, we do not normally expect to experience significant claims processing back-logs. At December 31, 2004, we did not have a significant back-log in either our insurance or reinsurance claims processing.

     IBNR reserves are estimated by management using various actuarial methods as well as a combination of our own historical loss experience, historical insurance industry loss experience, our underwriters’ experience, estimates of pricing adequacy trends, and management’s professional judgment. In the case of our reinsurance business, we also take into account ceding company reports on IBNR reserves in making our estimates.

     Due to our relatively short operating history, our loss experience is limited and reliable evidence of changes in trends of numbers of claims incurred, average settlement amounts, numbers of claims outstanding and average losses per claim will necessarily take many years to develop. In addition, due to the nature of the business, this information is not routinely provided by the cedants for every contract.

     Because of these factors, management supplements our own claims experience with other information in setting reserves. For catastrophic events, we consider aggregate industry loss reports and catastrophe model projections in addition to ceding company estimates and other factors as described above. For other classes, we utilize industry loss ratio and development pattern information in conjunction with our own experience.

     To the extent we rely on industry data to aid us in our reserve estimates there is a risk that the data may not match our risk profile or that the industry’s reserving practices overall differ from our own and our cedants. In addition, reserving can prove especially difficult should a significant loss event take place near the end of an accounting period, particularly if it involves a catastrophic event. These factors further contribute to the degree of uncertainty in the reserving process.

     The uncertainties inherent in the reserving process, together with the potential for unforeseen developments, may result in loss and loss adjustment expenses significantly greater or less than the reserves provided. Changes to our prior year loss reserves will impact our current underwriting results by improving our results if the prior year reserves prove to be redundant or reducing our results if the prior year reserves prove to be insufficient. We expect volatility in our results in periods that significant loss events occur because U.S. GAAP does not permit insurers or reinsurers to reserve for loss events until they have occurred and are expected to give rise to a claim. As a result, we are not allowed to record contingency reserves to account for expected future losses. We anticipate that claims arising from future events will require the establishment of substantial reserves from time to time.

     Management believes that the reserves for loss and loss adjustment expenses are sufficient to cover losses that fall within assumed coverages on the basis of the methodologies used to estimate those reserves. However, there can be no assurance that actual losses will not exceed our total reserves. Loss and loss adjustment expense reserve estimates and the methodology of estimating such reserves are regularly reviewed and updated as new information becomes known to us. Any resulting adjustments are reflected in income in the period in which they become known.

     Management has determined that the best estimate for gross loss and loss adjustment expense reserves at December 31, 2004 was $549.5 million. Of this estimate $9.6 million relates to our insurance business and $539.9 million relates to our reinsurance business. Management’s best estimate of a range of likely outcomes around this estimate is between $425.6 million and $673.4 million. For additional information concerning our loss and loss adjustment expense reserves, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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     The following table sets forth a breakdown between case reserves and IBNR by line of business at December 31, 2004 ($ in millions):

     Premiums. Though we are principally a provider of reinsurance, we write both insurance and reinsurance contracts. Our insurance premium is all written on an excess of loss basis. Our assumed reinsurance premium is written on an excess of loss or on a pro-rata basis. Reinsurance contracts are generally written prior to the time the underlying direct policies are written by cedants and accordingly they must estimate such premiums when purchasing reinsurance coverage. For the majority of excess of loss contracts, including all insurance business, the deposit premium is defined in the contract wording. The deposit premium is based on the ceding companies estimated premium, and this is the amount we record as written premium in the period the underlying risks incept. In the majority of cases, these contracts are adjustable at the end of the contract period to reflect the changes in underlying risks during the contract period. Subsequent adjustments, based on reports by the ceding companies of actual premium, are recorded in the period they are determined, which are normally reported within six months to a one year subsequent to the expiration of the policy. To date these adjustments have not been significant.

     On pro-rata contracts and certain excess of loss contracts where the deposit premium is not specified in the contract, an estimate of written premium is recorded in the period in which the underlying risks incept. The premium estimate is based on information provided by ceding companies. At the inception of the contract the ceding company estimates how much premium they expect to write during the year. As these are pro-rata contracts, our gross written premium related to these contracts is a function of the amount of premium they estimate they will write. When the actual premium is reported by the ceding company, which may be on a quarterly or six month lag, it may be significantly higher or lower than the estimate.

     We regularly evaluate the appropriateness of these premium estimates based on the latest information available, which includes actual reported premium to date, the latest premium estimates as provided by cedants and brokers, historical experience, management’s professional judgment, information obtained during the underwriting renewal process, as well as a continuing assessment of relevant economic conditions. Any adjustments to premium estimates are recorded in the period in which they become known. Adjustments to original premium estimates could be material and may significantly impact earnings in the period they are determined. The net income impact in 2004 of premium adjustments with respect to premiums estimated to have been earned in 2003 was immaterial. We expect the net income impact in 2005 of premium adjustments with respect to premiums estimated to have been earned in 2004 to be immaterial.

     Where contract terms on excess of loss contracts require the reinstatement of coverage after a ceding company’s loss, the mandatory reinstatement premiums are recorded as written premiums when the loss event occurs, and are recognized as earned premium ratably over the remaining contract period. We accrue reinstatement premiums based on case reserves reported by ceding companies and on management’s best estimate of IBNR reserves as described above under “Loss and Loss Adjustment Expense Reserves” when the IBNR reserves can be identified on an individual contract basis. Generally pro-rata contracts do not contain provisions for the reinstatement of coverage.

     Management includes an assessment of the creditworthiness of cedants in the review process above, primarily based on market knowledge, the timeliness of cedants’ past payments and the status of current balances owing. In addition, management may also review the financial statements of ceding companies. Based on this

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assessment, management believes that as at December 31, 2004 no provision for doubtful accounts is necessary.

     For excess of loss contracts, other than risk attaching contracts or contracts where the deposit premium is not defined, premium income is generally earned ratably over the term of the reinsurance contract, usually 12 months. For all other contracts, including contracts written on a pro-rata or risks attaching basis, premiums are generally earned over a 24 month period which is the risk period of the underlying (12 month) policies. The portion of the premium related to the unexpired portion of the policy at the end of any reporting period is reflected on the balance sheet in unearned premium.

     Performance Unit Plan (the “PUP”). The PUP was the Company’s primary executive long-term incentive scheme, until it was exhausted at December 31, 2004. Pursuant to the terms of the PUP, at the discretion of the Compensation and Nominating Committee of the Board of the Directors (the “Committee”), performance units were granted to executive officers and certain other key employees. Performance units entitle the recipient to receive, without payment to the Company, all, double, or a part of the value of the units granted, depending on the achievement of specific financial or operating goals. Performance units vest at the end of a three-year performance cycle, and are payable in cash, common shares or a combination thereof at the discretion of the Committee.

     A total of 936,000 performance units were authorized under the PUP at December 31, 2004 and 2003 (or up to 1,872,000 common shares should the maximum harvest of 200% of units apply) covering the three performance periods, 2002-2004, 2003-2005 and 2004-2006.

     We accrue the projected value of these units and expense the value in the income statement over the course of each three-year performance period. The accrual is based on the number of units granted, the share price at the end of the respective fiscal period end plus an adjustment for any dividends paid out during the performance period, and an initial assumption of a 100% harvest ratio, unless otherwise adjusted as discussed below. At the end of the sixth quarter, and every subsequent quarter, we reassess the projected results for each three year performance period and adjust the accrued PUP liability as necessary. We recalculate the liability under the PUP as our financial results evolve and the share price changes, and reflect such adjustments in the income statement in the period in which they are determined. This may result in an adjustment to the harvest ratio used in the liability calculation which may increase or decrease the amount of liability and expense recorded during the period.

     For the 2002-2004 cycle, the target combined ratio was 70% for a 100% harvest ratio. The target for a maximum harvest of 200% of the value of the units granted is a combined ratio of 50% or less. A combined ratio of 95% or more would have resulted in a harvest of nil. Straight line interpolation is used between these points. At December 31, 2004 the actual harvest ratio for this performance period was 132.0%, compared to the estimated harvest ratio at December 31, 2003 of 137.5%. On February 28, 2005, we paid out the 2002-2004 PUP accrual of approximately $14.0 million.

     For the 2003-2005 cycle, the performance target for a 100% harvest ratio is the achievement of a combined ratio of 72% over the period or the achievement of an annual total return to shareholders of 18% as measured over the period. To date we have experienced a combined ratio less than 72% for this three-year performance period. Taking into account our results to date as well as the estimated combined ratio for the remainder of this performance period, we have adjusted the estimated harvest ratio from 100.0% at December 31, 2003 to 116.4% at December 31, 2004. This resulted in an increase in the PUP liability and PUP expense during the year ended December 31, 2004.

     For the 2004-2006 cycle, the performance target for a 100% harvest ratio is the achievement of a combined ratio of 72% over the period or the achievement of an annual total return to shareholders of 18% as measured over the period. Consistent with our accounting policy, we are currently estimating the PUP liability and PUP expense using a 100% harvest ratio and will reassess the harvest ratio used in the calculation of the PUP liability at June 30, 2005 and each quarter thereafter.

     As at December 31, 2004, the following table summarizes the impact of potential share price changes and potential adjustments to the harvest ratio used in the liability calculation on the amount of liability and expense recorded for the remaining three-year cycles ($ in thousands):

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*		Based on estimated harvest ratios applied at December 31, 2004
**		Based on the share price of $38.45 at December 31, 2004

     An estimated 1% change in the estimated combined ratio is approximately equivalent to a 5% change in the harvest ratio for the respective performance period.

     The Compensation and Nominating Committee of the Board of Directors has approved a new Long-Term Incentive Plan effective as of January 1, 2005. At the discretion of the Committee, performance shares or other types of awards will be granted to executive officers and certain other key employees. Performance shares entitle the recipient to receive, without payment to the Company, all, double, or a part of the value of the performance shares granted, depending on the achievement of specific financial or operating goals. Performance shares vest at the end of a three-year performance cycle, and are payable in cash, common shares or a combination thereof at the discretion of the Committee. For the 2005-2007 cycle the Committee has adopted a return on allocated capital (“ROAC”) framework to assess management’s performance.

Outlook and Trends

     Generally speaking, pricing in property and other insurance and reinsurance markets has been cyclical in nature. Multi-year periods of intense price competition and insufficient pricing (“soft market”) have been followed by periods of higher, sufficient pricing (a “hard market”). Then, over a period of a few years, as lost capital is replenished, and new competitors enter the business, prices fall again.

     A hard market has sometimes been precipitated by a large catastrophic event or series of events. The terrorist events of September 11, 2001 occurred at the end of a long period of insufficient pricing, and additionally, it was a period where asbestos and other latent loss liabilities had significantly weakened the ability of some competitors to assume insurance risk. For these reasons, adequately priced opportunities were widespread for the past few years.

     In market loss terms, 2004 was the worst year ever for natural catastrophes. At December 31, 2004 we estimated industry insured losses of approximately $37 billion for the four U.S. hurricanes and two large Japanese typhoons that occurred during the third quarter of 2004. Such catastrophic events had a material adverse impact on our financial condition and results of operations. While such events might have been expected to improve pricing in the future, due to the financial strength of the industry, we continue to see competition eroding the adequacy of rate levels in many of the classes of business, with commercial property insurance worldwide and non-U.S. property treaty renewals particularly impacted.

     We expect that casualty reinsurance rates will remain relatively stable overall. Rate levels in other classes of business are expected to vary from stable to some rate reductions.

     Separately, we see the growth of a new class of competition in our markets. Hedge Funds and catastrophe bonds are elements we now see more regularly as competition to traditional reinsurance markets.

     In general, as it currently stands we estimate that our overall gross premiums written for 2005 will be lower by at least 10% as compared to 2004 as a result of the above factors and perhaps more if as the year develops we find that we do not like the way market rates are trending. See the gross premiums written discussion below for additional commentary. We continue to believe that superior long-term returns for shareholders will be driven by disciplined underwriting through the cycle.

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Results of Operations

Years Ended December 31, 2004, 2003 and 2002

     The decrease in net income for the year ended December 31, 2004 year compared to 2003 was principally driven by losses incurred related to the four major U.S. hurricanes and two Japanese typhoons which occurred during the third quarter of 2004. There were no loss events of a comparable magnitude in the same period in 2003. As at December 31, 2004 we estimated the overall negative impact on net income related to these catastrophes to be approximately $240.0 million which is as a result of the increase in loss and loss adjustment expenses and related increase in reinstatement premium ceded, which was partially offset by reinstatement premium written and a reduction in profit commission and incentive compensation expenses.

     Other factors contributing to the decrease in net income as compared to the prior year are as follows:

	•	A greater level of reinsurance premiums ceded;
	•	An increase in acquisition costs due to the increased level of proportional business written;
	•	An increase in financing expense due to a full year’s interest expense on the Senior Notes; and
	•	An increase in general and administrative expenses due to increased professional fees and staffing costs.

     These factors were partially offset by:

	•	An increase in net premiums earned;
	•	Favorable development of net losses from prior years of approximately $97.6 million in 2004 compared to $58.2 million in 2003; and
	•	An increase in net investment income as a result of our higher investment portfolio balance.

     The following table summarizes our consolidated financial results for the years indicated ($ in millions):

     The following table summarizes our book values per common share as at the periods indicated:

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     We ended the 2004 year with a fully converted book value per share (as defined above) of $26.75, an increase of $1.83 from December 31, 2003. This increase of 7.3% mainly resulted from the net effect of the factors described above. In addition, we paid a regular quarterly dividend of $0.34 per quarter during the year. We experienced a return of approximately 3.3% on our investment portfolio including unrealized gains for the year ended December 31, 2004 as compared to a return of 4.0% for the year ended December 31, 2003.

     Total return to shareholders, which is a non-GAAP measure, was $3.19 or 13.1% for the year ended December 31, 2004. It is the internal rate of return of the increase in fully converted book value per share from $24.92 at December 31, 2003 to $26.75 at December 31, 2004, including the accrued dividends of $0.34 for each of the four quarters of 2004. Management believes that this measure most accurately reflects the return made by its shareholders as it takes into account the effect of all dilutive securities and the effect of dividends.

     Management believes that fully converted book value per share and total return to shareholders are measurements which are important to investors and other interested parties, and that these persons benefit from having a consistent basis for comparison with other companies within the industry. However, these measures may not be comparable to similarly titled measures used by companies either outside or inside of the insurance industry. These measures may be incorporated into the formulae applied by our Compensation and Nominating Committee when determining the harvest ratio under our Performance Unit Plan.

Gross Premiums Written

     Details of gross premiums written by line of business are provided below ($ in millions):

     For the year ended December 31, 2004, excluding the effects of $33.4 million in reinstatement premiums recorded as a result of the third quarter catastrophes, gross premiums written were at a similar level to 2003. However, disregarding the QQS business, gross premiums written increased during the year ended December 31, 2004 compared to 2003 by approximately 9.8 %.

     As expected, our mix of business changed in 2004. As always envisaged we did not renew the QQS programs in 2004 and increased the level of Other Specialty business, consisting mainly of increases in casualty business and other miscellaneous classes of business. Consistent with 2003, for the three syndicates we did reinsure in 2003 and 2002, we negotiated substantial other reinsurance contracts for 2004 to partially replace the reduction in QQS premium in 2003 and the non-renewed QQS premium income in 2004.

     Gross premiums written related to the Property Specialty category increased only marginally compared to the same period in 2003 mainly as a result of an increase in proportional business. This increase was offset somewhat by the decreases in premium levels on direct and facultative business.

     The Property Catastrophe category has shown a slight increase in gross premiums written during the year ended December 31, 2004 as compared to the same period in 2003 mainly due to an increase in reinstatement premiums written as a result of the catastrophes which occurred during the third quarter of 2004. Offsetting this increase was a decrease due to the reduction in premium rate levels as discussed elsewhere.

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     The Other Specialty category strengthened as compared to the prior year, partly due to increased market penetration resulting mainly from our ability to capitalize on market opportunities and, we believe, due to the developing reputation of our underwriting and risk management skills. This category has also increased due to increases in the level of our casualty business. Casualty business included professional indemnity casualty reinsurance, predominantly medical malpractice, specialized errors and omissions business, UK Employer’s Liability and catastrophe and/or clash layers for general liability and retrocessional accounts, on an excess of loss basis. As previously stated, we wrote a larger amount of casualty reinsurance in 2004 as compared to 2003 due to improving terms and conditions of casualty reinsurance contracts. For the years ended December 31, 2004 and 2003, casualty accounted for approximately 8.5% and 5.4% of gross premiums written, respectively. We estimate that casualty business will account for approximately 10% of our gross premiums written during 2005 but this level could be affected by premium rate levels. In addition, we have added a dedicated underwriter to focus on the sabotage and terrorism class and we have also entered into agreements with the Overseas Private Investment Corporation (“OPIC”) to form an insurance facility to underwrite stand-alone terrorism insurance products. We anticipate writing a modestly higher amount of this business in 2005 as compared to 2004.

     As expected, we did not write QQS business for the 2004 underwriting year and as a result the gross premiums written for this category decreased as compared to the same period in 2003. The QQS gross premiums written in 2004 related to adjustments in estimates made to the 2003 and 2002 underwriting years mainly as a result of the movement in foreign exchange rates. We expect to commute all 2002 underwriting year contracts during the first or second quarter of 2005.

     The increase in gross premiums written in all classes of business, except QQS, from 2002 to 2003 resulted mainly from increased market penetration which allowed us to capitalize on market opportunities in virtually all lines of business. In 2003 we also experienced increases in our written line sizes and in our average signing percentages. Premium rate levels were stable in 2003 as compared to 2002 across the major classes of business in which we specialize in but we experienced improved signings on renewals as well as increased access to more original programs than in 2002. Our reputation, combined with our strong capital base and additional ratings also contributed to the increase in gross premiums written.

     As expected, QQS gross premiums written accounted for less gross premiums written in 2003 than in 2002. Part of the reduction related to reduced premiums for the 2002 and 2003 underwriting years as during 2003 the receipt of new information indicated that the expected premiums for the QQS business for both these underwriting years was going to be lower than previous forecasts. The QQS results for both the 2002 and 2003 underwriting years are estimated on the basis of projections for the respective years supplied by the underlying syndicates, adjusted for actual reported results from the underlying syndicates.

     The January 2005 renewal season saw increasing price deterioration and a reduced number of risks meeting our return criteria. However, while we believe pricing remains adequate on the business we have renewed, we have declined a significant number of programs in all categories where we believe pricing was inadequate. As a result, the January renewal season showed an initial reduction in our estimated premium income of approximately 20% by comparison to the same time last year. This will be reflected in our results for the first quarter of 2005 and is not necessarily indicative of our expectations of our level of gross premium income for 2005 as a whole. The final number will depend significantly upon the outcome of the opportunities we see for the renewal of the Japanese treaty accounts in April and the Florida programs in June, and, of course, any significant loss activity during 2005. As it currently stands we estimate our overall gross premium income for 2005 will be lower by at least 10% as compared to 2004 and perhaps more if as the year develops we find that we do not like the way the market rates are trending. We continue to believe that superior long-term returns for shareholders will be driven by disciplined underwriting through the cycle.

     Reinsurance Premiums Ceded

     Reinsurance premiums ceded for 2004 increased from 2003 primarily because we purchased additional protection against our catastrophe book as compared to the prior year. In addition, in 2004 we also purchased protection for our casualty book and recorded reinstatement reinsurance premiums ceded of $19.4 million related

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to the catastrophes which occurred during the third quarter of 2004. There was also a slight increase during 2004 in the amount of inuring reinsurance recorded as part of our reinsurance arrangements with certain ceding companies. For both the 2004 and 2003 years we have purchased reinsurance protecting ourselves against large risk losses on our direct and facultative book and small to medium-size catastrophes on our overall property writings. Excluding storm related reinsurance premiums ceded, we anticipate that reinsurance premiums ceded will rise slightly in 2005.

     For the year ended December 31, 2004, the majority of reinsurance premiums ceded related to retrocessional protection purchased on our own account and inuring reinsurance as part of our reinsurance arrangements with certain ceding companies. The remainder related to reinsurance premiums ceded related to QQS business. As we have not written any QQS business for the 2004 underwriting year, we have not recorded a material amount of reinsurance premiums ceded in 2004 related to this business.

     Reinsurance premiums ceded in 2002 solely related to the QQS syndicates with respect to the contracts in which we participate for the 2002 and 2003 underwriting years. The lower level of QQS inuring reinsurance premiums ceded in 2003 as compared to 2002 is directly related to the level of QQS gross premiums written as discussed above.

     Net Premiums Earned

     Net premiums earned increased in each of the three years ended December 31, 2004, 2003 and 2002 mainly due to the increase in premiums written for the majority of our lines of business in the current and prior year. Net premiums earned have also increased due to the acceleration of earned premiums related to certain policies affected by the catastrophes which occurred during the third quarter of 2004. We also earned a portion of the reinstatement premiums written and ceded related to the third quarter catastrophes. Offsetting these increases is a decrease in net earned premium as a result of the earning of the additional reinsurance purchased during the year. Net premiums earned increased by approximately $13.1 million as result of the effect of the third quarter catastrophes.

     Net premiums earned are expected to decrease in 2005 due to the expected decline in gross and net premiums written during 2005 as discussed above.

Loss and Loss Adjustment Expenses

     The underwriting results of an insurance or reinsurance company are often measured by reference to its loss ratio and expense ratio. The loss ratio is calculated by dividing loss and loss adjustment expenses incurred (including estimates for incurred but not reported losses) by net premiums earned. The expense ratio is calculated by dividing acquisition costs combined with general and administrative expenses by net premiums earned. The combined ratio is the sum of the loss ratio and the expense ratio.

     For comparative purposes, our combined ratio and components thereof are set out below for the years indicated:

     The nature of our business means that loss ratios can vary widely from period to period depending on the occurrence and severity of natural and man-made catastrophes. During the year ended December 31, 2004, we incurred estimated gross and net losses of $369.6 million and $283.8 million, respectively, from four U.S. hurricanes, two Japanese typhoons, and the tsunami which occurred in southeast Asia in December 2004.

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Catastrophe losses contributed significantly more to the 2004 loss ratio than in 2003 or 2002. For business less heavily impacted by catastrophes, the level of losses experienced has generally been lower than our long term expectations for the years ended December 31, 2004, 2003 and 2002. The variation in the loss ratios between the year ended December 31, 2003 and the prior year results from the fact that in 2002 we did not have the benefit of prior years’ loss history on which to base our loss reserve analysis and, accordingly, we relied more heavily on industry experience and professional judgment to estimate our loss and loss adjustment expense reserves. As our business developed in 2003, we supplemented industry information with our own specific experience in our actuarial analysis. This led to reduced projections of ultimate losses, particularly in the Property Specialty classes of business.

     Net loss and loss adjustment expenses were $404.9 million, $164.1 million and $133.3 million for the years ended December 31, 2004, 2003 and 2002, respectively. Reinsurance recoveries of $88.5 million, $(8.4) million and $16.7 million were netted against loss and loss adjustment expenses for the years ended December 31, 2004, 2003 and 2002, respectively. Approximately 97% of the reinsurance recoveries for 2004 relates to the hurricanes and typhoons which occurred during the third quarter. The remainder relates to QQS business. Reinsurance recoveries for the years ended December 31, 2003 and 2002 related to QQS only. Based on additional information received from the syndicates, we reduced our estimated recovery ratio on reinsurance purchased by the QQS syndicates which resulted in the negative reinsurance recovery amount for the year ended December 31, 2003. We paid net losses of $192.0 million, $53.2 million and $4.2 million for the years ended December 31, 2004, 2003 and 2002, respectively. The majority of the increase in paid losses during 2004 as compared to 2003 related to payments made for the hurricane losses as discussed above. In addition, excluding the 2004 catastrophes, net paid losses have increased each year as our book of business has matured and we make claim payments related to multiple underwriting years. We expect that our paid losses will be higher than average during the first six months of 2005 as we continue to pay claims related to the 2004 catastrophes. At December 31, 2004 approximately 43% of our gross reserves related to the third quarter catastrophes.

     The following are our net loss ratios by line of business for the periods indicated:

     The Property Catastrophe and Property Specialty groups of business contained the lines most impacted by the aforementioned catastrophes. Excluding the seven major catastrophic events, the net loss ratios for the year ended December 31, 2004 for both the Property Catastrophe and Property Specialty groups of business were lower in 2004 than in 2003 primarily because there were relatively few other property loss events which impacted us during the year. In the same period in 2003, we incurred losses from Hurricanes Fabian and Isabel as well as the wildfires which occurred in California. The catastrophes which occurred during 2004 were of a much greater magnitude than those which occurred during 2003. The 2004 loss ratios for the Property Catastrophe and Property Specialty groups have also benefited from favorable prior year development. The Other Specialty class continues to experience very low levels of reported losses, but has also been impacted to some extent by the catastrophes which occurred during the third quarter of 2004, resulting in a higher net loss ratio for 2004 as compared to the same period in 2003. There is also a higher percentage of casualty business in the Other Specialty group in 2004 compared with 2003. These classes have been reserved at higher loss ratios due to the longer-tail nature of casualty business. The Qualifying Quota Share loss ratio for the year ended December 31, 2004 is lower than the same period in 2003. This is as a result of the QQS syndicates lowering their ultimate loss

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ratio projections for both the 2002 and the 2003 underwriting years. The third quarter catastrophes are expected to have minimal impact on the QQS business since these contracts were not renewed for the 2004 underwriting year.

     The following tables set forth a reconciliation of our gross and net loss and loss adjustment expense reserves by line of business for the year ended December 31, 2004 ($ in millions):

Gross Loss and Loss Adjustment Expense Reserves

Net Loss and Loss Adjustment Expense Reserves

     The 2004 and 2003 years include approximately $97.6 million and $58.2 million, respectively, of favorable development of net losses from prior years. Favorable prior year development benefited the net loss ratio for the years ended December 31, 2004 and 2003 by approximately 12.4% and 7.2%, respectively.

     The favorable development during the year ended December 31, 2004 of losses incurred during prior accident years primarily resulted from the following:

	•	In the Property Specialty Category, both the frequency and severity of reported losses have been lower than the assumed reporting pattern of losses established for this class of business at December 31, 2003. Many of the proportional contracts have continued to have little or no reported loss activity on the 2002 and 2003 accident years. Reported losses on 2002 and 2003 occurrences for our Property Facultative book of business decreased by $4.3 million during the year ended December 31, 2004. As these years develop, we place more weight in the reserving process on the actual loss experience compared with the initial loss ratio expectation. The low level of reported losses for 2002 and 2003 and the increasing weight on the actual experience have led to the reduction in the ultimate loss projection of $54.1 million during 2004.
	•	Property Catastrophe net loss and loss adjustment expense reserves as at December 31, 2003, included reserves for several major catastrophic events from 2002 and 2003. The largest of these were the European Floods of August 2002, Hurricane Isabel which occurred in September 2003, and the October

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		2003 wildfires in California. Claims from these three events have developed less than our initial projections indicated, leading to a reduction in net ultimate losses of $17.8 million during 2004.
	•	The lack of development in the year ended December 31, 2004, combined with the increasing weight placed on our actual experience in selecting a loss ratio, led to a decrease in our projected loss ratio attributable to the Other Specialty business during 2004. Claim frequency has been very low for these classes of business. In addition, we have given more weight to the actual loss experience compared to the initial expected loss ratios in our reserving process, resulting in reduced projections for 2002 and 2003. The lower selected loss ratios have resulted in a reduction of $15.3 million in net loss and loss adjustment expense reserves for our Other Specialty business.
	•	Due to the potential variability in ultimate premiums and the limited availability of underlying loss information with the QQS business, our actuaries selected an expected loss ratio based on a review of the information supplied by cedants and applied it to projected premiums. During the year ended December 31, 2004, we reduced our expected gross loss ratio based on information provided by ceding companies, which resulted in a reduction of $11.0 million in gross loss and loss adjustment expense reserves. This was largely due to decreases in the loss ratio estimates provided by the syndicates. Taking into account the effect of reinsurance purchased by the QQS syndicates with respect to the contracts in which we participate, our net loss and loss adjustment expense reserves decreased by $10.4 million for the year ended December 31, 2004. The development of ultimate loss ratios for the 2002 and 2003 underwriting years on QQS contracts continue to improve and we expect to commute the 2002 QQS contracts during the first quarter of 2005.

     Other than the matters described above, we did not make any significant changes in the assumptions or methodology used in our reserving process during the year ended December 31, 2004.

     At December 31, 2004, we estimated our gross and net reserves for loss and loss adjustment expenses using the methodology as outlined in our Critical Accounting Policy earlier in this section.

     Management has determined that the best estimate for gross loss and loss adjustment expense reserves at December 31, 2004, 2003 and 2002 was $549.5 million, $249.8 million and $146.1 million, respectively.

     Management has determined that the best estimate for net loss and loss adjustment expense reserves at December 31, 2004, 2003 and 2002 was $454.8 million, $242.1 million and $129.5 million, respectively.

     The following are management’s best estimate of a range of likely outcomes around their best estimate of gross and net loss and loss adjustment expense reserves by line of business ($ in millions):

Gross loss and loss adjustment expense reserves at December 31, 2004

Net loss and loss adjustment expense reserves at December 31, 2004

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     Net Foreign Exchange Gains

     Net foreign exchange gains result from the effect of the fluctuation in foreign currency exchange rates on the translation of foreign currency assets and liabilities combined with realized gains (losses) resulting from the receipt of premium installments and payment of claims in foreign currencies. The foreign exchange gain during the years ended December 31, 2004, 2003 and 2002 is primarily due to the weakening of the U.S. dollar resulting in gains on translation arising out of receipts of foreign currency premium installments. Our premiums receivable and liabilities for losses incurred in currencies other than the U.S. dollar are exposed to the risk of changes in value resulting from fluctuations in foreign exchange rates and may affect our financial results in the future.

Underwriting Expenses

     Acquisition costs are generally driven by contract terms and are normally a set percentage of premiums. General and administrative expenses are comprised of fixed expenses, which include salaries and benefits, share options and office and risk management expenses, and variable expenses which include costs related to our performance unit plan and bonuses.

     Acquisition costs as a percentage of gross premiums earned, excluding reinsurance and profit commission, were 16.7%, 16.5% and 16.7% for the years ended December 31, 2004, 2003 and 2002, respectively. The 2004 ratio is broadly similar to the 2003 and 2002 ratios. We anticipate that the acquisition cost ratio, excluding profit commission, will remain at a similar level in 2005 as in 2004 although the amount may vary due to the mix of business written and estimated loss experience.

     Profit commission expensed was $7.6 million, $19.6 million, and $1.5 million for the years ended December 31, 2004, 2003 and 2002, respectively. Profit commission has declined substantially as compared to the same period in 2003 mainly due to the increase in loss and loss adjustment expenses related to the third quarter of 2004 catastrophes. The accrual for profit commission increased in 2003 as compared to 2002 as a result of favorable loss experience. Profit commission will fluctuate as our estimate of loss and loss adjustment expense reserves fluctuates.

     General and administrative expenses for the years indicated consisted of the following ($ in millions):

     The increase in general and administrative expenses from 2003 to 2004 is partially as a result of an increase in fixed expenses for professional fees and employment costs, consistent with the increase in staff numbers in 2004. In addition, there was an increase in the accrual for current and deferred incentive compensation expense but not as much as originally anticipated as our net income decreased due to the catastrophes which occurred during the third quarter of 2004.

     For the year ended December 31, 2004, the performance unit plan (“PUP”) expense included in current and deferred incentive compensation was higher than the same period in 2003 as a result of a combination of factors. The factors that affect the calculation of the PUP expense in 2004 consist of a decrease in the harvest ratio used in calculating the expense for the 2002-2004 performance period from 137.5% at December 31, 2003 to 132.0% at December 31, 2004. This reduction resulted mainly from the effect of the third quarter of 2004 catastrophes, the effect of which was partially offset by an increase in our share price which includes an adjustment for any dividends paid out during the performance period from 2003 to 2004. For the 2003-2005

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period, the expense increased in 2004 due to the increase in the harvest ratio from 100% at the end of 2003 to 116.4% at December 31, 2004, combined with the increase in our share price which includes an adjustment for any dividends paid out during the performance period, from 2003 to 2004. The 2004 year also includes an additional accrual for the 2004-2006 performance period. The overall effect was a net increase in the PUP expense as compared to 2003. On February 28, 2005 we paid out the 2002-2004 PUP accrual of approximately $14.0 million.

          The current and deferred incentive compensation expense was higher in 2003 as compared to 2002 as the 2003 year included an accrual for both the 2002-2004 and the 2003-2005 performance periods as well as the fact that the share price at December 31, 2003 was significantly higher than at December 31, 2002. As our results evolve, we may need to increase or decrease our harvest ratio used in the expense calculation which could either reduce or increase the PUP expense.

          We anticipate that our general and administrative expense ratio will increase during 2005 as we expect our general and administrative expenses to be at a similar level to 2004 but anticipate that our earned premium will decline as discussed above in the gross premiums written section.

          The fair value of share options expense has decreased from 2002 to 2004 as a portion of the outstanding share options became fully vested and expensed.

     Net Investment Income

          Net investment income was primarily composed of interest on coupon-paying bonds and bank interest, partially offset by accretion of premium on bonds and investment management and custodian fees of $2.6 million, $3.2 million and $2.1 million, respectively, for the years ended December 31, 2004, 2003 and 2002. The investment management fees were paid to White Mountains Advisors LLC, a wholly-owned indirect subsidiary of White Mountains Insurance Group, one of our major shareholders. Management believes that the fees charged were consistent with those that would have been charged by an unrelated party. The investment management and custodian fees are lower for 2004 as compared to 2003 even though the asset base has increased because the investment management fee structure was revised during the first quarter of 2004, resulting in a lower expense for our current portfolio mix. The fees increased from 2002 to 2003 due to the increase in our asset base. The fees will vary as our mix of investments changes.

          Because we provide short-tail insurance and reinsurance coverage for losses resulting mainly from natural and man-made catastrophes, we could become liable to pay substantial claims on short notice. Accordingly, we have structured our investment portfolio to preserve capital and provide us with a high level of liquidity, which means that the large majority of our investment portfolio contains shorter term fixed maturity investments, such as U.S. government and agency bonds, U.S. government-sponsored enterprises, corporate debt securities and mortgage-backed and asset-backed securities.

          Based on the weighted average monthly investments held, and including net unrealized gains of $1.3 million, $18.1 million and $33.6 million for the years ended December 31, 2004, 2003 and 2002, respectively, the total investment return was 3.3%, 4.0%, and 7.0%, respectively. In 2004, as expected, our investment income has increased as a result of our larger investment portfolio, but has been offset somewhat by the higher level of paid claims during the year related to the catastrophes that occurred during the third quarter of 2004. Net paid claims were $192.0 million in 2004 as compared to $53.2 million in 2003. During 2005 we expect to pay substantial additional claims related to the catastrophes and, as such, the portfolio may shrink which may lead to minimal growth or a reduction in net investment income for 2005. In addition, the level of the investment portfolio and related investment income will be affected by the special dividend we declared on February 25, 2005 of approximately $390.0 million, any catastrophes which could occur during 2005 and by other capital management initiatives enacted.

          Proceeds from sales of available for sale securities for the years ended December 31, 2004, 2003 and 2002 were $1.1 billion, $1.3 billion and $1.2 billion, respectively. Gross realized losses in 2004 included a loss of $0.1 million relating to an equity security for a decline in value considered to be other than temporary. There were no such losses realized during 2003 or 2002. The aggregate fair value of securities in an unrealized loss position was $1.4 billion and $397.2 million at December 31, 2004 and 2003, respectively. Of the gross

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unrealized losses of $11.1 million at December 31, 2004, investments with a market value of $8.3 million have been in a continuous unrealized loss position for more than 12 months. Of the gross unrealized losses of $1.5 million at December 31, 2003, no investment had continuously been in an unrealized loss position for more than 12 months.

          We believe that the gross unrealized losses relating to our fixed maturity investments at December 31, 2004 of $11.1 million resulted primarily from increases in market interest rates from the dates that certain investments within that portfolio were acquired as opposed to fundamental changes in the credit quality of the issuers of such securities. Therefore, these decreases in value are viewed as being temporary because we have the intent and ability to retain such investments for a period of time sufficient to allow for any anticipated recovery in market value. We also believe that the gross unrealized losses relating to our equity portfolio of $0.1 million at December 31, 2004 are temporary based on an analysis of various factors including the time period during which the individual investments has been in an unrealized loss position and the significance of the decline.

          The performance results of our fixed maturity portfolio, with a comparison to the Lehman Brothers Government/Credit 1-5 Year Index combined with the 1-3 month Treasury Bill rate, for the year ended December 31, 2004 was as follows:

          The combination of the Lehman Brothers Government/Credit 1-5 Year Index and the 1-3 month Treasury Bill rate is used for comparative purposes as it closely reflects our asset mix.

     Financing Expense

          Fees for the letter of credit facilities relate to the Letters of Credit that we have in place as detailed in the Capital Resources section. These fees are higher than the same period in 2003 as more reinsureds have requested additional security as a result of the third quarter catastrophes.

          We paid interest expense during the year ended December 31, 2004 of $15.8 million related to the Senior Notes. We expect to pay the same amount of interest in 2005 related to the Senior Notes as they bear a fixed interest rate of 6.125%. We paid interest expense during the years ended December 31, 2003 and 2002 of $2.8 million and $3.5 million, respectively, which related to the term loan facility and revolving loan facility only. The term loan facility and revolving credit facility were repaid and terminated during 2003.

          For the years ended December 31, 2003 and 2002, interest expensed relating to the term loan facility and revolving loan facility represented an average rate of 1.7% and 2.2%, respectively.

     Net Realized Gains (Losses) on Investment

          Net realized gains (losses) on investments for the years ended December 31, 2004, 2003 and 2002 were $7.2 million, $7.6 million and $7.7 million, respectively, which were due to net gains (losses) realized from the sale of fixed maturity and equity investments and a realized loss of $1.0 million during 2003 which resulted from the termination of the interest rate swap contract, cancelled simultaneously with the repayment of the term loan facility on August 4, 2003.

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Financial Condition and Liquidity

          We are a holding company that conducts no operations of its own. We rely primarily on cash dividends and management fees from Montpelier Re to pay our operating expenses, interest on our debt and to pay dividends to our shareholders and warrant holders. There are restrictions on the payment of dividends from Montpelier Re to the Company, which are described in more detail below. We currently have in place a regular dividend program of $0.34 per share per quarter. In addition, on February 25, 2005 we declared a special dividend in the amount of $5.50 per common voting share and warrant payable on March 31, 2005 to shareholders and warrant holders of record on March 15, 2005. We expect to continue the payment of dividends in the future but we cannot assure that such payments will continue. Any determination to pay any future cash dividends will be at the discretion of our Board of Directors and will be dependent upon our results of operations and cash flows, our financial position and capital requirements, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends, and any other factors our Board of Directors deems relevant.

          Our ability to underwrite business is dependent upon the quality of our claims paying and financial strength ratings as evaluated by independent rating agencies. In the normal course of business, we evaluate our capital needs to support the volume of business written in order to maintain our claims paying and financial strength ratings. We regularly provide financial information to rating agencies to both maintain and enhance existing ratings.

Capital Resources

          Our shareholders’ equity at December 31, 2004 was $1,751.9 million, of which $585.0 million was retained earnings. Our capital base has increased by $94.2 million since December 31, 2003 as our retained earnings have increased by more than the dividends paid and net repurchases of our common shares. Our contractual obligations and commitments are set out below as at December 31, 2004.

Contractual Obligations and Commitments

          On August 4, 2003, we issued $250.0 million aggregate principal amount of senior unsecured debt (the “Senior Notes”) at an issue price of 99.517% of their principal amount. The net proceeds were used to repay a term loan facility with the remainder used for general corporate purposes. The Senior Notes bear interest at a rate of 6.125%, payable semi-annually in arrears on February 15 and August 15 of each year. Unless previously redeemed, the Senior Notes will mature on August 15, 2013. We may redeem the Senior Notes at any time and from time to time, in whole or in part, at a “make-whole” redemption price. The Senior Notes do not contain any covenants regarding financial ratios or specified levels of net worth or liquidity to which we must adhere.

          The table above includes the estimated timing of the payment of estimated future cash flows for gross loss and loss adjustment expenses based on our best estimate of obligations to pay policyholders at December 31, 2004. The amount and timing of the cash flows are uncertain and do not have contractual payout terms. Due to the short-tail nature of our business we expect that gross and net loss and loss adjustment expenses generally will be settled during the time period in which they are incurred. For a discussion of these uncertainties refer to the Loss and Loss Adjustment Expenses section in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included with this filing. These estimated obligations will be funded through existing cash and investments.

          We may issue additional debt or equity as circumstances warrant. In this regard, on February 12, 2004 we filed a universal shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission for

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the potential future sale of up to $500.0 million of debt, trust preferred and/or equity securities. The registration statement was declared effective and should provide us with significant flexibility with respect to our access to the public capital markets. Also included in the registration statement were 31,665,460 common shares which may be offered for sale by our shareholders. We will not receive any proceeds from sales by our shareholders but may have to pay related expenses. We cannot assure you that additional financing under the universal shelf registration statement or elsewhere will be available at terms acceptable to us.

          On May 26, 2004 our Board of Directors approved a plan to repurchase up to $150.0 million of our common shares from time to time depending on market conditions during a period up to 24 months. On June 2, 2004, we repurchased 1,263,865 common shares at $34.50 per common share. The closing market price per common share on May 28, 2004 was $34.88. The purchase price totaled $43.6 million and was funded using existing cash on hand. On August 5, 2004, we repurchased a further 625,000 common shares at $35.00 per common share. The closing market price per common share on August 3, 2004 was $35.43. The purchase price totaled $21.9 million and was funded using existing cash on hand.

          Our Chairman, President and Chief Executive Officer adopted a written plan in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934 for the purpose of the exercise of options and the sale of limited amounts of our shares owned by him. The plan covered the possible exercise of 600,000 options and share sales over a 12 month period commencing March 3, 2004, subject to market conditions and the terms of the plan. Pursuant to this plan, options for 500,000 common shares were exercised during the year ended December 31, 2004 at the exercise price of $16.67, resulting in an increase in common shares by their par amount and an increase in additional paid-in capital of $8.3 million. Subsequent to December 31, 2004, 10,000 options and 90,000 options with an exercise price of $16.67 and $17.50, respectively, were exercised for an additional 100,000 common shares, which has exhausted the plan.

Credit Facilities ($ in thousands):

          In the normal course of business, we provide security to reinsureds as required under contract provisions. Such security takes the form of a letter of credit issued by a bank at our request. In order for us to write Lloyd’s Qualifying Quota Share business, we must provide a letter of credit in favor of The Society and Council of Lloyd’s (“Lloyd’s”) in accordance with Lloyd’s rules. Effective May 27, 2004 the Company entered into a three-year Amended and Restated Letter of Credit Reimbursement and Pledge Agreement with Banc of America Securities LLC and a syndicate of lending institutions for the provision of a letter of credit facility for the account of Montpelier Re in favor of Lloyd’s or certain U.S. ceding companies (“Tranche A”) in an amount of up to $250.0 million, and in favor of certain U.S. ceding companies only (Tranche “B”) in an amount of up to $200.0 million of which up to $50.0 million may be used by us as a revolving line of credit for general corporate purposes. This agreement replaced the Letter of Credit Reimbursement and Pledge Agreement with Fleet National Bank discussed below. Letters of credit issued under this facility at December 31, 2004 were $252.0 million and are secured by cash and investments of approximately $277.2 million. On October 28, 2004, we exercised an option to increase the aggregate amount of Tranche B by $50.0 million to $250.0 million as we anticipated that reinsureds would be requesting additional security as a result of the third quarter catastrophes.

          Effective December 23, 2004, Montpelier Re entered into a $50.0 million Letter of Credit Reimbursement and Pledge Agreement with HSBC Bank USA, National Association. The agreement is a one year secured facility that allows Montpelier Re to issue up to $50.0 million in letters of credit. The agreement’s covenants are

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the same as those under the above Letter of Credit Facility Agreement and are described below. There were no letters of credit issued under this facility at December 31, 2004.

          We expect these letter of credit facilities to be sufficient to support Montpelier Re’s estimated obligations for the next 12 months in the absence of a very major catastrophe. The Letter of Credit Facility Agreements contain covenants that limit our and Montpelier Re’s ability, among other things, to grant liens on their assets, sell assets, merge or consolidate. The Letter of Credit Facility Agreements also require us to maintain specific financial ratios and Montpelier Re to maintain certain credit ratings. If we or Montpelier Re fails to comply with these covenants or meet these financial ratios, the lenders could declare a default and begin exercising remedies against the collateral, Montpelier Re would not be able to request the issuance of additional letters of credit and we would not be able to borrow under the revolving line of credit. For the year ended December 31, 2004 we were in compliance with all covenants.

          Montpelier Re is registered under The Insurance Act 1978 (Bermuda), Amendments Thereto and Related Regulations (the “Act”). Under the Act, Montpelier Re is required annually to prepare and file Statutory Financial Statements and a Statutory Financial Return. The Act also requires Montpelier Re to meet minimum solvency requirements. For the years ended December 31, 2004 and 2003, Montpelier Re satisfied these requirements.

          Bermuda law limits the maximum amount of annual dividends or distributions payable by Montpelier Re to us and in certain cases requires the prior notification to, or the approval of, the Bermuda Monetary Authority. Subject to such laws, the directors of Montpelier Re have the unilateral authority to declare or not to declare dividends to us. There is no assurance that dividends will be declared or paid in the future.

Off-Balance Sheet Arrangements

          We are not party to any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party that management believes is reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Investments

          The table below shows the aggregate amounts of investments available for sale, other investments and cash and cash equivalents comprising our portfolio of invested assets ($ in thousands):

          Because a significant portion of our contracts provide short-tail reinsurance coverage for damages resulting mainly from natural and man-made catastrophes, we could become liable for a significant amount of losses on short notice. Accordingly, we have structured our investment portfolio to preserve capital and provide us with a high level of liquidity, which means that the large majority of our investment portfolio contains shorter term fixed maturity investments, such as U.S. government and agency bonds, U.S. government-sponsored corporate debt securities and mortgage-backed and asset-backed securities.

          The market value of our portfolio of fixed maturity investments at December 31, 2004 comprises U.S. government securities (17.7%), Non U.S. government securities (0.9%), U.S. government-sponsored enterprises securities (41.0%), corporate debt securities (31.0%) and mortgage-backed and asset-backed securities (9.4%). All of the fixed maturity investments we currently hold were publicly traded at December 31, 2004. Based on the weighted average monthly investments held, and including net unrealized gains, our total return on investments for the year ended December 31, 2004 was 3.3%. This return was partially due to the unrealized gain on our investment in Aspen at December 31, 2004 of $13.7 million. The average duration of our invested asset portfolio was 2.2 years and the average rating of the portfolio was AA+ at December 31, 2004. If the right

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conditions arise in 2005, we may deploy further capital in strategic investments or investment classes other than existing classes.

          We have an investment in the common shares of Aspen Insurance Holdings Limited (“Aspen”), a Bermuda –based holding company of Aspen Insurance UK Limited (“Aspen Re”). At December 31, 2004, we owned 4.0 million shares of Aspen, which represented approximately 5.8% of Aspen on an undiluted basis. Aspen completed their initial public offering on December 4, 2003. Our investment in Aspen is carried at quoted market value at December 31, 2004. At December 31, 2003 the shareholders agreement and other restrictions presented significant obstacles and uncertainties in the determination of the number of shares that could be reasonably expected to qualify for sale within one year. As a result of this illiquidity, at December 31, 2003 a portion of the total investment was considered restricted and was discounted. The aggregate unrealized gain is included in accumulated other comprehensive income. On February 3, 2005, the Company sold 1.5 million of its Aspen shares at $24.80 per common share for total proceeds of $37.2 million, realizing a gain of $14.4 million. The Company currently owns 2.5 million shares, or approximately 3.6% of Aspen.

          On August 2, 2004, the Company invested an aggregate of $20.0 million as part of an investor group acquiring the life and investments business of Safeco Corporation (since renamed Symetra Financial Corporation), pursuant to a Stock Purchase Agreement. Symetra is an unquoted investment and is carried at estimated fair value based on reported net asset values and other information available to management, with any unrealized gain or loss included in accumulated other comprehensive income.

Cash Flows

          In the year ended December 31, 2004, we generated an operating net cash inflow of $519.7 million, primarily relating to premiums net of acquisition costs received by Montpelier Re. We paid net losses of $192.0 million during the year ended December 31, 2004. We invested a net amount of $396.3 million during the year ended December 31, 2004, and had a cash balance of $110.6 million at December 31, 2004. The increase in liquidity has resulted from premiums received that were higher than the level of paid claims during the year. Our liquidity depends on operating, investing and financing cash flows as described below.

          Our sources of funds primarily consist of the receipt of premiums written, investment income and proceeds from sales and redemptions of investments.

          Cash is used primarily to pay loss and loss adjustment expenses, brokerage commissions, general and administrative expenses, to purchase new investments, to pay dividends, to pay for any premiums retroceded and future authorized share repurchases. In 2004 we purchased retrocessional excess of loss protection against large risk losses on the direct insurance and facultative book and against small to medium-size catastrophes on our overall property writings. In addition, in 2004 we also purchased retrocessional stop-loss protection against losses on our casualty writings. For 2005 we expect to purchase a slightly higher amount of reinsurance protection as compared to 2004.

          Our cash flows from operations represent the difference between premiums collected and investment earnings realized, and the loss and loss adjustment expenses, underwriting and other expenses paid and investment losses realized. Cash flows from operations may differ substantially, however, from net income. To date, we have invested the majority of our cash flows not required for operating purposes but have also paid out dividends to our shareholders and repurchased common shares during 2004 as discussed above.

          We have written certain business that has loss experience generally characterized as having low frequency and high severity. This may result in volatility in both our results of operations and operational cash flows. The potential for a large claim under one of our insurance or reinsurance contracts means that substantial and unpredictable payments may need to be made within relatively short periods of time. As a result, cash flows from operating activities may fluctuate, perhaps significantly, between individual quarters and years.

          We intend to manage these risks by structuring our investments in an effort to anticipate the payout patterns of our liabilities under insurance or reinsurance policies. No assurance can be given, however, that we will successfully match the structure of Montpelier Re’s investments with its liabilities under insurance or reinsurance contracts. If our calculations with respect to these reinsurance liabilities are incorrect, or if we improperly structure our investments to match such liabilities, we could be forced to liquidate investments prior to maturity,

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potentially at a significant loss.

          The estimated fair value of fixed maturity, equity, other investments and our cash and cash equivalents balance was $2,598.7 million as of December 31, 2004, compared to $2,237.7 million at December 31, 2003. The primary cause of this increase was the receipt of $718.7 million in premiums net of acquisition costs, net investment income of $69.1 million and net realized gains on investments of $7.2 million for the year ended December 31, 2004, offset by paid claims, the payment of general and administrative expenses, the payment of dividends and the repurchase of some of our common shares.

          For the period from inception until December 31, 2004, we have had sufficient cash flow from operations to meet our liquidity requirements. We have generated cash flows from operations since our inception significantly in excess of our operating commitments. To the extent that capital is not utilized in our reinsurance operations we have used such capital to invest in new opportunities and returned additional capital to shareholders in the form of dividends or share repurchases under certain circumstances. As announced on February 25, 2005, we will return approximately $390.0 million of capital to shareholders and warrant holders by way of a special dividend to be paid on March 31, 2005 to shareholders of record as of March 15, 2005. We may take similar measures in the future.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

          We believe that we are principally exposed to three types of market risk: interest rate risk, foreign currency risk and credit risk.

          The company has in place a derivatives use plan. However it has not entered into any derivative contracts to date.

          Interest Rate Risk. Our primary market risk exposure is to changes in interest rates. Our fixed maturity portfolio is exposed to interest rate risk. Fluctuations in interest rates have a direct impact on the market valuation of these investments. As interest rates rise, the market value of our fixed maturity portfolio falls, and the converse is also true. We manage interest rate risk by selecting investments with characteristics such as duration, yield, currency and liquidity tailored to the anticipated cash outflow characteristics of Montpelier Re’s reinsurance liabilities.

          As of December 31, 2004, an immediate 100 basis point increase in market interest rates would have resulted in an estimated decrease in the market value of our fixed maturity portfolio of 2.2% or approximately $52.3 million and the impact on our portfolio from an immediate 100 basis point decrease in market interest rates would have resulted in an estimated increase in market value of 2.0% or approximately $46.6 million.

          As of December 31, 2003, the impact on our portfolio from an immediate 100 basis point increase in market interest rates would have resulted in an estimated decrease in market value of 2.0% or approximately $40.6 million and the impact on our portfolio from an immediate 100 basis point decrease in market interest rates would have resulted in an estimated increase in market value of 2.0% or approximately $40.6 million.

          As of December 31, 2004, we held $219.2 million, or 8.4% of our total invested assets, in mortgage-related securities. These assets are exposed to prepayment risk, which occurs when holders of individual mortgages increase the frequency with which they prepay the outstanding principal before the maturity date and refinance at a lower interest rate cost. Given the proportion that these securities comprise of the overall portfolio, and the current low interest rate environment, prepayment risk is not considered significant at this time.

          As of December 31, 2003, we held $164.9 million, or 7.4% of our total invested assets, in mortgage-backed and asset-backed securities.

          Foreign Currency Risk. A significant portion of our business is reinsuring or insuring risks, receiving premiums and paying losses in currencies other than the U.S. dollar. We also maintain a small portion of our investment portfolio in investments in foreign currencies. Accordingly, we are exposed to fluctuations in the rates of these currencies. In the event of a significant loss event which requires settlement in a currency other than the United States dollar, we may use forward foreign currency exchange contracts in an effort to hedge against movements in the value of foreign currencies relative to the United States dollar. A forward foreign currency exchange contract involves an obligation to purchase or sell a specified currency at a future date at a price set at the time of the contract.

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Foreign currency exchange contracts will not eliminate fluctuations in the value of our assets and liabilities denominated in foreign currencies but rather allow us to establish a rate of exchange for a future point in time. We do not expect to enter into such contracts with respect to a material amount of our assets. At December 31, 2004 and 2003, we did not have any outstanding forward foreign currency exchange contracts.

          Our functional currency is the U.S. dollar. The British pound is the functional currency of our wholly-owned subsidiary, Montpelier Marketing Services (UK) Limited (“MMSL”). Accordingly, MMSL’s assets and liabilities are translated at exchange rates in effect at the balance sheet date. Revenue and expenses of MMSL are translated at average exchange rates during the period. The effect of translation adjustments at the end of the period is not included in our consolidated results of operations but is included in accumulated other comprehensive income, a separate component of shareholders’ equity. On a consolidated basis, MMSL does not generate material revenue and expenses and, therefore, the effects of changes in exchange rates during the period are not material.

          Our premiums receivable and liabilities for losses incurred in foreign currencies are exposed to the risk of changes in value resulting from fluctuations in foreign exchange rates and may affect our financial results in the future.

          Credit Risk. We have exposure to credit risk primarily as a holder of fixed maturity investments. In accordance with our investment guidelines as approved by our Board of Directors, our risk management strategy and investment policy is to invest in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to particular ratings categories and any one issuer. All of our fixed maturity investments were publicly traded at December 31, 2004 and 99.8% were investment grade. All of our fixed maturity investments were publicly traded and were all investment grade at December 31, 2003.

Effects of Inflation

          The potential exists, after a catastrophe loss, for the development of inflationary pressures in a local economy. We take into account the anticipated effects on us in our catastrophe loss models. The effects of inflation are also considered in pricing and in estimating reserves for loss and loss adjustment expenses we cannot know the precise effects of inflation on our results until claims are ultimately settled.

          We do not believe that inflation has had a material effect on our consolidated results of operations, except insofar as inflation may affect interest rates.

Item 8. Financial Statements and Supplementary Data

          Reference is made to Item 15 (a) of this Report for the Consolidated Financial Statements of Montpelier Re Holdings Ltd. and the Notes thereto, as well as the Schedules to the Consolidated Financial Statements.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

          There have been no changes in or any disagreements with accountants regarding accounting and financial disclosure for the period since the Company’s incorporation November 14, 2001 through the date of this filing.

Item 9A. Controls and Procedures

     Evaluation of disclosure controls and procedures.

          We have established disclosure controls and procedures designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company’s financial reports and to other members of management and the Board of Directors. We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2004 under the supervision and with the participation of management, including our CEO and CFO. Based on their evaluation as of December 31, 2004 the Company’s principal executive officer and

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principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in §§240.13a-15(e) and 240.15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Management’s Report on Internal Control Over Financial Reporting

     The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

	•	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
	•	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
	•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

          Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

          The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management has determined that, as of December 31, 2004, the Company’s internal control over financial reporting was effective based on those criteria.

          Our management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers, an independent registered public accounting firm, as stated in their report which appears on page F-2.

     Changes in internal controls.

     During the fourth quarter of 2004, there were no changes in the Company’s internal controls that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Item 9B. Other Information

          None.

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PART III

Item 10. Directors and Executive Officers of the Registrant

          This item is omitted because a definitive proxy statement that involves the election of directors will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to Regulation 14A, which proxy statement is incorporated by reference.

Item 11. Executive Compensation

          This item is omitted because a definitive proxy statement that involves the election of directors will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to Regulation 14A, which proxy statement is incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

          This item is omitted because a definitive proxy statement that involves the election of directors will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to Regulation 14A, which proxy statement is incorporated by reference.

Item 13. Certain Relationships and Related Transactions

          This item is omitted because a definitive proxy statement that involves the election of directors will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to Regulation 14A, which proxy statement is incorporated by reference.

Item 14. Principal Accounting Fees and Services

          This item is omitted because a definitive proxy statement that involves the election of directors will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to Regulation 14A, which proxy statement is incorporated by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

          (a) Financial Statements, Financial Statement Schedules and Exhibits.

1. Financial Statements

          The Consolidated Financial Statements of Montpelier Re Holdings Ltd. and related Notes thereto are listed in the accompanying Index to Consolidated Financial Statements and are filed as part of this Report.

2. Financial Statement Schedules

          The Schedules to the Consolidated Financial Statements of Montpelier Re Holdings Ltd. are listed in the accompanying Index to Schedules to Consolidated Financial Statements and are filed as part of this Report.

3. Exhibits

          (b) Exhibits

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(c)	See (a) above

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SIGNATURES

          Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized in Hamilton, Bermuda, on the 4^th day of March, 2005.

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POWER OF ATTORNEY

          Know all men by these presents, that the undersigned directors and officers of the Company, a Bermuda limited liability company, which is filing a Form 10-K with the Securities and Exchange Commission, Washington, D.C. 20549 under the provisions of the Securities Act of 1934 hereby constitute and appoint Anthony Taylor and Thomas Busher, and each of them, the individual’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the person and in his or her name, place and stead, in any and all capacities, to sign such Form 10-K therewith to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact as agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          Pursuant to the requirements of the Securities Act of 1934, this Form 10-K has been signed by the following persons in the capacities indicated on the 4^th day of March, 2005.