S-1/A 1 y88165a1sv1za.txt AMENDMENT #1 TO S-1: MONTPELIER RE HOLDINGS LTD. As filed with the Securities and Exchange Commission on July 29, 2003. Registration No. 333-106919 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- MONTPELIER RE HOLDINGS LTD. (Exact name of Registrant as specified in its charter) BERMUDA 6331 NOT APPLICABLE (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) MINTFLOWER PLACE 8 PAR-LA-VILLE ROAD HAMILTON HM 08 BERMUDA TELEPHONE: (441) 296-5550 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) --------------------- CT CORPORATION SYSTEM 111 EIGHTH AVENUE NEW YORK, NEW YORK 10011 TELEPHONE: (212) 590-9200 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- COPIES TO: MICHAEL GROLL, ESQ. JOSEPH D. FERRARO, ESQ. RICHARD J. SANDLER, ESQ. LEBOEUF, LAMB, GREENE & MACRAE, L.L.P. LEBOEUF, LAMB, GREENE & MACRAE, L.L.P. ETHAN T. JAMES, ESQ. 125 WEST 55TH STREET NO. 1 MINSTER COURT DAVIS POLK & WARDWELL NEW YORK, NY 10019-5389 MINCING LANE 450 LEXINGTON AVENUE TELEPHONE: (212) 424-8000 LONDON, EC3R 7AA NEW YORK, NY 10017 FACSIMILE: (212) 424-8500 TELEPHONE: 011-44-207-459-5000 TELEPHONE: (212) 450-4000 FACSIMILE: 011-44-207-459-5099 FACSIMILE: (212) 450-4800 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] CALCULATION OF REGISTRATION FEE

--------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------- TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE --------------------------------------------------------------------------------------------------------------------------------- % Senior Notes due 2013.......................... $250,000,000 $20,225(2) --------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended. (2) $16,180 of such fee was paid upon the initial filing of this registration statement. --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED JULY 29, 2003 $250,000,000 [MONTPELIER RE LOGO] % SENIOR NOTES DUE 2013 ------------------------ Montpelier Re Holdings Ltd. is offering $250 million aggregate principal amount of % Senior Notes due 2013. Interest on the notes will be paid semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2004. Unless previously redeemed, the notes will mature on August 15, 2013. We may redeem the notes at any time and from time to time, in whole or in part, at a "make-whole" redemption price described in this prospectus in the section entitled "Description of the Notes -- Optional Redemption." The notes will be senior obligations of our company and will rank equally with all of our other existing and future unsecured and unsubordinated indebtedness. We do not intend to apply for listing of the notes on a national securities exchange. INVESTING IN OUR NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 8.

UNDERWRITING PRICE TO DISCOUNTS PROCEEDS TO PUBLIC(1) AND COMMISSIONS COMPANY(1) ------------ --------------- ------------ Per Note.............................................. % % % Total................................................. $ $ $

--------------- (1) Plus accrued interest, if any, from August , 2003, if settlement occurs after that date. Delivery of the notes in book-entry form only will be made on or about August , 2003 through the facilities of the Depository Trust Company. None of the Securities and Exchange Commission, any state securities commission, the Registrar of Companies in Bermuda or the Bermuda Monetary Authority has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Joint Book-Running Managers BANC OF AMERICA SECURITIES LLC CREDIT SUISSE FIRST BOSTON Co-Managers BARCLAYS CAPITAL BNY CAPITAL MARKETS, INC. FLEET SECURITIES, INC. BANC ONE CAPITAL MARKETS, INC. ING FINANCIAL MARKETS RBS SECURITIES, INC. The date of this prospectus is , 2003. TABLE OF CONTENTS

PAGE ---- PROSPECTUS SUMMARY.................... 1 RISK FACTORS.......................... 8 FORWARD-LOOKING STATEMENTS............ 20 USE OF PROCEEDS....................... 21 CAPITALIZATION........................ 22 SELECTED FINANCIAL DATA............... 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 25 BUSINESS.............................. 55 REGULATION............................ 69 MANAGEMENT............................ 74 PRINCIPAL SHAREHOLDERS................ 83 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................ 86

PAGE ---- MATERIAL TAX CONSIDERATIONS........... 88 DESCRIPTION OF THE NOTES.............. 93 UNDERWRITING.......................... 105 LEGAL MATTERS......................... 106 EXPERTS............................... 107 WHERE YOU CAN FIND MORE INFORMATION... 107 ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAWS AND OTHER MATTERS... 108 INDEX TO FINANCIAL STATEMENTS......... F-1 GLOSSARY OF SELECTED REINSURANCE, INSURANCE AND INVESTMENT TERMS...... G-1

--------------------- YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT. i PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus and may not contain all of the information that may be important to you. In this prospectus, references to the "Company," "we," "us" or "our" refer to Montpelier Re Holdings Ltd. and/or its subsidiaries, Montpelier Reinsurance Ltd., its wholly owned Bermuda reinsurance company subsidiary, Montpelier Marketing Services (UK) Limited, its wholly owned marketing subsidiary, and any other direct or indirect subsidiary, unless the context suggests otherwise. References to "Montpelier Re" refer solely to Montpelier Reinsurance Ltd. References in this prospectus to "dollars" or "$" are to the lawful currency of the United States of America, unless the context otherwise requires. Although this summary contains important information about the Company and this offering, you should read it together with the more detailed information and our financial statements and the notes to those statements appearing elsewhere in this prospectus. You should read this entire prospectus carefully, including "Risk Factors" and "Forward-Looking Statements," to determine how suitable an investment in the Company would be for you. For your convenience, we have provided a glossary, beginning on page G-1, of selected reinsurance, insurance and investment terms and have printed these terms in boldfaced type the first time they are used in this prospectus. OUR COMPANY OVERVIEW Montpelier Re Holdings Ltd., through its wholly owned operating subsidiary Montpelier Reinsurance Ltd., is a Bermuda-based provider of global specialty PROPERTY INSURANCE and REINSURANCE products. We were founded by White Mountains Insurance Group, Ltd. and Benfield Holdings Limited and commenced operations in December 2001 with approximately $1.0 billion of capital. We have assembled a senior management team with significant industry expertise and longstanding industry relationships. We seek to identify attractive insurance and reinsurance opportunities by capitalizing on our management's significant UNDERWRITING experience, using catastrophe modeling software and our own risk pricing and capital allocation models. We underwrote $560.6 million and $607.7 million in GROSS PREMIUMS WRITTEN for the six months ended June 30, 2003 and the year ended December 31, 2002, respectively, which was spread between various classes of business and geographic areas. We have well-established market relationships with the world's top reinsurance BROKERS including Guy Carpenter & Company, Inc. (a subsidiary of Marsh & McLennan Companies Inc.), Aon Re Worldwide (a subsidiary of Aon Corporation), Benfield and Willis Group Holdings Ltd., among others. MARKET OPPORTUNITIES AND INDUSTRY TRENDS There is substantial evidence that insurance and reinsurance prices rise in the short term for property and other classes of insurance and reinsurance in the aftermath of significant catastrophic events. We believe that the relatively high current price levels for property and certain other "short-tail" insurance and reinsurance products we write are principally due to a supply/demand imbalance in capacity caused by losses sustained by the global insurance and reinsurance industry resulting from the September 11th terrorist attacks, a general decline of global equity markets thereafter, and the more recent significant loss reserve strengthening of major insurance and reinsurance companies. Through Montpelier Re, we seek to help fulfill the need for additional UNDERWRITING CAPACITY in the global property and casualty insurance and reinsurance market. We intend to take advantage of current conditions in that market by providing capacity to ceding companies at prices commensurate with the risk we assume. During 2002, Standard & Poors downgraded a large number of reinsurers and upgraded very few. Many global property and casualty insurers and reinsurers are experiencing significantly reduced capital as a result of several years of excessively competitive pricing, expanding coverage terms, significant increases in RESERVES from asbestos liability, a decline in the U. S. and global equity markets and poor investment performance. We believe that this reduction in global underwriting capacity together with continued low interest rates has resulted in more favorable pricing terms and conditions for reinsurers such as us. 1 OUR COMPETITIVE STRENGTHS We believe we distinguish ourselves from our competitors as follows: - Disciplined Underwriting and Risk Management. We focus on underwriting profitability and seek to limit our loss exposure while earning an underwriting profit on all business we write by applying the professional insurance disciplines of pricing, underwriting and risk management. - Proven and Experienced Management Who Think and Act Like Owners. Our seven underwriters, including our President and Chief Executive Officer, Anthony Taylor, who also serves as our Chief Underwriting Officer, have an average of 24 years of experience in the insurance and reinsurance industry. All of our executive officers participate in our long-term incentive program that ties compensation to the achievement of specific goals relating to our underwriting performance. - Well-Established Market Relationships. Our underwriting team has the knowledge, experience and personal relationships that provide us with access to brokers and clients, and we believe we have established a broad level of support as a lead reinsurer among many of the largest reinsurance brokers worldwide, including Guy Carpenter, Aon Re Worldwide, Benfield and Willis Group. As a result of being in a lead position on a number of programs, we have the opportunity to analyze a broad range of opportunities and exercise selectivity on risks we underwrite. - No Historical Liabilities or Contingencies. We are a recently formed company with a balance sheet unencumbered by any historical losses relating to the September 11th terrorist attacks, asbestos and other legacy exposures affecting our industry. As a result, we have no risk that deteriorating LOSS RESERVES related to legacy exposures prior to our formation will impact our future financial results. - Excellent Financial Strength. Montpelier Re has a capital base of over $1.5 billion and has been assigned an "A" (Excellent) rating by A.M. Best Company Inc., the third highest rating of fifteen rating levels. This rating reflects A.M. Best's opinion of the results of our first year of operations, our capitalization and management. Montpelier Re has been assigned an "A3" (Good) rating by Moody's Investors Service, the seventh highest rating of twenty-one rating levels. This rating reflects Moody's opinion of the ability of Montpelier Re to punctually repay senior policyholder claims and obligations. Montpelier Re has been assigned an "A-" (Strong) financial strength rating by Standard & Poor's which is the seventh highest of twenty-one rating levels. The rating reflects Standard & Poor's opinion of Montpelier Re's ability to pay under its insurance policies and contracts in accordance with their terms. These ratings are not evaluations directed to investors in the notes or a recommendation to buy, sell or hold the notes. - Strong Strategic Sponsorship. We were founded by White Mountains and Benfield, each of whom has a strong reputation in the industry. White Mountains has substantial experience in managing companies and sponsoring the development of other insurance companies, while Benfield is the third largest reinsurance broker in the world ranked by reinsurance brokerage revenues for the year ended December 31, 2001. RISKS RELATING TO OUR COMPANY As part of your evaluation of our company, you should take into account the risks we face in our business and not solely our competitive strengths and strategies. These risks include: - Short Operating History. We have completed only one full fiscal year of operating and financial history and, therefore, our historical financial results may not accurately indicate our future performance. - Dependence on Principal Employees. Our success is dependent in part upon our ability to attract and retain our principal employees. Our location in Bermuda and Bermuda employment restrictions may make it more difficult to do so. - Cyclical Nature of Reinsurance Business. The reinsurance business has historically been cyclical. Although premium levels for many products have increased over the past year, the supply of reinsurance may increase, either by capital provided by new entrants or by the commitment of additional capital by existing reinsurers, which may cause prices to decrease. 2 - Severe or Unanticipated Losses. We may not adequately manage our exposure to severe or unanticipated risks. This could lead to losses that have a material adverse effect on our financial condition or results of operations. For more information about these and other risks, see "Risk Factors" beginning on page 8. You should carefully consider these risk factors together with all the other information included in this prospectus. OUR STRATEGY We aim to maximize sustainable long-term growth in shareholder value by pursuing the following strategies: - Manage Capital Prudently and Maintain a Disciplined Balance Sheet. We focus on generating underwriting profits while maintaining a disciplined balance sheet and manage our capital prudently relative to our risk exposure in an effort to maximize sustainable long-term growth in shareholder value. - Enhance Our Lead Position With Brokers and CEDENTS. We often take a lead position on underwriting treaties, which provides us with enhanced access to business and allows us to exercise superior risk selection. We believe this has allowed us to continue to build a substantial book of reinsurance business exhibiting superior performance. - Combine Subjective Underwriting Methods With Objective Modeling Tools. We attempt to exploit pricing inefficiencies that may exist in the market from time to time through the use of sophisticated property risk modeling tools, both proprietary and third party, together with market knowledge and judgment, to seek the most favorable terms per unit of risk assumed by our portfolio. - Develop and Maintain Balanced Portfolio of Reinsurance Risks. We are building a balanced portfolio of primarily property-related risks, diversified by class, product, geography and marketing source. We believe a more balanced portfolio of risks reduces the volatility of returns and optimizes the growth of shareholder value. - Deliver Customized, Innovative, and Timely Insurance and Reinsurance Solutions for Our Clients. We are establishing ourselves as a premier provider of global specialty property insurance and reinsurance products, such as property catastrophe, property specialty (retrocessional coverage, property RISK EXCESS OF LOSS REINSURANCE), other specialty (aviation, marine, personal accident, casualty) and QUALIFYING QUOTA SHARE, while developing an industry reputation for innovative and timely quotes for difficult technical risks. --------------------- Our principal executive offices are located at Mintflower Place, 8 Par-La-Ville Road, Hamilton HM 08, Bermuda. Our telephone number is (441) 296-5550. 3 THE OFFERING Securities Offered............ $250,000,000 aggregate principal amount of % Senior Notes due 2013 Interest Rate................. % Maturity Date................. , 2013 Interest Payment Dates........ Semi-annually on each February 15 and August 15, commencing February 15, 2004. Ranking....................... The notes will rank senior in right of payment to all of our existing and future subordinated indebtedness and equal in right of payment to all of our other existing and future unsecured and unsubordinated indebtedness. The notes will be structurally subordinated to all of the liabilities of our subsidiaries. Optional Redemption........... We may redeem some or all of the notes at any time or from time to time at the "make-whole" redemption price described in "Description of the Notes -- Optional Redemption." Tax Redemption................ We may redeem all of the notes at any time certain tax events occur as described in "Description of the Notes -- Redemption for Tax Purposes." Certain Covenants............. The notes will be issued under an indenture with The Bank of New York, as trustee. The indenture contains various covenants, including limitations on liens on the stock of designated subsidiaries, restrictions as to the disposition of the stock of designated subsidiaries and limitations on mergers, amalgamations and consolidations. Use of Proceeds............... We estimate the net proceeds from the offering of the notes, after deducting the underwriting discounts and commissions and estimated offering expenses we will pay, will be approximately $ million. We intend to use a portion of the proceeds from this offering to repay $150 million in aggregate principal amount outstanding under our existing term loan facility and to use the remaining proceeds for general corporate purposes. No Trading Market............. The notes are a new issue of securities for which there is currently no established trading market. Although the underwriters have informed us that they currently intend to make a market in the notes, they are not obligated to do so and any such market may be discontinued at any time without notice. Form of the Notes............. The notes will be represented by one or more global notes registered in the name of The Depository Trust Company or its nominee. This means that holders will not receive a certificate for their notes and the notes will not be registered in their names. Ownership interests in the notes will be shown on, and transfers of the notes will be effected only through, records maintained by participants in The Depository Trust Company. The Depository Trust Company and the paying agent for the notes will be responsible for interest payments to you. 4 SUMMARY FINANCIAL INFORMATION The following table sets forth our summary historical financial information for the periods ended and as of the dates indicated. Montpelier Re commenced operations on December 16, 2001. The summary income statement data for the period from inception (November 14, 2001) through December 31, 2001 and for the year ended December 31, 2002 and the summary balance sheet data as at December 31, 2002 are derived from our audited financial statements included elsewhere in this prospectus, which have been prepared in accordance with U.S. GAAP and have been audited by PricewaterhouseCoopers (Bermuda), our independent auditors. The summary income statement data for the six months ended June 30, 2003 and June 30, 2002 and the summary balance sheet data as at June 30, 2003 are derived from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on the same basis as our audited financial statements and, in our opinion, include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of our results of operations and financial position for these periods. These historical results are not necessarily indicative of results to be expected from any future period, and the results presented below are not necessarily indicative of our full year performance. You should read the following summary financial information along with the information contained in this prospectus, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes included elsewhere in this prospectus.

SIX MONTHS ENDED JUNE 30, PERIODS ENDED DECEMBER 31, ------------------------------- --------------------------------- 2003 2002 2002 2001(1) -------------- -------------- --------------- --------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS AND PERCENTAGES) (UNAUDITED) SUMMARY INCOME STATEMENT DATA: Gross premiums written................. $ 560,645 $ 340,018 $ 607,688 $ 150 Net premiums written................... 518,990 321,170 565,909 150 Net premiums earned.................... 359,046 118,045 329,926 8 Net investment income.................. 23,399 18,621 39,748 1,139 Loss and loss adjustment expenses...... (77,847) (53,342) (133,310) -- Interest on long-term debt............. (1,767) (2,113) (4,460) (236) Fair value of warrants issued............ -- -- -- (61,321) Net income (loss)........................ $ 216,320 $ 51,755 $ 152,045 $ (61,618) Basic earnings (loss) per share.......... $ 3.41 $ 0.99 $ 2.76 $ (1.18) Diluted earnings (loss) per share........ $ 3.24 $ 0.99 $ 2.74 $ (1.18) Basic weighted average common shares outstanding............................ 63,392,600 52,440,000 55,178,150 52,440,000 Diluted weighted average common shares outstanding............................ 66,810,881 52,447,200 55,457,141 52,440,000 SELECTED RATIOS (BASED ON U.S. GAAP INCOME STATEMENT DATA): Loss ratio(2)............................ 21.7% 45.2% 40.4% n/a Acquisition costs ratio(3)............... 20.8 17.9 19.1 n/a General and administrative expense ratio(4)............................... 5.8 8.6 7.9 n/a ----------- ----------- ----------- ----------- Combined ratio(5)........................ 48.3% 71.7% 67.4% n/a ----------- ----------- ----------- -----------

5

AS AT AS AT JUNE 30, DECEMBER 31, 2003 2002 ------------- --------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS AND PERCENTAGES) (UNAUDITED) SUMMARY BALANCE SHEET DATA: Fixed maturities, equities, cash and cash equivalents....... $1,906,502 $ 1,581,461 Total assets................................................ 2,382,586 1,833,918 Loss and loss adjustment expense reserves................... 203,534 146,115 Unearned premium............................................ 435,604 241,000 Long-term debt.............................................. 150,000 150,000 Total shareholders' equity.................................. 1,474,169 1,252,535 PER SHARE DATA (BASED ON U.S. GAAP BALANCE SHEET DATA) Book value per share (6).................................... $ 23.25 $ 19.76 Fully converted book value per share (7).................... $ 22.42 $ 19.39

--------------- (1) The financial information for this period reflects our results from November 14, 2001, the date of incorporation, to December 31, 2001. (2) The LOSS RATIO is calculated by dividing loss and LOSS ADJUSTMENT EXPENSES by NET PREMIUMS EARNED. (3) The acquisition costs ratio is calculated by dividing acquisition costs by net premiums earned. (4) The general and administrative expense ratio is calculated by dividing general and administrative expenses by net premiums earned. (5) The COMBINED RATIO is the sum of the loss ratio, the acquisition costs ratio and the general and administrative expense ratio. (6) Book value per share is based on total shareholders' equity divided by basic shares outstanding of 63,392,600 as at June 30, 2003 and December 31, 2002. (7) Fully converted book value per share is a non-GAAP measure calculated based on total shareholders' equity plus the assumed proceeds from the exercise of dilutive options and warrants in the amount of $168.1 million, divided by 73,261,760 fully converted shares. We believe that this is the best single measure of the return made by our shareholders as it takes into account the effect of all dilutive securities. 6 RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth our ratio of earnings to fixed charges and the pro forma ratio of earnings to fixed charges for the periods ended December 31, 2001 and 2002 and the six months ended June 30, 2002 and 2003:

SIX MONTHS PERIOD ENDED ENDED JUNE 30, DECEMBER 31, -------------- -------------- 2003 2002 2002 2001(1) ------ ----- ---- ------- Ratio of Earnings to Fixed Charges...................... 100.1 21.7 29.8 (226.4) Pro Forma Ratio of Earnings to Fixed Charges(2)......... 27.6 7.4 10.3 (71.4)

For purposes of computing these ratios, earnings consist of net income. Fixed charges consist of interest expense, amortization of capitalized debt expenses, and an imputed interest component for rental expense. --------------- (1) We were formed on November 14, 2001 and commenced insurance operations on December 16, 2001. We incurred certain one-time expenses in connection with our formation including a $61.3 million charge for the fair value of warrants issued. The warrants were issued to certain founding shareholders, and qualify as equity for accounting purposes, therefore $61.3 million of additional paid-in capital was also created with a net neutral impact on shareholders' equity. The net loss of $61.6 million for the period was almost entirely due to the charge related to the warrants. Fixed charges exceeded earnings by $61.9 million for the period ended December 31, 2001. (2) Assumes the sale of $250,000,000 aggregate principal amount of notes in this offering bearing an interest rate of 6.45%, a portion of the net proceeds of which are applied as discussed under "Use of Proceeds." 7 RISK FACTORS An investment in the notes involves a number of risks. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before investing in the notes. The risks and uncertainties described below are not the only ones we face. However, these are the risks our management believes are material. Additional risks not presently known to us or that we currently deem immaterial may also impair our business or results of operations. Any of the risks described below could result in a significant or material adverse effect on our results of operations or financial condition, and a corresponding adverse effect on our ability to satisfy our obligations to you under the notes. You could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this prospectus. See "Forward-Looking Statements." RISKS RELATED TO OUR COMPANY OUR FUTURE PERFORMANCE IS DIFFICULT TO PREDICT BECAUSE WE HAVE A LIMITED OPERATING HISTORY. We were formed in November 2001, and we have completed only one full fiscal year of operating and financial history. As a result, there is limited historical financial and operating information available to help you evaluate our performance. Companies in their initial stages of development present substantial business and financial risks and may suffer significant losses. They must successfully develop business relationships, establish operating procedures, hire staff, install management information and other systems and complete other tasks necessary to conduct their intended business activities. We cannot assure you that we will be successful in accomplishing these necessary tasks. In addition, because we did not have a full complement of underwriters until the end of the second quarter of 2002, we did not underwrite as much gross premium as would be expected in a full year and our historical financial results may not accurately indicate our future performance. WE COULD BE ADVERSELY AFFECTED BY THE LOSS OF ONE OR MORE PRINCIPAL EMPLOYEES OR BY AN INABILITY TO ATTRACT AND RETAIN STAFF OR INDEPENDENT DIRECTORS. Our success will depend in substantial part upon our ability to attract and retain our principal employees. As of July 28, 2003, we had forty-three full-time employees and depend upon them for the generation and servicing of our business. We rely substantially upon the services of Anthony Taylor, our Chief Executive Officer, President and the Chief Underwriting Officer of Montpelier Re. Although to date we have generally been successful in recruiting employees, our location in Bermuda may be an impediment to attracting and retaining experienced personnel, particularly if they are unable to secure work permits, as described below. Furthermore, although we are not aware of any planned departures, if we were to lose the services of members of our management team, our business could be adversely affected. We do not currently maintain key man life insurance policies with respect to our employees except for Anthony Taylor. We also may experience difficulty in attracting and retaining qualified independent directors in the increasingly regulated corporate governance environment. Independent directors are generally individuals other than our employees, officers or their family members or shareholders of more than 10% of our common shares and who do not have a significant financial relationship with our Company, although the ultimate determination of independence may be based on all relevant facts and circumstances. OUR ABILITY TO CONDUCT OUR BUSINESS MAY BE ADVERSELY AFFECTED BY BERMUDA EMPLOYMENT RESTRICTIONS. Under Bermuda law, non-Bermudians (other than spouses of Bermudians) may not engage in any gainful occupation in Bermuda without specific permission in the form of a work permit issued by the Bermuda Department of Immigration. Such a work permit may be granted or extended upon showing that, after proper public advertisement, no Bermudian (or spouse of a Bermudian) is available who meets the minimum 8 standards for the advertised position. The Bermuda government has a policy that limits the duration of work permits to six years, subject to certain exemptions for key employees. None of our senior management team (and possibly other officers) based in Bermuda are Bermudian. Of our employees in Bermuda, twenty-four are Bermudian. Anthony Taylor, our Chief Executive Officer, Russell Fletcher, our Chief Reinsurance Officer, and Thomas Busher, our Chief Operating Officer, are working under work permits that will expire after three years from the date of issue, unless renewed, and K. Thomas Kemp, our Chief Financial Officer, is working under a one-year periodic work permit renewable annually in June, which was recently re-approved in June 2003. If work permits are not obtained or renewed for our principal employees, we could lose their services, which could materially affect our business. WE COULD FACE UNANTICIPATED LOSSES FROM WAR, TERRORISM AND POLITICAL UNREST, AND THESE OR OTHER UNANTICIPATED LOSSES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. We may have substantial exposure to large, unexpected losses resulting from future man-made catastrophic events, such as acts of war, acts of terrorism and political instability. Although we may attempt to exclude losses from terrorism and certain other similar risks from some coverages we write, we may not be successful in doing so. In addition, we have written and will continue to write some policies explicitly covering acts of terrorism. These risks are inherently unpredictable and recent events may lead to increased frequency and severity of losses. It is difficult to predict the timing of such events with statistical certainty or to estimate the amount of loss that any given occurrence will generate. To the extent that losses from such risks occur, our financial condition and results of operations could be materially adversely affected. OUR FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED BY THE OCCURRENCE OF NATURAL DISASTERS. We may have substantial exposure to losses resulting from natural disasters and other catastrophic events. Catastrophes can be caused by various events, including hurricanes, tornadoes, earthquakes, hailstorms, explosions, severe winter weather and fires. The incidence and severity of such catastrophes are inherently unpredictable and our losses from catastrophes could be substantial. The occurrence of claims from catastrophic events is likely to result in substantial volatility in our financial condition or results for any fiscal quarter or year and could have a material adverse effect on our financial condition or results and our ability to write new business. This volatility is compounded by accounting regulations that do not permit reinsurers to reserve for such catastrophic events until they occur. We expect that increases in the values and concentrations of insured property will increase the severity of such occurrences in the future. Although we will attempt to manage our exposure to such events, a single catastrophic event could affect multiple geographic zones, or the frequency or severity of catastrophic events could exceed our estimates, either of which could have a material adverse effect on our financial condition or results of operations. IF ACTUAL CLAIMS EXCEED OUR LOSS RESERVES, OUR FINANCIAL RESULTS COULD BE SIGNIFICANTLY ADVERSELY AFFECTED. Our success depends upon our ability to assess accurately the risks associated with the businesses that we reinsure. To the extent actual claims exceed our expectations we will be required to recognize immediately the less favorable experience as we become aware of it. This could cause a material increase in our liabilities and a reduction in our profitability, including an operating loss and reduction of capital. To date, we have not been required to make any of these adjustments. However, it is early in our history and the number and size of reported claims may increase, and their size could exceed our expectations. A significant portion of the Company's business is property catastrophe and other classes with high ATTACHMENT POINTS of coverage. Reserving for losses in the property catastrophe market is inherently complicated in that losses in excess of the attachment level of the Company's policies are characterized by high severity and low frequency, and other factors which could vary significantly as claims are settled. This limits the volume of relevant industry claims experience available from which to reliably predict ultimate losses following a loss event. 9 In addition, there always exists a reporting lag between a loss event taking place and the reporting of the loss to the Company. These incurred but not reported losses are inherently difficult to predict. Because of the variability and uncertainty associated with loss estimation, it is possible that our individual case reserves for each catastrophic event and other case reserves are incorrect, possibly materially. These factors require us to make significant assumptions when establishing loss reserves. Since the Company has insufficient past loss experience, management supplements this information with industry data. This industry data may not match the risk profile of the Company, which introduces a further degree of uncertainty into the process. Accordingly, actual claims and claim expenses paid may deviate, perhaps substantially, from the reserve estimates reflected in our financial statements. Like other reinsurers, we do not separately evaluate each of the individual risks assumed under reinsurance treaties. Therefore, we are largely dependent on the original underwriting decisions made by CEDING COMPANIES. We are subject to the risk that the ceding companies may not have adequately evaluated the risks to be reinsured and that the premiums ceded may not adequately compensate us for the risks we assume. If our loss reserves are determined to be inadequate, we will be required to increase loss reserves at the time of such determination with a corresponding reduction in our net income in the period in which the deficiency is rectified. It is possible that claims in respect of events that have occurred could exceed our loss reserves and have a material adverse effect on our results of operations or our financial condition in general. In addition, unlike the loss reserves of U.S. reinsurers, our loss reserves are not regularly examined by U.S. or other insurance regulators. THE FAILURE OF ANY OF THE LOSS LIMITATION METHODS WE EMPLOY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION OR OUR RESULTS OF OPERATIONS. We seek to limit our loss exposure by writing a number of our reinsurance contracts on an excess of loss basis, adhering to maximum limitations on reinsurance written in defined geographical zones, limiting program size for each client and prudent underwriting of each program written. In the case of proportional treaties, we seek per occurrence limitations or loss ratio caps to limit the impact of losses from any one event. We cannot be sure that any of these loss limitation methods will be effective. We also seek to limit our loss exposure by geographic diversification. Geographic zone limitations involve significant underwriting judgments, including the determination of the area of the zones and the inclusion of a particular policy within a particular zone's limits. There can be no assurance that various provisions of our policies, such as limitations or exclusions from coverage or choice of forum, will be enforceable in the manner we intend. Disputes relating to coverage and choice of legal forum may also arise. Underwriting is inherently a matter of judgment, involving important assumptions about matters that are inherently unpredictable and beyond our control, and for which historical experience and probability analysis may not provide sufficient guidance. One or more catastrophic or other events could result in claims that substantially exceed our expectations, which could have a material adverse effect on our financial condition or our results of operations. WE ARE A COMPANY WITH A LIMITED OPERATING HISTORY AND MAY ENCOUNTER DIFFICULTIES ESTABLISHING THE INFORMATION TECHNOLOGY SYSTEMS NECESSARY TO RUN OUR BUSINESS. The performance of our information technology systems is critical to our business, our reputation, and our ability to process transactions and provide high quality customer service. Such technology is and will continue to be a very important part of our underwriting process. We currently purchase risk modeling services from AIR Worldwide Corporation ("AIR"), EQECAT, Inc. ("EQE") and Risk Management Solutions, Inc. ("RMS"). In addition, we continue to work with Black Diamond Group, an insurance consulting firm, on enhancing proprietary modeling technologies. We cannot be certain that we would be able to replace these service providers or consultants without slowing our underwriting response time, or that our proprietary technology will operate as intended. Any defect or error in our information technology systems could result in a loss or delay of revenues, higher than expected loss levels, diversion of management resources, harm to our reputation or an increase in costs. 10 OUR FOUNDERS AND CERTAIN OF OUR DIRECTORS AND OFFICERS MAY HAVE CONFLICTS OF INTEREST WITH US. Our founders, White Mountains and Benfield Holdings Limited, beneficially own 22.9% (assuming the exercise of White Mountains' warrants) and 4.5% (assuming the exercise of Benfield Holdings Limited's warrants), respectively, of our common shares. In addition, four of our directors are affiliated with our founders. Our founders engage in certain commercial activities and transactions or agreements with us, which may give rise to conflicts of interest. We may also enter into commercial arrangements with related parties in the ordinary course of business. In addition, White Mountains conducts a reinsurance business through some of its subsidiaries, and we may compete with such subsidiaries for the same prospective clients. The founders or their affiliates have sponsored, and may in the future sponsor, other entities engaged in or intending to engage in insurance and reinsurance underwriting, some of which, together with the founders, may compete with us. Our founders and their affiliates have also entered into agreements with and made investments in numerous companies that may compete with us. In particular: - John J. (Jack) Byrne, Chairman of our Board of Directors and a member of our Compensation and Nominating Committee, is also Chairman of the Board of Directors of White Mountains Insurance Group. - K. Thomas Kemp, our Chief Financial Officer and a member of our Board of Directors, is a member of the Board of Directors of White Mountains Insurance Group and is also a director of Amlin plc, which accounts for a significant proportion of our Qualifying Quota Shares ("QQS") premiums. - Raymond Barrette, a member of our Board of Directors and a member of the Underwriting Policy Committee of our Board of Directors, is President and Chief Executive Officer of White Mountains Insurance Group. - John Gillespie, a member of our Board of Directors and Chairman of the Finance Committee of our Board, is Deputy Chairman of the Board of Directors of White Mountains Insurance Group. Mr. Gillespie is Chairman and President of White Mountains Advisors LLC, a wholly owned subsidiary of White Mountains Insurance Group, which we have engaged to provide investment advisory and management services. In addition, Mr. Gillespie is either general manager or investment manager of various funds, which own less than 5% of our common shares. - Folksamerica Reinsurance Company, a reinsurance subsidiary of White Mountains Insurance Group, has entered into a quota share arrangement with Olympus Reinsurance Ltd., a Bermuda insurance and reinsurance company that is one of our competitors. Certain of the directors, officers and affiliates of White Mountains Insurance Group own approximately 5% of the shares of the parent holding company of Olympus, and a member of the Board of Directors of White Mountains Insurance Group is Chairman of that holding company. - We have in the past purchased certain risk management services from Benfield and may purchase other services from them in the future. We also pay brokerage commissions to Benfield. These commissions are consistent with commissions that we pay to other brokers in the ordinary course of business. We may not be in a position to influence any party's decision to engage in activities that would give rise to a conflict of interest, and they may take actions that are not in our shareholders' best interests. IF WE CHOOSE TO PURCHASE REINSURANCE, WE MAY BE UNABLE TO DO SO. We did not purchase reinsurance for our own account in 2002. In order to limit the effect of large and multiple losses upon our financial condition, we have since purchased and may continue to purchase reinsurance in the future. This type of insurance is known as "RETROCESSIONAL REINSURANCE." A reinsurer's insolvency or inability to make payments under the terms of its reinsurance treaty with us could have a material adverse effect on us. In 2003 we purchased specific retrocessional protection for our direct insurance 11 and facultative reinsurance programs and our property reinsurance programs, excluding most other specialty lines. We may purchase additional retrocessional protection for our own account in 2003. From time to time, market conditions have limited, and in some cases have prevented, insurers and reinsurers from obtaining the types and amounts of reinsurance, which they consider adequate for their business needs. Following the September 11th terrorist attacks, terms and conditions in the retrocessional market generally became less attractive. Accordingly, we may not be able to obtain our desired amounts of retrocessional reinsurance. In addition, even if we are able to obtain such retrocessional reinsurance, we may not be able to negotiate terms that we deem appropriate or acceptable or from entities with satisfactory creditworthiness. SINCE WE DEPEND ON A FEW BROKERS FOR A LARGE PORTION OF OUR REVENUES, LOSS OF BUSINESS PROVIDED BY THEM COULD ADVERSELY AFFECT US. We market our reinsurance and insurance worldwide primarily through brokers. For the six months ended June 30, 2003, 92.5% of our gross premiums written were sourced through brokers. Subsidiaries and affiliates of Guy Carpenter, Benfield (one of our founders and a shareholder), Willis Group and Aon Re Worldwide provided 26.7%, 26.4%, 18.8% and 15.5% (for a total of 87.4%), respectively, of our gross premiums written sourced through brokers for the six months ended June 30, 2003. Affiliates of two of these brokers, Aon and Guy Carpenter, have also co-sponsored the formation of Bermuda reinsurance companies that may compete with us, and these brokers may favor these reinsurers over other companies. Loss of all or a substantial portion of the business provided by one or more of these brokers could have a material adverse effect on our business. OUR RELIANCE ON REINSURANCE BROKERS SUBJECTS US TO THEIR CREDIT RISK. In accordance with industry practice, we frequently pay amounts owed on claims under our policies to reinsurance brokers, and these brokers, in turn, pay these amounts over to the ceding insurers that have reinsured a portion of their liabilities with us. In some jurisdictions, if a broker fails to make such a payment, we might remain liable to the ceding insurer for the deficiency. Conversely, in certain jurisdictions, when the ceding insurer pays premiums for these policies to reinsurance brokers for payment over to us, these premiums are considered to have been paid and the ceding insurer will no longer be liable to us for those amounts, whether or not we have actually received the premiums. Consequently, consistent with the industry, we assume a degree of credit risk associated with brokers around the world. OUR INVESTMENT PERFORMANCE MAY AFFECT OUR FINANCIAL RESULTS AND ABILITY TO CONDUCT BUSINESS. Our funds are invested on a discretionary basis by a professional investment advisory management firm, White Mountains Advisors LLC, a wholly owned subsidiary of White Mountains Insurance Group, subject to policy guidelines, which are periodically reviewed by the Finance Committee of our Board of Directors. See "Business -- Investments." Although our investment policies stress diversification of risks, conservation of principal and liquidity, our investments are subject to market-wide risks and fluctuations, as well as to risks inherent in particular securities. In particular, the volatility of our claims submissions may force us to liquidate securities, which may cause us to incur capital losses. If we structure our investments improperly relative to our reinsurance liabilities, we may be forced to liquidate investments prior to maturity at a significant loss to cover such liabilities. Realized and unrealized investment losses resulting from an other than temporary decline in value could significantly decrease our assets, thereby affecting our ability to conduct business. OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY CURRENCY FLUCTUATIONS. Our functional currency is the U.S. dollar. We write a portion of our business and receive premiums and pay claims in currencies other than U.S. dollars and may maintain a small portion of our investment portfolio in investments denominated in currencies other than U.S. dollars. A portion of our loss reserves are also in non-U.S. currencies. We may experience exchange losses to the extent our foreign currency exposure is not 12 properly managed or otherwise hedged, which in turn would adversely affect our statement of operations and financial condition. At present we have no currency hedges in place, nor are we aware of any significant exposures to loss payments that will be paid in non-U.S. currencies. We intend to consider using hedges when we are advised of known or probable significant losses that will be paid in non-U.S. currencies. We can, therefore, choose to manage currency fluctuation exposure during the period between advice and ultimate payment. However, we would not normally hedge against this possible exposure for the portion of our loss reserves that represent losses INCURRED BUT NOT REPORTED ("IBNR"). Reserves for IBNR will be a substantial part of our total loss reserves. WE ARE RATED BY RATING AGENCIES AND A DECLINE IN OUR RATINGS COULD AFFECT OUR STANDING AMONG BROKERS AND CUSTOMERS AND CAUSE OUR REVENUE AND EARNINGS TO DECREASE. Ratings have become an increasingly important factor in establishing the competitive position of reinsurance companies. A.M. Best assigned Montpelier Re a financial strength rating of "A" (Excellent), which is the third highest of fifteen rating levels. The objective of A.M. Best's rating system is to provide an opinion of an insurer's financial strength and ability to meet ongoing obligations to its policyholders. Our rating reflects A.M. Best's opinion of the results of our first year of operations, our capitalization and management. Montpelier Re has been assigned an "A3" (Good) rating by Moody's Investors Service, the seventh highest rating of twenty-one rating levels. This rating reflects Moody's opinion of the ability of Montpelier Re to punctually repay senior policyholder claims and obligations. Montpelier Re has been assigned an "A-" (Strong) financial strength rating by Standard & Poor's, which is the seventh highest of twenty-one rating levels. The rating reflects Standard & Poor's opinion of Montpelier Re's ability to pay under its insurance policies and contracts in accordance with their terms. These ratings are not evaluations directed to investors in the notes or a recommendation to buy, sell or hold the notes. Our ratings are subject to periodic review by, and may be revised downward or revoked at the sole discretion of, A.M. Best, Moody's and Standard & Poor's and we cannot assure you that we will be able to retain these ratings. If our ratings are reduced from their current levels by A.M. Best, Moody's or Standard & Poor's, our competitive position in the insurance industry would suffer and it would be more difficult for us to market our products. A significant downgrade could result in a substantial loss of business as ceding companies, and brokers that place such business, move to other reinsurers with higher ratings. WE MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE. Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. To the extent that the funds generated by our initial capitalization, initial public offering and our operations are insufficient to fund future operating requirements and cover claim payments, we may need to raise additional funds through financings or curtail our growth and reduce our assets. Any equity or debt financing, if available at all, may be on terms that are not favorable to us. If we cannot obtain adequate capital, our business, operating results and financial condition could be adversely affected. IF OUR SUBSIDIARY IS UNABLE TO OBTAIN THE NECESSARY CREDIT, WE MAY NOT BE ABLE TO OFFER REINSURANCE IN CERTAIN MARKETS. Montpelier Re is not licensed or admitted as an insurer in any jurisdiction other than Bermuda. Because many jurisdictions do not permit insurance companies to take credit for reinsurance obtained from unlicensed or non-admitted insurers on their statutory financial statements unless appropriate security mechanisms are in place, it is anticipated that our reinsurance clients will typically require us to post a letter of credit or other collateral. In order for Montpelier Re to write Lloyd's QQS business, it must provide a letter of credit in favor of The Society and Council of Lloyd's ("Lloyd's") in accordance with Lloyd's rules. We have made arrangements with Fleet National Bank for the provision of a standby letter of credit in a form acceptable to Lloyd's in an amount of up to $250 million, and in favor of certain U.S. ceding companies in an amount of up to $200 million. The Company has also made arrangements with Barclay's Bank PLC for the provision of an 13 additional letter of credit facility in favor of certain U.S. ceding companies in an amount of up to $100 million. We consider the letter of credit facilities sufficient to support Montpelier Re's estimated obligations for the next 12 months. If Montpelier Re were to become unable to obtain the necessary credit, Montpelier Re could be limited in its ability to write business for certain of our clients. RISKS RELATED TO OUR INDUSTRY SUBSTANTIAL NEW CAPITAL INFLOWS INTO THE REINSURANCE INDUSTRY WILL INCREASE COMPETITION. The reinsurance industry is highly competitive. We compete, and will continue to compete, with major U.S. and non-U.S. reinsurers, many of which have greater financial, marketing and management resources than we have. We also compete with several other Bermuda-based reinsurers that write reinsurance and that target the same market as we do and utilize similar business strategies, and some of these companies currently have more capital than we have. We also compete with financial products, such as risk securitization, the usage of which has grown in volume. Established competitors have recently completed or may be planning to complete additional capital raising transactions. New companies continue to be formed to enter the reinsurance market. The full extent and effect of this additional capital on the reinsurance market will not be known for some time and current market conditions could reverse. Ultimately, this competition could affect our ability to attract or retain business or to write business at premium rates sufficient to cover losses. If competition limits our ability to write new business at adequate rates, our return on capital may be adversely affected. RECENT EVENTS MAY RESULT IN POLITICAL, REGULATORY AND INDUSTRY INITIATIVES, WHICH COULD ADVERSELY AFFECT OUR BUSINESS. The supply of property catastrophe reinsurance coverage has decreased due to the withdrawal of capacity and substantial reductions in capital resulting from, among other things, the September 11th terrorist attacks. This tightening of supply has resulted in government intervention in the insurance and reinsurance markets, both in the United States and worldwide. For example, in response to the tightening of supply in certain insurance and reinsurance markets resulting from, among other things, the September 11th terrorist attacks, the Terrorism Risk Insurance Act of 2002 was enacted to ensure the availability of insurance coverage for terrorist acts in the United States. This law establishes a federal assistance program that will continue through the end of 2005 to help the commercial insurers and reinsurers in the property and CASUALTY INSURANCE industry cover claims related to future terrorism related losses and regulates the terms of insurance relating to terrorism coverage. This law could adversely affect our business by increasing our competitors' underwriting capacity for terrorism-related coverage in the United States. We are currently unable to predict the extent to which the foregoing new initiative may affect the demand for our products or the risks that may be available for us to consider reinsuring. In addition, the insurance and reinsurance regulatory framework has been subject to increased scrutiny by individual U.S. state governments. This government intervention and the possibility of future interventions have created uncertainty in the insurance and reinsurance markets about the definition of terrorist acts and the extent to which future coverages will extend to terrorist acts. Government regulators are generally concerned with the protection of policyholders to the exclusion of other constituencies, including holders of the notes. While we cannot predict the exact nature, timing or scope of possible governmental initiatives, such proposals could adversely affect our business by: - Providing insurance and reinsurance capacity in markets and to consumers that we target; - Requiring our participation in industry pools and guaranty associations; - Regulating the terms of insurance and reinsurance policies; or - Disproportionately benefiting the companies of one country over those of another. 14 The insurance industry is also affected by political, judicial and legal developments that may create new and expanded theories of liability. Such changes may result in delays or cancellations of products and services by insurers and reinsurers, which could adversely affect our business. COMPETITION IN THE INSURANCE INDUSTRY COULD REDUCE OUR OPERATING MARGINS. Competition in the insurance industry has increased as industry participants seek to enhance their product and geographic reach, client base, operating efficiency and general market power through organic growth, mergers and acquisitions, and reorganization activities. As the insurance industry evolves, competition for customers may become more intense and the importance of acquiring and properly servicing each customer will grow. We could incur greater expenses relating to customer acquisition and retention, which could reduce our operating margins. There are also many potential initiatives by capital market participants to produce alternative products that may compete with the existing catastrophe reinsurance markets. Over time, these numerous initiatives could significantly affect supply, pricing and competition in our industry. THE REINSURANCE BUSINESS IS HISTORICALLY CYCLICAL, AND WE EXPECT TO EXPERIENCE PERIODS WITH EXCESS UNDERWRITING CAPACITY AND UNFAVORABLE PREMIUMS. Historically, reinsurers have experienced significant fluctuations in operating results due to competition, frequency of occurrence or severity of catastrophic events, levels of capacity, general economic conditions and other factors. Demand for reinsurance is influenced significantly by underwriting results of primary property insurers and prevailing general economic conditions. The supply of reinsurance is related to prevailing prices, the levels of insured losses and the levels of industry surplus, which, in turn, may fluctuate in response to changes in rates of return on investments being earned in the reinsurance industry. As a result, the reinsurance business historically has been a cyclical industry characterized by periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity permitted favorable premium levels. The supply of reinsurance may increase, either by capital provided by new entrants or by the commitment of additional capital by existing reinsurers, which may cause prices to decrease. Any of these factors could lead to a significant reduction in premium rates, less favorable policy terms and fewer submissions for our underwriting services. In addition to these considerations, changes in the frequency and severity of losses suffered by insurers may affect the cycles of the reinsurance business significantly, and we expect to experience the effects of such cyclicality. WE MAY BE ADVERSELY AFFECTED BY INTEREST RATE CHANGES. Our operating results depend, in part, on the performance of our investment portfolio. Our investment portfolio contains interest rate sensitive instruments, such as bonds, which may be adversely affected by changes in interest rates. Changes in interest rates could also have an adverse effect on our investment income and results of operations. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Any measures we take that are intended to manage the risks of operating in a changing interest rate environment may not effectively mitigate such interest rate sensitivity. RISKS RELATED TO THIS OFFERING OF NOTES BECAUSE OF OUR HOLDING COMPANY STRUCTURE, THE NOTES WILL BE SUBORDINATED TO ALL INDEBTEDNESS AND LIABILITIES OF OUR SUBSIDIARIES. We are a holding company and conduct substantially all of our operations through our subsidiaries. As a result, claims of holders of the notes will be effectively subordinated to the indebtedness and other liabilities of our subsidiaries. Therefore, in the event of the bankruptcy, liquidation or dissolution of a subsidiary, following payment by such subsidiary of its liabilities, such subsidiary may not have sufficient assets remaining to make payments to us as a shareholder or otherwise. As of June 30, 2003, the liabilities of our 15 subsidiaries that were structurally senior to the notes would have been approximately $762.5 million (including reinsurance liabilities). In the event of a default under our subsidiaries' letter of credit facilities, their creditors could elect to declare all amounts borrowed, together with accrued and unpaid interest and other fees, to be due and payable prior to any distributions by any such subsidiaries to us to pay interest or principal due on the notes. In addition, if we caused a subsidiary to pay a dividend to enable us to make payments in respect of the notes, and such transfer were deemed a fraudulent transfer or unlawful distribution, the holders of the notes could be required to return the payment to (or for the benefit of) the creditors of such subsidiary. This would adversely affect our ability to make payments to holders of the notes. WE WILL DEPEND UPON DIVIDENDS FROM MONTPELIER RE TO MEET OUR OBLIGATIONS UNDER THE NOTES. Dividends and other permitted distributions from Montpelier Re are expected to be our sole source of funds to meet ongoing cash requirements, including debt service payments and other expenses. Bermuda law and regulations, including, but not limited to Bermuda insurance regulation, limit the declaration and payment of dividends and the making of distributions by Montpelier Re to us and in certain cases requires the prior notification to, or the approval of, the Bermuda Monetary Authority. Subject to such laws, the directors of Montpelier Re have the authority to determine whether or not to declare dividends to us. The maximum amount of dividends that could have been paid by Montpelier Re to us at June 30, 2003, without such notification, was $151.4 million. There is no assurance that dividends will be declared or paid in the future. The inability of Montpelier Re to pay dividends to us in an amount sufficient to enable us to meet our cash requirements at the holding company level could have a material adverse effect on our operations and ability to satisfy our obligations to you under the notes. See "Dividend Policy" and "Regulation -- Bermuda Insurance Regulation -- Minimum Solvency Margin and Restrictions on Dividends and Distributions" and "-- Certain Bermuda Law Considerations." Montpelier Re has no obligation to pay interest or principal due on the notes or to make funds available to us for that purpose, whether in the form of loans, dividends or other distributions. Accordingly, our ability to repay the notes at maturity or otherwise may be dependent upon our ability to refinance the notes, which will in turn depend, in large part, upon factors beyond our control. OUR OPTION TO REDEEM THE NOTES IN CERTAIN CIRCUMSTANCES MAY ADVERSELY AFFECT YOUR RETURN ON THE NOTES. The notes will be redeemable at our option if certain tax events occur. Redemption may occur at a time when prevailing interest rates are relatively low. If this happens, you generally will not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the redeemed notes. See "Description of the Notes -- Redemption for Tax Purposes" for a more detailed discussion of redemption of the notes. THERE CURRENTLY EXISTS NO MARKET FOR THE NOTES AND WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP. Prior to this offering, there has been no market for the notes. We have been informed by the underwriters that they intend to make a market in the notes after the offering is completed. However, the underwriters may cease their market-making at any time without notice. The liquidity of the trading market in the notes, and the market price quoted for the notes, may be adversely affected by many factors, including changes in the overall market for debt securities generally or the interest of securities dealers in making a market in the notes and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. 16 YOU MAY HAVE DIFFICULTY EFFECTING SERVICE OF PROCESS ON US OR ENFORCING JUDGMENTS AGAINST US IN THE UNITED STATES. We are incorporated pursuant to the laws of Bermuda and our business is based in Bermuda. In addition, certain of our directors and officers reside outside the United States, and all or a substantial portion of our assets and the assets of such persons are located in jurisdictions outside the United States. As such, we have been advised that there is doubt as to whether: - A holder of the notes would be able to enforce, in the courts of Bermuda, judgments of U.S. courts against persons who reside in Bermuda based upon the civil liability provisions of the United States federal securities laws; - A holder of the notes would be able to enforce, in the courts of Bermuda, judgments of U.S. courts based upon the civil liability provisions of the U.S. federal securities laws; - A holder of the notes would be able to bring an original action in the Bermuda courts to enforce liabilities against us or our directors and officers, as well as the experts named in this prospectus, who reside outside the United States based solely upon U.S. federal securities laws. Further, we have been advised that there is no treaty in effect between the United States and Bermuda providing for the enforcement of judgments of U.S. courts, and there are grounds upon which Bermuda courts may not enforce judgments of U.S. courts. Because judgments of U.S. courts are not automatically enforceable in Bermuda, it may be difficult for you to recover against us based upon such judgments. RISKS RELATED TO TAXATION WE AND OUR SUBSIDIARIES MAY BE SUBJECT TO U.S. TAX. We and Montpelier Re are organized under the laws of Bermuda and believe, based on the advice of counsel, that we operate in a manner such that we are not subject to U.S. taxation on our income (other than excise taxes on insurance and reinsurance premium income attributable to insuring or reinsuring U.S. risks and U.S. withholding taxes on certain U.S. source investment income). However, because there is considerable uncertainty as to the activities which constitute being engaged in a trade or business within the United States, there can be no assurances that the U.S. Internal Revenue Service will not contend successfully that we or Montpelier Re are engaged in a trade or business in the United States. If we or Montpelier Re were considered to be engaged in a business in the United States, we could be subject to U.S. corporate income and branch profits taxes on the portion of our earnings effectively connected to such U.S. business. Personal Holding Company Rules. We or a subsidiary might be subject to U.S. tax on a portion of our income that is earned from U.S. sources if we or a subsidiary are considered a personal holding company ("PHC") for U.S. federal income tax purposes. This status will depend on the portion of our shareholder base, based on value that consists of or is deemed to consist of individuals and the percentage of our income, or the income of our subsidiaries, as determined for U.S. federal income tax purposes, that consists of "personal holding company income." We believe, based on the advice of counsel, that neither we nor any of our subsidiaries will be considered a PHC, but we cannot assure you that this will be the case or that the amount of U.S. tax that would be imposed if it were not the case would be immaterial. WE MAY BECOME SUBJECT TO U.S. TAX LEGISLATION CONCERNING BERMUDA CORPORATIONS. Congress has been discussing legislation intended to eliminate certain perceived tax advantages of (1) U.S. companies that have changed their legal domiciles to Bermuda and (2) U.S. insurance companies having Bermuda affiliates. These legislative proposals do not contain provisions that would adversely affect companies that were formed outside the United States and do not have any U.S. affiliates. It is difficult to predict what any final legislation will look like given the current political environment. Therefore, while currently there is no specific legislative proposal which, if enacted, would adversely affect us, Montpelier Re or 17 our securityholders, broader-based legislative proposals could emerge that could conceivably have an adverse impact on us, Montpelier Re or our securityholders. WE MAY BECOME SUBJECT TO TAXES IN BERMUDA AFTER 2016, WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION. The Bermuda Minister of Finance, under the Exempted Undertaking Tax Protection Act 1966, as amended, of Bermuda, has given us assurance that if any legislation is enacted in Bermuda that would impose tax on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to us or any of our operations or our shares, debentures or other obligations until March 28, 2016. We cannot assure you that we will not be subject to any Bermuda tax after that date. THE IMPACT OF BERMUDA'S LETTER OF COMMITMENT TO THE ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT TO ELIMINATE HARMFUL TAX PRACTICES IS UNCERTAIN AND COULD ADVERSELY AFFECT OUR TAX STATUS IN BERMUDA. The Organization for Economic Cooperation and Development, which is commonly referred to as the OECD, has published reports and launched a global dialogue among member and non-member countries on measures to limit harmful tax competition. These measures are largely directed at counteracting the effects of tax havens and preferential tax regimes in countries around the world. In the OECD's report dated June 26, 2000, Bermuda was not listed as a tax haven jurisdiction because it had previously signed a letter committing itself to eliminate harmful tax practices by the end of 2005 and to embrace international tax standards for transparency, exchange of information and the elimination of any aspects of the regimes for financial and other services that attract business with no substantial domestic activity. We are not able to predict what changes will arise from the commitment or whether such changes will subject us to additional taxes. RISKS RELATED TO REGULATION IF WE BECOME SUBJECT TO INSURANCE STATUTES AND REGULATIONS IN JURISDICTIONS OTHER THAN BERMUDA OR THERE IS A CHANGE TO BERMUDA LAW OR REGULATIONS OR APPLICATION OF BERMUDA LAW OR REGULATIONS, THERE COULD BE A SIGNIFICANT AND NEGATIVE IMPACT ON OUR BUSINESS. Montpelier Re, our wholly owned operating subsidiary, is a registered Bermuda Class 4 insurer. As such, it is subject to regulation and supervision in Bermuda. Bermuda insurance statutes, regulations and policies of the Bermuda Monetary Authority require Montpelier Re to, among other things: - Maintain a minimum level of capital, surplus and liquidity; - Satisfy solvency standards; - Restrict dividends and distributions; - Obtain prior approval of ownership and transfer of shares; - Maintain a principal office and appoint and maintain a principal representative in Bermuda; and - Provide for the performance of certain periodic examinations of Montpelier Re and its financial condition. These statutes and regulations may, in effect, restrict our ability to write reinsurance policies, to distribute funds and to pursue our investment strategy. We do not presently intend that Montpelier Re will be admitted to do business in any jurisdiction in the United States, the United Kingdom or elsewhere (other than Bermuda). However, we cannot assure you that insurance regulators in the United States, the United Kingdom or elsewhere will not review the activities of Montpelier Re or related companies or its agents and claim that Montpelier Re is subject to such jurisdiction's licensing requirements. If any such claim is successful and Montpelier Re must obtain a license, we may be subject to taxation in such jurisdiction. In addition, Montpelier Re is subject to indirect regulatory requirements imposed by jurisdictions that may limit its ability to provide insurance or reinsurance. For 18 example, Montpelier Re's ability to write insurance or reinsurance may be subject, in certain cases, to arrangements satisfactory to applicable regulatory bodies. Proposed legislation and regulations may have the effect of imposing additional requirements upon, or restricting the market for, alien insurers or reinsurers with whom domestic companies place business. Generally, Bermuda insurance statutes and regulations applicable to Montpelier Re are less restrictive than those that would be applicable if it were governed by the laws of any state in the United States. In the past, there have been congressional and other initiatives in the United States regarding proposals to supervise and regulate insurers domiciled outside the United States. If in the future we become subject to any insurance laws of the United States or any state thereof or of any other jurisdiction, we cannot assure you that we would be in compliance with those laws or that coming into compliance with those laws would not have a significant and negative effect on our business. The process of obtaining licenses is very time consuming and costly, and we may not be able to become licensed in a jurisdiction other than Bermuda, should we choose to do so. The modification of the conduct of our business resulting from our becoming licensed in certain jurisdictions could significantly and negatively affect our business. In addition, our inability to comply with insurance statutes and regulations could significantly and adversely affect our business by limiting our ability to conduct business as well as subjecting us to penalties and fines. Because we are incorporated in Bermuda, we are subject to changes of Bermuda law and regulation that may have an adverse impact on our operations, including imposition of tax liability or increased regulatory supervision. In addition, we will be exposed to changes in the political environment in Bermuda. The Bermuda insurance and reinsurance regulatory framework recently has become subject to increased scrutiny in many jurisdictions, including in the United States and in various states within the United States. We cannot predict the future impact on our operations of changes in the laws and regulations to which we are or may become subject. 19 FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus may include forward-looking statements which reflect our current views with respect to future events and financial performance. These statements include forward-looking statements both with respect to us specifically and the insurance sector in general. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that include the words "expect," "intend," "plan," "believe," "project," "anticipate," "will" and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. Important events that could cause the actual results to differ include, but are not necessarily limited to: our short operating history; our dependence on principal employees; the cyclical nature of the reinsurance business; the levels of new and renewal business achieved; the possibility of severe or unanticipated losses from natural or man-made catastrophes; the impact of terrorist activities on us or the economy; our reliance on reinsurance brokers; the impact of currency exchange rates and interest rates on our investment results; competition in the reinsurance industry; and rating agency policies and practices. In addition, due in part to these assumptions and factors, any projections of growth in our gross premiums written, net premiums earned, revenues or other similar financial information would not necessarily result in commensurate levels of underwriting and operating profits. The Company's forward-looking statements concerning market fundamentals could be affected by changes in demand, pricing and policy term trends and competition. These and other events that could cause actual results to differ are discussed in detail in the "Risk Factors" section. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statements you read in this prospectus reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified in this prospectus, which could cause actual results to differ, before making an investment decision. 20 USE OF PROCEEDS We estimate the net proceeds from this offering, after deducting the underwriting discounts and commissions and our estimated offering expenses, will be approximately $ million. We intend to use a portion of the net proceeds from this offering to repay $150 million in aggregate principal amount outstanding under our existing term loan facility and to use the remaining proceeds for general corporate purposes. This debt is due in December 2004 and currently bears interest at LIBOR plus an applicable margin which is effectively hedged into a fixed rate of 2.38% through an interest rate swap agreement which will terminate upon repayment of the debt. Following this offering, we also intend to terminate our existing revolving credit facility. There are currently no amounts outstanding under this facility. 21 CAPITALIZATION The following table sets forth our combined capitalization on an actual basis as of June 30, 2003, and as adjusted to give effect to the sale of the notes offered by us in this offering and the application of the proceeds to repay the term loan facility. You should read this table in conjunction with "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes that are included elsewhere in this prospectus.

AS AT JUNE 30, 2003 ------------------------ ACTUAL AS ADJUSTED ---------- ----------- (IN THOUSANDS) LONG-TERM DEBT: % Senior Notes due 2013................................. $ 0 $ 250,000 Bank debt(1).............................................. 150,000 0 ---------- ---------- Total long-term debt...................................... $ 150,000 $ 250,000 SHAREHOLDERS' EQUITY: Common shares............................................. $ 106 $ 106 Additional paid-in capital................................ 1,128,391 1,128,391 Accumulated other comprehensive income.................... 38,925 38,925 Retained earnings......................................... 306,747 306,747 ---------- ---------- Total shareholders' equity................................ 1,474,169 1,474,169 ---------- ---------- TOTAL CAPITALIZATION........................................ $1,624,169 $1,724,169 ========== ==========

--------------- (1) We are a party to a $150 million term loan facility with Bank of America, N.A. and a syndicate of commercial banks. As at June 30, 2003, we had borrowed all $150 million under this facility. We intend to use the proceeds from this offering to repay all outstanding amounts under, and terminate, this term loan facility. 22 SELECTED FINANCIAL DATA The following table sets forth our summary historical financial information for the periods ended and as of the dates indicated. Montpelier Re commenced operations on December 16, 2001. The summary income statement data for the period from inception (November 14, 2001) through December 31, 2001 and for the year ended December 31, 2002 and the summary balance sheet data as at December 31, 2002 are derived from our audited financial statements included elsewhere in this prospectus, which have been prepared in accordance with U.S. GAAP and have been audited by PricewaterhouseCoopers (Bermuda), our independent auditors. The summary income statement data for the six months ended June 30, 2003 and June 30, 2002 and the summary balance sheet data as at June 30, 2003 are derived from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on the same basis as our audited financial statements and, in our opinion, include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of our results of operations and financial position for these periods. These historical results are not necessarily indicative of results to be expected from any future period, and the results presented below are not necessarily indicative of our full year performance. You should read the following summary financial information along with the information contained in this prospectus, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes included elsewhere in this prospectus.

SIX MONTHS ENDED PERIODS ENDED JUNE 30, DECEMBER 31, --------------------------------- --------------------------------- 2003 2002 2002 2001(1) --------------- --------------- --------------- --------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS AND PERCENTAGES) (UNAUDITED) SUMMARY INCOME STATEMENT DATA: Gross premiums written................. $ 560,645 $ 340,018 $ 607,688 $ 150 Reinsurance premiums ceded(2).......... (41,655) (18,848) (41,779) -- ----------- ----------- ----------- ----------- Net premiums written................... 518,990 321,170 565,909 150 Change in net unearned premiums........ (159,944) (203,125) (235,983) (142) ----------- ----------- ----------- ----------- Net premiums earned.................... 359,046 118,045 $ 329,926 $ 8 Net investment income.................. 23,399 18,621 39,748 1,139 Net realized gains on investments...... 9,331 1,497 7,716 -- Net foreign exchange gains............. (180) 334 1,681 -- Loss and loss adjustment expenses...... (77,847) (53,342) (133,310) -- Acquisition costs...................... (74,849) (21,174) (62,926) (1) General and administrative expenses.... (20,814) (10,113) (26,278) (1,207) Interest on long-term debt............. (1,767) (2,113) (4,460) (236) Fair value of warrants issued.......... -- -- -- (61,321) ----------- ----------- ----------- ----------- Income (loss) before taxes............... 216,319 51,755 $ 152,097 $ (61,618) ----------- ----------- ----------- ----------- Net income (loss)........................ $ 216,320 $ 51,755 $ 152,045 $ (61,618) =========== =========== =========== =========== Basic earnings (loss) per share.......... $ 3.41 $ 0.99 $ 2.76 $ (1.18) Diluted earnings (loss) per share........ $ 3.24 $ 0.99 $ 2.74 $ (1.18) Basic weighted average common shares outstanding............................ 63,392,600 52,440,000 55,178,150 52,440,000 Diluted weighted average common shares outstanding............................ 66,810,881 52,447,200 55,457,141 52,440,000 SELECTED RATIOS (BASED ON U.S. GAAP INCOME STATEMENT DATA): Loss ratio(3)............................ 21.7% 45.2% 40.4% n/a Acquisition costs ratio(4)............... 20.8 17.9 19.1 n/a General and administrative expense ratio(5)............................... 5.8 8.6 7.9 n/a ----------- ----------- ----------- ----------- Combined ratio(6)........................ 48.3% 71.7% 67.4% n/a ----------- ----------- ----------- -----------

23

AS AT AS AT JUNE 30, 2003 DECEMBER 31, 2002 ------------- ----------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS AND PERCENTAGES) (UNAUDITED) SUMMARY BALANCE SHEET DATA: ASSETS Fixed maturities, equities, cash and cash equivalents..... $1,906,502 $1,581,461 Reinsurance premiums receivable........................... 331,673 147,208 Other assets.............................................. 144,411 105,249 ---------- ---------- Total assets................................................ $2,382,586 $1,833,918 ========== ========== LIABILITIES Loss and loss adjustment expense reserves................. $ 203,534 $ 146,115 Unearned premium.......................................... 435,604 241,000 Long-term debt............................................ 150,000 150,000 Other liabilities......................................... 119,279 44,268 ---------- ---------- Total liabilities........................................... $ 908,417 $ 581,383 ========== ========== Total shareholders' equity.................................. $1,474,169 $1,252,535 ========== ========== Total liabilities and shareholders' equity.................. $2,382,586 $1,833,918 ========== ========== PER SHARE DATA (BASED ON U.S. GAAP BALANCE SHEET DATA) Book value per share (7).................................... $ 23.25 $ 19.76 Fully converted book value per share (8).................... $ 22.42 $ 19.39

--------------- (1) The financial information for this period reflects our results from November 14, 2001, the date of incorporation, to December 31, 2001. (2) The syndicates with which we have qualifying quota share contracts have purchased retrocessional cover, which inures to our benefit. In 2003 we have also purchased retrocessional protection on our own account for our own direct insurance and facultative reinsurance programs and the property reinsurance programs, excluding most Other Specialty lines. (3) The loss ratio is calculated by dividing loss and loss adjustment expenses by net premiums earned. (4) The acquisition costs ratio is calculated by dividing acquisition costs by net premiums earned. (5) The general and administrative expense ratio is calculated by dividing general and administrative expenses by net premiums earned. (6) The combined ratio is the sum of the loss ratio, the acquisition costs ratio and the general and administrative expense ratio. (7) Book value per share is based on total shareholders' equity divided by basic shares outstanding of 63,392,600 as at June 30, 2003 and December 31, 2002. (8) Fully converted book value per share is a non-GAAP measure calculated based on total shareholders' equity plus the assumed proceeds from the exercise of dilutive options and warrants in the amount of $168.1 million, divided by 73,261,760 fully converted shares. We believe that this is the best single measure of the return made by our shareholders as it takes into account the effect of all dilutive securities. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Montpelier Re Holdings Ltd. and Montpelier Re were formed on November 14, 2001, and Montpelier Re commenced operations on December 16, 2001. Neither company had any prior operating history. Accordingly, there are limited meaningful comparisons between 2002 and 2001. The following is a discussion and analysis of our results of operations for the three and six months ended June 30, 2003 and 2002 and for the year ended December 31, 2002 and, if relevant, for the period from November 14, 2001, the date of incorporation, to December 31, 2001. The following also includes a discussion of our financial condition as at June 30, 2003. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes thereto for the three and six months ended June 30, 2003 and 2002 and the audited combined financial statements and related notes thereto for the periods ended December 31, 2002 and 2001 included in this prospectus. This prospectus contains forward-looking statements that are not historical facts, including statements about the Company's beliefs and expectations. These statements are based upon current plans, estimates and projections. Our actual results may differ materially from those projected in these forward-looking statements as a result of various factors and therefore undue reliance should not be placed on them. See "Forward-Looking Statements" and "Risk Factors" contained elsewhere in this prospectus. We derive our revenues primarily from premiums from our insurance and reinsurance contracts and, to a lesser extent, income from our investment portfolio. Premiums are a function of the number and type of contracts we write, as well as prevailing market prices. Renewal dates for reinsurance business tends to be concentrated at the beginning of quarters, and the timing of premium written varies by line of business. Most property catastrophe business is written in the January 1, April 1 and July 1 renewal periods, while the property specialty and other specialty lines are written throughout the year. Written premiums are generally lower during the fourth quarter of the year as compared to other quarters. Gross premiums written for pro-rata contracts, including QQS programs, are initially booked as estimated and are adjusted as actual results are reported by the cedents during the period. Earned premiums do not necessarily follow the written premium pattern as certain written premiums are earned ratably over the contract term, which ordinarily is twelve months, although many pro-rata contracts are written on a risks attaching basis and are generally earned over a 24 month period, consistent with industry practice. Earned premiums are affected by our growing book of business; as written premium levels increase, earned premium levels will correspondingly increase over the earning period. Premiums are generally due in installments. The following are the main categories of gross premiums written: Property Specialty -- Contracts in this category include risk excess of loss, property pro-rata and direct insurance and facultative reinsurance business. Risk excess of loss reinsurance protects insurance companies on their primary insurance risks and facultative reinsurance transactions on a "single risk" basis. Coverage is usually triggered by a large loss sustained by an individual risk rather than by smaller losses which fall below the specified retention of the reinsurance contract. We also write direct insurance and facultative reinsurance coverage on commercial property risks where we assume all or part of a risk under a single insurance contract. We generally write such coverage on an excess of loss basis. We also write property pro-rata reinsurance contracts which are comprised of property risk programs written on a proportional basis rather than on an excess of loss basis. Property Catastrophe -- These contracts are typically "all risk" in nature, providing protection against losses from earthquakes and hurricanes, as well as other natural and man-made catastrophes such as floods, tornadoes, fires and storms. The predominant exposures covered are losses stemming from property damage and business interruption coverage resulting from a covered peril. Certain risks, such as war, nuclear contamination and terrorism, are generally excluded from these contracts. Property catastrophe reinsurance is 25 written on an excess of loss basis, which provides coverage to primary insurance companies when aggregate claims and claims expenses from a single occurrence from a covered peril exceed a certain amount specified in a particular contract. To a lesser extent, we also write retrocessional coverage contracts, which provide reinsurance protection to other reinsurers, also called retrocedents. Coverage generally provides catastrophe protection for the property portfolios of other reinsurers. Retrocessional contracts typically carry a higher degree of volatility than reinsurance contracts as they protect against concentrations of exposures written by retrocedents, which in turn may experience an aggregation of losses from a single catastrophic event. Qualifying Quota Share -- This category represents whole account quota share reinsurance to select Lloyd's syndicates. Under QQS contracts, we assume a specified portion of the risk on a specified coverage in exchange for an equal proportion of the premiums. Gross premiums written related to QQS arrangements have been recorded gross of original commissions to the syndicates. This accounting treatment, when compared to recording such premiums net of original commissions, has the effect of increasing gross premiums written and increasing acquisition costs by an equal amount. Other Specialty -- Reinsurance contracts of aviation liability, aviation war, marine, personal accident catastrophe, workers' compensation, terrorism, casualty and other reinsurance business are included in this category. Marine and aviation contracts are primarily written on a retrocessional excess of loss basis. Since the classes of business we underwrite have large aggregate exposures to natural and man-made disasters, we expect that our claims experience will predominantly be the result of relatively few events of significant severity. The occurrence of claims from catastrophic events is likely to result in substantial volatility in, and could have a material adverse effect on, our financial condition and results of operations and our ability to write new business. This volatility will affect our results in the period that the loss occurs because accounting principles do not permit reinsurers to reserve for such catastrophic events until they occur. Catastrophic events of significant magnitude have historically been relatively infrequent, although we believe the property catastrophe reinsurance market has experienced a high level of worldwide catastrophic losses in terms of both frequency and severity from 1987 to the present as compared to prior years. We also expect that increases in the values and concentrations of insured property will increase the severity of such occurrences in the future. We seek to reflect these trends as we price our reinsurance. In October 2002, we completed an initial public offering of 10,952,600 common shares. Our common shares began trading on the New York Stock Exchange on October 10, 2002. The offering raised approximately $201.2 million in net proceeds, substantially all of which was contributed to our principal operating subsidiary, Montpelier Re, for use in its underwriting operations. Income from our investment portfolio is primarily comprised of interest on fixed maturity investments net of investment expenses, and to a lesser extent from realized gains and losses on the sale of investments. Our expenses consist primarily of three types: loss and loss adjustment expenses, acquisition costs and general and administrative expenses. In the period ended December 31, 2001, our first period of operations, we also incurred nonrecurring organizational expenses and an expense associated with the issuance of warrants to our founders. Loss and loss adjustment expenses are a function of the amount and type of insurance and reinsurance contracts we write and of the loss experience of the underlying risks. We estimate loss and loss adjustment expenses based on an actuarial analysis of the estimated losses we expect to be reported on contracts written. Under U.S. GAAP, we reserve for catastrophic losses as soon as a loss event is known to have occurred. The ultimate loss and loss adjustment expenses will depend on the actual costs to settle claims. We will increase or decrease our initial loss estimates as actual claims are reported and settled. Our ability to estimate loss and loss adjustment expenses accurately at the time of pricing our contracts will be a critical factor in determining our profitability. Acquisition costs consist principally of brokerage expenses and commissions that represent a percentage of the premiums on reinsurance contracts written, and vary depending upon the amount and types of contracts 26 written, and to a lesser extent ceding commissions paid to ceding insurers and excise taxes. Under certain contracts we may also pay profit commission to cedents. This will vary depending on the loss experience on the contract. General and administrative expenses consist primarily of salaries, benefits, professional fees and related costs, including costs associated with awards under our bonus plan, performance unit plan and our share option plan. Other than bonuses and performance units, expenses are primarily fixed in nature and do not vary with the amount of premiums written or losses incurred. At the discretion of the Compensation and Nominating Committee of the Board of Directors, the Company has awarded, and will in the future award, performance units to executive officers and certain other key employees. The ultimate value of these performance units, which vest at the end of three-year performance periods, is dependent upon the Company's achievement of specified performance targets over the course of the overlapping three-year periods and the market value of the Company's shares at the date of redemption. Performance units are payable in cash, common stock or a combination of both. The liability is expensed over the vesting period of the performance units granted. The liability is recalculated as the relevant financial results and share price of the Company evolve. Any adjustments are reflected in the income statement in the period in which they are determined. As part of our formation, we granted 2,040,000 share options to our President and Chief Executive Officer, Anthony Taylor. In September 2002, 510,000 additional options for common shares were granted to other senior executives. From inception, we have adopted FAS 123 "Accounting for Stock-Based Compensation," which recommends the recognition of compensation expense for the fair value of stock compensation awards on the date of grant. The compensation expense is recognized over the vesting period of each grant, with a corresponding recognition of the equity expected to be issued in Additional paid-in capital. Our fixed maturity investments are classified as available for sale under U.S. GAAP and are carried at fair value based on quoted market prices. Unrealized gains and losses on these investments are included in accumulated other comprehensive income as a separate component of shareholders' equity. If management has determined that an investment has sustained an impairment in value that is determined to be other than temporary, the unrealized loss will be charged to income in the period it is determined. Currently, we have an equity investment in Aspen Insurance Holdings Limited ("Aspen"), the unquoted Bermuda-based holding company of Aspen Insurance UK Limited ("Aspen Re"). Under U.S. GAAP, such unquoted investments are carried at estimated fair value. Unrealized gains and losses on these investments are also included in accumulated other comprehensive income as a separate component of shareholders' equity. RESULTS OF OPERATIONS Some comparisons between the three and six months ended June 30, 2003, and the same periods in 2002 may not be meaningful as we only commenced operations on December 16, 2001, and the three months ended June 30, 2002 was only our second complete quarter of operations. We did not have our full complement of underwriters in place until the end of the second quarter of 2002 and, therefore, we were unable to fully participate in renewal business for the first six months of 2002. FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002 The $79.4 million increase in net income during the three months ended June 30, 2003 compared to the same period in 2002 was primarily the result of the following factors: - An increase in net premiums earned of $92.9 million, due to the significant growth in premiums written of $57.7 million, as discussed below, combined with the continued earning of our premiums written during 2002; and - The relatively low levels of catastrophe/large loss frequency during the three months ended June 30, 2003. 27 The following table summarizes our financial results for the periods indicated ($ in millions):

THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, 2003 JUNE 30, 2002 ------------- ------------- Net premiums earned........................................ $174.3 $ 81.4 Net investment income and net foreign exchange gains (losses)................................................. 10.2 11.3 Net realized gains on fixed maturity investments........... 4.6 1.0 Loss and loss adjustment expenses.......................... (30.1) (39.0) Acquisition costs.......................................... (33.8) (14.7) General and administrative expenses........................ (11.9) (5.8) Interest on long-term debt................................. (0.8) (1.1) ------ ------ Net income................................................. $112.5 $ 33.1 Basic earnings per common share............................ $ 1.77 $ 0.63 ------ ------ Diluted earnings per common share.......................... $ 1.66 $ 0.63 ====== ======

Gross Premiums Written Details of gross premiums written by line of business and by geographic area of risks insured are provided below ($ in millions): GROSS PREMIUMS WRITTEN BY LINE

THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, 2003 JUNE 30, 2002 -------------- -------------- Property Specialty................................... $ 71.5 36.9% $ 51.2 37.6% Property Catastrophe................................. 89.5 46.1 29.6 21.7 Qualifying Quota Share............................... 8.6 4.4 37.7 27.7 Other Specialty...................................... 24.4 12.6 17.8 13.0 ------ ----- ------ ----- Total................................................ $194.0 100.0% $136.3 100.0% ====== ===== ====== =====

GROSS PREMIUMS WRITTEN BY GEOGRAPHIC AREA OF RISKS INSURED

THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, 2003 JUNE 30, 2002 -------------- -------------- USA and Canada....................................... $107.1 55.2% $ 35.2 25.8% Japan................................................ 26.1 13.4 13.5 9.9 Western Europe, excluding the United Kingdom and Ireland............................................ 21.6 11.1 1.5 1.1 Worldwide(1)......................................... 15.1 7.8 83.6 61.3 Worldwide, excluding USA and Canada(2)............... 8.3 4.3 0.3 0.2 Others (2.0% or less)................................ 15.8 8.2 2.2 1.7 ------ ----- ------ ----- Total................................................ $194.0 100.0% $136.3 100.0% ====== ===== ====== =====

--------------- (1) "Worldwide" comprises insurance and reinsurance contracts that insure or reinsure risks on a worldwide basis. (2) "Worldwide, excluding USA and Canada" comprises insurance and reinsurance contracts that insure or reinsure risks on a worldwide basis but specifically exclude the USA and Canada. 28 The Qualifying Quota Share contracts and other amounts of other lines of business are worldwide in nature, with the majority of business related to North America and Europe. Overall, the increase in gross premiums written during the quarter ended June 30, 2003, as compared to the same period in 2002 is primarily due to increased market penetration resulting from having our full underwriting team in place, combined with our ability to capitalize on market opportunities because of our enhanced market reputation resulting from the completion of our first year of operations. We continued to experience stable premium rate levels across the major classes of business that we specialize in during the quarter. In addition, there has been a substantial increase in our written line sizes and in the average signing percentages during the 2003 quarter. The proportion of property catastrophe gross premiums written as a percentage of total gross premiums written continues to be higher during the three months ended June 30, 2003 than we expect it to be for the remainder of the year because proportionally higher volumes of property catastrophe business are traditionally written in the first and second quarters, as compared to other quarters in the fiscal year. Other lines of business are written throughout the year, with the least amount of premiums being written during the fourth quarter. The premium levels on a dollar basis for QQS business in 2003 are expected to be less than in 2002, and they will be a lower percentage of our total gross premiums written, although ultimate premiums written will depend on the volume of premiums actually written by the syndicates. During the quarter ended June 30, 2003 we received new information which indicated a decrease in the estimated premiums for the 2002 and 2003 underwriting years compared to the estimated premiums based on the information available at March 31, 2003. We expect to write a larger amount of casualty reinsurance in 2004 versus 2003 due to improving terms and conditions of casualty reinsurance contracts. In 2004, we may also write professional indemnity casualty reinsurance, predominantly medical malpractice and errors and omissions business, on an excess of loss basis, which will be included in the Other Specialty category. For the three months ended June 30, 2003, $18.9 million was recorded in gross premiums written under our reinsurance arrangements with Aspen Re, a company in which we have a 7% interest on an undiluted basis and a 6% interest on a diluted basis. These arrangements cover mainly property and casualty risks. We recorded an insignificant amount of reinstatement premiums during the three months ended June 30, 2003 and 2002. The lack of reinstatement premiums continues to be due to the minimal amount of reported losses during these periods. In the remainder of 2003, we would expect to record greater levels of reinstatement premiums as additional losses are notified, consistent with our loss estimates discussed below. Reinsurance Premiums Ceded Reinsurance premiums ceded for the three months ended June 30, 2003 and 2002 were $7.4 million and $4.5 million, respectively. Reinsurance purchased by the QQS syndicates with respect to the contracts in which we participate accounted for ($11.5) million and $4.5 million, respectively, of the reinsurance premiums ceded during the three months ended June 30, 2003 and 2002. The negative balance during the three months ended June 30, 2003 is the result of the receipt of new information which indicated that the expected premiums will be lower than previous forecasts. This has correspondingly reduced our inuring reinsurance premiums related to these programs. Based on additional information received from the ceding companies, we also reduced our estimated recovery ratio on reinsurance purchased by the QQS syndicates. As part of our reinsurance arrangements with Aspen Re we also recorded $5.5 million of reinsurance premiums ceded during the three months ended June 30, 2003. The remainder of the reinsurance premiums ceded during the quarter ended June 30, 2003 of $13.4 million relates to the purchase of retrocessional protection on our own account for our direct insurance and facultative reinsurance programs and our property reinsurance programs, excluding most Other Specialty lines. We did not purchase retrocessional protection on our own account during 2002; and the reinsurance premiums ceded for the whole of 2002 were attributable solely to the reinsurance purchased by the QQS syndicates with respect to the contracts in which we participate. We may