PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

AXIS CAPITAL HOLDINGS LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS
As at June 30, 2005 and December 31, 2004
(Expressed in thousands of U.S. dollars, except share and per share amounts)

	June 30, 2005			December 31, 2004
	(Unaudited)			(Unaudited)
Assets
Cash and cash equivalents	$	793,304		$	632,329
Fixed maturity investments at fair market value (Amortized cost 2005: $5,295,717; 2004: $5,114,997)	5,298,519			5,128,345
Other investments	441,650			271,344
Accrued interest receivable	54,571			47,487
Securities lending collateral	998,196			865,311
Insurance and reinsurance premium balances receivable	1,230,321			914,562
Deferred acquisition costs	263,491			211,082
Prepaid reinsurance premiums	269,625			271,187
Reinsurance recoverable balances	640,196			588,649
Reinsurance recoverable balances on paid losses	7,829			7,650
Intangible assets	29,947			31,734
Other assets	89,307			68,605
Total Assets	$	10,116,956		$	9,038,285

Liabilities
Reserve for losses and loss expenses	$	2,929,699		$	2,404,560
Unearned premiums	2,071,073			1,644,771
Insurance and reinsurance balances payable	251,753			247,940
Accounts payable and accrued expenses	91,982			89,804
Securities lending payable	994,346			864,354
Net payable for investments purchased	112,515			49,854
Debt	498,992			498,938
Total Liabilities	6,950,360			5,800,221

Shareholders’ Equity
Share capital (Authorized 800,000,000 common shares, par value $0.0125; issued and outstanding 2005: 140,668,032; 2004:152,764,917)	1,758			1,910
Additional paid-in capital	1,680,148			2,017,144
Accumulated other comprehensive (loss) income	(255		)	12,915
Retained earnings	1,484,945			1,206,095
Total Shareholders’ Equity	3,166,596			3,238,064

Total Liabilities & Shareholders’ Equity	$	10,116,956		$	9,038,285

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

AXIS CAPITAL HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
For the Quarters and Six Months ended June 30, 2005 and 2004
(Expressed in thousands of U.S. dollars, except share and per share amounts)

	Quarters ended						Six Months ended
	June 30, 2005			June 30, 2004			June 30, 2005			June 30, 2004
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues
Gross premiums written	$	767,293		$	629,319		$	1,965,992		$	1,673,442
Premiums ceded	(151,497		)	(141,442		)	(288,125		)	(286,375		)
Change in unearned premiums	8,617			(1,474		)	(427,864		)	(429,416		)
Net premiums earned	624,413			486,403			1,250,003			957,651

Net investment income	58,001			33,345			110,759			64,604
Net realized gains (losses)	1,831			(4,411		)	438			5,686
Other insurance related (loss) income	(5,451		)	156			(5,519		)	444
Total revenues	$	678,794		$	515,493		$	1,355,681		$	1,028,385

Expenses
Net losses and loss expenses	$	322,853		$	257,850		$	667,143		$	500,450
Acquisition costs (related party 2005: $33,307; $66,252 2004:$21,734; $46,432)	85,471			65,491			176,772			122,454
General and administrative expenses	56,796			42,442			111,098			84,292
Foreign exchange losses	27,226			6,413			50,644			7,558
Interest expense	7,818			181			15,897			219
Total expenses	$	500,164		$	372,377		$	1,021,554		$	714,973

Income before income taxes	178,630			143,116			334,127			313,412
Income tax expense	(5,785		)	(2,260		)	(9,483		)	(5,770		)
Net Income	$	172,845		$	140,856		$	324,644		$	307,642

Other comprehensive income, net of tax
Unrealized gains (losses) arising during the period	50,699			(79,261		)	(7,367		)	(47,469		)
Adjustment for re-classification of losses realized in income	(1,560		)	(5,838		)	(5,803		)	(8,888		)
Comprehensive income	$	221,984		$	55,757		$	311,474		$	251,285

Weighted average common shares outstanding - basic	140,566,523			152,487,082			143,584,354			152,484,015

Weighted average common shares and common share equivalents outstanding - diluted	153,637,750			166,842,606			157,013,504			166,785,604

Earnings per share - basic	$	1.23		$	0.92		$	2.26		$	2.02

Earnings per share - diluted	$	1.13		$	0.84		$	2.07		$	1.84

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

AXIS CAPITAL HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
For the Six Months ended June 30, 2005 and 2004
(Expressed in thousands of U.S. dollars)

	Six Months ended
	June 30, 2005			June 30, 2004
	(Unaudited)			(Unaudited)
Share capital
Balance at beginning of period	$	1,910		$	1,906
Shares issued during period	8			—
Repurchased during period	(160		)	—
Balance at end of period	$	1,758		$	1,906

Additional paid-in capital
Balance at beginning of period	$	2,017,144		$	2,000,731
Shares issued during period, net of costs	(1,691		)	(272		)
Repurchased during period	(349,840		)	—
Stock options exercised	2,240			—
Stock option expense	2,204			1,544
Stock compensation expense	10,091			7,713
Balance at end of period	$	1,680,148		$	2,009,716

Accumulated other comprehensive (loss) income
Balance at beginning of period	$	12,915		$	25,164
Change in unrealized losses	(12,371		)	(62,572		)
Change in deferred taxes	(799		)	6,215
Balance at end of period	$	(255	)	$	(31,193	)

Retained earnings
Balance at beginning of period	$	1,206,095		$	789,347
Dividends paid	(45,794		)	(34,904		)
Net income for period	324,644			307,642
Balance at end of period	$	1,484,945		$	1,062,085

Total Shareholders’ Equity	$	3,166,596		$	3,042,514

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

AXIS CAPITAL HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months ended June 30, 2005 and 2004
(Expressed in thousands of U.S. dollars)

	Six Months ended
	June 30, 2005			June 30, 2004
	(Unaudited)			(Unaudited)
Cash flows provided by operating activities:
Net income	$	324,644		$	307,642
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net realized gains on sales of investments	(438		)	(5,686		)
Net amortization on fixed maturities	14,898			17,647
Amortization of deferred compensation and option expense	12,295			9,257
Amortization of intangible assets	767			795
Amortization of deferred debt expenses	228			—
Accrued interest receivable	(7,084		)	(7,082		)
Insurance and reinsurance premium balances receivable	(315,759		)	(334,289		)
Deferred acquisition costs	(52,409		)	(86,007		)
Prepaid reinsurance premiums	1,562			(75,200		)
Reinsurance recoverable balances	(51,547		)	(121,010		)
Reinsurance recoverable balances on paid losses	(179		)	—
Intangible assets	1,020			(135		)
Other assets	(21,676		)	(7,425		)
Reserve for losses and loss expenses	525,139			548,347
Unearned premiums	426,302			504,615
Insurance and reinsurance balances payable	3,813			56,760
Accounts payable and accrued expenses	(715		)	(23,729		)
Total adjustments	536,217			476,858
Net cash provided by operating activities	860,861			784,500
Cash flows provided by (used in) investing activities:
Purchases of other investments	(173,703		)	(34,403		)
Purchases of available-for-sale securities	(3,105,541		)	(3,357,290		)
Sales and maturities of available-for-sale securities	2,974,596			2,758,409
Net cash used in investing activities	(304,648		)	(633,284		)
Cash flows provided by (used in) financing activities:
Dividend	(45,794		)	(34,904		)
Repurchase of shares, net	(350,000		)	—
Issue of shares, net	556			(272		)
Net cash used in financing activities	(395,238		)	(35,176		)
Increase in cash and cash equivalents	160,975			116,040
Cash and cash equivalents – beginning of period	632,329			605,175
Cash and cash equivalents - end of period	$	793,304		$	721,215
Supplemental disclosures of cash flow information:
Income taxes paid	$	22,555		$	9,103
Interest paid	$	15,677		$	4

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

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 its subsidiaries (together, the “Company”) and have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. 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 U.S. 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 U.S. 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 the reserve for losses and loss expenses, premium estimates for business written on a line slip or proportional basis, the estimation of accruals for amounts due under incentive commission agreements and the estimation of fair values for derivative contracts. The terms “FAS” and “FASB” used in these notes refer to Statements of Financial Accounting Standards issued by the United States Financial Accounting Standards Board. To facilitate period-to-period comparisons, reclassifications have been made to prior period consolidated financial statement amounts to conform to current period presentation. There was no effect on net income from these changes in presentation.

This Quarterly Report in Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2005.

2. New Accounting Pronouncements

In June 2005, the FASB directed the staff to issue the proposed FSP EITF Issue 03-1-a as final and it will be retitled FSP FAS 115-1 “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”. It replaces existing guidance and clarifies that an impairment should be recognized as a loss at a date no later than the impairment is deemed other-than-temporary, even if the decision to sell has not been made. FSP FAS 115-1 is effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005. The Company believes that its current policy on other-than-temporary impairments complies with FSP FAS 115-1. Accordingly, the adoption of this standard has no impact on the Company’s results of operations or financial condition.

In June 2005, the FASB issued as final FSP No. FAS 150-5 “Issuers Accounting under FASB Statement No.150 for Freestanding Warrants and Other Similar Instruments on Shares that are Redeemable”. The FSP clarifies that freestanding warrants and similar instruments on shares that are redeemable should be accounted for as liabilities under FASB Statement No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” regardless of the timing of the redemption feature or price, even though the underlying shares may be classified as equity. The FSP is effective for the first reporting period beginning after June 30, 2005. Although the Company does have outstanding warrants, the shares issued upon exercise of the warrants are not redeemable; consequently, FSP No. FAS 150-5 has no impact on the Company’s results of operations or financial condition.

In December 2004, the FASB issued Statement No 123 (revised 2004), Share-Based Payment (“FAS 123R”). FAS 123R replaces FASB Statement No. 123 “Accounting for Stock-Based Compensation” and supersedes APB opinion No.25 “Accounting for Stock Issued to Employees”. The statement requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments granted to employees and is effective for the first quarter of 2006. The Company already records compensation expense for awards of stock options and restricted stock to employees based on the fair value of the awards; consequently, this statement will not have a material impact on the Company’s results of operations or financial condition.

3. Stock-Based Compensation

The Company accounts for stock compensation in accordance with FAS No. 123, “Accounting for Stock-Based Compensation.” Compensation expense for stock options and for restricted stock awards granted to employees is recorded over the vesting period using the fair value method. The Company adopted FAS No. 123 effective January 1, 2003 by applying the prospective method permitted under FAS No. 148 “Accounting for Stock Based Compensation – Transition and Disclosure”. 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. 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 prior to January 1, 2003.

		Quarters ended						Six Months ended
		June 30, 2005			June 30, 2004			June 30, 2005			June 30, 2004

Net income, as reported		$	172,845		$	140,856		$	324,644		$	307,642
Add:	Stock-based employee compensation expense included in net income, net of related tax effects	5,448			4,030			10,505			8,087
Deduct:	Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects	(5,626		)	(4,712		)	(10,862		)	(9,453		)

Pro-forma net income		$	172,667		$	140,174		$	324,287		$	306,276
Net income per share:
	Basic – as reported	$	1.23		$	0.92		$	2.26		$	2.02
	Basic – pro forma	$	1.23		$	0.92		$	2.26		$	2.01
	Diluted – as reported	$	1.13		$	0.84		$	2.07		$	1.84
	Diluted – pro forma	$	1.12		$	0.84		$	2.07		$	1.84

4. Segment Information

Through December 31, 2004, the Company’s business consisted of five reportable operating segments: global insurance; global reinsurance; U.S. insurance; U.S. reinsurance; and corporate. Effective January 1, 2005, the Company created two distinct global underwriting platforms, AXIS Insurance and AXIS Re. Following this strategic realignment of its organizational structure, the Company has re-evaluated its operating and reportable segments and determined that it has three reportable operating segments: insurance, reinsurance and corporate. The Company’s insurance segment is further divided into two sub-segments: global insurance and U.S. insurance. The Company’s segments and sub-segments have been determined on the basis of underlying information reviewed by the chief decision maker, the Chief Executive Officer.

Quarter ended June 30, 2005

	Global Insurance			U.S. Insurance			Total Insurance			Reinsurance			Corporate			Total

Revenues:
Gross premiums written	$	227,512		$	285,470		$	512,982		$	254,311		$	—		$	767,293
Net premiums written	214,005			151,098			365,103			250,693			—			615,796
Net premiums earned	204,717			108,321			313,038			311,375			—			624,413
Other insurance related (loss) income	(5,627		)	326			(5,301		)	(150		)	—			(5,451		)
Expenses:
Net losses and loss expenses	(78,039		)	(70,658		)	(148,697		)	(174,156		)	—			(322,853		)
Acquisition costs	(26,455		)	(3,695		)	(30,150		)	(55,321		)	—			(85,471		)
General and administrative expenses	(9,632		)	(20,777		)	(30,409		)	(12,330		)	—			(42,739		)
Underwriting income (a)	84,964			13,517			98,481			69,418			—			167,899

Corporate expenses													(14,057		)	(14,057		)
Net investment income													58,001			58,001
Realized gains on investments													1,831			1,831
Foreign exchange losses													(27,226		)	(27,226		)
Interest expense													(7,818		)	(7,818		)
Income before income taxes																$	178,630

Net loss and loss expense ratio	38.1		%	65.2		%	47.5		%	55.9		%				51.7		%
Acquisition cost ratio	12.9		%	3.4		%	9.6		%	17.8		%				13.7		%
General and administrative expense ratio	4.7		%	19.2		%	9.7		%	4.0		%	2.2		%	9.1		%
Combined ratio	55.7		%	87.8		%	66.8		%	77.7		%				74.5		%

Reserve for losses and loss expenses	$	951,874		$	930,807		$	1,882,681		$	1,047,018		n/a			$	2,929,699

(a) The Company utilizes underwriting income as a measure of underwriting profitability as it evaluates profitability solely on underwriting related revenues and costs. Items not considered to be part of underwriting include: corporate expenses, investment income, realized losses and gains on the sale of investments, foreign exchange and interest expense. These items are evaluated separately from our underwriting results. Underwriting income takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses as expenses. Underwriting income is the difference between the revenue and expense items.

Quarter ended June 30, 2004

	Global Insurance			U.S. Insurance			Total Insurance			Reinsurance			Corporate		Total

Revenues:
Gross premiums written	$	216,188		$	219,915		$	436,103		$	193,216		—		$	629,319
Net premiums written	183,240			117,605			300,845			187,032			—		487,877
Net premiums earned	196,568			83,667			280,235			206,168			—		486,403
Other insurance related (loss) income	(399		)	—			(399		)	555			—		156
Expenses:
Net losses and loss expenses	(117,616		)	(47,124		)	(164,740		)	(93,110		)	—		(257,850		)
Acquisition costs	(30,422		)	(2,363		)	(32,785		)	(32,706		)	—		(65,491		)
General and administrative expenses	(7,265		)	(16,112		)	(23,377		)	(9,426		)	—		(32,803		)
Underwriting income (a)	40,866			18,068			58,934			71,481			—		130,415

Corporate expenses													(9,639	)	(9,639		)
Net investment income													33,345		33,345
Realized losses on investments													(4,411	)	(4,411		)
Foreign exchange losses													(6,413	)	(6,413		)
Interest expense													(181	)	(181		)
Income before income taxes															$	143,116

Net loss and loss expense ratio	59.8		%	56.3		%	58.8		%	45.2		%			53.0		%
Acquisition cost ratio	15.5		%	2.8		%	11.7		%	15.9		%			13.5		%
General and administrative expense ratio	3.7		%	19.3		%	8.3		%	4.6		%	1.9	%	8.7		%
Combined ratio	79.0		%	78.4		%	78.8		%	65.7		%			75.2		%

Reserve for losses and loss expenses	$	677,138		$	408,701		$	1,085,839		$	455,354		n/a		$	1,541,193

Six months ended June 30, 2005

	Global Insurance			U.S. Insurance			Total Insurance			Reinsurance			Corporate		Total

Revenues:
Gross premiums written	$	479,835		$	462,396		$	942,231		$	1,023,761		—		$	1,965,992
Net premiums written	417,435			242,330			659,765			1,018,102			—		1,677,867
Net premiums earned	421,575			214,822			636,397			613,606			—		1,250,003
Other insurance related (loss) income	(5,865		)	346			(5,519		)	—			—		(5,519		)
Expenses:
Net losses and loss expenses	(143,934		)	(142,376		)	(286,310		)	(380,833		)	—		(667,143		)
Acquisition costs	(59,537		)	(6,739		)	(66,276		)	(110,496		)	—		(176,772		)
General and administrative expenses	(19,484		)	(41,088		)	(60,572		)	(24,631		)	—		(85,203		)
Underwriting income (a)	192,755			24,965			217,720			97,646			—		315,366

Corporate expenses													(25,895	)	(25,895		)
Net investment income													110,759		110,759
Realized gains on investments													438		438
Foreign exchange losses													(50,644	)	(50,644		)
Interest expense													(15,897	)	(15,897		)
Income before income taxes															$	334,127

Ratios:
Net loss and loss expense ratio	34.1		%	66.3		%	45.0		%	62.1		%			53.4		%
Acquisition cost ratio	14.1		%	3.1		%	10.4		%	18.0		%			14.1		%
General and administrative expense ratio	4.6		%	19.1		%	9.5		%	4.0		%	2.1	%	8.9		%
Combined ratio	52.8		%	88.5		%	64.9		%	84.1		%			76.4		%

Reserve for loss and loss expenses	$	951,874		$	930,807		$	1,882,681		$	1,047,018		n/a		$	2,929,699

Six months ended June 30, 2004

	Global Insurance			U.S. Insurance			Total Insurance			Reinsurance			Corporate		Total

Revenues:
Gross premiums written	$	516,596		$	368,257		$	884,853		$	788,589		—		$	1,673,442
Net premiums written	415,779			198,429			614,208			772,859			—		1,387,067
Net premiums earned	396,284			157,571			553,855			403,796			—		957,651
Other insurance related (loss) income	(219		)	—			(219		)	663			—		444
Expenses:
Net losses and loss expenses	(216,143		)	(96,740		)	(312,883		)	(187,567		)	—		(500,450		)
Acquisition costs	(56,463		)	(2,537		)	(59,000		)	(63,454		)	—		(122,454		)
General and administrative expenses	(15,455		)	(31,705		)	(47,160		)	(18,528		)	—		(65,688		)
Underwriting income (a)	108,004			26,589			134,593			134,910			—		269,503

Corporate expenses													(18,604	)	(18,604		)
Net investment income													64,604		64,604
Realized gains on investments													5,686		5,686
Foreign exchange losses													(7,558	)	(7,558		)
Interest expense													(219	)	(219		)
Income before income taxes															$	313,412

Ratios:
Net loss and loss expense ratio	54.5		%	61.4		%	56.5		%	46.5		%			52.3		%
Acquisition cost ratio	14.2		%	1.6		%	10.6		%	15.7		%			12.8		%
General and administrative expense ratio	3.9		%	20.1		%	8.5		%	4.6		%	1.9	%	8.8		%
Combined ratio	72.6		%	83.1		%	75.6		%	66.8		%			73.9		%

Reserve for losses and loss expenses	$	677,138		$	408,701		$	1,085,839		$	455,354		n/a		$	1,541,193

5. Benefit Plans

The following table shows the components of expense for the quarter and six months ended June 30, 2005 and 2004 and the amounts included in the Company’s Condensed Consolidated Balance Sheet as of June 30, 2005 and December 31, 2004 for the supplemental retirement plans (“SERPS”):

	Quarters ended				Six Months ended
	June 30, 2005		June 30, 2004		June 30, 2005		June 30, 2004
Components of pension expense
Amortization of prior service cost	$	537	$	536	$	1,073	$	1,073
Interest cost	171		161		342		321
Amortization of prior service cost	$	708	$	697	$	1,415	$	1,394

The weighted-average assumptions used to determine net periodic pension cost and benefit obligations for the quarter and six months ended June 30, 2005 and 2004 were:

	June 30, 2005		June 30, 2004
Discount rate	6.0	%	6.0	%
Expected return on plan assets	6.0	%	6.0	%

	June 30, 2005			December 31, 2004

Change in benefit obligation
Benefit obligation amendment	$	11,371		$	10,728
Interest cost	342			643
Benefit obligation at end of period	$	11,713		$	11,371
Reconciliation of Funded Status
Funded Status	$	(11,713	)	$	(11,371	)
Unrecognized prior service cost	7,509			8,582
Accrued benefit cost	$	(4,204	)	$	(2,789	)

6. Debt and Financing Arrangements

a) Senior Notes

On November 15, 2004, the Company issued $500.0 million of senior unsecured debt (“Senior Notes”) at an issue price of 99.785%, generating net proceeds of $495.7 million. The Senior Notes bear interest at a rate of 5.75% payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2005. Unless previously redeemed, the Senior Notes will mature on December 1, 2014. The Company may redeem the Senior Notes at any time, in whole or in part, at a “make-whole” redemption price, however, the Company has no current intentions of calling the Senior Notes. The Senior Notes contain various covenants, including limitations on liens on the stock of restricted subsidiaries, restrictions as to the disposition of the stock of restricted subsidiaries, and limitations on mergers and consolidations. The Company was in compliance with all covenants contained in the Senior Notes at June 30, 2005. The market value of the Senior Notes at June 30, 2005 was $515.9 million. For the quarter ended June 30, 2005, the Company incurred interest expense of $7.2 million for the Senior Notes. Interest payments commenced on June 1, 2005.

b) Credit Facilities

As at June 30, 2005, the Company had a $750 million revolving credit facility available from a syndicate of commercial banks. Up to $750 million may be used to issue letters of credit and up to $300 million for general corporate purposes with total borrowing not to exceed $750 million. As at June 30, 2005, the Company had letters of credit of $433.7 million (2004: $421.7 million) outstanding. There was no debt outstanding under the credit facility as at June 30, 2005 or December 31, 2004. The credit facility contains various loan covenants that include, among other things, the requirement that the Company maintain a minimum level of capital and surplus and a maximum debt to total capitalization ratio. The Company was in compliance with all covenants contained in the credit facility at June 30, 2005.

The Company is currently re-negotiating its credit facility in order to increase the facility size and extend the tenure.

7. Share Repurchase

On February 16, 2005, the Company repurchased 12,783,094 common shares owned by initial investors at the formation of the Company pursuant to its repurchase program. The average purchase price was $27.38 per common share and the aggregate price was $350.0 million.

8. Earnings Per Share

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

	Quarters ended				Six months ended
	June 30, 2005		June 30, 2004		June 30, 2005		June 30, 2004

Basic earnings per share
Net income	$	172,845	$	140,856	$	324,644	$	307,642
Weighted average common shares outstanding	140,566,523		152,487,082		143,584,354		152,484,015
Basic earnings per share	$	1.23	$	0.92	$	2.26	$	2.02

Diluted earnings per share
Net income	$	172,845	$	140,856	$	324,644	$	307,642
Weighted average common shares outstanding	140,566,523		152,487,082		143,584,354		152,484,015
Share equivalents
Warrants	10,485,432		11,101,412		10,656,522		11,061,309
Options	2,143,648		2,360,798		2,202,168		2,351,596
Restricted stock	442,147		893,314		570,460		888,684
Weighted average common shares and common share equivalents outstanding – diluted	153,637,750		166,842,606		157,013,504		166,785,604
Net income per share - diluted	$	1.13	$	0.84	$	2.07	$	1.84

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

Business Overview

The following is a discussion of the Company’s financial condition, liquidity and results of operations. This discussion should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited Consolidated Financial Statements and notes thereto presented under Item 7 and Item 8, respectively, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the SEC on March 1, 2005.

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 for insurers and reinsurers. 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.

We believe that we are currently operating in a marketplace that, with appropriate risk selection, can offer favorable pricing and/or terms and conditions in our business segments. In general, pricing in our insurance segment is stable to declining for many classes of business. Terms and conditions, however, remain relatively attractive. In our reinsurance segment, we have experienced moderate price softening, particularly in short-tail lines of business (with the exception of Florida-exposed business). Terms and conditions have remained firm across most lines of business.

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. Our expenses primarily consist of net losses and loss expenses, acquisition costs, general and administrative expenses and interest expense.

Financial Measures

Our 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 the returns meet or exceed our requirements. To achieve this objective, we must be able to accurately assess the potential losses associated with the risks that we insure and reinsure, to manage our investment portfolio risk appropriately, and to control acquisition costs and infrastructure throughout the organization. Three financial measures that are meaningful in analyzing our performance are return on equity, combined ratio and underwriting income. 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 relatively short tail orientation of our overall portfolio of risks. Underwriting income is a measure of underwriting profitability that takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses as expenses. Underwriting income is the difference between these revenue and expense items.

The following table details our key performance indicators for the periods indicated:

	Quarters ended						Six Months ended
	June 30, 2005			June 30, 2004			June 30, 2005			June 30, 2004
	($ in thousands, except share and per share amounts)
Gross premiums written	$	767,293		$	629,319		$	1,965,992		$	1,673,442
Net premiums earned	624,413			486,403			1,250,003			957,651
Underwriting income	167,899			130,415			315,366			269,503
Net income	172,845			140,856			324,644			307,642
Net loss and loss expense ratio	51.7		%	53.0		%	53.4		%	52.3		%
Acquisition cost ratio	13.7		%	13.5		%	14.1		%	12.8		%
General and administrative expense ratio	9.1		%	8.7		%	8.9		%	8.8		%
Combined ratio	74.5		%	75.2		%	76.4		%	73.9		%
Return on average equity	22.6		%	18.6		%	20.3		%	21.0		%

Because we have a limited operating history and are exposed to volatility in our results of operations, period-to-period comparisons of our results of operations may not be meaningful. In addition, the amount of premiums written with respect to any particular segment or line of business may vary from quarter to quarter as a result of changes in market conditions and our view of the long-term profit potential of individual lines of business.

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 for the year ended December 31, 2004 filed with the SEC on March 1, 2005.

Results of Operations

Quarters ended June 30, 2005 and 2004

Premiums. The $138.0 million increase in gross written premium was generated by both our insurance and reinsurance segments, which experienced increases in gross premiums written of $76.9 million and $61.1 million, respectively. This increase was primarily due to greater market penetration in existing lines of business together with the generation of new business.

The increase of $10.1 million in premiums ceded was primarily due to an increase in premiums ceded by our insurance segment. This was primarily a result of increased premiums ceded by U.S. insurance.

The $138.0 million increase in net premiums earned was primarily generated by our reinsurance segment, which reported an increase of $105.2 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 over the rolling twelve-month period ended June 30, 2005 compared to the rolling twelve-month period ended June 30, 2004, our net premiums earned increased.

Net Investment Income. Net investment income increased by $24.7 million due to a combination of higher investment balances and higher investment yields. Net investment income for the quarter ended June 30, 2005 consisted of $54.6 million of interest on cash and fixed maturity investments and $5.0 million of income from other investments, offset by $1.6 million of net investment expenses. Included in

net investment income for the quarter ended for June 30, 2005, was $0.6 million of unrealized gains from other investments. Net investment income for the quarter ended June 30, 2004 consisted of $34.8 million of interest on cash and fixed maturity investments offset by $1.5 million of net investment expenses.

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) increased by 0.8%. The increase in the effective yield was primarily due to higher U.S. interest rates at the short end of the yield curve. The yield may vary significantly from period to period due primarily to the timing of cash flows, changes in interest rates and changes in asset allocation.

Net Realized Losses/Gains. Net realized gains increased by $6.2 million. The increase was generated by net realized gains of $3.5 million from sale of investments and net realized and unrealized gains of $2.7 million from investment derivatives that we use to hedge the foreign exchange risk of the investment portfolio. 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.

The total return for our investment portfolio for the quarter ended June 30, 2005 (calculated using beginning and ending market portfolio values, adjusted for external cash flows) was 2.2% versus (1.7%) for the quarter ended June 30, 2004. The total return for an investment portfolio consists of price and income return. These components are primarily affected by the timing of cash flows, changes in interest rates and changes in asset allocation. Our total return was higher during the quarter ended June 30, 2005 due to a combination of higher investment yields obtained during the quarter versus the comparable prior period and a change in the U.S. interest rates that positively impacted the price of fixed income securities.

Other Insurance Related Income/Loss. The decrease of $5.6 million in other insurance related income/loss primarily related to the movement in the fair value of insurance contracts that meet the definition of a derivative. During the quarter ended June 30, 2005, the principal contract that was accounted for as a derivative expired.

Net Losses and Loss Expenses. The increase of $65.0 million in net losses and loss expenses was primarily generated by an increase in the volume of gross premiums earned and an increase in the net loss and loss expense ratio for our reinsurance segment. The net loss and loss expense ratio for the quarter ended June 30, 2005, was 51.7% compared to 53.0% for the quarter ended June 30, 2004. During the quarter ended June 30, 2005, we experienced favorable prior period development of $74.0 million, or 11.9 percentage points, compared with $43.2 million, or 8.9 percentage points, for the quarter ended June 30, 2004.

Acquisition Costs. The increase of $20.0 million in acquisition costs primarily resulted from an increase in the volume of gross premiums earned. The acquisition cost ratio for the quarter ended June 30, 2005 was 13.7% compared to 13.5% for the quarter ended June 30, 2004. We experienced an increase in the ratio principally as a result of a change in our business mix, with a higher percentage of net earned premiums generated by our reinsurance segment, which has a higher acquisition cost ratio. This impact was partially offset by a reduction in the acquisition cost ratio in our insurance segment generated on business earned by global insurance.

As we have not entered into any incentive commission arrangements with brokers for 2005, we have not accrued any fees regarding these arrangements for the quarter ended June 30, 2005. We have accrued liabilities for amounts due under incentive arrangements with brokers entered into for 2004; however, given the uncertainties that exist surrounding the calculation and payment of these incentive commissions, this estimate is subject to change. Any changes in the estimate are recorded during the

period in which the change is identified. To date, the level of commissions charged in 2005 by brokers has generally remained consistent with prior periods.

General and Administrative Expenses. The $14.4 million increase in general and administrative expenses was principally generated by increased compensation costs due primarily to an increase in headcount from the expansion of operations. The general and administrative expense ratio for the quarter ended June 30, 2005 was 9.1% compared to 8.7% for the quarter ended June 30, 2004.

Foreign Exchange. Our functional currency is the U.S. dollar; however, some of our business is written in other currencies. For the quarter ended June 30, 2005, we experienced a foreign exchange loss of $27.2 million, which constituted an increase of $20.8 million compared to the quarter ended June 30, 2004. The loss was principally attributable to the decline of the Euro against the U.S. dollar and an increase in our asset balances denominated in Euros following an increase in the level of gross premiums written in this currency in our reinsurance segment. In order to alleviate some of the current volatility of our foreign exchange losses and gains, we have developed a hedging program using foreign currency derivative instruments.

Interest Expense. The increase of $7.6 million was primarily due to the issuance of senior unsecured debt in November 2004, which bears interest at 5.75% per annum. Interest expense consists of interest due on outstanding debt, the amortization of debt offering expenses and offering discounts, and fees relating to our credit facility.

Income Tax Expense. The increase of $3.5 million in the income tax expense for the quarter ended June 30, 2005 was primarily attributable to the generation of additional taxable income by our U.S. subsidiaries.

Net Income. Net income for the quarter ended June 30, 2005 consisted of net underwriting income of $167.9 million, net investment income and net realized gains of $59.8 million, reduced by corporate expenses of $14.1 million, foreign exchange losses of $27.2 million, interest expense of $7.8 million and tax expense of $5.8 million. Net income for the quarter ended June 30, 2004 consisted of net underwriting income of $130.4 million and net investment income and net realized gains of $28.9 million, reduced by corporate expenses of $9.6 million, foreign exchange losses of $6.4 million, interest expense of $0.2 million and a tax expense of $2.3 million.

Comprehensive Income. Comprehensive income, which increased $166.2 million for the quarter ended June 30, 2005, represents net income adjusted for changes in the unrealized position in our investment portfolio.

Six months ended June 30, 2005 and 2004

Premiums. We experienced an increase in gross written premium of $292.6 million. This was primarily generated by our reinsurance segment, which experienced an increase in gross premiums written of $235.2 million due to greater market penetration in Continental Europe and new opportunities within our property book.

The $1.8 million increase in premium ceded was due to an increase in the level of reinsurance purchased by our insurance segment, which offset a decrease in the level of reinsurance purchased by our reinsurance segment. Our insurance segment, which purchases most of our reinsurance, does so to reduce our exposure to risk of loss on some lines of business.

The $292.4 million increase in net premiums earned resulted primarily from our reinsurance segment, which reported an increase in net premiums earned of $209.8 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 over the rolling twelve-month period ended June 30, 2005 compared to the rolling twelve-month period ended June 30, 2004, our net premiums earned increased.

Net Investment Income. Net investment income increased by $46.2 million due to a combination of higher investment balances and higher investment yields. Net investment income for the six months ended June 30, 2005 consisted of: $106.1 million of interest on cash and fixed maturity investments; $7.9 million of income from other investments and was offset by $3.2 million of net investment expenses. Included in net investment income for the six months ended June 30, 2005 was $0.9 million of unrealized gains from other investments. Net investment income for the six months ended June 30, 2004 consisted of $67.3 million of interest on cash and fixed maturity investments and $0.5 million of income from other investments, offset by $3.2 million of net investment expenses.

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) increased by 0.6%. The increase in the effective yield was primarily due to higher U.S. interest rates at the short end of the yield curve. The yield may vary significantly from period to period due primarily to the timing of cash flows, changes in interest rates and changes in asset allocation.

Net Realized Losses/Gains. Net realized gains have decreased by $5.2 million. The decrease was generated by net realized losses from the sale of investments of $10.3 million offset by net realized and unrealized gains of $5.1 million from investment derivatives that we use to hedge the foreign exchange risk of the investment portfolio. 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.

The total return for our investment portfolio for the six months ended June 30, 2005 (calculated using beginning and ending market portfolio values, adjusted for external cash flows) was 1.9% versus 0.3% for the six months ended June 30, 2004. The total return for an investment portfolio consists of price and income return. These components are primarily affected by the timing of cash flows, changes in interest rates and changes in asset allocation. Our total return was higher during the six months ended June 30, 2005 primarily due to higher investment yields and changes in U.S. interest rates that positively impacted the price of fixed income securities.

Other Insurance Related Income/Loss. The decrease of $6.0 million in other insurance related income/loss was primarily due to the movement in the fair value of insurance contracts that meet the definition of a derivative. During the quarter ended June 30, 2005, the principal contract that was accounted for as a derivative expired.

Net Losses and Loss Expenses. The increase of $166.7 million in net losses and loss expenses and 1.1 percentage point increase in the net loss and loss expense ratio was generated by our reinsurance segment, principally as a result of a change in our business mix, with a higher percentage of net earned premiums generated by non-property lines of business, which typically have higher net losses and loss expenses ratios. This offset a reduction in net loss and loss expenses due to an increase in favorable prior period development of $140.7 million, or 11.3 percentage points, for the six months ended June 30, 2005 compared to $91.7 million, or 9.6 percentage points, for the six months ended June 30, 2004.

Acquisition Costs. The increase of $54.3 million in acquisition costs primarily resulted from an increase in the volume of gross premiums earned. The acquisition cost ratio for the six months ended June 30, 2005 was 14.1% compared to 12.8% for the six months ended June 30, 2004. The increase in the ratio

was principally a result of two factors. First, the acquisition cost ratio within our reinsurance segment increased. Second, we experienced a change in our business mix, with a higher percentage of net earned premiums generated by our reinsurance segment, which has a higher acquisition cost ratio.

As we have not entered into any incentive commission arrangements with brokers for 2005, we have not accrued any fees regarding these arrangements for the six months ended June 30, 2005. We have accrued liabilities for amounts due under incentive arrangements with brokers entered into for 2004; however, given the uncertainties that exist surrounding the calculation and payment of these incentive commissions, this estimate is subject to change. Any changes in the estimate are recorded during the period in which the change is identified. To date, the level of commissions charged in 2005 by brokers has generally remained consistent with prior periods.

General and Administrative Expenses. The $26.8 million increase in general and administrative expenses was generated principally by an increase in compensation costs due primarily to an increase in headcount from the expansion of operations in the U.S. and Continental Europe. The general and administrative expense ratio for the six months ended June 30, 2005 was 8.9% compared to 8.8% for the six months ended June 30, 2004.

Foreign Exchange. 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, 2005, we experienced a foreign exchange loss of $50.6 million, an increase of $43.1 million compared to the six months ended June 30, 2004. The loss was principally attributable to the decline of the Euro against the U.S. dollar and an increase in our asset balances denominated in Euros following an increase in the level of gross premiums written in this currency in our reinsurance segment. In order to alleviate some of the current volatility of our foreign exchange losses and gains, we have developed a hedging program using foreign currency derivative instruments.

Interest Expense. The increase of $15.7 million was primarily due to the issuance of senior unsecured debt in November 2004, which bears interest at 5.75% per annum. Interest expense consists of interest due on outstanding debt, the amortization of debt offering expenses and offering discounts, and fees relating to our credit facility.

Income Tax Expense. The increase of $3.7 million in the income tax expense for the six months ended June 30, 2005 was attributable to the generation of additional taxable income by our U.S. subsidiaries.

Net Income. Net income for the six months ended June 30, 2005 consisted of net underwriting income of $315.4 million, net investment income and net realized gains of $111.2 million, reduced by corporate expenses of $25.9 million, foreign exchange losses of $50.6 million, interest expense of $15.9 million and tax expense of $9.5 million. Net income for the six months ended June 30, 2004 consisted of net underwriting income of $269.5 million and net investment income and net realized gains of $70.3 million, reduced by corporate expenses of $18.6 million, foreign exchange losses of $7.6 million, interest expense of $0.2 million and a tax expense of $5.8 million.

Comprehensive Income. Comprehensive income increased by $60.2 million for the six months ended June 30, 2005 and represents net income adjusted for changes in the unrealized position in our investment portfolio.

Underwriting Results by Segment

Our business consists of two underwriting segments: insurance and reinsurance. Our insurance segment is further divided into two sub-segments: global insurance and U.S. insurance.

We evaluate the performance of each underwriting segment based on underwriting results. We allocate all of our general and administrative costs, except our corporate expenses, to our underwriting segments. Our corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. 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.

Insurance

Our insurance segment provides specialty lines of business on a worldwide basis.

Global insurance provides coverage predominantly through the London broker network with product lines comprising property, marine, terrorism and war risk, aviation and aerospace, political risk and professional lines and other specialty risks.

The property line of business provides physical damage and business interruption coverage for industrial properties and physical damage, business interruption and liability coverage for onshore energy property and operations. Coverage relates to both catastrophic and non-catastrophic events.

The marine line of business provides coverage for hull, liability, cargo and specie and recreational marine risks. These risks include property damage to ships, pollution damage caused by vessels on a sudden and accidental basis and protection for general cargo and the contents of armored cars, vaults, exhibitions and museums. This line of business also provides physical damage, business interruption and liability coverage for offshore energy property and operations.

The terrorism and war risk line of business includes coverage for physical damage and associated business interruption of an insured following an act of terrorism and specific war coverage for the interests otherwise covered in our aviation and marine hull and liability business.

The aviation and aerospace line of business includes hull and liability coverage for passenger and cargo airlines and privately owned aircraft, select aviation product liability coverage, physical damage coverage on satellite launches and satellite liability.

The political risk line of business generally provides protection against sovereign default or other sovereign actions resulting in impairment of cross-border investments for banks and major corporations in industries such as energy and mining.

The professional lines and other specialty line of business primarily consist of directors’ and officers’ liability coverage.

U.S. insurance provides coverage through a variety of channels in the U.S., covering exposures predominantly in the U.S. The product lines are property, professional lines, liability and other specialty and are offered through wholesale brokers, retail brokers and managing general underwriters. Many of its property and casualty insurance products are for nonstandard and complex risks. U.S. insurance also writes risks that are unique and difficult to place in the standard market, but must remain with an admitted insurance company for marketing and regulatory purposes.

The property line of business provides coverage for physical damage and business interruption primarily with respect to commercial properties. The book consists of both primary and excess risks, some of which are catastrophe-exposed.

The professional lines business primarily consists of coverage for directors’ and officers’ liability, errors and omission liability and employment practices liability.

The liability line of business primarily targets casualty risks in the U.S. excess and surplus lines markets. Target classes include mercantile, manufacturing and building/premises, with particular emphasis on commercial and consumer products, commercial construction and miscellaneous general liability.

The other specialty book currently consists of a product that indemnifies self-insured, small and medium sized employers for losses excess of a retention associated with employee medical coverage.

Quarters ended June 30, 2005 and June 30, 2004

The following table summarizes the underwriting results and ratios for the insurance segment for the quarters ended June 30, 2005 and 2004:

	Quarters ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Revenues:
Gross premiums written	$	512,982		$	436,103		$	76,879		17.6	%
Net premiums written	365,103			300,845			64,258			21.4	%
Net premiums earned	313,038			280,235			32,803			11.7	%
Other insurance related loss	(5,301		)	(399		)	(4,902		)	nm
Expenses:
Net losses and loss expenses	148,697			164,740			(16,043		)	(9.7	)%
Acquisition costs	30,150			32,785			(2,635		)	(8.0	)%
General and administrative expenses	30,409			23,377			7,032			30.1	%
Underwriting income	$	98,481		$	58,934		$	39,547		67.1	%
Ratios:
Net loss and loss expense ratio	47.5		%	58.8		%	(11.3		)%
Acquisition cost ratio	9.6		%	11.7		%	(2.1		)%
General and administrative expense ratio	9.7		%	8.3		%	1.4		%
Combined ratio	66.8		%	78.8		%	(12.0		)%

nm – not meaningful

Premiums. The increase in gross premiums written was principally due to an increase of $65.6 million in gross premiums written by U.S. insurance.

The table below shows gross premiums written in global insurance by line of business for the quarters ended June 30, 2005 and 2004:

	Quarters ended
	June 30, 2005		June 30, 2004		Change			% Change
	($ in thousands)
Property	$	65,827	$	80,239	$	(14,412	)	(18.0	)%
Marine	44,102		38,772		5,330			13.7	%
Terrorism and War Risk	28,797		33,154		(4,357		)	(13.1	)%
Aviation and Aerospace	29,474		31,384		(1,910		)	(6.1	)%
Political Risk	36,505		24,437		12,068			49.4	%
Professional Lines and Other Specialty	22,807		8,202		14,605			178.1	%
Total	$	227,512	$	216,188	$	11,324		5.2	%

The increase in gross premiums written in global insurance was primarily driven by the growth in our professional lines and other specialty business and political risk business. Our growth in professional lines and other specialty was due to the addition of a London market-based professional lines underwriting team in early 2004, which is focused on European risks. Consequently, only a small amount of business was written in the quarter ended June 30, 2004. Our political risk book is not characterized by predictable renewal patterns, 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 for comparable periods. The increase in our marine book was primarily driven by two factors: first, the renewal of business affected by losses from Hurricane Ivan in 2004 at higher premium rates; and second, an increase in the level of construction activity that has generated additional energy offshore gross premiums written. Our property account experienced a reduction in gross premiums written due to deterioration in the pricing environment, which resulted in fewer risks meeting our underwriting criteria.

The table below shows gross premiums written in U.S. insurance by line of business for the quarters ended June 30, 2005 and 2004:

	Quarters ended
	June 30, 2005		June 30, 2004		Change		% Change
	($ in thousands)
Property	$	97,429	$	85,136	$	12,293	14.4	%
Liability	79,509		56,073		23,436		41.8	%
Professional Lines	106,572		78,706		27,866		35.4	%
Other Specialty	1,960		—		1,960		nm
Total	$	285,470	$	219,915	$	65,555	29.8	%

nm – not meaningful

The increase in gross premiums written in U.S. insurance was driven by growth across all lines of business. Gross premiums written in our professional lines business increased driven primarily by an increase of $18.3 million in errors and omissions insurance following the appointment of a managing general underwriter effective January 1, 2005. In addition, the level of rate reductions within our directors’ and officers’ business stabilzed, which generated an opportunity to write more new and renewal business and increased the level of gross premiums written. We wrote more umbrella and excess liability insurance following our decision to target this class of business and increase the number of dedicated underwriters. The increase in our property account was largely driven by an increase in premiums generated by our specialty program business, including coverages such as builders risk insurance and earthquake risk. In addition, we experienced growth in our property excess and surplus lines business.

Premiums ceded for the quarter ended June 30, 2005 increased by $12.6 million. Premiums ceded for U.S. insurance increased in line with increased gross premiums written. The ratio of premiums ceded to gross premiums written in U.S. insurance was 47.1% for the quarter ended June 30, 2005 and 46.5% for the quarter ended June 30, 2004. Although we increased our retention on our professional lines book, during the quarter this impact was offset by an increase in the reinsurance ceded on our property book. This was due to two factors: first, an increase in the cost following the renewal of our reinsurance in May 2005: and second, additional reinstatement premiums following an increase in our gross losses relating to the 2004 hurricane losses. Premiums ceded in global insurance decreased by $19.4 million as the purchase of reinsurance varies on a quarterly basis dependant upon market opportunities.

The following table shows the derivation of net premiums earned in our insurance segment for the quarters ended June 30, 2005 and 2004:

	Quarters ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Gross premiums earned	$	463,620		$	392,026		$	71,594		18.3	%
Ceded premiums amortized	(150,582		)	(111,791		)	(38,791		)	(34.7	)%
Net premiums earned	$	313,038		$	280,235		$	32,803		11.7	%

Gross premiums are earned over the period of the insured risk. As the level of net premiums written increases, the level of net premiums earned also increases. As we experienced an increase in gross premiums written over the rolling twelve-month period ended June 30, 2005 compared to the rolling twelve-month period ended June 30, 2004, our gross premiums earned increased.

Ceded premiums are amortized over the contract term. Consequently, the level of amortized ceded premium has increased in 2005 as premiums ceded in 2004 continue to be amortized in 2005.

Other Insurance Related (Loss) Income. Other insurance related (loss) income primarily 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. During the quarter ended June 30, 2005, the principal contract that was accounted for as a derivative expired.

Net Losses and Loss Expenses. The net loss and loss expense ratio for the quarter ended June 30, 2005 was 47.5% compared to 58.8% for the quarter ended June 30, 2004, a decrease of 11.3 percentage points. The decrease in net loss and loss expenses and the net loss and loss expense ratio was primarily due to favorable development on prior year loss and loss reserves of $44.4 million for the quarter ended June 30, 2005 compared to $24.4 million for the quarter ended June 30, 2004.

The following table shows the components of net loss and loss expenses incurred in global insurance for the quarters ended June 30, 2005 and 2004:

	Quarters ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Gross losses paid	$	63,535		$	12,204		$	51,331		nm
Reinsurance recoveries received	(1,252		)	(564		)	(688		)	(122.0	)%
Net Losses paid	62,283			11,640			50,643			nm
Change in reported case reserves	(22,047		)	(1,836		)	(20,211		)	nm
Change in IBNR	51,673			109,954			(58,281		)	(53.0	)%
Reinsurance recoveries on unpaid loss and loss expense reserves	(13,870		)	(2,142		)	(11,728		)	nm
	$	78,039		$	117,616		$	(39,577	)	33.6	%
Net loss and loss expense ratio	38.1		%	59.8		%	(21.7		)%

nm – not meaningful

The reduction in the net loss and loss expense ratio was primarily due to favorable prior period loss development of $42.8 million during the quarter ended June 30, 2005 compared to $18.1 million during the quarter ended June 30, 2004. This reduced the net loss ratio by 20.9 percentage points for the quarter ended June 30, 2005 and 9.2 percentage points for the quarter ended June 30, 2004. In estimating the ultimate cost of losses, we primarily use the Bornhuetter-Ferguson method. It takes as a starting point an initial expected loss and loss expense ratio and blends in the loss and loss expense ratio implied by our experience to date. Given our limited operating history, the initial expected loss and loss expense ratio was primarily based on industry data. As our favorable loss experience has emerged, the expected ultimate loss has been reduced and, therefore, has generated favorable prior period loss development. After adjusting for this development, the current accident year net loss and loss expense ratio was 59.0% for the quarter ended June 30, 2005 compared to 69.0% for the quarter ended June 30, 2004. The decrease was due to a change in the mix of business and to greater utilization of company specific loss information in establishing initial expected net loss and loss expense ratios on some short tail lines of business.

The following table shows the components of net loss and loss expenses incurred in U.S. insurance for the quarters ended June 30, 2005 and 2004:

	Quarters ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Gross losses paid	$	67,589		$	5,875		$	61,714		nm
Reinsurance recoveries received	(43,993		)	(201		)	(43,792		)	nm
Net Losses paid	23,596			5,674			17,992			nm
Change in reported case reserves	(36,958		)	5,654			(42,612		)	nm
Change in IBNR	108,770			87,863			20,907			23.8	%
Reinsurance recoveries on unpaid loss and loss expense reserves	(24,750		)	(52,067		)	27,317			52.5	%
	$	70,658		$	47,124		$	23,534		49.9	%
Net loss and loss expense ratio	65.2		%	56.3		%	8.9		%

nm – not meaningful

During the quarter ended June 30, 2005, we experienced favorable prior year development of $1.6 million, or 1.5 percentage points, compared to $6.3 million, or 7.5 percentage points, during the quarter ended June 30, 2004. The net loss and loss expense ratio for the current accident year increased

	Six Months ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Revenues:
Gross premiums written	$	942,231		$	884,853		$	57,378		6.5	%
Net premiums written	659,765			614,208			45,557			7.4	%
Net premiums earned	636,397			553,855			82,542			14.9	%
Other insurance related loss	(5,519		)	(219		)	(5,300		)	nm
Expenses:
Net losses and loss expenses	286,310			312,883			(26,573		)	(8.5	)%
Acquisition costs	66,276			59,000			7,276			12.3	%
General and administrative expenses	60,572			47,160			13,412			28.4	%
Underwriting income	$	217,720		$	134,593		$	83,127		61.8	%
Ratios:
Net loss and loss expense ratio	45.0		%	56.5		%	(11.5		)%
Acquisition cost ratio	10.4		%	10.6		%	(0.2		)%
General and administrative expense ratio	9.5		%	8.5		%	1.0		%
Combined ratio	64.9		%	75.6		%	(10.7		)%

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Premiums. The increase in gross premiums written was principally due to an increase in gross premiums written in U.S. insurance that partially offset a decrease in gross written premiums in global insurance.

The table below shows gross premiums written in global insurance by line of business for the six months ended June 30, 2005 and 2004:

	Six Months ended
	June 30, 2005		June 30, 2004		Change			% Change
	($ in thousands)
Property	$	111,204	$	134,553	$	(23,349	)	(17.4	)%
Marine	119,765		117,761		2,004			1.7	%
Terrorism and War Risk	104,531		122,762		(18,231		)	(14.9	)%
Aviation and Aerospace	44,372		54,572		(10,200		)	(18.7	)%
Political Risk	61,789		73,114		(11,325		)	(15.5	)%
Professional Lines and Other Specialty	38,174		13,834		24,340			175.9	%
Total	$	479,835	$	516,596	$	(36,761	)	(7.1	)%

The decrease in gross premiums written in global insurance was spread across most lines of business and was partially offset by an increase in our professional lines and other specialty business. Our property account experienced a reduction in gross premiums written due to a general deterioration in the pricing environment, which resulted in fewer risks meeting our underwriting criteria. The reduction in our terrorism and war risk lines of business was principally due to a decline in the level of terrorism business. This was primarily driven by certain contracts written in 2004 not renewing in 2005 due to the non-recurring nature of some events covered by this line of business and to the fact that some policies provided coverage for a period of up to two years. Our political risk book is not characterized by predictable renewal patterns, 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 for comparable periods. Our aviation and aerospace line of business experienced a decrease in gross premiums written

due primarily to decreased satellite business following a decision to reduce our exposure to this class of business. This decrease was also due to the timing of aviation renewals. The vast majority of aviation business is renewed in the last calendar quarter; however, some policies can take longer to place, which results in the binding of risks in the first calendar quarter. The increase in gross premiums written in our professional lines and other specialty book of business was due to the addition of a London market-based professional lines underwriting team in early 2004 focused on European risks. Consequently, only a small amount of business was written in the six months ended June 30, 2004.

The table below shows gross premiums written in U.S. insurance by line of business for the six months ended June 30, 2005 and 2004:

	Six Months ended
	June 30, 2005		June 30, 2004		Change		% Change
	($ in thousands)
Property	$	159,360	$	138,154	$	21,206	15.3	%
Liability	142,531		105,855		36,676		34.6	%
Professional Lines	157,530		124,248		33,282		26.8	%
Other Specialty	2,975		—		2,975		nm
Total	$	462,396	$	368,257	$	94,139	25.6	%

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The increase in gross premiums written in U.S. insurance was driven by growth across all lines of business. Gross premiums written in our professional lines business increased driven by an increase of $27.7 million in errors and omissions insurance following the appointment of a managing general underwriter effective January 1, 2005. We wrote more umbrella and excess liability insurance following our decision to target this class of business and increase the number of dedicated underwriters. The increase in our property account was largely driven by an increase in premiums generated by our specialty program business, including coverages such as builders risk insurance and earthquake risk. In addition, we experienced growth in our excess and surplus line business.

Premiums ceded for the six months ended June 30, 2005 increased by $11.8 million. Premiums ceded for U.S. insurance increased as gross premiums written increased. The ratio of premiums ceded to gross premiums written in U.S. insurance was 47.6% for the six months ended June 30, 2005 and 46.1% for the six months ended June 30, 2004. Although we increased our net retention on our professional lines book, during the six months ended June 30, 2005 this impact was offset by an increase in the reinsurance ceded on our property book. This was due to two factors: first, an increase in the cost following the renewal of our reinsurance in May 2005; and second, additional reinstatement premiums following an increase in our gross losses relating to the 2004 hurricane losses. Premiums ceded in global insurance decreased by $38.4 million as the purchase of reinsurance varies on a quarterly basis dependant upon market opportunities.

The following table shows the derivation of net premiums earned in our insurance segment for the six months ended June 30, 2005 and 2004:

	Six Months ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Gross premiums earned	$	917,674		$	758,668		$	159,006		21.0	%
Ceded premiums amortized	(281,277		)	(204,813		)	(76,464		)	(37.3	)%
Net premiums earned	$	636,397		$	553,855		$	82,542		14.9	%

Ceded premiums are amortized over the contract term. Consequently, the level of amortized ceded premium has increased in 2005 as premiums ceded in 2004 continue to be amortized in 2005.

Other Insurance Related (Loss) Income. Other insurance related (loss) income primarily 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. During the six months ended June 30, 2005, the principal contract that was accounted for as a derivative expired.

Net Losses and Loss Expenses. Net losses and loss expenses for the six months ended June 30, 2005 decreased by $26.6 million. The net loss and loss expense ratio for the six months ended June 30, 2005 decreased by 11.5 percentage points. The decrease in the net losses and loss expenses incurred and the net loss and loss expense ratio was primarily due to favorable development on prior year loss and loss reserves of $106.6 million, compared to $58.2 million for the six months ended June 30, 2004.

The following table shows the components of net loss and loss expenses incurred in global insurance for the six months ended June 30, 2005 and 2004:

	Six Months ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Gross losses paid	$	95,828		$	38,855		$	56,973		146.6	%
Reinsurance recoveries received	(2,893		)	(1,198		)	(1,695		)	(141.5	)%
Net Losses paid	92,935			37,657			55,278			146.8	%
Change in reported case reserves	1,615			43,477			(41,862		)	nm
Change in IBNR	73,006			153,683			(80,677		)	(52.5	)%
Reinsurance recoveries on unpaid loss and loss expense reserves	(23,622		)	(18,674		)	(4,948		)	nm
	$	143,934		$	216,143		$	(72,209	)	(33.4	)%
Net loss and loss expense ratio	34.1		%	54.5		%	(20.4		)%

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The reduction in the net loss and loss expense ratio was primarily due to favorable prior period loss development of $106.0 million during the six months ended June 30, 2005 compared to $52.0 million during the six months ended June 30, 2004. This reduced the net loss ratio by 25.1 percentage points for the six months ended June 30, 2005 compared to 13.1 percentage points for the six months ended June 30, 2004. In estimating the ultimate cost of losses, we primarily use the Bornhuetter-Ferguson method. It takes as a starting point an initial expected loss and loss expense ratio and blends in the loss and loss expense ratio implied by our experience to date. Given our limited operating history, the initial expected

loss and loss expense ratio was primarily based on industry data. As our favorable loss experience has emerged, the expected ultimate loss has been reduced and, therefore, has generated favorable prior period loss development. After adjusting for this development, the current accident year net loss and loss expense ratio was 59.3% for the six months ended June 30, 2005 compared to 67.6% for the six months ended June 30, 2004. The change was due to a change in the mix of business and to greater utilization of company specific loss information in establishing initial expected net loss and loss expense ratios on some short tail lines of business.

The following table shows the components of net loss and loss expenses incurred in U.S. insurance for the six months ended June 30, 2005 and June 30, 2004:

	Six Months ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Gross losses paid	$	105,344		$	13,659		$	91,684		nm
Reinsurance recoveries received	(64,780		)	(1,119		)	(63,661		)	nm
Net Losses paid	40,564			12,541			28,023			nm
Change in reported case reserves	13,542			7,986			5,556			69.6	%
Change in IBNR	156,669			176,978			(20,309		)	(11.5	)%
Reinsurance recoveries on unpaid loss and loss expense reserves	(68,399		)	(100,764		)	32,365			nm
	$	142,376		$	96,740		$	45,635		47.2	%
Net loss and loss expense ratio	66.3		%	61.4		%	4.9		%

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During the six months ended June 30, 2005, we experienced favorable prior year development of $0.5 million, or 0.3 percentage points, compared to $6.3 million, or 4.0 percentage points, in the six months ended June 30, 2004. The net loss and loss expense ratio for the current accident year increased from 65.4% for the six months ended June 30, 2004 to 66.5% for the six months ended June 30, 2005. This was caused by a shift in the business mix from property to liability. Typically, our property lines of business have lower initial expected net loss and loss expense ratios than our liability lines of business.

Acquisition Costs. The decrease in the acquisition cost ratio was driven by a decrease in the acquisition cost ratio of global insurance.

Acquisition costs in global insurance were $59.5 million, or 14.1%, of net premiums earned for the six months ended June 30, 2005 compared to $56.5 million, or 14.2%, of net premiums earned for the six months ended June 30, 2004. As a percentage of gross premiums earned, the level of acquisition costs was 12.1% for the six months ended June 30, 2005 and 12.6% for the six months ended June 30, 2004. The decrease of 0.5 percentage points in the level of the gross acquisition ratio was primarily due to a reduction in the estimated liability for incentive commissions, which offset the impact of higher amortized reinsurance costs.

U.S. insurance acquisition costs were $6.7 million, or 3.1%, of net premiums earned for the six months ended June 30, 2005 compared to $2.5 million, or 1.6%, of net premiums earned for the six months ended June 30, 2004. As a percentage of gross premiums earned, the acquisition cost ratio was 1.6% for the six months ended June 30, 2005 compared to 0.8% for the six months ended June 30, 2004. The increase of 0.8 percentage points was primarily driven by a change in business mix with less earned premium generated by our professional lines book and more earned premium generated by our liability and property lines of business. Typically, our professional lines book has a lower gross acquisition cost ratio than our property and liability books of business.

Quarters ended June 30, 2005 and June 30, 2004

The following table summarizes the underwriting results and ratios in our reinsurance segment for the quarters ended June 30, 2005 and 2004:

	Quarters ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Revenues:
Gross premiums written	$	254,311		$	193,216		$	61,095		31.6	%
Net premiums written	250,693			187,032			63,661			34.0	%
Net premiums earned	311,375			206,168			105,207			51.0	%
Other insurance related (loss) income	(150		)	555			(705		)	nm
Expenses:
Net losses and loss expenses	174,156			93,110			81,046			87.0	%
Acquisition costs	55,321			32,706			22,615			69.1	%
General and administrative expenses	12,330			9,426			2,904			30.8	%
Underwriting income	$	69,418		$	71,481		$	(2,063	)	(2.9	)%

Ratios:
Net loss and loss expense ratio	55.9		%	45.2		%	10.7		%
Acquisition cost ratio	17.8		%	15.9		%	1.9		%
General and administrative expenses ratio	4.0		%	4.6		%	(0.6		)%
Combined ratio	77.7		%	65.7		%	12.0		%

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Premiums. The table below shows gross premiums written by line of business in our reinsurance segment for the quarters ended June 30, 2005 and 2004:

	Quarters ended
	June 30, 2005		June 30, 2004		Change			% Change
	($ in thousands)
Catastrophe	$	94,277	$	90,736	$	3,541		3.9	%
Property	76,914		44,170		32,744			74.1	%
Professional lines	38,779		30,223		8,556			28.3	%
Credit and bond	7,420		258		7,162			nm
Motor	1,576		2,007		(431		)	(21.5	)%
Liability	24,691		13,179		11,512			87.4	%
Other	10,654		12,643		(1,989		)	15.7	%
Total	$	254,311	$	193,216	$	61,095		31.6	%

nm – not meaningful

The increase in our property account was primarily due to new business on targeted per risk programs. The increase in our liability account was primarily driven by increased shares on renewal contracts in Continental Europe and new business. The increase in our professional lines was generated by our U.S. reinsurance operations and was primarily due to the capture of new business and greater penetration on existing programs that renewed during the quarter. Our credit and bond account was affected by the timings of renewals.

Premiums ceded for the quarter ended June 30, 2005 decreased by $2.6 million compared to the quarter ended June 30, 2004. This decrease was due to changes in the timing of the renewal of ceded reinsurance contracts. Following the losses generated by the hurricanes in September 2004, we exhausted our reinsurance coverage and purchased new protection that will expire in the latter part of 2005.

The following table shows the derivation of net premiums earned in our reinsurance segment for the quarters ended June 30, 2005 and 2004:

	Quarters ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Gross premiums earned	$	314,977		$	209,614		$	105,363		50.3	%
Ceded premiums amortized	(3,602		)	(3,446		)	(156		)	(4.5	)%
Net premiums earned	$	311,375		$	206,168		$	105,207		51.0	%

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 ceded premiums amortized increased in 2005 as premiums ceded in 2004 continued to be amortized in 2005.

Other Insurance Related Income. Other insurance related income related to the movement in the fair value of a reinsurance contract that meets the definition of a derivative.

Net Losses and Loss Expenses. The following table shows the components of net losses and loss expenses incurred in our reinsurance segment for the quarters ended June 30, 2005 and 2004:

	Quarters ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Gross losses paid	$	58,921		$	13,112		$	45,809		nm
Reinsurance recoveries received	(32,343		)	—			(32,343		)	nm
Net Losses paid	26,578			13,112			13,466			102.7	%
Change in reported case reserves	(5,590		)	(4,271		)	(1,319		)	nm
Change in IBNR	121,407			85,052			36,355			42.7	%
Reinsurance recoveries on unpaid loss and loss expense reserves	31,761			(783		)	32,544			nm
Net losses and loss expenses	$	174,156		$	93,110		$	81,046		87.0	%
Net loss and loss expense ratio	55.9		%	45.2		%	10.7		%

nm – not meaningful

The net loss and loss expense ratio increased by 10.7 percentage points for the quarter ended June 30, 2005 compared to the quarter ended June 30, 2004. The increase in the net loss and loss expense ratio was caused by several factors. During the quarter ended June 30, 2005, we experienced favorable prior period development of $29.6 million, or 9.5 percentage points, compared to $18.7 million, or 9.1 percentage points, for the quarter ended June 30, 2004. After adjusting for this development, the current accident year net loss and loss expense ratio increased from 54.3% for the quarter ended June 30, 2004 to 65.4% for the quarter ended June 30, 2005. Our current accident year increased as a result of a change in the mix of business written in our reinsurance segment. During the quarter ended June 30, 2005, 62.1% of our gross premiums earned was derived from property reinsurance compared to 70.1% for the quarter ended June 30, 2004. Excluding catastrophic events, our property reinsurance business generally has a lower net loss and loss expense ratio than other reinsurance business.

Acquisition Costs. The increase in the acquisition cost ratio was primarily due to a change in the business mix with more business coming from non-catastrophe excess of loss product lines, which typically have higher acquisition costs.

General and Administrative Expenses. The 0.6 percentage point decrease in the general and administrative expense ratio for the quarter ended June 30, 2005 was due to an increase in the volume of net premiums earned.

Six Months ended June 30, 2005 and June 30, 2004

The following table summarizes the underwriting results and ratios in our reinsurance segment for the six months ended June 30, 2005 and 2004:

	Six Months ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Revenues:
Gross premiums written	$	1,023,761		$	788,589		$	235,172		29.8	%
Net premiums written	1,018,102			772,859			245,243			31.7	%
Net premiums earned	613,606			403,796			209,810			52.0	%
Other insurance related income	—			663			(663		)	nm
Expenses:
Net losses and loss expenses	380,833			187,567			193,266			103.0	%
Acquisition costs	110,496			63,454			47,042			74.1	%
General and administrative expenses	24,631			18,528			6,103			32.9	%
Underwriting income	$	97,646		$	134,910		$	(37,264	)	(27.6	)%

Ratios:
Net loss and loss expense ratio	62.1		%	46.5		%	15.6		%
Acquisition cost ratio	18.0		%	15.7		%	2.3		%
General and administrative expenses ratio	4.0		%	4.6		%	(0.6		)%
Combined ratio	84.1		%	66.8		%	17.3		%

nm – not meaningful

Premiums. The table below shows gross premiums written by line of business in our reinsurance segment for the six months ended June 30, 2005 and 2004:

	Six Months ended
	June 30, 2005		June 30, 2004		Change			% Change
	($ in thousands)
Catastrophe	$	362,075	$	334,884	$	27,191		8.1	%
Property	226,757		131,877		94,880			71.9	%
Professional lines	126,116		145,308		(19,192		)	(13.2	)%
Credit and bond	102,050		61,753		40,297			65.3	%
Motor	73,617		31,890		41,727			130.8	%
Liability	111,315		67,840		43,475			64.1	%
Other	21,831		15,037		6,794			45.2	%
Total	$	1,023,761	$	788,589	$	235,172		29.8	%

The increase in our property account was driven by three factors. First, we increased the level of pro rata reinsurance of U.S. homeowners’ business in select regions. Second, we obtained new business on targeted per risk programs. Third, we achieved greater market penetration in Continental Europe following an expansion into that marketplace in 2004. The increase in our liability account was primarily driven by significant new general liability umbrella excess reinsurance business in the U.S. and by greater penetration on Continental European renewal business.

Our motor account increased due to new business written, primarily in the French and U.K. motor insurance markets. The increase in our credit and bond account resulted from our ability to increase our share on renewal business and our ability to penetrate new markets and accounts in Continental Europe. We experienced rate decreases in our catastrophe book; however, we wrote more business focusing primarily on U.S. exposures where rate reductions were less severe than those for non-U.S. business. We experienced rate increases on some national clients who had suffered hurricane losses in 2004. The decrease in our professional lines account was primarily driven by the non-renewal of a significant treaty where the client decided to retain the exposure.

Premiums ceded for the six months ended June 30, 2005 decreased by $10.1 million. This decrease was due to changes in the timing of the renewal of ceded reinsurance contracts. Following the losses generated by the hurricanes in September 2004, we exhausted our reinsurance coverage and purchased new protection that will expire in the latter part of 2005.

The following table shows the derivation of net premiums earned in our reinsurance segment for the six months ended June 30, 2005 and 2004:

	Six Months ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Gross premiums earned	$	622,016		$	410,158		$	211,858		51.6	%
Ceded premiums amortized	(8,410		)	(6,362		)	(2,048		)	(32.2	)%
Net premiums earned	$	613,606		$	403,796		$	209,810		52.0	%

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 ceded premiums amortized increased in 2005 as premiums ceded in 2004 continued to be amortized in 2005.

Other Insurance Related Income. Other insurance related income related to the movement in the fair value of a reinsurance contract that meets the definition of a derivative.

Net Losses and Loss Expenses. The following table shows the components of net losses and loss expenses incurred in our reinsurance segment for the six months ended June 30, 2005 and 2004:

	Six Months ended
	June 30, 2005			June 30, 2004			Change			% Change
	($ in thousands)
Gross losses paid	$	91,182		$	21,457		$	69,725		nm
Reinsurance recoveries received	(41,874		)	—			(41,874		)	nm
Net Losses paid	49,308			21,457			27,851			129.8	%
Change in reported case reserves	48,471			2,943			45,528			nm
Change in IBNR	242,579			164,505			78,074			47.5	%
Reinsurance recoveries on unpaid loss and loss expense reserves	40,475			(1,338		)	41,813			nm
Net losses and loss expenses	$	380,833		$	187,567		$	193,266		103.0	%
Net loss and loss expense ratio	62.1		%	46.5		%	15.6		%

nm – not meaningful

The net loss and loss expense ratio for the six months ended June 30, 2005 increased by 15.6 percentage points due to several factors. During the six months ended June 30, 2005, we experienced favorable prior period development of $34.2 million, or 5.6 percentage points, compared to $33.5 million, or 8.3 percentage points, for the six months ended June 30, 2004. After adjusting for this development, the current accident year net loss and loss expense ratio increased from 54.7% for the six months ended June 30, 2004 to 67.7% for the six months ended June 30, 2005. Our current accident year net loss and loss expense ratio primarily increased as a result of a change in the mix of business written in our reinsurance segment. During the six months ended June 30, 2005, 62.3% of our gross premiums earned was derived from property reinsurance compared to 69.2% for the six months ended June 30, 2004. Excluding catastrophic events, our property reinsurance business generally has a lower net loss and loss expense ratio than other reinsurance business. During the six months ended June 30 2005, we experienced net losses and loss expenses of $26.4 million from windstorm Erwin, however, during the six months ended June 30, 2004, our loss experience benefited from the lack of major catastrophes.

General and Administrative Expenses. The 0.6 percentage point decrease in the general and administrative expense ratio for the six months ended June 30, 2005 was due to an increase in the volume of net premiums earned.

Financial Condition, Liquidity and Capital Resources

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, 2005, we had operating subsidiaries in Bermuda, Ireland and the United States, a branch in the United Kingdom, a branch in Switzerland and a representative office in Singapore. 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, Ireland and the United States, 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.

In addition, 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 the terms of our credit agreement, we cannot pay cash dividends to our shareholders in excess of $150.0 million in the aggregate during any fiscal year.

At June 30, 2005, the maximum amount of distributions that our subsidiaries could pay to AXIS Capital under applicable laws and regulations without prior regulatory approval was approximately $1.1 billion.

Financial Condition

At June 30, 2005, our total investments at fair market value, accrued interest receivable and cash net of unsettled investment trades were $6.5 billion, compared to $6.0 billion at December 31, 2004. Our investment portfolio consisted primarily of fixed income securities at June 30, 2005 and was managed by several external investment management firms. At June 30, 2005, all of these fixed income securities were investment grade, with 85.6% rated Aa3 or AA- or better by an internationally recognized rating agency. The weighted-average rating of our fixed income portfolio was AAA based on ratings assigned by Standard & Poor’s. The net payable for investments purchased at June 30, 2005 was $112.5 million compared to $49.9 million at December 31, 2004. Net payables are a result of timing differences only, as investments are accounted for on a trade date basis.

During 2005, we continued to increase the size of the allocation to other investments within our investment portfolio. Our other investments of $441.7 million consisted of investments in funds of funds, a fund that invests in U.S. dollar high yield credit, a portfolio of collaterized loan obligations, and medium term notes that have an interest in various pools of European fixed income securities.

As a result of the level of gross premium written during the six months ended June 30, 2005, our insurance and reinsurance premium balances receivable, deferred acquisition costs and unearned premium increased by $315.8 million, $52.4 million and $426.3 million, respectively, over those balances at December 31, 2004. At June 30, 2005, we had reinsurance recoverable balances and reinsurance recoverable balances on paid losses of $648.0 million, of which 98.5% was due from reinsurers rated the equivalent of A- or better by internationally recognized rating agencies. Of our reinsurance recoverable balances, $396.0 million or 61.9% related to recoveries on incurred but not reported loss reserves.

At June 30, 2005, we had other assets of $89.3 million compared to $68.6 million at December 31, 2004. The increase was due to an increase in our deferred tax assets.

At June 30, 2005, we had $2.9 billion of reserves for loss and loss expenses compared to $2.4 billion at December 31, 2004, an increase of $0.5 billion. Of this balance, $2.3 billion, or 78.2%, was incurred but not reported reserves.

At June 30, 2005, our shareholders’ equity was $3.2 billion, which was consistent with December 31, 2004. During the six months ended June 30, 2005, we repurchased $350.0 million of common shares pursuant to our repurchase program. This was primarily offset by $324.6 million of net income in the period.

Liquidity

Our cash flows from operations generally represent the difference between: (1) premiums collected, reinsurance recoveries and investment earnings realized; and (2) losses and loss expenses paid, reinsurance purchased and underwriting and other expenses 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.

During the six months ended June 30, 2005, we generated a net operating cash inflow of $860.9 million, primarily related to premiums received and investment income. During the same period, we paid gross losses of $292.4 million and received reinsurance recoveries of $109.5 million. At June 30, 2005, we had a cash balance of $793.3 million. During the six months ended June 30, 2005, net cash of $395.2 million was used for financing activities. On February 16, 2005, we repurchased 12,783,094 common shares owned by initial investors at the formation of the Company pursuant to our repurchase program. The average purchase price was $27.38 per common share and the aggregate purchase price was $350.0 million. During the six months ended June 30, 2005, we paid dividends of $45.8 million and interest on our Senior Notes of $15.7 million.

During 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 gross losses of $74.0 million. At June 30, 2004, we had a cash balance of $721.2 million. During the six months ended June 30, 2004, we invested a net cash amount of $633.3 million.

On May 5, 2005, we declared a quarterly dividend of $0.15 per common share to shareholders of record at June 30, 2005. The dividend was paid on July 14, 2005.

On an ongoing basis, our sources of funds primarily consist of premiums written, reinsurance recoveries, investment income and proceeds from sales and redemptions of investments. Cash is used primarily to pay losses and loss expenses, reinsurance premiums, acquisition costs, general and administrative expenses, to purchase new investments and fund dividend, share repurchases and interest payments.

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 AXIS Capital and its operating subsidiaries 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 (1) a minimum amount of consolidated shareholders’ equity equal to or greater than the sum of $1.975 billion plus (A) 50% of consolidated net income for each fiscal quarter beginning with the fiscal quarter ending June 30, 2005 and (B) 100% of the net cash proceeds received after March 25, 2004 from any issuance of our capital stock, and (2) 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. At June 30, 2005, we had no outstanding indebtedness and letters of credit of $433.7 million outstanding under the credit facility. As at June 30, 2005, we were in compliance with all covenants contained in the credit facility.

We are currently re-negotiating our credit facility in order to increase the facility size and extend the tenure.

On November 15, 2004, we completed a public offering of $500 million of Senior Notes. The Senior Notes bear interest at 5.75%, payable semi-annually and, unless previously redeemed, will mature on December 1, 2014.

On March 14, 2005, we announced that our Board had authorized an additional repurchase program for up to $150 million of our common shares.

Contractual Commitments

We did not make any significant capital expenditures during the quarter ended June 30, 2005. We currently expect capital expenditures for 2005 to be less than $50 million.

On August 1, 2005, we purchased all of the outstanding common stock of a Wisconsin domiciled admitted insurance company. The purchase price was $28.3 million.

Item 3. Quantitative and Qualitative Disclosures 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.

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. We periodically revise our investment benchmarks based on business and economic conditions, including the average duration of our potential liabilities. At June 30, 2005, our invested assets (assets under management by external investment managers) had an approximate duration of 2.8 years.

At June 30, 2005, we held $1,949.9 million at fair market value, or 35.3% of our total invested assets, in mortgage-backed securities compared to $1,714.8 million, or 32.0%, at December 31, 2004. 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 with which they prepay the outstanding principal before the maturity date and delay any refinancing of the outstanding principal.

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, 2005. 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
Total Market Value	5,718,221		5,647,148		5,571,552		5,490,564		5,405,502
Market Value Change from Base	2.63	%	1.36	%	0	%	-1.45	%	-2.98	%
Change in Unrealized Value	146,669		75,596		—		(80,998	)	(166,050	)

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, 2005, the net contractual amount of foreign currency forward contracts was $93.6 million with an unrealized gain of $2.1 million. At December 31, 2004, the net contractual amount of foreign currency forward contracts was $30.0 million with an unrealized loss of $0.1 million.

At June 30, 2005, we had insurance and reinsurance premium balances receivable of $1,230.3 million compared to $914.6 million at December 31, 2004. Of this balance, 69.1% was denominated in U.S. dollars. Of the remaining balance, 19.0% was denominated in Euro and 9.1% in Sterling. A 10% increase or decrease in the value of the Euro and Sterling currencies against the U.S. dollar would

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Except as set forth below, we are not currently 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. These legal proceedings generally relate to claims asserted by or against us in the ordinary course of our insurance or reinsurance operations.

Our U.S. holding company has received subpoenas from the Office of the Attorney General of the State of New York seeking information regarding incentive commission agreements, fictitious and inflated quotes and related matters and conditioning direct insurance on the placement of reinsurance. In addition, our U.S. insurance companies have received subpoenas and requests for information from various state insurance regulators regarding these same matters. These inquiries are part of industry-wide investigations in these jurisdictions and we understand that officials from other jurisdictions in which we do business have also initiated investigations into similar matters. Accordingly, we may in the future receive additional subpoenas and requests for information. We are cooperating fully with the Attorney General of the State of New York and the other state regulators in their investigations and intend to cooperate fully with any future investigations.

In connection with these inquiries, we have conducted an internal investigation, led by outside counsel, to determine whether we have engaged in any of the improper business practices that are the focus of the inquiries. This investigation is complete and has uncovered no evidence indicating that we engaged in bid rigging, fictitious or inflated quotes or related matters or conditioning direct insurance on the placement of reinsurance. Consistent with long-standing and wide-spread industry practice, we have in the past entered into incentive commission arrangements with brokers; however, we have not entered into any of these arrangements with respect to 2005.

Two purported shareholders class action lawsuits have been filed against us and some of our executive officers relating to the practices being investigated by the Attorney General of the State of New York and other state regulators. James Dolan v. AXIS Capital Holdings Limited, Michael A. Butt and John R. Charman was filed on October 28, 2004 in the United States District Court, Southern District of New York. Robert Schimpf v. AXIS Capital Holdings Limited, Michael A. Butt, Andrew Cook and John R. Charman was filed on November 5, 2004 in the United States District Court, Southern District of New York. On April 13, 2005, these lawsuits were consolidated and are now known as In re AXIS Capital Holdings Ltd. Securities Litigation. On May 13, 2005, the plaintiffs filed an amended, consolidated complaint and added as defendants the managing underwriters and one of the selling shareholders in our secondary offering completed in March 2004. The lawsuit alleges securities violations in connection with the failure to disclose payments made pursuant to incentive commission arrangements and seeks damages in an unspecified amount. We believe that the lawsuit is completely without merit and intend to vigorously defend against it.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On December 9, 2004, we announced that our Board of Directors had approved the repurchase of up to $350 million of our common shares to be effected from time to time in open market or privately negotiated transactions. The repurchase program was authorized to continue until December 2006, but was exhausted in February 2005. On March 14, 2005, we announced that our Board of Directors had approved the repurchase of up to an additional $150 million of our common shares to be effected from time to time in open market or privately negotiated transactions. The repurchase program is authorized to continue until December 2006. The following table sets forth information regarding the number of shares we repurchased during each month in the quarter ended June 30, 2005.

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased (a)	Average Price Paid Per Share		Total Number Of Shares Purchased as Part Of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Announced Plans or Programs
April 1-30, 2005	87,040	$	26.50	0	$	150,000,000
May 1-31, 2005	1,640	$	26.60	0	$	150,000,000
June 1-30, 2005	0	0		0	$	150,000,000
Total	88,680	$	26.50	0	$	150,000,000

(a) Comprises shares withheld to satisfy tax liabilities upon the vesting of restricted stock, awarded under our 2003 Long Term Equity Compensation Plan. These shares are not included in our repurchase program.

Item 6. Exhibits

(a)		Exhibits

3.1		Certificate of Incorporation and Memorandum of Association (incorporated by reference to 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 (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004).

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

Dated: August 3, 2005

	AXIS CAPITAL HOLDINGS LIMITED


	By:	/s/John R. Charman
		John R. Charman
		President and Chief Executive Officer
		(Authorized Officer)

		/s/Andrew Cook
		Andrew Cook
		Chief Financial Officer
		(Principal Financial Officer)

	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as at June 30, 2005 (Unaudited) and December 31, 2004 (Unaudited)

	Condensed Consolidated Statements of Operations and Comprehensive Income for the Quarters and Six Months Ended June 30, 2005 and 2004 (Unaudited)

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2005 and 2004 (Unaudited)

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004 (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 Disclosures about Market Risk

Item 4.	Controls and Procedures

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.	Exhibits

Signatures