10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2004

Commission file number 001-31721

AXIS CAPITAL HOLDINGS LIMITED

(Exact name of registrant as specified in its charter)

Bermuda	98-0395986
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

106 Pitts Bay Road, Pembroke HM 08, Bermuda

(Address of principal executive offices and zip code)

(441) 296-2600
(Registrant’s telephone number, including area code)

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 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 ý No o

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

As of August 4, 2004, there were 154,927,256 Common Shares, $0.0125 par value per share, of the registrant outstanding.

AXIS CAPITAL HOLDINGS LIMITED

INDEX TO FORM 10-Q

	PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as at June 30, 2004 (Unaudited) and December 31, 2003
	Condensed Consolidated Statements of Operations and Comprehensive Income for the Quarters and Six Months Ended June 30, 2004 and 2003 (Unaudited)
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2004 and 2003 (Unaudited)
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 (Unaudited)
	Notes to Unaudited Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosure about Market Risk
Item 4.	Controls and Procedures
	PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Shareholders
Item 6.	Exhibits and Reports on Form 8-K
Signatures

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PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

AXIS CAPITAL HOLDINGS LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

As at June 30, 2004 and December 31, 2003

(Expressed in thousands of U.S. dollars, except share and per share amounts)

	June 30, 2004			December 31, 2003
	(Unaudited)
Assets
Cash and cash equivalents	$	721,215		$	605,175
Investments at fair market value (Amortized cost 2004: $4,029,834; 2003: $3,359,102)	3,993,883			3,385,576
Other investments	34,403			—
Accrued interest receivable	36,612			29,530
Net receivable for investments sold	—			3,371
Securities lending collateral	755,968			—
Insurance and reinsurance premium balances receivable	994,819			660,530
Deferred acquisition costs	222,288			136,281
Prepaid reinsurance premiums	240,199			164,999
Reinsurance recoverable	245,909			124,899
Intangible assets	23,919			24,579
Other assets	50,974			37,333
Total Assets	$	7,320,189		$	5,172,273
Liabilities
Reserve for losses and loss expenses	$	1,541,193		$	992,846
Unearned premiums	1,648,062			1,143,447
Insurance and reinsurance balances payable	208,141			151,381
Accounts payable and accrued expenses	44,072			67,451
Securities lending payable	755,618			—
Net payable for investments purchased	80,589			—
Total Liabilities	4,277,675			2,355,125
Shareholders’ Equity
Share capital (Authorized 800,000,000 common shares, par value$0.0125; issued and outstanding 2004: 152,491,550; 2003:152,474,011))	1,906			1,906
Additional paid-in capital	2,009,716			2,000,731
Accumulated other comprehensive (loss) income, net of tax	(31,193		)	25,164
Retained earnings	1,062,085			789,347
Total Shareholders’ Equity	3,042,514			2,817,148
Total Liabilities & Shareholders’ Equity	$	7,320,189		$	5,172,273

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

1

AXIS CAPITAL HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
For the quarters and six months ended June 30, 2004 and June 30, 2003
(Expressed in thousands of U.S. dollars, except share and per share amounts)

	Quarters ended						Six months ended
	June 30, 2004			June 30, 2003			June 30, 2004			June 30, 2003
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues
Gross premiums written	$	629,319		$	551,450		$	1,673,442		$	1,160,037
Premiums ceded	(141,442		)	(101,626		)	(286,375		)	(170,069		)
Change in unearned premiums	(1,474		)	(114,232		)	(429,416		)	(351,949		)
Net premiums earned	486,403			335,592			957,651			638,019
Net investment income	33,345			15,904			64,604			27,256
Net realized (losses) gains	(4,411		)	15,705			5,686			26,903
Other insurance related income	156			10,102			444			11,208
Total revenues	515,493			377,303			1,028,385			703,386
Expenses
Net losses and loss expenses	257,850			195,620			500,450			341,955
Acquisition costs (related party 2004: $21,734; 2003: $21,373: 2004; $46,432; 2003 $39,345)	65,491			46,418			122,454			90,669
General and administrative expenses	42,623			31,246			84,511			61,608
Foreign exchange	6,413			(12,855		)	7,558			(14,742		)
Total expenses	372,377			260,429			714,973			479,490
Income before income taxes	143,116			116,874			313,412			223,896
Income tax (expense) recovery	(2,260		)	880			(5,770		)	976
Net Income	140,856			117,754			307,642			224,872
Other comprehensive income
Unrealized gains (losses) arising during the period	(79,261		)	4,424			(47,469		)	16,982
Adjustment for re-classification of gains (losses) realized in income,  net of tax	(5,838		)	2,417			(8,888		)	(4,746		)
Comprehensive income, net of tax	$	55,757		$	124,595		$	251,285		$	237,108
Weighted average common shares and common share equivalents - basic	152,487,082			136,509,891			152,484,015			136,440,383
Weighted average common shares and common share equivalents - diluted	166,842,606			145,701,443			166,785,604			145,045,136
Net income per share - basic	$	0.92		$	0.86		$	2.02		$	1.65
Net income per share - diluted	$	0.84		$	0.81		$	1.84		$	1.55

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

2

AXIS CAPITAL HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

SHAREHOLDERS’ EQUITY

For the six months ended June 30, 2004 and 2003
(Expressed in thousands of U.S. dollars)

	Six months ended
	June 30, 2004			June 30, 2003
	(Unaudited)			(Unaudited)
Share capital
Balance at beginning of period	$	1,906		$	1,727
Issued during period	—			10
Balance at end of period	$	1,906		$	1,737
Additional paid-in capital
Balance at beginning of period	$	2,000,731		$	1,686,599
Shares issued, net of costs	(272		)	11,225
Stock option expense	1,544			—
Stock compensation expense	7,713			—
Balance at end of period	$	2,009,716		$	1,697,824
Deferred compensation
Balance at beginning of period	$	—		$	(20,576	)
Issue of restricted shares	—			(1,004		)
Amortization of deferred compensation	—			4,183
Balance at end of period	$	—		$	(17,397	)
Accumulated other comprehensive (loss) income, net of tax
Balance at beginning of period	$	25,164		$	25,484
Change in unrealized (loss) gain	(62,572		)	12,236
Change in deferred taxes	6,215			—
Balance at end of period	$	(31,193	)	$	37,720
Retained earnings
Balance at beginning of period	$	789,347		$	267,799
Dividends paid	(34,904		)	—
Net income for period	307,642			224,872
Balance at end of period	$	1,062,085		$	492,671
Total Shareholders’ Equity	$	3,042,514		$	2,212,555

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

3

AXIS CAPITAL HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2004 and 2003
(Expressed in thousands of U.S. dollars)

	Six months ended
	June 30, 2004			June 30, 2003
	(Unaudited)			(Unaudited)
Cash flows provided by operating activities:
Net income	$	307,642		$	224,872
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net realized gains on sales of investments	(5,686		)	(26,903		)
Amortization of discounts on fixed maturities	17,647			20,941
Amortization of deferred compensation	9,257			4,183
Amortization of intangible assets	795			375
Accrued interest receivable	(7,082		)	1,266
Insurance and reinsurance premium balances receivable	(334,289		)	(288,250		)
Deferred acquisition costs	(86,007		)	(62,279		)
Prepaid reinsurance premiums	(75,200		)	(96,031		)
Reinsurance recoverable	(121,010		)	(50,138		)
Intangible assets	(135		)	—
Other assets	(7,425		)	(6,007		)
Reserve for losses and loss expenses	548,347			353,319
Unearned premiums	504,615			445,263
Insurance and reinsurance balances payable	56,760			72,043
Accounts payable and accrued expenses	(23,729		)	17,712
Total adjustments	476,858			385,494
Net cash provided by operating activities	784,500			610,366
Cash flows provided by (used in) investing activities:
Net cash paid in acquisition of subsidiaries	—			(34,664		)
Purchases of other investments	(34,403		)	—
Purchases of available-for-sale securities	(3,357,290		)	(4,630,084		)
Sales of available-for-sale securities	2,758,409			4,237,704
Net cash used in investing activities	(633,284		)	(427,044		)
Cash flows provided by (used in) financing activities:
Dividend	(34,904		)	—
Issue of shares, net	(272		)	14,469
Net cash (used in) provided by financing activities	(35,176		)	14,469
Increase in cash and cash equivalents	116,040			197,791
Cash and cash equivalents - beginning of period	605,175			729,296
Cash and cash equivalents - end of period	$	721,215		$	927,087

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

4

AXIS CAPITAL HOLDINGS LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of U.S. dollars except share and per share amounts)

1.             Basis of Preparation and Consolidation

These unaudited condensed consolidated financial statements include the accounts of AXIS Capital Holdings Limited (“AXIS Capital”) and all of its subsidiaries (collectively referred to as the “Company”) and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position and results of operations as at the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The major estimates reflected in the Company’s condensed consolidated financial statements include, but are not limited to, the reserve for losses and loss expenses, premium estimates for business written on a line slip or proportional basis and the estimation of fair values for contracts that meet the definition of derivatives under FAS 133. Some items in the financial statements have been reclassified to conform to the current period classification.

2.             New Accounting Pronouncements

EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” was issued in late 2003. It contains two aspects that impact the Company. Firstly, it provides details regarding disclosures about unrealized losses on available-for-sale debt and equity securities accounted for under FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities. These disclosures were effective in annual financial statements for fiscal years ended after December 15, 2003 and, accordingly, were provided in our financial statements for the year ended December 31, 2003. Secondly, it provides additional guidance for evaluating whether an investment is other-than-temporarily impaired. This guidance is effective for reporting periods beginning after June 15, 2004. The Company is currently assessing whether this guidance will have a material impact on the Company’s results of operations or financial condition.

3.             Stock-Based Compensation

On June 30, 2003, the FASB issued FAS No.148 “Accounting for Stock-Based Compensation – Transition and Disclosure.” FAS 148 amends FAS 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, FAS 148 amends the existing disclosure to require more prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The additional disclosure requirements are effective for

5

fiscal quarters ended after December 15, 2002. The Company adopted FAS No. 123 effective January 1, 2003 by applying the prospective method permitted under FAS No. 148. Prior to 2003, the Company followed Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for its employee stock compensation. With respect to unvested restricted stock awards, the amount of deferred compensation is eliminated from share capital and additional paid in capital. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FAS 123 to stock-based compensation.

		Quarters ended						Six months ended
		June 30, 2004			June 30, 2003			June 30, 2004			June 30, 2003
Net income, as reported		$	140,856		$	117,754		$	307,642		$	224,872
Add:	Stock-based employee compensation expense included in net income, net of related tax effects	4,030			2,178			8,087			4,233
Deduct:	Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects	(4,712		)	(3,657		)	(9,453		)	(7,243		)
Pro-forma net income		$	140,174		$	116,275		$	306,276		$	221,862
Net income per share:
Basic – as reported		$	0.92		$	0.86		$	2.02		$	1.65
Basic – pro forma		$	0.92		$	0.85		$	2.01		$	1.63
Diluted – as reported		$	0.84		$	0.81		$	1.84		$	1.55
Diluted – pro forma		$	0.84		$	0.80		$	1.84		$	1.53

4.             Segment Information

The Company’s business consists of four underwriting segments: global insurance, global reinsurance, U.S. insurance and U.S. reinsurance. The Company evaluates the performance of each underwriting segment based on underwriting results. Certain business written by the Company has loss experience generally characterized as low frequency and high severity.  This may result in volatility in both the Company’s and an individual segment’s operating results and cash flows. With effect from January 1, 2004, the Company included the personnel expenses of its underwriters in general and administrative expenses; prior to that date they were included in acquisition costs. Disclosures relating to prior periods have been restated to reflect this change. In addition, with effect from January 1, 2004, the Company allocated all of its general and administrative costs, except for its corporate expenses, to each of its underwriting segments. The Company’s corporate costs include some holding company costs necessary to support the Company’s worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company.  Prior periods have not been restated to reflect the full allocation of general and administrative costs, as the Company’s business segments were not fully operational throughout 2003. The Company does not allocate its assets by segment as it evaluates the underwriting results of each segment separately from the results of its investment portfolio.

6

Global Insurance

The Company’s global insurance segment principally consists of specialty lines business sourced primarily outside of the U.S. but covering exposures throughout the world. In this segment, the Company offers clients tailored solutions in order to respond to their distinctive risk characteristics. Since most of the lines in this segment are for property and not for casualty coverage, the segment is principally short to medium tail business. This means that claims are generally made and settled earlier than in long tail business, which facilitates the Company’s reserving process for this segment.

Global Reinsurance

The Company’s global reinsurance segment consists of treaty reinsurance business sourced outside of the U.S. and underwritten in its Bermuda and Zurich offices.  The Company’s Bermuda office primarily sources business from clients outside of continental Europe whereas the Zurich office sources business from clients based in continental Europe. The Company’s Bermuda-based portfolio consists of short tail severity driven products that principally cover property exposures. The Company’s Zurich-based portfolio consists not only of short tail property exposures but also more medium tail exposures such as motor excess of loss and trade credit lines of business.

U.S. Insurance

The Company’s U.S. insurance segment principally consists of specialty lines business sourced in the U.S. and primarily includes the following risk classifications:  property, liability and professional lines.

U.S. Reinsurance

The Company’s U.S. reinsurance segment principally consists of treaty reinsurance business sourced in the U.S. and focuses almost exclusively on exposures in the U.S. The underlying property and casualty business classes covered by the treaties written in the Company’s U.S. reinsurance segment include: professional lines, liability, property, marine and aviation.

The following tables summarize the underwriting results, ratios and the reserves for losses and loss expenses for the four business segments as of and for the quarters and six months ended June 30, 2004 and June 30, 2003.

7

Quarter ended June 30, 2004

	Global Insurance			Global Reinsurance			U.S. Insurance			U.S. Reinsurance			Corporate		Total
Revenues:
Gross premiums written	$	216,188		$	129,884		$	219,915		$	63,332		—		$	629,319
Net premiums written	183,240			124,875			117,605			62,157			—		487,877
Net premiums earned	196,568			153,270			83,667			52,898			—		486,403
Other insurance related (loss) income	(399		)	555			—			—			—		156
Expenses:
Net losses and loss expenses	117,616			54,036			47,124			39,074			—		257,850
Acquisition costs	30,422			22,496			2,363			10,210			—		65,491
General and administrative expenses	7,265			6,825			16,112			2,601			—		32,803
Underwriting profit	40,866			70,468			18,068			1,013			—		130,415
Corporate expenses													(9,820	)	(9,820		)
Net investment income													33,345		33,345
Realized losses on investments													(4,411	)	(4,411		)
Foreign exchange													(6,413	)	(6,413		)
Income before income taxes															$	143,116
Ratios:
Net loss and loss expense ratio	59.8		%	35.3		%	56.3		%	73.9		%			53.0		%
Acquisition cost ratio	15.5		%	14.7		%	2.8		%	19.3		%			13.5		%
General and administrative expense ratio	3.7		%	4.5		%	19.3		%	4.9		%	2.0	%	8.8		%
Combined ratio	79.0		%	54.5		%	78.4		%	98.1		%			75.3		%
Reserve for losses and loss expenses as at June 30, 2004	$	677,138		$	317,521		$	408,701		$	137,833		n/a		$	1,541,193

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	Global Insurance			Global Reinsurance			U.S. Insurance			U.S. Reinsurance			Corporate		Total
Revenues:
Gross premiums written	$	207,652		$	120,144		$	171,133		$	52,521		—		$	551,450
Net premiums written	203,775			115,606			79,424			51,019			—		449,824
Net premiums earned	187,507			97,028			36,999			14,058			—		335,592
Other insurance related income	10,102			—			—			—			—		10,102
Expenses:
Net losses and loss expenses	114,651			44,134			23,505			13,330			—		195,620
Acquisition costs	27,056			17,020			(1,444		)	3,786			—		46,418
General and administrative expenses (1)	3,472			1,239			4,317			499			—		9,527
Underwriting profit (loss)	52,430			34,635			10,621			(3,557		)	—		94,129
Corporate expenses (1)													(21,719	)	(21,719		)
Net investment income													15,904		15,904
Realized gains on investments													15,705		15,705
Foreign exchange													12,855		12,855
Income before income taxes															$	116,874
Ratios:
Net loss and loss expense ratio	61.1		%	45.5		%	63.5		%	94.8		%			58.3		%
Acquisition cost ratio	14.4		%	17.5		%	(3.9%		)	26.9		%			13.8		%
General and administrative expense ratio (1)	1.9		%	1.3		%	11.7		%	3.5		%	6.5	%	9.3		%
Combined ratio	77.4		%	64.3		%	71.3		%	125.2		%			81.4		%
Reserve for losses and loss expenses as at June 30, 2003	$	317,221		$	157,600		$	73,839		$	20,593		n/a		$	569,253

(1) For the quarter ended June 30, 2003, the Company did not allocate any of its general and administrative expenses, except for the personnel expenses of its underwriters.

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Six months ended June 30, 2004

	Global Insurance			Global Reinsurance			U.S. Insurance			U.S. Reinsurance			Corporate		Total
Revenues:
Gross premiums written	$	516,596		$	558,959		$	368,257		$	229,630		—		$	1,673,442
Net premiums written	415,779			545,050			198,429			227,809			—		1,387,067
Net premiums earned	396,284			298,264			157,571			105,532			—		957,651
Other insurance related (loss) income	(219		)	663			—			—			—		444
Expenses:
Net losses and loss expenses	216,143			109,178			96,740			78,389			—		500,450
Acquisition costs	56,463			43,287			2,537			20,167			—		122,454
General and administrative expenses	15,455			13,332			31,705			5,196			—		65,688
Underwriting profit	108,004			133,130			26,589			1,780			—		269,503
Corporate expenses													(18,823	)	(18,823		)
Net investment income													64,604		64,604
Realized gains on investments													5,686		5,686
Foreign exchange													(7,558	)	(7,558		)
Income before income taxes															$	313,412
Ratios:
Net loss and loss expense ratio	54.5		%	36.6		%	61.4		%	74.3		%			52.3		%
Acquisition cost ratio	14.2		%	14.5		%	1.6		%	19.1		%			12.8		%
General and administrative expense ratio	3.9		%	4.5		%	20.1		%	4.9		%	2.0	%	8.8		%
Combined ratio	72.6		%	55.6		%	83.1		%	98.3		%			73.9		%
Reserve for losses and loss expenses as at June 30, 2004	$	677,138		$	317,521		$	408,701		$	137,833		n/a		$	1,541,193

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	Global Insurance			Global Reinsurance			U.S. Insurance			U.S. Reinsurance			Corporate		Total
Revenues:
Gross premiums written	$	451,299		$	331,642		$	263,046		$	114,050		—		$	1,160,037
Net premiums written	429,589			322,272			125,559			112,548			—		989,968
Net premiums earned	369,371			190,713			53,045			24,890			—		638,019
Other insurance related income	11,208			—			—			—			—		11,208
Expenses:
Net losses and loss expenses	200,543			88,572			33,122			19,718			—		341,955
Acquisition costs	50,907			34,033			(975		)	6,704			—		90,669
General and administrative expenses (1)	6,427			2,717			7,967			1,200			—		18,311
Underwriting profit (loss)	122,702			65,391			12,931			(2,732		)	—		198,292
Corporate expenses (1)													(43,297	)	(43,297		)
Net investment income													27,256		27,256
Realized gains on investments													26,903		26,903
Foreign exchange													14,742		14,742
Income before income taxes															$	223,896
Ratios:
Net loss and loss expense ratio	54.3		%	46.4		%	62.4		%	79.2		%			53.6		%
Acquisition cost ratio	13.8		%	17.8		%	(1.8%		)	26.9		%			14.2		%
General and administrative expense ratio (1)	1.7		%	1.4		%	15.0		%	4.8		%	6.8	%	9.7		%
Combined ratio	69.8		%	65.6		%	75.6		%	110.9		%			77.5		%
Reserve for losses and loss expenses as at June 30, 2003	$	317,221		$	157,600		$	73,839		$	20,593		n/a		$	569,253

(1) For the six months ended June 30, 2003, the Company did not allocate any of its general and administrative expenses, except for the personnel expenses of its underwriters.

5.             Securities Lending

The Company participates in a securities lending program whereby the Company’s securities, which are included in investments, are loaned to third parties, primarily major brokerage firms. The Company maintains control over the securities it lends, retains the earnings and cash flows associated with the loaned securities and receives a fee from the borrower for the temporary use of the securities. Collateral in the form of cash, government securities and letters of credit is required at a rate of 102% of the market value of the loaned securities and is monitored and maintained by the lending agent. The Company had $741.6 million and $nil million in securities on loan at June 30, 2004 and December 31, 2003, respectively.

6.             Other Investments

The Company has invested $12.2 million in the senior preferred shares of a collateralized loan obligation over which the Company does not have significant influence and in whose management the Company does not participate. The collateral manager is Blackstone Debt Advisors L.P., which is a related party as one of its affiliates beneficially owns more than 5% of the Company’s common shares. The collateral manager is entitled to management fees payable by the collateralized loan obligation in the

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ordinary course of business. During the quarter ended June 30, 2004, the Company invested $22.2 million in combination notes of two collateralized loan obligations managed by third parties. The Company carries these investments at fair value which currently approximates cost.

7.             Benefit Plans

The following table presents the components of the Company’s defined benefit pension expense for the quarter and six months ended June 30, 2004 and 2003.

	Quarters ended			Six months ended
	June 30, 2004		June 30, 2003	June 30, 2004		June 30, 2003
	($ in thousands)			($ in thousands)
Interest costs	$	161	—	$	322	—
Amortization of prior service costs	536		—	1,072		—
Total pension expense	$	697	—	$	1,394	—

8.             Commitments and contingencies

On March 25, 2004, the Company renewed its credit facility by entering into a three-year $750 million credit facility with a syndicate of commercial banks led by JPMorgan Chase Bank, as administrative agent and lender. Under the terms of the new credit facility, up to $750 million may be used by the Company and its subsidiaries, AXIS Specialty Limited, AXIS Re Limited, AXIS Specialty Europe Limited, AXIS Reinsurance Company, AXIS Specialty Insurance Company and AXIS Surplus Insurance Company to issue letters of credit and up to $300 million may be used by these entities for general corporate purposes, with total borrowings not to exceed $750 million. The credit facility contains various loan covenants with which the Company must comply, including limitations on the incurrence of future indebtedness, future liens, fundamental changes, investments and certain transactions with affiliates. The credit facility also requires that the Company maintain (A) a minimum amount of consolidated shareholders’ equity equal to or greater than the sum of $1.975 billion plus (1) 50% of consolidated net income for each fiscal quarter beginning with the fiscal quarter ending March 31, 2005 and (2) 100% of the net cash proceeds received after March 25, 2004 from any issuance of our capital stock, and (B) a debt to total capitalization ratio not greater than 0.35:1.00. The credit facility contains restrictions on the Company’s ability to make acquisitions, except that it may, among other things, acquire assets and entities in the insurance and reinsurance business for consideration in an aggregate amount not in excess of $250 million. The Company’s ability to pay dividends or make other restricted payments is also limited, except that it may, among other things, pay cash dividends to shareholders in an amount not exceeding $150 million for any fiscal year and it may repurchase shares of its capital stock for consideration in an aggregate amount not exceeding $500 million. There was no debt outstanding under the credit facility at June 30, 2004 or December 31, 2003. At June 30, 2004, the Company had letters of credit of $134.1 million outstanding under the credit facility. At December 31, 2003, the Company had letters of credit of $127.3 million outstanding under its then existing credit facility.

The Company has invested $12.2 million in a collateralized loan obligation included in other investments. See note (6).  In connection with this investment, the Company has commitments that may require additional funding of up to $12.8 million over the next two years.

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9.             Net income per share

The following table sets forth the calculation of basic and diluted earnings per share:

	Quarters ended				Six months ended
	June 30, 2004		June 30, 2003		June 30, 2004		June 30, 2003
Net income per share - basic
Net income	$	140,856	$	117,754	$	307,642	$	224,872
Weighted average common shares outstanding	152,487,082		136,509,891		152,484,015		136,440,383
Net income per share - basic	$	0.92	$	0.86	$	2.02	$	1.65
Net income per share - diluted
Weighted average common shares outstanding	152,487,082		136,509,891		152,484,015		136,440,383
Share equivalents
Warrants	11,101,412		7,219,892		11,061,309		6,783,557
Options	2,360,798		1,482,137		2,351,596		1,379,409
Restricted stock	893,314		489,523		888,684		441,787
Weighted average common shares outstanding – diluted	166,842,606		145,701,443		166,785,604		145,045,136
Net income per share - diluted	$	0.84	$	0.81	$	1.84	$	1.55

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

We underwrite insurance and reinsurance on a global basis. Our business consists of four segments: global insurance, global reinsurance, U.S. insurance and U.S. reinsurance. On July 7, 2003, we completed an initial public offering of 15.4 million newly issued common shares and 9.3 million common shares offered by selling shareholders. Net proceeds to the Company from the offering were $316.0 million and have been credited to shareholders’ equity. In April 2004, we completed a secondary offering of 23.0 million common shares offered by selling shareholders. We did not sell any common shares in connection with this offering and did not receive any proceeds.

The markets in which we operate have historically been cyclical. During periods of excess underwriting capacity, as defined by availability of capital, competition can result in lower pricing and less favorable policy terms and conditions for insurers and reinsurers. During periods of reduced underwriting capacity, pricing and policy terms and conditions are generally more favorable. Historically, underwriting capacity has been impacted by several factors, including industry losses, catastrophes, changes in legal and regulatory guidelines, investment results and the ratings and financial strength of competitors. During 2003, many companies operating in our markets were recovering from the consequences of a prolonged period of excess underwriting capacity, which generally produced favorable pricing, terms and conditions for the risks we underwrite. We believe that we are currently operating in a marketplace that generally continues to offer favorable pricing, terms and conditions in both the property and casualty lines of business; however, there are certain lines of business that have experienced an increase in underwriting capacity, which is introducing less favorable pricing, terms and conditions. We believe that we will benefit from continued underwriting discipline in most lines of business and from insurers seeking to move their business from insurers and reinsurers with legacy balance sheet issues and reserving shortfalls to financially stronger insurers and reinsurers.

We derive our revenues primarily from the sale of our insurance policies and reinsurance contracts. Insurance and reinsurance premiums are a function of the number and type of contracts we write, as well as prevailing market prices.

Renewal dates for our business segments depend upon the underlying line of business. For the majority of business in our global insurance and U.S. insurance segments, gross premiums are written throughout the year. An exception to this is the business written in our aviation and aviation war accounts, which is predominantly written in the last quarter of the calendar year. For our global reinsurance segment, a significant portion of our gross premiums is written in the first quarter of the calendar year, with the remainder primarily split between the second and third quarters. For the majority of business written in our U.S. reinsurance segment, gross premiums are written primarily in the first and third quarters of the calendar year.

Our premium income is supplemented by the income we generate from our investment portfolio. Our investment portfolio consists primarily of fixed income investments that are held as available for sale. Under GAAP, these investments are carried at fair market value and unrealized gains and losses on the investments are not included in our statement of operations. Rather, these unrealized gains and losses are included on our balance sheet in accumulated other comprehensive income as a separate component of shareholders’ equity. Our current investment strategy seeks to preserve principal and maintain liquidity while trying to maximize investment return through a high-quality, diversified portfolio. The volatility of claims and the interest rate environment can affect the returns we generate on our investment portfolio.

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Our expenses primarily consist of net losses and loss expenses, acquisition costs and general and administrative expenses. Net losses and loss expenses are management’s best estimate of the ultimate cost of claims incurred during a reporting period. Many aspects of our business have loss experience characterized as low frequency and high severity, which may cause volatility to our results of operations from period to period. Also, we have substantial exposure to unexpected losses resulting from natural disasters, man-made catastrophes and other catastrophic events. The incidence and occurrence of such catastrophes are inherently unpredictable and our losses from catastrophes could be substantial. Although we attempt to manage our exposure to such events across the organization in a variety of ways, including transfer of risk to other reinsurers, a single catastrophic event could affect multiple business segments and the frequency or severity of a catastrophic event could exceed our estimates.

Acquisition costs relate to the fees, commissions and taxes paid to obtain business. Typically, these are based on a percentage of the premium written and will vary by each line of business that we underwrite. In addition, we offset override commissions received on ceded premiums against acquisition costs.

General and administrative expenses consist primarily of personnel and general operating expenses. With effect from January 1, 2004, we included the personnel expenses of our underwriters in general and administrative expenses; prior to that date they were included in acquisition costs. Disclosures relating to prior periods have been restated to reflect this change. In addition, with effect from January 1, 2004 we allocated all of our general and administrative costs, except for corporate expenses, to each of our underwriting segments. Our corporate costs include some holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company.  Prior periods have not been restated to reflect the full allocation of general and administrative costs, as our business segments were not fully operational throughout 2003. We do not allocate our assets by segment as we evaluate the underwriting results of each segment separately from the results of its investment portfolio.

Our ultimate objective as an insurance and reinsurance company is to generate superior returns on capital that appropriately reward us for the risks we assume and to grow revenue only when we deem it profitable. To achieve this objective, we must be able to accurately assess the potential losses associated with the risks that we insure and reinsure across the organization, to manage our investment portfolio risk appropriately and to control acquisition costs and infrastructure throughout the organization. Two financial measures that are meaningful in analyzing our performance are return on equity and combined ratio. Our return on equity calculation is based on the level of net income generated from the average of the opening and closing shareholders’ equity during the period. The combined ratio is a formula used by insurance and reinsurance companies to relate net premiums earned during a period to net losses and loss expenses, acquisition costs and general and administrative expenses during a period. A combined ratio above 100% indicates that a company is incurring more in net losses and loss expenses, acquisition costs and general and administrative expenses than it is earning in net premiums. We consider the combined ratio an appropriate indicator of our underwriting performance, particularly given the short tail orientation of our overall portfolio of risks. The following table details our key performance indicators:

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	Quarters ended						Six months ended
	June 30, 2004			June 30, 2003			June 30, 2004			June 30, 2003
	($ in thousands)						($ in thousands)
Gross premiums written	$	629,319		$	551,450		$	1,673,442		$	1,160,037
Net premiums earned	486,403			335,592			957,651			638,019
Net income	140,856			117,754			307,642			224,872
Net loss and loss expense ratio	53.0		%	58.3		%	52.3		%	53.6		%
Combined ratio	75.3		%	81.4		%	73.9		%	77.5		%
Annualized return on average equity	18.6		%	22.0		%	21.0		%	21.6		%

Because we have a limited operating history, period to period comparisons of our results of operations may not be meaningful and there may be volatility in both our results of operations and financial condition. In addition, the amount of premiums written with respect to any particular segment or line of business may vary from quarter to quarter and period to period as a result of changes in market conditions.

Acquisition History

On February 28, 2003, we completed the acquisition of Sheffield Insurance Corporation for $34.7 million and subsequently renamed it AXIS Surplus Insurance Company. At the time of purchase, Sheffield Insurance Company was licensed to write insurance in Illinois and Alabama and eligible to write surplus lines insurance in 39 states and the District of Columbia. In addition, we added a team of insurance professionals from Combined Specialty Group, Inc. In the first half of 2003, we acquired the renewal rights to a book of directors’ and officers’ liability insurance and related lines business written by the Financial Insurance Solutions (“FIS”) group of The Kemper Insurance Companies (“Kemper”) in exchange for an agreement to make an override payment. The override payment is based on a percentage of gross written premiums of all FIS accounts that are renewed by the Company. We purchased this company and agreed to acquire these rights as the foundation for commencing our U.S. insurance operations.

Critical Accounting Policies

The Company’s critical accounting policies are discussed in Managements’ Discussion and Analysis of Results of Operations and Financial Condition contained in our Annual Report on Form 10-K dated February 26, 2004.

Results of Operations

Quarters ended June 30, 2004 and 2003

Premiums.  In the quarter ended June 30, 2004, gross premiums written were $629.3 million compared with $551.4 million for the quarter ended June 30, 2003, an increase of $77.9 million. Of this increase, 62.6% was generated by our U.S. insurance segment, 13.9% by our U.S. reinsurance segment, 12.5% by our global reinsurance segment and 11.0% by our global insurance segment. The increases in gross premiums written in our U.S. segments were primarily due to greater market penetration. We expect the mix of business within and between our segments to change over time based on market conditions and our view of the long term profit potential of individual lines of business.

Premiums ceded for the quarter ended June 30, 2004 were $141.4 million compared with $101.6 million for the quarter ended June 30, 2003, an increase of $39.8 million. We purchase reinsurance to reduce our exposure to risk of loss on some lines of business written primarily within our

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global insurance and U.S. insurance segments. The increase in ceded premiums was generated primarily within these segments.

Net premiums earned for the quarter ended June 30, 2004 were $486.4 million compared with $335.6 million for the quarter ended June 30, 2003, an increase of $150.8 million. Premiums are earned over the term of the policies in proportion to the risks to which they relate. As the level of net premiums written increases, the level of net premiums earned also increases. As we experienced an increase in net premiums written in all of our segments over the rolling twelve month period ended June 30, 2004 compared to the rolling twelve month period ended June 30, 2003, our net premiums earned increased.

Net Investment Income and Net Realized Losses/Gains.  Net investment income, including realized losses/gains, for the quarter ended June 30, 2004 was $28.9 million compared with $31.6 million for the quarter ended June 30, 2003, a decrease of $2.7 million.

Net Investment Income. Net investment income for the quarter ended June 30, 2004 was $33.3 million compared with $15.9 million for the quarter ended June 30, 2003, an increase of $17.4 million. This was due to a combination of higher investment balances and higher investment yields.  Net investment income consisted primarily of interest on fixed income securities that was partially offset by net investment expenses of $1.5 million for the quarter ended June 30, 2004 compared with $1.1 million for the quarter ended June 30, 2003. The higher expenses were a result of an increase in our assets managed by external portfolio managers.

The annualized effective yield (calculated by dividing the net investment income generated from invested assets by the average balance of the assets managed by our portfolio managers) for the quarter ended June 30, 2004 was 3.2% compared with 2.5% for the quarter ended June 30, 2003. The increase in the effective yield was due to the movement of cash balances into longer duration investments and higher U.S. interest rates.

Net Realized Losses/Gains. Net realized losses for the quarter ended June 30, 2004 were $4.4 million compared with $15.7 million of gains for the quarter ended June 30, 2003, a decrease of $20.1 million. We invest our portfolios to produce a total return. In assessing returns under this approach, we include investment income, realized gains and losses and unrealized gains and losses generated by the investment portfolios. As a result, there can be significant changes in the levels of our net realized gains (losses) from quarter to quarter. Some of our mortgage-backed securities are required to be classified as derivatives; included within net realized losses was $0.2 million in realized gains and a negligible amount in unrealized losses relating to these securities.

The total return for our investment portfolio (calculated using beginning and ending market portfolio values, adjusted for external cash flows) for the quarter ended June 30, 2004 was (1.7)% compared with 1.5% for the quarter ended June 30, 2003. The total return for an investment portfolio consists of price and income return. Our total return was lower during the quarter ended June 30, 2004 due to an increase in U.S. interest rates which negatively impacted fixed income security prices; this was partially mitigated by higher investment yields.

Other Insurance Related Income.  Other insurance related income for the quarter ended June 30, 2004 was $0.2 million compared with income of $10.1 million for the quarter ended June 30, 2003, a decrease of $9.9 million. This income related to the movement in the fair value of our insurance and reinsurance contracts that meet the definition of a derivative.

Net Losses and Loss Expenses.  Net losses and loss expenses for the quarter ended June 30, 2004 were $257.8 million compared to $195.6 million for the quarter ended June 30, 2003, an increase of $62.2

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million. This increase was primarily a result of the increase in the volume of net premiums earned. The net loss and loss expense ratio for the quarter ended June 30, 2004 was 53.0% compared to 58.3% for the quarter ended June 30, 2003. This decrease was a result of favorable prior period development and a lack of major loss events during the quarter ended June 30, 2004. During the quarter ended June 30, 2004, we experienced favorable prior period development of $43.2 million or 8.9 percentage points compared to $10.4 million or 3.1 percentage points for the quarter ended June 30, 2003.

Acquisition Costs.  Acquisition costs for the quarter ended June 30, 2004 were $65.5 million compared to $46.4 million for the quarter ended June 30, 2003, an increase of $19.1 million. This increase was a result of the increase in the volume of net premiums earned. The acquisition cost ratio for the quarter ended June 30, 2004 was 13.5 % compared to 13.8% for the quarter ended June 30, 2003. This decrease resulted primarily from the effects of a change in business mix; our U.S. insurance segment, which began underwriting in 2003, has a lower acquisition cost ratio than our other segments due to the receipt of ceding commissions on some outward reinsurance contracts that are recorded as an offset to acquisition costs. With effect from January 1, 2004, we included the personnel expenses of our underwriters in general and administrative expenses; prior to that date they were included in acquisition costs. Our disclosures for prior periods have been restated to reflect this change.

General and Administrative Expenses.  General and administrative expenses for the quarter ended June 30, 2004 were $42.6 million, compared to $31.2 million for the quarter ended June 30, 2003, an increase of $11.4 million. This increase was primarily driven by the establishment and expansion of operations in the U.S. and Europe. In addition, we incurred $0.9 million of fees in connection with our preparation for compliance with section 404 of the Sarbanes-Oxley Act of 2002. The general and administrative expense ratio for the quarter ended June 30, 2004 was 8.8 % compared to 9.3% for the quarter ended June 30, 2003. The reduction in the ratio was caused by an increase in the volume of net premiums earned.

Foreign Exchange Gains.  Our functional currency is the U.S. dollar; however, some of our business is written in other currencies. For the quarter ended June 30, 2004, we experienced a loss of $6.4 million compared to a gain of $12.9 million for the quarter ended June 30, 2003, a decrease of $19.3 million. This decrease was principally attributable to asset balances denominated in Euros. The Euro depreciated by 1.4%, against the U.S. dollar from April 1, 2004 to June 30, 2004.

Income Tax (Expense) Recovery.  The income tax expense for the quarter ended June 30, 2004 was $2.3 million and for the quarter ended June 30, 2003 we had a tax benefit of $0.9 million.

Net Income.  Net income for the quarter ended June 30, 2004 was $140.9 million compared to $117.8 million, an increase of $23.1 million. Net income for the quarter ended June 30, 2004 consisted of net underwriting income of $120.7 million, net investment income and net realized gains of $28.9 million, foreign exchange losses of $6.4 million and tax expense of $2.3 million. Net income for the quarter ended June 30, 2003 consisted of net underwriting income of $72.4 million, net investment income and net realized gains of $31.6 million, foreign exchange gains of $12.9 million and a tax benefit of $0.9 million.

Comprehensive Income.  Comprehensive income for the quarter ended June 30, 2004 was $55.8 million compared to $124.6 million for the quarter ended June 30, 2003, a decrease of $68.8 million. Comprehensive income represents net income adjusted for changes in the unrealized position in our investment portfolio. For the quarter ended June 30, 2004, we experienced a decrease of $85.1 million in the unrealized position in our investment portfolio compared to an increase of $6.8 million during the quarter ended June 30, 2003.

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Six months ended June 30, 2004 and 2003

Premiums.  In the six months ended June 30, 2004, gross premiums written were $1.7 billion compared with $1.2 billion for the six months ended June 30, 2003, an increase of $0.5 billion. Of this increase, 44.3% was generated by our global reinsurance segment, 22.5% by our U.S. reinsurance segment, 20.5% by our U.S. insurance segment and 12.7% by our global insurance segment. The increase in gross premiums written in our global reinsurance segment was primarily driven by our expansion into continental Europe in November 2003. The increases in gross premiums written in our U.S. segments were primarily due to greater market penetration and our ability to participate fully in the first quarter’s renewal season. We expect the mix of business within and between our segments to change over time based on market conditions and our view of the long term profit potential of individual lines of business.

Premiums ceded for the six months ended June 30, 2004 were $286.4 million compared with $170.1 million for the six months ended June 30, 2003, an increase of $116.3 million. We purchase reinsurance to reduce our exposure to risk of loss on some lines of business written primarily within our global insurance and U.S. insurance segments. The increase in ceded premiums was generated primarily within these segments.

Net premiums earned for the six months ended June 30, 2004 were $957.7 million compared with $638.0 million for the six months ended June 30, 2003, an increase of $319.7 million. Premiums are earned over the term of the policies in proportion to the risks to which they relate. As the level of net premiums written increases, the level of net premiums earned also increases. As we experienced an increase in net premiums written in all of our segments over the rolling twelve month period ended June 30, 2004 compared to the rolling twelve month period ended June 30, 2003, our net premiums earned increased.

Net Investment Income and Net Realized Gains.  Net investment income, including realized gains, for the six months ended June 30, 2004 was $70.3 million compared with $54.2 million for the six months ended June 30, 2003, an increase of $16.1 million.

Net Investment Income. Net investment income for the six months ended June 30, 2004 was $64.6 million compared with $27.3 million for the six months ended June 30, 2003, an increase of $37.3 million. This was due to a combination of higher investment balances and higher investment yields. The 2003 amount also included an additional charge to the amortization expense on our mortgage-backed securities portfolio. Net investment income consisted primarily of interest on fixed income securities that was partially offset by net investment expenses of $3.2 million for the six months ended June 30, 2004 compared with $2.3 million for the six months ended June 30, 2003. The higher expenses were a result of an increase in our assets managed by external portfolio managers.

The annualized effective yield (calculated by dividing the net investment income generated from invested assets by the average balance of the assets managed by our portfolio managers) for the six months ended June 30, 2004 was 3.2% compared with 2.3% for the six months ended June 30, 2003. The increase in the effective yield was due to the movement of cash balances into longer duration investments and higher U.S. interest rates. The 2003 yield also was reduced by the additional charge to the amortization expense on our mortgage-backed securities portfolio.

Net Realized Gains. Net realized gains for the six months ended June 30, 2004 were $5.7 million compared with $26.9 million for the six months ended June 30, 2003, a decrease of $21.2 million. We invest our portfolios to produce a total return. In assessing returns under this approach, we include

19

investment income, realized gains and losses and unrealized gains and losses generated by the investment portfolios. As a result, there can be significant changes in the levels of our net realized gains (losses) from quarter to quarter. Some of our mortgage-backed securities are required to be classified as derivatives; included within net realized gains was $0.2 million in realized gains and a negligible amount in unrealized losses relating to these securities.

The total return for our investment portfolio (calculated using beginning and ending market portfolio values, adjusted for external cash flows) for the six months ended June 30, 2004 was 0.3% compared with 2.8% for the six months ended June 30, 2003. The total return for an investment portfolio consists of price and income return. Our total return was lower in the six months ended June 30, 2004 due to an increase in U.S. interest rates which negatively impacted fixed income security prices; this was partially mitigated by higher investment yields.

Other Insurance Related Income.  Other insurance related income for the six months ended June 30, 2004 was $0.4 million compared with income of $11.2 million for the six months ended June 30, 2003, a decrease of $10.8 million. This income related to the movement in the fair value of our insurance and reinsurance contracts that meet the definition of a derivative.

Net Losses and Loss Expenses.  Net losses and loss expenses for the six months ended June 30, 2004 were $500.4 million compared to $342.0 million for the six months ended June 30, 2003, an increase of $158.4 million. This increase was primarily a result of the increase in the volume of net premiums earned. The net loss and loss expense ratio for the quarter ended June 30, 2004 was 52.3 % compared to 53.6 % for the six months ended June 30, 2003. This decrease was a result of prior period favorable development and a lack of major loss events during the six months ended June 30, 2004. During the six months ended June 30, 2004, we experienced favorable prior period development of $91.7 million or 9.6 percentage points compared to $20.6 million or 3.2 percentage points for the six months ended June 30, 2003.

Acquisition Costs.  Acquisition costs for the six months ended June 30, 2004 were $122.5 million compared to $90.7 million for the six months ended June 30, 2003, an increase of $31.8 million. This increase was a result of the increase in the volume of net premiums earned. The acquisition cost ratio for the six months ended June 30, 2004 was 12.8% compared to 14.2% for the six months ended June 30, 2003. This decrease resulted primarily from the effects of a change in business mix; our U.S. insurance segment, which began underwriting in 2003, has a lower acquisition cost ratio than our other segments due to the receipt of ceding commissions on some outward reinsurance contracts that are recorded as an offset to acquisition costs. With effect from January 1, 2004, we included the personnel expenses of our underwriters in general and administrative expenses; prior to that date they were included in acquisition costs. Our disclosures for prior periods have been restated to reflect this change.

General and Administrative Expenses.  General and administrative expenses for the six months ended June 30, 2004 were $84.5 million, compared to $61.6 million for the six months ended June 30, 2003, an increase of $22.9 million. This increase was primarily driven by the establishment and expansion of operations in the U.S. and Europe. In addition, we incurred $1.4 million of fees in connection with our preparation for compliance with section 404 of the Sarbanes-Oxley Act of 2002. The general and administrative expense ratio for the quarter ended June 30, 2004 was 8.8% compared to 9.7% for the six months ended June 30, 2003. The reduction in the ratio was caused by an increase in the volume of net premiums earned.

Foreign Exchange Gains.  Our functional currency is the U.S. dollar; however, some of our business is written in other currencies. For the six months ended June 30, 2004, we experienced a loss of $7.6 million compared to a gain of $14.7 million for the six months ended June 30, 2003, a decrease of

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$22.3 million. This decrease was principally attributable to asset balances denominated in Euros following an increase in the level of gross premiums written in this currency in our global reinsurance segment. The Euro depreciated by 3.5% against the U.S. dollar from January 1, 2004 to June 30, 2004.

Income Tax (Expense) Recovery.  The income tax expense for the six months ended June 30, 2004 was $5.8 million and for the six months ended June 30, 2003 we had a tax benefit of $1.0 million.

Net Income.  Net income for the six months ended June 30, 2004 was $307.6 million compared to $224.9 million, an increase of $82.7 million. Net income for the six months ended June 30, 2004 consisted of net underwriting income of $250.7 million, net investment income and net realized gains of $70.3 million, foreign exchange losses of $7.6 million and tax expense of $5.8 million. Net income for the six months ended June 30, 2003 consisted of net underwriting income of $155.0 million, net investment income and net realized gains of $54.2 million, foreign exchange gains of $14.7 million and an overall tax benefit of $1.0 million.

Comprehensive Income.  Comprehensive income for the six months ended June 30, 2004 was $251.2 million compared to $237.1 million for the six months ended June 30, 2003, an increase of $14.1 million. Comprehensive income represents net income adjusted for changes in the unrealized position in our investment portfolio. For the six months ended June 30, 2004, we experienced a decrease of $56.4 million in the unrealized position in our investment portfolio compared to an increase of $12.2 million during the six months ended June 30, 2003.

Underwriting Results by Segment

Our business consists of four underwriting segments: global insurance, global reinsurance, U.S. insurance and U.S. reinsurance.

We evaluate the performance of each underwriting segment based on underwriting results. With effect from January 1, 2004, we included the personnel expenses of our underwriters in general and administrative expenses; prior to that date they were included in acquisition costs. Disclosures relating to prior periods have been restated to reflect this change. In addition, with effect from January 1, 2004, we allocated all of our general and administrative costs, except for corporate expenses, to each of our underwriting segments. Our corporate costs include some holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. We have not restated prior periods to reflect the full allocation of general and administrative costs as our business segments were not fully operational throughout 2003. We do not allocate our assets by segment as we evaluate the underwriting results of each segment separately from the results of our investment portfolio.

Global Insurance

Our global insurance segment principally consists of specialty lines business sourced outside of the U.S. but covering exposures throughout the world. In this segment, we offer clients tailored solutions in order to respond to their distinctive risk characteristics. Since most of the lines in this segment are for physical damage and related perils and not for liability coverage, the segment is principally short to medium tail business. This means that claims are generally made and settled earlier than in long tail business, which facilitates our reserving process for this segment.

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Quarters ended June 30, 2004 and June 30, 2003

The following table summarizes the underwriting results and ratios for the quarters ended June 30, 2004 and June 30, 2003:

	Quarter ended June 30, 2004			Quarter ended June 30, 2003			Change
	($ in thousands)
Revenues:
Gross premiums written	$	216,188		$	207,652		$	8,536
Net premiums written	183,240			203,775			(20,535		)
Net premiums earned	196,568			187,507			9,061
Other insurance related (loss) income	(399		)	10,102			(10,501		)
Expenses:
Net losses and loss expenses	117,616			114,651			2,965
Acquisition costs	30,422			27,056			3,366
General and administrative expenses (1)	7,265			3,472			3,793
Underwriting profit	$	40,866		$	52,430		$	(11,564	)
Ratios:
Net loss and loss expense ratio	59.8		%	61.1		%	(1.3		)%
Acquisition cost ratio	15.5		%	14.4		%	1.1		%
General and administrative expense ratio (1)	3.7		%	1.9		%	1.8		%
Combined ratio	79.0		%	77.4		%	1.6		%

(1) For the quarter ended June 30, 2003, we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters; therefore, the general and administrative amounts and expense ratios for the two periods are not comparable.

Premiums.  In the quarter ended June 30, 2004, gross premiums written were $216.2 million compared to $207.7 million for the quarter ended June 30, 2003, an increase of $8.5 million. The table below shows gross premiums written by line of business:

	Quarter ended June 30, 2004		Quarter ended June 30, 2003
	($ in thousands)		($ in thousands)
Marine	$	18,524	$	13,513
Onshore and Offshore Energy	58,008		53,731
Aviation and Aerospace	31,384		29,126
Property	42,479		36,028
Specialty Risks	65,793		75,254
Total	$	216,188	$	207,652

During the quarter ended June 30, 2004, gross premiums written increased by 4.1% compared to the quarter ended June 30, 2003. Our marine book experienced an increase in gross premiums written of 37.1% over the quarter ended June 30, 2003. This resulted from the recruitment of a cargo specie underwriting team that began to write gross premiums this quarter. Our specialty risks book experienced a decrease of $9.5 million. This was due to a decrease in the level of political risk gross premiums written

22

of $21.4 million. Our political risks book does not have a set renewal pattern as it is largely dependent upon the levels of foreign direct investment and consequently there can be some variability in the level of our gross premium writings. Offseting this decrease was $11.7 million directors’ and officers’ gross premiums written, which we began writing in the second half of 2003.

Premiums ceded for the quarter ended June 30, 2004 were $32.9 million compared to $3.9 million for the quarter ended June 30, 2003, an increase of $29.0 million. The increase was primarily due to the purchase of additional reinsurance protections to mitigate volatility as our portfolio grows.

The following table shows the derivation of net premiums earned for the quarters ended June 30, 2004 and June 30, 2003:

	Quarter ended June 30, 2004			Quarter ended June 30, 2003
	($ in thousands)			($ in thousands)
Gross premiums earned	$	227,815		$	202,650
Ceded premiums amortized	(31,247		)	(15,143		)
Net premiums earned	$	196,568		$	187,507

Gross premiums are earned over the period of the insured risk. Consequently, the level of gross premiums earned has increased as the level of gross premiums written has increased.

Ceded premiums are amortized over the contract term. Consequently, the level of amortized ceded premium has increased in 2004 as premiums ceded in 2003 continue to be amortized in 2004.

Other Insurance Related (Loss) Income.  Other insurance related loss was $0.4 million compared to income of $10.1 million for the quarter ended June 30, 2003, a decrease of $10.5 million. Other insurance related loss/income related to the movement in the fair value of our insurance contracts that meet the definition of a derivative. These contracts typically insure a portfolio of sovereign debt securities against the risk of default.

Net Losses and Loss Expenses.  Net losses and loss expenses were $117.6 million for the quarter ended June 30, 2004 compared to $114.7 million for the quarter ended June 30, 2003, an increase of $2.9 million. The following table shows the components of net losses and loss expenses incurred:

	Quarter ended June 30, 2004			Quarter ended June 30, 2003
	($ in thousands)			($ in thousands)
Losses paid	$	12,204		$	6,670
Change in reported case reserves	(1,836		)	58,989
Change in IBNR	109,954			57,339
Reinsurance recoveries	(2,706		)	(8,347		)
Net losses and loss expenses	$	117,616		$	114,651

The net loss and loss expense ratio for the quarter ended June 30, 2004 was 59.8% compared to 61.1% for the quarter ended June 30, 2003.  During the quarter ended June 30, 2004, we experienced favorable development on our prior accident years of $18.1 million, which effected a reduction in the net loss ratio of 9.2 percentage points. This reduction was largely generated by our aviation, energy, property

23

and terrorism lines of business. We primarily use the Bornhuetter-Ferguson method to estimate the ultimate cost of losses; it takes as a starting point an assumed ultimate loss and loss expense ratio and blends in the loss and loss expense ratio implied by the experience to date. During the quarter ended June 30, 2004, the lack of reported claims on our aviation, energy, property and terrorism lines of business produced a favorable impact on our experience to date, which caused a reduction in the expected ultimate losses for these lines of business. During the quarter ended June 30, 2003, our loss ratio was impacted by two factors. Firstly, our property book experienced a single significant loss notification for $45.5 million as a result of the U.S. tornadoes in May 2003. Secondly, we experienced favorable development of $6.3 million on our 2002 accident year, which generated a 3.4 percentage point reduction in the net loss ratio.

Acquisition Costs.  Acquisition costs for the quarter ended June 30, 2004 were $30.4 million compared to $27.1 million for the quarter ended June 30, 2003, an increase of $3.3 million. The acquisition cost ratio for the quarter ended June 30, 2004 was 15.5% compared with 14.4% for the quarter ended June 30, 2003. The increase in the acquisition cost ratio was a result of higher amortized reinsurance, which reduced the level of net premiums earned. As a percentage of gross premiums earned, the level of acquisition costs was 13.4% for both quarters ended June 30, 2004 and June 30, 2003.

General and Administrative Expenses.  General and administrative expenses for the quarter ended June 30, 2004 were $7.3 million compared to $3.5 million for the quarter ended June 30, 2003, an increase of $3.8 million. The general and administrative expenses ratio for the quarter ended June 30, 2004 was 3.7% compared with 1.9% for the quarter ended June 30, 2003. As we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters, prior to January 1, 2004, these amounts and ratios are not comparable.

Six months ended June 30, 2004 and June 30, 2003

The following table summarizes the underwriting results and ratios for the six months ended June 30, 2004 and June 30, 2003:

	Six months ended June 30, 2004			Six months ended June 30, 2003			Change
	($ in thousands)
Revenues:
Gross premiums written	$	516,596		$	451,299		$	65,297
Net premiums written	415,779			429,589			13,810
Net premiums earned	396,284			369,371			26,913
Other insurance related (loss) income	(219		)	11,208			(11,427		)
Expenses:
Net losses and loss expenses	216,143			200,543			15,600
Acquisition costs	56,463			50,907			5,556
General and administrative expenses (1)	15,455			6,427			9,028
Underwriting profit	$	108,004		$	122,702		$	(14,698	)
Ratios:
Net loss and loss expense ratio	54.5		%	54.3		%	0.2		%
Acquisition cost ratio	14.2		%	13.8		%	0.4		%
General and administrative expense ratio (1)	3.9		%	1.7		%	2.2		%
Combined ratio	72.6		%	69.8		%	2.8		%

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(1) For the six months ended June 30, 2003, we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters; therefore, the general and administrative amounts and expense ratios for the two periods are not comparable.

Premiums.  In the six months ended June 30, 2004, gross premiums written were $516.6 million compared to $451.3 million for the six months ended June 30, 2003, an increase of $65.3 million. The table below shows gross premiums written by line of business:

	Six months ended June 30, 2004		Six months ended June 30, 2003
	($ in thousands)		($ in thousands)
Marine	$	62,145	$	58,968
Onshore and Offshore Energy	113,153		117,055
Aviation and Aerospace	54,572		52,850
Property	77,016		61,169
Specialty Risks	209,710		161,257
Total	$	516,596	$	451,299

During the six months ended June 30, 2004, gross premiums written increased by 14.5% compared to the six months ended June 30, 2003. The increase in gross premiums written was primarily driven by our specialty risks book, which generated an increase of $48.5 million in gross premiums written. This was partly due to an increase in the level of political risk gross premiums written of $21.9 million following a rise in the level of direct foreign investment in the first quarter of 2004 and increased targeting of this business. Also, our aviation war gross premiums written increased $14.0 million due primarily to increased participations on renewed business and new business. In addition, we generated gross premiums written of $14.5 million on our directors’ and officers’ book of business, which we began to write in the second half of 2003. Gross premiums written in our property book increased $15.8 million during the six months ended June 30, 2004 compared with the six months ended June 30, 2003. This was primarily a result of new business. The reduction in the level of gross premiums written of $3.9 million in our onshore and offshore energy book was due to a movement in renewal dates on some large accounts as well as some rate reductions.

Premiums ceded for the six months ended June 30, 2004 were $100.8 million compared to $21.7 million for the six months ended June 30, 2003, an increase of $79.1 million. The increase was primarily due to the timing of the renewal of a contract that originally had a sixteen month coverage period. In addition, we have increased the level of reinsurance purchased in order to mitigate volatility as our portfolio grows.

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The following table shows the derivation of net premiums earned for the six months ended June 30, 2004 and June 30, 2003:

	Six months ended June 30, 2004			Six months ended June 30, 2003
	($ in thousands)			($ in thousands)
Gross premiums earned	$	447,156		$	400,653
Ceded premiums amortized	(50,872		)	(31,282		)
Net premiums earned	$	396,284		$	369,371

Gross premiums are earned over the period of the insured risk. Consequently, the level of gross premiums earned has increased as the level of gross premiums written has increased.

Ceded premiums are amortized over the contract term. Consequently, the level of amortized ceded premium has increased in 2004 as premiums ceded in 2003 continue to be amortized in 2004.

Other Insurance Related (Loss) Income.  Other insurance related loss was $0.2 million compared to income of $11.2 million for the six months ended June 30, 2003, a decrease of $11.4 million. Other insurance related loss/income related to the movement in the fair value of our insurance contracts that meet the definition of a derivative. These contracts typically insure a portfolio of sovereign debt securities against the risk of default.

Net Losses and Loss Expenses.  Net losses and loss expenses were $216.1 million for the six months ended June 30, 2004 compared to $200.5 million for the six months ended June 30, 2003, an increase of $15.6 million. The following table shows the components of net losses and loss expenses incurred:

	Six months ended June 30, 2004			Six months ended June 30, 2003
	($ in thousands)			($ in thousands)
Losses paid	$	38,855		$	27,375
Change in reported case reserves	43,477			55,400
Change in IBNR	153,683			127,589
Reinsurance recoveries	(19,872		)	(9,821		)
Net losses and loss expenses	$	216,143		$	200,543

The net loss and loss expense ratio for the six months ended June 30, 2004 was 54.5% compared to 54.3% for the six months ended June 30, 2003.  During the six months ended June 30, 2004, we incurred a significant loss on our marine hull book of business that was partially offset by reinsurance recoveries. The net loss added 3.1 percentage points to our loss ratio. During the six months ended June 30, 2003, we incurred a significant loss on our property book of business that was partially offset by reinsurance recoveries. The net loss added 12.3 percentage points to our loss ratio. In addition, during the six months ended June 30, 2004, we experienced favorable development on our prior accident years of $52.0 million, which effected a reduction in the net loss ratio of 13.1 percentage points. This reduction was largely generated by our property, terrorism, energy and aviation lines of business. We primarily use the Bornhuetter-Ferguson method to estimate the ultimate cost of losses; it takes as a starting point an

26

assumed ultimate loss and loss expense ratio and blends in the loss and loss expense ratio implied by the experience to date. During the six months ended June 30, 2004, the lack of reported claims on our property, terrorism, energy and aviation lines of business produced a favorable impact on our experience to date, which caused a reduction in the expected ultimate losses for these lines of business. During the six months ended June 30, 2003, we experienced favorable development of $14.3 million on our 2002 accident year, which generated a 3.9 percentage point reduction in the net loss ratio.

Acquisition Costs.  Acquisition costs for the six months ended June 30, 2004 were $56.4 million compared to $50.9 million for the six months ended June 30, 2003, an increase of $5.5 million. The acquisition cost ratio for the six months ended June 30, 2004 was 14.2% compared with 13.8% for the six months ended June 30, 2003. The increase in the acquisition cost ratio was a result of higher amortized reinsurance costs which reduced the level of net premiums earned. As a percentage of gross premiums earned, the level of acquisition costs was 12.6% for the six months ended June 30, 2004 compared to 12.7% for the six months ended June 30, 2003.

General and Administrative Expenses.  General and administrative expenses for the six months ended June 30, 2004 were $15.5 million compared to $6.4 million for the six months ended June 30, 2003, an increase of $9.1 million. The general and administrative expenses ratio for the six months ended June 30, 2004 was 3.9% compared with 1.7% for the six months ended June 30, 2003. As we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters, prior to January 1, 2004, these amounts and ratios are not comparable.

Global Reinsurance

Our global reinsurance segment consists of treaty reinsurance business sourced outside of the U.S. and underwritten in our Bermuda and Zurich offices.  Our Bermuda office primarily sources business from clients based outside continental Europe whereas our Zurich office sources business from clients based in continental Europe. Our Bermuda based portfolio consists of short tail severity driven products that principally cover property exposures. Our Zurich-based portfolio consists not only of short tail property exposures but also more medium tail exposures such as motor excess of loss and trade credit lines of business. As the majority of this business is short tail in nature, it typically allows us to determine the ultimate loss experience within a relatively short period of time after a contract has expired.

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Quarters ended June 30, 2004 and June 30, 2003

The following table summarizes the underwriting results and ratios for the quarters ended June 30, 2004 and June 30, 2003:

	Quarter ended June 30, 2004			Quarter ended June 30, 2003			Change
	($ in thousands)
Revenues:
Gross premiums written	$	129,884		$	120,144		$	9,740
Net premiums written	124,875			115,606			9,269
Net premiums earned	153,270			97,028			56,242
Other insurance related income	555			—			555
Expenses:
Net losses and loss expenses	54,036			44,134			9,902
Acquisition costs	22,496			17,020			5,476
General and administrative expenses (1)	6,825			1,239			5,586
Underwriting profit	$	70,468		$	34,635		$	35,833
Ratios:
Net loss and loss expense ratio	35.3		%	45.5		%	(10.2		)%
Acquisition cost ratio	14.7		%	17.5		%	(2.8		)%
General and administrative expenses ratio (1)	4.5		%	1.3		%	3.2		%
Combined ratio	54.5		%	64.3		%	(9.8		)%

(1) For the quarter ended June 30, 2003, we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters; therefore, the general and administrative amounts and expense ratios for the two periods are not comparable.

Premiums.  In the quarter ended June 30, 2004, gross premiums written were $129.9 million compared to $120.1 million for the quarter ended June 30, 2003, an increase of $9.8 million. The table below shows gross premiums written by line of business:

	Quarter ended June 30, 2004		Quarter ended June 30, 2003
	($ in thousands)		($ in thousands)
Catastrophe	$	88,404	$	76,864
Property Pro Rata	15,030		31,885
Property Per Risk	10,096		4,111
Credit and Bond	258		—
Motor and General Liability	5,026		—
Other	11,070		7,284
Total	$	129,884	$	120,144

During the quarter ended June 30, 2004, our gross premiums written increased by 8.1% compared to the quarter ended June 30, 2003. The increase in gross premiums written was generated by an increase in the number of catastrophe and property per risk contracts written. In addition, we wrote motor and general liability business through our Zurich office, which was established in late 2003. Our property pro rata book experienced a reduction in gross premiums written due primarily to the effect of a state

28

hurricane fund increasing the level of protection it provides, thereby reducing available reinsurable risk in the commercial marketplace.

Premiums ceded for the quarter ended June 30, 2004 were $5.0 million compared to $4.5 million for the quarter ended June 30, 2003, an increase of $0.5 million.  All of these coverages provide reinsurance protection in the event of a large industry loss or series of losses.

The following table shows the derivation of net premiums earned for the quarters ended June 30, 2004 and June 30, 2003:

	Quarter ended June 30, 2004			Quarter ended June 30, 2003
	($ in thousands)			($ in thousands)
Gross premiums earned	$	155,652		$	100,382
Ceded premiums amortized	(2,382		)	(3,354		)
Net premiums earned	$	153,270		$	97,028

Gross premiums are earned over the period of the reinsured risk. Consequently, the level of gross premiums earned has increased as the level of gross premiums written has increased.

Ceded premiums are amortized over the contract term.

Other Insurance Related Income.  Other insurance related income was $0.6 million for the quarter ended June 30, 2004. The income related to the movement in the fair value of a reinsurance contract that meets the definition of a derivative. We did not record any other insurance related income in the quarter ended June 30, 2003.

Net Losses and Loss Expenses.  Net losses and loss expenses were $54.0 million for the quarter ended June 30, 2004 compared to $44.1 million for the quarter ended June 30, 2003, an increase of $9.9 million. The following table shows the components of net losses and loss expenses incurred:

	Quarter ended June 30, 2004			Quarter ended June 30, 2003
	($ in thousands)			($ in thousands)
Losses paid	$	11,687		$	5,871
Change in reported case reserves	(9,732		)	1,685
Change in IBNR	52,081			36,578
Reinsurance recoveries	—			—
Net losses and loss expenses	$	54,036		$	44,134

The net loss and loss expense ratio for the quarter ended June 30, 2004 was 35.3% compared to 45.5% for the quarter ended June 30, 2003. During the quarter ended June 30, 2004, we experienced favorable development of $18.0 million on our 2003 accident year, which generated an 11.8 percentage point reduction in the net loss ratio. This reduction was primarily experienced in our catastrophe book of business. During the quarter ended June 30, 2003, we experienced favorable development of $4.1 million on our 2002 accident year, which generated a 4.2 percentage point reduction in the net loss ratio. We primarily use the Bornhuetter-Ferguson method to estimate the ultimate cost of losses; it takes as a starting point an assumed ultimate loss and loss expense ratio and blends in the loss and loss expense ratio

29

implied by the experience to date. During the quarter ended June 30, 2004, the lack of reported claims produced a favorable impact on our experience to date, which caused a reduction in the expected ultimate losses for this line of business. Our global reinsurance segment has loss experience categorized as low frequency but high severity in nature and, therefore, our loss experience can be volatile. During the quarters ended June 30, 2004 and June 30, 2003, our loss experience benefited from the lack of major catastrophes.

Acquisition Costs.  Acquisition costs for the quarter ended June 30, 2004 were $22.5 million compared to $17.0 million for the quarter ended June 30, 2003, an increase of $5.5 million. The acquisition cost ratio for the quarter ended June 30, 2004 was 14.7% compared with 17.5% for the quarter ended June 30, 2003. This decrease was primarily due to a reduction in the level of commissions incurred.

General and Administrative Expenses.  General and administrative expenses for the quarter ended June 30, 2004 were $6.8 million compared to $1.2 million for the quarter ended June 30, 2003, an increase of $5.6 million. The general and administrative expenses ratio for the quarter ended June 30, 2004 was 4.5% compared with 1.3% for the quarter ended June 30, 2003. As we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters, prior to January 1, 2004, these amounts and ratios are not comparable.

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Six months ended June 30, 2004 and June 30, 2003

The following table summarizes the underwriting results and ratios for the six months ended June 30, 2004 and June 30, 2003:

	Six months ended June 30, 2004			Six months ended June 30, 2003			Change
	($ in thousands)
Revenues:
Gross premiums written	$	558,959		$	331,642		$	227,317
Net premiums written	545,050			322,272			222,778
Net premiums earned	298,264			190,713			107,551
Other insurance related income	663			—			663
Expenses:
Net losses and loss expenses	109,178			88,572			20,606
Acquisition costs	43,287			34,033			9,254
General and administrative expenses (1)	13,332			2,717			10,615
Underwriting profit	$	133,130		$	65,391		$	67,739
Ratios:
Net loss and loss expense ratio	36.6		%	46.4		%	(9.8		)%
Acquisition cost ratio	14.5		%	17.8		%	(3.3		)%
General and administrative expenses ratio (1)	4.5		%	1.4		%	3.1		%
Combined ratio	55.6		%	65.6		%	10.0		%

(1) For the six months ended June 30, 2003, we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters; therefore, the general and administrative amounts and expense ratios for the two periods are not comparable.

Premiums.  In the six months ended June 30, 2004, gross premiums written were $559.0 million compared to $331.6 million for the six months ended June 30, 2003, an increase of $227.4 million. The table below shows gross premiums written by line of business:

	Six months ended June 30, 2004		Six months ended June 30, 2003
	($ in thousands)		($ in thousands)
Catastrophe	$	326,441	$	259,130
Property Pro Rata	67,679		46,467
Property Per Risk	34,656		14,292
Credit and Bond	67,840		—
Motor and General Liability	45,661		—
Other	16,682		11,753
Total	$	558,959	$	331,642

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During the six months ended June 30, 2004, our gross premiums written increased by 68.5% compared to the six months ended June 30, 2003. This was primarily due to our expansion into continental Europe and an increase in writings of catastrophe premiums. During the six months ended June 30, 2004, our Zurich office generated $185.1 million of gross premiums written, writing catastrophe, property pro rata and property per risk and three new lines of business: credit and bond; motor; and general liability.  The majority of the credit and bond business was whole-turnover trade credit, which effectively provides protection for receivable balances. Losses are generally triggered by the insolvency of the debtor. Our motor portfolio consists of excess of loss coverage for third party liability and property damage.  The increase in our catastrophe gross premiums written was driven by a trend toward counterparty diversification in our target markets, thereby enabling us to participate on a greater number of programs than in the prior year; this offset some moderate rate reductions.

Premiums ceded for the six months ended June 30, 2004 were $13.9 million compared to $9.4 million for the six months ended June 30, 2003, an increase of $4.5 million.  All of these coverages provide reinsurance protection in the event of a large industry loss or series of losses.

The following table shows the derivation of net premiums earned for the six months ended June 30, 2004 and June 30, 2003:

	Six months ended June 30, 2004			Six months ended June 30, 2003
	($ in thousands)			($ in thousands)
Gross premiums earned	$	302,755		$	194,476
Ceded premiums amortized	(4,491		)	(3,763		)
Net premiums earned	$	298,264		$	190,713

Gross premiums are earned over the period of the reinsured risk. Consequently, the level of gross premiums earned has increased as the level of gross premiums written has increased.

Ceded premiums are amortized over the contract term. Consequently, the level of amortized ceded premium has increased in 2004 as premiums ceded in 2003 continue to be amortized in 2004.

Other Insurance Related Income.  Other insurance related income was $0.7 million for the six months ended June 30, 2004. The income related to the movement in the fair value of a reinsurance contract that meets the definition of a derivative. We did not record any other insurance related income in the six months ended June 30, 2003.

Net Losses and Loss Expenses.  Net losses and loss expenses were $109.2 million for the six months ended June 30, 2004 compared to $88.6 million for the six months ended June 30, 2003, an increase of $20.6 million. The following table shows the components of net losses and loss expenses incurred:

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	Six months ended June 30, 2004			Six months ended June 30, 2003
	($ in thousands)			($ in thousands)
Losses paid	$	19,562		$	14,576
Change in reported case reserves	(3,813		)	(1,675		)
Change in IBNR	93,429			75,671
Reinsurance recoveries	—			—
Net losses and loss expenses	$	109,178		$	88,572

The net loss and loss expense ratio for the six months ended June 30, 2004 was 36.6% compared to 46.4% for the six months ended June 30, 2003. During the six months ended June 30, 2004, we experienced favorable development of $32.8 million on our 2003 accident year, which generated an 11.0 percentage point reduction in the net loss ratio. This reduction was primarily experienced in our catastrophe book of business. During the six months ended June 30, 2003, we experienced favorable development of $6.4 million on our 2002 underwriting year, which generated a 3.3 percentage point reduction in the net loss ratio. We primarily use the Bornhuetter-Ferguson method to estimate the ultimate cost of losses; it takes as a starting point an assumed ultimate loss and loss expense ratio and blends in the loss and loss expense ratio implied by the experience to date. During the six months ended June 30, 2004, the lack of reported claims produced a favorable impact on our experience to date, which caused a reduction in the expected ultimate losses for this line of business. Our global reinsurance segment has loss experience categorized as low frequency but high severity in nature and, therefore, our loss experience can be volatile. During the six months ended June 30, 2004 and June 30, 2003, our loss experience benefited from the lack of major catastrophes.

Acquisition Costs.  Acquisition costs for the six months ended June 30, 2004 were $43.3 million compared to $34.0 million for the six months ended June 30, 2003, an increase of $9.3 million. The acquisition cost ratio for the six months ended June 30, 2004 was 14.5% compared with 17.8% for the six months ended June 30, 2003. This decrease was primarily due to a reduction in the level of commissions incurred.

General and Administrative Expenses.  General and administrative expenses for the six months ended June 30, 2004 were $13.3 million compared to $2.7 million for the six months ended June 30, 2003, an increase of $10.6 million. The general and administrative expenses ratio for the six months ended June 30, 2004 was 4.5% compared with 1.4% for the six months ended June 30, 2003. As we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters, prior to January 1, 2004, these amounts and ratios are not comparable.

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U.S. Insurance

Our U.S. insurance segment principally consists of specialty lines business sourced in the U.S. and includes the following risk classifications: property, liability and professional lines.

Quarters ended June 30, 2004 and June 30, 2003

The following table summarizes the underwriting results and ratios for the quarters ended June 30, 2004 and June 30, 2003:

	Quarter ended June 30, 2004			Quarter ended June 30, 2003			Change
	($ in thousands)
Revenues:
Gross premiums written	$	219,915		$	171,133		$	48,782
Net premiums written	117,605			79,424			38,181
Net premiums earned	83,667			36,999			46,668
Expenses:
Net losses and loss expenses	47,124			23,505			23,619
Acquisition costs	2,363			(1,444		)	3,807
General and administrative expenses (1)	16,112			4,317			11,795
Underwriting profit	$	18,068		$	10,621		$	7,447
Ratios:
Net loss and loss expense ratio	56.3		%	63.5		%	(7.2		)%
Acquisition cost ratio	2.8		%	(3.9		)%	6.7		%
General and administrative expense ratio(1)	19.3		%	11.7		%	7.6		%
Combined ratio	78.4		%	71.3		%	7.1		%

(1) For the quarter ended June 30, 2003, we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters; therefore, the general and administrative amounts and expense ratios for the two periods are not comparable.

Premiums.  In the quarter ended June 30, 2004, gross premiums written were $219.9 million compared to $171.1 million for the quarter ended June 30, 2003, an increase of $48.8 million. The table below shows gross premiums written by line of business:

	Quarter ended June 30, 2004		Quarter ended June 30, 2003
	($ in thousands)		($ in thousands)
Property	$	83,151	$	48,001
Liability	58,058		40,509
Professional Lines	78,706		82,623
Total	$	219,915	$	171,133

Gross premiums written for the quarter ended June 30, 2004 increased by 28.5%. This was primarily driven by an increase in the level of underwriting staff and increased marketing efforts.

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Our property book generated gross premiums written of $83.2 million during the quarter ended June 30, 2004, an increase of 73.2% over the quarter ended June 30, 2003.  This was primarily due to three reasons: firstly, we introduced a new product line in mid-2003; secondly, we increased our maximum line sizes, which enabled our underwriters to access more business; and thirdly, we increased the number of States in which we were able to write business on an admitted basis.

Our liability book generated gross premiums written of $58.1 million during the quarter ended June 30, 2004, an increase of 43.3% over the quarter ended June 30, 2003.  This was primarily driven by an increase in our maximum line size for our umbrella and excess coverages, which enabled our underwriters to access more business.

Our professional lines book gross premiums written declined by $3.9 million during the quarter ended June 30, 2004, a decrease of 4.7% over the quarter ended June 30, 2003.  This was primarily driven by the fact that following the acquisition of the renewal rights of a book of directors’ and officers’ liability insurance and related lines of business written by the FIS group of Kemper on February 17, 2003, we cancelled and rewrote a number of policies that generated gross premiums written of $31.9 million in the quarter ended June 30, 2003. Consequently these policies did not renew in the quarter ended June 30, 2004, but instead renewed on their original renewal dates.

Premiums ceded for the quarter ended June 30, 2004 were $102.3 million compared to $91.7 million for the quarter ended June 30, 2003, an increase of $10.6 million. Our U.S. insurance segment purchases significant proportional and excess of loss reinsurance on both a treaty and facultative basis that is designed to reduce the volatility in our severity driven classes of business and, therefore, as the total of our gross premiums written increases so does the total of premiums ceded.

The following table shows the derivation of net premiums earned:

	Quarter ended June 30, 2004			Quarter ended June 30, 2003
	($ in thousands)			($ in thousands)
Gross premiums earned	$	164,211		$	80,538
Ceded premiums amortized	(80,544		)	(43,539		)
Net premiums earned	$	83,667		$	36,999

Gross premiums are earned over the period of the insured risk. Consequently, the level of earned premiums has increased as premiums written throughout 2003 continued to be earned in 2004.

Ceded premiums are amortized over the contract term. Consequently, the level of ceded premiums amortized has increased in 2004 as premiums ceded in 2003 continued to be amortized in 2004.

Net Losses and Loss Expenses.  Net losses and loss expenses were $47.1 million for the quarter ended June 30, 2004 compared to $23.5 million for the quarter ended June 30, 2003, an increase of $23.6 million. This segment purchases significant reinsurance coverage, therefore, we have recorded reinsurance recoveries in our incurred but not reported loss reserves. The following table shows the components of net losses and loss expenses incurred:

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	Quarter ended June 30, 2004			Quarter ended June 30, 2003
	($ in thousands)			($ in thousands)
Losses paid	$	5,875		$	4,088
Change in reported case reserves	5,654			3,551
Change in IBNR	87,863			46,631
Reinsurance recoveries	(52,268		)	(30,765		)
Net losses and loss expenses	$	47,124		$	23,505

The net loss and loss expense ratio for the quarter ended June 30, 2004 was 56.3% compared to 63.5% for the quarter ended June 30, 2003. The decrease in the net loss and loss expense ratio was primarily due to a favorable development on our property account for the 2003 accident year of $6.3 million, which effected a reduction in the net loss ratio of 7.5 percentage points. We primarily use the Bornhuetter-Ferguson method to estimate the ultimate cost of losses; it takes as a starting point an assumed loss and loss expense ratio and blends in the loss and loss expense ratio implied by our experience to date. During the quarter ended June 30, 2004, there was a lack of claims in our property book that caused the reduction in expected losses for this business line.

Acquisition Costs.  Acquisition costs for the quarter ended June 30, 2004 were $2.4 million compared to $(1.4) million for the quarter ended June 30, 2003, an increase of $3.8 million. The acquisition cost ratio for the quarter ended June 30, 2004 was 2.8% compared to (3.9%) for the quarter ended June 30, 2003.  The increase in acquisition costs is primarily due to a reduction on the level of override commissions received on ceded premiums, which are offset against acquisition costs. During the quarter ended June 30, 2004, override commissions were $20.3 million, which had a positive impact on the acquisition cost ratio of 24.2 percentage points compared to $12.7 million and 34.3 percentage points for the quarter ended June 30, 2003.

General and Administrative Expenses.  General and administrative expenses for the quarter ended June 30, 2004 were $16.1 million compared to $4.3 million for the quarter ended June 30, 2003, an increase of $11.8 million. The general and administrative expenses ratio for the quarter ended June 30, 2004 was 19.3% compared with 11.7% for the quarter ended June 30, 2003. As we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters, prior to January 1, 2004, these amounts and ratios are not comparable.

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Six months ended June 30, 2004 and June 30, 2003

The following table summarizes the underwriting results and ratios for the six months ended June 30, 2004 and June 30, 2003:

	Six months June 30, 2004			Six months June 30, 2003			Change
	($ in thousands)
Revenues:
Gross premiums written	$	368,257		$	263,046		$	105,211
Net premiums written	198,429			125,559			72,870
Net premiums earned	157,571			53,045			104,526
Expenses:
Net losses and loss expenses	96,740			33,122			63,618
Acquisition costs	2,537			(975		)	3,512
General and administrative expenses (1)	31,705			7,967			23,738
Underwriting profit	$	26,589		$	12,931		$	13,658
Ratios:
Net loss and loss expense ratio	61.4		%	62.4		%	(1.0		)%
Acquisition cost ratio	1.6		%	(1.8		)%	3.4		%
General and administrative expense ratio(1)	20.1		%	15.0		%	5.1		%
Combined ratio	83.1		%	75.6		%	7.5		%

(1) For the six months ended June 30, 2003, we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters; therefore, the general and administrative amounts and expense ratios for the two periods are not comparable.

Premiums.  In the six months ended June 30, 2004, gross premiums written were $368.3 million compared to $263.0 million for the six months ended June 30, 2003, an increase of $105.3 million. The table below shows gross premiums written by line of business:

	Six months June 30, 2004		Six months June 30, 2003
	($ in thousands)		($ in thousands)
Property	$	134,893	$	79,863
Liability	103,600		69,631
Professional Lines	129,764		113,552
Total	$	368,257	$	263,046

Gross premiums written for the six months ended June 30, 2004 increased by 40.0%. This was primarily driven by an increase in the level of underwriting staff and increased marketing efforts.

Our property book generated gross premiums written of $134.9 million during the six months ended June 30, 2004, an increase of 68.9% over the six months ended June 30, 2003.  This was primarily due to three reasons: firstly, we introduced a new product line in mid-2003; secondly, we increased our maximum line sizes, which enabled our underwriters to access more business; and thirdly, we increased the number of States in which we were able to write business on an admitted basis.

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Our liability book generated gross premiums written of $103.6 million during the six months ended June 30, 2004, an increase of 48.8% over the six months ended June 30, 2003.  This was primarily driven by an increase in our maximum line size for our umbrella and excess coverages, which enabled our underwriters to access more business.

Our professional lines book generated gross premiums written of $129.8 million during the six months ended June 30, 2004, an increase of 14.3% over the six months ended June 30, 2003.  This was primarily driven by the fact that we did not acquire the renewal rights of a book of directors’ and officers’ liability insurance and related lines of business written by the FIS group of Kemper until February 17, 2003. Included within the gross premiums written for the six months ended June 30, 2003 was $55.3 million relating to the cancel/rewrite process that followed the acquisition of the renewal rights. In addition, we introduced a new unit writing errors and omissions insurance in late 2003, which began to write business in the first part of 2004.

Premiums ceded for the six months ended June 30, 2004 were $169.8 million compared to $137.5 million for the six months ended June 30, 2003, an increase of $32.3 million. Our U.S. insurance segment purchases significant proportional and excess of loss reinsurance on both a treaty and facultative basis that is designed to reduce the volatility in our severity driven classes of business and, therefore, as the total of our gross premiums written increases so does the total of premiums ceded.

The following table shows the derivation of net premiums earned:

	Six months ended June 30, 2004			Six months ended June 30, 2003
	($ in thousands)			($ in thousands)
Gross premiums earned	$	311,512		$	109,249
Ceded premiums amortized	(153,941		)	(56,204		)
Net premiums earned	$	157,571		$	53,045

Gross premiums are earned over the period of the insured risk. Consequently, the level of earned premiums has increased as premiums written throughout 2003 continued to be earned in 2004.

Ceded premiums are amortized over the contract term. Consequently, the level of ceded premiums amortized has increased in 2004 as premiums ceded in 2003 continued to be amortized in 2004.

Net Losses and Loss Expenses.  Net losses and loss expenses were $96.7 million for the six months ended June 30, 2004 compared to $33.1 million for the six months ended June 30, 2003, an increase of $63.6 million. This segment purchases significant reinsurance coverage, therefore, we have recorded reinsurance recoveries in our incurred but not reported loss reserves. The following table shows the components of net losses and loss expenses incurred:

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	Six months ended June 30, 2004			Six months ended June 30, 2003
	($ in thousands)			($ in thousands)
Losses paid	$	13,660		$	10,949
Change in reported case reserves	7,986			(5,043		)
Change in IBNR	176,978			60,042
Reinsurance recoveries	(101,884		)	(32,826		)
Net losses and loss expenses	$	96,740		$	33,122

The net loss and loss expense ratio for the six months ended June 30, 2004 was 61.4% compared to 62.4% for the six months ended June 30, 2003. The decrease in the net loss and loss expense ratio was primarily due to favorable development on our property account for the 2003 accident year of $6.3 million, which effected a reduction in the net loss ratio of 4.0 percentage points. We primarily use the Bornhuetter-Ferguson method to estimate the ultimate cost of losses; it takes as a starting point an assumed loss and loss expense ratio and blends in the loss and loss expense ratio implied by our experience to date. During the six months ended June 30, 2004, there was a lack of claims in our property book that caused the reduction in expected losses. Offsetting this was a change in the mix of business following the acquisition of the renewal rights of a book of directors’ and officers’ liability insurance and related lines of business in the first quarter of 2003.

Acquisition Costs.  Acquisition costs for the six months ended June 30, 2004 were $2.5 million compared to ($1.0) million for the six months ended June 30, 2003, an increase of $3.5 million. The acquisition cost ratio for the six months ended June 30, 2004 was 1.6% compared to (1.8)% for the six months ended June 30, 2003. The increase in the acquisition costs was primarily due to a reduction in the level of override commissions received on ceded premiums, which are offset against acquisition costs. During the six months ended June 30, 2004, override commissions were $40.8 million, which had a positive impact on the acquisition cost ratio of 25.9 percentage points compared to $16.6 million and 31.3 percentage points for the six months ended June 30, 2003.

General and Administrative Expenses.  General and administrative expenses for the six months ended June 30, 2004 were $31.7 million compared to $8.0 million for the six months ended June 30, 2003, an increase of $23.7 million. The general and administrative expenses ratio for the six months ended June 30, 2004 was 20.1% compared with 15.0% for the six months ended June 30, 2003. As we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters, prior to January 1, 2004, these amounts and ratios are not comparable.

U.S. Reinsurance

Our U.S. reinsurance segment principally consists of treaty reinsurance business sourced in the U.S. and focuses almost exclusively on exposures in the U.S. The underlying property and casualty business classes covered by the treaties we write in our U.S. reinsurance segment include: professional lines, liability, property, marine and aviation.

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Quarters Ended June 30, 2004 and June 30, 2003

The following table summarizes the underwriting results and ratios for the quarters ended June 30, 2004 and June 30, 2003:

	Quarter ended June 30, 2004			Quarter ended June 30, 2003			Change
	($ in thousands)
Revenues:
Gross premiums written	$	63,332		$	52,521		$	10,811
Net premiums written	62,157			51,019			11,138
Net premiums earned	52,898			14,058			38,840
Expenses:
Net losses and loss expenses	39,074			13,330			25,744
Acquisition costs	10,210			3,786			6,424
General and administrative expenses (1)	2,601			499			2,102
Underwriting profit	$	1,013		$	(3,577	)	$	4,590
Ratios:
Net loss and loss expense ratio	73.9		%	94.8		%	(20.9		)%
Acquisition cost ratio	19.3		%	26.9		%	(7.6		)%
General and administrative expense ratio (1)	4.9		%	3.5		%	1.4		%
Combined ratio	98.1		%	125.2		%	27.1		%

(1) For the quarter ended June 30, 2003, we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters; therefore, the general and administrative amounts and expense ratios for the two periods are not comparable.

Premiums.  In the quarter ended June 30, 2004, gross premiums written were $63.3 million compared to $52.5 million for the quarter ended June 30, 2003, an increase of $10.8 million. The table below shows gross premiums written by line of business:

	Quarter ended June 30, 2004		Quarter ended June 30, 2003
	($ in thousands)		($ in thousands)
Professional Lines	$	27,965	$	24,575
Liability	14,798		5,687
Property	18,996		20,945
Marine and Aviation	1,573		1,314
Total	$	63,332	$	52,521

Gross premiums written for the quarter ended June 30, 2004 increased by 20.6%. This was primarily driven by an increase in gross premiums written of $9.1 million in our liability book of business. This was due to increased market penetration as a result of additional marketing. Our property book decreased by $1.9 million due to the reclassification of a contract between business segments during the quarter ended June 30, 2004.

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Premiums ceded for the quarter ended June 30, 2004 were $1.2 million compared to $1.5 million for the quarter ended June 30, 2003, a decrease of $0.3 million.

The following table shows the derivation of net premiums earned:

	Quarter ended June 30, 2004			Quarter ended June 30, 2003
	($ in thousands)			($ in thousands)
Gross premiums earned	$	53,962		$	14,461
Ceded premiums amortized	(1,064		)	(403		)
Net premiums earned	$	52,898		$	14,058

Gross premiums are earned over the period of the insured risk. Consequently, the level of earned premiums generally has increased as premiums written throughout 2003 continued to be earned in 2004.

In addition, a large portion of premiums written in 2003 were on a risk-attaching basis, for which the earning period is twice the underlying contract period. Consequently, a significant proportion of the gross premiums has been and will continue to be earned on these contracts in 2004.

Net Losses and Loss Expenses.  Net losses and loss expenses were $39.1 million for the quarter ended June 30, 2004 compared to $13.3 million for the quarter ended June 30, 2003, an increase of $25.8 million. The following table shows the components of net losses and loss expenses incurred:

	Quarter ended June 30, 2004			Quarter ended June 30, 2003
	($ in thousands)			($ in thousands)
Losses paid	$	1,425		$	—
Change in reported case reserves	5,461			—
Change in IBNR	32,971			13,572
Reinsurance recoveries	(783		)	(242		)
Net losses and loss expenses	$	39,074		$	13,330

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The net loss and loss expense ratio for the quarter ended June 30, 2004 was 73.9% compared to 94.8% for the quarter ended June 30, 2003. Given the limited number of accounts written and the small amount of net premium earned by the U.S. reinsurance segment, due to its start up phase during the first six months ended June 30, 2003, any comparison of loss ratios between these quarters is not meaningful.

Acquisition Costs.  Acquisition costs for the quarter ended June 30, 2004 were $10.2 million compared to $3.8 million for the quarter ended June 30, 2003, an increase of $6.4 million. The acquisition cost ratio for the quarter ended June 30, 2004 was 19.3% compared to 26.9% for the quarter ended June 30, 2003. The decrease was due to a reduction in the level of commissions.

General and Administrative Expenses.  General and administrative expenses for the quarter ended June 30, 2004 were $2.6 million compared to $0.5 million for the quarter ended June 30, 2003, an increase of $2.1 million. The general and administrative expenses ratio for the quarter ended June 30, 2004 was 4.9% compared with 3.5% for the quarter ended June 30, 2003. As we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters, prior to January 1, 2004, these amounts and ratios are not comparable.

Six Months Ended June 30, 2004 and June 30, 2003

The following table summarizes the underwriting results and ratios for the six months ended June 30, 2004 and June 30, 2003:

	Six months ended June 30, 2004			Six months ended June 30, 2003			Change
	($ in thousands)
Revenues:
Gross premiums written	$	229,630		$	114,050		$	115,580
Net premiums written	227,809			112,548			115,261
Net premiums earned	105,532			24,890			80,642
Expenses:
Net losses and loss expenses	78,389			19,718			58,671
Acquisition costs	20,167			6,704			13,463
General and administrative expenses (1)	5,196			1,200			3,996
Underwriting profit	$	1,780		$	(2,732	)	$	4,512
Ratios:
Net loss and loss expense ratio	74.3		%	79.2		%	(4.9		)%
Acquisition cost ratio	19.1		%	26.9		%	(7.8		)%
General and administrative expense ratio (1)	4.9		%	4.8		%	0.1		%
Combined ratio	98.3		%	110.9		%	(12.6		)%

(1) For the six months ended June 30, 2003, we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters; therefore, the general and administrative amounts and expense ratios for the two periods are not comparable.

Premiums.  In the six months ended June 30, 2004, gross premiums written were $229.6 million compared to $114.1 million for the six months ended June 30, 2003, an increase of $115.5 million. The table below shows gross premiums written by line of business:

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	Six months ended June 30, 2004		Six months ended June 30, 2003
	($ in thousands)		($ in thousands)
Professional Lines	$	143,050	$	74,723
Liability	52,621		15,178
Property	29,496		20,945
Marine and Aviation	4,463		3,204
Total	$	229,630	$	114,050

Our professional lines book generated gross premiums written of $143.1 million during the six months ended June 30, 2004, an increase of 91.4% over the six months ended June 30, 2003. Our liability book generated gross premiums written of $52.6 million during the six months ended June 30, 2004, an increase of 246.7% over the six months ended June 30, 2003.  These increases were primarily generated by our ability to quote and write the contracts that came up for renewal on January 1, 2004. In 2003, we did not receive regulatory approvals until mid-December 2002, which caused us to miss the opportunity to take part in the January 2003 renewals. In addition, we increased the statutory capital of AXIS Reinsurance Company in excess of $500 million, which enabled us to participate on more business.

We wrote $29.5 million of gross premiums relating to property reinsurance during the six months ended June 30, 2004, an increase of 40.8% over the six months ended June 30, 2003. This was driven by the recruitment of a property underwriter in the second half of 2003.

Premiums ceded for the six months ended June 30, 2004 were $1.8 million compared to $1.5 million for the six months ended June 30, 2003, an increase of $0.3 million.

The following table shows the derivation of net premiums earned:

	Six months ended June 30, 2004			Six months ended June 30, 2003
	($ in thousands)			($ in thousands)
Gross premiums earned	$	107,403		$	25,293
Ceded premiums amortized	(1,871		)	(403		)
Net premiums earned	$	105,532		$	24,890

Gross premiums are earned over the period of the insured risk. Consequently, the level of earned premiums generally has increased as premiums written throughout 2003 continued to be earned in 2004.

In addition, a large portion of premiums written in 2003 were on a risk-attaching basis, for which the earning period is twice the underlying contract period. Consequently, a significant proportion of the gross premiums has been and will continue to be earned on these contracts in 2004.

Net Losses and Loss Expenses.  Net losses and loss expenses were $78.4 million for the six months ended June 30, 2004 compared to $19.7 million for the six months ended June 30, 2003, an increase of $58.7 million. The following table shows the components of net losses and loss expenses incurred:

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	Six months ended June 30, 2004			Six months ended June 30, 2003
	($ in thousands)			($ in thousands)
Losses paid	$	1,895		$	—
Change in reported case reserves	6,756			—
Change in IBNR	71,076			19,960
Reinsurance recoveries	(1,338		)	(242		)
Net losses and loss expenses	$	78,389		$	19,718

The net loss and loss expense ratio for the six months ended June 30, 2004 was 74.3% compared to 79.2% for the six months ended June 30, 2003. The decrease in the loss ratio was partly driven by a change in the mix of business. In addition, we experienced favorable development on our 2003 accident year property account of $0.7 million, which generated a 0.7 percentage point reduction in the net loss ratio.

Acquisition Costs.  Acquisition costs for the six months ended June 30, 2004 were $20.2 million compared to $6.7 million for the six months ended June 30, 2003, an increase of $13.5 million. The acquisition cost ratio for the quarter ended June 30, 2004 was 19.1% compared to 26.9% for the quarter ended June 30, 2003. The decrease was due to a reduction in the level of commissions.

General and Administrative Expenses.  General and administrative expenses for the six months ended June 30, 2004 were $5.2 million compared to $1.2 million for the six months ended June 30, 2003, an increase of $4.0 million. The general and administrative expenses ratio for the six months ended June 30, 2004 was 4.9% compared with 4.8% for the six months ended June 30, 2003. As we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters, prior to January 1, 2004, these amounts and ratios are not comparable.

Financial Condition and Liquidity

We are a holding company and have no substantial operations of our own. Our assets consist primarily of our investments in subsidiaries. At June 30, 2004, we had operating subsidiaries in Bermuda, Ireland and the United States, a branch and representative office in the United Kingdom and a branch in Switzerland. Accordingly, our future cash flows depend upon the availability of dividends or other statutorily permissible payments from our subsidiaries. The ability to pay dividends is limited by the applicable laws and regulations of Bermuda, the United States and Ireland, which subject our insurance subsidiaries to significant regulatory restrictions. These laws and regulations require, among other things, some of our insurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends that these subsidiaries can pay to us, which in turn may limit our ability to pay dividends and make other payments.

Additionally, we are subject to Bermuda regulatory constraints that affect our ability to pay dividends on our common shares and make other payments. Under the Bermuda Companies Act 1981, as amended, AXIS Capital may declare or pay a dividend or make a distribution out of contributed surplus only if it has no reasonable grounds for believing that it is, or would after the payment be, unable to pay its liabilities as they become due or that the realizable value of its assets would thereby be less than the aggregate of our liabilities and issued share capital and share premium accounts. In addition, pursuant to

44

the terms of our credit agreement, we cannot pay cash dividends to our shareholders in excess of $150 million in the aggregate during any fiscal year.

At June 30, 2004, the maximum amount of distributions that our subsidiaries could pay to AXIS Capital under applicable laws and regulations without prior regulatory approval was approximately $951.7 million.

Financial Condition

At June 30, 2004, total investments at fair market value, accrued interest receivable and cash net of unsettled investment trades were $4.7 billion, compared to $4.0 billion at December 31, 2003. Our investment portfolio consisted primarily of fixed income securities at June 30, 2004 and was managed by several external investment management firms. At June 30, 2004, all of these fixed income securities were investment grade, with 82.2 % rated Aa3 or AA- or better by an internationally recognized rating agency. The weighted-average rating of our fixed income portfolio was AA+ based on ratings assigned by Standard & Poor’s. The net payable for investments purchased at June 30, 2004 was $80.6 million compared to a net receivable of $3.4 million at December 31, 2003. Net receivables/payables are a result of timing differences only, as investments are accounted for on a trade date basis.

At June 30, 2004, we had $994.8 million of insurance and reinsurance premium balances receivable compared to $660.5 million at December 31, 2003. This increase was due to the level of gross premium written during the six months ended June 30, 2004. At June 30, 2004, we had prepaid reinsurance of $240.2 million and $245.9 million of reinsurance recoverables under these contracts. These balances have increased since December 31, 2003 by $75.2 million and $121.0 million, respectively, following an increase in the level of reinsurance purchased by our global insurance and U.S insurance segments.

At June 30, 2004, we had $1.5 billion of reserves for loss and loss expenses compared to $992.8 million at December 31, 2003, an increase of $548.4 million. Of this balance, $1,308.1 million, or 84.9%, was incurred but not reported reserves.

At June 30, 2004, our shareholders’ equity was $3.0 billion compared to $2.8 billion at December 31, 2003, an increase of 7.8%. This increase was primarily due to net income of $307.6 million for the six months ended June 30, 2004, offset by a decrease of $56.3 million in the unrealized appreciation on our investment portfolio during the same period.

Liquidity

In the six months ended June 30, 2004, we generated a net operating cash inflow of $784.5 million, primarily relating to premiums received and investment income. During the same period, we paid losses of $74.0 million. We invested a net cash amount of $633.3 million during the period, and at June 30, 2004 had a cash balance of $721.2 million. For the six months ended June 30, 2004, our cash flows from operations provided us with sufficient liquidity to meet our operating requirements.

In the six months ended June 30, 2003, we generated a net operating cash inflow of $610.4 million, primarily relating to premiums received and investment income. During the same period we paid losses of $52.9 million. We invested a net cash amount of $427.0 million, and at June 30, 2003 had a cash balance of $927.1 million.

On an ongoing basis, our sources of funds primarily consist of premiums written, investment income and proceeds from sales and redemptions of investments. Cash is used primarily to pay losses

45

and loss expenses, reinsurance, acquisition costs and general and administrative expenses and to purchase new investments and fund dividend payments.

Our cash flows from operations generally represent the difference between: (1) premiums collected and investment earnings realized; and (2) losses and loss expenses paid, reinsurance purchased, underwriting, other expenses paid, investment losses realized and dividends paid. Cash flows from operations may differ substantially, however, from net income. The potential for a large claim under one of our insurance or reinsurance contracts means that substantial and unpredictable payments may need to be made within relatively short periods of time.

On June 16, 2004, we declared a quarterly dividend of $0.125 per common share to shareholders of record at June 30, 2004. The dividend was paid on July 14, 2004.

In April 2004, the Company announced that it intended to pursue a secondary offering of up to 20,000,000 of its common shares on behalf of some of its founding shareholders. On April 21, 2004, the offering of 20,000,000 common shares was completed at a price of $27.91 per share. In addition, the selling shareholders granted the underwriters an option to purchase an additional 3,000,000 common shares to cover over-allotments. On April 27, 2004, the offering of shares pursuant to the over-allotment option was completed. We did not sell any common shares in connection with the registration and did not receive any proceeds from the offering.

Capital Resources

On March 25, 2004, we renewed our credit facility by entering into a three-year $750 million credit facility with a syndicate of commercial banks led by JPMorgan Chase Bank, as administrative agent and lender. Under the terms of the new credit facility, up to $750 million may be used by the Company, AXIS Specialty Limited, AXIS Re Limited, AXIS Specialty Europe Limited, AXIS Reinsurance Company, AXIS Specialty Insurance Company and AXIS Surplus Insurance Company to issue letters of credit and up to $300 million may be used by these entities for general corporate purposes, with total borrowings not to exceed $750 million. The credit facility contains various loan covenants with which we must comply, including limitations on the incurrence of future indebtedness, future liens, fundamental changes, investments and certain transactions with affiliates. The credit facility also requires that we maintain (A) a minimum amount of consolidated shareholders’ equity equal to or greater than the sum of $1.975 billion plus (1) 50% of consolidated net income for each fiscal quarter beginning with the fiscal quarter ending March 31, 2005 and (2) 100% of the net cash proceeds received after March 25, 2004 from any issuance of our capital stock and (B) a debt to total capitalization ratio not greater than 0.35:1.00. The credit facility contains restrictions on our ability to make acquisitions, except that we may, among other things, acquire assets and entities in the insurance and reinsurance business for consideration in an aggregate amount not in excess of $250 million. Our ability to pay dividends or make other restricted payments is also limited, except that we may, among other things, pay cash dividends to our shareholders in an amount not exceeding $150 million for any fiscal year and we may repurchase shares of our capital stock for consideration in an aggregate amount not exceeding $500 million. There was no debt outstanding under the credit facility at June 30, 2004 or December 31, 2003. At June 30, 2004, we had letters of credit of $134.1 million outstanding under the credit facility. At December 31, 2003, we had letters of credit of $127.3 million outstanding under our then existing credit facility. As at June 30, 2004, we were in compliance with all covenants.

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Commitments

We did not make any significant capital expenditures during the quarter ended June 30, 2004. We currently expect capital expenditures for 2004 to be less than $50 million.

The following table provides an analysis of our contractual obligations at June 30, 2004:

			Payment due by period Expressed in thousands of U.S. dollars
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating Lease Obligations	$	61,448	$	7,521	$	14,709	$	11,832	$	27,386

We invested in a collateralized loan obligation with a carrying value of $12.2 million. In connection with this investment, we have commitments that may require additional funding of up to $12.8 million through February 2006.

Item 3.  Quantitative and Qualitative Disclosure about Market Risk

We are exposed to potential loss on our investment portfolio from various market risks, including changes in interest rates and foreign currency exchange rates, and from credit risk. Our investment portfolio primarily consists of fixed income securities denominated in both U.S. and foreign currencies. External investment professionals manage our portfolio under the direction of our management in accordance with detailed investment guidelines provided by us. Our guidelines do not currently permit the use of derivatives other than foreign currency forward contracts.  In the future, we may change our guidelines to permit the use of derivatives. We do not enter into risk sensitive instruments for trading purposes.

Interest Rate Risk.  Fluctuations in interest rates have a direct impact on the market valuation of fixed income securities included in our investment portfolio. As interest rates rise, the market value of our fixed income portfolio falls, and the converse is also true. We manage interest rate risk by selecting investments with characteristics such as duration, yield, currency and liquidity tailored to the anticipated cash outflow characteristics of our insurance and reinsurance liabilities.

Our current duration target for our investments is two to four years. The duration of an investment is based on the maturity of the security and also reflects the payment of interest and the possibility of early principal payment of such security. We seek to utilize investment benchmarks that reflect this duration target. Management periodically revises our investment benchmarks based on business and economic conditions, including the average duration of our potential liabilities. At June 30, 2004, our invested assets (assets under management by external investment managers) had an approximate duration of 3.3 years.

At June 30, 2004, we held $1,232.0 million at fair market value, or 29.9% of our total invested assets, in mortgage-backed securities compared to $1,012.9 million, or 28.2%, at December 31, 2003. When interest rates decline, these assets are exposed to prepayment risk, which occurs when holders of underlying mortgages increase the frequency with which they prepay the outstanding principal before the maturity date and refinance at a lower interest rate cost. When interest rates increase, these assets are exposed to extension risk, which occurs when holders of underlying mortgages reduce the frequency on which they prepay the outstanding principal before the maturity date and delay any refinancing of the outstanding principal.

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We have calculated the effect that an immediate parallel shift in the U.S. interest rate yield curve would have on our assets under management by third party investment managers at June 30, 2004. The modeling of this effect was performed on each security individually using the security’s effective duration and changes in prepayment expectations for mortgage-backed and asset-backed securities. The results of this analysis are summarized in the table below.

Interest Rate Movement Analysis on Market Value of Assets under Management by External Investment Managers

	Interest Rate Shift in Basis Points
	(Expressed in thousands of U.S. dollars)
	-100		-50		0	+50		+100		+200
Total Market Value	4,286,712		4,222,247		4,154,193	4,083,979		4,013,019		3,872,764
Market Value Change from Base	3.19	%	1.64	%	0	(1.69	)%	(3.40	)%	(6.77	)%
Change in Unrealized Value	132,519		68,054		0	(70,214	)	(141,174	)	(281,429	)

Foreign Currency Risk.  Fluctuations in foreign currency exchange rates have a direct impact on the market valuation of fixed income securities included in our investment portfolio that are denominated in those currencies. Therefore, we attempt to manage our foreign currency risk by seeking to match our liabilities under insurance and reinsurance policies that are payable in foreign currencies with investments that are denominated in such currencies. Furthermore, we may use foreign currency forward contracts in an effort to hedge against movements in the value of foreign currencies relative to the U.S. dollar and to gain exposure to interest rate differentials between differing market rates. A foreign currency forward contract involves an obligation to purchase or sell a specified currency at a future date at a price set at the time of the contract. Foreign currency forward contracts will not eliminate fluctuations in the value of our assets and liabilities denominated in foreign currencies but rather allow us to establish a rate of exchange for a future point in time. We do not expect to enter into such contracts with respect to a material amount of our assets. Foreign currency forward contracts purchased are not specifically identifiable against cash, any single security or any groups of securities and, therefore, do not qualify and are not designated as a hedge for financial reporting purposes. All realized gains and losses and unrealized gains and losses on foreign currency forward contracts are recognized in our statements of operations and comprehensive income. At June 30, 2004, the net contractual amount of foreign currency forward contracts was $39.7 million with a fair market value of $0.4 million. At December 31, 2003, the net contractual amount of foreign currency forward contracts was $3.8 million with a negligible fair market value.

At June 30, 2004, we had insurance and reinsurance premium balances receivable of $994.8 million compared to $660.5 million at December 31, 2003. Of this balance, 81.1% was denominated in U.S. dollars. Of the remaining balance, 11.6% was denominated in Euro and 3.4% in Sterling. A 5% increase or decrease in the value of the Euro and Sterling currencies against the U.S. dollar would produce a gain or loss of approximately $7.5 million, compared to $1.0 million at December 31, 2003.

Credit Risk.  We have exposure to credit risk primarily as a holder of fixed income securities. Our risk management strategy and investment policy is to invest in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to particular ratings categories and any one issuer. We attempt to limit our credit exposure by purchasing fixed income investments rated BBB-/Baa3 or higher. In addition, we have limited our exposure to any single corporate issuer to 5% or less of our portfolio for securities rated A-/A3 or above and 2% or less of our portfolio for securities rated between BBB-/Baa3 and BBB+/Baa1. At June 30, 2004, we did not have an aggregate exposure to any single issuer of more than 2% of our portfolio, other than with respect to U.S. government and agency securities. In addition, we have credit risk under some contracts where we receive premiums in return for assuming the risk of default on pre-determined portfolios of sovereign and corporate obligations.

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Value-at-Risk.  Our management uses Value-at-Risk (“VaR”) as one of its tools to measure potential losses in fair market values of our investment portfolio. The VaR calculation is calculated by a third party provider and reviewed by management. VaR uses a Monte Carlo simulation to project many different prices of fixed income securities, derivatives and currencies taking into account, among other things, the volatility and the correlation between security price changes over various forecast horizons. The VaR of our investment portfolio at June 30, 2004 was approximately $213.1 million compared to $174.1 million at December 31, 2003, which represents the potential loss in fair market value of our investment portfolio over a one year time horizon within a 95% confidence level. This increase was primarily due to a higher overall investment balances. The VaR computation is a risk analysis tool and does not purport to represent actual losses in fair market value. We cannot predict actual future movements in market rates and do not present these results to be indicative of future movements in such market rates or to be representative of any actual impact that future changes in market rates may have on our future results of operations or financial position.

Effects of Inflation

We do not believe that inflation has had a material effect on our results of operations, except insofar as inflation may affect interest rates. The potential exists, after a catastrophe loss, for the development of inflationary pressures in a local economy. The anticipated effects on us are considered in our catastrophe loss models. The effects of inflation are also considered in pricing and in estimating reserves for unpaid claims and claim expenses. The actual effects of inflation on our results of operations cannot be accurately known until claims are ultimately settled.

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Cautionary Note Regarding Forward-Looking Statement

This report contains forward-looking statements within the meaning of the U.S. federal securities laws.  We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws.  In some cases, these statements can be identified by the use of forward-looking words such as “may,” “should,” “could,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “ potential” and “intend.”  Forward-looking statements contained in this report include information regarding the benefits from continued underwriting discipline and from insureds seeking to move their business to financially stronger insurers and reinsurers, pricing conditions, the mix of businesses within and between our business segments, managing interest rate and foreign currency risks, valuations of potential interest rate shifts, foreign currency rate changes and measurements of potential losses in fair market values of our investment portfolio. Forward-looking statements only reflect our expectations and are not guarantees of performance.  These statements involve risks, uncertainties and assumptions.  Actual events or results may differ materially from our expectations.  Important factors that could cause actual events or results to be materially different from our expectations include (1) our limited operating history, (2) the occurrence of natural and man-made disasters, (3) actual claims exceeding our loss reserves, (4), failure of any of the loss limitation methods we employ, (5) effects of emerging claims and coverage issues, (6) the failure of our cedents to adequately evaluate risks, (7) the loss of one or more key executives (8) a decline in our ratings with Standard & Poor’s and A.M. Best, (9) loss of business provided to us by our major brokers, (10) changes in governmental regulations, (11) increased competition and (12) general economic conditions. The Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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Item 4.  Controls and Procedures

Our management has carried out an evaluation, with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

Our management is not aware of any change in its internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1.            Legal Proceedings

We are currently not a party to any material legal proceedings. From time to time, we are subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business.  Those legal proceedings generally relate to claims asserted by or against us in the ordinary course of our insurance and reinsurance operations.

Item 4.            Submission of Maters to a Vote of Shareholders

The following matters were submitted to a vote of Shareholders at the Annual General Meeting of Common Shareholders held on May 6, 2004 at the Fairmont Southampton Princess Hotel, 101 South Shore Road, Southampton SN 02, Bermuda.

1.     Appointment of Directors

RESOLVED by a vote of 93,854,572 in favour, 123,475 against and 0 abstaining:

That Jurgen Grupe be appointed a Class II Director.

RESOLVED by a vote of 93,854,572 in favour, 123,475 against and 0 abstaining:

That Maurice A. Keane be appointed a Class III Director.

RESOLVED by a vote of 93,854,572 in favour, 123,475 against and 0 abstaining:

That Edward J. Kelly, III be appointed a Class III Director.

RESOLVED by a vote of 93,433,612 in favour, 544,435 against and 0 abstaining:

That Andrew H. Rush be appointed a Class III Director.

RESOLVED by a vote of 93,854,572 in favour, 123,475 against and 0 abstaining:

That Henry B. Smith be appointed a Class III Director.

RESOLVED by a vote of 93,433,612 in favour, 544,435 against and 0 abstaining:

That Jeffrey C. Walker be appointed a Class III Director.

The following directors continued in office after the meeting: Michael A. Butt, John R. Charman, Robert J. Newhouse, Jr., Charles A. Davis, W. Thomas Forrester, Robert L. Friedman, Donald. J. Greene, Scott. A Schoen and Frank J. Tasco.

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2.     Bye-Laws

RESOLVED by a vote of 93,779,147 in favour, 90,060 against and 108,840 abstaining:

That the bye-laws of AXIS Capital Holdings Limited be amended to increase the maximum number of directors from 15 to 16.

3.     Appointment of Auditors

RESOLVED by a vote of 93,970,887 in favour, 1,210 against and 5,950 abstaining:

That Deloitte & Touche be appointed to act as the independent auditors of AXIS Capital Holdings Limited for the fiscal year ending December 31, 2004 and the Board of Directors, acting through the Audit Committee, be authorised to set the fees for the independent auditors.

4.     Directors of AXIS Specialty

RESOLVED by a vote of 93,854,572 in favour, 123,475 against and 0 abstaining:

That Michael A. Butt be appointed a Director of AXIS Specialty Limited.

RESOLVED by a vote of 93,854,572 in favour, 123,475 against and 0 abstaining:

That John R. Charman be appointed a Director of AXIS Specialty Limited.

RESOLVED by a vote of 93,854,572 in favour, 123,475 against and 0 abstaining:

That Andrew Cook be appointed a Director of AXIS Specialty Limited.

5.     Appointment of Auditors of AXIS Specialty

RESOLVED by a vote of 93,959,247 in favour, 1,260 against and 17,540 abstaining:

That Deloitte & Touche be appointed to act as the independent auditors of AXIS Specialty Limited for the fiscal year ending December 31, 2004 and the board of directors of AXIS Specialty Limited be authorised to set the fees for the independent auditors.

6.     Auditors’ Fees of AXIS Ireland

RESOLVED by a vote of 93,959,247 in favour, 1,260 against and 17,540 abstaining:

That the board of directors of AXIS Specialty Holdings Ireland Limited be authorised to set the fees for Deloitte & Touche, independent auditors of AXIS Specialty Holdings Ireland Limited, for the fiscal year ending December 31, 2004.

7.     AXIS Ireland Financial Statements

RESOLVED by a vote of 93,951,297 in favour, 1,210 against and 25,540 abstaining:

That the financial statements of AXIS Specialty Holdings Ireland Limited for the fiscal year ended December 31, 2003 and the report of the independent auditors and directors thereon be approved.

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8.Auditors’ Fees of AXIS Europe

RESOLVED by a vote of 93,950,947 in favour, 1,360 against and 25,740 abstaining:

That AXIS Specialty Holdings Ireland Limited be authorised to authorise the board of directors of AXIS Specialty Europe Limited to set the fees for Deloitte & Touche, independent auditors of AXIS Specialty Europe Limited, for the fiscal year ending December 31, 2004.

9.AXIS Europe Financial Statements

RESOLVED by a vote of 93,951,147 in favour, 1,260 against and 25,640 abstaining:

That AXIS Specialty Holdings Ireland Limited be authorised to vote to approve the financial statements of AXIS Specialty Europe Limited for the fiscal year ended December 31, 2003 and the report of the independent auditors and directors thereon.

10.Auditors’ Fees of AXIS Re

RESOLVED by a vote of 93,951,147 in favour, 1,260 against and 25,640 abstaining:

That AXIS Specialty Holdings Ireland Limited be authorised to authorise the board of directors of AXIS Re Limited to set the fees for Deloitte & Touche, independent auditors of AXIS Re Limited, for the fiscal year ending December 31, 2004.

11.  AXIS Re Financial Statements

RESOLVED by a vote of 93,950,747 in favour, 1,260 against and 26,040 abstaining:

That AXIS Specialty Holdings Ireland Limited be authorised to vote to approve the financial statements of AXIS Re Limited for the fiscal year ended December 31, 2003 and the report of the independent auditors and directors thereon.

12.  Appointment of Auditors of AXIS UK

RESOLVED by a vote of 93,950,747 in favour, 1,260 against and 26,040 abstaining:

That Deloitte & Touche be appointed to act as the independent auditors of AXIS Specialty UK Limited for the fiscal year ending December 31, 2004 and the board of directors of AXIS Specialty UK Limited be authorised to set the fees for the independent auditors.

13.  UK Financial Statements

RESOLVED by a vote of 93,950,997 in favour, 1,210 against and 25,840 abstaining:

That the financial statements of AXIS Specialty UK Limited for the fiscal year ended December 31, 2003 be approved.

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14.  Appointment of Auditors of AXIS UK Holdings

RESOLVED by a vote of 93,951,147 in favour, 1,360 against and 25,540 abstaining:

That Deloitte & Touche be appointed to act as the independent auditors of AXIS Specialty UK Holdings Limited for the fiscal year ending December 31, 2004 and the board of directors of AXIS Specialty UK Holdings Limited be authorised to set the fees for the independent auditors.

15.  AXIS UK Holdings Financial Statements

RESOLVED by a vote of 93,951,247 in favour, 1,260 against and 25,540 abstaining:

That the financial statements of AXIS Specialty UK Holdings Limited for the fiscal year ended December 31, 2003 be approved.

16.  Directors of AXIS Barbados

RESOLVED by a vote of 93,854,572 in favour, 123,475 against and 0 abstaining:

That John R. Charman be appointed a director of AXIS Specialty (Barbados) Limited.

RESOLVED by a vote of 93,854,572 in favour, 123,475 against and 0 abstaining:

That Andrew Cook be appointed a director of AXIS Specialty (Barbados) Limited.

RESOLVED by a vote of 93,854,572 in favour, 123,475 against and 0 abstaining:

That Michael J. Weetch be appointed a director of AXIS Specialty (Barbados) Limited.

17.  Appointment of Auditors of AXIS Barbados

RESOLVED by a vote of 93,951,297 in favour, 1,210 against and 25,540 abstaining:

That Deloitte & Touche be appointed to act as the independent auditors of AXIS Specialty (Barbados) Limited for the fiscal year ending December 31, 2004 and the board of directors of AXIS Specialty (Barbados) Limited be authorised to set the fees for the independent auditors.

18.  AXIS Barbados Financial Statements

RESOLVED by a vote of 93,951,297 in favour, 1,210 against and 25,540 abstaining:

That the financial statements of AXIS Specialty (Barbados) Limited for the fiscal year ended December 31, 2003 be approved

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Item 6.            Exhibits and Reports on Form 8-K

(a)	Exhibits
3.1	Certificate of Incorporation and Memorandum of Association (incorporated by reference from Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (Amendment No.1) (Registration No. 333-103620) filed on April 16, 2003).
3.2	Bye-Laws
10.1	Employment Agreement between Lorraine S. Mariano and AXIS Specialty U.S. Services Inc. dated as of April 1, 2004.
31.1	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b)	Reports on Form 8-K
	The Company filed a report on Form 8-K on May 3, 2004  pursuant to Item 12 reporting the issuance by the Company of the press release reporting the Company’s results for the quarter ended March 31, 2004.
	The Company filed a report on Form 8-K on July 13, 2004  pursuant to Item 5 reporting the issuance by the Company of the press release reporting the resignation of a member of its board of directors.

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SIGNATURES

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

Dated: August 4, 2004
	AXIS CAPITAL HOLDINGS LIMITED
	By:	/s/ John Charman
		John Charman
		President and Chief Executive Officer
		(Authorized Officer)
		/s/ Andrew Cook
		Andrew Cook
		Chief Financial Officer
		(Principal Financial Officer)

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EX-3.2

Exhibit 3.2

B Y E - L A W S

of

AXIS CAPITAL HOLDINGS LIMITED

Effective 6th May, 2004

Table of Contents

INTERPRETATION
1.	Interpretation
BOARD OF DIRECTORS
2.	Board of Directors
3.	Management of Company
4.	Power to appoint managing director or chief executive officer
5.	Power  to appoint manager
6.	Power to authorise specific actions
7.	Power to appoint attorney
8.	Power to delegate to a committee
9.	Power to appoint and dismiss employees
10.	Power to borrow and charge property
11.	Exercise of power to purchase shares of or discontinue the Company
12.	Power of Directors
13.	Defects in appointment of Directors
14.	Alternate Directors/Observers
15.	Removal of Directors
16.	Other vacancies on the Board
17.	Notice of meetings of the Board
18.	Quorum at meetings of the Board
19.	Meetings of the Board
20.	Unanimous written resolutions
21.	Contracts and disclosure of Directors’ interests
22.	Remuneration of Directors
OFFICERS
23.	Officers of the Company
24.	Appointment of Officers
25.	Remuneration of Officers
26.	Duties of Officers
27.	Chairman of meetings
28.	Register of Directors and Officers
MINUTES
29.	Obligations of Board to keep minutes
INDEMNITY
30.	Indemnification of Directors and Officers of the Company
31.	Waiver of claim by Member
MEETINGS
32.	Notice of annual general meeting
33.	Notice of special general meeting
34.	Accidental omission of notice of general meeting
35.	Meeting called on requisition of Members

i

36.	Short notice
37.	Postponement of meetings
38.	Quorum for general meeting
39.	Adjournment of meetings
40.	Attendance at meetings
41.	Written resolutions
42.	Attendance of Directors
43.	Voting at meetings
44.	Voting on show of hands
45.	Decision of chairman
46.	Demand for a poll
47.	Seniority of joint holders voting
48.	Instrument of proxy
49.	Representation of corporations at meetings
VOTES OF MEMBERS
50.	General
51.	Adjustment of Voting Power
52.	Other Adjustments of Voting Power
53.	Notice
54.	Requirement to Provide Information and Notice
SHARE CAPITAL AND SHARES
55.	Rights of shares
56.	Power to issue shares
57.	Variation of rights, alteration of share capital and purchase of shares of the Company
58.	Registered holder of shares
59.	Death of a joint holder
60.	Share certificates
61.	Calls on shares
62.	Forfeiture of shares
63.	Repurchase of shares
REGISTER OF MEMBERS
64.	Contents of Register of Members
65.	Inspection of Register of Members
66.	Determination of record dates
TRANSFER OF SHARES
67.	Instrument of transfer
68.	Restrictions on transfer
69.	Transfers by joint holders
70.	Intentionally omitted
TRANSMISSION OF SHARES
71.	Representative of deceased Member
72.	Registration on death or bankruptcy

ii

DIVIDENDS AND OTHER DISTRIBUTIONS
73.	Declaration of dividends by the Board
74.	Other distributions
75.	Reserve fund
76.	Deduction of Amounts due to the Company
CERTAIN SUBSIDIARIES
77.	Voting of Subsidiary Shares
78.	Bye-laws or Articles of Association of Certain Subsidiaries
CAPITALISATION
79.	Issue of bonus shares
ACCOUNTS AND FINANCIAL STATEMENTS
80.	Records of account
81.	Financial year end
82.	Financial statements
AUDIT
83.	Appointment of Auditor
84.	Remuneration of Auditor
85.	Vacation of office of Auditor
86.	Access to books of the Company
87.	Report of the Auditor
NOTICES
88.	Notices to Members of the Company
89.	Notices to joint Members
90.	Service and delivery of notice
SEAL OF THE COMPANY
91.	The seal
92.	Manner in which seal is to be affixed
WINDING-UP
93.	Winding-up/distribution by liquidator
ALTERATION OF BYE-LAWS
94.	Alteration of Bye-laws
SCHEDULE - FORM A (Bye-law 62)
SCHEDULE - FORM B (Bye-law 67)
SCHEDULE - FORM C(Bye-law 72)

iii

INTERPRETATION

1.Interpretation

(1)In these Bye-laws the following words and expressions shall, where not inconsistent with the context, have the following meanings respectively:

(a)“Act” means the Companies Act 1981 as amended from time to time;

(b)“Affiliate” means, with respect to any person, any person directly or indirectly controlling, controlled by or under common control with such person, provided that no Member of the Company shall be deemed an Affiliate of another Member solely by the reason of an investment in the Company.  For the purposes of this definition, the term “control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities, by contract or otherwise.

(c)“Audit Committee” means the audit committee appointed by the Board in accordance with these Bye-laws, provided that in the event that the Board shall not have appointed an Audit Committee, the Board shall constitute the Audit Committee;

(d)“Auditor” includes any individual or partnership;

(e)“Board” means the Board of Directors appointed or elected pursuant to these Bye-laws and acting by resolution in accordance with the Act and these Bye-laws or the Directors present at a meeting of Directors at which there is a quorum;

(f)“Cause” means willful misconduct, fraud, gross negligence, embezzlement or any criminal conduct;

(g)“Code” means the Internal Revenue Code of 1986, as amended, of the United States of America;

(h)“Company” means the company for which these Bye-laws are approved and confirmed;

(i)“Designated Subsidiary” means any subsidiary of the Company designated by the Board of Directors from time to time;

(j)“Director” means a director of the Company;

(k)“Member” means the person registered in the Register of Members as the holder of shares in the Company and, when two or more persons are so registered as joint holders of shares, means the person whose name stands first in the Register of Members as one of such joint holders or all of such persons as the context so requires;

(l)“notice” means written notice as further defined in these Bye-laws unless otherwise specifically stated;

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(m)“Officer” means any person appointed by the Board to hold an office in the Company;

(n)“Permitted Transferee” means, with respect to any Member, any Affiliate of such Member, provided that no limited partner or member of any Member shall be considered a “Permitted Transferee” of such Member;

(o)“Register of Directors and Officers” means the Register of Directors and Officers referred to in these Bye-laws;

(p)“Register of Members” means the Register of Members referred to in these Bye-laws;

(q)“Resident Representative” means any person appointed to act as resident representative and includes any deputy or assistant resident representative; and

(r)“Secretary” means the person appointed to perform any or all the duties of secretary of the Company and includes any deputy or assistant secretary.

(2)In these Bye-laws, where not inconsistent with the context:

(a)words denoting the plural number include the singular number and vice versa;

(b)words denoting the masculine gender include the feminine gender;

(c)words importing persons include companies, associations or bodies of persons whether corporate or not;

(d)the word:

(i)“may” shall be construed as permissive;

(ii)“shall” shall be construed as imperative; and

(e)unless otherwise provided herein words or expressions defined in the Act shall bear the same meaning in these Bye-laws.

(3)Expressions referring to writing or written shall, unless the contrary intention appears, include facsimile, printing, lithography, photography and other modes of representing words in a visible form.

(4)Headings used in these Bye-laws are for convenience only and are not to be used or relied upon in the construction hereof.

2

BOARD OF DIRECTORS

2.Board of Directors

The business of the Company shall be managed and conducted by the Board.

3.Management of Company

(1)In managing the business of the Company, the Board may exercise all such powers of the Company as are not, by statute or by these Bye-laws, required to be exercised by the Company in general meeting subject, nevertheless, to these Bye-laws, the provisions of any statute and to such directions as may be prescribed by the Company in general meeting.

(2)No regulation or alteration to these Bye-laws made by the Company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation or alteration had not been made.

(3)The Board may procure that the Company pays all expenses incurred in promoting and incorporating the Company.

4.Power to appoint managing director or chief executive officer

The Board may from time to time appoint one or more Directors to the office of managing director or chief executive officer of the Company who shall, subject to the control of the Board, supervise and administer all of the general business and affairs of the Company.

5.Power  to appoint manager

The Board may appoint a person to act as manager of the Company’s day to day business and may entrust to and confer upon such manager such powers and duties as it deems appropriate for the transaction or conduct of such business.

6.Power to authorise specific actions

The Board may from time to time and at any time authorise any company, firm, person or body of persons to act on behalf of the Company for any specific purpose and in connection therewith to execute any agreement, document or instrument on behalf of the Company.

7.Power to appoint attorney

The Board may from time to time and at any time by power of attorney appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Board, to be an attorney of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board) and for such period and subject to such conditions as it may think fit and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board may think fit and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions so vested in the attorney. Such attorney may, if so authorised under the seal of the Company, execute any deed or instrument under such attorney’s personal seal with the same effect as the affixation of the seal of the Company.

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8.Power to delegate to a committee

The Board may delegate any of its powers to a committee appointed by the Board which may consist partly or entirely of non-Directors and every such committee shall conform to such directions as the Board shall impose on them. The meetings and proceedings of any such committee shall be governed by the provisions of these Bye-laws regulating the meetings and proceedings of the Board, so far as the same are applicable and are not superseded by directions imposed by the Board.

9.Power to appoint and dismiss employees

The Board may appoint, suspend or remove any officer, manager, secretary, clerk, agent or employee of the Company and may fix their remuneration and determine their duties.

10.Power to borrow and charge property

The Board may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and may issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or any third party.

11.Exercise of power to purchase shares of or discontinue the Company

(1)The Board may exercise all the powers of the Company to purchase all or any part of its own shares pursuant to Section 42A of the Act.

(2)The Board may exercise all the powers of the Company to discontinue the Company to a named country or jurisdiction outside Bermuda pursuant to Section 132G of the Act.

12.Power of Directors

(1)The Board shall consist of not less than nine (9) and not more than sixteen (16) Directors (as determined by resolution of the Board of Directors) or such number as the Members may from time to time determine.

(2)The Directors shall be divided by the Board of Directors into three classes, designated Class I, Class II and Class III and shall be elected by the Members as follows. Each class shall consist, as nearly as may be possible, of one-third of the total number of Directors constituting the entire Board of Directors. Each Director shall serve for a term ending on the date of the third annual general meeting of shareholders next following the annual general meeting at which such Director was elected, provided that Directors initially designated by the Board of Directors as Class III Directors shall serve for an initial term ending on the date of the first annual general meeting of Members next following the effectiveness of their designation as Class III Directors, Directors initially designated by the Board of Directors as Class II Directors shall serve for an initial term ending on the date of the second annual general meeting of Members next following the effectiveness of their designation as Class II Directors and Directors initially designated by the Board of Directors as Class I Directors shall serve for an initial term ending on the date of the third annual general meeting of Members next following the

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effectiveness of their designation as Class I Directors. Notwithstanding the foregoing, each Director shall hold office until such Director’s successor shall have been duly elected and qualified or until they are removed from office by the Members pursuant to Bye-law 15 or their office is otherwise vacated. In the event of any change in the number of Directors, the Board of Directors shall apportion any newly created directorships among, or reduce the number of directorships in, such class or classes as shall equalize, as nearly as possible, the number of directors in each class. In no event will a decrease in the number of Directors shorten the term of any incumbent Director.

13.Defects in appointment of Directors

All acts done bona fide by any meeting of the Board or by a committee of the Board or by any person acting as a Director shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director.

14.Alternate Directors/Observers

There shall be no alternate Directors and no Member or Director shall have a right to designate any person to attend meetings of the Board or Board committees as a non-voting observer.

15.Removal of Directors

(1)The Members may, at any annual general meeting convened and held in accordance with these Bye-laws, remove a Director only for Cause by the affirmative vote of Members holding at least a majority of the total combined voting power of all of the issued and outstanding shares of the Company after giving effect to any reduction in voting power required under Bye-laws 51-52; provided that the notice of any such meeting convened for the purpose of removing a Director shall contain a statement of the intention so to do and be served upon such Director not less than 14 days before the meeting and at such meeting such Director shall be entitled to be heard on the motion for such Director’s removal.

(2)A vacancy on the Board created by the removal of a Director under the provisions of Subparagraph (1) of this Bye-law may be filled by the Members at the meeting at which such Director is removed and, in the absence of such election or appointment, the Board may fill the vacancy.  A vacancy on the Board created by the removal of a Director under the provisions of subparagraph (2) of this Bye-law may be filled only by the Board.  A Director so elected shall hold office until the next annual general meeting or until such Director’s office is otherwise vacated.

16.Other vacancies on the Board

(1)The Board shall have the power from time to time and at any time to appoint any person as a Director to fill a vacancy on the Board occurring as the result of the death, disability, disqualification, or resignation of any Director or from an increase in the size of the Board of

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Directors pursuant to Bye-law 12(1).  The Board shall also have the power from time to time to fill any vacancy left unfilled at a general meeting.

(2)The Board may act notwithstanding any vacancy in its number but, if and so long as its number is reduced below the number fixed by these Bye-laws as the quorum necessary for the transaction of business at meetings of the Board, the continuing Directors or Director may act for the purpose of (i) summoning a general meeting of the Company, or (ii) preserving the assets of the Company.

(3)The office of Director shall be vacated if the Director:

(a)is removed from office pursuant to these Bye-laws or is prohibited from being a Director by law;

(b)is or becomes bankrupt or makes any arrangement or composition with his creditors generally;

(c)is or becomes disqualified, of unsound mind, or dies;

(d)resigns his or her office by notice in writing to the Company.

17.Notice of meetings of the Board

(1)The Chairman may, and the Chairman on the requisition of a majority of the Directors then in office shall, at any time, upon three-days’ notice, summon a special meeting of the Board.

(2)Notice of a meeting of the Board shall be deemed to be duly given to a Director if it is given to such Director verbally in person or by telephone or otherwise communicated or sent to such Director by post, telecopier, facsimile, email, or other mode of representing words in a legible and non-transitory form at such Director’s last known address or any other address given by such Director to the Company for this purpose.

18.Quorum at meetings of the Board

The quorum necessary for the transaction of business at a meeting of the Board shall be a majority of the Directors then in office present in person or represented by a duly authorized representative appointed in accordance with the Act, provided that at least two Directors are present in person.

19.Meetings of the Board

(1)The Board may meet for the transaction of business, adjourn and otherwise regulate its meetings as it sees fit.

(2)Directors may participate in any meeting of the Board by means of such telephone, electronic or other communication facilities as permit all persons participating in the

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meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting.

(3)A resolution put to the vote at a meeting of the Board shall be carried by the affirmative votes of a majority of the votes cast and in the case of an equality of votes the resolution shall fail.

20.Unanimous written resolutions

A resolution in writing signed by all the Directors which may be in counterparts, shall be as valid as if it had been passed at a meeting of the Board duly called and constituted, such resolution to be effective on the date on which the last Director signs the resolution.

21.Contracts and disclosure of Directors’ interests

(1)Any Director, or any Director’s firm, partner or any company with whom any Director is associated, may act in a professional capacity for the Company and such Director or such Director’s firm, partner or such company shall be entitled to remuneration for professional services as if such Director were not a Director, provided that nothing herein contained shall authorise a Director or Director’s firm, partner or such company to act as Auditor of the Company.

(2)A Director who is directly or indirectly interested in a contract or proposed contract or arrangement with the Company shall declare the nature of such interest as required by the Act.

(3)Following a declaration being made pursuant to this Bye-law, and unless disqualified by the chairman of the relevant Board meeting, a Director may vote in respect of any contract or proposed contract or arrangement in which such Director is interested and may be counted in the quorum at such meeting.

22.Remuneration of Directors

The remuneration (if any) of the Directors shall be determined by the Board and shall be deemed to accrue from day to day. The Directors may also be paid all travel, hotel and other expenses properly incurred by them in attending and returning from meetings of the Board, any committee appointed by the Board, general meetings of the Company, or in connection with the business of the Company or their duties as Directors generally.

OFFICERS

23.Officers of the Company

The Officers of the Company may consist of any of the following officers: a Chairman, a President and one or more Senior Vice Presidents and Vice Presidents, a Secretary and such additional Officers as the Board may from time to time determine, all of whom shall be deemed to be Officers for the purposes of these Bye-laws.

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24.Appointment of Officers

(1)The Board shall, as soon as possible after the statutory meeting of Members and after each annual general meeting, appoint a President and a Vice President or a Chairman and a Deputy Chairman who shall be Directors.

(2)The Secretary and additional Officers, if any, shall be appointed by the Board from time to time.

25.Remuneration of Officers

The Officers shall receive such remuneration as the Board may from time to time determine.

26.Duties of Officers

The Officers shall have such powers and perform such duties in the management, business and affairs of the Company as may be delegated to them by the Board from time to time.

27.Chairman of meetings

Unless otherwise agreed by a majority of those attending and entitled to attend and vote thereat, the Chairman, if there be one, and if not the President shall act as chairman at all meetings of the Members and of the Board at which such person is present. In their absence the Deputy Chairman or Vice President, if present, shall act as chairman and in the absence of all of them a chairman shall be appointed or elected by those present at the meeting and entitled to vote.

28.Register of Directors and Officers

The Board shall cause to be kept in one or more books at the registered office of the Company a Register of Directors and Officers and shall enter therein the particulars required by the Act.

MINUTES

29.Obligations of Board to keep minutes

(1)The Board shall cause minutes to be duly entered in books provided for the purpose:

(a)of all elections and appointments of Officers;

(b)of the names of the Directors present at each meeting of the Board and of any committee appointed by the Board; and

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(c)of all resolutions and proceedings of general meetings of the Members, meetings of the Board, meetings of managers and meetings of committees appointed by the Board.

(2)Minutes prepared in accordance with the Act and these Bye-laws shall be kept by the Secretary at the registered office of the Company.

INDEMNITY

30.Indemnification of Directors and Officers of the Company

The Directors, Secretary and other Officers (such term to include, for the purposes of Bye-laws 30 and 31, any person appointed to any committee by the Board) for the time being acting in relation to any of the affairs of the Company and the liquidator or trustees (if any) for the time being acting in relation to any of the affairs of the Company and every one of them, and their heirs, executors and administrators, shall be indemnified and secured harmless out of the assets of the Company from and against all actions, costs, charges, losses, damages and expenses which they or any of them, their heirs, executors or administrators, shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of their duty, or supposed duty, or in their respective offices or trusts, and none of them shall be answerable for the acts, receipts, neglects or defaults of the others of them or for joining in any receipts for the sake of conformity, or for any bankers or other persons with whom any moneys or effects belonging to the Company shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any moneys of or belonging to the Company shall be placed out on or invested, or for any other loss, misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation thereto, PROVIDED THAT this indemnity shall not extend to any matter in which any of said persons is found, in a final judgment or decree not subject to appeal, to have committed fraud or dishonesty.

31.Waiver of claim by Member

Each Member agrees to waive any claim or right of action such Member might have, whether individually or by or in the right of the Company, against any Director or Officer on account of any action taken by such Director or Officer, or the failure of such Director or Officer to take any action in the performance of his duties with or for the Company, PROVIDED THAT such waiver shall not extend to any matter in respect of any fraud or dishonesty which may attach to such Director or Officer.

MEETINGS

32.Notice of annual general meeting

The annual general meeting of the Company shall be held in each year other than the year of incorporation at such time and place as the President or the Chairman, or any two Directors or any Director and the Secretary or the Board shall appoint. At least 20-days’ notice of such meeting shall be given to each Member stating the date, place and time at which the meeting is to

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be held, that the election of Directors will take place thereat, and as far as practicable, the other business to be conducted at the meeting.

33.Notice of special general meeting

The President or the Chairman or the Board may convene a special general meeting of the Company whenever in their judgment such a meeting is necessary, upon not less than five-days’ notice which shall state the date, time, place and the general nature of the business to be considered at the meeting.

34.Accidental omission of notice of general meeting

The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a general meeting by, any person entitled to receive notice shall not invalidate the proceedings at that meeting.

35.Meeting called on requisition of Members

Notwithstanding anything herein, the Board shall, on the requisition of Members holding at the date of the deposit of the requisition shares representing ten percent (10%) or more of the aggregate voting power of the Company, forthwith proceed to convene a special general meeting of the Company and the provisions of Section 74 of the Act shall apply.

36.Short notice

A general meeting of the Company shall, notwithstanding that it is called by shorter notice than that specified in these Bye-laws, be deemed to have been properly called if it is so agreed by (i) all the Members entitled to attend and vote thereat in the case of an annual general meeting; and (ii) by a majority in number of the Members, which majority must hold 95% or more of the aggregate voting power of the Company and having the right to attend and vote thereat in the case of a special general meeting.

37.Postponement of meetings

The Secretary may postpone any general meeting called in accordance with the provisions of these Bye-laws (other than a meeting requisitioned under these Bye-laws) provided that notice of postponement is given to each Member before the time for such meeting. Fresh notice of the date, time and place for the postponed meeting shall be given to each Member in accordance with the provisions of these Bye-laws.

38.Quorum for general meeting

At the commencement of any general meeting of the Company two or more persons present in person and representing in person or by proxy shares representing more than fifty percent (50%) of the aggregate voting power of the Company shall form a quorum for the transaction of business, PROVIDED THAT, if the Company shall at any time have only one Member, one Member present in person or by proxy shall form a quorum for the transaction of business at any general meeting of the Company held during such time.  If within a reasonable

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period from the time appointed for the meeting a quorum is not present, the meeting shall stand adjourned to the same day one week later, at the same time and place or to such other day, time or place as the Secretary may determine.

39.Adjournment of meetings

The chairman of a general meeting may, with the consent of the Members at any general meeting at which a quorum is present (and shall if so directed), adjourn the meeting. Unless the meeting is adjourned to a specific date and time, fresh notice of the date, time and place for the resumption of the adjourned meeting shall be given to each Member in accordance with the provisions of these Bye-laws.

40.Attendance at meetings

Members may participate in any general meeting by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting.

41.Written resolutions

(1)Subject to subparagraph (6), anything which may be done by resolution of the Company in general meeting or by resolution of a meeting of any class of the Members of the Company, may, without a meeting and without any previous notice being required, be done by resolution in writing signed by, or, in the case of a Member that is a corporation whether or not a company within the meaning of the Act, on behalf of, all the Members who at the date of the resolution would be entitled to attend the meeting and vote on the resolution.

(2)A resolution in writing may be signed by, or, in the case of a Member that is a corporation whether or not a company within the meaning of the Act, on behalf of, all the Members, or any class thereof, in as many counterparts as may be necessary.

(3)For the purposes of this Bye-law, the date of the resolution is the date when the resolution is signed by, or, in the case of a Member that is a corporation whether or not a company within the meaning of the Act, on behalf of, the last Member to sign and any reference in any Bye-law to the date of passing of a resolution is, in relation to a resolution made in accordance with this Bye-law, a reference to such date.

(4)A resolution in writing made in accordance with this Bye-law is as valid as if it had been passed by the Company in general meeting or by a meeting of the relevant class of Members, as the case may be, and any reference in any Bye-law to a meeting at which a resolution is passed or to Members voting in favor of a resolution shall be construed accordingly.

(5)A resolution in writing made in accordance with this Bye-law shall constitute minutes for the purposes of Sections 81 and 82 of the Act.

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(6)This Bye-law shall not apply to:

(a)a resolution passed pursuant to Section 89(5) of the Act; or

(b)a resolution passed for the purpose of removing a Director before the expiration of his term of office under these Bye-laws.

42.Attendance of Directors

The Directors of the Company shall be entitled to receive notice of and to attend and be heard at any general meeting.

43.Voting at meetings

(1)Subject to the provisions of the Act and these Bye-laws, any question proposed for the consideration of the Members at any general meeting shall be decided by the affirmative votes of a majority of the votes, in all cases as determined pursuant to Bye-laws 50-54, cast in accordance with the provisions of these Bye-laws and in the case of an equality of votes the resolution shall fail.

(2)No Member shall be entitled to vote at any general meeting unless such Member has paid all the calls on all shares held by such Member.

44.Votingon show of hands

At any general meeting a resolution put to the vote of the meeting shall, in the first instance, be voted upon by a show of hands, subject to any rights or restrictions for the time being lawfully attached to any class of shares, including, without limitation, the provisions of Bye-laws 50-54.

45.Decision of chairman

At any general meeting a declaration by the chairman of the meeting that a question proposed for consideration has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in a book containing the minutes of the proceedings of the Company shall, subject to the provisions of these Bye-laws, be conclusive evidence of that fact.

46.Demand for a poll

(1)Notwithstanding the provisions of the immediately preceding two Bye-laws, at any general meeting of the Company, in respect of any question proposed for the consideration of the Members (whether before or on the declaration of the result of a show of hands as provided for in these Bye-laws), a poll may be demanded by any of the following persons:

(a)the chairman of such meeting; or

(b)at least three Members present in person or represented by proxy; or

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(c)any Member or Members present in person or represented by proxy and holding between them not less than one-tenth of the total voting rightsof all the Members having the right to vote at such meeting; or

(d)any Member or Members present in person or represented by proxy holding shares in the Company conferring the right to vote at such meeting, being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all such shares conferring such right.

(2)Where, in accordance with the provisions of subparagraph (1) of this Bye-law, a poll is demanded, subject to any rights or restrictions for the time being lawfully attached to any class of shares, every person present at such meeting shall have for each voting share of which such person is the holder or for which such person holds a proxy, the number of votes determined pursuant to Bye-laws 50-54 and such votes shall be counted in the manner set out in subparagraph (4) of this Bye-law or in the case of a general meeting at which one or more Members are present by telephone in such manner as the chairman of the meeting may direct.  The result of such poll shall be deemed to be the resolution of the meeting at which the poll was demanded and shall replace any previous resolution upon the same matter which has been the subject of a show of hands.

(3)A poll demanded in accordance with the provisions of subparagraph (1) of this Bye-law, for the purpose of electing a chairman of the meeting or on a question of adjournment, shall be taken forthwith and a poll demanded on any other question shall be taken in such manner and at such time and place as the Chairman (or acting chairman) may direct and any business other than that upon which a poll has been demanded may be proceeded with pending the taking of the poll.

(4)Where a vote is taken by poll, each person present and entitled to vote shall be furnished with a ballot paper on which such person shall record his or her vote in such manner as shall be determined at the meeting having regard to the nature of the question on which the vote is taken, and each ballot paper shall be signed or initialed or otherwise marked so as to identify the voter and the registered holder in the case of a proxy. At the conclusion of the poll, the ballot papers shall be examined and counted by a committee of not less than two Members or proxy holders appointed by the chairman for the purpose and the result of the poll shall be declared by the chairman.

47.Seniority of joint holders voting

In the case of joint holders the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members.

48.Instrument of proxy

(1)Every Member entitled to vote has the right to do so either in person or by one or more persons authorised by a proxy executed and delivered in accordance with these Bye-laws.

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(2)A Person so authorised as a proxy shall be entitled to exercise the same power on behalf of the grantor of the proxy as the grantor could exercise at a general meeting of the Company.

(3)The instrument appointing a proxy together with such other evidence as to its due execution as the Board may from time to time require shall be delivered at the registered office of the Company (or at such place or places as may be specified in the notice convening the meeting or in any notice of any adjournment or, in either case in any document sent therewith), prior to the holding of the relevant meeting or adjourned meeting at which the individual named in the instrument proposes to vote and in default the instrument of proxy shall not be treated as valid.

(4)Instruments of proxy shall be in such form as the Board may approve (including, without limitation, written or electronic form) and the Board may, if it thinks fit, send out with the notice of any meeting forms of instruments of proxy for use at the meeting. The instrument of proxy shall be deemed to confer authority to demand or join in demanding a poll and to vote on any amendment of a resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy shall unless the contrary is stated therein be valid as well for any adjournment of the meeting as for the meeting to which it relates.

(5)A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or unsoundness of mind of the principal, or revocation of the instrument of proxy or of the authority under which it was executed.

49.Representation of corporations at meetings

A corporation which is a Member may, by written instrument, authorise such person as it thinks fit to act as its representative at any meeting of the Members and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which such person represents as that corporation could exercise if it were an individual Member. Notwithstanding the foregoing, the chairman of the meeting may accept such assurances as he or she thinks fit as to the right of any person to attend and vote at general meetings on behalf of a corporation which is a Member.

VOTES OF MEMBERS

50.General

Subject to the provisions of Bye-laws 51-54 below, and subject to any rights and restrictions for the time being attached to any class or classes of shares, every Member shall have one vote for each share carrying the right to vote on the matter in question of which he is the holder. Notwithstanding any other provisions of these Bye-laws, all determinations in these Bye-laws that are made by or subject to a vote or approval of Members shall be based upon the voting power of such Members’ shares as determined pursuant to Bye-laws 51-54.

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51.Adjustment of Voting Power

The voting power of all shares is hereby adjusted (and shall be automatically adjusted in the future) to the extent necessary so that there is no (i) 9.5% U.S. Shareholder or (ii) 9.5% Direct Foreign Shareholder Group.  The Board of Directors shall implement the foregoing in the manner provided herein; provided, however, that the foregoing provision and the remainder of this Bye-law 51 shall not apply in the event that one Member of the Company owns greater than 75% of the issued and outstanding shares of the Company.

(1)The Board shall from time to time, including prior to any time at which a vote of Members is taken, take all reasonable steps necessary to ascertain, including those specified in Bye-law 54, through communications with Members or otherwise, whether there exists, or will exist at the time any vote of Members is taken, a Tentative 9.5% U.S. Shareholder or a Tentative 9.5% Direct Foreign Shareholder Group.

(a)In the event that a Tentative 9.5% U.S. Shareholder exists, the aggregate votes conferred by shares held by a Member and treated as Controlled Shares of that Tentative 9.5% U.S. Shareholder shall be reduced to the extent necessary such that the Controlled Shares of the Tentative 9.5% U.S. Shareholder will constitute less than 9.5% of the voting power of all shares.  In applying the previous sentence where shares held by more than one Member are treated as Controlled Shares of such Tentative 9.5% U.S. Shareholder, the reduction in votes shall apply to such Members in descending order according to their respective Attribution Percentages, provided that, in the event of a tie, the reduction shall apply first to the Member whose shares are Controlled Shares of the Tentative 9.5% U.S. Shareholder by virtue of the Tentative 9.5% U.S. Shareholder’s economic interest in (as opposed to voting control with respect to) such shares.  The votes of Members owning no shares treated as Controlled Shares of any Tentative 9.5% U.S. Shareholder shall, in the aggregate, be increased by the same number of votes subject to reduction as described above. Such increase shall apply to all such Members in proportion to their voting power at that time, provided that such increase shall be limited to the extent necessary to avoid causing any person to be a 9.5% U.S. Shareholder or a 9.5% Direct Foreign Shareholder Group. The adjustments of voting power described in this Bye-law shall apply repeatedly until there is no 9.5% U.S. Shareholder.  The Board of Directors may deviate from any of the principles described in this Bye-law and determine that shares held by a Member shall carry different voting rights as it determines appropriate (1) to avoid the existence of any 9.5% U.S. Shareholder or (2) to avoid adverse tax, legal or regulatory consequences to the Company, any subsidiary of the Company, or any other Member or its affiliates.  For the avoidance of doubt, in applying the provisions of Bye-laws 51-54, a share may carry a fraction of a vote.

“Controlled Shares” in reference to any person means all shares of the Company directly, indirectly or constructively owned by such person as determined pursuant to Section 958 of the Code.

“9.5% U.S. Shareholder” means a “United States person” as defined in the Code (a “U.S. Person”) whose Controlled Shares constitute nine and one-half percent (9.5%) or more of the voting power of all shares of the Company and who would be generally required to recognize income with respect to the Company under Section 951(a)(1) of the

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Code, if the Company were a controlled foreign corporation as defined in Section 957 of the Code and if the ownership threshold under Section 951(b) of the Code were 9.5%.

“Tentative 9.5% U.S. Shareholder” means a U.S. Person that, but for adjustments to the voting rights of shares pursuant to Bye-laws 51-52, would be a 9.5% U.S. Shareholder.

“Attribution Percentage” shall mean, with respect to a Member and a Tentative 9.5% Shareholder, the percentage of the Member’s shares that are treated as Controlled Shares of such Tentative 9.5% Shareholder.

(b)Immediately after completing the adjustment of voting power provided for in Bye-law 51(1)(a), in the event that a Tentative 9.5% Direct Foreign Shareholder Group exists, the aggregate votes conferred by shares held by the Tentative 9.5% Direct Foreign Shareholder Group shall be reduced to less than 9.5% of the voting power of all shares.  The votes of Members owning no shares treated as (i) shares held by the Tentative 9.5% Direct Foreign Shareholder Group or (ii) Controlled Shares of any Tentative 9.5% U.S. Shareholder shall in the aggregate be increased  by the same number of votes subject to reduction as described above.  Such increase shall apply to all such Members in proportion to their voting power at that time, provided that such increase shall be limited to the extent necessary to avoid causing any person to be a 9.5% U.S. Shareholder or a 9.5% Direct Foreign Shareholder Group.

“9.5% Direct Foreign Shareholder Group” means a shareholder that is not a U.S. Person or a group of commonly controlled shareholders that are not U.S. Persons, in either case whose shares constitute nine and one-half percent (9.5%) or more of the voting power of all shares of the Company.

“Tentative 9.5% Direct Foreign Shareholder Group” means a shareholder that is not a U.S. Person or a group of commonly controlled shareholders that are not U.S. Persons that, but for adjustments to the voting rights of shares pursuant to Bye-laws 51-52 would be a 9.5% Direct Foreign Shareholder Group.

52.Other Adjustments of Voting Power

In addition to the provisions of Bye-law 51, any shares shall not carry any right to vote to the extent that the Board of Directors determines, in its sole discretion, that it is necessary that such shares should not carry the right to vote in order to avoid adverse tax, legal or regulatory consequences to the Company, any subsidiary of the Company, or any other Member or its affiliates, provided that no adjustment pursuant to this sentence shall cause any person to become a 9.5% U.S. Shareholder or a 9.5% Direct Foreign Shareholder Group.

53.Notice

Prior to any date on which Members shall vote on any matter, the Board of Directors shall (1) retain the services of an internationally recognized accounting firm or organization with comparable professional capabilities in order to assist the Company in applying the principles of

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Bye-laws 51-54 and (2) obtain from such firm or organization a statement describing the information obtained and procedures followed and setting forth the determinations made with respect to Bye-laws 51-54, and (3) notify each Member of the voting power conferred by its shares determined in accordance with Bye-laws 51-54.

54.Requirement to Provide Information and Notice

(1)The Directors shall have the authority to request from any holder of shares, and such holder of shares shall provide, such information as the Directors may reasonably request for the purpose of determining whether any holder’s voting rights are to be adjusted. If such holder fails to respond to such a request, or submits incomplete or inaccurate information in response to such a request, the Directors may in their sole discretion determine that such holder’s shares shall carry no voting rights in which case such shares shall not carry any voting rights until otherwise determined by the Directors in their absolute discretion.

(2)Any holder of shares shall give notice to the Company within ten days following the date that such holder acquires actual knowledge that it is the owner of Controlled Shares of 9.5% or more of the Company.

(3)Notwithstanding the foregoing, no Member shall be liable to any other Member or the Company for any losses or damages resulting from such Member’s failure to respond to, or submission of incomplete or inaccurate information in response to, a request under paragraph (1) or from such Member’s failure to give notice under paragraph (2) of this Bye-law.

SHARE CAPITAL AND SHARES

55.Rights of shares

Subject to any resolution of the Members to the contrary and without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, the share capital of the Company shall consist of one class of common shares that carry voting rights.  The holders of shares shall, subject to the provisions of these Bye-laws:

(a)be entitled to such dividends as the Board may from time to time declare;

(b)in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purpose of a reorganization or otherwise or upon any distribution of capital, be entitled to the surplus assets of the Company; and

(c)generally be entitled to enjoy all of the rights attaching to shares.

56.Power to issue shares

(1)Subject to the restrictions, if any that are provided for in these Bye-laws from time to time and without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, the Board shall have power to issue any unissued shares of the Company on such terms and conditions as it may determine and any shares or class of shares may be issued with such preferred, deferred or other special rights or such restrictions, whether

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in regard to dividend, voting, return of capital or otherwise as the Board may determine.  Further, the Board may create and issue shares of a new class or of any existing class of shares and the Board may generally exercise the powers of the Company set out in sections 45(1)(b), (c), (d) and (e) of the Act, without the need of any approval of the Members as might otherwise be required by such sections of the Act.  The Board may also issue options, warrants or other rights to purchase or acquire shares or, subject to Section 43 of the Act, securities convertible into or exchangeable for shares (including any employee benefit plan providing for the issue of shares or options or rights in respect thereof), at such times, for such consideration and on such terms and conditioned as it may determine.  The Board may create and issue shares including, but not limited to, series of preferred shares (which may or may not be separate classes of preferred shares), at such times, for such consideration and on such terms and conditions, with similar or different rights or restriction as any other series (or class) and to establish from time to time the number of preferred shares to be included in each such series (or class), and to fix the designation, powers, preferences, voting rights, dividend rights, repurchase provisions, and other rights, qualifications, limitations or restrictions thereof, as it may determine.

(2)The Board shall, in connection with the issue of any share, have the power to authorise the Company to pay such commission and brokerage as may be permitted by law.

(3)Except as authorised by the Board and permitted by applicable law, the Company shall not give, whether directly or indirectly, whether by means of loan, guarantee, provision of security or otherwise, any financial assistance for the purpose of a purchase or subscription made or to be made by any person of or for any shares in the Company, but nothing in this Bye-law shall prohibit transactions mentioned in Sections 39A, 39B and 39C of the Act.

(4)The Company may from time to time do any one or more of the following things:

(a)make arrangements on the issue of shares for a difference between the Members in the amounts and times of payments of calls on their shares;

(b)accept from any Member the whole or a part of the amount remaining unpaid on any shares held by him, although no part of that amount has been called up;

(c)pay dividends in proportion to the amount paid up on each share where a larger amount is paid up on some shares than on others; and

(d)issue its shares in fractional denominations and deal with such fractions to the same extent as its whole shares and shares in fractional denominations shall have in proportion to the respective fractions represented thereby all of the rights of whole shares including (but without limiting the generality of the foregoing) the right to vote, to receive dividends and distributions and to participate in a winding up.

57.Variation of rights, alteration of share capital and purchase of shares of the Company

(1)Subject to the provisions of Sections 42 and 43 of the Act any preference shares may be issued or converted into shares that, at a determinable date or at the option of the

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Company, are liable to be redeemed on such terms and in such manner as the Company before the issue or conversion may by resolution of the Members determine.

(2)If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound-up, be varied with the consent in writing of the holders of three-fourths of the issued shares of that class or with the sanction of a resolution passed by a majority of the votes cast at a separate general meeting of the holders of the shares of the class in accordance with Section 47 (7) of the Act. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

(3)The Company may from time to time by resolution of the Members change the currency denomination of, increase, alter or reduce its share capital in accordance with the provisions of Sections 45 and 46 of the Act. Where, on any alteration of share capital, fractions of shares or some other difficulty would arise, the Board may deal with or resolve the same in such manner as it thinks fit including, without limiting the generality of the foregoing, the issue to Members, as appropriate, of fractions of shares and/or arranging for the sale or transfer of the fractions of shares of Members.

(4)The Company may from time to time purchase its own shares in accordance with the provisions of Section 42A of the Act.

58.Registered holder of shares

(1)The Company shall be entitled to treat the registered holder of any share as the absolute owner thereof and accordingly shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person.

(2)Any dividend, interest or other moneys payable in cash in respect of shares may be paid by cheque or draft sent through the post directed to the Member at such Member’s address in the Register of Members or, in the case of joint holders, to such address of the holder first named in the Register of Members, or to such person and to such address as the holder or joint holders may in writing direct. If two or more persons are registered as joint holders of any shares any one can give an effectual receipt for any dividend paid in respect of such shares.

59.Death of a joint holder

Where two or more persons are registered as joint holders of a share or shares then in the event of the death of any joint holder or holders the remaining joint holder or holders shall be absolutely entitled to the said share or shares and the Company shall recognize no claim in respect of the estate of any joint holder except in the case of the last survivor of such joint holders.

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60.Share certificates

(1)Every Member shall be entitled to a certificate under the seal of the Company (or a facsimile thereof) specifying the number and, where appropriate, the class of shares held by such Member and whether the same are fully paid up and, if not, how much has been paid thereon. The Board may by resolution determine, either generally or in a particular case, that any or all signatures on certificates may be printed thereon or affixed by mechanical means.

(2)The Company shall be under no obligation to complete and deliver a share certificate unless specifically called upon to do so by the person to whom such shares have been allotted.

(3)If any such certificate shall be proved to the satisfaction of the Board to have been worn out, lost, mislaid or destroyed the Board may cause a new certificate to be issued and request an indemnity for the lost certificate if it sees fit.

61.Calls on shares

(1)The Board may from time to time make such calls as it thinks fit upon the Members in respect of any monies unpaid on the shares allotted to or held by such Members and, if a call is not paid on or before the day appointed for payment thereof, the Member may at the discretion of the Board be liable to pay the Company interest on the amount of such call at such rate as the Board may determine, from the date when such call was payable up to the actual date of payment. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof.

(2)The Board may, on the issue of shares, differentiate between the holders as to the amount of calls to be paid and the times of payment of such calls.

62.Forfeiture of shares

(1)If any Member fails to pay, on the day appointed for payment thereof, any call in respect of any share allotted to or held by such Member, the Board may, at any time thereafter during such time as the call remains unpaid, direct the Secretary to forward to such Member a notice in the form, or as near thereto as circumstances admit, of Form “A” in the Schedule hereto.

(2)If the requirements of such notice are not complied with, any such share may at any time thereafter before the payment of such call and the interest due in respect thereof be forfeited by a resolution of the Board to that effect, and such share shall thereupon become the property of the Company and may be disposed of as the Board shall determine.

(3)A Member whose share or shares have been forfeited as aforesaid shall, notwithstanding such forfeiture, be liable to pay to the Company all calls owing on such share or shares at the time of the forfeiture and all interest due thereon.

63.Repurchase of shares

If the Directors in their sole discretion determine that share ownership by any person may result in a non-de minimis adverse tax, legal or regulatory consequences to the Company, any

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subsidiary of the Company, or any other holder of shares or its Affiliates (including if such consequence arises as a result of any such U.S. Person owning Controlled Shares of 9.5% of more of the value of the Company or the voting shares of the Company (but subject to the provisions of Bye-laws 50 through 54)), the Company will have the option but not the obligation to repurchase or assign to a third party the right to purchase the minimum number of shares held by such person which is necessary to eliminate such non-de minimis adverse tax, legal or regulatory consequence at a price determined in the good faith discretion of the Directors to represent such shares’ fair market value; provided that (i) if the shares are not traded on a securities exchange in or outside the United States, the fair market value per share shall be determined by the Directors without a minority discount but with an appropriate liquidity discount, such value and liquidity discount, if any, as determined by the Board of Directors, or (ii) if the shares are traded on a securities exchange in or outside the United States, the fair market value per share shall be determined by the Directors based on the average of the last sales price per share or if there is none, the average of the bid and asked price per share, without a minority discount or a liquidity discount, in each case for the eight business days prior to the repurchase date.  If a Member disagrees with the price so determined by the Board of Directors, the fair market value per share and the liquidity discount, if any, will be determined by an independent appraiser retained by the Company at its expense and reasonably acceptable to such Member.

REGISTER OF MEMBERS

64.Contents of Register of Members

The Board shall cause to be kept in one or more books a Register of Members and shall enter therein the particulars required by the Act.

65.Inspection of Register of Members

The Register of Members shall be open to inspection at the registered office of the Company on every business day, subject to such reasonable restrictions as the Board may impose, so that not less than two hours in each business day be allowed for inspection. The Register of Members may, after notice has been given by advertisement in an appointed newspaper to that effect, be closed for any time or times not exceeding in the whole thirty days in each year.

66.Determination of record dates

Notwithstanding any other provision of these Bye-laws, the Board may fix any date as the record date for:

(a)determining the Members entitled to receive any dividend; and

(b)determining the Members entitled to receive notice of and to vote at any general meeting of the Company.

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TRANSFER OF SHARES

67.Instrument of transfer

(1)An instrument of transfer shall be in the form or as near thereto as circumstances admit of Form “B” in the Schedule hereto or in such other common form as the Board may accept. Such instrument of transfer shall be signed by or on behalf of the transferor and transferee provided that, in the case of a fully paid share, the Board may accept the instrument signed by or on behalf of the transferor alone. The transferor shall be deemed to remain the holder of such share until the same has been transferred to the transferee in the Register of Members.

(2)The Board may refuse to recognize any instrument of transfer unless it is accompanied by the certificate in respect of the shares to which it relates and by such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer.

68.Restrictions on transfer

(1)The Directors may decline to approve or register any transfer of shares if it appears to the Directors, in their sole and reasonable discretion, after taking into account, among other things, the limitation on voting rights contained in these Bye-laws, that any non-de minimis adverse tax, regulatory or legal consequences to the Company, any subsidiary of the Company, or any other holder of shares or its Affiliates would result from such transfer (including if such consequence arises as a result of any such U.S. Person owning Controlled Shares of 9.5% of more of the value of the Company or the voting shares of the Company (but subject to the provisions of Bye-laws 50 through 54)). The Directors shall have the authority to request from any holder of shares, and such holder of shares shall provide, such information as the Directors may reasonably request for the purpose of determining whether any transfer should be permitted.

(2)Subject to any applicable requirements of the New York Stock Exchange, the Directors (i) may decline to approve or to register any transfer of any share if a written opinion from counsel acceptable to the Company shall not have been obtained to the effect that registration of such shares under the U.S. Securities Act of 1933, as amended, is not required and (ii) shall decline to approve or to register any transfer of any share if the transferee shall not have been approved by applicable governmental authorities if such approval is required.

(3)If the Board refuses to register a transfer of any share the Secretary shall, within one month after the date on which the transfer was lodged with the Company, send to the transferor and transferee notice of the refusal.

(4)The registration of transfers may be suspended at such times and for such periods as the Directors may, in their absolute discretion, from time to time determine, provided always that such registration shall not be suspended for more than 45 days in any year.

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69.Transfers by joint holders

The joint holders of any share or shares may transfer such share or shares to one or more of such joint holders, and the surviving holder or holders of any share or shares previously held by them jointly with a deceased Member may transfer any such share to the executors or administrators of such deceased Member.

70.Intentionally omitted

TRANSMISSION OF SHARES

71.Representative of deceased Member

In the case of the death of a Member, the survivor or survivors where the deceased Member was a joint holder, and the legal personal representatives of the deceased Member where the deceased Member was a sole holder, shall be the only persons recognized by the Company as having any title to the deceased Member’s interest in the shares. Nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share which had been jointly held by such deceased Member with other persons. Subject to the provisions of Section 52 of the Act, for the purpose of this Bye-law, legal personal representative means the executor or administrator of a deceased Member or such other person as the Board may in its absolute discretion decide as being properly authorised to deal with the shares of a deceased Member.

72.Registration on death or bankruptcy

Any person becoming entitled to a share in consequence of the death or bankruptcy of any Member may be registered as a Member upon such evidence as the Board may deem sufficient or may elect to nominate some person to be registered as a transferee of such share, and in such case the person becoming entitled shall execute in favor of such nominee an instrument of transfer in the form, or as near thereto as circumstances admit, of Form “D” in the Schedule hereto. On the presentation thereof to the Board, accompanied by such evidence as the Board may require to prove the title of the transferor, the transferee shall be registered as a Member but the Board shall, in either case, have the same right to decline or suspend registration as it would have had in the case of a transfer of the share by that Member before such Member’s death or bankruptcy, as the case may be.

DIVIDENDS AND OTHER DISTRIBUTIONS

73.Declaration of dividends by the Board

The Board may, subject to these Bye-laws and in accordance with Section 54 of the Act, declare a dividend to be paid to the Members, in proportion to the number of shares held by them, and such dividend may be paid in cash or wholly or partly in specie in which case the Board may fix the value for distribution in specie of any assets.

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74.Other distributions

The Board may declare and make such other distributions (in cash or in specie) to the Members as may be lawfully made out of the assets of the Company.

75.Reserve fund

The Board may from time to time before declaring a dividend set aside, out of the surplus or profits of the Company, such sum as it thinks proper as a reserve to be used to meet contingencies or for equalizing dividends or for any other special purpose.

76.Deduction of Amounts due to the Company

The Board may deduct from the dividends or distributions payable to any Member all monies due from such Member to the Company on account of calls or otherwise.

CERTAIN SUBSIDIARIES

77.Voting of Subsidiary Shares

Notwithstanding any other provision of these Bye-laws to the contrary, if the Company is required or entitled to vote at a general meeting of any direct subsidiary of the Company, the Directors shall refer the subject matter of the vote to the Members of the Company on a poll (subject to Bye-laws 50-54) and seek authority from the Members for the Company’s corporate representative or proxy to vote in favor of the resolution proposed by the subsidiary.  The directors shall cause the Company’s corporate representative or proxy to vote the Company’s shares in the subsidiary pro rata to the votes received at the general meeting of the Company, with votes for or against the directing resolution being taken, respectively, as an instruction for the Company’s corporate representative or proxy to vote the appropriate proportion of its shares for and the appropriate proportion of its shares against the resolution proposed by the subsidiary.

78.Bye-laws or Articles of Association of Certain Subsidiaries

The Board in its discretion shall require that the Bye-laws or Articles of Association of each subsidiary of the Company, organized under the laws of a jurisdiction outside the United States of America, shall contain provisions substantially similar to Bye-law 77, herein.  The Company shall enter into agreements with each such subsidiary, as reasonably necessary, to effectuate or implement this Bye-law.

CAPITALISATION

79.Issue of bonus shares

(1)The Board may resolve to capitalize any part of the amount for the time being standing to the credit of any of the Company’s share premium or other reserve accounts or to the credit of the profit and loss account or otherwise available for distribution by applying such sum in paying up unissued shares to be allotted as fully paid bonus shares pro rata to the Members.

(2)The Company may capitalize any sum standing to the credit of a reserve account or sums otherwise available for dividend or distribution by applying such amounts in paying up

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in full partly paid shares of those Members who would have been entitled to such sums if they were distributed by way of dividend or distribution.

ACCOUNTS AND FINANCIAL STATEMENTS

80.Records of account

The Board shall cause to be kept proper records of account with respect to all transactions of the Company and in particular with respect to:

(a)all sums of money received and expended by the Company and the matters in respect of which the receipt and expenditure relates;

(b)all sales and purchases of goods by the Company; and

(c)the assets and liabilities of the Company.

Such records of account shall be kept at the registered office of the Company or, subject to Section 83 (2) of the Act, at such other place as the Board thinks fit and shall be available for inspection by the Directors during normal business hours.

81.Financial year end

The financial year end of the Company may be determined by resolution of the Board and failing such resolution shall be 31^st December in each year.

82.Financial statements

Subject to any rights to waive laying of accounts pursuant to Section 88 of the Act, financial statements as required by the Act shall be laid before the Members in general meeting.

AUDIT

83.Appointment of Auditor

Subject to Section 88 of the Act, at the annual general meeting or at a subsequent special general meeting in each year, an independent representative of the Members shall be appointed by them as Auditor of the accounts of the Company.  Any Auditor appointed by the Members shall, prior to such appointment, have been appointed by the Audit Committee.  Such Auditor may not be a Member and no Director, Officer or employee of the Company shall, during his or her continuance in office, be eligible to act as an Auditor of the Company.

84.Remuneration of Auditor

The remuneration of the Auditor shall be fixed by the Audit Committee or in such manner as the Members may determine.

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85.Vacation of office of Auditor

If the office of Auditor becomes vacant by the resignation or death of the Auditor, or by the Auditor becoming incapable of acting by reason of illness or other disability at a time when the Auditor’s services are required, the Board shall, as soon as practicable, convene a special general meeting to fill the vacancy thereby created.

86.Access to books of the Company

The Auditor shall at all reasonable times have access to all books kept by the Company and to all accounts and vouchers relating thereto, and the Auditor may call on the Directors or Officers of the Company for any information in their possession relating to the books or affairs of the Company.

87.Report of the Auditor

(1)Subject to any rights to waive laying of accounts or appointment of an Auditor pursuant to Section 88 of the Act, the accounts of the Company shall be audited at least once in every year.

(2)The financial statements provided for by these Bye-laws shall be audited by the Auditor in accordance with generally accepted auditing standards. The Auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the Auditor shall be submitted to the Members in general meeting.

(3)The generally accepted auditing standards referred to in subparagraph (2) of this Bye-law may be those of a country or jurisdiction other than Bermuda. If so, the financial statements and the report of the Auditor must disclose this fact and name such country or jurisdiction.

NOTICES

88.Notices to Members of the Company

A notice may be given by the Company to any Member either by delivering it to such Member in person or by sending it to such Member’s address in the Register of Members or to such other address given for the purpose. For the purposes of this Bye-law, a notice may be sent by mail, courier service, cable, telex, telecopier, facsimile, email, or other mode of representing words in a legible and non-transitory form.

89.Notices to joint Members

Any notice required to be given to a Member shall, with respect to any shares held jointly by two or more persons, be given to whichever of such persons is named first in the Register of Members and notice so given shall be sufficient notice to all the holders of such shares.

90.Service and delivery of notice

Any notice shall be deemed to have been served at the time when the same would be delivered in the ordinary course of transmission and, in proving such service, it shall be

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sufficient to prove that the notice was properly addressed and prepaid, if posted, and the time when it was posted, delivered to the courier or to the cable company or transmitted by telex, facsimile or other method as the case may be.

SEAL OF THE COMPANY

91.The seal

The seal of the Company shall be in such form as the Board may from time to time determine. The Board may adopt one or more duplicate seals for use outside Bermuda.

92.Manner in which seal is to be affixed

The seal of the Company shall not be affixed to any instrument except attested by the signature of a Director and the Secretary or any two Directors, or any person appointed by the Board for the purpose, provided that any Director, Officer or Resident Representative, may affix the seal of the Company attested by such Director, Officer or Resident Representative’s signature to any authenticated copies of these Bye-laws, the incorporating documents of the Company, the minutes of any meetings or any other documents required to be authenticated by such Director, Officer or Resident Representative.

WINDING-UP

93.Winding-up/distribution by liquidator

If the Company shall be wound up the liquidator may, with the sanction of a resolution of the Members, divide amongst the Members in specie or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as he or she deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members; provided that each Member holding common shares of the Company shall receive at least the pro rata portion (based on its ownership of such shares) of any cash so distributed. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator shall think fit, but so that no Member shall be compelled to accept any shares or other securities or assets whereon there is any liability.

ALTERATION OF BYE-LAWS

94.Alteration of Bye-laws

No Bye-law shall be rescinded, altered or amended and no new Bye-law shall be made until the same has been approved by a resolution of the Board and by a resolution of the Members.

******

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SCHEDULE - FORM A (Bye-law 62)

NOTICE OF LIABILITY TO FORFEITURE FOR NON PAYMENT OF CALL

You have failed to pay the call of [amount of call] made on the      day of                , 20      last, in respect of the [number] share(s) [numbers in figures] standing in your name in the Register of Members of the Company, on the       day of                     , 20      last, the day appointed for payment of such call. You are hereby notified that unless you pay such call together with interest thereon at the rate of       per annum computed from the said       day of                      , 20      last, on or before the       day of                     , 20      next at the place of business of the Company, the share(s) will be liable to be forfeited.

Dated this       day of                     , 20     

[Signature of Secretary]

By order of the Board

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SCHEDULE - FORM B (Bye-law 67)

TRANSFER OF A SHARE OR SHARES

FOR VALUE RECEIVED

[amount]

[transferor]

Hereby sell assign and transfer unto

[transferee]

Of

[address]

[number of shares]

shares of

[name of Company]

Dated

(Transferor)

In the presence of:

(Witness)

(Transferee)

In the presence of:

(Witness)

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SCHEDULE - FORM C(Bye-law 72)

TRANSFER BY A PERSON
BECOMING ENTITLED ON DEATH/BANKRUPTCY OF A MEMBER

I/We having become entitled in consequence of the [death/bankruptcy] of [name of the deceased Member] to [number] share(s) standing in the register of Members of [Company] in the name of the said [name of deceased Member] instead of being registered myself/ourselves elect to have [name of transferee] (the “Transferee”) registered as a transferee of such share(s) and I/we do hereby accordingly transfer the said share(s) to the Transferee to hold the same unto the Transferee his or her executors administrators and assigns subject to the conditions on which the same were held at the time of the execution thereof; and the Transferee does hereby agree to take the said share(s) subject to the same conditions.

WITNESS our hands this         day of                             , 20       

Signed by the above-named    )
[person or persons entitled]	)
in the presence of:	)
	)
Signed by the above-named
[transferee]	)
in the presence of:	)

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EX-10.1

Exhibit 10.1

AXIS SPECIALTY U.S. SERVICES, INC.
430 PARK AVENUE, 15TH FLOOR
NEW YORK, NEW YORK 10022

Ms. Lorraine S. Marriano

AXIS Specialty U.S. Services, Inc.
430 Park Avenue, 15th floor
New York, New York 10022

Dear Lorraine:

We are delighted that you have decided to join AXIS Specialty U.S. Services, Inc., a Delaware corporation (the “Company”) and wholly owned, indirect subsidiary of AXIS Capital Holdings Limited, a Bermuda company (the “Parent”). We thought it would be useful to lay out the terms and conditions of our agreement in this letter agreement (this “Agreement”).  This Agreement is dated as of April 1, 2004.

1.Employment.

The Company hereby agrees to employ you in the position of Chief Human Resources Officer or in such other position as is mutually agreeable to you and the Company.  You will report to the Chief Executive Officer and President of the Parent or any other appropriate designee as may be directed by him. You will be expected to devote your full business time and energy, attention, skills and ability to the performance of your duties and responsibilities to the Company on an exclusive basis, including service to subsidiaries and other affiliates of the Company as requested by the Board of Directors of the Parent (the “Board”), and shall faithfully and diligently endeavor to promote the business and best interests of the Company and its subsidiaries.

2.Compensation and Benefits.

(a)During your employment with the Company, your annual base salary shall be $250,000 (the base salary as may be increased from time to time “Base Salary”) and shall be paid pursuant to the Company’s customary payroll practices. The Base Salary will be reviewed annually and may be increased in the sole discretion of the Company.

(b)In addition to the Base Salary, in each fiscal year of the Company during your employment with the Company, you will have the opportunity to earn an annual cash bonus (“Annual Bonus”) if the Company achieves certain performance objectives and subject to your individual performance (each of which will be determined by the Company for each such fiscal year).  The Annual Bonus for each period will be paid only if you are actively employed with the Company and are not in breach of this Agreement on the date of disbursement.

(c)During your employment with the Company, you will be entitled to participate generally in the benefit plans made available to employees of the Company in accordance with the terms of those plans and the Company will reimburse you for all reasonable business expenses upon presentation of statements of such expenses in accordance with the Company’s policies and procedures now in force or as such policies and procedures may be modified with respect to the senior executives of the Company.

(d)During your employment with the Company, you will be entitled to 20 working days of paid vacation per calendar year (pro rated according to your commencement date).

3.Term of Employment

(a)The employment period shall commence on April 1, 2004 and shall terminate on the day preceding the first anniversary thereof; provided, however, that the term of employment shall automatically be extended for successive one-year periods unless either party shall give at least six (6) months’prior written notice of non-renewal. Notwithstanding the foregoing, your employment hereunder will be terminated upon the earliest to occur of the following events:

(i)Death.  Your employment shall automatically terminate upon your death.

(ii)Disability.  The Company shall be entitled to terminate your employment if, as a result of your incapacity due to physical or mental illness or injury, you shall have been unable to perform your duties hereunder for a period of 181 days in any twelve-month period.

(iii)Cause.  The Company may terminate your employment for Cause, which, for purposes of this Agreement, shall mean (A) your willful misconduct or gross negligence in connection with the performance of your duties as an employee of the Company, (B) the willful engagement by you in misconduct that is demonstrably injurious to the Company (monetarily or otherwise) or its reputation, (C) your material breach of this Agreement or (D) your conviction of, or pleading guilty or nolo contendere to, a felony or a crime involving moral turpitude.

(iv)Without Cause.  The Company may terminate your employment at any time without Cause. Termination without Cause shall include the Company’s non-renewal of a successive one-year period of your employment with the Company as provided for in this Section 3(a).

(v)Voluntary Resignation.  You may voluntarily terminate your employment hereunder; provided, however, that you provide the Company with notice of your intent to terminate at least six monthsin advance of the date of termination.  Voluntary Resignation shall include your non-renewal of a successive one-year period of your employment with the Company as provided for in this Section 3(a).

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(b)In the event that your employment with the Company shall terminate for any reason, except as otherwise set forth in this Agreement, the Company’s sole obligation under the Agreement shall be to (i) pay to you any accrued and unpaid Base Salary through the date of termination of employment and an amount equal to such reasonable and necessary unreimbursed business expenses incurred by you on behalf of Company on or prior to the date of termination of employment and (ii) afford you all the employee benefits to which you may be entitled under, and in accordance with the terms of, all employee benefit plans in which you participate.

(c)In the event that the Company terminates your employment without Cause in accordance with the provisions of Section 3(a)(iv) hereof, you shall be entitled to continuation of your Base Salary and employee benefits for a period of twelve (12) monthsimmediately following the date of such termination; provided, however, that you comply with your obligations under Sections 3(e), 4, 5 and 6 hereof.

(d)In the event that either party gives notice of the non-renewal of a successive one-year period of your employment with the Company as provided for in Section 3(a) hereof, or you voluntarily terminate your employment hereunder and you provide notice thereof, during the period (or any portion thereof) commencing on the date of such notice and ending on the date of termination (the “Notice Period”), the Company may, in its absolute discretion, (i) require you to perform only such duties as it may allocate to you, (ii) require you not to perform any of your duties, (iii) require you not to have any contact with customers or clients of the Company nor any contact (other than purely social contact) with such employees of the Company as the Company shall determine, (iv)  exclude you from any premises of the Company and/or (v) require you to resign from all directorships and other offices that you hold in connection with your employment with the Company (including any directorships with subsidiaries or other affiliates of the Company) effective as of any date during the Notice Period.  If the Company elects to take any such action, such election shall not constitute a breach by the Company of this Agreement and you shall not have any claim against the Company in connection therewith so long as, during the Notice Period, the Company continues to pay to you your accrued and unpaid Base Salary, afford you all the employee benefits to which you may be entitled under, and in accordance with the terms of, all employee benefit plans in which you participate and otherwise comply with the terms of this Agreement.

(e)Upon termination of your employment with the Company for any reason, you agree (i) to resign from all directorships and other offices that you hold in connection with your employment with the Company (including any directorships with subsidiaries or other affiliates of the Company) and (ii) to execute a general release and waiver, waiving all claims you may have against the Company, its affiliates (including Parent) and their respective successors, assigns, employees, officers, directors, consultants, partners and shareholders.

(f)If within the first twelve months following a Change of Control, (i) the nature or scope of your position, authority or duties are materially adversely changed, (ii) your compensation is not paid or is reduced, there is a material adverse change in your employee benefits or the Company otherwise materially breaches this Agreement or (iii) you are required by the Company to relocate to a place more than 50 miles from your current place of employment, then, if you provide the Company with written notice of your intent to terminate

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your employment as a result of such event, providing the specific reasons therefor, and the Company does not make the necessary corrections within thirty days of receipt of your written notice, you may terminate your employment within the ten days following the expiration of such thirty day notice period and continue to receive your Base Salary and employee benefits for a period of twelve monthsimmediately following the date of such termination and the Annual Bonus that your would have been entitled to during such twelve months assuming all performance targets had been exceeded; provided, however, that you comply with your obligations under Section 3(e), 4, 5 and 6 hereof.  For purposes of this Agreement, the term “Change in Control” will be deemed to have occurred as of the first day any of the following events occurs:

(i)Any person or entity is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the U.S. Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Parent representing 50% or more of the combined voting power of the Parent’s then outstanding voting securities entitled to vote generally in the election of directors (the “Outstanding Parent Voting Securities”); provided, however, that for purposes of this Section 3(f) (i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Parent, (B) any acquisition by the Parent, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Parent or any affiliate of the Parent or (D) any acquisition by any entity pursuant to a transaction which complies with clauses (A), (B) and (C) of Section 3(f) (iii) hereof;

(ii)Individuals who, as of the date of this Agreement, constitute the Board (hereinafter referred to as the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Parent’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered a member of the Incumbent Board, excluding any individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person or entity other than the Board;

(iii)Consummation of a reorganization, merger, share exchange, amalgamation, recapitalization, consolidation or similar transaction by and among the Parent and another person or entity, including, for this purpose, a transaction as a result of which another person or entity owns the Parent or all or substantially all of the Parent’s assets, either directly or through one or more subsidiaries (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of

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the Outstanding Parent Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors (or equivalent management personnel) of the entity resulting from such Business Combination or that, as a result of such Business Combination, owns the Parent or all or substantially all of the Parent’s assets, either directly or through one or more subsidiaries, in substantially the same proportions as their ownership of the Outstanding Parent Voting Securities immediately prior to such Business Combination; (B) no person or entity (excluding any entity resulting from such Business Combination, or that, as a result of such Business Combination, owns the Parent or all or substantially all of the Parent’s assets, either directly or through one or more subsidiaries, or any employee benefit plan (or related trust) of the foregoing) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock or the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors (or equivalent management personnel) of the entity resulting from such Business Combination or that, as a result of such Business Combination, owns the Parent or all or substantially all of the Parent’s assets, either directly or through one or more subsidiaries, except to the extent that such ownership existed with respect to the Parent prior to the Business Combination; and (C) at least a majority of the members of the board of directors (or equivalent management personnel) of the entity resulting from such Business Combination or that, as a result of such Business Combination, owns the Parent or all or substantially all of the Parent’s assets, either directly or through one or more subsidiaries, were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, pursuant to which such Business Combination is effected or approved; or

(iv)Approval by the shareholders of the Parent of a complete liquidation or dissolution of the Parent or the sale or other disposition of all or substantially all of the Parent’s assets.

4.Assignment of Intellectual Property Rights

(a)Assignment.  You hereby assign all of your rights, title and interest to and in all Intellectual Property Rights (as defined below) conceived, developed, invented, made by you or otherwise owned by you and directly or indirectly relating to the Business (defined in Section 7(a)) and you agree and acknowledge that, on the date hereof, such rights to and in such Intellectual Property Rights shall become the sole property of, and belong to, the Company.

(b)Intellectual Property Rights.  For the purposes of this Agreement, the term “Intellectual Property Right” shall mean all proprietary and other rights in and to: (i) trademarks, service marks, brand names, certification marks, trade dress, assumed names, trade names and

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other indications of origin; (ii) patents, inventors’ certificates and invention disclosures; (iii) trade secrets and other confidential or non-public business information, including ideas, formulae, compositions, inventions, discoveries and improvements, know-how, manufacturing and production processes and techniques, and research and development information (whether patentable or not); drawings, specifications, designs, plans, proposals and technical data; and financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information; (iv) writings and other works of authorship, whether copyrightable or not, including computer programs, data bases and documentation therefor, and all copyrights to any of the foregoing; (v) mask works; (vi) rights, title and interest in know-how, technical information, processes, practices and systems, whether or not protectable by patent, copyright or trade secret law; (vii) moral rights; (viii) rights to limit the use or disclosure of confidential information by any person; (ix) any similar tangible or intangible intellectual property or proprietary rights, information and technology; (x) registrations of, and applications to register, any of the foregoing with any governmental agency or authority and any renewals or extensions thereof, (xi) the goodwill associated with each of the foregoing and (xii) any claims or causes of action arising out of or related to any infringement or misappropriation of any of the foregoing; in each case in any jurisdiction.

5.Non-Disclosure

(a)In view of the fact that your work for the Company will bring you into close contact with many confidential affairs of the Company not readily available to the public, as well as plans for future developments, you agree during your employment with the Company and thereafter:

(i)to keep secret and retain in the strictest confidence all proprietary or confidential matters or trade secrets of the Company or any of its subsidiaries and affiliates (which information will be deemed confidential notwithstanding any prior unauthorized disclosures), including, but not limited to, data, know-how, formulae, practices, processes, methodologies, designs, sketches, photographs, plans, drawings, specifications, samples, reports, member or customer lists, price lists, business strategies or arrangements, studies, findings, inventions, ideas, software, source code, business plans and other technical, business or financial information relating to the Company’s business, whether existing on the date hereof or hereafter (such material collectively, “Restricted Material”), and not to disclose such Restricted Material except with the Company’s permission to such third parties as may be necessary in the furtherance of the Company’s interests and in the discharge of your duties; and

(ii)to deliver promptly to the Company upon the termination of your employment or at any other time as the Company may so request, all documents (and all copies thereof), in whatever form, containing Restricted Material, and all property associated therewith, which you may then possess or have under your control; provided, however, that Restricted Material shall not be subject to the confidentiality restrictions of

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this Section 5 where you can show that such information is, at the time of disclosure, generally known to the public.

(b)In the event that you are requested or required (by oral questions, interrogatories, requests for information or documents, subpoena or similar process) to disclose any Restricted Material, you agree to provide the Company with prompt notice of such request(s) so that the Company may seek an appropriate protective order or other appropriate remedy and/or waive your compliance with the provisions of this Agreement. In the event that such protective order or other remedy is not obtained, or that the Company grants a waiver hereunder, you may furnish that portion (and only that portion) of the Restricted Material which you are legally compelled to disclose and will exercise your reasonable best efforts to obtain reliable assurance that confidential treatment will be accorded any Restricted Material so furnished.

(c)Nothing in this Section 5 shall be construed as granting or implying any right to you under any patent or unpatented intellectual property right of the Company, or your right to use any invention covered thereby.

6.Non-Solicitation

Except with prior written permission of the Company, you shall not, directly or indirectly (individually or on behalf of other persons), during your employment with the Company or any of its affiliates and for a period of six (6) months following the termination of your employment with the Company for any reason, hire, offer to hire, entice away or in any manner persuade or attempt to persuade any officer, employee or agent of the Parent or any of its affiliates (including the Company and any subsidiary) or any then current or prospective customer, client or broker of the Parent or any of its affiliates (including the Company and any subsidiary), to discontinue his or her relationship with the Parent or any of its affiliates (including the Company and any subsidiary) or to otherwise do business with any competing business of Parent or any of its affiliates (including the Company and any subsidiary).

7.Non-Competition

Except with prior written permission of the Company, you shall not, during your employment with the Company or any of its affiliates and if you terminate employment for any reason (other than your voluntary termination of employment or non-renewal of this Agreement in which you provide the six months’ notice required by Section 3(a) hereof), for a period of six (6) monthsfollowing your termination of employment, directly or indirectly (individually or on behalf of other persons): (a) enter the employ of, or render services to, any person, firm or corporation engaged in the insurance or reinsurance business or any other business in which the Company is, or has announced an intention to become, engaged in at any time during your employment with the Company and in each case within any State in the United States in which Parent or any of its affiliates (including the Company and any subsidiary) does business (hereinafter collectively referred to as the “Business”); (b) engage in such Business on your own account; or (c) become interested in any such Business, directly or indirectly, as an owner, partner, shareholder, member, director, officer, principal, consultant or in any other senior executive or managerial capacity; provided, however, that nothing contained in this Section 7

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shall be deemed to prohibit you from acquiring, solely as a passive investment, no more than 5% of the total outstanding securities of any publicly-held corporation.

8.Enforcement

(a)The parties hereto hereby declare that it is impossible to measure in money the damages that will accrue to the Company by reason of your failure to perform any of your obligations under Sections 4, 5, 6 and 7. Accordingly, if the Company institutes any action or proceeding to enforce the provisions hereof, to the extent permitted by applicable law, you hereby waive the claim or defense that the Company has an adequate remedy at law, and you shall not urge in any such action or proceeding the defense that any such remedy exists at law. The foregoing rights shall be in addition to any other rights and remedies available to the Company under law or in equity.

(b)If any of the covenants contained in Sections 4, 5, 6 and 7 or any part thereof, is construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect, without regard to the invalid portion(s). In addition, if any of the covenants contained in Sections 4, 5, 6 and 7 hereof, or any part thereof, is held by any person or entity with jurisdiction over the matter to be invalid or unenforceable because of duration of such provision or the geographical area covered thereby, the parties agree that such person or entity shall have the power to reduce the duration and/or geographical area of such provision and, in its reduced form, said provisions shall then be enforceable.

(c)It is understood and agreed that no failure or delay by the Company in exercising any right, power or privilege contained in Sections 4, 5, 6 and 7 shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege contained in Sections 4, 5, 6 and 7.

9.Dispute Resolution

In the event of any dispute or difference between you and the Company with respect to either the enforcement or interpretation of this Agreement, both you and the Company agree to resolve any such dispute or difference by the terms and conditions set forth in the Company’s Dispute Resolution Guidelines. By executing this Agreement, you acknowledge receiving and reviewing Company’s Dispute Resolution Guidelines.

10.Miscellaneous

(a)Any notice or other communication required or permitted under this Agreement shall be effective only if it is in writing and shall be deemed to be given when delivered personally or three days after it is mailed by registered or certified mail, postage prepaid, return receipt requested or one day after it is sent by a reputable overnight courier service and, in each case, addressed to the relevant party at the address provided for such party on the first page hereof, or to such other address as any party hereto may designate by notice to the other in accordance with the foregoing.

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(b)This Agreement constitutes the entire agreement among you and the Company with respect to your employment by the Company, and supersedes and is in full substitution for any and all prior understandings or agreements with respect to your employment.

(c)This Agreement may be amended only by an instrument in writing signed by the parties hereto, and any provision hereof may be waived only by an instrument in writing signed by the party against whom or which enforcement of such waiver is sought.

(d)This Agreement and all rights and obligations hereunder, including, without limitation, matters of construction, validity and performance, shall be governed by and construed and interpreted in accordance with the laws of New York without regard to principles of conflict of laws.

(e)In the event of any contest or dispute between you and the Company with respect to this Agreement, each of the parties shall be responsible for their respective legal fees and expenses in accordance with the Company’s Dispute Resolution Guidelines.

(f)This Agreement shall inure for the benefit of and be an obligation of the Company’s assigns and successors; provided, however, that you may not assign your duties and obligations hereunder to any other party.

(g)The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof.

If the terms of this Agreement meet with your approval, please sign and return one copy to the Company.

Sincerely,
AXIS SPECIALTY U.S. SERVICES, INC.
By:	Dennis B. Reding
Name: Dennis B. Reding
Title: Executive Vice President

Accepted and Agreed

as of the date first set forth above:

Lorraine S. Mariano

Lorraine S. Mariano

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EX-31.1

Exhibit 31.1

CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
AXIS Capital Holdings Limited
Pursuant to section 302 of the Sarbanes-Oxley Act of 2002

I, John Charman, certify that:

1.I have reviewed this quarterly report of AXIS Capital Holdings Limited for the period ended June 30, 2004;

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

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

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

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

b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and;

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

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Date:	August 4, 2004	/s/ John Charman
		John Charman
		Chief Executive Officer

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CERTIFICATION
OF CHIEF FINANCIAL OFFICER
AXIS Capital Holdings Limited
Pursuant to section 302 of the Sarbanes-Oxley Act of 2002

I, Andrew Cook, certify that:

1.I have reviewed this quarterly report of AXIS Capital Holdings Limited for the period ended June 30, 2004;

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

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

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

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

b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and;

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

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Date:	August 4, 2004	/s/ Andrew Cook
		Andrew Cook
		Chief Financial Officer

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EX-32.2

Exhibit 32.2

CERTIFICATION
OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
AXIS Capital Holdings Limited
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002

I, John Charman, and I, Andrew Cook, each certify to the best of my knowledge that:

This quarterly report of AXIS Capital Holdings Limited for the quarter ended June 30, 2004 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

Date:	August 4, 2004	/s/ John Charman
		John Charman
		Chief Executive Officer
		/s/ Andrew Cook
		Andrew Cook
		Chief Financial Officer

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