ODYSSEY RE HOLDINGS CORP - 10-Q Quarterly Report

As filed with the Securities and Exchange Commission on November 12, 2002

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the Quarter Ended: September 30, 2002		Commission File Number: 1-16535

(ODYSSEY RE LOGO)

Odyssey Re Holdings Corp.

(Exact Name of Registrant as Specified in its Charter)


Delaware	6719	52-2301683
(State or Other Jurisdiction Of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

Odyssey Re Holdings Corp.

140 Broadway, 39th Floor, New York, New York 10005

(212) 978-4700

(Address, including zip code, and telephone number,

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

Donald L. Smith, Esq.

General Counsel

Odyssey Re Holdings Corp.

140 Broadway, 39th Floor, New York, New York 10005

(212) 978-4700

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

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 the filing requirements for at least the past 90 days. YES þ NO o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


Class		Number of Shares Outstanding at September 30, 2002

Common Stock, $.01 Par Value		65,065,063

TABLE OF CONTENTS


PART I -- FINANCIAL INFORMATION
	PART I -- Item 1. Financial Statements
	PART I -- Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	PART I -- Item 3. Quantitative and Qualitative Disclosures About Market Risk
	PART I -- Item 4. Controls and Procedures
PART II -- OTHER INFORMATION
	PART II -- Item 1. Legal Proceedings
	PART II -- Item 5. Other Information -- Forward Looking Statements
	PART II -- Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS

TABLE OF CONTENTS

ODYSSEY RE HOLDINGS CORP.

INDEX TO FORM 10-Q


		Page

PART I FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001		3
	Consolidated Statements of Operations and Comprehensive Income for the nine and three months ended September 30, 2002 and 2001 (unaudited)		4
	Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2002 and 2001 (unaudited)		5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 (unaudited)		6
	Notes to Consolidated Financial Statements (unaudited)		7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		20
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		30
ITEM 4.	CONTROLS AND PROCEDURES		30
PART II OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS		30
ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS		None
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		None
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		None
ITEM 5.	OTHER INFORMATION — FORWARD LOOKING STATEMENTS		30
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K		31

PART I — FINANCIAL INFORMATION

PART I — Item 1. Financial Statements

ODYSSEY RE HOLDINGS CORP.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)


				As of			As of
				September 30,			December 31,
				2002			2001

ASSETS
Investments and cash:
	Fixed income securities, at fair value (amortized cost $1,768,609 and $2,030,561, respectively)			$	1,797,583		$	2,028,758
	Equity securities:
		Preferred stock, at fair value (cost $8,017)			9,240			—
		Common stocks, at fair value (cost $148,157 and $106,353, respectively)			148,099			100,515
		Common stocks, at equity			163,377			90,553
	Short-term investments, at cost which approximates fair value				339,806			19,648
	Other invested assets				53,983			45,160
	Cash and cash equivalents				384,863			375,142

			Total investments and cash		2,896,951			2,659,776
Investment income due and accrued					29,799			27,466
Reinsurance balances receivable					448,313			358,203
Reinsurance recoverable on loss payments					90,596			52,812
Reinsurance recoverable on unpaid losses					1,063,243			1,045,791
Prepaid reinsurance premiums					76,526			35,466
Funds held by ceding insurers					113,033			75,186
Deferred acquisition costs					117,177			79,560
Current federal and foreign income taxes					12,339			12,103
Deferred federal and foreign income taxes					115,779			204,455
Other assets					232,163			97,473

			Total assets	$	5,195,919		$	4,648,291

LIABILITIES
Unpaid losses and loss adjustment expenses				$	2,807,367		$	2,720,220
Unearned premiums					542,888			338,370
Debt obligations					207,688			200,000
Reinsurance balances payable					155,875			126,874
Funds held under reinsurance contracts					293,339			348,038
Other liabilities					166,837			93,917

			Total liabilities		4,173,994			3,827,419

STOCKHOLDERS’ EQUITY
Preferred stock, 200,000,000 shares authorized; 0 shares issued					—			—
Common stock, $0.01 par value; 500,000,000 shares authorized; 65,142,857 shares issued					651			651
Additional paid-in capital					793,334			793,334
Treasury stock, 77,794 shares at cost					(1,245	)		—
Unearned compensation					(4,854	)		(5,704	)
Accumulated other comprehensive income (loss), net of deferred income taxes					16,491			(12,985	)
Retained earnings					217,548			45,576

			Total stockholders’ equity		1,021,925			820,872

			Total liabilities and stockholders’ equity	$	5,195,919		$	4,648,291

See accompanying notes.

ODYSSEY RE HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)


			Nine Months			Nine Months			Three Months			Three Months
			Ended			Ended			Ended			Ended
			September 30,			September 30,			September 30,			September 30,
			2002			2001			2002			2001

REVENUES
Gross premiums written			$	1,331,648		$	813,178		$	499,721		$	300,790
Ceded premiums written				177,921			122,949			79,687			74,481

		Net premiums written		1,153,727			690,229			420,034			226,309
Increase in unearned premiums				(158,015	)		(62,323	)		(59,496	)		(6,342	)

		Net premiums earned		995,712			627,906			360,538			219,967
Net investment income				90,486			90,254			32,258			29,876
Net realized investment gains (losses)				123,512			6,868			104,562			(1,605	)

		Total revenues		1,209,710			725,028			497,358			248,238

EXPENSES
Losses and loss adjustment expenses				683,698			503,821			246,788			222,432
Acquisition costs				252,188			177,561			94,722			73,021
Other underwriting expenses				51,668			48,211			18,556			16,292
Other expenses (income), net				2,675			(3,163	)		1,022			(847	)
Interest expense				6,580			3,320			2,184			2,953

	Total expenses			996,809			729,750			363,272			313,851

	Income (loss) from continuing operations before income taxes and cumulative effect of a change in accounting principle			212,901			(4,722	)		134,086			(65,613	)

Federal and foreign income tax provision (benefit):
	Current			—			9,452			—			169
	Deferred			72,905			(12,879	)		46,316			(23,847	)

	Total federal and foreign income tax provision (benefit)			72,905			(3,427	)		46,316			(23,678	)

Income (loss) before cumulative effect of a change in accounting principle				139,996			(1,295	)		87,770			(41,935	)
Cumulative effect of a change in accounting principle (Note 2)				36,862			—			—			—

NET INCOME (LOSS)			$	176,858		$	(1,295	)	$	87,770		$	(41,935	)

BASIC
Weighted average shares outstanding				64,741,992			54,686,994			64,734,119			64,748,160

Earnings (loss) per share			$	2.73		$	(0.02	)	$	1.36		$	(0.65	)

DILUTED
Weighted average shares outstanding				65,132,841			54,686,994			65,131,409			64,748,160

Earnings (loss) per share			$	2.72		$	(0.02	)	$	1.35		$	(0.65	)

DIVIDENDS
Dividends declared per share			$	0.075		$	0.025		$	0.025		$	0.025

COMPREHENSIVE INCOME
Net income (loss)			$	176,858		$	(1,295	)	$	87,770		$	(41,935	)
Other comprehensive income (loss), net of tax				29,476			35,748			(22,537	)		45,710

Comprehensive income			$	206,334		$	34,453		$	65,233		$	3,775

See accompanying notes.

ODYSSEY RE HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)


	Nine Months			Nine Months
	Ended			Ended
	September 30, 2002			September 30, 2001

COMMON STOCK
Balance, beginning of period	$	651		$	480
Proceeds from initial public offering		—			171

Balance, end of period		651			651

ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period		793,334			920,220
Net effect of initial public offering		—			(126,886	)

Balance, end of period		793,334			793,334

TREASURY STOCK
Balance, beginning of period		—			—
Acquired during period		(1,345	)		—
Reissuance during period		100			—

Balance, end of period		(1,245	)		—

UNEARNED COMPENSATION
Balance, beginning of period		(5,704	)		—
Issuance of restricted stock		—			(6,915	)
Net increase during period		850			1,183

Balance, end of period		(4,854	)		(5,732	)

ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF DEFERRED INCOME TAXES
Balance, beginning of period		(12,985	)		(17,990	)
Net increase during the period		29,476			35,748

Balance, end of period		16,491			17,758

RETAINED EARNINGS
Balance, beginning of period		45,576			55,165
Net income (loss)		176,858			(1,295	)
Dividends to stockholders		(4,886	)		(1,628	)

Balance, end of period		217,548			52,242

TOTAL STOCKHOLDERS’ EQUITY	$	1,021,925		$	858,253

COMMON SHARES (SHARES OUTSTANDING)
Balance, beginning of period		65,142,857			48,000,000
Issued during period		—			17,142,857
Net treasury shares acquired		(77,794	)		—

Balance, end of period		65,065,063			65,142,857

See accompanying notes.

ODYSSEY RE HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)


			Nine Months			Nine Months
			Ended			Ended
			September 30, 2002			September 30, 2001

OPERATING ACTIVITIES
Net income (loss)			$	176,858		$	(1,295	)
	Less: cumulative effect of a change in accounting principle			(36,862	)		—

	Income before cumulative effect of a change in accounting principle			139,996			(1,295	)
	Adjustments to reconcile net income before cumulative effect of a change in accounting principle to net cash used in operating activities:
	Reinsurance balances and funds held, net			(189,085	)		(38,059	)
	Unearned premiums			160,224			61,795
	Unpaid losses and loss adjustment expenses			59,949			(81,861	)
	Federal and foreign income taxes			72,670			(7,981	)
	Other assets and liabilities, net			37,377			(9,060	)
	Deferred acquisition costs			(37,052	)		(13,599	)
	Net realized investment gains			(123,512	)		(6,868	)
	Bond premium amortization, net			(1,265	)		(416	)

		Net cash provided by (used in) operating activities		119,302			(97,344	)

INVESTING ACTIVITIES
	Maturities of fixed income securities			5,795			624
	Sales of fixed income securities			1,803,223			323,152
	Purchases of fixed income securities			(1,496,778	)		(265,147	)
	Sales of equity securities			39,514			17,746
	Purchases of equity securities			(149,861	)		(42,101	)
	Purchases of other invested assets			(26,173	)		(3,875	)
	(Increase) decrease in short-term investments			(306,454	)		124,231
	Cash and cash equivalents acquired			29,890			—

		Net cash (used in) provided by investing activities		(100,844	)		154,630

FINANCING ACTIVITIES
	Dividends			(4,886	)		—
	Additional borrowings, net			107,494			—
	Repayments of principal			(110,000	)		—
	Purchase of treasury stock			(1,345	)		—
	Net proceeds from public offering			—			51,285
	Loan receivable			—			(1,000	)

		Net cash (used in) provided by financing		(8,737	)		50,285

	Increase in cash and cash equivalents			9,721			107,571
	Cash and cash equivalents, beginning of period			375,142			154,527

		Cash and cash equivalents, end of period	$	384,863		$	262,098

See accompanying notes.

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

Odyssey Re Holdings Corp. (the “Company” or “OdysseyRe”) is a Delaware domiciled company which was incorporated on March 21, 2001 to serve as the holding company for its wholly owned subsidiary Odyssey America Reinsurance Corporation (“Odyssey America”) and Odyssey America’s subsidiaries, Odyssey Reinsurance Corporation (“ORC”), Odyssey UK Holdings Corp. (formerly known as TIG Re Holdings Corp.) (“Odyssey UK Holdings”), Newline Underwriting Management Limited (“Newline”) and Hudson Insurance Company (“Hudson”). On September 10, 2002, OdysseyRe acquired 56% of First Capital Insurance Limited (“First Capital”), a Singapore insurance company, for $17.8 million. First Capital is consolidated in our financial statements as of September 30, 2002.

On June 19, 2001, the Company sold 17,142,857 shares of its common stock (26% of the total shares of common stock outstanding) in an initial public offering (the “offering”). In connection with the offering, all the outstanding shares of Odyssey America were acquired by the Company from subsidiaries of Fairfax Financial Holdings Limited (“Fairfax”), the Company’s ultimate majority shareholder, for $233.6 million in cash, $200.0 million in a term note and 48 million shares of the Company’s common stock. This acquisition has been accounted for at historical cost in a manner similar to a pooling of interests. Accordingly, the consolidated financial statements of Odyssey America and its subsidiaries have become the Company’s historical financial information and the financial statements presented herein have been restated to reflect the re-capitalization as though it occurred at the beginning of the period. The Company retained $51.3 million of the net proceeds from the offering. In connection with the offering, the Company granted restricted shares of its stock to various executives and employees.

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions, which could differ from actual results, that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Certain financial information that is normally included in annual financial statements prepared in accordance with generally accepted accounting principles has been omitted since it is not required for interim reporting purposes. The Company’s unaudited interim consolidated financial statements include all adjustments which in management’s opinion are normal recurring adjustments for a fair statement of its financial position on such dates and the results of operations for those periods. The results for the nine months ended September 30, 2002 and 2001 are not necessarily indicative of the results for a full year. As of December 31, 2001, certain amounts have been reclassified to conform to the balance sheet presentation as of September 30, 2002.

During 2002, the Company’s Board of Directors declared a dividend of $0.025 per common share in each quarter. Approximately $1.6 million in dividends were paid in each quarter.

2. New Accounting Pronouncements

Effective January 1, 2002, the Company adopted Statements of Financial Accounting Standard (“SFAS”) 141, “Business Combinations” and SFAS 142, “Goodwill and Other Intangible Assets”, which are effective for all fiscal quarters of all fiscal years beginning after December 15, 2001. On January 1, 2002, the Company, in accordance with the provisions of SFAS 141 and in conjunction with the adoption of SFAS 142, fully amortized its negative goodwill of $36.9 million and reflected the amortization as a cumulative effect of a change in accounting principle in its statement of operations for the nine months ended September 30, 2002. The amortization of negative goodwill during the nine months ended September 30, 2001 was $6.3 million and was reflected in other expenses (income), net. SFAS 142 established new accounting and reporting standards for acquired goodwill and other intangible assets. It requires that an entity determine if the goodwill or other intangible assets has an indefinite or a finite useful life. Goodwill and intangible assets with indefinite useful lives will not be subject to amortization and must be tested at least annually for impairment. Management has determined that the goodwill of $18.3 million reflected in other assets as of September 30, 2002 and

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2001 has an indefinite life and is not impaired; accordingly, the Company has not amortized its goodwill during the nine months ended September 30, 2002. For the nine months ended September 30, 2001, the Company amortized $1.9 million of goodwill, which was reflected in other expense (income), net. There is no effect on the Company’s federal and foreign income taxes resulting from the implementation of these accounting pronouncements.

The retroactive effect of the implementation of SFAS Nos. 141 and 142 on net loss and basic and diluted loss per share for the nine months and three months ended September 30, 2001 would be as follows (in thousands):


		Nine Months			Three Months
		Ended			Ended
		September 30, 2001			September 30, 2001

Reported net loss		$	(1,295	)	$	(41,935	)

Adjustments:
Negative goodwill			(6,261	)		(2,087	)
Goodwill			1,887			629

	Adjusted net loss	$	(5,669	)	$	(43,393	)

Reported basic loss per share		$	(0.02	)	$	(0.65	)
Adjustments:
Negative goodwill			(0.11	)		(0.03	)
Goodwill			0.03			0.01

	Adjusted basic loss per share	$	(0.10	)	$	(0.67	)

Reported diluted loss per share		$	(0.02	)	$	(0.65	)
Adjustments:
Negative goodwill			(0.11	)		(0.03	)
Goodwill			0.03			0.01

	Adjusted diluted loss per share	$	(0.10	)	$	(0.67	)

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. Accumulated Other Comprehensive Income

The following table shows the components of the change in accumulated other comprehensive income (loss) for the nine and three months ended September 30, 2002 and 2001 (in thousands):


							Three			Three
	Nine Months			Nine Months			Months			Months
	Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,
	2002			2001			2002			2001

Beginning balance of accumulated other comprehensive (loss) income	$	(12,985	)	$	(17,990	)	$	39,028		$	(27,952	)

Beginning balance of foreign currency translation adjustments		(9,358	)		2,480			2,763			(2,989	)
Ending balance of foreign currency translation adjustments		(4,639	)		(5,698	)		(4,639	)		(5,698	)

Current period change in foreign currency translation adjustments		4,719			(8,178	)		(7,402	)		(2,709	)

Beginning balance of unrealized net (loss) income on securities		(3,627	)		(20,470	)		36,265			(24,963	)
Ending balance of unrealized net income (loss) on securities		21,130			23,456			21,130			23,456

Current period change in unrealized net gains (losses) on securities		24,757			43,926			(15,135	)		48,419

Current period change in accumulated other comprehensive income (loss)		29,476			35,748			(22,537	)		45,710

Ending balance of accumulated other comprehensive income	$	16,491		$	17,758		$	16,491		$	17,758

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of comprehensive income for the nine and three months ending September 30, 2002 and 2001 are in the following table (in thousands):


		Nine Months			Nine Months			Three Months			Three Months
		Ended			Ended			Ended			Ended
		September 30,			September 30,			September 30,			September 30,
		2002			2001			2002			2001

Net income (loss)		$	176,858		$	(1,295	)	$	87,770		$	(41,935	)

Other comprehensive income (loss), before tax foreign currency translation adjustment			7,260			(12,582	)		(11,388	)		(3,872	)
	Unrealized income (loss) on securities arising during period		61,669			74,582			(13,853	)		74,304
Less: reclassification adjustment for realized (losses) gains included in net income			(23,581	)		(7,003	)		(9,431	)		188

Other comprehensive income (loss), before tax			45,348			54,997			(34,672	)		70,620

Tax (expenses) benefit from foreign currency translation			(2,541	)		4,404			3,986			1,163
Tax (expenses) benefit from unrealized gains (losses) arising during the period			(21,584	)		(26,104	)		4,849			(26,007	)
Tax benefit (expense) from realized (losses) gains included in net income			8,253			2,451			3,300			(66	)

Total tax (expense) benefit			(15,872	)		(19,249	)		12,135			(24,910	)

Other comprehensive income (loss), net of tax			29,476			35,748			(22,537	)		45,710

Comprehensive income		$	206,334		$	34,453		$	65,233		$	3,775

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Earnings Per Share

Net income (loss) for the nine and three months ended September 30, 2002 and 2001 per common share has been computed in the following table based upon weighted average common shares outstanding (in thousands, except share amounts):


			Nine Months		Nine Months			Three Months		Three Months
			Ended		Ended			Ended		Ended
			September 30,		September 30,			September 30,		September 30,
			2002		2001			2002		2001

Income (loss) before cumulative effect of a change in accounting principle			$	139,996	$	(1,295	)	$	87,770	$	(41,935	)
Cumulative effect of a change in accounting principle				36,862		—			—		—

Net income (loss)			$	176,858	$	(1,295	)	$	87,770	$	(41,935	)

Weighted average common shares outstanding — basic				64,741,992		54,686,994			64,734,119		64,748,160
Effect of dilutive shares				390,849		—			397,290		—

Weighted average shares outstanding — dilutive				65,132,841		54,686,994			65,131,409		64,748,160

Net income (loss) per common shares:
	Basic:
		Income (loss) before cumulative effect of a change in accounting principle	$	2.16	$	(0.02	)	$	1.36	$	(0.65	)
		Cumulative effect of a change in accounting principle		0.57		—			—		—

		Net income (loss)	$	2.73	$	(0.02	)	$	1.36	$	(0.65	)

	Diluted:
		Income (loss) before cumulative effect of a change in accounting principle	$	2.15	$	(0.02	)	$	1.35	$	(0.65	)
		Cumulative effect of a change in accounting principle		0.57		—			—		—

		Net income (loss)	$	2.72	$	(0.02	)	$	1.35	$	(0.65	)

Inclusion for the nine months and three months ended September 30, 2001 of the unvested portion of the restricted common stock granted under the OdysseyRe Restricted Share Plan would have an anti-dilutive effect on the 2001 diluted earnings per share (i.e., the diluted earnings per share would be greater than the basic earnings per share); accordingly, such shares were excluded from the calculation of the 2001 diluted earnings per share.

The 2002 diluted earnings per share does not reflect the conversion of the Company’s convertible debentures to common shares of the Company because, under the terms of the indenture under which the convertible debentures were issued, the convertible debentures were not convertible as of September 30, 2002.

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Contingencies

ORC has agreed to allow Ranger Insurance Company (“Ranger”), a subsidiary of Fairfax, to attach an assumption of liability endorsement to its policies where required. The agreement applies to endorsements issued from July 1, 1999 to the termination of the agreement. The agreement will terminate upon Ranger receiving an A.M. Best rating of A — or better, Ranger ceasing to be under the control of Fairfax, or either party giving the other party 30 days’ notice. Following termination of the agreement, ORC will remain liable for any losses occurring prior to the effective date of the termination, pursuant to the terms of the endorsements. Fairfax has agreed to indemnify ORC for any obligation under this agreement. The Company anticipates that Ranger will meet all of its obligations in the normal course of business, and ORC does not anticipate making any payments under this guarantee that would require ORC to utilize the indemnification from Fairfax.

Odyssey America has agreed, as of July 14, 2000, to guarantee the performance of all of the insurance and reinsurance contract obligations, whether incurred before or after the agreement, of Compagnie Transcontinentale de Réassurance (“CTR”), an affiliate, in the event CTR becomes insolvent and CTR is not otherwise indemnified under its guarantee agreement with a Fairfax affiliate. This guarantee was entered into as part of the redeployment of CTR’s business to Odyssey America. Fairfax has agreed to indemnify Odyssey America for all obligations under this guarantee. Odyssey America anticipates that CTR will meet all of its obligations in the normal course of business and does not anticipate making any payments under this guarantee. Odyssey America terminated the guarantee effective December 31, 2001, but remains ultimately liable for contracts entered into by CTR prior to the termination date.

Through Odyssey UK Holdings, Odyssey America is a limited liability participant in the Lloyd’s market. In order to continue underwriting at Lloyd’s, the Company has established a clean irrevocable letter of credit in favor of the Society and Council of Lloyd’s. At September 30, 2002, the letter of credit was valued at £57.5 million ($90.3 million) and was collateralized by $112.8 million of the Company’s investment securities at statement value. The letter of credit effectively secures the future contingent obligations of Odyssey Holdings should Newline, the Lloyd’s underwriting syndicate in which the Company participates, incur net losses. The Company’s contingent liability to the Society and Council of Lloyd’s is limited to the amount of the letter of credit.

Odyssey America has agreed, as of April 1, 2002, to guarantee the prompt payment of all of the insurance contract obligations (the “Subject Contracts”), whether incurred before or after the agreement, of Falcon Insurance Company (Hong Kong) Limited (“Falcon”), an affiliate, in the event Falcon becomes insolvent. Falcon has agreed to pay Odyssey America one percent of all gross earned premium associated with the subject business on a quarterly basis. Odyssey America anticipates that Falcon will meet all of its obligations in the normal course of business and does not anticipate making any payments under this guarantee. Fairfax has agreed to indemnify Odyssey America for any obligation under this agreement.

In addition, in connection with the guarantee, Falcon has granted Odyssey America the option (the “Option”) to assume a ten percent quota share reinsurance participation for a period of up to three years of all of Falcon’s liabilities under the Subject Contracts entered into by Falcon on or after the date of the exercise of the Option by Odyssey America. If the Option is exercised, the one percent fee will be cancelled during the term of the quota share reinsurance agreement.

OdysseyRe and its subsidiaries are involved from time to time in ordinary routine litigation and arbitration proceedings incidental to their business. In management’s opinion, the outcome of these suits, individually or collectively, is not likely to result in judgments that would be material to the financial condition or results of operations or cash flow of the Company.

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Debt Obligations

The components of debt obligations are as follows (in thousands):


	As of		As of
	September 30,		December 31,
	2002		2001

Convertible debt	$	110,000	$	—
Senior notes		97,688		100,000
Term notes		—		50,000
Credit agreement		—		50,000

Total	$	207,688	$	200,000

In June 2002, OdysseyRe issued $110 million aggregate principal amount of 4.375% convertible senior debentures (“Convertible Debt”) due 2022. The Convertible Debt is redeemable at the Company’s option beginning on June 22, 2005. Each holder of Convertible Debt may, at its option, require OdysseyRe to repurchase all or a portion of its Convertible Debt on June 22, 2005, 2007, 2009, 2012 and 2017. Under certain circumstances, each Convertible Debt holder can convert its Convertible Debt, in accordance with the terms of the indenture under which the Convertible Debt was issued, into 46.9925 shares of OdysseyRe common stock for every $1,000 principal amount of the Convertible Debt. The Convertible Debt is reflected on OdysseyRe’s balance sheet at a value of $110.0 million, the aggregate principal amount of Convertible Debt outstanding.

OdysseyRe issued a term note to a subsidiary of Fairfax which was due between 2002 and 2004. The term note accrued interest using a 3-month LIBOR plus 225 basis points rate payable quarterly on March 15th, June 15th, September 15th and December 15th. Originally, the term note was issued in an aggregate principal amount of $200.0 million, but this debt has subsequently been extinguished by the proceeds of the senior notes and credit agreement described below.

In December 2001, OdysseyRe issued $100.0 million aggregate principal amount of senior notes due November 30, 2006. Interest accrues on the senior notes at a rate of 7.49%, which is due semi-annually on May 31st and November 30th. The senior notes are redeemable prior to maturity at the option of OdysseyRe. Simultaneously with the issuance of the senior notes, OdysseyRe entered into a swap transaction that effectively converted the fixed 7.49% interest rate into a variable rate, which was 4.2% as of September 30, 2002. On June 26, 2002, OdysseyRe prepaid $10 million aggregate principal amount of senior notes. As of September 30, 2002, the aggregate principal amount outstanding of the senior notes was $90 million and the senior notes have been reflected on the Company’s balance sheet at fair value of $97.7 million. The offsetting fair value adjustment to the swap transaction of $7.7 million has been reflected in other liabilities.

In December 2001, OdysseyRe entered into a credit agreement with Bank of America LLC and J.P. Morgan Chase Bank. The amount of borrowing available under the credit agreement was $50.0 million, payable on January 31, 2002 plus accrued interest. The credit agreement was a thirty day agreement. In accordance with the agreement terms, on January 31, 2002 it was converted to a three year obligation with the principal due in 2005 and interest payable at a rate based upon either the rate designated by Bank of America as its prime rate or a rate of 250 basis points over the applicable LIBOR. On June 18, 2002, this obligation was fully extinguished by proceeds from the issuance of the Convertible Debt.

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Aggregate maturities of the Company’s debt obligations, at face value are as follows (in thousands):


Year		Amount

2006.		$	90,000
2022.			110,000

	Total	$	200,000

OdysseyRe’s debt obligations are subject to certain covenants, none of which significantly restricts the Company’s operating activities or dividend-paying ability. At September 30, 2002, the Company was in compliance with all debt covenants.

7. Unpaid Losses and Loss Adjustment Expenses

Activity in the liability for unpaid losses and loss adjustment expenses for the nine and three months ended September 30, 2002 and 2001 is as follows (in thousands):


		Nine Months		Nine Months			Three Months		Three Months
		Ended		Ended			Ended		Ended
		September 30,		September 30,			September 30,		September 30,
		2002		2001			2002		2001

Gross unpaid losses and loss adjustment expenses, beginning of period		$	2,720,220	$	2,566,396		$	2,745,715	$	2,524,128
Less ceded unpaid losses and loss adjustment expenses, beginning of period			1,045,791		899,629			1,069,917		945,874

Net unpaid losses and loss adjustment expenses, beginning of period			1,674,429		1,666,767			1,675,798		1,578,254

Acquisition of net unpaid losses and loss adjustment expenses			9,748		—			9,748		—

Losses and loss adjustment expenses incurred related to:
	Current year		651,110		501,011			226,047		222,352
	Prior years		32,588		2,810			20,741		80

Total losses and loss adjustment expenses incurred			683,698		503,821			246,788		222,432

Losses and loss adjustment expenses paid related to:
	Current year		96,059		58,073			44,100		26,741
	Prior years		531,992		527,477			146,429		189,595

Total paid losses and loss adjustment expenses			628,051		585,550			190,529		216,336

Effects of exchange rate changes			4,300		(132	)		2,319		556

Net unpaid losses and loss adjustment expenses, end of period			1,744,124		1,584,906			1,744,124		1,584,906
Add ceded unpaid losses and loss adjustment expenses, end of period			1,063,243		1,094,832			1,063,243		1,094,832

Gross unpaid losses and loss adjustment expenses, end of period		$	2,807,367	$	2,679,738		$	2,807,367	$	2,679,738

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. Asbestos and Environmental Losses and Loss Adjustment Expenses

The Company has exposure to asbestos and environmental pollution claims. Exposure arises from reinsurance contracts under which the Company has assumed liabilities, on an indemnity or assumption basis, from ceding companies primarily in connection with general liability insurance policies issued by such cedants. The Company’s estimate of its ultimate liability for such exposures includes case basis reserves and a provision for liabilities incurred but not reported. Case basis reserves are a combination of reserves reported to the Company by ceding companies and additional case reserves determined by the Company’s dedicated asbestos and environmental claims unit based on claims audits of cedants. The provision for liabilities incurred but not reported is established based on various methods such as loss development, market share and frequency and severity.

Estimation of ultimate liabilities for these exposures is unusually difficult due to outstanding issues such as whether coverage exists, definition of an occurrence, determination of ultimate damages and allocation of such damages to financially responsible parties. The determination of ultimate liabilities for waste site pollution exposure is especially uncertain due to the potential for an amendment to the Superfund Law proposed by various business groups, environmental groups and government agencies.

The Company’s reserves for asbestos and environmental related liabilities displayed below are from business written for accident years 1985 and prior. There is minimal exposure and no specific reported reserves in the more recent accident years. The Company’s asbestos and environmental reserve development, gross and net of reinsurance, for the nine and three months ended September 30, 2002 and 2001, is set forth in the table below (in thousands):


	Nine Months		Nine Months		Three Months		Three Months
	Ended		Ended		Ended		Ended
	September 30,		September 30,		September 30,		September 30,
	2002		2001		2002		2001

ASBESTOS
Gross unpaid losses and loss adjustment expenses, beginning of period	$	193,753	$	205,633	$	193,294	$	219,366
Less ceded unpaid losses and loss adjustment expenses, beginning of period		164,269		176,149		163,810		189,882

Net unpaid losses and loss adjustment expenses, beginning of period		29,484		29,484		29,484		29,484
Net losses and loss adjustment expenses incurred		—		—		—		—
Net paid losses and loss adjustment expenses		—		—		—		—

Net unpaid losses and loss adjustment expenses, end of period		29,484		29,484		29,484		29,484
Add ceded unpaid losses and loss adjustment expenses, end of period		158,482		178,738		158,482		178,738

Gross unpaid losses and loss adjustment expenses, end of period	$	187,966	$	208,222	$	187,966	$	208,222

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Nine Months		Nine Months		Three Months		Three Months
	Ended		Ended		Ended		Ended
	September 30,		September 30,		September 30,		September 30,
	2002		2001		2002		2001

ENVIRONMENTAL
Gross unpaid losses and loss adjustment expenses, beginning of period	$	55,529	$	53,439	$	54,811	$	55,574
Less ceded unpaid losses and loss adjustment expenses, beginning of period		23,392		21,302		22,674		23,437

Net unpaid losses and loss adjustment expenses, beginning of period		32,137		32,137		32,137		32,137
Net losses and loss adjustment expenses incurred		—		—		—		—
Net paid losses and loss adjustment expenses		—		—		—		—

Net unpaid losses and loss adjustment expenses, end of period		32,137		32,137		32,137		32,137
Add ceded unpaid losses and loss adjustment expenses, end of period		22,802		32,689		22,802		32,689

Gross unpaid losses and loss adjustment expenses, end of period	$	54,939	$	64,826	$	54,939	$	64,826

The Company’s survival ratio for environmental and asbestos related liabilities as of September 30, 2002 is twelve years, reflecting full utilization of remaining indemnifications. The survival ratio represents the environmental impairment and asbestos related illness reserves, net of reinsurance, on September 30, 2002 plus indemnifications divided by the average paid environmental and asbestos claims, net of reinsurance, for the three years ended December 31, 2001. The Company’s survival ratio is eight years, prior to reflecting full utilization of the indemnification. The Company’s survival ratio compares favorably with the U.S. Property and Casualty Industry average survival ratio of eight years as published by A.M. Best in its 2001 report on Asbestos and Environmental claims.

9. Segment Reporting

The Company’s business is managed through three distinct divisions, the Americas, EuroAsia and London Market, which are established principally based on geographic regions. Effective January 1, 2002, business underwritten by Odyssey UK Holdings, which owns and manages Newline (previously the Newline division), and business underwritten by Odyssey America’s London branch office, which was previously reflected as part of the EuroAsia division, have been integrated into the London Market division. For comparative purposes, the segment information presented below for the three months and nine months ended September 30, 2001 has been restated to reflect the London Branch business in the London Market division. Each division provides customized treaty, facultative and program reinsurance through professional reinsurance brokerage firms. The Americas division is comprised of the Company’s U.S. operations and its Canadian and Latin America branch offices. The U.S. operations write primarily treaty property, general casualty, specialty casualty, and facultative casualty reinsurance business, and write primary insurance business through Hudson. Treaty property business is written through its Canadian Branch while the Latin American branch writes both treaty and facultative property business. The EuroAsia division is comprised of offices in Paris, Cologne, Stockholm, Singapore and Tokyo. The EuroAsia division writes primarily treaty and facultative property business. The Company’s London Market division primarily writes property, marine and aerospace reinsurance business as well as casualty and financial lines primary business.

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The financial results of these divisions for the three and nine months ended September 30, 2002 and 2001 are as follows (in thousands):


								London
Three months ended September 30, 2002		Americas			EuroAsia			Market			Total

Gross premiums written		$	344,514		$	73,517		$	81,690		$	499,721

Net premiums written		$	288,687		$	70,413		$	60,934		$	420,034

Net premiums earned		$	249,438		$	61,818		$	49,282		$	360,538

Losses and loss adjustment expenses			166,118			53,094			27,576			246,788
Acquisition costs and other underwriting expenses			79,211			15,910			18,157			113,278

Total underwriting deductions			245,329			69,004			45,733			360,066

	Underwriting income (loss)	$	4,109		$	(7,186	)	$	3,549			472

Net investment income												32,258
Net realized investment gains												104,562
Other expenses, net												(1,022	)
Interest expense												(2,184	)

	Income from continuing operations before income taxes										$	134,086

Underwriting ratios:
	Losses and loss adjustment expenses		66.6	%		85.9	%		56.0	%		68.5	%
	Acquisition costs and other underwriting expenses		31.8			25.7			36.8			31.4

	Combined ratio		98.4	%		111.6	%		92.8	%		99.9	%


								London
Three months ended September 30, 2001		Americas			EuroAsia			Market			Total

Gross premiums written		$	229,690		$	43,579		$	27,521		$	300,790

Net premiums written		$	167,044		$	41,283		$	17,982		$	226,309

Net premiums earned		$	163,848		$	24,261		$	31,858		$	219,967

Losses and loss adjustment expenses			162,090			21,329			39,013			222,432
Acquisition costs and other underwriting expenses			68,828			9,243			11,242			89,313

Total underwriting deductions			230,918			30,572			50,255			311,745

	Underwriting loss	$	(67,070	)	$	(6,311	)	$	(18,397	)		(91,778	)

Net investment income												29,876
Net realized investment losses												(1,605	)
Other income, net												847
Interest expense												(2,953	)

	Loss from continuing operations before income taxes										$	(65,613	)

Underwriting ratios:
	Losses and loss adjustment expenses		98.9	%		87.9	%		122.5	%		101.1	%
	Acquisition costs and other underwriting expenses		42.0			38.1			35.3			40.6

Combined ratio			140.9	%		126.0	%		157.8	%		141.7	%

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


								London
Nine months ended September 30, 2002		Americas			EuroAsia			Market			Total

Gross premiums written		$	940,611		$	178,293		$	212,744		$	1,331,648

Net premiums written		$	820,989		$	171,109		$	161,629		$	1,153,727

Net premiums earned		$	719,380		$	151,279		$	125,053		$	995,712

Losses and loss adjustment expenses			486,298			117,548			79,852			683,698
Acquisition costs and other underwriting expenses			226,002			40,299			37,555			303,856

Total underwriting deductions			712,300			157,847			117,407			987,554

	Underwriting income (loss)	$	7,080		$	(6,568	)	$	7,646			8,158

Net investment income												90,486
Net realized investment gains												123,512
Other expenses, net												(2,675	)
Interest expense												(6,580	)

	Income from continuing operations before income taxes										$	212,901

Underwriting ratios:
	Losses and loss adjustment expenses		67.6	%		77.7	%		63.9	%		68.7	%
	Acquisition costs and other underwriting expenses		31.4			26.6			30.0			30.5

	Combined ratio		99.0	%		104.3	%		93.9	%		99.2	%

ODYSSEY RE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


								London
Nine months ended September 30, 2001		Americas			EuroAsia			Market			Total

Gross premiums written		$	598,534		$	102,337		$	112,307		$	813,178

Net premiums written		$	506,088		$	94,308		$	89,833		$	690,229

Net premiums earned		$	484,252		$	68,406		$	75,248		$	627,906

Losses and loss adjustment expenses			384,336			52,481			67,004			503,821
Acquisition costs and other underwriting expenses			175,412			21,542			28,818			225,772

Total underwriting deductions			559,748			74,023			95,822			729,593

	Underwriting loss	$	(75,496	)	$	(5,617	)	$	(20,574	)		(101,687	)

Net investment income												90,254
Net realized investment gains												6,868
Other income, net												3,163
Interest expense												(3,320	)

	Loss from continuing operations before income taxes										$	(4,722	)

Underwriting ratios:
	Losses and loss adjustment expenses		79.4	%		76.7	%		89.0	%		80.2	%
	Acquisition costs and other underwriting expenses		36.2			31.5			38.3			36.0

	Combined ratio		115.6	%		108.2	%		127.3	%		116.2	%

The Company does not maintain separate balance sheet data for each of its operating segments. Accordingly, the Company does not review and evaluate the financial results of its operating segments based upon balance sheet data.

10. Stock Incentive Plan

In April 2002, the Company’s stockholders approved the Odyssey Re Holdings Corp. 2002 Stock Incentive Plan (the “2002 Plan”). An aggregate of 1.5 million shares of the Company’s common stock may be granted under the 2002 Plan. The 2002 Plan provides for the grant of non-qualified stock options to officers, key employees and directors who are employed by, or provide services to, the Company or its subsidiaries. Pursuant to the 2002 Plan, 25% of the options granted shall vest on each annual anniversary of the grant, and shall be exercisable at the grant price. As of September 30, 2002, 452,750 stock options have been granted under the 2002 Plan, at a price of $18 per share.

PART I — Item 2. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Overview

Odyssey Re Holdings Corp. was incorporated on March 21, 2001 to serve as the holding company for Odyssey America and its subsidiaries, ORC, Hudson, and Newline. On June 19, 2001, OdysseyRe sold 17,142,857 shares of its common stock in an initial public offering. In connection with this offering, we acquired all of the outstanding shares of Odyssey America from subsidiaries of Fairfax, our ultimate majority stockholder, for $233.6 million in cash, a $200.0 million term note and 48 million shares of our common stock. The acquisition has been accounted for at historical cost in a manner similar to a pooling of interests. Accordingly, the consolidated financial statements of Odyssey America and its subsidiaries have become our historical financial information and the 2001 financial statements have been restated to reflect the re-capitalization as though it occurred at the beginning of the period.

Through our operating subsidiaries, principally Odyssey America, we are a leading U.S. based underwriter of reinsurance, providing a full range of property and casualty products on a worldwide basis. We offer a broad range of both treaty and facultative reinsurance to property and casualty insurers and reinsurers. Treaty reinsurance involves the reinsurance of a specific line or class of business for an insurance company pursuant to an agreement or treaty. Facultative reinsurance involves the reinsurance of a specific policy as opposed to a line or class of business. We also write specialty and non-traditional lines of reinsurance, including professional liability and marine and aerospace.

Through the first nine months of this year we have experienced growth opportunities in a number of areas, evidenced by our 63.7% increase in gross premiums written, which increased by $518.4 million to $1,331.6 million for the nine months ended September 30, 2002 from $813.2 million for the nine months ended September 30, 2001. As a result of improved market conditions and a series of catastrophic events, both in the United States and globally, conditions for us have been improving and we have opportunistically expanded in certain classes of business and in each of our geographic business segments. Our non-U.S. operations, including our Lloyd’s operations, accounted for 37.8% of our premium volume for the nine months ended September 30, 2002.

Due to the improved pricing environment and our continued focus on underwriting discipline, our underwriting results have significantly improved. Our combined ratio for the nine months ended September 30, 2002 improved by 4.0 percentage points to 99.2% from 103.2%, which excludes the effects of the event of September 11th reported for the comparable period last year. This improvement is a direct result of our underwriting actions, including improvements in pricing as well as terms and conditions, and our opportunistic expansion into better performing lines of business. During the quarter ended September 30, 2002, our EuroAsia division incurred losses related to floods in Central Europe and France.

Our consolidated statements of operations for the nine months and three months ended September 30, 2001 reflected a gross underwriting loss of $171.7 million and pre-tax underwriting loss of $80.8 million which was comprised of a reduction to net premiums written and earned of $10.4 million, an increase to net losses and loss adjustment expenses of $64.4 million and an increase to acquisition costs of $6.0 million. The net after tax loss was $52.5 million for the nine months and three months ended September 30, 2001. During the fourth quarter 2001, we increased our net pre-tax underwriting loss estimate from $80.8 million to $95.0 million.

We operate our business through three divisions, the Americas, EuroAsia and the London Market, which are based principally on geographic regions.

The Americas is our largest division, accounting for $940.6 million, or 70.6%, of our gross premiums written for the nine months ended September 30, 2002. The Americas division writes treaty, both casualty and property, and facultative casualty reinsurance in the United States and Canada, and treaty and facultative reinsurance in South America, as well as primary business in the United States through Hudson, our insurance subsidiary. The Americas division is comprised of three units, the United States, Canada and Latin America (but also included the London branch for business incepting prior to 2001) and six offices, located in

Stamford, New York City, Mexico City, Miami, Santiago and Toronto. Gross premiums written by the United States unit for the nine months ended September 30, 2002 were $828.1 million, an increase of $311.0 million, or 60.1%, compared to $517.1 million for the nine months ended September 30, 2001. Gross premiums written by the Latin American unit for the nine months ended September 30, 2002 were $77.5 million, an increase of $31.3 million, or 67.7%, compared to $46.2 million for the nine months ended September 30, 2001. The Canadian unit had gross written premiums of $28.4 million for the nine months ended September 30, 2002, an increase of $16.0 million, or 129.0%, compared to $12.4 million for the nine months ended September 30, 2001. The increases are due mainly to greater opportunities to write business as a result of increased pricing both at the insurance and reinsurance levels. The London branch unit (business underwritten prior to 2001) had gross premiums written of $6.6 million for the nine months ended September 30, 2002, a decrease of $16.2 million compared to $22.8 million for the nine months ended September 30, 2001.

The EuroAsia division was formed in 2000 as part of the re-alignment of our business across geographic regions. EuroAsia operates out of five offices, with principal offices in Paris and Singapore. For the nine months ended September 30, 2002, the EuroAsia division had gross premiums written of $178.3 million, or 13.4%, of our gross premiums written, compared to $102.3 million for the nine months ended September 30, 2001. The growth rate was 74.1%. For the nine months ended September 30, 2002 and 2001, our Paris office had gross premiums written of $132.1 million and $77.3 million, respectively, and our Singapore office had gross premiums written of $46.2 million and $25.0 million, respectively. The EuroAsia division premiums are geographically dispersed mainly throughout the European Union, followed by Japan, Eastern Europe, the Pacific Rim and the Middle East. The EuroAsia division has been successful in taking advantage of the international rate increases and creating new market opportunities by leveraging its long-term ceding company and broker relationships.

The London Market division is comprised of our Lloyd’s of London business, in which we participate through our 100% ownership of Newline, which in turn owns and manages Syndicate 1218 and our London branch office. Our Lloyd’s membership provides strong brand recognition, extensive broker and direct distribution channels and worldwide licensing, including the ability to write primary business on an excess and surplus basis in the United States. The London Market writes reinsurance and insurance business worldwide through brokers, generating $212.7 million, or 16.0%, of our gross premiums written for the nine months ended September 30, 2002 as compared to $112.3 million for the nine months ended September 30, 2001. The increase in gross premiums written of $100.4 million, or 89.4%, was mainly in financial lines and international casualty business.

The property and casualty reinsurance and insurance industries use the combined ratio as a measure of underwriting profitability. The GAAP combined ratio is the sum of losses and loss adjustment expenses incurred as a percentage of net premiums earned plus underwriting expenses, which include acquisition costs and other underwriting expenses, as a percentage of net premiums earned. The combined ratio reflects only underwriting results, and does not include income from investments. Underwriting profitability is subject to significant fluctuations due to competition, catastrophic events, economic and social conditions, foreign currency fluctuations and other factors. Our combined ratio for the nine months ended September 30, 2002 was 99.2%, a decrease of 4.0 percentage points from 103.2% for the nine months ended September 30, 2001, which excludes the event of September 11th. The combined ratio for the nine months ended September 30, 2001 including the event of September 11, 2001 was 116.2%.

For the nine months ended September 30, 2002 and 2001, our gross premiums written were $1,331.6 million and $813.2 million, respectively. For the nine months ended September 30, 2002 and 2001, our net premiums written were $1,153.7 million and $690.2 million, respectively, and our net income was $176.9 million (which included a cumulative effect of a change in accounting principle of $36.9 million) and a net loss of $1.3 million (which included a net after tax loss of $52.5 million related to the event of September 11th), respectively. As of September 30, 2002, we had total assets of $5.2 billion and total stockholders’ equity of $1.0 billion.

Revenues

We derive our revenue from two principal sources: premiums from reinsurance assumed and insurance, net of premiums ceded (net premiums written); and income from investments. Net premiums written become earned (net premiums earned) as they are credited to revenue over the terms of the underlying contracts or certificates in force. The relationship between net premiums written and net premiums earned will, therefore, vary depending generally on the volume and inception dates of the business assumed and ceded and the mix of such business between proportional and excess of loss reinsurance.

Expenses

We determine our reserves for unpaid losses and loss adjustment expenses based on reports and individual case estimates received from ceding companies. We use generally accepted actuarial methodologies to determine a reserve for losses incurred but not reported (“IBNR”) on the basis of our historical experience and other estimates. We review the reserves continually and changes in estimates are reflected in the operating results of the period in which they become known. Accordingly, losses and loss adjustment expenses are charged to income in the calendar year they are incurred.

Our reserves for losses and loss adjustment expenses are estimates of amounts needed to pay reported and unreported claims and related loss adjustment expenses. The estimates are based on assumptions related to the ultimate cost to settle these claims. Our reserves for losses and loss adjustment expenses are determined in accordance with sound actuarial practices. However, the inherent uncertainties of estimating reserves are greater for reinsurers than for primary insurers, due to the diversity of development patterns among different types of reinsurance contracts and the necessary reliance on ceding companies for information regarding reported claims. As a result, we cannot be sure that our ultimate liability will not exceed amounts we have reserved.

Acquisition costs consist principally of commissions and brokerage expenses incurred on business written under reinsurance contracts or certificates and insurance policies. These costs are deferred and amortized over the period in which the related premiums are earned. Commission adjustments are accrued based on the underwriting profitability of the business produced. Deferred acquisition costs are limited to their estimated realizable value, which considers anticipated losses and loss adjustment expenses and estimated remaining costs of servicing the contracts or certificates, all based on our historical experience.

Other underwriting expenses consist of cost of operations associated with our underwriting activities. These expenses include compensation, rent, and all other general expenses allocated to our underwriting activity and exclude any investment or claims related expenses.

Results of Operations

Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

Gross Premiums Written. Gross premiums written for the three months ended September 30, 2002 increased by $198.9 million, or 66.1%, to $499.7 million from $300.8 million for the three months ended September 30, 2001. The increase in premium volume is attributable to increases in the Americas division of $114.8 million, or 50.0%, in the EuroAsia division of $29.9 million, or 68.6%, and in the London Market of $54.2 million, or 197.1%.

The increase in the Americas division is attributable to increases in the United States unit of $101.0 million, or 50.2%, the Latin America unit of $12.0 million, or 64.2%, the Canadian unit of $4.5 million, or 77.5%, offset by a decrease of $2.7 million in the London branch business included in the Americas division. Excluding amounts written through the London branch, gross premiums written in the Americas division increased by $117.5 million, or 52.1%.

EuroAsia division’s gross premiums written for the three months ended September 30, 2002 and 2001 were $73.5 million and $43.6 million, respectively. The premiums consist of international reinsurance business primarily derived through new market opportunities.

The increase in the London Market division of $54.2 million is mainly attributable to increases in financial lines of $36.6 million, and international casualty of $23.9 million. These increases were offset by decreases in North American treaty business of $3.8 million and property business of $1.9 million.

Ceded Premiums Written. Ceded premiums written for the three months ended September 30, 2002 increased by $5.2 million, or 7.0%, to $79.7 million from $74.5 million for the three months ended September 30, 2001. During the three months ended September 30, 2002, loss recoveries for prior accident years associated with our aggregate whole account excess of loss contracts generated additional premium cessions of $181,000 under the agreements, a decrease of $6.8 million compared to the three months ended September 30, 2001. Ceded premiums related to Hudson also increased by $22.2 million in 2002 compared to 2001. For the three months ended September 30, 2001, $26.0 million of ceded reinstatement premiums were recorded related to the event of September 11th.

Net Premiums Written. Net premiums written for the three months ended September 30, 2002 increased by $193.7 million, or 85.6%, to $420.0 million from $226.3 million for the three months ended September 30, 2001 reflecting our underwriting initiatives in the various divisions. Net premiums written represents gross premiums written less ceded premiums written.

Net Premiums Earned. Net premiums earned for the three months ended September 30, 2002 increased by $140.5 million, or 63.9%, to $360.5 million from $220.0 million for the three months ended September 30, 2001. The change in earned premium results from the growth in net premiums written.

Net Investment Income. Net investment income for the three months ended September 30, 2002 increased by $2.4 million, or 8.0%, to $32.3 million from $29.9 million for the three months ended September 30, 2001. Net investment yield for the three months ended September 30, 2002 was 4.6% on an annualized basis, compared to 4.5% for the comparable period in 2001.

Net Realized Investment Gain. Net realized investment gains for the three months ended September 30, 2002 were $104.6 million compared to a net realized investment loss of $1.6 million for the three months ended September 30, 2001. The net realized investment gains for the three months ended September 30, 2002 is comprised of $102.0 million of net realized gains from the fixed income portfolio as a result of opportunistically realizing the appreciation in the value of securities that benefited from the significant decline in interest rates, and $2.6 million of net realized gains from the equity portfolio.

Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses for the three months ended September 30, 2002 were $246.8 million compared to $222.4 million for the three months ended September 30, 2001, an increase of $24.4 million, or 11.0%. The increase in losses is a direct result of the increase in net premiums earned. The losses and loss adjustment expense ratio for the three months ended September 30, 2002 was 68.5% compared to 101.1% for the three months ended September 30, 2001.

Excluding the effects of the event of September 11th, the loss and loss adjustment expense ratio for the three months ended September 30, 2001 was 68.6%.

Acquisition Costs. Acquisition costs for the three months ended September 30, 2002 were $94.7 million compared to $73.0 million for the three months ended September 30, 2001 with the increase due to the premium growth. The resulting acquisition ratio, i.e., acquisition expenses expressed as a percentage of earned premium, was 26.3% for the three months ended September 30, 2002 compared to 33.2% for the three months ended September 30, 2001. The decrease in acquisition expense ratio of 6.9 percentage points is attributable to the negotiation of lower commission and brokerage costs across the portfolio and mix of business. Excluding the effect of the event of September 11th, the acquisition costs for the three months ended September 30, 2001 were $67.0 million and the resulting acquisition cost ratio was 29.1%

Other Underwriting Expenses. Other underwriting expenses for the three months ended September 30, 2002 were $18.6 million compared to $16.3 million for the three months ended September 30, 2001. The other underwriting expense ratio, expressed as a percentage of premiums earned, was 5.1% for the three months ended September 30, 2002, compared to 7.4% for the three months ended September 30, 2001. The decrease in the other underwriting expense ratio is principally due to the increased premium volume.

Other Expenses (Income), Net. Other expenses (income), net for the three months ended September 30, 2002 was a net expense of $1.0 million compared to $0.8 million of net income for the three months ended September 30, 2001.

The major component of other expenses (income), net in 2001 was the amortization of goodwill, which consists of the negative goodwill associated with the purchase of ORC amortized over a ten-year period at $8.3 million per year, or $2.1 million for the three months ended September 30, 2001, and the amortization of positive goodwill associated with the purchase of Odyssey America amortized over a ten-year period of $2.5 million per year, or $0.6 million for the three months ended September 30, 2001. The other expense (income), net for the three months ended September 30, 2002 is comprised of the operating expenses of the holding company, since goodwill is no longer amortized.

Interest Expense. We incurred interest expense related to debt obligations of $2.2 million for the three months ended September 30, 2002, compared to $3.0 million for the three months ended September 30, 2001.

Combined Ratio. Our combined ratio decreased by 41.8 percentage points from 141.7% for the three months ended September 30, 2001 to 99.9% for the three months ended September 30, 2002. Excluding the event of September 11th, the combined ratio for the three months ended September 30, 2001 was 104.8%. The current year improvement in the combined ratio is due to the improving conditions in the primary and reinsurance segments of the industry.

Federal and Foreign Income Tax Provision. Our federal and foreign income tax provision for the three months ended September 30, 2002 increased by $70.0 million to a tax provision of $46.3 million compared to a tax benefit of $23.7 million for the three months ended September 30, 2001 as a result of the increase in operating income.

Net Income. Net income for the three months ended September 30, 2002 was $87.8 million, compared to net loss of $41.9 million for the three months ended September 30, 2001.

Nine Months Ended September 30, 2002 Compared to with Nine Months Ended September 30, 2001

Gross Premiums Written. Gross premiums written for the nine months ended September 30, 2002 increased by $518.4 million, or 63.7%, to $1,331.6 million from $813.2 million for the nine months ended September 30, 2001. The increase in premium volume is attributable to increases in the Americas division of $342.1 million, or 57.2%, the EuroAsia division of $75.9 million, or 74.1% and the London Market of $100.4 million, or 89.4%.

The increase in premiums in the Americas division is comprised of an increase in treaty property business of $59.5 million, due mainly to improved pricing and treaty terms, an increase in treaty casualty lines of $90.2 million, an increase in the Latin American unit business of $31.3 million, an increase in non traditional business of $87.3 million and increases in both our facultative business of $31.9 million, and our primary insurance activities of $58.1 million. This was somewhat offset by a decrease in the London branch business of $16.2 million.

EuroAsia division’s gross premiums written for the nine months ended September 30, 2002 were $178.3 million, consisting of international reinsurance business primarily derived through new market opportunities. Gross written premiums were $102.3 million for the first nine months ended September 30, 2001.

The London Market premium increase of $100.4 million is comprised of increases in international casualty business of $50.4 million, property business of $10.5 million and financial lines business of $62.6 million. These increases were partially offset by decreases in the marine and aerospace line of $7.1 million and North American casualty business of $14.2 million.

Ceded Premiums Written. Ceded premiums written for the nine months ended September 30, 2002 increased by $55.0 million, or 44.8%, to $177.9 million from $122.9 million for the nine months ended September 30, 2001. The increase in ceded premiums written is primarily attributable to the increase in gross premium volume, increases in premium cessions related to our aggregate whole account excess agreements

and an increase in cessions related to our Hudson business. Included in the results for the nine months ended September 30, 2001 were ceded premiums written of $26.0 million related to the event of September 11th.

Net Premiums Written. Net premiums written for the nine months ended September 30, 2002 increased by $463.5 million, or 67.2%, to $1,153.7 million from $690.2 million for the nine months ended September 30, 2001. Net premiums written represents gross premiums written less ceded premiums written.

Net Premiums Earned. Net premiums earned for the nine months ended September 30, 2002 increased by $367.8 million, or 58.6%, to $995.7 million from $627.9 million for the nine months ended September 30, 2001. This increase was a result of the factors listed above, and reflects an increase in unearned premiums of $158.0 million for the nine months ended September 30, 2002, as compared to an increase in unearned premiums of $62.3 million for the nine months ended September 30, 2001. This increase in unearned premiums is associated with the increase in net premiums written.

Net Investment Income. Net investment income for the nine months ended September 30, 2002 increased by $0.2 million, or 0.2%, to $90.5 million from $90.3 million for the nine months ended September 30, 2001. Net investment yield for the nine months ended September 30, 2002 was 4.4% on an annualized basis, compared to 4.6% for the comparable period in 2001.

The increase in investment income before expenses results from increases in income from affiliated common stocks of $7.6 million, other assets of $1.2 million and non-affiliated common stocks of $0.5 million. These increases are offset by decreases in income from cash and short-term investments of $5.3 million and fixed income securities of $2.0 million. Also, offsetting the increases in net investment income is an increase in investment expenses of $1.8 million.

Net Realized Investment Gains. Net realized investment gains for the nine months ended September 30, 2002 increased by $116.6 million to $123.5 million from a gain of $6.9 million for the nine months ended September 30, 2001. The increase in net realized gains in 2002 was primarily related to our fixed income portfolio, which generated gains as we realized the benefits of the appreciation in the portfolio due to the decline in interest rates.

Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses for the nine months ended September 30, 2002 increased by $179.9 million, or 35.7%, to $683.7 million from $503.8 million for the nine months ended September 30, 2001. The increase in losses is a direct result of the increase in net premiums earned. The losses and loss adjustment expense ratio for the nine months ended September 30, 2002 was 68.7% compared to 80.2% for the nine months ended September 30, 2001. Excluding the event of September 11th, the loss and loss adjustment expense ratio was 68.8% for the nine months ended September 30, 2001.

Acquisition Costs. Acquisition costs for the nine months ended September 30, 2002 were $252.2 million compared to $177.6 million for the nine months ended September 30, 2001 with the increase due to the premium growth. The resulting acquisition cost ratio, i.e., acquisition expenses expressed as a percentage of earned premium, was 25.3% for the nine months ended September 30, 2002 compared to 28.3% for the nine months ended September 30, 2001. A decrease in acquisition expense ratio of 3.0 percentage points is attributable to the negotiation of lower commission and brokerage costs across the portfolio and mix of business.

Excluding the event of September 11th, the acquisition costs for the nine months ended September 30, 2001 were $171.6 million. The resulting acquisition cost ratio was 26.9%.

Other Underwriting Expenses. Other underwriting expenses for the nine months ended September 30, 2002 were $51.7 million compared to $48.2 million for the nine months ended September 30, 2001. The other underwriting expense ratio, expressed as a percentage of premiums earned, was 5.2% for the nine months ended September 30, 2002, compared to 7.7% for the nine months ended September 30, 2001. Although there has been a decrease in the other underwriting expense ratio, the increase in the dollar amount is mainly attributable to our international expansion and the substantial increase in submissions globally.

Other Expenses (Income), Net. Other expenses (income), net for the nine months ended September 30, 2002 was a net expense of $2.7 million compared to $3.2 million of net income for the nine months ended September 30, 2001.

The major component of other expenses (income), net in 2001 was the amortization of goodwill, which consists of the negative goodwill associated with the purchase of ORC amortized over a ten-year period at $8.3 million per year, or $6.3 million for the nine months ended September 30, 2001 and the amortization of positive goodwill associated with the purchase of Odyssey America amortized over a ten-year period at $2.5 million per year or $1.9 million for the nine months ended September 30, 2001. The other expense (income), net for the nine months ended September 30, 2002 is primarily comprised of the operating expenses of the holding company, since goodwill is no longer amortized.

Interest Expense. We incurred interest expense related to debt obligations of $6.6 million for the nine months ended September 30, 2002, as opposed to $3.3 million for the nine months ended September 30, 2001. We entered into our debt obligations in the latter part of June 2001, and therefore the 2001 period reflects a lower interest expense.

Combined Ratio. Our combined ratio, which is the sum of the losses and loss adjustment expense ratio, acquisition ratio and other underwriting expense ratio, decreased by 17.0 percentage points from 116.2% for the nine months ended September 30, 2001 to 99.2% for the nine months ended September 30, 2002. Excluding the effect of the event of September 11th, our combined ratio was 103.2 for the nine months ended September 30, 2001. Our combined ratio improved due to the improving conditions in the primary and reinsurance segments of the industry.

Federal and Foreign Income Tax Provision. Our federal and foreign income tax provision for the nine months ended September 30, 2002 increased by $76.3 million to a tax provision of $72.9 million compared to a tax benefit of $3.4 million for the nine months ended September 30, 2001 as a result of the increase in operating income and the effect of the event of September 11th in the nine months ended September 30, 2001.

Net Income. Net income for the nine months ended September 30, 2002 increased by $178.2 million to $176.9 million from a net loss of $1.3 million for the nine months ended September 30, 2001.

Liquidity

In September 2002, OdysseyRe issued $110 million aggregate principal amount of 4.375% convertible senior debentures (“Convertible Debt”) due 2022. The Convertible Debt is redeemable at our option beginning on June 22, 2005. Each holder of Convertible Debt may, at its option, require us to repurchase all or a portion of its Convertible Debt on June 22, 2005, 2007, 2009, 2012 and 2017. Each Convertible Debt holder can convert its debt, in accordance with the terms of the indenture under which the Convertible Debt was issued, to 46.9925 shares of OdysseyRe common stock for every $1,000 principal amount of the Convertible Debt. The Convertible Debt is reflected on OdysseyRe’s balance sheet at a value of $110 million, the aggregate principal amount of Convertible Debt outstanding.

In connection with the acquisition of Odyssey America and its subsidiaries, we issued a $200.0 million term note to a subsidiary of Fairfax. We paid interest on the term note at a rate of 225 basis points over the three month London Interbank Offered Rate (LIBOR). Under the terms of the term note, we had the right to prepay all or part of the principal amount outstanding under the term note at anytime without bonus or penalty. We have totally extinguished the debt under the term note and as of September 30, 2002, there was no principal amount outstanding.

We also issued $100.0 million aggregate principal amount of senior notes pursuant to a private placement with a fixed interest rate of 7.49%. Interest payments are due semi-annually on May 31st and November 30th. Immediately following the issuance of these 7.49% senior notes, we entered into an interest rate swap agreement with Bank of America N.A. This transaction enabled us to convert the fixed 7.49% interest rate to a variable interest rate of LIBOR plus 263 basis points. The proceeds from the sale of the senior notes was used to prepay part of the principal amount outstanding under the $200.0 million term note. On September 26,

2002 Odyssey Re Holdings Corp. prepaid $10.0 million aggregate principal amount of senior notes. The aggregate principal amount of senior notes outstanding as of September 30, 2002 was $90.0 million.

In addition, we entered into a $50.0 million credit agreement with Bank of America, N.A. and J.P. Morgan Chase Bank on December 31, 2001. The entire $50.0 million in proceeds was used to prepay part of the principal amount outstanding under the $200.0 million term note. As of September 30, 2002, the entire debt was extinguished and there is no balance outstanding.

In connection with the business of our London Market division, we executed a secured letter of credit in favor of Lloyd’s, as is customary for operations in the Lloyd’s market. At September 30, 2002, the letter of credit was valued at 57.5 million British sterling pounds, or $90.3 million, and was secured by a pledge of $112.8 million of our investment securities.

During the first three quarters of 2002, our Board of Directors declared a dividend of $0.025 per common share. Approximately $1.6 million in dividends were paid in each quarter.

Credit Ratings

Rating agencies assess the claims-paying ability of reinsurers and their ratings represent independent opinions of financial strength and ability to meet policyholder obligations. These ratings are used by insurers and reinsurance and insurance intermediaries as an important means of assessing the financial strength and quality of reinsurers. In addition, the rating of a company purchasing reinsurance may be adversely affected by an unfavorable rating of its reinsurer. A reduction in our financial strength ratings could limit or prevent us from writing new reinsurance or insurance policies. Our financial strength ratings as of September 30, 2002 were: A.M. Best Company, Inc.: A; and Standard & Poor’s Rating services: A-.

Cash Flow and Investments

Cash flows from operating activities principally result from premiums, collections on losses recoverable and investment income, net of paid losses, acquisition costs and underwriting and investment expenses. Cash provided by operations was $119.5 million for the nine months ended September 30, 2002 and cash used in operations for the nine months ended September 30, 2001 amounted to $97.3 million, primarily due to payment of losses incurred by Odyssey America and its subsidiaries exceeding premium and investment cash flow.

Cash provided by operations for underwriting activity increased for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 principally due to premium collections exceeding our net loss payments during the first nine months of 2002. The increase in premium collections is directly attributable to the increase in premium volume realized since the latter part of calendar year 2001, which occurred as a result of substantially improved market conditions.

Total cash used by investing activities for the nine months ended September 30, 2002 was $100.4 million compared to cash provided of $154.6 million from investing activities for the nine months ended September 30, 2001. During the third quarter of 2002, we recognized realized capital gains predominately from the sale of fixed income securities which benefited from the decline in interest rates during the year. A portion of the proceeds from the sale of fixed income securities, have been re-invested, as of September 30, 2002, in cash, cash equivalents and short-term investments. Cash and cash equivalents were $384.9 million and $375.1 million at September 30, 2002 and December 31, 2001, respectively. Cash and short-term investments are maintained for liquidity purposes and represented 15.2% and 15.8% at September 30, 2002 and December 31, 2001, respectively, of total financial statement investments and cash on such dates. Total fixed income securities were $1.8 billion as of September 30, 2002. Total investments and cash amounted to $2.9 billion as of September 30, 2002. The fixed income securities portfolio has a weighted average security rating of AA, as measured by S&P.

Stockholders’ Equity

Stockholders’ equity increased by $201.0 million, or 24.5%, to $1,021.9 million as of September 30, 2002 from $820.9 million as of December 31, 2001. The increase was mainly attributable to net income of $176.9 million, and an increase in accumulated other comprehensive income, net of deferred taxes of $29.5 million for the nine months ended September 30, 2002.

Market Sensitive Instruments

The term market risk refers to the risk of loss arising from adverse changes in market rates and prices.

We believe that we are principally exposed to four types of market risk related to our investment operations. These risks are interest rate risk, credit risk, equity price risk and foreign currency risk.

All market sensitive instruments discussed here relate to our investment assets which are classified as available for sale. As of September 30, 2002, our $2.9 billion investment portfolio was comprised of $1.8 billion of fixed income securities that are subject primarily to interest rate risk and credit risk.

Interest Rate Risk

Our fixed income securities portfolio is exposed to interest rate risk. Fluctuations in interest rates have a direct impact on the market valuation of these securities. As interest rates rise, market values of fixed income securities portfolios fall and vice versa. The table below displays the potential impact of market value fluctuations on the fixed income securities portfolio as of September 30, 2002 and December 31, 2001, based on parallel 200 basis point shifts in interest rates up and down in 100 basis point increments. This analysis was performed on each security individually.



	As of September 30, 2002								As of December 31, 2001

	Fair Value of								Fair Value of
	Fixed Income		Hypothetical			Hypothetical			Fixed Income		Hypothetical			Hypothetical
Percent Change in Interest Rates	Portfolio		$ Change			% Change			Portfolio		$ Change			% Change


	(dollars in millions)
200 basis point rise	$	1,571.8	$	(225.8	)		(12.6	)%	$	1,812.8	$	(216.0	)		(10.6	)%
100 basis point rise		1,668.2		(129.4	)		(7.2	)		1,907.1		(121.7	)		(6.0	)
Base Scenario		1,797.6		—			—			2,028.8		—			—
100 basis point decline		1,984.6		187.0			10.4			2,221.4		192.6			9.5
200 basis point decline		2,188.7		391.1			21.8			2,460.5		431.7			21.3

The preceding table indicates an asymmetric market value response to equivalent basis point shifts up and down in interest rates. This reflects significant exposure to fixed income securities containing a put feature. In total, these securities represent approximately 42% and 50% of the fair market value of the total fixed income portfolio as of September 30, 2002 and December 31, 2001, respectively. The asymmetric market value response reflects our ability to put these bonds back to the issuer for early maturity in a rising interest rate environment (thereby limiting market value loss) but to hold these bonds to their much longer full maturity dates in a falling interest rate environment (thereby maximizing the full benefit of higher market values in that environment).


	*Disclosure about Limitations of Interest Rate Sensitivity Analysis*

Computations of the prospective effects of hypothetical interest rate changes are based on numerous assumptions, including the maintenance of the existing level and composition of fixed income security assets, and should not be relied on as indicative of future results.

Certain shortcomings are inherent in the method of analysis presented in the computation of the fair value of fixed rate instruments. Actual values may differ from those projections presented should market conditions vary from assumptions used in the calculation of the fair value of individual securities, including non-parallel shifts in the term structure of interest rates and changing individual issuer credit spreads.

Credit Risk

We have exposure to credit risk primarily as a holder of fixed income securities. We control this exposure by emphasizing investment grade credit quality in the fixed income securities we purchase.

At September 30, 2002 and December 31, 2001, 93.0% and 97.1%, respectively, of our fixed income securities portfolio consisted of securities rated investment grade, with 7.0% and 2.9%, respectively, rated below investment grade.

We believe that this concentration in investment grade securities reduces our exposure to credit risk on these fixed income investments to an acceptable level.

Equity Price Risk

As of September 30, 2002 and December 31, 2001, 11.1% and 7.2%, respectively, of our investment portfolio, including cash and cash equivalents, was in common stocks (unaffiliated and affiliated). Marketable equity securities, which represented approximately 7.0% and 5.3% on September 30, 2002 and December 31, 2001, respectively, of our investment portfolio, including cash and cash equivalents, are exposed to equity price risk, defined as the potential for loss in market value owing to a decline in equity prices. A 10% decline in the price of each of these marketable equity securities would result in a total $20.3 million at September 30, 2002 and $14.1 million at December 31, 2001 decline in the fair value of the total investment portfolio.

Foreign Currency Risk

Through investment in securities denominated in foreign currencies, we are exposed to foreign (non-U.S.) currency risk. Foreign currency exchange rate risk is the potential for loss in market value owing to a decline in the U.S. dollar value of these investments due to a decline in the exchange rate of the foreign currency in which these assets are denominated. As of September 30, 2002 and December 31, 2001, our total exposure to foreign denominated securities in U.S. dollar terms was approximately $345.8 million and $268.0 million, or 11.9% and 10.1%, respectively, of our investment portfolio, including cash and cash equivalents. The primary foreign currency exposure was in Canadian dollar denominated securities, which represented 6.5% and 6.5% as of September 30, 2002 and December 31, 2001, respectively, of our investment portfolio, including cash and cash equivalents. As of September 30, 2002, the potential impact of a 10% decline in each of the foreign exchange rates on the valuation of investment assets denominated in those respective foreign currencies would result in a total $34.6 million dollar decline in the fair value of the total investment portfolio.

Included above in securities denominated in foreign currencies are Japanese yen denominated securities, which at September 30, 2002 had a U.S. dollar equivalent market value of $55.5 million. We have entered into Japanese yen forward sale contracts to hedge against a fall in value of the Japanese yen denominated securities versus the U.S. dollar. The Japanese yen forward contracts are for an aggregate amount of 4.4 billion Japanese yen at an average forward rate of 120.3 yen or a U.S. dollar equivalent amount of $35.3 million.

New Accounting Pronouncements

Effective January 1, 2002, we adopted Statements of Financial Accounting Standard (“SFAS”) 141, “Business Combinations” and SFAS 142, “Goodwill and Other Intangible Assets”, which are effective for all fiscal quarters of all fiscal years beginning after December 15, 2001. On January 1, 2002, we, in accordance with the provisions of SFAS 141, and in conjunction with the adoption of SFAS 142, fully amortized our negative goodwill of $36.9 million and reflected the amortization as a cumulative effect of a change in accounting principle item in our statement of operations for the nine months ended September 30, 2002. The amortization of negative goodwill during the nine months ended September 30, 2001 was $6.3 million and was reflected in other expenses (income), net. SFAS 142 established new accounting and reporting standards for acquired goodwill and other intangible assets. It requires that an entity determine if the goodwill or other intangible assets has an indefinite or a finite useful life. Goodwill and intangible assets with indefinite useful lives will not be subject to amortization and must be tested at least annually for impairment. Management has determined that the goodwill of $18.3 million reflected in other assets as of September 30, 2002 and

December 31, 2001 has an indefinite life and is not impaired; accordingly, we have not amortized our goodwill during the nine months ended September 30, 2002. For the first nine months ended September 30, 2001, we amortized $1.9 million of goodwill, which was reflected in other income (expenses), net. There is no effect on our federal and foreign income taxes resulting from the implementation of these accounting pronouncements.

PART I — Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

PART I — Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Our principal executive officer and our principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”), have concluded that, as of the Evaluation Date, our disclosure controls and procedures were adequate and effective to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities.

(b) Changes in internal controls. There were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date, nor were there any significant deficiencies or material weaknesses in our internal controls. As a result, no corrective actions were required or undertaken.

PART II — OTHER INFORMATION

PART II — Item 1. Legal Proceedings

OdysseyRe and its subsidiaries are involved from time to time in ordinary routine litigation and arbitration proceedings incidental to their business. OdysseyRe does not believe that there are any other material pending legal proceedings to which it or any of its subsidiaries or their properties are subject.

PART II — Item 5. Other Information — Forward Looking Statements

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

• the occurrence of catastrophic events with a frequency or severity exceeding our estimates;

• a decrease in the level of demand for our reinsurance or insurance business, or increased competition in the industry;

• the lowering or loss of one of our financial or claims-paying ratings, including those of our subsidiaries;

• risks associated with implementing our business strategies;

• uncertainties in our reserving process;

• failure of our reinsurers to honor their obligations;

• actions of our competitors, including industry consolidation;

• increased competition from alternative sources of risk management products, such as the capital markets;

• loss of services of any of our key employees;

• the passage of federal or state legislation subjecting our business to additional supervision or regulation, including additional tax regulation, in the United States or other jurisdictions in which we operate; and

• changes in economic conditions, including interest rate conditions which could affect our investment portfolio.

The words “believe,” “anticipate,” “project,” “expect,” “intend,” “will likely result,” “will seek to” or “will continue” and similar expressions identify forward-looking statements. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates. Additional information regarding these factors and others that could cause our actual results to differ materially from our expectations is included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 6, 2002. The information appearing under “Risk Factors” in such Annual Report on Form 10-K is incorporated by reference into and made a part of this Form 10-Q. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART II — Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

99.1 Risk Factors (incorporated into Part II of this Form 10-Q by reference to the section entitled “Risk Factors” in the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 6, 2002)

(b) Reports on Form 8-K

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ODYSSEY RE HOLDINGS CORP.

Date: November 12, 2002

By /s/ ANDREW A. BARNARD

Andrew A. Barnard

President and Chief Executive Officer

Date: November 12, 2002

By /s/ CHARLES D. TROIANO

Charles D. Troiano

Executive Vice President and

Chief Financial Officer

CERTIFICATIONS

I, Andrew A. Barnard, President and Chief Executive Officer of Odyssey Re Holdings Corp., certify that:

1. I have reviewed this quarterly report on Form 10-Q of the registrant, Odyssey Re Holdings Corp.;

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

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

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

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

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

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

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 12, 2002

By /s/ ANDREW A. BARNARD

President and Chief Executive Officer

I, Charles D. Troiano, Executive Vice President and Chief Financial Officer of Odyssey Re Holdings Corp., certify that:

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

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

Date: November 12, 2002

By /s/ CHARLES D. TROIANO

Executive Vice President and

Chief Financial Officer

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	•	the occurrence of catastrophic events with a frequency or severity exceeding our estimates;

	•	a decrease in the level of demand for our reinsurance or insurance business, or increased competition in the industry;

	•	the lowering or loss of one of our financial or claims-paying ratings, including those of our subsidiaries;

	•	risks associated with implementing our business strategies;

	•	uncertainties in our reserving process;

	•	failure of our reinsurers to honor their obligations;

	•	actions of our competitors, including industry consolidation;

	•	increased competition from alternative sources of risk management products, such as the capital markets;

	•	loss of services of any of our key employees;

	•	the passage of federal or state legislation subjecting our business to additional supervision or regulation, including additional tax regulation, in the United States or other jurisdictions in which we operate; and


	•	changes in economic conditions, including interest rate conditions which could affect our investment portfolio.


	99.1	Risk Factors (incorporated into Part II of this Form 10-Q by reference to the section entitled “Risk Factors” in the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 6, 2002)


	By /s/ ANDREW A. BARNARD

	Andrew A. Barnard
	President and Chief Executive Officer


	By /s/ CHARLES D. TROIANO

	Charles D. Troiano
	Executive Vice President and
	Chief Financial Officer


	1.	I have reviewed this quarterly report on Form 10-Q of the registrant, Odyssey Re Holdings Corp.;

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

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

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


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

	(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	(c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


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

	b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	By /s/ ANDREW A. BARNARD

	President and Chief Executive Officer


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

	b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	By /s/ CHARLES D. TROIANO

	Executive Vice President and
	Chief Financial Officer