For several years prior to 2000, the property and casualty market faced increasing excess capital capacity, producing year-over-year rate decreases and coverage increases. Beginning in 2001, adverse reserve development primarily related to asbestos liability, under-reserving, unfavorable investment returns and losses from the World Trade Center tragedy significantly reduced the industry’s capital base. A number of traditional insurance and reinsurance competitors exited certain lines of business. In addition, the low interest rate environment of recent years reduced the investment returns of insurers and reinsurers, underscoring the importance of generating underwriting profits.

The events of September 11, 2001 altered the insurance and reinsurance market landscape dramatically. The losses represented one of the largest insurance losses in history, with insurance payments for losses estimated by A.M. Best ranging from $36 billion to $54 billion. Prior to the World Trade Center tragedy, the largest insured catastrophic event was Hurricane Andrew, with approximately $20 billion of losses.

Over the past 15 years, Bermuda has become one of the world’s leading insurance and reinsurance markets. Bermuda’s regulatory and tax environment, which minimizes governmental involvement for those companies that meet specified solvency and liquidity requirements, creates an attractive platform for insurance and reinsurance companies and permits these companies to commence operations quickly and to expand as business warrants. Bermuda’s position in the insurance and reinsurance markets solidified after the events of September 11, 2001, as approximately $17 billion of new capital was invested in the insurance and reinsurance sector in Bermuda through December 31, 2004, representing approximately 60% of the new capital raised by insurance and reinsurance companies globally during that time period.

The Company’s property segment includes the insurance of physical property and business interruption coverage for commercial property and energy-related risks. The Company writes solely commercial coverages and focus on the insurance of primary risk layers.

The Company’s direct casualty underwriters provide a variety of specialty insurance casualty products to large and complex organizations around the world. The Company’s casualty segment specializes in insurance products providing coverage for general and product liability, professional liability and healthcare liability risks. The Company focuses primarily on insurance of excess layers, where it insures the second and/or subsequent layers of a policy above the primary layer. The Company limits its maximum net casualty exposure to approximately $25 to $29 million per individual risk.

The Company’s reinsurance segment includes the reinsurance of property, general casualty, professional lines, specialty lines and catastrophe coverages written by other insurance companies. The Company presently writes reinsurance on both a treaty and a facultative basis. Pricing in the reinsurance market tends to be more cyclical than in the direct insurance market.

The Company operates in three geographic markets: Bermuda, Europe and the United States. The Company’s Bermuda insurance operations focus primarily on underwriting risks for U.S. domiciled Fortune 1000 clients and other large clients with complex insurance needs. The Company’s Bermuda reinsurance operations focus on underwriting treaty and facultative risks on an international basis. The Company’s European operations focus predominantly on direct property and casualty insurance for large European and international accounts. The Company’s U.S. operations focus on the middle-market and non-Fortune 1000 companies. The Company generally operates in the excess and surplus lines segment of the U.S. market.

Net investment income earned during the year ended December 31, 2005 was $178.6 million, compared to $129.0 million during the year ended December 31, 2004.

Net losses paid have increased $227.6 million, or 112.4%, to $430.1 million for the year ended December 31, 2005 primarily due to property losses paid on the catastrophic windstorms.

Acquisition costs were $143.4 million for the year ended December 31, 2005 as compared to $170.9 million for the year ended December 31, 2004.

Net loss for the year ended December 31, 2005 was $159.8 million compared to net income of $197.2 million for the year ended December 31, 2004.