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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003;

OR

FOR THE TRANSITION PERIOD FROM              TO             

Commission File No. 000-11538

OVERSEAS PARTNERS LTD.

(Exact name of registrant as specified in its charter)

Cumberland House, One Victoria Street, Hamilton, HM 11, Bermuda

(Address of principal executive offices, including zip code)

441-295-0788

(Registrant’s telephone number, including area code)

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

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

Common Stock, par value $.10 per share

(Title of Class)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    YES  x    NO  ¨

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

The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based on a price per share of $10.16, the price per share as of June 28, 2003, at which the Registrant has rights of first refusal for the purchase of its shares offered for sale by shareowners, was $1,207,220,263.

The number of shares of Registrant’s Common Stock outstanding as of February 27, 2004 was 118,769,846.

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OVERSEAS PARTNERS LTD.

INDEX 10-K

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PART I

Item 1. Business

OVERVIEW

Overseas Partners Ltd. (“OPL” or the “Company”) is a company headquartered in Bermuda. Unless the context otherwise indicates, the term “Company” refers to one or more of OPL and its consolidated subsidiaries.

The Company was organized as a corporation under the laws of Bermuda in 1983 as a subsidiary of United Parcel Service of America, Inc. (“UPS”). On December 31, 1983, the Company ceased to be a subsidiary of UPS when UPS paid a special dividend to its shareowners of one share of OPL Common Stock for each UPS share then outstanding to its shareowners of record as of November 18, 1983.

The Company’s operations have historically been conducted through two segments – reinsurance and real estate & leasing. OPL’s primary business segment was reinsurance. OPL’s other business segment was ownership and management of United States real estate and property leasing.

OPL was originally formed to provide reinsurance against loss or damage to packages carried by UPS (the “shipper’s risk business”). Although the Company diversified into other lines of reinsurance, this remained OPL’s largest single reinsurance program until it was cancelled effective October 1, 1999. The shipper’s risk business was significant to the Company, not only because of the magnitude of the underwriting income that it generated, but also because its unique characteristics influenced our strategic and operational decision making. Our long-term investment philosophy, our underwriting risk tolerance and our real estate diversification were all functions of the profitability, stability and liquidity of the shipper’s risk business as were our dividend and share repurchase programs.

On February 13, 2002, the Board of Directors of OPL announced its decision to restructure OPL and to begin an orderly runoff of its operations. The Board concluded that OPL’s then existing capital structure would not allow it to continue to grow and compete effectively in the reinsurance market while at the same time satisfying the desire of many of OPL’s 98,000 shareowners to have greater liquidity for their investment in OPL, for which there is no trading market and no prospect of such a market. OPL’s capital requirements have constrained its ability to purchase shares from its shareowners since the end of 1999 following the cancellation of the shipper’s risk business. See “Item 5 – Market for Registrant’s Common Equity and Related Stockholder Matters” for further discussion about our dividend policy and share repurchase rights.

Our operational focus since entering runoff has been to (i) preserve our capital base through various risk management initiatives; (ii) actively manage and negotiate early settlement of our reinsurance liabilities and real estate debt; (iii) seek opportunistic sales of our real estate assets and reinsurance subsidiaries; and (iv) prudently return capital to our shareowners over time. During the runoff of our operations we will continue to pay losses as they become due and collect outstanding receivables. OPL’s reinsurance operations are still exposed to new losses on unexpired policies and adverse development on prior year accrued loss and loss expense reserves. A more detailed discussion of our current operational objectives and the associated risks and uncertainties can be found in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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The following table provides financial highlights of OPL, broken down by business segments. More information concerning identifiable segment assets, revenues and net income for the years ended December 31, 2003, 2002 and 2001 can be found in Note 11 of the Notes to the Consolidated Financial Statements included in “Item 8 – Financial Statements and Supplementary Data”.

REINSURANCE SEGMENT

Reinsurance Overview

Reinsurance is an arrangement in which a reinsurer agrees to indemnify a “primary” or “ceding” company against all or part of the risks assumed by the primary insurer under a policy or policies it has issued. Primary insurers purchase reinsurance for various reasons, including:

Reinsurance, however, generally does not discharge the primary insurer from its liability to policyholders.

There are generally two basic types of reinsurance arrangements: treaty and facultative reinsurance. In treaty reinsurance, the ceding company (or cedant) is obligated to cede and the reinsurer is obligated to assume a specified portion of a type or category of risks insured by the ceding company, while facultative reinsurance involves the underwriting of individual risks.

Both treaty and facultative reinsurance can be written on either a pro rata basis or an excess of loss basis. Pro rata (or proportional) reinsurance describes all forms of reinsurance in which the reinsurer shares in a proportional part of the original premiums and losses of the business ceded by the primary insurer. Excess (or non-proportional) reinsurance refers to reinsurance that indemnifies the primary company for that portion of a loss that exceeds an agreed-upon amount, known as the ceding company’s retention or reinsurer’s attachment point.

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

Reinsurers may also purchase reinsurance to cover their own risk exposure. Reinsurance of a reinsurer’s business is called retrocession. Reinsurance companies cede risks under retrocessional agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause primary insurers to purchase reinsurance. The terms “reinsurer” and “retrocessionaire” are often used synonymously. Similarly, the terms “reinsured” and “ceding company” are used interchangeably.

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Reinsurance Activities

OPL’s reinsurance activity began with the shipper’s risk program – the reinsuring of insured packages carried by subsidiaries of UPS. Customers of UPS insured their packages for amounts greater than $100 by paying excess value charges. Insured values were typically limited to a maximum of $25,000 per occurrence.

Until October 1, 1999, OPL received premiums under this reinsurance equal to the excess value charges received by primary insurers, less appropriate ceding commissions, brokerage fees and taxes. OPL reimbursed the primary insurers for the losses they paid on the underlying package insurance policies.

The shipper’s risk reinsurance described above was historically OPL’s largest source of revenue, generating $273.5 million of premiums earned for 1999. The program was cancelled effective October 1, 1999, as UPS decided to provide shipper’s risk reinsurance for its customers through a UPS subsidiary. This followed an August 9, 1999, opinion issued in the United States Tax Court against UPS (United Parcel Service of America, Inc. v. Commissioner of Internal Revenue) concerning the taxation of premiums paid by shippers to UPS for the original insurance against risk of loss or damage to packages carried by them. The decision of the United States Tax Court was subsequently reversed in June 2001 in the United States Court of Appeals for the Eleventh Circuit. However, OPL will not write shipper’s risk reinsurance again.

Over the years OPL diversified into a number of other lines of reinsurance business through subsidiaries based in Bermuda and Philadelphia, USA.

The Company’s wholly owned subsidiary, Overseas Partners Re Ltd. (“OPRe”), was incorporated in 1995 to diversify into additional lines of treaty and facultative business, including finite risk, accident & health, aviation & satellite, property, auto liability, marine and workers’ compensation. OPRe discontinued writing new business on February 13, 2002.

The Company established a wholly owned subsidiary, Overseas Partners Assurance Ltd. (“OPAL”), during 1998 to enhance and broaden its reinsurance relationships. OPAL provides rent-a-captive facilities to reinsurance clients, allowing them to participate in the underwriting and investment profits associated with their programs. OPAL discontinued writing new business on February 13, 2002.

In October 2000 OPL, through its wholly owned subsidiary Overseas Partners US Holding Company (“OPUS Holding”), completed the acquisition of Overseas Partners US Reinsurance Company (“OPUS Re”). OPUS Re is a property & casualty reinsurer and its principal operations are located in Philadelphia. OPUS Re discontinued writing new business in the second quarter of 2002.

On May 10, 2002, the Company sold its wholly owned subsidiary, Overseas Partners Cat Ltd. (“OPCat”), which was established in November 1999 to write worldwide property catastrophe business, for $25 million.

Bermuda Reinsurance

Prior to February 13, 2002, OPL and its wholly owned subsidiaries OPRe and OPCat, underwrote reinsurance on a treaty and facultative basis for insurance and reinsurance companies in the United States and selected international markets. We received underwriting submissions for new and renewal business from independent brokers and ceding reinsurance companies located in the United States and internationally. Our underwriting teams built relationships with key brokers and cedants by explaining their underwriting approach and demonstrating responsiveness to customer needs.

During 2000 there was a comprehensive review of our operations and we decided to discontinue our marine, property, and financial lines, based on poor profitability and other considerations. From 2000 until February 2002 we concentrated on a smaller number of specialty lines in which we could add value to our clients. Our underwriting incorporated a detailed technical analysis of risk and return characteristics through actuarial analysis and financial modeling and required the involvement of underwriting, claims, actuarial, finance and legal professionals. All business written had to meet strict, Board-approved, underwriting standards and minimum risk and return criteria.

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We did not separately evaluate each of the individual risks assumed under our treaties and were largely dependent on the original risk underwriting decisions made by the ceding company. This dependence subjected the Company to the possibility that the ceding companies had not adequately evaluated the risks to be reinsured and, therefore, that the premiums ceded in connection therewith may not have adequately compensated the Company for the risk that we assumed.

To mitigate these risks, we focused on those ceding companies that we believed effectively managed the underwriting process through proper analysis and pricing of underlying risks and whose underwriting guidelines and performance were compatible with our profitability objectives. We reviewed treaties for compliance with our general underwriting standards and evaluated certain larger treaties in part based upon actuarial analyses conducted by the Company and/or independent consulting actuaries. The actuarial models used in such analyses were tailored in each case to the exposures and experience underlying the specific treaty and the loss experience for the risks covered by such treaties. When appropriate we conducted underwriting audits at the offices of ceding companies to ensure that the ceding companies operated within their guidelines. Underwriting audits focused on the quality of the underwriting staff, the selection and pricing of risks and the capability of monitoring price levels over time. We also perform claims audits, when appropriate, in order to evaluate the client’s claims handling abilities and practices. We will continue to perform these claim audits as the Company’s operations run off.

For both treaty and facultative business, we also considered factors such as cash flows, return on risk capital invested, the establishment of long-term ceding company and broker relationships, new product or innovative offerings, market conditions, potential partnerships with market leaders and diversification.

Our reinsurance contracts sometimes included sliding scale and profit commission features to motivate the ceding companies to maintain disciplined underwriting standards. Depending on the risk, we sometimes also worked with the ceding companies to purchase common account reinsurance protection to further reduce exposure to large individual claims or an accumulation of claims. We also purchased several layers of excess of loss protection for our aviation and property books of business and entered into a quota share retrocession of our property catastrophe business. Reinsurance premiums ceded by the Company totaled $3.1 million, $78.6 million and $93.9 million for the years ended December 31, 2003, 2002 and 2001, respectively. Of the reinsurance premiums ceded by the Company in 2002 $77.4 million was for property catastrophe premiums ceded to Renaissance Reinsurance Ltd. including $50.9 million as a result of a 100% quota share of the in-force property catastrophe business that became effective on February 15, 2002.

United States Reinsurance

OPUS Re’s treaty operation underwrote property and casualty treaty business exclusively in the United States. Additionally, OPUS Re had a casualty facultative underwriting unit that focused on both facultative certificate business for a host of carriers, as well as some automatic facultative facilities in the general liability, auto liability and workers’ compensation lines.

The business was sourced exclusively through various intermediaries based in the United States who work on behalf of their cedant account relationships. The underwriting goals were focused towards working layer casualty where the losses tend to be higher frequency, lower severity and therefore more predictable than the excess layers of coverage. OPUS Re also took advantage of selective opportunities in the proportional agricultural reinsurance, proportional private passenger auto and accident & health markets. The underwriting methodologies used for the United States Reinsurance operations were similar to those described above in the Bermuda Reinsurance section.

Runoff

Despite the decision to restructure OPL and cause its operations to go into runoff, OPL’s reinsurance operations are still exposed to new losses on unexpired policies and to adverse development on prior year accrued loss and loss expense reserves. Some of these policies do not expire for several years and include launch and in-orbit satellite exposures through to 2009 and a residual value reinsurance program where the Company is exposed to losses until 2013. During the runoff we will continue to pay losses as they fall due and collect outstanding receivables. OPL will distribute equity to shareowners as and when the Board of Directors feels that it is prudent to do so and regulatory requirements allow. In order to accelerate the distribution of equity to shareowners we will attempt to commute or novate our remaining reinsurance contracts as this reduction in exposure will also reduce the amount of capital we are required to hold to satisfy regulatory requirements.

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A commutation is an agreement between the ceding insurer and the reinsurer that provides for the valuation, payment and complete discharge of all obligations between the parties under particular reinsurance contracts. Commutation agreements can be used whenever the parties wish to settle and discharge all future obligations. Novation is the process where one reinsurer replaces another reinsurer, usually with policyholder approval.

Ratings

On January 13, 2003, at the Company’s request, A.M. Best Company withdrew the Company’s financial strength rating. A.M. Best Company will no longer formally evaluate OPL or its reinsurance subsidiaries for the purposes of assigning a rating opinion. We are not currently rated by any rating agency. The lack of financial strength ratings has not significantly affected the operations of OPL and its subsidiaries given their current runoff status.

Claims

Claims are managed by OPL’s professional claims staff, whose responsibilities include the review of initial cession statements, determination of whether further investigation is required, establishment and adjustment of case reserves and payment of claims. In addition, the claims staff conducts comprehensive claims audits of both specific claims and overall claims procedures at the offices of selected brokers and ceding companies.

The Company’s gross liability for accrued losses and loss expenses, which provides for estimated future payments arising from current and prior reinsurance transactions, amounted to approximately $1,078.7 million and $1,580.6 million at December 31, 2003 and 2002, respectively. Accrued losses and loss expenses are carried at the full amount estimated for ultimate expected liabilities, without any discount to reflect the time value of money. This is in accordance with generally accepted accounting principles and the Securities and Exchange Commission’s regulations.

Paid and unpaid losses recoverable from reinsurers were $90.8 million and $115.6 million as of December 31, 2003 and 2002, respectively. OPL remains liable with respect to reinsurance ceded in the event that the reinsurer is unable to meet its obligations. The senior management of OPL re-evaluates the financial condition of reinsurers at least annually and establishes provisions for unrecoverable amounts as necessary. At December 31, 2003 the Company had established a provision of $10 million for unrecoverable amounts.

The reserve for accrued losses and loss expenses includes an estimate of outstanding losses and an estimate for losses incurred but not reported (“IBNR”). Outstanding losses are estimated based on ceding company reports and other data considered relevant to the estimation process. The estimate for IBNR reflects management’s best estimates based on the recommendations of an independent actuary using common actuarial techniques that project ultimate losses from the past loss experience of the Company and relevant industry data.

A detailed discussion of the industry wide and company specific uncertainties relating to the estimate of outstanding losses and IBNR is contained in the section relating to “Critical Accounting Policies” in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

While the Company has recorded its current best estimate of its liabilities for unpaid losses and loss expenses, it is reasonably possible that these estimated liabilities may increase or decrease in the future and that the increase or decrease may be material to its results from operations, cash flows and financial position. The reserves as established by management are reviewed regularly and adjustments are made in the period in which they become known.

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The “Analysis of Losses and Loss Expenses Development” shown below presents the subsequent development of the estimated year-end liability for accrued losses and loss expenses, (net of reinsurance recoveries), at the end of each of the years in the ten year period ended December 31, 2003. The top line of the table shows the estimated liability for unpaid losses and loss expenses, (net of reinsurance recoveries), recorded at the balance sheet date for each of the indicated periods. This net liability represents the estimated amount of losses and loss expenses for claims arising from all prior years’ policies and agreements that were unpaid at the balance sheet date. The upper portion of the table shows the re-estimated amount of the previously recorded net liability as of the end of each succeeding year. This estimate changes as more information becomes known about the frequency and severity of claims for individual years. The “Cumulative (Redundancy) / Deficiency” line represents the aggregate change in the estimates over all prior years. The lower portion of the table presents the amounts paid as of subsequent periods on those claims for which reserves were carried as of each balance sheet date. Conditions and trends that have affected development of the liabilities in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on the tables below.

Analysis of Losses and Loss Expenses Development

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Reconciliation of Unpaid Losses and Loss Expenses

The following table presents an analysis of paid and unpaid losses and loss expenses and a reconciliation of beginning and ending unpaid losses and loss expenses for the years indicated:

The following summarizes the development of incurred losses as depicted in the prior two tables. Prior to 1996 the vast majority of the Company’s reinsurance business was shipper’s risk. The shipper’s risk business was characterized by relatively predictable claim experience as a result of the maximum claim exposure being limited to $25,000 per occurrence. The shipper’s risk was also short-tail business (i.e. claims would be notified and settled quickly). In 1996 the Company started to diversify into other lines of business that were less predictable and generally had a longer tail than the shipper’s risk business. The diversification came at a time of intense competition in the reinsurance industry resulting in industry pricing that has proven inadequate for the exposures being reinsured. The proliferation of large industry loss events in the late 1990’s also compounded the effects of inadequate pricing.

Prior to 1999 the Company had not experienced any significant adverse loss development, primarily as a result of the stability of the shipper’s risk results and the recentness of the Company’s expansion into other lines of business. However, in the third and fourth quarters of 1999 the Company recorded reserve strengthening adjustments of $223 million relating primarily to two programs written in 1998. We also made significant reserve strengthening adjustments in the second quarter of 2000 relating primarily to accident & health, aviation, multi-line, marine and property programs written during the period from 1997 to 1999. The reserve increases in 2001 related mainly to adverse loss development on the discontinued reinsurance of the workers’ compensation risks of a UPS subsidiary in the State of California and on discontinued auto and property programs. This was partially offset by a $20.8 million decrease in the provision for losses and loss adjustment expenses relating to our property catastrophe business.

The 2003 prior years reserve increases related primarily to an increase in estimated ultimate losses of approximately $15 million on two workers’ compensation programs. The change in estimates followed an independent actuarial evaluation completed in the third quarter of 2003 and reflected adverse trending of medical expenses associated with workers’ compensation claims in California.

Additional information on these matters is included in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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Investments

The Company maintains portfolios of highly liquid investments and cash to support its reserves for accrued losses and loss expenses and unearned premiums as well as its capital requirements. The fair value of such cash and investments was approximately $1.7 billion at December 31, 2003.

For accounting purposes we classify our investments as either trading or available-for-sale; however, we manage the Company’s cash and investments in total and make asset allocation decisions primarily on a consolidated basis but with due regard to the individual needs and regulatory requirements of each subsidiary.

Following our decision to enter runoff our risk tolerance has decreased and our investment objective has been and will continue to be focused on capital preservation and short- to medium-term liquidity, as opposed to long-term return. The Company’s strategy of accelerating loss payments through commutations and novations of the remaining reinsurance contracts will result in continued negative cash flow. Consequently, we have reduced the duration of our investment portfolio and increased our cash and short-term investment positions to ensure that we will have sufficient cash available to fund our loss payment obligations, fund permitted distributions to shareowners and to mitigate our exposure to investment losses in the event of interest rate increases.

Despite these actions, there may still be periods in which the Company records an investment loss as a result of the continued volatility in worldwide bond and equity markets. We will continue to review our asset allocation as our runoff progresses.

Our asset allocation is also constrained by our banks’ requirement that our letter of credit facilities be fully secured by a portion of the Company’s investment portfolio of at least equivalent value. The investments collateralizing the letter of credit facilities must be either cash, cash equivalents, U.S. government debt maturing in less than five years or corporate debt rated at least “A” by S&P or “A2” by Moody’s. At December 31, 2003 the Company had $448.2 million of cash and investments collateralizing our $441.3 million letter of credit facilities. In addition the Company had $120.8 million of cash and investments held in trust accounts to collateralize obligations to certain reinsureds.

Prior to our decision to enter runoff our investment objective was to maximize long-term investment income while ensuring that the level of short-term fluctuations in value was within our risk tolerances. Risk and return objectives were incorporated into an asset allocation model that developed an optimal portfolio of specific asset classes that provided for diversification, enhanced returns and lower overall portfolio volatility. These long-term objectives resulted in the Company having significant investments in equity and global bond portfolios and also resulted in the Company committing to invest a total of $65 million in four private equity funds.

The investments of OPL’s United States reinsurance subsidiary, OPUS Re, must comply with the respective laws of the jurisdiction of domicile of that subsidiary and of the other jurisdictions in which it is licensed or authorized to write business. These laws prescribe the kind, quality and concentration of investments that may be made. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common stock, real estate mortgages and real estate.

Further information concerning the Company’s investment portfolio, including a discussion of the significant market risk associated with the portfolio, can be found in “Item 7A – Quantitative and Qualitative Disclosures About Market Risk” and Note 6 to the Consolidated Financial Statements in “Item 8 – Financial Statements and Supplementary Data”.

Competition

Following the February 13, 2002 decision to put the Company into runoff, we no longer compete in the international property and casualty reinsurance market.

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Regulation

Reinsurance companies are generally regulated by the jurisdictions in which they operate:

Bermuda

OPL, OPRe and OPAL conduct their reinsurance business from their principal offices in Bermuda and are subjected to regulation under Bermuda law, which, among other things requires them to register and comply with certain requirements as to capitalization. For purposes of Bermuda insurance law and regulation, each of these reinsurance entities are considered to be engaged in general business; OPL is also licensed to write long-term business.

OPL, OPRe and OPAL must prepare an annual statutory financial return and statutory financial statements in accordance with the requirements of the Bermuda Insurance Act of 1978, amendments thereto and related Regulations (the “Act”), and an annual audit is also required. Each company must also appoint a loss reserve specialist to review and report on its loss reserves on an annual basis.

The minimum paid up share capital to be maintained by OPL under Bermuda insurance law and regulations is $370,000, while OPRe and OPAL each require $120,000. In addition, these Bermuda reinsurance companies are individually required to maintain a minimum solvency margin at least equal to the greater of: (i) $1.0 million or (ii) the aggregate of $1.2 million and 15% of the amount by which net premium income from general business exceeds $6 million; or (iii) 15% of the aggregate of accrued losses and loss expense provisions and other general business insurance reserves. The minimum solvency margin for OPL, OPRe and OPAL is approximately $14 million, $129 million and $1 million, respectively. As of December 31, 2003, OPL, OPRe and OPAL had approximately $686 million, $358 million and $3 million respectively, of statutory capital and surplus in excess of these requirements.

As a holding company, a significant proportion of OPL’s assets relate to its investments in subsidiaries. As such, OPL’s ability to make future distributions is dependent upon it receiving distributions from its subsidiaries. The Act prohibits OPL, OPRe and OPAL from distributing more than 15% of the prior year’s statutory capital unless specific approval is obtained from the Bermuda Monetary Authority. In addition to the requirements of the Act, the Bermuda Monetary Authority has requested that it pre-approve all distributions from OPL, OPRe and OPAL. In addition to these regulatory restrictions, each subsidiary needs to consider, among other issues, the potential for future adverse development in the ultimate cost of reinsurance liabilities and the potential for significant losses from unexpired policies prior to making such distributions.

Bermuda insurance law and regulations do not limit the categories of assets in which an insurance company may invest. However OPL, OPRe and OPAL are also required to each maintain a minimum liquidity ratio whereby the value of their relevant assets (mainly cash, investments, receivables and other liquid assets) are not less than 75% of the amount of their relevant liabilities (mainly accrued losses and loss expenses, unearned premiums, reinsurance balances payable and other accounts payable). Investments in and advances to subsidiaries are not included in the definition of relevant assets for purposes of this test. OPL, OPRe and OPAL met these requirements for the year ended December 31, 2003.

OPL, OPRe and OPAL are not admitted or authorized to conduct business in any jurisdictions except Bermuda. They do not maintain an office or solicit, advertise, settle claims or conduct other insurance activities in any jurisdictions other than Bermuda and therefore are not subject to the insurance regulatory requirements of jurisdictions other than Bermuda. However, the statutory standards adopted by the jurisdictions that regulate the companies to which OPL, OPRe and OPAL provide life, property and casualty and other reinsurance affect each of these reinsurance entities indirectly. OPL, OPRe and OPAL record all transactions on their statutory accounts in a manner that complies with statutory accounting principles required by the Bermuda Insurance Act of 1978.

From time to time, there have been congressional and other initiatives in the United States regarding the supervision and regulation of the insurance industry, including proposals to supervise and regulate foreign reinsurers, such as OPL. While none of these proposals have been adopted to date on either the federal or state level, there can be no assurance that federal or state legislation will not be enacted subjecting OPL, OPRe and OPAL to supervision and regulation in the United States, which could have a material adverse effect on the Company. In addition, no assurance can be given that if OPL, OPRe and OPAL were to become subject to any laws of the United States or any state thereof or of any other country at any time in the future, they would be compliant with such laws.

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United States

OPUS Re is subject to regulation under the insurance laws and regulations of all the jurisdictions where it is licensed or authorized to write reinsurance including Delaware, where it is domiciled. OPUS Re is licensed or otherwise authorized to write reinsurance in 49 states, the District of Columbia and Puerto Rico. Insurance laws and regulations vary from state to state, but in general grant broad powers to supervisory agencies and officials to examine all insurance and reinsurance companies authorized to do business in their state, enforce rules, and exercise discretion, (and impose fines and penalties for violations of regulatory requirements), touching almost every significant aspect of the conduct of the insurance business. As a general rule, most insurance law and regulation focuses on the conduct of an insurance company’s relationship with the policyholder and permit a ceding insurer and a reinsurer to negotiate, without material regulatory involvement, the terms and conditions of and rates charged under almost all reinsurance contracts with unaffiliated parties except for the criteria for statutory accounting statement credit for the reinsurance provided by a reinsurer to an insurer domiciled in a given state. Thus, in general, state insurance laws and regulations are primarily designed for the protection of solvency and policyholders (insureds) rather than for the benefit of ceding insurers or investors. Nevertheless, state regulatory authorities do monitor compliance with, and periodically conduct examinations with respect to, state mandated standards of solvency, licensing requirements, investment limitations, restrictions on the net amount of risk that may be retained, deposits of securities for the benefit of insured’s, methods of accounting, and reserves for unearned premium, losses and other purposes. While insurers and reinsurers are principally regulated by the states, most insurance and reinsurance companies remain obligated to comply with applicable federal laws such as the Employee Retirement Income Security Act of 1974 (“ERISA”), the Financial Services Modernization Act (commonly known as “Gramm-Leach-Bliley”), applicable federal securities laws, and the federal anti-trust laws to the extent not preempted by the McCarran-Ferguson Act.

The National Association of Insurance Commissioners (“NAIC”) is an organization that assists state insurance supervisory officials in the United States to achieve insurance regulatory objectives, including the maintenance and improvement of state regulation. From time to time various regulatory and legislative changes have been proposed in the insurance industry, some of which could have an effect on reinsurers. Among the proposals that have in the past been or are at present being considered are the possible introduction of federal regulation in addition to, or in lieu of, the current system of state regulation of insurers, and proposals in various state legislatures (some of which proposals have been enacted) to conform portions of their insurance laws and regulations to various model acts adopted by the NAIC. OPUS Re is unable to predict what effect, if any, these developments may have on its operations and financial condition.

The NAIC has adopted Risk-Based Capital (“RBC”) requirements for property and casualty insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks such as asset quality, asset and liability matching, loss reserve adequacy and other business factors. State insurance regulators use the RBC formula as an early warning tool to identify, for the purpose of initiating regulatory action, insurance companies that may be inadequately capitalized. In addition, the formula defines minimum capital standards that supplement the system of low fixed minimum capital and surplus requirements on a state-by-state basis. Regulatory compliance is determined by a ratio of the enterprise’s regulatory total adjusted capital to its authorized control level RBC, as defined by the NAIC. Enterprises below specific trigger points or ratios are classified within certain levels, each of which requires specific corrective action. The ratios of total adjusted capital to authorized control level RBC for OPUS Re exceeded all the RBC trigger points at December 31, 2003.

Insurance holding company laws and regulations require insurers/reinsurers that are subsidiaries of holding companies to register and file with the regulatory authorities of their state of domicile certain reports, including information concerning their capital structure, ownership, financial condition and general business operations. Additionally, these laws and regulations require that all transactions with affiliates meet certain standards, including that the terms be fair and reasonable, that prior approval be obtained for certain types of transactions between affiliates, and that prior approval be obtained for the declaration and payment of certain kinds of dividends. These Insurance holding company laws and regulations also require prior approval of any change in control of the insurer/reinsurer. In most states, including Delaware, “control” is presumed to exist if 10% or more of the voting securities of the insurer/reinsurer are owned or controlled by a party though the actual existence of control may be established or rebutted where the ownership of voting securities is greater or lesser than that amount.

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Dividend payments by OPUS Re are limited by statutory regulations. These dividend restrictions are generally based on net investment income, statutory net income and on certain levels of policyholders’ surplus as determined under statutory accounting practices (which also require the direct approval of regulatory authorities for any proposed “extraordinary dividend” as defined). OPUS Re’s statutory net loss for 2003 was $1,164,200, and statutory surplus was $69,714,019 as of December 31, 2003. The maximum amount of dividends out of unassigned surplus that may be paid by OPUS Re without prior approval of the Delaware Insurance Commissioner is limited to the greater of (i) ten percent of OPUS Re’s surplus as regards policyholders as shown in the preceding year’s annual statement or (ii) OPUS Re’s net income, excluding realized capital gains, as shown in the preceding year’s annual statement, but shall not include pro rata distributions of any class of OPUS Re’s own securities. The maximum allowable dividend payable in 2004 is $nil unless regulatory authority approval for an “extraordinary dividend” is obtained.

REAL ESTATE AND LEASING SEGMENT

An important aspect of the Company’s previous strategy had been the ownership of income-producing real estate and the leasing of assets through subsidiaries of Overseas Partners Capital Corp. (“OPCC”). Prior to 2000, OPCC owned a portfolio of Class A properties in three key United States markets: Atlanta, Boston and Chicago. The portfolio consisted of four large office complexes, one office/retail mixed-use development and a large convention hotel. In addition, OPCC owned two properties and other assets that were leased to major companies. Since August 2000, OPCC and its subsidiaries have sold all of these properties.

An OPCC subsidiary, Overseas Capital LLC, owned all of the limited partnership interests in, and OPCC owned all of the common stock of the corporate general partner of, KMS II Realty Limited Partnership, a Delaware limited partnership (“KMS II”). Until November 2003, KMS II owned a 1.5 million square foot regional distribution facility in Manteno, Illinois, which it leased to Kmart Corporation. Kmart Corporation purchased the facility on November 25, 2003 for net cash proceeds of $6.8 million, resulting in a pre-tax loss of $10.8 million.

Until January 31, 2002, an OPCC subsidiary, Overseas Capital Co. (“OCC”) leased its Ramapo Ridge Facility (“the Facility”) to United Parcel Service General Services Co., a subsidiary of UPS, for data processing and telecommunications operations. On January 31, 2002 UPS purchased the building for $127.9 million and the land on which the building is located for $13.6 million, yielding a total gain on sale before income taxes of $47.1 million.

Until July 8, 1998, OCC leased five Boeing 757 air package freighters to UPS. The aircraft were sold pursuant to the terms of a purchase option granted to UPS in a May 31, 1990 Aircraft Lease Agreement between the parties.

The acquisition of the aircraft and the Facility were financed by two series of privately placed, fixed rate, non-callable bonds issued by OPL Funding Corp. (“OPL Funding”), incorporated in Delaware as a special purpose subsidiary of OCC. One series (“Series A Bonds”), in the principal amount of $171.6 million, was due in 2012; the other (“Series B Bonds”), in the principal amount of $73.4 million, was due in 2019. Overseas Partners Credit, Inc. (“Overseas Credit”), a single purpose subsidiary of OPL incorporated in the Cayman Islands, guaranteed the principal of these bonds and pledged zero-coupon treasury notes as security for the guarantee. The zero coupon treasury notes were scheduled to mature prior to the scheduled maturity date of each series of bonds, in amounts equal to the principal amount of the bonds in that series. In July 1998, OPL Funding invested $186.6 million of the proceeds from the sale of the aircraft into United States zero-coupon treasury notes and corporate bonds as substitute collateral for the interest obligations associated with the Series A Bonds. Following the sale of the Facility, OPL Funding invested $84.2 million of the proceeds from the sale into United States zero-coupon treasury notes as substitute collateral for the interest obligations associated with the Series B Bonds. These investments were sufficient to defease all remaining interest payments due on the bonds.

During June 2002 we approached and obtained the consent of all the bondholders to amend the Trust Indenture to permit the repurchase and cancellation of the Series A Bonds and Series B Bonds. The terms of the repurchase and cancellation required the Company to pay an amount equivalent to the fair value of the collateral securities (relating to both principal and interest) to the bondholders. On June 27, 2002 OPL Funding completed the repurchase and cancellation of $111.6 million of the Series A Bonds and $58.4 million of the Series B Bonds for a total premium of $78.0 million recorded in interest expense. The corresponding sale of the collateral securities with an amortized cost of $211.5 million resulted in an offsetting $34.8 million gain on sale.

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On October 6, 2003 OPL Funding completed the repurchase and cancellation of the remaining $60.0 million of Series A Bonds and $15.0 million of Series B Bonds for a total premium of $35.9 million. The corresponding release of security resulted in the sale of zero-coupon notes with an amortized cost of $91.5 million generating a $20.9 million gain on sale.

Following the sale of our final remaining leased asset in the fourth quarter of 2003, the Company is no longer engaged in the real estate and leasing business. Effective December 31, 2003, OPCC was liquidated and all remaining assets and liabilities were distributed to OPL as a final liquidating distribution. The remaining assets primarily comprise state and federal income taxes recoverable of $20.4 million and 100% ownership of Overseas Capital Business Trust.

Information concerning identifiable real estate and leasing assets, revenues and net operating income for the years ended 2003, 2002 and 2001 can be found in Notes 7, 9 and 11 of the Notes to the Consolidated Financial Statements included in “Item 8 – Financial Statements and Supplementary Data”.

Competition

The Company is no longer engaged in the real estate and leasing business and therefore does not compete in this market.

TAXATION

Under current Bermuda law, OPL and its Bermuda domiciled insurance subsidiaries (“Bermuda insurance subsidiaries”) are not obligated to pay any tax in Bermuda based upon income or capital gains.

Pursuant to the income tax treaty between the United States and Bermuda, a Bermuda insurance company would be subject to United States income tax and United States branch profits tax on its income that is attributable to a United States permanent establishment. Under current law, United States income tax would be imposed at a 35% rate, and the United States branch profits tax would be imposed at a 30% rate. Based on the operations of OPL and its Bermuda insurance subsidiaries, OPL believes that neither it nor its Bermuda insurance subsidiaries have a United States permanent establishment. Moreover, OPL and its Bermuda insurance subsidiaries intend to conduct their activities so that they will not do business in the United States through a permanent establishment. However, as there are no definitive standards provided by the Code, regulations or court decisions concerning what activities constitute a permanent establishment in the United States, and as the determination is essentially factual in nature, there can be no assurance that the United States Internal Revenue Service (“IRS”) will not contend successfully that either OPL or one or more of the Bermuda insurance subsidiaries has income which is attributable to a United States permanent establishment.

As previously reported, the IRS challenged OPL’s position regarding United States federal income taxes and asserted that OPL was liable to pay such taxes for various years. The IRS based its challenges on the assertion that OPL was engaged in a U.S. business with respect to two lines of business: (1) the reinsurance of certain shipper’s risk coverage for United Parcel Service of America, Inc. (“UPS”) customers and (2) the reinsurance of certain workers’ compensation coverage for UPS. Those issues were before the United States Tax Court for the 1988 through 1990 tax years, before the IRS Appellate Division for the 1991 through 1994 tax years and under IRS examination for years after 1994.

In the first quarter of 2003, OPL and the IRS reached a settlement with respect to the shipper’s risk program for all years from 1988 through 1999 (when that program was terminated). More specifically, OPL and the IRS agreed that there is no adjustment to OPL’s income deriving from or relating to premiums earned in connection with the shipper’s risk program. Separately, in the third quarter of 2003, there was a favorable resolution of the workers’ compensation reinsurance issue for all years from 1988 through 1999, as reflected in a stipulated decision filed in the United States Tax Court and IRS action to close out the appeals and examination cases, all without adjustment.

Certain of OPL’s subsidiaries are incorporated in the United States, including OPUS Re. These subsidiaries are subject to United States income and other taxes.

It should be noted that Congress has historically sought to broaden the taxation of foreign enterprises owned by United States residents, and future legislation could affect the United States federal tax treatment of OPL.

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The United States imposes an excise tax at the rate of 1% of gross premiums paid to foreign reinsurance companies for reinsurance covering risks located in the United States. Reinsurance premiums paid to OPL and its Bermuda reinsurance subsidiaries by United States insurers are subject to this excise tax.

EMPLOYEES

As of February 27, 2004 OPL, directly and through its subsidiaries, had a total of 22 employees, with 20 in Bermuda, 1 in Philadelphia and 1 in Atlanta.

The Company purchases administrative and other services from a number of suppliers both in the United States and Bermuda. The individuals who provide these outsourced services are not included as employees.

The Company does not have any employees who are represented by a labor union and believes that its employee relations are good.

See “Item 10 – Directors and Executive Officers of the Registrant”.

Financial Information by Geographic Areas

See Note 11 of the Notes to Consolidated Financial Statements included in “Item 8 – Financial Statements and Supplementary Data”.

Available Information

Our Internet website address is www.overseaspartners.com. Under the “SEC Filings” tab at this website, we make available free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”).

Item 2. Properties

The Company conducts its reinsurance business from leased office premises in Bermuda and Philadelphia and conducted its real estate & leasing business from leased office premises in Atlanta. These facilities are generally in good condition and are adequate for the requirements of the Company.

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Item 3. Legal Proceedings

On November 19, 1999 and January 27, 2000 OPL was named as a defendant in two class action lawsuits, filed on behalf of customers of UPS, in Montgomery County, Ohio Court and Butler County, Ohio Court, respectively. The lawsuits allege, amongst other things, that UPS told its customers that they were purchasing insurance for coverage of loss or damage to goods shipped by UPS. The lawsuits further allege that UPS wrongfully enriched itself with the monies paid by its customers to purchase such insurance. The November 19, 1999 and January 27, 2000 actions were removed to federal court and thereafter transferred to the United States District Court for the Southern District of New York (the “Court”) and consolidated in a multi-district litigation for pretrial discovery purposes with other actions asserting claims against UPS. Plaintiffs subsequently amended those claims against all defendants to join a Racketeer Influenced and Corrupt Organizations (“RICO”) claim as well. On August 7, 2000, the Company and its wholly owned subsidiary, OPCC, were added as defendants in a third class action lawsuit, also consolidated in the multi-district litigation, which alleges violations of United States antitrust laws, and state unfair trade practice and consumer protection laws. The allegations in the lawsuits are drawn from an opinion by the United States Tax Court that found that the insurance program, as offered through UPS, by domestic insurance companies, and ultimately reinsured by OPL, should not be recognized for federal income tax purposes. In June 2001, the Tax Court opinion was reversed by the United States Court of Appeals for the Eleventh Circuit.

The Company filed or joined in motions to dismiss all of the consolidated actions on a number of grounds, including that the antitrust claim fails to state a claim upon which relief can be granted, and that the remaining claims are preempted by federal law. In orders dated July 30, 2002, the Court granted in part and denied in part the motions to dismiss. Pursuant to the Court’s orders, the claims remaining against the Company are RICO, antitrust, and common law interference with contract claims. On November 8, 2002, the parties presented to the Court a stipulation and proposed order certifying a nationwide class with respect to certain of the claims brought by the plaintiffs, including the RICO and interference with contract claims against the Company. The Court signed the stipulation and proposed order. The stipulation does not certify the antitrust claims brought against the Company. Discovery has commenced.

During October 2003 the parties reached a tentative settlement with respect to all claims brought by the various plaintiffs. The settlement agreement was executed on December 31, 2003 and on January 16, 2004 the Court preliminarily approved the settlement. A settlement hearing will be held on May 21, 2004 at which time the Court will determine as a final matter whether the settlement should be approved. Assuming that the Court gives final approval, the Company expects that it would incur additional costs of approximately $10 million in connection with the settlement, and this amount has been accrued in the financial statements for the year ended December 31, 2003. However, there can be no assurance that the Court will approve the settlement.

The Company believes that it has meritorious defenses to all claims asserted against it and in the event that the Court does not approve the settlement, the Company intends to defend all claims vigorously. There can be no assurance, however, that an adverse determination of the lawsuits would not have a material effect on the Company.

Certain of OPL’s subsidiaries are party to legal proceedings in the investigation and defense of claims arising out of their reinsurance business and / or their former ownership of real estate. We do not believe that the eventual outcome of any such proceedings will have a material effect on their condition or business.

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

No matters were submitted to a vote of security holders during the quarter ended December 31, 2003.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Summary of OPL Stock

We are currently authorized to issue 900,000,000 shares of our Common Stock, par value $0.10 per share, of which 127,500,000 shares were issued and 118,769,846 outstanding as of February 27, 2004. We are also authorized to issue 200,000,000 shares of preference stock of par value $0.10 per share. At present no shares of preference stock have been issued or are outstanding, nor are there any plans to issue any shares of preference stock in the foreseeable future.

Our Common Stock is not listed on a securities exchange and is not traded in the organized over-the-counter markets. Prior to July 21, 1999, units of our Common Stock had been bundled with shares of UPS Common Stock and sold and provided as stock compensation awards to UPS employees under the UPS Managers’ Incentive and UPS Stock Purchase Plans (the “UPS Plans”). On July 21, 1999, we suspended the sale of our Common Stock under the UPS Plans following the announcement by UPS of an initial public offering.

There were approximately 98,000 record holders of our Common Stock as of February 27, 2004.

Voting Rights

Each share of our Common Stock is entitled to one vote in the election of directors and on other matters, except that any Substantial Stockholder, as defined in our Bye-Laws, is entitled to only one one-hundredth of a vote with respect to each vote which is in excess of 10 percent of our outstanding voting stock. The term Substantial Stockholder is defined to mean any shareowner or shareowners acting as a group, other than UPS or any employee benefit plan of ours or UPS or our subsidiaries, who is the beneficial owner of more than 10 percent of the voting power of our outstanding shares entitled to vote generally in the election of directors. There are no limitations imposed by foreign law, or by our Memorandum of Association and Bye-Laws, or by any agreement or other instrument to which we are a party or to which we are subject, on the right of shareowners, solely by reason of their citizenship or domicile, to vote our Common Stock. Upon liquidation, our shareowners are entitled to share on a pro rata basis in our assets legally available for distribution to shareowners.

Transferability of Common Stock - Our Right of First Refusal

Our Bye-Laws provide that no outstanding shares of our voting stock, including shares of our Common Stock, may be transferred, except by operation of law, including a bona fide gift or inheritance, unless the shares shall have first been offered, by written notice, for sale to us at the lower of their fair value or the price at which they are to be offered to the proposed transferee and on the same terms upon which they are to be offered to the proposed transferee. Notices of proposed transfers must be sent to our Treasurer, must set forth the number of shares proposed to be sold, the proposed price per share, the name and address of the proposed transferee and the terms of the proposed sale and must contain a statement by the proposed transferee that the information contained in the notice is true and correct. We have the option, within 30 days after receipt of the notice, to purchase all or a portion of the offered shares. If we fail to exercise or waive the option, the shareowner may, within a period of 20 days thereafter, sell to the proposed transferee all, but not part, of the shares that were previously offered to us and not purchased by us pursuant to our option, for the price and on the terms described in the notice. All transferees of shares hold their shares subject to the same restrictions. Shares previously offered to us but not transferred within the 20-day period remain subject to the initial restrictions.

Under our Bye-Laws, we have the right to purchase shares of our Common Stock that may be issued as stock dividends, or in stock splits, re-capitalization’s or reorganizations similar to the rights that we have to purchase the shares on which the dividend, split, re-capitalization’s or reorganization shares were issued. We also have the right to purchase our Common Stock in a number of other circumstances under our Bye-Laws.

Shares of our Common Stock may be pledged, but they may not be transferred upon foreclosure unless they have first been offered to us in the manner described above.

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In addition, any shareowner who is our “affiliate” for purposes of the Securities Act of 1933, may effect a public resale of their shares to a purchaser other than us only upon delivery of an effective prospectus applicable to the resale as permitted by applicable securities laws or upon other compliance with applicable securities laws.

On August 8, 2001 the Board suspended the repurchase of all shares and therefore we do not anticipate exercising our right of first refusal in the foreseeable future.

Our Purchase Rights - Recall

We have the right under our Bye-Laws to purchase (or “recall”) shares of our Common Stock from shareowners following their retirement, death or other termination of employment with UPS, OPL, or any of their respective subsidiaries. We may exercise this right to recall all or a portion of the shares of a former employee at any time within a period of three years or thirteen years following the holder’s termination of employment. The purchase price will be the book value of the shares at the time of purchase.

Given our runoff status it is unlikely that we will recall any shares in the future.

Dividend Policy

The declaration and payment of dividends is at the discretion of the Board of Directors and depends on many factors, including our earnings, financial condition, business needs, capital and surplus requirements of our operating subsidiaries and legal and regulatory considerations. The ability of our reinsurance subsidiaries to pay dividends to OPL and its ability to pay dividends to our shareowners are subject to the maintenance of minimum solvency and liquidity margins as required by Bermuda insurance law.

Dividends paid by us on shares of our Common Stock to persons residing in the United States will be subject to United States federal income taxes to the same extent that the dividends would be taxable if paid by a domestic corporation, but without the dividend received deduction available to corporations. Similar treatment is likely to be accorded under applicable state law. There are currently no applicable tax treaties or Bermuda laws, decrees or regulations that would adversely affect our payment or remittance of dividends, require withholding for tax purposes or restrict the export or import of capital.

We declared and paid two cash dividends in the amounts of $54.1 million and $29.7 million, or $0.45 and $0.25 per share, respectively, in 2001. No dividends were paid during 2002 or 2003. Given our runoff status, it is unlikely that we will pay any ordinary dividends in the future.

Our Ability to Purchase Shares and Make Distributions

On November 1, 2000 the Board announced that it would limit the number of shares that we would be willing to purchase from any shareowners seeking to sell such shares between November 1, 2000 and December 31, 2001. Accordingly, during such period, we were willing to purchase up to 10% of the shares of our Common Stock held by any shareowner as of November 1, 2000. These limits were necessary to preserve the Company’s strong capital base while the Company implemented its specialty reinsurance growth strategy with the aim of providing both long-term value and liquidity to all shareowners.

Between November 1, 2000 and August 7, 2001 the Company purchased 3.1 million shares from 5,479 shareowners for a total cost of $52.1 million.

On August 8, 2001, following a further decline in our capital base as result of poor underwriting and investment performance, we announced that it was necessary to suspend our share repurchase program entirely. Following this action, and recognizing the desire of many of OPL’s shareowners to have greater liquidity for their investment in OPL, the Board of Directors initiated a comprehensive review of strategic alternatives to provide future liquidity, which resulted in our announcement on February 13, 2002 that we would begin an orderly runoff.

The ultimate goal of the runoff is to distribute equity to shareowners as and when the Board of Directors feels that it is prudent to do so and regulatory requirements allow. However, due to the regulated nature of the reinsurance business and other business reasons, it could take many years to complete the runoff of OPL’s businesses and fully return shareowners’ equity. See Note 12 to the Consolidated Financial Statements included in “Item 8 – Financial Statements and Supplementary Data” for a more detailed discussion of this issue.

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On March 26, 2003 OPL received approval from the Bermuda Monetary Authority to permit the payment of a liquidating distribution to shareowners of $2 per share. This distribution of $237.7 million was paid to shareowners on April 9, 2003. On November 25, 2003 OPL received approval from the Bermuda Monetary Authority to permit the payment of another liquidating distribution to shareowners of $2.50 per share. This distribution of $296.9 million was paid to shareowners on January 5, 2004.

The distributions were liquidating distributions for U.S. federal income tax purposes and are treated as payments in exchange for stock. Accordingly, an OPL shareowner would recognize capital gain or capital loss on the difference between (i) the value of the consideration received in a liquidating distribution for each share of OPL stock and (ii) such shareowner’s adjusted tax basis in each share. Any such capital gain or loss would be long-term capital gain or loss if the shareowner held the shares for more than one year on the date of distribution and short-term capital gain or loss if the shareowner held the shares for less than one year on the date of distribution. If there are a series of liquidating distributions, amounts paid are first applied to basis; distributions are only taxed as capital gain once the aggregate amount of the distributions exceeds such basis. Capital losses on a series of liquidating distributions may be recognized only when a shareowner receives the final liquidating distribution with respect to his shares.

Determination of share value

When OPL commenced business in 1984, the book value method was used to set the price of shares. As OPL’s business grew, the Board determined that it was important to focus on the long-term value of the Company in setting the price of its stock. The fair value method enabled the Board to consider future earnings and prospects and the value of the business as a going concern when determining share price. In August of 1999, the shareowners of OPL voted to amend Bye-law 40(13) to replace the book value method with the fair value method.

Between August 10, 2000 and August 8, 2001 the Company repurchased shares of Common Stock at the fair value of $17.00 per share. With the exception of shares purchased from employees, who had exercised put-options to sell their shares upon termination of their employment with the Company, the Company has not repurchased shares of our Common Stock since August 8, 2001. The fair value per share as determined by our board of directors since that date was as follows:

On August 6, 2003 the shareowners of OPL voted to amend Bye-law 40(13) to replace the fair value method with the book value method such that the price paid for repurchases of our Common Stock, if any, corresponds to the net book value per share as determined from the Company’s most recent balance sheet as filed with the Securities and Exchange Commission. With the Board’s decision in February 2002 to restructure OPL and cause its operations to begin an orderly runoff, the Company is no longer writing new reinsurance business and has no plans to expand its business in the future. Book value measures the historic value of a business and is closely tied to accounting rules and time periods. Book value also reflects the effect of any dividends or other distributions made. Now that OPL has begun to return capital to shareowners, it is important that the price paid for repurchases of shares, if any, should reflect any amounts already distributed. As such, we believe that book value is a more appropriate way of determining the price of our Common Stock now that the Company is in runoff. The net book value per share at each quarter-end, as reported in the Company’s quarterly filings with the Securities and Exchange Commission was as follows:

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Custody Arrangements for Certificates of OPL Common Stock

Each shareowner may elect to have Wachovia Bank hold his or her certificates as custodian without cost to the shareowner. Wachovia’s Employee Shareholder Service Department is located in Philadelphia, Pennsylvania and can be contacted at the following address:

Wachovia Bank

Employee Shareholder Services Corporate

Trust Department

P.O. Box 41784

123 South Broad Street

Philadelphia, PA

19101-1784

Phone: (215) 875-1144

Toll Free: (877) 223-6966

If a shareowner elects to have Wachovia hold the shares of Common Stock in custody, Wachovia will have the shares registered in its name, or that of a nominee, and will sell or otherwise dispose of the shares only upon the shareowner’s instruction and in conformity with our Bye-Laws. Wachovia will promptly remit distributions on Common Stock held in custody to the shareowner. Shareowners will receive periodic statements of the number of shares held by Wachovia for their account and of distributions paid on those shares. Notice of any regular or special meeting of our shareowners will be forwarded to shareowners by Wachovia, which will vote the shares as directed by the shareowner in a letter of instruction if returned to Wachovia in a timely fashion, or, on request, furnish the shareowner with a proxy thus permitting the shareowner to vote the number of shares of Common Stock held for him or her at the meeting. Absent instructions from the shareowner, Wachovia will vote the shares at its discretion.

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Item 6. Selected Financial Data

The following selected financial information should be read in conjunction with OPL’s consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which follow this section. In particular, the February 2002 decision to discontinue reinsurance operations and begin an orderly runoff of both the reinsurance and real estate & leasing segments will materially affect the comparability of the information. All currency amounts herein are expressed in U.S. dollars.

Five-Year Selected Financial Data

(In thousands U.S.$, except per share amounts)

Income Statement Data:

Years Ended December 31,

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

This discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto presented under “Item 8 – Financial Statements and Supplementary Data”.

Our financial condition, results of operations and cash flows are affected by a number of business factors and critical accounting policies as discussed further below.

BUSINESS FACTORS

The Company’s historical operations were conducted through two segments – reinsurance and real estate & leasing. However, in February 2002, the Company announced its decision to discontinue reinsurance operations and begin an orderly runoff of both the reinsurance and real estate & leasing segments. The decision to go into runoff reflected the desire of many of our shareowners to have greater liquidity for their investment in OPL. The Company’s primary objective at this time is to return capital to shareowners as and when it is prudent to do so, with due regard to our ongoing capital needs and regulatory restrictions.

As discussed further below, the decision to put the operations into runoff has significantly impacted our results of operations and associated cash flows and will continue to do so for the duration of the runoff.

Prior to the decision to begin an orderly runoff, the Company participated in a number of lines of reinsurance business including finite risk, accident & health, aviation & satellite, property, property catastrophe, auto liability, marine and workers’ compensation business in Bermuda and working layer casualty in the United States through OPUS Re.

Our primary sources of reinsurance revenues were premiums from our reinsurance contracts and investment income earned from investing the premiums received and the capital allocated to the reinsurance segment. For some lines of business, such as workers’ compensation and working layer casualty, the expected future investment income was a critical part of the underwriting process as there are significant lags between the dates that premiums are received and losses are paid. Claims on those lines of business may typically be paid over a period of time that extends beyond 20 years. The expenses incurred by the reinsurance segment were primarily: (i) costs associated with the acquisition of the underlying business, including fees paid to reinsurance agents and brokers that introduce the business to the company, and commissions paid to the reinsured (referred to as “ceding companies”) to reimburse them for a portion of their own acquisition costs; (ii) losses and loss adjustment expenses associated with underlying claims on the reinsured policies; and (iii) internal general and administrative expenses allocated to the reinsurance segment.

In addition, the Company earned real estate & leasing revenues by renting or leasing the hotel, office, retail and other properties that we acquired over time. The Company also expected to generate additional income from the appreciation in value of the properties during the period of ownership. Expenses incurred in this segment were primarily operating costs such as payroll, repairs and maintenance, leasing commissions to brokers, property management fees, real estate taxes and interest on debt incurred to partially finance the acquisitions. Commencing in 2000, the Company started to dispose of its real estate properties on an opportunistic basis with a view to redeploying the capital to the reinsurance segment or making distributions to shareowners.

The Company has not written any new reinsurance business since the decision to discontinue reinsurance operations. However, premiums will continue to be collected and earned, and losses will be incurred and paid, on business written prior to the decision to begin runoff. Some of our reinsurance contracts do not expire for several years and include launch and in-orbit satellite exposures through 2009 and a residual value reinsurance program where the Company is exposed to losses until 2013. Further, our reinsurance liabilities include other accrued loss and loss expenses that are estimated to be paid beyond 2020.

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Our operational focus since going into runoff has been to: (i) preserve our capital base through various risk management initiatives; (ii) actively manage and negotiate early settlement of our reinsurance liabilities and real estate debt; (iii) seek opportunistic sales of our real estate assets and reinsurance subsidiaries; and (iv) prudently return capital to our shareowners over time.

Our primary risk management initiatives are aimed at reducing the risk of adverse development in the estimated ultimate cost of settling our accrued losses and loss expenses (see further discussion of these uncertainties in “Critical Accounting Policies” below). We have sought to commute our reinsurance contracts through negotiation with our ceding companies. A commutation involves our paying a single amount to the ceding company as a full and final settlement of our estimated ultimate obligations. Loss reserve commutations are recorded as an increase or decrease in incurred claims. Commutations of unexpired risks are recorded as a return (i.e. reduction) of original premiums written. Not all ceding companies may be willing to agree to commutation or we may be unable to agree a mutually acceptable settlement price. As such we may also seek to novate certain reinsurance contracts to a third party reinsurer. Novation involves our paying a single amount, with the ceding company’s consent, to another reinsurer who then assumes all of our risks and obligations under the original reinsurance contract. Novations are recorded as a return of the original premium income and any attendant claims and expenses that have been previously recorded.

An alternative to our commutation and novation strategy is to sell the reinsurance subsidiary itself. For example, we sold our property catastrophe reinsurance subsidiary, OPCat, in February 2002 as this eliminated our exposure to potential catastrophic loss on unexpired reinsurance contracts. Although we will continue to explore sales of our remaining reinsurance subsidiaries, OPRe and OPUS Re, potential purchasers will likely value the subsidiary’s assets and liabilities at amounts different from their carrying values to reflect their own assessment of risks and uncertainties and the need to generate a return on their investment. Any loss on sale of a subsidiary will be recorded in the period that the terms of a proposed sale meet all of the criteria required for the subsidiary to be classified as held for sale in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. In the meantime the Company continues to review the carrying value of individual asset classes for possible impairment in accordance with applicable generally accepted accounting principles for each such asset class. (See further discussion on asset impairment under “Critical Accounting Policies” below.)

We have also sought resolution of other loss contingencies such as the tax and class action litigations (see “Item 3 – Legal Proceedings”), while also reducing the risks inherent in our asset base, through the sale of our S&P 500 equity security portfolio (market risk), global fixed income portfolio (currency and interest rate risk) and a reduction in the duration of our remaining fixed income portfolio (interest rate risk).

The elimination of contingent and actual liabilities and other risk mitigation efforts described above will ultimately release capital for distribution to shareowners, although the amount and timing of such distributions to shareowners is also a function of regulatory approval in both Bermuda and the United States. (See further discussion on Regulations in Note 12 of the Notes to the Consolidated Financial Statements included in “Item 8 – Financial Statements and Supplementary Data”.)

The decision to put the Company’s operations into runoff has significantly impacted our results of operations and associated cash flows. In particular: (i) our results have fluctuated, and will continue to fluctuate, materially from quarter to quarter as a result of, among other things, the number and size of negotiated settlements of reinsurance contracts and real estate debt, the timing and valuation of real estate disposals, the timing and cost to resolve loss contingencies, changes in estimates in accrued loss and loss expenses, and the changes in the size and composition of our investment portfolio; and (ii) the Company has become cash flow negative in its reinsurance operations and expects this to continue in the future as the cash received from premiums has declined following the non-renewal of business and the payment of accrued losses has accelerated through our efforts to negotiate the early settlement of our liabilities. We anticipate that the Company’s cash and investment portfolio will provide adequate liquidity to enable the Company to meet its obligations as they fall due.

Our primary source of revenue at this time is the investment income earned from our investment portfolio and, to a lesser extent, the residual earning of premiums written on multi-year contracts before our decision to enter runoff. Investment earnings will continue to decline in future periods as we use our funds to pay reinsurance claims, including the commutation and novation of contracts, to meet corporate overhead and to make distributions to shareowners. We no longer generate any real estate & leasing revenues following the final property sale in late 2003.

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Our most significant expenses relate primarily to losses and loss adjustment expenses, including changes in estimates in our accrued losses and loss adjustment expense reserves and the effects of any commutation or novation agreements, and internal general and administrative expenses. Our general and administrative expenses currently comprise payroll, shareowner service fees, legal fees, investment management expenses and other office overhead. Expenses associated with the oversight of unexpired reinsurance policies and the handling of claims, commutations and novations are allocated to the reinsurance segment with the residual expense and other charges recorded as other operating expenses. Our total general and administrative expenses are unlikely to decrease significantly for the next few years whereas we expect investment income to decline as our asset base is reduced. Consequently, it is possible that we will incur a net loss in future periods.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements include amounts that, due to their nature, are inherently subjective, as their reported values are based on estimates that require complex assumptions and significant management judgment. We believe that the following items involve highly subjective and complex estimates:

a.    Reserves for accrued losses and loss expenses; and

b.    Other-than-temporary impairments in the carrying value of certain assets.

While we believe that the recorded amounts reflect our best estimates and assumptions, there could be a material adverse effect on the Company’s results of operations and financial condition if actual events differ significantly from the underlying assumptions. As such we deem our accounting policies for these amounts to be of critical importance to our consolidated financial statements.

The following discussion provides more information regarding the accounting policies and necessary estimates and assumptions required to arrive at these amounts. In addition, there are other significant accounting policies that are important to an understanding of the Company’s Consolidated Financial Statements. See Note 2 of the Notes to the Consolidated Financial Statements included in “Item 8 – Financial Statements and Supplementary Data”.

Losses and loss expenses are charged to income as they are incurred. We establish loss and loss expense reserves for the unpaid portion of the estimated ultimate liability of all claims covered under the terms of our reinsurance contracts with ceding companies. These accrued losses and loss expense reserves include estimates for (i) unpaid reported losses and loss expenses; and (ii) losses that have been incurred but not reported (“IBNR”). The Company also establishes an estimate of the internal costs of processing and settling the claims based on projected future costs for legal and other loss adjustment fees, payroll and office overhead. At December 31, 2003, the Company’s total reserves for accrued losses and loss expenses were $1,079 million, which includes in excess of $600 million for IBNR reserves.

We are required to set such reserves for all business that we write, even though, at least initially, we do not have all the necessary information to know the total number of claims that may be covered or the ultimate cost to settle those claims. Unpaid reported losses and loss expenses are recorded based on estimates provided by the ceding companies and other information considered by management to be relevant to the estimation process. The estimate for IBNR reflects management’s best estimate based on the recommendations of an independent actuary using common actuarial techniques used throughout the insurance and reinsurance industry.

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The following outlines the nature of the significant judgments involved in establishing such estimates and certain industry and company specific factors that further add to the complexity and subjectivity of the reserving process:

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While the Company has recorded its current ‘best estimate’ of its liabilities for unpaid losses and loss expenses, it is reasonably possible that these estimated liabilities may increase or decrease in the future and that the increase or decrease may be material to the results from operations, cash flows and financial position for future periods.

The Company considers a ‘best estimate’ to be one that has an equal likelihood of developing a redundancy or deficiency as the loss experience matures. The independent actuary also develops a range of estimated ultimate losses as well as a best estimate for each program or line of business and selects a low estimate and a high estimate for the total book of business after allowing for potential diversification effects across the Company’s various lines of business. The resulting low and high estimates were $75 million below and $139 million above the independent actuary’s ‘best estimates’. The range of estimated liabilities is provided in an attempt to quantify some of the uncertainty in estimating ultimate losses and does not present the bounds of all possible outcomes.

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The Company periodically reviews the carrying value of certain assets for evidence of possible impairment in accordance with multiple sources of authoritative accounting guidance under generally accepted accounting principles. The assets that are most susceptible to impairments in value include investments in marketable securities that are classified as available for sale, investments in private equity funds, investment in affiliate, goodwill and intangibles (i.e. insurance licenses) relating to our acquisition of OPUS Re, and deferred income taxes.

The following are key assumptions and judgments associated with our review:

Where the Company’s analysis of the above factors results in the conclusion that declines in fair values are other-than-temporary, the cost of the security is written down to fair value and the previously unrealized loss is therefore realized and recorded in income in the period such determination is made.

Realized losses for the years ending December 31, 2003 and 2002 include $8.0 million and $177.5 million of other-than-temporary losses, respectively, relating primarily to our S&P 500 equity portfolio and our investment in a Bermuda-based life reinsurer.

If management determines that a decline in fair value is not other-than-temporary and hence a security’s value is not written down at that time, there are potential effects upon the Company’s future earnings and financial position should management later conclude that some of the current declines in the fair value of the investments are other-than-temporary declines. Some of the factors that could affect our subsequent evaluations include significant changes in general economic conditions as well as specific business conditions affecting particular issuers such as declining earnings in relation to competitors, erosion of market share, and deteriorating financial position.

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The Company periodically reviews the carrying value of its investment (including the component relating to unamortized goodwill) for possible impairment. However, the identification of potential impairment, the assessment of whether any decline in value is other-than-temporary, and the determination of estimated fair value for such investment involves significant management judgment as there is no readily determinable market price for the underlying security.

The company considers a number of factors in determining whether the investment in affiliate should be written down to estimated fair value, including:

The Company estimates fair value using a variety of factors, including current net book value, projected net book value and cash flow information and the trading valuations of publicly quoted peer companies. However, there is significant judgment involved in this estimate as the affiliates projections are necessarily estimates, there are a limited number of peer companies with market valuations and the facts and circumstances of such peer companies could be significantly different from those of the affiliate. Any decline in value considered by management to be other-than-temporary is charged to income as an impairment expense in the period in which it is determined. The Company recorded an impairment charge of $5.6 million during the year ended December 31, 2003 following recent operating losses incurred by the affiliate. This charge is recorded in impairment expense in the consolidated statement of income.

The Company estimates fair value based on the current Net Asset Value of the fund and other financial information received from the fund managers. Any decline in value considered by management to be other than temporary is charged to realized losses in the period that it is determined. The Company has not recorded such a charge for any of the periods presented in the Consolidated Financial Statements included in “Item 8 – Financial Statements and Supplementary Data”.

Goodwill and insurance licenses relating to our acquisition of OPUS Re – Goodwill represents the difference between the purchase price paid and the estimated fair value of net assets acquired. A portion of the purchase price paid was allocated to insurance licenses at the date of acquisition. Prior to January 1, 2002 the cost of the licenses and goodwill were amortized on a straight-line basis over 40 years. Following the adoption of SFAS 142, effective January 1, 2002, the Company ceased to amortize licenses and goodwill. However in accordance with SFAS 142, the Company continues to review the carrying value of licenses and goodwill for any impairment at least annually. If it is determined that an impairment exists, the Company adjusts the carrying value of such assets to fair value. The determination of whether impairment exists and the estimate of fair value of such assets both involve significant management judgment. The impairment charge is recorded in the period in which it is determined. The Consolidated Financial Statements for the years ending December 31, 2003 and 2002 include charges of $5.8 million to write off licenses and $2.5 million to write off goodwill, respectively. These charges are recorded in impairment expense in the consolidated statement of income.

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Results of Operations - Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Runoff Activities for 2003

The results for the year ended December 31, 2003 reflect a number of significant transactions that were effected in accordance with our runoff goals and objectives. In particular, the Company:

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Summary of Results

Net income of $45.9 million for the year ending December 31, 2003 was largely due to the improved performance of the United States financial markets. The main factors that contributed to the net income were:

For the year ended December 31, 2002, we experienced a net loss of $216.6 million. The main factors that contributed to the net loss were:

A more detailed discussion of our operating results for 2003 and 2002 by segment is set out below.

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Reinsurance Segment

Underwriting

During the year ended December 31, 2003 our gross written premium was negative $34.7 million compared to $445.0 million for the year ended December 31, 2002. The negative gross written premium was primarily due to the cancellation of one of the Company’s finite reinsurance agreements where $74.5 million of written and unearned premiums were returned, partially offset by $35.3 million of premiums written by OPUS Re primarily relating to multi-year accident & health treaties that OPUS Re had committed to write prior to the decision to place OPUS Re into runoff and also by increased premium estimates on other contracts.

For the year ended December 31, 2003 premiums ceded decreased to $3.1 million compared to $78.6 million for the year ended December 31, 2002. Premium ceded for the year ended December 31, 2003 primarily related to additional premiums due on our aviation excess of loss protection. Premium ceded for the year ended December 31, 2002 primarily related to property catastrophe premiums ceded to Renaissance Reinsurance Ltd.

Premiums earned for the year ended December 31, 2003 decreased to $118.1 million compared to $457.3 million for the year ended December 31, 2002. This decrease is a result of the reinsurance operations of the Company being runoff. Premiums earned will continue to decrease significantly in future years.

Commission and fee income decreased to negative $0.2 million for the year ended December 31, 2003 compared with $6.9 million for the year ended December 31, 2002. This decrease is due to a decrease in fees earned on our finite risk contracts that were not accounted for as reinsurance as they did not satisfy the risk transfer criteria of Statement of Financial Accounting Standards No. 113. These fees decreased due to the effects of commutations and novations following the decision to put our reinsurance operations into runoff. It is expected that commission and fee income will be negligible in future years.

Commissions, taxes and other expenses for the year ended December 31, 2003 decreased by $97.0 million from $141.5 million for the year ended December 31, 2002. This decrease was primarily related to the decrease in premiums earned and changes in the mix of premiums earned. In addition, $13.0 million of the decrease was due to a reduction in internal expenses, primarily as a result of the decision to put our reinsurance operations into runoff.

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For the year ended December 31, 2003 we experienced a net underwriting loss of $38.8 million compared to a net underwriting loss of $115.3 million for the year ended December 31, 2002. For the year ended December 31, 2003 the net underwriting loss was primarily due to:

Reinsurance Investment Income (Loss)

The Company’s reinsurance investments are classified as either trading or available-for-sale. The trading portfolio is recorded at fair value with unrealized gains and losses recorded in net income. The available-for-sale portfolio is recorded at fair value with unrealized gains and losses recorded in members’ equity as other comprehensive income. Despite the different accounting treatment of the trading and available-for-sale portfolios, we manage the Company’s cash and investments in total and do not place much importance on whether the return is recognized in net income or as other comprehensive income. Therefore, this discussion will focus on the total investment return.

Despite a reduction in the assets available for investment our reinsurance portfolio generated a total return of $108.9 million for the year ended December 31, 2003 compared to a negative total return of $43.3 million for the year ended December 31, 2002. The improved performance in 2003 was primarily due to:

These results included the effects of the write-down in the cost basis of equity investments classified as available-for-sale where the decline in value was considered other than temporary. In accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, such a write-down is recognized as a realized loss in the income statement, even though there were no sales of the securities. For the years ended December 31, 2003 and 2002, the amount of the write-down was $8.0 million and $177.5 million, respectively.

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For the year ended December 31, 2003 investment expenses increased by $1.1 million to $5.6 million from $4.5 million for the year ended December 31, 2002. This increase was due to the write-off of previously capitalized management fees relating to our investment in private equity funds.

Real Estate and Leasing